<PAGE>
DELAWARE -- VOYAGEUR
Tax-Free Colorado Fund
Tax-Free Arizona Funds
Tax-Free New Mexico Fund
Tax-Free Utah Fund
service and guidance
professional management
goals
(Various photos demonstrating service and guidance
professional management and goals)
1997
Annual Report
goals
Tax-Free Arizona Fund
Tax-Free Arizona Insured Fund
Logo
<PAGE>
A TRADITION OF SOUND INVESTING
commitment
A Commitment
To Our Investors
Delaware Investments has a tradition of money management that dates back to
1929. We have a long and distinguished history of helping individuals and
institutions - including some of America's largest pension funds - reach their
financial goals.
Headquartered in Philadelphia, a block from the nation's oldest stock
exchange, the Delaware organization established its first mutual fund in
1938. Delaware International Advisers Ltd., our international affiliate, was
established in 1990 and is headquartered in London.
Delaware Investments offers a full range of mutual funds. We also
manage investments for variable annuity products, unit investment trusts and
closed-end funds, and offer retirement plan services for individuals and
businesses.
Delaware manages more than $40 billion in mutual fund assets and
institutional advisory accounts for more than half-a-million investors. We're
part of a global financial service and investment management business owned
by Lincoln National Corporation, whose subsidiaries manage more than $120
billion in assets.
(Photo of Keyboard)
(Photo of illustration from Tax-Exempt Income brochure)
Fund Objectives
Tax-Free Colorado Fund
To seek as high a level of current income exempt from federal income tax and
Colorado state income tax as is consistent with preservation of principal.
Tax-Free Arizona Fund
To seek as high a level of current income exempt from federal income tax and
Arizona state income as is consistent with preservation of principal.
Tax-Free Arizona Insured Fund
To seek as high a level of current income exempt from federal income tax and
Arizona state income tax as is consistent with preservation of principal.
Tax-Free New Mexico Fund
To seek as high a level of current income exempt from federal income tax and
New Mexico state income tax as is consistent with preservation of principal.
Tax-Free Utah Fund
To seek as high a level of current income exempt from federal income tax and
Utah state income tax as is consistent with preservation of principal.
<PAGE>
January 26, 1998
for tax-exempt
income
1
Dear Shareholder:
We are pleased to present the 1997 annual report for Delaware-Voyageur's
municipal bond funds investing in Colorado, Arizona, New Mexico and Utah
securities. All four states benefited from strong economic growth last year
that increased tax revenues.
Each of our five Funds outperformed the average of its peers for the
12 months ended December 31, 1997 (for Class A shares with distributions
reinvested at net asset value) as shown below. Increased employment in the
Southwest and Rocky Mountain region's high-technology sector enabled all four
states to post budget surpluses last year. This growth also helped support
each state's credit rating.
We participated in the bond market's summer and autumn rally as
investors grew more confident in the Federal Reserve Board's ability to keep
inflation in check. Consumer prices rose just 1.7% in 1997 - the smallest
increase since 1986.
At year-end, the difference in the U.S. Treasury Bond's short-term
and long-term interest rates, known as the yield curve, was the smallest
since 1993. Also, the potential income advantage offered by lower quality
municipal bonds, compared to bonds rated AAA, narrowed.
Fiscal 1997 was a banner year for municipal bonds. Among the
favorable developments during the period were:
o Passage of the Taxpayer Relief Act in July. This lifted the specter of
proposed federal tax legislation that could have made municipal bonds a
less attractive investment option.
o Rising Tax Revenues. Thanks to strong job growth and corporate profits,
many states, including the
Total Return
- -----------------------------------------------------------------------------
12 Months Ended
December 31, 1997
- -----------------------------------------------------------------------------
Tax-Free Colorado Fund A Class +11.40%
Lipper Colorado Municipal Debt Fund Average (23 Funds) +9.16%
- -----------------------------------------------------------------------------
Tax-Free Arizona Fund A Class +10.07%
Tax-Free Arizona Insured Fund A Class +8.96%
Lipper Arizona Municipal Debt Fund Average (37 Funds) +8.59%
- -----------------------------------------------------------------------------
Tax-Free New Mexico Fund A Class +10.01%
Tax-Free Utah Fund A Class +10.08%
Lipper Other States Municipal Debt Fund Average (67 Funds) +8.44%
- -----------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index +9.19%
Lehman Brothers Insured Municipal Bond Index +9.58%
- -----------------------------------------------------------------------------
All results shown above are based on net asset value and assume reinvestment
of distributions. For complete performance for all Classes, see pages 11 to
14. The Lehman Brothers Municipal Bond Index and Lehman Brothers Insured
Municipal Bond Index are unmanaged. Performance of other Fund Classes varies
due to different fees and expenses. Past performance does not guarantee
future results.
<PAGE>
for tax-exempt
income
2
four discussed in this report, posted budget surpluses last year.
o Steady investor demand. Although the amount of new bonds issued
in most Southwestern and Rocky Mountain states increased in 1997, a steady
stream of investors helped support bond prices. Bond prices got an
additional boost in Utah as the amount of new bonds coming to market fell
19% to $1.8 billion, according to The Bond Buyer, a trade publication.
We view the municipal bond market's long-term prospects as
attractive, especially since the IRS and many states still tax income at a
higher rate than capital gains.
On the pages that follow, the Funds' portfolio managers explain their
disciplined investment strategy which is designed to help you benefit from
the income and total return potential of each state's municipal bond market.
On behalf of Delaware Investments, we wish you well in 1998. We hope you find
our new annual report format informative.
Sincerely,
/s/ Wayne A. Stork
- ----------------------------
Wayne A. Stork
Chairman
/s/ Jeffrey J. Nick
- -----------------------------
Jeffrey J. Nick
President and Chief Executive Officer
We view the municipal bond market's long-term prospects as attractive,
especially since the IRS and many states still tax income at a higher rate
than capital gains.
Your Funds' Portfolio Managers
Andrew M. McCullagh, Jr. is the manager of the Tax-Free Arizona Funds and
Tax-Free Colorado Fund. He is co-manager of the Tax-Free New Mexico and
Tax-Free Utah Funds and has more than 23 years of experience in municipal
bond trading, underwriting and portfolio management. Mr. McCullagh holds a
graduate certificate in public finance from the University of Michigan and a
bachelor's degree in economics from Washington College in Maryland.
Thor Raarup is co-manager of Tax-Free New Mexico Fund and Tax-Free Utah Fund.
He joined Voyageur Asset Management in December 1994 as a fixed-income trader
and was named co-manager of the Funds in September 1996. Prior to Voyageur,
Mr. Raarup was a commodity trader at the Minneapolis Grain Exchange. He holds
a bachelor's degree in financial economics and history from Gustavus Adolphus
College in St. Peter, MN, and joined Delaware Management company in May 1997.
<PAGE>
for tax-exempt
income
3
Portfolio Managers' Review
The 1997 fiscal year was perhaps the most significant time for the municipal
bond market since federal tax laws were overhauled in 1986. The Taxpayer
Relief Act of 1997, passed in July, offered provisions that we believe are
beneficial to municipal bond mutual fund investors. Consider that the law:
o Increased the after-tax total return potential of municipal bonds by
cutting the long-term capital gains tax from 28% to as low as 20%; and
o Maintained municipal bonds' potential after-tax income advantage over
bonds that generate taxable income because Congress did not reduce taxes
on dividends.
In recent years, Congress has given the states more autonomy in
managing fiscal, social and public works programs. Thus, we believe it has
become more important than ever to consider the impact of both state and
federal income taxes on the performance of an investment portfolio.
Many states took advantage of low interest rates in 1997 to refinance
old debt and issue new debt for municipal projects. The Southwestern and Rocky
Mountain region's growth and demographic makeup generate a substantial need
for public financing for roads, schools, water treatment facilities and
hospitals.
Colorado issued $5.1 billion in new bonds in 1997, a 61% increase
from a year earlier, while Arizona issued $3.1 billion in new bonds, a 60%
increase. Bond supplies in New Mexico rose 10% to $1.4 billion. (Source: The
Bond Buyer).
An Tax Oasis of Income Opportunities
A Comparison of Taxable Equivalent Yields
- ------------------------------------------------------
30-Year Municipal Bonds Rated A
Colorado 8.92%
Arizona (Insured Bonds) 8.84%
New Mexico 9.26%
Utah 9.12%
30-Year US Treasuries 5.92%
Yields as of 12/31/97. Municipal bonds vary in quality and unlike U.S.
Treasuries are not guaranteed by the U.S. government. This illustration is
not intended to reflect the current 30-day SEC yield of any Delaware-Voyageur
municipal bond fund.
The chart to the left shows how much an investor in the highest federal tax
bracket (39.6%) residing in each state would have to earn from a taxable
investment to match the income potential of long-term municipal bonds in each
respective state.
<PAGE>
for tax-exempt
income
4
Tax-Free Colorado Fund
Strategic Positioning
Tax-Free Colorado Fund capitalized on the state's diverse economy and
provided an attractive total return of +11.40% (Class A shares with dividends
reinvested) for the 12 months ending December 31, 1997, as shown on page 1.
The Fund's results ranked 2nd out of 23 mutual funds in its peer group as
measured by Lipper Analytical Services.+
During 1997, we have increased our position in hospital bonds, which
currently account for approximately 25.0% of the Fund's net assets. We
believe that consolidation in the health care industry is creating attractive
income and total return opportunities as hospitals strive to be more
cost-efficient. As we evaluate bonds within the sector, we seek hospitals
that appear to show an ability to expand revenues and maintain profitability.
In 1997, we also had a strong weighting in general obligation bonds,
which provided superior returns as the state's economy boomed. For the year
ahead, however, we expect to reduce our weighting in this category, partly in
response as a result of the passage of the Tabor Amendment by the Colorado
Legislature. This Amendment placed a constitutional cap on spending and
restricts the state's ability to issue general obligation bonds by requiring
voter consent.
In the future, we believe a larger percentage of the state's
municipal securities will be revenue bonds. Such bonds are supported by the
revenue stream of a particular project - a toll road, a hospital or a water
treatment plant - rather than income tax dollars.
For fiscal 1998, we believe new development in Denver has made the
city's bonds attractive to investors. We recently purchased a transportation
bond for a toll highway that starts just south of the City and leads to
Denver International Airport. The airport's popularity has exceeded
expectations, and we believe the highway will benefit from the airport's
growth.
Tax-Free Colorado Fund
Portfolio Highlights and Asset Mix
- ----------------------------------------------------
December 31, 1997
Average Effective Maturity 8.6 years
Average Effective Duration 6.9 years
Average Quality A+
Thirty-Day Current SEC Yield* 4.47%
* For A Class shares based on Securities and Exchange Commission
guidelines. The SEC yield for B and C Classes was 3.89%.
General Obligation 17.2%
Other Revenue Bonds 15.5%
Transportation 6.4%
Education 5.2%
Certificate of Participation 4.8%
Water/Sewer 3.2%
Power Authority 1.4%
Hospitals 25.0%
Cash 1.0%
Housing 20.3%
None of the income distributed by Tax-Free Colorado Fund for the 12 months
ended December 31, 1997, was subject to the alternative minimum tax.
+ Tax-Free Colorado Fund Class A ranked #2 out of 23 Colorado municipal bond
funds, #1 out of 18 funds, 4th out of 8 funds and 2nd out of 6 funds,
respectively, for the one, three, five and ten year periods ended December
31, 1997. The Fund began operating on 4/23/87. Rankings are based on total
return at net asset value. An expense limitation was in effect for the
periods shown. Rankings would have been lower without the limitation.
<PAGE>
for tax-exempt
income
5
Also in Denver, the Colorado electorate is expected to vote in 1998
on whether general obligation bonds should be issued to finance the
construction of a new stadium for the Superbowl champion Denver Broncos. With
the hoopla surrounding the team after their January 25th victory, we
anticipate this financing effort will be well-received by the public and the
bond market. As with any new bond, we will examine these securities when
issued to see if they can help us meet the Fund's goals.
One source of concern for 1998 is that consumer price inflation is
higher in Colorado than some other states. Prices rose at a 3.5% clip in
1997, double the national average of 1.7%, U.S. Government figures show. This
was offset by 6.5% growth in personal income - a rate that has been and is
expected to be much higher than the national average. Colorado residents' per
capita income ranks 10th nationwide.
Tax-Free Arizona Funds
Strategic Positioning
Tax-Free Arizona Fund provided a strong total return of +10.07% for the 12
months ended December 31, 1997, as shown on page 1. Our results ranked 2nd
among 37 mutual funds investing in Arizona securities. Tax-Free Arizona
Insured Fund's total return was +8.96% for the same period. (For both Funds,
returns are for Class A shares at net asset value with distributions
reinvested.)
Insured bonds carry the protection of private insurance in case of
default, and the cost of this insurance reduces a bond's income potential.
Insured bonds can sometimes provide higher total returns when interest rates
fall. However, in 1997 uninsured bonds offered higher returns because the
state's strong economy bolstered investor confidence in bonds with moderate
levels of credit risk.
By the end of the year, the difference in income potential between
bonds of the
arizona
Tax-Free Arizona Fund
Portfolio Highlights and Asset Mix
- -----------------------------------------------------------------------------
December 31, 1997
Average Effective Maturity 10.5 years
Average Effective Duration 7.1 years
Average Quality AA
Thirty-Day Current SEC yield* 5.04%
* For A Class shares based on Securities and Exchange Commission guidelines.
SEC yields for B and C classes were 4.50% and 4.48%, respectively.
General Obligation Bonds 23.4%
Housing 15.6%
Hospitals 14.4%
Water/Sewer 14.4%
Industrial Development 5.1%
Pollution Control 13.1%
Other Revenue Bonds 5.4%
Higher Education 6.7%
Cash 2.0%
Approximately 16.7% of the income generated by Tax-Free Arizona Fund for the
twelve months ended December 31, 1997, was subject to the federal alternative
minimum tax.
+ Tax-Free Arizona Fund Class A ranked #2 out of 37 Arizona municipal bond
funds for the one-year period ended 12/31/97. Tax-Free Arizona Insured Fund
Class A ranked #13 out of 37 Arizona municipal bond funds for the same
one-year period. Tax-Free Arizona Insured Fund Class A ranked #3 out of 26
and #3 out of 14 Arizona municipal bond funds for the three and five-year
periods ended 12/31/97. Tax-Free Arizona Fund began operating on 3/2/95.
Tax-Free Arizona Insured Fund began operating on 4/1/91. Rankings are based
on total returns at net asset value. Expense limitations were in effect for
the periods shown. Rankings would have been lower without the limitations.
<PAGE>
for tax-exempt
income
6
highest quality - those rated AAA - and other investment grade bonds narrowed
considerably, and we used this as an opportunity to selectively upgrade the
quality of your Fund's portfolio. Each Arizona fund benefited from the
absence of inflation in 1997 as well as from the perception that most of the
state's municipalities were prudently managing their budgets.
As bond prices rose during the second half of 1997, we reduced each
Fund's duration, (a measurement of price sensitivity to interest rate
changes) believing that the total potential of the bond market had grown
more limited.
For 1998 we think investor demand for Arizona municipal bonds is
likely to remain strong. The state's income tax brackets range from 3.0% to
5.6%, moderate compared to neighboring California. Nevertheless, we believe
Arizona's demographic profile suggests that many residents are
income-oriented investors. For investors in the highest federal income tax
bracket, tax-equivalent yields on the state's long-term bonds remain
attractive.
Tax-Free Arizona Fund
General obligation (G.O.) bonds made up the largest component of Tax-Free
Arizona Fund's net assets as of year's end. In Arizona, G.O.s comprise 75% of
the municipal debt brought to market - with the majority of bonds issued for
school districts - according to The Bond Buyer. Arizona's economic expansion
and population growth, especially among immigrant groups, has created a need
for more and larger schools.
Housing bonds were the Fund's second largest sector allocation as of
year's end - representing 15.6% of net assets. Since June, we have reduced
our position by more than half because we believe lower interest rates have
increased refinancing risks for certain mortgage-related securities.
During the latter half of fiscal 1997, we added higher education
bonds to Tax-Free Arizona Fund's investment portfolio.
We sold some lower yielding Arizona bonds that we believed were at risk of
being refinanced and replaced them with bonds we thought offered greater call
protection.
Tax-Free Arizona Insured Fund
Portfolio Highlights and Asset Mix
- --------------------------------------------------------------------------
December 31, 1997
Average Effective Maturity 8.2 years
Average Effective Duration 6.6 years
Average Quality AAA
Thirty-Day Current SEC Yield* 4.16%
* For A Class shares based on Securities and Exchange Commission guidelines.
