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Social Awareness Fund
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professional management & goals)
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1998
Annual
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DELAWARE
INVESTMENTS
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Philadelphia o London
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A TRADITION OF SOUND INVESTING
commitment
A Commitment
To Our Investors
(photo of computer keyboard)
(photo of illustration from
Growth of Capital Brochure)
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 annuity products, closed-end funds and offer 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 current fund's 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.
Social Awareness Fund Objective
Seeks long-term capital appreciation. It invests primarily in mid-size to large
companies that meet certain socially responsible investment criteria.
Growth of Capital
Table of Contents
LETTER TO SHAREHOLDERS Page 1
PORTFOLIO MANAGERS' REVIEW Page 3
PERFORMANCE SUMMARY Page 8
STATEMENTS OF NET ASSETS Page 9
FINANCIAL HIGHLIGHTS Page 13
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. BASED IN NEW YORK AND AN
AFFILIATE OF DELAWARE, VANTAGE INVESTMENT ADVISORS CURRENTLY MANAGES MORE THAN
$8 BILLION IN ASSETS FOR INDIVIDUAL AND INSTITUTIONAL INVESTORS.
tradition
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December 18, 1998
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1
Dear Shareholder:
OVERSEAS MARKET VOLATILITY BRIEFLY
roiled U.S. stock prices in fiscal 1998, but as of November 30, 1998, had not
extinguished the strength of the U.S. economy.
Many stocks suffered their steepest price declines in years when the Russian
government defaulted on its debt and shook investor confidence the world over. A
responsive Federal Reserve Board - concerned about a possible slowdown in U.S.
economic growth - reduced the Federal Funds rate last autumn. This added
liquidity to a U.S. economy already bolstered by low unemployment and a high
level of consumer confidence.
Lower borrowing rates inspired renewed interest in U.S. stocks - especially
large capitalization stocks, many of which rose to near record price levels.
Mid-cap stocks did not fare as well and their prices rose by a much lesser
amount.
Social Awareness Fund invested in a broad range of mid and large-cap stocks
for the 12 months ended November 30, 1998. Consequently, we did not benefit from
this past autumn's stock market rally to the extent of our benchmark indexes -
the Domini Social 400 Index and Standard & Poor's(R) 500 Stock Index - both of
which are exclusively composed of large-cap stocks.
The Fund's heavy weighting in financial stocks, relative to our benchmarks,
also affected our performance. Investor concern regarding the financial sector's
exposure to overseas securities and loans drove the share prices of many
investment and banking firms lower.
YOUR FUND EMPLOYS COMPUTER-DRIVEN QUANTITATIVE ANALYSIS TO CHOOSE STOCKS
BELIEVED TO HAVE SUPERIOR LONG-TERM CAPITAL APPRECIATION POTENTIAL. THIS
APPROACH ALLOWS US TO SUBSTANTIALLY ELIMINATE EMOTION AND SPECULATION FROM THE
INVESTMENT PROCESS.
Total Return
- -------------------------------------------------------------------------
12 Months Ended
November 30, 1998
- -------------------------------------------------------------------------
Social Awareness Fund A Class +9.52%
- -------------------------------------------------------------------------
Standard & Poor's 500 Index +23.68%
Domini Social 400 Index +26.83%
Lipper Growth Fund Average (948 funds) +14.50%
- -------------------------------------------------------------------------
The S&P 500 Composite Stock Index is an unmanaged composite of large company
stocks. The Domini Social 400 Index is an unmanaged benchmark of 400 U.S.
corporations that pass multiple, broad based social responsibility screens set
by Kinder, Lyndenberg, Domini & Co., an investment research firm in Cambridge,
MA. It is not possible to invest directly in any index.
Fund and Lipper 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 the Fund can be found on page 8. Past performance
does not guarantee future results.
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Social Awareness Fund seeks companies that meet certain socially responsible
criteria and exhibit both growth and value investment characteristics. Your Fund
employs computer driven quantitative analysis to choose stocks believed to have
superior long-term capital appreciation potential. This approach allows us to
substantially eliminate emotion and speculation - often an advantage in
emotion-driven markets like we've seen this year - from the investment process.
We believe emotion and speculation are partially responsible for the strong
price appreciation as well as the historically high price/earnings (P/E) ratios
for many large-cap stocks at fiscal year-end. But, price increases based on
emotion rather than good company fundamentals can be short-lived.
In our experience, two primary factors tend to drive stock prices over the
long term - earnings growth and interest rate fluctuations. If a stock's price
is too high relative to its earnings, that tells us there is little additional
room for growth. Therefore, your Fund's management focused on companies with P/E
ratios that were substantially lower than the average stock in our benchmark
indexes, as shown below.
The stock price declines of last summer provided a sobering reminder that
equity investments can be volatile at times. We believe our quantitative
computer-driven selection process allows us to approach stock market volatility
with a more rational, emotion-free perspective.
On the pages that follow, Mr. Wittman and his team discuss Social Awareness
Fund's quantitative strategy in greater detail and explain how the Fund's
investment portfolio performed during the 1998 fiscal year.
Given the market's recent volatility, we believe you could benefit from a
careful review of your investments with your financial adviser. In our view,
Social Awareness Fund can play an integral part of a prudent long-term asset
allocation strategy. 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
discipline
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.
