<PAGE>
DELAWARE(SM)
INVESTMENTS
------------
2000 Semi-Annual Shareholder Report
-----------------------------------
Delaware Diversified Value Fund
July 18, 2000
Dear Shareholder:
Recap of Events - Over the past six months, record volatility dominated the U.S.
financial markets. As we started our fiscal period on December 1, 1999, market
performance was momentum-driven, with technology stocks providing the bulk of
performance. Technology stock euphoria pushed the Nasdaq Composite Index to a
string of record high closes. The Index rose above 5000 for the first time in
early March, 2000. Meanwhile, stocks in most other market sectors floundered as
a result of the technology craze.
On March 10, 2000, just after crossing a new milestone, the Nasdaq peaked. With
technology stocks hitting lofty price levels, it seems investors finally began
to question the extreme valuations and earnings outlook for the sector. They
also began to see the attractiveness of many non-technology companies that have
improving earnings fundamentals and low valuations. This shift in investor
psychology led to a broadening of market leadership that put value investing -
the investment style followed by Delaware Diversified Value Fund - back in the
spotlight.
The market remained volatile for the rest of our fiscal period. As of May 31,
2000, the halfway point in our fiscal year, the Nasdaq was down 32% from its
March 10th record. Investor uncertainty about the direction of interest rates
contributed to the already volatile investing climate. The Federal Reserve Board
has raised interest rates six times since June, 1999 in an effort to slow U.S.
economic growth and cool down the financial markets. The 0.50% rate hike on May
16th (the latest as of this writing) boosted the federal funds rate to 6.5%, its
highest level since January, 1991.
Delaware Diversified Value Fund, which seeks capital appreciation with current
income as a secondary objective, provided a 1.82% return (Class A shares with
distributions reinvested) for the six-month period ended May 31, 2000, outpacing
its benchmark, the Russell 1000 Value Index, which returned +0.84% for the same
period. (Source: Lipper Analytical Services, Inc.).
(3398)
SA-456 [5/00] 7100 J6156
<PAGE>
This Fund has a strong value approach - focusing on stocks that the management
team believes are undervalued in price and will eventually be recognized by the
market. As they did for most of 1999, value investments took a back seat to more
expensive growth investments from December 1999 through mid-March, 2000. The
broadening of the market in April and May helped our Fund's performance.
The Fund's largest holdings are in the banking & finance and the energy sectors.
Our focus on large banks and financial services companies, such as Fleet Boston
Financial Bank, has benefited the Fund. Many financial services stocks held up
relatively well during the recent market downturn. We have been able to find
value in companies whose stocks are currently providing attractive yields.
We are tapping into the energy area in several ways. We have invested in two
companies that are participating in the utility industry's deregulation, which
is in its fairly early stages. Enron and Dynegy both have the ability to trade
energy as a commodity. This began several years ago with the deregulation of the
natural gas industry. They're applying the same skill sets to trading units of
electricity. More recently, they've directed their attention to the trading of
bandwidth, which is the carrying capacity of high-speed multi-purpose
telecommunications lines. This is in its early stages of development, but has
tremendous growth potential.
In addition, many of the large energy companies, such as Exxon Mobil, have
performed admirably because of a favorable energy backdrop. The substantial
increase in energy prices over the past several months has been beneficial for
the operations of many energy companies. As big oil companies do better, they
are able to spend more money to find new oil and new energy sources. We expect
this trend to continue for several years.
The Fund's performance was hindered by holdings in the telecommunications and
electronics & electrical equipment sectors. The Fund holds a higher percentage
of AT&T than our benchmark. The value of AT&T stock dropped significantly during
our fiscal period as a result of the slowing growth rate for long-distance
telephone service and concern over the integration of TCI cable television
operations into AT&T. Motorola, which develops and manufactures electronic
communication equipment, experienced a decline in value largely due to slowing
handset sales, which dragged on the Fund's performance.
The Fund's performance was bolstered, however, by our holding in Micron
Technology, a semi-conductor company that increased significantly in value
during the period. We took the opportunity to sell a portion of our holdings in
Micron Technology at a profit.
<PAGE>
Market Outlook - While we are currently seeing a good deal of volatility in the
market, we believe Delaware Diversified Value Fund is well positioned to benefit
from a broadening of the market, especially if investors renew their
appreciation of earnings and valuations as the keys to stock appreciation. We
thank you for your continued confidence in Delaware Investments.
