UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
| Investment Company Act file number: | 811-03910 |
| Exact name of registrant as specified in charter: | Voyageur Tax Free Funds |
| Address of principal executive offices: | 2005 Market Street |
| Philadelphia, PA 19103 | |
| Name and address of agent for service: | David F. Connor, Esq. |
| 2005 Market Street | |
| Philadelphia, PA 19103 | |
| Registrant’s telephone number, including area code: | (800) 523-1918 |
| Date of fiscal year end: | August 31 |
| Date of reporting period: | August 31, 2008 |
Item 1. Reports to Stockholders
 |  |
| Annual report | |
Delaware Tax-Free Minnesota Fund | |
| Delaware Tax-Free Minnesota Intermediate Fund | |
| Delaware Minnesota High-Yield Municipal Bond Fund | |
| August 31, 2008 | |
| Fixed income mutual funds |
Table of contents
| Portfolio management review | 1 |
| Performance summaries | 8 |
| Disclosure of Fund expenses | 18 |
| Sector allocations and credit quality breakdowns | 21 |
| Statements of net assets | 24 |
| Statements of operations | 54 |
| Statements of changes in net assets | 56 |
| Financial highlights | 62 |
| Notes to financial statements | 80 |
| Report of independent registered public accounting firm | 94 |
| Other Fund information | 95 |
| Board of trustees/directors and officers addendum | 102 |
| About the organization | 110 |
Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management
Business Trust, which is a registered investment advisor.
© 2008 Delaware Distributors, L.P.
All third-party trademarks cited are the property of their respective owners.
| Portfolio management review | |
| Delaware Minnesota Municipal Bond Funds | Sept. 9, 2008 |
The managers of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Intermediate Fund, and Delaware Minnesota High-Yield Municipal Fund provided the answers to the questions below as a review of the Funds’ activities for the fiscal year that ended Aug. 31, 2008. Bonds mentioned throughout the portfolio management review are rated by either Moody’s or Standard & Poor’s unless otherwise noted.
What was the market environment for tax-free investments during the fiscal year ended Aug. 31, 2008?
The annual period presented an extraordinarily difficult investment environment. The fiscal year began with a credit crisis triggered by a deepening slump in U.S. home prices coupled with a rising rate of home foreclosures. During the year, the crisis evolved through several stages. It impacted all facets of the fixed income markets, including investment grade credit, high-yield bonds, bank loans, mortgages, and municipal bonds. Within the municipal bond market, several events outlined below had major ramifications for portions of the market, specifically monoline insured bonds and auction rate securities.
The first phase of the crisis began just prior to Aug. 31, 2007, but its initial impact on the municipal market was related to liquidity — or the degree to which securities can be converted to cash — rather than credit. Investment banks were in the midst of their first round of asset write-downs and as a result, their ability to deploy capital was constrained. Many dealers held back inventory positions and were less willing to inject liquidity into the municipal market.
However, what began as a liquidity issue early during the period, evolved into a full-blown credit crisis in November. Concerns grew stronger regarding credit ratings of the monoline insurers, the companies that underwrite insurance for much of the debt that municipalities issue. In recent years, these insurance companies have sought faster growth by insuring new and different types of investments, including the structured investment vehicles that many believe to be at the root of the credit crisis. At that time, several AAA-rated insurance providers were warned by the ratings agencies that they may be required to increase their capital levels to maintain top-tier ratings. The fears surrounding insurer credit ratings increased outflows from the municipal bond market. We believe the credit warnings prompted already wary municipal bond investors to reevaluate credit ratings on what many had considered to be safe investments.
Early 2008 brought another round of bad news for municipal bond investors, triggered by downgrades of several bond insurers from their valued AAA-rated status. These downgrades set off an unwinding of tender option bonds and disrupted the auction process for auction rate securities (ARS), which led to a complete breakdown of the $1 billion-plus ARS market. Tender option bonds are complicated synthetic derivatives that allow owners to borrow at a short-term rate and reinvest the proceeds in higher-yielding, longer-term bonds. Auction rate securities are long-term securities for which the interest rate is reset at frequent auctions, typically held every 35 days or more often.
Failed auctions, or those at which there were not enough buyers willing to purchase the number of shares sold, made headlines during the period. The failures forced investors, who may have originally viewed the auction process as a source of short-term liquidity, into holding
The views expressed are current as of the date of this report and are subject to change.
Data for this portfolio management review were provided by Bloomberg unless otherwise noted.
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Portfolio management review
Delaware Minnesota Municipal Bond Funds
the long-term bond instead. The fears stoked by these issues created further havoc in an already beaten-down municipal bond market.
During the summer of 2008, the fixed income markets experienced a brief period in which investors seemed to focus once again on economic fundamentals — in this case, the battle between heightened inflation expectations on one hand and deteriorating economic conditions on the other. The inflation fears were driven by spiking commodity prices, oil in particular. The crumbling housing market and weak employment data were the key statistics on the slow growth side. However, the respite was interrupted by another round of financial institution write-downs and further credit downgrades of the monoline insurers. The markets refocused on the credit crisis. More and more, insured municipal bonds began to trade based upon the underlying issuer’s credit rating, not the credit rating that the insurance would have warranted at one time.
On the bright side, retail investors have consistently been strong buyers of tax-exempt bonds. Flows into tax-exempt municipal bond funds were strong, particularly during calendar 2008. Based on data collected weekly by AMG Data Services, municipal bond funds received positive flows in all but two weeks between January and the end of August, and often the flows were in excess of $500 million. (Source: Merrill Lynch.)
What other factors have influenced the municipal bond market or your strategy?
Throughout the year, we remained true to our overall investment strategy, which is to focus on income generated through a bottom-up, security-by-security selection process, utilizing our strengths in credit and trading. At the same time, we focused on balancing our core investment philosophy with a tactical positioning of our investment portfolios, given the tenuous credit environment.
We trimmed holdings with 20 or more years to maturity in favor of a greater investment in bonds with 2- to 10-year maturities. As gauged by the returns of the Lehman Brothers Municipal Bond Index, bonds with 2- to 10-year maturities outperformed the long-maturity end of the yield curve for the fiscal year. (At its most basic, a yield curve is a simple graph that depicts the interest rates of bonds that are of equal quality but have different maturity dates.)
We also increased our exposure to refunded bonds, also known as pre-refunded bonds, during the year. Pre-refunded bonds were among the better-performing bonds within the municipal market. They face less credit risk than most bond issues because they are backed by the proceeds of the second bond issue, which typically consists of U.S. Treasury securities.
The municipal market underwent some shifts during the period as a result of the credit events we described. First, the monoline insurers covered fewer new issues. The number of insured bonds, which had hovered at about 50% of all new issues for the last 10 years, declined to less than 10% of new issuance during the final months of the period, according to Citigroup Global Markets. This shift resulted in a more normalized municipal market, with more bonds trading based on their individual credit metrics, not the AAA rating of their former insurers.
A second shift involved the mix of buyers supporting the market. Traditional players, including retail — direct and via mutual funds — and property and casualty insurers,
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once again seemed to be the most active participants. Nontraditional municipal bond buyers, such as dealer arbitrage desks, began to play a diminished role as the liquidity squeeze constrained their capital. But even in a lesser role, these buyers affected the market. Periodically, when municipals were particularly cheap relative to Treasury bonds, the market received an active bid from these traders, which drove prices higher.
Broadly speaking, the troubles that plagued the monoline insurers during the year have impacted credit spreads. Historically, bonds that would have been rated A and BBB on their own had usually come to market with higher ratings because they had been covered by high-quality insurance. Now, as the vast majority of bonds are not insured, the supply of these mid- and low-investment grade bonds has expanded and spreads have widened. While the transition has been difficult, we believe the resulting market environment should favor our investment style. Given our emphasis on research and relative-value trading, we believe that our funds are well-positioned for these new market dynamics.
What financial conditions prevailed in the Minnesota debt market?
We believe Minnesota has a fundamentally sound economy. The employment mix is similar to that of the nation, with a diverse mix of manufacturing, services, and trade. However, weaker labor markets, the housing slump, and accelerating foreclosure rates all indicate that the state’s economy is underperforming compared to its long-term trend. With significant exposure to the housing supply industry, the national housing slump is hitting Minnesota with a one-two punch (source: S&P). For the past three years the state has lagged the nation in employment growth and personal income growth, according to Moody’s. Unemployment levels have typically been one to two points below national averages. However, in recent quarters the state has recorded levels closer to the national average with the June 2008 unemployment rate of 5.3% compared to the national average of 5.6% reported by the U.S. Department of Labor. A revision to the economic outlook has resulted in the projection of lower revenues for the current and next bienniums. The legislature used reserves, one-time revenues, and expenditure cuts to close the $935 million deficit for the current biennium, according to the Minnesota Department of Finance.
Through the first seven months of 2008, national issuance declined 1.3% to total $259.8 billion. Minnesota issuance decreased 2.4% to total $4.2 billion, according to Bond Buyer.
Delaware Tax-Free Minnesota Fund
How did the Fund perform against its index benchmark?
For its fiscal year ended Aug. 31, 2008, Delaware Tax-Free Minnesota Fund returned +3.77% for Class A shares at net asset value and -0.88% at maximum offer price (both figures reflect all distributions reinvested). During the same period, the Fund’s benchmark, the Lehman Brothers Municipal Bond Index, returned +4.48%.
For the complete, annualized performance of Delaware Tax-Free Minnesota Fund, please see the table on page 8.
What affected Fund performance?
We employed tactical shifts in the Fund’s asset allocation throughout the year to adapt to the ongoing difficult conditions within the municipal bond markets. For example,
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Portfolio management review
Delaware Minnesota Municipal Bond Funds
we reduced by 8% the Fund’s exposure to securities on the longer end of the yield curve — 20 or more years to maturity. To a large extent, we replaced these holdings with shorter maturity bonds — typically those in the 4- to 6-year range.
On a sector basis, we increased our prerefunded holdings by 7%, which reflects bonds that were refinanced to take advantage of the lower-interest environment. Prerefunded bonds were among the better-performing bonds within the municipal market due to their low-risk profile. They face less credit risk than most bond issues because they are backed by the invested debt proceeds of a second bond issue, which typically consist of U.S. Treasury securities. Our position in healthcare bonds decreased from 25% to 12.2% as a result of net sales and refinancing. Any healthcare bonds we added were in the 10- to 15-year range.
The Fund’s best-performing bonds were refinanced during the fiscal year to take advantage of the lower-interest environment. Existing bondholders benefit from refinancing situations because the price of the securities after the refinancing reflects the improved credit standing. One example is a Duluth healthcare bond (due in 2023), which went from an A-rated bond secured by healthcare system revenues, to a bond to be called on its first call date (2014) and secured by escrowed U.S. government securities.
Underperformers included several housing bonds on the longer end of the yield curve. Despite their AA rating, they were negatively impacted by the Housing and Economic Recovery Act of 2008, which prompted greater issuance of housing bonds, thereby lowering bond prices. The bill also allowed for new housing bonds that were not subject to the alternative minimum tax (AMT). This had a further negative effect on the existing supply of housing bonds, which are subject to the AMT. A position of Minnesota Housing Finance Authority bond rated AA1/AA+ due in 2038 is an example.
Other under-performers included longer maturity bonds with lower credit ratings. For example, a nonrated St. Paul (Minnesota) Housing and Redevelopment Authority continuing care retirement community (CCRC) bond due in 2043 was one of the Fund’s weaker performers for the year.
Delaware Tax-Free Minnesota Intermediate Fund
How did the Fund perform against its index benchmark?
For its fiscal year ended Aug. 31, 2008, Delaware Tax-Free Minnesota Intermediate Fund returned +5.00% for Class A shares at net asset value and +2.11% at maximum offer price (both figures reflect all distributions reinvested). During the same period, the Fund’s benchmark, the Lehman Brothers Municipal Bond 3–15 Year Index, returned +5.94%.
For the complete, annualized performance of Delaware Tax-Free Minnesota Intermediate Fund, please see the table on page 11.
What affected Fund performance?
We employed modest tactical shifts in the Fund’s asset allocation throughout the year to adapt to ongoing difficult conditions within the municipal bond markets. For example, we reduced the Fund’s exposure to bonds in the
4
13- to 15-year range by 8%, largely reinvesting the proceeds in the 5- to 7-year range. We increased our high-grade holdings, which we define as AA and AAA, by 16%, while reducing mid- and low-rated investment holdings (A and BBB) by 14%. Because market conditions favored shorter maturities and higher-quality holdings during the fiscal year ended Aug. 31, 2008, our adjustments aided Fund performance.
On a sector basis, our position in healthcare bonds decreased by 12.5% as a result of net sales and refinancing. We increased our position in water and sewer bonds by almost 5%. Water and sewer bonds are considered a high-grade sector because of the essential nature of these services. An example of this type of bond is the Minnesota Public Facilities Authority Water Pollution bond rated AAA/AAA due to mature in 2014. Our position in prerefunded bonds also increased by 4% as a result of refinancing.
Among the top performers in the portfolio were bonds refinanced during the course of the year. One example is a St. Louis Park (Minnesota) Healthcare Revenue Bond due to mature in 2025, which was refinanced in October 2007. It went from an A-rated bond secured by healthcare system revenues, to a bond to be called in 2014 and secured by escrowed U.S. government securities. Intermediate high grade bonds, such as a University of Minnesota bond due in 2016 (rated AAA by Moody’s and AA by S&P) also contributed to performance.
Underperformers included several housing bonds on the longer end of the yield curve. Despite their AA rating, they were negatively impacted by the Housing and Economic Recovery Act of 2008, which prompted greater issuance of housing bonds, thereby lowering bond prices. The bill also allowed for new housing bonds that were not subject to the alternative minimum tax (AMT). This had a further negative effect on the existing supply of housing bonds, which are subject to the AMT. A position in Minnesota Housing Finance Authority bond rated AA1/AA+ due in 2028 is an example.
