VOYAGEUR INVESTMENTS
YOUR TAX SENSITIVE INVESTMENT MANAGER
U.S. GOVERNMENT SECURITIES FUND
ANNUAL REPORT
Dated October 31, 1996
Voyageur offers a family of mutual funds, each with an individual objective
stated in its prospectus. Investment objectives of the funds range from high
current income to long-term capital appreciation. Exchange privileges allow you
to change your investment between Voyageur Funds as your objectives or market
conditions change.
VOYAGEUR HIGH YIELD FUNDS seek high current income free from both Federal income
taxes and state income taxes (where applicable). The Funds invest in medium and
lower grade municipal bonds.
Voyageur MINNESOTA High Yield Municipal Bond Fund
Voyageur NATIONAL High Yield Municipal Bond Fund
VOYAGEUR TAX FREE FUNDS seek high current income free from both Federal income
taxes and state income taxes (where applicable). The Funds invest in investment
grade municipal bonds.
<TABLE>
<S> <C>
Voyageur ARIZONA Tax Free Fund Voyageur MINNESOTA Tax Free Fund
Voyageur CALIFORNIA Tax Free Fund Voyageur NATIONAL Tax Free Fund
Voyageur COLORADO Tax Free Fund Voyageur NEW MEXICO Tax Free Fund
Voyageur FLORIDA Tax Free Fund Voyageur NEW YORK Tax Free Fund
Voyageur IDAHO Tax Free Fund Voyageur NORTH DAKOTA Tax Free Fund
Voyageur IOWA Tax Free Fund Voyageur UTAH Tax Free Fund
Voyageur KANSAS Tax Free Fund Voyageur WISCONSIN Tax Free Fund
</TABLE>
VOYAGEUR INSURED TAX FREE FUNDS seek high current income free from both Federal
income taxes and state income taxes (where applicable) with the added safety of
an insured portfolio. The Funds invest in insured municipal bonds.
<TABLE>
<S> <C>
Voyageur ARIZONA Insured Tax Free Fund Voyageur MISSOURI Insured Tax Free Fund
Voyageur CALIFORNIA Insured Tax Free Fund Voyageur NATIONAL Insured Tax Free Fund
Voyageur FLORIDA Insured Tax Free Fund Voyageur OREGON Insured Tax Free Fund
Voyageur MINNESOTA Insured Fund Voyageur WASHINGTON Insured Tax Free Fund
</TABLE>
VOYAGEUR LIMITED TERM FUNDS seek to preserve original investment principal while
providing income free from both Federal income taxes and state income taxes
(where applicable). The Funds invest in intermediate term investment grade
municipal bonds.
<TABLE>
<S> <C>
Voyageur FLORIDA Limited Term Tax Free Fund Voyageur NATIONAL Limited Term Tax Free Fund
Voyageur MINNESOTA Limited Term Tax Free Fund
</TABLE>
VOYAGEUR EQUITY FUNDS seek long term capital appreciation by investing in common
stocks.
<TABLE>
<S> <C>
Voyageur AGGRESSIVE GROWTH Fund Voyageur GROWTH Stock Fund
Voyageur GROWTH AND INCOME Fund Voyageur INTERNATIONAL Equity Fund
</TABLE>
VOYAGEUR INCOME FUNDS seek high current income from investments issued,
guaranteed or otherwise backed by the full faith and credit of the U.S.
Government.
Voyageur U.S. GOVERNMENT SECURITIES Fund
VOYAGEUR CASH TRUST SERIES MONEY MARKET FUNDS seek high current income,
principal protection and liquidity by investing in money market instruments.
<TABLE>
<S> <C>
Voyageur CALIFORNIA MUNICIPAL CASH Series Voyageur MUNICIPAL CASH Series
Voyageur FLORIDA MUNICIPAL CASH Series Voyageur OHIO MUNICIPAL CASH Series
Voyageur GOVERNMENT CASH Series Voyageur PRIME CASH Series
Voyageur MINNESOTA MUNICIPAL CASH Series Voyageur TREASURY CASH Series
</TABLE>
For more complete information regarding the investment objectives, fees and
expenses of the Funds, please obtain a prospectus from your Investment
Representative or from Voyageur, 90 South Seventh Street, Suite 4400,
Minneapolis, MN 55402-4115; (612) 376-7044 (local); 800-525-6584 (MKTG).
LETTER FROM THE PRESIDENT
[PHOTO]
JOHN G. TAFT
PRESIDENT
Dear Shareholder:
With the stock market continuing to push forward toward new highs, some
investors find it easy to forget the importance of maintaining a portion of
their assets in bonds. Study after study shows that investors who diversify
their portfolio assets between stocks and bonds can significantly reduce the
impact of stock market downturns. And, although we cannot predict when the stock
market will experience a correction, we believe the stock market cannot continue
to go up indefinitely without some type of adjustment.
What's important to remember is that the current 3 percent real rate of return
(total return adjusted for inflation) on 10-year U.S. Treasuries is historically
compelling -- especially when one considers the amount of risk stock investors
have to take to reap their returns. The Voyageur U.S. Government Securities Fund
continues to be, in our opinion, an ideal fund for investors looking for a
conservative, "plain vanilla" approach of investing. The Fund is invested
entirely in Government National Mortgage (GNMA) and U.S. Treasury securities --
securities that are backed by the full faith and credit of the U.S. government
- -- and has historically provided consistent, competitive investment results.
