<PAGE>
For Total Return
Blue Chip Fund
(various photos showing service, guidance, professional management and goals)
service and guidance
professional management
1998
Annual
Report
goals
DELAWARE
INVESTMENTS
- ---------------------
Philadelphia o London
<PAGE>
A TRADITION OF SOUND INVESTING
commitment
A Commitment
To Our Investors
Delaware Investments has a tradition of money management that 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, the Delaware organization established its first mutual fund in 1938.
Delaware International Advisers Ltd., our international affiliate, was
established in 1990 and is headquartered in London.
Delaware Investments offers a full range of mutual funds. We also manage
investments for variable annuities and closed-end funds as well as offer a wide
range of retirement plan services for individuals and businesses.
Delaware currently manages approximately $45 billion in mutual fund assets
and institutional advisory accounts for more than half-a-million investors.
Complete information on any fund offered by Delaware Investments can be found in
each fund's current prospectus. Prospectuses for all funds offered by Delaware
Investments are available from your financial adviser. Please read the
prospectus carefully before you invest or send money.
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.
(PHOTO OF COMPUTER KEYBOARD)
(PHOTO OF ILLUSTRATION FROM TOTAL RETURN BROCHURE)
Table of Contents
LETTER TO SHAREHOLDERS Page 1
PORTFOLIO MANAGERS' REVIEW Page 3
PERFORMANCE SUMMARY Page 7
STATEMENT OF NET ASSETS Page 8
FINANCIAL HIGHLIGHTS Page 12
total
return
About Our Subadviser
Vantage Investment Advisors, Inc., founded in 1979, is a technology-driven,
full-service investment management firm that uses proprietary computer software
to systematically identify investment opportunities. The firm is based in New
York and is an affiliate of Delaware Investments. Vantage Investment Advisors
currently manages more than $8 billion in assets for individual and
institutional investors.
tradition
<PAGE>
December 18, 1998
for total
return
1
Dear Shareholder:
Overseas economic concerns created
turbulent conditions in the U.S. stock market during fiscal 1998. Asian markets
experienced recession and currency devaluation while the Russian currency
declined steeply in value, creating uncertainty the world over. In this
environment, Blue Chip Fund provided a total return of 11.94% for the one-year
period ended November 30, 1998 (for A Class shares at net asset value with
distributions reinvested).
Blue Chip Fund underperformed its unmanaged benchmark, the Standard &
Poor's(R) 500 Stock Index. The S&P 500 is a size-weighted index which means the
largest stocks in the index can skew its returns. In essence, the top 20 of the
500 stocks in the S&P 500, what we refer to as "supercaps," were responsible for
the high returns the index provided during the past year. Your Fund did not have
significant holdings of the stocks that dominated the S&P 500's performance. We
believe that the high prices of these stocks are inflated and that their recent
appreciation may have been due to speculative excess.
Blue Chip Fund's investment strategy hinges on buying stocks with what we
believe have above average earnings and growth potential - at a reasonable
price. Therefore, we have generally shied away from this elite group of stocks.
Our analysis suggests they will not be able to sustain their price-to-earnings
ratios in the future. We believe our more value-oriented investment strategy
will place your Fund in a stronger position for the upcoming year.
During this past year, Blue Chip Fund's performance nearly matched the
Lipper Growth and Income Funds Average, an average of 746 mutual funds that
share a similar investment objective (performance shown below). The peer group
also underperformed the S&P 500, illustrating that many funds suffered from the
narrow market phenomenon created by the emergence of the "supercaps."
TOTAL RETURN
- --------------------------------------------------------------------------------
12 Months Ended
November 30, 1998
- --------------------------------------------------------------------------------
Blue Chip Fund A Class +11.94%
- --------------------------------------------------------------------------------
Standard & Poor's 500 Stock Index +23.68%
Lipper Growth and Income Funds Average (746 funds) +12.35%
- --------------------------------------------------------------------------------
All performance quoted above is based on net asset value without the effect of
sales charges and assumes reinvestment of distributions. Performance information
for all classes of Blue Chip Fund can be found on page 7. Past performance does
not guarantee future results. The S&P 500 Composite Stock Index is an unmanaged
composite of 500 large company stocks. It is not possible to invest directly in
any index.
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for total
return
2
Because of economic uncertainty this past year, the stock market frequently
had investors in suspense, unsure of which direction the tide would turn. The
Dow Jones Industrial Average acted a bit like a jumping bean, reminding
investors of the short-term risks of owning stocks. To alleviate investor
concerns of a potential slowdown in the U.S. economy, the Federal Reserve Board
reduced the federal funds rate on three occasions (the rate charged between
banks for overnight loans) in autumn, adding necessary liquidity to U.S.
financial markets while strengthening investor confidence.
Throughout the ups and downs of the stock market this past year, Blue Chip
Fund's management was able to weather some turbulence through computer-driven
quantitative analysis, developed and used by Vantage Investment Advisors, Inc.,
the Fund's subadviser. This quantitative investment strategy allows the manager
to select stocks based solely on objective data, eliminating emotional decisions
that can be detrimental during very volatile markets.
Looking back on the past year, we have witnessed how erratic the stock
market can be in the short term. When the market gives conflicting signals, it
is important that we not deviate from our course and that we continue to pursue
companies that meet our quantitative selection parameters.
We believe this strategy will enable your Fund's manager to select stocks
that will perform favorably over the long term as well as position your Fund's
portfolio to weather a variety of market conditions in the future. As this year
comes to a close, we thank you for your continued confidence in Delaware
Investments.
