<PAGE>
DELAWARE(SM)
INVESTMENTS
============ Delaware Technology and Innovation Fund
Growth of Capital
[GRAPHIC OMITTTED] Growth of Capital Artwork
2000 ANNUAL REPORT
<PAGE>
TABLE OF CONTENTS
=================
Letter to Shareholders 1
Portfolio Management
Review 3
Performance Summary 7
Financial Statements
Statement of Net Assets 8
Statement of Operations 10
Statement of Changes in
Net Assets 11
Financial Highlights 12
Notes to Financial
Statements 13
Report of Independent
Auditors 15
A TRADITION OF SOUND INVESTING SINCE 1929
=========================================
A Commitment To Our Investors
Experienced
[ ] Our seasoned investment professionals average more than 15 years'
experience.
[ ] We began managing investments in 1929 and opened our first mutual fund in
1938. Over the past 70 years, we have weathered a full range of economic and
market environments.
Disciplined
[ ] We follow strict investment policies and clear buy/sell guidelines.
[ ] We strive to balance risk and reward in order to provide sound investment
alternatives within any given asset class.
Consistent
[ ] We clearly articulate our investment policies and follow them consistently.
[ ] Our commitment to style consistency has earned us the confidence of
discriminating institutional and individual investors to manage
approximately $45 billion in assets as of June 30, 2000.
Comprehensive
[ ] We offer more than 70 mutual funds in these asset classes.
o Large-cap equity o High-yield bonds
o Mid-cap equity o Investment grade bonds
o Small-cap equity o Municipal bonds (23 single-state funds)
o International equity o International fixed-income
o Balanced
[ ] Our funds are available through financial advisers who can offer you
individualized attention and valuable investment advice.
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
(C)Delaware Distributors, L.P.
<PAGE>
Dear Shareholder
"THE CORRECTION SEEMED
TO HAVE HELPED
INVESTORS BECOME
REACQUAINTED WITH THE
CONCEPT OF RISK IN THE
EQUITIES MARKETS."
August 14, 2000
Recap of Events -- If markets had titles, the last six-month period would
probably be called "A Tale of Two Markets", as investors experienced both the
best of times and the worst of times. As the year began, the U.S. stock markets
continued their powerful rally led by shares of growth stocks in general and
technology companies in particular.
The bull run persisted through February, 2000. Beginning on March 10th and
continuing through April and May, however, investor sentiment seemed to have
made an about-face. Fear of rising interest rates brought the major stock
indexes down in an often swift retreat that negated many of those unprecedented
gains. In most instances the high P/E momentum stocks that led the market on the
way up also bore the brunt of the correction. At its lowest point in May, the
technology-heavy Nasdaq Composite Index lost 37% from its peak in March. The
Standard & Poor's 500 Index also retreated -- by May falling approximately 11%
off its March high. By then, the correction seemed to have helped investors
become reacquainted with the concept of risk in the equities markets.
In late May and in June, major market indexes began to rebound from their losses
in the spring, with many technology stocks beginning to show signs of recovery.
In our opinion, part of the spring downturn can be attributed to uncertain
interest rate conditions. The Federal Reserve Board raised rates three separate
times since the Fund's inception in December 1999, for a total of a full
percentage point increase. In addition to the rising interest rate environment,
recent history suggested that there would be a market correction. The Nasdaq
Composite had appreciated 87.95% from June 30, 1999 through March 10, 2000. In
addition, the Nasdaq has experienced at least one correction per year since 1990
(Source: Bloomberg).
Total Return
For Period Ended June 30, 2000 Lifetime*
--------------------------------------------------------------------------------
Delaware Technology and Innovation Fund Class A +14.12%
--------------------------------------------------------------------------------
Lipper Science and Technology Funds Average (174 funds) +4.15%
Standard & Poor's 500 Index -0.03%
--------------------------------------------------------------------------------
*Performance for Delaware Technology and Innovation Fund, the Standard & Poor's
500 Index, and the Nasdaq Composite Index since the Fund's inception date,
December 29, 1999. Performance of Lipper Science and Technology Funds Average
from closest month end, December 31, 1999.
An expense limitation was in effect for all classes of Delaware Technology and
Innovation Fund during the period. Performance would have been lower if the
expense limitation was not in effect.
All performance shown above is at net asset value without the effect of sales
charges and assumes reinvestment of dividends and capital gains. Performance
information for all Fund classes can be found on page 7. The Lipper category
represents the average returns of science and technology funds tracked by
Lipper (Source: Lipper). The Standard & Poor's 500 Index is an unmanaged
composite of mostly large-capitalization U.S. companies. You cannot invest
directly in an index. Past performance does not guarantee future results.
1
<PAGE>
[GRAPHIC OMITTED] Growth of Capital Artwork
As the year wore on, it seemed that investors began to heed the warnings of
analysts, who had been cautioning that many technology companies -- and
particularly some Internet-related ones -- would need to show investors they
were capable of earning a profit in order to sustain their valuations.
Delaware Technology and Innovation Fund posted an aggregate return of +14.12%
(Class A shares at net asset value with distributions reinvested) for the period
beginning on the Fund's inception date, December 29, 1999 and ending June 30,
2000. By comparison, the Nasdaq Composite Index fell 3.67% and the Lipper
Science & Technology Funds Average increased 4.15% during the same period.
