<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 2-95928
File No. 811-4547
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 30 /X/
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 30
VOYAGEUR MUTUAL FUNDS III, INC.
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(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 255-2923
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George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
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(Name and Address of Agent for Service)
Approximate Date of Public Offering: August 28, 1997
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It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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on (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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X on August 28, 1997 pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485
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Registrant has registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Section 24(f)
of the Investment Company Act of 1940. Registrant's 24f-2 Notice
for its most recent fiscal year will be filed on or about June 30, 1997.
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--- C O N T E N T S ---
This Post-Effective Amendment No. 30 to Registration File No. 2-95928
includes the following:
1. Facing Page
2. Contents Page
3. Cross-Reference Sheet
4. Part A - Prospectuses
5. Part B - Statement of Additional Information
6. Part C - Other Information
7. Signatures
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CROSS-REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
Item No. Description Location in Prospectus
- -------- ----------- ----------------------
Tax-Efficient Equity Fund Institutional Class
<S> <C> <C> <C>
A CLASS
B CLASS
C CLASS
1 Cover Page................................. Cover Cover Page
2 Synopsis................................... Synopsis; Synopsis;
Summary of Summary of
Expenses Expenses
3 Condensed Financial Information............ Financial N/A
Highlights
4 General Description of Registrant.......... Investment Investment
Objective and Objective and
Policies; Classes of Shares Policies; Classes of Shares
5 Management of the Fund .................... Management of Management of
the Fund the Fund
6 Capital Stock and Other Securities ........ The Delaware Difference; Dividends and Distributions;
Dividends and Taxes; Classes of Shares
Distributions;
TAXES; Classes of Shares
7 Purchase of Securities Being Offered....... Cover; How to Buy Shares; Cover; How to Buy Shares;
Calculation of Net Asset Value Calculation of Net Asset Value
Per Share; Management of the Fund Per Share; Management of the Fund
8 Redemption or Repurchase................... How to Buy Shares; How to Buy Shares;
Redemption and Redemption and
Exchange Exchange
9 Legal Proceedings.......................... None None
</TABLE>
<PAGE> 4
CROSS-REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
Item No. Description Location in Prospectus
- -------- ----------- ----------------------
Aggressive Growth Fund/
Growth Stock Fund Institutional Class
<S> <C> <C> <C>
A CLASS
B CLASS
C CLASS
1 Cover Page................................. Cover Cover Page
2 Synopsis................................... Synopsis; Synopsis;
Summary of Summary of
Expenses Expenses
3 Condensed Financial Information............ Financial N/A
Highlights
4 General Description of Registrant.......... Investment Investment
Objective and Objective and
Policies; Classes of Shares Policies; Classes of Shares
5 Management of the Fund .................... Management of Management of
the Fund the Fund
6 Capital Stock and Other Securities ........ The Delaware Difference; Dividends and Distributions;
Dividends and Taxes; Classes of Shares
Distributions;
Taxes; Classes of Shares
7 Purchase of Securities Being Offered....... Cover; How to Buy Shares; Cover; How to Buy Shares;
Calculation of Net Asset Value Calculation of Net Asset Value
Per Share; Management of the Fund Per Share; Management of the Fund
8 Redemption or Repurchase................... How to Buy Shares; How to Buy Shares;
Redemption and Redemption and
Exchange Exchange
9 Legal Proceedings.......................... None None
</TABLE>
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CROSS-REFERENCE SHEET
PART B
<TABLE>
<CAPTION>
Item No. Description Location in Statement of
Additional Information
Tax-Efficient Equity Fund/
Aggressive Growth Fund/
Growth Stock Fund
<S> <C> <C>
10 Cover Page........................................................ Cover
11 Table of Contents................................................. Table of Contents
12 General Information and History................................... General Information
13 Investment Objectives and Policy.................................. Investment Objective and
Policy
14 Management of the Registrant...................................... Officers and Directors
15 Control Persons and Principal Holders of Securities .............. Officers and Directors
16 Investment Advisory and Other Services ........................... Officers and Directors;
Investment Management Agreement;
General Information; Financial
Statements
17 Brokerage Allocation.............................................. Trading Practices
18 Capital Stock and Other Securities................................ Capitalization and
Noncumulative Voting (under General
Information)
19 Purchase, Redemption and Pricing of Securities
Being Offered..................................................... Purchasing Shares; Offering Price;
Redemption; Exchange Privilege
20 Tax Status........................................................ Taxes
21 Underwriters ..................................................... Purchasing Shares
22 Calculation of Performance Data................................... Performance Information
23 Financial Statements.............................................. Financial Statements
</TABLE>
<PAGE> 6
CROSS-REFERENCE SHEET
PART C
<TABLE>
<CAPTION>
Item No. Description Location in Part C
- -------- ----------- ------------------
<S> <C> <C>
24 Financial Statements and Exhibits................................. Item 24
25 Persons Controlled by or under Common Control
with Registrant................................................... Item 25
26 Number of Holders of Securities................................... Item 26
27 Indemnification................................................... Item 27
28 Business and Other Connections of Investment
Adviser........................................................... Item 28
29 Principal Underwriters............................................ Item 29
30 Location of Accounts and Records.................................. Item 30
31 Management Services............................................... Item 31
32 Undertakings...................................................... Item 32
</TABLE>
<PAGE> 7
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
TAX-EFFICIENT EQUITY FUND
A CLASS
B CLASS
C CLASS
PROSPECTUS
AUGUST 28, 1997
DELAWARE
GROUP
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TAX-EFFICIENT EQUITY FUND PROSPECTUS
A CLASS SHARES AUGUST 28, 1997
B CLASS SHARES
C CLASS SHARES
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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 AUGUST 28, 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.
THE FUND ALSO OFFERS TAX-EFFICIENT FUND INSTITUTIONAL CLASS, WHICH IS
AVAILABLE FOR PURCHASE ONLY BY CERTAIN INVESTORS. A PROSPECTUS FOR TAX-EFFICIENT
FUND INSTITUTIONAL CLASS
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CAN BE OBTAINED BY WRITING TO DELAWARE DISTRIBUTORS, L.P. AT THE ABOVE ADDRESS
OR BY CALLING THE ABOVE NUMBER.
TABLE OF CONTENTS
COVER PAGE HOW TO BUY SHARES
SYNOPSIS REDEMPTION AND EXCHANGE
SUMMARY OF EXPENSES DIVIDENDS AND DISTRIBUTIONS
INVESTMENT OBJECTIVES AND POLICIES TAXES
SUITABILITY CALCULATION OF OFFERING PRICE AND
INVESTMENT STRATEGY NET ASSET VALUE PER SHARE
THE DELAWARE DIFFERENCE MANAGEMENT OF THE FUND
PLANS AND SERVICES OTHER INVESTMENT POLICIES AND
RETIREMENT PLANNING SPECIAL RISK CONSIDERATIONS
CLASSES OF SHARES 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.
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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.
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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.
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SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES SHARES SHARES SHARES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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++
</TABLE>
* 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.
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<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES CLASS A CLASS B CLASS C
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) SHARES SHARES SHARES
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%++
==== ==== ====
</TABLE>
+ 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%.
For expense information about Tax-Efficient Fund Institutional Class,
see the separate prospectus relating to that class.
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.
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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.
<TABLE>
<CAPTION>
ASSUMING REDEMPTION ASSUMING NO REDEMPTION
1 YEAR 3 YEARS 1 YEAR 3 YEARS
------ ------- ------ -------
<S> <C> <C> <C> <C>
CLASS A SHARES $62(1) $93 $62 $93
CLASS B SHARES(2) $62 $99 $22 $69
CLASS C SHARES $32 $69 $22 $69
</TABLE>
(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.
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<PAGE> 15
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-
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<PAGE> 16
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
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<PAGE> 17
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.
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<PAGE> 18
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.
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<PAGE> 19
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.
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<PAGE> 20
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.
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<PAGE> 21
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. CERTAIN RETIREMENT PLANS MAY QUALIFY TO PURCHASE TAX-EFFICIENT
FUND INSTITUTIONAL CLASS. 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.
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<PAGE> 22
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.
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<PAGE> 23
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.
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<PAGE> 24
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.
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<PAGE> 25
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.
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<PAGE> 26
<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.75% 4.94% 4.00%
$100,000 but under $250,000 3.75 3.88 3.00
$250,000 but under $500,000 2.50 2.59 2.00
$500,000 but under $1,000,000* 2.00 2.00 1.60
</TABLE>
* 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.
- --------------------------------------------------------------------------------
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<PAGE> 27
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:
<TABLE>
<CAPTION>
DEALER'S COMMISSION
(as a percentage of
AMOUNT OF PURCHASE amount purchased)
------------------ -----------------
<S> <C>
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
</TABLE>
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.
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<PAGE> 28
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.
-21-
<PAGE> 29
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
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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
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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
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<PAGE> 32
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.
TAX-EFFICIENT FUND INSTITUTIONAL CLASS
In addition to offering Class A, Class B and Class C Shares, the Fund
also offers Tax-Efficient Fund Institutional Class, which is described in a
separate prospectus and is available for purchase only by certain investors.
Tax-Efficient Fund Institutional Class Shares generally are distributed directly
by the Distributor and do not have a front-end sales charge, a CDSC or a limited
CDSC, and are not subject to 12b-1 Plan distribution expenses. To obtain the
prospectus that describes Tax-Efficient Fund Institutional Class, contact the
Distributor by writing to the address or by calling the telephone number listed
on the back of this prospectus.
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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.
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<PAGE> 34
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.
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<PAGE> 35
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
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<PAGE> 36
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.
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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.
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<PAGE> 38
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
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<PAGE> 39
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.
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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
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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.
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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
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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.
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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.
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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.
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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.
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<PAGE> 47
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.
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<PAGE> 48
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, EXCEPT THAT TAX-EFFICIENT FUND INSTITUTIONAL CLASS WILL NOT INCUR ANY
OF THE EXPENSES UNDER MUTUAL FUNDS III, INC.'S 12b-1 PLANS AND THE CLASS A,
CLASS B AND CLASS C SHARES ALONE WILL BEAR THE 12b-1 PLAN EXPENSES PAYABLE UNDER
THEIR RESPECTIVE PLANS. DUE TO THE SPECIFIC DISTRIBUTION EXPENSES AND OTHER
COSTS THAT WILL BE ALLOCABLE TO EACH CLASS, THE NAV OF EACH CLASS OF THE FUND
WILL VARY.
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<PAGE> 49
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 OF AVERAGE DAILY NET
ASSETS, 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.
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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
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<PAGE> 51
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 Plans do not apply to Tax-Efficient Fund Institutional Class of
shares. Those shares are not included in calculating the Plans' fees, and the
Plans are not used to assist in the distribution and marketing of Tax-Efficient
Fund Institutional Class.
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 MAY 1, 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
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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.
Fund shares have a par value of $___, equal voting rights, except as
noted below, and are equal in all other respects. Each fund will vote separately
on any matter which affects only that fund. Shares of each fund have a priority
over shares of any other fund of Mutual Funds III, Inc. in the assets and income
of that fund.
All of the shares have noncumulative voting rights which means that the
holders of more than 50% of Mutual Funds III, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
Under Minnesota law, Mutual Funds III, Inc. is not required, and does not
intend, to hold annual meetings of shareholders unless, under certain
circumstances, it is required to do so under the 1940 Act. [Shareholders of ___%
or more of Mutual Funds III, Inc.'s outstanding shares may request that a
special meeting be called to consider the removal of a director.]
In addition to Class A Shares, Class B Shares and Class C Shares, the
Fund offers an Institutional Class. Shares of each Class represent proportionate
interests in the assets of the Fund and have the same voting and other rights
and preferences as the other classes of that Fund, except that shares of the
Institutional Class is not subject to, and may not vote on matters affecting,
the Distribution Plans under Rule 12b-1 relating to Class A, Class B and Class C
Shares. Similarly, as a general matter, the shareholders of Class A Shares,
Class B Shares and Class C Shares may vote only on matters affecting the 12b-1
Plan that relates to the class of shares that they hold. However, Class B Shares
of the Fund may vote on any proposal to increase materially the fees to be paid
by the Fund under the 12b-1 Plan relating to Class A Shares.
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.
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS (AND/OR IN THE PART B REFERRED TO ON THE COVER PAGE OF THIS
PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THE DISTRIBUTOR.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN THE
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-45-
<PAGE> 53
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
RULE 144A SECURITIES
The Fund may invest in restricted securities, including privately
placed securities, some of which may be eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the Securities Act of
1933. Rule 144A permits many privately placed and legally restricted securities
to be freely traded among certain institutional buyers such as the Fund. The
Fund may invest no more than 15% of the value of its net assets in illiquid
securities.
While maintaining oversight, the Board of Directors has delegated to
the Manager the day-to-day function of determining whether or not individual
Rule 144A Securities are liquid for purposes of the Fund's 15% limitation on
investments in illiquid assets. The Board has instructed the Manager to
consider the following factors in determining the liquidity of a Rule 144A
Security: (i) the frequency of trades and trading volume for the security; (ii)
whether at least three dealers are willing to purchase or sell the security and
the number of potential purchasers; (iii) whether at least two dealers are
making a market in the security; (iv) the nature of the security and the nature
of the marketplace trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the Fund's 15% limit on
investments in such securities, the Manager will determine what action to take
to ensure that the Fund continues to adhere to such limitation.
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
-46-
<PAGE> 54
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.
INVESTMENT COMPANY SECURITIES
Any investments that the Fund makes in either closed-end or open-end
investment companies will be limited by the 1940 Act, and would involve an
indirect payment of a portion of the expenses, including advisory fees, of such
other investment companies. Under the 1940 Act's current limitations, the Fund
may not (1) own more than 3% of the voting stock of another investment company;
(2) invest more than 5% of the Fund's total assets in the shares of any one
investment company; nor (3) invest more than 10% of the Fund's total assets in
shares of other investment companies. If the Fund elects to limit its
investment in other investment companies to closed-end investment companies, the
3% limitation described above is increased to 10%. These percentage limitations
also apply to the Fund's investments in unregistered investment companies.
REPURCHASE AGREEMENTS
In order to invest its short-term cash reserves or when in a
temporary defensive posture, the Fund may enter into repurchase agreements with
banks or broker/dealers deemed to be creditworthy by the Manager, under
guidelines approved by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e. the Fund) acquires ownership
of a debt security and the seller agrees to repurchase the obligation at a
future time and set price, thereby determining the yield during the purchaser's
holding period. Generally, repurchase agreements are of short duration, often
less than one week but on occasion for longer periods. Not more than 15% of the
Fund's assets may be invested in repurchase agreements of over seven-days'
maturity or other illiquid assets. Should an issuer of a repurchase agreement
fail to repurchase the underlying security, the loss to the Fund, if any, would
be the difference between the repurchase price and the market value of the
security. The Fund will limit its investments in repurchase agreements to
those which the Manager under guidelines of the Board of Directors determines
to present minimal credit risks and which are of high quality. In addition, the
Fund must have collateral of at least 100% of the repurchase price, including
the portion representing the Fund's yield under such agreements, which is
monitored on a daily basis.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in
-47-
<PAGE> 55
Order to secure what is considered to be an advantageous yield or price at the
time of the transaction. Delivery of and payment for these securities may take
as long as a month or more after the date of the purchase commitment. The fund
will maintain with its custodian bank a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. The
payment obligation and the interest rates that will be received are each fixed
at the time the fund enters into the commitment and no interest accrues to the
fund until settlement. Thus, it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed.
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.
OPTIONS
The manager may employ options techniques in an attempt to protect
appreciation attained and to take advantage of the liquidity available in the
options market. The fund may purchase call options on foreign or U.S. securities
and indices and enter into related closing transactions and the fund may write
covered call options on such securities. The fund may also purchase put options
on such securities and indices and enter into related closing transactions.
A call option enables the purchaser, in return for the premium paid, to
purchase securities from the writer of the option at an agreed price up to an
agreed date. A covered call option obligates the writer, in return for the
premium received, to sell the securities subject to the option to the purchaser
of the option for an agreed upon price up to an agreed date. The advantage is
that the purchaser may hedge against an increase in the price of securities it
ultimately wishes to buy or take advantage of a rise in a particular index. The
fund will only purchase call options to the extent that premiums paid on all
outstanding call options do not exceed 2% of its total assets.
A put option enables the purchaser of the option, in return for the
premium paid, to sell the security underlying the option to the writer at the
exercise price during the option period, and the writer of the option has the
obligation to purchase the security from the purchaser of the option. The fund
will only purchase put options to the extent that the premiums on all
outstanding put options do not exceed 2% of its total assets. The advantage is
that the purchaser can be protected should the market value of the security
decline or should a particular index decline.
An option on a securities index gives the purchaser of the option, in
return for the premium paid, the right to receive from the seller cash equal to
the difference between the closing price of the index and the exercise price of
the option.
Closing transactions essentially let the fund offset put options or
call options prior to exercise or expiration. If the fund cannot effect closing
transactions, it may have to hold a security it would otherwise sell or deliver
a security it might want to hold.
In purchasing put and call options, the premium paid by the fund plus
any transaction costs will reduce any benefit realized by the fund upon exercise
of the option. With respect to
-48-
<PAGE> 56
writing covered call options, the fund may lose the potential market
appreciation of the securities subject to the option, if the manager's judgment
is wrong and the price of the security moves in the opposite direction from what
was anticipated.
The fund may use both exchange-traded and over-the-counter options.
certain over-the-counter options may be illiquid. The fund will only invest in
such options to the extent consistent with its 15% limitation on investment in
illiquid securities. The fund will comply with securities and exchange
commission asset segregation and coverage requirements when engaging in these
types of transactions.
FUTURES
Futures contracts are agreements for the purchase or sale for future
delivery of securities. When a futures contract is sold, the fund incurs a
contractual obligation to deliver the securities underlying the contract at a
specified price on a specified date during a specified future month. A purchase
of a futures contract means the acquisition of a contractual right to obtain
delivery to the fund of the securities called for by the contract at a specified
price during a specified future month.
While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by entering
into an offsetting transaction. When the fund enters into a futures transaction,
it must deliver to the futures commission merchant selected by the fund an
amount referred to as "Initial Margin." This amount is maintained by the futures
commission merchant in an account at the fund's custodian bank. Thereafter, a
"Variation Margin" may be paid by the fund to, or drawn by the fund from, such
account in accordance with controls set for such account, depending upon changes
in the price of the underlying securities subject to the futures contract.
The fund may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract, rather than actually to purchase or
sell the futures contract, at a specified exercise price at any time during the
period of the option.
The purpose of the purchase or sale of futures contracts consisting of
U.S. Government Securities is to protect the fund against the adverse effects of
fluctuations in interest rates without actually buying or selling such
securities. Similarly, when it is expected that interest rates may decline,
futures contracts may be purchased to hedge in anticipation of subsequent
purchases of U.S. Government Securities at higher prices.
OTHER INVESTMENT POLICIES
Although the Fund is permitted under certain circumstances to borrow
money, the Fund normally will not do so. The Fund will not purchase new
securities whenever borrowings exceed 5% of the value of the total assets of the
Fund.
The Fund may concentrate investments in any industry, which means that
the Fund may generally not invest more than 25% of its assets in any one
industry. The term "industry" will be deemed to include the government of any
country other than the United States, but not the U.S. Government.
-49-
<PAGE> 57
Certain other fundamental and non-fundamental investment restrictions
adopted by the Fund are described in Part B.
-50-
<PAGE> 58
APPENDIX B--CLASSES OFFERED
<TABLE>
<CAPTION>
GROWTH OF CAPITAL A CLASS B CLASS C CLASS CONSULTANT CLASS
<S> <C> <C> <C> <C>
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 -
</TABLE>
(Not Part of Prospectus)
<PAGE> 59
APPENDIX B--CLASSES OFFERED - (CON'T)
<TABLE>
<CAPTION>
TAX-FREE INCOME A CLASS B CLASS C CLASS CONSULTANT CLASS
<S> <C> <C> <C> <C>
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 -
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 -
MONEY MARKET FUNDS
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>
(Not Part of Prospectus)
<PAGE> 60
APPENDIX A
ILLUSTRATIONS OF THE POTENTIAL IMPACT ON
INVESTMENT BASED ON PURCHASE OPTION
$10,000 PURCHASE
<TABLE>
<CAPTION>
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
----------------------------------- -----------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <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
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
----------------------------------- -----------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <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+
</TABLE>
*This assumes that Class B Shares were converted to
Class A Shares at the end of the eighth year.
$250,000 PURCHASE
<TABLE>
<CAPTION>
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
----------------------------------- -----------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <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
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
----------------------------------- -----------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <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
</TABLE>
*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, a hypothetical 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.
<PAGE> 61
TAX-EFFICIENT EQUITY FUND INSTITUTIONAL PROSPECTUS
AUGUST 28, 1997
------------------------------------------------------------
1818 MARKET STREET, PHILADELPHIA, PA 19103
FOR MORE INFORMATION ABOUT TAX-EFFICIENT EQUITY FUND
INSTITUTIONAL CLASS CALL DELAWARE GROUP AT 800-828-5052.
This Prospectus describes the shares of 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 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.
The Fund offers Tax-Efficient Equity Fund Institutional Class (the
"Class"). This Prospectus relates only to the Class and sets forth information
that you should read and consider before you invest. Please retain it for future
reference. The Fund's Statement of Additional Information ("Part B" of Mutual
Funds III, Inc.'s registration statement), dated August 28, 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 number.
-1-
<PAGE> 62
The Fund also offers Class A Shares, Class B Shares and Class C Shares.
Shares of these classes are subject to sales charges and other expenses, which
may affect their performance. A prospectus for these classes can be obtained by
writing to Delaware Distributors, L.P. at the above address or by calling
800-523-4640.
<TABLE>
TABLE OF CONTENTS
<S> <C>
COVER PAGE REDEMPTION AND EXCHANGE
SYNOPSIS DIVIDENDS AND DISTRIBUTIONS
SUMMARY OF EXPENSES TAXES
INVESTMENT OBJECTIVES AND POLICIES CALCULATION OF NET ASSET VALUE PER SHARE
SUITABILITY MANAGEMENT OF THE FUND
INVESTMENT STRATEGY OTHER INVESTMENT POLICIES AND
CLASSES OF SHARES SPECIAL RISK CONSIDERATIONS
HOW TO BUY SHARES
</TABLE>
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.
-2-
<PAGE> 63
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.
PURCHASE PRICE
Shares of the Class offered by this Prospectus are available at net
asset value, without a front-end or contingent deferred sales charge and are not
subject to distribution fees under a Rule 12b-1 distribution plan. See Classes
of Shares.
REDEMPTION AND EXCHANGE
Shares of the Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See Redemption
and Exchange.
-3-
<PAGE> 64
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.
SHARES OF THE FUND COVERED BY THIS PROSPECTUS ARE NOT REGISTERED IN ALL
STATES. SHARES THAT ARE NOT REGISTERED IN ONE OR MORE STATES ARE NOT BEING
OFFERED AND SOLD IN SUCH STATES.
-4-
<PAGE> 65
SUMMARY OF EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................ None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................ None
Exchange Fees...................................................... None*
</TABLE>
*Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Management Fees
(after voluntary waivers and payments).......................... 0.72%**
12b-1 Fees...................................................... None
Other Operating Expenses
(after voluntary waivers and payments).......................... 0.48%**
Total Operating Expenses
(after voluntary waivers and payments)......... 1.20%**
</TABLE>
** "Other Operating Expenses" and "Total Operating Expenses" are based on
estimated expenses expected to be incurred during the first full fiscal
year of the Class, 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 Fund and to pay the Fund's
expenses to the extent necessary to ensure that the Total Operating
Expenses (after voluntary waivers and payments) do not exceed 1.20% for
the Class on an annualized basis (exclusive of taxes, interest,
brokerage commissions and extraordinary expenses) through December 31,
1997. Total Operating Expenses assume that the voluntary waiver has
been in effect. Absent the voluntary fee waiver and payments, Total
Operating Expenses (as a percentage of average daily net assets) are
expected to equal 0.00% for the Class, reflecting Management Fees of
0.75% for the Class.
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<PAGE> 66
For expense information about the Fund's A Class, B Class and C Class,
see the separate prospectus relating to those classes.
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, and (2) redemption at the end of each time period. As noted in
the tables above, Mutual Funds III, Inc. charges no redemption fees. The
following example assumes the voluntary waiver of the management fee and/or
other payments of expenses by the Manager as discussed in this Prospectus.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C>
$00 $00
</TABLE>
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in the Class 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.
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<PAGE> 67
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,
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<PAGE> 68
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.
* * *
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<PAGE> 69
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.
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<PAGE> 70
CLASSES OF SHARES
The Distributor serves as the national distributor for the Fund. Shares
of the Class may be purchased directly by contacting the Fund or its agent or
through authorized investment dealers. All purchases of shares of the Class are
made at net asset value. There is no front-end or contingent deferred sales
charge.
INVESTMENT INSTRUCTIONS GIVEN ON BEHALF OF PARTICIPANTS IN AN
EMPLOYER-SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH DIRECTIONS
PROVIDED BY THE EMPLOYER. EMPLOYEES CONSIDERING PURCHASING SHARES OF THE CLASS
AS PART OF THEIR RETIREMENT PROGRAM SHOULD CONTACT THEIR EMPLOYER FOR DETAILS.
Shares of the Class are available for purchase only by: (a) retirement
plans introduced by persons not associated with brokers or dealers that are
primarily engaged in the retail securities business and rollover individual
retirement accounts from such plans; (b) tax-exempt employee benefit plans of
the Manager or its affiliates and securities dealer firms with a selling
agreement with the Distributor; (c) institutional advisory accounts of the
Manager or its affiliates and those having client relationships with the Manager
or its affiliates and their corporate sponsors, as well as subsidiaries and
related employee benefit plans and rollover individual retirement accounts from
such institutional advisory accounts; (d) a bank, trust company and similar
financial institution investing for its own account or for the account of its
trust customers for whom such financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment to the financial institution of a Rule
12b-1 Plan fee; and (e) registered investment advisers investing on behalf of
clients that consist solely of institutions and high net-worth individuals
having at least $1,000,000 entrusted to the adviser for investment purposes, but
only if the adviser is not affiliated or associated with a broker or dealer and
derives compensation for its services exclusively from its clients for such
advisory services.
CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES
In addition to offering Tax-Efficient Fund Institutional Class of
shares, the Fund also offers: Tax-Efficient Fund A Class, Tax-Efficient Fund B
Class and Tax-Efficient Fund C Class, which are described in a separate
prospectus. Shares of such classes may be purchased through authorized
investment dealers or directly by contacting the Fund or its Distributor. Class
A Shares carry a front-end sales charge and have annual 12b-1 expenses equal to
a maximum of 0.30%. The maximum front-end sales charge as a percentage of the
offering price of Class A Shares is 4.75% and is reduced on certain transactions
of $100,000 or more. Class B Shares and Class C Shares have no front-end sales
charge but are subject to annual 12b-1 expenses equal to a maximum of 1%. Class
B Shares and Class C Shares and certain Class A Shares may be subject to a
contingent deferred sales charge upon redemption. To obtain a prospectus
relating to such classes, contact the Distributor by writing to the address or
by calling the phone number listed on the back cover of this Prospectus.
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<PAGE> 71
HOW TO BUY SHARES
The Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase shares of the Class.
INVESTING DIRECTLY 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.
INVESTING DIRECTLY 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 Client Services
Department to get an account number at 800-828-5052. If you do not call first,
it may delay processing your investment. 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 by you,
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 must advise your Client
Services Representative by telephone at 800-828-5052 prior to sending your
wire.
INVESTING BY EXCHANGE
If you have an investment in another mutual fund in the Delaware Group
and you qualify to purchase shares of the Class, you may write and authorize an
exchange of part or all of your investment into the Fund. However, Class B
Shares and Class C Shares of the Fund and Class B Shares and Class C Shares of
the other funds in the Delaware Group offering such a class of shares may not be
exchanged into the Class. If you wish to open an account by exchange, call your
Client Services Representative at 800-828-5052 for more information. See
Redemption and Exchange for more complete information concerning your exchange
privileges.
INVESTING THROUGH YOUR INVESTMENT DEALER
You can make a purchase of Fund shares through most investment dealers
who, as part of the service they provide, must transmit orders promptly to the
Fund. They may charge for this service.
PURCHASE PRICE AND EFFECTIVE DATE
The purchase price (net asset value) of the Class is 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,
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<PAGE> 72
electronic transfer or check is received, unless it is received after the time
the share price 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
purchases 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, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of redemptions.
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<PAGE> 73
REDEMPTION AND EXCHANGE
REDEMPTION AND EXCHANGE REQUESTS MADE ON BEHALF OF PARTICIPANTS IN AN
EMPLOYER-SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH DIRECTIONS
PROVIDED BY THE EMPLOYER. EMPLOYEES SHOULD THEREFORE CONTACT THEIR EMPLOYER FOR
DETAILS.
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.
For example, redemption or exchange requests received in good order after the
time the net asset value of shares is determined, will be processed on the next
business day. See Purchase Price and Effective Date under How to Buy Shares.
Except as otherwise 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. With regard to exchanges, 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 Fund at 800-828-5052. Redemption proceeds will be
distributed promptly, as described below, but not later than seven days after
receipt of a redemption request.
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.
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 not honor redemption requests as to shares for which a
check was tendered as payment until the Fund 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.
Shares of the Class may be exchanged into any other Delaware Group
mutual fund provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and (2) the shares of the
fund being acquired are in a state where that fund is registered. If exchanges
are made into other shares that are eligible for purchase only by those
permitted to purchase shares of the Class, such shares will be exchanged at net
asset value. Shares of the Class may not be exchanged into the Class B Shares or
Class C Shares of the funds in the Delaware Group. The Fund may suspend,
terminate or amend the terms of the exchange privilege upon 60 days' written
notice to shareholders.
Various redemption and exchange methods are outlined below. No fee is
charged by the Fund or the Distributor for redeeming or exchanging your shares.
You may also 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.
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<PAGE> 74
WRITTEN REDEMPTION AND EXCHANGE
You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares or to request an exchange of any or all
your shares into another mutual fund in the Delaware Group, subject to the same
conditions and limitations as other exchanges noted above. 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 may require a signature guarantee. 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. Certificates are issued for shares only if you submit a
specific request. If your shares are in certificate form, the certificate must
accompany your request and also be in good order.
You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.
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 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 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. 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
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.
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<PAGE> 75
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 submit a written authorization and you may need to 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.
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 fees for this redemption method, but the mail time may delay getting funds
into your bank account. Simply call your Client Services Representative prior to
the time the net asset value is determined, as noted above.
TELEPHONE EXCHANGE
You or your investment dealer of record can exchange shares into any
fund in the Delaware Group under the same registration. As with the written
exchange service, telephone exchanges are subject to the same conditions and
limitations as other exchanges noted above. Telephone exchanges may be subject
to limitations as to amounts or frequency.
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<PAGE> 76
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 Class will not incur any
distribution fee under Mutual Funds III, Inc.'s 12b-1 Plans which apply to
Tax-Efficient Fund A Class, B Class and C Class.
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<PAGE> 77
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 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
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<PAGE> 78
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.
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<PAGE> 79
CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of Class shares is the net asset
value ("NAV") per share of the Class next computed after the order is received.
The NAV is 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 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.
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,
except that the Class will not incur any of the expenses under the Fund's 12b-1
Plans and the Class A, B and C Shares alone will bear the 12b-1 Plan fees
payable under their respective Plans.
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<PAGE> 80
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 of average daily net
assets, 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.
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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
Class 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. Each
presentation will include the average annual total return for one-, five- and
ten-year (or life of fund, if applicable) periods. The Fund may also advertise
aggregate and average total return information concerning the Class over
additional periods of time.
Because securities prices fluctuate, investment results of the Class
will fluctuate over time and past performance should not be considered a
guarantee of future results.
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 your Client Services Representative.
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.
DISTRIBUTION 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 August 28, 1997. The Distributor bears all of the costs of
promotion and distribution.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund under
an agreement dated May 1, 1997. The Transfer Agent also provides accounting
services to the Fund pursuant to the terms of a separate Fund Accounting
Agreement. The directors annually review service fees paid to the Transfer
Agent. Certain recordkeeping services and other
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shareholder services that otherwise would be performed by the Transfer Agent may
be performed by certain other entities and the Transfer Agent may elect to enter
into an agreement to pay such other entities for those services. In addition,
participant account maintenance fees may be assessed for certain recordkeeping
services provided as part of retirement plan and administration service
packages. These fees are based on the number of participants in the plan and the
various services selected by the employer. Fees will be quoted upon request and
are subject to change.
The Distributor and the Transfer Agent are 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.
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 Fund III,
Inc. presently also offers two other series of shares - the Aggressive Growth
Fund series and the Growth Stock Fund series.
Fund shares have a par value of $___, equal voting rights, except as noted
below, and are equal in all other respects. Each fund will vote separately on
any matter which affects only that fund. Shares of each fund have a priority
over shares of any other fund of Mutual Funds III, Inc. in the assets and income
of that fund.
All of the shares have noncumulative voting rights which means that the
holders of more than 50% of Mutual Funds III, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
Under Minnesota law, Mutual Funds III, Inc. is not required, and does not
intend, to hold annual meetings of shareholders unless, under certain
circumstances, it is required to do so under the 1940 Act. [Shareholders of ___%
or more of Mutual Funds III, Inc.'s outstanding shares may request that a
special meeting be called to consider the removal of a director.]
In addition to Institutional Class shares, the Fund offers Class A
Shares, Class B Shares and Class C Shares. Shares of each class represent
proportionate interests in the assets of the Fund and have the same
voting and other rights and preferences as the other classes of the Fund, except
that shares of the Class are not subject to, and may not vote on matters
affecting, the Distribution Plans under Rule 12b-1 relating to Class A, Class B
and Class C Shares. Similarly, as a general matter, the shareholders of Class A
Shares, Class B Shares and Class C Shares may vote only on matters affecting the
12b-1 Plan that relates to the class of shares that they hold. However, Class B
Shares of the Fund may vote on any proposal to increase materially the fees to
be paid by the Fund under the 12b-1 Plan relating to Class A Shares.
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<PAGE> 83
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS (AND/OR IN PART B REFERRED TO ON THE COVER PAGE OF THIS
PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR DELAWARE DISTRIBUTORS,
L.P. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN
THE STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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<PAGE> 84
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
RULE 144A SECURITIES
The Fund may invest in restricted securities, including privately
placed securities, some of which may be eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the Securities Act of 1933.
Rule 144A permits many privately placed and legally restricted securities to be
freely traded among certain institutional buyers such as the Fund. The Fund may
invest no more than 15% of the value of its net assets in illiquid securities.
While maintaining oversight, the Board of Directors has delegated to
the Manager the day-to-day function of determining whether or not individual
Rule 144A Securities are liquid for purposes of the Fund's 15% limitation on
investments in illiquid assets. The Board has instructed the Manager to consider
the following factors in determining the liquidity of a Rule 144A Security: (i)
the frequency of trades and trading volume for the security; (ii) whether at
least three dealers are willing to purchase or sell the security and the number
of potential purchasers; (iii) whether at least two dealers are making a market
in the security; (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer).
If the Manager determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, the
Fund's holdings of illiquid securities exceed the Fund's 15% limit on
investments in such securities, the Manager will determine what action to take
to ensure that the Fund continues to adhere to such limitation.
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
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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.
INVESTMENT COMPANY SECURITIES
Any investments that the Fund makes in either closed-end or open-end
investment companies will be limited by the 1940 Act, and would involve an
indirect payment of a portion of the expenses, including advisory fees, of such
other investment companies. Under the 1940 Act's current limitations, the Fund
may not (1) own more than 3% of the voting stock of another investment company;
(2) invest more than 5% of the Fund's total assets in the shares of any one
investment company; nor (3) invest more than 10% of the Fund's total assets in
shares of other investment companies. If the Fund elects to limit its investment
in other investment companies to closed-end investment companies, the 3%
limitation described above is increased to 10%. These percentage limitations
also apply to the Fund's investments in unregistered investment companies.
REPURCHASE AGREEMENTS
In order to invest its short-term cash reserves or when in a temporary
defensive posture, the Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager, under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the purchaser (i.e. the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Generally, repurchase agreements are of short duration, often less than one week
but on occasion for longer periods. Not more than 15% of the Fund's assets may
be invested in repurchase agreements of over seven-days' maturity or other
illiquid assets. Should an issuer of a repurchase agreement fail to repurchase
the underlying security, the loss to the Fund, if any, would be the difference
between the repurchase price and the market value of the security. The Fund will
limit its investments in repurchase agreements to those which the Manager under
guidelines of the Board of Directors determines to present minimal credit risks
and which are of high quality. In addition, the Fund must have collateral of at
least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements, which is monitored on a daily basis.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. The Fund will maintain with its custodian bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time the Fund enters into the commitment
and no interest accrues to the Fund until settlement.
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<PAGE> 86
Thus, it is possible that the market value at the time of settlement could be
higher or lower than the purchase price if the general level of interest rates
has changed.
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.
OPTIONS
The Manager may employ options techniques in an attempt to protect
appreciation attained and to take advantage of the liquidity available in the
options market. The Fund may purchase call options on foreign or U.S. securities
and indices and enter into related closing transactions and the Fund may write
covered call options on such securities. The Fund may also purchase put options
on such securities and indices and enter into related closing transactions.
A call option enables the purchaser, in return for the premium paid, to
purchase securities from the writer of the option at an agreed price up to an
agreed date. A covered call option obligates the writer, in return for the
premium received, to sell the securities subject to the option to the purchaser
of the option for an agreed upon price up to an agreed date. The advantage is
that the purchaser may hedge against an increase in the price of securities it
ultimately wishes to buy or take advantage of a rise in a particular index. The
Fund will only purchase call options to the extent that premiums paid on all
outstanding call options do not exceed 2% of its total assets.
A put option enables the purchaser of the option, in return for the
premium paid, to sell the security underlying the option to the writer at the
exercise price during the option period, and the writer of the option has the
obligation to purchase the security from the purchaser of the option. The Fund
will only purchase put options to the extent that the premiums on all
outstanding put options do not exceed 2% of its total assets. The advantage is
that the purchaser can be protected should the market value of the security
decline or should a particular index decline.
An option on a securities index gives the purchaser of the option, in
return for the premium paid, the right to receive from the seller cash equal to
the difference between the closing price of the index and the exercise price of
the option.
Closing transactions essentially let the Fund offset put options or
call options prior to exercise or expiration. If the Fund cannot effect closing
transactions, it may have to hold a security it would otherwise sell or deliver
a security it might want to hold.
In purchasing put and call options, the premium paid by the Fund plus
any transaction costs will reduce any benefit realized by the Fund upon exercise
of the option. With respect to writing covered call options, the Fund may lose
the potential market appreciation of the securities subject to the option, if
the Manager's judgment is wrong and the price of the security moves in the
opposite direction from what was anticipated.
The Fund may use both Exchange-traded and over-the-counter options.
Certain over-the-counter options may be illiquid. The Fund will only invest in
such options to the extent consistent with its 15%
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limitation on investment in illiquid securities. The Fund will comply with
Securities and Exchange Commission asset segregation and coverage requirements
when engaging in these types of transactions.
FUTURES
Futures contracts are agreements for the purchase or sale for future
delivery of securities. When a futures contract is sold, the Fund incurs a
contractual obligation to deliver the securities underlying the contract at a
specified price on a specified date during a specified future month. A purchase
of a futures contract means the acquisition of a contractual right to obtain
delivery to the Fund of the securities called for by the contract at a specified
price during a specified future month.
While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by entering
into an offsetting transaction. When the Fund enters into a futures transaction,
it must deliver to the futures commission merchant selected by the Fund an
amount referred to as "initial margin." This amount is maintained by the futures
commission merchant in an account at the Fund's custodian bank. Thereafter, a
"variation margin" may be paid by the Fund to, or drawn by the Fund from, such
account in accordance with controls set for such account, depending upon changes
in the price of the underlying securities subject to the futures contract.
The Fund may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract, rather than actually to purchase or
sell the futures contract, at a specified exercise price at any time during the
period of the option.
The purpose of the purchase or sale of futures contracts consisting of
U.S. government securities is to protect the Fund against the adverse effects of
fluctuations in interest rates without actually buying or selling such
securities. Similarly, when it is expected that interest rates may decline,
futures contracts may be purchased to hedge in anticipation of subsequent
purchases of U.S. government securities at higher prices.
OTHER INVESTMENT POLICIES
Although the Fund is permitted under certain circumstances to borrow
money, the Fund normally will not do so. The Fund will not purchase new
securities whenever borrowings exceed 5% of the value of the total assets of the
Fund.
The Fund may concentrate investments in any industry, which means that
the Fund may generally not invest more than 25% of its assets in any one
industry. The term "industry" will be deemed to include the government of any
country other than the United States, but not the U.S. Government.
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Certain other fundamental and non-fundamental investment restrictions
adopted by the Fund are described in Part B.
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<PAGE> 89
-----------------------------
For more information, call Delaware Group
at 800-828-5052. TAX-EFFICIENT FUND
INSTITUTIONAL
-----------------------------
-----------------------------
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, P R O S P E C T U S
DIVIDEND DISBURSING,
ACCOUNTING SERVICES -----------------------------
AND TRANSFER AGENT
Delaware Service Company, Inc. AUGUST 28, 1997
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 DELAWARE
Brooklyn, NY 11245 GROUP
----------
<PAGE> 90
AGGRESSIVE GROWTH FUND PROSPECTUS
GROWTH STOCK FUND AUGUST 28, 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 shares of Aggressive Growth Fund and Growth
Stock Fund (individually a "Fund" and collectively the "Funds") of Voyageur
Mutual Funds III, Inc. ("Mutual Funds III, Inc."), a professionally managed
mutual fund of the series type.
Aggressive Growth Fund's investment objective is long-term capital
appreciation which the Fund attempts to achieve by investing primarily in equity
securities of companies which Delaware Management Company, Inc. (the "Manager")
believes have the potential for high earnings growth. Growth Stock Fund's
investment objective is long-term capital appreciation through investment in
equity securities diversified among individual companies and industries. There
is no assurance that either Fund's investment objective will be achieved.
Each Fund offers three retail classes of shares: "Class A Shares,"
"Class B Shares" and "Class C Shares" (individually, a "Class" and collectively,
the "Classes").
This Prospectus relates only to the Classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. An investment in either Fund involves certain risks and
requires consideration of such risks. The Funds' Statement of Additional
Information ("Part B" of Mutual Funds III, Inc.'s registration statement), dated
August 28, 1997, as it may be amended from time to time, contains additional
information about the Funds 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 numbers. Each Fund's financial statements
appear in the Annual Report of Mutual Funds III, Inc. for the fiscal year ended
April 30, 1997, which will accompany any response to requests for Part B.
Each Fund also offers an Institutional Class, which is available for
purchase only by certain investors. A prospectus for the Funds' Institutional
Classes can be obtained by writing to Delaware Distributors, L.P. at the above
address or by calling the above numbers.
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<PAGE> 91
TABLE OF CONTENTS
COVER PAGE HOW TO BUY SHARES
SYNOPSIS REDEMPTION AND EXCHANGE
SUMMARY OF EXPENSES DIVIDENDS AND DISTRIBUTIONS
FINANCIAL HIGHLIGHTS TAXES
INVESTMENT OBJECTIVES AND POLICIES CALCULATION OF OFFERING PRICE AND
SUITABILITY NET ASSET VALUE PER SHARE
INVESTMENT STRATEGY MANAGEMENT OF THE FUNDS
THE DELAWARE DIFFERENCE OTHER INVESTMENT POLICIES AND
PLANS AND SERVICES RISK CONSIDERATIONS
RETIREMENT PLANNING APPENDIX A--INVESTMENT ILLUSTRATIONS
CLASSES OF SHARES 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 FUNDS 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 FUNDS ARE NOT BANK OR CREDIT UNION DEPOSITS.
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<PAGE> 92
SYNOPSIS
INVESTMENT OBJECTIVES
Aggressive Growth Fund -- The investment objective of Aggressive Growth
Fund is long-term capital appreciation which the Fund attempts to achieve by
investing primarily in equity securities of companies which the Manager believes
have the potential for high earnings growth.
Growth Stock Fund -- The investment objective of Growth Stock Fund is
long-term capital appreciation through investment in equity securities
diversified among individual companies and industries.
For further details, see Investment Objectives and Policies and Other
Investment Policies and Risk Considerations.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Prospective investors should consider a number of factors:
1. Each Fund invests in common stocks. The prices of common stocks,
especially those of smaller companies, tend to fluctuate, particularly in the
shorter term. Investors should be willing to accept the risks associated with
investments in emerging and growth-oriented companies, some of the securities of
which may be speculative and subject to additional investment risk. See
Investment Objectives and Policies.
2. Each 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 the United States. See Investment Objectives and
Policies and Other Investment Policies and Risk Considerations.
3. Each Fund has the ability to engage in options transactions for
hedging purposes to counterbalance portfolio volatility. While neither Fund
engages in options transactions for speculative purposes, there are risks which
result from the use of options, and an investor should carefully review the
description of these risks in this Prospectus. Certain options may be considered
to be derivative securities. See Investment Objectives and Policies and Other
Investment Policies and Risk Considerations.
INVESTMENT MANAGER, SUB-ADVISER, DISTRIBUTOR AND SERVICE AGENT
The Manager is the investment manager for each Fund and, in that
capacity, provides investment advice to each Fund, subject to the supervision of
Mutual Funds III, Inc.'s Board of Directors. The Manager employs Voyageur Asset
Management LLC (the "Sub-Adviser") as Growth Stock Fund's Sub-Adviser. Delaware
Distributors, L.P. (the "Distributor") is the national distributor for each 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 each Fund and for all of
the other mutual funds in the Delaware Group. See Summary of Expenses and
Management of the Funds for further information regarding the Manager and the
Sub-Adviser and the fees payable under each Fund's Investment Management
Agreement and the Sub-Advisory Agreement on behalf of Growth Stock Fund.
SALES CHARGES
The price of each of the Class A Shares includes a maximum front-end
sales charge of 4.75% of the offering price, which, based on the net asset
values of the Class A Shares as of the end of the Mutual Funds III, Inc.'s most
recent fiscal year, is equivalent to 0.00% of the amount invested for Aggressive
Growth Fund A Class, and 0.00% for Growth Stock Fund A Class. 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 each of the 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
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<PAGE> 93
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 the 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 Funds.
PURCHASE AMOUNTS
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments generally must 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 each Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Funds 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 Funds
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. is an open-end, registered management investment
company. Each Fund operates as a diversified fund as defined under the
Investment Company Act of 1940 Act (the "1940 Act"). Mutual Funds III, Inc. was
organized as a Minnesota corporation in January 1985. See Shares under
Management of the Funds.
SHARES OF THE FUNDS COVERED BY THIS PROSPECTUS ARE NOT REGISTERED IN
ALL STATES. SHARES THAT ARE NOT REGISTERED IN ONE OR MORE STATES ARE NOT BEING
OFFERED AND SOLD IN SUCH STATES.
-4-
<PAGE> 94
SUMMARY OF EXPENSES
A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares of each Fund follows.
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND GROWTH STOCK FUND
---------------------- -----------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
SHAREHOLDER TRANSACTION EXPENSES SHARES SHARES SHARES SHARES SHARES SHARES
- -------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................. 4.75% None None 4.75% None None
Maximum Sales Charge imposed on Reinvested Dividends
(as a percentage of offering price)................. None None None None None None
Maximum Contingent Deferred Sales Charge
(as a percentage of original purchase price or
redemption proceeds, as applicable)................. None* 4.00%* 1.00%* None* 4.00%* 1.00%*
Redemption Fees..................................... None** None** None** None** None** None**
</TABLE>
* 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"). Class B Shares 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. Class C Shares are subject
to a CDSC of 1% if the shares are redeemed 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 and Deferred Sales Charge Alternative - Class B Shares and
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.
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 Individual Retirement
Plan ("IRA") will pay an annual IRA fee of $15 per Social Security Number.
-5-
<PAGE> 95
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND GROWTH STOCK FUND
---------------------- -----------------
ANNUAL OPERATING EXPENSES (AS A CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C
PERCENTAGE OF AVERAGE DAILY NET ASSETS) SHARES SHARES SHARES SHARES SHARES SHARES
- --------------------------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (after voluntary
waivers)++/*....................................... 0.94% 0.94% 0.94% 0.48% 0.48% 0.48%
12b-1 Expenses...................................... 0.25%+ 1.00%+ 1.00%+ 0.25%+ 1.00%+ 1.00%+
Other Operating Expenses
(after any voluntary payments)...................... 0.56% 0.56% 0.56% 1.02% 1.02% 1.02%
----- ----- ----- ----- ----- -----
Total Operating Expenses
(after voluntary waiver and payment)++.............. 1.75% 2.50% 2.50% 1.75% 2.50% 2.50%
----- ----- ----- ----- ----- -----
Total Operating Expenses
(without voluntary waiver and payment)*............. 1.81% 2.56% 2.56% 2.27% 3.02% 3.02%
</TABLE>
* Each Funds management fee without voluntary waiver and payment would be
1.00%.
+ 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
Funds.
++ The Manager has elected voluntarily to waive that portion, if any, of
the annual management fees payable by Aggressive Growth Fund and Growth
Stock Fund and to pay each Funds expenses to the extent necessary to
ensure that total operating expenses of each Class do not exceed on an
annualized basis (exclusive of taxes, interest, brokerage commissions
and extraordinary expenses) the amounts noted next to the caption
"Total Operating Expenses (after voluntary waiver and payment)" through
December 31, 1997. See Expenses under Management of the Funds for a
discussion of the waivers that will remain in place through April 30,
1999.
For expense information about the Funds' Institutional Classes see the
separate prospectus relating to those classes.
-6-
<PAGE> 96
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 and/or other payments of expenses by the Manager as discussed
in this Prospectus.
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND ASSUMING REDEMPTION ASSUMING NO REDEMPTION
- ---------------------- ------------------- ----------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES $64(1) $100 $138 $244 $64 $100 $138 $244
CLASS B SHARES $65 $108 $153 $265(2) $25 $ 78 $133 $265(2)
CLASS C SHARES $35 $ 78 $133 $284 $25 $ 78 $133 $284
</TABLE>
<TABLE>
<CAPTION>
GROWTH STOCK FUND ASSUMING REDEMPTION ASSUMING NO REDEMPTION
- ----------------- ------------------- ----------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES $64(1) $100 $138 $244 $64 $100 $138 $243
CLASS B SHARES $65 $108 $153 $265(2) $25 $ 78 $133 $265(2)
CLASS C SHARES $35 $ 78 $133 $284 $25 $ 78 $133 $284
</TABLE>
(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
of the Fund will be automatically converted into Class A Shares of the
Fund. The example above assumes conversion of Class B Shares at the end
of the eighth year. However, the conversion may occur as late as three
months after the eighth anniversary of purchase, during which time the
higher 12b-1 Plan fees payable by Class B Shares will continue to be
assessed. Information for the ninth and tenth years reflects expenses
of the Class A Shares. 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 each Class 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.
-7-
<PAGE> 97
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial statements of
Voyageur Mutual Funds III, Inc. and have been audited by KPMG Peat Marwick LLP,
independent auditors. The data should be read in conjunction with the financial
statements, related notes, and the report of KPMG Peat Marwick LLP, all of which
are incorporated by reference into Part B. Further information about the Funds'
performance is contained in their Annual Report to shareholders. A copy of the
Funds' Annual Report (including the report of KPMG Peat Marwick LLP) may be
obtained from Mutual Funds III, Inc. upon request at no charge.
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT
OPERATIONS LESS DISTRIBUTIONS
---------------------- ------------------
NET
REALIZED DIVIDENDS
NET AND FROM DISTRIBU- NET
ASSET NET UNREALIZED NET TIONS ASSETS
VALUE INVESTMENT GAINS INVEST- FROM FROM
BEGINNING INCOME (LOSS) ON MENT CAPITAL END OF
VOYAGEUR FUNDS(4) OF PERIOD (LOSS) SECURITIES INCOME GAINS PERIOD
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH FUND(5)(6)
Class A - 4/30/97 $00.00 $ 0.00 $0.00 $ 0.00 $ 0.00 $00.00
Class B - 4/30/97 00.00 0.00 0.00 0.00 0.00 00.00
Class C - 4/30/97 00.00 0.00 0.00 0.00 0.00 00.00
Class A - 4/30/96(9) 10.40 (0.10) 3.27 -- (0.40) 13.08
Class B - 4/30/96(1) 11.91 (0.01) 1.16 -- -- 13.06
Class C - 4/30/96(9) 10.33 (0.21) 3.25 -- (0.40) 12.88
Class A - 4/30/95(1) 10.00 (0.09) 0.49 -- -- 10.40
Class C - 4/30/95(1) 10.00 (0.16) 0.49 -- -- 10.33
GROWTH STOCK FUND
Class A - 4/30/97 $00.00 $ 0.00 $0.00 $ 0.00 $ 0.00 $00.00
Class B - 4/30/97 00.00 0.00 0.00 0.00 0.00 00.00
Class C - 4/30/97 00.00 0.00 0.00 0.00 0.00 00.00
Class A - 4/30/96 19.91 0.08 4.82 (0.11) (1.04) 23.66
Class B - 4/30/96(1) 21.64 0.06 2.96 (0.23) (1.04) 23.39
Class C - 4/30/96(1) 22.61 0.11 2.00 (0.25) (1.04) 23.43
Class A - 4/30/95 17.51 0.15 2.77 (0.13) (0.39) 19.91
Class A - 4/30/94 17.81 0.07 -0.16 (0.06) (0.15) 17.51
Class A - 4/30/93 23.81 0.05 0.22 -- (6.27) 17.81
Class A - 4/30/92 19.36 (0.18) 4.81 -- (0.18) 23.81
Class A - 4/30/91(3) 18.85 (0.11) 3.40 -- (2.78) 19.36
Class A - 4/30/90 19.39 (0.08) 1.29 -- (1.75) 18.85
Class A - 4/30/89 16.10 (0.15) 3.51 -- (0.07) 19.39
Class A - 4/30/88 17.46 (0.13) (0.84) -- (0.39) 16.10
Class A - 4/30/87 13.36 (0.07) 4.24 (0.05) (0.02) 17.46
</TABLE>
<TABLE>
<CAPTION>
RATIO/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------
RATIO OF
EXPENSES
TO AVERAGE
DAILY NET
RATIO ASSUMING
RATIO OF OF NET NO VOLUNTARY
NET EXPENSES INVESTMENT WAIVERS,
ASSETS TO INCOME REIMBURSE-
TOTAL END AVERAGE (LOSS) PORTFOLIO MENTS AND
INVESTMENT PERIOD NET TO AVERAGE TURNOVER EXPENSE
VOYAGEUR FUNDS(4) RETURN(4) (000S) ASSETS(8) NET ASSETS RATE REDUCTIONS(7)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH FUND(5)(6)
Class A - 4/30/97 00.00% $00,000 0.00% 0.00% 00.0% 0.00%
Class B - 4/30/97 00.00 00,000 0.00 0.00 00.0 0.00
Class C - 4/30/97 00.00 00,000 0.00 0.00 00.0 0.00
Class A - 4/30/96(9) 31.02 4,334 2.01 (1.00) 165.5 2.74
Class B - 4/30/96(1) 9.66 0 1.86(2) (1.39)(2) 165.5 1.86(2)
Class C - 4/30/96(9) 29.96 150 2.77 (1.73) 165.5 3.50
Class A - 4/30/95(1) 4.00 2,189 1.74(2) (1.21)(2) 88.3 2.97(2)
Class C - 4/30/95(1) 3.30 128 2.40(2) (1.80)(2) 88.3 3.50(2)
GROWTH STOCK FUND
Class A - 4/30/97 00.00% $00,000 0.00% 0.00% 00.0% 0.00%
Class B - 4/30/97 00.00 00,000 0.00 0.00 00.0 0.00
Class C - 4/30/97 00.00 00,000 0.00 0.00 00.0 0.00
Class A - 4/30/96 25.00 28,956 1.78 0.36 36.6 1.87
Class B - 4/30/96(1) 14.37 454 2.41(2) (0.62)(2) 36.6 2.50(2)
Class C - 4/30/96(1) 9.72 104 2.35(2) (0.65)(2) 36.6 2.43(2)
Class A - 4/30/95 17.04 23,651 1.90 0.75 21.8 1.99
Class A - 4/30/94 (0.52) 28,518 1.90 0.40 34.2 2.13
Class A - 4/30/93 1.51 26,784 1.90 0.26 16.5 2.70
Class A - 4/30/92 23.86 19,351 2.25 (0.76) 142.6 2.86
Class A - 4/30/91(3) 20.51 11,400 2.36 (0.67) 128.2 2.86
Class A - 4/30/90 6.09 10,331 2.31 (0.66) 115.1 2.86
Class A - 4/30/89 20.92 9,183 2.42 (0.69) 31.7 3.00
Class A - 4/30/88 (5.33) 9,706 2.52 (0.76 57.1 3.00
Class A - 4/30/87 31.37 10,083 3.00 (0.84) 64.2 3.00
</TABLE>
-8-
<PAGE> 98
NOTES TO FINANCIAL HIGHLIGHTS
(1) The information is for the period from each Fund's commencement of
operations to the Fund's year end. The classes of each Fund commenced
operations on the following dates:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND GROWTH STOCK FUND
<S> <C>
Class B September 8, 1995 Class A May 16, 1994
Class C October 21, 1995 Class B April 16, 1996
Class C May 20, 1994
</TABLE>
(2) Adjusted to an annual basis.
(3) Effective September 1, 1990, Voyageur Fund Managers, Inc. replaced
Investment Advisers, Inc. as the investment adviser and Wilke/Thompson
Capital Management began acting as Growth Stock Fund's sub-investment
adviser until January 1, 1992 when Voyageur Fund Managers, Inc. became
the sole investment adviser to the Fund. Beginning May 1, 1997,
Delaware Management Company, Inc. became the investment adviser to the
Fund and Voyageur Asset Management LLC began acting as Sub-Adviser to
Growth Stock Fund.
(4) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at
net asset value and does not reflect the impact of a sales charge.
(5) Per share amounts are presented based upon average fund shares
outstanding.
(6) Effective May 1, 1995, Voyageur Fund Managers, Inc. assumed
responsibility for Aggressive Growth Fund's investment management
replacing George D. Bjurman, the Fund's sub-adviser. Beginning May 1,
1997, Delaware Management Company, Inc. became the investment adviser
to the Fund.
(7) Up to the most restrictive state limitation in effect.
(8) Beginning in the period ended April 30, 1996, the expense ratio
reflects the effect of gross expenses attributable to earnings credits
on uninvested cash balances received by the Fund. Prior period expense
ratios have not been adjusted.
(9) For the fiscal year ended April 30, 1996, Distributions from Return of
Capital were $0.09 for each of Class A Shares and Class C Shares of
Aggressive Growth Fund.
-9-
<PAGE> 99
INVESTMENT OBJECTIVES AND POLICIES
Aggressive Growth Fund - Aggressive Growth Fund's investment objective
is long-term capital appreciation which the Fund attempts to achieve by
investing primarily in equity securities of companies which the Manager believes
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund - Growth Stock Fund has an objective of long-term
capital appreciation. Growth Stock Fund seeks to achieve its objective by
investing in equity securities diversified among individual companies and
industries.
No assurance can be given that either Fund will be able to achieve its
investment objective.
SUITABILITY
The value of a Fund's investments, and as a result the net asset value
of a Fund's shares, will fluctuate in response to changes in the market and
economic conditions as well as the financial condition and prospects of issuers
in which the Fund invests. Because of the risks associated with a Fund's
investments, each 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.
Companies in which Aggressive Growth Fund invests typically are subject
to a greater degree of change in earnings and business prospects than are
companies with more established earnings patterns. In light of these factors,
Aggressive Growth Fund may be subject to greater investment risk than that
assumed by other investment companies.
Investors should not consider a purchase of shares of either 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
AGGRESSIVE GROWTH FUND
The Fund seeks to achieve its investment objective by investing
primarily (at least 65% of its total assets) in equity securities (including
convertible securities) of companies which the Manager believes have the
potential for high earnings growth and which are U.S. companies with stock
market capitalizations of at least $300 million. The Fund has been designed to
provide investors with potentially greater long-term rewards than provided by an
investment in a fund that seeks capital appreciation from common stocks with
more established earnings histories.
The Fund will invest in equity securities of companies
the Manager believes to be undervalued and to have the potential for high
earnings growth. Companies in which the Fund invests generally will meet one or
more of the following criteria: high historical earnings-per-share ("EPS")
growth; high projected future EPS growth; an increase in research analyst
earnings estimates; attractive relative price to earnings ratios; and high
relative discounted cash flows. In selecting the Fund's investments, the Manager
also focuses on companies with capable management teams, strong industry
positions, sound capital structures, high returns on equity, high reinvestment
rates and conservative financial accounting policies.
-10-
<PAGE> 100
In pursuing its objective, the Fund anticipates that it will invest
substantially all, and under normal conditions not less than 65%, of its assets
in common stocks, preferred stocks, convertible bonds, convertible debentures,
convertible notes, convertible preferred stocks and warrants or rights. To the
extent that the Fund invests in convertible debt securities, those securities
will be purchased on the basis of their equity characteristics, and ratings, if
any, of those securities will not be an important factor in their selection.
At no time will the investments of the Fund in bank obligations,
including time deposits, exceed 25% of the value of the Fund's assets.
GROWTH STOCK FUND
In seeking to achieve its investment objective, Growth Stock Fund's
policy is to invest under normal market conditions not less than 80% of its
total assets in common stocks which the Manager or Sub-Adviser believe offer the
potential for long-term capital appreciation. Some of the factors the Manager or
Sub-Adviser will consider in making the Fund's investments are increasing demand
for a company's products or services, the belief that a company's securities are
temporarily undervalued, the development of new or improved products or
services, the probability of increased operating efficiencies, changes in
management, emphasis on research and development, cyclical conditions, or
possible mergers or acquisitions. The Fund anticipates that, in normal market
conditions, at least 75% of the Fund's investments in common stocks will have
received at the time of investment one of the two highest earnings and dividend
ratings (A+ or A) assigned by Standard & Poor's Ratings Group ("Standard &
Poor's"). The Fund also may invest up to 20% of its total assets in preferred
stocks and corporate bonds if they are accompanied by warrants or are
convertible into common stocks.
Each Fund may invest up to 10% of its assets in foreign securities.
Each Fund may also invest in securities of foreign issuers in the form of
American Depositary Receipts ("ADRs"), which are U.S. dollar-denominated
receipts, typically issued by domestic banks or trust companies, that represent
the deposit with those entities of securities of a foreign issuer, and Global
Depositary Receipts ("GDRs"), which generally are issued by foreign banks and
evidence ownership of either foreign or domestic securities. ADRs are publicly
traded on exchanges or over-the-counter in the United States and are issued
through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of
the depositary's transaction fees, whereas under an unsponsored arrangement,
the foreign issuer assumes no obligations and the depositary's transaction fees
are paid directly by the ADR holders. In addition, less information is
available in the United States about an unsponsored ADR than about a sponsored
ADR. Each Fund may invest in ADRs through both sponsored and unsponsored
arrangements.
* * *
For additional information on each Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations.
-11-
<PAGE> 101
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. Total return information may also be included in
advertisements and information given to shareholders.
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 Funds, 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 Funds, as well as other funds in the
Delaware Group. Delaphone is available seven days a week, 24 hours a day.
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.
-12-
<PAGE> 102
TAX INFORMATION
Each year, Mutual Funds III, Inc. will mail to you information on the
tax status of your dividends and distributions.
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 the name and address on your designated bank account are not
identical to the name and address on your Fund account, you must have your
signature guaranteed. The MoneyLine Direct Deposit Service is not available for
certain retirement plans.
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 a Fund with the dollar amount of new
purchases of Class A Shares of a Fund 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 you to exchange all or part of your
shares into shares of other mutual 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.
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<PAGE> 103
WEALTH BUILDER OPTION
You may elect to invest in the Funds 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, when 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 FUNDS
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
each Fund's investments and performance. Mutual Funds III, Inc.'s fiscal year
ends on April 30.
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<PAGE> 104
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. Certain
retirement plans may qualify to purchase shares of the Institutional Classes.
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.
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<PAGE> 105
PROTOTYPE 401(k) DEFINED CONTRIBUTION PLAN
Permits employers to establish a tax-qualified plan based on salary
deferral contributions for investment in Class A Shares 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 Delaware Distributors, L.P. 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
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<PAGE> 106
in the Allied Plan will be aggregated. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.
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<PAGE> 107
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.
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<PAGE> 108
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 0.25% 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 Funds.
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 12b-1 Plan fee of up to
0.25% 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 a 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 a 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
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<PAGE> 109
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, and the effect of earning a return on such
additional money will diminish over time. 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 Funds, 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
Distribution (12b- 1) and Service under Management of the Funds.
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 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.
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<PAGE> 110
Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Dealer's
Front-End Sales Charge as % of Commission***
Amount of Purchase Offering as % of
Price Amount Invested** Offering Price
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth
Growth Stock
Fund Fund
Less than $100,000 4.75% 0.00% 0.00% 4.00%
$100,000 but under $250,000 3.75 0.00 0.00 3.00
$250,000 but under $500,000 2.50 0.00 0.00 2.00
$500,000 but under $1,000,000* 2.00 0.00 0.00 1.60
- -----------------------------------------------------------------------------------------
</TABLE>
* 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 on the net asset value per share of the respective Class A Shares
as of the end of Mutual Funds III, Inc.'s most recent fiscal year.
*** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
A 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 such 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 1933 Act.
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<PAGE> 111
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:
<TABLE>
<CAPTION>
DEALER'S COMMISSION
(as a percentage of
AMOUNT OF PURCHASE amount purchased)
------------------ -----------------
<S> <C>
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
</TABLE>
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 a 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 a Fund and shares of 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.
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<PAGE> 112
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 or the Sub-Adviser, 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. In addition, purchases of Class A Shares may be made by financial
institutions investing for the account of their trust customers when they are
not eligible to purchase shares of a Fund's institutional class. Officers,
directors and key employees of institutional clients of the Manager or
Sub-Adviser 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
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<PAGE> 113
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 Class A Shares 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 in which it is investing 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 in which they are
investing 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 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 a 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.
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<PAGE> 114
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 PURCHASED PRIOR TO MAY 1, 1997 WILL CONVERT TO CLASS A SHARES ON
THE FIRST BUSINESS DAY OF THE MONTH EIGHT YEARS AFTER THE PURCHASE DATE.]
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 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
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<PAGE> 115
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 a Fund, 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.
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<PAGE> 116
The following table sets forth the rates of the CDSC for the Class B
Shares of the Funds:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEAR AFTER PURCHASE MADE SUBJECT TO CHARGE)
------------------------ ------------------
<S> <C>
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
</TABLE>
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 0.25% 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
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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.
INSTITUTIONAL CLASSES
In addition to offering the Class A, Class B and Class C Shares, each
Fund also offers an Institutional Class, which is described in a separate
prospectus and is available for purchase only by certain investors.
Institutional Class shares generally are distributed directly by the Distributor
and do not have a front-end sales charge, a CDSC or a Limited CDSC and are not
subject to 12b-1 Plan distribution expenses. To obtain the prospectus that
describes the Institutional Classes, contact the Distributor by writing to the
address or by calling the telephone number listed on the back cover of this
Prospectus.
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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 Funds 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, the
Delaware Group 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 specific 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 specific 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 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 specific Fund and Class selected, to Delaware Group at
1818 Market Street, Philadelphia, PA 19103.
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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 a 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 privileges.
Holders of Class A Shares of a Fund 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 a 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 a 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 Delaware Group funds and
the classes they offer. Class B Shares of a Fund and Class C Shares of a 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 a 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 that Fund.
