VOYAGEUR
YOUR TAX SENSITIVE INVESTMENT MANAGER
ARIZONA TAX FREE FUND
ARIZONA INSURED TAX FREE FUND
A N N U A L R E P O R T
DATED DECEMBER 31, 1996
Voyageur offers a family of mutual funds, each with an individual objective
stated in its prospectus. Investment objectives of the funds range from high
current income to long-term capital appreciation. Exchange privileges allow you
to change your investment between Voyageur Funds as your objectives or market
conditions change.
VOYAGEUR HIGH YIELD FUNDS seek high current income free from both Federal income
taxes and state income taxes (where applicable). The Funds invest in medium and
lower grade municipal bonds.
Voyageur MINNESOTA High Yield Municipal Bond Fund
Voyageur NATIONAL High Yield Municipal Bond Fund
VOYAGEUR TAX FREE FUNDS seek high current income free from both Federal income
taxes and state income taxes (where applicable). The Funds invest in investment
grade municipal bonds.
<TABLE>
<S> <C>
Voyageur ARIZONA Tax Free Fund Voyageur MINNESOTA Tax Free Fund
Voyageur CALIFORNIA Tax Free Fund Voyageur NATIONAL Tax Free Fund
Voyageur COLORADO Tax Free Fund Voyageur NEW MEXICO Tax Free Fund
Voyageur FLORIDA Tax Free Fund Voyageur NEW YORK Tax Free Fund
Voyageur IDAHO Tax Free Fund Voyageur NORTH DAKOTA Tax Free Fund
Voyageur IOWA Tax Free Fund Voyageur UTAH Tax Free Fund
Voyageur KANSAS Tax Free Fund Voyageur WISCONSIN Tax Free Fund
</TABLE>
VOYAGEUR INSURED TAX FREE FUNDS seek high current income free from both Federal
income taxes and state income taxes (where applicable) with the added safety of
an insured portfolio. The Funds invest in insured municipal bonds.
<TABLE>
<S> <C> <C>
Voyageur ARIZONA Insured Tax Free Fund Voyageur MISSOURI Insured Tax Free Fund
Voyageur CALIFORNIA Insured Tax Free Fund Voyageur NATIONAL Insured Tax Free Fund
Voyageur FLORIDA Insured Tax Free Fund Voyageur OREGON Insured Tax Free Fund
Voyageur MINNESOTA Insured Fund Voyageur WASHINGTON Insured Tax Free Fund
</TABLE>
VOYAGEUR LIMITED TERM FUNDS seek to preserve original investment principal while
providing income free from both Federal income taxes and state income taxes
(where applicable). The Funds invest in intermediate term investment grade
municipal bonds.
<TABLE>
<S> <C> <C>
Voyageur FLORIDA Limited Term Tax Free Fund Voyageur NATIONAL Limited Term Tax Free Fund
Voyageur MINNESOTA Limited Term Tax Free Fund
</TABLE>
VOYAGEUR EQUITY FUNDS seek long term capital appreciation by investing in common
stocks.
<TABLE>
<S> <C> <C>
Voyageur AGGRESSIVE GROWTH Fund Voyageur GROWTH Stock Fund
Voyageur GROWTH AND INCOME Fund Voyageur INTERNATIONAL Equity Fund
</TABLE>
VOYAGEUR INCOME FUNDS seek high current income from investments issued,
guaranteed or otherwise backed by the full faith and credit of the U.S.
Government.
Voyageur U.S. GOVERNMENT SECURITIES Fund
VOYAGEUR CASH TRUST SERIES MONEY MARKET FUNDS seek high current income,
principal protection and liquidity by investing in money market instruments.
<TABLE>
<S> <C> <C>
Voyageur CALIFORNIA MUNICIPAL CASH Series Voyageur MUNICIPAL CASH Series
Voyageur FLORIDA MUNICIPAL CASH Series Voyageur OHIO MUNICIPAL CASH Series
Voyageur GOVERNMENT CASH Series Voyageur PRIME CASH Series
Voyageur MINNESOTA MUNICIPAL CASH Series Voyageur TREASURY CASH Series
</TABLE>
For more complete information regarding the investment objectives, fees and
expenses of the Funds, please obtain a prospectus from your Investment
Representative or from Voyageur, 90 South Seventh Street, Suite 4400,
Minneapolis, MN 55402-4115; (612) 376-7044 (local); 800-525-6584 (MKTG).
LETTER FROM THE PRESIDENT
[PHOTO] JOHN G. TAFT
PRESIDENT
Dear Shareholder:
The year 1996 was marked with mixed economic events. During the first half of
the year, interest rates rose steadily, propelled by market fears that faster
Gross Domestic Product (GDP) growth would ignite inflation. Once these fears
abated in June, interest rates began a descent that lasted throughout most of
the remainder of the year.
In comparison to their peer group of funds, the overall performance of the
Voyageur Tax Free Funds was excellent in 1996. The main reason for this strong
performance was Voyageur portfolio managers' subtle shift toward adding income
to the portfolios. This additional income allowed us to better position the
Funds during the first half of the year when interest rates were rising and
municipal bond prices were falling. Within all of our Tax Free Funds, we
continued to extend call protection, where possible, in order to better provide
for income for longer periods of time.
In January 1997, Lincoln National Corporation (NYSE: LNC) announced that it
planned to acquire the parent company of Voyageur Fund Managers, Inc. -- the
investment adviser for the Voyageur Tax Free Funds. LNC, with headquarters in
Fort Wayne, Indiana, is a diversified organization with operations in many
aspects of the financial services industry, including insurance and investment
management. Delaware Management Company, Inc. (DMC), an indirect wholly owned
subsidiary of LNC, and its affiliate, Delaware International Advisers Ltd.,
serve as the investment advisers to the investment companies in the Delaware
Group of Funds (the Delaware Group), which currently includes 16 open-end funds
and two closed-end funds (comprising 48 separate investment portfolios). DMC
through its Delaware Investment Advisers division, Delaware International
Advisers Ltd. and certain other subsidiaries of Delaware Management Holdings,
Inc. (DMH) also provides investment advice with respect to separately managed
accounts of institutional and other clients. DMH, through its subsidiaries, is
responsible for the management of approximately $32 billion. Voyageur Fund
shareholders should benefit from this acquisition by being able to select from a
wider variety of mutual funds in the expanded Delaware-Voyageur fund family.
Delaware Management, like Voyageur, has a conservative, long-term investment
philosophy. The continuity in the Voyageur Tax Free Funds' management styles
should also be further maintained since Andrew M. McCullagh and Elizabeth
Howell, two of the senior municipal bond portfolio managers for the Voyageur Tax
Free Funds, will continue to play a key role in the management of the Voyageur
Tax Free Funds after the transition.
We appreciate your patronage and confidence in Voyageur Fund Managers. If at any
time you have questions about your Voyageur fund investment, I urge you to
contact your personal financial adviser or Voyageur Client Service
representatives are available from 7 a.m. to 6 p.m. (Central Standard Time) to
answer any questions you may have concerning this transaction or your Voyageur
fund investment.
Sincerely,
/s/ John G. Taft
John G. Taft
President
Voyageur Arizona Tax Free Fund
Voyageur Arizona Insured Tax Free Fund
VOYAGEUR ARIZONA INSURED TAX FREE FUND
[PHOTO]
ANDRES M. McCULLAGH, JR. IS
THE SENIOR MUNICIPAL BOND
MANAGER FOR THE VOYAGEUR
ARIZONA INSURED TAX FREE
FUND AND THE VOYAGEUR
ARIZONA TAX FREE FUND. MR.
McCULLAGH HAS MORE THAN 23
YEAR OF INVESTMENT INDUSTRY
EXPERIENCE.
* PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS
** LIPPER RANKINGS ARE BASED
ON TOTAL RETURNS AND DO NOT
INCLUDE THE EFFECTS OF SALES
CHARGES. VOYAGEUR TOTAL RETURN
PERFORMANCE NUMBERS MAY
VARY SLIGHTLY FROM LIPPER
NUMBERS DUE TO A DIFFERENCE
IN ACCRUAL PERIODS.
