VOYAGEUR
YOUR TAX SENSITIVE INVESTMENT MANAGER
IOWA 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> <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> <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 concerning this transaction or your Voyageur fund investment.
Sincerely,
/s/John G. Taft
John G. Taft
President
Voyageur Iowa Tax Free Fund
VOYAGEUR IOWA TAX FREE FUND
For the year ended December 31, 1996, the total return at net asset value (NAV)
for the class A shares of the Voyageur Iowa Tax Free Fund was 2.56%.*
We continue to manage the Voyageur Iowa Tax Free Fund with a dual focus of
generating higher tax-exempt income levels and protecting future income streams.
By elevating portfolio income, we were able to accomplish two important things.
First, we were able to provide our shareholders with competitive distribution
rates. Second, these higher income levels created a valuable cushion against
market declines -- such as those we witnessed during the first half of 1996.
In order to attempt to better provide for current income level for longer
periods of time, we have continued to take advantage of opportunities to extend
the Fund's call protection whenever possible.
OUTLOOK
Overall, the U.S. economy is still showing signs of moderate growth with
moderate inflation. Our outlook for the municipal market continues to be
favorable, and we expect interest rates to decline over the long term.
STEVEN P. ELDREDGE IS THE
SENIOR MUNICIPAL BOND
MANAGER FOR THE VOYAGEUR
IOWA TAX FREE FUND. MR.
ELDREDGE HAS MORE THAN 18
YEARS OF INVESTMENT INDUSTRY
EXPERIENCE.
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
VOYAGEUR IOWA TAX FREE FUND
Portfolio Abstract
For the Period Ended December 31, 1996
CLASS A SHARES
[GRAPH]
<TABLE>
<CAPTION>
IA Tax Free IA Tax Free Lehman Bros. 20
Without Sales Charge With Sales Charge Year Municipal Bond Index
<S> <C> <C> <C>
Sept-93 10000 9625 10000
10147 9767 10126
10190 9808 10144
10001 9626 10032
Dec-93 10214 9831 10274
10306 9920 10403
10000 9625 10094
9620 9259 9562
9537 9179 9641
9701 9337 9755
9617 9257 9657
9743 9377 9878
9732 9367 9906
9521 9164 9708
9215 8869 9451
8971 8634 9230
Dec-94 9162 8818 9520
9407 9055 9892
9816 9448 10251
9955 9582 10368
9997 9622 10366
10324 9936 10757
10191 9809 10591
10289 9903 10646
10344 9956 10792
10410 10019 10878
10609 10211 11109
10855 10448 11355
Dec-95 11067 10652 11514
11089 10674 11573
10938 10528 11441
10640 10241 11258
10590 10193 11213
10609 10211 11226
10698 10296 11384
10786 10382 11496
10840 10433 11477
11058 10643 11709
11159 10741 11850
11390 10963 12097
Dec-96 11351 10925 12026
</TABLE>
Voyageur Iowa Tax Free Fund Without Sales Charge - Ending Value $11,351
Voyageur Iowa Tax Free Fund With Sales Charge - Ending Value $10,926
Lehman Bros. 20 Year Municipal Bond Index - Ending Value $12,026
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 Iowa Tax Free Fund
Average Annual Total Returns
(Class A Shares)
Since
1 Year 9/1/93**
Without Sales Charge 2.56% 3.87%
With Sales Charge* (1.29%) 2.69%
Lehman Bros. 20 4.45% 5.69%
Year Municipal
Bond Index
Voyageur Iowa Tax Free Fund
Average Annual Total Returns
(Class B Shares)
Since
1 Year 3/24/95**
Without Contingent 1.76% 6.88%
Deferred Sales Charge
With Contingent (3.24%) 4.73%
Deferred Sales Charge***
Voyageur Iowa Tax Free Fund
Average Annual Total Returns
(Class C Shares)
Since
1 Year 1/4/95**
1.56% 10.27%
Quality Breakdown
[PIE CHART]
Aa/AA 2%
Baa/BBB 8%
Aaa/AAA 21%
A/A 69%
Sector Breakdown
(shown as % of total net assets)
Utilities 31.8%
Industrial 23.3%
Other Revenue 13.0%
Transportation 12.0%
Education 9.1%
Pre-Refunded/Escrow 4.3%
HealthCare 3.0%
Housing 2.4%
Statistics
Average Maturity 16.7 Years
Average Coupon 5.64%
Portfolio Duration 10.1 Years
Average Quality A/A
INDEPENDENT AUDITORS' 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 Iowa Tax Free
Fund (a fund within Voyageur Mutual Funds, Inc.) as of December 31, 1996, and
the related statement of operations for the year then ended and the statements
of changes in net assets for each of the years in the two-year period ended
December 31, 1996 and financial highlights for the years ended December 31, 1996
and 1995, the four-month period ended December 31, 1994 and the year ended
August 31, 1994. 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 audit.
