UNITED STATES SECURITIES AND EXCHANGE COMMSSION
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:
David F. Connor, 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, 2006
Item 1. Reports to Stockholders
Annual Report Delaware
Select Growth Fund
April 30, 2006
Growth equity mutual funds
[DELAWARE LOGO] [LOGO] POWERED BY RESEARCH(R)
<page>
Table of contents
> Portfolio management review 1
> Performance summary 4
> Disclosure of Fund expenses 6
> Sector allocation 7
> Financial statements:
Statement of net assets 8
Statement of operations 9
Statements of changes in net assets 10
Financial highlights 11
Notes to financial statements 16
> Report of independent registered
public accounting firm 19
> Board of trustees/directors and
officers addendum 20
> About the organization 22
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) 2006 Delaware Distributors L.P.
<page>
Portfolio management review
> Delaware Select Growth Fund
April 30, 2006
Fund managers
Jeffrey S. Van Harte
Chief Investment Officer - Delaware Focus Growth Team
Jeffrey S. Van Harte is chief investment officer of the Delaware Focus Growth
team, which is responsible for large-cap growth, all-cap growth, and one
smid-cap growth product. Before joining Delaware Investments, he served as lead
manager for TransAmerica Investment Management LLC, Large Cap Growth strategy
and managed portfolios in that discipline for over 20 years. He also managed
institutional separate accounts and sub-advised funds. Mr. Van Harte received
his bachelor's degree in finance from California State University at Fullerton
and is a CFA charterholder.
Christopher J. Bonavico
Vice President/Senior Portfolio Manager
Christopher J. Bonavico joined Delaware Investments in early 2005 and is a vice
president/senior portfolio manager with the Delaware Focus Growth team.
Previously, he was a principal and portfolio manager with Transamerica
Investment Management, LLC. He also managed sub-advised funds and institutional
separate accounts. Mr. Bonavico received his bachelor's degree in economics from
the University of Delaware and is a CFA charterholder.
Kenneth F. Broad
Vice President/Senior Portfolio Manager
Kenneth F. Broad joined Delaware Investments in early 2005 and is a vice
president/senior portfolio manager with the Delaware Focus Growth team.
Previously, he was a portfolio manager with The Franklin Templeton Group and a
consultant in the Business Valuation and Merger & Acquisition Group at KPMG Peat
Marwick. Thereafter, he moved on to TransAmerica Investment Management LLC in
2000, where he was a principal and portfolio manager. He has also managed
sub-advised funds and institutional separate accounts. Mr. Broad received his
MBA from the University of California at Los Angeles and his bachelor's degree
in economics from Colgate University (NY). He is a CFA charterholder.
Patrick G. Fortier
Vice President/Portfolio Manager
Patrick G. Fortier, vice president and portfolio manager with the Delaware Focus
Growth team, joined Delaware Investments in early 2005. Previously, he was a
portfolio manager with Transamerica Investment Management LLC. Previously, he
was a sell-side equity analyst with OLDE Equity Research (Detroit, Michigan)
focusing on commodity research, particularly in the oil/energy area. Mr. Fortier
received his bachelor's degree in finance from the University of Kentucky. He is
also a CFA charterholder and member of the Security Analysts of San Francisco.
Daniel J. Prislin
Vice President/Senior Portfolio Manager
Daniel J. Prislin is vice president and senior portfolio manager with the
Delaware Focus Growth team. Prior to joining Delaware Investments in early 2005,
he was a principal and portfolio manager with TransAmerica Investment Management
LLC, where he also managed sub-advised funds and institutional separate
accounts. Before beginning his tenure with Transamerica in 1998, Mr. Prislin was
an assistant portfolio manager with The Franklin Templeton Group. He received
his MBA and bachelor's degree in business administration from the University of
California, Berkeley. He is also a CFA charterholder.
Q: As new managers to Delaware Select Growth Fund, how did you change the Fund's
strategy during the period?
A: On May 3, 2005, we became the investment managers for the Fund and we
implemented changes according to our investment philosophy. As a result, we
made substantial changes to the portfolio.
In general, we invest primarily in common stocks of growth-oriented companies
that we believe have potential for long-term capital appreciation potential.
Typically, we expect them to grow faster than the U. S. economy. Using a
bottom-up approach, we select securities we believe have positive stock
market potential, dominant business models, strong free cash flow generation,
and sell at a low cost compared to the intrinsic value of the securities. We
also consider a company's operational efficiencies, management's
(continues) 1
<page>
plans for capital allocation, and the company's shareholder orientation.
Our team believes that superior returns can be realized by holding a
relatively concentrated portfolio of companies that have advantaged business
models as well as opportunities to generate consistent, long-term growth of
intrinsic business value. Our management team members are dedicated to this
philosophy.
When restructuring the portfolio of Delaware Select Growth Fund, we sold the
majority of the Fund's previous holdings and purchased a number of stocks,
with names new to the portfolio. The result is holdings that include what we
believe to be the 42 companies with the greatest potential for building a
strong portfolio.
You may have noticed a spike in the Fund's turnover level during the past
fiscal year. This inflated level is a direct result of the significant
changes we made when we began managing the Fund. We expect that the annual
turnover rate reported in the Fund's next report should more accurately
reflect our buy-and-hold philosophy. Our target level for the Fund's annual
turnover rate is 30% to 40%.
Q: Would you please discuss the Fund's performance in light of the investment
environment during the fiscal year?
A: Delaware Select Growth Fund returned 32.78% at net asset value and 25.14% at
maximum offer price for the one-year period ended April 30, 2006 (both
figures are for Class A shares and assume reinvestment of all distributions),
outperforming the 16.90% gain of the Fund's benchmark - the Russell 3000
Growth Index. By comparison, the Fund's peers in the Lipper Multi-Cap Growth
Funds category averaged 25.39% for the fiscal year. To view the complete,
annualized performance for Delaware Select Growth Fund, please see the table
on page 4.
We employ a bottom-up investment process, and manage the portfolio by
focusing primarily on stocks that we consider the best ideas we have
uncovered.
The stocks we select for the Fund are the result of an in-depth, fundamental
research process, and are not choices based on macroeconomic events. We don't
select stocks based on general industry performance (which would be
indicative of a top-down approach) but instead strive to select the top-
performing company within each industry in which we invest. As such, the
economic backdrop played a minor role in our investment selections during the
past year.
