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FOR GROWTH OF CAPITAL
Delaware Tax-Efficient Equity Fund
(photo of illustration from Growth of Capital Brochure)
service and guidance
professional management
goals
2000
Semi-Annual
Report
DELAWARE(SM)
INVESTMENTS
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Philadelphia o London
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NOVEMBER 17, 1999
Dear Shareholder:
WE BEGAN FISCAL 2000 DURING A period of transition in the U.S. equity markets.
After nearly 18 months of very narrow leadership by selected large-company
stocks, investors began to expand their stock selection this past spring to a
broader and more attractively priced group of companies. This pushed several
major U.S. stock market indexes to record highs in early May.
Delaware Tax-Efficient Equity Fund thrived during May and June as a wider
array of stocks participated in the market's price gains. The Fund's emphasis on
consistent growth at reasonable prices positioned it to benefit from the broad
advance in the stock market that occurred during the spring.
We were optimistic that the market's performance during the spring was the
beginning of a trend in which stock market performance would be driven by a
larger number of stocks, but we also recognized that there might be a tug-of-war
between the very large growth stocks that had been leading the market and the
many other stocks that had been out-of-favor. This proved to be the case. As
summer heated up, the Fed moved to a more restrictive monetary policy, concerned
that the U.S. economy might overheat leading to higher inflation. Between June
and November, the Fed raised short-term interest rates three times. Against this
backdrop, a very narrow group of stocks once again led the market as investors
focused almost exclusively on high-priced large company stocks.
The narrow market weighed heavily on Delaware Tax-Efficient Equity Fund's
performance during the summer and early fall. For the six months ended October
31, 1999, Delaware Tax-Efficient Equity Fund returned -7.12% (for Class A shares
at net asset value with distributions reinvested). There were several key
reasons that we were unable to keep pace with the results of our Lipper peer
group and our unmanaged benchmark.
o First, stocks of mid-size companies--those with market capitalizations
between $2 billion and $10 billion--comprised roughly one-third of the
portfolio. This segment of the market generally performed poorly at the end
of our reporting period because investors seemed to favor companies with the
largest market capitalizations.
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
6 Months Ended
October 31, 1999
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Delaware Tax-Efficient Equity Fund Class A -7.12%
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Lipper Growth Fund Average (1,249 funds) +4.42%
Standard & Poor's 500 Index +2.74%
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All performance shown above is at net asset value without the effect of sales
charges and assumes reinvestment of dividends and capital gains. Performance
information for all Fund classes can be found on page 8. Past performance does
not guarantee future results. Fee limitations were in effect for the period
shown. Returns would have been lower without the limitations. The Standard &
Poor's 500 Index is an unmanaged composite of large company stocks.
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o Second, by adhering to Delaware Tax-Efficient Equity Fund's focus on
consistent earnings growth at reasonable prices, we had minimal holdings of
technology and cyclical stocks--sectors that delivered the strongest returns
between June and September. Cyclical companies, in general, do not have
consistent earnings and therefore, we typically do not invest in them. Many
technology stocks currently have very high price-to-earnings ratios. Thus,
they have not met our standard for "reasonable prices."
In keeping with the Fund's objective to provide high after-tax total return,
we used losses that had built up in the portfolio to offset taxable gains that
resulted from our sale of several holdings that had risen in price. As a general
rule, we seek to avoid capital gains distributions.
On the pages that follow, Francis X. Morris, Delaware Tax-Efficient Equity
Fund's senior portfolio manager, reviews performance in the U.S. stock market
over the past six months and strategies used to reduce the Fund's taxable
capital gains distributions. He also shares his outlook for the year ahead.
We understand that the past year has been a difficult one for Delaware
Tax-Efficient Equity Fund and we appreciate your ability to maintain a long-term
perspective and stay committed to your investment with us. While we can't
predict when the stock market's fixation on a narrow group of large company
stocks will end, we do believe that eventually, the opportunities available from
the many other exceptional U.S. companies will capture the market's favor. We
are confident that our disciplined investment style and our emphasis on
after-tax returns have positioned Delaware Tax-Efficient Equity Fund to benefit
should a broadening occur, just as it did earlier this year.
Sincerely,
/s/ Wayne A. Stork
- -------------------
WAYNE A. STORK
Chairman,
Delaware Investments Family of Funds
/s/ David K. Downes
- ----------------------
DAVID K. DOWNES
Executive Vice President
and Chief Operating Officer
Delaware Investments Family of Funds
PORTFOLIO HIGHLIGHTS
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As of October 31, 1999
- --------------------------------------------------------------------------------
Median Market Capitalization $13.5 billion
Number of Stocks 59
Average Stock Price-to-Earnings Ratio 21.8x
Top Sector Banking, Finance & Insurance
Annualized Portfolio Turnover Rate 47%
Beta* 0.85
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P/Es are based on analysts' earnings estimates as reported to First Call as of
October 31, 1999.
* Beta is a measure of risk relative to the S&P 500 Index. A number less than
1.0 means less historical price volatility than the index. A number higher
than 1.0 means more historical volatility than the index.
