<PAGE>
DELAWARE(SM)
INVESTMENTS
============
2000 Annual Shareholder Report
-----------------------------------
- Delaware American Services Fund
- Delaware Large Cap Growth Fund
- Delaware Research Fund
August 14, 2000
Dear Shareholder:
Recap of Events - At the start of the Funds' fiscal period in December 1999,
conditions in the American economy seemed nearly ideal. As we entered the year
2000, Americans seemed to be spending freely, unemployment was at a near record
low and the major stock market indexes reached record levels. For much of the
first quarter of 2000, stocks in technology and Internet-related companies
soared as investors focused on fast-growing dot-coms. Meanwhile, investments in
many other market sectors, particularly those stocks with a value nature,
floundered as a result of the technology craze.
On March 10, 2000, however, the investment environment began to change. The
euphoria that had dominated the stock market began to dissipate, causing the
market to experience near- record volatility. Rising interest rates and
uncertainty as to whether the valuations of technology stocks were sustainable
appeared to have triggered a sell-off in the technology sector. This, in turn,
led to a broadening of the market, as investors seemed to recognize the value in
so-called "old economy" stocks. However, this emphasis on "old economy" stocks
was short-lived. In April and May, market turbulence continued as investors
rotated in and out of various market sectors, while no single sector maintained
leadership for very long.
In mid-May of 2000, the U.S. economy began showing signs that it may finally be
slowing down and stock market volatility appeared restrained. We believe that
the recent market correction was necessary because it brought the average
technology stock much closer to what we believe is its fair value.
Delaware American Services Fund, which seeks to provide long-term capital
growth, performed very well since its inception on December 29, 1999. The Fund
delivered a strong +24.00% return (Class A shares at net asset value with
distributions reinvested) for period ended June 30, 2000. The Fund's performance
significantly outpaced both its benchmark - the Standard and Poor's 500 Index,
which returned -0.42% - and its Lipper peer group, the Lipper Sector/
Miscellaneous Funds Average, which posted a -2.43% return for the period
according to Lipper.
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The Fund invests primarily in stocks of U.S. companies in the financial
services, business services, and consumer services sectors. Depending on our
evaluation of market conditions and investment opportunities, the Fund may focus
more or less on any of these sectors. The Fund may also invest in securities of
companies in other service sectors.
The Fund employs a bottom-up stock selection approach to find companies we
believe to be the leading companies in each of these sectors. We evaluate a
stock's characteristics as well as the individual company's management
capabilities and financial strength. The Fund invests in companies of any size
or market capitalization, including stocks of emerging or other growth-oriented
companies.
The Fund's performance has benefited tremendously from our holdings in the
banking, finance and insurance, and telecommunications sectors. We were able to
boost the Fund's profits by selling attractive stocks within these sectors
before the market experienced severe volatility and a downturn, which began in
mid-March of 2000. The stocks we sold which led the portfolio to its solid
return include genomic database company Incyte Pharmaceutical and wireless
telecommunications leader VoiceStream. The Fund's performance was also enhanced
by core holdings of high quality service companies, such as financial powerhouse
Merrill Lynch. We believe our exposure across a wide variety of services sectors
provides the Fund with diversification and stability.
Holdings in the computer and technology sector detracted from the Fund's
performance. This includes S1 Corporation, a company that develops Internet
banking software, and Radware, a software provider that enhances the performance
of Internet services, content and applications. We believe these holdings
provided poor returns because we held them in the portfolio during the
technology slump, which hit in March and April, when many investors sold their
more speculative stocks.
Delaware Large Cap Growth Fund has had a strong performance since its inception
on December 29, 1999 and posted a +22.94% return (Class A shares at net asset
value with distributions reinvested) for the period ended June 30, 2000. The
Fund substantially outperformed both its benchmark - the Standard and Poor's 500
Index, which returned -0.42% - and its Lipper peer group, the Lipper Large-Cap
Growth Funds Average, which posted a +2.90% return for the period according to
Lipper.
The Fund seeks to provide long-term capital growth by investing primarily in
common stocks of companies that we believe have the potential for high earnings
growth. Similar to Delaware American Services Fund, we select stocks through a
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bottom-up research approach. However, we also focus on a company's historic or
projected earnings growth rate, price-to-earnings ratio and cash flows. Once we
identify companies with the desired characteristics, we evaluate the company's
management, its strength within its industry and various financial and economic
factors.
Our holdings in stable companies with consistent high earnings in the computer
and technology, and electronics and electrical equipment sectors are largely
responsible for boosting the Fund's performance. When selecting technology
stocks, we generally avoided the more expensive Internet retail companies and
focused on companies that support the Internet's infrastructure or "plumbing."
Such companies include Oracle, a producer of powerful Internet software, and
Intel, a manufacturer of processing chips for computers and network servers.
Both holdings provided the Fund with returns greater than 40% due to their
strong competitive position and high-earnings expectations (Source: Bloomberg).
Our holdings in Qualcomm, a developer and manufacturer of digital wireless
communications, were the Fund's poorest performer, as questions arose about the
company's ability to maintain its previous growth rate. Consequently, we decided
to sell our holdings in Qualcomm in early June.
Delaware Research Fund, which seeks to provide long-term capital growth, did not
benefit from the recent market rebound to the same extent as the other Funds
covered in this report. The Fund returned -2.82% (Class A shares at net asset
value with distributions reinvested) since its inception on December 29, 1999
through June 30, 2000. Unfortunately, the Fund underperformed both its benchmark
-- the Russell 3000 Index, which returned +0.95% - and its Lipper peer group,
the Lipper Multi-Cap Core Funds Average, which posted a +2.52% return for the
period, according to Lipper.
The Fund invests primarily in equity securities, without any limit on the size
of the companies issuing them. Generally, the Fund will hold only 20 to 30
different stocks. The Fund is less diversified than other funds, but is designed
to capitalize on what we believe are the best stock opportunities.
Delaware Research Fund selects holdings for its portfolio by reviewing the
preliminary research conducted by our investment teams working on behalf of
other funds in the Delaware Investments family.