The SEC yield for B and C classes was 3.57%.
General Obligation Bonds 52.4%
Hospitals 13.2%
Higher Education 7.4%
Industrial Development 7.1%
Housing 4.8%
Water/Sewer 4.5%
Certificates of Participation 3.2%
Transportation 3.1%
Power Authority 2.3%
Pre-Refunded Bonds 2.0%
Approximately 4.23% of the income generated by Tax-Free Arizona Insured Fund
for the 12 months ended December 31, 1997 was subject to the alternative
minimum tax.
<PAGE>
for tax-exempt
income
7
We believe the state's growing population and high technology industries will
spur an increase in demand for college-educated, computer-literate workers.
Tax-Free Arizona Insured Fund
Of the two Arizona Funds, Tax-Free Arizona Insured was by far the larger in
terms of net assets as of December 31, 1997. In part this reflects the fact
that generally most municipal bonds issued in Arizona are protected by
private insurance guaranteeing the payment of principal and interest when
due.
Tax-Free Arizona Insured Fund employed a value approach to bond
selection in 1997 and is managed with both dividend yield and total return in
mind.
In the spring, amid a temporary rise in short-term interest rates, we
sold some lower yielding bonds that we believed were at risk of being
refinanced and replaced them with bonds offering greater call protection. In
our opinion, this may increase the Fund's income potential over a longer time
while maintaining a high level of quality. We believe this strategy can help
us to reduce potential security turnover and serve your Fund well should
interest rate volatility increase in the coming months.
Since June, we have generally kept our position within each sector of
the bond market relatively constant. We maintained a strong position in
general obligation bonds (52.4% of net assets as of year's end). In our
opinion, the strong performance of Arizona's economy can continue to make
these bonds attractive.
The second largest sector in the portfolio as of year's end was
hospital bonds, representing 13.2% of net assets, a slight increase from
June. Due to increased competition and consolidation in the health care
industry, we tend to focus on hospitals with a proven record of increasing
revenues and profitability.
Tax-Free New Mexico Fund
Strategic Positioning
Tax-Free New Mexico Fund provided a strong positive total return of +10.01%
for the 12
Tax-Free New Mexico Fund
Portfolio Highlights and Asset Mix
- ------------------------------------------------
December 31, 1997
Average Effective Maturity 11.5 years
Average Effective Duration 7.7 years
Average Quality AA
Thirty-Day Current SEC Yield* 4.48%
* For A Class shares based on Securities and Exchange Commission guidelines.
The SEC yield for B and C Classes was 3.91%.
Housing 34.9%
General Obligation Bonds 20.3%
Hospitals 11.1%
Industrial Development 10.5%
Higher Education 10.9%
Utilities 5.3%
Water/Sewer 5.3%
Cash 1.7%
Approximately 14.2% of the income generated by Tax-Free New Mexico Fund for
the 12 months ended December 31, 1997, was subject to the alternative minimum
tax.
<PAGE>
for tax-exempt
income
8
months ended December 31, 1997 (for Class A shares at net asset value with
distributions reinvested as shown on page 1.)
For the past five years, the Fund has consistently ranked among the
top 10% of its peer group, according to Lipper Analytical Services. We take
this as a sign of the effectiveness of an investment discipline that seeks to
capitalize on both income and total return opportunities in New Mexico. The
state posted a budget surplus of $231 million in fiscal 1997 and enjoyed a
AA+ rating for its general obligation bonds.
By lengthening the Fund's duration (a measurement of price
sensitivity to interest rate changes) during the second half of 1997, we were
able to take advantage of declining interest rates. The Fund's duration as of
December 31, 1997 was slightly longer than that of our peers, and we believe
this allowed the Fund to provide superior results.
During the year, we sold some bonds with very high credit ratings and
purchased securities of more moderate quality that we believed offered an
attractive risk/reward profile. This helped to increase both the Fund's total
return and income potential.
Housing bonds made up the largest component of your Fund at year end
- - representing 34.9% of net assets. By focusing on higher yielding mortgage
securities, we provided most of the income available from the longest term
municipal bonds with much less interest rate risk. We owned bonds that fund
multifamily housing complexes because these issues appeared to offer less
refinancing risk than bonds issued for single-family home development.
One housing bond with an attractive risk/reward profile that we owned
as of year's end was issued on behalf of the Casa Hermosa Apartments in
Hobbs, a town near the Texas border. This high yielding, unrated bond
provided us with about 200 additional basis points (2%) of income compared to
the average New Mexico housing bond.
new
mexico
Tax-Free Utah Fund Portfolio
Highlights and Asset Mix
- -----------------------------------------------
December 31, 1997
Average Effective Maturity 8.6 years
Average Effective Duration 7.1 years
Average Quality A
Thirty-Day Current SEC Yield* 4.54%
For A Class shares based on Securities and Exchange Commission guidelines.
The SEC yield for B class shares was 3.96%.
Higher Education 28.2%
Housing 23.4%
General Obligation 19.6%
Municipal Lease 15.2%
Water/Sewer 9.7%
Hospitals 2.6%
Utility 1.1%
Approximately 13.5% of the income generated by Tax-Free Utah Fund for the 12
months ended December 31, 1997, was subject to the alternative minimum tax.
+ Tax-Free New Mexico Fund ranked #6 out of 67 funds, #1 out of 51 funds and #2
out of 20 funds, respectively, in the Lipper's Other States Municipal Debt
category for the one, three, and five-year periods ended 12/31/97. Tax-Free
New Mexico Fund began operating 10/5/92. Rankings are based on total return
at net asset value. Expense limitations were in effect for the periods
shown. Rankings would have been lower without the limitations.
<PAGE>
for tax-exempt
income
9
Tax-Free Utah Fund
Strategic Positioning
Utah's economy continued to expand in 1997 thanks in part to its pro-business
regulatory environment, low energy costs, and educated workforce. A dynamic
economy and low inflation helped the state's bond market do well. Utah's
unemployment rate stood at just 2.7% in 1997.
Tax-Free Utah Fund provided a total return of +10.08% (Class A shares
with distributions reinvested at net asset value, as shown on page 1) for the
year ended December 31. The Fund's total return ranked 4th out of 67 funds in
its peer group as measured by Lipper Analytical Services. The Fund's
five-year average annual total return of +7.64% (for Class A shares) ranked
1st out of 20 comparable mutual funds.+
In our opinion, the Fund's portfolio structure - a mix of average
coupon, call date and maturity - has allowed Tax-Free Utah to consistently
provide above average results.
During fiscal 1997, the Fund's duration (a measure of a bond's price
sensitivity to interest rates) was longer than most of its peers. We believe
this allowed the Fund to fully benefit from the bond market's total return
potential as interest rates declined.
We sold some of our higher coupon bonds during the second half and
bought bonds with a lower coupon, sometimes at prices below face value. These
discount bonds rose in price and helped us achieve superior results.
Higher education bonds were the Fund's largest sector weighting as of
year's end - representing 28.2% of net assets - a slight increase from
mid-year. We believe that Utah's continual influx of new residents,
relatively high birth rate and robust job growth will increase both
educational demands and tax revenues in the state.
We slightly reduced our weighting in housing bonds in 1997. While
Utah's commercial construction market remains solid, we are concerned that
the real estate prices in some areas may be overheating. Also, community
resistance has made it difficult for builders to construct apartment
buildings and single family houses in some parts of the state.
Our concern about the real estate market has also prompted us to
reduce our position in Utah water and sewer bonds. Since these bonds tend to
be funded with property tax revenues, slower than expected growth could
increase credit risks in this sector. As of year's end, these bonds
represented 9.7% of the Fund's net assets, compared to 17.2% a year earlier.
Fears of higher inflation were rekindled in late January 1998 after U.S.
government reports showed labor costs rising at the fastest pace in five
years.
utah
+ Tax-Free Utah Fund ranked #4 out of 67 funds, #4 out of 51 funds and #1 out
of 20 funds, respectively, in the Lipper's Other States Municipal Debt
category for the one, three, and five-year periods ended 12/31/97. Tax-Free
Utah Fund began operating 10/5/92. Rankings are based on total return at
net asset value. Expense limitations were in effect for the periods shown.
Rankings would have been lower without the limitations.
<PAGE>
for tax-exempt
income
10
Summary Outlook
The robust U.S. economy and lower interest rates helped fuel a municipal bond
market rally in 1997, and we still believe selected bonds offer solid income
opportunities and relatively moderate credit risk.
However, strong U.S. economic growth and a booming job market often
lead some bond investors to expect an acceleration in inflation because of an
increased demand for goods and services. Those fears were rekindled in late
January 1998 after U.S. government reports showed labor costs rising at the
fastest pace in five years.
We believe the positive inflation environment America has enjoyed in
the 1990s may continue in 1998. However, as more investors and workers begin
to enjoy the wealth and higher paychecks they've earned since the mid-1990s,
we think it unlikely that consumer prices will grow by only 2% a year.
One concern for the Southwest's economy is the continuing economic
struggles of Asia. Trade with the Pacific Rim accounts for a substantial
portion of the region's high-technology and natural resource businesses.
In light of the economic forces we believe may affect the Southwest,
we are constructing a more cautious investment portfolio for 1998 by seeking
higher quality bonds for each Fund.
Through our selection process, we believe we can upgrade the Funds'
portfolios with a prudent combination of average coupon, call date and
effective maturity. By lowering the duration of each Fund during the autumn
of 1997, we believe we have positioned the Fund to weather an increase in
interest rate volatility.
Andrew M. McCullagh, Jr.
Vice President
Senior Portfolio Manager
Thor Raarup
Portfolio Manager
January 26, 1998
outlook
The robust U.S. economy and lower interest rates helped fuel a municipal bond
market rally in 1997, and we still believe selected bonds offer solid income
opportunities and relatively moderate credit risk.
<TABLE>
THE SOUTHWEST AT A GLANCE
- ------------------------------------------------------------------------------------------------------------------
Data as of December 31, 1997
Colorado Arizona New Mexico Utah
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General Obligation Bond Rating none* AA AA+ AAA
Budget Surplus (Millions) $375 $516 $232 $36
Per Capita Income $25,704 $20,989 $18,803 $19,595
Population (Millions) 3.9 4.5 1.7 2.0
Top Income Tax Rate 5.0% 5.2% 8.5% 7.2%
Unemployment Rate 3.4% 4.4% 6.1% 3.0%
</TABLE>
* Colorado does not issue general obligation bonds. Municipalities within
Colorado do, however, and their ratings vary.
Source: Bloomberg Business News.
<PAGE>
for tax-exempt
income
11
Performance Summary
Tax-Free Colorado Fund
- -------------------------------------------------------------
Growth of a $10,000 Investment
December 31, 1987 to December 31, 1997
<TABLE>
<CAPTION>
Lipper Colorado
Lehman Brothers Municipal Debt
Tax-Free Colorado Municipal Bond Fund Average
Fund A Class Index (23 Funds)
----------------- --------------- ---------------
<S> <C> <C> <C>
Dec. 31 '87 $ 9,622 $10,000 $10,000
Dec. 31 '88 $10,678 $11,015 $11,055
Dec. 31 '89 $11,776 $12,203 $12,237
Dec. 31 '90 $12,577 $13,094 $13,074
Dec. 31 '91 $13,931 $14,684 $14,487
Dec. 31 '92 $15,379 $15,979 $15,995
Dec. 31 '93 $17,477 $17,942 $18,188
Dec. 31 '94 $15,883 $17,014 $16,529
Dec. 31 '95 $19,145 $19,984 $19,923
Dec. 31 '96 $19,926 $20,870 $20,737
Dec. 31 '97 $22,171 $22,787 $23,103
</TABLE>
Chart assumes a $10,000 investment on April 23, 1997, a 3.75% front-end sales
charge and reinvestment of distributions. Performance of other Fund classes
differs because of different charges and expenses. Past performance does not
guarantee future results.
Tax-Free Colorado Fund
- -------------------------------------------------------------------------------
Average Annual Total Returns Through December 31, 1997
<TABLE>
<CAPTION>
Lifetime Ten Years Five Years One Year
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Class A (Est. 4/23/87)
Excluding Sales Charge +8.47% 8.73% +7.63% +11.40%
Including Sales Charge +8.08% 8.31% +6.81% +7.23%
- ----------------------------------------------------------------------------------------------------
Class B (Est. 3/22/95)
Excluding Sales Charge +8.47% +10.47%
Including Sales Charge +7.53% +6.47%
- ----------------------------------------------------------------------------------------------------
Class C (Est. 5/6/94)
Excluding Sales Charge +7.67% +10.47%
Including Sales Charge +7.67% +9.47%
</TABLE>
All performance includes reinvestment of distributions and applicable sales
charge as described below. Return and share value will fluctuate so that
shares when redeemed may be worth more or less than the original cost. Past
performance is not a guarantee of future results. Performance for Class B and
C shares excluding sales charge assumes either contingent sales charges did
not apply or the investment was not redeemed. Returns reflect a voluntary
expense limitation in effect at the time. Returns would have been lower
without the limitation.
Class A shares have a 3.75% maximum front-end sales charge and a 12 b-1 fee.
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are also subject to a deferred sales
charge of up to 4% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If shares are
redeemed within 12 months, a 1% contingent deferred sales charge applies.
<PAGE>
for tax-exempt
income
12
Tax-Free Arizona Fund
- -------------------------------------------------
Growth of a $10,000 Investment
March 2, 1995 to December 31, 1997
<TABLE>
<CAPTION>
Lipper Arizona
Tax-Free Lehman Brothers Municipal Debt
Arizona Municipal Bond Fund Average
Fund A Class Index (37 Funds)
------------ --------------- ----------------
<S> <C> <C> <C> <C>
Mar. 2 '95 $ 9,625 $10,000 $10,000
Mar. 31 '95 $ 9,682 $10,000 $10,000
Apr. 30 '95 $ 9,698 $10,012 $ 9,998
May 31 '95 $10,092 $10,331 $10,317
Jun. 30 '95 $ 9,953 $10,241 $10,191
Jul. 31 '95 $ 9,981 $10,338 $10,252
Aug. 31 '95 $10,128 $10,469 $10,372
Sept. 30 '95 $10,305 $10,535 $10,452
Oct. 31 '95 $10,581 $10,688 $10,631
Nov. 30 '95 $10,770 $10,866 $10,826
Dec. 31 '95 $10,877 $10,970 $10,936
Jan. 31 '96 $10,927 $11,053 $10,933
Feb. 29 '96 $10,843 $10,978 $10,900
Mar. 31 '96 $10,677 $10,838 $10,717
Apr. 30 '96 $10,684 $10,807 $10,686
May 31 '96 $10,744 $10,803 $10,688
Jun. 30 '96 $10,857 $10,921 $10,800
Jul. 31 '96 $11,001 $11,020 $10,905
Aug. 31 '96 $11,020 $11,017 $10,899
Sept. 30 '96 $11,166 $11,172 $11,048
Oct. 31 '96 $11,312 $11,298 $11,166
Nov. 30 '96 $11,501 $11,505 $11,354
Dec. 31 '96 $11,436 $11,456 $11,305
Jan. 31 '97 $11,445 $11,478 $11,321
Feb. 28 '97 $11,561 $11,584 $11,417
Mar. 31 '97 $11,430 $11,430 $11,275
Apr. 30 '97 $11,537 $11,526 $11,369
May 31 '97 $11,698 $11,699 $11,518
Jun. 30 '97 $11,839 $11,824 $11,638
Jul. 31 '97 $12,156 $12,151 $11,951
Aug. 31 '97 $12,057 $12,036 $11,836
Sept. 30 '97 $12,212 $12,179 $11,972
Oct. 31 '97 $12,286 $12,257 $12,034
Nov. 30 '97 $12,366 $12,329 $12,097
Dec. 31 '97 $12,573 $12,509 $12,280
</TABLE>
Chart assumes a $10,000 investment on March 2 1995, a 3.75% front-end sales
charge and reinvestment of distributions. Performance of other Fund classes
differs because of different charges and expenses. Past performance does not
guarantee future results.
Tax-Free Arizona Fund
Average Annual Total Return Through December 31, 1997
Lifetime One Year
-------- --------
Class A (Est. 3/2/95)
Excluding Sales Charge +10.14% +10.07%
Including Sales Charge +8.66% +5.91%
Class B (Est. 6/29/95)
Excluding Sales Charge +8.78% +9.34%
Including Sales Charge +7.72% +5.34%
Class C (Est.5/13/95)
Excluding Sales Charge +8.91% +9.32%
Including Sales Charge +8.91% +8.32%
See page 11 for important additional information. Return and share value for
each Fund fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. Past performance is not a guarantee of future
results.