Permissible exchanges into Class A Shares of a 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 a 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.
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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 account for you (for example: payroll deduction, pay by phone, annuity
payments). Each 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 a 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 account in a Delaware Group mutual fund 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 in Wealth Builder at any time
by giving 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 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 a Fund or of
other Delaware Group funds are made without a front-end sales charge.
Reinvestments of distributions into Class B Shares of a Fund or of other
Delaware Group funds or into Class C Shares of a 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
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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 a Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the Delaware
Group, including the Funds. Holders of Class B Shares of a 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 a 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. With the help of a financial adviser, you may also 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 a
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, however, 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.
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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 a Fund. 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
Each 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. A 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. Each 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.
Each 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 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.
Each 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.
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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, tax-advantaged funds, bond
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 a 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, a 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. Each Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Each Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the purchase 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. Each 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.
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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 a 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 a 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 a Fund or its agent.
WRITTEN REDEMPTION
You can write to each 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 Funds require 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. Each Fund reserves the right
to reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds 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.
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WRITTEN EXCHANGE
You may also write to each 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. Each 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 Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Funds nor their 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, each 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, such Fund or the 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
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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 Funds do 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 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.
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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 the Class A
Shares of a Fund or the 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 a 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
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The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from a
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 a 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.
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DIVIDENDS AND DISTRIBUTIONS
Mutual Funds III, Inc. currently intends to make annual payments from
each Fund's net investment income. Payments from each Fund's net realized
security profits will be made during the first quarter of the next fiscal year.
Each class of a Fund will share proportionately in the investment
income and expenses of that 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 Funds.
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.
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<PAGE> 130
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 a Fund.
Each Fund has qualified as a regulated investment company under
Subchapter M of the Internal Revenue Code (the "Code"). As such, a 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.
Each 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. For corporate investors, dividends from net investment income will
generally qualify in part for the corporate dividends-received deduction. The
portion of dividends paid by each Fund that so qualifies will be designated each
year in a notice from Mutual Funds III, Inc. to the Fund's shareholders.
Distributions paid by a 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 Funds do 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 a 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 a Fund and received by the shareholder on
December 31 of the calendar year in which they are declared.
The sale of shares of the Funds 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
a 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 such 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.
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Each Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities.
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<PAGE> 132
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 each 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 a Fund.
Each 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 in Part B for additional information on tax matters relating to
each Fund and its shareholders.
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<PAGE> 133
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 a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in that Fund represented by the value of shares of
that class. All income earned and expenses incurred by a Fund will be borne on a
pro-rata basis by each outstanding share of a class, based on each class'
percentage in that Fund represented by the value of shares of such classes,
except that Aggressive Growth Fund Institutional Class and Growth Stock Fund
Institutional Class will not incur any of the expenses under 12b-1 Plans and the
Class A, Class B and Class C Shares alone will bear the 12b-1 Plan expense
payable under their respective Plans.
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<PAGE> 134
MANAGEMENT OF THE FUNDS
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 AND SUB-ADVISER
The Manager furnishes investment management services to each Fund. The
Sub-Adviser is responsible for the day-to-day investment management of Growth
Stock Fund. The Manager has offices located at One Commerce Square,
Philadelphia, PA 19103. The Sub-Adviser has offices located at 90 South Seventh
Street, Suite 4400, Minneapolis, MN 55402.
Delaware and its predecessors have been managing the funds in the
Delaware Group since 1938. On April 30, 1997, Delaware and its affiliates,
including Delaware International Advisers Ltd., were managing in the aggregate
more than $32 billion in assets in various institutional or separately managed
(approximately $20,677,606,000) and investment company (approximately
$11,935,210,000) accounts.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had
been retained under an investment advisory contract to act as each Fund's
investment adviser, subject to the authority of the Board of Directors. Voyageur
was an indirect, wholly-owned subsidiary of Dougherty Financial Group, Inc.
("DFG"). After the close of business on April 30, 1997, Voyageur became an
indirect, wholly owned subsidiary of Lincoln National Corporation ("LNC") as a
result of LNC's acquisition of DFG. LNC, headquartered in Fort Wayne, Indiana,
owns and operates insurance and investment management businesses, including
Delaware Management Holdings, Inc. ("DMH"). Affiliates of DMH serve as adviser,
distributor and transfer agent for the Delaware Group of Mutual Funds.
Because LNC's acquisition of DFG resulted in a change of control of
Voyageur, the Fund's previous investment advisory agreements with Voyageur were
"assigned," as that term is defined by the 1940 Act, and the previous agreements
therefore terminated upon the completion of the acquisition. The Board of
Directors of the Funds unanimously approved new investment advisory agreements
with the Manager at a meeting held in person on February 14, 1997, and called
for a shareholders meeting to approve the new agreements. At a meeting held on
April 11, 1997, the shareholders of each Fund approved its respective investment
advisory agreement with the Manager to become effective after the close of
business on April 30, 1997, the date the acquisition was completed. At that
meeting, shareholders of Growth Stock Fund also approved a Sub-Advisory
Agreement between the Manager and the Sub-Adviser to take effect at the same
time as the Investment Management Agreement.
Beginning May 1, 1997, the Manager, an indirect, wholly owned
subsidiary of LNC, became the Funds' investment manager. The Manager administers
the affairs of and is ultimately responsible for the investment management of
each of the Funds under separate Investment Management Agreements. [The Manager
also administers Mutual Funds III, Inc.'s affairs and pays the salaries of all
the directors, officers and employees of Mutual Funds III, Inc. who are
affiliated with the Manager. For these services,] under their respective
Investment Management Agreements, Aggressive Growth Fund and Growth Stock Fund
each pay the Manager a monthly investment advisory fee equivalent on an annual
basis to 1.00% of their average daily net assets[, less each Fund's
proportionate share of directors' fees paid to the unaffiliated directors by
Mutual Funds III, Inc.] Investment management fees accrued by Aggressive Growth
Fund for the fiscal year ended April 30, 1997 were 0.00% of average daily net
assets and 0.00%
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was paid as a result of the voluntary waiver of fees by Voyageur. Investment
management fees accrued by Growth Stock Fund for the fiscal year ended April 30,
1997 were 0.00% of average daily net assets and 0.00% was paid as a result of
the voluntary waiver of fees by Voyageur.
Gerald S. Frey, Vice President/Senior Portfolio Manager, assumed
primary responsibility for making day-to-day investment decisions for the
Aggressive Growth Fund on May 1, 1997. Mr. Frey also serves as Vice
President/Senior Portfolio Manager for Delaware Group Equity Funds IV, Inc.,
Delaware Group Trend Fund, Inc., Delaware Group Premium Fund, Inc. and Delaware
Pooled Trust, Inc. Mr. Frey has 22 years' experience in the money management
business and holds a BA in Economics from Bloomsburg University and attended
Wilkes College and New York University. Prior to joining the Delaware Group in
1996, he was a Senior Director with Morgan Grenfell Capital Management in New
York.
In making investment decisions for the Fund, Mr. Frey regularly
consults with Wayne A. Stork, Marshall T. Bassett, William H. Miller, Judith R.
Finger, John A. Heffern and Lori Wachs. Mr. Stork, Chairman of the Delaware
Management Company, Inc. and the Fund'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. Marshall T. Bassett, Vice President, joined Delaware in 1997. In
his most recent position, he served as Vice President in Morgan Stanley Asset
Management's Emerging Growth Group, where he analyzed small growth companies.
Prior to that, he was a trust officer at Sovran Bank and Trust Company. He
received his bachelor's degree and MBA from Duke University. Mr. Miller is a
Vice President/Assistant Portfolio Manager. He holds a BA in Economics from
Trinity College. Prior to joining the Delaware Group in 1995, he worked as a
technology analyst for Janney Montgomery Scott in Philadelphia and he has also
served as an institutional salesman for Rutherford Brown and Catherwood. Ms.
Finger is a Vice President/Assistant Portfolio Manager. She joined the Delaware
Group in 1995 from the New York-based Fred Alger Management, where she was an
equity analyst for three years. Prior to that, she held positions with Chemical
Bank and Dun & Bradstreet, in mergers and acquisitions. She earned her BA in
Finance from the University of Pennsylvania and her MBA in Finance & Accounting
from the University of Chicago. John A. Heffern, Vice President, holds a
bachelor's degree and an MBA from the University of North Carolina at Chapel
Hill. He joined Delaware in 1997. Previously, he was a Senior Vice President,
Equity Research at NatWest Securities Corporation's Specialty Finance Service
unit. Prior to that, he was a Principal and Senior Regional Bank Analyst at
Alex. Brown & Sons. Ms. Wachs is an Assistant Vice President. She joined the
Delaware Group in 1992 from Goldman Sachs, where she was an equity analyst for
two years. She is a graduate of the University of Pennsylvania's Wharton School,
where she majored in Finance and Oriental studies.
Pursuant to the terms of a Sub-Advisory Agreement with the Manager, the
Sub-Adviser participates in the management of Growth Stock Fund's assets, is
responsible for day-to-day investment management of the Fund, makes investment
decisions for the Fund in accordance with the Fund's investment objectives and
stated policies and places orders on behalf of the Fund to effect the investment
decisions made [with Mutual Funds III, Inc.'s Trading Department.] The Manager
continues to have ultimate responsibility for all investment advisory services
in connection with the management of the Fund pursuant to the Investment
Management Agreement and supervises the Sub-Adviser's performance of such
services. For the services provided to the Manager, the Manager pays the
Sub-Adviser the following fee with respect to Growth Stock Fund: ______________.
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<PAGE> 136
James King, an employee of the Sub-Adviser, currently has day-to-day
portfolio management responsibility for Growth Stock Fund. Mr. King was a
director of Voyageur from 1993 through 1995 and was a Senior Equity Portfolio
Manager of Voyageur from 1990 through 1997. Mr. King currently has over 30 years
of investment experience.
PORTFOLIO TRADING PRACTICES
Each Fund normally will not invest for short-term trading purposes.
However, a 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
a Fund and may affect taxes payable by such Fund's shareholders. For the fiscal
year ended April 30, 1996 and 1997, portfolio turnover rates for the funds were
as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Aggressive Growth Fund 166% 00%
Growth Stock Fund 37% 00%
</TABLE>
Each 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. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and execution, each 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, each 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. Each Fund may
also advertise aggregate and average total return information concerning a Class
over additional periods of time. In addition, each 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 for each Fund's shares under a Distribution Agreement dated _______,
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 Funds (the "Plans"). Each Plan permits a
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<PAGE> 137
Fund to which the Plan relates to pay the Distributor from the assets of its
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,
each Fund may make payments from the 12b-1 Plan fees of its respective Classes
directly to others, such as banks, who aid in the distribution of Class shares
or provide services in respect of such Classes, 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 of the Funds 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 a Fund from the assets of the respective
Classes to the Distributor and others under the Plans may not exceed (i) 0.25%
of a Class A Shares' average daily net assets in any year, and (ii) 1% (0.25%
of which are service fees to be paid by the Fund to the Distributor, dealers and
others, for providing personal service and/or maintaining shareholder accounts)
of each Fund's Class B Shares' and the 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 0.25% annually
with respect to each Fund's Class A Shares, and 1% annually with respect to
each Fund's Class B Shares and 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 Plans do not apply to the Institutional Class of shares of either
Fund. Those shares are not included in calculating the Plans' fees, and the
Plans are not used to assist in the distribution and marketing of the shares of
the Institutional Class of either Fund.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for each Fund
under a Shareholders Services Agreement dated May 1, 1997. The Transfer Agent
also provides accounting services to the Funds pursuant to the terms of a
separate Fund Accounting Agreement. The directors annually review service fees
paid to the Transfer Agent.
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<PAGE> 138
The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.
EXPENSES
Each 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.
In connection with the merger transaction described above, the Manager
has agreed for a period of two years ending on April 30, 1999, to pay the
operating expenses (excluding interest expense, taxes, brokerage fees,
commissions and Rule 12b-1 fees) of each Fund which exceed 1% of such Fund's
average daily net assets on an annual basis up to certain limits as set forth in
detail Part B. This agreement replaces a similar provision in the Funds'
investment advisory contracts with the Funds' predecessor investment adviser.
The Manager and the Underwriter reserve the right to voluntarily waive
their fees in whole or part and to voluntarily absorb certain other of each
Fund's expenses. See Summary of Expenses for current fee waivers and
reimbursements.
For the fiscal year ended April 30, 1997, the ratio of operating
expenses to average daily net asset for each Class of each Fund was as follows:
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
<S> <C> <C> <C>
Aggressive Growth Fund 0.00% 0.00% 0.00%
Growth Stock Fund 0.00% 0.00% 0.00%
</TABLE>
The expense ratio of each Class reflects the impact of its 12b-1 Plan
[AND THE FEE WAIVERS AND REIMBURSEMENTS.]
SHARES
Mutual Funds III, Inc. is an open-end management investment company.
Each 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 Funds, Mutual Fund
III, Inc. presently also offers the Tax-Efficient Equity Fund series of shares.
Fund shares have a par value of $___, equal voting rights, except as noted
below, and are equal in all other respects. Each Fund will vote separately on
any matter which affects only that Fund. Shares of each Fund have a priority
over shares of any other fund of Mutual Funds III, Inc. in the assets and income
of that Fund.
All of the shares have noncumulative voting rights which means that the
holders of more than 50% of Mutual Funds III, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they choose to do so.
Under Minnesota law, Mutual Funds III, Inc. is not required, and does not
intend, to hold annual meetings of shareholders unless, under certain
circumstances, it is required to do so under the 1940 Act. [Shareholders of ___%
or more of Mutual Funds III, Inc.'s outstanding shares may request that a
special meeting be called to consider the removal of a director.]
In addition to Class A Shares, Class B Shares and Class C Shares, the
Funds offer Institutional Classes. Shares of each Class represent proportionate
interests in the assets of the respective Fund and have the same voting and
other rights and preferences as the other classes of that Fund, except that
shares
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<PAGE> 139
of the Institutional Classes are not subject to, and may not vote on matters
affecting, the Distribution Plans under Rule 12b-1 relating to Class A, Class B
and Class C Shares. Similarly, as a general matter, the shareholders of Class A
Shares, Class B Shares and Class C Shares may vote only on matters affecting the
12b-1 Plan that relates to the class of shares that they hold. However, Class B
Shares of a Fund may vote on any proposal to increase materially the fees to be
paid by that Fund under the 12b-1 Plan relating to Class A Shares.
Beginning June 9, 1997, the names of Voyageur Aggressive Growth Fund
changed to Aggressive Growth Fund series and Voyageur Growth Stock Fund changed
to Growth Stock Fund series.
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS (AND/OR IN THE PART B REFERRED TO ON THE COVER PAGE OF THIS
PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN THE STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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<PAGE> 140
OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
DEBT SECURITIES
In pursuing its investment objective, Aggressive Growth Fund may invest
up to 35% of its total assets and Growth Stock Fund may invest up to 20% of its
total net assets in debt securities of corporate and governmental issuers. The
risks inherent in debt securities depend primarily on the term and quality of
the obligations in a Fund's portfolio as well as on market conditions. A decline
in the prevailing levels of interest rates generally increases the value of debt
securities, while an increase in rates usually reduces the value of those
securities.
Investments in debt securities by each Fund are limited to those that
are at the time of investment within the four highest grades (generally referred
to as "investment grade") assigned by a nationally recognized statistical rating
organization or, if unrated, are deemed to be of comparable quality by the
Manager. If a change in credit quality after acquisition by a Fund causes a
security to no longer be investment grade, the Fund will dispose of the
security, if necessary, to keep its holdings to 5% or less of the Fund's net
assets. See Credit Quality under Investment Restrictions and Policies in Part B.
Debt securities rated Baa by Moody's or BBB by Standard & Poor's, although
considered investment grade, have speculative characteristics and changes in
economic circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds.
When a Fund's Manager or Sub-Adviser, as the case may be, determines
that adverse market or economic conditions exist and considers a temporary
defensive position advisable, the Fund may invest without limitation in
high-quality fixed income securities or hold assets in cash or cash equivalents.
RULE 144a SECURITIES
Each Fund may invest in restricted securities, including privately
placed securities, some of which may be eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the Securities Act of 1933.
Rule 144A permits many privately placed and legally restricted securities to be
freely traded among certain institutional buyers such as a Fund. Each Fund may
invest no more than 15% of the value of its net assets in illiquid securities.
While maintaining oversight, the Board of Directors has delegated to
the Manager the day-to-day function of determining whether or not individual
Rule 144A Securities are liquid for purposes of a Fund's 15% limitation on
investments in illiquid assets. The Board has instructed the Manager to consider
the following factors in determining the liquidity of a Rule 144A Security: (i)
the frequency of trades and trading volume for the security; (ii) whether at
least three dealers are willing to purchase or sell the security and the number
of potential purchasers; (iii) whether at least two dealers are making a market
in the security; (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer).
If the Manager or Sub-Adviser, as the case may be, determines that a
Rule 144A Security which was previously determined to be liquid is no longer
liquid and, as a result, a Fund's holdings of illiquid securities exceed the
Fund's 15% limit on investments in such securities, the Manager will determine
what action to take to ensure that the Fund continues to adhere to such
limitation.
INVESTMENT COMPANY SECURITIES
Any investments that either Fund makes in either closed-end or open-end
investment companies will be limited by the 1940 Act, and would involve an
indirect payment of a portion of the expenses,
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<PAGE> 141
including advisory fees, of such other investment companies. Under the 1940
Act's current limitations, a Fund may not (1) own more than 3% of the voting
stock of another investment company; (2) invest more than 5% of the Fund's total
assets in the shares of any one investment company; nor (3) invest more than 10%
of the Fund's total assets in shares of other investment companies. If a Fund
elects to limit its investment in other investment companies to closed-end
investment companies, the 3% limitation described above is increased to 10%.
These percentage limitations also apply to each Fund's investments in
unregistered investment companies.
REPURCHASE AGREEMENTS
In order to invest its short-term cash reserves or when in a temporary
defensive posture, each Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager or Sub-Adviser, under
guidelines approved by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e. a Fund) acquires ownership of
a debt security and the seller agrees to repurchase the obligation at a future
time and set price, thereby determining the yield during the purchaser's holding
period. Generally, repurchase agreements are of short duration, often less than
one week but on occasion for longer periods. Not more than 15% of each Fund's
assets may be invested in repurchase agreements of over seven-days' maturity or
other illiquid assets. Should an issuer of a repurchase agreement fail to
repurchase the underlying security, the loss to a Fund, if any, would be the
difference between the repurchase price and the market value of the security.
Each Fund will limit its investments in repurchase agreements to those which the
Manager or Sub-Adviser under guidelines of the Board of Directors determines to
present minimal credit risks and which are of high quality. In addition, each
Fund must have collateral of at least 100% of the repurchase price, including
the portion representing the Fund's yield under such agreements, which is
monitored on a daily basis.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. Each Fund will maintain with its custodian bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time the a enters into the commitment and
no interest accrues to the Fund until settlement. Thus, it is possible that the
market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.
TEMPORARY INVESTMENTS
Each Fund's reserves may be invested in domestic short-term money
market instruments including, but not limited to, U.S. government and agency
obligations, certificates of deposit, bankers' acceptances, time deposits,
commercial paper, short-term corporate debt securities and repurchase
agreements. During temporary defensive periods as determined by the Manager or
the Sub-Adviser, as the case may be, each Fund may hold up to 100% of its total
assets in short-term obligations of the types described above.
HEDGING TRANSACTIONS
Each Fund may write covered call options and secured put options and
purchase call and put options on securities and security indices. Each Fund may
also engage in transactions in financial futures contracts and
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<PAGE> 142
related options for hedging purposes. These investment techniques and the
related risks are summarized below and are described in more detail in Part B.
OPTIONS
The Manager and Sub-Adviser may employ options techniques in an attempt
to protect appreciation attained and to take advantage of the liquidity
available in the options market. Each Fund may purchase call options on foreign
or U.S. securities and indices and enter into related closing transactions and a
Fund may write covered call options on such securities. A Fund may also purchase
put options on such securities and indices and enter into related closing
transactions.
A call option enables the purchaser, in return for the premium paid, to
purchase securities from the writer of the option at an agreed price up to an
agreed date. A covered call option obligates the writer, in return for the
premium received, to sell the securities subject to the option to the purchaser
of the option for an agreed upon price up to an agreed date. The advantage is
that the purchaser may hedge against an increase in the price of securities it
ultimately wishes to buy or take advantage of a rise in a particular index. A
Fund will only purchase call options to the extent that premiums paid on all
outstanding call options do not exceed 2% of its total assets.
A put option enables the purchaser of the option, in return for the
premium paid, to sell the security underlying the option to the writer at the
exercise price during the option period, and the writer of the option has the
obligation to purchase the security from the purchaser of the option. A Fund
will only purchase put options to the extent that the premiums on all
outstanding put options do not exceed 2% of its total assets. The advantage is
that the purchaser can be protected should the market value of the security
decline or should a particular index decline.
An option on a securities index gives the purchaser of the option, in
return for the premium paid, the right to receive from the seller cash equal to
the difference between the closing price of the index and the exercise price of
the option.
Closing transactions essentially let a Fund offset put options or call
options prior to exercise or expiration. If a Fund cannot effect closing
transactions, it may have to hold a security it would otherwise sell or deliver
a security it might want to hold.
In purchasing put and call options, the premium paid by a Fund plus any
transaction costs will reduce any benefit realized by the Fund upon exercise of
the option. With respect to writing covered call options, a Fund may lose the
potential market appreciation of the securities subject to the option, if the
Manager's or the Sub-Adviser's judgment is wrong and the price of the security
moves in the opposite direction from what was anticipated.
Each Fund may use both Exchange-traded and over-the-counter options.
Certain over-the-counter options may be illiquid. Each Fund will only invest in
such options to the extent consistent with its 15% limitation on investment in
illiquid securities. Each Fund will comply with Securities and Exchange
Commission asset segregation and coverage requirements when engaging in these
types of transactions.
FUTURES
Futures contracts are agreements for the purchase or sale for future
delivery of securities. When a futures contract is sold, a Fund incurs a
contractual obligation to deliver the securities underlying the contract at a
specified price on a specified date during a specified future month. A purchase
of a futures
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<PAGE> 143
contract means the acquisition of a contractual right to obtain delivery to a
Fund of the securities called for by the contract at a specified price during a
specified future month.
While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by entering
into an offsetting transaction. When a Fund enters into a futures transaction,
it must deliver to the futures commission merchant selected by the Fund an
amount referred to as "initial margin." This amount is maintained by the futures
commission merchant in an account at the Fund's custodian bank. Thereafter, a
"variation margin" may be paid by a Fund to, or drawn by the Fund from, such
account in accordance with controls set for such account, depending upon changes
in the price of the underlying securities subject to the futures contract.
Each Fund may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract, rather than actually to purchase or
sell the futures contract, at a specified exercise price at any time during the
period of the option.
The purpose of the purchase or sale of futures contracts consisting of
U.S. government securities is to protect a Fund against the adverse effects of
fluctuations in interest rates without actually buying or selling such
securities. Similarly, when it is expected that interest rates may decline,
futures contracts may be purchased to hedge in anticipation of subsequent
purchases of U.S. government securities at higher prices.
FOREIGN SECURITIES
Each Fund may invest up to 10% of its total assets in foreign
securities. Foreign securities may include ADRs and GDRs. 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. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be returned to
the country of origin, based on the exchange rate at the time of disbursement,
and restrictions on capital flows may be imposed. Losses and other expenses may
be incurred in converting between various currencies in connection with
purchases and sales of foreign securities.
Foreign stock markets are generally not as developed or efficient as
those in the U.S. In most foreign markets volume and liquidity are less than in
the U.S. and, at times, volatility of price can be greater than that in the U.S.
Fixed commissions on foreign stock exchanges are generally higher than the
negotiated commissions on U.S. exchanges. There is generally less government
supervision and regulation of foreign stock exchanges, brokers and companies
than in the U.S.
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
-54-
<PAGE> 144
of a Fund in some foreign countries. The Funds are 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 a Fund's shareholders.
OTHER INVESTMENT POLICIES
Although each Fund is permitted under certain circumstances to borrow
money, neither Fund normally does so. Aggressive Growth Fund will not purchase
new securities whenever borrowings exceed 5% of the value of the total assets of
the Fund.
Neither Fund may concentrate investments in any industry, which means
that a Fund may generally not invest more than 25% of its assets in any one
industry. With respect to Aggressive Growth Fund, 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 Funds are described in Part B.
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<PAGE> 145
APPENDIX B--CLASSES OFFERED
<TABLE>
<CAPTION>
GROWTH OF CAPITAL A CLASS B CLASS C CLASS CONSULTANT CLASS
<S> <C> <C> <C> <C>
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 -
</TABLE>
(Not Part of Prospectus)
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<PAGE> 146
APPENDIX B--CLASSES OFFERED - (CON'T)
<TABLE>
<CAPTION>
TAX-FREE INCOME A CLASS B CLASS C CLASS CONSULTANT CLASS
<S> <C> <C> <C> <C>
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 -
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 -
MONEY MARKET FUNDS
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>
(Not Part of Prospectus)
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<PAGE> 147
APPENDIX A - INVESTMENT ILLUSTRATIONS
ILLUSTRATIONS OF THE POTENTIAL IMPACT ON INVESTMENT BASED ON PURCHASE OPTION
$10,000 PURCHASE
<TABLE>
<CAPTION>
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
-------------------------------------- -------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <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
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
------------------------------------- ------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <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+
6
7
8
9
10
</TABLE>
*This assumes that Class B Shares were converted to Class A Shares at the end of
the eighth year.
$250,000 PURCHASE
<TABLE>
<CAPTION>
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
-------------------------------------- -------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <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
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
------------------------------------ --------------------------------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <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
5 392,562 384,979 389,979
6
7
8
9
10
</TABLE>
*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, a hypothetical return
for Class B of 9.25% for years 1-8 and 10% for years 9-10, and a hypothetical
return for Class C of 9.25% per year. Hypothetical returns vary due to the
different expense structures 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 investment amount, holding period and the expense structure of each
Class.
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<PAGE> 148
The Delaware Group includes funds with a wide range of investment objectives.
Stock funds, income funds, 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
GROWTH STOCK FUND:
SUB-ADVISER
Voyageur Asset Management LLC
90 South Seventh Street, Suite 4400,
Minneapolis, MN 55402.
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
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue
Minneapolis, MN 55402
AGGRESSIVE GROWTH FUND
GROWTH STOCK FUND
A CLASS
B CLASS
C CLASS
P R O S P E C T U S
AUGUST 28, 1997
DELAWARE
GROUP
<PAGE> 149
AGGRESSIVE GROWTH FUND INSTITUTIONAL PROSPECTUS
GROWTH STOCK FUND INSTITUTIONAL AUGUST 28, 1997
- --------------------------------------------------------------------------------
1818 MARKET STREET, PHILADELPHIA, PA 19103
FOR MORE INFORMATION ABOUT AGGRESSIVE GROWTH FUND INSTITUTIONAL CLASS AND
GROWTH STOCK FUND INSTITUTIONAL CLASS
CALL DELAWARE GROUP AT 800-828-5052.
This Prospectus describes the shares of Aggressive Growth Fund series
and Growth Stock Fund series (individually, a "Fund" and collectively, the
"Funds") of Voyageur Mutual Funds III, Inc. ("Mutual Funds III, Inc."), a
professionally-managed mutual fund of the series type.
Aggressive Growth Fund's investment objective is long-term capital
appreciation which the Fund attempts to achieve by investing primarily in equity
securities of companies which Delaware Management Company, Inc. (the "Manager")
believes have the potential for high earnings growth. Growth Stock Fund's
investment objective is long-term capital appreciation through investment in
equity securities diversified among individual companies and industries. There
is no assurance that either Fund's investment objective will be achieved. See
Investment Objectives and Strategies.
Aggressive Growth Fund offers Aggressive Growth Fund Institutional
Class and Growth Stock Fund offers Growth Stock Fund Institutional Class
(individually, a "Class" and collectively, the "Classes").
This Prospectus relates only to the Classes and sets forth information
that you should read and consider before you invest. Please retain it for future
reference. An investment in either Fund involves certain risks and requires
consideration of such risks. The Funds' Statement of Additional Information
("Part B" of Mutual Funds III, Inc.'s registration statement), dated August 28,
1997, as it may be amended from time to time, contains additional information
about the Funds 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 number. Each Fund's financial statements appear in its
Annual Report for the fiscal year ended April 30, 1997, which will accompany any
response to requests for Part B.
Each Fund also offers Class A Shares, Class B Shares and Class C
Shares. Shares of these classes are subject to sales charges and other expenses,
which may affect their performance. A prospectus for these classes can be
obtained by writing to Delaware Distributors, L.P. at the above address or by
calling 800-523-4640.
-1-
<PAGE> 150
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
COVER PAGE HOW TO BUY SHARES
SYNOPSIS REDEMPTION AND EXCHANGE
SUMMARY OF EXPENSES DIVIDENDS AND DISTRIBUTIONS
FINANCIAL HIGHLIGHTS TAXES
INVESTMENT OBJECTIVES AND STRATEGIES CALCULATION OF NET ASSET VALUE PER SHARE
SUITABILITY MANAGEMENT OF THE FUNDS
INVESTMENT STRATEGY OTHER INVESTMENT POLICIES AND
CLASSES OF SHARES RISK CONSIDERATIONS
</TABLE>
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 FUNDS 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 FUNDS ARE NOT BANK OR CREDIT UNION DEPOSITS.
-2-
<PAGE> 151
SYNOPSIS
INVESTMENT OBJECTIVES
Aggressive Growth Fund -- The investment objective of Aggressive Growth
Fund is long-term capital appreciation which the Fund attempts to achieve by
investing primarily in equity securities of companies which the Manager believes
have the potential for high earnings growth.
Growth Stock Fund -- The investment objective of Growth Stock Fund is
long-term capital appreciation through investment in equity securities
diversified among individual companies and industries.
For further details, see Investment Objectives and Strategies and Other
Investment Policies and Risk Considerations.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Prospective investors should consider a number of factors:
1. Each Fund invests in common stocks. The prices of common stocks,
especially those of smaller companies, tend to fluctuate, particularly in the
shorter term. Investors should be willing to accept the risks associated with
investments in emerging and growth-oriented companies, some of the securities
of which may be speculative and subject to additional investment risk. See
Investment Objectives and Policies.
2. Each 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 the United States. See Investment Objectives and
Policies and Other investment Policies and Risk Considerations.
3. Each Fund has the ability to engage in options transactions for
hedging purposes to counterbalance portfolio volatility. While neither Fund
engages in options transactions for speculative purposes, there are risks which
result from the use of options, and an investor should carefully review the
description of these risks in this Prospectus. Certain options may be
considered to be derivative securities. See Investment Objectives and Policies
and Other investment Policies and Risk Considerations.
INVESTMENT MANAGER, SUB-ADVISER, DISTRIBUTOR AND SERVICE AGENT
The Manager is the investment manager for each Fund and, in that
capacity, provides investment advice to each Fund, subject to the supervision of
Mutual Funds III, Inc.'s Board of Directors. The Manager employs Voyageur Asset
Management LLC (the "Sub-Adviser") as Growth Stock Fund's Sub-Adviser. Delaware
Distributors, L.P. (the "Distributor") is the national distributor for each 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 each Fund and for all of
the other mutual funds in the Delaware Group. See Summary of Expenses and
Management of the Funds for further information regarding the Manager and the
Sub-Adviser and the fees payable under each Fund's Investment Management
Agreement and the Sub-Advisory Agreement on behalf of Growth Stock Fund.
PURCHASE PRICE
Shares of each Class offered by this Prospectus are available at net
asset value, without a front-end or contingent deferred sales charge and are not
subject to distribution fees under a Rule 12b-1 distribution plan. See Classes
of Shares.
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<PAGE> 152
REDEMPTION AND EXCHANGE
Shares of each Class are redeemed or exchanged at the net asset value
calculated after receipt of the redemption or exchange request. See Redemption
and Exchange.
OPEN-END INVESTMENT COMPANY
Mutual Funds III, Inc. is an open-end, registered management investment
company. Each Fund operates as a diversified fund as defined under the
Investment Company Act of 1940 (the "1940 Act"). Mutual Funds III, Inc. was
organized as a Minnesota corporation in January 1985. See Shares under
Management of the Funds.
SHARES OF THE FUNDS COVERED BY THIS PROSPECTUS ARE NOT REGISTERED IN
ALL STATES. SHARES THAT ARE NOT REGISTERED IN ONE OR MORE STATES ARE NOT BEING
OFFERED AND SOLD IN SUCH STATES.
-4-
<PAGE> 153
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
GROWTH STOCK
FUND FUND
INSTITUTIONAL INSTITUTIONAL
SHAREHOLDER TRANSACTION EXPENSES CLASS CLASS
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)................................................. None None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None None
Exchange Fees....................................................................... None* None*
</TABLE>
*Exchanges are subject to the requirements of each fund and a front-end sales
charge may apply.
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH
GROWTH STOCK
FUND FUND
ANNUAL OPERATING EXPENSES INSTITUTIONAL INSTITUTIONAL
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) CLASS CLASS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fees
(after voluntary waivers)........................................................... 0.00%** 0.00%**
12b-1 Fees.......................................................................... None None
Other Operating Expenses
(after voluntary payments).......................................................... 0.00%** 0.00%**
----- -----
Total Operating Expenses
(after voluntary waivers and payments)............................. 1.50%** 1.50%**
===== =====
</TABLE>
** The Manager has elected voluntarily to waive that portion, if any, of
the annual management fees payable by Aggressive Growth Fund and Growth
Stock Fund and to pay each Fund's expenses to the extent necessary to
ensure that the Total Operating Expenses (after voluntary waivers and
payments) do not exceed 1.50% for each Class on an annualized basis
(exclusive of taxes, interest, brokerage commissions and extraordinary
expenses) through December 31, 1997. Total Operating Expenses assume
that the voluntary waiver has been in effect and have been derived from
the actual expenses incurred by the Class A Shares of each Fund during
its previous fiscal year less 12b-1 fees, which are inapplicable to the
Institutional Classes. Absent the voluntary fee waiver and payments,
Total Operating Expenses (as a percentage of average daily net assets)
are expected to equal 0.00% for Aggressive Growth Fund Institutional
Class and 0.00% for Growth Stock Fund Institutional Class, reflecting
Management Fees of 1.00% for each Class. [ADDITIONAL WAIVER 4/30/99
WAIVER APPLICABLE TO THE INSTITUTIONAL CLASSES?]
-5-
<PAGE> 154
For expense information about each Fund's A Class, B Class and C Class,
see the separate prospectus relating to those classes.
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, and (2) redemption at the end of each time period. As noted in
the tables above, Mutual Funds III, Inc. charges no redemption fees. The
following example assumes the voluntary waiver of the management fee and/or
other payments of expenses by the Manager as discussed in this Prospectus.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGGRESSIVE GROWTH
FUND INSTITUTIONAL CLASS $00 $00 $00 $000
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
GROWTH STOCK FUND
INSTITUTIONAL CLASS $00 $00 $00 $000
</TABLE>
The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in each Class 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.
-6-
<PAGE> 155
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS(1)
The following table shows certain per share data and selected information for a
share of capital stock outstanding during the indicated periods for Class A
Shares of each Fund. This information has been audited by KPMG Peat Marwick LLP,
independent auditors. The data should be read in conjunction with the financial
statements, related notes, and the report of KPMG Peat Marwick LLP, all of which
are incorporated by reference into Part B. Further information about the Funds'
performance is contained in their Annual Report to shareholders. A copy of the
Funds' Annual Report (including the report of KPMG Peat Marwick LLP) may be
obtained from Mutual Funds III, Inc. upon request at no charge.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT
OPERATIONS LESS DISTRIBUTIONS
------------------------ ------------------
NET
REALIZED DIVIDENDS
NET AND FROM DISTRIBU- NET
ASSET NET UNREALIZED NET TIONS ASSETS
VALUE INVESTMENT GAINS INVEST- FROM FROM
BEGINNING INCOME (LOSS) ON MENT CAPITAL END OF
VOYAGEUR FUNDS(5) OF PERIOD (LOSS) SECURITIES INCOME GAINS PERIOD
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH FUND(6)(7)
Class A - 4/30/97 $ 00.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 00.00
Class A - 4/30/96(10) 10.40 (0.10) 3.27 -- (0.40) 13.08
Class A - 4/30/95(2) 10.00 (0.09) 0.49 -- -- 10.40
GROWTH STOCK FUND
Class A - 4/30/97 $ 00.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 00.00
Class A - 4/30/96 19.91 0.08 4.82 (0.11) (1.04) 23.66
Class A - 4/30/95 17.51 0.15 2.77 (0.13) (0.39) 19.91
Class A - 4/30/94 17.81 0.07 -0.16 (0.06) (0.15) 17.51
Class A - 4/30/93 23.81 0.05 0.22 -- (6.27) 17.81
Class A - 4/30/92 19.36 (0.18) 4.81 -- (0.18) 23.81
Class A - 4/30/91(4) 18.85 (0.11) 3.40 -- (2.78) 19.36
Class A - 4/30/90 19.39 (0.08) 1.29 -- (1.75) 18.85
Class A - 4/30/89 16.10 (0.15) 3.51 -- (0.07) 19.39
Class A - 4/30/88 17.46 (0.13) (0.84) -- (0.39) 16.10
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RATIO/SUPPLEMENTAL DATA
---------------------------------------------------------------------------------------
RATIO OF
EXPENSES
TO AVERAGE
DAILY NET
RATIO ASSUMING
RATIO OF OF NET NO VOLUNTARY
NET EXPENSES INVESTMENT WAIVERS,
ASSETS TO INCOME REIMBURSE-
TOTAL END AVERAGE (LOSS) PORTFOLIO MENTS AND
INVESTMENT PERIOD NET TO AVERAGE TURNOVER EXPENSE
VOYAGEUR FUNDS(5) RETURN(5) (000S) ASSETS(9) NET ASSETS RATE REDUCTIONS(8)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AGGRESSIVE GROWTH FUND(6)(7)
Class A - 4/30/97 00.00% $00,000 0.00% 0.00 %00.0% 0.00%
Class A - 4/30/96(10) 31.02 4,334 2.01 (1.00) 165.5 2.74
Class A - 4/30/95(2) 4.00 2,189 1.74(3) (1.21)(2) 88.3 2.97(2)
GROWTH STOCK FUND
Class A - 4/30/97 00.00% $00,000 0.00% 0.00 00.0% 0.00%
Class A - 4/30/96 25.00 28,956 1.78 0.36 36.6 1.87
Class A - 4/30/95 17.04 23,651 1.90 0.75 21.8 1.99
Class A - 4/30/94 (0.52) 28,518 1.90 0.40 34.2 2.13
Class A - 4/30/93 1.51 26,784 1.90 0.26 16.5 2.70
Class A - 4/30/92 23.86 19,351 2.25 (0.76) 142.6 2.86
Class A - 4/30/91(4) 20.51 11,400 2.36 (0.67) 128.2 2.86
Class A - 4/30/90 6.09 10,331 2.31 (0.66) 115.1 2.86
Class A - 4/30/89 20.92 9,183 2.42 (0.69) 31.7 3.00
Class A - 4/30/88 (5.33) 9,706 2.52 (0.76) 57.1 3.00
- ------------------------------------------------------------------------------------------------------------------------
-7-
</TABLE>
<PAGE> 156
NOTES TO FINANCIAL HIGHLIGHTS
(1) Data are derived from data of the Class A Shares of the respective Fund
and reflect the impact of 12b-1 Plan distribution expenses paid by
Class A Shares. The Classes are not subject to 12b-1 Plan distribution
expenses and beginning August 28, 1997, data for the Classes will not
reflect the deduction of such expenses.
(2) The information is for the period from the Fund's commencement of
operations on May 16, 1994.
(3) Adjusted to an annual basis.
(4) Effective September 1, 1990, Voyageur Fund Managers, Inc. replaced
Investment Advisers, Inc. as the investment adviser and Wilke/Thompson
Capital Management began acting as Growth Stock Fund's sub-investment
adviser until January 1, 1992 when Voyageur Fund Managers, Inc. became
the sole investment adviser to the Fund. Beginning May 1, 1997,
Delaware Management Company, Inc. became the investment adviser to the
Fund and Voyageur Asset Management LLC began acting as Sub-Adviser to
Growth Stock Fund.
(5) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at
net asset value and does not reflect the impact of a sales charge.
(6) Per share amounts are presented based upon average fund shares
outstanding.
(7) Effective May 1, 1995, Voyageur Fund Managers, Inc. assumed
responsibility for Aggressive Growth Fund's investment management
replacing George D. Bjurman, the Fund's sub-adviser. Beginning May 1,
1997, Delaware Management Company, Inc. became the investment adviser
to the Fund.
(8) Up to the most restrictive state limitation in effect.
(9) Beginning in the period ended April 30, 1996, the expense ratio
reflects the effect of gross expenses attributable to earnings credits
on uninvested cash balances received by the Fund. Prior period expense
ratios have not been adjusted.
(10) For the fiscal year ended April 30, 1996, Distributions from Return of
Capital were $0.09 for each of Class A Shares and Class C Shares of
Aggressive Growth Fund.
-8-
<PAGE> 157
INVESTMENT OBJECTIVES AND POLICIES
Aggressive Growth Fund - Aggressive Growth Fund's investment objective
is long-term capital appreciation which the Fund attempts to achieve by
investing primarily in equity securities of companies which the Manager believes
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund - Growth Stock Fund has an objective of long-term
capital appreciation. Growth Stock Fund seeks to achieve its objective by
investing in equity securities diversified among individual companies and
industries.
No assurance can be given that either Fund will be able to achieve its
investment objective.
SUITABILITY
The value of a Fund's investments, and as a result the net asset value
of a Fund's shares, will fluctuate in response to changes in the market and
economic conditions as well as the financial condition and prospects of issuers
in which the Fund invests. Because of the risks associated with a Fund's
investments, each 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.
Companies in which Aggressive Growth Fund invests typically are subject
to a greater degree of change in earnings and business prospects than are
companies with more established earnings patterns. In light of these factors,
Aggressive Growth Fund may be subject to greater investment risk than that
assumed by other investment companies.
Investors should not consider a purchase of shares of either 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
AGGRESSIVE GROWTH FUND
Aggressive Growth Fund seeks to achieve its investment objective by
investing primarily (at least 65% of its total assets) in equity securities
(including convertible securities) of companies which the Manager believes have
the potential for high earnings growth and which are U.S. companies with stock
market capitalizations of at least $300 million. The Fund has been designed to
provide investors with potentially greater long-term rewards than provided by an
investment in a fund that seeks capital appreciation from common stocks with
more established earnings histories.
The Fund will invest in equity securities of companies the Manager
believes to be undervalued and to have the potential for high earnings growth.
Companies in which the Fund invests generally will meet one or more of the
following criteria: high historical earnings-per-share ("EPS") growth; high
projected future EPS growth; an increase in research analyst earnings estimates;
attractive relative price to earnings ratios; and high relative discounted cash
flows. In selecting the Fund's investments, the Manager also focuses on
companies with capable management teams, strong industry positions, sound
capital structures, high returns on equity, high reinvestment rates and
conservative financial accounting policies.
-9-
<PAGE> 158
In pursuing its objective, the Fund anticipates that it will invest
substantially all, and under normal conditions not less than 65%, of its assets
in common stocks, preferred stocks, convertible bonds, convertible debentures,
convertible notes, convertible preferred stocks and warrants or rights. To the
extent that the Fund invests in convertible debt securities, those securities
will be purchased on the basis of their equity characteristics, and ratings, if
any, of those securities will not be an important factor in their selection.
At no time will the investments of Aggressive Growth Fund in bank
obligations, including time deposits, exceed 25% of the value of the Fund's
assets.
GROWTH STOCK FUND
In seeking to achieve its investment objective, Growth Stock Fund's
policy is to invest under normal market conditions not less than 80% of its
total assets in common stocks which the Manager or Sub-Adviser believe offer the
potential for long-term capital appreciation. Some of the factors the Manager or
Sub-Adviser will consider in making the Fund's investments are increasing demand
for a company's products or services, the belief that a company's securities are
temporarily undervalued, the development of new or improved products or
services, the probability of increased operating efficiencies, changes in
management, emphasis on research and development, cyclical conditions, or
possible mergers or acquisitions. The Fund anticipates that, in normal market
conditions, at least 75% of the Fund's investments in common stocks will have
received at the time of investment one of the two highest earnings and dividend
ratings (A+ or A) assigned by Standard & Poor's Ratings Group ("Standard &
Poor's"). The Fund also may invest up to 20% of its total assets in preferred
stocks and corporate bonds if they are accompanied by warrants or are
convertible into common stocks.
Each Fund may invest up to 10% of its assets in foreign securities. Each
Fund may also invest in securities of foreign issuers in the form of American
Depositary Receipts ("ADRs"), which are U.S. dollar-denominated receipts,
typically issued by domestic banks or trust companies, that represent the
deposit with those entities of securities of a foreign issuer, and Global
Depositary Receipts ("GDRs"), which generally are issued by foreign banks and
evidence ownership of either foreign or domestic securities. ADRs are publicly
traded on exchanges or over-the-counter in the United States and are issued
through "sponsored" or "unsponsored" arrangements. In a sponsored ADR
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas under an unsponsored arrangement, the
foreign issuer assumes no obligations and the depositary's transaction fees are
paid directly by the ADR holders. In addition, less information is available in
the United States about an unsponsored ADR than about a sponsored ADR. Each Fund
may invest in ADRs through both sponsored and unsponsored arrangements.
* * *
For additional information on each Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Risk Considerations.
-10-
<PAGE> 159
CLASSES OF SHARES
The Distributor serves as the national distributor for each Fund.
Shares of each Class may be purchased directly by contacting a Fund or its agent
or through authorized investment dealers. All purchases of shares of each Class
are made at net asset value. There is no front-end or contingent deferred sales
charge.
INVESTMENT INSTRUCTIONS GIVEN ON BEHALF OF PARTICIPANTS IN AN
EMPLOYER-SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH DIRECTIONS
PROVIDED BY THE EMPLOYER. EMPLOYEES CONSIDERING PURCHASING SHARES OF A CLASS AS
PART OF THEIR RETIREMENT PROGRAM SHOULD CONTACT THEIR EMPLOYER FOR DETAILS.
Shares of each Class are available for purchase only by: (a) retirement
plans introduced by persons not associated with brokers or dealers that are
primarily engaged in the retail securities business and rollover individual
retirement accounts from such plans; (b) tax-exempt employee benefit plans of
the Manager or its affiliates and securities dealer firms with a selling
agreement with the Distributor; (c) institutional advisory accounts of the
Manager or its affiliates and those having client relationships with the Manager
or its affiliates and their corporate sponsors, as well as subsidiaries and
related employee benefit plans and rollover individual retirement accounts from
such institutional advisory accounts; (d) a bank, trust company and similar
financial institution investing for its own account or for the account of its
trust customers for whom such financial institution is exercising investment
discretion in purchasing shares of a Class, except where the investment is part
of a program that requires payment to the financial institution of a Rule 12b-1
Plan fee; and (e) registered investment advisers investing on behalf of clients
that consist solely of institutions and high net-worth individuals having at
least $1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and derives
compensation for its services exclusively from its clients for such advisory
services.
CLASS A SHARES, CLASS B SHARES AND CLASS C SHARES
In addition to offering Aggressive Growth Fund Institutional Class and
Growth Stock Fund Institutional Class of shares, the respective Funds also
offer: Aggressive Growth Fund A Class, Aggressive Growth Fund B Class and
Aggressive Growth Fund C Class; and Growth Stock Fund A Class, Growth Stock Fund
B Class and Growth Stock Fund C Class, which are described in a separate
prospectus. Shares of such classes may be purchased through authorized
investment dealers or directly by contacting each Fund or its Distributor. Class
A Shares carry a front-end sales charge and have annual 12b-1 expenses equal to
a maximum of 0.25%. The maximum front-end sales charge as a percentage of the
offering price of Class A Shares is 4.75% and is reduced on certain transactions
of $100,000 or more. Class B Shares and Class C Shares have no front-end sales
charge but are subject to annual 12b-1 expenses equal to a maximum of 1%. Class
B Shares and Class C Shares and certain Class A Shares may be subject to a
contingent deferred sales charge upon redemption. To obtain a prospectus
relating to such classes, contact the Distributor by writing to the address or
by calling the phone number listed on the back cover of this Prospectus.
-11-
<PAGE> 160
HOW TO BUY SHARES
Each Fund makes it easy to invest by mail, by wire, by exchange and by
arrangement with your investment dealer. In all instances, investors must
qualify to purchase shares of the Classes.
INVESTING DIRECTLY 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 specific 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 specific Fund and Class selected. Your check should be
identified with your name(s) and account number.
INVESTING DIRECTLY 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 Client Services
Department to get an account number at 800-828-5052. If you do not call first,
it may delay processing your investment. 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 by you,
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 must advise your Client
Services Representative by telephone at 800-828-5052 prior to sending your
wire.
INVESTING BY EXCHANGE
If you have an investment in another mutual fund in the Delaware Group
and you qualify to purchase shares of the Classes, you may write and authorize
an exchange of part or all of your investment into a Fund. However, Class B
Shares and Class C Shares of each Fund and Class B Shares and Class C Shares of
the other funds in the Delaware Group offering such a class of shares may not be
exchanged into the Classes. If you wish to open an account by exchange, call
your Client Services Representative at 800-828-5052 for more information. See
Redemption and Exchange for more complete information concerning your exchange
privileges.
INVESTING THROUGH YOUR INVESTMENT DEALER
You can make a purchase of Fund shares through most investment dealers
who, as part of the service they provide, must transmit orders promptly to the
Fund. They may charge for this service.
PURCHASE PRICE AND EFFECTIVE DATE
The purchase price (net asset value) of each Class is 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,
-12-
<PAGE> 161
electronic transfer or check is received, unless it is received after the time
the share price is determined, as noted above. Purchase orders received after
such time will be effective the next business day.
THE CONDITIONS OF YOUR PURCHASE
Each 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. A 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. Each Fund reserves the
right to reject purchases 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.
Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under $250 as a result of redemptions.
-13-
<PAGE> 162
REDEMPTION AND EXCHANGE
REDEMPTION AND EXCHANGE REQUESTS MADE ON BEHALF OF PARTICIPANTS IN AN
EMPLOYER-SPONSORED RETIREMENT PLAN ARE MADE IN ACCORDANCE WITH DIRECTIONS
PROVIDED BY THE EMPLOYER. EMPLOYEES SHOULD THEREFORE CONTACT THEIR EMPLOYER FOR
DETAILS.
Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after a Fund receives your request in good order.
For example, redemption or exchange requests received in good order after the
time the net asset value of shares is determined, will be processed on the next
business day. See Purchase Price and Effective Date under How to Buy Shares.
Except as otherwise 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. With regard to exchanges, 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 a Fund at 800-828-5052. Redemption proceeds will be
distributed promptly, as described below, but not later than seven days after
receipt of a redemption request.
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.
Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. Neither Fund will honor redemption requests as to shares for which a
check was tendered as payment until the Fund 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. Each
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.
Shares of a Class may be exchanged into any other Delaware Group mutual
fund provided: (1) the investment satisfies the eligibility and other
requirements set forth in the prospectus of the fund being acquired, including
the payment of any applicable front-end sales charge; and (2) the shares of the
fund being acquired are in a state where that fund is registered. If exchanges
are made into other shares that are eligible for purchase only by those
permitted to purchase shares of a Class, such shares will be exchanged at net
asset value. Shares of a Class may not be exchanged into the Class B Shares or
Class C Shares of the funds in the Delaware Group. Each Fund may suspend,
terminate or amend the terms of the exchange privilege upon 60 days' written
notice to shareholders.
Various redemption and exchange methods are outlined below. No fee is
charged by the Funds or the Distributor for redeeming or exchanging your shares.
You may also 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 to which the
authorization relates or its agent.
WRITTEN REDEMPTION AND EXCHANGE
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You can write to a Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares or to request an exchange of any or all
your shares into another mutual fund in the Delaware Group, subject to the same
conditions and limitations as other exchanges noted above. 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, each Fund requires a signature
by all owners of the account and may require a signature guarantee. Each
signature guarantee must be supplied by an eligible guarantor institution. Each
Fund reserves the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness. A 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. Certificates are issued for shares only if you submit a
specific request. If your shares are in certificate form, the certificate must
accompany your request and also be in good order.
You also may submit your written request for redemption or exchange by
facsimile transmission at the following number: 215-255-8864.
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 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. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach a Fund by telephone during periods when market or economic conditions lead
to an unusually large volume of telephone requests.
Neither the Funds nor their 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, a 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, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. 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
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.
TELEPHONE REDEMPTION-PROCEEDS TO YOUR BANK
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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 submit a written authorization and you may need to 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.
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 fees for this redemption method, but the mail time may delay getting funds
into your bank account. Simply call your Client Services Representative prior to
the time the net asset value is determined, as noted above.
TELEPHONE EXCHANGE
You or your investment dealer of record can exchange shares into any
fund in the Delaware Group under the same registration. As with the written
exchange service, telephone exchanges are subject to the same conditions and
limitations as other exchanges noted above. Telephone exchanges may be subject
to limitations as to amounts or frequency.
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DIVIDENDS AND DISTRIBUTIONS
Mutual Funds III, Inc. currently intends to make annual payments from
each Fund's net investment income. Payments from each Fund's net realized
security profits will be made during the first quarter of the next fiscal year.
Each class of each Fund will share proportionately in the investment
income and expenses of that Fund, except that the Classes will not incur any
distribution fee under Mutual Funds III, Inc.'s 12b-1 Plans which apply to
Aggressive Growth Fund A Class, B Class and C Class and Growth Stock Fund A
Class, B Class and C Class.
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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 a Fund.
Each Fund has qualified as a regulated investment company under
Subchapter M of the Code. As such, a 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.
Each 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 you as ordinary income, whether
received in cash or in additional shares. For corporate investors, dividends
from net investment income will generally qualify in part for the corporate
dividends-received deduction. The portion of dividends paid by a Fund that so
qualifies will be designated each year in a notice from Mutual Funds III, Inc.
to the Fund's shareholders.
Distributions paid by a Fund from long-term capital gains, received 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. A 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 a 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 a Fund and received by the shareholder on
December 31 of the calendar year in which they are declared.
The sale of shares of a 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
a 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.
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 each 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 a Fund's dividends and distributions. 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 a Fund.
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Each 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 in Part B for additional information on tax matters relating to
each Fund and its shareholders.
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CALCULATION OF NET ASSET VALUE PER SHARE
The purchase and redemption price of Class shares is the net asset
value ("NAV") per share of a Class next computed after the order is received.
The NAV is 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 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.
The net asset values of all outstanding shares of each class of a 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 a 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,
except that the Class will not incur any of the expenses under the Fund's 12b-1
Plans and the Class A, B and C Shares alone will bear the 12b-1 Plan fees
payable under their respective Plans.
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MANAGEMENT OF THE FUNDS
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 AND SUB-ADVISER
The Manager furnishes investment management services to each Fund. The
Sub-Adviser is responsible for the day-to-day investment management of Growth
Stock Fund. The Manager has offices located at One Commerce Square,
Philadelphia, PA 19103. The Sub-Adviser has offices located at 90 South Seventh
Street, Suite 4400, Minneapolis, MN 55402.
Delaware and its predecessors have been managing the funds in the
Delaware Group since 1938. On April 30, 1997, Delaware and its affiliates,
including Delaware International Advisers Ltd., were managing in the aggregate
more than $32 billion in assets in various institutional or separately managed
(approximately $20,677,606,000) and investment company (approximately
$11,935,210,000) accounts.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur") had
been retained under an investment advisory contract to act as each Fund's
investment adviser, subject to the authority of the Board of Directors. Voyageur
was an indirect, wholly-owned subsidiary of Dougherty Financial Group, Inc.
("DFG"). After the close of business on April 30, 1997, Voyageur became an
indirect, wholly owned subsidiary of Lincoln National Corporation ("LNC") as a
result of LNC's acquisition of DFG. LNC, headquartered in Fort Wayne, Indiana,
owns and operates insurance and investment management businesses, including
Delaware Management Holdings, Inc. ("DMH"). Affiliates of DMH serve as adviser,
distributor and transfer agent for the Delaware Group of Mutual Funds.
Because LNC's acquisition of DFG resulted in a change of control of
Voyageur, the Fund's previous investment advisory agreements with Voyageur were
"assigned," as that term is defined by the 1940 Act, and the previous agreements
therefore terminated upon the completion of the acquisition. The Board of
Directors of the Funds unanimously approved new investment advisory agreements
with the Manager at a meeting held in person on February 14, 1997, and called
for a shareholders meeting to approve the new agreements. At a meeting held on
April 11, 1997, the shareholders of each Fund approved its respective investment
advisory agreement with the Manager to become effective after the close of
business on April 30, 1997, the date the acquisition was completed. At that
meeting, shareholders of Growth Stock Fund also approved a Sub-Advisory
Agreement between the Manager and the Sub-Adviser to take effect at the same
time as the Investment Management Agreement.
Beginning May 1, 1997, the Manager, an indirect, wholly owned
subsidiary of LNC, became the Funds' investment manager. The Manager administers
the affairs of and is ultimately responsible for the investment management of
each of the Funds under separate Investment Management Agreements. [The Manager
also administers Mutual Funds III, Inc.'s affairs and pays the salaries of all
the directors, officers and employees of Mutual Funds III, Inc. who are
affiliated with the Manager. For these services,] under their respective
Investment Management Agreements, Aggressive Growth Fund and Growth Stock Fund
each pay the Manager a monthly investment advisory fee equivalent on an annual
basis to 1.00% of their average daily net assets[, less each Fund's
proportionate share of directors' fees paid to the unaffiliated directors by
Mutual Funds III, Inc.] Investment management fees accrued by Aggressive Growth
Fund for the fiscal year ended April 30, 1997 were 0.00% of average daily net
assets and 0.00% was paid as a result of the voluntary waiver of fees by
Voyageur.
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Investment management fees accrued by Growth Stock Fund for the fiscal year
ended April 30, 1997 were 0.00% of average daily net assets and 0.00% was paid
as a result of the voluntary waiver of fees by Voyageur.
Gerald S. Frey, Vice President/Senior Portfolio Manager, assumed
primary responsibility for making day-to-day investment decisions for the
Aggressive Growth Fund on May 1, 1997. Mr. Frey also serves as Vice
President/Senior Portfolio Manager for Delaware Group Equity Funds IV, Inc.,
Delaware Group Trend Fund, Inc., Delaware Group Premium Fund, Inc. and Delaware
Pooled Trust, Inc. Mr. Frey has 22 years' experience in the money management
business and holds a BA in Economics from Bloomsburg University and attended
Wilkes College and New York University. Prior to joining the Delaware Group in
1996, he was a Senior Director with Morgan Grenfell Capital Management in New
York.
In making investment decisions for the Fund, Mr. Frey regularly
consults with Wayne A. Stork, Marshall T. Bassett, William H. Miller, Judith R.
Finger, John A. Heffern and Lori Wachs. Mr. Stork, Chairman of the Delaware
Management Company, Inc. and the Fund'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. Marshall T. Bassett, Vice President, joined Delaware in 1997. In
his most recent position, he served as Vice President in Morgan Stanley Asset
Management's Emerging Growth Group, where he analyzed small growth companies.
Prior to that, he was a trust officer at Sovran Bank and Trust Company. He
received his bachelor's degree and MBA from Duke University. Mr. Miller is a
Vice President/Assistant Portfolio Manager. He holds a BA in Economics from
Trinity College. Prior to joining the Delaware Group in 1995, he worked as a
technology analyst for Janney Montgomery Scott in Philadelphia and he has also
served as an institutional salesman for Rutherford Brown and Catherwood. Ms.
Finger is a Vice President/Assistant Portfolio Manager. She joined the Delaware
Group in 1995 from the New York-based Fred Alger Management, where she was an
equity analyst for three years. Prior to that, she held positions with Chemical
Bank and Dun & Bradstreet, in mergers and acquisitions. She earned her BA in
Finance from the University of Pennsylvania and her MBA in Finance & Accounting
from the University of Chicago. John A. Heffern, Vice President, holds a
bachelor's degree and an MBA from the University of North Carolina at Chapel
Hill. He joined Delaware in 1997. Previously, he was a Senior Vice President,
Equity Research at NatWest Securities Corporation's Specialty Finance Service
unit. Prior to that, he was a Principal and Senior Regional Bank Analyst at
Alex. Brown & Sons. Ms. Wachs is an Assistant Vice President. She joined the
Delaware Group in 1992 from Goldman Sachs, where she was an equity analyst for
two years. She is a graduate of the University of Pennsylvania's Wharton School,
where she majored in Finance and Oriental studies.
Pursuant to the terms of a Sub-Advisory Agreement with the Manager, the
Sub-Adviser participates in the management of Growth Stock Fund's assets, is
responsible for day-to-day investment management of the Fund, makes investment
decisions for the Fund in accordance with the Fund's investment objectives and
stated policies and places orders on behalf of the Fund to effect the investment
decisions made [with Mutual Funds III, Inc.'s Trading Department.] The Manager
continues to have ultimate responsibility for all investment advisory services
in connection with the management of the Fund pursuant to the Investment
Management Agreement and supervises the Sub-Adviser's performance of such
services. For the services provided to the Manager, the Manager pays the
Sub-Adviser the following fee with respect to Growth Stock Fund:
- -----------------------------------
James King, an employee of the Sub-Adviser, currently has day-to-day
portfolio management responsibility for Growth Stock Fund. Mr. King was a
director of Voyageur from 1993 through 1995 and was a
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Senior Equity Portfolio Manager of Voyageur from 1990 through 1997. Mr. King
currently has over 30 years of investment experience.
PORTFOLIO TRADING PRACTICES
Each Fund normally will not invest for short-term trading purposes.
However, a 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
a Fund and may affect taxes payable by such Fund's shareholders. For the fiscal
year ended April 30, 1996 and 1997, portfolio turnover rates for the funds were
as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Aggressive Growth Fund 166% 00%
Growth Stock Fund 37% 00%
</TABLE>
Each 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. These services may be used by the Manager in
servicing any of its accounts. Subject to best price and execution, each 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, each Fund may quote total return performance of
their 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. Each
presentation will include the average annual total return for one-, five- and
ten-year (or life of fund, if applicable) periods. Each Fund may also advertise
aggregate and average total return information concerning its Class over
additional periods of time.
Because securities prices fluctuate, investment results of the Classes
will fluctuate over time and past performance should not be considered a
guarantee of future results.
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 your Client Services Representative.
FINANCIAL INFORMATION ABOUT THE FUNDS
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
each Fund's investments and performance. Mutual Funds III, Inc.'s fiscal year
ends on April 30.
DISTRIBUTION AND SERVICE
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The Distributor, Delaware Distributors, L.P., serves as the national
distributor of each Fund's shares under a Distribution Agreement with Mutual
Funds III, Inc. dated August 28, 1997. The Distributor bears all of the costs of
promotion and distribution.
The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for each Fund
under an agreement dated May 1, 1997. The Transfer Agent also provides
accounting services to the Funds pursuant to the terms of a separate Fund
Accounting Agreement. The directors annually review service fees paid to the
Transfer Agent. Certain recordkeeping services and other shareholder services
that otherwise would be performed by the Transfer Agent may be performed by
certain other entities and the Transfer Agent may elect to enter into an
agreement to pay such other entities for those services. In addition,
participant account maintenance fees may be assessed for certain recordkeeping
services provided as part of retirement plan and administration service
packages. These fees are based on the number of participants in the plan and the
various services selected by the employer. Fees will be quoted upon request and
are subject to change.
The Distributor and the Transfer Agent are indirect, wholly owned
subsidiaries of DMH.
EXPENSES
Each Fund is responsible for all of its own expenses other than those
borne by the Manager under the Investment Management Agreements and those borne
by the Distributor under the Distribution Agreements.
In connection with the merger transaction described above, the Manager
has agreed for a period of two years ending on April 30, 1999, to pay the
operating expenses (excluding interest expense, taxes, brokerage fees,
commissions and Rule 12b-1 fees) of each Fund which exceed 1% of such Fund's
average daily net assets on an annual basis up to certain limits as set forth in
detail Part B. This agreement replaces a similar provision in the Funds'
investment advisory contracts with the Funds' predecessor investment adviser.
The Manager and the Underwriter reserve the right to voluntarily waive
their fees in whole or part and to voluntarily absorb certain other of each
Fund's expenses. See Summary of Expenses for current fee waivers and
reimbursements.
The ratio of operating expenses to average daily net assets for each of
Aggressive Growth Fund Institutional Class and Growth Stock Fund Institutional
Class is expected to equal 1.50%. Each ratio is based on expenses incurred by
the respective Class A Shares during the last fiscal year and reflects the
voluntary waiver and payment of fees noted above.
SHARES
Mutual Funds III, Inc. is an open-end management investment company.
Each 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 Funds, Mutual Fund
III, Inc. presently also offers the Tax-Efficient Equity Fund series of shares.
Fund shares have a par value of $___, equal voting rights, except as noted
below, and are equal in all other respects. Each Fund will vote separately on
any matter which affects only that Fund. Shares of each Fund have a priority
over shares of any other fund of Mutual Funds III, Inc. in the assets and income
of that Fund.
All of the shares have noncumulative voting rights which means that the
holders of more than 50% of Mutual Funds III, Inc.'s shares voting for the
election of directors can elect 100% of the directors if they choose
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to do so. Under Minnesota law, Mutual Funds III, Inc. is not required, and does
not intend, to hold annual meetings of shareholders unless, under certain
circumstances, it is required to do so under the 1940 Act. [Shareholders of ___%
or more of Mutual Funds III, Inc.'s outstanding shares may request that a
special meeting be called to consider the removal of a director.]
In addition to Institutional Class shares, the Funds offer Class A
Shares, Class B Shares and Class C Shares. Shares of each class represent
proportionate interests in the assets of the respective Fund and have the same
voting and other rights and preferences as the other classes of that Fund,
except that shares of the Classes are not subject to, and may not vote on
matters affecting, the Distribution Plans under Rule 12b-1 relating to Class A,
Class B and Class C Shares. Similarly, as a general matter, the shareholders of
Class A Shares, Class B Shares and Class C Shares may vote only on matters
affecting the 12b-1 Plan that relates to the class of shares that they hold.
However, Class B Shares of a Fund may vote on any proposal to increase
materially the fees to be paid by that Fund under the 12b-1 Plan relating to
Class A Shares.
Beginning June 9, 1997, the names of Voyageur Aggressive Growth Fund
changed to Aggressive Growth Fund series and Voyageur Growth Stock Fund changed
to Growth Stock Fund series.
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS (AND/OR IN PART B REFERRED TO ON THE COVER PAGE OF THIS
PROSPECTUS), AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS OR DELAWARE DISTRIBUTORS,
L.P. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN
THE STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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OTHER INVESTMENT POLICIES AND RISK CONSIDERATIONS
DEBT SECURITIES
In pursuing its investment objective, Aggressive Growth Fund may invest
up to 35% of its total assets and Growth Stock Fund may invest up to 20% of its
total net assets in debt securities of corporate and governmental issuers. The
risks inherent in debt securities depend primarily on the term and quality of
the obligations in a Fund's portfolio as well as on market conditions. A decline
in the prevailing levels of interest rates generally increases the value of debt
securities, while an increase in rates usually reduces the value of those
securities.
Investments in debt securities by each Fund are limited to those that
are at the time of investment within the four highest grades (generally referred
to as "investment grade") assigned by a nationally recognized statistical rating
organization or, if unrated, are deemed to be of comparable quality by the
Manager. If a change in credit quality after acquisition by a Fund causes a
security to no longer be investment grade, the Fund will dispose of the
security, if necessary, to keep its holdings to 5% or less of the Fund's net
assets. See Credit Quality under Investment Restrictions and Policies in Part B.
