<PAGE>
DELAWARE GROUP
Blue Chip Fund
(various Photos demonstrating service and guidance, professional management and
Goals)
service and guidance
professional management
goals
For Total Return
1997
Annual Report
A TRADITION OF SOUND INVESTING
commitment
(Photo of Keyboard)
(Photo of Illustration from Total Return Brochure)
A Commitment
To Our Investors
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.
Blue Chip
Fund's Objective
To achieve long-term capital appreciation. Current income is a secondary
objective. It seeks to achieve these objectives by investing primarily in equity
securities and any securities that are convertible into equity securities.
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
includes serving as a managing director at TSA Capital Management and Vice
President and Manager of Quantitative Analysis at Mellon Bank.
(photo of T. Scott Wittman)
T. SCOTT WITTMAN
President and
Chief Investment Officer
Vantage Global Advisors, Inc.
total
return
<PAGE>
December 22, 1997
for total
return
1
Dear Shareholder:
During its initial fiscal year, Delaware Group's Blue Chip Fund benefited from
the substantial capital appreciation available from many blue chip, large
company stocks.
Your Fund had a total return of +15.88% (based on Class A shares at net
asset value) for the period from inception (February 24, 1997) through November
30, 1997, as shown below and on page 6.
The Fund commenced operations at a time when stocks of many U.S.
companies reached historic price levels. In this challenging environment, the
Fund sought businesses whose stocks offered growth at a reasonable price.
By using computer-driven quantitative analysis, developed specifically
by Vantage Global Advisors - our affiliate in New York, your Fund's management
built a portfolio with both growth and value characteristics. You can learn more
about Vantage at its World Wide Web site: vgainvest.com.
During 1997, our disciplined approach allowed us to take advantage of
two stock market corrections: one which paralleled the Federal Reserve Board's
modest springtime increase in short-term interest rates and the October sell-off
that followed the devaluations of currencies in several Asian countries. At both
times, the fundamental strength of the U.S. economy allowed the market to shrug
off temporary setbacks and forge ahead.
Nevertheless, Blue Chip Fund's results fell short of its benchmark, the
unmanaged S&P 500 Index, as shown below. Our strict investment discipline
precluded us from "joining the herd" as the market soared this past summer.
During 1997, many investors focused on the top 150 companies in market
capitalization even as these companies' stocks rose to price levels that were
not justified by fundamental measures of value.
When we applied quantitative analysis to many large companies, our
analysis indicated that many name-brand stocks, particularly in the technology
and consumer areas, offered unattractive capital appreciation prospects.
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
February 24, 1997
to November 30, 1997
- --------------------------------------------------------------------------------
Blue Chip Fund A Class +15.88%
Standard & Poor's 500 Index +19.55%
Lipper Growth Fund Average (852 funds) +18.76%
- --------------------------------------------------------------------------------
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 6. Performance for this short time frame may not
be representative of longer term results.
<PAGE>
for total
return
2
We believe risk assessment is an important consideration in portfolio
management. Vantage seeks to reduce Blue Chip Fund's risk profile through:
o sector and company diversification;
o a focus on companies with a history of profit and dividend payment, and;
o a stock selection discipline that requires us to sell stocks that objective
computer modeling shows are the Fund's least attractive holdings.
Vantage doesn't set price targets for stocks in the Fund's portfolio.
Rather, our daily computer evaluation seeks stocks with superior growth and
value fundamentals. If, through fundamental comparison, the computer finds a
stock with more attractive price-to-earnings ratio, higher dividend yield and
better earnings expectations than a holding in the same sector, the holding is
generally replaced.
In our opinion, this approach can help limit portfolio turnover and
improve decision-making by making stock selection an objective process.
On the pages that follow, T. Scott Wittman, your Fund's portfolio
manager, explains the Fund's computer-driven investment approach in detail and
offers an outlook for fiscal 1998.
Many financial professionals advise that the performance of an equity
mutual fund should be judged over a period of at least several years. We believe
that over time, the benefits of Blue Chip Fund's quantitative discipline will
become apparent, and that it will prove a useful tool in helping you reach your
long-term investment goals.
On behalf of Delaware and Vantage, we thank you for becoming Blue Chip
Fund's charter shareholders.