We conducted our audit 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investment securities
held in custody are confirmed to us by the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of Voyageur Iowa 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
<TABLE>
<CAPTION>
VOYAGEUR IOWA TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at market value (note 1)
(identified cost: $41,050,168) ................................. $ 41,906,262
Accrued interest receivable ....................................... 808,530
Receivable for Fund shares sold ................................... 9,629
Organizational costs (note 4) ..................................... 11,081
------------
Total assets ................................................. 42,735,502
------------
LIABILITIES
Bank overdraft .................................................... 125,012
Dividends payable to shareholders ................................. 161,686
Payable for Fund shares redeemed .................................. 67,768
Distribution fees payable ......................................... 10,787
Other accrued expenses ............................................ 17,660
------------
Total liabilities ............................................ 382,913
------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES ....................... $ 42,352,589
============
Represented by:
Capital Stock - $.01 par value (note 1) ........................ $ 44,047
Additional paid-in capital ..................................... 43,239,285
Undistributed net investment income ............................ 3,486
Accumulated net realized loss on investments (note 1) .......... (1,790,323)
Unrealized appreciation of investments ......................... 856,094
------------
TOTAL NET ASSETS ............................................. $ 42,352,589
============
Net assets applicable to outstanding Class A Shares ............... $ 40,037,169
============
Net assets applicable to outstanding Class B Shares ............... $ 1,645,131
============
Net assets applicable to outstanding Class C Shares ............... $ 670,289
============
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE
Class A - 4,163,834 Shares of Capital Stock outstanding (note 6) $ 9.62
============
Class B - 171,173 Shares of Capital Stock outstanding (note 6) . $ 9.61
============
Class C - 69,744 Shares of Capital Stock outstanding (note 6) .. $ 9.61
============
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR IOWA TAX FREE FUND
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------
<S> <C>
Investment income:
Interest........................................................... $2,430,645
----------
Expenses (note 3):
Investment advisory and management fee ............................. 217,160
Dividend-disbursing, administrative and accounting services fees ... 93,979
Distribution fee - Class A ......................................... 103,980
Distribution fee - Class B ......................................... 12,291
Distribution fee - Class C ......................................... 6,075
Printing, postage and supplies ..................................... 6,706
Audit and accounting fees .......................................... 11,145
Legal fees ......................................................... 436
Directors' fees .................................................... 2,023
Registration fees .................................................. 2,362
Custodian fees ..................................................... 9,705
Amortization of organizational costs ............................... 6,648
Other .............................................................. 1,794
-----------
Total expenses ................................................ 474,304
Less: Expenses waived or absorbed ................................. (63,179)
-----------
Total net expenses ............................................ 411,125
-----------
Investment income - net ....................................... 2,019,520
-----------
Realized and unrealized gain (loss) on investments:
Realized loss on security transactions (note 2) .................... (201,680)
Net change in unrealized appreciation or depreciation of investments (803,926)
-----------
Net loss on investments ....................................... (1,005,606)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $ 1,013,914
===========
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR IOWA TAX FREE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
Operations: 1996 1995
------------ ------------
<S> <C> <C>
Investment income - net ................................. $ 2,019,520 $ 1,883,413
Realized loss security transactions ..................... (201,680) (210,045)
Net change in unrealized appreciation or depreciation of
investments .......................................... (803,926) 5,476,857
------------ ------------
Net increase in net assets resulting from operations 1,013,914 7,150,225
------------ ------------
Distributions to shareholders from:
Investment income - net:
Class A ............................................... (1,953,806) (1,930,689)
Class B ............................................... (48,161) (10,623)
Class C ............................................... (22,832) (8,928)
------------ ------------
Total distributions ................................. (2,024,799) (1,950,240)
------------ ------------
Capital share transactions (note 6):
Proceeds from sale of shares:
Class A (note 3) ...................................... 5,783,953 8,551,193
Class B ............................................... 791,024 774,814
Class C ............................................... 262,735 436,983
Net asset value of shares issued in reinvestment
of net investment income distributions:
Class A ............................................. 1,284,358 1,262,488
Class B ............................................. 37,397 7,327
Class C ............................................. 4,155 1,141
Payments for redemption of shares:
Class A ............................................... (8,405,045) (4,952,018)
Class B ............................................... -- (9)
Class C ............................................... (49,832) (9)
------------ ------------
Increase (decrease) in net assets from capital share
transactions .......................................... (291,255) 6,081,910
------------ ------------
Total increase (decrease) in net assets ............. (1,302,140) 11,281,895
Net assets at beginning of period .......................... 43,654,729 32,372,834
------------ ------------
Net assets at end of period (including undistributed net
investment income of $3,486, and $5,656, respectively) $ 42,352,589 $ 43,654,729
============ ============
See accompanying notes to financial statements.
