<PAGE>
DELAWARE(SM)
INVESTMENTS
-----------
Delaware Devon Fund
Total Return
2000 ANNUAL REPORT
(Total Return Artwork)
<PAGE>
TABLE OF CONTENTS
-----------------
Letter to Shareholders 1
Portfolio Management
Review 3
Performance Summary 6
Financial Statements
Statement of Net Assets 7
Statement of Operations 9
Statements of Changes in
Net Assets 10
Financial Highlights 11
Notes to Financial
Statements 15
Report of Independent
Auditors 17
A TRADITION OF SOUND INVESTING SINCE 1929
-----------------------------------------
A Commitment To Our Investors
Experienced
[ ] Our seasoned investment professionals average 11 years' experience.
[ ] 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
[ ] We follow strict investment policies and clear buy/sell guidelines.
[ ] We strive to balance risk and reward in order to provide sound investment
alternatives within any given asset class.
Consistent
[ ] We clearly articulate our investment policies and follow them
consistently.
[ ] 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
[ ] 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
[ ] 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
"MAJOR INDEXES SUCH AS THE DOW JONES INDUSTRIAL AVERAGE, THE S&P 500, AND THE
NASDAQ COMPOSITE ARE IN NEGATIVE TERRITORY YEAR-TO-DATE THROUGH OCTOBER 31ST
(SOURCE: BLOOMBERG)."
December 4, 2000
Recap of Events--The record-setting expansion of the U.S. economy has continued
in 2000, yet the U.S. equities market has cooled considerably after strong
performance in recent years. Volatility in the markets has been running high,
and the broad market for U.S. equities is struggling toward its most
disappointing calendar year since 1994. After strong performance in late 1999
and early 2000, stock market indexes gave up significant ground in the spring
and have been volatile ever since. Major indexes such as the Dow Jones
Industrial Average, the S&P 500, and the Nasdaq Composite are in negative
territory year to date through October 31st (Source: Bloomberg).
There are several reasons for the volatility. Recently, disappointing earnings
announcements by one company have often been followed by brief, but sharp,
declines in whole sectors. The rising cost of oil has analysts concerned that
the pace of economic activity may slow, causing consumers to reduce spending,
especially for low-end retail products.
There is also concern on the part of investors and analysts over stock
valuations for companies that play roles in the New Economy. In recent months,
we've begun to see increased focus on corporate fundamentals such as earnings
and questions about the long-term sustainability of corporate growth. We believe
this trend is positive, because it has been helping to move stocks toward fair
values.
Delaware Devon Fund returned -7.14% during the fiscal year ended
October 31, 2000 (Class A shares at net asset value with distributions
reinvested). The Fund's disappointing performance is largely attributed to the
high-flying technology stocks that dominated the stock market in the first half
of our fiscal year. We believe many of these Internet-related stocks were
overvalued and, therefore, did not make for a prudent investment.
Total Return
For The Period Ended October 31, 2000 One Year
--------------------------------------------------------------------------------
Delaware Devon Fund Class A Shares -7.14%
--------------------------------------------------------------------------------
Standard & Poor's 500 Index +6.08%
Lipper Multi-Cap Value Funds Average (509 funds) +10.94%
--------------------------------------------------------------------------------
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 6. The S&P 500 Index is an unmanaged composite of mostly
large-capitalization U.S. companies. The Lipper category represents the average
return of Multi-Cap Value Funds tracked by Lipper (Source: Lipper Inc.). You
cannot invest directly in an index. Past performance is not a guarantee of
future results.
1
<PAGE>
". . . WE BELIEVE THAT YOUR FUND IS WELL-POSITIONED TO TAKE ADVANTAGE OF
INVESTMENT OPPORTUNITIES THAT ARISE IN THE MARKET."
(Total Return Artwork)
Market Outlook--One year ago, our outlook for the U.S. stock market was for a
return to normalcy--that is, a resumption of stock returns that are closer to
normal averages of about 11% annually. We think that the events of the past year
have set such a trend in motion. We also expect market volatility to continue,
but we believe that your Fund is well-positioned to take advantage of investment
opportunities that arise in the market.
Since it is impossible to predict the short-term direction of the markets with
any real accuracy, we recommend that investors continue to rely on basic, sound
principles of investing. These include sticking to a regular investment plan,
diversifying your assets, and keeping a long-term outlook, as well as
considering your own risk tolerance and financial goals. For help in balancing
such considerations, contact your financial adviser.
On the pages that follow, Delaware Devon Fund manager Francis X. Morris
discusses your Fund's performance over the past year and provides his outlook on
the equities market. As always, we thank you for remaining committed to Delaware
Investments.
