<PAGE>
FOR TAX-EXEMPT INCOME
DELAWARE-VOYAGEUR
Tax-Free California Fund
Tax-Free California Insured Fund
(various photos demonstrating service and guidance, professional management and
goals)
service and guidance
professional management
goals
1997
Annual
Report
DELAWARE
INVESTMENTS
=====================
Philadelphia o London
<PAGE>
A TRADITION OF SOUND INVESTING
commitment
A Commitment
To Our Investors
Delaware Investments has a tradition of money management that dates back
To 1929. We have a long and distinguished history of helping individuals and
institutions - including some of America's largest pension funds - reach their
financial goals.
Headquartered in Philadelphia, a block from the nation's oldest stock
exchange, Delaware Investments established its first mutual fund in 1938.
Delaware International Advisers Ltd., our international affiliate, was
established in 1990 and is headquartered in London.
Delaware Investments offers a full range of mutual funds. We also
manage investments for variable annuity products, unit investment trusts and
closed-end funds, and offer retirement plan services for individuals and
businesses.
Delaware manages more than $40 billion in mutual fund assets and
institutional advisory accounts for more than half-a-million investors. We're
part of a global financial service and investment management business owned
by Lincoln National Corporation, whose subsidiaries manage more than $120
billion in assets.
Fund Objectives
(photo of keyboard)
(photo of illustration from Tax-Exempt Income Brochure)
TAX-FREE CALIFORNIA FUND
To seek as a high a level of current income exempt from federal income tax
and California state income tax as is consistent with preservation of
principal.
TAX-FREE CALIFORNIA INSURED FUND
To seek as a high a level of current income exempt from federal income tax
and California state income tax as is consistent with preservation of
principal.
tax-exempt
income
<PAGE>
for tax-exempt
income
1
January 21, 1998
Dear Shareholder:
WE ARE PLEASED TO PRESENT THE 1997 annual report of Delaware-Voyageur's
California municipal bond funds. Your state benefited from strong economic
growth in 1997 that increased tax revenues and supported higher bond prices.
Tax-Free California Fund provided an exceptionally positive total
return of +12.43% (Class A shares with distributions reinvested at net asset
value) for the 12 months ended December 31, 1997. Our fiscal 1997 results far
surpassed the returns of Tax-Free California Fund's unmanaged benchmark, as
shown below, and propelled the Fund to a #1 ranking among 102 mutual funds
investing in California municipal bonds, according to Lipper Analytical
Services.+
Tax-Free California Insured Fund also turned in a commendable
performance this past year. The Fund provided a total return of +9.78% (Class A
shares with distributions reinvested at net asset value). Tax-Free California
Fund outpaced its benchmark as well as most other mutual funds investing in
insured California municipal debt, as shown below.
Despite a modest setback in the spring, fiscal 1997 was a banner year
for municipal bonds. Among the favorable developments during the period were:
o Passage of the Taxpayer Relief Act in July. This lifted the specter of
proposed federal tax legislation that could have made
BY POSITIONING OUR CALIFORNIA FUNDS TO BENEFIT FROM FALLING INTEREST RATES
AND RENEWED INVESTOR CONFIDENCE IN THE MUNICIPAL BOND MARKETS, WE ACHIEVED
EXCEPTIONAL FISCAL 1997 RESULTS.
TOTAL RETURN
- --------------------------------------------------------------------------------
12 MONTHS ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Tax-Free California Fund A Class +12.43%
Lehman Brothers Municipal Bond Index +9.19%
Lipper California Fund Average (103 funds) +9.15%
- --------------------------------------------------------------------------------
Tax-Free California Insured Fund A Class +9.78%
Lehman Brothers Insured Municipal Bond Index +9.58%
Lipper California Insured Fund Average (25 funds) +8.61%
- --------------------------------------------------------------------------------
All performance shown above is based on net asset value and reinvestment of
distributions. Returns for other classes vary due to different charges and
expenses. For complete Fund performance for all Classes, see page 8. Each
index shown above is unmanaged. Past performance does not guarantee future
results.
+Tax-Free California Fund ranked #1 out of 102 California funds and 4th out of
85 California funds for the one-year and lifetime periods ended 12/31/97.
The Fund began operating 3/2/95. Rankings are based on total return and net
asset value. An expense limitation was in effect at the time. Rankings
would have been lower without the limitation.
<PAGE>
for tax-exempt
income
2
municipal bonds a less attractive investment option.
o Rising tax revenues. Thanks to strong job growth and corporate profits
California posted a budget surplus last year.
o Positive supply/demand factors. Although California municipalities issued
12.1% more bonds in 1997 than a year earlier, investor demand was equally
strong. Residents faced state income tax rates as high as 9.3%.
At year's end, the difference in short-term and long-term interest
rates on California municipal bonds, known as the yield curve, was the
smallest since 1993. The potential income advantage offered by lower quality
municipal bonds, compared to bonds rated AAA, also narrowed during the year.
Nevertheless, we believe the dividends from municipal bond funds and
the tax-free compounding of such income over time has the potential to help
heavily taxed investors reach their financial goals more quickly.
On the pages that follow, the Funds' portfolio manager, Andrew M.
McCullagh, Jr., explains our disciplined investment strategy. He also provides
an outlook for fiscal 1998, and discusses our view of how this past year's
events in Asia might affect California's economy. We hope you find our new
annual report format informative.
Sincerely,
/s/ Wayne A. Stork
- ----------------------
Wayne A. Stork
Chairman
/s/ Jeffrey J. Nick
- ----------------------
Jeffrey J. Nick
President and Chief Executive Officer
discipline
Your Funds' Portfolio Manager
ANDREW M. MCCULLAGH, JR. has more than 23 years of experience in municipal
bond trading, underwriting and portfolio management. He holds a graduate
certificate in public finance from the University of Michigan and a
bachelor's degree in economics from Washington College in Maryland.
<PAGE>
for tax-exempt
income
3
Portfolio Manager's Review
THE 1997 FISCAL YEAR WAS PERHAPS THE most significant time for the municipal
bond market since federal tax laws were overhauled in 1986. The Taxpayer Relief
Act of 1997, passed in July, offered provisions that appear beneficial to
municipal bond mutual fund investors.
Consider that the law:
o Increased the after-tax total return potential of municipal bonds by
cutting the long-term capital gains tax from 28% to as low as 20%; and,
o Maintained municipal bonds' after-tax income advantage over bonds that
generate taxable income since Congress did not cut taxes on dividends.
In recent years, Congress has given the states more autonomy in
managing fiscal, social and public works programs. Given California's history of
high taxation, we believe it has become more important than ever to consider the
impact of both state and federal income taxes on investments.
California's growth and demographic makeup generate a substantial need
for public financing for roads, schools, water treatment facilities and
hospitals. We believe these characteristics provide municipal bond investors
with ample income opportunities.
As of year's end, Tax-Free California Fund's thirty-day SEC yield was
4.97% for Class A shares; see page 4 for thirty-day SEC yields for B and C
Classes. For investors in the highest state income tax (9.3%) and federal income
tax (39.6%) brackets, this represented an attractive taxable equivalent yield of
9.1%.
focus
California Bond Prices Have Risen, Reducing Yields
December 31, 1996, vs. December 31, 1997
California General California General
Obligation Bonds Obligation Bonds
December 31, 1996 December 31, 1997
MO 3 3.33% 3.26%
MO 6 3.53% 3.44%
M YR 1 3.73% 3.61%
A YR 2 3.98% 3.81%
T YR 3 4.18% 3.93%
U YR 4 4.33% 4.03%
R YR 5 4.43% 4.13%
I YR 7 4.63% 4.27%
T YR 10 4.93% 4.48%
Y YR 15 5.37% 4.84%
YR 20 5.51% 4.99%
YR 30 5.57% 5.02%
YIELDS
Source: Bloomberg Business News.
