VOYAGEUR
YOUR TAX SENSITIVE INVESTMENT MANAGER
NORTH DAKOTA TAX FREE FUND
ANNUAL REPORT
DATED DECEMBER 31, 1996
Family of Funds
Voyageur offers a family of mutual funds, each with an individual objective
stated in its prospectus. Investment objectives of the funds range from high
current income to long-term capital appreciation. Exchange privileges allow you
to change your investment between Voyageur Funds as your objectives or market
conditions change.
VOYAGEUR HIGH YIELD FUNDS seek high current income free from both Federal income
taxes and state income taxes (where applicable). The Funds invest in medium and
lower grade municipal bonds.
Voyageur MINNESOTA High Yield Municipal Bond Fund
Voyageur NATIONAL High Yield Municipal Bond Fund
VOYAGEUR TAX FREE FUNDS seek high current income free from both Federal income
taxes and state income taxes (where applicable). The Funds invest in investment
grade municipal bonds.
<TABLE>
<S> <C>
Voyageur ARIZONA Tax Free Fund Voyageur MINNESOTA Tax Free Fund
Voyageur CALIFORNIA Tax Free Fund Voyageur NATIONAL Tax Free Fund
Voyageur COLORADO Tax Free Fund Voyageur NEW MEXICO Tax Free Fund
Voyageur FLORIDA Tax Free Fund Voyageur NEW YORK Tax Free Fund
Voyageur IDAHO Tax Free Fund Voyageur NORTH DAKOTA Tax Free Fund
Voyageur IOWA Tax Free Fund Voyageur UTAH Tax Free Fund
Voyageur KANSAS Tax Free Fund Voyageur WISCONSIN Tax Free Fund
</TABLE>
VOYAGEUR INSURED TAX FREE FUNDS seek high current income free from both Federal
income taxes and state income taxes (where applicable) with the added safety of
an insured portfolio. The Funds invest in insured municipal bonds.
<TABLE>
<S> <C> <C>
Voyageur ARIZONA Insured Tax Free Fund Voyageur MISSOURI Insured Tax Free Fund
Voyageur CALIFORNIA Insured Tax Free Fund Voyageur NATIONAL Insured Tax Free Fund
Voyageur FLORIDA Insured Tax Free Fund Voyageur OREGON Insured Tax Free Fund
Voyageur MINNESOTA Insured Fund Voyageur WASHINGTON Insured Tax Free Fund
</TABLE>
VOYAGEUR LIMITED TERM FUNDS seek to preserve original investment principal while
providing income free from both Federal income taxes and state income taxes
(where applicable). The Funds invest in intermediate term investment grade
municipal bonds.
<TABLE>
<S> <C> <C>
Voyageur FLORIDA Limited Term Tax Free Fund Voyageur NATIONAL Limited Term Tax Free Fund
Voyageur MINNESOTA Limited Term Tax Free Fund
</TABLE>
VOYAGEUR EQUITY FUNDS seek long term capital appreciation by investing in common
stocks.
<TABLE>
<S> <C> <C>
Voyageur AGGRESSIVE GROWTH Fund Voyageur GROWTH Stock Fund
Voyageur GROWTH AND INCOME Fund Voyageur INTERNATIONAL Equity Fund
</TABLE>
VOYAGEUR INCOME FUNDS seek high current income from investments issued,
guaranteed or otherwise backed by the full faith and credit of the U.S.
Government.
Voyageur U.S. GOVERNMENT SECURITIES Fund
VOYAGEUR CASH TRUST SERIES MONEY MARKET FUNDS seek high current income,
principal protection and liquidity by investing in money market instruments.
<TABLE>
<S> <C> <C>
Voyageur CALIFORNIA MUNICIPAL CASH Series Voyageur MUNICIPAL CASH Series
Voyageur FLORIDA MUNICIPAL CASH Series Voyageur OHIO MUNICIPAL CASH Series
Voyageur GOVERNMENT CASH Series Voyageur PRIME CASH Series
Voyageur MINNESOTA MUNICIPAL CASH Series Voyageur TREASURY CASH Series
</TABLE>
For more complete information regarding the investment objectives, fees and
expenses of the Funds, please obtain a prospectus from your Investment
Representative or from Voyageur, 90 South Seventh Street, Suite 4400,
Minneapolis, MN 55402-4115; (612) 376-7044 (local); 800-525-6584 (MKTG).
LETTER FROM THE PRESIDENT
[PHOTO]
JOHN G. TAFT
PRESIDENT
Dear Shareholder:
The year 1996 was marked with mixed economic events. During the first half of
the year, interest rates rose steadily, propelled by market fears that faster
Gross Domestic Product (GDP) growth would ignite inflation. Once these fears
abated in June, interest rates began a descent that lasted throughout most of
the remainder of the year.
In comparison to their peer group of funds, the overall performance of the
Voyageur Tax Free Funds was excellent in 1996. The main reason for this strong
performance was Voyageur portfolio managers' subtle shift toward adding income
to the portfolios. This additional income allowed us to better position the
Funds during the first half of the year when interest rates were rising and
municipal bond prices were falling. Within all of our Tax Free Funds, we
continued to extend call protection, where possible, in order to better provide
for income for longer periods of time.