Delaware Technology and Innovation Fund's strong performance was due in part to
management maintaining a fully invested fund, letting the correction run its
course, and not trying to time the recovery. In addition, management continued
to add to the Fund's key investments. The buy and hold strategy paid off when
domestic stock markets began to recover in late May and in June.
As an investor in Delaware Technology and Innovation Fund, we encourage you to
take a long-term approach to your investments. You should also consider
consulting a financial advisor about diversifying your overall portfolio, and
making sure that your holdings include allocations in other market sectors.
Market Outlook -- The American economy, now in its tenth year of expansion, has
continued to grow rapidly with relatively little inflation. Economic data
released this summer, however, showed visible signs that the U.S. economy may
finally be slowing. This came as welcome news on Wall Street, where the hope is
that the Federal Reserve Board will end its campaign of raising interest rates,
intended to cool the economy and head off inflation.
We believe that the recent market correction left the average technology stock
much closer to its fair value. As of this writing, the second quarter 2000
earnings season is off to an excellent start in the sector, with many companies
reporting strong results. We believe that many signs point toward a strong
second half of 2000 for equities, and we look forward to making the most of the
buying opportunities that present themselves. We remain upbeat about the overall
health and continued growth of the technology sector.
Sincerely,
/s/ Wayne A. Stork /s/ David K. Downes
Wayne A. Stork David K. Downes
Chairman, President and Chief Executive Officer,
Delaware Investments Family of Funds Delaware Investments Family of Funds
2
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
===========================
Jeffrey Hynoski
Portfolio Manager
August 14, 2000
The Fund's Results
Delaware Technology and Innovation Fund commenced operations on
December 29, 1999, making this our first substantive reporting period. During
the period, we constructed the portfolio as we would like it structured moving
forward, purchasing about 40 technology company stocks we feel provide excellent
investment opportunities in the market.
We are pleased to tell you that the Fund returned 14.12% (Class A shares at net
asset value with distributions reinvested) during the period that began on your
Fund's inception date, December 29, 1999, and ended June 30, 2000. In contrast,
the Nasdaq Composite Index fell 3.67% overall and the S&P 500 Index fell 0.03%
during that period.
We believe that the Fund's bottom-up stock selection process and its
disciplined, buy-and-hold investment strategy helped the Fund achieve
double-digit returns during what was a very trying six months for technology
investors. This spring's correction proved that there are indeed set-backs in
the technology sector. In fact, over the last decade the technology sector has
experienced at least one correction per year and this year was no exception. We
believe that the critical factors to generating strong returns in the tech
sector remain investing with the industry leaders, staying focused on high
growth markets, selecting the highest quality management teams and staying fully
invested. In our opinion, those who strayed from these principles were generally
those hurt during the second quarter. We believe that the long-term outlook for
the technology sector is bright, but at times we may need to work through some
difficult markets. We believe the environment for investing in technology is
generally much more healthy than it was prior to the spring 2000 correction.
Portfolio Highlights
To get a proper picture of the volatility in technology investments during the
period, consider some of the Fund's top holdings. When we believed in the
fundamentals of our investment, we stood by portfolio holdings that had fallen
off at times by as much as 50% during the worst of the Nasdaq downturn. In most
cases, we watched prices bounce back in late May and June.
Ariba, a rapidly growing business-to-business software company whose stock we
hold in the portfolio, provides an excellent example. Ariba stock traded at
approximately $90 per share on January 1, 2000, and had risen above $160 per
share by mid-March. It then fell off sharply during the correction, trading at
less than $60 per share in mid-April before finishing the period strongly for a
slight gain overall. In constructing our portfolio, we continued to make
strategic purchases of Ariba stock during the period.
3
<PAGE>
"OUR BOTTOM-UP STOCK
SELECTION PROCESS AND
FOCUS ON FUNDAMENTALS
KEPT US CONFIDENT AS WE
BUILT UP OUR PORTFOLIO
DURING A TIME OF MUCH
MARKET VOLATILITY."
[GRAPHIC OMITTED] Growth of Capital Artwork
We felt that Ariba and some of our other growth holdings attracted the attention
of momentum investors with short-term investment goals. This contributed to
short-term volatility in the price of the stock. Because we believe in the
company's long-term prospects for growth, we held the positions we had purchased
through the market's ups and downs.
Another software company with a volatile stock price that we hold is i2
Technologies of Dallas, Texas. i2's stock took a tumultuous ride similar to
Ariba's, but finished the period a positive performer within the Fund. The
company, which specializes in software-based supply chain management solutions,
is a current partner of Ariba and IBM in setting up various on-line industry
exchanges. As with Ariba, we have confidence in the company's long-term growth
prospects. We therefore bought positions in the stock during the period with the
intent to hold those positions through any further volatility.
Delaware Technology and Innovation Fund fared relatively well during the period
because of this disciplined approach to such holdings. Our bottom-up stock
selection process and focus on fundamentals kept us confident as we built up our
portfolio during a time of much market volatility. Our analysts and managers
seek companies that are market leaders and have strong management. In addition,
we look for companies that have innovative concepts, sustainable growth rates
and sufficient cash flows.