INSURANCE PERTAINS ONLY TO THE
TIMELY PAYMENT OF PRINCIPAL
AND INTEREST BY THE SECURITIES
IN THE VOYAGEUR ARIZONA
INSURED TAX FREE FUND'S
PORTFOLIO. THE VALUE OF THE
INSURED SECURITIES AND THE
FUND ITSELF WILL FLUCTUATE DUE
TO CHANGING MARKET
CONDITIONS. NO REPRESENTATION
IS MADE AS TO ANY INSURER'S
ABILITY TO MEET ITS COMMITMENT.
For the year ended December 31, 1996, the total returns at net asset value (NAV)
for the class A shares of the Voyageur Arizona Tax Free Funds were as follows:
Voyageur Arizona Tax Free Fund 5.48%* and Voyageur Arizona Insured Tax Free Fund
4.09%.*
Last year was an exceptional year for the Arizona Tax Free Funds. According to
Lipper Analytical Services the Voyageur Arizona Insured Tax Free Fund is ranked
in the top quartile of Arizona municipal bond funds for total return for the
year ended December 31, 1996. For the same time frame, the Arizona Tax Free Fund
ranked first out of 35 Arizona tax free funds according to Lipper.** The reason
for the excellent performance of these funds during 1996 was due primarily to
the Funds' relatively shorter duration in comparison to other Arizona tax free
funds.
The major management thrust in the Voyageur Arizona Tax Free Funds has been to
increase shareholders' tax-exempt income and extend call protection. In the
Voyageur Arizona Insured Tax Free Fund, we adhere to purchasing only the highest
quality municipal bonds. However, in the Voyageur Arizona Tax Free Fund, we
traded some AAA-rated bonds for A-rated holdings which resulted in increased
dividend income. Because Arizona currently enjoys a brisk economy, we believe we
are able to lower the Fund's credit quality without significantly increasing
credit risk. To better provide for the income stream for as long as possible, we
have extended call protection. We have sold bonds that can be called in the
nearer term and replaced them with bonds that have longer call features. We
believe these changes will better provide for your income stream further into
the future. This is especially important if, as we anticipate, the U.S. economy
slows in the first half of 1997 and interest rates decline.
OUTLOOK
The U.S. economy is still showing signs of moderate growth with moderate
inflation. Our outlook for the municipal market continues to be favorable, and
we expect interest rates to decline over the long term.
Arizona has one of the strongest economies in the United States, spurred by the
influx of people and businesses moving into the state, especially from
California. The supply of Arizona municipal bond issues is very limited. As a
result, Arizona municipal issues have a tendency to trade at a premium in
comparison to bond issues in other states. This additional strength caused by
the scarcity of these issues helps protect Arizona issues from interest rate
volatility.
VOYAGEUR ARIZONA TAX FREE FUNDS
Portfolio Abstract
For the Period Ended December 31, 1996
Class A Shares
[GRAPH]
<TABLE>
<CAPTION>
AZ Tax Free AZ Tax Free Lehman Bros. 20
Without Sales Charge With Sales Charge Year Municipal Bond Index
<S> <C> <C> <C>
Mar-95 10000 9625 10000
10082 9704 10110
10098 9719 10108
10509 10115 10489
10364 9975 10327
10393 10003 10381
10546 10150 10523
10730 10328 10606
11018 10605 10832
11214 10794 11072
11326 10901 11227
11378 10951 11284
11290 10867 11155
11117 10701 10977
11126 10708 10933
11188 10768 10946
11305 10881 11100
11456 11026 11209
11475 11045 11191
11627 11191 11417
11779 11337 11554
11976 11527 11796
Dec-96 11947 11499 11726
</TABLE>
Voyageur Arizona Tax Free Fund Without Sales Charge - Ending Value $11,947
Voyageur Arizona Tax Free Fund With Sales Charge - Ending Value $11,499
Lehman Bros. 20 Year Municipal Bond Index - Ending Value $11,726
The Lehman Bros. 20 Year Municipal Bond Index is a broad, unmanaged index of
securities of United States Municipalities. The index assumes that no operating
expenses, transaction fees or sales loads are incurred by a hypothetical
investor who directly owns the securities maintained in the index. In order to
outperform an index over any specific time frame, a fund must return to
investors an amount greater than that provided by the index plus total operating
expenses. For this reason, few fixed income funds are able to outperform broad
market indices over the long term. The chart above is comprised of data that
represents the cumulative total return of a hypothetical investment in Class A
Shares of $10,000 made on the date the Fund commenced operations through
December 31, 1996.
The performance of separate classes will vary based on the differences
in sales loads and distribution fees paid by shareholders investing in
the different classes. Performance quoted represents past performance
and is not indicative of future results.
* Average annual total returns include the maximum 3.75% sales charge.
** Commencement of operations.
*** Assumes redemption on December 31, 1996
Voyageur Arizona Tax Free Fund
Average Annual Total Returns
(Class A Shares)
Since
1 Year 3/2/95**
Without Sales Charge 5.48% 10.16%
With Sales Charge* 1.53% 7.90%
Lehman Bros. 20 4.45% 9.09%
Year Municipal
Bond Index
Voyageur Arizona Tax Free Fund
Average Annual Total Returns
(Class B Shares)
Since
1 Year 6/29/95**
Without Contingent 4.84% 8.39%
Deferred Sales Charge
With Contingent (0.16%) 5.84%
Deferred Sales Charge***
Voyageur Arizona Tax Free Fund
Average Annual Total Returns
(Class C Shares)
Since
1 Year 5/13/95**
4.70% 8.64%
Quality Breakdown
[PIE CHART]
Aa/AA 1%
Baa/BBB 10%
A/A 36%
Aaa/AAA 53%
Sector Breadown
(Shown As % Of Total Net Assets)
Housing 38.0%
General Obligation 27.2%
Industrial 13.9%
Health Care 9.3%
Utilities 7.9%
Lease/C.O.P. 1.6%
STATISTICS
Average Maturity 14.9 Years
Average Coupon 6.19%
Portfolio Duration 8.8 Years
Average Quality Aa/AA
VOYAGEUR ARIZONA INSURED TAX FREE FUND
Portfolio Abstract
For the Period Ended December 31, 1996
Class A Shares
[GRAPH]
<TABLE>
<CAPTION>
AZ Insured Tax Free AZ Insured Tax Free Lehman Bros. Long Insured
Without Sales Charge With Sales Charge Municipal Bond Index
<S> <C> <C> <C>
Apr-91 10000 9625 10000
10097 9718 10137
10237 9853 10236
10227 9843 10212
10358 9970 10340
10481 10088 10479
10697 10296 10619
10801 10396 10719
10852 10445 10734
Dec-91 10996 10584 10979
11015 10602 11011
11011 10598 11008
11027 10614 11008
11109 10692 11105
11277 10854 11236
11458 11028 11438
11815 11371 11834
11635 11199 11686
11728 11289 11743
11644 11207 11608
11939 11491 11874
Dec-92 12080 11627 12002
12187 11730 12136
11451 11021 12628
12595 12123 12476
12748 12270 12622
12786 12307 12704
13045 12556 12918
13131 12638 12945
13392 12890 13224
13467 12962 13379
13517 13010 13396
13354 12853 13270
Dec-93 13607 13096 13566
13871 13351 13723
13509 13003 13340
12913 12429 12715
12778 12299 12844
12923 12439 12969
12847 12365 12873
13093 12602 13142
13116 12624 13159
12876 12394 12942
12598 12126 12679
12255 11795 12450
Dec-94 12598 12126 12755
13030 12541 13178
13553 13045 13584
13690 13177 13735
13698 13184 13747
14136 13606 14211
14013 13488 14054
14087 13559 14167
14268 13733 14358
14435 13894 14457
14630 14082 14703
14877 14319 14968
Dec-95 15004 14441 15122
15118 14551 15232
15028 14465 15110
14775 14221 14890
14753 14200 14839
14744 14191 14832
14874 14316 15005
15018 14454 15143
15050 14486 15137
15223 14652 15360
15411 14833 15541
15683 15095 15847
Dec-96 15618 15032 15765
</TABLE>
Voyageur Arizona Insured Tax Free Fund Without Sales Charge - Ending Value
$15,619
Voyageur Arizona Insured Tax Free Fund With Sales Charge - Ending Value $15,033
Lehman Bros. Long Insured Municipal Bond Index - Ending Value $15,765
The Lehman Bros. Long Insured Municipal Bond Index is a broad, unmanaged index
of securities of United States Municipalities. The index assumes that no
operating expenses, transaction fees or sales loads are incurred by a
hypothetical investor who directly owns the securities maintained in the index.
