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VOYAGEUR
YOUR TAX SENSITIVE INVESTMENT MANAGER
CALIFORNIA TAX FREE FUND
CALIFORNIA INSURED TAX FREE FUND
S E M I - A N N U A L R E P O R T
DATED JUNE 30, 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 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 NORTH DAKOTA Tax Free Fund
Voyageur IDAHO Tax Free Fund Voyageur UTAH Tax Free Fund
Voyageur IOWA Tax Free Fund Voyageur WISCONSIN Tax Free Fund
Voyageur KANSAS 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>
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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:
Since our last report, the headline story in the municipal bond market has been
the demise of a radical tax reform. One of the best ways to illustrate this d
mise is to look at how municipal bonds have traded in relation to Treasury
securities. At the height of the tax reform scare -- when Steve Forbes was
campaigning on his Flat Tax platform in January 1996 -- long municipal
securities were trading at a very cheap 90% of Treasuries. At the time of this
report, market fears have abated and municipal bonds are trading at a more
traditional 81%.
We believe the issue of reforming the tax code is far from thoroughly closed.
And it is likely -- in this a U.S. presidential election year -- that we may see
renewed discussions about less radical tax reforms. However, as is often the
case in the financial markets, we believe these times of short-term volatility
and uncertainty represent good opportunities for long-term investors.
At Voyageur, we continue to stress the importance of maintaining a long-term
view -- in both the investment horizons of our shareholders and in our approach
to purchasing securities for the Voyageur Tax Free Funds. In order to select the
best long-term securities for the funds, we favor purchasing negotiated new
municipal issues over those in the secondary or competitive market.
Unlike the taxable bond market where the structure of new bond issues are
frequently predetermined and fixed, we have more flexibility and negotiating
power in determining how a municipal bond issue will be structured. In many
cases, our credit research analysts -- who are experienced experts in the area
of municipal bond transactions -- work closely with municipal bond issuers to
determine the appropriate structure for new bond issues. Our analysts' intimate
knowledge of what's in the market and their ability to actually dissect
individual municipal securities helps us to determine appropriate prices that
accurately reflect an issuer's strength and value while assisting us in
protecting our shareholders' interests. They also help us pinpoint rising and
falling stars -- bonds whose credits may be upgraded or downgraded -- in the
municipal market.
We remain committed to providing our clients with the best investment products
and services available in today's financial markets. The Voyageur Tax Free Funds
allow you access to a wide variety of national and state-specific municipal
bonds funds, all of which are actively managed to meet their individual fund
objectives.
As part of our commitment to you, we have also redesigned our shareholder
reports to provide you with more in-depth information about your Voyageur fund
investments in an easier-to-read format. We welcome any comments you may have
about these changes and encourage you to call our Voyageur Shareholder Services
at 800.543.3863.
If at any time you have questions about your Voyageur fund investments, please
contact your personal financial advisor or Voyageur Shareholder Services. Our
Voyageur Shareholder Services 800 number -- known as Voyageur On Call(TM) --
allows you 24-hour access, seven days a week to an automated voice response
service with shareholder services representatives available from 8 a.m. to 5
p.m. Central Standard Time.
We appreciate your continued patronage of Voyageur Funds and look forward to
working with you and your financial advisors in creating products and services
designed to bring you closer to your investment goals.
Sincerely,
/s/ John G. Taft
John G. Taft
President
Voyageur California Tax Free Fund
Voyageur California Insured Tax Free Fund
VOYAGEUR CALIFORNIA INSURED TAX FREE FUND
[PHOTO] ANDREW M. McCULLAGH, JR. IS
THE SENIOR MUNICIPAL BOND
MANAGER FOR THE VOYAGEUR
CALIFORNIA INSURED TAX FREE
FUND AND THE VOYAGEUR
CALIFORNIA TAX FREE FUND.
MR. McCULLAGH HAS MORE
THAN 23 YEARS OF INVESTMENT
INDUSTRY EXPERIENCE.
For the six months ended June 30, 1996, the total returns at net asset value
(NAV) for the Class A shares of Voyageur California Tax Free Funds were as
follows: Voyageur California Insured Tax Free Fund -1.78% and Voyageur
California Tax Free Fund -1.72%.*
Within the funds, we maintained our long-term outlook for lower interest rates
by keeping our funds' durations long to the industry average. Although this
caused the Funds' performance to lag when interest rates rose, we believe the
worst is over and are expecting to see a turnaround in interest rates later this
year or early 1997.
AREAS OF OPPORTUNITY
Within the Funds, we remain committed to purchasing municipal bonds with high
credit ratings --with the Voyageur California Insured Tax Free Fund only
invested in insured municipal securities.** California, unlike other states, has
a ready supply of municipal bond issues generally available. This allows us to
be highly selective in what securities we add to the portfolio and increase our
ability to buy attractively priced negotiated municipal bond issues. A majority
of the municipal bonds issued in California are certificates of participation
(COPs) -- a sector we emphasize in the Funds' portfolio holdings.
COPs, much like lease-backed revenue bonds, represent a share in a lease
agreement made by a municipal or governmental entity. COPs are most frequently
used to finance capital improvement projects, such as the San Francisco
Courthouse COP held in the California Insured Tax Free Fund. Although in most
states COPs are subject to annual legislative appropriation review, California
is unique in that the COPs issued in the state are structured as long-term
leases.