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Portfolio Manager's Review
BY FRANCIS X. MORRIS
Vice President and Senior Portfolio Manager
November 17, 1999
U.S. STOCKS: A HANDFUL OF WINNERS DOMINATE RETURNS
Prior to the start of our fiscal year this past May, the stock market's gains
were fueled by a select group of large-cap growth stocks. As a result,
price-to-earnings ratios, or P/Es, on some stocks within the Standard & Poor's
500 Index reached, in our opinion, exaggerated levels. P/E is an indicator of
how much investors are willing to pay for a company's earning power--generally
the higher the P/E, the more they are paying; the lower the P/E, the less they
are paying.
Of course, in our view, with the exception of the top 20 stocks in the S&P
500, the majority of stocks in the index were relatively inexpensive compared to
earnings. We believe this was also true of small and mid-size companies, which
had become significantly undervalued compared to large-cap issues.
INVESTORS EXPAND THEIR
STOCK SELECTION
With the release of strong economic data in the spring, investors began to
reallocate their money to these relatively undervalued areas of the market where
strong earnings growth potential could be bought at more reasonable prices.
Suddenly, a broad array of stocks was posting measurable gains. Delaware
Tax-Efficient Equity Fund, which began fiscal 2000 in May, benefited from this
broader playing field.
Though we believed this marked the beginning of a trend in which a wider
number of stocks participated in the market's performance, we expected that
there would be some resistance from large-cap stocks. Such was the case. Between
June and November, the Federal Reserve raised its target for short-term interest
rates three times. Investors began selling stocks of all market capitalizations,
apparently fearful of future rate increases. Once again, they narrowed their
focus to the largest growth companies, with a particular emphasis on a few big
technology companies.
STRATEGIC POSITIONING
Delaware Tax-Efficient Equity Fund adheres to a disciplined investment strategy
that focuses on what we call "transition stocks"--that is, stocks we believe are
currently selling below their true value with strong prospects for future
growth. Our expectation is that these stocks will be reasonably priced when we
purchase them and then appreciate in price as they "transition" from mid-size to
large-size in terms of market capitalization, or from being value stocks to
being growth stocks of either larger or mid-market capitalizations. Because our
strategy is to capture growth as stocks move through these transitions and, at
the same time, reduce the toll taxes can take on our investment returns, we tend
to own stocks for relatively long time periods.
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During fiscal 1999, our strategy precluded us from investing in the top tier
performers in the S&P 500, given that most of those stocks--including technology
stocks--had high P/E ratios, an indication to us that they were too expensive
relative to their future return potential. This is the primary reason why the
Fund did not keep pace with the S&P 500 or the Lipper Growth Fund Average.
Traditionally, technology is an area where we have less exposure than the
S&P 500. In fiscal 1999, this was due to what we believed to be exceptionally
high prices that did not meet Delaware Tax-Efficient Equity Fund's
value-conscious investment criteria, which emphasize stocks that have:
o attractive prices relative to their potential earnings growth;
o a history of growing earnings consistently through a variety of economic
environments; and
o excess cash flow that can be reinvested in the business.
We also look for stocks in which a company-specific event (i.e., an expansion
or acquisition) may serve as a catalyst for pushing earnings beyond expectations
or support earnings if business conditions in the industry weaken.
As of October 31, the Fund's holdings in technology-related companies were
approximately half the weighting of the S&P 500. Our holdings included a mix of
mid-size companies, such as Symbol Technologies, BMC Software and Computer
Associates International, and large companies, such as IBM, Hewlett-Packard and
Intel.
Our strategy also typically steers us away from investing heavily in cyclical
industries--including paper and chemicals--given that these areas have
historically had earnings spurts rather than the consistent growth we look for.
Whenever we do find cyclical stocks that meet our consistent growth discipline,
we try to add them to our holdings since we think these stocks may benefit from
the economic recovery that is underway in world markets.
Since spring, we have made some changes in the portfolio--reducing and, in
some cases, selling, many of the Fund's oldest and largest holdings because we
believed they had completed their
STRATEGIES TO MINIMIZE TAXABLE DISTRIBUTIONS
Delaware Tax-Efficient Equity Fund employs several strategies to minimize
taxable distributions--both capital gains and dividend distributions. We do this
in an effort to provide shareholders high returns on an after-tax basis.
o Low Portfolio Turnover. We tend to own stocks over longer time periods to
avoid generating taxable distributions. For the six months ended October 31,
1999, the Fund's portfolio turnover rate was 47%.
o Low Dividend Yields. We typically focus on stocks with dividend yields that
are significantly lower than the S&P 500 average.
o Tax-Loss Harvesting. Generally, we sell a stock at a loss if a company's
earnings prospects deteriorate or if we believe a stock is unlikely to
recover within six months. We are able to use such losses to offset taxable
gains incurred from the sale of other holdings.