The Internet revolution, however, is not limited only to tech firms. It affects
all companies willing to benefit from technological advances. The Internet
continues to pervade all facets of business. Moving forward we will continue to
add companies to the portfolio that are not necessarily pure technology
companies, but which look to adopt leading edge technologies to enhance their
products and services.
Another market that we have had much success in is the high-speed communications
market. We believe the market for fiber optic switching equipment is at the
forefront of the network hardware market segment, which performed quite well
during the period. We currently hold positions in fiber optic hardware makers
Ciena, Sycamore Networks and JDS Uniphase, as well as critical suppliers to
these leading communications companies, such as Applied Micro Circuits and
PMC-Sierra. On June 30, JDS Uniphase, one of our top holdings, announced the
completion of its merger with E-Tek Dynamics, a manufacturer of optical
components also among our top holdings.
4
<PAGE>
Delaware Technology and Innovation Fund
Sector Weightings
As of June 30, 2000
----------------------------------------------------------------------
Semiconductors 23.08%
----------------------------------------------------------------------
Computer Software 18.97%
----------------------------------------------------------------------
Computer Communications 14.38%
----------------------------------------------------------------------
Electronic Components 10.55%
----------------------------------------------------------------------
Telecommunications Equipment 9.07%
----------------------------------------------------------------------
Internet Services 8.77%
----------------------------------------------------------------------
Electronic Production Equipment 4.62%
----------------------------------------------------------------------
Diversified Electronic Products 3.52%
----------------------------------------------------------------------
Electronic Data Processing 2.58%
----------------------------------------------------------------------
Electronic Data
Processing Peripherals 2.24%
----------------------------------------------------------------------
Cash & Other Assets 1.20%
----------------------------------------------------------------------
Cellular Telephone 1.02%
----------------------------------------------------------------------
Performance during the period was hurt by our position in Covad Communications,
a provider of digital subscriber line services for home and business. Although
its future may still be bright, Covad and some other independent providers of
high-speed telecommunications services saw their stock prices decrease during
the first half of 2000. Some analysts' concerns about the cost of implementing
growth may have impacted Covad's stock price, as well as the company's perceived
disadvantage relative to the Regional Bell Operating Companies with which it
competes. We felt it prudent to look elsewhere for other investment
opportunities because we felt Covad mis-executed on its business plan.
During the period, we also sold our stock in CheckFree Holdings, a provider of
electronic billing and payment services via the Internet. We had anticipated a
significant increase in demand for the services that CheckFree Holdings
supplies. However, despite the rise of e-commerce, consumers have been reluctant
to use electronic bill-paying systems. During the spring stock market
correction, CheckFree shares dropped substantially as some investors sold their
more speculative holdings. The stock, which performed poorly overall during the
period, detracted from the Fund's performance. With the lack of demand for its
services, we were no longer able to identify clear growth potential for
CheckFree Holdings and sold it from the portfolio.
There were certainly some trying times for technology stocks during the first
half of 2000. It appears that our investment disciplines proved themselves once
again. Our strategic holdings included some of the highest growth companies, and
we remained fully invested. In our opinion, the prospects for achieving capital
appreciation in the technology sector remain strong, and will continue as long
as innovation exists.
We will continue to use our bottom-up process to select stocks for the Fund,
seeking out promising investment opportunities in semiconductors,
telecommunications, and data storage, as well as semiconductors designed
specifically for communications products. Most importantly, we will continue
with our disciplined approach and long-term outlook, buying and holding the
stocks of companies that meet our strict investment criteria.
Outlook
Although many speculative Internet-based companies are still struggling to reach
profitability, technology company earnings as a whole have generally remained
strong and continue to tell a story of growth within the sector. Technology
companies as a whole reported strong financial results during the first quarter
of 2000, with revenue and earnings generally exceeding Wall Street's
expectations. At the time of this writing, the technology sector is posting
second-quarter financial results that are again better than what industry
analysts predicted. We believe that this bodes well for a strong second half of
the year. We believe that the companies in our portfolio are among the
best-positioned, best-managed and highest growth participants in the U.S.
economy.
5
<PAGE>
[GRAPHIC OMITTED] Growth of Capital Artwork
We encourage investors to be patient and keep a long-term outlook. While we
expect more highly speculative dot-com companies to experience financial
hardships going forward, this is a normal part of the competitive cycle in
today's global markets. Investors should not jump to the conclusion, as some did
during the second quarter within the Internet sector, that an entire sector is
in trouble just because a few of its members are in financial difficulty. There
are many sub-sectors within the Internet sector, and there may be little or no
relationship between these sub-sectors. Thus, the difficulties experienced by
any one sub-sector may have little or no impact on the others.
In addition to keeping a long-term outlook, you should also consider
diversifying your overall portfolio. This is important given the nature of the
Fund. Because the Fund focuses on investing in companies in the technology
sector and industries that may benefit from technology, investing in the Fund
entails specific risks. For example, technology products may not prove
commercially successful or may become obsolete quickly. In addition, the Fund's
investments in smaller issuers entail greater risk than investments in larger,
more established companies, as smaller companies typically have narrower product
lines and limited financial resources.
The technology sector during the past 20 years has been one of the greatest
wealth creation engines in the history of the stock market. A recent study by
Morgan Stanley Dean Witter highlighted the fact that over the past 20 years, the
technology sector has created trillions of dollars in wealth for tech company
shareholders. Technology companies employ millions of people and spend tens of
billions of dollars annually in research and development trying to build upon
this record of innovation.
