VFI CORE PORTFOLIO
VFI INTERMEDIATE DURATION PORTFOLIO
ANNUAL REPORT
Dated October 31, 1997
<PAGE>
Dear Shareholder:
We at the Voyageur Financial Institutions Funds thank you for your continued
interest in the funds over the past year. During the approximately 18 months the
funds have been in existence, our "cover the yield curve" strategy has appealed
to many institutional investors, and we are now in the process of bolstering
that strategy by adding money market offerings.
The new "cover the yield curve" offerings are intended to be actively-managed
alternatives for overnight funds, and in two series-a Prime Obligations
Portfolio that includes Banker's Acceptances and Commercial Paper, and a
Treasury Obligations Portfolio limited to government issues. We are looking
forward to the "roll-out" of these two new products.
Appearing below is a summary of the results for each of the Funds, including
NAV, dividends paid, and total net assets for the reporting period. On the page
that follows, fund manager Randy Harrison provides an update on the economy, the
current/anticipated interest rate environment, and overall tone of the bond
market.
<TABLE>
<CAPTION>
Net Asset Net Asset Total Net
Value Value Dividends Assets
Beginning of End of Paid Per End of Period
Period Period Period Share (000's)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR ENDED OCTOBER 31, 1997:
VFI Core Portfolio $10.04 $10.20 $0.66 $57,650
VFI Intermediate Duration $10.02 $10.04 $0.62 $34,922
Portfolio
</TABLE>
Thank you for your continued confidence in the Voyageur Financial Institutions
Funds and the opportunity to serve your investment needs.
Sincerely,
John G. Taft, President
VFI Core Portfolio
VFI Intermediate Duration Portfolio
<PAGE>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
MANAGEMENT DISCUSSION AND ANALYSIS OF FUNDS' PERFORMANCE
RANDAL W. HARRISON, CFA
PORTFOLIO MANAGER, VOYAGEUR ASSET MANAGEMENT
The investment objective of the VFI Core and Intermediate Duration Portfolios is
to seek an attractive level of current income while maintaining total rate of
return performance commensurate with the duration risk of the respective
portfolio. For the fiscal year ended October 31, 1997, the VFI Core Portfolio
attained a total return of 8.50%*. During the same period, the VFI Intermediate
Duration Portfolio achieved a total return of 6.58%*.
The past 12 months have been challenging for investors. Throughout the period,
inflation has remained nearly nonexistent. Despite strong underpinnings to the
U.S. economy, yields traded in nearly a full 1% range across the yield curve.
Meanwhile, the Treasury yield curve has flattened, with a marked drop in
interest rates at the long end of the curve.
Throughout the life of the Portfolios, we have sought to achieve an attractive
distribution rate and total return performance. These objectives were pursued
throughout the past 12 months by strategically adjusting the security sector
allocations and managing duration exposure. The Portfolios' net asset values
ended the year on a strong note, helped by a net decline in interest rates. In
this year's declining interest rate environment, the distribution rates for the
portfolios also held up well, and did not fall as far as yields on U.S.
Treasuries with comparable durations.
OUTLOOK FOR THE VFI FUNDS
Our long-term view of the economy and technical environment in which we manage
the portfolios remains intact. We expect moderate economic growth and a
continued downtrend in U.S. interest rates, coupled with benign inflation. On
the inflation front, wage pressures are undeniable, but are stirring from a very
low base. We believe the Federal Reserve will act moderately and responsibly to
quell inflationary pressures if they arise.
We have positioned the Portfolios consistent with our long-term outlook for
continued downward pressure on interest rates. Voyageur anticipates that both
Portfolios will benefit from generally carrying more duration exposure and from
strategically adjusting weightings within the mortgage sector. The portfolios
currently have modest levels of prepayment and call exposure, though we expect
to add to the mortgage sector once it displays an improved risk/reward ratio.
* PAST RESULTS ARE NOT AN INDICATOR OF FUTURE PERFORMANCE.