<PAGE>
for tax-exempt
income
13
Tax-Free Arizona Insured Fund
- ---------------------------------------------------
Growth of a $10,000 Investment
April 1, 1991 to December 31, 1997
<TABLE>
<CAPTION>
Tax-Free Arizona Lehman Brothers Lipper Arizona
Insured Fund Insured Municipal Municipal Debt Average
A Class Bond Index (14 Funds)
---------------- ------------------ ----------------------
<S> <C> <C> <C>
Apr. '91 $ 9,625 $10,000 $10,000
Jun. '91 $ 9,843 $10,213 $10,066
Sept. '91 $10,296 $10,619 $10,467
Dec '91 $10,584 $10,979 $10,819
Mar. '92 $10,614 $11,009 $10,845
Jun. '92 $11,028 $11,439 $11,294
Sept. '92 $11,289 $11,744 $11,587
Dec '92 $11,627 $12,003 $11,842
Mar. '93 $12,123 $12,476 $12,300
Jun. '93 $12,568 $12,919 $12,731
Sept. '93 $12,973 $13,379 $13,169
Dec. '93 $13,101 $13,566 $13,336
Mar. '94 $12,433 $12,715 $12,531
Jun. '94 $12,369 $12,874 $12,612
Sept. '94 $12,398 $12,943 $12,668
Dec. '94 $12,130 $12,755 $12,452
Mar. '95 $13,182 $13,736 $13,399
Jun. '95 $13,492 $14,055 $13,655
Sept. '95 $13,899 $14,458 $14,005
Dec. '95 $14,446 $15,122 $14,653
Mar. '96 $14,226 $14,890 $14,360
Jun. '96 $14,308 $15,006 $14,471
Sept. '96 $14,657 $15,360 $14,803
Dec. '96 $15,038 $15,765 $15,147
Mar. '97 $14,971 $15,695 $15,108
Jun. '97 $15,489 $16,255 $15,593
Sept. '97 $15,950 $16,774 $16,041
Dec. '97 $16,367 $17,273 $16,453
</TABLE>
Chart assumes a $10,000 investment on April 1, 1991, a 3.75% front-end sales
charge and reinvestment of distributions. Performance of other Fund classes
differs because of different charges and expenses. Past performance does not
guarantee future results.
Tax-Free Arizona Insured Fund
- -------------------------------------------------------------------------------
Average Annual Total Return Through December 31, 1997
Lifetime Five Years One Year
-------- ---------- --------
Class A (Est. 4/1/91)
Excluding Sales Charge +8.19% +7.09% +8.96%
Including Sales Charge +7.58% +6.27% +4.88%
- -------------------------------------------------------------------------------
Class B (Est. 3/10/95)
Excluding Sales Charge +7.70% +8.06%
Including Sales Charge +6.76% +4.06%
- -------------------------------------------------------------------------------
Class C (Est. 5/26/94)
Excluding Sales Charge +7.08% +8.05%
Including Sales Charge +7.08% +7.05%
See page 11 for important additional information. Return and share value for
each Fund fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. Past performance is not a guarantee of future
results.
<PAGE>
for tax-exempt
income
14
Tax-Free New Mexico and Utah Fund
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
October 5, 1992 to December 31, 1997
<TABLE>
<CAPTION>
Tax-Free Tax-Free Lehman Brothers Lipper Other States
New Mexico Utah Fund Municipal Bond Municipal Debt Fund
Fund A Class A Class Index Average (67 Funds)
------------ --------- ---------------- -------------------
<S> <C> <C> <C> <C>
Oct. 5 '92 $ 9,625 $ 9,625 $10,000 $10,000
Dec. 31 '92 $ 9,968 $10,084 $10,283 $10,354
Mar. 31 '93 $10,385 $10,558 $10,665 $10,703
Jun. 30 '93 $10,735 $10,878 $11,014 $11,038
Sept. 30 '93 $11,100 $11,249 $11,387 $11,413
Dec. 31 '93 $11,201 $11,459 $11,546 $11,536
Mar. 31 '94 $10,797 $11,042 $10,913 $10,936
Jun. 30 '94 $10,744 $10,968 $11,033 $10,986
Sept. 30 '94 $10,814 $11,008 $11,108 $11,045
Dec. 31 '94 $10,426 $10,726 $10,950 $10,812
Mar. 31 '95 $11,328 $11,557 $11,723 $11,572
Jun. 30 '95 $11,621 $11,819 $12,006 $11,772
Sept. 30 '95 $11,898 $12,166 $12,351 $12,062
Dec. 31 '95 $12,473 $12,770 $12,861 $12,587
Mar. 31 '96 $12,223 $12,525 $12,706 $12,375
Jun. 30 '96 $12,343 $12,605 $12,803 $12,466
Sept. 30 '96 $12,688 $12,888 $13,097 $12,744
Dec. 31 '96 $12,989 $13,198 $13,431 $13,028
Mar. 31 '97 $13,003 $13,120 $13,399 $13,000
Jun. 30 '97 $13,450 $13,626 $13,861 $13,422
Sept. 30 '97 $13,848 $14,052 $14,278 $13,780
Dec. 31 '97 $14,272 $14,511 $14,665 $14,137
</TABLE>
Chart assumes a $10,000 investment on October 5, 1992, a 3.75% front-end
sales charge and reinvestment of distributions. Performance of other Fund
classes differs because of different charges and expenses. Past performance
does not guarantee future results.
Tax-Free New Mexico Fund
Average Annual Total Return Through December 31, 1997
Lifetime Five Years One Year
- ----------------------------------------------------------------------------
Class A (Est. 10/5/92)
Excluding Sales Charge +7.84% +7.47% +10.01%
Including Sales Charge +7.05% +6.65% +5.89%
- ----------------------------------------------------------------------------
Class B (Est. 3/3/94)
Excluding Sales Charge +6.01% +9.24%
Including Sales Charge +5.35% +5.24%
- ----------------------------------------------------------------------------
Class C (Est. 5/7/96)
Excluding Sales Charge +9.35% +9.06%
Including Sales Charge +9.35% +8.06%
Tax-Free Utah Fund
Average Annual Total Return Through December 31, 1997
Lifetime Five Years One Year
- ----------------------------------------------------------------------------
Class A (Est. 10/5/92)
Excluding Sales Charge +8.22% +7.64% +10.08%
Including Sales Charge +7.44% +6.83% +5.98%
- ----------------------------------------------------------------------------
Class B (Est. 5/27/95)
Excluding Sales Charge +7.04% +9.28%
Including Sales Charge +6.00% +5.28%
See page 11 for important additional information. Return and share value for
each Fund fluctuate so that shares, when redeemed, may be worth more or less
than their original cost. Past performance is not a guarantee of future
results.
<PAGE>
for tax-exempt income 15
Financial Statements
Delaware-Voyageur Tax-Free Colorado Fund
Statement of Net Assets
December 31, 1997
- -------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS - 99.14%
General Obligation Bonds - 17.18%
Arapahoe Colorado Water & Sanitation Series
1995A 6.00% 12/1/15 ............................... $ 8,010,000 $ 8,448,227
Arapahoe Colorado Water & Sanitation
Series 1995A 6.15% 12/1/19 ......................... 10,075,000 10,693,404
Arapahoe County Colorado School District #5 - Cherry
Creek,Inverse Floater 6.47% 12/15/15 ............... 3,000,000 3,064,740
Arapahoe County Colorado School District 4.00%
12/15/15 .......................................... 3,000,000 3,000,000
Boulder Valley School District #RE - 2 Series A
6.30% 12/1/13 ..................................... 3,000,000 3,367,740
Boulder Valley School District #RE - 2 Series A
6.30% 12/1/14 ..................................... 5,000,000 5,612,900
Eagles Nest Metropolitan District Limited Tax
6.50% 11/15/17 .................................... 6,575,000 6,788,030
El Paso County School District #20,
Inverse Floater 7.27% 12/15/14 ..................... 1,250,000 1,356,988
Highlands Ranch Metropolitan School District #2,
Inverse Floater 6.17% 6/15/16 ...................... 1,850,000 1,831,648
Highlands Ranch Metropolitan School District #4
6.00% 12/1/15 ..................................... 4,200,000 4,502,442
Interstate South Metropolitan District 6.00%
12/1/20 ........................................... 8,755,000 9,209,385
Jefferson County Metropolitan District - Section 14,
Series A 6.20% 12/1/13 ............................ 2,250,000 2,438,595
Jefferson County Metropolitan District - Section 14,
Series A 6.20% 6/1/14 ............................. 1,000,000 1,080,770
Montezuma County School District #RE 4A -
Delores 7.00% 12/1/19 ............................. 1,500,000 1,734,750
-----------
63,129,619
-----------
Higher Education Revenue
Bonds - 4.66%
Colorado Education Facilities Authority University
of Denver 6.00% 3/1/16 (CONNIE LEE) ................ 2,000,000 2,108,000
Colorado Post Secondary Education Auraria Fund
Project 6.00% 9/1/15 (FGIC) ........................ 1,000,000 1,071,390
Colorado Post Secondary Education Facilities
Authority, Inverse Floater 8.17% 3/1/16 ............ 3,350,000 3,721,616
Colorado Post Secondary Education Ocean
Journey Project 8.375% 12/1/26 ..................... 9,000,000 10,221,480
-----------
17,122,486
-----------
Hospital Revenue Bonds - 24.99%
Boulder County Colorado Hospital Revenue
Development - Longmont UTD Hospital
5.60% 12/1/17 ..................................... 1,885,000 1,917,667
Boulder County Colorado Hospital Revenue
Development - Longmont UTD Hospital
5.60% 12/1/27 ..................................... 6,765,000 6,852,607
<PAGE>
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds (Continued)
Boulder County Hospital Revenue Longmont
United Project 5.875% 12/1/20 .................. $ 3,250,000 $ 3,328,358
Colorado Health Facilities Authority Catholic
Initiatives 5.125% 12/1/22 ..................... 1,500,000 1,478,130
Colorado Health Facilities Authority Covenant
Retirement 6.75% 12/1/25 ....................... 4,150,000 4,586,207
Colorado Health Facilities Authority Covenant
Retirement 6.75% 12/1/15 ....................... 1,750,000 1,933,943
Colorado Health Facilities Authority National
Benevolent Series A 6.90% 6/1/15 ............... 1,085,000 1,206,227
Colorado Health Facilities Authority Parkview
Hospital 6.00% 9/1/16 ......................... 4,000,000 4,199,840
Colorado Health Facilities Authority Parkview
Hospital 6.125% 9/1/25 ........................ 7,750,000 8,149,823
Colorado Health Facilities Authority Revenue
Hospital - Steamboat Springs Health
5.75% 9/15/22 ................................. 5,000,000 5,015,950
Colorado Health Facilities Authority Revenue,
Inverse Floater 6.67% 10/1/26 .................. 3,375,000 3,424,005
Colorado Health Facilities Authority Revenue,
Baptist Home Association Series A
6.375% 8/15/24 ................................ 3,250,000 3,342,365
Colorado Health Facilities Authority Rocky
Mountain Adventist Healthcare
6.625% 2/1/22 ................................. 5,885,000 6,274,293
Colorado Health Facilities Authority Rocky
Mountain Adventist Healthcare
6.625% 2/1/13 ................................. 13,000,000 13,949,780
Colorado Health Facilities Authority Vail Valley
Medical Center Revenue 6.50% 1/15/13 ........... 2,400,000 2,589,528
Colorado Health Facilities Authority Vail Valley
Medical Center Revenue 6.60% 1/15/20 ........... 6,500,000 7,031,180
Colorado Springs Memorial Hospital
6.00% 12/15/24 (MBIA) ......................... 8,500,000 9,186,885
Montrose County Colorado Revenue Memorial
Hospital Series A 5.25% 12/1/17 ................ 2,920,000 2,919,825
University Of Colorado Hospital Revenue
6.40% 11/15/22 (AMBAC) ........................ 4,000,000 4,448,200
------------
91,834,813
------------
Housing Revenue Bonds - 20.29%
Adams County,Colorado Housing Authority
Mortgage Revenue - Aztec Villa Apartments
Project 5.85% 12/1/27 .......................... 1,825,000 1,889,824
Adams County Housing Authority Greenbrias
Project 6.75% 7/1/21 .......................... 1,730,000 1,873,296
Aurora Single Family Mortgage Revenue
7.30% 5/1/10 .................................. 8,640,000 9,437,386
<PAGE>
16 for tax-exempt income
Statement of Net Assets (Continued)
- -------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS (Continued)
Housing Revenue Bonds (Continued)
Colorado Housing Finance Authority - Multifamily
Housing Mortgage - B-3 5.65% 10/1/28 ........... $ 3,880,000 $ 4,003,462
Colorado Housing Finance Authority Multifamily
Industrial Mortgage - C-3 5.70% 10/1/21 ........ 3,205,000 3,290,253
Colorado Housing Finance Authority Multifamily
Series C-3 6.10% 10/1/28 ....................... 4,120,000 4,393,774
Colorado Housing Finance Authority Multifamily
Series A-3 5.85% 10/1/28 (FHA) ................. 4,000,000 4,211,800
Colorado Housing Finance Authority Multifamily
Series A-3 6.25% 10/1/26 ....................... 8,530,000 9,176,915
Colorado Housing Finance Authority Single Family
Mortgage 7.50% 11/1/24 (FHA) ................... 2,600,000 2,942,498
Colorado Housing Finance Authority Single Family
Housing Project Series C-2 7.45% 6/1/17 ........ 870,000 976,062
Colorado Housing Finance Authority Single Family
Housing Series A-2 7.15% 11/1/14 ............... 1,510,000 1,720,464
Colorado Housing Finance Authority Single Family
Housing Series A-3 7.45% 11/1/27 ............... 2,500,000 2,861,400
Colorado Housing Finance Authority Single Family
Housing Series C-2 7.10% 5/1/15 ................ 1,260,000 1,428,412
Colorado State Single Family Housing Authority
Senior Revenue 7.10% 6/1/14 .................... 995,000 1,126,310
Denver, Colorado Housing Multifamily Revenue
Section 8 - Series A 5.55% 10/2/19 ............. 3,000,000 3,069,900
Eaglebend Colorado Affordable Housing
Corporate Multifamily Revenue Reference
Housing Project Series A 6.20% 7/1/12 .......... 1,000,000 1,022,240
Eaglebend Colorado Affordable Housing
Corporate Multifamily Revenue Reference
Housing Project Series A 6.40% 7/1/17 .......... 1,000,000 1,042,970
Eaglebend Colorado Affordable Housing
Corporate Multifamily Revenue Reference
Housing Project Series A 6.45% 11/1/21 ......... 1,000,000 1,034,430
Englewood Multifamily Marks Apartments
Series 96 6.65% 12/1/26 ....................... 5,700,000 6,173,328
Englewood Multifamily Marks Apartments
Series B 6.00% 12/15/18 ....................... 8,950,000 9,219,485
Pueblo County Single Family Mortgage Revenue
Series 1994A 7.05% 11/1/27 (GNMA) .............. 3,320,000 3,670,858
------------
74,565,067
------------
Lease/Certificates of
Participation - 4.75%
Conejos & Alamosa Counties,Colorado School
District No.Re Certificates of Participation
6.50% 4/1/11 .................................. 1,780,000 1,811,898
Greeley Building Authority 6.10% 8/15/16 ........ 2,600,000 2,746,822
Jefferson County Certificates of Participation
4.00% 12/1/09 ................................. 5,000,000 5,000,000
Jefferson County, Inverse Floater
6.67% 12/1/09 (MBIA) .......................... 5,000,000 5,464,300
Pueblo County Colorado School District #60,
Inverse Floater 6.92% 12/1/10 (MBIA) ........... 2,220,000 2,419,423
------------
17,442,443
------------
<PAGE>
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS (Continued)
Power Authority Revenue
Bonds - 1.44%
Platte River Power Authority Series BB
6.125% 6/1/14 ................................ $ 5,000,000 $ 5,302,000
------------
5,302,000
------------
*Pre-Refunded Bonds - 0.50%
Auraria Higher Education Center Fee
6.50% 5/1/12-01 (AMBAC) ...................... 1,715,000 1,844,705
------------
1,844,705
------------
School Authority/District Revenue
Bonds - 0.64%
Chaffee and Freemont Counties School District
Authority Number R-32 Salinda
5.00% 12/1/17 ................................ 1,370,000 1,364,794
Weld County College School District Number
Re 007 5.00% 12/1/17 ......................... 1,000,000 983,850
------------
2,348,644
------------
Transportation Revenue
Bonds - 6.44%
Arapahoe County Capital Improvement E-470
7.00% 8/31/26 ................................ 10,000,000 11,924,300
Arapahoe County Vehicle Reg E-470
6.15% 8/31/26 (MBIA) ......................... 8,530,000 9,373,873
Denver City & County Airport Revenue
5.60% 11/15/20 (MBIA) ........................ 2,300,000 2,368,287
------------
23,666,460
------------
Water and Sewer Revenue
Bonds - 3.20%
Centennial Water and Sanitation District
Colorado Water and Sewer Revenue
Reference Series A 5.125% 12/1/17 ............. 5,000,000 5,035,050
Centennial County Water and Sanitary District
Revenue 6.00% 12/1/15 (LOC-Swiss Bank) ........ 4,000,000 4,309,760
Erie,Colorado Water Enterprise - Series B
6.125% 12/1/21 ............................... 1,290,000 1,315,594
Westminster Water & Sewer Utility Revenue
6.25% 12/1/14 (AMBAC) ........................ 1,000,000 1,094,110
------------
11,754,514
------------
Other Revenue Bonds - 15.05%
Aurora Saddle Rock Golf Course
6.20% 12/1/15 ................................ 2,000,000 2,099,060
Denver,Colorado City & County Airport Revenue -
Series E 5.25% 11/15/23 ...................... 14,780,000 14,758,126
Denver,Colorado City & County Revenue - Helen
G Bonfils Foundation Project-B
5.125% 12/1/17 ............................... 2,000,000 1,962,940
GVR Metropolitan District Series A
6.00% 12/1/15 ................................ 7,075,000 7,534,521
GVR Metropolitan District Series A
6.125% 12/1/19 ............................... 4,725,000 5,029,621
Lowry Colorado Economic Redevelopment
Authority 7.50% 12/1/10 ...................... 13,700,000 15,131,924
<PAGE>
for tax-exempt income 17
Statement of Net Assets (Continued)
- -------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS (Continued)
Other Revenue Bonds (Continued)
Pueblo County Colorado Municipal Securities
Trust Receipts 1996 G 4.00% 12/1/10 ....... $ 2,220,000 $ 2,220,000
Pueblo Urban Renewal Authority Jr Lien
6.625% 12/1/19 ........................... 2,155,000 2,325,288
Pueblo Urban Renewal Authority Revenue
6.15% 12/1/19 (AMBAC) .................... 1,685,000 1,807,078
South Suburban District Golf and Ice Arena
Facility 6.00% 11/1/15 ................... 2,330,000 2,433,071
-------------
55,301,629
-------------
Total Municipal Bonds (cost $338,603,297) . 364,312,380
-------------
Short Term Investments - 0.54% Number of Shares
----------------
Norwest Advantage Municipal Money
Market Fund ...................................... 1,984,000 1,984,000
-------------
Total Short Term Investments
(cost $1,984,000) ............................... 1,984,000
-------------
TOTAL MARKET VALUE OF SECURITIES OWNED - 99.68%
(COST $340,587,297) ............................. $366,296,380
RECEIVABLES AND OTHER ASSETS NET
OF LIABILITIES - 0.32% .......................... 1,191,742
-------------
NET ASSETS APPLICABLE TO 32,303,931 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% ........... $367,488,122
=============
NET ASSET VALUE - TAX FREE COLORADO FUND A CLASS
($357,992,786 / 31,469,339 SHARES) .............. $11.38
======
NET ASSET VALUE - TAX FREE COLORADO FUND B CLASS
($7,797,960 / 685,416 SHARES) ................... $11.38
======
NET ASSET VALUE - TAX FREE COLORADO FUND C CLASS
($1,697,376 / 149,176 SHARES) ................... $11.38
======
- ------------------
* For Pre-Refunded Bonds, the stated maturity is followed by the
year in which each bond is pre-refunded.
