VFI CORE PORTFOLIO
VFI INTERMEDIATE DURATION PORTFOLIO
SEMI-ANNUAL REPORT
Dated April 30, 1998
1
Dear Shareholder:
We at the Voyageur Financial Institutions Funds thank you for your continued
interest in the funds over the past six months. We are pleased to present below
a summary of the results for the two VFI portfolios (Core and Intermediate),
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
Six Month Period Ending Beginning of End of Paid Per End of Period
April 30, 1998 Period Period Share (000s)
- ------------------------------------------ ----------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
VFI Core Portfolio $10.20 $10.15 $0.39 $60,320
VFI Intermediate Duration $10.04 $10.04 $0.29 $33,275
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
2
VOYAGEUR FINANCIAL INSTITUTIONS FUND
Management Discussion and Analysis of Fund 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 six months ending April 30, 1998, the VFI Core Portfolio
attained a total return of 3.38%*. During the same period, the VFI Intermediate
Duration Portfolio achieved a total return of 2.96%*.
The fourth quarter 1997 decline in U.S. Treasury yields provided a strong
backdrop for portfolio performance during that period. We correctly anticipated
a continued decline in yields by keeping the portfolios somewhat "long" of
comparable benchmark duration, and by reducing exposure to mortgage pass-through
securities. The remaining pass-through exposure was limited to 6.5% and 7.0%
coupons, which we expected to show resiliency against an anticipated rise in
mortgage prepayments.
As 1998 unfolded, yields continued to decline, resulting in improved Net Asset
Value and portfolio performance that largely tracked the benchmarks. Our
allocation to mortgages enhanced portfolio yield versus Treasuries, while the
longer duration aided in price performance. As expected, the portfolio mortgage
holdings experienced little prepayment exposure and were shielded from heavy
refinancing that occurred throughout the latter half of the past six months.
As has been the case for the past several quarters, 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. The ultimate effects of Asian
economic turmoil remain to be seen, but as yet, the U.S. Federal Reserve has
little in the way of domestic economic concern that would warrant toying with
interest rates.
The two portfolios remain positioned slightly long of benchmark duration,
consistent with our long-term expectation of continued downward pressure on
interest rates. We continue to strategically adjust mortgage sector weightings
to reduce potential prepayment and call risk in the face of almost daily
heart-fluttering swings in U.S.
financial markets.
3
<TABLE>
<CAPTION>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
Statements of Assets and Liabilities April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
VFI
VFI Intermediate
Core Duration
Portfolio Portfolio
----------- -------------
<S> <C> <C>
Assets
Investments in securities, at market value (note 1)
(identified costs, $59,415,030 and $32,966,390, respectively) $60,184,597 $33,182,553
Cash in bank on demand deposit.................................. 840 699
Accrued interest receivable..................................... 548,745 317,123
Due from adviser................................................ 3,313 9,153
Organizational costs (note 3)................................... 4,595 4,595
---------------- ---------------
Total assets................................................. 60,742,090 33,514,123
------------ -----------
Liabilities
Dividends payable to shareholders.............................. 294,845 160,032
Other accrued expenses.......................................... 127,232 80,482
-------------- ---------------
Total liabilities............................................ 422,077 240,514
-------------- --------------
Net assets applicable to outstanding capital stock.............. $60,320,013 $33,273,609
=========== ===========
Represented by:
Capital stock-authorized 10 billion shares of $.01 par value
(note 1).................................................. $ 59,401 $ 33,153
Additional paid-in capital................................... 59,227,277 33,102,494
Undistributed Net Investment Income.......................... 2,230 2,230
Accumulated net realized gain (loss) on investments.......... 261,538 (79,030)
Unrealized appreciation of investments....................... 769,567 214,762
-------------- ---------------
Total net assets........................................... $60,320,013 $33,273,609
=========== ===========
Shares outstanding and net asset value per share
Shares of Capital stock outstanding: 5,940,108 and 3,315,291,
respectively (note 4)..................................... $10.15 $10.04
====== ======
</TABLE>
See accompanying notes to financial statements.
