-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IRgsaXA9UvOSlFR/skW15oilMITXI3X2oRvZMIyqYAU6SpZQmxsQUb96ifHgMqLZ c00U8Z5Iku6wnbqWWK6HTQ== 0000950116-99-001449.txt : 19990811 0000950116-99-001449.hdr.sgml : 19990811 ACCESSION NUMBER: 0000950116-99-001449 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990803 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE GROUP EQUITY FUNDS II INC CENTRAL INDEX KEY: 0000027574 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 510100310 FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-00750 FILM NUMBER: 99676806 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2157512926 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: DELAWARE GROUP DECATUR FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DECATUR FUND INC DATE OF NAME CHANGE: 19880808 FORMER COMPANY: FORMER CONFORMED NAME: DECATUR INCOME FUND INC DATE OF NAME CHANGE: 19860515 N-30D 1 For Total Return Decatur Equity Income Fund Growth and Income Fund (photo of illustration from For Total Return Brochure) service and guidance professional management goals 1999 Semi-Annual Report DELAWARE(SM) INVESTMENTS - --------------------- Philadelphia o London for total return 2 June 15, 1999 Dear Shareholder: The U.S. stock market moved higher during the first half of fiscal 1999, with major market indexes setting new records. The Dow Jones Industrial Average closed above 10,000 for the first time in late March. Performance through March was driven primarily by a select group of large capitalization growth stocks that have dominated stock performance since the second half of 1998. In early May, the Dow crossed 11,000. This latest milestone was driven, in part, by renewed investor demand for value stocks and for economically sensitive (or cyclical) stocks. As we began fiscal 1999 last December, concerns about a U.S. recession and continuing financial crises in emerging markets caused investors to focus almost exclusively on stocks of a few very large, highly successful U.S. companies. These companies were chosen for their perceived ability to sustain earnings and revenue growth in a slower economic environment, with little regard for the price being paid. Delaware's large-cap value strategy had difficulty achieving positive results in this environment. Perceptions changed in early April. Reports of strong first quarter U.S. economic growth and better than expected corporate earnings restored investor confidence in the economy, dispelling the notion that just a few dozen large-cap companies would be able to provide earnings and revenue growth. Investors shifted from high priced growth stocks to economically sensitive stocks--energy, aluminum, manufacturing, We believe the shift in investor sentiment during April and May could be the beginning of a favorable market environment for your Funds. CUMULATIVE AND AVERAGE ANNUAL TOTAL RETURNS - -------------------------------------------------------------------------------- For Periods Ended May 31, 1999 At Net Asset Value Five Year Six Months Average Annual Return - -------------------------------------------------------------------------------- Decatur Equity Income Fund A Class +3.82% +18.41% Growth and Income Fund A Class +4.28% +19.45% - -------------------------------------------------------------------------------- Lipper Equity Income Fund Average +9.38% (680 funds) +18.45% (214 funds) - -------------------------------------------------------------------------------- S&P 500/BARRA Value Index +13.60% +22.03% Standard & Poor's 500 Index +12.60% +25.86% - -------------------------------------------------------------------------------- All performance shown above is at net asset value without effect of sales charges and assumes reinvestment of dividends and capital gains. Complete Fund performance information for all classes can be found on page 12. The Standard & Poor's 500 is an unmanaged measure of large-capitalization U.S. stocks. The unmanaged S&P 500/BARRA Value Index measures the performance of S&P 500 stocks that meet BARRA International's definition of value stocks. Past performance does not guarantee future results. for total return 3 chemical, and paper companies. They also bought value stocks that were selling at deep discounts relative to company earnings. Delaware's large capitalization value-oriented investment strategy, which is used to manage both Decatur Equity Income Fund and Delaware Growth and Income Fund, thrived during the months of April and May. We believe this shift in investor sentiment could be the beginning of a favorable market environment for your Funds. However, because the shift came so late in our reporting period, our strong recent performance was not able to offset weaker performance early in the period. For the six months ended May 31, 1999, Decatur Equity Income Fund had a total return of 3.82%, while Growth and Income Fund returned 4.28% (for A Class shares at net asset value with distributions reinvested). The Funds' returns fell short of the 9.40% average return of their peers in the Lipper Equity Income Average. Some of our competitors define value more broadly than we do, sometimes including stocks with growth characteristics. Our strict buy and sell guidelines keep our value approach consistent even at times when our style is out of favor. The Standard & Poor's 500 Index, which includes a high concentration of large-company stocks, returned 12.60% for the six-month period. Much of this return can be attributed to strong gains in the Index's largest 20 stocks early in the period. Many of these same stocks fizzled in April as value stocks--those with low price-to-earnings ratios--staged a bold rally, as shown in the chart below. We believe April marked a turning point for value-based investing. Historically, our value style has experienced a multi-year period of outperformance following periods when select big cap growth stocks have dominated market performance--like the MARKET CYCLES CAN CHANGE QUICKLY - -------------------------------------------------------------------------------- March 1999 April 1999 May 1999 S&P/Barra Growth Index Total Return 4.84% -0.19% -2.92% S&P/Barra Value Index Total Return 3.03% 8.62% -1.77% Although there is no guarantee that any fund will perform like any index, the style of management used for your Funds is a value style. Companies in the unmanaged S&P 500 Index are split into two groups based on price-to-earnings ratios to create unmanaged growth and value indexes. The S&P/BARRA Growth Index consists of companies with higher P/Es, while the S&P BARRA/Value Index consists of companies with lower P/Es. for total return 4 one we have just experienced. This was true after the bull markets of the mid-1970s, the early 1980s and the early 1990s. We believe the events of this past spring suggest the beginning of another extended period that favors value style investing. On the pages that follow, John B. Fields, the Funds' lead portfolio manager, reviews changing investor perceptions that have led to the recent shift in U.S. equity performance, as well as changes to each portfolio's positioning since our last report. He also shares his outlook for the portfolios' yield-oriented strategy in the months and years ahead. We believe Decatur Equity Income Fund and Delaware Growth and Income Fund are sound core investments in a long-term financial plan. We applaud you for sticking with your investment during such a challenging period, and we look forward to reporting our full results for fiscal 1999 next winter. Sincerely, /s/ Wayne A. Stork - ------------------------- Wayne A. Stork Chairman, Delaware Investments Family of Funds /s/ David K. Downes - -------------------------- David K. Downes President and Chief Executive Officer, Delaware Investments Family of Funds
TOP PORTFOLIO HOLDINGS DECATUR EQUITY INCOME FUND & DELAWARE GROWTH AND INCOME FUND - -------------------------------------------------------------------------------------------------------------------- May 31, 1999 As a Percentage of Assets* Dividend Decatur Equity Growth and Company Yield Industry Income Fund Income Fund - -------------------------------------------------------------------------------------------------------------------- BankAmerica 2.8% Financials 3.64% 3.49% McGraw-Hill Cos. 1.7% Publishing 3.14% 3.06% American General Corp. 2.2% Insurance 2.90% 2.78% GTE 3.0% Telecommunications 2.74% 2.73% Pitney Bowes Corp. 1.6% Office Products 2.75% 2.69% International Paper 2.0% Paper/Wood Products 2.65% 2.59% Ameritech 1.9% Telecommunications 2.74% 2.57% Bestfoods 2.0% Processed Food 2.45% 2.48% Royal Dutch Petroleum 2.8% Energy 2.39% 2.42% AT&T 1.6% Telecommunications - 2.35% - -------------------------------------------------------------------------------------------------------------------- S&P 500 Index 1.23% - --------------------------------------------------------------------------------------------------------------------
Source: Bloomberg Business News * Portfolio percentages are shown as a percentage of net assets for Delaware Growth and Income Fund and as a percentage of net equity assets for Decatur Equity Income Fund. Holdings are listed in order of size as a percentage of net assets within Growth and Income Fund. Holdings are subject to change. SEC yields for A, B, C and Institutional Class shares were 1.99%, 1.32%, 1.31% and 2.34%, respectively for Decatur Equity Income Fund and 0.91%, 0.25%, 0.25% and 1.27%, respectively for Delaware Growth and Income Fund as of May 31, 1999. See page 12 for each Fund's complete performance information. for total return 5 Portfolio Manager's Review By John B. Fields Vice President, Senior Portfolio Manager June 15, 1999 The New Quest for Value Since last year's global outbreak of financial and economic weakness, investors thought that few U.S. companies would be able to provide strong earnings growth. Fearful of dire economic conditions in the U.S., investors seemed willing to pay any price for select companies with strong earnings growth. This buying frenzy focused on stocks of the largest U.S. companies. Investors believed these companies were the most likely to maintain earnings growth if worldwide economic conditions became more difficult. Such a narrow focus meant that other stocks, many with comparable earnings growth, were ignored, creating a substantial disparity in stock prices. Price to earnings ratios, or P/Es are an indicator of how much investors are paying for a company's anticipated earning power--generally the higher the P/E, the more they are paying; the lower the P/E, the less they are paying. The difference between the average P/E of the largest 50 stocks in the S&P 500 compared to the average P/E of the remaining 450 stocks is larger than it has ever been in the past four decades. This is evidence that the top 50 stocks were richly priced relative to their future earnings potential, while the remaining stocks in the S&P 500 were relatively inexpensive compared to earnings. We believe fears of economic recession in late 1998 and early 1999 kept investors from buying the stocks with lower price to earnings ratios. Robust first quarter U.S. economic growth and stronger than expected corporate earnings in April calmed those fears. Almost instantly, investors began to reallocate their money to areas of the market where stocks with strong earnings growth potential could be bought at much lower prices. The large-cap growth leaders, including big technology and internet-related companies, stalled as a result. (Portfolio Manager's Review continues on page 9). In April, investors began to reallocate their money to areas of the market where stocks with strong earnings growth potential could be bought at much lower prices. for total return 6 [GRAPHIC OMITTED: WORK CHART OF STANDING THE TEST OF TIME DECATUR EQUITY INCOME FUND'S LIFETIME PERFORMANCE] STANDING THE TEST OF TIME DECATUR EQUITY INCOME FUND'S LIFETIME PERFORMANCE - -------------------------------------------------------------------------------- Growth of a $100,000 Investment Since March 18, 1957
Decatur Equity Standard & Poor's Consumer Price Income Fund A Class 500 Index Index - (Inflation) ------------------- ------------------ ------------------- Period End Market Value Value Value - ----------- ------------ ----- ----- 3/18/1957 $ 96,288 $ 100,000 $100,000 Decatur Income Fund first offered on March 18, 1957 5/31/1958 95,875 104,914 103,999 5/31/1959 131,150 144,440 104,322 5/31/1960 127,941 142,046 106,257 Dow Jones Industrial Average at 597 5/31/1961 156,723 174,833 107,224 Berlin Wall Built 5/31/1962 150,265 161,394 108,663 5/31/1963 179,931 198,251 109,623 Kennedy Assassinated 5/31/1964 200,040 232,021 111,306 5/31/1965 235,494 262,922 113,107 5/31/1966 251,887 264,107 116,229 5/31/1967 282,733 282,785 119,350 Viet Nam War Escalates 5/31/1968 362,467 323,321 124,154 5/31/1969 399,857 349,358 130,878 First Man on the Moon 5/31/1970 321,722 267,786 138,923 5/31/1971 431,334 361,051 145,047 Wage and Price Controls 5/31/1972 476,163 409,196 149,729 5/31/1973 420,390 403,333 157,895 5/31/1974 393,009 347,050 174,825 Steepest Market Decline in Four Decades 5/31/1975 456,294 380,165 191,273 5/31/1976 579,496 434,640 203,161 5/31/1977 682,088 433,704 216,851 5/31/1978 706,492 461,207 232,098 5/31/1979 761,062 495,320 257,075 5/31/1980 944,176 587,212 294,056 Dow at 993 Interest Rates at All-Time Highs 5/31/1981 1,150,285 735,076 322,993 5/31/1982 1,148,659 656,026 344,727 Start of Great Bull Market of the 80s 5/31/1983 1,663,355 1,002,496 356,733 5/31/1984 1,681,929 971,989 371,862 5/31/1985 2,239,018 1,280,544 385,792 5/31/1986 2,847,075 1,737,101 391,794 Dow Nears 2000 5/31/1987 3,536,326 2,104,643 406,685 Sharpest One-Day Decline in Market History 5/31/1988 3,420,052 1,968,101 422,525 5/31/1989 4,306,348 2,495,560 445,180 5/31/1990 4,476,059 2,910,169 464,598 Persian Gulf Crisis Worldwide Recession 5/31/1991 4,588,197 3,253,322 487,612 Break up of Soviet Union 5/31/1992 4,990,121 3,573,849 502,355 5/31/1993 5,703,336 3,988,782 518,537 5/31/1994 6,047,376 4,158,683 530,404 Fed Begins Raising Short-Term Interest Rates 5/31/1995 6,979,452 4,998,285 547,305 5/31/1996 8,621,871 6,419,671 562,717 Dow Reaches 6500 5/31/1997 10,858,670 8,307,984 575,713 5/31/1998 13,705,517 11,047,126 584,347 5/31/1999 14,652,580 13,141,480 601,980 Dow Surpasses 11,000