During the past six months, we continued to search for areas or sectors where we
could add value to the Funds. One such area has been to include investments that
have added income to the portfolios. Although we still maintain our commitment
to total return, we believe this addition of income to the portfolios will allow
us to dampen the effects of market volatility while allowing our shareholders to
benefit from higher income streams.
In order to attempt to protect our shareholders' current income level for a
longer period of time, we have continued to take advantage of opportunities to
extend the Funds' call protection. Due to this focus, both of the Funds' now
have an average call protection of more than eight years.
OUTLOOK FOR THE MUNICIPAL MARKET
California is beginning to show signs of a recovery, making us feel more
comfortable about searching for future investments in municipal bonds rated A-
or BBB-rated -- the lowest two ratings in the investment grade credit
classification. In the national economy, signs still indicate moderate growth
with moderate inflation -- a trend we expect to see continue for the remainder
of the year.
Our outlook for the municipal market continues to be favorable, and we expect
interest rates to decline over the long term. This has caused us to position the
Funds to take advantage of this trend -- staggering the length of duration in
each of the individual Funds in order to maintain our cover the yield curve
strategy.
*Past performance is no guarantee of future results.
**Insurance pertains only to the timely payment of principal and interest by the
securities in the Fund's portfolio. The value of the insured securities and the
Fund itself will fluctuate due to changing market conditions. No representation
is made as to any insurer's ability to meet its commitment.
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 1996
- -------------------------------------------------------------------------------------------------------------------
VOYAGEUR VOYAGEUR
CALIFORNIA CALIFORNIA
TAX FREE INSURED
FUND TAX FREE FUND
------------ ------------
<S> <C> <C>
ASSETS
Investments in securities, at market value (note 1)
(identified cost: $1,266,474 and $38,256,485, respectively) ............... $ 1,283,429 $ 39,038,960
Cash in bank on demand deposit ............................................... 50,813 --
Accrued interest receivable .................................................. 22,704 674,039
Receivable for Fund shares sold .............................................. -- 46,681
------------ ------------
Total assets .............................................................. 1,356,946 39,759,680
------------ ------------
LIABILITIES
Bank overdraft ............................................................... -- 105,270
Dividends payable to shareholders ............................................ 1,541 41,542
Payable for investment securities purchased .................................. 50,197 1,882,367
Payable for Fund shares redeemed ............................................. -- 5,014
Other accrued expenses ....................................................... 16,068 46,567
------------ ------------
Total liabilities ......................................................... 67,806 2,080,760
------------ ------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES .................................. $ 1,289,140 $ 37,678,920
============ ============
Represented by:
Capital stock - $.01 par value (note 1) ................................... $ 1,268 --
Additional paid-in capital (note 1) ....................................... 1,273,298 $ 38,439,236
Distributions in excess of net investment income .......................... (2,313) (40,313)
Accumulated net realized loss on investments (note 1) ..................... (68) (1,502,478)
Unrealized appreciation of investments .................................... 16,955 782,475
------------ ------------
TOTAL NET ASSETS ........................................................ $ 1,289,140 $ 37,678,920
============ ============
Net assets applicable to outstanding Class A Shares .......................... $ 1,115,957 $ 31,323,807
============ ============
Net assets applicable to outstanding Class B Shares .......................... $ 132,406 $ 6,302,604
============ ============
Net assets applicable to outstanding Class C Shares .......................... $ 40,777 $ 52,509
============ ============
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE Class A - Shares outstanding:
109,791 and 3,071,844, respectively (note 4) ............................ $ 10.16 $ 10.20
============ ============
Class B - Shares outstanding:
13,012 and 617,965, respectively (note 4) ............................... $ 10.18 $ 10.20
============ ============
Class C - Shares outstanding:
4,013 and 5,148, respectively (note 4) .................................. $ 10.16 $ 10.20
============ ============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF OPERATIONS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996
- ----------------------------------------------------------------------------------------------------------
VOYAGEUR VOYAGEUR
CALIFORNIA CALIFORNIA
TAX FREE INSURED
FUND TAX FREE FUND
----------- -----------
<S> <C> <C>
Investment income:
Interest ........................................................... $ 35,278 $ 1,122,748
----------- -----------
Expenses (note 3):
Investment advisory and management fee ............................. 2,906 96,465
Dividend-disbursing, administrative and accounting services fees ... 10,875 38,124
Printing, postage and supplies ..................................... 374 2,561
Audit and accounting fees .......................................... 4,901 7,889
Legal fees ......................................................... 158 318
Distribution fees - Class A ........................................ 1,275 40,372
Distribution fees - Class B ........................................ 620 31,186
Distribution fees - Class C ........................................ 91 263
Directors' fees .................................................... 293 973
Registration fees .................................................. 1,607 1,488
Custodian fees ..................................................... 5,087 7,356
Other .............................................................. 280 647
----------- -----------
Total expenses ................................................... 28,467 227,642
Less: Expenses waived or absorbed .................................. (25,257) (71,914)
----------- -----------
Net expenses before earnings credits on uninvested cash ............ 3,210 155,728
Less: Earnings credits on uninvested cash ......................... (216) --