In January 1997, Lincoln National Corporation (NYSE: LNC) announced that it
planned to acquire the parent company of Voyageur Fund Managers, Inc. -- the
investment adviser for the Voyageur Tax Free Funds. LNC, with headquarters in
Fort Wayne, Indiana, is a diversified organization with operations in many
aspects of the financial services industry, including insurance and investment
management. Delaware Management Company, Inc. (DMC), an indirect wholly owned
subsidiary of LNC, and its affiliate, Delaware International Advisers Ltd.,
serve as the investment advisers to the investment companies in the Delaware
Group of Funds (the Delaware Group), which currently includes 16 open-end funds
and two closed-end funds (comprising 48 separate investment portfolios). DMC
through its Delaware Investment Advisers division, Delaware International
Advisers Ltd. and certain other subsidiaries of Delaware Management Holdings,
Inc. (DMH) also provides investment advice with respect to separately managed
accounts of institutional and other clients. DMH, through its subsidiaries, is
responsible for the management of approximately $32 billion. Voyageur Fund
shareholders should benefit from this acquisition by being able to select from a
wider variety of mutual funds in the expanded Delaware-Voyageur fund family.
Delaware Management, like Voyageur, has a conservative, long-term investment
philosophy. The continuity in the Voyageur Tax Free Funds' management styles
should also be further maintained since Andrew M. McCullagh and Elizabeth
Howell, two of the senior municipal bond portfolio managers for the Voyageur Tax
Free Funds, will continue to play a key role in the management of the Voyageur
Tax Free Funds after the transition.
We appreciate your patronage and confidence in Voyageur Fund Managers. If at any
time you have questions about your Voyageur fund investment, I urge you to
contact your personal financial adviser. Voyageur Client Service representatives
are also available from 7 a.m. to 6 p.m. (Central Standard Time) to answer any
questions you may concerning this transaction or your Voyageur fund investment.
Sincerely,
/s/ John G. Taft
John G. Taft
President
Voyageur North Dakota Tax Free Fund
VOYAGEUR NORTH DAKOTA TAX FREE FUND
In the first half of the year, bond prices fell as yields rose. Economic data
during this period showed surprising strength in the domestic economy and raised
the specter of inflation. During the summer, bond yields stabilized as investors
became increasingly confident that Federal Reserve Chairman Alan Greenspan would
monitor and tweak short-term interest rates in order to achieve a moderate
economic growth and low inflation. The flat tax debate, which stimulated a great
deal of discussion and speculation in political and economic circles in 1995 and
early 1996, lost momentum and largely faded away after the election. The
tax-exempt bond market finished the year with modest, positive total returns.
VOYAGEUR NORTH DAKOTA TAX FREE FUND
For the year ended December 31, 1996, the total return at net asset value (NAV)
for the class A shares of the Voyageur North Dakota Tax Free Fund was 3.89%.*
Adding incremental income to the portfolio was an important objective for the
Voyageur North Dakota Tax Free Fund. Our continued focus on the housing sector
helped achieve this objective. Housing bonds made up nearly 25% of the
portfolio. These bonds are generally believed to produce a greater amount of
coupon income than bonds in many other sectors.
Even with our strong commitment to the housing sector, the portfolio remained
well diversified by sector and individual issues. We maintained excellent call
protection on the Fund. We also had an average credit quality rating of Aa/AA.
OUTLOOK
Overall, the U.S. economy is still showing signs of moderate growth and moderate
inflation. Our outlook for the municipal market continues to be favorable, and
we expect interest rates to decline over the long term.
[PHOTO]
ELIZABETH H. HOWELL IS THE
SENIOR MUNICIPAL BOND
MANAGER FOR THE VOYAGEUR
NORTH DAKOTA TAX FREE
FUND. MS. HOWELL HAS MORE
THAN 10 YEARS OF INVESTMENT
INDUSTRY EXPERIENCE.