You may remember receiving an annual report just a few months ago and will
notice that this shareholder report only covers the past four months of
performance for the Fund. The reason is because we have changed the fiscal year
for the Voyageur U.S. Government Securities Fund to end on October 31 rather
than June 30. This change should have no effect on the performance of the Fund.
Rather, we are adjusting the Fund's fiscal year to facilitate reporting
requirements so it coincides with many of our other funds.
If at any time you have questions about your Voyageur fund investment, please
contact your personal financial advisor or Voyageur Client Services at
800.543.3863. This 800 number -- known as Voyageur On CallTM -- allows you
24-hour access, seven days a week to an automated voice response service with
Voyageur Client Services representatives available from 7 a.m. to 6 p.m.
Central Standard Time.
We appreciate your continued patronage of Voyageur Investments and look forward
to working with you and your financial advisor in offering products and services
designed to bring you closer to your investment goals.
Sincerely,
/s/John G. Taft
John G. Taft
President
Voyageur U.S. Government Securities Fund
VOYAGEUR U.S. GOVERNMENT SECURITIES FUND
JANE M. WYATT IS THE SENIOR
PORTFOLIO MANAGER FOR THE
VOYAGEUR U.S. GOVERNMENT
SECURITIES FUND AS WELL AS
VOYAGEUR'S CHIEF INVESTMENT
OFFICER. JANE HAS 20 YEARS OF
EXPERIENCE IN THE INVESTMENT
INDUSTRY.
*THE LEHMAN BROTHERS GOVERNMENT INDEX INCLUDES FIXED RATE DEBT ISSUES RATED
INVESTMENT GRADE OR HIGHER BY MOODY'S, S&P, OR FITCH, IN THAT ORDER. ALL ISSUES
HAVE AT LEAST ONE YEAR TO MATURITY AND AN OUTSTANDING PAR VALUE OF AT LEAST $100
MILLION FOR U.S. GOVERNMENT ISSUES. ALL RETURNS ARE MARKET VALUE WEIGHTED
INCLUSIVE OF ACCRUED INTEREST. THE GOVERNMENT BOND INDEX INCLUDES ISSUES OF THE
U.S. GOVERNMENT OR ANY AGENCY THEREOF. THE NONCOVERTIBLE, PUBLICLY ISSUED,
DOMESTIC DEBT IS GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURN INCLUDES PRICE
APPRECIATION/DEPRECIATION AND INCOME AS A PERCENTAGE OF THE ORIGINAL INVESTMENT.
THE TOTAL RETURN INDEX IS REBALANCED MONTHLY BY MARKET CAPITALIZATION.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND
PRINCIPAL VALUE OF THE PORTFOLIO AND SHARES OF THE FUNDS WILL FLUCTUATE.
For the four months ended October 31, 1996, the Voyageur U.S. Government
Securities Fund's total return at NAV for Class A shares was 4.18 percent.
During this same four month period, the Fund outperformed its benchmark, the
Lehman Brothers Government Index, which returned 3.93 percent.*
TAKING ADVANTAGE OF MARKET OPPORTUNITIES
The primary reason for our stronger-than-average performance during the
reporting period was due to the Fund's emphasis on mortgage-backed securities,
one of the best performing fixed income sectors through October. We began
increasing the Fund's asset weighting in mortgage-backed securities in the first
quarter of 1996, and on October 31, the Fund had approximately 50 percent of its
net assets in mortgage-backed securities.
During 1996, the Voyageur U.S. Government Securities Fund also benefited from
its holdings in lower-coupon mortgages. At the end of 1995, the market was
pricing these securities as if the U.S. mortgage market was headed for a
refinance boom similar to the one in 1993. We felt this was highly unlikely for
two main reasons -- 1) 1995 interest rates were significantly higher than in
1993 and 2) the lack of evidence indicating that the Federal Reserve would lower
rates anywhere near 1993 levels. Instead, we maintained and, in fact, ended up
increasing our mortgage allocation at a time that proved beneficial to the
shareholders of the Voyageur U.S. Government Securities Fund.
As mentioned in our June 30 annual report, we also took advantage of an
opportunity to add value to the Fund by selling almost all of its two-year
seasoned 30-year GNMA mortgages at a premium. This allowed us to capitalize on
the excess return and reinvest in higher yielding securities, thereby improving
the Fund's income.
MARKET VOLATILITY
For the first three quarters of 1996, the fixed income market was quite volatile
with interest rates on the long bond (30- year Treasury) moving from 5.95
percent in January and peaking at 7.25 percent in the third quarter. Despite
market volatility, we maintained the Fund's duration longer than five years
since we believed a duration in the intermediate part of the yield curve offered
the best risk-adjusted returns for long-term conservative investors.
In anticipation of continued volatility in the market and due to the
appreciation in mortgage-backed securities, we have started decreasing our
mortgage-backed securities allocation to approximately 50 percent of the Fund's
total assets. We believe it is important to remember that volatility is not
always bad. In fact, it often creates opportunities that could add value to the
Fund.
