U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No. ____
/ / Post-Effective Amendment No. ____
(Check appropriate box or boxes)
DELAWARE GROUP TAX-FREE FUND
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(Exact Name of Registrant as Specified in Charter)
(800) 523-1918
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(Area Code and Telephone Number)
2005 Market Street, Philadelphia, PA 19103-7094
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Address of Principal Executive Offices: (Number, Street, City, State, Zip Code)
David F. Connor, Esq., 2005 Market Street, Philadelphia, PA 19103-7094
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Name and Address of Agent for Service: (Number, Street, City, State, Zip Code)
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective
under the Securities Act of 1933, as amended.
Title of the securities being registered:
Class A, Class B and Class C shares of beneficial interest, no par value, of
Delaware Tax-Free USA Fund, one series of the Registrant. No filing fee is due
because Registrant is relying on Section 24(f) of the Investment Company Act of
1940, as amended.
It is proposed that this filing will become effective on March 30, 2007,
pursuant to Rule 488 under the Securities Act of 1933, as amended.
--- C O N T E N T S ---
This Registration Statement includes the following:
1. Facing Page
2. Contents Page
3. Part A - Proxy Statement/Prospectus
4. Part B - Statement of Additional Information
5. Part C - Other Information
6. Signatures
7. Exhibits
Delaware Investments (R)
A member of Lincoln Financial Group (R)
PROXY MATERIALS
Delaware Tax-Free Florida Insured Fund
Dear Shareholder:
I am writing to let you know that a meeting of shareholders of Delaware Tax-Free
Florida Insured Fund (the "Fund") will be held on June 21, 2007. The purpose of
the meeting is to vote on an important proposal that affects the Fund and your
investment in it. As a shareholder, you have the opportunity to voice your
opinion on the matters that affect your Fund. This package contains information
about the proposal and the materials to use when voting by mail, by telephone or
through the Internet.
Please read the enclosed materials and cast your vote. PLEASE VOTE YOUR SHARES
PROMPTLY. YOUR VOTE IS EXTREMELY IMPORTANT, NO MATTER HOW LARGE OR SMALL YOUR
HOLDINGS MAY BE.
The proposal has been carefully reviewed by the Fund's Boards of Trustees. The
Trustees, most of whom are not affiliated with Delaware Investments, are
responsible for protecting your interests as a shareholder. The Trustees believe
the proposal is in the best interests of shareholders. They recommend that you
vote FOR the proposal.
The enclosed Q&A is provided to assist you in understanding the proposal. The
proposal is described in greater detail in the enclosed Proxy
Statement/Prospectus.
VOTING IS QUICK AND EASY. EVERYTHING YOU NEED IS ENCLOSED. To cast your vote,
simply complete the proxy card enclosed in this package. Be sure to sign the
card before mailing it in the postage-paid envelope. You may also vote your
shares by touch-tone telephone or through the Internet. Simply call the
toll-free number or visit the web site indicated on your proxy card, and follow
the recorded or online instructions.
If you have any questions before you vote, please call Computershare Fund
Services, Inc. ("Computershare"), the Fund's proxy solicitor, at
[1-866-xxx-xxxx.] Computershare will be glad to help you get your vote in
quickly. You may also receive a telephone call from Computershare reminding you
to vote your shares. Thank you for your participation in this important
initiative.
Sincerely,
/s/ Patrick P. Coyne
Patrick P. Coyne
Chairman, President and Chief Executive Officer
IMPORTANT INFORMATION TO HELP YOU UNDERSTAND
AND VOTE ON THE PROPOSAL
Below is a brief overview of the proposal to be voted upon. Your vote is
important. Please read the full text of the Proxy Statement/Prospectus, which
you should retain for future reference. If you need another copy of the Proxy
Statement/Prospectus, please call Delaware Investments at 1-800-523-1918.
We appreciate you placing your trust in Delaware Investments and we look forward
to helping you achieve your financial goals.
What proposal am I being asked to vote on?
You are being asked to vote to approve an Agreement and Plan of Reorganization
between Delaware Investments Municipal Trust, on behalf of the Delaware Tax-Free
Florida Insured Fund (the "Florida Fund"), and Delaware Group Tax-Free Fund, on
behalf of the Delaware Tax-Free USA Fund (the "USA Fund").
Proposal: TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION
What reorganization is the Board proposing?
Shareholders of the Florida Fund are being asked to consider and approve a
reorganization ("Transaction") that will have the effect of reorganizing the
Florida Fund with and into the USA Fund.
How will the Transaction benefit shareholders?
The Funds' Boards considered a number of factors before approving the
Transaction. After considering these factors, the Boards concluded that
shareholders will potentially benefit from the Transaction in the following
ways:
o Florida-only municipal debt funds are no longer tax-advantaged
investment options. Effective January 1, 2007, the Florida intangible
personal property tax was repealed. As a result, Florida issued
municipal bonds no longer provided a specific tax advantage to Florida
residents over municipal securities issued by other states.
o Shareholders of the Florida Fund could benefit from the increased
diversification offered by the USA Fund, which is a national municipal
bond fund without a policy requiring it to invest substantially in
insured municipal securities.
o Investors in the Florida Fund, which is a single-state fund, would be
exposed to less geographical risk as shareholders of the USA Fund,
which is a national municipal bond fund.
o Based upon current market conditions, including the current low demand
for insured municipal securities as experienced by the Florida Fund,
the Florida Fund may not be able to grow to a size where economies of
scale can be recognized. The Transaction potentially could enhance
asset growth for the benefit of shareholders of the Florida Fund, as
shareholders of the USA Fund.
o The investment strategies and policies of the Florida Fund are
substantially similar, but not identical to, the investment strategies
and policies of the USA Fund.
o The USA Fund offers a stronger track record compared to the Florida
Fund over the trailing 1-year, 3-year and 5-year periods. (OF COURSE,
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.)
How will the Transaction work?
The USA Fund will acquire substantially all of the assets of the Florida Fund in
exchange for shares of the USA Fund. The Florida Fund will then distribute the
USA Fund shares on a pro rata basis to its shareholders. At the time of the
Transaction, any shares you own of the Florida Fund will be cancelled and you
will receive new shares in the same class of the USA Fund that will have an
aggregate value equal to the value of your shares in the Florida Fund. More
detailed information about the transfer of assets by the Florida Fund and the
issuance of shares by the USA Fund can be found in the Proxy
Statement/Prospectus.
What is the anticipated timetable for the Transaction?
The shareholder meeting is scheduled for June 21, 2007. It is currently
anticipated that the Transaction, if approved by shareholders, will take place
during the third quarter of 2007. Whether or not you plan to attend the Meeting,
please vote your shares by mail, by telephone or through the Internet. If you
determine at a later date that you wish to attend this Meeting, you may revoke
your proxy and vote in person, as provided in the attached Proxy
Statement/Prospectus.
COMMON QUESTIONS AND GENERAL INFORMATION
Has the Board of Trustees approved the proposal?
Yes. The Florida Fund's Board of Trustees has unanimously approved the proposal
and recommends that you vote to approve it.
How many votes am I entitled to cast?
As a shareholder, you are entitled to one vote for each full share and a
fractional vote for each fractional share of the Florida Fund that you own on
the record date. The record date is March 20, 2007.
How do I vote my shares?
You can vote your shares by completing and signing the enclosed proxy card and
mailing it in the enclosed postage-paid envelope. You may also vote by
touch-tone telephone by calling the toll-free number printed on your proxy card
and following the recorded instructions. In addition, you may also vote through
the Internet by visiting www.delawareinvestments.com and following the on-line
instructions. If you need any assistance, or have any questions regarding the
proposal or how to vote your shares, please call Computershare Fund Services,
Inc., the Florida Fund's proxy solicitor, at [1-866-xxx-xxxx.]
How do I sign the proxy card?
Individual Accounts: Shareholders should sign exactly as their names appear on
the account registration shown on the card.
Joint Accounts: Either owner may sign, but the name of the person signing
should conform exactly to a name shown in the
registration.
All Other Accounts: The person signing must indicate his or her capacity.
For example, if Ms. Ann B. Collins serves as a trustee
for a trust account or other type of entity, she should
sign, "Ann B. Collins, Trustee."
How can I find more information on the Proposal?
You should read the Proxy Statement/Prospectus that provides details regarding
the proposal. If you have any questions, please call Computershare Fund
Services, Inc., the Florida Fund's proxy solicitor at [1-866-xxx-xxxx.]
DELAWARE TAX-FREE FLORIDA INSURED FUND
(a series of Delaware Investments Municipal Trust)
2005 Market Street
Philadelphia, Pennsylvania 19103
NOTICE OF MEETING OF SHAREHOLDERS
To be held on June 21, 2007
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Meeting (the "Meeting") of Shareholders of
Delaware Tax-Free Florida Insured Fund (the "Florida Fund" or "Acquired Fund"),
a series of Delaware Investments Municipal Trust, has been called by the Board
of Trustees of Delaware Investments Municipal Trust and will be held at the
offices of Delaware Investments located at 2001 Market Street, 2nd Floor
Auditorium, Philadelphia, PA 19103, on June 21, 2007 at [3:00 p.m.], Eastern
Time. The Meeting is being called for the following reasons:
1. To approve an Agreement and Plan of Reorganization between Delaware
Investments Municipal Trust, on behalf of the Florida Fund, and
Delaware Group Tax-Free Fund, on behalf of the Delaware Tax-Free USA
Fund (the "USA Fund" or "Acquiring Fund"), which provides for: (i) the
acquisition by the Acquiring Fund of substantially all of the assets
of the Acquired Fund, in exchange for shares of the Acquiring Fund;
(ii) the pro rata distribution of shares of the Acquiring Fund to the
shareholders of the Acquired Fund; and (iii) the liquidation and
dissolution of the Acquired Fund.
2. To vote upon any other business as may properly come before the
Meeting or any adjournment thereof.
Shareholders of record of the Acquired Fund as of the close of business on
March 20, 2007 are entitled to notice of, and to vote at, the Meeting or any
adjournment thereof. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE
YOUR SHARES BY RETURNING THE PROXY CARD BY MAIL IN THE ENCLOSED POSTAGE-PAID
ENVELOPE PROVIDED, OR BY VOTING BY TELEPHONE OR OVER THE INTERNET. YOUR VOTE IS
IMPORTANT.
By Order of the Board of Trustees,
/s/ Patrick P. Coyne
Patrick P. Coyne
Chairman, President and Chief Executive Officer
March 30, 2007
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TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF FURTHER
MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU
PREFER, YOU MAY INSTEAD VOTE BY TELEPHONE OR THE INTERNET. YOU MAY REVOKE YOUR
PROXY AT ANY TIME AT OR BEFORE THE MEETING OR VOTE IN PERSON IF YOU ATTEND THE
MEETING, AS PROVIDED IN THE ATTACHED PROXY STATEMENT/PROSPECTUS.
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PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
Page
Proposal: To Approve an Agreement and Plan of Reorganization.......................x
Summary............................................................................x
What is the purpose of the Proposal?......................................x
How do the investment objectives, strategies and policies of the
Acquired Fund and the Acquiring Fund compare?..........................x
What are the principal risks associated with investments in the Funds?....x
What are the general tax consequences of the Transaction?.................x
Who manages the Funds?....................................................x
What are the fees and expenses of the Funds and what might they
be after the Transaction?..............................................x
How do the performance record of the Funds compare?.......................x
Where can I find more financial information about the Funds?..............x
What are other key features of the Funds?.................................x
Reasons for the Transaction........................................................x
Information About the Transaction..................................................x
How will the Transaction be carried out? .................................x
Who will pay the expenses of the Transaction? ............................x
What are the tax consequences of the Transaction? ........................x
What should I know about shares of the Acquiring Fund? ...................x
What are the capitalizations of the Funds and what might the
capitalizations be after the Transaction? .............................x
Comparison of Investment Objectives, Strategies, Policies and Risks................x
Are there any significant differences between the investment
objectives of the Acquired Fund and the Acquiring Fund? ...............x
Are there any significant differences between the investment
strategies and policies of the Acquired Fund and the Acquiring Fund?...x
How do the fundamental investment restrictions of the
Funds differ? .........................................................x
What are the risk factors associated with investments in
the Funds? ............................................................x
What vote is necessary to approve the Plan? ..............................x
More Information About the Funds...................................................x
Voting Information.................................................................x
Principal Holders of Shares........................................................x
EXHIBITS
Exhibit A - Form of Agreement and Plan of Reorganization
Exhibit B - Principal Holders of Shares as of March 20, 2007
PROXY STATEMENT/PROSPECTUS
Dated March 30, 2007
Acquisition of Substantially All of the Assets of:
DELAWARE TAX-FREE FLORIDA INSURED FUND
(a series of Delaware Investments Municipal Trust)
By and in exchange for shares of
DELAWARE TAX-FREE USA FUND
(a series of Delaware Group Tax-Free Fund)
This Proxy Statement/Prospectus solicits proxies to be voted at a meeting
(the "Meeting") of shareholders of Delaware Tax-Free Florida Insured Fund (the
"Florida Fund" or "Acquired Fund"), a series of Delaware Investments Municipal
Trust. The Meeting has been called by the Board of Trustees of Delaware
Investments Municipal Trust (the "Board") to vote on the approval of the Plan
(as more fully described below).
The principal offices of Delaware Investments Municipal Trust and Delaware
Group Tax-Free Fund (each a "Trust" and collectively, the "Trusts") are located
at 2005 Market Street, Philadelphia, PA 19103. You can reach the offices of the
Trust by telephone by calling 1-800-523-1918.
The Meeting will be held at the offices of Delaware Investments located at
2001 Market Street, 2nd Floor Auditorium, Philadelphia, PA 19103, on June 21,
2007 at [3:00 p.m.], Eastern Time. The Board, on behalf of the Florida Fund, is
soliciting these proxies. This Proxy Statement/Prospectus will first be sent to
shareholders on or about [April __, 2007].
This Proxy Statement/Prospectus gives you the information about an
investment in the Delaware Tax-Free USA Fund (the "USA Fund" or "Acquiring
Fund") and about other matters that you should know before voting and investing.
You should retain it for future reference. A Statement of Additional Information
dated March 30, 2007 (the "Statement of Additional Information"), relating to
this Proxy Statement/Prospectus contains more information about the Acquiring
Fund, the Acquired Fund (each, a "Fund" and, collectively, the "Funds") and the
proposed transaction, and has been filed with the U.S. Securities and Exchange
Commission (the "SEC") and is incorporated herein by reference.
The Prospectus of the Acquiring Fund dated December 29, 2006, as amended to
date (the "Fund Prospectus"), is included with and is considered a part of this
Proxy Statement/Prospectus, and is intended to provide you with information
about the Acquiring Fund.
You can request a free copy of the Statement of Additional Information, the
Fund Prospectus, the Annual Report to Shareholders of the USA Fund for the
fiscal year ended August 31, 2006 or the Semi-Annual Report to Shareholders of
the USA Fund for the period ended February 28, 2007 (when available), by calling
1-800-523-1918, or by writing to the Trusts at Attention: Account Services, 2005
Market Street, Philadelphia, PA 19103.
LIKE ALL MUTUAL FUNDS, THE SEC HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER U.S. GOVERNMENT AGENCY.
MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
PROPOSAL: TO APPROVE AN AGREEMENT AND PLAN OF REORGANIZATION
Shareholders of the Acquired Fund are being asked to consider and approve
an Agreement and Plan of Reorganization (the "Plan") that will have the effect
of reorganizing the Acquired Fund with and into the Acquiring Fund as summarized
below.
The Plan provides for: (i) the acquisition by the Acquiring Fund of
substantially all of the assets of the Acquired Fund in exchange for shares of
the Acquiring Fund; (ii) the pro rata distribution of shares of the Acquiring
Fund to shareholders of the Acquired Fund; and (iii) the liquidation and
dissolution of the Acquired Fund. If the shareholders of the Acquired Fund vote
to approve the Plan, as a shareholder of the Acquired Fund you will receive
Acquiring Fund shares equal in total value to, and of the same class as, your
investment in the Acquired Fund. The Acquired Fund will then be liquidated.
SUMMARY
This is only a summary of certain information contained in the Proxy
Statement/Prospectus. You should read the more complete information in the rest
of this Proxy Statement/Prospectus, including the Plan (attached as Exhibit A)
and the Fund Prospectus included with this Proxy Statement/Prospectus.
What is the purpose of the Proposal?
The Board approved the Plan for the Acquired Fund and recommends that
shareholders of the Acquired Fund approve the Plan. If shareholders of the
Acquired Fund approve the Plan, substantially all of the Acquired Fund's assets
will be transferred to the Acquiring Fund in exchange for the Acquiring Fund's
shares equal in value to the assets of the Acquired Fund that are transferred to
the Acquiring Fund. The Acquiring Fund shares will then be distributed pro rata
to the Acquired Fund's shareholders and the Acquired Fund will be liquidated and
dissolved. The proposed transaction for the Acquired Fund is referred to in this
Proxy Statement/Prospectus as the "Transaction."
The Transaction, if approved for the Acquired Fund, will result in your
shares of the Acquired Fund being exchanged for Acquiring Fund shares of the
same class equal in value (but having a different price per share) to your
shares of the Acquired Fund. This means that you will cease to be a shareholder
of the Acquired Fund and will become a shareholder of the Acquiring Fund. This
exchange will occur on a date agreed to by the parties to the Plan (hereafter,
the "Closing Date"), which is currently expected to be in the third quarter of
2007.
For the reasons set forth below under "Reasons for the Transaction," the
Boards of the Trusts have concluded that the Transaction is in the best
interests of the Acquired Fund and the Acquiring Fund. The Boards have also
concluded that no dilution in value would result to the shareholders of the
Acquired Fund and the Acquiring Fund as a result of the Transaction.
How do the investment objectives, strategies and policies of the Acquired Fund
and the Acquiring Fund compare?
Like the Acquired Fund, the Acquiring Fund is a mutual fund within the
Delaware Investments(R) Family of Funds (the "Delaware Companies") that is
managed by Delaware Management Company ("DMC"), a series of Delaware Management
Business Trust. The investment objective of the Acquired Fund is substantially
similar, but not identical, to the investment objective of the Acquiring Fund.
The Acquired Fund seeks as high a level of current income exempt from federal
income tax and from Florida personal income tax as is consistent with
preservation of capital. The investment objective of the Acquiring Fund is to
seek as high a level of current interest income exempt from federal income tax
as is available from municipal obligations as is consistent with prudent
investment management and preservation of capital. Income from both the Acquired
Fund and the Acquiring Fund are not subject to Florida personal income tax, and
effective January 1, 2007, to Florida tax on intangible personal property (e.g.,
mutual fund shares) held by individuals. Each Fund's investment objective is
fundamental and may not be changed by the Board without prior shareholder
approval.
In addition, the investment strategies and policies of the Acquired Fund
are substantially similar, but not identical, to the investment strategies and
policies of the Acquiring Fund. The Acquired Fund has adopted a fundamental
investment policy to seek to achieve its investment objective by investing at
least 80% of its net assets in municipal securities the income from which is
exempt from federal income taxes, including the federal alternative minimum tax,
and from Florida personal income taxes. The Acquiring Fund has adopted a
fundamental investment policy to seek to achieve its investment objective by
investing at least 80% of its net assets in securities the income from which is
exempt from federal income taxes, including the federal alternative minimum tax.
As described below, a Fund may not change its fundamental investment policies
and restrictions without prior shareholder approval.
The Acquired Fund has adopted a non-fundamental policy, which may be
changed with prior notice to shareholders (no shareholder approval is required),
to invest at least 80% of its net assets in insured securities. The Acquired
Fund is permitted to invest up to 20% of its total assets in non-insured
municipal securities that are rated within one of the top four rating categories
by a nationally recognized statistical rating organization ("NRSRO") or, if
unrated, are determined at the time of purchase by DMC to be of equivalent
credit quality. The Acquiring Fund has adopted a non-fundamental policy to
invest at least 80% of its assets in tax-exempt debt obligations rated in the
top four quality grades by Standard & Poor's ("S&P") or another NRSRO, or in
unrated tax-exempt obligations if, in DMC's opinion, they are equivalent in
quality to the top four quality grades. The Acquiring Fund may invest up to 20%
of its net assets in below investment-grade securities.
The most significant differences between the Acquired Fund and the
Acquiring Fund are that (1) the Acquiring Fund does not have a state-specific
investment mandate and therefore does not seek to provide income that is exempt
from Florida personal income tax (which there is not one currently) or the
recently repealed Florida intangible personal property tax; (2) the policies of
the Acquiring Fund do not require it to invest a certain percentage of its
assets in insured securities (although as of [INSERT DATE] approximately __% of
the total assets of the Acquiring Fund are comprised of insured securities); and
(3) the Acquiring Fund may invest up to 20% of its total assets in
non-investment grade debt securities, whereas the Acquired Fund may invest up to
20% of its total assets in non-insured municipal securities that are investment
grade. As a result of these last two differences, an investment in the Acquiring
Fund may by subject to greater credit risks than an investment in the Acquired
Fund.
For further information about the investment objectives and policies of the
Funds, see "Comparison of Investment Objectives, Strategies, Policies and Risks"
below.
What are the principal risks associated with investments in the Funds?
As with most investments, investments in the Funds involve certain risks.
There can be no guarantee against losses resulting from an investment in either
Fund, nor can there be any assurance that either Fund will achieve its
investment objective. Investments in the Funds involve risks associated with
changes in interest rates, market conditions, industry conditions and the
financial strength of issuers of the portfolio securities held by a Fund. The
risks associated with an investment in the Acquired Fund are substantially
identical to the risks associated with an investment in the Acquiring Fund.
However, to the extent that the Acquired Fund invests more of its assets in
insured securities as compared to the Acquiring Fund and the Acquiring Fund
invests more of its assets in non-investment grade debt securities, the Acquired
Fund may be subject to less credit risk because the payment of interest and
principal with respect to such insured securities is insured by an insurance
company and it does not invest in non-investment grade debt securities. There is
no assurance, however, that an insurance company will meet its obligations with
respect to the insured securities. The average weighted credit quality of the
portfolio of the Acquired Fund and the Acquiring Fund was AA (as rated by
S&P), as of December 31, 2006, and the average weighted credit quality of
the Acquiring Fund after the Transaction is currently expected to remain AA.
Also, both Funds are considered to be "non-diversified," meaning that they
may invest more of their assets in a fewer number of issuers than diversified
funds. Accordingly, to the extent that a Fund invests its assets in fewer
issuers as compared to a diversified fund, such Fund may be more susceptible
than a fully diversified fund to adverse economic, political, business, or
regulatory developments affecting a single issuer, industry, or economic sector.
This, in turn, can affect the Fund's net asset value.
For further information about the risks of investing in the Funds, see
"Comparison of Investment Objectives, Strategies, Policies and Risks" below.
What are the general tax consequences of the Transaction?
It is expected that shareholders of the Acquired Fund will not recognize
any gain or loss for federal income tax purposes as a result of the exchange of
their shares for shares of the Acquiring Fund pursuant to the Transaction. You
should, however, consult your tax adviser regarding the effect, if any, of the
Transaction in light of your individual circumstances. You should also consult
your tax adviser about other state and local tax consequences of the
Transaction, if any, because the information about tax consequences in this
document relates to the federal income tax consequences of the Transaction only.
For further information about the federal income tax consequences of the
Transaction, see "Information About the Transaction - What are the tax
consequences of the Transaction?"
Who manages the Funds?
The management of the business and affairs of each Fund is the
responsibility of the Board of the applicable Trust. The Boards and senior
management select officers who are responsible for the day-to-day operations of
the Funds.
DMC manages the assets of each of the Funds and makes each Fund's
investment decisions. DMC is a series of Delaware Management Business Trust,
which is an indirect, wholly owned subsidiary of Delaware Management Holdings,
Inc., and is located at 2005 Market Street, Philadelphia, Pennsylvania 19103.
DMC and its predecessors have been managing the assets of the Delaware Companies
since 1938. As of January 31, 2007, DMC and its affiliates within Delaware
Investments were managing in the aggregate more than [$150] billion in assets in
various institutional or separately managed, investment company and insurance
accounts.
In addition, the portfolio managers for the Acquired Fund and the Acquiring
Fund are the same. There will be no management changes involved with the
proposed Transaction. As a result, the following individuals will continue to
manage the Acquiring Fund after completion of the Transaction:
Joseph R. Baxter and Robert F. Collins have primary responsibility for
making the day-to-day investment decisions for the Acquired Fund and the
Acquiring Fund. Mr. Baxter assumed responsibility for the USA Fund in January
2003 and the Florida Fund on May 22, 2003. Mr. Collins assumed responsibility
for both Funds on June 25, 2004.
Joseph R. Baxter, Senior Vice President, Head of Municipal Bond Department
and Senior Portfolio Manager, joined Delaware Investments in 1999. He heads the
firm's municipal bond department and is responsible for setting the department's
investment strategy. He is also a co-portfolio manager of the firm's municipal
bond fund clients and several other client accounts. Before joining Delaware
Investments, he held investment positions with First Union, most recently as a
municipal portfolio manager with the Evergreen Funds.
Robert F. Collins, Senior Vice President/Senior Portfolio Manager, joined
Delaware Investments in 2004 and is a co-portfolio manager of several of the
firm's municipal bond fund clients and other client accounts. Prior to joining
Delaware Investments, he spent five years as a co-manager of the municipal
portfolio management group within PNC Advisors, where he oversaw the tax-exempt
investments of high net worth and institutional accounts. Before that, he headed
the municipal fixed income team at Wilmington Trust, where he managed funds and
high net worth accounts. Mr. Collins earned a bachelor's degree in economics
from Ursinus College, and he is also a former president of the Financial
Analysts of Wilmington, Delaware.
What are the fees and expenses of each Fund and what might they be after the
Transaction?
The following tables describe the fees and expenses that you may pay if you
buy and hold shares of the Funds. The sales charge structure for each Fund is
identical and the operating expenses shown are based on expenses incurred during
each Fund's fiscal year ended August 31, 2006.
You will notice that unlike in the fee tables shown in each Fund's
prospectus in previous years, the fee tables below contain an additional expense
line item entitled "Interest and Related Expenses." This new line item has been
added for the following reasons and now also appears in the prospectus for each
Fund. The new line item is a result of an accounting restatement to treat
inverse floater programs as financings for accounting purposes where a fund has
transferred its own municipal bonds to a trust that issues the inverse floating
rate security. Previously, the Funds had treated these transactions as a sale of
the municipal bond and a purchase of the inverse floating rate security.
Consequently, certain expenses of an inverse floater program will be deemed to
be Fund expenses. As a result of this change in accounting treatment, the
expense ratios in the tables below now include "Interest and Related Expenses"
which include, but are not limited to, interest expense, remarketing fees,
liquidity fees, and trustees' fees that are associated with inverse floater
programs. The expense examples following the fee tables also reflect these fees
associated with inverse floater programs. While this change required revisions
to expense tables and certain historical expense ratios for the Funds, this
change did not affect the current or historical net asset value, total return or
net investment income for the Funds.
FEE TABLES FOR
THE FLORIDA FUND AND THE USA FUND
A. Class A Shares
Actual Pro forma
--------------------------------- --------------
USA
Fund -
Florida Fund USA Fund - Class A After
Class A Class A Transaction
Shareholder Fees
(paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of
offering price)............................... 4.50% 4.50% 4.50%
Maximum Contingent Deferred Sales Charge
(Load) imposed on redemptions (as a percentage
of original purchase price or redemption
price, whichever is lower)................... None(1) None(1) None(1)
Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees............................ 0.50% 0.55% 0.54%
Distribution and Service (12b-1) Fees...... 0.25% 0.23%(2) 0.23%(2)
Interest and Related Expenses(3)....... 0.24% 0.00% 0.04%
Other Expenses......................... 0.19% 0.18% 0.17%
-------- -------- --------
Total Other Expenses....................... 0.43% 0.18% 0.21%(8)
-------- -------- --------
Total Annual Fund Operating Expenses....... 1.18% 0.96% 0.98%
Fee Waiver/Expense Reimbursement........... (0.08%)(4) (0.12%)(4) (0.09%)(9)
-------- -------- --------
Net Expenses............................... 1.10%(5) 0.84% 0.89%
======== ======== ========
B. Class B Shares
Actual Pro forma
--------------------------------- --------------
USA Fund -
Florida Fund - USA Fund - Class B After
Class B Class B Transaction
Shareholder Fees
(paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of
offering price)............................... None None None
Maximum Contingent Deferred Sales Charge
(Load) imposed on redemptions (as a percentage
of original purchase price or redemption
price, whichever is lower)................... 4.00%(6) 4.00%(6) 4.00%(6)
Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees............................ 0.50% 0.55% 0.54%
Distribution and Service (12b-1) Fees...... 1.00% 1.00% 1.00%
Interest and Related Expenses(3)....... 0.24% 0.00% 0.04%
Other Expenses......................... 0.19% 0.18% 0.17%
-------- -------- --------
Total Other Expenses....................... 0.43% 0.18% 0.21%(8)
-------- -------- --------
Total Annual Fund Operating Expenses....... 1.93% 1.73% 1.75%
Fee Waiver/Expense Reimbursement........... (0.08%)(4) (0.12%)(4) (0.09%)(9)
-------- -------- --------
Net Expenses............................... 1.85%(5) 1.61% 1.66%
======== ======== ========
C. Class C Shares
Actual Pro forma
--------------------------------- --------------
USA Fund -
Florida Fund - USA Fund - Class C After
Class C Class C Transaction
Shareholder Fees
(paid directly from your investment)
Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of
offering price)............................... None None None
Maximum Contingent Deferred Sales Charge
(Load) imposed on redemptions (as a percentage
of original purchase price or redemption
price, whichever is lower)................... 1.00%(7) 1.00%(7) 1.00%(7)
Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees............................ 0.50% 0.55% 0.54%
Distribution and Service (12b-1) Fees...... 1.00% 1.00% 1.00%
Interest and Related Expenses(3)....... 0.24% 0.00% 0.04%
Other Expenses......................... 0.19% 0.18% 0.17%
-------- -------- --------
Total Other Expenses....................... 0.43% 0.18% 0.21%(8)
-------- -------- --------
Total Annual Fund Operating Expenses....... 1.93% 1.73% 1.75%
Fee Waiver/Expense Reimbursement........... (0.08%)(4) (0.12%)(4) (0.09%)(9)
-------- -------- --------
Net Expenses............................... 1.85%(5) 1.61% 1.66%
======== ======== ========
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial advisor who is
paid a commission, a contingent deferred sales charge will apply to
redemptions made within two years of purchase. Additional Class A purchase
options that involve a contingent deferred sales charge may be permitted
from time to time and will be disclosed in the applicable Fund's Prospectus
if they are available.
(2) The Board of Trustees has adopted a formula for calculating 12b-1 plan fees
for the Acquiring Fund's Class A shares that went into effect on June 1,
1992. The total 12b-1 fees to be paid by Class A shareholders of the
Acquiring Fund will be the sum of 0.10% of the average daily net assets
representing shares that were acquired prior to June 1, 1992 and 0.25% of
the average daily net assets representing the shares that were acquired
after June 1, 1992. All Class A shareholders will bear 12b-1 fees at the
same rate, the blended rate based upon the allocation of the 0.10% and
0.25% rates described above.
(3) Interest and Related Expenses include, but are not limited to, interest
expense, remarketing fees, liquidity fees and trustees' fees from the
Fund's participation in inverse floater programs where the Fund has
transferred its own bonds to a trust that issues the inverse floaters.
(4) DMC has contracted to waive all or a portion of its investment advisory
fees and/or reimburse expenses of the Acquired Fund through December 31,
2007 and the Acquiring Fund through August 31, 2008 in order to prevent
total annual fund operating expenses (excluding any 12b-1 plan expenses,
taxes, interest, inverse floater program expenses (as described above in
footnote 3), brokerage fees, certain insurance costs and non-routine
expenses or costs, including, but not limited to, those relating to
reorganizations, litigation, certain Trustee retirement plan expenses,
conducting shareholder meetings and liquidations (collectively,
"non-routine expenses")) from exceeding 0.61% of average daily net assets
of the Acquired Fund and the Acquiring Fund. For purposes of these waivers
and reimbursements, non-routine expenses may also include such additional
costs and expenses as may be agreed upon from time to time by each Fund's
Board and DMC.
(5) Note that, less the inverse floater program expenses discussed above, the
expense ratio for Class A, Class B, and Class C shares of the Acquired Fund
would be 0.86%, 1.61%, and 1.61%, respectively. The Acquiring Fund does
have the ability to invest up to 25% of its assets in inverse floaters; at
the present time it does not hold them. However, based upon the pro forma
detailed above, the assumption of the inverse floater program expenses will
likely increase total expenses of the Acquiring Fund after the Transaction.
In the event that the Acquiring Fund invested the maximum amount of assets
permitted in inverse floaters, the cost associated with those investments
would cause its expense ratio to be higher.
(6) If you redeem Class B shares during the first year after you buy them, you
will pay a contingent deferred sales charge of 4.00%, which declines to
3.00% during the second year, 2.25% during the third year, 1.50% during the
fourth and fifth years, 1.00% during the sixth year and 0% thereafter.
(7) Class C shares redeemed within one year of purchase are subject to a 1.00%
contingent deferred sales charge.
(8) Included in "Other Expenses" are the one-time estimated costs of the
reorganization, which are anticipated to total approximately $87,400, of
which $26,214 is applicable to the Acquiring Fund. The costs of the
Transaction are not subject to the fee waiver currently in place or to the
expense cap described in footnote 9 below. If the one-time costs of the
Transaction were not included, "Total Annual Fund Operating Expenses" and
"Net Expenses" would be 0.97% and 0.88%, 1.74% and 1.65% and 1.74% and
1.65%, for Class A, Class B and Class C shares, respectively.
(9) In addition to the fee waiver/fee reimbursement described in footnote 4,
DMC has contractually agreed to cap (the "Expense Cap") the net expenses of
the Acquiring Fund for at least one year after the closing date of the
Transaction in order to ensure that the Acquiring Fund's net expenses
(excluding inverse floater program expenses (as described above in footnote
3) and the expenses related to the Transaction) do not exceed the Acquired
Fund's total expenses (excluding inverse floater program expenses and the
expenses related to the Transaction). This means that the Acquiring Fund's
net expenses (excluding certain non-routine expenses) for at least one year
after the closing of the Transaction will not exceed 0.86%, 1.61% and 1.61%
for Class A, Class B and Class C shares, respectively. Using Class A shares
as an example, the net expense ratio for the Acquired Fund (excluding
inverse floater program expenses and the expenses related to the
Transaction) is currently 0.86% (i.e., 1.10% less inverse program floater
expenses of 0.24%). The pro forma expense ratio of the Acquiring Fund after
the Transaction (excluding inverse floater program expenses and the
expenses related to the Transaction) is expected to be 0.84% (i.e., 0.89%
less inverse floater program expenses of 0.04% and Transaction expenses of
0.01%). Therefore, based upon the estimated pro forma expenses, the Expense
Cap and DMC's current waiver, DMC would waive or otherwise reimburse the
Acquiring Fund for 0.09% of its expenses. The Expense Cap also excludes
taxes, interest, brokerage fees, certain insurance costs and non-routine
expenses (as defined above in footnote 4).