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transition from mid- to large-cap, and from being undervalued to being fairly
valued. For example, we reduced the Fund's weighting in Ecolabs from about 3.75%
to 1.37% of net assets between April 30 and October 31. We were able to sell
this holding without generating taxable capital gains distributions for the
portfolio by using losses from other holdings to offset these gains.
As we reduced and sold several names in the portfolio, we added stocks of
companies that we believe offer more attractive opportunities for capital
appreciation. These companies span a number of different industries, including
newspaper publishing and discount retailing. We also added selectively to our
financial holdings, with an emphasis on bank stocks where prices currently look
very attractive to us relative to the companies' future earnings growth
potential.
While health care stocks generally have relatively high P/Es, the recent
market correction brought a number of healthcare companies into our buying
universe. We recently added new positions in selected drug manufacturers and a
maker of reconstructive hip, knee and joint replacements, all of which sell
products aimed at the needs of America's aging population.
Capital goods companies, (such as electronics and electrical goods companies)
became an increasingly attractive area for us to invest over the past six
months. There are two reasons for this. First, P/Es on capital goods companies,
in general, have been depressed partially due to the narrowness of the U.S.
stock market. Second, we believe these companies will benefit from the recent
pickup in worldwide economic growth, particularly in Asia and Europe.
OUTLOOK
We expect stronger worldwide economic growth in the months ahead. Given that
outlook, we are trying to position the portfolio to benefit from such
anticipated growth. We are concentrating on capital goods, energy and selected
financial stocks which, based on our research,
TOP 10 HOLDINGS
- --------------------------------------------------------------------------------
OCTOBER 31, 1999
Percent of P/E
Company Net Assets Ratio
- --------------------------------------------------------------------------------
Symbol Technologies 4.84% 28.6
MCI Worldcom 3.40% 32.1
Federal Home Loan Corp PFD 3.12% 16.8
Masco 3.01% 16.5
Honeywell 2.95% 19.9
Washington Mutual 2.93% 10.0
Nortel Networks 2.86% 43.3
Intimate Brands 2.81% 21.5
Knight-Ridder Incorporated 2.63% 19.5
American Home Products 2.59% 26.9
P/E ratios are as of October 31, 1999 based on analysts' estimates as reported
to First Call for 2000.
"We stand behind what we believe are our best selections. As a result, Delaware
Tax-Efficient Equity Fund's top 10 holdings generally represent about one-third
of the portfolio."
Francis X. Morris
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appear to have strong future earnings potential and yet, are selling at
attractive prices.
Our outlook for corporate profits in fiscal 2000 is a cautious one. If the
economy overheats and greater cost pressures result from rising commodity prices
or higher wages, we think reduced corporate profitability is possible. But
that's not to say that corporate profits are likely to experience a substantial
decline. In our opinion, we still have a very healthy domestic economy
underpinning corporate America.
Over the long term, Delaware Tax-Efficient Equity Fund seeks to generate high
after-tax returns that outperform the average growth fund at lower levels of
volatility. We believe the key to achieving this objective is to invest in
companies that are growing their earnings consistently, and to execute
strategies aimed at minimizing taxes. Certainly, there will be times, such as
the recent past, that our strategy will be out of favor. But we think our
disciplined approach--and our adherence to that approach throughout favorable
and unfavorable market cycles--will prove very beneficial to our shareholders
over the long term.
SECTOR ALLOCATION
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OCTOBER 31, 1999
Percent of
Sectors Fund's Net Assets*
- --------------------------------------------------------------------------------
Banking, Finance & Insurance 16.85%
Telecommunications 12.04%
Electronics & Electrical Equipment 2.77%
Energy 7.96%
Healthcare & Pharmaceuticals 7.95%
Retail 7.39%
Computers & Technology 11.70%
Buildings & Materials 3.02%
Cable, Media & Publishing 4.69%
Food, Beverage & Tobacco 2.55%
8 other sectors accounted for the
remaining 19.01% of net assets.
*Excluding cash
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Performance Summary
DELAWARE TAX-EFFICIENT EQUITY FUND PERFORMANCE
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AVERAGE ANNUAL RETURNS THROUGH OCTOBER 31, 1999
Lifetime One Year
- --------------------------------------------------------------------------------
Class A (Est. 6/27/97)
Excluding Sales Charge +11.39% +1.48%
Including Sales Charge +8.61% -4.37%
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Class B (Est. 6/27/97)
Excluding Sales Charge +10.65% +0.75%
Including Sales Charge +9.53% -4.25%
- --------------------------------------------------------------------------------
Class C (Est. 6/27/97)
Excluding Sales Charge +10.69% +0.84%
Including Sales Charge +10.69% -0.16%
Returns reflect reinvestment of distributions and any applicable sales charges
as noted below. Returns and share values will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Class B and C
results excluding sales charge assume either that contingent sales charges did
not apply or the investment was not redeemed. Past performance is not a
guarantee of future results.
Class A shares have a 5.75% maximum front-end sales charge and a 12b-1 fee.
