<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 33-95928
File No. 811-4547
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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-----
Pre-Effective Amendment No.___ -----
Post-Effective Amendment No. 31 X
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AND
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 31
VOYAGEUR MUTUAL FUNDS III, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
1818 Market Street, Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (215) 255-2923
--------------
George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: August 28, 1997
---------------
It is proposed that this filing will become effective:
- --- immediately upon filing pursuant to paragraph (b)
X on August 28, 1997 pursuant to paragraph (b)
- --- 60 days after filing pursuant to paragraph (a)(1)
- --- on (date) pursuant to paragraph (a)(1)
- --- 75 days after filing pursuant to paragraph (a)(2)
- --- on (date) pursuant to paragraph (a)(2) of Rule 485
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 was filed on June 30, 1997.
<PAGE>
--- C O N T E N T S ---
This Post-Effective Amendment No. 31 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
<PAGE>
CROSS-REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
Item No. Description Location in Prospectus
-------- ----------- ------------------------
Aggressive Growth Fund/
Growth Stock Fund
A Class/B Class/C Class Institutional Class
<S> <C> <C> <C>
1 Cover Page........................................... Cover Cover
2 Synopsis............................................. Synopsis; Summary Synopsis; Summary
of Expenses of Expenses
3 Condensed Financial Information...................... Financial Highlights N/A
4 General Description of Registrant.................... Investment Objective Investment Objective
and Policies; Classes and Policies; Classes
of Shares of Shares
5 Management of the Funds.............................. Management of Management of
the Funds the Funds
6 Capital Stock and Other Securities................... The Delaware Dividends and
Difference; Dividends and Distributions; Taxes;
and Distributions; Taxes; Classes of Shares
Classes of Shares
7 Purchase of Securities Being Offered................. Cover; How to Buy Cover; How to Buy
Shares; Calculation of Shares; Calculation of
Offering Price and Net Asset Value Per
Net Asset Value Share; Management
Per Share; Management of the Funds
of the Funds
8 Redemption or Repurchase............................. How to Buy How to Buy
Shares; Redemption Shares; Redemption
and Exchange and Exchange
9 Legal Proceedings.................................... None None
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
PART A
<TABLE>
<CAPTION>
Item No. Description Location in Prospectus
-------- ----------- ----------------------
Tax-Efficient Equity Fund
A Class/B Class/C Institutional Class
<S> <C> <C> <C>
1 Cover Page........................................... Cover Cover
2 Synopsis............................................. Synopsis; Summary of Synopsis; Summary of
Expenses Expenses
3 Condensed Financial Information...................... Financial Highlights N/A
4 General Description of Registrant.................... Investment Objective Investment Objective
and Policies; Classes and Policies; Classes
of Shares of Shares
5 Management of the Funds ............................. Management of Management of
the Funds the Funds
6 Capital Stock and Other Securities .................. The Delaware Dividends and
Difference; Dividends Distributions; Taxes;
and Distributions; Classes of Shares
Taxes; Classes of Shares
7 Purchase of Securities Being Offered................. Cover; How to Buy Cover; How to Buy
Shares; Calculation of Shares; Calculation of
Offering Price and Net Asset Value Per
Net Asset Value Share; Management
Per Share Management of the Funds
of the Funds
8 Redemption or Repurchase............................. How to Buy How to Buy
Shares; Redemption Shares; Redemption
and Exchange and Exchange
9 Legal Proceedings.................................... None None
</TABLE>
<PAGE>
CROSS-REFERENCE SHEET
PART B
<TABLE>
<CAPTION>
Item No. Description Location in Statement of
-------- ----------- Additional Information
----------------------
Aggressive Growth Fund/
Growth Stock Fund/
Tax-Efficient Equity Fund
<S> <C> <C>
10 Cover Page................................................................. Cover
11 Table of Contents.......................................................... Table of Contents
12 General Information and History............................................ Not Applicable
13 Investment Objectives and Policy........................................... Investment Policies
and Restrictions
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 Highlights
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>
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>
AGGRESSIVE GROWTH FUND PROSPECTUS
GROWTH STOCK FUND AUGUST 28, 1997
A CLASS SHARES
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 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 Policies.
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.
-1-
<PAGE>
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.
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.
-2-
<PAGE>
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.
-3-
<PAGE>
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 5.01% of the amount invested for Aggressive
Growth Fund A Class, and 4.97% 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 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
-4-
<PAGE>
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.
-5-
<PAGE>
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.
Investors utilizing the Delaware Group Asset Planner asset allocation
service also typically incur an annual maintenance fee of $35 per Strategy.
However, the annual maintenance fee is waived until further notice. Investors
who utilize the Asset Planner for an Individual Retirement Plan ("IRA") will pay
an annual IRA fee of $15 per Social Security number. See Delaware Group Asset
Planner under How to Buy Shares.
-6-
<PAGE>
<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
for Aggressive Growth Fund)++/*..................... 0.10% 0.10% 0.10% 1.00% 1.00% 1.00%
12b-1 Expenses...................................... 0.25%+ 1.00%+ 1.00%+ 0.25%+ 1.00%+ 1.00%+
Other Operating Expenses............................ 1.40% 1.40% 1.40% 0.47% 0.47% 0.47%
---- ---- ---- ---- ---- ----
Total Operating Expenses (after voluntary waivers
for Aggressive Growth Fund)++....................... 1.75% 2.50% 2.50% 1.72% 2.47% 2.47%
==== ==== ==== ==== ==== ====
</TABLE>
* Each Fund's management fee without voluntary waivers and payments 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 Fund's 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" 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. In the absence of voluntary
waivers, "Total Operating Expenses" for Aggressive Growth Fund would be
2.65%, 3.37% and 3.43% for Class A, Class B and Class C Shares,
respectively. "Other Operating Expenses" are based on estimated
amounts for the current fiscal year.
For expense information about the Funds' Institutional Classes, see the
separate prospectus relating to those classes.
-7-
<PAGE>
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------- ------ ------- ------- --------
Class A Shares $65(1) $103 $142 $253 $65 $103 $142 $253
Class B Shares $66 $110 $157 $273(2) $26 $80 $137 $273(2)
Class C Shares $37 $81 $139 $295 $27 $81 $139 $295
Growth Stock Fund Assuming Redemption Assuming No Redemption
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
------ ------- ------- -------- ------ ------- ------- --------
Class A Shares $64(1) $99 $136 $241 $64 $99 $136 $241
Class B Shares $65 $107 $152 $262(2) $25 $77 $132 $262(2)
Class C Shares $35 $77 $132 $281 $25 $77 $132 $281
</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 a Fund will be automatically converted into Class A Shares of that
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.
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.
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.
-8-
<PAGE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
-9-
<PAGE>
<TABLE>
<CAPTION>
Aggressive Growth Fund
Class A Shares Class B Shares
------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Period from Period from
Year Ended Year Ended 5/16/94* to Year Ended 4/16/96* to
4/30/97 4/30/96(d) 4/30/95 4/30/97 4/30/96
Net Asset Value:
Beginning of Period........................... $13.08 $10.40 $10.00 $13.06 $11.91
------ ------ ------ ------ ------
Operations:
Net investment income (loss)......................... (0.18) (0.10) (0.09) (0.21) (0.01)
Net realized and unrealized
gain on investments............................ 0.96 3.27 0.49 0.81 1.16
---- ---- ---- ---- ----
Total from operations....................... 0.78 3.17 0.40 0.60 1.15
---- ---- ---- ---- ----
Distributions to shareholders:
From net realized gains.............................. (2.09) (0.40) -- (2.09) --
From return of capital............................... -- (0.09) -- -- --
------ ------ ----- ------ ----
Total distributions......................... (2.09) (0.49) -- (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
</TABLE>
___________________
* Commencement of operations
See accompanying notes to Financial Highlights.
<PAGE>
<TABLE>
<CAPTION>
Aggressive Growth Fund
Class C Sgares
----------------------------------------------
<S> <C> <C> <C>
Period from
Year Ended Year Ended 5/20/94* to
4/30/97 4/30/96(d) 4/30/95
Net Asset Value:
Beginning of Period.................................... $12.88 $10.33 $10.00
------ ------ ------
Operations:
Net investment income (loss).................................. (0.23) (0.21) (0.16)
Net realized and unrealized
gain on investments..................................... 0.91 3.25 0.49
---- ---- ----
Total from operations................................ 0.68 3.04 0.33
---- ---- ----
Distributions to shareholders:
From net realized gains....................................... (2.09) (0.40) --
From return of capital........................................ -- (0.09) --
------ ------ ----
Total distributions.................................. (2.09) (0.49) --
------ ------ ----
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% 2.04%(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
</TABLE>
* Commencement of operations
See accompanying notes to Financial Highlights.
<PAGE>
<TABLE>
<CAPTION>
Growth Stock Fund(g)
Class A Shares
----------------------------------------------------------------
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 (loss)............................ 0.16 0.08 0.15 0.07 0.05
Net realized and unrealized
gain (loss) on investments........................... 3.36 4.82 2.77 (0.16) 0.22
---- ---- ---- ------ ----
Total from operations............................ 3.52 4.90 2.92 (0.09) 0.27
---- ---- ---- ---- ----
Distributions to shareholders:
From net investment income.............................. (0.08) (0.11) (0.13) (0.06) ---
From net realized gains................................. (1.76) (1.04) (0.39) (0.15) (6.27)
------ ------ ------ ------ ------
Total distributions.................................... (1.84) (1.15) (0.52) (0.21) (6.27)
------ ------ ------ ------ ------
Net asset value:
End of year............................................. $25.34 $23.66 $19.91 $17.61 $17.51
====== ====== ====== ====== ======
Total investment return (c).................................. 15.27% 25.00% 17.04% (0.52)% 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 (loss) to average net assets .......... 0.68% 0.36% 0.75% 0.40% 0.26%
Assuming no voluntary waivers, reimbursements and expense
reductions:
Expenses........................................... 1.72% 1.87% 1.99% 2.13% 2.70%
Net investment income (loss) ...................... 0.68% 0.27% 0.66% 0.17% (0.54)%
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
Year ended April 30,
1992 1991 1990 1989 1988
Net asset value:
Beginning of year............................ $19.36 $18.85 $19.39 $16.10 $17.46
------ ------ ------ ------ ------
Operations:
Net investment income(loss).................. (0.18) (0.11) (0.08) (0.15) (0.13)
Net realized and unrealized..................
gain (loss) on investments................. 4.81 3.40 1.29 3.51 (0.84)
---- ---- ---- ---- ------
Total from operations.................... 4.63 3.29 1.21 3.36 (0.97)
---- ---- ---- ---- ------
Distributions to shareholders:
From net investment income................... --- --- --- --- ---
From net realized gains...................... (0.18) (2.78) (1.75) (0.07) (0.39)
------ ------ ------ ------ ------
Total distributions...................... (0.18) (2.78) (1.75) (0.07) (0.39)
------ ------ ------ ------ ------
Net asset value:
End of year.................................. $23.81 $19.36 $18.85 $19.39 $16.10
====== ====== ====== ====== ======
Total investment return (c).................... 23.86% 20.51% 6.09% 20.92% (5.33)%
Net assets st end of year (000's omitted)...... $19,351 $11,400 $10,331 $9,183 $9,706
Ratios:
Expenses to average net assets (e)........... 2.25% 2.36% 2.31% 2.42% 2.52%
Expenses to average net assets
(net of expenses paid indirectly).......... N/A N/A N/A N/A N/A
Net investment income (loss) to average net assets (0.76)% (0.67)% (0.66)% (0.69)% (0.76)%
Assuming no voluntary waivers, reimbursments and
expense reductions:
Expenses................................. 2.86% 2.86% 2.86% 3.00% 3.00%
Net investment income (loss)............. (1.37)% (1.17)% (1.21)% (1.27)% (1.24)%
Portfolio turnover rate (excluding shor-term securities 142.6% 128.2% 115.1% 31.7% 57.1%
Average commission rate........................ N/A N/A N/A N/A N/A
</TABLE>
___________________
*Commencement of operations
See accompanying notes to Financial Highlights.
<PAGE>
<TABLE>
<CAPTION>
Growth Stock Fund(g)
Class B Shares Class C
--------------------------- -------------------------
Period from Year Period from
Year Ended 9/8/95* to Ended 10/21/95* to
4/30/97 4/30/96 4/30/97 4/30/96
<S> <C> <C> <C> <C>
Net Asset Value:
Beginning of period....................................... $23.39 $21.64 $23.43 $22.61
------ ------ ------ ------
Operations:
Net investment income..................................... --- 0.06 0.07 0.11
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................................ --- (0.23) (0.03) (0.25)
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 (0.01) (0.62)%(a) 0.14% (0.65)%(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)................... (0.01)% (0.71)%(a) 0.14% (0.73)%(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
</TABLE>
- ----------
* Commencement of operations
See accompanying notes to Financial Highlights.
<PAGE>
Notes to Financial Highlights
(a) Adjusted to an annual basis.
(b) Beginning 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 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.
(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.
(g) 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.
<PAGE>
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. more complete investment program.
SUITABILITY
The value of a Fund's investments, and as a result the net asset value
of a Fund' 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.
Ownership of a Fund's shares can reduce the bookkeeping and
administrative inconveniences that would be connected with direct purchases of
the types of securities in which the Fund invests. 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
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>
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 believes 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>
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>
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(sm) Services
Delaware Group offers the following services for fast and convenient
transfer of funds between your personal bank account and your Delaware Group
fund account.
1. MoneyLine(sm) 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(sm) 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.
This service is not available for certain retirement plans.
2. MoneyLine(sm) On Demand
You or your investment dealer may request purchases and
redemptions of Fund shares by phone using MoneyLine(sm) On Demand. When
you authorize a Fund to accept such requests from you or your
investment dealer, funds will be withdrawn from (for share purchases)
or deposited to (for share redemptions) your predesignated bank
account. Your request will be processed the same day if you call prior
to 4 p.m., Eastern time. There is a $25 minimum and $50,000 maximum
limit for MoneyLine(sm) On Demand transactions. With respect to
retirement plans, this service is only available for purchases through
an IRA.
For each MoneyLine(sm) Service, it may take up to four business days
for the transactions to be completed. You can initiate either service by
completing an Account Services form. If your name and address are not identical
to the name and address on your Fund account, you must have your signature
guaranteed. Neither Fund charges a fee for MoneyLine(sm) services; however, your
bank may charge a fee. Please call the Shareholder Service Center for additional
information about these services.
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.
-13-
<PAGE>
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.
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 Delaware Group
Asset Planner under 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.
-14-
<PAGE>
RETIREMENT PLANNING
An investment in either 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 a Fund's 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.
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.
-15-
<PAGE>
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 only if such redemption is made pursuant to a
withdrawal of the entire plan from Delaware Group funds. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
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 in the Allied Plan will be aggregated. See Front-End Sales Charge
Alternative - Class A Shares under Classes of Shares.
-16-
<PAGE>
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.
-17-
<PAGE>
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 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
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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 Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and 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>
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% 5.01% 4.97% 4.00%
$100,000 but under $250,000 3.75 3.91 3.91 3.00
$250,000 but under $500,000 2.50 2.55 2.57 2.00
$500,000 but under $1,000,000* 2.00 2.04 2.05 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>
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedule:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
------------------ -----------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies may be aggregated with those of the Class A Shares
of 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.
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
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<PAGE>
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. 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 if they are not eligible to purchase shares of the institutional class
of a 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 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 had 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.
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<PAGE>
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. 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.
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<PAGE>
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 are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class C Shares. These
payments support the compensation paid to dealers or brokers for selling Class C
Shares. Payments to the Distributor and others under the Class C 12b-1 Plan may
be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class C Shares as
described in this Prospectus. See Redemption and Exchange.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares redeemed within six years of purchase may be subject to
a CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestments of dividends or capital gains distributions. For purposes
of this formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of Class B Shares or 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>
The following table sets forth the rates of the CDSC for CLass B Shares of the
Funds:
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 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 the NASD and the
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<PAGE>
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 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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<PAGE>
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 the 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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<PAGE>
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.
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.
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<PAGE>
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. MoneyLine(sm) On Demand
Through the MoneyLine(sm) On Demand service, you or your investment
dealer may call a Fund to request a transfer of funds from your predesignated
bank account to your Fund account. See MoneyLine(sm) Services under The Delaware
Difference for additional information about this service.
4. 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, or 403(b)(7) or 457 Deferred
Compensation Plans.
5. 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 Conversion of Class B Shares under Classes of
Shares for information concerning
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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 into which their investments are held: 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 30 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 30. This annual maintenance 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.
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.
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Purchase Price and Effective Date
The offering price and net asset value of 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, its agent or designee. 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 in which you want to invest 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.
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.
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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(s) 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 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.
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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 proceeds. 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.
MoneyLine(sm) On Demand
Through the MoneyLine(sm) On Demand service, you or your investment
dealer may call a Fund to request a transfer of funds from your Fund account to
your predesignated bank account. See MoneyLine(sm) Services under The Delaware
Difference for additional information about this service.
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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 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(sm) Direct
Deposit Service. Through this service, it may take up to four business days for
the transaction to be completed. There are no separate fees for this redemption
method. See MoneyLine(sm) Services 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(sm) 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 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 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 a 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 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).
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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 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 Class A Shares, Class B Shares and 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(sm)
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(sm) Services 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 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. For the
fiscal year ended April 30, 1997, Aggressive Growth Fund paid no dividends from
net investment income and all of Growth Stock Fund's dividends from net
investment income qualified for the corporate dividends-received deduction.
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.
Each Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities.
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<PAGE>
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>
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 market 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
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>
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 June 30, 1997, Delaware and its affiliates,
including Delaware International Advisers Ltd., were managing in the aggregate
more than $37 billion in assets in various institutional or separately managed
(approximately $22,302,518,000) and investment company (approximately
$15,246,733,000) 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. Investment management fees
accrued by Aggressive Growth Fund for the fiscal year ended April 30, 1997 were
1.00% of average daily net assets and 0.18% was paid to the Manager as a result
of the voluntary waiver of fees by Voyageur. Investment management fees paid by
Growth Stock Fund for the fiscal year ended April 30, 1997 were 1.00% of average
daily net assets.
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<PAGE>
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 Equity Funds III, 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 Delaware
Management Company, Inc.'s 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. 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 and executes
investment decisions for the Fund in accordance with the Fund's investment
objectives and stated policies. 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 an annual sub-advisory
fee equal to 0.50% of Growth Stock Fund's average daily net assets.
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.
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<PAGE>
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:
1996 1997
---- ----
Aggressive Growth Fund 166% 180%
Growth Stock Fund 37% 29%
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, if applicable) periods. 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 April
30, 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 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
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<PAGE>
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 Class C Shares' average daily net assets in
any year. 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.
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
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<PAGE>
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 (after waivers and payments) 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 1.75% 2.50% 2.50%
Growth Stock Fund 1.72% 2.47% 2.47%
</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 $.01, 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.
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 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.
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<PAGE>
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 an 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
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<PAGE>
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 related options
for hedging purposes. These investment techniques and the related risks are
summarized below and are described in more detail in Part B.
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<PAGE>
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 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
-49-
<PAGE>
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 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.
-50-
<PAGE>
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.