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3
Portfolio Managers' Review
BY T. SCOTT WITTMAN
President, Senior Portfolio Manager
ENRIQUE CHANG
Senior Vice President/Chief Investment Officer
CHRISTOPHER P. HARVEY
Assistant Vice President
Vantage Investment Advisors, Inc.
December 18, 1998
INVESTMENT STRATEGY
Seeking Growth at Value Prices
Social Awareness Fund sifts through a universe of approximately 1,200 mid and
large U.S. companies to uncover stocks with strong capital appreciation
potential.
We begin by applying a series of social screens to each company. Social
Awareness Fund will not invest in a company that:
o Pollutes and/or damages the natural environment;
o Makes alcoholic beverages or tobacco products;
o Produces nuclear power or designs and constructs nuclear power plants;
o Manufactures or contracts for military weapons;
o Is involved in the gambling industry; or,
o Conducts animal testing for cosmetics or personal care products.
Approximately 800 companies typically pass our social screens. Our
computer-driven model then quantitatively analyzes each company based on stock
price and earnings fundamentals. We specifically seek stocks that are selling
below their fair market value and demonstrate accelerating earnings growth.
Thus, we attempt to blend aspects of both growth and value investing.
EVALUATING 1,200 COMPANIES MAY SEEM LIKE A DAUNTING, TIME CONSUMING TASK.
HOWEVER, OUR COMPUTER-DRIVEN QUANTITATIVE METHOD ANALYZES EACH COMPANY ON A
DAILY BASIS.
review
BUILDING A LONG-TERM PORTFOLIO
- -----------------------------------------------------
THE EFFICIENCY OF QUANTITATIVE INVESTING
Universe of 1,200 mid and large capitalization companies
800 stocks that meet social responsibility criteria
computer-driven quantitative analysis
Ranking of Stocks based on growth and value characteristics
131 stocks selected for the portfolio*
* As of November 30, 1998. The number of stocks will fluctuate.
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(photo of couple talking to financial advisor)
Evaluating 1,200 companies may seem like a daunting, time consuming task.
However, our computer-driven quantitative method analyzes each company on a
daily basis. We believe our use of technology brings a high level of efficiency
to your Fund's stock selection process.
STRATEGIC POSITIONING
Responding to Social Concerns
Ongoing research is a critical component of Social Awareness Fund's investment
process. Our socially responsible criteria are the first and most basic tool for
screening out companies.
Relying on the research of Kinder, Lyndenberg, Domini & Co., an investment
management and research firm specializing in socially responsible investing, we
constantly monitor current and potential holdings for compliance with our social
screens. If a holding suddenly fails to meet our criteria, the stock is sold
from your Fund's investment portfolio, regardless of how it is performing.
In fiscal 1998, we expanded your Fund's socially responsible mandate to
include a new social screen: cosmetic testing on animals. Effective July 1,
1998, your Fund stopped investing in cosmetics manufacturers that test products
and/or potentially harmful chemicals on animals.
As a result, we sold two of your Fund's stocks in fiscal 1998. The Fund's
holdings of Schering Plough and Johnson & Johnson, two healthcare companies,
were liquidated because they were testing cosmetic skin lotions on animals.
Please note that your Fund's animal testing screen does not apply to
pharmaceutical products, which must undergo animal testing as a matter of law.
Pharmaceutical companies employ animal testing prior to clinical trials on
people.
We had a higher investment concentration in the retail sector during fiscal
1998 than the S&P 500 Index, in part because many retail companies offer
attractive growth opportunities and consistently meet our socially responsible
criteria.
We were particularly pleased with our holdings of the Gap during the fiscal
period. Shares of the San Francisco based company enjoyed strong price
appreciation due to robust retail store sales. The Gap reported that sales
increased by 40% for the 12 months ended November 30, 1998 when compared to the
same period a year earlier. Also, the Gap opened 291 new stores during the year.
We believe the retail chain's sales growth and expansion bodes well for the
long-term appreciation of its share price.
Social Awareness Chart data
PORTFOLIO DIVERSIFICATION
November 30, 1998
Social Domini S&P
Index Awareness Fund Social 400 Index 500 Index
Financials 21.3% 16.6% 16.2%
Technology 14.8% 16.3% 17.2%
Healthcare 13.6% 9.6% 12.3%
Telecommunications 11.0% 11.3% 7.8%
Retail 7.6% 18.0% 8.8%
Consumer Growth 15.4% 7.4% 15.2%
Capital Goods 5.0% 3.5% 8.1%
Basic Materials 3.3% 5.5% 3.5%
Energy, Utilities &
Transportation 3.6% 11.8% 10.9%
Cash 4.4%
strategic
positioning
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5
Year of the "Supercaps"
A primary factor in Social Awareness Fund's performance was our avoidance of
"supercap" stocks - very large company stocks with relatively high
price/earnings ratios that led the stock market during the 1998 fiscal year.
We shunned most "supercap" stocks because they failed to rate highly -
according to our growth and value investment parameters. Also, some "supercap"
companies, such as General Electric and Exxon, were not able to meet our
socially responsible investment criteria. This made it difficult for us to keep
pace with the market.
Our selection process led us instead to large and mid-cap stocks that
appeared to have higher long-term growth potential and could be bought at
reasonable share prices.
Social Awareness Fund's avoidance of many "supercap" stocks is evident in the
table on the following page. Our Fund's top ten holdings include just one stock
that falls in the top ten holdings of the S&P 500 Index.
