<PAGE>
DELAWARE GROUP'S
National High Yield
Municipal Bond Fund
service and guidance
[VARIOUS PHOTOS DEMONSTRATING SERVICE AND
GUIDANCE, PROFESSIONAL MANAGEMENT AND GOALS]
professional management
goals
1997
Annual
Report
DELAWARE INVESTMENTS
- ---------------------
Philadelphia * London
<PAGE>
A TRADITION OF SOUND INVESTING
commitment
Delaware Investments has a tradition of money management that dates back to
1929. We have a long and distinguished history of helping individuals and
institutions - including some of America's largest pension funds - reach
their financial goals.
Headquartered in Philadelphia, a block from the nation's oldest stock
exchange, the Delaware organization established its first mutual fund in
1938. Delaware International Advisers Ltd., our international affiliate, was
established in 1990 and is headquartered in London.
Delaware Investments offers a full range of mutual funds. We also
manage investments for variable annuity products, unit investment trusts and
closed-end funds, and offer retirement plan services for individuals and
businesses.
Delaware manages more than $40 billion in mutual fund assets and
institutional advisory accounts for more than half-a-million investors. We're
part of a global financial service and investment management business owned
by Lincoln National Corporation, whose subsidiaries manage more than $120
billion in assets.
A Commitment
To Our Investors
[PHOTO OF KEYBOARD]
[PHOTO OF ILLUSTRATION FROM TAX-EXEMPT INCOME BROCHURES]
National High Yield
Municipal Bond Fund's
Objective
To provide a high level of current income exempt from federal income taxes by
investing primarily in a portfolio of medium- and lower grade municipal
bonds.
high-yield
<PAGE>
January 15, 1998
for tax-exempt
income
1
Dear Shareholder:
National High Yield Municipal Bond Fund provided strong results during fiscal
1997, a year when the municipal bond market benefited from a healthy U.S.
economy and the lowest inflation in more than a decade. For the 12 months
ended December 31, 1997, your Fund provided a total return of +10.35% (capita
change plus reinvested dividends for Class A shares). This outpaced both the
average of your Fund's peers and the unmanaged Lehman Brothers Municipal Bond
Index, as shown below.
Since May, the Fund has been co-managed by Patrick P. Coyne and
Mitchell L. Conery, two veteran portfolio managers with a thorough
understanding of municipal bond credit risks. They successfully assumed
responsibility for the National High Yield Municipal Bond Fund following the
integration of the Voyageur funds into the Delaware Investments family.
Fiscal 1997 was a banner year for municipal bonds. Among the
favorable developments during the period were:
o Passage of the Taxpayer Relief Act in July. This lifted the specter of
proposed federal tax legislation that could have made municipal bonds a
less attractive investment option.
o Rising tax revenues nationwide. Thanks to strong job growth and
corporate profits, some 37 states posted budget surpluses, including 15
whose surpluses amounted to more than 10% of collected tax revenue,
according to The Bond Buyer, a trade publication.
o Strong credit quality. Standard & Poor's and Moody's Investors Services
raised credit ratings on the general obligation bonds of several states.
Your Fund fully participated in the income and total return potential of many
municipal securities during the past year. We were able to outperform many of
our peers, as shown below, by going the extra mile to
FISCAL 1997 WAS A BANNER
YEAR FOR MUNICIPAL BONDS.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------------------------------------------
12 Months Ended 10 Years Ended
December 31, 1997 December 31, 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National High Yield Municipal Bond Fund A Class +10.32% +8.79%
Lipper High-Yield Municipal Debt Fund Average +10.11% (43 funds) +8.16% (16 funds)
Lehman Brothers Municipal Bond Index +9.19% +8.58%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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. For performance information for all classes,
please see page 6.
<PAGE>
for tax-exempt
income
2
analyze higher yielding bonds issued by both smaller, rural communities and
larger cities. Your Fund's portfolio was a diverse mix of more than 70
securities that included bonds issued for a co-generation plant at the
Brooklyn Navy Yard and retirement housing in South Dakota.
We view the municipal bond market's long-term prospects as
attractive, especially since Washington and many states still tax income at a
higher rate than capital gains. While the Taxpayer Relief Act offered many
potential benefits to more aggressive equity investors, it provided few
breaks to income-oriented investors. Municipal bonds remain one of the few
ways to provide investors monthly income potential without increasing their
federal tax bill.
In our view, the income from municipal bonds and the tax-free
compounding of such income over time has the potential to help heavily taxed
investors reach their financial goals more quickly. For taxpayers willing to
accept higher risks, high-yield municipal bonds can sometimes provide as muc
income on a tax-adjusted basis as taxable high-yield corporate bonds.
Your Fund has enjoyed positive cash flows from new investors since it
became part of Delaware this past spring. We thank you for being among the
investors who have expressed confidence in Delaware, which has grown to
become one of the nation's largest municipal bond investment managers.
On the pages that follow, Mr. Coyne and Mr. Conery review your Fund's
performance in 1997 and outline their approach for the coming year. We hope
you find our new annual report format informative.
Sincerely,
/s/ Wayne A. Stork
- ------------------------
Wayne A. Stork
Chairman
/s/ Jeffrey J. Nick
- ------------------------
Jeffrey J. Nick
President and Chief Executive Officer
discipline
Your Fund's Portfolio Managers
Patrick P. Coyne has managed fixed-income securities at Delaware Management
Company since 1990. He holds an MBA in finance from the University of
Pennsylvania's Wharton School of Business.
Mitchell L. Conery joined Delaware Management Company in January 1997 and
holds an MBA in finance from the State University of New York at Albany. He
had been managing a $5 billion municipal portfolio in New York prior to
joining Delaware.
<PAGE>
for tax-exempt
income
3
Portfolio Managers' Review
Renewed investor confidence in the long-term prospects of the municipal
securities market helped National High Yield Municipal Bond Fund perform well
in fiscal 1997. Lower quality bonds provided especially strong returns as
default rates remained low. Many states enjoyed large budget surpluses yet
maintained what appeared to be prudent control over expenses for social
services.