3
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The Fund may purchase stocks that are held by another Delaware Investments
product. Once we determine the universe of stocks held by other funds, we rank
those stocks using quantitative models that measure each stock's value, growth
and risk characteristics. Among those stocks in the top 25 percent of the group,
we use the same bottom-up analysis applied to the other Funds mentioned in this
report and choose what we consider to be the stocks with the greatest potential
for long-term price appreciation. However, both value and growth stocks may be
included in the Fund's portfolio. We monitor the stocks held by other funds and
confer with the managers of other funds as needed. The Fund will sell a stock
and replace it with another if the stock is sold by all of the products holding
it or if the stock doesn't meet our criteria for some other reason.
The Fund's disappointing performance is largely attributed to poor stock
selection among the Fund's technology holdings. Specifically, Citrix Systems
stock performed poorly. In this case, Delaware Research Fund attempted to
capitalize on price weakness in attractively valued candidates, buying the stock
after the significant stock market correction. However, although this strategy
has been successful for us with other stocks, Citrix Systems continued to
underperform. Fundamental developments caused us to change our view of Citrix
Systems and we decided to sell the stock in May 2000.
Among holdings that performed well, General Motors was noteworthy during most of
the Fund's fiscal period. We eliminated our position in May, however, when we
believed the stock became fairly valued as the company began to distribute a
large portion of its interest in General Motors-Hughes.
Recent additions to the portfolio include Anheuser Busch Co. and Coastal
Corporation. Anheuser Busch Co. is generating good earnings as beer demand
recovers and the firm's market share improves. We believe Coastal Corporation
has a strong natural gas pipeline division to complement its exploration and
production business. In this environment of rising natural gas prices, Coastal
Corporation is positioned to continue to deliver strong earnings growth. In
addition, Coastal Corporation has agreed to acquire El Paso Energy, another
attractive integrated gas company. As the acquisition nears completion, we
expect to see the valuation gap between Coastal Corporation and El Paso Energy
close in favor of Coastal Corporation shareholders.
Market Outlook - Although we experienced severe volatility at the start of 2000,
we believe the economy is slowing down to a sustainable rate of growth. We view
the equity market's recent downturn as a normal correction after a period of
very dramatic gains. While we expect to see continued volatility as the Fed
strives to slow U.S. economic growth, we believe the market will perform
4
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reasonably well overall for the remainder of 2000. Business conditions continue
to be robust and the U.S. economy is still very strong. In our opinion, Delaware
American Services Fund, Delaware Large Cap Growth Fund and Delaware Research
Fund are all positioned to benefit from this slow, but steady growth
environment.
We want to thank you for your continued confidence in Delaware Investments.
Sincerely,
/s/ Wayne A. Stork /s/ David K. Downes
Wayne A. Stork David K. Downes
Chairman, President and Chief Executive Officer,
Delaware Investments Family of Funds Delaware Investments Family of Funds
This annual report is for the information of Delaware American Services Fund,
Delaware Large Cap Growth Fund and Delaware Research Fund shareholders. The
current prospectuses for the Funds set forth details about charges, expenses,
investment objectives and operating policies of the Funds. You should read the
prospectuses carefully before you invest or send money. Summary investment
results are documented in the Funds' current Statements of Additional
Information.
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Fund Performance Summary*
Average Annual Total Return
For period ended June 30, 2000
Lifetime
Delaware American Services Fund Class A (Est. 12/29/99)
Excluding Sales Charge +24.00%
Including Sales Charge +16.85%
Delaware American Services Fund Institutional Class +24.00%
Lipper Sector/ Miscellaneous Funds Average -2.43%
Standard and Poor's 500 Index -0.42%
Delaware Large Cap Growth Fund Class A (Est. 12/29/99)
Excluding Sales Charge +22.94%
Including Sales Charge +15.85%
Delaware Large Cap Growth Fund Institutional Class +22.94%
Lipper Large Cap Growth Funds Average +2.90%
Standard and Poor's 500 Index -0.42%
Delaware Research Fund Class A (Est. 12/29/99)
Excluding Sales Charge -2.82%
Including Sales Charge -8.43%
Delaware Research Fund Institutional Class -2.82%
Lipper Multi-Cap Core Funds Average +2.52%
Russell 3000 Index +0.95%
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. The Lipper
category represents the average returns of specific mutual funds tracked by
Lipper (Source: Lipper). The Standard & Poor's 500 Index is an unmanaged
composite of mostly large-capitalization U.S. companies. The Russell 3000 Index
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization, which represents approximately 98% of the investable U.S.
equity market. You cannot invest directly in an index. Past performance does not
guarantee 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 American
Services Fund, Delaware Large Cap Growth Fund and Delaware Research Fund during
the period. Performance would have been lower if the expense limitation was not
in effect.
The Institutional Class for Delaware American Services Fund, Delaware Large Cap
Growth Fund and Delaware Research Fund (Est. December 29, 1999) is available
without sales or asset-based distribution charges only to certain eligible
institutional accounts.
*Please see the following pages for line graphs on each Fund's performance since
inception.
6
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Delaware American Services Fund
Fund Objective
The Fund seeks to provide long-term capital growth.
Total Fund Assets
$3.25 million
Number of Holdings
37
Fund Start Date
December 29, 1999
Your Fund Managers
John A. Heffern earned bachelor's and MBA degrees at the University of North
Carolina at Chapel Hill. Mr. Heffern joined Delaware Investments in 1997. He
previously was a Senior Vice President, Equity Research at NatWest Securities
Corporation's Specialty Financial Services unit. Before that, he was a Principal
and Senior Regional Bank Analyst at Alex, Brown & Sons. Mr. Heffern has been
managing Delaware American Services Fund since its inception.
Stephen T. Lampe received a bachelor's degree in Economics and an MBA degree
with a concentration in Finance from the University of Pennsylvania's Wharton
School. He joined Delaware Investments in 1995 and covers the financial services
and business services sectors for small and mid-capitalization growth stocks. He
previously served as a tax/audit manager at Price Waterhouse, specializing in
financial services firms. Mr. Lampe is a Certified Public Accountant and has
been managing Delaware American Services Fund since its inception.