Sincerely,
/s/ Wayne A. Stork
Wayne Stork
Chairman
/s/ Jeffrey J. Nick
Jeffrey J. Nick
President and Chief Executive Officer
discipline
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
November 30, 1997
Blue Chip Fund S&P 500 Index
- --------------------------------------------------------------------------------
Median Market Capitalization $6.9 billion $6.9 billion
Number of stocks 117 500
Average Stock
Price-to-Earnings Ratio* 18.1x 20.7x
- --------------------------------------------------------------------------------
*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
Blue Chip Fund's stock selection process systematically sorts and evaluates
stocks of large companies with the precision of a jeweler cutting a diamond. Our
computer modeling strives to create a portfolio of value that can perform well
in potentially volatile market conditions.
We begin with approximately 1,200 large capitalization U.S. companies.
Through computer modeling, we then evaluate, compare and rank each based on
fundamental characteristics to determine:
1) Value - measured by low price-to-earnings ratios and high dividend yields.
2) Growth - measured by many characteristics, including changes in actual and
anticipated earnings.
Each stock's performance is compared to all other stocks in its industry.
We believe this analysis allows us to be as objective as possible when
evaluating a stock, thereby eliminating emotion from the investment process.
STRATEGIC POSITIONING:
ANSWERING THE CALL OF OPPORTUNITY
Some economists believed the spring and early summer of 1997 was a period of
emotional speculation in stocks of large U.S. companies. Alan Greenspan, the
Federal Reserve Board chairman, characterized the investment environment as
"irrational exuberance."
By the third quarter of 1997, however, the outlook of many investors
appeared to grow more sober. Prices of large cap stocks generally declined by
more than 10%. These lower levels more accurately reflected many stocks'
fundamental values, in our opinion.
QUANTITATIVE INVESTING:
- --------------------------------------------------------------------------------
HARNESSING THE POWER OF TECHNOLOGY
--------------------
Universe of 1,200
large capitalization
U.S. companies.
--------------------
--------------------
Computer driven
quantitative
fundamental analysis.
--------------------
--------------------
Ranking of stocks based
on both growth and
value characteristics
---------------------
---------------------
117 stocks selected
for portfolio
(As of November 30, 1997)
---------------------
strategy
<PAGE>
for total
return
4
BLUE CHIP FUND'S TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
NOVEMBER 30, 1997
Company Industry Share of Net Assets
- --------------------------------------------------------------------------------
Bristol-Myers Squibb Pharmaceuticals 2.4%
General Electric Conglomerate 2.3%
Exxon Corp. Oil 2.3%
Philip Morris Cos. Food/Tobacco 2.3%
Schering-Plough Corp. Pharmaceuticals 2.0%
Merck & Co. Pharmaceuticals 1.8%
Travelers Group Financial Services 1.8%
Bankers Trust New York Banking and Finance 1.7%
AT&T Corp. Telecommunications 1.6%
Procter & Gamble Consumer Products 1.6%
- --------------------------------------------------------------------------------
Total 19.8%
Our selection process led us to many stocks in the financial sector, and
as of year's end, we had a greater weighting in this sector than that of the S&P
500 Index (see page 5). This positioning served your Fund well. Bank and
brokerage stock prices, in particular, benefited from the industry's attempt to
offer more innovative products and services, as well as increased economies of
scale through mergers, acquisitions and cost cutting.
Bear Stearns was one of our top performers in this area. In our view,
the investment banking firm's earnings benefited from providing financing
solutions to established and emerging growth companies.
Telecommunications was another sector where our objective stock
selection process provided substantial fruit, particularly our purchase of AT&T
Corp. 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 criteria. Its operations appeared to be undergoing fundamental
positive change, highlighted by the replacement of its chief executive. As of
November 30, AT&T was among your Fund's 10 largest holdings.
Generally, we were underweighted in technology companies relative to the
S&P 500 during our initial year because such stocks did not meet Blue Chip's
investment selection criteria. However, most stocks we held, such as Microsoft
Corp. and Compaq Computer Corp., did well during the period. An oversupply of
computers and related products is forcing larger computer manufacturers to cut
prices, negatively affecting profits at smaller technology companies.
<PAGE>
for total
return
5
(Photo of keyboard)
A technology stock that performed below our expectations was Western
Digital Inc., a manufacturer of disk drives. The company's earnings suffered
throughout the year as it fell prey to competitive pressures from larger
technology companies who forced it to reduce profit margins on its disk drives.