</TABLE>
VOYAGEUR IOWA TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Voyageur Iowa 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 a non-diversified, 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 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.
The significant accounting policies followed by the Fund are summarized as
follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of net increase (decrease) in net assets resulting from
operations during the reporting period. Actual results could differ from those
estimates.
INVESTMENTS IN SECURITIES
The values of fixed income securities are determined using pricing services
or prices quoted by independent brokers. When market quotations are not readily
available, or in certain other circumstances, securities are valued at fair
value according to methods selected in good faith by the Board of Directors.
Short-term securities are valued at amortized cost which approximates market
value.
Security transactions are accounted for on the 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 capital loss carryovers of
$1,658,322 at December 31, 1996, that will expire in 2001 through 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.
On the statement of assets and liabilities, as a result of permanent
book-to-tax differences, reclassification adjustments have been made to increase
undistributed net investment income and decrease additional paid-in capital by
$3,109 for the Fund.
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 $6,226,327 and $6,302,425 respectively, for the
year 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%. 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 year ended December 31, 1996, Voyageur
voluntarily absorbed $5,000, excluding waiver of distribution fees.
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. During the year ended
December 31, 1996, Fund Distributors voluntarily waived Class A distribution
fees of $55,582, Class B distribution fees of $2,296 and Class C distribution
fees of $301.
Sales charges paid by Class A shareholders were $167,735. Of this amount,
Fund Distributors received $26,641.
(4) ORGANIZATIONAL COSTS
Organizational costs are being amortized over 60 months on a straight line
basis. If Voyageur redeems any or all of its shares in the Fund representing
initial capital prior to the end of the 60-month amortization period, Voyageur
will reimburse the Fund for the unamortized balance in the same proportion as
the number of shares redeemed bear to the number of initial shares outstanding
at the time of redemption.
(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 during each period were as follows:
<TABLE>
<CAPTION>
CLASS A
-------------------------------
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Shares sold.......................................... 609,767 922,331
Shares issued for
reinvested distributions.......................... 135,685 136,932
Shares redeemed...................................... (890,441) (530,158)
----------- ----------
Increase (decrease) in shares outstanding............ (144,989) 529,105
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
----------------------------- ------------------------------
PERIOD FROM PERIOD FROM
YEAR MARCH 24, YEAR JANUARY 4,
ENDED 1995* TO ENDED 1995* TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares sold............................. 83,915 82,523 27,546 46,867
Shares issued for
reinvested distributions............. 3,959 777 441 121
Shares redeemed......................... -- (1) (5,230) (1)
--------- --------- -------- ---------
Increase in shares outstanding.......... 87,874 83,299 22,757 46,987
========= ========= ======== =========
- ---------------------------------
* Commencement of operations.
</TABLE>
(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
--------------------------------------------------------------
YEAR YEAR FOUR MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, AUGUST 31,
1996 1995 1994 1994
------------ ------------ ------------- ----------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period ............. $ 9.83 $ 8.56 $ 9.26 $ 10.00
---------- ---------- ---------- ----------
Operations:
Net investment income ........... .44 .45 .17 .49
Net realized and unrealized
gain (loss) on investments .... (.21) 1.29 (.72) (.74)
---------- ---------- ---------- ----------
Total from operations ....... .23 1.74 (.55) (.25)
---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income (a) .. (.44) (.47) (.15) (.49)
---------- ---------- ---------- ----------
Total distributions ........... (.44) (.47) (.15) (.49)
---------- ---------- ---------- ----------
Net asset value:
End of period ................... $ 9.62 $ 9.83 $ 8.56 $ 9.26
========== ========== ========== ==========
Total investment return (b) ........ 2.56% 20.80% (5.86)% (2.67)%
Net assets at end of period
(000's omitted) ................. $ 40,037 $ 42,374 $ 32,373 $ 38,669
Ratios:
Ratio of expenses to average
daily net assets (f) .......... .92% .72% .11%(d) .12%
Ratio of net investment income to
average daily net assets ...... 4.68% 4.88% 5.71%(d) 4.89%
Assuming no voluntary waivers
and reimbursements:
Expenses (c) ............ 1.06% 1.06% 1.25%(d) 1.25%
Net investment income ... 4.54% 4.54% 4.57%(d) 3.76%
Portfolio turnover rate
(excluding short-term securities) 14.56% 21.67% 7.18% 119.35%
See accompanying notes to Financial Highlights.
