VOYAGEUR
YOUR TAX SENSITIVE INVESTMENT MANAGER
WISCONSIN 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 have concerning this transaction or your Voyageur fund
investment.
Sincerely,
/s/ John G. Taft
John G. Taft
President
Voyageur Wisconsin Tax Free Fund
VOYAGEUR WISCONSIN TAX FREE FUND
[PHOTO]
STEVEN P. ELDREDGE IS THE
SENIOR MUNICIPAL BOND
MANAGER FOR THE VOYAGEUR
WISCONSIN 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 Wisconsin Tax Free Fund was 3.49%.*
We continue to manage the Voyageur Wisconsin Tax Free Fund with a dual focus of
generating higher tax-exempt income levels and protecting future income streams.
By elevating portfolio income, we are 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 better provide the 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.
In 1996, we saw an increase in the supply of Wisconsin municipal bonds due, in
part, to an increase in housing refundings. This increased activity benefitted
Fund shareholders.
Due to a general lack of double-exempt issuers in the state of Wisconsin, there
is normally a limited supply of double-exempt bonds available. In order to fill
this gap, U.S. territorial securities typically make up a significant percentage
of the Fund's holdings. The increase in supply of Wisconsin municipal bonds
allowed us to decrease the amount of territorial holdings in the portfolio from
39.9% of total net assets on December 31, 1995 to 29.9% on December 31, 1996.
By purchasing these housing bonds, we have also been able to add income to the
Fund's portfolio. This additional income should also assist in dampening the
effects of market volatility on the portfolio.
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.
*PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
0
VOYAGEUR WISCONSIN TAX FREE FUND
Portfolio Abstract
For the Period Ended December 31, 1996
CLASS A SHARES
[GRAPH]
<TABLE>
<CAPTION>
WI Tax Free WI Tax Free Lehman Bros. 20 Year
Without Sales Charge With Sales Charge Municipal Bond Index
<S> <C> <C> <C>
Sept-93 10000 9625 10000
10079 9701 10126
10142 9762 10144
10014 9638 10032
Dec-93 10208 9825 10274
10300 9914 10403
10097 9718 10094
9760 9394 9562
9646 9284 9641
9697 9334 9755
9603 9243 9657
9770 9404 9878
9759 9393 9906
9622 9261 9708
9410 9057 9451
9198 8853 9230
Dec-94 9357 9006 9520
9668 9305 9892
10012 9636 10251
10109 9729 10368
10140 9760 10366
10391 10001 10757
10291 9906 10591
10346 9958 10646
10446 10054 10792
10558 10162 10878
10714 10312 11109
10894 10485 11355
Dec-95 11018 10604 11514
11075 10659 11573
11005 10592 11441
10810 10405 11258
10774 10370 11213
10784 10379 11226
10863 10456 11384
10942 10532 11496
10975 10563 11477
11102 10685 11709
11241 10819 11850
11403 10976 12097
Dec-96 11402 10974 12026
</TABLE>
Voyageur Wisconsin Tax Free Fund Without Sales Charge - Ending Value $11,402
Voyageur Wisconsin Tax Free Fund With Sales Charge - Ending Value $10,975
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 Wisconsin Tax Free Fund
Average Annual Total Returns
(Class A Shares)
Since
1 Year 9/1/93**
Without Sales Charge 3.49% 4.01%
With Sales Charge* (0.40%) 2.83%
Lehman Bros. 20 4.45% 5.69%
Year Municipal
Bond Index
Voyageur Wisconsin Tax Free Fund
Average Annual Total Returns
(Class B Shares)
Since
1 Year 4/22/95**
Without Contingent 2.84% 5.84%
Deferred Sales Charge
With Contingent (2.16%) 3.56%
Deferred Sales Charge***
Voyageur Wisconsin Tax Free Fund
Average Annual Total Returns
(Class C Shares)
Since
1 Year 3/28/95**
2.74% 6.09%
Quality Breakdown
[PIE CHART]
Baa/BBB 7%
Ba/BB 8%
Aa/AA 10%
NR/NR 23%
Aaa/AAA 23%
A/A 29%
Sector Breakdown
(shown as % of total net assets)
Housing 22.7%
Other Revenue 18.1%
Industrial 17.9%
Lease/C.O.P. 15.9%
Utilities 7.4%
Pre-Refunded/Escrow 6.4%
Health Care 2.8%
Transportation 1.8%
Education 1.7%
General Obligation 1.2%
Statistics
Average Maturity 13.6 Years
Average Coupon 6.09%
Portfolio Duration 8.3 Years
Average Quality Baa/BBB
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 Wisconsin 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, the statements
of changes in net assets for each of the years in the two-year period ended
December 31, 1996 and the financial highlights for each of the years in the