Sincerely,
/s/ Jeffrey J. Nick
- -------------------------
JEFFREY J. NICK
Chairman, President and
Chief Executive Officer
Delaware Investments Family of Funds
Jeffrey Nick Named Chairman
ON DECEMBER 17, 1998, JEFFREY J. NICK WAS NAMED CHAIRMAN OF THE DELAWARE
INVESTMENTS FAMILY OF FUNDS. HE REPLACES WAYNE A. STORK WHO HAS RETIRED AS
CHAIRMAN OF THE BOARD OF DIRECTORS, BUT CONTINUES TO SERVE AS A BOARD MEMBER.
MR. NICK WAS NAMED PRESIDENT AND CHIEF EXECUTIVE OFFICER OF DELAWARE INVESTMENTS
FAMILY OF FUNDS IN OCTOBER 1997. HE HAS BEEN CEO OF LINCOLN NATIONAL INVESTMENT
COMPANIES SINCE OCTOBER 1996 AND PREVIOUSLY MANAGED LINCOLN'S OPERATIONS IN THE
UNITED KINGDOM. MR. NICK HOLDS AN MBA FROM THE UNIVERSITY OF CHICAGO AND A
BACHELOR OF ARTS DEGREE FROM PRINCETON UNIVERSITY.
<PAGE>
for total
return
3
Portfolio Managers' Review
BY T. SCOTT WITTMAN CHRISTOPHER P. HARVEY
President, Senior Portfolio Manager Assistant Vice President
Vantage Investment Advisors, Inc.
December 18, 1998
ENRIQUE CHANG
Senior Vice President/Chief Investment Officer
YOU CAN'T ALWAYS JUDGE A BOOK BY ITS
cover. This old adage supports one of the fundamental strategies of Blue Chip
Fund. Often the best stocks are those everyone else seems to overlook. In a time
when many economists consider earnings estimates for stocks to be inflated, it
is a challenge to identify companies that are selling at low prices but have the
potential to increase in value over time. In an effort to uncover hidden gems,
we use a quantitative selection strategy that we have developed and fine-tuned
through years of investment management. During erratic markets, quantitative
analysis helps us to select stocks based on pre-set parameters without being
swayed by current market conditions.
QUANTITATIVE ANALYSIS
Vantage Investment Advisors' quantitative stock selection method is a
computer-driven approach that lets us open the book and reveal the real story on
1,200 large companies each day. Through this process, Vantage selects stocks
that we believe exhibit greater growth potential than the expected average
growth rate of companies included in the S&P 500 Stock Index. Our computer
valuation model (developed by Vantage Investment Advisors) performs a four-step
"funneling" process, as shown in the diagram on page 4.
Our computer model evaluates, compares, and ranks 1,200 large companies each
day. Our universe includes primarily mid- to large-size companies because they
tend to be better established and more stable than smaller companies. Stocks
that are attractive to us are those that exhibit both Growth characteristics,
measured by changes in actual and anticipated earnings, and Value
characteristics, measured by low price-to-earnings ratios and high dividend
yields. The computer assigns each stock a ranking based on its anticipated
return relative to other stocks in the same industry as measured by a variety of
factors including the stock's:
o Dividend yield - the annual percentage of income earned on stock;
o Earnings momentum - the increasing rate of growth in earnings per share
over time;
o Earnings surprise - profits are higher or lower than projected by analysts;
and
o Earnings yield - the relationship of earnings-per-share to the current stock
price.
Our analysis is designed to tell us which stocks are the most attractive
within each industry as measured by nine key characteristics (including the four
listed on page 3) that we have identified. The highest ranking stocks that we do
not already own are our buy candidates. Existing holdings with substantially
lower
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for total
return
4
(PHOTO OF COUPLE TALKING TO FINANCIAL ADVISOR)
ratings are sell candidates. This calculated methodology allows us to be as
objective as possible when evaluating a stock, thus substantially eliminating
human emotion from the equation.
STRATEGIC POSITIONING
Keeping Pace During Uncertain Times
In a market where only the top 20 stocks were responsible for much of the past
year's stock market growth, it is important to take a step back and look at the
big picture. During fiscal 1998 the largest 20 stocks in the S&P 500 - companies
like Wal-Mart and Pfizer dramatically outperformed other stocks in the index.
Consumer demand for this elite group of companies, what we call "supercaps," has
made it difficult for diversified investment portfolios to keep pace with the
S&P 500.
The companies in the narrow group driving the market tend to have high
price-to-earnings (P/E) ratios, prompting many investors to expect higher
earnings growth. However, these stocks also tend to be more expensive and, in
our minds, have a lower expected return. Blue Chip Fund seeks companies with low
P/E ratios - companies that appear undervalued and whose price we expect to
appreciate over time.
Although the recent market has favored companies with high P/E ratios, our
disciplined, computer-driven process has prevented us from veering from our
investment focus. With Blue Chip Fund, we tend to keep our sector allocation
roughly equivalent to that of the S&P 500, so we didn't completely avoid these
"supercap" companies, because a few such as General Electric and Merck & Co. met
our selection criteria. We strive to create a portfolio that has the ability to
flourish during prosperous markets and hold its own in market declines.
FINANCIAL MARKETS
MEET CHALLENGES
As described above, one of the primary strategies of Blue Chip Fund is to
maintain a portfolio that is well diversified across numerous industries. As of
November 30,
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
NOVEMBER 30, 1998
Blue Chip Fund
- --------------------------------------------------------------------------------
Median Market Capitalization $10.0 billion
Number of Stocks 128
Average Stock Price-to-Earnings Ratio* 23.1x
- --------------------------------------------------------------------------------
*Based on a consensus of analysts' earnings estimates for 1999 as reported by
First Call.