-51-
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A - INVESTMENT
ILLUSTRATIONS Illustrations of the Potential Impact on
Investment Based on Purchase Option
$10,000 Purchase
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
-------------------------------------------------- -------------------------------------
Year Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,478 10,925 10,925 10,478 10,525 10,825+
2 11,525 11,936 11,936
3 12,678 13,040 13,040
4 13,946 14,246 14,246
5 15,340 15,564 15,564
6 16,874 17,003 17,003
7 18,562 18,576 18,576
8 20,418+ 20,294 20,294
9 22,459 22,324* 22,171
10 24,705 24,556* 24,222
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
-------------------------------------------------- ---------------------------------------
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 10,925 10,925 10,478 10,925 10,625
2 11,525 11,936 11,936 11,525 11,936 11,289
3 12,678 12,740 13,040+ 12,678 13,040 11,995
4 13,946 14,246 12,744
5 15,340 15,346 13,541+
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 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C
0 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,125 273,125 268,125 273,125 273,125
2 294,938 298,389 298,389 294,938 298,389 298,389
3 324,431 318,490 325,990+ 324,431 325,990 325,990
4 356,874+ 356,144 356,144
5 392,562 384,087 389,087
6
7
8
9
10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
No Redemption Redeem 1st Year
<S> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C
0 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,125 273,125 268,125 263,125 270,625+
2 294,938 298,389 298,389
3 324,431 325,990 325,990
4 356,874+ 356,144 356,144
5 392,562 389,087 389,087
6 431,818 425,078 425,078
7 475,000 464,398 464,398
8 522,500 507,355 507,355
9 574,750 558,090* 554,285
10 632,225 613,899* 605,556
</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.
-52-
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B--CLASSES OFFERED
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 -
Small Cap 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 -
-53-
</TABLE>
(Not Part of Prospectus)
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B--CLASSES OFFERED - (CON'T)
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 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)
-54-
<PAGE>
The Delaware Group includes funds with a wide range of investment objectives.
Stock funds, income funds, national and state-specific 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
SUB-ADVISER
Growth Stock Fund:
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
<PAGE>
- --------------------------------------------------------------------------------
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>
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 Policies.
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>
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 Net Asset Value Per Share
Suitability Management of the Funds
Investment Strategy Other Investment Policies and
Classes of Shares Risk Considerations
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>
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.
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.
-3-
<PAGE>
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>
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*
*Exchanges are subject to the requirements of each fund and a front-end sales charge may apply.
</TABLE>
<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)........................................... 0.10%** 1.00%
12b-1 Fees.......................................................................... None None
Other Operating Expenses............................................................ 1.40%** 0.47%
Total Operating Expenses (after voluntary waivers)............................. 1.50%** 1.47%
** 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 waivers, "Total Operating Expenses (as a percentage of average daily net assets)" are expected to
equal 2.40% for Aggressive Growth Fund Institutional Class. "Other Operating Expenses" are based on
estimated amounts for the current fiscal year.
</TABLE>
-5-
<PAGE>
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. Mutual Funds
III, Inc. charges no redemption fees. The following example assumes the
voluntary payments of expenses by the Manager as discussed in this Prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Aggressive Growth ------ ------- ------- --------
Fund Institutional Class $16 $50 $87 $189
1 year 3 years 5 years 10 years
Growth Stock Fund ------ ------- ------- --------
Institutional Class $15 $46 $80 $176
</TABLE>
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.
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.
-6-
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The following financial highlights are derived from the financial
statements of the Class A Shares of the Funds 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.
- --------------------------------------------------------------------------------
-7-
<PAGE>
<TABLE>
<CAPTION>
Aggressive Growth Fund
Class A Shares*
------------------------------------------
Period from
Year Ended Year Ended 5/16/94** to
4/30/97 4/30/96(d) 4/30/95
<S> <C> <C> <C>
Net Asset Value:
Beginning of Period.................................... $13.08 $10.40 $10.00
------ ------ ------
Operations:
Net investment income (loss).................................. (0.18) (0.10) (0.09)
Net realized and unrealized
gain on investments..................................... 0.96 3.27 0.49
------ ------ ------
Total from operations................................ 0.78 3.17 0.40
------ ------ ------
Distributions to shareholders:
From net realized gains....................................... (2.09) (0.40) --
From return of capital........................................ -- (0.09) --
------ ------ ------
Total distributions.................................. (2.09) (0.49) --
------ ------ ------
Net Asset Value:
End of period.......................................... $11.77 $13.08 $10.40
====== ====== ======
Total investment return (c)................................... 4.34% 31.02% 4.00%
Net Assets at End of Period (000's omitted)................... $4,944 $4,334 $2,189
Ratios:
Expenses to average net assets (e)...................... 1.84% 2.01% 1.74%(a)
Expenses to average net assets
(net of expenses paid indirectly).................... 1.75% 1.74% N/A
Net investment loss to average net assets............... (1.38)% (1.00)% (1.21)%(a)
Assuming no voluntary waivers and reimbursements
and expense reductions: (f)
Expenses...................................... 2.65% 2.74% 2.97%(a)
Net investment income (loss).................. (2.19)% (1.73)% (2.44)%(a)
Portfolio turnover rate (excluding short-term securities)..... 179.5% 165.5% 88.3%
Average commission rate (b)................................... $0.06 N/A N/A
</TABLE>
* 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.
** Commencement of operations
See accompanying notes to Financial Highlights.
-8-
<PAGE>
<TABLE>
<CAPTION>
Growth Stock Fund(g)
Class A Shares
-----------------------------------------------------------------------
Year Ended April 30,
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of year....................................... $23.66 $19.91 $17.51 $17.81 $23.81 $19.36
------ ------ ------ ------ ------ ------
Operations:
Net investment income (loss)............................ 0.16 0.08 0.15 0.07 0.05 (0.18)
Net realized and unrealized
gain (loss) on investments........................... 3.36 4.82 2.77 (0.16) 0.22 4.81
------ ------ ------ ------ ------ ------
Total from operations.................................. 3.52 4.90 2.92 (0.09) 0.27 4.63
------ ------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income.............................. (0.08) (0.11) (0.13) (0.06) --- ---
From net realized gains................................. (1.76) (1.04) (0.39) (0.15) (6.27) (0.18)
------ ------ ------ ------ ------ ------
Total distributions.................................... (1.84) (1.15) (0.52) (0.21) (6.27) (0.18)
------ ------ ------ ------ ------ ------
Net asset value:
End of year............................................. $25.34 $23.66 $19.91 $17.61 $17.51 $23.81
====== ====== ====== ====== ====== ======
Total investment return (c).................................. 15.27% 25.00% 17.04% (0.52)% 1.51% 23.86%
Net assets at end of year (000's omitted).................... $34,255 $28,956 $23,651 $28,518 $26,784 $19,351
Ratios:
Expenses to average net assets (e)...................... 1.72% 1.78% 1.90% 1.90% 1.90% 2.25%
Expenses to average net assets
(net of expenses paid indirectly) .................. 1.72% 1.72% N/A N/A N/A N/A
Net investment income (loss) to average net assets ..... 0.68% 0.36% 0.75% 0.40% 0.26% (0.76)%
Assuming no voluntary waivers, reimbursements and
expense reductions:
Expenses................................................ 1.72% 1.87% 1.99% 2.13% 2.70% 2.86%
Net investment income (loss) ...................... 0.68% 0.27% 0.66% 0.17% (0.54)% (1.37)%
Portfolio turnover rate (excluding short-term securities).... 28.5% 36.6% 21.8% 34.2% 16.5% 142.6%
Average commission rate (b).................................. $0.06 N/A N/A N/A N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Growth Stock Fund(g)
Class A Shares
-----------------------------------------------------------------------
Year Ended April 30,
1991 1990 1989 1988
<S> <C> <C> <C> <C>
Net asset value:
Beginning of year....................................... $18.85 $19.39 $16.10 $17.46
------ ------ ------ ------
Operations:
Net investment income (loss)............................ (0.11) (0.08) (0.15) (0.13)
Net realized and unrealized
gain (loss) on investments........................... 3.40 1.29 3.51 (0.84)
------ ------ ------ ------
Total from operations.................................. 3.29 1.21 3.36 (0.97)
------ ------ ------ ------
Distributions to shareholders:
From net investment income.............................. --- --- --- ---
From net realized gains................................. (2.78) (1.75) (0.07) (0.39)
------ ------ ------ ------
Total distributions.................................... (2.78) (1.75) (0.07) (0.39)
------ ------ ------ ------
Net asset value:
End of year............................................. $19.36 $18.85 $19.39 $16.10
====== ====== ====== ======
Total investment return (c).................................. 20.51% 6.09% 20.92% (5.33)%
Net assets at end of year (000's omitted).................... $11,400 $10,331 $9,183 $9,706
Ratios:
Expenses to average net assets (e)...................... 2.36% 2.31% 2.42% 2.52%
Expenses to average net assets
(net of expenses paid indirectly) .................. N/A N/A N/A N/A
Net investment income (loss) to average net assets ..... (0.67)% (0.66)% (0.69)% (0.76)%
Assuming no voluntary waivers, reimbursements and
expense reductions:
Expenses................................................ 2.86% 2.86% 3.00% 3.00%
Net investment income (loss) ...................... (1.17)% (1.21)% (1.27)% (1.24)%
Portfolio turnover rate (excluding short-term securities).... 128.2% 115.1% 31.7% 57.1%
Average commission rate (b).................................. N/A N/A N/A N/A
</TABLE>
__________________
* 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.
See accompanying notes to Financial Highlights
-10-
<PAGE>
Notes to Financial Highlights
(a) Adjusted to an annual basis.
(b) Beginning 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 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.
(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.
(g) 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.
-11-
<PAGE>
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.
Ownership of a Fund's shares can reduce the bookkeeping and
administrative inconveniences that would be connected with direct purchases of
the types of securities in which the Fund invests. 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.
-12-
<PAGE>
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.
-13-
<PAGE>
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.
-14-
<PAGE>
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 is the date the order is received by
the Fund in which the shares are being purchased, its agent or designee. 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 share price is
determined, as noted above. Purchase orders received after such time will be
effective the next business day.
-15-
<PAGE>
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.
-16-
<PAGE>
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 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,
although, in the case of an exchange, a sales charge may apply. You may also
have your investment dealer arrange to have your shares redeemed or exchanged.
Your investment dealer may charge for this service.
-17-
<PAGE>
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
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(s)
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.
-18-
<PAGE>
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
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.
-19-
<PAGE>
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.
Both dividends and distributions, if any, are automatically reinvested in your
account at net asset value.
Each class of a 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.
-20-
<PAGE>
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. For the fiscal year ended April 30, 1997, Aggressive
Growth Fund paid no dividends from net investment income and all of Growth Stock
Fund's dividends from net investment income qualified for the corporate
dividends received deduction.
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.
-21-
<PAGE>
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.
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.
-22-
<PAGE>
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 a Class will not incur any of the expenses under the respective
Fund's 12b-1 Plans and Class A, B and C Shares alone will bear the 12b-1 Plan
fees payable under their respective Plans.
-23-
<PAGE>
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 June 30, 1997, Delaware and its affiliates,
including Delaware International Advisers Ltd., were managing in the aggregate
more than $37 billion in assets in various institutional or separately managed
(approximately $22,302,518,000) and investment company (approximately
$15,246,733,000) 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. Investment management fees
accrued by Aggressive Growth Fund for the fiscal year ended April 30, 1997 were
1.00% of average daily net assets and 0.18% was paid as a result of the
voluntary waiver of fees by Voyageur. Investment management fees paid by Growth
Stock Fund for the fiscal year ended April 30, 1997 were 1.00% of average daily
net assets.
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<PAGE>
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 Delaware
Management Company, Inc.'s and Mutual Funds III, Inc.'s Boards 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 and executes
investment decisions for the Fund in accordance with the Fund's investment
objectives and stated policies. 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 an annual sub-advisory
fee equal to 0.50% of Growth Stock Fund's average daily net assets.
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<PAGE>
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.
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<PAGE>
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:
1996 1997
---- ----
Aggressive Growth Fund 166% 180%
Growth Stock Fund 37% 29%
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
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.
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<PAGE>
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 in 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 $.01, 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.
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<PAGE>
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.
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.
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<PAGE>
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.
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<PAGE>
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, 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 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.
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.
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<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
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 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>
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
-------------
<PAGE>
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. See Investment Objectives and
Policies.
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.
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<PAGE>
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 OF CONTENTS
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
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>
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.
For further details, see Investment Objectives and Policies and Other
Investment Policies and Special Risk Considerations.
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 Special 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 Special 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 exchangedat the net asset value
calculated after receipt of the redemption or exchange request. See Redemption
and Exchange.
-3-
<PAGE>
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>
<TABLE>
<CAPTION>
SUMMARY OF EXPENSES
Shareholder Transaction Expenses
- --------------------------------------------------------------------------------------------------------------------------
<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*
*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)
- --------------------------------------------------------------------------------------------------------------------------
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
1.23% for the Class, reflecting Management Fees of 0.75% for the Class.
-5-
<PAGE>
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. 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.
1 year 3 years
------ -------
$12 $38
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.
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.
-6-
<PAGE>
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 Special 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
-7-
<PAGE>
shareholders. Primarily as a result of these taxable capital gains
distributions, the after-tax return to a taxable investor in the fund with even
moderate portfolio turnover can be substantially lower than the pre-tax return.
The Manager believes that, in order to achieve the best possible after-tax
return for taxable investors, investment strategies must be employed which will
minimize portfolio turnover and postpone the realization of accrued capital
gains.
Some realization of capital gains will, of course, be inevitable. For
example, portfolio securities must be sold as they mature in order to avoid
negative growth. In addition, merger and acquisition activities in the
marketplace will result in unavoidable sales of portfolio securities. The
Manager will attempt to minimize such capital gains to the extent possible by,
for example, realizing accrued losses in the portfolio to offset such gains. To
help reduce realized capital gains when the sale of appreciated securities is
necessary, the Manager will also seek to sell share lots that qualify for
long-term capital gains treatment and have the highest cost basis.
From time to time, the Manager may also employ a trading strategy which
involves the use of options, futures contracts and other derivative products to
hedge against anticipated market movements, rather than a more traditional
strategy that would involve the purchase and sale of portfolio securities in
anticipation of such movements. For example, using a more traditional trading
strategy, if an investment adviser anticipated a market decline with respect to
a particular group of portfolio stocks with significant unrealized gains, the
adviser would sell the stocks, realize any gains and make a taxable distribution
of such gains to shareholders. If market prices fall as anticipated, the fund
will have avoided capital losses as a result of the fall in prices, but the fund
will have incurred trading costs and investors will be taxed on the realized
capital gains. In the event market prices rise, trading costs and tax
consequences will be the same; however, the fund will have lost the opportunity
to participate in the rising prices. Using the tax-sensitive trading strategy
which the Manager intends to employ, rather than sell the Fund's portfolio
securities, the Manager might, for example, buy a put option on the group of
securities. If prices fall as anticipated, the decline in the value of the
Fund's portfolio would be offset by the gain on the put options. Although this
gain will be taxable, presumably the gain, and therefore the tax liability, will
be significantly less than the gain that would have been realized had the Fund
sold the underlying portfolio securities. The Fund will not incur trading costs,
but will pay a premium for purchase of the put option. In the event prices rise,
the Fund will be in a significantly better position than had the underlying
securities been sold. Although the Fund will have lost the premium it paid for
the option, the Fund will participate fully in the rising stock prices and will
have deferred the realization of capital gains (and the resulting tax liability
of shareholders).
In employing the investment strategy described above, the Fund may
invest in various derivative instruments whose return depends on the prices of
common stocks. These may include debt securities whose prices or interest rates
are indexed to the return of a particular stock index, including a foreign stock
index ("indexed securities"), swap agreements linked to a stock index or group
of common stocks, option and futures contracts. The Fund may also lend its
portfolio securities and sell its portfolio securities short. See Other
Investment Policies and Special 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
-8-
<PAGE>
securities include obligations of the U.S. government and its agencies or
instrumentalities, commercial paper, bank certificates of deposit and bankers'
acceptances, and repurchase agreements. The Fund may invest in these securities
without limitation if the Manager believes that market conditions warrant a
temporary defensive posture.
* * *
For additional information on the Fund's investment policies and
certain risks associated with investments in certain types of securities, see
Other Investment Policies and Special 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
Standard & Poor's 500 Index ("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.
-9-
<PAGE>
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 Equity Fund Institutional Class
of shares, the Fund also offers: Tax- Efficient Equity Fund A Class,
Tax-Efficient Equity Fund B Class and Tax-Efficient Equity 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.
-10-
<PAGE>
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.
-11-
<PAGE>
The effective date of a purchase made through an investment dealer is
the date the order is received by the 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 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.
-12-
<PAGE>
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,
although, in the case of an exchange, a sales charge may apply. 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>
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 certificates(s)
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
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<PAGE>
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
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>
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. Both
dividends and distributions, if any, are automatically reinvested in your
account at net asset value.
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 Equity Fund A Class, B Class and C Class.
-16-
<PAGE>
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.
-17-
<PAGE>
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>
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>
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 June 30, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $37 billion in assets in the various
institutional or separately managed (approximately $22,302,518,000) and
investment company (approximately $15,246,733,000) 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
Agreement 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's and Mutual Funds III, Inc.'s Boards 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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<PAGE>
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.
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<PAGE>
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 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 Funds
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 $.01, 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.
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>
OTHER INVESTMENT POLICIES AND SPECIAL 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.
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<PAGE>
Swap Agreements
Swap agreements typically involve a commitment by the Fund to pay
specified amounts (such as fixed or floating interest rates) at regular
intervals in return for all or a portion of the investment return of a
particular stock index or group of stocks. As with stock index options and
futures (discussed below), swap agreements provide exposure to the stock market,
but may not track market returns as accurately as direct investments in common
stocks. In addition, the Fund typically depends on the credit of a single
counterparty when investing in a swap agreement, and may suffer a loss
irrespective of the value of the underlying index if the counterparty's credit
declines. The Fund will usually enter into swap agreements on a net basis, i.e.,
the two payment streams are netted out, with the Fund receiving or paying, as
the case may be, only the net amount of the two payments. The net amount of the
excess, if any, of the Fund's obligations over its entitlements with respect to
each swap agreement will be accrued on a daily basis, and an amount of cash,
U.S. government securities or other liquid high-grade debt securities having an
aggregate net asset value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's custodian. If the Fund enters
into a swap agreement on other than a net basis, the Fund will maintain a
segregated account in the full amount, accrued on a daily basis, of the Fund's
obligations with respect to the swap.
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,
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<PAGE>
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. 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.
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<PAGE>
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% 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 not 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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<PAGE>
* * *
Certain other fundamental and non-fundamental investment restrictions
adopted by the Fund are described in Part B.
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<PAGE>
For more information, call Delaware Group at 800-828-5052.
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
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TAX-EFFICIENT EQUITY FUND
INSTITUTIONAL
- ---------------------------------------------------------
- ---------------------------------------------------------
P R O S P E C T U S
- ---------------------------------------------------------
AUGUST 28, 1997
DELAWARE
GROUP
--------
<PAGE>
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific 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
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
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TAX-EFFICIENT EQUITY FUND
- -------------------------------------------------------------------------------
A CLASS
B CLASS
C CLASS
- -------------------------------------------------------------------------------
PROSPECTUS
- -------------------------------------------------------------------------------
August 28, 1997
DELAWARE
GROUP
--------
<PAGE>
TAX-EFFICIENT EQUITY FUND PROSPECTUS
A CLASS SHARES August 28, 1997
B CLASS SHARES
C CLASS SHARES
- -------------------------------------------------------------------------------
1818 Market Street, Philadelphia, PA 19103
For Prospectus and Performance:
Nationwide 800-523-4640
Information on Existing Accounts:
(SHAREHOLDERS ONLY)
Nationwide 800-523-1918
Dealer Services:
(BROKER/DEALERS ONLY)
Nationwide 800-362-7500
Representatives of Financial Institutions:
Nationwide 800-659-2265
This Prospectus describes the Tax-Efficient Equity Fund series (the
"Fund") of Voyageur Mutual Funds III, Inc. ("Mutual Funds III, Inc."), a
professionally-managed mutual fund of the series type. The Fund offers the
Tax-Efficient Equity Fund A Class, the Tax-Efficient Equity Fund B Class and the
Tax-Efficient Equity Fund C Class. Each class is referred to individually as a
"Class" and collectively as the "Classes" or "Class A Shares," Class B Shares"
or "Class C Shares."