GOING FORWARD
The current interest rate environment is providing investors with historically
generous real rates of return. Given our believe that the Federal Reserve Board
will maintain a vigilant anti-inflation policy, we think today's levels
represent good value. We will continue to actively manage the Fund by monitoring
current market activities and expectations in order to find opportunities where
we can add value for the shareholders of the Voyageur U.S. Government Securities
Fund.
VOYAGEUR U.S. GOVERNMENT SECURITIES FUND - CLASS A SHARES
[U.S. Government Securities Datapoints for chart]
1 2 3
Nov-87 9525 10000 10000
9586 10064 10169
9692 10175 10049
9922 10416 10502
9988 10486 10614
9934 10430 10505
9940 10435 10449
9843 10333 10375
Jun-88 10073 10576 10604
10069 10571 10532
10086 10589 10553
10276 10788 10783
10429 10950 10973
10325 10840 10844
10305 10819 10885
10468 10990 11023
10425 10945 10933
10469 10991 10999
10624 11154 11235
10868 11410 11500
Jun-89 11086 11638 11884
11227 11787 12135
11097 11650 11931
11216 11775 11982
11391 11959 12293
11525 12100 12412
11599 12177 12433
11506 12080 12258
11571 12148 12282
11592 12170 12280
11499 12073 12172
11772 12359 12511
Jun-90 11961 12557 12709
12160 12766 12871
12086 12689 12693
12168 12775 12814
12312 12926 13023
12632 13262 13312
12844 13485 13519
13007 13656 13663
13047 13698 13741
13174 13830 13811
13298 13961 13963
13360 14027 14018
Jun-91 13353 14019 13998
13553 14229 14165
13874 14566 14493
14213 14922 14798
14371 15088 14928
14515 15239 15077
15132 15886 15591
14745 15480 15348
14822 15561 15408
14686 15418 15319
14766 15502 15415
15078 15830 15697
Jun-92 15320 16084 15922
15785 16572 16323
15919 16712 16475
16172 16979 16707
15893 16685 16466
15832 16622 16438
16127 16932 16715
16493 17315 17071
16859 17699 17412
16932 17776 17469
17052 17903 17604
17064 17915 17585
Jun-93 17504 18377 17975
17583 18460 18085
17981 18878 18488
18060 18961 18558
18107 19010 18629
17843 18733 18424
17946 18841 18496
18222 19131 18749
17745 18629 18352
17107 17960 17939
16951 17797 17797
16978 17824 17774
Jun-94 16812 17650 17733
17147 18002 18059
17171 18027 18063
16847 17687 17808
16783 17620 17796
16717 17551 17764
16948 17794 17872
17277 18138 18204
17785 18672 18596
17878 18770 18713
18154 19059 18958
18942 19887 19722
Jun-95 19073 20024 19874
18986 19933 19800
19230 20189 20032
19438 20407 20224
19701 20683 20532
20003 21001 20852
20325 21339 21148
20460 21480 21277
19981 20977 20843
19749 20734 20670
19612 20590 20538
19536 20510 20503
Jun-96 19814 20802 20767
19877 20868 20819
19821 20809 21165
20180 21187 21118
Oct-96 20641 21670 21583
1 Voyageur U.S. Government Securities Fund with sales charge - Ending value
$20,641
2 Voyageur U.S. Government Securities Fund without sales charge - Ending
value $21,670
3 Lehman Brothers Government Index - Ending value $21,583
VOYAGEUR U.S. GOVT. SECURITIES FUND - AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Institutional Shares Class A Shares
------------------------ -------------------------------------------
1 year Since 6/7/94* 1 year 5years Since 11/2/87*
------ ------------- ------ ------ --------------
<S> <C> <C> <C> <C> <C>
Without sales charge 4.77% 7.74% 4.77% 7.51% 8.97%
With sales charge n/a n/a (0.20%)** 6.47%** 8.38%**
Lehman Brothers 5.12% 8.46% 5.12% 7.84% 8.92%
Government Index
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Class C Shares
------------------------- --------------------------
1 year Since 6/7/94* 1 year Since 1/10/95*
------ ------------- ------ --------------
<S> <C> <C> <C> <C>
Without contingent 4.12% 7.11% 3.99% 10.99%
deferred sales charge
With contingent (0.12%) 5.96% 2.99% 10.99%
deferred sales charge***
Lehman Brothers 5.12% 8.46% 5.12% 10.83%
Government Index
</TABLE>
The performance of separate classes will vary based on the differences in sales
loads and distribution fees paid by shareholders investing in the different
classes. Performance quoted represents past performance and is not indicative of
future results.
* Commencement of operations.