Delaware Minnesota High-Yield Municipal Bond Fund
How did the Fund perform against its index benchmark?
For its fiscal year ended Aug. 31, 2008, Delaware Minnesota High-Yield Municipal Bond Fund returned +2.35% for Class A shares at net asset value and -2.26% at maximum offer price (both figures reflect all distributions reinvested). During the same period, the Fund’s benchmark, the Lehman Brothers Municipal Bond Index, returned +4.48%. For the complete, annualized performance of Delaware Minnesota High-Yield Municipal Bond Fund, please see the table on page 14.
What affected Fund performance?
We employed tactical shifts in the Fund’s asset allocation throughout the year to adapt to ongoing difficult conditions within the municipal bond markets. For example, we reduced by 17% the Fund’s exposure to securities on the longer end of the yield curve — 20 or more years to maturity. To a large extent, we replaced these holdings with shorter maturity bonds — typically those in the 4- to 10-year range.
5
Portfolio management review
Delaware Minnesota Municipal Bond Funds
We increased our holdings in high investment grade bonds (AA and AAA) by 10%. These additions were largely in the intermediate range. An example of this type of purchase is a Minnesota Public Facilities Authority Water Pollution bond rated AAA/AAA by Moody’s and due in 2018.
On a sector basis, our healthcare holdings were reduced by 10% as a result of net sales and refinancing. We increased our position in water and sewer bonds by more than 4%. An example of this type of bond is the Minnesota Clean Water Revenue bond discussed in the previous paragraph. Our position in prerefunded bonds also increased by 3.5% as a result of refinancing.
The portfolio’s top performers were bonds that were refinanced during the year. One example is a Duluth healthcare bond due in 2033, that went from being an A-rated bond, secured by healthcare system revenues, to a bond due to be retired on its first call date (2014) and secured by escrowed U.S. government securities.
Underperformers included housing bonds on the longer end of the yield curve. Despite their AA rating, they were negatively impacted by the Housing and Economic Recovery Act of 2008 bill, which prompted greater issuance of housing bonds, thereby lowering bond prices. The bill also allowed for new housing bonds that were not subject to the alternative minimum tax (AMT). This had a further negative effect on the existing supply of housing bonds, which are subject to the AMT. A position of Minnesota Housing Finance Authority bond rated AA1/AA+ due in 2037 is an example.
Other under-performers included longer maturity bonds with lower credit ratings. For example, a nonrated St. Paul (Minnesota) Housing and Redevelopment Authority for a continuing care retirement community (CCRC) bond due in 2043 was one of the Fund’s weaker performers for the year.
| Fund basics | |||||
| Delaware Tax-Free Minnesota Fund | As of Aug. 31, 2008 | ||||
| Fund objective: | The Fund seeks as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, as is consistent with preservation of capital. | ||||
| Total Fund net assets: | $614 million | ||||
| Number of holdings: | 197 | ||||
| Fund start date: | Feb. 27, 1984 | ||||
| Nasdaq symbols | CUSIPs | ||||
| Class A | DEFFX | 928918101 | |||
| Class B | DMOBX | 928928696 | |||
| Class C | DMOCX | 928918408 | |||
6
| Fund basics | |||||
| Delaware Tax-Free Minnesota Intermediate Fund | As of Aug. 31, 2008 | ||||
| Fund objective: | The Fund seeks to provide investors with preservation of capital and, secondarily, current income exempt from federal income tax and the Minnesota state personal income tax, but maintaining a dollar-weighted average effective portfolio maturity of 10 years or less. | ||||
| Total Fund net assets: | $66 million | ||||
| Number of holdings: | 62 | ||||
| Fund start date: | Oct. 27, 1985 | ||||
| Nasdaq symbols | CUSIPs | ||||
| Class A | DXCCX | 928930106 | |||
| Class B | DVSBX | 928928399 | |||
| Class C | DVSCX | 928930205 | |||
| Delaware Minnesota High-Yield Bond Fund | As of Aug. 31, 2008 | ||||
| Fund objective: | The Fund seeks as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, primarily through investment in medium- and lower-grade municipal obligations. | ||||
| Total Fund net assets: | $152 million | ||||
| Number of holdings: | 129 | ||||
| Fund start date: | June 4, 1996 | ||||
| Nasdaq symbols | CUSIPs | ||||
| Class A | DVMHX | 928928316 | |||
| Class B | DVMYX | 928928290 | |||
| Class C | DVMMX | 928928282 | |||
7
| Performance summaries | |
| Delaware Tax-Free Minnesota Fund | Aug. 31, 2008 |
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
You should consider the investment objectives, risks, charges, and expenses of the investment company carefully before investing. The Delaware Tax-Free Minnesota Fund prospectus contains this and other important information about the investment company. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com. Read the prospectus carefully before you invest or send money.
A rise or fall in interest rates can have a significant impact on bond prices and the net asset value (NAV) of the Fund. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal.
| Fund performance | Average annual total returns through Aug. 31, 2008 | ||||||
| 1 year | 5 years | 10 years | Lifetime | ||||
| Class A (Est. Feb. 27, 1984) | |||||||
| Excluding sales charge | +3.77% | +4.37% | +4.33% | +7.05% | |||
| Including sales charge | -0.88% | +3.41% | +3.85% | +6.85% | |||
| Class B (Est. March 11, 1995) | |||||||
| Excluding sales charge | +2.99% | +3.59% | +3.69% | +4.83% | |||
| Including sales charge | -0.99% | +3.33% | +3.69% | +4.83% | |||
| Class C (Est. May 4, 1994) | |||||||
| Excluding sales charge | +3.06% | +3.60% | +3.56% | +4.49% | |||
| Including sales charge | +2.07% | +3.60% | +3.56% | +4.49% | |||
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted in the following paragraphs.
Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
An expense limitation was in effect for all classes during the periods shown in the Fund performance chart above and in the Performance of a $10,000 Investment chart on page 10. The current expenses for each class are listed on the chart on the next page. Performance would have been lower had the expense limitation not been in effect.
The Fund offers Class A, B, and C shares. Class A shares are sold with a maximum front-end sales charge of up to 4.50%, and have an annual distribution and service fee of up to 0.25% of average daily net assets.
Class B shares may only be purchased through dividend reinvestment and certain permitted exchanges as described in the prospectus. Deferred sales charge that declines from 4.00% to zero depending on the period of time the shares are held. Class B shares will
8
automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of up to 1.00% of average daily net assets.
Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after eight years.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets. Please see the prospectus for additional information on Class B purchase and sales charges.
Please see the fee table in the prospectus and your financial professional for a more complete explanation of sales charges.
The performance table on the previous page and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Substantially all dividend income derived from tax-free funds is exempt from federal income tax. Some income may be subject to the federal alternative minimum tax that applies to certain investors. Capital gains, if any, are taxable.
Funds that invest primarily in a specific state may be more susceptible to the economic, regulatory, and other factors of that state than funds that invest more broadly.
The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the table below. Management has contracted to reimburse certain expenses and/or waive its management fees from Jan. 1, 2008, through Dec. 31, 2008. Please see the most recent prospectus for additional information on the fee waivers.
| Fund expense ratios | Class A | Class B | Class C | ||||||
| Total annual operating expenses | |||||||||
| (without fee waivers) | 1.24 | % | 1.99 | % | 1.99 | % | |||
| Net expense ratio | |||||||||
| (including fee waivers, if any)* | 1.22 | % | 1.97 | % | 1.97 | % | |||
| * The applicable fee waivers are discussed on pages 8 and 9. |
9
Performance summaries
Delaware Tax-Free Minnesota Fund
Performance of a $10,000 investment
Average annual returns from Aug. 31, 1998, through Aug. 31, 2008
| For period beginning Aug. 31, 1998, through Aug. 31, 2008 | Starting value | Ending value | ||
| Lehman Brothers Municipal Bond Index | $10,000 | $16,096 | ||
| Delaware Tax-Free Minnesota Fund — Class A shares | $9,550 | $14,576 | ||
The chart assumes $10,000 invested in the Fund on Aug. 31, 1998, and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Please see pages 8 and 9 for additional details on these fees.
Performance of other Fund classes will vary due to different charges and expenses.
The chart also assumes $10,000 invested in the Lehman Brothers Municipal Bond Index as of Aug. 31, 1998. The Lehman Brothers Municipal Bond Index measures the total return performance of the long-term, investment grade tax-exempt bond market.
An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index.
Past performance is not a guarantee of future results.
The chart does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares.
10
Delaware Tax-Free Minnesota Intermediate Fund | Aug. 31, 2008 |
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
You should consider the investment objectives, risks, charges, and expenses of the investment company carefully before investing. The Delaware Tax-Free Minnesota Intermediate Fund prospectus contains this and other important information about the investment company. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com. Read the prospectus carefully before you invest or send money.
A rise or fall in interest rates can have a significant impact on bond prices and the net asset value (NAV) of the Fund. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal.
| Fund performance | Average annual total returns through Aug. 31, 2008 | ||||||
| 1 year | 5 years | 10 years | Lifetime | ||||
| Class A (Est. Oct. 27, 1985) | |||||||
| Excluding sales charge | +5.00% | +4.20% | +4.09% | +5.25% | |||
| Including sales charge | +2.11% | +3.62% | +3.79% | +5.12% | |||
| Class B (Est. Aug. 15, 1995) | |||||||
| Excluding sales charge | +4.10% | +3.33% | +3.65% | +4.12% | |||
| Including sales charge | +2.10% | +3.33% | +3.65% | +4.12% | |||
| Class C (Est. May 4, 1994) | |||||||
| Excluding sales charge | +4.10% | +3.33% | +3.21% | +3.72% | |||
| Including sales charge | +3.10% | +3.33% | +3.21% | +3.72% | |||
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted in the following paragraphs.
Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
An expense limitation was in effect for all classes during the periods shown in the Fund performance chart above and in the Performance of a $10,000 investment chart on page 13. The current expenses for each class are listed on the chart on the next page. Performance would have been lower had the expense limitation not been in effect.
The Fund offers Class A, B, and C shares. Class A shares are sold with a maximum front-end sales charge of up to 2.75%, and have an annual distribution and service fee of up to 0.25% of average daily net assets, but such a fee is currently subject to a contractual cap of 0.15% of average daily net assets through Dec. 31, 2008.
11
Performance summaries
Delaware Tax-Free Minnesota Intermediate Fund
Class B shares may only be purchased through dividend reinvestment and certain permitted exchanges as described in the prospectus. Class B shares have a contingent deferred sales charge that declines from 2.00% to zero depending on the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately five years after purchase. They are also subject to an annual distribution and service fee of up to 1.00% of average daily net assets. Please see the prospectus for additional information on Class B purchase and sales charges.
Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after five years.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets.
Please see the fee table in the prospectus and your financial professional for a more complete explanation of sales charges.
The performance table on the previous page and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Substantially all dividend income derived from tax-free funds is exempt from federal income tax. Some income may be subject to the federal alternative minimum tax that applies to certain investors. Capital gains, if any, are taxable.
Funds that invest primarily in a specific state may be more susceptible to the economic, regulatory, and other factors of that state than funds that invest more broadly.
The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the table below. Management has contracted to reimburse certain expenses and/or waive its management fees from Jan. 1, 2008, through Dec. 31, 2008. Please see the most recent prospectus for additional information on the fee waivers.
| Fund expense ratios | Class A | Class B | Class C | ||||||
| Total annual operating expenses | |||||||||
| (without fee waivers) | 0.99 | % | 1.74 | % | 1.74 | % | |||
| Net expense ratio | |||||||||
| (including fee waivers, if any)* | 0.75 | % | 1.60 | % | 1.60 | % | |||
* The applicable fee waivers are discussed on pages 11 and 12. |
12
Performance of a $10,000 investment
Average annual returns from Aug. 31, 1998, through Aug. 31, 2008
| For period beginning Aug. 31, 1998, through Aug. 31, 2008 | Starting value | Ending value | ||
| Lehman Brothers Municipal Bond 3-15 Year Index | $10,000 | $16,082 | ||
| Delaware Tax-Free Minnesota Intermediate Fund — Class A shares | $9,725 | $14,511 | ||
The chart assumes $10,000 invested in the Fund on Aug. 31, 1998, and includes the effect of a 2.75% front-end sales charge and the reinvestment of all distributions. Please see pages 11 and 12 for additional details on these fees.
Performance of other Fund classes will vary due to different charges and expenses.
The chart also assumes $10,000 invested in the Lehman Brothers 3-15 Year Municipal Bond Index as of Aug. 31, 1998. The Lehman Brothers Municipal Bond 3-15 Year Index measures the total return performance of investment grade, U.S. tax-exempt bonds with maturities from 2 up to (but not including) 17 years.
An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index.
Past performance is not a guarantee of future results.
The chart does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
13
| Performance summaries | |
| Delaware Minnesota High-Yield Municipal Bond Fund | Aug. 31, 2008 |
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
You should consider the investment objectives, risks, charges, and expenses of the investment company carefully before investing. The Delaware Minnesota High-Yield Municipal Bond Fund prospectus contains this and other important information about the investment company. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com. Read the prospectus carefully before you invest or send money.