The objective of the Fund is to obtain for taxable investors a high
total return on an after-tax basis. The Fund will attempt to achieve this
objective by seeking to provide a high long-term after-tax total return through
managing its portfolio in a manner that will defer the realization of accrued
capital gains and minimize dividend income. See Investment Objectives and
Policies.
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 Equity Fund Institutional Class,
which is available for purchase only by certain investors. A prospectus for
Tax-Efficient Equity Fund Institutional Class can be obtained by writing to
Delaware Distributors, L.P. at the above address or by calling the above number.
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<PAGE>
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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<PAGE>
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. For further details, see Investment
Objectives and Policies and Other Investment Policies and Special Risk
Considerations.
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 Special 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 Special 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
-3-
<PAGE>
Class B Shares under Classes of Shares.
The price of Class C Shares is equal to the net asset
value per share. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months of purchase. Class C Shares are subject to annual
12b-1 Plan expenses for the life of the investment.
See Classes of Shares and Distribution (12b-1) and Service under
Management of the Fund.
Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.
Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed these maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more in Class A
Shares, and that Class A Shares are subject to lower annual 12b-1 Plan expenses
than Class B and Class C Shares and generally are not subject to a CDSC. The
minimum and maximum purchase amounts for retirement plans may vary. See How to
Buy Shares.
Redemption and Exchange
Class A Shares of the Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Fund nor the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value, which may be subject to a CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.
Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Fund
nor the Distributor assesses any charges other than the CDSC for redemptions or
exchanges of Class B or Class C Shares. There are certain limitations on an
investor's ability to exchange shares between the various classes of shares that
are offered. See Redemption and Exchange.
Open-End Investment Company
Mutual Funds III, Inc., which was organized as a Minnesota corporation
in January 1985, is an open-end management investment company. The Fund's
portfolio of assets is diversified as defined by the Investment Company Act of
1940 (the "1940 Act"). The Fund is one of several series of Mutual Funds III,
Inc. See Shares under Management of the Fund.
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<PAGE>
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.
-5-
<PAGE>
<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 Class A
Shares, Class B Shares and 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 Class A Shares, Class B Shares and 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
Class A Shares, Class B Shares and Class C Shares of the Fund, reflecting
management fees of 0.75%.
For expense information about Tax-Efficient Equity Fund Institutional
Class, see the separate prospectus relating to that class.
Investors utilizing the Delaware Group Asset Planner asset allocation
service also typically incur an annual maintenance fee of $35 per strategy.
However, the annual maintenance fee is waived until further notice. 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.
-6-
<PAGE>
The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, (2) redemption and no redemption at the end of each time period
and (3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable. The following example assumes the voluntary waiver of
the management fee by the Manager as discussed in this Prospectus.
Assuming Redemption Assuming No Redemption
1 year 3 years 1 year 3 years
------ ------- ------ -------
Class A Shares $62(1) $93 $62 $93
Class B Shares $62(2) $99 $22 $69
Class C Shares $32 $69 $22 $69
(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, which has
not been reflected in this calculation, may be imposed on certain
redemptions within 12 months of purchase. See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.
(2) At the end of approximately eight years after purchase, Class B Shares
will be automatically converted into Class A Shares. The example above
does not assume conversion of Class B Shares since it reflects figures
only for one and three years. See Automatic Conversion of Class B
Shares under Classes of Shares for a description of the automatic
conversion feature.
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.
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.
-7-
<PAGE>
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 Special 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 a 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
-8-
<PAGE>
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 Special 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.
-9-
<PAGE>
* * *
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 Special 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
Standard & Poor's 500 Index ("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.
-10-
<PAGE>
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.
-11-
<PAGE>
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(sm) Services
Delaware Group offers the following services for fast and convenient
transfer of funds between your personal bank account and your Delaware Group
fund account.
1. MoneyLine(sm) 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(sm) 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.
This service is not available for certain retirement plans.
2. MoneyLine(sm) On Demand
You or your investment dealer may request purchases and
redemptions of Fund shares by phone using MoneyLine(sm) On Demand. When
you authorize the Fund to accept such requests from you or your
investment dealer, funds will be withdrawn from (for share purchases)
or deposited to (for share redemptions) your predesignated bank
account. Your request will be processed the same day if you call prior
to 4 p.m., Eastern time. There is a $25 minimum and $50,000 maximum
limit for MoneyLine(sm) On Demand transactions. With respect to
retirement plans, this service is only available for purchases through
an IRA.
For each MoneyLine(sm) Service, it may take up to four business days
for the transactions to be completed. You can initiate either service by
completing an Account Services form. If your name and address are not identical
to the name and address on your Fund account, you must have your signature
guaranteed. The Fund does not charge a fee for MoneyLine(sm) services; however,
your bank may charge a fee. Please call the Shareholder Service Center for
additional information about these services.
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>
Tax Information
Each year, Mutual Funds III, Inc. will mail to you information on the
tax status of your dividends and distributions.
Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature
allows you to combine the value of your current holdings of Class A Shares,
Class B Shares and Class C Shares of the Fund with the dollar amount of new
purchases of Class A Shares to qualify for a reduced front-end sales charge on
such purchases of Class A Shares. Under the Combined Purchases Privilege, you
may also include certain shares that you own in other funds in the Delaware
Group. See Classes of Shares.
Letter of Intention
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of Delaware Group fund shares over a 13-month period. See Classes
of Shares and Part B.
12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest proceeds
from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge. See Part B
Exchange Privilege
The Exchange Privilege permits shareholders to exchange all or part of
their shares into shares of the other funds in the Delaware Group, subject to
certain exceptions and limitations. For additional information on exchanges, see
Investing by Exchange under How to Buy Shares and Redemption and Exchange.
Wealth Builder Option
You may elect to invest in the Fund through regular liquidations of
shares in your accounts in other funds in the Delaware Group. Investments under
this feature are exchanges and are therefore subject to the same conditions and
limitations as other exchanges of Fund shares. See Additional Methods of Adding
to Your Investment - Wealth Builder Option and Investing by Exchange under How
to Buy Shares, and Redemption and Exchange.
Delaware Group Asset Planner
Delaware Group Asset Planner is an asset allocation service that gives
you, working with a professional financial adviser, the ability to more easily
design and maintain investments in a diversified selection of Delaware Group
mutual funds. The Asset Planner service offers a choice of four predesigned
allocation strategies (each with a different risk/reward profile) made up of
separate investments in predetermined percentages of Delaware Group funds. With
the guidance of a financial adviser, you may also tailor an allocation strategy
that meets your personal needs and goals. See Delaware Group Asset Planner under
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>
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
Equity 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>
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.
-15-
<PAGE>
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>
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, 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
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.
-17-
<PAGE>
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 Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of Class B Shares and 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.
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<PAGE>
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.
<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. 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>
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedule:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
------------------ -------------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies may be aggregated with those of Class A Shares of
the Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.
An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.
Redemptions of Class A Shares purchased at net asset value may result
in the imposition of a Limited CDSC if the dealer's commission described above
was paid in connection with the purchase of those shares. See Contingent
Deferred Sales Charge for Certain Redemptions of Class A Shares Purchased at Net
Asset Value under Redemption and Exchange.
Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of
Class B Shares and/or Class C Shares of the Fund and shares of the other funds
in the Delaware Group, except those noted below, you can reduce the front-end
sales charges on any additional purchases of Class A Shares. Shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with ownership of
variable insurance products may be combined with other Delaware Group fund
holdings. In addition, assets held in any stable value product available through
the Delaware Group may be combined with other Delaware Group fund holdings.
Shares of other funds that do not carry a front-end sales charge or CDSC may not
be included unless they were acquired through an exchange from a Delaware Group
fund that does carry a front-end sales charge or CDSC.
This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.
It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.
Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value
-20-
<PAGE>
pursuant to a Right of Accumulation or under a Letter of Intention, may result
in the payment of a dealer's commission and the applicability of a Limited CDSC.
Investors should consult their financial advisers or the Shareholder Service
Center about the operation of these features. See Front-End Sales Charge
Alternative -- Class A Shares, above.
Buying Class A Shares at Net Asset Value
Class A Shares may be purchased at net asset value under the Delaware
Group Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege. See The Delaware Difference
and Redemption and Exchange for additional information.
Purchases of Class A Shares may be made at net asset value by current
and former officers, directors and employees (and members of their families) of
the Manager, any affiliate, any of the funds in the Delaware Group, certain of
their agents and registered representatives and employees of authorized
investment dealers and by employee benefit plans for such entities. Individual
purchases, including those in retirement accounts, must be for accounts in the
name of the individual or a qualifying family member.
Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of Delaware Group
funds. Officers, directors and key employees of institutional clients of the
Manager or any of its affiliates may purchase Class A Shares at net asset value.
Moreover, purchases may be effected at net asset value for the benefit of the
clients of brokers, dealers and registered investment advisers affiliated with a
broker or dealer, if such broker, dealer or investment adviser has entered into
an agreement with the Distributor providing specifically for the purchase of
Class A Shares in connection with special investment products, such as wrap
accounts or similar fee based programs.
Purchases of Class A Shares at net asset value may also be made by the
following: financial institutions investing for the account of their trust
customers when they are not eligible to purchase shares of the institutional
class of the fund; and any group retirement plan (excluding defined benefit
pension plans), or such plans of the same employer, for which plan participant
records are maintained on the Delaware Investment & Retirement Services, Inc.
("DIRSI") proprietary record keeping system that (i) has in excess of $500,000
of plan assets invested in Class A Shares of Delaware Group funds and in any
stable value product available through the Delaware Group, or (ii) is sponsored
by an employer that has at any point after May 1, 1997 more than 100 employees
while such plan has held Class A Shares of a Delaware Group fund and such
employer has properly represented to DIRSI in writing that it has the requisite
number of employees and has received written confirmation back from DIRSI.
Investments in Class A Shares made by plan level and/or participant
retirement accounts that are for the purpose of repaying a loan taken from such
accounts will be made at net asset value. Loan repayments made to a Delaware
Group account in connection with loans originated from accounts previously
maintained by another investment firm will also be invested at net asset value.
Investors in Delaware-Voyageur Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Group at net asset value.
-21-
<PAGE>
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 that it qualifies for the reduction. Employees participating
in such Group Investment Plans may also combine the investments held in their
plan account to determine the front-end sales charge applicable to purchases in
non-retirement Delaware Group investment accounts if, at the time of each such
purchase, they notify the Fund that they are eligible to combine purchase
amounts held in their plan account.
For additional information on retirement plans, including plan forms,
applications, minimum investments and any applicable account maintenance fees,
contact your investment dealer or the Distributor.
For other retirement plans and special services, see Retirement
Planning.
Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 4% of the dollar
amount purchased. In addition, from time to time, upon written notice to all of
its dealers, the Distributor may hold special promotions for specified periods
during which the Distributor may pay additional compensation to dealers or
brokers for selling Class B Shares at the time of purchase. As discussed below,
however, Class B Shares are subject to annual 12b-1 Plan expenses and, if
redeemed within six years of purchase, a CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid
to the Distributor and others for providing distribution and related services,
and bearing related expenses, in connection with the sale of Class B Shares.
These payments support the compensation paid to dealers or brokers for selling
Class B Shares. Payments to the Distributor and others under the Class B 12b-1
Plan may be in an amount equal to no more than 1% annually. The combination of
the CDSC and the proceeds of the 12b-1 Plan fees makes it possible for the Fund
to sell Class B Shares without deducting a front-end sales charge at the time of
purchase.
Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class B Shares
described in this Prospectus, even after the exchange. Such CDSC schedule may be
higher than the CDSC schedule for the Class B Shares acquired as a result of the
exchange. See Redemption and Exchange.
Automatic Conversion of Class B Shares
Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into
-22-
<PAGE>
Class A Shares will occur only four times in any calendar year, on the last
business day of the second full week of March, June, September and December
(each, a "Conversion Date"). If the eighth anniversary after a purchase of Class
B Shares falls on a Conversion Date, an investor's Class B Shares will be
converted on that date. If the eighth anniversary occurs between Conversion
Dates, an investor's Class B Shares will be converted on the next Conversion
Date after such anniversary. Consequently, if a shareholder's eighth anniversary
falls on the day after a Conversion Date, that shareholder will have to hold
Class B Shares for as long as three additional months after the eighth
anniversary of purchase before the shares will automatically convert into Class
A Shares.
Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.
All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.
Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the dollar
amount purchased. As discussed below, however, Class C Shares are subject to
annual 12b-1 Plan expenses and, if redeemed within 12 months of purchase, a
CDSC.
Proceeds from the CDSC and the annual 12b-1 Plan fees, if any, are paid
to the Distributor and others for providing distribution and related services,
and bearing related expenses, in connection with the sale of Class C Shares.
These payments support the compensation paid to dealers or brokers for selling
Class C Shares. Payments to the Distributor and others under the Class C 12b-1
Plan may be in an amount equal to no more than 1% annually.
Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class C Shares as
described in this Prospectus. See Redemption and Exchange.
Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares redeemed within six years of purchase may be subject to
a CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestments of dividends or capital gains distributions. For purposes
of this formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of the Class B Shares or the Class C Shares of the Fund,
as the case may be, even if those shares are later exchanged for shares of
another Delaware Group fund. In the event of an exchange of the shares, the "net
asset value of such shares at the
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<PAGE>
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 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 Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30% of
average daily net assets of such shares.
In determining whether a CDSC applies to a redemption of Class B
Shares, it will be assumed that shares held for more than six years are redeemed
first, followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.
All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.
The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B and Class C
Shares under Redemption and Exchange.
Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits, as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares.
Subject to pending amendments to the NASD's Rules of Fair Practice, in
connection with the promotion of Delaware Group fund shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, reimburse dealers for expenses incurred in connection with
-24-
<PAGE>
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 Equity Fund Institutional Class
In addition to offering Class A, Class B and Class C Shares, the Fund
also offers Tax-Efficient Equity Fund Institutional Class, which is described in
a separate prospectus and is available for purchase only by certain investors.
Tax-Efficient Equity 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 Equity Fund Institutional
Class, contact the Distributor by writing to the address or by calling the
telephone number listed on the back of this Prospectus.
-25-
<PAGE>
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.
-26-
<PAGE>
2. Subsequent Purchases--You may make additional investments anytime by
wiring funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.
If you want to wire investments to a retirement plan account, call the
Shareholder Service Center for special wiring instructions.
Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group,
you may write and authorize an exchange of part or all of your investment into
shares of the Fund. If you wish to open an account by exchange, call the
Shareholder Service Center for more information. All exchanges are subject to
the eligibility and minimum purchase requirements set forth in each fund's
prospectus. See Redemption and Exchange for more complete information concerning
your exchange privilege.
Holders of Class A Shares may exchange all or part of their shares for
certain of the shares of other funds in the Delaware Group, including other
Class A Shares, but may not exchange their Class A Shares for Class B Shares or
Class C Shares of the Fund or of any other fund in the Delaware Group. Holders
of Class B Shares of the Fund are permitted to exchange all or part of their
Class B Shares only into Class B Shares of other Delaware Group funds.
Similarly, holders of Class C Shares of the Fund are permitted to exchange all
or part of their Class C Shares only into Class C Shares of other Delaware Group
funds. See Appendix B-- Classes Offered for a list of funds that offer Class A,
Class B, Class C and Consultant Class Shares. Class B Shares of the Fund and
Class C Shares of the Fund acquired by exchange will continue to carry the CDSC
and, in the case of Class B Shares, the automatic conversion schedule of the
fund from which the exchange is made. The holding period of Class B Shares of
the Fund acquired by exchange will be added to that of the shares that were
exchanged for purposes of determining the time of the automatic conversion into
Class A Shares of the Fund.
Permissible exchanges into Class A Shares of the Fund will be made
without a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of the Fund will be made without the imposition of a
CDSC by the fund from which the exchange is being made at the time of the
exchange.
See Allied Plans under Retirement Planning for information on exchanges
by participants in an Allied Plan.
Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you wish to
use the following services:
1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize Mutual Funds
III, Inc. to transfer a designated amount monthly from your checking account to
your Fund account. Many shareholders use this as an automatic savings plan.
Shareholders should allow a reasonable amount of time for initial purchases and
changes to these plans to become effective.
This option is not available to participants in the following plans:
SAR/SEP, SEP/IRA, SIMPLE
-27-
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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.
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. MoneyLine(sm) On Demand
Through the MoneyLine(sm) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your predesignated
bank account to your Fund account. See MoneyLine(sm) Services under The Delaware
Difference for additional information about this service.
4. 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, or 403(b)(7) or 457 Deferred
Compensation Plans.
5. 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
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other Delaware Group funds aremade without a front-end sales charge.
Reinvestments of distributions into Class B Shares of the Fund or of other
Delaware Group funds or into Class C Shares of the Fund or of other Delaware
Group funds are also made without any sales charge and will not be subject to a
CDSC if later redeemed. See Automatic Conversion of Class B Shares under Classes
of Shares for information concerning the automatic conversion of Class B Shares
acquired by reinvesting dividends.
Holders of Class A Shares of the Fund may not reinvest their
distributions into Class B Shares or Class C Shares of any fund in the Delaware
Group, including the Fund. Holders of Class B Shares of the Fund may reinvest
their distributions only into Class B Shares of the funds in the Delaware Group
which offer that class of shares. Similarly, holders of Class C Shares of the
Fund may reinvest their distributions only into Class C Shares of the funds in
the Delaware Group which offer that class of shares. See Appendix B--Classes
Offered for a list of the funds offering those classes of shares. For more
information about reinvestments, call the Shareholder Service Center.
Capital gains and/or dividend distributions for participants in the
following retirement plans are automatically reinvested into the same Delaware
Group fund: SAR/SEP, SEP/IRA, SIMPLE IRA, SIMPLE 401(k), Profit Sharing and
Money Purchase Pension Plans, 401(k) Defined Contribution Plans, or 403(b)(7) or
457 Deferred Compensation Plans.
Delaware Group Asset Planner
To invest in Delaware Group funds using the Delaware Group Asset
Planner asset allocation service, you should complete a Delaware Group Asset
Planner Account Registration Form, which is available only from a financial
adviser or investment dealer. As previously described, the Delaware Group Asset
Planner service offers a choice of four predesigned asset allocation strategies
(each with a different risk/reward profile) in predetermined percentages in
Delaware Group funds. 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 30 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 30. This annual maintenance fee is being waived until further
notice. Investors who utilize the Asset Planner for an IRA will continue to pay
an annual IRA fee of $15 per Social Security number. See Part B.
Investors will receive a customized quarterly Strategy Report
summarizing all Delaware Group Asset Planner investment performance and account
activity during the prior period. Confirmation statements will
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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 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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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 in which you want to invest the proceeds.
Exchange instructions and redemption requests must be signed by the record
owner(s) exactly as the shares are registered. You may request a redemption or
an exchange by calling the Shareholder Service Center at 800-523-1918. The Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.
The Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but the Fund will not mail or wire the proceeds until
it is reasonably satisfied that the check has cleared, which may take up to 15
days from the purchase date. You can avoid this potential delay if you purchase
shares by wiring Federal Funds. The Fund reserves the right to reject a written
or telephone redemption request or delay payment of redemption proceeds if there
has been a
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recent change to the shareholder's address of record.
There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.
Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Group (in each
case, "New Shares") in a permitted exchange, will not be subject to a CDSC that
might otherwise be due upon redemption of the Original Shares. However, such
shareholders will continue to be subject to the CDSC and, in the case of Class B
Shares, the automatic conversion schedule of the Original Shares as described in
this Prospectus and any CDSC assessed upon redemption will be charged by the
Fund from which the Original Shares were exchanged. In an exchange of Class B
Shares from the Fund, the Fund's CDSC schedule may be higher than the CDSC
schedule relating to the New Shares acquired as a result of the exchange. For
purposes of computing the CDSC that may be payable upon a disposition of the New
Shares, the period of time that an investor held the Original Shares is added to
the period of time that an investor held the New Shares. With respect to Class B
Shares, the automatic conversion schedule of the Original Shares may be longer
than that of the New Shares. Consequently, an investment in New Shares by
exchange may subject an investor to the higher 12b-1 fees applicable to Class B
Shares of the Fund for a longer period of time than if the investment in New
Shares were made directly.
