UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-4547
Exact name of registrant as specified in charter:
Voyageur Mutual Funds III
Address of principal executive offices:
2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service:
Richelle S. Maestro, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: April 30
Date of reporting period: April 30, 2003
Item 1. Reports to Stockholders
Delaware
Investments(SM)
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A member of Lincoln Financial Group(R)
BLEND
Annual Report 2003
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DELAWARE CORE EQUITY FUND
[LOGO]
POWERED BY RESEARCH.(SM)
Table
OF CONTENTS
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PORTFOLIO MANAGEMENT REVIEW 1
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PERFORMANCE SUMMARY 3
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FINANCIAL STATEMENTS:
Statement of Net Assets 4
Statement of Operations 6
Statements of Changes in Net Assets 7
Financial Highlights 8
Notes to Financial Statements 12
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REPORT OF INDEPENDENT AUDITORS 14
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BOARD OF TRUSTEES/OFFICERS 15
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Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series
of Delaware Management Business Trust, which is a registered investment advisor.
(C)2003 Delaware Distributors, L.P.
Portfolio Delaware Core Equity Fund
MANAGEMENT REVIEW May 9, 2003
Fund Managers
Michael T. Lee
Voyageur Asset Management, Inc.
Senior Portfolio Manager
Jerold L. Stodden
Voyageur Asset Management, Inc.
Senior Equity Portfolio Manager
Q: How did the Fund perform during the year and how did it fare versus the broad
market?
A: Delaware Core Equity Fund suffered negative returns through the close of its
fiscal year, although we have been encouraged that broad market performance
turned more accommodating to stock investors this spring.
For the fiscal year ended April 30, 2003, Delaware Core Equity Fund returned
- -14.40% (Class A shares at net asset value with distributions reinvested), while
the S&P 500 Index fell by -13.30%. The Fund did outperform its peer group, the
Lipper Large-Cap Core Funds Average, which fell by -15.19% for the year.
Since we last reported at mid-fiscal year, performance for both the Fund and the
market in general has been modestly higher. The Fund made slight progress during
the fiscal second half, but those gains did not make up for the difficult
environment we encountered when the market struggled last summer during our
first half. In autumn's mid-term report, the market had just come through a weak
six months, with the Fund losing slightly less ground than the S&P 500 Index.
The S&P 500 Index actually gained +4.47% during the six-months ended April 30,
2003, while Delaware Core Equity Fund reaped a weaker but nonetheless positive
+0.95% (Class A shares at net asset value with distributions reinvested).
To recap that fiscal second half, the broad market held steady through the end
of 2002 after an October rally, but then drifted downward for several months
until the war in Iraq brought stock investors out of their doldrums. Throughout
the winter months, investors remained concerned about falling consumer
confidence in the U.S. and a bleak earnings outlook for the first quarter of the
new year. The start of the war cleared up some uncertainties for investors and
seemed to ignite the market rally, which generally lasted through April's end
despite marked volatility that was clearly driven by the day-to-day tone of war
coverage.
As of fiscal year end, many question marks remained for the economy, which had
yet to show clear signs of stronger growth in the first weeks following war in
Iraq.
Q: Did you make any significant shifts in strategy that affected the Fund's
performance?
A: The most notable changes in the portfolio made during recent months reflect
our gradual tilt toward growth stocks in the portfolio. It now appears that
October 9, 2002 may well have been the bottom of the long bear market, and
growth stocks' return to favor could be viewed as evidence of a structural shift
in the market. The three-month period ended March 31, 2003 marked the third
quarter in a row in which growth outperformed value in the stock market. Value
had generally been outperforming growth since the market turned downward in
early 2000.
Total Return
For the period ended April 30, 2003 One Year
Delaware Core Equity Fund-- Class A Shares -14.40%
Standard & Poor's 500 Index -13.30%
Lipper Large-Cap Core Funds Average (974 funds) -15.19%
- ---------------------------------------------------------------------
All performance shown above is at net asset value without the effect of sales
charges and assumes reinvestment of all distributions. Performance for all Fund
classes and a description of the index can be found on page 3. The Lipper
Large-Cap Core Funds Average represents the average return of large
capitalization mutual funds tracked by Lipper (Source: Lipper Inc). You cannot
invest directly in an index. Past performance is not a guarantee of future
results.
1
When stocks reached their lows in the summer and early autumn of last year, we
believed that some sectors of the market had become attractively priced and
began considering transactions that might bring down the average market cap in
the Fund and also allow the portfolio more of a growth bias.
A good example of our shift toward growth is the stock of online auction company
eBay, which was added to Delaware Core Equity Fund in December and contributed
positively to performance. eBay, once a darling of momentum investors at the
height of the market bubble, has proven to be a profitable, large-scale business
enjoying real prospects for growth into new markets. eBay's recent initial
successes in consolidating the used auto market suggest that the company may be
able to groom markets that fall outside of classic retail channels.
Q: Were there other notable changes to the investment portfolio during the
period?
A: Home Depot is another growth-oriented stock that we added during our fiscal
second half after it became attractively priced, in our opinion. Home Depot's
once-booming growth rate is falling off as the company's line of retail home
stores matures and its opportunities for expansion become fewer geographically.
Despite this natural process of moving toward slower growth, we like Home
Depot's overall health and market position, and felt investors had punished the
stock too much, providing us with a buying opportunity.
Q: Healthcare and pharmaceuticals is the Fund's largest sector. What has been
your approach to the sector?
A: We have remained well diversified within the healthcare sector, often
focusing on companies like Johnson & Johnson that enjoy diversified product
lines. In recent months, we added both Quest Diagnostics and Pfizer -- the
latter of which is the world's largest pharmaceutical company.
The two biggest stock positions in the Fund as of April 30, 2003 were healthcare
companies Medtronic and Stryker. The stock of Medtronic, a market leader in
cardiac devices and other medical equipment, struggled badly in the market
downturn last August but has since rebounded and turned in positive overall
performance during the fiscal year. Medical equipment supplier Stryker also
turned in positive performance.
Q: Can you tell us about holdings that detracted from performance?
A: Detractors from performance during the year included a handful of
poor-performing insurance stocks, including AMBAC Financial Group and American
International. As of fiscal year end, our exposure to the insurance sector was
just 8.77% of total net assets and we have maintained our positions in both
AMBAC and American International.
Concord EFS, mentioned in our mid-year report as a poor performer with a
generally bright outlook, was no longer a holding at fiscal year end and was a
notable detractor from performance. The company's core business remains
attractive, but our valuation of this software provider's stock changed during
the period, as it was acquired by First Data.
Delaware Core Equity Fund
Top 10 Holdings
As of April 30, 2003
Percentage
Company Sector of Net Assets
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1. Medtronic Healthcare & Pharmaceuticals 3.60%
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2. Stryker Healthcare & Pharmaceuticals 3.46%
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3. Ecolab Chemicals 3.39%
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4. eBay Retail 3.32%
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5. Sysco Food, Beverage & Tobacco 3.31%
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6. AMBAC Financial Group Insurance 3.25%
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7. Anheuser-Busch Food, Beverage & Tobacco 3.17%
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8. PepsiCo Food, Beverage & Tobacco 3.10%
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9. Microsoft Computers & Technology 3.05%
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10. Aflac Insurance 2.99%
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2
Delaware
CORE EQUITY FUND
Fund Basics
As of April 30, 2003
- -----------------------------------------------
Fund Objective:
The Fund seeks long-term capital appreciation.
- -----------------------------------------------
Total Fund Net Assets:
$25.17 million
- -----------------------------------------------
Number of Holdings:
40
- -----------------------------------------------
Fund Start Date:
August 1, 1985
- -----------------------------------------------
Your Fund Managers:
Michael T. Lee is the Chairman of the Large Cap Core Equity Committee and has
served as a primary equity analyst for Voyageur Asset Management (VAM) Inc.
Prior to joining VAM in 1993, he was a Strategic Systems Developer for Northwest
Airlines. Mr. Lee earned a BA from DePauw University and an MBA from the
University of Minnesota. He is also a CFA charterholder.
Jerold L. Stodden is a Senior Equity Portfolio Manager and a Vice President at
VAM with 34 years of industry experience. Prior to joining VAM in 1999, he was a
Director of Equity Research and equity analyst at Chicago Trust Company. He
holds a BA from Western Michigan University, an MBA from Indiana University, and
is a CFA charterholder.
- --------------------------------------------------------------------------------
Nasdaq Symbols:
Class A GRGSX
Class B DVGSX
Class C DVGRX
Fund Performance
Average Annual Total Returns
Through April 30, 2003 Lifetime 10 Years Five Years One Year
- --------------------------------------------------------------------------------
Class A (Est. 8/1/85)
Excluding Sales Charge +10.30% +5.84% -4.84% -14.40%
Including Sales Charge +9.93% +5.21% -5.96% -19.31%
- --------------------------------------------------------------------------------
Class B (Est. 9/8/95)
Excluding Sales Charge +3.66% -5.56% -15.07%
Including Sales Charge +3.66% -5.87% -18.47%
- --------------------------------------------------------------------------------
Class C (Est. 10/21/95)
Excluding Sales Charge +3.14% -5.55% -15.07%
Including Sales Charge +3.14% -5.55% -15.91%
- --------------------------------------------------------------------------------
Returns reflect reinvestment of all 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. Performance
for Class B and C shares, excluding sales charges, assumes either that
contingent deferred sales charges did not apply or the investment was not
redeemed. Past performance is not a guarantee of future results.
