<PAGE>
DELAWARE(SM)
INVESTMENTS
-----------
Delaware Tax-Efficient Equity Fund
Growth of Capital
2000 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 4
Financial Statements
Statement of Net Assets 5
Statement of Operations 7
Statements of Changes in
Net Assets 8
Financial Highlights 9
Notes to Financial
Statements 11
Report of Independent
Auditors 13
A Commitment To Our Investors
Experienced
[ ] Our seasoned investment professionals average more than 15 years'
experience.
[ ] We opened our first mutual fund in 1938. For over 70 years, we have
managed money in a variety of investment styles that have weathered a full
range of economic and market environments.
Disciplined
[ ] We follow strict investment policies and clear buy/sell guidelines.
[ ] We strive to balance risk and reward in order to provide sound investment
alternatives within any given asset class.
Consistent
[ ] We believe consistent processes are the best way to seek consistent
investment performance.
[ ] Our commitment to style consistency has earned us the confidence of
discriminating institutional and individual investors to manage over $46
billion in assets as of March 31, 2000.
Comprehensive
[ ] 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 (23 single-state funds)
o International equity o International fixed-income
o Balanced
[ ] 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>
Dear Shareholder
"DELAWARE TAX-EFFICIENT EQUITY FUND ADHERED TO ITS STRATEGY OF SELECTING
COMPANIES THAT, IN OUR OPINION, HAVE CONSISTENT EARNINGS GROWTH AND REASONABLE
VALUATIONS."
June 12, 2000
Recap of Events - Over the past 12 months, the U.S. economy roared through its
ninth consecutive year of uninterrupted expansion. Ignoring multiple efforts by
the Federal Reserve Board to rein it in, the economy continued to set a
blistering pace right into the first quarter of calendar 2000 when the Gross
Domestic Product (GDP) rose more than 5% on an annualized basis in just three
months (Source: Bloomberg).
At the beginning and again at the end of our fiscal year market interest
broadened to include an array of U.S. companies representing a variety of
sectors. This was promising for us; however, for most of the period in between
the markets remained narrowly focused on technology stocks.
The tech boom even brushed off multiple Fed interest rate hikes from June, 1999
through February, 2000. On the other hand, the so-called "old economy" stocks of
the Dow Jones Industrial Average were not immune to rising interest rates and
many of them, largely as a result of interest rate pressures, posted negative
returns for the last six months.
Delaware Tax-Efficient Equity Fund adhered to its strategy of selecting
companies that, in our opinion, have consistent earnings growth and reasonable
valuations. Unfortunately, with the market largely ignoring both earnings and
valuation levels for much of our fiscal period, Delaware Tax-Efficient Equity
Fund experienced a loss of -6.87% (Class A shares at net asset value with
distributions reinvested). On the positive side, a shift to a broader market
focus emerged in March and April, 2000 and resulted in positive results for your
Fund during this period.
Market Outlook - We believe Delaware Tax-Efficient Equity Fund is well
positioned to benefit from a continued broadening of investor interest to
include stocks other than technology and a renewed appreciation of earnings and
valuations as key indicators of future stock appreciation.
Sincerely,
/s/ Wayne A. Stork /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 Period Ended April 30, 2000 One Year
----------------------------------------------------------------------
Delaware Tax-Efficient Equity Fund Class A -6.87%
----------------------------------------------------------------------
Lipper Multi-Cap Core Funds Average (411 funds) +15.59%
Standard & Poor's 500 Index +10.12%
----------------------------------------------------------------------
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 4. The Lipper Multi-Cap
Core Funds Average is the average of all multi-cap mutual funds tracked by
Lipper Analytical (Source: Lipper Analytical Services, Inc.). The S&P 500 Index
is an unmanaged composite of mostly large capitalization U.S. companies. 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
June 12, 2000
The Fund's Results
Fiscal 2000 was a difficult year for Delaware Tax-Efficient Equity Fund with
total return falling 6.87% for the 12 months ended April 30, 2000 (Class A
shares at net asset value with distributions reinvested). By comparison, the S&P
500 Index generated a return of 10.12% and the Lipper Multi-Cap Core Funds
Average returned 15.59% over the same period.