Various redemption and exchange methods are outlined below. Except for
the CDSC applicable to certain redemptions of Class B and Class C Shares and the
Limited CDSC applicable to certain redemptions of Class A Shares purchased at
net asset value, there is no fee charged by the Fund or the Distributor for
redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares redeemed
or exchanged. Your investment dealer may charge for this service.
All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by the Fund or its agent.
Written Redemption
You can write to the Fund at 1818 Market Street, Philadelphia, PA 19103
to redeem some or all of your shares. The request must be signed by all owners
of the account or your investment dealer of record. For redemptions of more than
$50,000, or when the proceeds are not sent to the shareholder(s) at the address
of record, the Fund requires a signature by all owners of the account and a
signature guarantee for each owner. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. The Fund may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.
Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate(s) 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 the Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another mutual
fund in the Delaware Group, subject to the same conditions and limitations as
other exchanges noted above.
Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.
The Telephone Redemption--Check to Your Address of Record service and
the Telephone Exchange service, both of which are described below, are
automatically provided unless you notify the Fund in which you have your account
in writing that you do not wish to have such services available with respect to
your account. The Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Fund by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.
Neither the Fund nor its Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, the Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, the Fund or its Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.
Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.
Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption proceeds. 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.
MoneyLine(sm) On Demand
Through the MoneyLine(sm) On Demand service, you or your investment
dealer may call the Fund to request a transfer of funds from your Fund account
to your predesignated bank account. See MoneyLine(sm) Services under The
Delaware Difference for additional information about this service.
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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(sm) Direct
Deposit Service. Through this service, it may take up to four business days for
the transaction to be completed. There are no separate fees for this redemption
method. See MoneyLine(sm) Services 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(sm) Direct Deposit Service described above is
not available for certain retirement plans.
* * *
Shareholders should not purchase additional shares while participating
in a Systematic Withdrawal Plan.
Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 12 months prior to the withdrawal and a dealer's commission was paid
on that purchase. See Contingent Deferred Sales Charge for Certain Redemptions
of Class A Shares Purchased at Net Asset Value, below.
The applicable CDSC for Class B Shares and Class C Shares redeemed via
a Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or were
acquired through the reinvestment of
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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 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 Class A Shares even
if those shares are later exchanged for shares of another Delaware Group fund
and, in the event of an exchange of Class A Shares, the "net asset value of such
shares at the time of redemption" will be the net asset value of the shares
acquired in the exchange.
Redemptions of such Class A Shares held for more than 12 months will
not be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Limited CDSC is assessed if such 12-month period is not satisfied
irrespective of whether the redemption triggering its payment is of Class A
Shares of the Fund or Class A Shares acquired in the exchange.
In determining whether a Limited CDSC is payable, it will be assumed
that shares not subject to the Limited CDSC are the first redeemed followed by
other shares held for the longest period of time. The Limited CDSC will not be
imposed upon shares representing reinvested dividends or capital gains
distributions, or upon amounts representing share appreciation. All investments
made during a calendar month, regardless of what day of the month the investment
occurred, will age one month on the last day of that month and each subsequent
month.
Waiver of Limited Contingent Deferred Sales Charge - Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from the Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; (ii) distributions to participants from a retirement plan
qualified under section 401(a) or 401(k) of the Internal Revenue Code of 1986,
as amended (the "Code"), or due to death of a participant in such a plan; (iii)
redemptions pursuant to the direction of a participant or beneficiary of a
retirement plan qualified under section 401(a) or 401(k) of the Code with
respect to that retirement plan; (iv) periodic distributions from an IRA, SIMPLE
IRA, or 403(b)(7) or 457 Deferred Compensation Plan due to death, disability, or
attainment of age 59 1/2, and IRA distributions qualifying under Section 72(t)
of the Internal Revenue Code; (v) returns of excess contributions to an IRA;
(vi) distributions by other employee
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benefit plans to pay benefits; (vii) distributions described in (ii), (iv), and
(vi) above pursuant to a systematic withdrawal plan; and (viii) redemptions by
the classes of shareholders who are permitted to purchase shares at net asset
value, regardless of the size of the purchase (see Buying Class A Shares at Net
Asset Value under Classes of Shares).
Waiver of Contingent Deferred Sales Charge - Class B and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in
connection with the following redemptions: (i) redemptions that result from the
Fund's right to liquidate a shareholder's account if the aggregate net asset
value of the shares held in the account is less than the then-effective minimum
account size; (ii) returns of excess contributions to an IRA, SIMPLE IRA,
SEP/IRA or 403(b)(7) or 457 Deferred Compensation Plans, (iii) periodic
distributions from an IRA, SIMPLE IRA, SAR/SEP, SEP/IRA, 403(b)(7) or 457
Deferred Compensation Plan, and IRA distributions qualifying under Section 72(t)
of the Internal Revenue Code; and (iv) distributions from an account if the
redemption results from the death of all registered owners of the account (in
the case of accounts established under the Uniform Gifts to Minors or Uniform
Transfers to Minors Acts or trust accounts, the waiver applies upon the death of
all beneficial owners) or a total and permanent disability (as defined in
Section 72 of the Code) of all registered owners occurring after the purchase of
the shares being redeemed.
The CDSC on Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from the Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; (ii) returns of
excess contributions to an IRA, SIMPLE IRA, 403(b)(7) or 457 Deferred
Compensation Plan, Profit Sharing Plan, Money Purchase Pension Plan, or 401(k)
Defined Contribution Plan; (iii) periodic distributions from a 403(b)(7) or 457
Deferred Compensation Plan upon attainment of age 59 1/2, Profit Sharing Plan,
Money Purchase Pension Plan, 401(k) Defined Contribution Plans upon attainment
of age 70 1/2, and IRA distributions qualifying under Section 72(t) of the
Internal Revenue Code; (iv) distributions from a 403(b)(7) Deferred Compensation
Plan, 457 Deferred Compensation Plan, Profit Sharing Plan, or 401(k) Defined
Contribution Plan, under hardship provisions of the plan; (v) distributions from
a 403(b)(7) Deferred Compensation Plan, 457 Deferred Compensation Plan, Profit
Sharing Plan, Money Purchase Pension Plan or a 401(k) Defined Contribution Plan
upon attainment of normal retirement age under the plan or upon separation from
service; (vi) periodic distributions from an IRA or SIMPLE IRA on or after
attainment of age 59; and (vii) distributions from an account if the redemption
results from the death of all registered owners of the account (in the case of
accounts established under the Uniform Gifts to Minors or Uniform Transfers to
Minors Acts or trust accounts, the waiver applies upon the death of all
beneficial owners) or a total and permanent disability (as defined in Section 72
of the Code) of all registered owners occurring after the purchase of the shares
being redeemed.
In addition, the CDSC will be waived on Class B and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual amount
selected to be withdrawn under the Plan does not exceed 12% of the value of the
account on the date that the Systematic Withdrawal Plan was established or
modified.
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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 Class A Shares, Class B Shares and 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(sm)
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(sm) Services 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.
The Fund may be subject to foreign withholding taxes on income from
certain of its foreign securities.
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<PAGE>
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>
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 Equity Fund Institutional Class will not incur any of
the expenses under Mutual Funds III, Inc.'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 NAV of each class of the Fund will vary.
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<PAGE>
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 June 30, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $37 billion in assets in the various
institutional or separately managed (approximately $22,302,518,000) and
investment company (approximately $15,246,733,000) 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
Agreement 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's and Mutual Funds III, Inc.'s Boards 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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<PAGE>
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, if applicable) periods. 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.
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.
Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the national
distributor of the Fund's shares under a Distribution Agreement with Mutual
Funds III, Inc. dated as of June 26, 1997.
Mutual Funds III, Inc. has adopted a separate distribution plan under
Rule 12b-1 for each of the Class A Shares, Class B Shares and Class C Shares of
the Fund (the "Plans"). The Plans permit the Fund to pay the Distributor from
the assets of the respective Classes a monthly fee for the Distributor's
services and expenses in distributing and promoting sales of shares. These
expenses include, among other things, preparing and distributing advertisements,
sales literature, and prospectuses and reports used for sales purposes,
compensating sales and marketing personnel, holding special promotions for
specified periods of time, and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of shares of the
Classes, the Distributor may, from time to time, pay to participate in dealer-
sponsored seminars and conferences, and reimburse dealers for expenses incurred
in connection with preapproved seminars, conferences, and advertising. The
Distributor may pay or allow additional
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<PAGE>
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 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. 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 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 Equity 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
Equity 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
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.
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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 $.01, 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.
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 the Fund, except that shares of the
Institutional 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.
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.
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OTHER INVESTMENT POLICIES AND SPECIAL 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 a fixed or floating interest rates) at regular intervals
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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
Funds 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
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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 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.
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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.
Investment Restrictions
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 not 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.
* * *
Certain other fundamental and non-fundamental investment restrictions
adopted by the Fund are described in Part B.
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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
-------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,478 10,930 10,930 10,478 10,530 10,830+
2 11,525 11,946 11,946
3 12,678 13,058 13,058
4 13,946 14,272 14,272
5 15,340 15,599 15,599
6 16,874 17,050 17,050
7 18,562 18,636 18,636
8 20,418+ 20,369 20,369
9 22,459 22,405* 22,263
10 24,705 24,646* 24,333
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C
0 9,525 10,000 10,000 9,525 10,000 10,000
1 10,478 10,930 10,930 10,478 10,930 10,930
2 11,525 11,946 11,946 11,525 11,946 11,946
3 12,678 12,758 13,058+ 12,678 13,058 13,058
4 13,946 14,272 14,272
5 15,340 15,399 15,599+
6
7
8
9
10
*This assumes that Class B Shares were converted to Class A Shares at
the end of the eighth year.
</TABLE>
<PAGE>
$250,000 Purchase
<TABLE>
<CAPTION>
Scenario 1 Scenario 2
No Redemption Redeem 1st Year
-------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C
0 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,250 273,250 268,125 263,250 270,750+
2 294,938 298,662 298,662
3 324,431 326,438 326,438
4 356,874+ 356,797 356,797
5 392,562 389,979 389,979
6 431,818 426,247 426,247
7 475,000 465,888 465,888
8 522,500 509,215 509,215
9 574,750 560,137* 556,572
10 632,225 616,150* 608,333
</TABLE>
<TABLE>
<CAPTION>
Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C
0 243,750 250,000 250,000 243,750 250,000 250,000
1 268,125 273,250 273,250 268,125 273,250 273,250
2 294,938 298,662 298,662 294,938 298,662 298,662
3 324,431 318,938 326,438+ 324,431 326,438 326,438
4 356,874+ 356,797 356,797
5 392,562 384,979 389,979
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 9.3% 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 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.
-49-
<PAGE>
<TABLE>
<CAPTION>
APPENDIX B--CLASSES OFFERED
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 -
Small Cap 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>
<TABLE>
<CAPTION>
APPENDIX B--CLASSES OFFERED - (CON'T)
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>
- --------------------------------------------------------------------------------
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 -- The Company Life Cycle
- --------------------------------------------------------------------------------
Appendix D--Stock Index Futures Contracts and Related Options
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
-1-
<PAGE>
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", and 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. Prospectuses relating to
the Fund Classes and Prospectuses 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.
-2-
<PAGE>
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 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.
3. The Fund will not participate on a joint or joint-and-several basis
in any securities trading account.
-3-
<PAGE>
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 Mutual Funds III, Inc.'s Directors or
officers or any officer or director of the investment manager or sub-adviser
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 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:
Growth Stock Fund has adopted the following investment restrictions as
fundamental policies. 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.
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
-4-
<PAGE>
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 Mutual Funds III, Inc. 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.
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.
-5-
<PAGE>
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
the Fund and its shareholders, the Fund will revoke the commitment by
terminating the sale of the Fund's shares in the state involved.
-6-
<PAGE>
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
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
-7-
<PAGE>
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 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.
-8-
<PAGE>
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 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.
-9-
<PAGE>
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 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
-10-
<PAGE>
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 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
-11-
<PAGE>
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.
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
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<PAGE>
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 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.
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<PAGE>
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, as the case may be, 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. 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 D.
Credit Quality
Any bond in which 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.
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<PAGE>
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 intends 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 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. This
30% rule is rescinded for tax years beginning after August 5, 1997.
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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<PAGE>
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>
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 average annual total return for Class B Shares and Class C Shares
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 average
annual total return for Class B Shares and Class C Shares 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.
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<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
Aggressive Growth Fund(1)
Class A
Shares Class A Shares Institutional
(at Offer) (at NAV) Class
<S> <C> <C>
1 year ended 4/30/97 (0.77%) 4.17% N/A
Period 5/16/94(2) through 4/30/97 10.72% 12.56% N/A
<CAPTION>
Average Annual Total Return
Aggressive Growth Fund(1)
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 (0.88%) 2.66% 4/30/97 2.52% 3.40%
Period Period
4/16/96(2) 5/20/94(2)
through through
4/30/97 8.33% 12.05% 4/30/97 11.77% 11.77%
</TABLE>
(1) Reflects the voluntary waivers in effect during the periods.
(2) Date of initial public offering.
-18-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
Growth Stock Fund(1)
Class A Shares Class A Shares Institutional
(at Offer) (at NAV) Class(2)
<S> <C> <C> <C>
1 year ended 4/30/97 9.45% 14.91% N/A
3 years ended 4/30/97 16.96% 18.87% N/A
5 years ended 4/30/97 10.08% 11.16% N/A
10 years ended 4/30/97 11.21% 11.75% N/A
Period 8/1/85(2)
through 4/30/97 14.95% 15.43% N/A
<CAPTION>
Average Annual Total Return
Growth Stock Fund(1)
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> <C>
1 year ended 1 year ended
4/30/97 10.13% 14.13% 4/30/97 13.05% 14.05%
Period Period
9/8/95(2) 10/21/95(2)
through through
4/30/97 15.34% 17.54% 4/30/97 15.77% 15.77%
</TABLE>
(1) Reflects the voluntary waivers in effect during the periods.
(2) Date of initial public offering.
-19-
<PAGE>
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.
-20-
<PAGE>
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.
-21-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Aggressive Growth Fund(1)
Class A
Shares Institutional S&P 500 Dow Jones
(at Offer) Class Index(2) Industrial(2)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 (21.25%) N/A 2.42% 2.88%
6 months ended 4/30/97 (9.83%)(3) N/A 14.71% 16.25%
9 months ended 4/30/97 9.09% N/A 27.13% 26.77%
1 year ended 4/30/97 (0.77%) N/A 25.12% 25.86%
Period 5/16/94(4) 35.18% N/A 91.29% 90.37%
through 4/30/97
</TABLE>
(1) Reflects the voluntary waivers in effect during the periods.
(2) Source: Lipper Analytical
(3) For the six months ended April 30, 1997, cumulative total return for
Aggressive Growth Fund A Class at net asset value was 5.32%.
(4) Date of initial public offering.
-22-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Aggressive Growth Fund(1)
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index(2) Industrial(2)
<C> <C> <C> <C> <C>
3 months ended 4/30/97 (21.25)% (17.91%) 2.42% 2.88%
6 months ended 4/30/97 (9.54%) (6.31%) 14.71% 16.25%
9 months ended 4/30/97 9.15% 13.04% 27.13% 26.77%
1 year ended 4/30/97 (0.88%) 2.66% 25.12% 25.86%
Period 4/16/96 (3)
through 4/30/97 8.69% 12.57% 26.97% 25.45%
</TABLE>
(1) Reflects the voluntary waivers in effect during the periods.
(2) Source: Lipper Analytical
(3) Date of initial public offering. Total return for this short of a
time period may not be representative of longer term results.
Cumulative Total Return
Aggressive Growth Fund(1)
<TABLE>
<CAPTION>
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index(2) Industrial(2)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 (18.33%) (17.51%) 2.42% 2.88%
6 months ended 4/30/97 (6.56%) (5.75%) 14.71% 16.25%
9 months ended 4/30/97 12.76% 13.74% 27.13% 26.77%
1 year ended 4/30/97 2.52% 3.40% 25.12% 25.86%
Period 5/20/94(3)
through 4/30/97 38.82% 38.82% 88.21% 86.49%
</TABLE>
(1) Reflects the voluntary waivers in effect during the periods.
(2) Source: Lipper Analytical
(3) Date of initial public offering.
-23-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Growth Stock Fund(1)
Class A Shares Institutional S&P 500 Dow Jones
(at Offer) Class Index(2) Industrial(2)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 (2.88%) N/A 2.42% 2.88%
6 months ended 4/30/97 2.02%(3) N/A 14.71% 16.25%
9 months ended 4/30/97 9.15% N/A 27.13% 26.77%
1 year ended 4/30/97 9.45% N/A 25.12% 25.86%
3 years ended 4/30/97 60.02% N/A 91.29% 90.37%
5 years ended 4/30/97 61.62% N/A 120.02% 108.66%
10 years ended 4/30/97 189.25% N/A 274.50% 206.56%
Period 8/1/85(4)
through 4/30/97 413.97% N/A 501.67% 420.17%
</TABLE>
(1) Reflects the voluntary waivers in effect during the periods.
(2) Source: Lipper Analytical
(3) For the six months ended April 30, 1997, cumulative total return for
Growth Stock Fund A Class at net asset value was 7.12%.
(4) Date of initial public offering.
<TABLE>
<CAPTION>
Cumulative Total Return
Growth Stock Fund(1)
Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index(2) Industrial(2)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 (2.24%) 1.76% 2.42% 2.88%
6 months ended 4/30/97 2.80% 6.78% 14.71% 16.25%
9 months ended 4/30/97 9.98% 13.98% 27.13% 26.77%
1 year ended 4/30/97 10.13% 14.13% 25.12% 25.86%
Period 9/8/95(3)
through 4/30/97 26.48% 30.48% 47.81% 52.02%
</TABLE>
(1) Reflects the voluntary waivers in effect during the periods.
(2) Source: Lipper Analytical
(3) Date of initial public offering.
-24-
<PAGE>
<TABLE>
<CAPTION>
Cumulative Total Return
Growth Stock Fund(1)
Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred S&P 500 Dow Jones
Sales Charge) Sales Charge) Index(2) Industrial(2)
<S> <C> <C> <C> <C>
3 months ended 4/30/97 0.76% 1.76% 2.42% 2.88%
6 months ended 4/30/97 5.81% 6.81% 14.71% 16.25%
9 months ended 4/30/97 12.96% 13.96% 27.13% 26.77%
1 year ended 4/30/97 13.05% 14.05% 25.12% 25.86%
Period 10/21/95(3)
through 4/30/97 25.08% 25.08% 42.33% 47.39%
</TABLE>
(1) Reflects the voluntary waivers in effect during the periods.
(2) Source: Lipper Analytical.
(3) Date of initial public offering.
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 overriding investment philosophy of
the Manager or Sub-Adviser 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 or Sub-Adviser,
including the number of such clients serviced such persons.
-25-
<PAGE>
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:
9% Rate 11% Rate 13% Rate
of Return of Return of Return
--------- --------- ---------
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
Results at various assumed fixed rates of return on a $10,000
investment compounded quarterly for 10 years:
8% Rate 10% Rate 12% Rate 14% Rate
of Return of Return of Return of Return
--------- --------- --------- ---------
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
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.