Summary of Abbreviations
AMBAC - Insured by the AMBAC Indemnity Corporation
CONNIE LEE - Insured by College Construction Insurance Association
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Authority
GNMA - Insured by the Government National Mortgage Association
LOC - Swiss Bank - Letter of Credit by Swiss Bank of New York
MBIA - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common stock, $.01 par value, 10,000,000,000 shares authorized
to the Fund with 1,000,000,000 shares allocated to Tax-Free
Colorado Fund A Class, 1,000,000,000 shares allocated to
Tax-Free Colorado Fund B Class, and 1,000,000,000 shares
allocated to Tax-Free Colorado Fund C Class ............. $ 346,546,165
Accumulated net realized loss on investments ............. (4,767,126)
Net unrealized appreciation on investments ............... 25,709,083
-------------
Total Net Assets ......................................... $ 367,488,122
=============
NET ASSET VALUE AND OFFERING PRICE FOR TAX FREE
COLORADO FUND A CLASS
Net asset value per share (A) ........................... $11.38
Sales charge (3.75% of offering price or 3.87% of
amount invested per share) (B) ......................... 0.44
------
Offering price ........................................... $11.82
======
- -------------
(A) Net asset value per share illustrated is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See Purchasing Shares in the current Prospectus for purchases of
$100,000 or more for Tax Free Colorado Fund Class A.
<PAGE>
18 for tax-exempt income
Delaware-Voyageur Tax-Free Arizona Fund
Statement of Net Assets
December 31, 1997
- -------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS - 97.99%
General Obligation Bonds - 23.36%
Eagle Mountain Community Facility District
6.50% 7/1/21 .................................... $1,010,000 $1,108,606
Maricopa County Chandler Unified School District
# 80 6.00% 7/1/13 (FGIC) ......................... 100,000 108,369
Maricopa County Osborn Unified School
District #8 5.875% 7/1/14 (FGIC) ................. 300,000 323,829
Maricopa County Tempe Unified School
District #40 6.00% 7/1/11(FGIC) .................. 100,000 108,864
Maricopa County U.S.D. #40 - Glendale
6.30% 7/1/11 .................................... 500,000 545,915
Mesa Arizona Utility Systems Revenue
5.25% 7/1/16 (FGIC) ............................. 500,000 509,940
Pima County Flowing Wells U.S.D. #8
5.90% 7/1/13 .................................... 500,000 536,390
Tucson Arizona 5.375% 7/1/20 ...................... 250,000 253,615
----------
3,495,528
----------
Higher Education Revenue
Bonds - 6.69%
Northern Arizona University Revenue
5.00% 6/1/15 .................................... 500,000 500,375
Northern Arizona University Revenue
5.00% 6/1/17 .................................... 500,000 500,375
----------
1,000,750
----------
Hospital Revenue Bonds - 14.0%
Arizona Health Facility Authority Hospital Revenue
5.25% 10/1/26 (MBIA) ............................ 100,000 100,667
Arizona Samaritan Health System
5.625% 12/1/15 (MBIA) ........................... 175,000 181,365
Industrial Development Authority of Pima County
5.00% 4/1/15 .................................... 500,000 500,295
Maricopa County,Arizona Hospital Revenue
(Sun Health Corp.) 6.125% 4/1/18 ................. 600,000 637,266
Phoenix,Arizona Industrial Development Authority
Hospital Revenue - John C. Lincoln - Series B
5.60% 12/1/11 ................................... 500,000 534,985
Scottsdale Memorial Hospital Ida 5.25% 9/1/18 ..... 200,000 200,610
----------
2,155,188
----------
Housing Revenue Bonds - 15.55%
Peoria Casa Del Rio Multi Family Housing
7.30% 2/20/28 ................................... 500,000 557,175
Phoenix Industrial Development Authority Chris
Ridge 6.80% 11/1/25 ............................. 125,000 132,258
Pima County Arizona Ida Revenue Series A
7.25% 7/1/25 .................................... 725,000 795,818
<PAGE>
Principal Market
Amount Value
--------- ------
Housing Revenue Bonds (Cont.)
Tempe Multifamily Mortgage Revenue Ida
6.125% 6/1/10 ................................... $ 200,000 $ 213,196
Tucson Industrial Development Authority Los
Portales Apartment 5.90% 12/20/31 (GNMA) ......... 600,000 627,576
----------
2,326,023
----------
Industrial Development Revenue
Bonds - 5.11%
Maricopa County Arizona Pollution Control
5.75% 11/1/22 ................................... 750,000 764,370
----------
764,370
----------
Lease/Certificate of Participation - 0.72%
University Of Arizona Certificate Of Participation
6.00% 7/15/23 ................................... 100,000 107,229
----------
107,229
----------
Pollution Control Revenue
Bonds - 13.12%
Chandler Arizona Solid Waste System Rev
5.375% 7/1/16 ................................... 600,000 616,206
Coconimo Cnty Ariz. Pcr Nevada Power Co.
6.375% 10/1/36 .................................. 1,250,000 1,346,075
----------
1,962,281
----------
Utility Revenue Bonds - 0.68%
Salt River Project Series C 5.50% 1/1/28 .......... 100,000 100,995
----------
100,995
----------
Water and Sewer Bonds - 14.35%
Gilbert Water & Wastewater System
Revenue - Connection Development Fee
6.875% 4/1/16 ................................... 1,000,000 1,021,570
Gilbert Water And Waste Water Revenue
6.50% 7/1/22 (FGIC) ............................. 100,000 110,938
Puerto Rico Commonwealth Infrastructure
Financing Authority Special Series A
5.00% 7/1/21 .................................... 500,000 493,195
Tucson Water Revenue Refunding Series A
5.75% 7/1/18 .................................... 500,000 520,270
----------
2,145,973
----------
Other Revenue Bonds - 4.01%
Salt River Project Arizona Agriculture
5.00% 1/1/20 .................................... 500,000 492,130
Scottsdale Municipal Property Corporation Lease
6.25% 11/1/14 (FGIC) ............................ 100,000 108,308
----------
600,438
----------
Total Municipal Bonds (cost $13,915,515) .......... 14,658,775
----------
<PAGE>
for tax-exempt income 19
Statement of Net Assets (Continued)
- -------------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES OWNED -97.99%
(COST $13,915,515)................................. $14,658,775
RECEIVABLES AND OTHER ASSETS NET OF
LIABILITIES - 2.01%............................... 300,550
-----------
NET ASSETS APPLICABLE TO 1,342,609 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% ............ $14,959,325
===========
NET ASSET VALUE - TAX FREE ARIZONA FUND A CLASS
($10,916,403/979,622 SHARES)....................... $11.14
======
NET ASSET VALUE - TAX FREE ARIZONA FUND B CLASS
($3,710,943/333,229 SHARES)........................ $11.14
======
NET ASSET VALUE - TAX FREE ARIZONA FUND C CLASS
($331,979/29,758 SHARES)........................... $11.16
======
- ---------------
Summary of Abbreviations
FGIC - Insured by the Financial Guaranty Insurance Company
GNMA - Insured by the Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common stock, $.01 par value, 100,000,000,000 shares authorized
to the Fund with 10,000,000,000 shares allocated to Tax-Free
Arizona Fund A Class, 10,000,000,000 shares allocated to
Tax-Free Arizona Fund B Class, and 10,000,000,000 shares
allocated to Tax-Free Arizona Fund C Class ...................... $14,061,702
Accumulated net realized gain on investments ..................... 154,363
Net unrealized appreciation on investments ....................... 743,260
-----------
Total net assets ................................................. $14,959,325
===========
NET ASSET VALUE AND OFFERING PRICE FOR
TAX FREE ARIZONA FUND A CLASS
Net asset value per share (A) ................................... $11.14
Sales charge (3.75% of offering price or 3.86% of amount
invested per share) (B) ........................................ 0.43
------
Offering price ................................................... $11.57
======
- --------
(A) Net asset value per share illustrated is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See Purchasing Shares in the current Prospectus for purchases of
$100,000 or more for Tax Free Arizona Fund Class A.
<PAGE>
Delaware-Voyageur
Tax-Free Arizona Insured Fund
Statement Of Net Assets
December 31, 1997
- -------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
Municipal Bonds - 100.04%
General Obligation Bonds - 52.40%
Cave Creek Unified School District #93, Inverse
Floater (FGIC) 6.97% 7/1/11 ...................... $ 1,500,000 $ 1,613,010
Chandler Refunding (FGIC) 7.00% 7/1/12 ............ 1,000,000 1,097,880
Cochise County Unified School District (FGIC)
7.50% 7/1/10 .................................... 1,000,000 1,268,740
Glendale Unified School District #205
Inverse Floater 6.37% 7/1/11 ..................... 2,600,000 2,845,284
Maricopa County Chandler Refunding #80
(FGIC) 5.80% 7/1/12 ............................. 1,000,000 1,064,240
(FGIC) 5.85% 7/1/13 ............................. 2,200,000 2,341,064
Maricopa County Chandler Unified School District
#80 (FGIC) 6.00% 7/1/13 ......................... 2,400,000 2,600,856
Maricopa County Fountain Hills Unified School
District #98 (AMBAC) 6.625% 7/1/10 ............... 1,000,000 1,083,470
Maricopa County Gilbert Unified School District
#41 (FSA) 6.25% 7/1/15 .......................... 1,250,000 1,387,075
Maricopa County Hospital District #1 (FGIC)
6.125% 6/1/15 ................................... 5,500,000 5,912,720
Maricopa County Kyrene Unified School
District #28 (FGIC) 5.90% 7/1/10 ................. 2,000,000 2,145,520
Maricopa County Madison Unified School District
#38 (MBIA) 5.80% 7/1/15 ......................... 3,150,000 3,365,744
Maricopa County Osborn Unified School District #8
(FGIC) 5.875% 7/1/14 ............................ 3,500,000 3,778,005
Maricopa County Paradise Valley Elementary
School District #69 (MBIA) 6.40% 7/1/10 .......... 3,000,000 3,274,080
Maricopa County Peoria Unified School District #11
(AMBAC) 6.10% 7/1/10 ............................ 2,000,000 2,206,300
(AMBAC) 7.00% 7/1/10 ............................ 1,000,000 1,102,330
Maricopa County Queens Creek Unified School
District #95 (AMBAC) 5.70% 7/1/14 ................ 4,440,000 4,699,784
Maricopa Creighton Elementary Unified School
District #114 Series 91 (FGIC)
6.50% 7/1/08 .................................... 1,000,000 1,174,870
Mesa Arizona Utility Systems Revenue
(FGIC) 5.25% 7/1/16 ............................. 18,680,000 19,051,358
Mohave County Unified School District #1 Lake
Havasu (FGIC) 5.90% 7/1/15 ....................... 5,000,000 5,416,700
Peoria (MBIA) 5.70% 7/1/11 ....................... 1,000,000 1,056,600
Phoenix Arizona (MBIA) 6.375% 7/1/13 ............. 2,000,000 2,169,920
Pima County Community College District
(AMBAC) 6.40% 7/1/07 ............................ 1,000,000 1,077,270
Pima County Marana Unified School District #6
(FGIC) 5.75% 7/1/12 ............................. 6,350,000 6,702,552
Pima County Tucson Unified School District #1
Inverse Floater (FGIC) 6.97% 7/1/13 .............. 3,000,000 3,212,700
Pima County Tucson Unified School District #1,
(FGIC) 4.00% 7/1/13 ............................. 3,000,000 3,000,000
Pinal County Apache Junction Unified School
District #43 (FGIC) 5.85% 7/1/15 ................. 2,000,000 2,155,420
<PAGE>
20 for tax-exempt income
Statement of Net Assets (Continued)
- -------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS (Continued)
General Obligation Bonds (Continued)
Puerto Rico Commonwealth Infrastructure
Financing Authority Series A 5.00% 7/1/21 ....... $ 2,150,000 $ 2,120,739
Series A 5.00% 7/1/28 ........................... 1,000,000 981,570
Santa Cruz County Nogales Unified School District
#1 (AMBAC) 6.10% 7/1/14 ........................ 1,250,000 1,379,888
Tucson (FGIC) 6.10% 7/1/12 ....................... 5,030,000 5,414,694
Yuma (AMBAC) 6.125% 7/1/12 ....................... 3,000,000 3,296,460
-----------
99,996,843
-----------
Higher Education Revenue
Bonds - 7.44%
Arizona State University System (MBIA)
6.125% 7/1/15 .................................. 1,500,000 1,597,485
Glendale Educational Facilities American
Graduate School (CONNIE LEE) 6.75% 7/1/09 ....... 750,000 869,385
(CONNIE LEE) 7.00% 7/1/14 ........................ 1,000,000 1,175,010
Glendale Industrial Development Authority
Midwestern University Series A (CONNIE LEE)
6.00% 5/15/26 .................................. 2,700,000 2,904,714
Northern Arizona University Revenue
5.00% 6/1/15 ................................... 3,285,000 3,287,464
Resh-Elliot Park State University (MBIA
6.75% 7/1/11 ................................... 1,000,000 1,102,620
University Of Arizona (AMBAC) 6.25% 6/1/11 ....... 3,000,000 3,256,740
-----------
14,193,418
-----------
Hospital Revenue Bonds - 13.16%
Arizona Health Facility Authority Hospital Revenue
(MBIA) 5.25% 10/1/26 ........................... 1,000,000 1,006,670
Arizona Health Facility Authority Phoenix Baptist
Hospital and Medical Center (MBIA)
6.25% 9/1/11 ................................... 2,000,000 2,186,380
Maricopa County Industrial Development
Authority Baptist Hospital
(MBIA) 5.50% 9/1/13 ............................ 3,080,000 3,217,799
(MBIA) 5.50% 9/1/16 ............................ 1,000,000 1,035,520
Mohave County Industrial Development Authority
Baptist Hospital (MBIA) 5.75% 9/1/26 ............ 1,100,000 1,161,820
Chris/Silver Ridge (GNMA) 6.375% 11/1/31 ......... 1,300,000 1,425,359
Phoenix, Arizona Industrial Development Authority
Hospital Revenue - John C. Lincoln Health
Series B 5.60% 12/1/11 ......................... 1,020,000 1,091,369
Series B 5.65% 12/1/12 ......................... 1,120,000 1,179,506
Series B 5.75% 12/1/16 ......................... 4,110,000 4,327,172
Pima County, Arizona Development Authority
Revenue (Healthpartners - Series A)
5.625% 4/1/14 .................................. 1,000,000 1,062,870
Pima County Tucson Medical Center (MBIA)
6.375% 4/1/12 .................................. 1,000,000 1,090,490
Pima Individual Health Care (MBIA)
6.75% 7/1/10 ................................... 1,000,000 1,095,420
Scottsdale,Arizona Industrial Development
Authority Hospital Revenue - Scottsdale
Memorial Hospital - Series A 6.00% 9/1/12 ....... 2,000,000 2,223,640
<PAGE>
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds (Continued)
Scottsdale Industrial Development Authority
Hospital Revenue, Inverse Floater (AMBAC)
6.87% 9/1/12 ................................. $ 1,250,000 $ 1,437,963
University of Arizona Medical Center (MBIA)
6.25% 7/1/10 ................................. 1,445,000 1,569,732
-----------
25,111,710
-----------
Housing Revenue Bonds - 4.77%
Chandler Industrial Development Authority
Multifamily Housing (GNMA) 5.90% 7/20/15 ...... 1,060,000 1,101,075
Pima County Arizona IDA Revenue Series A
7.25% 7/1/25 ................................. 1,000,000 1,097,680
Tucson Industrial Development Authority Los
Portales Apartment (GNMA) 5.90% 12/20/31 ...... 3,670,000 3,838,673
Yuma Arizona Industrial Development Authority
Multifamily Revenue Reference
Mortgage - (GNMA) Regency Apartments A
5.40% 12/20/17 ............................... 1,040,000 1,055,371
5.50% 12/20/32 ............................... 2,000,000 2,016,480
-----------
9,109,279
-----------
Industrial Development Revenue
Bonds - 7.07%
Glendale Industrial Development Authority G.O.