Debt securities rated Baa by Moody's or BBB by Standard & Poor's, although
considered investment grade, have speculative characteristics and changes in
economic circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds.
When a Fund's Manager or Sub-Adviser, as the case may be, determines
that adverse market or economic conditions exist and considers a temporary
defensive position advisable, the Fund may invest without limitation in
high-quality fixed income securities or hold assets in cash or cash equivalents.
RULE 144A SECURITIES
Each Fund may invest in restricted securities, including privately
placed securities, some of which may be eligible for resale without registration
pursuant to Rule 144A ("Rule 144A Securities") under the Securities Act of 1933.
Rule 144A permits many privately placed and legally restricted securities to be
freely traded among certain institutional buyers such as a Fund. Each Fund may
invest no more than 15% of the value of its net assets in illiquid securities.
While maintaining oversight, the Board of Directors has delegated to
the Manager the day-to-day function of determining whether or not individual
Rule 144A Securities are liquid for purposes of a Fund's 15% limitation on
investments in illiquid assets. The Board has instructed the Manager to consider
the following factors in determining the liquidity of a Rule 144A Security: (i)
the frequency of trades and trading volume for the security; (ii) whether at
least three dealers are willing to purchase or sell the security and the number
of potential purchasers; (iii) whether at least two dealers are making a market
in the security; (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer).
If the Manager or Sub-Adviser, as the case may be, determines that a
Rule 144A Security which was previously determined to be liquid is no longer
liquid and, as a result, a Fund's holdings of illiquid securities exceed the
Fund's 15% limit on investments in such securities, the Manager will determine
what action to take to ensure that the Fund continues to adhere to such
limitation.
INVESTMENT COMPANY SECURITIES
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Any investments that either Fund makes in either closed-end or open-end
investment companies will be limited by the 1940 Act, and would involve an
indirect payment of a portion of the expenses, including advisory fees, of such
other investment companies. Under the 1940 Act's current limitations, a Fund may
not (1) own more than 3% of the voting stock of another investment company; (2)
invest more than 5% of the Fund's total assets in the shares of any one
investment company; nor (3) invest more than 10% of the Fund's total assets in
shares of other investment companies. If a Fund elects to limit its investment
in other investment companies to closed-end investment companies, the 3%
limitation described above is increased to 10%. These percentage limitations
also apply to each Fund's investments in unregistered investment companies.
REPURCHASE AGREEMENTS
In order to invest its short-term cash reserves or when in a temporary
defensive posture, each Fund may enter into repurchase agreements with banks or
broker/dealers deemed to be creditworthy by the Manager or Sub-Adviser, under
guidelines approved by the Board of Directors. A repurchase agreement is a
short-term investment in which the purchaser (i.e. a Fund) acquires ownership of
a debt security and the seller agrees to repurchase the obligation at a future
time and set price, thereby determining the yield during the purchaser's holding
period. Generally, repurchase agreements are of short duration, often less than
one week but on occasion for longer periods. Not more than 15% of each Fund's
assets may be invested in repurchase agreements of over seven-days' maturity or
other illiquid assets. Should an issuer of a repurchase agreement fail to
repurchase the underlying security, the loss to a Fund, if any, would be the
difference between the repurchase price and the market value of the security.
Each Fund will limit its investments in repurchase agreements to those which the
Manager or Sub-Adviser under guidelines of the Board of Directors determines to
present minimal credit risks and which are of high quality. In addition, each
Fund must have collateral of at least 100% of the repurchase price, including
the portion representing the Fund's yield under such agreements, which is
monitored on a daily basis.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Fund may purchase securities on a when-issued or delayed delivery
basis. In such transactions, instruments are purchased with payment and delivery
taking place in the future in order to secure what is considered to be an
advantageous yield or price at the time of the transaction. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. Each Fund will maintain with its custodian bank a
separate account with a segregated portfolio of securities in an amount at least
equal to these commitments. The payment obligation and the interest rates that
will be received are each fixed at the time the a enters into the commitment and
no interest accrues to the Fund until settlement. Thus, it is possible that the
market value at the time of settlement could be higher or lower than the
purchase price if the general level of interest rates has changed.
TEMPORARY INVESTMENTS
Each Fund's reserves may be invested in domestic short-term money
market instruments including, but not limited to, U.S. government and agency
obligations, certificates of deposit, bankers' acceptances, time deposits,
commercial paper, short-term corporate debt securities and repurchase
agreements. During temporary defensive periods as determined by the Manager or
the Sub-Adviser, as the case may be, each Fund may hold up to 100% of its total
assets in short-term obligations of the types described above.
HEDGING TRANSACTIONS
Each Fund may write covered call options and secured put options and
purchase call and put options on securities and security indices. Each Fund may
also engage in transactions in financial futures contracts and
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related options for hedging purposes. These investment techniques and the
related risks are summarized below and are described in more detail in Part B.
OPTIONS
The Manager and Sub-Adviser may employ options techniques in an attempt
to protect appreciation attained and to take advantage of the liquidity
available in the options market. Each Fund may purchase call options on foreign
or U.S. securities and indices and enter into related closing transactions and a
Fund may write covered call options on such securities. A Fund may also purchase
put options on such securities and indices and enter into related closing
transactions.
A call option enables the purchaser, in return for the premium paid, to
purchase securities from the writer of the option at an agreed price up to an
agreed date. A covered call option obligates the writer, in return for the
premium received, to sell the securities subject to the option to the purchaser
of the option for an agreed upon price up to an agreed date. The advantage is
that the purchaser may hedge against an increase in the price of securities it
ultimately wishes to buy or take advantage of a rise in a particular index. A
Fund will only purchase call options to the extent that premiums paid on all
outstanding call options do not exceed 2% of its total assets.
A put option enables the purchaser of the option, in return for the
premium paid, to sell the security underlying the option to the writer at the
exercise price during the option period, and the writer of the option has the
obligation to purchase the security from the purchaser of the option. A Fund
will only purchase put options to the extent that the premiums on all
outstanding put options do not exceed 2% of its total assets. The advantage is
that the purchaser can be protected should the market value of the security
decline or should a particular index decline.
An option on a securities index gives the purchaser of the option, in
return for the premium paid, the right to receive from the seller cash equal to
the difference between the closing price of the index and the exercise price of
the option.
Closing transactions essentially let a Fund offset put options or call
options prior to exercise or expiration. If a Fund cannot effect closing
transactions, it may have to hold a security it would otherwise sell or deliver
a security it might want to hold.
In purchasing put and call options, the premium paid by a Fund plus any
transaction costs will reduce any benefit realized by the Fund upon exercise of
the option. With respect to writing covered call options, a Fund may lose the
potential market appreciation of the securities subject to the option, if the
Manager's or the Sub-Adviser's judgment is wrong and the price of the security
moves in the opposite direction from what was anticipated.
Each Fund may use both Exchange-traded and over-the-counter options.
Certain over-the-counter options may be illiquid. Each Fund will only invest in
such options to the extent consistent with its 15% limitation on investment in
illiquid securities. Each Fund will comply with Securities and Exchange
Commission asset segregation and coverage requirements when engaging in these
types of transactions.
FUTURES
Futures contracts are agreements for the purchase or sale for future
delivery of securities. When a futures contract is sold, a Fund incurs a
contractual obligation to deliver the securities underlying the contract at a
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specified price on a specified date during a specified future month. A purchase
of a futures contract means the acquisition of a contractual right to obtain
delivery to a Fund of the securities called for by the contract at a specified
price during a specified future month.
While futures contracts provide for the delivery of securities,
deliveries usually do not occur. Contracts are generally terminated by entering
into an offsetting transaction. When a Fund enters into a futures transaction,
it must deliver to the futures commission merchant selected by the Fund an
amount referred to as "initial margin." This amount is maintained by the futures
commission merchant in an account at the Fund's custodian bank. Thereafter, a
"variation margin" may be paid by a Fund to, or drawn by the Fund from, such
account in accordance with controls set for such account, depending upon changes
in the price of the underlying securities subject to the futures contract.
Each Fund may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract, rather than actually to purchase or
sell the futures contract, at a specified exercise price at any time during the
period of the option.
The purpose of the purchase or sale of futures contracts consisting of
U.S. government securities is to protect a Fund against the adverse effects of
fluctuations in interest rates without actually buying or selling such
securities. Similarly, when it is expected that interest rates may decline,
futures contracts may be purchased to hedge in anticipation of subsequent
purchases of U.S. government securities at higher prices.
FOREIGN SECURITIES
Each Fund may invest up to 10% of its total assets in foreign
securities. Foreign securities may include ADRs and GDRs. 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. Fluctuations in
exchange rates may also affect the earning power and asset value of the foreign
entity issuing the security. Dividend and interest payments may be returned to
the country of origin, based on the exchange rate at the time of disbursement,
and restrictions on capital flows may be imposed. Losses and other expenses may
be incurred in converting between various currencies in connection with
purchases and sales of foreign securities.
Foreign stock markets are generally not as developed or efficient as
those in the U.S. In most foreign markets volume and liquidity are less than in
the U.S. and, at times, volatility of price can be greater than that in the U.S.
Fixed commissions on foreign stock exchanges are generally higher than the
negotiated commissions on U.S. exchanges. There is generally less government
supervision and regulation of foreign stock exchanges, brokers and companies
than in the U.S.
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
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of a Fund in some foreign countries. The Funds are 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 a Fund's shareholders.
OTHER INVESTMENT POLICIES
Although each Fund is permitted under certain circumstances to borrow
money, neither Fund normally does so. Aggressive Growth Fund will not purchase
new securities whenever borrowings exceed 5% of the value of the total assets of
the Fund.
Neither Fund may concentrate investments in any industry, which means
that a Fund may generally not invest more than 25% of its assets in any one
industry. With respect to Aggressive Growth Fund, 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 Funds are described in Part B.
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For more information, call Delaware Group at 800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
GROWTH STOCK FUND:
SUB-ADVISER
Voyageur Asset Management LLC
90 South Seventh Street, Suite 4400,
Minneapolis, MN 55402.
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
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue
Minneapolis, MN 55402
- ------------------------------
AGGRESSIVE GROWTH FUND
INSTITUTIONAL
GROWTH STOCK FUND
INSTITUTIONAL
- ------------------------------
P R O S P E C T U S
- ------------------------------
AUGUST 28, 1997
DELAWARE
GROUP
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<PAGE> 180
PART B--STATEMENT OF ADDITIONAL INFORMATION
AUGUST 28, 1997
VOYAGEUR MUTUAL FUNDS III, INC.
1818 Market Street
Philadelphia, PA 19103
For more information about the Institutional Class: 800-828-5052
For Prospectus and Performance of Class A Shares, Class B Shares
and Class C Shares: Nationwide 800-523-4640
Information on Existing Accounts of Class A Shares, Class B Shares and Class C
Shares:(SHAREHOLDERS ONLY) Nationwide 800-523-1918
Dealer Services: (BROKER/DEALERS ONLY) Nationwide 800-362-7500
TABLE OF CONTENTS
Cover Page
Investment Restrictions and Policies
Accounting and Tax Issues
Performance Information
Trading Practices and Brokerage
Purchasing Shares
Investment Plans
Determining Offering Price
and Net Asset Value
Redemption and Repurchase
Distributions and Taxes
Investment Management Agreements
and Sub-Advisory Agreement
Officers and Directors
Exchange Privilege
General Information
Appendix A -- Ratings
Appendix B -- IRA Information
Appendix C -- Performance Overview
Appendix D -- The Company Life Cycle
Appendix E--Stock Index Futures Contracts and Related Options
Financial Statements
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Voyageur Mutual Funds III, Inc. ("Mutual Funds III, Inc.") is a
professionally-managed mutual fund of the series type. This Statement of
Additional Information ("Part B" of the registration statement) describes
Aggressive Growth Fund series, Growth Stock Fund series and Tax-Efficient Equity
Fund series (individually a "Fund" and collectively the "Funds") of Mutual Funds
III, Inc. Each Fund offers Class A Shares, Class B Shares and Class C Shares
("Class A Shares, Class B Shares and Class C Shares together, the "Fund
Classes") and Institutional Class Shares (the "Institutional Classes").
Class B Shares, Class C Shares and Institutional Class shares of a Fund
may be purchased at a price equal to the next determined net asset value per
share. Class A Shares may be purchased at the public offering price, which is
equal to the next determined net asset value per share, plus a front-end sales
charge. Class A Shares are subject to a maximum front-end sales charge of 4.75%
and annual 12b-1 Plan expenses of up to 0.30% for Tax-Efficient Equity Fund and
up to 0.25% for Aggressive Growth Fund and Growth Stock Fund. Class B Shares are
subject to a contingent deferred sales charge ("CDSC") which may be imposed on
redemptions made within six years of purchase and annual 12b-1 Plan expenses of
up to 1% which are assessed against Class B Shares for approximately eight years
after purchase. See Automatic Conversion of Class B Shares under Classes of
Shares in the Fund Classes' Prospectuses. Class C Shares are subject to a CDSC
which may be imposed on redemptions made within 12 months of purchase and annual
12b-1 Plan expenses of up to 1% which are assessed against Class C Shares for
the life of the investment. All references to "shares" in this Part B refer to
all Classes of shares of each Fund, except where noted.
This Part B supplements the information contained in the current
Prospectuses for the Funds dated August 28, 1997 as they may be amended from
time to time. It should be read in conjunction with the respective Class'
Prospectus. Part B is not itself a prospectus but is, in its entirety,
incorporated by reference into each Class' Prospectus. A prospectus relating to
the Fund Classes and a prospectus relating to the Institutional Classes may be
obtained by writing or calling your investment dealer or by contacting the
Funds' national distributor, Delaware Distributors, L.P. (the "Distributor"),
1818 Market Street, Philadelphia, PA 19103.
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INVESTMENT RESTRICTIONS AND POLICIES
INVESTMENT RESTRICTIONS
Each Fund has adopted certain investment restrictions. Certain of these
restrictions are fundamental policies of a Fund. Under the Investment Company
Act of 1940, as amended (the "1940 Act"), a fundamental policy may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund, as defined in the 1940 Act.
Aggressive Growth Fund:
The following investment restrictions have been adopted by the
Aggressive Growth Fund as fundamental policies:
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 lend money to other persons, except through
purchasing debt obligations, lending portfolio securities and entering into
repurchase agreements.
3. The Fund will invest no more than 25% 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.
4. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and sell
securities of companies that deal in real estate or interests in real estate.
5. The Fund will not purchase or sell commodities or commodity
contracts, except futures contracts and related options and other similar
contracts.
6. The Fund will not act as an underwriter of securities, except that
the Fund may acquire securities under circumstances in which, if the securities
were sold, the Fund might be deemed to be an underwriter for purposes of the
Securities Act of 1933, as amended.
Aggressive Growth Fund has adopted the following operating (i.e.
non-fundamental) investment policies and restrictions which may be changed by
the Board of Directors without shareholder approval. In each case:
1. The Fund will not invest in oil, gas or other mineral leases or
exploration or development programs.
2. The Fund will not purchase any investment company security, other
than a security acquired pursuant to a plan of reorganization or an offer of
exchange, if as a result of the purchase (a) the Fund would own more than 3% of
the total outstanding voting securities of any investment company, (b) more than
5% of the value of the Fund's total assets would be invested in securities of
any one investment company or (c) more than 10% or the Fund's total assets would
be invested in securities issued by investment companies.
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3. The Fund will not participate on a joint or joint-and-several basis
in any securities trading account.
4. The Fund will not make investments for the purpose of exercising
control or management.
5. The Fund will not purchase any security, if as a result of the
purchase, the Fund would then have more than 5% of its total assets invested in
securities of companies (including predecessors) that have been in continuous
operation for fewer than three years.
6. The Fund will not purchase or retain securities of any issuer if, to
the knowledge of the Fund, any of the Company's Directors or officers or any
officer or director of the Manage individually owns more than 0.5% of the
outstanding securities of the company and together they own beneficially more
than 5% of the securities.
7. The Fund will not invest in warrants (other than warrants acquired
by the Fund as part of a unit or attached to securities at the time of purchase)
if, as a result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Fund's net assets of which not more than 2% of the
Fund's net assets may be invested in warrants not listed on a recognized foreign
or domestic stock exchange.
8. The Fund will not purchase securities on margin, except that the
Fund may obtain any short-term credits necessary for the clearance of purchases
and sales of securities. For purposes of this restriction, the deposit or
payment of initial or variation margin in connection with futures contracts or
options on futures contracts will not be deemed to be a purchase of securities
on margin.
9. The Fund will not make short sales of securities or maintain a short
position, unless at all times when a short position is open, the Fund owns an
equal amount of the securities or securities convertible into or exchangeable
for, without payment of any further consideration, securities of the same issue
as, and equal in amount to, the securities sold short.
In addition, subject to the Aggressive Growth Fund's investment
policies and restrictions as set forth in the Prospectus and in this Part B, as
a nonfundamental policy, the Fund may not invest more than 15% of its assets,
collectively, in illiquid investments and securities of foreign issuers which
are not listed on a recognized domestic or foreign securities exchange.
Growth Stock Fund:
The Growth Stock Fund has adopted the following investment restrictions
as fundamental policies. The Growth Stock Fund may not:
1. Invest more than 5% of the value of its total assets in the
securities of any one issuer (other than securities of the U. S. Government or
its agencies or instrumentalities).
2. Purchase more than 10% of any class of securities of any one issuer
(taking all preferred stock issues of an issuer as a single class and all debt
issues of an issuer as a single class) or acquire more than 10% of the
outstanding voting securities of an issuer.
3. Concentrate its investments in any particular industry; however, it
may invest up to 25% of the value of its total assets in the securities of
issuers conducting their principal business activities in any one industry.
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4. Invest more than 5% of the value of its total assets in the
securities of any issuers which, with their predecessors, have a record of less
than three years' continuous operation. (Securities of such issuers will not be
deemed to fall within this limitation if they are guaranteed by an entity in
continuous operation for more than three years.)
5. Issue any senior securities (as defined in the 1940 Act), except to
the extent that using options and futures contracts may be deemed to constitute
issuing a senior security.
6. Borrow money, except from banks for temporary or emergency purposes
in an amount not exceeding 5% of the value of the Fund's total assets.
7. Mortgage, pledge or hypothecate its assets except in an amount not
exceeding 10% of the value of its total assets, to secure temporary or emergency
borrowing. For purposes of this policy, collateral arrangements for margin
deposits on futures contracts or with respect to the writing of options are not
deemed to be a pledge of assets.
8. Underwrite securities issued by other persons except to the extent
that, in connection with the disposition of its portfolio investments, it may be
deemed to be an underwriter under federal securities laws.
9. Purchase or sell real estate or real estate mortgage loans, except
the Fund may purchase or sell securities issued by companies owning real estate
or interests therein.
10. Purchase or sell oil, gas or other mineral leases, rights or
royalty contracts, except the Fund may purchase or sell securities of companies
investing in the foregoing.
11. Purchase or sell commodities or commodities futures contracts,
except that it may enter into financial futures contracts and engage in related
options transactions.
12. Purchase or retain the securities of any issuer, if, to the Fund's
knowledge, those officers or directors of the Fund or its affiliates or of its
investment adviser or sub-adviser who individually own beneficially more than
0.5% of the outstanding securities of such issuer, together own beneficially
more than 5% of such outstanding securities.
13. Make loans to other persons, except to the extent that repurchase
agreements are deemed to be loans under the 1940 Act, and except that it may
purchase debt securities as described in the Prospectus under "Investment
Objectives and Policies." The purchase of a portion of an issue of bonds,
debentures or other debt securities distributed to the public or to financial
institutions will not be considered the making of a loan.
14. Purchase securities on margin, except that it may obtain such
short-term credits as may be necessary for the clearance of purchases or sales
of securities and except that it may make margin deposits in connection with
futures contracts.
15. Participate on a joint or a joint and several basis in any
securities trading account.
16. Write, purchase or sell puts, calls or combinations thereof, except
that it may (a) purchase or write put and call options on stock indexes listed
on national securities exchanges, (b) write and purchase put and call options
with respect to the securities in which it may invest and (c) engage in
financial futures contracts and related options transactions.
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17. Make short sales except where, by virtue of ownership of other
securities, it has the right to obtain without payment of further consideration,
securities equivalent in kind and amount to those sold.
18. Invest for the purpose of exercising control or management.
19. Invest more than 5% of the value of its total assets in the
securities of any single investment company or more than 10% of the value of its
total assets in the securities of two or more investment companies except as
part of a merger, consolidation or acquisition of assets.
20. Invest more than 15% of its net assets in illiquid investments.
Tax-Efficient Equity Fund:
The following investment restrictions have been adopted by
Tax-Efficient Equity Fund as fundamental policies:
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 issue any senior securities, as defined in the
1940 Act, other than as set forth in investment restriction #1 above and except
to the extent that using options and futures contracts or purchasing or selling
securities on a when-issued or delayed delivery basis may be deemed to
constitute issuing a senior security.
3. The Fund will not lend money to other persons, except through
purchasing debt obligations, lending portfolio securities and entering into
repurchase agreements.
4. The Fund will invest no more than 25% 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.
5. The Fund will not purchase or sell real estate or real estate
limited partnership interests, except that the Fund may purchase and sell
securities of companies that deal in real estate or interests in real estate.
6. The Fund will not purchase or sell commodities or commodity
contracts, except futures contracts and related options and other similar
contracts.
7. The Fund will not act as an underwriter of securities, except that
the Fund may acquire securities under circumstances in which, if the securities
were sold, the Fund might be deemed to be an underwriter for purposes of the
Securities Act of 1933, as amended.
Each Fund may make commitments more restrictive than the restrictions
listed above so as to permit the sale of the Fund's shares in certain states.
Should a Fund determine that a commitment is no longer in the best interests of
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the Fund and its shareholders, the Fund will revoke the commitment by
terminating the sale of the Fund's shares in the state involved.
For purposes of a Fund's concentration policy, each Fund intends to
comply with the SEC staff position that securities issued or guaranteed as to
principal and interest by any single foreign government are considered to be
securities of issuers in the same industry.
Any investment restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the applicable percentage occurs immediately after an acquisition of
securities or utilization of assets and such excess results therefrom.
DIVERSIFICATION
Each Fund intends to operate as a "diversified" management investment
company, as defined in the 1940 Act, which means that at least 75% of its total
assets must be represented by cash and cash items (including receivables), U.S.
Government securities, securities of other investment companies, and other
securities for the purposes of this calculation limited in respect of any one
issuer to an amount not greater in value than 5% of the value of total assets of
such Fund and to not more than 10% of the outstanding voting securities of such
issuer.
Supplemental information is set out below concerning certain of the
securities and other instruments in which the Funds may invest, the investment
techniques and strategies that the Funds may utilize and certain risks involved
with those investments, techniques and strategies.
GOVERNMENT SECURITIES
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("Government Securities") in which the Funds may invest
include debt obligations of varying maturities issued by the U.S. Treasury or
issued or guaranteed by an agency or instrumentality of the U.S. Government,
including the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, General Services Administration,
Central Bank for Cooperatives, Federal Farm Credit Banks, Federal Home Loan
Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit
Banks, Federal Land Banks, Federal National Mortgage Association, Maritime
Administration, Tennessee Valley Authority, District of Columbia Armory Board,
Student Loan Marketing Association and Resolution Trust Corporation. Direct
obligations of the United States Treasury include a variety of securities that
differ in their interest rates, maturities and dates of issuance. Because the
U.S. Government is not obligated by law to provide support to an instrumentality
that it sponsors, each Fund invests in obligations issued by an instrumentality
of the U.S. Government only if Delaware Management Company, Inc. (the "Manager")
or Voyageur Asset Management LLC (the "Sub-Adviser" in the case of Growth Stock
Fund) determines that the instrumentality's credit risk does not make its
securities unsuitable for investment by a Fund.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements. Repurchase agreements
are instruments under which securities are purchased from a bank or securities
dealer with an agreement by the seller to repurchase the securities. Under a
repurchase agreement, the purchaser acquires ownership of the security but the
seller agrees, at the time of sale, to repurchase it at a mutually agreed-upon
time and price. The Funds will take custody of the collateral under repurchase
agreements. Repurchase agreements may be construed to be collateralized loans by
the purchaser to the seller secured by the securities transferred. The resale
price is in excess of the purchase price and reflects an agreed-upon market rate
unrelated to the coupon rate or maturity of the purchase security. Such
transactions afford an opportunity for the Funds to invest temporarily available
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cash. The Funds' risk is limited to the seller's ability to buy the security
back at the agreed-upon sum at the agreed-upon time, since the repurchase
agreement is secured by the underlying obligation. Should such an issuer
default, the investment managers believe that, barring extraordinary
circumstances, the Funds will be entitled to sell the underlying securities or
otherwise receive adequate protection for its interest in such securities,
although there could be a delay in recovery. The Funds consider the
creditworthiness of the bank or dealer from whom it purchases repurchase
agreements. The Funds will monitor such transactions to assure that the value of
the underlying securities subject to repurchase agreements is at least equal to
the repurchase price. The underlying securities will be limited to those
described above.
The funds in the Delaware Group have obtained an exemption from the
joint-transaction prohibitions of Section 17(d) of the Investment Company Act of
1940 to allow the Delaware Group funds jointly to invest cash balances. Each
Fund of the Mutual Funds III, Inc. may invest cash balances in a joint
repurchase agreement in accordance with the terms of the Order and subject
generally to the conditions described above.
RESTRICTED AND ILLIQUID SECURITIES
Most of the privately placed securities acquired by a Fund will be
eligible for resale by the Fund without registration pursuant to Rule 144A
("Rule 144A Securities") under the Securities Act of 1933. While maintaining
oversight, the Board of Directors has delegated to the Manager or Sub-Adviser
the day-to-day function of determining whether individual Rule 144A Securities
are liquid for purposes of a Fund's 10% limitation on investments in illiquid
securities. The Board has instructed the Manager or Sub-Adviser to consider the
following factors in determining the liquidity of a Rule 144A Security: (i) the
frequency of trades and trading volume for the security; (ii) whether at least
three dealers are willing to purchase or sell the security and the number of
potential purchasers; (iii) whether at least two dealers are making a market in
the security; and (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer).
Investing in Rule 144A Securities could have the effect of increasing
the level of a Fund's illiquidity to the extent that qualified institutional
buyers become, for a period of time, uninterested in purchasing these
securities. If the Manager determines that a Rule 144A Security which was
previously determined to be liquid is no longer liquid and, as a result, a
Fund's holdings of illiquid securities exceed the Fund's 10% limit on investment
in such securities, the Manager will determine what action shall be taken to
ensure that the Fund continues to adhere to such limitation.
INVESTMENT TECHNIQUES AND STRATEGIES
Each Fund may purchase put and call options and engage in the writing
of covered call options and secured put options, and employ a variety of other
investment techniques. Specifically, each Fund may engage in the purchase and
sale of stock index future contracts, interest rate futures contracts, and
options on such futures, all as described more fully below. Such investment
policies and techniques may involve a greater degree of risk than those inherent
in more conservative investment approaches.
The Funds will engage in such transactions only to hedge existing
positions. They will not engage in such transactions for the purposes of
speculation or leverage.
The Funds will not engage in such options or futures transactions
unless they receive any necessary regulatory approvals permitting them to engage
in such transactions.
Options on Securities. To hedge against adverse market shifts, a Fund
may purchase put and call options on securities held in its portfolio. In
addition, a Fund may seek to increase its income in an amount
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designed to meet operating expenses or may hedge a portion of its portfolio
investments through writing (that is, selling) "covered" put and call options. A
put option provides its purchaser with the right to compel the writer of the
option to purchase from the option holder an underlying security at a specified
price at any time during or at the end of the option period. In contrast, a call
option gives the purchaser the right to buy the underlying security covered by
the option from the writer of the option at the stated exercise price. A covered
call option contemplates that, for so long as the Fund is obligated as the
writer of the option, it will own (1) the underlying securities subject to the
option or (2) securities convertible into, or exchangeable without the payment
of any consideration for, the securities subject to the option. The value of the
underlying securities on which covered call options will be written at any one
time by a Fund will not exceed 25% of the Fund's total assets. A Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of a put option, it deposits and maintains with its
custodian cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the exercise price of the
option.
Each Fund may purchase options on securities that are listed on
securities exchanges or, with respect to Aggressive Growth Fund, that are traded
over-the-counter. As the holder of a put option, a Fund has the right to sell
the securities underlying the option and as the holder of a call option, a Fund
has the right to purchase the securities underlying the option, in each case at
the option's exercise price at any time prior to, or on, the option's expiration
date. A Fund may choose to exercise the options it holds, permit them to expire
or terminate them prior to their expiration by entering into closing sale
transactions. In entering into a closing sale transaction, a Fund would sell an
option of the same series as the one it has purchased.
A Fund receives a premium when it writes call options, which increases
the Fund's return on the underlying security in the event the option expires
unexercised or is closed out at a profit. By writing a call, a Fund limits its
opportunity to profit from an increase in the market value of the underlying
security above the exercise price of the option for as long as the Fund's
obligation as writer of the option continues. A Fund receives a premium when it
writes put options, which increases such Fund's return on the underlying
security in the event the option expires unexercised or is closed out at a
profit. By writing a put, a Fund limits its opportunity to profit from an
increase in the market value of the underlying security above the exercise price
of the option for as long as the Fund's obligation as writer of the option
continues. Thus, in some periods, a Fund will receive less total return and in
other periods greater total return from its hedged positions than it would have
received from its underlying securities if unhedged.
In purchasing a put option, a Fund seeks to benefit from a decline in
the market price of the underlying security, whereas in purchasing a call
option, a Fund seeks to benefit from an increase in the market price of the
underlying security. If an option purchased is not sold or exercised when it has
remaining value, or if the market price of the underlying security remains equal
to or greater than the exercise price, in the case of a put, or remains equal to
or below the exercise price, in the case of a call, during the life of the
option, the Fund will lose its investment in the option. For the purchase of an
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price, in the case of a put, and must
increase sufficiently above the exercise price, in the case of a call, to cover
the premium and transaction costs. 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.
Over-the-Counter ("OTC") Options. Aggressive Growth Fund may purchase
OTC options. OTC options differ from exchange-traded options in several
respects. They are transacted directly with dealers and not with a clearing
corporation, and there is a risk of non-performance by the dealer. However, the
premium is
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paid in advance by the dealer. OTC options are available for a greater variety
of securities and foreign currencies, and in a wider range of expiration dates
and exercise prices than exchange-traded options. Since there is no exchange,
pricing is normally done by reference to information from a market maker, which
information is carefully monitored or caused to be monitored by the Manager and
verified in appropriate cases.
A writer or purchaser of a put or call option can terminate it
voluntarily only by entering into a closing transaction. In the case of OTC
options, there can be no assurance that a continuous liquid secondary market
will exist for any particular option at any specific time. Consequently, the
Fund may be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. Similarly, when the Fund writes an OTC option, it generally can close
out that option prior to its expiration only by entering into a closing purchase
transaction with the dealer to which it originally wrote the option. If a
covered call option writer cannot effect a closing transaction, it cannot sell
the underlying security or foreign currency until the option expires or the
option is exercised. Therefore, the writer of a covered OTC call option may not
be able to sell an underlying security even though it might otherwise be
advantageous to do so. Likewise, the writer of a covered OTC put option may be
unable to sell the securities pledged to secure the put for other investment
purposes while it is obligated as a put writer. Similarly, a purchaser of an OTC
put or call option might also find it difficult to terminate its position on a
timely basis in the absence of a secondary market.
A Fund may purchase and write over-the-counter ("OTC") put and call
options in negotiated transactions. The staff of the Securities and Exchange
Commission has previously taken the position that the value of purchased OTC
options and the assets used as "cover" for written OTC options are illiquid
securities and, as such, are to be included in the calculation of a Fund's 15%
limitation on illiquid securities. However, the staff has eased its position
somewhat in certain limited circumstances. A Fund will attempt to enter into
contracts with certain dealers with which it writes OTC options. Each such
contract will provide that the Fund has the absolute right to repurchase the
options it writes at any time at a repurchase price which represents the fair
market value, as determined in good faith through negotiation between the
parties, but which in no event will exceed a price determined pursuant to a
formula contained in the contract. Although the specific details of such formula
may vary among contracts, the formula will generally be based upon a multiple of
the premium received by the Fund for writing the option, plus the amount, if
any, of the option's intrinsic value. The formula will also include a factor to
account for the difference between the price of the security and the strike
price of the option. If such a contract is entered into, the Fund will count as
illiquid only the initial formula price minus the option's intrinsic value.
A Fund will enter into such contracts only with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York. Moreover,
such primary dealers will be subject to the same standards as are imposed upon
dealers with which the Fund enters into repurchase agreements.
Securities Index Options. In seeking to hedge all or a portion of its
investment, a Fund may purchase and write put and call options on securities
indexes listed on securities exchanges, which indexes include securities held in
the Fund's portfolio.
A securities index measures the movement of a certain group of stocks
or debt securities by assigning relative values to the securities included in
the index. Options on securities indexes are generally similar to options on
specific securities. Unlike options on specific securities, however, options on
securities indexes do not involve the delivery of an underlying security; the
option in the case of an option on a stock index represents the holder's right
to obtain from the writer in cash a fixed multiple of the amount by which the
exercise price
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exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying stock index on the exercise date.
When a Fund writes an option on a securities index, it will establish a
segregated account with its custodian, or a designated sub-custodian, in which
the Fund will deposit cash, U.S. Government Securities or other liquid high
grade debt obligations in an amount equal to the market value of the option, and
will maintain the account while the option is open.
Securities index options are subject to position and exercise limits
and other regulations imposed by the exchange on which they are traded. If a
Fund writes a securities index option, it may terminate its obligation by
effecting a closing purchase transaction, which is accomplished by purchasing an
option of the same series as the option previously written. The ability of a
Fund to engage in closing purchase transactions with respect to securities index
options depends on the existence of a liquid secondary market. Although a Fund
generally purchases or writes securities index options only if a liquid
secondary market for the options purchased or sold appears to exist, no such
secondary market may exist, or the market may cease to exist at some future
date, for some options. No assurance can be given that a closing purchase
transaction can be effected when the Fund desires to engage in such a
transaction.
Risks Relating to Purchase and Sale of Options on Stock Indexes.
Purchase and sale of options on stock indexes by a Fund are subject to certain
risks that are not present with options on securities. Because the effectiveness
of purchasing or writing stock index options as a hedging technique depends upon
the extent to which price movements in the Fund's portfolio correlate with price
movements in the level of the index rather than the price of a particular stock,
whether the Fund will realize a gain or loss on the purchase or writing of an
option on an index depends upon movements in the level of stock prices in the
stock market generally or, in the case of certain indexes, in an industry or
market segment, rather than movements in the price of a particular stock.
Accordingly, successful use by a Fund of options on indexes will be subject to
the ability of the Manager or the Sub-Adviser, as the case may be, to correctly
predict movements in the direction of the stock market generally or of a
particular industry. This requires different skills and techniques than
predicting changes in the price of individual stocks. In the event a Fund's
adviser is unsuccessful in predicting the movements of an index, such Fund could
be in a worse position than had no hedge been attempted.
Index prices may be distorted if trading of certain stocks included in
the index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
stocks included in the index. If this occurred, a Fund would not be able to
close out options which it had purchased or written and, if restrictions on
exercise were imposed, might be unable to exercise an option it holds, which
could result in substantial losses to such Fund. However, it will be each Fund's
policy to purchase or write options only on indexes which include a sufficient
number of stocks so that the likelihood of a trading halt in the index is
minimized.
Short Sales Against the Box. Each Fund may sell securities "short
against the box." Whereas a short sale is the sale of a security the Fund does
not own, a short sale is "against the box" if at all times during which the
short position is open, the Fund owns at least an equal amount of the securities
or securities convertible into, or exchangeable without further consideration
for, securities of the same issue as the securities sold short. Short sales
against the box are typically used by sophisticated investors to defer
recognition of capital gains or losses.
Futures Contracts and Options on Futures Contracts. Each Fund may
purchase and sell stock index futures contracts. The purpose of the acquisition
or sale of a futures contract by a Fund is to hedge against
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fluctuations in the value of its portfolio without actually buying or selling
securities. The futures contracts in which a Fund may invest have been developed
by and are traded on national commodity exchanges. Stock index futures contracts
may be based upon broad-based stock indexes such as the S&P 500 or upon
narrow-based stock indexes. A buyer entering into a stock index futures contract
will, on a specified future date, pay or receive a final cash payment equal to
the difference between the actual value of the stock index on the last day of
the contract and the value of the stock index established by the contract. The
Fund may assume both "long" and "short" positions with respect to futures
contracts. A long position involves entering into a futures contract to buy a
commodity, whereas a short position involves entering into a futures contract to
sell a commodity.
The purpose of trading futures contracts is to protect a Fund from
fluctuations in value of its investment securities without necessarily buying or
selling the securities. Because the value of a Fund's investment securities will
exceed the value of the futures contracts sold by a Fund, an increase in the
value of the futures contracts could only mitigate, but not totally offset, the
decline in the value of the Fund's assets. No consideration is paid or received
by a Fund upon trading a futures contract. Upon trading a futures contract, a
Fund will be required to deposit in a segregated account with its custodian, or
designated sub-custodian, an amount of cash, short-term Government Securities or
other U.S. dollar-denominated, high-grade, short-term money market instruments
equal to approximately 1% to 10% of the contract amount (this amount is subject
to change by the exchange on which the contract is traded and brokers may charge
a higher amount). This amount is known as "initial margin" and is in the nature
of a performance bond or good faith deposit on the contract that is returned to
the Fund upon termination of the futures contract, assuming that all contractual
obligations have been satisfied; the broker will have access to amounts in the
margin account if the Fund fails to meet its contractual obligations. Subsequent
payments, known as "variation margin," to and from the broker, will be made
daily as the price of the currency or securities underlying the futures contract
fluctuates, making the long and short positions in the futures contract more or
less valuable, a process known as "marking-to-market." At any time prior to the
expiration of a futures contract, a Fund may elect to close a position by taking
an opposite position, which will operate to terminate the Fund's existing
position in the contract.
Each short position in a futures or options contract entered into by a
Fund is secured by the Fund's ownership of underlying securities. The Funds do
not use leverage when they enter into long futures or options contracts; each
Fund places in a segregated account with its custodian, or designated
sub-custodian, with respect to each of its long positions, cash or money market
instruments having a value equal to the underlying commodity value of the
contract.
The Funds may trade stock index futures contracts to the extent
permitted under rules and interpretations adopted by the Commodity Futures
Trading Commission (the "CFTC"). U.S. futures contracts have been designed by
exchanges that have been designated as "contract markets" by the CFTC, and must
be executed through a futures commission merchant, or brokerage firm, that is a
member of the relevant contract market. Futures contracts trade on a number of
contract markets, and, through their clearing corporations, the exchanges
guarantee performance of the contracts as between the clearing members of the
exchange.
The Funds intend to comply with CFTC regulations and avoid "commodity
pool operator" status. These regulations require that a Fund use futures and
options positions (a) for "bona fide hedging purposes" (as defined in the
regulations) or (b) for other purposes so long as aggregate initial margins and
premiums required in connection with non-hedging positions do not exceed 5% of
the liquidation value of the Fund's portfolio. The Funds currently do not intend
to engage in transactions in futures contracts or options thereon for
speculation, but will engage in such transactions only for bona fide hedging
purposes.
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Risks of Transactions in Futures Contracts and Options on Futures
Contracts. Holding Risks in Futures Contracts Transactions. There are several
risks in using stock index futures contracts as hedging devices. First, all
participants in the futures market are subject to initial margin and variation
margin requirements. Rather than making additional variation margin payments,
investors may close the contracts through offsetting transactions which could
distort the normal relationship between the index or security and the futures
market. Second, the margin requirements in the futures market are lower than
margin requirements in the securities market, and as a result the futures market
may attract more speculators than does the securities market. Increased
participation by speculators in the futures market may also cause temporary
price distortions. Because of possible price distortion in the futures market
and because of imperfect correlation between movements in stock indexes or
securities and movements in the prices of futures contracts, even a correct
forecast of general market trends may not result in a successful hedging
transaction over a very short period.
Another risk arises because of imperfect correlation between movements
in the value of the futures contracts and movements in the value of securities
subject to the hedge. With respect to stock index futures contracts, the risk of
imperfect correlation increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable stock index. It is
possible that a Fund might sell stock index futures contracts to hedge its
portfolio against a decline in the market, only to have the market advance and
the value of securities held in the Fund's portfolio decline. If this occurred,
the Fund would lose money on the contracts and also experience a decline in the
value of its portfolio securities. While this could occur, the Manager and the
Sub-Adviser believe that over time the value of a Fund's portfolio will tend to
move in the same direction as the market indexes and will attempt to reduce this
risk, to the extent possible, by entering into futures contracts on indexes
whose movements they believe will have a significant correlation with movements
in the value of the Fund's portfolio securities sought to be hedged.
Successful use of futures contracts by a Fund is subject to the ability
of the Manager or the Sub-Adviser, as the case may be, to predict correctly
movements in the direction of interest rates or the market. If a Fund has hedged
against the possibility of a decline in the value of the stocks held in its
portfolio or an increase in interest rates adversely affecting the value of
fixed-income securities held in its portfolio and stock prices increase or
interest rates decrease instead, the Fund would lose part or all of the benefit
of the increased value of its security which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
a Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market or decline
in interest rates. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
Liquidity of Futures Contracts. A Fund may elect to close some or all
of its contracts prior to expiration. The purpose of making such a move would be
to reduce or eliminate the hedge position held by the Fund. A Fund may close its
positions by taking opposite positions. Final determinations of variation margin
are then made, additional cash as required is paid by or to the Fund, and the
Fund realizes a loss or a gain.
Positions in futures contracts may be closed only on an exchange or
board of trade providing a secondary market for such futures contracts. Although
the Funds intend to enter into futures contracts only on exchanges or boards of
trade where there appears to be an active secondary market, there is no
assurance that a liquid secondary market will exist for any particular contract
at any particular time.
In addition, most domestic futures exchanges and boards of trade limit
the amount of fluctuation permitted in futures contract prices during a single
trading day. The daily limit establishes the maximum
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amount that the price of a futures contract may vary either up or down from the
previous day's settlement price at the end of a trading session. Once the daily
limit has been reached in a particular contract, no trades may be made that day
at a price beyond that limit. The daily limit governs only price movement during
a particular trading day and therefore does not limit potential losses because
the limit may prevent the liquidation of unfavorable positions. It is possible
that futures contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses. In such event, it will not be possible to close a futures
position and, in the event of adverse price movements, a Fund would be required
to make daily cash payments of variation margin. In such circumstances, an
increase in the value of the portion of the portfolio being hedged, if any, may
partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the securities being
hedged will, in fact, correlate with the price movements in the futures contract
and thus provide an offset to losses on a futures contract.
Risks and Special Considerations of Options on Futures Contracts. The
use of options on interest rate and stock index futures contracts also involves
additional risk. Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves less potential
risk to a Fund because the maximum amount at risk is the premium paid for the
options (plus transactions costs). The writing of a call option on a futures
contract generates a premium which may partially offset a decline in the value
of a Fund's portfolio assets. By writing a call option, a Fund becomes obligated
to sell a futures contract, which may have a value higher than the exercise
price. Conversely, the writing of a put option on a futures contract generates a
premium, but the Fund becomes obligated to purchase a futures contract, which
may have a value lower than the exercise price. Thus, the loss incurred by a
Fund in writing options on futures contracts may exceed the amount of the
premium received.
The effective use of options strategies is dependent, among other
things, on a Fund's ability to terminate options positions at a time when the
Manager or the Sub-Adviser deems it desirable to do so. Although a Fund will
enter into an option position only if the Manager, or the Sub-Adviser, as the
case may be, believes that a liquid secondary market exists for such option,
there is no assurance that the Fund will be able to effect closing transactions
at any particular time or at an acceptable price. The Funds' transactions
involving options on futures contracts will be conducted only on recognized
exchanges.
A Fund's purchase or sale of put or call options on futures contracts
will be based upon predictions as to anticipated interest rates or market trends
by the Manager or the Sub-Adviser, which could prove to be inaccurate. Even if
the expectations of the Manager or sub-adviser are correct, there may be an
imperfect correlation between the change in the value of the options and of the
Fund's portfolio securities.
Investments in futures contracts and related options by their nature
tend to be more short-term than other equity investments made by the Funds. Each
Fund's ability to make such investments, therefore, may result in an increase in
such Fund's portfolio activity and thereby may result in the payment of
additional transaction costs.
The Internal Revenue Code of 1986, as amended (the "Code"), forbids
each Fund from earning more than 30% of its gross income from the sale or other
disposition of certain investments, including futures contracts and options
thereon, which are owned for less than three months. The likelihood of violating
this 30% test is increased by the amount of investing a Fund does in futures
contracts and related options. Additionally, the Code requires each Fund to
diversify its investment holdings. The Internal Revenue Service position
regarding the treatment of futures contracts and related options for
diversification purposes is not clear, and the extent to which a Fund may engage
in these transactions may be limited by this requirement.
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The Code also provides that, with respect to certain futures contracts and
options held by a Fund at the end of its taxable year, unrealized gain or loss
on such contracts may have to be recognized for tax purposes under a special
system within the Code. The actual gain or loss recognized by the Fund in an
eventual disposition of such contract, however, will be adjusted by the amount
of the gain or loss recognized earlier under the Code's system. See Accounting
and Tax Issues and Distributions and Taxes. For more information on stock index
futures contracts and related options, see Appendix E.
CREDIT QUALITY
Any bond in which the Aggressive Growth Fund and Growth Stock Fund
invest will be rated investment grade. As has been the industry practice, this
determination of credit quality is made at the time a Fund acquires the bond.
However, because it is possible that subsequent downgrades could occur, if a
bond held by a Fund is later downgraded, the Manager or the Sub-Adviser, as the
case may be, under the supervision of the Board of Directors, will consider
whether it is in the best interest of the Fund's shareholders to hold or to
dispose of the bond. Among the criteria that may be considered by the Manager or
the Sub-Adviser, as the case may be, and the Board are the probability that the
bonds will be able to make scheduled interest and principal payments in the
future, the extent to which any devaluation of the bond has already been
reflected in the Fund's net asset value, and the total percentage, if any, of
bonds currently rated below investment grade held by the Fund. In no event,
however, will a Fund invest more than 5% of its net assets in bonds rated lower
than investment grade.
Non-investment grade securities have moderate to poor protection of
principal and interest payments and have speculative characteristics. They
involve greater risk of default or price declines due to changes in the issuer's
creditworthiness than investment-grade debt securities. Because the market for
lower-rated securities may be thinner and less active than for higher-rated
securities, there may be market price volatility for these securities and
limited liquidity in the resale market. Market prices for these securities may
decline significantly in periods of general economic difficulty or rising
interest rates.
ACCOUNTING AND TAX ISSUES
When a Fund writes a call option, an amount equal to the premium
received by it is included in the section of the Fund's assets and liabilities
as an asset and as an equivalent liability. The amount of the liability is
subsequently "marked to market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal Exchange on which such option is traded or, in the
absence of a sale, the mean between the last bid and asked prices. If an option
which a Fund has written expires on its stipulated expiration date, the Fund
reports a realized gain. If a Fund enters into a closing purchase transaction
with respect to an option which the Fund has written, the Fund realizes a gain
(or loss if the cost of the closing transaction exceeds the premium received
when the option was sold) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is extinguished.
Any such gain or loss is a short-term capital gain or loss for federal income
tax purposes. If a call option which a Fund has written is exercised, the Fund
realizes a capital gain or loss (long-term or short-term, depending on the
holding period of the underlying security) from the sale of the underlying
security and the proceeds from such sale are increased by the premium originally
received.
OTHER TAX REQUIREMENTS -- Each Fund has qualified, and intend to
continue to qualify as regulated investment companies under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). Each Fund must meet
several requirements to maintain its status as a regulated investment company.
Among these requirements are that at least 90% of its investment company taxable
income be derived from dividends, interest, payment with respect to securities
loans and gains from the sale or disposition of securities; that at the
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close of each quarter of its taxable year at least 50% of the value of its
assets consists of cash and cash items, government securities, securities of
other regulated investment companies and, subject to certain diversification
requirements, other securities; and that less than 30% of its gross income be
derived from sales of securities held for less than three months.
The requirement that not more than 30% of a Fund's gross income be
derived from gains from the sale or other disposition of securities held for
less than three months may restrict the Fund in its ability to write covered
call options on securities which it has held less than three months, to write
options which expire in less than three months, to sell securities which have
been held less than three months and to effect closing purchase transactions
with respect to options which have been written less than three months prior to
such transactions. Consequently, in order to avoid realizing a gain within the
three-month period, a Fund may be required to defer the closing out of a
contract beyond the time when it might otherwise be advantageous to do so.
The straddle rules of Section 1092 may apply. Generally, the straddle
provisions require the deferral of losses to the extent of unrecognized gains
related to the offsetting positions in the straddle. Excess losses, if any, can
be recognized in the year of loss. Deferred losses will be carried forward and
recognized in the following year, subject to the same limitation.
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PERFORMANCE INFORMATION
From time to time, each Fund may state each of its Classes' total
return in advertisements and other types of literature. Any statement of total
return performance data for a Class will be accompanied by information on the
average annual compounded rate of return for that Class over, as relevant, the
most recent one-, five- and ten-year (or life-of-fund, if applicable) periods.
Each Fund may also advertise aggregate and average total return information for
its Classes over additional periods of time.
In presenting performance information for Class A Shares, the Limited
CDSC applicable to only certain redemptions of those shares will not be deducted
from any computation of total return. See the Prospectuses for the Fund Classes
for a description of the Limited CDSC and the limited instances in which it
applies. All references to a CDSC in this Performance Information section will
apply to Class B Shares or Class C Shares of the Funds.
Total return performance for each Class will be computed by adding all
reinvested income and realized securities profits distributions plus the change
in net asset value during a specific period and dividing by the offering price
at the beginning of the period. It will not reflect any income taxes payable by
shareholders on the reinvested distributions included in the calculation.
Because securities prices fluctuate, past performance should not be considered
as a representation of the results which may be realized from an investment in
either Fund in the future.
The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1 + T) = ERV
Where: P = a hypothetical initial purchase order of $1,000 from
which, in the case of only Class A Shares, the maximum
front-end sales charge is deducted;
T = average annual total return;
n = number of years; and
ERV = redeemable value of the hypothetical $1,000
purchase at the end of the period after the
deduction of the applicable CDSC, if any, with
respect to Class B Shares and Class C Shares.
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<PAGE> 197
Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares and that all distributions
are reinvested at net asset value, and, with respect to Class B Shares and Class
C Shares, reflects the deduction of the CDSC that would be applicable upon
complete redemption of such shares. In addition, each Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.
The performance of Class A Shares, Class B Shares, Class C Shares and
Institutional Class of Aggressive Growth Fund and Growth Stock Fund, as shown
below, is the average annual total return quotations through April 30, 1997,
computed as described above.
The average annual total return for Class A Shares at offer reflects
the maximum front-end sales charge of 4.75% paid on the purchase of shares. The
average annual total return for Class A Shares at net asset value (NAV) does not
reflect the payment of any front-end sales charge. Pursuant to applicable
regulation, total return shown for the Institutional Classes is calculated by
taking the performance of the respective Class A Shares and adjusting it to
reflect the elimination of all sales charges. However, no adjustment has been
made to eliminate the impact of 12b-1 payments by each Fund's Class A Shares and
performance would have been affected had such an adjustment been made.
The aggregate or average annual total return for Class B Shares and
Class C Shares, respectively, including deferred sales charge reflects the
deduction of the applicable CDSC that would be paid if the shares were redeemed
at April 30, 1997. The aggregate or average annual total return for Class B
Shares and Class C Shares, respectively, excluding deferred sales charge assumes
the shares were not redeemed at April 30, 1997 and therefore does not reflect
the deduction of a CDSC.
Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.
-18-
<PAGE> 198
<TABLE>
AVERAGE ANNUAL TOTAL RETURN
AGGRESSIVE GROWTH FUND(2)
<CAPTION>
CLASS A
SHARES CLASS A SHARES INSTITUTIONAL
(AT OFFER) (AT NAV) CLASS
<S> <C> <C> <C>
1 year ended 4/30/97 00.00% 00.00% 00.00%
Period 5/16/94(1) through 4/30/97 00.00% 00.00% 00.00%
</TABLE>
<TABLE>
AGGREGATE TOTAL RETURN AVERAGE ANNUAL TOTAL RETURN
AGGRESSIVE GROWTH FUND(2) AGGRESSIVE GROWTH FUND(2)
<CAPTION>
CLASS B SHARES CLASS B SHARES CLASS C SHARES CLASS C SHARES
(INCLUDING (EXCLUDING (INCLUDING (EXCLUDING
DEFERRED DEFERRED DEFERRED DEFERRED
SALES CHARGE) SALES CHARGE) SALES CHARGE) SALES CHARGE)
<S> <C> <C> <C> <C> <C>
Period 1 year ended
(1) 4/30/97 00.00% 00.00%
through
4/30/97 0.00% 0.00% Period
5/20/94(1)
through
4/30/97 00.00% 00.00%
</TABLE>
(1) Date of initial public offering. Aggregate Total Return for this short of a
time period may not be representative of longer term results.
(2) Reflects the voluntary waivers in effect during the periods.
-19-
<PAGE> 199
<TABLE>
AVERAGE ANNUAL TOTAL RETURN
GROWTH STOCK FUND(2)
<CAPTION>
CLASS A SHARES CLASS A SHARES INSTITUTIONAL
(AT OFFER) (AT NAV) CLASS(2)
<S> <C> <C> <C>
1 year ended 4/30/97 00.00% 00.00% 00.00%
3 years ended 4/30/97 00.00% 00.00% 00.00%
5 years ended 4/30/97 00.00% 00.00% 00.00%
10 years ended 4/30/97 00.00% 00.00% 00.00%
Period 8/1/85(1)
through 4/30/97 00.00% 00.00% 00.00%
</TABLE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURN
GROWTH STOCK FUND(2)
<CAPTION>
CLASS B SHARES CLASS B SHARES CLASS C SHARES CLASS C SHARES
(INCLUDING (EXCLUDING (INCLUDING (EXCLUDING
DEFERRED DEFERRED DEFERRED DEFERRED
SALES CHARGE) SALES CHARGE) SALES CHARGE) SALES CHARGE)
<S> <C> <C> <C> <C> <C>
1 year ended 1 year ended
4/30/97 00.00% 00.00% 4/30/97 00.00% 00.00%
Period Period
9/8/95(1) 10/21/95(2)
through through
4/30/97 00.00% 00.00% 4/30/97 00.00% 00.00%
</TABLE>
(1) Date of initial public offering. Aggregate Total Return for this short of a
time period may not be representative of longer term results.
(2) Reflects the voluntary waivers in effect during the periods.
-20-
<PAGE> 200
Total return information regarding Tax-Efficient Equity Fund is not
shown because such shares were not offered to be public until July 1, 1997.
From time to time, each Fund may also quote its Classes' actual total
return performance, dividend results and other performance information in
advertising and other types of literature and may compare that information to,
or may separately illustrate similar information reported by, the S&P 500 Stock
Index and the Dow Jones Industrial Average and other unmanaged indices.
The S&P 500 Stock Index and the Dow Jones Industrial Average are
industry-accepted unmanaged indices of stocks which are representative of and
used to measure broad stock market performance. The total return performance
reported for these indices will reflect the reinvestment of all distributions on
a quarterly basis and market price fluctuations. The indices do not take into
account any sales charge or other fees. In seeking a particular investment
objective, a Fund's portfolio may include common stocks considered by the
Manager to be more aggressive than those tracked by these indices.
From time to time, each Fund may also quote actual total return
performance of its Classes in advertising and other types of literature compared
to indices or averages of alternative financial products available to
prospective investors. For example, the performance comparisons may include the
average return of various bank instruments, some of which may carry certain
return guarantees offered by leading banks and thrifts as monitored by Bank Rate
Monitor, and those of generally-accepted corporate bond and government security
price indices of various durations prepared by Lehman Brothers and Salomon
Brothers, Inc. These indices are not managed for any investment goal.
Statistical and performance information and various indices compiled
and maintained by organizations such as the following may also be used in
preparing exhibits comparing certain industry trends and competitive mutual fund
performance to comparable activity and performance of the Funds and in
illustrating general financial planning principles. From time to time, certain
mutual fund performance ranking information, calculated and provided by these
organizations, may also be used in the promotion of sales of each Fund. Any
indices used are not managed for any investment goal.
CDA Technologies, Inc., Lipper Analytical Services, Inc. and
Morningstar, Inc. are performance evaluation services that maintain
statistical performance databases, as reported by a diverse universe of
independently-managed mutual funds.
Ibbotson Associates, Inc. is a consulting firm that provides a variety
of historical data including total return, capital appreciation and
income on the stock market as well as other investment asset classes,
and inflation. With their permission, this information will be used
primarily for comparative purposes and to illustrate general financial
planning principles.
-21-
<PAGE> 201
Interactive Data Corporation is a statistical access service that
maintains a database of various international industry indicators, such
as historical and current price/earning information, individual equity
and fixed-income price and return information.
Compustat Industrial Databases, a service of Standard & Poor's, may
also be used in preparing performance and historical stock and bond
market exhibits. This firm maintains fundamental databases that provide
financial, statistical and market information covering more than 7,000
industrial and non-industrial companies.
Russell Indexes is an investment analysis service that provides both
current and historical stock performance information, focusing on the
business fundamentals of those firms issuing the security.
Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market, corporate
and government-issued securities of various maturities. This
information, as well as unmanaged indices compiled and maintained by
these firms, will be used in preparing comparative illustrations. In
addition, the performance of multiple indices compiled and maintained
by these firms may be combined to create a blended performance result
for comparative purposes. Generally, the indices selected will be
representative of the types of securities in which the Funds may invest
and the assumptions that were used in calculating the blended
performance will be described.
Comparative information on the Consumer Price Index may also be
included. The Consumer Price Index, as prepared by the U.S. Bureau of Labor
Statistics, is the most commonly used measure of inflation. It indicates the
cost fluctuations of a representative group of consumer goods. It does not
represent a return from an investment.
The following tables are examples, for purposes of illustration only,
of cumulative total return performance for Class A Shares, Class B Shares, Class
C Shares and Institutional Classes of Aggressive Growth Fund and Growth Stock
Fund through April 30, 1997. Pursuant to applicable regulation, total return
shown for the Institutional Classes is calculated by taking the performance of
the respective Class A Shares and adjusting it to reflect the elimination of all
sales charges. However, no adjustment has been made to eliminate the impact of
12b-1 payments by each Fund's Class A Shares and performance for the
Institutional Classes would have been affected had such an adjustment been made.
For these purposes, the calculations assume the reinvestment of any realized
securities profits distributions and income dividends paid during the indicated
periods, but does not reflect any income taxes payable by shareholders on the
reinvested distributions. The performance of Class A Shares reflects the maximum
front-end sales charge paid on the purchases of shares but may also be shown
without reflecting the impact of any front-end sales charge. The performance of
Class B Shares and Class C Shares is calculated both with the applicable CDSC
included and excluded. Comparative information on the S&P 500 Stock Index and
the Dow Jones Industrial Average is also included.
-22-
<PAGE> 202
<TABLE>
CUMULATIVE TOTAL RETURN
AGGRESSIVE GROWTH FUND(2)
<CAPTION>
CLASS A
SHARES INSTITUTIONAL S&P 500 DOW JONES
(AT OFFER) CLASS INDEX(4) INDUSTRIAL(4)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
6 months ended 4/30/97 0.00%(3) 00.00% 00.00% 00.00%
9 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
1 year ended 4/30/97 0.00% 00.00% 00.00% 00.00%
Period 5/16/94(1) through 4/30/97 0.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Date of initial public offering.
(2) Reflects the voluntary waivers in effect during the periods.
(3) For the six months ended April 30, 1997, cumulative total return for
Aggressive Growth Fund A Class at net asset value was 0.00%.
(4) Source: Interactive Data Corp.
-23-
<PAGE> 203
<TABLE>
CUMULATIVE TOTAL RETURN
AGGRESSIVE GROWTH FUND(2)
<CAPTION>
CLASS B SHARES CLASS B SHARES
(INCLUDING (EXCLUDING
DEFERRED DEFERRED S&P 500 DOW JONES
SALES CHARGE) SALES CHARGE) INDEX(3) INDUSTRIAL(3)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
6 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
9 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
Period (2)
through 4/30/97 0.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Date of initial public offering. Total return for this short of a
time period may not be representative of longer term results.
(2) Reflects the voluntary waivers in effect during the periods.
(3) Source: Interactive Data Corp.
<TABLE>
CUMULATIVE TOTAL RETURN
AGGRESSIVE GROWTH FUND(2)
<CAPTION>
CLASS C SHARES CLASS C SHARES
(INCLUDING (EXCLUDING
DEFERRED DEFERRED S&P 500 DOW JONES
SALES CHARGE) SALES CHARGE) INDEX(3) INDUSTRIAL(3)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
6 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
9 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
1 year ended 4/30/97 0.00% 00.00% 00.00% 00.00%
Period 5/20/94(2)
through 4/30/97 0.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Date of initial public offering.
(2) Reflects the voluntary waivers in effect during the periods.
(3) Source: Interactive Data Corp.
-24-
<PAGE> 204
<TABLE>
CUMULATIVE TOTAL RETURN
GROWTH STOCK FUND(2)
<CAPTION>
CLASS A SHARES INSTITUTIONAL S&P 500 DOW JONES
(AT OFFER) CLASS INDEX(4) INDUSTRIAL(4)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
6 months ended 4/30/97 0.00%(3) 00.00% 00.00% 00.00%
9 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
1 year ended 4/30/97 0.00% 00.00% 00.00% 00.00%
3 years ended 4/30/97 0.00% 00.00% 00.00% 00.00%
5 years ended 4/30/97 0.00% 00.00% 00.00% 00.00%
10 years ended 4/30/97 0.00% 00.00% 00.00% 00.00%
Period 8/1/85(1)
through 4/30/97 0.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Date of initial public offering.
(2) Reflects the voluntary waivers in effect during the periods.
(3) For the six months ended April 30, 1997, cumulative total return for
Growth Stock Fund A Class at net asset value was 0.00%.
(4) Source: Interactive Data Corp.
<TABLE>
CUMULATIVE TOTAL RETURN
GROWTH STOCK FUND(2)
<CAPTION>
CLASS B SHARES CLASS B SHARES
(INCLUDING (EXCLUDING
DEFERRED DEFERRED S&P 500 DOW JONES
SALES CHARGE) SALES CHARGE) INDEX(3) INDUSTRIAL(3)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
6 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
9 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
1 year ended 4/30/97 0.00% 00.00% 00.00% 00.00%
Period 9/8/95(1)
through 4/30/97 0.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Date of initial public offering.
(2) Reflects the voluntary waivers in effect during the periods.
(3) Source: Interactive Data Corp.
-25-
<PAGE> 205
<TABLE>
CUMULATIVE TOTAL RETURN
GROWTH STOCK FUND(2)
<CAPTION>
CLASS C SHARES CLASS C SHARES
(INCLUDING (EXCLUDING
DEFERRED DEFERRED S&P 500 DOW JONES
SALES CHARGE) SALES CHARGE) INDEX(3) INDUSTRIAL(3)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
6 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
9 months ended 4/30/97 0.00% 00.00% 00.00% 00.00%
1 year ended 4/30/97 0.00% 00.00% 00.00% 00.00%
Period 10/21/95(1)
through 4/30/97 0.00% 00.00% 00.00% 00.00%
</TABLE>
(1) Date of initial public offering.
(2) Reflects the voluntary waivers in effect during the periods.
(3) Source: Interactive Data Corp.
Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Funds and other mutual funds in the Delaware
Group, will provide general information about investment alternatives and
scenarios that will allow investors to assess their personal goals. This
information will include general material about investing as well as materials
reinforcing various industry-accepted principles of prudent and responsible
personal financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has to
attain these goals to his or her risk threshold. In addition, the Distributor
will provide information that discusses the Manager's overriding investment
philosophy and how that philosophy impacts a Fund's, and other Delaware Group
funds', investment disciplines employed in seeking their objectives. The
Distributor may also from time to time cite general or specific information
about the institutional clients of the Manager, including the number of such
clients serviced by the Manager.
-26-
<PAGE> 206
THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund
shares, your investment is given yet another opportunity to grow. It's called
the Power of Compounding and the following chart illustrates just how powerful
it can be.
COMPOUNDED RETURNS
Results at various assumed fixed rates of return on a $10,000
investment compounded monthly for 10 years:
<TABLE>
<CAPTION>
9% Rate 11% Rate 13% Rate
of Return of Return of Return
--------- --------- ---------
<S> <C> <C> <C>
1 year $10,938 $11,157 $11,380
2 years $11,964 $12,448 $12,951
3 years $13,086 $13,889 $14,739
4 years $14,314 $15,496 $16,773
5 years $15,657 $17,289 $19,089
6 years $17,126 $19,290 $21,723
7 years $18,732 $21,522 $24,722
8 years $20,489 $24,013 $28,134
9 years $22,411 $26,791 $32,018
10 years $24,514 $29,892 $36,437
</TABLE>
Results at various assumed fixed rates of return on a $10,000
investment compounded quarterly for 10 years:
<TABLE>
<CAPTION>
8% Rate 10% Rate 12% Rate 14% Rate
of Return of Return of Return of Return
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1 year $10,824 $11,038 $11,255 $11,475
2 years $11,717 $12,184 $12,668 $13,168
3 years $12,682 $13,449 $14,258 $15,111
4 years $13,728 $14,845 $16,047 $17,340
5 years $14,859 $16,386 $18,061 $19,898
6 years $16,084 $18,087 $20,328 $22,833
7 years $17,410 $19,965 $22,879 $26,202
8 years $18,845 $22,038 $25,751 $30,067
9 years $20,399 $24,325 $28,983 $34,503
10 years $22,080 $26,851 $32,620 $39,593
</TABLE>
These figures are calculated assuming a fixed constant investment
return and assume no fluctuation in the value of principal. These figures, which
do not reflect payment of applicable taxes or sales charges, are not intended to
be a projection of investment results and do not reflect the actual performance
results of any of the Classes.
-27-
<PAGE> 207
TRADING PRACTICES AND BROKERAGE
Mutual Funds III, Inc. selects brokers or dealers to execute
transactions on behalf of a Fund for the purchase or sale of portfolio
securities on the basis of its judgment of their professional capability to
provide the service. The primary consideration is to have brokers or dealers
execute transactions at best price and execution. Best price and execution
refers to many factors, including the price paid or received for a security, the
commission charged, the promptness and reliability of execution, the
confidentiality and placement accorded the order and other factors affecting the
overall benefit obtained by the account on the transaction. Some trades are made
on a net basis where a Fund either buys securities directly from the dealer or
sells them to the dealer. In these instances, there is no direct commission
charged but there is a spread (the difference between the buy and sell price)
which is the equivalent of a commission. When a commission is paid, the Fund
involved pays reasonably competitive brokerage commission rates based upon the
professional knowledge of its trading department as to rates paid and charged
for similar transactions throughout the securities industry. In some instances,
the Fund pays a minimal share transaction cost when the transaction presents no
difficulty.
During the fiscal years ended April 30, 1995, 1996 and 1997, the
aggregate dollar amounts of brokerage commissions paid by Aggressive Growth Fund
were $ , $ and $ , respectively. During the same periods, the
aggregate dollar amounts of brokerage commissions paid by Growth Stock Fund
were $ , $ and , respectively.