** Total return includes the maximum 4.75% sales charge.
*** Total return assumes redemption on October 31, 1996.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Voyageur Funds, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments in securities, of Voyageur U.S. Government
Securities Fund, a portfolio within Voyageur Funds, Inc., as of October 31, 1996
and the related statements of operations for the four-months ended October 31,
1996 and the year ended June 30, 1996, the statements of changes in net assets
for the four-months ended October 31, 1996 and each of the years in the two-year
period ended June 30, 1996 and the financial highlights for the four-months
ended October 31, 1996 and each of the years in the five-year period ended June
30, 1996. These financial statements and the financial highlights are the
responsibility of Fund management. Our responsibility is to express an opinion
on these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the 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. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Voyageur U.S. Government Securities Fund at October 31, 1996 and the results of
its operations for the four-months ended October 31, 1996 and the year ended
June 30, 1996, the changes in its net assets for the four-months ended October
31, 1996 and each of the years in the two-year period ended June 30, 1996, and
the financial highlights for the periods stated in the first paragraph above, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 6, 1996
<TABLE>
<CAPTION>
VOYAGEUR U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 1996
- -------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments in securities, at market value (note 1)
(identified cost: $114,624,732) .................................... $ 116,880,303
Accrued interest receivable ........................................... 1,452,539
Receivable for Fund shares sold ....................................... 344,809
Receivable for investment securities sold ............................. 6,688,685
-------------
Total assets ....................................................... 125,366,336
-------------
LIABILITIES
Bank overdraft ........................................................ 13,361
Dividends payable to shareholders ..................................... 130,875
Payable for Fund shares redeemed ...................................... 238,730
Payable for investment securities purchased ........................... 6,978,847
Other accrued expenses ................................................ 48,314
-------------
Total liabilities .................................................. 7,410,127
-------------
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL STOCK .................... $ 117,956,209
=============
Represented by:
Capital stock - authorized 10,000,000,000 shares of $.01 par value . $ 113,746
Additional paid-in capital ......................................... 121,912,001
Undistributed net investment income ................................ 217,429
Accumulated net realized loss from investments ..................... (6,542,538)
Unrealized appreciation of investments ............................. 2,255,571
-------------
TOTAL NET ASSETS ................................................. $ 117,956,209
=============
Net assets applicable to outstanding Class A Shares ................... $ 65,516,499
=============
Net assets applicable to outstanding Class B Shares ................... $ 2,139,228
=============
Net assets applicable to outstanding Class C Shares ................... $ 234,450
=============
Net assets applicable to outstanding Institutional Class Shares ....... $ 50,066,032
=============
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Class A Shares (6,319,211 shares outstanding) (note 4) ............. $ 10.37
=============
Class B Shares (206,126 shares outstanding) (note 4) ............... $ 10.38
=============
Class C Shares (22,631 shares outstanding) (note 4) ................ $ 10.36
=============
Institutional Class Shares (4,826,688 shares outstanding) (note 4) . $ 10.37
=============
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR U.S. GOVERNMENT SECURITIES FUND
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------
FOUR MONTHS YEAR
ENDED ENDED
OCTOBER 31, JUNE 30,
1996 (NOTE 1) 1996
-------------- -----------
<S> <C> <C>
Investment income:
Interest ........................................................... $ 2,633,012 $ 8,556,433
----------- -----------
Expenses (note 3):
Investment advisory and management fee ............................. 187,687 609,965
Dividend disbursing, administrative and accounting services fees ... 44,565 166,715
Distribution fees (Class A) ........................................ 56,426 182,881
Distribution fees (Class B) ........................................ 6,592 9,201
Distribution fees (Class C) ........................................ 759 2,690
Distribution fees (Institutional Class) ............................ 35,580 119,138
Printing, postage and supplies ..................................... 4,667 17,829
Audit fees ......................................................... 15,792 17,632
Legal fees ......................................................... 959 7,941
Custodian fees ..................................................... 3,895 18,700
Directors' fees .................................................... 3,792 6,659
Registration fees .................................................. 12,915 21,476
Other .............................................................. 894 13,085
----------- -----------
Total expenses ................................................... 374,523 1,193,912
Less: Expenses waived or absorbed by the distributor ............... -- (1,606)
----------- -----------
Net expenses before earnings credits on uninvested cash balances ... 374,523 1,192,306
Less: Earnings credits on uninvested cash balances ................. (894) (10,549)
----------- -----------
Total net expenses ............................................... 373,629 1,181,757
----------- -----------
Investment income - net .......................................... 2,259,383 7,374,676
----------- -----------
Realized and unrealized gain (loss) on investments (note 2):
Realized gain on security transactions ............................. 936,151 2,285,055
Net change in unrealized appreciation or depreciation of investments 1,370,635 (4,503,029)
----------- -----------
Net gain (loss) on investments ................................... 2,306,786 (2,217,974)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. $ 4,566,169 $ 5,156,702
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR U.S. GOVERNMENT SECURITIES FUND
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
FOUR MONTHS
ENDED YEAR YEAR
OCTOBER 31, ENDED ENDED
1996 (NOTE 1) JUNE 30, 1996 JUNE 30, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operations:
Investment income - net ............................................ $ 2,259,383 $ 7,374,676 $ 8,267,737
Net realized gain (loss) on investments ............................ 936,151 2,285,055 (9,763,744)
Net change in unrealized appreciation or depreciation of investments 1,370,635 (4,503,029) 18,185,818
------------- ------------- -------------
Net increase in net assets resulting from operations ............. 4,566,169 5,156,702 16,689,811
------------- ------------- -------------
Distributions to shareholders from:
Investment income - net:
Class A .......................................................... (1,364,201) (4,281,883) (4,919,889)
Class B .......................................................... (34,848) (48,064) (2,497)
Class C .......................................................... (4,027) (13,726) (1,136)
Institutional Class .............................................. (858,567) (2,789,781) (3,344,215)
Distributions in excess of net investment income:
Class A .......................................................... -- -- (12,813)
Class B .......................................................... -- -- (7)
Class C .......................................................... -- -- (3)
Institutional Class .............................................. -- -- (8,710)
Net realized gain on investments:
Class A .......................................................... -- -- (160,578)
Class B .......................................................... -- -- (36)
Institutional Class .............................................. -- -- (100,354)
------------- ------------- -------------
Total distributions ............................................ (2,261,643) (7,133,454) (8,550,238)
------------- ------------- -------------
Share transactions: (note 4)
Proceeds from sale of shares:
Class A (note 3) ................................................. 861,117 7,330,164 9,513,749
Class B .......................................................... 404,912 1,769,115 130,370
Class C .......................................................... 4,598 91,380 218,517
Institutional Class .............................................. 10,243,939 15,417,147 17,648,013
Net asset value of shares issued in reinvestment of net investment .
