<PAGE>
DELAWARE(SM)
INVESTMENTS
-----------
Delaware Balanced Fund
Total Return
2000 ANNUAL REPORT
[Total Return Artwork]
<PAGE>
A TRADITION OF SOUND INVESTING SINCE 1929
-----------------------------------------
TABLE OF CONTENTS
-----------------
Letter to Shareholders 1
Portfolio Management
Review 3
Performance Summary 7
Financial Statements
Statement of Net Assets 8
Statement of Operations 11
Statements of Changes in
Net Assets 12
Financial Highlights 13
Notes to Financial
Statements 17
Report of Independent
Auditors 20
A Commitment To Our Investors
Experienced
o Our seasoned investment professionals average 11 years' experience.
o We began managing investments in 1929 and opened our first mutual fund in
1938. Over the past 70 years, we have weathered a full range of economic and
market environments.
Disciplined
o We follow strict investment policies and clear buy/sell guidelines.
o We strive to balance risk and reward in order to provide sound investment
alternatives within any given asset class.
Consistent
o We clearly articulate our investment policies and follow them consistently.
o Our commitment to style consistency has earned us the confidence of
discriminating institutional and individual investors to manage more than $44
billion in assets as of September 30, 2000.
Comprehensive
o We offer more than 70 mutual funds in these asset classes.
o Large-cap equity o High-yield bonds
o Mid-cap equity o Investment grade bonds
o Small-cap equity o Municipal bonds
o International equity (single-state and national funds)
o Balanced o International fixed-income
o Our funds are available through financial advisers who can offer you
individualized attention and valuable investment advice.
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
(C)Delaware Distributors, L.P.
<PAGE>
Dear Shareholder
"THE ONE-YEAR PERIOD
ENDED OCTOBER 31, 2000
COULD BE DESCRIBED AS
A TALE OF TWO MARKETS."
December 6, 2000
Recap of Events--The one-year period ended October 31, 2000 could be described
as a tale of two markets. As 1999 came to a close, confident investors set aside
any previous Y2K fears and resumed their bullish buying spree. During the first
quarter of 2000, investors sought out the growth potential of technology-related
companies in lieu of the more established but less "flashy" old economy stocks.
Anything with a "dot.com" attached to its name seemed destined to climb
indefinitely regardless of its earning prospects. By mid-March, 2000, many of
the leading market indices had hit all time highs.
This trend changed in April when the Internet mania came to a crashing halt. A
few events contributed to investors' panic. Microsoft, the onetime bellwether of
all technology stocks, lost the latest round in its ongoing antitrust battle
with the Justice Department. News broke that many dot.com companies were
approaching dangerously low cash positions and might not be able to continue
operations without additional funding. The IPO markets closed virtually
overnight, particularly for Internet-related companies. Many investors who
purchased shares on margin were forced to sell other positions to pay off their
debt. The Internet debacle spread to the cellular communications sector, to PC
and chip companies, and then to the optical solutions firms. Ultimately, every
major technology sector was negatively affected (Source: The Wall Street
Journal).
Meanwhile, skyrocketing energy prices brought about newfound concerns about
inflation. A weak euro hindered the ability of domestic manufacturers to sell
goods and services abroad, thus limiting the earnings potential of U.S. based
multi-national corporations. By late October, the technology heavy Nasdaq
Composite had plummeted around 35% from its high in March 2000. The broader S&P
500 index had dropped by about 8% year to date (Source: Bloomberg). As our
fiscal year came to an end, uncertainty and volatility continued to rule the
markets.
Total Return
For The Period Ended October 31, 2000 One Year
-----------------------------------------------------------------------
Delaware Balanced Fund Class A Shares -0.75%
-----------------------------------------------------------------------
Standard & Poor's 500 Index +6.08%
Lehman Brothers Aggregate Bond Index +7.30%
Lipper Balanced Funds Average (475 funds) +7.88%
-----------------------------------------------------------------------
All performance shown above is at net asset value and assumes reinvestment of
all distributions. Performance information for all Fund classes can be found on
page 7. The S&P 500 Index is an unmanaged composite of mostly
large-capitalization U.S. companies. The Lehman Brothers Aggregate Bond Index is
a measure of investment-grade domestic bonds. The Lipper category represents the
average return of balanced mutual funds tracked by Lipper (Source: Lipper Inc.).
You cannot invest directly in an index. Past performance does not guarantee
future results.
1
<PAGE>
"WE BELIEVE OUR NEW
MANAGEMENT STYLE HAS
ALREADY BEGUN REAPING
BENEFITS AND WE REMAIN
CONFIDENT THAT THESE
FAVORABLE RESULTS WILL
CONTINUE IN THE FUTURE."
Delaware Balanced Fund also experienced a tale of two markets. During the early
part of the fiscal year, the Fund was more value oriented and held few positions
in the strong technology and telecommunications sectors. Our performance for the
first few months of our fiscal year lagged the market as a whole. In April, a
change was made in the Fund's lead manager. John Jares took over the reins of
Delaware Balanced Fund and began focusing more on growth-oriented stocks. For
the 12-month period ended October 31, 2000, the Fund returned -0.75% (Class A
shares at net asset value with distributions reinvested).
Market Outlook--We believe that after a series of six interest rate hikes since
June 1999, Federal Reserve Chairman Greenspan has successfully navigated a soft
landing for the economy. In fact, we believe the Fed is finished with its
tightening cycle and may even reduce interest rates early next year. This should
bode well for the fixed-income portion of the Fund. Though uncertainty remains
in the equity markets, particularly in the technology sectors, we believe that
many stocks were caught up in the sudden negativity and have fallen to levels
below their fair values. In our opinion, many of these companies have
outstanding growth potential, in terms of both revenue and earnings, and should
perform quite well in the future. We believe our new management style has
already begun reaping benefits and we remain confident that these favorable
results will continue in the future.
Sincerely,
/s/ Wayne A. Stork /s/ David K. Downes
------------------ -------------------
Wayne A. Stork David K. Downes
Chairman, President and Chief Executive Officer,
Delaware Investments Family of Funds Delaware Investments Family of Funds
[Total Return Artwork]
2
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
---------------------------
John B. Jares
Paul A. Grillo
Stephen R. Cianci
Senior Portfolio Managers
December 6, 2000
Delaware Balanced Fund
Fixed Income Holdings
Portfolio Characteristics
October 31, 2000
---------------------------------------------
Average Duration* 5.09 years
---------------------------------------------
Average Effective Maturity** 8.63 years
---------------------------------------------
Average Credit Quality AAA
---------------------------------------------
*Duration is a common measure of a bond or
bond fund's sensitivity to interest
rate changes.
**Average effective maturity is the
average time remaining until scheduled
repayment by issuers of portfolio
securities.