two-year period ended December 31, 1996, 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 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 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 referred to above present fairly,
in all material respects, the financial position of Voyageur Wisconsin Tax Free
Fund at December 31, 1996 and the results of its operations for the year then
ended, 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 WISCONSIN TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1996
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments in securities, at market value (note 1)
(identified cost: $28,790,059) .................................. $ 29,758,303
Cash in bank on demand deposit ..................................... 47,935
Accrued interest receivable ........................................ 431,528
Receivable for Fund shares sold .................................... 100,680
Organizational costs (note 4) ...................................... 5,039
------------
Total assets .................................................... 30,343,485
------------
LIABILITIES
Dividends payable to shareholders .................................. 119,234
Payable for Fund shares redeemed ................................... 7,527
Distribution fees payable .......................................... 9,522
Other accrued expenses ............................................. 20,572
------------
Total liabilities ............................................... 156,855
------------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES ........................ $ 30,186,630
============
Represented by:
Capital Stock - $.01 par value (note 1) ......................... $ 31,325
Additional paid-in capital ...................................... 29,773,262
Undistributed net investment income ............................. 42,880
Accumulated net realized loss on investments (note 1) ........... (629,081)
Unrealized appreciation of investments .......................... 968,244
------------
NET ASSETS .................................................... $ 30,186,630
============
Net assets applicable to outstanding Class A Shares ................ $ 28,292,440
============
Net assets applicable to outstanding Class B Shares ................ $ 1,339,330
============
Net assets applicable to outstanding Class C Shares ................ $ 554,860
============
SHARES OUTSTANDING AND NET ASSET VALUE PER SHARE:
Class A - Shares of Capital Stock outstanding: 2,936,014 (note 6) $ 9.64
============
Class B - Shares of Capital Stock outstanding: 139,085 (note 6) . $ 9.63
============
Class C - Shares of Capital Stock outstanding: 57,445 (note 6) .. $ 9.66
============
</TABLE>
See accompanying notes to financial statements.
VOYAGEUR WISCONSIN TAX FREE FUND
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996
- -------------------------------------------------------------------------
Investment income:
Interest ........................................ $ 1,662,237
-----------
Expenses (note 3):
Investment advisory and management fee .......... 141,262
Dividend-disbursing, administrative and
accounting services fees ...................... 67,833
Distribution fees - Class A ..................... 67,339
Distribution fees - Class B ..................... 9,369
Distribution fees - Class C ..................... 3,603
Printing, postage and supplies .................. 5,200
Audit and accounting fees ....................... 8,045
Legal fees ...................................... 295
Directors' fees ................................. 1,848
Registration fees ............................... 3,189
Custodian fees .................................. 3,667
Amortization of organizational costs ............ 3,023
Other ........................................... 3,223
-----------
Total expenses ................................ 317,896
Less: Expenses waived or absorbed .............. (31,850)
-----------
Total net expenses ............................ 286,046
-----------
Investment income - net ....................... 1,376,191
-----------
Realized and unrealized gain (loss) on investments:
Realized gain on security transactions (note 2) . 88,723
Net change in unrealized appreciation or
depreciation of investments ................... (417,975)
-----------
Net loss on investments ..................... (329,252)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,046,939