OUTLOOK
In fiscal 1997, the 150 largest companies in the S&P 500 generated more than
one-third of the index's capital appreciation. While these same companies still
may grow in value in 1998, we believe their capital appreciation potential is
not nearly as robust as it was two to three years ago.
By applying Blue Chip Fund's computer-driven quantitative techniques, we
remain focused on stocks with growth and value characteristics, and this, in our
opinion, leaves us well-positioned relative to the index. We see volatility as a
mechanism that may provide rewarding investment opportunities, and our objective
approach to portfolio management may allow us to capitalize on any market
weakness.
However, challenges lie ahead. Some U.S. companies do a substantial
amount of business in Asia, especially technology companies. We expect that
profits for these firms from the Pacific Rim will drop in 1998 as the region
grapples with currency devaluation and recession.
Our analysis also suggests, however, that the U.S. financial sector will
remain attractive in 1998. Although some money center banks and insurance
companies derive a portion of profits from Asia, most financial firms' prospects
are tied to the domestic economy, which remains healthy. In 1997, domestic
inflation was just 1.7%, interest rates were declining and the industry's profit
outlook was positive.
T. SCOTT WITTMAN
Vantage Global Advisors
December 22, 1997
PORTFOLIO DIVERSIFICATION
- --------------------------------------------------------------------------------
NOVEMBER 30, 1997
Blue Chip Fund S&P 500 Index
Financials 15.8% 11.6%
Basic Industry & Capital Goods 11.9% 14.8%
Energy & Utilities 11.2% 8.7%
Technology 8.3% 17.3%
Health Care 9.5% 10.9%
Telecommunications 8.2% 6.5%
Food & Tobacco 7.7% 7.8%
Consumer Growth & Cyclicals 6.4% 2.4%
Retailing 7.3% 9.7%
Automobiles 3.2% 2.3%
Media 3.0% 4.3%
Transportation 1.8% 1.3%
Cash Equivalents 5.7% --
Other -- 2.4%
outlook
<PAGE>
for total
return
6
BLUE CHIP FUND'S LIFETIME PERFORMANCE
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT
TOTAL RETURN FEBRUARY 24, 1997 THROUGH NOVEMBER 30, 1997
Blue Chip Fund A Class S&P 500 Index
Feb. 24 '97 $ 9,529 $10,000
Feb. 28 '97 $ 9,305 $ 9,850
Mar. '97 $ 8,879 $ 9,589
Apr. '97 $ 9,249 $10,062
May '97 $ 9,776 $10,680
June '97 $10,101 $11,063
July '97 $10,908 $12,863
Aug. '97 $10,426 $11,200
Sept. '97 $11,009 $11,827
Oct. '97 $10,605 $11,413
Nov. '97 $11,043 $11,955
Chart assumes a $10,000 investment on February 24, 1997, and reflects a 4.75%
front-end sales charge. No distributions were made during the period. Returns
for other classes will differ due to different charges and expenses. Past
performance does not guarantee future results.
BLUE CHIP FUND'S LIFETIME PERFORMANCE
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN FEBRUARY 24,1997, THROUGH NOVEMBER 30, 1997
Class A (Est. 2/24/97)
Excluding Sales Charge +15.88%
Including Sales Charge +10.43%
- --------------------------------------------------------------------------------
Class B (Est. 2/24/97)
Excluding Sales Charge +15.29%
Including Sales Charge +11.29%
- --------------------------------------------------------------------------------
Class C (Est. 2/24/97)
Excluding Sales Charge +15.29%
Including Sales Charge +14.29%
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 the original cost. Past performance does not guarantee future results.
Performance for Class B and C shares excluding sales charge assumes either
contingent sales charges 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 of
0.30%.
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 ending November 30, 1997, for Blue
Chip Fund's Institutional Class, which is available without sales or asset-based
distribution charges only to certain eligible institutional accounts, was
+16.12%.
