<PAGE>
DELAWARE
INVESTMENTS
-----------
Delaware Tax-Efficient Equity Fund
Growth of Capital
2001 SEMI-ANNUAL REPORT
[GROWTH OF CAPITAL ARTWORK]
<PAGE>
A TRADITION OF SOUND INVESTING SINCE 1929
-----------------------------------------
Table of Contents
Letter to Shareholders 1
Portfolio Management
Review 2
Performance Summary 5
Financial Statements
Statement of Net Assets 6
Statement of Operations 8
Statements of Changes in
Net Assets 9
Financial Highlights 10
Notes to Financial
Statements 12
A Commitment To Our Investors
Experienced
o Our seasoned investment professionals average 11 years' experience.
o We began managing investments in 1929 and opened our first mutual fund in
1938. Over the past 70 years, we have weathered a full range of economic and
market environments.
Disciplined
o We follow strict investment policies and clear buy/sell guidelines.
o We strive to balance risk and reward in order to provide sound investment
alternatives within any given asset class.
Consistent
o We clearly articulate our investment policies and follow them consistently.
o Our commitment to consistency has earned us the confidence of discriminating
institutional and individual investors to manage more than $44 billion in
assets as of September 30, 2000.
Comprehensive
o We offer more than 70 mutual funds in these asset classes.
o Large-cap equity
o High-yield bonds
o Mid-cap equity
o Investment grade bonds
o Small-cap equity
o Municipal bonds
o International equity (single-state and national funds)
o Balanced
o International fixed-income
o Our funds are available through financial advisers who can offer you
individualized attention and valuable investment advice.
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested. (C) Delaware Distributors, L.P.
<PAGE>
"WE BELIEVE DELAWARE
TAX-EFFICIENT EQUITY
FUND IS WELL-POSITIONED
FOR THE MARKET
OPPORTUNITIES THAT
LIE AHEAD."
Dear Shareholder
December 4, 2000
Recap of Events - Over the past six months, the U.S. economy has begun to slow
down, after continuing its blistering pace throughout the early part of 2000.
The Federal Reserve Board's series of interest rate hikes culminated with a half
percentage point increase in May. Since then, the Fed has held off from further
rate increases.
Over the past half year, it has become clear that the interest rate increases
have had their intended effect of slowing U.S. economic growth to a more
sustainable level. Evidence of this can be seen with the annualized Gross
Domestic Product (GDP) growth declining to 2.7% in the third calendar quarter of
2000, from 4.8% and 5.6% in the first and second quarters, respectively (Source:
U.S. Bureau of Economic Analysis).
Higher business costs, including energy costs, have contributed to the slowdown
as well. The markets have rediscovered the value of valuations and the
importance of consistent earnings. Besides having the effect of bringing
overvalued technology growth stocks back down to earth, this has broadened
market performance, which is good news for diversified investors.
Delaware Tax-Efficient Equity Fund posted a return of -4.19% (Class A shares at
net asset value with distributions reinvested) for the six-month period ended
October 31, 2000. Although this performance is disappointing, we are encouraged
by the market's shift away from "growth-at-any-price" attitude with one that
appreciates "growth at a reasonable price."
Market Outlook - We believe that the market's broadening and the re-emphasis on
reasonable valuations and consistent earnings are positive signs. We believe
Delaware Tax-Efficient Equity Fund is well-positioned for the market
opportunities that lie ahead.
Sincerely,
/s/ Wayne A. Stock /s/ David K. Downes
------------------------ ----------------------
Wayne A. Stork David K. Downes
Chairman, President and Chief Executive Officer,
Delaware Investments Family of Funds Delaware Investments Family of Funds
Total Return
For The Period Ended October 31, 2000 Six Months
-------------------------------------------------------------------------
Delaware Tax-Efficient Equity Fund Class A Shares -4.19%
-------------------------------------------------------------------------
Standard & Poor's 500 Index -1.03%
Lipper Multi-Cap Core Funds Average (445 funds) +0.19%
-------------------------------------------------------------------------
All performance shown above is at net asset value and assumes reinvestment of
all distributions. Performance information for all Fund classes can be found on
page 5. The S&P 500 Index is an unmanaged composite of mostly
large-capitalization U.S. companies. The Lipper category represents the average
return of all multi-cap mutual funds tracked by Lipper (Source: Lipper Inc.).
You cannot invest directly in an index. Past performance does not guarantee
future results.
