INTERNATIONAL EQUITY FUND
ANNUAL REPORT
Dated April 30, 1997
<PAGE>
VOYAGEUR INVESTMENTS
ANNUAL REPORT
VOYAGEUR INTERNATIONAL EQUITY FUND
Dated April 30, 1997
<PAGE>
LETTER FROM THE PRESIDENT
Dear Shareholder:
As you know, on May 12, 1997, after receiving shareholder approval through a
proxy vote, the International Equity Fund was liquidated. This was due to the
acquisition of Voyageur Fund Distributors by Lincoln National Corporation, For a
period of one year following the liquidation date (May 12, 1997), shareholders
have the ability to invest their liquidated assets at net asset value (NAV) into
any of the Delaware Group Funds, including funds with comparable investment
objectives. The Delaware Group Funds are managed by the Delaware Management
Company, an indirect subsidiary of Lincoln National Corporation.
If at any time you have questions about any fund in the Delaware Group family of
funds, contact your financial adviser or the Delaware Group Shareholder Services
Department at 1-800-523-1918. The Delaware Group is committed to providing our
shareholders with the best investment products and services available in today's
financial market. Our equity funds allow you access to a wide range of sectors
within the stock market. All Delaware/Voyageur Funds are actively managed to
meet individual fund objectives.
In the pages that follow the Fund's subadvisor, Voyageur International Asset
Managers, Ltd, will discuss some points of interest related to the Fund, such as
country allocation and stock selection.
Sincerely,
/s/ John G. Taft
John G. Taft
President, Voyageur Funds
<PAGE>
VOYAGEUR INTERNATIONAL EQUITY FUND
For the fiscal year ended April 30, 1997, the Voyageur International Equity
Fund's total return at NAV was -2.06* percent for class A shares. This compares
to the performance of the Morgan Stanley EAFE Index of -0.60 percent for the
same period.*
During the fiscal year ended April 30, 1997, the Fund's performance was assisted
by its overweighting in European markets, its neutral position in Australia and
New Zealand, and its exposure to Brazil and Mexico. During the past six months
we also decreased the Fund's exposure to Singapore and Malaysia, which reported
- -17 percent and -10 percent returns in U.S. dollar terms. However, Fund
performance was hampered by such markets under performance. Also in our
decisions for country allocation, we went against the trend and maintained our
exposure in Hong Kong. This proved to be positive for the Fund since Hong Kong
was up 7 percent during the past year.
EAST VS. WEST: A QUESTION OF COUNTRY ALLOCATION
For the past year, the world's major markets were basically split in half as far
as overall performance was concerned. On one side, the Japanese and Southeast
Asian markets proved to be fairly disappointing performers. This coupled with
the weak showing of these countries' local currencies against the U.S. dollar
only further added to this region's demise. A good example of this is Japan. For
the year ended April 30, 1997, the Japanese market was off approximately 14
percent for the year. In U.S. dollar terms, it was down 46.5 percent.
Whereas the East was characterized by a decline in performance, which
con-tributed to the Fund's overall under performance, Europe was characterized
by an overall rise. Interestingly, most of the major European markets roughly
returned around 20 percent in dollar terms. This again was largely due to the
currency exchange. For example, Germany, Holland, Spain and Switzer-land all
reported more than 30 percent market rises in their local currencies. However,
due to the U.S. dollar's strength in these countries, approx-imately half of of
the local gains were lost in the translation to dollars.
The United Kingdom differed from its European cousins in that the local currency
- -- pounds -- reigned supreme. During the year ended April 30, 1997, the United
Kingdom experienced a 13.3 percent return, which translated into U.S. dollar
terms to approximately 23 percent due to the pound's strong showing.
In Europe as a whole, we were particularly overweighted in comparison to the
Morgan Stanley EAFE Index
VOYAGEUR INTERNATIONAL ASSET MANAGERS LTD. IS SUB-ADVISOR TO AND HAS DAY-TO-DAY
PORTFOLIO MANAGEMENT RESPONSIBILITY FOR THE VOYAGEUR INTERNATIONAL EQUITY FUND.