In order to outperform an index over any specific time frame, a fund must return
to investors an amount greater than that provided by the index plus total
operating expenses. For this reason, few fixed income funds are able to
outperform broad market indices over the long term. The chart above is comprised
of data that represents the cumulative total return of a hypothetical investment
in Class A Shares of $10,000 made on the date the Fund commenced operations
through December 31, 1996.
The performance of separate classes will vary based on the differences
in sales loads and distribution fees paid by shareholders investing in
the different classes. Performance quoted represents past performance
and is not indicative of future results.
* Average annual total returns include the maximum 3.75% sales charge.
** Commencement of operations.
*** Assumes redemption on December 31, 1996
Voyageur Arizona Insured Tax Free Fund
Average Annual Total Returns
(Class A Shares)
Since
1 Year 5 Years 4/1/91**
Without Sales Charge 4.09% 7.26% 8.05%
With Sales Charge* 0.19% 6.44% 7.34%
Lehman Bros. Long 4.25% 7.50% 8.24%
Insured Municipal
Bond Index
Voyageur Arizona Insured Tax Free Fund
Average Annual Total Returns
(Class B Shares)
Since
1 Year 3/10/95**
Without Contingent 3.32% 7.49%
Deferred Sales Charge
With Contingent (1.68%) 5.40%
Deferred Sales Charge***
Voyageur Arizona Insured Tax Free Fund
Average Annual Total Returns
(Class C Shares)
Since
1 Year 5/26/94**
3.18% 6.69%
Sector Breakdown
(Shown As % Of Total Net Assets)
General Obligation 56.2%
Health Care 9.2%
Education 7.8%
Utilities 6.6%
Housing 6.2%
Industrial 4.6%
Transportation 3.0%
Lease/C.O.P. 2.9%
Pre-Refunded/Escrow 1.8%
Other Revenue 1.5%
Statistics
Average Maturity 11.3 Years
Average Coupon 5.97%
Portfolio Duration 7.5 Years
Average Quality Aaa/AAA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Voyageur Mutual Funds, Inc.
Voyageur Insured Funds, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments in securities, of Voyageur Arizona Tax
Free Fund (a fund within Voyageur Mutual Funds, Inc.) and Voyageur Arizona
Insured Tax Free Fund (a fund within Voyageur Insured Funds, Inc.) as of
December 31, 1996, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the years in the
two-year period ended December 31, 1996 (year ended December 31, 1996 and the
period from March 2, 1995 to December 31, 1995 for Voyageur Arizona Tax Free
Fund) and the financial highlights for the year ended December 31, 1996 and the
period from March 2, 1995 to December 31, 1995 for Voyageur Arizona Tax Free
Fund and for each of the years in the five-year period ended December 31, 1996
for Voyaguer Arizona Insured Tax Free Fund. These financial statements and the
financial highlights are the responsibility of Fund management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody are confirmed to us by the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Voyageur Arizona Tax Free Fund and Voyageur Arizona Insured Tax Free Fund as of
December 31, 1996 and the results of their operations, the 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
February 14, 1997
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------------------------
VOYAGEUR VOYAGEUR
ARIZONA ARIZONA
TAX FREE INSURED
FUND TAX FREE FUND
------------- -------------
ASSETS
<S> <C> <C>
Investments in securities, at market value (note 1)
(identified cost: $12,739,558 and $203,348,459, respectively) ........... $ 13,044,945 $ 212,441,294
Cash in bank on demand deposit ............................................. 7,601 --
Accrued interest receivable ................................................ 327,849 5,192,890
Receivable for Fund shares sold ............................................ 4,811 9,410
------------- -------------
Total assets ............................................................ 13,385,206 217,643,594
------------- -------------
LIABILITIES
Bank overdraft ............................................................. -- 3,648,013
Dividends payable to shareholders .......................................... 100,456 846,257
Payable for Fund shares redeemed ........................................... -- 146,956
Distribution fees payable .................................................. 7,461 37,207
Other accrued expenses ..................................................... 8,858 42,798
------------- -------------
Total liabilities ....................................................... 116,775 4,721,231
------------- -------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES ................................ $ 13,268,431 $ 212,922,363
============= =============
Represented by:
Capital Stock - $.01 par value (note 1) ................................. $ 12,403 $ 192,554
Additional paid-in capital .............................................. 12,949,703 209,338,277
Undistributed net investment income ..................................... 938 117,775
Accumulated net realized loss on investments (note 1) ................... -- (5,819,078)
Unrealized appreciation of investments .................................. 305,387 9,092,835
------------- -------------
TOTAL NET ASSETS ...................................................... $ 13,268,431 $ 212,922,363
============= =============
Net assets applicable to outstanding Class A Shares ........................ $ 9,755,083 $ 209,258,103
============= =============
Net assets applicable to outstanding Class B Shares ........................ $ 3,490,651 $ 3,110,071
============= =============
Net assets applicable to outstanding Class C Shares ........................ $ 22,697 $ 554,189
============= =============
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Class A - Shares of Capital Stock outstanding:
911,692 and 18,923,862, respectively (note 5) ......................... $ 10.70 $ 11.06
============= =============
Class B - Shares of Capital Stock outstanding:
326,539 and 281,457, respectively (note 5) ............................ $ 10.69 $ 11.05
============= =============
Class C - Shares of Capital Stock outstanding:
2,120 and 50,124, respectively (note 5) ............................... $ 10.71 $ 11.06
============= =============
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------
VOYAGEUR VOYAGEUR
ARIZONA ARIZONA
TAX FREE INSURED
FUND TAX FREE FUND
------------ ------------
<S> <C> <C>
Investment income:
Interest .............................................. $ 653,895 $ 12,783,203
------------ ------------
Expenses (note 3):
Investment advisory and management fee ................ 55,464 1,119,609
Dividend-disbursing, administrative and
accounting services fees ............................ 36,595 307,939
Printing, postage and supplies ........................ 4,040 35,997
Audit and accounting fees ............................. 5,430 23,281
Legal fees ............................................ 153 8,284
Distribution fees - Class A ........................... 21,058 551,781
Distribution fees - Class B ........................... 26,502 25,838
Distribution fees - Class C ........................... 240 5,529
Directors' fees ....................................... 401 14,512
Registration fees ..................................... 7,190 4,360
Custodian fees ........................................ 3,208 24,868
Amortization of organizational costs .................. -- 989
Other ................................................. 1,046 21,467
------------ ------------
Total expenses ...................................... 161,327 2,144,454
Less: Expenses waived or absorbed .................... (92,854) (293,789)
------------ ------------
Net expenses before earnings credits on uninvested cash 68,473 1,850,665
Less: Earnings credits on uninvested cash ............ (496) --
------------ ------------
Total net expenses .................................. 67,977 1,850,665
------------ ------------
Investment income - net ............................. 585,918 10,932,538
------------ ------------
Realized and unrealized gain (loss) on investments:
Realized gain on security transactions (note 2) ....... 43,350 10,306
Net change in unrealized appreciation or
depreciation of investments ......................... 48,393 (2,489,648)
------------ ------------
Net gain (loss) on investments .................... 91,743 (2,479,342)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..... $ 677,661 $ 8,453,196
============ ============
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------
VOYAGEUR ARIZONA VOYAGEUR ARIZONA
TAX FREE FUND INSURED TAX FREE FUND
------------------------------ ------------------------------
YEAR PERIOD FROM YEAR YEAR
ENDED MARCH 2, 1995* TO ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operations:
Investment income - net ............................. $ 585,918 $ 147,142 $ 10,932,538 $ 12,394,266
Realized gain (loss) on security transactions ....... 43,350 63,613 10,306 (4,354,009)
Net change in unrealized appreciation or
depreciation of investments ....................... 48,393 256,994 (2,489,648) 34,718,495
------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations ............................... 677,661 467,749 8,453,196 42,758,752
------------- ------------- ------------- -------------
Distributions to shareholders from:
Investment income - net:
Class A ........................................... (458,456) (128,887) (10,689,424) (12,708,693)
Class B ........................................... (126,098) (16,909) (104,095) (27,389)
Class C ........................................... (1,140) (632) (21,813) (18,214)
Net realized gain on investments:
Class A ........................................... (32,110) (50,072) -- --
Class B ........................................... (11,166) (13,321) -- --
Class C ........................................... (74) (220) -- --
------------- ------------- ------------- -------------
Total distributions ............................. (629,044) (210,041) (10,815,332) (12,754,296)
------------- ------------- ------------- -------------
Capital share transactions (note 5):
Proceeds from sale of shares:
Class A (note 3) .................................. 4,078,229 8,960,629 12,580,493 26,364,916
Class B ........................................... 1,938,750 1,591,690 1,108,948 2,091,045
Class C ........................................... 1,991 25,000 369,065 209,435
Net asset value of shares issued in reinvestment of
net investment income and realized gain
distributions:
Class A ....................................... 255,437 61,500 4,229,553 5,516,791
Class B ....................................... 71,011 4,786 60,679 17,097
Class C ....................................... 1,371 508 19,176 15,604
Payments for redemption of shares:
Class A ........................................... (821,165) (3,011,550) (43,310,737) (55,399,770)
Class B (note 3) .................................. (179,787) (8,880) (107,429) (120,225)
Class C ........................................... (7,414) -- (367,793) (58,336)
------------- ------------- ------------- -------------
Increase (decrease) in net assets from capital
share transactions ............................... 5,338,423 7,623,683 (25,418,045) (21,363,443)
------------- ------------- ------------- -------------
Total increase (decrease) in net assets ......... 5,387,040 7,881,391 (27,780,181) 8,641,013
Net assets at beginning of period ...................... 7,881,391 -- 240,702,544 232,061,531
------------- ------------- ------------- -------------
Net assets at end of period (including undistributed net
investment income of $938, $714, $117,775,
and $569, respectively) ........................... $ 13,268,431 $ 7,881,391 $ 212,922,363 $ 240,702,544
============= ============= ============= =============
- ------------------------------
* Commencement of operations.