Volatile Financial Stocks
Few stocks fared worse during fiscal 1998 than those of financial companies.
Banks and investment companies are usually more sensitive to global economic
volatility than many businesses. Financial stocks suffered from successive
problems that started with emerging market currency exposure during the spring
and Russia's debt default last summer.
Just over one-fifth of your Fund's net assets were allocated to financial
stocks - the largest sector as of November 30, 1998. Financial stocks have
historically been the Fund's largest sector because investment companies and
banks are more likely to pass our social screens as well as offer strong growth
prospects.
However, many of our holdings performed poorly during the last half of the
1998 fiscal year, particularly Citigroup. The New York based financial company
was formed by a merger between Travellers and Citicorp last spring - creating
the world's largest financial services company.
WE LIMITED THE FUND'S EXPOSURE TO GLOBAL FINANCIAL COMPANIES BY FOCUSING ON
SMALLER REGIONAL U.S. BANKS. UNFORTUNATELY, THE SHARE PRICES OF MANY SMALLER
BANKS WERE UNJUSTLY PUNISHED, IN OUR VIEW, DUE TO THE MISSTEPS OF THEIR LARGER
PEERS.
PORTFOLIO HIGHLIGHTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Social Awareness Domini Social S&P 500
Fund 400 Index Index
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Median Market Capitalization $4.5 billion $3.5 billion $7.5 billion
Number of Stocks 131 400 500
Average Stock
Price to Earnings Ratio* 21.2x 30.4x 27.0x
- -----------------------------------------------------------------------------------
</TABLE>
* Based on a consensus of analysts' estimates for 1999 as reported by First
Call.
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6
Investors became concerned that Citigroup's behemoth size would present
certain operational difficulties and the company's share price subsequently
fell. We believe Citigroup will eventually benefit from economies of scale once
the logistics of the merger are better defined.
We limited the Fund's exposure to global financial companies by focusing on
smaller regional U.S. banks. Unfortunately, the share prices of many smaller
banks were unjustly punished, in our view, because of the actions of their
larger peers.
Your Fund's holdings of AmSouth, a regional bank based in Birmingham,
Alabama, fell in sympathy with larger banks during the market volatility.
However, as of fiscal year-end, the bank's share price had bounced back on the
resilience of a strong U.S. economy.
Opportunities in Technology
and Healthcare
Bolstering your Fund's performance during the 1998 fiscal year were our holdings
of technology and healthcare stocks. These two sectors seemed to offer
attractive capital appreciation prospects and together accounted for just over
one-quarter of your Fund's net assets as of November 30, 1998.
We were encouraged by the performance of Apple Computer throughout fiscal
1998. Our computer analysis indicated that Apple's stock met both our growth and
value parameters. We purchased shares of Apple last winter and as of November
30, 1998, Apple's share price had appreciated by approximately one-third.
Apple has been successful in marketing its newest addition to the company's
line of computers - the iMAC, a personal computer competitive with other lower
priced models. Apple also appears to have a number of promising new products in
the development pipeline. We believe this bodes well for the company's long-term
profit and earnings growth potential.
One factor measured by our computer analysis is whether Wall Street analysts
have raised earnings expectations for a stock - part of your Fund's ongoing
research.
opportunities
TOP TEN HOLDINGS - A COMPARISON
- -----------------------------------------------------------------------
NOVEMBER 30, 1998
Social Awareness Fund Standard & Poor's 500 Index
- -----------------------------------------------------------------------
Microsoft Microsoft
BellSouth General Electric
Dell Computer Intel
AT&T Merck & Co.
First Union Exxon
EMC Coca-Cola
US West Wal Mart
Allegiance IBM
Learning Company Pfizer
Arterial Vascular Engineering Philip Morris
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7
Sometimes this leads us to companies reported to be merger and acquisition
targets.
The Fund's holdings of Arterial Vascular Engineering, a mid-cap medical
products company, performed well after some Wall Street analysts indicated the
company was a prime takeover candidate. The reports were confirmed last November
when Arterial, which is among your Fund's ten largest holdings, was acquired by
Medtronic, the world's largest heart pacemaker manufacturer. Our shares of
Arterial Vascular soared in price by over 50% during the fiscal period and we
believe our holdings have the potential for further capital appreciation.
OUTLOOK
The U.S. economy was still giving off mixed signals at 1998 fiscal year-end.
Manufacturing has been hit hard by an international economic slowdown and many
overseas consumer markets have dried up. Remarkably, U.S. consumers appear
confident in the face of such turmoil.
Some "supercap" manufacturers such as Boeing and Caterpillar have announced
plans to lay off thousands of workers. Yet, the U.S. Department of Labor
reported at the beginning of December that more jobs have been created than lost
during 1998.
We believe this conflicting data suggests that the economy may slow from its
brisk pace in fiscal 1998, but still has plenty of momentum to keep expanding
over the coming months.
Social Awareness Fund's investment portfolio has been positioned over the
past fiscal year to benefit from U.S. economic growth while escaping the full
impact of struggling international markets. Many of the companies in which we
invest generate the majority of their revenues from U.S. and/or European
markets.
Since no country can remain an island in the global economy, we expect
additional stock market volatility in fiscal 1999. Fortunately, we believe our
quantitative investment strategy cannot only endure the short-term effects of
market volatility but also ultimately reward patient, long-term investors.
outlook
GLOSSARY
QUANTITATIVE ANALYSIS
evaluating the numerical qualities of a particular stock, such as price and
earnings, to help gauge a stock's future performance.