<PAGE>
for tax-exempt
income
4
TAX-FREE CALIFORNIA FUND
STRATEGIC POSITIONING
We achieved solid results by positioning Tax-Free California Fund to fully
participate in the bond market's income and total return potential during
1997.
In anticipation of a decline in interest rates, we sold some bonds
with high credit ratings and replaced them with bonds with moderately lower
credit ratings that in our view were candidates for ratings upgrades. This
augmented your Fund's income potential and at the same time allowed the Fund
to benefit from the bond market's rally during the summer and autumn.
As of year's end, Tax-Free California Fund's duration was more than
two years lower than at mid-year. In our view, this past fall's rally in bond
prices has limited the total return potential of the bond market for 1998.
Our shorter duration reflects a somewhat more conservative approach than we had
a year earlier.
To maintain the Fund's income potential, we increased our positioning
in hospital bonds from 9.9% in June to 16.6% as of December 31, 1997. This
sector generally offers higher yields than other types of municipal bonds.
Because of intense competition within the health care sector, we carefully
examine credit risk and invest only in hospitals with a proven ability to
increase revenues over time.
Since June, we have also slightly increased our allocation to housing
bonds. This reflects our belief that increased refinancing risks have already
been factored into housing bond prices. In our opinion, this sector offered
additional income potential with less potential price volatility. Should
interest rates rise modestly in 1998, we believe the principal value of
selected housing bonds could hold up better than some other sectors of the
bond market.
A STRONG POSITIONING IN BONDS OF MODERATE CREDIT QUALITY AUGMENTED YOUR
FUND'S INCOME AND TOTAL RETURN DURING 1997 AND HELPED US OUTPACE ALL OUR
PEERS.
(photo of family on beach)
strategic
positioning
Tax-Free California Fund
Portfolio Highlights and Asset Mix
December 31, 1997
Hospitals 16.6%
Housing 14.4%
Other Revenue Bonds 30.8%
Certificates of Participation 13.0%
Cash 12.6%
Education 12.6%
Average Effective Maturity 9.9 years
Average Effective Duration 7.4 years
Average Quality AA
Thirty-Day Current SEC Yield* 4.97%
Approximately 11.2% of the income generated by Tax-Free California Fund for
the twelve months ended December 31, 1997, was subject to the alternative
minimum tax.
*For Class A shares based on Securities and Exchange Commission guidelines.
SEC yields for B and C classes were 4.30% and 4.31% respectively.
<PAGE>
for tax-exempt
income
5
TAX-FREE CALIFORNIA
INSURED FUND
STRATEGIC POSITIONING
Tax-Free California Insured Fund employed a value oriented strategy that
helped us provide strong results in fiscal 1997.
The Fund primarily invests in bonds rated AAA or Aaa by Standard &
Poor's and Moody's, respectively.
At the start of fiscal 1998, nearly half of your Fund's net assets
were invested in a combination of Certificates of Participation (COPs or
shares in municipal lease agreements made by a government entity) and housing
bonds. Housing bonds have historically performed better than other types of
municipal bonds during periods of interest rate volatility, and we
believe bond prices more than adequately reflect refinancing risk.
We also raised our holdings of general obligation bonds in 1997.
Although currency devaluations and fiscal policy problems along the Pacific
Rim may reduce demand for some California exports, we believe the California
economy is likely to remain strong in the year ahead.
In San Jose and the surrounding Silicon Valley - the center of the
state's high-tech sector - the unemployment rate was just 2.9% in 1997.
Coastal community home sales are near record levels, helping feed state and
local tax coffers. Many economists believe the state will post a budget
surplus in 1998 for the first time in several years. In August 1997, the
credit
insured
Tax-Free California Insured Fund
Portfolio Highlights and Asset Allocation
December 31, 1997
Certificates of Participation 31.7%
Housing 23.9%
Other Revenue Bonds 12.8%
Education 13.1%
General Obligation Bonds 3.2%
Hospitals 6.4%
Water/Sewer 3.2%
Transportation 3.1%
Cash 2.6%
Average Effective Maturity 9.4 years
Average Effective Duration 6.9 years
Average Quality AAA
Thirty-Day Current SEC Yield* 4.17%
Approximately 17.0% of the income generated by Tax-Free California Insured
Fund for the twelve months ended December 31, 1997, was subject to the federal
alternative minimum tax.
*For Class A shares based on Securities and Exchange Commission guidelines.
Thirty-day SEC yields for B and C Classes were 3.58% and 3.61%,
respectively.
<PAGE>
for tax-exempt
income
6
rating of California's general obligation bonds, was raised to A+ a
moderately high investment grade.
We sold many of the Fund's power authority bonds during the year's
second half. Increased competition in the utility sector is making the
industry's prospects unclear, in our opinion. As of January 1, 1998, businesses
in the state were able to choose their electric suppliers, and we expect a price
war to break out.
OUTLOOK
Although the state's economic prospects appear strong, we are constructing a
more cautious investment portfolio for 1998 by seeking bonds of good relative
value for each of the Tax-Free California Funds. Through our selection
process, we have upgraded the Funds' portfolios with a prudent combination of
average coupon, call date and effective maturity.
We believe selected California bonds offer solid income opportunities
and relatively moderate credit risk. For investors in high income tax
brackets, municipal bonds offer a way to both diversify an equity portfolio
and reduce taxes on annual investment income.
Still, we'd like to offer a note of caution for the year ahead
because we believe reports suggesting that inflation is dead are premature.
U.S. job growth has continued at a brisk pace while the labor force
participation rate - the proportion of people who have or are looking for a
job - reached a record level of more than 67% of working age Americans in
December.
While this trend has served to boost state tax revenues and reduce
social expenses, it suggests that the Federal Reserve Board needs to remain
vigilant to prevent consumer prices from rising too much. We do not think
yields on long-term U.S. Treasury bonds will fall below 5% in 1998.
Andrew M. McCullagh, Jr.
Vice President
Senior Portfolio Manager
January 21, 1998
(photo of papers, pen and glasses on desk)
outlook
<PAGE>
for tax-exempt
income
7
Performance Summary
Tax-Free California Fund
Growth of a $10,000 Investment
March 2, 1995 to December 31, 1997
<TABLE>
<CAPTION>
Tax-Free Lipper California Municipal Lehman Brothers
California Fund Bond Fund Average Municipal Bond
A Class (102 Funds) Index
<S> <C> <C> <C>
Mar. 2 '95 $ 9,625 $10,000 $10,000
Mar. 31 '95 $ 9,711 $10,000 $10,000
Apr. 30 '95 $ 9,709 $10,000 $10,012
May 31 '95 $10,017 $10,341 $10,331
June 30 '95 $ 9,860 $10,179 $10,241
July 31 '95 $ 9,851 $10,232 $10,338
Aug. 31 '95 $ 9,969 $10,345 $10,469
Sept. 30 '95 $10,098 $10,420 $10,535
Oct. 31 '95 $10,317 $10,611 $10,688
Nov. 30 '95 $10,577 $10,836 $10,866
Dec. 31 '95 $10,755 $10,975 $10,970
Jan. 31 '96 $10,837 $11,015 $11,053
Feb. 29 '96 $10,724 $10,930 $10,978
Mar. 31 '96 $10,509 $10,733 $10,838
Apr. 30 '96 $10,467 $10,691 $10,807
May 31 '96 $10,456 $10,702 $10,803
June 30 '96 $10,554 $10,820 $10,921
July 31 '96 $10,658 $10,936 $11,020
Aug. 31 '96 $10,689 $10,935 $11,017
Sept. 30 '96 $10,857 $11,098 $11,172
Oct. 31 '96 $11,016 $11,218 $11,298
Nov. 30 '96 $11,228 $11,432 $11,505
Dec. 31 '96 $11,153 $11,374 $11,456
Jan. 31 '97 $11,143 $11,355 $11,478
Feb. 28 '97 $11,272 $11,455 $11,584
Mar. 31 '97 $11,153 $11,294 $11,430
Apr. 30 '97 $11,305 $11,396 $11,526
May 31 '97 $11,512 $11,574 $11,699
June 30 '97 $11,603 $11,695 $11,824
July 31 '97 $12,018 $12,065 $12,151
Aug. 31 '97 $11,897 $11,924 $12,036
Sept. 30 '97 $12,108 $12,081 $12,179
Oct. 31 '97 $12,205 $12,151 $12,257
Nov. 30 '97 $12,203 $12,225 $12,329
Dec. 31 '97 $12,525 $12,415 $12,509
</TABLE>
Chart assumes a $10,000 investment on March 2, 1995 and includes the effect of a
3.75% sales charge and reinvestment of all distributions. Performance for other
classes will differ due to different charges and expenses.