Examples
These examples are intended to help you compare the costs of investing in
Florida Fund shares with the cost of investing in USA Fund shares of the
comparable class, both before and after the Transaction. You can also use these
examples to compare the costs of these Funds with the costs of other mutual
funds. We show the cumulative amount of Fund expenses on a hypothetical
investment of $10,000 in the Florida Fund and the USA Fund for the time periods
indicated and then sell all of your shares at the end of those periods. The
examples assume a 5% return each year.(1) These are examples only and do not
represent future expenses, which may be greater or less than those shown below.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
Class A Shares 1 Year 3 Years 5 Years 10 Years
Florida Fund $557 $800 $1,062 $1,811
USA Fund 532 731 946 1,565
Pro forma USA Fund (after the Transaction) 537 740 959 1,589
Class B Shares(2) 1 Year 3 Years 5 Years 10 Years
Florida Fund $588 $823 $1,184 $2,052
USA Fund 564 758 1,077 1,827
Pro forma USA Fund (after the Transaction) 569 767 1,091 1,851
Class C Shares 1 Year 3 Years 5 Years 10 Years
Florida Fund $288 $598 $1,034 $2,247
USA Fund 264 533 927 2,031
Pro forma USA Fund (after the Transaction) 269 542 941 2,055
You would pay the following expenses on the same investment if you did not sell
your shares:
Class B Shares(2) 1 Year 3 Years 5 Years 10 Years
Florida Fund $188 $598 $1,034 $2,052
USA Fund 164 533 927 1,827
Pro forma USA Fund (after the Transaction) 169 542 941 1,851
Class C Shares 1 Year 3 Years 5 Years 10 Years
Florida Fund $188 $598 $1,034 $2,247
USA Fund 164 533 927 2,031
Pro forma USA Fund (after the Transaction) 169 542 941 2,055
(1) Each Fund's actual rate of return may be greater or less than the
hypothetical 5% return we used here. This example reflects the net
operating expenses with the contractual fee waivers and expense limits for
the one-year contractual period and the total operating expenses without
the fee waivers and expense limits for years two through ten.
(2) The Class B example reflects the conversion of Class B shares to Class A
shares after eight years. Information for the ninth and tenth years
reflects expenses of the Class A shares.
THESE ARE JUST EXAMPLES. THEY DO NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. Each of the Funds pays its own operating expenses. The effects of these
expenses are reflected in the net asset value and are not directly charged to
your account. The expenses of each of the Funds are comprised of expenses
attributable to each Fund, respectively, as well as expenses not attributable to
any particular series of that Trust that are allocated among the various series
of the Trust.
How do the performance records of the Funds compare?
As described under the section "Reasons for the Transaction," the Board of
each Trust considered a number of factors when reviewing the Plan and
considering the proposed Transaction. The performance history of the Funds
(without sales charge) as of December 31, 2006 is shown below:
Average Annual Total Returns
10 Years or
Fund and Class 1 Year 3 Years 5 Years Since Inception(1)
Florida Fund--Class A 4.39% 3.95% 5.09% 5.26%
USA Fund--Class A 5.16% 4.72% 5.91% 5.20%
Florida Fund--Class B 3.70% 3.18% 4.30% 4.63%
USA Fund--Class B 4.36% 3.92% 5.09% 4.53%
Florida Fund--Class C 3.70% 3.20% 4.28% 4.12%
USA Fund--Class C 4.36% 3.92% 5.09% 4.38%
(1) The inception dates for each of the Funds and their respective classes are
listed below:
Florida Fund
Class A: 1/1/92
Class B: 3/11/94
Class C: 9/29/97
USA Fund
Class A: 1/11/84
Class B: 5/2/94
Class C: 11/29/95
Where can I find more financial information about the Funds?
The Acquiring Fund's Annual Report, which is included with the Statement of
Additional Information, and the Acquired Fund's Annual Report contain a
discussion of the Funds' performance during the past fiscal year and show per
share information for each of the past five fiscal years. These documents, and
the Funds' most recent Semi-Annual Reports (where available), are available upon
request. (See "More Information About the Funds.") The Fund Prospectus also
contains further financial information about the Acquiring Fund.
What are other key features of the Funds?
Investment Management Fees. DMC is the investment manager of each Fund. DMC
has entered into separate investment management agreements relating to each Fund
that provide for reductions in the fee rate for a Fund as the assets of the Fund
increase. The investment management fees for the Funds are:
----------------------- -------------------------------------------
Fund Investment Management Fee
----------------------- -------------------------------------------
Acquired Fund 0.50% on the first $500 million;
0.475% on the next $500 million;
0.45% on the next $1.5 billion;
0.425% on assets in excess of $2.5 billion
----------------------- -------------------------------------------
Acquiring Fund 0.55% on first $500 million
0.50% on next $500 million
0.45% on next $1.5 billion
0.425% on assets in excess of $2.5 billion
----------------------- -------------------------------------------
DMC has contracted to waive that portion, if any, of the annual management
fees payable by each Fund and to pay certain expenses of each Fund for the
period through December 31, 2007 (for the Acquired Fund) and August 31, 2008
(for the Acquiring Fund) to the extent necessary to limit the total operating
expenses of each Fund to the levels described in the Fee Tables beginning on
page __.
Distribution Services. Pursuant to underwriting agreements relating to the
Funds, Delaware Distributors, L.P. ("DDLP"), 2005 Market Street, Philadelphia,
Pennsylvania 19103, serves as the national distributor for the shares of the
Funds. DDLP pays the expenses of the promotion and distribution of the Funds'
shares, except for payments by the Funds on behalf of Class A shares, Class B
shares and Class C shares under their respective 12b-1 Plans. DDLP is an
indirect, wholly owned subsidiary of Delaware Management Holdings, Inc. and an
affiliate of DMC.
Pursuant to a contractual arrangement with DDLP, Lincoln Financial
Distributors, Inc. ("LFD"), 2001 Market Street, Philadelphia, Pennsylvania
19103-7055, is primarily responsible for promoting the sale of Fund shares
through broker/dealers, financial advisors and other financial intermediaries.
LFD is also an affiliate of DDLP and DMC.
Rule 12b-1 Plans. The Funds have adopted a separate distribution plan or
"Rule 12b-1 Plan" for each of its Class A shares, Class B shares and Class C
shares (collectively, the "Rule 12b-1 Plans" and, each individually, a "Rule
12b-1 Plan").
Each Rule 12b-1 Plan permits the relevant Fund to pay out of the assets of
the Class A shares, Class B shares and Class C shares, as applicable, monthly
fees to DDLP for its services and expenses in distributing and promoting shares
of such classes. These expenses may include, among others, preparing and
distributing advertisements, sales literature and prospectuses and reports used
for sales purposes, compensating sales and marketing personnel, and paying
distribution and maintenance fees to securities brokers and dealers who enter
into dealer agreements with DDLP. The Rule 12b-1 Plan expenses relating to Class
B shares and Class C shares are also used to pay DDLP for advancing the
commission costs to dealers with respect to the initial sale of such Class B and
Class C shares. In addition, each Fund's Rule 12b-1 Plan permits the relevant
Fund to make payments out of the assets of the Class A shares, Class B shares
and Class C shares to other unaffiliated parties, such as banks, who either aid
in the distribution of shares of, or provide services to, such Classes.
The maximum aggregate annual fee payable by a Fund under its Rule 12b-1
Plans and a Fund's Distribution Agreement is, on an annual basis: up to 0.25% of
the Florida Fund's average daily net assets of Class A shares and up to 0.25% of
the USA Fund's average daily net assets of Class A shares (as explained more
fully below); and up to 1.00% (0.25% of which are service fees to be paid to
DDLP, dealers and others for providing personal service and/or maintaining
shareholder accounts) of Class B shares' and Class C shares' average daily net
assets. The Boards for the Trusts may reduce these amounts at any time. With
regard to the USA Fund's Class A shares, the Board has adopted a formula for
calculating 12b-1 plan fees for the Fund's Class A shares that went into effect
on June 1, 1992. The total 12b-1 fees to be paid by Class A shareholders of the
USA Fund will be the sum of 0.10% of the average daily net assets representing
shares that were acquired prior to June 1, 1992 and 0.25% of the average daily
net assets representing shares that were acquired on or after June 1, 1992. All
of the USA Fund's Class A shareholders will bear 12b-1 fees at the same rate,
which is the blended rate based upon the allocation of the 0.10% and 0.25% rates
described above.
Purchase, Exchange and Redemption Procedures. Procedures for the purchase,
exchange and redemption of each Fund's shares are identical. You may refer to
the Fund Prospectus under the section entitled "About Your Account" for the
purchase, exchange, and redemption procedures applicable to the purchases,
exchanges and redemptions of the Acquiring Fund's shares.
Dividends, Distributions and Taxes. For each Fund, dividends are declared
daily and paid monthly, while capital gains, if any, are distributed annually.
For more information about dividends, distributions and the tax implications of
investing in the Acquiring Fund, please see the Fund Prospectus under the
section entitled "About Your Account--Dividends, distributions and taxes."
REASONS FOR THE TRANSACTION
Based on the considerations described below, the Board, including the
trustees who are deemed to be independent trustees (each, an "Independent
Trustee" and, collectively, the "Independent Trustees") under the Investment
Company Act of 1940, as amended (the "1940 Act"), on behalf of the Acquired Fund
and the Acquiring Fund, have determined that the Transaction would be in the
best interests of the Acquired Fund and the Acquiring Fund and that the
interests of the Acquired Fund's and the Acquiring Fund's existing shareholders
would not be diluted as a result of the Transaction.
At a meeting of the Boards for the Trusts held on February 14-15, 2007, DMC
presented the Plan to the Trustees and provided the Trustees with data and
analysis regarding the proposed Transaction. At the meeting, the Boards
considered a number of factors, including the following:
o The compatibility of the Acquired Fund's investment objective,
policies and restrictions with the investment objective, policies and
restrictions of the Acquiring Fund;
o The relative investment performance and yields of the Funds;
o The relative size of the Acquired Fund as compared to the Acquiring
Fund both before and after the Transaction;
o The relative past and current growth in assets of the Funds and the
anticipated future inability of the Acquired Fund to achieve
satisfactory asset growth as analyzed by DDLP as the Fund's
distributor;
o The relative expense ratios of the Funds and the anticipated impact of
the proposed Transaction on the expense ratios of the Acquiring Fund
both before and after expense caps and fee waivers;
o The proposal of DMC to cap the Acquiring Fund's total expenses once
the Transaction is completed for a one-year period so that the
Acquiring Fund's total expenses, as a percentage of average net
assets, are no higher than the Acquired Fund's total expenses, as a
percentage of average net assets, before the Transaction (exclusive of
the inverse floater program expenses and the expenses of the
Transaction, as well as certain other expenses);
o The anticipated federal income tax consequences of the Transaction
with respect to each Fund and its shareholders;
o The estimated costs of the Transaction and the extent to which the
Funds would bear such costs; and
o The potential benefits of the proposed Transaction for the
shareholders of the Acquired Fund and the Acquiring Fund.
The Boards noted that the investment objective for the Acquired Fund is
substantially similar to the investment objective of the Acquiring Fund. The
Boards also noted that the portfolio of the Acquired Fund has historically been
managed in substantially the same manner as the portfolio of the Acquiring Fund.
The Boards considered the differences with respect to the Funds' investments in
insured securities and the relative differences in credit quality of the
portfolios' investments. The materials provided to the Boards also explained
that the investment strategies and policies of the Acquired Fund are
substantially similar to the investment strategies and policies of the Acquiring
Fund, except that the Acquiring Fund is not required to invest 80% of its net
assets in "insured securities," and the Acquiring Fund may invest up to 20% of
its total assets in non-investment grade securities whereas the Acquired Fund
may invest up to 20% of its total assets in non-insured municipal securities
that are investment grade.
Specifically, DCM informed the Boards that it believed Florida-only
municipal debt funds were no longer tax-advantaged investment options. Effective
January 1, 2007, the Florida intangible personal property tax was repealed. As a
result, Florida-issued municipal bonds no longer provide a specific tax
advantage to Florida resident individuals over municipal securities issued by
other states.
DMC informed the Boards that, in its view, shareholders of the Acquired
Fund, which is required to invest substantially in insured municipal securities,
could benefit from the increased diversification offered by the Acquiring Fund,
which is a national municipal bond fund without a policy requiring it to invest
substantially in insured municipal securities. DMC advised the Boards that, in
its view, single-state insured funds, such as the Florida Fund, have less
investment flexibility as compared to national municipal bond funds such as the
Acquiring Fund. DMC also advised the Boards that it believes that investors in
the Acquired Fund would be exposed to less geographical risk as shareholders of
the Acquiring Fund. Furthermore, DDLP informed the Boards that the demand for
insured municipal bond funds is limited, especially in the current lower yield
environment. In particular, DDLP noted that, based on the current market
conditions where investors are searching for greater yield, the Acquired Fund
cannot be grown to a size where economies of scale can be recognized for that
Fund.
DCM also believes that the proposed reorganization would benefit
shareholders of the Acquired Fund by providing greater geographical
diversification and a potentially higher level of income because the Acquiring
Fund has the ability to invest in higher-yielding uninsured and below-investment
grade securities. DCM believes that these advantages are not outweighed by an
unfavorable tax impact to Florida shareholders, as the tax treatment of
dividends would remain unchanged; as discussed above, the repeal of the Florida
intangible tax has already eliminated the tax benefits that funds investing
primarily in Florida municipal securities once provided to Florida resident
individuals. Therefore, DCM recommended that the Boards approve the proposed
Transaction.
With respect to performance, the materials provided to the Boards showed
that the Acquired Fund's Class A shares had stronger performance than the
Acquiring Fund's Class A shares over the trailing 10-year period; however, the
Acquiring Fund's Class A shares had a stronger performance record for the
trailing 1-year, 3-year and 5-year periods. In addition, over the trailing
1-year, 3-year and 5-year periods, the Acquiring Fund had a stronger performance
percentile rank relative to its Lipper category (General Municipal Debt Funds)
than does the Acquired Fund to its Lipper category (Insured Municipal Debt
Funds). The materials also demonstrated that the 30-day SEC yield of the
Acquiring Fund as of December 31, 2006, was higher than that of the Acquired
Fund. As a result, shareholders of the Acquired Fund may receive a higher income
stream as shareholders of the Acquiring Fund.
The Boards also considered sales and redemption data and relative asset
growth for each Fund as presented by DDLP. The information provided to the
Boards indicated that the Florida Fund had negative net cash flows during the
years ended December 31, 2005 and December 31, 2006 while the Acquiring Fund had
positive net cash flows during the same period.
In deciding whether to recommend approval of the Transaction to
shareholders, the Boards also considered the fees and expense ratios of the
Acquiring Fund and the Acquired Fund and the impact of existing and proposed
contractual fee waivers on such expense ratios. The Boards considered the
potential benefits afforded by a larger fund through economies of scale from the
spreading of fixed costs over a larger asset base and by reaching or utilizing,
to a greater extent, breakpoints in investment management fees, although there
can be no assurance that operational savings will be realized. At the Board
meetings, DMC informed the Boards that, with the contractual fee waivers and
expense limitations in place at that time, the total expenses for the Acquiring
Fund are lower than or equal to the total expenses of the Acquired Fund on Class
A, Class B and Class C shares (in both cases, excluding inverse floater program
expenses and the costs of the Transaction). The Board also considered the
proposal of DMC to cap the Acquiring Fund's total expenses once the Transaction
is completed for a one-year period following the Closing Date so that the
Acquiring Fund's net expenses (excluding inverse floater program expenses,
expenses of the Transaction, taxes, interest, brokerage fees, certain insurance
costs and non-routine expenses), as a percentage of average net assets, do not
exceed the Acquired Fund's net expenses (excluding inverse floater program
expenses, expenses of the Transaction, taxes, interest, brokerage fees, certain
insurance costs and non-routine expenses), as a percentage of average net
assets, before the Transaction. Finally, DMC also reported that Acquiring Fund
shareholders could benefit from: (i) the savings the Acquiring Fund would
realize in acquiring municipal securities and other assets in the Transaction as
opposed to purchasing them in the open market; (ii) the fact that the Acquiring
Fund would receive securities from the Acquired Fund at substantially higher
embedded yields than are available on similar securities in the current
marketplace; and (iii) the fact that the Acquiring Fund would maintain its high
overall credit quality after the Transaction with a less significant decrease in
yield than would be possible were DMC to purchase similar securities in the open
market.
DMC informed the Boards that the Transaction will be structured as a
tax-free reorganization. DMC also informed the Boards as to the cost of the
Transaction, including the costs associated with the solicitation of proxies.
The Boards considered that the expenses of the Transaction would be shared as
follows: 40% by DMC, 30% by the Acquired Fund, and 30% by the Acquiring Fund.
The Boards of the Trusts approved the Plan, concluding that the Transaction
is in the best interests of the Acquired Fund and the Acquiring Fund and that no
dilution of value would result to the shareholders of either Fund from the
Transaction. The Board of Delaware Investment Municipal Trust then decided to
recommend that shareholders of the Acquired Fund vote to approve the
Transaction. The Trustees approving the Plan and making the foregoing
determinations included all of the Independent Trustees.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF TRUSTEES OF DELAWARE INVESTMENT
MUNICIPAL TRUST, ON BEHALF OF THE ACQUIRED FUND, UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE PROPOSAL.
If the shareholders of the Acquired Fund do not approve the Plan, the Board
of Delaware Investment Municipal Trust may consider other possible courses of
action for the Acquired Fund, including liquidation and dissolution.
INFORMATION ABOUT THE TRANSACTION AND THE PLAN
This is only a summary of the Plan. You should read the actual Plan
relating to the Transaction, which is attached as Exhibit A to this Proxy
Statement/Prospectus and is incorporated herein by reference.
How will the Transaction be carried out?
If the shareholders of the Acquired Fund approve the Plan, the Transaction
will take place after the parties to the Plan satisfy various conditions.
If the shareholders of the Acquired Fund approve the Plan, the Acquired
Fund will deliver to the Acquiring Fund substantially all of its assets on the
Closing Date. In exchange, Delaware Investments Municipal Trust, on behalf of
the Acquired Fund, will receive the Acquiring Fund's shares to be distributed
pro rata to the Acquired Fund's shareholders. The value of the assets to be
delivered to the Acquiring Fund shall be the value of such assets computed as of
the close of business of the New York Stock Exchange, Inc. ("NYSE") (normally
4:00 p.m., Eastern Time) on the last business day prior to the Closing Date.
If the Transaction is approved, the stock transfer books of the Acquired
Fund will be permanently closed as of the close of business of the NYSE on the
business day before the Closing Date. The Acquired Fund will accept requests for
redemption only if received in proper form before that time. Requests received
after that time will be considered requests to redeem shares of the Acquiring
Fund.
To the extent permitted by law, the Plan may be amended without shareholder
approval at the direction of the Boards of Trustees of the Trusts. The
respective Boards may also agree to terminate and abandon the respective
Transaction at any time before or after the approval of shareholders of the
Acquired Fund or may terminate and abandon the Transaction if certain conditions
required under the Plan have not been satisfied.
Who will pay the expenses of the Transaction?
The expenses resulting from the Acquired Fund's participation in the
Transaction, including solicitation of proxies, will be shared by the following
parties in the percentages indicated: 30% by the Acquired Fund, 30% by the
Acquiring Fund, and 40% by DMC. The Funds will bear these Transaction costs
without regard to any of the expense limits noted above.
What are the tax consequences of the Transaction?
The Transaction is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368(a)(1) of the Internal Revenue Code
of 1986, as amended (the "Code"). Based on certain assumptions made and
representations to be made on behalf of the Acquired Fund and the Acquiring
Fund, it is expected that Stradley Ronon Stevens & Young, LLP will provide a
legal opinion that, for federal income tax purposes, (i) shareholders of the
Acquired Fund will not recognize any gain or loss as a result of the exchange of
their shares of the Acquired Fund for shares of the Acquiring Fund, and (ii) the
Acquiring Fund and its shareholders will not recognize any gain or loss upon
receipt of the Acquired Fund's assets.
Capital losses can generally be carried forward to each of the eight (8)
years succeeding the loss year to offset future capital gains. After the
Transaction, the capital loss carryovers (together with any current year loss
and net unrealized depreciation in the value of the assets) of the Acquired Fund
will be subject to an annual limitation for federal income tax purposes. This
limitation may result in a portion of the capital loss carryovers of the
Acquired Fund, which might otherwise have been utilized to offset future capital
gains, to expire unutilized. At August 31, 2006, the Florida Fund had $517,691
of tax basis capital loss carryovers (expiring in 2008) and unrealized
appreciation of investments of $4,745,081. Following the Transaction, the
Acquiring Fund will have to pro rate this annual limitation for the remainder of
its taxable years in which the Transaction closes. Also, the Transaction may
cause the capital loss carryovers of the Acquired Fund to expire earlier for the
Acquiring Fund than they would for the Acquired Fund. This is because the final
short taxable year of the Acquired Fund and the remaining portion of the
Acquiring Fund's taxable year in which the Transaction closes will each be
counted as a taxable year in determining the remaining number of years in the
carryforward period.
At August 31, 2006, the Acquiring Fund had $5,575,182 of tax basis capital
loss carryovers that are not subject to an annual limitation. This is because
the Acquiring Fund, with a net asset value of $694,111,864 at August 31, 2006,
is larger than the Acquired Fund. However, the benefits of the Acquiring Fund's
capital losses will accrue post-reorganization to all Fund shareholders,
including those of the Acquired Fund.
After the Transaction, you will continue to be responsible for tracking the
adjusted tax basis and holding period for your shares for federal income tax
purposes. You should consult your tax adviser regarding the effect, if any, of
the Transaction in light of your individual circumstances. You should also
consult your tax adviser about the state and local tax consequences, if any, of
the Transaction because this discussion only relates to the federal income tax
consequences.
What should I know about shares of the Acquiring Fund?
If the Transaction is approved for the Acquired Fund, full and fractional
shares of the Acquiring Fund will be distributed to shareholders of the Acquired
Fund in accordance with the procedures described above. When issued, each share
will be validly issued and fully paid and non-assessable. The shares of the
Acquiring Fund will be recorded electronically in each shareholder's account.
The Acquiring Fund will then send a confirmation to each shareholder. As of the
Closing Date, any outstanding certificates, if any, representing shares of the
Acquired Fund will be cancelled.
The Acquiring Fund shares to be issued in the Transaction have the same
rights and privileges as the shares of your Acquired Fund. For example, all
shares have non-cumulative voting rights. This gives holders of more than 50% of
the shares voting the ability to elect all of the members of the Board. If this
happens, holders of the remaining shares voting will not be able to elect any
trustees.
Like the Acquired Fund, the Acquiring Fund does not routinely hold annual
meetings of shareholders. The Acquiring Fund may hold special meetings for
matters requiring shareholder approval. A meeting of the Acquiring Fund's
shareholders may also be called at any time by the Board or by the chairperson
of the Board or by the president.
For purposes of calculating any applicable contingent deferred sales
charges, the period you have held your shares in the Acquired Fund will be
counted toward, and carried over as, the holding period of the shares you
receive in the Acquiring Fund.
What are the capitalizations of the Funds and what might the capitalizations be
after the Transaction?
The following table sets forth, as of August 31, 2006, the separate
capitalizations of the Acquiring Fund and the Acquired Fund, and the estimated
capitalization of the Acquiring Fund as adjusted to give effect to the proposed
Transaction. The capitalization of the Acquiring Fund is likely to be different
if and when the Transaction is actually consummated.
Pro Forma
Adjustments to Acquiring Fund after
Acquired Fund Acquiring Fund Capitalization(1) Transaction
(audited) (audited) (estimated)*
(unaudited)
Net assets (all classes)
Total shares outstanding $100,613,194 $694,111,864 ($52,428) $794,672,630
9,029,447 59,979,087 (337,248) 68,671,286
Class A net assets
Class A shares outstanding $92,726,424 $656,813,443 $749,490,903
Class A net asset value per share 8,321,991 56,755,557 ($48,964) 64,766,306
$11.14 $11.57 (311,242) $11.57
Class B net assets
Class B shares outstanding $4,323,253 $22,188,800 $26,510,088
Class B net asset value per share 387,828 1,918,042 ($1,965) 2,291,669
$11.15 $11.57 (14,201) $11.57
Class C net assets $3,563,517 $15,109,621 $18,671,639
Class C shares outstanding 319,628 1,305,488 ($1,499) 1,613,311
Class C net asset value per share $11.15 $11.57 (11,805) $11.57
(1)The adjustments reflect the costs of the Transaction incurred by each Fund.
COMPARISON OF INVESTMENT OBJECTIVES, STRATEGIES, POLICIES AND RISKS
This section describes the investment objectives, principal investment
strategies and the key investment policies of the Funds, and certain noteworthy
differences between such objectives, strategies and policies, as well as the
risks associated with such objectives, strategies and policies. For a complete
description of the Acquiring Fund's investment strategies, policies and risks,
you should read the Fund Prospectus, which is included with this Proxy
Statement/Prospectus.
Are there any significant differences between the investment objectives of the
Acquired Fund and the Acquiring Fund?
The investment objective of the Acquired Fund is substantially similar, but
not identical, to the investment objective of the Acquiring Fund. The Acquired
Fund seeks as high a level of current income exempt from federal income tax and
from Florida personal income tax as is consistent with preservation of capital.
The investment objective of the Acquiring Fund is to seek as high a level of
current interest income exempt from federal income tax as is available from
municipal obligations and as is consistent with prudent investment management
and preservation of capital. Each Fund's investment objective is fundamental and
may not be changed without prior shareholder approval. As a result, these
fundamental investment objectives for a Fund may not be changed without the
approval of the lesser of (i) a majority of the outstanding shares of the Fund,
or (ii) 67% or more of the shares present at a meeting of shareholders at which
the holders of more than 50% of the outstanding shares are present or
represented by proxy at the meeting ("Majority Vote").
Are there any significant differences between the investment strategies and
policies of the Acquired Fund and the Acquiring Fund?
The investment strategies and policies of the Acquired Fund are
substantially similar, but not identical, to the investment strategies and
policies of the Acquiring Fund. The Acquired Fund seeks to achieve its
investment objective by investing at least 80% of its net assets in municipal
securities the income from which is exempt from federal income taxes, including
the federal alternative minimum tax, and from Florida personal income taxes.
This is a fundamental investment policy that may not be changed without a prior
Majority Vote of its shareholders. The Acquiring Fund seeks to achieve its
investment objective by investing at least 80% of its net assets in securities
the income from which is exempt from federal income taxes, including the federal
alternative minimum tax. This is also a fundamental investment policy that may
not be changed without prior shareholder approval.
The Acquired Fund has adopted a non-fundamental policy, which may be
changed with prior notice to shareholders but shareholder approval is not
required, to invest at least 80% of its net assets in insured securities. The
Acquired Fund is permitted to invest up to 20% of its total assets in
non-insured municipal securities that are rated within one of the top four
rating categories by an NRSRO or, if unrated, are determined at the time of
purchase to be of equivalent credit quality. The Acquired Fund has also adopted
a non-fundamental policy to invest, under normal conditions, at least 80% of its
assets in tax-exempt debt obligations rated in the top four quality grades by
S&P or another NRSRO, or in unrated tax-exempt obligations if, in DMC's opinion,
they are equivalent in quality to the top four quality grades. The Acquiring
Fund may invest up to 20% of its net assets in below investment-grade
securities.
The most significant differences between the Acquired Fund and the
Acquiring Fund are that (1) the Acquiring Fund does not have a state-specific
investment mandate and therefore does not seek to provide income that is exempt
from Florida personal income tax (which there is not one currently) or the
recently repealed Florida intangible personal property tax; (2) the policies of
the Acquiring Fund do not require it to invest a certain percentage of its
assets in insured securities (although as of [INSERT DATE] approximately __% of
the total assets of the Acquiring Fund are comprised of insured securities); and
(3) the Acquiring Fund may invest up to 20% of its total assets in
non-investment grade debt securities, whereas the Acquired Fund may invest up to
20% of its total assets in non-insured municipal securities that are investment
grade. As a result of these last two differences, an investment in the Acquiring
Fund may by subject to greater credit risks than an investment in the Acquired
Fund.
Each Fund invests primarily in tax-exempt obligations, commonly known as
municipal bonds, which are debt obligations issued by or on behalf of a state or
territory, its agencies, instrumentalities, municipalities or other political
sub-divisions. There are several different types of municipal bonds, including
general obligation bonds, revenue bonds and municipal lease obligations. The
Acquired Fund may invest in general obligation and revenue bonds, as well as
other tax-free municipal securities, provided that, under normal market
conditions and after the application of insurance, at least 80% of the Acquired
Fund's net assets are invested in municipal securities the income from which is
exempt from federal income taxes, including the federal alterative minimum tax,
and from the personal income taxes of Florida (Florida does not currently impose
a personal income tax on residents, and effective January 1, 2007, does not
impose a tax on intangible personal property (e.g., mutual fund shares) held by
individuals). The Acquired Fund may not invest in non-investment grade municipal
securities, commonly referred to as high-yield securities. In addition, the
Acquired Fund may invest up to 20% of its total assets in non-insured municipal
securities that are investment grade - i.e., are rated within one of the top
four quality grades by an NRSO or of equivalent value, as determined by DMC.
Depending on market conditions and other factors, each of the Funds invests
in securities with maturities of varying lengths. In general, each Fund
maintains an average effective portfolio maturity of between 5 and 30 years.
However, as of December 31, 2006, the Acquired Fund's and the Acquiring Fund's
average effective portfolio maturity was approximately 6.08 years and 7.24
years, respectively.
Each Fund has adopted a non-fundamental policy that prohibits the Fund from
concentrating its investments in the securities of issuers primarily engaged in
the same industry. Generally, this fundamental investment restriction prohibits
a Fund from investing 25% or more of the value of the Fund's assets in
securities of issuers in any one industry. Certain types of bonds and
obligations are excluded from this restriction. In particular, the Funds'
restrictions on industry concentration do not apply to obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, or in
tax-exempt securities or certificates of deposit. In addition, each Fund may
invest more than 25% of its total assets in certain sectors of the municipal
bond market in circumstances in which other appropriate investments may be
limited (e.g., housing, health care and utility).
The Funds are "non-diversified" for purposes of the 1940 Act. Generally, a
"diversified" investment company may not, with respect to 75% of its assets,
invest more than 5% of its assets in any one issuer and may not own more than
10% of the outstanding voting securities of any one issuer. Because each Fund is
non-diversified, it is not subject to these diversification requirements.
Although the Funds are non-diversified for purposes of the 1940 Act, each Fund
intends to meet the diversification requirements of a regulated investment
company under Subchapter M of the Code. Under the Code, the Funds have the
flexibility to invest as much as 50% of their assets in as few as two issuers,
provided that no single issuer accounts for more than 25% of a Fund's portfolio.
The remaining 50% of a Fund's assets must be diversified so that no more than 5%
of a Fund's assets are invested in the securities of a single issuer.
Each Fund may invest up to 25% of its assets in inverse floaters when the
underlying bond is tax-exempt. Otherwise, each Fund's investments in taxable
instruments, non-insured securities (for the Acquired Fund) and securities rated
below investment grade (USA Fund), including inverse floaters on taxable bonds,
are limited to 20% of the Fund's net assets. Inverse floaters are instruments
with floating or variable interest rates that move in the opposite direction to
short-term interest rates or interest rate indices.
Each Fund may invest up to an aggregate of 20% of its net assets in
futures, options and swaps, so long as each Fund's investments in these
securities when aggregated with other taxable instruments, non-insured
securities (for the Acquired Fund) and securities rated below investment grade
do not exceed 20% of the Fund's net assets (for the USA Fund).
When DMC, the Funds' investment manager, believes that unusual or adverse
economic, market or other conditions warrant a more defensive posture, DMC may
temporarily select investments for a Fund other than those investments that are
the Fund's primary focus. The Acquiring Fund may invest in taxable instruments
for temporarily defensive purposes. The Acquired Fund may invest up to 35% of
its net assets in short-term, tax-exempt obligations, without obtaining
insurance, provides that such investments are rated in either the highest
short-term or long-term rating category by an NRSO. When investing in this
matter a Fund may be unable to achieve its investment objective.
How do the fundamental investment restrictions of the Funds differ?
The Funds have adopted identical fundamental investment restrictions. A
Fund may not change any of its fundamental investment restrictions without a
prior Majority Vote of its shareholders. The Acquiring Fund's fundamental
investment restrictions are listed in the Acquiring Fund's Statement of
Additional Information dated January 3, 2007 related to the Fund Prospectus,
which is incorporated by reference into the Statement of Additional Information
relating to this Prospectus/Proxy Statement and is available upon request.
What are the risk factors associated with investments in the Funds?
Like all investments, an investment in any of the Funds involves risk.
There is no assurance that the Funds will meet their investment objectives. A
Fund's ability to achieve its objective will depend, among other things, on the
portfolio managers' analytical and portfolio management skills. As with most
investments in mutual funds, the best results are achieved when investments in
the Funds are held for a number of years.
The risks of investing in the Funds are basically the same as those of
other investments in municipal securities of similar quality. Investments in the
Funds are subject to several risks, which are summarized below.
Interest Rate Risk. Interest rate risk is generally the most significant
type of risk for the Funds. Interest rate risk is the risk that securities, and
in particular bonds with longer maturities, will decrease in value if interest
rates rise. These changes can be unpredictable, and, as such, the Funds will
generally not try to increase return by aggressively capitalizing on interest
rate changes. Each Fund seeks to manage this risk by adjusting the average
maturity of the Fund's portfolio securities. As of December 31, 2006, the
Acquired Fund's and the Acquiring Fund's average effective portfolio maturity
was approximately 6.08 years and 7.24 years, respectively, and each Fund's
average effective duration was approximately 5.19 years and 5.66 years,
respectively. Maturity is defined as the length of time until a bond issuer must
repay the underlying loan principal to bondholders. Duration is a measurement of
a fixed-income investment price volatility; the larger the number, the greater
the likely price change for a given change in interest rates.
Market Risk. Market risk is the risk that a majority of securities in a
certain market--such as bonds--will decline in value because of economic
conditions, future expectations, or investor confidence. This risk may cause the
price fluctuation of a security because of the changes in general economic and
interest rate conditions that affect the bond market or municipal bond market as
a whole. Additionally, the Funds may engage in transactions where payment occurs
before the actual delivery of the security. Because the market price of the
security may fluctuate during the time after payment but prior to delivery, a
Fund assumes the risk that the value of the security at delivery may be less
than the purchase price.
Industry and Security Risk. Industry risk is the risk that the value of
securities in a particular industry will decline because of changing
expectations for the performance of that industry. Securities risk is the risk
that the value of an individual security will decline because of changing
expectations for the performance of the individual issuer of the security. To
mitigate this risk, DMC spreads each Fund's assets across different types of
municipal bonds and among bonds representing different industries and regions
within Florida, for the Acquired Fund, and the United States, for the Acquiring
Fund. DMC will generally concentrate investments in a particular sector when the
supply of bonds in other sectors does not suit the Funds' investment needs. This
will expose a Fund to greater industry and security risk. However, the Acquired
Fund may be less subject to industry and security risk than the Acquiring Fund
because payment of interest and principal on a substantial portion of the bonds
in its portfolio is insured.
Credit Risk. Credit risk is the possibility that an issuer of a debt
security--or an entity that insures the debt security--will be unable to make
interest payments on, and to pay the principal of, a security when due. A change
in the credit risk associated with a particular debt security may cause a
corresponding change in that security's price and, therefore, impact the Fund's
net asset value. The purpose of insurance is to protect against credit risk. In
the event of a default of an insured municipal security, the insurer is
contractually required to make payments of interest and principal under the
terms of the municipal security. To the extent that the Acquired Fund invests
more of its assets in insured municipal securities or in securities that are
more highly rated as compared to the Acquiring Fund, the Acquired Fund may be
subject to less credit risk because the payment of interest and principal with
respect to such insured securities is insured by an insurance company and
because it does not invest in non-investment grade debt securities. There is no
assurance, however, that an insurance company will meet its obligations with
respect to the insured securities. The average weighted credit quality of the
portfolio of the Acquired Fund and the Acquiring Fund was AA (as rated by
S&P), as of December 31, 2006, and the average weighted credit quality of
the Acquiring Fund after the Transaction is currently expected to remain AA.
Call Risk. Call risk is the likelihood that a security will be prepaid
(commonly referred to as being "called") before maturity. An issuer is more
likely to call its bonds when interest rates are falling, because the issuer can
issue new bonds with lower interest payments. If a bond is called, a Fund may
have to replace it with a lower-yielding security. DMC takes this type of risk
into consideration, and when appropriate, attempts to invest in bonds that
protect investors against early prepayment.
High-Yield Bond Risk. Investing in lower-rated, higher-risk bonds entails
the risk of losing principal, which may be greater than the risk of principal
loss associated with investment-grade bonds. In addition, the risk of default or
price changes due to changes in the issuer's credit quality is greater with
lower-rated securities. Issuers of lower-rated securities are typically in
weaker financial health than issuers of higher-rated securities, and their
ability to make interest payments or repay principal is less certain. The market
prices of lower-rated, high-yield securities may fluctuate more than
higher-rated securities and may decline significantly in periods of general or
regional economic difficulty. High-yield securities may also not trade as
frequently, and when they do trade, their prices may be significantly higher or
lower than expected. Thus, high-yield securities may be less liquid and more
volatile than higher-quality securities.