Delaware Balanced Fund
Top Five Equity Holdings
October 31, 2000
---------------------------------------------
1. Carnival Cruise Lines 3.59%
---------------------------------------------
2. SBC Communications 3.12%
---------------------------------------------
3. Stilwell Financial 2.52%
---------------------------------------------
4. Safeway 2.51%
---------------------------------------------
5. American Home Products 2.39%
---------------------------------------------
The Fund's Results
Delaware Balanced Fund generated a -0.75% return for the 12 months ended October
31, 2000. (Class A shares at net asset value with distributions reinvested.)
During the year, a change in the Fund's lead portfolio manager also brought a
change in investment philosophy. While the negative returns in the early part of
our fiscal year resulted in the Fund lagging the overall markets, the
performance over the last six months has given us reason for optimism moving
forward.
In transitioning to the new management team, we faced the challenge of
repositioning the Fund at a time when the markets were under significant price
pressures. The current asset allocation is now in line with our new approach. We
believe that over the long-term, the results will prove successful for our
shareholders.
The Fund's shift in investment style can be defined by three key areas:
Dynamic Asset Allocation Model--Many balanced funds maintain a set asset mix of
60% equities and 40% fixed income. Your Fund's management team will tilt the
percentages to equities when they perceive that more companies meet their strict
criteria for growth and price appreciation potential. Conversely, when fewer
stocks look favorable, the allocation will shift to a higher percentage of
fixed-income securities. The Fund's equity positions will never exceed 75% of
net assets.
Focus on Growth Stocks--In the equity portion of the portfolio, the Fund has
begun to invest in growth-oriented companies that previously did not meet our
stock selection criteria, including companies in the technology and
telecommunications sectors. In selecting stocks, the Fund's management team
conducts extensive company research. In addition to projecting revenue and
earnings growth, we look very closely at the strength of the portfolio
companies' management teams and their positions within their respective
industries. In most cases, we believe these stocks offer a greater chance for
capital appreciation than more conservative stocks, which are typically
purchased for dividend income and/or capital preservation.
More Concentrated Equity Portfolio--While other balanced funds typically hold up
to 70 equity positions, we believe that the Fund can achieve adequate
diversification with 35 to 40 stocks. This more concentrated portfolio allows
the strong performers to really impact the Fund's return.
3
<PAGE>
Delaware Balanced Fund
Sector Allocation
October 31, 2000
Mortgage Backed Securities 13.34%
*Computers & Technology 12.48%
*Banking, Finance & Insurance 11.02%
Corporate Bonds 7.84%
*Telecommunications 8.21%
Other 17.71%
*Leisure, Lodging & Entertainment 5.06%
*Retail 5.26%
Repurchase Agreements 5.37%
U.S. Treasuries 5.96%
*Healthcare & Pharmaceuticals 7.75%
*Equity positions
Portfolio Highlights
Equity
In managing the Fund, we have closely tracked the telecommunications sector.
We invested in companies that are developing and building equipment to update
the telecommunications infrastructure: second- and third-generation Internet,
fiber-optics, and Personal Digital Assistant (PDA) technology. Many of our
holdings in technology and telecommunications are relatively new and reflect the
recent increase in the Fund's exposure to more growth-oriented stocks. Despite
the recent downturn in the technology sector, we still believe that there
continues to be enormous growth potential in technology over the next five to 10
years.
We believe our holdings in Palm have performed exceptionally well for us over
the past few months. The company utilizes PDA technology to develop, design, and
market handheld computing devices that also allow users to obtain Internet
connections and email capabilities without a personal computer. While the PC
markets have slowed as of late, more consumers are buying these affordable Palms
for both business and personal use.
We have also sought to take advantage of the depressed prices of certain
technology and telecommunications stocks that were caught up in the sell off
that began in April 2000. We now hold a position in Microsoft and believe that
the new Windows 2000 application will soon become the norm among business users.
We also recently added chipmaker Texas Instruments, a firm that lost significant
value over the past several months. We believe this company has tremendous
growth potential and represents an outstanding value in the market. Likewise, we
have invested in Tellabs, an optical solutions company that serves public
telephone companies, long-distance carriers, cellular service providers, cable
operators, government agencies, utilities, and business end-users. We feel that
the company is primed for success by offering next generation optical
technologies to these telecommunications companies.
The strong domestic economy has been enhanced by the buying patterns of the
consumer. Rising incomes and the "wealth effect" created by a higher stock
market over the past several years have provided additional disposable dollars
to spend. The food and drug chain, Safeway, has been an outstanding performer
for us among consumer stocks. The highly experienced management team has
developed successful sales strategies that have enabled the company to
consistently lower their cost structure and increase market share.
Unfortunately, not all of the Fund's holdings have proved to be successful.
While the new management style of the Fund has resulted in stronger performance
as of late, the early months of our fiscal year truly hindered the overall
results. During those months, investors overlooked virtually everything not
related to technology, telecommunications and other aggressive growth companies.
[Total Return Artwork]
4
<PAGE>
"WITHOUT IMMINENT
PROSPECTS FOR HIGHER
INTEREST RATES, FIXED-
INCOME SECURITIES HAVE
REBOUNDED TO PERFORM
QUITE WELL OVER THE
PAST FEW MONTHS."
Outside of technology, we continue to be invested in Best Buy, a specialty
retailer of name-brand consumer electronics, home office equipment,
entertainment software and appliances. The stock price has been under pressure
as of late as the company faces increased competition from other retailers
including pure Web-based entities. Gross margins have decreased as prices are
lowered to remain competitive. We believe that because of the technical nature
of the electronic products Best Buy sells (DVDs, PDAs, Internet appliances),
consumers will find that they require a higher level of service and attention
than is offered over the Internet and will return to "brick and mortar"
retailers that carry such products. Additionally, Best Buy now maintains an
effective Web presence itself to serve consumers.
We believe that leisure services companies, such as cruise lines, will benefit
from the demographic trend of baby boomers reaching retirement age with more
time and disposable income. We are invested in Carnival Cruise Lines, a company
uniquely prepared to take advantage of this trend by offering a broad range of
cruise brands from moderately priced to the luxury cruise sector. Unfortunately,
the entire leisure services industry, including Carnival, suffered early in the
year from fewer bookings as a result of Y2K fears. Since those concerns have
passed, Carnival has worked hard to reestablish cruises as the vacation of
choice among this age group and, thus, expects strong results in the seasons to
follow.
Pharmaceutical and biotech firms are increasing their research efforts in search
of cures for chronic diseases. One of our biotech holdings, Amgen, is currently
awaiting FDA approval for Abarelix, a drug that will more efficiently treat
oncology patients. While we believe Amgen still has some growth potential, the
stock has been quite volatile as some of their current patents are being legally
challenged by other companies which have developed generic versions of these
drugs. Pharmacia has been another strong healthcare related performer for the
Fund. One of the company's primary brands, Cerebrex, has proven to be an
effective pain reliever and the company has several important new drugs in the
pipeline.
