VOYAGEUR
YOUR TAX SENSITIVE INVESTMENT MANAGER
NEW YORK TAX FREE FUND
ANNUAL REPORT
DATED DECEMBER 31, 1996
Family of Funds
Voyageur offers a family of mutual funds, each with an individual objective
stated in its prospectus. Investment objectives of the funds range from high
current income to long-term capital appreciation. Exchange privileges allow you
to change your investment between Voyageur Funds as your objectives or market
conditions change.
VOYAGEUR HIGH YIELD FUNDS seek high current income free from both Federal income
taxes and state income taxes (where applicable). The Funds invest in medium and
lower grade municipal bonds.
Voyageur MINNESOTA High Yield Municipal Bond Fund
Voyageur NATIONAL High Yield Municipal Bond Fund
VOYAGEUR TAX FREE FUNDS seek high current income free from both Federal income
taxes and state income taxes (where applicable). The Funds invest in investment
grade municipal bonds.
<TABLE>
<S> <C>
Voyageur ARIZONA Tax Free Fund Voyageur MINNESOTA Tax Free Fund
Voyageur CALIFORNIA Tax Free Fund Voyageur NATIONAL Tax Free Fund
Voyageur COLORADO Tax Free Fund Voyageur NEW MEXICO Tax Free Fund
Voyageur FLORIDA Tax Free Fund Voyageur NEW YORK Tax Free Fund
Voyageur IDAHO Tax Free Fund Voyageur NORTH DAKOTA Tax Free Fund
Voyageur IOWA Tax Free Fund Voyageur UTAH Tax Free Fund
Voyageur KANSAS Tax Free Fund Voyageur WISCONSIN Tax Free Fund
</TABLE>
VOYAGEUR INSURED TAX FREE FUNDS seek high current income free from both Federal
income taxes and state income taxes (where applicable) with the added safety of
an insured portfolio. The Funds invest in insured municipal bonds.
<TABLE>
<S> <C>
Voyageur ARIZONA Insured Tax Free Fund Voyageur MISSOURI Insured Tax
Free Fund Voyageur CALIFORNIA Insured Tax Free Fund Voyageur NATIONAL
Insured Tax Free Fund Voyageur FLORIDA Insured Tax Free Fund Voyageur
OREGON Insured Tax Free Fund Voyageur MINNESOTA Insured Fund Voyageur
WASHINGTON Insured Tax Free Fund
</TABLE>
VOYAGEUR LIMITED TERM FUNDS seek to preserve original investment principal while
providing income free from both Federal income taxes and state income taxes
(where applicable). The Funds invest in intermediate term investment grade
municipal bonds. <TABLE>
<S> <C> <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> <C>
Voyageur AGGRESSIVE GROWTH Fund Voyageur GROWTH Stock Fund
Voyageur GROWTH AND INCOME Fund Voyageur INTERNATIONAL Equity Fund
</TABLE>
VOYAGEUR INCOME FUNDS seek high current income from investments issued,
guaranteed or otherwise backed by the full faith and credit of the U.S.
Government.
Voyageur U.S. GOVERNMENT SECURITIES Fund
VOYAGEUR CASH TRUST SERIES MONEY MARKET FUNDS seek high current income,
principal protection and liquidity by investing in money market instruments.
<TABLE>
<S> <C>
Voyageur CALIFORNIA MUNICIPAL CASH Series Voyageur MUNICIPAL CASH Series
Voyageur FLORIDA MUNICIPAL CASH Series Voyageur OHIO MUNICIPAL CASH
Series Voyageur GOVERNMENT CASH Series Voyageur PRIME CASH Series
Voyageur MINNESOTA MUNICIPAL CASH Series Voyageur TREASURY CASH Series
</TABLE>
For more complete information regarding the investment objectives, fees and
expenses of the Funds, please obtain a prospectus from your Investment
Representative or from Voyageur, 90 South Seventh Street, Suite 4400,
Minneapolis, MN 55402-4115; (612) 376-7044 (local); 800-525-6584 (MKTG).
LETTER FROM THE PRESIDENT
[PHOTO]
JOHN G. TAFT
PRESIDENT
Dear Shareholder:
The year 1996 was marked with mixed economic events. During the first half of
the year, interest rates rose steadily, propelled by market fears that faster
Gross Domestic Product (GDP) growth would ignite inflation. Once these fears
abated in June, interest rates began a descent that lasted throughout most of
the remainder of the year.
In comparison to their peer group of funds, the overall performance of the
Voyageur Tax Free Funds was excellent in 1996. The main reason for this strong
performance was Voyageur portfolio managers' subtle shift toward adding income
to the portfolios. This additional income allowed us to better position the
Funds during the first half of the year when interest rates were rising and
municipal bond prices were falling. Within all of our Tax Free Funds, we
continued to extend call protection, where possible, in order to better provide
for income for longer periods of time.