Class B shares do not have a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are subject to a deferred sales charge
of up to 5% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
Average Annual Institutional Class Returns Through October 31, 1999:
Lifetime One Year
Delaware Tax-Efficient Equity Fund
Institutional Class (Est. 8/29/97) +10.84% +1.02%
Institutional Class shares are available without sales or asset-based
distribution charges only to certain eligible institutional accounts.
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Financial Statements
VOYAGEUR MUTUAL FUNDS III, INC. -
DELAWARE TAX-EFFICIENT EQUITY FUND
STATEMENT OF NET ASSETS
OCTOBER 31, 1999
- -------------------------------------------------------------------------------
NUMBER MARKET
OF SHARES VALUE
------------------------
COMMON STOCK - 95.93%
AUTOMOBILES & AUTO PARTS - 0.92%
Federal Signal ...................................... 43,600 $ 820,225
-----------
820,225
-----------
BANKING, FINANCE & INSURANCE - 16.85%
AFLAC ............................................... 34,800 1,779,150
American International Group ........................ 12,075 1,242,970
Citigroup ........................................... 36,100 1,953,913
Fleet Boston ........................................ 7,600 331,550
Freddie Mac ......................................... 51,400 2,778,813
MBNA ................................................ 64,800 1,790,100
Nationwide Financial Services - Class A ............. 42,600 1,613,475
UnionBanCal Corporation ............................. 20,100 873,094
Washington Mutual ................................... 72,700 2,612,656
-----------
14,975,721
-----------
BUILDINGS & MATERIALS - 3.02%
Masco ............................................... 87,900 2,680,950
-----------
2,680,950
-----------
CABLE, MEDIA & PUBLISHING - 4.69%
Gannett ............................................. 23,700 1,827,863
Knight-Ridder ....................................... 36,900 2,343,150
-----------
4,171,013
-----------
CHEMICALS - 1.56%
Avery Dennison ...................................... 20,900 1,306,250
Valspar ............................................. 2,700 81,506
-----------
1,387,756
-----------
COMPUTERS & TECHNOLOGY - 11.70%
BMC Software ........................................ 21,200 1,360,113
Computer Associates International ................... 18,600 1,050,900
Hewlett-Packard ..................................... 8,200 607,313
International Business Machines ..................... 14,700 1,446,113
*Microsoft ........................................... 17,400 1,610,588
Symbol Technologies ................................. 108,650 4,318,838
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10,393,865
-----------
CONSUMER PRODUCTS - 4.63%
Black & Decker ...................................... 17,600 756,800
Dial ................................................ 96,100 2,246,338
General Electric .................................... 8,200 1,111,613
-----------
4,114,751
-----------
ELECTRONICS & ELECTRICAL EQUIPMENT - 2.77%
Intel ............................................... 18,500 1,432,016
Teleflex ............................................ 30,300 1,032,094
-----------
2,464,110
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ENERGY - 7.96%
Anadarko Petroleum .................................. 19,700 607,006
BP Amoco Plc - ADR .................................. 18,542 1,070,786
Coastal ............................................. 33,400 1,406,975
Schlumberger Limited ................................ 26,400 1,598,850
Tosco ............................................... 36,000 911,250
Unocal .............................................. 42,900 1,480,050
-----------
7,074,917
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NUMBER MARKET
OF SHARES VALUE
------------------------
COMMON STOCK (CONTINUED)
ENVIRONMENTAL SERVICES - 4.32%
Ecolab .............................................. 35,900 $ 1,213,869
Honeywell ........................................... 24,900 2,625,394
-----------
3,839,263
-----------
FOOD, BEVERAGE & TOBACCO - 2.55%
Bestfoods ........................................... 16,900 992,875
*Suiza Foods ......................................... 28,000 1,009,750
Universal Foods ..................................... 13,900 265,838
-----------
2,268,463
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HEALTHCARE & PHARMACEUTICALS - 7.95%
American Home Products .............................. 44,200 2,309,450
Biomet .............................................. 37,500 1,128,516
Johnson & Johnson ................................... 12,500 1,309,375
Schering-Plough ..................................... 26,400 1,306,800
*Watson Pharmaceutical ............................... 31,800 1,009,650
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7,063,791
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INDUSTRIAL MACHINERY - 2.23%
United Technologies ................................. 15,400 931,700
Pentair ............................................. 27,900 1,049,738
-----------
1,981,438
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LEISURE, LODGING & ENTERTAINMENT - 1.58%
Viad ................................................ 57,200 1,404,975
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1,404,975
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RETAIL - 7.39%
Blockbuster ......................................... 64,800 785,700
Delhaize America .................................... 6
Intimate Brands ..................................... 61,020 2,501,820
Lowe's Companies .................................... 20,600 1,133,000
TJX Companies ....................................... 79,000 2,142,875
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6,563,401
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TELECOMMUNICATIONS - 12.04%