Sincerely,
/s/ Wayne A. Stork
Wayne A. Stork
Chairman,
Delaware Investments Family of Funds
/s/ David K. Downes
David K. Downes
President and Chief Executive Officer
Delaware Investments Family of Funds
This semi-annual report is for the information of Delaware Diversified Value
Fund shareholders. The current prospectus for the Fund 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. Summary
investment results are documented in the Fund's current Statement of Additional
Information.
<PAGE>
Delaware Diversified Value Fund
Fund Objective
The Fund seeks to provide capital appreciation with current income as a
secondary objective.
Total Fund Assets
$15.30 million
Number of Holdings
155
Your Fund Manager
J. Paul Dokas joined Delaware in 1997. He was previously Director of Trust
Investment Management at Bell Atlantic Corporation. He earned a bachelor's
degree at Loyola College in Baltimore and an MBA at the University of Maryland.
He is a Chartered Financial Analyst.
Nasdaq Symbols
Class A DDVAX
Institutional DDVIX
Fund Performance Summary
Average Annual Total Returns
For Period Ended May 31, 2000
Six Months Lifetime
Delaware Diversified Value Fund
Class A (Est. 9/15/98)
Including Sales Charge -4.02% +16.13%
Excluding Sales Charge +1.82% +16.13%
Institutional Class (Est. 9/15/98) +1.82% +16.13%
Russell 1000 Value Index +0.84% +14.67%
Lipper Multi-Cap Value Fund Average +4.47% (504 funds) +14.68% (432 funds)
Returns reflect reinvestment of distributions. Returns and share value will
fluctuate so that shares, when redeemed, may be worth more or less than the
original share price. No sales charge or 12b-1 fees were imposed on Class A
shares for the periods shown and no Class B or C shares were offered. The
Russell 1000 Value Index measures the performance of those Russell 1000
companies with lower price-to-book ratios and lower forecasted growth values.
The Lipper category represents the average returns of multi-cap value funds
tracked by Lipper Analytical (Source: Lipper Analytical Services, Inc.). It is
not possible to invest in an index. Past performance does not guarantee future
results. This information is for shareholder use only.
<PAGE>
DELAWARE DIVERSIFIED VALUE FUND
STATEMENT OF NET ASSETS
MAY 31, 2000
(Unaudited)
Number Market
of Shares Value
--------- ---------
Common Stock - 99.80%
Aerospace & Defense - 2.19%
Boeing 3,100 $ 121,094
General Dynamics 1,100 64,969
Lockheed Martin 1,500 36,750
Northrop 600 45,975
United Technologies 1,100 66,481
----------
335,269
----------
Automobiles & Automotive Parts - 1.96%
Ford Motor 3,400 165,113
General Motors 1,900 134,188
----------
299,301
----------
Banking & Finance - 22.18%
American Express 2,300 123,769
Bank of America 5,500 305,594
Bank of New York 1,700 79,794
Bank One 4,000 132,250
Chase Manhattan 3,500 261,406
Citigroup 10,350 643,641
Countrywide Credit 1,800 55,350
Federal Home Loan 4,000 178,000
Firstar 2,800 71,575
First Union 3,900 137,231
Fleet Boston Financial Bank 3,900 147,469
Goldman Sachs Group 400 29,425
Hartford Financial Services 1,000 59,125
Mellon Financial 1,600 61,700
Merrill Lynch & Company 1,700 167,663
Morgan (J.P.) 1,000 128,750
Morgan Stanley Dean Witter 3,900 280,556
Nationwide Financial Services 1,100 31,213
PNC Financial Group 1,700 85,638
State Street Bank 700 78,050
Suntrust Banks 1,000 59,750
Wachovia 1,100 76,038
Wells Fargo 4,400 199,100
----------
3,393,087
----------
Building Materials - 0.59%
Masco 1,700 33,469
Whirlpool 1,000 56,688
----------
90,157
----------
<PAGE>
DELAWARE DIVERSIFIED VALUE FUND
STATEMENT OF NET ASSETS (Continued)
Number Market
of Shares Value
--------- ---------
Cable, Media & Publishing - 5.90%
*Adelphia Communications - Class A 1,300 $ 55,088
*AMFM 1,100 74,525
*AT&T - Liberty Media - Class A 4,400 194,975
*Chris-Craft Industries 1,121 68,246
*Echostar Communications - Class A 1,000 39,938
Gannett 600 38,850
New York Times 1,100 42,213
*Viacom - Class B 2,600 161,200
Walt Disney 5,400 227,813