(CONNIE LEE) 5.625% 7/1/20 .................... 1,500,000 1,552,920
(CONNIE LEE) 5.875% 7/1/15 .................... 3,000,000 3,184,680
Maricopa County Arizona Industrial Development
Authority Series A 5.40% 12/1/22 .............. 1,000,000 1,015,750
Maricopa County Stadium District (MBIA)
5.50% 7/1/13 ................................. 2,000,000 2,071,880
Peoria Development Authority Arizona
Municipal Securities Trust 1996 B
4.00% 7/1/10 ................................. 2,750,000 2,750,000
Peoria Municipal Development Facility Revenue
Inverse Floater (MBIA) 6.37% 7/1/10 ........... 2,750,000 2,906,118
-----------
13,481,348
-----------
Lease/Certificates Of Participation - 3.34%
Oro Valley Common Trust Funds Partnership
(MBIA) 5.75% 7/1/11 .......................... 1,000,000 1,078,790
Oro Valley Common Trust Funds Partnership
(MBIA) 5.75% 7/1/17 .......................... 1,000,000 1,067,770
Scottsdale Municipal Property Corporation Lease
(FGIC) 6.25% 11/1/14 ......................... 3,900,000 4,224,012
-----------
6,370,572
-----------
Power Authority Revenue
Bonds - 2.26%
Salt River Agricultural Improvement &
Power Project (AMBAC) 6.50% 1/1/22 ............ 2,000,000 2,171,980
(FGIC) 6.25% 1/1/19 .......................... 2,000,000 2,140,920
-----------
4,312,900
-----------
<PAGE>
for tax-exempt income 21
Statement of Net Assets (Continued)
- -------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS (Continued)
Pre-Refunded*-1.95%
Phoenix Arizona Street & Highway Revenue
(FGIC) 6.50% 7/1/09-02 ....................... $ 2,000,000 $ 2,219,480
Pima County Sewer Revenue 6.75% 7/1/15-01 ...... 1,380,000 1,509,637
------------
3,729,117
------------
Transportation Revenue Bonds - 3.15%
Chandler Street & Highway Revenue, Inverse
Floater (MBIA) 5.62% 7/1/15 ................... 1,000,000 1,015,270
Tucson Airport Authority Revenue (MBIA)
5.70% 6/1/13 ................................. 4,750,000 4,992,298
------------
6,007,568
------------
Water and Sewer Revenue
Bonds - 4.50%
Apache Junction, Arizona Water Utilities -
Series A 5.80% 7/1/17 ........................ 1,215,000 1,300,961
Chandler Water and Sewer Revenue
(MBIA) 5.50% 7/1/15 .......................... 1,000,000 1,042,900
(FGIC) 7.00% 7/1/12 .......................... 1,000,000 1,097,880
Gilbert Water And Waste Water Revenue
(FGIC) 6.50% 7/1/12 .......................... 1,000,000 1,122,510
(FGIC) 6.50% 7/1/22 .......................... 2,650,000 2,939,857
Pima County Special Water Improvement District
(FGIC) 6.20% 1/1/11 .......................... 1,000,000 1,080,380
------------
8,584,488
------------
Total Municipal Bonds (cost $176,944,078) ............... 190,897,243
------------
TOTAL MARKET VALUE OF SECURITIES OWNED - 100.04%
(COST $176,944,078) .................................... $ 190,897,243
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS - (0.04%) (79,072)
-------------
NET ASSETS APPLICABLE TO 16,639,008 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% .................. $ 190,818,171
=============
NET ASSET VALUE - TAX-FREE ARIZONA INSURED A CLASS
($186,485,402/16,261,104 SHARES) ....................... $11.47
======
NET ASSET VALUE - TAX-FREE ARIZONA INSURED B CLASS
($3,657,347/319,019 SHARES) ............................ $11.46
======
NET ASSET VALUE - TAX-FREE ARIZONA INSURED C CLASS
($675,422/58,885 SHARES) ............................... $11.47
======
- ----------------
* For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
<PAGE>
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Indemnity Corporation
CONNIE LEE - Insured by the College Construction Insurance Association
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
GNMA - Insured by the Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common Stock, $.01 par value, 10,000,000,000 shares
authorized to the Fund with 1,000,000,000 shares allocated
to Tax Free Arizona Insured Fund A Class, 1,000,000,000
shares allocated to Tax Free Arizona Insured Fund B Class
and 1,000,000,000 shares allocated to Tax Free Arizona
Insured Fund C Class ........................................ $ 180,488,071
Undistributed net investment income .......................... 5,538
Accumulated net realized loss on investments ................. (3,628,603)
Net unrealized appreciation of investments ................... 13,953,165
-------------
Total Net Assets ............................................. $ 190,818,171
=============
NET ASSET VALUE AND OFFERING PRICE FOR TAX FREE ARIZONA
INSURED FUND A CLASS
Net asset value per share (A) ............................... $11.47
Sales charge (3.75% of offering price or 3.92% of
amount invested per share) (B) ............................. 0.45
------
Offering price ............................................... $11.92
======
- -------------
(A) Net asset value per share illustrated is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See Purchasing Shares in the current Prospectus for purchases of
$100,000 or more for Tax Free Arizona Insured Fund Class A.
<PAGE>
22 for tax-exempt income
Delaware-Voyageur Tax-Free New Mexico Fund
Statement of Net Assets
December 31, 1997
- -------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS - 98.34%
General Obligation Bonds - 20.27%
Albuquerque Special Assessment #223
6.45% 1/1/15 ................................ $ 910,000 $ 915,242
Dona Ana County Tax Reference & Improvement
6.00% 6/1/19 ................................ 1,000,000 1,060,540
Farmington Pollution Control Revenue
6.375% 4/1/22 ............................... 1,000,000 1,076,850
Truth Or Consequences Gross Tax Receipts
6.30% 7/1/16 ................................ 1,000,000 1,070,020
----------
4,122,652
----------
Higher Education Revenue Bonds - 10.94%
University of New Mexico Technical Development
Lease Revenue 6.55% 8/15/25 .................. 1,000,000 1,137,070
New Mexico Education Assistance Foundation
6.65% 11/1/25 ............................... 1,000,000 1,088,130
----------
2,225,200
----------
Hospital Revenue Bonds - 11.15%
Farmington,New Mexico Hospital Revenue -
San Juan Regulated Medical Center - Series A
5.00% 6/1/16 ................................ 1,000,000 981,080
Cibola County,New Mexico Gross Receipts Tax
Revenue 5.00% 11/1/16 ....................... 200,000 199,260
State Hospital Equipment Memorial Medical
Center Project 6.40% 6/1/16 .................. 1,000,000 1,088,060
----------
2,268,400
----------
Housing Revenue Bonds - 34.94%
Carlsbad,New Mexico Housing Multifamily
Revenue - Colonial Hillcrest 7.375% 8/1/27 ... 1,000,000 1,020,190
New Mexico Mortgage Finance Authority Series
1994B 6.75% 7/1/25 .......................... 1,000,000 1,147,960
New Mexico Mortgage Finance Authority Series
1994F 6.95% 1/1/26 .......................... 1,000,000 1,133,980
New Mexico Mortgage Finance Authority Series
1996G 6.85% 1/1/21 .......................... 1,500,000 1,731,750
Santa Fe Single Family Mortgage Revenue
6.20% 11/1/16 ............................... 1,000,000 1,061,440
Southeastern New Mexico Affordable Housing
Reference - Housing - Casa Hermosa
Apartments 7.25% 12/1/27 ..................... 1,000,000 1,010,850
----------
7,106,170
----------
Industrial Development Revenue
Bonds - 10.50%
Las Cruses Solid Waste Authority 6.00% 6/1/16.. 1,000,000 1,047,320
Lordsburg Pollution Control 6.50% 4/1/13 ...... 1,000,000 1,088,530
----------
2,135,850
----------
Utility Revenue Bonds - 5.27%
Los Alamos Utility System Revenue 1994A
6.00% 7/1/15 (FSA) .......................... 1,000,000 1,072,030
----------
1,072,030
----------
<PAGE>
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS (Continued)
Water and Sewer Revenue
Bonds - 5.27%
Rio Rancho Water & Wastewater Revenue
6.00% 5/15/22 (FSA) ........................... $ 1,000,000 $ 1,071,080
-----------
1,071,080
-----------
Total Municipal Bonds (cost $18,459,263) ........ 20,001,382
-----------
TOTAL MARKET VALUE OF SECURITIES OWNED
(COST $18,459,263) - 98.34% .................................... 20,001,382
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.66% .......... 337,054
-----------
NET ASSETS APPLICABLE TO 1,803,281 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% .......................... $20,338,436
===========
NET ASSET VALUE - TAX-FREE NEW MEXICO FUND A CLASS
($18,958,459 / 1,680,991 SHARES) ............................... $11.28
======
NET ASSET VALUE - TAX-FREE NEW MEXICO FUND B CLASS
($1,065,222 / 94,392 SHARES) ................................... $11.29
======
NET ASSET VALUE - TAX-FREE NEW MEXICO FUND C CLASS
($314,755 / 27,898 SHARES) ..................................... $11.28
======
- -------------
FSA - Insured by the Financial Security Assurance
Components of Net Assets at December 31, 1997:
Common stock, $.01 par value, unlimited shares authorized
to Tax-Free New Mexico Fund ..................................... $19,414,778
Accumulated net realized loss on investments ..................... (618,461)
Net unrealized appreciation on investments ....................... 1,542,119
-----------
Total net assets ................................................. $20,338,436
===========
NET ASSET VALUE AND OFFERING PRICE FOR
TAX-FREE NEW MEXICO FUND A CLASS
Net asset value per share (A) ................................... $11.28
Sales charge (3.75% of offering price or 3.90% of
amount invested per share) (B) ................................. 0.44
------
Offering price ................................................... $11.72
======
- -----------
(A) Net asset value per share illustrated is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See Purchasing Shares in the current Prospectus for purchases of
$100,000 or more for Tax-Free New Mexico Fund Class A.
<PAGE>
for tax-exempt income 23
Delaware-Voyageur Tax-Free Utah Fund
Statement Of Net Assets
December 31, 1997
- -------------------------------------------------------------------------------
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS - 99.81%
General Obligation Bonds - 19.62%
Iron County School District (MBIA)
6.50% 1/15/13 .................................. $ 100,000 $ 112,570
Nebo Utah School District 6.00% 6/15/18 .......... 200,000 215,052
Provo,Utah City School District 6.25% 6/15/13 .... 100,000 109,460
Puerto Rico Aqueduct & Sewer Authority
5.00% 7/1/15 ................................... 200,000 199,074
Salt Lake County Service Area # 1
6.00% 12/15/12 ................................. 100,000 105,502
----------
741,658
----------
Higher Education Revenue
Bonds - 28.20%
Salt Lake County Utah College - Westminster
College Project 5.75% 10/1/27 ................... 160,000 164,777
Southern Utah University Board of Regents
(AMBAC) 6.35% 5/1/10 ........................... 150,000 165,557
Southern Utah University Pavilion Student Fee
6.30% 6/1/16 ................................... 390,000 415,233
Utah State Board of Regents
(MBIA) 5.875% 7/1/21 ........................... 100,000 105,777
(AMBAC) 6.30% 6/1/12 ........................... 100,000 108,475
Weber State University Board of Regents
(MBIA) 6.25% 4/1/10 ............................ 100,000 106,474
----------
1,066,293
----------
Hospital Revenue Bonds - 2.64%
Utah county,Utah Hospital Revenue - IHC Health
Services 5.25% 8/15/26 ......................... 100,000 99,700
----------
99,700
----------
Housing Revenue Bonds - 23.38%
Clearfield City Utah Multifamily Revenue
Housing - Mortgage - Federal Housing
Authority Oakstone Apartments -
A 5.75% 11/1/27 ................................ 150,000 151,911
Salt Lake City Multifamily Housing Authority
6.00% 4/1/25 ................................... 100,000 103,134
Salt Lake County Housing Authority Multifamily
Bridgeside (FHA) 6.30% 11/1/28 .................. 270,000 286,505
Utah Housing Finance Authority Single Family
Mortgage Revenue
Series 1994C 6.30% 7/1/16 ....................... 20,000 21,409
Series 1992D-1 6.70% 7/1/12 ..................... 105,000 112,059
Utah Housing Finance Multifamily Cottonwood
Project (FNMA) 6.30% 7/1/15 ..................... 200,000 208,916
----------
883,934
----------
Municipal Lease Bonds - 15.16%
Salt Lake City Municipal Building Authority Lease
Revenue Series A 6.38% 10/1/12 .................. 100,000 109,615
Weber County Utah Municipal Building Authority
Lease Revenue 5.75% 12/15/19..................... 200,000 206,910
*West Valley City Utah Municipal Building
Authority Lease Revenue
5.13% 1/15/18 .................................. 150,000 150,056
6.00% 1/15/10 .................................. 100,000 106,400
----------
572,981
----------
<PAGE>
Principal Market
Amount Value
--------- ------
MUNICIPAL BONDS (Continued)
Utility Revenue Bonds - 1.07%
Puerto Rico Electric Power Authority Series X
5.50% 7/1/25 ..................................... $ 40,000 $ 40,587
----------
40,587
----------
Water And Sewer Revenue Bonds - 9.74%
Utah Water Finance Agency Revenue - Series A
5.60% 10/1/17 .................................... 150,000 156,128
White City Water District Revenue
5.90% 2/1/22 ..................................... 200,000 212,238
----------
368,366
----------
Total Municipal Bonds (cost $3,535,103) ........... 3,773,519
----------
TOTAL MARKET VALUE OF SECURITIES OWNED - 99.81%
(COST $3,535,103) ................................ $3,773,519
RECEIVABLES AND OTHER ASSETS NET OF
LIABILITIES - 0.19% ............................... 7,130
----------
NET ASSETS APPLICABLE TO 333,715 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% ............ $3,780,649
==========
NET ASSET VALUE - TAX-FREE UTAH A CLASS
($3,222,826/284,484 SHARES) ...................... $11.33
======
NET ASSET VALUE - TAX-FREE UTAH B CLASS
($557,823/49,231 SHARES) ......................... $11.33
======
- ------------
AMBAC - Insured by the AMBAC Indemnity Corporation
FHA - Insured by the Federal Housing Administration
FNMA - Insured by the Federal National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common Stock, $.01 par value, 10,000,000,000 shares
authorized to the Fund with 1,000,000,000 shares allocated
to Tax-Free Utah Fund A Class and 1,000,000,000
shares allocated to Tax-Free Utah Fund B Class ............... $ 3,579,499
Accumulated net realized loss on investments .................. (37,266)
Net unrealized appreciation of investments .................... 238,416
-----------
Total Net Assets .............................................. $ 3,780,649
===========
NET ASSET VALUE AND OFFERING PRICE FOR
TAX-FREE UTAH FUND A CLASS
Net asset value per share (A) ............................... $11.33
Sales charge (3.75% of offering price or 3.88% of
amount invested per share) (B) .............................. 0.44
------
Offering price ................................................ $11.77
======
- --------------
(A) Net asset value per share illustrated is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See Purchasing Shares in the current Prospectus for purchases of
$100,000 or more for Tax-Free Utah Fund Class A.