The primary reason for this relatively poor performance was that the Fund's
strategy of focusing on stocks selling below their true value with a consistent
record of earnings growth precluded us from buying many of the high flying
technology issues that dominated the markets over the course of the year. As a
result, we didn't share in some of the truly spectacular gains generated by
technology companies that either had no earnings or were already priced at
valuation levels far in excess of what we believe to be justified.
Additionally, our goal of minimizing tax exposure by holding our investments for
fairly long periods of time clearly ran counter to the rapid trading mentality
that dominated the market for much of our fiscal year.
Happily, in March and April, 2000, the market broadened and investors began to
shift money away from so-called "new economy" stocks of the Nasdaq Composite and
toward a number of undervalued issues where strong earnings could be purchased
at a reasonable price. As a result, your Fund achieved positive results in March
and April.
Portfolio Highlights
In fiscal 2000, Delaware Tax-Efficient Equity Fund continued to emphasize
sectors and individual stocks that met our criteria of:
(1) Attractive valuations relative to potential growth.
(2) Consistent earnings growth under a variety of economic conditions.
(3) Excess cash flow that can be re-invested in the business.
(4) Whenever possible, a positive company-specific event that might be expected
to impact growth.
We have significant holdings in the energy, capital goods and financial sectors.
And while we've been underweighted in technology compared to the
S&P 500 Index, we do own a number of technology issues that seem undervalued in
light of their consistent earnings growth. These include IBM, Compaq Computer
and Symbol Technologies, a company that designs and sells handheld scanners that
experienced earnings growth of 20% in 1999.
(Growth of Capital Artwork)
2
<PAGE>
"WE REMAIN FIRM IN OUR CONVICTION THAT, OVER THE LONG RUN, INVESTING IN
COMPANIES WHOSE EARNINGS GROWTH IS CONSISTENTLY TWICE THAT OF THE S&P 500 INDEX
HAS THE POTENTIAL TO PAY OFF HANDSOMELY."
We remain positive about financial companies which we believe have been
significantly undervalued for some time and have begun adding selectively to our
holdings. We own Federal Home Loan Mortgage Corporation (Freddie Mac), Fleet
Boston Financial and Wells Fargo & Company which all share a high degree of
earnings consistency and visibility going forward.
Outlook
While we expect to see volatile market conditions for some time to come, we are
optimistic that we will not see a return to the narrow market focus that made
the past 12 months so difficult. We are looking for a more balanced environment
where stock picking based on earnings and valuations will become increasingly
important.
We remain firm in our conviction that, over the long run, investing in companies
whose earnings growth is consistently twice that of the S&P 500 Index has the
potential to pay off handsomely. The simple fact is earnings do matter.
Valuations matter. Our job as investors is to purchase stocks with consistently
growing earnings at a reasonable price and that's what we continue to focus on.
Portfolio Highlights
<TABLE>
<CAPTION>
April 30, 2000 April 30, 1999
-----------------------------------------------------------------------------------------
<S> <C> <C>
Beta* 0.87 0.85
-----------------------------------------------------------------------------------------
Median Market Capitalization $21.3 billion $7.7 billion
-----------------------------------------------------------------------------------------
Number of Stocks 57 61
-----------------------------------------------------------------------------------------
Average Stock Price-to-Earnings Ratio** 24.8x 23.5x
-----------------------------------------------------------------------------------------
Top Sector Computers & Technology Consumer Growth
-----------------------------------------------------------------------------------------
Annual Portfolio Turnover 117% 48%
-----------------------------------------------------------------------------------------
</TABLE>
*Beta measures volatility of a fund relative to the S&P 500 Index and is based
on monthly returns for the last three years. 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. Because Delaware
Tax-Efficient Equity is less than three years old, it's Beta is calculated
since the Fund's inception.
**P/Es are based on analysts earnings estimates as reported to First Call.
3
<PAGE>
FUND BASICS
-----------
Fund Objectives
The Fund seeks to provide a high total return on an after-tax basis.