----------
902,848
----------
Chemicals - 2.76%
Dow Chemical 1,300 139,181
DuPont (E.I.) de Nemours 3,900 191,100
PPG Industries 1,000 49,563
Praxair 1,000 42,000
----------
421,844
----------
Computers & Technology - 2.97%
*3Com 1,600 66,900
*Apple Computer 700 58,800
Compaq Computer 1,700 44,625
First Data 1,700 95,306
Hewlett-Packard 800 96,100
*Seagate Technology 1,600 92,800
----------
454,531
----------
Consumer Products - 1.84%
Kimberly-Clark 1,100 66,550
Minnesota Mining & Manufacturing 1,900 162,925
Procter & Gamble 800 53,200
----------
282,675
----------
Electronics & Electrical Equipment - 5.63%
*Advanced Micro Devices 800 65,150
AVX 800 45,850
Eaton 800 58,050
Emerson Electric 1,600 94,400
*General Motors - Class H 800 78,750
Honeywell International 2,100 114,844
*LSI Logic 1,200 63,225
*Micron Technology 1,200 83,925
Motorola 1,900 178,125
*SDL 200 45,313
*Teradyne 400 34,400
----------
862,032
----------
<PAGE>
DELAWARE DIVERSIFIED VALUE FUND
STATEMENT OF NET ASSETS (Continued)
Number Market
of Shares Value
--------- ---------
Energy - 13.23%
Baker Hughes 1,000 $ 36,250
*BJ Services 800 57,300
Chevron 2,300 212,606
Coastal 1,300 79,788
Conoco 1,700 45,475
*Cooper Cameron 400 27,900
Dynegy 1,000 77,125
Enron 2,000 145,750
Exxon Mobil 10,300 858,119
Halliburton 1,100 56,100
Kerr-McGee 1,100 65,656
Phillips Petroleum 800 45,800
*Smith International 400 31,625
Texaco 2,100 120,619
Ultramar Diamond Shamrock 1,700 44,094
Union Pacific Resources 2,300 54,481
Unocal 1,700 65,344
----------
2,024,032
----------
Food, Beverage & Tobacco - 4.03%
Anheuser Busch 1,600 124,000
Bestfoods 700 45,150
Campbell Soup 1,100 34,100
ConAgra 2,100 48,431
General Mills 1,100 43,656
Heinz (H.J.) 1,100 43,106
McDonald's 1,100 39,394
Nabisco Group Holdings 3,100 67,619
Philip Morris 3,400 88,825
Quaker Oats 700 51,494
Ralston-Purina Group 1,700 31,556
----------
617,331
----------
Healthcare & Pharmaceuticals - 3.03%
Abbott Laboratories 1,700 69,169
American Home Products 1,500 80,813
Bristol-Myers Squibb 900 49,556
Johnson & Johnson 500 44,750
Merck & Company 1,000 74,625
Pharmacia 2,790 144,906
----------
463,819
----------
Industrial Machinery - 1.26%
Caterpillar 1,600 61,200
Deere & Company 1,300 54,031
Ingersoll-Rand 1,700 77,456
----------
192,687
----------
<PAGE>
DELAWARE DIVERSIFIED VALUE FUND
STATEMENT OF NET ASSETS (Continued)
Number Market
of Shares Value
--------- ---------
Insurance - 7.38%
Aetna 1,000 $ 66,750
AFLAC 800 41,350
Allstate 3,400 90,100
American General 1,100 70,469
American International Group 3,450 388,341
Chubb 800 56,000
Cigna 400 35,525
Jefferson-Pilot 1,100 75,488
Marsh & McLennan 1,000 110,063
*Metropolitan Life Insurance 2,500 51,250
St. Paul 1,200 45,000
Torchmark 1,700 46,219
UnitedHealth Group 700 52,194
----------
1,128,749
----------
Metals & Mining - 1.19%
Alcoa 2,060 120,381
Barrick Gold 3,400 61,413
----------
181,794
----------
Paper & Forest Products - 0.97%
Georgia-Pacific 1,700 55,675
International Paper 1,100 38,294
Weyerhaeuser 1,100 54,588
----------
148,557
----------
Real Estate - 1.38%
AMB Property 2,700 60,750
Equity Office Properties Trust 2,800 74,375
Equity Residential Properties 1,700 75,863
----------
210,988
----------
Retail - 2.03%
Albertson's 1,700 62,263
*Federated Department Stores 1,700 65,450
Limited 2,200 53,075
May Department Stores 1,600 48,100
Sears, Roebuck 2,200 81,263
----------
310,151
----------
Telecommunications - 12.91%
Alltel 1,300 85,069
AT&T 11,800 409,313
BellSouth 4,600 214,763
*Crown Castle 2,500 65,469
GTE 5,800 366,850
SBC Communications 8,552 373,616
*Sprint 1,700 102,850
Sprint PCS 2,100 116,550
Telephone & Data Systems 700 74,200
*Voicestream Wireless 400 45,800
*Worldcom 2,300 86,538
*Winstar Communications 1,200 34,050
----------
1,975,068
----------
<PAGE>
DELAWARE DIVERSIFIED VALUE FUND
STATEMENT OF NET ASSETS (Continued)
<TABLE>
<CAPTION>
Number Market
of Shares Value
--------- ---------
<S> <C> <C>
