VOYAGEUR MUTUAL FUNDS III INC /MN/, 497, 1998-07-02

VOYAGEUR MUTUAL FUNDS III INC /MN/
497, 1998-07-02

Previous: VOYAGEUR MUTUAL FUNDS III INC /MN/, 497J, 1998-07-02

Next: ONE GROUP, 497, 1998-07-02

PART B--STATEMENT OF ADDITIONAL INFORMATION

JUNE 29, 1998

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 800-523-1918

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 -- STOCK INDEX FUTURES CONTRACTS AND RELATED OPTIONS

FINANCIAL STATEMENTS

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. Due to voluntary waivers by Delaware
Distributors, L.P. (the "Distributor"), Tax-Efficient Equity Fund A
Class will pay a 12b-1 fee of 0.25% until January 1, 1999.

This Part B supplements the information contained in the current
Prospectuses for the Funds dated June 29, 1998 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. All references to "shares" in this Part B refer
to all Classes of shares of each Fund, except where noted.

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.

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 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.

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:

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.

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 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 Investments family have obtained an
exemption from the joint-transaction prohibitions of Section 17(d) of
the Investment Company Act of 1940 to allow the such 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.
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. 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 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 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 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.

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 B.

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.

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

Aggressive Growth Fund and Growth Stock Fund have qualified, and
intend to continue to qualify, as regulated investment companies under
Subchapter M of the Code. Tax-Efficient Equity Fund intends 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, or to any excise
tax, to the extent its earnings are distributed as provided in the Code
and it satisfies other requirements relating to the sources of its
income and diversification of its assets.

In order to qualify as a regulated investment company for federal
income tax purposes, each Fund must meet certain specific requirements,
including:

(i) A Fund must maintain a diversified portfolio of securities, wherein
no security (other than U.S. government securities and securities of
other regulated investment companies) can exceed 25% of that Fund's
total assets, and, with respect to 50% of that Fund's total assets, no
investment (other than cash and cash items, U.S. government securities
and securities of other regulated investment companies) can exceed 5% of
that Fund's total assets;

(ii) A Fund must derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the
sale or disposition of stock and securities or foreign currencies, or
other income derived with respect to its business of investing in such
stock, securities, or currencies;

(iii) A Fund must distribute to its shareholders at least 90% of its
investment company taxable income and net tax-exempt income for each of
its fiscal years, and

(iv) A Fund must realize less than 30% of its gross income for each
fiscal year from gains from the sale of securities and certain other
assets that have been held by the Fund for less than three months
("short-short income"). The Taxpayer Relief Act of 1997 (the "1997 Act")
repealed the 30% short-short income test for tax years of regulated
investment companies beginning after August 5, 1997; however, this rule
may have continuing effect in some states for purposes of classifying
the Fund as a regulated investment company.

The Code requires a Fund to distribute at least 98% of its taxable
ordinary income earned during the calendar year and 98% of its capital
gain net income earned during the 12 month period ending October 31 (in
addition to amounts from the prior year that were neither distributed
nor taxed to such Fund) to shareholders by December 31 of each year in
order to avoid federal excise taxes. The Funds intend as a matter of
policy to declare and pay sufficient dividends in December or January
(which are treated by shareholders as received in December) but does not
guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.

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 year that
unrealized losses exceed unrealized gains or when the offsetting
position is sold.

The 1997 Act has also added new provisions for dealing with
transactions that are generally called "Constructive Sale Transactions."
Under these rules, the Fund must recognize gain (but not loss) on any
constructive sale of an appreciated financial position in stock, a
partnership interest or certain debt instruments. The Fund will
generally be treated as making a constructive sale when it: 1) enters
into a short sale on the same or substantially identical property; 2)
enters into an offsetting notional principal contract; or 3) enters into
a futures or forward contract to deliver the same or substantially
identical property. Other transactions (including certain financial
instruments called collars) will be treated as constructive sales as
provided in Treasury regulations to be published. There are also certain
exceptions that apply for transactions that are closed before the end of
the 30th day after the close of the taxable year.

INVESTMENT IN FOREIGN CURRENCIES AND FOREIGN SECURITIES--The Funds
are authorized to invest certain limited amounts in foreign securities.
Such investments, if made, will have the following additional tax
consequences to each Fund:

Under the Code, gains or losses attributable to fluctuations in
foreign currency exchange rates which occur between the time a Fund
accrues income (including dividends), or accrues expenses which are
denominated in a foreign currency, and the time a Fund actually collects
such income or pays such expenses generally are treated as ordinary
income or loss. Similarly, on the disposition of debt securities
denominated in a foreign currency and on the disposition of certain
options, futures, forward contracts, gain or loss attributable to
fluctuations in the value of foreign currency between the date of
acquisition of the security or contract and the date of its disposition
are also treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's net investment company
taxable income, which, in turn, will affect the amount of income to be
distributed to you by a Fund.

If a Fund's Section 988 losses exceed a Fund's other investment
company taxable income during a taxable year, a Fund generally will not
be able to make ordinary dividend distributions to you for that year, or
distributions made before the losses were realized will be
recharacterized as return of capital distributions for federal income
tax purposes, rather than as an ordinary dividend or capital gain
distribution. If a distribution is treated as a return of capital, your
tax basis in your Fund shares will be reduced by a like amount (to the
extent of such basis), and any excess of the distribution over your tax
basis in your Fund shares will be treated as capital gain to you.

The 1997 Act generally requires that foreign income be translated
into U.S. dollars at the average exchange rate for the tax year in which
the transactions are conducted. Certain exceptions apply to taxes paid
more than two years after the taxable year to which they relate. This
new law may require a Fund to track and record adjustments to foreign
taxes paid on foreign securities in which it invests. Under a Fund's
current reporting procedure, foreign security transactions are recorded
generally at the time of each transaction using the foreign currency
spot rate available for the date of each transaction. Under the new law,
a Fund will be required to record at fiscal year end (and at calendar
year end for excise tax purposes) an adjustment that reflects the
difference between the spot rates recorded for each transaction and the
year-end average exchange rate for all of a Fund's foreign securities
transactions. There is a possibility that the mutual fund industry will
be given relief from this new provision, in which case no year-end
adjustments will be required.

The Funds may be subject to foreign withholding taxes on income
from certain of its foreign securities. If more than 50% of the total
assets of a Fund at the end of its fiscal year are invested in
securities of foreign corporations, a Fund may elect to pass-through to
you your pro rata share of foreign taxes paid by a Fund. If this
election is made, you will be: (i) required to include in your gross
income your pro rata share of foreign source income (including any
foreign taxes paid by a Fund); and (ii) entitled to either deduct your
share of such foreign taxes in computing your taxable income or to claim
a credit for such taxes against your U.S. income tax, subject to certain
limitations under the Code. You will be informed by a Fund at the end of
each calendar year regarding the availability of any such foreign tax
credits and the amount of foreign source income (including any foreign
taxes paid by a Fund). If a Fund elects to pass-through to you the
foreign income taxes that it has paid, you will be informed at the end
of the calendar year of the amount of foreign taxes paid and foreign
source income that must be included on your federal income tax return.
If a Fund invests 50% or less of its total assets in securities of
foreign corporations, it will not be entitled to pass-through to you
your pro-rata shares of foreign taxes paid by a Fund. In this case,
these taxes will be taken as a deduction by a Fund, and the income
reported to you will be the net amount after these deductions. The 1997
Act also simplifies the procedures by which investors in funds that
invest in foreign securities can claim tax credits on their individual
income tax returns for the foreign taxes paid by a Fund. These
provisions will allow investors who pay foreign taxes of $300 or less on
a single return or $600 or less on a joint return during any year (all
of which must be reported on IRS Form 1099-DIV from a Fund to the
investor) to claim a tax credit against their U.S. federal income tax
for the amount of foreign taxes paid by a Fund. This process will allow
you, if you qualify, to bypass the burdensome and detailed reporting
requirements on the foreign tax credit schedule (Form 1116) and report
your foreign taxes paid directly on page 2 of Form 1040. You should note
that this simplified procedure will not be available until calendar year
1998.

INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANY SECURITIES--The
Funds may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies
("PFICs"). In general, a foreign corporation is classified as a PFIC if
at least one-half of its assets constitute investment-type assets or 75%
or more of its gross income is investment-type income. If a Fund
receives an "excess distribution" with respect to PFIC stock, the Fund
itself may be subject to U.S. federal income tax on a portion of the
distribution, whether or not the corresponding income is distributed by
a Fund to you. In general, under the PFIC rules, an excess distribution
is treated as having been realized ratably over the period during which
a Fund held the PFIC shares. A Fund itself will be subject to tax on the
portion, if any, of an excess distribution that is so allocated to prior
Fund taxable years, and an interest factor will be added to the tax, as
if the tax had been payable in such prior taxable years. In this case,
you would not be permitted to claim a credit on your own tax return for
the tax paid by a Fund. Certain distributions from a PFIC as well as
gain from the sale of PFIC shares are treated as excess distributions.
Excess distributions are characterized as ordinary income even though,
absent application of the PFIC rules, certain distribution might have
been classified as capital gain. This may have the effect of increasing
Fund distributions to you that are treated as ordinary dividends rather
than long-term capital gain dividends.

A Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares. Under an election that currently is available in
some circumstances, a Fund generally would be required to include in its
gross income its share of the earnings of a PFIC on a current basis,
regardless of whether distributions are received from the PFIC during
such period. If this election were made, the special rules, discussed
above, relating to the taxation of excess distributions, would not
apply. In addition, the 1997 Act provides for another election that
would involve marking-to-market the Fund's PFIC shares at the end of
each taxable year (and on certain other dates as prescribed in the
Code), with the result that unrealized gains would be treated as though
they were realized. The Fund would also be allowed an ordinary deduction
for the excess, if any, of the adjusted basis of its investment in the
PFIC stock over its fair market value at the end of the taxable year.
This deduction would be limited to the amount of any net mark-to-market
gains previously included with respect to that particular PFIC security.
If a Fund were to make this second PFIC election, tax at the Fund level
under the PFIC rules would generally be eliminated.

The application of the PFIC rules may affect, among other things,
the amount of tax payable by a Fund (if any), the amounts distributable
to you by a Fund, the time at which these distributions must be made,
and whether these distributions will be classified as ordinary income or
capital gain distributions to you.

You should be aware that it is not always possible at the time
shares of a foreign corporation are acquired to ascertain that the
foreign corporation is a PFIC, and that there is always a possibility
that a foreign corporation will become a PFIC after a Fund acquires
shares in that corporation. While a Fund will generally seek to avoid
investing in PFIC shares to avoid the tax consequences detailed above,
there are no guarantees that it will do so and it reserves the right to
make such investments as a matter of its fundamental investment policy.

Most foreign exchange gains are classified as ordinary income which
will be taxable to you as such when distributed. Similarly, you should
be aware that any foreign exchange losses realized by a Fund, including
any losses realized on the sale of foreign debt securities, are
generally treated as ordinary losses for federal income tax purposes.
This treatment could increase or reduce a Fund's income available for
distribution to you, and may cause some or all of a Fund's previously
distributed income to be classified as a return of capital.

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.

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, 1998, 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 of the Funds for the periods prior to the
commencement of operations of such 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, for those periods, no
adjustment has been made to eliminate the impact of 12b-1 payments by
the Class A Shares, and performance for the Institutional Classes 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, 1998. 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, 1998 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.

Average Annual Total Return
Aggressive Growth Fund(1)

Class A Class A
Shares Shares Institutional
(at Offer) (at NAV) Class(3)

1 year ended 4/30/98 89.11% 98.60% 99.22%

3 years ended 4/30/98 37.18% 39.43% 39.57%

Period 5/16/94(2) through 4/30/98 28.33% 29.92% 30.02%

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
4/30/98 93.12% 97.12% 4/30/98 95.99% 96.99%

Period 4/16/96(2) 3 years ended
through 4/30/98 46.79% 47.77% 4/30/98 38.29% 38.29%

Period 5/20/94(2)
through 4/30/98 29.02% 29.02%

(1) Reflects the voluntary waivers in effect during the periods.
(2) Date of initial public offering.

(3) Date of initial public offering was August 29, 1997 for Aggressive Growth Fund
Institutional Class.

</TABLE>

Average Annual Total Return
Growth Stock Fund(1)

Class A Shares Class A Shares Institutional
(at Offer) (at NAV) Class(3)
<S> <C> <C> <C>
1 year ended 4/30/98 28.84% 35.27% 36.10%

3 years ended 4/30/98 22.77% 24.77% 25.03%

5 years ended 4/30/98 16.58% 17.73% 17.87%

10 years ended 4/30/98 15.26% 15.82% 15.90%

Period 8/1/85(2) through 4/30/98 16.43% 16.88% 16.93%

</TABLE>

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>
1 year ended 1 year ended
4/30/98 30.29% 34.29% 4/30/98 33.25% 34.25%

Period 9/8/95(2) Period 10/21/95(2)
through 4/30/98 22.81% 23.61% through 4/30/98 22.76% 22.76%

(1) Reflects the voluntary waivers in effect during the periods.
(2) Date of initial public offering.

(3) Date of initial public offering was August 29, 1997 for Growth Stock Fund
Institutional Class.

</TABLE>

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. This
information may be compared to that of other mutual funds with similar
investment objectives and to stock, bond and other relevant indices or
to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For
example, the performance of a Fund (or Fund Class) maybe compared to
data prepared by Lipper Analytical Services, Inc., Morningstar, Inc. or
to the S&P 500 Index or the Dow Jones Industrial Average.

Lipper Analytical Services, Inc. maintains statistical performance
databases, as reported by a diverse universe of independently-managed
mutual funds. Morningstar, Inc. is a mutual fund rating service that
rates mutual funds on the basis of risk-adjusted performance. Rankings
that compare a Fund's performance to another fund in appropriate
categories over specific time periods also may be quoted in advertising
and other types of literature. 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. A direct investment in an unmanaged index is
not possible. 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.

The performance of multiple indices compiled and maintained by
statistical research firms, such as Salomon Brothers and Lehman
Brothers, 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.

Ibbotson Associates of Chicago, Illinois ("Ibbotson") provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the Consumer Price Index), and combinations of various capital markets.
The performance of these capital markets is based on the returns of
different indices. The Funds may use the performance of these capital
markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a
hypothetical investment in any of these capital markets. The risks
associated with the security types in any capital market may or may not
correspond directly to those of the Funds. The Funds may also compare
performance to that of other compilations or indices that may be
developed and made available in the future.

The Funds may include discussions or illustrations of the
potential investment goals of a prospective investor (including
materials that describe general principles of investing, such as asset
allocation, diversification, risk tolerance, and goal setting,
questionnaires designed to help create a personal financial profile,
worksheets used to project savings needs based on assumed rates of
inflation and hypothetical rates of return and action plans offering
investment alternatives), investment management techniques, policies or
investment suitability of a Fund (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio
transfer, automatic account rebalancing, the advantages and
disadvantages of investing in tax-deferred and taxable investments),
economic and political conditions, the relationship between sectors of
the economy and the economy as a whole, the effects of inflation and
historical performance of various asset classes, including but not
limited to, stocks, bonds and Treasury bills. From time to time
advertisements, sales literature, communications to shareholders or
other materials may summarize the substance of information contained in
shareholder reports (including the investment composition of a Fund), as
well as the views as to current market, economic, trade and interest
rate trends, legislative, regulatory and monetary developments,
investment strategies and related matters believed to be of relevance to
a Fund. In addition, selected indices may be used to illustrate historic
performance of selected asset classes. The Funds may also include in
advertisements, sales literature, communications to shareholders or
other materials, charts, graphs or drawings which illustrate the
potential risks and rewards of investment in various investment
vehicles, including but not limited to, stocks, bonds, treasury bills
and shares of a Fund. In addition, advertisements, sales literature,
communications to shareholders or other materials may include a
discussion of certain attributes or benefits to be derived by an
investment in a Fund and/or other mutual funds, shareholder profiles and
hypothetical investor scenarios, timely information on financial
management, tax and retirement planning (such as information on Roth
IRAs and Education IRAs) and investment alternative to certificates of
deposit and other financial instruments. Such sales literature,
communications to shareholders or other materials may include symbols,
headlines or other material which highlight or summarize the information
discussed in more detail therein.

Materials may refer to the CUSIP numbers of the Funds and may
illustrate how to find the listings of the Funds in newspapers and
periodicals. Materials may also include discussions of other Funds,
products, and services.

The Funds may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Funds may compare these
measures to those of other funds. Measures of volatility seek to compare
the historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a
comparative benchmark may be. Measures of volatility and correlation may
be calculated using averages of historical data. A Fund may advertise
its current interest rate sensitivity, duration, weighted average
maturity or similar maturity characteristics. Advertisements and sales
materials relating to a Fund may include information regarding the
background and experience of its portfolio managers.

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 each Fund through
April 30, 1998. Pursuant to applicable regulation, total return shown
for the Institutional Classes of the Funds for the periods prior to the
commencement of operations of such 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, for those periods, no
adjustment has been made to eliminate the impact of 12b-1 payments by
the 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. Past
performance is no guarantee of future results. Performance shown for
short periods of time may not be representative of longer term results.

Cumulative Total Return
Aggressive Growth Fund(1)

Class A
Shares Institutional
(at Offer) Class(2)

3 months ended 4/30/98 14.15% 19.93%

6 months ended 4/30/98 15.11%(3) 21.04%

9 months ended 4/30/98 30.90% 37.82%

1 year ended 4/30/98 89.11% 99.22%

Period 5/16/94(4) through 4/30/98 168.47% 182.76%

(1) Reflects the voluntary waivers in effect during the periods.

(2) Date of initial public offering was August 29, 1997 for Aggressive
Growth Fund Institutional Class.
(3) For the six months ended April 30, 1998, cumulative total return for
Aggressive Growth Fund A Class at net asset value was 20.86%.

