<PAGE>
For Total Return
DELAWARE GROUP
Social Awareness Fund
(Various photos demonstrating service and guidance,
professional management and goals)
service and guidance
professional management
1997
Annual
Report
goals
Formerly Quantum Fund
<PAGE>
A TRADITION OF SOUND INVESTING
commitment
A Commitment
To Our Investors
(photo of keyboard)
(photo of illustration from Total Return Brochure)
Delaware Group's investment tradition dates back to 1929. We have a long and
distinguished history of helping individuals and institutions - including
some of America's largest pension funds - reach their financial goals.
Headquartered in Philadelphia, a block from the nation's oldest stock
exchange, Delaware Group's first mutual fund was established in 1938.
Delaware International Advisers Ltd., our international affiliate, was
established in 1990 and is headquartered in London.
Delaware Group offers a full range of mutual funds. We also manage
variable annuity investments, unit investment trusts and closed-end funds,
and offer retirement plan services for individuals and businesses.
Delaware manages more than $40 billion in mutual fund assets and
institutional advisory accounts for more than half-a-million investors. We're
part of a global financial service and investment management business owned
by Lincoln National Corporation, whose subsidiaries manage more than $120
billion in assets.
total
return
Social Awareness Fund's Objective
Seeks long-term capital appreciation primarily from mid-size to large
companies that meet certain socially responsible investment criteria.
About Our Subadviser
Vantage Global Advisors, Inc., founded in 1979, is a technology-driven,
full-service investment management firm that uses proprietary computer
software to systematically identify investment opportunities. Based in New
York and an affiliate of Delaware, Vantage Global Advisors manages more than
$7 billion in assets for individual and institutional investors. Mr. Wittman
joined Vantage Global Advisors in 1991 and holds bachelor's and master's
degrees in business administration from Indiana University. His 15 years of
investment experience include serving as a managing director at TSA Capital
Management and Vice President and Manager of Quantitative Analysis at Mellon
Bank.
T. Scott Wittman
President and
Chief Investment Officer
Vantage Global
Advisors, Inc.
(photo of T. Scott Wittman)
<PAGE>
December 19, 1997
for total return 1
Dear Shareholder:
We are pleased to present the inaugural annual report for Delaware Group's
Social Awareness Fund. Known as Quantum Fund when it began operating February
24, 1997, Delaware's Board of Directors changed the Fund's name to Social
Awareness Fund effective January 28, 1998, to more closely reflect its strategy
of investing in stocks of domestic companies that meet certain socially
responsible criteria.
The name Quantum was intended to highlight the Fund's use of
proprietary computer software that objectively selects individual stocks from
among those that meet these social screens. Your Fund continues to rely on
this quantitative approach.
Since inception through November 30, 1997, Social Awareness Fund
provided an attractive total return of +21.53% (based on A Class shares at net
asset value) as shown below and on page 6.
The Fund's results outpaced our benchmark, the unmanaged Standard &
Poor's 500 Index, and were competitive with the Domini Social 400 Index, an
unmanaged measure of socially responsible U.S. corporations, as shown below.
During 1997, a major portion of the Domini index was invested in
large capitalization technology stocks, whose performance was both strong and
volatile. We believe it is more prudent for Social Awareness Fund to remain
broadly diversified to reduce risk. For a comparison of the Fund's weightings
and those of the Domini index, see page 5.
As the Fund commenced operations, the stocks of large U.S. companies
were reaching historically high price levels. Despite this trend, your Fund's
subadviser -
Cumulative Total Return
- -------------------------------------------------------------------------------
February 24, 1997, to November 30, 1997
- -------------------------------------------------------------------------------
Social Awareness Fund A Class +21.53%
Standard & Poor's 500 Index +19.55%
Domini Social 400 Index +21.63%
Lipper Growth Fund Average +18.76%
Lipper Ranking (for A Class shares) 102nd out of 852 funds
- -------------------------------------------------------------------------------
The Domini Social 400 Index is an unmanaged benchmark of 400 U.S.
corporations that pass multiple, broad-based social screens set by Kinder,
Lyndenberg, Domini & Co., an investment research firm in Cambridge, MA. Fund
and Lipper performance quoted above is based on net asset value without
effect of sales charges. SEC-mandated performance and fee waiver information
for all share classes can be found on page 6. B and C Class shares were each
ranked 138th out of 852 funds for the Fund's lifetime. The S&P 500 Index is
an unmanaged composite of large company stocks. Past performance does not
guarantee future results. Performance for this limited time may not be
representative of longer term results.
