TAX-EFFICIENT EQUITY FUND
A CLASS
B CLASS
C CLASS
The Delaware Group
includes funds with a wide
range of investment
objectives. Stock funds,
income funds, national and
state- specific tax-free
funds, money market funds,
global and international funds
and closed-end equity funds
give investors the ability to
create a portfolio that fits
their personal financial
goals. For more information,
contact your financial adviser
or call Delaware Group at 800-
523-4640.
INVESTMENT MANAGER
Delaware Management Company,
Inc.
One Commerce Square
Philadelphia, PA 19103
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103
LEGAL COUNSEL
Stradley, Ronon, Stevens &
Young, LLP
One Commerce Square
Philadelphia, PA 19103
INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103
CUSTODIAN
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
____________________
PROSPECTUS
____________________
June 26, 1997
DELAWARE
GROUP
TAX-EFFICIENT EQUITY FUND
PROSPECTUS
June 26, 1997
A CLASS SHARES
B CLASS SHARES
C CLASS SHARES
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance:
Nationwide 800-523-4640
Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2265
This Prospectus describes the Tax-Efficient Equity Fund
series (the "Fund") of Voyageur Mutual Funds III, Inc. ("Mutual
Funds III, Inc."), a professionally-managed mutual fund of the
series type. The Fund offers the Tax-Efficient Equity Fund A
Class, the Tax-Efficient Equity Fund B Class and the Tax-
Efficient Equity Fund C Class. Each class is referred to
individually as a "Class" and collectively as the "Classes" or
"Class A Shares," Class B Shares" or "Class C Shares."
The objective of the Fund is to obtain for taxable investors
a high total return on an after-tax basis. The Fund will attempt
to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner
that will defer the realization of accrued capital gains and
minimize dividend income.
This Prospectus sets forth information that you should read
and consider before you invest. Please retain it for future
reference. The Statement of Additional Information ("Part B") of
Mutual Funds III, Inc.'s registration statement dated February
19, 1997, as it may be amended from time to time, contains
additional information about the Fund and has been filed with the
Securities and Exchange Commission. Part B is incorporated by
reference into this Prospectus and is available, without charge,
by writing to Delaware Distributors, L.P. at the above address or
by calling the above telephone numbers.
TABLE OF CONTENTS
Cover Page How to Buy Shares
Synopsis Redemption and Exchange
Summary of Expenses Dividends and
Investment Objectives and Policies Distributions
Suitability Taxes
Investment Strategy Calculation of Offering
The Delaware Difference Price and Net Asset
Plans and Services Value Per Share
Retirement Planning Management of the Fund
Classes of Shares Other Investment
Policies and Special
Risk Considerations
Appendix A--Investment
Illustrations
Appendix B--Classes
Offered
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING
INVESTMENTS. MUTUAL FUNDS CAN BE A VALUABLE PART OF YOUR
FINANCIAL PLAN; HOWEVER, SHARES OF THE FUND ARE NOT FDIC OR
NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT
UNION, ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND
INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED. SHARES OF THE FUND ARE NOT BANK OR
CREDIT UNION DEPOSITS.
SYNOPSIS
Investment Objective
The investment objective of the Fund is to obtain for
taxable investors a high total return on an after-tax basis. The
Fund will attempt to achieve this objective by seeking to provide
a high long-term after-tax total return through managing its
portfolio in a manner that will defer the realization of accrued
capital gains and minimize dividend income.
Risk Factors and Special Considerations
As a mutual fund investing primarily in common stocks, the
Fund is subject to market risk, that is the possibility that
common stock prices will decline over short or even extended
periods.
The Fund has the ability to enter into options and futures
transactions. There are risks that result from the use of
options and futures and the investor should review the
description of these risks in this Prospectus. See Futures
Contracts and Options under Other Investment Policies and Risk
Considerations.
The Fund may invest up to 10% of its total assets directly
or indirectly in securities of issuers domiciled in foreign
countries. Such investments involve certain risk and opportunity
considerations not typically associated with investing in United
States companies. See Foreign Securities under Other Investment
Policies and Risk Considerations.
Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") furnishes
investment management services to the Fund, subject to the
supervision and direction of Mutual Funds III, Inc.'s Board of
Directors. The Manager also provides investment management
services to certain of the other funds in the Delaware Group.
Delaware Distributors, L.P. (the "Distributor") is the national
distributor for the Fund and for all of the other mutual funds in
the Delaware Group. Delaware Service Company, Inc. (the
"Transfer Agent") is the shareholder servicing, dividend
disbursing, accounting services and transfer agent for the Fund
and for all of the other mutual funds in the Delaware Group. See
Summary of Expenses and Management of the Fund for further
information regarding the Manager and the fees payable under the
new Fund's Investment Management Agreement.
Sales Charges
The price of Class A Shares of the Fund includes a maximum
front-end sales charge of 4.75% of the offering price, which is
equivalent to 4.94% of the amount invested, based on an initial
net asset value of $8.50 per share. The front-end sales charge
is reduced on certain transactions of at least $100,000 but under
$1,000,000. There is no front-end sales charge on purchases of
$1,000,000 or more. Class A Shares are subject to annual 12b-1
Plan expenses for the life of the investment.
The price of Class B Shares is equal to the net asset value
per share. Class B Shares are subject to a contingent deferred
sales charge ("CDSC") of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the
third or fourth year following purchase; (iii) 2% if shares are
redeemed during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase.
Class B Shares are subject to annual 12b-1 Plan expenses for
approximately eight years after purchase. See Deferred Sales
Charge Alternative - Class B Shares and Automatic Conversion of
Class B Shares under Classes of Shares.
The price of Class C Shares is equal to the net asset value
per share. Class C Shares are subject to a CDSC of 1% if shares
are redeemed within 12 months of purchase. Class C Shares are
subject to annual 12b-1 Plan expenses for the life of the
investment.
See Classes of Shares and Distribution (12b-1) and Service
under Management of the Fund.
Purchase Amounts
Generally, the minimum initial investment in any Class is
$1,000. Subsequent investments must generally be at least $100.
Each purchase of Class B Shares is subject to a maximum
purchase limitation of $250,000. For Class C Shares, each
purchase must be in an amount that is less than $1,000,000. An
investor may exceed these maximum purchase limitations for Class
B Shares and Class C Shares by making cumulative purchases over a
period of time. An investor should keep in mind, however, that
reduced front-end sales charges apply to investments of $100,000
or more in Class A Shares, and that Class A Shares are subject to
lower annual 12b-1 Plan expenses than Class B and Class C Shares
and generally are not subject to a CDSC. The minimum and maximum
purchase amounts for retirement plans may vary. See How to Buy
Shares.
Redemption and Exchange
Class A Shares of the Fund may be redeemed or exchanged at
the net asset value calculated after receipt of the redemption or
exchange request. Neither the Fund nor the Distributor assesses
a charge for redemptions or exchanges of Class A Shares, except
for certain redemptions of shares purchased at net asset value,
which may be subject to a CDSC if a dealer's commission was paid
in connection with such purchases. See Front-End Sales Charge
Alternative - Class A Shares under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or
exchanged at the net asset value calculated after receipt of the
redemption or exchange request subject, in the case of
redemptions, to any applicable CDSC. Neither the Fund nor the
Distributor assesses any charges other than the CDSC for
redemptions or exchanges of Class B or Class C Shares. There are
certain limitations on an investor's ability to exchange shares
between the various classes of shares that are offered. See
Redemption and Exchange.
Open-End Investment Company
Mutual Funds III, Inc., which was organized as a Minnesota
corporation in January 1985, is an open-end management investment
company. The Fund's portfolio of assets is diversified as
defined by the Investment Company Act of 1940 (the "1940 Act").
The Fund is one of several series of Mutual Funds III, Inc. See
Shares under Management of the Fund.
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other
expenses applicable to Class A, Class B and Class C Shares
follows:
Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares
________________________________ _______ _______ ________
Maximum Sales Charge Imposed on
Purchases(as a percentage of
offering price). . . . . . . . . . 4.75% None None
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price). . . None None None
Maximum Contingent Deferred
Sales Charge(as a percentage of
original purchase price or
redemption proceeds,
whichever is lower). . . . . . . . None* 4.00%** 1.00%+
Redemption Fees. . . . . . . . . . None++ None++ None++
* Class A purchases of $1 million or more may be made at net
asset value. However, if in connection with any such
purchase a dealer commission is paid to the financial
adviser through whom such purchase is effected, a CDSC of
1% will be imposed on certain redemptions within 12 months
of purchase ("Limited CDSC"). See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased
at Net Asset Value under Redemption and Exchange.
** Class B Shares of the Fund are subject to a CDSC of: (i) 4%
if shares are redeemed within two years of purchase; (ii) 3%
if shares are redeemed during the third or fourth year
following purchase; (iii) 2% if shares are redeemed during
the fifth year following purchase; (iv) 1% if shares are
redeemed during the sixth year following purchase; and (v)
0% thereafter. See Deferred Sales Charge Alternative -
Class B Shares under Classes of Shares.
+ Class C Shares of the Fund are subject to a CDSC of 1% if
shares are redeemed within 12 months of purchase. See Level
Sales Charge Alternative--Class C Shares under Classes of
Shares.
++ CoreStates Bank, N.A. currently charges $7.50 per redemption
for redemptions payable by wire.
Annual Operating Expenses
(as a percentage of average Class A Class B Class C
daily net assets) Shares Shares Shares
___________________________ _______ _______ ________
Management Fees
(after voluntary waivers). . . . . 0.72% 0.72% 0.72%
12b-1 Plan Expenses
(including service fees) . . . . . 0.30%+ 1.00%+ 1.00%+
Other Operating Expenses . . . . . 0.48%++ 0.48%++ 0.48%++
Total Operating Expenses
(after voluntary waivers) . 1.50%++ 2.20%++ 2.20%++
+ Class A Shares, Class B Shares and Class C Shares are
subject to separate 12b-1 Plans. Long-term shareholders may
pay more than the economic equivalent of the maximum front-
end sales charges permitted by rules of the National
Association of Securities Dealers, Inc. (the "NASD"). See
Distribution (12b-1) and Service under Management of the
Fund.
++ "Total Operating Expenses" and "Other Operating Expenses"
for the Class A Shares, the Class B Shares and the Class C
Shares are based on estimated amounts for the first full
fiscal year of the Classes, after giving effect to the
voluntary expense waiver.
The Manager has elected voluntarily to waive that portion,
if any, of the annual management fees payable by the new Fund and
to pay certain expenses of that Fund to the extent necessary to
ensure that the Total Operating Expenses of the Class A Shares,
the Class B Shares and the Class C Shares of the new Fund,
including each such Class' 12b-1 fees, do not exceed 1.50%, 2.20%
and 2.20%, respectively, from the commencement of the public
offering of Classes through December 31, 1997. If the voluntary
expense waivers were not in effect, it is estimated that for the
first full year, the Total Operating Expenses, as a percentage of
average daily net assets, would be 1.53%, 2.23% and 2.23%,
respectively, for the Class A Shares, the Class B Shares and the
Class C Shares of the Fund, reflecting management fees of 0.75%.
Unless waived, investors utilizing the Delaware Group Asset
Planner asset allocation service will incur an annual maintenance
fee of $35 per strategy. Investors who utilize the Asset Planner
for an IRA will pay an IRA fee of $15 per Social Security number.
See Delaware Group Asset Planner under How to Buy Shares.
The following example illustrates the expenses that an
investor would pay on a $1,000 investment over various time
periods, assuming (1) a 5% annual rate of return, (2) redemption
and no redemption at the end of each time period and (3) for
Class B Shares and Class C Shares, payment of a CDSC at the time
of redemption, if applicable. The following example assumes the
voluntary waiver of the management fee by the Manager as
discussed in this Prospectus.
Assuming Redemption Assuming No Redemption
1 year 3 years 1 year 3 years
Class A Shares $62(1) $93 $62 $93
Class B Shares(2) $62 $99 $22 $69
Class C Shares $32 $69 $22 $69
(1) Generally, no redemption charge is assessed upon
redemption of Class A Shares. Under certain circumstances,
however, a Limited CDSC, which has not been reflected in this
calculation, may be imposed on certain redemptions within 12
months of purchase. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.
(2) At the end of approximately eight years after purchase,
Class B Shares will be automatically converted into Class A
Shares. The example above does not assume conversion of
Class B Shares since it reflects figures only for one and
three years. See Automatic Conversion of Class B Shares
under Classes of Shares for a description of the automatic
conversion feature.
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in
any of the Classes will bear directly or indirectly.
This example should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater
or less than those shown.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is to obtain for
taxable investors a high total return on an after-tax basis. The
Fund will attempt to achieve this objective by seeking to provide
a high long-term after-tax total return through managing its
portfolio in a manner that will defer the realization of accrued
capital gains and minimize dividend income.
SUITABILITY
The Fund may be suitable for the patient investor interested
in long-term capital appreciation. Although the Fund may be
appropriate for any investor, it may be especially well suited to
the investment needs of high-tax bracket investors, retirement
savers and college savers. Because the Fund is designed to
maximize after-tax total return, the Fund may not be suitable for
tax-exempt investors. Investors should be willing to accept the
risks associated with investments in equity securities issued by
domestic and foreign issuers.
* * *
Naturally, the Fund cannot assure a specific rate of return
or that principal will be protected. The value of the Fund's
shares can be expected to move up and down depending upon market
conditions. Consequently, appreciation may be obtained in
periods of generally rising markets, while in declining markets,
the value of its shares may, of course, decline. For this
reason, the Fund is not appropriate for short-term investors.
However, through the cautious selection and supervision of its
portfolio, the Fund will strive to achieve its objective set
forth above.
Investors should not consider a purchase of shares of the
Fund as equivalent to a complete investment program. The
Delaware Group includes a family of funds, generally available
through registered investment dealers, which may be used together
to create a more complete investment program.
INVESTMENT STRATEGY
In attempting to achieve its investment objective, the Fund
under normal circumstances will invest at least 90% of its net
assets in a widely diversified portfolio of common stocks,
securities convertible into common stocks and instruments whose
returns depend upon stock market prices. An emphasis will be
placed on lower-dividend or non-dividend paying common stocks of
companies which the Manager believes to have superior
appreciation potential.
Investments in securities convertible into common stock will
be made on the basis of the common stocks into which such
securities are convertible, and not on the basis of the debt
ratings of such securities. Under normal circumstances, at least
65% of the Fund s total assets will be invested in equity
securities (defined as common stocks and securities convertible
into common stocks). The Fund may invest up to 10% of its total
assets in foreign securities. See Other Investment Policies and
Risk Considerations for additional information.
Over time, common stock mutual funds generally accumulate
capital gains as the securities in their portfolios appreciate.
In most cases, the active management of these funds will involve
a significant amount of portfolio security trading, leading to
the realization of capital gains which will be taxable when
distributed to fund shareholders. Primarily as result of these
taxable capital gains distributions, the after-tax return to a
taxable investor in the fund with even moderate portfolio
turnover can be substantially lower than the pre-tax return. The
Manager believes that, in order to achieve the best possible
after-tax return for taxable investors, investment strategies
must be employed which will minimize portfolio turnover and
postpone the realization of accrued capital gains.
Some realization of capital gains will, of course, be
inevitable. For example, portfolio securities must be sold as
they mature in order to avoid negative growth. In addition,
merger and acquisition activities in the marketplace will result
in unavoidable sales of portfolio securities. The Manager will
attempt to minimize such capital gains to the extent possible by,
for example, realizing accrued losses in the portfolio to offset
such gains. To help reduce realized capital gains when the sale
of appreciated securities is necessary, the Manager will also
seek to sell share lots that qualify for long-term capital gains
treatment and have the highest cost basis.
From time to time, the Manager may also employ a trading
strategy which involves the use of options, futures contracts and
other derivative products to hedge against anticipated market
movements, rather than a more traditional strategy that would
involve the purchase and sale of portfolio securities in
anticipation of such movements. For example, using a more
traditional trading strategy, if an investment adviser
anticipated a market decline with respect to a particular group
of portfolio stocks with significant unrealized gains, the
adviser would sell the stocks, realize any gains and make a
taxable distribution of such gains to shareholders. If market
prices fall as anticipated, the fund will have avoided capital
losses as a result of the fall in prices, but the fund will have
incurred trading costs and investors will be taxed on the
realized capital gains. In the event market prices rise, trading
costs and tax consequences will be the same; however, the fund
will have lost the opportunity to participate in the rising
prices. Using the tax-sensitive trading strategy which the
Manager intends to employ, rather than sell the Fund s portfolio
securities, the Manager might, for example, buy a put option on
the group of securities. If prices fall as anticipated, the
decline in the value of the Fund s portfolio would be offset by
the gain on the put options. Although this gain will be taxable,
presumably the gain, and therefore the tax liability, will be
significantly less than the gain that would have been realized
had the Fund sold the underlying portfolio securities. The Fund
will not incur trading costs, but will pay a premium for purchase
of the put option. In the event prices rise, the Fund will be in
a significantly better position than had the underlying
securities been sold. Although the Fund will have lost the
premium it paid for the option, the Fund will participate fully
in the rising stock prices and will have deferred the realization
of capital gains (and the resulting tax liability of
shareholders).