Quantitative Investing
Harnessing the Power of Technology
Universe of 1,200 mid - to large
Capitalization U.S. companies
Computer-driven quantitative
fundamental analysis
Ranking of stocks based on
both growth and
value characteristics
128 stocks selected
for portfolio*
* As of November 30 1998. The number of stocks will fluctuate.
<PAGE>
for total
return
5
1998, financial stocks were the largest sector in your portfolio. As news of
financial upheaval in emerging markets reached the U.S. economy, it caused
negative perceptions among American investors. As a result, some financial
stocks suffered sharp declines during this past summer's market decline. These
stocks, however, appeared to be making a comeback as of fiscal year-end. Bank
One Corporation, for instance, has bounced back, suggesting its decline was due
more to skewed perceptions among investors than actual company performance.
Although some banks did suffer short-term problems because of the Russian
debt default and the ongoing difficulties in emerging markets, we believe
financial stocks will continue to be a sound investment in the long run.
(PHOTO OF COMPUTER KEYBOARD)
OPPORTUNITIES IN
TECHNOLOGICAL ADVANCEMENT
Our technology stocks performed well for Blue Chip Fund this past year.
Technology companies tend to be more sensitive to the "upgrade cycle," the rate
at which companies update their software for consumers, than they are to the
business cycle. Technology companies are under intense pressure to improve their
products within relatively short periods of time.
Some heavy hitters this past year included Apple Computer and Intel
Corporation. Apple Computer continues to meet our selection criteria including
our growth and value parameters. With the introduction of new Apple products,
including the competitively priced iMAC, we believe that this company could
continue to grow, adding value to your Fund's portfolio.
Intel Corporation, manufacturer of a widely used semi-conductor - its Pentium
chip - continues to sell at a reasonable valuation and we foresee even further
earnings growth potential as demand for technology increases. We expect an
upswing in the "upgrade cycle" and we anticipate a rebound in the chip industry.
Not all stocks performed as favorably as we had anticipated. Caterpillar
Tractor, an industrial machinery manufacturer, for instance, did not meet
earnings expectations. However, we think the decline
<TABLE>
<CAPTION>
TOP TEN HOLDINGS
NOVEMBER 30, 1998
Company Industry Share of Net Assets
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Microsoft Computers and Technology 3.2%
General Electric Conglomerate 3.0%
Merck & Co. Pharmaceuticals 1.9%
Exxon Oil 1.8%
Eli Lilly and Co. Healthcare & Pharmaceuticals 1.7%
Schering Plough Pharmaceuticals 1.6%
BellSouth Telecommunications 1.6%
Cisco Systems Computers & Technology 1.6%
Coca-Cola Consumer Products 1.6%
International Business Machines Computers & Technology 1.5%
- ----------------------------------------------------------------------------------------
Total 19.5%
</TABLE>
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for total
return
6
in its stock price was due more to investor perceptions, rather than actual
problems with this company's business. Still a Blue Chip Fund holding, this
stock continues to meet our quantitative selection criteria and we think it can
appreciate in value over the coming year.
OUTLOOK
Investors scrambled to interpret the mixed signals sent by the stock market this
past year. Analysts polled by First Call Corporation(1) expect S&P 500 earnings
estimates for the fourth quarter to decline. We still see choppy waters ahead;
however, this past summer's stock market decline gave us many opportunities to
purchase relatively low-priced investments for Blue Chip Fund's portfolio. We
are optimistic that they will offer long-term capital appreciation potential.
Our long-range outlook for the U.S. economy during the next five to ten years
is very favorable. Based on many standards, the U.S. economy is more efficient,
productive and innovative than most other world economies. In coming years, we
should be able to reap the benefits of our ability to create superior products.
As technology becomes even more prevalent in our society, the emergence of
Internet shopping and a consumer's ability to find the lowest prices at the
click of a mouse should help keep prices in check. Our economy's potential to
create non-inflationary growth is the best we have seen in the past ten years.
We believe that Blue Chip Fund's quantitative strategy will enable us to
weather any waves of short-term market volatility and leave us prepared to
capture potential market growth.
outlook
PORTFOLIO DIVERSIFACTION
A comparison -- Top 10 sectors
November 30, 1998
Blue Chip Fund S&P 500 Index
Basic Industry 4.3% 3.5%
Capital Goods 5.9% 8.1%
Retail 5.9% 8.8%
Energy, Utilities & Transportation 8.7% 10.9%
Financials 16.9% 16.2%
Consumer Growth 14.3% 15.2%
Healthcare 13.3% 12.3%
Technology 12.7% 17.2%
Telecommunications 11.4% 7.8%
Cash and Miscellaneous 6.6% N/A
(1) First Call Corporation is a research company specializing in research,
earnings estimates and corporate information for financial organizations.