Average Annual Returns Since March 18, 1957 to May 31, 1999 Decatur Equity Income Fund A Class 12.38% S&P 500 Index 12.25% Consumer Price Index (Inflation) 4.35% Includes reinvestment of dividends and capital gains. See page 12 for complete Fund performance. for total return 7 Each dollar invested in Decatur Income Fund at inception 42 years ago would have grown to more than $138 as of May 31, 1999, with dividends and capital gains reinvested. Decatur Equity Income 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. Performance of other classes of Decatur Equity Income Fund differ from the above due to differing charges and expenses. See page 12 for complete performance information. for total return 8 Delaware's Value Approach: Dividend Yield Dictates Buy/Sell Decisions When to Buy We believe that a stock's yield relative to the average dividend yield of the unmanaged Standard & Poor's 500 Index can be an important indicator of a stock's future value. By focusing on stocks with above-average dividend yields, we try to uncover strong, well-managed companies whose underlying growth potential may not be fairly reflected in the stock's price. Dividends can contribute to total return while we wait for capital appreciation. We typically select stocks that fall within the "high" yield category, as shown in the chart below. We divide the universe of dividend-paying stocks into five categories ranked by yield and select stocks from the group with the second highest dividend yields. This category has historically provided the highest total return over the long term. LONG-TERM RETURNS OF DIVIDEND PAYING STOCKS 1929 TO 1998 Lowest Low Mid Yields High Highest - ------------------------------------------------------------------------------- Income 2.9% 4.1% 4.9% 5.9% 7.7% - ------------------------------------------------------------------------------- Capital appreciation 7.4% 5.9% 7.1% 7.4% 3.5% - ------------------------------------------------------------------------------- 10.3% 11.0% 12.0% 13.3% 11.2% - ------------------------------------------------------------------------------- Source: Delaware Investments When to Sell When a stock's yield falls below the average yield of the S&P 500, we typically sell it. We believe a lower yield indicates that the stock is fairly priced and future appreciation potential is no longer attractive relative to possible risks. Though a low yield is usually our basis for selling, we may sell a stock with an above-average yield because of negative changes affecting the individual company, which might potentially reduce its future growth. for total return 9 Portfolio Positioning At the end of the 1998 fiscal year, our management team conducted a complete review of all holdings in the Decatur Equity Income Fund and the Delaware Growth and Income Fund portfolios. This is standard procedure at times when our investment style is out of favor. We wanted to position the portfolios for capital appreciation potential should our value-oriented strategy regain appeal. Following our evalution, we: o Consolidated our holdings. We modestly reduced the number of stocks in each portfolio. We identified our "best ideas" and increased those allocations so that if investor sentiment shifted in our favor, we would be rewarded. For example, we sold PPG Industries, a chemical company, and added to our holdings in Aluminum Company of America (ALCOA). o Upgraded quality. We set out last winter to further upgrade quality--i.e., quality of company management--in every industry group represented in the portfolios. We benefited from this upgrade in April when our holdings in economically sensitive (cyclical) sectors--including energy, paper, chemicals and metals--performed well compared to other stocks in these sectors. o Reviewed holdings within specific industries. Within our basic industry allocation, we not only sold PPG and increased our position in ALCOA, but we further upgraded our holdings with a new position in Weyerhaeuser Co., a forest products company under new management (See page 11). In the banking industry, we sold First Union, whose recent acquisitions have missed earnings targets, and increased positions in Wells Fargo and BankAmerica. BankAmerica is now the largest holding in both portfolios.
Sector allocation - --------------------------------------------------------------------------------------------- As of May 31, 1999 Decatur Equity Income Fund* Growth and Income Fund - --------------------------------------------------------------------------------------------- Banking, Finance & Insurance 22.0% 21.1% Energy 14.1% 13.7% Telecommunications 9.4% 9.7% Food & Tobacco 7.5% 8.1% Healthcare & Pharmaceuticals 7.3% 6.9% Automobiles & Auto Parts 4.9% 4.8% Paper & Forest Products 4.7% 4.6% Computers & Technology 4.2% 4.1% Electronic & Electrical Equipment 3.9% 3.8% Chemicals 3.9% 3.9% Transportation & Shipping 3.4% 3.2% - --------------------------------------------------------------------------------------------- High-Yield Bonds 14.3% -- - ---------------------------------------------------------------------------------------------
* Please note that the sector percentages for Decatur Equity Income Fund represent the percentage of the equity portion of the Fund that is invested in that sector. The high-yield bond segment is reported separately. for total return 10 As we sought to improve our positioning, the portfolios became more economically sensitive with a larger percentage of holdings in cyclical companies. These stocks generally had low expectations among analysts, but have continued to deliver big earnings surprises. We expect this to continue given our outlook for ongoing expansion of the world's economies. We maintain this view in spite of the possibility that the Federal Reserve Board might nudge interest rates slightly higher. We don't believe modestly higher interest rates will single-handedly dampen future economic growth. High-Yield Bonds High-yield bonds lagged stocks during the six-month period. The Merrill Lynch High-Yield Bond Index returned 1.98%. Decatur Equity Income Fund invests in high-yield bonds in an attempt to generate a high level of current income to supplement the income from our stock holdings. High-yield bonds can also give us a defensive edge during periods of increased price volatility in the stock market. As of May 31, Decatur Equity Income Fund held 14% of net assets in high-yield bonds. We continue to focus on bonds rated B and BB--the highest quality tiers of the high yield market. These bonds, commonly known as junk bonds, are issued by companies whose ability to pay interest and repay principal is not as strong as companies with investment-grade ratings. Outlook During certain periods in each of the past three decades, capital appreciation from a select group of stocks drove U.S. stock returns to unusually high levels. We saw this in the mid-1970s, the early 1980s and twice in the 1990s. The most recent period of narrow market leadership by large-cap growth stocks began in the second half of 1998 amid fears of economic recession. We believe renewed investor optimism this past spring sparked a new appetite for "growth at reasonable prices." This could trigger a new phase in the market cycle--one that might have favorable implications for Delaware's large-cap value strategy. Though we could experience more price volatility going forward, we believe that April marked a turning point for high yielding value stocks. Many companies that were out of favor have gotten their cost structures under control, increasing the likelihood that they can deliver strong earnings and dividend growth against the backdrop of an expanding world economy. Cyclical companies had low expectations but have continued to deliver big earnings surprises. for total return 11 Weyerhaeuser Co. Refines Forest Operations Earlier in this report, we told you about our efforts to further upgrade portfolio quality with well-managed companies. Weyerhaeuser Co., the world's largest private owner of softwood timber and the top forest products exporter in the U.S., fit that bill following a management change last year. For the first time in the company's nearly 100-year history, Weyerhaeuser hired an outsider, Steven Rogel, to serve as chief executive officer. Under his leadership, the company has been cutting costs to improve its operating margins. This past spring, Weyerhaeuser began to deliver surprisingly good earnings after years of repeated disappointments. We bought Weyerhaeuser in late 1998 when its dividend yield was around 3%, nearly three times the average dividend yield of the S&P 500 Index. Its price per share was $49. We added to our position in early 1999 as we consolidated portfolio holdings to focus more on the stocks we thought were most promising. By May 31, Weyerhaeuser's share price had increased to $62 per share. Its dividend yield fell modestly to 2.6%, still well above the average yield of the S&P 500. We believe Weyerhaeuser will continue to deliver strong earnings given both new cost controls established by company management and our expectations for continued worldwide economic growth. Weyerhaeuser Co. Stock Price and Yield Relative to the S&P Index S&P Index = 1.0x
Stock Price Relative Yield Date High Low - ---- ---- --- May-94 $ 43.500 $ 40.750 May-94 1.01% Jun-94 $ 42.375 $ 40.000 Jun-94 0.99% Jul-94 $ 42.125 $ 40.750 Jul-94 1.06% Aug-94 $ 44.000 $ 40.000 Aug-94 1.06% Sep-94 $ 46.125 $ 43.875 Sep-94 1.07% Oct-94 $ 40.375 $ 38.625 Oct-94 1.23% Nov-94 $ 37.625 $ 35.750 Nov-94 1.27% Dec-94 $ 39.125 $ 37.500 Dec-94 1.26% Jan-95 $ 40.125 $ 38.500 Jan-95 1.33% Feb-95 $ 42.500 $ 40.625 Feb-95 1.25% Mar-95 $ 40.000 $ 37.500 Mar-95 1.46% Apr-95 $ 42.375 $ 39.875 Apr-95 1.39% May-95 $ 44.250 $ 42.500 May-95 1.36% Jun-95 $ 47.375 $ 45.250 Jun-95 1.3% Jul-95 $ 48.000 $ 46.500 Jul-95 1.34% Aug-95 $ 47.500 $ 45.000 Aug-95 1.36% Sep-95 $ 46.500 $ 45.125 Sep-95 1.44% Oct-95 $ 46.375 $ 44.250 Oct-95 1.41% Nov-95 $ 44 $ 42.375 Nov-95 1.51% Dec-95 $ 43.375 $ 41.875 Dec-95 1.55% Jan-96 $ 43.25 $ 41 Jan-96 1.58% Feb-96 $ 45.25 $ 42.75 Feb-96 1.58% Mar-96 $ 47.375 $ 46.125 Mar-96 1.5% Apr-96 $ 48.875 $ 47.5 Apr-96 1.45% May-96 $ 48.25 $ 45.375 May-96 1.57% Jun-96 $ 46.75 $ 42.5 Jun-96 1.67% Jul-96 $ 43.875 $ 41.5 Jul-96 1.58% Aug-96 $ 47.625 $ 44.125 Aug-96 1.54% Sep-96 $ 47 $ 45.375 Sep-96 1.58% Oct-96 $ 46.875 $ 45.125 Oct-96 1.6% Nov-96 $ 47.125 $ 45.5 Nov-96 1.71% Dec-96 $ 47.375 $ 45.875 Dec-96 1.67% Jan-97 $ 47.375 $ 44.875 Jan-97 1.79% Feb-97 $ 47.75 $ 45.75 Feb-97 1.77% Mar-97 $ 49.125 $ 45.5 Mar-97 1.76% Apr-97 $ 46.75 $ 44.125 Apr-97 1.74% May-97 $ 50.625 $ 49.375 May-97 1.74% Jun-97 $ 54.625 $ 52.25 Jun-97 1.72% Jul-97 $61.1875 $ 58.375 Jul-97 1.57% Aug-97 $60.8125 $ 57.75 Aug-97 1.56% Sep-97 $ 61.125 $58.9375 Sep-97 1.57% Oct-97 $ 52.375 $46.0625 Oct-97 1.89% Nov-97 $53.3125 $ 51.5 Nov-97 1.79% Dec-97 $48.6875 $47.3125 Dec-97 1.93% Jan-98 $ 51.25 $47.4375 Jan-98 1.95% Feb-98 $50.6875 $ 49.125 Feb-98 2.08% Mar-98 $57.9375 $55.8125 Mar-98 1.91% Apr-98 $61.4375 $57.5625 Apr-98 1.88% May-98 $ 55.125 $ 50.75 May-98 2.09% Jun-98 $47.1875 $ 45.125 Jun-98 2.37% Jul-98 $ 44.75 $41.3125 Jul-98 2.61% Aug-98 $39.9375 $ 37.125 Aug-98 2.69% Sep-98 $43.8125 $ 39 Sep-98 2.32% Oct-98 $ 47.75 $43.0625 Oct-98 2.31% Nov-98 $51.6875 $ 47.375 Nov-98 2.37% The Funds Buy Weyerhaeuser Dec-98 $51.6875 $49.3125 Dec-98 2.43% Jan-99 $55.5625 $ 51.625 Jan-99 2.31% Feb-99 $56.9375 $ 53.75 Feb-99 2.17% Mar-99 $ 60.75 $ 56 Mar-99 2.24% Apr-99 $ 70 $ 66.125 Apr-99 1.93% May-99 $ 71 $61.0625 May-99 2.05%
for total return 12 Performance Summary
Decatur Equity Income Fund - -------------------------------------------------------------------------------------------------------------- Cumulative and Average Annual Returns Through May 31, 1999 Lifetime Ten Years Five Years One Year Six Months - -------------------------------------------------------------------------------------------------------------- Class A (Est. 3/18/57) Excluding Sales Charge 12.54% 12.58% 18.41% 3.28% 3.82% Including Sales Charge 12.38% 11.91% 17.02% -2.66% - -------------------------------------------------------------------------------------------------------------- Class B (Est. 9/6/94) Excluding Sales Charge 17.65% 2.47% 3.40% Including Sales Charge 17.42% -1.79% - -------------------------------------------------------------------------------------------------------------- Class C (Est. 11/29/95) Excluding Sales Charge 17.40% 2.51% 3.44% Including Sales Charge 17.40% -1.66% Delaware Growth and Income Fund - -------------------------------------------------------------------------------------------------------------- Cumulative and Average Annual Returns Through May 31, 1999 Lifetime Ten Years Five Years One Year Six Months - -------------------------------------------------------------------------------------------------------------- Class A (Est. 8/27/86) Excluding Sales Charge 14.19% 13.84% 19.45% 3.84% 4.28% Including Sales Charge 13.66% 13.16% 18.04% -2.14% - -------------------------------------------------------------------------------------------------------------- Class B (Est. 9/6/94) Excluding Sales Charge 18.93% 3.08% 3.90% Including Sales Charge 18.71% -1.44% - -------------------------------------------------------------------------------------------------------------- Class C (Est. 11/29/95) Excluding Sales Charge 18.19% 3.15% 3.92% Including Sales Charge 18.19% 2.24%
Returns reflect reinvestment of distributions and any applicable sales charges as noted below. Return and share value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. B and C Class results excluding sales charge assume either that contingent 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 (for Delaware Growth and Income Fund since inception; for Decatur Equity Income Fund since May 1, 1994). 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 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.