In our opinion, investors seeking long-term capital appreciation should continue
to be rewarded by investing in the technology sector. We believe that there are
opportunities for strong returns in the equity markets for the remainder of
2000, particularly in the technology sector.
Top Holdings
June 30, 2000
Company Percentage of Net Assets
--------------------------------------------------------------------------------
1. Extreme Networks 5.0%
--------------------------------------------------------------------------------
2. i2 Technologies 4.4%
--------------------------------------------------------------------------------
3. E-Tek Dynamics, Inc. 4.0%
--------------------------------------------------------------------------------
4. NetIQ 3.8%
--------------------------------------------------------------------------------
5. Ariba, Inc. 3.7%
--------------------------------------------------------------------------------
6. JDS Uniphase Corp. 3.5%
--------------------------------------------------------------------------------
7. PMC-Sierra, Inc. 3.4%
--------------------------------------------------------------------------------
8. Broadvision, Inc. 3.4%
--------------------------------------------------------------------------------
9. Ciena 3.3%
--------------------------------------------------------------------------------
10. Applied Micro Circuits Corp. 3.1%
--------------------------------------------------------------------------------
6
<PAGE>
FUND BASICS
===========
Fund Objective
The Fund seeks to provide
long-term capital growth.
Total Fund Assets
$120.07 million
Number of Holdings
40
Fund Start Date
December 29, 1999
Your Fund Managers
Jeffery W. Hynoski holds a BS in Finance from the University of Delaware and an
MBA with a concentration in Investments/ Portfolio Management/Financial
Economics from Pace University. Mr. Hynoski joined Delaware Investments in 1998.
Previously, he served as a Vice President at Bessemer Trust Company in the mid-
and large-capitalization growth equity group, where he specialized in the areas
of science, technology and telecommunications. Prior to that, Mr. Hynoski held
positions at Lord Abbett & Co. and Cowen Asset Management. He has been managing
Delaware Technology and Innovation Fund since its inception.
Gerald S. Frey leads the Delaware Investments growth team. He holds a BA in
Economics from Bloomsburg University and attended Wilkes College and New York
University. Prior to joining Delaware Investments in 1996, he was a Senior
Director with Morgan Grenfell Capital Management in New York.
NASDAQ Symbols
Class A: DTYAX
Class B: DTYBX
Class C: DTYCX
DELAWARE TECHNOLOGY AND INNOVATION FUND PERFORMANCE
===================================================
Growth of a $10,000 Investment
December 29, 1999 through June 30, 2000
Delaware Technoloy and Innovation Fund Class A
S&P 500 Index
Tech and Innovation S&P 500
Fund Class A Index
"Dec. 99" $9,425
"Dec. 99" $9,446 $10,000
"Jan. 00" $9,002 $9,498
"Feb. 00" $13,204 $9,318
"Mar. 00" $11,497 $10,229
"Apr. 00" $10,078 $9,922
"May 00" $8,703 $9,718
"Jun. 00" $10,754 $9,958
<PAGE>
Chart assumes $10,000 invested on December 29, 1999 and includes the effect of a
5.75% sales charge and the reinvestment of all dividends and capital gains.
Chart also assumes $10,000 invested in the S&P 500 Index at closest month's end,
December 31, 1999. After December 29, 1999, returns plotted were as of the last
day of each successive month. Performance of other Fund classes will vary due to
different charges and expenses. The S&P 500 Index is a weighted, unmanaged index
that generally tracks the performance of large company stocks. You cannot invest
directly in an index. Past performance does not guarantee future results.
Aggregate Total Returns
Through June 30, 2000 Lifetime Six Months
--------------------------------------------------------------------------------
Class A (Est. 12/29/99)
Excluding Sales Charge +14.12% +13.85%
Including Sales Charge +7.54% +7.30%
--------------------------------------------------------------------------------
Class B (Est. 12/29/99)
Excluding Sales Charge +13.88% +13.62%
Including Sales Charge +8.88% +8.62%
--------------------------------------------------------------------------------
Class C (Est. 12/29/99)
Excluding Sales Charge +13.88% +13.62%
Including Sales Charge +12.88% +12.62%
--------------------------------------------------------------------------------
Returns reflect reinvestment of distributions and any applicable sales charges
as noted below. Return and share values will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Class B and C
results, excluding sales charges, assume either that contingent deferred sales
charges did not apply or the investment was not redeemed. Past performance is
not a guarantee of future results.
Class A shares have a 5.75% maximum front-end sales charge and a 12b-1 fee.
Class B shares do not have a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are also subject to a contingent
deferred sales charge of up to 5% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
An expense limitation was in effect for all classes of Delaware Technology and
Innovation Fund during the period. Performance would have been lower if the
expense limitation was not in effect. The aggregate total returns for lifetime
and six-month periods ended June 30, 2000 for Delaware Technology and Innovation
Fund Institutional Class were +14.12% and +13.85%, respectively. The
Institutional Class was originally made available without sales charges only to
certain eligible institutional accounts on December 29, 1999.