1
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
---------------------------
Francis X. Morris
Senior Portfolio Manager
December 4, 2000
"IN THE SPRING, WHEN
THE MARKET BEGAN TO
FOCUS ONCE AGAIN ON
VALUATIONS AND
EARNINGS, THE FUND'S
PERFORMANCE BEGAN TO
PICK UP."
The Fund's Results
Delaware Tax-Efficient Equity Fund had a -4.19% total return (Class A shares at
net asset value with distributions reinvested) for the six-month period ending
October 31, 2000. Our disappointing performance resulted, in part, from the
market's focus during the beginning of our fiscal period on highly valued
momentum-driven stocks, including those in the technology sector.
In the summer, when the market began to focus once again on valuations and
earnings, the Fund's performance began to pick up. And as valuations for many
technology companies became more reasonable, we were able to increase our
exposure to this dynamic sector. From August through October, as we began to see
more attention paid to growth at a reasonable price, our performance improved
materially.
Delaware Tax-Efficient Equity Fund continues to focus on stocks with attractive
valuations relative to their growth potential and companies that have stable,
consistent earnings growth under a variety of economic conditions.
Portfolio Highlights
Among our holdings, Delaware Tax-Efficient Equity Fund benefited from good
performance among stocks in the energy, financial services and consumer products
sectors. The Fund took a broad approach to energy stocks, seeing opportunities
throughout the sector. Amerada Hess and Halliburton, among others, delivered
strong performance. We sold our holdings in Anadarko Petroleum and Nabors
Industries, as we felt their stock prices fully reflected their future earnings.
Our investments in government services enterprises, such as Federal Home Loan
(Freddie Mac), and in specialty finance companies, such as MBNA and Capital One
Financial, performed well over the six-month period. In consumer products, we
benefited by owning Best Foods, a high quality company that was acquired by
Unilever. We have since sold our holdings in Best Foods as we believed the
shares approached the takeover price.
The Fund also experienced some disappointments. Many investors who held
companies that missed their earnings or downgraded their forecasts got stung. In
our case, Procter & Gamble and Honeywell International, which has since been
acquired by General Electric, missed earnings targets. As a shareholder, we paid
the price when these stocks tumbled. We sold our position in Procter & Gamble,
because we did not believe the company would produce earnings in the foreseeable
future.
[Growth of Capital Artwork]
2
<PAGE>
Delaware Tax-Efficient
Equity Fund
Portfolio Characteristics
October 31, 2000
---------------------------------------------------
Beta* 0.89
---------------------------------------------------
Average Price-to-Earnings Ratio** 25.93
---------------------------------------------------
Median Market
Capitalization $52.30 billion
---------------------------------------------------
*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.
**P/E is based on analysts' forward earnings estimates as reported by First
Call/ Thomson Financial.
Our telecommunications holdings have also hampered our performance. The Fund was
particularly hurt by our holdings in AT&T. We sold the stock in July 2000
because of its uncertain prospects.
A major factor in our relative underperformance was that we had significantly
fewer holdings in technology stocks than our benchmark. Early in the calendar
year, we held just 15% of our assets in technology stocks, compared with a
technology weighting of more than 30% for the Standard & Poor's 500 Index. Since
the Fund focuses on stocks with reasonable valuations, we were not attracted to
many of the high-priced technology stocks and we struggled to find opportunities
that met our investment criteria.
Additionally, even those technology stocks that met our criteria because of
lower valuations were not immune to sharp market corrections. In particular, the
Fund held a position in Computer Associates International, which experienced an
earnings disappointment when demand for new technology decreased following the
Y2K conversion. However, as technology stock prices declined over the past six
months, we took advantage of opportunities to purchase what we believed were
some high-quality companies that had returned to more reasonable valuations
while continuing to reach their earnings targets. Our recent additions in this
sector include EMC, Electronic Data Systems and First Data. These consistent
earnings growers have traded at relative discounts to their earnings history and
to the market. As of October 31, 2000, technology stocks made up 23% of our
portfolio.
We continue to manage the Fund with an eye on tax-efficiency. For example, we
look for opportunities to take tax losses by selling losing stocks when it makes
sense. Often we invest in a similar stock with the sale proceeds.