<PAGE>
VFI CORE PORTFOLIO
[PLOT POINTS CHART]
VFI Core Portfolio (ending value $11,311)
Mar-96* 10,000
Mar-96 9,977
Apr-96 9,924
May-96 9,905
Jun-96 10,028
Jul-96 10,063
Aug-96 10,035
Sep-96 10,214
Oct-96 10,425
Nov-96 10,593
Dec-96 10,505
Jan-97 10,551
Feb-97 10,567
Mar-97 10,446
Apr-97 10,612
May-97 10,711
Jun-97 10,828
Jul-97 11,053
Aug-97 10,984
Sep-97 11,142
Oct-97 11,311
Lehman Brothers Mutual Fund Government/Mortgage Index
(ending value $11,372)
Mar-96* 10,000
Mar-96 9,991
Apr-96 9,940
May-96 9,919
Jun-96 10,050
Jul-96 10,079
Aug-96 10,065
Sep-96 10,233
Oct-96 10,449
Nov-96 10,619
Dec-96 10,530
Jan-97 10,566
Feb-97 10,588
Mar-97 10,480
Apr-97 10,637
May-97 10,734
Jun-97 10,857
Jul-97 11,126
Aug-97 11,047
Sep-97 11,204
Oct-97 11,372
AVERAGE ANNUAL TOTAL RETURNS
1 Year Since 3/27/96*
------ --------------
VFI Core Portfolio 8.50% 8.00%
Lehman Brothers Mutual Fund 8.83% 8.38%
Government Mortgage Index
The Lehman Brothers Mutual Fund Mortgage/Government Index is an unmanaged index
representing, as of October 31, 1997, 2,206 Treasury, agency, and mortgage
pass-through securities and includes all maturities. 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 shares of $10,000 made on the date the Fund commenced operations through
October 31, 1997.
PERFORMANCE QUOTED REPRESENTS PAST PERFORMANCE AND IS NOT INDICATIVE OF FUTURE
RESULTS.
*COMMENCEMENT OF OPERATIONS
<PAGE>
VFI INTERMEDIATE DURATION PORTFOLIO
[PLOT POINTS CHART]
VFI Intermediate Duration Portfolio (ending value $11,047)
Mar-96* 10,000
Mar-96 10,007
Apr-96 10,001
May-96 10,008
Jun-96 10,064
Jul-96 10,111
Aug-96 10,118
Sep-96 10,242
Oct-96 10,365
Nov-96 10,457
Dec-96 10,449
Jan-97 10,503
Feb-97 10,536
Mar-97 10,497
Apr-97 10,591
May-97 10,662
Jun-97 10,734
Jul-97 10,855
Aug-97 10,857
Sep-97 10,947
Oct-97 11,047
Lehman Brothers Mutual Fund (1-5 year) U.S. Government Index
(ending value $11,105)
Mar-96 9,996
Apr-96 9,988
May-96 9,995
Jun-96 10,082
Jul-96 10,118
Aug-96 10,144
Sep-96 10,254
Oct-96 10,395
Nov-96 10,491
Dec-96 10,465
Jan-97 10,512
Feb-97 10,532
Mar-97 10,501
Apr-97 10,601
May-97 10,678
Jun-97 10,760
Jul-97 10,915
Aug-97 10,902
Sep-97 11,002
Oct-97 11,105
AVERAGE ANNUAL TOTAL RETURNS
1 Year Since 3/27/96*
------ --------------
VFI Intermediate Duration Portfolio 6.58% 6.42%
Lehman Brothers Mutual Fund 6.84% 6.78%
(1-5 year) U.S. Government Index
The Lehman Brothers Mutual Fund 1-5 Year Government Index is an unmanaged index
representing, as of October 31, 1997, 855 Treasury and agency securities with
maturities ranging from 1 to 5 years. 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 shares of
$10,000 made on the date the Fund commenced operations through October 31, 1997.
PERFORMANCE QUOTED REPRESENTS PAST PERFORMANCE ANd IS NOT INDICATIVE OF FUTURE
RESULTS.