The Manager may allocate out of all commission business generated by
all of the funds and accounts under its management, brokerage business to
brokers or dealers who provide brokerage and research services. These services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software and hardware used in
security analyses; and providing portfolio performance evaluation and technical
market analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.
During the fiscal year ended April 30, 1997, portfolio transactions of
Aggressive Growth Fund and Growth Stock Fund in the amounts of $ and
$ , respectively, resulting in brokerage commissions of $ and ,
respectively, were directed to brokers for brokerage and research services
provided.
As provided in the 1934 Act and each Fund's Investment Management
Agreement, higher commissions are permitted to be paid to broker/dealers who
provide brokerage and research services than to broker/dealers who do not
provide such services if such higher commissions are deemed reasonable in
relation to the value of the brokerage and research services provided. Although
transactions are directed to broker/dealers who provide such brokerage and
research services, the Funds believe that the commissions paid to such
broker/dealers are not, in general, higher than commissions that would be paid
to broker/dealers not providing such services and that such commissions are
reasonable in relation to the value of the brokerage and research services
provided. In some instances, services may be provided to the Manager which
constitute in some part brokerage and research services used by the Manager in
connection with its investment decision-making process and constitute in some
part services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In such cases,
the Manager will make a good faith allocation of brokerage and research services
and will pay out of its own resources for services used by the Manager in
connection with administrative or other functions not related to its investment
decision-making
-29-
<PAGE> 208
process. In addition, so long as no fund is disadvantaged, portfolio
transactions which generate commissions or their equivalent are allocated to
broker/dealers who provide daily portfolio pricing services to a Fund and to
other funds in the Delaware Group. Subject to best price and execution,
commissions allocated to brokers providing such pricing services may or may not
be generated by the funds receiving the pricing service.
The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and Mutual Funds
III, Inc.'s Board of Directors that the advantages of combined orders outweigh
the possible disadvantages of separate transactions.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Funds may place orders with broker/dealers that have agreed to
defray certain Fund expenses such as custodian fees, and may, at the request of
the Distributor, give consideration to sales of shares of a Fund as a factor in
the selection of brokers and dealers to execute Fund portfolio transactions.
Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish a Fund's
objective in relation to anticipated movements in the general level of interest
rates. The Funds are free to dispose of portfolio securities at any time,
subject to complying with the Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. The Funds will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving a Fund's
investment objective. However, it is generally anticipated that a Fund's
portfolio turnover rate will be less than 100%.
The degree of portfolio activity may affect brokerage costs of a Fund
and taxes payable by a Fund's shareholders to the extent of any net realized
capital gains. Each Fund's portfolio turnover rate is not expected to exceed
100%; however, under certain market conditions a Fund may experience a rate of
portfolio turnover which could exceed 100%. Each Fund's portfolio turnover rate
is calculated by dividing the lesser of purchases or sales of portfolio
securities for the particular fiscal year by the monthly average of the value of
the portfolio securities owned by such Fund during the particular fiscal year,
exclusive of securities whose maturities at the time of acquisition are one year
or less. A turnover rate of 100% would occur, for example, if all the
investments in a Fund's portfolio at the beginning of the year were replaced by
the end of the year.
During the past two fiscal years, Aggressive Growth Fund's portfolio
turnover rates were % and %, respectively, and Growth Stock Fund's portfolio
turnover rates were % and %, respectively.
Each Fund may hold securities for any period of time. A Fund's
portfolio turnover will be increased if the Fund writes a large number of call
options which are subsequently exercised. The portfolio turnover rate also may
be affected by cash requirements from redemptions and repurchases of Fund
shares. Total brokerage costs generally increase with higher portfolio turnover
rates.
-29-
<PAGE> 209
PURCHASING SHARES
The Distributor serves as the national distributor for each Fund's
classes of shares - Class A Shares, Class B Shares, Class C Shares and the
Institutional Class, and has agreed to use its best efforts to sell shares of
each Fund. See the Prospectuses for additional information on how to invest.
Shares of the Funds are offered on a continuous basis, and may be purchased
through authorized investment dealers or directly by contacting Mutual Funds
III, Inc. or the Distributor.
The minimum initial investment generally is $1,000 for Class A Shares,
Class B Shares and Class C Shares. Subsequent purchases of such classes
generally must be at least $100. The initial and subsequent minimum investments
for Class A Shares will be waived for purchases by officers, directors and
employees of any Delaware Group fund, the Manager or any of the its affiliates
if the purchases are made pursuant to a payroll deduction program. Shares
purchased pursuant to the Uniform Gifts to Minors Act or Uniform Transfers to
Minors Act and shares purchased in connection with an Automatic Investing Plan
are subject to a minimum initial purchase of $250 and a minimum subsequent
purchase of $25. Accounts opened under the Delaware Group Asset Planner service
are subject to a minimum initial investment of $2,000 per Asset Planner Strategy
selected. There are no minimum purchase requirements for the Funds'
Institutional Classes, but certain eligibility requirements must be satisfied.
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. See Investment Plans for purchase limitations
applicable to retirement plans. Mutual Funds III, Inc. will reject any purchase
order for more than $250,000 of Class B Shares and $1,000,000 or more of Class C
Shares. An investor may exceed these limitations 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 Shares and Class C Shares and generally are not subject to a CDSC.
Selling dealers are responsible for transmitting orders promptly.
Mutual Funds III, Inc. reserves the right to reject any order for the purchase
of shares of a Fund if in the opinion of management such rejection is in such
Fund's best interests.
The NASD has adopted Rules of Fair Practice, as amended, relating to
investment company sales charges. Mutual Funds III, Inc. and the Distributor
intend to operate in compliance with these rules.
Class A Shares are purchased at the offering price which reflects a
maximum front-end sales charge of 4.75%; however, lower front-end sales charges
apply for larger purchases. See the table below. Class A Shares are also subject
to annual 12b-1 Plan expenses.
Class B Shares are purchased at net asset value and 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; and (iv) 1% if
shares are redeemed during the sixth year following purchase. Class B Shares are
also subject to annual 12b-1 Plan expenses which are higher than those to which
Class A Shares are subject and are assessed against Class B Shares for
approximately eight years after purchase. See Automatic Conversion of Class B
Shares under Classes of Shares in the Fund Classes' Prospectuses.
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<PAGE> 210
Class C Shares are purchased at net asset value and are subject to a
CDSC of 1% if shares are redeemed within 12 months following purchase. Class C
Shares are also subject to annual 12b-1 Plan expenses for the life of the
investment which are equal to those to which Class B Shares are subject.
Institutional Class shares are purchased at the net asset value per
share without the imposition of a front-end or contingent deferred sales charge
or 12b-1 Plan expenses. See Determining Offering Price and Net Asset Value and
Plans Under Rule 12b-1 for the Fund Classes in this Part B.
Class A Shares, Class B Shares, Class C Shares and Institutional Class
shares represent a proportionate interest in a Fund's assets and will receive a
proportionate interest in that Fund's income, before application, as to Class A,
Class B and Class C Shares, of any expenses under that Fund's 12b-1 Plans.
Certificates representing shares purchased are not ordinarily issued in
the Class A Shares, unless a shareholder submits a specific request.
Certificates are not issued in the case of Class B Shares or Class C Shares or
in the case of any retirement plan account including self-directed IRAs.
However, purchases not involving the issuance of certificates are confirmed to
the investor and credited to the shareholder's account on the books maintained
by Delaware Service Company, Inc. (the "Transfer Agent"). The investor will have
the same rights of ownership with respect to such shares as if certificates had
been issued. An investor that is permitted to obtain a certificate may receive a
certificate representing full share denominations purchased by sending a letter
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by Mutual Funds III, Inc. for any certificate
issued. A shareholder may be subject to fees for replacement of a lost or stolen
certificate under certain conditions, including the cost of obtaining a bond
covering the lost or stolen certificate. Please contact the Funds for further
information. Investors who hold certificates representing any of their shares
may only redeem those shares by written request. The investor's certificate(s)
must accompany such request.
Alternative Purchase Arrangements
The alternative purchase arrangements of Class A, Class B and Class C
Shares of each Fund permit investors to choose the method of purchasing shares
that is most suitable for their needs 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 of a Fund and
incur a front-end sales charge and annual 12b-1 Plan expenses of up to a maximum
of 0.25% for Aggressive Growth Fund and Growth Stock Fund and 0.30% for
Tax-Efficient Equity Fund of the average daily net assets of Class A Shares or
to purchase either Class B or Class C Shares of a Fund and have the entire
initial purchase amount invested in the Fund with the investment thereafter
subject to a CDSC and annual 12b-1 Plan expenses. Class B Shares are subject to
a CDSC if the shares are redeemed within six years of purchase, and Class C
Shares are subject to a CDSC if the shares are redeemed within 12 months of
purchase. Class B and Class C Shares are each 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 the respective
Class. Class B Shares will automatically convert to Class A Shares at the end of
approximately eight years after purchase and, thereafter, be subject to annual
12b-1 Plan expenses of up to a maximum of 0.25% for Aggressive Growth Fund and
Growth Stock Fund and 0.30% for Tax-Efficient Equity Fund of average daily net
assets of such shares. Unlike Class B Shares, Class C Shares do not convert to
another class.
CLASS A SHARES
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the accompanying table, and
may include a series of purchases over a 13-month period
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<PAGE> 211
under a Letter of Intention signed by the purchaser. See Special Purchase
Features -- Class A Shares, below, for more information on ways in which
investors can avail themselves of reduced front-end sales charges and other
purchase features.
<TABLE>
Class A Shares
<CAPTION>
Dealer's
Commission***
Front-End Sales Charge as a % of as % of
Offering Amount Offering
Amount of Purchase Price Invested** Price
Aggressive Growth Tax-Efficient
Growth Stock Equity
Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Less than $100,000 4.75% 0.00% 0.00% 0.00% 4.00%
$100,000 but under $250,000 3.75 0.00 0.00 0.00 3.00
$250,000 but under $500,000 2.50 0.00 0.00 0.00 2.00
$500,000 but under $1,000,000* 2.00 0.00 0.00 0.00 1.60
</TABLE>
* There is no front-end sales charge on purchases of $1 million or more of
Class A Shares but, under certain limited circumstances, a 1% contingent
deferred sales charge may apply upon redemption of such shares. The
contingent deferred sales charge ("Limited CDSC") that may be applicable
arises only in the case of certain shares that were purchased at net asset
value and triggered the payment of a dealer's commission.
** In the case of Aggressive Growth Fund and Growth Stock Fund, based on the
net asset value per share of the respective Fund's Class A Shares as of the
end of Mutual Funds III, Inc.'s most recent fiscal year. In the case of
Tax-Efficient Equity Fund, based on an initial net asset value of $8.50 per
share.
*** Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages set forth above.
A 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 such 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 charges shown above. Dealers who receive 90% or more of the
sales charge may be deemed to be underwriters under the 1933 Act.
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<PAGE> 212
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 in connection with sales of Class A Shares. Such dealers must
meet certain requirements in terms of organization and distribution capabilities
and their ability to increase sales. The Distributor should be contacted for
further information on these requirements as well as the basis and circumstances
upon which the additional commission will be paid. Participating dealers may be
deemed to have additional responsibilities under the securities laws.
Dealer's Commission
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 effected in accordance with the following schedule:
<TABLE>
<CAPTION>
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
<S> <C>
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
</TABLE>
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 (see Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and
Exchange in the Fund Classes' Prospectuses) may be aggregated with those of
Class A Shares of a 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.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. 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 reinvestment of dividends or capital gains
distributions. See Waiver of Contingent Deferred Sales Charge - Class B and
Class C Shares under Redemption and Exchange in the Prospectuses for the Fund
Classes for a list of the instances in which the CDSC is waived.
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<PAGE> 213
The following table sets forth the rates of the CDSC for Class B Shares
of each Fund:
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge (as a
Percentage of
Dollar Amount
Year After Purchase Made Subject to Charge)
<S> <C>
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None
</TABLE>
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. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the same
Fund. See Automatic Conversion of Class B Shares under Classes of Shares in the
Fund Classes' Prospectuses. Such conversion will constitute a tax-free exchange
for federal income tax purposes.
See Taxes in the Prospectuses for the Fund Classes.
Plans Under Rule 12b-1 for the Fund Classes
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 each Fund (the "Plans"). Each Plan permits the relevant Fund to pay
for certain distribution, promotional and related expenses involved in the
marketing of only the class of shares to which the Plan applies. The Plans do
not apply to Institutional Classes of shares. Such shares are not included in
calculating the Plans' fees, and the Plans are not used to assist in the
distribution and marketing of shares of Institutional Classes. Shareholders of
Institutional Classes may not vote on matters affecting the Plans.
The Plans permit a 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, each Fund may make payments out of the assets of 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 a Fund under its Plans, and a
Fund's Distribution Agreements, is on an annual basis, up to 0.25% of the
Aggressive Growth and Growth Stock Fund's Class A Shares' average daily net
assets for the year and 0.30% of the Tax-Efficient Equity Fund's 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'
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<PAGE> 214
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 Fund Classes. Subject to seeking best price and
execution, a 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 respective Funds and that there is a
reasonable likelihood of the Plan relating to a Fund 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 Fund 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
Fund 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 securities Class B Shares of the same 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.
For the fiscal year ended April 30, 1997, payments from Class A Shares,
Class B Shares and Class C Shares of Aggressive Growth Fund amounted to $ ,
$ and $ , respectively. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Advertising $00,000 $00,000 $00,000
Annual/Semi-Annual Reports $00,000 $00,000 $00,000
Broker Trails $00,000 $00,000 $00,000
Broker Sales Charges $00,000 $00,000 $00,000
</TABLE>
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<PAGE> 215
<TABLE>
<S> <C> <C> <C>
Dealer Service Expenses $00,000 $00,000 $00,000
Interest on Broker Sales Charges $00,000 $00,000 $00,000
Commissions to Wholesalers $00,000 $00,000 $00,000
Promotional-Broker Meetings $00,000 $00,000 $00,000
Promotional-Other $00,000 $00,000 $00,000
Prospectus Printing $00,000 $00,000 $00,000
Telephone $00,000 $00,000 $00,000
Wholesaler Expenses $00,000 $00,000 $00,000
Other $00,000 $00,000 $00,000
</TABLE>
For the fiscal year ended April 30, 1997, payments from Class A Shares,
Class B Shares and Class C Shares of Growth Stock Fund amounted to $ , $
and $ , respectively. Such amounts were used for the following purposes:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Advertising $00,000 $00,000 $00,000
Annual/Semi-Annual Reports $00,000 $00,000 $00,000
Broker Trails $00,000 $00,000 $00,000
Broker Sales Charges $00,000 $00,000 $00,000
Dealer Service Expenses $00,000 $00,000 $00,000
Interest on Broker Sales Charges $00,000 $00,000 $00,000
Commissions to Wholesalers $00,000 $00,000 $00,000
Promotional-Broker Meetings $00,000 $00,000 $00,000
Promotional-Other $00,000 $00,000 $00,000
Prospectus Printing $00,000 $00,000 $00,000
Telephone $00,000 $00,000 $00,000
Wholesaler Expenses $00,000 $00,000 $00,000
Other $00,000 $00,000 $00,000
</TABLE>
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<PAGE> 216
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 Fund 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.
Payments to dealers made in connection with seminars, conferences or
contests relating to the promotion of Fund shares may be in an amount up to 100%
of the expenses incurred or awards made. The Distributor may also pay a portion
of the expense of preapproved dealer advertisements promoting the sale of
Delaware Group fund shares.
Special Purchase Features--Class A Shares
Buying Class A Shares at Net Asset Value
Class A Shares may be purchased without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.
Current and former officers, directors and employees of Mutual Funds
III, Inc., any other fund in the Delaware Group, the Manager, the Manager's
affiliates, or any of the Manager's affiliates that may in the future be
created, legal counsel to the funds, and registered representatives and
employees of broker/dealers who have entered into Dealer's Agreements with the
Distributor may purchase Class A Shares of the Funds and any such class of
shares of any of the other funds in the Delaware Group, including any fund that
may be created, at the net asset value per share. Family members of such persons
at their direction, and any employee benefit plan established by any of the
foregoing funds, corporations, counsel or broker/dealers may also purchase Class
A Shares at net asset value. Class A Shares may also be purchased at net asset
value by current and former officers, directors and employees (and members of
their families) of the Dougherty Financial Group LLC.
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. In addition, purchases of Class A Shares may be made by financial
institutions investing for the account of their trust customers when they are
not eligible to purchase shares of a Fund's institutional class. 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 &
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<PAGE> 217
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.
Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or Mutual Funds III, Inc., which provides for the holding in escrow by
the Transfer Agent of 5% of the total amount of Class A Shares intended to be
purchased until such purchase is completed within the 13-month period. A Letter
of Intention may be dated to include shares purchased up to 90 days prior to the
date the Letter is signed. The 13-month period begins on the date of the
earliest purchase. If the intended investment is not completed, except as noted
below, the purchaser will be asked to pay an amount equal to the difference
between the front-end sales charge on Class A Shares purchased at the reduced
rate and the front-end sales charge otherwise applicable to the total shares
purchased. If such payment is not made within 20 days following the expiration
of the 13-month period, the Transfer Agent will surrender an appropriate number
of the escrowed shares for redemption in order to realize the difference. Such
purchasers may include the value (at offering price at the level designated in
their Letter of Intention) of all their shares of the Funds and of any class of
any of the other mutual funds in the Delaware Group (except shares of any
Delaware Group fund which do not carry a front-end sales charge, CDSC or Limited
CDSC, other than shares of Delaware Group Premium Fund, Inc. beneficially owned
in connection with the ownership of variable insurance products, unless they
were acquired through an exchange from a Delaware Group fund which carried a
front-end sales charge, CDSC or Limited CDSC) previously purchased and still
held as of the date of their Letter of Intention toward the completion of such
Letter.
Employers offering a Delaware Group retirement plan may also complete a
Letter of Intention to obtain a reduced front-end sales charge on investments of
Class A Shares made by the plan. The aggregate investment level of the Letter of
Intention will be determined and accepted by the Transfer Agent at the point of
plan establishment. The level and any reduction in front-end sales charge will
be based on actual plan participation and the projected investments in Delaware
Group funds that are offered with a front-end sales charge, CDSC or Limited CDSC
for a 13-month period. The Transfer Agent reserves the right to adjust the
signed Letter of Intention based on this acceptance criteria. The 13-month
period will begin on the date this Letter of Intention is accepted by the
Transfer Agent. If actual investments exceed the anticipated level and equal an
amount that would qualify the plan for further discounts, any front-end sales
charges will be automatically adjusted. In the event this Letter of Intention is
not fulfilled within the 13-month period, the plan
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<PAGE> 218
level will be adjusted (without completing another Letter of Intention) and the
employer will be billed for the difference in front-end sales charges due, based
on the plan's assets under management at that time. Employers may also include
the value (at offering price at the level designated in their Letter of
Intention) of all their shares intended for purchase that are offered with a
front-end sales charge, CDSC or Limited CDSC of any class. Class B Shares and
Class C Shares of a Fund and other Delaware Group funds which offer
corresponding classes of shares may also be aggregated for this purpose.
Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Funds, as well as shares of any other class of any of the other
Delaware Group funds (except shares of any Delaware Group fund which do not
carry a front-end sales charge, CDSC or Limited CDSC, other than shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange from a Delaware Group fund which carried a front-end sales charge, CDSC
or Limited CDSC). In addition, assets held in any stable value product available
through the Delaware Group may be combined with other Delaware Group fund
holdings.
The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).
Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of a Fund, as
well as shares of any other class of any of the other Delaware Group funds which
offer such classes (except shares of any Delaware Group fund which do not carry
a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
a Delaware Group fund which carried a front-end sales charge, CDSC or Limited
CDSC). If, for example, any such purchaser has previously purchased and still
holds Class A Shares and/or shares of any other of the classes described in the
previous sentence with a value of $40,000 and subsequently purchases $60,000 at
offering price of additional shares of Class A Shares, the charge applicable to
the $60,000 purchase would currently be 3.75%. For the purpose of this
calculation, the shares presently held shall be valued at the public offering
price that would have been in effect were the shares purchased simultaneously
with the current purchase. Investors should refer to the table of sales charges
for Class A Shares to determine the applicability of the Right of Accumulation
to their particular circumstances.
12-Month Reinvestment Privilege
Holders of Class A Shares of a Fund (and of the Institutional Classes
holding shares which were acquired through an exchange from one of the other
mutual funds in the Delaware Group offered with a front-end sales charge) who
redeem such shares have one year from the date of redemption to reinvest all or
part of their redemption proceeds in Class A Shares of that Fund or in Class A
Shares of any of the other funds in the Delaware Group, subject to applicable
eligibility and minimum purchase requirements, in states where shares of such
other funds may be sold, at net asset value without the payment of a front-end
sales charge. This privilege does not extend to Class A Shares where the
redemption of the shares triggered the payment of a Limited CDSC. Persons
investing redemption proceeds from direct investments in mutual funds in the
Delaware Group offered without a front-end sales charge will be required to pay
the applicable sales charge
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<PAGE> 219
when purchasing Class A Shares. The reinvestment privilege does not extend to a
redemption of either Class B Shares or Class C Shares.
Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.
Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Funds' shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Fund Classes' Prospectuses) in connection with
the features described above.
Group Investment Plans
Group Investment Plans that are not eligible to purchase shares of the
Institutional Classes may also benefit from the reduced front-end sales charges
for investments in Class A Shares, 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 would be used in determining the applicable
front-end sales charge reduction upon each purchase, both initial and
subsequent, upon notification to the Fund in which the investment is being made
at the time of each such purchase. Employees participating in such Group
Investment Plans may also combine the investments made in their plan account
when determining the applicable front-end sales charge on purchases to
non-retirement Delaware Group investment accounts if they so notify the Fund in
connection with each purchase. For other retirement plans and special services,
see Retirement Plans for the Fund Classes under Investment Plans.
The Institutional Classes
The Institutional Class of each Fund is available for purchase only by:
(a) retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans; (b) tax-exempt employee
benefit plans of the Manager, the Sub-Adviser or their affiliates and securities
dealer firms with a selling agreement with the Distributor; (c) institutional
advisory accounts of the Manager, the Sub-Adviser or their affiliates and those
having client relationships with Delaware Investment Advisers, a division of the
Manager, or its affiliates and their corporate sponsors, as well as subsidiaries
and related employee benefit plans and rollover individual retirement accounts
from such institutional advisory accounts; (d) a bank, trust company and similar
financial institution investing for its own account or for the account of its
trust customers for whom such financial institution is exercising investment
discretion in purchasing shares of the Class, except where the investment is
part of a program that requires payment to the financial institution of a Rule
12b-1 fee; and (e) registered investment advisers investing on behalf of clients
that consist solely of institutions and high net-worth individuals having at
least $1,000,000 entrusted to the adviser for investment purposes, but only if
the adviser is not affiliated or associated with a broker or dealer and derives
compensation for its services exclusively from its clients for such advisory
services.
Shares of the Institutional Classes are available for purchase at net
asset value, without the imposition of a front-end or contingent deferred sales
charge and are not subject to Rule 12b-1 expenses.
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INVESTMENT PLANS
Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Fund Class in which an investor has an account (based on the net asset value in
effect on the reinvestment date) and will be credited to the shareholder's
account on that date. All dividends and distributions of the Institutional
Classes are reinvested in the accounts of the holders of such shares (based on
the net asset value in effect on the reinvestment date). A confirmation of each
distribution from realized securities profits, if any, will be mailed to
shareholders in the first quarter of the fiscal year.
Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the specific
Fund and Class in which shares are being purchased. Such purchases, which must
meet the minimum subsequent purchase requirements set forth in the Prospectuses
and this Part B, are made, for Class A Shares at the public offering price, and
for Class B Shares, Class C Shares and Institutional Class shares at the net
asset value, at the end of the day of receipt. A reinvestment plan may be
terminated at any time. This plan does not assure a profit nor protect against
depreciation in a declining market.
Reinvestment of Dividends in Other Delaware Group Funds
Subject to applicable eligibility and minimum initial purchase
requirements and the limitations set forth below, holders of Class A, Class B
and Class C Shares may automatically reinvest dividends and/or distributions in
any of the mutual funds in the Delaware Group, including the Funds, in states
where their shares may be sold. Such investments will be at net asset value at
the close of business on the reinvestment date without any front-end sales
charge or service fee. The shareholder must notify the Transfer Agent in writing
and must have established an account in the fund into which the dividends and/or
distributions are to be invested. Any reinvestment directed to a fund in which
the investor does not then have an account will be treated like all other
initial purchases of a fund's shares. Consequently, an investor should obtain
and read carefully the prospectus for the fund in which the investment is
intended to be made before investing or sending money. The prospectus contains
more complete information about the fund, including charges and expenses. See
also Additional Methods of Adding to Your Investment - Dividend Reinvestment
Plan under How to Buy Shares in the Prospectuses for the Fund Classes.
Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Group may be invested in shares of the Funds,
provided an account has been established. Dividends from Class A Shares may not
be directed to Class B Shares or Class C Shares. Dividends from Class B Shares
may only be directed to other Class B Shares and dividends from Class C Shares
may only be directed to other Class C Shares. See Appendix B -- Classes Offered
in the Fund Classes' Prospectuses for the funds in the Delaware Group that are
eligible for investment by holders of Fund shares.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
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Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan -- Investors may arrange for a Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and delayed
checks.
Automatic Investing Plan -- Shareholders of Class A, Class B and Class
C Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans.
* * *
Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such Plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.
Payments to a Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
a Fund may liquidate sufficient shares from a shareholder's account to reimburse
the government or the private source. In the event there are insufficient shares
in the shareholder's account, the shareholder is expected to reimburse the Fund.
Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. A Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact Mutual Funds III, Inc. for
proper instructions.
Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the Fund
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Group. Shareholders of the Fund Classes may elect to
invest in one or more of the other mutual funds in the Delaware Group through
the
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Wealth Builder Option. See Wealth Builder Option and Redemption and Exchange in
the Prospectuses for the Fund Classes.
Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Group, subject to the conditions and limitations set forth in the Fund Classes'
Prospectuses. The investment will be made on the 20th day of each month (or, if
the fund selected is not open that day, the next business day) at the public
offering price or net asset value, as applicable, of the fund selected on the
date of investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.
Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Exchange Privilege for a brief summary of the tax consequences of
exchanges. Shareholders can terminate their participation at any time by giving
written notice to their Fund.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, Profit Sharing and Money Purchase Pension Plans, 401(k)
Defined Contribution Plans, 403(b)(7) Deferred Compensation Plans or 457
Deferred Compensation Plans. This option also is not available to shareholders
of the Institutional Classes.
Retirement Plans for the Fund Classes
An investment in a 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. The CDSC may be
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 in the Prospectuses for the Fund Classes for a list of
the instances in which the CDSC is waived.
Purchases of Class B Shares are subject to a maximum purchase
limitation of $250,000 for retirement plans. Purchases of Class C Shares must be
in an amount that is less than $1,000,000 for such plans. The maximum purchase
limitations apply only to the initial purchase of shares by the retirement plan.
Minimum investment limitations generally applicable to other investors
do not apply to retirement plans, other than Individual Retirement Accounts, for
which there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25, regardless of which Class is selected. 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. Annual
maintenance fees may be shared by Delaware Management Trust Company, the
Transfer Agent, other affiliates of the Manager and others that provide services
to such plans.
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Certain shareholder investment services available to non-retirement
plan shareholders may not be available to retirement plan shareholders. Certain
retirement plans may qualify to purchase shares of the Institutional Classes.
See The Institutional Classes, above. For additional information on any of the
plans and Delaware's retirement services, call the Shareholder Service Center
telephone number.
It is advisable for an investor considering any one of the retirement
plans described below to consult with an attorney, accountant or a qualified
retirement plan consultant. For further details, including applications for any
of these plans, contact your investment dealer or the Distributor.
Taxable distributions from the retirement plans described below may be
subject to withholding.
Please contact your investment dealer or the Distributor for the
special application forms required for the plans described below.
Prototype Profit Sharing or Money Purchase Pension Plans
Prototype Plans are available for self-employed individuals,
partnerships and corporations. These plans can be maintained as Section 401(k),
profit sharing or money purchase pension plan provisions. Contributions may be
invested only in Class A and Class C Shares.
Individual Retirement Account ("IRA")
A document is available for an individual who wants to establish an IRA
by making contributions which may be tax-deductible, even if the individual is
already participating in an employer-sponsored retirement plan. Even if
contributions are not deductible for tax purposes, as indicated below, earnings
will be tax-deferred. In addition, an individual may make contributions on
behalf of a spouse who has no compensation for the year or, for years prior to
1997, elects to be treated as having no compensation for the year. Investments
in each of the Fund Classes are permissible.
An individual can contribute up to $2,000 of his or her IRA each year.
Contributions may or may not be deductible depending upon the taxpayers adjusted
gross income and whether the taxpayer or his or her spouse is an active
participant in an employer-sponsored retirement plan. Even if a taxpayer (or his
or her spouse) is an active participant in an employer-sponsored retirement
plan, the full $2,000 deduction is still available if the taxpayer's adjusted
gross income is below $25,000 ($40,000 for taxpayers filing joint returns). A
partial deduction is allowed for married couples with incomes between $40,000
and $50,000, and for single individuals with incomes between $25,000 and
$35,000. No deductions are available for contributions to IRAs by taxpayers
whose adjusted gross income before IRA deductions exceeds $50,000 ($35,000 for
singles) and who are active participants in an employer-sponsored retirement
plan. Taxpayers who are not allowed deductions on IRA contributions still can
make nondeductible IRA contributions of as much as $2,000 for each working
spouse ($2,250 for one-income couples for years prior to 1997), and defer taxes
on interest or other earnings from the IRAs. Special rules apply for determining
the deductibility of contributions made by married individuals filing separate
returns.
Effective for tax years beginning after 1996, one-income couples can
contribute up to $2,000 to each spouse's IRA provided the combined compensation
of both spouses is at least equal to the total contributions for both spouses.
If the working spouse is an active participant in an employer-sponsored
retirement plan and earns over $40,000, the maximum deduction limit is reduced
in the same way that the limit is reduced for contributions to a non-spousal
IRA.
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A company or association may establish a Group IRA for employees or
members who want to purchase shares of a Fund. Purchases of $1 million or more
of Class A Shares qualify for purchase at net asset value but may, under certain
circumstances, be subject to a Limited CDSC. See Purchasing Shares for
information on reduced front-end sales charges applicable to Class A Shares.
Investments generally must be held in the IRA until age 59 1/2 in order
to avoid premature distribution penalties, but distributions generally must
commence no later than April 1 of the calendar year following the year in which
the participant reaches age 70 1/2. Individuals are entitled to revoke the
account, for any reason and without penalty, by mailing written notice of
revocation to Delaware Management Trust Company within seven days after the
receipt of the IRA Disclosure Statement or within seven days after the
establishment of the IRA, except, if the IRA is established more than seven days
after receipt of the IRA Disclosure Statement, the account may not be revoked.
Distributions from the account (except for the pro-rata portion of any
nondeductible contributions) are fully taxable as ordinary income in the year
received. Excess contributions removed after the tax filing deadline, plus
extensions, for the year in which the excess contributions were made are subject
to a 6% excise tax on the amount of excess. Premature distributions
(distributions made before age 59 1/2, except for death, disability and certain
other limited circumstances) will be subject to a 10% excise tax on the amount
prematurely distributed, in addition to the income tax resulting from the
distribution. See Alternative Purchase Arrangements - Class B Shares and Class C
Shares under Classes of Shares, Contingent Deferred Sales Charge - Class B
Shares and Class C Shares under Classes of Shares, and Waiver of Contingent
Deferred Sales Charge - Class B and Class C Shares under Redemption and Exchange
in the Fund Classes' Prospectuses concerning the applicability of a CDSC upon
redemption.
Effective January 1, 1997, the 10% premature distribution penalty will
not apply to distributions from an IRA that are used to pay medical expenses in
excess of 7.5% of adjusted gross income or to pay health insurance premiums by
an individual who has received unemployment compensation for 12 consecutive
weeks.
See Appendix B -- IRA Information for additional IRA information.
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 Fund Classes is available for investment by a
SEP/IRA.
Salary Reduction Simplified Employee Pension Plan ("SAR/SEP")
New SAR/SEP plans may not be established after December 31, 1996. In
addition, employers must have 25 or fewer eligible employees to maintain an
existing SEP/IRA which permits salary deferral contributions. SAR/SEP plans may
only invest in Class A Shares and Class C Shares.
Prototype 401(k) Defined Contribution Plan
Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Plan documents are available to
enable employers to establish a plan. An employer may also elect to make profit
sharing contributions and/or matching contributions with investments in only
Class A Shares and Class C Shares or certain other funds in the Delaware Group.
Purchases under the plan may be combined for purposes of computing the reduced
front-end sales charge applicable to Class A Shares as set forth in the table on
page 00.
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Deferred Compensation Plan for Public Schools and Non-Profit Organizations
("403(b)(7)")
Section 403(b)(7) of the Code permits public school systems and certain
non-profit organizations to use mutual fund shares held in a custodial account
to fund deferred compensation arrangements for their employees. A custodial
account agreement is available for those employers who wish to purchase any of
the Fund Classes in conjunction with such an arrangement. Applicable front-end
sales charges with respect to Class A Shares for such purchases are set forth in
the table on page 00.
Deferred Compensation Plan for State and Local Government Employees ("457")
Section 457 of the Code permits state and local governments, their
agencies and certain other entities to establish a deferred compensation plan
for their employees who wish to participate. This enables employees to defer a
portion of their salaries and any federal (and possibly state) taxes thereon.
Such plans may invest in shares of any of the Fund Classes. Although investors
may use their own plan, there is available a Delaware Group 457 Deferred
Compensation Plan. Interested investors should contact the Distributor or their
investment dealers to obtain further information. Applicable front-end sales
charges for such purchases of Class A Shares are set forth in the table on page
00.
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.
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DETERMINING OFFERING PRICE AND NET ASSET VALUE
Orders for purchases of Class A Shares are effected at the
offering price next calculated by the Fund in which shares are being purchased
after receipt of the order by the Fund or its agent. Orders for purchases of
Class B Shares, Class C Shares and Institutional Class shares are effected at
the net asset value per share next calculated by the Fund in which shares are
being purchased after receipt of the order by the Fund or its agent. Selling
dealers are responsible for transmitting orders promptly.
The offering price for Class A Shares consists of the net asset
value per share plus any applicable front-end sales charges. Offering price and
net asset value 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 New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. When the
New York Stock Exchange is closed, the Funds will generally be closed, pricing
calculations will not be made and purchase and redemption orders will not be
processed.
[An example showing how to calculate the net asset value per
share and, in the case of Class A Shares, the offering price per share, is
included in Aggressive Growth Fund's and Growth Stock Fund's financial
statements which are incorporated by reference into this Part B.]
Each Fund's net asset value per share is computed by adding the
value of all the Fund's securities and other assets, deducting any liabilities
of the Fund, and dividing by the number of Fund shares outstanding. Expenses and
fees are accrued daily. Portfolio securities, except for bonds, which are
primarily traded on a national or foreign securities exchange are valued at the
last sale price on that exchange. Options are valued at the last reported sales
price or, if no sales are reported, at the mean between bid and asked prices.
Securities not traded on a particular day, over-the-counter securities and
government and agency securities are valued at the mean value between bid and
asked prices. Money market instruments having a maturity of less than 60 days
are valued at amortized cost. Debt securities (other than short-term
obligations) are valued on the basis of valuations provided by a pricing service
when such prices are believed to reflect the fair value of such securities. Use
of a pricing service has been approved by the Board of Directors. Subject to the
foregoing, securities for which market quotations are not readily available and
other assets are valued at fair value as determined in good faith and in a
method approved by the Board of Directors.
Each Class of a Fund will bear, pro-rata, all of the common
expenses of that Fund. The net asset values of all outstanding shares of each
Class of a Fund will be computed on a pro-rata basis for each outstanding share
based on the proportionate participation in that Fund represented by the value
of shares of that Class. All income earned and expenses incurred by a Fund will
be borne on a pro-rata basis by each outstanding share of a Class, based on each
Class' percentage in that Fund represented by the value of shares of such
Classes, except that the Institutional Classes will not incur any of the
expenses under the relevant Fund's 12b-1 Plans and Class A, Class B and Class C
Shares alone will bear the 12b-1 Plan expenses payable under their respective
Plans. Due to the specific distribution expenses and other costs that will be
allocable to each Class, the net asset value of each Class of a Fund will vary.
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REDEMPTION AND REPURCHASE
Any shareholder may require a Fund to redeem shares by sending a
WRITTEN REQUEST, signed by the record owner or owners exactly as the shares are
registered, to the Fund at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for Class
A Shares and Institutional Class shares only if a shareholder specifically
requests them. Certificates are not issued for Class B Shares or Class C Shares.
If stock certificates have been issued for shares being redeemed, they must
accompany the written request. For redemptions of $50,000 or less paid to the
shareholder at the address of record, the request must be signed by all owners
of the shares or the investment dealer of record, but a signature guarantee is
not required. When the redemption is for more than $50,000, or if payment is
made to someone else or to another address, signatures of all record owners are
required and a signature guarantee may be required. Each signature guarantee
must be supplied by an eligible guarantor institution. Each Fund reserves the
right to reject a signature guarantee supplied by an eligible institution based
on its creditworthiness. The Funds may request further documentation from
corporations, retirement plans, executors, administrators, trustees or
guardians.
In addition to redemption of Fund shares, the Distributor,
acting as agent of the Funds, offers to repurchase Fund shares from
broker/dealers acting on behalf of shareholders. The redemption or repurchase
price, which may be more or less than the shareholder's cost, is the net asset
value per share next determined after receipt of the request in good order by
the respective Fund or its agent, subject to any applicable CDSC or Limited
CDSC. This is computed and effective at the time the offering price and net
asset value are determined. See Determining Offering Price and Net Asset Value.
The Funds and the Distributor end their business days at 5 p.m., Eastern time.
This offer is discretionary and may be completely withdrawn without further
notice by the Distributor.
Orders for the repurchase of Fund shares which are submitted to
the Distributor prior to the close of its business day will be executed at the
net asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.
Certain redemptions of Class A Shares purchased at net asset
value may result in the imposition of a Limited CDSC. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange in the Prospectuses for the Fund Classes.
Class B Shares 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; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Classes of Shares in the
Prospectuses for the Fund Classes. Except for the applicable CDSC or Limited
CDSC and, with respect to the expedited payment by wire described below for
which, in the case of the Fund Classes, there is currently a $7.50 bank wiring
cost, neither the Funds nor the Funds' Distributor charges a fee for redemptions
or repurchases, but such fees could be charged at any time in the future.
Payment for shares redeemed will ordinarily be mailed the next
business day, but in no case later than seven days, after receipt of a
redemption request in good order; provided, however, that each commitment to
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mail or wire redemption proceeds by a certain time, as described below, is
modified by the qualifications described in the next paragraph.
Each Fund will process written or telephone redemption requests
to the extent that the purchase orders for the shares being redeemed have
already settled. A Fund will honor redemption requests as to shares for which a
check was tendered as payment, but a Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared. This potential
delay can be avoided by making investments by wiring Federal Funds.
If a shareholder has been credited with a purchase by a check
which is subsequently returned unpaid for insufficient funds or for any other
reason, the Fund involved will automatically redeem from the shareholder's
account the shares purchased by the check plus any dividends earned thereon.
Shareholders may be responsible for any losses to a Fund or to the Distributor.
In case of a suspension of the determination of the net asset
value because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by a Fund of securities owned by it is not reasonably practical,
or it is not reasonably practical for a Fund fairly to value its assets, or in
the event that the SEC has provided for such suspension for the protection of
shareholders, a Fund may postpone payment or suspend the right of redemption or
repurchase. In such case, the shareholder may withdraw the request for
redemption or leave it standing as a request for redemption at the net asset
value next determined after the suspension has been terminated.
Payment for shares redeemed or repurchased may be made either in
cash or kind, or partly in cash and partly in kind. Any portfolio securities
paid or distributed in kind would be valued as described in Determining Offering
Price and Net Asset Value. Subsequent sale by an investor receiving a
distribution in kind could result in the payment of brokerage commissions.
However, Mutual Funds III, Inc. has elected to be governed by Rule 18f-1 under
the 1940 Act pursuant to which each Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net asset value of such Fund
during any 90-day period for any one shareholder.
The value of a Fund's investments is subject to changing market
prices. Thus, a shareholder reselling shares to a Fund may sustain either a gain
or loss, depending upon the price paid and the price received for such shares.
Small Accounts
Before a Fund involuntarily redeems shares from an account that,
under the circumstances noted in the relevant Prospectus, has remained below the
minimum amounts required by the Funds' Prospectuses and sends the proceeds to
the shareholder, the shareholder will be notified in writing that the value of
the shares in the account is less than the minimum required and will be allowed
60 days from the date of notice to make an additional investment to meet the
required minimum. See The Conditions of Your Purchase under How to Buy Shares in
the Funds' Prospectuses. Any redemption in an inactive account established with
a minimum investment may trigger mandatory redemption. No CDSC or Limited CDSC
will apply to the redemptions described in this paragraph.
* * *
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Each Fund has made available certain redemption privileges, as
described below. The Funds reserve the right to suspend or terminate these
expedited payment procedures upon 60 days' written notice to shareholders.
Expedited Telephone Redemptions
Shareholders of the Fund Classes or their investment dealers of
record wishing to redeem any amount of shares of $50,000 or less for which
certificates have not been issued may call the Shareholder Service Center at
800-523-1918 or, in the case of shareholders of the Institutional Classes, their
Client Services Representative at 800-828-5052 prior to the time the offering
price and net asset value are determined, as noted above, and have the proceeds
mailed to them at the address of record. Checks payable to the shareholder(s) of
record will normally be mailed the next business day, but no later than seven
days, after the receipt of the redemption request. This option is only available
to individual, joint and individual fiduciary-type accounts.
In addition, redemption proceeds of $1,000 or more can be
transferred to your predesignated bank account by wire or by check by calling
the phone numbers listed above. An authorization form must have been completed
by the shareholder and filed with the relevant Fund before the request is
received. Payment will be made by wire or check to the bank account designated
on the authorization form as follows:
1. PAYMENT BY WIRE: Request that Federal Funds be wired to the
bank account designated on the authorization form. Redemption proceeds will
normally be wired on the next business day following receipt of the redemption
request. There is a $7.50 wiring fee (subject to change) charged by CoreStates
Bank, N.A. which will be deducted from the withdrawal proceeds each time the
shareholder requests a redemption from Class A Shares, Class B Shares and Class
C Shares. If the proceeds are wired to the shareholder's account at a bank which
is not a member of the Federal Reserve System, there could be a delay in the
crediting of the funds to the shareholder's bank account.
2. PAYMENT BY CHECK: Request a check be mailed to the bank
account designated on the authorization form. Redemption proceeds will normally
be mailed the next business day, but no later than seven days, from the date of
the telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.
REDEMPTION REQUIREMENTS: In order to change the name of the bank
and the account number it will be necessary to send a written request to the
relevant Fund and a signature guarantee may be required. Each signature
guarantee must be supplied by an eligible guarantor institution. The Funds
reserve the right to reject a signature guarantee supplied by an eligible
institution based on its creditworthiness.
To reduce the shareholder's risk of attempted fraudulent use of
the telephone redemption procedure, payment will be made only to the bank
account designated on the authorization form.
If expedited payment under these procedures could adversely
affect a Fund, such Fund may take up to seven days to pay the shareholder.
Neither the Funds nor the Funds' 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, each 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, such Fund or the Transfer Agent may be
liable for any losses
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<PAGE> 230
due to unauthorized or fraudulent transactions. Telephone instructions received
by shareholders of the Fund Classes are generally tape recorded. A written
confirmation will be provided for all purchase, exchange and redemption
transactions initiated by telephone.
Systematic Withdrawal Plans
Shareholders of Class A, Class B and Class C Shares who own or
purchase $5,000 or more of shares at the offering price, or net asset value, as
applicable, for which certificates have not been issued may establish a
Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly
withdrawals of $75 or more, although the Funds do not recommend any specific
amount of withdrawal. This $5,000 minimum does not apply for a Fund's prototype
retirement plans. Shares purchased with the initial investment and through
reinvestment of cash dividends and realized securities profits distributions
will be credited to the shareholder's account and sufficient full and fractional
shares will be redeemed at the net asset value calculated on the third business
day preceding the mailing date.
Checks are dated either the 1st or the 15th of the month, as
selected by the shareholder (unless such date falls on a holiday or a weekend),
and are normally mailed within two business days. Both ordinary income dividends
and realized securities profits distributions will be automatically reinvested
in additional shares of the Class at net asset value. This plan is not
recommended for all investors and should be started only after careful
consideration of its operation and effect upon the investor's savings and
investment program. To the extent that withdrawal payments from the plan exceed
any dividends and/or realized securities profits distributions paid on shares
held under the plan, the withdrawal payments will represent a return of capital
and the share balance may, in time, be depleted, particularly in a declining
market.
The sale of shares for withdrawal payments constitutes a taxable
event and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated. Premature withdrawals from
retirement plans may have adverse tax consequences.
Withdrawals under this plan made concurrently with the purchases
of additional shares may be disadvantageous to the shareholder. Purchases of
Class A Shares through a periodic investment program in a fund managed by the
Manager must be terminated before a Systematic Withdrawal Plan with respect to
such shares can take effect, except if the shareholder is a participant in one
of our retirement plans or is investing in Delaware Group funds which do not
carry a sales charge. Redemptions of Class A Shares pursuant to a Systematic
Withdrawal Plan may be subject to a Limited CDSC if the purchase was made at net
asset value and a dealer's commission has been paid on that purchase.
Redemptions of Class B Shares or Class C Shares pursuant to a Systematic
Withdrawal Plan may be subject to a CDSC, unless the annual amount selected to
be withdrawn is less than 12% of the account balance on the date that the
Systematic Withdrawal Plan was established. See Waiver of Contingent Deferred
Sales Charge - Class B and Class C Shares and Waiver of Limited Contingent
Deferred Sales Charge - Class A Shares under Redemption and Exchange in the
Prospectuses for the Fund Classes. Shareholders should consult their financial
advisers to determine whether a Systematic Withdrawal Plan would be suitable for
them.
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<PAGE> 231
An investor wishing to start a Systematic Withdrawal Plan must
complete an authorization form. If the recipient of Systematic Withdrawal Plan
payments is other than the registered shareholder, the shareholder's signature
on this authorization must be guaranteed. Each signature guarantee must be
supplied by an eligible guarantor institution. The Funds reserve the right to
reject a signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.
The Systematic Withdrawal Plan is not available for the
Institutional Classes.
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<PAGE> 232
DISTRIBUTIONS AND TAXES
Each Fund has qualified, and intends to continue to qualify as a
regulated investment company under Subchapter M of the Code. As such, a Fund
will not be subject to federal income tax on net investment income and net
realized capital gains which are distributed to shareholders.
Each Class of shares of a Fund will share proportionately in the
investment income and expenses of the Fund, except that Class A Shares, Class B
Shares and Class C Shares alone will incur distribution fees under their
respective 12b-1 Plans.
Mutual Funds III, Inc. currently intends to make annual payments
from each Fund's net investment income. Distributions of net capital gains, if
any, realized on sales of investments will be distributed annually during the
quarter following the close of the fiscal year.
All dividends and any capital gains distributions will be
automatically credited to the shareholder's account in additional shares of the
same Class unless, in the case of shareholders in the Fund Classes, the
shareholder requests in writing that such dividends and/or distributions be paid
in cash. Dividend payments of $1.00 or less will be automatically reinvested,
notwithstanding a shareholder's election to receive dividends in cash. If such a
shareholder's dividends increase to greater than $1.00, the shareholder would
have to file a new election in order to begin receiving dividends in cash again.
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 the shareholder's
account at the then-current net asset value and the dividend option may be
changed from cash to reinvest. A Fund may deduct from a shareholder's account
the costs of the Fund's effort to locate a shareholder if a shareholder's mail
is returned by the Post Office or the Fund is otherwise unable to locate the
shareholder or verify the shareholder's mailing address. These costs may include
a percentage of the account when a search company charges a percentage fee in
exchange for their location services. See also Other Tax Requirements under
Accounting and Tax Issues.
Persons not subject to tax will not be required to pay taxes on
distributions.
Dividends from investment income and short-term capital gains
distributions are treated by shareholders as ordinary income for federal income
tax purposes, whether received in cash or in additional shares. Distributions of
long-term capital gains, if any, are taxable to shareholders as long-term
capital gains, regardless of the length of time an investor has held such
shares, and these gains are currently taxed at long-term capital gain rates.
Under the Tax Reform Act of 1986, each Fund is treated as a
separate tax entity and capital gains and losses for each Fund are calculated
separately.
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<PAGE> 233
A portion of a Funds' dividends may qualify for the
dividends-received deduction for corporations provided in the federal income tax
law. The portion of dividends paid by a Fund that so qualifies will be
designated each year in a notice mailed to Fund shareholders, and cannot exceed
the gross amount of dividends received by such Fund from domestic (U.S.)
corporations that would have qualified for the dividends-received deduction in
the hands of the Fund if the Fund was a regular corporation. The availability of
the dividends-received deduction is subject to certain holding period and debt
financing restrictions imposed under the Code on the corporation claiming the
deduction. For the fiscal year ended April 30, 1997, % and % of the
dividends from net investment income of Aggressive Growth Fund and Growth
Stock Fund, respectively, were eligible for this deduction.
Shareholders will be notified annually by Mutual Funds III, Inc.
as to the federal income tax status of dividends and distributions paid by the
Funds.
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<PAGE> 234
INVESTMENT MANAGEMENT AGREEMENTS AND SUB-ADVISORY AGREEMENT
The Manager, located at One Commerce Square, Philadelphia, PA
19103, furnishes investment management services to the Funds, subject to the
supervision and direction of Mutual Funds III, Inc.'s Board of Directors.
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 various
institutional or separately managed (approximately $20,677,606,000) and
investment company (approximately $11,935,210,000) accounts.
The Investment Management Agreements for Aggressive Growth Fund
and Growth Stock Fund are dated April 30, 1997 and were approved by shareholders
on April 11, 1997. The Investment Management Agreement for Tax-Efficient Equity
Fund is dated June 26, 1997 and was approved by the Fund's respective initial
shareholder on , 1997.
Each 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 to which the Agreement relates,
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. Each Agreement is terminable
without penalty on 60 days' notice by the directors of Mutual Funds III, Inc. or
by the Manager. Each Agreement will terminate automatically in the event of its
assignment.
Under their respective Investment Management Agreements,
Aggressive Growth Fund and Growth Stock Fund each pay the Manager a monthly
investment advisory fee equivalent on an annual basis to 1.00% of their average
daily net assets. Under Tax-Efficient Equity Fund's Investment Management
Agreement, the Fund pays the Manager a monthly investment advisory fee
equivalent on an annual basis 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.
The Manager has elected voluntarily to waive that portion, if
any, of the annual management fees payable by a Fund and to pay certain expenses
of that Fund to the extent necessary to ensure that the Total Operating Expenses
of Class A Shares, Class B Shares, Class C Shares and Institutional Class shares
of the Fund (exclusive of taxes, interest, brokerage commissions, extraordinary
expenses but including 12b-1 fees, as applicable) do not exceed, on an annual
basis, the amounts noted below from the commencement of the public offering of
Classes through December 31, 1997:
<TABLE>
<CAPTION>
Class A Class B Class C Institutional
Class
<S> <C> <C> <C> <C>
Aggressive Growth Fund 1.75% 2.50% 2.50% 1.50%
Growth Stock Fund 1.75% 2.50% 2.50% 1.50%
Tax-Efficient Equity Fund 1.50% 2.20% 2.20% 1.20%
</TABLE>
In connection with the merger transaction described above, the
Manager has agreed for a period of two years ending on April 30, 1999, to pay
the operating expenses (excluding interest expense, taxes, brokerage fees,
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<PAGE> 235
commissions and Rule 12b-1 fees) of Aggressive Growth Fund and Growth Stock Fund
which exceed 1% of such Fund's average daily net assets on an annual basis up to
certain limits [as set forth in detail Part B].
Pursuant to the terms of a Sub-Advisory Agreement with the
Manager, the Sub-Adviser participates in the management of Growth Stock Fund's
assets, is responsible for day-to-day investment management of the Fund, makes
investment decisions for the Fund in accordance with the Fund's investment
objectives and stated policies and places orders on behalf of the Fund to effect
the investment decisions made. The Manager continues to have ultimate
responsibility for all investment advisory services in connection with the
management of the Fund pursuant to the Investment Management Agreement and
supervises the Sub-Adviser's performance of such services. For the services
provided to the Manager, the Manager pays the Sub-Adviser the following fee with
respect to Growth Stock Fund: ______________________________. The Sub-Adviser
has offices located at 90 South Seventh Street, Suite 4400, Minneapolis, MN
55402.
On April 30, 1997, the total net assets of Mutual Funds III,
Inc. were $0,000,000,000, broken down as follows: Aggressive Growth Fund -
$0,000,000,000 and Growth Stock Fund - $000,000,000. Investment management fees
accrued by Aggressive Growth Fund during the past three fiscal years were
$0,000,000 for 1995, $0,000,000 for 1996 and $0,000,000 for 1997 and
$000,000,000, $000,000,000 and $000,000,000, respectively were paid as a result
of the voluntary waiver of fees. Investment management fees paid by Growth Stock
Fund during the past three fiscal years were $0,000,000 for 1995, $0,000,000 for
1996 and $0,000,000 for 1997 and $000,000,000, $000,000,000 and $000,000,000,
respectively were paid as a result of the voluntary waiver of fees.
[Under the general supervision of the Board of Directors, the
Manager makes all investment decisions which are implemented by Mutual Funds
III, Inc.'s Trading Department. The Manager pays the salaries of all directors,
officers and employees of Mutual Funds III, Inc. who are affiliated with the
Manager. Each Fund pays all of its other expenses, including its proportionate
share of rent and certain other administrative expenses.]
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<PAGE> 236
The ratios of expenses to average daily net assets for the
fiscal year ended April 30, 1997 for each Class of Aggressive Growth Fund and
Growth Stock Fund were as follows:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND GROWTH STOCK FUND
<S> <C> <C>
Class A Shares 0.00% 0.00%
Class B Shares 0.00% 0.00%
Class C Shares 0.00% 0.00%
Institutional Class 0.00% 0.00%
</TABLE>
The expense ratios for Class A Shares, Class B Shares and Class C
Shares reflect the impact of their 12b-1 Plans [and the voluntary waivers of
fees in effect during the year].
Distribution and Service
The Distributor, Delaware Distributors, L.P., located at 1818
Market Street, Philadelphia, PA 19103, serves as the national distributor of
each Fund's shares under separate a Distribution Agreement dated April 30, 1997
for Aggressive Growth Fund and Growth Stock Fund and June 26, 1997 for
Tax-Efficient Equity Fund. The Distributor is an affiliate of the Manager and
bears all of the costs of promotion and distribution, except for payments by the
Funds on behalf of Class A, Class B and Class C Shares under their respective
12b-1 Plans. The Distributor is an indirect, wholly owned subsidiaries of
Delaware Management Holdings, Inc.
The Transfer Agent, Delaware Service Company, Inc., another
affiliate of the Manager located at 1818 Market Street, Philadelphia, PA 19103,
serves as the Funds' shareholder servicing, dividend disbursing and transfer
agent pursuant to an Amended and Restated Shareholders Services Agreement dated
as of June 26, 1997. The Transfer Agent also provides accounting services to the
Funds pursuant to the terms of a separate Fund Accounting Agreement. The
Transfer Agent is also an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc.
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<PAGE> 237
OFFICERS AND DIRECTORS
The business and affairs of Mutual Funds III, Inc. are managed
under the direction of its Board of Directors.
Certain officers and directors of Mutual Funds III, Inc. hold
identical positions in each of the other funds in the Delaware Group. On July
31, 1997, Mutual Funds III, Inc.'s officers and directors owned [less than 1%]
of the outstanding shares of each Class of each Fund.
As of July 31, 1997, management believes the following
shareholders held 5% or more of the outstanding shares of a Class:
Class Name and Address of Account Share Amount
Percentage
-58-
<PAGE> 238
DMH Corp., Delaware Voyageur Holdings, Inc., Delaware Management
Company, Inc., Delaware Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Management Trust Company, Delaware
International Holdings Ltd., Founders Holdings, Inc., Delaware International
Advisers Ltd., Delaware Capital Management, Inc. and Delaware Investment &
Retirement Services, Inc. are direct or indirect, wholly owned subsidiaries 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 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.
Prior to May 1, 1997, Voyageur Fund Managers, Inc. ("Voyageur")
had been retained under an investment advisory contract to act as each Fund's
investment adviser, subject to the authority of the Board of Directors. Voyageur
was an indirect, wholly-owned subsidiary of Dougherty Financial Group, Inc.
("DFG"). After the close of business on April 30, 1997, Voyageur became an
indirect, wholly-owned subsidiary of Lincoln National Corporation ("LNC") as a
result of LNC's acquisition of DFG.
Because LNC's acquisition of DFG resulted in a change of control
of Voyageur, the Aggressive Growth and Growth Stock Funds' previous investment
advisory agreements with Voyageur were "assigned", as that term is defined by
the Investment Company Act of 1940, and the previous agreements therefore
terminated upon the completion of the acquisition. The Board of Directors of
those Funds unanimously approved new advisory agreements at a meeting held in
person on February 14, 1997, and called for a shareholders meeting to approve
the new agreements. At a meeting held on April 11, 1997, the shareholders of the
Aggressive Growth Fund and Growth Stock Fund approved its respective Investment
Management Agreement with the Manager, an indirect wholly-owned subsidiary of
LNC, to become effective after the close of business on April 30, 1997, the date
the acquisition was completed. At that meeting, shareholders of Voyageur Growth
Stock Fund also approved a Sub-Advisory Agreement between the Manager and the
Sub-Adviser to take effect at the same time as the Investment Management
Agreement.
Beginning May 1, 1997, Delaware Management Company, Inc. became
the Funds' investment manager, and for the Growth Stock Fund, Voyageur Asset
Management LLC became the sub-adviser. The Investment Management Agreement into
which each Fund's investment manager has entered and, in the case of Voyageur
Growth Stock Fund, the Sub-Advisory Agreement between the Manager and the
Sub-Adviser, have an initial term of two years and provide for the continuation
thereafter only if approved by the Fund's Board of Directors in accordance with
the requirements of the 1940 Act. The investment management fees payable to the
Manager under the Agreements are the same as those payable under the agreements
that were terminated by the change in control of Voyageur.
Directors and principal officers of Mutual Funds III, Inc. 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.
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<PAGE> 239
*Wayne A. Stork (59)
Chairman, President, Chief Executive Officer, Director and/or Trustee of
the Fund, 32 other 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 Fund 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.
PAUL E. SUCKOW (49)
Executive Vice President/Chief Investment Officer, Fixed Income of the
Fund, 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.
- ----------------------
*Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
-60-
<PAGE> 240
WALTER P. BABICH (69)
Director and/or Trustee of the Fund 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 Fund 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 Fund 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 Fund 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 Fund and each of the other 32 investment
companies in the Delaware Group.
President and Chief Executive Officer, 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.
-61-
<PAGE> 241
* JEFFREY J. NICK (44)
Director and/or Trustee of the Fund and 32 other 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.
CHARLES E. PECK (71)
Director and/or Trustee of the Fund 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 Fund, 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. and Founders Holdings, Inc.,
Delaware International Holdings Ltd.
Chairman and Director of Delaware Management Trust Company.
Chairman and Director of 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.
- ----------------------
*Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.
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<PAGE> 242
GEORGE M. CHAMBERLAIN, JR. (50)
Senior Vice President and Secretary of the Fund, 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.
GERALD S. FREY (51)
Vice President/Senior Portfolio Manager of the Fund, of [eight] other
investment companies in the Delaware Group and of Delaware
Management Company, Inc.
Before joining the Delaware Group in 1996, Mr. Frey was a Senior
Director with Morgan Grenfell Capital Management, New York, NY
from 1986 to 1995.
JOSEPH H. HASTINGS (47)
Vice President/Corporate Controller of the Fund, each of the other 32
investment companies in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware Management Company, Inc.,
Delaware Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Capital Management,
Inc., Founders Holdings, Inc. and Delaware International Holdings
Ltd.
Chief Financial Officer/Treasurer of Delaware Investment & Retirement
Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company.
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 Fund, 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.
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<PAGE> 243
The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation expected to be
received from Mutual Funds III, Inc. during the actual fiscal year, the total
compensation received from all Delaware Group investment companies for the
fiscal year ended April 30, 1997, and an estimate of annual benefits to be
received upon retirement under the Delaware Group Retirement Plan for
Directors/Trustees as of April 30, 1997.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPENSATION
AGGREGATE ACCRUED ANNUAL FROM ALL 18
COMPENSATION AS PART OF BENEFITS DELAWARE
FROM MUTUAL MUTUAL FUNDS III, UPON GROUP INVESTMENT
NAME FUNDS III, INC.(1) INC. EXPENSES RETIREMENT* COMPANIES
<S> <C> <C> <C> <C>
W. Thacher Longstreth $0,000 None $30,000 $53,307
Ann R. Leven $0,000 None $30,000 $58,307
Walter P. Babich $0,000 None $30,000 $57,307
Anthony D. Knerr $0,000 None $30,000 $57,307
Charles E. Peck $0,000 None $30,000 $53,307
Thomas F. Madison(2) $0,000 None $30,000 N/A
</TABLE>
* Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director who, at the time of his
or her retirement from the Board, has attained the age of 70 and served
on the Board for at least five continuous years, is entitled to receive
payments from each fund in the Delaware Group for a period equal to the
lesser of the number of years that such person served as a director or
the remainder of such person's life. The amount of such payments will
be equal, on an annual basis, to the amount of the annual retainer that
is paid to directors of each fund at the time of such person's
retirement. If an eligible director retired as of April 30, 1997, he or
she would be entitled to annual payments totaling $30,000, in the
aggregate, from all of the funds in the Delaware Group, based on the
number of funds in the Delaware Group as of that date.
(1) The current Board of Directors was elected by shareholders of Mutual
Funds III, Inc. on April 11, 1997 and began serving on May 1, 1997.
With the exception of Thomas F. Madison, none of the current directors
had served on the prior Board. Compensation figures are estimates of
payments for Mutual Funds III, Inc.'s current fiscal year.
(2) Thomas F. Madison also received $0,000 for his service on the previous
Board of Directors during the last fiscal year.
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EXCHANGE PRIVILEGE
The exchange privileges available for shareholders of the Classes
and for shareholders of classes of other funds in the Delaware Group are set
forth in the relevant prospectuses for such classes. The following supplements
that information. Each Fund may modify, terminate or suspend the exchange
privilege upon 60 days' notice to shareholders.
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. A shareholder requesting an exchange will be sent a current
prospectus and an authorization form for any of the other mutual funds in the
Delaware Group. Exchange instructions must be signed by the record owner(s)
exactly as the shares are registered.
An exchange constitutes, for tax purposes, the sale of one fund
and the purchase of another. The sale may involve either a capital gain or loss
to the shareholder for federal income tax purposes.
In addition, investment advisers and dealers may make exchanges
between funds in the Delaware Group on behalf of their clients by telephone or
other expedited means. This service may be discontinued or revised at any time
by the Transfer Agent. Such exchange requests may be rejected if it is
determined that a particular request or the total requests at any time could
have an adverse effect on any of the funds. Requests for expedited exchanges may
be submitted with a properly completed exchange authorization form, as described
above.
TELEPHONE EXCHANGE PRIVILEGE
Shareholders owning shares for which certificates have not been
issued or their investment dealers of record may exchange shares by telephone
for shares in other mutual funds in the Delaware Group. This service is
automatically provided unless the relevant Fund receives written notice from the
shareholder to the contrary.
Shareholders or their investment dealers of record may contact
the Shareholder Service Center at 800-523-1918 or, in the case of shareholders
of the Institutional Classes, their Client Services Representative at
800-828-5052, to effect an exchange. The shareholder's current Fund account
number must be identified, as well as the registration of the account, the share
or dollar amount to be exchanged and the fund into which the exchange is to be
made. Requests received on any day after the time the offering price and net
asset value are determined will be processed the following day. See Determining
Offering Price and Net Asset Value. Any new account established through the
exchange will automatically carry the same registration, shareholder information
and dividend option as the account from which the shares were exchanged. The
exchange requirements of the fund into which the exchange is being made, such as
sales charges, eligibility and investment minimums, must be met. (See the
prospectus of the fund desired or inquire by calling the Transfer Agent or, as
relevant, your Client Services Representative.) Certain funds are not available
for retirement plans.
The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Group. Telephone exchanges may be subject to limitations
as to amounts or frequency. The Transfer Agent and each Fund reserve the right
to record exchange instructions received by telephone and to reject exchange
requests at any time in the future.
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As described in the Funds' Prospectuses, neither the Funds nor
the 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.
RIGHT TO REFUSE TIMING ACCOUNTS
With regard to accounts that are administered by market timing
services ("Timing Firms") to purchase or redeem shares based on changing
economic and market conditions ("Timing Accounts"), each Fund will refuse any
new timing arrangements, as well as any new purchases (as opposed to exchanges)
in Delaware Group funds from Timing Firms. Each Fund reserves the right to
temporarily or permanently terminate the exchange privilege or reject any
specific purchase order for any person whose transactions seem to follow a
timing pattern who: (i) makes an exchange request out of the Fund within two
weeks of an earlier exchange request out of the Fund, or (ii) makes more than
two exchanges out of the Fund per calendar quarter, or (iii) exchanges shares
equal in value to at least $5 million, or more than 1/4 of 1% of the Fund's net
assets. Accounts under common ownership or control, including accounts
administered so as to redeem or purchase shares based upon certain predetermined
market indicators, will be aggregated for purposes of the exchange limits.
RESTRICTIONS ON TIMED EXCHANGES
Timing Accounts operating under existing timing agreements may
only execute exchanges between the following eight Delaware Group funds: (1)
Decatur Income Fund, (2) Decatur Total Return Fund, (3) Delaware Fund, (4)
Limited-Term Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash Reserve,
(7) Delchester Fund and (8) Tax-Free Pennsylvania Fund. No other Delaware Group
funds are available for timed exchanges. Assets redeemed or exchanged out of
Timing Accounts in Delaware Group funds not listed above may not be reinvested
back into that Timing Account. Each Fund reserves the right to apply these same
restrictions to the account(s) of any person whose transactions seem to follow a
timing pattern (as described above).
Each Fund also reserves the right to refuse the purchase side of
an exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.
Except as noted above, only shareholders and their authorized
brokers of record will be permitted to make exchanges or redemptions.
* * *
Following is a summary of the investment objectives of the other
Delaware Group funds:
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Delaware Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. Devon Fund
seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.
Trend Fund seeks long-term growth by investing in common stocks
issued by emerging growth companies exhibiting strong capital appreciation
potential.
Value Fund seeks capital appreciation by investing primarily in
common stocks whose market values appear low relative to their underlying value
or future potential.
Delcap Fund seeks long-term capital growth by investing in common
stocks and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.
Delchester Fund seeks as high a current income as possible by
investing principally in high-yield, high risk corporate bonds, and also in U.S.
government securities and commercial paper. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high-yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities.
U.S. Government Fund seeks high current income by investing
primarily in long-term debt obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
Limited-Term Government Fund seeks high, stable income by
investing primarily in a portfolio of short- and intermediate-term securities
issued or guaranteed by the U.S. government, its agencies or instrumentalities
and instruments secured by such securities. U.S. Government Money Fund seeks
maximum current income with preservation of principal and maintenance of
liquidity by investing only in short-term securities issued or guaranteed as to
principal and interest by the U.S. government, its agencies or
instrumentalities, and repurchase agreements collateralized by such securities,
while maintaining a stable net asset value.