In employing the investment strategy described above, the
Fund may invest in various derivative instruments whose return
depends on the prices of common stocks. These may include debt
securities whose prices or interest rates are indexed to the
return of a particular stock index, including a foreign stock
index ( indexed securities ), swap agreements linked to a stock
index or group of common stocks, option and futures contracts.
The Fund may also lend its portfolio securities and sell its
portfolio securities short. See Other Investment Policies and
Risk Considerations for a description of these investment
practices.
In normal conditions, the Manager will attempt to invest as
much of the Fund s assets as is practical in common stocks,
securities convertible into common stocks and instruments whose
returns depend on stock market prices. However, the Fund may
invest temporarily in certain short-term fixed-income securities.
Such securities may be used to invest uncommitted cash balances
or to maintain liquidity to meet shareholder redemptions. These
securities include obligations of the U.S. government and its
agencies or instrumentalities, commercial paper, bank
certificates of deposit and bankers acceptances, and repurchase
agreements. The Fund may invest in these securities without
limitation if the Manager believes that market conditions warrant
a temporary defensive posture.
* * *
For additional information on the Fund's investment policies
and certain risks associated with investments in certain types of
securities, see Other Investment Policies and Risk
Considerations.
Although the Fund will constantly strive to attain its
objective, there can be no assurance that it will be attained.
Because of the risks associated with the Fund s investments,
the Fund is intended to be a long-term investment vehicle and is
not designed to provide investors with a means of speculating on
short-term stock market movements. On an informal basis, the
Manager may compare the total return of the Fund to the total
return of a broad based securities index, currently expected to
be the S&P 500", with a view toward achieving after-tax total
returns of the Fund in excess of the pre-tax total returns of
such securities index. However, the Fund is not managed to
replicate the securities contained in such indices and therefore
may achieve returns which are less than or greater than such
indices. Securities indices are unmanaged and hence do not incur
expenses while the Fund is subject to investment management and
other expenses as set forth herein.
THE DELAWARE DIFFERENCE
PLANS AND SERVICES
The Delaware Difference is our commitment to provide you
with superior information and quality service on your investments
in the Delaware Group of funds.
SHAREHOLDER PHONE DIRECTORY
Investor Information Center
800-523-4640
Fund Information; Literature Price; Yield and Performance
Figures
Shareholder Service Center
800-523-1918
Information on Existing Regular Investment Accounts and
Retirement Plan
Accounts; Wire Investments; Wire Liquidations;
Telephone Liquidations and Telephone Exchanges
Delaphone
800-362-FUND
(800-362-3863)
Performance Information
You can call the Investor Information Center at any time for
current performance information.
Shareholder Services
During business hours, you can call the Delaware Group's
Shareholder Service Center. Our representatives can answer any
questions about your account, the Fund, various service features
and other funds in the Delaware Group.
Delaphone Service
Delaphone is an account inquiry service for investors with
Touch-Tone(R) phone service. It enables you to get information
on your account faster than the mailed statements and
confirmations. Delaphone also provides current performance
information on the Fund, as well as other funds in the Delaware
Group. Delaphone is available seven days a week, 24 hours a day.
Dividend Payments
Dividends, capital gains and other distributions are
automatically reinvested in your account, unless you elect to
receive them in cash. You may also elect to have the dividends
earned in one fund automatically invested in another Delaware
Group fund with a different investment objective, subject to
certain exceptions and limitations.
For more information, see Additional Methods of Adding to
Your Investment - Dividend Reinvestment Plan under How to Buy
Shares or call the Shareholder Service Center.
MoneyLine Direct Deposit Service
If you elect to have your dividends and distributions paid
in cash and such dividends and distributions are in an amount of
$25 or more, you may choose the MoneyLine Direct Deposit Service
and have such payments transferred from your Fund account to your
predesignated bank account. See Dividends and Distributions. In
addition, you may elect to have your Systematic Withdrawal Plan
payments transferred from your Fund account to your predesignated
bank account through this service. See Systematic Withdrawal
Plans under Redemption and Exchange. Your funds will normally be
credited to your bank account two business days after the payment
date. There are no fees for this service. You can initiate the
MoneyLine Direct Deposit Service by completing an Authorization
Agreement. If your name and address are not identical to the
name and address on your Fund account, you must have your
signature guaranteed. This service is not available for certain
retirement plans.
Statements and Confirmations
You will receive quarterly statements of your account
summarizing all transactions during the period. A confirmation
statement will be sent following all transactions other than
those involving a reinvestment of dividends. You should examine
statements and confirmations immediately and promptly report any
discrepancy by calling the Shareholder Service Center.
Duplicate Confirmations
If your financial adviser or investment dealer is noted on
your investment application, we will send a duplicate
confirmation to him or her. This makes it easier for your
adviser to help you manage your investments.
Tax Information
Each year, Mutual Funds III, Inc. will mail to you
information on the tax status of your dividends and
distributions.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation
feature allows you to combine the value of your current holdings
of Class A Shares, Class B Shares and Class C Shares of the Fund
with the dollar amount of new purchases of Class A Shares to
qualify for a reduced front-end sales charge on such purchases of
Class A Shares. Under the Combined Purchases Privilege, you may
also include certain shares that you own in other funds in the
Delaware Group. See Classes of Shares.
Letter of Intention
The Letter of Intention feature permits you to obtain a
reduced front-end sales charge on purchases of Class A Shares by
aggregating certain of your purchases of Delaware Group fund
shares over a 13-month period. See Classes of Shares and Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest
proceeds from a redemption of Class A Shares, within one year of
the date of the redemption, without paying a front-end sales
charge. See Part B.
Exchange Privilege
The Exchange Privilege permits shareholders to exchange all
or part of their shares into shares of the other funds in the
Delaware Group, subject to certain exceptions and limitations.
For additional information on exchanges, see Investing by
Exchange under How to Buy Shares and Redemption and Exchange.
Wealth Builder Option
You may elect to invest in the Fund through regular
liquidations of shares in your accounts in other funds in the
Delaware Group. Investments under this feature are exchanges and
are therefore subject to the same conditions and limitations as
other exchanges of Fund shares. See Additional Methods of Adding
to Your Investment - Wealth Builder Option and Investing by
Exchange under How to Buy Shares, and Redemption and Exchange.
Delaware Group Asset Planner
Delaware Group Asset Planner is an asset allocation service
that gives you, working with a professional financial adviser,
the ability to more easily design and maintain investments in a
diversified selection of Delaware Group mutual funds. The Asset
Planner service offers a choice of four predesigned allocation
strategies (each with a different risk/reward profile) made up of
separate investments in predetermined percentages of Delaware
Group funds. With the guidance of a financial adviser, you may
also tailor an allocation strategy that meets your personal needs
and goals. See How to Buy Shares.
Financial Information about the Fund
Each fiscal year, you will receive an audited annual report
and an unaudited semi-annual report. These reports provide
detailed information about the Fund's investments and
performance. Mutual Funds III, Inc.'s fiscal year ends on April
30.
RETIREMENT PLANNING
An investment in the Fund may be suitable for tax-deferred
retirement plans. Among the retirement plans noted below, Class
B Shares are available for investment only by Individual
Retirement Accounts, Simplified Employee Pension Plans, Salary
Reduction Simplified Employee Pension Plans, 457 Deferred
Compensation Plans and 403(b)(7) Deferred Compensation Plans.
Retirement plans may be subject to plan establishment fees,
annual maintenance fees and/or other administrative or trustee
fees. Fees are based upon the number of participants in the plan
as well as the services selected. Additional information about
fees is included in retirement plan materials. Fees are quoted
upon request. Certain shareholder investment services available
to non-retirement plan shareholders may not be available to
retirement plan shareholders. For additional information on any
of the plans and Delaware's retirement services, call the
Shareholder Service Center or see Part B.
Individual Retirement Account ("IRA")
Individuals, even if they participate in an employer-
sponsored retirement plan, may establish their own retirement
program for investments in each of the Classes. Contributions to
an IRA may be tax-deductible and earnings are tax-deferred. The
tax deductibility of IRA contributions is restricted, and in some
cases eliminated, for individuals who participate in certain
employer-sponsored retirement plans and whose annual income
exceeds certain limits. Existing IRAs and future contributions
up to the IRA maximums, whether deductible or not, still earn on
a tax-deferred basis.
Simplified Employee Pension Plan ("SEP/IRA")
A SEP/IRA may be established by an employer who wishes to
sponsor a tax-sheltered retirement program by making
contributions on behalf of all eligible employees. Each of the
Classes is available for investment by a SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
Although new SAR/SEP plans may not be established after
December 31, 1996, existing plans may be maintained by employers
having 25 or fewer employees. An employer may elect to make
additional contributions to such existing plans.
403(b)(7) Deferred Compensation Plan
Permits employees of public school systems or of certain
types of non-profit organizations to enter into a deferred
compensation arrangement for the purchase of shares of each of
the Classes.
457 Deferred Compensation Plan
Permits employees of state and local governments and certain
other entities to enter into a deferred compensation arrangement
for the purchase of shares of each of the Classes.
Prototype Profit Sharing or Money Purchase Pension Plan
Offers self-employed individuals, partnerships and
corporations a tax-qualified plan which provides for the
investment of contributions in Class A Shares or Class C Shares.
Class B Shares are not available for purchase by such plans.
Prototype 401(k) Defined Contribution Plan
Permits employers to establish a tax-qualified plan based on
salary deferral contributions for investment in Class A or Class
C Shares. Class B Shares are not available for purchase by such
plans.
SIMPLE IRA
A SIMPLE IRA combines many of the features of an IRA and a
401(k) Plan but is easier to administer than a typical 401(k)
Plan. It requires employers to make contributions on behalf of
their employees and also has a salary deferral feature that
permits employees to defer a portion of their salary into the
plan on a pre-tax basis.
SIMPLE 401(k)
A SIMPLE 401(k) is like a regular 401(k) except that plan
sponsors are limited to 100 employees and, in exchange for
mandatory plan sponsor contributions, discrimination testing is
no longer required. Class B Shares are not available for
purchase by such plans.
The Limited CDSC is applicable to any redemptions of net
asset value purchases made on behalf of any group retirement plan
on which a dealer's commission has been paid if such redemption
is made pursuant to a withdrawal of the entire plan from Delaware
Group funds.
Allied Plans
Class A Shares are available for purchase by participants in
certain 401(k) Defined Contribution Plans ("Allied Plans") which
are made available under a joint venture agreement between the
Distributor and another institution through which mutual funds
are marketed and which allow investments in Class A Shares of
designated Delaware Group funds ("eligible Delaware Group fund
shares"), as well as shares of designated classes of non-Delaware
Group funds ("eligible non-Delaware Group fund shares"). Class B
Shares and Class C Shares are not eligible for purchase by Allied
Plans.
With respect to purchases made in connection with an Allied
Plan, the value of eligible Delaware Group and eligible non-
Delaware Group fund shares held by the Allied Plan may be
combined with the dollar amount of new purchases by that Allied
Plan to obtain a reduced front-end sales charge on additional
purchases of eligible Delaware Group fund shares. See Front-End
Sales Charge Alternative - Class A Shares under Classes of
Shares.
Participants in Allied Plans may exchange all or part of
their eligible Delaware Group fund shares for other eligible
Delaware Group fund shares or for eligible non-Delaware Group
fund shares at net asset value without payment of a front-end
sales charge. However, exchanges of eligible fund shares, both
Delaware Group and non-Delaware Group, which were not subject to
a front-end sales charge, will be subject to the applicable sales
charge if exchanged for eligible Delaware Group fund shares to
which a sales charge applies. No sales charge will apply if the
eligible fund shares were previously acquired through the
exchange of eligible shares on which a sales charge was already
paid or through the reinvestment of dividends. See Investing by
Exchange.
A dealer's commission may be payable on purchases of
eligible Delaware Group fund shares under an Allied Plan. In
determining a financial adviser's eligibility for a dealer's
commission on net asset value purchases of eligible Delaware
Group fund shares in connection with Allied Plans, all
participant holdings in the Allied Plan will be aggregated. See
Front-End Sales Charge Alternative - Class A Shares under Classes
of Shares.
The Limited CDSC is applicable to redemptions of net asset
value purchases from an Allied Plan on which a dealer's
commission has been paid. Waivers of the Limited CDSC, as
described under Waiver of Limited Contingent Deferred Sales
Charge - Class A Shares under Redemption and Exchange, apply to
redemptions by participants in Allied Plans except in the case of
exchanges between eligible Delaware Group and non-Delaware Group
fund shares. When eligible Delaware Group fund shares are
exchanged into eligible non-Delaware Group fund shares, the
Limited CDSC will be imposed at the time of the exchange, unless
the joint venture agreement specifies that the amount of the
Limited CDSC will be paid by the financial adviser or selling
dealer. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange.
CLASSES OF SHARES
Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next
determined net asset value per share, subject to a sales charge
which may be imposed, at the election of the purchaser, at the
time of the purchase for Class A Shares ("front-end sales charge
alternative"), or on a contingent deferred basis for Class B
Shares ("deferred sales charge alternative") or Class C Shares
("level sales charge alternative").
Class A Shares. An investor who elects the front-end sales
charge alternative acquires Class A Shares, which incur a sales
charge when they are purchased, but generally are not subject to
any sales charge when they are redeemed. Class A Shares are
subject to annual 12b-1 Plan expenses of up to a maximum of 0.30%
of average daily net assets of such shares. Certain purchases of
Class A Shares qualify for reduced front-end sales charges. See
Front-End Sales Charge Alternative - Class A Shares, below. See
also Contingent Deferred Sales Charge for Certain Redemptions of
Class A Shares Purchased at Net Asset Value under Redemption and
Exchange and Distribution (12b-1) and Service under Management of
the Fund.
Class B Shares. An investor who elects the deferred sales
charge alternative acquires Class B Shares, which do not incur a
front-end sales charge when they are purchased, but are subject
to a contingent deferred sales charge if they are redeemed within
six years of purchase. Class B Shares are subject to annual 12b-
1 Plan expenses of up to a maximum of 1% (0.25% of which are
service fees to be paid to the Distributor, dealers or others for
providing personal service and/or maintaining shareholder
accounts) of average daily net assets of such shares for
approximately eight years after purchase. Class B Shares permit
all of the investor's dollars to work from the time the
investment is made. The higher 12b-1 Plan expenses paid by Class
B Shares will cause such shares to have a higher expense ratio
and to pay lower dividends than Class A Shares. At the end of
approximately eight years after purchase, the Class B Shares will
automatically be converted into Class A Shares and, thereafter,
for the remainder of the life of the investment, the annual 0.30%
12b-1 Plan fee for the Class A Shares will apply. See Automatic
Conversion of Class B Shares, below.
Class C Shares. An investor who elects the level sales
charge alternative acquires Class C Shares, which do not incur a
front-end sales charge when they are purchased, but are subject
to a contingent deferred sales charge if they are redeemed within
12 months of purchase. Class C Shares are subject to annual 12b-
1 Plan expenses of up to a maximum of 1% (0.25% of which are
service fees to be paid to the Distributor, dealers or others for
providing personal service and/or maintaining shareholder
accounts) of average daily net assets of such shares for the life
of the investment. The higher 12b-1 Plan expenses paid by Class
C Shares will cause such shares to have a higher expense ratio
and to pay lower dividends than Class A Shares. Unlike Class B
Shares, Class C Shares do not convert to another class.
The alternative purchase arrangements described above permit
investors to choose the method of purchasing shares that is most
suitable given the amount of their purchase, the length of time
they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase
Class A Shares and incur a front-end sales charge, purchase Class
B Shares and have the entire initial purchase amount invested in
the Fund with their investment being subject to a CDSC if they
redeem shares within six years of purchase, or purchase Class C
Shares and have the entire initial purchase amount invested in
the Fund with their investment being subject to a CDSC if they
redeem shares within 12 months of purchase. In addition,
investors should consider the level of annual 12b-1 Plan expenses
applicable to each Class. The higher 12b-1 Plan expenses on
Class B Shares and Class C Shares will be offset to the extent a
return is realized on the additional money initially invested
upon the purchase of such shares. However, there can be no
assurance as to the return, if any, that will be realized on such
additional money. In comparing Class B Shares to Class C Shares,
investors should also consider the desirability of an automatic
conversion feature, which is available only for Class B Shares.