(4) Date of initial public offering.

Cumulative Total Return
Aggressive Growth Fund(1)

Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

3 months ended 4/30/98 15.68% 19.68%

6 months ended 4/30/98 16.41% 20.41%

9 months ended 4/30/98 32.70% 36.70%

1 year ended 4/30/98 93.12% 97.12%

Period 4/16/96(2) through 4/30/98 118.90% 121.90%

(1) Reflects the voluntary waivers in effect during the periods.

(2) Date of initial public offering.

Cumulative Total Return
Aggressive Growth Fund(1)

Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

3 months ended 4/30/98 18.64% 19.64%

6 months ended 4/30/98 19.44% 20.44%

9 months ended 4/30/98 35.58% 36.58%

1 year ended 4/30/98 95.99% 96.99%

3 years ended 4/30/98 164.47% 164.47%

Period 5/20/94(2) through 4/30/98 173.46% 173.46%

(1) Reflects the voluntary waivers in effect during the periods.

(2) Date of initial public offering.

Cumulative Total Return
Growth Stock Fund(1)

Class A
Shares Institutional
(at Offer) Class(2)

3 months ended 4/30/98 1.27% 6.48%

6 months ended 4/30/98 11.38%(3) 17.41%

9 months ended 4/30/98 8.40% 14.51%

1 year ended 4/30/98 28.84% 36.10%

3 years ended 4/30/98 85.06% 95.45%

5 years ended 4/30/98 115.38% 127.53%

10 years ended 4/30/98 313.92% 337.17%

Period 8/1/85(4) through 4/30/98 595.22% 634.47%

(1) Reflects the voluntary waivers in effect during the periods.

(2) Date of initial public offering was August 29, 1997 for Growth Stock
Fund Institutional Class.
(3) For the six months ended April 30, 1998, cumulative total return for
Growth Stock Fund A Class at net asset value was 16.94%.

(4) Date of initial public offering.

Cumulative Total Return
Growth Stock Fund(1)

Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

3 months ended 4/30/98 2.12% 6.12%

6 months ended 4/30/98 12.48% 16.48%

9 months ended 4/30/98 9.17% 13.17%

1 year ended 4/30/98 30.29% 34.29%

Period 9/8/95(2) through 4/30/98 72.22% 75.22%

(1) Reflects the voluntary waivers in effect during the periods.

(2) Date of initial public offering.

Cumulative Total Return
Growth Stock Fund(1)

Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

3 months ended 4/30/98 5.09% 6.09%

6 months ended 4/30/98 15.49% 16.49%

9 months ended 4/30/98 12.13% 13.13%

1 year ended 4/30/98 33.25% 34.25%

Period 10/21/95(2) through 4/30/98 67.92% 67.92%

(1) Reflects the voluntary waivers in effect during the periods.

(2) Date of initial public offering.

Cumulative Total Return
Tax-Efficient Equity Fund(1)

Class A
Shares Institutional
(at Offer) (2) Class(3)

3 months ended 4/30/98 5.97% 11.60%

6 months ended 4/30/98 17.00%(4) 23.30%

9 months ended 4/30/98 23.43% 30.12%

Period 6/27/97(5) through 4/30/98 23.43% 30.12%

(1) Reflects the voluntary waivers in effect during the periods.
(2) For the period beginning February 1, 1998 through December 31, 1998,
the Distributor has elected voluntarily to waive 0.05% of the 0.30%
12b-1 plan expenses otherwise payable by the Fund with respect to
Class A Shares. Such waiver will have favorable impact on the
performance of Class A Shares.
(3) Date of initial public offering was August 29, 1997 for Tax-
Efficient Equity Fund Institutional Class.
(4) For the six months ended April 30, 1998, cumulative total return
for Tax-Efficient Equity Fund A Class at net asset value was 22.88%.
(5) Date of initial public offering of Class A Shares.

Cumulative Total Return
Tax-Efficient Equity Fund(1)

Class B Shares Class B Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

3 months ended 4/30/98 7.04% 11.04%

6 months ended 4/30/98 18.46% 22.46%

9 months ended 4/30/98 24.94% 28.94%

Period 6/27/97(2) through 4/30/98 24.94% 28.94%

(1) Reflects the voluntary waivers in effect during the periods.
(2) Date of initial public offering.

Cumulative Total Return
Tax-Efficient Equity Fund(1)

Class C Shares Class C Shares
(Including (Excluding
Deferred Deferred
Sales Charge) Sales Charge)

3 months ended 4/30/98 10.04% 11.04%

6 months ended 4/30/98 21.46% 22.46%

9 months ended 4/30/98 28.94% 27.94%

Period 6/27/97(2) through 4/30/98 28.94% 27.94%

(1) Reflects the voluntary waivers in effect during the periods.
(2) 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 Investments family, 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, investment disciplines employed in seeking the
objectives of the Funds and other funds in the Delaware Investments
family. 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.

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. Each Fund may include illustrations
showing the power of compounding in advertisements and other types of
literature.

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 past three fiscal years, the aggregate dollar amounts of
brokerage commissions paid by each Fund were as follows:

April 30,
1998 1997 1996

Aggressive Growth Fund $97,366 $6,768 $6,872
Growth Stock Fund 14,280 22,332 28,893
Tax-Efficient Equity Fund(1) 23,745 N/A N/A

(1) Date of initial public offering of Tax-Efficient Equity Fund was
June 27, 1998.

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, 1998, portfolio transactions
of the following Funds, in the amounts listed below, resulting in
brokerage commissions in the amounts listed below, were directed to
brokers for brokerage and research services provided:

Portfolio Brokerage
Transactions Commissions
Amounts Amounts

Aggressive Growth Fund $50,379,790 $73,723
Growth Stock Fund 10,021,241 14,280
Tax-Efficient Equity Fund(1) 6,568,075 9,406

(1) Date of initial public offering of Tax-Efficient Equity Fund was
June 27, 1997.

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 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 Investments family. 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 Investments family 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. A higher portfolio turnover rate is often
a normal by-product of an enthusiastic market.

During the past two fiscal years, Aggressive Growth Fund's
portfolio turnover rates were 180% and 356% for 1997 and 1998,
respectively, and Growth Stock Fund's portfolio turnover rates were 29%
and 9% for 1997 and 1998, respectively. For the period June 27, 1997
(date of initial sale) through April 30, 1998, Tax-Efficient Equity
Fund's portfolio turnover rate was 14% (annualized).

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.

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 fund in the Delaware
Investments family, 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
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 Conduct Rules, 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. Class A Shares are also subject to
annual 12b-1 Plan expenses for the life of the investment. The
Distributor has voluntarily elected to waive the payment of 0.05% of the
12b-1 Plan expenses by the Tax-Efficient Equity Fund A Class from
February 1, 1998 through December 31, 1998. As a result, the 12b-1 Plan
expenses payable by Tax-Efficient Equity Fund A Class during the waiver
period will be 0.25%.

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.

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 A SHARES

Purchases of $100,000 or more of Class A Shares at the offering
price carry reduced front-end sales charges and may include a series of
purchases over a 13-month period under a Letter of Intention signed by
the purchaser. See Front-End Sales Charge Alternative-Class A Shares in
the Prospectuses for the Fund Classes for a table illustrating reduced
front-end sales charge. See also 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.

Certain dealers who enter into an agreement to provide extra
training and information on Delaware Investments products and services
and who increase sales of shares of the funds in the Delaware
Investments family 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

As described more fully in the Prospectuses for the Fund Classes,
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. See Front-End Sales Charge
Alternative--Class A Shares in the Prospectuses for the Fund Classes for
the applicable schedule and further details.

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 above 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.

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.

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, 1998, payments from Class A
Shares, Class B Shares and Class C Shares of Aggressive Growth Fund
amounted to $23,509, $22,292 and $11,107, respectively. Such amounts
were used for the following purposes:

Aggressive Aggressive Aggressive
Growth Fund Growth Fund Growth Fund
A Class B Class C Class

Advertising $ 126 $ --- $ ---
Annual/Semi-Annual Reports 1,899 178 164
Broker Trails 19,060 5,435 2,763
Broker Sales Charges 182 5,026 4,365
Dealer Service Expenses --- 29 42
Interest on Broker Sales
Charges --- 10,573 1,739
Commissions to Wholesalers 1,761 958 1,153
Promotional-Broker Meetings 48 71 129
Promotional-Other 110 --- 120
Prospectus Printing --- 19 160
Telephone 24 --- 10
Wholesaler Expenses 299 3 462
Other --- --- ---

For the fiscal year ended April 30, 1998 payments from Class A
Shares, Class B Shares and Class C Shares of Growth Stock Fund amounted
to $105,214, $12,033 and $9,930, respectively. Such amounts were used
for the following purposes:

