Trend Fund
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service and guidance
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professional management
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goals
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1998
Annual
Report
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----------------------------
Philadelphia * London]
A TRADITION OF SOUND INVESTING
commitment
A Commitment To Our Investors
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LANDSCAPE]
Delaware Investments has a tradition of money management that dates back
to 1929. We have a long and distinguished history of helping individuals
and institutions - including some of America's largest pension funds -
reach their financial goals.
Headquartered in Philadelphia, a block from the nation's oldest
stock exchange, the Delaware organization established its first mutual
fund in 1938. Delaware International Advisers Ltd., our international
affiliate, was established in 1990 and is headquartered in London.
Delaware Investments offers a full range of mutual funds. We also
manage investments for variable annuity products, unit investment trusts
and closed-end funds, and offer retirement plan services for individuals
and businesses.
Delaware manages more than $42 billion in mutual fund assets and
institutional advisory accounts for more than half-a-million investors.
We're part of a global financial service and investment management
business owned by Lincoln Financial Group, whose subsidiaries manage
more than $120 billion in assets.
growth of capital
Trend Fund
To provide long-term capital appreciation by investing primarily in
securities of emerging and other growth-oriented companies.
Table of Contents
Portfolio Manager's Review Page 3
Results by Sector Page 3
Top 10 Holdings Page 4
Trend - A Lifelong Friend Page 8
Performance Page 9
Statement of Net Assets Page 10
Financial Highlights Page 13
July 6, 1998
Dear Shareholder
THE CLIMATE FOR INVESTING IN SMALL company stocks when Trend Fund began
operations 30 years ago was far from hospitable. Investors grappled with
the effects of an unpopular war, social unrest and the strong influence
of conglomerates.
A generation ago, large companies dominated many sectors of the
economy, including computers and telecommunications. Many of today's
fastest growing industries didn't even exist in the days when an
office worker's main tools were a rotary telephone, a typewriter, a
slide rule and an adding machine.
Trend Fund's founders in 1968 saw an opportunity to tap the
potential of small-cap companies with superior fundamental growth
characteristics. They believed small, well-managed businesses with
innovative products and services could succeed over the long term and
reward shareholders with higher stock prices.
All markets move in cycles, however. For more than three years,
mutual funds that invest in companies of titanic size have taken their
shareholders on an exciting pleasure cruise. Many companies in the
Standard & Poor's 500 Index have provided exceptionally robust returns
with relatively little market volatility by historical standards.
Small company investors, meanwhile, have faced rough seas.
Technology and energy company shares, in particular, were volatile in
fiscal 1998. Some small-cap sectors that did well in the mid-1990s, such
as real estate, fell into disfavor.
In spite of this, the dedication of Trend Fund's management team to
a consistent investment discipline generated strong results this past
year. Your Fund's strategy provided an attractive +23.97% total return
(based on net asset value for Class A shares with distributions
reinvested) for the 12 months ended June 30, 1998. Trend Fund outpaced
its benchmark, the Russell 2000 Growth Index, as shown below.
We were successful because the Fund focused on companies that were,
in our view, well-managed and showed above-average sales growth. We
tightened the Fund's stock selection criteria, increased fundamental
research and allowed "winners" to reach their full capital appreciation
potential.
AVERAGE ANNUAL TOTAL RETURNS
July 1, 1997 July 1, 1988
to June 30, 1998 to June 30, 1998
Trend Fund A Class +23.97% +18.94%
Russell 2000 Growth Index +19.68% +11.70%
Standard & Poor's 500 Index +25.07% +18.54%
Lipper Capital Appreciation
Fund Average +22.12% (231 funds) +14.15% (56 funds)
All performance quoted above assumes reinvestment of distributions.
Trend Fund and Lipper Capital Appreciation Fund Average results are at
net asset value. Performance for all Fund classes with sales charges are
on page 9. Past performance does not guarantee future results. The
unmanaged Russell 2000 Growth Index is a measure of small company stocks
that exhibit growth characteristics as defined by Frank Russell Co.
In recent years, stock selection has been portrayed in the media as
a flashy activity demanding keen timeliness and spontaneous skill, like
landing a large game fish. Trend Fund's management team takes a more
methodical, long-term approach.
Your Fund's portfolio manager, Gerald S. Frey and the Trend team
cast a large net and systematically sort the many minnows they gather to
find companies with the potential to become big fish. They research and
contact hundreds of companies a year and avoid what doesn't smell right.
On the pages that follow, Mr. Frey further explains how we fish for
opportunity.
We are pleased to report that even in a market that favored the
biggest boats and the biggest fish, Trend Fund's results in fiscal 1998
outpaced the average of its peers, as shown on page 1. The Lipper
Capital Appreciation Fund Average measures the performance of mutual
funds seeking growth of capital as a primary objective, and includes
funds investing in both large and small companies.
As you review your investment allocation plan with the help of your
financial adviser, we suggest you consider the potential benefits of
owning shares in a small company mutual fund. We think diversification
into different types of stocks is a smart strategy that makes more sense
now than ever. Given some investors' obsession with large cap stocks,
particularly in the volatile technology sector, it may be helpful to
recall the experience of Captain Ahab, the unfortunate whale hunter in
Herman Melville's Moby Dick.
We thank you for being among the more than 40,000 Trend Fund
shareholders. While everyone's goals are different, we'd like to suggest
that weakness in small company stock prices presents an attractive
opportunity for you to add to your position in the Fund. We can't
promise miracles, but we believe a strong commitment to sound investing
can help multiply the assets in your portfolio.
Sincerely,
/S/Wayne A. Stork
WAYNE A. STORK
Chairman
/S/Jeffrey J. Nick
JEFFREY J. NICK
President and Chief Executive Officer
PORTFOLIO HIGHLIGHTS
June 30, 1998 June 30, 1997
Number of Stocks 93 116
Median Market Capitalization $661 million $371 million
Portfolio Turnover 114% 115%
Median Stock Price-To-Earnings Ratio 33x 21x
Beta 0.93 0.98
P/E is based on a consensus of analysts' earnings estimates. Beta is a
measure of volatility relative to the S&P 500 Index based on monthly
returns for the past three years. Beta of the S&P 500 Index equals 1.0.
Portfolio Manager's Review
INFLATION AND INTEREST RATES FELL TO record lows in fiscal 1998 while
consumer confidence soared. This provided a positive backdrop for
financial assets. However, Trend Fund's management team faced a
challenging stock selection environment.
Some industries, notably health care and hotels, suffered from
stiff competition and regulatory problems. Profits fell at many computer
and semiconductor firms. Meanwhile, overall market volatility increased
amid recession along the Pacific Rim.