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
2
<PAGE>
Francis X. Morris
Senior Portfolio Manager
December 4, 2000
"DELAWARE DEVON FUND FOCUSES ON STOCKS OF UNDERVALUED COMPANIES THAT MAY BE IN
TRANSITION FROM VALUE TO GROWTH OR FROM MID-CAPITALIZATION (MID-CAP) TO
LARGE-CAP STATUS."
PORTFOLIO MANAGEMENT REVIEW
---------------------------
The Fund's Results
Delaware Devon Fund had a -7.14% total return (Class A shares at net asset value
with distributions reinvested) for the fiscal year ended October 31, 2000. Our
disappointing performance resulted, in part, from the market's focus during the
beginning of our fiscal year on highly-valued, momentum-driven stocks, including
those in the technology sector.
Delaware Devon Fund focuses on stocks of undervalued companies that may be in
transition from value to growth or from mid-capitalization (mid-cap) to
large-cap status. Within these groups, we search for companies that have stable,
consistent earnings, strong management, and accelerated growth rates. From
August through October 2000, the Fund's performance improved materially, as the
market began to pay more attention to growth at a reasonable price.
Portfolio Highlights
Among our holdings, Delaware Devon Fund benefited from good performance among
stocks in the energy, financial services and consumer products sectors. The Fund
took a broad approach to energy stocks, seeing opportunities throughout the
sector. Amerada Hess, Anadarko Petroleum, Nabors Industries, and Halliburton,
among others, delivered strong performance. We sold our holdings in Anadarko
Petroleum and Nabors Industries in October 2000, as we felt their stock prices
fully reflected their future earnings.
Our investments in financial companies, such as MBNA and Capital One and in
government services enterprises, such as Federal Home Loan Mortgage Corporation
(Freddie Mac), performed well over the fiscal year. In consumer products, we
benefited by owning Best Foods, a high quality company that was acquired by
Unilever. We have since sold our holdings in Best Foods as we believed the
shares approached the takeover price.
The Fund also experienced some disappointments. Many investors who held
companies that missed their earnings or downgraded their forecasts got stung. In
our case, Procter & Gamble and Honeywell International, which has since been
acquired by General Electric, missed earnings targets. As a shareholder, we paid
the price when these stocks tumbled. We sold our position in Procter & Gamble in
March 2000, because we did not believe the company would produce significant
earnings in the foreseeable future.
3
<PAGE>
"GENERALLY, WE ARE CONFIDENT ABOUT INVESTMENT OPPORTUNITIES FOR THE FUND OVER
THE NEXT YEAR."
(Total Return Artwork)
Our telecommunications holdings have also hampered our performance. The Fund was
particularly hurt by our holdings in AT&T. We sold the stock because of its
uncertain prospects. We have reduced our exposure to the telecommunications
sector, but we continue to monitor its long-term outlook.
Bristol-Myers Squibb, a pharmaceutical company, also proved disappointing for
us. The stock fell mid-fiscal year due to a delay in the approval of Vanlev, a
promising new drug for the treatment of hypertension and heart failure. We
continue to hold the company in our portfolio because we feel it represents an
excellent value and has a shareholder friendly management style.
A major factor in our relative underperformance was that we had significantly
fewer holdings in technology stocks than our benchmark. Early in the calendar
year, we held just 15% of our assets in technology stocks, compared with a
technology weighting of more than 30% for the Standard & Poor's 500 Index. Since
the Fund focuses on stocks with reasonable valuations, we were not attracted to
many of the high-priced technology stocks and we struggled to find opportunities
that met our investment criteria.
Additionally, even those technology stocks that met our criteria because of
lower valuations were not immune to sharp market corrections. In particular, the
Fund held positions in BMC Software and Computer Associates, which experienced
earnings disappointments when demand for new technology decreased following the
Y2K conversion.
However, as technology stock prices declined over the past six months, we took
advantage of opportunities to purchase some high-quality companies that had
returned to more reasonable valuations while continuing to reach their earnings
targets. Our recent additions in this sector include Electronic Data Systems and
First Data. These consistent earnings growers have traded at relative discounts
to their earnings history and to the market. As of October 31, 2000, technology
stocks made up almost 20% of our portfolio.
Delaware Devon Fund
Portfolio Highlights
October 31, 2000
Beta* 0.83
--------------------------------------------------------------------------------
Average Price-to-Earnings Ratio** 25.47
--------------------------------------------------------------------------------
Median Market Capitalization $51.85 billion
--------------------------------------------------------------------------------
* Beta is a measure of risk relative to the S&P 500 Index. A number less than
1.0 means less historical price volatility than the Index. A number higher
than 1.0 means more historical volatility.
** P/E is based on analysts' forward earnings estimates as reported by First
Call/Thomson Financial.