Note, however, that small- and mid-sized stocks performed very well during
the Fund's fiscal year. As Delaware Select Growth Fund is an all-
capitalization portfolio, we had the ability to consider companies of all
sizes. We believe this flexibility did contribute somewhat to Fund returns.
Q: What securities detracted from performance during the fiscal year?
A: XM Satellite Radio was among the few that detracted from Fund performance, by
losing 29% during the period. The company's performance suffered because of
increased competitive forces, including the addition of Howard Stern to
competitor Sirius Satellite Radio's lineup in January 2006. As the balance of
satellite radio subscribers shifted in favor of Sirius last winter, XM faced
additional challenges including the expanding prevalence of alternative
portable music sources such as MP3 players. The combination of these forces
led XM to unexpectedly increase costs for new subscriber acquisitions and
enhanced programming options. Despite the short-term challenges this company
faces, we maintained our position at fiscal year end, although we expect to
continue regularly evaluating the competitive position of the company.
Zimmer Holdings also faced performance hurdles, resulting in a 21% decline in
the stock during the Fund's fiscal year. Zimmer develops and manufactures
minimally invasive orthopedic implants for direct sale to surgeons. In recent
years, Zimmer has brought several successful products to market. During the
Fund's fiscal year, however, performance fell short of investors'
expectations as the company's product
2
<page>
development has slowed. We continued to hold our position because we believe
the company has several attractive products currently in development. We also
believe the company has the potential to benefit from solid demographic
trends as the U.S. population ages. This, combined with stronger surgical
techniques, gives the company the potential to deliver solid, long-term
growth in procedure volume. We also like the company's business model and
valuation level, despite the negative short-term performance of the stock.
Apollo Group, the market leader in for-profit education, stumbled during the
period, down 10% at the Fund's fiscal year end. The company offers
baccalaureate and graduate degrees via online and classroom channels and it
has awarded degrees to 150,000 students since its inception 15 years ago.
Apollo faced a setback in January 2006 when its CEO resigned and was
subsequently replaced by an internal candidate, the former head of the
Web-based education division. We believe this will provide new strategic
positioning and that it was a positive move for the company. Although we
decreased our position during the Fund's fiscal year, we maintain an
optimistic long- term outlook about the company and industry, as we expect
demand for flexible higher education options to increase in future years.
Q: What securities contributed to performance during the fiscal year?
A: The strongest contributor to performance during the period came from SanDisk,
which rose 154% during the 12-month period. SanDisk designs and markets flash
(memory) storage card products for use in multi-media devices such as
digital cameras. Expecting the applicability of storage cards reached beyond
digital camera use, we invested in the company before many other investors.
As a result, our position appreciated as the company expanded its portable
memory technology into alternative multi-media products such as handheld
computers and, more recently, cellular telephones. We believe that selling
its product directly to retail consumers gives the company an advantaged
business model that enables it to capture a full profit margin.
Also displaying strong performance was Netflix, which gained 156% during the
Fund's fiscal year. Netflix provides a popular online movie rental
subscription service and was the clear winner of a recent price war with
competitor Blockbuster, which was subsequently forced to raise online rental
subscription prices. We maintain a high level of confidence in Netflix. We
believe its management team is outstanding, the business model has strong
barriers to entry, and its ability to generate free cash flow will enable it
to independently finance its future growth. Netflix represented the largest
position within the Fund at fiscal year end.
Another strong performer during the fiscal year was U.S. futures exchange
Chicago Mercantile Exchange Holdings, which was bolstered by several events,
including increased investor demand for hedging activity, a move to
electronic trading (which increased the number of trades the exchange can
accept), and a new focus on currency and currency futures trades.
3
<page>
Performance summary
> 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. 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, 2006 1 Year 5 Years 10 Years Lifetime
_______________________________________________________________________________
Class A (Est. 5/16/94)
Excluding Sales Charge +32.78% +1.78% +11.38% +12.30%
Including Sales Charge +25.14% +0.58% +10.72% +11.74%
_______________________________________________________________________________
_______________________________________________________________________________
Class B (Est. 4/16/96)
Excluding Sales Charge +31.76% +1.01% +10.62% +11.60%
Including Sales Charge +27.76% +0.57% +10.62% +11.60%
_______________________________________________________________________________
_______________________________________________________________________________
Class C (Est. 5/20/94)
Excluding Sales Charge +31.72% +1.00% +10.53% +11.46%
Including Sales Charge +30.72% +1.00% +10.53% +11.46%
_______________________________________________________________________________
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. 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.
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%. Lifetime and 10-year performance figures for
Class B shares reflect conversion to Class A shares after eight years.
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 return for the lifetime and one-year periods
ended April 30, 2006 for Delaware Select Growth Fund's Class R shares were
+13.70% and +32.38%, respectively. 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 distributor has contracted to limit this amount to 0.50% through
October 31, 2006.
The average annual total returns for the lifetime (since 5/16/94), 10-year,
five-year, and one-year periods ended April 30, 2006 for Delaware Select Growth
Fund's Institutional Class were +12.51%, +11.63%, +2.02%, and +33.11%,
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 does 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
4
<page>
Fund basics
As of April 30, 2006
__________________________________________________
Fund objective
__________________________________________________
The Fund seeks long-term capital appreciation.
__________________________________________________
Total fund net assets
__________________________________________________
$519 million
__________________________________________________
Number of holdings
__________________________________________________
42
__________________________________________________
Fund start date
__________________________________________________
May 16, 1994
__________________________________________________
Your fund managers
__________________________________________________
Jeffrey S. Van Harte
Christopher J. Bonavico
Kenneth F. Broad
Patrick G. Fortier
Daniel J. Prislin
__________________________________________________
Nasdaq symbols
__________________________________________________
Class A DVEAX
Class B DVEBX
Class C DVECX
Performance of a $10,000 Investment
April 30, 1996 through April 30, 2006
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
Delaware Select Growth Fund- Russell 3000 Growth Index
Class A Shares
30-Apr-96 $9,350.00 $10,000.00
30-Apr-97 $9,741.77 $11,815.00
30-Apr-98 $19,347.15 $16,790.30
30-Apr-99 $24,847.54 $20,757.84
30-Apr-00 $36,756.96 $26,538.90
30-Apr-01 $25,156.47 $18,112.80
30-Apr-02 $20,507.55 $14,618.84
30-Apr-03 $16,879.77 $12,424.55
30-Apr-04 $20,919.09 $15,273.50
30-Apr-05 $20,705.72 $15,319.32
30-Apr-06 $27,493.05 $17,908.29
Chart assumes $10,000 invested on April 30, 1996 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. 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. The performance
graph does not reflect the deduction of taxes the shareholder would pay on Fund
distributions or redemptions of Fund shares.