ALLTEL .............................................. 21,400 1,781,550
GTE ................................................. 21,300 1,597,500
*MCI Worldcom ........................................ 35,300 3,028,078
Nortel Networks ..................................... 41,200 2,551,825
SBC Communications .................................. 34,100 1,736,969
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10,695,922
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TEXTILES, APPAREL & FURNITURE - 0.42%
HON Industries ...................................... 19,200 376,800
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376,800
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MISCELLANEOUS - 3.35%
Danaher ............................................. 25,800 1,246,463
Premark International ............................... 31,600 1,730,100
-----------
2,976,563
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Total Common Stock
(cost $78,331,366) 85,253,924
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STATEMENT OF NET ASSETS (CONTINUED)
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NUMBER MARKET
OF SHARES VALUE
-----------------------
CONVERTIBLE PREFERRED STOCK - 0.66%
PACKAGING & CONTAINERS - 0.66%
Sealed Air $2.00 4/01/08 Series A .................... 10,800 $583,200
-----------
Total Convertible Preferred Stock
(cost $417,770) 583,200
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PRINCIPAL
AMOUNT
---------
REPURCHASE AGREEMENTS - 2.30%
With Chase Manhattan 5.20% 11/01/99
(dated 10/29/99, collateralized by $663,000
U.S. Treasury Notes 6.125% due 12/31/01,
market value $679,762) ............................ $663,000 663,000
With J.P. Morgan Securities 5.20% 11/01/99
(dated 10/29/99, collateralized by $476,000
U.S. Treasury Notes 5.625% due 05/15/01,
market value $486,939 and $213,000
U.S. Treasury Notes 6.50% due 08/31/01,
market value $217,403) ............................ 690,000 690,000
With PaineWebber 5.20% 11/01/99
(dated 10/29/99, collateralized by $238,000
U.S.Treasury Notes 6.25% due 10/31/01, market
value $247,205 and $472,000 U.S. Treasury
Notes 6.25% due 02/15/03,
market value $457,284). ........................... 690,000 690,000
-----------
Total Repurchase Agreements
(cost $2,043,000) ................................. 2,043,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 98.89%
(COST $80,792,136) ........................................... $87,880,124
RECEIVABLES AND OTHER ASSETS NET
OF LIABILITIES - 1.11% ....................................... 989,263
-----------
NET ASSETS APPLICABLE TO 8,189,316 SHARES
($0.01 PAR VALUE) OUTSTANDING - 100.00% ...................... $88,869,387
===========
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NET ASSET VALUE - DELAWARE TAX-EFFICIENT EQUITY FUND
A CLASS ($37,055,737 / 3,383,873 SHARES) ..................... $10.95
======
NET ASSET VALUE - DELAWARE TAX-EFFICIENT EQUITY FUND
B CLASS ($40,153,869 / 3,724,282 SHARES) ..................... $10.78
======
NET ASSET VALUE - DELAWARE TAX-EFFICIENT EQUITY FUND
C CLASS ($11,659,770 / 1,081,160 SHARES) ..................... $10.78
======
NET ASSET VALUE - DELAWARE TAX-EFFICIENT EQUITY FUND
INSTITUTIONAL CLASS ($10.92 / 1 SHARE) ....................... $10.92
======
COMPONENTS OF NET ASSETS AT OCTOBER 31, 1999:
Common stock, $0.01 par value, 10,000,000,000 shares authorized
to the Fund with 1,000,000,000 shares allocated to
Delaware Tax-Efficient Equity Fund A Class, 1,000,000,000 shares
allocated to Delaware Tax-Efficient Equity Fund B Class,
1,000,000,000 shares allocated to Delaware Tax-Efficient Equity
Fund C Class, 1,000,000,000 shares allocated to
Delaware Tax-Efficient Equity Fund Institutional Class ....... $89,202,921
Undistributed net investment loss ............................... (172,668)
Accumulated net realized loss on investments .................... (7,248,854)
Net unrealized appreciation of investments ...................... 7,087,988
-----------
Total net assets ................................................ $88,869,387
===========
- ------------------
* Non-income producing security for the period ended October 31, 1999
ADR - American Depository Receipt
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE TAX-EFFICIENT EQUITY FUND:
Net asset value A Class (A) ..................................... $10.95
Sales charge (5.75% of offering price or 6.12% of the amount
invested per share)(B) ........................................ 0.67
------
Offering price .................................................. $11.62
======
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
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for growth of capital 11
VOYAGEUR MUTUAL FUNDS III, INC. -
DELAWARE TAX-EFFICIENT EQUITY FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $498,954
Interest 123,442 $622,396
-------- -----------
EXPENSES:
Management fees ..................................... 348,230
Distribution expense ................................ 316,125
Registration fees ................................... 30,600
Dividend disbursing and transfer agent fees
and expenses ..................................... 51,900
Professional fees ................................... 5,100
Reports and statements to shareholders .............. 12,000
Accounting and administration ....................... 18,453
Custodian fees ...................................... 4,019
Directors' fees ..................................... 902
Taxes (other than taxes on income) .................. 906
Other ............................................... 8,915
--------
797,150
Less expenses paid indirectly ....................... (2,086) 795,064
-------- -----------
NET INVESTMENT (LOSS) ............................... (172,668)
-----------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Net realized loss on investment transactions ........ (3,904,998)