4
<PAGE>
Delaware Devon Fund
Sector Allocation
October 31, 2000
Other 7.85%
Banking, Finance & Insurance 20.67%
Computers & Techology 19.43%
Healthcare & Pharmaceuticals 12.93%
Food, Beverage & Tobacco 2.65%
Transportation & Shipping 2.70%
Retail 3.24%
Consumer Products 4.66%
Electronics & Electrical Equipment 4.78%
Telecommunications 10.15%
Energy 10.94%
Outlook
Corporate profits appear to be slowing, due in part to rising costs and to a
natural economic slowing after a prolonged period of expansion. In our opinion,
this type of environment is generally positive for our investing style as it
tends to favor solid companies that report consistent earnings. We believe the
Fed is satisfied with its efforts to thwart inflation and may likely reduce
interest rates next year. Going forward, we will continue to look for
opportunities in stocks that tend to perform well in the early stages of the
economic cycle, such as retail stocks. Generally, we are confident about
investment opportunities for the Fund over ~the next year.
Delaware Devon Fund
Top 10 Holdings
October 31, 2000
Company Percentage of Net Assets
--------------------------------------------------------------------------------
1. Federal Home Loan 4.44%
--------------------------------------------------------------------------------
2. Johnson & Johnson 3.11%
--------------------------------------------------------------------------------
3. General Electric 2.94%
--------------------------------------------------------------------------------
4. Tyco International 2.90%
--------------------------------------------------------------------------------
5. SBC Communications 2.80%
--------------------------------------------------------------------------------
6. Tidewater 2.70%
--------------------------------------------------------------------------------
7. Exxon Mobil 2.62%
--------------------------------------------------------------------------------
8. Coastal 2.51%
--------------------------------------------------------------------------------
9. Fleet Boston Financial 2.43%
--------------------------------------------------------------------------------
10. Microsoft 2.39%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Delaware Devon Fund's Stock Selection Checklist
When we consider a stock for the portfolio, we ask ourselves the following
questions. Our goal is to select stocks from a broad spectrum of industries
where we can answer such questions.
o Is the stock reasonably priced?
o Has the company demonstrated that it can grow earnings consistently and
predictably through a variety of economic environments?
o Is the company generating excess cash flow that can be reinvested in the
business?
o Does the stock have the potential for above-average earnings?
--------------------------------------------------------------------------------
5
<PAGE>
FUND BASICS
-----------
Fund Objective
The Fund seeks to provide current income and capital appreciation.
Total Fund Assets
As of October 31, 2000
$167.15 million
Number of Holdings
62
Fund Start Date
December 29, 1993
Your Fund Manager
Francis X. Morris received a BA at Providence College and an MBA from Widener
University. He joined Delaware in 1997. Previously, he served as vice president
and director of equity research at PNC Asset Management. Mr. Morris is a past
president of the Financial Analysts Society of Philadelphia and is a member of
the Association for Investment Management and Research and the National
Association of Petroleum Investment Analysts.
Nasdaq Symbols
Class A DDGAX
Class B DEVOX
Class C DECVX
<PAGE>
DELAWARE DEVON FUND PERFORMANCE
-------------------------------
Growth of a $10,000 Investment
December 29, 1993 (Fund Inception) through October 31, 2000
S&P 500 Index Delaware Devon Fund Class A Shares
Dec '93 $10,000 $ 9,427
Oct '94 $10,361 $ 10,258
Oct '95 $13,101 $ 12,513
Oct '96 $16,258 $ 15,534
Oct '97 $21,478 $ 20,522
Oct '98 $26,201 $ 24,546
Oct '99 $32,929 $ 24,443
Oct '00 $34,935 $ 22,698
Chart assumes $10,000 invested on December 29, 1993 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.
Average Annual Total Returns
Through October 31, 2000 Lifetime Five Years One Year
--------------------------------------------------------------------------------
Class A Shares (Est. 12/29/93)
Excluding Sales Charge +13.77% +12.65% -7.14%
Including Sales Charge +12.79% +11.32% -12.46%
--------------------------------------------------------------------------------
Class B Shares (Est. 9/6/94)
Excluding Sales Charge +12.92% +11.87% -7.81%
Including Sales Charge +12.92% +11.62% -12.42%
--------------------------------------------------------------------------------
Class C Shares (Est. 11/29/95)
Excluding Sales Charge +11.24% -7.77%
Including Sales Charge +11.24% -8.69%
--------------------------------------------------------------------------------
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, five-year and one-year
periods ended October 31, 2000 for Delaware Devon Fund's Institutional Class
shares were +14.11%, +13.00% and -6.86%, respectively. The Institutional Class
was originally made available without sales charges or asset-based distribution
charges only to certain eligible institutional accounts on December 29, 1993.