<PAGE>
for total return 2
Vantage Global Advisors, found companies with attractive earnings growth
rates selling at reasonable prices. You can learn more about Vantage at its
World Wide Web site: vgainvest.com.
The Fund searches for large and mid-cap stocks with both growth and
value characteristics and uses a social responsibility screen that excludes
companies:
discipline
* making alcoholic beverages, tobacco products, or involved with the
gambling industry;
* contracting with the military;
* involved with nuclear energy; and,
* polluting the environment.
With such a mandate, your Fund's portfolio manager, T. Scott Wittman, uses
computer-driven quantitative analysis to determine which stocks have attractive
earnings growth potential and reasonable prices.
We employed a value-oriented strategy which buffered portfolio
returns as the U.S. stock market suffered two brief corrections in 1997 - one
as a result of the Federal Reserve Board modestly raising short-term interest
rates in the spring, and the other as a result of financial uncertainty in
Asia.
The Fund benefited from good stock selection as the fundamental
strength of the U.S. economy allowed the market to shrug off temporary setbacks
and forge ahead.
On the pages that follow, Mr. Wittman explains in detail how the Fund
uses quantitative and fundamental analysis in tandem with a socially
sensitive stock selection process.
While the primary goal of many long-term investment plans is to build
wealth over time, at Delaware we believe we can do so while advancing the cause
of social responsibility in both our operations and for our investors. We thank
you for being among Social Awareness Fund's charter shareholders.
Sincerely,
/s/ Wayne A. Stork
- -------------------
Wayne A. Stork
Chairman
/s/ Jeffrey J. Nick
- --------------------------------------
Jeffrey J. Nick
President and Chief Executive Officer
<TABLE>
<CAPTION>
PORTFOLIO HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------
November 30, 1997
Social Awareness Fund Domini Social 400 Index S&P 500 Index
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Median Market Capitalization $4.2 billion $3.1 billion $6.7 billion
Number of Stocks 105 400 500
Average Stock
Price-to-Earnings Ratio* 19.5x 24.2x 20.7x
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Based on a consensus of analysts' earnings estimates for 1998, as reported
by First Call.
<PAGE>
for total return 3
Portfolio Manager's Review
Investment Strategy
Social Awareness Fund's strategy is akin to a sculptor starting with an
unfinished block of marble and whittling it down to a polished statue.
We begin by applying a social screen to a universe of approximately
1,200 mid and large capitalization U.S. companies. Our screens tend to
address the concerns of individuals and institutions dealing with issues of
corporate responsibility.
During fiscal 1997, approximately 800 companies satisfied our social
screens. From that, we then used quantitative computer software, developed
specifically by Vantage Global Advisors, to identify undervalued companies
with above-average growth prospects. We use fundamental criteria such as low
price-to-earnings ratios, high dividend yields, and high earnings expectations.
This analysis, along with the social responsibility screens, is the
force that drives our buy and sell decisions.
Strategic Positioning: Answering the Call of Opportunity
Social Awareness Fund began operations when the U.S. stock market was
experiencing what Federal Reserve Board chairman Alan Greenspan described as
"irrational exuberance," or emotional speculation in stocks of the largest
U.S. companies. This started to change in the third quarter of 1997, as the
prices of some large cap stocks fell to more accurately reflect their
fundamental values.
Quantitative Investing
- -------------------------------------------------------------------------------
Harnessing the Power of Technology
Universe of 1,200 mid and large
capitalization U.S. companies
800 stocks that meet our criteria
as being socially responsible
Computer-driven quantitative
fundamental analysis--
Ranking of stocks based on both
growth and value characteristics
: 105 stocks selected for portfolio*
*As of November 30, 1997
<PAGE>
for total return 4
(photo of keyboard)
A sector that performed particularly well for the Fund in fiscal 1997
was telecommunications. As of the Fund's year end, five of our top 10 holdings
were telephone operating companies.
strategy
One stock that we tracked throughout the year and purchased during
the third quarter was AT&T. In the spring of 1997, many market analysts grew
pessimistic about the company's prospects because of past disappointments.
AT&T's stock had been a performance laggard since the breakup of the Bell
system in 1984.
However, this high-yielding stock met our computer's objective value
investment and social criteria. Its operations appeared to be undergoing
fundamental positive change, highlighted by the replacement of its chief
executive. As of November 30, it was your Fund's largest holding.
One telecommunications company we were forced to drop from our
portfolio because it no longer met our social screen was Bell Atlantic Corp.,
the East Coast regional telephone company. During the period, Bell Atlantic
contracted with the U.S. military.