5
<page>
Disclosure of Fund expenses
For the period November 1, 2005 to April 30, 2006
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and
(2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of
the period and held for the entire period November 1, 2005 to April 30, 2006.
Actual Expenses
The first section of the table shown, "Actual Fund Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by
$1,000 = 8.6), then multiply the result by the number in the first section
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based
on the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual ending
account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have
been higher. The Fund's actual expenses shown in the table reflect fee waivers
in effect. The expenses shown in the table assume reinvestment of all dividends
and distributions.
Delaware Select Growth Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 11/01/05 to
11/01/05 4/30/06 Ratios 4/30/06 *
_______________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,075.60 1.50% $ 7.72
Class B 1,000.00 1,071.20 2.25% 11.55
Class C 1,000.00 1,071.10 2.25% 11.55
Class R 1,000.00 1,074.20 1.75% 9.00
Institutional Class 1,000.00 1,076.60 1.25% 6.44
_______________________________________________________________________________
With Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,017.36 1.50% $ 7.50
Class B 1,000.00 1,013.64 2.25% 11.23
Class C 1,000.00 1,013.64 2.25% 11.23
Class R 1,000.00 1,016.12 1.75% 8.75
Institutional Class 1,000.00 1,018.60 1.25% 6.26
_______________________________________________________________________________
* "Expenses Paid During Period" are equal to the Fund's annualized expense
ratio, multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period).
6
<page>
Sector allocation
> Delaware Select Growth Fund
As of April 30, 2006
Sector designations may be different than the sector designations presented in
other Fund materials.
Percentage
Sector of Net Assets
____________________________________________________________________________
Common Stock \ 100.71%
Basic Industry/Capital Goods 2.84%
Business Services 6.60%
Consumer Non-Durables 16.60%
Consumer Services 29.83%
Energy 0.57%
Financials 3.16%
Health Care 15.99%
REITs 1.50%
Technology 23.62%
____________________________________________________________________________
Securities Lending Collateral 18.07%
____________________________________________________________________________
Total Market Value of Securities 118.78%
____________________________________________________________________________
Obligation to Return Securities Lending Collateral (18.07%)
____________________________________________________________________________
Liabilities Net of Receivables and Other Assets (0.71%)
____________________________________________________________________________
Total Net Assets 100.00%
____________________________________________________________________________
\ Narrow industries are utilized for compliance purposes for diversification
whereas broad sectors are used for financial reporting.
7
<page>
Statement of net assets
> Delaware Select Growth Fund
April 30, 2006
Number of Market
Shares Value
________________________________________________________________________________
Common Stock - 100.71% \
________________________________________________________________________________
Basic Industry/Capital Goods - 2.84%
Graco 149,700 $ 6,998,475
* Newmont Mining 43,600 2,544,496
* Praxair 91,500 5,135,895
______________
14,678,866
______________
Business Services - 6.60%
* Expeditors International Washington 150,000 12,841,500
First Data 202,700 9,666,763
+ Global Cash Access 324,500 6,324,505
Paychex 135,200 5,460,728
______________
34,293,496
______________
Consumer Non-Durables - 16.60%
Best Buy 43,500 2,464,710
* + Blue Nile 624,900 21,746,520
* + NetFlix 1,623,200 48,111,648
Staples 221,500 5,849,815
* Tuesday Morning 104,200 1,974,590
Walgreen 145,000 6,079,850
______________
86,227,133
______________
Consumer Services - 29.83%
* + Apollo Group Class A 176,000 9,616,640
+ eBay 533,500 18,357,735
IHOP 307,000 14,711,440
International Game Technology 437,000 16,575,410
Jackson Hewitt Tax Service 441,600 13,195,008
+ Liberty Global Class A 262,800 5,442,588
+ Liberty Global Class C 262,800 5,248,116
* + MGM MIRAGE 199,500 8,957,550
ServiceMaster 1,104,000 13,292,160
Strayer Education 213,900 22,243,461
Weight Watchers International 337,800 16,670,430
* + XM Satellite Radio Holdings Class A 524,400 10,603,368
______________
154,913,906
______________
Energy - 0.57%
EOG Resources 42,300 2,970,729
______________
2,970,729
______________
Financials - 3.16%
* Chicago Mercantile Exchange Holdings 18,000 8,244,000
+ NETeller 368,721 5,195,426
* optionsXpress Holdings 94,700 2,983,050
______________
16,422,476
______________
Health Care - 15.99%
Allergan 236,000 24,241,920
+ Genentech 169,800 13,534,758
+ Myogen 90,300 2,985,318
UnitedHealth Group 448,300 22,298,442
+ Zimmer Holdings 317,400 19,964,460
______________
83,024,898
______________
REITs - 1.50%
Plum Creek Timber 214,600 7,789,980
______________
7,789,980
______________
Technology - 23.62%
+ Google Class A 18,400 7,690,096
* + Intuit 280,800 15,210,936
* + NAVTEQ 380,600 15,802,512
QUALCOMM 568,800 29,202,192
+ SanDisk 488,700 31,193,721
Number of Market
Shares Value
________________________________________________________________________________
Common Stock (continued)
________________________________________________________________________________
Technology (continued)
* + Seagate Technology 489,800 $ 13,009,088
Sprint Nextel 425,608 10,555,078
______________
122,663,623
______________
Total Common Stock (cost $425,766,909) 522,985,107
______________
Total Market Value of Securities Before
Securities Lending Collateral - 100.71%
(cost $425,766,909) 522,985,107
______________
Securities Lending Collateral ** - 18.07%
Investment Companies
Mellon GSL DBT II Collateral Fund 93,812,160 93,812,160
______________
Total Securities Lending Collateral
(cost $93,812,160) 93,812,160
______________
Total Market Value of Securities - 118.78%
(cost $519,579,069) 616,797,267 !