Nasdaq Symbols
Class A: DASAX
Institutional Class: DASIX
7
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Delaware American Services Fund Performance
Growth of a $10,000 Investment
December 29, 1999 Through June 30, 2000
Delaware American Services Standard & Poor's
Fund Class A: $11,685 500 Index: $9,958
-------------------------- -----------------
Dec-99 $ 9,424 $10,000
Jan-00 $ 9,878 $ 9,498
Feb-00 $13,193 $ 9,318
Mar-00 $12,860 $10,229
Apr-00 $11,208 $ 9,922
May-00 $10,832 $ 9,718
Jun-00 $11,685 $ 9,958
The chart above assumes $10,000 invested on December 29, 1999 and includes the
effects of a 5.75% front-end sales charge and reinvestment of all dividends and
capital gains. The chart also assumes $10,000 invested in the Standard & Poor's
500 Index at the closest month's end, December 31, 1999. After December 29,
1999, returns plotted were as of the last day of each successive month. Sales
charges and expenses were waived during the period represented on the chart.
Performance of other Fund classes will vary due to differing charges and
expenses. Past performance does not guarantee future results. The Standard &
Poor's 500 Index returns reflect the reinvestment of dividends on securities in
the index. You can not invest directly in an index.
8
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Delaware Large Cap Growth Fund
Fund Objective
The Fund seeks to provide long-term capital growth.
Total Fund Assets
$2.50 million
Number of Holdings
27
Fund Start Date
December 29, 1999
Your Fund Manager
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: DLCAX
Institutional Class: DLCIX
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Delaware Large Cap Growth Fund Performance
Growth of a $10,000 Investment
December 29, 1999 Through June 30, 2000
Delaware Large Cap Growth Standard & Poor's
Fund Class A: $11,585 500 Index: $9,958
-------------------------- -----------------
Dec-99 $ 9,424 $10,000
Jan-00 $ 9,446 $ 9,498
Feb-00 $11,752 $ 9,318
Mar-00 $11,895 $10,229
Apr-00 $11,574 $ 9,922
May-00 $11,087 $ 9,718
Jun-00 $11,585 $ 9,958
The chart above assumes $10,000 invested on December 29, 1999 and includes the
effects of a 5.75% front-end sales charge and reinvestment of all dividends and
capital gains. Chart also assumes $10,000 invested in the Standard & Poor's 500
Index at the closest month's end, December 31, 1999. After December 29, 1999,
returns plotted were as of the last day of each successive month. Sales charges
and expenses were waived during the period represented on the chart. Performance
of other Fund classes will vary due to differing charges and expenses. Past
performance does not guarantee future results. The Standard & Poor's 500 Index
returns reflect the reinvestment of dividends on securities in the index. You
can not invest directly in an index.
10
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Delaware Research Fund
Fund Objective
The Fund seeks to provide long-term capital growth.
Total Fund Assets
$5.82 million
Number of Holdings
21
Fund Start Date
December 29, 1999
Your Fund Managers
J. Paul Dokas holds a BBA in Business from Loyola College and an MBA in Business
from the University of Maryland. Prior to joining Delaware in 1997, Mr. Dokas
was a Director of Trust Investments for Bell Atlantic Corporation in
Philadelphia. Mr. Dokas has been managing Delaware Research Fund since its
inception.
Timothy G. Connors earned a bachelor's degree at the University of Virginia and
a MBA in Finance at Tulane University. He joined Delaware Investments in 1997
after serving as a Principal at Miller, Anderson & Sherrerd, where he managed
equity accounts, conducted sector analysis and directed research. He previously
held positions at CoreStates Investment Advisers and Fauquier National Bank. Mr.
Connors is a Chartered Financial Analyst and a member of the Association for
Investment Management and Research. He has been managing Delaware Research Fund
since its inception.
Nasdaq Symbols
Class A: DREAX
Institutional Class: DREIX
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Delaware Research Fund Performance
Growth of a $10,000 Investment
December 29, 1999 Through June 30, 2000
Delaware Research Fund Russell 3000
Class A: $9,157 Index: $10,095
-------------------------- -----------------
Dec-99 $ 9,424 $10,000
Jan-00 $ 9,446 $ 9,608
Feb-00 $ 9,756 $ 9,697
Mar-00 $10,477 $10,457
Apr-00 $ 9,612 $10,089
May-00 $ 9,069 $ 9,805
Jun-00 $ 9,157 $10,095
The chart above assumes $10,000 invested on December 29, 1999 and includes the
effects of a 5.75% front-end sales charge and reinvestment of all dividends and
capital gains. Chart also assumes $10,000 invested in the Russell 3000 Index at
the closest month's end, December 31, 1999. After December 29, 1999, returns
plotted were as of the last day of each successive month. Sales charges and
expenses were waived during the period represented on the chart. Performance of
other Fund classes will vary due to differing charges and expenses. Past
performance does not guarantee future results. The Russell 3000 Index returns
reflect the reinvestment of dividends on securities in the index. You can not
invest directly in an index.