Net change in unrealized appreciation/depreciation
of investments during the period ................. (3,314,175)
-----------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS ................................... (7,219,173)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS .................................. ($7,391,841)
===========
See accompanying notes
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VOYAGEUR MUTUAL FUNDS III, INC. -
DELAWARE TAX-EFFICIENT EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED 10/31/99 4/30/99
(UNAUDITED)
-------------- ----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ............................. $ (172,668) $ (227,386)
Net realized loss on investment transactions .... (3,904,998) (3,262,075)
Net change in unrealized appreciation/depreciation
of investments during the period ............. (3,314,175) 7,903,047
------------ ------------
Net increase (decrease) in net assets resulting
from operations .............................. (7,391,841) 4,413,586
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Delaware Tax-Efficient Equity Fund A Class ... 5,654,659 33,069,935
Delaware Tax-Efficient Equity Fund B Class ... 9,744,162 31,064,593
Delaware Tax-Efficient Equity Fund C Class ... 3,338,335 10,405,073
Delaware Tax-Efficient Equity Fund
Institutional Class ....................... 79,621 -
------------ ------------
18,816,777 74,539,601
Cost of shares repurchased:
Delaware Tax-Efficient Equity Fund A Class ... (5,672,457) (8,957,811)
Delaware Tax-Efficient Equity Fund B Class ... (4,514,837) (2,413,381)
Delaware Tax-Efficient Equity Fund C Class ... (1,971,089) (2,207,359)
Delaware Tax-Efficient Equity Fund
Institutional Class ....................... (79,363) -
------------ ------------
(12,237,746) (13,578,551)
------------ ------------
Increase in net assets derived from capital
share transactions ........................... 6,579,031 60,961,050
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (812,810) 65,374,636
NET ASSETS:
Beginning of period ............................. 89,682,197 24,307,561
------------ ------------
End of period ................................... $ 88,869,387 $ 89,682,197
============ ============
See accompanying notes
<PAGE>
12 for growth of capital
VOYAGEUR MUTUAL FUNDS III, INC. -
DELAWARE TAX-EFFICIENT EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout the period were
as follows:
<TABLE>
<CAPTION>
DELAWARE TAX-EFFICIENT EQUITY FUND
---------------------------------------------------------------------
A CLASS B CLASS
SIX MONTHS 6/27/1997(1) SIX MONTHS
ENDED YEAR ENDED TO ENDED YEAR ENDED
10/31/99(4) 4/30/99 4/30/98 10/31/99(4) 4/30/99
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $11.790 $11.010 $8.500 $11.650 $10.960
Income (loss) from investment operations:
Net investment income (loss)(2) ................. 0.003 0.049 0.010 (0.039) 0.132
Net realized and unrealized gain (loss)
on investments ................................ (0.843) 0.731 2.500 (0.831) 0.558
------- ------- ------- ------- -------
Total from investment operations ................ (0.840) 0.780 2.510 (0.870) 0.690
------- ------- ------- ------- -------
Net asset value, end of period ..................... $10.950 $11.790 $11.010 $10.780 $11.650
======= ======= ======= ======= =======
Total return(3) .................................... (7.12%) 7.09% 29.53% (7.47%) 6.30%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ................................. $37,056 $40,174 $13,898 $40,154 $38,225
Ratio of expenses to average
net assets .................................... 1.45% 1.45% 1.47% 2.20% 2.20%
Ratio of expenses to average
net assets prior to expense
limitation .................................... 1.45% 1.61% 1.99% 2.20% 2.36%
Ratio of net investment income (loss)
to average net assets ......................... (0.12%) (0.10%) 0.13% (0.87%) (0.85%)
Ratio of net investment income (loss)
to average net assets prior
to expense limitation ......................... (0.12%) (0.26%) (0.39%) (0.87%) (1.01%)
Portfolio turnover .............................. 47% 48% 14% 47% 48%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DELAWARE TAX-EFFICIENT EQUITY FUND
------------------------------------------------------
C CLASS
6/27/1997(1) SIX MONTHS 6/27/1997(1)
TO ENDED YEAR ENDED TO
4/30/98 10/31/99(4) 4/30/99 4/30/98
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............... $8.500 $11.660 $10.960 $8.500
Income (loss) from investment operations:
Net investment income (loss)(2) ................. (0.053) (0.039) 0.132 (0.054)
Net realized and unrealized gain (loss)
on investments ................................ 2.513 (0.841) 0.568 2.514
------- ------- ------- -------
Total from investment operations ................ 2.460 (0.880) 0.700 2.460
------- ------- ------- -------
Net asset value, end of period ..................... $10.960 $10.780 $11.660 $10.960
======= ======= ======= =======
Total return(3) .................................... 28.94% (7.46%) 6.39% 28.94%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ................................. $7,958 $11,660 $11,284 $2,451
Ratio of expenses to average
net assets .................................... 2.20% 2.20% 2.20% 2.20%
Ratio of expenses to average
net assets prior to expense
limitation .................................... 2.72% 2.20% 2.36% 2.72%
Ratio of net investment income (loss)
to average net assets ......................... (0.60%) (0.87%) (0.85%) (0.60%)
Ratio of net investment income (loss)
to average net assets prior
to expense limitation ......................... (1.12%) (0.87%) (1.01%) (1.12%)
Portfolio turnover .............................. 14% 47% 48% 14%
</TABLE>
- ------------------
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) Per share information was based on the average shares outstanding method.