Growth style investing came back into favor during the past year,
helping small companies with strong earnings prospects. Still, small cap
growth stocks did not enjoy nearly as much investor interest as stocks
of large corporations.
Intensive, bottom-up analysis helped us select emerging growth
companies that generally met Wall Street's profit expectations, even in
the face of unexpected challenges. During this past spring, we used
market weakness as an opportunity to reallocate assets to promising
companies and sectors.
During fiscal 1998, we:
(bullet) added more retail, consumer and financial stocks;
(bullet) paired back the Fund's weighting in health, leisure and lodging
stocks;
(bullet) hired a new technology analyst, Jeffrey Hynoski, to provide the
team with more expertise in this important sector. He had previously
managed technology investments at Bessemer Trust Co.; and
(bullet) added a new financial services analyst, Steve Lampe. He had
previously been with Delaware Investments' corporate finance area.
growth
OUR TEAM APPROACH
Trend's team is organized so that each of our six team members has
primary responsibility for specific sectors. We meet weekly to review
the Fund's overall portfolio positioning.
RESULTS BY SECTOR
TREND FUND VS. RUSSELL 2000 GROWTH INDEX
JUNE 30, 1997 TO JUNE 30, 1998
Industry Group Trend Fund Holdings Russell 2000 Growth Index
Technology +60.0% +6.6%
Consumer Goods* +44.0% +15.1%
Energy +41.7% -6.3%
Business Services +38.3% +35.6%
Consumer Services +9.2% +16.8%
Financials +0.3% +22.7%
Health Care -5.1% -1.1%
*Non-durable items such as food and clothing. Performance is based on
prices of stock holdings and index components and does not include
expenses. For complete Fund performance, see page 9.
We invest in emerging companies that we believe can profit from
growth and change. In our view, the early phases of a company's life
cycle generally offer the greatest capital appreciation potential. We
may also hold a company's shares as it grows. Out of a universe of some
7,500 small and mid-size companies, we look for:
(bullet) Market leaders;
(bullet) Innovative products and business concepts, and;
(bullet) Executives that have a savvy knowledge of competitors and
industry trends.
THE FUND'S AVERAGE MARKET CAPITALIZATION AS OF JUNE 30, 1998 WAS
MORE THAN $100 MILLION SMALLER THAN THE AVERAGE MARKET CAP OF FUNDS
WITHIN MORNINGSTAR'S 148-FUND SMALL GROWTH FUND CATEGORY.
We generally sell a stock when we see fundamental internal or
external problems. When management isn't candid, is slow to address
change, or expands into areas where they lack expertise, it usually
spells trouble.
STRATEGIC POSITIONING
Under normal market conditions, Trend Fund strives to keep its sector
allocation roughly parallel to that of the Russell 2000 Growth Index.
During the past fiscal year 1998, we also tapped the skills of our
analyst team to boost our position in areas where the Fund had
historically been underweighted. This included financial stocks, a
sector with both growth and value characteristics. For the first time in
many years, a bank stock - First American-Tennessee - was among the
Fund's top 10 holdings as of June 30, 1998, as shown below.
We cut Trend Fund's position in health care and small-cap
pharmaceutical stocks by more than 75% from a year ago. Although
America's aging population is expected to generate greater business
volume in the years ahead, making money in health care has become
exceedingly difficult as competition has increased. In addition, the
industry suffers from a rising tide of consumer complaints and an
increasing regulatory burden.
Among the positions we eliminated during the second half of fiscal
1998 was American Oncology Resources. Based in Houston, the company
manages the practices of physicians who treat cancer patients. Sales of
stock by management gave us cause for concern. The timing of our sale
helped the Fund preserve capital, as the stock has fallen substantially
since February.
Overbuilding in some portions of the hotel industry as well as weak
fundamentals in certain sports-related stocks led us to reduce the
Fund's weighting in the leisure and entertainment area by two-thirds
during fiscal 1998. Among the holdings we liquidated were Capstar Hotels
and Extended Stay America, two positions that provided strong returns
for your Fund for several years.
TREND FUND
TOP 10 HOLDINGS
June 30, 1998
Company Main Product or Service Share of Net Assets
Chancellor Media Radio broadcaster 3.5%
First American-Tennessee Banking 3.0%
PLATINUM Technology Computer network management 2.6%
Comfort Systems USA Commercial heating & air systems 2.1%
Gemstar International Video programming 2.1%
NOVA Corp./Georgia Credit card processing 2.1%
Dollar Tree Stores Discount stores 2.0%
EMC Network storage devices 2.0%
Linens N Things Home furnishings 2.0%
Staples Office supplies 1.9%
Total 23.3%
Since June 1997, the median market capitalization of companies in
your Fund's portfolio has nearly doubled to $661 million. This reflects
the capital appreciation of many stocks rather than a shift in your
Fund's focus. We remain committed to small cap growth style investing,
and note the Fund's average market cap as of June 30, 1998 was more than
$100 million smaller than the average market cap of funds within
Morningstar's 148-fund small growth fund category.
technology
TECHNOLOGY:
THE ASIAN EQUATION
Technology stocks made up the largest share of your Fund's portfolio in
fiscal 1998, as they did in fiscal 1997. We achieved notable success in
this sector in the past 12 months, partly because we avoided
semiconductor and hardware stocks that have borne the brunt of weakening
export demand from Asia.
However, your Fund was also underweighted in speculative internet-
related stocks compared to some of our peers. During the spring of 1998,
when internet stocks surged, your Fund did not fully participate in the
short-term capital appreciation potential of this area. We preferred to
focus on companies with clearly defined earnings and sales prospects.
Only one of Trend Fund's top 10 holdings a year ago is still on
that list (page 4) - EMC Corp. The Massachusetts company's stock more
than doubled in value during the past 12 months as its earnings rose
32%. EMC is the largest maker of mainframe computer disk memory hardware
and software. We believe it has further capital appreciation potential.
Another technology company that performed well for us in fiscal
1998 was Platinum Technology. Platinum is a computer software maker that
has formed an alliance with semiconductor giant Intel Corp. to develop
products to manage computer networks.