As of year end, we held more stocks in the finance and insurance
sectors than any other industry. This served your Fund well. In our opinion,
these industries offered more innovative products and services to customers,
achieving increased economies of scale through mergers, acquisitions and cost
cutting. Travelers Group, whose brokerage subsidiary Smith Barney merged with
Salomon Inc. during fiscal 1997, was a typical example of one of your Fund's
holdings.
Generally, we were underweighted in technology companies compared to
the S&P 500 during our initial year because many stocks did not meet our
investment selection criteria. Some of our holdings such as Microsoft Corp.
and Compaq Computer Corp. did well. It appears an oversupply of computers and
related products is forcing larger computer manufacturers to cut prices and
hampering sales of mid-cap companies.
A technology stock that performed well for us initially but which
dropped sharply in price near year's end was Quantum Corp., a manufacturer of
disk drives. The company's third quarter
<TABLE>
<CAPTION>
Top Ten Fund Holdings
- ---------------------------------------------------------------------------------------------------------------
November 30, 1997
Company Industry Share of Net Assets Price/Earnings Ratio
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AT&T Corp. Telecommunications 2.9% 20.8x
Travelers Group Banking & Finance 2.3% 18.5x
Schering-Plough Corp. Pharmaceuticals 2.1% 32.2x
Chase Manhattan Corp. Banking and Finance 1.9% 13.1x
U.S. West Communications Telecommunications 1.8% 17.5x
Ameritech Telecommunications 1.7% 18.1x
SBC Communications Telecommunications 1.7% 19.9x
Mellon Bank Banking and Finance 1.7% 19.6x
Bell South Telecommunications 1.7% 19.4x
Compaq Computer Corp. Personal Computers 1.7% 23.4x
- ---------------------------------------------------------------------------------------------------------------
Total 19.5%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
P/E ratios based on 1998 earnings estimates, as reported by First Call.
<PAGE>
for total return 5
earnings did not meet expectations, and its share price suffered as a result.
Outlook
In 1998, it appears unlikely that many technology companies will meet the
fundamental criteria of your Fund's quantitative investment discipline since
regional economic weakness may affect these companies' earnings. While some
U.S. companies profited from exports to the Pacific Rim, demand could drop as
countries grapple with currency devaluation and recession. Earnings of
technology companies could also be affected by weaker U.S. demand.
In our view, the U.S. banking, financial and media sectors appear
fundamentally sound. Our computer analysis suggests financial services
companies are well-positioned relative to the rest of the market. It appears
the industry is enjoying increased economies of scale from cost cutting and
mergers.
Overall, we expect a more volatile U.S. stock market in 1998. Social
Awareness Fund has been positioned with the possibility of greater market
fluctuations in mind. We see potential volatility as a mechanism that may
provide rewarding investment opportunities.
outlook
T. Scott Wittman
Vantage Global Advisors
December 19, 1997
Portfolio Diversification
- -------------------------------------------------------------------------------
November 30, 1997
Social Awareness Fund Domini Social 400 Index
Financials Financials
30.0% 20.5%
Technology Technology
10.4% 19.0%
Telecommunications Retail & Consumer Services
12.7% 15.6%
Retail & Consumer Services Food & Beverages
10.4% 8.8%
Food & Beverages Telecommunications
7.5% 4.0%
Basic Industry & Capital Goods Health Care
8.0% 7.9%
Health Care Utilities
6.7% 7.8%
Energy & Transportation Basic Industry & Capital Goods
4.3% 6.2%
Media Energy & Transportation
4.4% 5.0%
Cash & Other Assets Media
5.6% 3.6%
Miscellaneous
1.6%
<PAGE>
Social Awareness Fund's Lifetime Performance
- -------------------------------------------------------------------------------
Growth of a $10,000 Investment
Total Return--February 24, 1997 through November 30, 1997
Social Awareness Fund A Class
Standard & Poor's 500 Index
Domini Social 400 Index
Social Awareness Fund S & P 500 Domini Social 400
--------------------- --------- -----------------
Feb. 24 '97 $ 9,529 $10,000 $10,000
Feb. '97 9,283 9,850 9,908
Mar. '97 8,800 9,589 9,463
Apr. '97 9,294 10,062 10,187
May '97 9,821 10,680 10,742
June '97 10,112 11,063 11,149
July '97 11,099 11,863 12,140
Aug. '97 10,673 11,200 11,242
Sep. '97 11,446 11,827 11,936
Oct. '97 11,065 11,413 11,615
Nov. '97 11,581 11,955 12,163
Chart assumes $10,000 invested on February 24, 1997, and includes the effect
of the 4.75% sales charge. Performance of other fund classes will vary due to
differing charges and expenses. Performance for this short time period may
not be representative of longer term results.