Transportation & Shipping - 1.20%
Delta Air Lines 1,100 $ 56,581
UAL 1,400 72,100
Union Pacific 1,300 55,006
------------
183,687
------------
Utilities - 5.14%
Allegheny Energy 1,700 52,594
*Calpine 400 42,375
Columbia Energy Group 600 38,813
Dominion Resources 1,100 50,325
Duke Energy 2,200 128,150
Edison International 3,100 66,263
Energy East 3,100 66,263
FPL Group 1,100 54,450
PG&E 3,000 77,813
Public Service Enterprise Group 2,200 81,950
Southern 1,900 49,281
TXU 2,200 78,633
------------
786,910
------------
Total Common Stock (cost $14,928,667) 15,265,517
------------
Total Market Value of Securities - 99.80%
(cost $14,928,667) 15,265,517
Receivables and Other Assets, Net of Liabilities - 0.20% 30,693
------------
Net Assets Applicable to 1,515,122 Shares
Outstanding - 100.00% $ 15,296,210
============
Net Asset Value - Delaware Diversified Value Fund A Class
($22,689/ 2,247 shares) $ 10.10
============
Net Asset Value - Delaware Diversified Value Fund Institutional Class
($15,273,521/ 1,512,875 shares) $ 10.10
============
Components of Net Assets at May 31, 2000:
Shares of beneficial interest (unlimited authorization - no par) $ 14,875,956
Undistributed net investment income 61,266
Accumulated net realized gain on investments 22,138
Net unrealized appreciation of investments 336,850
-------------
Total net assets $ 15,296,210
============
</TABLE>
--------
* Non-income producing security for the six months ended May 31, 2000.
<PAGE>
DELAWARE DIVERSIFIED VALUE FUND
STATEMENT OF NET ASSETS (Continued)
<TABLE>
<S> <C>
Net Asset Value and Offering Price Per Share -
Delaware Diversified Value Fund
Net asset value A Class (A) $ 10.10
Sales charge (5.75% of offering price or 6.14% of the amount
invested per share) (B) 0.62
------------
Offering price $ 10.72
============
</TABLE>
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
<PAGE>
Delaware Diversified Value Fund
Statement of Operations
Six Months Ended May 31, 2000
(Unaudited)
Investment Income:
Dividends $ 87,894
Interest 7,863 $ 95,757
--------- ---------
Expenses:
Management fees 27,267
Custodian fees 1,689
Reports and statements to shareholders 1,250
Registration fees 985
Professional fees 887
Accounting and administration 630
Trustees' fees 640
Taxes (other than taxes on income) 395
Dividend disbursing and transfer agent fees and expenses 147
Distribution Expense 68
Other 216
---------
34,174
Less expenses absorbed or waived (2,919)
Less expenses paid indirectly (1,196) 30,059
---------
Net Investment Income 65,698
---------
Net Realized and Unrealized gain on Investments:
Net realized gain on investments 24,856
Net change in unrealized appreciation/depreciation of
investments 263,045
---------
Net Realized and Unrealized gain on Investments 287,901
---------
Net Increase in Net Assets Resulting From Operations $ 353,599
=========
See accompanying notes
<PAGE>
Delaware Diversified Value Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year
5/31/00 Ended
(Unaudited) 11/30/99
----------- --------
<S> <C> <C>
Increase in Net Assets from Operations:
Net investment income $ 65,698 $ 31,764
Net realized gain on investments 24,856 327,920
Net change in unrealized appreciation/ depreciation of investments 263,045 (152,111)
------------ -----------
Net increase in net assets resulting from operations 353,599 207,573
------------ -----------
Distributions to Shareholders from:
Net investment income:
A Class - -
Institutional Class (33,683) (8,706)
Net realized gain on investments:
A Class - -
Institutional Class (330,574) (11,765)
------------ -----------
(364,257) (20,471)
------------ -----------
Capital Share Transactions:
Proceeds from shares sold:
A Class 25,002 -
Institutional Class 14,677,709 2,691,500
Net asset value of shares issued upon
reinvestment of distributions from
net investment income and
net realized gain on investments:
A Class 1 -
Institutional Class 364,256 20,471
------------ -----------
15,066,968 2,711,971