Fixed-Income
In May, the Federal Reserve Board raised short-term interest rates for the sixth
time since June 1999. Since that time, Chairman Greenspan and the Fed have been
monitoring the economic releases each month to ensure that the economy slows to
a "soft landing" with little threat of recession. We are confident that the
domestic economy has now slowed enough to eliminate the need for additional
interest rate hikes in the foreseeable future. Without imminent prospects for
higher interest rates, fixed-income securities have rebounded to perform quite
well over the past few months. Additionally, cautious investors often purchase
more fixed-income securities during periods of severe stock market volatility
such as we are experiencing today.
5
<PAGE>
"BECAUSE THE
REBALANCING OF THE
FUND OCCURRED WHEN THE
MARKETS WERE UNDER
SIGNIFICANT PRICE
PRESSURES, WE BELIEVE
WE ADDED A NUMBER OF
ATTRACTIVE EQUITY
POSITIONS AT VERY
FAVORABLE LEVELS."
Over the first six months of the fiscal year (through April 30, 2000), the
Lehman Brothers Aggregate Bond Index, which measures investment-grade domestic
bonds, yielded +1.42%. By comparison, the Index returned +7.30% during the
following six months (through October 31, 2000). Fixed-income securities made up
about 39% of the Fund at fiscal year-end, October 31, 2000. These securities pay
interest to investors on a periodic basis which contributes to the income (and
yield) returned to shareholders. In managing this portion of the Fund, we rotate
among the various fixed-income sectors based on where we perceive value.
Currently, we are invested in higher-quality U.S. agency and mortgage-backed
securities and we own fewer corporate bonds. Investors typically seek the
safe-haven of the U.S. government markets during times of uncertainty. Since
April, we have shortened the average duration of the fixed-income portion of the
Fund, which has reduced the Fund's sensitivity and volatility to interest rates
changes.
Outlook
Because the rebalancing of the Fund occurred when the markets were under
significant price pressures, we believe we added a number of attractive equity
positions at very favorable levels. Though uncertainty remains in the equity
markets, we believe our holdings have strong growth and appreciation potential.
We believe the Federal Reserve Board is finished with its tightening cycle and
may even reduce interest rates early next year. Chairman Greenspan has
apparently negotiated the strong economy into a soft landing without threats of
a recession. We will certainly keep our eyes on the price of oil, particularly
in the winter months, for indications that inflation is creeping back into the
picture. If interest rates begin to fall next year, as we anticipate,
fixed-income investors may be able to enjoy a more favorable market environment.
Additionally, the volatility and uncertainty associated with the equity markets
often leads investors to seek the safe haven of Treasury and other government
agency securities. We believe our current allocation in bonds has put us in an
effective position to take advantage of this trend.
[Total Return Artwork]
6
<PAGE>
FUND BASICS
-----------
Fund Objective
The Fund seeks a balance of capital
appreciation, income and preservation
of capital.
Total Fund Assets
As of October 31, 2000
$522.77 million
Number of Holdings
89
Fund Start Date
April 25, 1938
Your Fund Managers
John B. Jares holds a BS degree in finance and an MBA from the University of
Colorado. He came to Delaware from Berger Funds, where he served as a portfolio
manager and securities analyst specializing in the consumer and technology
sectors. Mr. Jares is a CFA charterholder.
Paul C. Grillo holds a BA in Business Management from North Carolina State
University and an MBA in Finance from Pace University. Prior to joining Delaware
in 1993, Mr. Grillo served as Mortgage Strategist and Trader at Dreyfus
Corporation. He also served as Mortgage Strategist, Portfolio Manager, and
Financial Analyst at Chemical Bank. Mr. Grillo is a CFA charterholder.
Stephen R. Cianci joined Delaware in 1992 and holds the primary responsibility
of maintaining the investment grade analytical systems within Delaware's fixed
income department. In addition, Mr. Cianci performs portfolio analysis and
extensive security analysis in mortgage-backed securities, CMOs, corporates, and
asset-backed securities. Mr. Cianci is a CFA charterholder.
Nasdaq Symbols
Class A DELFX
Class B DELBX
Class C DEDCX
<PAGE>
DELAWARE BALANCED FUND PERFORMANCE
----------------------------------
Growth of a $10,000 Investment
October 31, 1990 through October 31, 2000
Delaware Balanced Lehman Brothers
S&P Fund Class Aggregate
500 Index A Shares Bond Index
--------- ----------------- ---------------
Dec. '90 $10,000 $ 9,424 $10,000
Oct. '91 $13,350 $11,715 $11,581
Oct. '92 $14,679 $13,164 $12,720
Oct. '93 $16,872 $14,732 $14,230
Oct. '94 $17,525 $14,996 $13,708
Oct. '95 $22,158 $17,435 $15,853
Oct. '96 $27,497 $20,237 $16,780
Oct. '97 $36,327 $24,699 $18,272
Oct. '98 $44,315 $28,355 $19,977
Oct. '99 $55,695 $28,479 $20,082
Oct. '00 $59,087 $28,266 $21,547
Chart assumes $10,000 invested on October 31, 1990 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to differing charges and
expenses. Returns plotted on the chart were as of the last day of each
successive month. You cannot invest directly in an index. Past performance is
not a guarantee of future results.
<TABLE>
<CAPTION>
Average Annual Total Returns
Through October 31, 2000 Lifetime 10 Years Five Years One Year
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (Est. 4/25/38)
Excluding Sales Charge +11.02% +11.61% +10.15% -0.75%
Including Sales Charge +10.92% +10.95% +8.85% -6.46%
---------------------------------------------------------------------------------------
Class B (Est. 9/6/94)
Excluding Sales Charge +9.80% +9.29% -1.52%
Including Sales Charge +9.80% +9.03% -5.83%
---------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +8.84% -1.52%
Including Sales Charge +8.84% -2.38%
---------------------------------------------------------------------------------------
</TABLE>
Returns reflect the reinvestment of distributions and any applicable sales
charges as noted below. Returns and share values will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost. Class B and C
share results, excluding sales charges, assume either that contingent deferred
sales charges did not apply or the investment was not redeemed. Past performance
is not a guarantee of future results.
Class A shares have a 5.75% maximum front-end sales charge and a 12b-1 fee.
Class B shares do not have a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are also subject to a contingent
deferred sales charge of up to 5% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
The average annual total returns for the lifetime, 10-year, five-year and
one-year periods ended October 31, 2000 for Delaware Balanced Fund's
Institutional Class shares were +11.05%, +11.78%, +10.37% and -0.55%,
respectively. The Institutional Class was originally made available without
sales charges or asset-based distribution charges only to certain eligible
institutional accounts on November 9, 1992. Institutional Class performance
prior to that date is based on Class A performance adjusted to eliminate sales
charges, but not the asset-based distribution charge of Class A.