*COMMENCEMENT OF OPERATIONS
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
VAM Institutional Funds, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments in securities, of Voyageur Financial
Institutions (VFI) Core Portfolio and VFI Intermediate Duration Portfolio (funds
within VAM Institutional Funds, Inc.) as of October 31, 1997, and the related
statements of operations for the year then ended, the statements of changes in
net assets for the year ended October 31, 1997 and the period from March 27,
commencement of operations, to October 31, 1996, and the financial highlights
for the periods presented in note 5. 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 and the financial
highlights. 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 referred to above present
fairly, in all respects, the financial position of VFI Core Portfolio and VFI
Intermediate Duration Portfolio at October 31, 1997 and the results of their
operations, changes in their net assets 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
December 19, 1997
<PAGE>
<TABLE>
<CAPTION>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
Statements of Assets and Liabilities October 31, 1997
- -------------------------------------------------------------------------------------------------------------
VFI
VFI INTERMEDIATE
CORE DURATION
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ASSETS
Investments in securities, at market value (note 1)
(identified costs, $58,707,944 and $35,894,945, respectively) $59,492,674 $36,159,530
Cash in bank on demand deposit.................................. 550 67
Accrued interest receivable..................................... 623,643 380,521
Receivable for investment securities sold....................... 3,957,669 1,621,804
Due from adviser................................................ 16,702 14,916
Organizational costs (note 3)................................... 5,338 5,338
----------- -----------
Total assets................................................. 64,096,576 38,182,176
----------- -----------
LIABILITIES
Dividends payable to shareholders.............................. 298,965 177,775
Payable for investment securities purchased..................... 6,101,273 3,050,637
Other accrued expenses.......................................... 46,320 31,795
------------ -----------
Total liabilities............................................ 6,446,558 3,260,207
------------ -----------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK.............. $57,650,018 $34,921,969
============ ===========
Represented by:
Capital stock-authorized 10 billion shares of $.01 par value
(note 1).................................................. $ 56,493 $ 34,791
Additional paid-in capital................................... 56,273,824 34,744,404
Undistributed Net Investment Income.......................... 1,487 1,487
Accumulated net realized gain (loss) on investments.......... 533,484 (123,298)
Unrealized appreciation of investments....................... 784,730 264,585
----------- --------------
TOTAL NET ASSETS........................................... $57,650,018 $34,921,969
=========== ===========
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Shares of Capital stock outstanding: 5,649,349 and 3,479,123,
respectively (note 4)..................................... $10.20 $10.04
====== ======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------
VFI
VFI INTERMEDIATE
CORE DURATION
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Investment income:
Interest.............................................................. $3,302,158 $2,045,541
---------- ----------
Expenses (note 3):
Investment advisory and management fee................................ 81,118 51,291
Service fees.......................................................... 23,758 15,628
Dividend-disbursing, transfer, administrative
and accounting services fees........................................ 47,516 31,255
Audit Expense......................................................... 10,000 10,000
Amortization of organizational costs.................................. 1,487 1,487
Other expenses........................................................ 5,216 3,429
---------- ----------
Total expenses...................................................... 169,095 113,090
Less: Expenses waived or absorbed........................................ (2,789) (3,697)
---------- ----------
Total net expenses.................................................. 166,306 109,393
---------- ----------
Investment income - net............................................. 3,135,852 1,936,148
---------- ----------
Realized and unrealized gain on investments:
Realized gain on security transactions (note 2)....................... 734,107 58,628
Net change in unrealized appreciation or depreciation
of investments..................................................... 234,122 29,823
---------- ----------
Net gain on investments........................................... 968,229 88,451
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $4,104,081 $2,024,599
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- ----------------------------------------------------------------------------------------------------------------
VFI
VFI INTERMEDIATE
CORE DURATION
PORTFOLIO PORTFOLIO
------------------------------ ------------------------------
YEAR PERIOD FROM YEAR PERIOD FROM
ENDED MARCH 27, 1996* ENDED MARCH 27, 1996*
OCTOBER 31, TO OCTOBER 31, OCTOBER 31, TO OCTOBER 31,
1997 1996 1997 1996
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Operations:
Investment income - net.................. $3,135,852 $1,295,123 $ 1,936,148 $1,030,226
Realized gain (loss) on security
transactions - net..................... 734,107 (200,623) 58,628 (181,926)
Net change in unrealized appreciation or
depreciation of investments............ 234,122 550,608 29,823 234,762
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations......... 4,104,081 1,645,108 2,024,599 1,083,062
----------- ----------- ----------- -----------
Distributions to shareholders from:
Investment income - net.................. (3,135,852) (1,295,733) (1,936,148) (1,030,836)
----------- ----------- ----------- -----------
Capital share transactions (note 4):
Proceeds from sale of shares............. 15,356,439 40,695,466 4,092,867 30,761,353
Net asset value of shares issued in
reinvestment of net investment income
distributions....................... 297,612 79,011 28,910 334
Payments for redemption of shares........ (6,840) (89,274) -- (102,172)
----------- ----------- ----------- -----------
Increase in net assets from
capital share transactions............. 15,647,211 40,685,203 4,121,777 30,659,515
----------- ----------- ----------- -----------
Total increase in net assets......... 16,615,440 41,034,578 4,210,228 30,711,741
Net assets at beginning of period........... 41,034,578 -- 30,711,741 --
----------- ----------- ----------- -----------
Net assets at end of period................. $57,650,018 $41,034,578 $34,921,969 $30,711,741
=========== =========== =========== ===========
</TABLE>
- ------------------------
* Commencement of operations.