NASDAQ Symbol Institutional Class: DTYIX
7
<PAGE>
Statement of Net Assets
DELAWARE TECHNOLOGY AND INNOVATION FUND
========================================
Number of Market
June 30, 2000 Shares Value
--------------------------------------------------------------------------------
Common Stock - 98.80%
Cellular Telephone - 1.02%
*Nextel Communications ........................... 20,000 $ 1,223,750
-----------
1,223,750
-----------
Computer Communications - 14.38%
*Brocade Communications Systems .................. 15,000 2,752,266
*Cisco Systems ................................... 41,200 2,618,775
*Extreme Networks ................................ 57,000 6,013,500
*Foundry Networks ................................ 16,100 1,779,050
*Juniper Networks ................................ 18,000 2,620,125
*Mobility Electronics ............................ 114,500 1,488,500
-----------
17,272,216
-----------
Computer Software - 18.97%
*i2 Technologies ................................. 51,070 5,324,846
*NetIQ ........................................... 75,600 4,507,650
*New Era of Networks ............................. 67,900 2,885,750
*Oracle .......................................... 41,000 3,446,563
*Peregrine Systems ............................... 105,200 3,649,125
*Veritas Software ................................ 26,250 2,966,660
-----------
22,780,594
-----------
Diversified Electronic Products - 3.52%
*JDS Uniphase .................................... 35,200 4,219,600
-----------
4,219,600
-----------
Electronic Data Processing Peripherals - 2.24%
*Network Appliance ............................... 33,400 2,688,700
-----------
2,688,700
-----------
Electronic Components - 10.55%
*Applied Micro Circuits .......................... 38,300 3,782,125
*E-Tek Dynamics .................................. 18,100 4,775,005
*PMC - Sierra .................................... 23,100 4,104,581
-----------
12,661,711
-----------
Electronic Data Processing - 2.58%
*Sun Microsystems ................................ 34,100 3,100,969
-----------
3,100,969
-----------
Electronic Production Equipment - 4.62%
*Applied Materials ............................... 20,000 1,812,500
*Lam Research .................................... 40,900 1,533,750
*Teradyne ........................................ 30,000 2,205,000
-----------
5,551,250
-----------
Internet Services - 8.77%
*Ariba ........................................... 45,000 4,412,109
*BroadVision ..................................... 80,200 4,075,163
*Commerce One .................................... 45,000 2,042,578
-----------
10,529,850
-----------
<PAGE>
Number of Market
Shares Value
--------------------------------------------------------------------------------
Common Stock (continued)
Semiconductors - 23.08%
*Altera .......................................... 31,300 $ 3,190,644
*Analog Devices .................................. 40,800 3,100,800
*Globespan ....................................... 25,500 3,112,992
*Integrated Device Tech .......................... 25,000 1,496,875
Intel ........................................... 20,000 2,673,750
Linear Technology ............................... 38,400 2,455,200
*Maxim Integrated Products ....................... 45,100 3,063,981
*Micrel .......................................... 44,400 1,928,625
*Micron Technology ............................... 14,400 1,268,100
Texas Instruments ............................... 42,200 2,898,613
*Xilinx .......................................... 30,500 2,518,156
------------
27,707,736
------------
Telecommunications Equipment - 9.07%
*Ciena ........................................... 23,700 3,950,494
*Oni Systems ..................................... 15,000 1,758,047
*Sycamore Networks ............................... 20,000 2,207,500
*Tellabs ......................................... 43,500 2,977,031
------------
10,893,072
------------
Total Common Stock (cost $112,193,003) .......... 118,629,448
------------
Principal
Amount
------
Repurchase Agreements - 3.04%
With J.P. Morgan Securities 6.40% 7/3/00
(dated 6/30/00, collateralized by $737,000
U.S. Treasury Notes 5.875% due 11/15/04,
market value $732,082 and $475,000
U.S. Treasury Notes 7.875% due 11/15/04,
market value $507,949) ....................... $1,215,000 1,215,000
With PaineWebber 6.50% 7/3/00 (dated
6/30/00, collateralized by $295,000 U.S.