Passage of the Taxpayer Relief Act this past summer marked a turning
point for the market because it removed a major uncertainty for investors. By
retaining high tax rates on bond interest and dividends, Washington
reinforced the value of municipal bonds as a way to increase investment
income potential without the pain of federal tax rates as high as 39.6%.
During 1997, increased demand for municipal bonds from both
individual investors and institutions led to higher bond prices even as the
supply of newly issued municipal securities rose 19.2% to
$220.5 billion, according to The Bond Buyer. Many communities took advantage
of falling interest rates to refinance debt.
As bond prices rose, the difference in the income potential between
bonds rated AAA, the highest quality rating available, and lower quality and
unrated bonds narrowed substantially. The difference in income potential
between long-term bonds (maturities of 10 to 30 years) and short- and
intermediate-term notes (maturities of two to 10 years) also narrowed.
This trend, known as spread compression, made selecting high-yielding
securities for your Fund's portfolio a challenging task. In the second half
of 1997, we upgraded quality and shortened duration, in part, because we
believed the market was not providing enough extra yield to compensate
investors for the additional credit and interest rate risks of some
long-term, low quality bonds.
The high-yield municipal bond market is fragmented and modest in
size,
A Diverse Portfolio Helps Us Manage Risk
Portfolio Composition and State Concentration
December 31, 1997
Pre-Refunded 7.5%
General Obligation 11.4%
Housing 5.1%
Industrial Development 7.8%
Higher Education 4.1%
Pollution Control 9.3%
Cash 1.1%
Other Revenue Bonds 15.9%
Health Care 24.2%
Water/Sewer 13.6%
Top Five Share of
States Net Assets
- ---------------------------------------------------------
Illinois 14.8%
Alabama 11.5%
Pennsylvania 10.2%
Missouri 6.6%
Colorado 6.5%
- ---------------------------------------------------------
Total 49.6%
Approximately 1.7% of the income generated by the Fund for the 12 months
ended December 31, 1997, was subject to the federal alternative minimum tax.
<PAGE>
strategic
for tax-exempt
income
4
Portfolio Highlights
- --------------------------------------------------------------------------------
June 30, 1997 December 31, 1997
- --------------------------------------------------------------------------------
Average Effective Maturity 9.2 years 6.2 years
Average Effective Duration 5.5 years 4.9 years
Number of Securities 67 72
Thirty-day Current SEC Yield* 5.40% 4.97%
- --------------------------------------------------------------------------------
*For Class A shares based on Securities and Exchange Commission guidelines.
Thirty-day current SEC yields for B Class and C Class as of 12/31/97 were
4.41% and 4.40% respectively.
representing less than 10% of municipal debt outstanding according to The
Bond Buyer. We sought to add value to your Fund's portfolio by focusing on a
combination of small, unrated bond issues from rural communities and larger
issues in selected urban areas.
LOWER QUALITY
MUNICIPAL BONDS
PROVIDED ESPECIALLY
STRONG RETURNS IN
1997 AS DEFAULT
RATES REMAINED LOW.
Typically the bond market demands a higher yield from small towns
because they may have no track record in the municipal debt market, or the
size of a bond issue may be too small to attract widespread investor
interest. Sometimes, too, a community does not get a bond issue rated because
the cost of securing a rating is too great.
Such situations present your Fund's management with an opportunity to
increase income potential after we carefully assess credit risks. An example
of unrated bonds we bought in 1997 were water and sewer bonds issued by
Vance, Alabama. In our opinion, this community of about 3,000 people is
benefiting from Mercedes-Benz' decision to locate its North American sport
utility vehicle manufacturing plant on the outskirts of town.
Lance was a first time bond issuer that needed a new water treatment
plant to accommodate growth related to the plant's opening. After analyzing
the community, we added its bonds to your Fund's portfolio. We think one way
we keep track of the town's prospects is by monitoring employment and
production trends at the plant as well as consumer demand for Mercedes'
products.
Sector Positioning
As of December 31, 1997, health care bonds represented the single largest
component of your Fund's portfolio. Our holdings consisted of a combination
of bonds financing hospitals and bonds for continuing care centers. The
sector has historically offered higher yields than other types of municipal
bonds. However, in recent years, the industry's risks have increased amid
rising competition and a rapidly changing regulatory environment. We
generally seek bonds tied to institutions that, in our opinion, are likely to
do well as the industry consolidates.
Municipal housing bonds have also historically been a good source of
higher yields. However, we were underweighted in this area in 1997 and expect
to remain so in 1998. In our view, there is too much risk
QUALITY BREAKDOWN
- ------------------------------------------------
June 30, 1997 December 31, 1997
- ------------------------------------------------
Unrated 71.2% 68.1%
BB 0.0% 1.7%
BBB 14.3% 20.3%
A 6.5% 5.1%
AAA and AA 8.0% 4.8%
<PAGE>
for tax-exempt
income
5
that refinancing activity in this sector will increase in the year ahead
given that interest rates have dropped sharply.
Outlook
Even though the municipal bond market rallied substantially in 1997, we still
believe selected securities offer solid income opportunities and relatively
moderate credit risk. For investors in high tax brackets, high-yield
municipal bonds offered as much after-tax income potential as much higher
risk, high-yield corporate bonds at the start of fiscal 1998.
For example, a 5% SEC yield on a high-yield municipal bond fund is
equal to a 8.5% SEC yield on a taxable bond for investors in the 39.6%
federal tax bracket. As of December 31, 1997, such a taxable equivalent yield
would have been 75 basis points (0.75%) higher than the average yield of 228
mutual funds that specialize in taxable corporate bonds (based on the Lipper
High Current Yield Fund Average). Of course, the tax-adjusted yield advantage
of municipal bonds depends on an investor's tax bracket and past performance
does not guarantee future results.
Still, we'd like to offer a note of caution for the year ahead
because we believe reports suggesting that inflation is dead are premature.
