U.S. GOVERNMENT
SECURITIES FUND
[GRAPHIC OMITTED: PHOTO OF MILL WITH CREEK AND POND]
For Current Income
service and guidance
professional management
goals
1998
Semi-Annual Report
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
for current
income
2
MAY 5, 1998
DEAR SHAREHOLDER:
STRONG U.S. ECONOMIC GROWTH, low inflation and federal budget restraint
generated a bond market rally this past winter. Bond prices rose to
historic highs in January while yields fell. This presented a challenge
for investors seeking a steady stream of current income from high
quality bonds.
U.S. Government Securities Fund provided a total return of +3.06%
(for Class A shares with distributions reinvested at net asset value)
for the six months ended April 30, 1998. This was less than the return
of your Fund's benchmark, the unmanaged Lehman Brothers Government Bond
Index, as shown below.
Your Fund's short-term results were affected by three things:
(bullet) A strategic focus on income rather than maximizing price
appreciation;
(bullet) Increased mortgage refinancing activity, which reduced the
value of some of your Fund's holdings of Government National Mortgage
Association (GNMA) bonds; and,
(bullet) A weighting in U.S. Treasury bonds that was substantially less
than that of the Lehman Brothers Government Bond Index.
BOND PRICES ROSE TO HISTORIC HIGHS THIS PAST WINTER WHILE YIELDS FELL.
THIS PRESENTED A CHALLENGE FOR INVESTORS SEEKING A STEADY STREAM OF
CURRENT INCOME FROM HIGH QUALITY BONDS.
During the first half of fiscal 1998, the majority of your Fund's
net assets were invested in GNMAs. These securities provided higher
income but rose less in value than U.S. Treasury bonds with comparable
maturities.
Back in October, the U.S. unemployment rate was at its lowest
level in a generation while job growth was robust. We were concerned
that increased demand for skilled workers and increased consumer
confidence would be precursors to higher inflation. In addition, the
yield curve contracted. That is, the potential income advantage of
purchasing long-term bonds as opposed to short-term securities narrowed.
CUMULATIVE RETURN
SIX MONTHS ENDED
APRIL 30, 1998
U.S. Government Securities Fund A Class +3.06%
Lehman Brothers Government Bond Index +3.56%
Lipper General U.S. Government Fund Average (193 funds) +3.17%
U.S. Consumer Price Index (Inflation) +0.77%
Performance shown above is based on net asset value and assumes
reinvestment of all distributions. For Fund performance and expense
information for all classes, see page 7. The Lehman Brothers Government
Bond Index is an unmanaged composite of several types of U.S. government
securities and assumes no fees or expenses. Past performance does not
guarantee future results.
for current
income
3
Given this environment, your Fund's portfolio manager, Mark L.
Simenstad, took a defensive approach. We believed that keeping the
average weighted maturity of the Fund's holdings to about nine years -
an intermediate focus - offered investors attractive income potential
with less potential risk to principal from changes in interest rates. We
achieved this through a barbell approach as explained on page 5.
income
For investors in U.S. government securities, economic and fiscal
developments since autumn have been better than anyone could have
reasonably expected. The annual rate of inflation dropped from 2.1% in
October to less than 1.4% in April, even as the nation's annual economic
growth rate increased from 3.7% to 4.2% during the same period (as
measured by Gross Domestic Product).
In addition, for the first time since 1969, the federal government
is likely to report a budget surplus, thanks primarily to changes in tax
policy and the strong U.S. economy. This has bolstered confidence in
America's debt around the globe, especially along the recession-plagued
Pacific Rim, where U.S. government bonds are seen as a stable
alternative to their own countries' public and private debt.
[GRAPHIC OMITTED: PHOTO OF MILL WITH CREEK AND POND]
Still, we do not believe we can write an obituary for inflation
just yet. Mortgage refinancing activity and a robust U.S. job market
tend to put more monthly income in consumers' pockets, income that has
generally been spent more than invested. Also, at least some of the
absence of inflation this past winter can be attributed to a drop in oil
prices and an exceptionally mild winter, factors unlikely to be repeated
in the coming months.
Given the fact that the U.S. has enjoyed nearly eight consecutive
years of economic growth, we remain cautious for the balance of fiscal
1998. In the report that follows, Mr. Simenstad outlines the Fund's
approach and provides an outlook for the coming months.
We thank you for your commitment to Delaware Investments.
Sincerely,
/S/WAYNE A. STORK
WAYNE A. STORK
Chairman
/S/JEFFREY J. NICK
JEFFREY J. NICK
President and Chief Executive Officer
for current
income
4
PERFORMANCE REVIEW
WE CONCENTRATED ON MAXIMIZING U.S. Government Securities Fund's income
stream during the first half of fiscal 1998 by investing just over half
of your Fund's net assets in Government National Mortgage Association
Bonds (GNMAs).
Complementing your Fund's portfolio were U.S. Treasury bonds, which
allowed us to strike a balance between income and safety of principal.
Both GNMAs and Treasuries are backed by the full faith and credit of the
U.S. government. Thus, the average credit quality of your Fund's
holdings is the highest available.