------------ -----------
Cost of shares repurchased:
A Class (3,000) -
Institutional Class (4,900,000) -
------------ -----------
(4,903,000) -
------------ -----------
Increase in net assets derived from capital
share transactions 10,163,968 2,711,971
------------ -----------
Net Increase in Net Assets 10,153,310 2,899,073
Net Assets:
Beginning of period 5,142,900 2,243,827
------------ -----------
End of period $ 15,296,210 $ 5,142,900
============ ===========
</TABLE>
See accompanying notes
<PAGE>
Financial Highlights
Selected data for each share of the Fund outstanding throughout
each period was as follows:
<TABLE>
<CAPTION>
Delaware Diversified Value Fund
Institutional Class
-----------------------------------------------
Six Months
Ended Year 09/15/98(1)
5/31/00 Ended to
(Unaudited) 11/30/99 11/30/98
----------- -------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.690 $ 9.540 $ 8.500
Income from investment operations:
Net investment income(2) 0.077 0.129 0.026
Net realized and unrealized gain on investments 0.090 1.108 1.014
-------- ------- -------
Total from investment operations 0.167 1.237 1.040
-------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.070) (0.037) -
Distributions from net realized gain on investments (0.687) (0.050) -
-------- ------- -------
Total dividends and distributions (0.757) (0.087) -
-------- ------- -------
Net asset value, end of period $ 10.100 $ 10.690 $ 9.540
======== ======== =======
Total return(3) 1.82% 13.05% 12.24%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 15,274 $ 5,143 $ 2,244
Ratio of expenses to average net assets 0.75%(4) 0.75% 0.75%
Ratio of expenses to average net assets prior to expense
limitation 0.81%(4) 1.24% 1.24%
Ratio of net investment income to average net assets 1.55%(4) 1.25% 1.41%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 0.46%(4) 0.76% 0.92%
Portfolio turnover 199%(4) 111% 74%
</TABLE>
--------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average share 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. An expense limitation was in effect during the period. Performance
would have been lower if the expense limitation was not in effect.
(4) Annualized
See accompanying notes
<PAGE>
Financial Highlights
Selected data for each share of the Fund outstanding throughout
each period was as follows:
<TABLE>
<CAPTION>
Delaware Diversified Value Fund
A Class(4)
-------------------------------
Six Months
Ended
5/31/00
(Unaudited)
-----------
<S> <C>
Net asset value, beginning of period $ 10.690
Income from investment operations:
Net investment income(1) 0.077
Net realized and unrealized gain on investments 0.090
--------
Total from investment operations 0.167
--------
Less dividends and distributions:
Dividends from net investment income (0.070)
Distributions from net realized gain on investments (0.687)
--------
Total dividends and distributions (0.757)
--------
Net asset value, end of period $ 10.100
========
Total return(2) 1.82%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 23
Ratio of expenses to average net assets 0.75%(3)
Ratio of expenses to average net assets prior to expense
limitation 1.11%(3)
Ratio of net investment income to average net assets 1.55%(3)
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 0.16%(3)
Portfolio turnover 199%(3)
</TABLE>
--------
(1) The average share outstanding method has been applied for per share
information.
(2) 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. An expense limitation was in effect during the period. Performance
would have been lower if the expense limitation was not in effect.
(3) Annualized
(4) Shares of the Delaware Diversified Value Fund A Class was initially offered
on September 15, 1998. For the period September 15, 1998 through November
30, 1999, there was no shareholder activity besides the initial seed
purchase of 1 share. Financial highlights for this period are not present
because the data is not believed to be meaningful.