(3) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
(4) Ratios have been annualized and total return has not been annualized.
For the period September 1, 1997 through June 23, 1999, the Institutional Class
sold shares which were subsequently redeemed by shareholders.
As of October 31, 1999, the class had one share outstanding, representing
initial seed purchase. Data for this class are excluded from the Financial
Highlights because the data are believed to be immaterial.
See accompanying notes
<PAGE>
for growth of capital 13
VOYAGEUR MUTUAL FUNDS III, INC. -
DELAWARE TAX-EFFICIENT EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Voyageur Mutual Funds III, Inc. is organized as a Minnesota Corporation and
offers three series: Delaware Select Growth Fund, Delaware Growth Stock Fund and
Delaware Tax-Efficient Equity Fund. These financial statements and the related
notes pertain to Delaware Tax-Efficient Equity Fund (The Fund). The Fund is
registered as a diversified open-end investment company under the Investment
Company Act of 1940, as amended. The Fund offers four classes of shares. The
Delaware Tax-Efficient Equity Fund A Class carries a front-end sales charge of
5.75%. The Delaware Tax-Efficient Equity Fund B Class carries a back-end
deferred sales charge. The Delaware Tax-Efficient Equity Fund C Class carries a
level load deferred sales charge and the Delaware Tax-Efficient Equity Fund
Institutional Class has no sales charge.
The objective of the Fund is to obtain for taxable investors a high total return
on an after-tax basis.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation - Securities listed on an exchange are valued at the last
quoted sales price as of the close of the NYSE on the valuation date. Securities
not traded or securities not listed on an exchange are valued at the mean of the
last quoted bid and asked prices. Other securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Fund's Board of Directors.
Federal Income Taxes - The Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations, which may differ from generally
accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Investments Family of Funds. The aggregate daily
balance of the pooled cash account is invested in repurchase agreements secured
by obligations of the U.S. government. The respective collateral is held by the
Fund's custodian bank until the maturity of the respective repurchase
agreements. Each repurchase agreement is at least 100% collateralized. However,
in the event of default or bankruptcy by the counterparty to the agreement,
realization of the collateral may be subject to legal proceedings.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
Other - Expenses common to all Funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. The Fund declares and pays dividends from
investment income and distributions from capital gains annually.
Certain expenses of the Fund are paid through "soft dollar" arrangements with
brokers. These transactions are done subject to best price and execution. The
amount of these expenses was approximately $1,067 for the period ended October
31, 1999. In addition, the Fund receives earnings credits from its custodian
when positive cash balances are maintained, which are used to offset custody
fees. The amount of these credits was approximately $1,019 for the period ended
October 31, 1999. The expenses paid under the above arrangements are included in
their respective expense captions on the Statement of Operations with the
corresponding offset shown as "Expenses paid indirectly".
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company (DMC) the Investment Manager of the Fund, an
annual fee which is calculated daily at the rate of; 0.75% on the first $500
million of average daily net assets, 0.725% on the next $500 million and 0.70%
on the average daily net assets in excess of $1 billion. At October 31, 1999 the
Fund had a liability for investment management fees and other expenses payable
to DMC for $55,974.
DMC has elected to waive that portion if any of the management fee and reimburse
the Fund to the extent that annual operating expenses exclusive of taxes,
interest, distribution fees, brokerage commissions and extraordinary expenses,
exceed 1.20% of average daily net assets of the Fund through April 30, 2000.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent and accounting services. The Fund
pays DSC a monthly fee based on the number of shareholder accounts, shareholder
transactions and average net assets, subject to certain minimums. At October 31,
1999, the Fund had a liability for such fees and other expenses payable to DSC
of $15,540.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.25% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B and C Class. At October 31, 1999, the Fund had
a liability for such fees and other expenses payable to DDLP of $0.
For the period ended October 31, 1999, DDLP earned $20,639 for commissions on
sales of the Fund A Class shares.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Fund. These officers, directors and employees are paid no compensation by
the Fund.
<PAGE>
14 for growth of capital
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
3. Investments
During the period ended October 31, 1999, the Fund made purchases of $52,379,316
and sales of $40,851,492 of investment securities other than U.S. government
securities and temporary cash investments.
The cost of investments for federal income tax purposes approximates cost for
book purposes. At October 31, 1999, the aggregate cost of securities was
$80,792,136.
At October 31, 1999, unrealized appreciation was $7,087,988 of which $10,995,807
related to unrealized appreciation of securities and ($3,907,819) related to
unrealized depreciation of securities.