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
VOYAGEUR NORTH DAKOTA TAX FREE FUND
Portfolio Abstract
For the Period Ended December 31, 1996
CLASS A SHARES
[GRAPH]
<TABLE>
<CAPTION>
ND Tax Free ND Tax Free Lehman Bros. 20
Without Sales ChargeWith Sales Charge Year Municipal Bond Index
<S> <C> <C> <C>
10000 9625 10000
Apr-91 10000 9625 10000
10106.7 9727.66 10145
10205.5 9822.8 10250
10271.5 9886.28 10220
10380.9 9991.6 10370
10481.9 10088.9 10508
10622.8 10224.4 10651
10674.7 10274.4 10756
10735.4 10332.8 10773
Dec-91 10920.9 10511.4 11002
10940.8 10530.5 11026
10949.9 10539.3 11030
10969.4 10558.1 11056
11085.5 10669.8 11160
11191.5 10771.8 11307
11352 10926.3 11515
11688.6 11250.3 11927
11521.8 11089.8 11778
11563 11129.4 11837
11504.4 11073 11669
11891.5 11445.5 11965
Dec-92 11979.8 11530.5 12122
12089.9 11636.5 12251
12449.5 11982.6 12771
12443.9 11977.3 12660
12551.2 12080.6 12819
12613.8 12140.8 12926
12791.7 12312 13164
12889.6 12406.3 13179
13127.2 12635 13494
13153.6 12660.3 13664
13215.3 12719.7 13689
13073.4 12583.1 13538
Dec-93 13321 12821.5 13865
13584.8 13075.3 14039
13317.9 12818.5 13622
12842.3 12360.7 12905
12633.5 12159.8 13010
12704.5 12228.1 13164
12713 12236.2 13032
12957 12471.1 13331
12990.8 12503.6 13368
12837.3 12355.9 13101
12607.9 12135.1 12755
12302.2 11840.9 12456
Dec-94 12592.2 12120 12847
12946.7 12461.2 13350
13379.9 12878.2 13834
13492.3 12986.3 13992
13513.8 13007.1 13989
13888.1 13367.3 14517
13779 13262.3 14293
13867.3 13347.3 14367
14048.7 13521.9 14564
14204.1 13671.5 14679
14466.7 13924.2 14992
14690.5 14139.6 15323
Dec-95 14834.3 14278 15538
14938.6 14378.4 15617
14821.6 14265.8 15439
14595.7 14048.4 15192
14560 14014 15131
14578.4 14031.7 15149
14708.2 14156.6 15363
14810.4 14255 15514
14856.9 14299.8 15489
15057.8 14493.1 15802
15189.4 14619.8 15991
15448.1 14868.8 16326
Dec-96 15411.2 14833.3 16229
</TABLE>
Voyageur North Dakota Tax Free Fund Without Sales Charge - Ending Value $15,411
Voyageur North Dakota Tax Free Fund With Sales Charge - Ending Value $14,833
Lehman Bros. 20 Year Municipal Bond Index - Ending Value $16,229
The Lehman Bros. 20 Year Municipal Bond Index is a broad, unmanaged index of
securities of United States Municipalities. The index assumes that no operating
expenses, transaction fees or sales loads are incurred by a hypothetical
investor who directly owns the securities maintained in the index. In order to
outperform an index over any specific time frame, a fund must return to
investors an amount greater than that provided by the index plus total operating
expenses. For this reason, few fixed income funds are able to outperform broad
market indices over the long term. The chart above is comprised of data that
represents the cumulative total return of a hypothetical investment in Class A
Shares of $10,000 made on the date the Fund commenced operations through
December 31, 1996.
The performance of separate classes will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes. Performance quoted represents past performance and is
not indicative of future results.
* Average annual total returns include the maximum 3.75% sales charge.
** Commencement of operations.
*** Assumes redemption on December 31, 1996
Voyageur North Dakota Tax Free Fund
Average Annual Total Returns
(Class A Shares)
Since
1 Year 5 Year 4/1/91**
Without Sales Charge 3.89% 7.12% 7.80%
With Sales Charge* (0.01%) 6.30% 7.09%
Lehman Bros. 20 4.45% 8.08% 8.79%
Year Municipal
Bond Index
Voyageur North Dakota Tax Free Fund
Average Annual Total Returns
(Class B Shares)
Since
1 Year 5/10/94**
Without Contingent 3.39% 7.55%
Deferred Sales Charge
With Contingent (1.61%) 6.20%
Deferred Sales Charge***
Voyageur North Dakota Tax Free Fund
Average Annual Total Returns
(Class C Shares)
Since
1 Year 7/29/95**
2.81% 6.53%
Quality Breakdown
[PIE CHART]
NR/NR 1%
A/A 16%
Baa/BBB 18%
Aa/AA 27%
Aaa/AAA 38%
Sector Breakdown
(shown as % of total net assets)
Housing 24.3%
Health Care 22.2%
Utilities 18.3%
Other Revenue 14.2%
General Obligation 10.6%
Transportation 4.2%
Education 3.1%
Industrial 1.6%
Pre-Refunded/Escrow 0.9%
Statistics
Average Maturity 11.8 Years
Average Coupon 6.11%
Portfolio Duration 7.6 Years
Average Quality Aa/AA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Voyageur Tax Free Funds, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of Voyageur North Dakota
Tax Free Fund (a fund within Voyageur Tax Free Funds, Inc.) as of December 31,
1996, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
ended December 31, 1996 and the financial highlights for each of the years in
the five-year period ended December 31, 1996. These financial statements and the
financial highlights are the responsibility of Fund management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody are confirmed to us by the custodian. As to securities purchased
and sold but not received or delivered, we request confirmations from brokers,
and where replies are not received, we carry out other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Voyageur North Dakota Tax Free Fund at December 31, 1996, and the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period ended December 31, 1996, and the financial
highlights for the periods stated in the first paragraph above, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 14, 1997
<TABLE>
<CAPTION>
VOYAGEUR NORTH DAKOTA TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at market value (note 1)
(identified cost: $33,107,904) .................................. $ 34,238,361
Accrued interest receivable ........................................ 563,768
Receivable for investment securities sold .......................... 544,510
Receivable for Fund shares sold .................................... 2,188
------------
Total assets .................................................... 35,348,827
------------
LIABILITIES
Bank overdraft ..................................................... 430,316
Dividends payable to shareholders .................................. 138,805
Payable for investment securities purchased ........................ 308,015
Other accrued expenses ............................................. 17,567
------------
Total liabilities ............................................... 894,703
------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK ................. $ 34,454,124
============
Represented by:
Capital Stock - $.01 par value (note 1) ......................... $ 31,676
Additional paid-in capital ...................................... 33,797,342
Undistributed net investment income ............................. 35,622
