<PAGE>
DELAWARE GROUP
Tax-Efficient Equity Fund
1997
Semi-Annual
Report
professional management
service and guidance
goals
DELAWARE
GROUP
- --------
<PAGE>
- --------------------------------------------------------------------------------
NOVEMBER 6, 1997
Dear Shareholder:
WE ARE PLEASED TO PRESENT THE INAUGURAL SEMI-ANNUAL REPORT OF Delaware
Group's Tax-Efficient Equity Fund. From the Fund's inception on June 27, 1997
through October 31, 1997, your Fund provided a +5.41% total return (capital
change plus income based on net asset value for A Class shares).
Obviously, four months is much too short a time to judge a long-term
mutual fund. However, we are encouraged by the fact that
Tax-Efficient Equity Fund outperformed its benchmark, the unmanaged S&P 500
Index, during a volatile period, as shown on page 10.
We attribute this to the Fund's value-oriented equity selection
process, which led us to stocks of mid-size companies that generally did not
decline as much as stocks of larger companies during the market's October
correction.
Tax-Efficient Equity Fund began operations at a fortuitous time.
Increased market volatility has allowed your Fund to accumulate unrealized
losses in some stocks that the Fund's portfolio manager - George H. Burwell -
can use to offset future gains.
WE BELIEVE THE TAXPAYER RELIEF ACT OF 1997 - WHICH ESTABLISHED LOWER FEDERAL
TAX RATES FOR LONG-TERM CAPITAL GAINS AND RETAINED HIGH TAX RATES FOR
ORDINARY INCOME - GIVES A TAX-SENSITIVE INVESTMENT STRATEGY MORE POTENTIAL
VALUE THAN EVER.
Also, we believe the Taxpayer Relief Act of 1997 - which established
lower federal tax rates for long-term capital gains and retained high tax
rates for ordinary income - gives a tax-sensitive investment strategy more
potential value than ever.
In our opinion, Tax-Efficient Equity Fund has the potential to reduce
exposure to market risks. Mr. Burwell strives to select and hold undervalued
stocks while efficiently pruning the portfolio of companies that fail to live
up to expectations, thus harvesting capital losses. We believe this approach
can be especially useful for investors seeking to minimize taxes and achieve
long-term wealth building or estate planning goals.
1997 semi-annual report
2
<PAGE>
Tax-Efficient Equity Fund expects to complete calendar 1997 without
distributing any capital gains or dividend income, thus achieving one of our
goals in managing your investment dollars. We believe that by taking a
long-term approach and minimizing taxable distributions, the Fund can help
investors achieve high after-tax returns.
In the 1990s, the U.S. has enjoyed steady economic growth, the
unemployment rate has fallen below 5% and inflation is half what it was a
generation ago. Our government's budget deficit has declined to levels not
seen since the early 1970s. We believe these long-term trends remain intact
and will continue to have a positive effect on U.S. financial markets.
Still, we see reason for caution as we approach the end of the
millennium, especially after three years of exceptionally ebullient stock
market returns. We believe quarterly stock price fluctuations of 10% or more
are likely to grow more numerous in the coming years, and that
such times will present opportunities for patient and tax-savvy investors.
In our opinion, investors also need to take charge of their tax
situation rather than rely on Washington for relief in the coming years.
According to the non-partisan Tax Foundation, Americans are losing more
earnings to taxes than ever. Despite three major tax reform laws since the
early 1980s, the amount of tax collected from individuals by the Internal
Revenue Service has grown faster than average income for the past 15 years.
What's worse, this trend has accelerated since 1992, as shown on page 4.
We look forward to reporting to you again in the spring after
Tax-Efficient Equity Fund completes it first fiscal year on April 30, 1998.
Please accept our best wishes for a new year of prosperity and happiness.
Sincerely,
/s/ Wayne A. Stork
- -----------------------
Wayne A. Stork
CHAIRMAN
/s/ Jeffrey J. Nick
- -------------------------------------
Jeffrey J. Nick
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1997 semi-annual report
3
<PAGE>
CUMULATIVE TOTAL RETURN
- --------------------------------------------------------------------------------
JUNE 27, 1997 TO
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Tax-Efficient Equity Fund A Class +5.41%
Dow Jones Industrial Average -2.72%
Standard & Poor's 500 Index +3.65%
ALL PERFORMANCE SHOWN ABOVE IS BASED ON NET ASSET VALUE WITHOUT EFFECT OF
SALES CHARGES. NO DISTRIBUTIONS WERE MADE BY TAX-EFFICIENT EQUITY FUND DURING
THE PERIOD. PERFORMANCE OF INDEXES ASSUMES REINVESTMENT OF DIVIDENDS.