Treasury Notes 5.25% due 5/31/01, market
value $293,119 and $332,000 U.S. Treasury
Notes 6.125% due 12/31/01, market value
$330,221 and $233,000 U.S. Treasury Notes
6.25% due 10/31/01, market value $234,557
and $369,000 U.S. Treasury Notes 7.25%
due 5/15/04, market value $383,647) .......... 1,216,000 1,216,000
With Prudential Securities 6.50% 7/3/00
(dated 6/30/00, collateralized by $332,000
U.S. Treasury Notes 4.50% due 9/30/00,
market value $334,303 and $95,000
U.S. Treasury Notes 4.625% due 11/30/00,
market value $94,275 and $369,000
U.S. Treasury Notes 11.875% 11/15/03,
market value $434,752 and $332,000
U.S. Treasury Notes 15.75% due 11/15/01,
market value $378,061) ....................... 1,216,000 1,216,000
------------
Total Repurchase Agreements
(cost $3,647,000) ............................ 3,647,000
------------
8
<PAGE>
Statement of Net Assets (continued)
Market
Delaware Technology and Innovation Fund Value
--------------------------------------------------------------------------------
Total Market Value of Securities - 101.84%
(cost $115,840,003) .......................................... $122,276,448
-------------
Liabilities Net of Receivables and Other
Assets - (1.84%) ............................................. (2,205,266)
-------------
Net Assets Applicable to 12,400,080 Shares
Outstanding - 100.00% ........................................ $120,071,182
=============
Net Asset Value - Delaware Technology and
Innovation Fund A Class
($50,547,580 / 5,213,418 Shares) ............................. $9.70
=====
Net Asset Value - Delaware Technology and
Innovation Fund B Class
($47,257,040 / 4,885,798 Shares) ............................. $9.67
=====
Net Asset Value - Delaware Technology and
Innovation Fund C Class
($18,430,833 / 1,905,403 Shares) ............................. $9.67
=====
Net Asset Value - Delaware Technology and
Innovation Fund Institutional Class
($3,835,729 / 395,461 Shares) ................................ $9.70
=====
<PAGE>
--------------------------------------------------------------------------------
Components of Net Assets at June 30, 2000:
Shares of beneficial interest
(unlimited authorization - no par) ........................... $129,814,006
Accumulated net realized loss on investments ................... (16,179,269)
Net unrealized appreciation of investments ..................... 6,436,445
------------
Total net assets ............................................... $120,071,182
============
Net Asset Value and Offering Price per Share -
Delaware Technology and Innovation Fund
Net asset value A Class (A) .................................... $9.70
Sales charge (5.75% of offering price or 6.08%
of the amount invested per share) (B) ........................ 0.59
------
Offering price ................................................. $10.29
======
----------------------
* Non-income producing security for the period ended June 30, 2000.
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
9
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
For the Period December 29, 1999* through June 30, 2000 Delaware Technology and Innovation Fund
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividends ..................................................................................... $ 4,822
Interest ...................................................................................... 133,999 $ 138,821
-------- ------------
Expenses:
Management fees ............................................................................... 248,315
Distribution expense .......................................................................... 195,398
Dividend disbursing and transfer agent fees and expenses ...................................... 173,265
Registration fees ............................................................................. 35,036
Reports and statements to shareholders ........................................................ 29,423
Accounting and administration ................................................................. 13,309
Professional fees ............................................................................. 5,913
Custodian fees ................................................................................ 3,213
Trustees' fees ................................................................................ 1,062
Taxes (other than taxes on income) ............................................................ 109
Other ......................................................................................... 4,044 709,087
--------
Less expenses absorbed or waived .............................................................. (107,669)
Less expenses paid indirectly ................................................................. (2,209)
------------
Total expenses ................................................................................ 599,209
------------
Net Investment Loss ........................................................................... (460,388)
------------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments .............................................................. (16,179,269)
Net change in unrealized appreciation/depreciation of investments ............................. 6,436,445
------------
Net Realized and Unrealized Loss on Investments ............................................... (9,742,824)
------------
Net Decrease in Net Assets Resulting from Operations .......................................... $(10,203,212)
============
</TABLE>
-----------
*Date of commencement of operations.
See accompanying notes
10
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Delaware Technology and Innovation Fund
---------------------------------------------------------------------------------------------------
12/29/99*
to
6/30/00
<S> <C>
Increase (Decrease) in Net Assets from Operations:
Net investment loss ............................................................ $ (460,388)
Net realized loss on investments ............................................... (16,179,269)
Net change in unrealized appreciation/depreciation of investments .............. 6,436,445
------------
Net decrease in net assets resulting from operations ........................... (10,203,212)
------------
Capital Share Transactions:
Proceeds from shares sold:
A Class ...................................................................... 63,789,133
B Class ...................................................................... 52,965,132
C Class ...................................................................... 22,630,711
Institutional Class .......................................................... 15,512,297
------------
154,897,273
------------
Cost of shares repurchased:
A Class ...................................................................... (8,426,610)
B Class ...................................................................... (1,670,237)
C Class ...................................................................... (2,059,216)
Institutional Class .......................................................... (12,466,816)
------------
(24,622,879)
------------
Increase in net assets derived from capital share transactions ................. 130,274,394
------------
Net Increase in Net Assets ..................................................... 120,071,182
Net Assets:
Beginning of period ............................................................ --
------------
End of period .................................................................. $120,071,182
============
</TABLE>
-----------
*Date of commencement of operations.
See accompanying notes
11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Delaware Technology and Innovation Fund
Selected data for each share of the Fund outstanding Institutional
throughout each period was as follows: A Class B Class C Class Class
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/29/99(1) 12/29/99(1) 12/29/99(1) 12/29/99(1)
to to to to
6/30/00 6/30/00 6/30/00 6/30/00
Net asset value, beginning of period ............................ $ 8.500 $ 8.500 $ 8.500 $8.500
Income (loss) from investment operations:
Net investment loss(2) ........................................ (0.049) (0.082) (0.082) (0.037)
Net realized and unrealized gain on investments ............... 1.249 1.252 1.252 1.237
------- ------- ------- ------
Total from investment operations .............................. 1.200 1.170 1.170 1.200
------- ------- ------- ------
Net asset value, end of period .................................. $9.700 $9.670 $9.670 $9.700
------- ------- ------- ------
Total return(3) ................................................. 14.12% 13.88% 13.88% 14.12%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ....................... $50,548 $47,257 $18,431 $3,836
Ratio of expenses to average net assets(4) .................... 1.45% 2.20% 2.20% 1.20%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ...................... 1.78% 2.53% 2.53% 1.53%
Ratio of net investment loss to average net assets ............ (1.04%) (1.79%) (1.79%) (0.79%)
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly ........... (1.37%) (2.12%) (2.12%) (1.12%)
Portfolio turnover ............................................ 177% 177% 177% 177%
</TABLE>
-----------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average share outstanding method has been applied for per share
information.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
(4) Ratios for the period ended June 30, 2000 including fees paid indirectly in
accordance with Securities and Exchange Commission rules were 1.46%, 2.21%
and 2.21 and 1.21% for A Class, B Class, C Class, and Institutional Class,
respectively.