Accumulated net realized loss on investments (note 1) ........... (540,973)
Unrealized appreciation of investments .......................... 1,130,457
------------
TOTAL NET ASSETS .............................................. $ 34,454,124
============
Net assets applicable to outstanding Class A Shares ................ $ 33,713,299
============
Net assets applicable to outstanding Class B Shares ................ $ 700,333
============
Net assets applicable to outstanding Class C Shares ................ $ 40,492
============
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Class A - Shares of Capital Stock outstanding: 3,099,514 (note 5) $ 10.88
============
Class B - Shares of Capital Stock outstanding: 64,382 (note 5) .. $ 10.88
============
Class C - Shares of Capital Stock outstanding: 3,726 (note 5) ... $ 10.87
============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
VOYAGEUR NORTH DAKOTA TAX FREE FUND
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Interest ........................................................... $ 2,065,091
-----------
Expenses (note 3):
Investment advisory and management fee ............................. 175,239
Dividend-disbursing, administrative and accounting services fees ... 86,034
Printing, postage and supplies ..................................... 6,019
Audit and accounting fees .......................................... 13,086
Legal fees ......................................................... 499
Distribution fees - Class A ........................................ 86,154
Distribution fees - Class B ........................................ 5,623
Distribution fees - Class C ........................................ 167
Directors' fees .................................................... 1,042
Registration fees .................................................. 363
Custodian fees ..................................................... 7,668
Amortization of organizational costs ............................... 989
Other .............................................................. 1,259
-----------
Total expenses ................................................. 384,142
Less: Expenses waived by the distributor .......................... (72,351)
-----------
Total net expenses ............................................. 311,791
-----------
Investment income - net ........................................ 1,753,300
-----------
Realized and unrealized gain (loss) on investments:
Realized loss on security transactions (note 2) .................... (385,738)
Net change in unrealized appreciation or depreciation of investments (90,482)
-----------
Net loss on investments ........................................ (476,220)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... $ 1,277,080
===========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
VOYAGEUR NORTH DAKOTA TAX FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Operations:
Investment income - net ................................................. $ 1,753,300 $ 1,813,311
Realized loss on security transactions .................................. (385,738) (87,044)
Net change in unrealized appreciation or depreciation of investments .... (90,482) 4,122,617
------------ ------------
Net increase in net assets resulting from operations .................. 1,277,080 5,848,884
------------ ------------
Distributions to shareholders from:
Investment income - net:
Class A ............................................................... (1,698,579) (1,912,391)
Class B ............................................................... (24,585) (10,940)
Class C ............................................................... (722) (696)
------------ ------------
Total distributions ................................................. (1,723,886) (1,924,027)
------------ ------------
Capital share transactions (note 5):
Proceeds from sale of shares:
Class A (note 3) ...................................................... 1,894,680 3,442,030
Class B ............................................................... 360,271 248,571
Class C ............................................................... 28,000 62,010
Net asset value of shares issued in reinvestment of net
investment income distributions:
Class A ............................................................. 1,092,516 1,297,310
Class B ............................................................. 18,141 8,279
Class C ............................................................. 731 611
Payments for redemption of shares:
Class A ............................................................... (4,927,263) (6,371,759)
Class B (note 3) ...................................................... (49,185) (49,862)
Class C ............................................................... (8,304) (44,010)
------------ ------------
Decrease in net assets from share transactions .......................... (1,590,413) (1,406,820)
------------ ------------
Total increase (decrease) in net assets ............................... (2,037,219) 2,518,037
Net assets at beginning of period .......................................... 36,491,343 33,973,306
------------ ------------
Net assets at end of period (including undistributed net investment
income of $35,622 and $6,208, respectively) ............................. $ 34,454,124 $ 36,491,343
============ ============
</TABLE>
See accompanying notes to financial statements.
VOYAGEUR NORTH DAKOTA TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Voyageur North Dakota Tax Free Fund (the Fund), a fund within Voyageur Tax
Free Funds, Inc., is registered under the Investment Company Act of 1940 (as
amended) as a non-diversified, open-end management investment company. The Fund
seeks high current income free from both federal and state income taxes by
investing in investment grade municipal bonds.
The Fund offers Class A, Class B and Class C Shares. Class A Shares are sold
with a front-end sales charge. Class B Shares may be subject to a contingent
deferred sales charge and such shares automatically convert to Class A after
eight years. Class C Shares may be subject to a contingent deferred sales charge
and have no conversion feature. Each class of shares has identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that the level of distribution fees charged differs between classes. Income,
expenses (other than expenses incurred under each class' Distribution Agreement)
and realized and unrealized gains or losses on investments are allocated to each
class of shares based upon its relative net assets.