Nasdaq Symbol Institutional Class: DEICX
7
<PAGE>
Statement of Net Assets
DELAWARE BALANCED FUND
----------------------
Number of Market
October 31, 2000 Shares Value
--------------------------------------------------------------------------------
Common Stock--56.54%
Banking, Finance & Insurance--11.02%
Bank of New York ................................. 149,000 $ 8,576,813
Capital One Financial ............................ 189,500 11,962,188
Chase Manhattan .................................. 80,750 3,674,125
Citigroup ........................................ 216,666 11,402,048
Schwab (Charles) ................................. 252,150 8,856,769
Stilwell Financial ............................... 293,800 13,165,913
-----------
57,637,856
-----------
Computers & Technology--12.48%
*America Online ................................... 108,700 5,481,741
*BEA Systems ...................................... 158,200 11,350,850
*Cadence Design Systems ........................... 480,700 12,347,981
Compaq Computer .................................. 222,700 6,772,307
*EMC .............................................. 69,900 6,225,469
*Gateway .......................................... 50,700 2,616,627
International Business Machines .................. 33,900 3,339,150
*Microsoft ........................................ 147,800 10,179,725
*Palm ............................................. 128,900 6,904,206
-----------
65,218,056
-----------
Electronics & Electrical Equipment--3.23%
*JDS Uniphase ..................................... 117,300 9,545,288
Texas Instruments ................................ 149,200 7,320,125
-----------
16,865,413
-----------
Energy--1.95%
Anadarko Petroleum ............................... 118,800 7,609,140
Schlumberger ..................................... 14,200 1,080,975
*+Southern Energy .................................. 56,000 1,526,000
-----------
10,216,115
-----------
Healthcare & Pharmaceuticals--7.75%
American Home Products ........................... 196,500 12,477,750
*Amgen ............................................ 112,100 6,494,794
*+Genentech ........................................ 110,600 9,124,500
Pharmacia ........................................ 113,169 6,224,295
St. Jude Medical ................................. 112,300 6,176,500
-----------
40,497,839
-----------
Leisure, Lodging & Entertainment--5.06%
Carnival Cruise Lines ............................ 755,200 18,738,400
Walt Disney ...................................... 215,500 7,717,594
-----------
26,455,994
-----------
Retail--5.26%
Best Buy ......................................... 230,500 11,568,219
*EBay ............................................. 55,200 2,842,800
*Safeway .......................................... 239,700 13,108,594
-----------
27,519,613
-----------
Telecommunications--8.21%
*Advanced Fiber Communications .................... 94,600 3,080,413
Comcast .......................................... 184,500 7,518,375
Nortel Networks .................................. 254,100 11,561,550
SBC Communications ............................... 282,700 16,308,256
*Tellabs .......................................... 89,400 4,464,413
-----------
42,933,007
-----------
<PAGE>
Number of Market
Shares Value
--------------------------------------------------------------------------------
Common Stock (continued)
Transportation & Shipping--1.58%
* FedEx ............................................ 176,000 $ 8,247,360
-----------
8,247,360
-----------
Total Common Stock
(cost $255,137,892) ............................ 295,591,253
-----------
Principal
Amount
---------
Agency Collateralized Mortgage Obligations--2.01%
Fanniemae Whole Loan Series 98-W3
A2 6.50% 7/25/28 ............................... $ 2,111,277 2,085,857
Federal Home Loan Mortgage Corporation
Structured Pass Through Securities
Series T-11 A5 6.50% 1/25/15 ................... 3,555,000 3,510,278
GNR 1998-9 B 6.85% 12/20/25 .................... 5,000,000 4,897,850
-----------
Total Agency Collateralized Mortgage
Obligations (cost $10,690,686) .................. 10,493,985
-----------
Agency Mortgage-Backed Securities--13.34%
Federal Home Loan Mortgage Corporation
7.00% 11/15/30 ................................. 4,000,000 3,923,750
7.50% 10/1/30 .................................. 6,000,000 6,000,000
8.50% 4/1/09 ................................... 244 255
Federal National Mortgage Association
7.00% 7/1/17 ................................... 802,196 794,675
7.00% 8/1/28 ................................... 1,831,119 1,793,924
7.00% 2/1/30 ................................... 17,294,130 16,980,671
7.00% 10/1/30 .................................. 10,500,000 10,299,844
7.50% 10/1/29 .................................. 18,880,026 18,881,909
Government National Mortgage Association
7.50% 7/15/30 .................................. 3,292,310 3,307,743
7.50% 8/15/30 .................................. 7,706,650 7,740,367
-----------
Total Agency Mortgage-Backed
Securities (cost $69,305,247) ................... 69,723,138
-----------
Agency Obligations--4.10%
Federal National Mortgage Association
+7.125% 6/15/10 ................................. 1,900,000 1,962,293
7.125% 1/15/30 ................................. 3,900,000 4,069,151
7.25% 1/15/10 .................................. 14,825,000 15,387,698
-----------
Total Agency Obligations
(cost $20,920,866) .............................. 21,419,142
-----------
Asset-Backed Securities--1.78%
+MBNA Master Credit Card Trust
Series 2000-I A 6.90% 1/15/08 .................. 1,730,000 1,739,048
PECO Energy Transition Trust Series 99-A
A4 5.80% 3/1/07 ................................ 1,260,000 1,214,413
8
<PAGE>
Statement of Net Assets (continued)
Principal Market
Delaware Balanced Fund Amount Value
--------------------------------------------------------------------------------
Asset-Backed Securities (continued)
Philadelphia, Pennsylvania Authority For
Industrial Development
Series 97 A 6.488% 6/15/04 .................... $2,442,275 $2,314,056
Residential Asset Securities Corporation
Series 2000-KS4 AI3 7.355% 1/25/26 ............ 4,000,000 4,013,750
----------
Total Asset-Backed Securities
(cost $11,990,194) ............................ 9,281,267
----------
Commercial Mortgage-Backed Securities--3.28%
Chase Commercial Mortgage Securities
Series 96-2 C 6.90% 11/19/06 .................. 1,753,625 1,718,729
Comm Series 2000-C1 A1
7.206% 9/15/08 ................................ 2,641,794 2,662,051