PERFORMANCE INFORMATION FOR ALL FUND CLASSES CAN BE FOUND ON PAGE 10. PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS AND PERFORMANCE FOR THIS SHORT
TIMEFRAME MAY NOT BE INDICATIVE OF FUTURE RESULTS.
New President and CEO
On October 13, 1997, Jeffrey J. Nick was named President and Chief Executive
Officer of the Delaware Group of Funds. Mr. Nick has been CEO of Lincoln
National Investment Companies, Delaware's indirect parent, since October
1996. He joined Lincoln National in April 1990, and from 1992 to 1996 he
managed Lincoln's operations in the United Kingdom. Mr. Nick holds an MBA
from the University of Chicago and a bachelor of arts degree from Princeton
University.
HOW FEDERAL TAXES HAVE RISEN
- ----------------------------
Average Annual Growth in IRS Receipts from Individual Income Taxes vs.
Personal Income Growth
1992-1997 1982-1997
Taxes Collected from Individuals by the IRS +14.57% +8.11%
Personal Income +4.95% +6.29%
SOURCE: TAX FOUNDATION, FIGURES BASED ON AVERAGE ANNUAL CHANGES FOR
THE 12 MONTHS ENDING EACH APRIL.
Despite legislative reform in the 1980s and 1990s, Americans are losing more
ground than ever to taxes. A tax-savvy investment strategy can help an
investor reach his or her goal without letting taxes take a toll on a
portfolio.
1997 semi-annual report
4
<PAGE>
Portfolio Manager's Review
Despite volatile market conditions, your Fund's initial fiscal period was a
generally rewarding time for investors who could uncover undervalued stocks
and make them the cornerstones of a tax-efficient investment portfolio.
The Federal Reserve Board's monetary policy appears to have
effectively tamed consumer inflation despite an economy that has enjoyed
robust growth. As of October 31, the rate of joblessness in America was the
lowest in a generation while consumer prices were rising at a modest 2.2%
annual rate, the slowest pace in years. This climate generally benefited
stocks.
A wave of investor enthusiasm lifted prices of many pharmaceu-tical,
banking, insurance and capital goods companies in calendar 1997. However,
this wave peaked in late summer and began to break in October.
As a new member of Delaware Group's family, your Fund's management
had the flexibility to buy companies with consistent earnings and growth
potential at attractive prices. In our opinion, cash flow into the Fund can
play an important role in providing us with an opportunity to take advantage
of market declines.
WE ARE ATTRACTED TO COMPANIES WHERE WE BELIEVE AN EFFECTIVE RESTRUCTURING IS
UNDERWAY. OFTEN WE FIND VALUE IN INDUSTRIES THAT ARE CONSOLIDATING AND WHERE
COMPETITION IS LIMITED.
SECTOR WEIGHTINGS AND PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
October 31, 1997
Basic Industry 8.5%
Consumer Staples 9.4%
Consumer growth 16.1%
Consumer Cyclicals 10.5%
Capital goods 15.7%
Technology 11.5%
Energy 3.7%
Finance 15.6%
Cash 9.0%
- ---------------------------------------------------------
Median Market Capitalization $7.4 billion
Number of Stocks 50
Average Stock Price-to-Earnings
Ratio 18.7x
Top Sector Consumer Growth
Portfolio Market Value Compared
to Cost Basis 105%
P/E BASED ON ANALYSTS' EARNINGS ESTIMATES FOR 1998 AS REPORTED BY FIRST CALL.
1997 semi-annual report
5
<PAGE>
Our research has led to what we believe are overlooked and
misunderstood companies such as RITE AID CORP., the drug store chain,
W.R. GRACE, which makes plastic food wrapping and RALSTON-PURINA, the pet
food company. We also established the Fund's initial portfolio with niche
service companies such as ECOLAB INC., which provides sanitary services to
the hospitality industry, and MASCO CORP., a building supplies and faucet
maker.
Generally, we are attracted to companies where we believe an
effective restructuring is underway that could increase the company's stock
price relative to earnings (P/E ratio). Often we find value in industries
that are consolidating and where competition is limited.
WE ARE ATTRACTED TO COMPANIES WHERE WE BELIEVE AN EFFECTIVE RESTRUCTURING IS
UNDERWAY. OFTEN WE FIND VALUE IN INDUSTRIES THAT ARE CONSOLIDATING AND WHERE
COMPETITION IS LIMITED.