The Acquired Fund may not invest in high-yield bonds. However, the
Acquiring Fund may invest up to 20% of its net assets in such securities,
subject to the minimum quality limitations as described in the section entitled
"Are there any significant differences between the investment strategies and
policies of the Acquired Fund and the Acquiring Fund?" above. To the extent that
the Acquiring Fund invests in such high-yield bonds, the Acquiring Fund may be
subject to greater risks associated with such investments, such as the loss of
principal, credit risk, liquidity risk and volatility, as compared to the
Acquired Fund.
Geographic Concentration Risk. The Florida Fund typically invests primarily
in debt obligations issued by the state of Florida and its agencies,
instrumentalities and subdivisions and, therefore, events in that state are
likely to affect such Fund's investments and performance. These events may
include economic or political policy changes; tax base erosion; state
constitutional limits on tax increases; budget deficits and other financial
difficulties; and changes in the ratings assigned to municipal issuers within
that state.
Diversification. Because each Fund is non-diversified (as described above),
each Fund may be more susceptible than a fully diversified fund to adverse
economic, political, business, or regulatory developments affecting a single
issuer, industry, or economic sector. This, in turn, can affect the Fund's net
asset value.
Liquidity Risk. Liquidity risk is the possibility that securities cannot be
readily sold within seven days at approximately the price the Fund values them.
Each Fund limits its exposure to illiquid securities to no more than 15% of the
Fund's net assets.
Alternative Minimum Tax Risk. The Acquired Fund may invest up to 20% of its
assets in bonds whose income is subject to the federal alternative minimum tax.
If a Fund invests in bonds whose income is subject to an alternative minimum
tax, that portion of the Fund's distributions would be taxable for shareholders
who are subject to this tax.
What vote is necessary to approve the Plans?
Required Vote. Provided that "Quorum" requirements (as defined below) have
been satisfied, the Plan must be approved by a Majority Vote, meaning the
affirmative vote of the lesser of (1) more than 50% of the outstanding voting
securities of the Acquired Fund; or (2) 67% or more of the voting securities of
the Acquired Fund present at the Meeting if the holders of more than 50% of the
Acquired Fund's outstanding voting securities are present or represented by
proxy. With respect to the Acquired Fund, "Quorum" means one-third (33 1/3%) of
the shares entitled to vote at the Meeting are present in person or represented
by proxy at the Meeting.
MORE INFORMATION ABOUT THE FUNDS
Administration, Transfer Agency and Fund Accounting Services. Delaware
Service Company, Inc. ("DSC"), 2005 Market Street, Philadelphia, Pennsylvania
19103, an affiliate of DMC, acts as the administrator and shareholder servicing,
dividend disbursing and transfer agent for each Fund and for other mutual funds
in the Delaware Companies. DSC also provides fund accounting services to each
Fund. Those services include performing or overseeing all functions related to
calculating each Fund's net asset value and providing all financial reporting
services, regulatory compliance testing and other related accounting services.
For its transfer agency, shareholder servicing, fund accounting and
administration services, DSC is paid fees by each Fund according to fee
schedules that are the same for each retail fund in the Delaware Companies.
These fees are charged to each Fund on a pro rata basis.
Custodial Services. Mellon Bank, N.A., is the custodian of the securities
and other assets of the Funds. The main office of Mellon Bank, N.A. is One
Mellon Center, Pittsburgh, PA 15258.
Additional Information. More information about the Acquiring Fund is
included in (i) the Fund Prospectus, which is included with and considered a
part of this Proxy Statement/Prospectus, (ii) its Statement of Additional
Information dated January 3, 2007, as amended to date, related to the Fund
Prospectus; (iii) the Statement of Additional Information dated March [__], 2007
(relating to this Proxy Statement/Prospectus), which is incorporated by
reference herein; (iv) the Acquiring Fund's Annual Report to Shareholders for
the year ended August 31, 2006 ("Annual Report"); and (v) the Acquiring Fund's
Semi-Annual Report to Shareholders for the period ended February 28, 2007, when
available ("Semi-Annual Report"). You may request free copies of the Statements
of Additional Information (including any supplements), the Annual Report and/or
Semi-Annual Report (when available), which have been or will be filed with the
SEC, by calling 1-800-523-1918 or by writing to the Trusts: Attention: Account
Services, 2005 Market Street, Philadelphia, PA 19103.
This Proxy Statement/Prospectus, which constitutes part of a Registration
Statement filed by the Acquiring Fund with the SEC under the Securities Act of
1933, as amended, omits certain of the information contained in such
Registration Statement. Reference is hereby made to the Registration Statement
and to the exhibits and amendments thereto for further information with respect
to the Acquiring Fund and the shares it offers. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference to
the copy of the applicable document filed with the SEC.
Each Fund also files proxy materials, reports, and other information with
the SEC in accordance with the informational requirements of the Securities
Exchange Act of 1934, as amended, and the 1940 Act. These materials can be
inspected and copied at the public reference facilities maintained by the SEC,
100 F Street, N.E., Room 1580, Washington, D.C. 20549. Also, copies of such
material can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, SEC, Washington, D.C. 20549, at prescribed
rates or from the SEC's Internet site at www.sec.gov. To request information
regarding the Funds, you may also send an e-mail to the SEC at
publicinfo@sec.gov.
VOTING INFORMATION
How will the shareholder voting be handled?
Only shareholders of record of the Acquired Fund at the close of business
on March 20, 2007 (the "Record Date"), will be entitled to notice of and to vote
at the Meeting on the matters described in this Proxy Statement/Prospectus, and
will be entitled to one vote for each full share and a fractional vote for each
fractional share that they hold. If sufficient votes to approve the Proposal are
not received by the date of the Meeting, the Meeting may be adjourned to permit
further solicitations of proxies. A majority of the votes cast by shareholders
of the Acquired Fund present in person or by proxy at the Meeting (whether or
not sufficient to constitute a Quorum) may adjourn the Meeting. The Meeting may
also be adjourned by the Chairperson of the Meeting. It is anticipated that the
persons named as proxies on the enclosed proxy cards will use the authority
granted to them to vote on adjournment in their discretion.
Abstentions and broker non-votes will be included for purposes of
determining whether a Quorum is present at the Meeting for a particular matter,
and will have the same effect as a vote "against" the Proposal. Broker non-votes
are proxies from brokers or nominees indicating that such persons have not
received voting instructions from the beneficial owner or other person entitled
to vote shares on a particular matter with respect to which the brokers or
nominees do not have discretionary power. The Acquired Fund does not expect to
receive any broker non-votes.
How do I ensure my vote is accurately recorded?
You may attend the Meeting and vote in person. You may also vote by
completing, signing and returning the enclosed proxy card in the enclosed
postage paid envelope, or by telephone or through the Internet. If you return
your signed proxy card or vote by telephone or through the Internet, your vote
will be officially cast at the Meeting by the persons appointed as proxies. A
proxy card is, in essence, a ballot. If you simply sign and date the proxy card
but give no voting instructions, your shares will be voted in favor of the
Proposal and in accordance with the views of management upon any unexpected
matters that come before the Meeting or adjournment of the Meeting. If your
shares are held of record by a broker-dealer and you wish to vote in person at
the Meeting, you should obtain a Legal Proxy from your broker of record and
present it at the Meeting.
May I revoke my proxy?
Shareholders may revoke their proxy at any time before it is voted by
sending a written notice to Delaware Investments Municipal Trust expressly
revoking their proxy, by signing and forwarding to Delaware Investments
Municipal Trust a later-dated proxy, or by attending the Meeting and voting in
person. If your shares are held in the name of your broker, you will have to
make arrangements with your broker to revoke a previously executed proxy.
What other matters will be voted upon at the Meeting?
The Board of Delaware Investments Municipal Trust does not intend to bring
any matters before the Meeting with respect to the Acquired Fund other than
those described in this Proxy Statement/Prospectus. The Board of Delaware
Investments Municipal Trust is not aware of any other matters to be brought
before the Meeting with respect to the Acquired Fund by others. If any other
matter legally comes before the Meeting, proxies for which discretion has been
granted will be voted in accordance with the views of management.
Who is entitled to vote?
Only shareholders of record on the Record Date will be entitled to vote at
the Meeting. There were _____________ outstanding shares of the Acquired Fund
entitled to vote as of the Record Date.
What other solicitations will be made?
This proxy solicitation is being made by the Board of Delaware Investments
Municipal Trust for use at the Meeting. The cost of this proxy solicitation will
be shared as set forth below. In addition to solicitation by mail, solicitations
also may be made by advertisement, telephone, telegram, facsimile transmission
or other electronic media, or personal contacts. Delaware Investments Municipal
Trust will request broker-dealer firms, custodians, nominees and fiduciaries to
forward proxy materials to the beneficial owners of the shares of record.
Delaware Investments Municipal Trust may reimburse broker-dealer firms,
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection with such proxy solicitation. In addition to solicitations by mail,
officers and employees of Delaware Investments Municipal Trust, Delaware
Management Business Trust and their affiliates, without extra pay, may conduct
additional solicitations by telephone, telecopy and personal interviews.
Delaware Investments Municipal Trust has engaged Computershare Fund Services,
Inc. ("Computershare") to solicit proxies from brokers, banks, other
institutional holders and individual shareholders at an anticipated estimated
cost of [$6,000], including out of pocket expenses, which will be borne as
described below. Fees and expenses may be greater depending on the effort
necessary to obtain shareholder votes. Delaware Investments Municipal Trust has
also agreed to indemnify Computershare against certain liabilities and expenses,
including liabilities under the federal securities laws. Delaware Investments
Municipal Trust expects that the solicitations will be primarily by mail, but
also may include telephone, telecopy or oral solicitations.
As the Meeting date approaches, certain shareholders of the Acquired Fund
may receive a telephone call from a representative of Computershare if their
votes have not yet been received. Proxies that are obtained telephonically will
be recorded in accordance with the procedures described below. These procedures
are designed to ensure that both the identity of the shareholder casting the
vote and the voting instructions of the shareholder are accurately determined.
In all cases where a telephonic proxy is solicited, the Computershare
representative is required to ask for each shareholder's full name and address,
or the zip code or employer identification number, and to confirm that the
shareholder has received the proxy materials in the mail. If the shareholder is
a corporation or other entity, the Computershare representative is required to
ask for the person's title and confirmation that the person is authorized to
direct the voting of the shares. If the information solicited agrees with the
information provided to Computershare, then the Computershare representative has
the responsibility to explain the process, read the Proposal listed on the proxy
card and ask for the shareholder's instructions on the Proposal. Although the
Computershare representative is permitted to answer questions about the process,
he or she is not permitted to recommend to the shareholder how to vote, other
than to read any recommendation set forth in this Proxy Statement/Prospectus.
Computershare will record the shareholder's instructions on the card. Within 72
hours, the shareholder will be sent a letter or mailgram to confirm his or her
vote and asking the shareholder to call Computershare immediately if his or her
instructions are not correctly reflected in the confirmation.
Who will pay the expenses of the Proposal?
The total costs of the Transaction are estimated to be approximately
[$87,380]. The costs of the Transaction, including the costs of soliciting
proxies in connection with the Meeting, will be shared by the following parties
in the percentages indicated: 30% by the Acquired Fund, 30% by the Acquiring
Fund, and 40% by DMC.
How do I submit a shareholder proposal?
Delaware Investments Municipal Trust is not required to, and does not
intend to, hold regular annual shareholders' meetings. A shareholder wishing to
submit a proposal for consideration for inclusion in a proxy statement for the
next shareholders' meeting should send his or her written proposal to the
offices of Delaware Investments Municipal Trust, directed to the attention of
its Secretary, at the address of its principal executive office printed on the
first page of this Proxy Statement/Prospectus, so that it is received within a
reasonable time before any such meeting. The inclusion and/or presentation of
any such proposal is subject to the applicable requirements of the proxy rules
under the Securities Exchange Act of 1934. Submission of a proposal by a
shareholder does not guarantee that the proposal will be included in Delaware
Investments Municipal Trust's proxy statement or presented at the meeting.
PRINCIPAL HOLDERS OF SHARES
On the Record Date, the officers and Trustees of each Trust, as a group,
owned less than 1% of the outstanding voting shares of any Fund, or class
thereof.
To the best knowledge of the Trusts, as of the Record Date, no person,
except as set forth in the table at Exhibit B, owned of record 5% or more of the
outstanding shares of any class of the Acquired Fund and the Acquiring Fund.
Except as noted therein, the Trusts have no knowledge of beneficial ownership.
EXHIBITS TO
PROXY STATEMENT/PROSPECTUS
Exhibit
A Form of Agreement and Plan of Reorganization between Delaware Investments
Municipal Trust, on behalf of the Florida Fund, and Delaware Group Tax-Free
Fund, on behalf of the USA Fund
B Principal Holders of Shares
OTHER DOCUMENTS INCLUDED WITH
THIS PROXY STATEMENT/PROSPECTUS
o Prospectus of Delaware Tax-Free USA Fund dated December 29, 2006, as
supplemented to date.
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION BETWEEN DELAWARE INVESTMENTS
MUNICIPAL TRUST, ON BEHALF OF THE FLORIDA FUND, AND DELAWARE GROUP TAX-FREE
FUND, ON BEHALF OF THE USA FUND
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), made as of
this __th day of [_____________] 2007, by and between Delaware Group Tax-Free
Fund, a statutory trust created under the laws of the State of Delaware, with
its principal place of business at 2005 Market Street, Philadelphia,
Pennsylvania 19103, on behalf of its series, Delaware Tax-Free USA Fund
("Acquiring Fund"), and Delaware Investments Municipal Trust, a statutory trust
created under the laws of the State of Delaware, with its principal place of
business also at 2005 Market Street, Philadelphia, Pennsylvania 19103, on behalf
of its series, Delaware Tax-Free Florida Insured Fund ("Acquired Fund").
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan") will consist of:
(i) the acquisition by Delaware Group Tax-Free Fund on behalf of Acquiring Fund
of substantially all of the property, assets and goodwill of Acquired Fund in
exchange solely for (a) shares of beneficial interest, without par value, of
Acquiring Fund - Class A ("Acquiring Fund Class A Shares"), (b) shares of
beneficial interest, without par value, of Acquiring Fund - Class B ("Acquiring
Fund Class B Shares"), and (c) shares of beneficial interest, without par value,
of Acquiring Fund - Class C ("Acquiring Fund Class C Shares"); (ii) the
distribution of (a) Acquiring Fund Class A shares to the holders of Acquired
Fund - Class A shares ("Acquired Fund Class A Shares"), (b) Acquiring Fund Class
B Shares to the holders of Acquired Fund - Class B shares ("Acquired Fund Class
B Shares"), and (c) Acquiring Fund Class C Shares to the holders of Acquired
Fund - Class C shares ("Acquired Fund Class C Shares"), according to their
respective interests in complete liquidation of Acquired Fund; and (iii) the
dissolution of Acquired Fund as soon as practicable after the closing (as
referenced in Section 3 hereof, hereinafter called the "Closing"), all upon and
subject to the terms and conditions of this Agreement hereinafter set forth.
AGREEMENT
In order to consummate the Plan and in consideration of the premises and of
the covenants and agreements hereinafter set forth, and intending to be legally
bound, the parties hereto covenant and agree as follows:
1. Sale and Transfer of Assets, Liquidation and Dissolution of Acquired
Fund
(a) Subject to the terms and conditions of this Agreement, and in
reliance on the representations and warranties of Delaware Group Tax-Free
Fund herein contained, and in consideration of the delivery by Delaware
Group Tax-Free Fund of the number of its shares of beneficial interest of
Acquiring Fund hereinafter provided, Delaware Investments Municipal Trust,
on behalf of Acquired Fund, agrees that it will sell, convey, transfer and
deliver to Delaware Group Tax-Free Fund, on behalf of Acquiring Fund, at
the Closing provided for in Section 3, all of the then existing assets of
Acquired Fund as of the close of business (which hereinafter shall be,
unless otherwise noted, the regular close of business of the New York Stock
Exchange, Inc. ("NYSE")) ("Close of Business") on the valuation date (as
defined in Section 3 hereof, hereinafter called the "Valuation Date"), free
and clear of all liens, encumbrances, and claims whatsoever (other than
shareholders' rights of redemption and such restrictions as might arise
under the Securities Act of 1933, as amended (the "1933 Act"), with respect
to privately placed or otherwise restricted securities that Acquired Fund
may have acquired in the ordinary course of business), except for cash,
bank deposits, or cash equivalent securities in an estimated amount
necessary (1) to pay Acquired Fund's costs and expenses of carrying out
this Agreement (including, but not limited to, fees of counsel and
accountants, and expenses of its liquidation and dissolution contemplated
hereunder), which costs and expenses shall be established on the books of
Acquired Fund as liability reserves, (2) to discharge all of Acquired
Fund's Liabilities (as defined below) on its books at the Close of Business
on the Valuation Date including, but not limited to, its income dividends
and capital gains distributions, if any, payable for any period prior to,
and through, the Close of Business on the Valuation Date, and (3) to pay
such contingent liabilities as the trustees of Delaware Investments
Municipal Trust shall reasonably deem to exist against Acquired Fund, if
any, at the Close of Business on the Valuation Date, for which contingent
and other appropriate liability reserves shall be established on the books
of Acquired Fund (hereinafter "Net Assets"). Delaware Investments Municipal
Trust, on behalf of Acquired Fund, shall also retain any and all rights
that it may have over and against any person that may have accrued up to
and including the Close of Business on the Valuation Date. Delaware
Investments Municipal Trust agrees to use commercially reasonable efforts
to identify all of Acquired Fund's liabilities, debts, obligations and
duties of any nature, whether accrued, absolute, contingent or otherwise
("Liabilities") prior to the Valuation Date and to discharge all such known
Liabilities on or prior to the Valuation Date. In no event will Acquiring
Fund assume or otherwise be responsible for any Liabilities of Acquired
Fund.
(b) Subject to the terms and conditions of this Agreement, and in
reliance on the representations and warranties of Delaware Investments
Municipal Trust on behalf of Acquired Fund herein contained, and in
consideration of such sale, conveyance, transfer, and delivery, Delaware
Group Tax-Free Fund agrees at the Closing to deliver to Delaware
Investments Municipal Trust, on behalf of Acquired Fund: (i) the number of
Acquiring Fund Class A Shares determined by dividing the net asset value
per share of Acquired Fund Class A Shares as of the Close of Business on
the Valuation Date by the net asset value per share of Acquiring Fund Class
A Shares as of Close of Business on the Valuation Date, and multiplying the
result by the number of outstanding Acquired Fund Class A Shares as of
Close of Business on the Valuation Date; (ii) the number of Acquiring Fund
Class B Shares determined by dividing the net asset value per share of
Acquired Fund Class B Shares as of Close of Business on the Valuation Date
by the net asset value per share of Acquiring Fund Class B Shares as of
Close of Business on the Valuation Date, and multiplying the result by the
number of outstanding Acquired Fund Class B Shares as of Close of Business
on the Valuation Date; and (iii) the number of Acquiring Fund Class C
Shares determined by dividing the net asset value per share of Acquired
Fund Class C Shares as of Close of Business on the Valuation Date by the
net asset value per share of Acquiring Fund Class C Shares as of Close of
Business on the Valuation Date, and multiplying the result by the number of
outstanding Acquired Fund Class C Shares as of Close of Business on the
Valuation Date. All such values shall be determined in the manner and as of
the time set forth in Section 2 hereof.
(c) As soon as practicable following the Closing, Delaware Investments
Municipal Trust shall dissolve Acquired Fund and distribute pro rata to
Acquired Fund's shareholders of record as of the Close of Business on the
Valuation Date, the shares of beneficial interest of Acquiring Fund
received by Acquired Fund pursuant to this Section 1. Such dissolution and
distribution shall be accomplished by the establishment of accounts on the
share records of Acquiring Fund of the type and in the amounts due such
shareholders pursuant to this Section 1 based on their respective holdings
of shares of Acquired Fund as of the Close of Business on the Valuation
Date. Fractional shares of beneficial interest of Acquiring Fund shall be
carried to the third decimal place. No certificates representing shares of
beneficial interest of Acquiring Fund will be issued to shareholders of
Acquired Fund shares irrespective of whether such shareholders hold their
shares in certificated form.
(d) At the Closing, each outstanding certificate that, prior to
Closing, represented shares of beneficial interest of Acquired Fund, shall
be cancelled and shall no longer evidence ownership thereof.
(e) At the Closing, each shareholder of record of Acquired Fund as of
the record date (the "Distribution Record Date") with respect to any unpaid
dividends and other distributions that were declared prior to the Closing,
including any dividend or distribution declared pursuant to Section 9(e)
hereof, shall have the right to receive such unpaid dividends and
distributions with respect to the shares of Acquired Fund that such person
had on such Distribution Record Date.
2. Valuation
(a) The value of Acquired Fund's Net Assets to be acquired by
Acquiring Fund hereunder shall be computed as of Close of Business on the
Valuation Date using the valuation procedures set forth in Acquired Fund's
currently effective prospectus and statement of additional information.
(b) The net asset value of Acquiring Fund Class A Shares, Acquiring
Fund Class B Shares and Acquiring Fund Class C Shares shall be determined
to the nearest full cent as of the Close of Business on the Valuation Date
using the valuation procedures set forth in Acquiring Fund's currently
effective prospectus and statement of additional information.
(c) The net asset value of Acquired Fund Class A Shares, Acquired Fund
Class B Shares and Acquired Fund Class C Shares shall be determined to the
nearest full cent as of the Close of Business on the Valuation Date, using
the valuation procedures as set forth in Acquired Fund's currently
effective prospectus and statement of additional information.
3. Closing and Valuation Date
The Valuation Date shall be [August __], 2007, or such later date as
the parties may mutually agree. The Closing shall take place at the
principal office of Delaware Group Tax-Free Fund, 2005 Market Street,
Philadelphia, Pennsylvania 19103 at approximately 9:00 a.m., Eastern Time,
on the first business day following the Valuation Date. Notwithstanding
anything herein to the contrary, in the event that on the Valuation Date
(a) the NYSE shall be closed to trading or trading thereon shall be
restricted or (b) trading or the reporting of trading on such exchange or
elsewhere shall be disrupted so that, in the judgment of Delaware Group
Tax-Free Fund or Delaware Investments Municipal Trust, accurate appraisal
of the value of the net assets of Acquired Fund or Acquiring Fund is
impracticable, the Valuation Date shall be postponed until the first
business day after the day when trading shall have been fully resumed
without restriction or disruption, reporting shall have been restored and
accurate appraisal of the value of the net assets of Acquired Fund and
Acquiring Fund is practicable in the judgment of Delaware Group Tax-Free
Fund and Delaware Investments Municipal Trust. Delaware Investments
Municipal Trust shall have provided for delivery as of the Closing of those
Net Assets of Acquired Fund to be transferred to Delaware Group Tax-Free
Fund's Custodian, JPMorgan Chase Bank, 4 Chase Metrotech Center, Brooklyn,
New York 11245. Also, Delaware Investments Municipal Trust shall deliver at
the Closing a list (which may be in electronic form) of names and addresses
of the shareholders of record of its Acquired Fund shares, and the number
of full and fractional shares of beneficial interest of such classes owned
by each such shareholder, indicating thereon which such shares are
represented by outstanding certificates and which by book-entry accounts,
all as of the Close of Business on the Valuation Date, certified by its
transfer agent, or by its President or Vice-President to the best of their
knowledge and belief. Delaware Group Tax-Free Fund shall provide evidence
satisfactory to Delaware Investments Municipal Trust in such manner as
Delaware Investments Municipal Trust may request that such shares of
beneficial interest of Acquiring Fund have been registered in an open
account on the books of Acquiring Fund.
4. Representations and Warranties by Delaware Investments Municipal Trust
Delaware Investments Municipal Trust represents and warrants to
Delaware Group Tax-Free Fund that:
(a) Delaware Investments Municipal Trust is a statutory trust created
under the laws of the State of Delaware on October 26, 2004, and is validly
existing and in good standing under the laws of that State. Delaware
Investments Municipal Trust, of which Acquired Fund is a separate series,
is duly registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end, management investment company. Such
registration is in full force and effect as of the date hereof and will be
in full force and effect as of the Closing.
(b) Delaware Investments Municipal Trust is authorized to issue an
unlimited number of shares of beneficial interest of Acquired Fund, with no
par value. Each outstanding share of Acquired Fund is validly issued, fully
paid, non-assessable and has full voting rights.
(c) The financial statements appearing in Acquired Fund's Annual
Report to Shareholders for the fiscal year ended August 31, 2006, audited
by Ernest & Young, LLP, copies of which have been delivered to Delaware
Group Tax-Free Fund, and any unaudited financial statements since that
date, copies of which may be furnished to Delaware Group Tax-Free Fund,
fairly present the financial position of Acquired Fund as of the date
indicated, and the results of its operations for the period indicated, in
conformity with generally accepted accounting principles applied on a
consistent basis.
(d) The books and records of Acquired Fund made available to Delaware
Group Tax-Free Fund and/or its counsel are true and correct in all material
respects and contain no material omissions with respect to the business and
operations of Acquired Fund.
(e) The statement of assets and liabilities to be furnished by
Delaware Investments Municipal Trust as of the Close of Business on the
Valuation Date for the purpose of determining the number of shares of
beneficial interest of Acquiring Fund to be issued pursuant to Section 1
hereof will accurately reflect the Net Assets of Acquired Fund and
outstanding shares of beneficial interest, as of such date, in conformity
with generally accepted accounting principles applied on a consistent
basis.
(f) At the Closing, Delaware Investments Municipal Trust, on behalf of
Acquired Fund, will have good and marketable title to all of the securities
and other assets shown on the statement of assets and liabilities referred
to in subsection (e) above, free and clear of all liens or encumbrances of
any nature whatsoever except such restrictions as might arise under the
1933 Act with respect to privately placed or otherwise restricted
securities that it may have acquired in the ordinary course of business and
such imperfections of title or encumbrances as do not materially detract
from the value or use of the assets subject thereto, or materially affect
title thereto.
(g) Delaware Investments Municipal Trust has the necessary trust power
and trust authority to conduct its business and the business of Acquired
Fund as such businesses are now being conducted.
(h) Delaware Investments Municipal Trust is not a party to or
obligated under any provision of its Agreement and Declaration of Trust,
By-Laws, or any material contract or any other material commitment or
obligation, and is not subject to any order or decree that would be
violated by its execution of or performance under this Agreement.
(i) Delaware Investments Municipal Trust has full trust power and
trust authority to enter into and perform its obligations under this
Agreement, subject to approval of this Agreement by Acquired Fund's
shareholders. Except as provided in the immediately preceding sentence, the
execution, delivery and performance of this Agreement have been validly
authorized, and this Agreement constitutes its legal, valid and binding
obligation enforceable against it in accordance with its terms, subject as
to enforcement to the effect of bankruptcy, insolvency, reorganization,
arrangement among creditors, moratorium, fraudulent transfer or conveyance,
and other similar laws of general applicability relating to or affecting
creditor's rights and to general equity principles.
(j) Neither Delaware Investments Municipal Trust nor Acquired Fund is
under the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
(k) Delaware Investments Municipal Trust does not have any unamortized
or unpaid organizational fees or expenses.
(l) Delaware Investments Municipal Trust has elected to treat Acquired
Fund as a regulated investment company ("RIC") for federal income tax
purposes under Part I of Subchapter M of the Code, Acquired Fund is a
"fund" as defined in Section 851(g)(2) of the Code, has qualified as a RIC
for each taxable year since its inception and will qualify as a RIC as of
the Closing, and consummation of the transactions contemplated by the Plan
will not cause it to fail to be qualified as a RIC as of the Closing.
5. Representations and Warranties by Delaware Group Tax-Free Fund
Delaware Group Tax-Free Fund represents and warrants to Delaware
Investments Municipal Trust that:
(a) Delaware Group Tax-Free Fund is a statutory trust created under
the laws of the State of Delaware on December 17, 1998, and is validly
existing and in good standing under the laws of that State. Delaware Group
Tax-Free Fund, of which Acquiring Fund is a separate series of shares, is
duly registered under the 1940 Act as an open-end, management investment
company, such registration is in full force and effect as of the date
hereof and will be in full force and effect as of the Closing.
(b) Delaware Group Tax-Free Fund is authorized to issue an unlimited
number of shares of beneficial interest, without par value, of Acquiring
Fund. Each outstanding share of Acquiring Fund is fully paid,
non-assessable and has full voting rights. The shares of beneficial
interest of Acquiring Fund to be issued pursuant to Section 1 hereof will,
upon their issuance, be validly issued and fully paid and non-assessable
and have full voting rights.
(c) At the Closing, each class of shares of beneficial interest of
Acquiring Fund to be issued pursuant to this Agreement will be eligible for
offering to the public in those states of the United States and
jurisdictions in which the corresponding class of shares of Acquired Fund
are presently eligible for offering to the public, and there are an
unlimited number of shares registered under the 1933 Act such that there is
a sufficient number of such shares to permit the transfers contemplated by
this Agreement to be consummated.
(d) The statement of assets and liabilities of Acquiring Fund to be
furnished by Delaware Group Tax-Free Fund as of the Close of Business on
the Valuation Date for the purpose of determining the number of shares of
beneficial interest of Acquiring Fund to be issued pursuant to Section 1
hereof will accurately reflect the net assets of Acquiring Fund and
outstanding shares of beneficial interest, as of such date, in conformity
with generally accepted accounting principles applied on a consistent
basis.
(e) At the Closing, Delaware Group Tax-Free Fund will have good and
marketable title to all of the securities and other assets shown on the
statement of assets and liabilities referred to in subsection (d) above,
free and clear of all liens or encumbrances of any nature whatsoever except
such restrictions as might arise under the 1933 Act with respect to
privately placed or otherwise restricted securities that it may have
acquired in the ordinary course of business and such imperfections of title
or encumbrances as do not materially detract from the value or use of the
assets subject thereto, or materially affect title thereto.
(f) Delaware Group Tax-Free Fund has the necessary trust power and
trust authority to conduct its business and the business of Acquiring Fund
as such businesses are now being conducted.
(g) Delaware Group Tax-Free Fund is not a party to or obligated under
any provision of its Agreement and Declaration of Trust, By-Laws, or any
material contract or any other material commitment or obligation, and is
not subject to any order or decree that would be violated by its execution
of or performance under this Agreement.
(h) Delaware Group Tax-Free Fund has full trust power and trust
authority to enter into and perform its obligations under this Agreement.
The execution, delivery and performance of this Agreement have been validly
authorized, and this Agreement constitutes its legal, valid and binding
obligation enforceable against it in accordance with its terms, subject, as
to enforcement, to the effect of bankruptcy, insolvency reorganization,
arrangements among creditors, moratorium, fraudulent transfer or
conveyance, and other similar laws of general applicability relating to or
affecting creditors rights and to general equity principles.
(i) Neither Delaware Group Tax-Free Fund nor Acquiring Fund is under
the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
(j) The books and records of Acquiring Fund made available to Delaware
Investments Municipal Trust and/or its counsel are true and correct in all
material respects and contain no material omissions with respect to the
business and operations of Acquiring Fund.
(k) Delaware Group Tax-Free Fund has elected to treat Acquiring Fund
as a RIC for federal income tax purposes under Part I of Subchapter M of
the Code, Acquiring Fund is a "fund" as defined in Section 851(g)(2) of the
Code, has qualified as a RIC for each taxable year since its inception and
will qualify as a RIC as of the Closing, and consummation of the
transactions contemplated by the Plan will not cause it to fail to be
qualified as a RIC as of the Closing.
6. Representations and Warranties by Delaware Investments Municipal Trust
and Delaware Group Tax-Free Fund
Delaware Investments Municipal Trust and Delaware Group Tax-Free Fund
each represents and warrants to the other that:
(a) Except as discussed in its currently effective prospectus, there
are no legal, administrative or other proceedings or investigations against
it, or, to its knowledge, threatened against it, that would materially
affect its financial condition or its ability to consummate the
transactions contemplated by this Agreement. It is not charged with or, to
its knowledge, threatened with, any violation or investigation of any
possible violation of any provisions of any federal, state or local law or
regulation or administrative ruling relating to any aspect of its business.
(b) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by it.
(c) It has duly and timely filed, on behalf of Acquired Fund or
Acquiring Fund, as appropriate, all Tax (as defined below) returns and
reports (including information returns), which are required to be filed by
such Acquired Fund or Acquiring Fund, and all such returns and reports
accurately state the amount of Tax owed for the periods covered by the
returns, or, in the case of information returns, the amount and character
of income required to be reported by such Acquired Fund or Acquiring Fund.
On behalf of Acquired Fund or Acquiring Fund, as appropriate, it has paid
or made provision and properly accounted for all Taxes (as defined below)
due or properly shown to be due on such returns and reports. The amounts
set up as provisions for Taxes in the books and records of Acquired Fund or
Acquiring Fund, as appropriate, as of the Close of Business on the
Valuation Date will, to the extent required by generally accepted
accounting principles, be sufficient for the payment of all Taxes of any
kind, whether accrued, due, absolute, contingent or otherwise, which were
or which may be payable by Acquired Fund or Acquiring Fund, as appropriate,
for any periods or fiscal years prior to and including the Close of
Business on the Valuation Date, including all Taxes imposed before or after
the Close of Business on the Valuation Date that are attributable to any
such period or fiscal year. No return filed by it, on behalf of Acquired
Fund or Acquiring Fund, as appropriate, is currently being audited by the
Internal Revenue Service or by any state or local taxing authority. As used
in this Agreement, "Tax" or "Taxes" means all federal, state, local and
foreign (whether imposed by a country or political subdivision or authority
thereunder) income, gross receipts, excise, sales, use, value added,
employment, franchise, profits, property, ad valorem or other taxes, stamp
taxes and duties, fees, assessments or charges, whether payable directly or
by withholding, together with any interest and any penalties, additions to
tax or additional amounts imposed by any taxing authority (foreign or
domestic) with respect thereto. To its knowledge, there are no levies,
liens or encumbrances relating to Taxes existing, threatened or pending
with respect to the assets of Acquired Fund or Acquiring Fund, as
appropriate.
(d) All information provided to Delaware Investments Municipal Trust
by Delaware Group Tax-Free Fund, and by Delaware Investments Municipal
Trust to Delaware Group Tax-Free Fund, for inclusion in, or transmittal
with, the Combined Proxy Statement and Prospectus with respect to this
Agreement pursuant to which approval of Acquired Fund's shareholders will
be sought, shall not contain any untrue statement of a material fact, or
omit to state a material fact required to be stated therein in order to
make the statements made therein, in light of the circumstances under which
they were made, not misleading.
(e) Except in the case of Delaware Investments Municipal Trust with
respect to the approval of Acquired Fund's shareholders of this Agreement,
no consent, approval, authorization or order of any court or governmental
authority, or of any other person or entity, is required for the
consummation of the transactions contemplated by this Agreement, except as
may be required by the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the 1940 Act, or state securities laws or
Delaware statutory trust laws (including, in the case of each of the
foregoing, the rules and regulations thereunder).
7. Covenants of Delaware Investments Municipal Trust
(a) Delaware Investments Municipal Trust covenants to operate the
business of Acquired Fund as presently conducted between the date hereof
and the Closing.
(b) Delaware Investments Municipal Trust undertakes that Acquired Fund
will not acquire the shares of beneficial interest of Acquiring Fund for
the purpose of making distributions thereof other than to Acquired Fund's
shareholders.
(c) Delaware Investments Municipal Trust covenants that by the
Closing, all of Acquired Fund's federal and other Tax returns and reports
required by law to be filed on or before such date shall have been filed
and all federal and other Taxes shown as due on said returns either shall
have been paid or adequate liability reserves shall have been provided for
the payment of such Taxes.
(d) Delaware Investments Municipal Trust will at the Closing provide
Delaware Group Tax-Free Fund with:
(1) A statement of the respective tax basis of all investments to
be transferred by Acquired Fund to Acquiring Fund.