----------- -----------
Total net expenses ............................................... 2,994 155,728
----------- -----------
Investment income - net .......................................... 32,284 967,020
----------- -----------
Realized and unrealized gain (loss) on investments (note 2):
Realized loss on security transactions ............................. (68) (324,263)
Net change in unrealized appreciation or depreciation of investments (46,566) (1,355,245)
----------- -----------
Net loss on investments .......................................... (46,634) (1,679,508)
----------- -----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .................. $ (14,350) $ (712,488)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
THE VOYAGEUR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
VOYAGEUR CALIFORNIA VOYAGEUR CALIFORNIA
TAX FREE FUND INSURED TAX FREE FUND
----------------------------- ------------------------------
SIX MONTHS PERIOD FROM SIX MONTHS YEAR
ENDED MARCH 3, 1995* ENDED ENDED
JUNE 30, 1996 TO DECEMBER 31, JUNE 30, 1996 DECEMBER 31,
Operations: (UNAUDITED) 1995 (UNAUDITED) 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C>
Investment income - net ................................... $ 32,284 $ 49,874 $ 967,020 $ 1,907,940
Realized gain (loss) on investments - net ................. (68) 6,156 (324,263) (855,703)
Net change in unrealized appreciation or
depreciation of investments ............................. (46,566) 63,521 (1,355,245) 5,542,753
----------- ----------- ------------ ------------
Net increase (decrease) in net assets resulting
from operations ..................................... (14,350) 119,551 (712,488) 6,594,990
----------- ----------- ------------ ------------
Distributions to shareholders from:
Investment income - net:
Class A ................................................. (28,889) (47,483) (821,094) (1,751,957)
Class B ................................................. (3,333) (2,016) (145,254) (214,794)
Class C ................................................. (437) N/A (768) (7,990)
Excess distributions of net investment income:
Class A ................................................. (2,099) -- (32,937) --
Class B ................................................. (191) -- (6,966) --
Class C ................................................. (23) N/A (410) --
Net realized gain on investments:
Class A ................................................. -- (5,465) -- --
Class B ................................................. -- (691) -- --
----------- ----------- ------------ ------------
Total distributions ....................................... (34,972) (55,655) (1,007,429) (1,974,741)
----------- ----------- ------------ ------------
Share transactions (note 4):
Proceeds from sale of shares:
Class A (note 3) ........................................ 782,099 3,041,904 2,639,267 7,560,978
Class B ................................................. 10,010 121,092 683,743 3,571,318
Class C ................................................. 40,000 N/A -- 400,031
Net asset value of shares issued in reinvestment
of net investment income and realized gain distributions:
Class A ............................................... 30,647 39,348 364,502 658,965
Class B ............................................... -- -- 59,095 81,555
Class C ............................................... 415 N/A 1,326 1,317
Payments for redemption of shares:
Class A ................................................. (664,729) (2,126,220) (4,095,992) (6,465,617)
Class B (note 3) ........................................ -- -- (195,428) (342,995)
Class C ................................................. -- N/A -- (357,029)
----------- ----------- ------------ ------------
Increase (decrease) in net assets from share transactions . 198,442 1,076,124 (543,487) 5,108,523
----------- ----------- ------------ ------------
Total increase (decrease) in net assets ................. 149,120 1,140,020 (2,263,404) 9,728,772
Net assets at beginning of period ............................ 1,140,020 -- 39,942,324 30,213,552
----------- ----------- ------------ ------------
Net assets at end of period (including undistributed or
(distributions in excess of) net investment income of
$(2,313), $375, $(40,313) and $96, respectively) ........ $ 1,289,140 $ 1,140,020 $ 37,678,920 $ 39,942,324
=========== =========== ============ ============
</TABLE>
* Commencement of operations
See accompanying notes to financial statements.
THE VOYAGEUR FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Voyageur California Tax Free Fund (California Tax Free Fund) is one of a
series of funds within Voyageur Mutual Funds, Inc. which is registered under the
Investment Company Act of 1940 (as amended) as an open-end management investment
company with 10 trillion shares of authorized capital stock that may be issued.
Voyageur California Insured Tax Free Fund (California Insured Tax Free Fund) is
one of a series of funds within the Voyageur Investment Trust, a Massachusetts
business trust registered under the Investment Company Act of 1940 (as amended)
as an open-end management investment company with an unlimited number of
authorized shares of beneficial interest. California Tax Free Fund is registered
as a non-diversified fund and California Insured Tax Free Fund is registered as
a diversified fund. California Tax Free Fund seeks high current income free from
federal and state income taxes by investing in investment grade municipal bonds.
California Insured Tax Free Fund seeks high current income free from federal and
state income taxes with the added safety of an insured portfolio by investing in
insured municipal bonds.
California Tax Free Fund and California Insured Tax Free Fund (the Funds)
offer Class A, Class B and Class C Shares. Class A Shares are sold with a
front-end sales charge. Class B shares may be subject to a contingent deferred
sales charge and such shares automatically convert to Class A after eight years.
Class C Shares are not subject to a contingent deferred sales charge or a
front-end sales charge and have no conversion feature. 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 December 31, 1994, California Insured Tax Free Fund changed its
fiscal year end from October 31 to December 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
from operations during the reporting period. Actual results could differ from
those estimates.
INVESTMENTS IN SECURITIES
Securities are valued at fair value as determined by the Board of
Directors/Trustees. Determination of fair value involves, among other things,
using pricing services or prices quoted by independent brokers. Short-term
securities are valued at amortized cost which approximates market value.