income and net realized gain distributions:
Class A ........................................................ 942,767 2,859,623 3,394,023
Class B ........................................................ 11,998 16,287 952
Class C ........................................................ 1,898 5,275 564
Institutional Class ............................................ 595,190 1,796,765 1,908,755
Payments for redemption of shares:
Class A .......................................................... (6,075,050) (16,187,295) (26,146,449)
Class B (note 3) ................................................. (100,618) (105,794) (22,398)
Class C (note 3) ................................................. (600) (85,799) (10)
Institutional Class .............................................. (3,372,008) (29,486,507) (18,678,004)
------------- ------------- -------------
Increase (decrease) in net assets from share transactions .......... 3,518,143 (16,579,639) (12,031,918)
------------- ------------- -------------
Total increase (decrease) in net assets .......................... 5,822,669 (18,556,391) (3,892,345)
Net assets at beginning of year ....................................... 112,133,540 130,689,931 134,582,276
------------- ------------- -------------
Net assets at end of year (including undistributed (distributions in
excess of) net investment income of $217,429, $219,689 and
$(21,533), respectively) ........................................... $ 117,956,209 $ 112,133,540 $ 130,689,931
============= ============= =============
See accompanying notes to financial statements.
</TABLE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Voyageur U. S. Government Securities Fund (the Fund) is a portfolio within
Voyageur Funds, Inc. which is registered under the Investment Company Act of
1940 (as amended) as a diversified, open-end management investment company. The
Fund seeks high current income from investments issued, guaranteed or otherwise
backed by the full faith and credit of the U.S. Government. The Fund offers
Class A, Class B, Class C and Institutional Class Shares. Class A Shares are
sold with a front-end sales charge. Class B Shares are sold subject to a
contingent deferred sales charge and such shares automatically convert to Class
A after eight years. Class C Shares are sold subject to a contingent deferred
sales charge and have no conversion feature. Institutional Class Shares are sold
without a front-end sales charge and are not subject to a contingent deferred
sales charge. All classes of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except that the level of
distribution fees charged differs between classes. Income, expenses (other than
expenses incurred under each class' Distribution Agreement) and realized and
unrealized gains or losses on investments are allocated to each class of shares
based upon its relative net assets.
Effective October 31, 1996, the Fund changed its fiscal year-end from June 30
to October 31.
The significant accounting policies followed by the Fund are summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net increase (decrease) in net assets resulting from
operations during the reporting period. Actual results could differ from those
estimates.
INVESTMENTS IN SECURITIES
The values of fixed income securities are determined using pricing services
or prices quoted by independent brokers. When market quotations are not readily
available, or in certain other circumstances, securities are valued at fair
value according to methods selected in good faith by the Board of Directors.
Short-term securities are valued at amortized cost which approximates market
value.
Security transactions are accounted for on the trade date. Securities gains
and losses are calculated on the identified-cost basis. Interest income,
including level- yield amortization of premium and discount, is accrued daily.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute income to
shareholders in amounts that will avoid or minimize federal income or excise
taxes for the Fund. Net investment income and net realized gains (losses) for
the Fund may differ for financial statement and tax purposes primarily because
of losses deferred for tax purposes due to "wash sale" transactions. The
character of distributions made during the year from net investment income or
net realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that the
income or realized gains (losses) were recorded by the Fund.
For federal income tax purposes, at October 31, 1996, the Fund had a capital
loss carryover of $6,455,498 that will expire in the years 2002 through 2003 if
not offset by subsequent capital gains. It is unlikely that the Board of
Directors will authorize a distribution of any net realized capital gains until
the available capital loss carryover has been offset or expires.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends declared daily from net investment income are payable monthly in
cash or may be reinvested in additional shares of the Fund at net asset value.
Net realized short-term capital gains, when available, may be distributed
throughout the year. Net realized long-term capital gains, when available, are
distributed annually.
REPURCHASE AGREEMENTS
Securities pledged as collateral for repurchase agreements are held by the
Fund's custodian bank until maturity of the repurchase agreement. Procedures for
all agreements ensure that the daily market value of the collateral is in excess
of the repurchase agreement in the event of default.
(2) INVESTMENT SECURITIES TRANSACTIONS
Purchase cost and proceeds of sales of investment securities, other than
short-term securities, aggregated $76,927,342 and $73,747,390, respectively, for
the four months ended October 31, 1996.
(3) EXPENSES
The Fund has an investment advisory agreement with Voyageur Fund Managers,
Inc. (Voyageur), under which Voyageur manages the Fund's assets and furnishes
related office facilities, equipment, research and personnel. The Fund pays a
monthly fee to Voyageur equal to an annual rate of .50% of the Fund's average
daily net assets.