<PAGE>
24 for tax-exempt income
Delaware-Voyageur Funds
Statements Of Operations
Year Ended December 31, 1997
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free Arizona Tax-Free Tax-Free
Colorado Fund Arizona Fund Insured Fund New Mexico Fund Utah Fund
------------- ------------ ---------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest ................................ $21,727,112 $832,937 $11,446,838 $1,234,337 $228,407
----------- -------- ----------- ---------- --------
EXPENSES:
Management fees.......................... 1,787,177 70,527 993,505 102,892 19,497
Dividend disbursing, transfer agent,
and other fees and expenses.......... 273,346 13,100 161,643 22,501 35,071
Distribution expense..................... 690,596 64,168 378,964 39,860 8,553
Custody.................................. 44,372 3,265 46,359 10,106 2,088
Registration fees........................ 13,322 9,125 8,373 4,203 30,523
Reports and statements to shareholders... 80,191 3,700 35,611 13,493 9,679
Accounting and administration............ 128,741 5,467 73,936 7,726 1,292
Professional fees........................ 30,009 10,203 18,997 14,271 17,237
Directors' fees.......................... 12,074 806 6,746 705 1,653
Other.................................... 94,264 -- 68,964 6,782 --
----------- -------- ----------- ---------- --------
3,154,092 180,361 1,793,098 222,539 125,593
Less expenses absorbed or waived......... (178,191) (84,332) (97,576) (9,442) (94,656)
----------- -------- ----------- ---------- --------
Total Expenses........................... 2,975,901 96,029 1,695,522 213,097 30,937
----------- -------- ----------- ---------- --------
NET INVESTMENT INCOME.................... 18,751,211 736,908 9,751,316 1,021,240 197,470
----------- -------- ----------- ---------- --------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments:.... 4,504,945 174,893 2,190,476 272,561 57,047
Net change in unrealized appreciation
of investments:..................... 15,302,638 437,873 4,860,331 651,320 111,041
----------- -------- ----------- ---------- --------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ......................... 19,807,583 612,766 7,050,807 923,881 168,088
----------- -------- ----------- ---------- --------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS...................... $38,558,794 $1,349,674 $16,802,123 $1,945,121 $365,558
----------- ---------- ----------- ---------- --------
</TABLE>
See accompanying notes
<PAGE>
for tax-exempt income 25
Delaware-Voyageur Funds
Statements Of Changes In Net Assets
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free
Colorado Fund Arizona Fund Arizona Insured Fund
------------------------- ------------------------- -------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income................ $18,751,211 $19,646,268 $736,908 $585,918 $9,751,316 $10,932,538
Net realized gain (loss) on investments 4,504,945 133,826 174,893 43,350 2,190,476 10,306
Net increase (decrease) in unrealized
appreciation ....................... 15,302,638 (5,488,422) 437,873 48,393 4,860,331 (2,489,648)
------------ ------------ ----------- ----------- ------------ ------------
Net increase in net assets resulting
from operations .................... 38,558,794 14,291,672 1,349,674 677,661 16,802,123 8,453,196
------------ ------------ ----------- ----------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class.......................... (18,996,568) (18,915,160) (558,716) (458,456) (9,694,062) (10,689,424)
B Class.......................... (263,048) (109,036) (170,145) (126,098) (146,915) (104,095)
C Class.......................... (73,064) (59,059) (8,986) (1,140) (22,575) (21,813)
Net realized gain from security transactions:
A Class.......................... -- -- (14,835) (32,110) -- --
B Class.......................... -- -- (5,249) (11,166) -- --
C Class.......................... -- -- (446) (74) -- --
------------ ------------ ----------- ----------- ------------ ------------
(19,332,680) (19,083,255) (758,377) (629,044) (9,863,552) (10,815,332)
------------ ------------ ----------- ----------- ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class.......................... 24,861,682 21,914,760 1,713,483 4,078,229 8,703,489 12,580,493
B Class.......................... 3,577,245 3,017,003 1,398,191 1,938,750 1,626,775 1,108,948
C Class.......................... 556,067 784,158 294,389 1,991 260,791 369,065
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on security transactions:
A Class.......................... 12,735,946 12,151,368 318,925 255,437 4,127,147 4,229,553
B Class.......................... 223,373 68,715 93,785 71,011 80,590 60,679
C Class.......................... 68,964 49,099 1,725 1,371 14,987 19,176
------------ ------------ ----------- ----------- ------------ ------------
42,023,277 37,985,103 3,820,498 6,346,789 14,813,779 18,367,914
------------ ------------ ----------- ----------- ------------ ------------
Cost of shares repurchased:
A Class.......................... (56,711,281) (63,749,843) (1,297,760) (821,165) (42,377,224) (43,310,737)
B Class.......................... (535,127) (567,194) (1,423,141) (179,787) (1,306,416) (107,429)
C Class.......................... (537,497) (354,884) -- (7,414) (172,902) (367,793)
------------ ------------ ----------- ----------- ------------ ------------
(57,783,905) (64,671,921) (2,720,901) (1,008,366) (43,856,542) (43,785,959)
------------ ------------ ----------- ----------- ------------ ------------
Increase (decrease) in net assets derived
from capital share transactions .... (15,760,628) (26,686,818) 1,099,597 5,338,423 (29,042,763) (25,418,045)
------------ ------------ ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS. 3,465,486 (31,478,401) 1,690,894 5,387,040 (22,104,192) (27,780,181)
NET ASSETS:
Beginning of year.................... 364,022,636 395,501,037 13,268,431 7,881,391 212,922,363 240,702,544
------------ ------------ ----------- ----------- ------------ ------------
End of year.......................... $367,488,122 $364,022,636 $14,959,325 $13,268,431 $190,818,171 $212,922,363
============ ============ =========== =========== ============ ============
</TABLE>
See accompanying notes
<PAGE>
26 tax-exempt income
Statements Of Changes In Net Assets (Continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax-Free New Mexico Fund Tax-Free Utah Fund
-------------------------- --------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/97 12/31/96 12/31/97 12/31/96
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ............................ $ 1,021,240 $ 1,084,569 $ 197,470 $ 222,176
Net realized gain (loss) on investments .......... 272,561 (6,878) 57,047 (22,702)
Net increase (decrease) in unrealized
appreciation .................................... 651,320 (241,314) 111,041 (61,332)
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations ...................................... 1,945,121 836,377 365,558 138,142
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class ...................................... (994,922) (1,036,927) (178,847) (206,175)
B Class ...................................... (38,815) (27,156) (20,903) (16,604)
C Class ...................................... (12,451) (5,150) -- N/A
Net realized gain from security transactions:
A Class ...................................... -- -- -- --
B Class ...................................... -- -- -- --
C Class ...................................... -- -- -- --
------------ ------------ ------------ ------------
(1,046,188) (1,069,233) (199,750) (222,779)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ...................................... 1,142,996 2,700,528 199,784 181,975
B Class ...................................... 316,181 362,012 133,701 25,000
C Class ...................................... 96,958 344,523 -- --
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on security transactions:
A Class ...................................... 546,725 424,981 61,141 86,770
B Class ...................................... 22,585 14,983 18,642 16,214
C Class ...................................... 12,667 4,197 -- --
------------ ------------ ------------ ------------
2,138,112 3,851,224 413,268 309,959
------------ ------------ ------------ ------------
Cost of shares repurchased:
A Class ...................................... (3,709,704) (4,156,051) (1,040,871) (471,420)
B Class ...................................... (109,361) (186,300) (15,563) --
C Class ...................................... (148,298) (15,000) -- --
------------ ------------ ------------ ------------
(3,967,363) (4,357,351) (1,056,434) (471,420)
------------ ------------ ------------ ------------
Decrease in net assets derived from capital
share transactions .............................. (1,829,251) (506,127) (643,166) (161,461)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS ............ (930,318) (738,983) (477,358) (246,098)
NET ASSETS:
Beginning of year ................................ 21,268,754 22,007,737 4,258,007 4,504,105
------------ ------------ ------------ ------------
End of year ...................................... $ 20,338,436 $ 21,268,754 $ 3,780,649 $ 4,258,007
============ ============ ============ ============
</TABLE>
See accompanying notes
<PAGE>
for tax-exempt income 27
Delaware-Voyageur Funds
Financial Highlights
- ------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Colorado Fund-Class A
--------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
12/31/97(2) 12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............. $10.780 $10.900 $ 9.530 $11.100 $10.570
Income from investment operations:
Net investment income ........................ 0.574 0.560 0.540 0.550 0.560
Net realized and unrealized gain (loss)
from investments ........................ 0.618 (0.130) 1.380 (1.540) 0.850
---------- ---------- -------- -------- -------
Total from investment operations ............. 1.192 0.430 1.920 (0.990) 1.410
---------- ---------- -------- -------- -------
Less dividends and distributions:
Dividends from net investment income ......... (0.592) (0.550) (0.550) (0.540) (0.560)
Distributions from net realized gain on
security transactions ................... -- -- -- (0.040) (0.320)
---------- ---------- -------- -------- -------
Total dividends and distributions ............ (0.592) (0.550) (0.550) (0.580) (0.880)
---------- ---------- -------- -------- -------
Net asset value, end of period ................... $11.380 $10.780 $10.900 $ 9.530 $11.100
========== ========== ======== ======== =======
Total Return(1)................................... 11.40% 4.08% 20.54% (9.12%) 13.72%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ...... $357,993 $358,328 $357,993 $354,138 $399,218
Ratio of expenses to average net assets ...... 0.81% 0.78% 0.76% 0.66% 0.75%
Ratio of expenses to average net assets prior
to expense limitation ................... 0.86% 0.91% 0.93% 0.72% 0.75%
Ratio of net investment income to average
net assets .............................. 5.25% 5.27% 5.18% 5.35% 4.97%
Ratio of net investment income to average
net assets prior to expense limitation .. 5.20% 5.14% 5.01% 5.29% 4.97%
Portfolio turnover ........................... 54% 40% 82% 69% 58%
</TABLE>
- ----------------
(1) 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.
(2) Commencing May 1, 1997, Delaware Management company replaced Voyageur
Fund Managers, Inc. as the Fund's investment manager.
See accompanying notes.
<PAGE>
28 for tax-exempt income
Financial Highlights (continued)
- -------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Colorado Fund-Class B Tax-Free Colorado Fund-Class C
------------------------------ ------------------------------------------
Year Year Period from Year Year Year Period from
ended ended 3/22/95(1) to ended ended ended 5/6/94(1) to
12/31/97(4) 12/31/96 12/31/95 12/31/97(4) 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $10.780 $10.900 $10.250 $10.780 $10.900 $ 9.530 $10.210
Income from investment operations:
Net investment income ...................... 0.483 0.470 0.350 0.484 0.460 0.450 0.290
Net realized and unrealized gain (loss)
from investments ....................... 0.616 (0.130) 0.650 0.615 (0.130) 1.370 (0.670)
------- ------- ------- ------- ------- ------ -------
Total from investment operations ......... 1.099 0.340 1.000 1.099 0.330 1.820 (0.380)
------- ------- ------- ------- ------- ------ -------
Less dividends and distributions:
Dividends from net investment income ....... (0.499) (0.460) (0.350) (0.499) (0.450) (0.450) (0.270)
Distributions from net realized gain on
security transactions .................. -- -- -- -- -- -- (0.030)
------- ------- ------- ------- ------- ------ -------
Total dividends and distributions .......... (0.499) (0.460) (0.350) (0.499) (0.450) (0.450) (0.300)
------- ------- ------- ------- ------- ------ -------
Net asset value, end of period ................. $11.380 $10.780 $10.900 $11.380 $10.780 $10.900 $9.530
======= ======= ======= ======= ======= ======= ======
Total Return(2)................................. 10.47% 3.25% 9.96% 10.47% 3.17% 19.44% (3.75%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) .... $7,798 $4,172 $1,643 1,697 $1,522 $1,042 $465
Ratio of expenses to average net assets .... 1.62% 1.58% 1.39%(3) 1.64% 1.66% 1.66% 1.80%(3)
Ratio of expenses to average net assets
prior to expense limitation ............. 1.67% 1.65% 1.60%(3) 1.69% 1.66% 1.66% 1.81%(3)
Ratio of net investment income to
average net assets ...................... 4.44% 4.45% 3.96%(3) 4.42% 4.40% 4.20% 4.23%(3)
Ratio of net investment income to average
net assets prior to expense limitation .. 4.39% 4.38% 3.75%(3) 4.37% 4.40% 4.20% 4.22%(3)
Portfolio turnover ......................... 54% 40% 82% 54% 40% 82% 69%
</TABLE>
- --------------
(1) Commencement of operations.
(2) 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.
(3) Annualized.
(4) Commencing May 1, 1997, Delaware Management company replaced Voyageur
Fund Managers, Inc. as the Fund's investment manager.
See accompanying notes
<PAGE>
for tax-exempt income 29
Financial Highlights (continued)
- ------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Arizona Fund - Class A Tax-Free Arizona Fund - Class B Tax-Free Arizona Fund - Class C
------------------------------- ------------------------------- -------------------------------
Year Year Period from Year Year Period from Year Year Period from
ended ended 3/2/95(1) to ended ended 6/29/95(1) to ended ended 5/13/95(1) to
2/31/97(4) 12/31/96 12/31/95 12/31/97(4) 12/31/96 12/31/95 12/31/97(4) 12/31/96 12/31/95
---------- -------- ----------- ----------- -------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .............. $10.700 $10.750 $10.000 $10.690 $10.740 $10.300 $10.710 $10.760 $10.200
Income from investment
operations:
Net investment income.. 0.589 0.580 0.460 0.502 0.510 0.260 0.534 0.500 0.300
Net realized and
unrealized gain (loss)
from investments .... 0.455 (0.010) 0.840 0.469 (0.010) 0.530 0.437 (0.010) 0.650
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations .......... 1.044 0.570 1.300 0.971 0.500 0.790 0.971 0.490 0.950
------- ------- ------- ------- ------- ------- ------- ------- -------
Less dividends and
distributions:
Dividends from net
investment income ..... (0.589) (0.580) (0.460) (0.506) (0.510) (0.260) (0.506) (0.500) (0.300)
Distributions from net
realized gain on
security transactions . (0.015) (0.040) (0.090) (0.015) (0.040) (0.090) (0.015) (0.040) (0.090)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions ....... (0.604) (0.620) (0.550) (0.521) (0.550) (0.350) (0.521) (0.540) (0.390)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end
of period .............. $11.140 $10.700 $10.750 $11.140 $10.690 $10.740 $11.160 $10.710 $10.760
======= ======= ======= ======= ======= ======= ======= ======= =======
Total Return(2)............ 10.07% 5.48% 13.27% 9.34% 4.84% 7.74% 9.32% 4.70% 9.43%
Ratios and supplemental data:
Net assets, end of
period (000 omitted) $10,916 $9,755 $6,225 $3,711 $3,491 $1,629 $332 $23 $27
Ratio of expenses to
average net assets ... 0.48% 0.46% 0.52%(3) 1.22% 1.11% 0.99%(3) 1.23% 1.21% 1.20%(3)
Ratio of expenses to
average net assets
prior to expense
limitation ........... 1.08% 1.25% 1.25%(3) 1.82% 2.00% 2.00%(3) 1.83% 2.00% 2.00%(3)
Ratio of net investment
income to average
net assets .......... 5.42% 5.43% 5.19%(3) 4.68% 4.77% 4.60%(3) 4.67% 4.68% 4.65%(3)
Ratio of net investment
income to average net
assets prior to
expense limitation .. 4.82% 4.64% 4.46%(3) 4.08% 3.88% 3.59%(3) 4.07% 3.89% 3.85%(3)
Portfolio turnover .... 39% 70% 38% 39% 70% 38% 39% 70% 38%
</TABLE>
- -----------
(1) Commencement of operations.