PRICE/EARNINGS (P/E) RATIO
price of a stock divided by its earnings per share. The P/E ratio may use either
the reported earnings from the previous year or analysts' forecast of next
year's earnings.
VALUE STOCK
a stock selling below its underlying value. Value stocks generally have low
price/earnings (P/E) ratios and higher than average dividend yields.
GROWTH STOCK
a stock that has a historically high earnings growth rate. Growth stocks
generally have higher than average price/earnings (P/E) ratios and low dividend
yields.
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8
Performance Summary
Social Awareness Fund's Lifetime Performance
Growth of a $10,000 Investment
February 24, 1997 through November 30, 1998
Social Awareness Domini Social 400
Period End Fund A Class S&P 500 Index Index
Feb. 24 '97 $ 9,424 $10,000 $10,000
Feb. 28 '97 $ 9,180 $10,000 $10,000
Mar. '97 $ 8,703 $ 9,589 $ 9,556
Apr. '97 $ 9,191 $10,162 $10,288
May '97 $ 9,712 $10,780 $10,848
Jun. '97 $10,000 $11,263 $11,259
Jul. '97 $10,976 $12,159 $12,260
Aug. '97 $10,554 $11,478 $11,564
Sep. '97 $11,319 $12,107 $12,204
Oct. '97 $10,942 $11,702 $11,822
Nov. '97 $11,452 $12,244 $12,547
Dec. '97 $11,731 $12,454 $12,776
Jan. '98 $11,697 $12,592 $13,046
Feb. '98 $12,665 $13,500 $14,022
Mar. '98 $13,289 $14,192 $14,618
Apr. '98 $13,422 $14,334 $14,718
May '98 $12,999 $14,088 $14,449
Jun. '98 $13,400 $14,660 $15,195
Jul. '98 $13,066 $14,504 $15,125
Aug. '98 $10,940 $12,407 $12,885
Sep. '98 $11,285 $13,202 $13,736
Oct. '98 $11,842 $14,276 $14,955
Nov. '98 $12,543 $15,141 $15,990
Performance shown above reflects a 5.75% front-end sales charge and reinvestment
of distributions. Returns for other classes will differ due to different charges
and expenses. Past performance does not guarantee future results.
SOCIAL AWARENESS FUND'S LIFETIME PERFORMANCE
- ----------------------------------------------------------------------
AVERAGE ANNUAL RETURN THROUGH NOVEMBER 30, 1998
Lifetime One Year
- ----------------------------------------------------------------------
A Class (Est. 2/24/97)
Excluding Sales Charge +17.56% +9.52%
Including Sales Charge +13.68% +3.23%
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B Class (Est. 2/24/97)
Excluding Sales Charge +16.68% +8.60%
Including Sales Charge +14.65% +3.60%
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C Class (Est. 2/24/97)
Excluding Sales Charge +16.68% +8.60%
Including Sales Charge +16.68% +7.60%
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 and C Class shares
excluding sales charge assumes either the investment was not redeemed or
contingent sales charges did not apply.
A Class shares have a 5.75% maximum front-end sales charge and a 0.25% 12b-1
fee. Effective November 2, 1998, the maximum sales charge on Class A shares was
raised from 4.75% to 5.75% for investments of less than $50,000 made after this
date.
B Class 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 5% if redeemed before the end of the sixth year.
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 taxes, interest, brokerage commission, extraordinary
expenses and distribution fees. Performance would have been lower if the expense
limitation were not in effect.
The average annual total return for the lifetime period and cumulative return
for the one-year period ended November 30, 1998 for Social Awareness 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 +17.80% and +9.70%, respectively.
<PAGE>
for growth of capital 9
Financial Statements
Delaware Group Equity Funds II, Inc. - Social Awareness Fund
Statement of Net Assets
November 30, 1998
Number Market
of Shares Value
--------- -----------
COMMON STOCK - 95.89%
Automobiles & Auto Parts - 0.59%
PACCAR............................................. 3,900 $ 177,694
*Republic Industries................................ 16,700 283,900
-----------
461,594
-----------
Banking, Finance & Insurance - 21.32%
A.G. Edwards ...................................... 20,955 772,716
Allstate .......................................... 22,230 905,873
American International Group ...................... 8,300 780,200
AmSouth Bancorporation ............................ 10,203 431,077
Bank One .......................................... 2,041 104,729
BankAmerica ....................................... 6,808 443,797
BankBoston ........................................ 4,950 206,044
Bankers Trust New York ............................ 5,675 493,725
Chase Manhattan ................................... 16,300 1,034,031
Citigroup ......................................... 11,635 583,932
City National ..................................... 7,905 295,449
Comerica .......................................... 8,070 520,515
Conseco ........................................... 14,900 493,563
Dime Bancorp ...................................... 30,300 804,844
Exel .............................................. 2,988 224,474
Federal National Mortgage Association ............. 12,400 902,100
First American Financial .......................... 22,400 686,000
*FIRSTPLUS Financial Group ......................... 49,200 123,000
First Union ....................................... 23,690 1,439,168
Lehman Brothers Holdings .......................... 13,700 684,144
Marsh & McLennan .................................. 4,520 263,008