Growth Growth Growth
Stock Fund Stock Fund Stock Fund
A Class B Class C Class

Advertising $ 173 $ --- $ ---
Annual/Semi-Annual Reports 202 68 52
Broker Trails 101,681 2,649 2,518
Broker Sales Charges --- 6,441 4,185
Dealer Service Expenses --- 10 158
Interest on Broker Sales
Charges --- 1,981 793
Commissions to Wholesalers 1,299 402 633
Promotional-Broker Meetings --- 109 155
Promotional-Other 855 103 3
Prospectus Printing 578 33 246
Telephone --- 16 8
Wholesaler Expenses 426 221 952
Other --- --- ---

For the period June 27, 1997 (date of initial sale) through April
30, 1998, payments from Class A Shares, Class B Shares and Class C
Shares of Tax-Efficient Equity Fund amounted to $5,325, $13,245 and
$2,491, respectively. Such amounts were used for the following purposes:

Tax-Efficient Tax-Efficient Tax-Efficient
Equity Fund Equity Fund Equity Fund
A Class B Class C Class

Advertising $46 --- ---
Annual/Semi-Annual Reports --- $13 ---
Broker Trails 4,782 3,345 $354
Broker Sales Charges --- 4,344 1,391
Dealer Service Expenses --- --- ---
Interest on Broker Sales Charges --- 4,915 58
Commissions to Wholesalers 43 226 594
Promotional-Broker Meetings --- 7 1
Promotional-Other 242 7 ---
Prospectus Printing 24 130 ---
Telephone --- 6 1
Wholesaler Expenses 188 252 92
Other --- --- ---

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 funds in the
Delaware Investments family. 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 shares of the funds in the Delaware Investments
family.

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 Investments family, 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 Investments family, 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 the funds in the Delaware
Investments family. In addition, purchases of Class A Shares may be
made by financial institutions investing for the account of their trust
customers when they are not eligible to purchase shares of a Fund's
institutional class. Officers, directors and key employees of
institutional clients of the Manager or any of its affiliates may
purchase Class A Shares at net asset value. Moreover, purchases may be
effected at net asset value for the benefit of the clients of brokers,
dealers and registered investment advisers affiliated with a broker or
dealer, if such broker, dealer or investment adviser has entered into an
agreement with the Distributor providing specifically for the purchase
of Class A Shares in connection with special investment products, such
as wrap accounts or similar fee based programs.

Purchases of Class A Shares at net asset value may also be made by
the following: financial institutions investing for the account of
their trust customers 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 Investments funds and any stable
value product available through Delaware Investments, 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
fund in the Delaware Investments family 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 Investments 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 Investments family 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 Investments family (except shares of any
fund in the Delaware Investments family 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 fund in the Delaware Investments family 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 Investments 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
Investments funds that are offered with a front-end sales charge, CDSC
or Limited CDSC for a 13-month period. The Transfer Agent reserves the
right to adjust the signed Letter of Intention based on this acceptance
criteria. The 13-month period will begin on the date this Letter of
Intention is accepted by the Transfer Agent. If actual investments
exceed the anticipated level and equal an amount that would qualify the
plan for further discounts, any front-end sales charges will be
automatically adjusted. In the event this Letter of Intention is not
fulfilled within the 13-month period, the plan 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 funds in
the Delaware Investments family 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 funds in the Delaware Investments family
(except shares of any Delaware Investments 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 Investments fund which carried a
front-end sales charge, CDSC or Limited CDSC). In addition, assets held
in any stable value product available through Delaware Investments may
be combined with other Delaware Investments 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 funds in the Delaware Investments funds which offer such classes
(except shares of any fund in the Delaware Investments family 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 Investments 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 Investments family 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 Investments family, 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 Investments family
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.

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
Investments family 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 investment accounts of Delaware Investments
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.

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 FUNDS IN THE DELAWARE INVESTMENTS
FAMILY

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 Investments
family, 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 Investments family 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.

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.

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.

* * *

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 Investments family. Shareholders of
the Fund Classes may elect to invest in one or more of the other mutual
funds in the Delaware Investments family through the Wealth Builder
Option. See Wealth Builder Option and Redemption and Exchange in the
Prospectuses for the Fund Classes.

Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated
from their account and invested automatically into other mutual funds in
the Delaware Investments family, 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.

ASSET PLANNER
To invest in the funds in the Delaware Investments family using
the Asset Planner asset allocation service, you should complete a
Asset Planner Account Registration Form, which is available only
from a financial adviser or investment dealer. Effective September
1, 1997, the Asset Planner Service is only available to financial
advisers or investment dealers who have previously used this
service. The Asset Planner service offers a choice of four
predesigned asset allocation strategies (each with a different
risk/reward profile) in predetermined percentages in funds in the
Delaware Investments family. 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 Investments accounts into
the Asset Planner service may be made at net asset value under the
circumstances described under Investing by Exchange in the
Prospectuses. Also see Buying Class A Shares at Net Asset Value
under Classes of Shares in the Prospectuses. 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 Investments family may be used in the same Strategy
with consultant class shares that are offered by certain other
Delaware Investments funds.

An annual maintenance fee, currently $35 per Strategy, is 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.
However, effective November 1, 1996, the annual maintenance fee is
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.

Investors will receive a customized quarterly Strategy Report
summarizing all 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.

RETIREMENT PLANS FOR THE FUND CLASSES

An investment in a Fund may be suitable for tax-deferred retirement
plans. Delaware Investments offers a full spectrum of retirement plans,
including the 401(k) deferred compensation plan, Individual Retirement
Account ("IRA") and the new Roth IRA and Education IRA.

Among the retirement plans the Delaware Investments offers, Class B
Shares are available for investment only by Individual Retirement
Accounts, SIMPLE IRAs, Roth IRAs, Education IRAs, Simplified Employee
Pension Plans, Salary Reduction Simplified Employee Pension Plans and
403(b) 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 under Redemption and Exchange in the
Prospectus for Class B Shares and Class C Shares 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 Institutional Class
Shares. For additional information on any of the Plans and Delaware's
retirement services, call the Shareholder Service Center telephone
number.

It is advisable for an investor considering any one of the
retirement plans described below to consult with an attorney, accountant
or a qualified retirement plan consultant. For further details,
including applications for any of these plans, contact your investment
dealer or the Distributor.

Taxable distributions from the retirement plans described below may
be subject to withholding.

Please contact your investment dealer or the Distributor for the
special application forms required for the plans described below.

PROTOTYPE PROFIT SHARING OR MONEY PURCHASE PENSION PLANS

Prototype Plans are available for self-employed individuals,
partnerships, corporations and other eligible forms of organizations.
These plans can be maintained as Section 401(k), profit sharing or money
purchase pension plans. Contributions may be invested only in Class A
Shares and Class C Shares.

INDIVIDUAL RETIREMENT ACCOUNT ("IRA")

A document is available for an individual who wants to establish an
IRA and make 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; however, participation may be restricted
based on certain income limits.

IRA DISCLOSURES
The Taxpayer Relief Act of 1997 provides new opportunities for
investors. Individuals have five types of tax-favored IRA accounts that
can be utilized depending on the individual's circumstances. A new Roth
IRA and Education IRA are available in addition to the existing
deductible IRA and non-deductible IRA.

DEDUCTIBLE AND NON-DEDUCTIBLE IRAS
An individual can contribute up to $2,000 in his or her IRA each
year. Contributions may or may not be deductible depending upon the
taxpayer's adjusted gross income ("AGI") and whether the taxpayer is an
active participant in an employer sponsored retirement plan. Even if a
taxpayer is an active participant in an employer sponsored retirement
plan, the full $2,000 is still available if the taxpayer's AGI is below
$30,000 ($50,000 for taxpayers filing joint returns) for years beginning
after December 31, 1997. A partial deduction is allowed for married
couples with income between $50,000 and $60,000, and for single
individuals with incomes between $30,000 and $40,000. These income
phase-out limits reach $80,000-$100,000 in 2007 for joint filers and
$50,000-$60,000 in 2005 for single filers. No deductions are available
for contributions to IRAs by taxpayers whose AGI after IRA deductions
exceeds the maximum income limit established for each year and who are
active participants in an employer sponsored retirement plan.

Taxpayers who are not allowed deductions on IRA contributions still
can make non-deductible IRA contributions of as much as $2,000 for each
working spouse and defer taxes on interest or other earnings from the
IRAs.

Under the new law, a married individual is not considered an active
participant in an employer sponsored retirement plan merely because the
individual's spouse is an active participant if the couple's combined
AGI is below $150,000. The maximum deductible IRA contribution for a
married individual who is not an active participant, but whose spouse
is, is phased out for combined AGI between $150,000 and $160,000.

CONDUIT (ROLLOVER) IRAS
Certain individuals who have received or are about to receive
eligible rollover distributions from an employer-sponsored retirement
plan or another IRA may rollover the distribution tax-free to a Conduit
IRA. The rollover of the eligible distribution must be completed by the
60th day after receipt of the distribution; however, if the rollover is
in the form of a direct trustee-to-trustee transfer without going
through the distributee's hand, the 60-day limit does not apply.

