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, 2004
Delaware
Investments(SM)
--------------------------------------
A member of Lincoln Financial Group(R)
GROWTH-EQUITY
ANNUAL REPORT APRIL 30, 2004
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DELAWARE SELECT GROWTH FUND
[LOGO]
POWERED BY RESEARCH.(SM)
TABLE
OF CONTENTS
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PORTFOLIO MANAGEMENT REVIEW 1
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PERFORMANCE SUMMARY 2
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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 13
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 16
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BOARD OF TRUSTEES/OFFICERS 17
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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) 2004 Delaware Distributors, L.P.
PORTFOLIO DELAWARE SELECT GROWTH FUND
MANAGEMENT REVIEW May 10, 2004
FUND MANAGER
Gerald S. Frey
Senior Portfolio Manager
Q: HOW DID THE FUND PERFORM DURING THE FISCAL YEAR?
A: Delaware Select Growth Fund uses a multi-cap strategy that allows the Fund to
spread its investment opportunities across an array of equities, regardless of
size. During the fiscal year ended April 30, 2004, the Fund returned +23.83%
(Class A shares at net asset value with distributions reinvested) while the
benchmark, the Russell 3000 Growth Index, gained +22.93%. As a measure of our
peers success, the average return in the Lipper Multi-Cap Growth Funds Average
was +25.37%.
Improving sentiment regarding an overall economic rebound drove stocks higher
during the past fiscal year. The rally was broad-based, as the majority of
stocks posted solid gains. Stocks cooled toward the end of the period, however,
as inflation fears prompted concerns over a possible end to the Federal
Reserve's accommodative interest rate policy. The market's strength over the
past year seems to have given investors hope that the long bear market may
finally be at an end. We are encouraged by the favorable outlooks that have been
issued by many companies, and have shifted some assets towards those companies
that we believe should benefit the most from an overall economic rebound.
Q: CAN YOU DESCRIBE WHICH HOLDINGS OF THE FUND PERFORMED WELL?
A: The Fund's best performing stocks were not concentrated in any one sector, as
companies that delivered favorable results were generally rewarded. Royal
Caribbean Cruises was the Fund's largest positive contributor to performance as
it rose more than 120 percent as a result of an improving travel industry.
Several healthcare-related stocks also posted significant gains during the year
and, generally as a result, drugs in development came to fruition. Nektar
Therapeutics, Protein Design Labs, and Pain Therapeutics were each up more than
100 percent during the year. Housing-related stocks also performed well as they
benefited from a low interest rate environment.
D.R. Horton and Lennar are two home building stocks that posted strong gains. We
exited from both positions over fear that a potential rise in interest rates
would ultimately have an adverse impact on these holdings.
Q: WHAT WERE SOME OF THE SECURITIES THAT DETRACTED FROM PERFORMANCE?
A: Few stocks in the Fund experienced significant declines during the past year.
CV Therapeutics was the worst performing stock in the portfolio, declining as a
result of negative results regarding its developmental drug for angina. Kohl's
was also down considerably during the year as it posted disappointing sales
results. We exited from both stocks as a result of these adverse developments.
1
DELAWARE
SELECT GROWTH FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges and expenses of the investment carefully before
investing. The Delaware Select Growth Fund prospectus contains this and other
important information about the investment company. Please request a prospectus
by calling 800 523-1918. Read it carefully before you invest or send money.
Performance includes reinvestment of all distributions. Instances of high
double-digit returns are highly unusual and cannot be sustained and were
achieved primarily during favorable market conditions.
FUND PERFORMANCE
Average Annual Total Returns
Through April 30, 2004 Lifetime Five Years One Year
- ---------------------------------------------------------------------------
Class A (Est. 5/16/94)
Excluding Sales Charge +11.83% -3.40% +23.83%
Including Sales Charge +11.17% -4.54% +16.70%
- ---------------------------------------------------------------------------
Class B (Est. 4/16/96)
Excluding Sales Charge +10.85% -4.13% +22.90%
Including Sales Charge +10.85% -4.54% +18.90%
- ---------------------------------------------------------------------------
Class C (Est. 5/20/94)
Excluding Sales Charge +10.99% -4.13% +22.81%
Including Sales Charge +10.99% -4.13% +21.81%
- ---------------------------------------------------------------------------
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, R, 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 cumulative total return for the lifetime period ended April 30, 2004 for
Delaware Select Growth Fund's Class R shares was +11.28%. Class R shares were
first made available on June 2, 2003 and are available only for certain
retirement plan products. They are sold without a sales charge and have an
annual distribution and service fee of 0.60%.