-26-
<PAGE>
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 $4,740, $6,872 and $6,768, respectively. During the same periods, the
aggregate dollar amounts of brokerage commissions paid by Growth Stock Fund were
$29,040, $28,893 and $22,332, 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
Mutual Funds III, Inc. in the amount of $26,066 resulting in brokerage
commissions of $36,515 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 process. In addition, so long as no fund is disadvantaged,
portfolio transactions which generate
-27-
<PAGE>
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 expenses of the funds in the Delaware Group such as custodian
fees, and may, at the request of the Distributor, give consideration to sales of
such funds' shares 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 166% and 180% for 1996 and 1997, respectively, and Growth
Stock Fund's portfolio turnover rates were 37% and 29% for 1996 and 1997,
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.
-28-
<PAGE>
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.
-29-
<PAGE>
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
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 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.
-30-
<PAGE>
<TABLE>
<CAPTION>
Class A Shares
- -------------------------------------------------------------------------------------------------------------------------------
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% 5.01% 4.97% 4.94% 4.00%
$100,000 but under $250,000 3.75 3.91 3.91 3.88 3.00
$250,000 but under $500,000 2.50 2.55 2.57 2.59 2.00
$500,000 but under $1,000,000* 2.00 2.04 2.05 2.00 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.
-----------------------------------------------------------------------
-31-
<PAGE>
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:
Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
------------------ -----------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25
In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies (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.
-32-
<PAGE>
The following table sets forth the rates of the CDSC for Class B Shares
of each 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. 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 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 Aggressive
Growth and Growth Stock Fund's Class A Shares' average daily net assets for the
year and 0.30% of 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' and 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.
-33-
<PAGE>
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, 12b-1 Plan payments from
Class A Shares, Class B Shares and Class C Shares of Aggressive Growth Fund
amounted to $13,730, $568 and $1,496, respectively. Such amounts were used for
the following purposes:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Outside Brokers $8,814 $85 $1,122
Commissions to Wholesalers 49 5 4
Promotional-Marketing 4,228 415 322
Internal Service 639 63 48
</TABLE>
For the fiscal year ended April 30, 1997, 12b-1 Plan payments from
Class A Shares, Class B Shares and Class C Shares of Growth Stock Fund amounted
to $80,006, $8,561 and $3,741, respectively. Such amounts were used for the
following purposes:
-34-
<PAGE>
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Outside Brokers $71,344 $1,284 $2,806
Commissions to Wholesalers 606 509 65
Promotional-Marketing 4,591 3,857 496
Internal Service 3,465 2,911 374
</TABLE>
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.
-35-
<PAGE>
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 if 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 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 had 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
-36-
<PAGE>
fulfilled within the 13-month period, the plan 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 when purchasing Class A Shares. The reinvestment
privilege does not extend to a redemption of either Class B Shares or Class C
Shares.
-37-
<PAGE>
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.
-38-
<PAGE>
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, 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.
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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, 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.
* * *
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 Wealth Builder Option. See Wealth Builder Option and Redemption and Exchange
in the Prospectuses for the Fund Classes.
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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, 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. 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, and 403(b)(7) and 457
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.
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.
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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.
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.
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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. Each of the Fund
Classes is available for investment by a SAR/SEP.
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.
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.
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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, its agent or designee. 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, its agent or designee.
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, Martin Luther
King, Jr.'s Birthday, 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.
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
mail or wire redemption proceeds by a certain time, as described below, is
modified by the qualifications described in the next paragraph.
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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.
* * *
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
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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 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.
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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.
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.
-49-
<PAGE>
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.
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.
See also Other Tax Requirements under Accounting and Tax Issues.
-50-
<PAGE>
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, Aggressive Growth Fund paid no dividends from net
investment income and all of Growth Stock Fund's dividends from net investment
income qualified for the corporate dividends-received 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.
-51-
<PAGE>
(SAI-VEQ MUTUAL FUNDS III -PART B)
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
Sub-Adviser, located at 90 South Seventh Street, Suite 4400, Minneapolis, MN
55402, serves as a Sub-Adviser to Growth Stock Fund and is responsible for the
day-to-day investment management of the Fund.
The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On June 30, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $37 billion in assets in the various
institutional or separately managed (approximately $22,302,518,000) and
investment company (approximately $15,246,733,000) 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 ("Lincoln
National") as a result of Lincoln National's acquisition of DFG.
Because Lincoln National's acquisition of DFG resulted in a change of
control of Voyageur, 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 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 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 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.
-52-
<PAGE>
(SAI-VEQ MUTUAL FUNDS III -PART B)
Beginning June 9, 1997, the Manager 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 through December 31,
1997:
<TABLE>
<CAPTION>
Institutional
Class A Class B Class C 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,
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.
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 an annual sub-advisory fee equal to 0.50% of Growth
Stock Fund's average daily net assets.
On April 30, 1997, the total net assets of Aggressive Growth Fund were
$5,259,885 and Growth Stock Fund were $36,148,408.
Investment management fees incurred for the last three fiscal years
with respect to each Fund which was operational at the end of the last fiscal
year follows. Fees were paid to the Funds' previous investment manager, Voyageur
Fund Managers, Inc.
-53-
<PAGE>
<TABLE>
<CAPTION>
Fund April 30, 1997 April 30, 1996 April 30, 1995
- ---- -------------- -------------- --------------
<S> <C> <C> <C>
Aggressive Growth Fund(1) $56,982 earned $34,256 incurred $16,102 incurred
$10,532 paid $9,256 paid $-0- paid
$46,450 waived $25,000 waived $16,102 waived
Growth Stock Fund $332,347 incurred $222,957 incurred $123,185 incurred
$332,347 paid $197,957 paid $120,564 paid
$-0- waived $25,000 waived $2,621 waived
</TABLE>
(1) Date of initial public offering was May 16, 1994.
Under the general supervision of the Board of Directors, the Manager
makes and executes all investment decisions for the Funds. 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.
The ratios of expenses to average daily net assets (after waivers and
payments) for the fiscal year ended April 30, 1997 for each Class of Aggressive
Growth Fund and Growth Stock Fund were as follows:
Aggressive Growth Fund Growth Stock Fund
---------------------- -----------------
Class A Shares 1.75% 1.72%
Class B Shares 2.50% 2.47%
Class C Shares 2.50% 2.47%
Institutional Class NA NA
The expense ratios for Class A Shares, Class B Shares and Class C
Shares reflect the impact of their 12b-1 Plans.
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.
-54-
<PAGE>
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:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Aggressive Growth Fund Olcoba Company - Reinvest
A Class P.O. Box 1000
Minneapolis, MN 55480 88,578 36.52%
Prudential Securities, Inc.
FBO Richard H. Haber
703 Coquina Court
Boca Raton, FL 33432 21,946 9.05%
Aggressive Growth Fund Merrill Lynch, Pierce, Fenner & Smith
B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 2,767 34.45%
Raymond James
FBO Elite Acct. No. 50099089
FAO Anthony and Marie Hillerman Co-TTE
1632 Francisca Road - NW
Albuquerque, NM 87107 1,787 22.25%
City National Bank
FBO Steven L. Thompson IRA ACCT
911 West Loop - 281 3rd Floor
Longview, TX 75804 611 7.61%
Dolores Baile
478 West 9th Street
Stockton, CA 95206 594 7.40%
Aggressive Growth Fund Emery Jahnke
C Class Ann Jahnke JT TEN
2402 Lilac Lane
Fargo, ND 58102 6,633 33.35%
</TABLE>
-55-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
National Financial Services Corp
FBO Douglas D. Jackson and
Nancy L. Jackson JT WROS
987 SW Summit View Drive
Portland, OR 97225 1,522 7.65%
David A. Johnson
P.O. Box 63
23022 Chiavenna (SO)
Italy, OR 1,227 6.17%
Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East - 3rd Floor
Jacksonville, FL 32246 1,160 5.83%
Growth Stock Fund Dougherty Financial Group, Inc
A Class 401(k) Salary Reduction Plan
Attn: Robin Lang
90 South 7th Street - Ste. 4300
Minneapolis, MN 55402 70,046 5.39%
Olcoba Company - Reinvest
P.O. Box 1100
Minneapolis, MN 55480 68,952 5.31%
Growth Stock Fund Merrill Lynch, Pierce, Fenner & Smith
B Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East - 3rd Floor
Jacksonville, FL 23346 6,685 15.27%
E*Trade Securities, Inc.
Steven R. Offerdahl
4 Embarcadero Place
2400 Geng Road, MN 55439 4,262 9.74%
Growth Stock Fund Merrill Lynch, Pierce, Fenner & Smith
C Class For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East - 3rd Floor
Jacksonville, FL 23346 3,945 13.08%
</TABLE>
-56-
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Emery Jahnke
Ann Jahnke JT TEN
2402 Lilac Lane
Fargo, ND 58102 3,461 11.48%
Mabel Waters TTE
Covell Family Trust
7324 NW Pendridge Road
Portland, OR 97229 1,700 5.46%
</TABLE>
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 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.
As noted under Investment Management Agreements and Sub-Advisory
Agreement, after the close of business on April 30, 1997, Voyageur became an
indirect, wholly owned subsidiary of Lincoln National as a result of Lincoln
National's acquisition of DFG.
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.
-57-
<PAGE>
*Wayne A. Stork (60)
Chairman, President, Chief Executive Officer, Director and/or Trustee
of the Funds, each of the other 32 investment companies in the
Delaware Group, Delaware Management Holdings, Inc., DMH Corp.,
Delaware International Holdings Ltd. and Founders Holdings, Inc.
Chairman and Director of Delaware Distributors, Inc. and Delaware
Capital Management, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director of Delaware Management Company, Inc.
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd.
Director of Delaware Service Company, Inc. and Delaware Investment &
Retirement Services, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware
organization.
Richard G. Unruh, Jr. (57)
Executive Vice President of the Funds, each of the other 32 investment
companies in the Delaware Group, Delaware Management Holdings,
Inc. and Delaware Capital Management, Inc.
Executive Vice President and Director of Delaware Management Company,
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 (50)
Executive Vice President/Chief Investment Officer, Fixed Income of the
Funds, each of the other 32 investment companies in the
Delaware Group, Delaware Management Company, Inc. and Delaware
Management Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive 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.
-58-
<PAGE>
Walter P. Babich (69)
Director and/or Trustee of the Funds 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 Funds 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 Funds 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 Funds 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 Funds 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.
-59-
<PAGE>
* Jeffrey J. Nick (44)
Director and/or Trustee of the Funds 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 Funds 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 Funds, each of the other 32 investment
companies in the Delaware Group, Delaware Management Holdings,
Inc., Delaware Capital Management, Inc., Founders CBO
Corporation and Delaware Distributors, L.P.
Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Management Company, Inc., DMH
Corp., Delaware Distributors, Inc., Founders Holdings, Inc.
and Delaware International Holdings Ltd.
Chairman and Director of Delaware Management Trust Company.
Chairman, Chief Executive Officer and Director of Delaware Investment &
Retirement Services, Inc.
President/Chief Executive Officer/Chief Financial Officer and Director
of Delaware Service Company, Inc.
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.
-60-
<PAGE>
George M. Chamberlain, Jr. (50)
Senior Vice President, Secretary and General Counsel of the Funds,
each of the other 32 investment companies in the Delaware Group,
Delaware Management Holdings, Inc. and Delaware Distributors,
L.P.
Executive Vice President, Secretary, General Counsel and Director of
Delaware Management Trust Company.
Senior Vice President, Secretary, General Counsel 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 Funds, of seven 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.
George H. Burwell (35)
Vice President/Senior Portfolio Manager of the Funds, of seven other
investment companies in the Delaware Group and of Delaware
Management Company, Inc.
Before joining the Delaware Group in 1992, Mr. Burwell was a portfolio
manager for Midlantic Bank, New Jersey. In addition, he was a
security analyst for Balis & Zorn, New York and for First
Fidelity Bank, New Jersey.
Joseph H. Hastings (47)
Senior Vice President/Corporate Controller of the Funds, each of the
other 32 investment companies in the Delaware Group and Founders
Holdings, Inc.
Senior Vice President/Corporate Controller/Treasurer of 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. 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.
Senior Vice President/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 (35)
Senior Vice President/Treasurer of the Funds, each of the other 32
investment companies in the Delaware Group, Delaware
Distributors, Inc. and Founders Holdings, Inc.
Senior Vice President and Manager of Investment Accounting of Delaware
International Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management
Company, Inc. and Delaware Service Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting of
Delaware Distributors, L.P.
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.
-61-
<PAGE>
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 $779 None $30,000 $53,307
Ann R. Leven $794 None $30,000 $58,307
Walter P. Babich $791 None $30,000 $57,307
Anthony D. Knerr $791 None $30,000 $57,307
Charles E. Peck $779 None $30,000 $53,307
Thomas F. Madison(2) $779 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 $622 from Mutual Funds III, Inc. 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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<PAGE>
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.
Small Cap 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.
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.
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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 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
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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 US 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.
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.
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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.
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 Delaware 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 May 31, 1997,
Voyageur Fund Distributors, Inc. 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:
<TABLE>
<CAPTION>
Aggressive Growth Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to VFD
----- ---------- ---------- ------
<S> <C> <C> <C>
4/30/97 $11,275 $10,057 $1,218
4/30/96 4,299 3,691 608
4/30/95(1) 8,965 7,668 1,297
</TABLE>
(1) Date of initial public offering was May 16, 1994.
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<TABLE>
<CAPTION>
Growth Stock Fund
Fiscal Total Amount Amounts Net
Year of Underwriting Reallowed Commission
Ended Commission to Dealers to VFD
----- ---------- ---------- ------
<S> <C> <C> <C>
4/30/97 $74,010 $63,921 $10,089
4/30/96 44,067 37,405 6,662
4/30/95 34,138 29,001 5,137
</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
Fiscal Aggressive Growth Growth Stock
Year Ended Fund A Class(1) Fund A Class
---------- --------------- ------------
4/30/97 $-0- $-0-
4/30/96 -0- -0-
4/30/95 -0- -0-
(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
Fiscal Aggressive Growth Growth Stock
Year Ended Fund B Class(1) Fund B Class(2)
---------- --------------- ---------------
4/30/97 $508 $414
4/30/96 -0- -0-
(1) Date of initial public offering was April 16, 1996.
(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
Fiscal Aggressive Growth Growth Stock
Year Ended Fund C Class(1) Fund C Class(2)
---------- --------------- ---------------
4/30/97 $-0- $-0-
4/30/96 130 -0-
4/30/95 -0- N/A
(1) Date of initial public offering was May 20, 1994.
(2) Date of initial public offering was October 21, 1995.
Effective as of May 1, 1997, 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 $11.00 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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<PAGE>
Capitalization
Mutual Funds III, Inc. has a present authorized capitalization of 10
trillion shares of capital stock with a $.01 par value per share.
The Board of Directors has allocated the following number of shares to
each Fund and their respective classes:
Aggressive Growth Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Institutional Class 1 billion
Growth Stock Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Institutional Class 1 billion
Tax-Efficient Equity Fund 10 billion
A Class 1 billion
B Class 1 billion
C Class 1 billion
Institutional Class 1 billion
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.
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
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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>
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:
A+ Highest B+ Average C Lowest
A High B Below Average D In Reorganization
A- Above Average B- Lower
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>
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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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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(SAI-VEQ MUTUAL FUNDS III -PART B)
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.
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
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>
<TABLE>
<CAPTION>
31% Tax Bracket Single -- $59,751 - $124,650
--------------- Joint -- $99,601 - $151,750
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>
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.
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<PAGE>
<TABLE>
<CAPTION>
$2,000 SINGLE INVESTMENT AT A RETURN OF 10% COMPOUNDED QUARTERLY
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
$2,000 INVESTED ANNUALLY AT A RETURN OF 10% COMPOUNDED QUARTERLY
TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAXABLE - TAX
YEARS 39.6%* 36%* 31% 28% 15% DEFERRED
- -----------------------------------------------------------------------------------------------------------------------------------
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.
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<PAGE>
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!
8% Return 10% Return
--------- ----------
10 years $31,726 $35,834
30 years $256,465 $390,394
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>
APPENDIX C -- 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>
APPENDIX D--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
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<PAGE>
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.
-87-
<PAGE>
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.
-88-
<PAGE>
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 Assets and
Liabilities, 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, 1996 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.
-89-
<PAGE>
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific 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, 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
<PAGE>
- --------------------------------------------------------------------------------
AGGRESSIVE GROWTH FUND
GROWTH STOCK FUND
TAX-EFFICIENT EQUITY FUND
- --------------------------------------------------------------------------------
A CLASSES
- --------------------------------------------------------------------------------
B CLASSES
- --------------------------------------------------------------------------------
C CLASSES
- --------------------------------------------------------------------------------
INSTITUTIONAL CLASSES
- --------------------------------------------------------------------------------
CLASSES OF VOYAGEUR
MUTUAL FUNDS III, INC.
- --------------------------------------------------------------------------------
PART B
STATEMENT OF
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
AUGUST 28, 1997
DELAWARE
GROUP
--------
<PAGE>
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 Assets and Liabilities
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 Aggressive Growth Fund and Growth
Stock Fund are 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.
(f) Certification of Designation
(January 23, 1997) incorporated
into this filing by reference to
Post-Effective Amendment No. 29
filed February 18, 1997.
(g) Form of Certificate of
Designation (August 1997)
incorporated into this filing by
reference to Post-Effective
Amendment No. 30 filed June 27,
1997.
(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.
<PAGE>
PART C - Other Information
(Continued)
(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.
(v) Certificate of Designation
(January 23, 1997)
incorporated into this
filing by reference to
Post-Effective Amendment
No. 29 filed February 18,
1997.
(v) Form of Certificate of
Designation (August 1997)
incorporated into this
filing by reference to
Post-Effective Amendment
No. 30 filed June 27, 1997.
(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.
<PAGE>
(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
incorporated into this filing by
reference to Post-Effective
Amendment No. 30 filed June 27,
1997.
(b) Executed Investment Management
Agreement (June 26, 1997) between
Delaware Management Company, Inc.
and the Registrant on behalf of
Tax-Efficient Equity Fund
incorporated into this filing by
reference to Post-Effective
Amendment No. 30 filed June 27,
1997.
<PAGE>
PART C - Other Information
(Continued)
(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 incorporated
into this filing by reference to
Post-Effective Amendment No. 30
filed June 27, 1997.
(6) (a) Distribution Agreements.
(i) Executed Distribution
Agreement (March 1, 1997)
between Delaware
Distributors, L.P. and the
Registrant on behalf of
Aggressive Growth Fund and
Growth Stock Fund
incorporated into this
filing by reference to
Post-Effective Amendment
No. 30 filed June 27, 1997.
(ii) Executed Distribution
Agreement (June 26, 1997)
between Delaware
Distributors, L.P. and the
Registrant on behalf of
Tax-Efficient Equity Fund
incorporated into this
filing by reference to
Post-Effective Amendment
No. 30 filed June 27, 1997.
(b) Administration and Service
Agreement Form of Administration
and Service Agreement (as amended
November 1995) (Module)
incorporated into this filing by
reference to Post-Effective
Amendment No. 30 filed June 27,
1997.
(c) Dealer's Agreement. Dealer's
Agreement, as amended, (November
1995) (Module) incorporated into
this filing by reference to
Post-Effective Amendment No. 30
filed June 27, 1997.
(d) Mutual Fund Agreement for the
Delaware Group of Funds, as
amended, (November 1995) (Module)
incorporated into this filing by
reference to Post-Effective
Amendment No. 30 filed June 27,
1997.
(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) Custodian Agreement between The
Chase Manhattan Bank and the
Registrant on behalf of
Tax-Efficient Equity Fund (1997)
(Module) incorporated into this
filing by reference to
Post-Effective Amendment No. 30
filed June 27, 1997.
<PAGE>
PART C - Other Information
(Continued)
(9) Other Material Contracts.
(a) Executed Shareholder Services
Agreement (April 30, 1997)
between Delaware Service Company,
Inc. and the Registrant on behalf
of the Aggressive Growth Fund,
Growth Stock Fund and
Tax-Efficient Equity Fund
incorporated into this filing by
reference to Post-Effective
Amendment No. 30 filed June 27,
1997.
