NATIONAL HIGH YIELD
MUNICIPAL BOND FUND
[GRAPHIC OMITTED: ILLUSTRATION OF AN AIRPORT]
FOR TAX-EXEMPT INCOME
service and guidance
professional management
goals
1998
Semi-Annual Report
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
July 6, 1998
DEAR SHAREHOLDER:
STATE AND LOCAL GOVERNMENTS ACROSS America took advantage of record low
interest rates to issue and refinance a vast amount of municipal bonds
during the first half of fiscal 1998.
More than $146 billion in municipal bonds were issued nationwide
between January and June, a 50.7% increase from a year earlier.
Education, health care and transportation issues led the way.
This huge increase in supply gave National High Yield Municipal
Bond Fund's portfolio managers ample opportunity to select new bonds for
the Fund. However, the bonanza of new issuance was difficult for the
market to absorb, and this resulted in flat municipal bond prices.
Income has been virtually the sole component of return from all but
the longest term municipal securities since January.
Nevertheless, we are pleased to report that your Fund's total
return for the first half of fiscal 1998 outpaced the unmanaged Lehman
Brothers Municipal Bond Index, as shown below. For the six months ended
June 30, 1998, National High Yield Municipal Bond Fund provided a total
return of +3.50% (capital change plus reinvested dividends for A Class
shares at net asset value).
MORE THAN $146 BILLION IN MUNICIPAL BONDS WERE ISSUED NATIONWIDE BETWEEN
JANUARY AND JUNE, A 50.7% INCREASE FROM A YEAR EARLIER.
Your Fund primarily invests in unrated and lower-rated municipal
bonds because of the superior income potential these higher risk
securities can provide. The credit ratings of several major holdings
were upgraded since January, enhancing our results.
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
Six Months Ended 12 Months Ended
June 30, 1998 June 30, 1998
<S> <C> <C>
National High Yield Municipal Bond Fund A Class +3.50% +9.54%
Lipper High-Yield Municipal Debt Fund Average +2.88% +9.48%
(52 funds) (48 funds)
Lehman Brothers Municipal Bond Index +2.69% +8.66%
All performance shown above is at net asset value with distributions
reinvested. Past performance does not guarantee future results.
Performance of other Fund classes varies due to different charges and
expenses. The unmanaged Lehman Brothers Municipal Bond Index is composed
of bonds with a variety of quality ratings. Complete performance
information can be found on page 7.
</TABLE>
National High Yield Municipal Bond Fund's portfolio is a diverse
mix of more than 84 securities that included bonds issued for colleges
in Pennsylvania as well as a pollution control project in Arkansas. Many
states have high credit ratings and continue to benefit from a healthy
U.S. economy, low inflation and rising tax revenues.
We view the municipal debt market's current prospects as
compelling, especially when viewed against taxable fixed-income
alternatives. Yields on longer term municipal bonds averaged more than
90% of U.S. Treasury bonds as of June 30, a level not seen since the
ill-fated flat tax debate in Washington two years ago.
For taxpayers willing to accept higher risks, high-yield municipal
bonds can provide as much income on a tax-adjusted basis as taxable
high-yield corporate bonds. Unlike some corporations that issue high-
yield bonds, the revenue stream of many municipal securities depends on
the health of the domestic economy rather than overseas sales, commodity
prices or industry competition.
Cash flows in bond mutual funds have accelerated in recent months
as some equity investors have sought to diversify their portfolios while
reducing their federal income tax burden. We would like to note that the
assets of National High Yield Bond Fund have grown 30% since December,
as shown on page 11.
YIELDS ON LONGER TERM MUNICIPAL BONDS AVERAGED MORE THAN 90% OF U.S.
TREASURY BONDS AS OF JUNE 30, A LEVEL NOT SEEN SINCE THE ILL-FATED FLAT
TAX DEBATE IN WASHINGTON TWO YEARS AGO.
On behalf of Delaware Investments, we wish to thank you for making
National High Yield Municipal Bond Fund our fastest growing tax-exempt
securities fund. We encourage you to read the performance review that
follows this letter. Your Fund's portfolio managers, Patrick P. Coyne
and Mitchell L. Conery, outline their approach for the balance of fiscal
1998.
Sincerely,
/S/Wayne A. Stork
WAYNE A. STORK
Chairman
/s/Jeffrey J. Nick
JEFFREY J. NICK
President and Chief Executive Officer
PORTFOLIO MANAGER'S REVIEW
U.S. TREASURY PRICES HAVE SOARED since December. The yield on 30-year
U.S. Treasury bonds fell to 5.65% as of June 30, the lowest level in a
generation.
Even so, real yields after inflation remain high. If one subtracts
the increase in the U.S. Consumer Price Index from 10-year Treasury
bond yields, the real rate of return is nearly 4%, the highest level
since late 1994.
Given the probable tempering effects of the Asian slump on the U.S.
economy, the Federal Reserve Board is likely to maintain its current
interest rate policy, in our view. This made a solid case for
tax-exempt bonds' income and total return potential, especially for
investors seeking to diversify their portfolios.
Since January, a major problem facing the tax-exempt market has
been a temporary gusher of new supply as municipalities seek to refund
their obligations. Over the past six months, the bond market has been
asked to absorb unusually large bond issues of more than $1 billion each
from several areas, including New York, Puerto Rico and Michigan.
One reason municipal bonds under-performed Treasuries during the
first half of fiscal 1998 was that foreign investors sought U.S.
government debt as a safe haven when volatility rocked Asian stock and
bond markets. Foreign investors bid up Treasury prices more than
municipal bonds during the period. Foreigners generally don't buy U.S.
state and local debt because foreigners don't qualify for the tax breaks
municipal bonds provide.