U.S. job growth has continued at a brisk pace while the labor force
participation rate - the proportion of people who have or are looking for a
job - reached a record level of more than 67% of working age Americans in
December, Government figures show.
While this trend has served to boost state tax revenues and reduce
social expenses, it suggests that the Federal Reserve Board needs to remain
vigilant to prevent consumer prices from rising too much. We do not think
yields on long-term U.S. Treasury bonds will fall significantly below 5% in
1998, and in fact could rise modestly from current levels.
Patrick P. Coyne
Vice President
Senior Portfolio Manager
Mitchell L. Conery
Vice President
Senior Portfolio Manager
January 15, 1998
outlook
Moderate Quality Municipal Bonds
Offer Attractive Tax-Equivalent Yields
December 31, 1997
Tax Equivalent Yields
Years to
Maturity US Treasuries General Obligation Municipal Bonds Rated A
1 Year 5.47% 6.36%
2 Year 5.64% 6.61%
3 Year 5.66% 6.72%
4 Year 5.70% 6.94%
5 Year 5.70% 7.10%
7 Year 5.75% 7.33%
10 Year 5.74% 7.68%
15 Year 5.87% 8.31%
20 Year 6.00% 8.56%
25 Year 5.96% 8.61%
30 Year 5.92% 8.64%
The above chart shows the tax-equivalent yield for an investor in the 39.6%
federal income tax bracket. Municipal bonds vary in quality and, unlike U.S.
Treasury securities, are not guaranteed by the U.S. government. An A rated
bond is considered moderate quality investment grade. Source: Bloomberg
Business News.
<PAGE>
for tax-exempt
income
6
Fund Performance
National High Yield Municipal Bond Fund's 10-Year Performance
Growth of a $10,000 Investment
December 31, 1987, to December 31, 1997
<TABLE>
<CAPTION>
Lehman Brothers National High Yield Lipper High Yield Municipal
Municipal Bond Index Municipal Bond Fund A Class Debt Fund Average (16funds)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dec. 31 '87 $10,000 $9,623 $10,000
Dec. 31 '88 $11,015 $10,607 $11,105
Dec. 31 '89 $12,203 $11,709 $12,204
Dec. 31 '90 $13,094 $12,460 $12,743
Dec. 31 '91 $14,684 $13,873 $14,220
Dec. 31 '92 $15,979 $15,235 $15,402
Dec. 31 '93 $17,942 $16,985 $17,153
Dec. 31 '94 $17,014 $16,542 $16,407
Dec. 31 '95 $19,984 $19,061 $19,049
Dec. 31 '96 $20,870 $20,241 $19,851
Dec. 31 '97 $22,787 $23,738 $21,847
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Chart assumes a $10,000 investment on December 31, 1987, a 3.75% 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. Past
performance does not guarantee future results.
<TABLE>
<CAPTION>
NATIONAL HIGH YIELD MUNICIPAL BOND FUND PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS THROUGH DECEMBER 31, 1997
Lifetime Ten Years Five Years One Year
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A (Est. 9/22/86)
Excluding Sales Charge +8.22% +8.79% +7.97% +10.32%
Including Sales Charge +7.86% +8.38% +7.14% +6.14%
- -----------------------------------------------------------------------------------------------------------------------------------
Class B (Est. 12/18/96)
Excluding Sales Charge +9.66% +9.57%
Including Sales Charge +5.81% +5.57%
- -----------------------------------------------------------------------------------------------------------------------------------
Class C (Est. 5/26/97)
Excluding Sales Charge* +6.88%
Including Sales Charge* +5.88%
</TABLE>
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 either contingent sales charges
did not apply or the investment was not redeemed. Return reflects voluntary
expense limitations in effect at that time. Returns would have been lower
without the limitations.
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 4% if redeemed before the end of the sixth year.
*Cumulative return. Class C shares have a 1% annual distribution and service
fee. If redeemed within 12 months, a 1% contingent deferred sales charge
applies. Performance for this class for the short time period since inception
may not be representative of longer term results.
<PAGE>
for tax-exempt income 7
Financial Statements
DELAWARE GROUP'S
NATIONAL HIGH YIELD MUNICIPAL BOND FUND
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL BONDS - 98.79%
Continuing Care/Retirement Revenue
Bonds - 15.14%
Alexandria Health Care Facility Revenue -
Board of Social Ministry 8.75% 8/1/2 ........... $ 500,000 $ 555,405
Clark County Nevada Assisted Living Homestead
Boulder City 6.50% 12/1/27 ..................... 2,075,000 2,109,217
Indianapolis Indiana Economic Development
Revenue - National Benevolent Association
7.25% 10/1/10 .................................. 700,000 778,260
Montgomery County Ohio Health Care Revenue
6.25% 2/1/22 ................................... 175,000 179,769
Marion County Missouri Nursing Home Revenue
7.00% 8/1/13 ................................... 1,050,000 1,109,147
South Dakota Health and Education Facilities
Revenue - Westhills Retirement Village
7.25% 9/1/13 ................................... 1,125,000 1,172,351
Spring Park Minnesota Twin Birch Health Care
Center (Guarantor: Presbyterian Homes of
Minnesota) 8.25% 8/1/11 ........................ 500,000 537,380
St Louis County Missouri Industrial Development
Authority - Deaconess Manor Association
7.50% 6/1/16 ................................... 1,500,000 1,567,425
Volusia Florida Industrial Development Authority -
Bishops Glen Project Retirement Health
Facilities 7.50% 11/1/16 ....................... 1,065,000 1,115,481
-----------
9,124,435
-----------
General Obligation Bonds - 11.36%
Etowah County Alabama Refunding Warrants
8.50% 11/1/10 .................................... 800,000 895,832
Niles Illinois Park District Unlimited Tax
6.65% 12/1/14 .................................... 860,000 938,251
Illinois State Development Finance Authority East