The average annual total returns for the lifetime (since 5/16/94), five-year,
and one-year periods ended April 30, 2004 for Delaware Select Growth Fund's
Institutional Class were +12.03%, -3.17%, and +24.10%, 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 on the following page do not reflect the
deduction of taxes the shareholder would pay on Fund distributions or
redemptions of Fund shares.
Nasdaq Institutional Class symbol: VAGGX
Nasdaq Class R symbol: DFSRX
2
FUND BASICS
As of April 30, 2004
- ----------------------------------------------
Fund Objective:
The Fund seeks long-term capital appreciation.
- ----------------------------------------------
Total Fund Net Assets:
$666.33 million
- ----------------------------------------------
Number of Holdings:
70
- ----------------------------------------------
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
PERFORMANCE OF A $10,000 INVESTMENT
May 16, 1994 (Fund's inception) through April 30, 2004
DELAWARE SELECT
GROWTH FUND - RUSSELL 3000 GROWTH
CLASS A SHARES INDEX
5/31/1994 $ 9,350 $10,000
30-APR-95 $ 9,802 $11,720
30-APR-96 $12,843 $15,616
30-APR-97 $13,378 $18,450
30-APR-98 $26,568 $26,220
30-APR-99 $34,122 $32,416
30-APR-00 $50,478 $41,450
30-APR-01 $34,545 $28,284
30-APR-02 $28,160 $22,828
30-APR-03 $23,178 $19,400
30-APR-04 $28,702 $23,848
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. 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. 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, 2004
Number of Market
Shares Value
COMMON STOCK - 91.11%
Banking & Finance - 14.48%
+AmeriTrade Holding 1,072,600 $ 13,128,624
+CapitalSource 669,600 14,101,776
City National 132,100 8,143,965
*+E Trade Financial 702,500 7,980,400
Eaton Vance 440,500 16,082,655
IndyMac Bancorp 471,100 15,150,576
Lehman Brothers Holdings 123,400 9,057,560
Westcorp 291,100 12,837,510
------------
96,483,066
------------
Business Services - 11.55%
Cendant 881,000 20,862,080
*Clear Channel Communications 115,600 4,796,244
*+Fisher Scientific International 346,000 20,258,300
Manpower 278,500 13,061,650
+SkillSoft ADR 457,600 5,720,000
+United Rentals 711,200 12,232,640
------------
76,930,914
------------
Consumer Non-Durables - 9.56%
*+Amazon.com 164,900 7,166,554
+Bed Bath & Beyond 268,700 9,974,144
#+EOS International 3,735,100 37,351
*Gap 374,100 8,233,941
*+Krispy Kreme Doughnuts 157,500 5,120,325
Lowe's Companies 163,500 8,511,810
Staples 540,800 13,931,008
*+Williams-Sonoma 329,300 10,695,664
------------
63,670,797
------------
Consumer Services - 10.71%
*+ASK Jeeves 390,700 13,858,129
*+Comcast Special Class A 595,600 17,266,444
Marriott International Class A 247,800 11,686,248
+Mediacom Communications 1,582,800 11,538,612
*Royal Caribbean Cruises 241,600 9,792,048
Starwood Hotels & Resorts Worldwide 181,800 7,233,822
------------
71,375,303
------------
Healthcare & Pharmaceuticals - 21.23%
+Amgen 225,200 12,672,004
*+Anthem 93,600 8,291,088
*+Biogen Idec 179,900 10,614,100
*+Conceptus 556,300 6,397,450
*GlaxoSmithKline ADR 342,800 14,397,600
+IntraBiotics Pharmaceuticals 101,175 1,343,604
+Invitrogen 112,400 8,118,652
Johnson & Johnson 264,100 14,269,323
*Medicis Pharmaceutical Class A 371,700 15,953,365
+Nektar Therapeutics 674,700 13,662,675
+Pain Therapeutics 1,339,000 9,841,650
*+Protein Design Labs 600,800 14,707,584
Teva Pharmaceutical ADR 108,500 6,679,260