See accompanying notes to financial statements.
</TABLE>
THE VOYAGEUR FUNDS
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Voyageur Arizona Tax Free Fund (Arizona Tax Free Fund), a series of Voyageur
Mutual Funds, Inc. is registered under the Investment Company Act of 1940 (as
amended) as a non-diversified, open-end management investment company. Voyageur
Arizona Insured Tax Free Fund (Arizona Insured Tax Free Fund), a series of
Voyageur Insured Funds, Inc. is registered under the Investment Company Act of
1940 (as amended) as a diversified, open-end management investment company.
Arizona Tax Free Fund seeks high current income free from both federal and state
income taxes by investing in investment grade municipal bonds. Arizona Insured
Tax Free Fund seeks high current income free from both federal and state income
taxes with the added safety of an insured portfolio by investing in insured
municipal bonds.
Arizona Tax Free Fund and Arizona Insured Tax Free Fund (the Funds) offer
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 automatically convert to Class A Shares after eight years. Class C
Shares may be subject to a contingent deferred sales charge and have no
conversion feature. Each class of shares has identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that the
level of distribution fees charged differs between classes. Income, expenses
(other than expenses incurred under each class' Distribution Agreement) and
realized and unrealized gains or losses on investments are allocated to each
class of shares based upon its relative net assets.
Pursuant to each entity's amended articles of incorporation, Voyageur Insured
Funds, Inc. and Voyageur Mutual Funds, Inc. each have 10 trillion shares of
authorized capital stock that may be issued in one or more series.
The significant accounting policies followed by the Funds are summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net increases (decreases) in net assets resulting from
operations during the reporting period. Actual results could differ from those
estimates.
INVESTMENTS IN SECURITIES
The values of fixed income securities are determined using pricing services
or prices quoted by independent brokers. When market quotations are not readily
available, or in certain other circumstances, securities are valued at fair
value according to methods selected in good faith by the Board of Directors.
Short-term securities are valued at amortized cost which approximates market
value.
Security transactions are accounted for on the trade date. Securities gains
and losses are calculated on the identified-cost basis. Interest income,
including level-yield amortization of premium and original issue discount, is
accrued daily.
Each of the Funds concentrates its investments in a single state, and
therefore may have more credit risk related to the economic conditions of the
state of Arizona than a portfolio with broader geographical diversification.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities which have been purchased by the Funds on
a forward commitment or when-issued basis can take place up to a month or more
after the transaction date. During this period, such securities are subject to
market fluctuations and the portfolio maintains, in a segregated account with
its custodian, assets with a market value equal to or greater than the amount of
its purchase commitments.
ORGANIZATIONAL COSTS
Organizational costs are being amortized over 60 months on a straight line
basis for Arizona Insured Tax Free Fund.
FEDERAL TAXES
Each 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 Funds. Net investment income and net realized
gains (losses) for each Fund may differ for financial statement and tax purposes
primarily because of losses deferred for tax purposes due to "wash sale"
transactions. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. The effect on dividend
distributions on certain book-to-tax differences is reflected as excess
distributions of net realized gains in the statement of changes in net assets.
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 each Fund.
For federal income tax purposes, at December 31, 1996, the Arizona Insured
Tax Free Fund had a capital loss carryover of $5,819,078 that will expire in
2003 if not offset by subsequent capital gains. It is unlikely that the Board of
Directors will authorize a distribution of any net realized capital gains until
the available capital loss carryover has been offset or expires.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends declared daily from net investment income are payable monthly in
cash or reinvested in additional shares of each Fund. Net short-term realized
capital gains, if any, may be paid throughout the year and net long-term
realized capital gains, when available, are distributed annually.
ILLIQUID SECURITIES
At December 31, 1996, investments in securities for the Funds may include
issues that are illiquid. The Funds currently limit investments in illiquid
securities to 15% of net assets, at market value, at the date of purchase. For
Arizona Insured Tax Free Fund, the aggregate value of such securities at
December 31, 1996, was $11,971,168 which represents 5.6% of net assets.
(2) SECURITIES TRANSACTIONS
Purchase cost and proceeds from sales of securities other than short-term
securities aggregated $12,909,624 and $7,553,057 for Arizona Tax Free Fund and
$95,884,718 and $115,693,253 for Arizona Insured Tax Free Fund, respectively,
during the year ended December 31, 1996.
(3) EXPENSES
Each Fund has an investment advisory and management agreement with Voyageur
Fund Managers, Inc. (Voyageur) under which Voyageur manages the Funds' assets
and provides other specified services. The fee for investment management and
advisory services is paid monthly and is based on the average daily net assets
of each Fund at the annual rate of .50%. In addition, each Fund will pay most
other operating expenses including directors' fees, registration fees, printing
of shareholder reports, legal and auditing services and other miscellaneous
expenses. There was no portfolio insurance expense for Arizona Insured Tax Free
Fund during the year ended December 31, 1996. Portfolio insurance expense, if
any, is recognized over the premium period. Voyageur is obligated to pay all
expenses of each Fund(excluding distribution fees, insurance premiums on
portfolio securities, taxes, interest and brokerage commissions) which exceed 1%
of average daily net assets, on an annual basis. During the year ended December
31, 1996 Voyageur absorbed $2,453 pursuant to the contractual 1% expense
limitation and, excluding waiver of distribution fees, voluntarily absorbed
$87,547 for Arizona Tax Free Fund.
Each Fund will also pay a fee to Voyageur for acting as the Fund's dividend
disbursing, administrative and accounting services agent. The fee is paid
monthly and is equal to the sum of $1.33 per shareholder account per month, a
fixed monthly fee ranging from $1,000 to $1,500 based on the level of each
Fund's average daily net assets and an annualized percentage of average daily
net assets at reducing rates from .11% to .02%. Each Fund is also responsible
for reimbursing Voyageur's out-of-pocket expense in connection with the
performance of dividend-disbursing, administrative and accounting services.
Each class of shares has a Distribution Agreement under Rule 12b-1 of the
Investment Company Act of 1940 with Voyageur Fund Distributors, Inc. (Fund
Distributors). Under these plans each Fund is obligated to pay Fund Distributors
a monthly distribution fee at an annual rate of .25% of average daily net assets
of the Class A Shares and 1.00% of average daily net assets of the Class B and
Class C Shares. Fund Distributors may waive all or part of its distribution fee
at its sole discretion. During the year ended December 31, 1996, Fund
Distributors voluntarily waived Class B distribution fees of $2,854 for Arizona
Tax Free Fund and Class A distribution fees of $290,833 and Class B distribution
fees of $2,956 for Arizona Insured Tax Free Fund. During the year ended December
31, 1996 Arizona Tax Free Fund earned $496 in credits on uninvested cash
balances held by the Fund at the custodian. These credits were used to reduce
expenses for various custodial services provided by the custodian bank.