STRATEGIC POSITIONING
Since December, lower quality municipal bonds provided the highest
returns as bond default rates remained low. This reduced the yield
advantage of lower quality bonds, making it difficult to increase the
Fund's income potential without taking on more credit risk
than desirable.
[GRAPHIC OMITTED pie chart A DIVERSE PORTFOLIO HELPS US MANAGE RISK
PORTFOLIO COMPOSITION AND STATE CONCENTRATION]
A DIVERSE PORTFOLIO HELPS US MANAGE RISK
PORTFOLIO COMPOSITION AND STATE CONCENTRATION
June 30, 1998
Industrial Development 7.2%
General Obligation 8.6%
Pre-Refunded 5.6%
Water/Sewer 10.5%
Higher Education 4.5%
Power Authority 1.8%
Housing 3.9%
Transportation 2.4%
Health Care 24.5%
Other Revenue Bonds 15.9%
State Leasebacks 2.7%
Cash 1.4%
Pollution Control 11.0%
Top Five States
State Share of Net Assets
Illinois 13.6%
Pennsylvania 10.5%
Alabama 6.8%
Ohio 6.5%
Colorado 6.2%
Approximately 6.1% of the income generated by National High Yield
Municipal Bond Fund for the six months ended June 30, 1998 was subject
to the federal alternative minimum tax.
To maximize income potential in this environment, we extended your
Fund's average effective duration, or sensitivity to interest rates, by
nearly two years to 6.5 years. Still, your Fund's duration as of June 30
remained nearly half-a-year shorter than that of our benchmark, the
Lehman Brothers Municipal Bond Index.
National High Yield Municipal Bond Fund assumes higher-than-average
credit risks by investing in high-yield securities. We believe that
striking a prudent balance between interest rate risk and credit risk
puts us in a good position to help protect principal should either
interest rates rise or the economy begin to weaken.
Overall, the high-yield municipal bond market is small and
fragmented, representing less than 10% of municipal debt outstanding. We
seek to add value to your Fund's portfolio by focusing on a combination
of large issues in selected urban areas and small, unrated bonds issued
by rural communities.
As in fiscal 1997, health care bonds remain the largest component
of your Fund's portfolio. Our health care holdings consisted of high-
yielding bonds financing hospitals and continuing care centers. We
generally seek bonds tied to institutions that are likely to do well as
the industry consolidates.
THIS PAST SPRING, WE WERE FORTUNATE TO OWN UNRATED BONDS OF AN
ILLINOIS HOSPITAL THAT WAS ACQUIRED BY A WELL-CAPITALIZED, NATIONWIDE
HEALTH SYSTEM.
This past spring, we were fortunate to own unrated bonds issued by
the Harrisburg Regional Medical Center (1.7% of the Fund's net assets as
of June 30). The Illinois hospital was bought by the Daughters of
Charity Health System on May 1, and the acquisition substantially
improved the credit quality of the Harrisburg bonds, which we had
internally rated BBB-.
[GRAPHIC OMITTED pie chart CREDIT QUALITY AND PORTFOLIO HIGHLIGHTS]
CREDIT QUALITY AND PORTFOLIO HIGHLIGHTS
June 30, 1998
Unrated 64.5%
AA & A 6.6%
BB & B 5.9%
BBB 23.0%
June 30, December 31,
1998 1997
Average Effective Maturity 8.4 years 6.2 years
Average Effective Duration 6.5 years 4.9 years
Number of Securities 84 73
Current 30-Day SEC Yield* 4.40% 4.97%
*For Class A shares based on Securities and Exchange Commission
guidelines. The 30-day SEC yield for B Class and C Class shares was
3.81%.
Daughters of Charity is one of the largest not-for-profit health
systems in the U.S and their bonds have a high AA rating from Standard &
Poor's. The price of the Harrisburg bonds rose substantially after the
Daughters of Charity agreed to honor the Illinois hospital's debt.
OUTLOOK
America's municipalities are, from a fiscal point of view, very healthy.
The eighth year of U.S. economic expansion has boosted state government
surpluses to their highest level since 1980. Income taxes collected by
state and local governments in 1997 rose 7% - the fastest growth rate in
more than five years. Budget surpluses in 15 states are projected to
exceed 10% of overall revenues, according to The Bond Buyer,
a trade publication.
We expect that the municipal bond supply glut will ease in the
months ahead, in part because the Internal Revenue Service imposes
limits on how often municipalities can refund their debt. Assuming a
stable Fed monetary policy, we believe municipal bond prices have
the potential to outperform Treasuries for the balance of 1998.
INCOME TAXES COLLECTED BY STATE AND LOCAL GOVERNMENTS IN 1997 ROSE 7%
- - THE FASTEST GROWTH RATE IN MORE THAN FIVE YEARS.
Historically, municipal bond yields have averaged between 80% and
85% of Treasury yields, making the current environment - with yield
averaging more than 90% - unusually attractive. The last time the
Treasury and municipal yields had such a favorable relationship was
February 1996, when concern over a national flat-tax cut demand and
drove insured 30-year revenue bonds to yield as much as 95% of
Treasuries. In our view, the most attractive part of the municipal
market is bonds maturing in 15 to 30 years because they pay
almost as much interest as longer term securities with less risk to
principal from changing interest rates.