The Fund also has Distribution Agreements under Rule 12b-1 of the Investment
Company Act of 1940 with Voyageur Fund Distributors, Inc. (Fund Distributors).
The Fund is obligated to pay Fund Distributors a monthly distribution fee at an
annual rate of .25% of the average daily net assets of the Class A and
Institutional Class Shares and 1.00% of the average daily net assets of the
Class B and Class C Shares. Fund Distributors may waive all or part of its
distribution fee at its sole discretion.
The Fund will also pay a fee to Voyageur for acting as the Fund's dividend
disbursing, administrative and accounting services agent. The fee is paid
monthly and is equal to the sum of $1.33 per shareholder account per month, a
fixed monthly fee ranging from $1,000 to $1,500 based on the level of the Fund's
average daily net assets and an annualized percentage of average daily net
assets at reducing rates from .11% to .02%. The Fund is also responsible for
reimbursing Voyageur's out-of-pocket expenses in connection with the performance
of dividend disbursing, administrative and accounting services.
In addition to the fees above, the Fund is responsible for paying most other
operating expenses including directors' fees, registration fees, printing of
shareholder reports, legal and auditing services, and other miscellaneous
expenses. Under the investment advisory agreement, Voyageur is obligated to pay
all expenses and fees (excluding distribution fees, interest, taxes and
brokerage commission) which exceed 1.00% of the Fund's average daily net assets,
on an annual basis. During the four months ended October 31, 1996 the Fund
earned $894 in credits on uninvested cash balances held by the Fund at the
custodian which were used to reduce fees for custodial services provided by the
custodian bank.
Sales charges paid by Class A shareholders were $10,639 during the four
months ended October 31, 1996. Of this amount, Fund Distributors received
$1,628. Contingent deferred sales charges paid by Class B and Class C
shareholders were $1,460 and $4 during the four months ended October 31, 1996,
respectively.
(4) SHARE TRANSACTIONS
Transactions in shares for the periods ended October 31, 1996, June 30, 1996
and June 30, 1995 were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------------------ -------------------------------
FOUR MONTHS YEAR YEAR FOUR MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
OCTOBER 31, JUNE 30, JUNE 30, OCTOBER 31, JUNE 30, JUNE 30,
1996 1996 1995 1996 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shares sold...................... 84,718 701,265 987,529 39,770 170,138 13,081
Shares issued for
reinvested distributions...... 92,642 275,527 347,009 1,177 1,571 95
Shares redeemed.................. (595,352) (1,556,383) (2,693,318) (9,851) (10,038) (2,323)
---------- ----------- ----------- -------- -------- -------
Increase (decrease) in shares
outstanding................... (417,992) ( 579,591) (1,358,780) 31,096 161,671 10,853
========== ============ =========== ======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL
CLASS C CLASS
---------------------------------------- ----------------------------------
FOUR MONTHS YEAR PERIOD FROM FOUR MONTHS YEAR YEAR
ENDED ENDED JANUARY 10,1995* ENDED ENDED ENDED
OCTOBER 31, JUNE 30, TO JUNE 30, OCTOBER 31, JUNE 30, JUNE 30,
1996 1996 1995 1996 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shares sold..................... 449 8,796 21,237 997,379 1,475,063 1,832,690
Shares issued for
reinvested distributions..... 187 506 56 58,441 173,176 194,552
Shares redeemed................. (59) (8,540) (1) (330,989) (2,794,116) (1,895,210)
------- ------- ---------- --------- ----------- -----------
Increase (decrease) in shares
outstanding.................. 577 762 21,292 724,831 (1,145,877) 132,032
====== ========= ======= =========== ======================
</TABLE>
- -----------------------
* Commencement of operations.