St. Louis Debt Restructure Revenue 7.375%
11/15/11 ......................................... 1,100,000 1,241,009
Orange Beach Alabama Refunding and Capital
Improvement Unlimited Tax 6.25% 10/1/13 .......... 1,500,000 1,590,615
Panorama Colorado Metropolitan District
Unlimited Tax 9.00% 12/1/09 ...................... 750,000 824,228
Romeoville Illinois Recreational Facilities
Unlimited Tax 7.80% 1/1/11 ....................... 1,000,000 1,095,460
Winter Park West Colorado Water and Sanitation
District Unlimited Tax 9.25% 12/1/06 ............. 250,000 258,888
-----------
6,844,283
----------
Higher Education Revenue Bonds - 4.14%
New Hampshire Education and Health Authority -
Brewster Academy 6.75% 6/1/25.................... 1,000,000 1,084,530
<PAGE>
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (Continued)
Higher Education Revenue Bonds (Continued)
Pennsylvania Higher Education Facility Authority -
Drexel University 6.75% 5/1/12 ................... $1,300,000 $1,409,083
-----------
2,493,613
-----------
Hospital Revenue Bonds - 9.06%
Illinois Health Facility Authority Revenue -
Midwest Physician Group Project
8.10% 11/15/14 ................................... 980,000 1,133,076
Illinois State Development Finance Authority
Harrisburg Medical Center Project 7.00%
3/1/06 ........................................... 400,000 429,912
Illinois State Development Finance Authority
Harrisburg Medical Center Project 7.20%
3/1/07 ........................................... 400,000 431,840
Illinois State Development Finance Authority
Harrisburg Medical Center Project 7.20%
3/1/08 ........................................... 400,000 429,692
Ohio County West Virginia Building Commission -
Ohio Valley Medical Center 9.625% 1/1/13 ......... 775,000 785,788
Saint Joseph County Industrial Economic
Development, Reference - Madison Center
Project 5.50% 2/15/21 ............................ 1,150,000 1,145,446
South Dakota Health and Education Facilities
Revenue - Huron Regional Medical Center
7.00% 4/1/10 ..................................... 1,000,000 1,101,350
-----------
5,457,104
-----------
Housing Revenue Bonds - 5.10%
Bernalillo County New Mexico Multifamily Housing -
Topke Commons/Arbors Project - Series D
7.70% 4/1/27 .................................... 1,000,000 1,037,200
Wharton Housing Development Corporation -
State Multifamily Housing Section 8
8.00% 2/1/03 .................................... 100,000 100,036
Wharton Housing Development Corporation -
State Multifamily Housing Section 8 8.00%
2/1/04 .......................................... 105,000 105,038
Wharton Housing Development Corporation -
State Multifamily Housing Section 8 8.00%
2/1/05 .......................................... 110,000 110,040
Wharton Housing Development Corporation -
State Multifamily Housing Section 8 8.00%
2/1/06 .......................................... 120,000 120,043
Wharton Housing Development Corporation -
State Multifamily Housing Section 8 8.00%
2/1/07 .......................................... 130,000 130,047
Wharton Housing Development Corporation -
State Multifamily Housing Section 8 8.00%
2/1/08 .......................................... 140,000 140,050
<PAGE>
8 for tax-exempt income
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (Continued)
Housing Revenue Bonds (Continued)
Wharton Housing Development Corporation -
State Multifamily Housing Section 8 8.00%
2/1/09 ........................................ $ 155,000 $ 155,056
Wharton Housing Development Corporation -
State Multifamily Housing Section 8 8.00%
2/1/10 ........................................ 165,000 165,059
Washington State Housing Finance Commonwealth
Nonprofit - Virginia Mason Research Center
Project A 5.70% 1/1/24 ........................ 1,000,000 1,012,900
-----------
3,075,469
-----------
Industrial Development Revenue Bonds - 7.78%
Moundville Alabama Industrial Development Board
Revenue Lawter International, Inc. Project
Series LI 6.75% 12/1/11 ....................... 1,500,000 1,610,370
Newbern Tennessee Industrial Development Board
Newbern Rubber, Inc. - (Dana Corporation)
7.90% 3/1/00 .................................. 1,000,000 1,058,180
New York City Industrial Development Agency
Brooklyn Navy Yard Cogen Partners
5.75% 10/1/36 ................................. 1,000,000 1,007,080
Virginia Beach Development Authority Revenue
Reference Ramada On The Beach 6.625%
12/1/09 ....................................... 1,000,000 1,010,090
-----------
4,685,720
-----------
Pollution Control Revenue Bonds - 9.29%
California Pollution Control Authority -
Pollution Control Revenue - Laidlaw
Environmental - Series A 6.70% 7/1/07............ 1,000,000 1,048,590
Jefferson County Arkansas Pollution Control
Reference - Energy Arkansas 5.60%
10/1/17 ......................................... 1,000,000 1,008,470
Lewis and Clark County Environmental Revenue
Reference - Asarco Incorporated Project
5.60% 1/1/27 .................................... 1,500,000 1,514,325
Ohio State Air Quality Development Authority
Revenue - Pollution Control - Series B
6.00% 8/1/20 .................................... 1,000,000 1,048,440
Yarmouth Maine Pollution Control Revenue -
Central Maine Power 6.75% 6/1/02 ................ 965,000 977,526
-----------
5,597,351
-----------
*Pre-Refunded Bonds - 7.49%
Arapahoe Colorado Water and Sanitation District
Revenue 9.125% 12/1/08-98 ........................ 200,000 211,284
Arapahoe Colorado Water and Sanitation District
Revenue 9.125% 12/1/08-98 ........................ 300,000 316,926
Arapahoe Colorado Water and Sanitation District
Revenue 9.25% 12/1/13-98 ......................... 210,000 222,077
