<PAGE>
VOYAGEUR INVESTMENTS
Annual Report
AGGRESSIVE GROWTH FUND
(FORMERLY VOYAGEUR AGGRESSIVE GROWTH FUND)
GROWTH STOCK FUND
(FORMERLY VOYAGEUR GROWTH STOCK FUND)
Dated April 30, 1997
<PAGE>
AGGRESSIVE GROWTH FUND
GROWTH STOCK FUND
ANNUAL REPORT
Dated April 30, 1997
<PAGE>
LETTER FROM THE PRESIDENT
Dear Shareholder:
The one-year reporting period ended April 30, 1997, witnessed the stock market's
continued prosperity. The equity market overshadowed other asset classes, as has
been the case throughout this calendar year. To date, the excitement generated
by the stock market's relatively steady climb has not been diminished by
occasional market downturns or inflation fears. Although we cannot predict when
the stock market will undergo a significant correction, we believe that at some
point it will experience some type of adjustment. However, a well-planned
investment strategy that includes taking a long-term approach and maintaining a
diverse portfolio, can help investors temper the effect of market downturns over
time.
As you know, on April 30, 1997, after receiving shareholder approval through a
proxy vote, the Aggressive Growth Fund and the Growth Stock Fund were acquired
by Lincoln National Corporation. The Funds were added to the fund family of the
Delaware Group, an indirect subsidiary of Lincoln National Corporation.
The Delaware Group is committed to providing our shareholders with the best
investment products and services available in today's financial market. Our
equity funds allow you access to a wide range of sectors within the stock
market. All Delaware/Voyageur Funds are actively managed to meet individual fund
objectives.
In the pages that follow the Funds' managers for this reporting period will
discuss some points of interest related to your Fund and the country's economy.
If at any time you have questions about your Delaware/Voyageur fund investment
or any other fund in the Delaware Group, contact your financial adviser or the
Delaware Shareholder Services Department at 1-800-523-1918.
Sincerely,
/s/ Wayne A. Stork
Wayne A. Stork
Chairman, President and Chief Executive Officer
<PAGE>
AGGRESSIVE GROWTH FUND
For the fiscal year ended April 30, 1997, the Aggressive Growth Stock Fund's
total return at NAV was 4.34* percent for class A shares compared to the 25.13
percent for the S&P 500 Index.*
For most of its fiscal year, the Fund was an excellent performer. At the Fund's
semiannual reporting period ended October 31, 1996, you may remember the
Aggressive Growth Fund's class A shares (at NAV) outperformed the S&P 500 Index
- -- 10.02 percent vs. 8.97 percent. The key reason the Fund was able to
outperform the broader market at that point was due to the Fund's emphasis on
technology. Technology was the market's best performing sector for most of 1996.
However, like any aggressive portfolio -- which often suffers above-average
volatility characteristics in the short term -- what made the Aggressive Growth
Fund strong during the first half of the year and on through January 1997,
actually was a main contributing factor to the Fund's underperformance for the
year ended April 30, 1997.
MARKET DYNAMICS
The main setbacks in the Fund's performance occurred in February, March and
April 1997. During this period, we saw a significant reduction in price per
earnings (P/E) ratios assigned to high P/E stocks. High P/E stocks are generally
considered growth-oriented stocks. Since a main focus in our aggressive strategy
is to emphasize investing in growth-oriented stocks, quite of few of the
holdings within the Fund's portfolio suffered adversely.
Also during these same three months, the market was dominated by
large-capitalization stocks. In the Fund, we tended to invest in lower
capitalization stocks, which were generally out of favor during this time.
SECTOR PERFORMANCE
The Fund continued to be heavily invested in technology stocks. Within this
sector our focus has specifically been on the following: 1) telecommunications
and networking equipment, 2) software, and 3) information services. These three
areas had done very well for us for most of the Fund's fiscal year. However,
during the past three months, two of these areas -- 1) telecommunications and
networking equipment and 2) information services -- performed poorly.
The telecommunications and network-ing equipment sectors performed poorly due to
the perception of a slowing demand from primary customers -- the regional
operating and long distance companies. Deregulation and the ongoing debate
surrounding access
[PHOTO]
TONY H. ELAVIA WAS THE SENIOR EQUITY PORTFOLIO MANAGER FOR THE AGGRESSIVE GROWTH
FUND THROUGH APRIL 30, 1997. MR. ELAVIA MANAGED THE FUND SINCE MAY 1995, AND HAS
OVER 14 YEARS OF INVESTMENT INDUSTRY EXPERIENCE.
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE.
<PAGE>
charges are two major unresolved issues that could have a major impact on these
telecommunication companies' bottom line. Until these issues are resolved, the
expectation is for telecommunication companies to slow their capital
expend-itures until they have better understanding of how these changes will
affect their revenues.
Information service providers also suffered during the past three months due to
a perception of a slowdown in demand for their services. These companies --
which included such names as EDS and Cambridge Technology -- are expected to
witness a decline in revenues as their customers divert their resources to
resolving the Year 2000 problem.
CHANGE IN FUND MANAGEMENT
On April 30, 1997, after receiving approval from the shareholders through a
proxy vote, the Aggressive Growth Fund was acquired by Lincoln National
Corporation. The Fund was added to the fund offerings of Delaware Group, an
indirect subsidiary of Lincoln National Corporation. As of May 1, 1997, the Fund
is being managed by Delaware Management Company. Gerald S. Frey, Vice
President/Senior Portfolio Manager at Delaware Management Company, Inc. serves
as portfolio manager for the Fund. Mr. Frey has over 20 years experience in the
money management business.
<PAGE>
AGGRESSIVE GROWTH FUND
Class A Shares
[CHART]
Aggressive Aggressive
Growth Fund Growth Fund Standard
With Sales Without Sales & Poor's
Charge Charge 500 Index
9525 10000 10000
"May-94" 9525 10000 10079
9448 9920 9830
8782 9220 10155
8829 9270 10568
9753 10240 10313
9648 10130 10549
10020 10520 10162
9544 10020 10310
9429 9900 10578
9058 9510 10989
9410 9880 11314
9848 10340 11646
"Apr-95" 9906 10400 12106
10182 10690 12391
10848 11390 12804
11658 12240 12838
11677 12260 13378
12334 12950 13330
11639 12220 13917
12125 12730 14174
11698 12282 14663
11639 12219 14804
12184 12792 14945
11917 12511 15166
"Apr-96" 12978 13626 15557
14358 15074 15616
14258 14969 14926
11807 12396 15241
12949 13594 16099
14764 15501 16543
14278 14990 17793
15568 16344 17441
15038 15788 18530
16349 17165 18675
14600 15329 17908
12898 13541 18977
"Apr-97" 13519 14194 18977
<TABLE>
<CAPTION>
TOTAL RETURNS
Class A Shares Class B Shares Class C Shares
- --------------------------------------------------------------------------------------------------------
Since Since Since
1 Year 5/16/94** 1 Year 4/16/96** 1 Year 5/20/94**
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Without
Sales Charge 4.34% 12.62% 2.84% 12.23% 3.58% 11.82%
- --------------------------------------------------------------------------------------------------------
With Sales
Charge (0.61%)* 10.78%* (1.16%)*** 8.40%*** 2.58%*** 11.82%***
- --------------------------------------------------------------------------------------------------------
</TABLE>
The performance of separate classes will vary based on the differences in sales
loads and distribution fees paid by shareholders investing in the different
classes. Performance quoted represents past performance and is not indicative of
future results.