GNMA securities generally yield more than Treasuries of comparable
maturity. When interest rates fall, GNMAs carry the risk that homeowners
will refinance their mortgages, requiring bondholders like us to
reinvest principal at current rates, which could be lower than when the
mortgage pool was issued. Such was the case during this past winter and
spring. Your Fund sought to mitigate refinancing risk by investing in:
(bullet) Mortgages that penalize the borrower for paying off a loan
ahead of schedule; and,
(bullet) Discount mortgages - mortgages issued when interest rates were
lower. Discount mortgages have interest rates lower than current rates,
so there's no incentive for homeowners to refinance.
WE INVEST IN LONG-TERM BONDS FOR HIGHER SUPERIOR INCOME POTENTIAL AND
SHORT-TERM BONDS TO HELP MAINTAIN STABILITY OF PRINCIPAL. WE BELIEVE A
BARBELL APPROACH CAN GENERATE SUPERIOR INCOME WHILE PROVIDING US WITH
ADDED PORTFOLIO FLEXIBILITY.
Since autumn, we have lowered U.S. Government Securities Fund's
duration by almost a year to 4.9 years as of April 30, 1998. We believed
this defensive posture could help preserve principal in the event of
higher interest rates. Duration measures a bond's sensitivity to
interest rates by indicating the approximate change in a bond's price
given a 1% change in interest rates.
[GRAPHIC OMITTED: PIE CHART OF PORTFOLIO HIGHLIGHTS AND ASSET
ALLOCATION]
PORTFOLIO HIGHLIGHTS AND ASSET ALLOCATION
APRIL 30, 1998
Treasuries - 30.5%
Cash - 5.0%
GNMA - 55.5%
APRIL 30, OCTOBER 31,
1998 1997
Average Effective Duration 4.9 years 5.8 years
Average Effective Maturity 8.8 years 9.1 years
Average Quality AAA AAA
Thirty-Day Current SEC Yield* 5.21% 5.32%
Number of Bonds 26 39
*For Class A shares measured according to the Securities and Exchange
Commission guidelines. For B and C Class shares, the 30-day SEC current
yields as of April 30, 1998, were 4.74% and 4.75%. Institutional Class
yield was 5.51%.
for current
income
5
The Fund's average effective maturity was 8.8 years at mid-year, a
slight decrease from the beginning of the 1998 fiscal year. Actually,
few securities in the Fund's portfolio have an intermediate maturity.
Rather, the Fund is "barbelled." That is, we tend to invest at both ends
of the maturity spectrum rather than in the middle. We invest in long-
term bonds for their higher income potential and short-term bonds to
help maintain stability of principal. We believe a barbell approach can
generate superior income while providing us with added portfolio
flexibility.
Because we anticipated a rise in interest rates, this past winter
we sold most of the portfolio's position in STRIP (Separate Trading of
Registered Interest or Principal of Securities) securities, which had
represented about 5% of the Fund's net assets back in October. STRIPs
are U.S. Treasuries in which the coupon is separated from the principal,
leaving two separate securities.
STRIPs generally perform better than traditional Treasury bonds in
a declining interest rate environment. STRIPs lock in a particular yield
that becomes more attractive the more rates fall. However, they also
decline in value faster when interest rates rise.
Your Fund's average coupon at fiscal mid-year was 6.50%, some 76
basis points lower (0.76%) than in October. This reflected an increase
in mortgage prepayment activity as well as our defensive view. A higher
coupon, while increasing the Fund's yield, is more likely to erode
principal over time - especially during a period of potentially higher
interest rates.
[GRAPHIC OMITTED: WORM CHART INFLATION AND MORTGAGE RATES HAVE FALLEN
SHARPLY SINCE 1997]
WORM CHART INFLATION AND MORTGAGE RATES HAVE FALLEN SHARPLY SINCE 1997
FANNIE MAE
60-DAY MORTGAGE U.S. CONSUMER
COMMITMENT RATES PRICE INDEX
4/97 2.5% 8.19%
5/97 2.2 8.04
6/97 2.3 7.82
7/97 2.2 7.44
8/97 2.2 7.70
9/97 2.2 7.49
10/97 2.1 7.34
11/97 1.8 7.32
12/97 1.7 7.22
1/98 1.6 7.03
2/98 1.4 7.16
3/98 1.4 7.16
4/98 1.4 7.16
Source: Bloomberg Business News
for current
income
6
OUTLOOK
We believe we have positioned U.S. Government Securities Fund's
portfolio to provide attractive income potential and stability of
principal for the remainder of the 1998 fiscal year.
In our opinion, interest rates are more likely to move up than down
during the coming months. Although the Federal Reserve Board hasn't
raised its short-term interest rate target since the spring of 1997,
some Fed officials reportedly favor modestly higher rates as a
preemptive strike against inflation.
Some investors currently believe economic weakness in many Pacific
Rim countries can help reduce U.S. inflation in 1998. Prices of goods
exported to our shores from Asia have been falling, thanks in part to
the increased value of the U.S. dollar compared to currencies such as
the Japanese yen. This in turn may make it difficult for domestic
competitors to raise prices on goods such as cars and computers.
IN OUR OPINION, INTEREST RATES ARE MORE LIKELY TO MOVE UP THAN DOWN
DURING THE COMING MONTHS.
However, in our view, this trend is likely to be temporary. We're
concerned that consumer optimism is at near record levels and businesses
are having trouble finding qualified workers. Low prices on some goods
may have the effect of spurring additional consumer and business demand
that may be inflationary down the road.