In January 1997, Lincoln National Corporation (NYSE: LNC) announced that it
planned to acquire the parent company of Voyageur Fund Managers, Inc. -- the
investment adviser for the Voyageur Tax Free Funds. LNC, with headquarters in
Fort Wayne, Indiana, is a diversified organization with operations in many
aspects of the financial services industry, including insurance and investment
management. Delaware Management Company, Inc. (DMC), an indirect wholly owned
subsidiary of LNC, and its affiliate, Delaware International Advisers Ltd.,
serve as the investment advisers to the investment companies in the Delaware
Group of Funds (the Delaware Group), which currently includes 16 open-end funds
and two closed-end funds (comprising 48 separate investment portfolios). DMC
through its Delaware Investment Advisers division, Delaware International
Advisers Ltd. and certain other subsidiaries of Delaware Management Holdings,
Inc. (DMH) also provides investment advice with respect to separately managed
accounts of institutional and other clients. DMH, through its subsidiaries, is
responsible for the management of approximately $32 billion. Voyageur Fund
shareholders should benefit from this acquisition by being able to select from a
wider variety of mutual funds in the expanded Delaware-Voyageur fund family.
Delaware Management, like Voyageur, has a conservative, long-term investment
philosophy. The continuity in the Voyageur Tax Free Funds' management styles
should also be further maintained since Andrew M. McCullagh and Elizabeth
Howell, two of the senior municipal bond portfolio managers for the Voyageur Tax
Free Funds, will continue to play a key role in the management of the Voyageur
Tax Free Funds after the transition.
We appreciate your patronage and confidence in Voyageur Fund Managers. If at any
time you have questions about your Voyageur fund investment, I urge you to
contact your personal financial adviser. Voyageur Client Service representatives
are also available from 7 a.m. to 6 p.m. (Central Standard Time) to answer any
questions you may have concerning this transaction or your Voyageur fund
investment.
Sincerely,
/s/ John G. Taft
John G. Taft
President
Voyageur New York Tax Free Fund
VOYAGEUR NEW YORK TAX FREE FUND
[PHOTO]
STEVEN P. ELDREDGE IS THE
SENIOR MUNICIPAL BOND
MANAGER FOR THE VOYAGEUR
NEW YORK TAX FREE FUND.
MR. ELDREDGE HAS MORE THAN
18 YEARS OF INVESTMENT
INDUSTRY EXPERIENCE.
For the year ended December 31, 1996, the total return at net asset value (NAV)
for the class A shares of the Voyageur New York Tax Free Fund was 2.45%.* The
Fund's benchmark index, the Lehman Brothers Municipal Bond Index, generated a
total return of 4.45% for the same period.** The Fund lagged its benchmark index
on a total return basis largely because its average maturity of seven years was
significantly less than the Lehman Brothers Municipal Bond Index's 14.16 years.
The Voyageur New York Tax Free Fund has changed little since Voyageur acquired
it in November 1996. The Fund has a high average credit quality of Aa/AA and was
previously managed to generate high levels of income. High income mutual funds
like the Voyageur New York Tax Free Fund are generally defensive investments
since the extra income they generate acts as cushion against market downturns.
Although they have the ability to better preserve principal in the down markets,
high income municipal bond funds generally do not participate fully in market
rallies such as we had in 1996.
While we generally support this emphasis on high income, we believe it is also
important to consider total return. In the future, we intend to make subtle
shifts in the Fund's portfolio in order to add make the Fund slightly more total
return sensitive. However, this shift toward total return is expected to be
gradual.
OUTLOOK
Overall, the U.S. economy is still showing signs of moderate growth and moderate
inflation. Our outlook for the municipal market continues to be favorable, and
we expect interest rates to decline over the long term.
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
**THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS A BROAD UNMANAGED INDEX OF
SECURITIES OF UNITED STATES MUNICIPALITIES. THE AVERAGE ANNUAL FOR THE PERIOD
ENDED DECEMBER 31, 1996 WAS 1-YEAR 4.43%, 5-YEARS 8.08%, AND SINCE INCEPTION
5.69%.