During the year ended December 31, 1996, sales charges paid by Class A
shareholders were $104,978 for Arizona Tax Free Fund and $339,087 for Arizona
Insured Tax Free Fund. Of theses amounts, Fund Distributors received $13,217 for
Arizona Tax Free Fund and $40,338 from Arizona Insured Tax Free Fund. Contingent
deferred sales charges paid by Class B shareholders were $5,674 and $3,776 for
Arizona Tax Free Fund and Arizona Insured Tax Free Fund, respectively.
(4) PLANNED FUND REORGANIZATION
On January 15, 1997 Voyageur's parent, Dougherty Financial Group, Inc.
("DFG"), executed an agreement and plan of merger with Lincoln National
Corporation ("LNC") pursuant to which LNC would acquire DFG, including the
mutual fund investment advisory business of DFG conducted by Voyageur. This
merger is subject to approval of the Funds' Board of Directors and shareholders.
(5) SHARE TRANSACTIONS
Transactions in shares of capital stock during each period were as follows:
<TABLE>
<CAPTION>
ARIZONA TAX FREE FUND
---------------------
CLASS A CLASS B CLASS C
---------------------- ------------------------- ---------------------------
YEAR PERIOD FROM YEAR PERIOD FROM YEAR PERIOD FROM
ENDED MARCH 2, 1995* ENDED JUNE 29, 1995* ENDED MAY 13, 1995*
DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ............... 386,538 868,565 185,353 152,007 192 2,456
Shares issued for
reinvested distributions 24,151 5,912 6,721 456 129 49
Shares redeemed ........... (77,891) (295,583) (17,142) (856) (706) --
-------- -------- -------- -------- -------- --------
Increase (decrease) in
shares outstanding ..... 332,798 578,894 174,932 151,607 (385) 2,505
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ARIZONA INSURED TAX FREE FUND
-----------------------------
CLASS A CLASS B CLASS C
-------------------------- -------------------------- --------------------------
YEAR YEAR YEAR PERIOD FROM YEAR YEAR
ENDED ENDED ENDED MARCH 10, 1995* ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares sold ............... 1,146,036 2,484,170 101,877 192,986 33,261 19,460
Shares issued for
reinvested distributions 386,959 524,615 5,559 1,576 1,756 1,476
Shares redeemed ........... (3,960,753) (5,164,094) (9,723) (10,818) (33,417) (5,464)
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in
shares outstanding ..... (2,427,758) (2,155,309) 97,713 183,744 1,600 15,472
========== ========== ========== ========== ========== ==========
- ------------------------------
* Commencement of operations.
</TABLE>
(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>
ARIZONA TAX FREE FUND
---------------------
CLASS A CLASS B CLASS C
----------------------- ----------------------- -----------------------
PERIOD FROM PERIOD FROM PERIOD FROM
YEAR MARCH 2, YEAR JUNE 29, YEAR MAY 13,
ENDED 1995(d) TO ENDED 1995(d) TO ENDED 1995(d) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period ............. $ 10.75 $ 10.00 $ 10.74 $ 10.30 $ 10.76 $ 10.20
--------- --------- --------- --------- --------- ---------
Operations:
Net investment income ........... .58 .46 .51 .26 .50 .30
Net realized and unrealized
gain (loss) on investments .... (.01) .84 (.01) .53 (.01) .65
--------- --------- --------- --------- --------- ---------
Total from operations ....... .57 1.30 .50 .79 .49 .95
--------- --------- --------- --------- --------- ---------
Distributions to shareholders:
From net investment income (f) .. (.58) (.46) (.51) (.26) (.50) (.30)
From net realized gains ......... (.04) (.09) (.04) (.09) (.04) (.09)
--------- --------- --------- --------- --------- ---------
Total distributions ........... (.62) (.55) (.55) (.35) (.54) (.39)
--------- --------- --------- --------- --------- ---------
Net asset value:
End of period ................... $ 10.70 $ 10.75 $ 10.69 $ 10.74 $ 10.71 $ 10.76
========= ========= ========= ========= ========= =========
Total investment return (b) ........ 5.48% 13.27% 4.84% 7.74% 4.70% 9.43%
Net assets at end of
period (000's omitted) .......... $ 9,755 $ 6,225 $ 3,491 $ 1,629 $ 23 $ 27
Ratios:
Ratio of expenses to
average daily net assets (g) .. .46% .52%(e) 1.11% .99%(e) 1.21% 1.20%(e)
Ratio of net investment income
to average daily net assets ... 5.43% 5.19%(e) 4.77% 4.60%(e) 4.68% 4.65%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (c) ............ 1.25% 1.25%(e) 2.00% 2.00%(e) 2.00% 2.00%(e)
Net investment income ... 4.64% 4.46%(e) 3.88% 3.59%(e) 3.89% 3.85%(e)
Portfolio turnover rate (excluding
short-term securities) ........ 70.14% 38.05% 70.14% 38.05% 70.14% 38.05%
See accompanying notes to Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
ARIZONA INSURED TAX FREE FUND
---------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period .................. $ 11.15 $ 9.86 $ 11.31 $ 10.71 $ 10.39
----------- ----------- ----------- ----------- -----------
Operations:
Net investment income ................ .53 .54 .55 .58 .61
Net realized and unrealized
gain (loss) on investments ......... (.09) 1.31 (1.37) .74 .38
----------- ----------- ----------- ----------- -----------
Total from operations ............ .44 1.85 (.82) 1.32 .99
----------- ----------- ----------- ----------- -----------
Distributions to shareholders:
From net investment income (a) ....... (.53) (.56) (.53) (.58) (.61)
From net realized gains .............. -- -- (.04) (.14) (.06)
In excess of net realized gains ...... -- -- (.06) -- --
----------- ----------- ----------- ----------- -----------
Total distributions ................ (.53) (.56) (.63) (.72) (.67)
----------- ----------- ----------- ----------- -----------
Net asset value:
End of period ........................ $ 11.06 $ 11.15 $ 9.86 $ 11.31 $ 10.71
=========== =========== =========== =========== ===========
Total investment return (b) ............. 4.09% 19.10% (7.41)% 12.64% 9.86%
Net assets at end of
period (000's omitted) ............... $ 209,258 $ 238,114 $ 231,736 $ 263,312 $ 124,120
Ratios:
Ratio of expenses to average daily net
assets (g) ......................... .82% .69% .72% .59% .35%
Ratio of net investment income
to average daily net assets ........ 4.89% 5.07% 5.20% 5.00% 5.60%
Assuming no voluntary waivers
and reimbursements:
Expenses (c) ................. .95% .95% .92% 1.03% 1.16%
Net investment income ........ 4.76% 4.81% 5.00% 4.56% 4.79%
Portfolio turnover rate (excluding
short-term securities) ............. 42.76% 42.96% 25.18% 33.80% 40.29%
See accompanying notes to Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
ARIZONA INSURED TAX FREE FUND
-----------------------------
CLASS B CLASS C
----------------------- ---------------------------------
PERIOD FROM PERIOD FROM
YEAR MARCH 10, YEAR YEAR MAY 26,
ENDED 1995(d) TO ENDED ENDED 1994(d) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period ............. $ 11.14 $ 10.44 $ 11.15 $ 9.86 $ 10.48
--------- --------- --------- --------- ---------
Operations:
Net investment income ........... .45 .38 .43 .45 .27
Net realized and unrealized
gain (loss) on investments .... (.09) .69 (.09) 1.31 (.56)
--------- --------- --------- --------- ---------
Total from operations ....... .36 1.07 .34 1.76 (.29)
--------- --------- --------- --------- ---------
Distributions to shareholders:
From net investment income (a) .. (.45) (.37) (.43) (.47) (.25)
From net realized gains ......... -- -- -- -- (.04)
In excess of net realized gains . -- -- -- -- (.04)
--------- --------- --------- --------- ---------
Total distributions ........... (.45) (.37) (.43) (.47) (.33)
--------- --------- --------- --------- ---------
Net asset value:
End of period ................... $ 11.05 $ 11.14 $ 11.06 $ 11.15 $ 9.86
========= ========= ========= ========= =========
Total investment return (b) ........ 3.32% 10.36% 3.18% 18.10% (2.84)%
Net assets at end of
period (000's omitted) .......... $ 3,110 $ 2,048 $ 554 $ 541 $ 326
Ratios:
Ratio of expenses to
average daily net assets (g) .. 1.59% 1.33%(e) 1.70% 1.54% 1.50%(e)
Ratio of net investment income
to average daily net assets ... 4.11% 4.08%(e) 4.01% 4.18% 4.10%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (c) ............ 1.70% 1.60%(e) 1.70% 1.69% 1.71%(e)
Net investment income ... 4.00% 3.81%(e) 4.01% 4.03% 3.89%(e)
Portfolio turnover rate (excluding
short-term securities) .......... 42.76% 42.96% 42.76% 42.96% 25.18%
See accompanying notes to Financial Highlights.