An expense limitation was in effect for all classes of Delaware Devon Fund
during the periods shown. Performance would have been lower if the expense
limitation was not in effect.
Nasdaq Symbol Institutional Class: DEIVX
6
<PAGE>
Statement of Net Assets
DELAWARE DEVON FUND
-------------------
Number of Market
October 31, 2000 Shares Value
--------------------------------------------------------------------------------
Common Stock--97.16%
Aerospace & Defense--1.35%
Honeywell International ......................... 41,850 $ 2,252,053
-----------
2,252,053
-----------
Banking, Finance & Insurance--20.67%
American International Group .................... 22,743 2,228,814
Axa Financial ................................... 58,700 3,173,469
Capital One Financial ........................... 55,600 3,509,750
Chase Manhattan ................................. 76,400 3,476,200
Citigroup ....................................... 52,766 2,776,811
Dime Bancorp .................................... 61,000 1,490,687
Federal Home Loan ............................... 123,800 7,428,000
Fleet Boston Financial .......................... 106,900 4,062,200
JP Morgan ....................................... 8,800 1,456,400
MBNA ............................................ 65,400 2,456,587
Merrill Lynch & Company ......................... 13,900 973,000
Morgan Stanley Dean Witter ...................... 18,900 1,517,906
-----------
34,549,824
-----------
Chemicals--1.14%
Dow Chemical .................................... 62,200 1,904,875
-----------
1,904,875
-----------
Computers & Technology--19.43%
*America Online .................................. 48,800 2,460,984
*Cisco Systems ................................... 60,600 3,264,825
Compaq Computer ................................. 120,900 3,676,569
Electronic Data Systems ......................... 43,800 2,055,862
*EMC ............................................. 31,500 2,805,469
First Data ...................................... 62,300 3,122,787
*Gateway ......................................... 51,500 2,657,915
Hewlett-Packard ................................. 63,200 2,934,850
International Business Machines ................. 25,600 2,521,600
*Microsoft ....................................... 58,100 4,001,638
*Oracle .......................................... 90,000 2,970,000
-----------
32,472,499
-----------
Consumer Products--4.66%
Kimberly-Clark .................................. 44,600 2,943,600
Tyco International .............................. 85,500 4,846,781
-----------
7,790,381
-----------
Electronics & Electrical Equipment--4.78%
General Electric ................................ 89,600 4,911,200
Intel ........................................... 68,600 3,087,000
-----------
7,998,200
-----------
Energy--10.94%
Amerada Hess .................................... 35,200 2,182,400
Coastal ......................................... 55,600 4,194,325
Exxon Mobil ..................................... 49,100 4,379,106
Halliburton ..................................... 78,300 2,901,994
+*Southern Energy ................................. 78,300 2,133,675
Sunoco .......................................... 54,700 1,637,581
+*Westport Resources .............................. 54,600 863,363
-----------
18,292,444
-----------
<PAGE>
Number of Market
Shares Value
--------------------------------------------------------------------------------
Common Stock (continued)
Food, Beverage & Tobacco--2.65%
Anheuser Busch .................................. 10,900 $ 498,675
Coca Cola ....................................... 34,900 2,107,087
+*Suiza Foods ..................................... 39,400 1,824,713
-----------
4,430,475
-----------
Healthcare & Pharmaceuticals--12.93%
American Home Products .......................... 50,400 3,200,400
*Amgen ........................................... 19,500 1,129,781
Baxter International ............................ 16,600 1,364,312
Biomet .......................................... 45,600 1,650,150
Bristol-Myers Squibb ............................ 28,700 1,748,906
Johnson & Johnson ............................... 56,500 5,205,063
Medtronic ....................................... 35,700 1,938,956
Merck & Company ................................. 21,700 1,951,644
Pfizer .......................................... 79,400 3,429,088
-----------
21,618,300
-----------
Leisure, Lodging & Entertainment--1.60%
Viad ............................................ 125,500 2,682,563
-----------
2,682,563
-----------
Retail--3.24%
*Kroger .......................................... 119,300 2,691,706
Wal-Mart Stores ................................. 59,900 2,717,963
-----------
5,409,669
-----------
Telecommunications--10.15%
Alltel .......................................... 30,500 1,965,344
BellSouth ....................................... 39,000 1,884,187
Lucent Technologies ............................. 57,900 1,349,794
+*McLeod USA ...................................... 107,800 2,075,150
Nortel Networks ................................. 54,700 2,488,850
SBC Communications .............................. 81,000 4,672,688
*Worldcom ........................................ 106,600 2,531,750
-----------
16,967,763
-----------
Transportation & Shipping--2.70%
+*Tidewater ....................................... 97,600 4,507,900
-----------
4,507,900
-----------
Utilities--0.92%
*AES ............................................. 22,200 1,254,300
+*TNPC ............................................ 16,600 275,975
-----------
1,530,275
-----------
Total Common Stock (cost $155,715,806) .......... 162,407,221
-----------
--------------
+ Security is partially or fully on loan
* Non-income producing security for the period ended 10/31/00.