Total Fund Assets
$58.70 million
Number of Holdings
57
Fund Start Date
June 27, 1997
Your Fund Manager
Francis X. Morris received a bachelor's degree at Providence College and an MBA
degree from Widener University. He joined Delaware in 1997. He previously served
as Vice President and Director of Equity Research at PNC Asset Management. He 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
----------------------------------------------
Growth of a $10,000 Investment
June 27,1997 through April 30, 2000
[PLOT POINTS NEEDED!!!!!]
Chart assumes $10,000 invested on June 27, 1997. Fund performance includes the
effect of a 5.75% front-end sales charge and reinvestment of distributions and
capital gains. Performance of other Fund classes will vary due to different
charges and expenses. Past performance does not guarantee future results.
Average Annual Total Returns
Through April 30, 2000 Lifetime One Year
--------------------------------------------------------------------------------
Class A (Est. 6/27/97)
Excluding Sales Charge +9.42% -6.87%
Including Sales Charge +7.16% -12.23%
--------------------------------------------------------------------------------
Class B (Est. 6/27/97)
Excluding Sales Charge +8.68% -7.55%
Including Sales Charge +7.77% -12.18%
--------------------------------------------------------------------------------
Class C (Est. 6/27/97)
Excluding Sales Charge +8.71% -7.55%
Including Sales Charge +8.71% -8.47%
--------------------------------------------------------------------------------
Returns reflect reinvestment of distributions and any applicable sales charges
as noted below. Return 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 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.
An expense limitation was in effect for all classes of Delaware Tax-Efficient
Equity Fund during the period. Performance would have been lower if the expense
limitation was not in effect.
The average total annual returns for the lifetime and one-year periods ended
April 30, 2000 for Delaware Tax-Efficient Equity Fund Institutional Class were
+9.19%, and -6.20%, respectively. The Institutional Class (Est. August 29,1997)
is available without sales charge or asset-based distribution charges only to
certain eligible institutional accounts.
NASDAQ Symbol Institutional Shares: DVXIX
4
<PAGE>
Statement of Net Assets
Delaware Tax-Efficient Equity Fund
----------------------------------
Number of Market
April 30, 2000 Shares Value
--------------------------------------------------------------------------------
Common Stock - 100.15%
Banking, Finance & Insurance - 16.74%
American International Group .................... 9,575 $ 1,050,258
Bank of New York ................................ 24,500 1,006,031
Citigroup ....................................... 25,500 1,515,656
Federal Home Loan Mortgage Corporation .......... 31,600 1,451,625
Fleet Boston Financial .......................... 44,500 1,576,969
MBNA ............................................ 67,100 1,782,344
UnionBanCal ..................................... 16,700 462,381
Wells Fargo & Company ........................... 23,900 981,394
-----------
9,826,658
-----------
Cable, Media & Publishing - 3.46%
Gannett ......................................... 22,100 1,411,638
Knight-Ridder ................................... 12,600 618,188
-----------
2,029,826
-----------
Computers & Technology - 18.42%
*Atmel ........................................... 8,200 401,288
*CGS Systems International ....................... 30,600 1,411,425
Compaq Computer ................................. 24,800 725,400
Computer Associates International ............... 17,700 987,881
*Gateway ......................................... 10,100 558,025
International Business Machines ................. 11,100 1,239,038
*Microsoft ....................................... 9,000 627,750
Motorola ........................................ 3,900 464,344
*National Semiconductor .......................... 4,800 291,600
Nortel Networks ................................. 5,000 566,250
*Oracle .......................................... 13,100 1,047,181
Pharmacia ....................................... 19,397 968,638
*Tellabs ......................................... 12,500 685,156
United Technologies ............................. 13,500 839,531
-----------
10,813,507
-----------
Electronics & Electrical Equipment - 10.65%
*Integrated Device Tech .......................... 23,700 1,139,081
Intel ........................................... 21,000 2,663,063
Symbol Technologies ............................. 27,075 1,509,431
*Waters Corporation .............................. 9,900 940,500
-----------
6,252,075
-----------
Energy - 12.02%
Amerada Hess .................................... 10,800 687,150
Coastal ......................................... 19,200 963,600
Columbia Energy Group ........................... 14,100 884,775
Halliburton ..................................... 16,300 720,256
*Nabors Industries ............................... 15,300 603,394
Schlumberger Limited ............................ 18,600 1,424,063
Shell Transport & Trading ADR ................... 18,700 902,275
Tosco ........................................... 27,200 872,100
-----------
7,057,613
-----------
-------------
Top 10 stock holdings, representing 28.51% of net assets, are printed in bold.