A rise or fall in interest rates can have a significant impact on bond prices and the net asset value (NAV) of the Fund. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal.
| Fund performance | Average annual total returns through Aug. 31, 2008 | ||||||
| 1 year | 5 years | 10 years | Lifetime | ||||
| Class A (Est. June 4, 1996) | |||||||
| Excluding sales charge | +2.35% | +4.68% | +4.40% | +5.39% | |||
| Including sales charge | -2.26% | +3.71% | +3.92% | +4.99% | |||
| Class B (Est. June 12, 1996) | |||||||
| Excluding sales charge | +1.58% | +3.87% | +3.77% | +5.07% | |||
| Including sales charge | -2.35% | +3.61% | +3.77% | +5.07% | |||
| Class C (Est. June 7, 1996) | |||||||
| Excluding sales charge | +1.58% | +3.89% | +3.63% | +4.62% | |||
| Including sales charge | +0.60% | +3.89% | +3.63% | +4.62% | |||
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted in the following paragraphs.
Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
An expense limitation was in effect for all classes during the periods shown in the Fund performance chart above and in the Performance of a $10,000 investment chart on page 16. The current expenses for each class are listed on the chart on page 15. Performance would have been lower had the expense limitation not been in effect.
The Fund offers Class A, B, and C shares. Class A shares are sold with a maximum front-end sales charge of up to 4.50%, and have an annual distribution and service fee of up to 0.25% of average daily net assets.
Class B shares may only be purchased through dividend reinvestment and certain permitted exchanges as described in the prospectus. Deferred sales charge that declines from 4.00% to zero depending on the period of time the shares are held. Class B shares will
14
automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of up to 1.00% of average daily net assets.
Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after eight years.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets. Please see the prospectus for additional information on Class B purchase and sales charges.
Please see the fee table in the prospectus and your financial professional for a more complete explanation of sales charges.
The performance table on the previous page and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
High yielding noninvestment grade bonds (junk bonds) involve higher risk than investment grade bonds. Adverse conditions may affect the issuer’s ability to pay interest and principal on these securities.
Substantially all dividend income derived from tax-free funds is exempt from federal income tax. Some income may be subject to the federal alternative minimum tax that applies to certain investors. Capital gains, if any, are taxable.
Funds that invest primarily in a specific state may be more susceptible to the economic, regulatory, and other factors of that state than funds that invest more broadly.
The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the table below. Management has contracted to reimburse certain expenses and/or waive its management fees from Jan. 1, 2008, through Dec. 31, 2008. Please see the most recent prospectus for additional information on the fee waivers.
| Fund expense ratios | Class A | Class B | Class C | ||||||
| Total annual operating expenses | |||||||||
| (without fee waivers) | 1.00 | % | 1.75 | % | 1.75 | % | |||
| Net expense ratio | |||||||||
| (including fee waivers, if any)* | 0.90 | % | 1.65 | % | 1.65 | % | |||
* The applicable fee waivers are discussed on pages 14 and 15. |
15
Performance summaries
Delaware Minnesota High-Yield Municipal Bond Fund
Performance of a $10,000 investment
Average annual returns from Aug. 31, 1998, through Aug. 31, 2008
| For period beginning Aug. 31, 1998, through Aug. 31, 2008 | Starting value | Ending value | ||
| Lehman Brothers Municipal Bond Index | $10,000 | $16,096 | ||
| Delaware Minnesota High-Yield Municipal Bond Fund — Class A shares | $9,550 | $14,682 | ||
The chart assumes $10,000 invested in the Fund on Aug. 31, 1998, and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Please see pages 14 and 15 for additional details on these fees.
Performance of other Fund classes will vary due to different charges and expenses.
The chart also assumes $10,000 invested in the Lehman Brothers Municipal Bond Index as of Aug. 31, 1998. The Lehman Brothers Municipal Bond Index measures the total return performance of the long-term, investment grade tax-exempt bond market.
An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index.
Past performance is not a guarantee of future results.
The chart does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
16
Disclosure of Fund expenses
For the period March 1, 2008 to August 31, 2008
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. These following examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2008 to August 31, 2008.
Actual expenses
The first section of the tables shown, “Actual Fund Return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The second section of the tables shown, “Hypothetical 5% Return,” provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Funds’ expenses shown in the tables reflect fee waivers in effect. The expenses shown in each table assume reinvestment of all dividends and distributions.
18
“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
Delaware Tax-Free Minnesota Fund
Expense analysis of an investment of $1,000
| Beginning | Ending | Expenses | |||||||
| Account Value | Account Value | Annualized | Paid During Period | ||||||
| 3/1/08 | 8/31/08 | Expense Ratio | 3/1/08 to 8/31/08 | ||||||
| Actual Fund return | |||||||||
| Class A | $1,000.00 | $1,045.20 | 1.11% | $5.71 | |||||
| Class B | 1,000.00 | 1,041.20 | 1.86% | 9.54 | |||||
| Class C | 1,000.00 | 1,041.10 | 1.86% | 9.54 | |||||
| Hypothetical 5% return (5% return before expenses) | |||||||||
| Class A | $1,000.00 | $1,019.56 | 1.11% | $5.63 | |||||
| Class B | 1,000.00 | 1,015.79 | 1.86% | 9.42 | |||||
| Class C | 1,000.00 | 1,015.79 | 1.86% | 9.42 | |||||
The expenses in the table above includes interest and related expenses which include, but are not limited to interest expense, remarketing fees, liquidity fees, and trustees’ fees in connection with the Fund’s participation in inverse floaters programs.
See Notes 1 and 7 in “Notes to financial statements.”
Delaware Tax-Free Minnesota Intermediate Fund
Expense analysis of an investment of $1,000
| Beginning | Ending | Expenses | |||||||
| Account Value | Account Value | Annualized | Paid During Period | ||||||
| 3/1/08 | 8/31/08 | Expense Ratio | 3/1/08 to 8/31/08 | ||||||
| Actual Fund return | |||||||||
| Class A | $1,000.00 | $1,036.30 | 0.75% | $3.84 | |||||
| Class B | 1,000.00 | 1,031.80 | 1.60% | 8.17 | |||||
| Class C | 1,000.00 | 1,031.80 | 1.60% | 8.17 | |||||
| Hypothetical 5% return (5% return before expenses) | |||||||||
| Class A | $1,000.00 | $1,021.37 | 0.75% | $3.81 | |||||
| Class B | 1,000.00 | 1,017.09 | 1.60% | 8.11 | |||||
| Class C | 1,000.00 | 1,017.09 | 1.60% | 8.11 | |||||
19
Disclosure of Fund expenses
Delaware Minnesota High-Yield Municipal Bond Fund
Expense analysis of an investment of $1,000
| Beginning | Ending | Expenses | |||||||
| Account Value | Account Value | Annualized | Paid During Period | ||||||
| 3/1/08 | 8/31/08 | Expense Ratio | 3/1/08 to 8/31/08 | ||||||
| Actual Fund return | |||||||||
| Class A | $1,000.00 | $1,054.60 | 0.89% | $4.60 | |||||
| Class B | 1,000.00 | 1,050.60 | 1.64% | 8.45 | |||||
| Class C | 1,000.00 | 1,050.50 | 1.64% | 8.45 | |||||
| Hypothetical 5% return (5% return before expenses) | |||||||||
| Class A | $1,000.00 | $1,020.66 | 0.89% | $4.52 | |||||
| Class B | 1,000.00 | 1,016.89 | 1.64% | 8.31 | |||||
| Class C | 1,000.00 | 1,016.89 | 1.64% | 8.31 | |||||
20
| Sector allocations and credit quality breakdowns | |
| As of August 31, 2008 | |
Sector designations may be different than the sector designations presented in other Fund materials.
Delaware Tax-Free Minnesota Fund
| Sector | Percentage of net assets | |
| Municipal Bonds | 101.34 | % |
| Corporate-Backed Revenue Bonds | 3.98 | % |
| Education Revenue Bonds | 7.57 | % |
| Electric Revenue Bonds | 8.08 | % |
| Escrowed to Maturity Bonds | 5.98 | % |
| Health Care Revenue Bonds | 12.15 | % |
| Housing Revenue Bonds | 6.15 | % |
| Lease Revenue Bonds | 3.41 | % |
| Local General Obligation Bonds | 21.76 | % |
| Pre-Refunded Bonds | 21.64 | % |
| Special Tax Revenue Bonds | 2.55 | % |
| State General Obligation Bonds | 5.31 | % |
| Transportation Revenue Bonds | 1.10 | % |
| Water & Sewer Revenue Bonds | 1.66 | % |
| Short-Term Investments | 0.35 | % |
| Money Market Instrument | 0.12 | % |
| Variable Rate Demand Notes | 0.23 | % |
| Total Value of Securities | 101.69 | % |
| Liabilities Net of Receivables and Other Assets | (1.69 | %) |
| Total Net Assets | 100.00 | % |
| Credit quality breakdown (as a % of fixed income investments) | ||
| AAA | 39.06 | % |
| AA | 26.11 | % |
| A | 16.52 | % |
| BBB | 10.51 | % |
| BB | 1.03 | % |
| Not Rated | 6.77 | % |
| Total | 100.00 | % |
21
Sector allocations and credit quality breakdowns
Sector designations may be different than the sector designations presented in other Fund materials.
Delaware Tax-Free Minnesota Intermediate Fund
| Sector | Percentage of net assets | |
| Municipal Bonds | 96.32 | % |
| Corporate-Backed Revenue Bonds | 2.57 | % |
| Education Revenue Bonds | 9.08 | % |
| Electric Revenue Bonds | 3.49 | % |
| Escrowed to Maturity Bond | 1.74 | % |
| Health Care Revenue Bonds | 12.24 | % |
| Housing Revenue Bonds | 7.28 | % |
| Lease Revenue Bonds | 2.84 | % |
| Local General Obligation Bonds | 26.00 | % |
| Pre-Refunded Bonds | 10.40 | % |
| Special Tax Revenue Bonds | 5.63 | % |
| State General Obligation Bonds | 8.56 | % |
| Transportation Revenue Bonds | 1.97 | % |
| Water & Sewer Revenue Bonds | 4.52 | % |
| Short-Term Investments | 3.87 | % |
| Money Market Instrument | 1.76 | % |
| Variable Rate Demand Note | 2.11 | % |
| Total Value of Securities | 100.19 | % |
| Liabilities Net of Receivables and Other Assets | (0.19 | %) |
| Total Net Assets | 100.00 | % |
| Credit quality breakdown (as a % of fixed income investments) | ||
| AAA | 40.09 | % |
| AA | 27.71 | % |
| A | 14.04 | % |
| BBB | 10.68 | % |
| Not Rated | 7.48 | % |
| Total | 100.00 | % |
22
Delaware Minnesota High-Yield Municipal Bond Fund
| Sector | Percentage of net assets | |
| Municipal Bonds | 96.22 | % |
| Corporate-Backed Revenue Bonds | 3.14 | % |
| Education Revenue Bonds | 7.80 | % |
| Electric Revenue Bonds | 6.85 | % |
| Health Care Revenue Bonds | 25.98 | % |
| Housing Revenue Bonds | 12.81 | % |