See accompanying notes
12
<PAGE>
Notes to Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
Delaware Group Equity Funds III (the "Company") is organized as a Delaware
Business Trust and offers five series: Delaware American Services Fund, Delaware
Large Cap Growth Fund, Delaware Research Fund, Delaware Technology and
Innovation Fund and Delaware Trend Fund. These financial statements and related
notes pertain to the Delaware Technology and Innovation Fund (the "Fund"). The
Delaware Technology and Innovation Fund is registered as a non-diversified
open-end investment company under The Investment Company Act of 1940, as
amended. The Fund offers four classes of shares. The A Class carries a maximum
front-end sales charge of 5.75%. The B Class carries a back-end deferred sales
charge. The C Class carries a level load deferred sales charge and the
Institutional Class has no sales charge.
The objective of the Fund is to seek long-term capital growth.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation - All equity securities are valued at the last quoted sales
price as of the close of the New York Stock Exchange (NYSE) on the valuation
date. If on a particular day an equity security does not trade, then the mean
between the bid and asked prices will be used. Money market instruments having
less than 60 days to maturity are valued at amortized cost, which approximates
market value. Other securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Fund's Board of Trustees.
Federal Income Taxes - The Fund intends to qualify as a regulated investment
company and make the requisite distributions to shareholders. Accordingly, no
provision for federal income taxes has been made in the financial statements.
Income and capital gain distributions are determined in accordance with federal
income tax regulations which may differ from accounting principles generally
accepted in the United States.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
<PAGE>
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. The Fund declares and pays dividends from net
investment income and capital gains, if any, annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $769 for the period ended June 30, 2000. In
addition, the Fund receives earnings credits from its custodian when positive
balances are maintained, which are used to offset custody fees. These credits
were $1,440 for the period ended June 30, 2000. The expenses paid under the
above arrangements are included in their respective expense captions on the
Statement of Operations with the corresponding expense offset shown as "Expenses
paid indirectly".
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 which is calculated at the rate of 0.75% on the first $500 million of
average daily net assets, 0.70% on the next $500 million, 0.65% on the next $1.5
billion and 0.60% on average daily net assets in excess of $2.5 billion.
DMC has elected to waive that portion, if any, of the management fee and
reimburse the Fund to the extent that annual operating expenses, exclusive of
taxes, interest, distribution fees, brokerage commissions and extraordinary
expenses, exceed 1.20% of average daily net assets of the Fund through August
31, 2001.
At June 30, 2000, the Fund had a liability for investment management fees and
other expenses payable to DMC for $932.
The Fund has engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to provide dividend disbursing, transfer agent, accounting and
administration services. The Fund pays DSC a monthly fee based on the number of
shareholder accounts, shareholder transactions and average net assets, subject
to certain minimums. At June 30, 2000, the Fund had a liability for such fees
and other expenses payable to DSC for $41,823.
13
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
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 assets of the A Class and 1.00% of the average
daily net assets of the B and C Classes. The distribution fee for Class A shares
is currently limited to 0.25% of the average daily net assets of the A Class. At
June 30, 2000, the Fund had a liability for distribution fees and other expenses
payable to DDLP of $58,265.
For the period ended June 30, 2000, DDLP earned $156,364 for commissions on
sales of the Fund A Class shares.
Certain officers of DMC, DSC and DDLP are officers, trustees and/or employees of
the Fund. These officers, trustees and employees are paid no compensation by the
Fund.
3. Investments
During the period ended June 30, 2000, the Fund made purchases of $185,260,293
and sales of $56,888,021 of investment securities other than U.S. government
securities and temporary cash investments.
At June 30, 2000, the net unrealized appreciation for federal income tax
purposes was $3,341,411 of which $11,332,816 related to unrealized appreciation
of securities and $7,991,405 related to unrealized depreciation of securities.
At June 30, 2000, the aggregate cost of securities for federal income tax
purposes was $118,935,037.
<PAGE>
4. Capital Shares
Transactions in capital shares were as follows:
12/29/99*
to
6/30/00
Shares sold:
A Class ....................................................... 6,097,125
B Class ....................................................... 5,061,880
C Class ....................................................... 2,109,597
Institutional Class ........................................... 1,695,831
----------
14,964,433
----------
Shares repurchased:
A Class ....................................................... (883,707)
B Class ....................................................... (176,082)
C Class ....................................................... (204,194)
Institutional Class ........................................... (1,300,370)
----------
(2,564,353)
----------
Net increase .................................................... 12,400,080
==========
5. Lines of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participate in a $683,500,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each Fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one-third of their net assets under the agreement. No
amount was outstanding at June 30, 2000, or at any time during the period.