<PAGE>
for total
return
7
Performance Summary
Blue Chip Fund's Lifetime Performance -- Growth of a $10,000 Investment
February 24, 1997 to November 30 1998
Blue Chip Fund
A Class S&P 500 Index
Feb. '97 $ 9,424 $10,000
Feb. '97 $ 9,202 $10,000
Mar. '97 $ 8,780 $ 9,589
Apr. '97 $ 9,146 $10,162
May '97 $ 9,667 $10,780
Jun. '97 $ 9,989 $11,263
Jul. '97 $10,787 $12,159
Aug. '97 $10,310 $11,478
Sep. '97 $10,887 $12,107
Oct. '97 $10,488 $11,702
Nov. '97 $10,920 $12,244
Dec. '97 $11,110 $12,454
Jan. '98 $11,043 $12,592
Feb. '98 $11,868 $13,500
Mar. '98 $12,525 $14,192
Apr. '98 $12,469 $14,334
May '98 $12,180 $14,088
Jun. '98 $12,514 $14,660
Jul. '98 $12,235 $14,504
Aug. '98 $10,352 $12,407
Sep. '98 $10,798 $13,202
Oct. '98 $11,522 $14,276
Nov. '98 $12,224 $15,141
Chart assumes $10,000 invested on February 24, 1997 and Fund performance
includes the effect of a 5.75% maximum front-end sales charge and the
reinvestment of all distributions. Performance of other classes of Blue Chip
Fund will vary due to differing charges and expenses. Past performance does not
guarantee future results. Effective November 2, 1998, the maximum sales charge
on A Class shares was raised from 4.75% to 5.75% for investments of less than
$50,000.
BLUE CHIP FUND PERFORMANCE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH NOVEMBER 30, 1998
Lifetime One Year
A Class (Est. 2/24/97)
Excluding Sales Charge +15.86% +11.94%
Including Sales Charge +12.04% +5.52%
- --------------------------------------------------------------------------------
B Class (Est. 2/24/97)
Excluding Sales Charge +15.06% +11.14%
Including Sales Charge +13.01% +6.14%
- --------------------------------------------------------------------------------
C Class (Est. 2/24/97)
Excluding Sales Charge +15.06% +11.14%
Including Sales Charge +15.06% +10.14%
All performance includes reinvestment of distributions and applicable sales
charges as described below. Return and share value will fluctuate so that
shares, when redeemed, may be worth more or less than the original cost. Past
performance is not a guarantee of future results. Performance for B Class and C
Class shares excluding sales charge assumes either contingent deferred sales
charge did not apply or the investment was not redeemed.
A Class shares have a 5.75% maximum front-end sales charge and a 0.25% 12b-1
fee.
B Class shares do not carry a front-end sales charge, but are subject to a
deferred sales charge of up to 5% if redeemed before the end of the sixth year
and are subject to a 1% annual distribution and service fee.
C Class shares have a 1% annual distribution and service fee. If shares are
redeemed within 12 months, a 1% contingent deferred sales charge applies.
An expense limitation of 1.20% (exclusive of 12b-1 fees) applies to all classes
of shares excluding distribution fees. Performance would have been lower if the
expense limitation were not in effect.
Average annual returns for the lifetime and one-year periods ended November 30,
1998 for Blue Chip Fund's Institutional Class (est. 2/24/97), which is available
without sales or asset-based distribution charges only to certain eligible
institutional accounts, were +16.21% and +12.31%, respectively.
<PAGE>
8 for total return
Financial Statements
DELAWARE GROUP EQUITY FUNDS II, INC. - BLUE CHIP FUND
STATEMENT OF NET ASSETS
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
Number of Market
Shares Value
-------------------------
COMMON STOCK - 94.26%
Aerospace & Defense - 2.44%
B.F. Goodrich .................................... 2,755 $ 104,518
*Gulfstream Aerospace ............................. 2,600 133,575
United Technologies .............................. 1,220 130,769
---------
368,862
---------
AUTOMOBILES & AUTO PARTS - 1.49%
Ford Motor ....................................... 3,135 173,209
*Navistar International ........................... 2,000 51,750
---------
224,959
---------
BANKING, FINANCE & INSURANCE - 16.88%
A.G. Edwards ....................................... 3,100 114,313
Allstate ........................................... 2,260 92,095
American International Group ....................... 1,800 169,200
Associates First Capital ........................... 821 63,935
Bank One ........................................... 2,146 110,117
BankAmerica ........................................ 1,345 87,677
BankBoston ......................................... 2,140 89,078
Bankers Trust New York ............................. 825 71,775
Chase Manhattan .................................... 3,160 200,463
Citigroup .......................................... 2,840 142,533
Comerica ........................................... 1,955 126,098
Conseco ............................................ 4,000 132,500
Dime Bancorp ....................................... 3,000 79,688
Federal National Mortgage Association .............. 1,600 116,400
Fleet Financial Group .............................. 2,800 116,725
General Electric ................................... 4,970 449,785
PaineWebber Group .................................. 2,795 114,246
Reliance Group Holdings ............................ 6,100 85,019
SLM Holding ........................................ 1,837 80,828
Washington Mutual .................................. 2,772 107,502
---------
2,549,977
---------
BUILDINGS & MATERIALS - 0.31%
USG ................................................ 950 46,966
---------
46,966
---------
CABLE, MEDIA & PUBLISHING - 2.18%
Donnelley & Sons ................................... 700 29,706
Knight-Ridder ...................................... 1,695 87,187
McGraw-Hill ........................................ 1,425 127,538
New York Times ..................................... 1,100 34,169
Omnicom Group ...................................... 850 45,422
R.H. Donnelley ..................................... 332 4,959
---------
328,981
---------
CHEMICALS - 1.50%
Dow Chemical ....................................... 1,035 100,783
Engelhard .......................................... 2,000 38,625
Lyondell Petrochemicals ............................ 2,900 54,013
<PAGE>
- --------------------------------------------------------------------------------
Number of Market
Shares Value
-------------------------
COMMON STOCK (Continued)
CHEMICALS (CONTINUED)
W.R. Grace & Co. ................................. 2,000 $ 33,000
---------
226,421
---------
COMPUTERS & TECHNOLOGY - 12.73%
*American Power Conversion ........................ 950 39,277
*Apple Computer ................................... 3,600 115,088
*Cisco Systems .................................... 3,200 241,300
*Compuware ........................................ 600 37,388
*Dell Computer .................................... 1,200 72,938
Deluxe ........................................... 3,280 113,980
*Electronics Arts ................................. 800 33,725
HBO .............................................. 3,300 82,191
International Business Machines .................. 1,400 231,000
*Lexmark International Group ...................... 1,800 137,475
*Microsoft ........................................ 3,900 475,920
*Storage Technology ............................... 2,200 77,000
*Symantec ......................................... 5,300 105,834
Xerox .............................................. 1,500 161,250