[GRAPHIC OMITTED: BAR CHART MAJOR CHANGES IN SECTOR ALLOCATION]
MAJOR CHANGES IN SECTOR ALLOCATION
Fiscal 1997 vs. Fiscal 1998
[1ST COLUMN REPRESENTS PERCENTAGE AS OF: June 30, 1997]
[2ND COLUMN REPRESENTS PERCENTAGE AS OF: June 30, 1998]
1997 1998
Technology 20.9% 23.4%
Retailing & Food 10.2% 16.1%
Credit Sensitive* 3.1% 15.2%
Cable, Media & Telecom 10.3% 10.6%
Health Care 12.9% 3.4%
Leisure & Lodging 9.4% 2.8%
*Banks, finance, building materials and real estate. Cash declined from
8.6% to 7.2% of net assets between fiscal 1997 and 1998. All other
sectors combined fell from 24.6% to 20.4% of net assets.
Your Fund's position in FlexiInternational Software has not met our
expectations. We purchased shares after the company's initial public
offering in December, and thus far the market has not recognized the
company's potential. FlexiInternational makes financial accounting
software used by banks and industrial firms.
TREND FUND HAS ALWAYS SOUGHT TO BENEFIT FROM THE EARLY STAGES OF A
COMPANY'S GROWTH. ONLY A HANDFUL OF COMPANIES, HOWEVER, CAN CONTINUE
TO GROW SUCCESSFULLY OVER MANY YEARS.
strategy
CONSUMERS: BARGAIN HUNTING
Many of our consumer stock selections performed well in fiscal 1998 as
consumer confidence soared. Our positions included a combination of
retailers, food processors and consumer service companies, representing
the Fund's second largest weighting.
Although the nation's unemployment rate was just 4.5% as of June
1998 and wage increases have begun to outpace inflation for the first
time in many years, many consumers remain value-conscious. Reflecting
this trend, one of our largest holdings as of year's end was Dollar Tree
Stores, a nationwide discount chain that sells food, knick-knacks,
household supplies and personal care items for $1.
The Virginia company's stock has more than doubled from your Fund's
original average purchase price and we believe it has further potential.
Dollar Tree may benefit from an expected influx of inexpensive goods
from Asia in the coming months. The company plans to increase the number
of its stores 20% a year for the next several years and expand average
store size.
During the first half of fiscal 1998, two long-time Trend Fund
holdings - CUC International and HFS - two consumer service businesses -
combined to form Cendant Corp. Cendant's stock price dropped sharply
this past spring amid allegations of accounting irregularities and a
restatement of earnings. As of June 30, we had sold half our position.
TREND FUND'S SECTOR POSITIONING OVER THE YEARS
FISCAL 1968 VS. FISCAL 1998
June 30, 1968++ June 30, 1983 June 30, 1998
Technology 29.8% 12.6% 23.4%
Retailing & Food 3.8% 10.4% 16.1%
Finance** 0.0% 10.9% 15.2%
Cable, Media & Telecom 11.5% 0.0% 10.6%
Other Consumer Growth 0.0% 12.9% 7.0%
Health Care* 3.6% 8.5% 3.4%
Leisure & Lodging 6.8% 2.9% 2.8%
Capital Goods 18.0% 9.3% 2.6%
Housing 10.0% 12.8% 0.3%
Casinos 0.0% 4.6% 0.0%
Natural Resources+ 17.7% 0.0% 0.0%
* Entirely medical products in 1983.
** Mostly savings & loans in 1983. All other sectors combined and cash
represented 15.1% of Trend Fund's portfolio in 1983 and 18.6% in
1998.
+ Mostly gold mining stocks in 1968.
++ From initial prospectus. Fund shares first offered to public on
10/3/68.
OUTLOOK
A New York Times article in late June argued that small stocks tend to
outperform stocks of larger companies only when inflation is high. The
author said small companies tend to lack the capital resources of larger
businesses and have lower profit margins. While this may be true, we do
not believe America needs to (or wants to) return to the late 1970s - a
period of spiraling prices and tax rates - in order for small-cap
companies to do well.
outlook
In our view, the strong performance of large-cap stocks in the
1990s is attributable to unusually favorable financial circumstances
that are unlikely to be repeated over the next several years. Since
1992, the after-tax earnings of large corporations have increased at a
14% rate. However, earnings before interest, taxes and depreciation rose
at only a 7% pace. Thus, as much as one-half of the growth in large
company profits in the 1990s has been due to non-operating factors such
as mergers or from reduced balance sheet leverage, a result of lower
interest rates.
We believe this cycle is nearing an end. Analysts estimate
companies in the S&P 500 can expand profits by an average of only 6.4%
over the next five years. The way we see it, well-managed small
companies who can achieve superior sales growth and double-digit
earnings growth are well positioned to reward investors. Over the long
term, we also think the reduction in tax rates on capital gains enacted
by Congress last year will enhance the attractiveness of small company
shares for investors.
THE PRICE-TO-EARNINGS RATIO (P/E) OF SMALL COMPANIES WAS JUST 1.13 TIMES
THAT OF THE S&P 500 INDEX AS OF JUNE, 1998. USUALLY, SMALL STOCKS SELL AT
P/ES THAT ARE 1.5 TIMES TO 2.25 TIMES THAT OF LARGE STOCKS.
Compared to the rest of the market, we believe small-cap stock
prices are reasonable. The price-to-earnings ratio (P/E) of small
companies (as measured by the Salomon Smith Barney Emerging Growth
Index) was just 1.13 times that of the S&P 500 Index as of June, 1998.
Usually, small stocks sell at P/Es that are 1.5 times to 2.25 times that
of large stocks.
Overall, we believe the single most important factor that will
affect your Fund's results in fiscal 1999 will be the fact that we are a
disciplined team working toward a common goal. During the past year, we
have enhanced our team's depth of experience and refocused our energies.
We firmly believe the steps we have taken to improve our results will
bear even more fruit as we enter our fourth decade of operations.
GERALD S. FREY
Vice President and Senior Portfolio Manager
July 6, 1998
TREND -
A LIFELONG FRIEND
A lot can happen in 20 years. An infant becomes a college student.
A police officer or soldier can qualify for a pension. A long-term bond
matures.
Let's turn back the clock to June 30, 1978 and let's say you have
$10,000 from an inheritance to invest in Trend Fund (A Class shares at
4.75% sales charge). You have a steady job and you've decided to
contribute an additional $100 a month to a systematic investment plan.
That comes to less than $25 a week.
Turn the clock forward to June 30, 1983. The nation has just come
out of a recession, and you are looking for work. Income from your
spouse's job enables you to still contribute $100 a month to your
family's Trend Fund account. The account has grown in value to $55,942
with distributions reinvested. You and your spouse have contributed
$14,800 since 1978.
Flash forward to June 30, 1988. It's seven months after the October
1987 stock market crash. Your account is now worth $61,173, with
distributions reinvested. You and your spouse contributed a total of
$22,000 up to this point.