Obligation to Return Securities Lending
Collateral - (18.07%) ** (93,812,160)
Liabilities Net of Receivables and
Other Assets - (0.71%) (3,708,264)
______________
Net Assets Applicable to 20,104,341
Shares Outstanding - 100.00% $519,276,843
______________
Net Asset Value - Delaware Select Growth Fund
Class A ($187,318,831 / 6,892,737 Shares) $27.18
______
Net Asset Value - Delaware Select Growth Fund
Class B ($199,863,011 / 8,056,219 Shares) $24.81
______
Net Asset Value - Delaware Select Growth Fund
Class C ($84,457,975 / 3,441,274 Shares) $24.54
______
Net Asset Value - Delaware Select Growth Fund
Class R ($1,484,561 / 55,103 Shares) $26.94
______
Net Asset Value- Delaware Select Growth Fund
Institutional Class ($46,152,465 / 1,659,008 Shares) $27.82
______
Components of Net Assets at April 30, 2006:
Shares of beneficial interest
(unlimited authorization- no par) $1,079,827,826
Accumulated net realized loss on investments (657,769,181)
Net unrealized appreciation of investments 97,218,198
______________
Total net assets $ 519,276,843
______________
+ Non-income producing security for the year ended April 30, 2006.
! Includes $88,222,742 of securities loaned.
* Fully or partially on loan.
** See Note 7 in "Notes to financial statements."
\ Narrow industries are utilized for compliance purposes for diversification
whereas broad sectors are used for financial reporting.
REIT - Real Estate Investment Trust
Net Asset Value and Offering Price Per Share -
Delaware Select Growth Fund
Net asset value Class A (A) $27.18
Sales charge (5.75% of offering price) (B) 1.66
______
Offering price $28.84
______
(A) Net asset value per share, as illustrated, is the amount which would be
paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchase of $50,000 or more.
See accompanying notes
8
<page>
Statement of operations
> Delaware Select Growth Fund
Year Ended April 30, 2006
Investment Income:
Dividends $ 3,453,996
Securities lending income 2,483,310
Interest 247,309 $ 6,184,615
____________ ____________
Expenses:
Management fees 3,875,422
Distribution expenses - Class A 465,885
Distribution expenses - Class B 2,122,832
Distribution expenses - Class C 746,159
Distribution expenses - Class R 4,793
Dividend disbursing and transfer agent fees and expenses 2,713,609
Reports and statements to shareholders 420,868
Accounting and administration expenses 204,798
Registration fees 93,123
Legal and professional fees 77,425
Trustees' fees 33,647
Custodian fees 30,482
Taxes (other than taxes on income) 14,260
Insurance fees 12,607
Pricing fees 413
Other 18,174 10,834,497
____________
Less expenses absorbed or waived (773,197)
Less waived distribution expenses - Class R (656)
Less expense paid indirectly (10,881)
____________
Total operating expenses 10,049,763
____________
Net Investment Loss (3,865,148)
____________
Net Realized and Unrealized Gain on Investments
Net realized gain on investments 98,307,298
Net change in unrealized appreciation/depreciation of investments 46,335,632
____________
Net Realized and Unrealized Gain on Investments 144,642,930
____________
Net Increase in Net Assets Resulting from Operations $140,777,782
____________
See accompanying notes
9
<page>
Statements of changes in net assets
> Delaware Select Growth Fund
Year Ended
4/30/06 4/30/05
Increase (Decrease) in Net Assets from Operations:
Net investment loss $ (3,865,148) $ (7,255,637)
Net realized gain on investments 98,307,298 35,775,759
Net change in unrealized appreciation/depreciation of investments 46,335,632 (35,373,075)
_____________ _____________
Net Increase (decrease) in net assets resulting from operations 140,777,782 (6,852,953)
_____________ _____________
Capital Share Transactions:
Proceeds from shares sold:
Class A 62,014,484 26,945,687
Class B 6,935,811 6,037,250
Class C 24,125,361 4,166,107
Class R 1,169,731 712,743
Institutional Class 19,872,254 10,602,839
_____________ _____________
114,117,641 48,464,626
_____________ _____________
Cost of shares repurchased:
Class A (100,060,074) (93,999,656)
Class B (68,215,523) (82,122,251)
Class C (23,648,373) (36,808,452)
Class R (507,634) (381,122)
Institutional Class (16,974,279) (20,841,207)
_____________ _____________
(209,405,883) (234,152,688)
_____________ _____________
Decrease in net assets derived from capital share transactions (95,288,242) (185,688,062)
_____________ _____________
Net Increase (Decrease) in Net Assets 45,489,540 (192,541,015)
Net Assets:
Beginning of year 473,787,303 666,328,318
_____________ _____________
End of year (there was no undistributed income at either year end) $ 519,276,843 $ 473,787,303
_____________ _____________
See accompanying notes
10
<page>
Financial highlights
> Delaware Select Growth Fund Class A
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
__________________________________________________________________________
4/30/06 4/30/05 4/30/04 4/30/03 4/30/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $20.470 $20.680 $16.700 $20.290 $24.890
Income (loss) from investment operations:
Net investment loss (1) (0.086) (0.170) (0.171) (0.147) (0.193)
Net realized and unrealized gain (loss) on investments 6.796 (0.040) 4.151 (3.443) (4.407)
_______ _______ _______ _______ _______
Total from investment operations 6.710 (0.210) 3.980 (3.590) (4.600)
_______ _______ _______ _______ _______
Net asset value, end of period $27.180 $20.470 $20.680 $16.700 $20.290
_______ _______ _______ _______ _______
Total return (2) 32.78% (1.02%) 23.83% (17.69%) (18.48%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $187,319 $173,890 $243,201 $208,395 $333,172
Ratio of expenses to average net assets 1.55% 1.52% 1.50% 1.50% 1.45%
Ratio of expenses to average net assets prior
to expense limitation and expense paid indirectly 1.70% 1.70% 1.86% 1.83% 1.50%
Ratio of net investment loss to average net assets (0.35%) (0.85%) (0.87%) (0.92%) (0.86%)
Ratio of net investment loss to average net assets
prior to expense limitation and expense paid indirectly (0.50%) (1.03%) (1.23%) (1.25%) (0.91%)
Portfolio turnover 124% 72% 82% 69% 127%
_________________________________________________________________________________________________________________________________
(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. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
(continues) 11
<page>
Financial highlights
> Delaware Select Growth Fund Class B