Pursuant to its amended articles of incorporation, Voyageur Tax Free Funds,
Inc. has 10 trillion shares of authorized capital stock that may be issued in
one or more series.
The significant accounting policies followed by the Funds are summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net increase (decrease) in net assets resulting from
operations during the reporting period. Actual results could differ from those
estimates.
INVESTMENTS IN SECURITIES
The values of fixed income securities are determined using pricing services
or prices quoted by independent brokers. When market quotations are not readily
available, or in certain other circumstances, securities are valued at fair
value according to methods selected in good faith by the Board of Directors.
Short-term securities are valued at amortized cost which approximates market
value.
Security transactions are accounted for on the trade date. Securities gains
and losses are calculated on the identified-cost basis. Interest income,
including level-yield amortization of premium and original issue discount, is
accrued daily.
The Fund concentrates its investments in limited geographical areas, and
therefore may have more credit risk related to the economic conditions of these
areas than a portfolio with broader geographical diversification.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities which have been purchased by the Fund on
a forward commitment or when-issued basis can take place up to a month or more
after the transaction date. During this period, such securities are subject to
market fluctuations and the portfolio maintains, in a segregated account with
its custodian, assets with a market value equal to or greater than the amount of
its purchase commitments.
ORGANIZATIONAL COSTS
Organizational costs are being amortized over 60 months on a straight line
basis.
FEDERAL TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to shareholders in amounts that will avoid or minimize federal
income or excise taxes for the Fund.
Net investment income and net realized gains (losses) for the Fund may differ
for financial statement and tax purposes primarily because of losses deferred
for tax purposes due to "wash sale" transactions. The character of distributions
made during the year from net investment income or net realized gains may differ
from their ultimate characterization for federal income tax purposes. Also, due
to the timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the year that the income or realized gains (losses)
were recorded by the Fund. For federal income tax purposes, as of December 31,
1996, the Fund had a capital loss carryover of $461,009 that will expire in 2003
and 2004 if not offset by subsequent capital gains. It is unlikely that the
Board of Directors will authorize a distribution of any net realized capital
gains until the available capital loss carryover has been offset or expires.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends declared daily from net investment income are payable monthly in
cash or reinvested in additional shares of the Fund. Net short-term realized
capital gains, if any, may be paid throughout the year and net long-term
realized capital gains, when available, are distributed annually.
(2) SECURITIES TRANSACTIONS
Purchase cost and proceeds from sales of securities other than short-term
securities aggregated $19,982,054 and $22,447,069 for the year ended December
31, 1996, respectively.
(3) EXPENSES
The Fund has an investment advisory and management agreement with Voyageur
Fund Managers, Inc. (Voyageur) under which Voyageur manages the Fund's assets
and provides other specified services. The fee for investment management and
advisory services is paid monthly and is based on the average daily net assets
of the Fund at the annual rate of .50%. In addition, the Fund will pay most
other operating expenses including directors' fees, registration fees, printing
of shareholder reports, legal and auditing services and other miscellaneous
expenses. Voyageur is obligated to pay all expenses of the Fund (excluding
distribution fees, insurance premiums on portfolio securities, taxes, interest
and brokerage commissions) which exceed 1% of average daily net assets, on an
annual basis.
The Fund will also pay a fee to Voyageur for acting as the Fund's dividend
disbursing, administrative and accounting services agent. The fee is paid
monthly and is equal to the sum of $1.33 per shareholder account per month, a
fixed monthly fee ranging from $1,000 to $1,500 based on the level of the Fund's
average daily net assets and an annualized percentage of average daily net
assets at reducing rates from .11% to .02%. The Fund is also responsible for
reimbursing Voyageur's out-of-pocket expense in connection with the performance
of dividend-disbursing, administrative and accounting services.
Each class of shares has a Distribution Agreement under Rule 12b-1 of the
Investment Company Act of 1940 with Voyageur Fund Distributors, Inc. (Fund
Distributors). Under these plans the Fund is obligated to pay Fund Distributors
a monthly distribution fee at an annual rate of .25% of average daily net assets
of the Class A Shares and 1.00% of average daily net assets of the Class B and
Class C Shares. Fund Distributors may waive all or part of its distribution fee
at its sole discretion. During the year ended December 31, 1996, Fund
Distributors voluntarily waived Class A distribution fees of $69,695 and Class B
distribution fees of $2,656.
During the year ended December 31, 1996, sales charges paid by Class A
shareholders were $38,688. Of this amount, Fund Distributors received $5,425.
Contingent deferred sales charges paid by Class B shareholders were $1,398.
(4) PLANNED FUND REORGANIZATION
On January 15, 1997 Voyageur's parent, Dougherty Financial Group, Inc.
("DFG"), executed an agreement and plan of merger with Lincoln National
Corporation ("LNC") pursuant to which LNC would acquire DFG, including the
mutual fund investment advisory business of DFG conducted by Voyageur. This
merger is subject to approval of the Fund's Board of Directors and shareholders.