4
<TABLE>
<CAPTION>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
Statements of Operations Six months ended April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
VFI
VFI Intermediate
Core Duration
Portfolio Portfolio
---------- -------------
<S> <C> <C>
Investment income:
Interest.............................................................. $1,833,759 $1,031,367
----------- -----------
Expenses (note 3):
Investment advisory and management fee................................ 16,125 16,801
Service fees.......................................................... 14,621 8,271
Dividend-disbursing, transfer, administrative
and accounting services fees........................................ 44,108 22,375
Audit Expense......................................................... 8,000 8,000
Amortization of organizational costs.................................. 743 743
Other expenses........................................................ 21,326 11,549
------------- -------------
Total expenses...................................................... 104,923 67,739
Less: Expenses waived or absorbed........................................ (2,572) (9,840)
--------------- --------------
Total net expenses.................................................. 102,351 57,899
------------- -------------
Investment income - net............................................. 1,731,408 973,468
------------ ------------
Realized and unrealized gain on investments:
Realized gain on security transactions (note 2)....................... 261,474 44,268
Net change in unrealized appreciation or depreciation
of investments..................................................... (15,163) (49,823)
------------- -------------
Net gain on investments........................................... 246,311 (5,555)
-------------- ------------
Net increase in net assets resulting from operations..................... $ 1,977,719 $ 967,913
=========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<TABLE>
<CAPTION>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------
VFI
VFI Intermediate
Core Duration
Portfolio Portfolio
------------------------------ ---------------------------------
Six months Year Six months Year
ended ended ended ended
April 30, October 31, April 30, October 31,
1998 1997 1998 1997
----------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Operations
Investment income - net.................. $1,731,408 $3,135,852 $ 973,468 $1,936,148
Realized gain (loss) on security
transactions - net..................... 261,474 734,107 44,268 58,628
Net change in unrealized appreciation or
depreciation of investments............ (15,163) 234,122 (49,823) 29,823
-------------- ------------ --------------- -------------
Net increase in net assets
resulting from operations......... 1,977,719 4,104,081 967,913 2,024,599
------------ ----------- -------------- -----------
Distributions to shareholders from:
Investment income - net.................. (1,731,408) (3,135,852) (973,468) (1,936,148)
Net realized gain on investments......... (533,420) -- -- --
----------------------------------------------------------------------
Total distributions.................... (2,264,828) (3,135,852) (973,468) (1,936,148)
------------ ------------ ------------- ------------
Capital share transactions (note 4):
Proceeds from sale of shares............. 2,890,470 15,356,439 320,000 4,092,867
Net asset value of shares issued in
reinvestment of net investment income
distributions....................... 585,245 297,612 107,691 28,910
Payments for redemption of shares........ (518,611) (6,840) (2,070,496) --
-------------- ------------- --------------------------------
Increase (decrease) in net assets from
capital share transactions............. 2,957,104 15,647,211 (1,642,805) 4,121,777
------------- ------------ ------------- ----------
Total increase(decrease) in net assets 2,669,995 16,615,440 (1,648,360) 4,210,228
Net assets at beginning of period........... 57,650,018 41,034,578 34,921,969 30,711,741
------------ ------------ ------------ -----------
Net assets at end of period................. $60,320,013 $57,650,018 $33,273,609 $34,921,969
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
6
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 adviser has attempted to maintain portfolio positions consistent with
high redemption levels. It is possible that such high levels of redemption will
continue and that the Adviser may recommend to the Board of Directors that they
consider a proposal to cease operations and liquidate the Funds in the best
interest of the shareholders.
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
$743 for each fund.
For federal income tax purposes, as of April 30, 1998, 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.
7
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 $10,351,021 and $8,747,109 for VFI Core
Portfolio and $2,197,063 and $4,357,776 for VFI Intermediate Duration Portfolio,
respectively, for the six months ended April 30,
1998.
(3) Expenses
For the six months ended April 30, 1998, 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 six months ending April 30, 1998 was a
fee reduction of $42,361 and $16,284 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 six months
ended April 30, 1998, Voyageur voluntarily waived $2,572 and $9,840 for VFI Core
Portfolio and VFI Intermediate Duration Portfolio, respectively.