This past summer, you celebrated your wedding anniversary, and you
are thinking about retirement. So you turn to your June 30, 1998 Trend
Fund account statement. The balance reads $377,093, with distributions
reinvested. Over the years, you and your spouse contributed a total of
$34,000.
A GENERATION OF GROWTH AND COMMITMENT
JUNE 30, 1978 TO JUNE 30, 1998
Initial Investment (Trend Fund A Class Shares) $10,000
$100 A Month Systematic Investments $24,000
Total Investment $34,000
[GRAPHIC OMITTED: BAR CHART A GENERATION OF GROWTH AND
COMMITMENT JUNE 30, 1978 TO JUNE 30, 1998]
Account Value After
Five Years (6/30/83) $ 55,942
Account Value After
Ten Years (6/30/88) $ 61,173
Account Value After
Twenty Years (6/30/98) $377,093
Past performance does not guarantee future results. The above
illustration is hypothetical, assumes continuous reinvestment of all
capital gains and dividends and a 4.75% sales charge. Sales charges have
varied over the life of the fund. The effect of income taxes has not
been included. See the facing page for complete performance and sales
charge information for all classes. Dollar-cost averaging doesn't
guarantee a profit and won't protect against loss in a declining market.
A dollar-cost averaging plan works best over a complete business cycle
and that makes it a good investment program for long-term goals such as
retirement or a child's education fund. You should consider your dollar-
cost averaging program a long-term commitment and be willing to continue
purchases through periods of fluctuating prices.
[GRAPHIC OMITTED: WORM CHART TREND FUND'S LONG-TERM PERFORMANCE
GROWTH OF A $10,000 INVESTMENT]
TREND FUND'S LONG-TERM PERFORMANCE
GROWTH OF A $10,000 INVESTMENT
June 30, 1988 to June 30, 1998
Lipper
Capital
Appreciation Russell
Fund 2000
Month and Trend Fund Average Growth
Year Class A (56 funds) Index
- --------- ---------- ------- -------
June 1988 $ 9,525 $11,000 $10,000
June 1989 $13,259 $12,654 $11,026
June 1990 $15,157 $12,884 $11,988
June 1991 $14,427 $14,404 $12,057
June 1992 $18,655 $16,251 $13,076
June 1993 $25,230 $19,310 $15,750
June 1994 $25,379 $19,912 $15,888
June 1995 $31,570 $25,179 $19,991
June 1996 $42,787 $27,818 $25,287
June 1997 $43,526 $37,382 $26,451
June 1998 $53,989 $40,170 $31,420
Chart assumes $10,000 invested on June 30, 1988, a 4.75% maximum front-
end sales charge and reinvestment of distributions. Returns for other
classes will differ due to different charges and expenses. Past
performance does not guarantee future returns.
TREND FUND PERFORMANCE
AVERAGE ANNUAL RETURNS THROUGH JUNE 30, 1998
Lifetime Ten Years Five Years One Year
Class A (Est. 10/3/68)
Excluding Sales Charge +9.77% +18.94% +16.42% +23.97%
Including Sales Charge +9.59% +18.36% +15.29% +18.12%
Class B (Est. 9/6/94)
Excluding Sales Charge +19.14% +23.09%
Including Sales Charge +18.66% +19.09%
Class C (Est. 11/29/95)
Excluding Sales Charge +16.57% +23.09%
Including Sales Charge +16.57% +22.09%
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.
Past performance does not guarantee future results. B and C Class
results excluding sales charge assume either contingent sales charges
did not apply or the investment was not redeemed.
Class A shares have a 4.75% maximum front-end sales charge and a 12b-1
fee.
Class B shares do not carry a front-end sales charge, but are subject to
a 1% annual distribution and service fee. They are also subject to a
deferred sales charge of up to 4% if redeemed before the end of the
sixth year. Lifetime performance excluding sales charge assumes the
investment was not redeemed.
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 total returns for the lifetime, ten-year, five-year and
one-year periods ended 6/30/98, for Trend Fund's Institutional Class
were +9.82%, +19.11%, +16.72% and +24.35%. The Institutional Class was
initially made available without sales charges only to certain eligible
institutional accounts on 11/9/92; performance prior to that date was
adjusted to eliminate the effect of the sales charge, but not Class A's
asset-based distribution charge in effect since 6/1/92.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
DELAWARE GROUP EQUITY FUNDS III, INC. -
TREND FUND
STATEMENT OF NET ASSETS
JUNE 30, 1998
NUMBER OF MARKET
SHARES VALUE
<S> <C> <C>
- -----------------------------------------------------------------------------------
COMMON STOCK - 92.79%
AEROSPACE & DEFENSE - 1.80%
AAR 209,550 $ 6,194,822
*Kellstrom Industries 126,100 3,696,306
*LMI Aerospace 116,400 1,207,650
------------
11,098,778
------------
BANKING, FINANCE & INSURANCE - 12.32%
ACE Limited 157,300 6,134,700
Ambac Financial Group 146,100 8,546,850
*Amerin 30,800 898,012
Capital Automotive 500,500 7,116,484
Capital Re 105,700 7,570,763
*Capital Trust Class A 272,200 2,619,925
Centris Group 104,000 1,287,000
First American (Tennesse) 389,300 18,747,228
*First Sierra Financial 127,900 3,892,956
Indymac Mortgage Holdings 336,700 7,659,925
Resource Asset Investment Trust 150,000 2,390,625
Webster Financial 115,900 3,853,676
Western Bancorp 123,200 5,224,450
------------
75,942,594
------------
BUILDINGS & MATERIALS - 2.74%
*Comfort Systems USA 551,600 12,893,650
*J. Ray McDermott, S.A. 97,500 4,046,250
------------
16,939,900
------------
CABLE, MEDIA & PUBLISHING - 9.12%
*Chancellor Media Class A 431,600 21,431,690
*Emmis Broadcasting 131,600 6,312,687
*Metro Networks 95,600 4,113,787
*Snyder Communications 165,000 7,260,000
TCA Cable TV 83,400 5,014,425
*The Petersen Companies Class A 233,100 5,973,188
*USA Networks 242,108 6,090,529
------------
56,196,306
------------
CHEMICALS - 1.44%