+Watson Pharmaceutical 128,600 4,579,446
------------
141,527,801
------------
Insurance - 4.38%
*HCC Insurance Holdings 353,800 11,328,676
PartnerRe 312,200 17,889,060
------------
29,217,736
------------
Number of Market
Shares Value
COMMON STOCK (CONTINUED)
Technology - 17.98%
*+Agere Systems Class A 2,681,400 $ 6,059,964
Analog Devices 309,000 13,163,400
ASML Holding N.V 575,600 8,950,580
+Cisco Systems 569,800 11,891,726
#+Convera 795,100 2,141,522
+Cymer 19,800 633,204
+EMC 703,525 7,851,339
Henry (Jack) & Associates 374,200 6,806,698
Intel 303,500 7,809,055
Maxim Integrated Products 17,200 791,028
*+Mercury Interactive 229,000 9,743,950
+Micrel 644,400 7,874,568
+National Semiconductor 192,500 7,852,075
*+Network Appliance 259,200 4,826,304
*Qualcomm 14,500 905,670
*+Red Hat 378,600 8,598,006
+Skyworks Solutions 74,300 636,008
*+Symantec 21,600 973,080
+Xilinx 365,100 12,278,313
------------
119,786,490
------------
Transportation - 1.22%
+Marten Transport 467,150 8,119,067
------------
8,119,067
------------
TOTAL COMMON STOCK
(cost $520,855,533) 607,111,174
------------
Principal
Amount
FEDERAL AGENCY (DISCOUNT NOTES) - 6.91%
Fannie Mae
0.95% 5/20/04 $ 5,050,000 5,047,468
0.97% 5/17/04 32,440,000 32,426,114
0.99% 6/1/04 2,140,000 2,138,185
1.00% 5/3/04 3,275,000 3,274,818
1.00% 5/10/04 2,820,000 2,819,299
Freddie Mac 1.00% 5/4/04 310,000 309,974
------------
TOTAL FEDERAL AGENCY (DISCOUNT NOTES)
(cost $46,015,858) 46,015,858
------------
TOTAL MARKET VALUE OF SECURITIES BEFORE
SECURITIES LENDING COLLATERAL - 98.02%
(cost $566,871,391) 653,127,032
------------
Number of
Shares
SECURITIES LENDING COLLATERAL** - 12.68%
Investment Companies
Mellon GSL DBT II Collateral Fund 84,504,797 84,504,797
------------
TOTAL SECURITIES LENDING COLLATERAL
(cost $84,504,797) 84,504,797
------------
4
STATEMENT DELAWARE SELECT GROWTH FUND
OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES - 110.70%
(cost $651,376,188) $ 737,631,829++
OBLIGATION TO RETURN SECURITIES
LENDING COLLATERAL - (12.68%)** (84,504,797)
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.98% 13,201,286
--------------
NET ASSETS APPLICABLE TO 33,700,533 SHARES
OUTSTANDING - 100.00% $ 666,328,318
==============
Net Asset Value -- Delaware Select Growth Fund
Class A ($243,200,924 / 11,762,140 Shares) $20.68
------
Net Asset Value -- Delaware Select Growth Fund
Class B ($281,906,395 / 14,712,835 Shares) $19.16
------
Net Asset Value -- Delaware Select Growth Fund
Class C ($98,548,882 / 5,199,197 Shares) $18.95
------
Net Asset Value -- Delaware Select Growth Fund
Class R ($262,366 / 12,722 Shares) $20.62
------
Net Asset Value -- Delaware Select Growth Fund
Institutional Class ($42,409,751 / 2,013,639 Shares) $21.06
------
COMPONENTS OF NET ASSETS AT APRIL 30, 2004:
Shares of beneficial interest
(unlimited authorization - no par) $1,502,467,479
Accumulated net realized loss on investments (922,394,802)
Net unrealized appreciation of investments 86,255,641
--------------
Total net assets $ 666,328,318
==============
+Non-income producing security for the year ended April 30, 2004.
++Includes $81,194,087 of securities loaned.
*Security is fully or partially on loan.
**See Note 8 in "Notes to Financial Statements."
#The security is being fair valued in accordance with the Fund's fair valuation
policy. See Note 1 in "Notes to Financial Statements."