As of April 30, 1998, affiliated parties owned 3,036,658 shares and 2,948,166
shares of VFI Core Portfolio and VFI Intermediate Duration Portfolio,
respectively. This represents ownership of 51.1% and 88.9%, respectively.
8
<TABLE>
<CAPTION>
THE VOYAGEUR FINANCIAL INSTITUTIONS FUNDS
Notes to Financial Statements (continued)
- -------------------------------------------------------------------------------------------------------------------
(4) Share Transactions
Transactions in shares during the periods ended April 30, 1998 and October 31,
1997 were as follows:
VFI
VFI Intermediate
Core Duration
Portfolio Portfolio
------------------------------- ------------------------------
Six months Year Six months Year
ended ended ended ended
April 30, October 31, April 30, October 31,
1998 1997 1998 1997
------------ -------------- ---------------- ------------
<S> <C> <C> <C> <C>
Shares sold............................... 284,084 1,531,299 31,872 410,017
Shares issued for reinvested distributions 57,570 29,707 10,726 2,893
Shares redeemed........................... (50,895) (677) (206,430) --
------------- -------------- ---------- ------------
Increase in shares outstanding............ 290,759 1,560,329 (163,832) 412,910
============= =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
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:
VFI
VFI Intermediate
Core Duration
Portfolio Portfolio
----------------------------- -------------------------------
Six months Year Six months Year
ended ended ended ended
April 30, October 31, April 30, October 31,
1998 1997 1998 1997
---------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period.................... $10.20 $10.04 $10.04 $10.02
------ ------ ------ ------
Operations:
Net investment income.................. .29 .66 .29 .62
Net realized and unrealized gain
on investments....................... .04 .16 .00 .02
--------- --------- -------- ---------
Total from operations.............. .33 .82 .29 .64
--------- --------- -------- ---------
Distributions to shareholders:
From net investment income............. (.29) (.66) (.29) (.62)
From net realized gains................ (.09) -- -- --
--------- ----------- ----------- -----------
Total from distributions............. (.38) (.66) (.29) (.62)
--------- --------- --------- ---------
Net asset value:
End of period.......................... $10.15 $10.20 $10.04 $10.04
====== ====== ====== ======
Total investment return (a)............... 3.38% 8.50% 2.96% 6.58%
Net assets at end of
period (000's omitted)................. $60,320 $57,650 $33,274 $34,922
Ratios:
Ratio of expenses to
average daily net assets............. .35%(b) .35% .35%(b) .35%
Ratio of net investment income
to average daily net assets.......... 5.92%(b) 6.59% 5.89%(b) 6.19%
Assuming no voluntary waivers
and reimbursements:
Expenses........................... .36%(b) .36% .41%(b) .36%
Net investment income.............. 5.91%(b) 6.58% 5.83%(b) 6.18%
Portfolio turnover rate
(excluding short-term securities)...... 31.34% 437.48% 11.73% 192.74%
Per share amounts are presented based upon average fund shares outstanding.
</TABLE>
See accompanying notes to Financial Highlights
10
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.
11
<TABLE>
<CAPTION>
VFI CORE PORTFOLIO
Investments in Securities
- -------------------------------------------------------------------------------------------------------------------
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------------------------------------------
(Percentage of investment category relates to total net assets)
BONDS: (98.0%)
U. S. GOVERNMENT AGENCY OBLIGATIONS: (60.7%)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Mortgage Corporation
4.00%, due 05/15/03 $ 57,745 $ 57,604
7.00%, due 08/01/03 233,286 237,080
7.00%, due 11/15/05 128,129 128,647
6.50%, due 02/01/12 2,704,578 2,720,103
6.50%, due 08/01/12 3,321,568 3,340,634
6.50%, due 10/15/16 43,570 43,522
7.00%, due 02/15/20 33,613 33,573
6.50%, due 12/01/27 3,953,078 3,920,308
6.50%, due 01/01/28 984,496 976,335
------------
11,457,806
Federal National Mortgage Association
6.03%, due 07/02/99 2,750,000 2,762,502
6.15%, due 01/25/16 61,097 60,884
-------------
2,823,386
Government National Mortgage Association
6.50%, due 01/15/26 243,362 241,352
6.50%, due 03/15/26 3,185,268 3,158,958
7.00%, due 03/15/26 4,084,704 4,136,253
6.50%, due 04/15/26 9,862,201 9,780,741
7.50%, due 03/15/27 1,588,950 1,632,122
6.50%, due 09/15/27 2,451,483 2,430,744
6.50%, due 12/15/27 988,204 979,844
--------------
22,360,014
Total U.S. Agency Obligations (cost: $36,287,694) 36,641,206
------------
See accompanying notes to investments in securities.