VOYAGEUR NEW YORK TAX FREE FUND
Portfolio Abstract
For the Period Ended December 31, 1996
Class A Shares
[GRAPH]
<TABLE>
<CAPTION>
NY Tax Free NY Tax Free Lehman Bros. 20
Without Sales Charge With Sales Charge Year Municipal Bond Index
<S> <C> <C> <C>
Nov-87 10000 9625 10000
10032 9656 10217
Dec-87 10088 9710 10365
10587 10190 10734
10646 10246 10848
10332 9945 10721
10394 10005 10803
10489 10096 10771
10646 10247 10929
10722 10320 11000
10765 10362 11010
10965 10554 11209
11222 10801 11407
11103 10687 11303
Dec-88 11254 10832 11418
11412 10984 11654
11320 10895 11521
11322 10897 11494
11385 11151 11767
11830 11387 12011
12008 11557 12174
12143 11688 12340
12043 11591 12219
11974 11525 12183
12066 11614 12332
12249 11789 12548
Dec-89 12332 11869 12650
12239 11780 12590
12252 11792 12703
12259 11799 12707
12098 11644 12615
12436 11970 12890
12535 12065 13004
12781 12301 13195
12509 12039 13004
12499 12030 13011
12636 12162 13247
12871 12389 13514
Dec-90 12925 12441 13572
12993 12506 13755
13154 12661 13874
13210 12715 13879
13377 12875 14065
13483 12977 14190
13461 12956 14175
13657 13145 14348
13830 13311 14537
14017 13491 14726
14178 13646 14859
14198 13665 14900
Dec-91 14465 13923 15220
14419 13878 15255
14452 13910 15260
14499 13956 15265
14641 14092 15401
14838 14282 15583
15146 14578 15844
15674 15087 16319
15516 14934 16160
15595 15010 16266
15395 14818 16106
15727 15138 16394
Dec-92 15903 15307 16561
16071 15469 16753
16638 16014 17360
16512 15893 17176
16691 16065 17349
16782 16153 17446
16991 16353 17738
16979 16342 17761
17278 16630 18130
17445 16791 18337
17493 16837 18372
17346 16695 18210
Dec-93 17621 16960 18594
17793 17125 18806
17487 16831 18319
16993 16356 17574
16997 16359 17723
17156 16513 17877
17096 16455 17768
17321 16672 18093
17404 16751 18157
17231 16585 17890
17056 16417 17571
16848 16217 17253
Dec-94 17091 16450 17633
17370 16718 18137
17716 17051 18665
17849 17180 18880
17884 17213 18902
18234 17551 19505
18169 17488 19336
18288 17603 19519
18423 17732 19767
18491 17797 19892
18695 17994 20180
18883 18175 20515
Dec-95 19028 18314 20712
19130 18412 20870
19041 18327 20728
18831 18124 20462
18773 18069 20405
18785 18081 20397
18939 18228 20619
19093 18377 20807
19070 18355 20803
19261 18539 21094
19401 18674 21332
19435 18706 21723
19533 18800 21631
Dec-96 19493 18762 21632
</TABLE>
Voyageur New York Tax Free Fund Without Sales Charge - Ending Value $19,494
Voyageur New York Tax Free Fund With Sales Charge - Ending Value $18,763
Lehman Bros. 20 Year Municipal Bond Index - Ending Value $21,632
The Lehman Bros. 20 Year Municipal Bond Index is a broad, unmanaged index of
securities of United States Municipalities. The index assumes that no operating
expenses, transaction fees or sales loads are incurred by a hypothetical
investor who directly owns the securities maintained in the index. In order to
outperform an index over any specific time frame, a fund must return to
investors an amount greater than that provided by the index plus total operating
expenses. For this reason, few fixed income funds are able to outperform broad
market indices over the long term. The chart above is comprised of data that
represents the cumulative total return of a hypothetical investment in Class A
Shares of $10,000 made on the date the Fund commenced operations through
December 31, 1996.
The performance of separate classes will vary based on the differences in
sales loads and distribution fees paid by shareholders investing in the
different classes.
Performance quoted represents past performance and is not indicative of
future results.
* Average annual total returns include the maximum 3.75% sales charge.
** Commencement of operations.
*** Assumes redemption on December 31, 1996
Voyageur New York Tax Free Fund
Average Annual Total Returns
(Class A Shares)
Since
1 Year 5 Years 11/6/87**
Without Sales Charge 2.45% 6.146% 7.56%
With Sales Charge* (1.40%) 5.33% 7.11%
Lehman Bros. 20 4.45% 5.69% 8.08%
Year Municipal
Bond Index
Voyageur New York Tax Free Fund
Average Annual Total Returns
(Class B Shares)
Since
1 Year 11/6/87**
Without Contingent 1.43% 6.31%
Deferred Sales Charge
With Contingent (3.57%) 4.55%
Deferred Sales Charge***
Voyageur New York Tax Free Fund
Average Annual Total Returns
(Class C Shares)
Since
1 Year 4/26/95**
1.43% 3.98%
Quality Breakdown
[PIE CHART]
Aa/AA 7%
A/A 12%
Baa/BBB 31%
Aaa/AAA 50%
Sector Breakdown
(shown as % of total net assets)
Pre-Refunded/Escrow 44.7%
Housing 19.4%
Transportation 14.9%
General Obligation 8.3%
Other Revenue 7.5%
HealthCare 3.1%
Industrial 2.4%
Statistics
Average Maturity 16.3 Years
Average Coupon 7.2%
Portfolio Duration 4.59 Years
Average Quality Aa/AA
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Voyageur Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Voyageur New York Tax Free (a fund
within Voyageur Mutual Funds, Inc.) as of December 31, 1996, and the related
statements of operations for the three-month period ended December 31, 1996 and
the year ended September 30, 1996, the statements of changes in net assets for
the three-month period ended December 31, 1996 and each of the years in the
two-year period ended September 30, 1996, and the financial highlights presented
in footnote 7 to the financial statements. These financial statements and the
financial highlights are the responsibility of fund management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased but not received, we request confirmations
from brokers, and where replies are not received, we carry out other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Voyageur New York Tax Free Fund as of December 31, 1996, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods stated in the first paragraph above, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 14, 1997
VOYAGEUR NEW YORK TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
- --------------------------------------------------------------------------------
ASSETS
Investments in securities, at market value (note 1)
(identified cost, $9,894,118) ................................. $ 10,678,831
Cash in bank on demand deposit ................................... 567
Accrued interest receivable ...................................... 223,985
------------
Total assets .................................................. 10,903,383
------------
LIABILITIES
Dividends payable to shareholders ................................ 46,681
Payable for investment securities purchased ...................... 495,064
Other accrued expenses ........................................... 10,237
------------
Total liabilities ............................................. 551,982
------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES ...................... $ 10,351,401
============
Represented by:
Capital stock - $.01 par value (note 1) ....................... $ 9,689
Additional paid-in capital .................................... 9,576,243
Undistributed net investment income ........................... 2,985
Accumulated net realized loss on investments .................. (22,229)
Unrealized appreciation of investments ........................ 784,713
------------
TOTAL NET ASSETS ............................................ $ 10,351,401
============
Net assets applicable to outstanding Class A Shares .............. $ 10,044,178
============
Net assets applicable to outstanding Class B Shares .............. $ 254,408
============
Net assets applicable to outstanding Class C Shares .............. $ 52,815
============
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Class A - Shares of Capital Stock outstanding: 940,019 (note 6) $ 10.69
============
Class B - Shares of Capital Stock outstanding: 23,887 (note 6) $ 10.65
============
Class C - Shares of Capital Stock outstanding: 4,955 (note 6) . $ 10.66
============
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
VOYAGEUR NEW YORK TAX FREE FUND
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------
THREE MONTHS YEAR
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------- -------------
<S> <C> <C>
Investment income:
Interest ........................................................... $ 169,598 $ 755,482
--------- ---------
Expenses (note 3):
Investment advisory and management fee ............................. 17,615 93,048
Dividend-disbursing, administrative and accounting services fee .... 5,447 --
Printing, postage and supplies ..................................... 1,715 2,739
Audit and accounting fees .......................................... 13,072 10,613
Legal fees ......................................................... 307 2,274
Distribution fees - Class A ........................................ 3,240 176
Distribution fees - Class B ........................................ 861 3,057
Distribution fees - Class C ........................................ 133 518
Directors' fees .................................................... 187 1,911
Registration fees .................................................. 18,103 35,055
Custodian fees ..................................................... 1,005 3,915
Other .............................................................. 209 3,603
--------- ---------
Total expenses ................................................. 61,894 156,909
Less: Expenses waived or absorbed ................................. (34,929) (24,580)
--------- ---------
Total net expenses ............................................. 26,965 132,329
--------- ---------
Investment income - net ........................................ 142,633 623,153
--------- ---------
Realized and unrealized gain (loss) on investments:
Realized gain on security transactions (note 2) .................... 11,285 13,314
Net change in unrealized appreciation or depreciation of investments (6,168) (164,569)
--------- ---------
Net gain (loss) on investments ................................. 5,117 (151,255)
--------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ 147,750 $ 471,898
========= =========
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
VOYAGEUR NEW YORK TAX FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
THREE MONTHS YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operations:
Investment income - net .......................................... $ 142,633 $ 623,153 $ 704,534
Realized gain on security transactions ........................... 11,285 13,314 18,022
Net change in unrealized appreciation or depreciation of
investments ................................................... (6,168) (164,569) 158,431
------------ ------------ ------------
Net increase in net assets resulting from operations ......... 147,750 471,898 880,987
------------ ------------ ------------
Distributions to shareholders from:
Investment income - net:
Class A ........................................................ (139,837) (601,484) (695,373)
Class B ........................................................ (3,811) (13,195) (8,090)
Class C ........................................................ (606) (2,249) (568)
Net realized gain on investments:
Class A ........................................................ (37,358) (16,591) (21,850)
Class B ........................................................ (921) (396) (287)
Class C ........................................................ (191) (73) --
------------ ------------ ------------
Total distributions .......................................... (182,724) (633,988) (726,168)
------------ ------------ ------------
Share transactions (note 6):
Proceeds from sale of shares:
Class A (note 3) ............................................... 12,100 252,630 339,167
Class B ........................................................ 69,592 175,631 250,596
Class C ........................................................ -- -- 50,125
Net asset value of shares issued in reinvestment of net investment
income and realized gain distributions:
Class A ...................................................... 103,103 482,791 562,424
Class B ...................................................... 3,436 10,597 8,166
Class C ...................................................... 591 2,322 571
Payments for redemption of shares:
Class A ........................................................ (584,980) (1,960,805) (1,914,879)
Class B (note 3) ............................................... (266,224) -- (25)
Class C ........................................................ (76) -- (25)
------------ ------------ ------------
Decrease in net assets from share transactions ................... (662,458) (1,036,834) (703,880)
------------ ------------ ------------
Total decrease in net assets ................................... (697,432) (1,198,924) (549,061)
Net assets at beginning of period ................................... 11,048,833 12,247,757 12,796,818
------------ ------------ ------------
Net assets at end of period (including undistributed or
(distributions in excess of) net investment income of $2,985,
$4,606 and $(1,619), respectively) ............................... $ 10,351,401 $ 11,048,833 $ 12,247,757
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
VOYAGEUR NEW YORK TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Voyageur New York Tax Free Fund (the Fund) is one of a series of several
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. The Fund seeks high current income free from both federal and state
income taxes by investing in investment grade municipal bonds. The Fund is
classified as a non-diversified investment company.