===========
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
VOYAGEUR WISCONSIN 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 ............................................... $ 1,376,191 $ 1,246,060
Realized gain (loss) on security transactions ......................... 88,723 (183,524)
Net change in unrealized appreciation or
depreciation of investments ......................................... (417,975) 2,806,731
------------ ------------
Net increase in net assets resulting from operations .............. 1,046,939 3,869,267
------------ ------------
Distributions to shareholders from:
Investment income - net:
Class A ............................................................. (1,309,246) (1,238,497)
Class B ............................................................. (40,094) (12,797)
Class C ............................................................. (13,973) (1,207)
------------ ------------
Total distributions ............................................... (1,363,313) (1,252,501)
------------ ------------
Capital share transactions (note 6): Proceeds from sale of shares:
Class A (note 3) .................................................... 4,977,290 5,911,941
Class B ............................................................. 596,712 691,682
Class C ............................................................. 557,261 70,196
Net asset value of shares issued in reinvestment of
net investment income distributions:
Class A ........................................................... 758,119 712,516
Class B ........................................................... 25,436 7,990
Class C ........................................................... 11,846 1,011
Payments for redemption of shares:
Class A ............................................................. (3,573,034) (2,932,375)
Class B ............................................................. (4,141) (9)
Class C ............................................................. (92,971) (9)
------------ ------------
Increase in net assets from capital share transactions ................ 3,256,518 4,462,943
------------ ------------
Total increase in net assets ........................................ 2,940,144 7,079,709
Net assets at beginning of period ........................................ 27,246,486 20,166,777
------------ ------------
Net assets at end of period (including undistributed net investment income
of $42,880 and $28,230, respectively) ............................... $ 30,186,630 $ 27,246,486
============ ============
</TABLE>
See accompanying notes to financial statements.
VOYAGEUR WISCONSIN TAX FREE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Voyageur Wisconsin Tax Free Fund (the Fund) is one of a series of funds
within Voyageur Mutual Funds, Inc. which is registered under the Investment
Company Act of 1940 (as amended) as 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 are allocated to each class of
shares based upon 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
$629,081, at December 31, 1996, that will expire in 2001 through 2003 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
$1,772 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.
ILLIQUID SECURITIES
At December 31, 1996, investments in securities for the Fund include issues
that are illiquid. The Fund currently limits investments in illiquid securities
to 15% of net assets, at market value, at the date of purchase. The aggregate
value of such securities at December 31, 1996, was $2,798,418 which represents
9.3% of net assets.
(2) INVESTMENT SECURITIES TRANSACTIONS
Purchase cost and proceeds of sales of investment securities other than
short-term securities aggregated $13,070,182 and $10,850,035, 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, excluding waiver of
distribution fees, Fund Distributors voluntarily absorbed expenses totaling
$10,000 for the Fund.
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 Fund's 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 $20,178, Class B distribution fees of $1,519 and Class C distribution
fees of $153.
Sales charges paid by Class A shareholders were $107,671. Of this amount,
Fund Distributors received $11,170.
(4) ORGANIZATIONAL COSTS
Organizational costs are being amortized over 60 months on a straight line
basis.