12
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DELAWARE AMERICAN SERVICES FUND
STATEMENT OF NET ASSETS
June 30, 2000
Number Market
of Shares Value
--------- --------
Common Stock - 98.84%
Banking, Finance & Insurance - 22.41%
American Express 2,100 $109,463
Capital One Financial 3,000 133,875
*CompuCredit 3,500 105,000
Lehman Brothers Holdings 1,000 94,563
Mellon Financial 2,000 72,875
Merrill Lynch & Company 900 103,500
Paine Webber Group 900 40,950
Zions 1,500 68,836
--------
729,062
--------
Cable, Media & Publishing - 10.74%
*AT&T - Liberty Media Class A 4,800 116,400
*Comcast - Class A 2,200 89,100
True North Communications 1,250 55,000
*Viacom - Class A 1,300 88,888
--------
349,388
--------
Computers & Technology - 23.46%
*America Online 1,800 94,950
Automatic Data Processing 2,500 133,906
*CGS Systems International 1,900 106,519
*Crossworlds Software 4,000 72,500
*Cysive 1,600 38,200
*DST Systems 500 38,063
First Data 2,000 99,250
*Mobility Electronics 3,100 40,300
*S1 Corporation 2,000 46,625
*SunGard Data Systems 3,000 93,000
--------
763,313
--------
Consumer Products - 4.72%
*Gemstar International Group Limited 2,500 153,633
--------
153,633
--------
Electronics & Electrical Equipment - 2.27%
Tektronix 1,000 74,000
--------
74,000
--------
Energy - 5.88%
Halliburton 2,000 94,375
Schlumberger 1,300 97,013
--------
191,388
--------
Leisure, Lodging & Entertainment - 3.15%
*Six Flags 4,500 102,375
--------
102,375
--------
Miscellaneous - 5.51%
*Mettler-Toledo International 2,000 80,000
PerkinElmer 1,500 99,188
--------
179,188
--------
Retail - 2.50%
*Safeway 1,800 81,225
--------
81,225
--------
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DELAWARE AMERICAN SERVICES FUND
STATEMENT OF NET ASSETS (Continued)
Number Market
of Shares Value
------------ ---------
Telecommunications - 15.77%
*Amdocs Limited 1,600 $ 122,800
*American Tower - Class A 3,000 125,059
*GT Group Telecom - Class B 4,000 63,250
*McLeod - Class A 3,200 66,200
SBC Communications 1,800 77,850
*Time Warner Telecommunications - Class A 900 57,938
---------
513,097
---------
Utilities - 2.43%
Duke Energy 1,400 78,925
---------
78,925
---------
Total Common Stock (cost $3,087,190) 3,215,594
---------
Principal
Amount
---------
REPURCHASE AGREEMENTS - 3.57%
With J.P. Morgan Securities 6.40% 7/3/00
(dated 6/30/00, collateralized by $23,000
U.S. Treasury Notes 5.875% due 11/15/04,
market value $23,285 and $15,000 U.S.
Treasury Notes 7.875% due 11/15/04, market
value $16,156) $38,600 38,600
With PaineWebber 6.50% 7/3/00
(dated 6/30/00, collateralized by $9,000
U.S. Treasury Notes 5.25% due 5/31/01,
market value $9,323 and $11,000 U.S.
Treasury Notes 6.125% due 12/31/01, market
value $10,503 and $7,000 U.S. Treasury
Notes 6.25% due 10/31/01, market value
$7,461 and $12,000 U.S. Treasury
Notes 7.25% due 5/15/04, market
value $12,203) 38,700 38,700
With Prudential Securities 6.50% 7/3/00
(dated 6/30/00, collateralized by $11,000
U.S. Treasury Notes 4.50% due 9/30/00,
market value $10,633 and $3,000 U.S.
Treasury Notes 4.625% due 11/30/00, market
value $2,999 and $12,000 U.S. Treasury
Notes 11.875% due 11/15/03, market value
$13,828 and $11,000 U.S. Treasury
Notes 15.75% due 11/15/01, market
value $12,025) 38,700 38,700
----------
Total Repurchase Agreements
(cost $116,000) 116,000
----------
Total Market Value of Securities - 102.41% 3,331,594
(cost $3,203,190)
Liabilities Net of Receivables and Other Assets
- (2.41%)** (78,374)
Net Assets Applicable to 308,740 ----------
Shares Outstanding - 100.00% $3,253,220
==========
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DELAWARE AMERICAN SERVICES FUND
STATEMENT OF NET ASSETS (Continued)
Net Asset Value - Delaware American Services
Fund A Class ($773,869 / 73,445 Shares) $ 10.54
----------
Net Asset Value - Delaware American Services
Fund Institutional Class ($2,479,351 / 235,295 Shares) $ 10.54
----------
* Non-income producing security for the period ended June 30, 2000.
** Of this amount, $192,359 represents payable for security purchased at
June 30, 2000.
------------------------------------------------------------------------
Components of Net Assets at June 30, 2000:
Shares of beneficial interest (unlimited authorization - no par) $2,831,238
Undistributed net investment income 2,894
Accumulated net realized gain on investments 290,684
Net unrealized appreciation of investments 128,404
----------
Total net assets $3,253,220
==========
Net Asset Value and Offering Price Per Share -
Delaware American Services Fund
Net asset value A Class (A) $ 10.54
Sales charge (5.75% of offering price or 6.07% of
amount invested per share) (B) 0.64
----------
Offering price $ 11.18
==========
--------------------------------------------------------------------------------
(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
15
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DELAWARE LARGE CAP GROWTH FUND
STATEMENT OF NET ASSETS
JUNE 30, 2000
Number Market
of Shares Value
--------- ---------
Common Stock - 60.48%
Banking, Finance & Insurance - 5.27%
American Express 900 $ 46,913
Goldman Sachs Group 300 28,463
Merrill Lynch & Company 200 23,000
Morgan Stanley Dean Witter 400 33,300
---------
131,676
---------
Cable, Media & Publishing - 8.88%
*Clear Channel Communications 1,500 112,500
*Infinity Broadcasting - Class A 1,200 43,725
Omnicom Group 300 26,719
Walt Disney 1,000 38,812
---------
221,756
---------
Computers & Technology - 20.12%
*America Online 2,000 105,500
Automatic Data Processing 500 26,781
*Cisco Systems 1,000 63,563
Computer Associates International 1,500 76,781
*Dell Computer 1,000 49,313
First Data 900 44,663
Hewlett-Packard 300 37,463
*Mobility Electronics 2,400 31,200
*Oracle 800 67,250
---------
502,514
---------
Electronics & Electrical Equipment - 18.46%
*Agilent Technologies 114 8,408
General Electric 1,800 95,400
Intel 1,000 133,687
*JDS Uniphase 700 83,912
*PMC - Sierra 400 71,075
Texas Instruments 1,000 68,687
---------
461,169
---------
Energy - 1.79%
Schlumberger 600 44,774
---------
44,774
---------
Healthcare & Pharmaceuticals - 2.75%
*Genentech 400 68,800
---------
68,800
---------
Retail - 1.01%
*Best Buy 400 25,300
---------
25,300
---------
Telecommunications - 2.20%
*Worldcom 1,200 55,050
---------
55,050
---------
Total Common Stock (cost $1,396,364) 1,511,039
---------
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DELAWARE LARGE CAP GROWTH FUND
STATEMENT OF NET ASSETS (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Value
--------- ----------
<S> <C> <C>
REPURCHASE AGREEMENTS - 45.39%
With J.P. Morgan Securities 6.40% 7/3/00
(dated 6/30/00, collateralized by $229,000
U.S. Treasury Notes 5.875% due 11/15/04,
market value $227,634 and $148,000 U.S.