12
VFI CORE PORTFOLIO
Investments in Securities (continued) April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------------------------------------------
U.S. TREASURY ISSUES (37.3%):
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
5.82%, due 11/15/04 (b) $ 4,000,000 $ 2,752,320
6.25%, due 04/30/01 6,000,000 6,101,250
6.25%, due 01/31/02 2,000,000 2,038,126
6.00%, due 07/31/02 4,400,000 4,452,250
7.25%, due 08/15/04 275,000 296,914
7.25%, due 05/15/16 6,050,000 6,870,531
------------
Total U.S. Treasury Issues (cost: $22,095,335) 22,511,391
------------
Total Bonds (cost: $58,383,029) 59,152,597
------------
SHORT-TERM SECURITIES (1.7%):
- -------------------------------------------------------------------------------------------------------------------
U.S Government Money Market Fund, 5.22%(c) 1,032,000 1,032,000
-------------
Total Short-Term Securities (cost: $1,032,000) 1,032,000
-------------
Total Investments in Securities (cost: $59,415,029) (d) $60,184,597
===========
See accompanying notes to investments in securities.
13
VFI INTERMEDIATE DURATION PORTFOLIO
Investments in Securities (continued) April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------------------------------------------
(Percentage of investment category relates to total net assets)
BONDS: (84.0%)
U. S. GOVERNMENT AGENCY OBLIGATIONS: (61.1%)
- -------------------------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation
8.50%, due 06/01/01 $ 1,307,950 $ 1,348,308
5.60%, due 06/15/02 29,547 29,486
6.50%, due 05/01/03 3,664,297 3,692,659
5.25%, due 06/15/03 20,974 20,930
7.00%, due 08/01/03 311,074 316,132
5.40%, due 01/15/08 360,018 356,422
7.00%, due 06/12/12 1,836,923 1,872,045
7.00%, due 07/01/12 1,195,199 1,218,052
5.00%, due 06/15/16 35,950 35,666
6.80%, due 02/15/18 618,028 619,005
6.80%, due 04/15/18 162,561 162,962
5.00%, due 09/15/18 2,963 2,956
--------------
9,674,623
Federal National Mortgage Association
7.00%, due 01/01/99 292,042 295,395
6.03%, due 07/02/99 3,250,000 3,264,775
5.90%, due 01/25/16 50,726 50,611
6.15%, due 01/25/16 30,535 30,428
------------
3,641,209
Government National Mortgage Association
6.50%, due 01/15/26 2,657,501 2,635,551
6.50%, due 04/15/26 2,344,977 2,325,608
7.38%, due 05/20/26 (e) 772,537 792,191
7.50%, due 03/15/27 297,000 305,070
6.50%, due 04/15/27 730,991 724,807
6.50%, due 12/15/27 247,051 244,961
--------------
7,028,188
Total U.S. Government Agency Obligations (cost: $20,105,648) 20,344,020
------------
See accompanying notes to investments in securities.