Voluntary fee caps equal to 1.50% of net assets for Class A shares, 2.20% for
Class B and C 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. -
BLUE CHIP FUND
STATEMENT OF NET ASSETS
NOVEMBER 30, 1997
----------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
-------------------------------------
COMMON STOCK - 94.15%
AEROSPACE & DEFENSE - 1.72%
General Dynamics ..................... 400 $34,650
United Technologies .................. 870 65,196
-------
99,846
-------
AUTOMOBILES & AUTO PARTS - 3.16%
B.F. Goodrich ........................ 455 20,247
Cooper Industries .................... 1,060 54,722
Ford Motor ........................... 2,085 89,655
General Motors ....................... 300 18,300
-------
182,924
-------
BANKING, FINANCE & INSURANCE - 15.78%
Allstate ............................. 280 24,045
BankBoston ........................... 770 68,626
Bankers Trust New York ............... 825 97,814
Bear Stearns ......................... 1,350 56,025
CIGNA ................................ 265 44,321
Chase Manhattan ...................... 830 90,159
Comerica ............................. 400 34,075
First Chicago NBD .................... 955 74,729
H.F. Ahmanson ........................ 700 41,650
MBIA ................................. 330 20,749
Marsh & McLennan ..................... 775 57,689
NationsBank .......................... 745 44,747
Paine Webber Group ................... 795 26,732
SLM Holding .......................... 425 54,878
SunAmerica ........................... 937 37,949
Torchmark ............................ 880 35,915
Travelers Group ...................... 2,040 103,020
-------
913,123
-------
BUILDINGS & MATERIALS - 1.32%
Armstrong World Industries .......... 600 41,362
Masco ................................ 300 14,138
* USG .................................. 450 21,094
-------
76,594
-------
CABLE, MEDIA & PUBLISHING - 2.97%
Dun & Bradstreet ..................... 560 15,680
Gannett .............................. 540 31,354
Knight-Ridder ........................ 195 9,774
McGraw-Hill .......................... 850 58,172
New York Times ....................... 550 32,656
Omnicom Group ........................ 325 24,091
-------
171,727
-------
CHEMICALS - 1.69%
Dow Chemical ......................... 835 82,456
Lyondell Petrochemical ............... 600 15,262
-------
97,718
-------
<PAGE>
NUMBER MARKET
OF SHARES VALUE
-------------------------------------
COMMON STOCK (Continued)
COMPUTERS & TECHNOLOGY - 8.33%
* American Power Conversion ............. 950 $28,916
* Cadence Design Systems ................ 2,500 63,125
Compaq Computer ....................... 1,490 93,032
Deluxe ................................ 180 6,356
HBO ................................... 800 35,850
* Microsoft ............................. 200 28,294
* PeopleSoft ............................ 900 58,894
* Read-Rite ............................. 1,000 19,094
* Storage Technology .................... 800 51,650
* Sun Microsystems ...................... 1,755 63,125
* Western Digital ....................... 1,670 33,713
-------
482,049
-------
CONSUMER PRODUCTS - 5.43%
Clorox ............................... 960 74,520
General Electric ..................... 1,790 132,012
Maytag ............................... 425 13,733
Procter & Gamble ..................... 1,230 93,864
-------
314,129
-------
ELECTRONICS & ELECTRICAL - 0.90%
Tektronix ........................... 638 26,735
Xerox ................................ 325 25,248
-------
51,983
-------
ENERGY - 8.61%
Atlantic Richfield ................... 400 32,600
Exxon ................................ 2,160 131,760
Helmerich & Payne .................... 600 45,637
Occidental Petroleum ................. 2,200 65,312
* Oryx Energy .......................... 1,980 53,460
Royal Dutch Petroleum ................ 920 48,472
Texaco ............................... 1,170 66,105
USX-Marathon Group ................... 1,615 55,314
-------
498,660
-------
ENVIRONMENTAL SERVICES - 1.70%
Halliburton .......................... 870 46,926
Honeywell ............................ 785 51,417
-------
98,343
-------
FOOD, BEVERAGE & TOBACCO - 7.65%
* Boston Chicken ....................... 1,200 9,619
Campbell Soup ........................ 260 14,560
Coca-Cola ............................ 1,020 63,750
ConAgra .............................. 950 34,141
Fortune Brands ....................... 620 22,436
Heinz (H.J.) ......................... 1,040 52,065
Hershey Foods ........................ 575 35,291
Philip Morris ........................ 3,000 130,500
RJR Nabisco Holdings ................. 1,865 67,956
______________
Top 10 holdings, representing 19.8% of net assets are in boldface.