DLJ Commercial Mortgage Series 99-CG1
A1B 6.46% 1/10/09 ............................. 4,190,000 4,021,052
FUNCM Series 99-C4 A1
7.184% 9/15/08 ................................ 3,737,002 3,771,534
Lehman Large Loan Series 97-LLI A2
6.84% 9/12/06 ................................. 2,775,000 2,771,675
Nomura Asset Securities Series 93-1 A1
6.68% 12/15/01 ................................ 2,242,863 2,226,041
----------
Total Commercial Mortgage-Backed
Securities (cost $14,431,729) ................. 17,171,082
----------
Corporate Bonds--7.84%
Automobile & Auto Parts--0.49%
+Daimler Chrysler 7.75% 6/15/05 .................. 2,500,000 2,545,703
----------
2,545,703
----------
Banking, Finance & Insurance--2.67%
Banco Santander-Chile 6.50% 11/1/05 ............. 1,775,000 1,717,801
Morgan Stanley Dean Witter
7.75% 6/15/05 ................................. 2,850,000 2,911,865
Pemex Finance 9.69% 8/15/09 ..................... 3,000,000 3,142,410
UnitedHealth 6.60% 12/1/03 ...................... 3,300,000 3,196,624
Wells Fargo 6.625% 7/15/04 ...................... 3,050,000 3,009,722
----------
13,978,422
----------
Cable, Media & Publishing--0.44%
Time Warner Entertainment
8.375% 3/15/23 ................................ 2,200,000 2,305,294
----------
2,305,294
----------
Computers & Technology--0.21%
Sun Microsystems 7.65% 8/15/09 .................. 1,060,000 1,073,401
----------
1,073,401
----------
<PAGE>
Principal Market
Amount Value
------------------------------------------------------------------------------
Corporate Bonds (continued)
Electronics & Electrical Equipment--0.52%
+Computer Science 7.50% 8/8/05 ................... $ 2,700,000 $ 2,728,868
-----------
2,728,868
-----------
Energy--0.63%
Osprey Trust 144A 8.31% 1/15/03 ................. 3,250,000 3,285,926
-----------
3,285,926
-----------
Environmental Services--0.32%
USA Waste Services 6.125% 7/15/01 ............... 1,715,000 1,682,070
-----------
1,682,070
-----------
Industrial Machinery--0.55%
Arrow Electric International
8.20% 10/1/03 ................................. 1,550,000 1,547,656
Cinergy Corporation 6.53% 12/16/08 .............. 1,500,000 1,342,779
-----------
2,890,435
-----------
Telecommunications--1.73%
Cox Communications 6.15% 8/1/03 ................. 2,620,000 2,543,140
Liberty Media 8.50% 7/15/29 ..................... 1,000,000 930,528
+MCI Worldcom 7.55% 4/1/04 ....................... 3,495,000 3,522,006
Telefonica Europe 8.25% 9/15/30 ................. 2,000,000 2,060,986
-----------
9,056,660
-----------
Transportation & Shipping--0.28%
Stagecoach Holdings 8.625% 11/15/09 ............. 1,650,000 1,487,242
-----------
1,487,242
-----------
Total Corporate Bonds
(cost $41,549,013) ............................. 41,034,021
-----------
Non-Agency Collateralized Mortgage Obligations--0.64%
Residential Accredit Loans Series 98-QS9
A3 6.75% 7/25/28 .............................. 3,365,000 3,339,368
-----------
Total Non-Agency Collateralized Mortgage
Obligations (cost $3,367,950) .................. 3,339,368
-----------
U.S. Treasury Obligations--5.96%
U.S. Treasury Bond 8.875% 8/15/17 ............... 4,125,000 5,362,492
U.S. Treasury Notes
+ 6.00% 8/15/09 ................................. 3,435,000 3,471,744
+ 6.50% 2/15/10 ................................. 15,290,000 16,010,327
+ 6.75% 5/15/05 ................................. 3,000,000 3,111,096
+**U.S. Treasury Strips 6.478% 2/15/27 ............. 15,000,000 3,219,705
-----------
Total U.S. Treasury Obligations
(cost $29,944,350) ............................ 31,175,364
-----------
9
<PAGE>
Statement of Net Assets (continued)
Principal Market
Delaware Balanced Fund Amount Value
--------------------------------------------------------------------------------
Repurchase Agreements--5.37%
With Chase Manhattan 6.55% 11/1/00
(dated 10/31/00, collateralized by
$9,898,000 U.S. Treasury Notes 4.75%
due 2/15/04, market value $9,670,997) ......... $9,427,000 $ 9,427,000
With J.P. Morgan Securities 6.52% 11/1/00
(dated 10/31/00, collateralized by
$3,919,000 U.S. Treasury Notes 6.25%
due 2/15/03, market value $3,994,381
and $2,662,000 U.S. Treasury Notes
5.250% due 8/15/03, market value
$2,647,269 and $2,662,000
U.S. Treasury Notes 7.25% due 5/15/04,
market value $2,865,253) ...................... 9,316,000 9,316,000
With PaineWebber 6.54% 11/1/00
(dated 10/31/00, collateralized
by $9,230,000 U.S. Treasury Notes
5.875% due 11/15/05,
market value $9,515,326) ...................... 9,316,000 9,316,000
------------
Total Repurchase Agreements
(cost $28,059,000) ............................ 28,059,000
------------
Total Market Value of Securities--100.86%
(cost $485,396,927) ........................... 527,287,620
Liabilities Net of Receivables and
Other Assets--(0.86%) ......................... (4,515,483)
------------
Net Assets Applicable to 28,082,528
Shares Outstanding--100.00% ................... $522,772,137
============
Net Asset Value--Delaware Balanced Fund
A Class ($436,533,520 / 23,448,272 shares) .... $18.62
------
Net Asset Value--Delaware Balanced Fund
B Class ($49,353,323 / 2,653,472 shares) ...... $18.60
------
Net Asset Value--Delaware Balanced Fund
C Class ($10,992,791 / 591,645 shares) ........ $18.58
------
Net Asset Value--Delaware Balanced Fund
Institutional Class ($25,892,503 /
1,389,139 shares) ............................. $18.64
------
----------------------
*Non income producing security for the year ended October 31, 2000.
+Security is partially or fully on loan.
**Zero coupon security. The interest rate disclosed is the effective yield at
the time of purchase.
<PAGE>
--------------------------------------------------------------------------------
Components of Net Assets at October 31, 2000:
Shares of beneficial interest (unlimited
authorization--no par) ........................ $482,200,716
Undistributed net investment income ............. 5,915,108
Accumulated net realized loss on investments .... (7,234,380)
Net unrealized appreciation of investments ...... 41,890,693
------------
Total net assets ................................ $522,772,137
============
Net Asset Value and Offering Price per Share--
Delaware Balanced Fund
Net asset value A Class (A) ..................... $18.62
Sales charge (5.75% of offering price or 6.12% of
the amount invested per share) (B) ............ 1.14
------
Offering price .................................. $19.76
======
----------------------
(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.