See accompanying notes to financial statements.
<PAGE>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Voyageur Financial Institutions (VFI) Core Portfolio, and VFI Intermediate
Duration Portfolio (the "Funds") are series within VAM Institutional Funds, Inc.
and are registered under the Investment Company Act of 1940 (as amended) as
diversified, open-end management investment companies. The investment objective
of each Fund is to seek as high a level of current income as is consistent with
preservation of principal and the average duration of its respective portfolio
securities by investing in securities issued or guaranteed by the United States
Government or its agencies or instrumentalities. On April 30, 1997, the Funds
reorganized by transferring substantially all their assets to a new series of
VAM Institutional Funds, Inc. Prior to April 30, 1997, the Funds were series
within Voyageur Funds, Inc. The Funds' investment policies and objectives were
not changed as a result of the reorganization.
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 increases 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 discount, is accrued daily.
FEDERAL INCOME TAXES
The Funds' policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute income to
shareholders in amounts that will avoid or minimize federal income or excise
taxes for the Funds. Net investment income and net realized gains (losses) for
the Funds 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 Funds.
On the statements of assets and liabilities, as a result of permanent
book-to-tax differences, reclassification adjustments have been made to increase
undistributed net investment income and decrease additional paid-in-capital by
$1,487 for each fund.
For federal income tax purposes, as of October 31, 1997, VFI Intermediate
Duration Portfolio had a capital loss carryover of $123,298 that will expire in
2004 if not offset by subsequent capital gains. It is unlikely 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 may be reinvested in additional shares of each Fund at net asset value.
Net realized short-term capital gains, when available, may be distributed
throughout the year. Net realized long-term capital gains, when available, are
distributed annually.
REPURCHASE AGREEMENTS
Securities pledged as collateral for repurchase agreements are held by each
Fund's custodian bank until maturity of the repurchase agreement. Procedures for
all agreements ensure that the daily market value of the collateral is in excess
of the repurchase agreement in the event of default.
<PAGE>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
2) INVESTMENT SECURITIES TRANSACTIONS
Purchase cost and proceeds of sales of investment securities, other than
short-term securities, aggregated $215,049,406 and $197,723,445 for VFI Core
Portfolio and $55,192,556 and $49,929,381 for VFI Intermediate Duration
Portfolio, respectively, for the year ended October 31, 1997.
(3) EXPENSES
For the year ended October 31, 1997, the Funds had an investment advisory
agreement with Marquette Trust Company (Marquette). Marquette retained Voyageur
Asset Management LLC (Voyageur) as the sub-adviser to the Funds. The investment
sub-adviser furnished, at its own expense, office facilities, equipment and
personnel for servicing the investments of the respective funds. Under the
investment advisory agreements of the Funds, each Fund's investment adviser is
entitled to receive from the Fund a monthly advisory and management fee
equivalent on an annual basis to .20% of the average daily net assets of such
Fund, subject to a performance adjustment of up to plus or minus .15%. Voyageur
is entitled to a fee equal to an annual rate of 50% of the monthly advisory fee
plus or minus 50% of the performance fee adjustment. The performance fee
adjustment is determined based on a comparison to a predetermined index. VFI
Core Portfolio will be compared to the Lehman Brothers Mutual Fund
Government/Mortgage Index and VFI Intermediate Duration Portfolio will be
compared to the Lehman Brothers Mutual Fund (1-5 year) U.S. Government Index.