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
__________________________________________________________________________
4/30/06 4/30/05 4/30/04 4/30/03 4/30/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $18.820 $19.160 $15.590 $19.090 $23.600
Income (loss) from investment operations:
Net investment loss (1) (0.252) (0.310) (0.308) (0.259) (0.340)
Net realized and unrealized gain (loss) on investments 6.242 (0.030) 3.878 (3.241) (4.170)
_______ _______ _______ _______ _______
Total from investment operations 5.990 (0.340) 3.570 (3.500) (4.510)
_______ _______ _______ _______ _______
Net asset value, end of period $24.810 $18.820 $19.160 $15.590 $19.090
_______ _______ _______ _______ _______
Total return (1) 31.76% (1.77%) 22.90% (18.33%) (19.11%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $199,863 $202,576 $281,906 $257,542 $421,578
Ratio of expenses to average net assets 2.30% 2.27% 2.25% 2.25% 2.20%
Ratio of expenses to average net assets prior
to expense limitation and expense paid indirectly 2.45% 2.45% 2.61% 2.58% 2.25%
Ratio of net investment loss to average net assets (1.10%) (1.60%) (1.62%) (1.67%) (1.61%)
Ratio of net investment loss to average net assets
prior to expense limitation and expense paid indirectly (1.25%) (1.78%) (1.98%) (2.00%) (1.66%)
Portfolio turnover 124% 72% 82% 69% 127%
___________________________________________________________________________________________________________________________________
(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. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
12
<page>
Financial highlights
> Delaware Select Growth Fund Class C
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
__________________________________________________________________________
4/30/06 4/30/05 4/30/04 4/30/03 4/30/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $18.620 $18.950 $15.430 $18.890 $23.350
Income (loss) from investment operations:
Net investment loss (1) (0.251) (0.308) (0.306) (0.258) (0.337)
Net realized and unrealized gain (loss) on investments 6.171 (0.022) 3.826 (3.202) (4.123)
_______ _______ _______ _______ _______
Total from investment operations 5.920 (0.330) 3.520 (3.460) (4.460)
_______ _______ _______ _______ _______
Net asset value, end of period $24.540 $18.620 $18.950 $15.430 $18.890
_______ _______ _______ _______ _______
Total return (2) 31.72% (1.74%) 22.81% (18.27%) (19.14%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $84,458 $64,786 $98,549 $95,552 $166,246
Ratio of expenses to average net assets 2.30% 2.27% 2.25% 2.25% 2.20%
Ratio of expenses to average net assets prior
to expense limitation and expense paid indirectly 2.45% 2.45% 2.61% 2.58% 2.25%
Ratio of net investment loss to average net assets (1.10%) (1.60%) (1.62%) (1.67%) (1.61%)
Ratio of net investment loss to average net assets
prior to expense limitation and expense paid indirectly (1.25%) (1.78%) (1.98%) (2.00%) (1.66%)
Portfolio turnover 124% 72% 82% 69% 127%
___________________________________________________________________________________________________________________________________
(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. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
(continues) 13
<page>
Financial highlights
> Delaware Select Growth Fund Class R
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended 6/02/03 (1)
________________________ to
4/30/06 4/30/05 4/30/04
____________________________________________________________________________________________________________
Net asset value, beginning of period $20.340 $20.620 $18.530
Income (loss) from investment operations:
Net investment loss (1) (0.154) (0.242) (2.370)
Net realized and unrealized gain (loss) on investments 6.754 (0.038) 4.460
_______ _______ _______
Total from investment operations 6.600 (0.280) 2.090
_______ _______ _______
Net asset value, end of period $26.940 $20.340 $20.620
_______ _______ _______
Total return (2) 32.38% (1.36%) 11.28%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,485 $652 $262
Ratio of expenses to average net assets 1.82% 1.87% 1.85%
Ratio of expenses to average net assets prior
to expense limitation and expenses paid indirectly 2.05% 2.05% 2.21%
Ratio of net investment loss to average net assets (0.62%) (1.20%) (1.26%)
Ratio of net investment loss to average net assets
prior to expense limitation and expenses paid indirectly (0.85%) (1.38%) (1.62%)
Portfolio turnover 124% 72% 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 and the distributor, as applicable.
Performance would have been lower had the expense limitation not been
in effect.
See accompanying notes
14
<page>
Financial highlights
> Delaware Select Growth Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
__________________________________________________________________________
4/30/06 4/30/05 4/30/04 4/30/03 4/30/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $20.900 $21.060 $16.970 $20.570 $25.170
Income (loss) from investment operations:
Net investment loss (1) (0.024) (0.118) (0.121) (0.106) (0.139)
Net realized and unrealized gain (loss) on investments 6.944 (0.042) 4.211 (3.494) (4.461)
_______ _______ _______ _______ _______
Total from investment operations 6.920 (0.160) 4.090 (3.600) (4.600)
_______ _______ _______ _______ _______
Net asset value, end of period $27.820 $20.900 $21.060 $16.970 $20.570
_______ _______ _______ _______ _______
Total return (2) 33.11% (0.76%) 24.10% (17.50%) (18.28%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $46,152 $31,883 $42,410 $36,080 $53,381
Ratio of expenses to average net assets 1.30% 1.27% 1.25% 1.25% 1.20%
Ratio of expenses to average net assets prior
to expense limitation and expense paid indirectly 1.45% 1.45% 1.61% 1.58% 1.25%
Ratio of net investment loss to average net assets (0.10%) (0.60%) (0.62%) (0.67%) (0.61%)
Ratio of net investment loss to average net assets
prior to expense limitation and expense paid indirectly (0.25%) (0.78%) (0.98%) (1.00%) (0.66%)
Portfolio turnover 124% 72% 82% 69% 127%
___________________________________________________________________________________________________________________________________
(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. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
15
<page>
Notes to financial statements
> Delaware Select Growth Fund
April 30, 2006
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.