The Fund offers Class A, B, C, and Institutional Class shares. Class A shares
are sold with a front-end sales charge of up to 5.75% and have an annual
distribution and service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%.
Class C shares are sold with a contingent deferred sales charge of 1% if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
The average annual total returns for the lifetime (since 8/1/85), 10-year,
five-year, and one-year periods ended April 30, 2003 for Delaware Core Equity
Fund's Institutional Class were +10.41%, +6.03%, -4.62%, and -14.21%,
respectively. The Institutional Class shares were first made available on August
29, 1997 and are available without sales or asset-based distribution charges
only to certain eligible institutional accounts. Institutional Class performance
prior to August 29, 1997 for Delaware Core Equity Fund is based on Class A
performance and was adjusted to eliminate the sales charge, but not the
asset-based distribution charge of Class A shares.
An expense limitation was in effect for all classes of Delaware Core Equity Fund
during the lifetime, 10-year, and five-year periods shown. Performance would
have been lower had the expense limitation not been in effect.
The performance table and graph do not reflect the deduction of taxes the
shareholder would pay on Fund distributions or redemptions of Fund shares.
Nasdaq Institutional Class symbol: VOGIX
Performance of a $10,000 Investment
April 30, 1993 through April 30, 2003
Delaware Core Equity Fund --
Class A Shares S&P 500 Index
30-Apr-93 $ 9,425 $10,000
30-Apr-94 $ 9,381 $10,532
30-Apr-95 $10,972 $12,372
30-Apr-96 $13,712 $16,109
30-Apr-97 $15,756 $20,158
30-Apr-98 $21,313 $28,436
30-Apr-99 $23,350 $34,645
30-Apr-00 $22,220 $38,153
30-Apr-01 $21,207 $33,204
30-Apr-02 $19,425 $29,012
30-Apr-03 $16,627 $25,150
Chart assumes $10,000 invested on April 30, 1993 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to differing charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The S&P 500 Index is an unmanaged composite of mostly
large-capitalization U.S. companies. An index is unmanaged and does not reflect
the costs of operating a mutual fund, such as the costs of buying, selling, or
holding securities. You cannot invest directly in an index. Past performance is
not a guarantee of future results.
3
Statement Delaware Core Equity Fund
OF NET ASSETS April 30, 2003
Number of Market
Shares Value
Common Stock - 98.59%
Banking & Finance - 8.08%
American Express 15,400 $ 583,044
Fannie Mae 7,000 506,730
MBNA 27,500 519,750
Mellon Financial 16,000 423,200
----------
2,032,724
----------
Cable, Media & Publishing - 5.17%
Gannett 9,000 681,480
Omnicom 10,000 619,000
----------
1,300,480
----------
Chemicals - 5.93%
Ecolab 16,700 853,203
Praxair 11,000 638,880
----------
1,492,083
----------
Computers & Technology - 12.88%
+Cisco Systems 44,000 661,760
+Dell Computer 23,000 664,930
+Fiserv 18,000 529,920
+Intuit 16,000 620,480
Microsoft 30,000 767,100
----------
3,244,190
----------
Electronics & Electrical Equipment - 6.67%
Danaher 9,000 620,820
General Electric 17,800 524,210
Intel 29,000 533,600
----------
1,678,630
----------
Energy - 6.25%
ConocoPhillips 13,966 702,490
Exxon Mobil 15,000 528,000
Marathon Oil 15,000 341,550
----------
1,572,040
----------
Food, Beverage & Tobacco - 9.58%
Anheuser-Busch 16,000 798,080
PepsiCo 18,000 779,040
Sysco 29,000 833,170
----------
2,410,290
----------
Healthcare & Pharmaceuticals - 18.48%
Abbott Laboratories 13,000 528,190
Cardinal Health 13,000 718,640
Johnson & Johnson 9,000 507,240
Medtronic 19,000 907,060
Pfizer 19,000 584,250
+Quest Diagnostics 9,000 537,750
Stryker 13,000 871,130
----------
4,654,260
----------
Industrial Machinery - 2.45%
Ingersoll-Rand Class A 14,000 617,120
----------
617,120
----------
Number of Market
Shares Value
Common Stock (continued)
Insurance - 8.77%
Aflac 23,000 $ 752,330
AMBAC Financial Group 14,000 816,900
American International 11,000 637,450
-----------
2,206,680
-----------
Retail - 12.87%
+eBay 9,000 834,930
Home Depot 23,000 646,990
+Kohl's 10,000 568,000
Target 18,000 601,920
Walgreen 19,000 586,340
-----------
3,238,180
-----------
Telecommunications - 1.46%
Verizon Communications 9,800 366,324
-----------
366,324
-----------
Total Common Stock
(cost $25,441,729) 24,813,001
-----------
Short-term Investments - 1.52%
Dreyfus Tax Exempt Cash Management 382,262 382,262
-----------
Total Short-term Investments
(cost $382,262) 382,262
-----------
Total Market Value of Securities - 100.11%
(cost $25,823,991) 25,195,263
Liabilities Net of Receivables and
Other Assets - (0.11%) (27,143)
-----------
Net Assets Applicable to 1,416,317 Shares
Outstanding - 100.00% $25,168,120
===========
Net Asset Value - Delaware Core Equity Fund
Class A ($19,079,778 / 1,059,604 Shares) $18.01
------
Net Asset Value - Delaware Core Equity Fund
Class B ($3,869,156 / 228,148 Shares) $16.96
------
Net Asset Value - Delaware Core Equity Fund
Class C ($1,704,439 / 100,440 Shares) $16.97
------
Net Asset Value - Delaware Core Equity Fund
Institutional Class
($514,747 / 28,125 Shares) $18.30
------
4
Statement Delaware Core Equity Fund
OF NET ASSETS (CONTINUED)
Components of Net Assets at April 30, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $29,105,490
Accumulated net realized loss on investments (3,308,642)
Net unrealized depreciation of investments (628,728)
-----------
Total net assets $25,168,120
===========
+Non-income producing security for the year ended April 30, 2003.
Net Asset Value and Offering Price Per Share -
Delaware Core Equity Fund
Net asset value Class A (A) $18.01
Sales charge (5.75% of offering price or 6.11% of
amount invested per share) (B) 1.10
------
Offering price $19.11
======
(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
5
Statement Delaware Core Equity Fund
OF OPERATIONS Year Ended April 30, 2003
Investment Income:
Dividends $299,318
Interest 5,176 $ 304,494
-------- -----------
Expenses:
Management fees 168,031
Dividend disbursing and transfer agent fees
and expenses 186,470
Distribution expenses-Class A 50,275
Distribution expenses-Class B 36,266
Distribution expenses-Class C 16,274
Reports and statements to shareholders 40,500
Registration fees 26,000
Accounting and administration fees 11,643
Trustees' fees 3,495
Custodian fees 2,734
Professional fees 2,375
Other 8,372
--------
552,435
Less expenses paid indirectly (629)
-----------
Total operating expenses 551,806
-----------
Net Investment Loss (247,312)
-----------
Net Realized and Unrealized Loss on Investments:
Net realized loss on investments (2,719,261)
Net change in unrealized appreciation/depreciation
of investments (1,701,160)
-----------
Net Realized and Unrealized Loss on Investments (4,420,421)
-----------
Net Decrease in Net Assets Resulting from Operations $(4,667,733)
===========
See accompanying notes
6
Statements Delaware Core Equity Fund
OF CHANGES IN NET ASSETS
Year Ended
4/30/03 4/30/02
Decrease in Net Assets from Operations:
Net investment loss $ (247,312) $ (162,558)
Net realized loss on investments (2,719,261) (542,296)
Net change in unrealized appreciation/depreciation of investments (1,701,160) (2,451,778)
----------- -----------
Net decrease in net assets resulting from operations (4,667,733) (3,156,632)
----------- -----------
Capital Share Transactions:
Proceeds from shares sold:
Class A 2,633,972 3,014,561
Class B 1,241,123 908,351
Class C 543,156 517,934
Institutional Class 97,932 182,189
----------- -----------
4,516,183 4,623,035
----------- -----------
Cost of shares repurchased:
Class A (5,251,701) (5,519,169)
Class B (833,764) (1,172,254)
Class C (384,162) (403,225)
Institutional Class (141,758) (1,389,792)
----------- -----------
(6,611,385) (8,484,440)
----------- -----------
Decrease in net assets derived from capital share transactions (2,095,202) (3,861,405)
----------- -----------
Net Decrease in Net Assets (6,762,935) (7,018,037)
Net Assets:
Beginning of year 31,931,055 38,949,092
----------- -----------
End of year $25,168,120 $31,931,055
=========== ===========
See accompanying notes
7
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Core Equity Fund Class A
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
4/30/03 4/30/02 4/30/01 4/30/00 4/30/99
Net asset value, beginning of period $21.040 $22.970 $26.490 $32.550 $31.830
Income (loss) from investment operations:
Net investment income (loss)(1) (0.145) (0.075) -- 0.157 0.075
Net realized and unrealized gain (loss) on investments (2.885) (1.855) (1.115) (1.543) 2.790
------- ------- ------- ------- -------
Total from investment operations (3.030) (1.930) (1.115) (1.386) 2.865
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income -- -- -- (0.227) --
Net realized gain on investments -- -- (2.405) (4.447) (2.145)
------- ------- ------- ------- -------
Total dividends and distributions -- -- (2.405) (4.674) (2.145)
------- ------- ------- ------- -------
Net asset value, end of period $18.010 $21.040 $22.970 $26.490 $32.550
======= ======= ======= ======= =======
Total return(2) (14.40%) (8.40%) (4.56%) (4.84%) 9.56%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $19,080 $25,381 $30,358 $35,759 $45,342
Ratio of expenses to average net assets 1.99% 1.54% 1.82% 1.56% 1.68%