Security transactions are accounted for on the trade date. Securities
gains and losses are calculated on the identified-cost basis. Interest income,
including level-yield amortization of premium and original issue discount, is
accrued daily.
Each Fund concentrates its investments in a single state and therefore,
may have more credit risk related to the economic conditions of the state of
California than a portfolio with broader geographical diversification.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities which have been purchased by each Fund
on a forward commitment or when-issued basis can take place up to a month or
more after the transaction date. During this period, such securities are subject
to market fluctuations and the portfolio maintains, in a segregated account with
its custodian, assets with a market value equal to or greater than the amount of
its purchase commitments.
FEDERAL TAXES
Each Fund's policy is to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute its
income to shareholders in amounts that will avoid or minimize federal income or
excise taxes for each Fund. Net investment income and net realized gains
(losses) for the Funds may differ for financial statement and tax purposes
primarily because of losses deferred for tax purposes due to "wash sale"
transactions. The character of distributions made during the year from net
investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. The effect on dividend
distributions on certain book-to-tax differences is reflected as excess
distributions of net realized gains in the statement of changes in net assets.
Also, due to the timing of dividend distributions, the fiscal year in which
amounts are distributed may differ from the year that the income or realized
gains (losses) were recorded by the Funds. For federal income tax purposes, at
December 31, 1995 California Insured Tax Free Fund had a capital loss carryover
of $1,178,215 that will expire in 2003 if not offset by subsequent capital
gains. It is unlikely that the Board of Trustees will authorize a distribution
of any net realized capital gains until the available capital loss carryover has
been offset or expires.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends declared daily from net investment income are payable monthly in
cash or reinvested in additional shares of each Fund. Net short-term realized
capital gains, if any, may be distributed throughout the year and net long-term
realized capital gains, when available, are distributed annually.
(2) INVESTMENT SECURITIES TRANSACTIONS
Purchase cost and proceeds of sales of investment securities other than
short-term securities aggregated $196,952 and $5,000 for California Tax Free
Fund and $14,462,001 and $13,239,782 for California Insured Tax Free Fund,
respectively, during the six months ended June 30, 1996.
(3) EXPENSES
Each Fund has an investment advisory and management fee agreement with
Voyageur Fund Managers, Inc. (Voyageur) under which Voyageur manages each Fund's
assets and provides other specified services. The fee for investment management
and advisory services is payable monthly and is based on the average daily net
assets of each Fund at the annual rate of .50%. In addition, each Fund will pay
most other operating expenses including directors' fees, registration fees,
printing of shareholder reports, legal and auditing services and other
miscellaneous expenses. There was no portfolio insurance expense for the
California Insured Tax Free Fund. Portfolio insurance expense, if any, is
recognized over the premium period. Voyageur is obligated to pay all expenses of
each Fund (excluding distribution fees, insurance premiums on portfolio
securities, taxes, interest and brokerage commissions) which exceed 1% of
average daily net assets, on an annual basis. During the six months ended June
30, 1996 Voyageur absorbed $20,665 pursuant to the contractual 1% expense
limitation for California Tax Free Fund and, excluding waiver of distribution
fees and expense reductions, voluntarily absorbed fees and expenses of $4,335
for California Tax Free Fund and $60,000 for California Insured Tax Free Fund.
Each Fund will also pay a fee to Voyageur for acting as the Funds
dividend-disbursing, administrative and accounting services agent. The fee is
paid monthly and is equal to the sum of $1.33 per shareholder account per month,
a fixed monthly fee ranging from $1,000 to $1,500 based on the level of each
Fund's average daily net assets and an annualized percentage of average daily
net assets at reducing rates from .11% to .02%. Each Fund is also responsible
for reimbursing Voyageur's out-of-pocket expense in connection with the
performance of dividend-disbursing, administrative and accounting services.
All classes of shares have a Distribution Agreement under Rule 12b-1 of
the Investment Company Act of 1940 with Voyageur Fund Distributors, Inc. (Fund
Distributors). Under this plan each Fund is obligated to pay Fund Distributors a
monthly distribution fee at an annual rate of .25% of each Fund's average daily
net assets of the Class A Shares and 1.00% of each Fund's average daily net
assets of the Class B and Class C Shares. Fund Distributors may waive all or
part of its distribution fee at its sole discretion. During the six months ended
June 30, 1996 Fund Distributors voluntarily waived Class B distribution fees of
$257 for California Tax Free Fund and $11,914 for California Insured Tax Free
Fund. During the six months ended June 30, 1996 California Tax Free Fund earned
$216 in credits on uninvested cash balances held by the Fund at the custodian.
These credits were used to reduce certain fees for various custodial, pricing
and accounting services provided by the custodian bank.
Sales charges paid by Class A shareholders for the six months ended June
30, 1996 were $7,224 for California Tax Free Fund and $85,864 for California
Insured Tax Free Fund. Of these amounts, Fund Distributors received $1,031 from
California Tax Free Fund and $11,411 from California Insured Tax Free Fund.
Contingent deferred sales charges paid by Class B shareholders for California
Insured Tax Free Fund were $3,340.