14
VFI INTERMEDIATE DURATION PORTFOLIO
Investments in Securities (continued) April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Principal Market
Name of Issuer Amount Value (a)
- -------------------------------------------------------------------------------------------------------------------
U.S. TREASURY NOTES (22.9%):
- -------------------------------------------------------------------------------------------------------------------
6.38%, due 05/15/99 $ 200,000 $ 201,500
7.13%, due 02/29/00 250,000 256,485
6.37%, due 05/15/00 740,000 744,625
6.25%, due 04/30/01 3,000,000 3,050,625
6.62%, due 06/30/01 500,000 513,907
6.25%, due 01/31/02 675,000 687,868
7.25%, due 05/15/16 1,900,000 2,157,688
-------------
Total U.S. Treasury Issues (cost: $7,635,118) 7,612,698
-------------
Total Bonds (cost: $27,740,766) 27,956,718
------------
SHORT-TERM SECURITIES (15.7%):
- -------------------------------------------------------------------------------------------------------------------
Federal National Mortgage Association Discount Note
5.41%, due 06/12/98 (e) 1,500,000 1,490,524
Federal National Mortgage Association Discount Note
5.53%, due 06/30/98 (e) 2,000,000 1,982,000
U.S. Treasury Notes
6.13%, due 05/15/98 1,000,000 1,000,313
U.S. Government Money Market Fund, 5.22% (c) 753,000 753,000
--------------
Total Short-Term Securities (cost: $5,225,623) 5,225,837
-------------
Total Investments in Securities (cost: $32,966,390) (d) $33,182,555
===========
See accompanying notes to investments in securities.
</TABLE>
15
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 April 30, 1998.
(d) The cost of securities for federal income tax purposes was $59,415,030 and
$32,966,390 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...................... $798,481 $(28,914) $769,567
VFI Intermediate Duration Portfolio..... 263,002 (46,839) 216,163
</TABLE>
(e) Adjustable rate mortgage security. The interest rate disclosed represents
the interest rate in effect as of April 30, 1998.
16
15
VAM Mid-Cap Stock Fund
SEMI-ANNUAL REPORT
Dated April 30, 1998
Dear Shareholder:
Thank you for your continued support of the VAM Mid Cap Stock Fund over the past
six months.
Appearing below is a summary of the results for the Fund for the 6 month period
ending April 30, 1998, including NAV, dividends paid, and total net assets for
the reporting period. On the page that follows, fund manager Tony Elavia
provides an update on Fund performance, the economy and markets, and an outlook
for coming months.
<TABLE>
<CAPTION>
Net Asset Net Asset Total Net
Value Value Dividends Assets
Six Month Period Ending Beginning of End of Paid Per End of Period
April 30, 1998 Period Period Share (000s)
- ------------------------------------------ ----------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
VAM Mid Cap Stock Portfolio $9.69 $12.44 $0.00 $927
</TABLE>
Once again, thank you for your confidence in the VAM Mid Cap Stock Fund and the
opportunity to serve your investment needs.
Sincerely,
John G. Taft, President
VAM Mid Cap Stock Fund
2
VAM INSTITUTIONAL FUNDS, INC.
Management Discussion and Analysis of Fund Performance
Tony H. Elavia, Ph.D.
Portfolio Manager, VAM Mid Cap Stock Fund
Over the past 6 months, the VAM Mid Cap Stock Fund has been managed consistent
with its objectives, and for the period November 1, 1997 through April 30, 1998,
posted a total return of 17.96%.
Despite continued volatility in the wake of the Asian economic crisis, most
holdings in our fund fared well. We saw considerable strength in technology and
financial stocks, though certain industries, such as semiconductors, suffered
adverse consequences from the Asian turmoil.
Even though volatility is a "fact of life" in mid cap stocks, we believe that
the long term investor will reap rewards for holding on to a portfolio of
quality growth-oriented names. We reiterate our view from the last report that
"Asian woes for the most part will impact U.S. equities only in a peripheral
sense (although increased globalization means we must watch developments
carefully)."
As usual, we remain fully invested throughout all but the most volatile segments
of a full market cycle, with holdings concentrated in health care,
telecommunications, and electronic technology stocks. These sectors have
performed quite well in the recent past.