Ratio of expenses to average net assets prior expenses paid indirectly 1.99% 1.54% 1.82% 1.56% 1.71%
Ratio of net investment income (loss) to average net assets (0.81%) 0.35%) 0.00% 0.54% 0.25%
Ratio of net investment income (loss) to average net assets prior to
expenses paid indirectly (0.81%) (0.35%) 0.00% 0.54% 0.22%
Portfolio turnover 24% 60% 67% 43% 36%
(1) The average shares outstanding method has been applied for per share
information for the periods ended April 30, 2003, 2002, 2001, and 2000.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of the sales charge.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
8
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Core Equity Fund Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
4/30/03 4/30/02 4/30/01 4/30/00 4/30/99
Net asset value, beginning of period $19.970 $21.960 $25.610 $31.610 $31.200
Income (loss) from investment operations:
Net investment loss(1) (0.270) (0.229) (0.173) (0.074) (0.149)
Net realized and unrealized gain (loss) on investments (2.740) (1.761) (1.072) (1.479) 2.704
------- ------- ------- ------- -------
Total from investment operations (3.010) (1.990) (1.245) (1.553) 2.555
------- ------- ------- ------- -------
Less dividends and distributions from:
Net realized gain on investments -- -- (2.405) (4.447) (2.145)
------- ------- ------- ------- -------
Total dividends and distributions -- -- (2.405) (4.447) (2.145)
------- ------- ------- ------- -------
Net asset value, end of period $16.960 $19.970 $21.960 $25.610 $31.610
======= ======= ======= ======= =======
Total return(2) (15.07%) (9.06%) (5.28%) (5.56%) 8.72%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $3,869 $4,088 $4,776 $5,558 $4,457
Ratio of expenses to average net assets 2.74% 2.29% 2.57% 2.31% 2.43%
Ratio of expenses to average net assets prior to expenses
paid indirectly 2.74% 2.29% 2.57% 2.31% 2.46%
Ratio of net investment loss to average net assets (1.56%) (1.10%) (0.75%) (0.21%) (0.50%)
Ratio of net investment loss to average net assets prior to
expenses paid indirectly (1.56%) (1.10%) (0.75%) (0.21%) (0.53%)
Portfolio turnover 24% 60% 67% 43% 36%
(1) The average shares outstanding method has been applied for per share
information for the periods ended April 30, 2003, 2002, 2001, and 2000.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of the sales charge.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
9
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Core Equity Fund Class C
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
4/30/03 4/30/02 4/30/01 4/30/00 4/30/99
Net asset value, beginning of period $19.980 $21.980 $25.630 $31.600 $31.190
Income (loss) from investment operations:
Net investment loss(1) (0.270) (0.229) (0.172) (0.070) (0.149)
Net realized and unrealized gain (loss) on investments (2.740) (1.771) (1.073) (1.453) 2.704
------- ------- ------- ------- -------
Total from investment operations (3.010) (2.000) (1.245) (1.523) 2.555
------- ------- ------- ------- -------
Less dividends and distributions from:
Net realized gain on investments -- -- (2.405) (4.447) (2.145)
------- ------- ------- ------- -------
Total dividends and distributions -- -- (2.405) (4.447) (2.145)
------- ------- ------- ------- -------
Net asset value, end of period $16.970 $19.980 $21.980 $25.630 $31.600
======= ======= ======= ======= =======
Total return(2) (15.07%) (9.10%) (5.27%) (5.45%) 8.72%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,704 $1,810 $1,866 $1,942 $1,631
Ratio of expenses to average net assets 2.74% 2.29% 2.57% 2.31% 2.43%
Ratio of expenses to average net assets prior to expenses
paid indirectly 2.74% 2.29% 2.57% 2.31% 2.46%
Ratio of net investment loss to average net assets (1.56%) (1.10%) (0.75%) (0.21%) (0.50%)
Ratio of net investment loss to average net assets prior to
expenses paid indirectly (1.56%) (1.10%) (0.75%) (0.21%) (0.53%)
Portfolio turnover 24% 60% 67% 43% 36%
(1) The average shares outstanding method has been applied for per share
information for the periods ended April 30, 2003, 2002, 2001, and 2000.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of the sales charge.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
10
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Core Equity Fund Institutional Class
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
4/30/03 4/30/02 4/30/01 4/30/00 4/30/99
Net asset value, beginning of period $21.330 $23.230 $26.700 $32.840 $32.030
Income (loss) from investment operations:
Net investment income (loss)(1) (0.100) (0.020) 0.061 0.229 0.153
Net realized and unrealized gain (loss) on investments (2.930) (1.880) (1.126) (1.547) 2.802
------- ------- ------- ------- -------
Total from investment operations (3.030) (1.900) (1.065) (1.318) 2.955
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income -- -- -- (0.375) --
Net realized gain on investments -- -- (2.405) (4.447) (2.145)
------- ------- ------- ------- -------
Total dividends and distributions -- -- (2.405) (4.822) (2.145)
------- ------- ------- ------- -------
Net asset value, end of period $18.300 $21.330 $23.230 $26.700 $32.840
======= ======= ======= ======= =======
Total return(2) (14.21%) (8.18%) (4.32%) (4.59%) 9.79%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $515 $651 $1,949 $1,467 $1,860
Ratio of expenses to average net assets 1.74% 1.29% 1.57% 1.31% 1.43%
Ratio of expenses to average net assets prior to expenses
paid indirectly 1.74% 1.29% 1.57% 1.31% 1.46%
Ratio of net investment income (loss) to average net assets (0.56%) (0.10%) 0.25% 0.79% 0.50%
Ratio of net investment income (loss) to average net assets prior to
expenses paid indirectly (0.56%) (0.10%) 0.25% 0.79% 0.47%
Portfolio turnover 24% 60% 67% 43% 36%
(1) The average shares outstanding method has been applied for per share
information for the periods ended April 30, 2003, 2002, 2001, and 2000.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
11
Notes Delaware Core Equity Fund
TO FINANCIAL STATEMENTS April 30, 2003
Voyageur Mutual Funds III (the "Trust") is organized as a Delaware business
trust and offers two series: Delaware Core Equity Fund and Delaware Select
Growth Fund. These financial statements and the related notes pertain to
Delaware Core Equity Fund (the "Fund"). The Trust is an open-end investment
company. The Fund is considered diversified under the Investment Company Act of
1940, as amended, and offers Class A, Class B, Class C and Institutional Class
shares. Class A shares are sold with front-end sales charge of up to 5.75%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Prior to
November 18, 2002, the Class B contingent deferred sales charge declined from 5%
to zero depending upon the period of time the shares are held. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
8 years after purchase. Class C shares are sold with a contingent deferred sales
charge of 1%, if redeemed during the first 12 months. Institutional Class shares
are not subject to a sales charge and are offered for sale exclusively to a
limited group of investors.
The investment objective of the Fund is to seek long-term capital appreciation.
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 time of the regular 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. Short-term debt
securities 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 under the direction of the Fund's Board of Trustees.
Federal Income Taxes -- The Fund intends to continue to qualify for federal
income tax purposes 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.
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.
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. Delaware Core Equity Fund expects to declare and
distribute all of its net investment income, if any, to shareholders as
dividends annually. The Fund will distribute net capital gains, if any,
annually.
In addition, in order to satisfy certain distribution requirements of the Tax
Reform Act of 1986, the Fund may declare special year-end dividend and capital
gains distributions during November or December to shareholders of record on a
date in such month. Such distributions, if received by shareholders by January
3, are deemed to have been paid by a Fund and received by shareholders on the
earlier date paid or December 31 of the prior year.
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 $620 for the year ended April 30,2003. In
addition, the Fund receives earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. The
earnings credits for the year ended April 30,2003 were approximately $9. 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, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.65% on the first $500 million of average daily net assets of the Fund,
0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50% on the
average daily net assets in excess $2.5 billion.
DMC has entered into a sub-advisory agreement with Voyageur Asset Management,
Inc. with respect to the management of the Fund. For the services provided, DMC
pays Voyageur Asset Management, Inc. an annual fee. The Fund does not pay any
fees directly to Voyageur Asset Management, Inc.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent, 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.