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------- --------------------------
PERIOD FROM PERIOD FROM
YEAR MARCH 24, YEAR JANUARY 4,
ENDED 1995(e) TO ENDED 1995(e) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period ............. $ 9.83 $ 9.18 $ 9.83 $ 8.55
--------- --------- --------- ---------
Operations:
Net investment income ........... .38 .31 .36 .37
Net realized and unrealized
gain (loss) on investments .... (.22) .64 (.22) 1.28
--------- --------- --------- ---------
Total from operations ....... .16 .95 .14 1.65
--------- --------- --------- ---------
Distributions to shareholders:
From net investment income (a) .. (.38) (.30) (.36) (.37)
--------- --------- --------- ---------
Total distributions ........... (.38) (.30) (.36) (.37)
--------- --------- --------- ---------
Net asset value:
End of period ................... $ 9.61 $ 9.83 $ 9.61 $ 9.83
========= ========= ========= =========
Total investment return (b) ........ 1.76% 10.62% 1.56% 19.66%
Net assets at end of period
(000's omitted) ................. $ 1,645 $ 819 $ 670 $ 462
Ratios:
Ratio of expenses to average
daily net assets (f) .......... 1.61% 1.28%(d) 1.75% 1.61%(d)
Ratio of net investment income to
average daily net assets ...... 3.97% 4.06%(d) 3.82% 3.74%(d)
Assuming no voluntary waivers
and reimbursements:
Expenses (c) ............ 1.81% 1.65%(d) 1.81% 1.72%(d)
Net investment income ... 3.77% 3.69%(d) 3.76% 3.63%(d)
Portfolio turnover rate
(excluding short-term securities) 14.56% 21.67% 14.56% 21.67%
See accompanying notes to Financial Highlights.
</TABLE>
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 periods presented. 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 C Shares.
(d) Annualized.
(e) Commencement of operations.
(f) Beginning in the year ended December 31, 1995, the expense ratio reflects
the effect of gross expenses attributable to earnings credits on uninvested
cash balances received by the Fund. Prior period expense ratios have not
been adjusted.
<TABLE>
<CAPTION>
VOYAGEUR IOWA TAX FREE FUND
INVESTMENTS IN SECURITIES DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (c) RATE MATURITY VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
MUNICIPAL BONDS (98.9%):
ESCROWED WITH U.S. GOVERNMENT BONDS (4.3%):
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,500 Virgin Island Public Finance Authority............................. 7.30% 10-01-18 $ 1,837,590
-----------
UTILITIES (31.8%):
------------------------------------------------------------------------------------------------------
7,700 Iowa Finance Authority-State Revolving Fund Revenue................ 5.20 05-01-23 7,420,875
1,750 Iowa Finance Authority-State Revolving Fund Revenue................ 6.25 05-01-24 1,859,375
1,000 Puerto Rico Electric Power Authority Revenue....................... 6.25 07-01-17 1,027,610
1,100 Puerto Rico Electric Power Authority Revenue....................... 6.00 07-01-14 1,109,482
2,120 Puerto Rico Telephone Authority Revenue............................ 5.50 01-01-22 2,058,096
-----------
13,475,438
-----------
TRANSPORTATION (12.0%):
------------------------------------------------------------------------------------------------------
1,450 Guam Highway (FSA Insured)....................................... 6.30 05-01-12 1,541,408
1,500 Puerto Rico Commonwealth Highway and Transportation Revenue ..... 5.25 07-01-21 1,394,670
500 Puerto Rico Commonwealth Highway and Transportation Revenue...... 5.00 07-01-22 448,315
400 Puerto Rico Commonwealth Highway and Transportation Revenue ..... 5.50 07-01-26 384,228
1,275 Puerto Rico Port Authority Revenue, Special Facility-American
Airlines...................................................... 6.25(d) 06-01-26 1,300,436
-----------
5,069,057
-----------
INDUSTRIAL (23.3%):
------------------------------------------------------------------------------------------------------
2,000 Iowa Finance Authority-Correctional Facility Revenue............. 5.70 06-15-14 2,021,260
7,500 Iowa Finance Authority-Underground Storage Tank Revenue.......... 5.13 07-01-14 7,303,125
500 Lee County Urban Renewal Revenue - Keokuk Waste Treatment........ 6.40 06-01-07 529,845
-----------
9,854,230
-----------