We intend to keep a watchful eye on consumer and producer price
movements to gauge their potential effects on markets, monetary policy
and your Fund's performance for the remainder of the year.
MARK L. SIMENSTAD
Senior Portfolio Manager
May 5, 1998
GLOSSARY
[GRAPHIC OMITTED: INSET BACKROUND SQUARE & PHOTO OF COMPUTER KEYBOARD]
CONSUMER PRICE INDEX (CPI)
The U.S. government's measure of prices of retail goods, including food,
transportation, shelter, utilities, clothing, medical care and
entertainment. The index is widely used as a measure of inflation.
COUPON
Interest rate on a bond which the issuer promises to pay the holder
until maturity, expressed as an annual percentage of the bond's face
value. For instance, a bond with a 10% coupon will pay $10 for every
$100 of face amount per year.
DURATION
The most common measure of a bond's sensitivity to interest rates. It
indicates the approximate change in a bond's price given a 1% movement
in interest rates.
GROSS DOMESTIC PRODUCT (GDP)
Market value of the goods and services produced in the U.S., as reported
quarterly by the U.S. Department of Commerce. GDP is made up of consumer
and government purchases, private domestic investments, and net exports
of goods and services.
for current
income
7
[GRAPHIC OMITTED: VERTICAL BAR CHART U.S. GOVERNMENT SECURITIES FUND
PROVIDING HIGH INCOME SINCE 1987]
U.S. GOVERNMENT SECURITIES FUND:
PROVIDING HIGH INCOME SINCE 1987
INCOME FROM A $100,000 INVESTMENT SINCE INCEPTION
April 1988 $3,588
April 1989 $9,034
April 1990 $9,669
April 1991 $10,795
April 1992 $12,222
April 1993 $12,408
April 1994 $12,950
April 1995 $11,299
April 1996 $11,435
April 1997 $12,455
April 1998 $12,431
Chart assumes a $100,000 investment on November 2, 1987, in Class A
shares, and includes the effect of a 3.75% front-end sales charge and
reinvestment of distributions. Performance of other Fund classes will
vary due to other charges and expenses. Past performance does not
guarantee future results.
U.S. GOVERNMENT SECURITIES FUND PERFORMANCE
AVERAGE ANNUAL RETURNS THROUGH APRIL 30, 1998
LIFETIME TEN YEARS FIVE YEARS ONE YEAR
Class A (Est. 11/2/87)
Excluding Sales Charge +8.80% +8.79% +6.21% +10.62%
Including Sales Charge +8.30% +8.26% +5.18% +5.34%
Class B (Est. 6/7/94)
Excluding Sales Charge +7.05% +9.78%
Including Sales Charge +6.41% +5.78%
Class C (Est.1/10/95)
Excluding Sales Charge +9.16% +9.70%
Including Sales Charge +9.16% +8.70%
ALL PERFORMANCE INCLUDES REINVESTMENT OF DISTRIBUTIONS AND APPLICABLE
SALES CHARGE AS DESCRIBED BELOW. RETURN AND SHARE VALUE WILL FLUCTUATE
SO 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 THE
INVESTMENT WAS NOT REDEEMED OR THAT CONTINGENT SALES CHARGES DID NOT
APPLY. RETURNS REFLECT A VOLUNTARY EXPENSE LIMITATION IN EFFECT AT THE
TIME. RETURNS WOULD HAVE BEEN LOWER WITHOUT THE LIMITATION.
CLASS A shares have a 4.75% maximum sales charge and a 12b-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.
The average annual total returns for the lifetime and one-year periods
and the six-month cumulative total return through 4/30/98 for U.S.
Government Securities Fund's Institutional Class were +7.76%, +10.52% and
+3.06%. Institutional Class shares are available without sales or asset-
based distribution charges only to certain eligible institutional
accounts.
<TABLE>
<CAPTION>
8 for current income
FINANCIAL STATEMENTS
VOYAGEUR FUNDS, INC.