TAX-FREE CALIFORNIA FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN THROUGH DECEMBER 31, 1997
Lifetime One Year
- --------------------------------------------------------------------------------
Class A (Est. 3/2/95)
Excluding Sales Charge +10.05% +12.43%
Including Sales Charge +8.57% +8.18%
- --------------------------------------------------------------------------------
Class B (Est. 8/23/95)
Excluding Sales Charge +10.74% +11.91%
Including Sales Charge +9.62% +7.91%
- --------------------------------------------------------------------------------
Class C (Est. 4/9/96)
Excluding Sales Charge +11.20% +11.69%
Including Sales Charge +11.20% +10.69%
Please turn to page 8 for important additional information. All performance
includes reinvestment of distributions and applicable sales charges as described
on page 8. Past performance is not a guarantee of future results.
<PAGE>
for tax-exempt
income
8
TAX-FREE CALIFORNIA INSURED FUND's PERFORMANCE
<TABLE>
<CAPTION>
Growth of $10,000 Investment October 15, 1992 to December 31, 1997
Tax-Free Lehman Brothers Lipper California
California Fund Insured Municipal Insured Fund
A Class Bond Index Average (25 Funds)
<S> <C> <C> <C>
Oct. '92 $ 9,625 $10,000 $10,000
Dec. '92 $10,123 $10,339 $10,448
Mar. '93 $10,587 $10,747 $10,878
Jun. '93 $10,902 $11,128 $11,252
Sept. '93 $11,281 $11,525 $11,691
Dec. '93 $11,277 $11,686 $11,800
Mar. '94 $10,720 $10,953 $10,980
Jun. '94 $10,504 $11,089 $11,006
Sept. '94 $10,569 $11,149 $11,054
Dec. '94 $10,211 $10,988 $10,779
Mar. '95 $11,212 $11,832 $11,665
Jun. '95 $11,374 $12,107 $11,858
Sept. '95 $11,701 $12,454 $12,158
Dec. '95 $12,306 $13,026 $12,850
Mar. '96 $12,039 $12,827 $12,529
Jun. '96 $12,086 $12,926 $12,607
Sept. '96 $12,407 $13,231 $12,950
Dec. '96 $12,752 $13,580 $13,282
Mar. '97 $12,698 $13,520 $13,165
Jun. '97 $13,126 $14,003 $13,640
Sept. '97 $13,610 $14,449 $14,043
Dec. '97 $13,983 $14,879 $14,422
</TABLE>
Chart assumes a $10,000 investment on October 15, 1992 and includes the
effect of a 3.75% sales charge and reinvestment of all distributions.
Performance for other classes will differ due to different charges and
expenses.
TAX-FREE CALIFORNIA INSURED FUND
- --------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1997
Lifetime Five Year One Year
- --------------------------------------------------------------------------------
Class A (Est. 10/15/92)
Excluding Sales Charge +7.45% +6.70% +9.78%
Including Sales Charge +6.67% +5.88% +5.65%
- --------------------------------------------------------------------------------
Class B (Est. 3/2/94)
Excluding Sales Charge +5.66% +9.29%
Including Sales Charge +4.98% +5.29%
- --------------------------------------------------------------------------------
Class C (Est.4/12/95)
Excluding Sales Charge +7.04% +8.98%
Including Sales Charge +7.04% +7.98%
All performance includes reinvestment of distributions and applicable
sales charge as described below. Return and share value will fluctuate
so that shares when redeemed may be worth more or less than the original
cost. Past performance is not a guarantee of future results.
Performance for Class B and C shares excluding sales charge assumes either
contingent sales charges did not apply or the investment was not redeemed.
Returns reflect a voluntary expense limitation in effect at the time. Returns
would have been lower without the limitation.
Class A shares have a 3.75% maximum front-end sales charge and a 12 b-1 fee.
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are also subject to a deferred
sales charge of up to 4% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If shares are
redeemed within 12 months, a 1% contingent deferred sales charge applies.
<PAGE>
for tax-exempt income 9
Financial Statements
DELAWARE-VOYAGEUR TAX-FREE CALIFORNIA FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
----------------------------
MUNICIPAL BONDS - 87.31%
General Obligations - 0.62%
Tulare Earlimart Elementary School District
6.70% 8/1/21 (Ambac) ........................... $ 50,000 $ 62,091
----------
62,091
----------
HOSPITAL REVENUE BONDS - 16.55%
Antelope Valley California Health Care District
Series A 5.20% 1/1/17 .......................... 300,000 300,528
Berkeley Alta Bates Healthcare 6.55% 12/1/22 ..... 100,000 111,941
California Health Facilities - Valleycare Hospital
5.50% 5/1/20 ................................... 250,000 252,920
Mendocino Coast Health Care District
5.875% 2/1/20 .................................. 100,000 104,199
North Kern - South Tulare,California Hospital
District Health Facility Revenue
6.00% 4/1/20 ................................... 250,000 252,823
Riverside County California Asset Leasing Revenue
Riverside County Hospital PJ - Series B
5.00% 6/1/19 .................................... 500,000 491,585
Stockton,California Health Facilities -
Dameron Hospital Association - Series A
5.70% 12/1/14 ................................... 100,000 103,135
Valleycare Hospital California Health Facilities
Finance Authority Revenue 6.75% 6/1/15 .......... 45,000 49,544
----------
1,666,675
----------
HOUSING REVENUE BONDS - 14.39%
California Housing Finance Agency Single Family
6.00% 8/1/20 (Mbia) ............................ 100,000 104,946
California Housing Financing Agency Home
Mortgage Revenue Series 96H
6.25% 8/1/27 (Fha) ............................. 95,000 100,962
California Housing Financing Agency Home
Mortgage Revenue Series 96K 6.15%
8/1/16 (Mbia) .................................. 450,000 481,005
Fresno, California, Multifamily Housing Revenue
GNMA - Woodlands Apartments Project - A
6.65% 5/20/17 (Gnma) ........................... 100,000 111,728
Rancho Cucamonga Redevelopment Housing
Set Aside 5.25% 9/1/26 ......................... 100,000 100,235
San Marcos,California Redevelopment
Agency Tax Allocation Affordable Housing
Project - Series A 6.00% 10/1/27 ................ 530,000 550,776
----------
1,449,652
----------
LEASE/CERTIFICATES OF
PARTICIPATION - 12.96%
Alameda City Hall Redevelopment
6.20% 5/1/25 ................................... 50,000 53,195
Bakersfield, California, Certificates of
Participation Convention Center Expansion
Project 5.80% 4/1/17 (Mbia) ..................... 350,000 371,035
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
----------------------------
MUNICIPAL BONDS (Continued)
LEASE/CERTIFICATES OF PARTICIPATION (CONTINUED)
California State Public Works 6.375% 10/1/19 ..... $ 50,000 $ 55,453
California State Public Works - California State
University - Series C 5.40% 10/1/22 ............. 300,000 303,195
Hayward Civic Center Project 5.25%
8/1/26 (Mbia) .................................. 100,000 100,237
Rancho Mirage Joint Power Financing Authority
Eisenhower Medical Center 5.375%
7/1/22 (Mbia) .................................. 100,000 101,584
San Jose Convention Center Finance Authority
Revenue 6.375% 9/1/13 .......................... 100,000 105,924
Santa Monica Parking Authority Lease Revenue
6.375% 7/1/16 .................................. 100,000 109,092
Shafter Powers Finance Lease Revenue 6.05%