Treasury Notes 7.875% due11/15/04, $378,000 $ 378,000
market value $157,942)
With PaineWebber 6.50% 7/3/00
(dated 6/30/00, collateralized by $92,000
U.S. Treasury Notes 5.25% due 5/31/01,
market value $91,143 and $103,000 U.S.
Treasury Notes 6.125% due 12/31/01,
market value $102,679 and $72,000 U.S.
Treasury Notes 6.25% due 10/31/01, market
value $72,933 and $115,000 U.S. Treasury 378,000 378,000
Notes 7.25% due 5/15/04, market value $119,291)
With Prudential Securities 6.50% 7/3/00
(dated 6/30/00, collateralized by $103,000
U.S. Treasury Notes 4.50% due 9/30/00,
market value $103,948 and $29,000 U.S.
Treasury Notes 4.625% due 11/30/00, market
value $29,314 and $115,000 U.S. Treasury Notes
11.875% 11/15/03, market value $135,182 and
$103,000 U.S. Treasury Notes 15.75% due 378,000 378,000
----------
11/15/01, market value $117,555)
Total Repurchase Agreements
(cost $1,134,000) 1,134,000
----------
Total Market Value of Securities - 105.87%
(cost $2,530,364) 2,645,039
Liabilities Net of Receivables and Other Assets - (5.87%)** (146,803)
----------
Net Assets Applicable to 239,148 Shares
Outstanding - 100.00% $2,498,236
==========
Net Asset Value - Delaware Large Cap Growth Fund A Class
($40,244 / 3,852 Shares) $ 10.45
----------
Net Asset Value - Delaware Large Cap Growth Fund Institutional Class
($2,457,992 / 235,296 Shares) $ 10.45
----------
Components of Net Assets at June 30, 2000:
Shares of beneficial interest (unlimited authorization - no par) $2,036,650
Undistributed net investment income 29,979
Accumulated net realized gain on investments 316,932
Net unrealized appreciation of investments 114,675
----------
Total net assets $2,498,236
==========
</TABLE>
* Non-income producing security for the period ended June 30, 2000.
** Of this amount, $139,806 represents payable for security purchased at
June 30, 2000.
-------------------------------------------------------------------------
17
<PAGE>
DELAWARE LARGE CAP GROWTH FUND
STATEMENT OF NET ASSETS (Continued)
Net Asset Value and Offering Price Per Share -
Delaware Large Cap Growth Fund
Net asset value A Class (A) $10.45
Sales charge (5.75% of offering price or 6.12% of the amount
invested per share) (B) 0.64
-------
Offering price $11.09
=======
--------------------------------------------------------------------------------
(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
18
<PAGE>
DELAWARE RESEARCH FUND
STATEMENT OF NET ASSETS
JUNE 30, 2000
Number Market
of Shares Value
--------- --------
Common Stock - 100.27%
Banking, Finance & Insurance - 14.76%
Chase Manhattan 6,400 $ 294,800
Citigroup 4,400 265,100
Merrill Lynch & Company 2,600 299,000
----------
858,900
----------
Cable, Media & Publishing - 9.82%
*AT&T Liberty Media - Class A 12,900 312,825
Time Warner 3,400 258,400
----------
571,225
----------
Computers & Technology - 4.40%
Computer Associates International 5,000 255,938
----------
255,938
----------
Consumer Products - 4.82%
Minnesota Mining & Manufacturing 3,400 280,500
----------
280,500
----------
Electronics & Electrical Equipment - 8.66%
Symbol Technologies 4,500 243,000
Texas Instruments 3,800 261,013
----------
504,013
----------
Energy - 9.50%
Coastal 4,700 286,113
Exxon Mobil 3,400 266,900
----------
553,013
----------
Food, Beverage & Tobacco - 4.88%
Anheuser Busch 3,800 283,813
----------
283,813
----------
Healthcare & Pharmaceuticals - 10.77%
Bristol-Myers Squibb 5,400 314,550
Pfizer 6,500 312,000
----------
626,550
----------
Industrial Machinery - 4.57%
Ingersoll-Rand 6,600 265,650
----------
265,650
----------
Metals & Mining - 4.39%
Alcoa 8,800 255,200
----------
255,200
----------
Telecommunications - 23.70%
GTE 4,300 267,675
Lucent Technologies 4,800 284,400
*Nextel Communications 4,400 269,225
Nortel Networks 4,400 300,300
*Qualcom 4,300 258,000
----------
1,379,600
----------
Total Common Stock (cost $5,932,241) 5,834,402
----------
19
<PAGE>
DELAWARE RESEARCH FUND
STATEMENT OF NET ASSETS (Continued)
Principal Market
Amount Value
--------- -----------
Repurchase Agreements - 0.03%
With J.P. Morgan Securities 6.40% 7/3/00
(dated 6/30/00, collateralized by $400
U.S. Treasury Notes 5.875% due 11/15/04,
market value $401 and $260 U.S. Treasury
Notes 7.875% due 11/15/04, market
value $279) $660 $ 660
With PaineWebber 6.50% 7/3/00
(dated 6/30/00, collateralized by $160
U.S. Treasury Notes 5.25% due 5/31/01,
market value $161 and $180 U.S.
Treasury Notes 6.125% due 12/31/01,
market value $181 and $130 U.S.
Treasury Notes 6.25% due 10/31/01,
market value $129 and $200 U.S.
Treasury Notes 7.25% due 5/15/04,
market value $210) 660 660
With Prudential Securities 6.50% 7/3/00
(dated 6/30/00, collateralized by $180
U.S. Treasury Notes 4.50% due 9/30/00,
market value $183 and $50 U.S.