---------
1,924,366
---------
CONSUMER PRODUCTS - 2.84%
Avon Products ...................................... 1,000 40,625
Clorox ............................................. 1,260 139,939
Maytag ............................................. 1,225 66,303
Procter & Gamble ................................... 2,080 182,260
---------
429,127
---------
ELECTRONICS & ELECTRICAL - 1.66%
Honeywell .......................................... 1,785 142,688
Intel .............................................. 1,000 107,594
---------
250,282
---------
ENERGY - 5.50%
Ashland ............................................ 900 43,763
Atlantic Richfield ................................. 400 26,600
ENSCO International ................................ 2,300 21,994
Exxon .............................................. 3,700 277,731
Occidental Petroleum ............................... 2,200 44,550
Royal Dutch Petroleum .............................. 3,245 152,515
Sunoco ............................................. 3,200 108,400
Texaco ............................................. 1,570 90,373
USX-Marathon Group ................................. 2,315 65,688
---------
831,614
---------
FOOD, BEVERAGE & TOBACCO - 7.30%
Coca-Cola .......................................... 3,420 239,614
Flowers Industries ................................. 6,300 143,719
General Mills ...................................... 1,300 98,150
Heinz (H.J.) ....................................... 1,865 108,753
Interstate Bakeries ................................ 4,100 107,625
<PAGE>
for total return 9
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
Number of Market
Shares Value
-------------------------
COMMON STOCK (Continued)
FOOD, BEVERAGE & TOBACCO (CONTINUED)
*Keebler Foods ..................................... 2,000 $ 67,375
Philip Morris ...................................... 3,600 201,375
Quaker Oats ........................................ 400 24,550
RJR Nabisco Holdings ............................... 3,365 96,954
Universal Foods .................................... 600 14,888
---------
1,103,003
---------
HEALTHCARE & PHARMACEUTICALS - 13.28%
Allegiance ......................................... 4,000 161,250
*Amgen ............................................ 2,380 178,946
*Arterial Vascular Engineering .................... 3,600 176,063
Bristol-Myers Squibb ............................. 800 98,050
Eli Lilly ........................................ 2,900 260,094
*Health Management Associates ..................... 2,100 45,544
Johnson & Johnson ................................ 1,000 81,250
*Lincare Holdings ................................. 1,670 57,667
McKesson ......................................... 1,400 99,663
Merck & Co. ...................................... 1,800 278,775
Pfizer ........................................... 600 66,975
*Rexall Sundown ................................... 3,700 49,719
Schering-Plough .................................. 2,310 245,726
Tyco International ............................... 2,700 177,694
Warner-Lambert ................................... 400 30,200
---------
2,007,616
---------
INDUSTRIAL MACHINERY - 1.83%
Caterpillar ........................................ 2,170 107,279
Deere .............................................. 2,335 81,579
Ingersoll-Rand ..................................... 1,887 88,335
---------
277,193
---------
LEISURE, LODGING & ENTERTAINMENT - 1.96%
CKE Restaurants .................................. 1,900 46,431
Carnival ......................................... 3,400 117,300
Eastman Kodak .................................... 500 36,281
*Outback Steakhouse ............................... 2,700 95,934
---------
295,946
---------
METALS & MINING - 0.83%
Placer Dome ........................................ 2,600 37,863
Reynolds Metals .................................... 600 32,925
USX-U.S. Steel Group ............................... 2,220 54,251
---------
125,039
---------
PAPER & FOREST PRODUCTS - 0.10%
Fort James ......................................... 375 14,672
---------
14,672
---------
RETAIL - 5.90%
Gap .............................................. 975 71,723
*Kroger ........................................... 2,000 106,125
Ross Stores ...................................... 2,330 84,899
*Safeway .......................................... 3,700 195,406
*Staples .......................................... 3,750 130,781
<PAGE>
Number of Market
Shares Value
-------------------------
COMMON STOCK (Continued)
RETAIL (CONTINUED)
TJX................................................. 5,370 $ 137,606
Wal-Mart Stores .................................... 2,200 165,685
----------
892,225
----------
Telecommunications - 11.37%
*ADC Telecommunications ........................... 5,600 167,475
AT&T ............................................. 2,500 155,781
Ameritech ........................................ 3,330 180,236
Bell Atlantic .................................... 2,870 159,644
BellSouth ........................................ 2,815 245,609
GTE .............................................. 1,835 113,770
*General Instrument ............................... 6,400 180,000
Lucent Technologies .............................. 1,600 137,700
*MCI Worldcom ..................................... 2,400 142,670
*Tellabs .......................................... 1,575 85,095
US WEST Communications Group ..................... 2,420 150,645
----------
1,718,625
----------
TEXTILES, APPAREL & FURNITURE - 1.04%
Miller (Herman) .................................. 1,250 26,758
*Tommy Hilfiger ................................... 2,165 130,983
----------
157,741
----------
TRANSPORTATION & SHIPPING - 0.85%
*AMR .............................................. 990 65,278
*Alaska Air Group ................................. 1,700 63,644
----------
128,922
----------
UTILITIES - 2.27%
Baltimore Gas & Electric ........................... 1,785 54,777
Energy East ........................................ 2,805 148,840
General Public Utilities ........................... 1,570 68,786
Texas Utilities .................................... 1,180 52,584
Unicom ............................................. 500 18,844
----------
343,831
----------
Total Common Stock (cost $12,444,560) .............. 14,246,368
----------
Principal
Amount
-----------
REPURCHASE AGREEMENTS - 7.83%
With Chase Manhattan 5.25% 12/1/98
(dated 11/30/98, collateralized by
$165,000 U.S. Treasury Notes 5.50%
due 2/28/03, market value $172,735
and $258,000 U.S. Treasury Notes 6.25%
due 10/31/01, market value $270,895) ............ $435,000 435,000
With J.P. Morgan Securities 5.15% 12/1/98
(dated 11/30/98, collateralized by
$88,000 U.S. Treasury Notes 5.75%
due 10/31/00, market value $90,312
and $106,000 U.S. Treasury Notes 7.50%
due 11/15/01, market value $114,456
and $129,000 U.S. Treasury Notes 6.375%
due 8/15/02, market value $138,889) ............. 336,000 336,000
<PAGE>
10 for total return
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
----------------------------
REPURCHASE AGREEMENTS (CONTINUED)
With PaineWebber 5.29% 12/01/98 (dated
11/30/98, collateralized by $129,000
U.S. Treasury Notes 5.875% due 11/15/99,
market value $130,974 and $258,000
U.S. Treasury Bills due 2/18/99, market
value $255,880 and $34,000 U.S.