Social Awareness Fund's Performance
- -------------------------------------------------------------------------------
Cumulative Total Return - February 24, 1997, Through November 30, 1997
Lifetime
- -------------------------------------------------------------------------------
Class A (Est. 2/24/97)
Excluding Sales Charge +21.53%
Including Sales Charge +15.81%
- -------------------------------------------------------------------------------
Class B (Est. 2/24/97)
Excluding Sales Charge +20.94%
Including Sales Charge +16.94%
- -------------------------------------------------------------------------------
Class C (Est. 2/24/97)
Excluding Sales Charge +20.94%
Including Sales Charge +19.94%
All performance includes applicable sales charges as described below. Return
and share value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Past performance does not guarantee
future results. Performance for Class B and C shares excluding sales charge
assumes either the contingent deferred sales charge did not apply or the
investment was not redeemed.
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.
The cumulative total return for the period ended November 30, 1997, for
Social Awareness Fund's Institutional Class, which is available without sales
or asset-based distribution charges only to certain eligible institutional
accounts, was +21.77%.
Voluntary fee caps equal to 1.50% of net assets for A Class shares, 2.20% for
B and C Class shares, and 1.20% for Institutional Class shares were in effect
through November 30, 1997. Returns would have been lower without the caps.
<PAGE>
for total return 7
Financial Statements
Delaware Group Equity Funds II, Inc. -
Quantum Fund+
Statement of Net Assets
November 30, 1997
- -------------------------------------------------------------------------------
Number of Market
Shares Value
------------------------------------------------------
COMMON STOCK - 94.32%
Automobiles & Auto Parts - 0.50%
PACCAR.......................................... 1,600 $ 87,400
---------
87,400
---------
Banking & Finance - 22.64%
Ahmanson (H.F.) & Co............................ 3,770 224,315
AmSouth Bancorporation.......................... 4,252 221,370
Bank of Boston.................................. 1,475 131,459
BankAmerica..................................... 3,525 257,325
Bankers Trust New York.......................... 1,625 192,664
Bear Stearns.................................... 4,095 169,942
Chase Manhattan................................. 3,050 331,306
City National................................... 4,105 133,413
Comerica........................................ 2,630 224,043
Edwards (A.G.).................................. 4,755 161,076
First Chicago NBD............................... 1,260 98,595
First of America Bank........................... 3,927 230,711
First Union..................................... 1,790 87,263
Mellon Bank..................................... 5,220 295,909
NationsBank..................................... 2,820 169,376
Paine Webber Group.............................. 6,505 218,731
Republic New York............................... 1,025 111,469
SLM Holding..................................... 1,215 156,887
T. Rowe Price Associates........................ 2,000 130,250
Travelers Group................................. 7,965 402,233
---------
3,948,337
---------
Buildings & Materials - 1.13%
Masco........................................... 1,000 47,125
Oakwood Homes................................... 4,990 149,700
---------
196,825
---------
Cable, Media & Publishing - 4.42%
Dun & Bradstreet................................ 6,890 192,920
Ennis Business Forms............................ 2,475 24,595
Gannett......................................... 4,160 241,540
New York Times.................................. 2,385 141,609
Omnicom Group................................... 2,280 169,005
---------
769,669
---------
Chemicals - 0.13%
International Flavors & Fragrances.............. 460 22,166
---------
22,166
---------
Computers & Technology - 10.38%
*American Power Conversion....................... 6,820 207,584
*Cadence Design Systems.......................... 7,980 201,495
Compaq Computer................................. 4,677 292,020
Deluxe.......................................... 3,025 106,820
*EMC............................................. 4,500 136,406
HBO............................................. 5,430 243,332
*Microsoft....................................... 2,000 282,937
*PeopleSoft...................................... 1,400 91,613
*Quantum......................................... 4,900 130,003
- ------------------
Top 10 Holdings, representing 19.5% of net assets, are in boldface.
+Effective January 28, 1998, Quantum Fund became known as Social Awareness Fund.