1/1/17 ......................................... 100,000 105,637
----------
1,305,352
----------
SCHOOL AUTHORITY/DISTRICT
REVENUE BONDS - 11.99%
Albany, California United School District -
Series D 5.50% 8/1/18 .......................... 200,000 206,228
Burlingame, California School District
5.60% 7/15/21 .................................. 230,000 240,946
Long Beach, California HBR Revenue
5.375% 5/15/20 ................................. 250,000 251,350
California Public Works Board Lease Revenue
5.625% 3/1/19 .................................. 190,000 198,734
Los Alamitos Unified School District Series 90-1
6.25% 8/15/23 .................................. 50,000 53,068
Ontario, California Community Facilities District
No 5 Special Tax Freeway Interchange Project
6.375% 9/1/17 .................................. 250,000 256,583
----------
1,206,909
----------
OTHER REVENUE BONDS - 30.80%
Carson Redevelopment Agency Revenue
6.375% 10/1/16 ................................. 100,000 107,045
Davis Unified School District Community Facilities
District - Special Tax 5.50% 8/15/26 (Mbia) ..... 100,000 102,697
Dixon Redevelopment Agency 6.00% 9/1/24 .......... 50,000 51,261
Rancho Mirage California Improvement Board
6.10% 9/2/11 ................................... 500,000 515,355
Sacramento County California Special Tax
Reference - Community Facilities District
Number 1 5.70% 12/1/20 ......................... 500,000 493,670
California Pollution Control Authority Facilities
Revenue (Mobil Oil Project) 5.50% 12/1/29 ....... 500,000 506,105
Sacramento Municipal Utility District K
Defeasable CA 5.25% 7/1/24 (Ambac) .............. 100,000 103,797
Moreno Valley, California School District -
5.60% 3/1/17 ................................... 100,000 103,317
<PAGE>
10 for tax-exempt income
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
----------------------------
MUNICIPAL BONDS (Continued)
OTHER REVENUE BONDS (CONTINUED)
Puerto Rico Public Buildings Authority Revenue
Guaranteed Government Facilities - Series B
5.25% 7/1/21 ..................................... $ 250,000 $ 248,993
Foothill/ Eastern Transportation Corridor Agency
California Toll Road Revenue Series 95A
6.00% 1/1/34 ..................................... 100,000 105,098
San Joaquin Hills California Transportation
Corridor Agency Toll Road Revenue
5.25% 1/15/30 .................................... 300,000 299,532
San Jacinto, California Water Improvement
Project Authority 5.50% 10/1/18 ................... 250,000 258,668
West Basin, California Municipal Water District
Revenue - Certificate of Participation Refunding -
1992 Series A 5.50% 8/1/22 ........................ 200,000 206,209
----------
3,101,747
----------
Total Municipal Bonds (cost $8,372,009) ............ 8,792,426
----------
Number of
Shares
---------
SHORT TERM INVESTMENTS - 0.53%
Norwest Advantage Municipal Money
Market Fund ....................................... 53,000 53,000
----------
Total Short Term Investments (cost $53,000) ........ 53,000
----------
TOTAL MARKET VALUE OF SECURITIES OWNED - 87.84%
(cost $8,425,009) .......................................... $ 8,845,426
RECEIVABLES AND OTHER ASSETS NET
OF LIABILITIES - 12.16% .................................... 1,224,449
-------------
NET ASSETS APPLICABLE TO 910,102 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% ..................... $ 10,069,875
=============
NET ASSET VALUE - TAX FREE CALIFORNIA FUND A CLASS
($4,385,249 / 397,034 SHARES) .............................. $ 11.05
=============
NET ASSET VALUE - TAX FREE CALIFORNIA FUND B CLASS
($5,575,947 / 503,229 SHARES) .............................. $ 11.08
=============
NET ASSET VALUE - TAX FREE CALIFORNIA FUND C CLASS
($108,679 / 9,839 SHARES) .................................. $ 11.05
=============
------------------
Summary of Abbreviations:
Ambac - Insured by the Ambac Indemnity Corporation
Fha - Insured by the Federal Housing Authority
Gnma - Insured by the Government National Mortgage Association
Mbia - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common Stock , $.01 par value, 100,000,000,000
shares authorized to the Fund with 10,000,000,000 shares
allocated to Tax Free California Fund A Class 10,000,000,000
shares allocated to Tax Free California Fund B Class and
10,000,000,000 shares allocated to Tax Free California
Fund C Class ............................................... $ 9,651,293
Distribution in excess of net realized gain ................. (1,835)
Net unrealized appreciation on investments .................. 420,417
------------
Total Net Assets ............................................ $ 10,069,875
============
<PAGE>
DELAWARE-VOYAGEUR
TAX-FREE CALIFORNIA INSURED FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
----------------------------
MUNICIPAL BONDS - 97.33%
GENERAL OBLIGATION BONDS - 3.18%
Fairfield Public Finance Authority Revenue
(FGIC) 6.25% 7/1/14 .............................. $1,000,000 $1,080,800
----------
1,080,800
----------
HIGHER EDUCATION REVENUE
BONDS - 6.48%
California State University Auxiliary Revenue
(MBIA) 6.25% 8/1/20 .............................. 1,000,000 1,096,070
University of California Board of Regents
(MBIA) 6.375% 9/1/24 ............................. 1,000,000 1,109,710
----------
2,205,780
----------
HOSPITAL REVENUE BONDS - 6.34%
California Health Facilities - Catholic Healthcare
West (MBIA) 6.00% 7/1/17 .......................... 1,000,000 1,081,670
California Health Facilities - San Diego Hospital
(MBIA) 6.20% 8/1/12 .............................. 1,000,000 1,077,600
----------
2,159,270
----------
HOUSING REVENUE BONDS - 23.85%
California Housing Finance Agency 1994
Series E (MBIA) 6.75% 8/1/26 ...................... 1,000,000 1,091,510
California Housing Finance Agency Home
Mortgage Revenue Series 96E (MBIA)
6.05% 8/1/16 ..................................... 1,000,000 1,060,290
Series 96K (MBIA) 6.15% 8/1/16 .................... 1,100,000 1,175,790
California Housing Finance Agency Revenue
Series F (MBIA) 6.00% 8/1/17 ...................... 1,000,000 1,061,210
California Housing Finance Agency Single Family
(MBIA) 6.00% 8/1/20 .............................. 1,000,000 1,049,460
California Rural Home Mortgage Finance
Authority Single Family Mortgage Revenue
(AMBAC) 7.95% 12/1/24 ............................ 1,355,000 1,562,125
Fresno, California, Multifamily Housing Revenue
GNMA - Woodlands Apartments Project-A
(GNMA) 6.65% 5/20/17 ............................. 1,000,000 1,117,280
----------
8,117,665
----------
LEASE/CERTIFICATES OF
PARTICIPATION - 31.74%
Bakersfield, California, Certificates of
Participation Convention Center Expansion
Project (MBIA) 5.80% 4/1/17 ....................... 1,000,000 1,060,100
California State Public Works Board Lease
Revenue Variable University of California
Projects - C 5.125% 9/1/22 ....................... 1,250,000 1,240,400
Inland Empire Solid Waste Authority (FSA)
6.00% 8/1/16 ..................................... 2,500,000 2,684,075
Ontario Redevelopment Cimarron Project (MBIA)
6.25% 8/1/15 ..................................... 1,000,000 1,077,560