Treasury Notes 5.875% due 02/15/00,
market value $35,026) ........................... $413,000 $ 413,000
-----------
Total Repurchase Agreements
(cost $1,184,000) ............................... 1,184,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 102.09%
(cost $13,628,560) ........................................... $15,430,368
LIABILITIES NET OF RECEIVABLES AND OTHER
ASSETS - (2.09%) ............................................. (316,098)
-----------
NET ASSETS APPLICABLE TO 1,382,839 SHARES ($1 par value)
OUTSTANDING - 100.00% ........................................ $15,114,270
===========
NET ASSET VALUE - BLUE CHIP FUND A CLASS
($7,480,007 / 682,131 shares) ................................ $10.97
======
NET ASSET VALUE - BLUE CHIP FUND B CLASS
($5,375,227 / 494,094 shares) ................................ $10.88
======
NET ASSET VALUE - BLUE CHIP FUND C CLASS
($1,217,491 / 111,877 shares) ................................ $10.88
======
NET ASSET VALUE - BLUE CHIP FUND INSTITUTIONAL CLASS
($1,041,545 / 94,737 shares) ................................. $10.99
======
- ----------------------
* Non-income producing security for the year ended November 30, 1998.
COMPONENTS OF NET ASSETS AT NOVEMBER 30, 1998:
Common stock, $1 par value, 200,000,000 shares authorized to the
Fund with 100,000,000 shares allocated to Blue Chip Fund
A Class, 25,000,000 shares allocated to Blue Chip Fund
B Class, 25,000,000 shares allocated to Blue Chip Fund
C Class and 50,000,000 shares allocated to Blue Chip
Fund Institutional Class ..................................... $13,525,044
Undistributed net investment income ............................. 20,627
Accumulated net realized loss on investments..................... (233,209)
Net unrealized appreciation of investments....................... 1,801,808
-----------
Total net assets $15,114,270
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
BLUE CHIP FUND
Net asset value A Class (A) ..................................... $10.97
Sales charge (5.75% of offering price, or 6.11%
of amount invested per share) (B) ............................ 0.67
------
Offering price .................................................. $11.64
======
- ----------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchases of $50,000
or more.
See accompanying notes
<PAGE>
for total return 11
DELAWARE GROUP EQUITY FUNDS II, INC. -
BLUE CHIP FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends ......................................... $ 155,938
Interest .......................................... 39,775 $ 195,713
---------- ----------
EXPENSES:
Dividend disbursing and transfer agent fees
and expenses ................................... 83,634
Management fees ................................... 65,355
Distribution expense .............................. 49,197
Registration fees ................................. 8,556
Reports and statements to shareholders ............ 4,601
Accounting and administration ..................... 4,033
Professional fees ................................. 2,850
Directors' fees ................................... 1,172
Custodian fees .................................... 919
Taxes (other than taxes on income) ................ 776
Other ............................................. 1,715 222,808
---------- ----------
Less expenses absorbed or waived by Delaware
Management Company ............................. (53,192)
----------
Total expenses .................................... 169,616
----------
NET INVESTMENT INCOME ............................. 26,097
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments .................. (233,209)
Net change in unrealized appreciation/
depreciation of investments .................... 1,236,839
----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ................................. 1,003,630
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................ $1,029,727
==========
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS II, INC. -
BLUE CHIP FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
2/24/97*
Year Ended to
11/30/98 11/30/97
-----------------------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ............................. $26,097 $ 16,156
Net realized gain (loss) on investments ........... (233,209) 6,756
Net change in unrealized appreciation/
depreciation of investments .................... 1,236,839 564,969
----------- ----------
Net increase in net assets resulting from
operations ..................................... 1,029,727 587,881
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class ........................................ (10,143) --
Institutional Class ............................ (12,045) --
Net realized gain on investments:
A Class ........................................ (2,536) --
B Class ........................................ (1,558) --
C Class ........................................ (247) --
Institutional Class ............................ (1,853) --
----------- ----------
(28,382) --
----------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ........................................ 5,622,460 2,298,478
B Class ........................................ 4,115,893 1,424,813
C Class ........................................ 1,065,889 235,373
Institutional Class ............................ 2,011,725 1,663,671
Net asset value of shares issued upon
reinvestment of distributions from net
investment income and net realized gain
on investments:
A Class ........................................ 11,735 --
B Class ........................................ 1,509 --
C Class ........................................ 247 --
Institutional Class ............................ 13,898 --
----------- ----------
12,843,356 5,622,335
----------- ----------
Cost of shares repurchased:
A Class ........................................ (901,455) (239,705)
B Class ........................................ (439,060) (81,825)
C Class ........................................ (124,351) (13,201)
Institutional Class ............................ (3,054,298) (86,752)
----------- ----------
(4,519,164) (421,483)
----------- ----------
Increase in net assets derived from capital
share transactions ............................. 8,324,192 5,200,852
----------- ----------
NET INCREASE IN NET ASSETS ........................ 9,325,537 5,788,733
NET ASSETS:
Beginning of period ............................... 5,788,733 --
----------- ----------
End of period ..................................... $15,114,270 $5,788,733
=========== ==========
- ----------------------
* Date of commencement of operations.