SUMMARY OF ABBREVIATIONS:
ADR - American Depositary Receipts
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE SELECT GROWTH FUND
Net asset value Class A (A) $20.68
Sales charge (5.75% of offering price,
or 6.09% of amount invested per share) (B) 1.26
------
Offering price $21.94
======
(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, 2004
INVESTMENT INCOME:
Dividends $3,826,584
Securities lending income 284,355
Interest 184,943 $ 4,295,882
---------- ------------
EXPENSES:
Management fees 5,017,915
Dividend disbursing and transfer agent fees and expenses 4,905,764
Distribution expenses -- Class A 611,346
Distributionexpenses -- Class B 2,899,168
Distribution expenses -- Class C 1,048,599
Distribution expenses -- Class R 464
Reports and statements to shareholders 388,951
Accounting and administration expenses 268,800
Legal and professional fees 124,311
Registration fees 107,718
Custodian fees 36,857
Trustees' fees 22,772
Other 84,825 15,517,490
----------
Less expenses absorbed or waived (2,357,406)
Less expenses paid indirectly (16,192)
------------
Total operating expenses 13,143,892
------------
NET INVESTMENT LOSS (8,848,010)
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 46,423,531
Net change in unrealized appreciation/depreciation of investments 99,365,113
------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 145,788,644
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $136,940,634
============
See accompanying notes
6
STATEMENTS DELAWARE SELECT GROWTH FUND
OF CHANGES IN NET ASSETS
Year Ended
4/30/04 4/30/03
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss $ (8,848,010) $ (9,122,826)
Net realized gain (loss) on investments 46,423,531 (136,078,996)
Net change in unrealized appreciation/depreciation of investments 99,365,113 (38,859,699)
------------ ------------
Net increase (decrease) in net assets resulting from operations 136,940,634 (184,061,521)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 53,978,683 40,791,531
Class B 12,751,639 14,055,201
Class C 10,869,571 10,150,138
Class R 283,965 --
Institutional Class 23,098,668 27,161,082
Net assets from merger(1):
Class A 8,548,672 --
Class B 8,731,771 --
Class C 2,407,124 --
Institutional Class 14,974 --
------------ ------------
120,685,067 92,157,952
------------ ------------
Cost of shares repurchased:
Class A (77,190,091) (104,341,837)
Class B (55,003,431) (97,967,081)
Class C (31,624,760) (49,204,016)
Class R (14,135) --
Institutional Class (25,034,451) (33,391,062)
------------ ------------
(188,866,868) (284,903,996)
------------ ------------
Decrease in net assets derived from capital share transactions (68,181,801) (192,746,044)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 68,758,833 (376,807,565)
NET ASSETS:
Beginning of year 597,569,485 974,377,050
------------ ------------
End of year (there is no undistributed net investment income at each year end) $666,328,318 $597,569,485
============ ============
(1) See Note 6 in "Notes to Financial Statements."
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
4/30/04 4/30/03 4/30/02 4/30/01 4/30/00
NET ASSET VALUE, BEGINNING OF PERIOD $16.700 $20.290 $24.890 $36.380 $25.910
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) (0.171) (0.147) (0.193) (0.302) (0.294)
Net realized and unrealized gain (loss) on investments 4.151 (3.443) (4.407) (11.188) 12.393
------- ------- ------- ------- -------
Total from investment operations 3.980 (3.590) (4.600) (11.490) 12.099
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments -- -- -- -- (1.049)
In excess of net realized gain on investments -- -- -- -- (0.580)
------- ------- ------- ------- -------
Total dividends and distributions -- -- -- -- (1.629)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $20.680 $16.700 $20.290 $24.890 $36.380
======= ======= ======= ======= =======
TOTAL RETURN(2) 23.83% (17.69%) (18.48%) (31.57%) 47.93%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $243,201 $208,395 $333,172 $475,767 $632,036
Ratio of expenses to average net assets 1.50% 1.50% 1.45% 1.37% 1.29%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.86% 1.83% 1.50% 1.38% 1.29%
Ratio of net investment loss to average net assets (0.87%) (0.92%) (0.86%) (0.90%) (0.85%)
Ratio of net investment loss to average net assets prior to
expense limitation and expenses paid indirectly (1.23%) (1.25%) (0.91%) (0.91%) (0.85%)
Portfolio turnover 82% 69% 127% 156% 183%
(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
4/30/04 4/30/03 4/30/02 4/30/01 4/30/00
NET ASSET VALUE, BEGINNING OF PERIOD $15.590 $19.090 $23.600 $34.740 $24.990
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) (0.308) (0.259) (0.340) (0.521) (0.544)
Net realized and unrealized gain (loss) on investments 3.878 (3.241) (4.170) (10.619) 11.923
------- ------- ------- ------- -------
Total from investment operations 3.570 (3.500) (4.510) (11.140) 11.379
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments -- -- -- -- (1.049)
In excess of net realized gain on investments -- -- -- -- (0.580)
------- ------- ------- ------- -------
Total dividends and distributions -- -- -- -- (1.629)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $19.160 $15.590 $19.090 $23.600 $34.740
======= ======= ======= ======= =======
TOTAL RETURN(2) 22.90% (18.33%) (19.11%) (32.07%) 46.82%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $281,906 $257,542 $421,578 $588,152 $674,810
Ratio of expenses to average net assets 2.25% 2.25% 2.20% 2.12% 2.04%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 2.61% 2.58% 2.25% 2.13% 2.04%