Securities lending collateral is 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. In determining whether market
quotations are readily available or fair valuation will be used, various factors
will be taken into consideration, such as market closures, or with respect to
foreign securities, aftermarket trading or significant events after local market
trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
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(R)Family
of Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date) for
financial reporting purposes. Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. The Fund declares and pays dividends from net
investment income and distributions from net realized gain on investments, 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.
Subject to seeking best execution, the Fund may direct certain security trades
to brokers who have agreed to rebate a portion of the related brokerage
commission to the Fund in cash. Such commission rebates are included in realized
gain on securities in the accompanying financial statements and totaled $30,384
for the year ended April 30, 2006. In general, best execution refers to many
factors, including the price paid or received for a security, the commission
charged, the promptness and reliability of execution, the confidentiality and
placement accorded the order, and other factors affecting the overall benefit
obtained by the Fund on the transaction.
The Fund receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees and on the Statement
of Operations with the corresponding expense offset shown as "expense 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
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
16
<page>
Notes to financial statements
> Delaware Select Growth Fund
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
extraordinary expenses, do not exceed 1.25% of average daily net assets of the
Fund through August 31, 2006.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, the Fund pays DSC a monthly fee computed at the annual rate of 0.04%
of the Fund's average daily net assets for accounting and administration
services. Prior to May 19, 2005, the Fund paid 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.
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.
Effective August 1, 2005, DDLP has contracted to limit distribution and service
fees through October 31, 2006 in order to prevent distribution and service fees
of Class R shares from exceeding 0.50% of average daily net assets.
Institutional Class shares pay no distribution and service expenses.
At April 30, 2006, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC $ 317,631
Dividend disbursing, transfer agent, accounting
and administration fees and other expenses
payable to DSC 213,893
Distribution fee payable to DDLP 277,285
Other expenses payable to DMC and affiliates * 42,081
* 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.
As provided in the investment management agreement, the Fund bears the cost of
certain legal services, including internal legal services provided to the Fund
by DMC employees. For the year ended April 30, 2006, the Fund was charged
$31,470 for internal legal services provided by DMC.
For the year ended April 30, 2006, DDLP earned $62,017 for commissions on sales
of the Fund's Class A shares. For the year ended April 30, 2006, DDLP received
gross contingent deferred sales charge commissions of $61, $438,717 and $5,521
on redemption of the Fund's Class A, Class B and Class C shares, respectively,
and these commissions were entirely used to offset up-front commissions
previously paid by DDLP to broker-dealers on sales of those 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, 2006, the Fund made purchases of $630,833,550 and
sales of $669,373,358 of investment securities other than short-term
investments.
At April 30, 2006, the cost of investments for federal income tax purposes was
$519,864,099. At April 30, 2006, net unrealized appreciation was $96,933,168 of
which $109,519,617 related to unrealized appreciation of investments and
$12,586,449 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. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. There were no dividends and distributions paid for the years ended
April 30, 2006 and 2005.
As of April 30, 2006, the components of net assets on a tax basis were as
follows:
Shares of beneficial interest $1,079,827,826
* Capital loss carryforwards (657,484,151)
Unrealized appreciation of investments 96,933,168
_______________
Net assets $ 519,276,843
_______________
* The amount of this loss which can be utilized in subsequent years is
subject to an annual limitation in accordance with the Internal Revenue
Code due to the Fund merger with Delaware Technology and Innovation Fund in
March 2004.
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of net operating losses. Results of operations and net
assets were not affected by these reclassifications. For the year ended April
30, 2006, the Fund recorded the following reclassifications.
Accumulated net investment loss $ 3,865,148
Paid-in Capital (3,865,148)
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. $94,551,897 was utilized in
2006. Capital loss carryforwards remaining at April 30, 2006 will expire as
follows: $451,231,283 expires in 2010, $187,722,457 expires in 2011, and
$18,530,411 expires in 2012.
(continues) 17
<page>
Notes to financial statements
> Delaware Select Growth Fund
5. Capital Shares
Transactions in capital shares were as follows:
Year Ended
4/30/06 4/30/05
Shares sold:
Class A 2,395,515 1,314,515
Class B 298,735 315,792
Class C 1,018,825 219,695
Class R 43,854 37,622
Institutional Class 778,469 502,371
__________ __________
4,535,398 2,389,995
__________ __________
Shares repurchased:
Class A (3,998,857) (4,580,576)
Class B (3,003,725) (4,267,418)
Class C (1,056,505) (1,939,938)
Class R (20,825) (18,270)
Institutional Class (645,005) (990,466)
__________ __________
(8,724,917) (11,796,668)
__________ __________
Net decrease (4,189,519) (9,406,673)
__________ __________
For the years ended April 30, 2006 and 2005, 254,674 Class B shares were
converted to 233,153 Class A shares valued at $6,027,607 and 116,832 Class B
shares were converted to 107,848 Class A shares valued at $2,266,569,
respectively. The respective amounts are included in Class B redemptions and
Class A subscriptions in the table above and the Statements of Changes in Net
Assets.
6. Line of Credit
The Fund, along with certain other funds in the Delaware Investments(R)Family
of Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each funds' allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Fund had no amounts outstanding as of April 30, 2006, or at any time during the
year.
7. Securities Lending
The Fund, along with other funds in the Delaware Investments(R) 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. government
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
fixed-income securities, with a weighted average maturity not to exceed 90 days,
rated in one of the top two tiers by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc. or repurchase agreements collateralized by such
securities. 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 change
in 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, 2006, the market value of the securities on loan was $88,222,742,
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."
8. Credit and Market Risk
The Fund invests a significant portion of its assets in small- and mid-sized
companies and may be subject to certain risks associated with ownership of
securities of such companies. Investments in small- or mid-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.
The Fund may invest up to 15% of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Fund's Board of Trustees has delegated to DMC
the day-to-day functions of determining whether individual securities are liquid
for purposes of the Fund's limitation on investments in illiquid assets. At
April 30, 2006, there were no Rule 144A securities and no securities have been
determined to be illiquid under the Fund's Liquidity Procedures.
9. 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.