The Fund offers 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 may be subject to a contingent deferred 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.
Pursuant to its articles of incorporation, Voyageur Mutual Funds, Inc., has
10 trillion shares of authorized capital stock that may be issued in one or more
series. Effective December 31, 1996, the Fund changed its fiscal year end from
September 30 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 resulting from
operations during the reporting period. Actual results could differ from those
estimates.
INVESTMENTS IN SECURITIES
The values of fixed income securities are determined using pricing services
quoted by independent brokers. When market quotations are not readily available,
or in certain other circumstances, securities are valued at fair value according
to methods selected in good faith by the Board of Directors. Short-term
securities are valued at amortized cost which approximates market value.
Security transactions are accounted for on the date the securities are
purchased or sold. 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.
The Fund concentrates its investments in limited geographical areas, and
therefore may have more credit risk related to the economic conditions of these
areas than a portfolio with broader geographical diversification.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities which have been purchased by the 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
The Fund's policy is to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute income to
shareholders in amounts that will avoid or minimize federal income or excise
taxes for the Fund. Net investment income and net realized gains (losses) for
the Fund may differ for financial statement and tax purposes primarily because
of losses deferred for tax purposes due to "wash sale" transactions. The
character of distributions made during the year from net investment income or
net realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ from the year that the
income or realized gains (losses) were recorded by the Fund.
For federal income tax purposes, the Fund had a capital loss carryover of
$22,229 at December 31, 1996, that will expire in 2004 and 2005 if not offset by
subsequent capital gains. It is unlikely the Board of Directors will authorize a
distribution of any net realized capital gains until the available capital loss
carryover has been offset or expires.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends declared daily from net investment income are payable monthly in
cash or reinvested in additional shares of the Fund. Net short-term realized
capital gains, if any, may be paid 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 $486,276 and $732,124, respectively, for the
period ended December 31, 1996.
(3) EXPENSES
The Fund has an investment advisory and management fee agreement with
Voyageur Fund Managers, Inc. (Voyageur) under which Voyageur manages the 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 the Fund at the annual rate of .50% (.80% with Fortis Advisers, Inc.
prior to November 16, 1996). In addition, the Fund will pay most other operating
expenses including directors' fees, registration fees, printing of shareholder
reports, legal and auditing services and other miscellaneous expenses. Voyageur
is obligated to pay all expenses of the 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 period ended December 31, 1996, Voyageur absorbed $30,683, pursuant
to the 1% contractual expense limitation and excluding waiver of distribution
fees, voluntarily absorbed $4,246.
The Fund will also pay a fee to Voyageur for acting as the Fund's dividend
disbursing, administrative and accounting services agent. The fee is paid
monthly and is equal to the sum of $1.33 per shareholder account per month, a
fixed monthly fee ranging from $1,000 to $1,500 based on the level of the Fund's
average daily net assets and an annualized percentage of average daily net
assets at reducing rates from .11% to .02%. The Fund is also responsible for
reimbursing Voyageur's out-of pocket 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 the Fund is obligated to pay Fund Distributors a
monthly distribution fee at an annual rate of .25% of the Fund's average daily
net assets of the Class A Shares and 1.00% of the 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. Prior to November 16, 1996,
Classes A, B, C and H paid Fortis Investors, Inc. distribution fees equal to
.25% of the Funds' average daily net assets of the Class A shares and 1.00% of
the Funds' average daily net assets of the Class B, Class C and Class H shares.
Sales charges paid by Class A shareholders were $465. Contingent deferred
sales charges were $2,119 for Class B shareholders.
(4) FUND MERGER
On November 16, 1996, Voyageur New York Tax Free Fund acquired all of the net
assets of Fortis Tax-Free New York (Fortis) pursuant to an Agreement and Plan of
Reorganization approved by the Fortis shareholders on November 13, 1996. The
acquisition was accompanied by a tax-free exchange of 9,805 shares of Fortis
Class A and 959,304 shares of Fortis Class E for 969,109 shares of New York Tax
Free Fund Class A shares, 21,763 shares of Fortis Class B and 2,028 shares of
Fortis Class H for 23,791 shares of New York Tax Free Fund Class B shares and
4,947 shares of Fortis Class C for 4,947 shares of New York Tax Free Fund Class
C shares.
Since Voyageur New York Tax Free Fund had no operations or assets and
liabilities prior to the acquisition, the Fund will retain financial history of
Fortis for financial reporting and income tax purposes. Prior to acquisition by
Voyageur, New York Fund had two additional classes of shares (Class E and H).