Prospective investors should refer to Appendix A--Investment
Illustrations in this Prospectus for an illustration of the
potential effect that each of the purchase options may have on a
long-term shareholder's investment.
For the distribution and related services provided to, and
the expenses borne on behalf of, the Fund, the Distributor and
others will be paid, in the case of the Class A Shares, from the
proceeds of the front-end sales charge and 12b-1 Plan fees and,
in the case of the Class B Shares and the Class C Shares, from
the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC
incurred upon redemption. Financial advisers may receive
different compensation for selling Class A, Class B and Class C
Shares. Investors should understand that the purpose and
function of the respective 12b-1 Plans and the CDSCs applicable
to Class B Shares and Class C Shares are the same as those of the
12b-1 Plan and the front-end sales charge applicable to Class A
Shares in that such fees and charges are used to finance the
distribution of the respective Classes. See 12b-1 Distribution
Plans - Class A, Class B and Class C Shares.
Dividends paid on Class A, Class B and Class C Shares, to
the extent any dividends are paid, will be calculated in the same
manner, at the same time, on the same day and will be in the same
amount, except that, when assessed, the additional amount of 12b-
1 Plan expenses relating to Class B Shares and Class C Shares
will be borne exclusively by such shares. See Calculation of
Offering Price and Net Asset Value Per Share.
The NASD has adopted certain rules relating to investment
company sales charges. Mutual Funds III, Inc. and the
Distributor intend to operate in compliance with these rules.
Front-End Sales Charge Alternative - Class A Shares
Class A Shares may be purchased at the offering price, which
reflects a maximum front-end sales charge of 4.75%. See
Calculation of Offering Price and Net Asset Value Per Share.
Purchases of $100,000 or more carry a reduced front-end
sales charge as shown in the following table.
Tax-Efficient Equity Fund A Class
Dealer's
Front-End Sales Charge as % of
Commission***
as % of
Offering Amount Offering
Amount of Purchase Price Invested** Price
Less than $100,000 4.75% 4.94% 4.00%
$100,000 but under 3.75 3.88 3.00
$250,000
$250,000 but under 2.50 2.59 2.00
$500,000
$500,000 but under 2.00 2.00 1.60
$1,000,000*
* There is no front-end sales charge on purchases of Class A
Shares of $1 million or more but, under certain limited
circumstances, a 1% Limited CDSC may apply upon redemption
of such shares.
** Based upon the initial net asset value of $8.50 per share of
Class A Shares of the Fund.
*** Financial institutions or their affiliated brokers may
receive an agency transaction fee in the percentages set
forth above.
The Fund must be notified when a sale takes place which
would qualify for the reduced front-end sales charge on the
basis of previous or current purchases. The reduced front-
end sales charge will be granted upon confirmation of the
shareholder's holdings by the Fund. Such reduced front-end
sales charges are not retroactive.
From time to time, upon written notice to all of its
dealers, the Distributor may hold special promotions for
specified periods during which the Distributor may reallow
to dealers up to the full amount of the front-end sales
charge shown above. In addition, certain dealers who enter
into an agreement to provide extra training and information
on Delaware Group products and services and who increase
sales of Delaware Group funds may receive an additional
commission of up to 0.15% of the offering price. Dealers
who receive 90% or more of the sales charge may be deemed to
be underwriters under the Securities Act of 1933.
For initial purchases of Class A Shares of $1,000,000 or
more, a dealer's commission may be paid by the Distributor to
financial advisers through whom such purchases are made in
accordance with the following schedule:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
In determining a financial adviser's eligibility for the
dealer's commission, purchases of Class A Shares of other
Delaware Group funds as to which a Limited CDSC applies may be
aggregated with those of the Class A Shares of the Fund.
Financial advisers also may be eligible for a dealer's commission
in connection with certain purchases made under a Letter of
Intention or pursuant to an investor's Right of Accumulation.
Financial advisers should contact the Distributor concerning the
applicability and calculation of the dealer's commission in the
case of combined purchases.
An exchange from other Delaware Group funds will not qualify
for payment of the dealer's commission, unless a dealer's
commission or similar payment has not been previously paid on the
assets being exchanged. The schedule and program for payment of
the dealer's commission are subject to change or termination at
any time by the Distributor at its discretion.
Redemptions of Class A Shares purchased at net asset value
may result in the imposition of a Limited CDSC if the dealer's
commission described above was paid in connection with the
purchase of those shares. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your
holdings of Class B Shares and/or Class C Shares of the Fund and
shares of the other funds in the Delaware Group, except those
noted below, you can reduce the front-end sales charges on any
additional purchases of Class A Shares. Shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with
ownership of variable insurance products may be combined with
other Delaware Group fund holdings. In addition, assets held in
any stable value product available through the Delaware Group may
be combined with other Delaware Group fund holdings. Shares of
other funds that do not carry a front-end sales charge or CDSC
may not be included unless they were acquired through an exchange
from a Delaware Group fund that does carry a front-end sales
charge or CDSC.
This privilege permits you to combine your purchases and
holdings with those of your spouse, your children under 21 and
any trust, fiduciary or retirement account for the benefit of
such family members.
It also permits you to use these combinations under a Letter
of Intention. A Letter of Intention allows you to make purchases
over a 13-month period and qualify the entire purchase for a
reduction in front-end sales charges on Class A Shares.
Combined purchases of $1,000,000 or more, including certain
purchases made at net asset value pursuant to a Right of
Accumulation or under a Letter of Intention, may result in the
payment of a dealer's commission and the applicability of a
Limited CDSC. Investors should consult their financial advisers
or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A
Shares, above.
Buying Class A Shares at Net Asset Value
Class A Shares may be purchased at net asset value under the
Delaware Group Dividend Reinvestment Plan and, under certain
circumstances, the Exchange Privilege and the 12-Month
Reinvestment Privilege. See The Delaware Difference and
Redemption and Exchange for additional information.
Purchases of Class A Shares may be made at net asset value
by current and former officers, directors and employees (and
members of their families) of the Manager, any affiliate, any of
the funds in the Delaware Group, certain of their agents and
registered representatives and employees of authorized investment
dealers and by employee benefit plans for such entities.
Individual purchases, including those in retirement accounts,
must be for accounts in the name of the individual or a
qualifying family member.
Purchases of Class A Shares may also be made by clients of
registered representatives of an authorized investment dealer at
net asset value within 12 months after the registered
representative changes employment, if the purchase is funded by
proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been
assessed. Purchases of Class A Shares may also be made at net
asset value by bank employees who provide services in connection
with agreements between the bank and unaffiliated brokers or
dealers concerning sales of shares of Delaware Group funds.
Officers, directors and key employees of institutional clients of
the Manager or any of its affiliates may purchase Class A Shares
at net asset value. Moreover, purchases may be effected at net
asset value for the benefit of the clients of brokers, dealers
and registered investment advisers affiliated with a broker or
dealer, if such broker, dealer or investment adviser has entered
into an agreement with the Distributor providing specifically for
the purchase of Class A Shares in connection with special
investment products, such as wrap accounts or similar fee based
programs.
Purchases of Class A Shares at net asset value may also be
made by the following: financial institutions investing for the
account of their trust customers when they are not eligible to
purchase shares of the institutional class of the fund; and any
group retirement plan (excluding defined benefit pension
plans), or such plans of the same employer, for which plan
participant records are maintained on the Delaware Investment &
Retirement Services, Inc. ("DIRSI") proprietary record keeping
system that (i) has in excess of $500,000 of plan assets invested
in Class A Shares of Delaware Group funds and in any stable value
product available through the Delaware Group, or (ii) is
sponsored by an employer that has at any point after May 1, 1997
more than 100 employees while such plan has held Class A Shares
of a Delaware Group fund and such employer has properly
represented to DIRSI in writing that it has the requisite number
of employees and has received written confirmation back from
DIRSI.
Investments in Class A Shares made by plan level and/or
participant retirement accounts that are for the purpose of
repaying a loan taken from such accounts will be made at net
asset value. Loan repayments made to a Delaware Group account in
connection with loans originated from accounts previously
maintained by another investment firm will also be invested at
net asset value.
Investors in Delaware-Voyageur Unit Investment Trusts may
reinvest monthly dividend checks and/or repayment of invested
capital into Class A Shares of any of the funds in the Delaware
Group at net asset value.
The Fund must be notified in advance that an investment
qualifies for purchase at net asset value.
Group Investment Plans
Group Investment Plans (e.g., SEP/IRA, SAR/SEP, SIMPLE IRA,
SIMPLE 401(k), Profit Sharing, Money Purchase Pension, 401(k)
Defined Contribution Plans, and 403(b)(7) and 457 Deferred
Compensation Plans) may benefit from the reduced front-end sales
charges available on the Class A Shares set forth in the table on
page, based on total plan assets. If a company has more
than one plan investing in the Delaware Group of funds, then the
total amount invested in all plans will be aggregated to
determine the applicable front-end sales charge reduction on each
purchase, both initial and subsequent, if, at the time of each
such purchase, the company notifies the Fund that it qualifies
for the reduction. Employees participating in such Group
Investment Plans may also combine the investments held in their
plan account to determine the front-end sales charge applicable
to purchases in non-retirement Delaware Group investment accounts
if, at the time of each such purchase, they notify the Fund that
they are eligible to combine purchase amounts held in their plan
account.
For additional information on retirement plans, including
plan forms, applications, minimum investments and any applicable
account maintenance fees, contact your investment dealer or the
Distributor.
For other retirement plans and special services, see
Retirement Planning.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a
front-end sales charge and, as a result, the full amount of the
investor's purchase payment will be invested in Fund shares. The
Distributor currently anticipates compensating dealers or brokers
for selling Class B Shares at the time of purchase from its own
assets in an amount equal to no more than 4% of the dollar amount
purchased. In addition, from time to time, upon written notice
to all of its dealers, the Distributor may hold special
promotions for specified periods during which the Distributor may
pay additional compensation to dealers or brokers for selling
Class B Shares at the time of purchase. As discussed below,
however, Class B Shares are subject to annual 12b-1 Plan expenses
and, if redeemed within six years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees, if
any, are paid to the Distributor and others for providing
distribution and related services, and bearing related expenses,
in connection with the sale of Class B Shares. These payments
support the compensation paid to dealers or brokers for selling
Class B Shares. Payments to the Distributor and others under the
Class B 12b-1 Plan may be in an amount equal to no more than 1%
annually. The combination of the CDSC and the proceeds of the
12b-1 Plan fees makes it possible for the Fund to sell Class B
Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange
privilege described below will continue to be subject to the CDSC
schedule for the Class B Shares described in this Prospectus,
even after the exchange. Such CDSC schedule may be higher than
the CDSC schedule for the Class B Shares acquired as a result of
the exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through
reinvestment of dividends, held for eight years after purchase
are eligible for automatic conversion into Class A Shares.
Conversions of Class B Shares into Class A Shares will occur only
four times in any calendar year, on the last business day of the
second full week of March, June, September and December (each, a
"Conversion Date"). If the eighth anniversary after a purchase
of Class B Shares falls on a Conversion Date, an investor's Class
B Shares will be converted on that date. If the eighth
anniversary occurs between Conversion Dates, an investor's Class
B Shares will be converted on the next Conversion Date after such
anniversary. Consequently, if a shareholder's eighth anniversary
falls on the day after a Conversion Date, that shareholder will
have to hold Class B Shares for as long as three additional
months after the eighth anniversary of purchase before the shares
will automatically convert into Class A Shares.
Class B Shares of a fund acquired through a reinvestment of
dividends will convert to the corresponding Class A Shares of
that fund (or, in the case of Delaware Group Cash Reserve, Inc.,
the Delaware Cash Reserve Consultant Class) pro-rata with Class B
Shares of that fund not acquired through dividend reinvestment.
All such automatic conversions of Class B Shares will
constitute tax-free exchanges for federal income tax purposes.
See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a
front-end sales charge and, as a result, the full amount of the
investor's purchase payment will be invested in Fund shares. The
Distributor currently anticipates compensating dealers or brokers
for selling Class C Shares at the time of purchase from its own
assets in an amount equal to no more than 1% of the dollar amount
purchased. As discussed below, however, Class C Shares are
subject to annual 12b-1 Plan expenses and, if redeemed within 12
months of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees, if
any, are paid to the Distributor and others for providing
distribution and related services, and bearing related expenses,
in connection with the sale of Class C Shares. These payments
support the compensation paid to dealers or brokers for selling
Class C Shares. Payments to the Distributor and others under the
Class C 12b-1 Plan may be in an amount equal to no more than 1%
annually.
Holders of Class C Shares who exercise the exchange
privilege described below will continue to be subject to the CDSC
schedule for the Class C Shares as described in this Prospectus.
See Redemption and Exchange.
Contingent Deferred Sales Charge - Class B Shares and Class C
Shares
Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth below and Class C Shares
redeemed within 12 months of purchase may be subject to a CDSC of
1%. CDSCs are charged as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of
those shares at the time of redemption. No CDSC will be imposed
on increases in net asset value above the initial purchase price,
nor will a CDSC be assessed on redemptions of shares acquired
through reinvestments of dividends or capital gains
distributions. For purposes of this formula, the "net asset
value at the time of purchase" will be the net asset value at
purchase of the Class B Shares or the Class C Shares of the Fund,
as the case may be, even if those shares are later exchanged for
shares of another Delaware Group fund. In the event of an
exchange of the shares, the "net asset value of such shares at
the time of redemption" will be the net asset value of the shares
that were acquired in the exchange.
The following table sets forth the rates of the CDSC for the
Class B Shares of the Fund:
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
During the seventh year after purchase and, thereafter, until
converted automatically into Class A Shares, Class B Shares will
still be subject to the annual 12b-1 Plan expenses of up to 1% of
average daily net assets of those shares. See Automatic
Conversion of Class B Shares, above. Investors are reminded that
the Class A Shares into which the Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum
of 0.30% of average daily net assets of such shares.
In determining whether a CDSC applies to a redemption of
Class B Shares, it will be assumed that shares held for more than
six years are redeemed first, followed by shares acquired through
the reinvestment of dividends or distributions, and finally by
shares held longest during the six-year period. With respect to
Class C Shares, it will be assumed that shares held for more than
12 months are redeemed first followed by shares acquired through
the reinvestment of dividends or distributions, and finally by
shares held for 12 months or less.
All investments made during a calendar month, regardless of
what day of the month the investment occurred, will age one month
on the last day of that month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares
and Class C Shares. See Waiver of Contingent Deferred Sales
Charge - Class B and Class C Shares under Redemption and
Exchange.
Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all
registered broker/dealers whose aggregate sales of the Classes
exceed certain limits, as set by the Distributor, may receive
from the Distributor an additional payment of up to 0.25% of the
dollar amount of such sales. The Distributor may also provide
additional promotional incentives or payments to dealers that
sell shares of the Delaware Group of funds. In some instances,
these incentives or payments may be offered only to certain
dealers who maintain, have sold or may sell certain amounts of
shares.
Subject to pending amendments to the NASD's Rules of Fair
Practice, in connection with the promotion of Delaware Group fund
shares, the Distributor may, from time to time, pay to
participate in dealer-sponsored seminars and conferences,
reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may, from
time to time, pay or allow additional promotional incentives to
dealers, which shall include non-cash concessions, such as
certain luxury merchandise or a trip to or attendance at a
business or investment seminar at a luxury resort, as part of
preapproved sales contests. Payment of non-cash compensation to
dealers is currently under review by the NASD and the Securities
and Exchange Commission. It is likely that the NASD's Rules of
Fair Practice will be amended such that the ability of the
Distributor to pay non-cash compensation as described above will
be restricted in some fashion. The Distributor intends to comply
with the NASD's Rules of Fair Practice as they may be amended.
HOW TO BUY SHARES
Purchase Amounts
Generally, the minimum initial purchase is $1,000 for Class
A Shares, Class B Shares and Class C Shares. Subsequent
purchases of shares of any Class generally must be $100 or more.
For purchases under a Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act or through an Automatic Investing Plan,
there is a minimum initial purchase of $250 and a minimum
subsequent purchase of $25. Minimum purchase requirements do not
apply to retirement plans other than IRAs, for which there is a
minimum initial purchase of $250, and a minimum subsequent
purchase of $25, regardless of which Class is selected.
There is a maximum purchase limitation of $250,000 on each
purchase of Class B Shares. For Class C Shares, each purchase
must be in an amount that is less than $1,000,000. An investor
may exceed these maximum purchase limitations by making
cumulative purchases over a period of time. In doing so, an
investor should keep in mind that reduced front-end sales charges
are available on investments of $100,000 or more in Class A
Shares, and that Class A Shares (i) are subject to lower annual
12b-1 Plan expenses than Class B Shares and Class C Shares and
(ii) generally are not subject to a CDSC. For retirement plans,
the maximum purchase limitations apply only to the initial
purchase of Class B Shares or Class C Shares by the plan.