3
<TABLE>
<CAPTION>
VAM MID-CAP STOCK FUND
Statement of Assets and Liabilities April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in securities, at market value (note 1)
(identified cost: $730,932)............................................. $849,676
Cash in bank on demand deposit............................................. 145,000
Dividends and interest receivable.......................................... 128
------------
Total assets............................................................ 994,804
---------
Liabilities
Payable for securities purchased........................................... 64,716
Accrued expenses........................................................... 3,295
-----------
Total liabilities....................................................... 68,011
----------
Net assets applicable to outstanding capital stock......................... $926,793
========
Represented by:
Capital Stock - $.01 par value (note 1)................................ $ 745
Additional paid-in capital.............................................. 761,974
Accumulated net realized gain on investments............................ 45,330
Unrealized appreciation on investments.................................. 118,744
---------
Total net assets...................................................... $926,793
========
Shares outstanding and net asset value per share
Shares of capital stock outstanding: 74,527 (note 4).................... $12.44
======
</TABLE>
See accompanying notes to financial statements.
4
<TABLE>
<CAPTION>
VAM MID-CAP STOCK FUND
Statement of Operations Six months ended April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
Six months ended
April 30,1998
-----------------
<S> <C>
Investment income:
Dividends...............................................................$ 2,347
Interest................................................................ 486
------------
Total investment income............................................... 2,833
------------
Expenses (note 2):
Investment advisory and management fee.................................. 2,625
Dividend disbursing, administrative and accounting services fees........ 525
Printing, postage and supplies.......................................... 1,105
Legal fees.............................................................. 544
Custodian fees.......................................................... 1,500
Audit and accounting fees............................................... 3,000
Registration fees....................................................... 200
Other expenses.......................................................... 195
------------
Total expenses........................................................ 9,694
Less:
Expenses waived or absorbed............................................. (6,194)
-----------
Total net expenses......................................................... 3,500
-----------
Investment loss - net................................................. (667)
-------------
Realized and unrealized gain on investments:
Net realized gain on investments (note 3)............................. 45,519
Net increase in unrealized appreciation or depreciation of
investments......................................................... 138,124
------------
Net gain on investments............................................... 183,643
------------
Net increase in net assets resulting from operations....................... $ 182,976
===========
</TABLE>
See accompanying notes to financial statements.
5
<TABLE>
<CAPTION>
VAM Mid-Cap Stock Fund
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------------------------------------------
Period from
September 1, 1997*
Six months ended to
April 30,1998 October 31, 1997
---------------- -----------------
<S> <C> <C>
Operations:
Investment income loss - net........................... $ (667) $ (123)
Realized gain (loss) on investments - net.............. 45,519 (313)
Net change in unrealized appreciation or depreciation
of investments....................................... 138,124 (19,380)
--------- ------------
Net increase in net assets resulting from operations... 182,976 (19,816)
--------- ------------
Capital share transactions (note 4):
Proceeds from sale of shares........................... 100,000 663,634
---------- ----------
Increase in net assets from capital share transactions. 100,000 663,634
--------- ---------
Total increase in net assets......................... 282,976 643,818
Net assets at beginning of period......................... 643,818 0
-------- ---------
Net assets at end of period............................... 926,793 $643,818
========= ========
</TABLE>
*Commencement of operations
See accompanying notes to financial statements.
6
VAM Mid-Cap Stock Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
The VAM Mid Cap Stock Fund (the Fund), a series within VAM Institutional
Funds, Inc., is registered under the Investment Company Act of 1940 (as amended)
as a diversified open-end management investment company. The Fund's investment
objective is long-term capital appreciation. The Fund seeks to achieve this
objective by investing in a diversified portfolio of securities including common
stock, preferred stock, convertible securities, and warrants and rights to
purchase common stock.
VAM Institutional Funds, Inc. has 10 trillion shares of authorized capital
stock that may be issued.
The significant accounting policies followed by the Fund 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 (decreases) in net assets resulting from operations during the
reporting period. Actual results could differ from those estimates.
Investments in Securities
Investments in securities traded on national or international securities
exchanges are valued at the last sales price on that exchange; securities traded
in the over-the-counter market and listed securities for which no sale was
reported on the valuation date are valued on the basis of the last current bid
price. 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. Investments in short-term securities
with maturities of more than 60 days from the valuation date are valued at the
last bid price or at fair value as determined by a pricing service approved by
the Board of Directors. Short-term securities with maturities of less than 60
days are valued at amortized cost which approximates market value.