DELAWARE - VOYAGEUR U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF NET ASSETS
APRIL 30, 1998 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS - 55.51%
GNMA 6.50% 1/15/13 $2,025,211 $2,042,299
GNMA 6.50% 2/15/13 1,791,859 1,806,978
GNMA 6.50% 2/15/13 1,100,367 1,109,652
GNMA 6.50% 3/15/26 2,305,777 2,294,248
GNMA 6.50% 3/15/26 10,400,318 10,345,066
GNMA 6.50% 1/15/28 21,010,986 20,833,706
GNMA 7.00% 9/15/25 1,783,397 1,814,606
GNMA 7.00% 3/15/26 1,829,413 1,859,712
GNMA 7.00% 10/15/27 493,154 501,168
GNMA 7.00% 1/15/28 6,068,572 6,146,326
GNMA 8.00% 1/15/17 25,488 26,834
GNMA 10.00% 3/15/16 27,944 30,729
GNMA II 10.00% 12/20/02 34,855 36,783
------------
TOTAL GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION OBLIGATIONS
(COST $48,210,403) 48,848,107
------------
U.S. TREASURY OBLIGATIONS - 39.54%
U.S. Treasury Bonds 6.25% 8/15/23 120,000 123,389
U.S. Treasury Bonds 7.25% 5/15/16 1,730,000 1,966,266
U.S. Treasury Bonds 7.50% 11/15/16 8,250,000 9,602,422
U.S. Treasury Bonds 7.875% 2/15/21 1,335,000 1,633,973
US Treasury Notes 5.50% 3/31/00 4,250,000 4,244,431
U.S. Treasury Notes 6.125% 8/15/07 2,000,000 2,053,180
U.S. Treasury Notes 6.125% 12/31/01 2,000,000 2,030,860
U.S. Treasury Notes 6.125% 7/31/00 2,650,000 2,679,283
U.S. Treasury Notes 6.375% 5/15/00 1,195,000 1,213,032
U.S. Treasury Notes 6.50% 8/31/01 4,650,000 4,769,505
U.S. Treasury Notes 6.625% 4/30/02 3,000,000 3,101,190
* U.S. Treasury Strip - Principal 5.23% 11/15/04 2,000,000 1,381,400
------------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $34,923,381) 34,798,931
------------
TOTAL MARKET VALUE OF SECURITIES OWNED - 95.05%
(COST $83,133,784) $83,647,038
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 4.95% 4,358,491
------------
NET ASSETS APPLICABLE TO 8,280,474 SHARES
($0.01 PAR VALUE) OUTSTANDING $88,005,529
============
- -------------
* Zero coupon security. The interest rate disclosed is the effective
yield as of the date of acquisition.
NET ASSET VALUE - U.S. GOVERNMENT SECURITIES FUND A CLASS
($49,753,710 / 4,682,458 SHARES) $10.63
=======
NET ASSET VALUE - U.S. GOVERNMENT SECURITIES FUND B CLASS
($2,730,601 / 256,635 SHARES) $10.64
=======
NET ASSET VALUE - U.S. GOVERNMENT SECURITIES FUND C CLASS
($164,188 / 15,463 SHARES) $10.62
=======
NET ASSET VALUE - U.S. GOVERNMENT SECURITIES FUND
INSTITUTIONAL CLASS ($35,357,030 / 3,325,918 SHARES) $10.63
=======
COMPONENTS OF NET ASSETS AT APRIL 30, 1998:
Common stock, $0.01 par value, 10,000,000,000 shares authorized
to the Fund with 1,000,000,000 shares allocated to the
U.S. Government Securities Fund A Class,1,000,000,000 shares
allocated to the U.S. Government Securities Fund B Class,
1,000,000,000 shares allocated to the U.S. Government
Securities Fund C Class, 1,000,000,000 shares allocated
to the U.S. Government Securities Fund Institutional Class $89,565,515
Distributions in excess of net investment income (181)
Accumulated net realized loss on investments (2,073,059)
Net unrealized appreciation on investments 513,254
-------------
Total Net Assets $88,005,529
=============
NET ASSET VALUE AND OFFERING PRICE FOR U.S. GOVERNMENT
SECURITIES FUND A CLASS
Net asset value per share (A) $10.63
Sales charge (4.75% of offering price or 4.99% of
amount invested per share) (B) 0.53
-------
Offering price $11.16
=======
-----------------
(A) Net asset value per share illustrated is the estimated amount which would be paid
upon the redemption or repurchase of shares.
(B) See How To Buy Shares in the current Prospectus for purchases of $100,000 or more
for U.S. Government Fund Class A.
See accompanying notes
</TABLE>
for current income 9
VOYAGEUR FUNDS, INC.
DELAWARE - VOYAGEUR
U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (UNAUDITED)
ASSETS:
Investments in securities at market
(cost $83,133,784) $83,647,038
Cash 53,733
Dividends and interest receivable 847,266
Subscriptions receivable 340,732
Receivable for securities sold 3,622,104
Other assets 34,716
------------
Total assets 88,545,589
------------
LIABILITIES:
Liquidations payable 223,707
Other accounts payable and accrued expenses 316,353
------------
Total liabilities 540,060
------------
TOTAL NET ASSETS $88,005,529
============
See accompanying notes
<TABLE>
<CAPTION>
VOYAGEUR FUNDS, INC.
DELAWARE - VOYAGEUR
U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
INVESTMENT INCOME: <C> <C>
Interest $2,967,976
<S>
EXPENSES:
Management fees $234,899
Distribution expense 126,463
Dividend disbursing and transfer agent fees
and expenses 33,821
Reports and statements to shareholders 28,425
Accounting and administration 28,005
Taxes (other than taxes on income) 20,224
Registration fees 13,748
Professional fees 6,202
Custodian fees 5,525
Directors' fees 3,474
Other 14,043
------------
514,829
Less expenses waived or absorbed (38,604) 476,225
------------ ------------
NET INVESTMENT INCOME 2,491,751
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain from investment transactions 1,453,974
Net change in unrealized appreciation/depreciation
on investments (1,120,647)
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 333,327
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $2,825,078
============
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
10 for current income
VOYAGEUR FUNDS, INC.