Average Annual Institutional Class Returns Through May 31, 1999 Lifetime 10 Years Five Years One Year Six Months Decatur Equity Income Fund (Est. 1/31/94) 12.57% 12.67% 18.61% 3.50% 3.91% Delaware Growth and Income Fund (Est. 7/26/93) 14.34% 14.03% 19.81% 4.12% 4.43%
Institutional Class shares are available without sales charge or asset-based distribution charges only to certain eligible institutional accounts. Institutional Class performance prior to 1/13/94 for Decatur Equity Income Fund and 7/26/93 for Delaware Growth and Income Fund is based on Class A performance adjusted to eliminate the sales charges. Delaware Growth and Income Fund's Institutional Class performance prior to 7/26/93 has not been adjusted to eliminate the impact of the 12b-1 fees that were in effect. for total return 13 Financial Statements Delaware Group Equity Funds II, Inc. - Decatur Equity Income Fund Statement of Net Assets May 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Number Market of Shares Value ----------------------- COMMON STOCK - 83.61% Aerospace & Defense - 2.05% General Dynamics ................................... 321,900 $ 21,164,925 Lockheed Martin .................................... 655,900 26,522,956 ------------ 47,687,881 ------------ Automobiles & Auto Parts - 4.13% Dana ............................................... 105,400 5,441,275 Delphi Automotive Systems .......................... 247,137 4,850,071 Ford Motor ......................................... 819,400 46,757,012 General Motors ..................................... 563,200 38,860,800 ------------ 95,909,158 ------------ Banking, Finance & Insurance - 18.39 American General ................................... 779,300 56,304,425 Aon ................................................ 900,975 38,741,925 BankAmerica ........................................ 1,091,382 70,598,773 Bank One ........................................... 699,560 39,568,862 Block (H&R) ........................................ 131,600 6,341,475 Chase Manhattan .................................... 436,500 31,646,250 Freddie Mac ........................................ 648,900 44,125,200 Mellon Bank ........................................ 1,194,200 42,618,012 Summit Bancorp ..................................... 588,700 24,099,906 U.S. Bancorp ....................................... 1,359,700 44,190,250 Wells Fargo ........................................ 721,800 28,872,000 ------------ 427,107,078 ------------ Cable, Media & Publishing - 2.63% McGraw-Hill ........................................ 1,176,200 61,015,375 ------------ 61,015,375 ------------ Chemicals - 3.22% DuPont (E.I.) deNemours ............................ 553,300 36,206,569 Imperial Chemical ADR .............................. 879,600 38,647,425 ------------ 74,853,994 ------------ Computers & Technology - 3.53% Pitney Bowes ....................................... 836,800 53,346,000 Xerox .............................................. 510,100 28,661,244 ------------ 82,007,244 ------------ Consumer Products - 2.19% Avon Products ...................................... 168,400 8,325,275 Kimberly-Clark ..................................... 724,100 42,495,619 ------------ 50,820,894 ------------ Electronics & Electrical Equipment - 3.27% Emerson Electric ................................... 500,600 31,975,825 Rockwell International ............................. 434,000 23,951,375 Thomas & Betts ..................................... 466,700 19,980,594 ------------ 75,907,794 ------------ - -------------------------------------------------------------------------------- Number Market of Shares Value ----------------------- COMMON STOCK (Continued) Energy - 11.78% BP Amoco ADR ....................................... 363,533 $ 38,943,472 Chevron ............................................ 436,200 40,430,287 Duke Energy ........................................ 137,000 8,262,812 Enron .............................................. 355,500 25,373,812 Mobil .............................................. 420,500 42,575,625 Royal Dutch Petroleum .............................. 820,100 46,386,906 Sonat .............................................. 1,158,800 41,064,975 Unocal ............................................. 766,400 30,464,400 ------------ 273,502,289 ------------ Food, Beverage & Tobacco - 6.30% Bestfoods .......................................... 950,900 47,545,000 Heinz (H.J.) ....................................... 660,750 31,922,484 PepsiCo ............................................ 739,900 26,497,669 Philip Morris ...................................... 338,600 13,057,262 RJR Nabisco Holdings ............................... 879,800 27,218,812 ------------ 146,241,227 ------------ Healthcare & Pharmaceuticals - 6.11% AstraZeneca ADR .................................... 813,400 32,027,625 Baxter International ............................... 677,000 43,708,812 Glaxo Wellcome ADR ................................. 458,300 25,779,375 Pharmacia & Upjohn ................................. 730,000 40,469,375 ------------ 141,985,187 ------------ Industrial Machinery - 1.58% Deere & Co. ........................................ 962,100 36,619,931 ------------ 36,619,931 ------------ Metals & Mining - 2.35% Alcan Aluminum ..................................... 535,800 15,002,400 Alcoa .............................................. 721,800 39,699,000 ------------ 54,701,400 ------------ Paper & Forest Products - 3.95% International Paper ................................ 1,027,819 51,390,934 Weyerhaeuser ....................................... 648,400 40,241,325 ------------ 91,632,259 ------------ Retail - 1.42% May Department Stores .............................. 762,600 33,030,113 ------------ 33,030,113 ------------ Telecommunications - 7.89% AT&T ............................................... 664,900 36,901,950 ALLTEL ............................................. 240,700 17,255,181 Ameritech .......................................... 808,300 53,196,244 Cable & Wireless ADR ............................... 594,200 22,728,150 GTE ................................................ 843,100 53,167,994 ------------ 183,249,519 ------------ 14 for total return Statement of Net Assets (Continued) - -------------------------------------------------------------------------------- Number Market of Shares Value ---------------------------- COMMON STOCK (Continued) Transportation & Shipping - 2.82% British Airways ADR .............................. 527,600 $ 38,251,000 Norfolk Southern ................................. 831,900 27,244,725 -------------- 65,495,725 -------------- Total Common Stock (cost $1,696,272,568) ......................... 1,941,767,068 -------------- Preferred Stock - 0.26% Granite Broadcasting 12.75% 04/01/09 ............. 5,885 5,973,542 TCR Holdings Class B ............................. 3,511 211 TCR Holdings Class C ............................. 1,931 108 TCR Holdings Class D ............................. 5,092 270 TCR Holdings Class E ............................. 10,534 664 Total Preferred Stock (cost $5,222,948) ............................. 5,974,795 -------------- Warrants - 0.00% American Banknote Warrant ........................ 500 5,000 -------------- Total Warrants (cost $5,038) ..................... 5,000 -------------- Principal Amount ----------- Corporate Bonds - 14.33% Aerospace & Defense - 0.12% DERLAN Manufacturing sr nts 10.00% 01/15/07 ............................... $2,800,000 2,744,000 -------------- 2,744,000 -------------- Automobile & Auto Parts - 0.38% American Axle & Manufacturing 144A sr sub nts 9.75% 03/01/09 ................................ 5,500,000 5,568,750 Federal Mogul 144A nts 7.50% 01/15/09 ............ 400,000 377,500 HDA Parts System 144A sr sub nts 12.00% 08/01/05 ............................... 3,000,000 2,910,000 -------------- 8,856,250 -------------- Banking, Finance & Insurance - 0.25% Olympic Financial units 11.50% 03/15/07 .......... 650,000 526,500 -------------- 526,500 -------------- Building & Materials - 0.45% Advanced Glassfiber Yarn 144A sr sub nts 9.875% 01/15/09 ............................... 5,000,000 4,693,750 Collins & Aikman Floorcovers sr sub nts 10.00% 01/15/07 ............................... 300,000 314,250 Maxim Group sr nts 9.25% 10/15/07 ................ 2,500,000 2,503,125 WESCO Distribution 9.125% 06/01/08 ............... 3,000,000 3,033,750 -------------- 10,544,875 -------------- Cable, Media & Publishing - 0.75% Adelphia Comm 144A sr nts 7.75% 01/15/09 ......... 700,000 664,125 American Lawyer Media sr nts 9.75% 12/15/07 ................................ 575,000 594,406 American Media 144A sr sub nts 10.25% 05/01/09 ............................... 700,000 702,625 Charter Communications sr nts 144A 8.625% 04/01/09 ............................... 5,000,000 4,925,000 Echostar DBS 144A sr nts 9.25% 01/02/06 .......... 5,000,000 5,025,000 Hollinger International Publishing sr sub nts 9.25% 03/15/07 ................................ 2,000,000 2,082,500 - -------------------------------------------------------------------------------- Principal Market Amount Value ------------------------- Corporate Bonds (Continued) Cable, Media & Publishing (Continued) Muzac sr sub nts 9.875% 03/15/09 ................. $ 400,000 $ 401,500 Telewest Communications sr debs 9.625% 10/01/06 ............................... 3,000,000 3,075,000 ----------- 17,470,156 ----------- Chemicals - 0.62% BPC Holding sr nts 12.50% 06/15/06 ............... 2,000,000 2,112,500 Envirodyne sr nts 10.25% 12/01/01 ................ 5,000,000 3,743,750 General Chemical 144A sr sub nts 10.625% 05/01/09 .............................. 700,000 714,000 Huntsman sr sub nts 9.50% 07/01/07 ............... 2,000,000 2,025,000 Octel Development 10.00% 05/01/06 ................ 2,000,000 2,090,000 Sterling Chemicals sr sub nts 11.75% 08/15/06 ............................... 1,950,000 1,852,500 Sterling Chemicals sr sub nts 11.25% 04/01/07 ............................... 2,000,000 1,880,000 ----------- 14,417,750 Computers & Technology - 0.20% ----------- Axiom Transaction Solutions unsec sr sub nts 9.75% 10/01/07 ................................ 5,225,000 4,669,844 ----------- 4,669,844 ----------- Consumer Products - 0.04% Fedders North America sr sub nts 9.375% 08/15/07 ............................... 1,000,000 1,021,250 ----------- 1,021,250 ----------- Electronics & Electrical Equipment - 0.28% BGF Industries 144A sr sub nts 10.25% 01/15/09 ............................... 4,000,000 3,720,000 HCC Industries sr sub nts 10.75% 05/15/07 ........ 2,925,000 2,826,281 ----------- 6,546,281 ----------- Energy - 0.36% Chesapeake Energy unsec sr sub nts 9.625% 05/01/05 ............................... 1,000,000 888,750 Chiles Offshore sr nts 10.00% 05/01/08 ........... 4,000,000 3,160,000 Continental Resources 10.25% 08/01/08 ............ 1,000,000 750,000 First Wave Marine sr nts 11.00% 02/01/08 ......... 500,000 473,125 Grant Geophysical sr nts 9.75% 02/15/08 .......... 2,000,000 1,000,000 RBF Finance sr sec nts 11.375% 03/15/09 .......... 2,000,000 2,017,500 ----------- 8,289,375 ----------- Food, Beverage & Tobacco - 0.72% Ameriserv Food Distributors sr nts 8.875% 10/15/06 ............................... 5,500,000 5,163,125 Community Distributors unsec sr nts 10.25% 10/15/04 ............................... 2,000,000 1,760,000 Core-Mark International sr sub nts 11.375% 09/15/03 .............................. 400,000 398,000 Cott sr nts 8.50% 05/01/07 ....................... 3,000,000 2,831,250 Delta Beverage Group sr nts 9.75% 12/15/03 ....... 4,500,000 4,629,375 DiGiorgio sr nts 10.00% 06/15/07 ................. 2,000,000 2,002,500 ----------- 16,784,250 ----------- Healthcare & Pharmaceuticals - 0.42% Kinetic Concepts sr sub nts 9.625% 11/01/07 ...... 3,500,000 3,416,875 Paracelsus Healthcare sr sub nts 10.00% 08/15/06 ............................... 1,455,000 1,134,900 for total return 15 Statement of Net Assets (Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value ------------------------- Corporate Bonds (Continued) Healthcare & Pharmaceuticals (Continued) Team Health Inc 144A sr sub nts 12.00% 03/15/09 ................................ $5,000,000 $ 5,106,250 ----------- 9,658,025 ----------- Industrial Machinery - 0.91% DeCrane Aircraft 12.00% 09/30/08 .................. 6,000,000 6,180,000 Outboard Marine sr nts 10.75% 06/01/08 ............ 