Security transactions are accounted for on trade date. Realized gains and
losses are calculated on the identified cost basis. Dividend income is
recognized on the ex-dividend date.
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 (loss) and net realized gains (losses) 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.
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 by $790, to decrease accumulated net
realized gain by $27,321 and to increase additional paid-in-capital by $26,531.
For federal income tax purposes, as of October 31, 1997, the Fund has a
capital loss carryover of $313 that will expire in 2005 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
Distributions to shareholders from net investment income, if any, are
declared and paid annually. Net realized capital gains, if any, are also
distributed annually. All distributions are payable in cash or reinvested in
additional shares of each Fund.
7
VAM Mid-Cap Stock Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(2) Expenses and Sales Charges
The Fund has an investment advisory agreement with Voyageur Asset Management
LLC (Voyageur). Under the investment advisory agreement, Voyageur provides the
Fund with investment management, office facilities, equipment and personnel, and
monitors the performance of various organizations performing services for the
Fund. The investment advisory agreement provides for the payment on a monthly
basis of a fee equal to an annual rate of .75% of the Fund's average daily net
assets.
The Fund also pays a fee to Voyageur for acting as the Fund's transfer agent,
dividend-disbursing and accounting services agent. The fee for the Fund is based
on the level of the Fund's average daily net assets and is equal on an annual
basis to 0.15%.
In addition to the advisory fee and the transfer agency, dividend disbursing
and accounting services fees, the Fund is responsible for paying most other
operating expenses including outside directors' fees and expenses, custodian
fees, registration fees, printing and shareholder reports, legal and auditing
fees and other miscellaneous expenses.
Voyageur has voluntarily agreed to pay all expenses (excluding fees paid
indirectly, stock transfer fees, taxes, interest and brokerage commissions)
which exceed 1.00% of average daily net assets of the Fund, for the periods
ending April 30, 1998 and October 31, 1997. During the periods ending April 30,
1998 and October 31, 1997, Voyageur voluntarily absorbed $ 6,194 and $3,610 for
the Fund, respectivly.
(3) Investment Securities Transactions
Cost of purchases and proceeds from sales of investment securities (other
than short-term securities) aggregated $237,496 and $240,652 for the Fund during
the period ended April 30, 1998.
(4) Share Transactions
Transactions in shares during the period shown were as follows:
Period from
Six months ended September 1,1997* to
April 30, 1998 October 31, 1997
-------------- ----------------
Shares sold.......................... 8,110 66,414
------ ----------
Increase in shares outstanding....... 8,110 66,414
====== ==========
*Commencement of operations
8
VAM Mid-Cap Stock Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(5) Financial Highlights
Per share data (rounded to the next cent) for a share of capital stock
outstanding and selected information for each period are as follows:
Period from
Six months ended September 1, 1997* to
April 30, 1998 October 31, 1997
--------------------- ----------------
<S> <C> <C>
Net asset value:
Beginning of period................ $9.69 $10.00
----- ------
Operations:
Net investment income (loss)....... - -
Net realized and unrealized gain on
investments...................... 2.75 (.31)
------- ---------
Total from operations.......... 2.75 (.31)
------- ---------
Net asset value:
End of period...................... $12.44 $9.69
====== =====
Total investment return (b)........... 17.96% (3.10%)
Net assets at end of
period (000's omitted)............. $927 $644
Ratios:
Expenses to average net assets (a). 1.00% 1.00%
Net investment income (loss) to
average net assets (a)........... (.18%) (.12%)
Assuming no voluntary waivers and
reimbursements and expense
reductions:
Expenses (a)............ 2.74% 4.40%
Net investment (loss) (a) (1.92%) (3.55%)
Portfolio turnover rate (excluding
short-term securities)............. 40.9% 2.8%
Average commission rate............... $0.06 $0.06
* Commencement of operations
</TABLE>
Notes to Financial Highlights
(a) Annualized.
(b) Total investment return is based on the change in net asset value of a share
during the period.