*Mettler-Toledo International 441,300 8,853,581
------------
8,853,581
------------
COMPUTERS & TECHNOLOGY - 21.99%
*Answer Think Consulting Group 95,900 2,055,856
*Aspect Development 134,300 10,148,044
*Brio Technology 98,700 1,329,366
*Concord Communications 59,100 1,519,978
*EMC 272,200 12,197,963
*FlexInternational Software 376,400 2,670,087
Henry (Jack) & Associates 232,900 8,020,494
*Hyperion Software 317,100 9,047,259
*INKTOMI 57,300 2,274,094
*J.D. Edwards 255,000 10,949,063
*Netgravity 29,900 391,503
*Network Appliance 113,600 4,419,750
*NOVA 356,500 12,744,875
*Peerless Systems 414,700 8,656,863
*PLATINUM Technology 554,932 15,867,587
*PMT Services 308,900 7,857,644
*SPR 156,100 4,751,294
*SunGuard Data Systems 167,200 6,416,300
*Veritas Software 223,050 9,221,723
*Xylan 165,400 4,925,819
------------
135,465,562
------------
CONSUMER PRODUCTS - 3.77%
*Cendant 145,711 3,041,719
G&K Services 168,200 7,358,750
*Gemstar International Group Limited 343,400 12,802,381
------------
23,202,850
------------
ELECTRONICS & ELECTRICAL - 4.87%
*Applied Micro Circuits 387,100 10,052,503
*Integrated Electrical Services 143,800 2,893,975
*Micrel 212,000 6,956,250
*MMC Networks 101,700 3,238,509
Pittston Brink's Group 93,100 3,433,063
*Protection One 312,800 3,411,475
------------
29,985,775
------------
ENVIRONMENTAL SERVICES - 0.91%
*Superior Services 187,300 5,636,559
------------
5,636,559
------------
FOOD, BEVERAGE & TOBACCO - 1.09%
*Cheesecake Factory 296,100 6,699,263
------------
6,699,263
------------
HEALTHCARE & PHARMACEUTICALS - 5.05%
*Alternative Living Services 187,400 5,059,800
*Atria Communities 109,700 1,888,897
*Brookdale Living Communities 302,800 7,702,475
*Coulter Pharmaceuticals 55,100 1,670,219
*Renal Care Group 103,950 4,586,794
*Sunrise Assisted Living 296,300 10,194,572
------------
31,102,757
------------
INDUSTRIAL MACHINERY - 0.84%
*Spinnaker Industries Common 135,628 2,526,072
*Spinnaker Industries Class A 135,500 2,642,250
------------
5,168,322
------------
LEISURE, LODGING & ENTERTAINMENT - 1.57%
*Dave & Buster's 206,900 5,153,103
Royal Caribbean Cruises 56,800 4,515,600
------------
9,668,703
------------
METALS & MINING - 0.46%
*Metals USA 163,700 2,823,825
------------
2,823,825
------------
PAPER & FOREST PRODUCTS - 1.82%
*Consolidated Graphics 190,600 11,245,400
------------
11,245,400
------------
RETAIL - 15.99%
*Barnett 222,100 4,469,763
*Bebe Stores 95,100 1,242,244
*CDnow 123,600 2,487,450
*CompUSA 186,000 3,359,625
*Cost Plus 315,100 9,453,000
*Dollar Tree Stores 304,950 12,388,594
*Hibbett Sporting Goods 161,400 6,435,825
*Linens 'n Things 395,400 12,084,413
*MSC Industrial Direct - Class A 303,400 8,646,900
*Marinemax 149,900 1,855,013
*Piercing Pagoda 108,100 3,878,088
Restoration Hardware 98,100 2,458,631
+Schultz Sav-O Stores 472,600 7,620,675
*Sonic Corp 118,300 2,639,569
*Staples 408,400 11,830,837
*Sunglass Hut International 239,200 2,638,675
*Wilmar Industries 196,600 5,013,300
------------
98,502,602
------------
TELECOMMUNICATIONS - 2.81%
*GeoTel Communications 226,000 9,167,125
*Nextlink Communications Class A 214,700 8,125,053
------------
17,292,178
------------
TRANSPORTATION & SHIPPING - 0.51%
*Coach USA 69,200 3,157,250
------------
3,157,250
------------
UTILITIES - 1.47%
*AES 172,950 9,090,684
------------
9,090,684
------------
MISCELLANEOUS - 2.22%
*Neff 118,000 1,371,750
*NFO Worldwide 176,563 3,156,055
*Profit Recovery Group 326,100 9,140,991
------------
13,668,796
------------
Total Common Stock (cost $412,141,274) 571,741,685
------------
REPURCHASE AGREEMENTS - 6.61%
With Chase Manhattan 5.85% 7/1/98 (dated
6/30/98, collateralized by $15,383,000
U.S. Treasury Notes 5.375% due 6/30/03,
market value $15,311,390) $15,006,000 $15,006,000
With J.P. Morgan Securities 5.75% 7/1/98 (dated
6/30/98, collateralized by $12,814,000
U.S. Treasury Notes 6.25% due 6/30/02,
market value $13,120,728) 12,845,000 12,845,000
With PaineWebber 5.75% 7/1/98 (dated 6/30/98,
collateralized by $12,539,000 U.S. Treasury
Notes 6.625% due 4/30/02, market
value $13,123,528) 12,846,000 12,846,000
------------
Total Repurchase Agreements
(cost $40,697,000) 40,697,000
------------
TOTAL MARKET VALUE OF SECURITIES - 99.40%
(cost $452,838,274) $612,438,685
RECEIVABLES AND OTHER ASSETS NET OF
LIABILITIES - 0.60% 3,717,554
------------
NET ASSETS APPLICABLE TO 33,298,077 SHARES
($0.50 PAR VALUE) OUTSTANDING - 100.00% $616,156,239
============
NET ASSET VALUE - TREND FUND A CLASS
($469,152,495 / 25,287,456 shares) $18.55
=======
NET ASSET VALUE - TREND FUND B CLASS
($71,469,806 / 3,978,495 shares) $17.96
=======
NET ASSET VALUE - TREND FUND C CLASS
($14,258,996 / 784,688 shares) $18.17
=======
NET ASSET VALUE - TREND FUND INSTITUTIONAL CLASS
($61,274,942 / 3,247,438 shares) $18.87
=======
- -------------------
*Non-income producing securities.
+Considered an affiliated company as the Fund owns more than 5% of the
outstanding voting securities of such company.
COMPONENTS OF NET ASSETS AT JUNE 30, 1998:
Common stock, $0.50 par value, 500,000,000 shares
authorized to the Fund with 125,000,000 shares allocated $382,001,553
Accumulated net realized gain on investments 74,554,275
Net unrealized appreciation of investments 159,600,411
------------
Total net assets $616,156,239
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE - A CLASS:
Net Asset Value A Class (A) $18.55
Sales Charge (4.75% of offering price or 5.01% of the amount
invested per share) (B) 0.93
-------
Offering price $19.48
=======
- -------------------
(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 $100,000 or more.