Ratio of net investment loss to average net assets (1.62%) (1.67%) (1.61%) (1.65%) (1.60%)
Ratio of net investment loss to average net assets prior to
expense limitation and expenses paid indirectly (1.98%) (2.00%) (1.66%) (1.66%) (1.60%)
Portfolio turnover 82% 69% 127% 156% 183%
(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
4/30/04 4/30/03 4/30/02 4/30/01 4/30/00
NET ASSET VALUE, BEGINNING OF PERIOD $15.430 $18.890 $23.350 $34.370 $24.740
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) (0.306) (0.258) (0.337) (0.517) (0.555)
Net realized and unrealized gain (loss) on investments 3.826 (3.202) (4.123) (10.503) 11.814
------- ------- ------- ------- -------
Total from investment operations 3.520 (3.460) (4.460) (11.020) 11.259
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments -- -- -- -- (1.049)
In excess of net realized gain on investments -- -- -- -- (0.580)
------- ------- ------- ------- -------
Total dividends and distributions -- -- -- -- (1.629)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $18.950 $15.430 $18.890 $23.350 $34.370
======= ======= ======= ======= =======
TOTAL RETURN(2) 22.81% (18.27%) (19.14%) (32.06%) 46.86%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $98,549 $95,552 $166,246 $248,685 $304,078
Ratio of expenses to average net assets 2.25% 2.25% 2.20% 2.12% 2.04%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 2.61% 2.58% 2.25% 2.13% 2.04%
Ratio of net investment loss to average net assets (1.62%) (1.67%) (1.61%) (1.65%) (1.60%)
Ratio of net investment loss to average net assets prior
to expense limitation and expenses paid indirectly (1.98%) (2.00%) (1.66%) (1.66%) (1.60%)
Portfolio turnover 82% 69% 127% 156% 183%
(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 Class R
- --------------------------------------------------------------------------------
6/02/03(1)
to
4/30/04
NET ASSET VALUE, BEGINNING OF PERIOD $18.530
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(2) (2.370)
Net realized and unrealized gain on investments 4.460
-------
Total from investment operations 2.090
-------
NET ASSET VALUE, END OF PERIOD $20.620
=======
TOTAL RETURN(3) 11.28%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $262
Ratio of expenses to average net assets 1.85%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 2.21%
Ratio of net investment loss to average net assets (1.26%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid
indirectly (1.62%)
Portfolio turnover 82%
(1) Date of commencement of operations; ratios have been annualized and total
return has not been annualized.
(2) The average shares outstanding method has been applied for per share
information.
(3) 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. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
11
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
4/30/04 4/30/03 4/30/02 4/30/01 4/30/00
NET ASSET VALUE, BEGINNING OF PERIOD $16.970 $20.570 $25.170 $36.690 $26.060
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss(1) (0.121) (0.106) (0.139) (0.220) (0.196)
Net realized and unrealized gain (loss) on investments 4.211 (3.494) (4.461) (11.300) 12.455
------- ------- ------- ------- -------
Total from investment operations 4.090 (3.600) (4.600) (11.520) 12.259
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net realized gain on investments -- -- -- -- (1.049)
In excess of net realized gain on investments -- -- -- -- (0.580)
------- ------- ------- ------- -------
Total dividends and distributions -- -- -- -- (1.629)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $21.060 $16.970 $20.570 $25.170 $36.690
======= ======= ======= ======= =======
TOTAL RETURN(2) 24.10% (17.50%) (18.28%) (31.38%) 48.29%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $42,410 $36,080 $53,381 $50,157 $58,967
Ratio of expenses to average net assets 1.25% 1.25% 1.20% 1.12% 1.04%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.61% 1.58% 1.25% 1.13% 1.04%
Ratio of net investment loss to average net assets (0.62%) (0.67%) (0.61%) (0.65%) (0.60%)
Ratio of net investment loss to average net assets prior to
expense limitation and expenses paid indirectly (0.98%) (1.00%) (0.66%) (0.66%) (0.60%)
Portfolio turnover 82% 69% 127% 156% 183%
(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
12
NOTES DELAWARE SELECT GROWTH FUND
TO FINANCIAL STATEMENTS April 30, 2004
Voyageur Mutual Funds III (the "Trust") is organized as a Delaware statutory
trust and offers one series, 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, Class R 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. Class B shares will automatically
convert to Class A shares on a quarterly basis approximately eight years after
purchase. Class C shares are sold with a contingent deferred sales charge of 1%,
if redeemed during the first 12 months. Class R and 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 U.S. generally accepted
accounting principles and are consistently followed by the Fund.
Security Valuation -- Equity securities, except those traded on the Nasdaq Stock
Market, Inc. (NASDAQ), 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. Securities traded on the NASDAQ are valued in accordance with the NASDAQ
Official Closing Price, which may not be the last sales price. 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
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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.
Management fees and other expenses are paid monthly. 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 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
31, 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.