| Lease Revenue Bonds | 1.76 | % |
| Local General Obligation Bonds | 10.32 | % |
| Pre-Refunded Bonds | 11.97 | % |
| Special Tax Revenue Bonds | 5.35 | % |
| State General Obligation Bonds | 4.78 | % |
| Transportation Revenue Bond | 1.32 | % |
| Water & Sewer Revenue Bonds | 4.14 | % |
| Short-Term Investments | 4.92 | % |
| Money Market Instrument | 1.69 | % |
| Variable Rate Demand Notes | 3.23 | % |
| Total Value of Securities | 101.14 | % |
| Liabilities Net of Receivables and Other Assets | (1.14 | %) |
| Total Net Assets | 100.00 | % |
| Credit quality breakdown (as a % of fixed income investments) | ||
| AAA | 21.49 | % |
| AA | 21.72 | % |
| A | 23.41 | % |
| BBB | 15.12 | % |
| BB | 1.09 | % |
| Not Rated | 17.17 | % |
| Total | 100.00 | % |
23
| Statements of net assets | |
| Delaware Tax-Free Minnesota Fund | August 31, 2008 |
| Principal amount | Value | |||||
| Municipal Bonds – 101.34% | ||||||
| Corporate-Backed Revenue Bonds – 3.98% | ||||||
| Cloquet Pollution Control Revenue Refunding | ||||||
| (Potlatch Project) 5.90% 10/1/26 | $ | 6,500,000 | $ | 6,184,230 | ||
| Laurentian Energy Authority I Cogeneration Revenue | ||||||
| Series A 5.00% 12/1/21 | 8,000,000 | 7,430,480 | ||||
| Sartell Environmental Improvement Revenue Refunding | ||||||
| (International Paper) Series A 5.20% 6/1/27 | 7,265,000 | 6,307,836 | ||||
| Seaway Port Authority of Duluth Industrial | ||||||
| Development Dock & Wharf Revenues Refunding | ||||||
| (Cargill Project) Series E 6.125% 11/1/14 | 4,500,000 | 4,513,905 | ||||
| 24,436,451 | ||||||
| Education Revenue Bonds – 7.57% | ||||||
| Minnesota Higher Education Facilities Authority | ||||||
| Revenue (Augsburg College) | ||||||
| Series 6-C 5.00% 5/1/20 | 1,250,000 | 1,217,575 | ||||
| Series 6-J1 5.00% 5/1/36 | 2,225,000 | 1,986,614 | ||||
| Minnesota State Colleges & Universities Revenue Fund | ||||||
| Series A | ||||||
| 5.00% 10/1/22 (FSA) | 5,135,000 | 5,297,985 | ||||
| 5.00% 10/1/28 | 8,900,000 | 9,220,755 | ||||
| 5.00% 10/1/29 (MBIA) | 5,665,000 | 5,790,197 | ||||
| Minnesota State Higher Education Facilities Authority | ||||||
| Revenue (St. Catherine College) Series 5-N1 | ||||||
| 5.00% 10/1/18 | 2,200,000 | 2,191,288 | ||||
| 5.25% 10/1/22 | 1,500,000 | 1,473,570 | ||||
| 5.375% 10/1/32 | 1,000,000 | 958,910 | ||||
| St. Cloud Housing & Redevelopment Authority Revenue | ||||||
| (State University Foundation Project) 5.00% 5/1/23 | 2,000,000 | 2,042,200 | ||||
| University of Minnesota | ||||||
| &15.50% 7/1/21 | 10,500,000 | 11,875,920 | ||||
| &25.75% 7/1/18 | 3,840,000 | 4,465,114 | ||||
| 46,520,128 | ||||||
| Electric Revenue Bonds – 8.08% | ||||||
| Chaska Electric Revenue Refunding | ||||||
| (Generating Facilities) Series A 5.00% 10/1/30 | 3,000,000 | 2,972,160 | ||||
| Minnesota State Municipal Power Agency Electric Revenue | ||||||
| 5.00% 10/1/35 | 3,000,000 | 2,892,090 | ||||
| Series A 5.00% 10/1/34 | 6,250,000 | 6,029,063 | ||||
| Series A 5.125% 10/1/29 | 3,000,000 | 3,008,400 | ||||
24
| Principal amount | Value | |||||
| Municipal Bonds (continued) | ||||||
| Electric Revenue Bonds (continued) | ||||||
| Northern Municipal Power Agency Electric System Revenue | ||||||
| ^Capital Appreciation Series A 5.85% 1/1/09 (AMBAC) | $ | 3,815,000 | $ | 3,784,213 | ||
| Refunding Series B 4.75% 1/1/20 (AMBAC) | 2,500,000 | 2,512,900 | ||||
| Series 32 5.25% 1/1/13 (FSA) | 8,000,000 | 8,225,600 | ||||
| Puerto Rico Electric Power Authority Power Revenue | ||||||
| Refunding Series GG 4.75% 7/1/21 (FSA) | 1,000,000 | 1,006,320 | ||||
| Shakopee Public Utilities Commission Revenue | ||||||
| 5.125% 2/1/26-09 (MBIA) | 2,850,000 | 2,887,592 | ||||
| Southern Minnesota Municipal Power Agency Supply | ||||||
| System Revenue | ||||||
| &35.25% 1/1/14 (AMBAC) | 4,000,000 | 4,344,100 | ||||
| &45.25% 1/1/15 (AMBAC) | 5,900,000 | 6,436,605 | ||||
| ^Capital Appreciation 4.44% 1/1/25 (MBIA) | 5,000,000 | 2,252,650 | ||||
| Series A 5.25% 1/1/15 (AMBAC) | 3,000,000 | 3,272,850 | ||||
| 49,624,543 | ||||||
| Escrowed to Maturity Bonds – 5.98% | ||||||
| Dakota - Washington Counties Housing & | ||||||
| Redevelopment Authority Single Family | ||||||
| Residential Mortgage Revenue | ||||||
| 8.15% 9/1/16 (MBIA) (GNMA) | 405,000 | 516,837 | ||||
| (Anoka) 8.45% 9/1/19 (GNMA) (AMT) | 9,000,000 | 12,032,910 | ||||
| (Bloomington Mortgage) Refunding Series B | ||||||
| 8.375% 9/1/21 (GNMA) (FHA) (VA) (AMT) | 14,115,000 | 18,961,384 | ||||
| Southern Minnesota Municipal Power Agency Supply | ||||||
| System Revenue Refunding Series B | ||||||
| 5.50% 1/1/15 (AMBAC) | 990,000 | 1,045,569 | ||||
| University of Minnesota Series A 5.50% 7/1/21 | 2,000,000 | 2,262,040 | ||||
| Western Minnesota Municipal Power Agency Supply | ||||||
| Revenue Series A | ||||||
| 6.60% 1/1/10 | 900,000 | 932,535 | ||||
| 9.75% 1/1/16 (MBIA) | 715,000 | 982,625 | ||||
| 36,733,900 | ||||||
| Health Care Revenue Bonds – 12.15% | ||||||
| Aitkin Health Care Facilities Revenue Refunding | ||||||
| (Riverwood Health Care Center) 5.60% 2/1/32 | 1,500,000 | 1,383,420 | ||||
| Apple Valley Economic Development Authority Health | ||||||
| Care Revenue (Augustana Home St. Paul Project) | ||||||
| Series A 6.00% 1/1/40 | 2,700,000 | 2,598,480 | ||||
25
Statements of net assets
Delaware Tax-Free Minnesota Fund
| Principal amount | Value | |||||
| Municipal Bonds (continued) | ||||||
| Health Care Revenue Bonds (continued) | ||||||
| Bemidji Health Care Facilities First Mortgage Revenue | ||||||
| (North Country Health Services) | ||||||
| 5.00% 9/1/24 (RADIAN) | $ | 740,000 | $ | 727,205 | ||
| Bloomington Housing & Redevelopment Authority | ||||||
| Revenue (Senior Summerhouse Bloomington) | ||||||
| 6.125% 5/1/35 | 3,420,000 | 3,421,129 | ||||
| Breckenridge Catholic Health Initiatives | ||||||
| Series A 5.00% 5/1/30 | 2,500,000 | 2,448,000 | ||||
| Maple Grove Health Care Facilities Revenue | ||||||
| (North Memorial Health Care) 5.00% 9/1/29 | 1,000,000 | 950,470 | ||||
| Maple Grove Health Care System Revenue | ||||||
| (Maple Grove Hospital) 5.25% 5/1/37 | 4,000,000 | 3,746,920 | ||||
| Minneapolis Health Care Facility Revenue | ||||||
| (Jones-Harrison Residence Project) 5.60% 10/1/30 | 1,550,000 | 1,370,185 | ||||
| Minneapolis Health Care System Revenue | ||||||
| (Fairview Health Services) Series D | ||||||
| 5.00% 11/15/30 (AMBAC) | 2,500,000 | 2,434,400 | ||||
| 5.00% 11/15/34 (AMBAC) | 10,750,000 | 10,354,077 | ||||
| Minneapolis - St. Paul Housing & Redevelopment | ||||||
| Authority Health Care System Revenue | ||||||
| (Health Partners Obligation Group Project) | ||||||
| 5.625% 12/1/22 | 650,000 | 648,421 | ||||
| 5.875% 12/1/29 | 1,000,000 | 996,050 | ||||
| Minnesota Agricultural & Economic Development | ||||||
| Board Revenue | ||||||
| (Benedictine Health Systems) 5.75% 2/1/29 | 1,895,000 | 1,722,536 | ||||
| (Fairview Health Care System) | ||||||
| Un-Refunded Balance Series A | ||||||
| 5.75% 11/15/26 (MBIA) | 180,000 | 183,886 | ||||
| 6.375% 11/15/29 | 15,000 | 15,476 | ||||
| Northfield Hospital Revenue 5.375% 11/1/26 | 3,785,000 | 3,602,601 | ||||
| Shakopee Health Care Facilities Revenue (St. Francis | ||||||
| Regional Medical Center) | ||||||
| 5.10% 9/1/25 | 2,000,000 | 1,890,600 | ||||
| 5.25% 9/1/34 | 7,000,000 | 6,355,720 | ||||
| Sherburne County Health Care Facilities Revenue | ||||||
| (Guardian Angels Health Services) 5.55% 10/1/36 | 1,500,000 | 1,300,635 | ||||
26
| Principal amount | Value | |||||
| Municipal Bonds (continued) | ||||||
| Health Care Revenue Bonds (continued) | ||||||
| St. Louis Park Health Care Facilities Revenue Refunding | ||||||
| (Park Nicollet Health Services) | ||||||
| Series C 5.50% 7/1/23 | $ | 3,000,000 | $ | 3,016,740 | ||
| St. Paul Housing & Redevelopment Authority Health | ||||||
| Care Facilities Revenue | ||||||
| (Allina Health System) Series A 5.00% 11/15/18 (MBIA) | 5,720,000 | 6,010,862 | ||||
| (Health Partners Obligation Group Project) | ||||||
| 5.25% 5/15/36 | 7,900,000 | 7,064,574 | ||||
| St. Paul Housing & Redevelopment Authority Hospital | ||||||
| Revenue (Health East Project) | ||||||
| 6.00% 11/15/35 | 4,340,000 | 4,245,605 | ||||
| Series A 5.70% 11/1/15 | 1,300,000 | 1,305,980 | ||||
| St. Paul Housing & Redevelopment Authority | ||||||
| Multifamily Housing Revenue Refunding | ||||||
| (Marion Center Project) Series A | ||||||
| 5.30% 11/1/30 | 500,000 | 421,480 | ||||
| 5.375% 5/1/43 | 500,000 | 405,480 | ||||
| Stillwater Health Care Revenue (Health System | ||||||
| Obligation Group) 5.00% 6/1/35 | 1,000,000 | 908,220 | ||||
| Washington County Housing & Redevelopment | ||||||
| Authority Revenue (Health East Project) | ||||||
| 5.50% 11/15/27 | 1,000,000 | 933,080 | ||||
| Willmar (Rice Memorial Hospital Project) | ||||||
| 5.00% 2/1/22 (FSA) | 1,000,000 | 1,040,710 | ||||
| 5.00% 2/1/25 (FSA) | 1,000,000 | 1,027,070 | ||||
| Woodbury Economic Development Authority Housing | ||||||
| Revenue (Senior Summerhouse Woodbury Project) | ||||||
| Series B 5.75% 6/1/41 | 2,250,000 | 2,057,400 | ||||
| 74,587,412 | ||||||
| Housing Revenue Bonds – 6.15% | ||||||
| Brooklyn Center Multifamily Housing Revenue | ||||||
| Refunding (Shingle Creek) | ||||||
| 5.40% 5/20/43 (GNMA) (AMT) | 1,000,000 | 902,030 | ||||
| Dakota County Housing & Redevelopment Authority | ||||||
| Single Family Mortgage Revenue 5.85% 10/1/30 | ||||||
| (GNMA) (FNMA) (AMT) | 134,000 | 131,969 | ||||
| @Hutchinson Multifamily Housing Revenue (Evergreen | ||||||
| Apartments Project) 5.75% 11/1/28 (HUD Section 8) | 805,000 | 718,124 | ||||
27
Statements of net assets
Delaware Tax-Free Minnesota Fund
| Principal amount | Value | |||||
| Municipal Bonds (continued) | ||||||
| Housing Revenue Bonds (continued) | ||||||
| Minneapolis Multifamily Housing Revenue | ||||||
| (Bottineau Commons Project) | ||||||
| 5.45% 4/20/43 (GNMA) (AMT) | $ | 1,500,000 | $ | 1,384,200 | ||
| (Grant Street Apartments Project) | ||||||
| Refunding Series A 7.25% 11/1/29 | 750,000 | 767,085 | ||||
| (Seward Towers Project) 5.00% 5/20/36 (GNMA) | 8,000,000 | 7,564,001 | ||||
| (Sumner Field) Series A 5.50% 11/20/26 (GNMA) (AMT) | 935,000 | 918,039 | ||||
| (Trinity Apartments) Refunding Series A | ||||||
| 6.75% 5/1/21 (HUD Section 8) | 1,645,000 | 1,682,358 | ||||
| Minnesota Housing Finance Agency Rental Housing | ||||||
| Revenue Series C-2 5.95% 2/1/15 (AMBAC) | 1,495,000 | 1,497,048 | ||||
| Minnesota Housing Finance Agency | ||||||
| Residential Housing | ||||||
| Series A 5.30% 7/1/19 | 495,000 | 505,558 | ||||
| Series B-1 5.35% 1/1/33 (AMT) | 2,945,000 | 2,704,894 | ||||
| Series D 4.80% 7/1/38 (AMT) | 2,500,000 | 2,073,500 | ||||
| Series I 4.85% 7/1/38 (AMT) | 2,000,000 | 1,687,060 | ||||