(b) Executed Fund Accounting
Agreement (April 30, 1997)
between Delaware Service Company,
Inc. and the Registrant on behalf
of each Fund incorporated into
this filing by reference to
Post-Effective Amendment No. 30
filed June 27, 1997.
(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. 4A
(April 14, 1997) to
Schedule A to Delaware
Group of Funds Fund
Accounting Agreement
attached as Exhibit.
(vi) Executed Amendment No. 5
(May 1, 1997) to Delaware
Group of Funds Fund
Accounting Agreement
attached as Exhibit.
(vii) Executed Amendment No. 6
(July 21, 1997) to Schedule
A to Delaware Group of
Funds Fund Accounting
Agreement attached as
Exhibit.
(10) Opinion of Counsel. Filed with letter
relating to Rule 24f-2 on June 30, 1997.
(11) Consents of Auditors. Attached as Exhibit.
(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>
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 into this
filing by reference to
Post-Effective Amendment No. 30
filed June 27, 1997.
(b) Plan under Rule 12b-1 for Class B
(April 30, 1997) on behalf of
Aggressive Growth Fund and Growth
Stock Fund incorporated into this
filing by reference to
Post-Effective Amendment No. 30
filed June 27, 1997.
(c) Plan under Rule 12b-1 for Class C
(April 30, 1997) on behalf of
Aggressive Growth Fund and Growth
Stock Fund attached incorporated
into this filing by reference to
Post-Effective Amendment No. 30
filed June 27, 1997.
(d) Plan under Rule 12b-1 for Class A
(April 30, 1997) on behalf of
Tax-Efficient Equity Fund
incorporated into this filing by
reference to Post-Effective
Amendment No. 30 filed June 27,
1997.
(e) Plan under Rule 12b-1 for Class B
(April 30, 1997) on behalf of
Tax-Efficient Equity Fund
incorporated into this filing by
reference to Post-Effective
Amendment No. 30 filed June 27,
1997.
(f) Plan under Rule 12b-1 for Class C
(April 30, 1997) on behalf of
Tax-Efficient Equity Fund
incorporated into this filing by
reference to Post-Effective
Amendment No. 30 filed June 27,
1997.
(16) Schedules of Computation for each
Performance Quotation.
(a) Schedules of Computation of Fund
Performance for Aggressive Growth
Fund and Growth Stock Fund
attached as Exhibit.
(17) Financial Data Schedules. Attached as
Exhibit.
(18) Plan under Rule 18f-3.
(a) Plan under Rule 18f-3 (April 30,
1997) incorporated into this
filing by reference to
Post-Effective Amendment No. 30
filed June 27, 1997.
(b) Form of Amended Appendix A (1997)
to Plan under Rule 18f-3 attached
as Exhibit.
(19) Other: Directors' Power of Attorney.
Incorporated into this filing to
Post-Effective Amendment No. 30 filed June
27, 1997.
Item 25. Persons Controlled by or under Common Control with
Registrant. None.
<PAGE>
PART C - Other Information
(Continued)
Item 26. Number of Holders of Securities.
<TABLE>
<CAPTION>
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Voyageur Mutual Funds III, Inc's
Growth Stock Fund:
Growth Stock Fund A Class
Common Stock Par Value 2,224 Accounts
$.01 Per Share as of July 31, 1997
Growth Stock Fund B Class
Common Stock Par Value 67 Accounts
$.01 Per Share as of July 31, 1997
Growth Stock Fund C Class
Common Stock Par Value 56 Accounts
$.01 Per Share as of July 31, 1997
Voyageur Mutual Funds III, Inc.'s
Aggressive Growth Fund:
Aggressive Growth Fund A Class
Common Stock Par Value 213 Accounts
$.01 Per Share as of July 31, 1997
Aggressive Growth Fund B Class
Common Stock Par Value 12 Accounts
$.01 Per Share as of July 31, 1997
Aggressive Growth Fund C Class
Common Stock Par Value 36 Accounts
$.01 Per Share as of July 31, 1997
Voyageur Mutual Funds III, Inc.'s
Tax-Efficient Equity Fund:
Tax Efficient Equity Fund A Class
Common Stock Par Value 0 Accounts
$.01 Per Share as of July 31, 1997
</TABLE>
*** Relates only to Class A, Class B and Class C Shares of Aggressive Growth
Fund, Growth Stock Fund and Tax- Efficient Equity Fund.
<PAGE>
PART C - Other Information
(Continued)
<TABLE>
<CAPTION>
(1) (2)
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Tax Efficient Equity Fund B Class
Common Stock Par Value 0 Accounts
$.01 Per Share as of July 31, 1997
Tax Efficient Equity Fund C Class
Common Stock Par Value 0 Accounts
$.01 Per Share as of July 31, 1997
</TABLE>
Item 27. Indemnification. Incorporated into this filing by reference
to Post-Effective Amendment No. 29 filed February 18, 1997.
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
Equity Funds I, Inc., Delaware Group Equity Funds II, Inc., Delaware Group Trend
Fund, Inc., Delaware Group Equity Funds IV, Inc., Delaware Group Equity Funds V,
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 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.,
Voyageur Arizona Municipal Income Fund, Inc., Voyageur Colorado Insured
Municipal Income Fund, Inc., Voyageur Florida Insured Municipal Income Fund,
Voyageur Minnesota Municipal Fund, Inc., Voyageur Minnesota Municipal Fund II,
Inc. and Voyageur Minnesota Municipal Fund III, Inc.) and provides investment
advisory services to institutional accounts, primarily retirement plans and
endowment funds. 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 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 services,
dividend disbursing, accounting servicing and transfer agent for all of the
mutual funds in the Delaware Group.
<PAGE>
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 Principal 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.; Chairman of the Board,
President, Chief Executive Officer 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.; Director of Delaware Service Company, Inc. and Delaware
Investment & Retirement Services, Inc.; and Chairman, Chief Executive Officer and
Director of Delaware International Advisers Ltd.
Richard G. Unruh, Jr. Executive Vice President and Director of Delaware Management Company, Inc.;
Executive Vice President of the Registrant, each of the other funds in the Delaware
Group, 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, each of the other funds in the
Delaware Group and Delaware Management Holdings, Inc.; Executive Vice President
and Director of Founders Holdings, Inc.; Executive 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>
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>
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, Delaware Capital
Management, Inc. and Delaware Distributors, L.P.; President, Chief Executive
Officer, Chief Financial Officer and Director of Delaware Service Company, Inc.;
Chairman, Chief Executive Officer and Director of Delaware Investment &
Retirement Services, Inc.; Chairman and Director of Delaware Management Trust
Company; and Director of Delaware International Advisers Ltd.
Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton Place,
Newtown Square, PA
George M. Chamberlain, Jr. Senior Vice President, General Counsel, Secretary and Director of Delaware
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,
Secretary and General Counsel 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, General Counsel and Director of Delaware
Management Trust Company; Secretary and Director of Delaware International
Holdings Ltd.; and Director of Delaware International Advisers Ltd.
Richard J. Flannery Senior Vice President/Corporate and International Affairs of the Registrant, each of
the other funds in the Delaware Group, Delaware Management Holdings, Inc., DMH
Corp., Delaware Management Company, Inc., Delaware Distributors, Inc., Delaware
Distributors, L.P., Delaware Management Trust Company, Delaware Capital
Management, Inc., Delaware Service Company, Inc. and Delaware Investment &
Retirement Services, Inc.; 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
</TABLE>
*Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Michael P. Bishof Senior Vice President and Treasurer of the Registrant, each of the other funds in the
Delaware Group, Delaware Distributors, Inc. and Founders Holdings, Inc.; Senior
Vice President/Investment Accounting of Delaware Management Company, Inc. and
Delaware Service Company, Inc.; Senior Vice President and Treasurer/ Manager,
Investment Accounting of Delaware Distributors, L.P.; Assistant Treasurer of
Founders CBO Corporation; and Senior Vice President and Manager of Investment
Accounting of Delaware International Holdings Ltd.
Joseph H. Hastings Senior Vice President/Corporate Controller and Treasurer of Delaware Management
Holdings, Inc., DMH Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Capital Management, Inc., Delaware Distributors, L.P.,
Delaware Service Company, Inc. and Delaware International Holdings Ltd.; Senior
Vice President/Corporate Controller of the Registrant, each of the other funds in the
Delaware Group and Founders Holdings, Inc.; 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 Senior Vice President/Assistant Treasurer of Founders CBO Corporation
Michael T. Taggart Senior Vice President/Facilities Management and Administrative Services of
Delaware Management Company, Inc.
Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company, Inc.,
Delaware Investment and Retirement Services, Inc. and Delaware Service Company,
Inc.; Senior Vice President/ Operations and Director of Delaware Management Trust
Company
James L. Shields Senior Vice President/Chief Information Officer of Delaware Management Company,
Inc., Delaware Service Company, Inc. and Delaware Investment & Retirement
Services, Inc.
Eric E. Miller Vice President, Assistant Secretary and Deputy General Counsel of the Registrant
and each of the other funds in the Delaware Group, Delaware Management
Company, Inc., Delaware Management Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors Inc., Delaware Service Company, Inc.,
Delaware 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>
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>
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
Richard Salus1 Vice President/Assistant Controller of Delaware Management Company, Inc. and
Delaware Management Trust Company
Bruce A. Ulmer Vice President/Director of LNC Internal Audit of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware Management Trust Company and
Delaware Investment & Retirement Services, Inc.
Steven T. Lampe/2 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.
Christopher Adams/3 Vice President/Strategic Planning of Delaware Management Company, Inc. and
Delaware Service Company, Inc.
Susan L. Hanson Vice President/Strategic Planning of Delaware Management Company, Inc. and
Delaware Service Company, Inc.
Dennis J. Mara/4 Vice President/Acquisitions of Delaware Management Company, Inc.
Scott Metzger Vice President/Business Development of Delaware Management Company, Inc. and
Delaware Service Company, 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.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Rosemary E. Milner Vice President/Legal Registrations of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware Distributors,
L.P. and Delaware Distributors, 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
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
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.
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.
and each of the tax-exempt funds and the fixed income funds in the Delaware Group
Mitchell L. Conery/5 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.
and each of the equity funds in the Delaware Group and Delaware Capital
Management, Inc.
Gerald S. Frey/6 Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.
and each of the equity funds in the Delaware Group
Christopher Beck Vice President/Senior Portfolio Manager of Delaware Management
Company, Inc. and each of the equity funds in the Delaware Group
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Elizabeth H. Howell/7 Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.
Andrew M. McCullagh, Jr./8 Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.
and each of the equity funds in the Delaware Group
Paul Grillo Vice President/Portfolio Manager of Delaware Management Company, Inc. and each
of the tax-exempt and fixed income funds in the Delaware Group
William H. Miller Vice President/Assistant Portfolio Manager of Delaware Management Company, Inc.
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
1 SENIOR MANAGER, Ernst & Young LLP prior to December 1996.
2 TAX MANAGER, Price Waterhouse LLP prior to October 1995.
3 SENIOR ASSOCIATE, FAS, Coopers & Lybrand LLP prior to October 1995.
4 CORPORATE CONTROLLER, IIS prior to July 1997 and DIRECTOR, FINANCIAL
PLANNING, Decision One prior to March 1996.
5 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.
6 SENIOR DIRECTOR, Morgan Grenfell Capital Management prior to June 1996.
7 SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May 1997.
8 SENIOR PORTFOLIO MANAGER, Voyageur Asset Management LLC prior to April 1997
(b) Voyageur Asset Management LLC serves as sub-adviser (the
"Sub-Adviser") for 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.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with the Manager and its
Business Address* Affiliates and Other Positions and Offices Held
- ----------------- -----------------------------------------------
<S> <C>
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
</TABLE>
*Business address of each is 90 South Seventh Street, Suite 4400, Minneapolis,
Minnesota 55402.
<PAGE>
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 Chief Executive None
Officer
David K. Downes Senior Vice President, Executive Vice President/
Chief Administrative Officer Chief Operating Officer/
and Chief Financial Officer Chief Financial Officer
George M. Chamberlain, Jr. Senior Vice President/Secretary/ Senior Vice President/
General Counsel Secretary/General Counsel
Terrence P. Cunningham Senior Vice President/ Financial None
Institutions
Thomas E. Sawyer Senior Vice President/ None
National Sales Director
Dana B. Hall Senior Vice President/ None
Key Accounts
Mac McAuliffe Senior Vice President/Sales None
Manager, Western Division
William F. Hostler Senior Vice President/ None
Marketing Services
J. Chris Meyer Senior Vice President/ None
Director Product Management
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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
William M. Kimbrough Senior Vice President/Wholesaler None
Daniel J. Brooks Senior Vice President/Wholesaler None
Richard J. Flannery Senior Vice President/Corporate Senior Vice President/
and International Affairs Corporate and International
Affairs
Bradley L. Kolstoe Senior Vice President/Western None
Division Sales Manager
Henry W. Orvin Senior Vice President/Eastern None
Division Sales Manager - Wire/
Regional Channel
Michael P. Bishof Senior Vice President and Treasurer/ Senior Vice President/
Manager, Investment Accounting Treasurer
Eric E. Miller Vice President/Assistant Secretary/ Vice President/Assistant
Deputy General Counsel Secretary/Deputy General Counsel
Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary
Steven T. Lampe Vice President/Taxation Vice President/Taxation
Joseph H. Hastings Vice President/Corporate Senior Vice President/
Controller & Treasurer Corporate Controller
Lisa O. Brinkley Vice President/Compliance Vice President/Compliance
Rosemary E. Milner Vice President/Legal Registrations Vice President/Legal
Registrations
Daniel H. Carlson Vice President/Strategic Marketing None
Diane M. Anderson Vice President/Plan Record Keeping None
and Administration
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Anthony J. Scalia Vice President/Defined Contribution None
Sales, SW Territory
Courtney S. West Vice President/Defined Contribution None
Sales, NE Territory
Denise F. Guerriere Vice President/Client Services None
Gordon E. Searles Vice President/Client Services None
Julia R. Vander Els Vice President/Participant Services None
Jerome J. Alrutz Vice President/Retail Sales None
Joanne A. Mettenheimer Vice President/New Business None
Development
Scott Metzger Vice President/Business Development Vice President/Business
Development
Stephen C. Hall Vice President/Institutional Sales None
Gregory J. McMillan Vice President/ National Accounts None
Christopher H. Price Vice President/Manager, None
Insurance
Stephen J. DeAngelis Vice President/Product None
Development
Zina DeVassal Vice President/Financial Institutions None
Andrew W. Whitaker Vice President/Financial Institutions None
Jesse Emery Vice President/ Marketing None
Communications
Darryl S. Grayson Vice President, Broker/Dealer None
Internal Sales
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Susan T. Friestedt Vice President/Client Service None
Dinah J. Huntoon Vice President/Product None
Manager Equity
Soohee Lee Vice President/Fixed Income None
Product Management
Michael J. Woods Vice President/ UIT Product None
Management
Ellen M. Krott Vice President/Marketing None
Dale L. Kurtz Vice President/Marketing Support None
Holly W. Reimel Vice President/Manager, Key Accounts None
David P. Anderson Vice President/Wholesaler None
Lee D. Beck Vice President/Wholesaler None
Gabriella Bercze Vice President/Wholesaler 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
Ronald A. Haimowitz Vice President/Wholesaler None
Christopher L. Johnston Vice President/Wholesaler None
Michael P. Jordan Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Jeffrey A. Keinert Vice President/Wholesaler None
Thomas P. Kennett Vice President/Wholesaler None
Debbie A. Marler Vice President/Wholesaler None
Nathan W. Medin Vice President/Wholesaler None
Roger J. Miller Vice President/Wholesaler None
Patrick L. Murphy Vice President/Wholesaler None
Stephen C. Nell Vice President/Wholesaler None
Julia A. Nye Vice President/Wholesaler None
Joseph T. Owczarek Vice President/Wholesaler None
Mary Ellen Pernice-Fadden Vice President/Wholesaler None
Mark A. Pletts Vice President/Wholesaler None
Philip G. Rickards Vice President/Wholesaler None
Laura E. Roman Vice President/Wholesaler None
Linda Schulz Vice President/Wholesaler None
Edward B. Sheridan Vice President/Wholesaler None
Robert E. Stansbury Vice President/Wholesaler None
Julia A. Stanton Vice President/Wholesaler None
Larry D. Stone Vice President/Wholesaler None
Edward J. Wagner Vice President/Wholesaler None
Wayne W. Wagner Vice President/Wholesaler None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
<PAGE>
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>
Scott Whitehouse Vice President/Wholesaler None
John A. Wells Vice President/Marketing Technology None
</TABLE>
* Business address of each is 1818 Market Street, Philadelphia, PA 19103.
(c) Not applicable.
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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia, Commonwealth of Pennsylvania on this
26th day of August, 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>
/s/ Wayne A. Stork Chairman of the Board, President,
- ------------------------------------------- Chief Executive Officer and Director August 26, 1997
Wayne A. Stork
Executive Vice President/Chief Operating
/s/ David K. Downes Officer/Chief Financial Officer
- ------------------------------------------- (Principal Financial Officer and Principal August 26, 1997
David K. Downes Accounting Officer)
/s/Walter P. Babich * Director August 26, 1997
- -------------------------------------------
Walter P. Babich
/s/Anthony D. Knerr * Director August 26, 1997
- -------------------------------------------
Anthony D. Knerr
/s/Ann R. Leven * Director August 26, 1997
- -------------------------------------------
Ann R. Leven
/s/W. Thacher Longstreth * Director August 26, 1997
- -------------------------------------------
W. Thacher Longstreth
/s/Thomas F. Madison * Director August 26, 1997
- -------------------------------------------
Thomas F. Madison
/s/Jeffrey J. Nick * Director August 26, 1997
- -------------------------------------------
Jeffrey J. Nick
/s/Charles E. Peck * Director August 26, 1997
- -------------------------------------------
Charles E. Peck
*By /s/ Wayne A. Stork
--------------------
Wayne A. Stork
as Attorney-in-Fact for
each of the persons indicated
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Exhibits
to
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
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. 4A (April 14, 1997) to Delaware Group of Funds Fund
Accounting Agreement
EX-99.B9BVI Executed Amendment No. 5 (May 1, 1997) to Delaware Group of Funds Fund
Accounting Agreement
EX-99.B9BVII Executed Amendment No. 6 (July 21, 1997) to Delaware Group of Funds Fund
Accounting Agreement
EX-99.B11 Consent of Auditors
EX-99.B16A Schedules of Computation for Aggressive Growth Fund and Growth Stock Fund
EX-99.B18B Amended Appendix A to Plan under Rule 18f-3
EX-27 Financial Data Schedules
</TABLE>
<PAGE>
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>
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.
-2-
<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: 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>
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 of Schedule B
to the Agreement.
1
<PAGE>
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.
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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>
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>
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>
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 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
1
<PAGE>
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
Emerging Growth Series
Global Bond Series
Delaware Group Government Fund, Inc.
2
<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: 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
DELAWARE POOLED TRUST, INC.
By: /s/ Wayne A. Stork
------------------------------------
Wayne A. Stork
Chairman
3
<PAGE>
AMENDMENT NO. 4A
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>
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 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
Decatur Total Return Series
Delaware Series
Delchester Series
DelCap Series
Global Bond Series (New)
International Equity Series
Trend Series
Value Series
2
<PAGE>
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)
Dated as of: April 14, 1997
--------------
3
<PAGE>
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 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
President and
Chief Executive Officer
4
<PAGE>
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>
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>
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>
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>
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>
AMENDMENT NO. 6
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>
Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)
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)
2
<PAGE>
Trend Series
Value Series
Delaware Group State Tax-Free Income Trust
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Tax-Free Pennsylvania Fund
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.