Outlook
Corporate profits appear to be slowing, due in part to rising costs and to a
natural economic slowing after a prolonged period of expansion. This type of
environment is generally positive for our investing style as it tends to favor
solid companies with consistent earnings. Now that we feel it appears more
likely that the Federal Reserve Board will soon begin to lower interest rates,
we are looking for opportunities in stocks that tend to perform well in the
early stages of the economic cycle, such as retail stocks. Generally, we are
confident about investment opportunities for the Fund over the next year.
3
<PAGE>
Delaware Tax-Efficient Equity Fund
Sector Allocation
As of October 31, 2000
Other 7.70%
Consumer Products 4.84%
Telecommunications 8.91%
Healthcare & Pharmaceuticals 12.44%
Banking & Insurance 19.82%
Computers & Technology 22.54%
Industrial Machinery 4.14%
Food, Beverage & Tobacco 3.51%
Transportation &
Shipping 2.87%
Electronics & Electrical Equipment 3.08%
Energy 10.15%
Top 10 Holdings
October 31, 2000
Company Percentage of Net Assets
--------------------------------------------------------------------------------
1. Johnson & Johnson 3.44%
--------------------------------------------------------------------------------
2. General Electric 3.05%
--------------------------------------------------------------------------------
3. Pfizer 3.04%
--------------------------------------------------------------------------------
4. Federal Home Loan 3.02%
--------------------------------------------------------------------------------
5. Tyco International 3.00%
--------------------------------------------------------------------------------
6. SBC Communications 2.88%
--------------------------------------------------------------------------------
7. Tidewater 2.87%
--------------------------------------------------------------------------------
8. Microsoft 2.80%
--------------------------------------------------------------------------------
9. Exxon Mobil 2.70%
--------------------------------------------------------------------------------
10. Coastal 2.60%
--------------------------------------------------------------------------------
Benefits of Investing in Delaware Tax-Efficient Equity Fund
Investors seeking the most after-tax returns on their mutual fund holdings as
possible may be well-served by investing in Delaware Tax-Efficient Equity Fund.
Tax-efficient funds strive to achieve long-term capital appreciation while
limiting taxable distributions of capital gains and dividends.
Delaware Tax-Efficient Equity Fund employs several strategies to minimize
taxable distributions to shareholders, including:
o Quantitative Management. We seek to ensure that the upside potential
trades more than outweigh the tax consequences.
o Low Portfolio Turnover. We tend to own stocks over longer time periods to
avoid taxable distributions. For the six months ended October 31, 2000, the
Fund's portfolio turnover was 71%.
o Low Dividend Yields. We typically focus on stocks with dividend yields that
are significantly lower than the S&P 500 Index 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.
Although Delaware Tax-Efficient Equity Fund may be appropriate for any
investors, it may be especially well suited to the long-term investment needs of
high tax bracket investors, retirement savers and college savers. By reducing
capital gains and distributions whenever possible, tax-efficient funds attempt
to put more money in shareholders' pockets and out of Uncle Sam's. To learn more
on how Delaware Tax-Efficient Equity Fund fits into your overall asset
allocation, or for a prospectus, contact your financial adviser or call
Delaware's Investments at 1.800.523.1918. Please read the prospectus carefully
before you invest.
[Growth of Capital Artwork]
4
<PAGE>
FUND BASICS
-----------
Fund Objective The Fund seeks to obtain for taxable investors a high total
return on an after-tax basis.
Total Fund Assets
As of October 31, 2000
$47.92 million
Number of Holdings
59
Fund Start Date
June 27, 1997
Your Fund Managers
Francis X. Morris received a BA at Providence College and an MBA degree from
Widener University. He joined Delaware in 1997. Previously, he served as vice
president and director of equity research at PNC Asset Management. Mr. Morris is
a past president of the Financial Analysts Society of Philadelphia and is a
member of the Association for Investment Management and Research and the
National Association of Petroleum Investment Analysts.
Nasdaq Symbols
Class A DVXAX
Class B DVXBX
Class C DVXCX
DELAWARE TAX-EFFICIENT EQUITY FUND PERFORMANCE
----------------------------------------------
Average Annual Total Returns
Through October 31, 2000 Lifetime Three Years One Year
--------------------------------------------------------------------------------
Class A (Est. 6/27/97)
Excluding Sales Charge +6.58% +5.50% -3.93%
Including Sales Charge +4.70% +3.42% -9.47%
--------------------------------------------------------------------------------
Class B (Est. 6/27/97)
Excluding Sales Charge +5.81% +4.69% -4.73%
Including Sales Charge +5.02% +3.77% -9.49%
--------------------------------------------------------------------------------
Class C (Est. 6/27/97)
Excluding Sales Charge +5.84% +4.73% -4.73%
Including Sales Charge +5.84% +4.73% -5.68%
--------------------------------------------------------------------------------
Returns reflect the 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
share results, excluding sales charges, assume either that contingent deferred
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 also subject to a contingent
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.