<PAGE>
Number of Market
Shares Value
--------------------------------------------------------------------------------
Common Stock (continued)
Environmental Services - 1.11%
Ecolab .......................................... 16,700 $ 652,344
----------
652,344
----------
Food, Beverage & Tobacco - 1.93%
*Kroger .......................................... 60,900 1,130,456
----------
1,130,456
----------
Healthcare & Pharmaceuticals - 8.65%
American Home Products .......................... 17,500 983,281
Cardinal Health ................................. 13,200 726,825
Johnson & Johnson ............................... 10,300 849,750
Pfizer .......................................... 21,600 909,900
*Sybron International ............................ 37,100 1,154,738
*Watson Pharmaceutical ........................... 10,100 453,869
----------
5,078,363
----------
Industrial Machinery - 8.55%
Danaher ......................................... 22,600 1,291,025
General Electric ................................ 8,200 1,289,450
Honeywell International ......................... 26,987 1,511,272
Pentair ......................................... 24,200 925,650
----------
5,017,397
----------
Leisure, Lodging & Entertainment - 3.16%
Viad ............................................ 73,200 1,857,450
----------
1,857,450
----------
Retail - 4.42%
Circuit City Stores ............................. 18,000 1,058,625
Lowe's Companies ................................ 18,300 905,850
Wal-Mart Stores ................................. 11,400 631,275
----------
2,595,750
----------
Telecommunications - 8.70%
AT&T ............................................ 29,700 1,386,619
ALLTEL .......................................... 16,800 1,119,300
GTE ............................................. 21,300 1,443,075
SBC Communications .............................. 26,500 1,161,031
----------
5,110,025
----------
Miscellaneous - 2.34%
Avery Dennison .................................. 20,900 1,371,563
----------
1,371,563
----------
Total Common Stock (cost $53,239,612) ........... 58,793,027
----------
5
<PAGE>
Statement of Net Assets (continued)
Principal Market
Delaware Tax-Efficient Equity Fund Amount Value
--------------------------------------------------------------------------------
Repurchase Agreements - 0.51%
With Chase Manhattan 5.68% 5/1/00
(dated 4/28/00, collateralized by
$104,000 U.S. Treasury Notes 4.75%
due 2/15/04, market value $98,744) ......... $ 96,000 $ 96,000
With J.P. Morgan Securities 5.70% 5/1/00
(dated 4/28/00, collateralized by $72,000
U.S. Treasury Notes 5.875% due
10/31/01, market value $73,017 and
$31,000 U.S. Treasury Notes 6.25%
due 10/31/01, market value $31,943) ........ 103,000 103,000
With PaineWebber 5.70% 5/1/00
(dated 4/28/00, collateralized by $5,000
U.S. Treasury Notes 4.50% due 1/31/01,
market value $4,923 and $66,000 U.S.
Treasury Notes 5.50% due 7/31/01,
market value $66,318 and $33,000
U.S. Treasury Notes 7.25% due 8/15/01,
market value $33,761) ...................... 103,000 103,000
------------
Total Repurchase Agreements
(cost $302,000) ............................ 302,000
------------
Total Market Value of Securities -
100.66% (cost $53,541,612) ................. $ 59,095,027
Liabilities Net of Receivables and
Other Assets - (0.66%) ..................... (391,238)
------------
Net Assets Applicable to 5,410,338
Shares Outstanding - 100.00% ............... $ 58,703,789
============
Net Asset Value - Delaware Tax-Efficient
Equity Fund A Class ($22,860,929 /
2,081,831 Shares) .......................... $10.98
------
Net Asset Value - Delaware Tax-Efficient
Equity Fund B Class ($29,135,798 /
2,706,163 Shares) .......................... $10.77
------
Net Asset Value - Delaware Tax-Efficient
Equity Fund C Class ($6,707,051 /
622,343 Shares) ............................ $10.78
------
Net Asset Value - Delaware Tax-Efficient
Equity Fund Institutional Class ($11.04 /
1 Share) ................................... $11.04
------
--------------------------------------------------------------------------------
Components of Net Assets at April 30, 2000:
Shares of Beneficial Interest, (Unlimited
Authorization - No Par) ................................ $ 59,501,238
Accumulated net realized loss on investments .............. (6,350,864)
Net unrealized appreciation of investments ................ 5,553,415
------------
Total net assets .......................................... $ 58,703,789
============
--------------------
* Non-incoming producing security for the year ended April 30, 2000.