| Series I 5.15% 7/1/38 (AMT) | 5,545,000 | 4,897,067 | ||||
| Series M 4.875% 7/1/37 (AMT) | 4,500,000 | 3,793,095 | ||||
| Single Family Mortgage Series J 5.90% 7/1/28 (AMT) | 425,000 | 425,578 | ||||
| @Park Rapids Multifamily Revenue (The Court | ||||||
| Apartments Project) 6.30% 2/1/20 (HUD Section 8) | 2,695,000 | 2,603,666 | ||||
| @St. Cloud Housing & Redevelopment Authority | ||||||
| Multifamily Housing Revenue (Sterling Heights | ||||||
| Apartments Project) 7.55% 4/1/39 (AMT) | 1,000,000 | 987,560 | ||||
| @Washington County Housing & Redevelopment | ||||||
| Authority Governmental Revenue Refunding | ||||||
| (Briar Pond Project) Series C 7.25% 8/20/34 | 935,000 | 850,728 | ||||
| White Bear Lake Multifamily Revenue Refunding | ||||||
| (Lake Square) Series A 5.875% 2/1/15 (FHA) | 850,000 | 855,899 | ||||
| Willmar Housing & Redevelopment Authority | ||||||
| Multifamily Housing Revenue (Highland Apartments) | ||||||
| 5.85% 6/1/19 (HUD Section 8) | 835,000 | 834,908 | ||||
| 37,784,367 | ||||||
| Lease Revenue Bonds – 3.41% | ||||||
| Minneapolis Special School District #001 Series A | ||||||
| 5.00% 2/1/18 (FSA) | 1,545,000 | 1,612,238 | ||||
| 5.00% 2/1/19 (FSA) | 1,535,000 | 1,601,803 | ||||
| 5.00% 2/1/20 (FSA) | 1,690,000 | 1,763,549 | ||||
28
| Principal amount | Value | ||||||
| Municipal Bonds (continued) | |||||||
| Lease Revenue Bonds (continued) | |||||||
| Puerto Rico Public Buildings Authority Revenue | |||||||
| (Guaranteed Government Facilities) | |||||||
| Un-Refunded Balance Series D 5.25% 7/1/36 | $ | 1,070,000 | $ | 1,059,107 | |||
| St. Paul Port Authority Lease Revenue | |||||||
| (Cedar Street Office Building Project) | |||||||
| 5.00% 12/1/22 | 2,500,000 | 2,602,750 | |||||
| 5.25% 12/1/27 | 3,840,000 | 3,923,290 | |||||
| Series 3-12 5.125% 12/1/27 | 3,000,000 | 3,061,350 | |||||
| (Robert Street Office Building Project) | |||||||
| Series 3-11 4.75% 12/1/23 | 2,000,000 | 2,023,040 | |||||
| Series 3-11 5.00% 12/1/27 | 2,500,000 | 2,551,900 | |||||
| Series 9 5.25% 12/1/27 | 725,000 | 743,821 | |||||
| 20,942,848 | |||||||
| Local General Obligation Bonds – 21.76% | |||||||
| Big Lake Independent School District #727 Series A | |||||||
| 5.00% 2/1/17 (FSA) | 1,040,000 | 1,079,437 | |||||
| 5.00% 2/1/20 (FSA) | 1,000,000 | 1,037,920 | |||||
| Bloomington Independent School District #271 | |||||||
| Series B 5.00% 2/1/17 | 5,300,000 | 5,500,976 | |||||
| Centennial Independent School District #012 | |||||||
| Series A 5.00% 2/1/18 (FSA) | 1,270,000 | 1,352,258 | |||||
| Dakota County Capital Improvement | |||||||
| Series A 4.75% 2/1/26 | 1,000,000 | 1,009,530 | |||||
| Dakota County Community Development Agency | |||||||
| (Senior Housing Facilities) 5.00% 1/1/21 | 1,275,000 | 1,306,799 | |||||
| Farmington Independent School District #192 Series B | |||||||
| 5.00% 2/1/27 (FSA) | 10,705,000 | 11,024,330 | |||||
| ^Capital Appreciation | |||||||
| 5.34% 2/1/21 (FSA) | 1,500,000 | 830,340 | |||||
| 5.424% 2/1/20 (FSA) | 1,650,000 | 963,369 | |||||
| Hennepin County Regional Railroad Authority | |||||||
| 5.00% 12/1/31 | 4,030,000 | 4,051,883 | |||||
| Lakeville Independent School District #194 | |||||||
| ^Capital Appreciation Series B 5.45% 2/1/19 (FSA) | 8,000,000 | 4,737,200 | |||||
| Series A 4.75% 2/1/22 (FSA) | 7,850,000 | 8,031,885 | |||||
| ^ | Mahtomedi Independent School District #832 Capital | ||||||
| Appreciation Series B 5.90% 2/1/14 (MBIA) | 1,540,000 | 1,264,047 | |||||
29
Statements of net assets
Delaware Tax-Free Minnesota Fund
| Principal amount | Value | ||||||
| Municipal Bonds (continued) | |||||||
| Local General Obligation Bonds (continued) | |||||||
| Metropolitan Council Minneapolis - St. Paul | |||||||
| Metropolitan Area Waste Water Treatment | |||||||
| Series B 5.00% 12/1/21 | $ | 1,200,000 | $ | 1,261,008 | |||
| Series C 5.00% 3/1/16 | 1,690,000 | 1,882,829 | |||||
| Series C 5.00% 3/1/28 | 5,000,000 | 5,180,750 | |||||
| Minneapolis Library 5.00% 12/1/25 | 1,500,000 | 1,549,050 | |||||
| Morris Independent School District #769 Building | |||||||
| 5.00% 2/1/24 (MBIA) | 4,875,000 | 5,247,158 | |||||
| Mounds View Independent School District #621 | |||||||
| Series A 5.375% 2/1/24 (FGIC) | 6,170,000 | 6,571,235 | |||||
| Mounds View Independent School District #621 | |||||||
| Series A 5.00% 2/1/20 (MBIA) | 2,970,000 | 3,053,012 | |||||
| New Brighton Tax Increment Series A | |||||||
| 5.00% 2/1/26 (MBIA) | 1,185,000 | 1,228,632 | |||||
| 5.00% 2/1/27 (MBIA) | 1,000,000 | 1,033,280 | |||||
| 5.00% 2/1/28 (MBIA) | 1,000,000 | 1,030,450 | |||||
| Osseo Independent School District #279 | |||||||
| Series A 5.00% 2/1/21 (FSA) | 3,570,000 | 3,706,731 | |||||
| Prior Lake Independent School District #719 | |||||||
| Series B 5.00% 2/1/19 (FSA) | 3,145,000 | 3,322,944 | |||||
| Ramsey County State Aid Series C 5.00% 2/1/28 | 1,060,000 | 1,085,270 | |||||
| Robbinsdale Independent School District #281 | |||||||
| 5.00% 2/1/21 (FSA) | 1,310,000 | 1,360,173 | |||||
| Rockford Independent School District #883 | |||||||
| 5.60% 2/1/21 (FSA) | 3,210,000 | 3,358,527 | |||||
| 5.625% 2/1/23 (FSA) | 7,020,000 | 7,347,272 | |||||
| ^ | Rosemount Independent School District #196 | ||||||
| Capital Appreciation Series B | |||||||
| 5.80% 4/1/09 (FSA) | 1,860,000 | 1,837,680 | |||||
| 5.85% 4/1/10 (FSA) | 2,240,000 | 2,155,664 | |||||
| 5.931% 4/1/11 (FSA) | 2,600,000 | 2,412,618 | |||||
| 5.961% 4/1/12 (FSA) | 1,850,000 | 1,650,200 | |||||
| 6.008% 4/1/13 (FSA) | 1,915,000 | 1,640,504 | |||||
| ^ | Sartell Independent School District #748 | ||||||
| Capital Appreciation Refunding Series B | |||||||
| 5.976% 2/1/13 (MBIA) | 540,000 | 467,089 | |||||
| 6.10% 2/1/15 (MBIA) | 1,075,000 | 848,734 | |||||
| 6.15% 2/1/16 (MBIA) | 1,750,000 | 1,313,533 | |||||
30
| Principal amount | Value | ||||||
| Municipal Bonds (continued) | |||||||
| Local General Obligation Bonds (continued) | |||||||
| ^ | Sauk Rapids Independent School District #047 Series B | ||||||
| 5.983% 2/1/15 (FSA) | $ | 2,700,000 | $ | 1,998,567 | |||
| 6.083% 2/1/17 (FSA) | 2,245,000 | 1,470,722 | |||||
| South Washington County Independent School | |||||||
| District #833 Series A 5.60% 2/1/20 (MBIA) | 6,880,000 | 7,218,152 | |||||
| South Washington County Independent School | |||||||
| District #833 Series A | |||||||
| 4.75% 2/1/25 | 2,500,000 | 2,557,125 | |||||
| 4.75% 2/1/26 | 3,600,000 | 3,657,312 | |||||
| 4.75% 2/1/27 | 2,300,000 | 2,326,059 | |||||
| St. Michael Independent School District #885 | |||||||
| 5.00% 2/1/20 (FSA) | 1,970,000 | 2,097,597 | |||||
| 5.00% 2/1/27 (FSA) | 3,435,000 | 3,657,485 | |||||
| St. Peter’s Hospital Series A 5.00% 9/1/24 (MBIA) | 1,905,000 | 1,945,519 | |||||
| Todd Morrison Cass & Wadena Counties United | |||||||
| Hospital District (Health Care Facilities-Lakewood) | |||||||
| 5.00% 12/1/21 | 2,000,000 | 2,014,800 | |||||
| 5.00% 12/1/34 | 1,000,000 | 961,760 | |||||
| 5.125% 12/1/24 | 1,000,000 | 1,007,690 | |||||
| 133,647,105 | |||||||
| §Pre-Refunded Bonds – 21.64% | |||||||
| Chaska Electric Revenue Series A 6.00% 10/1/25-10 | 1,000,000 | 1,073,000 | |||||
| Duluth Economic Development Authority | |||||||
| Health Care Facilities Revenue | |||||||
| (Benedictine Health System-St. Mary’s Hospital) | |||||||
| 5.25% 2/15/28-14 | 8,500,000 | 9,421,910 | |||||
| 5.25% 2/15/33-14 | 10,000,000 | 11,084,600 | |||||
| 5.50% 2/15/23-14 | 1,000,000 | 1,115,080 | |||||
| Hopkins Housing & Redevelopment Authority (Public | |||||||
| Works & Fire Station) Series A 5.00% 2/1/23-13 (MBIA) | 1,210,000 | 1,321,296 | |||||
| Marshall Medical Center Gross Revenue (Weiner | |||||||
| Memorial Medical Center Project) 6.00% 11/1/28-09 | 1,000,000 | 1,043,270 | |||||
| Minneapolis Community Development Agency | |||||||
| Series G-3 5.45% 12/1/31-11 | 2,000,000 | 2,170,740 | |||||
| Minneapolis Health Care System Revenue | |||||||
| (Allina Health Systems) Series A 5.75% 11/15/32-12 | 17,300,000 | 19,275,313 | |||||
| (Fairview Health Services) Series A 5.625% 5/15/32-12 | 16,925,000 | 18,751,038 | |||||
31
Statements of net assets
Delaware Tax-Free Minnesota Fund
| Principal amount | Value | ||||||
| Municipal Bonds (continued) | |||||||
| §Pre-Refunded Bonds (continued) | |||||||
| Minneapolis - St. Paul Metropolitan Airports | |||||||
| Commission Revenue | |||||||
| Series A | |||||||
| 5.125% 1/1/25-09 (FGIC) | $ | 100,000 | $ | 102,093 | |||
| 5.25% 1/1/32-11 (FGIC) | 5,000,000 | 5,342,700 | |||||
| Series C | |||||||
| 5.125% 1/1/20-11 (FGIC) | 2,000,000 | 2,131,420 | |||||
| 5.25% 1/1/32-11 (FGIC) | 8,845,000 | 9,451,236 | |||||
| 5.50% 1/1/17-11 (FGIC) | 2,500,000 | 2,670,150 | |||||
| Minneapolis Tax Increment Revenue | |||||||
| Series E 5.00% 3/1/13-09 | 6,265,000 | 6,372,257 | |||||
| Minnesota Agricultural & Economic Development | |||||||
| Revenue (Fairview Health Care System) | |||||||
| Series A 6.375% 11/15/29-10 | 485,000 | 532,292 | |||||
| Minnesota Public Facilities Authority Water Pollution | |||||||
| Control Revenue | |||||||
| Series A 5.00% 3/1/20-10 | 3,000,000 | 3,132,180 | |||||
| Series B 4.75% 3/1/19-09 | 2,000,000 | 2,031,640 | |||||
| Puerto Rico Commonwealth | |||||||
| Series A 5.00% 7/1/33-13 | 500,000 | 551,460 | |||||
| 5.00% 7/1/34 -14 | 2,830,000 | 3,147,809 | |||||
| Series B 5.00% 7/1/35-16 | 925,000 | 1,035,843 | |||||
| Puerto Rico Public Buildings Authority Guaranteed | |||||||
| Government Facilities Revenue Series D | |||||||
| 5.25% 7/1/36-12 | 2,930,000 | 3,161,177 | |||||
| Rochester Electric Utilities Revenue 5.25% 12/1/30-10 | 4,915,000 | 5,237,916 | |||||
| Rochester Multifamily Housing Revenue (Wedum | |||||||
| Shorewood Campus Project) 6.60% 6/1/36-09 | 3,890,000 | 4,096,442 | |||||
| Southern Minnesota Municipal Power Agency Supply | |||||||
| Revenue Series A | |||||||
| 5.75% 1/1/18-13 | 3,790,000 | 4,090,471 | |||||
| 5.75% 1/1/18-13 (AMBAC) | 670,000 | 723,118 | |||||
| 5.75% 1/1/18-13 (MBIA) | 1,000,000 | 1,079,280 | |||||
| St. Louis Park Health Care Facilities Revenue | |||||||
| (Park Nicollet Health Services) Series B | |||||||
| 5.25% 7/1/30-14 | 9,420,000 | 10,485,685 | |||||
| 5.50% 7/1/25-14 | 2,000,000 | 2,252,780 | |||||
| 132,884,196 | |||||||
32
| Principal amount | Value | ||||||
| Municipal Bonds (continued) | |||||||
| Special Tax Revenue Bonds – 2.55% | |||||||
| Hennepin County Sales Revenue (Second Lien - | |||||||
| Ballpark Project) Series B | |||||||
| 5.00% 12/15/19 | $ | 2,100,000 | $ | 2,280,411 | |||
| 5.00% 12/15/24 | 1,150,000 | 1,208,374 | |||||
| ^ | Minneapolis Community Development Agency Tax | ||||||
| Increment Revenue Capital Appreciation | |||||||
| 6.674% 9/1/09 (MBIA) | 5,750,000 | 5,625,225 | |||||