(4) SHARE TRANSACTIONS
Transactions in shares during each period were as follows:
<TABLE>
<CAPTION>
CALIFORNIA TAX FREE FUND
--------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
----------------------------- ------------------------------ ------------------
PERIOD FROM PERIOD FROM PERIOD FROM
SIX MONTHS MARCH 3, SIX MONTHS AUGUST 23, APRIL 9, 1996*
ENDED 1995* TO ENDED 1995* TO TO JUNE 30,
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, 1996
(UNAUDITED) 1995 (UNAUDITED) 1995 (UNAUDITED)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares sold................... 76,441 299,412 993 12,019 3,972
Shares issued for
reinvested distributions... 2,946 3,855 -- -- 41
Shares redeemed............... (64,711) (208,152) -- -- --
---------- ---------- ----------- -------------- ------------
Increase in shares outstanding 14,676 95,115 993 12,019 4,013
========== ========== ======= ========== ========
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA INSURED TAX FREE FUND
---------------------------------------------
CLASS A
---------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30, 1996 DECEMBER 31,
(UNAUDITED) 1995
---------------------------------------------
<S> <C> <C>
Shares sold................................. 252,631 750,296
Shares issued for reinvested
distributions............................ 35,094 65,485
Shares redeemed............................. (395,299) (636,784)
------------- ----------
Increase (decrease) in shares outstanding... (107,574) 178,997
============= ==========
</TABLE>
<TABLE>
<CAPTION>
CALIFORNIA INSURED TAX FREE FUND
---------------------------------------------------------------
CLASS B CLASS C
------------------------------- -----------------------------
SIX MONTHS YEAR SIX MONTHS PERIOD FROM
ENDED ENDED ENDED APRIL 12, 1995*
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 TO DECEMBER 31,
(UNAUDITED) 1995 (UNAUDITED) 1995
---------------------------------------------------------------
<S> <C> <C> <C>
Shares sold........................... 65,310 353,417 -- 39,140
Shares issued for
reinvested distributions........... 5,689 8,055 128 128
Shares redeemed....................... (19,107) (33,284) -- (34,248)
---------- --------- ---------- ---------
Increase in shares outstanding........ 51,892 328,188 128 5,020
========== ========= ========== =========
</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>
CALIFORNIA TAX FREE FUND
-----------------------------------------------------------------------
CLASS A CLASS B CLASS C
---------------------------- -------------------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
SIX MONTHS MARCH 3, SIX MONTHS AUGUST 23, APRIL 9,
ENDED 1995(d) TO ENDED 1995(d) TO 1996(d)
JUNE 30, 1996 DECEMBER 31, JUNE 30, 1996 DECEMBER 31, TO JUNE 30,
(UNAUDITED) 1995 (UNAUDITED) 1995 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period................... $10.64 $10.00 $10.65 $9.96 $10.07
------ ------ ------ ------ ------
Operations:
Net investment income................. .29 .47 .28 .20 .11
Net realized and unrealized gain (loss)
on investments...................... (.46) .70 (.46) .74 .10
------ ------ ------ ------ ------
Total from operations............. (.17) 1.17 (.18) .94 .21
------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income (f)........ (.29) (.47) (.28) (.19) (.11)
In excess of net investment income.... (.02) -- (.01) -- (.01)
From net realized gains............... -- (.06) -- (.06) --
------ ------ ------ ------ ------
Total distributions................. (.31) (.53) (.29) (.25) (.12)
------ ------ ------ ------ ------
Net asset value:
End of period......................... $10.16 $10.64 $10.18 $10.65 $10.16
====== ====== ====== ====== ======
Total investment return (b).............. (1.72)% 11.97% (1.78)% 9.52% 1.93%
Net assets at end of period (000's omitted) $1,116 $1,012 $132 $128 $41
Ratios:
Ratio of expenses to
average daily net assets (g)........ .50%(e) .46%(e) .84%(e) .60%(e) 1.28%(e)
Ratio of net investment income
to average daily net assets......... 5.60%(e) 5.57%(e) 5.28%(e) 5.33%(e) 4.79%(e)
Assuming no voluntary waivers and
reimbursements:
Expenses (c).................. 1.25%(e) 1.22%(e) 2.00%(e) 1.93%(e) 2.00%(e)
Net investment income......... 4.85%(e) 4.81%(e) 4.12%(e) 4.00%(e) 4.07%(e)
Portfolio turnover rate (excluding
short-term securities)................ .43% 39.51% .43% 39.51% .43%
</TABLE>
See accompanying notes to Financial Highlights.