Delaware Cash Reserve seeks the highest level of income
consistent with the preservation of capital and liquidity through investments in
short-term money market instruments, while maintaining a stable net asset value.
Tax-Free USA Fund seeks high current income exempt from federal
income tax by investing in municipal bonds of geographically-diverse issuers.
Tax-Free Insured Fund invests in these same types of securities but with an
emphasis on municipal bonds protected by insurance guaranteeing principal and
interest are paid when due. Tax-Free USA Intermediate Fund seeks a high level of
current interest income exempt from federal income tax, consistent with the
preservation of capital by investing primarily in municipal bonds.
Tax-Free Money Fund seeks high current income, exempt from
federal income tax, by investing in short-term municipal obligations, while
maintaining a stable net asset value.
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Tax-Free Pennsylvania Fund seeks a high level of current interest
income exempt from federal and, to the extent possible, certain Pennsylvania
state and local taxes, consistent with the preservation of capital.
International Equity Fund seeks to achieve long-term growth
without undue risk to principal by investing primarily in international
securities that provide the potential for capital appreciation and income.
Global Bond Fund seeks to achieve current income consistent with the
preservation of principal by investing primarily in global fixed-income
securities that may also provide the potential for capital appreciation. Global
Assets Fund seeks to achieve long-term total return by investing in global
securities which will provide higher current income than a portfolio comprised
exclusively of equity securities, along with the potential for capital growth.
Emerging Markets Fund seeks long-term capital appreciation by investing
primarily in equity securities of issuers located or operating in emerging
countries.
Enterprise Fund seeks to provide maximum appreciation of capital
by investing in medium-sized companies which have a dominant position within
their industry, are undervalued, or have potential for growth in earnings. U.S.
Growth Fund seeks to maximize capital appreciation by investing in companies of
all sizes which have low dividend yields, strong balance sheets and high
expected earnings growth rates relative to their industry. World Growth Fund
seeks to maximize total return (capital appreciation and income), principally
through investments in an internationally diversified portfolio of equity
securities. New Pacific Fund seeks long-term capital appreciation by investing
primarily in companies which are domiciled in or have their principal business
activities in the Pacific Basin. Federal Bond Fund seeks to maximize current
income consistent with preservation of capital. The fund attempts to achieve
this objective by investing primarily in securities issued by the U.S.
government, its agencies and instrumentalities. Corporate Income Fund seeks to
provide high current income consistent with preservation of capital. The fund
attempts to achieve this objective primarily by investing in a diversified
portfolio of investment grade fixed-income securities issued by U.S.
corporations.
Delaware Group Premium Fund, Inc. offers 15 funds available
exclusively as funding vehicles for certain insurance company separate accounts.
Decatur Total Return Series seeks the highest possible total rate of return by
selecting issues that exhibit the potential for capital appreciation while
providing higher than average dividend income. Delchester Series seeks as high a
current income as possible by investing in rated and unrated corporate bonds,
U.S. government securities and commercial paper. Capital Reserves Series seeks a
high stable level of current income while minimizing fluctuations in principal
by investing in a diversified portfolio of short- and intermediate-term
securities. Cash Reserve Series seeks the highest level of income consistent
with preservation of capital and liquidity through investments in short-term
money market instruments. Delcap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid-cap common stocks whose market value
appears low relative to their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized by the market.
Emerging Growth Series seeks long-term capital appreciation by investing
primarily in small-cap common stocks and convertible securities of emerging and
other growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective. Global Bond
Series seeks to achieve current income consistent
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with the preservation of principal by investing primarily in global fixed-income
securities that may also provide the potential for capital appreciation.
Strategic Income Series seeks high current income and total return by using a
multi-sector investment approach, investing primarily in three sectors of the
fixed-income securities markets: high-yield, higher risk securities; investment
grade fixed-income securities; and foreign government and other foreign
fixed-income securities. Devon Series seeks current income and capital
appreciation by investing primarily in income-producing common stocks, with a
focus on common stocks that the investment manager believes have the potential
for above-average dividend increases over time. Trend Series seeks to achieve
long-term capital appreciation by investing primarily in equity securities of
issuers located or operating in emerging countries. Convertible Securities
Series seeks a high level of total return on its assets through a combination of
capital appreciation and current income by investing primarily in convertible
securities. Quantum Series seeks to achieve long-term capital appreciation by
investing primarily in equity securities of medium to large-sized companies
expected to grow over time that meet the Series' "Social Criteria" strategy.
Delaware-Voyageur U.S. Government Securities Fund seeks to
provide a high level of current income consistent with the prudent investment
risk by investing in U.S. Treasury bills, notes, bonds, and other obligations
issued or unconditionally guaranteed by the full faith and credit of the U.S.
Treasury, and repurchase agreements fully secured by such obligations.
Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide
a high level of current income exempt from federal income tax and the Arizona
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Minnesota Insured Fund seeks to provide a high level of
current income exempt from federal income tax and the Minnesota personal income
tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to
provide a high level of current income exempt from federal income tax and the
Minnesota personal income tax, consistent with preservation of capital. The Fund
seeks to reduce market risk by maintaining an average weighted maturity from
five to ten years.
Delaware-Voyageur Tax-Free California Insured Fund seeks to
provide a high level of current income exempt from federal income tax and the
California personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Florida Insured Fund seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
Delaware-Voyageur Tax-Free Florida Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares to
be exempt from the Florida intangible personal property tax. Delaware-Voyageur
Tax-Free Kansas Fund seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas Intangible
personal property tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Missouri Insured Fund seeks to provide a high level
of current income exempt from federal income tax and the Missouri personal
income tax, consistent with the preservation of capital. Delaware-voyageur
Tax-Free New Mexico Fund seeks to provide a high level of current income exempt
from federal income tax and the New Mexico personal income tax, consistent with
the preservation of capital. Delaware-Voyageur Tax-Free Oregon Insured Fund
seeks to provide a high level of current income exempt from federal income tax
and the Oregon personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Utah Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. Delaware-Voyageur Tax-Free Washington Insured Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.
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<PAGE> 249
Delaware-Voyageur Tax-Free Florida Intermediate Fund seeks to
provide a high level of current income exempt from federal income tax,
consistent with the preservation of capital. The Fund will seek to select
investments that will enable its shares to be exempt from the Florida intangible
personal property tax. The Fund seeks to reduce market risk by maintaining an
average weighted maturity from five to ten years.
Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free California Fund seeks to provide a high level of current income exempt
from federal income tax and the California personal income tax, consistent with
the preservation of capital. Delaware-Voyageur Tax-Free Iowa Fund seeks to
provide a high level of current income exempt from federal income tax and the
Iowa personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Idaho Fund seeks to provide a high level of current
income exempt from federal income tax and the Idaho personal income tax,
consistent with the preservation of capital. Delaware-Voyageur Minnesota High
Yield Municipal Bond Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax primarily through
investment in medium and lower grade municipal obligations. National High Yield
Municipal Fund seeks to provide a high level of income exempt from federal
income tax, primarily through investment in medium and lower grade municipal
obligations. Delaware-Voyageur Tax-Free New York Fund seeks to provide a high
level of current income exempt from federal income tax and the personal income
tax of the state of New York and the city of New York, consistent with the
preservation of capital. Delaware-Voyageur Tax-Free Wisconsin Fund seeks to
provide a high level of current income exempt from federal income tax and the
Wisconsin personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high
level of current income exempt from federal income tax and the Colorado personal
income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Minnesota Fund seeks to provide a high
level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free North Dakota Fund seeks to provide a high level of
current income exempt from federal income tax and the North Dakota personal
income tax, consistent with the preservation of capital.
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For more complete information about any of the Delaware Group
funds, including charges and expenses, you can obtain a prospectus from the
Distributor. Read it carefully before you invest or forward funds.
Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).
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GENERAL INFORMATION
The Manager is the investment manager of the Funds. The Manager
also provides investment management services to certain of the other funds in
the Delaware Group. The Manager, through a separate division, also manages
private investment accounts. While investment decisions of the Funds are made
independently from those of the other funds and accounts, investment decisions
for such other funds and accounts may be made at the same time as investment
decisions for the Funds.
The Manager, or its affiliate Delaware International Advisers
Ltd., also manages the investment options for Delaware Medallion (sm) III
Variable Annuity. Medallion is issued by Allmerica Financial Life Insurance and
Annuity Company (First Allmerica Financial Life Insurance Company in New York
and Hawaii). Delaware Medallion offers fifteen different investment series
ranging from domestic equity funds, international equity and bond funds and
domestic fixed income funds. Each investment series available through Medallion
utilizes an investment strategy and discipline the same as or similar to one of
the Delaware Group mutual funds as available outside the annuity. See Discipline
Group Premium Fund, Inc., above.
Access persons and advisory persons of the Delaware Group of
funds, as those terms are defined in SEC Rule 17j-1 under the 1940 Act, who
provide services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.
The Distributor acts as national distributor for each of the
Funds and for the other mutual funds in the Delaware Group. Prior to [APRIL 30,
1997, VOYAGEUR FUND DISTRIBUTORS, INC. ("VFD") DPO/MDM WHAT SHOULD WE ADD
REGARDING DDLP AND VFD AS CO-DISTRIBUTORS?] served as the national distributor
for the Funds. In its capacity as such, VFD received net commissions from each
Fund on behalf of Class A Shares, after reallowances to dealers, as follows:
AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
FISCAL TOTAL AMOUNT AMOUNTS NET
YEAR OF UNDERWRITING REALLOWED COMMISSION
ENDED COMMISSION TO DEALERS TO VFD
<S> <C> <C> <C>
4/30/97 $0,000,000 $0,000,000 $000,000
4/30/96 0,000,000 0,000,000 000,000
4/30/95(1) 0,000,000 0,000,000 000,000
</TABLE>
(1) Date of initial public offering was May 16, 1994.
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<PAGE> 252
GROWTH STOCK FUND
<TABLE>
<CAPTION>
FISCAL TOTAL AMOUNT AMOUNTS NET
YEAR OF UNDERWRITING REALLOWED COMMISSION
ENDED COMMISSION TO DEALERS TO VFD
<S> <C> <C> <C>
4/30/97 $0,000,000 $0,000,000 $000,000
4/30/96 0,000,000 0,000,000 000,000
4/30/95 0,000,000 0,000,000 000,000
</TABLE>
VFD received Limited CDSC payments with respect to Class A Shares
of Aggressive Growth Fund and Growth Stock Fund as follows:
LIMITED CDSC PAYMENTS
<TABLE>
<CAPTION>
FISCAL AGGRESSIVE GROWTH GROWTH STOCK
YEAR ENDED FUND A CLASS(1) FUND A CLASS
<S> <C> <C>
4/30/97 $0,000 $0,000
4/30/96 $0,000 $0,000
4/30/95 $0,000 $0,000
</TABLE>
(1) Date of initial public offering was May 16, 1994.
VFD received CDSC payments with respect to Class B Shares of
Aggressive Growth Fund and Growth Stock Fund as follows:
CDSC PAYMENTS
<TABLE>
<CAPTION>
FISCAL AGGRESSIVE GROWTH GROWTH STOCK
YEAR ENDED FUND B CLASS(1) FUND B CLASS(2)
<S> <C> <C>
4/30/97 $0,000 $0,000
4/30/96 N/A $0,000
</TABLE>
(1) Date of initial public offering was [ ]
(2) Date of initial public offering was September 8, 1995.
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VFD received CDSC payments with respect to Class C Shares of
Aggressive Growth Fund and Growth Stock Fund as follows:
CDSC PAYMENTS
<TABLE>
<CAPTION>
FISCAL AGGRESSIVE GROWTH GROWTH STOCK
YEAR ENDED FUND C CLASS(1) FUND C CLASS(2)
<S> <C> <C>
4/30/97 $0,000 $0,000
4/30/96 $0,000 $0,000
4/30/95 $0,000 N/A
</TABLE>
(1) Date of initial public offering was May 20, 1994.
(2) Date of initial public offering was October 21, 1995.
[Effective as of , all such payments described above have
been paid to the Distributor.]
The Transfer Agent, an affiliate of the Manager, acts as
shareholder servicing, dividend disbursing and transfer agent for each Fund and
for the other mutual funds in the Delaware Group. The Transfer Agent is paid a
fee by each Fund for providing these services consisting of an annual per
account charge of [$5.50] plus transaction charges for particular services
according to a schedule. Compensation is fixed each year and approved by the
Board of Directors, including a majority of the unaffiliated directors. The
Transfer Agent also provides accounting services to each Fund. Those services
include performing all functions related to calculating each Fund's net asset
value and providing all financial reporting services, regulatory compliance
testing and other related accounting services. For its services, the Transfer
Agent is paid a fee based on total assets of all funds in the Delaware Group for
which it provides such accounting services. Such fee is equal to 0.25%
multiplied by the total amount of assets in the complex for which the Transfer
Agent furnishes accounting services, where such aggregate complex assets are $10
billion or less, and 0.20% of assets if such aggregate complex assets exceed $10
billion. The fees are charged to each fund, including each Fund, on an aggregate
pro-rata basis. The asset-based fee payable to the Transfer Agent is subject to
a minimum fee calculated by determining the total number of investment
portfolios and associated classes.
The Manager and its affiliates own the name "Delaware Group."
Under certain circumstances, including the termination of Mutual Funds III,
Inc.'s advisory relationship with the Manager or its distribution relationship
with the Distributor, the Manager and its affiliates could cause Mutual Funds
III, Inc. to delete the words "Delaware Group" from Mutual Funds III, Inc.'s
name.
Norwest Bank Minnesota, N.A. ("Norwest"), Sixth Street &
Marquette Avenue, Minneapolis, Minnesota 55402 is custodian of Aggressive Growth
and Growth Stock Funds' securities and cash. The Chase Manhattan Bank ("Chase"),
4 Chase Metrotech Center, Brooklyn, NY 11245, is custodian of Tax-Efficient
Equity Fund's securities and cash. As custodian for a Fund, Norwest or, as
relevant, Chase maintains a separate account or accounts for the Fund; receives,
holds and releases portfolio securities on account of the Fund; receives and
disburses money on behalf of the Fund; and collects and receives income and
other payments and distributions on account of the Fund's portfolio securities.
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The legality of the issuance of the shares offered hereby,
registered pursuant to Rule 24f-2 under the 1940 Act has been passed upon for
Mutual Funds III, Inc. by Stradley, Ronon, Stevens & Young, LLP, Philadelphia,
Pennsylvania.
CAPITALIZATION
Mutual Funds III, Inc. has a present authorized capitalization of
billion shares of capital stock with a [$1.00] par value per share.
The Board of Directors has allocated the following number of
shares to each Fund and their respective classes:
<TABLE>
<CAPTION>
<S> <C>
Aggressive Growth Fund 000 million
Class A Shares 000 million
Class B Shares 00 million
Class C Shares 00 million
Institutional Class 00 million
Growth Stock Fund 000 million
Class A Shares 000 million
Class B Shares 00 million
Class C Shares 00 million
Institutional Class 00 million
Tax-Efficient Equity Fund 000 million
Class A Shares 000 million
Class B Shares 00 million
Class C Shares 00 million
Institutional Class 00 million
</TABLE>
While shares of Mutual Funds III, Inc. have equal voting rights
on matters affecting the Funds, each Fund would vote separately on any matter
which it is directly affected by, such as any change in its fundamental
investment policies and as otherwise prescribed by the 1940 Act. Shares of each
Fund have a priority in that Fund's assets, and in gains on and income from the
portfolio of that Fund.
All shares have no preemptive rights, are fully transferable and,
when issued, are fully paid and nonassessable and, except as described above,
have equal voting rights.
Shares of each Class of a Fund represent a proportionate interest
in the assets of such Fund, and have the same voting and other rights and
preferences as the other classes of that Fund, except that shares of a Fund's
Institutional Class may not vote on any matter affecting the Fund Classes' Plans
under Rule 12b-1. Similarly, as a general matter, shareholders of Class A
Shares, Class B Shares and Class C Shares of a Fund may vote only on matters
affecting the 12b-1 Plan that relates to the Class of shares that they hold.
However, Class B Shares may vote on any proposal to increase materially the fees
to be paid by a Fund under the 12b-1 Plan relating to its Class A Shares.
General expenses of a Fund will be allocated on a pro-rata basis to the classes
according to asset size, except that expenses of the 12b-1 Plans of each Fund's
Class A, Class B and Class C Shares will be allocated solely to those classes.
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Beginning June 9, 1997, the names of Voyageur Aggressive Growth
Fund changed to Aggressive Growth Fund series, Voyageur Growth Stock Fund
changed to Growth Stock Fund series and Voyageur Tax-Efficient Equity Fund
changed to Tax-Efficient Equity Fund series. Beginning August 28, 1997, each
Fund began offering Institutional Class shares.
NONCUMULATIVE VOTING
MUTUAL FUNDS III, INC.'S SHARES HAVE NONCUMULATIVE VOTING RIGHTS
WHICH MEANS THAT THE HOLDERS OF MORE THAN 50% OF THE SHARES OF MUTUAL FUNDS III,
INC. VOTING FOR THE ELECTION OF DIRECTORS CAN ELECT ALL THE DIRECTORS IF THEY
CHOOSE TO DO SO, AND, IN SUCH EVENT, THE HOLDERS OF THE REMAINING SHARES WILL
NOT BE ABLE TO ELECT ANY DIRECTORS.
This Part B does not include all of the information contained in
the Registration Statement which is on file with the SEC.
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<PAGE> 256
APPENDIX A -- RATINGS
EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Standard & Poors Corporation. The investment process involves
assessment of various factors -- such as product and industry position,
corporate resources and financial policy -- with results that make some common
stocks more highly esteemed than others. In this assessment, Standard & Poor's
believes that earnings and dividend performance is the end result of the
interplay of these factors and that, over the long run, the record of this
performance has a considerable bearing on relative quality. The rankings,
however, do not pretend to reflect all of the factors, tangible or intangible,
that bear on stock quality.
Relative quality of bonds or other debt, that is, degrees of
protection for principal and interest, called creditworthiness, cannot be
applied to common stocks, and therefore rankings are not to be confused with
bond quality ratings which are arrived at by a necessarily different approach.
Growth and stability of earnings and dividends are deemed key
elements in establishing Standard & Poor's earnings and dividend rankings for
common stocks, which are designed to capsulize the nature of this record in a
single symbol. It should be noted, however, that the process also takes into
consideration certain adjustments and modifications deemed desirable in
establishing such rankings.
The point of departure in arriving at these rankings is a
computerized scoring system based on per-share earnings and dividend records of
the most recent ten years -- a period deemed long enough to measure significant
time segments of secular growth, to capture indications of basic change in trend
as they develop, and to encompass the full peak-to-peak range of the business
cycle. Basic scores are computed for earnings and dividends, then adjusted as
indicated by a set of predetermined modifiers for growth, stability within
long-term trend, and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final score.
Further, the ranking system makes allowance for the fact that, in
general, corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.
The final score for each stock is measured against a scoring
matrix determined by analysis of the scores of a large and representative sample
of stocks. The range of scores in the array of this sample has been aligned with
the following ladder of rankings:
<TABLE>
<CAPTION>
<S> <C> <C>
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
</TABLE>
NR signifies no ranking because of insufficient data or because
the stock is not amenable to the ranking process.
The positions as determined above may be modified in some
instances by special considerations, such as natural disasters, massive strikes,
and non-recurring accounting adjustments.
A ranking is not a forecast of future market price performance,
but is basically an appraisal of past performance of earnings and dividends, and
relative current standing. These rankings must not be used as market
recommendations; a high-score stock may at times be so overpriced as to justify
its sale, while a low-score stock may
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<PAGE> 257
be attractively priced for purchase. Rankings based upon earnings and dividend
records are no substitute for complete analysis. They cannot take into account
potential effects of management changes, internal company policies not yet fully
reflected in the earnings and dividend record, public relations standing, recent
competitive shifts, and a host of other factors that may be relevant to
investment status and decision.
COMMERCIAL PAPER RATINGS
Standard & Poor's Corporation. Commercial paper ratings are
graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues assigned the A rating are regarded as
having the greatest capacity for timely payment. Issues in this category are
further refined with designation 1, 2, and 3 to indicate the relative degree of
safety. The "A-1" designation indicates that the degree of safety regarding
timely payment is very strong.
Moody's Investors Service, Inc. Moody's commercial paper ratings
are opinions of the ability of the issuers to repay punctually promissory
obligations not having an original maturity in excess of nine months. Moody's
makes no representation that such obligations are exempt from registration under
the Securities Act of 1933, nor does it represent that any specific note is a
valid obligation of a rated issuer or issued in conformity with any applicable
law. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Superior capacity for repayment of short-term promissory
obligations.
Prime-2 Strong capacity for repayment of short-term promissory
obligations.
Prime-3 Acceptable capacity for repayment of short-term
promissory obligations.
CORPORATE BOND RATINGS
Standard & Poor's Corporation. Its ratings for corporate bonds
have the following definitions:
Investment grade:
Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in a small
degree.
Debt rated "A" has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
Speculative Grade:
Debt rated "BB," "B," "CCC" and "CC" and "C" is regarded, as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
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<PAGE> 258
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings)
generally are regarded as eligible for bank investment. Also, the laws of
various states governing legal investments impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. Its ratings for corporate bonds
include the following:
Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Bonds which are rated "Aa" are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than in Aaa
securities.
Bonds which are rated "A" possess many favorable attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Bonds which are rated "Baa" are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and thereby
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Bonds which are rated "Caa" are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Bonds which are rated "Ca" represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
Bonds which are rated "C" are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
PREFERRED STOCK RATING
Standard& Poor's Corporation. Its ratings for preferred stock
have the following definitions:
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<PAGE> 259
An issue rated "AAA" has the highest rating that may be assigned
by Standard & Poor's to a preferred stock issue and indicates an extremely
strong capacity to pay the preferred stock obligations.
A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
"AAA."
An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make payments
for a preferred stock in this category than for issues in the "A" category.
Preferred stock rate "BB," "B," and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. "BB" indicates the lowest degree of speculation
and "CCC" the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
The rating "CC" is reserved for a preferred stock issue in
arrears on dividends or sinking fund payments but that is currently paying.
A preferred stock rated "C" is a non-paying issue.
A preferred stock rated "D" is a non-paying issue with the issuer
in default on debt instruments.
"NR" indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Moody's Investors Service, Inc. Its ratings for preferred stock
include the following:
An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
An issue which is rate "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
An issue which is rated "baa" is considered to be medium-grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
-80-
<PAGE> 260
An issue which is rated "b" generally lacks the characteristics
of a desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate the
future status of payments.
An issue which is rated "ca" is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of eventual
payment.
An issue rated "c" is the lowest rated class of preferred or
preference stock. Issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
-81-
<PAGE> 261
APPENDIX B -- IRA INFORMATION
An individual can contribute up to $2,000 to his or her IRA each
year. Contributions may or may not be deductible depending upon the taxpayer's
adjusted gross income and whether the taxpayer or his or her spouse is an active
participant in an employer-sponsored retirement plan. Even if a taxpayer (or his
or her spouse) is an active participant in an employer-sponsored retirement
plan, the full $2,000 deduction is still available if the taxpayer's adjusted
gross income is below $25,000 ($40,000 for taxpayers filing joint returns). A
partial deduction is allowed for married couples with incomes between $40,000
and $50,000, and for single individuals with incomes between $25,000 and
$35,000. No deductions are available for contributions to IRAs by taxpayers
whose adjusted gross income before IRA deductions exceeds $50,000 ($35,000 for
singles) and who are active participants in an employer-sponsored retirement
plan. Taxpayers who were not allowed deductions on IRA contributions still can
make nondeductible IRA contributions of as much as $2,000 for each working
spouse ($2,250 for one-income couples for years prior to 1997), and defer taxes
on interest or other earnings from the IRAs. Special rules apply for determining
the deductibility of contributions made by married individuals filing separate
returns.
Effective for tax years beginning after 1996, one-income couples
can contribute up to $2,000 to each spouse's IRA provided the combined
compensation of both spouses is at least equal to the total contributions for
both spouses. If the working spouse is an active participant in an
employer-sponsored retirement plan and earns over $40,000, the maximum deduction
limit is reduced in the same way that the limit is reduced for contributions to
a non-spousal IRA.
As illustrated in the following tables, maintaining an Individual
Retirement Account remains a valuable opportunity.
For many, an IRA will continue to offer both an up-front tax
break with its tax deduction each year and the real benefit that comes with
tax-deferred compounding. For others, losing the tax deduction will impact their
taxable income status each year. Over the long-term, however, being able to
defer taxes on earnings still provides an impressive investment opportunity--a
way to have money grow faster due to tax-deferred compounding.
-82-
<PAGE> 262
Even if your IRA contribution is no longer deductible, the
benefits of saving on a tax-deferred basis can be substantial. The following
tables illustrate the benefits of tax-deferred versus taxable compounding. Each
reflects a constant 10% rate of return, compounded annually, with the
reinvestment of all proceeds. The tables do not take into account any sales
charges or fees. Of course, earnings accumulated in your IRA will be subject to
tax upon withdrawal. If you choose a mutual fund with a fluctuating net asset
value, like either Fund, your bottom line at retirement could be lower--it could
also be much higher.
$2,000 INVESTED ANNUALLY ASSUMING A 10% ANNUALIZED RETURN
15% Tax Bracket Single -- $0 - $24,650
Joint -- $0 - $41,200
<TABLE>
<CAPTION>
HOW MUCH YOU
END OF CUMULATIVE HOW MUCH YOU HAVE WITH FULL
YEAR INVESTMENT AMOUNT HAVE WITHOUT IRA IRA DEDUCTION
<S> <C> <C> <C>
1 $ 2,000 $ 1,844 $ 2,200
5 10,000 10,929 13,431
10 20,000 27,363 35,062
15 30,000 52,074 69,899
20 40,000 89,231 126,005
25 50,000 145,103 216,364
30 60,000 229,114 361,887
35 70,000 355,438 596,254
40 80,000 545,386 973,704
</TABLE>
[Without IRA--investment of $1,700 ($2,000 less 15%) earning 8.5% (10% less
15%)]
28% Tax Bracket Single -- $24,651 - $59,750
Joint -- $41,201 - $99,600
<TABLE>
<CAPTION>
END OF CUMULATIVE HOW MUCH YOU HOW MUCH YOU HAVE WITH FULL IRA
YEAR INVESTMENT AMOUNT HAVE WITHOUT IRA NO DEDUCTION DEDUCTION
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,544 $ 1,584 $ 2,200
5 10,000 8,913 9,670 13,431
10 20,000 21,531 25,245 35,062
15 30,000 39,394 50,328 69,899
20 40,000 64,683 90,724 126,005
25 50,000 100,485 155,782 216,364
30 60,000 151,171 260,559 361,887
35 70,000 222,927 429,303 596,254
40 80,000 324,512 701,067 973,704
</TABLE>
[Without IRA--investment of $1,440 ($2,000 less 28%) earning 7.2% (10% less
28%)]
[With IRA--No Deduction--investment of $1,440 ($2,000 less 28%) earning 10%]
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<PAGE> 263
31% Tax Bracket Single -- $59,751 - $124,650
Joint -- $99,601 - $151,750
<TABLE>
<CAPTION>
END OF CUMULATIVE HOW MUCH YOU HOW MUCH YOU HAVE WITH FULL IRA
YEAR INVESTMENT AMOUNT HAVE WITHOUT IRA NO DEDUCTION DEDUCTION
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,475 $ 1,518 $ 2,200
5 10,000 8,467 9,268 13,431
10 20,000 20,286 24,193 35,062
15 30,000 36,787 48,231 69,899
20 40,000 59,821 86,943 126,005
25 50,000 91,978 149,291 216,364
30 60,000 136,868 249,702 361,887
35 70,000 199,536 411,415 596,254
40 80,000 287,021 671,855 973,704
</TABLE>
[Without IRA--investment of $1,380 ($2,000 less 31%) earning 6.9% (10% less
31%)]
[With IRA--No Deduction--investment of $1,380 ($2,000 less 31%) earning 10%]
36% Tax Bracket* Single -- $124,651 - $271,050
Joint -- $151,751 - $271,050
<TABLE>
<CAPTION>
END OF CUMULATIVE HOW MUCH YOU HOW MUCH YOU HAVE WITH FULL IRA
YEAR INVESTMENT AMOUNT HAVE WITHOUT IRA NO DEDUCTION DEDUCTION
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,362 $ 1,408 $ 2,200
5 10,000 7,739 8,596 13,431
10 20,000 18,292 22,440 35,062
15 30,000 32,683 44,736 69,899
20 40,000 52,308 80,643 126,005
25 50,000 79,069 138,473 216,364
30 60,000 115,562 231,608 361,887
35 70,000 165,327 381,602 596,254
40 80,000 233,190 623,170 973,704
</TABLE>
[Without IRA--investment of $1,280 ($2,000 less 36%) earning 6.4% (10% less
36%)]
[With IRA--No Deduction--investment of $1,280 ($2,000 less 36%) earning 10%]
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<PAGE> 264
39.6% Tax Bracket* Single -- over $271,050
Joint -- over $271,050
<TABLE>
<CAPTION>
END OF CUMULATIVE HOW MUCH YOU HOW MUCH YOU HAVE WITH FULL IRA
YEAR INVESTMENT AMOUNT HAVE WITHOUT IRA NO DEDUCTION DEDUCTION
<S> <C> <C> <C> <C>
1 $ 2,000 $ 1,281 $ 1,329 $ 2,200
5 10,000 7,227 8,112 13,431
10 20,000 16,916 21,178 35,062
15 30,000 29,907 42,219 69,899
20 40,000 47,324 76,107 126,005
25 50,000 70,677 130,684 216,364
30 60,000 101,986 218,580 361,887
35 70,000 143,965 360,137 596,254
40 80,000 200,249 588,117 973,704
</TABLE>
[Without IRA--investment of $1,208 ($2,000 less 39.6%) earning 6.04% (10% less
39.6%)]
[With IRA--No Deduction--investment of $1,208 ($2,000 less 39.6%) earning 10%]
* For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate. In
addition, a 10% surtax (not applicable to capital gains) applies to certain
high-income taxpayers. It is computed by applying a 39.6% rate to taxable
income in excess of $271,050. The above tables do not reflect the personal
exemption phaseout nor the limitations of itemized deductions that may apply.
-85-
<PAGE> 265
$2,000 SINGLE INVESTMENT AT A RETURN OF 10% COMPOUNDED QUARTERLY
<TABLE>
<CAPTION>
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 $ 3,642 $ 3,774 $ 3,964 $ 4,083 $ 4,638 $ 5,370
15 4,915 5,184 5,581 5,833 7,062 8,800
20 6,633 7,121 7,857 8,334 10,755 14,419
30 12,081 13,436 15,572 17,012 24,939 38,716
40 22,001 25,352 30,865 34,728 57,831 103,956
</TABLE>
$2,000 INVESTED ANNUALLY AT A RETURN OF 10% COMPOUNDED QUARTERLY
<TABLE>
<CAPTION>
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10 $ 28,226 $ 28,833 $ 29,702 $ 30,239 $ 32,699 $ 35,834
15 50,104 51,753 54,152 55,654 62,755 72,298
20 79,629 83,239 88,573 91,966 108,525 132,049
30 173,245 185,894 205,256 217,971 284,358 390,394
40 343,773 379,596 436,523 475,187 692,097 1,084,066
</TABLE>
* For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to
certain high-income taxpayers. It is computed by applying a 39.6% rate to
taxable income in excess of $271,050. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.
-86-
<PAGE> 266
THE VALUE OF STARTING YOUR IRA EARLY
The following illustrates how much more you would have contributing $2,000
each January--the earliest opportunity--compared to contributing on April 15th
of the following year--the latest, for each tax year.
After 5 years $3,528 more
10 years $6,113
20 years $17,228
30 years $47,295
Compounded returns for the longest period of time is the key. The
above illustration assumes a 10% rate of return and the reinvestment of all
proceeds.
And it pays to shop around. If you get just 2% more per year, it
can make a big difference when you retire. A constant 8% versus 10% return, both
compounded quarterly, illustrates the point. This chart is based on a yearly
investment of $2,000 on January 1. After 30 years the difference can mean as
much as 50% more!
<TABLE>
<CAPTION>
8% RETURN 10% RETURN
--------- ----------
<S> <C> <C>
10 years $ 31,726 $ 35,834
30 years $256,465 $390,394
</TABLE>
The statistical exhibits above are for illustration purposes only
and do not reflect the actual Fund performance for the Funds either in the past
or in the future.
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<PAGE> 267
APPENDIX D -- THE COMPANY LIFE CYCLE
Traditional business theory contends that a typical company
progresses through basically four stages of development, keyed closely to a
firm's sales.
1. EMERGING GROWTH--a period of experimentation in which the
company builds awareness of a new product or firm.
2. ACCELERATED DEVELOPMENT--a period of rapid growth with
potentially high profitability and acceptance of the product.
3. MATURING PHASE--a period of diminished real growth due to
dependence on replacement or sustained product demand.
4. CYCLICAL STAGE--a period in which a company faces a potential
saturation of demand for its product. At this point, a firm either diversifies
or becomes obsolete.
HYPOTHETICAL CORPORATE LIFE CYCLE
Hypothetical Corporate Life Cycle Chart shows in a line
illustration, the stages that a typical company would go through, beginning with
the emerging state where sales growth continues at a steep pace to the mature
phase where growth levels off to the cyclical stage where sales show more
definitive highs and lows.
The above chart illustrates the path traditionally followed by
companies that successfully survive the growth sequence.
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<PAGE> 268
APPENDIX E--STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS
STOCK INDEX FUTURES CONTRACTS
To the extent described in the Prospectus and Statement of
Additional Information, each Fund may purchase and sell stock index futures
contracts, options thereon and options on stock indexes. Stock index futures
contracts are commodity contracts listed on commodity exchanges. They presently
include contracts on the Standard & Poor's 500 Stock Index (the "S&P 500 Index")
and such other broad stock market indexes as the New York Stock Exchange
Composite Stock Index and the Value Line Composite Stock Index, as well as
narrower "sub-indexes" such as the S&P 100 Energy Stock Index and the New York
Stock Exchange Utilities Stock Index. A stock index assigns relative values to
common stocks included in the index and the index fluctuates with the value of
the common stocks so included. A futures contract is a legal agreement between a
buyer or seller and the clearing house of a futures exchange in which the
parties agree to make a cash settlement on a specified future date in an amount
determined by the stock index on the last trading day of the contract. The
amount is a specified dollar amount (usually $100 or $500) times the difference
between the index value on the last trading day and the value on the day the
contract was struck.
For example, the S&P 500 Index consists of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The S&P 500
Index assigns relative weightings to the common stocks included in the Index,
and the Index fluctuates with changes in the market values of those common
stocks. In the case of S&P 500 Index futures contracts, the specified multiple
is $500. Thus, if the value of the S&P 500 Index were 150, the value of one
contract would be $75,000 (150 x $500). Unlike other futures contracts, a stock
index futures contract specifies that no delivery of the actual stocks making up
the index will take place. Instead, settlement in cash must occur upon the
termination of the contract with the settlement amount being the difference
between the contract price and the actual level of the stock index at the
expiration of the contract. For example (excluding any transaction costs), if a
Fund enters into one futures contract to buy the S&P 500 Index at a specified
future date at a contract value of 150 and the S&P 500 Index is at 154 on that
future date, the Fund will gain $500 x (154-150) or $2,000. If a Fund enters
into one futures contract to sell the S&P 500 Index at a specified future date
at a contract value of 150 and the S&P 500 Index is at 152 on that future date,
the Fund will lose $500 x (152-150) or $1,000.
Unlike the purchase or sale of an equity security, no price would
be paid or received by a Fund upon entering into stock index futures contracts.
Upon entering into a contract, a Fund would be required to deposit with its
custodian in a segregated account in the name of the futures broker an amount of
cash or U.S. Treasury bills equal to a portion of the contract value. This
amount is known as "initial margin." The nature of initial margin in futures
transactions is different from that of margin in security transactions in that
futures contract margin does not involve borrowing funds by the Fund to finance
the transactions. Rather, the initial margin is in the nature of a performance
bond or good faith deposit on the contract that is returned to the Fund upon
termination of the contract, assuming all contractual obligations have been
satisfied.
Subsequent payments, called "variation margin," to and from the
broker would be made on a daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the contract more or less
valuable, a process known as "marking to the market." For example, when a Fund
enters into a contract in which it benefits from a rise in the value of an index
and the price of the underlying stock index has risen, such Fund will receive
from the broker a variation margin payment equal to that increase in value.
Conversely, if the price of the underlying stock index declines, such Fund would
be required to make a variation margin payment to the broker equal to the
decline in value.
Each Fund intends to use stock index futures contracts and
related options for hedging and not for speculation. Hedging permits a Fund to
gain rapid exposure to or protect itself from changes in the market. For
example, a Fund may find itself with a high cash position at the beginning of a
market rally. Conventional procedures of purchasing a
-89-
<PAGE> 269
number of individual issues entail the lapse of time and the possibility of
missing a significant market movement. By using futures contracts, the Fund can
obtain immediate exposure to the market and benefit from the beginning stages of
a rally. The buying program can then proceed, and once it is completed (or as it
proceeds), the contracts can be closed. Conversely, in the early stages of a
market decline, market exposure can be promptly offset by entering into stock
index futures contracts to sell units of an index and individual stocks can be
sold over a longer period under cover of the resulting short contract position.
Each Fund may enter into contracts with respect to any stock
index or sub-index. To hedge a Fund's portfolio successfully, however, such Fund
must enter into contracts with respect to indexes or sub-indexes whose movements
will have a significant correlation with movements in the prices of such Fund's
portfolio securities.
Options on Stock Index Futures Contracts. To the extent described
in the Prospectus and Statement of Additional Information each Fund may purchase
and sell put and call options on stock index futures contracts which are traded
on a recognized exchange or board of trade as a hedge against changes in the
market, and will enter into closing transactions with respect to such options to
terminate existing positions. An option on a stock index futures contract gives
the purchaser the right, in return for the premium paid, to assume a position in
a stock index futures contract at a specified exercise price at any time prior
to the expiration date of the option. A call option gives the purchaser of such
option the right to buy, and it obliges its writer to sell, a specified
underlying futures contract at a specified exercise price at any time prior to
the expiration date of the option. A purchaser of a put option has the right to
sell, and the writer has the obligation to buy, such contract at the exercise
price during the option period. Upon exercise of an option, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's future margin
account, which represents the amount by which the market price of the futures
contract exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing price of the stock index futures
contract on the expiration date. Each Fund will pay a premium for purchasing
options on stock index futures contracts. Because the value of the option is
fixed at the point of sale, there are no daily cash payments to reflect changes
in the value of the underlying contract; however, the value of the option does
change daily and that change would be reflected in the net asset value of a
Fund. In connection with the writing of options on stock index futures
contracts, a Fund will make initial margin deposits and make or receive
maintenance margin payments that reflect changes in the market value of such
options. Premiums received from the writing of an option are included in initial
margin deposits.
Purchase of Put Options on Futures Contracts. Each Fund will
purchase put options on futures contracts if the Fund's investment adviser or
sub-adviser anticipates a market decline. A put option on a stock index futures
contract becomes more valuable as the market declines. By purchasing put options
on stock index futures contracts at a time when a Fund's investment adviser or
sub-adviser expects the market to decline, such Fund will seek to realize a
profit to offset the loss in value of its portfolio securities.
Purchase of Call Options on Futures Contracts. A Fund will
purchase call options on stock index futures contracts if the Fund's investment
adviser anticipates a market rally. The purchase of a call option on a stock
index futures contract represents a means of obtaining temporary exposure to
market appreciation at limited risk. A call option on such a contract becomes
more valuable as the market appreciates. A Fund will purchase a call option on a
stock index futures contract to hedge against a market advance when the Fund is
holding cash. A Fund can take advantage of the anticipated rise in the value of
equity securities without actually buying them until the market is stabilized.
At that time, the options can be liquidated and the Fund's cash can be used to
buy portfolio securities.
-90-
<PAGE> 270
Writing Call Options on Futures Contracts. A Fund will write call
options on stock index futures contracts if the Fund's investment adviser
anticipates a market decline. As the market declines, a call option on such a
contract becomes less valuable. If the futures contract price at expiration of
the option is below the exercise price, the option will not be exercised and the
Fund will retain the full amount of the option premium. Such amount provides a
partial hedge against any decline that may have occurred in the Fund's portfolio
securities.
Writing Put Options on Futures Contracts. A Fund will write put
options on stock index futures contracts if the Fund's investment adviser
anticipates a market rally. As the market appreciates, a put option on a stock
index futures contract becomes less valuable. If the futures contract price at
expiration of the option has risen due to market appreciation and is above the
exercise price, the option will not be exercised and the Fund will retain the
full amount of the option premium. Such amount can then be used by a Fund to buy
portfolio securities when the market has stabilized.
Risks Relating to Options on Stock Index Futures Contracts.
Compared to the purchase or sale of futures contracts, the purchase of call or
put options on futures contracts involves less potential risk to a Fund because
the maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when a purchase of a call or put
option on a futures contract would result in a loss to a Fund when the purchase
or sale of a futures contract would not result in a loss, such as when there is
no movement in the underlying index.
The writing of a put or call option on a futures contract
involves risks similar to those relating to transactions in futures contracts as
described in the Prospectus and Statement of Additional Information. By writing
a call option, a Fund, in exchange for the receipt of a premium, becomes
obligated to sell a futures contract, which may have a value higher than the
exercise price. Conversely, the writing of a put option on a futures contract
generates a premium, but the Fund becomes obligated to purchase a futures
contract, which may have a value lower than the exercise price. The loss
incurred by the Fund in writing options on futures contracts may exceed the
amount of the premium received.
The holder or writer of an option on a futures contract may
terminate its position by selling or purchasing an offsetting option of the same
series. There is no guarantee that such closing transactions can be effected. A
Fund's ability to establish and close out positions on such options will be
subject to the development and maintenance of a liquid market.
Finally, a Fund's purchase or sale of put or call options on
stock index futures contracts will be based upon predictions as to anticipated
market trends by the Fund's investment adviser or sub-adviser, which could prove
to be inaccurate. Even if the expectations of the Fund's investment adviser or
sub-adviser are correct, there may be an imperfect correlation between the
change in the value of the options and of the Fund's portfolio securities.
-91-
<PAGE> 271
FINANCIAL STATEMENTS
KPMG Peat Marwick LLP served as the independent auditors for
Voyageur Mutual Funds III, Inc. through April 30, 1997 and, in its capacity as
such, audited the annual financial statements of the Funds. Beginning May 1,
1997, Ernst & Young LLP began serving in such capacity. Aggressive Growth Fund's
and Growth Stock Fund's Statements of Net Assets, Statements of Operations,
Statements of Changes in Net Assets, and Notes to Financial Statements, as well
as the report of KPMG Peat Marwick LLP, independent auditors, for the fiscal
year ended April 30, 1997 are included in Voyageur Mutual Funds III, Inc.'s
Annual Report to shareholders. The financial statements, the notes relating
thereto and the report of KPMG Peat Marwick LLP, listed above are incorporated
by reference from the Annual Report into this Part B. Tax-Efficient Equity Fund
was not offered to the public prior to July 1, 1997.
-92-
<PAGE> 272
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, shareholders of the Fund Classes should
contact their financial adviser or call Delaware Group at 800-523-4640, and
shareholders of the Institutional Class should contact Delaware Group at
800-828-5052.
INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103
SUB-ADVISER
Growth Stock Fund:
Voyageur Asset Management LLP
90 South Seventh Street, Suite 4400
Minneapolis, MN 55402
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
CUSTODIANS
Tax-Efficient Equity Fund:
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245
Aggressive Growth Fund
Growth Stock Fund:
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue
Minneapolis, MN 55402
AGGRESSIVE GROWTH FUND
GROWTH STOCK FUND
TAX-EFFICIENT EQUITY FUND
A CLASSES
B CLASSES
C CLASSES
INSTITUTIONAL CLASSES
CLASSES OF DELAWARE GROUP
MUTUAL FUNDS III, INC.
PART B
STATEMENT OF
ADDITIONAL INFORMATION
AUGUST 28, 1997
DELAWARE
GROUP
<PAGE> 273
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Part A - Financial Highlights
*Part B - Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Accountant's Report
* The financial statements and Accountant's Report listed above
relating to the Aggressive Growth Fund and Growth Stock Fund will be
incorporated into this filing by reference into the Funds' Part B
from the Registrant's Annual Report for the fiscal year ended April
30, 1997.
(b) Exhibits:
(1) Articles of Incorporation.
(a) Amended and Restated Articles of Incorporation
(November 22, 1993) incorporated into this
filing by reference to Post-Effective
Amendment No. 25 filed September 1, 1995.
(b) Certification of Designation (April 28, 1994)
incorporated into this filing by reference to
Post-Effective Amendment No. 25 filed
September 1, 1995.
(c) Certification of Designation (August 24, 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 25 filed
September 1, 1995.
(d) Certification of Designation (August 25, 1995)
incorporated into this filing by reference to
Post-Effective Amendment No. 25 filed
September 1, 1995.
(e) Articles of Correction (July 27, 1994)
incorporated into this filing by reference to
Post-Effective Amendment No. 25 filed
September 1, 1995.
<PAGE> 274
PART C - Other Information
(Continued)
(f) Certification of Designation ( )
incorporated by reference into this filing to
Post-Effective Amendment No. 29 filed February
18, 1997.
(g) Form of Certificate of Designation
(June, 1997) attached as Exhibit.
(2) By-Laws. By-Laws, as amended (October 30, 1996)
incorporated into this filing by reference to
Post-Effective Amendment No. 29 filed February 18,
1997.
(3) Voting Trust Agreement. Inapplicable.
(4) Copies of All Instruments Defining the Rights of
Holders.
(a) Articles of Incorporation and Articles
Supplementary.
(i) Article 7 and Article 8(d) of Amended
and Restated Articles of Incorporation
(November 22, 1993) incorporated into
this filing by reference to Post-
Effective Amendment No. 25 filed
September 1, 1995.
(ii) Certificate of Designation (April 28,
1994) incorporated into this filing
by reference to Post-Effective
Amendment No. 25 filed September 1,
1995.
(iii) Certificate of Designation (August 24,
1995) incorporated into this filing by
reference to Post-Effective Amendment
No. 25 filed September 1, 1995.
(iv) Certificate of Designation (August 25,
1995) incorporated into this filing by
reference to Post-Effective Amendment
No. 25 filed September 1, 1995.
(b) By-Laws.
(i) Article Second, Article Fifth, Article
Sixth and Article Twelfth incorporated
into this filing by reference to Post-
Effective Amendment No. 29 filed
February 18, 1997.
(5) Investment Management Agreement.
(a) Executed Investment Management Agreement
(April 30, 1997) between Delaware Management
Company, Inc. and the Registrant on behalf of
Aggressive Growth Fund and Growth Stock Fund
attached as Exhibit.
(b) Executed Investment Management Agreement (June
26, 1997) between Delaware Management Company,
Inc. and the Registrant on behalf of
Tax-Efficient Equity Fund attached as Exhibit.
(c) Executed Investment Sub-Advisory Agreement
(April 30, 1997) between Delaware Management
Company, Inc. and Voyageur Asset Management
LLC on behalf of Growth Stock Fund attached as
Exhibit.
<PAGE> 275
PART C - Other Information
(Continued)
(6) (a) Distribution Agreements.
(i) Executed Distribution Agreement (April 30, 1997)
between Delaware Distributors, L.P. and the
Registrant on behalf of Aggressive Growth Fund and
Growth Stock Fund attached as Exhibit.
(ii) Executed Distribution Agreement (June 26, 1997)
between Delaware Distributors, L.P. and the
Registrant on behalf of Tax-Efficient Equity Fund
attached as Exhibit.
(b) Administration and Service Agreement Form of Administration
and Service Agreement (as amended November 1995) included as
Module.
(c) Dealer's Agreement. Dealer's Agreement (as amended November
1995) included as Module.
(d) Mutual Fund Agreement for the Delaware Group of Funds (as
amended November 1995) included as Module.
(7) Bonus, Profit Sharing, Pension Contracts. Inapplicable.
(8) Custodian Agreement.
(a) Custodian Contract with Norwest Bank Minnesota N.A. (May 16,
1994) incorporated into this filing by reference to
Post-Effective Amendment No. 25 filed September 1, 1995.
(b) Form of Custodian Agreement between The Chase Manhattan Bank
and the Registrant on behalf of Tax-Efficient Equity Fund
(1997) included as Module.
(9) Other Material Contracts.
(a) Executed Shareholder Services Agreement (1997) between
Delaware Service Company, Inc. and the Registrant on behalf of
the Aggressive Growth Fund, Growth Stock Fund and
Tax-Efficient Equity Fund attached as Exhibit.
<PAGE> 276
PART C - Other Information
(Continued)
(b) Executed Fund Accounting Agreement (1997) between
Delaware Service Company, Inc. and the Registrant on
behalf of each Fund included as Module.
(i) Executed Amendment No. 1 (September 30,
1996) to Delaware Group of Funds Fund
Accounting Agreement attached as Exhibit.
(ii) Executed Amendment No. 2 (November 30, 1996)
to Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(iii) Executed Amendment No. 3 (December 27, 1996)
to Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(iv) Executed Amendment No. 4 (February 24, 1997)
to Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(v) Executed Amendment No. 5 (May 30, 1997) to
Delaware Group of Funds Fund Accounting
Agreement attached as Exhibit.
(10) Opinion of Counsel. To be filed with letter relating to Rule
24f-2 on or about June 30, 1997.
(11) Consent of Auditors. To be filed by Amendment.
(12) Inapplicable.
(13) Letter of Investment Intent incorporated into this filing by
reference to Pre-Effective Amendment No. 1.
(14) Model Plans. To be filed by Amendment.
<PAGE> 277
PART C - Other Information
(Continued)
(15) Plans under Rule 12b-1.
(a) Plan under Rule 12b-1 for Class A (April 30, 1997) on
behalf of Aggressive Growth Fund and Growth Stock
Fund incorporated by reference to Exhibit 6(a)(i)
filed herewith.
(b) Plan under Rule 12b-1 for Class B (April 30, 1997) on
behalf of Aggressive Growth Fund and Growth Stock
Fund incorporated by reference to Exhibit 6(a)(i)
filed herewith.
(c) Plan under Rule 12b-1 for Class C (April 30, 1997) on
behalf Aggressive Growth Fund and Growth Stock Fund
incorporated by reference to Exhibit 6(a)(i) filed
herewith.
(d) Plan under Rule 12b-1 for Class A (June 26, 1997) on
behalf of Tax-Efficient Equity Fund attached as
Exhibit.
(e) Plan under Rule 12b-1 for Class B (June 26, 1997) on
behalf of Tax-Efficient Equity Fund attached as
Exhibit.
(f) Plan under Rule 12b-1 for Class C (June 26, 1997) on
behalf of Tax-Efficient Equity Fund attached as
Exhibit.
(16) Schedules of Computation for each Performance Quotation.
(a) Schedule of Computation of Fund Performance for
Aggressive Growth Fund and Growth Stock Fund to be
filed by Amendment.
(17) Financial Data Schedules. To be filed by Amendment.
(18) Plan under Rule 18f-3.
(a) Plan under Rule 18f-3 (April 30, 1997) attached as
Exhibit.
(19) Other: Directors' Power of Attorney. Attached as Exhibit.
Item 25. Persons Controlled by or under Common Control with Registrant. None.
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Growth Stock Fund Class A Shares:
Common Stock Par Value 2,224 Accounts
$.01 Per Share as of May 31, 1997
</TABLE>
<PAGE> 278
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Growth Stock Fund Class B Shares:
Common Stock Par Value 67 Accounts
$.01 Per Share as of May 31, 1997
Growth Stock Fund Class C Shares:
Common Stock Par Value 56 Accounts
$.01 Per Share as of May 31, 1997
Aggressive Growth Fund Class A Shares:
Common Stock Par Value 213 Accounts
$.01 Per Share as of May 31, 1997
Aggressive Growth Fund Class B Shares:
Common Stock Par Value 12 Accounts
$.01 Per Share as of May 31, 1997
Aggressive Growth Fund Class C Shares:
Common Stock Par Value 36 Accounts
$.01 Per Share as of May 31, 1997
Tax Efficient Equity Fund Class A Shares:
Common Stock Par Value 0 Accounts
$.01 Per Share as of May 31, 1997
Tax Efficient Equity Fund Class B Shares:
Common Stock Par Value 0 Accounts
$.01 Per Share as of May 31, 1997
Tax Efficient Equity Fund Class C Shares:
Common Stock Par Value 0 Accounts
$.01 Per Share as of May 31, 1997
</TABLE>
Item 27. Indemnification. Incorporated into this filing by reference to
Post-Effective Amendment No. 29 filed February 18, 1997.
<PAGE> 279
PART C - Other Information
(Continued)
Item 28. Business and Other Connections of Investment Adviser.
(a) Delaware Management Company, Inc. (the "Manager") serves as investment
manager to the Registrant and also serves as investment manager or sub-adviser
to certain of the other funds in the Delaware Group (Delaware Group Trend Fund,
Inc., Delaware Group Equity Funds I, Inc., Delaware Group Equity Funds II, Inc.,
Delaware Group Equity Funds IV, Inc., Delaware Group Equity Funds V, Inc.,
Delaware Group Income Funds, Inc., Delaware Group Government Fund, Inc.,
Delaware Group Limited-Term Government Funds, Inc., Delaware Group Cash Reserve,
Inc., Delaware Group Tax-Free Fund, Inc., DMC Tax-Free Income
Trust-Pennsylvania, Delaware Group Tax-Free Money Fund, Inc., Delaware Group
Premium Fund, Inc., Delaware Group Global & International Funds, Inc., Delaware
Pooled Trust, Inc., Delaware Group Adviser Funds, Inc., Delaware Group Dividend
and Income Fund, Inc., Delaware Group Global Dividend and Income Fund, Inc.,
Voyageur Funds, Inc., Voyageur Insured Funds, Inc., Voyageur Intermediate Tax
Free Funds, Inc., Voyageur Investment Trust, Voyageur Investment Trust II,
Voyageur Mutual Funds, Inc., Voyageur Mutual Funds II, Inc., Voyageur Tax Free
Funds, Inc., Voyageur Arizona Municipal Income Fund, Inc., Voyageur Colorado
Insured Municipal Income Fund, Inc., Voyageur Florida Insured Municipal Income
Fund, Voyageur Minnesota Municipal Income Fund, Inc., Voyageur Minnesota
Municipal Income Fund II, Inc. and Voyageur Minnesota Municipal Income Fund III,
Inc.) and provides investment advisory services to institutional accounts,
primarily retirement plans and endowment funds and to certain other investment
companies. In addition, certain directors of the Manager also serve as
directors/trustees of the other Delaware Group funds, and certain officers are
also officers of these other funds. A company indirectly owned by the Manager's
parent company acts as principal underwriter to the mutual funds in the Delaware
Group (see Item 29 below) and another such company acts as the shareholder
servicing, dividend disbursing, accounting services and transfer agent for all
of the mutual funds in the Delaware Group.
<PAGE> 280
PART C - Other Information
(Continued)
The following persons serving as directors or officers of the Manager
have held the following positions during the past two years:
<TABLE>
<CAPTION>
Name and Principle Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Wayne A. Stork Chairman of the Board, President, Chief Executive
Officer, Chief Investment Officer and Director of
Delaware Management Company, Inc.; President,
Chief Executive Officer, Chairman of the Board and
Director of the Registrant, each of the other
funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware International
Holdings Ltd. and Founders Holdings, Inc.;
Chairman of the Board and Director of Delaware
Distributors, Inc. and Delaware Capital
Management, Inc.; Chairman, Chief Executive
Officer and Director of Delaware International
Advisers Ltd.; and Director of Delaware Service
Company, Inc. and Delaware Investment & Retirement
Services, Inc.
Richard G. Unruh, Jr. Executive Vice President and Director of Delaware
Management Company, Inc.; Executive Vice President
of the Registrant and each of the other funds in
the Delaware Group; Senior Vice President of
Delaware Management Holdings, Inc. and Delaware
Capital Management, Inc; and Director of Delaware
International Advisers Ltd.
Board of Directors, Chairman of Finance Committee,
Keystone Insurance Company since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors,
Chairman of Finance Committee, AAA Mid Atlantic,
Inc. since 1989, 2040 Market Street, Philadelphia,
PA; Board of Directors, Metron, Inc. since 1995,
11911 Freedom Drive, Reston, VA
Paul E. Suckow Executive Vice President/Chief Investment Officer,
Fixed Income of Delaware Management Company, Inc.,
the Registrant and each of the other funds in the
Delaware Group; Executive Vice President 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.;
and Director of Founders CBO Corporation
Director, HYPPCO Finance Company Ltd.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 281
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principle Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
David K. Downes 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.; Executive
Vice President, Chief Operating Officer and Chief
Financial Officer of the Registrant and each of
the other funds in the Delaware Group, Delaware
Management Holdings, Inc., Founders CBO
Corporation and Delaware Capital Management, Inc.;
Chairman and Director of Delaware Management Trust
Company; President, Chief Executive Officer, Chief
Financial Officer and Director of Delaware Service
Company, Inc.; Chairman and Director of Delaware
Investment & Retirement Services, Inc.; Director
of Delaware International Advisers Ltd.; and
Senior Vice President, Chief Administrative
Officer and Chief Financial Officer of Delaware
Distributors, L.P.
Chief Executive Officer and Director of Forewarn,
Inc. since 1993, 8 Clayton Place, Newtown Square,
PA
George M. Senior Vice President, Secretary and Director of Delaware
Chamberlain, Jr. Management Company, Inc., DMH Corp., Delaware
Distributors, Inc., Delaware Service Company,
Inc., Founders Holdings, Inc., Delaware Capital
Management, Inc. and Delaware Investment &
Retirement Services, Inc.; Senior Vice President
and Secretary of the Registrant, each of the other
funds in the Delaware Group, Delaware
Distributors, L.P. and Delaware Management
Holdings, Inc.; Executive Vice President,
Secretary and Director of Delaware Management
Trust Company; Secretary and Director of Delaware
International Holdings Ltd.; and Director of
Delaware International Advisers Ltd.
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 282
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------- -----------------------------------------------
<S> <C>
Richard J. Flannery Senior Vice President/Corporate and International
Affairs of Delaware Management Holdings, Inc., DMH
Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Distributors, L.P.,
Delaware Management Trust Company and Delaware
Capital Management, Inc.; Managing
Director/Corporate & Tax Affairs of Delaware
Service Company, Inc. and Delaware Investment &
Retirement Services, Inc.; Vice President of the
Registrant and each of the other funds in the
Delaware Group; Senior Vice President/ Corporate
and International Affairs and Director of Founders
Holdings, Inc. and Delaware International Holdings
Ltd.; Senior Vice President of Founders CBO
Corporation; and Director of Delaware
International Advisers Ltd.
Director, HYPPCO Finance Company Ltd.
Limited Partner of Stonewall Links, L.P. since
1991, Bulltown Rd., Elverton, PA; Director and
Member of Executive Committee of Stonewall Links,
Inc. since 1991, Bulltown Rd., Elverton, PA
Michael P. Bishof(1) Senior Vice President of Delaware Management
Company, Inc. and Delaware Distributors, Inc.;
Vice President and Treasurer of the Registrant,
each of the other funds in the Delaware Group,
Delaware Distributors, L.P., Delaware Service
Company, Inc. and Founders Holdings, Inc.;
Assistant Treasurer of Founders CBO Corporation;
and Vice President and Manager of Investment
Accounting of Delaware International Holdings Ltd.
Eric E. Miller Vice President and Assistant Secretary of Delaware
Management Company, Inc., the Registrant, each of
the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors Inc.,
Delaware Service Company, Inc., Delaware
Management Trust Company, Founders Holdings, Inc.,
Delaware Capital Management, Inc. and Delaware
Investment & Retirement Services, Inc.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 283
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principle Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Richelle S. Maestro Vice President and Assistant Secretary of Delaware
Management Company, Inc., the Registrant, each of
the other funds in the Delaware Group, Delaware
Management Holdings, Inc., Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware
Service Company, Inc., DMH Corp., Delaware
Management Trust Company, Delaware Capital
Management, Inc., Delaware Investment & Retirement
Services, Inc. and Founders Holdings, Inc.;
Secretary of Founders CBO Corporation; and
Assistant Secretary of Delaware International
Holdings Ltd.
Partner of Tri-R Associates since 1989, 10001
Sandmeyer Lane, Philadelphia, PA
Joseph H. Hastings Senior Vice President/Corporate Controller and
Treasurer of Delaware Management Holdings, Inc.,
DMH Corp. and Delaware Management Company, Inc.;
Senior Vice President and Treasurer of Delaware
Distributors, Inc.; Senior Vice
President/Corporate Controller of Founders
Holdings, Inc.; Vice President and Treasurer of
Delaware Capital Management, Inc.; Vice
President/Corporate Controller of the Registrant,
each of the other funds in the Delaware Group,
Delaware Distributors, L.P., Delaware Service
Company, Inc., and Delaware International Holdings
Ltd.; Executive Vice President, Chief Financial
Officer and Treasurer of Delaware Management Trust
Company; Chief Financial Officer and Treasurer of
Delaware Investment & Retirement Services, Inc.;
and Assistant Treasurer of Founders CBO
Corporation
Richard Salus(2) Vice President/Assistant Controller of Delaware
Management Company, Inc.; and Vice President of
Delaware Management Trust Company
Bruce A. Ulmer Vice President/Director of Internal Audit of
Delaware Management Company, Inc., the Registrant,
each of the other funds in the Delaware Group,
Delaware Management Holdings, Inc., DMH Corp. and
Delaware Management Trust Company; and Vice
President/Internal Audit of Delaware Investment &
Retirement Services, Inc.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 284
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principle Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------
<S> <C>
Steven T. Lampe(3) Vice President/Taxation of Delaware Management
Company, Inc., the Registrant, each of the other
funds in the Delaware Group, Delaware Management
Holdings, Inc., DMH Corp., Delaware Distributors,
L.P., Delaware Distributors, Inc., Delaware
Service Company, Inc., Delaware Management Trust
Company, Founders Holdings, Inc., Founders CBO
Corporation, Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.
Lisa O. Brinkley Vice President/Compliance of Delaware Management
Company, Inc., the Registrant, each of the other
funds in the Delaware Group, DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware
Management Trust Company, Delaware Capital
Management, Inc. and Delaware Investment &
Retirement Services, Inc.
Rosemary E. Milner Vice President/Legal of Delaware Management
Company, Inc., the Registrant, each of the other
funds in the Delaware Group, Delaware
Distributors, L.P. and Delaware Distributors, Inc.
Douglas L. Anderson Vice President/Operations of Delaware Management
Company, Inc., Delaware Investment and Retirement
Services, Inc. and Delaware Service Company, Inc.;
and Vice President/Operations and Director of
Delaware Management Trust Company
Michael T. Taggart Senior Vice President/Facilities Management and
Administrative Services of Delaware Management
Company, Inc.
Gerald T. Nichols Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice
President of Founders Holdings, Inc.; and
Treasurer, Assistant Secretary and Director of
Founders CBO Corporation
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 285
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------- -----------------------------------------------
<S> <C>
Gary A. Reed Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds and the fixed income funds in the
Delaware Group and Delaware Capital Management,
Inc.
Paul A. Matlack Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice
President of Founders Holdings, Inc.; and
President and Director of Founders CBO
Corporation.
Patrick P. Coyne Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds and the fixed income funds in the
Delaware Group and Delaware Capital Management,
Inc.
Roger A. Early Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., each of the
tax-exempt funds and the fixed income funds in the
Delaware Group
Mitchell L. Conery(3) Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc. and each of the
tax-exempt and fixed income funds in the Delaware
Group
George H. Burwell Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., the Registrant
and each of the equity funds in the Delaware Group
John B. Fields Vice President/Senior Portfolio Manager of
Delaware Management Company, Inc., the Registrant,
each of the equity funds in the Delaware Group and
Delaware Capital Management, Inc.
</TABLE>
(1) SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
(2) TAX MANAGER, Price Waterhouse prior to October 1995.
(3) INVESTMENT OFFICER, Travelers Insurance prior to January 1997 and
RESEARCH ANALYST, CS First Boston Investment Management prior to March
1995.
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
Voyageur Asset Management LLC serves as sub-adviser (the "Sub-Adviser) for
the Growth Stock Fund. The Sub-Adviser is an indirect wholly-owned subsidiary
of Dougherty Financial Group LLC ("DFG"), which is owned 50% by Michael E.
Dougherty and 50% equally by James A. Pohlad, Robert C. Pohlad and William M.
Pohlad (the "Pohlads"). Mr. Dougherty co-founded the predecessor of DFG in 1977
and has served as DFG's Chairman of the Board and Chief Executive Officer since
inception. The Sub-Adviser serves as adviser or sub-adviser to other investment
companies and administers numerous private accounts and together with its
affiliates managed approximately $8 billion in assets as of April 30, 1997. The
Sub-Adviser's principal business address is 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402.
Name and Principal Positions and Offices with the Sub-Adviser and its
Business Address* affiliates and Other Positions and Offices Held
- ------------------ -------------------------------------------------------
John G. Taft Chairman of the Board, Director and Chief Executive
Officer of Voyageur Asset Management LLC
Edward J. Kohler Director and President of Voyageur Asset Management LLC
Jane M. Wyatt Director and Chief Investment Officer of Voyageur Asset
Management LLC
Steven B. Johansen Director, Treasurer and Chief Financial Officer of
Voyageur Asset Management LLC
Thomas J. Abood Secretary of Voyageur Asset Management LLC
*Business address of each is 90 South Seventh Street, Suite 4400, Minneapolis,
Minnesota 55402.
<PAGE> 286
PART C - Other Information
(Continued)
Item 29. Principal Underwriters.
(a) Delaware Distributors, L.P. serves as principal underwriter
for all the mutual funds in the Delaware Group.
(b) Information with respect to each director, officer or partner
of principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------- ---------------- ---------------
<S> <C> <C>
Delaware Distributors, Inc. General Partner None
Delaware Management
Company, Inc. Limited Partner Investment Manager
Delaware Capital
Management, Inc. Limited Partner None
Bruce D. Barton President and CEO None
David K. Downes Senior Vice President, Executive Vice
Chief Administrative Officer President/Chief
and Chief Financial Officer Operating Officer/
Chief Financial Officer
George M. Chamberlain, Jr. Senior Vice President/ Senior Vice President/
Secretary Secretary
Thomas E. Sawyer Senior Vice President/ None
National Sales Director
William F. Hostler Senior Vice President/ None
Marketing Services
Dana B. Hall Senior Vice President/ None
Key Accounts
J. Chris Meyer Senior Vice President/ None
Product Development
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 287
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------- ---------------- ---------------
<S> <C> <C>
Stephen H. Slack Senior Vice President/Wholesaler None
Henry W. Orvin Senior Vice President/Eastern None
Divisional Sales Manager, Wire/
Regional Channel
Richard J. Flannery Managing Director/Corporate Vice President
& Tax Affairs
Eric E. Miller Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Michael P. Bishof Vice President/Treasurer Vice President/Treasurer
Steven T. Lampe Vice President/Taxation Vice President/Taxation
Joseph H. Hastings Vice President/ Vice President/
Corporate Controller Corporate Controller
Lisa O. Brinkley Vice President/ Vice President/
Compliance Compliance
Rosemary E. Milner Vice President/Legal Vice President/Legal
Daniel H. Carlson Vice President/Marketing None
Diane M. Anderson Vice President/ None
Retirement Services
Denise F. Guerriere Vice President/Client Services None
Julia R. Vander Els Vice President/Client Services None
Jerome J. Alrutz Vice President/Client Services None
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 288
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------- ---------------- ---------------
<S> <C> <C>
Joanne A. Mettenheimer Vice President/National Accounts None
Gregory J. McMillan Vice President/ National Accounts None
Christopher H. Price Vice President/Annuity None
Marketing & Administration
Stephen J. DeAngelis Vice President/Product None
Development
Thomas P. Kennett Vice President/ Wholesaler None
Susan T. Friestedt Vice President/Customer Service None
Dinah J. Huntoon Vice President/Product None
Management
Soohee Lee Vice President/Fixed Income None
Product Management
Ellen M. Krott Vice President/Communications None
Holly W. Reimel Vice President/Telemarketing None
Terrence L. Bussard Vice President/Wholesaler None
William S. Carroll Vice President/Wholesaler None
William L. Castetter Vice President/Wholesaler None
Thomas J. Chadie Vice President/Wholesaler None
Thomas C. Gallagher Vice President/Wholesaler None
Douglas R. Glennon Vice President/Wholesaler None
Christopher L. Johnston Vice President/Wholesaler None
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 289
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ----------------- ---------------- ---------------
<S> <C> <C>
William M. Kimbrough Vice President/Wholesaler None
Debra Afra Marler Vice President/Wholesaler None
Mac McAuliffe Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Laura E. Roman Vice President/Wholesaler None
Michael W. Rose Vice President/Wholesaler None
Thomas E. Sawyer Vice President/Wholesaler None
Linda Schulz Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
John A. Wells Vice President/Marketing None
Technology
</TABLE>
(c) Not Applicable.