Investing through Your Investment Dealer
You can make a purchase of shares of the Fund through most
investment dealers who, as part of the service they provide, must
transmit orders promptly. They may charge for this service. If
you want a dealer but do not have one, we can refer you to one.
Investing by Mail
1. Initial Purchases--An Investment Application or, in the case
of a retirement account, an appropriate retirement plan
application, must be completed, signed and sent with a check
payable to the Fund and Class selected, to Delaware Group at 1818
Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--Additional purchases may be made at
any time by mailing a check payable to the Fund and Class
selected. Your check should be identified with your name(s) and
account number. An investment slip (similar to a deposit slip)
is provided at the bottom of transaction confirmations and
dividend statements that you will receive from Mutual Funds III,
Inc. Use of this investment slip can help expedite processing of
your check when making additional purchases. Your investment may
be delayed if you send additional purchases by certified mail.
Investing by Wire
You may purchase shares by requesting your bank to transmit
funds by wire to CoreStates Bank, N.A., ABA #031000011, account
number 1412893401 (include your name(s) and your account number
for the Fund and Class in which you are investing).
1. Initial Purchases--Before you invest, telephone the
Shareholder Service Center to get an account number. If you do
not call first, processing of your investment may be delayed. In
addition, you must promptly send your Investment Application or,
in the case of a retirement account, an appropriate retirement
plan application, to the Fund and Class selected, to Delaware
Group at 1818 Market Street, Philadelphia, PA 19103.
2. Subsequent Purchases--You may make additional investments
anytime by wiring funds to CoreStates Bank, N.A., as described
above. You should advise the Shareholder Service Center by
telephone of each wire you send.
If you want to wire investments to a retirement plan
account, call the Shareholder Service Center for special wiring
instructions.
Investing by Exchange
If you have an investment in another mutual fund in the
Delaware Group, you may write and authorize an exchange of part
or all of your investment into shares of the Fund. If you wish
to open an account by exchange, call the Shareholder Service
Center for more information. All exchanges are subject to the
eligibility and minimum purchase requirements set forth in each
fund's prospectus. See Redemption and Exchange for more complete
information concerning your exchange privilege.
Holders of Class A Shares may exchange all or part of their
shares for certain of the shares of other funds in the Delaware
Group, including other Class A Shares, but may not exchange their
Class A Shares for Class B Shares or Class C Shares of the Fund
or of any other fund in the Delaware Group. Holders of Class B
Shares of the Fund are permitted to exchange all or part of their
Class B Shares only into Class B Shares of other Delaware Group
funds. Similarly, holders of Class C Shares of the Fund are
permitted to exchange all or part of their Class C Shares only
into Class C Shares of other Delaware Group funds. See Appendix
B--Classes Offered for a list of funds that offer Class A, Class
B, Class C and Consultant Class Shares. Class B Shares of the
Fund and Class C Shares of the Fund acquired by exchange will
continue to carry the CDSC and, in the case of Class B Shares,
the automatic conversion schedule of the fund from which the
exchange is made. The holding period of Class B Shares of the
Fund acquired by exchange will be added to that of the shares
that were exchanged for purposes of determining the time of the
automatic conversion into Class A Shares of the Fund.
Permissible exchanges into Class A Shares of the Fund will
be made without a front-end sales charge, except for exchanges of
shares that were not previously subject to a front-end sales
charge (unless such shares were acquired through the reinvestment
of dividends). Permissible exchanges into Class B Shares or
Class C Shares of the Fund will be made without the imposition of
a CDSC by the fund from which the exchange is being made at the
time of the exchange.
See Allied Plans under Retirement Planning for information
on exchanges by participants in an Allied Plan.
Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if
you wish to use the following services:
1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular
monthly investments without writing or mailing checks. You may
authorize Mutual Funds III, Inc. to transfer a designated amount
monthly from your checking account to your Fund account. Many
shareholders use this as an automatic savings plan. Shareholders
should allow a reasonable amount of time for initial purchases
and changes to these plans to become effective.
This option is not available to participants in the
following plans: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k),
Profit Sharing and Money Purchase Pension Plans, 401(k) Defined
Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
2. Direct Deposit
You may have your employer or bank make regular investments
directly to your Fund account for you (for example: payroll
deduction, pay by phone, annuity payments). The Fund also
accepts preauthorized recurring government and private payments
by Electronic Fund Transfer, which avoids mail time and check
clearing holds on payments such as social security, federal
salaries, Railroad Retirement benefits, etc.
* * *
Should investments through an automatic investing plan or by
direct deposit be reclaimed or returned for some reason, Mutual
Funds III, Inc. has the right to liquidate your shares to
reimburse the government or transmitting bank. If there are
insufficient funds in your account, you are obligated to
reimburse the Fund.
3. Wealth Builder Option
You can use our Wealth Builder Option to invest in the Fund
through regular liquidations of shares in your accounts in other
funds in the Delaware Group. You may also elect to invest in
other mutual funds in the Delaware Group through the Wealth
Builder Option through regular liquidations of shares in your
Fund account.
Under this automatic exchange program, you can authorize
regular monthly amounts (minimum of $100 per fund) to be
liquidated from your account in one or more funds in the Delaware
Group and invested automatically into any other Delaware Group
account that you may specify. If in connection with the election
of the Wealth Builder Option, you wish to open a new account to
receive the automatic investment, such new account must meet the
minimum initial purchase requirements described in the prospectus
of the fund that you select. All investments under this option
are exchanges and are therefore subject to the same conditions
and limitations as other exchanges noted above. You can
terminate your participation at any time by written notice to the
fund from which the exchanges are made. See Redemption and
Exchange.
This option is not available to participants in the
following plans: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k),
Profit Sharing and Money Purchase Pension Plans, 401(k) Defined
Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
4. Dividend Reinvestment Plan
You can elect to have your distributions (capital gains
and/or dividend income) paid to you by check or reinvested in
your Fund account. Or, you may invest your distributions in
certain other funds in the Delaware Group, subject to the
exceptions noted below as well as the eligibility and minimum
purchase requirements set forth in each fund's prospectus.
Reinvestments of distributions into Class A Shares of the
Fund or of other Delaware Group funds are made without a front-
end sales charge. Reinvestments of distributions into Class B
Shares of the Fund or of other Delaware Group funds or into Class
C Shares of the Fund or of other Delaware Group funds are also
made without any sales charge and will not be subject to a CDSC
if later redeemed. See Automatic Conversion of Class B Shares
under Classes of Shares for information concerning the automatic
conversion of Class B Shares acquired by reinvesting dividends.
Holders of Class A Shares of the Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund
in the Delaware Group, including the Fund. Holders of Class B
Shares of the Fund may reinvest their distributions only into
Class B Shares of the funds in the Delaware Group which offer
that class of shares. Similarly, holders of Class C Shares of
the Fund may reinvest their distributions only into Class C
Shares of the funds in the Delaware Group which offer that class
of shares. See Appendix B--Classes Offered for a list of the
funds offering those classes of shares. For more information
about reinvestments, call the Shareholder Service Center.
Capital gains and/or dividend distributions for participants
in the following retirement plans are
automatically reinvested into the same Delaware Group fund:
SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and
Money Purchase Pension Plans, 401(k) Defined Contribution Plans,
or 403(b)(7) or 457 Deferred Compensation Plans.
Delaware Group Asset Planner
To invest in Delaware Group funds using the Delaware Group
Asset Planner asset allocation service, you should complete a
Delaware Group Asset Planner Account Registration Form, which is
available only from a financial adviser or investment dealer. As
previously described, the Delaware Group Asset Planner service
offers a choice of four predesigned asset allocation strategies
(each with a different risk/reward profile) in predetermined
percentages in Delaware Group funds. Or, with the help of a
financial adviser, you may design a customized asset allocation
strategy.
The sales charge on an investment through the Asset Planner
service is determined by the individual sales charges of the
underlying funds and their percentage allocation in the selected
Strategy. Exchanges from existing Delaware Group accounts into
the Asset Planner service may be made at net asset value under
the circumstances described under Investing by Exchange, above.
The minimum initial investment per Strategy is $2,000; subsequent
investments must be at least $100. Individual fund minimums do
not apply to investments made using the Asset Planner service.
Class A, Class B and Class C Shares are available through the
Asset Planner service. Generally, only shares within the same
class may be used within the same Strategy. However, Class A
Shares of the Fund and of other funds in the Delaware Group may
be used in the same Strategy with consultant class shares that
are offered by certain other Delaware Group funds. See Appendix
B--Classes Offered for the funds in the Delaware Group that offer
consultant class shares.
An annual maintenance fee, currently $35 per Strategy, is
typically due at the time of initial investment and by
September 30th of each subsequent year. The fee, payable to
Delaware Service Company, Inc. to defray extra costs associated
with administering the Asset Planner service, will be deducted
automatically from one of the funds within your Asset Planner
account if not paid by September 30th. This annual fee is being
waived until further notice. Investors who utilize the Asset
Planner for an IRA will continue to pay an annual IRA fee of $15
per Social Security number. See Part B.
Investors will receive a customized quarterly Strategy
Report summarizing all Delaware Group Asset Planner investment
performance and account activity during the prior period.
Confirmation statements will be sent following all transactions
other than those involving a reinvestment of distributions.
Certain shareholder services are not available to investors
using the Asset Planner service, due to its special design.
These include Delaphone, Checkwriting, Wealth Builder Option and
Letter of Intention. Systematic Withdrawal Plans are available
after the account has been open for two years.
Purchase Price and Effective Date
The offering price and net asset value of the Class A, Class
B and Class C Shares are determined as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m.,
Eastern time) on days when the Exchange is open.
The effective date of a purchase made through an investment
dealer is the date the order is received by the Fund in which the
shares are being purchased. The effective date of a direct
purchase is the day your wire, electronic transfer or check is
received unless it is received after the time the offering price
or net asset value of shares is determined, as noted above.
Purchase orders received after such time will be effective the
next business day.
The Conditions of Your Purchase
The Fund reserves the right to reject any purchase order.
If a purchase is canceled because your check is returned unpaid,
you are responsible for any loss incurred. The Fund can redeem
shares from your account(s) to reimburse itself for any loss, and
you may be restricted from making future purchases in any of the
funds in the Delaware Group. The Fund reserves the right to
reject purchase orders paid by third-party checks or checks that
are not drawn on a domestic branch of a United States financial
institution. If a check drawn on a foreign financial institution
is accepted, you may be subject to additional bank charges for
clearance and currency conversion.
The Fund also reserves the right, following shareholder
notification, to charge a service fee on non-retirement accounts
that, as a result of a redemption, have remained below the
minimum stated account balance for a period of three or more
consecutive months. Holders of such accounts may be notified of
their insufficient account balance and advised that they have
until the end of the current calendar quarter to raise their
balance to the stated minimum. If the account has not reached
the minimum balance requirement by that time, the Fund in which
the account is held will charge a $9 fee for that quarter and
each subsequent calendar quarter until the account is brought up
to the minimum balance. The service fee will be deducted from
the account during the first week of each calendar quarter for
the previous quarter, and will be used to help defray the cost of
maintaining low-balance accounts. No fees will be charged
without proper notice, and no CDSC will apply to such
assessments.
The Fund also reserves the right, upon 60 days' written
notice, to involuntarily redeem accounts that remain under the
minimum initial purchase amount as a result of redemptions. An
investor making the minimum initial investment may be subject to
involuntary redemption without the imposition of a CDSC or
Limited CDSC if he or she redeems any portion of his or her
account.
REDEMPTION AND EXCHANGE
You can redeem or exchange your shares in a number of
different ways. The exchange service is useful if your
investment requirements change and you want an easy way to invest
in other equity funds, bond funds, tax-advantaged funds or money
market funds. This service is also useful if you are
anticipating a major expenditure and want to move a portion of
your investment into a fund that has the checkwriting feature.
Exchanges are subject to the requirements of each fund and all
exchanges of shares constitute taxable events. See Taxes.
Further, in order for an exchange to be processed, shares of the
fund being acquired must be registered in the state where the
acquiring shareholder resides. You may want to consult your
financial adviser or investment dealer to discuss which funds in
the Delaware Group will best meet your changing objectives, and
the consequences of any exchange transaction. You may also call
the Delaware Group directly for fund information.
All exchanges involve a purchase of shares of the fund into
which the exchange is made. As with any purchase, an investor
should obtain and carefully read that fund's prospectus before
buying shares in an exchange. The prospectus contains more
complete information about the fund, including charges and
expenses.
Your shares will be redeemed or exchanged at a price based
on the net asset value next determined after the Fund receives
your request in good order, subject, in the case of a redemption,
to any applicable CDSC or Limited CDSC. For example, redemption
or exchange requests received in good order after the time the
offering price and net asset value of shares are determined will
be processed on the next business day. See Purchase Price and
Effective Date under How to Buy Shares. A shareholder submitting
a redemption request may indicate that he or she wishes to
receive redemption proceeds of a specific dollar amount. In the
case of such a request, and in the case of certain redemptions
from retirement plan accounts, the Fund will redeem the number of
shares necessary to deduct the applicable CDSC in the case of
Class B and Class C Shares, and, if applicable, the Limited CDSC
in the case of Class A Shares and tender to the shareholder the
requested amount, assuming the shareholder holds enough shares in
his or her account for the redemption to be processed in this
manner. Otherwise, the amount tendered to the shareholder upon
redemption will be reduced by the amount of the applicable CDSC
or Limited CDSC. Redemption proceeds will be distributed
promptly, as described below, but not later than seven days after
receipt of a redemption request.
Except as noted below, for a redemption request to be in
"good order," you must provide your account number, account
registration, and the total number of shares or dollar amount of
the transaction. For exchange requests, you must also provide
the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a
redemption or an exchange by calling the Shareholder Service
Center at 800-523-1918. The Fund may suspend, terminate, or
amend the terms of the exchange privilege upon 60 days' written
notice to shareholders.
The Fund will process written and telephone redemption
requests to the extent that the purchase orders for the shares
being redeemed have already settled. The Fund will honor
redemption requests as to shares for which a check was tendered
as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the check has cleared, which may
take up to 15 days from the purchase date. You can avoid this
potential delay if you purchase shares by wiring Federal Funds.
The Fund reserves the right to reject a written or telephone
redemption request or delay payment of redemption proceeds if
there has been a recent change to the shareholder's address of
record.
There is no front-end sales charge or fee for exchanges made
between shares of funds which both carry a front-end sales
charge. Any applicable front-end sales charge will apply to
exchanges from shares of funds not subject to a front-end sales
charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge
and/or exchanges involving the reinvestment of dividends.
Holders of Class B Shares or Class C Shares that exchange
their shares ("Original Shares") for shares of other funds in the
Delaware Group (in each case, "New Shares") in a permitted
exchange, will not be subject to a CDSC that might otherwise be
due upon redemption of the Original Shares. However, such
shareholders will continue to be subject to the CDSC and, in the
case of Class B Shares, the automatic conversion schedule of the
Original Shares as described in this Prospectus and any CDSC
assessed upon redemption will be charged by the Fund from which
the Original Shares were exchanged. In an exchange of Class B
Shares from the Fund, the Fund's CDSC schedule may be higher than
the CDSC schedule relating to the New Shares acquired as a result
of the exchange. For purposes of computing the CDSC that may be
payable upon a disposition of the New Shares, the period of time
that an investor held the Original Shares is added to the period
of time that an investor held the New Shares. With respect to
Class B Shares, the automatic conversion schedule of the Original
Shares may be longer than that of the New Shares. Consequently,
an investment in New Shares by exchange may subject an investor
to the higher 12b-1 fees applicable to Class B Shares of the Fund
for a longer period of time than if the investment in New Shares
were made directly.
Various redemption and exchange methods are outlined below.
Except for the CDSC applicable to certain redemptions of Class B
and Class C Shares and the Limited CDSC applicable to certain
redemptions of Class A Shares purchased at net asset value, there
is no fee charged by the Fund or the Distributor for redeeming or
exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your
shares redeemed or exchanged. Your investment dealer may charge
for this service.
All authorizations given by shareholders, including
selection of any of the features described below, shall continue
in effect until such time as a written revocation or modification
has been received by the Fund or its agent.
Written Redemption
You can write to the Fund at 1818 Market Street,
Philadelphia, PA 19103 to redeem some or all of your shares. The
request must be signed by all owners of the account or your
investment dealer of record. For redemptions of more than
$50,000, or when the proceeds are not sent to the shareholder(s)
at the address of record, the Fund requires a signature by all
owners of the account and a signature guarantee for each owner.
Each signature guarantee must be supplied by an eligible
guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on
its creditworthiness. The Fund may require further documentation
from corporations, executors, retirement plans, administrators,
trustees or guardians.