3,000,000 2,100,000 Renters Choice 11.00% 08/15/08 .................... 5,000,000 5,250,000 Republic Engineered Steel 9.875% 12/15/01 ......... 6,000,000 6,255,000 Spinnaker Industries sr nts 10.75% 10/15/06 ....... 2,000,000 1,560,000 United Rentals nts 9.00% 04/01/09 ................. 5,000,000 4,975,000 ----------- 26,320,000 ----------- Leisure, Lodging & Entertainment - 2.16% AFC Enterprises sr sub nts 10.25% 05/15/07 ........ 1,450,000 1,493,500 Aztar Corp 144A sr sub nts 8.875% 05/15/07 ........ 5,400,000 5,224,500 Bally Total Fitness Holdings sr sub nts 9.875% 10/15/07 ................................ 5,000,000 4,937,500 Cinemark USA sr sub nts 9.625% 08/01/08 ........... 7,000,000 7,061,250 Hollywood Casino 144A sec 11.25% 05/01/07 ................................ 7,000,000 6,947,500 Hollywood Park 9.25% 02/15/07 ..................... 5,000,000 5,050,000 Park Place Entertainment sr sub nts 7.875% 12/15/05 ................................ 5,000,000 4,818,750 Riddell Sports sr unsec sub nts 10.50% 07/15/07 ................................ 3,279,000 2,983,890 Town Sports International unsec sr nts 9.75% 10/15/04 ................................. 3,000,000 2,932,500 Trump-Atlantic City 1st mtg nts 11.25% 05/01/06 ................................ 1,900,000 1,679,125 United Artists Theatre sr sub nts 9.75% 04/15/08 ................................. 5,000,000 4,093,750 Vail Resorts 144A sr sub nts 8.75% 05/15/09 ....... 3,000,000 2,925,000 ----------- 50,147,265 ----------- Metals & Mining - 0.70% AK Steel Corp 144A 7.875% 02/15/09 ................ 400,000 393,000 Armco sr nts 8.875% 12/01/08 ...................... 1,300,000 1,334,125 Centaur Mining & Exploration nts 11.00% 12/01/07 ................................ 5,000,000 4,750,000 Great Lakes Carbon unsec sr sub nts 10.25% 05/15/08 ................................ 1,600,000 1,652,000 P & L Coal Holdings 9.625% 05/15/08 ............... 4,000,000 4,075,000 Schuff Steel unsec sr nts 10.500% 06/01/08 ........ 2,025,000 1,883,250 Weirton Steel sr nts 11.375% 07/01/04 ............. 1,500,000 1,486,875 WHX sr nts 10.50% 04/15/05 ........................ 750,000 742,500 ----------- 16,316,750 ----------- Packaging & Containers - 0.61% Container Corporation of America sr nts 11.25% 05/01/04 ................................ 5,000,000 5,287,500 Huntsman Packaging sr sub nts 9.125% 10/01/07 ................................ 3,325,000 3,329,156 Riverwood International unsec sr nts 10.25% 04/01/06 ................................ 1,000,000 1,018,750 Riverwood International unsec sr sub nts 10.875% 04/01/08 ............................... 650,000 637,813 - -------------------------------------------------------------------------------- Principal Market Amount Value ------------------------- Corporate Bonds (Continued) Packaging & Containers (Continued) Stone Container sr nts 10.75% 10/01/02 ............ $3,785,000 $ 3,936,400 ----------- 14,209,619 ----------- Paper & Forest Products - 0.21% Doman Industries Limited sr nts 8.75% 03/15/04 ................................. 3,120,000 2,191,800 US Office Products 9.75% 06/15/08 ................. 3,450,000 2,259,750 US Timberlands sr nts 9.625% 11/15/07 ............. 400,000 407,500 ----------- 4,859,050 ----------- Real Estate - 0.26% Engle Homes sr nts 9.25% 02/01/08 ................. 700,000 686,000 HMH Properties sr sec nts 7.875% 08/01/08 ......... 5,700,000 5,293,875 ----------- 5,979,875 ----------- Retail - 0.71% Advance Stores sr sub nts 10.25% 04/15/08 ......... 500,000 502,500 Amscan Holdings sr sub nts 9.875% 12/15/07 ........ 650,000 556,563 Cole National Group sr sub nts 9.875% 12/31/06 ................................ 2,500,000 2,600,000 Fleming sr nts 10.625% 12/15/01 ................... 5,000,000 5,050,000 Frank's Nursery and Crafts sr sub nts 10.25% 03/01/08 ................................ 500,000 499,375 Jitney-Jungle Stores 12.00% 03/01/06 .............. 3,150,000 3,220,875 Just for Feet 144A sr sub nts 11.00% 05/01/09 ................................ 400,000 324,000 Shoppers Food Warehouse sr nts 9.75% 06/15/04 ................................. 2,000,000 2,172,500 Wilsons The Leather Expert sr nts 11.25% 08/15/04 ................................ 1,500,000 1,507,500 ----------- 16,433,313 ----------- Telecommunications - 1.19% BTI Telecom sr nts 10.50% 09/15/07 ................ 650,000 611,000 Intermedia Communication sr nts 8.60% 06/01/08 ................................. 5,000,000 4,700,000 Level 3 Communications sr nts 9.125% 05/01/08 ................................ 6,000,000 5,865,000 McLeodUSA sr nts 8.125% 02/15/09 .................. 5,625,000 5,245,313 RCN sr nts 10.00% 10/15/07 ........................ 5,000,000 5,012,500 RSL Communications 10.50% 11/15/08 ................ 5,000,000 4,962,500 Rogers Communications sr nts 8.875% 07/15/07 ................................ 1,165,000 1,197,038 ----------- 27,593,351 ----------- Textiles, Apparel & Furniture - 0.24% GFSI sr sub nts 9.625% 03/01/07 ................... 1,100,000 1,012,000 Norton McNaught 12.50% 06/01/05 ................... 1,000,000 848,750 Ntex sr nts 11.50% 06/01/06 ....................... 2,000,000 1,840,000 Synthetic Industries sr sub nts 9.25% 02/15/07 ................................. 1,750,000 1,800,313 ----------- 5,501,063 ----------- Transportation & Shipping - 0.48% American Commercial Lines nts 10.25% 06/30/08 ................................ 1,375,000 1,411,094 Atlantic Express sr sec nts 10.75% 02/01/04 ................................ 900,000 909,000 Blue Bird Body sr nts 10.75% 11/15/06 ............. 2,700,000 2,885,625 MTL 10.00% 06/15/06 ............................... 2,500,000 2,478,125 16 for total return Statement of Net Assets (Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value ------------------------- Corporate Bonds (Continued) Transportation & Shipping (Continued) Navigator Gas Transport units 12.00% 06/30/07 .................................. $1,250,000 $ 487,500 Stena Line AB sr nts 10.625% 06/01/08 ............... 4,050,000 3,093,188 ----------- 11,264,532 ----------- Utilities - 0.23% AES sr sub nts 10.25% 07/15/06 ...................... 3,000,000 3,153,750 Midland Funding II sr sub debs 11.75% 07/23/05 .................................. 2,000,000 2,252,500 ----------- 5,406,250 ----------- Miscellaneous - 2.04% Allied Waste NA 7.375% 01/01/04 ..................... 700,000 671,125 Apple South sr nts 9.75% 06/01/06 ................... 400,000 399,500 Budget Group 144A sr nts 9.125% 04/01/06 .................................. 1,400,000 1,359,750 Building One Services sr sub nts 10.50% 05/01/09 .................................. 400,000 376,000 Caithness 144A sec 9.05% 12/15/09 ................... 3,000,000 3,018,750 Cex Holdings 9.625% 06/01/08 ........................ 5,000,000 4,712,500 Geologistics unsec sub nts 9.75% 10/15/07 ........... 4,000,000 3,225,000 Knoll sr sub nts 10.875% 03/15/06 ................... 1,298,000 1,432,668 Loomis Fargo sr sub nts 10.00% 01/15/04 ............. 7,695,000 7,829,663 Neff sr sub nts 10.25% 06/01/08 ..................... 5,000,000 5,150,000 Pierce Leahy sr sub nts 8.125% 05/15/08 ............. 2,000,000 1,957,500 Protection One 144A sr sub nts 8.125% 01/15/09 .................................. 7,300,000 6,998,875 Pueblo Xtra International sr nts 9.50% 08/01/03 ................................... 950,000 931,000 Rayovac sr sub nts 10.25% 11/01/06 .................. 3,252,000 3,544,680 World Color Press 144A sr sub nts 7.75% 02/15/09 ................................... 6,000,000 5,685,000 ----------- 47,292,011 ----------- Total Corporate Bonds (cost $346,131,405) 332,851,635 ----------- Repurchase Agreements - 0.48% With Chase Manhattan 4.78% 06/01/99 (dated 05/31/99, collateralized by $907,000 U.S. Treasury Notes 6.25% due 02/28/02, market value $935,915 and $1,475,000 U.S. Treasury Notes 7.50% due 05/15/02, market value $1,553,165 and $1,386,000 U.S. Treasury Notes 5.50% due 02/28/03, market value $1,395,688) ...................................... 3,805,000 3,805,000 With PaineWebber 4.78% 06/01/99 (dated 05/31/99, collateralized by $1,475,000 U.S. Treasury Bills due 5/15/00, market value $1,493,825 and $1,475,000 U.S. Treasury Notes 6.25% due 01/31/02, market value $1,529,047 and $762,000 U.S. Treasury Notes 5.375% due 06/30/03, market value $769,831) ................. 3,716,000 3,716,000 - -------------------------------------------------------------------------------- Principal Market Amount Value ------------------------- Repurchase Agreements (Continued) With Prudential Securities 4.78% 06/01/99 (dated 05/31/99, collateralized by $3,067,000 U.S. Treasury Notes 15.75% due 11/15/01, market value $3,793,714) ......................... $3,716,000 $ 3,716,000 -------------- Total Repurchase Agreements (cost $11,237,000) ............................... 11,237,000 -------------- Total Market Value of Securities - 98.68% (COST $2,058,868,959) ............................ $2,291,835,498 Receivables and Other Assets Net of Liabilities - 1.32% .............................. 30,575,824 -------------- Net Assets Applicable to 125,191,693 Shares ($1 Par Value) Outstanding - 100.00% ............. $2,322,411,322 ============== Net Asset Value - Decatur Equity Income Fund A Class ($1,897,832,025 / 102,266,384 shares) ............ $18.56 ====== Net Asset Value - Decatur Equity Income Fund B Class ($175,177,865 / 9,484,018 shares) ................ $18.47 ====== Net Asset Value - Decatur Equity Income Fund C Class ($24,122,884 / 1,298,635 shares) ................. $18.58 ====== Net Asset Value - Decatur Equity Income Fund Institutional Class ($225,278,548 / 12,142,656 shares) .......................................... $18.55 ====== - -------------------------- Summary of Abbreviations: ADR - American Depository Receipt debs - debentures mtg - mortgage nts - notes sec - secured sr - senior sub - subordinated unsec - unsecured Components of Net Assets at MAY 31, 1999: Common stock, $1 par value, 250,000,000 shares authorized to the Fund with 100,000,000 shares allocated to Decatur Equity Income Fund A Class, 50,000,000 shares allocated to Decatur Equity Income Fund B Class, 50,000,000 shares allocated to Decatur Equity Income Fund C Class, and 50,000,000 shares allocated to Decatur Equity Income Fund Institutional Class .................. $2,053,696,305 Undistributed net investment income ................. 4,273,473 Accumulated net realized gain on investments ........ 31,475,005 Net unrealized appreciation of investments .......... 232,966,539 -------------- Total net assets .................................... $2,322,411,322 ============== Net Asset Value and Offering Price Per Share - Decatur Equity Income Fund Net asset value A Class (A) ......................... $18.56 Sales charge (5.75% of offering price or 6.09% of the amount invested per share) (B) ................... 1.13 ------ Offering price ...................................... $19.69 ====== - ---------- (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See How to Buy Shares in the current Prospectus for purchases of $50,000 or more. See accompanying notes for total return 17 Delaware Group Equity Funds II, Inc. - Growth and Income Fund Statement of Net Assets May 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Number Market of Shares Value ---------------------------- COMMON STOCK - 98.46% Aerospace & Defense - 2.38% General Dynamics ................................ 227,100 $ 14,931,825 Lockheed Martin ................................. 455,900 18,435,456 ------------ 33,367,281 ------------ Automobiles & Auto Parts - 4.77% Dana ............................................ 74,300 3,835,738 Delphi Automotive Systems ....................... 174,205 3,418,779 Ford Motor ...................................... 566,300 32,314,494 General Motors .................................. 396,900 27,386,100 ------------ 66,955,111 ------------ Banking, Finance & Insurance - 21.05% American General ................................ 539,900 39,007,775 Aon ............................................. 605,625 26,041,875 Bank of America ................................. 757,948 49,029,761 Bank One ........................................ 471,586 26,674,083 Block (H&R) ..................................... 92,900 4,476,619 Chase Manhattan ................................. 298,800 21,663,000 Freddie Mac ..................................... 438,800 29,838,400 Mellon Bank ..................................... 