VOYAGEUR INTERNATIONAL ASSET MANAGERS LTD. IS AN INTER-NATIONAL MONEY MANAGER
BASED IN EDINBURGH, SCOTLAND.
* PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE.
<PAGE>
during the last six months. This over-weighting certainly helped boost the
Fund's performance for that period.
Our overweighting in other world markets also helped the performance of the
Voyageur International Equity Fund. These areas include Australia and New
Zealand, which had a particularly good showing for the year. In Latin America,
we tended to focus our investments in Brazil and Mexico -- two countries which
are not components of the Morgan Stanley EAFE Index. These countries proved to
be tremendous areas of opportunity for the Fund. In U.S. dollar terms, Brazil
was up 56% over the year and Mexico was up 7 percent.
STOCK SELECTION
In addition to our asset allocation decisions, your Fund's performance benefited
from our stock selection within these countries as well.
In Ireland, for example, we invested the fund in economy-sensitive stocks -- a
sector of the market we tend to shy away from in general. Ireland is currently
enjoying an economic boom period. Housing prices are rapidly rising. Consumer
growth is extremely strong. This boom has increased the attractive-ness of
economy-sensitive stocks in this area. Stock selection played an important role
in our Japanese allocation. Due to the uncertainty surrounding the Japanese
economy, we actively selected what we termed as internationally competitive
stocks. These stocks are from companies -- such as Sharp and Canon -- that can
easilly analyzed in terms of their competitors in the United States and Europe.
We also remained largely underweighted in financial stocks in Japan, which were
by far the worst performing stocks in the Japanese market.
FUND LIQUIDATION
On May 12, 1997, after receiving approval from the shareholders through a proxy
vote, the Voyageur International Equity Fund was liquidated. This was due to the
acquisition of Voyageur Fund Distributors by Lincoln National Corporation. For a
period of one year following the liquidation on May 12, 1997, shareholders have
the ability to liquidate their assets at net asset value (NAV) into any of the
Delaware Group funds, including funds with comparable investment objectives.
Delaware Group funds are managed by Delaware Management Company, an indirect
subsidiary of Lincoln National Corporation.
<PAGE>
VOYAGEUR INTERNATIONAL EQUITY FUND
Class A Shares
[CHART]
Voyageur
International
Equity Fund
----------- Morgan
With Without Stanley
Sales Sales EAFE
Charge Charge Index
------ ------ -----
9525 10000 10000
"May-94" 9525 10000 10000
9372 9840 9972
9201 9660 10113
9372 9840 10210
9648 10130 10452
9429 9900 10123
9505 9980 10460
8982 9430 9957
8667 9100 10020
8324 8740 9635
8315 8730 9607
8715 9150 10206
"Apr-95" 8972 9420 10590
9067 9520 10464
8934 9380 10280
9286 9750 10920
8991 9440 10504
9067 9520 10709
8858 9300 10421
9105 9560 10711
9458 9930 11143
9601 10080 11189
9573 10050 11226
9697 10180 11465
"Apr-96" 9935 10431 11798
9764 10251 11584
9821 10311 11652
9449 9920 11314
9554 10030 11342
9725 10210 11646
9601 10080 11530
9993 10491 11992
9984 10482 11840
9828 10318 11428
9974 10472 11618
9896 10390 11663
"Apr-97" 9731 10216 11728
<TABLE>
<CAPTION>
TOTAL RETURNS
- ---------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
- ---------------------------------------------------------------------------------------------------------
Since Since Since
1 Year 5/16/94** 1 Year 1/16/96** 1 Year 5/20/94**
<S> <C> <C> <C> <C> <C> <C>
Without
Sales Charge (2.06%) 0.73% (2.84%) 1.04% (2.77%) 0.05%
- ---------------------------------------------------------------------------------------------------------
With Sales
Charge (6.71%)* (0.91%)* (6.84%)*** (2.06%)*** (3.77%)*** 0.05%***
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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.
* Total return includes the maximum 4.75% sales charge.