DELAWARE - VOYAGEUR U.S. GOVERNMENT SECURITIES FUND
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR
4/30/98 ENDED
(UNAUDITED) 10/31/97
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $2,491,751 $6,582,050
Net realized gain from investment transactions 1,453,974 3,015,506
Net change in unrealized appreciation/depreciation
on investments (1,120,647) (621,669)
------------ ------------
Net increase in net assets resulting from operations 2,825,078 8,975,887
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class (1,395,556) (3,691,516)
B Class (57,839) (117,294)
C Class (3,269) (10,330)
Institutional Class (1,117,272) (2,898,335)
------------ ------------
(2,573,936) (6,717,475)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class 2,021,033 7,487,475
B Class 631,918 593,541
C Class 36,286 5,505
Institutional Class 6,901,595 13,306,849
Net asset value of shares issued upon reinvestment
of dividends from net investment income:
A Class 971,654 2,596,190
B Class 36,920 57,169
C Class 625 4,390
Institutional Class 887,550 2,237,082
------------ ------------
11,487,581 26,288,201
------------ ------------
Cost of shares repurchased:
A Class (5,582,730) (24,625,528)
B Class (200,666) (574,860)
C Class (10,863) (109,450)
Institutional Class (18,135,400) (20,996,519)
------------ ------------
(23,929,659) (46,306,357)
------------ ------------
Decrease in net assets derived from capital
share transactions (12,442,078) (20,018,156)
------------ ------------
NET DECREASE IN NET ASSETS (12,190,936) (17,759,744)
NET ASSETS:
Beginning of period 100,196,465 117,956,209
------------ ------------
End of period $88,005,529 $100,196,465
============ ============
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
for current income 11
VOYAGEUR FUNDS, INC.
DELAWARE - VOYAGEUR U.S. GOVERNMENT SECURITIES FUND
FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout each period were as follows:
U.S. GOVERNMENT SECURITIES FUND CLASS A
----------------------------------------
SIX MONTHS YEAR FOUR MONTH YEAR
ENDED ENDED ENDED ENDED
4/30/98 10/31/971 10/31/962 6/30/96
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.600 $10.370 $10.160 $10.370
Income from investment operations:
Net investment income 0.276 0.590 0.210 0.630
Net realized and unrealized gain (loss) from investments 0.039 0.230 0.210 (0.230)
------- ------- ------- -------
Net increase (decrease) in net assets from investment
operations 0.315 0.820 0.420 0.400
------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.285) (0.590) (0.210) (0.610)
Distributions from net realized gain on security
transactions -- -- -- --
------- ------- ------- -------
Total dividends and distributions (0.285) (0.590) (0.210) (0.610)
------- ------- ------- -------
Net asset value, end of period $10.630 $10.600 $10.370 $10.160
======= ======= ======= =======
Total Return3 3.06% 8.39% 4.18% 3.88%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $49,805 $52,213 $65,516 $68,442
Ratio of expenses to average net assets 0.96% 0.96% 0.98%4 0.97%4
Ratio of expenses to average net assets prior to expense
limitation 1.00% 1.15% 0.98% 0.97%
Ratio of net investment income to average net assets 5.37% 6.14% 6.03% 6.07%
Ratio of net investment income to average net assets
prior to expense limitation 5.33% 6.32% 6.03% 6.07%
Portfolio turnover 263% 205% 66% 145%
U.S. GOVERNMENT SECURITIES
FUND CLASS A
------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
6/30/95 6/30/94 6/30/93
<S> <C> <C> <C>
Net asset value, beginning of period $9.760 $10.990 $10.460
Income from investment operations:
Net investment income 0.620 0.550 0.610
Net realized and unrealized gain (loss) from investments 0.630 (0.940) 0.830
------- ------- -------
Net increase (decrease) in net assets from
investment operations 1.250 (0.390) 1.440
------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.620) (0.550) (0.610)
Distributions from net realized gain on security
transactions (0.020) (0.290) (0.300)
------- ------- -------
Total dividends and distributions (0.640) (0.840) (0.910)
------- ------- -------
Net asset value, end of period $10.370 $9.760 $10.990
======= ======= =======
Total Return3 13.45% (3.95%) 14.25%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $75,886 $84,660 $112,604
Ratio of expenses to average net assets 0.95% 0.96% 1.10%
Ratio of expenses to average net assets prior to
expense limitation 0.95% 0.96% 1.14%
Ratio of net investment income to average net assets 6.38% 5.10% 5.61%
Ratio of net investment income to average net assets
prior to expense limitation 6.38% 5.10% 5.57%
Portfolio turnover 144% 124% 175%
- -------------------
1 Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund
Managers, Inc. as the Fund's investment manager.
2 Effective October 31, 1996, the Fund changed its fiscal year end from June 30 to
October 31, ratios have been annualized.
3 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. Total return for periods less than
12 months have not been annualized.