(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 the periods ended December 31,
1996 and December 31, 1995:
CLASS A
------------------------
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
-------- --------
Shares sold ............................... 526,332 632,738
Shares issued for reinvested distributions 79,482 76,251
Shares redeemed ........................... (374,467) (311,297)
-------- --------
Increase in shares outstanding ............ 231,347 397,692
======== ========
<TABLE>
<CAPTION>
CLASS B CLASS C
---------------------------- --------------------------
PERIOD FROM PERIOD FROM
YEAR APRIL 22, YEAR MARCH 28,
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 ................................ 62,678 73,327 58,385 7,346
Shares issued for reinvested distributions . 2,671 841 1,244 106
Shares redeemed ............................ (431) (1) (9,635) (1)
------- ------- ------- ------
Increase in shares outstanding ............. 64,918 74,167 49,994 7,451
======= ======= ======= ======
</TABLE>
- ------------------------------
* 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>
A SHARES
----------------------------------------------------------------
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 ................... $ 9.78 $ 8.74 $ 9.28 $ 10.00
---------- ---------- ---------- ----------
Operations:
Net investment income ................. .46 .48 .16 .49
Net realized and unrealized gain (loss)
on investments ...................... (.14) 1.04 (.55) (.72)
---------- ---------- ---------- ----------
Total from operations ............. .32 1.52 (.39) (.23)
---------- ---------- ---------- ----------
Distributions to shareholders:
From net investment income (a) ........ (.46) (.48) (.15) (.49)
---------- ---------- ---------- ----------
Net asset value:
End of period ......................... $ 9.64 $ 9.78 $ 8.74 $ 9.28
========== ========== ========== ==========
Total investment return (b) .............. 3.49% 17.74% (4.12)% (2.40)%
Net assets at end of year (000's omitted) $ 28,292 $ 26,449 $ 20,167 $ 16,093
Ratios:
Ratio of expenses to average
daily net assets (e) ................ .98% .88% .08%(d) .04%
Ratio of net investment income to
average daily net assets ............ 4.90% 5.05% 5.54%(d) 4.89%
Assuming no voluntary waivers and
reimbursements:
Expenses (c) .................. 1.09% 1.09% 1.25%(d) 1.25%
Net investment income ......... 4.79% 4.84% 4.37%(d) 3.68%
Portfolio turnover rate (excluding
short-term securities) ................ 38.54% 12.10% 20.52% 86.26%
</TABLE>
See accompanying notes to Financial Highlights.
<TABLE>
<CAPTION>
B SHARES C SHARES
------------------------- -----------------------
PERIOD FROM PERIOD FROM
YEAR APRIL 22, YEAR MARCH 28,
ENDED 1995 (f) TO ENDED 1995 (f) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value:
Beginning of period ................... $ 9.77 $ 9.39 $ 9.79 $ 9.34
--------- --------- --------- ---------
Operations:
Net investment income ................. .41 .28 .39 .30
Net realized and unrealized gain (loss)
on investments ...................... (.14) .37 (.13) .44
--------- --------- --------- ---------
Total from operations ............. .27 .65 .26 .74
--------- --------- --------- ---------
Distributions to shareholders:
From net investment income (a) ........ (.41) (.27) (.39) (.29)
--------- --------- --------- ---------
Net asset value:
End of period ......................... $ 9.63 $ 9.77 $ 9.66 $ 9.79
========= ========= ========= =========
Total investment return (b) .............. 2.84% 7.08% 2.74% 8.06%
Net assets at end of year (000's omitted) $ 1,339 $ 725 $ 555 $ 73
Ratios:
Ratio of expenses to average
daily net assets (e) ................ 1.66% 1.45%(d) 1.75% 1.77%(d)
Ratio of net investment income to
average daily net assets ............ 4.37% 4.31%(d) 4.12% 4.04%(d)
Assuming no voluntary waivers and
reimbursements:
Expenses (c) .................. 1.85% 1.70%(d) 1.83% 1.77%(d)
Net investment income ......... 4.18% 4.06%(d) 4.04% 4.04%(d)
Portfolio turnover rate (excluding
short-term securities) ................ 38.54% 12.10% 38.54% 12.10%
</TABLE>
See accompanying notes to Financial Highlights.
NOTES TO FINANCIAL HIGHLIGHTS
(a) For federal income tax purposes, all of the net investment income
distributions were derived from interest on securities exempt from federal
income tax. For the year ended August 31, 1994, $.02 per share of the
distributions from net investment income were subject to state income tax.
(b) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(c) Voyageur and Fund Distributors voluntarily waived or reimbursed a portion
of expenses during 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 Class C Shares.
(d) Annualized.
(e) 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.
(f) Commencement of operations.
<TABLE>
<CAPTION>
VOYAGEUR WISCONSIN TAX FREE FUND
INVESTMENTS IN SECURITIES DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MARKET
($000) NAME OF ISSUER (d) RATE MATURITY VALUE (a)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(PERCENTAGE OF EACH INVESTMENT CATEGORY RELATES TO TOTAL NET ASSETS.)