9
<TABLE>
<CAPTION>
VAM Mid-Cap Stock Fund
Investments in Securities (continued) April 30, 1997
- -------------------------------------------------------------------------------------------------------------------
MARKET
ISSUER NUMBER OF SHARES VALUE(a)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (96.2%):
BASIC MATERIALS (2.6%):
- --------------------------------------------------------------------------------------------------------------------
Sealed Air Corporation (c) 350 $ 21,941
--------
CAPITAL GOODS (2.1%):
- -------------------------------------------------------------------------------------------------------------------
Applied Materials Incorporated (c) 500 18,063
---------
CONSUMER NON-DURABLE (4.3%):
- -------------------------------------------------------------------------------------------------------------------
General Nutrition Incorporated 500 17,938
Whole Foods Market Incorporated 300 18,563
---------
36,501
COMMERCIAL SERVICES (18.6%):
- -------------------------------------------------------------------------------------------------------------------
Cambridge Technology Partner (c) 600 31,350
Comdisco Incorporated 500 22,125
Gartner Group Incorporated (c) 600 19,875
Keane Incorporated (c) 700 35,175
Omnicom Group 600 28,425
U.S. Foodservice 600 21,188
---------
158,138
ENERGY (1.9%):
- -------------------------------------------------------------------------------------------------------------------
Diamond Offshore Drilling 200 10,125
Ensco International Incorporated 200 5,650
-----------
15,775
HEALTHCARE (3.5%):
- -------------------------------------------------------------------------------------------------------------------
HBO and Company 500 29,906
----------
FINANCIAL (12.9%):
- -------------------------------------------------------------------------------------------------------------------
Associates First Capital 350 26,163
Hartford Life Incorporated 500 24,719
Northern Trust Corporation 400 29,200
Sunamerica Incorporated 600 29,963
----------
110,045
OTHER (8.2%):
- -------------------------------------------------------------------------------------------------------------------
S&P Midcap 400 Index Depository Receipts (d) 400 28,937
S&P 500 Index Depository Receipts (d) 200 22,263
Wild Oats Markets Incorporated 600 18,938
----------
70,138
See accompanying notes to investments in securities.
10
VAM Mid-Cap Stock Fund
Investments in Securities (continued) April 30, 1998
- -------------------------------------------------------------------------------------------------------------------
MARKET
ISSUER NUMBER OF SHARES VALUE(a)
- -------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (33.6%):
- -------------------------------------------------------------------------------------------------------------------
Altera Corporation (c) 350 14,175
Analog Devices (c) 650 25,309
Aspect Development Incorporated 400 25,325
BMC Software (c) 200 18,713
Cendant Corporation 1,000 25,000
Compuware Corporation 600 29,325
Linear Technology Corporation 300 24,150
Mobius Management Systems Incorporated 2,500 46,250
Parametric Technology Corporation (c) 800 25,575
PMC-Sierra Incorporated 400 18,200
Vitesse Semiconductor (c) 300 17,306
Xilinx Incorporated (c) 350 16,013
---------
285,341
TELECOMMUNICATIONS (8.5%):
- -------------------------------------------------------------------------------------------------------------------
ADC Telecommunications Incorporated (c) 950 28,441
Genesys Telecomm Labs Incorporated (c) 500 14,969
Tellabs Incorporated (c) 400 28,350
----------
71,760
Total Investments in Common Stock (cost: $698,859) 817,603
---------
SHORT-TERM INVESTMENTS (3.8%)
- -------------------------------------------------------------------------------------------------------------------
First American Money Market 32,073 32,073
------------
Total Investments in Short-Term Investments (cost: $32,073) 32,073
------------
Total Investments in Securities (cost: $730,932)(b) $849,676
========
</TABLE>
VAM Mid-Cap Stock 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 for the Fund is
$650,951 The aggregate gross unrealized appreciation and depreciation on
investments based on this cost is:
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) Appreciation
------------ -------------- -------------
$208,330 $(10,604) $198,726
(c) Presently non-income producing security.
(d) Security is a depository receipt, traded as a common stock, consisting of
the securities held by the named index.
11