(5) FINANCIAL HIGHLIGHTS (CONTINUED)
Per share data (rounded to the nearest cent) for a share of beneficial
interest outstanding and selected information for each period are as follows:
<TABLE>
<CAPTION>
CALIFORNIA INSURED TAX FREE FUND
---------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------
PERIOD FROM
SIX MONTHS YEAR TWO MONTHS OCTOBER 15,
ENDED ENDED ENDED YEAR ENDED OCTOBER 31, 1992(d) TO
JUNE 30, 1996 DECEMBER 31,DECEMBER 31, ----------------- OCTOBER 31,
(UNAUDITED) 1995 1994 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period............... $10.65 $ 9.33 $9.51 $11.08 $10.02 $10.00
------ ------ ----- ----- ------ ------
Operations:
Net investment income............. .26 .53 .10 .55 .60 --
Net realized and unrealized
gain (loss) on investments .... (.44) 1.34 (.18) (1.52) 1.11 .02
------ ------ ----- ----- ------ ------
Total from operations......... (.18) 1.87 (.08) (.97) 1.71 .02
------ ------ ----- ----- ------ ------
Distributions to shareholders:
From net investment income (a).... (.26) (.55) (.09) (.54) (.60) --
In excess of net investment income (.01) -- -- -- -- --
From net realized gains........... -- -- (.01) (.06) (.05) --
------ ------ ----- ----- ------ ------
Total distributions............. (.27) (.55) (.10) (.60) (.65) --
------ ------ ----- ----- ------ ------
Net asset value:
End of period..................... $10.20 $10.65 $9.33 $9.51 $11.08 $10.02
====== ====== ===== ===== ====== ======
Total investment return (b).......... (1.78)% 20.51% (0.84)% (8.97)% 17.29% 0.20%
Net assets at end of period
(000's omitted)................... $31,324 $33,860 $27,994 $27,282 $12,509 $2,056
Ratios:
Ratio of expenses to
average daily net assets (g).... .75%(e) .70% .10%(e) .20% --% --%
Ratio of net investment income
to average daily net assets..... 5.08%(e) 5.23% 6.30%(e) 5.37% 5.26% --%
Assuming no voluntary waivers
and reimbursements:
Expenses (c).............. 1.06%(e) 1.02% 1.24%(e) 1.25% 1.25% --%
Net investment income..... 4.77%(e) 4.91% 5.16%(e) 4.32% 4.01% --%
Portfolio turnover rate (excluding
short-term securities)............ 33.44% 107.45% 7.28% 18.34% 24.19% 7.31%
</TABLE>
See accompanying notes to Financial Highlights.
<TABLE>
<CAPTION>
CALIFORNIA INSURED TAX FREE FUND
----------------------------------------------------------------------------
CLASS B CLASS C
--------------------------------------------------- -----------------------
PERIOD FROM SIX MONTHS PERIOD FROM
SIX MONTHS YEAR TWO MONTHS MARCH 1, ENDED APRIL 12,
ENDED ENDED ENDED 1994(d) TO JUNE 30, 1995(d) TO
JUNE 30, 1996 DECEMBER 31, DECEMBER 31, OCTOBER 31, 1996 DECEMBER 31,
(UNAUDITED) 1995 1994 1994 (UNAUDITED) 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value:
Beginning of period................ $10.65 $ 9.33 $9.51 $10.68 $10.65 $10.19
------ ------ ----- ------ ------ ------
Operations:
Net investment income.............. .24 .50 .08 .31 .22 .25
Net realized and unrealized
gain (loss) on investments ..... (.44) 1.33 (.17) (1.16) (.44) .53
------ ------ ----- ------ ------ ------
Total from operations.......... (.20) 1.83 (.09) (.85) (.22) .78
------ ------ ----- ------ ------ ------
Distributions to shareholders:
From net investment income (a)..... (.24) (.51) (.08) (.30) (.22) (.32)
In excess of net investment income. (.01) -- -- -- (.01) --
From net realized gains............ -- -- (.01) (.02) -- --
------ ------ ----- ------ ------ ------
Total distributions.............. (.25) (.51) (.09) (.32) (.23) (.32)
------ ------ ----- ------ ------ ------
Net asset value:
End of period...................... $10.20 $10.65 $9.33 $ 9.51 $10.20 $10.65
====== ====== ===== ====== ====== ======
Total investment return (b)........... (1.96)% 20.01% (0.92)% (7.93)% (2.15)% 7.77%
Net assets at end of period
(000's omitted).................... $6,303 $6,029 $2,219 $1,427 $53 $53
Ratios:
Ratio of expenses to
average daily net assets (g)..... 1.12%(e) 1.10% .57%(e) .73%(e) 1.50%(e) 1.53%(e)
Ratio of net investment income
to average daily net assets...... 4.70%(e) 4.75% 5.54%(e) 4.82%(e) 4.32%(e) 4.25%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (c)............... 1.81%(e) 1.75% 1.94%(e) 1.95%(e) 1.81%(e) 1.77%(e)
Net investment income...... 4.01%(e) 4.10% 4.17%(e) 3.60%(e) 4.01%(e) 4.01%(e)
Portfolio turnover rate (excluding
short-term securities)............. 33.44% 107.45% 7.28% 18.34% 33.44% 107.45%
</TABLE>
See accompanying notes to Financial Highlights.
NOTES TO FINANCIAL HIGHLIGHTS
(a) For federal income tax purposes, all of the net investment income
distributions were derived from interest on securities exempt from federal
income tax. For the year ended October 31, 1993, $.01 per share of the
distributions from net investment income were subject to state income tax.
(b) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(c) Voyageur and Fund Distributors voluntarily waived or reimbursed a portion
of expenses during several periods presented. The annual contractual
expense limit for the Funds (excluding distribution fees, insurance
premiums on portfolio securities, taxes, interest and brokerage
commissions) is 1% of average daily net assets. The maximum distribution
fee is .25% of each Fund's average daily net assets for Class A Shares and
1.00% of each Fund's average daily net assets for Class B and Class C
Shares.
(d) Commencement of operations.
(e) Adjusted to an annual basis.
(f) For federal income tax purposes, all of the net investment income
distributions were derived from interest on securities exempt from federal
income tax. For the period ended December 31, 1995, $.01 per Class A Share
of the distributions from net investment income were subject to state
income tax.