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE> 290
PART C - Other Information
(Continued)
Item 30. Location of Accounts and Records.
All accounts and records are maintained in Philadelphia at 1818
Market Street, Philadelphia, PA 19103 or One Commerce Square,
Philadelphia, PA 19103 or 90 South Seventh Street, Suite 4400,
Minneapolis, Minnesota 55402.
Item 31. Management Services. None.
Item 32. Undertakings.
(a) Not Applicable.
(b) The Registrant hereby undertakes to file a Post-Effective Amendment,
using financial statements which need not be certified, within four
to six months after the commencement of operations of Tax-Efficient
Equity Fund.
(c) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal
of any director when requested in writing to do so by the record
holders of not less than 10% of the outstanding shares.
<PAGE> 291
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
this City of Philadelphia and Commonwealth of Pennsylvania on this 27th day of
June, 1997.
VOYAGEUR MUTUAL FUNDS III, INC.
By /s/ Wayne A. Stork
---------------------
Wayne A. Stork
Chairman of the Board, President
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------- ------------------------------------------- --------------
<S> <C> <C>
Chairman of the Board, President
/s/ Wayne A. Stork Chief Executive Officer and Director June 27, 1997
- ---------------------------
Wayne A. Stork
Executive Vice President/Chief Operating
Officer/Chief Financial Officer (Principal
Financial Officer and Principal
/s/ David K. Downes Accounting Officer) June 27, 1997
- ---------------------------
David K. Downes
/s/Walter P. Babich Director June 27, 1997
- ---------------------------
Walter P. Babich
/s/Thomas F. Madison Director June 27, 1997
- ---------------------------
Thomas F. Madison
/s/Anthony D. Knerr Director June 27, 1997
- ---------------------------
Anthony D. Knerr
/s/Ann R. Leven Director June 27, 1997
- ---------------------------
Ann R. Leven
</TABLE>
<PAGE> 292
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
<PAGE> 293
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
EX-99.B1G Form of Certificate of Designation (1997).
EX-99.B5A Executed Management Agreement (April 30, 1997) between Delaware
Management Company, Inc. and Registrant on behalf of Aggressive
Growth Fund and Growth Stock Fund.
EX-99.B5B Executed Management Agreement (June 26, 1997) between Delaware
Management Company, Inc. and Registrant on behalf of
Tax-Efficient Equity Fund.
EX-99.B5C Executed Sub-Advisory Agreement (April 30, 1997) between
Delaware Management Company, Inc. and Voyageur Asset Management
LLC on behalf of Growth Stock Fund.
EX-99.B6AI Executed Distribution Agreement (April 30, 1997) between
Delaware Distributors, L.P. and the Registrant on behalf of
Aggressive Growth Fund and Growth Stock Fund.
EX-99.B6AII Executed Distribution Agreement (June 26, 1997) between
Delaware Distributors, L.P. and the Registrant on behalf of
Tax-Efficient Equity Fund.
<PAGE> 294
Exhibit No. Exhibit
- ----------- -------
EX-99.B6B Form of Administration and Service Agreement (as amended
(Module Name November 1995)
ADMIN_SER_AGREE)
EX-99.B6C Dealer's Agreement (as amended November 1995)
(Module Name
DEALERS_AGREE)
EX-99.B6D Mutual Fund Agreement for the Delaware Group of Funds (as
(Module Name amended November 1995)
MFAGMT95)
EX-99.B8B Form of Custodian Agreement between The Chase Manhattan Bank
(Module Name and the Registrant on behalf of Tax-Efficient Equity Fund
CHASE_CUST_AGR) (1997)
EX-99.B9A Executed Shareholder Services Agreement (1997) between Delaware
Service Company, Inc. and the Registrant on behalf of the
Aggressive Growth Fund, Growth Stock Fund and Tax-Efficient
Equity Fund
EX-99.B9B Executed Fund Accounting Agreement (1997) between Delaware
(Module Name Service Company, Inc. and the Registrant on behalf of each Fund
FUND_ACCT_AGT)
EX-99.B9BI Executed Amendment No. 1 (September 30, 1996) to Delaware Group
of Funds Fund Accounting Agreement
EX-99.B9BII Executed Amendment No. 2 (November 30, 1996) to Delaware Group
of Funds Fund Accounting Agreement
EX-99.B9BIII Executed Amendment No. 3 (December 27, 1996) to Delaware Group
of Funds Fund Accounting Agreement
EX-99.B9BIV Executed Amendment No. 4 (February 24, 1997) to Delaware Group
of Funds Fund Accounting Agreement
EX-99.B9BV Executed Amendment No. 5 (May 1, 1997) to Delaware Group of
Funds Fund Accounting Agreement
<PAGE> 295
Exhibit No. Exhibit
- ----------- -------
EX-99.B15D Plan under Rule 12b-1 for Class A (June 26, 1997) on behalf of
Tax-Efficient Equity Fund
EX-99.B15E Plan under Rule 12b-1 for Class B (June 26, 1997) on behalf of
Tax-Efficient Equity Fund
EX-99.B15F Plan under Rule 12b-1 for Class C (June 26, 1997) on behalf of
Tax-Efficient Equity Fund
EX-99.B18 Rule 18f-3 Plan
EX-99.B19 Directors' Power of Attorney
<PAGE> 1
EXHIBIT 99.B1G
CERTIFICATE OF DESIGNATION
OF SERIES OF COMMON SHARES
The undersigned, Secretary of Voyageur Mutual Funds III, Inc., a
Minnesota corporation (the "Corporation"), hereby certifies that the following
is a true, complete and correct copy of resolutions duly adopted at a meeting of
the Board of Directors of the Corporation held June 19, 1997.
WHEREAS, the total authorized number of shares of the Corporation is
ten trillion, all of which shares are common shares, par value $.01 per share,
as set forth in the Corporation's Amended and Restated Articles of Incorporation
(the "Articles");
WHEREAS, pursuant to Section 5(a) of the Articles, certain of such
authorized shares have been designated as to series, including ten billion which
have been designated as Series A Common Shares, ten billion which have been
designated as Series B Common Shares and ten billion which have been designated
as Series E Common Shares;
WHEREAS, pursuant to Section 5(b) of the Articles, the shares of each
Series may be classified by the Board of Directors in one or more classes with
such relative rights and preferences as shall be stated or expressed in a
resolution or resolutions providing for the issue of any such class or classes
as may be adopted from time to time by the Board of Directors of the
Corporation; and
WHEREAS, of the ten billion Shares designated as Series A Common
Shares, one billion have been designated Series A, Class A Common Shares, one
billion have been designated as Series A, Class B Common Shares, one billion
have been designated as Series A, Class C Common Shares, and the rest remain
undesignated as to class.
WHEREAS, of the ten billion Shares designated as Series B Common
Shares, one billion have been designated Series B, Class A Common Shares, one
billion have been designated as Series B, Class B Common Shares, one billion
have been designated as Series B, Class C Common Shares, and the rest remain
undesignated as to class
WHEREAS, of the ten billion Shares designated as Series E Common
Shares, one billion have been designated Series E, Class A Common Shares, one
billion have been designated as Series E, Class B Common Shares, one billion
have been designated as Series E, Class C Common Shares, and the rest remain
undesignated as to class.
NOW, THEREFORE, BE IT RESOLVED, that of the seven billion Series A Common
Shares remaining undesignated as to class, one billion are hereby
<PAGE> 2
designated as Series A, Institutional Class Common Shares and the remaining six
billion Series A Common Shares shall remain undesignated as to class.
FURTHER RESOLVED, that of the seven billion Series B Common Shares
remaining undesignated as to class, one billion are hereby designated as Series
B, Institutional Class Common Shares and the remaining six billion Series B
Common Shares shall remain undesignated as to class.
FURTHER RESOLVED, that of the seven billion Series E Common Shares
remaining undesignated as to class, one billion are hereby designated as Series
E, Institutional Class Common Shares and the remaining six billion Series E
Common Shares shall remain undesignated as to class.
FURTHER RESOLVED, that the Institutional Class Common Shares designated
by these resolutions shall have the relative rights and preferences set forth in
the Articles. As provided in the Articles, Institutional Class Common Shares
designated by these resolutions may be subject to such charges and expenses
(including, by way of example but not by way of limitation, such front-end and
deferred sales charges as may be permitted under the Investment Company Act of
1940 (the "1940 Act") and the rules of the National Association of Securities
Dealers, Inc., and expenses under Rule 12b-1 plans, administrative plans,
service plans or other plans or arrangements, however designated) adopted from
time to time by the Board of Directors of the Corporation in accordance, to the
extent applicable, with the 1940 Act, which charges and expenses may differ from
those applicable to another Class within the respective Series, and all of the
charges and expenses to which a Class is subject shall be borne by such Class
and shall be appropriately reflected in determining the net asset value and the
amounts payable with respect to dividends and distributions on, and redemptions
or liquidation of, such Class.
FURTHER RESOLVED, that the officers of the Corporation are hereby
authorized and directed to file with the office of the Secretary of State of the
State of Minnesota a Certificate of Designation setting forth the relative
rights and preferences of the Series A, Series B and Series E Institutional
Class Common Shares, as required by Section 302A.401, Subd. 3(b) of the
Minnesota Statutes.
IN WITNESS WHEREOF, the undersigned has signed this Certificate on
behalf of Voyageur Mutual Funds III, Inc. this day of June, 1997.
---
____________________________________________
George M. Chamberlain, Jr.
Secretary
2
<PAGE> 1
EXHIBIT 99.B5A
INVESTMENT ADVISORY AGREEMENT
This Agreement, made as of this 30th day of April, 1997, by
and between Voyageur Mutual Funds III, Inc., a Minnesota corporation (the
"Company"), on behalf of each Fund represented by a series of shares of common
stock of the Fund that adopts this Agreement (each a "Fund" and, collectively,
the "Funds") (the Funds, together with the date each Fund adopts this Agreement,
are set forth in Exhibit A hereto, which shall be updated from time to time to
reflect additions, deletions or other changes thereto), and Delaware Management
Company, Inc., a Delaware corporation ("Adviser").
WITNESSETH
WHEREAS, the Company has been organized and operates as an investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, Adviser is an investment adviser registered under the
Investment Advisers Act of 1940, as amended, and engages in the business of
providing investment management services;
WHEREAS, a subsidiary of Adviser's indirect parent company completed as
of the date of this Agreement a merger transaction (the "Merger") with the
indirect parent company of the investment adviser to the Company, Voyageur Fund
Managers, Inc. ("VFM"), which resulted in a change of control of VFM and the
assignment (as defined under the 1940 Act) and automatic termination of the
investment advisory agreement that was in effect between VFM and the Company at
the time of the Merger; and
WHEREAS, the Board of Directors of the Company and the shareholders of
the Company have determined that the Company should enter into an investment
advisory agreement with Adviser to be effective upon consummation of the Merger;
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. INVESTMENT ADVISORY SERVICES.
a. The Company hereby engages Adviser on behalf
of the Funds, and Adviser hereby agrees to act, as investment adviser for, and
to manage the investment of the assets of, the Funds.
b. The investment of the assets of each Fund
shall at all times be subject to the applicable provisions of the Articles of
Incorporation, the Bylaws, the Registration Statement, and the current
Prospectus and the Statement of Additional Information, if any, of the Company
and each Fund and shall conform to the policies and purposes of each Fund as set
forth in such documents and as interpreted from time to time by the Board of
Directors of the Company. Within the framework of the investment policies of
<PAGE> 2
each Fund, and subject to such other limitations and directions as the Board of
Directors may from time to time prescribe, Adviser shall have the sole and
exclusive responsibility for the management of each Fund's assets and the making
and execution of all investment decisions for each Fund, except as set forth in
the following paragraph. Adviser shall report to the Board of Directors
regularly at such times and in such detail as the Board may from time to time
determine appropriate, in order to permit the Board to determine the adherence
of Adviser to the investment policies of the Funds.
c. Adviser may, at its expense, select and contract with one
or more registered investment advisers ("Sub-Adviser") for any of the Funds to
perform some or all of the services for such Funds. Such Sub-Adviser shall be
responsible for executing orders for the purchase and sale of portfolio
securities. Adviser will compensate any Sub-Adviser for its services to the
Funds. Adviser may terminate the services of any Sub-Adviser at any time in its
sole discretion, and shall at such time assume the responsibilities of such
Sub-Adviser unless and until a successor Sub-Adviser is selected.
d. Adviser shall, at its own expense, furnish all office
facilities, equipment and personnel necessary to discharge its responsibilities
and duties hereunder. Adviser shall arrange, if requested by the Company, for
officers or employees of Adviser to serve without compensation from any Fund as
directors, officers, or employees of the Company if duly elected to such
positions by the shareholders or directors of the Company (as required by law).
e. Adviser hereby acknowledges that all records pertaining to
each Fund's investments are the property of the Company, and in the event that a
transfer of investment advisory services to someone other than Adviser should
ever occur, Adviser will promptly, and at its own cost, take all steps necessary
to segregate such records and deliver them to the Company.
f. Subject to the primary objective of obtaining the best
available prices and execution, Adviser will place orders for the purchase and
sale of portfolio securities with such broker/dealers who provide statistical,
factual and financial information and services to the Funds, Adviser or to any
other fund for which Adviser provides investment advisory services and/or with
broker/dealers who sell shares of the Funds or who sell shares of any other fund
for which Adviser provides investment advisory services. Broker/dealers who sell
shares of the funds of which Adviser is investment manager, shall only receive
orders for the purchase or sale of portfolio securities to the extent that the
placing of such orders is in compliance with the Rules of the Securities and
Exchange Commission and the National Association of Securities Dealers, Inc.
g. Notwithstanding the provisions of subparagraph (f) above,
and subject to such policies and procedures as may be adopted by the Board of
Directors and officers of the Company, Adviser may ask the Funds and the Funds
may agree to pay a
-2-
<PAGE> 3
member of an exchange, broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of commission another member of
an exchange, broker or dealer would have charged for effecting that transaction,
in such instances where it and Adviser have determined in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such member, broker or dealer, viewed in terms
of either that particular transaction or Adviser's overall responsibilities with
respect to the Funds and to other funds and other advisory accounts for which
Adviser exercises investment discretion.
2. COMPENSATION FOR SERVICES.
In payment for the investment advisory and management services
to be rendered by Adviser hereunder, each Fund shall pay to Adviser a monthly
fee, which fee shall be paid to Adviser not later than the fifth business day of
the month following the month in which said services were rendered. The monthly
fee payable by each Fund shall be as set forth in Exhibit A hereto, which may be
updated from time to time to reflect amendments, if any, to Exhibit A. The
monthly fee payable by each Fund shall be based on the average of the net asset
values of all of the issued and outstanding shares of the Fund as determined as
of the close of each business day of the month pursuant to the Articles of
Incorporation, Bylaws, and currently effective Prospectus and Statement of
Additional Information of the Company and the Fund. For purposes of calculating
each Fund's average daily net assets, as such term is used in this Agreement,
each Fund's net assets shall equal its total assets minus (a) its total
liabilities and (b) its net orders receivable from dealers.
3. ALLOCATION OF EXPENSES.
a. In addition to the fee described in Section 2 hereof, each
Fund shall pay all its costs and expenses which are not assumed by Adviser.
These Fund expenses include, by way of example, but not by way of limitation,
all expenses incurred in the operation of the Fund and any public offering of
its shares, including, among others, fees (if any) associated with a plan of
distribution adopted pursuant to Rule 12b-1 under the 1940 Act ("Plan of
Distribution"), interest, taxes, brokerage fees and commissions, fees of the
directors who are not employees of Adviser or the principal underwriter of the
Fund's shares (the "Underwriter"), or any of their affiliates, expenses of
directors' and shareholders' meetings, including the cost of printing and
mailing proxies, expenses of insurance premiums for fidelity and other coverage,
expenses of redemption of shares, expenses of issue and sale of shares (to the
extent not borne by the Underwriter under its agreement with the Fund), expenses
of printing and mailing stock certificates representing shares of the Fund,
association membership dues, charges of custodians, transfer agents, dividend
disbursing agents, accounting services agents, investor servicing agents, and
bookkeeping, auditing, and legal expenses. Each Fund will also pay the fees and
bear the expense of registering and maintaining the registration of the Fund and
its shares with the Securities and Exchange Commission and registering or
-3-
<PAGE> 4
qualifying its shares under state or other securities laws and the expense of
preparing and mailing prospectuses and reports to shareholders.
b. The Underwriter shall bear all advertising and promotional
expenses in connection with the distribution of each Fund's shares, including
paying for prospectuses for new shareholders, except as provided in the
following sentence. No Fund shall use any of its assets to finance costs
incurred in connection with the distribution of its shares except pursuant to a
Plan of Distribution.
4. FREEDOM TO DEAL WITH THIRD PARTIES.
Adviser shall be free to render services to others similar to
those rendered under this Agreement or of a different nature except as such
services may conflict with the services to be rendered or the duties to be
assumed hereunder.
5. REPORTS TO DIRECTORS OF THE FUND.
Appropriate officers of Adviser shall provide the directors of
the Company with such information as is required by any Plan of Distribution
adopted by the Company on behalf of any Fund pursuant to Rule 12b-1 under the
1940 Act.
6. STANDARD OF CARE.
In the absence of willful misfeasance, bad faith, gross
negligence or a reckless disregard of the performance of duties of the Adviser
to the Funds, the Adviser shall not be subject to liabilities to the Funds or to
any shareholders of the Funds for any action or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security, or otherwise.
7. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT.
a. The effective date of this Agreement with respect to each
Fund shall be the date set forth on Exhibit A hereto.
b. Unless sooner terminated as hereinafter provided, this
Agreement shall continue in effect with respect to each Fund for a period of two
years from the date of its execution, and thereafter shall continue in effect
only so long as such continuance is specifically approved at least annually by
(i) the Board of Directors of the Company or by the vote of a majority of the
outstanding voting securities of the applicable Fund, and (ii) by the vote of a
majority of the directors of the Company who are not parties to this Agreement
or "interested persons," as defined in the 1940 Act, of Adviser or of the
Company cast in person at a meeting called for the purpose of voting on such
approval.
-4-
<PAGE> 5
c. This Agreement may be terminated with respect to any Fund
at any time, without the payment of any penalty, by the Board of Directors of
the Company or by the vote of a majority of the outstanding voting securities of
such Fund, or by Adviser, upon 60 days' written notice to the other party.
d. This agreement shall terminate automatically in the event
of its "assignment" (as defined in the 1940 Act).
e. No amendment to this Agreement shall be effective with
respect to any Fund until approved by the vote of: (i) a majority of the
directors of the Company who are not parties to this Agreement or "interested
persons" (as defined in the 1940 Act) of Adviser or of the Company cast in
person at a meeting called for the purpose of voting on such approval; and (ii)
a majority of the outstanding voting securities of the applicable Fund.
f. Wherever referred to in this Agreement, the vote or
approval of the holders of a majority of the outstanding voting securities or
shares of a Fund shall mean the lesser of (i) the vote of 67% or more of the
voting securities of such Fund present at a regular or special meeting of
shareholders duly called, if more than 50% of the Fund's outstanding voting
securities are present or represented by proxy, or (ii) the vote of more than
50% of the outstanding voting securities of such Fund.
8. NOTICES.
Any notice under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate in writing for receipt of such notice.
IN WITNESS WHEREOF, the Company and Adviser have caused this Agreement
to be executed by their duly authorized officers as of the day and year first
above written.
VOYAGEUR MUTUAL FUNDS III, INC.
By: /s/ George M. Chamberlain
-----------------------------------------
Its: Senior Vice President
DELAWARE MANAGEMENT COMPANY, INC.
By: /s/ Wayne A. Stork
-----------------------------------------
Its: Chairman of the Board, President and
Chief Executive Officer
-5-
<PAGE> 6
Exhibit A
to
Investment Advisory Agreement
between
Delaware Management Company, Inc.
and
Voyageur Mutual Funds III, Inc.
<TABLE>
<CAPTION>
EQUIVALENT
MONTHLY ANNUAL
ADVISORY FEE ADVISORY FEE
(as % of average (as % of average
FUND EFFECTIVE DATE daily net assets) daily net assets)
---- -------------- ----------------- -----------------
<S> <C> <C> <C>
Series A - Voyageur May 1, 1997 1.00%/12 1.00%
Growth Stock Fund
Fund
Series C -Voyageur May 1, 1997 1.00%/12 1.00%
Aggressive Growth
Fund
Series E - Voyageur May 1, 1997 1.00%/12 1.00%
Tax Efficient Equity
Fund
</TABLE>
-6-
<PAGE> 1
EXHIBIT 99.B5B
VOYAGEUR MUTUAL FUNDS III, INC
TAX EFFICIENT EQUITY FUND
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT, made by and between VOYAGEUR MUTUAL FUNDS III, INC. (the
"Fund"), a Minnesota corporation, for its TAX EFFICIENT EQUITY FUND series (the
"Series"), and DELAWARE MANAGEMENT COMPANY, INC. (the "Investment Manager"), a
Delaware corporation.
W I T N E S S E T H:
WHEREAS, the Fund has been organized and operates as an investment
company registered under the Investment Company Act of 1940 and engages in the
business of investing and reinvesting its assets in securities; and
WHEREAS, the Investment Manager is a registered Investment Adviser
under the Investment Advisers Act of 1940 and engages in the business of
providing investment management services.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and each of the parties hereto intending to be legally bound, it is
agreed as follows:
1. The Fund hereby employs the Investment Manager to manage the
investment and reinvestment of the Series' assets and to administer its affairs,
subject to the direction of the Board of Directors and officers of the Fund for
the period and on the terms hereinafter set forth. The Investment Manager hereby
accepts such employment and agrees during such period to render the services and
assume the obligations herein set forth for the compensation herein provided.
The Investment Manager shall, for all purposes herein, be deemed to be an
independent contractor, and shall, unless otherwise expressly provided and
authorized, have no authority to act for or represent the Fund in any way, or in
any way be deemed an agent of the Fund. The Investment Manager shall regularly
make decisions as to what securities to purchase and sell on behalf of the
Series, and shall give written instructions to the Trading Department maintained
by the Fund for implementation of such decisions, and shall furnish the Board of
Directors of the Fund with such information and reports regarding the Series'
investments as the Investment Manager deems appropriate or as the Directors of
the Fund may reasonably request.
2. The Fund shall conduct its own business and affairs and shall bear
the expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfer of stock,
including issuance, redemption and repurchase of shares; preparation of share
certificates; reports and notices to shareholders; calling and holding of
shareholders' meetings; miscellaneous
<PAGE> 2
office expenses; brokerage commissions; custodian fees; legal and accounting
fees; taxes; and federal and state registration fees. The Series shall bear all
of its own organizational costs.
Directors, officers and employees of the Investment Manager
may be directors, officers and employees of the funds of which Delaware
Management Company, Inc. is Investment Manager. Directors, officers and
employees of the Investment Manager who are directors, officers and/or employees
of the funds shall not receive any compensation from the funds for acting in
such dual capacity.
In the conduct of the respective businesses of the parties
hereto and in the performance of this Agreement, the Fund and Investment Manager
may share facilities common to each, with appropriate proration of expenses
between them.
3. (a) The Fund shall place and execute its own orders for the purchase
and sale of portfolio securities with broker/dealers. Subject to the primary
objective of obtaining the best available prices and execution, the Fund will
place orders for the purchase and sale of portfolio securities with such
broker/dealers selected from among those designated from time to time by the
Investment Manager, who provide statistical, factual and financial information
and services to the Fund, to the Investment Manager, or to any other fund for
which the Investment Manager provides investment advisory services and/or with
broker/dealers who sell shares of the Fund or who sell shares of any other fund
for which the Investment Manager provides investment advisory services.
Broker/dealers who sell shares of the funds of which Delaware Management
Company, Inc. is investment manager, shall only receive orders for the purchase
or sale of portfolio securities to the extent that the placing of such orders is
in compliance with the Rules of the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above
and subject to such policies and procedures as may be adopted by the Board of
Directors and officers of the Fund, the Investment Manager may ask the Fund, and
the Fund may agree, to pay a member of an exchange, broker or dealer an amount
of commission for effecting a securities transaction in excess of the amount of
commission another member of an exchange, broker or dealer would have charged
for effecting that transaction, in such instances where it, and the Investment
Manager, have determined in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such member, broker or dealer, viewed in terms of either that
particular transaction or the Investment Manager's overall responsibilities with
respect to the Fund and to other funds or other advisory accounts for which the
Investment Manager exercises investment discretion.
4. As compensation for the services to be rendered to the Fund by the
Investment Manager under the provisions of this Agreement, the Fund shall pay to
the Investment Manager monthly from the Series' assets a fee based on the
average daily net assets of the Series during the month. Such fee shall be
calculated in accordance with the following schedule.
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Equivalent
Monthly Rate Annual Rate Average Daily Net Assets
- ------------ ----------- ------------------------
<S> <C> <C>
7.50/120 of 1% 0.750% on the first $500,000,000
7.25/120 of 1% 0.725% on the next $500,000,000
7.00/120 of 1% 0.700% on assets over $1,000,000,000
</TABLE>
If this Agreement is terminated prior to the end of any
calendar month, the management fee shall be prorated for the portion of any
month in which this Agreement is in effect according to the proportion which the
number of calendar days during which the Agreement is in effect bears to the
number of calendar days in the month, and shall be payable within 10 days after
the date of termination.
5. The services to be rendered by the Investment Manager to the Fund
under the provisions of this Agreement are not to be deemed to be exclusive, and
the Investment Manager shall be free to render similar or different services to
others so long as its ability to render the services provided for in this
Agreement shall not be impaired thereby.
6. The Investment Manager, its directors, officers, employees, agents
and shareholders may engage in other businesses, may render investment advisory
services to other investment companies, or to any other corporation,
association, firm or individual, and may render underwriting services to the
Fund or to any other investment company, corporation, association, firm or
individual.
7. In the absence of willful misfeasance, bad faith, gross negligence,
or a reckless disregard of the performance of duties of the Investment Manager
to the Fund, the Investment Manager shall not be subject to liabilities to the
Fund or to any shareholder of the Fund for any action or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security, or otherwise.
8. This Agreement shall be executed and become effective as of the date
written below. It shall continue in effect for a period of two years from such
date and may be renewed thereafter only so long as such renewal and continuance
is specifically approved at least annually by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities of the Series and
only if the terms and the renewal hereof have been approved by the vote of a
majority of the Directors of the Fund who are not parties hereto or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. Notwithstanding the foregoing, this Agreement may be
terminated by the Fund at any time, without the payment of a penalty, on sixty
days' written notice to the Investment Manager of the Fund's intention to do so,
pursuant to action by the Board of Directors of the Fund or pursuant to vote of
a majority of the outstanding voting securities of the Series. The Investment
Manager may
-3-
<PAGE> 4
terminate this Agreement at any time, without the payment of penalty, on sixty
days' written notice to the Fund of its intention to do so. Upon termination of
this Agreement, the obligations of all the parties hereunder shall cease and
terminate as of the date of such termination, except for any obligation to
respond for a breach of this Agreement committed prior to such termination, and
except for the obligation of the Fund to pay to the Investment Manager the fee
provided in paragraph 4 hereof, prorated to the date of termination. This
Agreement shall automatically terminate in the event of its assignment.
9. This Agreement shall extend to and bind the heirs, executors,
administrators and successors of the parties hereto.
10. For the purposes of this Agreement, the terms "vote of a majority
of the outstanding voting securities;" "interested persons;" and "assignment"
shall have the meanings defined in the Investment Company Act of 1940.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement by having it signed by their duly authorized officers as of the __th
day of June 1997.
VOYAGEUR MUTUAL FUNDS III, INC.
for the TAX EFFICIENT EQUITY FUND
/s/ Wayne A. Stork Attest: /s/ David P. O'Connor
______________________________ _________________________________
Name: Wayne A. Stork Name: David P. O'Connor
Title: Chairman of the Board, Title: Assistant Secretary
President, Chief
Executive Officer and
Director
DELAWARE MANAGEMENT COMPANY, INC.
By: /s/ David K. Downes Attest: /s/ Eric E. Miller
______________________________ _________________________________
Name: David K. Downes Name: Eric E. Miller
Title: Executive Vice President, Title: Assistant Secretary
Chief Operating Officer
and Chief Financial
Officer
-4-
<PAGE> 1
EXHIBIT 99.B5C
SUB-ADVISORY AGREEMENT
Agreement, dated as of April 30, 1997, by and between Delaware
Management Company, Inc. ("Adviser"), a Delaware corporation, and Voyageur Asset
Management LLC, a Delaware limited liability company ("Sub-Adviser").
WHEREAS, Voyageur Mutual Funds III, Inc., a Minnesota
corporation (the "Company"), on behalf of the Voyageur Growth Stock Fund, a
separately managed series of the Company (the "Fund"), has appointed Adviser as
the Fund's investment adviser pursuant to an Investment Advisory Agreement dated
as of April 30, 1997 (the "Advisory Agreement"); and
WHEREAS, pursuant to the terms of the Advisory Agreement,
Adviser desires to appoint Sub-Adviser as its sub-adviser for the Fund, and
Sub-Adviser is willing to act in such capacity upon the terms set forth herein;
and
WHEREAS, pursuant to the terms of the Advisory Agreement, the
Company has approved the appointment of Sub-Adviser as a sub-adviser for the
Fund.
NOW, THEREFORE, in consideration of the mutual agreements
herein made, Adviser and Sub-Adviser agree as follows:
1. Adviser hereby employs Sub-Adviser to serve as sub-adviser
for, and to manage the investment of the assets of, the Fund as set forth
herein. Sub-Adviser hereby accepts such employment and agrees, for the
compensation herein provided, to assume all obligations herein set forth and to
bear all expenses of its performance of such obligations (but no other
expenses). Sub-Adviser shall not be required to pay expenses of the Fund,
including, but not limited to (a) brokerage and commission expenses; (b)
federal, state, local and foreign taxes, including issue and transfer taxes
incurred by or levied on the Fund; (c) interest charges on Fund borrowings; (d)
the Fund's organizational and offering expenses, whether or not advanced by
Adviser; (e) the cost of other personnel providing services to the Fund; (f)
fees and expenses of registering or otherwise qualifying the shares of the Fund
under applicable state securities laws; (g) expenses of printing and
distributing reports to shareholders; (h) costs of shareholders' meetings and
proxy solicitation; (i) charges and expenses of the Fund's custodian and
registrar, transfer agent and dividend disbursing agent; (j) compensation of the
Company's officers, directors and employees that are not Affiliated Persons or
Interested Persons (as defined in Section 2(a)(19) of the Investment Company Act
of 1940, as amended (the "1940 Act"), and the rules, regulations and releases
relating thereto) of Adviser; (k) legal and auditing expenses of the Fund; (1)
costs of certificates representing common shares of the Fund; (m) costs of Fund
stationery and supplies; (n) insurance expenses of the Fund; (o) association
membership dues of the Fund; (p) the fees and expenses of registering the Fund
and its shares with the Securities and Exchange Commission; (q) travel expenses
of officers and employees of Sub-Adviser to the extent such expenses relate to
the attendance of such persons at meetings at the request of the Board of
Directors of the Company; and (r) all other charges and costs of the Fund's
operation unless otherwise
<PAGE> 2
explicitly provided herein. Sub-Adviser shall for all purposes herein be deemed
to be an independent contractor and shall, except as expressly provided or
authorized (whether herein or otherwise) have no authority to act for or on
behalf of the Fund in any way or otherwise be deemed an agent of the Fund.
2. Sub-Adviser shall direct the Fund's investments in
accordance with applicable law, applicable provisions of the Articles of
Incorporation and Bylaws (which shall be provided to Sub-Adviser on the date
hereof and any changes thereto shall be promptly provided to the Sub-Adviser
thereafter), and the investment objective, policies and restrictions set forth
in the Fund's then-effective Registration Statement under the Securities Act of
1933, as amended, including the Prospectus and Statement of Additional
Information of the Fund contained therein, subject to the supervision of the
Company, its officers and directors, and Adviser and in accordance with the
investment objectives, policies and restrictions from time to time prescribed by
the Board of Directors of the Company and communicated by Adviser to Sub-Adviser
and subject to such further limitations as Adviser may from time to time impose
by written notice to Sub-Adviser.
3. Sub-Adviser shall formulate and implement a continuing
program for managing the investment of the Fund's assets, and shall amend and
update such program from time to time as financial and other economic conditions
warrant. Sub-Adviser shall make all determinations with respect to managing the
investment of the Fund's assets and shall take such steps as may be necessary to
implement the same, including the placement of purchase and sale orders on
behalf of the Fund.
4. Sub-Adviser shall furnish such reports to Adviser as
Adviser may reasonably request for Adviser's use in discharging its obligations
under the Advisory Agreement, which reports may be distributed by Adviser to the
Company's Board of Directors at periodic meetings of the Board of Directors and
at such other times as may be reasonably requested by the Board of Directors.
Copies of all such reports shall be furnished to Adviser for examination and
review within a reasonable time prior to the presentation of such reports to
Company's Board of Directors.
5. Sub-Adviser shall select the brokers and dealers that will
execute the purchases and sales of securities for the Fund and markets on or in
which such transactions will be executed and shall place, in the name of the
Fund or its nominee, all such orders.
(a) Subject to the primary objective of obtaining the best
available prices and execution, Sub-Adviser will place orders
for the purchase and sale of portfolio securities with such
broker/dealers who provide statistical, factual and financial
information and services to the Fund, to Adviser, to
Sub-Adviser or to any other fund for which Adviser or
Sub-Adviser provides investment advisory services and/or with
broker/dealers who sell shares of the Fund or who sell shares
of any
-2-
<PAGE> 3
other fund for which Adviser or Sub-Adviser provides
investment advisory services. Broker/dealers who sell shares
of the funds for which Adviser or Sub-Adviser provides
investment advisory services shall only receive orders for the
purchase or sale of portfolio securities to the extent that
the placing of such orders is in compliance with the Rules of
the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.
(b) Notwithstanding the provisions of subparagraph (a) above,
and subject to such policies and procedures as may be adopted
by the Board of Directors and officers of the Company,
Sub-Adviser may ask the Fund and the Fund may agree to pay a
member of an exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of
the amount of commission another member of an exchange, broker
or dealer would have charged for effecting that transaction,
in such instances where the Fund and Sub-Adviser have
determined in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and
research services provided by such member, broker or dealer,
viewed in terms of either that particular transaction or
Sub-Adviser's overall responsibilities with respect to the
Fund and to other funds and other advisory accounts for which
Adviser or Sub-Adviser exercises investment discretion.
(c) It is understood that certain other clients of Sub-Adviser
may have investment objectives and policies similar to those
of the Fund, and that Sub-Adviser may, from time to time, make
recommendations that result in the purchase or sale of a
particular security by its other clients simultaneously with
the Fund. If transactions on behalf of more than one client
during the same period increase the demand for securities
being purchased or the supply of securities being sold, there
may be an adverse effect on price or quantity. In such event,
Sub-Adviser shall allocate advisory recommendations and the
placing of orders in a manner that is deemed equitable by
Sub-Adviser to the accounts involved, including the Fund. When
two or more of the clients of Sub-Adviser (including the Fund)
are purchasing or selling the same security on a given day
from the same broker or dealer, such transactions may be
averaged as to price.
(d) Sub-Adviser agrees that it will not purchase or sell
securities for the Fund in any transaction in which it,
Adviser or any "affiliated person" of the Company, Adviser or
Sub-Adviser or any affiliated person of such "affiliated
person" is acting as principal; provided, however, that
Sub-Adviser may effect transactions pursuant to Rule 17a-
-3-
<PAGE> 4
7 under the 1940 Act in compliance with the Fund's
then-effective policies concerning such transactions.
(e) Sub-Adviser agrees that it will not execute any portfolio
transactions for the Fund with a broker or dealer or futures
commission-merchant which is an "affiliated person" of the
Company, Adviser or Sub-Adviser or an "affiliated person" of
such an "affiliated person" without the prior written consent
of Adviser. In effecting any such transactions with the prior
written consent of Adviser, Sub-Adviser shall comply with
Section 17(e)(1) of the 1940 Act, other applicable provisions
of the 1940 Act, if any, the then-effective Registration
Statement of the Fund under the Securities Act of 1933, as
amended and the Fund's then-effective policies concerning such
transactions.
(f) Sub-Adviser shall promptly communicate to Adviser and, if
requested by Adviser, to the Company's Board of Directors,
such information relating to portfolio transactions as Adviser
may reasonably request. The parties understand that the Fund
shall bear all brokerage commissions in connection with the
purchases and sales of portfolio securities for the Fund and
all ordinary and reasonable transaction costs in connection
with purchases of such securities in private placements and
subsequent sales thereof.
6. Sub-Adviser may (at its cost except as contemplated by
paragraph 5 of this Agreement) employ, retain or otherwise avail itself of the
services and facilities of persons and entities within its own organization or
any other organization for the purpose of providing Sub-Adviser, Adviser or the
Fund with such information, advice or assistance, including but not limited to
advice regarding economic factors and trends and advice as to transactions in
specific securities, as Sub-Adviser may deem necessary, appropriate or
convenient for the discharge of its obligations hereunder or otherwise helpful
to Adviser or the Fund, or in the discharge of Sub-Adviser's overall
responsibilities with respect to the other accounts for which it serves as
investment manager or investment adviser.
7. Sub-Adviser shall cooperate with and make available to
Adviser, the Fund and any agents engaged by the Fund, Sub-Adviser's expertise
relating to matters affecting the Fund.
8. For the services to be rendered under this Agreement, and
the facilities to be furnished for each fiscal year of the Fund, Adviser shall
pay to Sub-Adviser a monthly management fee at the annual rate of 0.50% of the
Fund's average daily net assets. This fee will be computed based on the average
of the net assets of the Fund as of the close of each business day, calculated
as set forth in the Advisory Agreement, and will be paid to Sub-Adviser monthly
on or before the fifteenth day of the month next succeeding the month for
-4-
<PAGE> 5
which the fee is paid. The fee shall be prorated for any fraction of a fiscal
year at the commencement and termination of this Agreement.
Pursuant to the Advisory Agreement, Adviser receives monthly
from the Fund compensation at the annual rate of 1.00% of the Fund's average
daily net assets. If Adviser or any affiliate of Adviser has undertaken in the
Fund's Registration Statement as filed under the 1940 Act or elsewhere to waive
all or part of its fee under the Advisory Agreement or any other agreement with
the Fund and/or to pay certain Fund expenses, or to reduce any such fee upon
order of the Board of Directors or the vote of a majority of the outstanding
voting securities of the Fund, Sub-Adviser's fee payable under this Agreement
will be proportionately waived or reduced, such that Sub-Adviser's fee would be
in an amount equal to one-half of the compensation actually received by Adviser,
after taking in account all such waivers or payments of Fund expenses by Adviser
or any of its affiliates.
9. Sub-Adviser represents, warrants and agrees that:
(a) Sub-Adviser is registered as an "investment adviser" under
the Investment Advisers Act of 1940 ("Advisers Act") and is
currently in compliance and shall at all times continue to
comply with the requirements imposed upon it by Advisers Act
and other applicable laws and regulations. Sub-Adviser agrees
to (i) supply Adviser with such documents as Adviser may
reasonably request to document compliance with such laws and
regulations and (ii) immediately notify Adviser of the
occurrence of any event which would disqualify Sub-Adviser
from serving as an investment adviser of an investment company
pursuant to any applicable law or regulation.
(b) Sub-Adviser will maintain, keep current and preserve on
behalf of the Company all records required or permitted by the
1940 Act in the manner provided by such Act. Sub-Adviser
agrees that such records are the property of the Company, and
will be surrendered to the Company promptly upon request.
(c) Sub-Adviser will complete such reports concerning
purchases or sales of securities on behalf of Sub-Adviser as
Adviser may from time to time require to document compliance
with the 1940 Act, Advisers Act, the Internal Revenue Code,
applicable state securities laws and other applicable laws and
regulations or regulatory and taxing authorities in countries
other than the United States.
(d) Sub-Adviser has furnished Adviser with a copy of
Sub-Adviser's currently effective Form ADV. After filing with
the Securities and
-5-
<PAGE> 6
Exchange Commission any amendment to its Form ADV, Sub-Adviser
will promptly furnish a copy of such amendment to Adviser.
(e) Sub-Adviser will immediately notify Adviser of the
occurrence of any event which would disqualify Sub-Adviser
from serving as an investment adviser of an investment company
pursuant to Section 9 of the 1940 Act or any other applicable
statute or regulation.
10. Adviser represents, warrants and agrees that:
(a) It has been duly authorized by the Board of Directors of
the Company to delegate to Sub-Adviser the provision of the
services contemplated hereby.
(b) Adviser and the Company are currently in compliance and
shall at all times continue to comply with the requirements
imposed upon Adviser and the Company by applicable law and
regulations.
11. Sub-Adviser will not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund or its shareholders in
connection with the performance of its duties under this Agreement, except a
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
duties under this Agreement.
12. This Agreement shall become effective on May 1, 1997.
Wherever referred to in this Agreement, the vote or approval of the holders of a
majority of the outstanding voting securities or shares of the Fund shall mean
(a) the vote of 67% or more of the voting securities of such Fund present at
such meeting if the holders of more than 50% of the outstanding voting
securities of the Fund are present in person or by proxy, or (b) the vote of
more than 50% of the outstanding voting securities of the Fund, whichever is
less.
Unless sooner terminated as hereinafter provided, this
Agreement shall continue in effect for a period of two years from the date of
its execution, and thereafter shall continue in effect only so long as such
continuance is specifically approved at least annually (a) by the Board of
Directors of the Company or by the vote of a majority of the outstanding voting
securities of the Fund, and (b) by the vote of a majority of the directors of
the Company who are not parties to this Agreement or Interested Persons of
Adviser, Sub-Adviser or the Company, cast in person at a meeting called for the
purpose of voting on such approval.
This Agreement may be terminated at any time without the
payment of any penalty (a) by the vote of the Board of Directors of the Company
or by the vote of the holders of a majority of the outstanding voting securities
of the Fund, upon 60 days' written
-6-
<PAGE> 7
notice to Adviser and the Sub-Adviser, or (b) by Adviser, upon 60 days' written
notice to the Sub-Adviser; or (c) by the Sub-Adviser, upon 60 days' written
notice to Adviser. This Agreement shall automatically terminate in the event of
its assignment as defined in the 1940 Act and the rules thereunder, provided,
however, that such automatic termination shall be prevented in a particular case
by an order of exemption from the Securities and Exchange Commission or a
no-action letter of the staff of the Commission to the effect that such
assignment does not require termination as a statutory or regulatory matter.
This Agreement shall automatically terminate upon completion of the dissolution,
liquidation or winding up of the Fund. This Agreement shall terminate
automatically upon termination of the Advisory Agreement.
13. No amendment to or modification of this Agreement shall be
effective unless and until approved by the vote of a majority of the outstanding
shares of the Fund.
14. This Agreement shall be binding upon, and inure to the
benefit of, Adviser and Sub-Adviser, and their respective successors.
15. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
16. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended
-7-
<PAGE> 8
from time to time, this Agreement shall be administered, construed and enforced
according to the laws of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers thereunto duly authorized in
multiple counterparts, each of which shall be an original but all of which shall
constitute one of the same instrument.
DELAWARE MANAGEMENT COMPANY, INC.
By /s/ Wayne A. Stork
____________________________
Name: Wayne A. Stork
Title: Chairman of the Board,
President, Chief
Executive Officer and
Director
VOYAGEUR ASSET MANAGEMENT LLC
By /s/ Thomas J. Abood
____________________________
Name: Thomas J. Abood
Title: Secretary
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<PAGE> 1
EXHIBIT 99.B6AI
VOYAGEUR MUTUAL FUNDS III, INC.
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made and entered into as of this 30th day of
April, 1997, by and between VOYAGEUR MUTUAL FUNDS III, INC., a Minnesota
corporation (the "Company"), for and on behalf of each series of the Company
(each series is referred to hereinafter as a "Fund"), and Voyageur Fund
Distributors, Inc., a Minnesota corporation (the "Underwriter"). This Agreement
shall apply to each class of shares offered by the following Funds:
Voyageur Growth Stock Fund (currently offering shares of Classes A, B
and C) Voyageur Aggressive Growth Fund (currently offering shares of
Classes A, B and C) Voyageur Tax Efficient Equity Fund (currently
offering shares of Classes A, B and C)
WITNESSETH:
WHEREAS, the Company is an open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), and
WHEREAS, the Underwriter is engaged in the business of
promoting the distribution of the securities of investment companies, and
WHEREAS, the Company and the Underwriter were the parties to
an agreement dated as of September 1, 1995 (the "Prior Distribution Agreement")
under which the Underwriter acted as underwriter of each class of shares of the
Funds, and
WHEREAS, on the date of this Agreement, the indirect parent
company of the Underwriter completed a merger transaction which resulted in a
change of control of the Underwriter and an automatic termination of the Prior
Distribution Agreement, and
WHEREAS, the Board of Directors of the Company has determined
to enter into a new agreement with the Underwriter as of the date hereof,
pursuant to which the Underwriter shall continue to serve as a principal
underwriter, together with Delaware Distributors, L.P. ("DDLP"), which serves as
co-principal underwriter pursuant to a separate agreement with the Company, of
the shares of each class of the Funds, on the conditions set forth below. (The
Underwriter and DDLP may be referred to herein as the "Co-Underwriters.")
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
<PAGE> 2
1. UNDERWRITING SERVICES
The Company, on behalf of each Fund, hereby engages the Underwriter,
and the Underwriter hereby agrees to act, as a principal underwriter for each
Fund in the sale and distribution of the shares of each class of such Fund to
the public, either through dealers or otherwise. The Underwriter agrees to offer
such shares for sale at all times when such shares are available for sale and
may lawfully be offered for sale and sold.
2. SALE OF SHARES
The shares of each Fund are to be sold only on the following terms:
(a) All subscriptions, offers, or sales shall be subject to acceptance
or rejection by the Company. Any offer for or sale of shares shall be
conclusively presumed to have been accepted by the Company if the Company shall
fail to notify the Underwriter of the rejection of such offer or sale prior to
the computation of the net asset value of such shares next following receipt by
the Company of notice of such offer or sale.
(b) No share of a Fund shall be sold by the Underwriter (i) for any
consideration other than cash or, pursuant to any exchange privilege provided
for by the applicable currently effective Prospectus or Statement of Additional
Information (hereinafter referred to collectively as the "Prospectus"), shares
of any other investment company for which the Underwriter acts as an
underwriter, or (ii) except in instances otherwise provided for by the
applicable currently effective Prospectus, for any amount less than the public
offering price per share, which shall be determined in accordance with the
applicable currently effective Prospectus.
(c) In connection with certain sales of shares, a contingent deferred
sales charge will be imposed in the event of a redemption transaction occurring
within a certain period of time following such a purchase, as described in the
applicable currently effective Prospectus.
(d) The front-end sales charge, if any, for any class of shares of a
Fund may, at the discretion of the Company and the Co-Underwriters, be reduced
or eliminated as permitted by the 1940 Act, and the rules and regulations
thereunder, as they may be amended from time to time, provided that such
reduction or elimination shall be set forth in the Prospectus for such class,
and provided that the Company shall in no event receive for any shares sold an
amount less than the net asset value thereof. In addition, any contingent
deferred sales charge for any class of shares of a Fund may, at the discretion
of the Company and the Co-Underwriters, be reduced or eliminated in accordance
with the terms of an exemptive order received from, or any applicable rule or
rules promulgated by, the Securities and Exchange Commission, provided that such
reduction or elimination shall be set forth in the Prospectus for such class of
shares.
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<PAGE> 3
(e) The Underwriter shall require any securities dealer entering into a
selected dealer agreement with the Underwriter to disclose to prospective
investors the existence of all available classes of shares of a Fund and to
determine the suitability of each available class as an investment for each such
prospective investor.
3. QUALIFICATION OF SHARES
The Company agrees to make prompt and reasonable efforts to effect and
keep in effect, at its expense, the registration or qualification of each Fund's
shares for sale in such jurisdictions as the Company may designate.
4. INFORMATION TO BE FURNISHED TO THE UNDERWRITER
The Company agrees that it will furnish the Underwriter with such
information with respect to the affairs and accounts of the Company (and each
Fund or class thereof) as the Underwriter may from time to time reasonably
require, and further agrees that the Underwriter, at all time reasonable times,
shall be permitted to inspect the books and records of the Company.
5. ALLOCATION OF EXPENSES
During the period of this Agreement, the Company shall pay or cause to
be paid all expenses, costs and fees incurred by the Company which are not
assumed by the Co- Underwriters. The Underwriter agrees to provide, and shall
pay costs which it incurs in connection with providing, administrative or
accounting services to shareholders of each Fund (such costs are referred to as
"Shareholder Servicing Costs"). Shareholder Servicing Costs include all expenses
of the Underwriter incurred in connection with providing administrative or
accounting services to shareholders of each Fund, including, but not limited to,
an allocation of the Underwriter's overhead and payments made to persons,
including employees of the Underwriter, who respond to inquiries of shareholders
regarding their ownership of Fund shares, or who provide other administrative or
accounting services not otherwise required to be provided by the applicable
Fund's investment adviser or transfer agent. The Underwriter has also agreed to
pay all costs of distributing the shares of each Fund ("Distribution Expenses").
DDLP may pay all or a portion of the Distribution Expenses as agreed to from
time to time by the Co-Underwriters. Distribution Expenses include, but are not
limited to, initial and ongoing sales compensation (in addition to sales loads)
paid to investment executives of the Co-Underwriters, and to other
broker-dealers and participating financial institutions; expenses incurred in
the printing of prospectuses, statements of additional information and reports
used for sales purposes; expenses of preparation and distribution of sales
literature; expenses of advertising of any type; an allocation of the
Co-Underwriters' overhead; payments to and expenses of persons who provide
support services in connection with the distribution of Fund shares; and other
distribution related expenses.
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<PAGE> 4
6. COMPENSATION TO THE UNDERWRITER
As compensation for all of its services provided and its costs assumed
under this Agreement, the Underwriter shall receive the following forms and
amounts of compensation;
(a) The Underwriter shall, as agreed from time to time with DDLP
and as permitted by applicable law or regulation, be entitled to receive or
retain any front-end sales charge imposed in connection with sales of shares of
each Fund, as set forth in the applicable current Prospectus. Up to the entire
amount of such front-end sales charge may be reallowed by the Underwriter to
broker-dealers and participating financial institutions in connection with their
sale of Fund shares. The amount of the front-end sales charge (if any) may be
retained or deducted by the Underwriter from any sums received by it in payment
for shares so sold. If such amount is not deducted by the Underwriter from such
payments, such amount shall be paid to the Underwriter by the Company not later
than five business days after the close of any calendar quarter during which any
such sales were made by the Underwriter and payment received by the Company.
(b) The Underwriter shall, as agreed from time to time with DDLP
and as permitted by applicable law or regulation, be entitled to receive or
retain any contingent deferred sales charge imposed in connection with any
redemption of shares of each Fund, as set forth in the applicable current
Prospectus.
(c) Pursuant to the Company's Plan of Distribution adopted in
accordance with Rule 12b-1 under the 1940 Act (the "Plan"):
(i) Class A of each Fund is obligated to pay the Underwriter
and/or DDLP, as agreed from time to time by such parties and as
permitted by applicable law or regulation, a total fee in connection
with the servicing of shareholder accounts of such class and in
connection with distribution-related services provided in respect of
such class, calculated and payable quarterly, at the annual rate of
.25% of the value of the average daily net assets of such class. All or
any portion of such total fee may be payable as a Shareholder Servicing
Fee, and all or any portion of such total fee may be payable as a
Distribution Fee, as determined from time to time by the Company's
Board of Directors. Until further action by the Board of Directors, all
of such fee shall be designated and payable as a Shareholder Servicing
Fee.
(ii) Class B of each Fund offering shares of such Class is
obligated to pay the Underwriter and/or DDLP, as agreed from time to
time by such parties and as permitted by applicable law or regulation,
a total fee in connection with the servicing of shareholder accounts of
such Class and in connection with distribution-related services
provided in respect of such Class, calculated and payable quarterly, at
the annual rate of 1.00% of the value of the average daily net assets
of such Class. All or
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<PAGE> 5
any portion of such total fee may be payable as a Shareholder Servicing
Fee, and all or any portion of such total fee may be payable as a
Distribution Fee, as determined from time to time by the Company's
Board of Directors. Until further action by the Board of Directors, a
portion of such fee equal to .25% per annum of Class B's average net
assets shall be designated and payable as a Shareholder Servicing Fee
and the remainder of such fee shall be designated as a Distribution
Fee.
(iii) Class C of each Fund is obligated to pay the Underwriter
and/or DDLP, as agreed from time to time by such parties and as
permitted by applicable law or regulation, a total fee in connection
with the servicing of shareholder accounts of such class and in
connection with distribution-related services provided in respect of
such class, calculated and payable quarterly, at the annual rate of
1.00% of the value of the average daily net assets of such class. All
or any portion of such total fee may be payable as a Shareholder
Servicing Fee, and all or any portion of such total fee may be payable
as a Distribution Fee, as determined from time to time by the Company's
Board of Directors. Until further action by the Board of Directors, a
portion of such total fee equal to .25% per annum of the average daily
net assets of such class shall be designated and payable as a
Shareholder Servicing Fee and the remainder of such fee shall be
designated as a Distribution Fee.
Average daily net assets shall be computed in accordance with the
applicable currently effective Prospectus. Amounts payable under the Plan may
exceed or be less than actual Distribution Expenses and Shareholder Servicing
Costs. In the event such Distribution Expenses and Shareholder Servicing Costs
exceed amounts payable under the Plan, the Underwriter shall not be entitled to
reimbursement by the Company.
(d) In each year during which this Agreement remains in effect,
the Underwriter and/or DDLP, as agreed from time to time with DDLP, will prepare
and furnish to the Board of Directors of the Company, and the Board will review,
on a quarterly basis, written reports complying with the requirements of Rule
12b-1 under the 1940 Act that set forth the amounts expended under this
Agreement and the Plan, on a class by class basis as applicable, and the
purposes for which those expenditures were made.
7. LIMITATION OF THE UNDERWRITER'S AUTHORITY
The Underwriter shall be deemed to be an independent contractor and,
except as specifically provided or authorized herein, shall have no authority to
act for or represent any Fund or the Company.
8. SUBSCRIPTION FOR SHARES-REFUND FOR CANCELED ORDERS
The Underwriter shall subscribe for the shares of a Fund only for the
purpose of covering purchase orders already received by it or for the purpose of
investment for its own account. In the event that an order for the purchase of
shares of a Fund is placed with the
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<PAGE> 6
Underwriter by a customer or dealer and subsequently canceled, the Underwriter
shall forthwith cancel the subscription for such shares entered on the books of
the Fund, and, if the Underwriter has paid the Fund for such shares, shall be
entitled to receive from the Fund in refund of such payment the lesser of:
(a) the consideration received by the Fund for said shares; or
(b) the net asset value of such shares at the time of cancellation by
the Underwriter.
9. INDEMNIFICATION OF THE COMPANY
The Underwriter agrees to indemnify each Fund and the Company against
any and all litigation and other legal proceedings of any kind or nature and
against any liability, judgment, cost, or penalty imposed as a result of such
litigation or proceedings in any way arising out of or in connection with the
sale or distribution of the shares of such Fund by the Underwriter. In the event
of the threat or institution of any such litigation or legal proceedings against
any Fund, the Underwriter shall defend such action on behalf of the Fund or the
Company at the Underwriter's own expense, and shall pay any such liability,
judgment, cost, or penalty resulting therefrom, whether imposed by legal
authority or agreed upon by way of compromise and settlement; provided, however,
the Underwriter shall not be required to pay or reimburse a Fund for any
liability, judgment, cost, or penalty incurred as a result of information
supplied by, or as the result of the omission to supply information by, the
Company to the Underwriter, or to the Underwriter by a director, officer, or
employee of the Company who is not an "interested person," as defined in the
provisions of the 1940 Act, of the Underwriter, unless the information so
supplied or omitted was available to the Underwriter without recourse to the
Fund or the Company or any such person referred to above.
10. FREEDOM TO DEAL WITH THIRD PARTIES
The Underwriter shall be free to render to others services of a nature
either similar to or different from those rendered under this contract, except
such as may impair its performance of the services and duties to be rendered by
it hereunder.
11. EFFECTIVE DATE, DURATION AND TERMINATION OF AGREEMENT
(a) The effective date of this Agreement shall be May 1, 1997. Unless
sooner terminated as hereinafter provided, this Agreement shall continue in
effect for a period of one year after the date of its execution, and from year
to year thereafter, but only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Company,
and of the directors who are not "interested persons" (as defined in the
provisions of the 1940 Act) of the Company and have no direct or indirect
financial interest in the operation of the Plan or in any agreement related to
the Plan (including, without limitation, this Agreement), cast in person at a
meeting called for the purpose of voting on this Agreement.
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(b) This Agreement may be terminated at any time with respect to any
Fund or class thereof, without the payment of any penalty, by the vote of a
majority of the members of the Board of Directors of the Company who are not
"interested persons" (as defined in the provisions of the 1940 Act) of the
Company and have no direct or indirect financial interest in the operation of
the Plan or in any agreement related to the Plan (including, without limitation,
this Agreement), or by the vote of a majority of the outstanding voting
securities of such Fund (or class thereof), or by the Underwriter, upon 60 days'
written notice to the other party.
(c) This Agreement shall automatically terminate in the event of its
"assignment" (as defined by the provisions of the 1940 Act).
(d) Wherever referred to in this Agreement, the vote or approval of the
holders of a majority of the outstanding voting securities of a Fund (or class
thereof) shall mean the lesser of (i) the vote of 67% or more of the voting
securities of such Fund (or class thereof) present at a regular or special
meeting of shareholders duly called, if more than 50% of the Fund's (or class's,
as applicable) outstanding voting securities are present or represented by
proxy, or (ii) the vote of more than 50% of the outstanding voting securities of
such Fund (or class thereof).
12. AMENDMENTS TO AGREEMENT
No material amendment to this Agreement shall be effective until
approved by the Underwriter and by vote of a majority of the Board of Directors
of the Company who are not interested persons of the Underwriter.
13. NOTICES
Any notice under this Agreement shall be in writing, addressed,
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate in writing for receipt of such notice.
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IN WITNESS WHEREOF, the Company and the Underwriter have
caused this Agreement to be executed by their duly authorized officers as of the
day and year first above written.
VOYAGEUR MUTUAL FUNDS III, INC.
By /s/ George M. Chamberlain
-------------------------------------
Its Senior Vice President
VOYAGEUR FUND DISTRIBUTORS, INC.
By /s/ Richard J. Flannery
-------------------------------------
Its Managing Director
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<PAGE> 1
EXHIBIT 99.B6aii
VOYAGEUR MUTUAL FUNDS III, INC.
TAX EFFICIENT EQUITY FUND
DISTRIBUTION AGREEMENT
Distribution Agreement (the "Agreement") made as of this 26th day of
June, 1997 by and between VOYAGEUR MUTUAL FUNDS III, INC., a Minnesota
corporation (the "Fund"), for the TAX EFFICIENT EQUITY FUND series (the
"Series"), and DELAWARE DISTRIBUTORS, L.P. (the "Distributor"), a Delaware
limited partnership.
WITNESSETH
WHEREAS, the Fund is an investment company regulated by
Federal and State regulatory bodies, and
WHEREAS, the Distributor is engaged in the business of
promoting the distribution of the securities of investment companies and, in
connection therewith and acting solely as agent for such investment companies
and not as principal, advertising, promoting, offering and selling their
securities to the public, and
WHEREAS, the Fund desires to enter into an agreement with the
Distributor on behalf of the Series, pursuant to which the Distributor shall
serves as the national distributor of the Series' Tax Efficient Equity Fund A
Class ("Class A Shares"), Tax Efficient Equity Fund B Class (the "Class B
Shares"), Tax Efficient Equity Fund C Class (the "Class C Shares"), and Tax
Efficient Equity Fund Institutional Class (the "Institutional Class Shares"),
which Series and classes may do business under these or such other names as the
Board of Directors may designate from time to time, on the terms and conditions
set forth below,
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. The Fund hereby engages the Distributor to promote the distribution of
the Series' shares and, in connection therewith and as agent for the
Fund and not as principal, to advertise, promote, offer and sell the
Series' shares to the public.
2. (a) The Distributor agrees to serve as distributor of the Series'
shares and, as agent for the Fund and not as principal, to
advertise, promote and use its best efforts to sell the
Series' shares wherever their sale is legal, either through
dealers or otherwise, in such places and in such manner, not
inconsistent with the law and the provisions of this Agreement
and the Fund's Registration Statement under the Securities Act
of 1933, including the Prospectuses contained therein, and the
Statement of Additional Information contained therein as may
be mutually determined by the Fund and the Distributor from
time to time.
<PAGE> 2
(b) For the Institutional Class Shares, the Distributor will bear
all costs of financing any activity which is primarily
intended to result in the sale of that class of shares,
including, but not necessarily limited to, advertising,
compensation of underwriters, dealers and sales personnel, the
printing and mailing of sales literature and distribution of
that class of shares.
(c) For its services as agent for the Class A Shares, Class B
Shares, and Class C Shares, the Distributor shall be entitled
to compensation on each sale or redemption, as appropriate, of
shares of such classes equal to any front-end or deferred
sales charge described in the Prospectus from time to time and
may allow concessions to dealers in such amounts and on such
terms as are therein set forth.
(d) For the Class A Shares, Class B Shares, and Class C Shares,
the Fund shall, in addition, compensate the Distributor for
its services as provided in the Distribution Plan as adopted
on behalf of the Class A Shares, Class B Shares, and Class C
Shares, respectively, pursuant to Rule 12b-1 under the
Investment Company Act of 1940 (the "Plans"), copies of which
as presently in force are attached hereto as, respectively,
Exhibit "A," "B," and "C."
3. (a) The Fund agrees to make available for sale by the Fund through
the Distributor all or such part of the authorized but
unissued shares of the Series as the Distributor shall require
from time to time, and except as provided in Paragraph 3(b)
hereof, the Fund will not sell Series' shares other than
through the efforts of the Distributor.
(b) The Fund reserves the right from time to time (1) to sell and
issue shares other than for cash; (2) to issue shares in
exchange for substantially all of the assets of any
corporation or trust, or in exchange of shares of any
corporation or trust; (3) to pay stock dividends to its
shareholders, or to pay dividends in cash or stock at the
option of its stockholders, or to sell stock to existing
stockholders to the extent of dividends payable from time to
time in cash, or to split up or combine its outstanding shares
of common stock; (4) to offer shares for cash to its
stockholders as a whole, by the use of transferable rights or
otherwise, and to sell and issue shares pursuant to such
offers; and (5) to act as its own distributor in any
jurisdiction in which the Distributor is not registered as a
broker-dealer.
4. The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment
company, and any and all Series' shares which it will sell
through the Distributor are, or will be, properly registered
with the Securities and Exchange Commission ("SEC").
(b) The provisions of this Agreement do not violate the terms of
any instrument by which the Fund is bound, nor do they violate
any law or regulation of any body having jurisdiction over the
Fund or its property.
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<PAGE> 3
5. (a) The Fund will supply to the Distributor a conformed copy of
the Registration Statement, all amendments thereto, all
exhibits, and each Prospectus and Statement of Additional
Information.
(b) The Fund will register or qualify the Series' shares for sale
in such states as is deemed desirable.
(c) The Fund, without expense to the Distributor,
(1) will give and continue to give such financial
statements and other information as may be required
by the SEC or the proper public bodies of the states
in which the Series' shares may be qualified;
(2) from time to time, will furnish to the Distributor as
soon as reasonably practicable true copies of its
periodic reports to stockholders;
(3) will promptly advise the Distributor in person or by
telephone or telegraph, and promptly confirm such
advice in writing, (a) when any amendment or
supplement to the Registration Statement becomes
effective, (b) of any request by the SEC for
amendments or supplements to the Registration
Statement or the Prospectuses or for additional
information, and (c) of the issuance by the SEC of
any Stop Order suspending the effectiveness of the
Registration Statement, or the initiation of any
proceedings for that purpose;
(4) if at any time the SEC shall issue any Stop Order
suspending the effectiveness of the Registration
Statement, will make every reasonable effort to
obtain the lifting of such order at the earliest
possible moment;
(5) will from time to time, use its best effort to keep a
sufficient supply of Series' shares authorized, any
increases being subject to the approval of
shareholders as may be required;
(6) before filing any further amendment to the
Registration Statement or to any Prospectus, will
furnish to the Distributor copies of the proposed
amendment and will not, at any time, whether before
or after the effective date of the Registration
Statement, file any amendment to the Registration
Statement or supplement to any Prospectus of which
the Distributor shall not previously have been
advised or to which the Distributor shall reasonably
object (based upon the accuracy or completeness
thereof) in writing;
(7) will continue to make available to its stockholders
(and forward copies to the Distributor) of such
periodic, interim and any other reports as are now,
or as hereafter may be, required by the provisions of
the Investment Company Act of 1940; and
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<PAGE> 4
(8) will, for the purpose of computing the offering price
of Series' shares, advise the Distributor within one
hour after the close of the New York Stock Exchange
(or as soon as practicable thereafter) on each
business day upon which the New York Stock Exchange
may be open of the net asset value per share of the
Series' shares of common stock outstanding,
determined in accordance with any applicable
provisions of law and the provisions of the Articles
of Incorporation, as amended, of the Fund as of the
close of business on such business day. In the event
that prices are to be calculated more than once
daily, the Fund will promptly advise the Distributor
of the time of each calculation and the price
computed at each such time.
6. The Distributor agrees to submit to the Fund, prior to its use, the
form of all sales literature proposed to be generally disseminated by
or for the Distributor, all advertisements proposed to be used by the
Distributor, all sales literature or advertisements prepared by or for
the Distributor for such dissemination or for use by others in
connection with the sale of the Series' shares, and the form of
dealers' sales contract the Distributor intends to use in connection
with sales of the Series' shares. The Distributor also agrees that the
Distributor will submit such sales literature and advertisements to the
NASD, SEC or other regulatory agency as from time to time may be
appropriate, considering practices then current in the industry. The
Distributor agrees not to use such form of dealers' sales contract or
to use or to permit others to use such sales literature or
advertisements without the written consent of the Fund if any
regulatory agency expresses objection thereto or if the Fund delivers
to the Distributor a written objection thereto.