Fortis Class E was the equivalent of Class A except that it did not have a 12b-1
plan distribution fee of .25%, Fortis Class H and Class B were identical except
for dealer payout. Voyageur's presentation of historical information, prior to
its acquisition of the Fund, combines Class E with Class A and combines Class H
with Class B.
(5) PLANNED FUND REORGANIZATION
On January 15, 1997 Voyageur's parent, Dougherty Financial Group, Inc.
("DFG"), executed an Agreement and Plan of Merger with Lincoln National
Corporation ("LNC") pursuant to which LNC would acquire DFG, including the
mutual fund investment advisory business of DFG conducted by Voyageur. This
merger is subject to approval of the Fund's Board of Directors and shareholders.
(6) SHARE TRANSACTIONS
Transactions in shares of capital stock for the periods shown were as follows:
A SHARES
------------------------------------------
THREE MONTHS YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1995
------------- ------------- -------------
Shares sold ................. 1,014 23,378 31,562
Shares issued for
reinvested distributions . 9,603 44,599 52,503
Shares redeemed ............. (54,492) (181,528) (178,647)
-------- -------- --------
Decrease in shares
outstanding .............. (43,875) (113,551) (94,582)
======== ======== ========
B SHARES
----------------------------------------------
THREE MONTHS YEAR PERIOD FROM
ENDED ENDED NOVEMBER 14 1994*
DECEMBER 31, SEPTEMBER 30, TO SEPTEMBER 30,
1996 1996 1995
------------- ------------- ----------------
Shares sold ................. 6,492 16,347 23,788
Shares issued for
reinvested distributions . 321 983 761
Shares redeemed ............. (24,803) -- (2)
-------- -------- --------
Increase (decrease) in shares
outstanding .............. (17,990) 17,330 24,547
======== ======== ========
C SHARES
---------------------------------------------
THREE MONTHS YEAR PERIOD FROM
ENDED ENDED APRIL 26, 1995*
DECEMBER 31, SEPTEMBER 30, TO SEPTEMBER 30,
1996 1996 1995
------------- ------------- ----------------
Shares sold ................. -- -- 4,640
Shares issued for
reinvested distributions . 55 216 53
Shares redeemed ............. (7) -- (2)
-------- -------- --------
Increase in shares
outstanding .............. 48 216 4,691
======== ======== ========
- ----------------------------------
* Commencement of operations.
(7) FINANCIAL HIGHLIGHTS
Per share data (rounded to the nearest cent) for a share of capital stock
outstanding and selected information for each period are as follows:
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------
THREE MONTHS YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996(f) 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value:
Beginning of period .............. $ 10.72 $ 10.87 $ 10.74
---------- ---------- ----------
Operations:
Net investment income ............ .12 .55 .57
Net realized and unrealized
gain (loss) on investments ..... .01 (.13) .17
---------- ---------- ----------
Total from operations ........ .13 .42 .74
---------- ---------- ----------
Distributions to shareholders:
From net investment income (a) ... (.12) (.55) (.59)
In excess of net investment income -- -- --
From realized gains .............. (.04) (.02) (.02)
---------- ---------- ----------
Total distributions .......... (.16) (.57) (.61)
---------- ---------- ----------
Net asset value:
End of period .................... $ 10.69 $ 10.72 $ 10.87
========== ========== ==========
Total investment return (b) ......... 1.21% 3.94% 7.31%
Net assets at end of period
(000's omitted) .................. $ 10,044 $ 10,548 $ 11,931
Ratios:
Ratio of expenses to
average daily net assets ....... .97%(e) 1.34% 1.31%
Ratio of net investment income
to average daily net assets .... 5.31%(e) 5.14% 5.66%
Assuming no voluntary waivers
and reimbursements:
Epenses (c) .............. 1.12%(e) 1.55% 1.82%
Net investment income .... 5.16%(e) 4.93% 5.15%
Portfolio turnover rate (excluding
short-term securities) ......... 5% 12% 10%
</TABLE>
See accompanying notes to Financial Highlights.
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
THREE MONTHS
ENDED YEAR ENDED JUNE 30,
SEPTEMBER 30, --------------------------------------------
1994 1994 1993 1992
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period .............. $ 10.81 $ 11.51 $ 11.03 $ 10.57
---------- ---------- ---------- ----------
Operations:
Net investment income ............ .15 .62 .65 .66
Net realized and unrealized
gain (loss) on investments ..... (.06) (.54) .65 .62
---------- ---------- ---------- ----------
Total from operations ........ .09 .08 1.30 1.28
---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income (a) ... (.16) (.62) (.65) (.66)
In excess of net investment income -- -- (.01) --
From realized gains .............. -- (.16) (.16) (.16)
---------- ---------- ---------- ----------
Total distributions .......... (.16) (.78) (.82) (.82)
---------- ---------- ---------- ----------
Net asset value:
End of period .................... $ 10.74 $ 10.81 $ 11.51 $ 11.03
========== ========== ========== ==========
Total investment return (b) ......... .79% .63% 12.19% 12.53%
Net assets at end of period
(000's omitted) .................. $ 12,797 $ 12,851 $ 13,915 $ 14,943
Ratios:
Ratio of expenses to
average daily net assets ....... 1.09%(e) .99% .99% 1.00%
Ratio of net investment income
to average daily net assets .... 5.74%(e) 5.55% 5.74% 6.15%
Assuming no voluntary waivers
and reimbursements:
Epenses (c) .............. 1.09%(e) 1.09% 1.05% 1.26%
Net investment income .... 5.74%(e) 5.45% 5.68% 5.89%
Portfolio turnover rate (excluding
short-term securities) ......... 0% 4% 17% 19%
</TABLE>
See accompanying notes to Financial Highlights.