| Minneapolis Tax Increment Revenue Refunding | |||||||
| (St. Anthony Falls Project) 5.75% 2/1/27 | 1,000,000 | 933,780 | |||||
| Puerto Rico Commonwealth Infrastructure Financing | |||||||
| Authority Special Tax Revenue Series B | |||||||
| 5.00% 7/1/46 | 4,000,000 | 3,829,720 | |||||
| Virgin Islands Public Finance Authority Revenue (Senior | |||||||
| Lien Matching Fund Loan) Series A 5.25% 10/1/22 | 1,785,000 | 1,762,188 | |||||
| 15,639,698 | |||||||
| State General Obligation Bonds – 5.31% | |||||||
| Minnesota State | |||||||
| 5.00% 10/1/15 | 5,000,000 | 5,578,400 | |||||
| 5.00% 11/1/20 (FSA) | 13,675,000 | 14,241,008 | |||||
| 5.00% 8/1/21 | 2,400,000 | 2,493,312 | |||||
| Puerto Rico Commonwealth Public Improvement | |||||||
| Refunding Series A | |||||||
| 5.50% 7/1/17 | 4,070,000 | 4,259,540 | |||||
| 5.50% 7/1/18 | 1,240,000 | 1,288,124 | |||||
| 5.50% 7/1/19 (MBIA) | 1,500,000 | 1,563,975 | |||||
| Un-Refunded Balance Series A 5.00% 7/1/34 | 1,670,000 | 1,602,081 | |||||
| Un-Refunded Balance Series B 5.00% 7/1/35 | 575,000 | 551,201 | |||||
| Puerto Rico Government Development Bank Senior Notes | |||||||
| Series B 5.00% 12/1/14 | 1,000,000 | 1,028,360 | |||||
| 32,606,001 | |||||||
| Transportation Revenue Bonds – 1.10% | |||||||
| Minneapolis - St. Paul Metropolitan Airports | |||||||
| Commission Revenue Series A | |||||||
| 5.00% 1/1/15 (AMT) | 3,095,000 | 3,158,788 | |||||
| 5.00% 1/1/22 (MBIA) | 2,000,000 | 2,025,520 | |||||
| 5.25% 1/1/16 (MBIA) | 1,460,000 | 1,542,080 | |||||
| 6,726,388 | |||||||
33
Statements of net assets
Delaware Tax-Free Minnesota Fund
| Principal amount | Value | |||||||
| Municipal Bonds (continued) | ||||||||
| Water & Sewer Revenue Bonds – 1.66% | ||||||||
| &5Minnesota Public Facilities Authority II Water Pollution | ||||||||
| Control Revenue 5.25% 3/1/18 | $ | 10,000,000 | $ | 10,183,250 | ||||
| 10,183,250 | ||||||||
| Total Municipal Bonds (cost $609,742,343) | 622,316,287 | |||||||
| Number of shares | ||||||||
| Short-Term Investments – 0.35% | ||||||||
| Money Market Instrument – 0.12% | ||||||||
| Federated Minnesota Municipal Cash Trust | 718,432 | 718,432 | ||||||
| 718,432 | ||||||||
| Principal amount | ||||||||
| ·Variable Rate Demand Notes – 0.23% | ||||||||
| University of Minnesota Series A 1.93% 1/1/34 | $ | 1,300,000 | 1,300,000 | |||||
| University of Minnesota Series C 1.93% 12/1/36 | 155,000 | 155,000 | ||||||
| 1,455,000 | ||||||||
| Total Short-Term Investments (cost $2,173,432) | 2,173,432 | |||||||
| Total Value of Securities – 101.69% | ||||||||
| (cost $611,915,775) | 624,489,719 | |||||||
| Liabilities Net of Receivables and | ||||||||
| Other Assets* – (1.69%) | (10,398,022 | ) | ||||||
| Net Assets Applicable to 50,665,752 | ||||||||
| Shares Outstanding – 100.00% | $ | 614,091,697 | ||||||
| Net Asset Value – Delaware Tax-Free Minnesota Fund | ||||||||
| Class A ($574,913,916 / 47,440,878 Shares) | $12.12 | |||||||
| Net Asset Value – Delaware Tax-Free Minnesota Fund | ||||||||
| Class B ($11,593,370 / 955,943 Shares) | $12.13 | |||||||
| Net Asset Value – Delaware Tax-Free Minnesota Fund | ||||||||
| Class C ($27,584,411 / 2,268,931 Shares) | $12.16 | |||||||
34
| Components of Net Assets at August 31, 2008: | |||
| Shares of beneficial interest (unlimited authorization – no par) | $ | 599,619,054 | |
| Distributions in excess of net investment income | (22,417 | ) | |
| Accumulated net realized gain on investments | 1,921,116 | ||
| Net unrealized appreciation of investments | 12,573,944 | ||
| Total net assets | $ | 614,091,697 |
| ^ | Zero coupon security. The rate shown is the yield at the time of purchase. |
| · | Variable rate security. The rate shown is the rate as of August 31, 2008. |
| § | Pre-Refunded bonds. 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. See Note 11 in “Notes to financial statements.” |
| @ | Illiquid security. At August 31, 2008 the aggregate amount of illiquid securities was $5,160,078, which represented 0.84% of the Fund’s net assets. See Note 11 in “Notes to financial statements.” |
| * | Includes $17,120,000 in liability for Inverse Floater programs. See Note 7 in “Notes to financial statements.” |
| &1 | Security held in a trust in connection with the Inverse Floater security $5,250,000, 9.123%, 7/1/21. |
| &2 | Security held in a trust in connection with the Inverse Floater security $1,920,000, 9.632%, 7/1/18. |
| &3 | Security held in a trust in connection with the Inverse Floater security $2,000,000, 7.505%, 1/1/14. |
| &4 | Security held in a trust in connection with the Inverse Floater security $2,950,000, 7.505%, 1/1/15. |
| &5 | Security held in a trust in connection with the Inverse Floater security $5,000,000, 8.615%, 3/1/18. |
For additional information on the Inverse Floater programs, see Note 7 in “Notes to financial statements.”
35
Statements of net assets
Delaware Tax-Free Minnesota Fund
Summary of abbreviations: |
| Net Asset Value and Offering Price Per Share – | ||
| Delaware Tax-Free Minnesota Fund | ||
| Net asset value Class A (A) | $ | 12.12 |
| Sales charge (4.50% of offering price) (B) | 0.57 | |
| Offering price | $ | 12.69 |
| (A) | Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. |
| (B) | See the current prospectus for purchases of $100,000 or more. |
See accompanying notes
36
| Delaware Tax-Free Minnesota Intermediate Fund | August 31, 2008 |
| Principal amount | Value | ||||
| Municipal Bonds – 96.32% | |||||
| Corporate-Backed Revenue Bonds – 2.57% | |||||
| Laurentian Energy Authority I Cogeneration Revenue | |||||
| Series A 5.00% 12/1/21 | $ | 750,000 | $ | 696,608 | |
| Minneapolis Community Development Agency | |||||
| (Limited Tax Common Bond Fund) | |||||
| Series 4 6.20% 6/1/17 (AMT) | 1,005,000 | 1,010,025 | |||
| 1,706,633 | |||||
| Education Revenue Bonds – 9.08% | |||||
| Minnesota Colleges & Universities Revenue Fund | |||||
| Series A 5.00% 10/1/28 | 2,000,000 | 2,072,080 | |||
| Minnesota Higher Education Facilities Authority Revenue | |||||
| (Macalester College) Series 6-P 4.25% 3/1/27 | 750,000 | 707,610 | |||
| (University of St. Thomas) Series 5-Y 5.25% 10/1/19 | 1,590,000 | 1,654,554 | |||
| (St. Johns University) Series 6-U | |||||
| 4.40% 10/1/21 | 325,000 | 320,600 | |||
| 4.50% 10/1/23 | 265,000 | 262,130 | |||
| St. Cloud Housing & Redevelopment Authority | |||||
| Revenue (State University Foundation Project) | |||||
| 5.00% 5/1/23 | 1,000,000 | 1,021,100 | |||
| 6,038,074 | |||||
| Electric Revenue Bonds – 3.49% | |||||
| Chaska Electric Revenue Refunding | |||||
| (Generating Facilities) Series A 5.25% 10/1/25 | 1,000,000 | 1,030,970 | |||
| Northern Municipal Power Agency | |||||
| 5.00% 1/1/13 (Assured Gty) | 1,200,000 | 1,293,876 | |||
| 2,324,846 | |||||
| Escrowed to Maturity Bond – 1.74% | |||||
| University of Minnesota Series A 5.75% 7/1/16 | 1,000,000 | 1,159,350 | |||
| 1,159,350 | |||||
| Health Care Revenue Bonds – 12.24% | |||||
| Maple Grove Health Care System Revenue | |||||
| (Maple Grove Hospital) 5.25% 5/1/28 | 1,000,000 | 974,430 | |||
| Minneapolis-St. Paul Housing & Redevelopment | |||||
| Authority (Health Partners Obligation Group Project) | |||||
| 6.00% 12/1/17 | 1,125,000 | 1,168,965 | |||
| Moorhead Economic Development Authority | |||||
| Multifamily Housing Revenue Refunding | |||||
| (Eventide Lutheran Home Project) 4.70% 6/1/18 | 475,000 | 434,093 | |||
37
Statements of net assets
Delaware Tax-Free Minnesota Intermediate Fund
| Principal amount | Value | |||||
| Municipal Bonds (continued) | ||||||
| Health Care Revenue Bonds (continued) | ||||||
| Sherburne County Health Care Facilities Revenue | ||||||
| (Guardian Angel Health Services) 5.30% 10/1/26 | $ | 250,000 | $ | 221,130 | ||
| St. Louis Park Health Care Facilities Revenue Refunding | ||||||
| (Park Nicollet Health Services) Series C | ||||||
| 5.625% 7/1/26 | 1,500,000 | 1,512,840 | ||||
| 5.75% 7/1/30 | 525,000 | 526,517 | ||||
| St. Paul Housing & Redevelopment Authority | ||||||
| Health Care Revenue (Health East Project) | ||||||
| Series B 5.85% 11/1/17 | 1,160,000 | 1,164,257 | ||||
| St. Paul Housing & Redevelopment Authority Hospital | ||||||
| Revenue (Allina Health System) Series A | ||||||
| 5.00% 11/15/14 (MBIA) | 2,000,000 | 2,140,580 | ||||
| 8,142,812 | ||||||
| Housing Revenue Bonds – 7.28% | ||||||
| Minneapolis Multifamily Housing Revenue Refunding | ||||||
| (Trinity Apartments) (HUD Section 8) | ||||||
| Series A 6.75% 5/1/21 | 1,710,000 | 1,748,833 | ||||
| Minnesota Housing Finance Agency Residential Housing | ||||||
| Series D 4.75% 7/1/32 (AMT) | 750,000 | 633,540 | ||||
| Series I 5.10% 7/1/20 (AMT) | 785,000 | 773,979 | ||||
| Series M 4.85% 7/1/31 (AMT) | 1,000,000 | 863,500 | ||||
| Single Family Mortgage Series J 5.90% 7/1/28 (AMT) | 385,000 | 385,524 | ||||
| @ | Park Rapids Multifamily Housing Revenue (The Court | |||||
| Apartments Project) (HUD Section 8) 6.05% 8/1/12 | 435,000 | 435,979 | ||||
| 4,841,355 | ||||||
| Lease Revenue Bonds – 2.84% | ||||||
| Edina Housing & Redevelopment Authority Public | ||||||
| Project Revenue (Appropriate Lease Obligation) | ||||||
| 5.125% 2/1/19 | 1,000,000 | 1,037,790 | ||||
| Virginia Housing & Redevelopment Authority Health | ||||||
| Care Facilities Lease Revenue 5.25% 10/1/25 | 880,000 | 852,465 | ||||
| 1,890,255 | ||||||
| Local General Obligation Bonds – 26.00% | ||||||
| Anoka County Capital Improvement Series C | ||||||
| 5.00% 2/1/27 | 500,000 | 519,010 | ||||
| Anoka-Hennepin Independent School District #11 | ||||||
| Refunding 5.00% 2/1/17 | 1,000,000 | 1,106,730 | ||||
38
| Principal amount | Value | |||||
| Municipal Bonds (continued) | ||||||
| Local General Obligation Bonds (continued) | ||||||
| Big Lake Independent School District #727 | ||||||
| Series C Refunding | ||||||
| 5.00% 2/1/16 (FSA) | $ | 1,180,000 | $ | 1,233,501 | ||
| 5.00% 2/1/17 (FSA) | 1,000,000 | 1,045,340 | ||||
| Centennial Independent School District #012 Series A | ||||||
| 5.00% 2/1/18 (FSA) | 1,000,000 | 1,064,770 | ||||
| 5.00% 2/1/20 (FSA) | 750,000 | 798,578 | ||||
| Dakota County Capital Improvement Series A | ||||||
| 4.75% 2/1/17 | 1,000,000 | 1,041,930 | ||||
| Duluth County Independent School District #709 | ||||||
| Certificates of Participation Series A | ||||||
| 4.25% 2/1/20 (FSA) | 710,000 | 722,631 | ||||
| Hennepin County Series B 4.75% 12/1/14 | 1,000,000 | 1,037,690 | ||||
| Hopkins Independent School District #270 | ||||||
| 5.125% 2/1/17 (FGIC) | 2,000,000 | 2,137,599 | ||||
| Mankato Independent School District #77 (Formerly | ||||||
| Blue Earth County Independent School District #10) | ||||||
| Series A 4.125% 2/1/22 | 1,000,000 | 986,280 | ||||