4 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>
<TABLE>
<CAPTION>
12 for current income
Selected data for each share of the Fund outstanding throughout each period were as follows:
U.S. GOVERNMENT SECURITIES
FUND CLASS B
------------------------------
SIX MONTHS YEAR FOUR MONTHS
ENDED ENDED ENDED
4/30/98 10/31/971 10/31/962
(UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period $10.610 $10.380 $10.170
Income from investment operations:
Net investment income 0.239 0.510 0.180
Net realized and unrealized gain (loss) from investments 0.037 0.230 0.210
------- ------- -------
Net increase (decrease) in net assets from investment operations 0.276 0.740 0.390
------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.247) (0.510) (0.180)
Distributions from net realized gain on security transactions -- -- --
------- ------- -------
Total dividends and distributions (0.247) (0.510) (0.180)
------- ------- -------
Net asset value, end of period $10.640 $10.610 $10.380
======= ======= =======
Total Return4 2.68% 7.57% 3.91%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $2,733 $2,256 $2,139
Ratio of expenses to average net assets 1.71% 1.62% 1.73%5
Ratio of expenses to average net assets prior to expense limitation 1.75% 1.80% 1.73%
Ratio of net investment income to average net assets 4.62% 4.86% 5.24%
Ratio of net investment income to average net assets
prior to expense limitation 4.58% 5.04% 5.24%
Portfolio turnover 263% 205% 66%
U.S. GOVERNMENT SECURITIES
FUND CLASS B
------------------------------
YEAR YEAR 6/7/943
ENDED ENDED TO
6/30/96 6/30/95 6/30/94
<S> <C> <C> <C>
Net asset value, beginning of period $10.380 $9.750 $10.050
Income from investment operations:
Net investment income 0.570 0.560 0.010
Net realized and unrealized gain (loss) from investments (0.230) 0.650 (0.280)
------- ------- -------
Net increase (decrease) in net assets from investment operations 0.340 1.210 (0.270)
------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.550) (0.560) (0.010)
Distributions from net realized gain on security transactions -- (0.020) (0.020)
------- ------- -------
Total dividends and distributions (0.550) (0.580) (0.030)
------- ------- -------
Net asset value, end of period $10.170 $10.380 $9.750
======= ======= =======
Total Return4 3.32% 12.90% (2.68%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,780 $139 $24
Ratio of expenses to average net assets 1.46%5 1.54% 0.30%6
Ratio of expenses to average net assets prior to expense limitation 1.63% 1.69% 0.30%6
Ratio of net investment income to average net assets 5.55% 5.56% 0.11%6
Ratio of net investment income to average net assets
prior to expense limitation 5.38% 5.41% 0.11%6
Portfolio turnover 145% 144% 124%
- -----------------
1 Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund
Managers, Inc. as the Fund's investment manager.
2 Effective October 31, 1996, the Fund changed its fiscal year end from June 30 to
October 31, ratios have been annualized.
3 Commencement of operations
4 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. Total return for periods less than
12 months have not been annualized.
5 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.
6 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.
</TABLE>
<TABLE>
<CAPTION>
for current income 13
Selected data for each share of the Fund outstanding throughout each period were as follows:
U.S. GOVERNMENT SECURITIES
FUND CLASS C
------------------------------
SIX MONTHS YEAR FOUR MONTHS
ENDED ENDED ENDED
4/30/98 10/31/97 10/31/96
(UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period $10.590 $10.360 $10.150
Income from investment operations:
Net investment income 0.239 0.510 0.180
Net realized and unrealized gain (loss) from investments 0.038 0.230 0.210
------- ------- -------
Net increase in net assets from investment operations 0.277 0.740 0.390
------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.247) (0.510) (0.180)
Distributions from net realized gain on security transactions -- -- --
------- ------- -------
Total dividends and distributions (0.247) (0.510) (0.180)
------- ------- -------
Net asset value, end of period $10.620 $10.590 $10.360
======= ======= =======
Total Return4 2.68% 7.59% 3.92%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $164 $138 $234
Ratio of expenses to average net assets 1.71% 1.94% 1.73%5
Ratio of expenses to average net assets prior to expense limitation 1.75% 2.13% 1.73%
Ratio of net investment income to average net assets 4.62% 6.03% 5.26%
Ratio of net investment income to average net assets
prior to expense limitation 4.58% 6.22% 5.26%
Portfolio turnover 263% 205% 66%
U.S. Government Securities
Fund Class C
--------------------
Year 1/10/953
Ended to
6/30/96 6/30/95
<S> <C> <C>
Net asset value, beginning of period $10.360 $9.480
Income from investment operations:
Net investment income 0.550 0.270
Net realized and unrealized gain (loss) from investments (0.230) 0.880
------- -------
Net increase in net assets from investment operations 0.320 1.150
------- -------
Less dividends and distributions:
Dividends from net investment income (0.530) (0.270)
Distributions from net realized gain on security transactions -- --
------- -------
Total dividends and distributions (0.530) (0.270)
------- -------
Net asset value, end of period $10.150 $10.360
======= =======
Total Return4 3.11% 12.73%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $224 $221
Ratio of expenses to average net assets 1.70%5 1.62%
Ratio of expenses to average net assets prior to expense limitation 1.70% 1.65%
Ratio of net investment income to average net assets 5.33% 5.10%
Ratio of net investment income to average net assets
prior to expense limitation 5.33% 5.07%
Portfolio turnover 145% 144%
- -------------------
1 Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund
Managers, Inc. as the Fund's investment manager.
2 Effective October 31, 1996, the Fund changed its fiscal year end from June 30 to
October 31, ratios have been annualized.
3 Commencement of operations
4 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. Total return for periods less than
12 months have not been annualized.