The performance fee adjustment for the year ending October 31, 1997 was a fee
reduction of $13,913 and $11,219 for the VFI Core Portfolio and the VFI
Intermediate Duration Portfolio, respectively.
Each Fund also pays a monthly service fee equal on an annual basis, of .05%
of each Fund's average daily net assets. Such fee is paid to Doughery Summit
Securities LLC (the "Underwriter") to compensate the Underwriter for expenses
incurred in connection with servicing of Fund shareholder accounts.
Marquette serves as the custodian of each Fund's portfolio securities and
cash. Marquette receives no additional compensation for acting as the custodian
for the Funds.
Voyageur acts as each Fund's dividend disbursing, transfer, administrative
and accounting services agent. Voyageur receives a monthly fee from each Fund
equal on an annual basis to .10% of each Fund's average daily net assets.
In addition to the fees above, the Funds are responsible for paying most
other operating expenses including directors fees, registration fees, legal and
auditing services and other miscellaneous expenses.
Organizational costs are being amortized over 60 months on a straight-line
basis.
Marquette, Voyageur and the Underwriter reserve the right to voluntarily
waive their fees in whole or part and/or to voluntarily absorb certain other of
the Fund's expenses. Any such waiver or absorption, however, will be in their
sole discretion and may be lifted or reinstated at any time. For the year ended
October 31, 1997, Voyageur voluntarily waived $2,789 and $3,697 for VFI Core
Portfolio and VFI Intermediate Duration Portfolio, respectively.
As of October 31, 1997, affiliated parties owned 2,970,185 shares and
2,968,306 shares of VFI Core Portfolio and VFI Intermediate Duration Portfolio,
respectively. This represents ownership of 52.6% and 85.3%, respectively.
(4) SHARE TRANSACTIONS
Transactions in shares during the periods ended October 31, 1997 and October 31,
1996 were as follows:
<TABLE>
<CAPTION>
VFI
VFI INTERMEDIATE
CORE DURATION
PORTFOLIO PORTFOLIO
------------------------------ -------------------------------
YEAR PERIOD FROM YEAR PERIOD FROM
ENDED MARCH 27, 1996* ENDED MARCH 27, 1996*
OCTOBER 31, TO OCTOBER 31, OCTOBER 31, TO OCTOBER 31,
1997 1996 1997 1996
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Shares sold............................... 1,531,299 4,090,115 410,017 3,076,520
Shares issued for reinvested distributions 29,707 8,031 2,893 34
Shares redeemed........................... (677) (9,126) -- (10,341)
----------- ----------- ---------- -----------
Increase in shares outstanding............ 1,560,329 4,089,020 412,910 3,066,213
=========== =========== ========== ===========
</TABLE>
- -----------------------------------
* Commencement of operations.
<PAGE>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(5) FINANCIAL HIGHLIGHTS
Per shares data (rounded to the nearest cent) for a share of capital stock
outstanding and selected information for each period are as follows:
<TABLE>
<CAPTION>
VFI
VFI INTERMEDIATE
CORE DURATION
PORTFOLIO PORTFOLIO
------------------------------- -----------------------------
YEAR PERIOD FROM YEAR PERIOD FROM
ENDED MARCH 27, 1996* ENDED MARCH 27, 1996*
OCTOBER 31, TO OCTOBER 31, OCTOBER 31, TO OCTOBER 31,
1997 1996 1997 1996
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period.................... $10.04 $10.00 $10.02 $10.00
------ ------ ------ ------
Operations:
Net investment income.................. .66 .37 .62 .34
Net realized and unrealized gain
on investments....................... .16 .04 .02 .02
------- ------- -------- -------
Total from operations.............. .82 .41 .64 .36
------- ------- -------- -------
Distributions to shareholders:
From net investment income............. (.66) (.37) (.62) (.34)
------ ------- ------- -------
Net asset value:
End of period.......................... $10.20 $10.04 $10.04 $10.02
====== ====== ====== ======
Total investment return (a)............... 8.50% 4.25% 6.58% 3.65%
Net assets at end of
period (000's omitted)................. $57,650 $41,035 $34,922 $30,712
Ratios:
Ratio of expenses to
average daily net assets............. .35% .35%(b) .35% .35%(b)
Ratio of net investment income
to average daily net assets.......... 6.59% 6.31%(b) 6.19% 5.64%(b)
Assuming no voluntary waivers
and reimbursements:
Expenses........................... .36% .35%(b) .36% .35%(b)
Net investment income.............. 6.60% 6.31%(b) 6.18% 5.64%(b)
Portfolio turnover rate
(excluding short-term securities)...... 437.48% 304.10% 192.74% 487.04%
</TABLE>
- ----------------------------------
Per share amounts are presented based upon average fund shares outstanding.