Bedford Park Illinois Tax Increment Revenue
8.00% 12/1/10-04 ................................ 1,200,000 1,449,924
Colorado Technical Center Metropolitan District
Unlimited Tax 9.75% 6/1/09-99 .................... 570,000 620,656
<PAGE>
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (Continued)
*Pre-Refunded Bonds (Continued)
Lead South Dakota Recreation Center Lease
Revenue - Northern Hills YMCA 8.875%
10/1/18-98 ...................................... $ 590,000 $ 628,911
Streamwood Illinois Special Service Area #3 Tax
Revenue 8.375% 1/1/09-99 ......................... 1,000,000 1,061,610
-----------
4,511,388
-----------
Transportation Revenue Bonds - 0.68%
Puerto Rico Commonwealth Highway &
Transportation Authority (Highway Improvements)
Series Y 5.50% 7/1/26............................. 400,000 407,656
-----------
407,656
-----------
Utility Revenue Bonds - 2.34%
Chelsea Oklahoma Gas Authority 7.30% 7/1/19....... 700,000 758,618
Chelsea Oklahoma Gas Authority 7.25% 7/1/13....... 600,000 652,032
-----------
1,410,650
-----------
Water and Sewer Revenue Bonds - 13.57%
Easton Pennsylvania Area Joint Sewer Authority
6.20% 4/1/09 .................................... 1,000,000 1,085,710
Elizabeth Borough Pennsylvania Municipal
Authority - Guaranteed Sewer 7.15% 1/1/21 ........ 500,000 560,125
Franklin County Missouri Public Water Supply
District Waterworks and Sewer System
7.375% 12/1/18 .................................. 1,255,000 1,350,167
Hopewell Township Pennsylvania Guaranteed
Sewer 6.00% 11/1/13 ............................. 1,215,000 1,232,119
New Kensington Pennsylvania Municipal Sanitation
Authority Revenue 7.50% 10/1/11 ................. 1,000,000 1,067,980
Upper Bear Creek Alabama Water, Sewer, and
Fire Revenue District 6.25% 8/1/15 .............. 1,250,000 1,294,050
Vance Alabama Governmental Utility Services
Corporate Sewer Services Revenue 7.50%
10/1/18 ......................................... 1,550,000 1,588,084
-----------
8,178,235
-----------
Other Revenue Bonds - 12.84%
Arbor Greene Community Development District,
Special Assessment Revenue 7.00% 5/1/03 .......... 855,000 879,256
Colorado Postsecondary Education Facilities
Authority Colorado Ocean Journey Project
8.00% 12/1/06 ................................... 1,000,000 1,113,680
Fishers Economic Development Revenue -
United Student Aid Fund, Inc. 8.375% 9/1/14 ...... 1,000,000 1,034,940
Lehigh County General Purpose Authority - Wiley
House 8.75% 11/1/14 ............................. 750,000 788,978
Oklahoma City Public Property Authority - City
Golf System 8.30% 10/1/16 ........................ 1,000,000 1,059,410
Pocatello Development Authority and Tax
Increment Revenue 7.25% 12/1/08 .................. 250,000 260,118
Prescott Valley Arizona Improvement District -
Special Assessment 7.90% 1/1/12 .................. 500,000 563,775
Washington State Housing Finance Commission -
State School Directors' Association - Private
Placement 8.25% 7/1/02 .......................... 170,000 184,292
<PAGE>
for tax-exempt income 9
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (Continued)
Other Revenue Bonds (Continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Washington State Housing Finance Commission -
State School Directors' Association - Private
Placement 8.25% 7/1/02 ...................... $ 625,000 $ 721,513
West Chicago Illinois Tax Increment 7.375%
12/1/12 ..................................... 720,000 777,298
Westminster Colorado Shaw Heights Special
Improvement District 7.50% 12/1/07 ........... 350,000 353,440
----------- -----------
7,736,700
-----------
Total Municipal Bonds (cost $55,970,628) ....... 59,522,604
-----------
Number
of Shares
----------
SHORT-TERM INVESTMENTS - 2.27%
Norwest Advantage Municipal Money
Market Fund .................................. 1,370,000 1,370,000
-----------
Total Short Term Investments (cost $1,370,000).. 1,370,000
-----------
TOTAL MARKET VALUE OF SECURITIES OWNED - 101.06%
(cost $57,340,628) ........................... 60,892,604
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS -
(1.06%) . .................................... (641,100)
-----------
NET ASSETS APPLICABLE TO 5,619,259 SHARES
($.01 PAR VALUE) OUTSTANDING - 100.00% ....... $60,251,504
===========
NET ASSET VALUE - NATIONAL HIGH YIELD FUND A CLASS
($55,458,369 / 5,172,762 shares) .............. $10.72
===========
NET ASSET VALUE - NATIONAL HIGH YIELD FUND B CLASS
($3,572,705 / 332,863 shares) ................. $10.73
===========
NET ASSET VALUE - NATIONAL HIGH YIELD FUND C CLASS
($1,220,430 / 113,634 shares) ................. $10.74
===========
- -------------------
*For Pre-Refunded Bonds, the stated maturity is followed by the
year in which each bond is pre-refunded.
COMPONENTS OF NET ASSETS AT DECEMBER 31, 1997:
Common stock, $.01 par value, 100,000,000,000 shares
authorized to the Fund with 10,000,000,000 shares
allocated to 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 .............. $56,427,554
Accumulated net realized gain on investments ................. 271,974
Net unrealized appreciation on investments ................... 3,551,976
-----------
Total net assets.............................................. $60,251,504
===========
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE FOR NATIONAL HIGH YIELD
MUNICIPAL BOND FUND A CLASS
Net asset value per share (A) ................................ $10.72
Sales charge (3.75% of offering price or 3.92% of amount
invested per share) (B) .................................... 0.42
-----------
Offering price ............................................... $11.14
===========
- --------------------
(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.