7
<PAGE>
Statement of Net Assets (continued)
Principal Market
Delaware Devon Fund Amount Value
--------------------------------------------------------------------------------
Repurchase Agreements--4.35%
With Chase Manhattan 6.55% 11/1/00
(dated 10/31/00, collateralized by
$2,567,000 U.S. Treasury Notes 4.75%
due 2/15/04, market value $2,507,793) ............ $2,444,000 $ 2,444,000
With J.P. Morgan Securities 6.52% 11/1/00
(dated 10/31/00, collateralized by
$1,016,000 U.S. Treasury Notes 6.25%
due 2/15/03, market value $1,035,786,
$690,000 U.S. Treasury Notes 5.25%
due 8/15/03, market value $686,465
and $690,000 U.S. Treasury Notes 7.25%
due 5/15/04, market value $742,991) .............. 2,416,000 2,416,000
With PaineWebber 6.54% 11/1/00
(dated (10/31/00, collateralized by
$2,393,000 U.S. Treasury Notes 5.875%
due 11/15/05, market value $2,467,426) ........... 2,416,000 2,416,000
------------
Total Repurchase Agreements
(cost $7,276,000) ................................ 7,276,000
------------
Total Market Value of Securities--101.51%
(cost $162,991,806) .............................. 169,683,221
Liabilities Net of Receivables
and Other Assets--(1.51%) ........................ (2,531,242)
------------
Net Assets Applicable to 9,184,985 Shares
Outstanding--100.00% ............................. $167,151,979
============
Net Asset Value--Delaware Devon Fund A Class
($68,242,569 / 3,721,916 shares) ................. $18.34
------
Net Asset Value--Delaware Devon Fund B Class
($70,920,265 / 3,928,369 shares) ................. $18.05
------
Net Asset Value--Delaware Devon Fund C Class
($14,004,516 / 776,548 shares) ................... $18.03
------
Net Asset Value--Delaware Devon Fund
Institutional Class
($13,984,629 / 758,152 shares) ................... $18.45
------
<PAGE>
--------------------------------------------------------------------------------
Components of Net Assets at October 31, 2000:
Shares of beneficial interest
(unlimited authorization--no par) ................ $170,671,209
Accumulated net realized loss on investments ....... (10,210,645)
Net unrealized appreciation of investments ......... 6,691,415
------------
Total net assets ................................... $167,151,979
============
Net Asset Value and Offering Price per Share--
Delaware Devon Fund
Net asset value A Class (A) ........................ $18.34
Sales charge (5.75% of offering price, or 6.11%
of the amount invested per share) (B) ............ 1.12
------
Offering price ..................................... $19.46
======
--------------
(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 purchase of $50,000 or more.
See accompanying notes.
8
<PAGE>
Statement of Operations
Year Ended October 31, 2000 Delaware Devon Fund
--------------------------------------------------------------------------------
Investment Income:
Dividends ........................................... $2,724,021
Interest ............................................ 299,364 $ 3,023,385
----------
Expenses:
Management fees ..................................... 1,445,429
Distribution expense ................................ 1,398,718
Dividend disbursing and transfer agent fees and
expenses .......................................... 1,339,200
Reports and statements to shareholders .............. 243,358
Registration fees ................................... 133,065
Accounting and administration ....................... 89,250
Taxes (other than taxes on income) .................. 32,902
Custodian fees ...................................... 20,500
Professional fees ................................... 18,120
Trustees' fees ...................................... 9,050
Other ............................................... 59,351 4,788,943
---------
Less expenses paid indirectly ....................... (5,096)
------------
Total Expenses ...................................... 4,783,847
------------
Net Investment Loss ................................. (1,760,462)
------------
Net Realized and Unrealized Loss on Investments:
Net realized loss on investments .................... (7,785,619)
Net change in unrealized appreciation/depreciation
of investments .................................... (11,683,955)
------------
Net Realized and Unrealized Loss on Investments ..... (19,469,574)
------------
Net Decrease in Net Assets Resulting from Operations ($21,230,036)
============
See accompanying notes
9
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Delaware Devon Fund
---------------------------------------------------------------------------------------------------------
Year Ended
10/31/00 10/31/99
<S> <C> <C>
Decrease in net assets from operations:
Net investment loss ................................................. ($1,760,462) ($365,620)
Net realized loss on investments .................................... (7,785,619) (2,414,924)
Net change in unrealized appreciation/depreciation of
investments ......................................................... (11,683,955) (7,767,421)
------------------------------
Net decrease in net assets resulting from operations ................ (21,230,036) (10,547,965)
------------------------------
Distributions to Shareholders from:
Net investment income:
A Class .......................................................... -- (221,269)
B Class .......................................................... -- --
C Class .......................................................... -- --
Institutional Class .............................................. -- (37,307)
Net realized gain on investments:
A Class .......................................................... -- (1,272,835)
B Class .......................................................... -- (904,198)
C Class .......................................................... -- (213,389)
Institutional Class .............................................. -- (100,864)
Return of Capital
A Class .......................................................... -- (389,563)
B Class .......................................................... -- --