See accompanying notes
<PAGE>
12 for total return
DELAWARE GROUP EQUITY FUNDS II, INC. - BLUE CHIP FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Blue Chip Fund A Class Blue Chip Fund B Class
---------------------- -----------------------
2/24/97(1) 2/24/97(1)
Year Ended to Year Ended to
11/30/98 11/30/97 11/30/98 11/30/97
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............................................. $ 9.850 $8.500 $ 9.800 $8.500
Income (loss) from investment operations:
Net investment income (loss)(2) ............................................... 0.048 0.041 (0.025) (0.009)
Net realized and unrealized gain on investments ............................... 1.122 1.309 1.115 1.309
------- ------ ------- ------
Total from investment operations .............................................. 1.170 1.350 1.090 1.300
------- ------ ------- ------
Less dividends and distributions:
Dividends from net investment income .......................................... (0.040) -- -- --
Distributions from net realized gain on investments ........................... (0.010) -- (0.010) --
------- ------ ------- ------
Total dividends and distributions ............................................. (0.050) -- (0.010) --
------- ------ ------- ------
Net asset value, end of period ................................................... $10.970 $9.850 $10.880 $9.800
======= ====== ======= ======
Total return(3) .................................................................. 11.94% 15.88% 11.14% 15.29%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........................................ $ 7,480 $2,272 $ 5,375 $1,444
Ratio of expenses to average net assets ........................................ 1.50% 1.50% 2.20% 2.20%
Ratio of expenses to average net assets prior to expense limitation ............ 2.03% 2.95% 2.73% 3.65%
Ratio of net investment income (loss) to average net assets .................... 0.45% 0.69% (0.25%) (0.01%)
Ratio of net investment loss to average net assets prior to expense limitation.. (0.08%) (0.76%) (0.78%) (1.46%)
Portfolio turnover ............................................................. 27% 25% 27% 25%
</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) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
See accompanying notes
<PAGE>
for total return 13
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Blue Chip Fund Blue Chip Fund
C Class Institutional Class
--------------------- -----------------------
2/24/97(1) 2/24/97(1)
Year Ended to Year Ended to
11/30/98 11/30/97 11/30/98 11/30/97
<S> <C> <C> <C> <C>
Net asset value, beginning of period .................................... $ 9.800 $8.500 $ 9.870 $8.500
Income (loss) from investment operations:
Net investment income (loss)(2) ...................................... (0.025) (0.011) 0.079 0.062
Net realized and unrealized gain on investments ...................... 1.115 1.311 1.116 1.308
------- ------ ------- ------
Total from investment operations ..................................... 1.090 1.300 1.195 1.370
------- ------ ------- ------
Less dividends and distributions:
Dividends from net investment income ................................. -- -- (0.065) --
Distributions from net realized gain on investments .................. (0.010) -- (0.010) --
------- ------ ------- ------
Total dividends and distributions .................................... (0.010) -- (0.075) --
------- ------ ------- ------
Net asset value, end of period .......................................... $10.880 $9.800 $10.990 $9.870
======= ====== ======= ======
Total return(3) ......................................................... 11.14% 15.29% 12.31% 16.12%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .............................. $ 1,217 $239 $ 1,042 $1,834
Ratio of expenses to average net assets .............................. 2.20% 2.20% 1.20% 1.20%
Ratio of expenses to average net assets prior to expense limitation .. 2.73% 3.65% 1.73% 2.65%
Ratio of net investment income (loss) to average net assets .......... (0.25%) (0.01%) 0.75% 0.99%
Ratio of net investment income (loss) to average net assets prior
to expense limitation .............................................. (0.78%) (1.46%) 0.22% (0.46%)
Portfolio turnover ................................................... 27% 25% 27% 25%
</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) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
See accompanying notes
<PAGE>
14 for total return
DELAWARE GROUP EQUITY FUNDS II, INC. -
BLUE CHIP FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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
five series: the Decatur Income Fund, the Decatur Total Return Fund, the Blue
Chip Fund, the Social Awareness Fund and the Diversified Value Fund. These
financial statements and related notes pertain to the Blue Chip Fund (the
"Fund"). The Fund offers four classes of shares. The Blue Chip Fund A Class
carries a front-end sales charge of 5.75%. The Blue Chip Fund B Class carries a
back-end sales charge. The Blue Chip Fund C Class carries a level load deferred
sales charge and the Blue Chip Fund Institutional Class has no sales charge.
The investment objective of the Fund is to achieve long-term capital
appreciation. Current income is a secondary objective. It seeks to achieve 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.