Riverside County California Asset Leasing
Revenue Riverside County Hospital PJ -
Series B 5.00% 6/1/19 ............................ 250,000 245,793
<PAGE>
for tax-exempt income 11
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
----------------------------
MUNICIPAL BONDS (Continued)
LEASE/CERTIFICATES OF PARTICIPATION
(CONTINUED)
San Francisco California State Building Authority
Lease Revenue, San Francisco Civic Center
Complex A 5.25% 12/1/21 ........................ $ 1,000,000 $ 1,003,240
San Luis Obispo Capital Revenue (AMBAC)
6.375% 6/1/14 .................................. 1,000,000 1,090,950
Santa Barbara Water Revenue (AMBAC)
6.70% 4/1/27 ................................... 1,000,000 1,100,870
Santa Clara Finance Authority (AMBAC)
7.75% 11/15/11 ................................. 1,000,000 1,295,990
-----------
10,798,978
-----------
SCHOOL AUTHORITY/DISTRICT REVENUE
BONDS - 6.64%
Redwood City, California Elementary School
District (FGIC) 5.00% 8/1/16 .................... 1,000,000 1,012,060
Walnut Valley, California School District -
Series A (MBIA) 7.20% 2/1/16 .................... 1,000,000 1,247,250
-----------
2,259,310
-----------
TRANSPORTATION REVENUE
BONDS - 3.14%
San Francisco City & County International Airport
Revenue (FGIC) 6.00% 5/1/14 ..................... 1,000,000 1,067,000
-----------
1,067,000
-----------
WATER & SEWER REVENUE BONDS - 3.21%
Calaveras County Water District Revenue
(AMBAC) 6.125% 9/1/17 .......................... 1,000,000 1,091,790
-----------
1,091,790
-----------
OTHER REVENUE BONDS - 12.75%
Los Angeles County Transportation Commission
Sales Tax Revenue (MBIA) 6.25% 7/1/13 ........... 1,000,000 1,080,800
Rancho Water District Finance Revenue
(FGIC) 5.90% 11/1/15 ........................... 1,000,000 1,077,930
San Francisco City & County Redevelopment
Agency Hotel Tax Revenue (FSA)
6.75% 7/1/25 ................................... 1,000,000 1,131,860
Santa Clara North Bayshore (AMBAC)
5.75% 7/1/14 ................................... 1,000,000 1,047,300
-----------
4,337,890
-----------
Total Municipal Bonds (cost $30,641,299) ......... 33,118,483
-----------
<PAGE>
- --------------------------------------------------------------------------------
NUMBER OF MARKET
SHARES VALUE
----------------------------
SHORT TERM INVESTMENTS - 1.05%
Norwest Advantage Municipal Money Market Fund ......... 357,000 $ 357,000
-----------
Total Short Term Investments
(cost of $357,000) .................................. 357,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 98.38%
(COST $30,998,299) ............................................... $33,475,483
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.62% .......... 552,579
-----------
NET ASSETS APPLICABLE TO 3,098,182
SHARES ($.01 PAR VALUE) OUTSTANDING - 100.00% .................... $34,028,062
===========
NET ASSET VALUE - TAX FREE CALIFORNIA INSURED A CLASS
($26,922,647/2,451,201 SHARES) .................................. $ 10.98
===========
NET ASSET VALUE - TAX FREE CALIFORNIA INSURED B CLASS
($6,629,334/603,477 SHARES) ..................................... $ 10.99
===========
NET ASSET VALUE - TAX FREE CALIFORNIA INSURED C CLASS
($476,081/43,504 SHARES) ........................................ $ 10.94
===========
- ------------------
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Indemnity Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
GNMA - Insured by the Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common Stock, $.01 par value, 10,000,000,000 shares
authorized to the Fund with 1,000,000,000 shares allocated
to Tax Free California Insured Fund A Class, 1,000,000,000
shares allocated to Tax Free California Insured Fund B Class
and 1,000,000,000 shares allocated to Tax Free California
Insured Fund C Class ...................................... $ 32,133,664
Accumulated net realized loss on investments ............... (582,786)
Net unrealized appreciation of investments ................. 2,477,184
------------
Total Net Assets ........................................... $ 34,028,062
============
See accompanying notes
<PAGE>
12 for tax-exempt income
DELAWARE-VOYAGEUR FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
TAX-FREE TAX-FREE CALIFORNIA
CALIFORNIA FUND INSURED FUND
--------------------------------------
ASSETS:
Investments at market ............ $ 8,845,426 $33,475,483
Cash ............................. 1,393 278
Interest receivable .............. 149,497 614,389
Subscriptions receivable ......... 1,086,663 90,781
----------- -----------
Total assets .................... 10,082,979 34,180,931
----------- -----------
LIABILITIES:
Other accounts payable and
accrued expenses ................ 13,104 152,869
----------- -----------
Total liabilities .............. 13,104 152,869
----------- -----------
Total Net Assets ................. $10,069,875 $34,028,062
=========== ===========
Investments at cost .............. $ 8,425,009 $30,998,299
=========== ===========
See accompanying notes
<PAGE>
DELAWARE-VOYAGEUR FUNDS
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
TAX-FREE TAX-FREE CALIFORNIA
CALIFORNIA FUND INSURED FUND
--------------------------------------
INVESTMENT INCOME:
Interest ............................... $ 278,329 $ 2,043,743
----------- -----------
EXPENSES:
Management fees ........................ 25,285 174,890
Dividend disbursing, transfer agent
and other expenses .................... 7,466 39,072
Distribution expense ................... 31,550 122,935
Custodian Fees ......................... 1,549 6,042
Registration fees ...................... 1,941 4,499
Reports and statements to
shareholders .......................... 1,624 20,532
Accounting and administration .......... 2,387 11,984
Professional fees ...................... 7,974 12,009
Directors' fees ........................ 542 1,083
----------- -----------
80,318 393,046
Less expenses absorbed or waived ....... (53,667) (9,546)
----------- -----------
Total Expenses ......................... 26,651 383,500
----------- -----------
NET INVESTMENT INCOME .................. 251,678 1,660,243
----------- -----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments ....... 28,148 654,098
Net change in unrealized appreciation .. 362,074 902,169
----------- -----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ........................ 390,222 1,556,267
----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ....................... $ 641,900 $ 3,216,510
=========== ===========
NET ASSET VALUE AND OFFERING PRICE
PER SHARE - A CLASS:
Net asset value A Class (A) ............ $ 11.05 $ 10.98
Sales Charge (3.75% of offering price
or 3.89% of the amount invested per
share for the Tax-Free California Fund
and 3.75% of offering price or 3.92%
of the amount invested for the Tax-Free
California Insured Fund)(B) ............ 0.43 0.43
----------- -----------
Offering price ......................... $ 11.48 $ 11.41
=========== ===========
- -----------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See Buying Shares in the current Prospectus for purchases of $100,000 or
more.