NEW YORK TAX FREE FUND
-------------------------------------------
CLASS B
-------------------------------------------
THREE PERIOD FROM
MONTHS YEAR, NOVEMBER 14,
ENDED ENDED 1994(d) TO
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996(f) 1996 1995
------------ ------------- -------------
Net asset value:
Beginning of period ............ $ 10.69 $ 10.84 $ 10.34
------- ------- -------
Operations:
Net investment income .......... .10 .47 .43
Net realized and unrealized
gain (loss) on investments ... -- (.13) .54
------- ------- -------
Total from operations ...... .10 .34 .97
------- ------- -------
Distributions to shareholders:
From net investment income (a) . (.10) (.47) (.45)
From net realized gains ........ (.04) (.02) (.02)
------- ------- -------
Total distributions .......... (.14) (.49) (.47)
------- ------- -------
Net asset value:
End of period .................. $ 10.65 $ 10.69 $ 10.84
======= ======= =======
Total investment return (b) ....... .95% 3.14% 9.46%
Net assets at end of
period (000's omitted) ......... $ 254 $ 448 $ 266
Ratios:
Ratio of expenses to
average daily net assets ..... 1.87%(e) 2.09% 2.09%(e)
Ratio of net investment income
to average daily net assets .. 4.43%(e) 4.39% 4.68%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (c) ........... 2.00%(e) 2.30% 2.60%(e)
Net investment income .. 4.30%(e) 4.18% 4.17%(e)
Portfolio turnover rate (excluding
short-term securities) ......... 5% 12% 10%
See accompanying notes to Financial Highlights.
NEW YORK TAX FREE FUND
------------------------------------------
CLASS C
------------------------------------------
THREE PERIOD FROM
MONTHS YEAR, APRIL 26,
ENDED ENDED 1995(d) TO
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996(f) 1996 1995
------------ ------------- -------------
Net asset value:
Beginning of period ............. $10.70 $10.85 $10.79
------ ------ ------
Operations:
Net investment income ........... .10 .47 .21
Net realized and unrealized
gain (loss) on investments .... -- (.13) .06
------ ------ ------
Total from operations ....... .10 .34 .27
------ ------ ------
Distributions to shareholders:
From net investment income (a) .. (.10) (.47) (.21)
From net realized gains ......... (.04) (.02) --
------ ------ ------
Total distributions ........... (.14) (.49) (.21)
------ ------ ------
Net asset value:
End of period ................... $10.66 $10.70 $10.85
====== ====== ======
Total investment return (b) ........ .95% 3.14% 2.54%
Net assets at end of
period (000's omitted) .......... $ 53 $ 52 $ 51
Ratios:
Ratio of expenses to
average daily net assets ...... 1.84%(e) 2.09% 2.09%(e)
Ratio of net investment income
to average daily net assets ... 4.45%(e) 4.39% 4.44%(e)
Assuming no voluntary waivers
and reimbursements:
Expenses (c) ............ 2.00%(e) 2.30% 2.60%(e)
Net investment income ... 4.29%(e) 4.18% 3.93%(e)
Portfolio turnover rate (excluding
short-term securities) .......... 5% 12% 10%
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.
(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 the period ended December 31, 1996. The annual
contractual expense limit for the Fund (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 the Fund's average daily net assets for Class A Shares and
1.00% of the Fund's average daily net assets for Class B and Class C
Shares.
(d) Commencement of operations.
(e) Adjusted to an annual basis.
(f) Effective November 16, 1996, the Fund's shareholders approved a change of
investment advisor from Fortis Advisers, Inc. to Voyageur Fund Managers,
Inc.