Mellon Bank ....................................... 6,720 422,940
Metris ............................................ 18,554 621,559
National City ..................................... 4,712 316,882
Old Republic International ........................ 16,992 362,142
PaineWebber Group ................................. 13,905 568,367
Reliance Group Holdings ........................... 24,980 348,159
Republic New York ................................. 4,050 189,338
SLM Holding ....................................... 13,902 611,688
T. Rowe Price Associates .......................... 4,000 143,125
Valley National Bancorp ........................... 22,700 658,300
Washington Mutual ................................. 5,493 213,025
-----------
16,647,914
-----------
Buildings & Materials - 0.64%
Kaufman & Broad Home............................... 19,700 496,194
-----------
496,194
-----------
Cable, Media & Publishing - 4.35%
Dun & Bradstreet .................................. 14,690 443,454
Ennis Business Forms .............................. 2,475 25,988
Gannett ........................................... 8,860 572,024
McGraw-Hill ....................................... 7,400 662,300
New York Times .................................... 10,970 340,756
<PAGE>
Number Market
of Shares Value
--------- -------
COMMON STOCK (Continued)
Cable, Media & Publishing (Continued)
Omnicom Group ..................................... 6,560 $ 350,550
R.H. Donnelley .................................... 2,938 43,886
*Snyder Communications ............................. 12,000 426,750
Time Warner ....................................... 1,000 105,750
*World Color Press ................................. 14,300 425,425
-----------
3,396,883
-----------
Computers & Technology - 14.75%
*American Power Conversion ......................... 14,420 596,177
*Apple Computer .................................... 22,800 728,888
*Cisco Systems ..................................... 5,100 384,572
*Dell Computer ..................................... 26,600 1,616,781
Deluxe ............................................ 21,525 747,994
*EMC ............................................... 18,800 1,363,000
*Electronics Arts .................................. 2,800 118,038
HBO ............................................... 30,160 751,173
*Keane ............................................. 7,800 224,250
*Learning Company .................................. 38,900 1,130,531
*Lexmark International Group ....................... 10,000 763,750
*Microsoft ......................................... 21,400 2,611,453
*Storage Technology ................................ 13,820 483,700
-----------
11,520,307
-----------
Consumer Products - 3.49%
Avon Products ..................................... 10,230 415,594
Clorox ............................................ 2,690 298,758
Maytag ............................................ 12,900 698,213
Premark International ............................. 10,300 345,694
Rubbermaid ........................................ 12,300 406,669
*United Stationers ................................. 21,400 565,094
-----------
2,730,022
-----------
Electronics & Electrical - 2.90%
General Cable ..................................... 27,200 516,800
*Solectron ......................................... 12,200 807,488
*Waters ............................................ 12,200 940,925
-----------
2,265,213
-----------
Energy - 1.40%
Helmerich & Payne ................................. 14,800 255,300
*Oryx Energy ....................................... 5,180 71,549
Sun ............................................... 22,620 766,253
-----------
1,093,102
-----------
Food & Beverage - 5.52%
*Agribrands International .......................... 80 2,430
Campbell Soup ..................................... 1,685 96,256
Coca Cola ......................................... 5,555 389,197
Flowers Industries ................................ 33,480 763,763
General Mills ..................................... 11,000 830,500
<PAGE>
10 for growth of capital
Statement of Net Assets (Continued)
Number Market
of Shares Value
--------- --------
COMMON STOCK (Continued)
Food, Beverage & Tobacco (Continued)
International Multifoods ...................... 1,000 $ 25,438
Interstate Bakeries ........................... 20,850 547,313
McCormick and Company ......................... 11,400 380,831
Quaker Oats ................................... 15,190 932,286
Ralston-Purina Group .......................... 2,400 83,550
*Suiza Foods ................................... 2,700 127,913
Universal Foods ............................... 5,440 134,980
-----------
4,314,457
-----------
Healthcare & Pharmaceuticals - 13.64%
Allegiance .................................... 30,600 1,233,563
*AmeriSource Health ............................ 10,000 640,000
*Amgen ......................................... 13,000 977,438
*Arterial Vascular Engineering ................. 23,100 1,129,734
Bausch & Lomb ................................. 12,400 688,200
Bergen Brunswig Class A ....................... 14,700 915,075
*Beverly Enterprises ........................... 44,830 257,773
C.R.Bard ...................................... 7,000 320,688
Eli Lilly ..................................... 9,100 816,156
*Health Management Associates .................. 42,300 917,381