| Minneapolis-St. Paul Metropolitan Council Area | ||||||
| Waste Water Series C | ||||||
| 5.00% 3/1/16 | 560,000 | 623,896 | ||||
| 5.00% 3/1/28 | 1,000,000 | 1,036,150 | ||||
| Osseo Independent School District #279 Series A | ||||||
| 5.00% 2/1/21 (FSA) | 1,500,000 | 1,557,450 | ||||
| South Washington County Independent School District #833 | ||||||
| Series A 4.00% 2/1/22 | 750,000 | 730,200 | ||||
| Series B 5.00% 2/1/16 (FSA) | 1,560,000 | 1,649,263 | ||||
| 17,291,018 | ||||||
| §Pre-Refunded Bonds – 10.40% | ||||||
| Minneapolis Health Care System Revenue Series A | ||||||
| (Allina Health Systems) 5.75% 11/15/32-12 | 1,500,000 | 1,671,270 | ||||
| (Fairview Health Services) 5.625% 5/15/32-12 | 1,750,000 | 1,938,808 | ||||
| Minnesota Higher Education Facilities Authority | ||||||
| Revenue (College of Art & Design) Series 5-D | ||||||
| 6.625% 5/1/20-10 | 1,000,000 | 1,072,140 | ||||
| Puerto Rico Commonwealth Highway & Transportation | ||||||
| Authority Revenue Series D 5.25% 7/1/38-12 | 500,000 | 541,525 | ||||
39
Statements of net assets
Delaware Tax-Free Minnesota Intermediate Fund
| Principal amount | Value | |||||
| Municipal Bonds (continued) | ||||||
| §Pre-Refunded Bonds (continued) | ||||||
| St. Louis Park Health Care Facilities Revenue | ||||||
| (Park Nicollet Health Services) | ||||||
| Series B 5.50% 7/1/25-14 | $ | 1,500,000 | $ | 1,689,585 | ||
| 6,913,328 | ||||||
| Special Tax Revenue Bonds – 5.63% | ||||||
| Hennepin County Sales Tax Revenue (Second Lien - | ||||||
| Ballpark Project) Series B 5.00% 12/15/24 | 1,000,000 | 1,050,760 | ||||
| Minneapolis Art Center Facilities Revenue (Walker Art | ||||||
| Center Project) 5.125% 7/1/21 | 2,250,000 | 2,303,505 | ||||
| Minneapolis Tax Increment Revenue (Ivy Tower Project) | ||||||
| 5.50% 2/1/22 | 415,000 | 387,871 | ||||
| 3,742,136 | ||||||
| State General Obligation Bonds – 8.56% | ||||||
| Minnesota State | ||||||
| 5.00% 6/1/10 | 1,330,000 | 1,399,306 | ||||
| 5.00% 8/1/15 | 2,000,000 | 2,227,800 | ||||
| Puerto Rico Commonwealth Public Improvement | ||||||
| Refunding Series A 5.25% 7/1/15 | 1,000,000 | 1,037,110 | ||||
| · | Puerto Rico Public Finance Commonwealth | |||||
| Appropriation (LOC Puerto Rico Government Bank) | ||||||
| Series A 5.75% 8/1/27 | 1,000,000 | 1,026,120 | ||||
| 5,690,336 | ||||||
| Transportation Revenue Bonds – 1.97% | ||||||
| Minneapolis-St. Paul Metropolitan Airports | ||||||
| Commission Refunding | ||||||
| Series A 5.00% 1/1/13 (AMT) | 500,000 | 519,505 | ||||
| Series 14 5.50% 1/1/11 (AMT) | 750,000 | 788,198 | ||||
| 1,307,703 | ||||||
| Water & Sewer Revenue Bonds – 4.52% | ||||||
| Minnesota Public Facilities Authority Water Pollution | ||||||
| Control Revenue Refunding | ||||||
| Series C 5.00% 3/1/18 | 1,000,000 | 1,072,760 | ||||
| Series D 5.00% 3/1/14 | 500,000 | 550,855 | ||||
| St. Paul Sewer Revenue Series D 5.00% 12/1/20 | 1,275,000 | 1,382,546 | ||||
| 3,006,161 | ||||||
| Total Municipal Bonds (cost $62,689,065) | 64,054,007 | |||||
40
| Number of shares | Value | ||||||
| Short-Term Investments – 3.87% | |||||||
| Money Market Instrument – 1.76% | |||||||
| Federated Minnesota Municipal Cash Trust | 1,171,214 | $ | 1,171,214 | ||||
| 1,171,214 | |||||||
| Principal amount | |||||||
| ·Variable Rate Demand Note – 2.11% | |||||||
| University of Minnesota Series A 1.93% 1/1/34 | $ | 1,400,000 | 1,400,000 | ||||
| 1,400,000 | |||||||
| Total Short-Term Investments (cost $2,571,214) | 2,571,214 | ||||||
| Total Value of Securities – 100.19% | |||||||
| (cost $65,260,279) | 66,625,221 | ||||||
| Liabilities Net of Receivables | |||||||
| and Other Assets – (0.19%) | (126,703 | ) | |||||
| Net Assets Applicable to 6,200,493 | |||||||
| Shares Outstanding – 100.00% | $ | 66,498,518 | |||||
| Net Asset Value – Delaware Tax-Free Minnesota Intermediate | |||||||
| Fund Class A ($58,464,815 / 5,452,758 Shares) | $10.72 | ||||||
| Net Asset Value – Delaware Tax-Free Minnesota Intermediate | |||||||
| Fund Class B ($907,537 / 84,427 Shares) | $10.75 | ||||||
| Net Asset Value – Delaware Tax-Free Minnesota Intermediate | |||||||
| Fund Class C ($7,126,166 / 663,308 Shares) | $10.74 | ||||||
| Components of Net Assets at August 31, 2008: | |||||||
| Shares of beneficial interest (unlimited authorization – no par) | $ | 66,633,067 | |||||
| Distributions in excess of net investment income | (1,866 | ) | |||||
| Accumulated net realized loss on investments | (1,497,625 | ) | |||||
| Net unrealized appreciation of investments | 1,364,942 | ||||||
| Total net assets | $ | 66,498,518 | |||||
41
Statements of net assets
Delaware Tax-Free Minnesota Intermediate Fund
| @ | Illiquid security. At August 31, 2008, the aggregate amount of illiquid securities was $435,979, which represented 0.66% of the Fund’s net assets. See Note 11 in “Notes to financial statements.” |
| § | Pre-Refunded bonds. 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. See Note 11 in “Notes to financial statements.” |
| · | Variable rate security. The rate shown is the rate as of August 31, 2008. |
Summary of abbreviations:
AMT — Subject to Alternative Minimum Tax
Assured Gty — Insured by the Assured Guaranty Corporation
FGIC — Insured by the Financial Guaranty Insurance Company
FSA — Insured by Financial Security Assurance
HUD — Housing and Urban Development
LOC — Letter of Credit
MBIA — Insured by the Municipal Bond Insurance Association
| Net Asset Value and Offering Price Per Share – | ||
| Delaware Tax-Free Minnesota Intermediate Fund | ||
| Net asset value Class A (A) | $ | 10.72 |
| Sales charge (2.75% of offering price) (B) | 0.30 | |
| Offering price | $ | 11.02 |
| (A) | Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. |
| (B) | See the current prospectus for purchases of $100,000 or more. |
See accompanying notes
42
| Delaware Minnesota High-Yield Municipal Bond Fund | August 31, 2008 |
| Principal amount | Value | ||||
| Municipal Bonds – 96.22% | |||||
| Corporate-Backed Revenue Bonds – 3.14% | |||||
| Cloquet Pollution Control Revenue Refunding | |||||
| (Potlatch Project) 5.90% 10/1/26 | $ | 1,700,000 | $ | 1,617,414 | |
| Laurentian Energy Authority I Cogeneration Revenue | |||||
| Series A 5.00% 12/1/21 | 1,750,000 | 1,625,417 | |||
| Sartell Environmental Improvement Revenue Refunding | |||||
| (International Paper) Series A 5.20% 6/1/27 | 1,750,000 | 1,519,438 | |||
| 4,762,269 | |||||
| Education Revenue Bonds – 7.80% | |||||
| Baytown Township Lease Revenue (St. Croix | |||||
| Preparatory Academy) Series A 7.00% 8/1/38 | 500,000 | 498,405 | |||
| Minnesota Higher Education Facilities Authority Revenue | |||||
| (Augsburg College) | |||||
| Series 6-C 5.00% 5/1/23 | 700,000 | 665,014 | |||
| Series 6-J1 5.00% 5/1/36 | 1,000,000 | 892,860 | |||
| (Macalester College) Series 6-P 4.25% 3/1/32 | 1,000,000 | 899,790 | |||
| (St. John’s University) Series 6-U 4.75% 10/1/33 | 825,000 | 785,920 | |||
| (St. Olaf) | |||||
| Series 6-O 5.00% 10/1/22 | 1,000,000 | 1,026,720 | |||
| Series 6-O 4.50% 10/1/32 | 1,000,000 | 910,570 | |||
| (University St. Thomas) Series 6-I 5.00% 4/1/23 | 1,500,000 | 1,514,085 | |||
| Minnesota State Higher Education Facilities Authority | |||||
| Revenue (St. Catherine College) | |||||
| Series 5-N1 5.375% 10/1/32 | 2,000,000 | 1,917,820 | |||
| University of Minnesota Special Purpose Revenue | |||||
| (Supported Stadium Debt) 5.00% 8/1/29 | 2,660,000 | 2,726,314 | |||
| 11,837,498 | |||||
| Electric Revenue Bonds – 6.85% | |||||
| Chaska Electric Revenue Refunding (Generating | |||||
| Facilities) Series A 5.25% 10/1/25 | 1,000,000 | 1,030,970 | |||
| Minnesota State Municipal Power Agency Electric Revenue | |||||
| 5.00% 10/1/35 | 1,000,000 | 964,030 | |||
| Series A 5.00% 10/1/34 | 2,750,000 | 2,652,787 | |||
| Northern Municipal Power Agency Electric System | |||||
| Revenue Series A 5.00% 1/1/18 (Assured Gty) | 1,000,000 | 1,076,430 | |||
| Southern Minnesota Municipal Power Agency Supply | |||||
| System Revenue Series A 5.25% 1/1/16 (AMBAC) | 1,000,000 | 1,093,390 | |||
43
Statements of net assets
Delaware Minnesota High-Yield Municipal Bond Fund
| Principal amount | Value | ||||
| Municipal Bonds (continued) | |||||
| Electric Revenue Bonds (continued) | |||||
| Western Minnesota Municipal Power Agency Revenue | |||||
| 5.00% 1/1/36 (FSA) | $ | 2,250,000 | $ | 2,262,038 | |
| Series A 5.00% 1/1/30 (MBIA) | 1,335,000 | 1,322,811 | |||
| 10,402,456 | |||||
| Health Care Revenue Bonds – 25.98% | |||||
| Aitkin Health Care Facilities Revenue Refunding | |||||
| (Riverwood Health Care Center) 5.50% 2/1/24 | 700,000 | 658,700 | |||
| Apple Valley Economic Development Authority Health | |||||
| Care Revenue (Augustanna Home St. Paul Project) | |||||
| Series A 5.80% 1/1/30 | 1,000,000 | 966,100 | |||
| Bemidji Health Care Facilities First Mortgage Revenue | |||||
| (North Country Health Services) | |||||
| 5.00% 9/1/31 (RADIAN) | 2,500,000 | 2,372,325 | |||
| Refunding 5.00% 9/1/20 | 1,150,000 | 1,152,254 | |||
| Breckenridge Catholic Health Initiatives Series A | |||||
| 5.00% 5/1/30 | 2,000,000 | 1,958,400 | |||
| Detroit Lakes Housing & Health Facilities Revenue | |||||
| Refunding (Mankato Lutheran Homes) | |||||
| Series D 5.50% 8/1/21 | 500,000 | 468,110 | |||
| Glencoe Health Care Facilities Revenue | |||||
| (Glencoe Regional Health Services Project) | |||||
| 5.00% 4/1/20 | 1,100,000 | 1,055,087 | |||
| 5.00% 4/1/31 | 1,965,000 | 1,727,510 | |||
| Mahtomedi Senior Housing Revenue Refunding | |||||
| (St. Andrews Village Project) 5.75% 12/1/40 | 1,000,000 | 883,940 | |||
| Maple Grove Health Care Revenue Facilities | |||||
| (North Memorial Health Care) 5.00% 9/1/35 | 2,750,000 | 2,521,639 | |||
| Maple Grove Health Care System Revenue | |||||
| (Maple Grove Hospital) | |||||
| 5.25% 5/1/28 | 2,200,000 | 2,143,746 | |||
| 5.25% 5/1/37 | 1,000,000 | 936,730 | |||
| Minneapolis Health Care Facilities Revenue | |||||
| (Jones-Harrison Residence Project) 5.60% 10/1/30 | 1,500,000 | 1,325,985 | |||
| Minneapolis Health Care System Revenue | |||||
| (Fairview Health Services) Series D | |||||
| 5.00% 11/15/34 (AMBAC) | 1,000,000 | 963,170 | |||
44
| Principal amount | Value | ||||
| Municipal Bonds (continued) | |||||
| Health Care Revenue Bonds (continued) | |||||
| Minneapolis-St. Paul Housing & Redevelopment Authority | |||||
| (Health Partners Obligation Group Project) | |||||
| 6.00% 12/1/17 | $ | 1,125,000 | $ | 1,168,965 | |
| Minnesota Agricultural & Economic Development Board | |||||
| Revenue (Benedictine Health Systems) 5.75% 2/1/29 | 1,000,000 | 908,990 | |||
| Moorhead Economic Development Authority | |||||
| Multifamily Housing Revenue Refunding | |||||