PATRICK P. COYNE
Vice President/Senior Portfolio Manager
MITCHELL L. CONERY
Vice President/Senior Portfolio Manager
July 6, 1998
[PHOTO OF KEYBOARD]
[GRAPHIC OMITTED bar chart BUILDING INCOME POTENTIAL OVER TIME:
NATIONAL HIGH YIELD MUNICIPAL BOND FUND A CLASS]
BUILDING INCOME POTENTIAL OVER TIME:
NATIONAL HIGH YIELD MUNICIPAL BOND FUND A CLASS
Annual Income From a $100,000 Investment
September 22, 1986 to June 30, 1998
Total Income $110,993
Yearly Income
June 1987 $ 4,746
June 1988 $ 7,240
June 1989 $ 7,562
June 1990 $ 7,879
June 1991 $ 8,775
June 1992 $ 9,570
June 1993 $ 9,600
June 1994 $ 9,689
June 1995 $10,632
June 1996 $11,099
June 1997 $11,576
June 1998 $12,626
Chart assumes a $100,000 investment on September 22, 1986, a 2.75%
front-end sales charge and reinvestment of distributions. High yield
securities involve greater risks than bonds with investment grade credit
ratings. Performance of other Fund classes differs because of different
charges and expenses. Sales charges are reduced on investments of
$100,000 or more.
NATIONAL HIGH YIELD MUNICIPAL BOND FUND PERFORMANCE
Average Annual Returns Through June 30, 1998
Lifetime Ten Years Five Years One Year
Class A (Est. 9/22/86)
Excluding Sales Charge +8.18% +8.62% +7.33% +9.54%
Including Sales Charge +7.83% +8.21% +6.51% +5.43%
Class B (Est. 12/18/96)
Excluding Sales Charge +8.65% +8.92%
Including Sales Charge +6.14% +4.92%
Class C (Est. 5/27/97)
Excluding Sales Charge +9.37% +9.02%
Including Sales Charge +9.37% +8.02%
All performance includes reinvestment of distributions and applicable
sales charges as described below. Return and share value will fluctuate
so that shares when redeemed may be worth more or less than the original
cost. Past performance does not guarantee future results. Performance
for Class B and C shares excluding sales charge assumes the investment
was either not redeemed or contingent deferred sales charges did not
apply.
Voluntary expense limitations were in effect for the periods shown.
Returns would have been lower without the limits.
Class A shares have a 3.75% maximum front-end sales charge and a 12b-1
fee.
Class B shares do not carry a front-end sales charge, but are subject to
a 1% annual distribution and service fee. They are also subject to a
deferred sales charge of up to 2% if redeemed before the end of the
sixth year.
Class C shares have a 1% annual distribution and service fee. If
redeemed within 12 months, a 1% contingent deferred sales charge
applies.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
VOYAGEUR MUTUAL FUNDS, INC.
NATIONAL HIGH YIELD MUNICIPAL BOND FUND
STATEMENT OF NET ASSETS
JUNE 30,1998 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
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<S> <C> <C>
MUNICIPAL BONDS - 98.64
CONTINUING CARE/RETIREMENT REVENUE BONDS - 10.11%
Alexandria Health Care Facility Revenue - Board of
Social Ministry 8.75% 8/1/21 $ 500,000 $ 575,535
Clark County, Nevada Assisted Living Homestead
Boulder City 6.50% 12/1/27 2,575,000 2,671,408
Indianapolis, Indiana Economic Development
Revenue - National Benevolent Association
7.25% 10/1/10 700,000 771,582
Marion County, Missouri Nursing Home Revenue
7.00% 8/1/13 1,050,000 1,110,323
South Dakota Health & Education Facilities Revenue -
Westhills Retirement Village 7.25% 9/1/13 1,125,000 1,174,478
Spring Park, Minnesota Twin Birch Health Care Center
(Guarantor: Presbyterian Homes of Minnesota)
8.25% 8/1/11 500,000 534,910
Volusia, Florida Industrial Development Authority-
Bishops Glen Project Retirement Health Facilities
7.50% 11/1/16 1,065,000 1,142,362
------------
7,980,598
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GENERAL OBLIGATION BONDS - 8.64%
Etowah County, Alabama Refunding Warrants
8.50% 11/1/10 800,000 885,200
Illinois State Development Finance Authority East
St. Louis Debt Restructure Revenue 7.375%
11/15/11 1,100,000 1,240,063
Niles, Illinois Park District Unlimited Tax 6.65%
12/1/14 860,000 940,814
Orange Beach, Alabama Refunding and Capital
Improvement Unlimited Tax 6.25% 10/1/13 1,500,000 1,587,285
Panorama, Colorado Metropolitan District Unlimited
Tax 9.00% 12/1/09 750,000 809,310
Romeoville, Illinois Recreational Facilities
Unlimited Tax 7.80% 1/1/11 1,000,000 1,099,900
Winter Park West Colorado Water & Sanitation
District Unlimited Tax 9.25% 12/1/06 250,000 256,500
------------
6,819,072
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HIGHER EDUCATION REVENUE BONDS - 4.52%
Dubuque County, Iowa Private College Facilities
Clarke College Project 5.375% 9/1/18 1,030,000 1,026,776
New Hampshire Education & Health Authority -
Brewster Academy 6.75% 6/1/25 1,000,000 1,078,550
Pennsylvania Higher Education Facility Authority -
Drexel University 6.75% 5/1/12 1,300,000 1,461,408
------------
3,566,734
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HOSPITAL REVENUE BONDS - 14.38%