(2) A copy (which may be in electronic form) of the shareholder
ledger accounts including, without limitation, the name, address and
taxpayer identification number of each shareholder of record, the
number of shares of beneficial interest held by each shareholder, the
dividend reinvestment elections applicable to each shareholder, and
the backup withholding and nonresident alien withholding
certifications, notices or records on file with Acquired Fund with
respect to each shareholder, for all of the shareholders of record of
Acquired Fund's shares as of the Close of Business on the Valuation
Date, who are to become holders of Acquiring Fund as a result of the
transfer of assets that is the subject of this Agreement, certified by
its transfer agent or its President or its Vice-President to the best
of their knowledge and belief.
(e) The Board of Trustees of Delaware Investments Municipal Trust
shall call, and Delaware Investments Municipal Trust shall hold, a Special
Meeting of Acquired Fund's shareholders to consider and vote upon this
Agreement (the "Special Meeting") and Delaware Investments Municipal Trust
shall take all other actions reasonably necessary to obtain approval of the
transactions contemplated herein. Delaware Investments Municipal Trust
agrees to mail to each shareholder of record entitled to vote at the
Special Meeting at which action on this Agreement is to be considered, in
sufficient time to comply with requirements as to notice thereof, a
Combined Proxy Statement and Prospectus that complies in all material
respects with the applicable provisions of Section 14(a) of the 1934 Act
and Section 20(a) of the 1940 Act, and the rules and regulations
promulgated thereunder.
(f) Delaware Investments Municipal Trust shall supply to Delaware
Group Tax-Free Fund, at the Closing, the statement of the assets and
liabilities described in Section 4(e) of this Agreement in conformity with
the requirements described in such Section.
8. Covenants of Delaware Group Tax-Free Fund
(a) Delaware Group Tax-Free Fund covenants that the shares of
beneficial interest of Acquiring Fund to be issued and delivered to
Acquired Fund pursuant to the terms of Section 1 hereof shall have been
duly authorized as of the Closing and, when so issued and delivered, shall
be registered under the 1933 Act, validly issued, and fully paid and
non-assessable, and no shareholder of Acquiring Fund shall have any
statutory or contractual preemptive right of subscription or purchase in
respect thereof, other than any rights created pursuant to this Agreement.
(b) Delaware Group Tax-Free Fund covenants to operate the business of
Acquiring Fund as presently conducted between the date hereof and the
Closing.
(c) Delaware Group Tax-Free Fund covenants that by the Closing, all of
Acquiring Fund's federal and other Tax returns and reports required by law
to be filed on or before such date shall have been filed and all federal
and other Taxes shown as due on said returns shall have either been paid or
adequate liability reserves shall have been provided for the payment of
such Taxes.
(d) Delaware Group Tax-Free Fund shall supply to Delaware Investments
Municipal Trust, at the Closing, the statement of assets and liabilities
described in Section 5(d) of this Agreement in conformity with the
requirements described in such Section.
(e) Delaware Group Tax-Free Fund shall have filed with the United
States Securities and Exchange Commission (the "Commission") a Registration
Statement on Form N-14 under the 1933 Act ("Registration Statement"),
relating to the shares of beneficial interest of Acquiring Fund issuable
hereunder, and shall have used its best efforts to provide that such
Registration Statement becomes effective as promptly as practicable. At the
time such Registration Statement becomes effective, it (i) complied in all
material respects with the applicable provisions of the 1933 Act, the 1934
Act and the 1940 Act, and the rules and regulations promulgated thereunder;
and (ii) will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. At the time the Registration
Statement becomes effective, at the time of Acquired Fund's shareholders'
meeting, and at the Closing, the prospectus and statement of additional
information included in the Registration Statement did not and will not
contain an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
9. Conditions Precedent to be Fulfilled by Delaware Investments Municipal
Trust and Delaware Group Tax-Free Fund
The obligations of Delaware Investments Municipal Trust and Delaware
Group Tax-Free Fund to effectuate this Agreement and the Plan hereunder
shall be subject to the following respective conditions:
(a) That (1) all the representations and warranties of the other party
contained herein shall be true and correct in all material respects as of
the Closing with the same effect as though made as of and at such date; (2)
the other party shall have performed all obligations required by this
Agreement to be performed by it at or prior to the Closing; and (3) the
other party shall have delivered to such party a certificate signed by the
President or Vice-President and by the Secretary or equivalent officer to
the foregoing effect.
(b) That the other party shall have delivered to such party a copy of
the resolutions approving this Agreement adopted by the other party's Board
of Trustees, certified by the Secretary or equivalent officer.
(c) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted nor threatened
to institute any proceeding seeking to enjoin the consummation of the
reorganization contemplated hereby under Section 25(c) of the 1940 Act, and
no other legal, administrative or other proceeding shall be instituted or
threatened that would materially and adversely affect the financial
condition of either party or would prohibit the transactions contemplated
hereby.
(d) That this Agreement, the Plan and the transactions contemplated
hereby shall have been approved by the appropriate action of the
shareholders of Acquired Fund at an annual or special meeting or any
adjournment thereof.
(e) That Acquired Fund shall have declared a distribution or
distributions on or prior to the Valuation Date that, together with all
previous distributions, shall have the effect of distributing to its
shareholders (i) all of its ordinary income, capital gain net income and
net interest income excludable under Section 103(a) of the Code, if any,
for the period from the close of its last fiscal year to the Close of
Business on the Valuation Date, and (ii) any undistributed ordinary income,
capital gain net income and net interest income excludable under Section
103(a) of the Code from any prior period. Capital gain net income has the
meaning given such term by Section 1222(g) of the Code.
(f) That all required consents of other parties and all other
consents, orders and permits of federal, state and local authorities
(including those of the Commission and of state Blue Sky securities
authorities, including any necessary "no-action" positions or exemptive
orders from such federal and state authorities) to permit consummation of
the transaction contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve risk
of material adverse effect on the assets and properties of Acquired Fund or
Acquiring Fund.
(g) That prior to or at the Closing, Delaware Investments Municipal
Trust and Delaware Group Tax-Free Fund shall receive an opinion from
Stradley Ronon Stevens & Young, LLP ("SRSY") to the effect that, provided
the acquisition contemplated hereby is carried out in accordance with this
Agreement and in accordance with customary representations provided by
Delaware Investments Municipal Trust and Delaware Group Tax-Free Fund in
certificates delivered to SRSY:
(1) The acquisition by Acquiring Fund of substantially all of the
assets of Acquired Fund in exchange solely for Acquiring Fund shares
to be issued pursuant to Section 1 hereof, followed by the
distribution by Acquired Fund to its shareholders of Acquiring Fund
shares in complete liquidation of Acquired Fund, will qualify as a
reorganization within the meaning of Section 368(a)(1) of the Code,
and Acquiring Fund and Acquired Fund will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Acquired Fund upon the
transfer of substantially all of its assets to Acquiring Fund in
exchange solely for the voting shares of Acquiring Fund (to be issued
in accordance with Section 1 hereof) under Section 361(a) and Section
357(a) of the Code;
(3) No gain or loss will be recognized by Acquiring Fund upon the
receipt by it of substantially all of the assets of Acquired Fund in
exchange solely for the voting shares of Acquiring Fund (to be issued
in accordance with Section 1 hereof) under Section 1032(a) of the
Code;
(4) No gain or loss will be recognized by Acquired Fund upon the
distribution of Acquiring Fund shares to Acquired Fund shareholders in
accordance with Section 1 hereof in liquidation of Acquired Fund under
Section 361(c)(1) of the Code.
(5) The basis of the assets of Acquired Fund received by
Acquiring Fund will be the same as the basis of such assets to
Acquired Fund immediately prior to the exchange under Section 362(b)
of the Code;
(6) The holding period of the assets of Acquired Fund received by
Acquiring Fund will include the period during which such assets were
held by Acquired Fund under Section 1223(2) of the Code;
(7) No gain or loss will be recognized by the shareholders of
Acquired Fund upon the exchange of their shares in Acquired Fund for
the voting shares (including fractional shares to which they may be
entitled) of Acquiring Fund (to be issued in accordance with Section 1
hereof) under Section 354(a) of the Code;
(8) The basis of Acquiring Fund shares received by Acquired Fund
shareholders in accordance with Section 1 hereof (including fractional
shares to which they may be entitled) will be the same as the basis of
the shares of Acquired Fund exchanged therefor under Section 358(a)(1)
of the Code;
(9) The holding period of Acquiring Fund's shares received by
Acquired Fund's shareholders in accordance with Section 1 hereof
(including fractional shares to which they may be entitled) will
include the holding period of Acquired Fund's shares surrendered in
exchange therefor, provided that Acquired Fund shares were held as a
capital asset on the date of the Reorganization under Section 1223(l)
of the Code; and
(10) Acquiring Fund will succeed to and take into account as of
the date of the transfer (as defined in Section 1.381(b)-1(b) of the
regulations issued by the United States Treasury (the "Treasury
Regulations")) the items of Acquired Fund described in Section 381(c)
of the Code, subject to the conditions and limitations specified in
Sections 381, 382, 383 and 384 of the Code, and the Treasury
Regulations.
(h) That Delaware Group Tax-Free Fund shall have received an opinion
in form and substance reasonably satisfactory to it from SRSY, counsel to
Delaware Investments Municipal Trust, to the effect that, subject in all
respects to the effects of bankruptcy, insolvency, arrangement among
creditors, moratorium, fraudulent transfer or conveyance, and other similar
laws of general applicability relating to or affecting creditor's rights
and to general equity principles:
(1) Delaware Investments Municipal Trust was created as a
statutory trust under the laws of the State of Delaware on October 26,
2004, and is validly existing and in good standing under the laws of
the State of Delaware;
(2) Delaware Investments Municipal Trust is authorized to issue
an unlimited number of shares of beneficial interest, without par
value, of Acquired Fund;
(3) Delaware Investments Municipal Trust is an open-end,
investment company of the management type registered as such under the
1940 Act;
(4) Except as disclosed in Acquired Fund's currently effective
prospectus, such counsel does not know of any material suit, action,
or legal or administrative proceeding pending or threatened against
Delaware Investments Municipal Trust, the unfavorable outcome of which
would materially and adversely affect Delaware Investments Municipal
Trust or Acquired Fund;
(5) To such counsel's knowledge, no consent, approval,
authorization or order of any court, governmental authority or agency
is required for the consummation by Delaware Investments Municipal
Trust of the transactions contemplated by this Agreement, except such
as have been obtained under the 1933 Act, the 1934 Act, the 1940 Act,
and Delaware laws (including, in the case of each of the foregoing,
the rules and regulations thereunder) and such as may be required
under state securities laws;
(6) Neither the execution, delivery nor performance of this
Agreement by Delaware Investments Municipal Trust violates any
provision of its Agreement and Declaration of Trust, its By-Laws, or
the provisions of any agreement or other instrument, known to such
counsel to which Delaware Investments Municipal Trust is a party or by
which Delaware Investments Municipal Trust is otherwise bound; and
(7) This Agreement has been validly authorized and executed by
Delaware Investments Municipal Trust and represents the legal, valid
and binding obligation of Delaware Investments Municipal Trust and is
enforceable against Delaware Investments Municipal Trust in accordance
with its terms.
In giving the opinions set forth above, SRSY may state that it is
relying on certificates of the officers of Delaware Investments Municipal
Trust with regard to matters of fact and certain certifications and written
statements of governmental officials with respect to the good standing of
Delaware Investments Municipal Trust.
(i) That Delaware Investments Municipal Trust shall have received an
opinion in form and substance reasonably satisfactory to it from SRSY,
counsel to Delaware Group Tax-Free Fund, to the effect that, subject in all
respects to the effects of bankruptcy, insolvency, arrangement among
creditors, moratorium, fraudulent transfer or conveyance, and other similar
laws of general applicability relating to or affecting creditor's rights
and to general equity principles:
(1) Delaware Group Tax-Free Fund was created as a statutory trust
(formerly known as a business trust) under the laws of the State of
Delaware on December 17, 1998, and is validly existing and in good
standing under the laws of the State of Delaware;
(2) Delaware Group Tax-Free Fund is authorized to issue an
unlimited number of shares of beneficial interest, without par value,
of Acquiring Fund;
(3) Delaware Group Tax-Free Fund is an open-end investment
company of the management type registered as such under the 1940 Act;
(4) Except as disclosed in Acquiring Fund's currently effective
prospectus, such counsel does not know of any material suit, action,
or legal or administrative proceeding pending or threatened against
Delaware Group Tax-Free Fund, the unfavorable outcome of which would
materially and adversely affect Delaware Group Tax-Free Fund or
Acquiring Fund;
(5) The shares of beneficial interest of Acquiring Fund to be
issued pursuant to the terms of Section 1 hereof have been duly
authorized and, when issued and delivered as provided in this
Agreement, will have been validly issued and fully paid and will be
non-assessable by Delaware Group Tax-Free Fund or Acquiring Fund, and
to such counsel's knowledge, no shareholder has any preemptive right
to subscription or purchase in respect thereof other than any rights
that may be deemed to have been granted pursuant to this Agreement;
(6) To such counsel's knowledge, no consent, approval,
authorization or order of any court, governmental authority or agency
is required for the consummation by Delaware Group Tax-Free Fund of
the transactions contemplated by this Agreement, except such as have
been obtained under the 1933 Act, the 1934 Act, the 1940 Act, and
Delaware laws (including, in the case of each of the foregoing, the
rules and regulations thereunder) and such as may be required under
state securities laws;
(7) Neither the execution, delivery nor performance of this
Agreement by Delaware Group Tax-Free Fund violates any provision of
its Agreement and Declaration of Trust, its By-Laws, or the provisions
of any agreement or other instrument, known to such counsel to which
Delaware Group Tax-Free Fund is a party or by which Delaware Group
Tax-Free Fund is otherwise bound; and
(8) This Agreement has been validly authorized and executed by
Delaware Group Tax-Free Fund and represents the legal, valid and
binding obligation of Delaware Group Tax-Free Fund and is enforceable
against Delaware Group Tax-Free Fund in accordance with its terms.
In giving the opinions set forth above, SRSY may state that it is
relying on certificates of the officers of Delaware Group Tax-Free Fund
with regard to matters of fact and certain certifications and written
statements of governmental officials with respect to the good standing of
Delaware Group Tax-Free Fund.
(j) That Delaware Group Tax-Free Fund's Registration Statement with
respect to the shares of beneficial interest of Acquiring Fund to be
delivered to Acquired Fund's shareholders in accordance with Section 1
hereof shall have become effective, and no stop order suspending the
effectiveness of the Registration Statement or any amendment or supplement
thereto, shall have been issued prior to the Closing or shall be in effect
at the Closing, and no proceedings for the issuance of such an order shall
be pending or threatened on that date.
(k) That the shares of beneficial interest of Acquiring Fund to be
delivered in accordance with Section 1 hereof shall be eligible for sale by
Delaware Group Tax-Free Fund with each state commission or agency with
which such eligibility is required in order to permit the shares lawfully
to be delivered to each Acquired Fund shareholder.
(l) That at the Closing, Delaware Investments Municipal Trust, on
behalf of Acquired Fund, transfers to Acquiring Fund aggregate Net Assets
of Acquired Fund comprising at least 90% in fair market value of the total
net assets and 70% in fair market value of the total gross assets recorded
on the books of Acquired Fund at the Close of Business on the Valuation
Date.
10. Fees and Expenses The expenses of entering into and carrying out the
provisions of this Agreement, whether or not consummated, shall be borne 30% by
Acquired Fund; 30% by Acquiring Fund; and 40% by Delaware Management Company, a
series of Delaware Management Business Trust.
11. Termination; Waiver; Order
(a) Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Plan abandoned at
any time (whether before or after adoption thereof by the shareholders of
Acquired Fund) prior to the Closing as follows:
(1) by mutual consent of Delaware Investments Municipal Trust and
Delaware Group Tax-Free Fund;
(2) by Delaware Group Tax-Free Fund if any condition precedent to
its obligations set forth in Section 9 has not been fulfilled or
waived by Delaware Group Tax-Free Fund; or
(3) by Delaware Investments Municipal Trust if any condition
precedent to its obligations set forth in Section 9 has not been
fulfilled or waived by Delaware Investments Municipal Trust.
(b) If the transactions contemplated by this Agreement have not been
consummated by December 31, 2007, this Agreement shall automatically
terminate on that date, unless a later date is agreed to by both Delaware
Investments Municipal Trust and Delaware Group Tax-Free Fund.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect,
and there shall not be any liability on the part of either Delaware
Investments Municipal Trust or Delaware Group Tax-Free Fund or persons who
are their trustees, officers, agents or shareholders in respect of this
Agreement.
(d) At any time prior to the Closing, any of the terms or conditions
of this Agreement may be waived by either Delaware Investments Municipal
Trust or Delaware Group Tax-Free Fund, respectively (whichever is entitled
to the benefit thereof).
(e) The respective representations, warranties and covenants contained
in Sections 4-8 hereof shall expire with, and be terminated by, the
consummation of the Plan, and neither Delaware Investments Municipal Trust
nor Delaware Group Tax-Free Fund, nor any of their officers, trustees,
agents or shareholders shall have any liability with respect to such
representations or warranties after the Closing. This provision shall not
protect any officer, trustee, agent or shareholder of Delaware Investments
Municipal Trust or Delaware Group Tax-Free Fund against any liability to
the entity for which that officer, trustee, agent or shareholder so acts or
to its shareholders to which that officer, trustee, agent or shareholder
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties in the conduct of such
office.
(f) If any order or orders of the Commission with respect to this
Agreement shall be issued prior to the Closing and shall impose any terms
or conditions that are determined by action of the Board of Trustees of
Delaware Investments Municipal Trust or the Board of Trustees of Delaware
Group Tax-Free Fund to be acceptable, such terms and conditions shall be
binding as if a part of this Agreement without further vote or approval of
the shareholders of Acquired Fund, unless such further vote is required by
applicable law or by mutual consent of the parties.
12. Liability of Delaware Group Tax-Free Fund and Delaware Investments
Municipal Trust
(a) Each party acknowledges and agrees that all obligations of
Delaware Group Tax-Free Fund under this Agreement are binding only with
respect to Acquiring Fund; that any liability of Delaware Group Tax-Free
Fund under this Agreement with respect to Acquiring Fund, or in connection
with the transactions contemplated herein with respect to Acquiring Fund,
shall be discharged only out of the assets of Acquiring Fund; that no other
series of Delaware Group Tax-Free Fund shall be liable with respect to this
Agreement or in connection with the transactions contemplated herein; and
that neither Delaware Investments Municipal Trust nor Acquired Fund shall
seek satisfaction of any such obligation or liability from the shareholders
of Delaware Group Tax-Free Fund, the trustees, officers, employees or
agents of Delaware Group Tax-Free Fund, or any of them.
(b) Each party acknowledges and agrees that all obligations of
Delaware Investments Municipal Trust under this Agreement are binding only
with respect to Acquired Fund; that any liability of Delaware Investments
Municipal Trust under this Agreement with respect to Acquired Fund, or in
connection with the transactions contemplated herein with respect to
Acquired Fund, shall be discharged only out of the assets of Acquired Fund;
that no other series of Delaware Investments Municipal Trust shall be
liable with respect to this Agreement or in connection with the
transactions contemplated herein; and that neither Delaware Group Tax-Free
Fund nor Acquiring Fund shall seek satisfaction of any such obligation or
liability from the shareholders of Delaware Investments Municipal Trust,
the trustees, officers, employees or agents of Delaware Investments
Municipal Trust, or any of them.
13. Final Tax Returns and Forms 1099 of Acquired Fund
(a) After the Closing, Delaware Investments Municipal Trust shall or
shall cause its agents to prepare any federal, state or local Tax returns,
including any Forms 1099, required to be filed by Delaware Investments
Municipal Trust with respect to Acquired Fund's final taxable year ending
with its complete liquidation and for any prior periods or taxable years
and shall further cause such Tax returns and Forms 1099 to be duly filed
with the appropriate taxing authorities.
(b) Notwithstanding the provisions of Section 1 hereof, any expenses
incurred by Delaware Investments Municipal Trust or Acquired Fund (other
than for payment of Taxes) in connection with the preparation and filing of
said Tax returns and Forms 1099 after the Closing, shall be borne by
Acquired Fund to the extent such expenses have been or should have been
accrued by Acquired Fund in the ordinary course without regard to the Plan
contemplated by this Agreement; any excess expenses shall be borne by
Delaware Management Company, a series of Delaware Management Business
Trust, at the time such Tax returns and Forms 1099 are prepared.
14. Cooperation and Exchange of Information
Delaware Group Tax-Free Fund and Delaware Investments Municipal Trust
will provide each other and their respective representatives with such
cooperation and information as either of them reasonably may request of the
other in filing any Tax returns, amended return or claim for refund,
determining a liability for Taxes or a right to a refund of Taxes or
participating in or conducting any audit or other proceeding in respect of
Taxes. Each party or their respective agents will retain for a period of
six (6) years following the Closing all returns, schedules and work papers
and all material records or other documents relating to Tax matters of
Acquired Fund and Acquiring Fund for its taxable period first ending after
the Closing and for all prior taxable periods.
15. Entire Agreement and Amendments
This Agreement embodies the entire Agreement between the parties and
there are no agreements, understandings, restrictions, or warranties
between the parties other than those set forth herein or herein provided
for. This Agreement may be amended only by mutual consent of the parties in
writing. Neither this Agreement nor any interest herein may be assigned
without the prior written consent of the other party.
16. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all such counterparts together
shall constitute but one instrument.
17. Notices
Any notice, report, or demand required or permitted by any provision
of this Agreement shall be in writing and shall be deemed to have been
given if delivered or mailed, first class postage prepaid, addressed to
Delaware Investments Municipal Trust or Delaware Group Tax-Free Fund at
2005 Market Street, Philadelphia, PA 19103, Attention: Secretary.
18. Governing Law
This Agreement shall be governed by and carried out in accordance with
the laws of the State of Delaware.
19. Effect of Facsimile Signature
A facsimile signature of an authorized officer of a party hereto on
this Agreement and/or any transfer document shall have the same effect as
if executed in the original by such officer.
IN WITNESS WHEREOF, Delaware Investments Municipal Trust and Delaware Group
Tax-Free Fund have each caused this Agreement and Plan of Reorganization to be
executed on its behalf by its duly authorized officers, all as of the day and
year first-above written.
Delaware Investments Municipal Trust, on behalf of the
Delaware Tax-Free Florida Insured Fund
By:
(name) (title)
Delaware Group Tax-Free Fund, on behalf of the
Delaware Tax-Free USA Fund
By:
(name) (title)
EXHIBIT B
PRINCIPAL HOLDERS OF SHARES
- ----------------------------------------------------------------------------------------------------------
FUND NAME / CLASS NAME AND ADDRESS OF ACCOUNT SHARE AMOUNT PERCENTAGE
- ----------------------------------------------------------------------------------------------------------
Delaware Tax-Free
Florida Insured Fund -
Class A Shares
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Delaware Tax-Free
Florida Insured Fund -
Class B Shares
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Delaware Tax-Free
Florida Insured Fund -
Class C Shares
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Delaware Tax-Free USA
Fund - Class A Shares
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Delaware Tax-Free USA Fund -
Class B Shares
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Delaware Tax-Free USA Fund - Class C
Shares
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
FOR
DELAWARE TAX-FREE USA FUND
a series of
DELAWARE GROUP TAX-FREE FUND
Dated March [30], 2007
Acquisition of Substantially All of the Assets of:
DELAWARE TAX-FREE FLORIDA
INSURED FUND
(a series of Delaware Investments Municipal Trust)
By and in exchange for shares of
DELAWARE TAX-FREE USA FUND
(a series of Delaware Group Tax-Free Fund)
This Statement of Additional Information ("SAI") relates specifically to the
proposed acquisition of substantially all of the assets of Delaware Tax-Free
Florida Insured Fund (the "Florida Fund") in exchange for shares of Delaware
Tax-Free USA Fund (the "USA Fund").
This SAI consists of this Cover Page and the following documents, each of which
is attached to and is legally considered to be a part of this SAI.
1. Statement of Additional Information of the USA Fund, dated January 3,
2007 as previously filed via EDGAR is incorporated herein by reference
to Delaware Group Tax-Free Fund's filing under Rule 485(b) [Accession
No. 0001137439-07-000003] filed January 3, 2007 and will be mailed to
any Shareholder who requests this SAI.
2. Supplement to the Statement of Additional Information of the USA Fund,
dated January 3, 2007 as previously filed via EDGAR is incorporated
herein by reference to Delaware Group Tax-Free Fund's filing under
Rule 497 [Accession No. 0001137439-07-000005] filed January 3, 2007
and will be mailed to any Shareholder who requests this SAI.
3. Annual Report of the USA Fund for the fiscal year ended August 31,
2006 as previously filed via EDGAR is incorporated herein by reference
to Delaware Group Tax-Free Fund's N-CSR [Accession No.
0001206774-06-002292] filed November 8, 2006 and will be mailed to any
Shareholder who requests this SAI.
4. Annual Report of the Florida Fund for the fiscal year ended August 31,
2006 as previously filed via EDGAR is incorporated herein by reference
to Delaware Investments Municipal Trust 's N-CSR/A [Accession No.
0001206774-07-000437] filed February 21, 2007 and will be mailed to
any Shareholder who requests this SAI.
5. Pro Forma Financial Statements for the reorganization of the Florida
Fund with and into the USA Fund.
This SAI is not a prospectus; you should read this SAI in conjunction with
the Proxy Statement/Prospectus dated March [30], 2007, relating to the
above-referenced transactions. You can request a copy of the Proxy
Statement/Prospectus by calling 1-800-523-1918 or by writing to the Delaware
Tax-Free USA Fund at Attention: Account Services, 2005 Market Street,
Philadelphia, PA 19103-7094.
Delaware Tax-Free USA Fund
Pro Forma Portfolio of Investments(A)
As of August 31, 2006
(Unaudited)
% of Total
Investments
(Pro Forma Delaware Tax-Free USA Fund
Combined) Par/Shares Market Value
--------- ---------------------------
Municipal Bonds 99.57%
Corporate Revenue Bonds 8.12%
Alliance Airport Authority, Texas Special Facilities Revenue
(Federal Express Corp. Project) 4.85% 4/1/21 (AMT) $2,000,000 $2,015,180
Brazos, Texas River Authority Pollution Control Revenue
(Texas Utilities) 5.40% 5/1/29 (AMT) 3,000,000 3,105,000
o(TXU Energy Co. Project) Series B 6.30% 7/1/32 (AMT) 3,500,000 3,799,705
Cloquet, Minnesota Pollution Control Revenue (Potlatch Corp.
Project) 5.90% 10/1/26 1,695,000 1,724,273
@Columbus, Kansas Industrial Revenue (ACE Electrical
Acquisition) 7.00% 8/1/17 (AMT) 800,000 208,000
Connecticut State Development Authority Pollution Control
Revenue (Connecticut Light & Power) Series A 5.85% 9/1/28 4,000,000 4,189,360
Indianapolis, Indiana Airport Authority Revenue Special
Facilities (Federal Express Corp. Project)
5.10% 1/15/17 (AMT) 2,750,000 2,886,098
Series 1998 5.50% 5/1/29 (AMT) 2,000,000 2,045,180
Mason County, West Virginia Pollution Control Revenue
(Appalachian Power Co. Project) Series K 6.05% 12/1/24 (AMBAC) 3,000,000 3,241,410
Mississippi Business Finance Corporation Pollution Control
Revenue (System Energy Resources, Inc. Project)
5.90%5/1/22 3,000,000 3,004,920
Missouri State Development Finance Board Infrastructure Facilities
Revenue (Triumph Foods Project) Series A 5.25% 3/1/25 500,000 517,475
Petersburg, Indiana Pollution Control Revenue (Indianapolis
Power & Light Co. Project)
6.375% 11/1/29 (AMT) 5,000,000 5,399,649
6.625%12/1/24 4,500,000 4,590,180
Phenix City, Alabama Industrial Development Board
Environmental Improvement Revenue (Mead Westvaco Corp.
Project) Series A 6.35% 5/15/35 (AMT) 3,000,000 3,225,090
oPort Morrow, Oregon Pollution Control Revenue (Portland
General Electric Co.) Series A 5.20%5/1/33 2,600,000 2,666,586
Puerto Rico Industrial, Medical & Environmental Pollution Control
Facilities Financing Authority Revenue (PepsiCo Inc. Project)
6.25%11/15/13 1,250,000 1,295,150
Richmond County, Georgia Development Authority
Environmental Improvement Revenue (International Paper Co.
Project) Series B 5.95% 11/15/25 (AMT) 5,000,000 5,306,200
South Carolina Jobs Economic Development Authority Industrial
Revenue (South Carolina Electric & Gas Co. Project) Series B
5.45% 11/1/32 (AMBAC) (AMT) 500,000 529,380
Suffolk County, New York Industrial Development Agency Revenue
(Keyspan-Port Jefferson Energy Center) 5.25% 6/1/27 (AMT) 3,500,000 3,637,690
Sugar Creek, Missouri Industrial Development Revenue (Lafarge
North America Project) Series A 5.65% 6/1/37 (AMT) 500,000 520,465
oSweetwater County, Wyoming Pollution Control Revenue (Idaho
Power Co. Project) Series A 6.05%7/15/26 5,000,000 5,107,800
Sweetwater County, Wyoming Solid Waste Disposal Revenue (FMC
Corp. Project) 5.60% 12/1/35 (AMT) 5,000,000 5,264,250
--------------
64,279,041
--------------
Education Revenue Bonds 6.53%
Amherst, New York Industrial Development Agency Civic
Facilities Revenue (UBF Faculty Student Housing) Series A
5.75% 8/1/30 (AMBAC) 1,300,000 1,415,323
Broward County Educational Facilities Authority Revenue
(Nova Southeastern University) 5.25% 4/1/27 (RADIAN) 0 0
Chattanooga, Tennessee Health Educational & Housing
Facilities Board Revenue (CDFI Phase I, LLC. Project) Series A
5.125%10/1/35 3,500,000 3,511,200
Illinois Educational Facilities Authority Student Housing
Revenue (Educational Advancement Fund - University
Center Project) 6.25% 5/1/30 5,000,000 5,439,200
Illinois Financial Authority Revenue (Illinois Institute of Technology)
Series A 5.00% 4/1/36 2,600,000 2,660,528
Massachusetts State Development Finance Agency Revenue
(Massachusetts College of Pharmacy Project) Series C
5.75%7/1/33 500,000 532,350
Massachusetts State Health & Educational Facilities
Authority Revenue (Harvard University) Series A
5.00%7/15/36 5,005,000 5,277,923
(Nichols College Project) Series C
6.00%10/1/17 950,000 1,002,469
6.125%10/1/29 1,000,000 1,054,340
Miami-Dade County Educational Facilities Authority (University of
Miami) Series A 5.75% 4/1/29 (AMBAC) 0 0
Milledgeville-Baldwin County, Georgia Development Authority
Revenue (Georgia College & State University Foundation
Project) 6.00% 9/1/33 1,000,000 1,093,100
Missouri State Health & Educational Facilities Authority Educational
Facilities Revenue (University of Health Sciences) 5.00% 6/1/31 (MBIA) 1,000,000 1,029,940
New Hampshire Higher Educational & Health Facilities Authority
Revenue (New Hampton School Issue) 5.375% 10/1/28 3,070,000 3,085,473
New Jersey State Educational Facilities Authority Revenue
(Stevens Institute of Technology) Series B 5.25% 7/1/24 2,085,000 2,178,033
New York State Dormitory Authority Revenue (Fashion Institute
Student Housing Corp.) 5.00% 7/1/13 (FGIC) 1,000,000 1,079,380
Oregon Health & Science University Revenue (Capital Appreciation
Insured) Series A
5.00% 7/1/32 (MBIA) 2,000,000 2,077,340
^5.50% 7/1/21 (MBIA) 2,000,000 1,048,700
Oregon State Facilities Authority Revenue
(College Housing Northwest Project) Series A
5.45%10/1/32 1,000,000 1,026,820
(College Independent Student Housing Project) Series A
5.25% 7/1/30 (XLCA) 1,630,000 1,738,395
(Linfield College Project) Series A 5.00%10/1/30 600,000 616,062
Pennsylvania State Higher Educational Facilities Authority
Revenue (Widener University) 5.375%7/15/29 1,000,000 1,052,690
Texas University Revenue (FING System) Series B 5.00% 8/15/37 7,070,000 7,397,269
University of Central Florida Athletics Association Revenue
Certificates of ParticipationSeries A 5.25% 10/1/34 (FGIC) 500,000 530,375
University of the Virgin Islands Series A 5.375% 6/1/34 500,000 524,460
Vermont University & State Agriculture College
5.125% 10/1/37 (AMBAC) 1,000,000 1,050,810
--------------
46,422,180
--------------
Electric Revenue Bonds 6.28%
Chelan County, Washington Public Utilities District
#001 Consolidated Revenue (Chelan Hydro System) Series A
5.45% 7/1/37 (AMBAC) (AMT) 5,000,000 5,339,550
Emerald Peoples, Oregon Utilities District Series A 5.25% 11/1/22 (FSA) 750,000 808,845
Long Island, New York Power Authority Electric Systems
Revenue Series B 5.00% 12/1/35 1,770,000 1,845,491
Florida State Municipal Power Agency Revenue (Stanton II Project)
5.00% 10/1/26 (AMBAC) 0 0
Lower Colorado River Authority Texas Revenue Refunding
Series A 5.875% 5/15/17 (AMBAC) 5,500,000 5,849,030
Missouri Joint Municipal Electric Utilities Commission Revenue
Power Project (Plum Point Project) 5.00% 1/1/34 (MBIA) 7,000,000 7,359,310
Missouri State Environmental Improvement & Energy Resource
Authority Pollution Control Revenue Refunding (St. Joseph
Light & Power Company Project) 5.85% 2/1/13 (AMBAC) 2,200,000 2,214,806
Ocala Utility System Revenue Series B 5.25% 10/1/25 (FGIC) 0 0
Orlando, Florida Utilities Commission Water & Electric
Revenue 5.25% 10/1/20 2,500,000 2,685,500
Puerto Rico Electric Power Authority Power Revenue
Series II 5.25% 7/1/31 6,000,000 6,281,580
Series NN 5.125% 7/1/29 1,400,000 1,470,210
Series PP 5.00% 7/1/25 (FGIC) 1,000,000 1,060,070
Richmond, Virginia Public Utilities Revenue 5.00% 1/15/27 (FSA) 10,000,000 10,378,300
Sikeston, Missouri Electric Revenue Refunding 6.00% 6/1/13 (MBIA) 1,000,000 1,136,720
--------------
46,429,412
--------------
Escrowed to Maturity Bonds 5.41%
Cape Girardeau County, Missouri Industrial Development Authority
Health Care Facilities Revenue (Southeast Missouri Hospital)
5.25% 6/1/16 (MBIA) 440,000 478,900
^Greene County, Missouri Single Family Mortgage Revenue
Municipal Multiplier (Private Mortgage Insurance)
6.10%3/1/16 1,225,000 834,482
Liberty, Missouri Sewer System Revenue 6.00% 2/1/08 (MBIA) 260,000 264,711
Louisiana Public Facilities Authority Hospital Revenue
(Southern Baptist Hospital, Inc.) 8.00%5/15/12 4,930,000 5,543,933
Missouri State Health & Educational Facilities Authority Health
Facilities Revenue Refunding (SSM Health Care) Series AA
6.40% 6/1/10 (MBIA) 500,000 547,470
New Jersey State Highway Authority Garden State Parkway General
Revenue (Senior Parkway)
5.50% 1/1/14 (FGIC) 5,000,000 5,561,300
5.50% 1/1/15 (FGIC) 7,310,000 8,181,791
5.50% 1/1/16 (FGIC) 1,000,000 1,127,030
Oklahoma State Turnpike Authority Revenue (First Senior)
6.00%1/1/22 13,535,000 16,483,465
Umatilla County, Oregon Hospital Facility Authority Revenue
(Catholic Health Initiatives) Series A 5.50% 3/1/32 1,000,000 1,072,380
Virgin Islands Public Finance Authority Revenue Series A
7.30%10/1/18 2,200,000 2,749,318
--------------
42,844,780
--------------
Health Care Revenue Bonds 17.28%
Akron Bath Copley, Ohio Joint Township Hospital District
Revenue (Summa Health System) Series A 5.25% 11/15/31 (RADIAN) 3,000,000 3,153,780
California Statewide Communities Development Authority
Revenue (Kaiser Permenante) 5.25%3/1/45 8,500,000 8,884,709
Cape Girardeau County, Missouri Industrial Development Authority
Health Care Facilities Revenue Unrefunded Balance
(Southeast Missouri Hospital) 5.25% 6/1/16 (MBIA) 560,000 602,986
(St. Francis Medical Center) Series A 5.50% 6/1/32 1,000,000 1,060,030
Chatham County, Georgia Hospital Authority Revenue (Memorial
Health Medical Center) Series A 6.125%1/1/24 1,000,000 1,089,700
Cleveland-Cuyahoga County, Ohio Port Authority Revenue Senior
Housing (St. Clarence Geac) Series A 6.25% 5/1/38 1,500,000 1,525,845
Colorado Health Facilities Authority Revenue (Evangelical Lutheran)
Series A 5.25% 6/1/34 4,275,000 4,435,227
Cuyahoga County, Ohio Revenue (Cleveland Clinic Health Systems)
Series A 5.50% 1/1/29 7,500,000 8,006,924
Delaware County, Pennsylvania Industrial Development Authority
Revenue Care Institute (Main Line Care Institute Project)
9.00%8/1/31 1,777,611 1,486,741
Duluth, Minnesota Economic Development Authority
Health Care Facilities Revenue (Benedictine Health System St.