*Lincare Holdings .............................. 5,970 206,152
McKesson ...................................... 10,400 740,350
Mylan Laboratories ............................ 16,900 560,869
*NBTY .......................................... 41,200 251,706
*PharMerica .................................... 3,882 15,831
*Rexall Sundown ................................ 42,400 569,750
*Twinlab ....................................... 24,700 409,866
-----------
10,650,532
-----------
Industrial Machinery - 2.18%
Deere ......................................... 14,700 513,581
Ingersoll-Rand ................................ 13,400 627,288
Milacron ...................................... 10,100 204,525
Tredegar Industries ........................... 15,200 355,300
-----------
1,700,694
-----------
Leisure, Lodging & Entertainment - 1.73%
*Brinker International ......................... 31,300 796,194
Fleetwood Enterprises ......................... 16,460 554,496
-----------
1,350,690
-----------
Metals and Mining - 0.52%
Cleveland Cliffs Iron ......................... 10,640 404,985
-----------
404,985
-----------
Packaging & Containers - 0.11%
*Sealed Air .................................... 2,010 88,691
-----------
88,691
-----------
Retail - 7.62%
*Dollar Tree Stores ............................ 14,400 657,900
*Federated Department Stores ................... 16,400 683,675
Fingerhut ..................................... 45,000 500,625
Gap ........................................... 5,792 426,074
<PAGE>
Number Market
of Shares Value
--------- ---------
COMMON STOCK (Continued)
Retail (Continued)
Home Depot .................................... 6,000 $298,500
Jostens ....................................... 23,350 547,266
Ross Stores ................................... 11,615 423,222
*Safeway ....................................... 10,840 572,488
TJX ........................................... 18,680 478,675
Wal-Mart Stores ............................... 6,200 466,938
*Zale's ........................................ 31,300 895,963
------------
5,951,326
------------
Telecommunications - 10.98%
*ADC Telecommunications ........................ 29,500 882,234
Alltel ........................................ 16,900 895,700
AT&T .......................................... 23,130 1,441,288
BellSouth ..................................... 22,400 1,954,400
*MCI Worldcom .................................. 12,000 708,000
SBC Communications ............................ 16,250 778,984
*Tellabs ....................................... 11,170 603,529
US WEST Communications Group .................. 20,980 1,306,005
------------
8,570,140
------------
Textiles, Apparel & Furniture - 1.99%
*Tommy Hilfiger ................................ 12,700 768,350
*Westpoint Stevens ............................. 26,200 784,363
------------
1,552,713
------------
Transportation & Shipping - 1.18%
*AMR ........................................... 9,140 602,669
*UAL ........................................... 5,040 320,985
------------
923,654
------------
Utilities - 0.98%
OGE Energy .................................... 27,300 762,694
------------
762,694
------------
Total Common Stock (cost $70,286,160) ......... 74,881,805
------------
Principal
Amount
-------------
REPURCHASE AGREEMENTS - 4.26%
With Chase Manhattan 5.25% 12/1/98 (dated
11/30/98, collateralized by $464,000
U.S. Treasury Notes 5.50% due 2/28/03,
market value $485,088 and $726,000
U.S. Treasury Notes 6.25% due 10/31/01,
market value $760,747) ...................... $1,220,000 1,220,000
With J.P. Morgan Securities 5.15% 12/1/98
(dated 11/30/98, collateralized by
$247,000 U.S. Treasury Notes 5.75% due
10/31/00, market value $253,622 and
$298,000 U.S. Treasury Notes 7.50% due
11/15/01, market value $321,425 and
$363,000 U.S. Treasury Notes 6.375% due
8/15/02, market value $390,039) ............. 944,000 944,000
<PAGE>
for growth of capital 11
Statement of Net Assets (Continued)
Principal Market
Amount Value
--------- ---------
REPURCHASE AGREEMENTS (Continued)
With PaineWebber 5.29% 12/1/98 (dated 11/30/98,
collateralized by $95,000 U.S. Treasury Notes
5.875% due 2/15/00, market value $98,363 and
$363,000 U.S. Treasury Notes 5.875% due
11/15/99, market value $367,812 and $726,000
U.S. Treasury Bills due 2/18/99, market
value $718,581) ............................. $1,161,000 $ 1,161,000
-----------
Total Repurchase Agreements
(cost $3,325,000) ........................... 3,325,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 100.15%
(cost $73,611,160) .......................... $78,206,805
LIABILITIES NET OF RECEIVABLES
AND OTHER ASSETS - (0.15%) .................. (114,676)
-----------
NET ASSETS APPLICABLE TO 6,978,684 SHARES
($1 par value) OUTSTANDING - 100.00% ........ $78,092,129
===========
NET ASSET VALUE - SOCIAL AWARENESS FUND A CLASS
($38,858,280 / 3,449,994 shares) ............ $11.26
===========
NET ASSET VALUE - SOCIAL AWARENESS FUND B CLASS
($30,172,480 / 2,714,183 shares) ............ $11.12
===========
NET ASSET VALUE - SOCIAL AWARENESS FUND C CLASS
($8,682,643 / 781,025 shares) ............... $11.12
===========
NET ASSET VALUE - SOCIAL AWARENESS FUND
INSTITUTIONAL CLASS ($378,726 / 33,482 shares). $11.31
===========
- ----------------------
* Non-income producing security for the year ended November 30, 1998.