C Class .......................................................... -- --
Institutional Class .............................................. -- (82,446)
------------------------------
-- (3,221,871)
------------------------------
Capital Share Transactions:
Proceeds from shares sold:
A Class .......................................................... 19,709,198 85,370,075
B Class .......................................................... 14,685,385 95,416,834
C Class .......................................................... 3,196,115 23,683,654
Institutional Class .............................................. 4,360,195 25,830,155
Net asset value of shares issued upon reinvestment of distributions:
A Class .......................................................... -- 1,832,153
B Class .......................................................... -- 846,833
C Class .......................................................... -- 205,107
Institutional Class .............................................. -- 220,602
------------------------------
41,950,893 233,405,413
------------------------------
Cost of shares repurchased:
A Class .......................................................... (79,750,173) (66,130,439)
B Class .......................................................... (66,520,034) (40,675,526)
C Class .......................................................... (18,648,875) (11,034,698)
Institutional Class .............................................. (10,875,466) (13,624,757)
------------------------------
(175,794,548) (131,465,420)
------------------------------
Increase (decrease) in net assets derived from
capital share transactions .......................................... (133,843,655) 101,939,993
------------------------------
Net Increase (Decrease) in Net Assets ............................... (155,073,691) 88,170,157
Net Assets:
Beginning of period ................................................. 322,225,670 234,055,513
------------------------------
End of period ....................................................... $167,151,979 $322,225,670
==============================
</TABLE>
See accompanying notes
10
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Devon Fund A Class
------------------------------------------------------------------------------------------------------------------------------------
Year Ended
10/31/00(1) 10/31/99(1) 10/31/98 10/31/97 10/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................................ $19.750 $20.090 $17.860 $14.610 $12.550
Income (loss) from investment operations:
Net investment income (loss) ..................................... (0.088) 0.047 0.121 0.182 0.216
Net realized and unrealized gain (loss) on investments ........... (1.322) (0.114) 3.249 4.243 2.689
---------------------------------------------------------
Total from investment operations ................................. (1.410) (0.067) 3.370 4.425 2.905
---------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income ............................. -- (0.032) (0.110) (0.210) (0.205)
Distributions from net realized gain on investments .............. -- (0.190) (1.030) (0.965) (0.640)
Return of capital ................................................ -- (0.051) -- -- --
---------------------------------------------------------
Total dividends and distributions ................................ -- (0.273) (1.140) (1.175) (0.845)
---------------------------------------------------------
Net asset value, end of period ...................................... $18.340 $19.750 $20.090 $17.860 $14.610
=========================================================
Total return(2) ..................................................... (7.14%) (0.42%) 19.60% 32.11% 24.14%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........................... $68,243 $137,034 $120,506 $49,262 $14,907
Ratio of expenses to average net assets ........................... 1.83% 1.37% 1.30% 1.25% 1.25%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ......................... 1.83% 1.45% 1.40% 1.42% 1.84%
Ratio of net investment income (loss)
to average net assets ........................................... (0.46%) 0.22% 0.64% 1.14% 1.67%
Ratio of net investment income (loss) to average net
assets prior to expense limitation and expenses
paid indirectly ................................................. (0.46%) 0.14% 0.54% 0.97% 1.08%
Portfolio turnover .................................................. 123% 82% 39% 64% 80%
</TABLE>
(1) Per share information 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
11
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Devon Fund B Class
------------------------------------------------------------------------------------------------------------------------------------
Year Ended
10/31/00(1) 10/31/99(1) 10/31/98 10/31/97 10/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................................ $19.580 $19.980 $17.800 $14.540 $12.500
Income (loss) from investment operations:
Net investment income (loss) ..................................... (0.218) (0.099) (0.003) 0.081 0.136
Net realized and unrealized gain (loss) on investments ........... (1.312) (0.111) 3.223 4.219 2.664
---------------------------------------------------------
Total from investment operations ................................. (1.530) (0.210) 3.220 4.300 2.800
---------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income ............................. -- -- (0.010) (0.075) (0.120)
Distributions from net realized gain on investments .............. -- (0.190) (1.030) (0.965) (0.640)
---------------------------------------------------------
Total dividends and distributions ................................ -- (0.190) (1.040) (1.040) (0.760)
---------------------------------------------------------
Net asset value, end of period ...................................... $18.050 $19.580 $19.980 $17.800 $14.540
=========================================================