10
<PAGE>
Statement of Operations
Year Ended October 31, 2000 Delaware Balanced Fund
--------------------------------------------------------------------------------
Investment Income:
Interest ........................................... $ 17,762,969
Dividends .......................................... 3,283,249 $ 21,046,218
------------ ------------
Expenses:
Management fees .................................... 3,911,319
Distribution expenses .............................. 1,848,357
Dividend disbursing and transfer agent fees
and expenses ..................................... 1,545,535
Reports and statements to shareholders ............. 290,096
Accounting and administration expenses ............. 247,532
Registration fees .................................. 144,445
Taxes (other than taxes on income) ................. 115,980
Custodian fees ..................................... 65,006
Professional fees .................................. 53,548
Trustees' fees ..................................... 22,928
Other .............................................. 97,030 8,341,776
------------
Less expenses paid indirectly ...................... (29,070)
------------
Total expenses ..................................... 8,312,706
------------
Net Investment Income .............................. 12,733,512
------------
Net Realized and Unrealized Loss on Investments:
Net realized loss on investments ................... (5,761,847)
Net change in unrealized appreciation/depreciation
of investments ................................... (17,350,786)
------------
Net Realized and Unrealized Loss on Investments .... (23,112,633)
------------
Net Decrease in Net Assets Resulting from Operations ($10,379,121)
============
See accompanying notes
11
<PAGE>
Statements of Changes in Net Assets
Delaware Balanced Fund
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
10/31/00 10/31/99
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations:
Net investment income ............................... $ 12,733,512 $ 17,340,770
Net realized gain (loss) on investments ............. (5,761,847) 83,578,653
Net change in unrealized appreciation/depreciation
of investments .................................... (17,350,786) (79,429,533)
------------- -------------
Net increase (decrease) in net assets resulting from
operations ........................................ (10,379,121) 21,489,890
------------- -------------
Distributions to Shareholders from:
Net investment income:
A Class ........................................... (5,318,355) (13,300,317)
B Class ........................................... (214,073) (771,082)
C Class ........................................... (53,808) (311,819)
Institutional Class ............................... (989,220) (6,247,007)
Net realized gain on investments:
A Class ........................................... (65,278,668) (27,586,794)
B Class ........................................... (7,495,236) (1,771,950)
C Class ........................................... (1,970,842) (833,383)
Institutional Class ............................... (10,187,208) (13,695,337)
------------- -------------
(91,507,410) (64,517,689)
------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
A Class ........................................... 31,374,210 57,112,267
B Class ........................................... 13,081,010 47,869,090
C Class ........................................... 3,507,494 12,722,007
Institutional Class ............................... 22,248,739 64,951,308
Net asset value of shares issued upon reinvestment of
distributions:
A Class ........................................... 56,673,328 32,315,339
B Class ........................................... 7,337,876 2,415,413
C Class ........................................... 1,951,025 1,107,652
Institutional Class ............................... 10,728,780 19,941,662
------------- -------------
146,902,462 238,434,738
------------- -------------
Cost of shares repurchased:
A Class ........................................... (135,805,028) (99,907,451)
B Class ........................................... (28,995,712) (12,727,442)
C Class ........................................... (13,199,470) (8,757,677)
Institutional Class ............................... (78,542,742) (302,317,134)
------------- -------------
(256,542,952) (423,709,704)
------------- -------------
Decrease in net assets derived from capital share
transactions ...................................... (109,640,490) (185,274,966)
------------- -------------
Net Decrease in Net Assets .......................... (211,527,021) (228,302,765)
------------- -------------
Net Assets:
Beginning of period ................................. 734,299,158 962,601,923
End of period ....................................... $ 522,772,137 $ 734,299,158
============= =============
</TABLE>
See accompanying notes
12
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Balanced Fund A Class
------------------------------------------------------------------------------------------------------------------------
Year Ended
10/31/00 10/31/99 10/31/98 10/31/97 10/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $21.600 $22.970 $22.950 $21.260 $19.940
Income (loss) from investment operations:
Net investment income(1) ................................ 0.403 0.422 0.510 0.610 0.706
Net realized and unrealized gain (loss) on investments .. (0.617) (0.257) 2.620 3.680 2.349
---------------------------------------------------------
Total from investment operations ........................ (0.214) 0.165 3.130 4.290 3.055
---------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income .................... (0.213) (0.495) (0.510) (0.680) (0.655)
Distributions from net realized gain on investments ..... (2.553) (1.040) (2.600) (1.920) (1.080)
---------------------------------------------------------
Total dividends and distributions ....................... (2.766) (1.535) (3.110) (2.600) (1.735)
---------------------------------------------------------
Net asset value, end of period ............................. $18.620 $21.600 $22.970 $22.950 $21.260
=========================================================
Total return(2) ............................................ (0.75%) 0.44% 14.80% 22.05% 16.07%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................. $436,534 $562,975 $610,332 $554,448 $490,150
Ratio of expenses to average net assets ................. 1.31% 1.12% 0.98% 0.97% 0.99%
Ratio of net investment income to average net assets .... 2.14% 1.85% 2.25% 2.83% 3.39%
Portfolio turnover ...................................... 165% 87% 86% 81% 92%
</TABLE>
----------------------
(1) Per share information for the years ended October 31, 1999 and 2000 was
based on the average shares outstanding method.
(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 and does not reflect the impact of a sales charge.
See accompanying notes
13
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Balanced Fund B Class
------------------------------------------------------------------------------------------------------------------------
Year Ended
10/31/00 10/31/99 10/31/98 10/31/97 10/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $21.590 $22.950 $22.880 $21.200 $19.900
Income (loss) from investment operations:
Net investment income(1) ................................ 0.259 0.246 0.337 0.452 0.525
Net realized and unrealized gain (loss) on investments .. (0.621) (0.251) 2.608 3.658 2.350
---------------------------------------------------------
Total from investment operations ........................ (0.362) (0.005) 2.945 4.110 2.875
---------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income .................... (0.075) (0.315) (0.275) (0.510) (0.495)
Distributions from net realized gain on investments ..... (2.553) (1.040) (2.600) (1.920) (1.080)
---------------------------------------------------------
Total dividends and distributions ....................... (2.628) (1.355) (2.875) (2.430) (1.575)
---------------------------------------------------------
Net asset value, end of period ............................. $18.600 $21.590 $22.950 $22.880 $21.200
=========================================================
Total return(2) ............................................ (1.52%) (0.31%) 13.90% 21.09% 15.15%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................. $49,353 $67,090 $33,884 $16,659 $6,872
Ratio of expenses to average net assets ................. 2.07% 1.89% 1.77% 1.78% 1.80%
Ratio of net investment income to average net assets .... 1.38% 1.08% 1.46% 2.00% 2.58%
Portfolio turnover ...................................... 165% 87% 86% 81% 92%
</TABLE>
----------------------
(1) Per share information for the years ended October 31, 1999 and 2000 was
based on the average shares outstanding method.
(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 and does not reflect the impact of a sales charge.