<PAGE>
8 for total return
STATEMENT OF NET ASSETS (CONTINUED)
----------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
-------------------------------------
COMMON STOCK (CONTINUED)
FOOD, BEVERAGE & TABACCO (CONTINUED)
Universal Foods ...................... 300 $ 12,450
-------
442,768
-------
HEALTHCARE & PHARMACEUTICALS - 9.52%
Abbott Laboratories .................. 135 8,775
* Amgen ................................. 950 48,628
Bristol-Myers Squibb ................. 1,510 141,374
* Dura Pharmaceuticals .................. 300 13,125
* Oxford Health Plans ................... 815 19,407
Johnson & Johnson .................... 755 47,518
* Lincare Holdings ...................... 485 27,281
Merck & Co. .......................... 1,130 106,856
* PhyCor ................................ 1,000 24,625
Schering-Plough ...................... 1,810 113,464
-------
551,053
-------
INDUSTRIAL MACHINERY - 3.21%
Caterpillar .......................... 1,270 60,881
Deere ................................ 1,135 62,212
Ingersoll-Rand ....................... 1,537 62,825
-------
185,918
-------
LEISURE, LODGING & ENTERTAINMENT - 1.76%
Callaway Golf ........................ 1,300 41,437
* HFS .................................. 435 29,852
* King World Productions ............... 560 30,450
-------
101,739
-------
METALS & MINING - 1.09%
Phelps Dodge ......................... 710 47,038
USX-U.S. Steel Group ................. 520 16,283
-------
63,321
-------
PAPER & FOREST PRODUCTS - 0.25%
Fort James ........................... 375 14,672
-------
14,672
-------
RETAIL - 5.50%
* CompUSA .............................. 1,900 69,469
Gap .................................. 650 34,897
Liz Claiborne ........................ 500 25,125
Ross Stores .......................... 1,030 40,428
* Safeway .............................. 1,100 66,825
* Staples .............................. 500 14,109
TJX .................................. 1,960 67,620
-------
318,473
-------
TELECOMMUNICATIONS - 8.20%
AT&T ................................. 1,700 94,987
Ameritech ............................ 940 72,439
Bell Atlantic ........................ 935 83,449
BellSouth ............................ 815 44,621
GTE .................................. 1,210 61,181
* PairGain Technologies ................ 655 15,495
* Tellabs .............................. 1,175 61,063
U S WEST Communications Group ........ 920 41,573
-------
474,808
-------
<PAGE>
NUMBER MARKET
OF SHARES VALUE
-------------------------------------
COMMON STOCK (Continued)
TEXTILES, APPAREL & FURNITURE - 0.94%
Herman Miller ........................ 625 $31,641
Johnson Controls ..................... 190 8,704
* Tommy Hilfiger ....................... 365 14,326
---------
54,671
---------
TRANSPORTATION & SHIPPING - 1.83%
* AMR .................................. 245 29,691
Brunswick ............................ 680 22,737
Tidewater ............................ 405 22,705
* UAL .................................. 360 30,600
---------
105,733
---------
UTILITIES - 2.59%
Baltimore Gas & Electric ............. 185 5,677
General Public Utilities ............. 1,070 42,265
New York State E & G ................. 1,305 40,129
Texas Utilities ...................... 1,180 47,200
Unicom ............................... 500 14,563
---------
149,834
---------
Total Common Stock (cost $4,885,117) 5,450,086
---------
PRINCIPAL
AMOUNT
REPURCHASE AGREEMENTS - 6.89%
With Chase Manhattan 5.68% 12/01/97
(dated 11/28/97, collateralized by $133,000
U.S Treasury Notes 8.25% due 7/15/98,
market value $138,714) .................$136,000 136,000
With J.P. Morgan Securities 5.70% 12/01/97
(dated 11/28/97, collateralized by $83,000
U.S Treasury Notes 5.125% due 2/28/98,
market value $84,260 and $50,000
U.S Treasury Notes 5.125% due 4/30/98,
market value $50,046) .................. 131,000 131,000
With PaineWebber 5.68% 12/01/97
(dated 11/28/97, collateralized by $131,000
U.S Treasury Notes 6.25% due 6/30/98,
market value $134,372) ................. 132,000 132,000
---------
Total Repurchase Agreements
(cost $399,000) ........................ 399,000
---------
<PAGE>
for total return 9
STATEMENT OF NET ASSETS (CONTINUED)
----------------------------------------------------------------------------
Market
Value
TOTAL MARKET VALUE OF SECURITIES OWNED
(cost $5,284,117) - 101.04% .......................... $5,849,086
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS - (1.04%) (60,353)
----------
NET ASSETS APPLICABLE TO 588,306 SHARES
($1 par value) OUTSTANDING - 100.00% .................... $5,788,733
==========
NET ASSET VALUE - BLUE CHIP FUND A CLASS
($2,272,145 / 230,715 shares) ........................... $9.85
=====
NET ASSET VALUE - BLUE CHIP FUND B CLASS
($1,443,555 / 147,357 shares) ........................... $9.80
=====
NET ASSET VALUE - BLUE CHIP FUND C CLASS
($239,152 / 24,406 shares) .............................. $9.80