<TABLE>
<CAPTION>
VOYAGEUR NEW YORK TAX FREE FUND
INVESTMENTS IN SECURITIES DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (d) RATE MATURITY VALUE (a)
- ---------------------------------------------------------------------------------------------------------------
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
MUNICIPAL BONDS (100.3%):
GENERAL OBLIGATION (8.3%):
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 550 Albany County Public Impt Series B..................................... 5.60% 03-15-16 $ 552,750
300 New York City Series A................................................. 5.88 08-01-03 310,125
-----------
862,875
-----------
HEALTHCARE (3.1%):
------------------------------------------------------------------------------------------------------
305 State Medical Care Facility Finance Agency Revenue.................... 7.70 02-15-18 320,250
-----------
HOUSING (19.4%):
------------------------------------------------------------------------------------------------------
400 New York State City University Dorm Authority Revenue Series A....... 8.13 07-01-07 431,000
250 New York State University Dorm Authority Revenue..................... 5.90 02-15-12 247,188
770 New York State University Dorm Authority Revenue..................... 7.50 05-15-11 899,938
410 State Homeowner Mortage Agency Revenue Series BB2.................... 7.85 10-01-08 425,855
-----------
2,003,981
-----------
INDUSTRIAL (2.4%):
------------------------------------------------------------------------------------------------------
250 Westchester County Wheelabrator Tech.................................5.50(e)(f) 07-01-09 245,573
-----------
OTHER REVENUE (7.5%):
------------------------------------------------------------------------------------------------------
250 New York City Municipal Assist Corporation Series 67................ 7.63 07-01-08 273,125
500 United Nations Development Corporation Revenue...................... 6.00 07-01-12 509,375
-----------
782,500
-----------
ESCROWED WITH U.S. GOVERNMENT BONDS (44.7%):
------------------------------------------------------------------------------------------------------
290 Babylon Industrial Development Agency ............................. 8.10 01-01-00 315,012
405 Babylon Industrial Development Agency.............................. 8.50 01-01-19 441,955
690 New York City Prerefunded Series F................................. 8.25 11-15-01 808,163
716 New York State University Dorm Authority Revenue................... 7.80 12-01-98 764,330
250 North Hempstead, Series A (FGIC Insured)........................... 7.25 04-01-99 270,937
600 State Local Assistance Corporation................................. 7.50 04-01-20 679,500
600 State Medical Care Facility Finance Agency Revenue................. 7.45 02-15-00 665,250
600 State Urban Development Corporation Revenue........................ 7.38 01-01-02 684,750
-----------
4,629,897
-----------
TRANSPORTATION (14.9%):
------------------------------------------------------------------------------------------------------
500 Metropolitan Transit Authority New York Service Contract........... 5.75 07-01-13 498,750
500 State Authority Service Contract Revenue........................... 6.25 04-01-14 513,750
500 Triborough Bridge and Tunnel Authority Revenue..................... 8.13 01-01-12 527,455
-----------
1,539,955
-----------
TOTAL MUNICIPAL BONDS (cost: $9,600,318) 10,385,031
-----------
SHORT-TERM SECURITIES (2.8%):
------------------------------------------------------------------------------------------------------
294 Dreyfus Investment Tax-Exempt Money Market Fund (cost: $293,800).....3.69(b) 293,800
-----------
TOTAL INVESTMENTS IN SECURITIES (cost: $9,894,118) (c) $10,678,831
===========
</TABLE>
See accompanying notes to investments in securities.
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in note 1 to the financial
statements.
(b) Dividend yields change daily to reflect current market conditions. Rate
shown is the quoted yield as of December 31, 1996.
(c) Also represents the cost of securities for federal income tax purposes. The
aggregate gross unrealized appreciation and depreciation in securities
based on this cost are as follows:
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation (Depreciation) Appreciation
------------ -------------- ------------
$785,046 $(333) $784,713
(d) Investments in bonds, by rating category (unaudited) as a percentage of
total bonds, are as follows:
Aaa/AAA Aa/AA A/A Baa/BBB Total
------- ----- --- ------- -----
50% 7% 12% 31% 100%
(e) Security subject to the Alternative Minimum Tax and is equal to 2.4% of the
Fund's total net assets as of December 31, 1996.
(f) At December 31, 1996, the cost of securities purchased on a when-issued
basis was $493,093.
FEDERAL INCOME TAX INFORMATION
- --------------------------------------------------------------------------------
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the periods ended
December 31, 1996. Net investment income distributions exempt from federal
income tax should not be included in shareholder's gross income, but are
reported on the federal income tax return for informational purposes.
Information needed by shareholders for income tax purposes was sent to them in
January 1997. Shareholders should consult a tax adviser on how to report these
distributions for state and local purposes.
<TABLE>
<CAPTION>
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
------------ ------------ ------------
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net investment income distributions per share
(none qualifying for corporate dividend
received deduction) .................... $.1201 $.1027 $.1027
Short-term capital gain distributions ....... .0051 .0051 .0051
Long-term capital gain distributions ........ .0338 .0338 .0338
------ ------ ------
Total distribution ....................... $.1590 $.1416 $.1416
====== ====== ======
</TABLE>
The short-term capital gain distributions above are taxable as ordinary income
to shareholders for federal and state income tax purposes.
For federal income tax purposes, 100% of the above net investment income
distributions were derived from interest on securities exempt from federal
income tax.
VOYAGEUR ON CALL(TM)
[Line Drawing of a telephone]
800.545.3863
We invite you to use the Voyaguer interactive voice response system, Voyageur On
Call(TM) (800.545.3863). The system is designed to give you information about
the Fund(s) in your account. It can also provide price and yield information for
the Fund(s). 24-hour access available to Touch Tone telephones only.
VOYAGEUR
YOUR TAX SENSITIVE INVESTMENT MANAGER
90 South Seventh Street, Suite 4400
Minneapolis, Minnesota 55402-4115
VOY-NYAR 3/97