ADR-American Depository Receipt
Net Asset Value and Offering Price per
Share - Delaware Tax-Efficient Equity Fund
Net asset value A Class (A) ............................... $10.98
Sales charge (5.75% of offering price or
6.10% of amount invested per share) (B) ................ 0.67
------
Offering price ............................................ $11.65
-----------
(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
6
<PAGE>
Statement of Operations
Year Ended April 30, 2000 Delaware Tax-Efficient Equity Fund
--------------------------------------------------------------------------------
Investment Income:
Dividends ......................................... $ 891,021
Interest .......................................... 149,418 $ 1,040,439
-----------
Expenses:
Management fees ................................... 621,986
Distribution expense .............................. 587,862
Dividend disbursing and transfer agent fees
and expenses .................................... 107,900
Registration fees ................................. 61,200
Accounting and administration ..................... 33,262
Reports and statements to shareholders ............ 28,766
Professional fees ................................. 11,550
Custodian fees .................................... 4,764
Taxes (other than taxes on income) ................ 1,812
Trustees' fees .................................... 1,229
Other ............................................. 16,022
-----------
1,476,353
Less expenses absorbed or waived .................. (15,300)
Less expenses paid indirectly ..................... (2,346)
-----------
Total expenses .................................... 1,458,707
-----------
Net Investment Loss ............................... (418,268)
-----------
Net Realized and Unrealized Loss on
Investments:
Net realized loss on investments .................. (3,007,008)
Net change in unrealized appreciation/
depreciation of investments ..................... (4,848,748)
-----------
Net Realized and Unrealized Loss on Investments ... (7,855,756)
-----------
Net Decrease in Net Assets Resulting
from Operations ................................. $(8,274,024)
===========
See accompanying notes
7
<PAGE>
Statements of Changes in Net Assets
Delaware Tax-Efficient Equity Fund
--------------------------------------------------------------------------------
Year Ended
4/30/00 4/30/99
Increase (Decrease) in Net Assets from Operations:
Net investment loss ............................... $ (418,268) $ (227,386)
Net realized loss on investments .................. (3,007,008) (3,262,075)
Net change in unrealized appreciation/
depreciation of investments ..................... (4,848,748) 7,903,047
-------------------------
Net increase (decrease) in net assets resulting
from operations ................................. (8,274,024) 4,413,586
-------------------------
Capital Share Transactions:
Proceeds from shares sold:
A Class ......................................... 8,272,325 33,069,935
B Class ......................................... 13,425,139 31,064,593
C Class ......................................... 4,283,208 10,405,073
Institutional Class ............................. 79,623 --
-------------------------
26,060,295 74,539,601
Cost of shares repurchased:
A Class ......................................... (22,172,379) (8,957,811)
B Class ......................................... (18,799,714) (2,413,381)
C Class ......................................... (7,713,223) (2,207,359)
Institutional Class ............................. (79,363) --
-------------------------
(48,764,679) (13,578,551)
-------------------------
Increase (decrease) in net assets derived from
capital share transactions ...................... (22,704,384) 60,961,050
-------------------------
Net Increase (Decrease) in Net Assets ............. (30,978,408) 65,374,636
Net Assets:
Beginning of year ................................. 89,682,197 24,307,561
-------------------------
End of year ....................................... $58,703,789 $89,682,197
=========================
See accompanying notes
8
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Tax-Efficient Equity Fund Delaware Tax-Efficient Equity Fund
A Class B Class
----------------------------------------------------------------------------------------------------------------------------
Period Period
6/27/97(1) 6/27/97(1)
Year Ended to Year Ended to
4/30/00 4/30/99 4/30/98 4/30/00 4/30/99 4/30/98
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $11.790 $11.010 $ 8.500 $11.650 $10.960 $ 8.500
Income (loss) from investment operations:
Net investment income (loss)(2) .................... (0.008) (0.006) 0.010 (0.089) (0.089) (0.053)
Net realized and unrealized gain (loss)
on investments ................................. (0.802) 0.786 2.500 (0.791) 0.779 2.513
---------------------------------------------------------------------
Total from investment operations ................. (0.810) 0.780 2.510 (0.880) 0.690 2.460
---------------------------------------------------------------------
Net asset value, end of period ..................... $10.980 $11.790 $11.010 $10.770 $11.650 $10.960
=====================================================================
Total return(3) .................................... (6.87%) 7.09% 29.53% (7.55%) 6.30% 28.94%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .......... $22,861 $40,174 $13,898 $29,136 $38,225 $7,958
Ratio of expenses to average net assets .......... 1.32% 1.45% 1.47% 2.07% 2.20% 2.20%
Ratio of expenses to average net assets
prior to expense limitation and
expenses paid indirectly ....................... 1.37% 1.61% 1.99% 2.07% 2.36% 2.72%
Ratio of net investment income (loss) to average
net assets ..................................... (0.07%) (0.10%) 0.13% (0.82%) (0.85%) (0.60%)
Ratio of net investment loss to average
net assets prior to expense limitation and
expenses paid indirectly ....................... (0.12%) (0.26%) (0.39%) (0.82%) (1.01%) (1.12%)
Portfolio turnover ............................... 117% 48% 14% 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
9
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Selected data for each share of the Fund outstanding
throughout each period were as follows: Delaware Tax-Efficient Equity Fund C Class
---------------------------------------------------------------------------------------------------------------
Period
6/27/97(1)
Year Ended to
4/30/00 4/30/99 4/30/98
<S> <C> <C> <C>
Net asset value, beginning of period ............................... $11.660 $10.960 $ 8.500
Income (loss) from investment operations:
Net investment income (loss)(2) .................................. (0.089) (0.089) (0.054)
Net realized and unrealized gain (loss) on investments ........... (0.791) 0.789 2.514
----------------------------------------
Total from investment operations ................................... (0.880) 0.700 2.460
----------------------------------------
Net asset value, end of period ..................................... $10.780 $11.660 $10.960
========================================
Total return(3) .................................................... (7.55%) 6.39% 28.94%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .......................... $6,707 $11,284 $2,451
Ratio of expenses to average net assets .......................... 2.07% 2.20% 2.20%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly ........................ 2.07% 2.36% 2.72%
Ratio of net investment loss to average net assets ............... (0.82%) (0.85%) (0.60%)
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly ............ (0.82%) (1.01%) (1.12%)
Portfolio turnover ............................................... 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
10
<PAGE>
Notes to Financial Statements
April 30, 2000
--------------------------------------------------------------------------------
Voyageur Mutual Funds III (the "Company") is registered as a diversified
open-end investment company under the Investment Company Act of 1940, as
amended. The Company 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 the related notes pertain to Delaware Tax-Efficient Equity Fund
(the "Fund"). 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 and the
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 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 Fund's 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 at least 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 $1,912 for the period ended April 30, 2000. In
addition, the Fund receives earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. These
credits were $434 for the period ended April 30, 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"), 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, 0.70% on the next $500 million, 0.65% on
the next $1,500 million and 0.60% on the average daily net assets in excess of
$2,500 million. At April 30, 2000 the Fund had a liability for investment
management fees and other expenses payable to DMC of $38,988.
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
administrative 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 April 30, 2000, the Fund had a liability for such fees
and other expenses payable to DSC of $9,595.