825,000 29,442,188 Summit Bancorp .................................. 441,920 18,091,100 U.S. Bancorp .................................... 958,500 31,151,250 Wells Fargo ..................................... 499,900 19,996,000 ------------ 295,412,051 ------------ Cable, Media & Publishing - 3.06% McGraw-Hill ..................................... 828,100 42,957,688 ------------ 42,957,688 ------------ Chemicals - 3.88% DuPont(E.I.)deNemours ........................... 428,500 28,039,969 Imperial Chemical ADR ........................... 600,800 26,397,650 ------------ 54,437,619 ------------ Computers & Technology - 4.13% Pitney Bowes .................................... 591,200 37,689,000 Xerox ........................................... 361,400 20,306,163 ------------ 57,995,163 ------------ Consumer Products - 2.50% Avon Products ................................... 117,000 5,784,188 Kimberly-Clark .................................. 499,700 29,326,144 ------------ 35,110,332 ------------ Electronics & Electrical Equipment - 3.77% Emerson Electric ................................ 349,200 22,305,150 Rockwell International .......................... 301,600 16,644,550 Thomas & Betts .................................. 326,700 13,986,844 ------------ 52,936,544 ------------ Energy - 13.74% BP Amoco ADR .................................... 245,972 26,349,751 Chevron ......................................... 300,300 27,834,056 Duke Energy ..................................... 97,000 5,850,313 - -------------------------------------------------------------------------------- Number Market of Shares Value ---------------------------- COMMON STOCK (Continued) Energy (Continued) Enron ........................................... 271,700 $ 19,392,588 Mobil ........................................... 295,800 29,949,750 Royal Dutch Petroleum ........................... 601,300 34,011,031 Sonat ........................................... 798,200 28,286,213 Unocal .......................................... 530,000 21,067,500 -------------- 192,741,202 -------------- Food, Beverage & Tobacco - 8.07% Bestfoods ....................................... 697,200 34,860,000 Heinz (H.J.) .................................... 459,450 22,197,178 PepsiCo ......................................... 513,900 18,404,044 Philip Morris ................................... 490,300 18,907,194 RJR Nabisco Holdings ............................ 609,800 18,865,688 -------------- 113,234,104 -------------- Healthcare & Pharmaceuticals - 6.94% AstraZeneca ADR ................................. 559,900 22,046,063 Baxter International ............................ 460,500 29,731,031 Glaxo Wellcome ADR .............................. 316,200 17,786,250 Pharmacia & Upjohn .............................. 502,500 27,857,344 -------------- 97,420,688 -------------- Industrial Machinery - 1.80% Deere & Co. ..................................... 664,000 25,273,500 -------------- 25,273,500 -------------- Metals & Mining - 3.07% Alcan Aluminum .................................. 379,700 10,631,600 Alcoa ........................................... 590,900 32,499,500 -------------- 43,131,100 -------------- Paper & Forest Products - 4.56% International Paper ............................. 726,491 36,324,540 Weyerhaeuser .................................... 446,600 27,717,113 -------------- 64,041,653 -------------- Retail - 1.80% May Department Stores ........................... 583,200 25,259,850 -------------- 25,259,850 -------------- Telecommunications - 9.72% AT&T ............................................ 593,400 32,933,700 ALLTEL .......................................... 166,800 11,957,475 Ameritech ....................................... 548,800 36,117,900 Cable & Wireless ................................ 444,000 16,983,000 GTE ............................................. 608,400 38,367,225 -------------- 136,359,300 -------------- Transportation & Shipping - 3.20% British Airways ADR ............................. 360,900 26,165,250 Norfolk Southern ................................ 574,200 18,805,050 -------------- 44,970,300 -------------- Total Common Stock (cost of $1,193,924,126) ..................... 1,381,603,486 -------------- 18 for total return Statement of Net Assets (Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value ------------------------- Repurchase Agreements - 0.71% With Chase Manhattan 4.78% 06/01/99 (dated 05/31/99, collateralized by $805,000 U.S. Treasury Notes 6.25% due 02/28/02, market value $830,638 and $1,309,000 U.S. Treasury Notes 7.50% due 05/15/02, market value $1,378,456 and $1,230,000 U.S. Treasury Notes 5.50% due 02/28/03, market value $1,238,693) ............... $3,377,000 $ 3,377,000 With PaineWebber 4.78% 06/01/99 (dated 05/31/99, collateralized by $1,309,000 U.S. Treasury Bills due 5/15/00, market value $1,325,791 and $1,309,000 U.S. Treasury Notes 6.25% due 01/31/02, market value $1,357,051 and $676,000 U.S. Treasury Notes 5.375% due 06/30/03, market value $683,236) ................. 3,298,000 3,298,000 With Prudential Securities 4.78% 06/01/99 (dated 05/31/99, collateralized by $2,722,000 U.S. Treasury Notes 15.75% due 11/15/01, market value $3,366,976) ......................... 3,298,000 3,298,000 -------------- Total Repurchase Agreements (cost $9,973,000) ................................ 9,973,000 -------------- Total Market Value of Securities - 99.17% (cost $1,203,897,126) ............................ $1,391,576,486 Receivables and Other Assets Net of Liabilities - 0.83% .............................. 11,604,343 -------------- Net Assets Applicable to 80,218,200 Shares ($1 Par Value) Outstanding - 100.00% ............. $1,403,180,829 ============== - -------------------------------------------------------------------------------- Net Asset Value - Growth and Income Fund A Class ($995,393,122 / 56,873,650 shares) .................... $17.50 ====== Net Asset Value - Growth and Income Fund B Class ($231,198,024 / 13,246,216 shares) .................... $17.45 ====== Net Asset Value - Growth and Income Fund C Class ($50,201,808 / 2,881,946 shares) ...................... $17.42 ====== Net Asset Value - Growth and Income Fund Institutional Class ($126,387,875 / 7,216,388 shares) ............... $17.51 ====== - --------------------- Components of Net Assets at MAY 31, 1999: Common stock, $1 par value, 250,000,000 shares authorized to the Fund with 100,000,000 shares allocated to Growth and Income Fund A Class, 50,000,000 shares allocated to Growth and Income Fund B Class, 50,000,000 shares allocated to Growth and Income Fund C Class, and 50,000,000 shares allocated to Growth and Income Fund Institutional Class ............ $1,186,042,681 Undistributed net investment income ...................... 4,519,757 Accumulated net realized gain on investments ............. 24,939,031 Net unrealized appreciation of investments ............... 187,679,360 -------------- Total net assets ......................................... $1,403,180,829 ============== Net Asset Value and Offering Price Per Share - Growth and Income Fund Net asset value A Class (A) .............................. $17.50 Sales charge (5.75% of offering price or 6.11% of the amount invested per share) (B) ........................ 1.07 ------ Offering price ........................................... $18.57 ====== - -------------------- (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See How to Buy Shares in the current Prospectus for purchases of $50,000 or more. See accompanying notes for total return 19 Delaware Group Equity Funds II, Inc. - Statement of Operations Six Months Ended May 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Decatur Equity Growth and Income Fund Income Fund ---------------------------- INVESTMENT INCOME: Interest .......................................... $17,545,650 $ 533,883 Dividends ......................................... 25,181,922 17,157,744 ----------- ----------- 42,727,572 17,691,627 ----------- ----------- EXPENSES: Management fees ................................... 6,123,649 4,083,716 Distribution expense .............................. 3,099,209 2,878,269 Dividend disbursing and transfer agent fees and expenses ....................................... 1,648,385 1,444,573 Accounting and administration ..................... 648,764 387,884 Reports and statements to shareholders ............ 255,520 81,380 Professional fees ................................. 65,700 28,200 Registration fees ................................. 59,400 30,000 Taxes (other than taxes on income) ................ 53,258 55,050 Directors' fees ................................... 20,655 12,433 Custodian fees .................................... 40,589 20,556 Other ............................................. 117,291 73,977 ----------- ----------- 12,132,420 9,096,038 Less expenses paid indirectly ..................... (79,516) (28,775) ----------- ----------- Total expenses .................................... 12,052,904 9,067,263 NET INVESTMENT INCOME ............................. 30,674,668 8,624,364 ----------- ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments .................. 35,053,590 25,471,377 Net change in unrealized appreciation/depreciation of investments ................................. 23,330,685 23,605,699 ----------- ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ... 58,384,275 49,077,076 ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................................... $89,058,943 $57,701,440 =========== =========== See accompanying notes 20 for total return Delaware Group Equity Funds II, Inc. - Statements of Changes in Net Assets
- --------------------------------------------------------------------------------------------------------------------------------- Decatur Equity Income Fund Growth and Income Fund -------------------------------------------------------------------------- Six Months Year Six Months Year Ended 5/31/99 Ended Ended 5/31/99 Ended (Unaudited) 11/30/98 (Unaudited) 11/30/98 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income .............................. $ 30,674,668 $ 64,187,398 $ 8,624,364 $ 18,339,682 Net realized gain on investments ................... 35,053,590 361,584,308 25,471,377 161,450,447 Net change in unrealized appreciation / depreciation of investments ..................... 23,330,685 (154,044,350) 23,605,699 (36,538,962) --------------- --------------- --------------- --------------- Net increase in net assets resulting from operations 89,058,943 271,727,356 57,701,440 143,251,167 --------------- --------------- --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: A Class ......................................... (29,952,163) (45,727,459) (7,354,248) (12,123,443) B Class ......................................... (2,030,339) (2,136,896) (1,069,801) (916,994) C Class ......................................... (272,218) (281,715) (239,969) (192,210) Institutional Class ............................. (4,051,313) (6,528,308) (1,134,076) (1,562,741) Net realized gain on investments: A Class ......................................... (294,241,868) (258,801,828) (115,549,999) (93,765,337) B Class ......................................... (25,790,323) (17,106,645) (25,411,948) (15,012,718) C Class ......................................... (3,465,186) (2,124,083) (5,698,348) (2,946,081) Institutional Class ............................. (36,564,567) (39,093,334) (12,829,309) (8,735,336) --------------- --------------- --------------- --------------- (396,367,977) (371,800,268) (169,287,698) (135,254,860) --------------- --------------- --------------- --------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: A Class ......................................... 68,782,971 168,201,945 62,007,876 195,303,575 B Class ......................................... 21,998,720 57,047,914 30,946,864 88,711,551 C Class ......................................... 4,529,252 9,894,966 8,928,807 26,672,866 Institutional Class ............................. 30,482,277 58,405,474 33,083,138 54,756,372 Net asset value of shares issued upon reinvestment of distributions from net investment income and net realized gain on investments: A Class ......................................... 289,847,027 272,677,435 116,680,832 100,880,624 B Class ......................................... 25,365,694 17,281,260 25,354,049 15,076,377 C Class ......................................... 3,416,930 2,166,924 5,718,378 3,040,923 Institutional Class ............................. 40,593,962 45,289,349 13,963,178 10,297,967 --------------- --------------- --------------- --------------- 485,016,833 630,965,267 296,683,122 494,740,255 --------------- --------------- --------------- --------------- Cost of shares repurchased: A Class ......................................... (177,525,459) (296,579,034) (109,201,595) (158,209,478) B Class ......................................... (20,001,392) (22,666,310) (25,699,245) (22,393,120) C Class ......................................... (3,888,643) (3,726,339) (9,135,236) (7,597,150) Institutional Class ............................. (59,368,279) (126,067,562) (24,169,554) (32,883,578) --------------- --------------- --------------- --------------- (260,783,773) (449,039,245) (168,205,630) (221,083,326) --------------- --------------- --------------- --------------- Increase in net assets derived from capital share transactions ...................................... 224,233,060 181,926,022 128,477,492 273,656,929 --------------- --------------- --------------- --------------- NET INCREASE/DECREASE IN NET ASSETS ................ (83,075,974) 81,853,110 16,891,234 281,653,236 NET ASSETS: Beginning of year .................................. 2,405,487,296 2,323,634,186 1,386,289,595 1,104,636,359 --------------- --------------- --------------- --------------- End of period ...................................... $ 2,322,411,322 $ 2,405,487,296 $ 1,403,180,829 $ 1,386,289,595 =============== =============== =============== ===============