Treasury Notes 4.625% due 11/30/00,
market value $52 and $200 U.S. Treasury
Treasury Notes 11.875% due 11/15/03,
market value $238 and $180 U.S. Treasury
Notes 15.75% due 11/15/01, market
value $207) 680 680
----------
Total Repurchase Agreements
(cost $2,000) 2,000
----------
Total Market Value of Securities - 100.30%
(cost $5,934,241) 5,836,402
Liabilities Net of Receivables and Other Assets - (0.30%) (17,513)
----------
Net Assets Applicable to 704,852 Shares Outstanding - 100.00% $5,818,889
==========
Net Asset Value - Delaware Research Fund A Class
($345,787 / 41,886 Shares) $ 8.26
----------
Net Asset Value - Delaware Research Fund Institutional Class
($5,473,102 / 662,966 Shares) $ 8.26
----------
Components of Net Assets at June 30, 2000:
Shares of beneficial interest (unlimited authorization - no par) $6,126,145
Undistributed net investment income 205,148
Accumulated net realized loss on investments (414,565)
Net unrealized depreciation of investments (97,839)
----------
Total net assets $5,818,889
==========
* Non-income producing security for the period ended June 30, 2000.
----------------------------------------------------------------------------
Net Asset Value and Offering Price Per Share -
Delaware Research Fund
Net asset value A Class (A) $ 8.26
Sales charge (5.75% of offering price or 6.05% of the amount
invested per share) (B) 0.50
----------
Offering price $ 8.76
==========
----------------------------------------------------------------------------
(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
20
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
Delaware Delaware
American Large Cap Delaware
Services Growth Research
December 29, 1999* to June 30, 2000 Fund Fund Fund
------------------------------------------------------- -------- --------- --------
Investment Income:
<S> <C> <C> <C>
Interest $ 9,888 $ 37,728 $ 3,566
Dividends 3,961 1,095 221,975
--------- --------- ---------
13,849 38,823 225,541
--------- --------- ---------
Expenses:
Management fees 11,189 7,665 27,463
Reports and statements to shareholders 369 907 1,398
Dividend disbursing and transfer agent fees and expenses 735 356 627
Distribution expense 622 33 412
Registration fees 215 909 1,012
Custodian fees 791 870 955
Accounting and administration 400 488 925
Professional fees 360 485 460
Trustees' fees 150 384 305
Taxes (other than taxes on income) 130 12 12
Other 8 315 341
--------- --------- ---------
14,969 12,424 33,910
Less expenses absorbed or waived (3,669) (2,889) (12,744)
Less expenses paid indirectly (345) (691) (773)
--------- --------- ---------
Total expenses 10,955 8,844 20,393
--------- --------- ---------
Net Investment Income 2,894 29,979 205,148
--------- --------- ---------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments 290,684 316,932 (414,565)
Net change in unrealized appreciation / depreciation
of investments 128,404 114,675 (97,839)
--------- --------- ---------
Net Realized and Unrealized Gain (Loss) on Investments 419,088 431,607 (512,404)
--------- --------- ---------
Net Increase (Decrease) in Net Assets Resulting from Operations $ 421,982 $ 461,586 $(307,256)
========= ========= =========
</TABLE>
---------------------
*Date of commencement of operations
See accompanying notes
21
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Delaware Delaware
American Large Cap Delaware
Services Growth Research
Fund Fund Fund
--------- --------- ---------
12/29/99* 12/29/99* 12/29/99*
to to to
6/30/00 6/30/00 6/30/00
Increase (Decrease) in Net Assets from Operations:
<S> <C> <C> <C>
Net investment income $ 2,894 $ 29,979 $ 205,148
Net realized gain (loss) on investments 290,684 316,932 (414,565)
Net change in unrealized appreciation/depreciation of investments 128,404 114,675 (97,839)
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations 421,982 461,586 (307,256)
---------- ---------- ----------
Capital Share Transactions:
Proceeds from shares sold:
A Class 988,685 37,133 365,802
Institutional Class 2,000,028 2,000,017 7,954,535
---------- ---------- ----------
2,988,713 2,037,150 8,320,337
---------- ---------- ----------
Cost of shares repurchased:
A Class (157,475) (500) (4,192)
Institutional Class - - (2,190,000)
---------- ---------- ----------
(157,475) (500) (2,194,192)
---------- ---------- ----------
Increase in net assets derived from capital share transactions 2,831,238 2,036,650 6,126,145
---------- ---------- ----------
Net Increase in Net Assets 3,253,220 2,498,236 5,818,889
Net Assets:
Beginning of period - - -
---------- ---------- ----------
End of period $3,253,220 $2,498,236 $5,818,889
========== ========== ==========
</TABLE>
--------------------------------------------
*Date of commencement of operations
See accompanying notes
22
<PAGE>
Financial Highlights
Selected data for each share of the Fund outstanding throughout each period was
as follows:
<TABLE>
<CAPTION>
Delaware American Services Fund
A Class
-------------------------------
12/29/99(1)
to
6/30/00
-----------
<S> <C>
Net asset value, beginning of period $8.500
Income from investment operations:
Net investment income(2) 0.010
Net realized and unrealized gain on investments 2.030
-------
Total from investment operations 2.040
-------
Net asset value, end of period $10.540
=======
Total return(3) 24.00%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $774
Ratio of expenses to average net assets(4) 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.22%
Ratio of net investment income to average net assets 0.20%
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly (0.27%)
Portfolio turnover 988%
</TABLE>
-----------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares 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 expenses paid indirectly
in accordance with Securities and Exchange Commissions rules were 0.77%, for
A Class.
See accompanying notes
23
<PAGE>
Financial Highlights (continued)
Selected data for each share of the Fund outstanding throughout each period was
as follows:
<TABLE>
<CAPTION>
Delaware American Services Fund
Institutional Class
-------------------------------
12/29/99(1)
to
6/30/00
-----------
<S> <C>
Net asset value, beginning of period $8.500
Income from investment operations:
Net investment income(2) 0.010
Net realized and unrealized gain on investments 2.030
-------
Total from investment operations 2.040
-------
Net asset value, end of period $10.540
=======
Total return(3) 24.00%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $2,479
Ratio of expenses to average net assets(4) 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 0.97%
Ratio of net investment income to average net assets 0.20%
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly (0.02%)
Portfolio turnover 988%
</TABLE>
-----------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares 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.