See accompanying notes
<PAGE>
for tax-exempt income 13
DELAWARE-VOYAGEUR FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax-Free California Fund Tax-Free California Insured Fund
------------------------------- --------------------------------
Year Ended Year Ended Year Ended Year Ended
12/31/97 12/31/96 12/31/97 12/31/96
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ...................................... $ 251,678 $ 82,955 $ 1,660,243 $ 1,911,564
Net realized gain (loss) on investments .................... 28,148 6,790 654,098 (58,669)
Net change in unrealized appreciation/depreciation ......... 362,074 (5,178) 902,169 (562,705)
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations ....... 641,900 84,567 3,216,510 1,290,190
------------ ------------ ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class ................................................... (114,672) (65,255) (1,392,469) (1,598,282)
B Class ................................................... (132,136) (15,447) (281,777) (292,092)
C Class ................................................... (5,490) (2,008) (4,187) (3,096)
Net realized gain from security transactions:
A Class ................................................... (11,448) (4,321) -- --
B Class ................................................... (17,988) (2,191) -- --
C Class ................................................... (547) (278) -- --
------------ ------------ ------------ ------------
(282,281) (89,500) (1,678,433) (1,893,470)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ................................................... 3,495,750 1,024,962 1,433,773 4,431,420
B Class ................................................... 4,742,287 525,960 663,450 1,008,305
C Class ................................................... 88,101 90,000 411,903 601,996
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on security transactions:
A Class ................................................... 83,762 52,929 600,374 618,501
B Class ................................................... 41,269 427 115,298 101,866
C Class ................................................... 6,496 1,646 3,770 2,265
------------ ------------ ------------ ------------
8,457,665 1,695,924 3,228,568 6,764,353
------------ ------------ ------------ ------------
Cost of shares repurchased:
A Class ................................................... (553,808) (858,534) (6,896,123) (7,836,755)
B Class ................................................... (79,383) -- (1,165,654) (336,230)
C Class ................................................... (86,695) -- -- (607,218)
------------ ------------ ------------ ------------
(719,886) (858,534) (8,061,777) (8,780,203)
------------ ------------ ------------ ------------
Increase (decrease) in net assets derived from capital
share transactions ........................................ 7,737,779 837,390 (4,833,209) (2,015,850)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS ...................... 8,097,398 832,457 (3,295,132) (2,619,130)
NET ASSETS:
Beginning of year .......................................... 1,972,477 1,140,020 37,323,194 39,942,324
------------ ------------ ------------ ------------
End of year ................................................ $ 10,069,875 $ 1,972,477 $ 34,028,062 $ 37,323,194
============ ============ ============ ============
</TABLE>
See accompanying notes
<PAGE>
14 for tax-exempt income
DELAWARE-VOYAGEUR FUNDS
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each
period were as follows:
<TABLE>
<CAPTION>
TAX FREE CALIFORNIA TAX FREE CALIFORNIA TAX FREE CALIFORNIA
FUND - CLASS A FUND - CLASS B FUND - CLASS C
------------------------------------ -------------------------------- ----------------------
YEAR YEAR PERIOD FROM YEAR YEAR PERIOD FROM YEAR PERIOD FROM
ENDED ENDED 3/2/95(1) ENDED ENDED 8/23/95(1) ENDED 4/9/96(1)
12/31/97(4) 12/31/96 to 12/31/95 12/31/97(4) 12/31/96 to 12/31/95 12/31/97(4) to 12/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ................... $ 10.430 $ 10.640 $10.000 $10.440 $10.650 $9.960 $10.420 $10.070
Income from investment
operations:
Net investment income ....... 0.590 0.600 0.470 0.520 0.560 0.200 0.487 0.370
Net realized and unrealized
gain (loss) from investments 0.665 (0.180) 0.700 0.688 (0.180) 0.740 0.696 0.380
--------- --------- ------- ------- ------- ------- ------- -------
Total from investment
operations .................. 1.255 0.420 1.170 1.208 0.380 0.940 1.183 0.750
--------- --------- ------- ------- ------- ------- ------- -------
Less dividends and
distributions:
Dividends from net
investment income .......... (0.595) (0.600) (0.470) (0.528) (0.560) (0.190) (0.513) (0.370)
Distributions from net
realized gain on
security transactions ...... (0.040) (0.030) (0.060) (0.040) (0.030) (0.060) (0.040) (0.030)
--------- --------- ------- ------- ------- ------- ------- -------
Total dividends and
distributions .............. (0.635) (0.630) (0.530) (0.568) (0.590) (0.250) (0.553) (0.400)
--------- --------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 11.050 $ 10.430 $10.640 $11.080 $ 10.440 $10.650 $11.050 $10.420
========= ========= ======= ======= ======= ======== ======= =======
Total Return(2) .............. 12.43% 4.21% 11.97% 11.91% 3.77% 9.52% 11.69% 7.58%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) .............. $ 4,385 $ 1,218 $ 1,012 $ 5,576 $ 660 $ 128 $ 109 $ 94
Ratio of expenses to average
net assets ................. 0.13% 0.27% 0.46%(3) 0.80 0.50% 0.60%(3) 0.87% 0.78%(3)
Ratio of expenses to average
net assets prior to expense
limitation ................. 1.19% 1.25% 1.22%(3) 1.86% 2.00% 1.93%(3) 1.93% 2.00%(3)
Ratio of net investment
income to average net
assets ..................... 5.32% 5.71% 5.57%(3) 4.65% 5.34% 5.33%(3) 4.58% 5.13%(3)
Ratio of net investment
income to average net
assets prior to expense
limitation ................. 4.26% 4.73% 4.81%(3) 3.59% 3.84% 4.00%(3) 3.52% 3.91%(3)
Portfolio turnover .......... 17% 8% 40% 17% 8% 40% 17% 8%
</TABLE>
- ----------
(1) Commencement of Operations.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(3) Annualized.
(4) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund
Managers, Inc., as the Fund's investment manager.
See accompanying notes
<PAGE>
for tax-exempt income 15
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free California Insured Fund - Class A
--------------------------------------------------------------------------------------
Year Year Year Two Year Year
ended ended ended months ended ended ended
12/31/97(3) 12/31/96 12/31/95 12/31/94 10/31/94 10/31/93
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $10.500 $10.650 $ 9.330 $9.510 $11.080 $10.020
Income from investment operations:
Net investment income....................... 0.513 0.520 0.530 0.100 0.550 0.600
Net realized and unrealized gain
(loss) from investments ................... 0.486 (0.150) 1.340 (0.180) (1.520) 1.110
------- ------- ------- ------ ------- -------
Total from investment operations ........... 0.999 0.370 1.870 (0.080) (0.970) 1.710
------- ------- ------- ------ ------- -------
Less dividends and distributions:
Dividends from net investment income ....... (0.519) (0.520) (0.550) (0.090) (0.540) (0.600)
Distributions from net realized gain on
security transactions ..................... -- -- -- (0.010) (0.060) (0.050)
------- ------- ------- ------ ------- -------
Total dividends and distributions .......... (0.519) (0.520) (0.550) (0.100) (0.600) (0.650)
------- ------- ------- ------ ------- -------
Net asset value, end of period............... $10.980 $10.500 $10.650 $9.330 $ 9.510 $11.080
======= ======= ======= ====== ======= =======
Total Return(1).............................. 9.78% 3.63% 20.51% (0.84%) (8.97%) 17.29%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ............................. $26,923 $30,551 $33,860 $27,994 $27,282 $12,509
Ratio of expenses to average net assets .... 0.99% 0.82% 0.70% 0.10%(2) 0.20% 0.00%
Ratio of expenses to average net
assets prior to expense limitation ........ 1.02% 1.01% 1.02% 1.24%(2) 1.25% 1.25%
Ratio of net investment income to average
net assets ................................ 4.85% 5.05% 5.23% 6.30%(2) 5.37% 5.26%
Ratio of net investment income to
average net assets prior to
expense limitation ........................ 4.82% 4.86% 4.91% 5.16%(2) 4.32% 4.01%
Portfolio turnover.......................... 63% 55% 107% 7% 18% 24%
</TABLE>
- ------------------
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(2) Annualized.
(3) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund
Managers, Inc., as the Fund's investment manager.