Payment is normally mailed the next business day after
receipt of your redemption request. If your Class A Shares are
in certificate form, the certificate must accompany your request
and also be in good order. Certificates are issued for Class A
Shares only if a shareholder submits a specific request.
Certificates are not issued for Class B Shares or Class C Shares.
Written Exchange
You may also write to the Fund (at 1818 Market Street,
Philadelphia, PA 19103) to request an exchange of any or all of
your shares into another mutual fund in the Delaware Group,
subject to the same conditions and limitations as other exchanges
noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and
exchange methods, you must have the Transfer Agent hold your
shares (without charge) for you. If you choose to have your
Class A Shares in certificate form, you may redeem or exchange
only by written request and you must return your certificates.
The Telephone Redemption--Check to Your Address of Record
service and the Telephone Exchange service, both of which are
described below, are automatically provided unless you notify the
Fund in which you have your account in writing that you do not
wish to have such services available with respect to your
account. The Fund reserves the right to modify, terminate or
suspend these procedures upon 60 days' written notice to
shareholders. It may be difficult to reach the Fund by telephone
during periods when market or economic conditions lead to an
unusually large volume of telephone requests.
Neither the Fund nor its Transfer Agent is responsible for
any shareholder loss incurred in acting upon written or telephone
instructions for redemption or exchange of Fund shares which are
reasonably believed to be genuine. With respect to such
telephone transactions, the Fund will follow reasonable
procedures to confirm that instructions communicated by telephone
are genuine (including verification of a form of personal
identification) as, if it does not, the Fund or its Transfer
Agent may be liable for any losses due to unauthorized or
fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be
provided for all purchase, exchange and redemption transactions
initiated by telephone. By exchanging shares by telephone, you
are acknowledging prior receipt of a prospectus for the fund into
which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method
to redeem shares. You or your investment dealer of record can
have redemption proceeds of $50,000 or less mailed to you at your
address of record. Checks will be payable to the shareholder(s)
of record. Payment is normally mailed the next business day
after receipt of the redemption request. This service is only
available to individual, joint and individual fiduciary-type
accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to
your predesignated bank account by wire or by check. You should
authorize this service when you open your account. If you change
your predesignated bank account, you must complete an
Authorization Form and have your signature guaranteed. For your
protection, your authorization must be on file. If you request a
wire, your funds will normally be sent the next business day.
CoreStates Bank,N.A.'s fee (currently $7.50) will be deducted
from your redemption. If you ask for a check, it will normally
be mailed the next business day after receipt of your redemption
request to your predesignated bank account. There are no
separate fees for this redemption method, but the mail time may
delay getting funds into your bank account. Simply call the
Shareholder Service Center prior to the time the offering price
and net asset value are determined, as noted above.
Telephone Exchange
The Telephone Exchange feature is a convenient and efficient
way to adjust your investment holdings as your liquidity
requirements and investment objectives change. You or your
investment dealer of record can exchange your shares into other
funds in the Delaware Group under the same registration, subject
to the same conditions and limitations as other exchanges noted
above. As with the written exchange service, telephone exchanges
are subject to the requirements of each fund, as described above.
Telephone exchanges may be subject to limitations as to amounts
or frequency.
Systematic Withdrawal Plans
1. Regular Plans
This plan provides shareholders with a consistent monthly
(or quarterly) payment. This is particularly useful to
shareholders living on fixed incomes, since it can provide them
with a stable supplemental amount. With accounts of at least
$5,000, you may elect monthly withdrawals of $25 (quarterly $75)
or more. The Fund does not recommend any particular monthly
amount, as each shareholder's situation and needs vary. Payments
are normally made by check. In the alternative, you may elect to
have your payments transferred from your Fund account to your
predesignated bank account through the MoneyLine Direct Deposit
Service. Your funds will normally be credited to your bank
account two business days after the payment date. There are no
separate fees for this redemption method. See MoneyLine Direct
Deposit Service under The Delaware Difference for more
information about this service.
2. Retirement Plans
For shareholders eligible under the applicable retirement
plan to receive benefits in periodic payments, the Systematic
Withdrawal Plan provides you with maximum flexibility. A number
of formulas are available for calculating your withdrawals
depending upon whether the distributions are required or
optional. Withdrawals must be for $25 or more; however, no
minimum account balance is required. The MoneyLine Direct
Deposit Service described above is not available for certain
retirement plans.
* * *
Shareholders should not purchase additional shares while
participating in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal
Plan may be subject to a Limited CDSC if the original purchase
was made at net asset value within the 12 months prior to the
withdrawal and a dealer's commission was paid on that purchase.
See Contingent Deferred Sales Charge for Certain Redemptions of
Class A Shares Purchased at Net Asset Value, below.
The applicable CDSC for Class B Shares and Class C Shares
redeemed via a Systematic Withdrawal Plan will be waived if, on
the date that the Plan is established, the annual amount selected
to be withdrawn is less than 12% of the account balance. If the
annual amount selected to be withdrawn exceeds 12% of the account
balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to
the applicable CDSC. Whether a waiver of the CDSC is available
or not, the first shares to be redeemed for each Systematic
Withdrawal Plan payment will be those not subject to a CDSC
because they have either satisfied the required holding period or
were acquired through the reinvestment of distributions. The 12%
annual limit will be reset on the date that any Systematic
Withdrawal Plan is modified (for example, a change in the amount
selected to be withdrawn or the frequency or date of
withdrawals), based on the balance in the account on that date.
See Waiver of Contingent Deferred Sales Charge - Class B and
Class C Shares, below.
For more information on Systematic Withdrawal Plans, call
the Shareholder Service Center.
Contingent Deferred Sales Charge for Certain Redemptions of Class
A Shares Purchased at Net Asset Value
A Limited CDSC will be imposed on certain redemptions of
Class A Shares (or shares into which such Class A Shares are
exchanged) made within 12 months of purchase, if such purchases
were made at net asset value and triggered the payment by the
Distributor of the dealer's commission previously described. See
Classes of Shares.
The Limited CDSC will be paid to the Distributor and will be
equal to the lesser of 1% of: (1) the net asset value at the time
of purchase of the Class A Shares being redeemed; or (2) the net
asset value of such Class A Shares at the time of redemption.
For purposes of this formula, the "net asset value at the time of
purchase" will be the net asset value at purchase of the Class A
Shares even if those shares are later exchanged for shares of
another Delaware Group fund and, in the event of an exchange of
Class A Shares, the "net asset value of such shares at the time
of redemption" will be the net asset value of the shares acquired
in the exchange.
Redemptions of such Class A Shares held for more than 12
months will not be subjected to the Limited CDSC and an exchange
of such Class A Shares into another Delaware Group fund will not
trigger the imposition of the Limited CDSC at the time of such
exchange. The period a shareholder owns shares into which Class
A Shares are exchanged will count towards satisfying the 12-month
holding period. The Limited CDSC is assessed if such 12-month
period is not satisfied irrespective of whether the redemption
triggering its payment is of Class A Shares of the Fund or Class
A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be
assumed that shares not subject to the Limited CDSC are the first
redeemed followed by other shares held for the longest period of
time. The Limited CDSC will not be imposed upon shares
representing reinvested dividends or capital gains distributions,
or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month
the investment occurred, will age one month on the last day of
that month and each subsequent month.
Waiver of Limited Contingent Deferred Sales Charge - Class A
Shares
The Limited CDSC for Class A Shares on which a dealer's
commission has been paid will be waived in the following
instances: (i) redemptions that result from the Fund's right to
liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the
then-effective minimum account size; (ii) distributions to
participants from a retirement plan qualified under section
401(a) or 401(k) of the Internal Revenue Code of 1986, as amended
(the "Code"), or due to death of a participant in such a plan;
(iii) redemptions pursuant to the direction of a participant or
beneficiary of a retirement plan qualified under section 401(a)
or 401(k) of the Code with respect to that retirement plan; (iv)
periodic distributions from an IRA, SIMPLE IRA, or 403(b)(7) or
457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under
Section 72(t) of the Internal Revenue Code; (v) returns of excess
contributions to an IRA; (vi)distributions by other employee
benefit plans to pay benefits;(vii) distributions described in
(ii), (iv), and (vi) above pursuant to a systematic withdrawal
plan; and (viii) redemptions by the classes of shareholders who
are permitted to purchase shares at net asset value, regardless
of the size of the purchase see Buying Class A Shares at Net
Asset Value under Classes of Shares).
Waiver of Contingent Deferred Sales Charge - Class B and Class C
Shares
The CDSC is waived on certain redemptions of Class B Shares
in connection with the following redemptions: (i) redemptions
that result from the Fund's right to liquidate a shareholder's
account if the aggregate net asset value of the shares held in
the account is less than the then-effective minimum account size;
(ii) returns of excess contributions to an IRA, SIMPLE IRA,
SEP/IRA or 403(b)(7) or 457 Deferred Compensation Plans, (iii)
periodic distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA,
403(b)(7) or 457 Deferred Compensation Plan, and IRA
distributions qualifying under Section 72(t) of the Internal
Revenue Code; and (iv) distributions from an account if the
redemption results from the death of all registered owners of the
account (in the case of accounts established under the Uniform
Gifts to Minors or Uniform Transfers to Minors Acts or trust
accounts, the waiver applies upon the death of all beneficial
owners) or a total and permanent disability (as defined in
Section 72 of the Code) of all registered owners occurring after
the purchase of the shares being redeemed.
The CDSC on Class C Shares is waived in connection with the
following redemptions: (i) redemptions that result from the
Fund's right to liquidate a shareholder's account if the
aggregate net asset value of the shares held in the account is
less than the then-effective minimum account size; (ii) returns
of excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457
Deferred Compensation Plan, Profit Sharing Plan, Money Purchase
Pension Plan, or 401(k) Defined Contribution Plan; (iii) periodic
distributions from a 403(b)(7) or 457 Deferred Compensation Plan
upon attainment of age 59 1/2, Profit Sharing Plan, Money
Purchase Pension Plan, 401(k) Defined Contribution Plans upon
attainment of age 70 1/2, and IRA distributions qualifying under
Section 72(t) of the Internal Revenue Code; (iv) distributions
from a 403(b)(7) Deferred Compensation Plan, 457 Deferred
Compensation Plan, Profit Sharing Plan, or 401(k) Defined
Contribution Plan, under hardship provisions of the plan; (v)
distributions from a 403(b)(7) Deferred Compensation Plan, 457
Deferred Compensation Plan, Profit Sharing Plan, Money Purchase
Pension Plan or a 401(k) Defined Contribution Plan upon
attainment of normal retirement age under the plan or upon
separation from service; (vi) periodic distributions from an IRA
or SIMPLE IRA on or after attainment of age 59; and (vii)
distributions from an account if the redemption results from the
death of all registered owners of the account (in the case of
accounts established under the Uniform Gifts to Minors or Uniform
Transfers to Minors Acts or trust accounts, the waiver applies
upon the death of all beneficial owners) or a total and permanent
disability (as defined in Section 72 of the Code) of all
registered owners occurring after the purchase of the shares
being redeemed.
In addition, the CDSC will be waived on Class B and Class C
Shares redeemed in accordance with a Systematic Withdrawal Plan
if the annual amount selected to be withdrawn under the Plan does
not exceed 12% of the value of the account on the date that the
Systematic Withdrawal Plan was established or modified.
DIVIDENDS AND DISTRIBUTIONS
Mutual Funds III, Inc. currently intends to make annual
payments from the Fund's net investment income. Payments from
the Fund's net realized security profits will be made during the
first quarter of the next fiscal year.
Each Class of the Fund will share proportionately in the
investment income and expenses of the Fund, except that the per
share dividends from net investment income on the Class A Shares,
the Class B Shares and the Class C Shares will vary due to the
expenses under the 12b-1 Plan applicable to each Class.
Generally, the dividends per share on Class B Shares and Class C
Shares can be expected to be lower than the dividends per share
on Class A Shares because the expenses under the 12b-1 Plans
relating to Class B and Class C Shares will be higher than the
expenses under the 12b-1 Plan relating to Class A Shares. See
Distribution (12b-1) and Service under Management of the Fund.
Both dividends and distributions, if any, are automatically
reinvested in your account at net asset value unless you elect
otherwise. Any check in payment of dividends or other
distributions which cannot be delivered by the United States Post
Office or which remains uncashed for a period of more than one
year may be reinvested in your account at the then-current net
asset value and the dividend option may be changed from cash to
reinvest. If you elect to take your dividends and distributions
in cash and such dividends and distributions are in an amount of
$25 or more, you may choose the MoneyLine Direct Deposit Service
and have such payments transferred from your Fund account to your
predesignated bank account. This service is not available for
certain retirement plans. See MoneyLine Direct Deposit Service
under The Delaware Difference for more information about this
service.
TAXES
The tax discussion set forth below is included for general
information only. Investors should consult their own tax
advisers concerning the federal, state, local or foreign tax
consequences of an investment in the Fund.
The Fund intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code (the
"Code"). As such, the Fund will not be subject to federal income
tax, or to any excise tax, to the extent its earnings are
distributed as provided in the Code.
The Fund intends to distribute substantially all of its net
investment income and net capital gains, if any. Dividends from
net investment income or net short-term capital gains will be
taxable to those investors who are subject to income taxes as
ordinary income, whether received in cash or in additional
shares. It is expected that either none or only a nominal
portion of the Fund's dividends will be eligible for the
dividends-received deduction for corporations.
Distributions paid by the Fund from long-term capital gains,
whether received in cash or in additional shares, are taxable to
those investors who are subject to income taxes as long-term
capital gains, regardless of the length of time an investor has
owned shares in the Fund. The Fund does not seek to realize any
particular amount of capital gains during a year; rather,
realized gains are a by-product of Fund management activities.
Consequently, capital gains distributions may be expected to vary
considerably from year to year. Also, for those investors
subject to tax, if purchases of shares in the Fund are made
shortly before the record date for a dividend or capital gains
distribution, a portion of the investment will be returned as a
taxable distribution.
Although dividends generally will be treated as distributed
when paid, dividends which are declared in October, November or
December to shareholders of record on a specified date in one of
those months, but which, for operational reasons, may not be paid
to the shareholder until the following January, will be treated
for tax purposes as if paid by the Fund and received by the
shareholder on December 31 of the calendar year in which they are
declared.
The sale of shares of the Fund is a taxable event and may
result in a capital gain or loss to shareholders subject to tax.
Capital gain or loss may be realized from an ordinary redemption
of shares or an exchange of shares between the Fund and any other
fund in the Delaware Group. Any loss incurred on a sale or
exchange of Fund shares that had been held for six months or less
will be treated as a long-term capital loss to the extent of
capital gain dividends received with respect to such shares. All
or a portion of the sales charge incurred in acquiring Fund
shares will be excluded from the federal tax basis of any of such
shares sold or exchanged within 90 days of their purchase (for
purposes of determining gain or loss upon the sale of such
shares) if the sale proceeds are reinvested in the Fund or in
another fund in the Delaware Group of funds and a sales charge
that would otherwise apply to the reinvestment is reduced or
eliminated. Any portion of such sales charge excluded from the
tax basis of the shares sold will be added to the tax basis of
the shares acquired in the reinvestment.
The automatic conversion of Class B Shares into Class A
Shares at the end of approximately eight years after purchase
will be tax-free for federal tax purposes. See Automatic
Conversion of Class B Shares under Classes of Shares.
The Fund may be subject to foreign withholding taxes on
income from certain of its foreign securities.
In addition to federal taxes, shareholders may be subject to
state and local taxes on distributions. Distributions of
interest income and capital gains realized from certain types of
U.S. government securities may be exempt from state personal
income taxes. Shares of the Fund are exempt from Pennsylvania
county personal property taxes.
Each year, Mutual Funds III, Inc. will mail to you
information on the tax status of the dividends and distributions
paid by the Fund in which you hold shares. Shareholders will
also receive each year information as to the portion of dividend
income that is derived from U.S. government securities that are
exempt from state income tax. Of course, shareholders who are
not subject to tax on their income would not be required to pay
tax on amounts distributed to them by the Fund.
The Fund is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to shareholders
who have not complied with IRS taxpayer identification
regulations. You may avoid this withholding requirement by
certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject
to backup withholding.
See Part B for additional information on tax matters
relating to the Fund and its shareholders.
CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE
The net asset value ("NAV") per share is computed by adding
the value of all securities and other assets in the portfolio,
deducting any liabilities (expenses and fees are accrued daily)
and dividing by the number of shares outstanding. Debt
securities are priced on the basis of valuations provided by an
independent pricing service using methods approved by Mutual
Funds III, Inc.'s Board of Directors. Equity securities for
which marked quotations are available are priced at market value.