Mary's Hospital) 5.25% 2/15/33 5,000,000 5,188,650
Escambia County Health Facilities Authority (Florida Health Care
Facilities - VHA Program) 5.95% 7/1/20 (AMBAC) 0 0
Florence County, South Carolina Hospital Revenue (McLeod
Regional Medical Center Project) Series A 5.25% 11/1/27 (FSA) 3,355,000 3,578,309
Gainesville & Hall County, Georgia Development Authority Revenue
Senior Living Facilities (Lanier Village Estates Project) Series C
7.25%11/15/29 1,000,000 1,093,770
Henrico County, Virginia Economic Development Authority Revenue
(Bon Secours Health System, Inc.) Series A 5.60% 11/15/30 3,140,000 3,318,195
Highlands County, Florida Health Facilities Authority Revenue
(Adventist Health System) Series C 5.25% 11/15/36 3,500,000 3,690,680
Illinois Financial Authority Revenue Series A
(Clarke Oaks Project) 6.00%11/15/39 5,800,000 5,939,896
(Luther Oaks Project) 6.00%8/15/39 3,000,000 3,094,230
Illinois Health Facilities Authority Revenue (Elmhurst
Memorial Healthcare Project) 5.625%1/1/28 2,000,000 2,125,500
Indian River County Hospital District (Indian River Memorial Hospital)
6.10% 10/1/18 (FSA) 0 0
Jacksonville Economic Development Community Health Care
Facilities Revenue (Mayo Clinic) 5.00%11/15/36 0 0
Jacksonville, Florida Economic Development Community
Health Care Facilities Revenue (Mayo Clinic) 5.00% 11/15/36 7,000,000 7,280,699
Johnson City, Tennessee Health and Educational Facilities Board
Hospital Revenue First Mortgage (Mountain States Health) Series A
5.50%7/1/36 3,000,000 3,180,990
Joplin, Missouri Industrial Development Authority Health
Facilities Revenue (Freeman Health System Project)
5.375%2/15/35 255,000 267,023
5.75%2/15/35 405,000 439,591
Knox County, Tennessee Health Educational & Housing Facilities
Board Hospital Revenue (East Tennessee Hospital Project)
Series B 5.75% 7/1/33 1,000,000 1,061,590
Louisiana Public Facilities Authority Revenue (Ochsner Clinic
Foundation Project) Series B 5.50%5/15/32 1,500,000 1,568,655
Lucas County, Ohio Health Care Facility Revenue (Sunset
Retirement Communities) Series A 6.625% 8/15/30 2,000,000 2,143,620
Maryland State Health & Higher Education Facilities Authority
Revenue (Union Hospital Cecil County Issue) 5.00% 7/1/40 2,345,000 2,401,538
Miami-Dade County Public Facilities Revenue (Jackson Health
Systems) Series A 5.00% 6/1/35 (MBIA) 0 0
Michigan State Hospital Finance Authority Revenue
(Ascension Health Credit Group) Series B 5.25% 11/15/26 3,500,000 3,680,670
(Oakwood Obligation Group) Series A 5.75% 4/1/32 2,500,000 2,678,450
(Trinity Health Credit) Series C 5.375%12/1/30 6,000,000 6,338,040
Missouri State Health & Educational Facilities Authority Health
Facilities Revenue Refunding (Lake Regional Health System
Project) 5.70% 2/15/34 500,000 531,130
Multnomah County, Oregon Hospital Facilities Authority
Revenue (Providence Health System) 5.25% 10/1/22 3,500,000 3,750,810
New York State Dormitory Authority Revenue (Catholic
Health Services of Long Island - St. Francis Hospital Project)
5.10%7/1/34 2,500,000 2,562,750
North Carolina Medical Care Commission Health Care
Facilities Revenue (First Mortgage - Presbyterian
Homes) 5.40% 10/1/27 4,000,000 4,112,560
(Pennybryn at Mayfield Project) Series A 6.125% 10/1/35 6,000,000 6,228,060
North Carolina Medical Care Commission Hospital Revenue
(Northeast Medical Center Project) 5.125%11/1/34 1,250,000 1,299,188
North Kansas City, Missouri Hospital Revenue Series A
5.00% 11/15/28 (FSA) 500,000 523,510
North Miami Health Facilities Authority (Catholic Health
Services) (LOC Suntrust Bank-Miami) 6.00% 8/15/16 0 0
Orange County Health Facilities Authority Revenue (Adventist
Health System) 5.625%11/15/32 0 0
Palm Beach County Health Facilities Authority Revenue (Boca Raton
Community Hospital) 5.625%12/1/31 0 0
Prince William County, Virginia Industrial Development Authority
Hospital Revenue (Potomac Hospital Corp.) 5.35% 10/1/36 1,750,000 1,860,233
Puerto Rico Industrial, Tourist, Educational, Medical &
Environmental Control Facilities Revenue (Hospital Auxilio Mutuo
Obligated Group) Series A 6.25% 7/1/24 (MBIA) 1,200,000 1,210,128
Shelby County, Tennessee Health Educational & Housing Facilities
Board Revenue (Trezevant Manor Project) Series A 5.625% 9/1/26 2,500,000 2,518,625
South Broward Hospital District Revenue (Memorial Health Care
System) 5.625% 5/1/32 0 0
South Miami, Florida Health Facilities Authority Hospital
Revenue (Baptist Health South Florida Group) 5.25% 11/15/33 4,000,000 4,157,520
Tallahassee Health Facilities (Tallahassee Memorial Regional
Medical Center) Series B 6.00% 12/1/15 (MBIA) 0 0
University Colorado Hospital Authority Revenue Series A
5.25%11/15/39 2,000,000 2,076,740
--------------
120,147,292
--------------
Housing Revenue Bonds 3.85%
Florida Housing Finance Agency(Crossings Indian Run
Apartments HUD) Series V 6.10%12/1/26 (AMBAC) (AMT) 0 0
(Landings at Sea Forest Apartments) Series T
5.85% 12/1/18 (AMBAC) (FHA) (AMT) 0 0
6.05% 12/1/36 (AMBAC) (FHA) (AMT) 0 0
(Leigh Meadows Apartments Section 8 HUD) Series N
6.20% 9/1/26 (AMBAC) (AMT) 0 0
6.30% 9/1/36 (AMBAC) (AMT) 0 0
(Riverfront Apartments Section 8 HUD) Series A 6.25% 4/1/37
(AMBAC) (AMT) 0 0
(Spinnaker Cove Apartments) Series G 6.50% 7/1/36
(AMBAC) (FHA) (AMT) 0 0
(The Vineyards Project) Series H 6.40%11/1/15 0 0
(Woodbridge Apartments) Series L 6.15% 12/1/26 0 0
(AMBAC) (AMT)
6.25%6/1/36(AMBAC) (AMT) 0 0
Franklin County, Ohio Multi Family Revenue (Alger Green) Series A
5.80% 5/20/44 (GNMA) (AMT) 1,150,000 1,205,074
Illinois Development Finance Authority Revenue (Section 8)
Series A 5.80% 7/1/28 (MBIA) (FHA) 2,790,000 2,869,739
Illinois Housing Development Authority Multi Family Revenue
(Crystal Lake Preservation) Series A-1 5.80% 12/20/41 (GNMA) 2,000,000 2,115,060
Milwaukee, Wisconsin Redevelopment Authority
Multifamily Revenue (City Hall Square) 6.30% 8/1/38 (FHA) (AMT) 1,455,000 1,507,947
Missouri State Housing Development Commission
Mortgage Revenue Series C 7.45% 9/1/27 (GNMA) (FNMA) (AMT) 110,000 111,848
Missouri State Housing Development Commission
Mortgage Revenue Single Family Homeowner
Loan A 5.20% 9/1/33 (GNMA) (FNMA) (AMT) 285,000 291,404
Loan A 7.20% 9/1/26 (GNMA) (FNMA) (AMT) 80,000 81,720
Loan B 7.55% 9/1/27 (GNMA) (FNMA) (AMT) 25,000 25,429
Loan C 7.25% 9/1/26 (GNMA) (FNMA) (AMT) 115,000 116,783
Missouri State Housing Development Commission
Multifamily Housing Revenue(Hyder) Series 3 5.60% 7/1/34 (FHA) (AMT) 1,435,000 1,495,256
(San Remo) Series 5 5.45% 1/1/36 (FHA) (AMT) 500,000 517,510
New Mexico Mortgage Finance Authority Revenue
Series B Class III 6.75% 7/1/25 (GNMA) (FNMA) 235,000 241,662
Series E 6.95% 1/1/26 (GNMA) (FNMA) 195,000 197,088
North Dakota State Housing Finance Agency Multifamily Revenue
Series A 6.15% 12/1/17 (FNMA) 1,300,000 1,324,713
Orange County Housing Finance Authority Homeowner Revenue
Series B 5.25% 3/1/33 (GNMA) (FNMA) (AMT) 0 0
Oregon Health, Housing, Educational, & Cultural Facilities
Authority Revenue (Pier Park Project) Series A 6.05% 4/1/18
(GNMA) (AMT) 1,095,000 1,097,113
Oregon State Housing & Community Services Department
Mortgage Revenue Single Family Mortgage Program Series R
5.375% 7/1/32 (AMT) 1,100,000 1,124,299
Santa Fe, New Mexico Single Family Mortgage Revenue Series B -1
6.20% 11/1/16 (GNMA) (FNMA) (AMT) 175,000 177,357
St. Louis County, Missouri Industrial Development Authority
Housing Development Revenue Refunding (Southfield &
Oak Forest Apartment-A) 5.20% 1/20/36 (GNMA) 1,000,000 1,025,760
Volusia County Multifamily Housing Finance Authority (San Marco
Apartments) Series A 5.60% 1/1/44 (FSA) (AMT) 0 0
Waukesha, Wisconsin Housing Authority Multifamily Revenue
(Westgrove Woods) Series A 6.00% 12/1/31 (GNMA) (AMT) 1,500,000 1,530,285
--------------
17,056,047
--------------
Lease Revenue Bonds 6.50%
Battery Park City, New York Authority Revenue Series A
5.25%11/1/22 2,250,000 2,432,363
California State Public Works Board Lease Revenue (Department
of General Services-Butterfield Street) Series A 5.25% 6/1/30 2,750,000 2,908,840
Chesterfield, Missouri Certificates of Participation 5.00% 12/1/24 (FGIC) 1,000,000 1,057,980
Florida Municipal Loan Council Revenue Series B 5.00% 11/1/29 (MBIA) 0 0
Golden State, California Tobacco Securitization Corporation
Settlement Revenue Series A 5.00% 6/1/21 (AMBAC) 1,000,000 1,051,020
Lake County School Board Series A 5.00% 6/1/30 (AMBAC) 0 0
Loudoun County, Virginia Industrial Development Authority Public
Safety Facility Lease Revenue Series A 5.25% 12/15/23 (FSA) 700,000 755,832
Missouri State Development Finance Board Infrastructure Facilities
Revenue (Branson Landing Project) Series A
5.25%12/1/19 1,435,000 1,497,509
5.50%12/1/24 2,480,000 2,621,459
5.625%12/1/28 2,930,000 3,118,780
(Crackerneck Creek Project) Series C 5.00% 3/1/26 500,000 512,090
(Sewer System Improvement Project) Series C
5.00%3/1/25 605,000 619,659
New York City, New York Industrial Development Agency Revenue
(Yankee Stadium Project - Pilot) 4.75% 3/1/46 (MBIA) 3,000,000 3,045,360
Oregon State Department of Administrative Services
Certificates of Participation Refunding Revenue
Series A 5.00% 5/1/30 (FSA) 500,000 522,675
Series C 5.25% 11/1/15 (MBIA) 1,000,000 1,073,610
Osceola County School Board Series A 5.25% 6/1/27 (AMBAC) 0 0
Pasco County School Board Series A 5.00% 8/1/30 (AMBAC) 0 0
Puerto Rico Commonwealth Industrial Development
Company General Purpose Revenue Series B 5.375% 7/1/16 1,000,000 1,031,040
Puerto Rico Public Buildings Authority Revenue (Guaranteed
Government Facilities)
Series F 5.25% 7/1/25 0 0
Series I 5.25% 7/1/33 12,000,000 12,535,440
oSeries J 5.00%7/1/36 (AMBAC) 2,000,000 2,129,260
St. Augustine Capital Improvement Revenue 5.00% 10/1/34 (AMBAC) 0 0
St. Charles County, Missouri Public Water Supply District #2 Revenue
Certificate of Participation (Missouri Project)
Series A 5.25% 12/1/28 (MBIA) 1,000,000 1,056,660
Series B 5.10% 12/1/25 (MBIA) 500,000 516,635
St. Louis, Missouri College District Leasehold Revenue
5.00% 3/1/23 (AMBAC) 1,000,000 1,057,060
^St. Louis, Missouri Industrial Development Authority
Leasehold Revenue (Convention Center Hotel) 5.80% 7/15/20 (AMBAC) 3,035,000 1,654,894
--------------
41,198,166
--------------
Local General Obligation Bonds 7.31%
Benton & Linn Counties, Oregon School District #509J (Corvallis)
5.00% 6/1/21 (FSA) 1,000,000 1,055,250
Boerne, Texas Independent School District Building
5.25% 2/1/27 (PSF) 4,000,000 4,254,760
5.25% 2/1/29 (PSF) 2,960,000 3,145,089
Clackamas County, Oregon School District #86 (Canby)
5.00% 6/15/25 (FSA) 500,000 530,810
Des Peres, Missouri Refunding 5.375% 2/1/20 (AMBAC) 1,000,000 1,102,290
Deschutes County, Oregon Refunding 5.00% 12/1/16 (FSA) 500,000 532,815
Enterprise Community Development District Special
Assessment 6.10% 5/1/16 (MBIA) 0 0
Greene County, Missouri Reorganization School District
R8 (Direct Deposit Project) 5.10% 3/1/22 (FSA) 1,500,000 1,585,590
Henderson, Nevada Local Improvement Districts #T-18
5.30%9/1/35 3,475,000 3,518,855
Hollywood Community Redevelopment Agency
5.625%3/1/24 0 0
Jackson County, Missouri Special Obligation 5.50% 12/1/17 (MBIA) 845,000 924,438
Jefferson County, Oregon School District #509J 5.00% 6/15/22 (FGIC) 500,000 526,635
Julington Creek Plantation Community Development
District Special Assessment 5.00% 5/1/29 (MBIA) 0 0
Lammersville, California School District Community Facilities
District #2002 (Mountain House) 5.125%9/1/35 3,750,000 3,790,950
Lane County, Oregon School District #19 (Springfield) Refunding
6.00% 10/15/14 (FGIC) 500,000 577,855
Lewisville, Texas Independent School District 6.15% 8/15/21 (PSF) 2,160,000 2,306,210
Lincoln County, Oregon School District 5.25% 6/15/12 (FGIC) 700,000 728,742
Melrose Park, Illinois Tax Increment Series B 6.00% 12/15/19 (FSA) 1,250,000 1,359,663
New York City, New York
Series G 5.00% 12/1/33 4,900,000 5,089,189
Series H 6.125% 8/1/25 315,000 324,771
Series I 5.00% 8/1/21 2,500,000 2,625,700
Series I 5.125% 3/1/23 5,875,000 6,176,211
Series J 5.00% 3/1/35 4,000,000 4,155,720
Series J 5.25% 6/1/28 5,400,000 5,718,492
Portland River, Oregon District Urban Renewal &
Redevelopment Interstate Corridor Series A 5.00% 6/15/23 (AMBAC) 250,000 262,975
Port St. Lucie 5.00% 7/1/35 (MBIA) 0 0
Powell, Ohio 5.50% 12/1/32 (FGIC) 2,000,000 2,167,780
Taney County, Missouri Reorganization School
District R-V (Hollister School District Direct Deposit Project)
5.00% 3/1/22 (FSA) 1,000,000 1,051,770
^Umatilla County, Oregon School District #6 R Umatilla Refunding
5.50% 12/15/22 (AMBAC) 200,000 98,434
--------------
53,610,994
--------------
ss.Pre-Refunded Bonds 9.74%
Alexandria, Virginia Industrial Development Authority Revenue
(Institute for Defense Analyses) Series A 5.90% 10/1/30-10 (AMBAC) 6,000,000 6,579,720
Deschutes County, Oregon Administrative School District
#1 Series A 5.125% 6/15/21-11 (FSA) 1,000,000 1,065,800
Deschutes County, Oregon Hospital Facilities Authority Hospital
Revenue (Cascade Health Services) 5.60% 1/1/32-12 1,250,000 1,362,988
Florida Housing Finance Agency (Mariner Club Apartments)
Series K-16.25%9/1/26-07(AMBAC) (AMT) 0 0
6.375%9/1/36-07(AMBAC) (AMT) 0 0
(Sterling Palms Apartments) Series D-1
6.30%12/1/16-06(AMBAC) (AMT) 0 0
6.40%12/1/26-06(AMBAC) (AMT) 0 0
6.50%6/1/36-06(AMBAC) (AMT) 0 0
Golden State, California Tobacco Securitization Corporation
Settlement Revenue Series B
5.50%6/1/43-13 8,500,000 9,397,939
5.625%6/1/38-13 7,500,000 8,347,800
Highlands County Health Facilities Authority (Adventist Health
System/Sunbelt) Series A 6.00%11/15/31-11 0 0
Illinois Educational Facilities Authority Student Housing
Revenue (Educational Advancement Fund - University
Center Project) 6.25% 5/1/34-07 500,000 506,805
Jacksonville Port Authority Seaport Revenue 5.70% 11/1/30-10 (MBIA) (AMT) 0 0
Jackson, Oregon School District #6 Central Point 5.25% 6/15/20-10 (FGIC) 1,175,000 1,243,326
Jackson, Ohio Local School District (Stark & Summit Counties)
School Facilities Construction & Improvement 5.625% 12/1/25-10 (FSA) 1,000,000 1,079,000
Lee County Airport Revenue Series B 5.75% 10/1/33-10 (FSA) 0 0
Liberty, Missouri Sewer System Revenue 6.15% 2/1/15-09 (MBIA) 1,500,000 1,589,115
Linn County, Oregon Community School District #9 Lebanon
5.60% 6/15/30-13 (FGIC) 2,000,000 2,228,320
Maryland State Economic Development Corporation,
Student Housing Revenue (University of Maryland College
Park Project) 5.625% 6/1/35-13 1,125,000 1,245,308
Mississippi Development Bank Special Obligation (Madison
County Hospital Project) 6.30%7/1/22-09 2,070,000 2,254,499
New York City, New York Series H 6.125%8/1/25-07 4,685,000 4,842,885
Oregon State Department of Administrative Services
Certificates of Participation Series A 5.80% 5/1/24-07 (AMBAC) 1,000,000 1,024,710
Payne County, Oklahoma Economic Development Authority Student
Housing Revenue (Collegiate Housing Foundation-Oklahoma
State University) Series A 6.375%6/1/30-11 4,000,000 4,460,960
Puerto Rico Commonwealth Public Improvement
5.125% 7/1/30-11 (FSA) 920,000 982,321
5.375% 7/1/21-07 (MBIA) 50,000 51,521
Series A 5.125% 7/1/31-11 3,495,000 3,731,751
Puerto Rico Commonwealth Highway & Transportation
Authority Revenue Series D 5.25%7/1/38-12 0 0
Puerto Rico Housing, Bank & Finance Agency Single
Family Mortgage Revenue 6.25% 4/1/29-07 (GNMA)
(FNMA) (FHLMC) (AMT) 1,240,000 1,255,599
Southeast Wisconsin Professional Baseball Park District Sales Tax
Revenue 5.80% 12/15/26-07 (MBIA) 1,000,000 1,021,720
Tampa Utilities Tax Revenue Series A
6.00% 10/1/17-09 (AMBAC) 0 0
6.125% 10/1/18-09 (AMBAC) 0 0
Vancouver, Washington Limited Tax 5.50% 12/1/25-10 (AMBAC) 1,250,000 1,341,625
Wisconsin Housing & Economic Developing Authority Revenue
6.10% 6/1/21-17 (FHA) 800,000 884,976
--------------
56,498,688
--------------
Special Tax Bonds 7.31%
Bi-State Development Agency Missouri - Illinois Metropolitan
District (Metrolink Cross County Project) Series B 5.00% 10/1/32 (FSA) 2,000,000 2,085,260
Florida Hurricane Catastrophe Fund Financial Corporation Revenue
Series A 5.00% 7/1/12 2,500,000 2,668,325
Florida State Board of Education (Lottery Revenue) Series A
6.00% 7/1/14 (FGIC) 0 0
Jackson County, Missouri Special Obligation 5.00% 12/1/27 (MBIA) 1,000,000 1,049,680
Jacksonville Excise Taxes Revenue Series B
5.00% 10/1/26 (AMBAC) 0 0
5.125% 10/1/32 (FGIC) 0 0
Middlesex County, New Jersey Improvement Authority Senior
Revenue (Heldrich Center Hotel/Conference Project) Series A
5.00%1/1/32 1,500,000 1,492,425
5.125%1/1/37 1,500,000 1,507,470
New Jersey Economic Development Authority (Cigarette Tax)
5.50%6/15/31 1,000,000 1,049,340
5.75%6/15/34 2,000,000 2,130,920
New York City, New York Transitional Finance Authority
Series D 5.00% 2/1/31 5,000,000 5,195,700
New York State Dormitory Authority State Personal
Income Tax Revenue Education 5.00%3/15/31 5,200,000 5,471,856
New York State Sales Tax Asset Receivables Series A
5.25% 10/15/27 (AMBAC) 1,000,000 1,080,510
&Palm Beach County Criminal Justice Facilities Revenue
5.75% 6/1/12 (FGIC) 0 0
^Puerto Rico Commonwealth Infrastructure Financing
Authority Series A 4.60% 7/1/30 (FGIC) 0 0
Puerto Rico Convention Center District Authority Revenue (Hotel
Occupancy Tax) 5.00% 7/1/31 (AMBAC) 6,250,000 6,636,125
Tampa, Florida Sports Authority Revenue Sales Tax (Tampa Bay
Arena Project) 5.75% 10/1/20 (MBIA) 1,000,000 1,164,760
Truth or Consequences, New Mexico Gross Receipts Tax
Revenue 6.30% 7/1/16 1,000,000 1,001,820
Westminster, Colorado Sales & Use Tax Revenue (Sales Tax Revenue
Project) Series A 5.60% 12/1/16 4,500,000 4,688,055
--------------
37,222,246
--------------
State General Obligation Bonds 10.98%
California State
5.00% 2/1/26 (AMBAC) 5,570,000 5,819,369
5.00%2/1/33 6,350,000 6,550,025
5.25% 2/1/30 (MBIA) 3,500,000 3,711,050
Illinois State Series A 5.00% 3/1/34 7,000,000 7,259,070
Maryland State & Local Facilities Land Capital Improvement Series A
5.00%8/1/11 5,000,000 5,327,300
5.00%3/1/12 8,000,000 8,567,520
5.25%3/1/13 10,000,000 10,947,500
5.50%8/1/14 5,000,000 5,620,600
Pennsylvania State First Series
5.00%7/1/11 5,955,000 6,320,161
5.00%7/1/13 3,000,000 3,236,250
Puerto Rico Commonwealth Public Improvement
5.125% 7/1/30 (FSA) 965,000 1,011,368
5.25% 7/1/27 (FSA) 705,000 745,248
Series A 5.125% 7/1/31 7,880,000 8,058,640
Series A 5.25% 7/1/23 500,000 529,400
Series A 5.50% 7/1/19 (MBIA) 9,000,000 10,339,380
--------------
84,042,881
--------------
Transportation Revenue Bonds 5.29%
Bay Area, California Toll Authority Revenue Series F 5.00% 4/1/31 7,100,000 7,489,577
Capital Trust Agency Florida Revenue
(Fort Lauderdale/Cargo Acquisition Project)
5.75% 1/1/32 (AMT) 3,750,000 3,921,263
(Orlando/Cargo Acquisition Project) 6.75% 1/1/32 (AMT) 2,395,000 2,579,008
Dallas-Fort Worth, Texas International Airport Revenue
Series A 5.50% 11/1/31 (FGIC) (AMT) 1,500,000 1,597,875
Grapevine, Texas Industrial Development Corporate Revenue
(Air Cargo) 6.50% 1/1/24 (AMT) 920,000 991,797
Houston, Texas Industrial Development Corporate Revenue
(Air Cargo) 6.375% 1/1/23 (AMT) 2,000,000 2,142,740
Jacksonville Port Authority Seaport Revenue 5.70% 11/1/30 (MBIA) (AMT) 0 0
Metropolitan, New York Transportation Authority
Revenue Refunding Series A 5.00% 11/15/30 (FSA) 3,000,000 3,132,390
Miami-Dade County Aviation Revenue (Miami International
Airport) Series B 5.00% 10/1/37 (FGIC) 0 0
Miami-Dade County Aviation Revenue Series A
5.00% 10/1/33 (FSA) (AMT) 0 0
Pennsylvania State Turnpike Commission Revenue Series A
5.00% 12/1/34 (AMBAC) 500,000 523,530
Port of Oakland, California Revenue Series K 5.75% 11/1/29 (FGIC) (AMT) 3,500,000 3,703,700
Puerto Rico Commonwealth Highway & Transportation
Series G 5.00% 7/1/42 0 0
Authority Revenue Series K 5.00%7/1/35 2,500,000 2,558,100
South Carolina Transportation Infrastructure Revenue Series A
5.00% 10/1/33 (AMBAC) 7,500,000 7,796,474
St. Louis, Missouri Airport Revenue (Capital Improvement Project)
Series A 5.375% 7/1/21 (MBIA) 1,635,000 1,749,957
--------------
38,186,411
--------------
Water & Sewer Revenue Bonds 4.98%
Augusta, Georgia Water & Sewer Revenue 5.25% 10/1/34 (FSA) 4,375,000 4,688,513
Clovis, California Public Financing Authority Wastewater Revenue
5.25% 8/1/30 (MBIA) 1,000,000 1,080,090
Fulton County, Georgia Water & Sewer Revenue 5.25% 1/1/35 (FGIC) 1,000,000 1,065,300
Metropolitan St. Louis, Missouri Sewer District Wastewater
Revenue Series A 5.00% 5/1/34 (MBIA) 1,250,000 1,305,313
Missouri State Environmental Improvement & Energy Resource
Authority Water Pollution Control Revenue Unrefunded
Balance (State Revolving Fund Project) Series A 6.05% 7/1/16 (FSA) 1,060,000 1,062,056
New York City, New York Municipal Water Finance Authority Water &
Sewer System Revenue
Series A 5.125% 6/15/34 12,125,000 12,720,700
Series A 5.25% 6/15/34 3,705,000 3,930,190
Series B 5.00% 6/15/23 (FSA) 1,000,000 1,057,040
Portland, Oregon Sewer Systems Revenue (Second Lien)
Series A 5.00% 6/1/23 (FSA) 325,000 341,783
Series B 5.00% 6/15/27 (MBIA) 1,000,000 1,061,130
Sacramento County, California Sanitation District Financing
Authority Revenue 5.00% 12/1/36 (FGIC) 4,000,000 4,222,440
Tampa Water and Sewer Revenue 6.00% 10/1/16 (FSA) 0 0
Village Center Community Development District Utility
Revenue 5.00% 10/1/36 (MBIA) 0 0
Virgin Islands Water & Power Authority Water System Revenue
5.50%7/1/17 510,000 525,479
West Virginia State Water Development Authority Revenue
(Loan Program III) Series A 6.375% 7/1/39 (AMBAC) (AMT) 2,890,000 3,162,267
Winter Haven Utilities Systems Revenue Refunding &
Improvement 5.00% 10/1/30 (MBIA) 0 0
--------------
36,222,301
--------------
Total Municipal Bonds (cost $650,673,277) 684,160,439
--------------
oVariable Rate Demand Notes 0.43%
Alexandria, Virginia Industrial Development Authority
(Institutional Defense Analyses Project) 3.44% 10/1/30 (AMBAC) 1,925,000 1,925,000
New Jersey Health Care Facilities Financing Authority Revenue
(Computer Program) Series A1 3.38%7/1/30 1,500,000 1,500,000
--------------
Total Variable Rate Demand Notes (cost $3,425,000) 3,425,000
--------------
Total Investments at Market 100.00% 687,585,439
--------------
Total Investments at Cost $ 654,098,277
--------------
Delaware Tax-Free Florida
Par/Shares Market Value
--------------------------
Municipal Bonds
Corporate Revenue Bonds
Alliance Airport Authority, Texas Special Facilities Revenue
(Federal Express Corp. Project) 4.85% 4/1/21 (AMT) $0 $0
Brazos, Texas River Authority Pollution Control Revenue
(Texas Utilities) 5.40% 5/1/29 (AMT) 0 0
o(TXU Energy Co. Project) Series B 6.30% 7/1/32 (AMT) 0 0
Cloquet, Minnesota Pollution Control Revenue (Potlatch Corp.
Project) 5.90% 10/1/26 0 0
@Columbus, Kansas Industrial Revenue (ACE Electrical
Acquisition) 7.00% 8/1/17 (AMT) 0 0
Connecticut State Development Authority Pollution Control
Revenue (Connecticut Light & Power) Series A 5.85% 9/1/28 0 0
Indianapolis, Indiana Airport Authority Revenue Special
Facilities (Federal Express Corp. Project)
5.10% 1/15/17 (AMT) 0 0
Series 1998 5.50% 5/1/29 (AMT) 0 0
Mason County, West Virginia Pollution Control Revenue
(Appalachian Power Co. Project) Series K 6.05% 12/1/24 (AMBAC) 0 0
Mississippi Business Finance Corporation Pollution Control
Revenue (System Energy Resources, Inc. Project)
5.90%5/1/22 0 0
Missouri State Development Finance Board Infrastructure Facilities
Revenue (Triumph Foods Project) Series A 5.25% 3/1/25 0 0
Petersburg, Indiana Pollution Control Revenue (Indianapolis
Power & Light Co. Project)
6.375% 11/1/29 (AMT) 0 0
6.625%12/1/24 0 0
Phenix City, Alabama Industrial Development Board
Environmental Improvement Revenue (Mead Westvaco Corp.
Project) Series A 6.35% 5/15/35 (AMT) 0 0
oPort Morrow, Oregon Pollution Control Revenue (Portland
General Electric Co.) Series A 5.20%5/1/33 0 0
Puerto Rico Industrial, Medical & Environmental Pollution Control
Facilities Financing Authority Revenue (PepsiCo Inc. Project)
6.25%11/15/13 0 0
Richmond County, Georgia Development Authority
Environmental Improvement Revenue (International Paper Co.