Delaware Group's
National High Yield Municipal Bond Fund
Statement Of Operations
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest......................................... $3,888,274
-----------
EXPENSES:
Management fees ................................. $ 362,050
Distribution expense ............................ 151,515
Dividend disbursing, transfer agent fees
and expenses .................................. 59,896
Accounting and administration ................... 20,729
Professional fees ............................... 20,362
Custodian fees .................................. 5,507
Registration fees, reports and statements to
shareholders, taxes (other than taxes on
income), and other expenses ................... 9,778
Directors' fees ................................. 2,309
--------
632,146
Less expenses waived or absorbed ................ (153,755) 478,391
-------- -----------
NET INVESTMENT INCOME............................ 3,409,883
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments 782,775
Net change in unrealized appreciation of
investments during the period.................. 1,305,512
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ................................ 2,088,287
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................... $5,498,170
============
See accompanying notes
<PAGE>
10 for tax-exempt income
Delaware Group's
National High Yield Municipal Bond Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Five months Year
ended ended ended
12/31/97 12/31/96(1) 7/31/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . . .. $3,409,883 $1,546,818 $3,937,960
Net realized gain (loss) on investments. . . . . . . . . . . . . . . . . . .. 782,775 (97,077) 211,120
Net change in unrealized appreciation of investments during the period. . . . 1,305,512 1,323,262 691,939
---------- ---------- ----------
Net increase in net assets resulting from operations. . . . . . . . . . . . . 5,498,170 2,773,003 4,841,019
---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,329,293) (1,541,075) (3,937,960)
B Class. . . . . . . . . . . . . . . . . (69,276) (121) N/A
C Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,936) N/A N/A
Net realized gain from security transactions:
A Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (361,157) -- (779,384)
B Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,891) -- N/A
C Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,153) N/A N/A
Excess distribution of net realized gain:
A Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (25,474)
B Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- N/A
C Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- N/A N/A
---------- ---------- ----------
(3,803,706) (1,541,196) (4,742,818)
---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,556,071 2,208,712 2,593,882
B Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,486,119 88,126 N/A
C Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,199,065 N/A N/A
Net asset value of shares issued upon reinvestment of dividends from net
investment income and net realized gain on security transactions:
A Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,223,087 625,742 2,523,625
B Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,767 -- N/A
C Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,665 N/A N/A
---------- ---------- ----------
12,516,774 2,922,580 5,117,507
---------- ---------- ----------
Cost of shares repurchased:
A Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,058,929) (8,421,106) (8,113,265)
B Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (92,987) -- N/A
C Class. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (794) N/A N/A
---------- ---------- ----------
(13,152,710) (8,421,106) (8,113,265)
---------- ---------- ----------
Decrease in assets derived from capital share transactions. . . . . . . . . . (635,936) (5,498,526) (2,995,758)
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . . . . . . . . . . . 1,058,528 (4,266,719) (2,897,557)
---------- ---------- ----------
NET ASSETS:
Beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,192,976 63,459,695 66,357,252
---------- ---------- ----------
End of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,251,504 $59,192,976 $63,459,695
=========== =========== ===========
- ---------------------
1 The Fund changed its fiscal year end to December 31.
N/A - The Fund's B and C Classes did not commence operations until December 18, 1996, and May 26, 1997, respectively.
</TABLE>
See accompanying notes.
<PAGE>
for tax-exempt income 11
Delaware Group's
National High Yield Municipal Bond Fund
Financial Highlights
December 31, 1997
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
National High Yield Municipal Bond Fund - Class A
----------------------------------------------------
Period from
Year 8/1/96 Year Year Year Year
ended to ended ended ended ended
12/31/97(4) 12/31/96(1) 7/31/96 7/31/95 7/31/94 7/31/93
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period. . . . . . . . . . . . . . . $10.400 $10.190 $10.170 $10.170 $10.500 $10.220
Income from investment operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . 0.648 0.260 0.630 0.650 0.620 0.650
Net realized and unrealized gain (loss) from investments. . . . 0.390 0.210 0.140 0.040 (0.310) 0.280
------- ------- ------- ------- ------- -------
Total from investment operations. . . . . . . . . . . . . . . . 1.038 0.470 0.770 0.690 0.310 0.930
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income. . . . . . . . . . . . . . (0.647) (0.260) (0.630) (0.650) (0.620) (0.650)
Distributions from net realized gain on security transactions . (0.071) 0.000 (0.120) (0.040) (0.020) 0.000
------- ------- ------- ------- ------- -------
Total dividends and distributions . . . . . . . . . . . . . . . (0.718) (0.260) (0.750) (0.690) (0.640) (0.650)
------- ------- ------- ------- ------- -------
Net asset value, end of period. . . . . . . . . . . . . . . . . . $10.720 $10.400 $10.190 $10.170 $10.170 $10.500
======== ======= ======= ======= ======= =======
Total return(2) . . . . . . . . . . . . . . . . . . . . . . . . . 10.32% 4.52% 7.78% 7.16% 2.99% 9.45%
Ratios and supplemental data:
Net assets, end of period (000 omitted) . . . . . . . . . . . . $55,458 $59,105 $63,460 $66,357 $72,172 $58,048
Ratio of expenses to average net assets . . . . . . . . . . . . 0.84% 0.87%(3) 0.85% 0.79% 0.91% 1.01%
Ratio of expenses to average net assets prior to expense
limitation . . . . . . . . . . . . . . . . . . . . . . . . . . 1.12% 1.07%(3) 0.96% 0.90% 1.01% 1.24%
Ratio of net investment income to average net assets . . . . .. 6.15% 6.06%(3) 6.10% 6.45% 5.98% 6.32%
Ratio of net investment income to average net assets prior to
expense limitation . . . . . . . . . . . . . . . . . . . . . . 5.87% 5.86%(3) 5.99% 6.34% 5.88% 6.09%
Portfolio turnover. . . . . . . . . . . . . . . . . . . . . . . 45% 8% 0% 8% 28% 16%
- -------------------
1 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.
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
distributions at net asset value and does not reflect the impact of a sales charge.
3 Annualized.
4 Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc., as the Fund's investment manager.
</TABLE>
See accompanying notes.