* Commencement of operations
See accompanying notes to Financial Highlights.
<PAGE>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(5) FINANCIAL HIGHLIGHTS (CONTINUED)
NOTES TO FINANCIAL HIGHLIGHTS
(a) 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.
(b) Annualized.
<PAGE>
<TABLE>
<CAPTION>
VFI CORE PORTFOLIO
INVESTMENTS IN SECURITIES OCTOBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
NAME OF ISSUER AMOUNT VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
(Percentage of investment category relates to total net assets)
BONDS: (99.4%)
U. S. GOVERNMENT AGENCY OBLIGATIONS: (59.5%)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corporation
7.00%, due 11/15/02 $ 203,620 $ 205,274
4.00%, due 05/15/03 274,689 272,714
7.00%, due 08/01/03 270,450 273,446
6.50%, due 02/01/12 2,828,124 2,831,857
7.00%, due 07/01/12 1,279,687 1,298,178
6.50%, due 08/01/12 3,449,946 3,450,187
6.50%, due 10/15/16 174,164 174,544
7.00%, due 02/15/20 73,328 73,580
7.00%, due 10/01/27 2,020,000 2,030,686
------------
10,610,466
------------
Federal National Mortgage Association
6.03%, due 07/02/99 2,750,000 2,763,750
4.75%, due 12/25/11 146,066 145,426
6.15%, due 01/25/16 571,597 570,522
------------
3,479,698
------------
Government National Mortgage Association
6.50%, due 01/15/26 248,639 246,083
6.50%, due 03/15/26 3,289,400 3,255,585
6.50%, due 04/15/26 7,074,947 7,002,217
7.00%, due 04/15/26 3,071,318 3,039,745
8.00%, due 07/15/26 14,259 14,808
8.00%, due 04/15/27 38,046 39,510
6.50%, due 09/15/27 2,487,674 2,462,100
7.00%, due 10/20/27 4,158,000 4,171,139
------------
20,231,187
------------
TOTAL U.S. AGENCY OBLIGATIONS (cost: $36,562,230) 34,321,351
------------
See accompanying notes to investments in securities.
<PAGE>
VFI CORE PORTFOLIO
INVESTMENTS IN SECURITIES (CONTINUED) OCTOBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
NAME OF ISSUER AMOUNT VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
U.S. TREASURY ISSUES (39.9%):
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
5.95%, due 11/15/04 (b) $ 4,000,000 $ 2,652,920
6.25%, due 04/30/01 6,000,000 6,096,094
6.62%, due 06/30/01 1,900,000 1,953,732
6.25%, due 01/31/02 2,000,000 2,035,620
6.00%, due 07/31/02 1,000,000 1,009,530
6.50%, due 05/15/05 4,000,000 4,150,640
7.25%, due 05/15/16 4,550,000 5,082,487
------------
TOTAL U.S. TREASURY ISSUES (cost: $19,955,414) 22,981,023
------------
TOTAL BONDS (cost: $56,517,644) 57,302,374
------------
SHORT-TERM SECURITIES (3.8%):
- -------------------------------------------------------------------------------------------------------------------
U.S. Government Money Market Fund, 5.37%(c) 2,190,300 2,190,300
TOTAL SHORT-TERM SECURITIES (cost: $2,190,300) 2,190,300
------------
TOTAL INVESTMENTS IN SECURITIES (cost: $58,707,944) (d) $59,492,674
============
See accompanying notes to investments in securities.