MUNICIPAL BONDS (95.9%):
ESCROWED WITH U.S. GOVERNMENT BONDS (6.4%):
------------------------------------------------------------------------------------------------------
$ 700 Virgin Island Public Finance Authority, Escrowed to Maturity..... 7.30% 10-01-18 $ 857,542
1,000 Wisconsin Housing Finance Authority Revenue (FHA Insured)........ 6.10 06-01-21 1,067,480
-----------
1,925,022
-----------
GENERAL OBLIGATION (1.2%):
------------------------------------------------------------------------------------------------------
350 Puerto Rico Commonwealth (AMBAC Insured)......................... 5.85 07-01-15 357,438
-----------
UTILITIES (7.4%):
------------------------------------------------------------------------------------------------------
1,450 Puerto Rico Electric Power Authority Revenue Series 94U.......... 6.00 07-01-14 1,462,499
285 Puerto Rico Telephone Authority Revenue.......................... 5.75 01-01-11 288,260
490 Puerto Rico Telephone Authority Revenue.......................... 5.50 01-01-22 475,692
-----------
2,226,451
-----------
TRANSPORTATION (1.8%):
------------------------------------------------------------------------------------------------------
500 Guam Highway Revenue (FSA Insured)............................... 6.30 05-01-12 531,520
-----------
INDUSTRIAL (17.9%):
------------------------------------------------------------------------------------------------------
200 Hartford Community Development Authority Lease Revenue........... 5.90 12-01-06 212,024
240 Hartford Community Development Authority Lease Revenue........... 6.15 12-01-09 254,287
2,000 Milwaukee Redevelopment Authority Revenue - Goodwill
Industries, Inc............................................... 6.35(e) 10-01-09 2,078,180
300 Omro Community Development Authority ............................ 5.88 12-01-11 307,692
1,100 Puerto Rico Industrial, Medical and Environmental Revenue -
Pepsico Project............................................... 6.25 11-15-13 1,172,204
250 Two Rivers Community Development Authority Revenue-
Architectural Forest Products................................. 6.35(g) 12-15-12 263,883
1,080 West Allis Community Development Authority Revenue-
Poblocki Investments, Ltd..................................... 5.90(f) 05-01-03 1,107,907
-----------
5,396,177
-----------
HEALTH CARE (2.8%):
------------------------------------------------------------------------------------------------------
200 Kaukauna Housing Authority Revenue - St. Paul Home Inc........... 6.10 09-01-07 205,696
225 Superior Redevelopment Authority Revenue-Superior
Memorial Hospital (FHA Insured)............................... 5.65 05-01-08 232,020
160 Superior Redevelopment Authority Revenue-Superior
Memorial Hospital (FHA Insured)............................... 5.70 11-01-09 164,346
250 Superior Redevelopment Authority Revenue-Superior
Memorial Hospital (FHA Insured)............................... 5.80 05-01-10 257,788
-----------
859,850
-----------
HOUSING (22.7%):
------------------------------------------------------------------------------------------------------
125 Dane County Multifamily Housing Revenue - Forest Harbor
Apartment Project............................................. 5.85 07-01-11 125,713
125 Dane County Multifamily Housing Revenue - Forest Harbor
Apartment Project............................................. 5.90 07-01-12 125,711
100 LaCrosse Housing Authority Washburn Project...................... 6.38 10-01-16 102,143
250 LaCrosse Housing Authority Washburn Project...................... 6.50 10-01-26 256,430
500 New Berlin Multifamily Housing Authority Revenue................. 7.13(f)(g) 05-01-24 500,000
625 Puerto Rico Housing Authority Single Family Mortgage Revenue
(GNMA Insured)............................................... 6.85 10-15-23 656,250
1,000 Puerto Rico Housing Bank & Finance Agency (GNMA Insured)......... 6.25(f) 04-01-29 1,004,680
565 Superior Housing Authority St. Francis Project (GNMA Insured).... 6.00 07-20-22 569,057
835 Superior Housing Authority St. Francis Project (GNMA Insured).... 6.15 07-20-31 845,788
1,500 Waukesha Housing Westgrove Wood Project (GNMA Insured)........... 6.00(f) 12-01-31 1,483,665
480 Wauwatosa Multifamily Housing Revenue - Harwood Place, Inc....... 5.75(g) 12-01-08 477,600