Pursuant to a distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual fee not to exceed 0.25% of the average daily net assets of the Class A
shares and 1.00% of the average daily net assets of Class B and C shares. No
distribution expenses are paid by Institutional Class shares.
12
Notes Delaware Core Equity Fund
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
At April 30,2003, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $8,186
Dividend disbursing, transfer agent fees, accounting
fees and other expenses payable to DSC 17,627
Other expenses payable to DMC and affiliates 10,178
For the year ended April 30, 2003, DDLP earned $3,213 for commissions on sales
of the Fund's Class A shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. Investments
For the year ended April 30, 2003, the Fund made purchases of $6,241,541 and
sales of $9,319,648 of investment securities other than short-term investments.
At April 30, 2003, the cost of investments for federal income tax purposes was
$25,851,717. At April 30, 2003, net unrealized depreciation was $656,454, of
which $2,280,180 related to unrealized appreciation of investments and
$2,936,634 related to unrealized depreciation of investments.
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States. There were no dividends and
distributions paid during the years ended April 30, 2003 and 2002.
As of April 30, 2003, the components of net assets on a tax basis were
as follows:
Shares of beneficial interest $29,105,490
Capital loss carryforwards (2,020,812)
Post-October losses (1,260,104)
Unrealized depreciation on investments (656,454)
-----------
Net Assets $25,168,120
-----------
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $12,904 expires in 2010 and $2,007,908 expires
in 2011.
Post-October losses represent losses realized on investment transactions from
November 1, 2002 through April 30, 2003 that, in accordance with federal income
tax regulations, the Fund has elected to defer and treat as having arisen in the
following fiscal year.
5. Capital Shares
Transactions in capital shares were as follows:
Year Ended
4/30/03 4/30/02
Shares sold:
Class A 147,473 138,192
Class B 73,466 43,917
Class C 32,400 25,130
Institutional Class 5,399 8,270
-------- --------
258,738 215,509
-------- --------
Shares repurchased:
Class A (294,170) (253,523)
Class B (50,076) (56,638)
Class C (22,573) (19,423)
Institutional Class (7,802) (61,647)
-------- --------
(374,621) (391,231)
-------- --------
Net decrease (115,883) (175,722)
======== ========
For the year ended April 30, 2003, 561 Class B shares were converted to 530
Class A shares valued at $9,328. The respective amounts are included in Class B
redemptions and Class A subscriptions in the table above and the Statement of
Changes in Net Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $202,300,000 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 amounts outstanding as of April 30, 2003 or at any time during the
fiscal year.
13
Report
OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
Voyageur Mutual Funds III - Delaware Core Equity Fund
We have audited the accompanying statement of net assets of Delaware Core Equity
Fund (the "Fund") as of April 30, 2003, 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
five years in the period then ended. 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, 2003, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. 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 Core Equity Fund at April 30, 2003, 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 5 years in
the period then ended, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
June 6, 2003
14
Delaware Investments Family of Funds
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees which has oversight
responsibility for the management of a fund's business affairs. Trustees
establish procedures and oversee and review the performance of the investment
manager, the distributor and others that perform services for the fund. The
independent fund trustees, in particular, are advocates for shareholder
interests. The following is a list of the Trustees/Officers and certain
background and related information.
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex Overseen Held by
and Birthdate Fund(s) Served Past 5 Years by Trustee Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude to Driscoll(2) Chairman and 3 Years - Since August 2000, 89 None
2005 Market Street Trustee(5) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee as of at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process-
Conseco Capital Management
(June 1998-August 2000)
Managing Director-
NationsBanc Capital Markets
(February 1996-June 1998)
David K. Downes(3) President, 10 Years - Mr. Downes has 107 Director/President -
2005 Market Street Chief Executive Executive Officer served in various Lincoln National
Philadelphia, PA Officer, executive capacities Convertible Securities
19103 Chief Financial 4 Years - Trustee at different times Fund, Inc.
Officer and Trustee at Delaware Investments
January 8, 1940 Director/President -
Lincoln National
Income Fund, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 15 Years Board Chairman - 107 None
2005 Market Street Citadel Constructors, Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
John H. Durham Trustee 24 Years(4) Private Investor 107 Trustee -
2005 Market Street Abington Memorial
Philadelphia, PA Hospital
19103
August 7, 1937 President/Director -
22 WR Corporation
John A. Fry Trustee(5) 2 Years President - 89 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
15
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex Overseen Held by
and Birthdate Fund(s) Served Past 5 Years by Trustee/Officer Trustee/Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
Anthony D. Knerr Trustee 10 Years Founder/Managing Director - 107 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 107 Director -
2005 Market Street National Gallery of Art Systemax, Inc.
Philadelphia, PA (1994 - 1999)
19103 Director - Andy
Warhol Foundation
November 1, 1940
Thomas F. Madison Trustee 9 Years President/Chief 107 Director -
2005 Market Street Executive Officer - CenterPoint Energy
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director - Digital
and Consulting) River Inc.
(January 1993 - Present)
February 25, 1936 Director - Rimage
Corporation
Director - Valmont
Industries, Inc.
Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 107 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management
positions at 3M Corporation
since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Richelle S. Maestro Senior Vice President, 4 Years Ms. Maestro has served in 107 None
2005 Market Street General Counsel various executive capacities
Philadelphia, PA and Secretary at different times at
19103 Delaware Investments.
November 26, 1957
Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 107 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Downes is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager, distributor, accounting service
provider and transfer agent.
(4) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(5) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
16
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This annual report is for the information of Delaware Core Equity Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Core 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 Affiliated Officers Contact Information
Walter P. Babich Jude T. Driscoll Investment Manager
Board Chairman Chairman Delaware Management Company
Citadel Construction Corporation Delaware Investments Family of Funds Philadelphia, PA
King of Prussia, PA Philadelphia, PA
International Affiliate
David K. Downes Michael P. Bishof Delaware International Advisers Ltd.
President and Chief Executive Officer Senior Vice President and Treasurer London, England
Delaware Investments Family of Funds Delaware Investments Family of Funds
Philadelphia, PA Philadelphia, PA Subadvisor
Voyageur Asset Management, Inc.
John H. Durham Richelle S. Maestro Minneapolis, MN
Private Investor Senior Vice President,
Gwynedd Valley, PA General Counsel and Secretary National Distributor
Delaware Investments Family of Funds Delaware Distributors, L.P.
Anthony D. Knerr Philadelphia, PA Philadelphia, PA
Managing Director
Anthony Knerr & Associates Shareholder Servicing, Dividend
New York, NY Disbursing and Transfer Agent
Delaware Service Company, Inc.
Ann R. Leven 2005 Market Street
Former Treasurer/Chief Fiscal Officer Philadelphia, PA 19103-7094
National Gallery of Art
Washington, DC For Shareholders
800 523-1918
Thomas F. Madison
President and Chief Executive Officer For Securities Dealers and Financial
MLM Partners, Inc. Institutions Representatives Only
Minneapolis, MN 800 362-7500
Janet L. Yeomans Web site
Vice President/Mergers & Acquisitions www.delawareinvestments.com
3M Corporation
St. Paul, MN
(7810) Printed in the USA
AR-409 [4/03] VGR 6/03 J9203
Delaware
Investments(SM)
--------------------------------------
A member of Lincoln Financial Group(R)
GROWTH-EQUITY
Annual Report 2003
- --------------------------------------------------------------------------------
DELAWARE SELECT GROWTH FUND
[LOGO]
POWERED BY RESEARCH.(SM)
Table
OF CONTENTS
- -----------------------------------------------------------------
PORTFOLIO MANAGEMENT REVIEW 1
- -----------------------------------------------------------------
PERFORMANCE SUMMARY 3
- -----------------------------------------------------------------
FINANCIAL STATEMENTS:
Statement of Net Assets 4
Statement of Operations 6
Statements of Changes in Net Assets 7
Financial Highlights 8
Notes to Financial Statements 12
- -----------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS 14
- -----------------------------------------------------------------
BOARD OF TRUSTEES/OFFICERS 15
- -----------------------------------------------------------------
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series
of Delaware Management Business Trust, which is a registered investment advisor.
(C) 2003 Delaware Distributors, L.P.
Portfolio Delaware Select Growth Fund
MANAGEMENT REVIEW May 9, 2003
Fund Manager
Gerald S. Frey
Senior Portfolio Manager
Q: How did the Fund perform during the year and how did it fare versus the broad
market?
A: The past fiscal year saw stocks continue the decline that started in March of
2000. The early part of the period was marked by continued concerns over the
timing and pace of the economic rebound, as well as a loss of confidence in the
quality of company's financial results because of well-publicized corporate
scandals. The latter part of the year brought renewed optimism, however, as
stocks rallied following the war with Iraq.