=====
NET ASSET VALUE - BLUE CHIP FUND INSTITUTIONAL CLASS
($1,833,881 / 185,828 shares) ........................... $9.87
=====
__________________
*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 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 ....... $5,200,852
Undistributed net investment income ..................... 16,156
Accumulated net realized gain on investments ............ 6,756
Net unrealized appreciation of investments .............. 564,969
----------
Total net assets ........................................ $5,788,733
==========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
BLUE CHIP FUND A CLASS
Net asset value A Class (A) ............................ $9.85
Sales charge (4.75% of offering price, or 4.97% of amount
invested per share) (B) .............................. 0.49
------
Offering price .......................................... $10.34
======
__________________
(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>
DELAWARE GROUP EQUITY FUNDS II, INC. -
BLUE CHIP FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 24, 1997,*
THROUGH NOVEMBER 30, 1997
---------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends ................................. $51,775
Interest .................................. 7,660 $59,435
------- -------
EXPENSES:
Management fees ........................... 18,283
Registration fees ......................... 33,319
Dividend disbursing and transfer agent fees
and expenses ............................ 10,258
Distribution expense ...................... 8,615
Custodian fees ............................ 7,150
Accounting fees and salaries .............. 1,587
Directors' fees ........................... 1,018
Reports and statements to shareholders .... 707
Professional fees ......................... 530
Taxes (other than taxes on income) ........ 330
Other ..................................... 2,372 84,169
------- -------
Less expenses absorbed by
Delaware Management Company, Inc. ....... (40,890)
-------
Total Expenses ............................ 43,279
-------
NET INVESTMENT INCOME ..................... 16,156
-------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment
transactions ............................ 6,756
Net change in unrealized appreciation of
investments during the period ........... 564,969
-------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS .......................... 571,725
-------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ......................... $587,881
========
__________________
* Date of commencement of operations.
See accompanying notes
<PAGE>
for total return 10
DELAWARE GROUP EQUITY FUNDS II, INC. -
BLUE CHIP FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FEBRUARY 24, 1997,*
THROUGH NOVEMBER 30, 1997
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INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income .......................................... $ 16,156
Net realized gain on investment transactions ................... 6,756
Net change in unrealized appreciation
of investments during the period ............................... 564,969
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Net increase in net assets resulting from operations ........... 587,881
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CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Blue Chip Fund A Class ...................................... 2,298,478
Blue Chip Fund B Class ...................................... 1,424,813
Blue Chip Fund C Class ...................................... 235,373
Blue Chip Fund Institutional Class .......................... 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 ...................................... --
Blue Chip Fund B Class ...................................... --
Blue Chip Fund C Class ...................................... --
Blue Chip Fund Institutional Class .......................... --
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5,622,335
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Cost of shares repurchased:
Blue Chip Fund A Class ........................................ (239,705)
Blue Chip Fund B Class ........................................ (81,825)
Blue Chip Fund C Class ........................................ (13,201)
Blue Chip Fund Institutional Class ............................ (86,752)
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(421,483)
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Increase in net assets derived from capital share transactions 5,200,852
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NET INCREASE IN NET ASSETS ..................................... 5,788,733
NET ASSETS:
Beginning of period ............................................ --
----------
End of period .................................................. $5,788,733
==========
__________________
* Date of commencement of operations.