STRATEGIC POSITIONING
Over time, we think investors will pay more for companies whose earnings are
likely to grow at a steady rate. When we select stocks, we look for:
o VALUE - attractive growth at discount prices;
o CONSISTENCY - steady growth in a relatively stable industry;
o CASH FLOW - substantial resources to reinvest in the business or
raise dividends;
o CATALYSTS - improving operations or expansion by acquisition; and
Value
Consistency
Choosing
Stocks with
Capital
Appreciation
Potential
Cash Flow
Undiscovered
Potential
Catalysts
1997 semi-annual report
6
<PAGE>
o UNDISCOVERED POTENTIAL - the company's potential hasn't been recognized yet
by the market.
As a matter of Fund policy,
we attempt to avoid distributing taxable capital gains and dividend income
through:
EMPHASIS ON LOW DIVIDEND STOCKS. As of October 31, 1997, the Fund's
yield before expenses was 1.33%, more than 30 basis points lower than the S&P
500 Index. Overall, the Fund depends on capital appreciation as the primary
component of total return.
LOW PORTFOLIO TURNOVER. All stocks are bought with a long-term
investment horizon in mind. In our seeking to maximize after-tax return for
investors, we intend to minimize turnover of holdings that perform well and
thus delay the realization of accumulated capital gains.
TAX LOSS HARVESTING. On the other hand, if a stock doesn't perform
well, we may realize losses that can offset taxable gains on other holdings.
Sometimes we will even repurchase the same company's shares after they have
fallen in price if we believe the company offers strong long-term potential.
For example, during Tax-Efficient Equity Fund's initial fiscal period
we bought, then sold and then repurchased shares of Motorola, which makes
pagers, cellular telephones and
Emphasis
on Low
Dividend
Stocks
Low
Portfolio
Turnover
Tax Loss
Harvesting
Defensive
Hedging
Protecting
Gains from
Taxes
THIS FUND MAY NOT BE APPROPRIATE FOR CERTAIN IRA, 401(K) AND OTHER
TAX-DEFERRED OR TAX-EXEMPT ACCOUNTS. CONSULT YOUR FINANCIAL AND TAX ADVISERS
FOR ANY TAX ADVICE. DELAWARE GROUP DOES NOT PROVIDE TAX ADVICE.
1997 semi-annual report
7
<PAGE>
semiconductors. We realized a modest tax loss after the company reported weak
short-term results this past summer. A little more than a month later, we
again took a position after Motorola's share price reached a lower, more
attractive level. Thus, we locked in a tax loss and then rebuilt our position
in what we anticipate will be a solid long-term holding.
DEFENSIVE HEDGING. We had not used this strategy through October 31
because we were building an initial portfolio. However, in the future the
Fund may buy or sell options to protect the value of a long-term holding
without selling the stock. We believe this can stabilize returns while
allowing us to defer capital gains.
In our opinion, defensive hedging through options would be the most
useful to us if the Fund accrues large unrealized capital gains. As of
October 31, the market price of the average stock in the Fund was about 5%
more than what we paid, and only a few stocks in the portfolio had
appreciated more than 15%. At that modest appreciation level, the cost of
options outweighed the potential benefits.
AS INVESTORS SEEK CONSISTENT EARNINGS GROWTH AT REASONABLE PRICES, OUR
LEADING POSITIONS LOOK INCREASINGLY ATTRACTIVE.
OUTLOOK
Despite volatile market conditions, we are still finding attractive values in
stocks, especially among mid-size companies. Our stock selections have
generally benefited from a migration away from expensive "branded" growth
stocks. As investors seek consistent earnings growth at reasonable prices,
our leading positions look increasingly attractive. An added benefit is that
most of the Fund's stocks have only a modest exposure to the effects of a
dollar that has been strengthening in value relative to other currencies, a
trend that may reduce earnings of multinational companies.
Several of our leading positions are companies which have excellent
core business franchises but still trade at what we believe are modest prices
because of diversification mistakes made several years back. In fiscal 1998,
we believe these stocks can appreciate in value as investors come to realize
that old problems have been corrected.
At the end of October 1997, the S&P 500 Index was about 10% below its
all-time high. Who would have thought the trigger event for an autumn U.S.
market correction would be a currency crisis thousands of miles away in
Thailand? Or that it would spread to other parts of Southeast Asia?
1997 semi-annual report
8
<PAGE>
We believe the U.S. market's short-term decline may have been a good
thing because it helped restore relative value to stocks and reduced
speculative excesses in some sectors, notably high technology. In our opinion,
the pre-Halloween stock market scare will not materially affect domestic U.S.
economic growth or business confidence. We view market volatility as a
fortuitous opportunity to both build a solid, long-term portfolio for
Tax-Efficient Equity Fund and minimize investors' tax liabilities.