See accompanying notes for total return 21 Delaware Group Equity Funds II, Inc. Financial Highlights - -------------------------------------------------------------------------------- Selected data for each share of the Fund outstanding throughout each period were as follows:
Decatur Equity Income Fund A Class --------------------------------------------------------------------------------------- Six Months Year Year Year Year Year Ended Ended Ended Ended Ended Ended 5/31/99(2) 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94 (Unaudited) Net asset value, beginning of period ..... $ 21.400 $ 22.580 $ 21.320 $ 19.070 $ 15.570 $ 18.240 Income (loss) from investment operations: Net investment income ................. 0.245 0.569 0.600 0.650 0.700 0.670 Net realized and unrealized gain (loss) on investments ....................... 0.435 1.811 3.940 3.630 3.910 (0.730) ----------- ----------- ----------- ----------- ----------- ----------- Total from investment operations ...... 0.680 2.380 4.540 4.280 4.610 (0.060) ----------- ----------- ----------- ----------- ----------- ----------- Less dividends and distributions: Dividends from net investment income .. (0.300) (0.490) (0.600) (0.690) (0.690) (0.860) Distributions from net realized gain on investments ....................... (3.220) (3.070) (2.680) (1.340) (0.420) (1.750) ----------- ----------- ----------- ----------- ----------- ----------- Total dividends and distributions ..... (3.520) (3.560) (3.280) (2.030) (1.110) (2.610) ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, end of period ........... $ 18.560 $ 21.400 $ 22.580 $ 21.320 $ 19.070 $ 15.570 =========== =========== =========== =========== =========== =========== Total return(1) .......................... 3.82% 12.03% 24.78% 24.47% 31.02% (0.57%) Ratios and supplemental data: Net assets, end of period (000 omitted) $ 1,897,832 $ 1,969,181 $ 1,906,726 $ 1,616,315 $ 1,382,693 $ 1,153,884 Ratio of expenses to average net assets 0.98% 0.90% 0.88% 0.85% 0.87% 0.81% Ratio of net investment income to average net assets ................... 2.64% 2.68% 2.87% 3.40% 4.03% 3.92% Portfolio turnover .................... 107% 94% 90% 101% 74% 92%
- ---------- (1) 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. (2) Ratios have been annualized and total return has not been annualized. 22 for total return Financial Highlights (Continued) - -------------------------------------------------------------------------------- Selected data for each share of the Fund outstanding throughout each period were as follows:
Decatur Equity Income Fund B Class ------------------------------------------------------------------------------ Six Months Year Year Year Year 9/6/94(3) Ended Ended Ended Ended Ended to 5/31/99(2) 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94 (Unaudited) Net asset value, beginning of period ..... $ 21.320 $ 22.480 $ 21.260 $19.030 $15.550 $16.590 Income (loss) from investment operations: Net investment income ................. 0.175 0.403 0.450 0.500 0.560 0.150 Net realized and unrealized gain (loss) on investments ....................... 0.425 1.797 3.900 3.610 3.890 (1.020) -------- -------- -------- ------- ------- ------- Total from investment operations ...... 0.600 2.200 4.350 4.110 4.450 (0.870) -------- -------- -------- ------- ------- ------- Less dividends and distributions: Dividends from net investment income .. (0.230) (0.290) (0.450) (0.540) (0.550) (0.170) Distributions from net realized gain on investments ....................... (3.220) (3.070) (2.680) (1.340) (0.420) -- -------- -------- -------- ------- ------- ------- Total dividends and distributions ..... (3.450) (3.360) (3.130) (1.880) (0.970) (0.170) -------- -------- -------- ------- ------- ------- Net asset value, end of period ........... $ 18.470 $ 21.320 $ 22.480 $21.260 $19.030 $15.550 ======== ======== ======== ======= ======= ======= Total return(1) .......................... 3.40% 11.14% 23.73% 23.43% 29.85% (5.27%) Ratios and supplemental data: Net assets, end of period (000 omitted) $175,178 $169,985 $123,180 $60,689 $19,665 $ 2,765 Ratio of expenses to average net assets 1.78% 1.70% 1.68% 1.69% 1.74% 1.70% Ratio of net investment income to average net assets ................... 1.84% 1.88% 2.07% 2.56% 3.16% 3.30% Portfolio turnover .................... 107% 94% 90% 101% 74% 92%
- ---------- (1) 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. (2) Ratios have been annualized and total return has not been annualized. (3) Date of initial public offering; ratios have been annualized and total return has not been annualized. (4) Date of initial public offering. (5) The ratios of expenses and net investment income to average net assets, portfolio turnover and total return have been omitted as management believes that such ratios and return for this relatively short period are not meaningful. See accompanying notes for total return 23 Financial Highlights (Continued) - -------------------------------------------------------------------------------- Selected data for each share of the Fund outstanding throughout each period were as follows:
Decatur Equity Income Fund C Class ---------------------------------------------------------------------- Six Months Year Year Year 11/29/95(4) Ended Ended Ended Ended to 5/31/99(2) 11/30/98 11/30/97 11/30/96 11/30/95 (Unaudited) Net asset value, beginning of period .................... $ 21.420 $ 22.570 $21.330 $19.080 $19.150 Income (loss) from investment operations: Net investment income ................................ 0.175 0.402 0.460 0.510 0.040 Net realized and unrealized gain (loss) on investments 0.435 1.808 3.910 3.630 (0.060) --------- -------- ------- ------- ------- Total from investment operations ..................... 0.610 2.210 4.370 4.140 (0.020) --------- -------- ------- ------- ------- Less dividends and distributions: Dividends from net investment income ................. (0.230) (0.290) (0.450) (0.550) (0.050) Distributions from net realized gain on investments .. (3.220) (3.070) (2.680) (1.340) -- --------- -------- ------- ------- ------- Total dividends and distributions .................... (3.450) (3.360) (3.130) (1.890) (0.050) --------- -------- ------- ------- ------- Net asset value, end of period .......................... $ 18.580 $ 21.420 $22.570 $21.330 $19.080 ========= ======== ======= ======= ======= Total return(1) ......................................... 3.44% 11.14% 23.75% 23.47% (5) Ratios and supplemental data: Net assets, end of period (000 omitted) .............. $ 24,123 $ 23,076 $15,343 $ 4,833 $ 5 Ratio of expenses to average net assets .............. 1.78% 1.70% 1.68% 1.69% (5) Ratio of net investment income to average net assets . 1.84% 1.88% 2.07% 2.56% (5) Portfolio turnover ................................... 107% 94% 90% 101% (5)
- ---------- (1) 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. (2) Ratios have been annualized and total return has not been annualized. (3) Date of initial public offering; ratios have been annualized and total return has not been annualized. (4) Date of initial public offering. (5) The ratios of expenses and net investment income to average net assets, portfolio turnover and total return have been omitted as management believes that such ratios and return for this relatively short period are not meaningful. See accompanying notes 24 for total return Financial Highlights (Continued) - -------------------------------------------------------------------------------- Selected data for each share of the Fund outstanding throughout each period were as follows:
Decatur Equity Income Fund Institutional Class ------------------------------------------------------------------------ Six Months Year Year Year Year 1/13/94(1) Ended Ended Ended Ended Ended to 5/31/99(2) 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94 (Unaudited) Net asset value, beginning of period..................... $ 21.400 $ 22.570 $ 21.310 $ 19.060 $ 15.590 $ 16.720 Income (loss) from investment operations: Net investment income................................. 0.279 0.612 0.650 0.690 0.710 0.590 Net realized and unrealized gain (loss) on investments....................................... 0.419 1.808 3.930 3.620 3.920 (1.100) -------- -------- -------- -------- -------- -------- Total from investment operations 0.698 2.420 4.580 4.310 4.630 (0.510) -------- -------- -------- -------- -------- -------- Less dividends and distributions: Dividends from net investment income.................. (0.328) (0.520) (0.640) (0.720) (0.740) (0.620) Distributions from net realized gain on investments....................................... (3.220) (3.070) (2.680) (1.340) (0.420) - -------- -------- -------- -------- -------- -------- Total dividends and distributions..................... (3.548) (3.590) (3.320) (2.060) (1.160) (0.620) -------- -------- -------- -------- -------- -------- Net asset value, end of period........................... $ 18.550 $ 21.400 $ 22.570 $ 21.310 $ 19.060 $ 15.590 ======== ======== ======== ======== ======== ======== Total return............................................. 3.91% 12.25% 25.02% 24.65% 31.14% (0.45%) Ratios and supplemental data: Net assets, end of period (000 omitted)............... $225,279 $243,245 $278,384 $244,048 $211,049 $182,105 Ratio of expenses to average net assets............... 0.78% 0.70% 0.68% 0.69% 0.74% 0.70% Ratio of net investment income to average net assets................................... 2.84% 2.88% 3.07% 3.56% 4.16% 4.03% Portfolio turnover.................................... 107% 94% 90% 101% 74% 92%
- ---------- (1) Date of initial public offering; ratios and total return have been annualized. (2) Ratios have been annualized and total return has not been annualized. See accompanying notes for total return 25 Financial Highlights (Continued) - -------------------------------------------------------------------------------- Selected data for each share of the Fund outstanding throughout each period were as follows:
Growth and Income Fund A Class --------------------------------------------------------------------------- Six Months Year Year Year Year Year Ended Ended Ended Ended Ended Ended 5/31/99(2) 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94 (Unaudited) Net asset value, beginning of period................. $ 19.120 $ 19.230 $ 17.520 $ 15.610 $ 12.320 $ 14.380 Income (loss) from investment operations: Net investment income............................. 0.117 0.280 0.280 0.340 0.370 0.370 Net realized and unrealized gain (loss) on investments................................... 0.598 1.930 3.610 3.210 3.700 (0.340) -------- ---------- -------- -------- -------- -------- Total from investment operations.................. 0.715 2.210 3.890 3.550 4.070 0.030 -------- ---------- -------- -------- -------- -------- Less dividends and distributions: Dividends from net investment income.............. (0.135) (0.240) (0.330) (0.350) (0.360) (0.430) Distributions from net realized gain on investments................................... (2.200) (2.080) (1.850) (1.290) (0.420) (1.660) -------- ---------- -------- -------- -------- -------- Total dividends and distributions................. (2.335) (2.320) (2.180) (1.640) (0.780) (2.090) -------- ---------- -------- -------- -------- -------- Net asset value, end of period....................... $ 17.500 $ 19.120 $ 19.230 $ 17.520 $ 15.610 $ 12.320 ======== ========== ======== ======== ======== ======== Total return(1)...................................... 4.28% 12.70% 25.26% 24.89% 34.68% (0.04%) Ratios and supplemental data: Net assets, end of period (000 omitted)........... $995,393 $1,006,642 $863,855 $670,912 $534,342 $402,849 Ratio of expenses to average net assets........... 1.18% 1.13% 1.13% 1.11% 1.19% 1.26% Ratio of net investment income to average net assets............................... 1.34% 1.52% 1.60% 2.21% 2.72% 2.88% Portfolio turnover................................ 108% 87% 69% 87% 81% 74%
- ---------- (1) 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. (2) Ratios have been annualized and total return has not been annualized. See accompanying notes 26 for total return Financial Highlights (Continued) - -------------------------------------------------------------------------------- Selected data for each share of the Fund outstanding throughout each period were as follows:
Growth and Income Fund B Class ------------------------------------------------------------------------ Six Months Year Year Year Year 9/6/94(3) Ended Ended Ended Ended Ended to 5/31/99(2) 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94 (Unaudited) Net asset value, beginning of period................ $ 19.090 $ 19.200 $ 17.460 $15.560 $12.310 $13.110 Income (loss) from investment operations: Net investment income............................ 0.056 0.151 0.170 0.230 0.300 0.120 Net realized and unrealized gain (loss) on investments.................................. 0.594 1.917 3.600 3.200 3.670 (0.820) -------- -------- -------- ------- ------- ------ Total from investment operations................. 0.650 2.068 3.770 3.430 3.970 (0.700) -------- -------- -------- ------- ------- ------ Less dividends and distributions: Dividends from net investment income............. (0.090) (0.098) (0.180) (0.240) (0.300) (0.100) Distributions from net realized gain............. on investments.................................. (2.200) (2.080) (1.850) (1.290) (0.420) - -------- -------- -------- ------- ------- ------ Total dividends and distributions................ (2.290) (2.178) (2.030) (1.530) (0.720) (0.100) -------- -------- -------- ------- ------- ------ Net asset value, end of period...................... $ 17.450 $ 19.090 $ 19.200 $17.460 $15.560 $12.310 ======== ======== ======== ======= ======= ======= Total return(1)..................................... 3.90% 11.92% 24.45% 24.01% 33.79% (5.37%) Ratios and supplemental data: Net assets, end of period (000 omitted).......... $231,198 $218,584 $135,737 $53,467 $14,745 $ 1,738 Ratio of expenses to average net assets.......... 1.88% 1.83% 1.83% 1.81% 1.89% 1.96% Ratio of net investment income to average net assets.............................. 0.64% 0.82% 0.90% 1.53% 2.02% 2.18% Portfolio turnover............................... 108% 87% 69% 87% 81% 74%
- ---------- (1) 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. (2) Ratios have been annualized and total return has not been annualized. (3) Date of initial public offering; ratios have been annualized and total return has not been annualized. (4) Date of initial public offering. (5) The ratios of expenses and net investment income to average net assets, portfolio turnover and total return have been omitted as management believes that such ratios and return for this relatively short period are not meaningful. See accompanying notes for total return 27 Financial Highlights (Continued) - -------------------------------------------------------------------------------- Selected data for each share of the Fund outstanding throughout each period were as follows:
Growth and Income Fund C Class --------------------------------------------------------------- Six Months Year Year Year 11/29/95(4) Ended Ended Ended Ended to 5/31/99(2) 11/30/98 11/30/97 11/30/96 11/30/95 (Unaudited) Net asset value, beginning of period................... $19.050 $19.160 $17.430 $15.610 $15.610 Income (loss) from investment operations: Net investment income............................... 0.056 0.153 0.170 0.330 -- Net realized and unrealized gain (loss) on investments..................................... 0.604 1.915 3.590 3.100 -- ------- ------- ------- ------- ------- Total from investment operations.................... 0.660 2.068 3.760 3.430 -- ------- ------- ------- ------- ------- Less dividends and distributions: Dividends from net investment income................ (0.090) (0.098) (0.180) (0.320) -- Distributions from net realized gain on investments..................................... (2.200) (2.080) (1.850) (1.290) -- ------- ------- ------- ------- ------- Total dividends and distributions................... (2.290) (2.178) (2.030) (1.610) -- ------- ------- ------- ------- ------- Net asset value, end of period......................... $17.420 $19.050 $19.160 $17.430 $15.610 ======= ======= ======= ======= ======= Total return(1)........................................ 3.92% 12.00% 24.44% 24.04% (5) Ratios and supplemental data: Net assets, end of period (000 omitted)............. $50,202 $48,683 $26,231 $ 7,591 $ 5 Ratio of expenses to average net assets............. 1.88% 1.83% 1.83% 1.81% (5) Ratio of net investment income to average net assets................................. 0.64% 0.82% 0.90% 1.53% (5) Portfolio turnover.................................. 108% 87% 69% 87% (5)
- ---------- (1) 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. (2) Ratios have been annualized and total return has not been annualized. (3) Date of initial public offering; ratios have been annualized and total return has not been annualized. (4) Date of initial public offering. (5) The ratios of expenses and net investment income to average net assets, portfolio turnover and total return have been omitted as management believes that such ratios and return for this relatively short period are not meaningful. See accompanying notes 28 for total return Financial Highlights (Continued) - -------------------------------------------------------------------------------- Selected data for each share of the Fund outstanding throughout each period were as follows:
Growth and Income Fund Institutional Class ------------------------------------------------------------------------ Six Months Year Year Year Year Year Ended Ended Ended Ended Ended Ended 5/31/99(1) 11/30/98 11/30/97 11/30/96 11/30/95 11/30/94 (Unaudited) Net asset value, beginning of period................ $ 19.150 $ 19.260 $17.570 $15.650 $12.350 $14.400 Income (loss) from investment operations: Net investment income............................ 0.143 0.346 0.350 0.370 0.470 0.430 Net realized and unrealized gain (loss) on investments.................................. 0.597 1.917 3.600 3.230 3.650 (0.370) -------- -------- ------- ------- ------- ------ Total from investment operations................. 0.740 2.263 3.950 3.600 4.120 0.060 -------- -------- ------- ------- ------- ------ Less dividends and distributions: Dividends from net investment income............. (0.180) (0.293) (0.410) (0.390) (0.400) (0.450) Distributions from net realized gain on investments............................. (2.200) (2.080) (1.850) (1.290) (0.420) (1.660) -------- -------- ------- ------- ------- ------ Total dividends and distributions................ (2.380) (2.373) (2.260) (1.680) (0.820) (2.110) -------- -------- ------- ------- ------- ------ Net asset value, end of period...................... $ 17.510 $ 19.150 $19.260 $17.570 $15.650 $12.350 ======== ======== ======= ======= ======= ======= Total return........................................ 4.43% 13.07% 25.65% 25.24% 35.13% 0.19% Ratios and supplemental data: Net assets, end of period (000 omitted).......... $126,388 $112,381 $78,813 $45,958 $11,520 $1,376 Ratio of expenses to average net assets.......... 0.88% 0.83% 0.83% 0.81% 0.89% 0.96% Ratio of net investment income to average net assets.............................. 1.64% 1.82% 1.90% 2.53% 3.02% 3.18% Portfolio turnover............................... 108% 87% 69% 87% 81% 74%
- ---------- (1) Ratios have been annualized and total return has not been annualized. See accompanying notes for total return 29 Delaware Group Equity Funds II, Inc. - Decatur Equity Income Fund and Growth and Income Fund Notes to Financial Statements May 31, 1999 (Unaudited) - -------------------------------------------------------------------------------- Delaware Group Equity Funds II, Inc. 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 five series: the Decatur Equity Income Fund, the Growth and Income Fund, the Blue Chip Fund, the Social Awareness Fund, and the Diversified Value Fund. These financial statements and related notes pertain to the Decatur Equity Income Fund and Growth & Income Fund, (collectively, the "Funds" and individually, a "Fund"). The Funds offer four classes of shares. The A Class carries a 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 Decatur Equity Income Fund is to achieve the highest possible current income by investing primarily in common stocks that provide the potential for income and capital appreciation without undue risk to principal. The investment objective of the Growth and Income Fund is to achieve long-term growth by investing primarily in common stocks that provide the potential for income and capital appreciation without undue risk to principal. 1. Significant Accounting Policies The following accounting policies are in accordance with generally accepted accounting principles and are consistently followed by the Funds. Security Valuation - Securities listed on an exchange are valued at the last quoted sales price as of the close of the NYSE on the valuation date. Securities not traded or securities not listed on an exchange are valued at the mean of the last quoted bid and asked prices. Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Money market instruments having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair market value as determined in good faith or under direction of the Fund's Board of Directors. Federal Income Taxes - Each Fund intends to continue to qualify as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. Class Accounting - Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of each 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 - Each 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 each Fund's custodian bank until the maturity of the respective repurchase agreements. Each repurchase agreement is at least 100% collateralized. However, in the event of default or bankruptcy by the counterparty to the agreement, realization of the collateral may be subject to legal proceedings. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other - Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Original issue discounts are accreted to interest income over the lives of the respective securities. The Decatur Equity Income Fund declares and pays dividends from net investment income on a monthly basis and capital gains, if any, annually. The Growth and Income Fund declares and pays dividends from net investment income on a quarterly basis and capital gains, if any, annually. Certain expenses of the Fund are paid through "soft dollar" arrangements with brokers. These transactions are done subject to best price and execution. In addition, the Fund receives earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. The expenses paid under the above arrangements are included in their respective expense captions on the Statement of Operations with the corresponding expense offset shown as "Expenses paid indirectly". The amount of these expenses and credits for the period ended May 31, 1999, are as follows: Decatur Equity Growth and Income Fund Income Fund -------------- ----------- "Soft Dollar" expense ........................... $54,477 $23,313 Earnings Credits ................................ $25,039 $5,462 2. Investment Management and Other Transactions with Affiliates In accordance with the terms of the Investment Management Agreement, the Funds pay Delaware Management Company (DMC), the Investment Manager, an annual fee which is calculated daily based on the net assets. The management fee rates changed effective April 1, 1999. The new management fee rate for the Decatur Equity Income and the Growth and Income is 0.65% on the first $500 million of average daily net assets of each Fund, 0.60% on the next $500 million, 0.55% on the next $1,500 million and 0.50% on the average daily net assets over $2,500 million. The old management fee rate for the Decatur Equity Income and Growth and Income Funds was calculated daily based on the net assets, at the following rates less fees paid to the affiliated directors as follows: Decatur Equity Income Fund -------------- On the first $100 million ............................... 0.600% On the next $150 million ................................ 0.525% On the next $250 million ................................ 0.500% Over $500 million ....................................... 0.475% Growth and Income Fund ----------- On the first $500 million ............................... 0.600% On the next $250 million ................................ 0.575% Over $750 million ....................................... 0.550% 30 for total return Notes to Financial Statements (Continued) - -------------------------------------------------------------------------------- At May 31, 1999, the liability for investment management fees and other expenses payable to DMC were as follows: Decatur Equity Growth and Income Fund Income Fund -------------- ----------- $264,237 $256,637 The Funds have engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC, to provide dividend disbursing, transfer agent and accounting services. The Fund pays DSC a monthly fee based on the number of shareholder accounts, shareholder transactions and average net assets, subject to certain minimums. At May 31, 1999, the Funds had liabilities for such fees and other expenses payable to DSC as follows: Decatur Equity Growth and Income Fund Income Fund -------------- ----------- $257,898 $194,453 Pursuant to the Distribution Agreement, the Funds pay Delaware Distributors, L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to exceed 0.30% of the average daily net assets of the A Class and 1.00% of the average daily net assets of the B and C Classes for each Fund. For the period ended May 31, 1999, DDLP earned commissions on sales of the A Class shares for each Fund as follows: Decatur Equity Growth and Income Fund Income Fund -------------- ----------- $148,230 $171,176 Certain officers of DMC, DSC and DDLP are officers, directors and/or employees of the Funds. These officers, directors and employees are paid no compensation by the Funds. 3. Investments During the period ended May 31, 1999, the Funds made purchases and sales of investment securities other than U.S. government securities and temporary cash investments as follows: Decatur Equity Growth and Income Fund Income Fund -------------- ----------- Purchases .................................. $1,241,100,881 $748,607,755 Sales ...................................... $1,379,633,923 $774,733,164 The cost of investments for Federal income tax purposes approximates the cost for book purposes. At May 31, 1999 the aggregate cost of securities and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows: Decatur Equity Growth and Income Fund Income Fund -------------- ----------- Cost of investments ........................ $2,058,868,959 $1,203,897,126 -------------- -------------- Aggregate unrealized appreciation .......... $ 286,878,471 $ 212,997,524 Aggregate unrealized depreciation .......... (53,911,932) (25,318,164) -------------- -------------- Net unrealized appreciation ................ $ 232,966,539 $ 187,679,360 -------------- -------------- 4. Capital Stock Transactions in capital stock shares were as follows: Decatur Equity Income Fund --------------------------- Six Months Year Ended Ended 05/31/99 11/30/98 (Unaudited) Shares sold: A Class ..................................... 3,673,713 8,073,531 B Class ..................................... 1,174,161 2,711,292 C Class ..................................... 240,079 466,462 Institutional Class ......................... 1,642,550 2,749,580 Shares issued upon reinvestment of distributions from net investment income and net realized gain on investments: A Class ..................................... 16,054,814 13,673,317 B Class ..................................... 1,412,727 871,584 C Class ..................................... 189,243 108,759 Institutional Class ......................... 2,249,425 2,272,599 ---------- ---------- 26,636,712 30,927,124 ---------- ---------- Shares repurchased: A Class ..................................... (9,491,176) (14,169,464) B Class ..................................... (1,076,498) (1,089,271) C Class ..................................... (208,022) (177,735) Institutional Class ......................... (3,116,484) (5,990,464) ---------- ---------- (13,892,180) (21,426,934) ---------- ---------- Net increase ................................... 12,744,532 9,500,190 ========== ========== Decatur Equity Income Fund --------------------------- Six Months Year Ended Ended 05/31/99 11/30/98 (Unaudited) Shares sold: A Class ..................................... 3,540,051 10,467,477 B Class ..................................... 1,767,924 4,734,652 C Class ..................................... 511,307 1,427,894 Institutional Class ......................... 1,892,081 2,935,169 Shares issued upon reinvestment of distributions from net investment income and net realized gains on investments A Class ..................................... 6,945,360 5,773,026 B Class ..................................... 1,511,492 866,511 C Class ..................................... 341,719 175,049 Institutional Class ......................... 830,961 588,141 ---------- ---------- 17,340,895 26,967,919 ---------- ---------- Shares repurchased: A Class ..................................... (6,266,091) (8,496,811) B Class ..................................... (1,485,443) (1,220,198) C Class ..................................... (526,233) (416,767) Institutional Class ......................... (1,375,509) (1,746,666) ---------- ---------- (9,653,276) (11,880,442) ---------- ---------- Net increase ................................... 7,687,619 15,087,477 ========== ========== 5. Lines of Credit Committed lines of credit were $68.8 million for Decatur Equity Income Fund and $33.5 million for Growth and Income Fund. No amounts were outstanding at May 31, 1999, or at any time during the fiscal year. 6. Market and Credit Risk The Decatur Equity Income Fund may invest in high-yield fixed income securities which carry ratings of BB or lower by S&P and/or Ba or lower by Moody's. Investments in these higher yielding securities may be accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities. The Decatur Equity Income Fund may invest up to 10% of its total assets in illiquid securities which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of some of these securities may adversely affect the Funds' ability to dispose of such securities in a timely manner and at a fair price when it is necessary to liquidate such securities. 31 for total return Proxy Results (Unaudited) - -------------------------------------------------------------------------------- For the six months ended May 31, 1999, The Delaware Group Equity Funds II, Inc. shareholders voted on the following proposals at the annual meeting of shareholders on March 17, 1999 or as adjourned. The description of each proposal and number of shares voted are as follows: 1. To elect the Delaware Group Equity Funds II, Inc. Board of Directors. Shares Shares Voted Voted Withheld For Authority ------ ------------ Jeffrey J. Nick ............................... 120,048,642 10,795,652 Walter P. Babich .............................. 120,063,759 10,780,535 John H. Durham ................................ 120,200,558 10,643,736 Anthony D. Knerr .............................. 120,239,747 10,604,547 Ann R. Leven .................................. 120,273,627 10,570,667 Thomas F. Madison ............................. 120,229,855 10,614,439 Charles E. Peck ............................... 120,200,223 10,644,071 Wayne A. Stork ................................ 120,203,878 10,640,416 Jan L. Yeomans ................................ 120,291,396 10,552,898 2. To approve the reclassification of the investment objective from fundamental to non-fundamental. For Against Abstain --- ------- ------- Decatur Equity Income 62,214,160 3,522,119 5,191,728 Growth and Income 34,857,150 1,819,826 3,029,854 3. To approve standardized fundamental investment restrictions (proposal involves separate votes on seven sub-proposals 3A-3G). 3A. To adopt a new fundamental investment restriction concerning concentration of the investments in the same industry. For Against Abstain --- ------- ------- Decatur Equity Income 63,829,610 2,335,085 4,763,312 Growth and Income 35,503,543 1,182,862 3,020,425 3B. To adopt a new fundamental investment restriction concerning borrowing money and issuing senior securities. For Against Abstain --- ------- ------- Decatur Equity Income 63,122,808 2,851,288 4,953,911 Growth and Income 35,251,905 1,394,934 3,059,991 3C. To adopt a new fundamental investment restriction concerning underwriting. For Against Abstain --- ------- ------- Decatur Equity Income 63,264,829 2,523,506 5,139,672 Growth and Income 35,385,371 1,219,237 3,102,222 3D. To adopt a new fundamental investment restriction concerning investments in real estate. For Against Abstain --- ------- ------- Decatur Equity Income 63,133,947 2,715,807 5,078,253 Growth and Income 35,431,209 1,275,794 2,999,827 3E. To adopt a new fundamental investment restriction concerning investments in commodities. For Against Abstain --- ------- ------- Decatur Equity Income 62,846,443 3,168,589 4,912,975 Growth and Income 35,164,991 1,490,025 3,051,815 3F. To adopt a new fundamental investment restriction concerning lending by the Fund. For Against Abstain --- ------- ------- Decatur Equity Income 63,084,989 2,943,038 4,899,981 Growth and Income 35,298,886 1,326,718 3,081,226 3G. To reclassify all current fundamental investment restrictions as non-fundamental. For Against Abstain --- ------- ------- Decatur Equity Income 61,797,361 3,592,798 5,537,847 Growth and Income 34,760,585 1,706,322 3,239,923 4. To approve a new investment management agreement with Delaware Management Company. For Against Abstain --- ------- ------- Decatur Equity Income 62,109,405 3,711,159 5,107,444 Growth and Income 34,850,342 1,769,842 3,086,646 5.To ratify the selection of Ernst & Young LLP, as the independent auditors for Delaware Group Equity Funds II, Inc. For Against Abstain --- ------- ------- 119,683,560 1,112,584 10,048,147 6. To approve the restructuring of the Delaware Group Equity Funds II, Inc. from a Maryland Corporation into a Delaware Business Trust. For Against Abstain --- ------- ------- 120,472,943 3,703,745 8,483,875 This Semi-Annual Report is for the information of Decatur Equity Income Fund and Delaware Growth and Income Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Decatur Equity Income Fund and Delaware Growth and Income 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 Funds. You should read the prospectus carefully before you invest or send money. 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 Philadelphia, Pennsylvania International Affiliate [PHOTO OF GLOBES] Delaware International Advisers Ltd. London, England National Distributor Delaware Distributors, L.P. Philadelphia, Pennsylvania Shareholder Servicing, Dividend Disbursing and Transfer Agent Delaware Service Company, Inc. Philadelphia, Pennsylvania 1818 Market Street Philadelphia, PA 19103-3682 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 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. (C) Delaware Distributors, L.P. DELAWARE9(sm) INVESTMENTS - --------------------- Philadelphia o London Printed in the USA on recycled paper SA-118[5/99] PP7/99 (1882) J4863 -----END PRIVACY-ENHANCED MESSAGE-----