The average annual total returns for the lifetime, three-year and one-year
periods ended October 31, 2000 for Delaware Tax-Efficient Equity Fund's
Institutional Class shares were +6.21%, +5.62% and -3.21%, respectively. The
Institutional Class was originally made available without sales charges or
asset-based distribution charges only to certain eligible institutional accounts
on August 29, 1997. Institutional Class performance prior to that date is based
on Class A performance adjusted to eliminate sales charges, but not the
asset-based distribution charge of Class A.
An expense limitation was in effect for all classes of Delaware Tax-Efficient
Fund during the periods shown. Performance would have been lower if the expense
limitation was not in effect.
Nasdaq Symbol Institutional Class: DVXIX
5
<PAGE>
Statement of Net Assets
DELAWARE TAX-EFFICIENT EQUITY FUND
----------------------------------
Number of Market
October 31, 2000 (Unaudited) Shares Value
---------------------------------------------------------------------------
Common Stock -97.63%
Banking, Finance & Insurance - 19.82%
American International Group .................... 6,812 $ 667,576
AXA Financial ................................... 17,500 946,094
Capital One Financial ........................... 16,400 1,035,250
Chase Manhattan ................................. 22,800 1,037,400
Citigroup ....................................... 15,933 838,474
Dime Bancorp .................................... 18,000 439,875
Federal Home Loan ............................... 24,100 1,446,000
Fleet Boston Financial .......................... 31,100 1,181,800
MBNA ............................................ 19,500 732,469
Merrill Lynch ................................... 4,100 287,000
Morgan (J.P.) ................................... 2,600 430,300
Morgan Stanley Dean Witter ...................... 5,700 457,781
----------
9,500,019
----------
Chemicals - 1.18%
Dow Chemical .................................... 18,500 566,563
----------
566,563
----------
Computers & Technology - 22.54%
*America Online .................................. 14,800 746,364
Compaq Computer ................................. 35,900 1,091,719
*Cisco Systems ................................... 18,000 969,750
EMC ............................................. 9,300 828,281
Electronic Data Systems ......................... 13,100 614,881
First Data ...................................... 18,400 922,300
*Gateway ......................................... 15,400 794,794
Hewlett-Packard ................................. 18,000 835,875
International Business Machines ................. 7,300 719,050
*Microsoft ....................................... 19,500 1,343,063
Nortel Networks ................................. 16,200 737,100
*Oracle .......................................... 36,300 1,197,900
----------
10,801,077
----------
Consumer Products - 4.84%
Kimberly-Clark .................................. 13,300 877,800
Tyco International .............................. 25,400 1,439,863
----------
2,317,663
----------
Electronics & Electrical Equipment - 3.08%
*Integrated Device Technology .................... 5,300 298,456
Intel ........................................... 26,200 1,179,000
----------
1,477,456
----------
Energy - 10.15%
Amerada Hess .................................... 11,500 713,000
Coastal ......................................... 16,500 1,244,719
Exxon Mobil ..................................... 14,500 1,293,219
Halliburton ..................................... 23,300 863,556
Sunoco .......................................... 16,400 490,975
*Westport Resources .............................. 16,300 257,744
----------
4,863,213
----------
<PAGE>
Common Stock (continued)
Food, Beverage & Tobacco - 3.51%
Anheuser Busch .................................. 3,100 $ 141,825
Coca Cola ....................................... 10,300 621,863
*Kroger .......................................... 40,800 920,550
----------
1,684,238
----------
Healthcare & Pharmaceuticals - 12.44%
American Home Products .......................... 15,400 977,900
*Amgen ........................................... 5,800 336,038
Baxter International ............................ 4,900 402,719