Bridgeton, Missouri Industrial Development
Authority Senior Housing Revenue, The Sarah
Community Project 5.90% 5/1/28 1,000,000 997,110
Cuyahoga County, Ohio Health Care Facilities
Revenue - Benjamin Rose Institute Project
5.50% 12/1/28 1,750,000 1,700,825
Illinois Health Facility Authority Revenue - Midwest
Physician Group Project 8.10% 11/15/14 980,000 1,197,667
Illinois Health Facility Authority Revenue - Midwest
Physician Group Project 5.50% 11/15/19 1,685,000 1,647,610
Illinois State Development Finance Authority Harrisburg
Medical Center Project 7.00% 3/1/06 400,000 441,236
Illinois State Development Finance Authority Harrisburg
Medical Center Project 7.20% 3/1/07 400,000 445,112
Illinois State Development Finance Authority Harrisburg
Medical Center Project 7.20% 3/1/08 400,000 445,112
Ohio County, West Virginia Building Commission -
Ohio Valley Medical Center 9.625% 1/1/13 775,000 778,123
Saint Joseph County Industrial Economic Development -
Madison Center Project 5.50% 2/15/21 1,150,000 1,149,920
South Dakota Health & Education Facilities Revenue -
Huron Regional Medical Center 7.00% 4/1/10 1,000,000 1,094,720
State Tammany Louisiana Public Transportation
Financing Authority Revenue - Christwood Project
5.70% 11/15/28 1,500,000 1,459,785
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11,357,220
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HOUSING REVENUE BONDS - 3.93%
Bernalillo County, New Mexico Multifamily
Housing - Topke Commons/Arbors Project -
Series D 7.70% 4/1/27 1,000,000 1,041,400
Washington State Housing Finance Commonwealth
Nonprofit - Virginia Mason Research Center
Project A 5.70% 1/1/24 1,000,000 1,036,690
Wharton Housing Development Corporation - State
Multifamily Housing Section 8 8.00% 2/1/03 100,000 100,122
Wharton Housing Development Corporation - State
Multifamily Housing Section 8 8.00% 2/1/04 105,000 105,128
Wharton Housing Development Corporation - State
Multifamily Housing Section 8 8.00% 2/1/05 110,000 110,134
Wharton Housing Development Corporation - State
Multifamily Housing Section 8 8.00% 2/1/06 120,000 120,145
Wharton Housing Development Corporation - State
Multifamily Housing Section 8 8.00% 2/1/07 130,000 130,159
Wharton Housing Development Corporation - State
Multifamily Housing Section 8 8.00% 2/1/08 140,000 140,171
Wharton Housing Development Corporation - State
Multifamily Housing Section 8 8.00% 2/1/09 155,000 155,189
Wharton Housing Development Corporation - State
Multifamily Housing Section 8 8.00% 2/1/10 165,000 165,201
------------
3,104,339
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INDUSTRIAL DEVELOPMENT REVENUE BONDS - 7.24%
Brunswick & Glynn County, Georgia Development
Authority Revenue Reference Georgia Pacific
Corporation Project 5.55% 3/1/26 1,500,000 1,511,265
Moundville, Alabama Industrial Development Board
Revenue Lawter International, Inc. Project
Series LI 6.75% 12/1/11 1,500,000 1,609,605
Newbern, Tennessee Industrial Develpment Board
Newbern Rubber, Inc. (Dana Corporation) 7.90%
3/1/00 1,000,000 1,049,730
Ohio State Water Development Authority Solid
Waste Disposal, Bay Shore Power Project -
Series A 5.875% 9/1/20 500,000 508,295
Virginia Beach Development Authority Revenue
Ramada On The Beach 6.625% 12/1/09 1,000,000 1,040,820
------------
5,719,715
------------
LEASE/CERTIFICATES OF PARTICIPATION - 2.69%
Dauphin County, Pennsylvania General Authority
Series A 5.75% 1/1/10 2,125,000 2,123,194
------------
2,123,194
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POLLUTION CONTROL REVENUE BONDS - 10.96%
California Pollution Control Authority - Pollution Control
Revenue - Laidlaw Environmental - Series A
6.70% 7/1/07 1,000,000 1,058,740
Jefferson County, Arkansas Pollution Control -
Energy Arkansas 5.60% 10/1/17 1,000,000 1,002,070
Lewis & Clark County Environmental Revenue -
Asarco Incorporated Project 5.60% 1/1/27 1,500,000 1,527,975
New Hampshire State Business Finance Authority
Pollution Control Revenue Public Service
Company 6.00% 5/1/21 3,000,000 3,066,810
Ohio State Air Quality Development Authority Revenue -
Pollution Control - Series B 6.00% 8/1/20 1,000,000 1,037,630
Yarmouth, Maine Pollution Control Revenue - Central
Maine Power 6.75% 6/1/02 950,000 962,607
------------
8,655,832
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*PRE-REFUNDED BONDS - 5.57%
Arapahoe, Colorado Water & Sanitation District
Revenue 9.125% 12/1/08-98 200,000 206,332
Arapahoe, Colorado Water & Sanitation District
Revenue 9.125% 12/1/08-98 300,000 309,497
Arapahoe Water & Sanitation District Revenue
9.25% 12/1/13-98 210,000 216,754
Bedford Park, Illinois Tax Increment Revenue 8.00%
12/1/10-04 1,200,000 1,433,520
Colorado Technical Center Metropolitan District
Unlimited Tax 9.75% 6/1/09-98 545,000 580,054
Lead, South Dakota Recreation Center Lease Revenue -
Northern Hills YMCA 8.875% 10/1/18-98 590,000 614,715