Total return(2) ..................................................... (7.81%) (1.12%) 18.76% 31.21% 23.38%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........................... $70,920 $131,901 $82,927 $28,757 $3,399
Ratio of expenses to average net assets ........................... 2.53% 2.07% 2.00% 1.95% 1.95%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ......................... 2.53% 2.15% 2.10% 2.12% 2.54%
Ratio of net investment income (loss)
to average net assets ........................................... (1.16%) (0.48%) (0.06%) 0.44% 0.97%
Ratio of net investment income (loss) to average net
assets prior to expense limitation and expenses
paid indirectly ................................................. (1.16%) (0.56%) (0.16%) 0.27% 0.38%
Portfolio turnover .................................................. 123% 82% 39% 64% 80%
</TABLE>
(1) Per share information 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
12
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Devon Fund C Class
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 11/29/95(1)
to
10/31/00(2) 10/31/99(2) 10/31/98 10/31/97 10/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................................ $19.560 $19.960 $17.790 $14.530 $13.020
Income (loss) from investment operations:
Net investment income (loss) ..................................... (0.218) (0.099) 0.002 0.071 0.188
Net realized and unrealized gain (loss) on investments ........... (1.312) (0.111) 3.208 4.229 2.157
---------------------------------------------------------
Total from investment operations ................................. (1.530) (0.210) 3.210 4.300 2.345
---------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income ............................. -- -- (0.010) (0.075) (0.195)
Distributions from net realized gain on investments .............. -- (0.190) (1.030) (0.965) (0.640)
---------------------------------------------------------
Total dividends and distributions ................................ -- (0.190) (1.040) (1.040) (0.835)
---------------------------------------------------------
Net asset value, end of period ...................................... $18.030 $19.560 $19.960 $17.790 $14.530
=========================================================
Total return(3) ..................................................... (7.77%) (1.12%) 18.71% 31.24% 18.94%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........................... $14,005 $31,476 $20,141 $5,876 $1,056
Ratio of expenses to average net assets ........................... 2.53% 2.07% 2.00% 1.95% 1.95%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ......................... 2.53% 2.15% 2.10% 2.12% 2.54%
Ratio of net investment income (loss)
to average net assets ........................................... (1.16%) (0.48%) (0.06%) 0.44% 0.97%
Ratio of net investment income (loss) to average net
assets prior to expense limitation and expenses
paid indirectly ................................................. (1.16%) (0.56%) (0.16%) 0.27% 0.38%
Portfolio turnover .................................................. 123% 82% 39% 64% 80%
</TABLE>
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Per share information 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
13
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Devon Fund Institutional Class
------------------------------------------------------------------------------------------------------------------------------------
Year Ended
10/31/00(1) 10/31/99(1) 10/31/98 10/31/97 10/31/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................................ $19.810 $20.140 $17.930 $14.670 $12.590
Income (loss) from investment operations:
Net investment income (loss) ..................................... (0.031) 0.109 0.134 0.211 0.267
Net realized and unrealized gain (loss) on investments ........... (1.329) (0.109) 3.281 4.284 2.693
---------------------------------------------------------
Total from investment operations ................................. (1.360) 0.000 3.415 4.495 2.960
---------------------------------------------------------
Less dividends and distributions:
Dividends from net investment income ............................. -- (0.057) (0.175) (0.270) (0.240)
Distributions from net realized gain on investments .............. -- (0.190) (1.030) (0.965) (0.640)
Return of capital ................................................ -- (0.083) -- -- --
---------------------------------------------------------
Total dividends and distributions ................................ -- (0.330) (1.205) (1.235) (0.880)
---------------------------------------------------------
Net asset value, end of period ...................................... $18.450 $19.810 $20.140 $17.930 $14.670
=========================================================
Total return(2) ..................................................... (6.86%) (0.09%) 19.89% 32.57% 24.56%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........................... $13,985 $21,815 $10,482 $5,749 $3,290
Ratio of expenses to average net assets ........................... 1.53% 1.07% 1.00% 0.95% 0.95%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ......................... 1.53% 1.15% 1.10% 1.12% 1.54%
Ratio of net investment income (loss) to average
net assets ...................................................... (0.16%) 0.52% 0.94% 1.44% 1.97%
Ratio of net investment income (loss) to average
net assets prior to expense limitation and
expenses paid indirectly ........................................ (0.16%) 0.44% 0.84% 1.27% 1.38%
Portfolio turnover .................................................. 123% 82% 39% 64% 80%
</TABLE>
(1) Per share information 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
14
<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: the Delaware Devon Fund and the Delaware Balanced
Fund. These financial statements and related notes pertain to the Delaware Devon
Fund (the "Fund"). The 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 investment objective of the Fund is to seek current income and capital
appreciation.