<PAGE>
- -------------------------------------------------------------------------------
Number of Market
Shares Value
------------------------------------------------------
COMMON STOCK (Continued)
Computers & Technology (Continued)
*Storage Technology.............................. 850 $54,878
*Western Digital................................. 3,060 61,774
---------
1,808,862
---------
Consumer Products - 2.76%
Avon Products................................... 2,215 128,055
Clorox.......................................... 2,690 208,811
Maytag.......................................... 2,200 71,088
Premark International........................... 2,800 73,150
---------
481,104
---------
Electronics & Electrical - 1.13%
*Anixter International........................... 4,940 88,611
Xerox........................................... 1,400 108,763
---------
197,374
---------
Energy - 3.56%
*Global Marine................................... 3,925 103,277
Helmerich & Payne............................... 900 68,456
*Oryx Energy..................................... 5,180 139,860
Sun............................................. 3,320 134,252
US Industries................................... 6,800 175,100
---------
620,945
---------
Food & Beverage - 7.47%
Campbell Soup................................... 3,435 192,360
Coca Cola....................................... 3,055 190,937
Flowers Industries.............................. 6,380 127,201
Hershey Foods................................... 2,645 162,337
Hormel Foods.................................... 1,000 30,500
International Multifoods........................ 1,000 26,875
Interstate Bakeries............................. 6,650 229,841
Quaker Oats..................................... 4,490 237,970
Ralston-Purina Group............................ 800 74,400
Universal Foods................................. 720 29,880
---------
1,302,301
---------
Healthcare & Pharmaceuticals - 6.71%
*Agouron Pharmaceuticals......................... 4,050 155,039
*Beverly Enterprises............................. 8,530 145,010
Johnson & Johnson............................... 3,340 210,211
*Lincare Holdings................................ 1,785 100,406
*Phycor.......................................... 8,120 200,462
Schering-Plough................................. 5,710 357,946
---------
1,169,074
---------
Industrial Machinery - 0.94%
Deere & Co...................................... 3,000 164,437
---------
164,437
---------
Insurance - 7.30%
Allstate........................................ 2,665 228,856
CIGNA........................................... 1,145 191,501
Marsh & McLennan................................ 2,930 218,102
<PAGE>
8 for total return
Statement of Net Assets (Continued)
- -------------------------------------------------------------------------------
Number of Market
Shares Value
------------------------------------------------------
COMMON STOCK (Continued)
Insurance (Continued)
Mercury General................................. 2,130 $106,500
Mid Ocean....................................... 1,210 75,020
Old Republic International...................... 2,895 104,401
*Oxford Health Plans............................. 2,075 49,411
Reliance Group Holdings......................... 8,980 114,495
SunAmerica...................................... 4,552 184,356
---------
1,272,642
---------
Leisure, Lodging & Entertainment - 1.08%
*Boston Chicken.................................. 3,800 30,459
Callaway Golf................................... 3,010 95,944
Fleetwood Enterprises........................... 260 9,279
*King World Productions.......................... 960 52,200
---------
187,882
---------
Metals & Mining - 0.21%
Cleveland Cliffs Iron........................... 840 36,225
---------
36,225
---------
Packaging & Containers - 0.66%
*Sealed Air...................................... 2,010 114,319
---------
114,319
---------
Retail - 9.34%
CVS Corporation................................. 2,210 146,689
*CompUSA......................................... 4,800 175,500
Gap............................................. 2,795 150,057
Jostens......................................... 1,650 39,600
Pier 1 Imports.................................. 9,565 214,017
Ross Stores..................................... 5,315 208,614
*Safeway......................................... 2,720 165,240
Sears, Roebuck.................................. 3,405 155,992
TJX............................................. 6,840 235,980
Tiffany......................................... 3,600 137,250
---------
1,628,939
---------
Telecommunications - 12.66%
AT&T............................................ 9,130 510,139
Alltel.......................................... 5,100 202,725
Ameritech....................................... 3,950 304,397
BellSouth....................................... 5,400 295,650
*PairGain Technologies .......................... 4,210 99,593
SBC Communications.............................. 4,075 296,711
*Tellabs......................................... 3,670 190,725
U.S. West Communications Group ................. 6,780 306,371
---------
2,206,311
---------
Textiles, Apparel & Furniture - 0.54%
*Tommy Hilfiger.................................. 2,400 94,200
---------
94,200
---------
Transportation & Shipping - 0.76%
*AMR............................................. 770 93,314
Tidewater....................................... 185 10,372
*UAL............................................. 340 28,900
---------
132,586
---------
Total Common Stock (cost $14,469,696)........... 16,441,598
---------
<PAGE>
- -------------------------------------------------------------------------------
Principal Market
Amount Value
------------------------------------------------------
REPURCHASE AGREEMENTS - 4.90%
With Chase Manhattan 5.68% 12/1/97
(dated 11/28/97, collateralized by $284,000
U.S. Treasury Notes 8.25% due 7/15/98,
market value $296,898)......................... $291,000 $291,000
With J.P. Morgan 5.70% 12/1/97
(dated 11/28/97, collateralized by $107,000
U.S. Treasury Notes 5.125% due 4/30/98,
market value $107,116 and $178,000
U.S. Treasury Notes 5.125% due 2/28/98,
market value $180,346)......................... 282,000 282,000
With PaineWebber 5.68% 12/1/97
(dated 11/28/97, collateralized by $279,000
U.S. Treasury Notes 6.25% due 6/30/98,
market value $287,602)......................... 281,000 281,000
-----------
Total Repurchase Agreements (cost $854,000)..... 854,000
-----------
TOTAL MARKET VALUE OF SECURITIES OWNED
(cost $15,323,696) - 99.22%.................... 17,295,598
RECEIVABLES AND OTHER ASSETS NET OF
LIABILITIES - 0.78% ........................... 136,436
-----------
NET ASSETS APPLICABLE TO 1,691,164 SHARES
($1 par value) OUTSTANDING - 100.00% .......... $17,432,034
===========
NET ASSET VALUE - QUANTUM FUND A CLASS
($9,115,357 / 882,002 shares).................. $10.33
======
NET ASSET VALUE - QUANTUM FUND B CLASS
($6,918,969 / 673,253 shares).................. $10.28
======
NET ASSET VALUE - QUANTUM FUND C CLASS
($1,290,487 / 125,554 shares).................. $10.28
======
NET ASSET VALUE - QUANTUM FUND INSTITUTIONAL CLASS
($107,221 / 10,355 shares)..................... $10.35
======
__________________
* Non-income producing securities for the period ended 11/30/97.