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS
(a) For the periods ended December 31, 1996, 1995, 1994, 1993 and 1992 all of
the distributions from net investment income were derived from interest on
securities exempt from federal income tax. For the year ended December 31,
1992, $.01 per share of the distributions from net investment income were
subject to state income tax.
(b) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(c) For the periods ended December 31, 1996, 1995, 1994, 1993, and 1992, the
advisor and distributor voluntarily absorbed various fees and expenses for
the Funds. The annual contractual expense limit for each Fund (excluding
distribution fees, insurance premiums on portfolio securities, taxes,
interest and brokerage commissions) is 1% of average daily net assets. The
maximum distribution fee is .25% of each Fund's average daily net assets
for Class A Shares and 1.00% of each Fund's average daily net assets for
Class B and Class C Shares.
(d) Commencement of operations.
(e) Annualized.
(f) All of the distributions from net investment income were derived from
interest on securities exempt from federal income tax. For the period ended
December 31, 1995, $.01 per share of the distributions from net investment
income were subject to state income tax for Class A, Class B and Class C.
(g) Beginning in the period ended December 31, 1995, 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.
<TABLE>
<CAPTION>
VOYAGEUR ARIZONA TAX FREE FUND
INVESTMENTS IN SECURITIES DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (b) RATE MATURITY VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
ARIZONA MUNICIPAL BONDS (97.9%):
GENERAL OBLIGATION (27.2%):
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 1,010 Eagle Mountain Community Facility District......................... 6.50% 07-01-21 $ 1,054,864
100 Maricopa County Chandler Unified School District #80
(FGIC Insured).................................................. 6.00 07-01-13 105,424
500 Maricopa County Glendale Unified School District #40............... 6.30 07-01-11 520,230
300 Maricopa County Osborn Unified School District #8 (FGIC Insured)... 5.88 07-01-14 309,870
100 Maricopa County Tempe Unified School District #40 (FGIC Insured)... 6.00 07-01-11 106,084
440 Navajo County Blue Ridge Unified School District #32, (FGIC Insured) 5.80 07-01-14 452,175
500 Pima County Flowing Wells Unified School District #8,.............. 5.90 07-01-13 508,795
100 Santa Cruz County Nogales Unified School District #1 (FSA Insured). 5.80 07-01-13 101,380
250 Tucson Arizona .................................................... 5.38 07-01-20 245,938
200 Yavapai County Humboldt Unified School District #22
(FGIC Insured)................................................. 5.95 07-01-14 209,236
-----------
3,613,996
-----------
HEALTH CARE (9.3%):
-------------------------------------------------------------------------------------------------------
175 Arizona Samaritan Health System (MBIA Insured)................... 5.63 12-01-15 175,014
300 Maricopa County Catholic Health Care (MBIA Insured).............. 6.00 07-01-21 303,726
500 Pima Industrial Development Authority Tuscon Medical Center
(MBIA Insured)................................................ 5.00 04-01-15 470,855
200 Scottsdale Memorial Hospital Industrial Development Authority
(AMBAC Insured)............................................... 5.25 09-01-18 191,628
100 University of Arizona Medical Center (MBIA Insured).............. 5.00 07-01-21 91,311
------------
1,232,534
-----------
HOUSING (38.0%):
-------------------------------------------------------------------------------------------------------
1,750 Maricopa County Industrial Development Authority Multifamily
Advantage Series A............................................ 6.63 07-01-26 1,791,667
1,000 Maricopa County Industrial Development Authority Tempe Grove
Apartments (GNMA Insured)..................................... 6.20(e) 01-20-39 999,370
500 Peoria Casa Del Rio Multifamily Finance Housing (GNMA Insured)... 7.30 02-20-28 540,155
125 Phoenix Industrial Development Authority Chris Ridge
(FHA Insured)................................................. 6.80 11-01-25 129,789
725 Pima County Industrial Development Authority Revenue Series A
(MBIA Insured)................................................ 7.25% 07-01-25 $ 775,750
200 Tempe Multifamily Mortgage Revenue IDA (FHA Insured)............. 6.13 06-01-10 205,802
600 Tucson Industrial Development Authority Los Portales Apartments
(GNMA Insured)............................................... 5.90 12-20-31 599,982
----------
5,042,515
-----------
INDUSTRIAL (13.9%):
-------------------------------------------------------------------------------------------------------
600 Chandler Solid Waste System Revenue.............................. 5.38 07-01-16 575,526
1,250 Coconino County PCR Nevada Power Company......................... 6.38(e) 10-01-36 1,265,512
---------
1,841,038
-----------
LEASE/CERTIFICATE OF PARTICIPATION (1.6%):
-------------------------------------------------------------------------------------------------------
100 Scottsdale Municipal Property Corporation Lease (FGIC Insured)... 6.25 11-01-14 104,542
100 University of Arizona Certificate of Participation (MBIA Insured) 6.00 07-15-23 102,668
-----------
207,210
-----------
UTILITIES (7.9%):
-------------------------------------------------------------------------------------------------------
100 Arizona Power Authority Hoover Uprating (MBIA Insured)........... 5.25 10-01-17 97,283
100 Gilbert Waste Water Revenue (FGIC Insured)....................... 6.50 07-01-22 107,498
250 Oro Valley Municipal Property Corporation Water Revenue
Canada Hills (MBIA Insured).................................. 5.38 07-01-26 242,978
100 Salt River Project Series C...................................... 5.50 01-01-28 96,123
500 Tucson Water Revenue Refunding, Series A (FGIC Insured).......... 5.75 07-01-18 503,770
-----------
1,047,652
-----------
TOTAL MUNICIPAL BONDS (cost: $12,679,558) $12,984,945
-----------
SHORT-TERM SECURITIES (0.5%):
-------------------------------------------------------------------------------------------------------
60 Dreyfus Tax-Exempt Money Market Fund (cost: $60,000) 3.69 (d) 60,000
-----------
TOTAL INVESTMENTS IN SECURITIES (cost: $12,739,558) (c) $13,044,945
===========
See accompanying notes to investments in securities.
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR ARIZONA INSURED TAX FREE FUND
INVESTMENTS IN SECURITIES DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (b) RATE MATURITY VALUE (a)
- ---------------------------------------------------------------------------------------------------------------------
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
ARIZONA MUNICIPAL BONDS (99.8%):
ESCROWED WITH U.S. GOVERNMENT BONDS (1.8%):
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 2,000 Phoenix Street & Highway Pre-Refunded............................ 6.50% 07-01-02 $2,218,700
1,380 Pima County Sewer Revenue Pre-Refunded........................... 6.75 07-01-01 1,519,104
-----------
3,737,804
-----------
EDUCATION (7.8%):
-------------------------------------------------------------------------------------------------------
1,500 Arizona State University System (MBIA Insured)................... 6.13 07-01-15 1,563,570
2,700 Glendale Industrial Development Authority Midwestern University
(Connie Lee Insured).......................................... 6.00 05-15-26 2,759,103
750 Glendale Industrial Development Authority G.O.
(Connie Lee Insured).......................................... 6.75 07-01-09 833,790
1,000 Glendale Industrial Development Authority G.O.