* Total return includes the maximum 4.75% sales charge.
** Commencement of operations.
*** Assumes redemption on April 30, 1997.
The Standard and Poor's 500 Index is an unmanaged, market value weighted index
of 500 widely held common stocks. The index includes industrial, utility,
financial and transportation stocks primarily, but not exclusively, traded on
the New York Stock Exchange. The S & P 500 represents approximately 77% of the
NYSE market capitalization. The index assumes that no operating expenses,
transaction fees or sales charges are incurred by a hypothetical investor who
directly owns the securities maintained in the index. In order to outperform the
index over any specific time frame, a fund must return to investors an amount
greater than that provided by the index plus total operating expenses.
<PAGE>
GROWTH STOCK FUND
For the fiscal year ended April 30, 1997, the Growth Stock Fund's total return
at NAV was 15.27%* for class A shares compared to the Wilshire Large Cap Growth
Index performance of 29.94%.* The Fund's performance during its fiscal year is
representative of its overall high-quality growth approach to stock fund
investing.
When the market is raging, such as it has been for the last two years,
high-quality stocks typically lag the market as investors seek the high returns
they perceive to be offered by riskier securi-ties. However, during more
challenging markets, such as the market downturn we had earlier this year, a
high-quality approach tends to outperform the market as investors flood toward
the stability offered by high-quality stocks.
A HIGH-QUALITY, LONG-TERM APPROACH
We believe providing consistent long-term results over business cycles should be
a primary consideration in stock fund investing. In order to achieve this, the
Fund solely invests in companies rated A+ or A by Standard & Poor's. These
high-quality companies have tradi-tionally exhibited consistently superior
earnings and long-term growth potential.
Within this high-quality universe, we select no more than 30 companies. These
high-quality companies have traditionally exhibited consistently superior
earnings and long-term growth potential.
We also select companies that our research indicates are at the low end of their
historical price valuation. Since we want to participate in long-term earnings
and dividend growth of these companies, we seek to hold them until they return
to their historically high price valuations.
THE CONTINUED STOCK MARKET CLIMB
With most major domestic stock indices gaining more than 20 percent for the
year, 1996 was another stellar year for most stock market investors. In fact,
the Dow ended 1996 with the largest two-year gain (68 percent) in more than 40
years. We believe the primary reasons for this record-breaking year were the
continued lack of inflation and the ability of corporations to repeatedly
generate profits that surpassed expecta-tions. A third reason was the huge cash
inflows into stock mutual funds.
The importance of the tie between inflation perceptions and market performance
can be ascertained by the mini "correction" that took place in June and July
1996. This downdraft was primarily instigated by concerns that unusually low
unemployment was
[PHOTO]
JAMES C. KING IS THE SENIOR EQUITY PORTFOLIO MANAGER FOR THE GROWTH STOCK FUND.
MR. KING HAS MANAGED THE FUND SINCE JANUARY 1992, AND HAS NEARLY 30 YEARS OF
INVESTMENT INDUSTRY EXPERIENCE.
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE.
<PAGE>
starting to ignite wage inflation. During this time, the Dow and S&P 500 fell
approximately 10 percent while NASDAQ toppled almost 20 percent based on
intra-day prices. What's interesting to note is that some of the market's most
volatile days occurred in tandem with government employment report releases.
After the July report dispelled most inflation concerns, the market rallied
strongly during the second half of the year. Corporate profits have been boosted
by the ability of companies to cut costs and have reached, by many measures,
records highs for the past 20-year period.
In early 1997, the S&P 500 -- which was trading at about 21 times trailing
earnings -- was at the high end of historical valuations. Yet, as has proven
typical of the current market climb, it continued to extend past historical
valuations and continued to race to gains of nearly 10 percent. On February 19,
1997, the S&P 500 Index peaked, finishing the first quarter with a total return
of 2.7 percent. During the same period, the Russell 1000 Growth Index had a
quarterly return of more than 1.5 percent.
As would be expected, the relative performance of high-quality stocks such as
those in the Growth Stock Fund actually trailed the S&P 500 prior to its
February market peak. However, the Growth Stock Fund actually sped ahead of the
S&P 500 and Russell 1000 indices during the market downturn in late February.
We believe that perhaps the most crucial catalyst for the current market
downturn was the realization that the Federal Reserve was going to raise
interest rates. While past performance is not a guaranty of future results,
historically interest rates and market valuation measures -- such as price per
earnings per share ratios -- have exhibited a tight inverse correlation. Since
market valuations remain at the high end of historical ranges despite
decelerating corporate earnings, we believe sustaining the current low interest
rate and inflationary environment is crucial for corporate America to generate
positive stock market returns in the short term.
Further fueling market volatility were announcements from several
high-expectation companies that their first quarter earnings would fall somewhat
short of their estimates. As you well know, the stock market has been unmerciful
to companies unable to meet their earnings expectations -- especially those
companies trading at high valuations.
ECONOMIC OUTLOOK
Most expectations for the remainder of 1997 are for a more moderate market
<PAGE>
advance ranging from 7 to 10 percent. If this forecast seems familiar, it's
because it's quite similar to original predictions for 1996. We expect to see
corporate profit growth to slow to approximately 5 percent for the year.
Inflation expecta-tions remain low.
The low inflationary environment makes it difficult to raise prices, and with
little cost cutting left to be done, corporations may find it difficult to
continue to beat profit expectations. If the Federal Reserve also continues to
tighten (e.g. raise rates), companies may also see their profits decline due to
increased interest costs.
Given the high levels of valuations and expectations in the stock market, we
have taken a more defensive position during the past year in order to reduce
risk on the downside. We have lowered the Fund's overall price per earnings
(P/E) ratio -- a ratio that is calculated by dividing a stock's current price by
its trailing 12 months' earnings per share. In order to lower the Fund's overall
P/E, we sold companies that had reached the high end of their historical price
valuations. We then replaced them with companies that are selling at historical
lows, but which have demonstrated an ability to survive down markets without any
major earnings shortages.
Regardless of what's happening in the market, we will continue to maintain our
commitment to investing in high-quality stocks. Our conviction is that, over
full market cycles, high-quality stocks provide superior long-term performance,
especially on a risk-adjusted basis. These companies tend to have broad product
lines and geo-graphic diversification, which permits them to generate
consistent, relatively predictable earnings growth regardless of economic
conditions.