(5) SHARE TRANSACTIONS
Transactions in shares of capital stock during each period were as follows:
<TABLE>
CLASS A
-----------------------------------
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Shares sold................................................... 175,611 325,541
Shares issued for reinvested distributions.................... 101,442 124,904
Shares redeemed............................................... (458,594) (604,981)
----------- ------------
Decrease in shares outstanding................................ (181,541) (154,536)
=========== ============
</TABLE>
<TABLE>
CLASS B
--------------------------------------
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Shares sold................................................... 33,146 23,246
Shares issued for reinvested distributions.................... 1,687 792
Shares redeemed............................................... (4,529) (4,587)
------------ -----------
Increase in shares outstanding................................ 30,304 19,451
========== ===========
</TABLE>
<TABLE>
CLASS C
--------------------------------------
YEAR PERIOD FROM
ENDED JULY 29, 1995*
DECEMBER 31, TO DECEMBER 31,
1996 1995
------------ ---------------
<S> <C> <C>
Shares sold.......................................... 2,582 5,855
Shares issued for reinvested distributions........... 68 57
Shares redeemed...................................... (770) (4,066)
----------- ----------
Increase in shares outstanding....................... 1,880 1,846
========== ==========
</TABLE>
- ---------------------------------
* Commencement of operations.
(6) FINANCIAL HIGHLIGHTS
Per share data (rounded to the nearest cent) for a share of capital
stock outstanding and selected information for each period are as follows:
<TABLE>
CLASS A
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period ..................... $ 11.00 $ 9.85 $ 11.07 $ 10.59 $ 10.34
---------- ---------- ---------- ---------- ----------
Operations:
Net investment income ................... .54 .54 .56 .58 .62
Net realized and unrealized
gain (loss) on investments .......... (.13) 1.18 (1.15) .58 .34
---------- ---------- ---------- ---------- ----------
Total from operations ........... .41 1.72 (.59) 1.16 .96
---------- ---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income (a) .......... (.53) (.57) (.53) (.58) (.62)
From net realized gains ................. -- -- (.08) (.10) (.09)
In excess of net realized gains ......... -- -- (.02) -- --
---------- ---------- ---------- ---------- ----------
Total distributions ................. (.53) (.57) (.63) (.68) (.71)
---------- ---------- ---------- ---------- ----------
Net asset value:
End of period ........................... $ 10.88 $ 11.00 $ 9.85 $ 11.07 $ 10.59
========== ========== ========== ========== ==========
Total investment return (b) ................ 3.89% 17.81% (5.47)% 11.20% 9.70%
Net assets at end of period (000's omitted) $ 33,713 $ 36,096 $ 33,829 $ 34,880 $ 15,846
Ratios:
Ratio of expenses to
average daily net assets (f) ........ .88% .81% .46% .59% .40%
Ratio of net investment income
to average daily net assets ......... 5.01% 5.07% 5.36% 5.11% 5.78%
Assuming no voluntary waivers and
reimbursements:
Expenses (c) .............. 1.08% 1.05% 1.14% 1.25% 1.25%
Net investment income ..... 4.81% 4.83% 4.68% 4.45% 4.93%
Portfolio turnover rate (excluding
short-term securities) .................. 57.60% 45.34% 32.60% 27.39% 26.27%
</TABLE>
See accompanying notes to Financial Highlights.
<TABLE>
CLASS B CLASS C
------------------------------------------- ----------------------------
YEAR YEAR PERIOD FROM YEAR PERIOD FROM
ENDED ENDED MAY 10, 1994(d) ENDED JULY 29, 1995(d)
DECEMBER 31, DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1996 1995 1994 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period ................... $ 11.00 $ 9.85 $ 10.31 $ 11.00 $ 10.51
------- ------- ------- ------- -------
Operations:
Net investment income ................. .49 .48 .30 .44 .17
Net realized and unrealized
gain (loss) on investments ......... (.13) 1.18 (.39) (.14) .50
------- ------- ------- ------- -------
Total from operations ........... .36 1.66 (.09) .30 .67
------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income (a) ........ (.48) (.51) (.27) (.43) (.18)
From net realized gains ............... -- -- (.08) -- --
In excess of net realized gains ....... -- -- (.02) -- --
------- ------- ------- ------- -------
Total distributions ................ (.48) (.51) (.37) (.43) (.18)
------- ------- ------- ------- -------
Net asset value:
End of period ......................... $ 10.88 $ 11.00 $ 9.85 $ 10.87 $ 11.00
======= ======= ======= ======= =======
Total investment return (b) ............... 3.39% 17.24% (0.77)% 2.81% 6.47%
Net assets at end of period (000's omitted) $ 700 $ 375 $ 144 $ 40 $ 20
Ratios:
Ratio of expenses to
average daily net assets (f) ....... 1.36% 1.29% .99%(e) 1.75% 1.73%(e)
Ratio of net investment income
to average daily net assets ........ 4.52% 4.56% 4.97%(e) 4.06% 4.00%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (c) ............. 1.83% 1.79% 1.89%(e) 1.75% 1.73%(e)
Net investment income .... 4.05% 4.06% 4.07%(e) 4.06% 4.00%(e)
Portfolio turnover rate (excluding
short-term securities) ................ 57.60% 45.34% 32.60% 57.60% 45.34%
</TABLE>
See accompanying notes to Financial Highlights.