Delaware Select Growth Fund suffered losses as well for the year, returning
- -17.69% (Class A shares at net asset value with distributions reinvested) for
the fiscal year ended April 30, 2003. The Fund's performance trailed the
benchmark Russell 3000 Growth Index, which dropped -15.01% and fell slightly
below the -17.17% return of the Lipper Multi-Cap Growth Funds Average. Losses
for the year were nearly universal, as most sectors of the Russell 3000 Growth
Index posted double-digit declines. Delaware Select Growth Fund's relative
underperformance was concentrated in the early part of the fiscal year. The Fund
outperformed the Russell 3000 Growth Index by more than six percentage points
during the last six months of the year -- stemming from performance during the
October-November rally.
Q: What strategies did you pursue given the challenging environment for stocks?
A: We are obviously pleased by the market's recent strength and were able to
participate in the recent rally. Still, we see a return to the extraordinary
gains of the late 1990's as unlikely. We took the March-April rally as an
opportunity to harvest gains in those equities that we believe did not justify
their current valuation. We remain committed, however, to holding onto those
stocks that we perceive to be market leaders and which should benefit the most
once overall economic activity fully recovers.
As long-term investors, we believe there is little opportunity to benefit from
short-term volatility. We intend to remain focused on finding and acquiring
those stocks that, in our opinion, should be market leaders once attention is
shifted back to company fundamentals and overall economic conditions.
Q: Which of the Fund's holdings struggled during the fiscal year?
A: Charter Communications was one of the Fund's biggest contributors to negative
performance during the year. Charter's decline was attributable in large part to
questions over the reliability of the company's financial statements and
concerns about the long-term viability in light of Adelphia Communications'
troubles. We exited from our position in Charter Communications during the year.
We remain optimistic, however, concerning the long-term attractiveness of the
cable industry. This optimism was rewarded by overall positive contributions
from Comcast and Mediacom Communications, our two current cable-related
holdings.
Technology stocks also suffered during the year as the substantial decline in
overall capital spending continued.
Total Return
For the period ended April 30, 2003 One Year
Delaware Select Growth Fund -- Class A Shares -17.69%
Russell 3000 Growth Index -15.01%
Lipper Multi-Cap Growth Funds Average (434 funds) -17.17%
- --------------------------------------------------------------------------------
All performance shown above is at net asset value without the effect of sales
charges and assumes reinvestment of all distributions. Performance information
for all Fund classes and a description of the index can be found on page 3. The
Lipper Multi-Cap Growth Funds Average represents the average return of multi-cap
mutual funds tracked by Lipper (Source: Lipper Inc.). You cannot invest directly
in an index. Past performance is not a guarantee of future results.
1
================================================================================
PORTFOLIO CHARACTERISTICS
As of April 30, 2003
- --------------------------------------------------------------------------------
Beta* 1.57
- --------------------------------------------------------------------------------
Average Price-to-Earnings Ratio** 18.39
- --------------------------------------------------------------------------------
Median Market Capitalization $3.09 billion
- --------------------------------------------------------------------------------
Portfolio Turnover 69%
- --------------------------------------------------------------------------------
*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 Thomson
Financial/First Call.
================================================================================
Brocade Communications and Micrel were two technology-related companies that
failed to deliver expected growth, and each declined substantially. We became
concerned about the ability of Brocade to ultimately deliver strong growth in
earnings and sales, and we eventually exited from the stock during the year. We
remain optimistic about Micrel's long-term prospects and have maintained a
position in this stock.
Q: Which holdings performed well during the difficult year?
A: Homebuilders and insurers were two areas that did well during the past year.
Centex was the Fund's biggest positive contributor to performance during the
year, as homebuilders continued to benefit from a low interest rate environment
and delivered strong earnings and sales growth. Insurers, particularly those
involved in property and casualty, benefited from a strong pricing environment.
HCC Insurance Holdings was up for the year as a result of this trend.
Top 10 Holdings
As of April 30, 2003
Percentage
Company Sector of Net Assets
- -------------------------------------------------------------------------------
1. Clear Channel Business Services 3.74%
Communications
- -------------------------------------------------------------------------------
2. Cendant Business Services 3.41%
- -------------------------------------------------------------------------------
3. Kohl's Consumer Non-Durables 3.04%
- -------------------------------------------------------------------------------
4. HCC Insurance Insurance 2.72%
Holdings
- -------------------------------------------------------------------------------
5. IndyMac Bancorp Banking & Finance 2.64%
- -------------------------------------------------------------------------------
6. PartnerRe Insurance 2.63%
- -------------------------------------------------------------------------------
7. Mediacom Consumer Services 2.56%
Communications
- -------------------------------------------------------------------------------
8. Amgen Healthcare & Pharmaceuticals 2.50%
- -------------------------------------------------------------------------------
9. Ambac Insurance 2.47%
Financial Group
- -------------------------------------------------------------------------------
10. Bed Bath & Beyond Consumer Non-Durables 2.46%
- -------------------------------------------------------------------------------
2
Delaware
SELECT GROWTH FUND
Fund Basics
As of April 30, 2003
- ----------------------------------------------
Fund Objective:
The Fund seeks long-term capital appreciation.
- ----------------------------------------------
Total Fund Net Assets:
$597.57 million
- ----------------------------------------------
Number of Holdings:
67
- ----------------------------------------------
Fund Start Date:
May 16, 1994
- ----------------------------------------------
Your Fund Manager:
Gerald S. Frey, who leads the Delaware
Investments growth team, received a bachelor's
degree in economics from Bloomsburg
University and attended Wilkes College and New
York University. Prior to joining Delaware
Investments in 1996, he was a Senior Director
with Morgan Grenfell Capital Management in
New York, where he managed technology-
related stocks.
- ----------------------------------------------
Nasdaq Symbols:
Class A DVEAX
Class B DVEBX
Class C DVECX
Fund Performance
Average Annual Total Returns
Through April 30, 2003 Lifetime Five Years One Year
- --------------------------------------------------------------------------------
Class A (Est. 5/16/94)
Excluding Sales Charge +10.57% -2.69% -17.69%
Including Sales Charge +9.84% -3.83% -22.43%
- --------------------------------------------------------------------------------
Class B (Est. 4/16/96)
Excluding Sales Charge +9.24% -3.44% -18.33%
Including Sales Charge +9.24% -3.85% -21.60%
- --------------------------------------------------------------------------------
Class C (Est. 5/20/94)
Excluding Sales Charge +9.74% -3.42% -18.27%
Including Sales Charge +9.74% -3.42% -19.09%
- --------------------------------------------------------------------------------
Returns reflect the reinvestment of all 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. Performance
for Class B and C shares, excluding sales charges, assumes either that
contingent deferred sales charges did not apply or the investment was not
redeemed. Past performance is not a guarantee of future results.
The Fund offers Class A, B, C, and Institutional Class shares. Class A shares
are sold with a front-end sales charge of up to 5.75% and have an annual
distribution and service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%.
Class C shares are sold with a contingent deferred sales charge of 1% if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
The average annual total returns for the lifetime (since 5/16/94), five-year,
and one-year periods ended April 30, 2003 for Delaware Select Growth Fund's
Institutional Class were +10.75%, -2.45%, and -17.50%, respectively.
Institutional Class shares were first made available on August 28, 1997 and are
available without sales or asset-based distribution charges only to certain
eligible institutional accounts. Institutional class performance prior to August
28, 1997 is based on Class A performance and was adjusted to eliminate the sales
charge, but not the asset-based distribution charge of Class A shares.
An expense limitation was in effect for all classes of Delaware Select Growth
Fund during the periods shown. Performance would have been lower had the expense
limitation not been in effect.
The performance table and graph do not reflect the deduction of taxes the
shareholder would pay on Fund distributions or redemptions of Fund shares.
Nasdaq Institutional Class symbol: VAGGX
Performance of a $10,000 Investment
May 16, 1994 (Fund's inception) through April 30, 2003
Delaware Select Growth
Fund - Class A Shares Russell 3000 Growth Index
5/31/94 $ 9,350 $10,000
4/31/95 $ 9,802 $11,720
4/31/96 $12,843 $15,616
4/31/97 $13,378 $18,450
4/31/98 $26,568 $26,220
4/31/99 $34,122 $32,416
4/31/00 $50,478 $41,450
4/31/01 $34,545 $28,284
4/31/02 $28,160 $22,828
4/31/03 $23,178 $19,402
Chart assumes $10,000 invested on May 16, 1994 and includes the effect of a
5.75% front-end sales charge and the reinvestment of all distributions.
Performance of other Fund classes will vary due to different charges and
expenses. The chart also assumes $10,000 invested in the Russell 3000 Growth
Index as of that month's end, May 31, 1994. After May 31, 1994, returns plotted
on the chart were as of the last day of each month shown. The Russell 3000
Growth Index is a broad market index measuring performance of growth-oriented
companies with a wide range of market capitalizations. An index is unmanaged and
does not reflect the costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities. You cannot invest directly in an index.
Past performance is not a guarantee of future results.