Streamwood, Illinois Special Service Area #3 Tax
Revenue 8.375% 1/1/09-99 1,000,000 1,041,950
------------
4,402,822
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TRANSPORTATION REVENUE BONDS - 2.40%
Cleveland, Ohio Airport Special Revenue Continental
Airlines Project 5.375% 9/15/27 540,000 527,132
Toledo Lucas County Ohio Port Authority Airport
Revenue Improvement Series 1 5.50% 5/15/20 1,405,000 1,371,730
------------
1,898,862
------------
UTILITY REVENUE BONDS - 1.81%
Chelsea, Oklahoma Gas Authority 7.25% 7/1/13 600,000 660,636
Chelsea, Oklahoma Gas Authority 7.30% 7/1/19 700,000 770,623
------------
1,431,259
------------
WATER & SEWER REVENUE BONDS - 10.46%
Easton, Pennsylvania Area Joint Sewer Authority
6.20% 4/1/09 1,000,000 1,082,770
Elizabeth Borough, Pennsylvania Municipal Authority -
Guaranteed Sewer 7.15% 1/1/21 500,000 556,535
Franklin County, Missouri Public Water Supply
District Waterworks & Sewer System
7.375% 12/1/18 1,255,000 1,362,064
Hopewell Township, Pennsylvania Guaranteed Sewer
6.00% 11/1/13 1,215,000 1,238,085
New Kensington, Pennsylvania Municipal Sanitation
Authority Revenue 7.50% 10/1/11 1,000,000 1,067,270
Upper Bear Creek, Alabama Water, Sewer & Fire
Revenue District 6.25% 8/1/15 1,250,000 1,296,825
Vance, Alabama Governmental Utility Services Corporate
Sewer Services Revenue 7.50% 10/1/18 1,550,000 1,653,540
------------
8,257,089
------------
OTHER REVENUE BONDS - 15.93%
Arbor Greene Community Development District,
Special Assessment Revenue 7.00% 5/1/03 555,000 575,052
Colorado Postsecondary Education Facilities
Authority Colorado Ocean Journey Project
8.00% 12/1/06 1,000,000 1,154,680
Connector 2000 Assn South Carolina Toll Road
Revenue Senior - Southern Connector Project
Series A 5.375% 1/1/38 1,000,000 959,750
Fishers Economic Development Revenue - United
Student Aid Fund, Inc. 8.375% 9/1/14 1,000,000 1,025,940
Lehigh County General Purpose Authority - Wiley
House 8.75% 11/1/14 750,000 790,433
Lowry Economic Redevelopment Authority Colorado
Revenue Series A 7.00% 12/1/10 1,000,000 1,006,660
Massachusetts State Industrial Finance Agency Revenue
The Tabor Academy Issue 5.40% 12/1/28 2,000,000 1,956,060
Oklahoma City Public Property Authority - City Golf
System 8.30% 10/1/16 1,000,000 1,076,060
Pocatello Development Authority and Tax Increment
Revenue 7.25% 12/1/08 250,000 259,990
Prescott Valley, Arizona Improvement District -
Special Assessment 7.90% 1/1/12 500,000 562,405
Santa Fe, New Mexico Municipal Record Complex
Net Revenue 5.625% 12/1/23 1,140,000 1,121,008
Washington State Housing Finance Commission -
State School Directors' Association - Private
Placement 8.25% 7/1/02 170,000 183,318
Washington State Housing Finance Commission -
State School Directors' Association - Private
Placement 8.25% 7/1/12 625,000 723,844
West Chicago, Illinois Tax Increment 7.375%
12/1/12 720,000 829,915
Westminster, Colorado Shaw Heights Special
Improvement District 7.50% 12/1/07 350,000 353,542
------------
12,578,657
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Total Municipal Bonds (Cost $73,992,591) $77,895,393
------------
NUMBER
OF SHARES
SHORT TERM INVESTMENTS - 1.04%
Norwest Advantage Municipal Money Market Fund 823,956 823,956
------------
Total Short Term Investments (cost $823,956) 823,956
------------
------------------------
*For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
TOTAL MARKET VALUE OF SECURITIES OWNED - 99.68%
(COST $74,816,547) $78,719,349
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - .32% 255,289
------------
NET ASSETS APPLICABLE TO 7,315,722 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% $78,974,638
============
NET ASSET VALUE - NATIONAL HIGH YIELD FUND A CLASS
($66,302,184 / 6,143,625 SHARES) $10.79
=======
NET ASSET VALUE - NATIONAL HIGH YIELD FUND B CLASS
($9,080,562 / 840,052 SHARES) $10.81
=======
NET ASSET VALUE - NATIONAL HIGH YIELD FUND C CLASS
($3,591,892 / 332,045 SHARES) $10.82
=======
COMPONENTS OF NET ASSETS AT JUNE 30, 1998:
Common stock, $.01 par value, 100,000,000,000 shares
authorized to the Fund with 10,000,000,000
shares allocated to National High Yield Fund A Class,
10,000,000,000 shares allocated to National High Yield
Fund B Class, and 10,000,000,000 shares allocated to
National High Yield Fund C Class $74,695,796
Accumulated net realized gain on investments 376,040
Net unrealized appreciation of investments 3,902,802
------------
Total net assets $78,974,638
============
NET ASSET VALUE AND OFFERING PRICE FOR NATIONAL HIGH
YIELD MUNICIPAL BOND FUND A CLASS
Net asset value per share (A) $10.79
Sales charge (3.75% of offering price or 3.89% of
amount invested per share) (B) 0.42
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Offering price $11.21
=======
------------------------
(A) Net asset value per share illustrated is the estimated amount
which would be paid upon the redemption or repurchase of shares.