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>
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 July 21, 1997
4
<PAGE>
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>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Voyageur Mutual Funds III, Inc.:
We consent to the use of our report incorporated herein by reference to the
references to our Firm under the headings "FINANCIAL HIGHLIGHTS" in Part A and
"FINANCIAL STATEMENTS" in Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
-------------------------------
KPMG Peat Marwick
Minneapolis, Minnesota
August 25, 1997
<PAGE>
APPENDIX A
(As revised July 17, 1997)
List of Funds and Their Classes
1. Delaware Group Equity Funds I, Inc.
Delaware Fund
Delaware Fund A Class
Delaware Fund B Class
Delaware Fund C Class
Delaware Fund Institutional Class
Devon Fund
Devon Fund A Class
Devon Fund B Class
Devon Fund C Class
Devon Fund Institutional Class
2. Delaware Group Equity Funds III, Inc.
Trend Fund A Class
Trend Fund B Class
Trend Fund C Class
Trend Fund Institutional Class
3. Delaware Group Equity Funds V, Inc.
SmallCap Value Fund
SmallCap Value Fund A Class
SmallCap Value Fund B Class
SmallCap Value Fund C Class
SmallCap Value Fund Institutional Class
Retirement Income Fund (Added November 29, 1996)
Retirement Income Fund A Class
Retirement Income Fund B Class
Retirement Income Fund C Class
Retirement Income Fund Institutional Class
4. Delaware Group Equity Funds IV, Inc.
DelCap Fund
DelCap Fund A Class
DelCap Fund B Class
DelCap Fund C Class
DelCap Fund Institutional Class
<PAGE>
Capital Appreciation Fund (Added November 29, 1996)
Capital Appreciation Fund A Class
Capital Appreciation Fund B Class
Capital Appreciation Fund C Class
Capital Appreciation Fund Institutional Class
5. Delaware Group Equity Funds II, Inc.
Decatur Income Fund
Decatur Income Fund A Class
Decatur Income Fund B Class
Decatur Income Fund C Class
Decatur Income Fund Institutional Class
Decatur Total Return Fund
Decatur Total Return Fund A Class
Decatur Total Return Fund B Class
Decatur Total Return Fund C Class
Decatur Total Return Fund Institutional Class
Blue Chip Fund (Added February 21, 1997)
Blue Chip Fund A Class
Blue Chip Fund B Class
Blue Chip Fund C Class
Blue Chip Fund Institutional Class
Quantum Fund (Added February 21, 1997)
Quantum Fund A Class
Quantum Fund B Class
Quantum Fund C Class
Quantum Fund Institutional Class
6. Delaware Group Global & International Funds, Inc.
International Equity Fund
International Equity Fund A Class
International Equity Fund A Blass
International Equity Fund A Class
International Equity Fund Institutional Class
Global Bond Fund
Global Bond Fund A Class
Global Bond Fund B Class
Global Bond Fund C Class
Global Bond Fund Institutional Class
<PAGE>
Global Assets Fund
Global Assets Bond Fund A Class
Global Assets Bond Fund B Class
Global Assets Bond Fund C Class
Global Assets Bond Fund Institutional Class
Emerging Markets Fund (Added July 21, 1997)
Emerging Markets Fund A Class
Emerging Markets Fund B Class
Emerging Markets Fund C Class
Emerging Markets Fund Institutional Class
International SmallCap Fund (Added July 21, 1997)
International SmallCap Fund A Class
International SmallCap Fund B Class
International SmallCap Fund C Class
International SmallCap Fund Institutional Class
Global Equity Fund (Added July 21, 1997)
Global Equity Fund A Class
Global Equity Fund B Class
Global Equity Fund C Class
Global Equity Fund Institutional Class
7. Delaware Group Income Funds, Inc.
Strategic Income Fund (Added September 30, 1996)
Strategic Income Fund A Class
Strategic Income Fund B Class
Strategic Income Fund C Class
Strategic Income Fund Institutional Class
8. Voyageur Mutual Funds III, Inc.
Tax-Efficient Equity Fund (Series E) (Added July 1, 1997)*
Tax-Efficient Equity Fund A Class
Tax-Efficient Equity Fund B Class
Tax-Efficient Equity Fund C Class
Tax-Efficient Equity Fund Institutional Class
* The Institutional Class was added on August 28, 1997.
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH A
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- -------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
-----
1
$1000(1 - T) = $ 992.33
T = -.77%
LIFE
OF FUND
-------
2.95890411
$1000(1 - T) = $1,351.77
T = 10.72%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH A
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- -------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
----
1
$1000(1 - T) = $ 992.33
T = 4.17%
LIFE
OF FUND
-------
2.95890411
$1000(1 - T) = $1,351.77
T = 12.56%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH A
TOTAL RETURN PERFORMANCE
THREE MONTHS
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $14.92
Initial Shares 67.024
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 67.024 $0.135 0.000 67.024
- --------------------------------------------------------------------------------
Ending Shares 67.024
Ending NAV x $11.75
-------
Investment Return $787.53
Total Return Performance
- ------------------------
Investment Return $787.53
Less Initial Investment $1,000.00
---------
($212.47)/$1,000.00 x 100
Total Return: -21.25%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH A
TOTAL RETURN PERFORMANCE
SIX MONTHS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $15.11
Initial Shares 66.173
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 66.173 $2.085 10.568 76.741
- --------------------------------------------------------------------------------
Ending Shares 76.741
Ending NAV x $11.75
-------
Investment Return $901.71
Total Return Performance
- ------------------------
Investment Return $901.71
Less Initial Investment $1,000.00
---------
($98.29)/$1,000.00 x 100
Total Return: -9.83%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH A
TOTAL RETURN PERFORMANCE
NINE MONTHS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $12.49
Initial Shares 80.064
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 80.064 $2.085 12.775 92.839
- --------------------------------------------------------------------------------
Ending Shares 92.839
Ending NAV x $11.75
---------
Investment Return $1,090.86
Total Return Performance
- ------------------------
Investment Return $1,090.86
Less Initial Investment $1,000.00
---------
$90.86/$1,000.00 x 100
Total Return: 9.09%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH A
TOTAL RETURN PERFORMANCE
ONE YEAR
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $13.73
Initial Shares 72.833
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 72.833 $2.085 11.621 84.454
- --------------------------------------------------------------------------------
Ending Shares 84.454
Ending NAV x $11.75
-------
Investment Return $992.33
Total Return Performance
- ------------------------
Investment Return $992.33
Less Initial Investment $1,000.00
---------
($7.67)/$1,000.00 x 100
Total Return: -0.77%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH A
TOTAL RETURN PERFORMANCE
LIFE OF FUND
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.50
Initial Shares 95.238
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 95.238 $0.492 3.976 99.214
- --------------------------------------------------------------------------------
1997 99.214 $2.085 15.830 115.044
- --------------------------------------------------------------------------------
Ending Shares 115.044
Ending NAV x $11.75
---------
Investment Return $1,351.77
Total Return Performance
- ------------------------
Investment Return $1,351.77
Less Initial Investment $1,000.00
---------
$351.77/$1,000.00 x 100
Total Return: 35.18%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
----
1
$1000(1 - T) = $ 991.20
T = -.88%
LIFE
OF FUND
-------
1.04109589
$1000(1 - T) = $1,086.91
T = 8.33%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
----
1
$1000(1 - T) = $1,026.58
T = 2.66%
LIFE
OF FUND
-------
1.04109589
$1000(1 - T) = $1,125.70
T = 12.05%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $14.08
Initial Shares 71.023
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 71.023 $0.000 0.000 71.023
- --------------------------------------------------------------------------------
Ending Shares 71.023
Ending NAV x $11.55
-------
$820.32
Less CDSC $32.82
-------
Investment Return $787.50
Total Return Performance
- ------------------------
Investment Return $787.50
Less Initial Investment $1,000.00
---------
($212.50)/$1,000.00 x 100
Total Return: -21.25%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
TOTAL RETURN PERFORMANCE
THREE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $14.08
Initial Shares 71.023
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 71.023 $0.000 0.000 71.023
- --------------------------------------------------------------------------------
Ending Shares 71.023
Ending NAV x $11.55
-------
Investment Return $820.32
Total Return Performance
- ------------------------
Investment Return $820.32
Less Initial Investment $1,000.00
---------
($179.68)/$1,000.00 x 100
Total Return: -17.97%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $14.31
Initial Shares 69.881
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 69.881 $2.085 11.236 81.117
- --------------------------------------------------------------------------------
Ending Shares 81.117
Ending NAV x $11.55
-------
$936.90
Less CDSC $32.28
-------
Investment Return $904.62
Total Return Performance
- ------------------------
Investment Return $904.62
Less Initial Investment $1,000.00
---------
($95.68)/$1,000.00 x 100
Total Return: -9.54%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
TOTAL RETURN PERFORMANCE
SIX MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $14.31
Initial Shares 69.881
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 69.881 $2.085 11.236 81.117
- --------------------------------------------------------------------------------
Ending Shares 81.117
Ending NAV x $11.55
-------
Investment Return $936.90
Total Return Performance
- ------------------------
Investment Return $936.90
Less Initial Investment $1,000.00
---------
($63.10)/$1,000.00 x 100
Total Return: -6.31%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
TOTAL RETURN PERFORMANCE
NINE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.86
Initial Shares 84.317
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 84.317 $2.085 13.557 97.874
- --------------------------------------------------------------------------------
Ending Shares 97.874
Ending NAV x $11.55
---------
$1,130.44
Less CDSC $38.95
---------
Investment Return $1,091.49
Total Return Performance
- ------------------------
Investment Return $1,091.49
Less Initial Investment $1,000.00
---------
$91.49 / $1,000.00 x 100
Total Return: 9.15%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
TOTAL RETURN PERFORMANCE
NINE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.86
Initial Shares 84.317
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 84.317 $2.085 13.557 97.874
- --------------------------------------------------------------------------------
Ending Shares 97.874
Ending NAV x $11.55
---------
Investment Return $1,130.44
Total Return Performance
- ------------------------
Investment Return $1,130.44
Less Initial Investment $1,000.00
---------
$130.44 / $1,000.00 x 100
Total Return: 13.04%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
TOTAL RETURN PERFORMANCE
ONE YEAR (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $13.06
Initial Shares 76.570
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 76.570 $2.085 12.311 88.881
- --------------------------------------------------------------------------------
Ending Shares 88.881
Ending NAV x $11.55
---------
$1,026.58
Less CDSC $35.38
---------
Investment Return $991.20
Total Return Performance
- ------------------------
Investment Return $991.20
Less Initial Investment $1,000.00
---------
($8.80) / $1,000.00 x 100
Total Return: -0.88%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
TOTAL RETURN PERFORMANCE
ONE YEAR (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $13.06
Initial Shares 76.570
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 76.570 $2.085 12.311 88.881
- --------------------------------------------------------------------------------
Ending Shares 88.881
Ending NAV x $11.55
---------
Investment Return $1,026.58
Total Return Performance
- ------------------------
Investment Return $1,026.58
Less Initial Investment $1,000.00
---------
$26.58 / $1,000.00 x 100
Total Return: 2.66%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
TOTAL RETURN PERFORMANCE
LIFE OF FUND (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.91
Initial Shares 83.963
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 83.963 $2.085 13.500 97.463
- --------------------------------------------------------------------------------
Ending Shares 97.463
Ending NAV x $11.55
---------
$1,125.70
Less CDSC $38.79
---------
Investment Return $1,086.91
Total Return Performance
- ------------------------
Investment Return $1,086.91
Less Initial Investment $1,000.00
---------
$86.91 / $1,000.00 x 100
Total Return: 8.69%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH B
TOTAL RETURN PERFORMANCE
LIFE OF FUND (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.91
Initial Shares 83.963
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 83.963 $2.085 13.500 97.463
- --------------------------------------------------------------------------------
Ending Shares 97.463
Ending NAV x $11.55
---------
Investment Return $1,125.70
Total Return Performance
- ------------------------
Investment Return $1,125.70
Less Initial Investment $1,000.00
---------
$125.70 / $1,000.00 x 100
Total Return: 12.57%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
----
1
$1000(1 - T) = $1,025.15
T = 2.52%
LIFE
OF FUND
-------
2.94794520
$1000(1 - T) = $1,388.15
T = 11.77%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
----
1
$1000(1 - T) = $1,034.04
T = 3.40%
LIFE
OF FUND
-------
2.94794520
$1000(1 - T) = $1,388.15
T = 11.77%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $13.88
Initial Shares 72.046
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 72.046 $0.000 0.000 72.046
- --------------------------------------------------------------------------------
Ending Shares 72.046
Ending NAV x $11.45
-------
$824.93
Less CDSC $8.25
-------
Investment Return $816.68
Total Return Performance
- ------------------------
Investment Return $816.68
Less Initial Investment $1,000.00
---------
($183.32) / $1,000.00 x 100
Total Return: -18.33%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
TOTAL RETURN PERFORMANCE
THREE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $13.88
Initial Shares 72.046
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 72.046 $0.000 0.000 72.046
- --------------------------------------------------------------------------------
Ending Shares 72.046
Ending NAV x $11.45
-------
Investment Return $824.93
Total Return Performance
- ------------------------
Investment Return $824.93
Less Initial Investment $1,000.00
---------
($175.07) / $1,000.00 x 100
Total Return: -17.51%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $14.13
Initial Shares 70.771
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 70.771 $2.085 11.548 82.319
- --------------------------------------------------------------------------------
Ending Shares 82.319
Ending NAV x $11.45
-------
$942.55
Less CDSC $8.10
-------
Investment Return $934.45
Total Return Performance
- ------------------------
Investment Return $934.45
Less Initial Investment $1,000.00
---------
($65.55) / $1,000.00 x 100
Total Return: 6.56%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
TOTAL RETURN PERFORMANCE
SIX MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $14.13
Initial Shares 70.771
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 70.771 $2.085 11.548 82.319
- --------------------------------------------------------------------------------
Ending Shares 82.319
Ending NAV x $11.45
-------
Investment Return $942.55
Total Return Performance
- ------------------------
Investment Return $942.55
Less Initial Investment $1,000.00
---------
($57.45) / $1,000.00 x 100
Total Return: -5.75%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
TOTAL RETURN PERFORMANCE
NINE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.71
Initial Shares 85.397
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 85.397 $2.085 13.935 99.332
- --------------------------------------------------------------------------------
Ending Shares 99.332
Ending NAV x $11.45
---------
$1,137.35
Less CDSC $9.78
---------
Investment Return $1,127.57
Total Return Performance
- ------------------------
Investment Return $1,127.57
Less Initial Investment $1,000.00
---------
$127.57 / $1,000.00 x 100
Total Return: 12.76%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
TOTAL RETURN PERFORMANCE
NINE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.71
Initial Shares 85.397
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 85.397 $2.085 13.935 99.332
- --------------------------------------------------------------------------------
Ending Shares 99.332
Ending NAV x $11.45
---------
Investment Return $1,137.35
Total Return Performance
- ------------------------
Investment Return $1,137.35
Less Initial Investment $1,000.00
---------
$137.35 / $1,000.00 x 100
Total Return: 13.74%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
TOTAL RETURN PERFORMANCE
ONE YEAR (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $12.88
Initial Shares 77.640
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 77.640 $2.085 12.669 90.309
- --------------------------------------------------------------------------------
Ending Shares 90.309
Ending NAV x $11.45
---------
$1,034.04
Less CDSC $8.89
----------
Investment Return $1,025.15
Total Return Performance
- ------------------------
Investment Return $1,025.15
Less Initial Investment $1,000.00
---------
$25.15 / $1,000.00 x 100
Total Return: 2.52%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
TOTAL RETURN PERFORMANCE
ONE YEAR (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $12.88
Initial Shares 77.640
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 77.640 $2.085 12.669 90.309
- --------------------------------------------------------------------------------
Ending Shares 90.309
Ending NAV x $11.45
---------
Investment Return $1,034.04
Total Return Performance
- ------------------------
Investment Return $1,034.04
Less Initial Investment $1,000.00
---------
$34.04 / $1,000.00 x 100
Total Return: 3.40%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.00
Initial Shares 100.000
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 100.000 $0.492 4.228 104.228
- --------------------------------------------------------------------------------
1997 104.228 $2.085 17.008 121.236
- --------------------------------------------------------------------------------
Ending Shares 121.236
Ending NAV x $11.45
---------
$1,388.15
Less CDSC $0.00
---------
Investment Return $1,388.15
Total Return Performance
- ------------------------
Investment Return $1,388.15
Less Initial Investment $1,000.00
---------
$388.15 / $1,000.00 x 100
Total Return: 38.82%
<PAGE>
DELAWARE GROUP AGGRESSIVE GROWTH C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $11.91
Initial Shares 83.963
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 83.963 $0.492 4.228 104.228
- --------------------------------------------------------------------------------
1997 104.228 $2.085 17.008 121.236
- --------------------------------------------------------------------------------
Ending Shares 121.236
Ending NAV x $11.45
---------
Investment Return $1,388.15
Total Return Performance
- ------------------------
Investment Return $1,388.15
Less Initial Investment $1,000.00
---------
$388.15 / $1,000.00 x 100
Total Return: 38.82%
<PAGE>
DELAWARE GROUP GROWTH STOCK A
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- -------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
----
1
$1000(1 - T) = $1,094.52
T = 9.45%
THREE
YEARS
-----
3
$1000(1 - T) = $1,600.15
T = 16.96%
FIVE
YEARS
-----
5
$1000(1 - T) = $1,616.21
T = 10.08%
TEN
YEARS
-----
10
$1000(1 - T) = $2,892.47
T = 11.21%
LIFE OF
FUND
-------
11.74794521
$1000(1 - T) = $5,139.68
T = 14.95%
<PAGE>
DELAWARE GROUP GROWTH STOCK A
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
---- 1
$1000(1 - T) = $1,149.08
T = 14.91%
THREE
YEARS
-----
3
$1000(1 - T) = $1,679.66
T = 18.87%
FIVE
YEARS
-----
5
$1000(1 - T) = $1,696.94
T = 11.16%
TEN
YEARS
-----
10
$1000(1 - T) = $3,036.63
T = 11.75%
LIFE OF
FUND
-------
11.74794521
$1000(1 - T) = $5,396.72
T = 15.43%
<PAGE>
DELAWARE GROUP GROWTH STOCK A
TOTAL RETURN PERFORMANCE
THREE MONTHS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $26.01
Initial Shares 38.447
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 38.447 $0.000 0.000 38.447
- --------------------------------------------------------------------------------
Ending Shares 38.447
Ending NAV x $25.26
-------
Investment Return $971.17
Total Return Performance
- ------------------------
Investment Return $971.17
Less Initial Investment $1,000.00
---------
($28.83) / $1,000.00 x 100
Total Return: -2.88%
<PAGE>
DELAWARE GROUP GROWTH STOCK A
TOTAL RETURN PERFORMANCE
SIX MONTHS
- -------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $26.65
Initial Shares 37.523
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 37.523 $1.839 2.864 40.387
- --------------------------------------------------------------------------------
Ending Shares 40.387
Ending NAV x $25.26
---------
Investment Return $1,020.18
Total Return Performance
- ------------------------
Investment Return $1,020.18
Less Initial Investment $1,000.00
---------
$20.18/$1,000.00 x 100
Total Return: 2.02%
<PAGE>
DELAWARE GROUP GROWTH STOCK A
TOTAL RETURN PERFORMANCE
NINE MONTHS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $24.91
Initial Shares 40.145
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 40.145 $1.839 3.064 43.209
- --------------------------------------------------------------------------------
Ending Shares 43.209
Ending NAV x $25.26
------------
Investment Return $1,091.46
Total Return Performance
- ------------------------
Investment Return $1,091.46
Less Initial Investment $1,000.00
----------
$91.46 / $1,000.00 x 100
Total Return: 9.15%
<PAGE>
DELAWARE GROUP GROWTH STOCK A
TOTAL RETURN PERFORMANCE
ONE YEAR
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $24.84
Initial Shares 40.258