See accompanying notes
<PAGE>
Notes to Financial Statements
May 31, 2000 (Unaudited)
Delaware Group Equity Funds II (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 Delaware Business Trust and offers five
series: the Delaware Decatur Equity Income Fund (formerly known as the Decatur
Income Fund), the Delaware Growth and Income Fund (formerly known as the Decatur
Total Return Fund), the Delaware Blue Chip Fund, the Delaware Social Awareness
Fund and the Delaware Diversified Value Fund. These financial statements and
related notes pertain to the Delaware Diversified Value Fund (the "Fund"). The
Fund offers four classes of shares. The Delaware Diversified Value Fund A Class
carries a maximum front-end sales charge of 5.75%. The Delaware Diversified
Value Fund B Class carries a back-end contingent deferred sales charge. The
Delaware Diversified Value Fund C Class (known as a level load class) carries a
back-end contingent deferred sales charge for one year and the Delaware
Diversified Value Fund Institutional Class has no sales charge. As of May 31,
2000, only the A and Institutional Classes have commenced operations.
The objective of the Fund is capital appreciation with current income as a
secondary objective.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation- All equity securities are valued at the last quoted sales
price as of the close of the New York Stock Exchange (NYSE) on the valuation
date. If on a particular day an equity security does not trade, then the mean
between the bid and asked prices will be used. 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 or under
the direction of the Company's Board of Trustees.
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
<PAGE>
Notes to Financial Statements (Continued)
accordance with federal income tax regulations which may differ from accounting
principles generally accepted in the United States.
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 102% 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
accounting principles generally accepted in the United States 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.
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 commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $97 for the six months ended May 31, 2000. In
addition, the Fund receives earnings credits from the custodian when positive
balances are maintained, which are used to offset custody fees. These credits
were $1,099 for the six months ended May 31, 2000. The expenses paid under the
above arrangements are included in their respective captions on the Statement of
Operations with the corresponding expense offset shown as "Expenses paid
indirectly".
<PAGE>
Notes to Financial Statements (Continued)
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 0.65% on the first $500 million of
average daily net assets, 0.60% on the next $500 million, 0.55% on the next $1.5
billion and 0.50% on average daily net assets in excess of $2.5 billion. On May
31, 2000, the Fund had a liability for other expenses payable to DMC of $7,700.
DMC has elected to waive that portion, if any, of the management fee and
reimburse the Fund to the extent that annual operating expenses, exclusive of
taxes, interest, distribution fees, brokerage commissions and extraordinary
expenses, exceed 0.75% of average daily net assets of the Fund through July 31,
2000.
The Fund has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to provide dividend disbursing, transfer agent and accounting and
administration 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. On May 31, 2000, the Fund had a liability for such fees and
other expenses payable to DSC of $432.
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 assets of the A Class and 1.00% of the average
daily net assets of the B and C Classes. The distributor has agreed to waive
these 12b-1 fees through July 31, 2000. At May 31, 2000, the Fund had a payable
for distribution fees and other expenses payable to DDLP of $18.
Certain officers of DMC, DSC and DDLP are officers, trustees and/or employees of
the Fund. These officers, trustees and employees are paid no compensation by the
Fund.
3. Investments
During the six months ended May 31, 2000, the Fund made purchases of $5,648,600
and sales of $2,916,661 of investment securities other than U.S. government
securities and temporary cash investments.
At May 31, 2000, the net unrealized appreciation for federal income tax purposes
was $336,850 of which $880,276 related to unrealized appreciation of securities
and $543,426 related to unrealized depreciation of securities. At May 31, 2000,
the aggregate cost of securities for federal income tax purposes was
$14,928,667.
<PAGE>
Notes to Financial Statements (Continued)
4. Capital Shares
Transactions in capital shares were as follows:
Six Months
Ended Year
5/31/00 Ended
(Unaudited) 11/30/99
----------- --------
Shares sold:
A Class 2,546 -
Institutional Class 1,494,331 243,796
Shares issued upon reinvestment of dividends from
net investment income and net realized gain on
investments:
A Class - -
Institutional Class 37,360 2,093
--------- -------
1,534,237 245,889
--------- -------
Shares repurchased:
A Class (300) -
Institutional Class (500,000) -
--------- -------
(500,300) -
--------- -------
Net Increase 1,033,937 245,889
========= =======
<PAGE>
5. Lines of Credit
The Funds, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participate in a $683,500,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each Funds' allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding at May 31, 2000, or at any time during the
fiscal period.