** Commencement of operations.
*** Assumes redemption on April 30, 1997.
The Morgan Stanley EAFEIndex is an unmanaged index of approximately 1,000 stocks
representing the markets of 18 countries in Europe, Australia, New Zealand and
the Far East. The index is in U.S. dollars with net dividends. The index assumes
no operating expenses, transactions fees or sales charges are incurred by a
hypothetical investor who directly owns the securities maintained in the index.
In order to outperform the 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.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Voyageur Mutual Funds III, Inc.
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of Voyageur International
Equity Fund (a fund within Voyageur Mutual Funds III, Inc.) as of April 30, 1997
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
April 30, 1997 and the financial highlights for the periods presented in note 6.
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 audit.
We conducted our audit 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 sold but not 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Voyageur
International Equity Fund, at April 30, 1997 and the results of its operations,
changes in net assets and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted accounting
principles.
As discussed in note 4 to the financial statements, the Fund ceased
operations on May 12, 1997 through liquidation.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 13, 1997
<PAGE>
<TABLE>
<CAPTION>
VOYAGEUR INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1997
- ---------------------------------------------------------------------------------------
<S> <C>
ASSETS
Cash in bank on demand deposit ........................................... $1,967,442
Dividends and interest receivable (note 1) ............................... 9,774
Receivable for investment securities sold ................................ 67,502
Organizational costs (note 1) ............................................ 14,667
----------
Total assets .......................................................... 2,059,385
----------
LIABILITIES
Liability for unrealized depreciation on forward foreign currency
contracts - net (note 1) .............................................. 316
Accrued expenses ......................................................... 11,470
----------
Total liabilities ..................................................... 11,786
----------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK ....................... $2,047,599
==========
Represented by:
Capital Stock - $.01 par value (note 1) .............................. $ 2,050
Additional paid-in capital ............................................ 1,946,387
Undistributed net investment income ................................... 4,140
Accumulated net realized gain on investments and
foreign currency transactions ....................................... 88,019
Unrealized appreciation on investments in securities and translation of
other assets and liabilities denominated in foreign currencies ..... 7,003
----------
TOTAL NET ASSETS .................................................... $2,047,599
==========
Net assets applicable to outstanding Class A shares ...................... $1,905,518
==========
Net assets applicable to outstanding Class B shares ...................... $ 55,388
==========
Net assets applicable to outstanding Class C shares ...................... $ 86,693
==========
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Class A - Shares of capital stock outstanding: 190,586 (note 5) ....... $ 10.00
==========
Class B - Shares of capital stock outstanding: 5,578 (note 5) ......... $ 9.93
==========
Class C - Shares of capital stock outstanding: 8,820 (note 5) ......... $ 9.83
==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VOYAGEUR INTERNATIONAL EQUITY FUND
STATEMENT OF OPERATIONS YEAR ENDED APRIL 30, 1997
- ------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Dividends (net of foreign taxes withheld of $5,102) ....................... $ 54,392
---------
Expenses (note 2):
Investment advisory and management fee .................................... 25,973
Dividend disbursing, administrative and accounting services fees .......... 56,333
Distribution fee - Class A ................................................ 6,308
Distribution fee - Class B ................................................ 343
Distribution fee - Class C ................................................ 399
Printing, postage and supplies ............................................ 1,859
Legal fees ................................................................ 297
Custodian fees ............................................................ 14,937
Compensation of directors ................................................. 173
Audit and accounting fees ................................................. 11,380
Registration fees ......................................................... 16,402
Amortization of organizational costs ...................................... 7,334
Other expenses ............................................................ 509
---------
Total expenses .......................................................... 142,247
Less (note 2):
Expenses waived or absorbed ............................................... (77,500)
Earnings credits on uninvested cash ....................................... (12,244)
---------
Total net expenses ...................................................... 52,503
---------
Investment income - net ................................................. 1,889
---------
Realized and unrealized gain (loss) on investments and foreign currency - net:
Net realized gain (loss) from:
Investments ........................................................... 145,061
Foreign currency transactions ......................................... (11,264)
Net increase (decrease) in unrealized appreciation or depreciation of:
Investments in securities ............................................. (190,267)