<PAGE>
GROWTH STOCK FUND
Class A Shares
[GRAPH]
Growth Growth
Stock Fund Stock Fund Wilshire
With Sales Without Sales Large Company
Charge Charge Growth Index
9525 10000 10000
"Aug-85" 9525 10000 10000
9576 10053 10000
9614 10093 9898
9747 10233 9536
10147 10653 9951
10501 11025 10763
10937 11482 11313
11679 12262 11326
12499 13123 12147
"Apr-86" 12885 13528 12876
13801 14490 12882
14387 14470 13604
13156 13809 13884
13902 14592 13023
12816 13453 13671
13834 14521 12268
13708 14389 13110
14057 14755 13368
15909 16699 13062
15929 16719 14922
17053 17900 15862
"Apr-87" 16927 17767 16077
17228 18083 15663
17732 18612 15816
17974 18866 16737
18915 19854 17579
18604 19528 18419
14348 15061 17944
13340 14002 13822
15144 15618 12603
14925 15659 13680
15591 16358 14148
15701 16473 15001
"Apr-88" 16009 16796 14529
15571 16337 14468
16596 17412 14401
16148 16942 15144
15522 16285 15023
16297 17099 14609
16238 17036 15475
15770 16546 15722
16753 17577 15432
17691 18562 15760
17462 18321 16800
17941 18823 16399
"Apr-89" 19359 20311 16940
20057 21044 17909
19149 20091 18903
20197 21191 18733
20926 21956 20814
21725 22794 21016
21256 22301 20972
21795 22867 20645
21638 22702 21089
19770 20742 21310
20541 21551 19731
21334 22383 19774
"Apr-90" 20476 21483 20577
20416 21420 20297
23316 24463 22528
21726 22795 22762
19305 20255 22496
18136 19028 20312
17902 18783 18957
19212 20157 18843
20030 21016 20415
21370 22421 21382
23442 24596 22836
24504 25709 24759
"Apr-91" 24466 25670 25853
26046 27327 25797
25035 26266 27068
26690 28003 25772
27866 29236 27102
27663 29024 28113
28877 30297 27446
27979 29356 27740
31640 33196 27260
30571 32074 31352
30609 32114 30834
30049 31527 31121
"Apr-92" 30303 31794 30296
30302 31793 30369
30044 31522 30548
30820 32336 29681
30388 31883 30883
31027 32553 30481
31717 33277 30997
33251 34887 31616
33472 35118 33014
32833 34448 32860
32539 34140 32370
32608 34212 32785
"Apr-93" 30760 32273 30952
31468 33016 32085
30674 32183 31671
30346 31838 30803
31227 32763 31924
31037 32563 31717
31555 33107 32589
31883 33451 32697
31892 33461 33033
32346 33938 33694
31542 33094 33344
30337 31829 31770
"Apr-94" 30599 32104 32014
30931 32452 32421
29917 31389 31377
30564 32067 32284
31717 33278 34089
31298 32837 33478
31857 33424 34422
31210 32746 33576
31816 33381 34016
33111 34739 34982
34226 35909 36251
34981 36702 37310
"Apr-95" 35808 37570 38149
37139 38966 39626
37661 39514 41183
38740 40646 42447
38326 40212 42549
40071 42042 44907
40179 42155 45198
41456 43495 46943
42028 44096 46901
42709 44810 48692
43920 46080 49496
44241 46418 49659
"Apr-96" 44752 46953 50841
46568 48859 53109
47116 49434 53406
44884 47092 50709
45300 47529 52220
47627 49970 55938
48005 50367 56436
50616 53106 61047
49063 51477 59533
50427 52908 64266
51954 54510 64034
50671 53164 61070
"Apr-97" 51424 53954 66065
<TABLE>
<CAPTION>
TOTAL RETURNS
Class A Shares Class B Shares Class C Shares
- ---------------------------------------------------------------------------------------------------------------------------
Since Since Since
1 Year 5 Years 10 Years 8/1/85** 1 Year 9/8/95** 1 Year 10/21/95**
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Without
Sales Charge 15.27% 11.21% 11.77% 15.45% 14.50% 17.76% 14.42% 16.01%
- ---------------------------------------------------------------------------------------------------------------------------
With Sales
Charge 9.80%* 10.14%* 11.23%* 14.98%* 10.50%*** 15.56%*** 13.42%*** 16.01%***
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The performance of separate classes will vary based on the differences in sales
loads and distribution fees paid by shareholders investing in the different
classes. Performance quoted represents past performance and is not indicative of
future results.
* Total return includes the maximum 4.75% sales charge.
** Commencement of operations.
*** Assumes redemption on April 30, 1997.
The Standard and Poor's 500 Index is an unmanaged, market value weighted index
of 500 widely held common stocks. The index includes industrial, utility,
financial and transportation stocks primarily, but not exclusively, traded on
the New York Stock Exchange. The S & P 500 represents approximately 77% of the
NYSE market capitalization. The index assumes that no operating expenses,
transaction fees or sales charges are incurred by a hypothetical investor who
directly owns the securities maintained in the index. In order to outperform the
index over any specific time frame, a fund must return to investors an amount
greater than that provided by the index plus total operating expenses.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Voyageur Mutual Funds III, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments in securities, of Aggressive Growth Fund
(formerly Voyageur Aggressive Growth Fund) and Growth Stock Fund (formerly
Voyageur Growth Stock Fund) (funds within Voyageur Mutual Funds III, Inc.) as of
April 30, 1997, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period ended April 30, 1997 and the financial highlights for the
periods presented in note 6. These financial statements and the financial
highlights are the responsibility of Fund management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and the financial
highlights. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Aggressive Growth
Fund and Growth Stock Fund at April 30, 1997 and the results of their
operations, changes in their net assets and the financial highlights for the
periods stated on the first paragraph above, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 13, 1997
<PAGE>
<TABLE>
<CAPTION>
VOYAGEUR MUTUAL FUNDS III, INC.
STATEMENTS OF ASSETS AND LIABILITIES APRIL 30, 1997
- --------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK
ASSETS GROWTH FUND FUND
----------- -----------
<S> <C> <C>
Investments in securities, at market value (note 1)
(identified costs: $4,852,871, and $26,994,871, respectively) $ 4,929,122 $35,522,500
Cash in bank on demand deposit ................................. 322,489 640,527
Dividends and interest receivable .............................. 715 62,375
Due from adviser ............................................... 8,600 6,930
Receivable for Fund shares sold ................................ -- 14,831
Organizational costs (note 1) .................................. 9,971 --
----------- -----------
Total assets ................................................ 5,270,897 36,247,163
----------- -----------
LIABILITIES
Payable for Fund shares redeemed ............................... -- 46,251
Adviser fees payable ........................................... -- 28,424
Distribution fees payable ...................................... 2,580 9,061
Other accrued expenses ......................................... 8,432 15,019
----------- -----------
Total liabilities ........................................... 11,012 98,755
----------- -----------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK ............. $ 5,259,885 $36,148,408
=========== ===========
Represented by:
Capital Stock - $.01 par value (note 1) .................... $ 4,477 $ 14,280
Additional paid-in capital .................................. 5,110,760 26,531,978
Undistributed net investment income ......................... 2,815 129,542
Accumulated net realized gain on investments ................ 65,582 944,979
Unrealized appreciation on investments ...................... 76,251 8,527,629
----------- -----------
TOTAL NET ASSETS .......................................... $ 5,259,885 $36,148,408
=========== ===========
Net assets applicable to outstanding Class A shares ............ $ 4,943,600 $34,255,388
=========== ===========
Net assets applicable to outstanding Class B shares ............ $ 94,699 $ 1,181,508
=========== ===========
Net assets applicable to outstanding Class C shares ............ $ 221,586 $ 711,512
=========== ===========
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Class A - Shares of capital stock outstanding: 420,178 and
1,352,085, respectively (note 5) .......................... $ 11.77 $ 25.34
=========== ===========
Class B - Shares of capital stock outstanding: 8,188 and
47,390, respectively (note 5) ............................. $ 11.57 $ 24.93
=========== ===========
Class C - Shares of capital stock outstanding: 19,327 and
28,543, respectively (note 5) ............................. $ 11.47 $ 24.93
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VOYAGEUR MUTUAL FUNDS III, INC.