18
<page>
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 sole series of Voyageur Mutual Funds III) (the "Fund") as of
April 30, 2006, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with 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. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of April 30,2006, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. 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 the
Delaware Select Growth Fund series of Voyageur Mutual Funds III at April 30,
2006, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended, and its financial
highlights for each of the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
June 12, 2006
19
<page>
Delaware Investments(R) 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 who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
Number of
Portfolios in Fund Other
Name, Complex Overseen Directorships
Address Position(s) Length of Principal Occupation(s) by Trustee Held by
and Birthdate Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer
___________________________________________________________________________________________________________________________________
Interested Trustees
___________________________________________________________________________________________________________________________________
Jude T. Driscoll (2) Chairman, Executive Officer Since August 2000, 85 None
2005 Market Street President, since August 2000 Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and Trustee at different times at
Trustee since May 2003 Delaware Investments (1)
March 10, 1963
___________________________________________________________________________________________________________________________________
Independent Trustees
___________________________________________________________________________________________________________________________________
Thomas L. Bennett Trustee Since Private Investor - 85 None
2005 Market Street March 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
___________________________________________________________________________________________________________________________________
John A. Fry Trustee Since President - 85 Director -
2005 Market Street January 2001 Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President - Director -
May 28, 1960 University of Pennsylvania Allied Barton
(April 1995 - June 2002) Security Holdings
___________________________________________________________________________________________________________________________________
Anthony D. Knerr Trustee Since Founder/Managing Director - 85 None
2005 Market Street April 1990 Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
___________________________________________________________________________________________________________________________________
Lucinda S. Landreth Trustee Since Chief Investment Officer - 85 None
2005 Market Street March 2005 Assurant Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
___________________________________________________________________________________________________________________________________
Ann R. Leven Trustee Since Owner - Strategic Financial 85 Director and
2005 Market Street September 1989 Planning Consulting Firm Audit Committee
Philadelphia, PA (1983 - Present) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
___________________________________________________________________________________________________________________________________
20
<page>
Number of
Portfolios in Fund Other
Name, Complex Overseen Directorships
Address Position(s) Length of Principal Occupation(s) by Trustee Held by
and Birthdate Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer
___________________________________________________________________________________________________________________________________
Independent Trustees (continued)
___________________________________________________________________________________________________________________________________
Thomas F. Madison Trustee Since President/Chief 85 Director -
2005 Market Street May 1999 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 and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries Inc.
___________________________________________________________________________________________________________________________________
Janet L. Yeomans Trustee Since Vice President 85 None
2005 Market Street April 1999 (January 2003 - Present)
Philadelphia, PA and Treasurer
19103 (January 2006 - Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation since 1983.
___________________________________________________________________________________________________________________________________
J. Richard Zecher Trustee Since Founder - 85 Director and Audit
2005 Market Street March 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene Inc.
Director - Sutton
Asset Management
___________________________________________________________________________________________________________________________________
Officers
___________________________________________________________________________________________________________________________________
Michael P. Bishof Senior Chief Financial Mr. Bishof has served in 85 None (3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 17, 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
___________________________________________________________________________________________________________________________________
David F. Connor Vice President, Vice President since Mr. Connor has served as 85 None (3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel, and and Secretary General Counsel of
19103 Secretary since Delaware Investments
October 25, 2005 since 2000.
December 2, 1963
___________________________________________________________________________________________________________________________________
David P. O'Connor Senior Vice Senior Vice President, Mr. O'Connor has served in 85 None (3)
2005 Market Street President, General Counsel and various executive and legal
Philadelphia, PA General Counsel, Chief Legal Officer capacities at different
19103 and Chief since times at
Legal Officer October 25, 2005 Delaware Investments.
February 21, 1966
___________________________________________________________________________________________________________________________________
John J. O'Connor Senior Treasurer Mr. O'Connor has served in 85 None (3)
2005 Market Street Vice President since various executive capacities
Philadelphia, PA and Treasurer February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
___________________________________________________________________________________________________________________________________
(1) Delaware Investments is the marketing name for Delaware Management Holdings
Inc. and its subsidiaries, including the Fund's(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(s') manager and distributor.
(3) Messrs. Bishof, Connor, David P. O'Connor, and John J. O'Connor 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. Mr. John J. O'Connor also serves in a similar capacity
for Lincoln Variable Insurance Products Trust, which has the same
investment advisor as the registrant.
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.
21
<page>
About the organization
This semiannual 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(R) 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 that 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
Jude T. Driscoll
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
Thomas L. Bennett
Private Investor
Rosemont, PA
John A. Fry
President
Franklin & Marshall College
Lancaster, PA
Anthony D. Knerr
Founder/Managing Director
Anthony Knerr & Associates
New York, NY
Lucinda S. Landreth
Former Chief Investment Officer
Assurant Inc.
Philadelphia, PA
Ann R. Leven
Owner - Strategic Financial
Planning Consulting Firm
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN
J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ
Affiliated Officers
Michael P. Bishof
Senior Vice President and
Chief Financial Officer
Delaware Investments Family of Funds
Philadelphia, PA
David F. Connor
Vice President, Deputy General Counsel,
and Secretary
Delaware Investments Family of Funds
Philadelphia, PA
David P. O'Connor
Senior Vice President, General Counsel,
and Chief Legal Officer
Delaware Investments Family of Funds
Philadelphia, PA
John J. O'Connor
Senior Vice President and Treasurer
Delaware Investments Family of Funds
Philadelphia, PA
Contact Information
Investment Manager
Delaware Management Company, a series
of Delaware Management Business Trust
Philadelphia, PA
National Distributor
Delaware Distributors L.P.
Philadelphia, PA
Shareholder Servicing, Dividend
Disbursing, and Transfer Agent
Delaware Service Company Inc.
2005 Market Street
Philadelphia, PA 19103-7094
For Shareholders
800 523-1918
For Securities Dealers
and Financial Institutions
Representatives Only
800 362-7500
Web Site
www.delawareinvestments.com
Delaware Investments is the marketing name of Delaware Management Holdings Inc.
and its subsidiaries.
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that the Fund uses to determine how to vote proxies (if any) relating
to portfolio securities are available without charge (i) upon request, by
calling 800 523-1918; (ii) on the Fund's Web site at
http://www.delawareinvestments.com; and (iii) on the Commission's Web site at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, D.C.; information on the
operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through the Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
22
<page>
Simplify your life.
Manage your investments online!