Translation of other assets and liabilities denominated in foreign
currencies .......................................................... (435)
---------
Net loss on investments and foreign currency ............................ (56,905)
---------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... $ (55,016)
=========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VOYAGEUR INTERNATIONAL EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
YEAR YEAR
ENDED ENDED
APRIL 30, APRIL 30,
1997 1996
----------- -----------
<S> <C> <C>
Operations:
Investment income gain - net ............................................. $ 1,889 $ 1,463
Net realized gain on investments and foreign currency
transactions ......................................................... 133,797 55,295
Net change in unrealized appreciation or depreciation
of investments in securities and translation of other assets and
liabilities and denominated in foreign currencies .................. (190,702) 196,834
----------- -----------
Net increase (decrease) in net assets resulting
from operations ...................................................... (55,016) 253,592
----------- -----------
Distributions to shareholders from:
Investment income - net:
Class A .............................................................. (5,229) (3,259)
Net realized gain on investments:
Class A .............................................................. (43,651) --
Class B .............................................................. (526) --
Class C .............................................................. (461) --
Return of capital:
Class A .............................................................. -- (1,587)
----------- -----------
Total distributions ................................................ (49,867) (4,846)
----------- -----------
Capital share transactions (note 5):
Proceeds from sale of shares (note 2):
Class A .............................................................. 737,534 770,109
Class B .............................................................. 33,359 22,812
Class C .............................................................. 79,452 6,646
Net asset value of shares issued in reinvestment of
net investment income, return of capital and net
realized gain distributions:
Class A .......................................................... 44,956 4,437
Class B .......................................................... 776 --
Class C .......................................................... 461 --
Payments for redemption of shares:
Class A .............................................................. (1,568,329) (236,210)
Class B (note 2) ..................................................... (530) (10)
Class C .............................................................. (20,677) --
----------- -----------
Increase (decrease) in net assets from capital
share transactions ................................................... (692,998) 567,784
----------- -----------
Total increase (decrease) in net assets ............................ (797,881) 816,530
Net assets at beginning of period ......................................... 2,845,480 2,028,950
----------- -----------
Net assets at end of period (including undistributed net
investment income of $4,140 and $6,212, respectively ................... $ 2,047,599 $ 2,845,480
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
VOYAGEUR INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Voyageur International Equity Fund (the Fund), a series within
Voyageur Mutual Funds III, Inc., is registered under the Investment Company Act
of 1940 (as amended) as a diversified open-end management investment company.
The Fund seeks to provide shareholders with a high total return consistent with
reasonable risk by investing primarily in a diversified portfolio of equity
securities of companies located in countries outside the United States and
Canada. In order to prepare for the liquidation as discussed in note 4, the Fund
moved out of international equity securities prior to April 30, 1997.
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 and foreign currency transactions are
allocated to each class of shares based upon its relative net assets. Pursuant
to its articles of incorporation, Voyageur Mutual Funds III, 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.
CONCENTRATION OF RISK
Investments in countries with limited or developing capital markets may
involve greater risks than investments in more developed markets and the prices
of such investments are volatile. The consequences of political, social or
economic changes in these markets may have disruptive effects on the market
prices of the Fund's investments and the income it generates, as well as the
Fund's ability to repatriate such amounts.
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. The values of fixed income securities are determined by 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. 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 or upon receipt of ex-dividend notification
in the case of foreign securities. Interest income, including level-yield
amortization of premium and discount, is accrued daily.
FOREIGN CURRENCY TRANSLATIONS AND FORWARD FOREIGN
CURRENCY CONTRACTS
The market value of securities and other assets and liabilities
denominated in foreign currencies is translated daily into U.S. dollars at the
closing rate of exchange. Purchases and sales of securities, and the related
income and expenses are translated at the exchange rate on the transaction date.
Exchange gains (losses) may also be realized between the trade and settlement
dates on security and forward contract transactions.
The Fund does not isolate that portion of the results
<PAGE>
VOYAGEUR INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
of operations resulting from changes in foreign exchange rates on investments
from the fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain or loss
from investments.