Through March 31, 2004, certain expenses of the Fund were paid through
commission arrangements with brokers. The amount of these expenses was
approximately $14,935 for the year ended April 30, 2004. 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, 2004 were approximately $1,257. 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 contractually agreed 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, certain insurance costs and extraordinary expenses, do not
exceed 1.25% of average daily net assets of the Fund through December 31, 2004.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Fund pays
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. The Fund pays DSC a monthly fee based on
the number of shareholder accounts for dividend disbursing and transfer agent
services. Prior to June 1, 2003, the monthly fee for dividend disbursing and
transfer agent services was based on the number of shareholder accounts and
shareholder transactions.
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 distribution and service fee not to exceed 0.25% of the average daily net
assets of the Class A shares, 1.00% of the average daily net assets of the Class
B and C shares and 0.60% of the average daily net assets of the Class R shares.
Institutional class shares pay no distribution and service expenses.
At April 30, 2004, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $186,492
Dividend disbursing, transfer agent, accounting and
administration fees and other expenses payable to DSC 364,739
Other expenses payable to DMC and affiliates* 7,495
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Fund and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax
services, registration fees and trustees' fees.
13
NOTES DELAWARE SELECT GROWTH FUND
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
As provided in the investment management agreement, the Fund bears the cost of
certain legal services expenses, including in house legal services, provided to
the Fund by DMC employees. For the year ended April 30, 2004, the Fund had costs
of $78,368.
For the year ended April 30, 2004, DDLP earned $55,874 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, 2004, the Fund made purchases of $539,385,640 and
sales of $673,528,960 of investment securities other than U.S. government
securities and short-term investments.
At April 30, 2004, the cost of investments for federal income tax purposes was
$579,728,277. At April 30, 2004, the net unrealized appreciation was $73,398,755
of which $99,603,060 related to unrealized appreciation of investments and
$26,204,305 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 U.S. generally
accepted accounting principles. During the years ended April 30, 2004 and 2003,
there were no dividends or distributions paid.
As of April 30, 2004, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $1,502,467,479
*Capital loss carryforwards (909,537,916)
Unrealized appreciation of investments 73,398,755
--------------
Net assets $ 666,328,318
==============
*The amount of this loss which can be utilized in subsequent years is subject to
an annual limitation due to the fund merger with Delaware Technology and
Innovation Fund.
For financial reporting purposes, capital accounts and distributions to
shareholders are adjusted to reflect the tax character of permanent book/tax
differences. For the year ended April 30, 2004, the Fund recorded the following
permanent reclassifications. Reclassifications are primarily due to tax
treatment of net operating losses. Results of operations and net assets were not
affected by these reclassifications.
Accumulated net Accumulated net
investment loss realized gain (loss) Paid-in Capital
- --------------- -------------------- ---------------
$8,480,010 $-- ($8,480,010)
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: $22,409,888 expires in 2008, $166,380,616
expires in 2009, $504,089,842 expires in 2010, $198,127,159 expires in 2011 and
$18,530,411 expires in 2012.
5. CAPITAL SHARES TRANSACTIONS IN CAPITAL SHARES WERE AS FOLLOWS:
Year Ended
4/30/04 4/30/03
Shares sold:
Class A 2,679,940 2,523,282
Class B 690,912 911,458
Class C 592,933 666,563
Class R 13,380 --
Institutional Class 1,144,524 1,632,327
Shares issued from merger(1):
Class A 401,912 --
Class B 442,563 --
Class C 123,316 --
Institutional Class 691 --
---------- -----------
6,090,171 5,733,630
---------- -----------
Shares repurchased:
Class A (3,798,951) (6,464,267)
Class B (2,935,651) (6,478,412)
Class C (1,711,031) (3,275,570)
Class R (658) --
Institutional Class (1,257,711) (2,101,533)
---------- -----------
(9,704,002) (18,319,782)
---------- -----------
Net decrease (3,613,831) (12,586,152)
========== ===========
(1) See Note 6
For the years ended April 30, 2004 and 2003, 70,794 Class B shares were
converted to 65,834 Class A shares valued at $1,331,261 and 27,504 Class B
shares were converted to 25,761 Class A shares valued at $402,609, respectively.
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. FUND MERGER
Effective March 29, 2004, the Fund acquired all of the assets and assumed all of
the liabilities of Delaware Technology and Innovation Fund, an open-end
investment company, pursuant to a Plan and Agreement of Reorganization (the
"Reorganization"). The shareholders of Delaware Technology and Innovation Fund
received shares of the respective class of the Fund equal to the aggregate net
asset value of their shares prior to the Reorganization based on the net asset
value per share of the respective classes of the Fund.