Project) Series B 5.95% 11/15/25 (AMT) 0 0
South Carolina Jobs Economic Development Authority Industrial
Revenue (South Carolina Electric & Gas Co. Project) Series B
5.45% 11/1/32 (AMBAC) (AMT) 0 0
Suffolk County, New York Industrial Development Agency Revenue
(Keyspan-Port Jefferson Energy Center) 5.25% 6/1/27 (AMT) 0 0
Sugar Creek, Missouri Industrial Development Revenue (Lafarge
North America Project) Series A 5.65% 6/1/37 (AMT) 0 0
oSweetwater County, Wyoming Pollution Control Revenue (Idaho
Power Co. Project) Series A 6.05%7/15/26 0 0
Sweetwater County, Wyoming Solid Waste Disposal Revenue (FMC
Corp. Project) 5.60% 12/1/35 (AMT) 0 0
------------
0
------------
Education Revenue Bonds
Amherst, New York Industrial Development Agency Civic
Facilities Revenue (UBF Faculty Student Housing) Series A
5.75% 8/1/30 (AMBAC) 0 0
Broward County Educational Facilities Authority Revenue
(Nova Southeastern University) 5.25% 4/1/27 (RADIAN) 1,000,000 1,042,890
Chattanooga, Tennessee Health Educational & Housing
Facilities Board Revenue (CDFI Phase I, LLC. Project) Series A
5.125%10/1/35 0 0
Illinois Educational Facilities Authority Student Housing
Revenue (Educational Advancement Fund - University
Center Project) 6.25% 5/1/30 0 0
Illinois Financial Authority Revenue (Illinois Institute of Technology)
Series A 5.00% 4/1/36 0 0
Massachusetts State Development Finance Agency Revenue
(Massachusetts College of Pharmacy Project) Series C
5.75%7/1/33 0 0
Massachusetts State Health & Educational Facilities
Authority Revenue (Harvard University) Series A
5.00%7/15/36 0 0
(Nichols College Project) Series C
6.00%10/1/17 0 0
6.125%10/1/29 0 0
Miami-Dade County Educational Facilities Authority (University of
Miami) Series A 5.75% 4/1/29 (AMBAC) 2,000,000 2,145,520
Milledgeville-Baldwin County, Georgia Development Authority
Revenue (Georgia College & State University Foundation
Project) 6.00% 9/1/33 0 0
Missouri State Health & Educational Facilities Authority Educational
Facilities Revenue (University of Health Sciences) 5.00% 6/1/31 (MBIA) 0 0
New Hampshire Higher Educational & Health Facilities Authority
Revenue (New Hampton School Issue) 5.375% 10/1/28 0 0
New Jersey State Educational Facilities Authority Revenue
(Stevens Institute of Technology) Series B 5.25% 7/1/24 0 0
New York State Dormitory Authority Revenue (Fashion Institute
Student Housing Corp.) 5.00% 7/1/13 (FGIC) 0 0
Oregon Health & Science University Revenue (Capital Appreciation
Insured) Series A
5.00% 7/1/32 (MBIA) 0 0
^5.50% 7/1/21 (MBIA) 0 0
Oregon State Facilities Authority Revenue
(College Housing Northwest Project) Series A
5.45%10/1/32 0 0
(College Independent Student Housing Project) Series A
5.25% 7/1/30 (XLCA) 0 0
(Linfield College Project) Series A 5.00%10/1/30 0 0
Pennsylvania State Higher Educational Facilities Authority
Revenue (Widener University) 5.375%7/15/29 0 0
Texas University Revenue (FING System) Series B 5.00% 8/15/37 0 0
University of Central Florida Athletics Association Revenue
Certificates of ParticipationSeries A 5.25% 10/1/34 (FGIC) 2,000,000 2,121,500
University of the Virgin Islands Series A 5.375% 6/1/34 0 0
Vermont University & State Agriculture College
5.125% 10/1/37 (AMBAC) 0 0
------------
5,309,910
------------
Electric Revenue Bonds
Chelan County, Washington Public Utilities District
#001 Consolidated Revenue (Chelan Hydro System) Series A
5.45% 7/1/37 (AMBAC) (AMT) 0 0
Emerald Peoples, Oregon Utilities District Series A 5.25% 11/1/22 (FSA) 0 0
Long Island, New York Power Authority Electric Systems
Revenue Series B 5.00% 12/1/35 0 0
Florida State Municipal Power Agency Revenue (Stanton II Project)
5.00% 10/1/26 (AMBAC) 2,000,000 2,082,320
Lower Colorado River Authority Texas Revenue Refunding
Series A 5.875% 5/15/17 (AMBAC) 0 0
Missouri Joint Municipal Electric Utilities Commission Revenue
Power Project (Plum Point Project) 5.00% 1/1/34 (MBIA) 0 0
Missouri State Environmental Improvement & Energy Resource
Authority Pollution Control Revenue Refunding (St. Joseph
Light & Power Company Project) 5.85% 2/1/13 (AMBAC) 0 0
Ocala Utility System Revenue Series B 5.25% 10/1/25 (FGIC) 1,125,000 1,225,373
Orlando, Florida Utilities Commission Water & Electric
Revenue 5.25% 10/1/20 0 0
Puerto Rico Electric Power Authority Power Revenue
Series II 5.25% 7/1/31 0 0
Series NN 5.125% 7/1/29 0 0
Series PP 5.00% 7/1/25 (FGIC) 0 0
Richmond, Virginia Public Utilities Revenue 5.00% 1/15/27 (FSA) 0 0
Sikeston, Missouri Electric Revenue Refunding 6.00% 6/1/13 (MBIA) 0 0
------------
3,307,693
------------
Escrowed to Maturity Bonds
Cape Girardeau County, Missouri Industrial Development Authority
Health Care Facilities Revenue (Southeast Missouri Hospital)
5.25% 6/1/16 (MBIA) 0 0
^Greene County, Missouri Single Family Mortgage Revenue
Municipal Multiplier (Private Mortgage Insurance)
6.10%3/1/16 0 0
Liberty, Missouri Sewer System Revenue 6.00% 2/1/08 (MBIA) 0 0
Louisiana Public Facilities Authority Hospital Revenue
(Southern Baptist Hospital, Inc.) 8.00%5/15/12 0 0
Missouri State Health & Educational Facilities Authority Health
Facilities Revenue Refunding (SSM Health Care) Series AA
6.40% 6/1/10 (MBIA) 0 0
New Jersey State Highway Authority Garden State Parkway General
Revenue (Senior Parkway)
5.50% 1/1/14 (FGIC) 0 0
5.50% 1/1/15 (FGIC) 0 0
5.50% 1/1/16 (FGIC) 0 0
Oklahoma State Turnpike Authority Revenue (First Senior)
6.00%1/1/22 0 0
Umatilla County, Oregon Hospital Facility Authority Revenue
(Catholic Health Initiatives) Series A 5.50% 3/1/32 0 0
Virgin Islands Public Finance Authority Revenue Series A
7.30%10/1/18 0 0
------------
0
------------
Health Care Revenue Bonds
Akron Bath Copley, Ohio Joint Township Hospital District
Revenue (Summa Health System) Series A 5.25% 11/15/31 (RADIAN) 0 0
California Statewide Communities Development Authority
Revenue (Kaiser Permenante) 5.25%3/1/45 0 0
Cape Girardeau County, Missouri Industrial Development Authority
Health Care Facilities Revenue Unrefunded Balance
(Southeast Missouri Hospital) 5.25% 6/1/16 (MBIA) 0 0
(St. Francis Medical Center) Series A 5.50% 6/1/32 0 0
Chatham County, Georgia Hospital Authority Revenue (Memorial
Health Medical Center) Series A 6.125%1/1/24 0 0
Cleveland-Cuyahoga County, Ohio Port Authority Revenue Senior
Housing (St. Clarence Geac) Series A 6.25% 5/1/38 0 0
Colorado Health Facilities Authority Revenue (Evangelical Lutheran)
Series A 5.25% 6/1/34 0 0
Cuyahoga County, Ohio Revenue (Cleveland Clinic Health Systems)
Series A 5.50% 1/1/29 0 0
Delaware County, Pennsylvania Industrial Development Authority
Revenue Care Institute (Main Line Care Institute Project)
9.00%8/1/31 0 0
Duluth, Minnesota Economic Development Authority
Health Care Facilities Revenue (Benedictine Health System St.
Mary's Hospital) 5.25% 2/15/33 0 0
Escambia County Health Facilities Authority (Florida Health Care
Facilities - VHA Program) 5.95% 7/1/20 (AMBAC) 560,000 586,466
Florence County, South Carolina Hospital Revenue (McLeod
Regional Medical Center Project) Series A 5.25% 11/1/27 (FSA) 0 0
Gainesville & Hall County, Georgia Development Authority Revenue
Senior Living Facilities (Lanier Village Estates Project) Series C
7.25%11/15/29 0 0
Henrico County, Virginia Economic Development Authority Revenue
(Bon Secours Health System, Inc.) Series A 5.60% 11/15/30 0 0
Highlands County, Florida Health Facilities Authority Revenue
(Adventist Health System) Series C 5.25% 11/15/36 1,000,000 1,054,480
Illinois Financial Authority Revenue Series A
(Clarke Oaks Project) 6.00%11/15/39 0 0
(Luther Oaks Project) 6.00%8/15/39 0 0
Illinois Health Facilities Authority Revenue (Elmhurst
Memorial Healthcare Project) 5.625%1/1/28 0 0
Indian River County Hospital District (Indian River Memorial Hospital)
6.10% 10/1/18 (FSA) 3,000,000 3,065,580
Jacksonville Economic Development Community Health Care
Facilities Revenue (Mayo Clinic) 5.00%11/15/36 1,000,000 1,040,100
Jacksonville, Florida Economic Development Community
Health Care Facilities Revenue (Mayo Clinic) 5.00% 11/15/36 0 0
Johnson City, Tennessee Health and Educational Facilities Board
Hospital Revenue First Mortgage (Mountain States Health) Series A
5.50%7/1/36 0 0
Joplin, Missouri Industrial Development Authority Health
Facilities Revenue (Freeman Health System Project)
5.375%2/15/35 0 0
5.75%2/15/35 0 0
Knox County, Tennessee Health Educational & Housing Facilities
Board Hospital Revenue (East Tennessee Hospital Project)
Series B 5.75% 7/1/33 0 0
Louisiana Public Facilities Authority Revenue (Ochsner Clinic
Foundation Project) Series B 5.50%5/15/32 0 0
Lucas County, Ohio Health Care Facility Revenue (Sunset
Retirement Communities) Series A 6.625% 8/15/30 0 0
Maryland State Health & Higher Education Facilities Authority
Revenue (Union Hospital Cecil County Issue) 5.00% 7/1/40 0 0
Miami-Dade County Public Facilities Revenue (Jackson Health
Systems) Series A 5.00% 6/1/35 (MBIA) 1,500,000 1,567,455
Michigan State Hospital Finance Authority Revenue
(Ascension Health Credit Group) Series B 5.25% 11/15/26 0 0
(Oakwood Obligation Group) Series A 5.75% 4/1/32 0 0
(Trinity Health Credit) Series C 5.375%12/1/30 0 0
Missouri State Health & Educational Facilities Authority Health
Facilities Revenue Refunding (Lake Regional Health System
Project) 5.70% 2/15/34 0 0
Multnomah County, Oregon Hospital Facilities Authority
Revenue (Providence Health System) 5.25% 10/1/22 0 0
New York State Dormitory Authority Revenue (Catholic
Health Services of Long Island - St. Francis Hospital Project)
5.10%7/1/34 0 0
North Carolina Medical Care Commission Health Care
Facilities Revenue (First Mortgage - Presbyterian
Homes) 5.40% 10/1/27 0 0
(Pennybryn at Mayfield Project) Series A 6.125% 10/1/35 0 0
North Carolina Medical Care Commission Hospital Revenue
(Northeast Medical Center Project) 5.125%11/1/34 0 0
North Kansas City, Missouri Hospital Revenue Series A
5.00% 11/15/28 (FSA) 0 0
North Miami Health Facilities Authority (Catholic Health
Services) (LOC Suntrust Bank-Miami) 6.00% 8/15/16 500,000 510,635
Orange County Health Facilities Authority Revenue (Adventist
Health System) 5.625%11/15/32 1,000,000 1,073,170
Palm Beach County Health Facilities Authority Revenue (Boca Raton
Community Hospital) 5.625%12/1/31 2,000,000 2,094,060
Prince William County, Virginia Industrial Development Authority
Hospital Revenue (Potomac Hospital Corp.) 5.35% 10/1/36 0 0
Puerto Rico Industrial, Tourist, Educational, Medical &
Environmental Control Facilities Revenue (Hospital Auxilio Mutuo
Obligated Group) Series A 6.25% 7/1/24 (MBIA) 0 0
Shelby County, Tennessee Health Educational & Housing Facilities
Board Revenue (Trezevant Manor Project) Series A 5.625% 9/1/26 0 0
South Broward Hospital District Revenue (Memorial Health Care
System) 5.625% 5/1/32 3,000,000 3,206,580
South Miami, Florida Health Facilities Authority Hospital
Revenue (Baptist Health South Florida Group) 5.25% 11/15/33 0 0
Tallahassee Health Facilities (Tallahassee Memorial Regional
Medical Center) Series B 6.00% 12/1/15 (MBIA) 2,500,000 2,504,350
University Colorado Hospital Authority Revenue Series A
5.25%11/15/39 0 0
------------
16,702,876
------------
Housing Revenue Bonds
Florida Housing Finance Agency(Crossings Indian Run
Apartments HUD) Series V 6.10%12/1/26 (AMBAC) (AMT) 750,000 766,898
(Landings at Sea Forest Apartments) Series T
5.85% 12/1/18 (AMBAC) (FHA) (AMT) 380,000 388,212
6.05% 12/1/36 (AMBAC) (FHA) (AMT) 700,000 715,064
(Leigh Meadows Apartments Section 8 HUD) Series N
6.20% 9/1/26 (AMBAC) (AMT) 2,765,000 2,822,732
6.30% 9/1/36 (AMBAC) (AMT) 2,000,000 2,041,680
(Riverfront Apartments Section 8 HUD) Series A 6.25% 4/1/37
(AMBAC) (AMT) 1,000,000 1,026,800
(Spinnaker Cove Apartments) Series G 6.50% 7/1/36
(AMBAC) (FHA) (AMT) 500,000 510,490
(The Vineyards Project) Series H 6.40%11/1/15 500,000 511,105
(Woodbridge Apartments) Series L 6.15% 12/1/26 1,750,000 1,789,603
(AMBAC) (AMT)
6.25%6/1/36(AMBAC) (AMT) 2,000,000 2,045,040
Franklin County, Ohio Multi Family Revenue (Alger Green) Series A
5.80% 5/20/44 (GNMA) (AMT) 0 0
Illinois Development Finance Authority Revenue (Section 8)
Series A 5.80% 7/1/28 (MBIA) (FHA) 0 0
Illinois Housing Development Authority Multi Family Revenue
(Crystal Lake Preservation) Series A-1 5.80% 12/20/41 (GNMA) 0 0
Milwaukee, Wisconsin Redevelopment Authority
Multifamily Revenue (City Hall Square) 6.30% 8/1/38 (FHA) (AMT) 0 0
Missouri State Housing Development Commission
Mortgage Revenue Series C 7.45% 9/1/27 (GNMA) (FNMA) (AMT) 0 0
Missouri State Housing Development Commission
Mortgage Revenue Single Family Homeowner
Loan A 5.20% 9/1/33 (GNMA) (FNMA) (AMT) 0 0
Loan A 7.20% 9/1/26 (GNMA) (FNMA) (AMT) 0 0
Loan B 7.55% 9/1/27 (GNMA) (FNMA) (AMT) 0 0
Loan C 7.25% 9/1/26 (GNMA) (FNMA) (AMT) 0 0
Missouri State Housing Development Commission
Multifamily Housing Revenue(Hyder) Series 3 5.60% 7/1/34 (FHA) (AMT) 0 0
(San Remo) Series 5 5.45% 1/1/36 (FHA) (AMT) 0 0
New Mexico Mortgage Finance Authority Revenue
Series B Class III 6.75% 7/1/25 (GNMA) (FNMA) 0 0
Series E 6.95% 1/1/26 (GNMA) (FNMA) 0 0
North Dakota State Housing Finance Agency Multifamily Revenue
Series A 6.15% 12/1/17 (FNMA) 0 0
Orange County Housing Finance Authority Homeowner Revenue
Series B 5.25% 3/1/33 (GNMA) (FNMA) (AMT) 295,000 301,463
Oregon Health, Housing, Educational, & Cultural Facilities
Authority Revenue (Pier Park Project) Series A 6.05% 4/1/18
(GNMA) (AMT) 0 0
Oregon State Housing & Community Services Department
Mortgage Revenue Single Family Mortgage Program Series R
5.375% 7/1/32 (AMT) 0 0
Santa Fe, New Mexico Single Family Mortgage Revenue Series B -1
6.20% 11/1/16 (GNMA) (FNMA) (AMT) 0 0
St. Louis County, Missouri Industrial Development Authority
Housing Development Revenue Refunding (Southfield &
Oak Forest Apartment-A) 5.20% 1/20/36 (GNMA) 0 0
Volusia County Multifamily Housing Finance Authority (San Marco
Apartments) Series A 5.60% 1/1/44 (FSA) (AMT) 500,000 514,850
Waukesha, Wisconsin Housing Authority Multifamily Revenue
(Westgrove Woods) Series A 6.00% 12/1/31 (GNMA) (AMT) 0 0
------------
13,433,937
------------
Lease Revenue Bonds
Battery Park City, New York Authority Revenue Series A
5.25%11/1/22 0 0
California State Public Works Board Lease Revenue (Department
of General Services-Butterfield Street) Series A 5.25% 6/1/30 0 0
Chesterfield, Missouri Certificates of Participation 5.00% 12/1/24 (FGIC) 0 0
Florida Municipal Loan Council Revenue Series B 5.00% 11/1/29 (MBIA) 1,000,000 1,051,350
Golden State, California Tobacco Securitization Corporation
Settlement Revenue Series A 5.00% 6/1/21 (AMBAC) 0 0
Lake County School Board Series A 5.00% 6/1/30 (AMBAC) 1,750,000 1,828,698
Loudoun County, Virginia Industrial Development Authority Public
Safety Facility Lease Revenue Series A 5.25% 12/15/23 (FSA) 0 0
Missouri State Development Finance Board Infrastructure Facilities
Revenue (Branson Landing Project) Series A
5.25%12/1/19 0 0
5.50%12/1/24 0 0
5.625%12/1/28 0 0
(Crackerneck Creek Project) Series C 5.00% 3/1/26 0 0
(Sewer System Improvement Project) Series C
5.00%3/1/25 0 0
New York City, New York Industrial Development Agency Revenue
(Yankee Stadium Project - Pilot) 4.75% 3/1/46 (MBIA) 0 0
Oregon State Department of Administrative Services
Certificates of Participation Refunding Revenue
Series A 5.00% 5/1/30 (FSA) 0 0
Series C 5.25% 11/1/15 (MBIA) 0 0
Osceola County School Board Series A 5.25% 6/1/27 (AMBAC) 4,000,000 4,251,199
Pasco County School Board Series A 5.00% 8/1/30 (AMBAC) 1,000,000 1,049,470
Puerto Rico Commonwealth Industrial Development
Company General Purpose Revenue Series B 5.375% 7/1/16 0 0
Puerto Rico Public Buildings Authority Revenue (Guaranteed
Government Facilities)
Series F 5.25% 7/1/25 930,000 1,023,521
Series I 5.25% 7/1/33 0 0
oSeries J 5.00%7/1/36 (AMBAC) 0 0
St. Augustine Capital Improvement Revenue 5.00% 10/1/34 (AMBAC) 1,000,000 1,045,940
St. Charles County, Missouri Public Water Supply District #2 Revenue
Certificate of Participation (Missouri Project)
Series A 5.25% 12/1/28 (MBIA) 0 0
Series B 5.10% 12/1/25 (MBIA) 0 0
St. Louis, Missouri College District Leasehold Revenue
5.00% 3/1/23 (AMBAC) 0 0
^St. Louis, Missouri Industrial Development Authority
Leasehold Revenue (Convention Center Hotel) 5.80% 7/15/20 (AMBAC) 0 0
------------
10,250,178
------------
Local General Obligation Bonds
Benton & Linn Counties, Oregon School District #509J (Corvallis)
5.00% 6/1/21 (FSA) 0 0
Boerne, Texas Independent School District Building
5.25% 2/1/27 (PSF) 0 0
5.25% 2/1/29 (PSF) 0 0
Clackamas County, Oregon School District #86 (Canby)
5.00% 6/15/25 (FSA) 0 0
Des Peres, Missouri Refunding 5.375% 2/1/20 (AMBAC) 0 0
Deschutes County, Oregon Refunding 5.00% 12/1/16 (FSA) 0 0
Enterprise Community Development District Special
Assessment 6.10% 5/1/16 (MBIA) 695,000 696,383
Greene County, Missouri Reorganization School District
R8 (Direct Deposit Project) 5.10% 3/1/22 (FSA) 0 0
Henderson, Nevada Local Improvement Districts #T-18
5.30%9/1/35 0 0
Hollywood Community Redevelopment Agency
5.625%3/1/24 1,200,000 1,278,840
Jackson County, Missouri Special Obligation 5.50% 12/1/17 (MBIA) 0 0
Jefferson County, Oregon School District #509J 5.00% 6/15/22 (FGIC) 0 0
Julington Creek Plantation Community Development
District Special Assessment 5.00% 5/1/29 (MBIA) 200,000 207,852
Lammersville, California School District Community Facilities
District #2002 (Mountain House) 5.125%9/1/35 0 0
Lane County, Oregon School District #19 (Springfield) Refunding
6.00% 10/15/14 (FGIC) 0 0
Lewisville, Texas Independent School District 6.15% 8/15/21 (PSF) 0 0
Lincoln County, Oregon School District 5.25% 6/15/12 (FGIC) 0 0
Melrose Park, Illinois Tax Increment Series B 6.00% 12/15/19 (FSA) 0 0
New York City, New York
Series G 5.00% 12/1/33 0 0
Series H 6.125% 8/1/25 0 0
Series I 5.00% 8/1/21 0 0
Series I 5.125% 3/1/23 0 0
Series J 5.00% 3/1/35 0 0
Series J 5.25% 6/1/28 0 0
Portland River, Oregon District Urban Renewal &
Redevelopment Interstate Corridor Series A 5.00% 6/15/23 (AMBAC) 0 0
Port St. Lucie 5.00% 7/1/35 (MBIA) 2,000,000 2,106,260
Powell, Ohio 5.50% 12/1/32 (FGIC) 0 0
Taney County, Missouri Reorganization School
District R-V (Hollister School District Direct Deposit Project)
5.00% 3/1/22 (FSA) 0 0
^Umatilla County, Oregon School District #6 R Umatilla Refunding
5.50% 12/15/22 (AMBAC) 0 0
------------
4,289,335
------------
ss.Pre-Refunded Bonds
Alexandria, Virginia Industrial Development Authority Revenue
(Institute for Defense Analyses) Series A 5.90% 10/1/30-10 (AMBAC) 0 0
Deschutes County, Oregon Administrative School District
#1 Series A 5.125% 6/15/21-11 (FSA) 0 0
Deschutes County, Oregon Hospital Facilities Authority Hospital
Revenue (Cascade Health Services) 5.60% 1/1/32-12 0 0
Florida Housing Finance Agency (Mariner Club Apartments)
Series K-16.25%9/1/26-07(AMBAC) (AMT) 300,000 309,138
6.375%9/1/36-07(AMBAC) (AMT) 525,000 541,312
(Sterling Palms Apartments) Series D-1
6.30%12/1/16-06(AMBAC) (AMT) 895,000 917,831
6.40%12/1/26-06(AMBAC) (AMT) 1,500,000 1,538,625
6.50%6/1/36-06(AMBAC) (AMT) 6,540,000 6,710,040
Golden State, California Tobacco Securitization Corporation
Settlement Revenue Series B
5.50%6/1/43-13 0 0
5.625%6/1/38-13 0 0
Highlands County Health Facilities Authority (Adventist Health
System/Sunbelt) Series A 6.00%11/15/31-11 1,500,000 1,674,300
Illinois Educational Facilities Authority Student Housing
Revenue (Educational Advancement Fund - University
Center Project) 6.25% 5/1/34-07 0 0
Jacksonville Port Authority Seaport Revenue 5.70% 11/1/30-10 (MBIA) (AMT) 205,000 219,606
Jackson, Oregon School District #6 Central Point 5.25% 6/15/20-10 (FGIC) 0 0
Jackson, Ohio Local School District (Stark & Summit Counties)
School Facilities Construction & Improvement 5.625% 12/1/25-10 (FSA) 0 0
Lee County Airport Revenue Series B 5.75% 10/1/33-10 (FSA) 3,000,000 3,271,710
Liberty, Missouri Sewer System Revenue 6.15% 2/1/15-09 (MBIA) 0 0
Linn County, Oregon Community School District #9 Lebanon
5.60% 6/15/30-13 (FGIC) 0 0
Maryland State Economic Development Corporation,
Student Housing Revenue (University of Maryland College
Park Project) 5.625% 6/1/35-13 0 0
Mississippi Development Bank Special Obligation (Madison
County Hospital Project) 6.30%7/1/22-09 0 0
New York City, New York Series H 6.125%8/1/25-07 0 0
Oregon State Department of Administrative Services
Certificates of Participation Series A 5.80% 5/1/24-07 (AMBAC) 0 0
Payne County, Oklahoma Economic Development Authority Student
Housing Revenue (Collegiate Housing Foundation-Oklahoma
State University) Series A 6.375%6/1/30-11 0 0
Puerto Rico Commonwealth Public Improvement
5.125% 7/1/30-11 (FSA) 0 0
5.375% 7/1/21-07 (MBIA) 0 0
Series A 5.125% 7/1/31-11 0 0
Puerto Rico Commonwealth Highway & Transportation
Authority Revenue Series D 5.25%7/1/38-12 3,000,000 3,250,830
Puerto Rico Housing, Bank & Finance Agency Single
Family Mortgage Revenue 6.25% 4/1/29-07 (GNMA)
(FNMA) (FHLMC) (AMT) 0 0
Southeast Wisconsin Professional Baseball Park District Sales Tax
Revenue 5.80% 12/15/26-07 (MBIA) 0 0
Tampa Utilities Tax Revenue Series A
6.00% 10/1/17-09 (AMBAC) 1,000,000 1,079,130
6.125% 10/1/18-09 (AMBAC) 1,000,000 1,082,600
Vancouver, Washington Limited Tax 5.50% 12/1/25-10 (AMBAC) 0 0
Wisconsin Housing & Economic Developing Authority Revenue
6.10% 6/1/21-17 (FHA) 0 0
------------
20,595,122
------------
Special Tax Bonds
Bi-State Development Agency Missouri - Illinois Metropolitan
District (Metrolink Cross County Project) Series B 5.00% 10/1/32 (FSA) 0 0
Florida Hurricane Catastrophe Fund Financial Corporation Revenue
Series A 5.00% 7/1/12 0 0
Florida State Board of Education (Lottery Revenue) Series A
6.00% 7/1/14 (FGIC) 1,000,000 1,091,440
Jackson County, Missouri Special Obligation 5.00% 12/1/27 (MBIA) 0 0
Jacksonville Excise Taxes Revenue Series B
5.00% 10/1/26 (AMBAC) 1,000,000 1,039,530
5.125% 10/1/32 (FGIC) 1,000,000 1,053,560
Middlesex County, New Jersey Improvement Authority Senior
Revenue (Heldrich Center Hotel/Conference Project) Series A
5.00%1/1/32 0 0
5.125%1/1/37 0 0
New Jersey Economic Development Authority (Cigarette Tax)
5.50%6/15/31 0 0
5.75%6/15/34 0 0
New York City, New York Transitional Finance Authority
Series D 5.00% 2/1/31 0 0
New York State Dormitory Authority State Personal
Income Tax Revenue Education 5.00%3/15/31 0 0
New York State Sales Tax Asset Receivables Series A
5.25% 10/15/27 (AMBAC) 0 0
&Palm Beach County Criminal Justice Facilities Revenue
5.75% 6/1/12 (FGIC) 15,000,000 16,617,150
^Puerto Rico Commonwealth Infrastructure Financing
Authority Series A 4.60% 7/1/30 (FGIC) 2,500,000 846,075
Puerto Rico Convention Center District Authority Revenue (Hotel
Occupancy Tax) 5.00% 7/1/31 (AMBAC) 0 0
Tampa, Florida Sports Authority Revenue Sales Tax (Tampa Bay
Arena Project) 5.75% 10/1/20 (MBIA) 0 0
Truth or Consequences, New Mexico Gross Receipts Tax
Revenue 6.30% 7/1/16 0 0
Westminster, Colorado Sales & Use Tax Revenue (Sales Tax Revenue
Project) Series A 5.60% 12/1/16 0 0
------------
20,647,755
------------
State General Obligation Bonds
California State
5.00% 2/1/26 (AMBAC) 0 0
5.00%2/1/33 0 0
5.25% 2/1/30 (MBIA) 0 0
Illinois State Series A 5.00% 3/1/34 0 0
Maryland State & Local Facilities Land Capital Improvement Series A
5.00%8/1/11 0 0
5.00%3/1/12 0 0
5.25%3/1/13 0 0
5.50%8/1/14 0 0
Pennsylvania State First Series
5.00%7/1/11 0 0
5.00%7/1/13 0 0
Puerto Rico Commonwealth Public Improvement
5.125% 7/1/30 (FSA) 0 0
5.25% 7/1/27 (FSA) 0 0
Series A 5.125% 7/1/31 0 0
Series A 5.25% 7/1/23 0 0
Series A 5.50% 7/1/19 (MBIA) 2,500,000 2,872,050
------------
2,872,050
------------
Transportation Revenue Bonds
Bay Area, California Toll Authority Revenue Series F 5.00% 4/1/31 0 0
Capital Trust Agency Florida Revenue
(Fort Lauderdale/Cargo Acquisition Project)
5.75% 1/1/32 (AMT) 0 0
(Orlando/Cargo Acquisition Project) 6.75% 1/1/32 (AMT) 0 0
Dallas-Fort Worth, Texas International Airport Revenue
Series A 5.50% 11/1/31 (FGIC) (AMT) 0 0
Grapevine, Texas Industrial Development Corporate Revenue
(Air Cargo) 6.50% 1/1/24 (AMT) 0 0
Houston, Texas Industrial Development Corporate Revenue
(Air Cargo) 6.375% 1/1/23 (AMT) 0 0
Jacksonville Port Authority Seaport Revenue 5.70% 11/1/30 (MBIA) (AMT) 295,000 313,904
Metropolitan, New York Transportation Authority
Revenue Refunding Series A 5.00% 11/15/30 (FSA) 0 0
Miami-Dade County Aviation Revenue (Miami International
Airport) Series B 5.00% 10/1/37 (FGIC) 1,000,000 1,042,480
Miami-Dade County Aviation Revenue Series A
5.00% 10/1/33 (FSA) (AMT) 500,000 513,290
Pennsylvania State Turnpike Commission Revenue Series A
5.00% 12/1/34 (AMBAC) 0 0
Port of Oakland, California Revenue Series K 5.75% 11/1/29 (FGIC) (AMT) 0 0
Puerto Rico Commonwealth Highway & Transportation
Series G 5.00% 7/1/42 800,000 812,528
Authority Revenue Series K 5.00%7/1/35 1,000,000 1,023,240
South Carolina Transportation Infrastructure Revenue Series A
5.00% 10/1/33 (AMBAC) 0 0
St. Louis, Missouri Airport Revenue (Capital Improvement Project)
Series A 5.375% 7/1/21 (MBIA) 0 0
------------
3,705,442
------------
Water & Sewer Revenue Bonds
Augusta, Georgia Water & Sewer Revenue 5.25% 10/1/34 (FSA) 0 0
Clovis, California Public Financing Authority Wastewater Revenue
5.25% 8/1/30 (MBIA) 0 0
Fulton County, Georgia Water & Sewer Revenue 5.25% 1/1/35 (FGIC) 0 0
Metropolitan St. Louis, Missouri Sewer District Wastewater
Revenue Series A 5.00% 5/1/34 (MBIA) 0 0
Missouri State Environmental Improvement & Energy Resource
Authority Water Pollution Control Revenue Unrefunded
Balance (State Revolving Fund Project) Series A 6.05% 7/1/16 (FSA) 0 0
New York City, New York Municipal Water Finance Authority Water &
Sewer System Revenue
Series A 5.125% 6/15/34 0 0
Series A 5.25% 6/15/34 0 0
Series B 5.00% 6/15/23 (FSA) 0 0
Portland, Oregon Sewer Systems Revenue (Second Lien)
Series A 5.00% 6/1/23 (FSA) 0 0
Series B 5.00% 6/15/27 (MBIA) 0 0
Sacramento County, California Sanitation District Financing
Authority Revenue 5.00% 12/1/36 (FGIC) 0 0
Tampa Water and Sewer Revenue 6.00% 10/1/16 (FSA) 1,000,000 1,176,850
Village Center Community Development District Utility
Revenue 5.00% 10/1/36 (MBIA) 500,000 519,685
Virgin Islands Water & Power Authority Water System Revenue
5.50%7/1/17 0 0
West Virginia State Water Development Authority Revenue
(Loan Program III) Series A 6.375% 7/1/39 (AMBAC) (AMT) 0 0
Winter Haven Utilities Systems Revenue Refunding &
Improvement 5.00% 10/1/30 (MBIA) 1,415,000 1,491,509
------------
3,188,044
------------
Total Municipal Bonds (cost $650,673,277) 104,302,342
------------
oVariable Rate Demand Notes
Alexandria, Virginia Industrial Development Authority
(Institutional Defense Analyses Project) 3.44% 10/1/30 (AMBAC) 0 0
New Jersey Health Care Facilities Financing Authority Revenue
(Computer Program) Series A1 3.38%7/1/30 0 0
------------
Total Variable Rate Demand Notes (cost $3,425,000) 0
------------
Total Investments at Market 104,302,342
------------
Total Investments at Cost $ 99,557,261
------------
Delaware Tax-Free USA Fund
Pro Forma Combined
Par/Shares Market Value
-----------------------------
Municipal Bonds
Corporate Revenue Bonds
Alliance Airport Authority, Texas Special Facilities Revenue
(Federal Express Corp. Project) 4.85% 4/1/21 (AMT) $2,000,000 $2,015,180
Brazos, Texas River Authority Pollution Control Revenue
(Texas Utilities) 5.40% 5/1/29 (AMT) 3,000,000 3,105,000
o(TXU Energy Co. Project) Series B 6.30% 7/1/32 (AMT) 3,500,000 3,799,705
Cloquet, Minnesota Pollution Control Revenue (Potlatch Corp.
Project) 5.90% 10/1/26 1,695,000 1,724,273
@Columbus, Kansas Industrial Revenue (ACE Electrical
Acquisition) 7.00% 8/1/17 (AMT) 800,000 208,000
Connecticut State Development Authority Pollution Control
Revenue (Connecticut Light & Power) Series A 5.85% 9/1/28 4,000,000 4,189,360
Indianapolis, Indiana Airport Authority Revenue Special
Facilities (Federal Express Corp. Project)
5.10% 1/15/17 (AMT) 2,750,000 2,886,098
Series 1998 5.50% 5/1/29 (AMT) 2,000,000 2,045,180
Mason County, West Virginia Pollution Control Revenue
(Appalachian Power Co. Project) Series K 6.05% 12/1/24 (AMBAC) 3,000,000 3,241,410
Mississippi Business Finance Corporation Pollution Control
Revenue (System Energy Resources, Inc. Project)
5.90%5/1/22 3,000,000 3,004,920
Missouri State Development Finance Board Infrastructure Facilities
Revenue (Triumph Foods Project) Series A 5.25% 3/1/25 500,000 517,475
Petersburg, Indiana Pollution Control Revenue (Indianapolis
Power & Light Co. Project)
6.375% 11/1/29 (AMT) 5,000,000 5,399,649
6.625%12/1/24 4,500,000 4,590,180
Phenix City, Alabama Industrial Development Board
Environmental Improvement Revenue (Mead Westvaco Corp.
Project) Series A 6.35% 5/15/35 (AMT) 3,000,000 3,225,090
oPort Morrow, Oregon Pollution Control Revenue (Portland
General Electric Co.) Series A 5.20%5/1/33 2,600,000 2,666,586
Puerto Rico Industrial, Medical & Environmental Pollution Control
Facilities Financing Authority Revenue (PepsiCo Inc. Project)
6.25%11/15/13 1,250,000 1,295,150
Richmond County, Georgia Development Authority
Environmental Improvement Revenue (International Paper Co.