The Fund may enter into forward foreign currency exchange contracts for
operational purposes and to protect against adverse exchange rate fluctuation.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation would be determined using foreign currency exchange rates from an
independent pricing service. The Fund would be subject to the credit risk that
the other party would not complete the obligations of the contract.
At April 30, 1997, the Fund entered into a forward currency contract
that obligated the Fund to deliver 86,605 Singapore dollars (with a U.S. Dollar
value of $59,879 as of April 30, 1997) on May 2, 1997. In exchange, the Fund
will receive $59,563 U.S. Dollars on May 2, 1997. The unrealized depreciation of
$316 on this contract is included in the accompanying financial statements.
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 the recognition of
certain foreign currency gains (losses) as ordinary income (loss) for tax
purposes and 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 statement 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 $1,268, increase accumulated net realized
gain on investment by $3,469 and decrease additional paid-in capital by $4,737
for the Fund.
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 the Fund.
ORGANIZATIONAL COSTS
Organizational costs of the Fund are being amortized over 60 months on
a straight line basis. The remaining $14,667 of unamortized organizational costs
will be reimbursed by Lincoln National Corporation.
(2) EXPENSES AND SALES CHARGES
The Fund has an investment advisory agreement with Voyageur Fund
Managers, Inc. (Voyageur). Voyageur provides the Fund with 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 1.00% of the
Fund's average daily net assets. Investment decisions for the Fund are made and
executed by Voyageur International Asset Managers, Ltd. Voyageur pays Voyageur
International Asset Managers, Ltd. for their services a sub-advisory fee equal
to .50% of average daily net assets. The Fund paid no direct fees to the
sub-advisor.
The Fund will also pay a fee to Voyageur for acting as the Fund's
transfer agent, dividend-disbursing and accounting services agent. The fee for
the Fund is equal to the sum of $1.33 per shareholder account per month, a fixed
monthly fee ranging from $3,000 to $5,000 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 expenses in connection with the performance
of transfer agency, dividend disbursing and accounting services.
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
<PAGE>
VOYAGEUR INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
expenses, custodian fees, registration fees, printing and shareholder reports,
legal and auditing fees and other miscellaneous expenses.
The Fund 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 pays Fund Distributors a monthly
distribution fee at an annual rate of .25% of the Fund's average daily net
assets of the Class A Shares and 1.00% of the Fund's average daily net assets of
the Class B and Class C Shares.
Voyageur has voluntarily agreed to pay all expenses (excluding fees
paid indirectly, stock transfer fees, taxes, interest and brokerage commissions)
which exceed 2.00% of average daily Class A net assets and 2.75% of average
daily Class B and Class C net assets for the Fund on an annual basis. During the
year ended April 30, 1997, Voyageur voluntarily absorbed $77,500 for the Fund.
The Fund earned credits on uninvested cash balances held at the custodian. The
credits earned for the year ended April 30, 1997 were $12,244 which were used to
reduce certain fees for various custodial, pricing and accounting services
provided by the custodian bank. Sales charges paid by Class A shareholders
during the year ended April 30, 1997 were $8,562 for the Fund of which Fund
Distributors received $1,202. Contingent deferred sales charges paid by Class B
shareholders during the year ended April 30, 1997 were $17 for the Fund.
(3) INVESTMENT SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities
(other than short-term securities) aggregated $1,168,257 and $3,679,118 for the
Fund during the year ended April 30, 1997.
(4) FUND REORGANIZATION AND LIQUIDATION
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. The
"assignment" of advisory agreement relating to the merger has been approved by
the Fund's Board of Directors and shareholders. LNC acquired DFG on April 30,
1997.
Also proposed was a Plan of Liquidation and Termination for the Fund
which was approved by the Fund's Board of Directors and shareholders. The Fund
was liquidated on May 12, 1997.