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
DELAWARE GROUP EQUITY FUNDS III, INC. -
TREND FUND
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
<S> <C> <C>
INVESTMENT INCOME:
Interest $2,065,957
Dividends 1,981,548 $4,047,505
------------
EXPENSES:
Management fees 4,849,848
Distribution expense 2,083,090
Dividend disbursing and transfer agent
fees and expenses 1,451,167
Accounting and administration 341,729
Reports and statements to shareholders 115,225
Registration fees 36,959
Taxes (other than taxes on income) 31,719
Professional fees 30,278
Directors' fees 18,545
Custodian fees 18,210
Other 95,496
------------
9,072,266
------------
NET INVESTMENT LOSS (5,024,761)
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment transactions 114,261,594
Net change in unrealized appreciation
on investments 38,430,492
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 152,692,086
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $147,667,325
============
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
DELAWARE GROUP EQUITY FUNDS III, INC. -
TREND FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
6/30/98 6/30/97
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment (loss) $ (5,024,761) $ (3,156,724)
Net realized gain on investments transactions 114,261,594 48,355,873
Net change in unrealized appreciation/depreciation
on investments 38,430,492 (38,283,267)
-------------- --------------
Net increase in net assets resulting
from operations 147,667,325 6,915,882
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET
REALIZED GAIN ON INVESTMENT TRANSACTIONS:
Trend Fund A Class (52,530,445) (39,963,160)
Trend Fund B Class (7,025,698) (3,093,202)
Trend Fund C Class (1,412,695) (553,950)
Trend Fund Institutional Class (12,847,164) (11,579,487)
-------------- --------------
(73,816,002) (55,189,799)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Trend Fund A Class 1,483,621,973 827,810,264
Trend Fund B Class 17,205,955 31,657,228
Trend Fund C Class 10,917,442 10,068,458
Trend Fund Institutional Class 83,515,986 68,208,309
Net asset value of shares issued upon reinvestment
of dividends from net realized gain on
investment transactions:
Trend Fund A Class 49,569,183 37,772,429
Trend Fund B Class 6,576,691 2,938,833
Trend Fund C Class 1,382,403 538,254
Trend Fund Institutional Class 12,837,201 10,448,339
-------------- --------------
1,665,626,834 989,442,114
-------------- --------------
Cost of shares repurchased:
Trend Fund A Class (1,552,284,567) (899,972,498)
Trend Fund B Class (13,571,551) (12,647,535)
Trend Fund C Class (10,756,253) (5,261,927)
Trend Fund Institutional Class (161,861,839) (97,466,112)
-------------- --------------
(1,738,474,210) (1,015,348,072)
-------------- --------------
Decrease in net assets derived from capital
share transactions (72,847,376) (25,905,958)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS 1,003,947 (74,179,875)
NET ASSETS:
Beginning of year 615,152,292 689,332,167
-------------- --------------
End of year $616,156,239 $615,152,292
============== ==============
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
DELAWARE GROUP EQUITY FUNDS III, INC. - TREND FUND
FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout each period were as
follows:
TREND FUND A CLASS
----------------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
6/30/98 6/30/97 6/30/96
<S> <C> <C> <C>
Net asset value, beginning of period $16.730 $18.160 $14.210
Income from investment operations:
Net investment loss1 (0.126) (0.075) (0.127)
Net realized and unrealized gain on
investments 3.886 0.155 4.977
------- ------- -------
Total from investment operations 3.760 0.080 4.850
------- ------- -------
Less distributions:
Distributions from net realized gain on
investment transactions (1.940) (1.510) (0.900)
------- ------- -------
Total distributions (1.940) (1.510) (0.900)
------- ------- -------
Net asset value, end of period $18.550 $16.730 $18.160
======= ======= =======
Total return2 23.97% 1.67% 35.53%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $469,152 $428,309 $497,188
Ratio of expenses to average net assets 1.34% 1.34% 1.31%
Ratio of net investment loss to average
net assets (0.70%) (0.47%) (0.79%)
Portfolio turnover 114% 115% 90%
Average commission rate paid3 $0.0600 $0.0594 $0.0557
<CAPTION>
DELAWARE GROUP EQUITY FUNDS III, INC. - TREND FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each
period were as follows:
TREND FUND A CLASS
-------------------------
YEAR YEAR
ENDED ENDED
6/30/95 6/30/94
<S> <C> <C>
Net asset value, beginning of period $12.210 $13.980
Income from investment operations:
Net investment loss1 (0.074) (0.042)
Net realized and unrealized gain on
investments 2.864 0.212
------- -------
Total from investment operations 2.790 0.170
------- -------
Less distributions:
Distributions from net realized gain on
investment transactions (0.790) (1.940)
------- -------
Total distributions (0.790) (1.940)
------- -------
Net asset value, end of period $14.210 $12.210
======= =======
Total return2 24.40% 0.59%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $318,933 $253,964
Ratio of expenses to average net assets 1.36% 1.37%
Ratio of net investment loss to average
net assets (0.58%) (0.72%)
Portfolio turnover 64% 67%
Average commission rate paid3 N/A N/A
<CAPTION>
DELAWARE GROUP EQUITY FUNDS III, INC. - TREND FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were as
follows:
TREND FUND B CLASS
----------------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
6/30/98 6/30/97 6/30/96
<S> <C> <C> <C>
Net asset value, beginning of period $16.370 $17.920 $14.130
Income from investment operations:
Net investment loss1 (0.252) (0.189) (0.248)
Net realized and unrealized gain on
investments 3.782 0.149 4.938
------- ------- -------
Total from investment operations 3.530 (0.040) 4.690
------- ------- -------
Less distributions:
Distributions from net realized gain on
investment transactions (1.940) (1.510) (0.900)
------- ------- -------
Total distributions (1.940) (1.510) (0.900)
------- ------- -------
Net asset value, end of period $17.960 $16.370 $17.920
======= ======= =======
Total return2 23.09% 0.96% 34.55%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $71,470 $55,047 $35,090
Ratio of expenses to average net assets 2.09% 2.09% 2.06%
Ratio of net investment loss to average
net assets (1.45%) (1.25%) (1.54%)
Portfolio turnover 114% 115% 90%
Average commission rate paid3 $0.0600 $0.0594 $0.0557
<CAPTION>
DELAWARE GROUP EQUITY FUNDS III, INC. - TREND FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were as
follows:
TREND FUND
B CLASS TREND FUND C CLASS
---------- -----------------------
PERIOD YEAR YEAR
9/6/944 TO ENDED ENDED
6/30/95 6/30/98 6/30/97
<C> <C> <C>
Net asset value, beginning of period $12.110 $16.540 $18.090
Income from investment operations:
Net investment loss1 (0.142) (0.255) (0.197)
Net realized and unrealized gain on
investments 2.162 3.825 0.157
------- ------- -------
Total from investment operations 2.020 3.570 (0.040)
------- ------- -------
Less distributions:
Distributions from net realized gain on
investment transactions none (1.940) (1.510)
------- ------- -------
Total distributions none (1.940) (1.510)
------- ------- -------
Net asset value, end of period $14.130 $18.170 $16.540
======= ======= =======
Total return2 16.68% 23.09% 0.95%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $5,175 $14,259 $11,447
Ratio of expenses to average net assets 2.12% 2.09% 2.09%
Ratio of net investment loss to average
net assets (1.34%) (1.45%) (1.28%)
Portfolio turnover 64% 114% 115%
Average commission rate paid3 N/A $0.0600 $0.0594
<CAPTION>
DELAWARE GROUP EQUITY FUNDS III, INC. - TREND FUND
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were as
follows:
TREND FUND
C CLASS
----------
PERIOD
11/29/954 TO
6/30/96
<S> <C>
Net asset value, beginning of period $15.460
Income from investment operations:
Net investment loss1 (0.253)
Net realized and unrealized gain on
investments 3.233
-------
Total from investment operations 2.980
-------
Less distributions:
Distributions from net realized gain on
investment transactions (0.350)
-------
Total distributions (0.350)
-------
Net asset value, end of period $18.090
=======
Total return2 19.66%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $6,359
Ratio of expenses to average net assets 2.06%
Ratio of net investment loss to average
net assets (1.54%)
Portfolio turnover 90%
Average commission rate paid3 $0.0557
- ---------------------------
1 Years ended 1995, 1996, 1997 and 1998 per share information was based on the
average shares outstanding method.