3
Statement Delaware Select Growth Fund
OF NET ASSETS April 30, 2003
Number of Market
Shares Value
Common Stock - 96.62%
Banking & Finance - 9.31%
City National 267,600 $11,017,092
IndyMac Bancorp 708,500 15,785,380
LaBranche & Co. 212,100 3,516,618
Lehman Brothers Holdings 173,800 10,944,186
TCF Financial 279,200 11,056,320
Webster Financial 87,600 3,288,504
-----------
55,608,100
-----------
Business Services - 9.41%
+*Cendant 1,427,800 20,388,984
+Clear Channel Communications 571,400 22,347,454
Manpower 220,200 7,240,176
+United Rentals 608,400 6,266,520
-----------
56,243,134
-----------
Consumer Durables - 5.22%
Centex 222,000 14,656,440
D.R. Horton 365,300 8,657,610
*Lennar 87,000 4,718,880
+WCI Communities 229,200 3,169,836
-----------
31,202,766
-----------
Consumer Non-Durables - 12.76%
+*Amazon.com 164,000 4,701,880
+Bed Bath & Beyond 372,600 14,721,426
Gap 488,100 8,117,103
+Kohl's 319,500 18,147,600
+*Krispy Kreme Doughnuts 337,200 10,952,256
Lowe's Companies 235,000 10,314,150
+Staples 488,800 9,306,752
-----------
76,261,167
-----------
Consumer Services - 12.31%
+Brinker International 355,150 11,276,013
+Comcast Special Class A 387,100 11,636,226
Darden Restaurants 315,600 5,526,156
Landry's Restaurants 384,700 7,193,890
*Marriott International Class A 180,500 6,481,755
+Mediacom Communications 1,528,900 15,273,711
*Royal Caribbean Cruises 542,800 10,079,796
+Westwood One 174,900 6,104,010
-----------
73,571,557
-----------
Energy - 1.41%
*Devon Energy 59,600 2,816,100
+Noble 180,800 5,595,760
-----------
8,411,860
-----------
Healthcare & Pharmaceuticals - 16.99%
Allergan 123,600 8,682,900
+Amgen 243,300 14,916,722
+*Conceptus 1,013,500 10,570,805
+Enzon 581,700 7,980,924
+IntraBiotics Pharmaceuticals 101,175 192,233
Johnson & Johnson 118,000 6,650,480
+Medimmune 168,900 5,957,103
Merck & Co. 126,000 7,330,680
Number of Market
Shares Value
Common Stock (continued)
Healthcare & Pharmaceuticals (continued)
+Nektar Therapeutics 832,600 $ 6,677,452
+Pain Therapeutics 2,138,500 6,885,970
Pfizer 299,500 9,209,625
+Protein Design Labs 869,300 8,632,149
+Wellpoint Health Networks 103,400 7,852,196
------------
101,539,239
------------
Insurance - 14.00%
Ambac Financial Group 253,300 14,780,055
Berkley (W.R.) 256,400 11,907,216
Fidelity National Financial 247,000 8,496,800
First American Financial 217,400 5,761,100
HCC Insurance Holdings 590,200 16,230,500
*PartnerRe 293,900 15,723,650
RenaissanceRe Holdings 147,800 6,546,062
XL Capital Limited Class A 51,400 4,230,220
------------
83,675,603
------------
Technology - 14.41%
+Analog Devices 439,400 14,552,928
+Applied Micro Circuits 1,416,600 6,346,368
+Ciena 523,589 2,549,878
+*Emulex 245,500 5,030,295
+EOS International 3,735,100 974,861
Henry (Jack) & Associates 455,100 5,929,953
Linear Technology 250,900 8,648,523
+Micrel 554,100 6,488,511
+Network Appliance 668,900 8,882,992
+Novellus Systems 210,000 5,888,400
+Quest Software 804,100 8,603,870
+Xilinx 449,600 12,170,672
------------
86,067,251
------------
Transportation - 0.80%
Arkansas Best 189,700 4,808,895
------------
4,808,895
------------
Total Common Stock
(cost $595,216,420) 577,389,572
------------
Principal
Amount
Federal Agency (Discount Notes) - 2.59%
Fannie Mae 1.17% 5/1/03 $7,625,000 7,625,000
Freddie Mac 1.19% 5/6/03 7,855,000 7,853,713
------------
Total Federal Agency (Discount Notes)
(cost $15,478,713) 15,478,713
------------
4
Statement Delaware Select Growth Fund
OF NET ASSETS (CONTINUED)
Total Market Value of Securities - 99.21%
(cost $610,695,133) $592,868,285
Short Term Investments held as Collateral
for Loaned Securities - 6.61%
(cost $39,491,214)++ 39,491,214
Obligation to Return Securities Lending
Collateral - (6.61%)++ (39,491,214)
Receivables and Other Assets
Net of Liabilities - 0.79% 4,701,200
------------
Net Assets Applicable to 37,314,364
Shares Outstanding - 100.00% $597,569,485
============
Net Asset Value - Delaware Select Growth
Fund Class A ($208,395,348 / 12,479,239 Shares) $16.70
------
Net Asset Value - Delaware Select Growth
Fund Class B ($257,541,700 / 16,515,011 Shares) $15.59
------
Net Asset Value - Delaware Select Growth
Fund Class C ($95,552,082 / 6,193,979 Shares) $15.43
------
Net Asset Value - Delaware Select Growth
Fund Institutional Class
($36,080,355 / 2,126,135 Shares) $16.97
------
Components of Net Assets at April 30, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $1,440,987,304
Accumulated net realized loss on investments (825,590,971)
Net unrealized depreciation of investments (17,826,848)
--------------
Total net assets $ 597,569,485
==============
+Non-income producing security for the year ended April 30, 2003.
++See Note 7 in "Notes to Financial Statements".
*Security is fully or partially on loan.
Net Asset Value and Offering Price per Share -
Delaware Select Growth Fund
Net asset value Class A (A) $16.70
Sales charge (5.75% of offering price,
or 6.11% of amount invested per share) (B) 1.02
------
Offering price $17.72
======
(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
5
Statement Delaware Select Growth Fund
OF OPERATIONS Year Ended April 30, 2003
Investment Income:
Dividends $3,417,629
Interest 458,330
Security lending income 17,455 $ 3,893,414
---------- ------------
Expenses:
Management fees 4,971,458
Distribution expenses -- Class A 579,146
Distribution expenses -- Class B 2,889,394
Distribution expenses -- Class C 1,113,985
Dividend disbursing and transfer agent fees and
expenses 4,528,694
Reports and statements to shareholders 462,696
Accounting and administration expenses 302,302
Professional fees 72,825
Custodian fees 42,633
Registration fees 35,808
Trustees' fees 28,952
Other 226,310 15,254,203
---------
Less expenses absorbed or waived (2,219,750)
Less expenses paid indirectly (18,213)
-------------
Total operating expenses 13,016,240
-------------
Net Investment Loss (9,122,826)
-------------
Net Realized and Unrealized Loss on Investments:
Net realized loss on investments (136,078,996)
Net change in unrealized appreciation/depreciation
of investments (38,859,699)
-------------
Net Realized and Unrealized Loss on Investments (174,938,695)
-------------
Net Decrease in Net Assets Resulting from Operations $(184,061,521)
=============
See accompanying notes
6
Statements Delaware Select Growth Fund
OF CHANGES IN NET ASSETS
Year Ended
4/30/03 4/30/02
Decrease in Net Assets from Operations:
Net investment loss $ (9,122,826) $ (15,146,908)
Net realized loss on investments (136,078,996) (195,105,184)
Net change in unrealized appreciation/depreciation of investments (38,859,699) (38,676,805)
------------- --------------
Net decrease in net assets resulting from operations (184,061,521) (248,928,897)
------------- --------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 40,791,531 85,294,801
Class B 14,055,201 51,031,068
Class C 10,150,138 27,694,723
Institutional Class 27,161,082 25,529,999
------------- --------------
92,157,952 189,550,591
------------- --------------
Cost of shares repurchased:
Class A (104,341,837) (143,086,455)
Class B (97,967,081) (108,050,349)
Class C (49,204,016) (64,827,282)
Institutional Class (33,391,062) (13,041,411)
------------- --------------
(284,903,996) (329,005,497)
------------- --------------
Decrease in net assets derived from capital share transactions (192,746,044) (139,454,906)
------------- --------------
Net Decrease in Net Assets (376,807,565) (388,383,803)
Net Assets:
Beginning of year 974,377,050 1,362,760,853
------------- --------------
End of year $ 597,569,485 $ 974,377,050
============= ==============
See accompanying notes
7
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Select Growth Fund Class A
Year Ended
4/30/03 4/30/02 4/30/01 4/30/00 4/30/99
Net asset value, beginning of period $ 20.290 $ 24.890 $ 36.380 $ 25.910 $ 20.570
Income (loss) from investment operations:
Net investment loss(1) (0.147) (0.193) (0.302) (0.294) (0.203)
Net realized and unrealized gain (loss) on investments (3.443) (4.407) (11.188) 12.393 5.910
-------- -------- -------- -------- --------
Total from investment operations (3.590) (4.600) (11.490) 12.099 5.707
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net realized gain on investments -- -- -- (1.049) (0.367)
In excess of net realized gain on investments -- -- -- (0.580) --
-------- -------- -------- -------- --------
Total dividends and distributions -- -- -- (1.629) (0.367)
-------- -------- -------- -------- --------
Net asset value, end of period $ 16.700 $ 20.290 $ 24.890 $ 36.380 $ 25.910
======== ======== ======== ======== ========
Total return(2) (17.69%) (18.48%) (31.57%) 47.93% 28.43%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $208,395 $333,172 $475,767 $632,036 $135,865
Ratio of expenses to average net assets 1.50% 1.45% 1.37% 1.29% 1.67%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.83% 1.50% 1.38% 1.29% 2.06%
Ratio of net investment loss to average net assets (0.92%) (0.86%) (0.90%) (0.85%) (0.95%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid indirectly (1.25%) (0.91%) (0.91%) (0.85%) (1.34%)
Portfolio turnover 69% 127% 156% 183% 313%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
8
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Select Growth Fund Class B
Year Ended
4/30/03 4/30/02 4/30/01 4/30/00 4/30/99
Net asset value, beginning of period $ 19.090 $23.600 $34.740 $24.990 $ 20.000
Income (loss) from investment operations:
Net investment loss(1) (0.259) (0.340) (0.521) (0.544) (0.350)
Net realized and unrealized gain (loss) on investments (3.241) (4.170) (10.619) 11.923 5.707