STATEMENTS OF OPERATIONS YEAR ENDED APRIL 30, 1997
- -------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK
Investment income: GROWTH FUND FUND
----------- -----------
<S> <C> <C>
Dividends ............................................................. $ 12,224 $ 668,183
Interest .............................................................. 8,860 131,193
----------- -----------
Total investment income ............................................. 21,084 799,376
----------- -----------
Expenses (note 2):
Investment advisory and management fee ................................ 56,982 332,347
Dividend disbursing, administrative and accounting services fees ...... 33,605 89,413
Distribution fee - Class A ............................................ 13,730 80,006
Distribution fee - Class B ............................................ 568 8,561
Distribution fee - Class C ............................................ 1,496 3,741
Printing, postage and supplies ........................................ 4,635 17,897
Legal fees ............................................................ 173 1,700
Custodian fees ........................................................ 5,263 3,145
Compensation of directors ............................................. 413 1,742
Audit and accounting fees ............................................. 11,023 15,254
Registration fees ..................................................... 19,789 28,006
Amortization of organizational costs .................................. 4,986 --
Other expenses ........................................................ 317 1,859
----------- -----------
Total expenses ...................................................... 152,980 583,671
Less (note 2):
Expenses waived or absorbed ........................................... (46,450) --
Earnings credits on uninvested cash ................................... (5,263) (3,145)
----------- -----------
Total net expenses .................................................. 101,267 580,526
----------- -----------
Investment income (loss) - net ...................................... (80,183) 218,850
----------- -----------
Realized and unrealized gain (loss) on investments -net:
Net realized gain from investments .................................. 1,050,816 2,360,603
Net increase (decrease) in unrealized appreciation or depreciation of
investments ....................................................... (904,641) 2,070,120
----------- -----------
Net gain on investments ............................................. 146,175 4,430,723
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................... $ 65,992 $ 4,649,573
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VOYAGEUR MUTUAL FUNDS III, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH STOCK
GROWTH FUND FUND
---------------------------- ----------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operations:
Investment income gain (loss) - net .................... $ (80,183) $ (35,170) $ 218,850 $ 92,678
Realized gain on investments - net ..................... 1,050,816 217,654 2,360,603 2,164,698
Net change in unrealized appreciation or depreciation
of investments ....................................... (904,641) 716,738 2,070,120 3,458,567
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations ... 65,992 899,222 4,649,573 5,715,943
------------ ------------ ------------ ------------
Distributions to shareholders from:
Investment income - net:
Class A .............................................. -- -- (96,623) (119,377)
Class B .............................................. -- -- -- (2,294)
Class C .............................................. -- -- (526) (385)
Net realized gain on investments:
Class A .............................................. (823,497) (116,580) (2,225,694) (1,184,833)
Class B .............................................. (11,522) -- (67,421) (10,519)
Class C .............................................. (14,534) (4,669) (32,506) (1,656)
Return of capital:
Class A .............................................. -- (24,621) -- --
Class C .............................................. -- (987) -- --
------------ ------------ ------------ ------------
Total distributions ................................ (849,553) (146,857) (2,422,770) (1,319,064)
------------ ------------ ------------ ------------
Capital share transactions (note 5):
Proceeds from sale of shares (note 2):
Class A .............................................. 2,592,893 1,916,283 6,323,206 5,051,319
Class B .............................................. 177,549 310 697,999 456,058
Class C .............................................. 186,497 14,350 730,728 100,512
Net asset value of shares issued in reinvestment of
net investment income, net realized gain and return of
capital distributions:
Class A .......................................... 801,188 138,626 2,176,239 1,227,276
Class B .......................................... 6,145 -- 55,265 9,400
Class C .......................................... 11,804 5,488 32,495 65
Payments for redemption of shares:
Class A .............................................. (2,035,066) (631,277) (5,369,765) (5,356,509)
Class B (note 2) ..................................... (69,487) (26) (70,952) (21,866)
Class C .............................................. (112,429) (28,787) (168,125) (23)
------------ ------------ ------------ ------------
Increase in net assets from capital share transactions . 1,559,094 1,414,967 4,407,090 1,466,232
------------ ------------ ------------ ------------
Total increase in net assets ......................... 775,533 2,167,332 6,633,893 5,863,111
Net assets at beginning of period ......................... 4,484,352 2,317,020 29,514,515 23,651,404
------------ ------------ ------------ ------------
Net assets at end of period (including undistributed
net investment income of $2,815, $4,223,
$129,542, and $7,841, respectively) .................... $ 5,259,885 $ 4,484,352 $ 36,148,408 $ 29,514,515
============ ============ ============ ============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
VOYAGEUR MUTUAL FUNDS III, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Aggressive Growth Fund (formerly Voyageur Aggressive Growth Fund) and
Growth Stock Fund (formerly Voyageur Growth Stock Fund) series within Voyageur
Mutual Funds III, Inc., are registered under the Investment Company Act of 1940
(as amended) as diversified open-end management investment companies. Aggressive
Growth Fund seeks to provide shareholders with long-term capital appreciation by
investing in equity securities of companies having the potential for high
earnings growth. Growth Stock Fund seeks to provide shareholders with long-term
capital appreciation by investing in equity securities diversified among
individual companies and industries.
Aggressive Growth Fund and Growth Stock Fund (the Funds) each offer Class A,
Class B and Class C Shares. Class A Shares are sold with a front-end sales
charge. Class B Shares may be subject to a contingent deferred sales charge and
such shares automatically convert to Class A after eight years. Class C Shares
may be subject to a contingent deferred sales charge and have no conversion
feature.
Each class of shares has identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that the level of distribution
fees charged differs between classes. Income, expenses (other than expenses
incurred under each class' Distribution Agreement) and realized and unrealized
gains or losses on investments are allocated to each class of shares based upon
its relative net assets. Pursuant to its articles of incorporation, Voyageur
Mutual Funds III, Inc. has 10 trillion shares of authorized capital stock that
may be issued.
The significant accounting policies followed by the Funds are summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net increases (decreases) in net assets resulting from
operations during the reporting period. Actual results could differ from those
estimates.
INVESTMENTS IN SECURITIES
Investments in securities traded on national or international securities
exchanges are valued at the last sales price on that exchange; securities traded
in the over-the-counter market and listed securities for which no sale was
reported on the valuation date are valued on the basis of the last current bid
price. The values of fixed income securities are determined by using pricing
services or prices quoted by independent brokers. When market quotations are not
readily available, or in certain other circumstances, securities are valued at
fair value according to methods selected in good faith by the Board of
Directors. Investments in short-term securities with maturities of more than 60
days from the valuation date are valued at the last bid price or at fair value
as determined by a pricing service approved by the Board of Directors.
Short-term securities with maturities of less than 60 days are valued at
amortized cost which approximates market value.
Security transactions are accounted for on trade date. Realized gains and
losses are calculated on the identified cost basis. Dividend income is
recognized on the ex- dividend date. Interest income, including level-yield
amortization of premium and discount, is accrued daily.
FEDERAL TAXES
The Funds' policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders in amounts that will avoid or minimize federal
income or excise taxes for the Funds.
Net investment income (loss) and net realized gains (losses) may differ for
financial statement and tax purposes primarily because of the recognition of
certain foreign currency gains (losses) as ordinary income (loss) for tax
purposes and losses deferred for tax purposes due to "wash sale" transactions.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for
federal income tax purposes. Also, due to the timing of dividend distributions,
the fiscal year in which amounts are distributed may differ from the year that
the income or realized gains (losses) were recorded by the Fund.