(B) See Purchasing Shares in the current Prospectus for purchases of
$100,000 or more for National High Yield Municipal Bond Fund Class A.
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR MUTUAL FUNDS, INC.
NATIONAL HIGH YIELD MUNICIPAL BOND FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<S> <C> <C>
INVESTMENT INCOME:
Interest $2,252,009
EXPENSES:
Management fees $224,860
Distribution expense 118,009
Registration fees 19,255
Dividend disbursing, transfer agent
fees and expenses 17,986
Accounting and adminstration 16,212
Taxes (other than taxes on income) 1,875
Reports and statements to shareholders 1,560
Directors' fees 613
Professional fees 417
Other 1,352
------------
402,139
Less expenses waived or absorbed (59,690) 342,449
------------ ------------
NET INVESTMENT INCOME 1,909,560
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments 104,017
Net change in unrealized appreciation/depreciation
of investments 350,826
------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 454,843
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $2,364,403
============
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
NATIONAL HIGH YIELD MUNICIPAL BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
JUNE 30, 1998
SIX MONTHS ENDED YEAR
6/30/98 ENDED
(UNAUDITED) 12/31/97
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS
Net investment income $1,909,560 $3,409,883
Net realized gain on investments 104,017 782,775
Net change in unrealized appreciation
of investments 350,826 1,305,512
------------ ------------
Net increase in net assets resulting
from operations 2,364,403 5,498,170
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class (1,704,031) (3,329,293)
B Class (152,808) (69,276)
C Class (52,721) (16,936)
Net realized gain from security transactions:
A Class -- (361,157)
B Class -- (20,891)
C Class -- (6,153)
------------ ------------
(1,909,560) (3,803,706)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class 12,267,607 5,556,071
B Class 5,875,116 3,486,119
C Class 2,453,581 1,199,065
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on security transactions:
A Class 974,516 2,223,087
B Class 85,556 42,767
C Class 30,015 9,665
------------ ------------
21,686,391 12,516,774
------------ ------------
Cost of shares repurchased:
A Class (2,789,599) (13,058,929)
B Class (499,181) (92,987)
C Class (129,320) (794)
------------ ------------
(3,418,100) (13,152,710)
------------ ------------
Increase (decrease) in net assets derived
from capital share transactions 18,268,291 (635,936)
------------ ------------
NET INCREASE IN NET ASSETS 18,723,134 1,058,528
NET ASSETS:
Beginning of period 60,251,504 59,192,976
------------ ------------
End of period $78,974,638 $60,251,504
============ ============
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
VOYAGEUR MUTUAL FUNDS, INC. - NATIONAL HIGH YIELD MUNICIPAL BOND FUND
FINANCIAL HIGHLIGHTS
NATIONAL HIGH YIELD MUNICIPAL BOND FUND - CLASS A
--------------------------------------------------------------------
SIX MONTHS YEAR PERIOD FROM YEAR YEAR YEAR
ENDED ENDED 8/1/96 TO ENDED ENDED ENDED
6/30/98 12/31/974 12/31/965 7/31/96 7/31/95 7/31/94
(UNAUDITED)1
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $10.720 $10.400 $10.190 $10.170 $10.170 $10.500
Income from
investment
operations:
Net investment
income 0.296 0.648 0.260 0.630 0.650 0.620
Net realized
and unrealized
gain (loss) from
investments 0.070 0.390 0.210 0.140 0.040 (0.310)
-------- -------- -------- -------- -------- --------
Net increase
in net assets
from investment
operations 0.366 1.038 0.470 0.770 0.690 0.310
-------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Dividends from
net investment
income (0.296) (0.647) (0.260) (0.630) (0.650) (0.620)
Distributions
from net realized
gain on security
transactions -- (0.071) -- (0.120) (0.040) (0.020)
-------- -------- -------- -------- -------- --------
Total dividends
and distributions (0.296) (0.718) (0.260) (0.750) (0.690) (0.640)
-------- -------- -------- -------- -------- --------
Net asset value,
end of period $10.790 $10.720 $10.400 $10.190 $10.170 $10.170
======== ======== ======== ======== ======== ========
Total Return2 3.50% 10.32% 4.52% 7.78% 7.16% 2.99%
Ratios and
supplemental
data:
Net assets,
end of period
(000 omitted) $66,302 $55,458 $59,105 $63,460 $66,357 $72,172
Ratio of
expenses to
average net
assets 0.90% 0.84% 0.87%3 0.85% 0.79% 0.91%
Ratio of
expenses to
average net
assets prior
to expense
limitation 1.07% 1.12% 1.07%3 0.96% 0.90% 1.01%
Ratio of
net investment
income to
average net
assets 5.60% 6.15% 6.06%3 6.10% 6.45% 5.98%
Ratio of
net investment
income to
average net
assets prior
to expense
limitation 5.43% 5.87% 5.86%3 5.99% 6.34% 5.88%
Portfolio turnover 53% 45% 7% 0% 8% 28%
- ------------------------
1 Ratios have been annualized and total returns have not been annualized.
2 Total investment return is based on the change in net asset value
of a share during the period and assumes reinvestment of distributions
at net asset value.
3 Annualized.
4 Commencing May 1, 1997, Delaware Management Company replaced
Voyageur Fund Managers, Inc. as the Fund's investment manager.
5 On November 6, 1996, the Fund's shareholders approved a change of
investment adviser from IFG Asset Management Services, Inc. to Voyageur
Fund Managers, Inc.