See accompanying notes
<PAGE>
16 for tax-exempt income
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free California
Tax-Free California Insured Fund - Class B Insured Fund - Class C
---------------------------------------------------------- -----------------------------------
TWO PERIOD FROM PERIOD FROM
MONTHS 3/1/94(1) 4/12/95(1)
YEAR ENDED YEAR ENDED YEAR ENDED ENDED TO YEAR ENDED YEAR ENDED TO
12/31/97(4) 12/31/96 12/31/95 12/31/94 10/31/94 12/31/97(4) 12/31/96 12/31/95
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .......................... $10.500 $10.650 $ 9.330 $9.510 $10.680 $10.460 $10.650 $10.190
Income from investment operations:
Net investment income .............. 0.457 0.480 0.500 0.080 0.310 0.485 0.440 0.250
Net realized and unrealized gain
(loss) from investments .......... 0.495 (0.150) 1.330 (0.170) (1.160) 0.432 (0.190) 0.530
----- ------ ----- ----- ------ ----- ------ -----
Total from investment operations .. 0.952 0.330 1.830 (0.090) (0.850) 0.917 0.250 0.780
----- ----- ----- ------ ------ ----- ----- -----
Less dividends and distributions:
Dividends from net investment
income ........................... (0.462) (0.480) (0.510) (0.080) (0.300) (0.437) (0.440) (0.320)
Distributions from net realized
gain on security transactions .... -- -- -- (0.010) (0.020) -- -- --
----- ----- ----- ------ ------ ----- ----- -----
Total dividends and distributions. (0.462) (0.480) (0.510) (0.090) (0.320) (0.437) (0.440) (0.320)
----- ----- ----- ------ ------ ----- ----- -----
Net asset value, end of period ...... $10.990 $10.500 $10.650 $9.330 $ 9.510 $10.940 $10.460 $10.650
======= ======= ======= ====== ======= ======= ======= =======
Total Return(2)...................... 9.29% 3.22% 20.01% (0.92%) (7.93%) 8.98% 2.47% 7.77%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ..................... $6,629 $6,717 $6,029 $2,219 $1,427 $476 $55 $53
Ratio of expenses to average
net assets ........................ 1.53% 1.21% 1.10% 0.57%(3) 0.73%(3) 1.71% 1.58% 1.53%(3)
Ratio of expenses to average net
assets prior to expense limitation. 1.56% 1.76% 1.75% 1.94%(3) 1.95%(3) 1.74% 1.77% 1.77%(3)
Ratio of net investment
income to average net assets ...... 4.31% 4.64% 4.75% 5.54%(3) 4.82%(3) 4.13% 4.02% 4.25%(3)
Ratio of net investment income
to average net assets prior
to expense limitation ............. 4.28% 4.09% 4.10% 4.17%(3) 3.60%(3) 4.10% 3.83% 4.01%(3)
Portfolio turnover 63% 55% 107% 7% 18% 63% 55% 107%
</TABLE>
- ------------------
(1) Commencement of Operations.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(3) Annualized.
(4) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund
Managers, Inc., as the Fund's investment manager.
See accompanying notes
<PAGE>
for tax-exempt income 17
DELAWARE-VOYAGEUR FUNDS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Delaware-Voyageur Tax-Free California Fund (formerly Voyageur California Tax
Free Fund)("Tax-Free California Fund"), a series of the Voyageur Mutual Funds,
Inc. is registered under the Investment Company Act of 1940 (as amended) as a
non-diversified, open-end management investment company. Delaware-Voyageur
Tax-Free California Insured Fund (formerly California Insured Tax Free
Fund)("Tax-Free California Insured Fund"), a series of the Voyageur Investment
Trust, Inc., a Massachusetts business trust is registered under the Investment
Company Act of 1940 (as amended) as a diversified, open-end management
investment company. Tax-Free California Fund seeks high current income free from
both federal and state income taxes by investing in investment grade municipal
bonds. Tax-Free California Insured Fund seeks high current income free from both
federal and state income taxes with the added safety of an insured portfolio by
investing in insured municipal bonds. Tax-Free California Fund and Tax-Free
California Insured Fund (each referred to as a "Fund" or collectively as the
"Funds"). The Funds offer three classes of shares. The A class carries a
front-end sales charge of 3.75%. The B class carries a back-end deferred sales
charge. The C class carries a level load deferred sales charge.
1. Fund Reorganization
On April 30, 1997, Lincoln National Corporation ("LNC") acquired Voyageur Fund
Manager, Inc.'s ("Voyageur") parent, Dougherty Financial Group, Inc. ("DFG")
pursuant to an agreement and plan of merger dated January 15, 1997, in which LNC
acquired DFG including the mutual fund investment advisory business of DFG
conducted by Voyageur. Upon completion of the acquisition, Delaware Management
Company, Inc. ("DMC") became the investment adviser to the Funds, Delaware
Distributors, L.P. ("DDLP") became the distributor for the Funds, Delaware
Service Company, Inc. ("DSC") became the transfer, dividend-disbursing,
shareholder servicing agent and accounting service agent for the Funds.
2. Significant Accounting Policies
The following accounting policies are in accordance with generally
accepted accounting principles and are consistently followed by the Funds:
Security Valuation - Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Money market instruments having less than 60 days to maturity are
valued at amortized cost which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
Federal Income Taxes - Each Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Funds on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Other - Expenses common to all Funds within the Delaware-Voyageur Funds are
allocated amongst the Funds on the basis of average net assets. Security
transactions are recorded on the date the securities are purchased or sold
(trade date). Costs used in calculating realized gains and losses on the sale of
investment securities are those of the specific securities sold. Interest income
is recorded on the accrual basis. Original issue discounts are accreted to
interest income over the lives of the respective securities. The Funds declare
dividends from net investment income daily and pay them monthly. Capital gains
are distributed annually.
<PAGE>
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
3. Investment Management and Other Transactions with Affiliates
Commencing May 1, 1997, and in accordance with the terms of the Investment
Management Agreement, the Fund pays DMC the Investment Manager of each Fund, an
annual fee, which is calculated on the average daily net assets of each Fund.
The management fee rates are as follows:
TAX-FREE TAX-FREE CALIFORNIA
CALIFORNIA FUND INSURED FUND
-------------------------------------------
Management fee as a
percentage of average
daily net assets (per annum) ...... 0.50% 0.50%
DMC has elected to waive their fees and reimburse each Fund to the extent that
annual operating expenses exclusive of 12b - 1 distribution fees, taxes,
interest, brokerage commissions and extraordinary expenses, exceed 0.00% and
0.73% of average daily net assets for Tax-Free California Fund and Tax-Free
California Insured Fund, respectively, through December 31, 1997. Total expenses
absorbed by DMC for the period ended December 31, 1997 are as follows:
TAX-FREE TAX-FREE CALIFORNIA
CALIFORNIA FUND INSURED FUND
-------------------------------------------
Total expenses absorbed by DMC .... $43,102 $918
Prior to May 1, 1997, the Funds had an investment advisory and management
agreement with Voyageur. Voyageur received a fee for its investment advisory and
management services based on the average daily net assets of each Fund at an
annual rate of 0.50%.
Commencing May 1, 1997, the Funds have engaged DSC, an affiliate of DMC, to
serve as dividend disbursing, transfer agent and accounting services agent for
the Fund. For the period ended December 31, 1997, the amounts expensed for each
Fund were as follows:
TAX-FREE TAX-FREE CALIFORNIA
CALIFORNIA FUND INSURED FUND
-------------------------------------------
Dividend disbursing,
transfer agent fees
and other expenses............ $3,888 $12,457
Accounting & administration
fees.......................... 1,626 8,724
Prior to May 1, 1997, the Funds paid a fee to Voyageur for acting as the Fund's
dividend disbursing, administrative and accounting services agent. Each Fund was
also responsible for reimbursing Voyageur's out-of-pocket expense in connection
with the performance of these services.
On December 31, 1997, the Funds had payables to affiliates as follows:
TAX-FREE TAX-FREE CALIFORNIA
CALIFORNIA FUND INSURED FUND
-------------------------------------------
Investment Management
fee payable to DMC............. $ -- $31,935
Dividend disbursing, transfer agent
fees, accounting fees and other
expenses payable to DSC ....... 735 2,145
<PAGE>
18 for tax-exempt income
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Commencing May 1, 1997, and pursuant to the Distribution Agreement, the Funds
pay DDLP, the Distributor and an affiliate of DMC, an annual fee not to exceed
0.25% of the average daily net assets of the A Class and 1.00% of the average
daily net assets of the B and C Class for each Fund. For the period ended
December 31, 1997, DDLP earned commissions on sales of the Fund A Class shares
for each Fund as follows:
TAX-FREE TAX-FREE CALIFORNIA
CALIFORNIA FUND INSURED FUND
-------------------------------------------
$1,158 $3,205
Prior to May 1, 1997 each class of shares had a Distribution Agreement with
Voyageur Fund Distributors, Inc. ("VFD"). Under the plan the Funds paid VFD a
fee at an annual rate of 0.25% of the average daily net assets of the Class A
Shares and 1.00% of the average daily net assets of the Class B and C Shares.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Funds. These officers, directors and employees are paid no compensation
by the Funds.