On the statements of assets and liabilities, as a result of permanent
book-to-tax differences, reclassification adjustments have been made to increase
undistributed net investment income by $78,775 decrease accumulated
<PAGE>
VOYAGEUR MUTUAL FUNDS III, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
net realized gain by $75,555 and decrease additional paid-in capital by $3,220
for Aggressive Growth Fund.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income, if any, are
declared and paid annually. Net realized capital gains, if any, are also
distributed annually. All distributions are payable in cash or reinvested in
additional shares of each Fund.
ORGANIZATIONAL COSTS
Organizational costs of the Aggressive Growth Fund are being amortized over
60 months on a straight line basis.
(2) EXPENSES AND SALES CHARGES
Each Fund has an investment advisory agreement with Voyageur Fund Managers,
Inc. (Voyageur). Under the investment advisory agreements, investment decisions
for the Funds are made and executed by Voyageur which provides the Funds with
office facilities, equipment and personnel, and monitors the performance of
various organizations performing services for the Funds. The investment advisory
agreements provide for the payment on a monthly basis of a fee equal to an
annual rate of 1.00% of each Fund's average daily net assets.
Each Fund will also pay a fee to Voyageur for acting as the Funds' transfer
agent, dividend-disbursing and accounting services agent. The fee for each Fund
is equal to the sum of $1.25 per shareholder account per month, a fixed monthly
fee ranging from $1,000 to $1,500 based on the level of each Fund's average
daily net assets and an annualized percentage of average daily net assets at
reducing rates from .11% to .035%. Each Fund is also responsible for reimbursing
Voyageur's out-of-pocket expenses in connection with the performanceof transfer
agency, dividend disbursing and accounting services.
In addition to the advisory fee and the transfer agency,
dividend disbursing and accounting services fees, each
Fund is responsible for paying most other operating expenses including outside
directors' fees and expenses, custodian fees, registration fees, printing and
shareholder reports, legal and auditing fees and other miscellaneous expenses.
Each Fund has a distribution agreement under Rule 12b-1 of the Investment
Company Act of 1940 with Voyageur Fund Distributors, Inc. (Fund Distributors).
Under these plans each Fund pays Fund Distributors a monthly distribution fee at
an annual rate of .25% of each Fund's average daily net assets of the Class A
Shares and 1.00% of each Fund's average daily net assets of the Class B and
Class C Shares.
Voyageur has voluntarily agreed to pay all expenses (excluding fees paid
indirectly, stock transfer fees, taxes, interest and brokerage commissions)
which exceed 1.75% of average daily Class A net assets and 2.50% of average
daily Class B and Class C net assets for the Funds on an annual basis. During
the year ended April 30, 1997, Voyageur voluntarily absorbed $46,450 for
Aggressive Growth Fund. The Funds earned credits on uninvested cash balances
held at the custodian. The credits earned for the year ended April 30, 1997 were
$14,123 for Aggressive Growth Fund and $108,322 for Growth Stock Fund. Of these
credits $5,263 and $3,145, respectively, were used to reduce certain fees for
various custodial, pricing and accounting services provided by the custodian
bank. The remaining $8,860 and $105,177, respectively, are included in interest
income.
Sales charges paid by Class A shareholders during the year ended April 30,
1997 were $11,275 and $74,010 for Aggressive Growth Fund and Growth Stock Fund,
respectively. Of these amounts, Fund Distributors received $1,218, and $10,089,
respectively. Contingent deferred sales charges paid by Class B shareholders
during the year ended April 30, 1997 were $508 for Aggressive Growth Fund and
$414 for Growth Stock Fund.
<PAGE>
VOYAGEUR MUTUAL FUNDS III, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(3) INVESTMENT SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (other
than short-term securities) aggregated $10,303,767 and $9,837,598 for Aggressive
Growth Fund $11,357,814 and $8,980,287 for Growth Stock Fund during the year
ended April 30, 1997.
(4) FUND REORGANIZATION
On January 15, 1997 Voygeur's parent, Dougherty Financial Group, Inc. ("DFG")
executed an agreement and plan of merger with Lincoln National Corproation
("LNC") pursuant to which LNC would acquire DFG, including the mutual fund
investment advisory business of DFG conducted by Voyageur. The "assignment" of
advisory agreement relating to the merger has been approved by the Funds' Board
of Directors and shareholders. LNC acquired DFG on April 30, 1997. Upon
completion of the acquisition, Delaware Management Company, Inc. became
investment adviser to the Funds, Delaware Distributors, L.P. became the
distributor for the Funds, Delaware Service Company, Inc. became transfer,
dividend-disbursing and shareholder servicing agent for the Funds, and Voyageur
Asset Management LLC became sub-adviser to the Growth Stock Fund.
(5) CAPITAL STOCK Transactions in shares during the periods shown were
as follows:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C
---------------------- ---------------------- ----------------------
PERIOD FROM
YEAR YEAR YEAR APRIL 16, YEAR YEAR
ENDED ENDED, ENDED 1996* TO ENDED ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ................. 190,978 162,201 12,754 26 14,452 1,213
Shares issued for
reinvested distributions . 61,299 11,759 474 -- 924 471
Shares redeemed ............. (163,480) (53,033) (5,065) (1) (7,682) (2,392)
-------- -------- -------- -------- -------- --------
Increase (decrease) in
shares outstanding ....... 88,797 120,927 8,163 25 7,694 (708)
======== ======== ======== ======== ======== ========
GROWTH STOCK FUND
-----------------------------------------------------------------------------
CLASS A CLASS B CLASS C
---------------------- ---------------------- ----------------------
PERIOD FROM PERIOD FROM
YEAR YEAR YEAR SEPTEMBER 8, YEAR OCTOBER 21,
ENDED, ENDED, ENDED, 1995* TO ENDED, 1995* TO
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
Shares sold ................. 253,700 227,245 28,484 19,924 29,726 4,441
Shares issued for
reinvested distributions . 90,300 55,233 2,328 426 1,367 3
Shares redeemed ............. (215,895) (246,555) (2,827) (945) (6,993) (1)
-------- -------- -------- -------- -------- --------
Increase in shares outstanding 128,105 35,923 27,985 19,405 24,100 4,443
======== ======== ======== ======== ======== ========
- ------------------------------------
* Commencement of operations
</TABLE>
<PAGE>
VOYAGEUR MUTUAL FUNDS III, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS
Per share data (rounded to the nearest cent) for a share of capital stock
outstanding and selected information for each period are as follows:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
------------------------------------------------------------------
CLASS A CLASS B
------------------------------------- ---------------------
YEAR YEAR PERIOD FROM YEAR PERIOD FROM
ENDED ENDED MAY 16, 1994* ENDED APRIL 16, 1996*
APRIL 30, APRIL 30, TO APRIL 30, APRIL 30, TO APRIL 30,
1997 1996 (d) 1995 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period ..................... $ 13.08 $ 10.40 $ 10.00 $ 13.06 $ 11.91
--------- --------- --------- --------- ---------
Operations:
Net investment income (loss) ............ (.18) (.10) (.09) (.21) (.01)
Net realized and unrealized
gain on investments ................... .96 3.27 .49 .81 1.16
--------- --------- --------- --------- ---------
Total from operations ............... .78 3.17 .40 .60 1.15
--------- --------- --------- --------- ---------
Distributions to shareholders:
From net realized gains ................. (2.09) (.40) -- (2.09) --
From return of capital .................. -- (.09) -- -- --
--------- --------- --------- --------- ---------
Total distributions ................... (2.09) (.49) -- (2.09) --
--------- --------- --------- --------- ---------
Net asset value:
End of period ........................... $ 11.77 $ 13.08 $ 10.40 $ 11.57 $ 13.06
========= ========= ========= ========= =========
Total investment return (c) ................ 4.34% 31.02% 4.00% 2.84% 9.66%
Net assets at end of
period (000's omitted) .................. $ 4,944 $ 4,334 $ 2,189 $ 95 $ 0
Ratios:
Expenses to average net assets (e) ...... 1.84% 2.01% 1.74%(a) 2.57% 1.86%(a)
Expenses to average net assets
(net of expenses paid indirectly) ..... 1.75% 1.74% N/A 2.50% 1.86%(a)
Net investment loss to average net assets (1.38)% (1.00)% (1.21)%(a) (1.97)% (1.39)%(a)
Assuming no voluntary waivers and
reimbursements and expense
reductions: (f)
Expenses ..................... 2.65% 2.74% 2.97%(a) 3.37% 1.86%(a)
Net investment income (loss) . (2.19)% (1.73)% (2.44)%(a) (2.77)% (1.39)%(a)
Portfolio turnover rate (excluding
short-term securities) ................ 179.5% 165.5% 88.3% 179.5% 165.5%
Average commission rate (b) ................ $ 0.06 N/A N/A $ 0.06 N/A
- ------------------------------------
* Commencement of operations
See accompanying notes to Financial Highlights.