George H. Burwell
VICE PRESIDENT AND
SENIOR PORTFOLIO MANAGER
November 6, 1997
efficiency
TOP TEN HOLDINGS
- --------------------------------------------------------------------------------
October 31, 1997
COMPANY PRICE/EARNINGS RATIO PERCENT OF
NET ASSETS
- --------------------------------------------------------------------------------
Rite Aid Corp. 18.9x 3.1%
Masco Corp. 17.4 2.9%
Tyco International 23.0 2.9%
American Home Products 19.9 2.9%
Ecolab Inc. 21.2 2.9%
Conagra Inc. 19.0 2.8%
Wallace Computer Services 17.5 2.7%
Equifax Inc. 20.9 2.4%
Intel Corp. 18.5 2.4%
Philip Morris Cos. 11.9 2.4%
- --------------------------------------------------------------------------------
Total 27.4%
+ BASED ON 1998 EARNINGS ESTIMATES AS REPORTED BY FIRST CALL.
Your Fund has both unrealized gains and unrealized losses among its largest
holdings, providing the fund manager with the flexibility to buy and sell
stocks to maximize tax-efficiency.
1997 semi-annual report
9
<PAGE>
TAX-EFFICIENT EQUITY
FUND'S PERFORMANCE AMID SHORT-TERM MARKET VOLATILITY
Growth of a $10,000 Investment
- --------------------------------------------------------------------------------
June 27, 1997, to October 31, 1997
Tax-Efficient Dow Jones S&P 500 Index
Equity A Class Industrial Average
6/27/97 $ 9,529 $10,000 $10,000
6/30/97 $ 9,529 $10,484 $10,448
7/31/97 $10,269 $11,249 $11,279
8/31/97 $ 9,776 $10,443 $10,647
9/30/97 $10,291 $10,900 $11,231
10/31/97 $10,044 $ 9,756 $10,389
Obviously, four months is too brief a time to judge investment performance.
However, we are pleased that Tax-Efficient Equity Fund has gotten off to a
solid start.
CHART ASSUMES $10,000 INVESTED ON JUNE 27, 1997, AND INCLUDES THE EFFECT OF A
4.75% FRONT-END SALES CHARGE. NO FUND DISTRIBUTIONS WERE MADE DURING THE
PERIOD. PERFORMANCE OF OTHER CLASSES OF TAX-EFFICIENT EQUITY FUND WILL VARY
DUE TO DIFFERING CHARGES AND EXPENSES. PERFORMANCE FOR THIS SHORT TIME IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS.
TAX-EFFICIENT EQUITY FUND PERFORMANCE
Cumulative Total Return Through October 31, 1997
- --------------------------------------------------------------------------------
LIFETIME
- --------------------------------------------------------------------------------
Class A (Est. 6/27/97)
Excluding Sales Charge +5.41%
Including Sales Charge +0.45%
- --------------------------------------------------------------------------------
Class B (Est. 6/27/97)
Excluding Sales Charge +5.29%
Including Sales Charge +1.29%
- --------------------------------------------------------------------------------
Class C (Est. 6/27/97)
Excluding Sales Charge +5.29%
Including Sales Charge +4.29%
TAX-EFFICIENT EQUITY FUND'S RETURN AND SHARE VALUE FLUCTUATE SO THAT SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST
PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. RETURNS REFLECT SALES
CHARGES AS NOTED BELOW. PERFORMANCE EXCLUDING SALES CHARGE FOR B AND C
CLASSES ASSUMES CONTINGENT SALES CHARGES EITHER DID NOT APPLY OR THE
INVESTMENT WAS NOT REDEEMED.
CLASS A SHARES HAVE A 4.75% MAXIMUM FRONT-END SALES CHARGE AND A 12B-1 FEE.
CLASS B SHARES DO NOT CARRY A FRONT-END SALES CHARGE, BUT ARE SUBJECT TO A 1%
ANNUAL DISTRIBUTION AND SERVICE FEE. THEY ARE SUBJECT TO A DEFERRED SALES
CHARGE OF UP TO 4% IF REDEEMED BEFORE THE END OF THE SIXTH YEAR.
CLASS C SHARES HAVE A 1% ANNUAL DISTRIBUTION AND SERVICE FEE AND A 1%
CONTINGENT DEFERRED SALES CHARGE IF REDEEMED WITHIN 12 MONTHS.
VOLUNTARY FEE CAPS EQUAL TO 1.50% OF NET ASSETS FOR A CLASS SHARES AND 2.20%
FOR B AND C CLASS SHARES WERE IN EFFECT AS OF OCTOBER 31, 1997. RETURNS WOULD
HAVE BEEN LOWER WITHOUT THE CAPS.