A distribution qualifies as an "eligible rollover distribution" if
it is made from a qualified retirement plan, a 403(b) plan or another
IRA and does not constitute one of the following:

(i) Substantially equal periodic payments over the employee's life or
life expectancy or the joint lives or life expectancies of the
employee and his/her designated beneficiary;

(ii) Substantially equal installment payments for a period certain of
10 or more years;

(iii) A distribution, all of which represents a required minimum
distribution after attaining age 70 1/2;

(iv) A distribution due to a Qualified Domestic Relations Order to an
alternate payee who is not the spouse (or former spouse) of the
employee; and

(v) A distribution of after-tax contributions which is not includable
in income.

ROTH IRAS
For taxable years beginning after December 31, 1997, non-deductible
contributions of up to $2,000 per year can be made to a new Roth IRA.
The $2,000 annual limit is reduced by any contributions to a deductible
or nondeductible IRA for the same year. The maximum contribution that
can be made to a Roth IRA is phased out for single filers with AGI
between $95,000 and $110,000, and for couples filing jointly with AGI
between $150,000 and $160,000. Qualified distributions from a Roth IRA
would be exempt from federal taxes. Qualified distributions are
distributions (1) made after the five-taxable year period beginning with
the first taxable year for which a contribution was made to a Roth IRA
and (2) that are (a) made on or after the date on which the individual
attains age 59 1/2, (b) made to a beneficiary on or after the death of
the individual, (c) attributed to the individual being disabled, or (d)
for a qualified special purpose (e.g., first time homebuyer expenses).

Distributions that are not qualified distributions would always be
tax-free if the taxpayer is withdrawing contributions, not accumulated
earnings.

Taxpayers with AGI of $100,000 or less are eligible to convert an
existing IRA (deductible, nondeductible and conduit) to a Roth IRA.
Earnings and contributions from a deductible IRA are subject to a tax
upon conversion; however, no 10% excise tax for early withdrawal would
apply. If the conversion is done prior to January 1, 1999, then the
income from the conversion can be included in income ratably over a
four-year period beginning with the year of conversion.

EDUCATION IRAs
For taxable years beginning after December 31, 1997, an Education
IRA has been created exclusively for the purpose of paying qualified
higher education expenses. Taxpayers can make non-deductible
contributions up to $500 per year per beneficiary. The $500 annual limit
is in addition to the $2,000 annual contribution limit applicable to
IRAs and Roth IRAs. Eligible contributions must be in cash and made
prior to the date the beneficiary reaches age 18. Similar to the Roth
IRA, earnings would accumulate tax-free. There is no requirement that
the contributor be related to the beneficiary, and there is no limit on
the number of beneficiaries for whom one contributor can establish
Education IRAs. In addition, multiple Education IRAs can be created for
the same beneficiaries, however, the contribution limit of all
contributions for a single beneficiary cannot exceed $500 annually.

This $500 annual contribution limit for Education IRAs is phased
out ratably for single contributors with modified AGI between $95,000
and $110,000, and for couples filing jointly with modified AGI of
between $150,000 and $160,000. Individuals with modified AGI above the
phase-out range are not allowed to make contributions to an Education
IRA established on behalf of any other individual.

Distributions from an Education IRA are excludable from gross
income to the extent that the distribution does not exceed qualified
higher education expenses incurred by the beneficiary during the year
the distribution is made regardless of whether the beneficiary is
enrolled at an eligible educational institution on a full-time, half-
time, or less than half-time basis.

Any balance remaining in an Education IRA at the time a beneficiary
becomes 30 years old must be distributed, and the earnings portion of
such a distribution will be includible in gross income of the
beneficiary and subject to an additional 10% penalty tax if the
distribution is not for qualified higher educations expenses. Tax-free
(and penalty-free) transfers and rollovers of account balances from one
Education IRA benefiting one beneficiary to another Education IRA
benefiting a different beneficiary (as well as redesignations of the
named beneficiary) is permitted, provided that the new beneficiary is a
member of the family of the old beneficiary and that the transfer or
rollover is made before the time the old beneficiary reaches age 30 and
the new beneficiary reaches age 18.

A company or association may establish a Group IRA or Group Roth
IRA for employees or members who want to purchase shares of the Fund.

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. For information concerning the applicability of a CDSC
upon redemption of Class B Shares and Class C Shares, see Contingent
Deferred Sales Charge - Class B Shares and Class C Shares under Classes
of Shares in the Prospectus for Class B Shares and Class C Shares.

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. In addition, effective January 1,
1998, the new law allows for premature distribution without a 10%
penalty if (i) the amounts are used to pay qualified higher education
expenses (including graduate level courses) of the taxpayer, the
taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse, or (ii) used to pay acquisition costs of a principle
residence for the purchase of a first-time home by the taxpayer,
taxpayer's spouse or any child or grandchild of the taxpayer or the
taxpayer's spouse. A qualified first-time homebuyer is someone who has
had no ownership interest in a residence during the past two years. The
aggregate amount of distribution for first-time home purchases
cannot exceed a lifetime cap of $10,000.

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 continue to be maintained by employers
having 25 or fewer employees. An employer may elect to make additional
contributions to such existing plans.

PROTOTYPE 401(K) DEFINED CONTRIBUTION PLAN

Section 401(k) of the Code permits employers to establish qualified
plans based on salary deferral contributions. Effective January 1, 1997,
non-governmental tax-exempt organizations may establish 401(k) plans.
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 Investments family.
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 the Prospectuses for the Fund Classes.

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 shares of any of the Classes in
conjunction with such an arrangement. 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 the Prospectuses
for the Fund Classes.

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 the Fund.
Although investors may use their own plan, there is available a Delaware
Investments 457 Deferred Compensation Plan. Interested investors should
contact the Distributor or their investment dealers to obtain further
information. 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 the Prospectuses for the Fund Classes.

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. A SIMPLE IRA is
available only to plan sponsors with 100 or fewer employees.

SIMPLE 401(k)

A SIMPLE 401(k) is like a regular 401(k) except that it is
available only to plan sponsors with 100 or fewer employees and, in exchange
for mandatory plan sponsor contributions, discrimination testing is not
required.

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 certain other
authorized persons. See Distribution and Service under Investment
Management Agreements and Sub-Advisory Agreements. 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 the days when the following holidays are observed: 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.

An example showing how to calculate the net asset value per share
and, in the case of Class A Shares, the offering price per share, will
be included in the Funds' financial statements which are incorporated by
reference into this Part B.

Each Fund's net asset value per share is computed by adding the
value of all the Fund's securities and other assets, deducting any
liabilities of the Fund, and dividing by the number of Fund shares
outstanding. Expenses and fees are accrued daily. Portfolio securities,
except for bonds, which are primarily traded on a national or foreign
securities exchange are valued at the last sale price on that exchange.
Options are valued at the last reported sales price or, if no sales are
reported, at the mean between bid and asked prices. Securities not
traded on a particular day, over-the-counter securities and government
and agency securities are valued at the mean value between bid and asked
prices. Money market instruments having a maturity of less than 60 days
are valued at amortized cost. Debt securities (other than short-term
obligations) are valued on the basis of valuations provided by a pricing
service when such prices are believed to reflect the fair value of such
securities. Foreign securities and the prices of foreign securities
denominated in foreign currencies are translated to U.S. dollars based on
rates in effect as of 12p.m., Eastern time. 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.

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, its agent or certain other
authorized persons (see Distribution and Service under Investment
Management Agreements and Sub-Advisory Agreement), 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.

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 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.

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 Investments 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.

DISTRIBUTIONS AND TAXES

Aggressive Growth Fund and Growth Stock Fund have qualified, and
intend to continue to qualify, as regulated investment companies under
Subchapter M of the Code. Tax-Efficient Equity Fund intends 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 described below. The tax status of
dividends and distributions paid to shareholders will not be affected by
whether they are paid in cash or in additional shares. The Fund is
treated as a single tax entity and capital gains for the Fund will be
calculated separately from the other funds of Mutual Funds III, Inc..

Under the Taxpayer Relief act of 1997 (the "1997 Act"), the Fund is
required to track its sales of portfolio securities and to report its
capital gain distributions to you according to the following categories
of holding periods:

"MID-TERM CAPITAL GAINS" OR "28 PERCENT RATE GAIN": securities sold by
the Fund after July 28, 1997 that were held more than one year but not
more than 18 months. These gains will be taxable to individual investors
at a maximum rate of 28%.

"1997 ACT LONG-TERM CAPITAL GAINS" OR "20 PERCENT RATE GAIN":
securities sold by the Fund between May 7, 1997 and July 28, 1997 that
were held for more than 12 months, and securities sold by the Fund after
July 28, 1997 that were held for more than 18 months. These gains will
be taxable to individual investors at a maximum rate of 20% for
investors in the 28% or higher federal income tax brackets, and at a
maximum rate of 10% for investors in the 15% federal income tax bracket.