Project) Series B 5.95% 11/15/25 (AMT) 5,000,000 5,306,200
South Carolina Jobs Economic Development Authority Industrial
Revenue (South Carolina Electric & Gas Co. Project) Series B
5.45% 11/1/32 (AMBAC) (AMT) 500,000 529,380
Suffolk County, New York Industrial Development Agency Revenue
(Keyspan-Port Jefferson Energy Center) 5.25% 6/1/27 (AMT) 3,500,000 3,637,690
Sugar Creek, Missouri Industrial Development Revenue (Lafarge
North America Project) Series A 5.65% 6/1/37 (AMT) 500,000 520,465
oSweetwater County, Wyoming Pollution Control Revenue (Idaho
Power Co. Project) Series A 6.05%7/15/26 5,000,000 5,107,800
Sweetwater County, Wyoming Solid Waste Disposal Revenue (FMC
Corp. Project) 5.60% 12/1/35 (AMT) 5,000,000 5,264,250
--------------
64,279,041
--------------
Education Revenue Bonds
Amherst, New York Industrial Development Agency Civic
Facilities Revenue (UBF Faculty Student Housing) Series A
5.75% 8/1/30 (AMBAC) 1,300,000 1,415,323
Broward County Educational Facilities Authority Revenue
(Nova Southeastern University) 5.25% 4/1/27 (RADIAN) 1,000,000 1,042,890
Chattanooga, Tennessee Health Educational & Housing
Facilities Board Revenue (CDFI Phase I, LLC. Project) Series A
5.125%10/1/35 3,500,000 3,511,200
Illinois Educational Facilities Authority Student Housing
Revenue (Educational Advancement Fund - University
Center Project) 6.25% 5/1/30 5,000,000 5,439,200
Illinois Financial Authority Revenue (Illinois Institute of Technology)
Series A 5.00% 4/1/36 2,600,000 2,660,528
Massachusetts State Development Finance Agency Revenue
(Massachusetts College of Pharmacy Project) Series C
5.75%7/1/33 500,000 532,350
Massachusetts State Health & Educational Facilities
Authority Revenue (Harvard University) Series A
5.00%7/15/36 5,005,000 5,277,923
(Nichols College Project) Series C
6.00%10/1/17 950,000 1,002,469
6.125%10/1/29 1,000,000 1,054,340
Miami-Dade County Educational Facilities Authority (University of
Miami) Series A 5.75% 4/1/29 (AMBAC) 2,000,000 2,145,520
Milledgeville-Baldwin County, Georgia Development Authority
Revenue (Georgia College & State University Foundation
Project) 6.00% 9/1/33 1,000,000 1,093,100
Missouri State Health & Educational Facilities Authority Educational
Facilities Revenue (University of Health Sciences) 5.00% 6/1/31 (MBIA) 1,000,000 1,029,940
New Hampshire Higher Educational & Health Facilities Authority
Revenue (New Hampton School Issue) 5.375% 10/1/28 3,070,000 3,085,473
New Jersey State Educational Facilities Authority Revenue
(Stevens Institute of Technology) Series B 5.25% 7/1/24 2,085,000 2,178,033
New York State Dormitory Authority Revenue (Fashion Institute
Student Housing Corp.) 5.00% 7/1/13 (FGIC) 1,000,000 1,079,380
Oregon Health & Science University Revenue (Capital Appreciation
Insured) Series A
5.00% 7/1/32 (MBIA) 2,000,000 2,077,340
^5.50% 7/1/21 (MBIA) 2,000,000 1,048,700
Oregon State Facilities Authority Revenue
(College Housing Northwest Project) Series A
5.45%10/1/32 1,000,000 1,026,820
(College Independent Student Housing Project) Series A
5.25% 7/1/30 (XLCA) 1,630,000 1,738,395
(Linfield College Project) Series A 5.00%10/1/30 600,000 616,062
Pennsylvania State Higher Educational Facilities Authority
Revenue (Widener University) 5.375%7/15/29 1,000,000 1,052,690
Texas University Revenue (FING System) Series B 5.00% 8/15/37 7,070,000 7,397,269
University of Central Florida Athletics Association Revenue
Certificates of ParticipationSeries A 5.25% 10/1/34 (FGIC) 2,500,000 2,651,875
University of the Virgin Islands Series A 5.375% 6/1/34 500,000 524,460
Vermont University & State Agriculture College
5.125% 10/1/37 (AMBAC) 1,000,000 1,050,810
--------------
51,732,090
---------------
Electric Revenue Bonds
Chelan County, Washington Public Utilities District
#001 Consolidated Revenue (Chelan Hydro System) Series A
5.45% 7/1/37 (AMBAC) (AMT) 5,000,000 5,339,550
Emerald Peoples, Oregon Utilities District Series A 5.25% 11/1/22 (FSA) 750,000 808,845
Long Island, New York Power Authority Electric Systems
Revenue Series B 5.00% 12/1/35 1,770,000 1,845,491
Florida State Municipal Power Agency Revenue (Stanton II Project)
5.00% 10/1/26 (AMBAC) 2,000,000 2,082,320
Lower Colorado River Authority Texas Revenue Refunding
Series A 5.875% 5/15/17 (AMBAC) 5,500,000 5,849,030
Missouri Joint Municipal Electric Utilities Commission Revenue
Power Project (Plum Point Project) 5.00% 1/1/34 (MBIA) 7,000,000 7,359,310
Missouri State Environmental Improvement & Energy Resource
Authority Pollution Control Revenue Refunding (St. Joseph
Light & Power Company Project) 5.85% 2/1/13 (AMBAC) 2,200,000 2,214,806
Ocala Utility System Revenue Series B 5.25% 10/1/25 (FGIC) 1,125,000 1,225,373
Orlando, Florida Utilities Commission Water & Electric
Revenue 5.25% 10/1/20 2,500,000 2,685,500
Puerto Rico Electric Power Authority Power Revenue
Series II 5.25% 7/1/31 6,000,000 6,281,580
Series NN 5.125% 7/1/29 1,400,000 1,470,210
Series PP 5.00% 7/1/25 (FGIC) 1,000,000 1,060,070
Richmond, Virginia Public Utilities Revenue 5.00% 1/15/27 (FSA) 10,000,000 10,378,300
Sikeston, Missouri Electric Revenue Refunding 6.00% 6/1/13 (MBIA) 1,000,000 1,136,720
--------------
49,737,105
--------------
Escrowed to Maturity Bonds
Cape Girardeau County, Missouri Industrial Development Authority
Health Care Facilities Revenue (Southeast Missouri Hospital)
5.25% 6/1/16 (MBIA) 440,000 478,900
^Greene County, Missouri Single Family Mortgage Revenue
Municipal Multiplier (Private Mortgage Insurance)
6.10%3/1/16 1,225,000 834,482
Liberty, Missouri Sewer System Revenue 6.00% 2/1/08 (MBIA) 260,000 264,711
Louisiana Public Facilities Authority Hospital Revenue
(Southern Baptist Hospital, Inc.) 8.00%5/15/12 4,930,000 5,543,933
Missouri State Health & Educational Facilities Authority Health
Facilities Revenue Refunding (SSM Health Care) Series AA
6.40% 6/1/10 (MBIA) 500,000 547,470
New Jersey State Highway Authority Garden State Parkway General
Revenue (Senior Parkway)
5.50% 1/1/14 (FGIC) 5,000,000 5,561,300
5.50% 1/1/15 (FGIC) 7,310,000 8,181,791
5.50% 1/1/16 (FGIC) 1,000,000 1,127,030
Oklahoma State Turnpike Authority Revenue (First Senior)
6.00%1/1/22 13,535,000 16,483,465
Umatilla County, Oregon Hospital Facility Authority Revenue
(Catholic Health Initiatives) Series A 5.50% 3/1/32 1,000,000 1,072,380
Virgin Islands Public Finance Authority Revenue Series A
7.30%10/1/18 2,200,000 2,749,318
--------------
42,844,780
--------------
Health Care Revenue Bonds
Akron Bath Copley, Ohio Joint Township Hospital District
Revenue (Summa Health System) Series A 5.25% 11/15/31 (RADIAN) 3,000,000 3,153,780
California Statewide Communities Development Authority
Revenue (Kaiser Permenante) 5.25%3/1/45 8,500,000 8,884,709
Cape Girardeau County, Missouri Industrial Development Authority
Health Care Facilities Revenue Unrefunded Balance
(Southeast Missouri Hospital) 5.25% 6/1/16 (MBIA) 560,000 602,986
(St. Francis Medical Center) Series A 5.50% 6/1/32 1,000,000 1,060,030
Chatham County, Georgia Hospital Authority Revenue (Memorial
Health Medical Center) Series A 6.125%1/1/24 1,000,000 1,089,700
Cleveland-Cuyahoga County, Ohio Port Authority Revenue Senior
Housing (St. Clarence Geac) Series A 6.25% 5/1/38 1,500,000 1,525,845
Colorado Health Facilities Authority Revenue (Evangelical Lutheran)
Series A 5.25% 6/1/34 4,275,000 4,435,227
Cuyahoga County, Ohio Revenue (Cleveland Clinic Health Systems)
Series A 5.50% 1/1/29 7,500,000 8,006,924
Delaware County, Pennsylvania Industrial Development Authority
Revenue Care Institute (Main Line Care Institute Project)
9.00%8/1/31 1,777,611 1,486,741
Duluth, Minnesota Economic Development Authority
Health Care Facilities Revenue (Benedictine Health System St.
Mary's Hospital) 5.25% 2/15/33 5,000,000 5,188,650
Escambia County Health Facilities Authority (Florida Health Care
Facilities - VHA Program) 5.95% 7/1/20 (AMBAC) 560,000 586,466
Florence County, South Carolina Hospital Revenue (McLeod
Regional Medical Center Project) Series A 5.25% 11/1/27 (FSA) 3,355,000 3,578,309
Gainesville & Hall County, Georgia Development Authority Revenue
Senior Living Facilities (Lanier Village Estates Project) Series C
7.25%11/15/29 1,000,000 1,093,770
Henrico County, Virginia Economic Development Authority Revenue
(Bon Secours Health System, Inc.) Series A 5.60% 11/15/30 3,140,000 3,318,195
Highlands County, Florida Health Facilities Authority Revenue
(Adventist Health System) Series C 5.25% 11/15/36 4,500,000 4,745,160
Illinois Financial Authority Revenue Series A
(Clarke Oaks Project) 6.00%11/15/39 5,800,000 5,939,896
(Luther Oaks Project) 6.00%8/15/39 3,000,000 3,094,230
Illinois Health Facilities Authority Revenue (Elmhurst
Memorial Healthcare Project) 5.625%1/1/28 2,000,000 2,125,500
Indian River County Hospital District (Indian River Memorial Hospital)
6.10% 10/1/18 (FSA) 3,000,000 3,065,580
Jacksonville Economic Development Community Health Care
Facilities Revenue (Mayo Clinic) 5.00%11/15/36 1,000,000 1,040,100
Jacksonville, Florida Economic Development Community
Health Care Facilities Revenue (Mayo Clinic) 5.00% 11/15/36 7,000,000 7,280,699
Johnson City, Tennessee Health and Educational Facilities Board
Hospital Revenue First Mortgage (Mountain States Health) Series A
5.50%7/1/36 3,000,000 3,180,990
Joplin, Missouri Industrial Development Authority Health
Facilities Revenue (Freeman Health System Project)
5.375%2/15/35 255,000 267,023
5.75%2/15/35 405,000 439,591
Knox County, Tennessee Health Educational & Housing Facilities
Board Hospital Revenue (East Tennessee Hospital Project)
Series B 5.75% 7/1/33 1,000,000 1,061,590
Louisiana Public Facilities Authority Revenue (Ochsner Clinic
Foundation Project) Series B 5.50%5/15/32 1,500,000 1,568,655
Lucas County, Ohio Health Care Facility Revenue (Sunset
Retirement Communities) Series A 6.625% 8/15/30 2,000,000 2,143,620
Maryland State Health & Higher Education Facilities Authority
Revenue (Union Hospital Cecil County Issue) 5.00% 7/1/40 2,345,000 2,401,538
Miami-Dade County Public Facilities Revenue (Jackson Health
Systems) Series A 5.00% 6/1/35 (MBIA) 1,500,000 1,567,455
Michigan State Hospital Finance Authority Revenue
(Ascension Health Credit Group) Series B 5.25% 11/15/26 3,500,000 3,680,670
(Oakwood Obligation Group) Series A 5.75% 4/1/32 2,500,000 2,678,450
(Trinity Health Credit) Series C 5.375%12/1/30 6,000,000 6,338,040
Missouri State Health & Educational Facilities Authority Health
Facilities Revenue Refunding (Lake Regional Health System
Project) 5.70% 2/15/34 500,000 531,130
Multnomah County, Oregon Hospital Facilities Authority
Revenue (Providence Health System) 5.25% 10/1/22 3,500,000 3,750,810
New York State Dormitory Authority Revenue (Catholic
Health Services of Long Island - St. Francis Hospital Project)
5.10%7/1/34 2,500,000 2,562,750
North Carolina Medical Care Commission Health Care
Facilities Revenue (First Mortgage - Presbyterian
Homes) 5.40% 10/1/27 4,000,000 4,112,560
(Pennybryn at Mayfield Project) Series A 6.125% 10/1/35 6,000,000 6,228,060
North Carolina Medical Care Commission Hospital Revenue
(Northeast Medical Center Project) 5.125%11/1/34 1,250,000 1,299,188
North Kansas City, Missouri Hospital Revenue Series A
5.00% 11/15/28 (FSA) 500,000 523,510
North Miami Health Facilities Authority (Catholic Health
Services) (LOC Suntrust Bank-Miami) 6.00% 8/15/16 500,000 510,635
Orange County Health Facilities Authority Revenue (Adventist
Health System) 5.625%11/15/32 1,000,000 1,073,170
Palm Beach County Health Facilities Authority Revenue (Boca Raton
Community Hospital) 5.625%12/1/31 2,000,000 2,094,060
Prince William County, Virginia Industrial Development Authority
Hospital Revenue (Potomac Hospital Corp.) 5.35% 10/1/36 1,750,000 1,860,233
Puerto Rico Industrial, Tourist, Educational, Medical &
Environmental Control Facilities Revenue (Hospital Auxilio Mutuo
Obligated Group) Series A 6.25% 7/1/24 (MBIA) 1,200,000 1,210,128
Shelby County, Tennessee Health Educational & Housing Facilities
Board Revenue (Trezevant Manor Project) Series A 5.625% 9/1/26 2,500,000 2,518,625
South Broward Hospital District Revenue (Memorial Health Care
System) 5.625% 5/1/32 3,000,000 3,206,580
South Miami, Florida Health Facilities Authority Hospital
Revenue (Baptist Health South Florida Group) 5.25% 11/15/33 4,000,000 4,157,520
Tallahassee Health Facilities (Tallahassee Memorial Regional
Medical Center) Series B 6.00% 12/1/15 (MBIA) 2,500,000 2,504,350
University Colorado Hospital Authority Revenue Series A
5.25%11/15/39 2,000,000 2,076,740
--------------
136,850,168
--------------
Housing Revenue Bonds
Florida Housing Finance Agency(Crossings Indian Run
Apartments HUD) Series V 6.10%12/1/26 (AMBAC) (AMT) 750,000 766,898
(Landings at Sea Forest Apartments) Series T
5.85% 12/1/18 (AMBAC) (FHA) (AMT) 380,000 388,212
6.05% 12/1/36 (AMBAC) (FHA) (AMT) 700,000 715,064
(Leigh Meadows Apartments Section 8 HUD) Series N
6.20% 9/1/26 (AMBAC) (AMT) 2,765,000 2,822,732
6.30% 9/1/36 (AMBAC) (AMT) 2,000,000 2,041,680
(Riverfront Apartments Section 8 HUD) Series A 6.25% 4/1/37
(AMBAC) (AMT) 1,000,000 1,026,800
(Spinnaker Cove Apartments) Series G 6.50% 7/1/36
(AMBAC) (FHA) (AMT) 500,000 510,490
(The Vineyards Project) Series H 6.40%11/1/15 500,000 511,105
(Woodbridge Apartments) Series L 6.15% 12/1/26 1,750,000 1,789,603
(AMBAC) (AMT)
6.25%6/1/36(AMBAC) (AMT) 2,000,000 2,045,040
Franklin County, Ohio Multi Family Revenue (Alger Green) Series A
5.80% 5/20/44 (GNMA) (AMT) 1,150,000 1,205,074
Illinois Development Finance Authority Revenue (Section 8)
Series A 5.80% 7/1/28 (MBIA) (FHA) 2,790,000 2,869,739
Illinois Housing Development Authority Multi Family Revenue
(Crystal Lake Preservation) Series A-1 5.80% 12/20/41 (GNMA) 2,000,000 2,115,060
Milwaukee, Wisconsin Redevelopment Authority
Multifamily Revenue (City Hall Square) 6.30% 8/1/38 (FHA) (AMT) 1,455,000 1,507,947
Missouri State Housing Development Commission
Mortgage Revenue Series C 7.45% 9/1/27 (GNMA) (FNMA) (AMT) 110,000 111,848
Missouri State Housing Development Commission
Mortgage Revenue Single Family Homeowner
Loan A 5.20% 9/1/33 (GNMA) (FNMA) (AMT) 285,000 291,404
Loan A 7.20% 9/1/26 (GNMA) (FNMA) (AMT) 80,000 81,720
Loan B 7.55% 9/1/27 (GNMA) (FNMA) (AMT) 25,000 25,429
Loan C 7.25% 9/1/26 (GNMA) (FNMA) (AMT) 115,000 116,783
Missouri State Housing Development Commission
Multifamily Housing Revenue(Hyder) Series 3 5.60% 7/1/34 (FHA) (AMT) 1,435,000 1,495,256
(San Remo) Series 5 5.45% 1/1/36 (FHA) (AMT) 500,000 517,510
New Mexico Mortgage Finance Authority Revenue
Series B Class III 6.75% 7/1/25 (GNMA) (FNMA) 235,000 241,662
Series E 6.95% 1/1/26 (GNMA) (FNMA) 195,000 197,088
North Dakota State Housing Finance Agency Multifamily Revenue
Series A 6.15% 12/1/17 (FNMA) 1,300,000 1,324,713
Orange County Housing Finance Authority Homeowner Revenue
Series B 5.25% 3/1/33 (GNMA) (FNMA) (AMT) 295,000 301,463
Oregon Health, Housing, Educational, & Cultural Facilities
Authority Revenue (Pier Park Project) Series A 6.05% 4/1/18
(GNMA) (AMT) 1,095,000 1,097,113
Oregon State Housing & Community Services Department
Mortgage Revenue Single Family Mortgage Program Series R
5.375% 7/1/32 (AMT) 1,100,000 1,124,299
Santa Fe, New Mexico Single Family Mortgage Revenue Series B -1
6.20% 11/1/16 (GNMA) (FNMA) (AMT) 175,000 177,357
St. Louis County, Missouri Industrial Development Authority
Housing Development Revenue Refunding (Southfield &
Oak Forest Apartment-A) 5.20% 1/20/36 (GNMA) 1,000,000 1,025,760
Volusia County Multifamily Housing Finance Authority (San Marco
Apartments) Series A 5.60% 1/1/44 (FSA) (AMT) 500,000 514,850
Waukesha, Wisconsin Housing Authority Multifamily Revenue
(Westgrove Woods) Series A 6.00% 12/1/31 (GNMA) (AMT) 1,500,000 1,530,285
--------------
30,489,984
--------------
Lease Revenue Bonds
Battery Park City, New York Authority Revenue Series A
5.25%11/1/22 2,250,000 2,432,363
California State Public Works Board Lease Revenue (Department
of General Services-Butterfield Street) Series A 5.25% 6/1/30 2,750,000 2,908,840
Chesterfield, Missouri Certificates of Participation 5.00% 12/1/24 (FGIC) 1,000,000 1,057,980
Florida Municipal Loan Council Revenue Series B 5.00% 11/1/29 (MBIA) 1,000,000 1,051,350
Golden State, California Tobacco Securitization Corporation
Settlement Revenue Series A 5.00% 6/1/21 (AMBAC) 1,000,000 1,051,020
Lake County School Board Series A 5.00% 6/1/30 (AMBAC) 1,750,000 1,828,698
Loudoun County, Virginia Industrial Development Authority Public
Safety Facility Lease Revenue Series A 5.25% 12/15/23 (FSA) 700,000 755,832
Missouri State Development Finance Board Infrastructure Facilities
Revenue (Branson Landing Project) Series A
5.25%12/1/19 1,435,000 1,497,509
5.50%12/1/24 2,480,000 2,621,459
5.625%12/1/28 2,930,000 3,118,780
(Crackerneck Creek Project) Series C 5.00% 3/1/26 500,000 512,090
(Sewer System Improvement Project) Series C
5.00%3/1/25 605,000 619,659
New York City, New York Industrial Development Agency Revenue
(Yankee Stadium Project - Pilot) 4.75% 3/1/46 (MBIA) 3,000,000 3,045,360
Oregon State Department of Administrative Services
Certificates of Participation Refunding Revenue
Series A 5.00% 5/1/30 (FSA) 500,000 522,675
Series C 5.25% 11/1/15 (MBIA) 1,000,000 1,073,610
Osceola County School Board Series A 5.25% 6/1/27 (AMBAC) 4,000,000 4,251,199
Pasco County School Board Series A 5.00% 8/1/30 (AMBAC) 1,000,000 1,049,470
Puerto Rico Commonwealth Industrial Development
Company General Purpose Revenue Series B 5.375% 7/1/16 1,000,000 1,031,040
Puerto Rico Public Buildings Authority Revenue (Guaranteed
Government Facilities)
Series F 5.25% 7/1/25 930,000 1,023,521
Series I 5.25% 7/1/33 12,000,000 12,535,440
oSeries J 5.00%7/1/36 (AMBAC) 2,000,000 2,129,260
St. Augustine Capital Improvement Revenue 5.00% 10/1/34 (AMBAC) 1,000,000 1,045,940
St. Charles County, Missouri Public Water Supply District #2 Revenue
Certificate of Participation (Missouri Project)
Series A 5.25% 12/1/28 (MBIA) 1,000,000 1,056,660
Series B 5.10% 12/1/25 (MBIA) 500,000 516,635
St. Louis, Missouri College District Leasehold Revenue
5.00% 3/1/23 (AMBAC) 1,000,000 1,057,060
^St. Louis, Missouri Industrial Development Authority
Leasehold Revenue (Convention Center Hotel) 5.80% 7/15/20 (AMBAC) 3,035,000 1,654,894
--------------
51,448,344
--------------
Local General Obligation Bonds
Benton & Linn Counties, Oregon School District #509J (Corvallis)
5.00% 6/1/21 (FSA) 1,000,000 1,055,250
Boerne, Texas Independent School District Building
5.25% 2/1/27 (PSF) 4,000,000 4,254,760
5.25% 2/1/29 (PSF) 2,960,000 3,145,089
Clackamas County, Oregon School District #86 (Canby)
5.00% 6/15/25 (FSA) 500,000 530,810
Des Peres, Missouri Refunding 5.375% 2/1/20 (AMBAC) 1,000,000 1,102,290
Deschutes County, Oregon Refunding 5.00% 12/1/16 (FSA) 500,000 532,815
Enterprise Community Development District Special
Assessment 6.10% 5/1/16 (MBIA) 695,000 696,383
Greene County, Missouri Reorganization School District
R8 (Direct Deposit Project) 5.10% 3/1/22 (FSA) 1,500,000 1,585,590
Henderson, Nevada Local Improvement Districts #T-18
5.30%9/1/35 3,475,000 3,518,855
Hollywood Community Redevelopment Agency
5.625%3/1/24 1,200,000 1,278,840
Jackson County, Missouri Special Obligation 5.50% 12/1/17 (MBIA) 845,000 924,438
Jefferson County, Oregon School District #509J 5.00% 6/15/22 (FGIC) 500,000 526,635
Julington Creek Plantation Community Development
District Special Assessment 5.00% 5/1/29 (MBIA) 200,000 207,852
Lammersville, California School District Community Facilities
District #2002 (Mountain House) 5.125%9/1/35 3,750,000 3,790,950
Lane County, Oregon School District #19 (Springfield) Refunding
6.00% 10/15/14 (FGIC) 500,000 577,855
Lewisville, Texas Independent School District 6.15% 8/15/21 (PSF) 2,160,000 2,306,210
Lincoln County, Oregon School District 5.25% 6/15/12 (FGIC) 700,000 728,742
Melrose Park, Illinois Tax Increment Series B 6.00% 12/15/19 (FSA) 1,250,000 1,359,663
New York City, New York
Series G 5.00% 12/1/33 4,900,000 5,089,189
Series H 6.125% 8/1/25 315,000 324,771
Series I 5.00% 8/1/21 2,500,000 2,625,700
Series I 5.125% 3/1/23 5,875,000 6,176,211
Series J 5.00% 3/1/35 4,000,000 4,155,720
Series J 5.25% 6/1/28 5,400,000 5,718,492
Portland River, Oregon District Urban Renewal &
Redevelopment Interstate Corridor Series A 5.00% 6/15/23 (AMBAC) 250,000 262,975
Port St. Lucie 5.00% 7/1/35 (MBIA) 2,000,000 2,106,260
Powell, Ohio 5.50% 12/1/32 (FGIC) 2,000,000 2,167,780
Taney County, Missouri Reorganization School
District R-V (Hollister School District Direct Deposit Project)
5.00% 3/1/22 (FSA) 1,000,000 1,051,770
^Umatilla County, Oregon School District #6 R Umatilla Refunding
5.50% 12/15/22 (AMBAC) 200,000 98,434
--------------
57,900,329
--------------
ss.Pre-Refunded Bonds
Alexandria, Virginia Industrial Development Authority Revenue
(Institute for Defense Analyses) Series A 5.90% 10/1/30-10 (AMBAC) 6,000,000 6,579,720
Deschutes County, Oregon Administrative School District
#1 Series A 5.125% 6/15/21-11 (FSA) 1,000,000 1,065,800
Deschutes County, Oregon Hospital Facilities Authority Hospital
Revenue (Cascade Health Services) 5.60% 1/1/32-12 1,250,000 1,362,988
Florida Housing Finance Agency (Mariner Club Apartments)
Series K-16.25%9/1/26-07(AMBAC) (AMT) 300,000 309,138
6.375%9/1/36-07(AMBAC) (AMT) 525,000 541,312
(Sterling Palms Apartments) Series D-1
6.30%12/1/16-06(AMBAC) (AMT) 895,000 917,831
6.40%12/1/26-06(AMBAC) (AMT) 1,500,000 1,538,625
6.50%6/1/36-06(AMBAC) (AMT) 6,540,000 6,710,040
Golden State, California Tobacco Securitization Corporation
Settlement Revenue Series B
5.50%6/1/43-13 8,500,000 9,397,939
5.625%6/1/38-13 7,500,000 8,347,800
Highlands County Health Facilities Authority (Adventist Health
System/Sunbelt) Series A 6.00%11/15/31-11 1,500,000 1,674,300
Illinois Educational Facilities Authority Student Housing
Revenue (Educational Advancement Fund - University
Center Project) 6.25% 5/1/34-07 500,000 506,805
Jacksonville Port Authority Seaport Revenue 5.70% 11/1/30-10 (MBIA) (AMT) 205,000 219,606
Jackson, Oregon School District #6 Central Point 5.25% 6/15/20-10 (FGIC) 1,175,000 1,243,326
Jackson, Ohio Local School District (Stark & Summit Counties)
School Facilities Construction & Improvement 5.625% 12/1/25-10 (FSA) 1,000,000 1,079,000
Lee County Airport Revenue Series B 5.75% 10/1/33-10 (FSA) 3,000,000 3,271,710
Liberty, Missouri Sewer System Revenue 6.15% 2/1/15-09 (MBIA) 1,500,000 1,589,115
Linn County, Oregon Community School District #9 Lebanon
5.60% 6/15/30-13 (FGIC) 2,000,000 2,228,320
Maryland State Economic Development Corporation,
Student Housing Revenue (University of Maryland College
Park Project) 5.625% 6/1/35-13 1,125,000 1,245,308
Mississippi Development Bank Special Obligation (Madison
County Hospital Project) 6.30%7/1/22-09 2,070,000 2,254,499
New York City, New York Series H 6.125%8/1/25-07 4,685,000 4,842,885
Oregon State Department of Administrative Services
Certificates of Participation Series A 5.80% 5/1/24-07 (AMBAC) 1,000,000 1,024,710
Payne County, Oklahoma Economic Development Authority Student
Housing Revenue (Collegiate Housing Foundation-Oklahoma
State University) Series A 6.375%6/1/30-11 4,000,000 4,460,960
Puerto Rico Commonwealth Public Improvement
5.125% 7/1/30-11 (FSA) 920,000 982,321
5.375% 7/1/21-07 (MBIA) 50,000 51,521
Series A 5.125% 7/1/31-11 3,495,000 3,731,751
Puerto Rico Commonwealth Highway & Transportation
Authority Revenue Series D 5.25%7/1/38-12 3,000,000 3,250,830
Puerto Rico Housing, Bank & Finance Agency Single
Family Mortgage Revenue 6.25% 4/1/29-07 (GNMA)
(FNMA) (FHLMC) (AMT) 1,240,000 1,255,599
Southeast Wisconsin Professional Baseball Park District Sales Tax
Revenue 5.80% 12/15/26-07 (MBIA) 1,000,000 1,021,720
Tampa Utilities Tax Revenue Series A
6.00% 10/1/17-09 (AMBAC) 1,000,000 1,079,130
6.125% 10/1/18-09 (AMBAC) 1,000,000 1,082,600
Vancouver, Washington Limited Tax 5.50% 12/1/25-10 (AMBAC) 1,250,000 1,341,625
Wisconsin Housing & Economic Developing Authority Revenue
6.10% 6/1/21-17 (FHA) 800,000 884,976
--------------
77,093,810
--------------
Special Tax Bonds
Bi-State Development Agency Missouri - Illinois Metropolitan
District (Metrolink Cross County Project) Series B 5.00% 10/1/32 (FSA) 2,000,000 2,085,260
Florida Hurricane Catastrophe Fund Financial Corporation Revenue
Series A 5.00% 7/1/12 2,500,000 2,668,325
Florida State Board of Education (Lottery Revenue) Series A
6.00% 7/1/14 (FGIC) 1,000,000 1,091,440
Jackson County, Missouri Special Obligation 5.00% 12/1/27 (MBIA) 1,000,000 1,049,680
Jacksonville Excise Taxes Revenue Series B
5.00% 10/1/26 (AMBAC) 1,000,000 1,039,530
5.125% 10/1/32 (FGIC) 1,000,000 1,053,560
Middlesex County, New Jersey Improvement Authority Senior
Revenue (Heldrich Center Hotel/Conference Project) Series A
5.00%1/1/32 1,500,000 1,492,425
5.125%1/1/37 1,500,000 1,507,470
New Jersey Economic Development Authority (Cigarette Tax)
5.50%6/15/31 1,000,000 1,049,340
5.75%6/15/34 2,000,000 2,130,920
New York City, New York Transitional Finance Authority
Series D 5.00% 2/1/31 5,000,000 5,195,700
New York State Dormitory Authority State Personal
Income Tax Revenue Education 5.00%3/15/31 5,200,000 5,471,856
New York State Sales Tax Asset Receivables Series A
5.25% 10/15/27 (AMBAC) 1,000,000 1,080,510
&Palm Beach County Criminal Justice Facilities Revenue
5.75% 6/1/12 (FGIC) 15,000,000 16,617,150
^Puerto Rico Commonwealth Infrastructure Financing
Authority Series A 4.60% 7/1/30 (FGIC) 2,500,000 846,075
Puerto Rico Convention Center District Authority Revenue (Hotel
Occupancy Tax) 5.00% 7/1/31 (AMBAC) 6,250,000 6,636,125
Tampa, Florida Sports Authority Revenue Sales Tax (Tampa Bay
Arena Project) 5.75% 10/1/20 (MBIA) 1,000,000 1,164,760
Truth or Consequences, New Mexico Gross Receipts Tax
Revenue 6.30% 7/1/16 1,000,000 1,001,820
Westminster, Colorado Sales & Use Tax Revenue (Sales Tax Revenue
Project) Series A 5.60% 12/1/16 4,500,000 4,688,055
--------------
57,870,001
--------------
State General Obligation Bonds
California State
5.00% 2/1/26 (AMBAC) 5,570,000 5,819,369
5.00%2/1/33 6,350,000 6,550,025
5.25% 2/1/30 (MBIA) 3,500,000 3,711,050
Illinois State Series A 5.00% 3/1/34 7,000,000 7,259,070
Maryland State & Local Facilities Land Capital Improvement Series A
5.00%8/1/11 5,000,000 5,327,300
5.00%3/1/12 8,000,000 8,567,520
5.25%3/1/13 10,000,000 10,947,500
5.50%8/1/14 5,000,000 5,620,600
Pennsylvania State First Series
5.00%7/1/11 5,955,000 6,320,161
5.00%7/1/13 3,000,000 3,236,250
Puerto Rico Commonwealth Public Improvement
5.125% 7/1/30 (FSA) 965,000 1,011,368
5.25% 7/1/27 (FSA) 705,000 745,248
Series A 5.125% 7/1/31 7,880,000 8,058,640
Series A 5.25% 7/1/23 500,000 529,400
Series A 5.50% 7/1/19 (MBIA) 11,500,000 13,211,430
--------------
86,914,931
--------------
Transportation Revenue Bonds
Bay Area, California Toll Authority Revenue Series F 5.00% 4/1/31 7,100,000 7,489,577
Capital Trust Agency Florida Revenue
(Fort Lauderdale/Cargo Acquisition Project)
5.75% 1/1/32 (AMT) 3,750,000 3,921,263
(Orlando/Cargo Acquisition Project) 6.75% 1/1/32 (AMT) 2,395,000 2,579,008
Dallas-Fort Worth, Texas International Airport Revenue
Series A 5.50% 11/1/31 (FGIC) (AMT) 1,500,000 1,597,875
Grapevine, Texas Industrial Development Corporate Revenue
(Air Cargo) 6.50% 1/1/24 (AMT) 920,000 991,797
Houston, Texas Industrial Development Corporate Revenue
(Air Cargo) 6.375% 1/1/23 (AMT) 2,000,000 2,142,740
Jacksonville Port Authority Seaport Revenue 5.70% 11/1/30 (MBIA) (AMT) 295,000 313,904
Metropolitan, New York Transportation Authority
Revenue Refunding Series A 5.00% 11/15/30 (FSA) 3,000,000 3,132,390
Miami-Dade County Aviation Revenue (Miami International
Airport) Series B 5.00% 10/1/37 (FGIC) 1,000,000 1,042,480
Miami-Dade County Aviation Revenue Series A
5.00% 10/1/33 (FSA) (AMT) 500,000 513,290
Pennsylvania State Turnpike Commission Revenue Series A
5.00% 12/1/34 (AMBAC) 500,000 523,530
Port of Oakland, California Revenue Series K 5.75% 11/1/29 (FGIC) (AMT) 3,500,000 3,703,700
Puerto Rico Commonwealth Highway & Transportation
Series G 5.00% 7/1/42 800,000 812,528
Authority Revenue Series K 5.00%7/1/35 3,500,000 3,581,340
South Carolina Transportation Infrastructure Revenue Series A
5.00% 10/1/33 (AMBAC) 7,500,000 7,796,474
St. Louis, Missouri Airport Revenue (Capital Improvement Project)
Series A 5.375% 7/1/21 (MBIA) 1,635,000 1,749,957
--------------
41,891,853
--------------
Water & Sewer Revenue Bonds
Augusta, Georgia Water & Sewer Revenue 5.25% 10/1/34 (FSA) 4,375,000 4,688,513
Clovis, California Public Financing Authority Wastewater Revenue
5.25% 8/1/30 (MBIA) 1,000,000 1,080,090
Fulton County, Georgia Water & Sewer Revenue 5.25% 1/1/35 (FGIC) 1,000,000 1,065,300
Metropolitan St. Louis, Missouri Sewer District Wastewater
Revenue Series A 5.00% 5/1/34 (MBIA) 1,250,000 1,305,313
Missouri State Environmental Improvement & Energy Resource
Authority Water Pollution Control Revenue Unrefunded
Balance (State Revolving Fund Project) Series A 6.05% 7/1/16 (FSA) 1,060,000 1,062,056
New York City, New York Municipal Water Finance Authority Water &
Sewer System Revenue
Series A 5.125% 6/15/34 12,125,000 12,720,700
Series A 5.25% 6/15/34 3,705,000 3,930,190
Series B 5.00% 6/15/23 (FSA) 1,000,000 1,057,040
Portland, Oregon Sewer Systems Revenue (Second Lien)
Series A 5.00% 6/1/23 (FSA) 325,000 341,783
Series B 5.00% 6/15/27 (MBIA) 1,000,000 1,061,130
Sacramento County, California Sanitation District Financing
Authority Revenue 5.00% 12/1/36 (FGIC) 4,000,000 4,222,440
Tampa Water and Sewer Revenue 6.00% 10/1/16 (FSA) 1,000,000 1,176,850
Village Center Community Development District Utility
Revenue 5.00% 10/1/36 (MBIA) 500,000 519,685
Virgin Islands Water & Power Authority Water System Revenue
5.50%7/1/17 510,000 525,479
West Virginia State Water Development Authority Revenue
(Loan Program III) Series A 6.375% 7/1/39 (AMBAC) (AMT) 2,890,000 3,162,267
Winter Haven Utilities Systems Revenue Refunding &
Improvement 5.00% 10/1/30 (MBIA) 1,415,000 1,491,509
--------------
39,410,345
--------------
Total Municipal Bonds (cost $650,673,277) 788,462,781
--------------
oVariable Rate Demand Notes
Alexandria, Virginia Industrial Development Authority
(Institutional Defense Analyses Project) 3.44% 10/1/30 (AMBAC) 1,925,000 1,925,000
New Jersey Health Care Facilities Financing Authority Revenue
(Computer Program) Series A1 3.38%7/1/30 1,500,000 1,500,000
--------------
Total Variable Rate Demand Notes (cost $3,425,000) 3,425,000
--------------
Total Investments at Market 791,887,781
--------------
Total Investments at Cost $ 753,655,538
--------------
ss. Pre-Refunded Bonds are municipals that are generally backed or secured by
U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is
followed by the year in which the bond is pre-refunded.
o Variable rate notes. The interest rate shown is the rate as of August 31,
2006.
& Security held in trust in connection with the Inverse Floater security
$7,500,000, 7.77%, 6/1/12. For additional information on the Inverse
Floater programs, see Notes 8 & 10 in "Notes to Financial Statements."
@ Illiquid security. At August 31, 2006, the aggregate amount of illiquid
securities equals $208,000, which represented 0.03% of the Fund's net
assets. See Note 8 in "Notes to Financial Statements."
^ Zero coupon security. The interest rate shown is the yield at the time of
purchase.
Summary of Abbreviations:
AMBAC-- Insured by the AMBAC Assurance Corporation
AMT-- Subject to Alternative Minimum Tax
CDFI-- Community Development Financial Institutions
FGIC-- Insured by the Financial Guaranty Insurance Company
FHA-- Insured by the Federal Housing Administration
FHLMC-- Insured by the Federal Home Loan Mortgage Corporation
FNMA-- Insured by Federal National Mortgage Association
FSA-- Insured by Financial Security Assurance
GNMA-- Insured by Government National Mortgage Association
HUD-- Housing and Urban Development
LOC-- Letter of Credit
MBIA-- Insured by the Municipal Bond Insurance Association
PSF-- Insured by Permanent School Fund
RADIAN-- Insured by Radian Asset Assurance
VHA-- Veterans Health Administration
XLCA-- Insured by XL Capital Assurance
A No adjustments are shown to the unaudited pro forma combined portfolio of
investments due to the fact that upon completion of the acquisition, no
securities would need to be sold in order for the Acquiring Fund to comply
with its Prospectus and SEC and IRS guidelines and restrictions. However,
the foregoing sentence shall not restrict in any way the ability of the
investment advisor of any of the Funds from buying or selling securities in
the normal course of such Fund's business and operations.