Get Account Access, the Delaware Investments(R) secure Web site that allows
you to conduct your business online. Gain 24-hour access to your account and one
of the highest levels of Web security available. You also get:
o Hassle-Free Investing - Make online purchases and redemptions at any
time.
o Simplified Tax Processing - Automatically retrieve your Delaware
Investments)accounts' 1099 information and import it directly into your 1040
tax return. Available only with Turbo Tax(R) Online(SM) and Desktop software -
www.turbotax.com.
o Less Mail Clutter - Get instant access to your fund materials online
with Delaware eDelivery.
Register for Account Access today! Visit www.delawareinvestments.com, select
Individual Investors, and click Account Access.
Please call our Shareholder Service Center at 800 523-1918 Monday through Friday
from 8:00 a.m. to 7:00 p.m., Eastern Time, for assistance with any questions.
[DELAWARE LOGO]
(528) Printed in the USA
AR-316 [4/06] CGI 6/06 MF-06-03-152 PO11054
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;
<page>
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:
Thomas L. Bennett (1)
Thomas F. Madison
Janet L. Yeomans (1)
J. Richard Zecher
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 $26,900 for
the fiscal year ended April 30, 2006.
___________________
(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 Mr.
Bennett qualifies as an audit committee financial expert by virtue of his
education, Chartered Financial Analyst designation, and his experience as a
credit analyst, portfolio manager and the manager of other credit analysts and
portfolio managers. 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.
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 $26,000 for
the fiscal year ended April 30, 2005.
(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, 2006. T
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 and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $33,700 for the registrant's fiscal year ended
April 30, 2006. 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 audit-related services were as follows: issuance of reports concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; and issuance of agreed upon procedures reports
to the registrant's Board in connection with the pass-through of internal legal
cost relating to the operations of the registrant.
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, 2005
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 and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $164,700 for the registrant's fiscal year ended
April 30, 2005. 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 audit-related services were as follows: issuance of reports concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; issuance of agreed upon procedures reports to
the registrant's Board in connection with the annual transfer agent and fund
accounting service agent contract renewals and the pass-through of internal
legal cost relating to the operations of the registrant; and preparation of
Report on Controls Placed in Operation and Tests of Operating Effectiveness
Relating to the Retirement Plan Services Division ("SAS 70 report").
(c) Tax fees.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $5,300 for the fiscal year
ended April 30, 2006. 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 return and
review of annual excise distribution calculation.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's investment adviser and other
service providers under common control with the adviser and that relate directly
to the operations or financial reporting of the registrant were $0 for the
registrant's fiscal year ended April 30, 2006.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $1,750 for the fiscal year
ended April 30, 2005. 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 return and
review of annual excise distribution calculation.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's adviser and other service
providers under common control with the adviser and that relate directly to the
operations or financial reporting of the registrant were $0 for the registrant's
fiscal year ended April 30, 2005.
(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, 2006.
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 and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended April
30, 2006.
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, 2005.
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 and other service providers under common
control with the adviser
and that relate directly to the operations or financial reporting of the
registrant were $0 for the registrant's fiscal year ended April 30, 2005.
(e) The registrant's Audit Committee has established pre-approval
policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X
(the "Pre-Approval Policy") with respect to services provided by the
registrant's independent auditors. Pursuant to the Pre-Approval Policy, the
Audit Committee has pre-approved the services set forth in the table below with
respect to the registrant up to the specified fee limits. Certain fee limits are
based on aggregate fees to the registrant and other registrants within the
Delaware Investments Family of Funds.
______________________________________________________________________________________________________________________
Service Range of Fees
______________________________________________________________________________________________________________________
Audit Services
______________________________________________________________________________________________________________________
Statutory audits or financial audits for new Funds up to $25,000 per Fund
______________________________________________________________________________________________________________________
Services associated with SEC registration statements (e.g., Form N-1A, Form
N-14, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings (e.g., comfort letters up to $10,000 per Fund
for closed-end Fund offerings, consents), and assistance in responding to SEC
comment letters
______________________________________________________________________________________________________________________
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit-related services" rather than "audit services")
______________________________________________________________________________________________________________________
Audit-Related Services
______________________________________________________________________________________________________________________
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and /or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit services" rather than "audit-related services")
______________________________________________________________________________________________________________________
Tax Services
______________________________________________________________________________________________________________________
U.S. federal, state and local and international tax planning and advice (e.g.,
consulting on statutory, regulatory or administrative developments, evaluation up to $25,000 in the aggregate
of Funds' tax compliance function, etc.)
______________________________________________________________________________________________________________________
U.S. federal, state and local tax compliance (e.g., excise distribution reviews, up to $5,000 per Fund
etc.)
______________________________________________________________________________________________________________________
Review of federal, state, local and international income, franchise and other up to $5,000 per Fund
tax returns
______________________________________________________________________________________________________________________
Under the Pre-Approval Policy, the Audit Committee has also
pre-approved the services set forth in the table below with respect to the
registrant's investment adviser and other entities controlling, controlled by or
under common control with the investment adviser that provide ongoing services
to the registrant (the "Control Affiliates") up to the specified fee limit. This
fee limit is based on aggregate fees to the investment adviser and its Control
Affiliates.
______________________________________________________________________________________________________________________
Service Range of Fees
______________________________________________________________________________________________________________________
Non-Audit Services
______________________________________________________________________________________________________________________
Services associated with periodic reports and other documents filed with the SEC up to $10,000 in the aggregate
and assistance in responding to SEC comment letters
______________________________________________________________________________________________________________________
<page>
The Pre-Approval Policy requires the registrant's independent auditors
to report to the Audit Committee at each of its regular meetings regarding all
services initiated since the last such report was rendered, including those
services authorized by the Pre-Approval Policy.
(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
and other service providers under common control with the adviser were $201,260
and $354,209 for the registrant's fiscal years ended April 30, 2006 and April
30, 2005, 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 and other service
providers under common control with the adviser 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. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. 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 second fiscal quarter of the
period covered by the report to stockholders included herein (i.e., the
registrant's fourth fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
Item 12. 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
_________________________________
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: July 5, 2006
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
_________________________________
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: July 5, 2006
MICHAEL P. BISHOF
_________________________________
By: Michael P. Bishof
Title: Chief Financial Officer
Date: July 5, 2006