(g) Beginning in the period ended December 31, 1995, the expense ratio reflects
the effect of gross expenses attributable to earnings credits on uninvested
cash balances received by the Funds. Prior period expense ratios have not
been adjusted.
<TABLE>
<CAPTION>
VOYAGEUR CALIFORNIA TAX FREE FUND
INVESTMENTS IN SECURITIES (UNAUDITED) JUNE 30, 1996
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (b) RATE MATURITY VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
CALIFORNIA MUNICIPAL BONDS (99.6%):
GENERAL OBLIGATION (8.2%):
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 50 California State.................................................... 6.00% 05-01-18 $ 49,754
50 Tulare Earlimart Elementary (AMBAC Insured)......................... 6.70 08-01-21 56,561
----------
106,315
----------
UTILITIES (7.4%):
-------------------------------------------------------------------------------------------------------
50 Puerto Rico Electric Power Authority Revenue....................... 5.50 07-01-25 46,817
50 San Diego IDR Gas & Electricity.................................... 5.90 06-01-18 48,856
----------
95,673
----------
TRANSPORTATION (7.3%):
-------------------------------------------------------------------------------------------------------
100 Foothills Eastern Transportation Toll Road Revenue
(AMBAC Insured)................................................. 6.00 01-01-34 94,473
----------
HEALTH CARE (15.1%):
-------------------------------------------------------------------------------------------------------
100 Berkeley Health Facilities Alta Bates Medical Center............... 6.55 12-01-22 97,207
50 California Health Facilities Revenue Centinela Hospital
(MBIA Insured).................................................. 6.25 09-01-15 51,073
45 California Health Facilities Revenue Presbyterian (MBIA Insured)... 6.75 06-01-15 45,970
----------
194,250
----------
EDUCATION (3.8%):
-------------------------------------------------------------------------------------------------------
50 Los Alamitos Series 90-1......................................... 6.25 08-15-23 48,412
----------
CERTIFICATES OF PARTICIPATION (31.2%):
-------------------------------------------------------------------------------------------------------
50 Alameda City Hall Redevelopment.................................. 6.20 05-01-25 48,847
50 California State Public Works.................................... 6.38 10-01-19 50,187
50 Chino Unified School District (FSA Insured)...................... 6.13 09-01-26 50,015
50 Los Angeles County Redevelopment................................. 6.50 03-01-23 50,323
100 San Jose Convention Center Finance Authority Revenue............. 6.38 09-01-13 101,514
100 Santa Monica Parking Lease Revenue............................... 6.38 07-01-16 101,159
----------
402,045
----------
HOUSING (11.6%):
-------------------------------------------------------------------------------------------------------
100 California Housing Finance Agency Home Mortgage Revenue
Series 96H (FHA Insured)...................................... 6.25(d) 08-01-27 99,518
50 California Housing Finance Agency Home Mortgage Revenue
Series 96K (MBIA Insured)..................................... 6.15 08-01-16 50,000
------------
149,518
----------
OTHER REVENUE (15.0%):
-------------------------------------------------------------------------------------------------------
100 Carson Redevelopment Revenue..................................... 6.38 10-01-16 97,646
50 Dixon Redevelopment Agency....................................... 6.00 09-01-24 46,480
50 San Bernadino Joint Power Financing Authority Revenue
(FSA Insured)................................................. 5.75 10-01-25 48,617
----------
192,743
----------
TOTAL INVESTMENTS IN SECURITIES (cost: $1,266,474) (c) $1,283,429
==========
</TABLE>
See accompanying notes to investments in securities.
<TABLE>
<CAPTION>
VOYAGEUR CALIFORNIA INSURED TAX FREE FUND
INVESTMENTS IN SECURITIES (UNAUDITED) JUNE 30, 1996
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (b) RATE MATURITY VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
CALIFORNIA MUNICIPAL BONDS (103.6%):
GENERAL OBLIGATION (6.7 %):
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,000 Fairfield Public Finance Authority Revenue G.O. (FGIC Insured)... 6.25% 07-01-14 $ 1,027,620
1,500 Industry California (FGIC Insured)............................... 5.85 07-01-20 1,483,410
-----------
2,511,030
------------
UTILITIES (10.3%):
-------------------------------------------------------------------------------------------------------
1,000 Calaveras County Water District Revenue (AMBAC Insured).......... 6.13 09-01-17 1,014,430
1,000 Contra Costa Water District Revenue (MBIA Insured)............... 5.75 10-01-14 992,650
1,000 Eldorado County Public Agency Financial Revenue
(FGIC Insured)................................................ 5.50 02-15-16 954,920
1,000 Redding Jt. Power Financial Authority Electric Revenue
(MBIA Insured)................................................ 5.25 06-01-15 926,680
------------
3,888,680
------------
TRANSPORTATION (3.5 %):
-------------------------------------------------------------------------------------------------------
1,300 San Francisco City & County Airports Series 2 (FGIC Insured)..... 6.00 05-01-14 1,299,870
-----------
HEALTH CARE (12.6 %):
-------------------------------------------------------------------------------------------------------
1,200 California Health Facilities-Centinela Hospital (MBIA Insured)... 6.25 09-01-15 1,225,764
1,500 California Health Facilities-Catholic Healthcare Wst.