(5) FINANCIAL HIGHLIGHTS
Per share data (rounded to the nearest cent) for a share of capital stock
outstanding and selected information for each period are as follows:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------
FOUR MONTHS
ENDED YEAR ENDED JUNE 30,
OCTOBER 31, ----------------------------------------------------
1996 1996 1995 1994 1993 1992
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period................. $10.16 $10.37 $9.76 $10.99 $10.46 $ 9.99
------ ------ ----- ------ ------ ------
Operations:
Net investment income............... .21 .63 .62 .55 .61 .67
Net realized and unrealized
gain (loss) on investments........ .21 (.23) .63 (.94) .83 .76
-------- ------ ------ -------- -------- -------
Total from operations........... .42 .40 1.25 (.39) 1.44 1.43
-------- ------ ------ -------- ------- ------
Distributions to shareholders:
From net investment income........... (.21) (.61) (.62) (.55) (.61) (.67)
From net realized gains............. -- -- (.02) (.29) (.30) (.29)
-------- ------ ------ ------- -------- -------
Total distributions................ (.21) (.61) (.64) (.84) (.91) (.96)
-------- ------ ------ ------- -------- -------
Net asset value:
End of period........................ $10.37 $10.16 $10.37 $ 9.76 $10.99 $10.46
====== ====== ====== ====== ====== ======
Total investment return (d)............. 4.18% 3.88% 13.45% (3.95)% 14.25% 14.68%
Net assets at end of
period (000's omitted)............... $65,516 $68,442 $75,886 $84,660 $112,604 $53,332
Ratios:
Ratio of expenses to
average daily net assets (f)....... .98%(e) .97% .95% .96% 1.10% 1.00%
Ratio of net investment income
to average daily net assets........ 6.03%(e) 6.07% 6.38% 5.10% 5.61% 6.60%
Assuming no voluntary waivers
and reimbursements:
Expenses (b)....................... .98%(e) .97% .95% .96% 1.14% 1.25%
Net investment income.............. 6.03%(e) 6.07% 6.38% 5.10% 5.57% 6.35%
Portfolio turnover rate (excluding
short-term securities)............. 66.29% 145.35% 144.39% 124.38% 175.02% 198.54%
See accompanying notes to Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------
FOUR MONTHS YEAR YEAR PERIOD FROM
ENDED ENDED ENDED JUNE 7,
OCTOBER 31, JUNE 30, JUNE 30, 1994(c) TO
1996 1996 1995 JUNE 30, 1994
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period................... $10.17 $10.38 $9.75 $10.05
------ ------ ------ ------
Operations:
Net investment income................. .18 .57 .56 .01
Net realized and unrealized
gain (loss) on investments.......... .21 (.23) .65 (.28)
------ ------ ------ ------
Total from operations............. .39 .34 1.21 (.27)
------ ------ ------ ------
Distributions to shareholders:
From net investment income............ (.18) (.55) (.56) (.01)
From net realized gains............... -- -- (.02) (.02)
------ ------ ------ ------
Total distributions................. (.18) (.55) (.58) (.03)
------ ------ ------ ------
Net asset value:
End of period......................... $10.38 $10.17 $10.38 $9.75
====== ====== ====== ======
Total investment return (d).............. 3.91% 3.32% 12.90% (2.68)%
Net assets at end of
period (000's omitted)................ $2,139 $1,780 $139 $24
Ratios:
Ratio of expenses to
average daily net assets (f)........ 1.73%(e) 1.46% 1.54% .30%(a)
Ratio of net investment income
to average daily net assets......... 5.24%(e) 5.55% 5.56% .11%(a)
Assuming no voluntary waivers
and reimbursements:
Expenses (b)........................ 1.73%(e) 1.63% 1.69% .30%(a)
Net investment income............... 5.24%(e) 5.38% 5.41% .11%(a)
Portfolio turnover rate (excluding
short-term securities).............. 66.29% 145.35% 144.39% 124.38%
See accompanying notes to Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
CLASS C
------------------------------------------
FOUR MONTHS YEAR PERIOD FROM
ENDED ENDED JANUARY 10,
OCTOBER 31, JUNE 30, 1995(c) TO
1996 1996 JUNE 30, 1995
----------- --------- -------------
<S> <C> <C> <C>
Net asset value:
Beginning of period......................... $10.15 $10.36 $9.48
------ ------ ------
Operations:
Net investment income....................... .18 .55 .27
Net realized and unrealized
gain (loss) on investments................ .21 (.23) .88
------ ------ ------
Total from operations................... .39 .32 1.15
------ ------ ------
Distributions to shareholders:
From net investment income.................. (.18) (.53) (.27)
From net realized gains..................... -- -- --
------ ------ ------
Total distributions....................... (.18) (.53) (.27)
------ ------ ------
Net asset value:
End of period............................... $10.36 $10.15 $10.36
====== ====== ======
Total investment return (d).................... 3.92% 3.11% 12.73%
Net assets at end of
period (000's omitted)...................... $234 $224 $221
Ratios:
Ratio of expenses to
average daily net assets (f).............. 1.73%(e) 1.70% 1.62%(e)
Ratio of net investment income
to average daily net assets............... 5.26%(e) 5.33% 5.10%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (b).............................. 1.73%(e) 1.70% 1.65%(e)
Net investment income..................... 5.26%(e) 5.33% 5.07%(e)
Portfolio turnover rate (excluding
short-term securities).................... 66.29% 145.35% 144.39%
See accompanying notes to Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
---------------------------------------------------
FOUR MONTHS YEAR YEAR PERIOD FROM
ENDED ENDED ENDED JUNE 7, 1994(c)
OCTOBER 31, JUNE 30, JUNE 30, TO JUNE 30,
1996 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period.................................. $10.16 $10.37 $9.75 $10.05
------ ------ ------ ------
Operations:
Net investment income................................ .21 .63 .62 .01
Net realized and unrealized
gain (loss) on investments......................... .21 (.23) .64 (.28)
------ ------ ------ ------
Total from operations............................ .42 .40 1.26 (.27)
------ ------ ------ ------
Distributions to shareholders:
From net investment income........................... (.21) (.61) (.62) (.01)
From net realized gains.............................. -- -- (.02) (.02)
------ ------ ------ ------
Total distributions................................ (.21) (.61) (.64) (.03)
------ ----- ------ ------
Net asset value:
End of period........................................ $10.37 $10.16 $10.37 $9.75
====== ====== ====== ======
Total investment return (d)............................. 4.17% 3.88% 13.57% (2.64)%
Net assets at end of
period (000's omitted)............................... 50,066 $41,688 $54,445 $49,898
Ratios:
Ratio of expenses to
average daily net assets (f)....................... .99%(e) .97% .94% .25%(a)
Ratio of net investment income
to average daily net assets........................ 6.00%(e) 6.07% 6.39% .16%(a)
Assuming no voluntary waivers and reimbursements:
Expenses (b)....................................... .99%(e) .97% .94% .25%(a)
Net investment income.............................. 6.00%(e) 6.07% 6.39% .16%(a)
Portfolio turnover rate (excluding
short-term securities)............................. 66.29% 145.35% 144.39% 124.38%
See accompanying notes to Financial Highlights.