COMPONENTS OF NET ASSETS AT NOVEMBER 30, 1997:
Common stock, $1 par value, 200,000,000 shares authorized to
the Fund with 100,000,000 shares allocated to
Quantum Fund A Class, 25,000,000 shares allocated to
Quantum Fund B Class, 25,000,000 shares allocated to
Quantum Fund C Class, and 50,000,000 shares allocated to
Quantum Fund Institutional Class .......................... $15,393,379
Accumulated net realized gain on investments ............... 66,753
Net unrealized appreciation of investments ................. 1,971,902
-----------
Total net assets ........................................... $17,432,034
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
QUANTUM FUND A CLASS
Net asset value A Class (A) ................................ $10.33
Sales charge (4.75% of offering price, or 5.03% of amount
invested per share) (B) ................................... 0.52
------
Offering price ............................................. $10.85
======
__________________
(A) Net asset value per share, as illustrated, is the estimated amount
which would be paid upon redemption or repurchase of shares.
(B) See Buying Shares in the current Prospectus for purchases of
$100,000 or more.
See accompanying notes
<PAGE>
for total return 9
Delaware Group Equity Funds II, Inc. -
Quantum Fund
Statement of Operations
For the Period February 24, 1997*
through November 30, 1997
---------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends....................................... $ 93,067
Interest........................................ 24,657 $ 117,724
-------- ---------
EXPENSES:
Management fees................................. 53,306
Distribution expense............................ 37,601
Dividend disbursing and transfer agent fees
and expenses................................... 29,594
Registration fees............................... 19,342
Custodian fees.................................. 8,603
Accounting fees and salaries.................... 4,002
Professional fees............................... 3,268
Reports and statements to shareholders.......... 1,672
Directors' fees................................. 1,069
Taxes (other than taxes on income).............. 580
Other........................................... 570 159,607
-------- ---------
Less expenses absorbed by
Delaware Management Company, Inc. ............. (32,652)
---------
Total Expenses.................................. 126,955
---------
NET INVESTMENT LOSS............................. (9,231)
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment transactions.... 75,984
Net change in unrealized appreciation of investments
during the period.............................. 1,971,902
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS................................. 2,047,886
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................................ $2,038,655
==========
_______________________
* Date of commencement of operations.
See accompanying notes
<PAGE>
Delaware Group Equity Funds II, Inc. -
Quantum Fund
Statement of Changes in Net Assets
For the period February 24, 1997*
through November 30, 1997
---------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss................................... $ (9,231)
Net realized gain on investment transactions.......... 75,984
Net change in unrealized appreciation of investments
during the period.................................... 1,971,902
-----------
Net increase in net assets resulting from operations.. 2,038,655
-----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Quantum Fund A Class................................. 8,566,240
Quantum Fund B Class................................. 6,337,744
Quantum Fund C Class................................. 1,169,590
Quantum Fund Institutional Class..................... 1,681,093
Net asset value of shares issued upon reinvestment of dividends
from net investment income and net realized gain on
investment transactions:
Quantum Fund A Class................................. -
Quantum Fund B Class................................. -
Quantum Fund C Class................................. -
Quantum Fund Institutional Class..................... -
-----------
17,754,667
-----------
Cost of shares repurchased:
Quantum Fund A Class................................. (314,600)
Quantum Fund B Class................................. (94,130)
Quantum Fund C Class................................. (10,931)
Quantum Fund Institutional Class..................... (1,941,627)
-----------
(2,361,288)
-----------
Increase in net assets derived from capital share
transactions ........................................ 15,393,379
-----------
NET INCREASE IN NET ASSETS............................ 17,432,034
NET ASSETS:
Beginning of period................................... -
-----------
End of period......................................... $17,432,034
===========
_______________________
* Date of commencement of operations.