</TABLE>
<PAGE>
VOYAGEUR MUTUAL FUNDS III, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
-----------------------------------
CLASS C
-----------------------------------
YEAR YEAR PERIOD FROM
ENDED ENDED MAY 20, 1994*
APRIL 30, APRIL 30, TO APRIL 30,
1997 1996 (d) 1995
------- ------- -------
<S> <C> <C> <C>
Net asset value:
Beginning of period ...................... $ 12.88 $ 10.33 $ 10.00
------- ------- -------
Operations:
Net investment income (loss) ............. (.23) (.21) (.16)
Net realized and unrealized
gain on investments .................... .91 3.25 .49
------- ------- -------
Total from operations ................ .68 3.04 .33
------- ------- -------
Distributions to shareholders:
From net realized gains .................. (2.09) (.40) --
From return of capital ................... -- (.09) --
------- ------- -------
Total distributions .................... (2.09) (.49) --
------- ------- -------
Net asset value:
End of period ............................ $ 11.47 $ 12.88 $ 10.33
======= ======= =======
Total investment return (c) ................. 3.58% 29.96% 3.30%
Net assets at end of
period (000's omitted) ................... $ 222 $ 150 $ 128
Ratios:
Expenses to average net assets (e) ....... 2.62% 2.77% 2.40%(a)
Expenses to average net assets
(net of expenses paid indirectly) ...... 2.50% 2.49% N/A
Net investment loss to average net assets (2.02)% (1.73)% (1.80)%(a)
Assuming no voluntary waivers and
reimbursements and expense
reductions: (f)
Expenses ...................... 3.43% 3.50% 3.50%(a)
Net investment income (loss) .. (2.83)% (2.46)% (2.90)%(a)
Portfolio turnover rate (excluding
short-term securities) ................. 179.5% 165.5% 88.3%
Average commission rate (b) ................. $ 0.06 N/A N/A
- ------------------------------------
* Commencement of operations
See accompanying notes to Financial Highlights.
</TABLE>
<PAGE>
VOYAGEUR MUTUAL FUNDS III, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
GROWTH STOCK FUND
--------------------------------------------------------
CLASS A
--------------------------------------------------------
YEAR ENDED APRIL 30,
--------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year............................. $23.66 $19.91 $17.51 $17.81 $23.81
------ ------ ------ ------ ------
Operations:
Net investment income......................... .16 .08 .15 .07 .05
Net realized and unrealized
gain (loss) on investments.................. 3.36 4.82 2.77 (.16) .22
-------- -------- -------- ------- ------
Total from operations..................... 3.52 4.90 2.92 (.09) .27
-------- -------- -------- ------- ------
Distributions to shareholders:
From net investment income.................... (.08) (.11) (.13) (.06) --
From net realized gains....................... (1.76) (1.04) (.39) (.15) (6.27)
-------- --------- -------- ------- ------
Total distributions......................... (1.84) (1.15) (.52) (.21) (6.27)
-------- --------- -------- ------- ------
Net asset value:
End of year................................... $25.34 $23.66 $19.91 $17.51 $17.81
====== ====== ====== ====== ======
Total investment return (c)...................... 15.27% 25.00% 17.04% (.52)% 1.51%
Net assets at end of
year (000's omitted).......................... $34,255 $28,956 $23,651 $28,518 $26,784
Ratios:
Expenses to average net assets (e)............ 1.72% 1.78% 1.90% 1.90% 1.90%
Expenses to average net assets
(net of expenses paid indirectly)........... 1.72% 1.72% N/A N/A N/A
Net investment income to average net assets... .68% .36% .75% .40% .26%
Assuming no voluntary waivers,
reimbursements and
expense reductions:
Expenses........................... 1.72% 1.87% 1.99% 2.13% 2.70%
Net investment income (loss)....... .68% .27% .66% .17% (.54)%
Portfolio turnover rate
(excluding short-term securities)........... 28.5% 36.6% 21.8% 34.2% 16.5%
Average commission rate (b)...................... $0.06 N/A N/A N/A N/A
See accompanying notes to Financial Highlights.
</TABLE>
<PAGE>
VOYAGEUR MUTUAL FUNDS III, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
GROWTH STOCK FUND
-----------------------------------------------------------
CLASS B CLASS C
------------------------ ------------------------
YEAR PERIOD FROM YEAR PERIOD FROM
ENDED SEPTEMBER 8, 1995* ENDED OCTOBER 21, 1995*
APRIL 30, TO APRIL 30, APRIL 30, TO APRIL 30
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period.................... $23.39 $21.64 $23.43 $22.61
------ ------ ------ ------
Operations:
Net investment income ................. -- .06 .07 .11
Net realized and unrealized
gain on investments.................. 3.30 2.96 3.22 2.00
-------- -------- -------- --------
Total from operations.............. 3.30 3.02 3.29 2.11
-------- -------- -------- --------
Distributions to shareholders:
From net investment income............. -- (.23) (.03) (.25)
From net realized gains................ (1.76) (1.04) (1.76) (1.04)
--------- -------- --------- ---------
Total distributions.................. (1.76) (1.27) (1.79) (1.29)
--------- -------- --------- ---------
Net asset value:
End of period.......................... $24.93 $23.39 $24.93 $23.43
====== ====== ====== ======
Total investment return (c)............... 14.50% 14.37% 14.42% 9.72%
Net assets at end of
period (000's omitted)................. $1,182 $454 $712 $104
Ratios:
Expenses to average net assets (e)..... 2.47% 2.41%(a) 2.47% 2.35%(a)
Expenses to average net assets
(net of expenses paid indirectly).... 2.47% 2.37%(a) 2.47% 2.31%(a)
Net investment income (loss) to average
net assets.......................... (.01)% (.62)%(a) .14% (.65)%(a)
Assuming no voluntary waivers and
reimbursements and expense reductions:
Expenses....................... 2.47% 2.50%(a) 2.47% 2.43%(a)
Net investment income (loss)... (.01)% (.71)%(a) .14% (.73)%(a)
Portfolio turnover rate
(excluding short-term securities)...... 28.5% 36.6% 28.5% 36.6%
Average commission rate (b)............... $0.06 N/A $0.06 N/A
- ------------------------------------
* Commencement of operations
See accompanying notes to Financial Highlights.