</TABLE>
NOTES TO FINANCIAL HIGHLIGHTS
(a) Ratios presented for the period from June 7, 1994 to June 30, 1994 are not
annualized as they are not indicative of anticipated annual results.
(b) Voyageur and Fund Distributors voluntarily waived or reimbursed a portion
of expenses during several periods presented. The annual contractual
expense limit for the Fund (excluding distribution fees) is 1% of average
daily net assets. The maximum distribution fee is .25% of the Fund's
average daily net assets for Class A and Institutional Class Shares and
1.00% of the Fund's average daily net assets for Class B and Class C
Shares.
(c) Commencement of operations.
(d) 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.
(e) Annualized.
(f) Beginning in the year ended June 30, 1996, the expense ratio reflects the
effect of gross expense attributable to earnings credits on uninvested cash
balances received by the Fund. Prior period expense ratios have not been
adjusted.
<TABLE>
<CAPTION>
VOYAGEUR U.S. GOVERNMENT SECURITIES FUND
INVESTMENTS IN SECURITIES OCTOBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
NAME OF ISSUER AMOUNT VALUE(a)
- -------------------------------------------------------------------------------------------------------------------
(Percentage of each investment category relates to total net assets)
BONDS (99.1%):
U.S. GOVERNMENT AGENCY OBLIGATIONS (49.8%):
- -------------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
Mortgage-Backed Pass-Thru Certificates
<S> <C> <C> <C>
10.00% due 12/20/02 $ 74,153 $ 78,143
10.00% due 03/15/16 80,592 88,608
8.00% due 01/15/17 50,538 52,454
7.00% due 09/15/25 1,884,125 1,850,041
7.00% due 01/15/26 2,849,114 2,795,779
7.00% due 01/15/26 2,929,365 2,874,528
7.00% due 01/15/26 4,146,020 4,068,406
7.00% due 01/15/26 2,984,723 2,930,730
7.00% due 01/15/26 2,920,482 2,865,810
7.50% due 01/15/26 1,889,740 1,897,148
6.50% due 01/15/26 996,030 952,663
7.00% due 02/15/26 3,646,311 3,578,052
7.00% due 02/15/26 4,840,257 4,749,648
7.50% due 02/15/26 1,657,362 1,663,859
6.50% due 03/15/26 1,265,085 1,210,003
6.50% due 03/15/26 937,669 896,843
7.00% due 03/15/26 1,289,695 1,265,552
6.50% due 04/15/26 1,556,771 1,490,453
7.00% due 04/15/26 2,936,957 2,881,977
6.50% due 04/15/26 2,012,668 1,925,036
7.00% due 06/15/26 2,977,695 2,921,953
6.50% due 06/15/26 2,967,068 2,837,881
7.00% due 07/15/26 8,428,682 8,270,897
7.00% due 07/15/26 2,984,231 2,928,366
7.50% due 08/15/26 1,683,160 1,689,758
---------------
58,764,588
---------------
See accompanying notes to investments in securities.
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR U.S. GOVERNMENT SECURITIES FUND
INVESTMENTS IN SECURITIES (CONTINUED) OCTOBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL MARKET
NAME OF ISSUER AMOUNT VALUE(a)
- -------------------------------------------------------------------------------------------------------------------
U.S. TREASURY ISSUES (49.3%):
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury Notes
<S> <C> <C> <C>
6.13% due 03/31/98 $ 3,200,000 $ 3,220,512
6.00% due 05/31/98 1,000,000 1,004,530
5.50% due 11/15/98 6,250,000 6,216,813
8.00% due 08/15/99 500,000 526,560
6.75% due 04/30/00 3,050,000 3,122,437
8.88% due 05/15/00 1,000,000 1,091,410
5.75% due 10/31/00 10,000,000 9,901,600
5.63% due 11/30/00 6,000,000 5,911,860
6.25% due 10/31/01 2,000,000 2,013,120
7.50% due 05/15/02 1,150,000 1,223,497
6.38% due 08/15/02 2,000,000 2,022,820
5.75% due 08/15/03 2,100,000 2,045,211
7.25% due 08/15/04 6,000,000 6,359,040
10.00% due 05/15/10 10,500,000 12,918,255
U.S. Treasury Strips
6.83% due 02/15/12(c) 1,500,000 538,050
------------
58,115,715
------------
TOTAL INVESTMENTS IN SECURITIES (cost: $114,624,732) (b) $116,880,303
============
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in note 1 to the financial
statements.
(b) The cost of securities for federal income tax purposes was $114,711,772 and
the aggregate gross unrealized appreciation and depreciation based on this
cost was:
Gross unrealized appreciation...... $2,380,765
Gross unrealized depreciation...... (212,234)
------------
Net unrealized appreciation...... $2,168,531
============
(c) Zero coupon security. Interest rate disclosed is the effective yield as of
the date of acquisition.
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