Johnson & Johnson ............................... 17,900 1,649,038
Medtronic ....................................... 10,200 553,988
Merck ........................................... 6,500 584,594
Pfizer .......................................... 33,700 1,455,419
----------
5,959,696
----------
Industrial Machinery - 4.14%
General Electric ................................ 26,700 1,463,494
Honeywell International ......................... 9,687 521,282
----------
1,984,776
----------
Leisure, Lodging & Entertainment - 1.60%
Viad ............................................ 35,800 765,224
----------
765,224
----------
Retail - 1.64%
Wal-Mart Stores ................................. 17,300 784,987
----------
784,987
----------
Telecommunications - 8.91%
ALLTEL .......................................... 9,000 579,937
BellSouth ....................................... 11,200 541,100
Lucent Technologies ............................. 17,300 403,306
*McLeodUSA Class A ............................... 31,700 610,224
SBC Communications .............................. 23,900 1,378,731
*Worldcom ........................................ 31,800 755,250
----------
4,268,548
----------
Transportation & Shipping - 2.87%
Tidewater ....................................... 29,800 1,376,387
----------
1,376,387
----------
Utilities - 0.91%
*AES ............................................. 6,300 355,950
*TNPC ............................................ 4,900 81,462
----------
437,412
----------
Total Common Stock (cost $44,411,213) 46,787,259
----------
6
<PAGE>
Statement of Net Assets (continued)
Principal Market
Delaware Tax-Free Efficient Equity Fund Amount Value
---------------------------------------------------------------------------
Repurchase Agreements - 4.56%
With Chase Manhattan 6.55% 11/1/00
(dated 10/31/00, collateralized by $769,000
U.S. Treasury Notes 4.75% due 2/15/04,
market value $753,786) ........................ $736,000 $ 736,000
With J.P. Morgan Securities 6.52% 11/1/00
(dated 10/31/00, collateralized by $306,000
U.S. Treasury Notes 6.25% due 2/15/03,
market value $311,334, $207,000
U.S. Treasury Notes 5.25% due 8/15/03,
market value $206,336 and $207,000
U.S. Treasury Notes 7.25% due 5/15/04,
market value $223,326) ........................ 726,000 726,000
With PaineWebber 6.54% 11/1/00 (dated
10/31/00, collateralized by $719,000
U.S. Treasury Notes 5.875% due 11/15/05,
market value $741,652) ........................ 725,000 725,000
----------
Total Repurchase Agreements
(cost $2,187,000) 2,187,000
----------
Total Market Value of Securities - 102.19%
(cost $46,598,213) ............................ 48,974,259
Liabilities Net of Receivables and
Other Assets - (2.19%) ....................... (1,051,620)
----------
Net Assets Applicable to 4,621,747 Shares
Outstanding - 100.00% ........................... $47,922,639
----------
Net Asset Value - Delaware Tax-Efficient Equity
Fund A Class
($18,599,355 / 1,768,249 shares) .............. $10.52
------
Net Asset Value - Delaware Tax-Efficient Equity
Fund B Class
($24,003,774 / 2,336,268 shares) .............. $10.27
------
Net Asset Value - Delaware Tax-Efficient Equity
Fund C Class
($5,319,497 / 517,229 shares) ................. $10.28
------
Net Asset Value - Delaware Tax-Efficient Equity
Fund Institutional Class
($12.53 / 1.185 shares) ....................... $10.57
------
<PAGE>
Components of Net Assets at October 31, 2000:
Shares of beneficial interest
(unlimited authorization - no par) ............ $50,981,405
Accumulated net investment loss ................. (222,744)
Accumulated net realized loss on investments .... (5,212,068)
Net unrealized appreciation of investments ...... 2,376,046
-----------
Total Net Assets ................................ $47,922,639
-----------
------------
*Non-income producing security for the period ended
October 31, 2000.
ADR-American Depositary Receipt
Net Asset Value and Offering Price Per Share -
Delaware Tax-Efficient Equity Fund
Net asset value A Class (A) ...................... $10.52
Sales charge (5.75% of offering price or 6.08%
of the amount invested per share) (B) .......... 0.64
------
Offering price ................................... $11.16
------
----------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $50,000 or more.