(Connie Lee Insured).......................................... 7.00 07-01-14 1,118,480
1,500 Maricopa County Washington Elementary School District #6
Series A (AMBAC Insured)...................................... 5.00 07-01-15 1,425,315
4,780 Maricopa County Washington Elementary School District #6
Series A (AMBAC Insured)...................................... 5.00 07-01-16 4,534,690
1,000 Resh-Elliot Park State University (MBIA Insured)................. 6.75 07-01-11 1,079,690
3,000 University of Arizona (AMBAC Insured)............................ 6.25 06-01-11 3,200,790
-----------
16,515,428
-----------
GENERAL OBLIGATION (56.2%):
-------------------------------------------------------------------------------------------------------
1,500 Cave Creek Unified School District #93, Inverse Floater
(FGIC Insured)................................................ 6.17(f) 07-01-11 1,495,500
1,000 Chandler Refunding (FGIC Insured)............................... 7.00 07-01-12 1,096,250
2,000 Chandler Unified School District #80 (FGIC Insured).............. 6.40 07-01-10 2,117,380
500 Cochise County Douglas Unified School District #27
(AMBAC Insured)............................................... 5.60 07-01-10 511,945
5,750 Glendale Unified School District #25 (FGIC Insured).............. 5.70 07-01-14 5,863,620
2,600 Glendale High Unified School District #25, Inverse Floater
(FGIC Insured)............................................... 6.37(f) 07-01-11 2,643,238
1,375 LaPaz County Unified School District #76 Bicentennial
(MBIA Insured)................................................ 5.38 07-01-16 1,356,534
2,200 Maricopa County Chandler Refunding #80 GO (FGIC Insured)......... 5.85 07-01-13 2,276,010
1,000 Maricopa County Chandler Refunding #80 GO (FGIC Insured)......... 5.80 07-01-12 1,031,630
1,000 Maricopa County Chandler Unified School District #11
(MBIA Insured)................................................ 7.00 07-01-10 1,096,250
1,000 Maricopa County Chandler Unified School District #11
(FGIC Insured)................................................ 5.80 07-01-09 1,050,230
1,700 Maricopa County Chandler Unified School District #11
(FGIC Insured)................................................ 5.90 07-01-10 1,794,197
2,400 Maricopa County Chandler Unified School District #11
(FGIC Insured)................................................ 6.00 07-01-13 2,530,176
1,000 Maricopa County Fountain Hills Unified School District #98
(AMBAC Insured)............................................... 5.75% 07-01-12 1,019,710
1,000 Maricopa County Fountain Hills Unified School District #98
(FGIC Insured)................................................ 6.63 07-01-10 1,067,610
1,250 Maricopa County Gilbert Unified School District #41 (FSA Insured) 6.25 07-01-15 1,340,050
5,500 Maricopa County Hospital District #1 (FGIC Insured).............. 6.13 06-01-15 5,797,000
1,790 Maricopa County Independent School District #40 (FGIC Insured)... 6.00 07-01-11 1,898,904
2,000 Maricopa County Kyrene Unified School District #28 (FGIC Insured) 5.90 07-01-10 2,079,600
1,400 Maricopa County Madison Unified School District #38
(MBIA Insured)................................................ 5.50 07-01-10 1,423,842
1,400 Maricopa County Madison Unified School District #38
(MBIA Insured)................................................ 5.60 07-01-11 1,429,736
3,500 Maricopa County Madison Unified School District #38
(MBIA Insured)................................................ 5.80 07-01-15 3,588,515
2,000 Maricopa County Mesa Unified School District #4 (FGIC Insured)... 5.55 07-01-10 2,039,820
2,500 Maricopa County Osborn Unified School District #8 (FGIC Insured). 5.63 07-01-10 2,558,400
3,400 Maricopa County Osborn Unified School District #8 (FGIC Insured). 5.88 07-01-14 3,511,860
3,000 Maricopa County Paradise Valley Unified School District #69
(MBIA Insured)................................................ 6.40 07-01-10 3,199,980
2,000 Maricopa County Peoria Unified School District #11
(AMBAC Insured)............................................... 6.10 07-01-10 2,133,020
3,000 Maricopa County Phoenix Unified School District #1
(MBIA Insured)................................................ 5.50 07-01-09 3,057,840
4,440 Maricopa County Queens Creek Unified School District #95
(AMBAC Insured)............................................... 5.70 07-01-14 4,527,734
1,000 Maricopa County Tempe Unified School District #3 (FGIC Insured).. 5.40 07-01-12 1,000,660
775 Maricopa County Tolleson Unified School District #17
(AMBAC Insured)............................................... 5.70 07-01-08 802,815
750 Maricopa County Tolleson Unified School District #214
(FGIC Insured)................................................ 5.75 07-01-14 767,782
1,000 Maricopa Creighton Elementary Unified School District #114
Series 91 (FGIC Insured)...................................... 6.50 07-01-08 1,124,770
575 Mohave County Unified School District #1 Lake Havasu
(FGIC Insured)................................................ 5.70 07-01-09 597,000
650 Mohave County Unified School District #1 Lake Havasu
(FGIC Insured)................................................ 5.75 07-01-10 673,784
600 Mohave County Unified School District #1 Lake Havasu
(FGIC Insured)................................................ 5.80 07-01-11 621,900
5,000 Mohave County Unified School District #1 Lake Havasu
(FGIC Insured)................................................ 5.90 07-01-15 5,147,100
1,000 Peoria (MBIA Insured)............................................ 5.70 07-01-11 1,023,610
2,000 Phoenix Secondary Market (MBIA Insured) ......................... 6.38 07-01-13 2,134,660
725 Pima County Catalina Unified School District #16
(AMBAC Insured)............................................... 5.70 07-01-10 745,155
1,000 Pima County Community College District (AMBAC Insured)........... 6.40 07-01-07 1,067,790
6,350 Pima County Marana Unified School District #6 (FGIC Insured)..... 5.75 07-01-12 6,478,016
500 Pima County Sunnyside Independent School District #12 G.O.
(AMBAC Insured)............................................... 5.70% 07-01-11 $ 511,015
1,585 Pima County Sunnyside Unified School District #12
(MBIA Insured)............................................... 5.50 07-01-10 1,602,498
1,325 Pima County Sunnyside Unified School District #12
(MBIA Insured)............................................... 5.50 07-01-11 1,335,216
7,000 Pima County Tucson Unified School District #1 (FGIC Insured) .... 6.10 07-01-11 7,404,250
3,000 Pima County Tuscon Unified School District #1, Inverse Floater
(FGIC Insured)................................................ 6.77(f) 07-01-13 2,957,910
1,875 Pinal County Apache Junction Unified School District #43
(FGIC Insured)............................................... 5.75 07-01-10 1,943,606
1,000 Pinal County Apache Junction Unified School District #43
(FGIC Insured)................................................ 5.80 07-01-11 1,036,500
2,000 Pinal County Apache Junction Unified School District #43
(FGIC Insured)................................................ 5.85 07-01-15 2,050,440
1,205 Santa Cruz County Nogales Unified School District #1
(FSA Insured)................................................. 5.80 07-01-13 1,221,629
1,250 Santa Cruz County Nogales Unified School District #1
(AMBAC Insured)............................................... 6.10 07-01-14 1,356,075
1,000 Sierra Vista Unified School District (FGIC Insured).............. 7.50 07-01-10 1,229,760
5,030 Tucson (FGIC Insured)............................................ 6.10 07-01-12 5,314,597
715 Yavapai County Humboldt Unified School District #22
(FGIC Insured)................................................ 5.75 07-01-10 744,129
3,000 Yuma (AMBAC Insured)............................................. 6.13 07-01-12 3,170,070
-----------
119,599,318
-----------
HEALTH CARE (9.2%):
-------------------------------------------------------------------------------------------------------
2,000 Arizona Health Facilities Authority Phoenix Baptist Hospital and
Medical Center (MBIA Insured) ................................ 6.25 09-01-11 2,127,500
1,350 Arizona Health Facilities Authority Hospital Revenue
(MBIA Insured)................................................ 5.25 10-01-17 1,307,975
3,000 Arizona Health Facilities Authority Hospital Revenue
(MBIA Insured)................................................ 5.25 10-01-26 2,848,530
3,080 Maricopa County Industrial Development Authority Baptist Hospital
(MBIA Insured)............................................... 5.50 09-01-13 3,080,493
1,000 Maricopa County Industrial Development Authority Baptist Hospital
(MBIA Insured)................................................ 5.50 09-01-16 994,570
2,000 Mohave County Industrial Development Authority Baptist Hospital
(MBIA Insured)................................................ 5.50 09-01-21 1,960,960
1,100 Mohave County Industrial Development Authority Baptist Hospital