The Reorganization was treated as a non-taxable event and, accordingly, the
Fund's basis in the securities acquired reflected the historical cost basis as
of the date of transfer. The net assets, net unrealized appreciation and
accumulated net realized losses of Delaware Technology and Innovation Fund as of
the close of business on March 26, 2004 were as follows:
Net Unrealized Accumulated Net
Net Assets Appreciation Realized Losses
---------- -------------- ---------------
Delaware Technology
and Innovation Fund $19,702,541 $4,717,376 $(143,227,361)
The net assets of the Fund prior to the Reorganization were $683,131,078.
14
NOTES DELAWARE SELECT GROWTH FUND
TO FINANCIAL STATEMENTS (CONTINUED)
7. LINE OF CREDIT
The Fund, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates in a $177,300,000 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, 2004, or at any time during the
year.
8. 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. The Fund continues to record dividends on the securities
loaned and is subject to changes in fair value of the securities loaned that may
occur during the term of the loan. The Fund has the right under the Lending
Agreement to recover the securities from the borrower on demand. The security
lending agent and the borrower retain a portion of the earnings from the
collateral investments. The Fund records security lending income net of such
allocation.
At April 30, 2004, the market value of the securities on loan was $81,194,087,
for which cash collateral was received and invested in accordance with the
Lending Agreement. Such investments are presented on the Statement of Net Assets
under the caption "Securities Lending Collateral."
9. 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.
10. CONTRACTUAL OBLIGATIONS
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
15
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, 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 the standards of the Public Company
Accounting Oversight Board (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, 2004, 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, 2004, 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 U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
June 4, 2004
16
DELAWARE INVESTMENTS FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("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 and Officers with
certain background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE/DIRECTOR TRUSTEE/DIRECTOR
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman,President, 4 Years - Since August 2000, 77 Optimum
2005 Market Street Chief Executive Executive Officer Mr. Driscoll has served in Fund Trust(5)
Philadelphia, PA Officer and various executive capacities
19103 Trustee(4) 1 Year - at different times at
Trustee Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
WALTER P. BABICH Trustee 16 Years Board Chairman - 94 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
JOHN H. DURHAM Trustee 25 Years(3) Private Investor 94 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103 President/Director -
22 WR Corporation
August 7, 1937
JOHN A. FRY Trustee(4) 3 Years President - 77 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)
ANTHONY D. KNERR Trustee 11 Years Founder/Managing Director - 94 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
17
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE/DIRECTOR TRUSTEE/DIRECTOR
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
ANN R. LEVEN Trustee 15 Years Treasurer/Chief Fiscal Officer - 94 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax Inc.
November 1, 1940
THOMAS F. MADISON Trustee 10 Years President/Chief 94 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
February 25, 1936 (January 1993 - Present)
Director -
Digital River, Inc.
Director - Rimage
Corporation
JANET L. YEOMANS Trustee 5 Years Vice President/Mergers & 94 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
JOSEPH H. HASTINGS Executive Executive Mr. Hastings has served in 94 Optimum
2005 Market Street Vice President Vice President various executive capacities Fund Trust(5)
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
December 19, 1949 August 21, 2003
RICHELLE S. MAESTRO Executive Vice President, 1 Year Ms. Maestro has served in 94 Optimum
2005 Market Street Chief Legal Officer various executive capacities Fund Trust(5)
Philadelphia, PA and Secretary at different times at
19103 Delaware Investments.
November 26, 1957
MICHAEL P. BISHOF Senior Vice President 8 Years Mr. Bishof has served in 94 Optimum
2005 Market Street and Treasurer various executive capacities Fund Trust(5)
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. Durham served as a Director Emeritus from 1995 through 1998.
(4) 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.
(5) Messrs, Driscoll, Hastings, and Bishof and Ms. Maestro also serve in similar
capacities for the six portfolios of the Optimum Fund Trust, which have the
same investment advisor, principal underwriter, and transfer agent as the
registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
18
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
JOHN H. DURHAM JOSEPH H. HASTINGS Delaware International Advisers Ltd.
Private Investor Executive Vice President and London, England
Gwynedd Valley, PA Chief Financial Officer
Delaware Investments Family of Funds NATIONAL DISTRIBUTOR
ANTHONY D. KNERR Philadelphia, PA Delaware Distributors, L.P.
Managing Director Philadelphia, PA
Anthony Knerr & Associates RICHELLE S. MAESTRO
New York, NY Executive Vice President, SHAREHOLDER SERVICING, DIVIDEND
Chief Legal Officer and Secretary DISBURSING AND TRANSFER AGENT
ANN R. LEVEN Delaware Investments Family of Funds Delaware Service Company, Inc.