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS II, INC. -
BLUE CHIP FUND
FINANCIAL HIGHLIGHTS
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Selected data for each share of the Fund outstanding throughout each
period were as follows:
<TABLE>
<CAPTION>
Blue Chip Fund Blue Chip Fund Blue Chip Fund Blue Chip Fund
A Class B Class C Class Institutional Class
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2/24/97(1) To 2/24/97(1) To 2/24/97(1) To 2/24/97(1) 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) .................. 0.041 (0.009) (0.011) 0.062
Net realized and unrealized gain on investments ... 1.309 1.309 1.311 1.308
------ ------ ------ ------
Total from investment operations .................. 1.350 1.300 1.300 1.370
------ ------ ------ ------
Net asset value, end of period ...................... $9.850 $9.800 $9.800 $9.870
====== ====== ====== ======
Total return(3) .................................... 15.88% 15.29% 15.29% 16.12%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........... $2,272 $1,444 $239 $1,834
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 ............................. 2.95% 3.65% 3.65% 2.65%
Ratio of net investment income (loss) to average
net assets ........................................ 0.69% (0.01%) (0.01%) 0.99%
Ratio of net investment income (loss) to average
net assets prior to expense limitation ............ (0.76%) (1.46%) (1.46%) (0.46%)
Portfolio turnover ................................ 25% 25% 25% 25%
Average commission rate paid(4) ................... $0.0359 $0.0359 $0.0359 $0.0359
</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 Class A 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. -
BLUE CHIP FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
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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 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
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
these objectives 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 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 0.65% 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,
Inc., an affiliate of DMC, with respect to the management of the Fund. For
the services provided to DMC, DMC pays the sub-adviser 0.15% 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 $40,890.
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 $10,258 for
dividend disbursing and transfer agent services and $1,070 for accounting
services. At November 30, 1997, the Fund had a liability for such fees and
other expenses payable to DSC and DIRSI of $6,498.
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 Class A and 1.00% of the
average daily net assets of the Class B and C. 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
$84,850.
For the year ended November 30, 1997, DDLP earned $7,677 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
$5,563,640 and sales of $685,279 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 $564,969 of which $685,291 related to unrealized
appreciation of securities and $120,322 related to unrealized depreciation
of securities. At November 30, 1997, the aggregate cost of securities for
federal income tax purposes was $5,284,117.
<PAGE>
for total return 12
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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4. Capital Stock
Transactions in capital stock shares were as follows:
2/24/97*
to
11/30/97
--------
Shares sold:
Blue Chip Fund A Class ................................... 255,978
Blue Chip Fund B Class ................................... 156,936
Blue Chip Fund C Class ................................... 25,765
Blue Chip Fund Institutional Class ....................... 194,946
Shares issued upon reinvestment of dividends from net
investment income and net realized gains on
investment transactions:
Blue Chip Fund A Class ................................... --
Blue Chip Fund B Class ................................... --
Blue Chip Fund C Class ................................... --
Blue Chip Fund Institutional Class ....................... --
--------
633,625
2/24/97*
to
11/30/97
--------
Shares repurchased:
Blue Chip Fund A Class ..................................... (25,263)
Blue Chip Fund B Class ..................................... (9,579)
Blue Chip Fund C Class ..................................... (1,359)
Blue Chip Fund Institutional Class ......................... (9,118)
--------
(45,319)
--------
Net Increase ............................................... 588,306
--------
__________________
* Date of commencement of operations.
- --------------------------------------------------------------------------------
DELAWARE GROUP EQUITY FUNDS II, INC. -
BLUE CHIP FUND
REPORT OF INDEPENDENT AUDITORS
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TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
DELAWARE GROUP EQUITY FUNDS II, INC. - BLUE CHIP FUND
We have audited the accompanying statement of net assets of Delaware Group
Equity Funds II, Inc. - Blue Chip 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. - Blue Chip 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.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 5, 1998
<PAGE>
THIS ANNUAL REPORT IS FOR THE INFORMATION OF BLUE CHIP FUND'S 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.
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>
This report must be preceded or accompanied by a current Blue Chip 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
DELAWARE
GROUP
=====================
Philadelphia o London
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.
Printed in the USA
on recycled paper
(422)
AR-143[11/97]TKO1/98
(Photo of Globes)