5 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>
<TABLE>
<CAPTION>
14 for current income
Selected data for each share of the Fund outstanding throughout each period were as follows:
U.S. GOVERNMENT SECURITIES
FUND INSTITUTIONAL CLASS
------------------------------
SIX MONTHS YEAR FOUR MONTHS
ENDED ENDED ENDED
4/30/98 10/31/971 10/31/962
(UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period $10.600 $10.370 $10.160
Income from investment operations:
Net investment income 0.277 0.590 0.210
Net realized and unrealized gain (loss) from investments 0.038 0.230 0.210
------- ------- -------
Net increase (decrease) in net assets from investment operations 0.315 0.820 0.420
------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.285) (0.590) (0.210)
Distributions from net realized gain on security transactions -- -- --
------- ------- -------
Total dividends and distributions (0.285) (0.590) (0.210)
------- ------- -------
Net asset value, end of period $10.630 $10.600 $10.370
======= ======= =======
Total Return4 3.06% 8.40% 4.17%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $35,393 $45,589 $50,066
Ratio of expenses to average net assets6 0.96% 0.90% 0.99%5
Ratio of expenses to average net assets prior to expense limitation 1.00% 1.08% 0.99%
Ratio of net investment income to average net assets 5.37% 5.78% 6.00%
Ratio of net investment income to average net assets
prior to expense limitation 5.33% 5.96% 6.00%
Portfolio turnover 263% 205% 66%
U.S. GOVERNMENT SECURITIES
FUND INSTITUTIONAL CLASS
------------------------------
YEAR YEAR 6/7/943
ENDED ENDED TO
6/30/96 6/30/95 6/30/94
<S> <C> <C> <C>
Net asset value, beginning of period $10.370 $9.750 $10.050
Income from investment operations:
Net investment income 0.630 0.620 0.010
Net realized and unrealized gain (loss) from investments (0.230) 0.640 (0.280)
------- ------- -------
Net increase (decrease) in net assets from investment operations 0.400 1.260 (0.270)
------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.610) (0.620) (0.010)
Distributions from net realized gain on security transactions -- (0.020) (0.020)
------- ------- -------
Total dividends and distributions (0.610) (0.640) (0.030)
------- ------- -------
Net asset value, end of period $10.160 $10.370 $9.750
======= ======= =======
Total Return4 3.88% 13.57% (2.64%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $41,688 $54,445 $49,898
Ratio of expenses to average net assets6 0.97%5 0.94% 0.25%6
Ratio of expenses to average net assets prior to expense limitation 0.97% 0.94% 0.25%6
Ratio of net investment income to average net assets 6.07% 6.39% 0.16%6
Ratio of net investment income to average net assets
prior to expense limitation 6.07% 6.39% 0.16%6
Portfolio turnover 145% 144% 124%
- ------------------------
1 Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund
Managers, Inc. as the Fund's investment manager.
2 Effective October 31, 1996, the Fund changed its fiscal year end from June 30 to
October 31, ratios have been annualized.
3 Commencement of operations
4 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. Total return for the periods October
31, 1996, and June 30, 1994, have not been annualized.
5 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.
6 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.
</TABLE>
VOYAGEUR FUNDS, INC.
DELAWARE - VOYAGEUR U.S. GOVERNMENT SECURITIES FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1998
(UNAUDITED)
Voyageur Funds Inc. - Delaware - Voyageur U.S. Government Securities
Fund ("The Fund"), formerly Voyageur U.S. Government Securities Fund, is
registered as a diversified open-end investment company under the
Investment Company Act of 1940, as amended. The Fund is organized as a
Maryland Corporation and currently offers four classes of shares. The
U.S. Government Securities Fund A Class carries a front-end sales charge
of 4.75%. The U.S. Government Securities Fund B Class carries a back-end
deferred sales charge, U.S. Government Securities Fund C Class carries a
level load deferred sales charge and U.S. Government Institutional Class
has no sales charge.
The Fund seeks high current income from investments issued, guaranteed
or otherwise backed by the full faith and credit of the U.S. Government.
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 would acquire 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 advisor to the Fund, Delaware Distributors, L.P.
("DDLP") became the distributor for the Fund, Delaware Service Company,
Inc. ("DSC") became the transfer, dividend-disbursing, shareholder
servicing agent and accounting service agent for the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with generally
accepted accounting principles and are consistently followed by the
Fund.
SECURITY VALUATION - Securities listed on an exchange are valued at the
last quoted sales price as of the close of the NYSE on the valuation
date. Securities not traded or securities not listed on an exchange are
valued at the mean of the last quoted bid and asked prices. 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.
for current income 15
FEDERAL INCOME TAXES - The 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 Fund on the basis of daily net assets of each class.
Distribution expenses relating to a specific class are charged directly
to that class.
REPURCHASE AGREEMENTS - The Fund may invest in a pooled cash account
along with other members of the Delaware Investments Family of Funds.
The aggregate daily balance of the pooled cash account is invested in
repurchase agreements secured by obligations of the U.S. Government. The
respective collateral is held by the Fund's custodian bank until the
maturity of the respective repurchase agreements. Each repurchase
agreement is at least 100% collateralized. However, in the event of
default or bankruptcy by the counterparty to the agreement, realization
of the collateral may be subject to legal proceedings.
OTHER - Expenses common to all Funds within the Delaware Investments
Family of 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. Dividend income is recorded on the ex-
dividend date and interest income is recorded on the accrual basis.