<PAGE>
12 for tax-exempt income
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
National High Yield Municipal Bond Fund
Class B Class C
------------------------------ ----------------
Period from Period from
Year 12/18/96(1) 5/26/97(1)
Ended to to
12/331/97(4) 12/31/96 12/31/97(4)
<S> <C> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . $10.400 $10.370 $10.440
Income from investment operations:
Net investment income. . . . . . . . . . . . . . . . . . . . . . . . . . 0.534 0.010 0.315
Net realized and unrealized gain (loss) from investments . . . . . . . . 0.433 0.030 0.391
------- -------- ---------
Total from investment operations . . . . . . . . . . . . . . . . . . . . 0.967 0.040 0.706
------- -------- ---------
Less dividends and distributions:
Dividends from net investment income . . . . . . . . . . . . . . . . . . (0.566) (0.010) (0.335)
Distributions from net realized gain on security transactions. . . . . . (0.071) 0.000 (0.071)
------- -------- ---------
Total dividends and distributions. . . . . . . . . . . . . . . . . . . . (0.637) (0.010) (0.406)
------- -------- ---------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . $10.730 $10.400 $10.740
======= ======== ========
Total return(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.57% 0.43% 6.88%
Ratios and supplemental data:
Net assets, end of period (000 omitted) . . . . . . . . . . . . . . . . $3,573 $88 1,220
Ratio of expenses to average net assets . . . . . . . . . . . . . . . . 1.56% 1.45%(3) 1.62%(3)
Ratio of expenses to average net assets prior to expense limitation . . 1.84% 1.66%(3) 1.90%(3)
Ratio of net investment income to average net assets. . . . . . . . . . 5.43% 4.65%(3) 5.37%(3)
Ratio of net investment income to average net assets prior to expense
limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.15% 4.44%(3) 5.09%(3)
Portfolio turnover. . . . . . . . . . . . . . . . . . . . . . . . . . . 45% 8% 45%
- ---------------------
1 Commencement of operations.
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
distributions at net asset value and does not reflect the impact of a sales charge.
3 Annualized.
4 Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc., as the Fund's investment manager.
See accompanying notes.
</TABLE>
<PAGE>
for tax-exempt income 13
Delaware Group's
National High Yield Municipal Bond Fund
Notes to Financial Statements
December 31, 1997
- ------------------------------------------------------------------------------
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. The Fund offers three classes of
shares.
1. Fund Reorganization
On April 30, 1997, Lincoln National Corporation ("LNC") acquired Voyageur
Fund Manager Inc.'s ("Voyageur") parent, Dougherty Financial Group, Inc.
("DFG") pursuant to an agreement and plan of merger dated January 15, 1997,
in which LNC acquired DFG including the mutual fund investment advisory
business of DFG conducted by Voyageur. Upon completion of the acquisition,
Delaware Management Company, Inc. ("DMC") became the investment adviser to
the Fund, Delaware Distributors, L.P. ("DDLP") became the distributor for
the Fund, and Delaware Service Company, Inc. ("DSC") became the transfer,
dividend-disbursing, shareholder servicing agent and accounting service
agent for the Fund.
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.
<PAGE>
Other - Expenses common to all funds within the Delaware-Voyageur Funds
are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased
or sold (trade date). Costs used in calculating realized gains and losses
on the sale of investment securities are those of the specific securities
sold. Interest income is recorded on the accrual basis. Original issue
discounts and market premium are amortized to interest income over the
lives of the respective securities. The Fund declares dividends from net
investment income daily and pays them monthly. Capital gains 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
Commencing May 1, 1997, and in accordance with the terms of the
Investment Management Agreement, the Fund pays DMC, the Investment Manager
the Fund, an annual fee of 0.65%, which is calculated daily based on the
net assets of the Fund.
DMC has elected to waive its fee and reimburse the Fund to the extent
that annual operating expenses exclusive of distribution fees, taxes,
interest, brokerage commissions and extraordinary expenses, exceed 0.59% of
average daily net assets through December 31, 1997. Total expenses absorbed
by DMC for the eight month period ended December 31, 1997, were $85,657.
Prior to May 1, 1997, the Fund had an investment advisory and management
agreement with Voyageur. Voyageur received a fee for its investment
advisory and management services based on the average daily net assets of
each Fund at an annual rate of .65%. During the period January 1, 1997, to
April 30, 1997, Voyageur waived fees in the amount of $68,098.
Commencing May 1, 1997, the Fund engaged DSC, an affiliate of DMC, to
serve as dividend disbursing, transfer agent and accounting services agent
for the Fund. For the eight month period ended December 31, 1997, the
amounts expensed for the Fund were $24,180.
Prior to May 1, 1997, the Fund paid a fee to Voyageur for acting as the
Fund's dividend disbursing, administrative and accounting services agent.
The Fund was also responsible for reimbursing Voyageur's out-of-pocket
expense in connection with the performance of these services.
<PAGE>
14 for tax-exempt income
Notes to Financial Statements (Continued)
- -------------------------------------------------------------------------------
3. Investment Management and Other Transactions with Affiliates (Continued)
On December 31, 1997, the Fund had payables to affiliates as follows:
Investment Management fee payable to DMC........................... $112,133
Dividend disbursing, transfer agent fees, accounting fees
and other expenses payable to DSC................................ $7,125
Other expenses payable to DMC and affiliates....................... $2,149
Commencing May 1, 1997, and pursuant to the Distribution Agreement, the
Funds pay DDLP, the Distributor and an affiliate of DMC, an annual fee not
to exceed 0.25% of the average daily net assets of the A Class and 1.00% of
the average daily net assets of the B and C Class. For the eight month
period ended December 31, 1997, DDLP earned commissions on sales of the
National High Yield Municipal Bond Fund A Class shares of $13,282.
Prior to May 1, 1997, each class of shares had a Distribution Agreement
with Voyageur Fund Distributors, Inc. ("VFD"). Under the plan the Fund paid
VFD a fee at an annual rate of 0.25% of the average daily net assets of the
Class A Shares and 1.00% of the average daily net assets of the Class B and
C Shares.
Certain officers of DMC, DSC and DDLP are officers, directors and/or
employees of the Fund. These officers, directors and employees are paid no
compensation by the Fund.
4. Investments
During the period ended December 31, 1997, the Fund made purchases and
sales of investment securities other than U.S. government securities and
temporary cash investments as follows:
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,088,204
Sales . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . $27,550,528
At December 31, 1997, the aggregate cost of securities for federal income
tax purposes was $57,340,628.