-----------
* Date of commencement of operations.
14
<PAGE>
Report of Independent Auditors
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Delaware Group Equity Funds III - Delaware Technology and Innovation Fund
We have audited the accompanying statement of net assets of Delaware Technology
and Innovation Fund (the "Fund") as of June 30, 2000, and the related statement
of operations, statement of changes in net assets, and financial highlights for
the period December 29, 1999 (commencement of operations) through June 30, 2000.
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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of June 30, 2000, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides 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 Technology and Innovation Fund at June 30, 2000, and the results of its
operations, the changes in its net assets and its financial highlights for the
period December 29, 1999 (commencement of operations) through June 30, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 4, 2000
15
<PAGE>
DELAWARE INVESTMENTS FAMILY OF FUNDS
====================================
More information on any fund offered by Delaware Investments can be found in
each fund's current prospectus. Prospectuses for all funds offered by Delaware
Investments are available from your financial adviser. Please read the
prospectus carefully before you invest or send money.
BUILDING BLOCKS
OF A DIVERSIFIED PORTFOLIO
AGGRESSIVE GROWTH EQUITY FUNDS
GROWTH EQUITY FUNDS
TAX-
TAXABLE EXEMPT INTERNATIONAL ASSET
MODERATE GROWTH BOND BOND AND GLOBAL ALLOCATION
EQUITY FUNDS FUNDS FUNDS FUNDS FUNDS
STABILITY OF PRINCIPAL
<TABLE>
<CAPTION>
<S> <C> <C>
[ ] Growth of Capital [ ] International and [ ] Tax-Exempt Income
o Technology and Innovation Global o National High-Yield
Fund o Emerging Markets Fund Municipal Bond Fund
o Select Growth Fund o New Pacific Fund o Tax-Free USA Fund
o Trend Fund o Overseas Equity Fund o Tax-Free Insured Fund
o Growth Opportunities Fund* o International Equity Fund o Tax-Free USA
o Small Cap Value Fund o Global Equity Fund Intermediate Fund
o U.S. Growth Fund o Global Bond Fund o State Tax-Free Funds**
o Tax-Efficient Equity Fund
o Social Awareness Fund [ ] Current Income [ ] Stability of Principal
o Delchester Fund o Cash Reserve
[ ] Total Return o High-Yield o Tax-Free Money Fund
o Blue Chip Fund Opportunities Fund
o Devon Fund o Strategic Income Fund [ ] Asset Allocation
o Growth and Income Fund o Corporate Bond Fund o Foundation Funds
o Decatur o Extended Duration Growth Portfolio
o REIT Fund Bond Fund Balanced Portfolio
o Balanced Fund o American Government Income Portfolio
Bond Fund
o U.S. Government
Securities Fund
o Limited-Term
Government Fund
</TABLE>
* Formerly known as DelCap Fund.
** Available for the following states: Arizona, California, Colorado, Florida,
Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, North Dakota, New Jersey,
New Mexico, New York, Oregon, Pennsylvania and Wisconsin. Insured and
intermediate bond funds are available in selected states.
(C)Delaware Distributors, L.P.
<PAGE>
DELAWARE(SM)
INVESTMENTS
=====================
Philadelphia o London
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawareinvestments.com
This annual report is for the information of Delaware Technology and Innovation
Fund shareholders, but it may be used with prospective investors when preceded
or accompanied by a current Prospectus for Delaware Technology and Innovation
Fund and the Delaware Investments Performance Update for the most recently
completed calendar quarter. The prospectus sets forth details about charges,
expenses, investment objectives and operating policies of the Fund. You should
read the prospectus carefully before you invest. The figures in this report
represent past results which are not a guarantee of future results. The return
and principal value of an investment in the Fund will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
BOARD OF TRUSTEES Charles E. Peck Investment Manager
Retired Delaware Management Company
Wayne A. Stork Fredericksburg, VA Philadelphia, PA
Chairman
Delaware Investments Family of Funds Janet L. Yeomans International Affiliate
Philadelphia, PA Vice President and Treasurer Delaware International Advisers Ltd.
3M Corporation London, England
Walter P. Babich St. Paul, MN
Board Chairman National Distributor
Citadel Constructors, Inc. AFFILIATED OFFICERS Delaware Distributors, L.P.
King of Prussia, PA Philadelphia, PA
Charles E. Haldeman, Jr.
David K. Downes President and Chief Executive Officer Shareholder Servicing, Dividend
President and Chief Executive Officer Delaware Management Holdings, Inc. Disbursing and Transfer Agent
Delaware Investments Family of Funds Philadelphia, PA Delaware Service Company, Inc.
Philadelphia, PA Philadelphia, PA
Richard J. Flannery
John H. Durham Executive Vice President 1818 Market Street
Private Investor and General Counsel Philadelphia, PA 19103-3682
Horsham, PA Delaware Investments Family of Funds
Philadelphia, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates Bruce D. Barton
New York, NY President and Chief Executive Officer
Delaware Distributors, L.P.
Ann R. Leven Philadelphia, PA
Former Treasurer, National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
</TABLE>
(3488) Printed in the USA
AR-492 [6/00] PPL 8/00 (J6144)