715 Winnebago Housing Authority Neenah/Menasha....................... 5.50 10-01-15 708,336
-----------
6,855,373
-----------
EDUCATION (1.7%):
------------------------------------------------------------------------------------------------------
500 Madison Community Development Authority Revenue -
Edgewood College.............................................. 6.25(g) 04-01-14 526,045
-----------
LEASE/CERTIFICATES OF PARTICIPATION (15.9%):
------------------------------------------------------------------------------------------------------
1,000 Cudahey Community Development Authority Revenue.................. 6.00 06-01-11 994,600
1,000 De Forest Redevelopment Lease Revenue............................ 6.25(g) 02-01-18 1,030,890
680 Little Chute Community Development Lease Revenue................. 5.63 03-01-19 678,830
125 Madison Community Development Authority, Monona Terrace
Community Project............................................. 5.80 03-01-05 132,996
365 Madison Community Development Authority, Monona Terrace
Community Project............................................. 5.90 03-01-06 388,254
1,500 Madison Community Development Authority, Monona Terrace
Community Project............................................. 6.10 03-01-10 1,591,605
-----------
4,817,175
-----------
OTHER REVENUE (18.1%):
------------------------------------------------------------------------------------------------------
300 Puerto Rico Indl. Tourist, Polytechnic U......................... 6.50 08-01-24 304,245
1,800 Puerto Rico Municipal Finance Authority (FSA Insured)............ 6.00 07-01-14 1,869,750
1,000 Wisconsin Center District Tax Revenue, Junior Lien............... 5.70 12-15-20 995,950
2,300 Wisconsin Center District Tax Revenue, Junior Lien............... 5.75 12-15-27 2,293,307
-----------
5,463,252
-----------
TOTAL MUNICIPAL BONDS (cost: $27,990,059) 28,958,303
-----------
SHORT-TERM SECURITIES (2.7%):
------------------------------------------------------------------------------------------------------
800 Dreyfus Investment Tax-Exempt Money Market Fund.................. 3.69(b) 800,000
-----------
TOTAL SHORT-TERM SECURITIES (cost: $800,000) $ 800,000
-----------
TOTAL INVESTMENTS IN SECURITIES (cost: $28,790,059) (c) $29,758,303
===========
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) 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 of securities
based on this cost are as follows:
Gross Gross Net
Unrealized Unrealized Unrealized
Appreciation Depreciation Appreciation
------------ ------------ ------------
$988,025 $(19,781) $968,244
(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 Ba/BB NR/NR Total
------- ----- --- ------- ----- ----- -----
23% 10% 29% 7% 8% 23% 100%
(e) The Fund entered into the following restricted security transaction: On
October 13, 1994, the Fund purchased $2,000,000 par of Milwaukee Goodwill
Industries with a cost basis of $2,000,000. This private placement security
is equal to 6.9% of the Fund's total net assets as of December 31, 1996,
and has been determined to be liquid pursuant to guidelines established by
the Board of Directors.
(f) Security subject to the Alternative Minimum Tax. The total of such
securities is equal to 13.6% of the Fund's total net assets as of December
31, 1996.
(g) Security deemed illiquid by Fund management. As of December 31, 1996, the
total of such securities is equal to 9.3% of the Fund's total net assets.
Such determinations are reviewed from time to time by Fund management and
are subject to change.
FEDERAL INCOME TAX INFORMATION
- --------------------------------------------------------------------------------
Information for federal income tax purposes is presented as an aid to
shareholders in reporting the dividend distributions for the year 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.
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
------------ ------------ ------------
Net investment income distributions
(none qualifying for corporate
dividend received deduction)...... $.4647 $.4050 $.3859
====== ====== ======
For federal income tax purposes, 99.70% of the above net investment income
distributions were derived from interest 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-WIAR 3/97