THE AVERAGE ANNUAL TOTAL RETURNS FOR TAX-EFFICIENT EQUITY FUND'S
INSTITUTIONAL CLASS, WHICH IS AVAILABLE WITHOUT SALES OR ASSET-BASED
DISTRIBUTION CHARGES ONLY TO CERTAIN ELIGIBLE INSTITUTIONAL ACCOUNTS, WAS
+2.75% FOR THE LIFETIME PERIOD ENDED OCTOBER 31, 1997.
1997 semi-annual report
10
<PAGE>
Financial Statements
DELAWARE GROUP TAX-EFFICIENT EQUITY FUND
STATEMENT OF NET ASSETS
OCTOBER 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCK - 88.26%
AEROSPACE & DEFENSE - 0.77%
GenCorp ....................................... 1,700 $ 41,544
--------
41,544
--------
AUTOMOBILES & AUTOMOTIVE PARTS - 1.63%
Danaher ....................................... 1,600 87,700
--------
87,700
--------
BANKING, FINANCE & INSURANCE - 15.61%
American International Group .................. 800 81,650
BB&T .......................................... 1,300 70,769
Equifax ....................................... 4,000 124,250
Federal National Mortgage ..................... 2,000 96,875
Nationwide Financial Services Class A ......... 2,000 60,875
PMI Group ..................................... 1,500 90,656
Provident ..................................... 2,700 90,113
SAFECO ........................................ 1,500 71,391
State Street Bank ............................. 1,000 55,750
Unum .......................................... 2,000 97,500
--------
839,829
--------
BUILDINGS & MATERIALS - 2.77%
Masco ......................................... 3,400 149,175
--------
149,175
--------
CABLE, MEDIA & PUBLISHING - 3.78%
Banta ......................................... 2,500 65,156
Wallace Computer Services ..................... 3,600 138,375
--------
203,531
--------
CHEMICALS - 5.02%
Fuller (HB) .................................. 1,900 89,656
Valspar ....................................... 2,900 85,550
Grace (W.R.) ................................. 1,400 95,200
--------
270,406
--------
COMPUTERS & TECHNOLOGY - 3.63%
Hewlett-Packard ............................... 1,900 117,206
*Microsoft ..................................... 600 77,963
--------
195,169
--------
CONSUMER PRODUCTS - 1.80%
General Electric .............................. 1,500 96,844
--------
96,844
--------
ELECTRONICS & ELECTRICAL - 7.84%
Intel ......................................... 1,600 123,250
Motorola ...................................... 1,000 61,750
Northern Telecom Ltd. ......................... 900 80,719
Rockwell International ........................ 1,900 93,100
Teleflex ...................................... 1,700 63,325
--------
422,144
--------
</TABLE>
- -------------------
Top ten holdings, representing 27.4% of net assets, are in boldface.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----
<S> <C> <C>
COMMON STOCK (CONTINUED)
ENERGY - 3.67%
Kerr-McGee .................................. 1,000 $ 67,563
Royal Dutch Petroleum ....................... 1,200 63,150
Total S A-ADR ............................... 1,200 66,600
---------
197,313
---------
ENVIRONMENT SERVICES - 2.74%
Ecolab ...................................... 3,100 147,444
---------
147,444
---------
FOOD, BEVERAGE & TOBACCO - 9.43%
ConAgra ..................................... 4,800 144,600
Hershey Foods ............................... 1,200 66,300
Philip Morris ............................... 3,100 122,838
Ralston-Purina Group ........................ 1,100 98,725
Universal Foods ............................. 1,900 74,931
---------
507,394
---------
HEALTHCARE & PHARMACEUTICALS - 8.70%
American Home Products ...................... 2,000 148,250
Johnson & Johnson ........................... 2,100 120,488
Schering-Plough ............................. 1,600 89,700
SmithKline Beecham .......................... 2,300 109,538
---------
467,976
---------
PACKAGING & CONTAINERS - 1.36%
TriMas ...................................... 2,500 73,125
---------
73,125
---------
RETAIL - 9.29%
*Federated Department Stores ................. 2,600 114,400
Lowe's Companies ............................ 2,000 83,250
May Department Stores ....................... 1,500 80,813
Rite Aid .................................... 2,700 160,313
Sherwin-Williams ............................ 2,200 61,050
---------
499,826
---------
TEXTILES, APPAREL & FURNITURE - 3.70%
HON Industries .............................. 1,700 87,763
Newell ...................................... 2,900 111,288
---------
199,051
---------
MISCELLANEOUS - 6.52%
Pentair ..................................... 2,100 81,113
Service International ....................... 3,900 118,706
Tyco International .......................... 4,000 151,000
---------
350,819
---------
Total Common Stock (cost $4,708,451) ........ 4,749,290
---------
</TABLE>
1997 semi-annual report
11
<PAGE>
DELAWARE GROUP TAX-EFFICIENT EQUITY FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
------ -----
<S> <C> <C>
REPURCHASE AGREEMENTS - 9.01%
With PaineWebber 5.65% 11/3/97