Short-term investments having a maturity of less than 60 days are
valued at amortized cost, which approximates market value. All
other securities are valued at their fair value as determined in
good faith and in a method approved by Mutual Funds III, Inc.'s
Board of Directors.
Class A Shares are purchased at the offering price per
share, while Class B Shares and Class C Shares are purchased at
the NAV per share. The offering price per share of Class A
Shares consists of the NAV per share next computed after the
order is received, plus any applicable front-end sales charges.
The offering price and NAV are computed as of the close of
regular trading on the New York Stock Exchange (ordinarily, 4
p.m., Eastern time) on days when the Exchange is open.
The net asset values of all outstanding shares of each Class
of the Fund will be computed on a pro-rata basis for each
outstanding share based on the proportionate participation in the
Fund represented by the value of shares of that Class. All
income earned and expenses incurred by the Fund will be borne on
a pro-rata basis by each outstanding share of a Class, based on
each Class' percentage in the Fund represented by the value of
shares of such Classes.
MANAGEMENT OF THE FUND
Directors
The business and affairs of Mutual Funds III, Inc. are
managed under the direction of its Board of Directors. Part B
contains additional information regarding Mutual Funds III,
Inc.'s directors and officers.
Investment Manager
The Manager furnishes investment management services to the
Fund.
The Manager and its predecessors have been managing the
funds in the Delaware Group since 1938. On April 30, 1997, the
Manager and its affiliates within the Delaware Group, including
Delaware International Advisers Ltd., were managing in the
aggregate more than $32 billion in assets in the various
institutional or separately managed (approximately
$20,677,606,000) and investment company (approximately
$11,935,210,000) accounts.
The Manager is an indirect, wholly owned subsidiary of
Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a
merger between DMH and a wholly owned subsidiary of Lincoln
National Corporation ("Lincoln National") was completed. DMH and
the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a
diversified organization with operations in many aspects of the
financial services industry, including insurance and investment
management.
The Manager administers the affairs of and is ultimately
responsible for the investment management of the Fund under an
Investment Management Agreements with Mutual Funds III, Inc. on
behalf of the Fund dated June 26, 1997. Under the Investment
Management Agreement for the Fund, the Manager is paid an annual
fee equal to 0.75% on the first $500 million, 0.725% on the next
$500 million and 0.70% on the average daily net assets in excess
of $1 billion.
George H. Burwell has primary responsibility for making day-
to-day investment decisions for the Fund. Mr. Burwell holds a BA
from the University of Virginia. Prior to joining the Delaware
Group in 1992, Mr. Burwell was a portfolio manager for Midlantic
Bank in Edison, New Jersey, where he managed an equity mutual
fund and three commingled funds. Mr. Burwell is a CFA
charterholder.
In making investment decisions for the Fund, Mr. Burwell
regularly consults with Wayne A. Stork and Richard G. Unruh, Jr.
Mr. Stork, Chairman of the Manager and Mutual Funds III, Inc.'s
Board of Directors, is a graduate of Brown University and
attended New York University's Graduate School of Business
Administration. Mr. Stork joined the Delaware Group in 1962 and
has served in various executive capacities at different times
within the Delaware organization. A graduate of Brown
University, Mr. Unruh received his MBA from the University of
Pennsylvania's Wharton School and joined the Delaware Group in
1982 after 19 years of investment management experience with
Kidder, Peabody & Co. Inc. Mr. Unruh is an Executive Vice
President of Mutual Funds III, Inc. He is also a member of the
Board of the Manager and was named an Executive Vice President of
the Manager in 1994. He is on the Board of Directors of Keystone
Insurance Company and AAA Mid-Atlantic and is a former president
and current member of the Advisory Council of the Bond Club of
Philadelphia.
Portfolio Trading Practices
The Fund normally will not invest for short-term trading
purposes. However, the Fund may sell securities without regard
to the length of time they have been held. The degree of
portfolio activity will affect brokerage costs of the Fund and
may affect taxes payable by the Fund's shareholders. Given the
Fund's investment objective, its annual portfolio turnover rate
is not expected to exceed 100%. A turnover rate of 100% would
occur, for example, if all the investments in the Fund's
portfolio at the beginning of the year were replaced by the end
of the year.
The Fund uses its best efforts to obtain the best available
price and most favorable execution for portfolio transactions.
Orders may be placed with brokers or dealers who provide
brokerage and research services to the Manager or to their
advisory clients. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and
execution, the Fund may consider a broker/dealer's sales of
shares of funds in the Delaware Group of funds in placing
portfolio orders and may place orders with broker/dealers that
have agreed to defray certain expenses of such funds, such as
custodian fees.
Performance Information
From time to time, the Fund may quote total return
performance of its Classes in advertising and other types of
literature.
Total return will be based on a hypothetical $1,000
investment, reflecting the reinvestment of all distributions at
net asset value and: (i) in the case of Class A Shares, the
impact of the maximum front-end sales charge at the beginning of
each specified period; and (ii) in the case of Class B Shares and
Class C Shares, the deduction of any applicable CDSC at the end
of the relevant period. Each presentation will include the
average annual total return for one-, five- and ten-year or life-
of-fund periods, as relevant. The Fund may also advertise
aggregate and average total return information concerning a Class
over additional periods of time. In addition, the Fund may
present total return information that does not reflect the
deduction of the maximum front-end sales charge or any applicable
CDSC. In this case, such total return information would be more
favorable than total return information that includes the
deductions of the maximum front-end sales charge or any
applicable CDSC.
Net asset value fluctuates and is not guaranteed. Past
performance is not a guarantee of future results.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the
national distributor of the Fund's shares under a Distribution
Agreement with Mutual Funds III, Inc. dated as of June 26, 1997.
Mutual Funds III, Inc. has adopted a separate distribution
plan under Rule 12b-1 for each of the Class A Shares, Class B
Shares and Class C Shares of the Fund (the "Plans"). The Plans
permit the Fund to pay the Distributor from the assets of the
respective Classes a monthly fee for the Distributor's services
and expenses in distributing and promoting sales of shares.
These expenses include, among other things, preparing and
distributing advertisements, sales literature, and prospectuses
and reports used for sales purposes, compensating sales and
marketing personnel, holding special promotions for specified
periods of time, and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of
shares of the Classes, the Distributor may, from time to time,
pay to participate in dealer-sponsored seminars and conferences,
and reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences, and advertising. The
Distributor may pay or allow additional promotional incentives to
dealers as part of preapproved sales contests and/or to dealers
who provide extra training and information concerning a Class and
increase sales of the Class. In addition, the Fund may make
payments from the 12b-1 plan fees of its respective Class
directly to others, such as banks, who aid in the distribution of
Class shares or provide services in respect of a Class, pursuant
to service agreements with Mutual Funds III, Inc.
The 12b-1 Plan expenses relating to each of the Class B
Shares and Class C Shares are also used to pay the Distributor
for advancing the commission costs to dealers with respect to the
initial sale of such shares.
The aggregate fees paid by the Fund from the assets of its
Classes to the Distributor and others under the Plans may not
exceed (i) 0.30% of the Class A Shares' average daily net assets
in any year, and (ii) 1% (0.25% of which are service fees to be
paid to the Distributor, dealers and others for providing
personal service and/or maintaining shareholder accounts) of each
of the Class B Shares' and Class C Shares' average daily net
assets in any year. The Class A, Class B and Class C Shares will
not incur any distribution expenses beyond these limits, which
may not be increased without shareholder approval.
While payments pursuant to the Plans may not exceed 0.30%
annually with respect to the Class A Shares, and 1% annually with
respect to each of the Class B Shares and the Class C Shares, the
Plans do not limit fees to amounts actually expended by the
Distributor. It is therefore possible that the Distributor may
realize a profit in any particular year. However, the
Distributor currently expects that its distribution expenses will
likely equal or exceed payments to it under the Plans. The
Distributor may, however incur such additional expenses and make
additional payments to dealers from its own resources to promote
the distribution of shares of the Classes. The monthly fees paid
to the Distributor under the Plans are subject to the review and
approval of Mutual Funds III, Inc.'s unaffiliated directors, who
may reduce the fees or terminate the Plans at any time.
The Transfer Agent, Delaware Service Company, Inc., serves
as the shareholder servicing, dividend disbursing and transfer
agent for the Fund pursuant to an amended and restated agreement
dated as of June 26, 1997. The Transfer Agent also provides
accounting services to the Fund pursuant to the terms of a
separate Fund Accounting Agreement. The directors of Mutual
Funds III, Inc. annually review service fees paid to the Transfer
Agent.
The Distributor and the Transfer Agent are also indirect,
wholly owned subsidiaries of DMH.
Expenses
The Fund is responsible for all of its own expenses other
than those borne by the Manager under the Investment Management
Agreement and those borne by the Distributor under the
Distribution Agreement. The expense ratio of each Class will
reflect the impact of its 12b-1 Plan.
Shares
Mutual Funds III, Inc. is an open-end management investment
company. The Fund's portfolio of assets is diversified as
defined by the 1940 Act. Commonly known as a mutual fund, Mutual
Funds III, Inc. was organized as a Minnesota corporation in
January 1985. In addition to the Fund, Mutual Funds III, Inc.
presently offers two other series of shares, the Aggressive
Growth Fund series and the Growth Stock Fund series.
All shares of Mutual Funds III, Inc. are non-assessable and
fully transferable when issued and paid for in accordance with
the terms thereof and possess no cumulative voting, preemptive or
conversion rights. The Board of Directors is empowered to issue
other series of common stock without shareholder approval.
The Fund currently offers its shares in three classes, each
with different sales arrangements and bearing different expenses.
Class A, Class B and Class C shares each represent interests in
the assets of the Fund and have identical voting, dividend,
liquidation and other rights on the same terms and conditions
except that expenses related to the distribution of each Class
are borne solely by such Class and each Class of shares has
exclusive voting rights with respect to provisions of the Fund s
Rule 12b-1 distribution plan which pertain to a particular Class
and other matters for which separate Class voting is appropriate
under applicable law.
Fund shares are freely transferable, are entitled to
dividends as declared by the Board, and, in liquidation, are
entitled to receive the net assets, if any, of the Fund. The
Fund does not generally hold annual meetings of shareholders and
will do so only when required by law.
Each share of each Class of a series has one vote
irrespective of the relative net asset values of the shares. On
some issues, such as the election of Directors, all series and
Classes vote together as one. On an issue affecting only a
particular series or Class, the shares of the affected series or
Class vote as a separate series or Class. An example of such an
issue would be a fundamental investment restriction pertaining to
only one series.
The assets received by Mutual Funds III, Inc. for the issue
or sale of shares of each series or Class thereof, and all
income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are allocated to such series, and in the
case of a Class, allocated to such Class, and constitute the
underlying assets of such series or Class. The underlying assets
of each series or Class thereof are required to be segregated on
the books of account, and are to be charged with the expenses in
respect to such series or Class, and with a share of the general
expenses of Mutual Funds III, Inc. Any general expenses of
Mutual Funds III, Inc. not readily identifiable as belonging to a
particular series or Class shall be allocated among the series or
Classes thereof, based upon the relative net assets of the series
or Class at the time such expenses were accrued.
Mutual Funds III, Inc.'s Amended and Restated Articles of
Incorporation limit liability of the its Directors to the fullest
extent permitted by law.
It is expected that The Lincoln National Life Insurance
Company will make an initial investment in the Fund, which could
result in The Lincoln National Life Insurance Company holding up
to 100% of the outstanding shares of the Fund. Subject to
certain limited exceptions, there would be no limitation on The
Lincoln National Life Insurance Company's ability to redeem its
shares of the Fund and it may elect to do so at any time.
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
Illiquid Securities
The Fund is authorized to invest up to 15% of its net assets
in illiquid securities, which are securities that cannot be
disposed of by the Fund within seven days in the ordinary course
of business at approximately the amount at which the Fund has
valued the securities. The Fund may invest in non-publicly
traded securities (commonly referred to as restricted
securities ), which are securities that are subject to
contractual or legal restrictions on transfer. Restricted
securities include securities that are not registered under the
Securities Act of 1933, as amended, but that can be sold to
qualified institutional buyers in accordance with Rule 144A
under such Act ( Rule 144A Securities ). Thus, restricted
securities are not necessarily illiquid. The Fund s investments
in restricted securities will be considered liquid only if the
Manager determines that they are liquid under guidelines
established by Mutual Funds III, Inc.'s Board of Directors.
Non-publicly traded securities may be less liquid than
publicly traded securities. Although these securities may be
resold in privately negotiated transactions, the prices realized
from these sales could be less than those originally paid by the
Fund. In addition, companies whose securities are not publicly
traded are not subject to the disclosure and other investor
protection requirements that may be applicable if their
securities were publicly traded. The Fund s investments in
illiquid securities are subject to the risk that should the Fund
desire to sell any of these securities when a ready buyer is not
available at a price representative of their value, the value of
the Fund s net assets could be adversely affected.
Certain Rule 144A Securities may be considered illiquid and,
therefore, subject to the Fund s limitation on the purchase of
illiquid securities, unless the Manager, subject to the
supervision of the Board of Directors, determines on an ongoing
basis that an adequate trading market exists for the Rule 144A
Securities. The Fund s purchase of Rule 144A Securities could
have the effect of increasing the level of illiquidity in the
Fund to the extent that qualified institutional buyers become
uninterested for a time in purchasing Rule 144A Securities held
by the Fund.
Indexed Securities
Indexed securities include commercial paper, certificates of
deposit and other fixed-income securities whose values at
maturity or coupon interest rates are determined by reference to
the return of a particular stock index or group of stocks.
Indexed securities can be affected by changes in interest rates
and the creditworthiness of their issuers as well as stock prices
and may not track market returns as accurately as direct
investments in common stocks.
Indexed securities in which the Fund may invest include
Foreign Index Linked Instruments. Foreign Index Linked
Instruments are fixed-income securities which are issued by U.S.
issuers (including U.S. subsidiaries of foreign issuers) and are
denominated in U.S. dollars but return principal and/or pay
interest to investors in amounts which are linked to the level of
a particular foreign index. A foreign index may be based upon
the exchange rate of a particular currency or currencies or the
differential between two currencies, or the level of interest
rates in a particular country or countries, or the differential
in interest rates between particular countries. In the case of
Foreign Index Linked Instruments linking the principal amount to
a foreign index, the amount of principal payable by the issuer at
maturity will increase or decrease in response to changes in the
level of the foreign index during the term of the Foreign Index
Linked Instrument. In the case of Foreign Index Linked
Instruments linking the interest component to a foreign index,
the amount of interest payable will adjust periodically in
response to changes in the level of the foreign index during the
term of the Foreign Index Linked Instrument. Foreign Index
Linked Instruments may be issued by a U.S. governmental agency or
instrumentality or by a private issuer.
Swap Agreements
Swap agreements typically involve a commitment by the Fund
to pay specified amounts (such as fixed or floating interest
rates) at regular intervals in return for all or a portion of the
investment return of a particular stock index or group of stocks.
As with stock index options and futures (discussed below), swap
agreements provide exposure to the stock market, but may not
track market returns as accurately as direct investments in
common stocks. In addition, the Fund typically depends on the
credit of a single counterparty when investing in a swap
agreement, and may suffer a loss irrespective of the value of the
underlying index if the counterparty s credit declines. The Fund
will usually enter into swap agreements on a net basis, i.e., the
two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund s
obligations over its entitlements with respect to each swap
agreement will be accrued on a daily basis, and an amount of
cash, U.S. government securities or other liquid high-grade debt
securities having an aggregate net asset value at least equal to
the accrued excess will be maintained in a segregated account by
the Fund s custodian. If the Fund enters into a swap agreement
on other than a net basis, the Fund will maintain a segregated
account in the full amount, accrued on a daily basis, of the
Fund s obligations with respect to the swap.
Investments in Other Investment Companies
As a means of regulating the Fund s exposure to the equity
markets, the Fund may invest to the extent permitted by law in
securities issued by other registered investment companies,
including those traded on securities exchanges, that invest
principally in securities in which the Fund is authorized to
invest. Currently under the 1940 Act, the Fund may invest a
maximum of 10% of its total assets in the securities of other
investment companies. In addition, under the 1940 Act, not more
than 5% of the Fund s total assets may be invested in the
securities of any one investment company, and the Fund may not
own more than 3% of the outstanding securities of any investment
company.
To the extent the Fund invests in other investment
companies, the Fund s shareholders will incur certain duplicative
fees and expenses, including investment adviser fees. Exchange
traded investment company securities typically trade at prices
that differ from the company s net asset value per share and
often trade at a discount to net asset value. The Fund will
purchase exchange traded investment company securities only in
the secondary market and not in an initial offering.