(2) 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.
(3) Annualized.
(4) Commencing May 1, 1997, Delaware Management company replaced Voyageur
Fund Managers, Inc. as the Fund's investment manager.
<PAGE>
30 for tax-exempt income
Financial Highlights (continued)
- ------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Arizona Insured Fund - Class A
---------------------------------------
Year ended Year ended Year ended Year ended Year ended
12/31/97(2) 12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $11.060 $11.150 $9.860 $11.310 $10.710
Income from investment operations:
Net investment income ......................... 0.548 0.530 0.540 0.550 0.580
Net realized and unrealized gain (loss)
from investments ............................ 0.416 (0.090) 1.310 (1.370) 0.740
------- ------- ------- ------- -------
Total from investment operations .............. 0.964 0.440 1.850 (0.820) 1.320
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income .......... (0.554) (0.530) (0.560) (0.530) (0.580)
Distributions from net realized gain on
security transactions ...................... -- -- -- (0.040) (0.140)
In excess of net realized gains ............... -- -- -- (0.060) --
------- ------- ------- ------- -------
Total dividends and distributions ............. (0.554) (0.530) (0.560) (0.630) (0.720)
------- ------- ------- ------- -------
Net asset value, end of period .................... $11.470 $11.060 $11.150 $9.860 $11.310
======= ======= ======= ======= =======
Total Return(1).................................... 8.96% 4.09% 19.10% (7.41%) 12.64%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ....... $186,485 $209,258 $238,114 $231,736 $263,312
Ratio of expenses to average net assets ....... 0.84% 0.82% 0.69% 0.72% 0.59%
Ratio of expenses to average net assets
prior to expense limitation ............. 0.89% 0.95% 0.95% 0.92% 1.03%
Ratio of net investment income to average
net assets .............................. 4.92% 4.89% 5.07% 5.20% 5.00%
Ratio of net investment income to average
net assets prior to expense
limitation .............................. 4.87% 4.76% 4.81% 5.00% 4.56%
Portfolio turnover ............................ 42% 42% 42% 25% 33%
</TABLE>
- ---------------
(1) 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.
(2) Commencing May 1, 1997, Delaware Management company replaced Voyageur
Fund Managers, Inc. as the Fund's investment manager.
<PAGE>
for tax-exempt income 31
Financial Highlights (continued)
- -------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Arizona
Insured Fund - Class B Tax-Free Arizona Insured Fund - Class C
--------------------------------- ---------------------------------------
Year Year Period from Year Year Year Period from
ended ended 3/10/95(1) to ended ended ended 5/26/94(1) to
12/31/97(4) 12/31/96 12/31/95 12/31/97(4) 12/31/96 12/31/95 12/31/95
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $11.050 $11.140 $10.440 $11.060 $11.150 $9.860 $10.480
Income from investment operations:
Net investment income ..................... 0.455 0.450 0.380 0.456 0.430 0.450 0.270
Net realized and unrealized gain (loss)
from investments ...................... 0.414 (0.090) 0.690 0.414 (0.090) 1.310 (0.560)
------- ------- ------- ------- ------ ------ -------
Total from investment operations .......... 0.869 0.360 1.070 0.870 0.340 1.760 (0.290)
------- ------- ------- ------- ------ ------ -------
Less dividends and distributions:
Dividends from net investment income ...... (0.459) (0.450) (0.370) (0.460) (0.430) (0.470) (0.250)
Distributions from net realized gain on
security transactions ................. -- -- -- -- -- -- (0.040)
In excess of net realized gains ........... -- -- -- -- -- -- (0.040)
------- ------- ------- ------- ------ ------ -------
Total dividends and distributions ......... (0.459) (0.450) (0.370) (0.460) (0.430) (0.470) (0.330)
------- ------- ------- ------- ------ ------ -------
Net asset value, end of period ................ $11.460 $11.050 $11.140 $11.470 $11.060 $11.150 $9.86
======= ======= ======= ======= ======= ======= =======
Total Return(2)................................. 8.06% 3.32% 10.36% 8.05% 3.18% 18.10% (2.84%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) ... $3,657 $3,110 $2,048 $675 $554 $541 $326
Ratio of expenses to average net assets ... 1.65% 1.59% 1.33%(3) 1.65% 1.70% 1.54% 1.50%(3)
Ratio of expenses to average net assets
prior to expense limitation ........... 1.70% 1.70% 1.60%(3) 1.70% 1.70% 1.69% 1.71%(3)
Ratio of net investment income to average
net assets ............................ 4.11% 4.11% 4.08%(3) 4.11% 4.01% 4.18% 4.1%(3)
Ratio of net investment income to average
net assets prior to expense limitation. 4.06% 4.00% 3.81%(3) 4.06% 4.01% 4.03% 3.89%(3)
Portfolio turnover ........................ 42% 42% 42% 42% 42% 42% 25%
</TABLE>
- --------------
(1) Commencement of operations.
(2) 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.
(3) Annualized.
(4) Commencing May 1, 1997, Delaware Management company replaced Voyageur
Fund Managers, Inc. as the Fund's investment manager.
<PAGE>
32 for tax-exempt income
Financial Highlights (continued)
- -------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free New Mexico Fund - Class A
-------------------------------------------------------------------------------
Year ended Year ended Year ended Two months ended Year ended Year ended
12/31/97(3) 12/31/96 12/31/95 12/31/94 10/31/94 10/31/93
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......... $10.790 $10.890 $9.590 $9.770 $10.920 $10.000
Income from investment operations:
Net investment income ..................... 0.547 0.540 0.520 0.110 0.560 0.570
Net realized and unrealized gain (loss)
from investments .................... 0.503 (0.110) 1.330 (0.200) (1.160) 0.980
------- ------- ------- ------ ------ -------
Total from investment operations .......... 1.050 0.430 1.850 (0.090) (0.600) 1.550
------- ------- ------- ------ ------ -------
Less dividends and distributions:
Dividends from net investment income ...... (0.560) (0.530) (0.550) (0.090) (0.550) (0.570)
Distributions from net realized gain
on security transactions .................. -- -- -- -- -- (0.060)
------- ------- ------- ------ ------ -------
Total dividends and distributions ......... (0.560) (0.530) (0.550) (0.090) (0.550) (0.630)
------- ------- ------- ------ ------ -------
Net asset value, end of period ................ $11.280 $10.790 $10.890 $9.590 $9.770 $10.920
======= ======= ======= ====== ====== =======
Total Return(1)................................ 10.01% 4.13% 19.64% (0.90%) (5.56%) 15.77%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ... $18,959 $20,133 $21,402 $19,706 $23,096 $17,302
Ratio of expenses to average .............. 0.99% 0.88% 0.87% 0.06%(2) 0.29% 0.00%
Ratio of expenses to average net assets
prior to expense limitation ............... 1.04% 1.07% 1.09% 1.25%(2) 1.16% 1.25%
Ratio of net investment income to
average net assets ....................... 5.00% 5.06% 5.07% 6.38%(2) 5.26% 5.10%
Ratio of net investment income to
average net assets prior to
expense limitation ....................... 4.95% 4.87% 4.85% 5.19%(2) 4.39% 3.85%
Portfolio turnover ........................ 28% 42% 55% 2% 22% 30%
</TABLE>
- -------------
(1) 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.
(2) Annualized.
(3) Commencing May 1, 1997, Delaware Management company replaced Voyageur
Fund Managers, Inc. as the Fund's investment manager.
<PAGE>
for tax-exempt income 33
Financial Highlights (continued)
- -------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free New Mexico
Tax-Free New Mexico Fund - Class B Fund - Class C
-------------------------------------------------------- -----------------------
Year Year Year Two months Period from Year Period from
ended ended ended ended 3/3/94(1) to ended 5/7/96(1) to
12/31/97(4) 12/31/96 12/31/95 12/31/94 10/31/94 12/31/97(4) 12/31/96
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $10.790 $10.890 $9.590 $9.770 $10.690 $10.790 $10.410
Income from investment operations:
Net investment income ....................... 0.465 0.460 0.460 0.090 0.310 0.459 0.280
Net realized and unrealized gain
(loss) from investments .................. 0.508 (0.110) 1.320 (0.190) (0.930) 0.495 0.370
----- ------ ----- ------ ------ ----- -----
Total from investment operations ............ 0.973 0.350 1.780 (0.100) (0.620) 0.954 0.650
----- ------ ----- ------ ------ ----- -----
Less dividends and distributions:
Dividends from net investment income ........ (0.473) (0.450) (0.480) (0.080) (0.300) (0.464) (0.270)
Distributions from net realized gain
on security transactions -- -- -- -- -- -- --
----- ------ ----- ------ ------ ----- -----
Total dividends and distributions ............ (0.473) (0.450) (0.480) (0.080) (0.300) (0.464) (0.270)
----- ------ ----- ------ ------ ----- -----
Net asset value, end of period .................. $11.290 $10.790 $10.890 $9.590 $9.770 $11.280 $10.790
======= ======= ======= ====== ====== ======= =======
Total Return(2).................................. 9.24% 3.39% 18.84% (0.98%) (5.84%) 9.06% 6.30%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ..... $1,065 $794 $605 $272 $264 $315 $341
Ratio of expenses to average net assets ..... 1.76% 1.61% 1.53% 0.75%(3) 0.98%(3) 1.84% 1.74%(3)
Ratio of expenses to average net assets
prior to expense limitation .............. 1.81% 1.82% 1.83% 2.00%(3) 1.86%(3) 1.89% 1.83%(3)
Ratio of net investment income to
average net assets ....................... 4.23% 4.31% 4.33% 5.60%(3) 4.57%(3) 4.15% 4.21%(3)
Ratio of net investment income to
average net assets prior to
expense limitation ....................... 4.18% 4.10% 4.03% 4.35%(3) 3.69%(3) 4.10% 4.12%(3)
Portfolio turnover .......................... 28% 42% 55% 2% 22% 28% 42%
</TABLE>
- -------------
(1) Commencement of operations.
(2) 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.
(3) Annualized.
(4) Commencing May 1, 1997, Delaware Management company replaced Voyageur
Fund Managers, Inc. as the Fund's investment manager.
<PAGE>
34 for tax-exempt income
Financial Highlights (continued)
- ------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Utah Fund - Class A
-----------------------------------------------------------------------------
Year Year Year Two months Year Year
ended ended ended ended ended ended
12/31/97(4) 12/31/96 12/31/95 12/31/94 10/31/94 10/31/93
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $10.840 $11.040 $ 9.800 $ 9.940 $11.070 $10.000
Income from investment operations:
Net investment income .......................... 0.565 0.550 0.590 0.100 0.600 0.650
Net realized and unrealized gain (loss)
from investments ............................. 0.495 (0.200) 1.240 (0.150) (1.070) 1.070
------- ------- ------- ------- ------- -------
Total from investment operations ............... 1.060 0.350 1.830 (0.050) (0.470) 1.720
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ........... (0.570) (0.550) (0.590) (0.090) (0.600) (0.650)
Distributions from net realized gain on
security transactions ....................... -- -- -- -- (0.060) --
------- ------- ------- ------- ------- -------
Total dividends and distributions .............. (0.570) (0.550) (0.590) (0.090) (0.660) (0.650)
------- ------- ------- ------- ------- -------
Net asset value, end of period ..................... $11.330 $10.840 $11.040 $9.800 $ 9.940 $11.070
======= ======= ======= ======= ======= =======
Total Return(2) .................................... 10.08% 3.35% 19.06% (0.41%) (4.50%) 17.54%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........ $ 3,223 $ 3,861 $ 4,142 $ 3,728 $ 4,054 $ 3,913
Ratio of expenses to average net assets ........ 0.69% 0.68% 0.38% 0.11%(3) 0.10% 0.00%
Ratio of expenses to average net assets prior to
expense limitation ......................... 3.12% 1.25% 1.25% 1.14%(3) 1.25% 1.25%
Ratio of net investment income to average
net assets ................................. 5.10% 5.14% 5.51% 6.38%(3) 5.64% 5.65%
Ratio of net investment income to average
net assets prior to expense limitation ......... 2.67% 4.57% 4.64% 5.35%(3) 4.49% 4.40%
Portfolio turnover ............................. 39% 39% 35% 0% 2% 44%
</TABLE>
<PAGE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Tax-Free Utah Fund - Class B
---------------------------------------------
Year Year Period from
ended ended 5/27/95(1) to
12/31/97(4) 10/31/96 12/31/95
<S> <C> <C> <C>
Net asset value, beginning of period ............... $10.830 $11.040 $10.630
Income from investment operations:
Net investment income .......................... 0.464 0.470 0.300
Net realized and unrealized gain (loss)
from investments ............................. 0.515 (0.210) 0.390
------- ------- -------
Total from investment operations ............... 0.979 0.260 0.690
------- ------- -------
Less dividends and distributions:
Dividends from net investment income ........... (0.479) (0.470) (0.280)
Distributions from net realized gain on
security transactions ....................... -- -- --
------- ------- -------
Total dividends and distributions .............. (0.479) (0.470) (0.280)
------- ------- -------
Net asset value, end of period ..................... $11.330 $10.830 $11.040
======= ======= =======
Total Return(2) .................................... 9.28% 2.47% 6.60%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ........ $ 558 $ 397 $ 363
Ratio of expenses to average net assets ........ 1.50% 1.46% 0.92%(3)
Ratio of expenses to average net assets prior to
expense limitation ......................... 3.93% 2.00% 2.00%(3)
Ratio of net investment income to average
net assets ................................. 4.29% 4.34% 4.74%(3)
Ratio of net investment income to average
net assets prior to expense limitation ......... 1.86% 1.86% 3.66%(3)
Portfolio turnover ............................. 39% 39% 35%
</TABLE>
_____________________
(1) Commencement of operations.
(2) 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.
(3) Annualized.
(4) Commencing May 1, 1997, Delaware Management company replaced Voyageur Fund
Managers, Inc. as the Fund's investment manager.
<PAGE>
for tax-exempt income 35
Delaware-Voyageur Funds
Notes To Financial Statements
December 31, 1997
- ------------------------------------------------------------------------------
Delaware-Voyageur Tax-Free Colorado Fund (formerly Voyageur Colorado Tax Free
Fund)("Tax-Free Colorado Fund"), a series of the Voyageur Mutual Funds II, Inc.,
Delaware-Voyageur Tax-Free Arizona Fund (formerly Voyageur Arizona Tax Free
Fund) ("Tax-Free Arizona Fund"), a series of the Voyageur Mutual Funds, Inc.,
and Delaware-Voyageur Tax-Free Arizona Insured Fund (formerly Arizona Insured
Tax-Free Fund)("Tax-Free Arizona Insured Fund"), a series of the Voyageur
Insured Funds, Inc., are registered under the Investment Company Act of 1940 (as
amended) as open-end management investment companies. Tax-Free Colorado Fund and
Tax-Free Arizona Insured Fund are registered as diversified and Tax-Free Arizona
Fund is registered as non-diversified. Delaware-Voyageur Tax-Free New Mexico
Fund (formerly Voyageur New Mexico Tax Free)("Tax-Free New Mexico Fund") and
Delaware-Voyageur Tax-Free Utah Fund (formerly Voyageur Utah Tax Free
Fund)("Tax-Free Utah Fund"), series of the Voyageur Investment Trust, are
Massachusetts business trusts registered under the Investment Company Act of
1940 (as amended) as non-diversified, open-end management investment companies.
Tax-Free Colorado Fund, Tax-Free Arizona Fund, Tax-Free Arizona Insured Fund,
Tax-Free New Mexico Fund and Tax-Free Utah Fund, (referred to separately as
"Fund" or collectively as "Funds") seek high current income free from both
federal and state income taxes by investing in investment grade municipal bonds.