(dated 10/31/97, collateralized by $160,000
U.S. Treasury Notes 5.125% due 2/28/98
market value $161,532) ..................... $ 158,000 $ 158,000
With Chase Securities 5.65% 11/3/97
(dated 10/31/97, collateralized by $172,000
U.S. Treasury Notes 5.75% due 10/31/00
market value $172,230) ..................... 169,000 169,000
With Prudential Securities 5.65% 11/3/97
(dated 10/31/97, collateralized by $159,000
U.S. Treasury Notes 5.875% due 2/28/99
market value $161,481) ..................... 158,000 158,000
----------
Total Repurchase Agreements
(cost $485,000) ............................ 485,000
----------
TOTAL MARKET VALUE OF SECURITIES
(cost $5,193,451) - 97.27% ................. 5,234,290
RECEIVABLES AND OTHER ASSETS NET
OF LIABILITIES - 2.73% ..................... 147,168
----------
NET ASSETS APPLICABLE TO 600,551 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% ...... $5,381,458
==========
VALUE
NET ASSET VALUE - TAX-EFFICIENT EQUITY FUND A CLASS
($2,654,998 / 296,270 shares) .................................... $8.96
=====
NET ASSET VALUE - TAX-EFFICIENT EQUITY FUND B CLASS
($968,810 / 108,240 shares) ...................................... $8.95
=====
NET ASSET VALUE - TAX-EFFICIENT EQUITY FUND C CLASS
($175,182 / 19,570 shares) ....................................... $8.95
=====
NET ASSET VALUE - TAX-EFFICIENT EQUITY FUND
INSTITUTIONAL CLASS
($1,582,468 / 176,471 shares) .................................... $8.97
=====
COMPONENTS OF NET ASSETS AT OCTOBER 31, 1997
Common stock, $.01 par value, 10,000,000,000 shares authorized
to the Fund with 1,000,000,000 shares allocated to
Tax-Efficient Equity Fund A Class, 1,000,000,000 shares allocated to
Tax-Efficient Equity Fund B Class, 1,000,000,000 shares allocated to
Tax-Efficient Equity Fund C Class, 1,000,000,000 shares allocated to
Tax-Efficient Equity Fund Institutional Class ...................... $ 5,350,954
Accumulated net investment income ................................... 2,538
Accumulated net realized (loss) on investments ...................... (12,873)
Net unrealized appreciation of investments .......................... 40,839
-----------
Total net assets .................................................... $ 5,381,458
===========
</TABLE>
- ----------------------
* Non income producing security.
ADR - American Depository Receipt
See accompanying notes
1997 semi-annual report
12
<PAGE>
DELAWARE GROUP
TAX-EFFICIENT EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD JUNE 27, 1997*
TO OCTOBER 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest ..................................... $ 4,368
Dividends .................................... 10,762 15,130
-------- --------
EXPENSES:
Management fees .............................. 6,307
Registration fees ............................ 6,331
Professional fees ............................ 3,702
Custodian fees ............................... 2,651
Distribution expense ......................... 2,580
Reports and statements to shareholders ....... 2,235
Dividend disbursing and transfer agent fees
and expenses ................................ 1,444
Directors' fees .............................. 421
Accounting fees and salaries ................. 387
Taxes (other than taxes on income) ........... 68
Other ........................................ 186
--------
26,312
Less expenses absorbed by Delaware Management
Company, Inc. ............................... (13,720) 12,592
-------- --------
NET INVESTMENT INCOME ........................ 2,538
--------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investment transactions . (12,873)
Net unrealized appreciation during the period 40,839
--------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS .............................. 27,966
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................. $ 30,504
========
- ----------
*Date of commencement of operations
See accompanying notes
<PAGE>
DELAWARE GROUP
TAX-EFFICIENT EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JUNE 27, 1997*
TO OCTOBER 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income .............................. $ 2,538
Net realized loss on investment transactions ....... (12,873)
Net unrealized appreciation during the period ...... 40,839
-----------
Net increase in net assets resulting from operations 30,504
-----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Tax-Efficient Equity Fund A Class ................. 2,655,851
Tax-Efficient Equity Fund B Class ................. 981,067
Tax-Efficient Equity Fund C Class ................. 177,170
Tax-Efficient Equity Fund Institutional Class ..... 1,539,234
-----------
5,353,322
-----------
Cost of shares repurchased:
Tax-Efficient Equity Fund A Class ................. (2,368)
Tax-Efficient Equity Fund B Class ................. --
Tax-Efficient Equity Fund C Class ................. --
Tax-Efficient Equity Fund Institutional Class ..... --