Original issue discounts are accreted to interest income over the lives
of the respective securities. The Fund declares dividends daily from net
investment income and pays such dividends monthly.
Certain Fund expenses are paid through "soft dollar" arrangements with
brokers. The amount of these expenses is less than 0.01% of the Fund's
average daily net assets.
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
In accordance with the terms of the Investment Management Agreement, the
Fund pays DMC, the Investment Manager of the Fund, an annual fee, which
is calculated daily at the rate of 0.50% on the average daily net assets
of the Fund less the fees paid to the unaffiliated directors. At April
30, 1998, the Fund had a liability for Investment Management fees and
other expenses payable to DMC for $28,978.
DMC has entered into a sub-advisory agreement with Voyageur Asset
Management Inc., with respect to the management of the U.S. Government
Securities Fund. The sub-advisor receives a sub-advisory fee from DMC
for their services. The U.S. Government Securities Fund does not pay any
fees to the sub-advisor.
DMC has elected to waive that portion of the management fee and
reimburse the Fund to the extent that annual operating expenses
exclusive of taxes, interest, brokerage commissions, distribution fees
and extraordinary expenses, exceed 1.00% of the Fund's average daily net
assets attributable to Class A and Institutional Class shares and 1.75%
of the Fund's average daily net assets attributable to Class B and Class
C shares of the Fund through October 31, 1998. In addition, DMC may
voluntarily absorb other Fund expenses. Total expenses absorbed by DMC
for the six month period ended April 30, 1998 were $38,604.
The Fund has engaged DSC, an affiliate of DMC, to serve as dividend
disbursing, transfer agent, and accounting services agent for the Fund.
During the six month period ended April 30, 1998, the Fund expensed
$33,821 for dividend disbursing and transfer agent services and $28,005
for accounting services. At April 30, 1998, the Fund had a liability for
such fees and other expenses payable to DSC for $12,713.
Pursuant to the Distribution Agreement, the Fund pays DDLP, the
Distributor and an affiliate of DMC, an annual fee not to exceed 0.25%
of the average daily net assets attributable to Class A and
Institutional Class shares and 1.00% of the average daily net assets
attributable to Class B and Class C shares.
For the six month period ended April 30, 1998, DDLP earned $4,297 for
commissions on sales of the Fund A Class shares.
Certain officers of DMC, DSC and DDLP are officers, directors and/or
employees of the Fund. These officers, directors and employees are not
compensated by the Fund.
<TABLE>
<CAPTION>
4. CAPITAL STOCK
Transactions in capital stock shares were as follows:
SIX MONTHS ENDED YEAR
4/30/98 ENDED
(UNAUDITED) 10/31/97
------------ -----------
<S> <C> <C>
Shares sold:
A Class 189,781 726,443
B Class 59,368 56,888
C Class 3,409 527
Institutional Class 648,357 1,286,857
Shares issued upon reinvestment of
dividends from net investment income:
A Class 91,136 251,626
B Class 3,458 5,528
C Class 59 427
Institutional Class 83,209 216,860
---------- ----------
1,078,777 2,545,156
---------- ----------
Shares repurchased:
A Class (524,682) (2,371,057)
B Class (18,847) (55,886)
C Class (1,027) (10,563)
Institutional Class (1,705,137) (2,030,915)
---------- ----------
(2,249,693) (4,468,421)
---------- ----------
Net Decrease (1,170,916) (1,923,265)
========== ==========
</TABLE>
5. INVESTMENTS
During the six month period ended April 30, 1998, the Fund made
purchases of $119,527,992 and sales of $138,060,168 of long term U.S.
government securities.
At April 30, 1998, the aggregate cost of securities for federal income
tax purposes was $83,148,251.
At April 30, 1998, net unrealized appreciation for federal income tax
purposes aggregated $498,787 of which $737,161 related to unrealized
appreciation of securities and $238,374 related to unrealized
depreciation of securities.
For federal income tax purposes, the Fund had a capital loss
carryforward at October 31, 1997 of $3,439,992 which may be carried
forward and applied against future capital gains. The capital loss
carryforward expires in the years 2002 through 2003.
6. CREDIT AND MARKET RISK
The Fund may invest in securities whose value is derived from an
underlying pool of mortgages or consumer loans. Prepayment of these
loans may shorten the stated maturity of the respective obligation and
may result in a loss of premium, if any has been paid.
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF U.S. GOVERNMENT
SECURITIES FUND SHAREHOLDERS, BUT IT MAY BE USED with prospective
investors when preceded or accompanied by a current Prospectus for U.S.
Government Securities Fund, which sets forth details about charges,
expenses, investment objectives and operating policies of the 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.
INVESTMENT MANAGER
Delaware Management Company
Philadelphia
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia
SUBADVISER
Voyageur Asset Management, L.L.C.
Minneapolis, Minn.
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia
1818 Market Street
Philadelphia, PA 19103-3682
[GRAPHIC OMITTED: PHOTO OF 3 GLOBES]
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawarefunds.com
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. Shares of the Fund are not bank or
credit union deposits.
(copyright) Delaware Distributors, L.P.
[LOGO OMITTED: DELAWARE INVESTMENTS
---------------------
Philadelphia * London]
Printed in the USA
on recycled paper
SA-404 [4/98] PP6/98
(772)