<PAGE>
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 Social Awareness
Fund A Class, 25,000,000 shares allocated
to Social Awareness Fund B Class,
25,000,000 shares allocated to Social
Awareness Fund C Class, and 50,000,000
shares allocated to Social Awareness
Fund Institutional Class .................... $74,731,290
Accumulated net realized loss on investments ... (1,234,806)
Net unrealized appreciation of investments ..... 4,595,645
-----------
Total net assets ............................... $78,092,129
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
SOCIAL AWARENESS FUND
Net asset value A Class (A) .................... $11.26
Sales charge (5.75% of offering price, or 6.13%
of amount invested per share) (B) ........... 0.69
-----------
Offering price ................................. $11.95
===========
- ----------------------
(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>
12 for growth of capital
DELAWARE GROUP EQUITY FUNDS II, INC. -
SOCIAL AWARENESS FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1998
INVESTMENT INCOME:
Dividends ............................................ $ 541,650
Interest ............................................. 183,740 $ 725,390
--------- ----------
EXPENSES:
Management fees ...................................... 345,435
Distribution expense ................................. 294,755
Dividend disbursing and transfer agent fees
and expenses ...................................... 151,145
Registration fees .................................... 33,058
Accounting and administration ........................ 18,136
Reports and statements to shareholders ............... 7,701
Professional fees .................................... 7,500
Custodian fees ....................................... 3,476
Taxes (other than taxes on income) ................... 1,445
Directors' fees ...................................... 1,333
Other ................................................ 6,351 870,335
--------- ----------
Less expenses absorbed or waived ..................... (40,551)
----------
Total expenses ....................................... 829,784
----------
NET INVESTMENT LOSS .................................. (104,394)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments ..................... (1,234,223)
Net change in unrealized appreciation/depreciation
of investments .................................... 2,623,743
----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS .................................... 1,389,520
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................... $1,285,126
==========
See accompanying notes
<PAGE>
DELAWARE GROUP EQUITY FUNDS II, INC. -
SOCIAL AWARENESS FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year 2/24/97*
Ended to
11/30/98 11/30/97
-----------------------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment loss .............................. $ (104,394) $ (9,231)
Net realized gain (loss) on investments .......... (1,234,223) 75,984
Net change in unrealized appreciation/depreciation
of investments ................................ 2,623,743 1,971,902
----------- -----------
Net increase in net assets resulting from
operations ...................................... 1,285,126 2,038,655
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments:
A Class ....................................... (38,406) --
B Class ....................................... (30,948) --
C Class ....................................... (5,476) --
Institutional Class ........................... (414) --
----------- -----------
(75,244) --
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ....................................... 31,906,321 8,566,240
B Class ....................................... 24,847,840 6,337,744
C Class ....................................... 7,756,651 1,169,590
Institutional Class ........................... 516,088 1,681,093
Net asset value of shares issued upon reinvestment
of distributions from net realized gain
on investments:
A Class ....................................... 35,864 --
B Class ....................................... 29,610 --
C Class ....................................... 5,197 --
Institutional Class ........................... 414 --
----------- -----------
65,097,985 17,754,667
----------- -----------
Cost of shares repurchased:
A Class ....................................... (3,123,666) (314,600)
B Class ....................................... (1,859,274) (94,130)
C Class ....................................... (390,664) (10,931)
Institutional Class ........................... (274,168) (1,941,627)
----------- -----------
(5,647,772) (2,361,288)
----------- -----------
Increase in net assets derived from capital
share transactions ............................ 59,450,213 15,393,379
----------- -----------
NET INCREASE IN NET ASSETS ....................... 60,660,095 17,432,034
NET ASSETS:
Beginning of period .............................. 17,432,034 --
----------- -----------
End of period .................................... $78,092,129 $17,432,034
=========== ===========
- ----------------------
* Date of commencement of operations.
See accompanying notes
<PAGE>
for growth of capital 13
Delaware Group Equity Funds II, Inc. - Social Awareness Fund
Financial Highlights
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
A Class B Class
---------------------------- ---------------------------
Year Ended 2/24/97(1) to Year Ended 2/24/97(1) to
11/30/98 11/30/97 11/30/98 11/30/97
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................. $10.330 $8.500 $10.280 $8.500
Income (loss) from investment operations:
Net investment income (loss)(2) ................... 0.015 0.007 (0.066) (0.044)
Net realized and unrealized gain on investments ... 0.955 1.823 0.946 1.824
-------- -------- -------- --------
Total from investment operations .................. 0.970 1.830 0.880 1.780
-------- -------- -------- --------
Less distributions:
Distributions from net realized gain on
investments ...................................... (0.040) -- (0.040) --
-------- -------- -------- --------
Total distributions ............................... (0.040) -- (0.040) --
-------- -------- -------- --------
Net asset value, end of period ....................... $11.260 $10.330 $11.120 $10.280
======== ======== ======== ========
Total return(3) ...................................... 9.52% 21.53% 8.60% 20.94%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........... $38,858 $9,115 $30,172 $6,919
Ratio of expenses to average net assets ........... 1.45% 1.50% 2.20% 2.20%
Ratio of expenses to average net assets prior to
expense limitation ............................... 1.56% 1.96% 2.26% 2.66%
Ratio of net investment income (loss) to average
net assets ....................................... 0.14% 0.38% (0.61%) (0.32%)
Ratio of net investment income (loss) to average
net assets prior to expense limitation ........... 0.03% (0.08%) (0.67%) (0.78%)
Portfolio turnover ................................ 22% 29% 22% 29%
</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 growth of capital
Financial Highlights (Continued)
Selected data for each share of the Series outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
C Class Institutional Class
---------------------------- -----------------------------
Year Ended 2/24/97(1) to Year Ended 2/24/97(1) to
11/30/98 11/30/97 11/30/98 11/30/97
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ................. $10.280 $8.500 $10.350 $8.500
Income (loss) from investment operations:
Net investment income (loss)(2) ................... (0.068) (0.044) 0.043 0.029
Net realized and unrealized gain on
investments ...................................... 0.948 1.824 0.957 1.821
-------- -------- -------- --------
Total from investment operations .................. 0.880 1.780 1.000 1.850
-------- -------- -------- --------
Less distributions:
Distributions from net realized gain on
investments ...................................... (0.040) -- (0.040) --
-------- -------- -------- --------
Total distributions ............................... (0.040) -- (0.040) --
-------- -------- -------- --------
Net asset value, end of period ....................... $11.120 $10.280 $11.310 $10.350
======== ======== ======== ========
Total return(3) ...................................... 8.60% 20.94% 9.70% 21.77%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........... $8,683 $1,290 $379 $107
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 ............................ 2.26% 2.66% 1.26% 1.66%
Ratio of net investment income (loss) to
average net assets ............................... (0.61%) (0.32%) 0.39% 0.68%
Ratio of net investment income (loss) to
average net assets prior to expense
limitation ....................................... (0.67%) (0.78%) 0.33% 0.22%
Portfolio turnover ................................ 22% 29% 22% 29%
</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 growth of capital 15
Delaware Group Equity Funds II, Inc. -
Social Awareness 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 (formerly known as Quantum Fund) and the
Diversified Value Fund. These financial statements and related notes pertain to
the Social Awareness Fund (the "Fund"). The Fund offers four classes of shares.