(MBIA Insured)................................................ 6.00 07-01-17 1,500,630
1,000 California Health Facilities - San Diego Hospital
(MBIA Insured)................................................ 6.20 08-01-12 1,026,880
1,000 California Health Facilities-Catholic Healthcare
(AMBAC Insured)............................................... 5.88 07-01-09 1,004,740
-----------
4,758,014
------------
HOUSING (17.1%):
-------------------------------------------------------------------------------------------------------
1,000 California Housing Finance Agency Home Mortgage Revenue
Series 94E (MBIA Insured)..................................... 6.75 08-01-26 1,031,180
1,000 California Housing Finance Agency Home Mortgage Revenue
Series 96E (MBIA Insured)..................................... 6.05 08-01-16 994,200
1,000 California Housing Finance Agency Home Mortgage Revenue
Series 95F (MBIA Insured)..................................... 6.00 08-01-17 985,250
1,875 California Housing Finance Agency Home Mortgage Revenue
Series 96K (MBIA Insured)..................................... 6.15 08-01-16 1,875,000
1,365 California Rural Home Mortgage Financial Authority Series 94
(AMBAC Insured)............................................... 7.95(d) 12-01-24 1,568,808
-----------
6,454,438
------------
EDUCATION (9.5%):
-------------------------------------------------------------------------------------------------------
1,000 California State University Auxiliary Revenue (MBIA Insured).... 6.25 08-01-20 1,018,870
1,500 California State University Revenue (FGIC Insured).............. 6.00 11-01-10 1,538,610
1,000 University of California Board of Regents (MBIA Insured)........ 6.38 09-01-24 1,031,690
------------
3,589,170
------------
CERTIFICATES OF PARTICIPATION (22.5%):
-------------------------------------------------------------------------------------------------------
1,000 California Public Works Board Lease Revenue Series 96A
(AMBAC Insured).............................................. 5.50 01-01-17 951,080
1,000 Oceanside Civic Center Project (MBIA Insured)................... 5.50 08-01-09 991,310
1,000 Ontario Redevelopment Cimarron Project (MBIA Insured)........... 6.25 08-01-15 1,021,510
2,000 San Francisco Courthouse Certificate of Participation Revenue
(FSA Insured)................................................ 5.60 04-01-16 1,932,620
1,250 San Luis Obispo Capital Revenue (AMBAC Insured)................. 6.38 06-01-14 1,303,600
1,000 Santa Barbara Water Revenue Certificate of Participation
(AMBAC Insured).............................................. 6.70 04-01-27 1,048,750
1,000 Santa Clara Finance Authority (AMBAC Insured)................... 7.75 11-15-11 1,226,550
-----------
8,475,420
------------
OTHER REVENUE (21.4%):
-------------------------------------------------------------------------------------------------------
1,000 Indian Wells Redevelopment Revenue (MBIA Insured).............. 6.00 12-01-14 1,003,210
1,560 Lincoln Unified School District #1 (AMBAC Insured)............. 09-01-13 1,524,573
1,000 Los Angeles County Transportation Sales Tax (MBIA Insured)..... 6.25 07-01-13 1,022,500
1,500 North City West School Facility Finance Authority Special Tax
(FSA Insured)............................................... 5.25 09-01-09 1,450,095
1,000 Rancho Water District Finance Revenue (FGIC Insured)........... 5.90 11-01-15 1,002,690
1,000 San Francisco City and County Redevelopment Agency
Hotel Tax Revenue (FSA Insured)............................. 6.75 07-01-25 1,075,220
1,000 Santa Clara North Bayshore (AMBAC Insured)..................... 5.75 07-01-14 984,050
------------
8,062,338
------------
TOTAL INVESTMENTS IN SECURITIES (cost: $38,256,485) (c) $ 39,038,960
============
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES (UNAUDITED)
(a) Securities are valued by procedures described in note 1 to the financial
statements.
(b) Investments in bonds, by rating category (unaudited) as a percentage of
total bonds, are as follows:
<TABLE>
<CAPTION>
Aaa/AAA Aa/AA A/A Baa/BBB Total
------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C>
California Tax Free Fund............... 20% 8% 38% 34% 100%
California Insured Tax Free Fund....... 100% -- -- -- 100%
</TABLE>
(c) Also represents the cost of securities for federal income tax
purposes and the aggregate gross unrealized appreciation and
depreciation of securities based on this cost were as follows:
<TABLE>
<CAPTION>
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation Depreciation Appreciation
------------ ------------ ------------
<S> <C> <C> <C>
California Tax Free Fund............... $ 22,158 $ (5,203) $ 16,955
California Insured Tax Free Fund....... 871,530 (89,055) 782,475
</TABLE>
(d) Security subject to Alternative Minimum Tax.
INVESTMENT ADVISER, TRANSFER AGENT,
DIVIDEND DISBURSING AGENT AND
ACCOUNTING SERVICES AGENT
Voyageur Fund Managers, Inc.
90 South Seventh Street, Suite 4400
Minneapolis, MN 55402
UNDERWRITER
Voyageur Fund Distributors, Inc.
90 South Seventh Street, Suite 4400
Minneapolis, MN 55402
CUSTODIAN
Norwest Bank Minnesota, N.A.
Sixth Street & Marquette Avenue
Minneapolis, MN 55479
GENERAL COUNSEL
Dorsey & Whitney P.L.L.P.
Minneapolis, MN 55402
AUDITORS
KPMG Peat Marwick LLP
Minneapolis, MN 55402
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Minneapolis, Minnesota 55402-4115