<PAGE>
VFI INTERMEDIATE DURATION PORTFOLIO
INVESTMENTS IN SECURITIES OCTOBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
NAME OF ISSUER AMOUNT VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
(Percentage of investment category relates to total net assets)
BONDS: (86.3%)
U. S. GOVERNMENT AGENCY OBLIGATIONS: (68.3%)
- -------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
8.50%, due 06/01/01 $ 1,646,588 $ 1,680,465
5.60%, due 06/15/02 253,227 252,673
5.50%, due 10/15/02 1,121 1,118
6.50%, due 05/01/03 4,084,317 4,098,204
5.25%, due 06/15/03 166,355 165,835
7.00%, due 08/01/03 360,629 364,625
5.40%, due 01/15/08 442,395 438,382
7.00%, due 06/12/12 1,956,305 1,992,457
7.00%, due 07/01/12 1,279,687 1,298,179
5.00%, due 12/15/12 156,424 155,886
5.00%, due 06/15/16 50,135 49,649
6.80%, due 02/15/18 1,237,547 1,244,885
6.80%, due 04/15/18 300,000 302,250
5.00%, due 09/15/18 169,230 168,489
------------
12,213,097
------------
Federal National Mortgage Association
6.03%, due 07/02/99 3,250,000 3,266,250
7.00%, due 01/01/99 415,363 418,512
5.00%, due 02/25/03 3,614 3,599
5.50%, due 02/25/13 79,701 79,352
5.90%, due 01/25/16 118,302 117,932
6.15%, due 01/25/16 285,798 285,261
7.00%, due 05/25/17 93,183 93,270
6.75%, due 09/25/18 64,599 64,478
7.25%, due 01/25/19 67,533 67,660
7.00%, due 03/25/19 117,192 116,972
------------
4,513,286
------------
See accompanying notes to investments in securities.
<PAGE>
VFI INTERMEDIATE DURATION PORTFOLIO
INVESTMENTS IN SECURITIES (CONTINUED) OCTOBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
NAME OF ISSUER AMOUNT VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
6.50%, due 01/15/26 $ 2,715,120 $ 2,687,209
6.50%, due 04/15/26 2,435,880 2,410,839
7.38%, due 05/20/26 (e) 995,025 1,025,343
6.50%, due 04/15/27 988,881 978,715
8.00%, due 04/15/27 1,105 1,146
------------
7,103,252
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (cost: $23,579,548) 23,829,635
------------
U.S. TREASURY NOTES (18.0%):
- -------------------------------------------------------------------------------------------------------------------
6.38%, due 05/15/99 200,000 202,156
7.25%, due 12/31/99 1,750,000 1,823,272
7.13%, due 02/29/00 250,000 257,735
6.25%, due 04/30/01 3,000,000 3,048,047
6.62%, due 06/30/01 500,000 514,140
7.25%, due 05/15/16 400,000 446,812
------------
TOTAL U.S. TREASURY ISSUES (cost: $6,277,664) 6,292,162
------------
TOTAL BONDS (cost: $29,857,212) 30,121,797
------------
SHORT-TERM SECURITIES (17.3%):
- -------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association Discount Notes
5.60%, due 01/15/98 (e) 1,500,000 1,499,295
U.S. Treasury Notes
6.12%, due 05/15/98 2,850,000 2,859,348
U.S. Government Money Market Fund, 5.37% (c) 1,679,090 1,679,090
------------
TOTAL SHORT-TERM SECURITIES (cost: $6,037,733) 6,037,733
------------
TOTAL INVESTMENTS IN SECURITIES (cost: $35,894,945) (d) $36,159,530
============
See accompanying notes to investments in securities.
</TABLE>
<PAGE>
VFI CORE PORTFOLIO
VFI INTERMEDIATE DURATION PORTFOLIO
NOTES TO INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
(a) Securities are valued by procedures described in note 1 to the financial
statements.
(b) Zero coupon bond. Rate disclosed is the effective interest rate.
(c) Dividend yields change daily to reflect current market conditions. Rate
shown is quoted yield as of October 31, 1997.
(d) The cost of securities for federal income tax purposes was $58,707,944 and
$35,894,945 for Core Portfolio and Intermediate Duration Portfolio,
respectively. The aggregate gross unrealized appreciation and depreciation
based on this cost was:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) Appreciation/(Depreciation)
------------ -------------- ---------------------------
<S> <C> <C> <C>
VFI Core Portfolio...................... $785,365 $(635) $784,730
VFI Intermediate Duration Portfolio..... 265,880 (1,295) 264,585
</TABLE>
(e) Adjustable rate mortgage security. The interest rate disclosed represents
the interest rate in effect as of October 31, 1997.