2 Does not include maximum sales charge of 4.75% nor the 1% limited contingent
deferred sales charge that would apply in the event of certain redemptions within
12 months of purchase of A Class shares. Does not include contingent deferred
sales charge which varies from 1-4% depending upon the holding period for Class B and
Class C shares.
3 Computed by dividing the total amount of commissions paid by the total number of
shares purchased and sold during the period for which there was a commission charged.
4 Date of initial public offering. Ratios have been annualized and total returns have
not been annualized for Trend B and Trend C Class.
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
TREND FUND INSTITUTIONAL CLASS
---------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
6/30/98 6/30/97 6/30/96
<S> <C> <C> <C>
Net asset value, beginning of period $16.950 $18.330 $14.300
Income from investment operations:
Net investment loss1 (0.082) (0.034) (0.087)
Net realized and unrealized gain on investments 3.942 0.164 5.017
------- ------- -------
Total from investment operations 3.860 0.130 4.930
------- ------- -------
Less distributions:
Distributions from net realized gain on
investment transactions (1.940) (1.510) (0.900)
------- ------- -------
Total distributions (1.940) (1.510) (0.900)
------- ------- -------
Net asset value, end of period $18.870 $16.950 $18.330
======= ======= =======
Total return 24.35% 1.94% 35.88%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $61,275 $120,319 $150,695
Ratio of expenses to average net assets 1.09% 1.08% 1.06%
Ratio of net investment loss to average net assets (0.45%) (0.21%) (0.54%)
Portfolio turnover 114% 115% 90%
Average commission rate paid2 $0.0600 $0.0594 $0.0557
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
TREND FUND
INSTITUTIONAL CLASS
--------------------------
YEAR YEAR
ENDED ENDED
6/30/95 6/30/94
<S> <C> <C>
Net asset value, beginning of period $12.250 $13.990
Income from investment operations:
Net investment loss1 (0.044) (0.002)
Net realized and unrealized gain on investments 2.884 0.202
------- -------
Total from investment operations 2.840 0.200
------- -------
Less distributions:
Distributions from net realized gain on
investment transactions (0.790) (1.940)
------- -------
Total distributions (0.790) (1.940)
------- -------
Net asset value, end of period $14.300 $12.250
======= =======
Total return 24.74% 0.83%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $55,437 $13,499
Ratio of expenses to average net assets 1.12% 1.15%
Ratio of net investment loss to average net assets (0.34%) (0.50%)
Portfolio turnover 64% 67%
Average commission rate paid2 N/A N/A
- ---------------------------
1 Years ended 1995, 1996, 1997 and 1998 per share information was based on the
average shares outstanding method.
2 Computed by dividing the total amount of commissions paid by the total number
of shares purchased and sold during the period for which there was a commission
charged.
See accompanying notes
</TABLE>
DELAWARE GROUP EQUITY FUNDS III, INC. - TREND FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
Delaware Group Equity Funds III, Inc.- Trend Fund (the "Fund") is
registered as a diversified open-end investment company under the
Investment Company Act of 1940, as amended. The Fund is organized as a
Maryland Corporation and offers four classes of shares. The Trend Fund A
Class carries a front-end sales charge of 4.75%. The Trend Fund B Class
carries a back-end deferred sales charge. Trend Fund C Class carries a
level load deferred sales charge and Trend Fund Institutional Class has
no sales charge.
The Fund's objective is to provide long term capital appreciation by
investing primarily in securities of emerging and other growth-oriented
companies.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally
accepted accounting principles and are consistently followed by the
Fund.
Security Valuation - Securities listed on an exchange are valued at the
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. Money market
instruments having less than 60 days to maturity are valued at amortized
cost which approximates market value. Other securities and assets for
which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the
Fund's Board of Directors.
Federal Income Taxes - The Fund intends to continue to qualify as a
regulated investment company and make the requisite distributions to
shareholders. Accordingly, no provision for federal income taxes has
been made in the financial statements. Income and capital gain
distributions are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting
principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various
classes of the Fund on the basis of daily net assets of each class.
Distribution expenses relating to a specific class are charged directly
to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account
along with other members of the Delaware Investments Family of Funds.
The aggregate daily balance of the pooled cash account is invested in
repurchase agreements secured by obligations of the U.S. government.
The respective collateral is held by the Fund's custodian bank until
the maturity of the respective repurchase agreements. Each repurchase
agreement is at least 100% collateralized. However, in the event of
default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Other - Expenses common to all Funds within the Delaware Investments
Family of Funds are allocated amongst the funds on the basis of average
net assets. Security transactions are recorded on the date the
securities are purchased or sold (trade date). Costs used in calculating
realized gains and losses on the sale of investment securities are those
of the specific securities sold. Dividend income is recorded on the ex-
dividend date and interest income is recorded on the accrual basis.