The Funds each offer 3 classes of shares. The A Class carries a front-end sales
charge of 3.75%. The B Class carries a back-end deferred sales charge. The C
Class carries a level-load deferred sales charge.
1. Fund Reorganization
On April 30, 1997, Lincoln National Corporation ("LNC") acquired Voyageur Fund
Manager Inc.'s ("Voyageur") parent, Dougherty Financial Group, Inc. ("DFG")
pursuant to an agreement and plan of merger dated January 15, 1997, in which LNC
acquired DFG including the mutual fund investment advisory business of DFG
conducted by Voyageur. Upon completion of the acquisition, Delaware Management
Company, Inc. ("DMC") became the investment adviser to the Funds, Delaware
Distributors, L.P. ("DDLP") became the distributor for the Funds, and Delaware
Service Company, Inc. ("DSC") became the transfer, dividend-disbursing,
shareholder servicing agent and accounting service agent for the Funds.
2. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Funds.
Security Valuation - Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Money market instruments having less than 60 days to maturity are
valued at amortized cost which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
Federal Income Taxes - Each Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Funds on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Other - Expenses common to all funds within the Delaware-Voyageur Funds are
allocated amongst the funds on the basis of average net assets. Security
transactions are recorded on the date the securities are purchased or sold
(trade date). Costs used in calculating realized gains and losses on the sale of
investment securities are those of the specific securities sold. Interest income
is recorded on the accrual basis. Original issue discounts and market premiums
are amortized to interest income over the lives of the respective securities.
The Funds declare dividends from net investment income daily and pay them
monthly. Capital gains are distributed annually.
<PAGE>
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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
3. Investment Management and Other Transactions with Affiliates
Commencing May 1, 1997, and in accordance with the terms of the Investment
Management Agreement, the Funds pay DMC the Investment Manager of each Fund,
an annual fee, which is calculated daily based on the net assets of each Fund.
The management fee rates are as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Colorado Arizona Arizona New Mexico Utah
Fund Fund Insured Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Management fee as percentage of average
daily net assets (per annum) ....... 0.50% 0.50% 0.50% 0.50% 0.50%
</TABLE>
DMC has elected to waive their fees and reimburse each Fund to the extent that
annual operating expenses exclusive of taxes, interest, brokerage commissions,
distribution expenses and extraordinary expenses, exceed 0.56%, 0.22%, 0.59%,
0.75%, and 0.43% of average daily net assets for the Tax-Free Colorado Fund,
Tax-Free Arizona Fund, Tax-Free Arizona Insured Fund, Tax-Free New Mexico Fund
and Tax-Free Utah Fund, respectively, through December 31, 1997. Total expenses
absorbed by DMC for the eight month period ended December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Colorado Arizona Arizona New Mexico Utah
Fund Fund Insured Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total expenses absorbed by DMC ........... $178,191 $49,907 $68,159 $9,442 $9,572
</TABLE>
Prior to May 1, 1997, the Funds had an investment advisory and management
agreement with Voyageur. Voyageur received a fee for its investment advisory and
management services based on the average daily net assets of each Fund at an
annual rate of .50%. During the period January 1, 1997 to April 30, 1997,
Voyageur waived $34,425, $29,417, and $85,084 of the Tax-Free Arizona Fund,
Tax-Free Arizona Insured Fund, and Tax-Free Utah Fund, respectively.
<PAGE>
36 for tax-exempt income
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
3. Investment Management and Other Transactions with Affiliates (Continued)
Commencing May 1, 1997, the Funds have engaged DSC, an affiliate of DMC, to
serve as dividend disbursing, transfer agent and accounting services agent for
the Fund. For the eight month period ended December 31, 1997, the amounts
expensed for each Fund were as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Colorado Arizona Arizona New Mexico Utah
Fund Fund Insured Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend disbursing, transfer agent fees
and other expenses ................ $123,372 $4,405 $62,595 $8,436 $899
Accounting and administration fees ....... $84,689 $3,693 $49,869 $5,201 $839
</TABLE>
Prior to May 1, 1997, the Funds paid a fee to Voyageur for acting as the Funds'
dividend disbursing, administrative and accounting services agent. Each Fund was
also responsible for reimbursing Voyageur's out-of-pocket expense in connection
with the performance of these services.
On December 31, 1997, the Funds had payables to affiliates as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Colorado Arizona Arizona New Mexico Utah
Fund Fund Insured Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Management fee payable to DMC . $207,823 $0 $123,028 $11,788 $0
Dividend disbursing, transfer agent fees,
accounting fees and other expenses
payable to DSC .................... $7,824 $960 $11,878 $1,632 $234
</TABLE>
Commencing May 1, 1997, and pursuant to the Distribution Agreement, the Funds
pay DDLP, the Distributor and an affiliate of DMC, an annual fee not to exceed
0.25% of the average daily net assets of the A Class and 1.00% of the average
daily net assets of the B and C Class for each Fund. For the eight month period
ended December 31, 1997, DDLP earned commissions on sales of the Fund A Class
shares for each Fund as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Colorado Arizona Arizona New Mexico Utah
Fund Fund Insured Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$43,189 $3,917 $13,360 $2,764 $247
</TABLE>
Prior to May 1, 1997 each class of shares had a Distribution Agreement with
Voyageur Fund Distributors, Inc. ("VFD"). Under the plan the Funds paid VFD a
fee at an annual rate of 0.25% of the average daily net assets of the Class A
Shares and 1.00% of the average daily net assets of the Class B and C Shares.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Funds. These officers, directors and employees are paid no compensation
by the Funds.
4. Investments
During the year ended December 31, 1997, the Funds made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments for each Fund as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Colorado Arizona Arizona New Mexico Utah
Fund Fund Insured Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ................................ $191,070,795 $6,380,101 $78,989,436 $5,844,198 $1,559,782
Sales .................................... $198,953,305 $5,370,749 $107,700,016 $7,871,840 $2,180,912
</TABLE>
At December 31, 1997, the aggregate cost of securities and unrealized
appreciation (depreciation) for federal income tax purposes for each Fund were
as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Colorado Arizona Arizona New Mexico Utah
Fund Fund Insured Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost of Investments ...................... $340,687,800 $13,915,515 $176,945,459 $18,459,263 $3,535,103
Aggregate unrealized appreciation ........ 25,608,580 743,260 13,951,784 1,542,119 238,416
Aggregate unrealized depreciation ........ -- -- -- -- --
Net unrealized appreciation .............. $25,608,580 $743,260 $13,951,784 $1,542,119 $238,416
</TABLE>
For federal income tax purposes, as of December 31, 1997, Tax-Free Colorado Fund
had a capital loss carryover of $4,666,625 that will expire in 2003, Tax-Free
Arizona Insured Fund had a capital loss carryover of $3,627,221 that will expire
in 2003 through 2004, Tax-Free New Mexico Fund had a capital loss carryover of
$618,460 that will expire in 2001 through 2004, and Tax-Free Utah Fund had a
capital loss carryover of $37,266 that will expire in 2001 through 2004.
<PAGE>
for tax-exempt income 37
Notes to Financial Statements (Continued)
- -------------------------------------------------------------------------------
5. Capital Stock
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free Arizona
Colorado Fund Arizona Fund Insured Fund
-------------------------------------------------------=------------------------
Year Year Year Year Year Year
ended ended ended ended ended ended
12/31/97 12/31/96 12/31/97 12/31/96 12/31/97 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Shares sold:
A Class ...................................... 2,280,831 2,051,210 158,751 386,538 778,637 1,146,036
B Class ...................................... 326,460 282,979 130,063 185,353 146,974 101,877
C Class ...................................... 50,877 74,401 27,479 192 23,129 33,261
Shares issued upon reinvestment of
dividends from net investment income and
net realized gains from security transactions:
A Class ...................................... 1,164,027 1,139,876 29,507 24,151 369,681 386,959
B Class ...................................... 20,340 6,461 8,686 6,721 7,217 5,559
C Class ...................................... 6,297 4,619 159 129 1,342 1,756
---------- ---------- -------- -------- ---------- ----------
3,848,832 3,559,546 354,645 603,084 1,326,980 1,675,448
---------- ---------- -------- -------- ---------- ----------
Shares repurchased:
A Class ...................................... (5,214,040) (5,983,150) (120,327) (77,891) (3,811,075) (3,960,753)
B Class ...................................... (48,522) (53,076) (132,059) (17,142) (116,629) (9,723)
C Class ...................................... (49,216) (33,412) -- (706) (15,711) (33,417)
---------- ---------- -------- -------- ---------- ----------
(5,311,778) (6,069,638) (252,386) (95,739) (3,943,415) (4,003,893)
---------- ---------- -------- -------- ---------- ----------
Net Increase (Decrease) ........................ (1,462,946) (2,510,092) 102,259 507,345 (2,616,435) (2,328,445)
========== ========== ======== ======== ========== ==========
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Tax-Free Tax-Free
New Mexico Fund Utah Fund
------------------------------------------------------------
Year Year Year Year
ended ended ended ended
12/31/97 12/31/96 12/31/97 12/31/96
<S> <C> <C> <C> <C>
Shares sold:
A Class ...................................... 104,678 251,813 18,541 17,149
B Class ...................................... 28,562 34,046 12,225 2,314
C Class ...................................... 8,900 32,608 -- --
Shares issued upon reinvestment of
dividends from net investment income and
net realized gains from security transactions:
A Class ...................................... 49,974 39,919 5,592 8,069
B Class ...................................... 2,060 1,406 1,701 1,507
C Class ...................................... 1,159 394 -- --
-------- --------- -------- --------
195,333 360,186 38,059 29,039
-------- --------- -------- --------
Shares repurchased:
A Class ...................................... (339,101) (392,056) (95,952) (44,175)
B Class ...................................... (9,814) (17,472) (1,374) --
C Class ...................................... (13,780) (1,383) -- --
-------- --------- -------- --------
(362,695) (410,911) (97,326) (44,175)
-------- --------- -------- --------
Net Increase (Decrease) ........................ (167,362) (50,725) (59,267) (15,136)
======== ========= ======== ========
</TABLE>
6. Credit and Market Risks
The Funds Concentrated their investments in securities mainly issued by each
specific states' municipalities. The value of these investments may be adversely
affected by new legislation within the state, regional or local economic
conditions, and differing levels of supply and demand for municipal bonds. Many
municipalities insure repayment for their obligations. Although bond insurance
reduces the risk of loss due to default by an issuer, such bonds remain subject
to the risk that market value may fluctuate for other reasons and there is no
assurance that the insurance company will meet its obligations. These securities
have been identified in the Statement of Net Assets. Inverse floaters represent
a security that pays interest at rates that increase (decrease) with a decline
(increase), in a specified index. Interest rates disclosed are in effect on
December 31, 1997.
<PAGE>
38 for tax-exempt income
Delaware-Voyageur Funds
Report of Independent Auditors
- -------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Voyageur Mutual Funds II, Inc. - Delaware-Voyageur Tax-Free Colorado Fund
Voyageur Mutual Funds, Inc. - Delaware-Voyageur Tax-Free Arizona Fund
Voyageur Insured Funds, Inc. - Delaware-Voyageur Tax-Free Arizona Insured Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free New Mexico Fund
Voyageur Investment Trust - Delaware-Voyageur Tax-Free Utah Fund
We have audited the accompanying statements of net assets of Tax-Free Colorado
Fund, Tax-Free Arizona Fund, Tax-Free Arizona Insured Fund, Tax-Free New Mexico
Fund, and Tax-Free Utah Fund (the "Funds") as of December 31, 1997, and the
related statements of operations, the statements of changes in net assets and
the financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The statements of changes in net
assets for the year ended December 31, 1996 and the financial highlights for the
periods presented through December 31, 1996 were audited by other auditors whose
reports thereon dated February 14, 1997 expressed unqualified opinions on those
statements and financial highlights.
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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by corres pondence with the custodian
and brokers. 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 1997 financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds at December 31, 1997, and the results of their operations, the
changes in their net assets and their financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 16, 1998
<PAGE>
DELAWARE INVESTMENTS FUND FAMILY
For Growth of Capital
Aggressive Growth Fund
Trend Fund
DelCap Fund
Small Cap Value Fund
U.S. Growth Fund
Growth Stock Fund
Tax-Efficient Equity Fund
For Total Return
Social Awareness Fund
Blue Chip Fund
Devon Fund
Decatur Total Return Fund
Decatur Income Fund
REIT Fund
Delaware Fund
For International Diversification
Emerging Markets Fund
New Pacific Fund
Overseas Equity Fund
International Equity Fund
Global Assets Fund
Global Bond Fund
For Current Income
Delchester Fund
High-Yield Opportunities Fund
Strategic Income Fund
U.S. Government Fund
Delaware-Voyageur
U.S. Government Securities Fund
Limited-Term Government Fund
For Tax-Exempt Income
National High Yield Municipal Bond Fund
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
State Tax-Free Funds*
Money Market Funds
Delaware Cash Reserve
Tax-Free Money Fund
Asset Allocation Funds
Growth Portfolio
Balanced Portfolio
Income Portfolio
*Available for the following states: Arizona, California, Colorado, Florida,
Idaho, Iowa, Kansas, Minnesota, Missouri, North Dakota, New Jersey, New Mexico,
New York, Ohio, Oregon, Pennsylvania, Utah, Washington, Wisconsin. Insured and
intermediate bond funds are available in selected states.
funds
Complete information on any fund offered by Delaware Investments can be found
in each fund's current prospectus. Prospectuses for all funds offered by
Delaware Investments are available from your financial adviser. Please read
the prospectus carefully before you invest or send money.
(photo of computer keyboard)
<PAGE>
(various photos demonstrating service and
guidance, professional management and goals)
professional management
professional management
More Than 69 Years Of
Investment Experience
has taught us that disciplined strategies and prudent risk management are a
sound approach to any market environment.
goals
goals
Whatever Your Goals,
the years ahead will be shaped by choices you make today. Delaware
Investments offers many options that can be an appropriate part of a sound
investment plan.
service and guidance
service and guidance
Delaware Investments Believes
that the guidance of a professional financial adviser is vital to your
long-term success. We are committed to providing you and your adviser with
the highest quality information and service.
<PAGE>
This report must be preceded or accompanied by a current Prospectus for
Tax-Free Colorado Fund, Tax-Free Arizona Funds, Tax-Free New Mexico Funds,
Tax-Free Utah Fund and the Delaware Investments Fund Performance Update for
the most recently completed calendar quarter. For a prospectus of any other
mutual fund from Delaware Investments, contact your financial adviser or
Delaware.
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
(LOGO HERE)
Be sure to consult your financial adviser when making investments. Mutual
funds can be a valuable part of your financial plan; however, shares of the
Fund are not FDIC or NCUSIF insured, are not guaranteed by any bank or any
credit union, and involve investment risk, including the possible loss of the
principal amount invested. Shares of the Funds are not bank or credit union
deposits.
Copy Rights Delaware Distributors, L.P.
Printed in the USA
on recycled paper
(512)
AR-ACNU[12/97]TKO2/98
<PAGE>
For Tax-Exempt Income
DELAWARE-VOYAGEUR
tax-exempt
income
This annual report is for the information of Tax-Free Colorado Fund, Tax-Free
Arizona Funds, Tax-Free New Mexico Fund and Tax-Free Utah Fund shareholders, but
it may be used with prospective investors when preceded or accompanied by a
current Prospectus for the appropriate Funds, which sets forth details about
charges, expenses, investment objectives and operating policies of each Fund.
You should read the prospectus carefully before you invest. Summary investment
results are documented in the Fund's current Statement of Additional
Information. The figures in this report represent past results which are not a
guarantee of future results. The return and principal value of an investment in
the Fund will fluctuate so that shares, when redeemed, may be worth more or less
than their original cost.
Board of Directors
Wayne A. Stork
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
Jeffrey J. Nick
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates
New York, NY
Ann R. Leven
Treasurer, National Gallery of Art
Washington, DC
W. Thacher Longstreth
City Councilman
Philadelphia, PA
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Charles E. Peck
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
Affiliated Officers
David K. Downes
Executive Vice President, Chief Financial Officer
and Chief Operating Officer
Delaware Investments Family of Funds
Philadelphia, PA
George M. Chamberlain, Jr.
Senior Vice President, Secretary
and General Counsel
Delaware Investments Family of Funds
Philadelphia, PA
Bruce D. Barton
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
(photo of globes)
<PAGE>
directors
& officers
Investment Manager
Delaware Management Company, Inc.
Philadelphia, Pennsylvania
International Affiliate
Delaware International Advisers Ltd.
London, England
National Distributor
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
Shareholder Servicing,
Dividend Disbursing
and Transfer Agent
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