See accompanying notes
7
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Six Months Ended October 31, 2000 (Unaudited) Delaware Tax-Efficient Equity Fund
-------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividends ............................................... $241,008
Interest ................................................ 56,180 $ 297,188
-------
Expenses:
Management fees ......................................... 204,070
Distribution expense .................................... 193,214
Dividend disbursing and transfer agent fees and expenses 58,059
Reports and statements to shareholders .................. 42,197
Registration fees ....................................... 31,299
Accounting and administration ........................... 11,236
Taxes (other than taxes on income) ...................... 3,061
Trustees' fees .......................................... 1,430
Custodian fees .......................................... 806
Other ................................................... 2,740 548,112
-------
Less expenses absorbed or waived ........................ (26,752)
Less expenses paid indirectly ........................... (1,428)
........................................................ -----------
Total Expenses .......................................... 519,932
-----------
Net Investment Loss ..................................... (222,744)
-----------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments ........................ 1,138,796
Net change in unrealized appreciation/depreciation of
investments ............................................ (3,177,369)
Net Realized and Unrealized Loss on Investments ......... (2,038,573)
Net Decrease in Net Assets Resulting From Operations .... $(2,261,317)
-----------
</TABLE>
See accompanying notes
8
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Delaware Tax-Efficient Equity Fund
----------------------------------------------------------------------------------------------------------
Six Months Year
Ended Ended
10/31/00 4/30/00
(Unaudited)
<S> <C> <C>
Increase (Decrease) in Net Assets from Operations:
Net investment loss ............................................... $ (222,744) $ (418,268)
Net realized gain (loss) on investments ........................... 1,138,796 (3,007,008)
Net change in unrealized appreciation/depreciation of investments . (3,177,369) (4,848,748)
------------------------------
Net decrease in net assets resulting from operations .............. (2,261,317) (8,274,024)
------------------------------
Capital Share Transactions:
Proceeds from shares sold:
A Class ......................................................... 803,369 8,272,325
B Class ......................................................... 1,651,265 13,425,139
C Class ......................................................... 455,803 4,283,208
Institutional Class ............................................. - 79,623
------------------------------
2,910,437 26,060,295
------------------------------
Cost of shares repurchased:
A Class ......................................................... (4,244,056) (22,172,379)
B Class ......................................................... (5,606,198) (18,799,714)
C Class ......................................................... (1,580,016) (7,713,223)
Institutional Class ............................................. - (79,363)
------------------------------
(11,430,270) (48,764,679)
------------------------------
Decrease in net assets derived from capital share transactions .... (8,519,833) (22,704,384)
------------------------------
Net Decrease in Net Assets ........................................ (10,781,150) (30,978,408)
Net Assets:
Beginning of period ............................................... 58,703,789 89,682,197
------------------------------
End of period ..................................................... $47,922,639 $58,703,789
------------------------------
</TABLE>
See accompanying notes
9
<PAGE>
Financial Highlights
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Delaware Tax-Efficient Equity Fund A Class
-------------------------------------------------------------------------------------------------------
Six Period
Months 6/27/97(1)
Ended Year Ended to
10/31/00 4/30/00 4/30/99 4/30/98
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value, beginning of period .............. $10.980 $11.790 $11.010 $ 8.500
Income (loss) from investment operations:
Net investment income (loss)(2) ................. (0.020) (0.008) (0.006) 0.010
-----------------------------------------------
Net realized and unrealized gain (loss)
on investments ................................ (0.440) (0.802) 0.786 2.500
-----------------------------------------------
Total from investment operations .................. (0.460) (0.810) 0.780 2.510
-----------------------------------------------
Net asset value, end of period .................... $10.520 $10.980 $11.790 $11.010
-----------------------------------------------
Total return(3) ................................... (4.19%) (6.87%) 7.09% 29.53%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ......... $18,599 $22,861 $40,174 $13,898
Ratio of expenses to average net assets ......... 1.45% 1.32% 1.45% 1.47%
Ratio of expenses to average net assets
prior to expense limitation and
expenses paid indirectly ...................... 1.55% 1.37% 1.61% 1.99%
Ratio of net investment income (loss) to average
net assets ..................................... (0.36%) (0.07%) (0.10%) 0.13%
Ratio of net investment loss to average
net assets prior to expense limitation and
expenses paid indirectly ...................... (0.46%) (0.12%) (0.26%) (0.39%)
Portfolio turnover .............................. 71% 117% 48% 14%
</TABLE>
<PAGE>
[RESTUB TABLE]
<TABLE>
<CAPTION>
Delaware Tax-Efficient Equity Fund B Class
----------------------------------------------------------------------------------------------------
Six Period
Months 6/27/97(1)
Ended Year Ended to
10/31/00 4/30/00 4/30/99 4/30/98
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value, beginning of period .............. $10.770 $11.650 $10.960 $ 8.500
Income (loss) from investment operations:
Net investment income (loss)(2) ................. (0.054) (0.089) (0.089) (0.053)
-----------------------------------------------
Net realized and unrealized gain (loss)
on investments ................................ (0.446) (0.791) 0.779 2.513
-----------------------------------------------
Total from investment operations .................. (0.500) (0.880) 0.690 2.460
-----------------------------------------------
Net asset value, end of period .................... $10.270 $10.770 $11.650 $10.960
-----------------------------------------------
Total return(3) ................................... (4.73%) (7.55%) 6.30% 28.94%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ......... $24,004 $29,136 $38,225 $7,958
Ratio of expenses to average net assets ......... 2.20% 2.07% 2.20% 2.20%
Ratio of expenses to average net assets
prior to expense limitation and
expenses paid indirectly ...................... 2.30% 2.07% 2.36% 2.72%
Ratio of net investment income (loss) to average
net assets ..................................... (1.11%) (0.82%) (0.85%) (0.60%)
Ratio of net investment loss to average
net assets prior to expense limitation and
expenses paid indirectly ...................... (1.21%) (0.82%) (1.01%) (1.12%)
Portfolio turnover .............................. 71% 117% 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.