Former Treasurer/Chief Fiscal Officer Philadelphia, PA 2005 Market Street
National Gallery of Art Philadelphia, PA 19103-7094
Washington, DC MICHAEL P. BISHOF
Senior Vice President and Treasurer FOR SHAREHOLDERS
THOMAS F. MADISON Delaware Investments Family of Funds 800 523-1918
President and Chief Executive Officer Philadelphia, PA
MLM Partners, Inc. FOR SECURITIES DEALERS AND FINANCIAL
Minneapolis, MN INSTITUTIONS REPRESENTATIVES ONLY
800 362-7500
JANET L. YEOMANS
Vice President/Mergers & Acquisitions WEB SITE
3M Corporation www.delawareinvestments.com
St. Paul, MN
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A description of the policies and procedures that the Fund uses to determine how
to vote proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov; and beginning no later than August 31, 2004, information (if
any) regarding how the Fund voted proxies relating to portfolio securities during
the most recent 12-month period ended June 30 is available without charge (i)
through the Fund's website at http://www.delawareinvestments.com; and (ii) on the
Commission's website at http://www.sec.gov.
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(8741) Printed in the USA
AR-316 [4/04] IVES 5/04 J9684
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant, auditor, or person
performing similar functions;
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that
each member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Ann R. Leven
Thomas F. Madison
Janet L. Yeomans(1)
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
The aggregate fees billed for services provided to the Registrant by
its independent auditors for the audit of the Registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $33,150 for
the fiscal year ended April 30, 2004.
The aggregate fees billed for services provided to the Registrant by
its independent auditors for the audit of the Registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $36,100 for
the fiscal year ended April 30, 2003.
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(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
(b) Audit-related fees.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the Registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended April 30, 2004. The percentage of these fees relating to
services approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the Registrant's investment adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $162,700 for the Registrant's fiscal
year ended April 30, 2004. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the Registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended April 30, 2003. The percentage of these fees relating to
services approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the Registrant's investment adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $166,400 for the Registrant's fiscal
year ended April 30, 2003. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
(c) Tax fees.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $2,500 for the fiscal year
ended April 30, 2004. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis exception from
the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These tax-related services were as follows: review of income tax returns/review
of excise returns.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's investment adviser(s) and
other service providers under common control with the adviser(s) and that relate
directly to the operations or financial reporting of the Registrant were $0 for
the Registrant's fiscal year ended April 30, 2004. The percentage of these fees
relating to services approved by the Registrant's Audit Committee pursuant to
the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $2,300 for the fiscal year
ended April 30, 2003. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis exception from
the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These tax-related services were as follows: review of income tax returns/review
of excise returns.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's adviser(s) and other service
providers under common control with the adviser(s) and that relate directly to
the operations or financial reporting of the Registrant were $0 for the
Registrant's fiscal year ended April 30, 2003. The percentage of these fees
relating to services approved by the Registrant's Audit Committee pursuant to
the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
(d) All other fees.
The aggregate fees billed for all services provided by the independent
auditors to the Registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended April 30, 2004. The
percentage of these fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval requirement
in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the Registrant's independent
auditors to the Registrant's adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's fiscal year
ended April 30, 2004. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis exception from
the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services provided by the independent
auditors to the Registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended April 30, 2003. The
percentage of these fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval requirement
in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the Registrant's independent
auditors to the Registrant's adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's fiscal year
ended April 30, 2003. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis exception from
the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
(e) The Registrant's Audit Committee has not established pre-approval
policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the Registrant's independent
auditors for services rendered to the Registrant and to its investment
adviser(s) and other service providers under common control with the adviser(s)
were $288,100 and $305,050 for the Registrant's fiscal years ended April 30,
2004 and April 30, 2002, respectively.
(h) In connection with its selection of the independent auditors, the
Registrant's Audit Committee has considered the independent auditors' provision
of non-audit services to the Registrant's investment adviser(s) and other
service providers under common control with the adviser(s) that were not
required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X.
The Audit Committee has determined that the independent auditors' provision of
these services is compatible with maintaining the auditors' independence.
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. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. 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 providing reasonable assurance 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 control
over financial reporting that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an annual
report) that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 11. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) 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.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are furnished herewith 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
JUDE T. DRISCOLL
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By: Jude T. Driscoll
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Title: Chairman
Date: 7/2/04
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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.
JUDE T. DRISCOLL
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By: Jude T. Driscoll
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Title: Chairman
Date: 7/2/04
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JOSEPH H. HASTINGS
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By: Joseph H. Hastings
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Title: Chief Financial Officer
Date: 7/2/04
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