11
<PAGE>
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
2. Investment Management and Other Transactions with Affiliates (continued)
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 net assets of the A Class and 1.00% of the
average daily net assets of the B and C Classes. For the period from February 1,
1998 through December 31, 2000, DDLP has elected to waive its fees to ensure
that annual fees received from A Class do not exceed 0.25% of the daily net
assets of A Class.
For the year ended April 30, 2000, DDLP earned $28,358 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
During the year ended April 30, 2000, the Fund made purchases of $92,697,432 and
sales of $107,577,124 of investment securities other than U.S. government
securities and temporary cash investments.
At April 30, 2000, the aggregate cost of securities for federal income tax
purposes was $53,964,856.
At April 30, 2000, unrealized appreciation for federal income tax purposes
aggregated $5,130,171 of which $7,541,046 related to unrealized appreciation of
securities and $2,410,875 related to unrealized depreciation of securities.
For federal income tax purposes, the Fund had a capital loss carryforward at
April 30, 2000 of $6,174,537 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.
<PAGE>
4. Capital Shares
Transactions in capital shares were as follows:
Year Ended
4/30/00 4/30/99
Shares sold:
A Class 735,398 2,949,298
B Class 1,205,712 2,770,177
C Class 383,253 938,246
Institutional Class 6,731 --
--------- ---------
2,331,094 6,657,721
--------- ---------
Shares repurchased:
A Class (2,060,037) (804,809)
B Class (1,779,812) (216,108)
C Class (728,948) (193,787)
Institutional Class (6,731) --
--------- ---------
(4,575,528) (1,214,704)
--------- ---------
Net increase (decrease) (2,244,434) 5,443,017
========= =========
5. Line of Credit
Effective October 8, 1999, the Delaware Tax-Efficient Equity Fund, along with
certain other funds in the Delaware Investments Family of Funds (the
"Participants"), participates in a $683,500,000 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 Funds' allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement.
Prior to October 8, 1999, the Delaware Tax-Efficient Equity Fund had a committed
line of credit of $3,300,000. The Fund had no amounts outstanding at April 30,
2000 or at any time during the fiscal year.
12
<PAGE>
Report of Independent Auditors
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Voyageur Mutual Funds III - Delaware Tax-Efficient Equity Fund
We have audited the accompanying statement of net assets of Delaware
Tax-Efficient Equity Fund (the "Fund") as of April 30, 2000, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of April 30, 2000, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Delaware Tax-Efficient Equity Fund at April 30, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the periods indicated therein, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
June 5, 2000
13
<PAGE>
DELAWARE(SM)
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 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.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
BOARD OF TRUSTEES Charles E. Peck Investment Manager
Retired Delaware Management Company
Wayne A. Stork Fredericksburg, VA Philadelphia, PA
Chairman
Delaware Investments Family of Funds Janet L. Yeomans International Affiliate
Philadelphia, PA Vice President and Treasurer Delaware International Advisers Ltd.
3M Corporation London, England
Walter P. Babich St. Paul, MN
Board Chairman National Distributor
Citadel Constructors, Inc. Delaware Distributors, L.P.
King of Prussia, PA Philadelphia, PA
David K. Downes AFFILIATED OFFICERS Shareholder Servicing, Dividend
President and Chief Executive Officer Disbursing and Transfer Agent
Delaware Investments Family of Funds Charles E. Haldeman, Jr. Delaware Service Company, Inc.
Philadelphia, PA President and Chief Executive Officer Philadelphia, PA
Delaware Management Holdings, Inc.
John H. Durham Philadelphia, PA
Private Investor 1818 Market Street
Horsham, PA Richard J. Flannery Philadelphia, PA 19103-3682
Executive Vice President
Anthony D. Knerr and General Counsel
Consultant, Anthony Knerr & Associates Delaware Investments Family of Funds
New York, NY Philadelphia, PA
Ann R. Leven Bruce D. Barton
Former Treasurer, National Gallery of Art President and Chief Executive Officer
Washington, DC Delaware Distributors, L.P.
Philadelphia, PA
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
</TABLE>
(3220) Printed in the USA
AR-437 [4/00] PPL 6/00 (J5938)