EDUCATION (9.1%):
------------------------------------------------------------------------------------------------------
500 State University of Iowa-Board of Regents........................ 5.30 07-01-13 497,500
475 University of Northern Iowa - Board of Regents................... 4.63 07-01-10 448,281
515 University of Northern Iowa - Board of Regents................... 4.63 07-01-11 482,169
150 University of Northern Iowa - Board of Regents................... 5.00 07-01-11 146,063
160 University of Northern Iowa - Board of Regents................... 5.00 07-01-12 154,800
170 University of Northern Iowa - Board of Regents................... 5.00 07-01-13 163,413
180 University of Northern Iowa - Board of Regents................... 5.00 07-01-14 172,800
180 University of Northern Iowa - Board of Regents................... 5.00 07-01-15 171,450
150 University of Northern Iowa - Board of Regents................... 5.30 07-01-13 149,250
1,000 University of Puerto Rico Revenue (MBIA Insured)................. 5.50 06-01-15 1,003,750
500 University of Puerto Rico Revenue (MBIA Insured)................. 5.35 06-01-25 484,375
-----------
3,873,851
-----------
HOUSING (2.4%):
------------------------------------------------------------------------------------------------------
1,000 Puerto Rico Single Family Housing Bank and Finance Agency
(GNMA Insured)................................................ 6.25(d) 04-01-29 1,004,680
-----------
HEALTH CARE (3.0%):
------------------------------------------------------------------------------------------------------
1,200 Puerto Rico Hospital Revenue - Hospital Auxilio Mutuo
(MBIA Insured)................................................ 6.25 07-01-24 1,273,500
-----------
OTHER REVENUE (13.0%):
------------------------------------------------------------------------------------------------------
675 Puerto Rico Educational Facility Revenue-Polytechnic University.. 6.50 08-01-24 684,551
1,700 Puerto Rico Municipal Finance Authority (FSA Insured)............ 6.00 07-01-14 1,765,875
1,000 Puerto Rico Public Building Authority Revenue Series M........... 5.75 07-01-15 1,003,320
1,000 Puerto Rico Public Building Authority Revenue Series L........... 5.75 07-01-16 1,002,450
1,100 Puerto Rico Public Building Authority Revenue Series M........... 5.50 07-01-21 1,061,720
-----------
5,517,916
-----------
TOTAL INVESTMENTS IN SECURITIES (cost: $41,050,168) (b) $41,906,262
===========
See accompanying notes to investments in securities.
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES
(a) Securities are valued by procedures described in note 1 to the financial
statements.
(b) The cost of securities for federal income tax purposes is $41,182,170. The
aggregate gross unrealized appreciation and depreciation of securities
based on this cost are as follows:
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation Depreciation Appreciation
------------ ------------ ------------
$1,110,347 $(386,255) $724,092
(c) 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
------- ----- --- ------- -----
22% 1% 69% 8% 100%
(d) Security subject to the Alternative Minimum Tax. The total of such
securities is equal to 5.4% of the Fund's total net assets as of December
31, 1996.
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 shown below. Exempt interest dividends are exempt from federal
income tax and should not be included in shareholder's gross income, but need to
be reported on the income tax return for informational purposes. Each
shareholder should consult a tax adviser about reporting this income for state
and local purposes. In January 1997, the Fund separately provided each
shareholder with tax information for calendar year 1996.
<TABLE>
<CAPTION>
PER CLASS PER CLASS PER CLASS
A SHARE B SHARE C SHARE
------------ ------------ ---------
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1996 1996
------------ ------------ ---------
<S> <C> <C> <C>
Net investment income distributions
(none qualifying for corporate dividend
received deduction)........................... $.4437 $.3790 $.3601
====== ====== ======
</TABLE>
For federal income tax purposes, 99.99% 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-IAAR 3/97