See accompanying notes
10
<PAGE>
Financial Highlights (continued)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Delaware Tax-Efficient Equity Fund C Class
-----------------------------------------------------------------------------------------------------------
Six Period
Months 6/27/97(1)
Ended Year Ended to
10/31/00 4/30/00 4/30/99 4/30/98
(Unaudited)
<S> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $10.780 $11.660 $10.960 $ 8.500
Income (loss) from investment operations:
Net investment loss(2) .................................... (0.054) (0.089) (0.089) (0.054)
Net realized and unrealized gain (loss) on investments .... (0.446) (0.791) 0.789 2.514
--------------------------------------------
Total from investment operations .......................... (0.500) (0.880) 0.700 2.460
--------------------------------------------
Net asset value, end of period ............................ $10.280 $10.780 $11.660 $10.960
--------------------------------------------
Total return(3) ........................................... (4.73%) (7.55%) 6.39% 28.94%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................... $5,319 $6,707 $11,284 $2,451
Ratio of expenses to average net assets ................... 2.20% 2.07% 2.20% 2.20%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ................. 2.30% 2.07% 2.36% 2.72%
Ratio of net investment loss to average net assets ........ (1.11%) (0.82%) (0.85%) (0.60%)
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly ...... (1.21%) (0.82%) (1.01%) (1.12%)
Portfolio turnover ........................................ 71% 117% 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.
For the periods September 1, 1997 through March 9, 1998, and June 17, 1999
through June 23, 1999, the Institutional Class sold shares which were
subsequently redeemed by shareholders. As of April 30, 2000 and since the
commencement of operations of the Institutional Class, excluding the
aforementioned activity, the Institutional class had one share outstanding,
representing initial seed purchase. Data for this class is excluded from the
Financial Highlights because the data is not believed to be meaningful.
See accompanying notes
11
<PAGE>
Notes to Financial Statements
--------------------------------------------------------------------------------
October 31, 2000 (Unaudited)
Voyageur Mutual Funds III (the "Trust") is organized as a Delaware Business
Trust and offers three series: Delaware Select Growth Fund (formerly Aggressive
Growth Fund), Delaware Growth Stock Fund and Delaware Tax-Efficient Equity Fund.
These financial statements and related notes pertain to the Delaware
Tax-Efficient Equity Fund (the "Fund"). The Fund is a diversified open-end
investment company under the Investment Company Act of 1940, as amended. The
Fund offers four classes of shares. The A Class carries a maximum front-end
sales charge of 5.75%. The B Class carries a back-end deferred sales charge. The
C Class carries a level load deferred sales charge. The Institutional Class has
no sales charge.
The investment objective of the Fund is to seek 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 accounting principles
generally accepted in the United States and are consistently followed by the
Fund.
Security Valuation - All equity securities are valued at the last quoted sales
price as of the close of the New York Stock Exchange (NYSE) on the valuation
date. If on a particular day an equity security does not trade, then the mean
between the bid and asked prices will be used. Money market instruments having
less than 60 days to maturity are valued at amortized cost, which approximates
market value. 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 Funds' Board of Trustees.
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 accounting
principles generally accepted in the United States.
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 102% 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.