(4) Ratios for the period ended June 30, 2000 including expenses paid indirectly
in accordance with Securities and Exchange Commissions rules were 0.77%, for
Institutional Class.
See accompanying notes
24
<PAGE>
Financial Highlights (continued)
Selected data for each share of the Fund outstanding throughout each period was
as follows:
<TABLE>
<CAPTION>
Delaware Large Cap Growth Fund
A Class
------------------------------
12/29/99(1)
to
6/30/00
-----------
<S> <C>
Net asset value, beginning of period $8.500
Income from investment operations:
Net investment income(2) 0.127
Net realized and unrealized gain on investments 1.823
-------
Total from investment operations 1.950
-------
Net asset value, end of period $10.450
=======
Total return(3) 22.94%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $40
Ratio of expenses to average net assets(4) 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.30%
Ratio of net investment income to average net assets 2.54%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 1.99%
Portfolio turnover 304%
</TABLE>
-----------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares 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 expenses paid indirectly
in accordance with Securities and Exchange Commissions rules were 0.81%, for
A Class.
See accompanying notes
25
<PAGE>
Financial Highlights (continued)
Selected data for each share of the Fund outstanding throughout each period was
as follows:
<TABLE>
<CAPTION>
Delaware Large Cap Growth Fund
Institutional Class
-------------------------------
12/29/99(1)
to
6/30/00
-----------
<S> <C>
Net asset value, beginning of period $8.500
Income from investment operations:
Net investment income(2) 0.127
Net realized and unrealized gain on investments 1.823
-------
Total from investment operations 1.950
-------
Net asset value, end of period $10.450
=======
Total return(3) 22.94%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $2,458
Ratio of expenses to average net assets(4) 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.05%
Ratio of net investment income to average net assets 2.54%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 2.24%
Portfolio turnover 304%
</TABLE>
-----------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares 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.
(4) Ratios for the period ended June 30, 2000 including expenses paid indirectly
in accordance with Securities and Exchange Commissions rules were 0.81%, for
Institutional Class.
See accompanying notes
26
<PAGE>
Financial Highlights (continued)
Selected data for each share of the Fund outstanding throughout each period was
as follows:
<TABLE>
<CAPTION>
Delaware Research Fund
A Class
----------------------
12/29/99(1)
to
6/30/00
-----------
<S> <C>
Net asset value, beginning of period $8.500
Income (loss) from investment operations:
Net investment income(2,5) 0.329
Net realized and unrealized loss on investments (0.569)
------
Total from investment operations (0.240)
------
Net asset value, end of period $8.260
======
Total return(3) (2.82%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $346
Ratio of expenses to average net assets(4) 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.48%
Ratio of net investment income to average net assets(5) 7.46%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly(5) 6.73%
Portfolio turnover 435%
</TABLE>
-----------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares 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 expenses paid indirectly
in accordance with Securities and Exchange Commissions rules were 0.78%, for
A Class.
(5) During the fiscal period ended June 30, 2000, the Delaware Research Fund
received a non-cash dividend of approximately $0.31 per share as a result of
a corporate action of an investment held by the Fund. This is highly unusual
and not likely to be repeated. Absent this dividend, the ratio of net
investment income to average net asset and ratio of net investment income to
average net assets prior to expense limitation and expenses paid indirectly
would have been 0.42% and (0.31%), respectively.
See accompanying notes
27
<PAGE>
Financial Highlights (continued)
Selected data for each share of the Fund outstanding throughout each period was
as follows:
<TABLE>
<CAPTION>
Delaware Research Fund
Institutional Class
----------------------
12/29/99(1)
to
6/30/00
-----------
<S> <C>
Net asset value, beginning of period $8.500
Income (loss) from investment operations:
Net investment income(2,5) 0.329
Net realized and unrealized loss on investments (0.569)
------
Total from investment operations (0.240)
------
Net asset value, end of period $8.260
======
Total return(3) (2.82%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $5,473
Ratio of expenses to average net assets(4) 0.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.23%
Ratio of net investment income to average net assets(5) 7.46%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly(5) 6.98%
Portfolio turnover 435%
</TABLE>
-----------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares 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 expenses paid indirectly
in accordance with Securities and Exchange Commissions rules were 0.78%, for
Institutional Class.
(5) During the fiscal period ended June 30, 2000, the Delaware Research Fund
received a non-cash dividend of approximately $0.31 per share as a result of
a corporate action of an investment held by the Fund. This is highly unusual
and not likely to be repeated. Absent this dividend, the ratio of net
investment income to average net asset and ratio of net investment income to
average net assets prior to expense limitation and expenses paid indirectly
would have been 0.42% and (0.06%), respectively.
See accompanying notes
28
<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 American Services Fund, the Delaware Large Cap
Growth Fund and the Delaware Research Fund (each referred to as a "Fund" or
collectively as the "Funds"). The Delaware Large Cap Growth Fund is registered
as a diversified open-end investment company, and the Delaware American Services
Fund and Delaware Research Fund are registered as non-diversified open-end
investment companies, under the Investment Company Act of 1940, as amended. Each
Fund offers four classes of shares. The A Class carries a front-end sales charge
of 5.75%. The B Class carries a back-end deferred sales charge. The C Class
carries a level load deferred sales charge and the Institutional Class has no
sales charge. As of June 30, 2000, only the A and Institutional Classes had
commenced operations.
The Delaware American Services Fund seeks to provide long-term capital growth.
The Fund invests primarily in stocks of U.S. companies in the financial
services, business services, and consumer services sectors.
The Delaware Large Cap Growth Fund seeks to provide long-term capital growth.
The Fund invests primarily in common stocks of companies that have a high
potential for high earnings growth.
The Delaware Research Fund seeks to provide long-term capital growth. The Fund
invests primarily in equity securities, without any limit on size or
capitalization of the companies issuing them.