NOTES TO FINANCIAL HIGHLIGHTS
(a) For federal income tax purposes, all of the net investment income
distributions were derived from interest on securities exempt from federal
income tax.
(b) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(c) Voyageur Fund Distributors voluntarily waived or reimbursed expenses during
the periods presented. The annual contractual expenses limit for the Fund
(excluding distribution fees, insurance premiums on portfolio securities,
taxes, interest and brokerage commissions) is 1% of average daily net
assets. The maximum distribution fee is .25% of the Fund's average daily
net assets for Class A Shares and 1.00% of the Fund's average daily net
assets for Class B and Class C Shares.
(d) Commencement of operations.
(e) Annualized.
(f) Beginning in the year ended December 31, 1995, the expense ratio reflects
the effect of gross expenses attributable to earnings credits on uninvested
cash balances received by the Fund. Prior period expense ratios have not
been adjusted.
<TABLE>
<CAPTION>
VOYAGEUR NORTH DAKOTA TAX FREE FUND
INVESTMENTS IN SECURITIES DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (c) RATE MATURITY VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
MUNICIPAL BONDS (99.4%):
PRE-REFUNDED/ESCROWED TO MATURITY (0.9%):
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 100 Devils Lake Public School District #1................................ 6.80% 05-01-11 $ 105,312
200 Fargo Park District Revenue.......................................... 7.25 11-01-11 220,044
----------
325,356
----------
GENERAL OBLIGATION (10.6%):
-------------------------------------------------------------------------------------------------------
210 Bismarck Tax Increment ............................................. 5.70 05-01-07 212,887
110 Devils Lake......................................................... 5.75 05-01-10 110,573
490 Fargo Public School District #1 (MBIA Insured)...................... 5.55 06-01-09 496,497
155 Grand Forks Highway Revenue......................................... 6.00 12-01-10 160,667
165 Grand Forks Highway Revenue ........................................ 6.00 12-01-11 170,569
170 Grand Forks Highway Revenue ........................................ 6.00 12-01-12 175,173
195 Grand Forks Sales Tax-Cirrus Project................................ 5.90(d) 05-01-17 195,653
270 Grand Forks Sewer Reserve .......................................... 6.70 06-01-07 286,500
155 Grand Forks Water Revenue.......................................... 5.75 06-01-12 159,672
165 Grand Forks Water Revenue.......................................... 5.80 06-01-13 170,413
175 Grand Forks Water Revenue.......................................... 5.85 06-01-14 181,209
190 Grand Forks Water Revenue.......................................... 5.85 06-01-15 195,704
215 North Dakota State Real Estate ..................................... 6.00 09-01-13 217,154
1,000 Puerto Rico Aqueduct & Sewer Authority.............................. 5.00 07-01-15 935,270
----------
3,667,941
----------
UTILITIES (18.3%):
-------------------------------------------------------------------------------------------------------
3,050 Mercer County Pollution Control Revenue Basin Electric Revenue
(AMBAC Insured).................................................. 6.05 01-01-19 3,135,065
500 Mercer County Pollution Control Revenue Montana/Dakota
(FGIC Insured)................................................... 6.65 06-01-22 533,505
750 Morton Pollution Control Revenue-Montana/Dakota Utilities
(FGIC Insured).................................................. 6.65 06-01-22 798,442
170 Oliver County Pollution Control Revenue, Sq. Butte Electric Co-op... 7.00 12-31-10 170,000
1,800 Puerto Rico Electric Power Authority................................ 5.25 07-01-21 1,664,748
---------
6,301,760
----------
INDUSTRIAL (1.6%):
-------------------------------------------------------------------------------------------------------
500 Mercer County Pollution Control Otter Tail Power................... 6.90 02-01-19 536,045
----------
HEALTH CARE (22.2%):
-------------------------------------------------------------------------------------------------------
500 Bismarck Hospital Alexius Medical Center (AMBAC Insured)........... 6.90 05-01-06 545,755
250 Bismarck Hospital Medical Center One Inc. (BIG Insured)............ 7.50 05-01-13 269,062
500 Catholic Health Corporation-Carrington ............................ 6.25 11-15-15 515,585
1,000 Catholic Health Corporation-Cass County Villa Nazareth Project..... 6.25 11-15-14 1,031,170
1,750 Fargo Health Care Facility-Meritcare............................... 5.38 06-01-27 1,665,773
1,000 Fargo Hospital Facility St. Luke's Hospital, Series 1992........... 6.50 06-01-15 1,056,170
225 Grand Forks United Hospital (MBIA Insured)........................ 6.13 12-01-14 237,107
250 Grand Forks United Hospital (MBIA Insured)......................... 6.25 12-01-19 263,958
230 Ward County Trinity Health Care Facility........................... 5.80 07-01-06 230,929
1,400 Ward County Trinity Health Care Facility........................... 6.00 07-01-11 1,384,530
455 Ward County Trinity Health Care Facility........................... 6.00 07-01-10 452,088
-----------
7,652,127
-----------