<PAGE>
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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.
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, if any, semi-annually.
Certain expenses of the Fund are paid through commission arrangements with
brokers. These transactions are done subject to best execution. The amount of
these expenses was approximately $622 for the period ended October 31, 2000. In
addition, the Fund receives earnings credits from its custodian when positive
balances are maintained, which are used to offset custody fees. These credits
were $806 for the period ended October 31, 2000. The expenses paid under the
above arrangements are included in their respective expense captions on the
Statement of Operations with the corresponding expense 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), series of Delaware Management Business Trust and 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 net assets, 0.70% on the next $500
million, 0.65% on the next $1.5 billion and 0.60% on net assets in excess of
$2.5 billion. At October 31, 2000 the Fund had no liability for investment
management fees and other expenses payable to DMC.
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 December
31, 2000.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent, and accounting and
administration 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, 2000, the Fund had a liability for such fees
and other expenses payable to DSC for $8,389.
12
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
2. Investment Management and Other Transactions with Affiliates 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 0.30% of the
average daily assets of the A Class and 1.00% of the average daily net assets of
the B and C Classes. At October 31, 2000, the Fund had a liability for
distribution fees and other expenses payable to DDLP of $7,273.
For the period ended October 31, 2000, DDLP earned $2,520 for commissions on
sales of the Fund A Class shares.
Certain officers of DMC, DSC and DDLP are officers, trustees and/or employees of
the Fund. These officers, trustees and employees are paid no compensation by the
Fund.
3. Investments
For the period ended October 31, 2000, the Fund made purchases of $37,424,496
and sales of $47,391,688 of investment securities other than U.S. government
securities and temporary cash investments.
At October 31, 2000, the cost of investments for federal income tax purposes
approximates the cost for book purposes. At October 31, 2000, the net unrealized
appreciation for federal income tax purposes was $2,376,046 of which $5,058,662
related to unrealized appreciation of securities and $2,682,616 related to
unrealized depreciation of securities.
For federal income tax purposes, the Fund had a capital loss carryforward at
April 30, 2000 of $5,927,617 which may be carried forward and applied against
future capital gains. The capital loss carryforward expires as follows: 2006 -
$11,808, 2007 - $691,649 and 2008 - $5,224,160.
4. Capital Shares
Transactions in capital shares were as follows:
Six Months Year
Ended Ended
10/31/00 4/30/00
(Unaudited)
Shares sold:
A Class 73,377 735,398
B Class 154,953 1,205,712
C Class 42,508 383,253
Institutional Class - 6,731
---------- ----------
270,838 2,331,094
---------- ----------
Shares repurchased:
A Class (386,959) (2,060,037)
B Class (524,848) (1,779,812)
C Class (147,622) (728,948)
Institutional Class - (6,731)
---------- ----------
(1,059,429) (4,575,528)
---------- ----------
Net decrease (788,591) (2,244,434)
---------- ----------
<PAGE>
5. Lines of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $375,400,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one-third of their net assets under the agreement. The
Fund had no amount outstanding at October 31, 2000, or at any time during the
period.
13
<PAGE>
DELAWARE
INVESTMENTS
---------------------
Philadelphia o London
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
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. 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.
--------------------------------------------------------------------------------
BOARD OF TRUSTEES
Wayne A. Stork
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman
Citadel Constructors, Inc.
King of Prussia, PA
David K. Downes
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
John H. Durham
Private Investor
Horsham, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates
New York, NY
Ann R. Leven
Former Treasurer, National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Charles E. Peck
Retired
Fredericksburg, VA
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN
AFFILIATED OFFICERS
Charles E. Haldeman, Jr.
President and Chief Executive Officer
Delaware Management Holdings, Inc.
Philadelphia, PA
Richard J. Flannery
Executive Vice President
and General Counsel
Delaware Investments Family of Funds
Philadelphia, PA
<PAGE>
Bruce D. Barton
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
Investment Manager
Delaware Management Company
Philadelphia, PA
International Affiliate
Delaware International Advisers Ltd.
London, England
National Distributor
Delaware Distributors, L.P.
Philadelphia, PA
Shareholder Servicing, Dividend
Disbursing and Transfer Agent
Delaware Service Company, Inc.
Philadelphia, PA
2005 Market Street
Philadelphia, PA 19103-7042
(4082) Printed in the USA
SA-437 [10/00] BP 12/00 (J6568)