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
Funds.
Security Valuation- All equity securities 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 Funds' Board of Trustees.
Federal Income Taxes- Each Fund intends to qualify as a regulated investment
company and make the requisite distributions to shareholders. Accordingly, no
29
<PAGE>
Notes to Financial Statements (Continued)
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 each Fund on
the basis of daily net assets of each class. Distribution expenses relating to a
specific class are charged directly to that class.
Repurchase Agreements- Each Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by each
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is 102% collateralized. However, in the
event of default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
Use of Estimates- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other- Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. During the fiscal period ended June 30, 2000, the
Delaware Research Fund received a non-cash dividend of approximately $194,000 as
a result of a corporate action of an investment held by the Fund. The dividend
was recorded on the basis of the fair market value of the securities received on
the date of distribution. Each Fund declares and pays dividends from net
investment income and capital gains, if any, annually.
Certain expenses of the Funds are paid through commission arrangements with
brokers. These transactions are done subject to best execution. In addition, the
Funds receive earnings credits from their custodian when positive balances are
maintained, which are used to offset custody fees. The expenses paid under the
above arrangements are included in their respective expense captions on the
Statements of Operations with the corresponding expense offset shown as
"Expenses paid indirectly". The amount of these expenses and credits for the
period ended June 30, 2000 are as follows:
30
<PAGE>
Notes to Financial Statements (Continued)
Delaware Delaware
Delaware American Large Cap Research
Services Fund Growth Fund Fund
----------------- ----------- --------
Commission Reimbursements $34 $27 $63
Earnings Credits 311 664 710
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Funds
pay Delaware Management Company ("DMC"), the Investment Manager of the Funds, an
annual fee which is calculated on the daily net assets of each Fund as follows:
Delaware Delaware
Delaware American Large Cap Research
Services Fund Growth Fund Fund
----------------- ----------- --------
On the first $500 million 0.75% 0.65% 1.00%
On the next $500 million 0.70% 0.60% 0.95%
On the next $1.5 billion 0.65% 0.55% 0.90%
In excess of $2.5 billion 0.60% 0.50% 0.85%
DMC has elected to waive that portion, if any, of the management fee and
reimburse each Fund to the extent that annual operating expenses, exclusive of
taxes, interest, distribution fees, brokerage commissions and extraordinary
expenses, exceed 0.75% of average daily net assets of each Fund through August
31, 2001.
The Funds have engaged Delaware Service Company, Inc. ("DSC"), an affiliate of
DMC, to provide dividend disbursing, transfer agent, accounting and
administration services. Each 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 Funds had liabilities for such fees and other expenses
payable to DMC and affiliates as follows:
Delaware Delaware
Delaware American Large Cap Research
Services Fund Growth Fund Fund
----------------- ----------- --------
Investment management fee
Payable to DMC $8,141 $4,809 $15,131
Dividend disbursing, transfer
agent, Accounting fees and
other expenses 4,082 2,295 3,710
Payable to DSC
Other expenses payable to DMC
And affiliates 1,102 1,092 1,159
31
<PAGE>
Notes to Financial Statements (Continued)
Pursuant to the Distribution Agreement, each Fund pays Delaware Distributors,
L.P. ("DDLP"), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.25% of the average daily assets of the A Class and 1.00% of the average
daily net assets of the B and C Classes. DDLP had elected to waive the
distribution fees through February 28, 2001.
Certain officers of DMC, DSC and DDLP are officers, trustees and/or employees of
the Funds. These officers, trustees and employees are paid no compensation by
the Funds.
3. Investments
For the period ended June 30, 2000, the Funds made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments as follows:
Delaware Delaware
Delaware American Large Cap Research
Services Fund Growth Fund Fund
----------------- ----------- -----------
Purchases $15,187,627 $2,717,331 $17,500,103
Sales 12,391,121 1,637,899 11,346,984
At June 30, 2000, the aggregate cost of securities and unrealized appreciation
(depreciation) for federal income tax purposes for each Fund were as follows:
<TABLE>
<CAPTION>
Delaware Delaware
Delaware American Large Cap Research
Services Fund Growth Fund Fund
----------------- ----------- -----------
<S> <C> <C> <C>
Cost of investments $3,369,916 $2,547,491 $6,008,137
========== ========== ==========
Aggregate unrealized appreciation $219,400 $145,400 $282,521
Aggregate unrealized depreciation (257,722) (47,852) (454,256)
---------- ---------- ----------
Net unrealized appreciation (depreciation) ($38,322) $97,548 ($171,735)
========== ========== ==========
</TABLE>
32
<PAGE>
Notes to Financial Statements (Continued)
4. Capital Shares
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Delaware American Delaware Large Cap Delaware Research
Services Fund Growth Fund Fund
12/29/99* 12/29/99* 12/29/99*
to to to
6/30/00 6/30/00 6/30/00
----------------- ------------------ -----------------
<S> <C> <C> <C>
Shares sold:
A Class 87,567 3,899 42,391
Institutional Class 235,295 235,296 919,106
------- ------- -------
322,862 239,195 961,497
------- ------- -------
Shares repurchased:
A Class (14,122) (47) (505)
Institutional Class - - (256,140)
------- ------- -------
(14,122) (47) (256,645)
------- ------- -------
Net increase 308,740 239,148 704,852
======= ======= =======
</TABLE>
* Date of commencement of operations.
5. Lines of Credit
The Funds, 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. The
Funds had no amounts outstanding at June 30, 2000, or at any time during the
fiscal period.
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Report of Independent Auditors
To the Shareholders and Board of Trustees
Delaware Group Equity Funds III
We have audited the accompanying statements of net assets of Delaware Group
Equity Funds III (Delaware American Services Fund, Delaware Large Cap Growth
Fund, and Delaware Research Fund) (the "Funds") as of June 30, 2000, and the
related statements of operations, statements 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 Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of 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
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 each
of the above listed funds of Delaware Group Equity Funds III at June 30, 2000,
and the results of their operations, the changes in their net assets, and their
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.
Ernst & Young LLP
Philadelphia, Pennsylvania
August 4, 2000
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