See Pro Forma Notes to Financial Statements
Delaware Tax-Free USA Fund
PRO FORMA COMBINED
Statement of Assets and Liabilities
As of August 31, 2006
(Unaudited)
Delaware Tax-
Delaware Tax- Delaware Tax-Free Pro Forma Free USA Fund
Free USA Fund Florida Insured Fund Adjustments Pro Forma Combined
---------------- --------------------- ------------ -------------------
Assets
Investments, at market value $ 687,585,439 $ 104,302,342 $ - $ 791,887,781
Cash 293,079 (293,079) -
Receivable for securities sold 20,000 4,768,500 4,788,500
Receivable for fund shares sold 104,521 - 104,521
Interest receivable 8,521,699 1,824,306 10,346,005
---------------- --------------------- ------------ -------------------
Total Assets 696,524,738 110,895,148 (293,079) 807,126,807
---------------- --------------------- ------------ -------------------
Liabilities
Liability for Inverse Floater programs - 7,500,000 7,500,000
Cash overdraft - 384,875 (293,079) 91,796
Accrued expenses and other liabilities 676,145 108,456 784,601
Payable for securities purchased - 2,082,740 2,082,740
Liquidations payable 1,061,839 23,242 1,085,081
Payable for distributions to shareholders 674,889 109,827 784,716
Interest and related expense payable for Inverse
Floater programs - 72,814 72,814
Transaction costs payable - - 52,428 * 52,428
---------------- --------------------- ------------ -------------------
Total Liabilities 2,412,874 10,281,954 (240,651) 12,454,177
---------------- --------------------- ------------ -------------------
Net Assets $ 694,111,864 $ 100,613,194 $ (52,428) $ 794,672,630
================ ===================== ============ ===================
Investment at Cost $ 654,098,277 $ 99,557,261 $ - $ 753,655,538
Components of Net Assets
Shares of beneficial interest
(unlimited authorization - no par) $ 666,215,275 $ 96,385,804 $ - $ 762,601,079
Distributions in excess of net investment income (12,071) - (52,428)* (64,499)
Accumulated net realized loss on investments (5,578,502) (517,691) (6,096,193)
Net unrealized appreciation of investments 33,487,162 4,745,081 38,232,243
---------------- --------------------- ------------ -------------------
Net Assets $ 694,111,864 $ 100,613,194 $ (52,428) $ 794,672,630
================ ===================== ============ ===================
* Adjustment reflects the costs of the
transaction to be incurred by the Funds.
Shares Outstanding 59,979,087 9,029,447 (337,248) 68,671,286
Class A Shares 56,755,557 8,321,991 (311,242) 64,766,306
Class B Shares 1,918,042 387,828 (14,201) 2,291,669
Class C Shares 1,305,488 319,628 (11,805) 1,613,311
Net Assets:
Class A Shares $ 656,813,443 $ 92,726,424 ($48,964) $ 749,490,903
Class B Shares 22,188,800 4,323,253 ($1,965) 26,510,088
Class C Shares 15,109,621 3,563,517 ($1,499) 18,671,639
Net asset value per share:
Class A Shares $11.57 $11.14 $11.57
Class B Shares $11.57 $11.15 $11.57
Class C Shares $11.57 $11.15 $11.57
Offering price per share:
Class A Shares $12.12 $11.66 $12.12
See Pro Forma Notes to Financial Statements
Delaware Tax-Free USA Fund
PRO FORMA COMBINED
Statement of Operations
For the Twelve Months Ended August 31, 2006
(Unaudited)
Delaware Tax-
Delaware Tax- Delaware Tax-Free Pro Forma Free USA Fund
Free USA Fund Florida Insured Fund Adjustments Pro Forma Combined
---------------- --------------------- ------------ -------------------
Investment Income
Interest income $ 25,934,658 $ 5,742,714 $ - $ 31,677,372
------------------------------------------------------------------------
Expenses
Management fees 2,935,497 517,389 3,452,886
Interest and related expense - 251,788 251,788
Distribution expenses - Class A 1,423,472 238,110 (230,163)(C) 1,431,419
Distribution expenses - Class B 152,276 48,204 200,480
Distribution expenses - Class C 76,997 34,317 111,314
Dividend disbursing and transfer agent fees
and expenses 332,516 69,194 401,710
Accounting and administration expenses 212,466 41,391 253,857
Reports and statements to shareholders 89,314 18,863 (30,458)(A) 77,719
Legal and professional fees 129,613 32,454 (19,166)(A) 142,901
Registration fees 126,988 18,017 (18,017)(A) 126,988
Insurance fees 20,447 2,573 23,020
Trustees' fees 30,750 5,874 36,624
Custodian fees 11,121 4,266 (1,128)(A) 14,259
Pricing fees 4,424 1,943 (474)(A) 5,893
Taxes (other than taxes on income) 2,992 467 3,459
Other 12,328 5,381 (825)(A) 16,884
-------------------------------------------------------------------------
5,561,201 1,290,231 (300,231) 6,551,201
Less expenses absorbed or waived (518,570) (78,757) (21,099)(B) (618,426)
Less waived distribution expenses - Class A (230,163) - 230,163(C) -
Less expense paid indirectly (5,730) (2,975) 2,975(A) (5,730)
--------------------------------------------------------------------------
Total expenses 4,806,738 1,208,499 (88,192) 5,927,045
--------------------------------------------------------------------------
Net Investment Income 21,127,920 4,534,215 88,192 25,750,327
--------------------------------------------------------------------------
Net Realized and Unrealized Gain/(Loss) on
Investments:
Net realized gain on investments 2,988,364 172,566 - 3,160,930
Change in unrealized appreciation/
(depreciation) of investments (7,385,302) (1,964,445) - (9,349,747)
--------------------------------------------------------------------------
Net Realized and Unrealized Gain on
Investments (4,396,938) (1,791,879) - (6,188,817)
Change in Net Assets Resulting from
Operations $ 16,730,982 $ 2,742,336 $ 88,192 $ 19,561,510
========================================================================
A Decrease to reflect appropriate expense levels by merging the Funds.
B In addition to the fee waiver/fee reimbursement currently in place for the
Delaware Tax-Free USA Fund through August 31, 2008, DMC has contractually
agreed to cap (the "Expense Cap") the net expenses of the combined Fund for
at least one year after the closing date of the Transaction in order to
ensure that the combined Fund's net expenses (excluding inverse floater
program expenses related to the Transaction) do not exceed the Delaware
Tax-Free Florida Insured Fund's net expenses (excluding inverse floater
program expenses and the expenses related to the Transaction). The Expense
Cap also excludes taxes, interest, brokerage fees, certain insurance costs
and non-routine expenses. For purposes of these waivers and reimbursements,
non-routine expenses may also include such additional costs and expenses,
as may be agreed upon from time to time by the combined Fund's Board and
DMC.
C Prior to April 21, 2006, the total 12b-1 fees to be paid by Class A
shareholders of the Fund was the sum of 0.10% of the average daily net
assets representing shares that were acquired prior to June 1, 1992 and
0.30% of the average daily net assets representing shares that were
acquired on or after June 1, 1992. The Distributor waived the Class A 12b-1
fees through April 20, 2006 to 0.25% of average daily net assets. The
amount of this waiver is disclosed above as "Less waived distribution
expenses - Class A."
See Pro Forma Notes to Financial Statements
Delaware Tax-Free USA Fund
Pro Forma Notes to Financial Statements
August 31, 2006 (Unaudited)
Delaware Group Tax-Free Fund (the "Trust") is organized as a Delaware statutory
trust and offers two series: Delaware Tax-Free USA Fund and Delaware Tax-Free
USA Intermediate Fund. These financial statements and related notes pertain to
the Delaware Tax-Free USA Fund (the "Fund"). The Trust is an open-end investment
company. The Fund is considered non-diversified under the Investment Company Act
of 1940, as amended. The Fund offers Class A, Class B and Class C shares. Class
A share purchases of $1,000,000 or more will incur a contingent deferred sales
charge of up to 1% if redeemed during the first two years, provided that a
financial advisor was paid a commission on the purchase of those shares. Class B
shares are sold with a contingent deferred sales charge that declines from 4.00%
to zero depending upon the period of time the shares are held. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
eight years after purchase. Class C shares are sold with a contingent deferred
sales charge of 1%, if redeemed during the first twelve months.
The investment objective of the Fund is to seek a high level of current interest
income exempt from federal income tax as is available from municipal obligations
and as is consistent with prudent investment management and preservation of
capital.
1. Basis of Pro forma Presentation
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of Delaware Tax-Free Florida Insured Fund by
Delaware Tax-Free USA Fund. The following notes refer to the accompanying pro
forma financial statements as if the above-mentioned acquisition of Delaware
Tax-Free Florida Insured Fund by Delaware Tax-Free USA Fund had taken place as
of September 1, 2005.
Under the terms of the Agreement and Plan of Reorganization, the combination of
Delaware Tax-Free Florida Insured Fund and Delaware Tax-Free USA Fund will be
accounted for by a method of accounting for tax-free mergers of investment
companies. The acquisition would be accomplished by an acquisition (the
"Transaction") of the net assets of Delaware Tax-Free Florida Insured Fund in
exchange for shares of the Delaware Tax-Free USA Fund at net asset value. The
statement of assets and liabilities and the related statement of operations of
Delaware Tax-Free Florida Insured Fund and Delaware Tax-Free USA Fund have been
combined as of and for the twelve months ended August 31, 2006.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements of Delaware Tax-Free Florida Insured Fund and
Delaware Tax-Free USA Fund included in their annual reports dated August 31,
2006.
2. Significant Accounting Policies
The following accounting policies are in accordance with U.S. 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. Short-term debt securities 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 under the direction of the Fund's Board of
Trustees. In determining whether market quotations are readily available or fair
valuation will be used, various factors will be taken into consideration, such
as market closures, or with respect to foreign securities, aftermarket trading
or significant events after local market trading (e.g., government actions or
pronouncements, trading volume or volatility on markets, exchanges among
dealers, or news events).
Federal Income Taxes - The Fund intends to continue to qualify for federal
income tax purposes 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.
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented, and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Although the Fund's tax
positions are currently being evaluated, management does not expect the adoption
of FIN 48 to have a material impact on the Fund's financial statements.
Class Accounting - Investment income and common expenses are allocated to the
classes of the Fund on the basis of "settled shares" of each class in relation
to the net assets of the Fund. Realized and unrealized gain (loss) on
investments is 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.
Use of Estimates - The preparation of financial statements in conformity with
U.S. 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.
Interest and Related Expenses - Interest and related expenses include, but are
not limited to, interest expense, remarketing fees, liquidity fees, and
trustees' fees from the Delaware Tax-Free USA Fund's participation in inverse
floater programs where the Fund has transferred its own bonds to a trust that
issues floating rate securities and inverse floating rate securities with an
aggregate principal amount equal to the principal of the transferred bonds. The
Fund receives the inverse floating rate securities and cash from the trust in
consideration of the conveyance of the municipal bonds to the trust. The cash
received is treated as a form of liability for accounting purposes. Interest
expense is recorded by the Fund based on the interest rate of the floating rate
securities. Remarketing fees, liquidity fees, and trustees' fees expenses are
recorded on the accrual basis.
For the year ended August 31, 2006, Delaware Tax-Free USA Fund had an average
daily liability from the participation in inverse floater programs of $7,500,000
and recorded interest expense at an average rate of 3.36%.
Other - Expenses directly attributable to the Fund are charged directly to the
Fund. Other expenses common to various funds within the Delaware
Investments(R)Family of Funds are allocated amongst the funds on the basis of
average net assets. Management fees and some other expenses are paid monthly.
Security transactions are recorded on the date the securities are purchased or
sold (trade date) for financial reporting purposes. 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.
Discounts and premiums are amortized to interest income over the lives of the
respective securities. The Fund declares dividends daily from net investment
income and pays such dividends monthly and declares and pays distributions from
net realized gain on investments, if any, annually.
The Fund receives earnings credits from its custodian when positive cash
balances are maintained, which are used to offset custody fees. The expenses
paid under the above arrangement are included in the "custodian fees" expense
caption on the Statement of Operations with the corresponding expense offset
shown as "expenses paid indirectly."
3. Allocation of Transaction Costs
The total costs of the Transaction between Delaware Tax-Free Florida Insured
Fund and Delaware Tax-Free USA Fund are estimated to be $87,380. The costs of
the Transaction, including costs of soliciting proxies in connection with the
shareholder meeting, will be shared by the following parties in the percentages
indicated: 30% by Delaware Tax-Free Florida Insured Fund, 30% by Delaware
Tax-Free USA Fund and 40% by Delaware Management Company ("DMC"), a series of
Delaware Management Business Trust.
4. Investment Management, Administration Agreements and Other Transactions with
Affiliates
In accordance with the terms of its investment management agreement, the Fund
pays DMC, the investment manager, an annual fee which is calculated daily at the
rate of 0.55% on the first $500 million of average daily net assets of the Fund,
0.50% on the next $500 million, 0.45% on the next $1.5 billion and 0.425% on
average daily net assets in excess $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse the Fund to the extent necessary to ensure that annual
operating expenses, exclusive of 12b-1 plan expenses, taxes, interest, inverse
floater program expenses, brokerage fees, certain insurance costs and
non-routine expenses or costs, including, but not limited to, those relating to
reorganizations, litigation, certain Trustee retirement plan expenses,
conducting shareholder meetings and liquidations (collectively, "non-routine
expenses"), do not exceed 0.61% of average daily net assets of the Fund through
August 31, 2008. Prior to February 15, 2007, DMC had contractually agreed to
waive its fees and/or reimburse expenses in order to prevent total operating
expenses (excluding any 12b-1 fees, taxes, interest, brokerage fees, non-routine
expenses and certain insurance costs) from exceeding 0.62% of the average daily
net assets of the Fund. In addition to the fee waiver/fee reimbursement
currently in place for the Fund through August 31, 2008, DMC has contractually
agreed to cap (the "Expense Cap") the net expenses of the Fund for at least one
year after the closing date of the Transaction in order to ensure that the
Fund's net expenses (excluding inverse floater program expenses and the expenses
related to the Transaction) do not exceed the Delaware Tax-Free Florida Insured
Fund's net expenses (excluding inverse floater program expenses and the expenses
related to the Transaction). The Expense Cap also excludes taxes, interest,
brokerage fees, certain insurance costs and non-routine expenses. For purposes
of these waivers and reimbursements, non-routine expenses may also include such
additional costs and expenses, as may be agreed upon from time to time by the
Fund's Board and DMC.
Delaware Service Company, Inc. ("DSC"), an affiliate of DMC, provides
accounting, administration, dividend disbursing and transfer agent services. The
Fund pays DSC a monthly fee computed at the annual rate of 0.04% of the Fund's
average daily net assets for accounting and administration services. The Fund
pays DSC a monthly fee based on the number of shareholder accounts for dividend
disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, the Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 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. The Board of Trustees has adopted a formula for
calculating 12b-1 plan fees for Class A shares that went into effect on June 1,
1992. The total 12b-1 fees to be paid by Class A shareholders of the Fund will
be the sum of 0.10% of the average daily net assets representing shares that
were acquired prior to June 1, 1992 and 0.25%, of the average daily net assets
representing shares that were acquired on or after June 1, 1992. All Class A
shareholders will bear 12b-1 fees at the same rate, the blended rate based upon
the allocation of the rates described above.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Fund.
5. Line of Credit
The Fund, along with certain other funds in the Delaware Investments(R)Family of
Funds (the "Participants"), participates in a $225,000,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each Paticipant's allocation of the entire facility. The
Participants may borrow up to a maximum of one third of their net assets under
the facility. The Fund had no amount outstanding as of August 31, 2006, or at
any time during the period.
6. Credit and Market Risks
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
Statements of Net Assets.
The Fund may participate in inverse floater programs where it transfers its own
bonds to a trust that issues floating rate securities and inverse floating rate
securities ("inverse floaters") with an aggregate principal amount equal to the
principal of the transferred bonds. The inverse floaters received by the Fund
are derivative tax-exempt obligations with floating or variable interest rates
that move in the opposite direction of short-term interest rates, usually at an
accelerated speed. Consequently, the market values of the inverse floaters will
generally be more volatile than other tax-exempt investments. The Fund typically
uses inverse floaters to adjust the duration of its portfolio. Duration measures
a portfolio's sensitivity to changes in interest rates. By holding inverse
floaters with a different duration than the underlying bonds that the Fund
transferred to the trust, the Fund seeks to adjust its portfolio's sensitivity
to changes in interest rates. The Fund may also invest in inverse floaters to
add additional income to the Fund or to adjust the Fund's exposure to a specific
segment of the yield curve. Such securities are denoted on the Portfolio of
Investments.
The Fund may invest in advanced refunded bonds, escrow secured bonds or defeased
bonds. Under current federal tax laws and regulations, state and local
government borrowers are permitted to refinance outstanding bonds by issuing new
bonds. The issuer refinances the outstanding debt to either reduce interest
costs or to remove or alter restrictive covenants imposed by the bonds being
refinanced. A refunding transaction where the municipal securities are being
refunded within 90 days or less from the issuance of the refunding issue is
known as a "current refunding." "Advance refunded bonds" are bonds in which the
refunded bond issue remains outstanding for more than 90 days following the
issuance of the refunding issue. In an advance refunding, the issuer will use
the proceeds of a new bond issue to purchase high grade interest bearing debt
securities which are then deposited in an irrevocable escrow account held by an
escrow agent to secure all future payments of principal and interest and bond
premium of the advance refunded bond. Bonds are "escrowed to maturity" when the
proceeds of the refunding issue are deposited in an escrow account for
investment sufficient to pay all of the principal and interest on the original
interest payment and maturity dates.
Bonds are considered "pre-refunded" when the refunding issue's proceeds are
escrowed only until a permitted call date or dates on the refunded issue with
the refunded issue being redeemed at the time, including any required premium.
Bonds become "defeased" when the rights and interests of the bondholders and of
their lien on the pledged revenues or other security under the terms of the bond
contract and are substituted with an alternative source of revenues (the escrow
securities) sufficient to meet payments of principal and interest to maturity or
to the first call dates. Escrowed secured bonds will often receive a rating of
AAA from Moody's, S&P, and/or Fitch Ratings due to the strong credit quality of
the escrow securities and the irrevocable nature of the escrow deposit
agreement.
The Fund may invest a portion of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair the Fund's ability to dispose of them
in a timely manner and at a fair price when it is necessary or desirable to do
so. While maintaining oversight, the Board of Trustees has delegated to DMC the
day-to-day functions of determining whether individual securities are liquid for
purposes of the Fund's limitation on investments in illiquid assets. At August
31, 2006, there were no Rule 144A securities in the Fund's portfolio. Illiquid
securities have been identified on the Portfolio of Investments.
7. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a
variety of indemnifications. The Fund's maximum exposure under these
arrangements is unknown. However, the Fund has not had prior claims or losses
pursuant to these contracts. Management has reviewed the Fund's existing
contracts and expects the risk of loss to be remote.
PART C
OTHER INFORMATION
Item 15. Indemnification. Article VI of the Amended and Restated By-Laws (May
19, 2005) incorporated into this filing by reference to Post-Effective
Amendment No. 32 filed October 31, 2005.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of
the Registrant pursuant to the provisions described in response to Item 15,
or otherwise, the Registrant has been advised that in the opinion of the
U.S. Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
Trustee, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such Trustee,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 16. Exhibits. The following exhibits are incorporated by reference to the
Registrant's previously filed registration statements on Form N-1A
indicated below, except as noted:
(1) Copies of the charter of the Registrant as now in effect;
(a) Executed Agreement and Declaration of Trust (December 17, 1998)
incorporated into this filing by reference to Post-Effective
Amendment No. 25 filed August 16, 1999.
(b) Executed Certificate of Trust (December 17, 1998) incorporated
into this filing by reference to Post-Effective Amendment No. 25
filed August 16, 1999.
(2) Copies of the existing bylaws or corresponding instrument of the
Registrant;
(a) Amended and Restated By-Laws (May 19, 2005) incorporated into
this filing by reference to Post-Effective Amendment No. 32 filed
October 31, 2005.
(3) Copies of any voting trust agreement affecting more than 5 percent of
any class of equity securities of the Registrant;
Not applicable.
(4) Copies of the agreement of acquisition, reorganization, merger,
liquidation and any amendments to it;
(a) Form of Agreement and Plan of Reorganization between the
Registrant, on behalf of Delaware Tax-Free USA Fund, and Delaware
Investments Municipal Trust, on behalf of its series, Delaware
Tax-Free Florida Insured Fund, is filed herewith as Exhibit A to
the Prospectus/Proxy Statement.
(5) Copies of all instruments defining the rights of holders of the
securities being registered including, where applicable, the relevant
portion of the articles of incorporation or by-laws of the Registrant;
(a) Agreement and Declaration of Trust. Articles III, IV, V and VI of
Agreement and Declaration of Trust (December 17, 1998)
incorporated into this filing by reference to Post-Effective
Amendment No. 25 filed August 16, 1999.
(b) By-Laws. Article II of the Amended and Restated By-Laws (May 19,
2005) incorporated into this filing by reference to
Post-Effective Amendment No. 32 filed October 31, 2005.
(6) Copies of all investment advisory contracts relating to the management
of the assets of the Registrant.
(a) Executed Investment Management Agreement (November 1, 1999)
between Delaware Management Company and the Registrant
incorporated into this filing by reference to Post-Effective
Amendment No. 27 filed October 27, 2000.
(7) Copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of all
agreements between principal underwriters and dealers;
(a) Distribution Agreements.
(i) Executed Distribution Agreement (April 19, 2001) between
Delaware Distributors, L.P. and the Registrant incorporated
into this filing by reference to Post-Effective Amendment
No. 28 filed October 31, 2001.
(ii) Executed Third Amended and Restated Financial Intermediary
Distribution Agreement (January 1, 2007) between Lincoln
Financial Distributors, Inc. and Delaware Distributors, L.P.
on behalf of the Registrant attached as Exhibit No.
EX-99.7.a.ii.
(iii) Dealer's Agreement (January 2001) incorporated into this
filing by reference to Post-Effective Amendment No. 29 filed
November 18, 2002.
(iv) Vision Mutual Fund Gateway(R) Agreement (November 2000)
incorporated into this filing by reference to Post-Effective
Amendment No. 29 filed November 18, 2002.
(v) Registered Investment Advisers Agreement (January 2001)
incorporated into this filing by reference to Post-Effective
Amendment No. 29 filed November 18, 2002.
(vi) Bank/Trust Agreement (August 2004) incorporated into this
filing by reference to Post-Effective Amendment No. 31 filed
December 3, 2004.
(8) Copies of all bonus, profit sharing, pension, or other similar
contracts or arrangements wholly or partly for the benefit of trustees
or officers of the Registrant in their capacity as such. Furnish a
reasonably detailed description of any plan that is not set forth in a
formal document;
Not applicable.
(9) Copies of all custodian agreements and depository contracts under
Section 17(f) of the Investment Company Act of 1940, as amended (the
"1940 Act") for securities and similar investments of the Registrant,
including the schedule of remuneration;
(a) Executed Global Custody Agreement (May 1, 1996) between JPMorgan
Chase Bank (formerly The Chase Manhattan Bank) and the Registrant
incorporated into this filing by reference to Post-Effective
Amendment No. 24 filed October 28, 1998.
(i) Executed Amendment (July 1, 2001) to the Global Custody
Agreement between JPMorgan Chase Bank and the Registrant
incorporated into this filing by reference to Post-Effective
Amendment No. 29 filed November 18, 2002.
(ii) Executed Letter to add Delaware Tax-Free USA Fund, Delaware
Tax-Free Insured Fund and Delaware Tax-Free USA Intermediate
Fund to Schedule A of the Global Custody Agreement between
JPMorgan Chase Bank and the Registrant incorporated into
this filing by reference to Post-Effective Amendment No. 24
filed October 28, 1998.
(iii) Executed Amendment No. 1 (July 17, 2003) to Schedule A of
the Global Custody Agreement between JPMorgan Chase Bank and
the Registrant incorporated into this filing by reference to
Post-Effective Amendment No. 30 filed October 31, 2003.
(10) Copies of any plan entered into by Registrant pursuant to Rule 12b-1
under the 1940 Act and any agreements with any person relating to
implementation of the plan, and copies of any plan entered into by
Registrant pursuant to Rule 18f-3 under the 1940 Act, any agreement
with any person relating to implementation of the plan, any amendment
to the plan, and a copy of the portion of the minutes of the meeting
of the Registrant's trustees describing any action taken to revoke the
plan;
(a) Plan under Rule 12b-1 for Class A (April 19, 2001) incorporated
into this filing by reference to Post-Effective Amendment No. 28
filed October 31, 2001.
(b) Plan under Rule 12b-1 for Class B (April 19, 2001) incorporated
into this filing by reference to Post-Effective Amendment No. 28
filed October 31, 2001.
(c) Plan under Rule 12b-1 for Class C (April 19, 2001) incorporated
into this filing by reference to Post-Effective Amendment No. 28
filed October 31, 2001.
(d) Plan under Rule 18f-3. Plan under Rule 18f-3 (October 31, 2005)
incorporated into this filing by reference to Post-Effective
Amendment No. 33 filed December 29, 2005.
(11) An opinion and consent of counsel as to the legality of the securities
being registered, indicating whether they will, when sold, be legally
issued, fully paid and nonassessable;
(a) Opinion and Consent of Counsel (February 2007) relating to the
Registrant attached as Exhibit EX-99.11.a.
(12) An opinion, and consent to their use, of counsel or, in lieu of an
opinion, a copy of the revenue ruling from the Internal Revenue
Service, supporting the tax matters and consequences to shareholders
discussed in the prospectus;
(a) To be filed by amendment.
(13) Copies of all material contracts of the Registrant not made in the
ordinary course of business which are to be performed in whole or in
part on or after the date of filing the registration statement;
(a) Executed Shareholder Services Agreement (April 19, 2001) between
Delaware Service Company, Inc. and the Registrant incorporated
into this filing by reference to Post-Effective Amendment No. 28
filed October 31, 2001.
(i) Executed Schedule B (December 1, 2006) to the Shareholder
Services Agreement attached as Exhibit No. EX-99.13.a.i.
(ii) Executed Letter Amendment to the Shareholder Services
Agreement (August 23, 2002) incorporated into this filing by
reference to Post-Effective Amendment No. 30 filed October
31, 2003.
(b) Executed Delaware Group of Funds Fund Accounting Agreement
(August 19, 1996) between Delaware Service Company, Inc. and the
Registrant incorporated into this filing by reference to
Post-Effective Amendment No. 22 filed October 30, 1996.
(i) Executed Amendment No. 32 (January 9, 2007) to Schedule A to
the Delaware Investments Family of Funds Fund Accounting
Agreement attached as Exhibit No. EX-99.13.b.i.
(ii) Executed Schedule B (May 19, 2005) to Delaware Investments
Family of Funds Fund Accounting Agreement incorporated into
this filing by reference to Post-Effective Amendment No. 32
filed October 31, 2005.
(c) Form of Investment Advisory Expense Limitation Letter (February
2007) between Delaware Management Company (a series of Delaware
Management Business Trust) and the Registrant attached as Exhibit
No. EX-99.13.c.
(14) Copies of any other opinions, appraisals, or rulings, and consents to
their use, relied on in preparing the registration statement and
required by Section 7 of the Securities Act of 1933, as amended (the
"1933 Act" or "Securities Act");
(a) Consent of Independent Registered Public Accounting Firm
(February 2007) attached as Exhibit No. EX-99.14.a.
(15) All financial statements omitted pursuant to Item 14(a)(1);
Not applicable.
(16) Manually signed copies of any power of attorney pursuant to which the
name of any person has been signed to the registration statement; and
(a) Powers of Attorney (November 15, 2006) incorporated into this
filing by reference to Post-Effective Amendment No. 34 filed
January 3, 2007.
(17) Any additional exhibits which the Registrant may wish to file.
(a) Code of Ethics for the Delaware Investments Family of Funds
(February 2006) incorporated by reference to the Registration
Statement on Form N-14 (File No. 333-132604) filed March 21,
2006.
(b) Code of Ethics for Delaware Investments (Delaware Management
Business Trust, Delaware Management Company and Delaware
Distributors, L.P.) (February 2006) incorporated by reference to
the Registration Statement on Form N-14 (File No. 333-132604)
filed March 21, 2006.
(c) Code of Ethics for Lincoln Financial Distributors, Inc. (December
2005) incorporated by reference to the Registration Statement on
Form N-14 (File No. 333-132604) filed March 21, 2006.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act, the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act,
each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
(3) The undersigned Registrant agrees to file by Post-Effective Amendment
the opinion and consent of counsel regarding the tax consequences of
the proposed reorganization required by Item 16(12) of Form N-14
within a reasonable time after receipt of such opinion.
SIGNATURES
As required by the Securities Act of 1933, as amended, (the "1933 Act"),
the Registration Statement has been signed on behalf of the Registrant in the
City of Philadelphia and the Commonwealth of Pennsylvania on this 28th day of
February, 2007.
DELAWARE GROUP TAX-FREE FUND
By: /s/ Patrick P. Coyne
Patrick P. Coyne
Chairman/President/Chief Executive Officer
As required by the 1933 Act, this Registration Statement has been signed by
the following persons in the capacities and on the dates indicated:
Signature Title Date
/s/ Patrick P. Coyne Chairman/President/Chief February 28, 2007
Patrick P. Coyne Exectutive Officer (Principal
Executive Officer) and Trustee
/s/ Thomas L. Bennett * Trustee February 28, 2007
Thomas L. Bennett
/s/ John A. Fry * Trustee February 28, 2007
John A. Fry
/s/ Anthony D. Knerr * Trustee February 28, 2007
Anthony D. Knerr
/s/ Lucinda S. Landreth * Trustee February 28, 2007
Lucinda S. Landreth
/s/ Ann R. Leven * Trustee February 28, 2007
Ann R. Leven
/s/ Thomas F. Madison * Trustee February 28, 2007
Thomas F. Madison
/s/ Janet L. Yeomans * Trustee February 28, 2007
Janet L. Yeomans
/s/ J. Richard Zecher * Trustee February 28, 2007
J. Richard Zecher
Richard Salus * Senior Vice President/Chief February 28, 2007
Richard Salus Financial Officer (Principal
Financial Officer)
*By: /s/ Patrick P. Coyne
Patrick P. Coyne
as Attorney-in-Fact for
each of the persons indicated
(Pursuant to Powers of Attorney previously filed)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
EXHIBITS
TO
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INDEX TO EXHIBITS
(Delaware Group Tax-Free Fund)
Exhibit No. Exhibit
- --------------------------------------------------------------------------------
EX-99.7.a.ii Executed Third Amended and Restated Financial Intermediary
Distribution Agreement (January 1, 2007) between Lincoln
Financial Distributors, Inc. and Delaware Distributors, L.P. on
behalf of the Registrant
EX-99.11.a Opinion and Consent of Counsel (February 2007) relating to the
Registrant
EX-99.13.a.i Executed Schedule B (December 1, 2006) to the Shareholder
Services Agreement
EX-99.13.b.i Executed Amendment No. 32 (January 9, 2007) to Schedule A to the
Delaware Investments Family of Funds Fund Accounting Agreement
EX-99.13.c Form of Investment Advisory Expense Limitation Letter (February
2007) between Delaware Management Company (a series of Delaware
Management Business Trust) and the Registrant
EX-99.14.a Consent of Independent Registered Public Accounting Firm
(February 2007)
To vote by Telephone
(1) Read the Proxy Statement/Prospectus and have the Proxy card at hand.
(2) Call [1-866-xxx-xxxx].
(3) Follow the recorded instructions.
To vote by Internet
(1) Read the Proxy Statement/Prospectus and have the Proxy card at hand.
(2) Go to www.proxyweb.com.
(3) Follow the on-line instructions.
To vote by Mail
(1) Read the Proxy Statement/Prospectus.
(2) Check the appropriate box on the reverse side.
(3) Sign, date and return the Proxy card in the envelope provided.
UNLESS YOU'RE VOTING BY TELEPHONE OR INTERNET, PLEASE SIGN, DATE AND RETURN
PROMPTLY IN THE RETURN ENVELOPE. NO POSTAGE IS REQUIRED.
DELAWARE TAX-FREE FLORIDA INSURED FUND (THE "FUND")
a series of Delaware Investments Municipal Trust (the "Trust")
MEETING OF SHAREHOLDERS - June 21, 2007
PROXY SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST
The undersigned, revoking previous proxies, hereby appoint(s) A.G. Ciavarelli,
David F. Connor and Kathryn R. Williams, or any of them, attorneys with full
power of substitution, to vote all shares of the Fund, as indicated below, that
the undersigned is entitled to vote at the above stated Meeting of Shareholders
to be held at the offices of Delaware Investments located at 2001 Market Street,
2nd Floor Auditorium, Philadelphia, PA 19103-7055 on June 21, 2007 at [3:00]
p.m., Eastern Time, and at any adjournments thereof. All powers may be exercised
by two or more of said proxy holders or substitutes voting or acting or, if only
one votes and acts, then by that one. This proxy shall be voted on the proposal
described in the Proxy Statement/Prospectus as specified on the reverse side.
Receipt of the Notice of Meeting and the accompanying Proxy Statement/Prospectus
is hereby acknowledged.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES WITH RESPECT TO THE
FUND. THE FOLLOWING MATTER IS PROPOSED BY THE FUND. THE BOARD OF TRUSTEES
RECOMMENDS A VOTE FOR THE PROPOSAL. IF NO SPECIFICATION IS MADE AND THIS PROXY
IS SIGNED AND RETURNED, THE PROXY SHALL BE VOTED FOR THE PROPOSAL. PLEASE REFER
TO THE PROXY STATEMENT/PROSPECTUS FOR A DISCUSSION OF THE PROPOSAL. IF OTHER
MATTERS PROPERLY COME BEFORE THE MEETING TO BE VOTED ON, THE SHARES REPRESENTED
BY THE PROXY HOLDERS WILL BE VOTED AND CONSENTED ON THOSE MATTERS IN ACCORDANCE
WITH THE VIEWS OF MANAGEMENT.
Date: __________________, 2007
[GRAPHIC OMITTED]
Signature(s) (Joint Owners) (Please sign within box)
THIS PROXY CARD IS ONLY VALID WHEN SIGNED: To avoid the additional expense to
the Fund of further solicitation, please date and sign name(s) above as printed
on this card to authorize the voting of your shares as indicated. Where shares
are registered with joint owners, only one joint owner need sign. Persons
signing as executor, administrator, trustee or other representative should give
full title as such.
PLEASE FILL IN BOX AS SHOWN USING BLACK OR BLUE INK OR NUMBER 2 PENCIL. PLEASE
DO NOT USE FINE POINT PENS. [X]
Proposal: For Against Abstain
1. To approve an Agreement and Plan of Reorganization between Delaware
Investments Municipal Trust, on behalf of the Delaware Tax-Free Florida [ ] [ ] [ ]
Insured Fund (the "Acquired Fund"), and Delaware Group Tax-Free Fund, on
behalf of the Delaware Tax-Free USA Fund (the "Acquiring Fund"), which
provides for: (i) the acquisition by the Acquiring Fund of substantially all
of the assets of the Acquired Fund, in exchange for shares of the Acquiring
Fund; (ii) the pro rata distribution of shares of the Acquiring Fund to the
shareholders of the Acquired Fund; and (iii) the liquidation and dissolution
of the Acquired Fund.
2. To vote upon any other business as may properly come before the Meeting or
any adjournment thereof.
PLEASE SIGN AND DATE ON THE REVERSE SIDE.
YOUR VOTE IS IMPORTANT - PLEASE ACT TODAY.