4. Investments
During the period ended December 31, 1997, the Funds made purchases and sales of
investment securities other than U.S. government securities and temporary cash
investments for each Fund as follows:
TAX-FREE TAX-FREE CALIFORNIA
CALIFORNIA FUND INSURED FUND
-------------------------------------------
Purchases................... $7,152,864 $21,926,484
Sales....................... 826,016 26,971,144
At December 31, 1997, the aggregate cost of securities and unrealized
appreciation (depreciation) for federal income tax purposes for each Fund were
as follows:
TAX-FREE TAX-FREE CALIFORNIA
CALIFORNIA FUND INSURED FUND
-------------------------------------------
Cost of Investments................$8,425,009 $30,998,299
Aggregate unrealized appreciation.. 420,417 2,477,694
Aggregate unrealized depreciation.. -- (510)
Net unrealized appreciation........ 420,417 2,477,184
For federal income tax purposes, the Tax-Free California Insured Fund had a
capital loss carryover at December 31, 1997 of $582,786 that will expire in 2003
and 2004.
<PAGE>
<TABLE>
<CAPTION>
5. Capital Stock
Transactions in capital stock shares were as follows:
TAX-FREE CALIFORNIA FUND TAX-FREE CALIFORNIA INSURED FUND
----------------------------- --------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/97 12/31/96 12/31/97 12/31/96
<S> <C> <C> <C> <C>
Shares sold:
A Class ................................................. 325,158 100,004 135,140 425,361
B Class ................................................. 443,601 51,200 62,442 96,511
C Class ................................................. 8,190 8,843* 37,910 58,503
Shares issued upon reinvestment of
dividends from net investment income
and net realized gains from security transactions:
A Class ................................................. 7,845 5,108 56,507 59,647
B Class ................................................. 3,798 41 10,856 9,821
C Class ................................................. 611 160* 355 219
-------- -------- -------- --------
789,203 165,356 303,210 650,062
-------- -------- -------- --------
Shares repurchased:
A Class ................................................. (52,777) (83,419) (650,095) (754,776)
B Class ................................................. (7,430) -- (109,515) (32,711)
C Class ................................................. (7,965) --* -- (58,503)
-------- -------- -------- --------
(68,172) (83,419) (759,610) (845,990)
-------- -------- -------- --------
Net Increase (Decrease) .................................. 721,031 81,937 (456,400) (195,928)
======== ======== ======== ========
</TABLE>
- ------------------
* For the period from April 9, 1996 (commencement of operations) to December
31, 1996.
6. Credit and Market Risks
The Funds concentrate their investments in securities mainly issued by
California municipalities. The value of these investments may be adversely
affected by new legislation within the state, regional or local economic
conditions, and differing levels of supply and demand for municipal bonds. Many
municipalities insure repayment for their obligations. Although bond insurance
reduces the risk of loss due to default by an issuer, such bonds remain subject
to the risk that market value may fluctuate for other reasons and there is no
assurance that the insurance company will meet its obligations. These securities
have been identified in the Statement of Net Assets.
<PAGE>
for tax-exempt income 19
DELAWARE-VOYAGEUR FUNDS
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
VOYAGEUR MUTUAL FUNDS, INC. - DELAWARE-VOYAGEUR TAX-FREE CALIFORNIA FUND
VOYAGEUR INVESTMENT TRUST - DELAWARE-VOYAGEUR TAX-FREE CALIFORNIA INSURED FUND
We have audited the accompanying statements of assets and liabilities and
statements of net assets of Tax-Free California Fund and Tax-Free California
Insured Fund (the "Funds") as of December 31, 1997, and the related statements
of operations, the statements of changes in net assets and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The statements of changes in net assets for the year ended
December 31, 1996 and the financial highlights for the periods presented through
December 31, 1996 were audited by other auditors whose report dated February 14,
1997 expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 1997 financial statements and financial highlights present
fairly, in all material respects, the financial position of each of the
respective Funds at December 31, 1997, and the results of their operations, the
changes in their net assets and their financial highlights for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 16, 1998
<PAGE>
DELAWARE INVESTMENTS FUND FAMILY
FOR GROWTH OF CAPITAL
Aggressive Growth Fund
Trend Fund
DelCap Fund
Small Cap Value Fund
U.S. Growth Fund
Growth Stock Fund
Tax-Efficient Equity Fund
FOR TOTAL RETURN
Social Awareness Fund
Blue Chip Fund
Devon Fund
Decatur Total Return Fund
Decatur Income Fund
REIT Fund
Delaware Fund
FOR INTERNATIONAL DIVERSIFICATION
Emerging Markets Fund
New Pacific Fund
Overseas Equity Fund
International Equity Fund
Global Assets Fund
Global Bond Fund
FOR CURRENT INCOME
Delchester Fund
High-Yield Opportunities Fund
Strategic Income Fund
U.S. Government Fund
Delaware-Voyageur
U.S. Government Securities Fund
Limited-Term Government Fund
FOR TAX-EXEMPT INCOME
National High Yield Municipal Bond Fund
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
State Tax-Free Funds*
MONEY MARKET FUNDS
Delaware Cash Reserve
Tax-Free Money Fund
ASSET ALLOCATION FUNDS
Growth Portfolio
Balanced Portfolio
Income Portfolio
*Available for the following states: Arizona, California, Colorado,
Florida, Idaho, Iowa, Kansas, Minnesota, Missouri, North Dakota, New
Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Utah, Washington,
Wisconsin. Insured and intermediate bond funds are available in selected
states.
funds
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Complete information on any fund offered by Delaware Investments can be found
in each fund's current prospectus. Prospectuses for all funds offered by
Delaware Investments are available from your financial adviser. Please read
the prospectus carefully before you invest or send money.
<PAGE>
THIS ANNUAL REPORT IS FOR THE INFORMATION OF TAX-FREE CALIFORNIA FUND AND
TAX-FREE CALIFORNIA INSURED FUND SHARE holders, but it may be used with
prospective investors when preceded or accompanied by a current Prospectus
for Tax-Free California Fund and Tax-Free California Insured Fund, which sets
forth details about charges, expenses, investment objectives and operating
policies of each Fund. You should read the prospectus carefully before you
invest. Summary investment results are documented in the Fund's current
Statement of Additional Information. The figures in this report represent past
results which are not a guarantee of future results. The return and principal
value of an investment in the Fund will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost.
Board of Directors
WAYNE A. STORK
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
JEFFREY J. NICK
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
WALTER P. BABICH
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
ANTHONY D. KNERR
Consultant, Anthony Knerr & Associates
New York, NY
ANN R. LEVEN
Treasurer, National Gallery of Art
Washington, DC
W. THACHER LONGSTRETH
City Councilman
Philadelphia, PA
THOMAS F. MADISON
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
CHARLES E. PECK
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
Affiliated Officers
DAVID K. DOWNES
Executive Vice President, Chief Financial Officer
and Chief Operating Officer
Delaware Investments Family of Funds
Philadelphia, PA
GEORGE M. CHAMBERLAIN, JR.
Senior Vice President, Secretary
and General Counsel
Delaware Investments Family of Funds
Philadelphia, PA
BRUCE D. BARTON
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
directors
& officers
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INVESTMENT MANAGER
Delaware Management Company, Inc.
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
<PAGE>
This report must be preceded or accompanied by a current Prospectus for Tax-Free
California Funds and the Delaware Investments Fund Performance Update for the
most recently completed calendar quarter. For a prospectus of any other mutual
fund from Delaware Investments, contact your financial adviser or Delaware.
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
DELAWARE
INVESTMENTS
=====================
Philadelphia o London
(Photo of Globes)
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
Funds are not FDIC or NCUSIF insured, are not guaranteed by any bank or any
credit union, and involve investment risk, including the possible loss of the
principal amount invested. Shares of the Funds are not bank or credit union
deposits.
Copy Rights Delaware Distributors, L.P.
Printed in the USA
on recycled paper
(513)
AR-329[12/97]TKO2/98