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
NATIONAL HIGH YIELD MUNICIPAL
BOND FUND - CLASS B
---------------------------------------
SIX MONTHS YEAR PERIOD FROM
ENDED ENDED 12/18/966 TO
6/30/98 12/31/974 12/31/96
(UNAUDITED)1
<S> <C> <C> <C>
Net asset value,
beginning of period $10.730 $10.400 $10.370
Income from investment
operations:
Net investment income 0.260 0.534 0.010
Net realized and
unrealized gain
from investments 0.076 0.333 0.030
-------- -------- --------
Net increase in net assets
from investment operations 0.336 0.967 0.040
-------- -------- --------
Less dividends
and distributions:
Dividends from net
investment income (0.256) (0.566) (0.010)
Distributions from
net realized gain
on security transactions -- (0.071) --
-------- -------- --------
Total dividends
and distributions (0.256) (0.637) (0.010)
-------- -------- --------
Net asset value,
end of period $10.810 $10.730 $10.400
======== ======== ========
Total Return2 3.21% 9.57% 0.43%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) $9,081 $3,573 $88
Ratio of expenses to
average net assets 1.65% 1.56% 1.45%3
Ratio of expenses to
average net assets prior
to expense limitation 1.82% 1.84% 1.66%3
Ratio of net investment
income to average net assets 4.85% 5.43% 4.65%3
Ratio of net investment
income to average net assets
prior to expense limitation 4.68% 5.15% 4.44%3
Portfolio turnover 53% 45% 7%
FINANCIAL HIGHLIGHTS (CONTINUED)
NATIONAL HIGH YIELD MUNICIPAL
BOND FUND - CLASS C
--------------------------
SIX MONTHS PERIOD FROM
ENDED 5/26/976 TO
6/30/98 12/31/974
(UNAUDITED)1
<S> <C> <C>
Net asset value,
beginning of period $10.740 $10.440
Income from investment
operations:
Net investment income 0.261 0.315
Net realized and
unrealized gain
from investments 0.075 0.391
-------- --------
Net increase in net assets
from investment operations 0.336 0.706
-------- --------
Less dividends
and distributions:
Dividends from net
investment income (0.256) (0.335)
Distributions from
net realized gain
on security transactions -- (0.071)
-------- --------
Total dividends
and distributions (0.256) (0.406)
-------- --------
Net asset value,
end of period $10.820 $10.740
======== ========
Total Return2 3.21% 6.88%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) $3,592 $1,220
Ratio of expenses to
average net assets 1.65% 1.62%3
Ratio of expenses to
average net assets prior
to expense limitation 1.82% 1.90%3
Ratio of net investment
income to average net assets 4.85% 5.37%3
Ratio of net investment
income to average net assets
prior to expense limitation 4.68% 5.09%3
Portfolio turnover 53% 45%
__________________
1 Ratios have been annualized and total returns have not been annualized.
2 Total investment return is based on the change in net asset value
of a share during the period and assumes reinvestment of distributions
at net asset value.
3 Annualized.
4 Commencing May 1, 1997, Delaware Management Company replaced
Voyageur Fund Managers, Inc. as the Fund's investment manager.
5 On November 6, 1996, the Fund's shareholders approved a change of
investment adviser from IFG Asset Management Services, Inc. to Voyageur
Fund Managers, Inc.
6 Commencement of operations.
See accompanying notes
</TABLE>
VOYAGEUR MUTUAL FUNDS, INC. - NATIONAL HIGH YIELD MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
National High Yield Municipal Bond Fund (formerly Voyageur National High
Yield Municipal Bond Fund)(the "Fund"), a series of the Voyageur Mutual
Funds, Inc. is registered under the Investment Company Act of 1940
(as amended) as a non-diversified, open-end management investment
company. National High Yield Municipal Bond Fund seeks a high level
of current income exempt from federal income tax primarily through
investment in medium and lower-grade municipal bonds. National High
Yield Municipal Bond Fund (referred to as a "Fund" ) offers three
classes of shares. The A class carries a front-end sales charge of
3.75%. The B class carries a back-end deferred sales charge. The C
class carries a level load deferred sales charge.
1. Fund Reorganization
On April 30, 1997, Lincoln National Corporation ("LNC") acquired
Voyageur Fund Manager Inc.'s ("Voyageur") parent, Dougherty Financial
Group, Inc. ("DFG") pursuant to an agreement and plan of merger dated
January 15, 1997, in which LNC would acquire DFG including the mutual
fund investment advisory business of DFG conducted by Voyageur. Upon
completion of the acquisition, Delaware Management Company ("DMC")
became the investment adviser to the Funds, Delaware Distributors, L.P.
("DDLP") became the distributor for the Funds, Delaware Service Company,
Inc. ("DSC") became the transfer, dividend-disbursing, shareholder
servicing agent and accounting service agent for the Funds.
2. Significant Accounting Policies
The following accounting policies are in accordance with generally
accepted accounting principles and are consistently followed by the
Fund.
Security Valuation - Long-term debt securities are valued by an
independent pricing service and such prices are believed to reflect the
fair value of such securities. Money market instruments having less than
60 days to maturity are valued at amortized cost which approximates
market value. Other securities and assets for which market quotations
are not readily available are valued at fair value as determined in good
faith by or under the direction of the Fund's Board of Directors.
Federal Income Taxes -- The Fund intends to continue to qualify as a
regulated investment company and make the requisite distributions to
shareholders. Accordingly, no provision for federal income taxes has
been made in the financial statements. Income and capital gain
distributions are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting
principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various
classes of the Fund on the basis of daily net assets of each class.