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 40.258 $1.839 3.072 43.330
- --------------------------------------------------------------------------------
Ending Shares 43.330
Ending NAV x $25.26
---------
Investment Return $1,094.52
Total Return Performance
- ------------------------
Investment Return $1,094.52
Less Initial Investment $1,000.00
---------
$94.52 / $1,000.00 x 100
Total Return: 9.45%
<PAGE>
DELAWARE GROUP GROWTH STOCK A
TOTAL RETURN PERFORMANCE
THREE YEARS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $18.39
Initial Shares 54.377
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1995 54.377 $0.516 1.587 55.964
- --------------------------------------------------------------------------------
1996 55.964 $1.148 2.892 58.856
- --------------------------------------------------------------------------------
1996 58.856 $1.839 4.491 63.347
- ------------------------------------------------------------------------------
Ending Shares 63.347
Ending NAV x $25.26
---------
Investment Return $1,600.15
Total Return Performance
- ------------------------
Investment Return $1,600.15
Less Initial Investment $1,000.00
---------
$600.15 / $1,000.00 x 100
Total Return: 60.02%
<PAGE>
DELAWARE GROUP GROWTH STOCK A
TOTAL RETURN PERFORMANCE
FIVE YEARS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $25.00
Initial Shares 40.000
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1993 40.000 $6.267 14.282 54.282
- --------------------------------------------------------------------------------
1994 54.282 $0.215 0.640 54.922
- --------------------------------------------------------------------------------
1995 54.922 $0.516 1.603 56.525
- --------------------------------------------------------------------------------
1996 56.525 $1.148 2.921 59.446
- --------------------------------------------------------------------------------
1997 59.446 $1.836 4.537 63.983
- --------------------------------------------------------------------------------
Ending Shares 63.983
Ending NAV x $25.26
---------
Investment Return $1,616.21
Total Return Performance
- ------------------------
Investment Return $1,616.21
Less Initial Investment $1,000.00
---------
$616.21 / $1,000.00 x 100
Total Return: 61.62%
<PAGE>
DELAWARE GROUP GROWTH STOCK A
TOTAL RETURN PERFORMANCE
TEN YEARS
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $18.33
Initial Shares 54.555
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1988 54.555 $0.384 1.375 55.930
- --------------------------------------------------------------------------------
1989 55.930 $0.068 0.227 56.157
- --------------------------------------------------------------------------------
1990 56.157 $1.753 9.614 65.771
- --------------------------------------------------------------------------------
1991 65.771 $2.776 5.311 71.082
- --------------------------------------------------------------------------------
1992 71.082 $0.176 25.925 97.007
- --------------------------------------------------------------------------------
1993 97.007 $6.267 0.139 97.146
- --------------------------------------------------------------------------------
1994 97.146 $0.215 1.146 98.292
- --------------------------------------------------------------------------------
1995 98.292 $0.516 2.869 101.161
- --------------------------------------------------------------------------------
1996 101.161 $1.148 5.228 106.389
- --------------------------------------------------------------------------------
1997 106.389 $1.836 8.119 114.508
- --------------------------------------------------------------------------------
Ending Shares 114.508
Ending NAV x $25.26
---------
Investment Return $2,892.47
Total Return Performance
- ------------------------
Investment Return $2,892.47
Less Initial Investment $1,000.00
---------
$1,892.47 / $1,000.00 x 100
Total Return: 189.25%
<PAGE>
DELAWARE GROUP GROWTH STOCK A
TOTAL RETURN PERFORMANCE
LIFE OF FUND
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $10.50
Initial Shares 95.238
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1986 95.238 $0.138 1.199 96.437
- --------------------------------------------------------------------------------
1987 96.437 $0.074 0.502 96.939
- --------------------------------------------------------------------------------
1988 96.939 $0.384 2.444 99.383
- --------------------------------------------------------------------------------
1989 99.383 $0.068 9.184 108.567
- --------------------------------------------------------------------------------
1990 108.567 $1.753 8.302 116.869
- --------------------------------------------------------------------------------
1991 116.869 $2.776 9.438 126.307
- --------------------------------------------------------------------------------
1992 126.307 $0.176 46.067 172.374
- --------------------------------------------------------------------------------
1993 172.374 $6.267 0.247 172.621
- --------------------------------------------------------------------------------
1994 172.621 $0.215 2.036 174.657
- --------------------------------------------------------------------------------
1995 174.657 $0.516 5.098 179.755
- --------------------------------------------------------------------------------
1996 179.755 $1.148 9.289 189.044
- --------------------------------------------------------------------------------
1997 189.044 $1.839 14.427 203.471
- --------------------------------------------------------------------------------
Ending Shares 203.471
Ending NAV x $25.26
---------
Investment Return $5,139.68
Total Return Performance
- ------------------------
Investment Return $5,139.68
Less Initial Investment $1,000.00
---------
$4,139.68/$1,000.00 x 100
Total Return: 413.97%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
----
1
$1000(1 - T) = $1,101.29
T = 10.13%
LIFE OF
FUND
-------
1.64657534
$1000(1 - T) = $1,264.75
T = 15.34%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
----
1
$1000(1 - T) = $1,141.29
T = 14.13%
LIFE OF
FUND
-------
1.64657534
$1000(1 - T) = $1,304.75
T = 17.54%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $24.42
Initial Shares 40.950
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 40.950 $0.000 0.000 40.950
- --------------------------------------------------------------------------------
Ending Shares 40.950
Ending NAV x $24.85
---------
$1,017.61
Less CDSC $40.00
---------
Investment Return $977.61
Total Return Performance
- ------------------------
Investment Return $977.61
Less Initial Investment $1,000.00
---------
($22.39)/$1,000.00 x 100
Total Return: -2.24%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
TOTAL RETURN PERFORMANCE
THREE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $24.42
Initial Shares 40.950
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 40.950 $0.000 0.000 40.950
- --------------------------------------------------------------------------------
Ending Shares 40.950
Ending NAV x $24.85
---------
Investment Return $1,017.61
Total Return Performance
- ------------------------
Investment Return $1,017.61
Less Initial Investment $1,000.00
---------
$17.61 / $1,000.00 x 100
Total Return: 1.76%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $25.00
Initial Shares 40.000
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 40.000 $1.763 2.970 42.970
- --------------------------------------------------------------------------------
1
Ending Shares 42.970
Ending NAV x $24.85
---------
$1,067.80
Less CDSC $39.76
---------
Investment Return $1,028.04
Total Return Performance
- ------------------------
Investment Return $1,028.04
Less Initial Investment $1,000.00
---------
$28.04 / $1,000.00 x 100
Total Return: 2.80%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
TOTAL RETURN PERFORMANCE
SIX MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $25.00
Initial Shares 40.000
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 40.000 $1.763 2.970 42.97
- --------------------------------------------------------------------------------
Ending Shares 42.970
Ending NAV x $24.85
---------
Investment Return $1,067.80
Total Return Performance
- ------------------------
Investment Return $1,067.80
Less Initial Investment $1,000.00
---------
$67.80 / $1,000.00 x 100
Total Return: 6.78%
<PAGE>
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $23.42
Initial Shares 42.699
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 42.699 $1.763 3.170 45.869
- --------------------------------------------------------------------------------
Ending Shares 45.869
Ending NAV x $24.85
---------
$1,139.84
Less CDSC $40.00
---------
Investment Return $1,099.84
Total Return Performance
- ------------------------
Investment Return $1,099.84
Less Initial Investment $1,000.00
---------
$99.84 / $1,000.00 x 100
Total Return: 9.98%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
TOTAL RETURN PERFORMANCE
NINE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $23.42
Initial Shares 42.699
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 42.699 $1.763 3.170 45.869
- --------------------------------------------------------------------------------
Ending Shares 45.869
Ending NAV x $24.85
---------
Investment Return $1,139.84
Total Return Performance
- ------------------------
Investment Return $1,139.84
Less Initial Investment $1,000.00
---------
$139.84 / $1,000.00 x 100
Total Return: 13.98%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
TOTAL RETURN PERFORMANCE
ONE YEAR (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $23.39
Initial Shares 42.753
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 42.753 $1.763 3.174 45.927
- --------------------------------------------------------------------------------
Ending Shares 45.927
Ending NAV x $24.85
---------
$1,141.29
Less CDSC $40.00
---------
Investment Return $1,101.29
Total Return Performance
- ------------------------
Investment Return $1,101.29
Less Initial Investment $1,000.00
---------
$101.29 / $1,000.00 x 100
Total Return: 10.13%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
TOTAL RETURN PERFORMANCE
ONE YEAR (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $23.39
Initial Shares 42.753
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 42.753 $1.763 3.174 45.927
- --------------------------------------------------------------------------------
Ending Shares 45.927
Ending NAV x $24.85
---------
Investment Return $1,141.29
Total Return Performance
- ------------------------
Investment Return $1,141.29
Less Initial Investment $1,000.00
---------
$141.29/$1,000.00 x 100
Total Return: 14.13%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
TOTAL RETURN PERFORMANCE
LIFE OF FUND (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $21.64
Initial Shares 46.211
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 46.211 $1.271 2.665 48.876
- --------------------------------------------------------------------------------
1997 48.876 $1.763 3.629 52.505
- --------------------------------------------------------------------------------
Ending Shares 52.505
Ending NAV x $24.85
---------
$1,304.75
Less CDSC $40.00
---------
Investment Return $1,264.75
Total Return Performance
- ------------------------
Investment Return $1,264.75
Less Initial Investment $1,000.00
---------
$264.75 / $1,000.00 x 100
Total Return: 26.48%
<PAGE>
DELAWARE GROUP GROWTH STOCK B
TOTAL RETURN PERFORMANCE
LIFE OF FUND (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $21.64
Initial Shares 46.211
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 46.211 $1.271 2.665 48.876
- --------------------------------------------------------------------------------
1997 48.876 $1.763 3.629 52.505
- --------------------------------------------------------------------------------
Ending Shares 52.505
Ending NAV x $24.85
---------
Investment Return $1,304.75
Total Return Performance
- ------------------------
Investment Return $1,304.75
Less Initial Investment $1,000.00
---------
$304.75 / $1,000.00 x 100
Total Return: 30.48%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
----
1
$1000(1 - T) = $1,130.52
T = 13.05%
LIFE OF
FUND
-------
1.52602740
$1000(1 - T) = $1,250.75
T = 15.77%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
ANNUALIZED RATE OF RETURN
FOR FISCAL YEAR ENDING 1997
- --------------------------------------------------------------------------------
Average Annual Compounded Rate of Return:
n
P(1 + T) = ERV
ONE
YEAR
----
1
$1000(1 - T) = $1,140.52
T = 14.05%
LIFE OF
FUND
-------
1.52602740
$1000(1 - T) = $1,250.75
T = 15.77%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
TOTAL RETURN PERFORMANCE
THREE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $24.42
Initial Shares 40.950
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 40.950 $0.000 0.000 40.950
- --------------------------------------------------------------------------------
Ending Shares 40.950
Ending NAV x $24.85
---------
$1,017.61
Less CDSC $10.00
---------
Investment Return $1,007.61
Total Return Performance
- ------------------------
Investment Return $1,007.61
Less Initial Investment $1,000.00
---------
$7.61 / $1,000.00 x 100
Total Return: 0.76%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
TOTAL RETURN PERFORMANCE
THREE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $24.42
Initial Shares 40.950
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 40.950 $0.000 0.000 40.950
- --------------------------------------------------------------------------------
Ending Shares 40.950
Ending NAV x $24.85
---------
Investment Return $1,017.61
Total Return Performance
- ------------------------
Investment Return $1,017.61
Less Initial Investment $1,000.00
---------
$17.61 / $1,000.00 x 100
Total Return: 1.76%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
TOTAL RETURN PERFORMANCE
SIX MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $25.02
Initial Shares 39.968
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 39.968 $1.791 3.012 42.980
- --------------------------------------------------------------------------------
Ending Shares 42.980
Ending NAV x $24.85
---------
$1,068.05
Less CDSC $9.93
---------
Investment Return $1,058.12
Total Return Performance
- ------------------------
Investment Return $1,058.12
Less Initial Investment $1,000.00
---------
$58.12 / $1,000.00 x 100
Total Return: 5.81%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
TOTAL RETURN PERFORMANCE
SIX MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $25.02
Initial Shares 39.968
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 39.968 $1.791 3.012 42.98
- --------------------------------------------------------------------------------
Ending Shares 42.980
Ending NAV x $24.85
---------
Investment Return $1,068.05
Total Return Performance
- ------------------------
Investment Return $1,068.05
Less Initial Investment $1,000.00
---------
$68.05 / $1,000.00 x 100
Total Return: 6.81%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
TOTAL RETURN PERFORMANCE
NINE MONTHS (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $23.45
Initial Shares 42.644
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- -------------------------------------------------------------------------------
1997 42.644 $1.791 3.213 45.857
- -------------------------------------------------------------------------------
Ending Shares 45.857
Ending NAV x $24.85
---------
$1,139.55
Less CDSC $10.00
---------
Investment Return $1,129.55
Total Return Performance
- ------------------------
Investment Return $1,129.55
Less Initial Investment $1,000.00
---------
$129.55 / $1,000.00 x 100
Total Return: 12.96%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
TOTAL RETURN PERFORMANCE
NINE MONTHS (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $23.45
Initial Shares 42.644
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 42.644 $1.791 3.213 45.857
- --------------------------------------------------------------------------------
Ending Shares 45.857
Ending NAV x $24.85
---------
Investment Return $1,139.55
Total Return Performance
- ------------------------
Investment Return $1,139.55
Less Initial Investment $1,000.00
---------
$139.55 / $1,000.00 x 100
Total Return: 13.96%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
ONE YEAR (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $23.43
Initial Shares 42.680
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 42.680 $1.791 3.216 45.896
- --------------------------------------------------------------------------------
Ending Shares 45.896
Ending NAV x $24.85
---------
$1,140.52
Less CDSC $10.00
---------
Investment Return $1,130.52
Total Return Performance
- ------------------------
Investment Return $1,130.52
Less Initial Investment $1,000.00
---------
$130.52 / $1,000.00 x 100
Total Return: 13.05%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
TOTAL RETURN PERFORMANCE
ONE YEAR (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $23.43
Initial Shares 42.680
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1997 42.680 $1.791 3.216 45.896
- --------------------------------------------------------------------------------
Ending Shares 45.896
Ending NAV x $24.85
---------
Investment Return $1,140.52
Total Return Performance
- ------------------------
Investment Return $1,140.52
Less Initial Investment $1,000.00
---------
$140.52 / $1,000.00 x 100
Total Return: 14.05%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (INCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $22.61
Initial Shares 44.228
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 44.228 $1.286 2.577 46.805
- --------------------------------------------------------------------------------
1997 46.805 $1.791 3.527 50.332
- --------------------------------------------------------------------------------
Ending Shares 50.332
Ending NAV x $24.85
---------
$1,250.75
Less CDSC $0.00
---------
Investment Return $1,250.75
Total Return Performance
- ------------------------
Investment Return $1,250.75
Less Initial Investment $1,000.00
---------
$250.75 / $1,000.00 x 100
Total Return: 25.08%
<PAGE>
DELAWARE GROUP GROWTH STOCK C
TOTAL RETURN PERFORMANCE
LIFE OF FUND (EXCLUDING CDSC)
- --------------------------------------------------------------------------------
Initial Investment $1,000.00
Beginning OFFER $22.61
Initial Shares 44.228
Fiscal Beginning Dividends Reinvested Cumulative
Year Shares for Period Shares Shares
- --------------------------------------------------------------------------------
1996 44.228 $1.286 2.577 46.805
- --------------------------------------------------------------------------------
1997 46.805 $1.791 3.527 50.332
- --------------------------------------------------------------------------------
Ending Shares 50.332
Ending NAV x $24.85
---------
Investment Return $1,250.75
Total Return Performance
- ------------------------
Investment Return $1,250.75
Less Initial Investment $1,000.00
---------
$250.75 / $1,000.00 x 100
Total Return: 25.08%
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, STATEMENT OF
CHANGES IN NET ASSETS AND THE FINANCIAL HIGHLIGHTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000763749
<NAME> VOYAGEUR MUTUAL FUNDS III, INC.
<SERIES>
<NUMBER> 1
<NAME> VOYAGEUR GROWTH STOCK FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 26,994,871
<INVESTMENTS-AT-VALUE> 35,522,500
<RECEIVABLES> 77,206
<ASSETS-OTHER> 647,457
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,247,163
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 98,755
<TOTAL-LIABILITIES> 98,755
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,546,258
<SHARES-COMMON-STOCK> 1,428,018
<SHARES-COMMON-PRIOR> 1,247,828
<ACCUMULATED-NII-CURRENT> 129,542
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 944,979
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,527,629
<NET-ASSETS> 36,148,408
<DIVIDEND-INCOME> 668,183
<INTEREST-INCOME> 131,193
<OTHER-INCOME> 0
<EXPENSES-NET> 580,526
<NET-INVESTMENT-INCOME> 218,850
<REALIZED-GAINS-CURRENT> 2,360,603
<APPREC-INCREASE-CURRENT> 2,070,120
<NET-CHANGE-FROM-OPS> 4,649,573
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 97,149
<DISTRIBUTIONS-OF-GAINS> 2,325,621
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 311,910
<NUMBER-OF-SHARES-REDEEMED> 225,715
<SHARES-REINVESTED> 93,995
<NET-CHANGE-IN-ASSETS> 6,633,893
<ACCUMULATED-NII-PRIOR> 7,841
<ACCUMULATED-GAINS-PRIOR> 909,997
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 332,347
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 583,671
<AVERAGE-NET-ASSETS> 33,309,121
<PER-SHARE-NAV-BEGIN> 23.66
<PER-SHARE-NII> 0.16
<PER-SHARE-GAIN-APPREC> 3.36
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 1.76
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 25.34
<EXPENSE-RATIO> 1.720
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT
OF ASSETS AND LIABILITIES, STATEMENT OF OPERATIONS, STATEMENT OF CHANGES IN NET
ASSETS AND THE FINANCIAL HIGHLIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000763749
<NAME> VOYAGEUR MUTUAL FUNDS III, INC.
<SERIES>
<NUMBER> 3
<NAME> VOYAGEUR AGGRESSIVE GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 4,852,871
<INVESTMENTS-AT-VALUE> 4,929,122
<RECEIVABLES> 715
<ASSETS-OTHER> 331,089
<OTHER-ITEMS-ASSETS> 9,971
<TOTAL-ASSETS> 5,270,897
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,012
<TOTAL-LIABILITIES> 11,012
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,115,237
<SHARES-COMMON-STOCK> 447,693
<SHARES-COMMON-PRIOR> 343,039
<ACCUMULATED-NII-CURRENT> 2,815
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65,582
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 76,251
<NET-ASSETS> 5,259,885
<DIVIDEND-INCOME> 21,084
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 101,267
<NET-INVESTMENT-INCOME> (80,183)
<REALIZED-GAINS-CURRENT> 1,050,816
<APPREC-INCREASE-CURRENT> (904,641)
<NET-CHANGE-FROM-OPS> 65,992
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 849,553
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 218,184
<NUMBER-OF-SHARES-REDEEMED> 176,227
<SHARES-REINVESTED> 62,697
<NET-CHANGE-IN-ASSETS> 775,533
<ACCUMULATED-NII-PRIOR> 4,223
<ACCUMULATED-GAINS-PRIOR> 980,892
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (823,497)
<GROSS-ADVISORY-FEES> 56,982
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 152,980
<AVERAGE-NET-ASSETS> 5,709,338
<PER-SHARE-NAV-BEGIN> 13.08
<PER-SHARE-NII> (0.18)
<PER-SHARE-GAIN-APPREC> 0.96
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 2.09
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.77
<EXPENSE-RATIO> 1.990
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