(5) CAPITAL STOCK
Transactions in shares during the periods shown were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------- ------------------------- --------------------
PERIOD FROM
YEAR YEAR YEAR APRIL 16, YEAR YEAR
ENDED ENDED ENDED 1996* TO ENDED ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................... 72,303 78,718 3,267 2,288 7,988 691
Shares issued for
reinvested distribution.... 4,382 448 76 -- 46 --
Shares redeemed............... (154,230) (24,280) (52) (1) (2,064) --
---------- ---------- ---------- --------- -------- --------
Increase (decrease) in shares
outstanding................ (77,545) 54,886 3,291 2,287 5,970 691
=========== ========= ======== ======= ======== ======
- ------------------------------------
* Commencement of operations
</TABLE>
<PAGE>
VOYAGEUR INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
(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>
<CAPTION>
CLASS A CLASS B
---------------------------------- ---------------------
PERIOD FROM
YEAR YEAR PERIOD FROM YEAR JANUARY 16,
ENDED ENDED MAY 16, 1994* ENDED 1996*
APRIL 30, APRIL 30, TO APRIL 30, APRIL 30, TO APRIL 30,
1997(d) 1996 1995 1997(d) 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period.................. $10.41 $ 9.42 $10.00 $10.40 $ 9.97
------ ------ ------ ------ ------
Operations:
Net investment income gain (loss).... .01 -- (.05) (.06) --
Net realized and unrealized gain (loss)
on investments and translation of
assets and liabilities in
foreign currencies............. (.22) 1.01 (.53) (.23) .43
------ ------ ------ ------ ------
Total from operations........ (.21) 1.01 (.58) (.29) .43
------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income........... (.02) (.01) -- -- --
From net realized gains.............. (.18) -- -- (.18) --
From return of capital............... -- (.01) -- -- --
------ ------ ------ ------ ------
Total distributions................ (.20) (.02) -- (.18) --
------ ------ ------ ------ ------
Net asset value:
End of period ...................... $10.00 $10.41 $ 9.42 $ 9.93 $10.40
====== ====== ===== ====== ======
Total investment return (c)............. (2.06)% 10.74% (5.80)% (2.84)% 4.31%
Net assets at end of
period (000's omitted)............... $1,906 $2,792 $2,009 $ 55 $ 24
Ratios:
Expenses to average net assets (e)... 2.47% 2.40% 1.99%(a) 3.22% 3.10%(a)
Expenses to average net assets
(net of expenses paid indirectly).. 2.00% 2.00% N/A 2.75% 2.73%(a)
Net investment income (loss) to
average net assets................. .09% .07% (.55)%(a) (.59)% (.84)%(a)
Assuming no voluntary waivers and
reimbursements and expense
reductions: (f)
Expenses ............... 5.45% 2.97% 2.97%(a) 6.18% 3.50%(a)
Net investment income
(loss)................ (2.89)% (.50)% (1.53)%(a) (3.55)% (1.24)%(a)
Portfolio turnover rate (excluding
short-term securities)............... 52.3% 66.8% 92.1% 52.3% 66.8%
Average commission rate (b)............. $0.04 N/A N/A $0.04 N/A
- ------------------------------------
* Commencement of operations
</TABLE>
<PAGE>
VOYAGEUR INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
CLASS C
------------------------------------------
YEAR YEAR PERIOD FROM
ENDED ENDED MAY 20, 1994*
APRIL 30, APRIL 30, TO APRIL 30,
1997(d) 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net asset value:
Beginning of period.......................... $10.29 $9.36 $9.99
------ ------ ------
Operations:
Net investment income gain (loss)............ (.02) (.05) (.11)
Net realized and unrealized gain (loss)
on investments and translation of
assets and liabilities in
foreign currencies..................... (.26) .98 (.52)
------ ------ ------
Total from operations................ (.28) .93 (.63)
------ ------ ------
Distributions to shareholders:
From net realized gains...................... (.18) -- --
------ ------ ------
Total distributions........................ (.18) -- --
------ ------ ------
Net asset value:
End of period .............................. $ 9.83 $10.29 $ 9.36
====== ====== ======
Total investment return (c)..................... (2.77)% 9.94% (6.31)%
Net assets at end of
period (000's omitted)....................... $87 $29 $20
Ratios:
Expenses to average net assets (e)........... 3.31% 3.15% 2.74%(a)
Expenses to average net assets
(net of expenses paid indirectly).......... 2.75% 2.75% N/A
Net investment income (loss) to
average net assets......................... (.30)% (.69)% (1.36)%(a)
Assuming no voluntary waivers and
reimbursements and expense reductions: (f)
Expenses ....................... 6.30% 3.50% 3.50%(a)
Net investment income
(loss)........................ (3.29)% (1.04)% (2.12)%(a)
Portfolio turnover rate (excluding
short-term securities)....................... 52.3% 66.8% 92.1%
Average commission rate (b)..................... $0.04 N/A N/A
- ------------------------------------
* Commencement of operations
</TABLE>
<PAGE>
VOYAGEUR INTERNATIONAL EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
Notes to Financial Highlights
(a) Adjusted to an annual basis.