-------- -------- -------- -------- --------
Total from investment operations (3.500) (4.510) (11.140) 11.379 5.357
-------- -------- -------- -------- --------
Less dividends and distributions from:
Net realized gain on investments -- -- -- (1.049) (0.367)
In excess of net realized gain on investments -- -- -- (0.580) --
-------- -------- -------- -------- --------
Total dividends and distributions -- -- -- (1.629) (0.367)
-------- -------- -------- -------- --------
Net asset value, end of period $ 15.590 $ 19.090 $ 23.600 $ 34.740 $ 24.990
======== ======== ======== ======== ========
Total return(2) (18.33%) (19.11%) (32.07%) 46.82% 27.41%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $257,542 $421,578 $588,152 $674,810 $103,299
Ratio of expenses to average net assets 2.25% 2.20% 2.12% 2.04% 2.42%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 2.58% 2.25% 2.13% 2.04% 2.81%
Ratio of net investment loss to average net assets (1.67%) (1.61%) (1.65%) (1.60%) (1.70%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid indirectly (2.00%) (1.66%) (1.66%) (1.60%) (2.09%)
Portfolio turnover 69% 127% 156% 183% 313%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
9
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Select Growth Fund Class C
Year Ended
4/30/03 4/30/02 4/30/01 4/30/00 4/30/99
Net asset value, beginning of period $18.890 $ 23.350 $34.370 $24.740 $ 19.800
Income (loss) from investment operations:
Net investment loss(1) (0.258) (0.337) (0.517) (0.555) (0.345)
Net realized and unrealized gain (loss) on investments (3.202) (4.123) (10.503) 11.814 5.652
------- -------- -------- -------- --------
Total from investment operations (3.460) (4.460) (11.020) 11.259 5.307
------- -------- -------- -------- --------
Less dividends and distributions from:
Net realized gain on investments -- -- -- (1.049) (0.367)
In excess of net realized gain on investments -- -- -- (0.580) --
------- -------- -------- -------- --------
Total dividends and distributions -- -- -- (1.629) (0.367)
------- -------- -------- -------- --------
Net asset value, end of period $15.430 $ 18.890 $ 23.350 $ 34.370 $ 24.740
======= ======== ======== ======== ========
Total return(2) (18.27%) (19.14%) (32.06%) 46.86% 27.45%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $95,552 $166,246 $248,685 $304,078 $32,235
Ratio of expenses to average net assets 2.25% 2.20% 2.12% 2.04% 2.42%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 2.58% 2.25% 2.13% 2.04% 2.81%
Ratio of net investment loss to average net assets (1.67%) (1.61%) (1.65%) (1.60%) (1.70%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid indirectly (2.00%) (1.66%) (1.66%) (1.60%) (2.09%)
Portfolio turnover 69% 127% 156% 183% 313%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation
not been in effect.
See accompanying notes
10
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Select Growth Fund Institutional Class
Year Ended
4/30/03 4/30/02 4/30/01 4/30/00 4/30/99
Net asset value, beginning of period $20.570 $25.170 $ 36.690 $26.060 $20.640
Income (loss) from investment operations:
Net investment loss(1) (0.106) (0.139) (0.220) (0.196) (0.155)
Net realized and unrealized gain (loss) on investments (3.494) (4.461) (11.300) 12.455 5.942
------- ------- -------- ------- -------
Total from investment operations (3.600) (4.600) (11.520) 12.259 5.787
------- ------- -------- ------- -------
Less dividends and distributions from:
Net realized gain on investments -- -- -- (1.049) (0.367)
In excess of net realized gain on investments -- -- -- (0.580) --
------- ------- -------- ------- -------
Total dividends and distributions -- -- -- (1.629) (0.367)
------- ------- -------- ------- -------
Net asset value, end of period $16.970 $20.570 $ 25.170 $36.690 $26.060
======= ======= ======== ======= =======
Total return(2) (17.50%) (18.28%) (31.38%) 48.29% 28.73%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $36,080 $53,381 $ 50,157 $58,967 $17,737
Ratio of expenses to average net assets 1.25% 1.20% 1.12% 1.04% 1.42%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.58% 1.25% 1.13% 1.04% 1.81%
Ratio of net investment loss to average net assets (0.67%) (0.61%) (0.65%) (0.60%) (0.70%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid indirectly (1.00%) (0.66%) (0.66%) (0.60%) (1.09%)
Portfolio turnover 69% 127% 156% 183% 313%
(1) The average shares outstanding method has been applied for per share
information.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value. Total investment return reflects waivers and payment of
fees by the manager, as applicable. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
11
Delaware Select Growth Fund
Notes April 30, 2003
TO FINANCIAL STATEMENTS
Voyageur Mutual Funds III (the "Trust") is organized as a Delaware business
trust and offers two series: Delaware Core Equity Fund and Delaware Select
Growth Fund. These financial statements and the related notes pertain to the
Delaware Select Growth Fund (the "Fund"). The Trust is an open-end investment
company. The Fund is considered diversified under the Investment Company Act of
1940, as amended, and offers Class A, Class B, Class C and Institutional Class
shares. Class A shares are sold with a front-end sales charge of up to 5.75%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Prior to
November 18, 2002, the Class B contingent deferred sales charge declined from 5%
to zero depending upon the period of time the shares were held. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
8 years after purchase. Class C shares are sold with a contingent deferred sales
charge of 1%, if redeemed during the first 12 months. Institutional Class shares
are not subject to a sales charge and are offered for sale exclusively to a
limited group of investors.
The investment objective of the Fund is to seek long-term capital appreciation
which the Fund attempts to achieve by investing primarily in equity securities
of companies the manager believes have the potential for high earnings growth.
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 time of the regular 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. Short-term debt
securities 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 under the direction of the Fund's Board of Trustees.
Federal Income Taxes - The Fund intends to continue to qualify for federal
income tax purposes 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.
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.
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 expects to declare and distribute all of
its net investment income, if any, to shareholders as dividends annually and
will distribute net capital gains, if any, annually.
In addition, in order to satisfy certain distribution requirement of the Tax
Reform Act of 1986, the Fund may declare special year-end dividend and capital
gains distributions during November or December to shareholders of record on a
date in such month. Such distributions, if received by shareholders by January
1, are deemed to have been paid by the Fund and received by shareholders on the
earlier of the date paid or December 31 of the prior year.
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 $16,155 for the year ended April 30, 2003. In
addition, the Fund receives earnings credits from its custodian when positive
cash balances are maintained, which are used to offset custody fees. The
earnings credits for the year ended April 30, 2003 were approximately $2,058.
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, Administration Agreements and
Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund
pays Delaware Management Company (DMC), a series of Delaware Management Business
Trust and the investment manager, an annual fee which is calculated daily at the
rate of 0.75% on the first $500 million of average daily net assets of the Fund,
0.70% on the next $500 million, 0.65% on the next $1.5 billion and 0.60% on the
average daily net assets in excess of $2.5 billion.
DMC has contracted to waive that portion, if any, of its management fee and
reimburse the Fund to the extent necessary to ensure that annual operating
expenses, exclusive of taxes, interest, brokerage commissions, distribution
fees, and extraordinary expenses, do not exceed 1.25% of average daily net
assets of the Fund through December 31, 2003.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent, 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.
Pursuant to a distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual fee not to exceed 0.25% of the average daily net assets of the Class A
shares and 1.00% of the average daily net assets of the Class B and C shares. No
distribution expenses are paid by the Institutional Class shares.
At April 30, 2003, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $113,989
Dividend disbursing, transfer agent fees,
accounting and other expenses payable to DSC 426,034
Other expenses payable to DMC and affiliates 33,559
12
Notes Delaware Select Growth Fund
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreements and
Other Transactions with Affiliates (continued)
For the year ended April 30, 2003, DDLP earned $15,047 for commissions on sales
of the Fund's Class A shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
3. Investments
For the year ended April 30, 2003, the Fund made purchases of $453,768,874 and
sales of $634,123,809 of investment securities other than U.S. government
securities and short-term investments.