For federal income tax purposes, the Delaware Tax-Efficient Equity Fund had a
capital loss carryforward at April 30, 1999 of $703,458, which may be carried
forward and applied against future capital gains. The capital loss carryforward
expires as follows: 2006 - $11,808 and 2007 - $691,650.
4. Capital Stock
Transactions in capital stock shares were as follows:
SIX MONTHS
ENDED YEAR ENDED
10/31/99 4/30/99
---------- ----------
Shares sold:
Delaware Tax-Efficient Equity Fund A Class ....... 490,548 2,949,298
Delaware Tax-Efficient Equity Fund B Class ....... 859,240 2,770,177
Delaware Tax-Efficient Equity Fund C Class ....... 295,146 938,246
Delaware Tax-Efficient Equity Fund
Institutional Class ............................ 6,731 -
---------- ----------
1,651,665 6,657,721
---------- ----------
Shares repurchased:
Delaware Tax-Efficient Equity Fund A Class ....... (513,145) (804,809)
Delaware Tax-Efficient Equity Fund B Class ....... (415,221) (216,108)
Delaware Tax-Efficient Equity Fund C Class ....... (182,024) (193,787)
Delaware Tax-Efficient Equity Fund
Institutional Class ............................ (6,731) -
---------- ----------
(1,117,121) (1,214,704)
---------- ----------
Net increase ........................................ 534,544 5,443,017
========== ==========
5. Line of Credit
The committed line of credit is $3,300,000 for the Delaware Tax-Efficient Equity
Fund. No amount was outstanding at October 31, 1999, or at any time during the
fiscal year.
<PAGE>
DELAWARE INVESTMENTS FAMILY OF FUNDS
FOR GROWTH OF CAPITAL
Delaware Select Growth Fund
Delaware Trend Fund
Delaware DelCap Fund
Delaware Small Cap Value Fund
Delaware U.S. Growth Fund
Delaware Growth Stock Fund
Delaware Tax-Efficient Equity Fund
Delaware Social Awareness Fund
FOR TOTAL RETURN
Delaware Blue Chip Fund
Delaware Devon Fund
Delaware Decatur Equity Income Fund
Delaware Growth and Income Fund
Delaware REIT Fund
Delaware Balanced Fund
FOR INTERNATIONAL DIVERSIFICATION
Delaware Emerging Markets Fund
Delaware New Pacific Fund
Delaware Overseas Equity Fund
Delaware International Equity Fund
Delaware Global Equity Fund
Delaware Global Bond Fund
<PAGE>
FOR CURRENT INCOME
Delaware Delchester Fund
Delaware High-Yield Opportunities Fund
Delaware Extended Duration Bond Fund
Delaware Strategic Income Fund
Delaware Corporate Bond Fund
Delaware American Government Bond Fund
Delaware U.S. Government Securities Fund
Delaware Limited-Term Government Fund
FOR TAX-EXEMPT INCOME
Delaware National High Yield Municipal Bond Fund
Delaware Tax-Free USA Fund
Delaware Tax-Free Insured Fund
Delaware Tax-Free USA Intermediate Fund
Delaware State Tax-Free Funds*
MONEY MARKET FUNDS
Delaware Cash Reserve
Delaware Tax-Free Money Fund
ASSET ALLOCATION FUNDS
Delaware Foundation Funds
Growth Portfolio
Balanced Portfolio
Income Portfolio
* Available for the following states: Arizona, California, Colorado, Florida,
Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, North Dakota, New Jersey,
New Mexico, New York, Ohio, Oregon, Pennsylvania, Wisconsin. Insured and
intermediate bond funds are available in selected states.
funds
(photo of computer keyboard)
Complete information on any fund offered by Delaware Investments can be found in
each fund's current prospectus. Prospectuses for all funds offered by Delaware
Investments are available from your financial adviser. Please read the
prospectus carefully before you invest or send money.
<PAGE>
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF DELAWARE TAX-EFFICIENT EQUITY
FUND SHAREHOLDERS, BUT IT MAY BE used with prospective investors when preceded
or accompanied by a current prospectus for Delaware Tax-Efficient Equity Fund
and the Delaware Investments Performance Update for the most recently completed
calendar quarter. The prospectus sets forth details about charges, expenses,
investment objectives and operating policies of the Fund. You should read the
prospectus carefully before you invest or send money. The figures in this report
represent past results which are not a guarantee of future results. The return
and principal value of an investment in the Fund will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
(photo of globes)
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawareinvestments.com
Be sure to consult your financial adviser when making investments. Mutual funds
can be a valuable part of your financial plan; however, shares of the Fund are
not FDIC or NCUSIF insured, are not guaranteed by any bank or any credit union,
and involve investment risk, including the possible loss of the principal amount
invested. Shares of the Fund are not bank or credit union deposits.
(C) Delaware Distributors, L.P.
DELAWARE(sm)
INVESTMENTS
- ---------------------
Philadelphia o London
Printed in the USA
on recycled paper
(2426) J5346
SA-437 [10/99] PP12/99