7. The purchase price of each share sold hereunder shall be the offering
price per share mutually agreed upon by the parties hereto, and as
described in the Fund's Prospectuses, as amended from time to time,
determined in accordance with any applicable provision of law, the
provisions of its Articles of Incorporation and the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
8. The responsibility of the Distributor hereunder shall be limited to the
promotion of sales of Series' shares. The Distributor shall undertake
to promote such sales solely as agent of the Fund, and shall not
purchase or sell such shares as principal. Orders for Series' shares
and payment for such orders shall be directed to the Fund's agent,
Delaware Service Company, Inc. for acceptance on behalf of the Fund.
The Distributor is not empowered to approve orders for sales of Series'
shares or accept payment for such orders. Sales of Series' shares shall
be deemed to be made when and where accepted by Delaware Service
Company, Inc. on behalf of the Fund.
9. With respect to the apportionment of costs between the Fund and the
Distributor of activities with which both are concerned, the following
will apply:
(a) The Fund and the Distributor will cooperate in preparing the
Registration Statements, the Prospectuses, the Statement of
Additional Information, and all amendments,
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supplements and replacements thereto. The Fund will pay all
costs incurred in the preparation of the Fund's Registration
Statement, including typesetting, the costs incurred in
printing and mailing Prospectuses and Annual, Semi-Annual and
other financial reports to its own shareholders and fees and
expenses of counsel and accountants.
(b) The Distributor will pay the costs incurred in printing and
mailing copies of Prospectuses to prospective investors.
(c) The Distributor will pay advertising and promotional expenses,
including the costs of literature sent to prospective
investors.
(d) The Fund will pay the costs and fees incurred in registering
or qualifying the Series' shares with the various states and
with the SEC.
(e) The Distributor will pay the costs of any additional copies of
Fund financial and other reports and other Fund literature
supplied to the Distributor by the Fund for sales promotion
purposes.
10. The Distributor may engage in other business, provided such other
business does not interfere with the performance by the Distributor of
its obligations under this Agreement.
11. The Fund agrees to indemnify, defend and hold harmless from the assets
of the Series the Distributor and each person, if any, who controls the
Distributor within the meaning of Section 15 of the Securities Act of
1933, from and against any and all losses, damages, or liabilities to
which, jointly or severally, the Distributor or such controlling person
may become subject, insofar as the losses, damages or liabilities arise
out of the performance of its duties hereunder except that the Fund
shall not be liable for indemnification of the Distributor or any
controlling person thereof for any liability to the Fund or its
security holders to which they would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance
of their duties under this Agreement.
12. Copies of financial reports, Registration Statements and Prospectuses,
as well as demands, notices, requests, consents, waivers, and other
communications in writing which it may be necessary or desirable for
either party to deliver or furnish to the other will be duly delivered
or furnished, if delivered to such party at its address shown below
during regular business hours, or if sent to that party by registered
mail or by prepaid telegram filed with an office or with an agent of
Western Union or another nationally recognized telegraph service, in
all cases within the time or times herein prescribed, addressed to the
recipient at 1818 Market Street, Philadelphia, Pennsylvania 19103, or
at such other address as the Fund or the Distributor may designate in
writing and furnish to the other.
13. This Agreement shall not be assigned, as that term is defined in the
Investment Company Act of 1940, by the Distributor and shall terminate
automatically in the event of its attempted
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assignment by the Distributor. This Agreement shall not be assigned by
the Fund without the written consent of the Distributor signed by its
duly authorized officers and delivered to the Fund. Except as
specifically provided in the indemnification provision contained in
Paragraph 11 herein, this Agreement and all conditions and provisions
hereof are for the sole and exclusive benefit of the parties hereto and
their legal successors and no express or implied provision of this
Agreement is intended or shall be construed to give any person other
than the parties hereto and their legal successors any legal or
equitable right, remedy or claim under or in respect of this Agreement
or any provisions herein contained.
14. (a) This Agreement shall remain in force for a period of two years
from the date hereof and from year to year thereafter, but
only so long as such continuance is specifically approved at
least annually by the Board of Directors or by vote of a
majority of the outstanding voting securities of the Series
and only if the terms and the renewal thereof have been
approved by the vote of a majority of the Directors of the
Fund who are not parties hereto or interested persons of any
such party, cast in person at a meeting called for the purpose
of voting on such approval.
(b) The Distributor may terminate this Agreement on written notice
to the Fund at any time in case the effectiveness of the
Registration Statement shall be suspended, or in case Stop
Order proceedings are initiated by the SEC in respect of the
Registration Statement and such proceedings are not withdrawn
or terminated within thirty days. The Distributor may also
terminate this Agreement at any time by giving the Fund
written notice of its intention to terminate the Agreement at
the expiration of three months from the date of delivery of
such written notice of intention to the Fund.
(c) The Fund may terminate this Agreement at any time on at least
thirty days prior written notice to the Distributor (1) if
proceedings are commenced by the Distributor or any of its
partners for the Distributor's liquidation or dissolution or
the winding up of the Distributor's affairs; (2) if a receiver
or trustee of the Distributor or any of its property is
appointed and such appointment is not vacated within thirty
days thereafter; (3) if, due to any action by or before any
court or any federal or state commission, regulatory body, or
administrative agency or other governmental body, the
Distributor shall be prevented from selling securities in the
United States or because of any action or conduct on the
Distributor's part, sales of the shares are not qualified for
sale. The Fund may also terminate this Agreement at any time
upon prior written notice to the Distributor of its intention
to so terminate at the expiration of three months from the
date of the delivery of such written notice to the
Distributor.
15. The validity, interpretation and construction of this Agreement, and of
each part hereof, will be governed by the laws of the Commonwealth of
Pennsylvania.
16. In the event any provision of this Agreement is determined to be void
or unenforceable, such determination shall not affect the remainder of
the Agreement, which shall continue to be in force.
-6-
<PAGE> 7
DELAWARE DISTRIBUTORS, L.P.
By: DELAWARE DISTRIBUTORS, INC.,
General Partner
Attest: /s/ Eric E. Miller By: /s/ Bruce D. Barton
--------------------------- ------------------------------------
Name: Eric E. Miller Name: Bruce D. Barton
Title: Assistant Secretary Title: President and Chief Executive
Officer
VOYAGEUR MUTUAL FUNDS III, INC. for the
TAX EFFICIENT EQUITY FUND
Attest: /s/ David P. O'Connor By: /s/ Wayne A. Stork
--------------------------- -------------------------------------
Name: David P. O'Connor Name: Wayne A. Stork
Title: Assistant Secretary Title: Chairman of the Board,
President, Chief Executive
Officer and Director
-7-
<PAGE> 8
EXHIBIT A
DISTRIBUTION PLAN
VOYAGEUR MUTUAL FUNDS III, INC.
TAX EFFICIENT EQUITY FUND
TAX EFFICIENT EQUITY FUND A CLASS
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule l2b-l under the Investment Company Act of l940 (the "Act") by
Voyageur Mutual Funds III, Inc. (the "Fund"), for the Tax Efficient Equity Fund
series (the "Series") on behalf of the Tax Efficient Equity Fund A Class
("Class"), which Fund, Series and Class may do business under these or such
other names as the Board of Directors of the Fund may designate from time to
time. The Plan has been approved by a majority of the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related thereto ("non-interested Directors"), cast in
person at a meeting called for the purpose of voting on such Plan. Such approval
by the Directors included a determination that in the exercise of reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Series and shareholders of the Class.
The Plan has been approved by a majority of the outstanding voting securities of
the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the
State of Maryland, is authorized to issue different series and classes of
securities and is an open-end management investment company registered under the
Act. Delaware Management Company, Inc. serves as the Series' investment adviser
and manager pursuant to an Investment Management Agreement. Delaware Service
Company, Inc. serves as the Series' shareholder servicing, dividend disbursing
and transfer agent. Delaware Distributors, L.P. (the "Distributor") is the
principal underwriter and national distributor for the Series' shares, including
shares of the Class, pursuant to the Distribution Agreement between the
Distributor and the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
l. The Fund shall pay to the Distributor a monthly fee not to
exceed 0.3% (3/10 of l%) per annum of the Series' average daily net assets
represented by shares of the Class (the "Maximum Amount") as may be determined
by the Fund's Board of Directors from time to time. Such monthly fee shall be
reduced by the aggregate sums paid by the Fund on behalf of the Series to
persons other than broker-dealers (the "Service Providers") who may, pursuant to
servicing agreements, provide to the Series services in the Series' marketing of
shares of the Class.
A-1
<PAGE> 9
2. (a) The Distributor shall use the monies paid to it
pursuant to paragraph l above to furnish, or cause or encourage others to
furnish, services and incentives in connection with the promotion, offering and
sale of Class shares and, where suitable and appropriate, the retention of Class
shares by shareholders.
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (l)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly
on the amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Plan; both the Distributor and the Service Providers shall
furnish the Board of Directors of the Fund with such other information as the
Board may reasonably request in connection with the payments made under the Plan
and the use thereof by the Distributor and the Service Providers, respectively,
in order to enable the Board to make an informed determination of the amount of
the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of
Directors of the Fund, for their review, on a quarterly basis, a written report
of the amounts expended under the Plan and the purposes for which such
expenditures were made.
5. This Plan shall take effect at such time as the Distributor
shall notify the Fund in writing of the commencement of the Plan (the
"Commencement Date"); thereafter, the Plan shall continue in effect for a period
of more than one year from the Commencement Date only so long as such
continuance is specifically approved at least annually by a vote of the Board of
Directors of the Fund, and of the non-interested Directors, cast in person at a
meeting called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph l thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by
the non-interested Directors in the manner described in paragraph 5 above.
A-2
<PAGE> 10
8. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42)
of the Act shall govern the meaning of "interested person(s)" and "vote of a
majority of the outstanding voting securities," respectively, for the purposes
of this Plan.
This Plan shall take effect on the Commencement Date, as
previously defined.
June 26, 1997
A-3
<PAGE> 11
EXHIBIT B
DISTRIBUTION PLAN
VOYAGEUR MUTUAL FUNDS III, INC.
TAX EFFICIENT EQUITY FUND
TAX EFFICIENT EQUITY FUND B CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Voyageur
Mutual Funds III, Inc. (the "Fund"), for the Tax Efficient Equity Fund series
(the "Series") on behalf of the Tax Efficient Equity Fund B Class (the "Class"),
which Fund, Series and Class may do business under these or such other names as
the Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1. (a) The Fund shall pay to the Distributor a monthly fee not to
exceed 0.75% (3/4 of 1%) per annum of the Series' average daily net assets
represented by shares of the Class as may be determined by the Fund's Board of
Directors from time to time.
(b) In addition to the amounts described in (a) above, the Fund
shall pay (i) to the Distributor for payment to dealers or others, or (ii)
directly to others, an amount not to exceed 0.25%
B-1
<PAGE> 12
(1/4 of 1%) per annum of the Series' average daily net assets represented by
shares of the Class, as a service fee pursuant to dealer or servicing
agreements.
2. (a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
B-2
<PAGE> 13
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined. June 26, 1997
B-3
<PAGE> 14
EXHIBIT C
DISTRIBUTION PLAN
VOYAGEUR MUTUAL FUNDS III, INC.
TAX EFFICIENT EQUITY FUND
TAX EFFICIENT EQUITY FUND C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Voyageur
Mutual Funds III, Inc. (the "Fund"), for the Tax Efficient Equity Fund series
(the "Series) on behalf of the Tax Efficient Equity Fund C Class (the "Class"),
which Fund, Series and Class may do business under these or such other names as
the Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1.(a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in paragraph 1(a) above, the
Fund shall pay: (i) to the Distributor for payment to dealers or others or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net assets represented by shares of the Class, as a
service fee pursuant to dealer or servicing agreements.
C-1
<PAGE> 15
2.(a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under paragraph 1(a) above. In
addition, the Distributor and others shall inform the Fund monthly and in
writing of the amounts paid under paragraph 1(b) above; both the Distributor and
any others receiving fees under the Plan shall furnish the Board of Directors of
the Fund with such other information as the Board may reasonably request in
connection with the payments made under the Plan and the use thereof by the
Distributor and others in order to enable the Board to make an informed
determination of the amount of the Fund's payments and whether the Plan should
be continued.
4. The officers of the Fund shall furnish to the Board of Directors of
the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6.(a) The Plan may be terminated at any time by vote of a majority of
the non-interested Directors or by vote of a majority of the outstanding voting
securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of
the Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
C-2
<PAGE> 16
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the
Act shall govern the meaning of "interested person(s)" and "vote of a majority
of the outstanding voting securities," respectively, for the purposes of this
Plan.
This Plan shall take effect on the Commencement Date, as previously
defined. June 26, 1997
C-3
<PAGE> 1
<PAGE>
DELAWARE GROUP
Administration and Service Agreement
Gentlemen:
We are the national distributor of the shares of all of the classes
(now existing or hereafter added) of all of the Funds in the Delaware Group of
Funds. The term "Fund" as used in this Agreement refers to each fund in the
Delaware Group which retains the Distributor to promote and sell its shares, and
any fund which may hereafter be added to the Delaware Group and retain us as
national distributor. You have indicated that you wish to provide certain
services to your customers relating to their ownership of Fund shares, in
accordance with the terms of this Agreement.
TERMS
1. With respect to any Fund that offers shares of classes for which
Distribution Plans have been adopted under Rule 12b-1 (individually a "12b-1
Plan") of the Investment Company Act of 1940 (the "1940 Act"), which 12b-1 Plans
provide for the payment of service fees, we expect you to provide administrative
and other services, including, but not limited to, furnishing personal and other
services and assistance to your customers who own Fund shares, answering routine
inquiries regarding a Fund, assisting in changing dividend options, account
designations and addresses, maintaining such accounts, or such other services as
a Fund may require, to the extent permitted by applicable statutes, rules, or
regulations. For such services, we shall pay you a fee, as established by us
from time to time, based on the value of the shares of each class of each Fund
which are attributable to customers of your firm. We are permitted to make this
payment under the terms of the 12b-1 Plans adopted by certain of the Funds, as
such Plans may be in effect from time to time.
2. You shall furnish us and each Fund with such information as shall
reasonably be requested by the Board of Directors or Trustees with respect to
the fees paid to you pursuant to this Agreement.
3. We shall furnish to the Board of Directors or Trustees, for their
review, on a quarterly basis, a written report of the amounts expended under
<PAGE>
the Plan by us with respect to the relevant Fund and the purposes for which
such expenditures were made.
4. This Agreement may be terminated by either party at any time by
written notice to that effect and will terminate without notice upon any act of
insolvency by you. Notwithstanding the termination of this Agreement, you shall
remain liable for any amounts otherwise owing to the Distributor or the Funds
and for your portion of any transfer tax or other liability which may be
asserted or assessed against the Distributor or the Fund, or upon any one or
more of the Distributor's dealers, based upon a claim that you and such dealers
or any of them constitute a partnership, an unincorporated business or other
separate entity.
5. Any obligation assumed by a Fund pursuant to this Agreement shall be
limited in all cases to the assets of such Fund and no person shall seek
satisfaction thereof from shareholders of a Fund.
6. The 12b-1 Plans in effect on the date of this Agreement are
described in the Funds' Prospectuses. Each Fund reserves the right to terminate
or suspend its 12b-1 Plan(s) at any time as specified in such Plan(s) and we
reserve the right, at any time, without notice, to modify, suspend or terminate
payments hereunder in connection with such 12b-1 Plan(s).
7. This Agreement shall take effect on the date set forth below.
8. The terms and provisions of the current Prospectus and Statement of
Additional Information for each relevant Fund are hereby accepted and agreed to
by the parties hereto as evidenced by our execution hereof.
GENERAL
9. Governing Law. This Agreement will be governed by and construed in
accordance with the law of the State of Pennsylvania, without reference to that
state's choice of law doctrine.
10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one Agreement.
11. Severability. In the event that any provision of this Agreement,
or the application of any such provision to any person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
<PAGE>
to persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
12. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto and supersedes all prior agreements and
understandings between the parties hereto relating to the subject matter hereof.
13. Headings. The underlined headings contained herein are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the interpretation
hereof.
DELAWARE DISTRIBUTORS, L.P.
By: DELAWARE DISTRIBUTORS, INC.,
General Partner
By:
--------------------------------
Agreed and Accepted:
- ------------------------------
(Name)
By:
---------------------------
(Authorized Officer)
Date:
-------------------------
<PAGE> 1
<PAGE>
DEALER'S AGREEMENT
We invite you, as a selected dealer, to participate as principal in the
distribution of the shares of all of the classes (now existing or hereafter
added) of all of the Funds in the Delaware Group of Investment Companies which
retain us, Delaware Distributors, L.P., to act as exclusive national
distributor. The term "Fund" as used in this Agreement, refers to each Fund in
the Delaware Group which retains us to promote and sell its shares, and any Fund
which may hereafter be added to the Delaware Group and retain us as national
distributor. Such additional Funds will be included in this Agreement upon our
providing you with written notice of such inclusion.
OFFERING PRICE TO PUBLIC: Orders for shares received from you and accepted by a
Fund or its agent, Delaware Service Company, Inc., will be at the public
offering price applicable to each order as set forth in that Fund's Prospectus.
The manner of computing the net asset value of shares, the public offering price
and the effective time of orders received from you are described in the
Prospectus for each Fund. We reserve the right, at any time and without notice,
to suspend the sale of Fund shares.
CONCESSIONS TO YOU: You will be entitled to deduct the applicable concession as
set forth in the then current Prospectus of a Fund from the purchase price of
certain purchase orders placed by you for shares of a Fund having a sales
charge. We reserve the right from time to time, without prior notice, to modify,
suspend or eliminate such concessions by amendment, sticker or supplement to the
Prospectus for the Fund. If any shares confirmed to you under the terms of this
Agreement are redeemed or repurchased by the Fund or by us as agent for the
Fund, or are tendered for redemption or repurchase, within seven business days
after the date of our confirmation of the original purchase order, you shall
promptly refund to us the concession allowed to you on such shares.
PURCHASE PLANS: The purchase price on all orders placed by you and any
concessions or other fees otherwise due to you under this Agreement will be
subject to the then current terms and provisions of any applicable special plans
and accounts (e.g., volume purchases, letters of intent, rights of accumulation,
combined purchases privilege, exchange and reinvestment privileges and
<PAGE>
retirement plan accounts) as set forth from time to time in the Prospectus. We
must be notified when an order is placed if it qualifies for a reduced sales
charge under any of these plans. We reserve the right, at any time, without
prior notice, to modify, suspend or eliminate any such plans or accounts by
amendment, sticker or supplement to the Prospectus for the Fund.
SALES, ORDERS AND CONFIRMATIONS: In offering Fund shares to the public or
otherwise, you shall act as dealer for your own account, and in no transaction
shall you have any authority to act as agent for the Fund, for any other
selected dealer or for us. No person is authorized to make any representations
concerning the shares to the Fund except those contained in the Prospectus and
in written information issued by the Fund or by us as a supplement to such
Prospectus. In purchasing Fund shares, you shall rely only on such
representations.
All sales must be made subject to confirmation and orders are subject
to acceptance or rejection by the Fund in its sole discretion. Your orders must
be wired, telephoned or written to the Fund or its agent. You agree to place
orders for the same number of shares sold by you at the price at which such
shares are sold. You agree that you will not purchase Fund shares except for
investment or for the purpose of covering purchase orders already received and
that you will not, as principal, sell Fund shares unless purchased by you from
the Fund under the terms hereof. You also agree that you will not withhold
placing with us orders received from your customers so as to profit yourself
from such withholding. Each of your orders shall be confirmed by you in writing
on the same day.
PAYMENT AND ISSUANCE OF CERTIFICATES: The shares purchased by you hereunder
shall be paid for in full at the public offering price, less any concession to
you as set forth above, by check payable to the Fund, at its office, within
three business days after our acceptance of your order. If not so paid, we
reserve the right to cancel the sale and to hold you responsible for any loss
sustained by us or the Fund (including lost profit) in consequence. Certificates
representing the Fund's shares will not be issued unless (i) the Fund's
Prospectus indicates that certificates may be issued for the class of shares
being purchased, and (ii) a specific request is received from the purchaser.
Certificates, if requested, will be issued in the names indicated by
registration instructions accompanying your payment.
-2-
<PAGE>
REDEMPTION: The Prospectus describes the provisions whereby the Fund, under all
ordinary circumstances, will redeem shares held by shareholders on demand. You
agree that you will not make any representations to shareholders relating to the
redemption of their shares other than the statements contained in the Prospectus
and the underlying organizational documents of the Fund, to which it refers, and
that you will quote as the redemption price only the price determined by the
Fund. You shall not repurchase any shares from your customers at a price below
that next quoted by the Fund for redemption. You may charge a reasonable fee for
services in connection with the repurchase by you from your customers of shares.
You may hold such repurchased shares only for investment purposes or submit such
shares to the Fund for redemption.
12b-1 PLAN: With respect to any Fund that offers shares of classes for which
Distribution Plans have been adopted under Rule 12b-1 (individually a "12b-1
Plan") of the Investment Company Act of 1940 (the "1940 Act"), we expect you to
provide distribution and marketing services in the promotion of the Fund's
shares. In connection with the receipt of distribution fees and/or the receipt
of service fees as set forth under the 12b-1 Plan(s) applicable to the class or
classes of Fund shares purchased by your customers, we expect you to provide
administrative and other services to your customers who own Fund shares,
including, but not limited to, furnishing personal and other services and
assistance, answering routine inquiries regarding a Fund, assisting in changing
dividend options, account designations and addresses, maintaining such accounts,
or such other services as the Fund may require, to the extent permitted by
applicable statutes, rules, or regulations. For such services we will pay you a
fee, as established by us from time to time, based on a portion of the net asset
value of the accounts of your clients in the Fund. We are permitted to make this
payment under the terms of the 12b-1 Plans adopted by certain of the Funds, as
such Plans may be in effect from time to time. The 12b-1 Plans in effect on the
date of this Agreement are described in the Funds' Prospectuses. Each Fund
reserves the right to terminate or suspend its 12b-1 Plan at any time as
specified in the Plan and we reserve the right, at any time, without notice, to
modify, suspend or terminate payments hereunder in connection with such 12b-1
Plan. You will furnish the Fund and us with such information as may be
-3-
<PAGE>
reasonably requested by the Fund or its directors or trustees or by us with
respect to such fees paid to you pursuant to this Agreement.
LEGAL COMPLIANCE: This Agreement and any transaction with, or payment to, you
pursuant to the terms hereof is conditioned on your representation to us that,
as of the date of this Agreement you are, and at all times during its
effectiveness you will be: (a) a registered broker/dealer under the Securities
Exchange Act of 1934 and qualified under applicable state securities laws in
each jurisdiction in which you are required to be qualified to act as a
broker/dealer in securities, and a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); or (b) a foreign
broker/dealer not eligible for membership in the NASD and otherwise in
compliance with applicable U.S. federal and state securities laws. You agree to
notify us promptly in writing and immediately suspend sales of Fund shares if
this representation ceases to be true. You also agree that, whether you are a
member of the NASD or a foreign broker/dealer not eligible for such membership,
you will comply with the rules of the NASD including, in particular, Sections 2
and 26 of Article III thereof, and that you will maintain adequate records with
respect to your transactions with the Funds.
BLUE SKY MATTERS: We shall have no obligation or responsibility with respect to
your right to sell Fund shares in any state or jurisdiction. From time to time
we may furnish you with information identifying the states and jurisdictions
under the securities laws of which it is believed a Fund's shares may be sold.
You will not transact orders for Fund shares in states or jurisdictions in which
we indicate Fund shares may not be sold. You agree to offer and sell Fund shares
outside the United States only in compliance with all applicable laws, rules and
regulations of any foreign government having jurisdiction over such transactions
in addition to any applicable laws, rules and regulations of the United States.
LITERATURE: We will furnish you with copies of each Fund's Prospectus, sales
literature and other information made publicity available by the Fund, in
reasonable quantities upon your request. You agree to deliver a copy of the
current Prospectus in accordance with the provisions of the Securities Act of
1933 to each purchaser of Fund shares for whom you act as broker. We shall file
Fund sales literature and promotional material with the NASD and SEC as
required.
-4-
<PAGE>
You may not publish or use any sales literature or promotional materials with
respect to the Funds without our prior review and written approval.
NOTICES AND COMMUNICATIONS: All communications from you should be addressed to
us at One Commerce Square, 2005 Market Street, Philadelphia, PA 19103. Any
notice from us to you shall be deemed to have been duly given if mailed or
telegraphed to you at the address set forth below. Each of us may change the
address to which notices shall be sent by notice to the other in accordance with
the terms hereof.
TERMINATION: This Agreement may be terminated by either party at any time by
written notice to that effect and will terminate without notice upon the
appointment of a trustee for you under the Securities Investor Protection Act,
or any other act of insolvency by you. Notwithstanding the termination of this
Agreement, you shall remain liable for any amounts otherwise owing to us or the
Funds and for your portion of any transfer tax or other liability which may be
asserted or assessed against the Fund, or us, or upon any one or more of the
selected dealers based upon the claim that the selected dealers or any of them
constitute a partnership, an unincorporated business or other separate entity.
AMENDMENT: This Agreement may be amended or revised at any time by us upon
notice to you and, unless you notify us in writing to the contrary, you will be
deemed to have accepted such modifications.
GENERAL: Your acceptance hereof will constitute an obligation on your part to
observe all the terms and conditions hereof. In the event you breach any of the
terms and conditions of this Agreement, you will indemnify us, the Funds, and
our affiliates for any damages, losses, costs and expenses (including reasonable
attorneys' fees) arising out of or relating to such breach and we may offset any
such damages, losses, costs and expenses against any amounts due to you
hereunder. Nothing contained herein shall constitute you, us and any dealers an
association or partnership. All references in this Agreement to the "Prospectus"
refer to the then current version of the Prospectus and include the Statement of
Additional Information incorporated by reference therein and any stickers or
supplements thereto. This Agreement supercedes and replaces any prior agreement
-5-
<PAGE>
between us and you with respect to your purchase and sale of Fund shares and is
to be construed in accordance with the laws of the State of Delaware.
Please confirm this Agreement by executing one copy of this Agreement
below and returning it to us. Keep the enclosed duplicate copy for your records.
DELAWARE DISTRIBUTORS, L.P.
By: Delaware Distributors, Inc.,
General Partner
By:/s/Keith E. Mitchell
----------------------
Name: Keith E. Mitchell
Title: President/Chief Executive Officer
-6-
<PAGE>
DEALER'S AGREEMENT ACCEPTANCE
DELAWARE DISTRIBUTORS, L.P.
The undersigned hereby confirms the Dealer's Agreement and acknowledges
that any purchase of Fund shares made during the effectiveness of this Agreement
is subject to all the applicable terms and conditions set forth in this
Agreement, and agrees to pay for the shares at the price and upon the terms and
conditions stated in the Agreement. The undersigned hereby acknowledges receipt
of Prospectuses relating to the Fund shares and confirms that, in executing the
Dealer's Agreement, it has relied on such Prospectuses and not on any other
statement whatsoever, written or oral.
INVESTMENT DEALER PLEASE SIGN HERE AND COMPLETE BELOW
By: DATE
------------------------------- ----------------------------
Name:
-----------------------------
Title:
----------------------------
- ----------------------------------
FIRM
- ----------------------------------
FIRM'S TAX IDENTIFICATION NUMBER
- ----------------------------------
STREET ADDRESS
- ----------------------------------
CITY/STATE/ZIP
<PAGE> 1
<PAGE>
MUTUAL FUND AGREEMENT
FOR THE DELAWARE GROUP OF FUNDS
Gentlemen:
We are the national distributor for the Delaware Group of Funds with exclusive
right to sell and distribute Fund shares. (The term "Funds" in this Agreement
refers to each or any of the Funds that from time to time comprise the Delaware
Group and for whom we act as distributor.) You have indicated that you wish to
act as agent for your customers in connection with the purchase, sale and
redemption of Fund shares and desire to provide certain services to your
customers relating to their ownership of Fund shares, all in accordance with the
terms of this Agreement.
AGENT FOR CUSTOMERS: In placing orders for the purchase and sale of Fund shares,
you will be acting as agent for your customers and will not have any authority
to act as agent for us, any of the Funds or any of our affiliates or
representatives. Neither you nor any of your employees or agents are authorized
to make any representations concerning the Funds or Fund shares except those
contained in the then current "Prospectus" and in written information issued by
the Fund or by us as a supplement to the Prospectus. In purchasing Fund shares
your customers may rely on such authorized information.
OFFERING PRICE TO PUBLIC: Orders for shares received from you and accepted by
the Fund or its agent, Delaware Service Co., Inc., will be at the public
offering price applicable to each order as set forth in the Prospectus. The
manner of computing the net asset value, the public offering price and the
effective time of orders received from you are described in the Prospectus for
each Fund. We reserve the right at any time, without notice, to suspend the sale
of Fund shares or withdraw the public offering.
SALES, ORDERS AND CONFIRMATIONS: All orders must be made subject to
confirmation. Your orders must be wired, telephoned or written to the Fund or
its agent. You agree to place orders on behalf of your customers for the number
of shares, and at the price, as in bona fide orders from your customers. We will
not accept any conditional orders. We will send a written confirmation of each
trade indicating that the trade was on a fully disclosed basis to your customer.
It is agreed and understood that, whether shares are registered in the
purchaser's name, in your name or in the name of your nominee, your customer
will have full beneficial ownership of the Fund shares.
AGENCY FEES: On each order accepted by us for a Fund with a sales charge, we
understand that you will charge your customer an agency commission or agency
transaction fee ("agency fee") as set forth in the schedule of sales concessions
and agency fees set forth in that Fund's Prospectus, as it may be amended from
time to time. This fee shall be subject to the provisions of all terms set forth
in the Prospectus for volume purchases and special plans and accounts (e.g.
retirement plans, letters of intent, etc.) You will not receive from us a
<PAGE>
dealer's concession or similar allowance out of the sales charge. In accordance
with interpretations by the Staff of the Securities and Exchange Commission (the
"Commission"), the agency fee will be your sole charge to your customers for
placing such orders. You may elect to make payments in either of two ways: (a)
you may send us the public offering price for the Fund shares purchased less the
amount of the agency fee due you or (b) you or your customer may send us the
entire public offering price for the Fund shares and we will, on a periodic
basis, remit to you the agency fee due. You will notify us in writing of which
method of payment you elect. If any shares sold to your customer under the terms
of this Agreement are repurchased by the Fund or by us, or are tendered to a
Fund for redemption or repurchase, within seven (7) business days after the date
of the confirmation of the original purchase order, you will promptly refund to
us full agency fee paid or allowed to you on such shares.
PAYMENT AND ISSUANCE OF CERTIFICATES: Regardless of the payment method elected,
Fund shares purchased by you for your customers hereunder shall be paid for in
full by check payable to the Fund at its office within three business days after
our acceptance of your order. If not so paid, the Fund reserves the right,
without notice, to cancel the sale and to hold you responsible for any loss,
including lost profit, sustained by us or the Fund in consequence. Certificates
representing Fund shares will not be issued unless a specific request is
received from you or your customer. Certificates, if requested, will be issued
in the names indicated by registration instructions accompanying payment.
REDEMPTION: The Prospectus describes the provisions whereby the Fund, under all
ordinary circumstances, will repurchase its shares from shareholders on demand.
You agree that you will not make any representations to shareholders relating to
the purchase of their Fund shares other than the statements contained in the
Prospectus and the underlying organizational documents of the Fund, to which it
refers, and that you will quote to your customers as the redemption price only
the price determined by the Fund.
12b-1 PLAN: With respect to any Fund that has a Distribution Plan under Rule
12b-1 (a "12b-1Plan") of the Investment Company Act of 1940 (the "1940 Act"), we
expect you will provide shareholder and administrative services to your
customers who own Fund shares, such as: answering inquiries regarding the Fund;
assisting in changing dividend options, account designations and addresses;
establishing and maintaining shareholder accounts and records; arranging for
bank wires; or such other services as the Fund may require to the extent
permitted by applicable statutes, rules or regulations. You will promptly answer
all written complaints received by you relating to Fund accounts or promptly
forward such complaints to us and assist us in answering such complaints. For
such services we will pay you a fee as set by us from time to time, based on a
portion of the net asset value of the accounts of your clients in the Fund. We
are permitted to make this payment under the terms of the 12b-1 Plan adopted by
2
<PAGE>
certain of the Funds, as such 12b-1 Plans may be in effect from time to time.
Each Fund reserves the right, at any time, to suspend payments under its 12b-1
Plan. You will furnish the Fund and us with such information as may be
reasonably requested by the Fund or its directors or trustees or by us with
respect to fees paid to you pursuant to this Agreement. In accordance with
interpretations and rulings to the Staff of the Commission, you will not charge
your customers any fees for services for which you are being compensated under a
12b-1 Plan of a Fund.
SALES OF NO-LOAD - NON 12b-1 PLAN FUNDS: In connection with any orders placed by
you on behalf of your customers for shares of Funds that do not charge a sales
load and do not have a 12b-1 Plan, we understand that you may charge your
customers a limited service or transaction fee, in accordance with
interpretations and rulings of the Staff of the Commission.
LEGAL COMPLIANCE: This Agreement and any transaction with or payment to you
pursuant to the terms hereof is conditioned on your representation to us that,
as of the date of this Agreement you are and at all times during its
effectiveness you will be (a) a registered broker-dealer under the Securities
Exchange Act of 1934 and qualified under applicable state securities laws, if
any, to act as a broker or dealer in securities, and a member in good standing
of the National Association of Securities Dealers, Inc. (the "NASD"); or (b) a
"bank" as defined in Section 3(a)(6) of the Securities and Exchange Act of 1934
(or other financial institution) and not otherwise required to register as a
broker or dealer under such Act. You agree to notify us promptly in writing if
this representation ceases to be true. You also agree that you will comply with
the rules of the NASD including, in particular, Sections 2 and 26 of Article III
thereof, to the extent applicable, that you will maintain adequate records with
respect to your customers and their transactions, and that such transactions
will be without recourse against you by your customers. We recognize that, in
addition to applicable provisions of state and federal securities laws, you may
be subject to the provisions of the Glass-Steagall Act and other laws governing,
among other things, the conduct of activities by federal and state chartered and
supervised financial institutions and their affiliated organizations. Because
you will be the only one having a direct relationship with the customer, you
will be responsible in that relationship for insuring compliance with all laws
and regulations, including those of all applicable federal and state regulatory
authorities and bodies having jurisdiction over you or your customers to the
extent applicable to securities purchases hereunder.
BLUE SKY MATTERS: We shall have no obligation or responsibility with respect to
your right to sell Fund shares in any state or jurisdiction. From time to time
we shall furnish you with information identifying the states under the
securities laws of which it is believed a Fund's shares may be sold. You will
not transact orders for Fund shares in states which we indicate Fund shares may
not be sold.
LITERATURE: We will furnish you with copies of each Fund's Prospectus, sales
literature and other information made publicly available by the Fund, in
3
<PAGE>
reasonable quantities upon your request. We shall file Fund sales literature and
promotional material with the NASD and SEC as required. You may not publish or
use any sales literature or promotional material with respect to the Funds
without our prior review and written approval.
CUSTOMERS: The name of your customers will remain your sole property and will
not be used by us except for servicing or informational mailings and other
correspondence in the normal course of business.
NOTICES AND COMMUNICATIONS: All communications from you should be addressed to
us at 1818 Market Street, Philadelphia, PA 19103. Any notice from us to you
shall be deemed to have been duly given if mailed or telegraphed to you at the
address set forth above. Each of us may change the address to which notices
shall be sent by notice to the other in accordance with the terms hereof.
TERMINATION: This Agreement may be terminated by either party at any time by
written notice to that effect. Notwithstanding the termination of this
Agreement, you shall remain liable for any amounts otherwise owing to us or the
Fund and for your portion of any transfer tax or other liability which may be
asserted or assessed against the Fund, us or any one or more of our dealers,
based upon the claim that you and such dealers or any of them constitute a
partnership, an unincorporated business or other separate entity.
AMENDMENT: This Agreement may be amended or revised at any time by us upon
notice to you and, unless you promptly notify us in writing to the contrary, you
will be deemed to have accepted such modifications.
GENERAL: Your acceptance hereof will constitute an obligation on your part to
observe all the terms and conditions hereof. In the event you breach any of the
terms and conditions of this Agreement, you will indemnify us, the Funds, and
our affiliates for any damages, losses, costs and expenses (including reasonable
attorneys' fees) arising out of or relating to such breach. Nothing contained
herein shall constitute you, us and any dealers an association or partnership.
All references in this Agreement to the "Prospectus" include the Statement of
Additional Information incorporated by reference therein and any stickers or
supplements thereto, provided that any requirement in this Agreement to deliver
a copy of the Prospectus shall not include the Statement of Additional
Information unless requested by the customer. This Agreement is to be construed
in accordance with the laws of the State of Delaware.
4
<PAGE>
Please confirm this Agreement by executing one copy of this Agreement below and
returning it to us. Keep the enclosed duplicate copy for your records.
Date: DELAWARE DISTRIBUTORS, L.P.
----------------------------
BY: DELAWARE DISTRIBUTORS, INC.
General Partner
BY:
--------------------------------
Accepted and Agreed to:
- ---------------------------------
(Name of Firm)
BY:
------------------------------
Name:
Title:
5
<PAGE> 1
CHASE
GLOBAL CUSTODY AGREEMENT
AGREEMENT, effective May 1, 1996, between THE CHASE MANHATTAN BANK, N.A.
(the "Bank") and those registered investment companies listed on Schedule A
hereto (each a Customer ) on behalf of certain of their respective series,
as listed on Schedule A (individually and collectively the Series ).
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer on behalf of each
Series ("Custody Account") for any and all stocks, shares, bonds, debentures,
notes, mortgages or other obligations for the payment of money, bullion, coin
and any certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same or evidencing or
representing any other rights or interests therein and other similar property
whether certificated or uncertificated as may be received by the Bank or its
Subcustodian (as defined in Section 3) for the account of the Customer
("Securities"); and
(b) A deposit account in the name of the Customer on behalf of each
Series ("Deposit Account") for any and all cash in any currency received by
the Bank or its Subcustodian for the account of the Customer, which cash
shall not be subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give Instructions (as
defined in Section 11) concerning the Accounts. Such Instructions shall
specifically indicate to which Series such Assets belong or, if such Assets
belong to more than one Series, shall allocate such Assets to the appropriate
Series. The Bank may deliver securities of the same class in place of those
deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional
Accounts under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
To the extent available and permissible under applicable law and
regulation, Cash held pursuant to Instructions shall be held in interest
bearing accounts. If interest bearing accounts are not available, such cash
may be held in non-interest bearing accounts. The Bank is authorized to
maintain cash balances on deposit for the Customer with itself or one of its
affiliates. Interest bearing accounts shall bear interest at such reasonable
rates of interest as may from time to time be paid on such accounts by the
Bank or its affiliates.
(iii) For each Series that is exclusively a domestic Series, the following
additional provisions shall apply:
(x) In the event that during a given calendar month a Series has maintained
an average daily cash balance greater than zero, the Bank shall provide an
earnings credit against custody fees otherwise owing hereunder by such Series
during such calendar month in an amount equal to the product of (A) 75% of
the 90 day U.S. government Treasury bill rate as quoted in the Wall Street
Journal for the last Business Day (being a day on which the Bank is open
for the transaction of all its ordinary business) of such calendar month, (B)
the average daily cash balance for such month, and (C) the number of days in
such calendar month divided by 365.
(y) In the event that during a given calendar month a Series has maintained
an average daily cash balance less than or equal to zero, the Bank shall be
paid interest on such amount by such Series in an amount equal to the product
of (A) the Overnight Fed Funds Rate (as defined below) plus 25 basis points
for the last Business Day of such calendar month, (B) the average daily cash
balance for such month, and (C) the number of days in such calendar month
divided by 365.
(z) For purposes of (y) above, the term Overnight Fed Funds Rate shall mean
the weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds brokers,
as published by the Federal Reserve Bank of New York (with the rate for the
last Business Day of a given calendar month being the rate so published on
the Business Day immediately following such Day), or, if such rate is note so
published, the average quotations, for the last Business Day of a given
calendar month, of such transactions received by the Bank from three Federal
funds brokers of recognized standing selected by the Bank.
If the Customer wishes to have any of its Assets held in the custody of
an institution other than the established Subcustodians as defined in Section
3 (or their securities depositories), such arrangement must be authorized by
a written agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed
in Schedule B of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank
to hold Assets in the Accounts in accounts which the Bank has established
with one or more of its branches or Subcustodians. The Bank and
Subcustodians are authorized to hold any of the Securities in their account
with any securities depository in which they participate.
The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment to
Schedule B. Upon request by the Customer, the Bank will identify the name,
address and principal place of business of any Subcustodian of the Customer's
Assets and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such Subcustodian.
Upon receipt of Instructions, the Bank shall cease using any
Subcustodian with respect to the customer, and arrange for delivery of
Securities held with such Subcustodian to another entity as designated by the
Customer; provided that, the Bank shall have no responsibility for the
performance of such other entity.
4. Use of Subcustodian.
(a) The Bank will identify the Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging
to other customers of the Bank in accounts identified on such Subcustodian's
books as special custody accounts for the exclusive benefit of customers of
the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only
to the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding
its customer's assets shall provide that: (i) such assets will not be subject
to any right, charge, security interest, lien or claim of any kind in favor
of such Subcustodian except for safe custody or administration, (ii) the
beneficial ownership of such assets will be freely transferable without the
payment of money or value other than for safe custody or administration;
(iii) adequate records will be maintained identifying the assets held
pursuant to such agreement as belonging to the customers of the Bank; (iv)
subject to applicable law, Subcustodian shall permit independent public
accountants for Bank and customers of the Bank reasonable access to
Subcustodian s books and records as they pertain to the subcustody account in
connection with such accountants' examination of the books and records of
such account; and (v) the Bank will receive periodic reports with respect to
the safekeeping of assets in the subcustody account, including advices and/or
notifications of any transfers to or from such subcustody account. The
foregoing shall not apply to the extent of any special agreement or
arrangement made by the Customer with any particular Subcustodian.
(e) Upon request of the Customer, the Bank shall deliver to the Customer
annually a report stating: (i) the identity of each Subcustodian then acting
on behalf of the Bank and the name and address of the governmental agency or
other regulatory authority that supervises or regulates such Subcustodian;
(ii) the countries in which each Subcustodian is located; and (iii) as long
as Securities and Exchange Commission ("SEC") Rule 17f-5 under the Investment
Company Act of 1940, as amended ("1940 Act"), requires the Customer s Board
of Directors/Trustees directly to approve its foreign custody arrangements,
such other information relating to such Subcustodians as may reasonably be
requested by the Customer to ensure compliance with Rule 17f-5. As long as
Rule 17f-5 requires the Customer s Board of Directors/Trustees directly to
approve its foreign custody arrangements, the Bank shall also furnish
annually to the Customer information concerning such Subcustodians similar in
kind and scope as that furnished to the Customer in connection with the
initial approval hereof. The Bank shall timely advise the Customer of any
material adverse change in the facts or circumstances upon which such
information is based where such changes would affect the eligibility of the
Subcustodian under Rule 17f-5 as soon as practicable after it becomes aware
of any such material adverse change in the normal course of its custodial
activities.
5. Deposit Account Transactions
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required
by the Bank.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its
discretion, may advance the Customer such excess amount which shall be deemed
a loan payable on demand, bearing interest at the rate customarily charged by
the Bank on similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit
Account, with interest, dividends, redemptions or any other amount due, the
Customer will promptly return any such amount upon oral or written
notification: (i) that such amount has not been received in the ordinary
course of business or (ii) that such amount was incorrectly credited. If the
Customer does not promptly return any amount upon such notification, the Bank
shall be entitled, upon oral or written notification to the Customer, to
reverse such credit by debiting the Deposit Account for the amount previously
credited. The Bank or its Subcustodian shall have no duty or obligation to
institute legal proceedings, file a claim or a proof of claim in any
insolvency proceeding or take any other action with respect to the collection
of such amount, but may act for the Customer upon Instructions after
consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the Bank
or its Subcustodian upon receipt by the Bank of Instructions which include
all information required by the Bank. Settlement and payment for Securities
received for, and delivery of Securities out of, the Custody Account may be
made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market
in which the transaction occurs, including, without limitation, delivery of
Securities to a purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery. Delivery of
Securities out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to the Bank.
(b) The Bank shall credit or debit the Accounts on a contractual
settlement date with cash or Securities with respect to any sale, exchange or
purchase of Securities in those countries set forth in Appendix A hereto;
provided that, the Bank may amend Appendix A from time to time in its sole
discretion and shall advise the Customer of such amendments. Otherwise,
transactions will be credited or debited to the Accounts on the date cash or
Securities are actually received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by the Bank in its discretion, after the contractual
settlement date for the related transaction; provided that, the Bank shall
give Customer prior notification of any such reversal. Where the foregoing
notification is oral, the Bank shall promptly provide written confirmation of
the same (which confirmation may be electronic).
(ii) If any Securities delivered pursuant to this Section 6 are returned
by the recipient thereof, the Bank may reverse the credits and debits of the
particular transaction at any time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that the Bank or
Subcustodian is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian, subject to applicable SEC rules and regulations under the Act.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer advises the Bank orally and then promptly sends
the Bank a written exception or objection to any Bank statement within 180
days of receipt, the Customer shall be deemed to have approved such
statement.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer. Subject to the standard of care in Section 12 hereof, the Bank shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Bank or by its Subcustodians of any payment, redemption or other
transaction regarding Securities in the Custody Account in respect of which
the Bank has agreed to take any action under this Agreement.
8. Corporate Actions; Proxies; Tax Reclaims.
a. Corporate Actions. Whenever the Bank receives information
concerning the Securities which requires discretionary action by the
beneficial owner of the Securities (other than a proxy), such as subscription
rights, bonus issues, stock repurchase plans and rights offerings, or legal
notices or other material intended to be transmitted to securities holders
("Corporate Actions"), the Bank will give the Customer written notice (which
may be electronic) of such Corporate Actions to the extent that the Bank's
central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person (as defined in Section
10 hereof), but if Instructions are not received in time for the Bank to take
timely action, or actual notice of such Corporate Action was received too
late to seek Instructions, the Bank is authorized to sell such rights
entitlement or fractional interest and to credit the Deposit Account with the
proceeds or take any other action it deems, in good faith, to be appropriate
in which case it shall be held harmless for any such action.
b. Proxy Voting. With respect to domestic U.S. and Canadian Securities
(the latter if held in DTC), the Bank will send to the Customer or the
Authorized Person (as defined in Section 10) for a Custody Account, such proxies
(signed in blank, if issued in the name of the Bank's nominee or the nominee
of a central depository) and communications with respect to Securities in the
Custody Account as call for voting or relate to legal proceedings within a
reasonable time after sufficient copies are received by the Bank for
forwarding to its customers. In addition, the Bank will follow coupon
payments, redemptions, exchanges or similar matters with respect to
Securities in the Custody Account and advise the Customer or the Authorized
Person for such Account of rights issued, tender offers or any other
discretionary rights with respect to such Securities, in each case, of which
the Bank has received notice from the issuer of the Securities, or as to
which notice is published in publications routinely utilized by the Bank for
this purpose.
With respect to Securities other than the foregoing, proxy voting
services shall be provided in accordance with separate proxy voting agreement
annexed hereto a Appendix B.
The foregoing proxy voting services may be provided by Bank, in whole or
in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank), provided that the Bank shall be liable for the
performance of any such third parties to the same extent as the Bank would
have been if it performed such services itself..
c. Tax Reclaims. (i) Subject to the provisions hereof, the Bank will
apply for a reduction of withholding tax and any refund of any tax paid or
tax credits which apply in each applicable market in respect of income
payments on Securities for the benefit of the Customer which the Bank
believes may be available to such Customer. Where such reports are available,
the Bank shall periodically report to Customer concerning the making of
applications for a reduction of withholding tax and refund of any tax paid or
tax credits which apply in each applicable market in respect of income
payments on Securities for the benefit of the Customer.
(ii) The provision of tax reclaim services by the Bank is conditional
upon the Bank receiving from the beneficial owner of Securities (A) a
declaration of its identity and place of residence and (B) certain other
documentation (pro forma copies of which are available from the Bank). The
Bank shall use reasonable means to advise the Customer of the declarations,
documentation and information which the Customer is to provide to the Bank in
order for the Bank to provide the tax reclaim services described herein. The
Customer acknowledges that, if the Bank does not receive such declarations,
documentation and information, additional United Kingdom taxation will be
deducted from all income received in respect of Securities issued outside the
United Kingdom and that U.S. non-resident alien tax or U.S. backup
withholding tax will be deducted from U.S. source income. The Customer shall
provide to the Bank such documentation and information as it may require in
connection with taxation, and warrants that, when given, this information
shall be true and correct in every respect, not misleading in any way, and
contain all material information. The Customer undertakes to notify the Bank
immediately if any such information requires updating or amendment.
(iii) Subject to subsection (vii) hereof, the Bank shall not be liable
to the Customer or any third party for any tax, fines or penalties payable by
the Bank or the Customer, and shall be indemnified accordingly, whether these
result from the inaccurate completion of documents by the Customer or any
third party, or as a result of the provision to the Bank or any third party
of inaccurate or misleading information or the withholding of material
information by the Customer or any other third party, or as a result of any
delay of any revenue authority or any other matter beyond the control of the
Bank.
(iv) The Customer confirms that the Bank is authorized to deduct from
any cash received or credited to the Cash Account any taxes or levies
required by any revenue or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
(v) The Bank shall perform tax reclaim services only with respect to
taxation levied by the revenue authorities of the countries notified to the
Customer from time to time and the Bank may, by notification in writing, at
its absolute discretion, supplement or amend the markets in which the tax
reclaim services are offered. Other than as expressly provided in this sub-
clause, the Bank shall have no responsibility with regard to the Customer's
tax position or status in any jurisdiction. Except as provided in Section
8(c)(ii) and pursuant to Instructions, the Bank shall take no action in the
servicing of the Customer s Securities which, in and of itself, creates a
taxable nexus for the Customer in any jurisdiction other than with respect to
interest, dividends and capital gains that may otherwise be subject to tax by
such jurisdiction with respect to a foreign investor not otherwise engaged in
a trade or business in such jurisdiction in a given taxable year. Bank shall
not be liable for any tax liability caused, directly or indirectly, by
Customer's actions or status in any jurisdiction.
(vi) In connection with obtaining tax relief, the Customer confirms
that the Bank is authorized to disclose any information requested by any
revenue authority or any governmental body in relation to the Customer or the
Securities and/or Cash held for the Customer. This provision does not
authorize any other voluntary disclosure to any revenue authority or any
governmental body without the prior written consent of Customer.
(vii) Tax reclaim services may be provided by the Bank or, in whole or
in part, by one or more third parties appointed by the Bank (which may be
affiliates of the Bank); provided that the Bank shall be liable for the
performance of any such third party to the same extent as the Bank would have
been if it performed such services itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities
depository, as the case may be. The Bank may without notice to the Customer
cause any such Securities to cease to be registered in the name of any such
nominee and to be registered in the name of the Customer. In the event that
any Securities registered in a nominee name are called for partial redemption
by the issuer, the Bank may allot the called portion to the respective
beneficial holders of such class of security in any manner the Bank deems to
be fair and equitable. The Customer agrees to hold the Bank, Subcustodians,
and their respective nominees harmless from any liability arising directly or
indirectly from their status as a mere record holder of Securities in the
Custody Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer
or its designated agent that any such employee or agent is no longer an
Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information
system acceptable to the Bank which the Bank reasonably believes in good
faith to have been given by Authorized Persons or which are transmitted with
proper testing or authentication pursuant to terms and conditions which the
Bank may specify. Unless otherwise expressly provided, all Instructions
shall continue in full force and effect until canceled or superseded. For
purposes hereof, reasonableness shall mean compliance with applicable
procedures.
Any Instructions delivered to the Bank by telephone (including cash
transfer instructions as described below) shall promptly thereafter be
confirmed in writing by any two Authorized Persons (which confirmation may
bear the facsimile signature of such Persons), but the Customer will hold the
Bank harmless for the failure of such Authorized Persons to send such
confirmation in writing, the failure of such confirmation to conform to the
telephone instructions received or the Bank's failure to produce such
confirmation at any subsequent time; provided that, where the Bank receives
a telephone Instruction from an Authorized Person requiring the transfer of
cash, prior to executing such Instruction the Bank will, to confirm such
Instruction, call back any one of the individuals on a list of persons
authorized to confirm such oral transfer Instructions (which Person shall be
a person other than the initiator of the transfer Instruction) and the Bank
shall not execute the Instruction until it has received such confirmation.
Either party may electronically record any Instructions given by telephone,
and any other telephone discussions with respect to the Custody Account. The
Customer shall be responsible for safeguarding any testkeys, identification
codes or other security devices which the Bank shall make available to the
Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in
Instructions which are consistent with the provisions of this Agreement as
follows:
(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be liable
to the Customer for any loss which shall occur as the result of the failure
of a Subcustodian to exercise reasonable care with respect to the safekeeping
of such Assets to the same extent that the Bank would be liable to the
Customer if the Bank were holding such Assets in New York. In the event that
Securities are lost by reason of the failure of the Bank or its Subcustodian
to use reasonable care, the Bank shall be liable to the Customer based on the
market value of the property which is the subject of the loss on the date it
is replaced by the Bank and without reference to any special conditions or
circumstances, it being understood that for purposes of measuring damages
hereunder, the value of Securities which are sold by the Customer prior to
the replacement thereof shall be equal to the sale price thereof less the
expenses of such sale incurred by the Customer. The Bank shall act with
reasonable promptness in making such replacements. In no event shall the
Bank be liable for special, indirect or consequential loss or damage of any
kind whatsoever (including but not limited to lost profits), even if the Bank
has been advised of the likelihood of such loss or damage and regardless of
the form of action. Subject to the Bank's obligations pursuant to Section 4(e)
hereof, the Bank will not be responsible for the insolvency of any
Subcustodian which is not a branch or affiliate of Bank.
(ii) The Bank will not be responsible for any act, omission, default or
the solvency of any broker or agent which it or a Subcustodian appoints
unless such appointment was made negligently or in bad faith.
(iii) (a) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank whether pursuant to
Instructions or otherwise pursuant to this Agreement if such act or omission
was in good faith, without negligence. In performing its obligations under
this Agreement, the Bank may rely on the genuineness of any Customer document
which it reasonably believes in good faith to have been validly executed.
(b) The Bank shall hold Customer harmless from, and shall indemnify Customer
for, any loss, liability, claim or expense incurred by Customer (including,
but not limited to, Customer's reasonable legal fees) to the extent that such
loss, liability, claim or expense arises from the negligence or willful mis-
conduct on the part of the Bank or a Subcustodian; provided that, in no event
shall the Bank be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits),
even if the Bank has been advised of the likelihood of such loss or damage
and regardless of the form of action. Subject to the Bank's obligations
pursuant to Section 4(e) hereof, the Bank will not be responsible for the
insolvency of any Subcustodian which is not a branch or affiliate of Bank.
(iv) The Customer agrees to pay for and hold the Bank harmless from any
liability or loss resulting from the imposition or assessment of any taxes or
other governmental charges, and any related expenses with respect to income
from or Assets in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for the Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
(vi) The Bank need not maintain any insurance for the benefit of the
Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable
for any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from nationalization, expropriation or other
governmental actions; regulation of the banking or securities industry;
currency restrictions, devaluations or fluctuations; and market conditions
which prevent the orderly execution of securities transactions or affect the
value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty
or responsibility to:
(i) question Instructions or make any suggestions to the Customer or an
Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or
the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other than a
Security.
(iv) except as may be otherwise provided in any securities lending
agreement between the Customer and the Bank, evaluate or report to the
Customer or an Authorized Person regarding the financial condition of any
broker, agent or other party to which Securities are delivered or payments
are made pursuant to this Agreement;
(v) except for trades settled at DTC where the broker provides to the
Bank the trade confirmation and the Customer provides for the Bank to receive
the trade instruction, review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined in Section 10)
issuing Instructions shall bear any responsibility to review such
confirmations against Instructions issued to and statements issued by the
Bank.
(c) The Customer authorizes the Bank to act, hereunder, in its capacity
as a custodian notwithstanding that the Bank or any of its divisions or
affiliates may have a material interest in a transaction, or circumstances
are such that the Bank may have a potential conflict of duty or interest
including the fact that the Bank or any of its affiliates may provide
brokerage services to other customers, act as financial advisor to the issuer
of Securities, act as a lender to the issuer of Securities, act in the same
transaction as agent for more than one customer, have a material interest in
the issue of Securities, or earn profits from any of the activities listed
herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing ("Fee Schedule"),
together with the Bank's reasonable out-of-pocket or incidental expenses (as
further defined in the Fee Schedule), including, but not limited to, legal
fees. The Bank shall have a lien on and is authorized to charge any Accounts
of the Customer for any amount owing to the Bank under any provision of this
Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of
the Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange
through its subsidiaries, affiliates or Subcustodians. Instructions,
including standing instructions, may be issued with respect to such contracts
but the Bank may establish rules or limitations concerning any foreign
exchange facility made available. In all cases where the Bank, its
subsidiaries, affiliates or Subcustodians enter into a foreign exchange
contract related to Accounts, the terms and conditions of the then current
foreign exchange contract of the Bank, its subsidiary, affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement shall apply
to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it is
a resident of the United States and agrees to notify the Bank of any changes
in residency. The Bank may rely upon this certification or the certification
of such other facts as may be required to administer the Bank's obligations
under this Agreement. The Customer will indemnify the Bank against all
losses, liability, claims or demands arising directly or indirectly from any
such certifications.
(c) Access to Records. Applicable accounts, books and records of the
Bank shall be open to inspection and audit at all reasonable times during
normal business hours upon reasonable advance notice by Customer s
independent public accountants and by employees of Customer designated to the
Bank. All such materials shall, to the extent applicable, be maintained and
preserved in conformity with the Act and the rules and regulations
thereunder, including without limitation, SEC Rules 31a-1 and 31a-2. Subject
to restrictions under applicable law, the Bank shall also obtain an
undertaking to permit the Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the
examination of the Customer's books and records.
(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and
the Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that the
Assets deposited in the Accounts are Mutual Fund assets subject to certain
Securities and Exchange Commission ("SEC") rules and regulations.
This Agreement consists exclusively of this document together with
Schedules A and B, Appendices 1 and 2, Exhibits I - _______ and the following
Rider(s) [Check applicable rider(s)]:
X MUTUAL FUND
----
X SPECIAL TERMS AND CONDITIONS
----
There are no other provisions of this Agreement, and this Agreement
supersedes any other agreements, whether written or oral, between the
parties. Any amendment to this Agreement must be in writing, executed by
both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or unenforceable in any respect on the
basis of any particular circumstances or in any jurisdiction, the validity,
legality and enforceability of such provision or provisions under other
circumstances or in other jurisdictions and of the remaining provisions will
not in any way be affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no failure
or delay on the part of either party in exercising any power or right under
this Agreement operates as a waiver, nor does any single or partial exercise
of any power or right preclude any other or further exercise, or the exercise
of any other power or right. No waiver by a party of any provision of this
Agreement, or waiver of any breach or default, is effective unless in writing
and signed by the party against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses
or such other addresses as may subsequently be given to the other party in
writing:
Bank: The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex:
-------------------------------------
Customer: Delaware Group of Funds
1818 Market St.
Philadelphia, PA 19103
att: Messrs. Bishof and O Conner
or telex:
--------------------------------------
(i) Termination. This Agreement may be terminated by the Customer or
the Bank by giving sixty (60) days written notice to the other, provided that
such notice to the Bank shall specify the names of the persons to whom the
Bank shall deliver the Assets in the Accounts. If notice of termination is
given by the Bank, the Customer shall, within sixty (60) days following
receipt of the notice, deliver to the Bank Instructions specifying the names
of the persons to whom the Bank shall deliver the Assets. In either case the
Bank will deliver the Assets to the persons so specified, after deducting any
amounts which the Bank determines in good faith to be owed to it under
Section 13. If within sixty (60) days following receipt of a notice of
termination by the Bank, the Bank does not receive Instructions from the
Customer specifying the names of the persons to whom the Bank shall deliver
the Assets, the Bank, at its election, may deliver the Assets to a bank or
trust company doing business in the State of New York to be held and disposed
of pursuant to the provisions of this Agreement, or to Authorized Persons, or
may continue to hold the Assets until Instructions are provided to the Bank;
provided that, where the Bank is the terminating party and the Bank had not
notified the Customer that termination was for breach of this Agreement by
the Customer, such 60 day period shall be extended for an additional period
as requested by Customer of up to 120 days.
Termination as to One or More Series. This Agreement may be terminated
as to one or more Series (but less than all the Series) by delivery of an
amended Schedule A deleting such Series, in which case termination as to the
deleted Series shall take effect sixty (60) days after the date of such
delivery. The execution and delivery of an amended Schedule A which deletes
one or more Series, shall constitute a termination hereof only with respect
to such deleted Series, shall be governed by the preceding provisions of
Section 14 as to the identification of a successor custodian and the delivery
of the Assets of the Series so deleted to such successor custodian, and shall
not affect the obligations of the Bank and the Customer hereunder with
respect to the other Series set forth in Schedule A, as amended from time to
time.
(j) Several Obligations of the Series. With respect to any obligations
of the Customer on behalf of the Series and their related Accounts arising
hereunder, the Custodian shall look for payment or satisfaction of any such
obligation solely to the assets and property of the Series and such Accounts
to which such obligation relates as though the Customer had separately
contracted with the Custodian by separate written instrument with respect to
each Series and its Accounts.
CUSTOMER
By: /s/ Michael P. Bishof
---------------------
Title Vice President and Treasurer
THE CHASE MANHATTAN BANK, N.A.
By: /s/ Rosemary M. Stidmon
-----------------------
Title Vice President
STATE OF Pennsylvania)
: ss.
COUNTY OF Philadelphia)
On this 9th day of July, 1996, before me personally came Michael P. Bishof,
to me known, who being by me duly sworn, did depose and say that he resides
in Blue Bell, PA at 110 Spyglass Drive; that he is Vice President/Treasurer
of Delaware Group of Funds, the entity described in and which executed the
foregoing instrument; that he knows the seal of said entity, that the seal
affixed to said instrument is such seal, that it was so affixed by order of
said entity, and that he signed his name thereto by like order.
/s/ Maritza H. Cruzado
-----------------------
Maritza H. Cruzado
Notary
Sworn to before me this 9th
day of July, 1996.
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this 24th day of May, 1996, before me personally came Rosemary
Stidmon, to me known, who being by me duly sworn, did depose and say that she
resides in New Providence, NJ at 31 Sagamore Drive; that she is a Vice
President of THE CHASE MANHATTAN BANK, (National Association), the
corporation described in and which executed the foregoing instrument; that
she knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal, that it was so affixed by order of the
Board of Directors of said corporation, and that she signed her name thereto
by like order.
Sworn to before me this 24th
day of May, 1996.
/s/ Laiyee Ng
- -------------
Laiyee Ng
Notary
Schedule A
Delaware Pooled Trust, Inc. - Global Fixed Income Portfolio
Delaware Pooled Trust, Inc. - International Equity Portfolio
Delaware Pooled Trust, Inc. - Labor Select International Equity Portfolio
Delaware Pooled Trust, Inc. - Real Estate Investment Trust Portfolio
Delaware Pooled Trust, Inc. - High Yield Portfolio
Delaware Pooled Trust, Inc. - International Fixed Income Portfolio
Delaware Pooled Trust, Inc. - Defensive Equity Utility Portfolio
Delaware Group Global & International Funds, Inc. - International Equity Fund
Delaware Group Global & International Funds, Inc. - Global Assets Fund
Delaware Group Global & International Funds, Inc. - Global Bond Fund
Delaware Group Global & International Funds, Inc. - Emerging Markets Fund
Delaware Group Premium Fund, Inc. - International Equity Series
Delaware Group Premium Fund, Inc. - Equity Income Series
Delaware Group Premium Fund, Inc. - High Yield Series
Delaware Group Premium Fund, Inc. - Capital Reserves Series
Delaware Group Premium Fund, Inc. - Money Market Series
Delaware Group Premium Fund, Inc. - Growth Series
Delaware Group Premium Fund, Inc. - Multiple Strategy Series
Delaware Group Premium Fund, Inc. - Value Series
Delaware Group Premium Fund, Inc. - Emerging Growth Series
Delaware Group Premium Fund, Inc. - Global Bond Series
Delaware Group Delchester High-Yield Bond Fund, Inc.
Delaware Group Delaware Fund, Inc. - Delaware Fund
Delaware Group Delaware Fund, Inc. - Devon Fund
Delaware Group Value Fund, Inc.
Delaware Group DelCap Fund, Inc.
Delaware Group Dividend & Income Fund, Inc.
Delaware Group Advisor Funds, Inc. - Enterprise Fund
Delaware Group Advisor Funds, Inc. - U.S. Growth Fund
Delaware Group Advisor Funds, Inc. - World Growth Fund
Delaware Group Advisor Funds, Inc. - New Pacific Fund
Delaware Group Advisor Funds, Inc. - Federal Bond Fund
Delaware Group Advisor Funds, Inc. - Corporate Income Fund
March, 1996 Schedule B
SUB-CUSTODIANS EMPLOYED BY
THE CHASE MANHATTAN BANK, N.A. LONDON, GLOBAL CUSTODY
<TABLE>
<CAPTION>
<S> <C> <C>
COUNTRY SUB-CUSTODIAN CORRESPONDENT BANK
ARGENTINA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Arenales 707, 5th Floor Buenos Aires
De Mayo 130/140
1061Buenos Aires
ARGENTINA
AUSTRALIA The Chase Manhattan Bank The Chase Manhattan Bank
Australia Limited Australia Limited
36th Floor Sydney
World Trade Centre
Jamison Street
Sydney
New South Wales 2000
AUSTRALIA
AUSTRIA Creditanstalt - Bankverein Credit Lyonnais
Schottengasse 6 Vienna
A - 1011, Vienna
AUSTRIA
BANGLADESH Standard Chartered Bank Standard Chartered Bank
18-20 Motijheel C.A. Dhaka
Box 536,
Dhaka-1000
BANGLADESH
BELGIUM Generale Bank Credit Lyonnais Bank
3 Montagne Du Parc Brussels
1000 Bruxelles
BELGIUM
BOTSWANA Barclays Bank of Botswana Limited Barclays Bank of Botswana
Barclays House Gaborone
Khama Crescent
Gaborone
BOTSWANA
BRAZIL Banco Chase Manhattan, S.A. Banco Chase Manhattan S.A.
Chase Manhattan Center Sao Paulo
Rua Verbo Divino, 1400
Sao Paulo, SP 04719-002
BRAZIL
CANADA The Royal Bank of Canada Royal Bank of Canada
Royal Bank Plaza Toronto
Toronto
Ontario M5J 2J5
CANADA
Canada Trust Royal Bank of Canada
Canada Trust Tower Toronto
BCE Place
161 Bay at Front
Toronto
Ontario M5J 2T2
CANADA
CHILE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Agustinas 1235 Santiago
Casilla 9192
Santiago
CHILE
COLOMBIA Cititrust Colombia S.A. Cititrust Colombia S.A.