At April 30, 2003, the cost of investments for federal income tax purposes was
$636,646,923. At April 30, 2003, the net unrealized depreciation was $43,778,638
of which $52,289,348 related to unrealized appreciation of investments and
$96,067,986 related to unrealized depreciation of investments.
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States. During the years ended April 30, 2003
and 2002, there were no dividends or distributions paid.
As of April 30, 2003, the components of net assets on a tax basis were
as follows:
Shares of beneficial interest $1,440,987,304
Capital loss carryforwards (749,344,640)
Post-October losses (50,294,541)
Unrealized depreciation of investments (43,778,638)
--------------
Net assets $597,569,485
==============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows: $96,071,647 expires in 2009, $470,062,416
expires in 2010 and $183,210,577 expires in 2011.
Post-October losses represent losses realized on investment transactions from
November 1, 2002 through April 30, 2003 that, in accordance with federal income
tax regulations the Fund has elected to defer and treat as having arisen in the
following fiscal year.
5. Capital Shares
Transactions in capital shares were as follows:
Year Ended
4/30/03 4/30/02
Shares sold:
Class A 2,523,282 3,848,639
Class B 911,458 2,396,103
Class C 666,563 1,313,537
Institutional Class 1,632,327 1,193,738
--------- ---------
5,733,630 8,752,017
--------- ---------
Shares repurchased:
Class A (6,464,267) (6,541,406)
Class B (6,478,412) (5,236,524)
Class C (3,275,570) (3,162,617)
Institutional Class (2,101,533) (591,103)
---------- ----------
(18,319,782) (15,531,650)
---------- ----------
Net decrease (12,586,152) (6,779,633)
========== ==========
For the years ended April 30, 2003 and 2002, 27,504 Class B shares were
converted to 25,761 Class A shares valued at $402,609 and 617 Class B shares
were converted to 582 Class A shares valued at $12,739, respectively. The
respective amounts are included in Class B redemptions and Class A subscriptions
in the previous table and the Statements of Changes in Net Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $202,300,000 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 amounts outstanding as of April 30, 2003, or at any time during the
year.
7. Securities Lending
The Fund, along with other funds in the Delaware Investments Family of Funds,
may lend its securities pursuant to a security lending agreement (Lending
Agreement) with Mellon Bank N.A. ("Mellon"). Initial security loans made
pursuant to the Lending Agreement are required to be secured by U.S. Treasury
obligations and/or cash collateral not less than 102% of the market value of the
securities issued in the United States. With respect to each loan, if the
aggregate market value of the collateral held on any business day is less than
the aggregate market value of the securities which are the subject of such loan,
the borrower will be notified to provide additional collateral not less than the
applicable collateral requirements. Cash collateral received is invested in the
Mellon GSL DBT II Collateral Fund, (Collateral Fund), a collective investment
vehicle to be utilized by Mellon for the purpose of investment and reinvestment
of cash collateral on behalf of its clients in its securities lending program.
The Collateral Fund invests in high quality short-term investments with a
weighted average maturity not to exceed 90 days. However, in the event of
default or bankruptcy by the lending agent, realization and/or retention of the
collateral may be subject to legal proceedings. In the event the borrower fails
to return loaned securities and the collateral received is insufficient to cover
the value of the loaned securities and provided such collateral shortfall is not
the result of investment losses, the lending agent has agreed to pay the amount
of the shortfall to the Fund, or at the discretion of the lending agent, replace
the loaned securities. At April 30, 2003, the market value of the securities on
loan and the Fund's investment in the Collateral Fund were $38,059,410 and
$39,491,214, respectively.
8. Credit and Market Risk
The Fund invests a significant portion of its assets in small-and medium-sized
companies and may be subject to certain risks associated with ownership of
securities of small-and medium-sized companies. Investments in small-and
medium-sized companies may be more volatile than investments in larger companies
for a number of reasons, which include more limited financial resources or a
dependence on narrow product lines.
13
Report
OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
Voyageur Mutual Funds III - Delaware Select Growth Fund
We have audited the accompanying statement of net assets of Delaware Select
Growth Fund (the "Fund") as of April 30, 2003, 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 five years in the period then ended. 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, 2003, 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 Select Growth Fund at April 30, 2003, 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 five years
in the period then ended, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
June 6, 2003
14
Delaware Investments Family of Funds
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees which has oversight
responsibility for the management of a fund's business affairs. Trustees
establish procedures and oversee and review the performance of the investment
manager, the distributor and others that perform services for the fund. The
independent fund trustees, in particular, are advocates for shareholder
interests. The following is a list of the Trustees/Officers and certain
background and related information.
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex Overseen Held by
and Birthdate Fund(s) Served Past 5 Years by Trustee Trustee
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude to Driscoll(2) Chairman and 3 Years - Since August 2000, 89 None
2005 Market Street Trustee(5) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee as of at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process-
Conseco Capital Management
(June 1998-August 2000)
Managing Director-
NationsBanc Capital Markets
(February 1996-June 1998)
David K. Downes(3) President, 10 Years - Mr. Downes has 107 Director/President -
2005 Market Street Chief Executive Executive Officer served in various Lincoln National
Philadelphia, PA Officer, executive capacities Convertible Securities
19103 Chief Financial 4 Years - Trustee at different times Fund, Inc.
Officer and Trustee at Delaware Investments
January 8, 1940 Director/President -
Lincoln National
Income Fund, Inc.
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 15 Years Board Chairman - 107 None
2005 Market Street Citadel Constructors, Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
John H. Durham Trustee 24 Years(4) Private Investor 107 Trustee -
2005 Market Street Abington Memorial
Philadelphia, PA Hospital
19103
August 7, 1937 President/Director -
22 WR Corporation
John A. Fry Trustee(5) 2 Years President - 89 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
15
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex Overseen Held by
and Birthdate Fund(s) Served Past 5 Years by Trustee/Officer Trustee/Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
Anthony D. Knerr Trustee 10 Years Founder/Managing Director - 107 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 107 Director -
2005 Market Street National Gallery of Art Systemax, Inc.
Philadelphia, PA (1994 - 1999)
19103 Director - Andy
Warhol Foundation
November 1, 1940
Thomas F. Madison Trustee 9 Years President/Chief 107 Director -
2005 Market Street Executive Officer - CenterPoint Energy
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director - Digital
and Consulting) River Inc.
(January 1993 - Present)
February 25, 1936 Director - Rimage
Corporation
Director - Valmont
Industries, Inc.
Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 107 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management
positions at 3M Corporation
since 1983.
OFFICERS
Richelle S. Maestro Senior Vice President, 4 Years Ms. Maestro has served in 107 None
2005 Market Street General Counsel various executive capacities
Philadelphia, PA and Secretary at different times at
19103 Delaware Investments.
November 26, 1957
Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 107 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Downes is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager, distributor, accounting service
provider and transfer agent.
(4) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(5) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
16
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This annual report is for the information of Delaware Select Growth Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Select Growth 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 Affiliated Officers Contact Information
Walter P. Babich Jude T. Driscoll Investment Manager
Board Chairman Chairman Delaware Management Company
Citadel Construction Corporation Delaware Investments Family of Funds Philadelphia, PA
King of Prussia, PA Philadelphia, PA
International Affiliate
David K. Downes Michael P. Bishof Delaware International Advisers Ltd.
President and Chief Executive Officer Senior Vice President and Treasurer London, England
Delaware Investments Family of Funds Delaware Investments Family of Funds
Philadelphia, PA Philadelphia, PA National Distributor
Delaware Distributors, L.P.
John H. Durham Richelle S. Maestro Philadelphia, PA
Private Investor Senior Vice President,
Gwynedd Valley, PA General Counsel and Secretary Shareholder Servicing, Dividend
Delaware Investments Family of Funds Disbursing and Transfer Agent
Anthony D. Knerr Philadelphia, PA Delaware Service Company, Inc.
Managing Director 2005 Market Street
Anthony Knerr & Associates Philadelphia, PA 19103-7094
New York, NY
For Shareholders
Ann R. Leven 800 523-1918
Former Treasurer/Chief Fiscal Officer
National Gallery of Art For Securities Dealers and Financial
Washington, DC Institutions Representatives Only
800 362-7500
Thomas F. Madison
President and Chief Executive Officer Web site
MLM Partners, Inc. www.delawareinvestments.com
Minneapolis, MN
Janet L. Yeomans
Vice President/Mergers & Acquisitions
3M Corporation
St. Paul, MN
(7801) Printed in the USA
AR-316 [4/03] VGR 6/03 J9202
Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. [Reserved]
Item 9. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in ensuring that the information required to be disclosed by the
registrant in its reports or statements filed under the Securities Exchange Act
of 1934 is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
There were no significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their last evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Exhibits
(a) Code of Ethics
Not applicable.
(b) (1) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: Voyageur Mutual Funds III
By: David K. Downes
Title: President
Date: July 9, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: David K. Downes
Title: President
Date: July 9, 2003
By: Michael P. Bishof
Title: Treasurer
Date: July 9, 2003