See accompanying notes
14
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Balanced Fund C Class
------------------------------------------------------------------------------------------------------------------------
11/29/95(1)
Year Ended to
10/31/00 10/31/99 10/31/98 10/31/97 10/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $21.570 $22.930 $22.870 $21.180 $20.500
Income (loss) from investment operations:
Net investment income(2) ................................ 0.251 0.246 0.335 0.460 0.583
Net realized and unrealized gain (loss) on investments .. (0.613) (0.251) 2.600 3.655 1.757
---------------------------------------------------------
Total from investment operations ........................ (0.362) (0.005) 2.935 4.115 2.340
---------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income .................... (0.075) (0.315) (0.275) (0.505) (0.580)
Distributions from net realized gain on investments ..... (2.553) (1.040) (2.600) (1.920) (1.080)
---------------------------------------------------------
Total dividends and distributions ....................... (2.628) (1.355) (2.875) (2.425) (1.660)
---------------------------------------------------------
Net asset value, end of period ............................. $18.580 $21.570 $22.930 $22.870 $21.180
=========================================================
Total return(3) ............................................ (1.52%) (0.31%) 13.85% 21.07% 12.13%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................. $10,993 $21,192 $17,730 $8,090 $1,990
Ratio of expenses to average net assets ................. 2.07% 1.89% 1.77% 1.78% 1.80%
Ratio of net investment income to average net assets .... 1.38% 1.08% 1.46% 2.00% 2.58%
Portfolio turnover ...................................... 165% 87% 86% 81% 92%
</TABLE>
----------------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Per share information for the years ended October 31, 1999 and 2000 was
based on the average shares outstanding method.
(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
15
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Balanced Fund Institutional Class
------------------------------------------------------------------------------------------------------------------------
Year Ended
10/31/00 10/31/99 10/31/98 10/31/97 10/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $21.630 $23.000 $23.000 $21.300 $19.980
Income (loss) from investment operations:
Net investment income(1) ................................ 0.449 0.480 0.585 0.659 0.727
Net realized and unrealized gain (loss) on investments .. (0.618) (0.265) 2.595 3.681 2.363
---------------------------------------------------------
Total from investment operations ........................ (0.169) 0.215 3.180 4.340 3.090
---------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income .................... (0.268) (0.545) (0.580) (0.720) (0.690)
Distributions from net realized gain on investments ..... (2.553) (1.040) (2.600) (1.920) (1.080)
---------------------------------------------------------
Total dividends and distributions ....................... (2.821) (1.585) (3.180) (2.640) (1.770)
---------------------------------------------------------
Net asset value, end of period ............................. $18.640 $21.630 $23.000 $23.000 $21.300
=========================================================
Total return(2) ............................................ (0.55%) 0.70% 15.03% 22.29% 16.25%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................. $25,892 $83,042 $300,656 $153,176 $125,751
Ratio of expenses to average net assets ................. 1.07% 0.89% 0.77% 0.78% 0.80%
Ratio of net investment income to average net assets .... 2.38% 2.08% 2.46% 3.00% 3.58%
Portfolio turnover ...................................... 165% 87% 86% 81% 92%
</TABLE>
----------------------
(1) Per share information for the years ended October 31, 1999 and 2000 was
based on the average shares outstanding method.
(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.
See accompanying notes
16
<PAGE>
Notes to Financial Statements
October 31, 2000
--------------------------------------------------------------------------------
Delaware Group Equity Funds I (the "Trust") is organized as a Delaware business
trust and offers two series: Delaware Balanced Fund and Delaware Devon Fund.
These financial statements and notes pertain to Delaware Balanced Fund (the
"Fund"). Delaware Balanced Fund is a diversified open-end investment company
under the Investment Company Act of 1940, as amended. The Fund offers four
classes of shares. The A Class carries a maximum front-end sales charge of
5.75%. The B Class carries a back-end deferred sales charge. The C Class carries
a level load deferred sales charge and the Institutional Class has no sales
charge.
The Fund's objective is to seek a balance of capital appreciation, income and
preservation of capital.
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 regular 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. Long-term debt
securities are valued by an independent pricing service and such prices are
believed to reflect the fair value of such securities. 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 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
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 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. Original issue discounts are accreted to interest
income over the lives of the respective securities. The Fund declares and pays
dividends from net investment income quarterly and from 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 $14,027 for the year ended October 31, 2000. In
addition, the Fund receives earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. These
credits were approximately $15,043 for the year ended October 31, 2000. The
expenses paid under the above arrangements are included in their respective
expense captions on the Statement of Operations with the corresponding expense
offset shown as "Expenses paid indirectly".
<PAGE>
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), a series of Delaware Management Business
Trust and the investment manager of the Fund, an annual fee which is calculated
daily at the rate of 0.65% on the first $500 million, 0.60% on the next $500
million, 0.55% on the next $1.5 billion and 0.50% on the net assets in excess of
$2.5 billion. At October 31, 2000, the Fund had a liability for investment
management fees and other expenses payable to DMC of $1,254.
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
October 31, 2000, the Fund had a liability for such fees and other expenses
payable to DSC of $57,781.
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. At October 31, 2000, the Fund
had a liability for such fees and other expenses payable to DDLP of $64,166.
17
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
2. Investment Management and Other Transactions with Affiliates
(continued)
For the year ended October 31, 2000, DDLP earned $37,532 for commissions on
sales of the Fund A Class shares.
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
For the year ended October 31, 2000, the Fund made purchases of $823,938,579 and
sales of $1,015,195,490 of investment securities other than U.S. government
securities and temporary cash investments.
At October 31, 2000, the net unrealized appreciation for federal income tax
purposes aggregated $40,398,281 of which $54,174,877 related to unrealized
appreciation of securities and $13,776,596 related to unrealized depreciation of
securities. At October 31, 2000, the aggregate cost of securities for federal
income tax purposes was $486,889,339.
For federal income tax purposes, the Fund had accumulated capital losses as of
October 31, 2000 of $5,741,968, that will expire in 2008, which may be carried
forward and applied against future capital gains.
4. Capital Shares
Transactions in capital shares were as follows:
Year Ended
10/31/00 10/31/99
Shares sold:
A Class ......................................... 1,634,997 2,483,043
B Class ......................................... 692,520 2,091,897
C Class ......................................... 187,620 552,593
Institutional Class ............................. 1,175,091 2,817,975
Shares issued upon reinvestment of distributions:
A Class ......................................... 3,079,953 1,410,937
B Class ......................................... 398,933 105,717
C Class ......................................... 106,199 48,444
Institutional Class ............................. 582,878 868,541
----------- -----------
7,858,191 10,379,147
----------- -----------
Shares repurchased:
A Class ......................................... (7,332,009) (4,404,727)
B Class ......................................... (1,545,732) (566,237)
C Class ......................................... (684,649) (391,653)
Institutional Class ............................. (4,207,365) (12,920,482)
----------- -----------
(13,769,755) (18,283,099)
----------- -----------
Net decrease ...................................... (5,911,564) (7,903,952)
=========== ===========
5. Lines of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participate in a $375,400,000 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 Fund's 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 amount outstanding as of October 31, 2000, or at any time during the
fiscal year.
6. Market and Credit Risk
The Fund may invest in securities whose value is derived from an underlying pool
of mortgages or consumer loans. Prepayment of these loans may shorten the stated
maturity of the respective obligation and may result in a loss of premium, if
any has been paid.