Sociedad Fiduciaria Sociedad Fiduciaria
Carrera 9a No 99-02 Santafe de Bogota
Santafe de Bogota, DC
COLOMBIA
CZECH REPUBLIC
Ceskoslovenska Obchodni Banka, A.S. Komercni Banka, A.S.,
Na Prikope 14 Praha
115 20 Praha 1
CZECH REPUBLIC
DENMARK Den Danske Bank Den Danske Bank
2 Holmens Kanala DK 1091 Copenhagen
Copenhagen
DENMARK
EGYPT National Bank of Egypt National Bank of Egypt
24 Sherif Street Cairo
Cairo
EGYPT
EUROBONDS Cedel S.A. ECU:Lloyds Bank PLC
67 Boulevard Grande Duchesse Charlotte International Banking Division
LUXEMBOURG London
A/c The Chase Manhattan Bank, N.A. For all other currencies: see
London relevant country
A/c No. 17817
EURO CDS First Chicago Clearing Centre ECU:Lloyds Bank PLC
27 Leadenhall Street Banking Division London
London EC3A 1AA For all other currencies: see
UNITED KINGDOM relevant country
FINLAND Merita Bank KOP Merita Bank KOP
Aleksis Kiven 3-5 Helsinki
00500 Helsinki
FINLAND
FRANCE Banque Paribas Societe Generale
Ref 256 Paris
BP 141
3, Rue D'Antin
75078 Paris
Cedex 02
FRANCE
GERMANY Chase Bank A.G. Chase Bank A.G.
Alexanderstrasse 59 Frankfurt
Postfach 90 01 09
60441 Frankfurt/Main
GERMANY
GHANA Barclays Bank of Ghana Barclays Bank
Barclays House Accra
High Street
Accra
GHANA
GREECE Barclays Bank Plc National Bank of Greece S.A.
1 Kolokotroni Street Athens
10562 Athens A/c Chase Manhattan Bank, N.A.,
GREECE London
A/c No. 040/7/921578-68
HONG KONG The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
40/F One Exchange Square Hong Kong
8, Connaught Place
Central, Hong Kong
HONG KONG
HUNGARY Citibank Budapest Rt. Citibank Budapest Rt.
Vaci Utca 19-21 Budapest
1052 Budapest V
HUNGARY
INDIA The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
52/60 Mahatma Gandhi Road Bombay
Bombay 400 001
INDIA
Deutsche Bank AG, Bombay Branch Deutsche Bank
Securities & Custody Services Bombay
Kodak House
222 D.N. Road, Fort
Bombay 400 001
INDIA
INDONESIA The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
Banking Corporation Limited Jakarta
World Trade Center
J1. Jend Sudirman Kav. 29-31
Jakarta 10023
INDONESIA
IRELAND Bank of Ireland Allied Irish Bank
International Financial Services Centre Dublin
1 Harbourmaster Place
Dublin 1
IRELAND
ISRAEL Bank Leumi Le-Israel B.M. Bank Leumi Le-Israel B.M.
19 Herzl Street Tel Aviv
61000 Tel Aviv
ISRAEL
ITALY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Piazza Meda 1 Milan
20121 Milan
ITALY
JAPAN The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
1-3 Marunouchi 1-Chome Tokyo
Chiyoda-Ku
Tokyo 100
JAPAN
JORDAN Arab Bank Limited Arab Bank Limited
P O Box 950544-5 Amman
Amman
Shmeisani
JORDAN
KENYA Barclays Bank of Kenya Barclays Bank of Kenya
Third Floor Nairobi
Queensway House
Nairobi
Kenya
LUXEMBOURG
Banque Generale du Luxembourg S.A. Banque Generale du Luxembourg
50 Avenue J.F. Kennedy S.A.
L-2951 LUXEMBOURG Luxembourg
MALAYSIA The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Pernas International Kuala Lumpur
Jalan Sultan Ismail
50250, Kuala Lumpur
MALAYSIA
MAURITIUS Hongkong and Shanghai Banking The Hongkong and Shanghai Banking
Corporation Ltd Corporation Ltd.
Curepipe Road Curepipe
Curepipe
MAURITIUS
MEXICO The Chase Manhattan Bank, S.A. No correspondent Bank
(Equities)Montes Urales no. 470, 4th Floor
Col. Lomas de Chapultepec
11000 Mexico D.F.
(Government Banco Nacional de Mexico, No correspondent Bank
Bonds) Avenida Juarez No. 104 - 11 Piso
06040 Mexico D.F.
MEXICO
MOROCCO Banque Commerciale du Maroc Banque Commerciale du Maroc
2 Boulevard Moulay Youssef Casablanca
Casablanca 20000
MOROCCO
NETHERLANDS
ABN AMRO N.V. Generale Bank
Securities Centre Nederland N.V.
P O Box 3200 Rotterdam
4800 De Breda
NETHERLANDS
NEW ZEALAND
National Nominees Limited National Bank of New Zealand
Level 2 BNZ Tower Wellington
125 Queen Street
Auckland
NEW ZEALAND
NORWAY Den Norske Bank Den Norske Bank
Kirkegaten 21 Oslo
Oslo 1
NORWAY
PAKISTAN Citibank N.A. Citibank N.A.
I.I. Chundrigar Road Karachi
AWT Plaza
Karachi
PAKISTAN
Deutsche Bank Deutsche Bank
Unitowers Karachi
I.I. Chundrigar Road
Karachi
PAKISTAN
PERU Citibank, N.A. Citibank N.A.
Camino Real 457 Lima
CC Torre Real - 5th Floor
San Isidro, Lima 27
PERU
PHILIPPINES
The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
Hong Kong Bank Centre 3/F Manila
San Miguel Avenue
Ortigas Commercial Centre
Pasig Metro Manila
PHILIPPINES
POLAND Bank Polska Kasa Opieki S.A. Bank Polska Kasa Opieki S.A.
Curtis Plaza Warsaw
Woloska 18
02-675 Warsaw
POLAND
For Mutual Funds:
Bank Handlowy W. Warsawie. S.A. Bank Polska Kasa Opieki S.A.
Custody Dept. Warsaw
Capital Markets Centre
Ul, Nowy Swiat 6/12
00-920 Warsaw
POLAND
PORTUGAL Banco Espirito Santo & Comercial Banco Nacional Ultra Marino
de Lisboa Lisbon
Servico de Gestaode Titulos
R. Mouzinho da Silveira, 36 r/c
1200 Lisbon
PORTUGAL
SHANGHAI The Hongkong and Shanghai Citibank
(CHINA) Banking Corporation Limited New York
Shanghai Branch
Corporate Banking Centre
Unit 504, 5/F Shanghai Centre
1376 Nanjing Xi Lu
Shanghai
THE PEOPLE'S REPUBLIC OF CHINA
SHENZHEN The Hongkong and Shanghai The Chase Manhattan Bank, N.A.
(CHINA) Banking Corporation Limited Hong Kong
1st Floor
Central Plaza Hotel
No.1 Chun Feng Lu
Shenzhen
THE PEOPLE'S REPUBLIC OF CHINA
SINGAPORE The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Shell Tower Singapore
50 Raffles Place
Singapore 0104
SINGAPORE
SLOVAK REPUBLIC
Ceskoslovenska Obchodni Banka, A.S. Ceskoslovenska Obchodni Banka
Michalska 18 Slovak Republic
815 63 Bratislava
SLOVAK REPUBLIC
SOUTH AFRICA
Standard Bank of South Africa Standard Bank of South Africa
Standard Bank Chambers South Africa
46 Marshall Street
Johannesburg 2001
SOUTH AFRICA
SOUTH KOREA
The Hongkong & Shanghai The Hongkong & Shanghai
Banking Corporation Limited Banking Corporation Limited
6/F Kyobo Building Seoul
#1 Chongro, 1-ka Chongro-Ku,
Seoul
SOUTH KOREA
SPAIN The Chase Manhattan Bank, N.A. Banco Bilbao Vizcaya,
Calle Peonias 2 Madrid
7th Floor
La Piovera
28042 Madrid
SPAIN
SRI LANKA The Hongkong & Shanghai The Hongkong & Shangai
Banking Corporation Limited Banking Corporation Limited
Unit #02-02 West Block, Colombo
World Trade Center
Colombo 1,
SRI LANKA
SWEDEN Skandinaviska Enskilda Banken Svenska Handelsbanken
Kungstradgardsgatan 8 Stockholm
Stockholm S-106 40
SWEDEN
SWITZERLAND
Union Bank of Switzerland Union Bank of Switzerland
45 Bahnhofstrasse Zurich
8021 Zurich
SWITZERLAND
TAIWAN The Chase Manhattan Bank, N.A. No correspondent Bank
115 Min Sheng East Road - Sec 3,
9th Floor
Taipei
TAIWAN
Republic of China
THAILAND The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Bubhajit Building Bangkok
20 North Sathorn Road
Silom, Bangrak
Bangkok 10500
THAILAND
TUNISIA Banque Internationale Arabe de Tunisie Banque Internationale Arabe de
70-72 Avenue Habib Bourguiba Tunisie, Tunisia
P.O. Box 520
1080 Tunis Cedex
Tunisia
TURKEY The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Emirhan Cad. No: 145 Istanbul
Atakule, A Blok Kat:11
80700-Dikilitas/Besiktas
Istanbul
Turkey
U.K. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
Woolgate House London
Coleman Street
London EC2P 2HD
UNITED KINGDOM
URUGUAY The First National Bank of Boston The First National Bank of Boston
Zabala 1463 Montevideo
Montevideo
URUGUAY
U.S.A. The Chase Manhattan Bank, N.A. The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza New York
New York
NY 10081
U.S.A.
VENEZUELA Citibank N.A. Citibank N.A.
Carmelitas a Altagracia Caracas
Edificio Citibank
Caracas 1010
VENEZUELA
ZAMBIA Barclays Bank of Zambia Barclays Bank of Zambia
Kafue House Lusaka
Cairo Road
P.O.Box 31936
Lusaka
ZAMBIA
ZIMBABWE Barclays Bank of Zimbabwe Barclays Bank of Zimbabwe
Ground Floor Harare
Tanganyika House
Corner of 3rd Street & Union Avenue
Harare
ZIMBABWE
</TABLE>
<PAGE> 1
EXHIBIT 99.B9A
VOYAGEUR MUTUAL FUNDS III, INC.
SHAREHOLDERS SERVICES AGREEMENT
THIS AGREEMENT, made as of this 1st day of May, 1997 by and between
VOYAGEUR MUTUAL FUNDS III, INC. (the "Fund") on behalf of the Aggressive Growth
Fund, Growth Stock Fund, International Equity Fund and Tax Efficient Equity Fund
(the "Series"), and DELAWARE SERVICE COMPANY, INC. ("DSC"), a Delaware
Corporation, each having its principal office and place of business at 1818
Market Street, Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreements between the Fund and
Delaware Management Company, Inc. and/or Voyageur Fund Managers, Inc. provide
that the Fund shall conduct its own business and affairs and shall bear the
expenses and salaries necessary and incidental thereto including, but not in
limitation of the foregoing, the costs incurred in: the maintenance of its
corporate existence; the maintenance of its own books, records and procedures;
dealing with its own shareholders; the payment of dividends; transfers of stock,
including issuance and redemption of shares; reports and notices to
stockholders; calling and holding of stockholder meetings; miscellaneous office
expenses; brokerage commissions; legal and accounting fees; taxes; and federal
and state registration fees; and
WHEREAS, the Fund and DSC desire to have a written agreement concerning
the performance of the foregoing services and providing compensation therefor.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
<PAGE> 2
I. APPOINTMENT AS AGENT
1.1 The Fund hereby appoints DSC Shareholder Services Agent for the
Series to provide as agent for the Fund services as Transfer Agent, Dividend
Disbursing Agent and Shareholder Servicing Agent and DSC hereby accepts such
appointment and agrees to provide the Fund, as its agent, the services described
herein.
1.2 The Fund shall pay DSC and DSC shall accept, for the services
provided hereunder, the compensation provided for in Section VIII hereof. The
Fund also shall reimburse DSC for expenses incurred or advanced by it for the
Fund in connection with its services hereunder.
II. DOCUMENTATION
2.1 The Fund represents that it has provided or made available to DSC
(or has given DSC an opportunity to examine) copies of, and DSC represents that
it has received from the Fund (or is otherwise familiar with), the following
documents:
(a) The Articles of Incorporation or other documents evidencing
the Fund's form of organization and any current amendments or supplements
thereto.
(b) The By-Laws of the Fund;
(c) Any resolution or other action of the Fund or the Board of
Directors of the Fund establishing or affecting the rights, privileges or other
status of each class or series of shares of the Fund, including those relating
to the Series or altering or abolishing each such class or series;
2
<PAGE> 3
(d) A certified copy of a resolution of the Board of Directors
of the Fund appointing DSC as Shareholder Services Agent for the Series and
authorizing the execution of this Agreement;
(e) The forms of share certificates of the Series in the forms
approved by the Board of Directors of the Fund;
(f) A copy of the Fund's currently effective Prospectuses and
Statement of Additional Information under the Securities Act of 1933, if
effective;
(g) Copies of all account application forms and other
documents relating to stockholder accounts in the Series;
(h) Copies of documents relating to Plans of the Fund for the
purchase, sale or repurchase of its shares, including periodic payment or
withdrawal plans, reinvestment plans or retirement plans;
(i) Any opinion of counsel to the Fund relating to the
authorization and validity of the shares of the Series issued or proposed to be
issued under the law of the State of the Fund's organization, including the
status thereof under any applicable securities laws;
(j) A certified copy of any resolution of the Board of
Directors of the Fund authorizing any person to give instructions to DSC under
this Agreement (with a specimen signature of such person if not already
provided), setting forth the scope of such authority; and
(k) Any amendment, revocation or other documents altering,
adding, qualifying or repealing any document or authority called for under this
Section 2.1.
2.2 The Fund and DSC may consult as to forms or documents that may
be required in performing services hereunder.
3
<PAGE> 4
2.3 The Fund shall provide or make available to DSC a certified
copy of any resolution of the stockholders or the Board of Directors of the Fund
providing for a dividend, capital gains distribution, distribution of capital,
stock dividend, stock split or other similar action affecting the authorization
or issuance of shares of the Series or the payment of dividends.
2.4 In the case of any recapitalization or other capital
adjustment requiring a change in the form of stock certificates or the books
recording the same, the Fund shall deliver or make available to DSC:
(a) A certified copy of any document authorizing or effecting
such change;
(b) Written instructions from an authorized officer
implementing such change; and
(c) An opinion of counsel to the Fund as to the validity of
such action, if requested by DSC.
2.5 The Fund warrants the following:
(a) The Fund is, or will be, a properly registered investment
company under the Investment Company Act of 1940 and any and all Series' shares
which it issues will be properly registered and lawfully issued under applicable
federal and state laws.
(b) The provisions of this contract do not violate the terms
of any instrument by which the Fund is bound; nor do they violate any law or
regulation of any body having jurisdiction over the Fund or its property.
2.6 DSC warrants the following:
(a) DSC is and will be properly registered as a transfer agent
under the Securities Exchange Act of 1934 and is duly authorized to serve, and
may lawfully serve as such.
4
<PAGE> 5
(b) The provisions of this contract do not violate the terms of any
instrument by which DSC is bound; nor do they violate any law or regulation of
any body having jurisdiction over DSC or its property.
III. STOCK CERTIFICATES
3.1 The Fund shall furnish or authorize DSC to obtain, at the Fund's
expense, a sufficient supply of blank stock certificates for the Series, and
from time to time will replenish such supply upon the request of DSC. The Fund
agrees to indemnify and exonerate, save and hold DSC harmless, from and against
any and all claims or demands that may be asserted against DSC concerning the
genuineness of any stock certificate supplied to DSC pursuant to this Section.
3.2 DSC shall safeguard, and shall account to the Fund, upon its demand
for, all such stock certificates: (a) as issued, showing to whom issued, or (b)
as unissued, establishing the safekeeping, cancellation or destruction thereof.
3.3 The Fund shall promptly inform DSC in writing of any change in the
officers authorized to sign stock certificates or in the form thereof. If an
officer whose manual or facsimile signature is affixed to any blank share
certificate shall die, resign or be removed prior to the issuance of such
certificate, DSC may nevertheless issue such certificate notwithstanding such
death, resignation or removal, and the Fund shall with respect thereto promptly
provide to DSC any approval, adoption or ratification as may be required by DSC.
IV. TRANSFER AGENT
4.1 As Transfer Agent for the Fund, DSC shall issue, redeem and
transfer shares of the Series, and, in connection therewith but not in
limitation thereof, it shall:
5
<PAGE> 6
(a) Upon receipt of authority to issue shares, determine the
total shares to be issued and issue such shares by crediting shares to accounts
created and maintained in the registration forms provided; as applicable,
prepare, issue and deliver stock certificates.
(b) Upon proper transfer authorization, transfer shares by
debiting transferor-stockholder accounts and crediting such shares to accounts
created and/or maintained for transferee-stockholders; if applicable, issue
and/or cancel stock certificates.
(c) Upon proper redemption authorization, determine the total
shares redeemed and to be redeemed; determine the total redemption payments made
and to be made; redeem shares by debiting stockholder accounts; as applicable
receive and cancel stock certificates for shares redeemed; and remit or cause to
be remitted the redemption proceeds to stockholders.
(d) Create and maintain accounts; reconcile and control cash
due and paid, shares issued and to be issued, cash remitted and to be remitted
and shares debited and credited to accounts; provide such notices, instructions
or authorizations as the Fund may require.
4.2 DSC shall not be required to issue, transfer or redeem Series'
shares upon receipt of DSC from the Fund, or from any federal or state
regulatory agency or authority, written notice that the issuance, transfer or
redemption of Series' shares has been suspended or discontinued.
V. DIVIDEND DISBURSING AGENT
5.1 As Dividend Disbursing Agent for the Fund, DSC shall disburse
and cause to be disbursed to stockholders of each Series dividends, capital
gains distributions or any payments from other sources as directed by the Fund.
In connection therewith, but not in the limitation thereof, DSC shall:
6
<PAGE> 7
(a) Calculate the total disbursement due and payable and the
disbursement to each stockholder as to shares owned, in accordance with the
Fund's authorization.
(b) Calculate the total disbursements for each stockholder, as
aforesaid, to be disbursed in cash; prepare and mail checks therefor.
(c) Calculate the total disbursement for each stockholder of
each Series, as aforesaid, for which Series' shares are to be issued and
authorized and instruct the issuance of Series' shares therefor in accordance
with Section IV hereof.
(d) Prepare and mail or deliver such forms and notices
pertaining to disbursements as required by federal or state authority.
(e) Create and maintain records, reconcile and control
disbursements to be made and made, both as to cash and shares, as aforesaid;
provide such notices, instruction or authorization as the Fund may require.
5.2 DSC shall not be required to make any disbursement upon the
receipt of DSC from the Fund, or from any federal or state agency or authority,
written notice that such disbursement shall not be made.
VI. SHAREHOLDER SERVICING AGENT
6.1 As Shareholder Servicing Agent for the Fund, DSC shall provide
those services ancillary to, but in implementation of, the services provided
under Sections I through V hereof, and those generally defined and accepted as
shareholder services. In connection therewith, but not in limitation thereof,
DSC shall:
(a) Except where instructed in writing by the Fund not to do
so, and where in compliance with applicable law, accept orders on behalf of the
Fund; receive and process
7
<PAGE> 8
investments and applications; remit to the Fund or its custodian payments for
shares acquired and to be issued; and direct the issuance of shares in
accordance with Section IV hereof.
(b) Receive, record and respond to communications of
stockholders and their agents.
(c) As instructed by the Fund, prepare and mail stockholder
account information, mail Series stockholder reports and Series prospectuses.
(d) Prepare and mail proxies and material for Fund stockholder
meetings, receive and process proxies from stockholders, and deliver such
proxies as directed by the Fund.
(e) Administer investment plans offered by the Fund to
investors and stockholders of each Series, including retirement plans, including
activities not otherwise provided in Sections I through V of this Agreement.
VII. PERFORMANCE OF DUTIES
7.1 The parties hereto intend that Series stockholders and their
stockholdings shall be confidential, and any information relating thereto shall
be released by DSC only to those persons or authorities who DSC has reason to
believe are authorized to receive such information; or, as instructed by the
Fund.
7.2 DSC may, in performing this Agreement, require the Fund or the
Fund's distributor to provide it with an adequate number of copies of
prospectuses, reports or other documents required to be furnished to investors
or stockholders.
7.3 DSC may request or receive instructions from the Fund and may,
at the Fund's expense, consult with counsel for the Fund or its own counsel with
respect to any matter arising in connection with the performance of its duties
hereunder, and shall not be liable for any action
8
<PAGE> 9
taken or omitted by it in good faith in accordance with such instructions or
opinions of counsel.
7.4 DSC shall maintain reasonable insurance coverage for errors
and omissions and reasonable bond coverage for fraud.
7.5 Upon notice thereof to the Fund, DSC may employ others to
provide services to DSC in its performance of this Agreement.
7.6 Personnel and facilities of DSC used to perform services
hereunder may be used to perform similar services to other funds of the Delaware
Group and to others, and may be used to perform other services for the Fund, the
other funds of the Delaware Group and others.
7.7 DSC shall provide its services as transfer agent hereunder in
accordance with Section 17 of the Securities Exchange Act of 1934, and the rules
and regulations thereunder. Further, the parties intend that the processes,
procedures, safeguards and controls employed should be those generally applied
and accepted for the type services provided hereunder by other institutions
providing the same or similar services, and, those which should provide
efficient, safe and economical services so as to promote promptness and accuracy
and to maintain the integrity of the Fund's records.
7.8 The Fund and DSC may, from time to time, set forth in writing
Guidelines For Selective Procedures to be applicable to the services hereunder.
VIII. COMPENSATION
8.1 The Fund and DSC acknowledge that because DSC has common
ownership and close management ties with the Fund's investment advisor and the
Fund's distributor and serves the other funds of the Delaware Group (DSC having
been originally established to provide the services hereunder for the funds of
the Delaware Group), advantages and benefits to the Fund in
9
<PAGE> 10
the employment of DSC hereunder can be available which may not generally be
available to it from others providing similar services.
8.2 The Fund and DSC further acknowledge that the compensation by the
Fund to DSC is intended to induce DSC to provide services under this Agreement
of a nature and quality which the Board of Directors of the Fund, including a
majority who are not parties to this Agreement or interested persons of the
parties hereto, has determined after due consideration to be necessary for the
conduct of the business of the Fund, in the best interests of the Fund, the
Series and their stockholders.
8.3 Compensation by the Fund to DSC hereunder shall be determined in
accordance with Schedule A hereto as it shall be amended from time to time as
provided for herein and which is incorporated herein as a part hereof.
8.4 Compensation as provided in Schedule A shall be reviewed and
approved in the manner set forth in Section 10.1 hereof by the Board of
Directors of the Fund at least annually and may be reviewed and approved more
frequently at the request of either party. The Board may request, and DSC shall
provide, such information as the Board may reasonably require to evaluate the
basis of and approve the compensation.
IX. STANDARD OF CARE
9.1 The Fund acknowledges that DSC shall not be liable for, and in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the performance of its duties under this Agreement, agrees to
indemnify DSC against, any claim or deficiency arising from the performance of
DSC's duties hereunder, including DSC's costs, counsel fees and expenses
incurred in investigating or defending any such claim or any administrative or
other
10
<PAGE> 11
proceeding, and acknowledges that any risk of loss or damage arising from the
conduct of the Fund's affairs in accordance herewith or in accordance with
Guidelines or instructions given hereunder, shall be borne by the Fund.
X. CONTRACTUAL STATUS
10.1 This Agreement shall be executed and become effective on the date
first written above if approved by a vote of the Board of Directors of the Fund,
including an affirmative vote of a majority of the non-interested members of the
Board, cast in person at a meeting called for the purpose of voting on such
approval. It shall continue in effect for an indeterminate period, and is
subject to termination on sixty (60) days notice by either party unless earlier
terminated or amended by agreement among the parties. Compensation under this
Agreement shall require approval by a majority vote of the Board of Directors of
the Fund, including an affirmative vote of the majority of the non-interested
members of the Board cast in person at a meeting called for the purpose of
voting on such approval.
10.2 This Agreement may not be assigned without the approval of the
Fund.
10.3 This Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers as of the 1st day of
May, 1997.
DELAWARE SERVICE COMPANY, INC.
ATTEST: /s/ Michael D. Mabry By: /s/ David K. Downes
----------------------------- ---------------------------------
Michael D. Mabry David K. Downes
Assistant Vice President/ President, Chief Executive Officer,
Assistant Secretary and Chief Financial Officer
VOYAGEUR MUTUAL FUNDS III, INC. on behalf of
the Aggressive Growth Fund, Growth Stock Fund,
International Equity Fund and Tax Efficient
Equity Fund
ATTEST: /s/ David P. O'Connor By: /s/Wayne A. Stork
----------------------------- ---------------------------------
David P. O'Connor Wayne A. Stork
Assistant Vice President/ Chairman, President and
Assistant Secretary Chief Executive Officer
<PAGE> 1
<PAGE>
PROPOSED AGREEMENT
SUBJECT TO BOARD APPROVAL
DELAWARE GROUP OF FUNDS
FUND ACCOUNTING AGREEMENT
THIS AGREEMENT, made as of this 19th day of August, 1996 by and between
the registered investment companies in the Delaware Group listed on Schedule A,
which Schedule may be amended from time to time as provided in Section 8 hereof
(each corporation or common law or business trust, hereinafter referred to as a
"Company," and all such entities collectively hereinafter referred to as, the
"Companies"), on behalf of the portfolio(s) of securities of such Companies
listed on Schedule A, which Schedule may be amended from time to time (when used
in this Agreement in the context of a Company that offers only a single
portfolio/series of shares, the term "Portfolio" shall be a reference to such
Company, and when used in the context of a Company that offers multiple
portfolios/series of shares, shall be a reference to each portfolio/series of
such Company) and DELAWARE SERVICE COMPANY, INC. ("DSC"), a Delaware
corporation, having its principal office and place of business at 1818 Market
Street, Philadelphia, Pennsylvania 19103.
W I T N E S S E T H:
WHEREAS, the Investment Management Agreements between the
Companies with respect to each Portfolio and either Delaware
Management Company, Inc. or its U.K. affiliate, Delaware
-2-
<PAGE>
International Advisers Ltd., provide, in part, that each Portfolio shall conduct
its business and affairs and shall bear the expenses necessary and incidental
thereto including, but not in limitation of the foregoing, the costs incurred
with respect to accounting services; and
WHEREAS, the services to be provided under this agreement
previously were provided by employees of the Companies; and
WHEREAS, the Companies and DSC desire to have a written agreement
concerning the performance of accounting services for each Portfolio and
providing compensation therefor;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and intending legally to be bound, it is agreed:
I. APPOINTMENT AS AGENT
Section 1.1 The Companies hereby appoint DSC the accounting
agent ("Accounting Agent") for all of the classes of each Portfolio, to provide
such accounting services as are set forth herein and DSC hereby accepts such
appointment and agrees to provide the Companies, as their agent, the services
described herein.
Section 1.2 The Companies shall pay DSC and DSC shall accept,
for the services provided hereunder, the compensation provided for in Section VI
hereof. The Companies
-3-
<PAGE>
also shall reimburse DSC for expenses incurred or advanced by it for the
Companies in connection with its services hereunder.
II. DOCUMENTATION
Section 2.1 Each Company represents that it has provided or
made available to DSC (or has given DSC an opportunity to examine) copies of,
and, DSC represents that it has received from the Companies (or is otherwise
familiar with), the following documents:
A. The Articles of Incorporation or Agreement and
Declaration of Trust or other document, as relevant, evidencing each Company's
form of organization and any current amendments thereto;
B. The By-Laws or Procedural Guidelines of each
Company;
C. Any resolution or other action of each Company or
the Board of Directors or Trustees of each Company establishing or affecting the
rights, privileges or other status of any class of shares of a Portfolio, or
altering or abolishing any such class;
D. A certified copy of a resolution of the Board of
Directors or Trustees of each Company appointing DSC as Accounting Agent for
each Portfolio and authorizing the execution of this Agreement or an amendment
to Schedule A of this Agreement;
-4-
<PAGE>
E. A copy of each Company's currently effective
prospectus[es] and Statement[s] of Additional Information under the Securities
Act of 1933, if effective;
F. A certified copy of any resolution of the Board of
Directors or Trustees of each Company authorizing any person to give
instructions to DSC under this Agreement (with a specimen signature of such
person if not already provided), setting forth the scope of such authority; and
G. Any amendment, revocation or other document
altering, adding, qualifying or repealing any document or authority called for
under this Section 2.1.
Section 2.2 Each Company and DSC may consult as to forms or
documents that may be required in performing services hereunder.
Section 2.3 Each Company warrants the following:
A. The Company is, or will be, a properly registered
investment company under the Investment Company Act of 1940 (the "1940 Act") and
any and all shares of a Portfolio which it issues will be properly registered
and lawfully issued under applicable federal and state laws.
B. The provisions of this contract do not violate the
terms of any instrument by which the Company or the Company on behalf of a
Portfolio is bound; nor do they violate any law or regulation of any body having
jurisdiction over the Company or its property.
Section 2.4 DSC warrants the following:
-5-
<PAGE>
A. The provisions of this contract do not violate the
terms of any instrument by which DSC is bound; nor do they violate any law or
regulation of any body having jurisdiction over DSC or its property.
III. SERVICES TO BE PROVIDED BY DSC
Section 3.1 Daily Net Asset Value ("NAV") Calculation. As
Accounting Agent for each Portfolio of the Companies, DSC will perform all
functions necessary to provide daily Portfolio NAV calculations, including:
A. Maintaining each Portfolio's securities portfolio
history by:
1. recording portfolio purchases and sales;
2. recording corporate actions and capital
changes relating to portfolio securities;
3. accruing interest, dividends and
expenses; and
4. maintaining the income history for
securities purchased by a Portfolio.
B. Determining distributions to Portfolio
shareholders;
C. Recording and reconciling shareholder activity
including:
1. recording subscription, liquidations and
dividend reinvestments;
-6-
<PAGE>
2. recording settlements of shareholder
activity; and
3. reconciling Portfolio shares outstanding
to the records maintained by DSC, as transfer agent of the Portfolio.
D. Valuing a Portfolio's securities portfolio which
includes determining the NAVs for all classes of the Portfolio;
E. Disseminating Portfolio NAVs and dividends to
interested parties (including the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Investment Company Institute ("ICI"),
Morningstar, and Lipper Analytical Services, Inc. ("Lipper")); and
F. Resolving pricing and/or custody discrepancies.
Section 3.2 Financial Reporting. As Accounting Agent, DSC
shall perform financial reporting services for each Portfolio, which shall
include:
A. The preparation of semi-annual and annual reports
for shareholders which involves the performance of the following functions:
1. preparing all statements of net assets,
statements of operations and statements of changes in net assets for the
Portfolio;
-7-
<PAGE>
2. preparing footnotes to financial
statements for the Portfolio;
3. preparing workpapers for each Company's
annual audit by its independent public accountants; and
4. coordinating the annual audit by each
Company's independent public accountants.
B. Reporting to the ICI in response to requests for
monthly and other periodic information;
C. Performing statistical reporting, which includes
daily, monthly, quarterly and annual reports for Lipper, Weisenberger and other
third party reporting agencies; and
D. Furnishing financial information for any
additional required SEC reporting, such as the preparation of financial
information for each Company's reporting on Form N-SAR, the furnishing of
financial information for each Company's prospectus[es] and statement[s] of
additional information, and the financial information required for each
Company's annual Rule 24f-2 notice filing;
Section 3.3 Compliance Testing. DSC will monitor, test and
prepare and maintain supporting schedules which evidence compliance with the
definitional and distribution requirements under the Internal Revenue Code of
1986, as amended ("IRC"), including the following:
-8-
<PAGE>
A. The requirement to be registered at all times
during the taxable year under the 1940 Act (IRC ss.851(a));
B. The annual ninety percent gross income test (IRC
ss.851(b)(2));
C. The short/short (thirty percent) gross income test
(IRC ss.851(b)(3));
D. The quarterly IRC industry diversification tests
(IRC ss.ss.851(b)(4) and 817(h)); and
E. The 90% distribution requirements (IRC ss.852(a)).
Section 3.4 Other Services. In addition to the above, DSC, in
its capacity as Accounting Agent for the Company, will perform the following
services:
A. The calculation of required Portfolio monthly
yields and total return calculations in accordance with the prescribed rules of
the U.S. Securities and Exchange Commission;
B. Providing the financial information necessary for
the preparation of all federal and state tax returns and ancillary schedules,
including:
1. year-end excise tax distributions; and
2. compliance with Subchapter M and Section
4982 of the IRC;
-9-
<PAGE>
C. Performing special tax reporting to shareholders,
including the preparation of reports which reflect income earned by each
Portfolio by state, exempt income and distributions that qualify for the
corporate dividends received deduction;
D. The preparation of expense and budget figures for
each Portfolio, including the maintenance of detailed records pertaining to
expense accruals and payments and adjusting reports to reflect accrual
adjustments;
E. The preparation of reports for Board of Directors'
or Trustees' meetings;
F. Coordination of the custody relationships;
G. Facilitating security settlements;
H. Performance of required foreign security
accounting functions;
I. Performance of daily cash reconciliations for each
Portfolio;
J. Providing identified reports to portfolio managers
including:
1. providing portfolio holdings and security
valuation reports;
2. preparing cash forecasts and
reconciliations as mutually agreed upon; and
3. preparing income projections.
-10-
<PAGE>
IV. PERFORMANCE OF DUTIES
Section 4.1 DSC may request or receive instructions from a
Company and may, at a Portfolio's expense, consult with counsel for the Company
or its own counsel, with respect to any matter arising in connection with the
performance of its duties hereunder, and shall not be liable for any action
taken or omitted by it in good faith in accordance with such instructions or
opinions of counsel.
Section 4.2 DSC shall maintain reasonable insurance coverage
for errors and omissions and reasonable bond coverage for fraud.
Section 4.3 Upon notice thereof to a Company, DSC may employ
others to provide services to DSC in its performance of this Agreement.
Section 4.4 Personnel and facilities of DSC used to perform
services hereunder may be used to perform similar services to all Companies of
the Delaware Group and their Portfolios and to others, and may be used to
perform other services for all of the Companies of the Delaware Group and
others.
Section 4.5 The Companies and DSC may, from time to time, set
forth in writing at the Companies' expense certain guidelines to be applicable
to the services hereunder.
-11-
<PAGE>
V. ACCOUNTS AND RECORDS
Section 5.1 The parties hereto agree and acknowledge that the
accounts and records maintained by DSC with respect to a Portfolio shall be the
property of such Portfolio, and shall be made available to the relevant Company
promptly upon request and shall be maintained for the periods prescribed in Rule
31a-2 under the Investment Company Act of 1940 or such longer period as shall be
agreed to by the parties hereto, at such Portfolio's expense.
VI. COMPENSATION
Section 6.1 The Companies and DSC acknowledge that the
compensation to be paid hereunder to DSC is intended to induce DSC to provide
services under this Agreement of a nature and quality which the Boards of
Directors or Trustees of the Companies, including a majority who are not parties
to this Agreement or interested person of the parties hereto, have determined
after due consideration to be necessary for the conduct of the business of a
Portfolio in the best interests of a Portfolio and its shareholders.
Section 6.2 Compensation by a Portfolio hereunder shall be
determined in accordance with Schedule B hereto as it shall be amended from time
to time as provided for herein and which is incorporated herein as a part
hereof.
Section 6.3 Compensation as provided in Schedule B shall be
reviewed and approved for each Portfolio in the manner
-12-
<PAGE>
set forth in Section 8.1 hereof by the Boards of Directors or Trustees of the
Companies at least annually and may be reviewed and approved more frequently at
the request of either party. The Boards may request and DSC shall provide such
information as the Boards may reasonably require to evaluate the basis of and
approve the compensation.
VII. STANDARD OF CARE
Section 7.1 The Companies on behalf of each Portfolio
acknowledge that DSC shall not be liable for, and in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
performance of its duties under this contract, agree to indemnify DSC against,
any claim or deficiency arising from the performance of DSC's duties hereunder,
including DSC's costs, counsel fees and expenses incurred in investigating or
defending any such claim or any administrative or other proceeding, and
acknowledge that any risk of loss or damage arising from the conduct of a
Portfolio's affairs in accordance herewith or in accordance with guidelines or
instructions given hereunder, shall be borne by the Portfolio. The
indemnification provided for in this Section 7.1 shall be made Portfolio by
Portfolio so that DSC is only entitled to indemnification from a Company on
behalf of a Portfolio for actions arising from the performance of DSC's duties
as to that Portfolio.
-13-
<PAGE>
VIII. CONTRACTUAL STATUS
Section 8.1 This Agreement shall be executed and become
effective as to a Company with regard to a Portfolio listed on Schedule A as of
the date first written above if approved by a vote of such Company's Board of
Directors or Trustees, including an affirmative vote of a majority of the non-
interested members of the Board of such Company, cast in person at a meeting
called for the purpose of voting on such approval. It shall continue in effect
for an indeterminate period, and is subject to termination as to a Company on
behalf of a Portfolio or DSC, as the case may be, on sixty (60) days notice by
either that Company or DSC, unless earlier terminated or amended by agreement
among the parties. A Company shall be permitted to terminate this Agreement as
to a Portfolio on sixty (60) days notice to DSC. Compensation under this
Agreement by a Portfolio shall require approval by a majority vote of the Board
of Directors or Trustees of such Portfolio's Company, including an affirmative
vote of the majority of the non-interested members of such Board cast in person
at a meeting called for the purpose of voting such approval.
Section 8.2 This Agreement shall become effective as to any
Company or Portfolio not included on Schedule A as of the date first written
above, but desiring to participate in this Agreement, on such date as an amended
Schedule A adding such new Company or Portfolio to such Schedule is executed by
DSC and such new Company or a Company on behalf of a new Portfolio following
-14-
<PAGE>
approval by the Company or by the Company on behalf of a new Portfolio desiring
to be included in this Agreement in accordance with the method specified in
Section 8.1. Any such amended Schedule A shall not affect the validity of this
Agreement as between DSC and the other Companies which have executed this
Agreement or any subsequent amendment to Schedule A of this Agreement.
Section 8.3 This Agreement may not be assigned by DSC without
the approval of all of the Companies.
Section 8.4 This Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania.
DELAWARE SERVICE COMPANY, INC.
/s/ David K. Downes
By:_____________________________________
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP DELCHESTER HIGH-YIELD
BOND FUND, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
-15-
<PAGE>
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
/s/Wayne A. Stork
By:_____________________________________
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
/s/ Wayne A. Stork
By:_____________________________________
Wayne A. Stork, Chairman
-16-
<PAGE>
SCHEDULE A
COMPANIES AND PORTFOLIOS COMPRISING THE DELAWARE GROUP*
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Delchester High-Yield Bond Fund, Inc.
- --------
* Except as otherwise noted, all Portfolios included on this Schedule A are
Existing Portfolios for purposes of the compensation described on Schedule B to
that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
Portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
-17-
<PAGE>
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group DelCap Fund, Inc.
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Income Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
-18-
<PAGE>
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: August 19, 1996
-19-
<PAGE>
SCHEDULE B
COMPENSATION
Fee Schedule for The Delaware Group of Funds
Part 1 -- Fees for Existing Portfolios
Existing Portfolios are those so designated on Schedule A to the Fund Accounting
Agreement between Delaware Service Company, Inc. and the Delaware Group of Funds
dated as of August 19, 1996 ("Agreement").
Annual Asset Based Fees
First $10 Billion of Aggregate
Complex Net Assets 2.5 Basis Points
Aggregate Complex Net Assets
over $10 Billion 2.0 Basis Points
Annual asset based fees will be charged at a rate of 2.5 basis points for the
first $10 Billion of Aggregate Complex Net Assets. Aggregate Complex Net Assets
over $10 Billion will be charged at a rate of 2.0 basis points. These fees will
be charged to a Portfolio on an aggregated pro rated basis.
Annual Minimum Fees
Domestic Equity Portfolio $35,000
Domestic Fixed Income Portfolio $45,000
International Series Portfolio $70,000
Per Class of Share Fee $ 4,000
There is an annual minimum fee that will be charged only if the annual asset
based fee is less than the calculation for the minimum fee. This fee is based on
the type and the number of classes per Portfolio. For an equity Portfolio
$35,000 will be charged; for a fixed income Portfolio $45,000 will be charged,
and for an international Portfolio $70,000 will be charged. For each class of
shares, $4,000 will be charged, such amount to be prorated over a period of less
than a year for any classes added after April 30, 1996. A total of all minimum
fees will be compared to the total asset based fee to determine which fee is
higher and, subsequently, will be used to bill the Companies.
Part 2 -- Fees for New Portfolios
For each Portfolio designated as a New Portfolio on Schedule A to the Agreement,
there will be a fee of 2.0 basis points, providing that the Delaware complex net
assets are above $10 Billion (the
<PAGE>
rate would be 2.5 basis points if under $10 Billion and then 2.0 basis points
once the net assets cross $10 Billion), or an annual minimum fee calculated in
the manner described above, whichever is higher. This new fee would be added to
the total of Existing Portfolio fees and then pro rated. Fees shall not be
charged for New Portfolios included on Schedule A until such Portfolios shall
have commenced operations.
Dated as of: August 19, 1996
-21-
<PAGE> 1
EXHIBIT 99.B9BI
AMENDMENT NO. 1 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
DMC Tax-Free Income Trust - Pennsylvania
*Except as otherwise noted, all Portfolios included on this Schedule A are
Existing Portfolios for purposes of the compensation described on Schedule B to
that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
<PAGE> 2
Delaware Group Value Fund, Inc.
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group DelCap Fund, Inc.
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Income Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
<PAGE> 3
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: September 30, 1996
DELAWARE SERVICE COMPANY, INC.
By: /s/ David K. Downes
---------------------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY
FUND,INC.
DELAWARE GROUP LIMITED-TERM
GOVERNMENT FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DMC TAX-FREE INCOME TRUST -
PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL &
INTERNATIONAL FUNDS, INC.
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By: /s/ Wayne A. Stork
------------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/Wayne A. Stork
------------------------------------
Wayne A. Stork
Chairman
-3-
<PAGE> 1
EXHIBIT 99.B9BD
AMENDMENT NO. 2 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Equity Funds IV, Inc.
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc.
Retirement Income Fund (New)
Value Fund
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes
1
<PAGE> 2
of Schedule B to the Agreement.
2
<PAGE> 3
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Delaware Group Government Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Emerging Growth Series
Equity/Income Series
Global Bond Series (New)
Growth Series
High Yield Series
International Equity Series
Money Market Series
Multiple Strategy Series
Value Series
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Trend Fund, Inc.
3
<PAGE> 4
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
DMC Tax-Free Income Trust - Pennsylvania
4
<PAGE> 5
Dated as of: November 29, 1996
DELAWARE SERVICE COMPANY, INC.
By: /s/David K. Downes
---------------------------------
David K. Downes
Senior Vice President/
Chief Administrative Officer/
Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
By: /s/ Wayne A. Stork
----------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/ Wayne A. Stork
----------------------------------
Wayne A. Stork
Chairman
5
<PAGE> 1
EXHIBIT 99.B9BIII
AMENDMENT NO.3 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Cash Reserve, Inc.
Delaware Group Decatur Fund, Inc.
Decatur Income Fund
Decatur Total Return Fund
Delaware Group Delaware Fund, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund (New)
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
1
<PAGE> 2
DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Value Fund, Inc.
Value Fund
Retirement Income Fund (New)
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund (New)
Delaware Group Equity Funds IV, Inc.
DelCap Fund
Multi-Cap Equity Fund (New)
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio (New)
The Global Fixed Income Portfolio
The International Fixed Income Portfolio (New)
The High-Yield Bond Portfolio (New)
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
Emerging Growth Series
Global Bond Series (New)
Delaware Group Government Fund, Inc.
2
<PAGE> 3
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: December 27, 1996
DELAWARE SERVICE COMPANY, INC.
By: /s/David K. Downes
-------------------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP DECATUR FUND, INC.
DELAWARE GROUP DELAWARE FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND,INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP VALUE FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
DELAWARE GROUP DELCAP FUND, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By: /s/Wayne A. Stork
--------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
DELAWARE POOLED TRUST, INC.
By: /s/Wayne A. Stork
--------------------------------
Wayne A. Stork
Chairman
3
<PAGE> 1
EXHIBIT 99.B9BIV
AMENDMENT NO. 4 TO
SCHEDULE A
TO DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds II, Inc.
Decatur Income Fund
Decatur Total Return Fund
Blue Chip Fund (New)
Quantum Fund (New)
Delaware Group Equity Funds I, Inc.
Delaware Fund
Devon Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund
Delaware Group Trend Fund, Inc.
Delaware Group Income Funds, Inc.
Delchester Fund
Strategic Income Fund
High-Yield Opportunities Fund (New)
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware
1
<PAGE> 2
Group of Funds dated as of August 19, 1996 ("Agreement"). All portfolios added
to this Schedule A by amendment executed by a Company on behalf of such
Portfolio hereof shall be a New Portfolio for purposes of Schedule B to the
Agreement. DMC Tax-Free Income Trust - Pennsylvania
Delaware Group Equity Funds V, Inc.
Value Fund
Retirement Income Fund
Delaware Group Global & International Funds, Inc.
International Equity Fund
Global Bond Fund
Global Assets Fund
Emerging Markets Fund
Delaware Group Equity Funds IV, Inc.
DelCap Fund
Capital Appreciation Fund
Delaware Pooled Trust, Inc.
The Defensive Equity Portfolio
The Aggressive Growth Portfolio
The International Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio
The Defensive Equity Utility Portfolio
The Labor Select International Equity Portfolio
The Real Estate Investment Trust Portfolio
The Fixed Income Portfolio
The Limited-Term Maturity Portfolio
The Global Fixed Income Portfolio
The International Fixed Income Portfolio
The High-Yield Bond Portfolio
Delaware Group Premium Fund, Inc.
Equity/Income Series
High Yield Series
Capital Reserves Series
Money Market Series
Growth Series
Multiple Strategy Series
International Equity Series
Value Series
2
<PAGE> 3
Emerging Growth Series
Global Bond Series
Delaware Group Government Fund, Inc.
Delaware Group Adviser Funds, Inc.
Enterprise Fund
U.S. Growth Fund
World Growth Fund
New Pacific Fund
Federal Bond Fund
Corporate Income Fund
Dated as of: FEBRUARY 24, 1997
-----------------
DELAWARE SERVICE COMPANY, INC.
By: /S/ DAVID K. DOWNES
---------------------------------
David K. Downes
Senior Vice President/Chief
Administrative Officer/Chief
Financial Officer
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS II,
INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND,INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT
FUNDS, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL
FUNDS, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
By: /S/ WAYNE A. STORK
--------------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
3
<PAGE> 4
DELAWARE POOLED TRUST, INC.
By: /S/ WAYNE A. STORK
--------------------------------------
Wayne A. Stork
Chairman
4
<PAGE> 1
EXHIBIT 99.B9BV
AMENDMENT NO. 5
TO
SCHEDULE A
OF
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT
Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund
Delaware Group Cash Reserve, Inc.
Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund
Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)
Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund
Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)
Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund )
- ------------------
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule B
to that Fund Accounting Agreement between Delaware Service Company, Inc. and the
Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on behalf
of such Portfolio hereof shall be a New Portfolio for purposes of Schedule B to
the Agreement.
1
<PAGE> 2
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)
Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund
Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New)
The Defensive Equity Utility Portfolio (New)
The Emerging Markets Portfolio (New)
The Fixed Income Portfolio
The Global Fixed Income Portfolio
The High-Yield Bond Portfolio (New)
The International Equity Portfolio
The International Fixed Income Portfolio (New)
The Labor Select International Equity Portfolio
The Limited-Term Maturity Portfolio (New)
The Real Estate Investment Trust Portfolio
Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Quantum Series (New)
Strategic Income Series (New)
Trend Series
Value Series
2
<PAGE> 3
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund
Delaware Group Tax-Free Money Fund, Inc.
Delaware Group Trend Fund, Inc.
DMC Tax-Free Income Trust-Pennsylvania (doing business as Tax-Free Pennsylvania
Fund)
Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund (New)
Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)
Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)
Voyageur Investment Trust
California Insured Tax Free Fund (New)
Florida Insured Tax Free Fund (New)
Florida Tax Free Fund (New)
Kansas Tax Free Fund (New)
Missouri Insured Tax Free Fund (New)
New Mexico Tax Free Fund (New)
Oregon Insured Tax Free Fund (New)
Utah Tax Free Fund (New)
Washington Insured Tax Free Fund (New)
3
<PAGE> 4
Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)
Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)
Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)
Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)
Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)
Dated as of May 1, 1997
4
<PAGE> 5
DELAWARE SERVICE COMPANY, INC.
By: /s/ David K. Downes
-------------------------------
David K. Downes
President, Chief Executive Officer and Chief Financial Officer
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED -TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
By: /s/ Wayne A. Stork
-------------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer
5
<PAGE> 1
EXHIBIT 99.B15D
EXHIBIT A
DISTRIBUTION PLAN
VOYAGEUR MUTUAL FUNDS III, INC.
TAX EFFICIENT EQUITY FUND
TAX EFFICIENT EQUITY FUND A CLASS
The following Distribution Plan (the "Plan") has been adopted
pursuant to Rule l2b-1 under the Investment Company Act of 1940 (the "Act") by
Voyageur Mutual Funds III, Inc. (the "Fund"), for the Tax Efficient Equity Fund
series (the "Series") on behalf of the Tax Efficient Equity Fund A Class
("Class"), which Fund, Series and Class may do business under these or such
other names as the Board of Directors of the Fund may designate from time to
time. The Plan has been approved by a majority of the Board of Directors,
including a majority of the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operation of the
Plan or in any agreements related thereto ("non-interested Directors"), cast in
person at a meeting called for the purpose of voting on such Plan. Such approval
by the Directors included a determination that in the exercise of reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Series and shareholders of the Class.
The Plan has been approved by a majority of the outstanding voting securities of
the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1. The Fund shall pay to the Distributor a monthly fee not to exceed
0.3% (3/10 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class (the "Maximum Amount") as may be determined by the Fund's
Board of Directors from time to time. Such monthly fee shall be reduced by the
aggregate sums paid by the Fund on behalf of the Series to persons other than
broker-dealers (the "Service Providers") who may, pursuant to servicing
agreements, provide to the Series services in the Series'
<PAGE> 2
marketing of shares of the Class.
2. (a) The Distributor shall use the monies paid to it pursuant
to paragraph 1 above to furnish, or cause or encourage others to furnish,
services and incentives in connection with the promotion, offering and sale of
Class shares and, where suitable and appropriate, the retention of Class shares
by shareholders.
(b) The Service Providers shall use the monies paid
respectively to them to reimburse themselves for the actual costs they have
incurred in confirming that their customers have received the Prospectus and
Statement of Additional Information, if applicable, and as a fee for (1)
assisting such customers in maintaining proper records with the Fund, (2)
answering questions relating to their respective accounts, and (3) aiding in
maintaining the investment of their respective customers in the Class.
3. The Distributor shall report to the Fund at least monthly on the
amount and the use of the monies paid to it under the Plan. The Service
Providers shall inform the Fund monthly and in writing of the amounts each
claims under the Plan; both the Distributor and the Service Providers shall
furnish the Board of Directors of the Fund with such other information as the
Board may reasonably request in connection with the payments made under the Plan
and the use thereof by the Distributor and the Service Providers, respectively,
in order to enable the Board to make an informed determination of the amount of
the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of Directors
of the Fund, for their review, on a quarterly basis, a written report of the
amounts expended under the Plan and the purposes for which such expenditures
were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund in writing of the commencement of the Plan (the "Commencement
Date"); thereafter, the Plan shall continue in effect for a period of more than
one year from the Commencement Date only so long as such continuance is
specifically approved at least annually by a vote of the Board of Directors of
the Fund, and of the non-interested Directors, cast in person at a meeting
called for the purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a
majority of the non-interested Directors or by vote of a majority of the
outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially the
amount to be spent for distribution pursuant to paragraph 1 thereof without
approval by the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and
<PAGE> 3
nomination of the Fund's non-interested Directors shall be committed to the
discretion of such non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of
the Act shall govern the meaning of "interested person(s)" and "vote of a
majority of the outstanding voting securities," respectively, for the purposes
of this Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
June 26, 1997
<PAGE> 1
EXHIBIT 99.B15E
EXHIBIT B
DISTRIBUTION PLAN
VOYAGEUR MUTUAL FUNDS III, INC.
TAX EFFICIENT EQUITY FUND
TAX EFFICIENT EQUITY FUND B CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Voyageur
Mutual Funds III, Inc. (the "Fund"), for the Tax Efficient Equity Fund series
(the "Series") on behalf of the Tax Efficient Equity Fund B Class (the "Class"),
which Fund, Series and Class may do business under these or such other names as
the Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1. (a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in (a) above, the Fund
shall pay (i) to the Distributor for payment to dealers or
<PAGE> 2
others, or (ii) directly to others, an amount not to exceed 0.25% (1/4 of 1%)
per annum of the Series' average daily net assets represented by shares of the
Class, as a service fee pursuant to dealer or servicing agreements.
2. (a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the amount
and the use of the monies paid to it under paragraph 1(a) above. In addition,
the Distributor and others shall inform the Fund monthly and in writing of the
amounts paid under paragraph 1(b) above; both the Distributor and any others
receiving fees under the Plan shall furnish the Board of Directors of the Fund
with such other information as the Board may reasonably request in connection
with the payments made under the Plan and the use thereof by the Distributor and
others in order to enable the Board to make an informed determination of the
amount of the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of Directors of the
Fund, for their review, on a quarterly basis, a written report of the amounts
expended under the Plan and the purposes for which such expenditures were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority
of the non-interested Directors or by vote of a majority
<PAGE> 3
of the outstanding voting securities of the Class.
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of the
Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the Act
shall govern the meaning of "interested person(s)" and "vote of a majority of
the outstanding voting securities," respectively, for the purposes of this Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
June 26, 1997
<PAGE> 1
EXHIBIT 99.B15F
EXHIBIT C
DISTRIBUTION PLAN
VOYAGEUR MUTUAL FUNDS III, INC.
TAX EFFICIENT EQUITY FUND
TAX EFFICIENT EQUITY FUND C CLASS
The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Voyageur
Mutual Funds III, Inc. (the "Fund"), for the Tax Efficient Equity Fund series
(the "Series") on behalf of the Tax Efficient Equity Fund C Class (the "Class"),
which Fund, Series and Class may do business under these or such other names as
the Board of Directors of the Fund may designate from time to time. The Plan has
been approved by a majority of the Board of Directors, including a majority of
the Directors who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plan or in any agreements
related thereto ("non-interested Directors"), cast in person at a meeting called
for the purpose of voting on such Plan. Such approval by the Directors included
a determination that in the exercise of reasonable business judgment and in
light of their fiduciary duties, there is a reasonable likelihood that the Plan
will benefit the Series and shareholders of the Class. The Plan has been
approved by a vote of the holders of a majority of the outstanding voting
securities of the Class, as defined in the Act.
The Fund is a corporation organized under the laws of the State of
Maryland, is authorized to issue different series and classes of securities and
is an open-end management investment company registered under the Act. Delaware
Management Company, Inc. serves as the Series' investment adviser and manager
pursuant to an Investment Management Agreement. Delaware Service Company, Inc.
serves as the Series' shareholder servicing, dividend disbursing and transfer
agent. Delaware Distributors, L.P. (the "Distributor") is the principal
underwriter and national distributor for the Series' shares, including shares of
the Class, pursuant to the Distribution Agreement between the Distributor and
the Fund on behalf of the Series ("Distribution Agreement").
The Plan provides that:
1. (a) The Fund shall pay to the Distributor a monthly fee not to exceed
0.75% (3/4 of 1%) per annum of the Series' average daily net assets represented
by shares of the Class as may be determined by the Fund's Board of Directors
from time to time.
(b) In addition to the amounts described in (a) above, the Fund
shall pay (i) to the Distributor for payment to dealers or others, or (ii)
directly to others, an amount not to exceed 0.25% (1/4 of 1%) per annum of the
Series' average daily net
<PAGE> 2
assets represented by shares of the Class, as a service fee pursuant to dealer
or servicing agreements.
2. (a) The Distributor shall use the monies paid to it pursuant to
paragraph 1(a) above to assist in the distribution and promotion of shares of
the Class. Payments made to the Distributor under the Plan may be used for,
among other things, preparation and distribution of advertisements, sales
literature and prospectuses and reports used for sales purposes, as well as
compensation related to sales and marketing personnel, and holding special
promotions. In addition, such fees may be used to pay for advancing the
commission costs to dealers with respect to the sale of Class shares.
(b) The monies to be paid pursuant to paragraph 1(b) above shall be
used to pay dealers or others for, among other things, furnishing personal
services and maintaining shareholder accounts, which services include confirming
that customers have received the Prospectus and Statement of Additional
Information, if applicable; assisting such customers in maintaining proper
records with the Fund; answering questions relating to their respective
accounts; and aiding in maintaining the investment of their respective customers
in the Class.
3. The Distributor shall report to the Fund at least monthly on the amount
and the use of the monies paid to it under paragraph 1(a) above. In addition,
the Distributor and others shall inform the Fund monthly and in writing of the
amounts paid under paragraph 1(b) above; both the Distributor and any others
receiving fees under the Plan shall furnish the Board of Directors of the Fund
with such other information as the Board may reasonably request in connection
with the payments made under the Plan and the use thereof by the Distributor and
others in order to enable the Board to make an informed determination of the
amount of the Fund's payments and whether the Plan should be continued.
4. The officers of the Fund shall furnish to the Board of Directors of the
Fund, for their review, on a quarterly basis, a written report of the amounts
expended under the Plan and the purposes for which such expenditures were made.
5. This Plan shall take effect at such time as the Distributor shall
notify the Fund of the commencement of the Plan (the "Commencement Date");
thereafter, the Plan shall continue in effect for a period of more than one year
from the Commencement Date only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors of the Fund, and
of the non-interested Directors, cast in person at a meeting called for the
purpose of voting on such Plan.
6. (a) The Plan may be terminated at any time by vote of a majority
of the non-interested Directors or by vote of a majority of the outstanding
voting securities of the Class.
<PAGE> 3
(b) The Plan may not be amended to increase materially the amount to
be spent for distribution pursuant to paragraph 1 thereof without approval by
the shareholders of the Class.
7. All material amendments to this Plan shall be approved by the
non-interested Directors in the manner described in paragraph 5 above.
8. So long as the Plan is in effect, the selection and nomination of the
Fund's non-interested Directors shall be committed to the discretion of such
non-interested Directors.
9. The definitions contained in Sections 2(a)(19) and 2(a)(42) of the Act
shall govern the meaning of "interested person(s)" and "vote of a majority of
the outstanding voting securities," respectively, for the purposes of this Plan.
This Plan shall take effect on the Commencement Date, as previously
defined.
June 26, 1997
<PAGE> 1
EXHIBIT 99.B18
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
MULTIPLE CLASS PLAN PURSUANT TO RULE 18F-3
AS APPROVED AS OF APRIL 30, 1997
I. PREAMBLE
Each of the funds listed on Schedule A hereto (each a "Fund," and
collectively the "Funds"), is a separate series of one of the above-captioned
registrants (each, a "Company"). Each Fund has elected to rely on Rule 18f-3
under the Investment Company Act of 1940, as amended (the "1940 Act") in
offering multiple classes of shares in such Fund.
This plan pursuant to rule 18f-3 (the "Plan"), which shall become
effective for the Funds on the Effective Date (as defined in section VI of this
Plan), sets forth the differences among classes of shares of the Funds,
including distribution arrangements, shareholder services, expense allocations,
conversion and exchange options, and voting rights.
II. ATTRIBUTES OF SHARE CLASSES.
The attributes of each existing class of the existing Funds with respect
to distribution arrangements, shareholder services, and conversion and exchange
options shall be as set forth in the following materials:
A. Prospectus and Statement of Additional Information of each respective
Fund as in effect (including supplements) as of the Effective Date (as defined
in section VI hereof).
B. Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act ("Rule
12b-1 Plan") for each Company and Fund as in effect on the Effective Date (as
defined in section VI hereof).
Expenses, income and gains of such existing classes of the Funds shall be
allocated in the manner set forth in III and IV below. Each such existing class
shall have exclusive voting
<PAGE> 2
rights on any matter submitted to shareholders that relates solely to its
arrangement for shareholder services and the distribution of shares and shall
have separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interest of any other class, and shall
have in all other respects the same rights and obligations as each other class.
III. EXPENSE ALLOCATION.
A. Each Company shall allocate to each class of shares of a Fund any fees
and expenses incurred by the Company in connection with the distribution or
servicing of such class of shares under a Rule 12b-1 Plan, if any, adopted for
such class. In addition, the Company reserves the right, subject to approval by
the Company's Board of Directors/Trustees, to allocate fees and expenses of the
following nature to a particular class of shares of a Fund (to the extent that
such fees and expenses actually vary among each class of shares or vary by types
of services provided to each class of shares of the Fund):
(i) transfer agency and other recordkeeping costs;
(ii) Securities and Exchange Commission and blue sky registration or
qualification fees;
(iii) printing and postage expenses related to printing and distributing
class specific materials, such as shareholder reports, prospectuses
and proxies to current shareholders of a particular class or to
regulatory authorities with respect to such class of shares;
(iv) audit or accounting fees or expenses relating solely to such class;
(v) the expenses of administrative personnel and services as required to
support the shareholders of such class;
(vi) litigation or other legal expenses relating solely to such class of
shares;
(vii) Directors'/Trustees' fees and expenses incurred as a result of
issues relating solely to such class of shares; and
(viii)other expenses subsequently identified and determined to be properly
allocated to such class of shares.
B. Except for any expenses that are allocated to a particular class as
described in paragraph A above, all expenses incurred by a Fund will be
allocated to each class of shares of such Fund on the basis of the net asset
value of each such class in relation to the net asset value of the Fund.
-2-
<PAGE> 3
IV. ALLOCATION OF INCOME AND GAINS.
Income and realized and unrealized capital gains and losses of a Fund will
be allocated to each class of shares of such Fund on the basis of the net asset
value of each such class in relation to the net asset value of the Fund.
V. AMENDMENT OF PLAN; PERIODIC REVIEW.
A. New Funds and New Classes. With respect to any new portfolio of a
Company created after the date of this Plan and any new class of shares of the
existing Funds created after the date of this Plan, the Board of
Directors/Trustees of such Company shall approve amendments to this Plan setting
forth the attributes of the classes of shares of such new portfolio or of such
new class of shares.
B. Material Amendments and Periodic Reviews. The Board of
Directors/Trustees of each Company, including a majority of the independent
directors/trustees, shall periodically review this Plan for its continued
appropriateness and shall approve any material amendment of this Plan as it
relates to any class of any Fund covered by this Plan.
VI. EFFECTIVE DATE OF PLAN.
This Plan shall become effective for a Fund upon conversion of the
accounting system for such Fund on or after May 1, 1997 (the "Effective Date")
or, for any new portfolio of a company created after date of this Plan, upon
adoption of the Plan with respect to such portfolio. Upon the Effective Date,
this Plan shall supersede any other plan pursuant to Rule 18f-3 which previously
has been adopted for a Fund.
-3-
<PAGE> 4
SCHEDULE A
TO
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
AS OF APRIL 30, 1997
Voyageur Minnesota Tax Free Fund
Voyageur North Dakota Tax Free Fund
Voyageur Minnesota Limited Term Tax Free Fund
Voyageur Arizona Limited Term Tax Free Fund
Voyageur Colorado Limited Term Tax Free Fund
Voyageur California Limited Term Tax Free Fund
Voyageur Minnesota Insured Fund
Voyageur Arizona Insured Tax Free Fund
Voyageur Colorado Insured Tax Free Fund
Voyageur U.S. Government Securities Fund
Voyageur Florida Insured Tax Free Fund
Voyageur California Insured Tax Free Fund
Voyageur Kansas Tax Free Fund
Voyageur Missouri Insured Tax Free Fund
Voyageur New Mexico Tax Free Fund
Voyageur Oregon Insured Tax Free Fund
Voyageur Utah Tax Free Fund
Voyageur Washington Insured Tax Free Fund
Voyageur Florida Tax Free Fund
Voyageur Florida Limited Term Tax Free Fund
Voyageur Iowa Tax Free Fund
Voyageur Wisconsin Tax Free Fund
Voyageur Idaho Tax Free Fund
Voyageur Minnesota High Yield Municipal Bond Fund
Voyageur National High Yield Municipal Bond Fund
Voyageur Arizona Tax Free Fund
Voyageur California Tax Free Fund
Voyageur New York Tax Free Fund
Voyageur Colorado Tax Free Fund
Voyageur Growth Stock Fund
Voyageur Aggressive Growth Fund
Voyageur Tax Efficient Equity Fund
<PAGE> 1
EXHIBIT 99.B19
POWER OF ATTORNEY
Each of the undersigned, a member of the Board of Directors of VOYAGEUR
MUTUAL FUNDS III, INC., hereby constitutes and appoints Wayne A. Stork, W.
Thacher Longstreth and Walter P. Babich and any one of them acting singly, his
true and lawful attorneys-in-fact, in his name, place, and stead, to execute and
cause to be filed with the Securities and Exchange Commission and other federal
or state government agency or body, such registration statements, and any and
all amendments thereto as either of such designees may deem to be appropriate
under the Securities Act of 1933, as amended, the Investment Company Act of
1940, as amended, and all other applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
this 1st day of May, 1997.
/s/ Walter P. Babich /s/ W. Thacher Longstreth
- --------------------------- -------------------------------
Walter P. Babich W. Thacher Longstreth
/s/ Anthony D. Knerr /s/ Charles E. Peck
- --------------------------- -------------------------------
Anthony D. Knerr Charles E. Peck
/s/ Ann R. Leven /s/ Wayne A. Stork
- --------------------------- -------------------------------
Ann R. Leven Wayne A. Stork
<PAGE> 2
POWER OF ATTORNEY
The undersigned, a member of the Boards of Directors/Trustees of the
Delaware Group Funds listed on Exhibit A to this Power of Attorney, hereby
constitutes and appoints Wayne A. Stork, W. Thacher Longstreth and Walter P.
Babich and any one of them acting singly, his true and lawful attorneys-in-fact,
in his name, place, and stead, to execute and cause to be filed with the
Securities and Exchange Commission and other federal or state government agency
or body, such registration statements, and any and all amendments thereto as
either of such designees may deem to be appropriate under the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of this
1st day of May, 1997.
/s/ Thomas F. Madison
- ---------------------------
Thomas F. Madison
<PAGE> 3
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
<PAGE> 4
POWER OF ATTORNEY
The undersigned, a member of the Boards of Directors/Trustees of the
Delaware Group Funds listed on Exhibit A to this Power of Attorney, hereby
constitutes and appoints Wayne A. Stork, W. Thacher Longstreth and Walter P.
Babich and any one of them acting singly, his true and lawful attorneys-in-fact,
in his name, place, and stead, to execute and cause to be filed with the
Securities and Exchange Commission and other federal or state government agency
or body, such registration statements, and any and all amendments thereto as
either of such designees may deem to be appropriate under the Securities Act of
1933, as amended, the Investment Company Act of 1940, as amended, and all other
applicable federal and state securities laws.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of this
1st day of May, 1997.
/s/ Jeffrey J. Nick
- ---------------------------
Jeffrey J. Nick
<PAGE> 5
POWER OF ATTORNEY
EXHIBIT A
DELAWARE GROUP FUNDS
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP TREND FUND, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP LIMITED-TERM GOVERNMENT FUNDS, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX-FREE MONEY FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
DELAWARE GROUP DIVIDEND AND INCOME FUND, INC.
DELAWARE GROUP GLOBAL DIVIDEND AND INCOME FUND, INC.
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.
VOYAGEUR TAX FREE FUNDS, INC.
VOYAGEUR ARIZONA MUNICIPAL INCOME FUND, INC.
VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND, INC.
VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II, INC.
VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III, INC.