HOUSING REVENUE (24.3%):
-------------------------------------------------------------------------------------------------------
305 Grand Forks Multifamily Housing Authority Revenue - Ryan House
Section 8..................................................... 6.30 03-01-22 310,917
280 Minot Single Family Mortgage..................................... 7.70 08-01-10 305,956
395 North Dakota Housing Finance Authority Single Family
Mortgage Series A............................................. 6.95 07-01-12 414,777
2,000 North Dakota Housing Finance Authority Single Family Mortgage
Series A...................................................... 6.30(d) 07-01-16 2,027,720
2,255 North Dakota Housing Finance Authority Single Family Mortgage.... 6.25(d) 01-01-17 2,277,325
200 North Dakota State Housing Finance Agency Single Family
Mortgage Series A (FHA Insured)............................... 6.75 07-01-12 207,764
955 North Dakota State Housing Finance Agency Single Family
Mortgage Series E (FNMA Insured).............................. 6.30 01-01-15 975,141
500 North Dakota State Housing Finance Agency Revenue
(FNMA Insured)................................................ 6.13 12-01-15 509,925
1,300 North Dakota State Housing Finance Agency Revenue Multifamily
(FNMA Insured)................................................ 6.15 12-01-17 1,323,998
---------
8,353,523
---------
EDUCATION (3.1%):
-------------------------------------------------------------------------------------------------------
250 Burleigh County University Facilities Mary PJ Bank Qualified..... 7.13 12-01-11 262,345
250 North Dakota State University Housing and Auxiliary Facility..... 6.30 04-01-07 265,418
500 North Dakota State University Housing and Auxiliary Facility..... 6.50 04-01-12 527,390
-----------
1,055,153
-----------
TRANSPORTATION (4.2%):
-------------------------------------------------------------------------------------------------------
1,500 Puerto Rico Commonwealth Highway and Transportation.............. 5.50 07-01-26 1,440,855
----------
OTHER REVENUE (14.2%):
-------------------------------------------------------------------------------------------------------
500 Fargo Refunding Improvement ..................................... 5.90 05-01-07 518,435
1,310 North Dakota Building Authority Revenue (FSA Insured)............ 6.00 12-01-14 1,353,990
1,480 North Dakota Building Authority Revenue (FSA Insured)............ 6.10 12-01-16 1,536,684
450 North Dakota Muni Bond Bank...................................... 6.25 12-01-11 459,756
300 North Dakota Muni Bond Bank...................................... 5.50 10-01-17 295,236
500 North Dakota Muni Bond Bank...................................... 6.25 10-01-14 529,790
200 North Dakota Student Loan (AMBAC Insured)........................ 7.00 07-01-05 211,710
-----------
4,905,601
-----------
TOTAL INVESTMENTS IN SECURITIES (cost: $33,107,904) (d) $34,238,361
===========
</TABLE>
See accompanying notes to investments in securities.
VOYAGEUR NORTH DAKOTA TAX FREE FUND
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in note 1 to the financial
statements.
(b) The cost of securities for federal income tax purposes is $33,187,868 and
the aggregate gross unrealized appreciation and depreciation of securities
based on this cost are as follows:
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) Appreciation
$1,075,600 $(25,107) $1,050,493
(c) Investments in bonds, by rating category (unaudited) as a percentage of
total bonds, are as follows:
<TABLE>
Aaa/AAA Aa/AA A/A Baa/BBB NR/NR Total
<S> <C> <C> <C> <C> <C> <C>
38% 27% 16% 18% 1% 100%
</TABLE>
(d) Security subject to the Alternative Minimum Tax. At December 31, 1996, the
total of such securities is equal to 13.1% of the Fund's total net assets.
FEDERAL INCOME TAX INFORMATION
- --------------------------------------------------------------------------------
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the year ended December
31, 1996 shown below. Exempt interest dividends are exempt from federal income
tax and should not be included in shareholder's gross income, but need to be
reported on the income tax return for informational purposes. Each shareholder
should consult a tax adviser about reporting this income for state and local
purposes. In January 1997, the Fund separately provided each shareholder with
tax information for calendar year 1996.
<TABLE>
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net investment income distributions
(none qualifying for corporate dividend
received deduction)............................. $.5295 $.4779 $.4270
====== ====== ======
</TABLE>
For federal income tax purposes, 99.98% of the above net investment income
distributions were derived from interest on securities exempt from federal
income tax.
VOYAGEUR ON CALL (TM)
[Line Drawing of a telephone]
800.545.3863
We invite you to use the Voyaguer interactive voice response system, Voyageur On
Call (TM) (800.545.3863). The system is designed to give you information about
the Fund(s) in your account. It can also provide price and yield information
for the Fund(s). 24-hour access available to Touch Tone telephones only.
VOYAGEUR
YOUR TAX SENSITIVE INVESTMENT MANAGER
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402-4115
VOY-NDAR 3/97