The Social Awareness Fund A Class carries a front-end sales charge of 5.75%. The
Social Awareness Fund B Class carries a back-end sales charge. The Social
Awareness Fund C Class carries a level load deferred sales charge and the Social
Awareness Fund Institutional Class has no sales charge.
The investment objective of the Fund is to achieve long-term capital
appreciation. It seeks to achieve this objective by investing primarily in
equity securities of medium to large-sized companies expected to grow over time
that meet the Fund's "Social Criteria" strategy.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation - Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date. Securities
not traded or securities not listed on an exchange are valued at the mean of the
last quoted bid and asked prices. Money market instruments having less than 60
days to maturity are valued at amortized cost, which approximates market value.
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 at the rate of 0.75% on the first $500 million of
average daily net assets, 0.725% on the next $500 million and 0.70% on the
average daily net assets in excess of $1 billion. At November 30, 1998, the Fund
had a liability for Investment Management fees and other expenses payable to DMC
of $46,038.
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 old or less,
but greater than one year and 0.35% of average daily net assets averaging over
two years old. 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 provide dividend disbursing, transfer agent and accounting services. 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 $22,610.
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 from February 1,
1998 through July 31, 1999, DDLP has elected to waive its fees to ensure that
annual fees received from A Class do not exceed 0.25% of the average daily net
assets of A Class.
For the year ended November 30, 1998, DDLP earned $125,576 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>
16 for growth of capital
Notes to Financial Statements (Continued)
3. Investments
During the year ended November 30, 1998, the Fund made purchases of $66,248,700
and sales of $9,198,013 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 $73,611,160.
At November 30, 1998, net unrealized appreciation for federal income tax
purposes aggregated $4,595,645 of which $10,274,337 related to unrealized
appreciation of securities and $5,678,692 related to unrealized depreciation of
securities.
For federal income tax purposes, the Fund had a capital loss carryforward of
$1,234,806 expiring in 2006 which may be carried forward and applied against
future gains.
4. Capital Stock
Transactions in capital stock shares were as follows:
Year 2/24/97*
Ended to
11/30/98 11/30/97
-------- --------
Shares sold:
A Class ...................................... 2,847,821 915,132
B Class ...................................... 2,213,593 682,677
C Class ...................................... 691,454 126,620
Institutional Class .......................... 48,074 196,601
Shares issued upon reinvestment of
distributions from net realized gain on
investments:
A Class ...................................... 3,485 --
B Class ...................................... 2,897 --
C Class ...................................... 509 --
Institutional Class .......................... 40 --
---------- ----------
5,807,873 1,921,030
---------- ----------
Shares repurchased:
A Class ...................................... (283,314) (33,130)
B Class ...................................... (175,560) (9,424)
C Class ...................................... (36,492) (1,066)
Institutional Class .......................... (24,987) (186,246)
---------- ----------
(520,353) (229,866)
---------- ----------
Net increase .................................... 5,287,520 1,691,164
========== ==========
- ----------------------
* Date of commencement of operations.
5. Lines of Credit
The Fund has a committed line of credit for $600,000. No amount was outstanding
at November 30, 1998, or at any time during the fiscal year.
<PAGE>
Delaware Group Equity Funds II, Inc. - Social Awareness Fund
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Equity Funds II, Inc. - Social Awareness Fund
We have audited the accompanying statement of net assets of Delaware Group
Equity Funds II, Inc. - Social Awareness 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. - Social Awareness 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 SOCIAL AWARENESS FUND SHAREHOLDERS,
BUT IT may be used with prospective investors when preceded or accompanied by a
current Prospectus for Social Awareness Fund, which set forth details about
charges, expenses, investment objectives and operating policies of the Fund. You
should read the prospectus carefully before you invest. The figures in this
report represent past results 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
(Photo of globes)
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
directors
& officers
INVESTMENT MANAGER SUBADVISOR
Delaware Management Company Vantage Investment Advisors,
Philadelphia, Pennsylvania New York New York
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
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When used with prospective investors, this report must be preceded or
accompanied by current Social Awareness Fund Prospectus and the Delaware
Investments Performance Updates 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
(Photo of globes)
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 Funds 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 Funds are not bank or credit union deposits.
DELAWARE
INVESTMENTS
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Philadelphia*London
(C) Delaware Distributors, L.P.
Printed in the USA
on recycled paper
(1347)
AR-147[11/98]TKO1/99