"QUALIFIED 5-YEAR GAINS": For individuals in the 15% bracket, qualified
5-year gains are net gains on securities held for more than 5 years
which are sold after December 31, 2000. For individuals who are subject
to tax at higher rate brackets, qualified 5-year gains are net gains on
securities which are purchased after December 31, 2000 and are held for
more than 5 years. Taxpayers subject to tax at a higher rate brackets
may also make an election for shares held on January 1, 2001 to
recognize gain on their shares (any loss is disallowed) in order to
qualify such shares as qualified 5-year property as though purchased
after December 31, 2000. These gains will be taxable to individual
investors at a maximum rate of 18% for investors in the 28% or higher
federal income tax brackets, and at a maximum rate of 8% for investors
in the 15% federal income tax bracket when sold after the 5 year holding
period.

A portion of the Fund's dividends may qualify for the dividends-
received deduction for corporations provided in the federal income tax
law. The portion of dividends paid by the 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. Under
the 1997 Act, the amount that the Fund may designate as eligible for the
dividends-received deduction will be reduced or eliminated if the shares
on which the dividends earned by the Fund were debt-financed or held by
the Fund for less than a 46-day period during a 90-day period beginning
45 days before the ex-dividend date and ending 45 days after the ex-
dividend date. Similarly, if your Fund shares are debt-financed or held
by you for less than a 46-day period during a 90-day period beginning 45
days before the ex-dividend date and ending 45 days after the ex-
dividend date, then the dividends-received deduction for Fund dividends
on your shares may also be reduced or eliminated. Even if designated as
dividends eligible for the dividends-received deduction, all dividends
(including any deducted portion) must be included in your alternative
minimum taxable income calculation. For the fiscal year ended April 30,
1998, 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 Fund.

See also Other Tax Requirements under Accounting and Tax Issues.

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 Investments family since 1938. On April 30, 1998, the
Manager and its affiliates within Delaware Investments, including
Delaware International Advisers Ltd., were managing in the aggregate
more than $45 billion in assets in the various institutional or
separately managed (approximately $27,330,570,000) and investment
company (approximately $17,733,730,000) 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 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.

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, 1998:

Institutional
Class A Class B Class C Class

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%

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, 1998, the total net assets of the Funds were as
follows:

Aggressive Growth Fund - $56,747,645
Growth Stock Fund - $45,009,609
Tax-Efficient Fund were $24,307,561.

Investment management fees incurred for the last three fiscal years
with respect to each Fund follows. Prior to May 1, 1997 fees were paid
to the Funds' previous investment manager, Voyageur Fund Managers, Inc.

FUND APRIL 30, 1998 APRIL 30, 1997 APRIL 30, 1996
<S> <C> <C> <C>
Aggressive Growth Fund $155,146 earned $56,982 earned $34,256 incurred
$71,189 paid $10,532 paid $9,256 paid
$83,957 waived $46,450 waived $25,000 waived

Growth Stock Fund $412,380 earned $332,347 incurred $222,957 incurred
$378,549 paid $332,347 paid $197,957 paid
$33,831 waived $-0- waived $25,000 waived

Tax-Efficient Equity
Fund(1) $54,805 earned N/A N/A
$17,083 paid N/A N/A
$37,772 waived N/A N/A

(1) Date of initial public offering was June 27, 1997.

</TABLE>

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.

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.

The Funds have authorized one or more brokers to accept on their
behalf purchase and redemption orders in addition to the Transfer Agent.
Such brokers are authorized to designate other intermediaries to accept
purchase and redemption orders on the behalf of the Funds. For purposes
of pricing, the Funds will be deemed to have received a purchase or
redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order. Investors may be charged a fee
when effecting transactions through a broker or agent.

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
Investments family. On May 31, 1998, Mutual Funds III, Inc.'s officers
and directors owned less than 1% of the outstanding shares of each Class
of each Fund.

As of May 31, 1998, management believes the following shareholders
held of record 5% or more of the outstanding shares of a Class:

Class Name and Address of Account Share Amount Percentage
<S> <C> <C> <C>

Aggressive Merrill Lynch, Pierce, Fenner & Smith 271,592 13.52%
Growth Fund For the Sole Benefit of its Customers
A Class Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246

Aggressive Merrill Lynch, Pierce, Fenner & Smith 234,729 20.13%
Growth Fund For the Sole Benefit of its Customers
B Class Attn: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246

Aggressive Merrill Lynch, Pierce, Fenner & Smith 163,981 43.24%
Growth Fund For the Sole Benefit of its Customers
C Class Attn: Fund Administration
4800 Deer Lake Drive East - 2nd Floor
Jacksonville, FL 32246

Aggressive RS DMC Employee Profit Sharing Plan 99,522 88.78%
Growth Fund Delaware Management Company P/S Trust
Institutional c/o Rick Seidel
Class 1818 Market Street
Philadelphia, PA 19103

Growth Stock Merrill Lynch, Pierce, Fenner & Smith 6,414 9.84%
Fund For the Sole Benefit of its Customers
B Class Attn: Fund Administration
4800 Deer Lake Drive East - 2nd Floor
Jacksonville, FL 32246

Growth Stock Merrill Lynch, Pierce, Fenner & Smith 6,706 17.41%
Fund For the Sole Benefit of its Customers
C Class Attn: Fund Administration
4800 Deer Lake Drive East - 2nd Floor
Jacksonville, FL 32246

Emery Jahnke 3,703 9.61%
Ann Jahnke JT TEN
2402 Lilac Lane
Fargo, ND 58102

Growth Stock RS DMTC P/S Plan 24,592 98.58%
Fund Columbia Diagnostics Inc. P/S Class
Institutional Attn: Retirement Plans
Class 1818 Market Street
Philadelphia, PA 19103

Tax-Efficient Merrill Lynch, Pierce, Fenner & Smith 81,668 8.77%
Equity Fund For the Sole Benefit of its Customers
B Class Attention: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246

Tax-Efficient Merrill Lynch, Pierce, Fenner & Smith 49,068 16.30%
Equity Fund For the Sole Benefit of its Customers
C Class Attention: Fund Administration
4800 Deer Lake Drive East, 2nd Floor
Jacksonville, FL 32246

Donaldson Lufkin Jenrette 35,884 11.92%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303

Donaldson Lufkin Jenrette 16,532 5.49%
Securities Corporation, Inc.
P.O. Box 2052
Jersey City, NJ 07303

Tax-Efficient Delaware Management Business
Equity Fund Trust-DIA 1.0 100.00%
Institutional Attn: Joseph H. Hastings
Class 1818 Market Street, 17th Floor
Philadelphia, PA 19103

</TABLE>

DMH Corp., Delvoy, Inc., Delaware Management Business Trust, Delaware
Management Company (a series of Delaware Management Business Trust),
Delaware Management Company, Inc. , Delaware Investment Advisers (a
series of Delaware Management Business Trust), 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.

*WAYNE A. STORK (60)

Chairman and Director and/or Trustee of Mutual Funds III, Inc., 33 other
investment companies in the Delaware Investments family and Delaware
Capital Management, Inc.

Chairman, President, Chief Executive Officer and Director of DMH Corp.,
Delaware Distributors, Inc.and Founders Holdings, Inc.

Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director/Trustee of Delaware Management Company, Inc. and Delaware
Management Business Trust

Chairman, President, Chief Executive Officer and Chief Investment
Officer of Delaware Management Company (a series of Delaware Management
Business Trust)

Chairman, Chief Executive Officer and Chief Investment Officer of
Delaware Investment Advisers (a series of Delaware Management Business
Trust)

Chairman, Chief Executive Officer and Director of Delaware International
Advisers Ltd., Delaware International Holdings Ltd. and Delaware
Management Holdings, Inc.

President and Chief Executive Officer of Delvoy, Inc.

Chairman of Delaware Distributors, L.P.

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.

- -----------------------------
*Director affiliated with the Funds' investment manager and considered
an "interested person" as defined in the 1940 Act.

*JEFFREY J. NICK (45)

President, Chief Executive Officer and Director of Mutual Funds III,
Inc. and 33 other investment companies in the Delaware Investments
family

President and Director of Delaware Management Holdings, Inc.

President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc.

President of Lincoln Funds Corporation

Director of Delaware International Advisers Ltd.

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.

RICHARD G. UNRUH, JR. (58)

Executive Vice President of Mutual Funds III, Inc., 33 other investment
companies in the Delaware Investments family, Delaware Management
Holdings, Inc., Delaware Management Company (a series of Delaware
Management Business Trust) and Delaware Capital Management, Inc.

President of Delaware Investment Advisers (a series of Delaware
Management Business Trust)

Executive Vice President and Director/Trustee of Delaware Management
Company, Inc. and Delaware Management Business Trust

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
Mutual Funds III, Inc., 33 other investment companies in the Delaware
Investments family, Delaware Management Company, Inc., Delaware
Management Company (a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware Management Business
Trust) and Delaware Management Holdings, Inc.

Executive Vice President and Director of Founders Holdings, Inc.

Executive Vice President of Delaware Capital Management, Inc. and
Delaware Management Business Trust

Director of Founders CBO Corporation

Director of HYPPCO Finance Company Ltd.

Before returning to Delaware Investments 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 Delaware
Investments.

- ---------------------------
*Director affiliated with the Funds' investment manager and considered
an "interested person" as defined in the 1940 Act.