-----------
(2,368)
-----------
Increase in net assets derived from capital
share transactions ................................ 5,350,954
-----------
NET INCREASE IN NET ASSETS ......................... 5,381,458
NET ASSETS:
Beginning of period ................................ --
-----------
End of period ...................................... $ 5,381,458
===========
- --------------
*Date of commencement of operations
See accompanying notes
1997 semi-annual report
13
<PAGE>
DELAWARE GROUP TAX-EFFICIENT EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout the period
were as follows:
<TABLE>
<CAPTION>
TAX-EFFICIENT TAX-EFFICIENT TAX-EFFICIENT TAX-EFFICIENT
EQUITY FUND EQUITY FUND EQUITY FUND EQUITY FUND
A CLASS B CLASS C CLASS INSTITUTIONAL CLASS
6/27/97 6/27/97 6/27/97 8/28/97
TO TO TO TO
10/31/97 10/31/97 10/31/97 10/31/97
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period........................... $8.5000 $8.5000 $8.5000 $8.7300
Income from investment operations:
Net investment income (loss).................................. 0.0049 (0.0158) (0.0153) 0.0139
Net realized and unrealized gain from investments ............ 0.4551 0.4658 0.4653 0.2261
------- ------- ------- -------
Net increase in net assets from investment operations ........ 0.4600 0.4500 0.4500 0.2400
------- ------- ------- -------
Net asset value, end of period................................. $8.9600 $8.9500 $8.9500 $8.9700
======= ======= ======= =======
Total return(2)................................................ 5.41% 5.29% 5.29% 2.75%
Ratios and supplemental data:
Net assets, end of period (000 omitted)....................... $2,655 $969 $175 $1,582
Ratio of expenses to average net assets....................... 1.50% 2.20% 2.20% 1.20%
Ratio of expenses to average net assets prior to expense
limitation .................................................. 3.11% 3.81% 3.81% 2.81%
Ratio of net investment income to average net assets ......... 0.26% (0.44%) (0.44%) 0.56%
Ratio of net investment income to average net assets prior
to expense limitation......................................... (1.35%) (2.05%) (2.15%) (1.15%)
Portfolio turnover............................................ 12% 12% 12% 12%
Average commission rate paid(3)............................... $0.0600 $0.0600 $0.0600 $0.0600
</TABLE>
- ----------
1 Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
2 Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase of A Class. Does not include
contingent deferred sales charge which varies from 1-4% depending upon the
holding period for B Class and 1% for C Class.
3 Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission charged.
<PAGE>
DELAWARE GROUP TAX-EFFICIENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
Delaware Group Tax-Efficient Equity Fund (the "Fund") is registered as a
diversified open-end investment company under the Investment Company Act of
1940, as amended. The Fund is organized as a Maryland Corporation and offers
four classes of shares. The Tax-Efficient Equity Fund A Class carries a
front-end sales charge of 4.75%. The Tax-Efficient Equity Fund B Class
carries a back-end deferred sales charge. The Tax-Efficient Equity Fund C
Class carries a level load deferred sales charge and Tax-Efficient Equity
Fund Institutional Class has no sales charge.
The objective of the Fund is to obtain for taxable investors a high total
return on an after-tax basis.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation - Securities listed on an exchange are valued at the
lasted quoted sales price as of the close of the NYSE on the valuation date.
Securities not traded or securities not listed on an exchange are valued at
the mean of the last quoted bid and asked prices. Other securities and assets
for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Fund's
Board of Directors.
Federal Income Taxes - The Fund intends to qualify as a regulated investment
company and make the requisite distributions to shareholders. Accordingly, no
provision for federal income taxes has been made in the financial statements.
Income and capital gain distributions are determined in accordance with
federal income tax regulations which may differ from generally accepted
accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution
expenses relating to a specific class are charged directly to that class.
1997 semi-annual report
14
<PAGE>
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
Repurchase Agreements - The Fund may invest in a pooled cash account along
with other members of the Delaware Group of Funds. The aggregate daily balance
of the pooled cash account is invested in repurchase agreements secured by
obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized.
However, in the event of default or bankruptcy by the counterparty to the
agreement, realization of the collateral may be subject to legal proceedings.