See accompanying notes
<PAGE>
10 for total return
Delaware Group Equity Funds II, Inc. -
Quantum Fund
Financial Highlights
---------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each
period were as follows:
<TABLE>
<CAPTION>
Quantum Fund Quantum Fund Quantum Fund Quantum Fund
A Class B Class C Class Institutional Class
------------ ------------ ------------ -------------------
2/24/97(1) 2/24/97(1) 2/24/97(1) 2/24/97(1)
To To To To
11/30/97 11/30/97 11/30/97 11/30/97
<S> <C> <C> <C> <C>
Net asset value, beginning of period................... $ 8.500 $ 8.500 $ 8.500 $ 8.500
Income from investment operations:
Net investment income (loss)(2).................... 0.007 (0.044) (0.044) 0.029
Net realized and unrealized gain on investments.... 1.823 1.824 1.824 1.821
------- ------- ------- -------
Total from investment operations................... 1.830 1.780 1.780 1.850
------- ------- ------- -------
Net asset value, end of period......................... $10.330 $10.280 $10.280 $10.350
======= ======= ======= =======
Total return(3)........................................ 21.53% 20.94% 20.94% 21.77%
Ratios and supplemental data:
Net assets, end of period (000 omitted)............ $9,115 $6,919 $1,290 $107
Ratio of expenses to average net assets............ 1.50% 2.20% 2.20% 1.20%
Ratio of expenses to average net assets prior to
expense limitation................................ 1.96% 2.66% 2.66% 1.66%
Ratio of net investment income (loss) to average
net assets ....................................... 0.38% (0.32%) (0.32%) 0.68%
Ratio of net investment income (loss) to average
net assets prior to expense limitation............ (0.08%) (0.78%) (0.78%) 0.22%
Portfolio turnover................................. 29% 29% 29% 29%
Average commission rate paid(4).................... $0.0357 $0.0357 $0.0357 $0.0357
</TABLE>
--------------
(1) Date of commencement of trading; 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) 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 Class B and Class C shares.
(4) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there
was a commission charged.
<PAGE>
for total return 11
Delaware Group Equity Funds II, Inc. -
Quantum Fund
Notes to Financial Statements
November 30, 1997
----------------------------------------------------------------------------
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 Quantum Fund. These financial statements and
related notes pertain to the Quantum Fund (the "Fund"). The Fund offers
four classes of shares. The Quantum Fund A Class carries a front-end sales
charge of 4.75%. The Quantum Fund B Class carries a back-end sales charge.
The Quantum Fund C Class carries a level load deferred sales charge and
Quantum Fund Institutional Class has no sales charge.
The investment objective of the Fund is to achieve long-term capital
appreciation. It seeks to achieve this objective by investing primarily in
equity securities of medium to large-sized companies expected to grow over
time that meets the Fund's "Social Criteria" strategy.
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 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 Group 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 Group 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.
<PAGE>
-----------------------------------------------------------------------------
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, Inc. (DMC), the Investment Manager of the
Fund, an annual fee which is calculated daily at the rate of 0.75% on the
first $500 million of average daily net assets, 0.725% on the next $500
million and 0.70% on the average daily net assets in excess of $1 billion. At
November 30, 1997, the Fund had a liability for investment management fees and
other expenses payable to DMC of $10,410.
DMC has entered into a sub-advisory agreement with Vantage Global Advisors,
Inc., an affiliate of DMC, with respect to the management of the Fund. For the
services provided to DMC, DMC pays the sub-adviser 0.20% of the average daily
net assets paid to DMC by the Fund. The Fund does not pay any fees to the
sub-adviser.
DMC has elected to waive the portion, if any, of the management fee and
reimburse the Fund 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, 1998. Total expenses absorbed by DMC for the year ended
November 30, 1997, were $32,652.
The Fund has engaged Delaware Service Company, Inc. (DSC) and Delaware
Investment and Retirement Services, Inc. (DIRSI), affiliates of DMC, to
provide dividend disbursing, transfer agent and accounting services for the
Fund. For the year ended November 30, 1997, the Fund expensed $29,594 for
dividend disbursing and transfer agent services and $2,666 for accounting
services. At November 30, 1997, the Fund had a liability for such fees and
other expenses payable to DSC and DIRSI of $17,606.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the 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 November 30, 1997, the Fund had a
liability for distribution fees and other expenses payable to DDLP of
$101,622.