DAVID K. DOWNES (58)

Executive Vice President, Chief Operating Officer, Chief Financial
Officer of Mutual Funds III, Inc., 33 other investment companies in the
Delaware Investments family, Delaware Management Holdings, Inc.,
Founders CBO Corporation, Delaware Capital Management, Inc., Delaware
Management Company (a series of Delaware Management Business Trust),
Delaware Investment Advisers (a series of Delaware Management Business
Trust) and Delaware Distributors, L.P.

Executive Vice President, Chief Financial Officer, Chief Administrative
Officer and Trustee of Delaware Management Business Trust

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 Delvoy, Inc.

President, Chief Executive Officer, Chief Financial Officer and Director
of Delaware Service Company, Inc.

President, Chief Operating Officer, Chief Financial Officer and Director
of Delaware International Holdings Ltd.

Chairman, Chief Executive Officer and Director of Delaware Management
Trust Company and Delaware Investment & Retirement Services, Inc.

Director of Delaware International Advisers Ltd.

Vice President of Lincoln Funds Corporation

During the past five years, Mr. Downes has served in various executive
capacities at different times within the Delaware organization.

WALTER P. BABICH (70)

Director and/or Trustee of Mutual Funds III, Inc. and 33 other
investment companies in the Delaware Investments family.

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 (59)

Director and/or Trustee of Mutual Funds III, Inc. and 33 other
investment companies in the Delaware Investments family.

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 (57)

Director and/or Trustee of Mutual Funds III, Inc. and 33 other
investment companies in the Delaware Investments family.

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 (77)

Director and/or Trustee of Mutual Funds III, Inc. and 33 other
investment companies in the Delaware Investments family.

City Hall, Philadelphia, PA 19107
Philadelphia City Councilman.

THOMAS F. MADISON (62)

Director and/or Trustee of Mutual Funds III, Inc. and 33 other
investment companies in the Delaware Investments family.

200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402

President and Chief Executive Officer, MLM Partners, Inc.

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.

CHARLES E. PECK (72)

Director and/or Trustee of Mutual Funds III, Inc. and 33 other
investment companies in the Delaware Investments family.

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.

GEORGE M. CHAMBERLAIN, JR. (51)

Senior Vice President, Secretary and General Counsel of Mutual Funds
III, Inc., 33 other investment companies in the Delaware Investments
family, Delaware Distributors, L.P., Delaware Management
Company (a series of Delaware Management Business Trust), Delaware
Investment Advisers (a series of Delaware Management Business Trust) and
Delaware Management Holdings, Inc.

Senior Vice President, Secretary, General Counsel and Director/Trustee
of DMH Corp., Delaware Management Company, Inc., Delaware Distributors,
Inc., Delaware Service Company, Inc., Founders Holdings, Inc., Delaware
Investment & Retirement Services, Inc., Delaware Capital Management,
Inc., Delvoy, Inc. and Delaware Management Business Trust

Executive Vice President, Secretary, General Counsel and Director of
Delaware Management Trust Company

Senior Vice President and Director of Delaware International Holdings
Ltd.

Director of Delaware International Advisers Ltd.

Secretary of Lincoln Funds Corporation

Attorney.

During the past five years, Mr. Chamberlain has served in various
executive capacities at different times within the Delaware
organization.

JOSEPH H. HASTINGS (48)

Senior Vice President/Corporate Controller of Mutual Funds III, Inc., 33
other investment companies in the Delaware Investments family and
Founders Holdings, Inc.

Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc.,DMH Corp., Delaware Management Company, Inc.,
Delaware Management Company (a series of Delaware Management Business
Trust), Delaware Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Capital Management, Inc.,
Delaware International Holdings Ltd., Delvoy, Inc. and Delaware
Management Business Trust

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

Treasurer of Lincoln Funds Corporation

During the past five years, Mr. Hastings has served in various executive
capacities at different times within the Delaware organization.

MICHAEL P. BISHOF (35)

Senior Vice President/Treasurer of Mutual Funds III, Inc., 33 other
investment companies in the Delaware Investments family and Founders
Holdings, Inc.

Senior Vice President/Investment Accounting of Delaware Management
Company, Inc., Delaware Management Company (a series of Delaware
Management Business Trust) and Delaware Service Company, Inc.

Senior Vice President and Treasurer/Manager of Investment Accounting of
Delaware Distributors, L.P. and Delaware Investment Advisers (a series
of Delaware Management Business Trust)

Senior Vice President and Manager of Investment Accounting of Delaware
International Holdings Ltd.

Assistant Treasurer of Founders CBO Corporation

Before joining Delaware Investments 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.

GERALD S. FREY (52)

Vice President/Senior Portfolio Manager of the Funds, of seven other
investment companies in the Delaware Investments family, Delaware
Management Company (a series of Delaware Management Business Trust) and
Delaware Management Company, Inc.

Before joining Delaware Investments in 1996, Mr. Frey was a Senior
Director with Morgan Grenfell Capital Management, New York, NY from
1986-1995.

GEORGE H BURWELL (36)

Before joining Delaware Investments in 1992, Mr. Burwell was a portfolio
manager for Midlantic Bank,New Jersey. In addition, he was a security
analyst for Balis & Zorn, New York and for First Fidelity Bank, New
Jersey.

The following is a compensation table listing for each director
entitled to receive compensation, the aggregate compensation received
from the Mutual Funds III, Inc. and the total compensation received from
all investment companies in the Delaware Investments family for which he
or she serves as a director or trustee for the fiscal year ended April
30, 1998 and an estimate of annual benefits to be received upon
retirement under the Delaware Group Retirement Plan for
Directors/Trustees as of April 30, 1998. Only the independent
directors/trustees of the Fund receive compensation from the Fund.

Pension or Total Compensation
Retirement Estimated from the
Aggregate Benefits Annual Investment
Compensation Accrued as Benefits Companies in
from the Part of Fund Upon Delaware
Name Mutual Funds III, Inc. Expenses Retirement(1) Investments(2)
<S> <C> <C> <C> <C>
W. Thacher Longstreth $880 None $38,500 $62,618
Ann R. Leven $898 None $38,500 $68,561
Walter P. Babich $895 None $38,500 $67,285
Anthony D. Knerr $895 None $38,500 $67,285
Charles E. Peck $785 None $38,500 $59,473
Thomas F. Madison $880 None $38,500 $62,618

</TABLE>

(1) Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested director/trustee 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 investment company in the Delaware
Investments family for which he or she serves as a director or trustee
for a period equal to the lesser of the number of years that such person
served as a director or trustee 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/trustees of each
investment company at the time of such person's retirement. If an
eligible director/trustee retired as of April 30, 1998, he or she would
be entitled to annual payments totaling $38,500, in the aggregate, from
all of the investment companies in the Delaware Investments family for
which he or she served as director or trustee, based on the number of
investment companies in the Delaware Investments family as of that date.

(2) Each independent director currently receives a total annual retainer
fee of $38,500 for serving as a director or trustee for all 34
investment companies in Delaware Investments, plus $3,145 for each Board
Meeting attended. Ann R. Leven, Walter P. Babich, and Anthony D. Knerr
serve on the Fund's audit committee; Ms. Leven is the chairperson.
Members of the audit committee currently receive additional annual
compensation of $5,000 from all investment companies, in the aggregate,
with the exception of the chairperson, who receives $6,000.

EXCHANGE PRIVILEGE

The exchange privileges available for shareholders of the Classes
and for shareholders of classes of other funds in the Delaware
Investments family 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 Investments family.
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 Investments family 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 Investments
family. 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 Investments family. 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.

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 funds in the Delaware Investments family 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 funds in the Delaware
Investments family: (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 funds in the Delaware Investments
family are available for timed exchanges. Assets redeemed or exchanged
out of Timing Accounts in Delaware Investments 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
funds in the Delaware Investments family:

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. HIGH-YIELD OPPORTUNITIES FUND seeks to provide investors
with total return and, as a secondary objective, high current income.

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 NEW JERSEY FUND seeks a high level of current interest
income exempt from federal income tax and New Jersey state and local
taxes, consistent with preservation of capital. TAX-FREE OHIO FUND seeks
a high level of current interest income exempt from federal income tax
and Ohio state and local taxes, consistent with preservation of capital.
TAX-FREE PENNSYLVANIA FUND seeks a high level of current interest income
exempt from federal and, to the extent possible, certain Pennsylvania
state and local taxes, consistent with the preservation of capital.

INTERNATIONAL EQUITY FUND seeks to achieve long-term growth without
undue risk to principal by investing primarily in international
securities that provide the potential for capital appreciation and
income. GLOBAL BOND FUND seeks to achieve current income consistent with
the preservation of principal by investing primarily in global fixed-
income securities that may also provide the potential for capital
appreciation. GLOBAL ASSETS FUND seeks to achieve long-term total return
by investing in global securities which will provide higher current
income than a portfolio comprised exclusively of equity securities,
along with the potential for capital growth. EMERGING MARKETS FUND seeks
long-term capital appreciation by investing primarily in equity
securities of issuers located or operating in emerging countries.