Other - Expenses common to all Funds within the Delaware Group 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.
Certain Fund expenses are paid through "soft dollar" arrangements with
brokers. The amount of these expenses is less than 0.01% of the Fund's
average daily net assets.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company, Inc. (DMC) the Investment Manager of the
Fund, an annual fee which is calculated daily at the rate of; 0.75% on the
first $500 million of average daily net assets, 0.725% on the next $500
million and 0.70% on the average daily net assets in excess of $1 billion. At
October 31, 1997 the Fund has an outstanding liability to DMC for $2,050.
DMC has elected to waive that portion if any of the management fee and
reimburse the Fund to the extent that annual operating expenses exclusive of
taxes, interest, distribution fees, brokerage commissions and extraordinary
expenses, exceed 1.20% of average daily net assets of the Fund through April
30, 1998. Total expenses absorbed by DMC for the period ended October 31,
1997 were $13,720.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC, to serve as dividend disbursing and transfer agent for the Fund. The
Fund also engaged DSC to provide accounting services for the Fund. For the
period ended October 31, 1997, the Fund expensed $1,444 for dividend
disbursing and transfer agent services and $322 for accounting services. At
October 31, 1997, the Fund had a liability for such fees and other expenses
payable to DSC of $7,258.
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 Class. For the period ended October
31, 1997, DDLP earned $9,178 for commissions on sales of the Fund A Class
shares. At October 31, 1997 the Fund had an outstanding liability for
$14,078.
Certain officers of DMC, DSC and DDLP are officers, directors and/or
employees of the Fund. These officers, directors and employees are paid no
compensation by the Fund.
<PAGE>
3. Investments
During the period ended October 31, 1997, the Fund made purchases of
$4,836,605 and sales of $115,266 of investment securities other than U.S.
government securities and temporary cash investments.
At October 31, 1997, the aggregate cost of securities for federal income tax
purposes was $5,193,451.
At October 31, 1997, unrealized appreciation for federal income tax purposes
aggregated $40,839 of which $138,381 related to unrealized appreciation of
securities and $97,542 related to unrealized depreciation of securities.
4. Capital Stock
Transactions in capital stock shares were as follows:
6/27/97*
TO 10/31/97
-----------
Shares sold:
Tax-Efficient Equity Fund A Class ............... 296,524
Tax-Efficient Equity Fund B Class ............... 108,240
Tax-Efficient Equity Fund C Class ............... 19,570
Tax-Efficient Equity Fund Istitutional Class .... 176,471
-------
600,805
Shares repurchased:
Tax-Efficient Equity Fund A Class ............... (254)
Tax-Efficient Equity Fund B Class ............... 0
Tax-Efficient Equity Fund C Class ............... 0
Tax-Efficient Equity Fund Istitutional Class .... 0
-------
(254)
Net Increase...................................... 600,551
=======
- ----------
*Date of commencement of operations
5. Concentrations of Credit Risk
The Fund may invest up to 15% 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.
1997 semi-annual report
15
<PAGE>
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF TAX-EFFICIENT EQUITY FUND
SHAREHOLDERS, BUT IT MAY BE USED WITH PROSPECTIVE INVESTORS WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS FOR TAX-EFFICIENT EQUITY FUND, WHICH SETS
FORTH DETAILS ABOUT CHARGES, EXPENSES, INVESTMENT OBJECTIVES AND OPERATING
POLICIES OF THE FUNDS. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU
INVEST. SUMMARY INVESTMENT RESULTS ARE DOCUMENTED IN THE FUNDS' CURRENT
STATEMENT OF ADDITIONAL INFORMATION. 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 FUNDS WILL FLUCTUATE SO THAT SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
INVESTMENT MANAGER
Delaware Management Company, Inc.
Philadelphia
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING AND
TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia
1818 Market Street
Philadelphia, PA 19103-3682
FOR SHAREHOLDERS
1.800.523.1918
FOR SECURITIES DEALERS
1.800.362.7500
FOR FINANCIAL INSTITUTIONS
REPRESENTATIVES
1.800.659.2265
Be sure to consult your financial adviser when making investments. Mutual
funds can be a valuable part of your financial plan: however, shares of the
Funds are not FDIC or NCUSIF insured, are not guaranteed by any bank or any
credit union, and involve investment risk, including the possible loss of the
principal amount invested. Shares of the Funds are not bank or credit union
deposits.
Copy Rights Delaware Distributors, L.P.
DELAWARE
GROUP
- --------
Philadelphia o London
Printed in the USA on
recycled paper
(370)
SA-437 [10/97] PP12/97