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 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 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. The Fund declares and pays dividends from net
investment income 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 $5,096 for the period ended October 31, 2000.
In addition, the Fund receives earnings credits from its custodian when positive
balances are maintained, which are used to offset custody fees. There were no
earnings credits for the period 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 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 of net assets of the Fund,
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 liability for
Investment Management fees and other expenses payable to DMC was $49,321.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent, 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. At October 31, 2000, the Fund had a liability for such fees and other
expenses payable to DSC of $98,415.
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. No distribution expenses are
paid by the Institutional Class. At October 31, 2000, the Fund had a liability
for distribution fees and other expenses payable to DDLP of $15,890.
For the period ended October 31, 2000, DDLP earned $30,464 for commissions on
sales of the Fund A Class shares.
15
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
2. Investment Management and Other Transactions with Affiliates
(continued)
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 period ended October 31, 2000, the Fund made purchases of $268,728,475
and sales of $398,421,935 of investment securities other than U.S. government
securities and temporary cash investments.
At October 31, 2000, unrealized appreciation for federal income tax purposes
aggregated $5,916,342 of which $16,898,751 related to unrealized appreciation of
securities and $10,982,409 related to unrealized depreciation of securities. At
October 31, 2000, the aggregate cost of securities for federal income tax
purposes was $163,766,879.
For federal income tax purposes, the Fund had accumulated capital losses as of
October 31, 2000 of $9,435,572 which may be carried forward and applied against
future capital gains: $2,189,111 that will expire in 2007 and $7,246,461 that
will expire in 2008.
4. Capital Shares
Transactions in capital shares were as follows:
Year Ended
10/31/00 10/31/99
Shares sold:
A Class .......................................... 1,038,635 4,045,168
B Class .......................................... 781,339 4,544,332
C Class .......................................... 170,566 1,131,539
Institutional Class .............................. 231,314 1,232,443
Shares issued upon reinvestment of distributions:
A Class .......................................... -- 86,732
B Class .......................................... -- 40,098
C Class .......................................... -- 9,721
Institutional Class .............................. -- 10,550
---------- -----------
2,221,854 11,100,583
---------- -----------
Shares repurchased:
A Class .......................................... (4,255,388) (3,191,945)
B Class .......................................... (3,589,072) (1,999,416)
C Class .......................................... (1,002,986) (541,385)
Institutional Class .............................. (574,460) (662,081)
---------- -----------
(9,421,906) (6,394,827)
---------- -----------
Net Increase (decrease) ............................ (7,200,052) 4,705,756
========== ===========
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
period.
<PAGE>
6. 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 $7,700,125 and $7,724,160,
respectively. Net Income from securities lending was $22,669 and is included in
interest income on the Statement of Operations.
16
<PAGE>
Report of Independent Auditors
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Delaware Group Equity Funds I--Delaware Devon Fund
We have audited the accompanying statement of net assets of Delaware Devon 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 Devon 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
17
<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 Devon Fund shareholders,
but it may be used with prospective investors when preceded or accompanied by a
current prospectus for Delaware Devon 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. AFFILIATED OFFICERS Delaware Distributors, L.P.
King of Prussia, PA Philadelphia, PA
Charles E. Haldeman, Jr.
David K. Downes President and Chief Executive Officer Shareholder Servicing, Dividend
President and Chief Executive Officer Delaware Management Holdings, Inc. Disbursing and Transfer Agent
Delaware Investments Family of Funds Philadelphia, PA Delaware Service Company, Inc.
Philadelphia, PA Philadelphia, PA
Richard J. Flannery
John H. Durham Executive Vice President 2005 Market Street
Private Investor and General Counsel Philadelphia, PA 19103-3682
Horsham, PA Delaware Investments Family of Funds
Philadelphia, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates Bruce D. Barton
New York, NY President and Chief Executive Officer
Delaware Distributors, L.P.
Ann R. Leven Philadelphia, PA
Former Treasurer, National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
</TABLE>
(4076) Printed in the USA
AR-039 [10/00] PPL 12/00 J6557