Distribution expenses relating to a specific class are charged directly
to that class.
Other - Expenses common to all Funds within the Delaware Family of Funds
are allocated amongst the Funds on the basis of average net assets.
Security transactions are recorded on the date the securities are
purchased or sold (trade date). Costs used in calculating realized gains
and losses on the sale of investment securities are those of the
specific securities sold. Interest income is recorded on the accrual
basis. Original issue discounts and market premiums are accreted to
interest income over the lives of the respective securities. The Fund
declares dividends from net investment income daily and pays such
dividends monthly. Capital gains, if any, are distributed annually.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
3. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the
Fund pays DMC, the Investment Manager of the Fund, an annual fee of
0.65%, which is calculated daily based on the daily net assets of the
Fund.
DMC has elected to waive their fee and reimburse the Fund to the extent
that annual operating expenses exclusive of distribution fees, taxes,
interest, brokerage commissions and extraordinary expenses, exceed
0.75% of average daily net assets for the National High Yield Municipal
Bond Fund through December 31, 1998. Total expenses absorbed by DMC for
the six months ended June 30, 1998 were $59,690.
The Fund had engaged DSC, an affiliate of DMC, to provide dividend
disbursing, transfer agent and accounting and administration services
for the Fund. For the six months ended June 30,1998, the amounts
expensed for the Fund were $34,198.
On June 30, 1998, the Fund had payables to affiliates as follows:
Investment Management fee payable to DMC $62,789
Dividend disbursing, transfer agent fees, accounting fees and
other expenses payable to DSC 12,960
Other expenses payable to DMC and affiliates 28,826
Pursuant to the Distribution Agreement, the Funds pay DDLP, the
Distributor and an affiliate of DMC, an annual fee not to exceed 0.25%
of the average daily net assets of the A Class and 1.00% of the average
daily net assets of the B and C Class.
For the six months ended June 30, 1998, DDLP earned commissions on sales
of the National High Yield Municipal Bond Fund A Class shares of
$28,406.
Certain officers of DMC, DSC and DDLP are officers, directors and/or
employees of the Fund. These officers, directors and employees are paid
no compensation by the Fund.
4. Investments
During the six months ended June 30, 1998, the Fund made purchases and
sales of investment securities other than U.S. government securities and
temporary cash investments as follows:
NATIONAL HIGH YIELD
MUNICIPAL BOND FUND
----------------------
Purchases $36,550,164
Sales 18,129,774
At June 30, 1998, the aggregate cost of securities for federal income
tax purposes was $74,816,547.
At June 30, 1998, unrealized appreciation (depreciation) for federal
income tax purposes was as follows:
NATIONAL HIGH YIELD
MUNICIPAL BOND FUND
----------------------
Aggregate unrealized appreciation $3,933,174
Aggregate unrealized depreciation (30,372)
----------
Net unrealized appreciation 3,902,802
5. Capital Stock
Transactions in capital stock shares were as follows:
SIX MONTHS
ENDED
6/30/98 YEAR ENDED
(UNAUDITED) 12/31/97
---------- ----------
Shares sold:
A Class 1,139,704 514,279
B Class 545,574 329,079
C Class 227,645 112,800
Shares issued upon reinvestment of dividends from
net investment income and net realized gains
from security transactions:
A Class 90,537 211,092
B Class 7,914 4,026
C Class 2,783 908
---------- ----------
2,014,157 1,172,184
Shares repurchased:
A Class (259,378) (1,237,478)
B Class (46,299) (8,739)
C Class (12,017) (74)
---------- ----------
(317,694) (1,246,291)
Net Increase (Decrease) 1,696,463 (74,107)
========== ==========
6. Credit and Market Risk
The Fund concentrates its investments in securities issued by
municipalities. The value of these investments may be adversely affected
by new legislation within the states, regional or local economic
conditions, and differing levels of supply and demand for municipal
bonds. Many municipalities insure repayment for their obligations.
Although bond insurance reduces the risk of loss due to default by an
issuer, such bonds remain subject to the risk that market value may
fluctuate for other reasons and there is no assurance that the insurance
company will meet its obligations. These securities have been identified
in the Statement of Net Assets.
The Fund may invest in high-yield fixed income securities which carry
ratings of BB or lower by S&P and/or Ba or lower by Moody's. Investments
in these higher yielding securities may be accompanied by a greater
degree of credit risk than higher rated securities. Additionally, lower
rated securities may be more susceptible to adverse economic and
competitive industry conditions than investment grade securities.
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF NATIONAL HIGH YIELD
MUNICIPAL BOND FUND SHAREHOLDERS, BUT IT may be used with prospective
investors when preceded or accompanied by a current Prospectus for the
Fund, which sets forth details about charges, expenses, investment
objectives and operating policies of the Fund. You should read the
prospectus carefully before you invest. Summary investment results are
documented in the Fund's current Statement of Additional Information.
The figures in this report represent past results which are not a
guarantee of future results. The return and principal value of an
investment in the Fund will fluctuate so that shares, when redeemed, may
be worth more or less than their original cost.
INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
[PHOTO OF GLOBES]
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawarefunds.com
Be sure to consult your financial adviser when making investments.
Mutual funds can be a valuable part of your financial plan; however,
shares of the Fund are not FDIC or NCUSIF insured, are not guaranteed by
any bank or any credit union, and involve investment risk, including the
possible loss of the principal. Shares of the Fund are not bank or
credit union deposits.
[copyright] Delaware Distributors, L.P.
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Printed in the USA
on recycled paper
SA-425 [6/98] PP8/98
(898)