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. OVERSEAS EQUITY 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.

FOUNDATION FUNDS are "fund of funds" which invest in other funds in
the Delaware Investments family (referred to as "Underlying Funds").
FOUNDATION FUNDS INCOME PORTFOLIO seeks a combination of current income
and preservation of capital with capital appreciation by investing in
primarily a mix of fixed income and domestic equity securities,
including fixed income and domestic equity Underlying Funds. FOUNDATION
FUNDS BALANCED PORTFOLIO seeks capital appreciation with current income
as a secondary objective by investing primarily in domestic equity and
fixed income securities, including domestic equity and fixed income
Underlying Funds. FOUNDATION FUNDS GROWTH PORTFOLIO seeks long term
capital growth by investing primarily in equity securities, including
equity Underlying Funds, and, to a lesser extent, in fixed income
securities, including fixed-income Underlying Funds.

DELAWARE GROUP PREMIUM FUND, INC. offers 16 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. SMALL CAP VALUE SERIES seeks capital
appreciation by investing primarily in small-cap common stocks whose
market values appear 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. TREND 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 a focus on common stocks that the investment manager
believes have the potential for above-average dividend increases over
time. EMERGING MARKETS 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. SOCIAL AWARENESS 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. REIT SERIES seeks to
achieve maximum long-term total return, with capital appreciation as a
secondary objective, by investing in securities of companies primarily
engaged in the real estate industry.

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.

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 funds in the
Delaware Investments family 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).

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 Investments family. 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 a variety of
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 mutual funds in the
Delaware Investments family as available outside the annuity. See
Delaware Group Premium Fund, Inc., above.

Access persons and advisory persons of the funds in the Delaware
Investments family, 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 Investments family. Prior
to May 31, 1997, Voyageur Fund Distributors, Inc. served as the national
distributor for the Funds. In its capacity as such, VFD or DDLP, as
applicable, received net commissions from each Fund on behalf of Class A
Shares, after reallowances to dealers, as follows:

AGGRESSIVE GROWTH FUND

FISCAL TOTAL AMOUNT AMOUNTS NET
YEAR OF UNDERWRITING REALLOWED COMMISSION
ENDED COMMISSION TO DEALERS TO VFD/DDLP

4/30/98 $539,592 $448,884 $90,708
4/30/97 11,275 10,057 1,218
4/30/96 4,299 3,691 608

GROWTH STOCK FUND

FISCAL TOTAL AMOUNT AMOUNTS NET
YEAR OF UNDERWRITING REALLOWED COMMISSION
ENDED COMMISSION TO DEALERS TO VFD/DDLP

4/30/98 $54,276 $45,298 $8,978
4/30/97 74,010 63,921 10,089
4/30/96 44,067 37,405 6,662

TAX-EFFICIENT EQUITY FUND

FISCAL TOTAL AMOUNT AMOUNTS NET
YEAR OF UNDERWRITING REALLOWED COMMISSION
ENDED COMMISSION TO DEALERS TO DDLP

4/30/98(1) $212,088 $175,433 $36,655

(1) Date of initial public offering was June 27, 1997.

VFD or DDLP, as applicable, received Limited CDSC payments with
respect to Class A Shares of each Fund as follows:

Limited CDSC Payments

Tax-Efficient
Fiscal Aggressive Growth Growth Stock Equity
Year Ended Fund A Class Fund A Class Fund A Class(1)

4/30/98 $-0- $1,926 $-0-
4/30/97 -0- -0- N/A
4/30/96 -0- -0- N/A

(1) Date of initial public offering was June 27, 1997.

VFD or DDLP, as applicable, received CDSC payments with respect to
Class B Shares of each Fund as follows:

CDSC Payments

Tax-Efficient
Fiscal Aggressive Growth Growth Stock Equity
Year Ended Fund B Class(1) Fund B Class (2) Fund A Class(3)

4/30/98 $8,533 $8,324 $310
4/30/97 508 414 N/A
4/30/96 -0- -0- N/A

(1) Date of initial public offering was April 16, 1996.
(2) Date of initial public offering was September 8, 1995.

(3) Date of initial public offering was June 27, 1997.

VFD or DDLP, as applicable, received CDSC payments with respect to
Class C Shares of each Fund as follows:

CDSC Payments

Tax-Efficient
Fiscal Aggressive Growth Growth Stock Equity
Year Ended Fund C Class(1) Fund C Class (2) Fund C Class(3)

4/30/98 $1,220 $55 $19
4/30/97 $-0- $-0- N/A
4/30/96 130 -0- N/A

(1) Date of initial public offering was May 20, 1994.
(2) Date of initial public offering was October 21, 1995.

(3) Date of initial public offering was June 27, 1997.

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 Investments family. The Transfer
Agent is paid a fee by each Fund for providing these services consisting
of an annual per account charge of $5.50 plus transaction charges for
particular services according to a schedule. Compensation is fixed each
year and approved by the Board of Directors, including a majority of the
unaffiliated directors. The Transfer Agent also provides accounting
services to each Fund. Those services include performing all functions
related to calculating each Fund's net asset value and providing all
financial reporting services, regulatory compliance testing and other
related accounting services. For its services, the Transfer Agent is
paid a fee based on total assets of all funds in the Delaware
Investments family 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.

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.

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 29,
1997, each Fund began offering Institutional Class shares.

NONCUMULATIVE VOTING
MUTUAL FUNDS III, INC.'S SHARES HAVE NONCUMULATIVE VOTING RIGHTS WHICH
MEANS THAT THE HOLDERS OF MORE THAN 50% OF THE SHARES OF MUTUAL FUNDS
III, INC. VOTING FOR THE ELECTION OF DIRECTORS CAN ELECT ALL THE
DIRECTORS IF THEY CHOOSE TO DO SO, AND, IN SUCH EVENT, THE HOLDERS OF
THE REMAINING SHARES WILL NOT BE ABLE TO ELECT ANY DIRECTORS.

This Part B does not include all of the information contained in the
Registration Statement which is on file with the SEC.

APPENDIX A -- RATINGS

EARNINGS AND DIVIDEND RANKINGS FOR COMMON STOCKS
Standard & Poor's Ratings Group. 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 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 Ratings Group. 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 Ratings Group. 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.

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 Ratings Group. Its ratings for preferred stock have
the following definitions:

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 rated "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.

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.

APPENDIX B--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
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.

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.

FINANCIAL STATEMENTS

Ernst & Young LLP serves as the independent auditors for Voyageur Mutual
Funds III, Inc. - Tax-Efficient Equity Fund and, in its capacity as
such, audits the annual financial statements of the Fund. Beginning May
1, 1997, Ernst & Young LLP began serving in such capacity for Voyageur
Mutual Funds III, Inc. - Aggressive Growth Fund and Growth Stock Fund.
KPMG Peat Marwick LLP previously served as the independent auditors for
the Aggressive Growth Fund and Growth Stock Fund and, in its capacity as
such, audited the annual financial statements of these Funds.

Each Fund's Statement of Net Assets, Statement of Operations, Statement
of Changes in Net Assets, Financial Highlights and Notes to Financial
Statements, as well as the reports of Ernst & Young LLP, independent
auditors, for the fiscal year ended April 30, 1998 are included in
Voyageur Mutual Funds III, Inc.'s Annual Reports to shareholders. The
financial statements and financial highlights, the notes relating
thereto and the reports of Ernst & Young LLP listed above are
incorporated by reference from the Annual Reports into this Part B. The
Aggressive Growth Fund's and Growth Stock Fund's Statements of Changes
in Net Assets for the year ended April 30, 1997, and the Financial
Highlights for the periods presented through April 30, 1997, were
audited by KPMG Peat Marwick LLP whose report, dated June 13, 1997,
expressed an unqualified opinion on those statements and financial
highlights.

Delaware Investments includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific tax-
exempt funds, money market funds, global and international funds and
closed-end 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 Investments at 800-523-1918, and shareholders of the
Institutional Class should contact Delaware Investments at 800-828-5052.

INVESTMENT MANAGER

Delaware Management Company

One Commerce Square
Philadelphia, PA 19103

SUB-ADVISER
Growth Stock Fund:
Voyageur Asset Management LLP
90 South Seventh Street, Suite 4400
Minneapolis, MN 55402

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIANS
Tax-Efficient Equity Fund:
The Chase Manhattan Bank
4 Chase Metrotech Center
Brooklyn, NY 11245

Aggressive Growth Fund
Growth Stock Fund:
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue
Minneapolis, MN 55402

AGGRESSIVE GROWTH FUND
GROWTH STOCK FUND
TAX-EFFICIENT EQUITY FUND

A CLASSES

B CLASSES

C CLASSES

INSTITUTIONAL CLASSES

CLASSES OF VOYAGEUR
MUTUAL FUNDS III, INC.

PART B

STATEMENT OF
ADDITIONAL INFORMATION

JUNE 29, 1998

[LOGO OMITTED: DELAWARE INVESTMENTS]