Other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
Federal Income Taxes - The Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations, which may differ from generally
accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized. However,
in the event of default or bankruptcy by the counterparty to the agreement,
realization of the collateral may be subject to legal proceedings.
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.
<PAGE>
Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. The Fund declares and pays dividends from net
investment income and capital gains, if any, annually.
Certain expenses of the Fund 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.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company (DMC), the Investment Manager of the 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 Investment 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 an annual fee which is
calculated at the rate of 0.15% of average daily net assets averaging one year
old or less, 0.20% of average daily net assets averaging two years or less, but
greater than one year old and 0.35% of average daily net assets averaging over
two years old for 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, 1999.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to serve as dividend disbursing, transfer and accounting services agent. The
Fund pays DSC a monthly fee based on the number of shareholder accounts,
shareholder transactions and average net assets, subject to certain minimums. At
November 30, 1998, the Fund had a liability for such fees and other expenses
payable to DSC of $10,762.
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 Classes.
For the period ended November 30, 1998, DDLP earned $19,817 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.
<PAGE>
for total return 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Investments
During the period ended November 30, 1998, the Fund made purchases of
$10,352,420 and sales of $2,559,767 of investment securities other than U.S.
government securities and temporary cash investments.
At November 30, 1998, the aggregate cost of securities for federal income tax
purposes was $13,628,560.
At November 30, 1998, net unrealized appreciation for federal income tax
purposes aggregated $1,801,808 of which $2,326,908 related to unrealized
appreciation of securities and $525,100 related to unrealized depreciation of
securities.
For federal income tax purposes, the Fund had a capital loss carryforward of
$233,209 expiring in 2006 which may be carried forward and applied against
future gains.
4. Capital Stock
Transactions in capital stock shares were as follows:
2/24/97*
Year Ended to
11/30/98 11/30/97
----------- -----------
Shares sold:
A Class ......................................... 536,572 255,978
B Class ......................................... 388,656 156,936
C Class ......................................... 99,187 25,765
Institutional Class ............................. 190,303 194,946
Shares issued upon reinvestment of distributions
from net investment income and net realized
gain on investments:
A Class ......................................... 1,205 --
B Class ......................................... 155 --
C Class ......................................... 25 --
Institutional Class ............................. 1,428 --
-------- -------
1,217,531 633,625
-------- -------
Shares repurchased:
A Class ......................................... (86,361) (25,263)
B Class ......................................... (42,074) (9,579)
C Class ......................................... (11,741) (1,359)
Institutional Class ............................. (282,822) (9,118)
-------- -------
(422,998) (45,319)
-------- -------
Net increase ....................................... 794,533 588,306
======== =======
- ----------------------
* Date of commencement of operations.
5. Lines of Credit
The Fund has a committed line of credit for $200,000. No amount was outstanding
at November 30, 1998 or at any time during the fiscal year.
<PAGE>
16 for total return
DELAWARE GROUP EQUITY FUNDS II, INC. -
BLUE CHIP FUND
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
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 (the "Fund") as of November 30, 1998, and
the related statement of operations for the year then ended, and the statements
of changes in net assets and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with 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, 1998, by correspondence with the Fund's
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
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Group Equity Funds II, Inc. - Blue Chip Fund at November 30, 1998, the
results of its operations for the year then ended, and the changes in its net
assets and its financial highlights for each of the periods indicated therein,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
January 8, 1999
<PAGE>
THIS ANNUAL REPORT IS FOR THE INFORMATION OF BLUE CHIP FUND SHAREHOLDERS, BUT IT
MAY BE used with prospective investors when preceded or accompanied by a current
Prospectus for Blue Chip Fund, which sets forth details about charges, expenses,
investment objectives and operating policies of the Fund. You should read the
prospectus carefully before you invest or send money. 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
Jeffrey J. Nick
Chairman, President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
John H. Durham
Partner, Complete Care Services
Horsham, 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
Wayne A. Stork
Chairman
Delaware Management Holdings, Inc.
Philadelphia, PA
Affiliated Officers
David K. Downes
Executive Vice President, Chief Financial Officer
and Chief Operating Officer
Delaware Investments Family of Funds
Philadelphia, PA
George M. Chamberlain, Jr.
Senior Vice President, Secretary
and General Counsel
Delaware Investments Family 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 Subadviser
Delaware Management Company Vantage Investment Advisors, Inc.
Philadelphia, Pennsylvania New York, NY
International Affiliate Shareholder Servicing,
Delaware International Advisers Ltd. Dividend Disbursing
London, England and Transfer Agent
Delaware Service Company, Inc.
National Distributor Philadelphia, Pennsylvania
Delaware Distributors, L.P.
Philadelphia, Pennsylvania 1818 Market Street
Philadelphia, PA 19103-3682
<PAGE>
(photo of globes)
When used with prospective investors, this report must be preceded or
accompanied by a current Blue Chip Fund Prospectus and the Delaware Investments
Performance Update for the most recently completed calendar quarter. For a
prospectus of any other mutual fund from Delaware Investments, contact your
financial adviser or Delaware Investments.
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawarefunds.com
Be sure to consult your financial adviser when making investments. Mutual funds
can be a valuable part of your financial plan; however, shares of the Fund are
not FDIC or NCUSIF insured, are not guaranteed by any bank or any credit union,
and involve investment risk, including the possible loss of the principal amount
invested. Shares of the Fund are not bank or credit union deposits.
DELAWARE
INVESTMENTS
===========
Philadelphia o London
Printed in the USA
on recycled paper
(1344)
AR-143[11/98]TKO1/99 (C) Delaware Distributors, L.P.