Repurchase Agreements
The Fund may engage in repurchase agreement transactions
with respect to instruments in which the Fund is authorized to
invest. Although the amount of the Fund s assets that may be
invested in repurchase agreements terminable in less than seven
days is not limited, repurchase agreements maturing in more than
seven days, together with other illiquid securities, will not
exceed 15% of the Fund s net assets. The Fund will engage in
repurchase agreement transactions, which are in the nature of
secured loans by the Fund, with certain member banks of the
Federal Reserve System and with certain recognized securities
dealers. The Fund will only engage in repurchase agreements with
banks and dealers determined to present minimal credit risk by
the Manager under the direction and supervision of the Board of
Directors. In addition, the Manager will monitor such
creditworthiness on an ongoing basis. Under the terms of a
typical repurchase agreement, the Fund would acquire an
underlying debt obligation for a relatively short period (usually
not more than seven days) subject to an obligation of the seller
to repurchase, and the Fund to resell, the obligation at an
agreed-upon price and time, thereby determining the yield during
the Fund s holding period. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during
the Fund s holding period. The value of the securities
underlying a repurchase agreement of the Fund is monitored on an
ongoing basis by the Manager to ensure that the value is at least
equal at all times to the total amount of the repurchase
obligation, including interest.
In entering into a repurchase agreement, the Fund bears a
risk of loss in the event that the other party to the transaction
defaults on its obligations and the Fund is delayed or prevented
from exercising its rights to dispose of the underlying
securities, including the risk of a possible decline in the value
of the underlying securities during the period in which the Fund
seeks to assert its rights to them, the risk of incurring
expenses associated with asserting those rights and the risk of
losing all or a part of the income from the agreement.
When-Issued and Delayed-Delivery Securities
To secure prices deemed advantageous at a particular time,
the Fund may purchase securities on a when-issued or
delayed-delivery basis, in which case delivery of the securities
occurs beyond the normal settlement period; payment for or
delivery of the securities would be made prior to the reciprocal
delivery or payment by the other party to the transaction. The
Fund will enter into when-issued or delayed-delivery transactions
for the purpose of acquiring securities and not for the purpose
of leverage. When-issued securities purchased by the Fund may
include securities purchased on a when, as and if issued basis
under which the issuance of the securities depends on the
occurrence of a subsequent event, such as approval of a merger,
corporate reorganization or debt restructuring. The Fund will
establish with its custodian, or with a designated sub-custodian,
a segregated account consisting of cash, government securities or
other liquid high-grade debt obligations in an amount equal to
the amount of its when-issued or delayed-delivery purchase
commitments.
Securities purchased on a when-issued or delayed-delivery
basis may expose the Fund to risk because the securities may
experience fluctuations in value prior to their actual delivery.
Purchasing securities on a when-issued or delayed-delivery basis
can involve the additional risk that the return available in the
market when the delivery takes place may be higher than that
applicable at the time of the purchase. This characteristic of
when-issued and delayed-delivery securities could result in
exaggerated movements in the Fund s net asset value.
Hedging Transactions
The Fund may write covered call options and secured put
options and purchase call and put options on securities and
security indices. The Fund may also engage in transactions in
financial futures contracts and related options for hedging
purposes. These investment techniques and the related risks are
summarized below and are described in more detail in Part B.
Writing (Selling) Call and Put Options
A call option on a security, security index or a foreign
currency gives the purchaser of the option, in return for the
premium paid to the writer (seller), the right to buy the
underlying security, index or foreign currency at the exercise
price at any time during the option period. Upon exercise by the
purchaser, the writer of a call option on an individual security
or foreign currency has the obligation to sell the underlying
security or currency at the exercise price. A call option on a
securities index is similar to a call option on an individual
security, except that the value of the option depends on the
weighted value of the group of securities comprising the index
and all settlements are made in cash. A call option may be
terminated by the writer (seller) by entering into a closing
purchase transaction in which it purchases an option of the same
series as the option previously written.
A put option on a security, security index, or foreign
currency gives the purchaser of the option, in return for the
premium paid to the writer (seller), the right to sell the
underlying security, index, or foreign currency at the exercise
price at any time during the option period.
Upon exercise by the purchaser, the writer of a put option
has the obligation to purchase the underlying security or foreign
currency at the exercise price. A put option on a securities
index is similar to a put option on an individual security,
except that the value of the option depends on the weighted value
of the group of securities comprising the index and all
settlements are made in cash.
Call options may be written on portfolio securities,
securities indices, or foreign currencies. Call options on
portfolio securities will be covered since the Fund will own the
underlying securities. Call options on securities indices will
be written only to hedge, in an economically appropriate way,
portfolio securities which are not otherwise hedged with options
or financial futures contracts and will be covered by
segregating or pledging to a broker as collateral for the option
the specific portfolio securities being hedged. Options on
foreign currencies will be covered by securities denominated in
that currency. Options on securities indices will be covered by
securities that substantially replicate the movement of the
index.
The Fund may write call and put options in order to obtain a
return on its investments from the premiums received and will
retain the premiums whether or not the options are exercised.
The risk involved in writing a put option is that there could be
a decrease in the market value of the underlying security caused
by rising interest rates or other factors. If this occurred, the
option could be exercised and the underlying security would then
be sold to the Fund at a higher price than its current market
value. The risk involved in writing a call option is that there
could be an increase in the market value of the underlying
security. If this occurred, the option could be exercised and
the underlying security would then be sold by the Fund at a lower
price than its current market value. These risks could be
reduced by entering into a closing transaction.
Over-the-counter options are purchased or written by the
Fund in privately negotiated transactions. Such OTC options may
include options on indices of securities representing various
market segments. Such options are generally considered illiquid
and it may not be possible for the Fund to dispose of an option
it has purchased or terminate its obligations under an option it
has written at a time when the Manager believes it would be
advantageous to do so.
Participation in the options market involves investment
risks and transaction costs to which the Fund would not be
subject absent the use of this strategy. If predictions of
movements in the direction of the securities and interest rate
markets are inaccurate, the adverse consequences to the Fund may
leave the Fund in a worse position than if such strategy was not
used. Risks inherent in the use of options include (a)
dependence on the ability of the Manager to predict correctly
movements in the direction of interest rates and securities
prices; (b) imperfect correlation between the price of options
and movements in the prices of the securities being hedged; (c)
the fact that the skills needed to use these strategies are
different from those needed to select portfolio securities; (d)
the possible absence of a liquid secondary market for any
particular instrument at any time; and (e) the possible need to
defer closing out certain hedged positions to avoid adverse tax
consequences. Because option premiums paid by the Fund are small
in relation to the market value of the investments underlying the
options, buying options can result in large amounts of leverage.
The leverage offered by trading in options could cause the Fund s
net asset value to be subject to more frequent and wider
fluctuations than would be the case if the Fund did not invest in
options.
Purchasing Call and Put Options, Warrants and Stock Rights
The Fund may invest in call and put options on securities
and securities indices. Purchases of such options may be made
for the purpose of hedging against changes in the market value of
the underlying securities or foreign currencies. The Fund may
invest in call and put options whenever, in the opinion of the
Manager, a hedging transaction is consistent with its investment
objective. The Fund may sell a call option or a put option which
it has previously purchased prior to the purchase (in the case of
a call) or the sale (in the case of a put) of the underlying
security or foreign currency. Any such sale would result in a
net gain or loss depending on whether the amount received on the
sale is more or less than the premium and other transaction costs
paid on the call or put which is sold. Purchasing a call or put
option involves the risk that the Fund may lose the premium it
paid plus transaction costs.
Warrants and stock rights are almost identical to call
options in their nature, use and effect except that they are
issued by the issuer of the underlying security rather than an
option writer, and they generally have longer expiration dates
than call options.
Financial Futures and Related Options
The Fund may enter into financial futures contracts and
related options as a hedge against anticipated changes in the
market value of its portfolio securities or securities which it
intends to purchase or in the exchange rate of foreign
currencies. Hedging is the initiation of an off-setting position
in the futures market which is intended to minimize the risk
associated with a position s underlying securities in the cash
market.
Financial futures contracts consist of interest rate futures
contracts, foreign currency futures contracts and securities
index futures contracts. An interest rate futures contract
obligates the seller of the contract to deliver, and the
purchaser to take delivery of, the interest rate securities
called for in the contract at a specified future time and at a
specified price. A securities index assigns relative values to
the securities included in the index, and the index fluctuates
with changes in the market values of the securities so included.
A securities index futures contract is a bilateral agreement
pursuant to which two parties agree to take or make delivery of
an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of the last
trading day of the contract and the price at which the futures
contract is originally struck. An option on a financial futures
contract gives the purchaser the right to assume a position in
the contract (a long position if the option is a call and a short
position if the option is a put) at a specified exercise price at
any time during the period of the option.
The Fund may purchase and sell financial futures contracts
which are traded on a recognized exchange or board of trade and
may purchase exchange or board-traded put and call options on
financial futures contracts. The Fund will engage in
transactions in financial futures contracts and related options
only for hedging purposes and not for speculation, and will do so
in accordance with the rules and regulations of the Commodity
Futures Trading Commission. At the time of purchase of a futures
contract or a call option on a futures contract, an amount of
cash, U.S. government securities or other appropriate high-grade
debt obligations equal to the market value of the futures
contract, minus the Fund s initial margin deposit with respect
thereto, will be deposited in a segregated account with the
Fund s custodian bank to collateralize fully the position. The
extent to which the Fund may enter into financial futures
contracts and related options may also be limited by requirements
of the Internal Revenue Code of 1986 for qualification as a
regulated investment company.
Engaging in transactions in financial futures contracts
involves certain risks, such as the possibility of an imperfect
correlation between futures market prices and cash market prices
and the possibility that the Manager could be incorrect in its
expectations as to the direction or extent of various interest
rate movements or foreign currency exchange rates, in which case
the Fund s return might have been greater had hedging not taken
place. There is also the risk that a liquid secondary market may
not exist. The risk in purchasing an option on a financial
futures contract is that the Fund will lose the premium it paid.
Also, there may be circumstances when the purchase of an option
on a financial futures contract would result in a loss to the
Fund while the purchase or sale of the contract would not have
resulted in a loss.
Foreign Securities
The Fund may invest up to 10% of its total assets in foreign
securities. There are substantial and different risks involved
in investing in foreign securities. An investor should consider
these risks carefully. For example, there is generally less
publicly available information about foreign companies than is
available about companies in the U.S. Foreign companies are not
subject to uniform audit and financial reporting standards,
practices and requirements comparable to those in the U.S.
Foreign securities involve currency risks. The U.S. dollar value
of a foreign security tends to decrease when the value of the
dollar rises against the foreign currency in which the security
is denominated and tends to increase when the value of the dollar
falls against such currency.
There is also the possibility of adverse changes in
investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or
other assets, political or social instability, or diplomatic
developments which could adversely affect investments, assets or
securities transactions of the Fund in some foreign countries.
The Fund is not aware of any investment or exchange control
regulations which might substantially impair their operations as
described, although this could change at any time.
The dividends and interest payable on certain foreign
securities may be subject to foreign withholding taxes, thus
reducing the net amount available for distribution to the Fund s
shareholders.
Foreign Index Linked Instruments may offer higher yields
than comparable securities linked to purely domestic indices but
also may be more volatile. Foreign Index Linked Instruments are
relatively recent innovations for which the market has not yet
been fully developed and, accordingly, they typically are less
liquid than comparable securities linked to purely domestic
indices. In addition, the value of Foreign Index Linked
Instruments will be affected by fluctuations in foreign exchange
rates or in foreign interest rates. If the Manager is incorrect
in its prediction as to the movements in the direction of
particular foreign currencies or foreign interest rates, the
return realized by the Fund on a Foreign Index Linked Instrument
may be lower than if the Fund had invested in a similarly rated
domestic security. The skills needed to predict foreign currency
and foreign interest rates are different from those needed to
select domestic portfolio securities. Foreign currency gains and
losses with respect to Foreign Index Linked Instruments may
affect the amount and timing of income recognized by the Fund.
The Fund will invest no more than 5% of its total assets in
Foreign Index Linked Instruments.
Investment Restrictions
Unless otherwise stated, the investment policies, techniques
and strategies discussed above represent non-fundamental
policies of the Fund and may be changed by action of the Board of
Directors. The Fund has also adopted certain fundamental
investment restrictions. These fundamental restrictions and the
Fund s investment objective may be changed only with the approval
of a majority of the respective Fund s outstanding voting
securities, as defined in the 1940 Act. Included among the
Fund s fundamental restrictions are the following:
1. The Fund will not borrow money, except that the Fund may
borrow from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests and cash
payments of dividends and distributions that might otherwise
require the untimely disposition of securities, in an amount not
to exceed 20% of the value of the Fund s total assets (including
the amount borrowed) valued at market less liabilities (not
including the amount borrowed) at the time the borrowing is made.
Whenever borrowings exceed 5% of the value of the total assets of
the Fund, the Fund will not make any additional investments.
2. The Fund will not invest 25% or more of the value of its
total assets in securities of issuers in any one industry. For
purposes of this restriction, the term industry will be deemed to
include the government of any country other than the United
States, but not the U.S. Government.
Certain other fundamental and non-fundamental investment
restrictions adopted by the Fund are described in Part B.
<PAGE>
APPENDIX B--CLASSES OFFERED
Growth of Capital A Class B Class C Class Consultant Class
Aggressive Growth
Fund x x x -
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Value Fund x x x -
U.S. Growth Fund x x x -
Growth Stock Fund x x x -
Tax-Efficient Equity
Fund x x x -
Total Return
Blue Chip Fund x x x -
Quantum Fund x x x -
Devon Fund x x x -
Decatur Total Return
Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -
International Diversification
Emerging Markets
Fund x x x -
New Pacific Fund x x x -
World Growth Fund x x x -
International Equity
Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -
Current Income
Delchester Fund x x x -
Strategic Income
Fund x x x -
Corporate Income
Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Delaware-Voyageur
US Government
Securities Fund x x x -
Limited-Term
Government Fund x x x -
(Not Part of Prospectus)
APPENDIX B--CLASSES OFFERED - (CON'T)
Tax-Free Income A Class B Class C Class Consultant Class
National High Yield
Municipal Bond Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA
Intermediate Fund x x x -
Delaware-Voyageur
Tax-Free Arizona
Insured Fund x x x -
Delaware-Voyageur
Tax-Free Arizona Fund x x x -
Delaware-Voyageur
Tax-Free California
Insured Fund x x x -
Delaware-Voyageur
Tax-Free California
Fund x x x -
Delaware-Voyageur
Tax-Free Colorado
Fund x x x -
Delaware-Voyageur
Tax-Free Florida
Insured Fund x x x -
Delaware-Voyageur
Tax-Free Florida
Intermediate Fund x x x -
Delaware-Voyageur
Tax-Free Florida
Fund x x x -
Delaware-Voyageur
Tax-Free Idaho Fund x x x -
Delaware-Voyageur
Tax-Free Iowa Fund x x x -
Delaware-Voyageur
Tax-Free Kansas Fund x x x -
APPENDIX B--CLASSES OFFERED - (CON'T)
Tax-Free Income A Class B Class C Class Consultant Class
Delaware-Voyageur
Minnesota High Yield
Municipal Bond Fund x x x -
Delaware-Voyageur
Minnesota Insured Fund x x x -
Delaware-Voyageur
Tax-Free Minnesota
Intermediate Fund x x x -
Delaware-Voyageur
Tax-Free Minnesota
Fund x x x -
Delaware-Voyageur
Tax-Free Missouri
Insured Fund x x x -
Delaware-Voyageur
Tax-Free New Mexico
Fund x x x -
Delaware-Voyageur
Tax-Free New York Fund x x x -
Delaware-Voyageur
Tax-Free North Dakota
Fund x x x -
Delaware-Voyageur
Tax-Free Oregon
Insured Fund x x x -
Tax-Free Pennsylvania
Fund x x x -
Delaware-Voyageur
Tax-Free Utah Fund x x x -
Delaware-Voyageur
Tax-Free Washington
Insured Fund x x x -
Delaware-Voyageur
Tax-Free Wisconsin
Fund x x x -
APPENDIX B--CLASSES OFFERED - (CON'T)
A Class B Class C Class Consultant Class
Money Market Funds
Delaware Cash
Reserve x x x x
U.S. Government
Money Fund x - - x
Tax-Free Money Fund x - - x
(Not Part of Prospectus)
APPENDIX A
Illustrations of the Potential Impact on
Investment Based on Purchase Option
$10,000 Purchase
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
Year Class A Class B Class C Class A Class B Class C
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,478 10,930 10,930 10,478 10,530 10,830+
2 11,525 11,946 11,946
3 12,678 13,058 13,058
4 13,946 14,272 14,272
5 15,340 15,599 15,599
6 16,874 17,050 17,050
7 18,562 18,636 18,636
8 20,418+ 20,369 20,369
9 22,459 22,405* 22,263
10 24,705 24,646* 24,333
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
Year Class A Class B Class C Class A Class B Class C
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,478 10,930 10,930 10,478 10,930 10,930
2 11,525 11,946 11,946 11,525 11,946 11,946
3 12,678 12,758 13,058+ 12,678 13,058 13,058
4 13,946 14,272 14,272
5 15,340 15,399 15,599+
*This assumes that Class B Shares were converted to
Class A Shares at the end of the eighth year.