(b) Begining in the year ended April 30, 1997, the average commission rate paid
per share for security transactions is a required disclosure.
(c) 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.
(d) Effective August 15, 1996, Voyageur International Asset Managers, Ltd.
replaced Murray Johnstone International, Ltd. as the investment sub-adviser
for International Equity Fund.
(e) Beginning in the period ended April 30, 1996 the expense ratio reflects the
effect of gross expenses attributable to earnings credits on uninvested
cash balances received by the Funds. Prior period expense ratios have not
been adjusted.
(f) Prior to the year ended April 30, 1997, the ratios reflect the most
restrictive state limitation in effect.
<PAGE>
VOYAGEUR INTERNATIONAL EQUITY FUND
SHAREHOLDER MEETING RESULTS
- --------------------------------------------------------------------------------
A meeting of the fund's shareholders was held on April 11, 1997. The meeting
results including the number of votes cast for, against or withheld, the number
of abstentions, and the number of broker non-votes with the respect to such
matter, are set forth below.
1. The fund's shareholders elected the following directors:
Shares Shares Withholding
Voted "For" Authority to Vote
----------- ------------------
Walter P. Babich............. 205,785 --
Anthony D. Knerr............. 205,785 --
Ann R. Leven................. 205,785 --
W. Thacher Longstreth........ 205,785 --
Thomas F. Madison............ 205,785 --
Jeffrey J. Nick.............. 205,785 --
Charles E. Peck.............. 205,785 --
Wayne A. Stork............... 205,785 --
2. The following votes were cast concerning the liquidation of
the fund and the distribution of the fund's net assets to
shareholders:
Broker
Voted "For" Voted "Against" Abstentions Non Votes
----------- --------------- ----------- ---------
202,191 99 529 2,966
<PAGE>
FEDERAL INCOME TAX INFORMATION
- -------------------------------------------------------------------------------
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the periods ended April
30, 1997 shown below. 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>
<CAPTION>
VOYAGEUR INTERNATIONAL EQUITY FUND
-----------------------------------
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
--------- --------- ---------
YEAR YEAR YEAR
ENDED ENDED ENDED
APRIL 30, APRIL 30, APRIL 30,
1997 1997 1997
------- ------- -------
<S> <C> <C> <C>
Net investment income distribution................. $ .0215 $ -- $ --
Long-term capital gain distribution................ .0637 .0637 .0637
Short-term capital gain distribution............... .1158 .1158 .1158
------- ------- -------
Total distributions............................. $ .2010 $ .1795 $ .1795
======= ======= =======
</TABLE>
The short-term capital gain distributions above are taxable as ordinary income
to shareholders for federal and state income tax purposes.
<TABLE>
<CAPTION>
VOYAGEUR INTERNATIONAL EQUITY FUND
----------------------------------
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
--------- --------- ---------
PERIOD PERIOD PERIOD
ENDED ENDED ENDED
MAY 12, MAY 12, MAY 12,
1997 1997 1997
------- ------- -------
<S> <C> <C> <C>
Long-term capital gain distribution................ $ .1790 $ .1790 $ .1790
Short-term capital gain distribution............... .3206 .3206 .3206
------- ------- -------
Total distributions............................. $ .4996 $ .4996 $ .4996
======= ======= =======
</TABLE>
VOY-IEAR 6/97