At December 31, 1997, unrealized appreciation (depreciation) for federal
income tax purposes was as follows:
Aggregate unrealized appreciation . . . . . . . . . . . . . . . . $3,551,976
Aggregate unrealized depreciation . . . . . . . . . . . . . . . . 0
----------
Net unrealized appreciation . . . . . . . . . . . . . . . . . . $3,551,976
<PAGE>
5. Capital Stock
Year Five months Year
ended ended ended
12/31/97 12/31/96 7/31/96
---------- ---------- ---------
Shares sold:
A Class . . . . . . . . . . . 514,279 213,088 253,498
B Class(1). . . . . . . . . . 329,079 8,498 N/A
C Class(2). . . . . . . . . . 112,800 N/A N/A
Shares issued upon reinvestment of
dividends from net investment
income and net realized gains
from security transactions:
A Class . . . . . . . . . . . . . 211,092 60,940 245,537
B Class(1). . . . . . . . . . . . 4,026 -- N/A
C Class(2). . . . . . . . . . . . 908 N/A N/A
---------- -------- ---------
1,172,184 282,526 499,035
---------- -------- ---------
Shares repurchased:
A Class . . . . . . . . . . . . . (1,237,478) (819,364) (790,794)
B Class(1). . . . . . . . . . . . (8,739) -- N/A
C Class(2). . . . . . . . . . . . (74) N/A N/A
---------- -------- ---------
(1,246,291) (819,364) (790,794)
---------- -------- ---------
Net Decrease. . . . . . (74,107) (536,838) (291,759)
---------- -------- ---------
- ---------------------
1 Commenced operations on December 18, 1996.
2 Commenced operations on May 26, 1997.
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.
<PAGE>
for tax-exempt income 15
Delaware Group's
National High Yield Municipal Bond Fund
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Voyageur Mutual Funds, Inc. - Delaware-Voyageur National High Yield
Municipal Bond Fund
We have audited the accompanying statement of net assets of National High
Yield Municipal Bond Fund (the "Fund") as of December 31, 1997, and the
related statement of operations, the statement of changes in net assets and
the financial highlights for the year or period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. The statement of
changes in net assets for the year ended December 31, 1996 and the
financial highlights for the periods through December 31, 1996 were audited
by other auditors whose report dated February 14, 1997 expressed an
unqualified opinion on such statement and financial highlights.
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 and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and financial highlights. Our procedures
included confirmation of securities owned as of December 31, 1997, by corres
pondence with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the 1997 financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Fund at December 31, 1997, and the results of its operations, the changes
in its net assets and the financial highlights for the year or period then
ended, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 16, 1998
<PAGE>
Delaware Investments Fund Family
For Growth of Capital
Aggressive Growth Fund
Trend Fund
DelCap Fund
Small Cap Value Fund
U.S. Growth Fund
Growth Stock Fund
Tax-Efficient Equity Fund
For Total Return
Social Awareness Fund
Blue Chip Fund
Devon Fund
Decatur Total Return Fund
Decatur Income Fund
REIT Fund
Delaware Fund
For International Diversification
Emerging Markets Fund
New Pacific Fund
Overseas Equity Fund
International Equity Fund
Global Assets Fund
Global Bond Fund
For Current Income
Delchester Fund
High-Yield Opportunities Fund
Strategic Income Fund
U.S. Government Fund
Delaware-Voyageur
U.S. Government Securities Fund
Limited-Term Government Fund
For Tax-Exempt Income
National High Yield Municipal Bond Fund
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
State Tax-Free Funds*
Money Market Funds
Delaware Cash Reserve
Tax-Free Money Fund
Asset Allocation Funds
Growth Portfolio
Balanced Portfolio
Income Portfolio
*Available for the following states: Arizona, California, Colorado,
Florida, Idaho, Iowa, Kansas, Minnesota, Missouri, North Dakota, New
Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania, Utah, Washington,
Wisconsin. Insured and intermediate bond funds are available in selected
states.
Complete information on any fund offered by Delaware Investments can be found
in each fund's current prospectus. Prospectuses for all funds offered by
Delaware Investments are available from your financial adviser. Please read
the prospectus carefully before you invest or send money.
funds
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<PAGE>
This 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 National High Yield
Municipal Bond Fund, which sets forth details about charges, expenses,
investment objectives and operating policies of each Fund. You should read the
prospectus carefully before you invest. Summary investment results are
documented in the Fund's current Statement of Additional Information. The
figures in this report represent past results which are not a guarantee of
future results. The return and principal value of an investment in the Fund will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
Board of Directors
Wayne A. Stork
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
Jeffrey J. Nick
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates
New York, NY
Ann R. Leven
Treasurer, National Gallery of Art
Washington, DC
W. Thacher Longstreth
City Councilman
Philadelphia, PA
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Charles E. Peck
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
<PAGE>
Affiliated Officers
David K. Downes
Executive Vice President, Chief Financial Officer and
Chief Operating Officer
Delaware Investments Family of Funds
Philadelphia, PA
George M. Chamberlain, Jr.
Senior Vice President, Secretary
and General Counsel
Delaware Investments Family of Funds
Philadelphia, PA
Bruce D. Barton
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
directors
& officers
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Investment Manager
Delaware Management Company, Inc.
Philadelphia, Pennsylvania
International Affiliate
Delaware International Advisers Ltd.
London, England
National Distributor
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
Shareholder Servicing,
Dividend Disbursing
and Transfer Agent
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
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<PAGE>
This report must be preceded or accompanied by a current National High Yield
Municipal Bond Fund Prospectus and the Delaware Investments Fund Performance
Update for the most recently completed calendar quarter. For a prospectus of
any other mutual fund from Delaware Investments, contact your financial
adviser or Delaware.
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For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
[LOGO GOES HERE]
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 amount invested. Shares of the Fund are not bank or credit union
deposits.
Copy Rights Delaware Distributors, L.P.
LOGO
Printed in the USA
on recycled paper
(503)
AR-005[12/97]TKO2/98