$250,000 PURCHASE
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
Year Class A Class B Class C Class A Class B Class C
0 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,250 273,250 268,125 263,250 270,750+
2 294,938 298,662 298,662
3 324,431 326,438 326,438
4 356,874+ 356,797 356,797
5 392,562 389,979 389,979
6 431,818 426,247 426,247
7 475,000 465,888 465,888
8 522,500 509,215 509,215
9 574,750 560,137* 556,572
10 632,225 616,150* 608,333
APPENDIX A (cont.)
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
Year Class A Class B Class C Class A Class B Class C
0 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,250 273,250 268,125 273,250 273,250
2 294,938 298,662 298,662 294,938 298,662 298,662
3 324,431 318,938 326,438+ 324,431 326,438 326,438
4 356,874+ 356,797 356,797
5 392,562 384,979 384,979
*This assumes that Class B Shares were converted to
Class A Shares at the end of the eighth year.
Assumes a hypothetical return for Class A of 10% per year,
ahypothetical return for Class B of 9.3% for years 1-8 and 10%for
years 9-10, and a hypothetical return for Class C of 9.3% per
year. Hypothetical returns vary due to the different expense
structure for each Class and do not represent actual performance.
Class A purchase subject to appropriate sales charge breakpoint
(4.75% @ $10,000; 3.75% @ $100,000; 2.50% @ $250,000).
Class B purchase assessed appropriate CDSC upon redemption
(4%-4%-3%-3%-2%-1% in years 1-2-3-4-5-6).
Class C purchase assessed 1% CDSC upon redemption in year 1.
Figures marked "+" identify which Class offers the greater return
potential based on the investment amount, the holding period and
the expense structure for each Class.
June 26, 1997
VOYAGEUR TAX EFFICIENT EQUITY FUND
Supplement to Statement of Additional Information
dated February 19, 1997
The following revises information on page 1:
The Statement of Additional Information should be
read in conjunction with Tax-Efficient Equity Fund's (the
"Fund") Prospectus dated June 26, 1997. A copy of the
Prospectus or Statement of Additional Information may
be obtained free of charge by contacting the Fund at
1818 Market Street, Philadelphia, PA 19103.
Telephone: (800) 523-4640.
The following revises information in the section
entitled Plan of Distribution and Distribution
Agreement under The Investment Adviser and Underwriter:
Pursuant to Rule 12b-1 under the 1940 Act,
Mutual Funds III, Inc. has adopted a separate plan for
each of the Class A Shares, Class B Shares and Class C
Shares of the Fund (the "Plans"). Each Plan permits
the Fund to pay for certain distribution, promotional
and related expenses involved in the marketing of only
the class to which the Plan applies.
The Plans permit the Fund, pursuant to its
Distribution Agreement, to pay out of the assets of
the Class A Shares, Class B Shares and Class C Shares
monthly fees to the Distributor for its services and
expenses in distributing and promoting sales of shares
of such classes. These expenses include, among other
things, preparing and distributing advertisements,
sales literature and prospectuses and reports used for
sales purposes, compensating sales and marketing
personnel, and paying distribution and maintenance
fees to securities brokers and dealers who enter into
agreements with the Distributor. The Plan expenses
relating to Class B and Class C Shares are also used
to pay the Distributor for advancing the commission
costs to dealers with respect to the initial sale of
such shares.
In addition, the Fund may make payments out of
the assets of the Class A, Class B and Class C Shares
directly to other unaffiliated parties, such as banks,
who either aid in the distribution of shares of, or
provide services to, such classes.
The maximum aggregate fee payable by the Fund
under its Plans, and the Fund's Distribution
Agreements, is on an annual basis, up to 0.30% of the
Class A Shares' average daily net assets for the year,
and up to 1% (0.25% of which are service fees to be
paid to the Distributor, dealers and others for
providing personal service and/or maintaining
shareholder accounts) of each of the Class B Shares'
and the Class C Shares' average daily net assets for
the year. Mutual Funds III, Inc.'s Board of Directors
may reduce these amounts at any time.
All of the distribution expenses incurred by the
Distributor and others, such as broker/dealers, in
excess of the amount paid on behalf of Class A, Class
B and Class C Shares would be borne by such persons
without any reimbursement from such Classes. Subject
to seeking best price and execution, the Fund may,
from time to time, buy or sell portfolio securities
from or to firms which receive payments under the
Plans.
From time to time, the Distributor may pay
additional amounts from its own resources to dealers
for aid in distribution or for aid in providing
administrative services to shareholders.
The Plans and the Distribution Agreements, as
amended, have all been approved by the Board of
Directors of Mutual Funds III, Inc., including a
majority of the directors who are not "interested
persons" (as defined in the 1940 Act) of Mutual Funds
III, Inc. and who have no direct or indirect financial
interest in the Plans, by vote cast in person at a
meeting duly called for the purpose of voting on the
Plans and such Agreements. Continuation of the Plans
and the Distribution Agreements, as amended, must be
approved annually by the Board of Directors in the
same manner as specified above.
Each year, the directors must determine whether
continuation of the Plans is in the best interest of
shareholders of, respectively, Class A Shares, Class B
Shares and Class C Shares of the Fund and that there
is a reasonable likelihood of the Plan relating to a
Class providing a benefit to that Class. The Plans
and the Distribution Agreements, as amended, may be
terminated with respect to a Class at any time without
penalty by a majority of those directors who are not
"interested persons" or by a majority vote of the
outstanding voting securities of the relevant Class.
Any amendment materially increasing the percentage
payable under the Plans must likewise be approved by a
majority vote of the outstanding voting securities of
the relevant Class, as well as by a majority vote of
those directors who are not "interested persons."
With respect to each Class A Shares' Plan, any
material increase in the maximum percentage payable
thereunder must also be approved by a majority of the
outstanding voting Class B Shares of the Fund. Also,
any other material amendment to the Plans must be
approved by a majority vote of the directors including
a majority of the noninterested directors of Mutual
Funds III, Inc. having no interest in the Plans. In
addition, in order for the Plans to remain effective,
the selection and nomination of directors who are not
"interested persons" of Mutual Funds III, Inc. must be
effected by the directors who themselves are not
"interested persons" and who have no direct or
indirect financial interest in the Plans. Persons
authorized to make payments under the Plans must
provide written reports at least quarterly to the
Board of Directors for their review.
The following revises information in the section
entitled The Investment Adviser and Underwriter:
Delaware Management Company, Inc. (the
"Manager") serves as the investment manager to the
Fund. The Manager is an indirect, wholly owned
subsidiary of Delaware Management Holdings, Inc.
("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National
Corporation ("Lincoln National") was completed. DMH
and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control, of
Lincoln National. Lincoln National, with headquarters
in Fort Wayne, Indiana, is a diversified organization
with operations in many aspects of the financial
services industry, including insurance and investment
management.
The Investment Management Agreement between the
Manager and Mutual Funds III, Inc. for the Fund is
dated June 26, 1997 and was approved by the initial
shareholder on June 27, 1997. The Agreement has an
initial term of two years and may be renewed each year
only so long as such renewal and continuance are
specifically approved at least annually by the Board
of Directors or by vote of a majority of the
outstanding voting securities of the Fund, and only if
the terms and the renewal thereof have been approved
by the vote of a majority of the directors of Mutual
Funds III, Inc. who are not parties thereto or
interested persons of any such party, cast in person
at a meeting called for the purpose of voting on such
approval. The Agreement is terminable without
penalty on 60 days' notice by the directors of Mutual
Funds III, Inc. or by the Manager. The Agreement will
terminate automatically in the event of its
assignment.
Delaware Service Company, Inc., an affiliate of
DMH, 1818 Market Street, Philadelphia, PA 19103, is
the Fund's shareholder servicing, dividend disbursing,
accounting services and transfer agent. Delaware
Distributors, L.P., another affiliate of DMH,
1818 Market Street, Philadelphia, PA 19103, is the
Fund's principal underwriter.
The following replaces information under the section
entitled Board Members and Executive Officers of the Company:
Directors and principal officers of the Fund are
noted below along with their ages and their business
experience for the past five years. Unless otherwise
noted, the address of each officer and director is One
Commerce Square, Philadelphia, PA 19103.
*Wayne A. Stork (59)
Chairman, President, Chief Executive Officer,
Director and/or Trustee of the investment company,
each of the other 32 investment companies in the
Delaware Group, Delaware Management Holdings, Inc.,
DMH Corp., Delaware International Holdings Ltd. and
Founders Holdings, Inc.
Chairman and Director of Delaware Distributors,
Inc. and Delaware Capital Management, Inc.
Chairman, President, Chief Executive Officer,
Chief Investment Officer and Director of
Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of
Delaware International Advisers Ltd.
Director of Delaware Service Company, Inc. and
Delaware Investment & Retirement Services, Inc.
During the past five years, Mr. Stork has served
in various executive capacities at different times
within the Delaware organization.
Richard G. Unruh, Jr. (57)
Executive Vice President of the investment
company and each of the other 32 investment companies
in the Delaware Group.
Executive Vice President and Director of Delaware
Management Company, Inc.
Senior Vice President of Delaware Management
Holdings, Inc. and Delaware Capital Management, Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served
in various executive capacities at different times
within the Delaware organization.
*Director affiliated with the Fund's investment
manager and
considered an "interested person" as defined in the
1940 Act.
Paul E. Suckow (49)
Executive Vice President/Chief Investment
Officer, Fixed Income of the investment company, each
of the other 32 investment companies in the Delaware
Group and Delaware Management Company, Inc.
Executive Vice President/Chief Investment
Officer, Fixed Income and Director of Founders
Holdings, Inc.
Senior Vice President/Chief Investment Officer,
Fixed Income of Delaware Management Holdings, Inc.
Senior Vice President of Delaware Capital
Management, Inc.
Director of Founders CBO Corporation.
Director of HYPPCO Finance Company Ltd.
Before returning to the Delaware Group in 1993,
Mr. Suckow was Executive Vice President and Director
of Fixed Income for Oppenheimer Management
Corporation, New York, NY from 1985 to 1992. Prior to
that, Mr. Suckow was a fixed-income portfolio manager
for the Delaware Group.
Walter P. Babich (69)
Director and/or Trustee of the investment company
and each of the other 32 investment companies in the
Delaware Group.
460 North Gulph Road, King of Prussia, PA 19406.
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of
Irwin & Leighton and from 1988 to 1991, he was a
partner of I&L Investors.
Anthony D. Knerr (58)
Director and/or Trustee of the investment company
and each of the other 32 investment companies in the
Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Founder and Managing Director, Anthony Knerr &
Associates.
From 1982 to 1988, Mr. Knerr was Executive Vice
President/Finance and Treasurer of Columbia
University, New York. From 1987 to 1989, he was also
a lecturer in English at the University. In addition,
Mr. Knerr was Chairman of The Publishing Group, Inc.,
New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.
Ann R. Leven (56)
Director and/or Trustee of the investment company
and each of the other 32 investment companies in the
Delaware Group.
785 Park Avenue, New York, NY 10021.
Treasurer, National Gallery of Art.
From 1984 to 1990, Ms. Leven was Treasurer and
Chief Fiscal Officer of the Smithsonian Institution,
Washington, DC, and from 1975 to 1992, she was Adjunct
Professor of Columbia Business School.
W. Thacher Longstreth (76)
Director and/or Trustee of the investment company
and each of the other 32 investment companies in the
Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.
Thomas F. Madison (61)
Director and/or Trustee of the investment company
and each of the other 32 investment companies in the
Delaware Group.
President and CEO, MLM Partners, Inc.
200 South Fifth Street, Suite 2100, Minneapolis,
Minnesota 55402.
Mr. Madison has also been Chairman of the Board
of Communications Holdings, Inc. since 1996. From
February to September 1994, Mr. Madison served as Vice
Chairman--Office of the CEO of The Minnesota Mutual
Life Insurance Company and from 1988 to 1993, he was
President of U.S. WEST Communications--Markets.
*Jeffrey J. Nick (44)
Director and/or Trustee of the investment company
and each of the other 32 investment companies in the
Delaware Group.
President, Chief Executive Officer and Director
of Lincoln National Investment Companies, Inc.
From 1992 to 1996, Mr. Nick was Managing Director
of Lincoln National UK plc and from 1989 to 1992, he
was Senior Vice President responsible for corporate
planning and development for Lincoln National
Corporation.
*Director affiliated with the Fund's investment
manager and
considered an "interested person" as defined in the
1940 Act.
Charles E. Peck (71)
Director and/or Trustee of the investment company
and each of the other 32 investment companies in the
Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and
Chief Executive Officer of The Ryland Group, Inc.,
Columbia, MD.
David K. Downes (57)
Executive Vice President/Chief Operating
Officer/Chief Financial Officer of the investment
company, each of the other 32 investment companies in
the Delaware Group, Delaware Management Holdings,Inc.
and Delaware Capital Management, Inc.
Executive Vice President/Chief Operating
Officer/Chief Financial Officer and Director of
Delaware Management Company, Inc., DMH Corp., Delaware
Distributors, Inc., Founders Holdings, Inc. and
Delaware International Holdings Ltd.
Chairman and Director of Delaware Management
Trust Company and Delaware Investment & Retirement
Services, Inc.
President/Chief Executive Officer/Chief Financial
Officer and Director of Delaware Service Company, Inc.
Senior Vice President/Chief Administrative
Officer/Chief Financial Officer of Delaware
Distributors, L.P. Director of Delaware International
Advisers Ltd.
Before joining the Delaware Group in 1992, Mr.
Downes was Chief Administrative Officer, Chief
Financial Officer and Treasurer of Equitable Capital
Management Corporation, New York, from December 1985
through August 1992, Executive Vice President from
December 1985 through March 1992, and Vice Chairman
from March 1992 through August 1992.
George M. Chamberlain, Jr. (50)
Senior Vice President and Secretary of the
investment company, each of the other 32 investment
companies in the Delaware Group, Delaware Management
Holdings, Inc. and Delaware Distributors, L.P.
Executive Vice President, Secretary and Director
of Delaware Management Trust Company.
Senior Vice President, Secretary and Director of
DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Service Company, Inc.,
Founders Holdings, Inc., Delaware Investment &
Retirement Services, Inc. and Delaware Capital
Management, Inc.
Secretary and Director of Delaware International
Holdings Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has
served in various capacities at different times within
the Delaware organization.
Joseph H. Hastings (47)
Vice President/Corporate Controller of the
investment company, each of the other 32 investment
companies in the Delaware Group, Delaware Management
Company, Inc., Delaware Management Holdings, Inc., DMH
Corp., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc.,
Delaware Capital Management, Inc., Founders Holdings,
Inc. and Delaware International Holdings Ltd.
Executive Vice President/Chief Financial
Officer/Treasurer of Delaware Management Trust
Company.
Chief Financial Officer/Treasurer of Delaware
Investment & Retirement Services, Inc.
Assistant Treasurer of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr.
Hastings was Chief Financial Officer for Prudential
Residential Services, L.P., New York, NY from 1989 to
1992. Prior to that, Mr. Hastings served as
Controller and Treasurer for Fine Homes International,
L.P., Stamford,CT from 1987 to 1989.
Michael P. Bishof (34)
Vice President/Treasurer of the investment
company, each of the other 32 investment companies in
the Delaware Group, Delaware Management Company, Inc.,
Delaware Distributors, Inc., Delaware Distributors,
L.P., Delaware Service Company, Inc. and Founders
Holdings, Inc.
Vice President/Manager of Investment Accounting
of Delaware International Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation.
Before joining the Delaware Group in 1995, Mr.
Bishof was a Vice President for Bankers Trust, New
York, NY from 1994 to 1995, a Vice President for CS
First Boston Investment Management, New York, NY from
1993 to 1994 and an Assistant Vice President for
Equitable Capital Management Corporation, New York, NY
from 1987 to 1993.
George H. Burwell (35)
Vice President/Senior Portfolio Manager of Equity
Funds I, Inc. of seven other investment companies in
the Delaware Group and of Delaware Management Company,
Inc.
Before joining the Delaware Group in 1992, Mr.
Burwell was a portfolio manager for Midlantic Bank,
New Jersey. In addition, he was a security analyst
for Balis & Zorn, New York and for First Fidelity
Bank, New Jersey.
The following supplements the Statement of Additional
Information:
Purchases of Class A shares may be made at net
asset value by current and former officers, directors
and employees (and members of their families) of the
Dougherty Financial Group LLC.