(MBIA Insured)................................................ 5.75 09-01-26 1,107,337
1,300 Mohave County Industrial Development Authority,
Chris/Silver Ridge, (GNMA Insured)............................ 6.38 11-01-31 1,328,808
1,000 Pima County Tucson Medical Center (MBIA Insured)................. 6.38 04-01-12 1,065,120
1,000 Pima Individual Health Care (MBIA Insured)....................... 6.75 07-01-10 1,077,190
1,250 Scottsdale Industrial Development Authority Hospital
Revenue, Inverse Floater (AMBAC Insured)..................... 7.02(f)% 09-01-12 1,269,412
1,445 University of Arizona Medical Center (MBIA Insured).............. 6.25 07-01-10 1,538,087
----------
19,705,982
----------
HOUSING (6.2%):
-------------------------------------------------------------------------------------------------------
1,060 Chandler Industrial Development Authority Multifamily Housing
(GNMA Backed)................................................. 5.90 07-20-15 1,066,105
1,700 Maricopa County Industrial Development Authority Grove
Apartments (GNMA Backed)...................................... 6.15(e) 07-20-28 1,707,259
5,800 Maricopa County Industrial Development Authority
(GNMA Backed)................................................. 6.20(e) 01-20-39 5,796,346
1,000 Pima County Industrial Development Authority Revenue Series A
Sunbriar Apartments (MBIA Insured)............................ 7.25 07-01-25 1,070,000
3,670 Tucson Industrial Development Authority Los Portales Apartment
(GNMA Insured)................................................ 5.90 12-20-31 3,669,890
-----------
13,309,600
-----------
INDUSTRIAL (4.6%):
-------------------------------------------------------------------------------------------------------
3,000 Glendale Industrial Development Authority Thunderbird
(Connie Lee Insured).......................................... 5.88 07-01-15 3,049,260
2,000 Glendale Industrial Development Authority Thunderbird
(Connie Lee Insured).......................................... 5.63 07-01-20 1,972,040
2,000 Maricopa County Stadium District (MBIA Insured).................. 5.50 07-01-13 2,000,380
2,750 Peoria Municipal Development Facility Revenue, Inverse Floater
(MBIA Insured)................................................ 6.47(f) 07-01-10 2,686,998
------------
9,708,678
------------
TRANSPORTATION (3.0%):
-------------------------------------------------------------------------------------------------------
1,000 Chandler Street & Highway Revenue, Inverse Floater
(MBIA Insured)................................................ 6.32(f) 07-01-15 918,110
610 Phoenix Airport Revenue (MBIA Insured)........................... 6.20 07-01-10 655,219
4,750 Tucson Airport Authority Revenue (MBIA Insured).................. 5.70 06-01-13 4,795,457
-----------
6,368,786
-----------
UTILITIES (6.6%):
-------------------------------------------------------------------------------------------------------
3,750 Chandler Street and Highway (MBIA Insured)....................... 5.50 07-01-15 3,752,925
1,000 Chandler Water and Sewer Revenue (FGIC Insured).................. 7.00 07-01-12 1,096,250
1,000 Gilbert Water and Waste Water Revenue (FGIC Insured)............. 6.50 07-01-12 1,083,980
2,650 Gilbert Water and Waste Water Revenue (FGIC Insured)............. 6.50 07-01-22 2,848,697
1,000 Pima County Special Water Improvement District
(FGIC Insured)................................................ 6.20 01-01-11 1,061,400
2,000 Salt River Agricultural Improvement & Power Project
(FGIC Insured)............................................... 6.25 01-01-19 2,089,560
2,000 Salt River Agricultural Improvement & Power Project
(AMBAC Insured).............................................. 6.50 01-01-22 2,108,800
------------
14,041,612
------------
LEASE/CERTIFICATE OF PARTICIPATION (2.9%):
-------------------------------------------------------------------------------------------------------
1,000 Oro Valley Common Trust Funds Partnership (MBIA Insured)........ 5.75 07-01-11 1,031,800
1,000 Oro Valley Common Trust Funds Partnership (MBIA Insured)........ 5.75 07-01-17 1,020,590
3,900 Scottsdale Municipal Property Corporation Lease
(FGIC Insured)............................................... 6.25 11-01-14 4,077,138
------------
6,129,528
------------
OTHER REVENUE (1.5%):
-------------------------------------------------------------------------------------------------------
1,750 Phoenix Arizona Street & Highway Revenue (FGIC Insured)......... 6.10 07-01-11 1,851,063
1,500 Yuma County Jail District (AMBAC Insured)....................... 5.25 07-01-12 1,473,495
------------
3,324,558
------------
TOTAL INVESTMENTS IN SECURITIES (cost: $203,348,459) (c) $212,441,294
============
See accompanying notes to investments in securities.
</TABLE>
VOYAGEUR ARIZONA TAX FREE FUND
VOYAGEUR ARIZONA INSURED TAX FREE FUND
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in note 1 to the financial
statements.
(b) Investments in bonds, by rating category (unaudited) as a percentage of
total bonds, are as follows:
<TABLE>
<CAPTION>
Aaa/AAA Aa/AA A/A BBB Total
------- ----- --- --- -----
<S> <C> <C> <C> <C> <C>
Arizona Tax Free Fund.................. 53% 1% 36% 10% 100%
Arizona Insured Tax Free Fund.......... 100% -- -- -- 100%
</TABLE>
(c) Also represents the cost of securities for federal income tax purposes and
the aggregate gross unrealized appreciation and depreciation of securities
based on this cost were as follows:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation Depreciation Appreciation
------------ ------------ ------------
<S> <C> <C> <C>
Arizona Tax Free Fund.................. $ 308,814 $ (3,427) $ 305,387
Arizona Insured Tax Free Fund.......... 9,106,411 (13,576) 9,092,835
</TABLE>
(d) Dividend yields change daily to reflect current market conditions. Rate
shown is the quoted yield as of December 31, 1996.
(e) Security subject to the Alternative Minimum Tax. At December 31, 1996, the
total of such securities is equal to 17.1% and 3.5% of net assets for
Arizona Tax Free Fund and Arizona Insured Tax Free Fund, respectively.
(f) Inverse floater, represents a security that pays interest at rates that
increase (decrease) with a decline (increase) in a general money market
index. Interest rate disclosed is the rate in effect on December 31, 1996.
At December 31, 1996, the total of such securities is equal to 5.6% of net
assets for Arizona Insured Tax Free Fund. Inverse floaters are considered
illiquid securities.
FEDERAL INCOME TAX INFORMATION
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the year ended December
31, 1996 shown below. Exempt interest dividends are exempt from federal income
tax and should not be included in shareholder's gross income, but need to be
reported on the income tax return for informational purposes. Each shareholder
should consult a tax adviser about reporting this income for state and local
purposes. In January 1997, the Fund separately provided each shareholder with
tax information for calendar year 1996.
<TABLE>
<CAPTION>
VOYAGEUR ARIZONA TAX FREE FUND
------------------------------
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
------- ------- -------
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996
------------------ ----------------- ---------------
<S> <C> <C> <C>
Net investment income distributions (none qualifying for
corporate dividend received deduction)................. $.5795 $.5144 $.5003
Short-term capital gain distribution...................... .0208 .0208 .0208
Long-term capital gain distribution....................... .0143 .0143 .0143
------- ------- -------
Total Distribution..................................... $.6146 $.5495 $.5354
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR ARIZONA INSURED TAX FREE FUND
--------------------------------------
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
------- ------- -------
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996
------------------ ---------------- --------------
<S> <C> <C> <C>
Net investment income distributions (none qualifying for
corporate dividend received deduction)................. $.5276 $.4456 $.4310
====== ====== ======
</TABLE>
For federal income tax purposes, 99.74% and 99.80% of the above net investment
income distributions for Voyageur Arizona Tax Free Fund and Voyageur Arizona
Insured Tax Free Fund, respectively, were derived from interest on securities
exempt from federal income tax.
The short-term capital gain distribution above is taxable as ordinary income to
shareholders for federal and state income tax purposes.
VOYAGEUR ON CALL (TM)
[Line Drawing of a telephone]
800.545.3863
We invite you to use the Voyaguer interactive voice response system, Voyageur On
Call (TM) (800.545.3863). The system is designed to give you information about
the Fund(s) in your account. It can also provide price and yield information
for the Fund(s). 24-hour access available to Touch Tone telephones only.
VOYAGEUR
YOUR TAX SENSITIVE INVESTMENT MANAGER
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402-4115
VOY-AZAR 3/97