The Fund may invest up to 10% of its total assets in illiquid securities which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of some of these securities may adversely affect the Fund's ability
to dispose of such securities in a timely manner and at a fair price when it is
necessary to liquidate such securities.
<PAGE>
7. Securities Lending
The Fund may participate, along with other funds in the Delaware Investments
Family of Funds, in a Security Lending Agreement ("Lending Agreement"). Security
Loans made pursuant to the Lending Agreement are required at all times to be
secured by U.S. Treasury obligations and/or cash collateral at least equal to
100% of the market value of the securities issued in the U.S. Cash collateral
received is invested in fixed-income securities, with a weighted average
maturity not to exceed 90 days, rated in one of the top two tiers by Standard &
Poor's Ratings Group or Moody's Investors Service, Inc. or repurchase agreements
collateralized by such securities. However, in the event of default or
bankruptcy by the lending agent, realization and/or retention of the collateral
may be subject to legal proceedings. In the event the borrower fails to return
loaned securities and the collateral received is insufficient to cover the value
of the loaned securities and provided such collateral is not the result of
investment losses, the lending agent has agreed to pay the amount of the
shortfall to the Fund, or at the discretion of the lending agent, replace the
loaned securities. The market value of securities on loan and the related
collateral received at October 31, 2000 were $39,872,275 and $40,385,545,
respectively. Net income from securities lending was $233,802 and is included in
interest income on the Statement of Operations.
18
<PAGE>
Notes to Financial Statements (continued)
October 31, 2000
--------------------------------------------------------------------------------
8. Tax Information (Unaudited)
The information set forth below is for the Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in early 2001. Please
consult your tax advisor for proper treatment of this information.
For the fiscal year ended October 31, 2000, the Fund designates distributions
paid during the year as follows:
(A) (B)
Long-Term Ordinary (C)
Capital Gains Income Total (D)
Distributions Distributions Distributions Qualifying
(Tax Basis) (Tax Basis) (Tax Basis) Dividends(1)
------------- ------------- ------------- ------------
93% 7% 100% 26%
(A) and (B) are based on a percentage of the Fund's total distributions.
(D) is based on a percentage of ordinary income of the Fund.
----------------------
(1) Qualifying dividends represent dividends which qualify for the corporate
dividends received deduction.
19
<PAGE>
Report of Independent Auditors
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Delaware Group Equity Funds I--Delaware Balanced Fund
We have audited the accompanying statement of net assets of Delaware Balanced
Fund (the "Fund") as of October 31, 2000, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, 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 auditing standards generally accepted
in the United States. 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 October 31, 2000, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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 Balanced Fund at October 31, 2000, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Philadelphia, Pennsylvania
December 8, 2000
20
<PAGE>
DELAWARE INVESTMENTS FAMILY OF FUNDS
------------------------------------
More information on any fund offered by Delaware Investments can be found in
each fund's current prospectus. Prospectuses for all funds offered by Delaware
Investments are available from your financial adviser. Please read the
prospectus carefully before you invest or send money.
BUILDING BLOCKS
OF A DIVERSIFIED PORTFOLIO
AGGRESSIVE GROWTH EQUITY FUNDS
GROWTH EQUITY FUNDS
TAX
TAXABLE EXEMPT INTERNATIONAL ASSET
MODERATE GROWTH BOND BOND AND GLOBAL ALLOCATION
EQUITY FUNDS FUNDS FUNDS FUNDS FUNDS
STABILITY OF PRINCIPAL
[ ] Growth of Capital
o Technology and Innovation
Fund
o Select Growth Fund
o Trend Fund
o Growth Opportunities Fund*
o Small Cap Value Fund
o U.S. Growth Fund
o Tax-Efficient Equity Fund
o Social Awareness Fund
[ ] Total Return
o Blue Chip Fund
o Devon Fund
o Growth and Income Fund
o Decatur Equity Income Fund
o REIT Fund
o Balanced Fund
[ ] International and Global
o Emerging Markets Fund
o New Pacific Fund
o Overseas Equity Fund
o International Equity Fund
o Global Equity Fund
o Global Bond Fund
[ ] Current Income
o Delchester Fund
o High-Yield
Opportunities Fund
o Strategic Income Fund
o Corporate Bond Fund
o Extended Duration
Bond Fund
o American Government
Bond Fund
o U.S. Government
Securities Fund
o Limited-Term
Government Fund
[ ] Tax-Exempt Income
o National High-Yield
Municipal Bond Fund
o Tax-Free USA Fund
o Tax-Free Insured Fund
o Tax-Free USA
Intermediate Fund
o State Tax-Free Funds**
[ ] Stability of Principal
o Cash Reserve
o Tax-Free Money Fund
Asset Allocation
o Foundation Funds
Growth Portfolio
Balanced Portfolio
Income Portfolio
* Formerly known as DelCap Fund.
** Available for the following states: Arizona, California, Colorado, Florida,
Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, North Dakota, New Jersey,
New Mexico, New York, Oregon, Pennsylvania and Wisconsin. Insured and
intermediate bond funds are available in selected states.
(C) Delaware Distributors, L.P.
<PAGE>
DELAWARE(SM)
INVESTMENTS
---------------------
Philadelphia o London
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawareinvestments.com
This annual report is for the information of Delaware Balanced Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Balanced Fund and the Delaware
Investments Performance Update for the most recently completed calendar quarter.
The prospectus sets 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.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
BOARD OF TRUSTEES Charles E. Peck Investment Manager
Retired Delaware Management Company
Wayne A. Stork Fredericksburg, VA Philadelphia, PA
Chairman
Delaware Investments Family of Funds Janet L. Yeomans International Affiliate
Philadelphia, PA Vice President and Treasurer Delaware International Advisers Ltd.
3M Corporation London, England
Walter P. Babich St. Paul, MN
Board Chairman National Distributor
Citadel Constructors, Inc. Delaware Distributors, L.P.
King of Prussia, PA Affiliated Officers Philadelphia, PA
David K. Downes Charles E. Haldeman, Jr. Shareholder Servicing, Dividend
President and Chief Executive Officer President and Chief Executive Officer Disbursing and Transfer Agent
Delaware Investments Family of Funds Delaware Management Holdings, Inc. Delaware Service Company, Inc.
Philadelphia, PA Philadelphia, PA Philadelphia, PA
John H. Durham Richard J. Flannery 2005 Market Street
Private Investor Executive Vice President Philadelphia, PA 19103-3682
Horsham, PA and General Counsel
Delaware Investments Family of Funds
Anthony D. Knerr Philadelphia, PA
Consultant, Anthony Knerr & Associates
New York, NY Bruce D. Barton
President and Chief Executive Officer
Ann R. Leven Delaware Distributors, L.P.
Former Treasurer, National Gallery of Art Philadelphia, PA
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
</TABLE>
(4081) Printed in the USA
AR-002 [10/00] PPL 12/00 J6558