For the year ended November 30, 1997, DDLP earned $33,551 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 Fund. These officers, directors and employees are paid no compensation
by the Fund.
3. Investments
During the year ended November 30, 1997, the Fund made purchases of
$16,286,126 and sales of $1,892,414 of investment securities other than U.S.
government securities and temporary cash investments.
At November 30, 1997, net unrealized appreciation for federal income tax
purposes aggregated $1,971,319 of which $2,308,767 related to unrealized
appreciation of securities and $337,448 related to unrealized depreciation of
securities. At November 30, 1997, the aggregate cost of securities for federal
income tax purposes was $15,324,279.
<PAGE>
12 for total return
Notes to Financial Statements (Continued)
---------------------------------------------------------------------------
4. Capital Stock
Transactions in capital stock shares were as follows:
2/24/97*
to
11/30/97
-----------
Shares sold:
Quantum Fund A Class............................. 915,132
Quantum Fund B Class............................. 682,677
Quantum Fund C Class............................. 126,620
Quantum Fund Institutional Class................. 196,601
Shares issued upon reinvestment of dividends from net investment
income and net realized gains on investment transactions:
Quantum Fund A Class............................. -
Quantum Fund B Class............................. -
Quantum Fund C Class............................. -
Quantum Fund Institutional Class................. -
---------
1,921,030
---------
2/24/97*
to
11/30/97
------------
Shares repurchased:
Quantum Fund A Class............................. (33,130)
Quantum Fund B Class............................. (9,424)
Quantum Fund C Class............................. (1,066)
Quantum Fund Institutional Class................. (186,246)
---------
(229,866)
---------
Net Increase...................................... 1,691,164
=========
__________________
*Date of commencement of operations.
- -------------------------------------------------------------------------------
Delaware Group Equity Funds II, Inc. -
Quantum Fund
Report of Independent Auditors
- -------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Delaware Group Equity Funds II, Inc. - Quantum Fund
We have audited the accompanying statement of net assets of Delaware
Group Equity Funds II, Inc. - Quantum Fund as of November 30, 1997, and the
related statement of operations, the statement of changes in net assets,
and the financial highlights for the period February 24, 1997 (commencement
of operations) to November 30, 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of November 30, 1997, by corres
pondence with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides 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 Delaware Group Equity Funds II, Inc. - Quantum Fund at November
30, 1997, and the results of its operations, the changes in its net assets,
and the financial highlights for the period February 24, 1997 (commencement
of operations) to November 30, 1997, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
-----------------
Philadelphia, Pennsylvania
January 5, 1998
<PAGE>
This annual report is for the information of Social awareness Fund shareholders,
but it may be used with prospective investors when preceded or accompanied by a
current Prospectus for Social Awareness 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.
Board of Directors
Wayne A. Stork
Chairman
Delaware Group of Funds
Philadelphia, PA
Jeffrey J. Nick
President and Chief Executive Officer
Delaware Group of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates
New York, NY
Ann R. Leven
Treasurer, National Gallery of Art
Washington, DC
W. Thacher Longstreth
City Councilman
Philadelphia, PA
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Charles E. Peck
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
<PAGE>
Affiliated Officers
David K. Downes
Executive Vice President, Chief Financial Officer and Chief Operating Officer
Delaware Group of Funds
Philadelphia, PA
George M. Chamberlain, Jr.
Senior Vice President, Secretary
and General Counsel
Delaware Group of Funds
Philadelphia, PA
Bruce D. Barton
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
(photo of globes)
directors
& officers
- ------------------------------------------------------------------------------
Investment Manager
Delaware Management Company, Inc.
Philadelphia, Pennsylvania
International Affiliate
Delaware International Advisers Ltd.
London, England
National Distributor
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
Subadviser
Vantage Global Advisors, Inc.
630 Fifth Avenue
New York, NY 10111
Shareholder Servicing,
Dividend Disbursing
and Transfer Agent
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
<PAGE>
(photo of globes)
This report must be preceded or accompanied by a current Social Awareness
Fund Prospectus and the Delaware Group Fund Performance Update for the most
recently completed calendar quarter. For a prospectus of any other Delaware
Group fund, contact your financial adviser or Delaware Group.
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
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.
Copy Rights Delaware Distributors, L.P.
DELAWARE
GROUP
- --------
Philadelphia o London
Printed in the USA
on recycled paper
(425)
AR-147(11/97)TKO1/98