Original issue discounts are accreted to interest income over the lives
of the respective securities. The Fund declares and pays dividends from
net investment income and capital gains, if any, semi-annually.
Certain Fund expenses are paid through "soft dollar" arrangements with
brokers. The amount of these expenses is less than 0.01% of the Fund's
average daily net assets.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the
Fund pays Delaware Management Company ("DMC"), the Investment Manager of
the Fund, an annual fee of 0.75% of average net assets, which is
calculated daily on the net assets of the Fund, less the fees paid to
the unaffiliated directors. At June 30, 1998, the Fund had a liability
for investment management fees and other expenses payable to DMC of
$31,498.
The Fund has engaged Delaware Service Company, Inc. ("DSC"), an
affiliate of DMC, to serve as dividend disbursing, transfer agent, and
accounting services agent for the Fund. For the year ended June 30,
1998, the Fund expensed $1,451,167 for dividend disbursing and transfer
agent services and $262,875 for accounting services. At June 30, 1998,
the Fund had a liability for such fees and other expenses payable to DSC
of $74,324.
Pursuant to the Distribution Agreement, the Fund pays Delaware
Distributors, L.P. ("DDLP"), the Distributor and an affiliate of DMC, an
annual fee not to exceed 0.30% of the average daily net assets of the A
Class and 1.00% of the average daily net assets of the B and C Class.
For the year ended June 30, 1998, DDLP earned $150,793 for commissions
on sales of the Fund A Class shares.
Certain officers of DMC, DSC and DDLP are officers, directors and/or
employees of the Fund. These officers, directors and employees are paid
no compensation by the Fund.
3. Investments
During the year ended June 30, 1998, the Fund made purchases of
$689,094,591 and sales of $832,437,627 of investment securities other
than U.S. government securities and temporary cash investments.
At June 30, 1998, the aggregate cost of securities for federal income
tax purposes was $452,902,211.
At June 30, 1998, net unrealized appreciation for federal income tax
purposes aggregated $159,536,474 of which $164,864,510 related to
unrealized appreciation of securities and $5,328,036 related to
unrealized depreciation of securities.
4. Capital Stock
Transactions in capital stock shares were as follows:
YEAR ENDED YEAR ENDED
6/30/98 6/30/97
---------- ----------
Shares sold:
Trend Fund A Class 85,939,344 52,474,941
Trend Fund B Class 1,005,828 2,031,645
Trend Fund C Class 636,820 640,838
Trend Fund Institutional Class 4,600,325 4,266,348
Shares issued upon reinvestment of
dividends from net realized gains
on investment transactions:
Trend Fund A Class 2,957,167 2,590,704
Trend Fund B Class 402,299 204,653
Trend Fund C Class 83,604 37,095
Trend Fund Institutional Class 755,277 708,843
---------- ----------
96,380,664 62,955,067
---------- ----------
Shares repurchased:
Trend Fund A Class (89,203,065) (56,846,419)
Trend Fund B Class (792,064) (831,622)
Trend Fund C Class (629,680) (335,440)
Trend Fund Institutional Class (9,205,605) (6,097,893)
---------- ----------
(99,830,414) (64,111,374)
---------- ----------
Net decrease (3,449,750) (1,156,307)
========== ==========
5. Lines of Credit
The Fund has a committed line of credit for $24,300,000. No amount was
outstanding at June 30, 1998, or at any time during the fiscal year.
6. Market and Credit Risk
The Fund may invest up to 10% of its total assets in illiquid securities
which may include securities with contractual restrictions on resale,
securities exempt from registration under Rule 144A of the Securities
Act of 1933, as amended, and other securities which may not be readily
marketable. The relative illiquidity of some of these securities may
adversely affect the Fund's ability to dispose of such securities in a
timely manner and at a fair price when it is necessary to liquidate such
securities.
DELAWARE GROUP EQUITY FUNDS III, INC.
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
DELAWARE GROUP EQUITY FUNDS III, INC. - TREND FUND
We have audited the accompanying statement of net assets of Delaware
Group Equity Funds III, Inc. - Trend Fund (the "Fund") as of June 30,
1998, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of June 30,
1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Delaware Group Equity Funds III, Inc. - Trend Fund
at June 30, 1998, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting
principles.
/S/Ernst & Young LLP
Philadelphia, Pennsylvania
July 31, 1998
THIS ANNUAL REPORT IS FOR THE INFORMATION OF TREND FUND'S SHAREHOLDERS,
BUT IT MAY BE USED with prospective investors when preceded or
accompanied by a current Prospectus for Trend Fund, which sets forth
details about charges, expenses, investment objectives and operating
policies of the Fund. You should read each prospectus carefully before
you invest. Summary investment results are documented in the Fund's
current Statement of Additional Information. The figures in this report
represent past results which are not a guarantee of future results. The
return and principal value of an investment in the Fund will fluctuate
so that shares, when redeemed, may be worth more or less than their
original cost.
BOARD OF DIRECTORS
WAYNE A. STORK
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
JEFFREY J. NICK
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
WALTER P. BABICH
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
JOHN DURHAM
Partner, Complete Care Services
Horsham, PA
ANTHONY D. KNERR
Consultant, Anthony Knerr & Associates
New York, NY
ANN R. LEVEN
Treasurer, National Gallery of Art
Washington, DC
W. THACHER LONGSTRETH
City Councilman
Philadelphia, PA
THOMAS F. MADISON
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
CHARLES E. PECK
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
AFFILIATED OFFICERS
DAVID K. DOWNES
Executive Vice President, Chief Financial Officer
and Chief Operating Officer
Delaware Investments Family of Funds
Philadelphia, PA
GEORGE M. CHAMBERLAIN, JR.
Senior Vice President, Secretary
and General Counsel
Delaware Investments Family of Funds
Philadelphia, PA
BRUCE D. BARTON
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
[GRAPHIC OMITTED: PHOTO OF TWO GLOBES]
directors & officers
INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
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
This report must be preceded or accompanied by current Trend Fund
prospectus and the Delaware Investments Fund Performance Update for the
most recently completed calendar quarter. For a prospectus of any other
Delaware Investments fund, contact your financial adviser or Delaware
Investments.
[GRAPHIC OMITTED: PHOTO OF SEVERAL GLOBES]
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawarefunds.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.
(copyright) Delaware Distributors, L.P.
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Printed in the USA
on recycled paper
(896)
AR-003[6/98]TKO8/98