</TABLE>
<PAGE>
VOYAGEUR MUTUAL FUNDS III, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
Notes to Financial Highlights
(a) Adjusted to an annual basis.
(b) Begining in the year ended April 30, 1997, the average commission rate paid
per share for security transactions is a required disclosure.
(c) 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.
(d) Effective May 1, 1995, Voyageur replaced George D. Bjurman & Associates as
the investment adviser for Aggressive Growth Fund to become the sole
investment adviser to the Fund.
(e) 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 Funds. Prior period expense ratios have not
been adjusted.
(f) Prior to the year ended April 30, 1997, the ratios reflect the most
restrictive state limitation in effect.
<PAGE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
INVESTMENTS IN SECURITIES APRIL 30, 1997
- -------------------------------------------------------------------------------------------------------------------
MARKET
ISSUER NUMBER OF SHARES VALUE(a)
- -------------------------------------------------------------------------------------------------------------------
(Percentages of each investment category relate to total net assets)
COMMON STOCKS (93.7%):
CAPITAL GOODS TECHNOLOGY (19.6%):
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Analog Devices Incorporated 6,666 $178,316
Atmel Corporation 5,000(c) 124,375
Cognos Incorporated 4,300(c) 109,113
Etec Systems 6,000(c) 174,750
Lucent Technologies Incorporated 2,500 147,812
SBS Technologies 3,000(c) 45,000
Smart Modular Technology 7,500(c) 251,250
---------
1,030,616
---------
COMMERCIAL SERVICES (15.2%):
- -------------------------------------------------------------------------------------------------------------------
BA Merchant Services 7,000(c) 98,000
Cambridge Technology 5,800(c) 154,425
Claremont Tech 3,300(c) 44,550
Famous Daves (Including warrants) 10,000(c) 143,750
Gartner Group, Incorporated 3,000(c) 78,750
Keane 5,000(c) 231,875
Reynolds & Reynolds Company 2,200 45,650
-------
797,000
-------
CONSUMER CYCLICAL (6.1%):
- -------------------------------------------------------------------------------------------------------------------
Home Depot 2,900 168,200
Wal-Mart Stores 5,500 155,375
-------
323,575
-------
ELECTRONICS (6.7%):
- -------------------------------------------------------------------------------------------------------------------
Applied Material 3,200(c) 175,600
Texas Instruments 2,000 178,500
-------
354,100
-------
ENERGY (1.7%):
- -------------------------------------------------------------------------------------------------------------------
Belco Oil & Gas 4,500(c) 91,125
------
FINANCIAL (5.5%):
- -------------------------------------------------------------------------------------------------------------------
Associates First Capital 3,000 153,750
Green Tree Financial 3,000 88,875
Wells Fargo & Co. 175 46,681
-------
289,306
-------
HEALTHCARE (2.0%):
- -------------------------------------------------------------------------------------------------------------------
HCIA, Incorporated 5,000(c) 103,125
-------
See accompanying notes to investments in securities.
<PAGE>
AGGRESSIVE GROWTH FUND
INVESTMENTS IN SECURITIES (CONTINUED) APRIL 30, 1997
- -------------------------------------------------------------------------------------------------------------------
MARKET
ISSUER NUMBER OF SHARES VALUE(a)
- -------------------------------------------------------------------------------------------------------------------
MACHINERY (1.1%):
- -------------------------------------------------------------------------------------------------------------------
Novellus System 1,000 (c) $ 57,750
---------
TECHNOLOGY (16.2%):
- -------------------------------------------------------------------------------------------------------------------
BMC Software Incorporated 3,200(c) 138,400
Business Objects 5,400(c) 48,600
Cisco Systems 1,000(c) 51,750
Computer Associates International 2,250 117,000
Electro Scientific 2,500(c) 69,687
Fore Systems Incorporated 3,000(c) 45,750
Newbridge Networks 4,400(c) 139,700
Pure Atria Corporation 15,000(c) 146,250
Radisys Corporation 3,300(c) 96,938
-------
854,075
-------
SEMICONDUCTERS (19.6%):
- -------------------------------------------------------------------------------------------------------------------
Alliance Semiconductor 10,000(c) 69,375
Anadigics, Incorporated 6,000 169,500
LSI Logic Corporation 4,000(c) 153,000
Micron Technology 6,000(c) 211,500
Triquint Semiconductor 5,700(c) 169,575
Vitesse Semiconductor 5,000(c) 157,500
Xilinx Incorporated 2,000(c) 98,000
---------
1,028,450
---------
TOTAL INVESTMENTS IN SECURITIES (cost: $4,852,871)(b) $4,929,122
==========
See accompanying notes to investments in securities.
<PAGE>
GROWTH STOCK FUND
INVESTMENTS IN SECURITIES APRIL 30, 1997
- -------------------------------------------------------------------------------------------------------------------
MARKET
ISSUER NUMBER OF SHARES VALUE(a)
- -------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (98.3%):
BASIC INDUSTRIES (13.1%):
- -------------------------------------------------------------------------------------------------------------------
Archer Daniels Midland Company 73,000 $ 1,341,375
Bemis 32,000 1,220,000
Great Lakes Chemical Corporation 22,000 932,250
Sigma-Aldrich 42,000 1,260,000
---------
4,753,625
---------
CAPITAL GOODS - INDUSTRIAL (10.3%):
- -------------------------------------------------------------------------------------------------------------------
Gannett Company 15,000 1,308,750
Grainger (W.W.) 15,000 1,130,625
Pitney - Bowes 20,000 1,280,000
---------
3,719,375
---------
COMSUMER CYCLICAL (17.9%):
- -------------------------------------------------------------------------------------------------------------------
Bandag, Incorporated 25,000 1,175,000
Dillard Department Stores 36,000 1,111,500
Genuine Parts 39,000 1,262,625
Home Depot 24,000 1,392,000
Walmart Stores 54,000 1,525,500
---------
6,466,625
---------
CONSUMER NONDURABLE (24.5%):
- -------------------------------------------------------------------------------------------------------------------
Albertson's Incorporated 38,000 1,254,000
Anheuser Busch 26,000 1,114,750
Conagra Incorporated 25,000 1,440,625
Philip Morris 30,000 1,181,250
Sara Lee 34,000 1,428,000
Sysco Corporation 39,000 1,384,500
UST, Incorporated 40,000 1,045,000
---------
8,848,125
---------
See accompanying notes to investments in securities.
<PAGE>
GROWTH STOCK FUND
INVESTMENTS IN SECURITIES (CONTINUED) APRIL 30, 1997
- -------------------------------------------------------------------------------------------------------------------
MARKET
ISSUER NUMBER OF SHARES VALUE(a)
- -------------------------------------------------------------------------------------------------------------------
ENERGY (7.3%)
- -------------------------------------------------------------------------------------------------------------------
Royal Dutch Petroleum 7,000 $ 1,261,750
Shell Transport & Trading 13,000 1,382,875
---------
2,644,625
---------
FINANCIAL SERVICES (7.5%):
- -------------------------------------------------------------------------------------------------------------------
Norwest Corporation 28,000 1,396,500
Southtrust Corporation 35,000 1,308,125
---------
2,704,625
---------
HEALTHCARE (11.4%):
- -------------------------------------------------------------------------------------------------------------------
Abbott Labs 23,000 1,403,000
Merck & Company 14,000 1,267,000
Schering Plough Corporation 18,000 1,440,000
---------
4,110,000
---------
TECHNOLOGY (6.3%):
- -------------------------------------------------------------------------------------------------------------------
Electronic Data Systems 32,000 1,068,000
Hewlett Packard 23,000 1,207,500
---------
2,275,500
---------
TOTAL INVESTMENTS IN SECURITIES (cost: $26,994,871)(b) $35,522,500
===========
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
AGGRESSIVE GROWTH FUND
GROWTH STOCK FUND
NOTES TO INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in note 1 to the financial
statements.
(b) Also represents the cost of securities for federal income tax purposes. The
aggregate gross unrealized appreciation and depreciation on investments
based on these costs are:
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) Appreciation
------------ -------------- ------------
Aggressive Growth Fund $ 695,038 $ (618,787) $ 76,251
Growth Stock Fund 9,819,431 (1,291,802) 8,527,629
(c) Presently non-income producing security.
<PAGE>
VOYAGEUR MUTUAL FUNDS III, INC.
SHAREHOLDER MEETING RESULTS
- --------------------------------------------------------------------------------
A meeting of the funds' shareholders was held on April 11, 1997. The meeting
results including the number of votes cast for, against or withheld, the number
of abstentions, and the number of broker non-votes with the respect to such
matter, are set forth below.
1. The funds' shareholders elected the following directors:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
Shares Shares Withholding
Voted "For" Authority to Vote
----------- -----------------
<S> <C> <C>
Walter P. Babich................................. 385,314 --
Anthony D. Knerr................................. 385,314 --
Ann R. Leven..................................... 385,314 --
W. Thacher Longstreth............................ 385,314 --
Thomas F. Madison................................ 385,314 --
Jeffrey J. Nick.................................. 385,314 --
Charles E. Peck.................................. 385,314 --
Wayne A. Stork................................... 385,314 --
GROWTH STOCK FUND
Shares Shares Withholding
Voted "For" Authority to Vote
----------- -----------------
Walter P. Babich................................. 878,307 2,566
Anthony D. Knerr................................. 878,307 2,566
Ann R. Leven..................................... 878,307 2,566
W. Thacher Longstreth............................ 878,307 2,566
Thomas F. Madison................................ 878,307 2,566
Jeffrey J. Nick.................................. 876,694 4,179
Charles E. Peck.................................. 878,307 2,566
Wayne A. Stork................................... 876,694 4,179
</TABLE>
<PAGE>
VOYAGEUR MUTUAL FUNDS III, INC.
SHAREHOLDER MEETING RESULTS (CONTINUED)
- --------------------------------------------------------------------------------
2. The funds' shareholders voted to approve a new Investment Advisory
Agreement. The following votes were cast regarding this matter:
<TABLE>
<CAPTION>
Broker
Voted "For" Voted "Against" Abstentions Non Votes
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Aggressive Growth Fund 378,962 324 2,090 3,938
Growth Stock Fund 823,526 12,006 45,340 --
</TABLE>
3. The shareholders of Growth Stock Fund voted to approve a
Sub-Advisory Agreement. The following votes were cast concerning
this matter:
<TABLE>
<CAPTION>
Shares Shares
Voted "For" Voted "Against" Abstentions
----------- --------------- -----------
<S> <C> <C> <C>
819,341 12,151 49,380
</TABLE>
<PAGE>
FEDERAL INCOME TAX INFORMATION
- --------------------------------------------------------------------------------
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the periods ended April
30, 1997 shown below. Each shareholder should consult a tax adviser about
reporting this income for state and local purposes. In January 1997, the Fund
separately provided each shareholder with tax information for calendar year
1996.
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH FUND
-----------------------------------------------------------
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
------------------- -------------------- ----------------
YEAR YEAR YEAR
ENDED ENDED ENDED
APRIL 30, APRIL 30, APRIL 30,
1997 1997 1997
------------------- -------------------- ----------------
<S> <C> <C> <C>
Long-term capital gain distribution................ $ .8563 $ .8563 $ .8563
Short-term capital gain distribution............... 1.2291 1.2291 1.2291
-------- -------- --------
Total distributions............................. $2.0854 $2.0854 $2.0854
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
GROWTH STOCK FUND
-----------------------------------------------------------
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
------------------- -------------------- ----------------
YEAR YEAR YEAR
ENDED ENDED ENDED
APRIL 30, APRIL 30, APRIL 30,
1997 1997 1997
------------------- -------------------- ----------------
<S> <C> <C> <C>
Net investment income distribution................. $ .0765 $ -- $ .0285
Long-term capital gain distribution................ 1.5451 1.5451 1.5451
Short-term capital gain distribution............... .2175 .2175 .2175
--------- --------- ---------
Total distributions............................. $1.8391 $1.7626 $1.7911
======= ======= =======
</TABLE>
The short-term capital gain distributions above are taxable as ordinary income
to shareholders for federal and state income tax purposes.
For federal income tax purposes, 100% of the above ordinary income distributions
to corporate shareholders is eligible for the corporate dividend received
deduction for Growth Stock Fund.
<PAGE>
DELAWARE GROUP
OF FUNDS
FOR GROWTH OF CAPITAL
Trend Fund
Enterprise Fund
DelCap Fund
Value Fund
U.S. Growth Fund
FOR TOTAL RETURN
Devon Fund
Decatur Total Return Fund
Decatur Income Fund
Delaware Fund
FOR GLOBAL DIVERSIFICATION
Emerging Markets Fund
New Pacific Fund
World Growth Fund
International Equity Fund
Global Assets Fund
Global Bond Fund
FOR CURRENT INCOME
Delchester Fund
Corporate Income Fund
Federal Bond Fund
U.S. Government Fund
Limited-Term Government Fund
FOR TAX-FREE CURRENT INCOME
Tax-Free Pennsylvania Fund
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
MONEY MARKET FUNDS
Delaware Cash Reserve
U.S. Government Money Fund
Tax-Free Money Fund
CLOSED-END EQUITY/INCOME*
Dividend and Income Fund
Global Dividend and Income Fund
This report must be preceeded or accompanied by a current prospectus and the
Delaware Group Fund Performance Update for the most recently completed calendar
quarter. For a prospectus of any other Delaware Group fund, contact your
financial advisor or Delaware Group.
* Delaware Group Dividend and Income Fund and Delaware Group Global Dividend
and Income Fund purchases can be made through any registered broker.
Be sure to consult your financial adviser when making investment decisions.
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 or deposits of any bank or any credit
union, and involve investment risk, including the possible loss of principal.
Shares of the Fund are not bank or credit union deposits.
INVESTMENT MANAGER
Delaware Management Company, Inc.
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 MARKET STREET
Philadelphia, PA 19103-3682
Nationwide (800) 523-4640
SECURITIES DEALERS ONLY
Nationwide (800) 362-7500
FINANCIAL INSTITUTIONS REPRESENTATIVES ONLY
Nationwide (800) 659-2265
(C) Delaware Distributors, L.P.
VOY-EQAR 6/97