| (Eventide Project) Series A 5.15% 6/1/29 | 550,000 | 472,423 | |||
| North Oaks Senior Housing Revenue | |||||
| (Presbyterian Homes) 6.25% 10/1/47 | 1,000,000 | 957,270 | |||
| Northfield Hospital Revenue 5.375% 11/1/31 | 1,000,000 | 920,110 | |||
| Owatonna Senior Housing Revenue | |||||
| (Senior Living Project) Series A | |||||
| 5.80% 10/1/29 | 400,000 | 370,016 | |||
| 6.00% 4/1/41 | 1,250,000 | 1,169,713 | |||
| Shakopee Health Care Facilities Revenue | |||||
| (St. Francis Regional Medical Center) 5.25% 9/1/34 | 1,000,000 | 907,960 | |||
| St. Louis Park Health Care Facilities Revenue Refunding | |||||
| (Park Nicollet Health Services) Series C 5.50% 7/1/23 | 1,000,000 | 1,005,580 | |||
| St. Paul Housing & Redevelopment Authority | |||||
| Health Care Facilities Revenue (Health Partners | |||||
| Obligation Group Project) 5.25% 5/15/36 | 1,000,000 | 894,250 | |||
| St. Paul Housing & Redevelopment Authority | |||||
| Health Care Revenue (Allina Health System) | |||||
| Series A 5.00% 11/15/18 (MBIA) | 1,900,000 | 1,996,615 | |||
| St. Paul Housing & Redevelopment Authority Hospital | |||||
| Revenue (Health East Project) | |||||
| 6.00% 11/15/25 | 1,000,000 | 994,060 | |||
| Series A 5.70% 11/1/15 | 800,000 | 803,680 | |||
| Series B 5.85% 11/1/17 | 250,000 | 250,918 | |||
| St. Paul Housing & Redevelopment Authority | |||||
| Multifamily Housing Revenue Refunding | |||||
| (Marion Center Project) Series A 5.375% 5/1/43 | 1,000,000 | 810,960 | |||
| Stillwater Health Care Revenue (Health System | |||||
| Obligation Group) | |||||
| 5.00% 6/1/25 | 2,000,000 | 1,932,020 | |||
| 5.00% 6/1/35 | 1,000,000 | 908,220 | |||
45
Statements of net assets
Delaware Minnesota High-Yield Municipal Bond Fund
| Principal amount | Value | ||||
| Municipal Bonds (continued) | |||||
| Health Care Revenue Bonds (continued) | |||||
| @Twin Valley Congregate Housing Revenue | |||||
| (Living Options Project) 5.95% 11/1/28 | $ | 1,825,000 | $ | 1,521,959 | |
| Winona Health Care Facilities Revenue Refunding | |||||
| (Winona Health Obligation Group) 5.15% 7/1/31 | 1,500,000 | 1,365,855 | |||
| Woodbury Economic Development Authority Housing | |||||
| Revenue Refunding 5.65% 6/1/33 | 1,000,000 | 926,590 | |||
| 39,419,850 | |||||
| Housing Revenue Bonds – 12.81% | |||||
| Chanhassen Multifamily Housing Revenue Refunding | |||||
| (Heritage Park Apartments Project) | |||||
| 6.20% 7/1/30 (FHA) (AMT) (HUD Section 8) | 300,000 | 300,240 | |||
| Chaska Multifamily Housing Revenue (West Suburban | |||||
| Housing Partners Project) 5.875% 3/1/31 (AMT) | 1,000,000 | 882,160 | |||
| @Hutchinson Multifamily Housing Revenue | |||||
| (Evergreen Apartments Project) | |||||
| 5.75% 11/1/28 (HUD Section 8) | 1,765,000 | 1,574,521 | |||
| Minneapolis Multifamily Housing Revenue | |||||
| (Grant Street Apartments Project) Refunding | |||||
| Series A 7.25% 11/1/29 | 2,085,000 | 2,132,496 | |||
| (Olson Townhomes Project) 6.00% 12/1/19 (AMT) | 1,420,000 | 1,420,710 | |||
| (Trinity Apartments) Refunding | |||||
| Series A 6.75% 5/1/21 (HUD Section 8) | 635,000 | 649,421 | |||
| Minneapolis-St. Paul Housing Finance Board Single | |||||
| Family Mortgage (City Living Project) | |||||
| Series A-2 5.00% 12/1/38 (GNMA) (FNMA) (AMT) | 978,599 | 844,609 | |||
| Minnesota Housing Finance Agency | |||||
| (Rental Housing) | |||||
| Series A 4.875% 8/1/24 (AMT) | 585,000 | 541,833 | |||
| Series A-1 5.00% 8/1/40 (AMT) | 2,265,000 | 1,927,628 | |||
| (Residential Housing) | |||||
| Series G 5.00% 7/1/36 (AMT) | 1,000,000 | 861,780 | |||
| Series I 4.85% 7/1/38 (AMT) | 1,145,000 | 965,842 | |||
| Series M 4.875% 7/1/37(AMT) | 2,500,000 | 2,107,275 | |||
| (Single Family Mortgage) Series J 5.90% 7/1/28 (AMT) | 590,000 | 590,802 | |||
| Minnesota State Housing Finance Agency | |||||
| Single Family Mortgage | |||||
| Series E 6.25% 1/1/23 (AMT) | 5,000 | 5,002 | |||
| Series M 5.875% 1/1/17 | 10,000 | 10,380 | |||
46
| Principal amount | Value | ||||
| Municipal Bonds (continued) | |||||
| Housing Revenue Bonds (continued) | |||||
| @St. Cloud Housing & Redevelopment Authority | |||||
| Multifamily Housing Revenue (Sterling Heights | |||||
| Apartments Project) 7.55% 4/1/39 (AMT) | $ | 530,000 | $ | 523,407 | |
| St. Paul Housing & Redevelopment Authority | |||||
| Multifamily Housing Revenue | |||||
| (Shelby Grotto Housing Project) | |||||
| 5.50% 9/20/44 (GNMA) (FHA) (AMT) | 750,000 | 750,953 | |||
| Stillwater Multifamily Housing Revenue | |||||
| (Orleans Homes Project) 5.50% 2/1/42 (AMT) | 750,000 | 624,038 | |||
| Washington County Housing & Redevelopment | |||||
| Authority Revenue Refunding | |||||
| @(Briar Pond Project) Series B 7.125% 8/20/34 | 820,000 | 791,833 | |||
| (Woodland Park Apartments Project) 4.70% 10/1/32 | 2,075,000 | 1,932,240 | |||
| 19,437,170 | |||||
| Lease Revenue Bonds – 1.76% | |||||
| Hibbing Economic Development Authority Revenue | |||||
| (Public Project - Hibbing Lease Obligation) | |||||
| 6.40% 2/1/12 | 530,000 | 530,551 | |||
| St. Paul Port Authority Lease Revenue | |||||
| (Regions Hospital Parking Ramp Project) | |||||
| Series 1 5.00% 8/1/36 | 1,375,000 | 1,117,586 | |||
| (Robert Street Office Building Project) | |||||
| Series 3-11 5.00% 12/1/27 | 1,000,000 | 1,020,760 | |||
| 2,668,897 | |||||
| Local General Obligation Bonds – 10.32% | |||||
| Chaska Independent School District #112 | |||||
| Series A 4.50% 2/1/28 (MBIA) | 1,000,000 | 989,750 | |||
| Duluth Independent School District #709 | |||||
| Certificates of Participation | |||||
| Series A 4.25% 2/1/20 (FSA) | 1,000,000 | 1,017,790 | |||
| Farmington Independent School District #192 | |||||
| Series B 5.00% 2/1/27 (FSA) | 1,000,000 | 1,029,830 | |||
| Foley Independent School District #51 | |||||
| (School Building) Refunding Series A 5.00% 2/1/21 | 1,105,000 | 1,170,880 | |||
| Hopkins Independent School District #270 Facilities | |||||
| 5.00% 2/1/26 (MBIA) | 1,055,000 | 1,065,919 | |||
| Lakeville Independent School District #194 | |||||
| Series A 4.75% 2/1/22 (FSA) | 1,000,000 | 1,023,170 | |||
47
Statements of net assets
Delaware Minnesota High-Yield Municipal Bond Fund
| Principal amount | Value | ||||
| Municipal Bonds (continued) | |||||
| Local General Obligation Bonds (continued) | |||||
| Metropolitan Council Minneapolis-St. Paul | |||||
| Metropolitan Area Waste Water Treatment | |||||
| Series B 5.00% 12/1/21 | $ | 500,000 | $ | 525,420 | |
| Series C 5.00% 3/1/16 | 750,000 | 835,575 | |||
| Series C 5.00% 3/1/28 | 1,000,000 | 1,036,150 | |||
| Moorhead Improvement Series B 5.00% 2/1/33 (MBIA) | 750,000 | 758,130 | |||
| Perham Disposal System 6.00% 5/1/22 (AMT) | 1,500,000 | 1,521,990 | |||
| South Washington County Independent School | |||||
| District #833 Series A 4.75% 2/1/27 | 1,500,000 | 1,516,995 | |||
| St. Paul Independent School District #625 | |||||
| Series B 5.00% 2/1/20 (FSA) | 750,000 | 798,285 | |||
| Todd Morrison Cass & Wadena Counties United | |||||
| Hospital District (Health Care Facilities-Lakewood) | |||||
| 5.00% 12/1/21 | 610,000 | 614,514 | |||
| 5.125% 12/1/24 | 205,000 | 206,576 | |||
| 5.25% 12/1/26 | 1,540,000 | 1,558,034 | |||
| 15,669,008 | |||||
| §Pre-Refunded Bonds – 11.97% | |||||
| Andover Economic Development Authority Public | |||||
| Facilities Lease Revenue (Andover Community Center) | |||||
| 5.20% 2/1/34-14 | 1,000,000 | 1,089,450 | |||
| Duluth Economic Development Authority Health | |||||
| Care Facilities Revenue | |||||
| (Benedictine Health System - St. Mary’s Hospital) | |||||
| 5.25% 2/15/28-14 | 1,000,000 | 1,108,460 | |||
| 5.25% 2/15/33-14 | 2,250,000 | 2,494,035 | |||
| Minneapolis Community Development Agency | |||||
| (Supported Development Revenue) | |||||
| Series G-3 5.45% 12/1/31-11 | 1,000,000 | 1,085,370 | |||
| Minneapolis Health Care System Revenue | |||||
| (Allina Health Systems) Series A 5.75% 11/15/32-12 | 2,000,000 | 2,228,360 | |||
| (Fairview Health Services) Series A 5.625% 5/15/32-12 | 2,000,000 | 2,215,780 | |||
| Minnesota Higher Education Facilities Authority | |||||
| Revenue (College of Art & Design Project) | |||||
| Series 5-D 6.75% 5/1/26-10 | 500,000 | 537,090 | |||
48
| Principal amount | Value | ||||
| Municipal Bonds (continued) | |||||
| §Pre-Refunded Bonds (continued) | |||||
| Minnesota State Refunding & Various Purpose | |||||
| 5.00% 11/1/17-08 | $ | 2,160,000 | $ | 2,172,917 | |
| Puerto Rico Commonwealth Highway & Transportation | |||||
| Authority Revenue Series D 5.25% 7/1/38-12 | 1,500,000 | 1,624,575 | |||
| Puerto Rico Commonwealth Public Improvement | |||||
| Series A 5.00% 7/1/34 -14 | 315,000 | 350,375 | |||
| Puerto Rico Electric Power Authority Revenue | |||||
| Series II 5.25% 7/1/31-12 | 1,000,000 | 1,109,320 | |||
| Rochester Multifamily Housing Revenue (Wedum | |||||
| Shorewood Campus Project) 6.60% 6/1/36-09 | 990,000 | 1,042,539 | |||
| St. Louis Park Health Care Facilities Revenue (Park | |||||
| Nicollet Health Services) Series B 5.25% 7/1/30-14 | 1,000,000 | 1,113,130 | |||
| 18,171,401 | |||||
| Special Tax Revenue Bonds – 5.35% | |||||
| Hennepin County Sales Tax Revenue | |||||
| (First Lien - Ballpark Project) | |||||
| Series A 5.00% 12/15/24 | 1,000,000 | 1,056,240 | |||
| (Second Lien - Ballpark Project) | |||||
| Series B 5.00% 12/15/20 | 1,500,000 | 1,612,980 | |||
| Minneapolis Supported Development Revenue | |||||
| (Limited Tax-Common Bond Fund) Series 2A | |||||
| 5.00% 6/1/28 (AMT) | 1,170,000 | 1,052,403 | |||
| Minneapolis Tax Increment Revenue | |||||
| (Ivy Tower Project) 5.70% 2/1/29 | 785,000 | 702,693 | |||
| (St. Anthony Falls Project) Refunding 5.65% 2/1/27 | 500,000 | 461,515 | |||
| Puerto Rico Commonwealth Infrastructure Financing | |||||
| Authority Special Tax Revenue | |||||
| Series B 5.00% 7/1/46 | 800,000 | 765,944 | |||
| St. Paul Port Authority (Brownsfields | |||||
| Redevelopment Tax) Series 2 5.00% 3/1/37 | 1,500,000 | 1,497,735 | |||
| Virgin Islands Public Finance Authority Revenue | |||||
| (Senior-Lien-Matching Fund Loan Note) | |||||
| Series A 5.25% 10/1/24 | 1,000,000 | 976,610 | |||
| 8,126,120 | |||||
49
Statements of net assets
Delaware Minnesota High-Yield Municipal Bond Fund
| Principal amount | Value | ||||
| Municipal Bonds (continued) | |||||
| State General Obligation Bonds – 4.78% | |||||
| Minnesota State | |||||
| 5.00% 6/1/10 | $ | 2,500,000 | $ | 2,630,275 | |
| 5.00% 6/1/14 | 1,000,000 | 1,107,020 | |||
| 5.00% 8/1/21 (FSA) | 1,250,000 | 1,304,738 | |||
| Puerto Rico Commonwealth Public Improvement | |||||
| Series A 5.25% 7/1/22 | 1,000,000 | 1,001,200 | |||
| Un-Refunded Balance 5.00% 7/1/34 | 185,000 | 177,476 | |||
| Puerto Rico Government Development Bank | |||||
| Senior Notes Series B 5.00% 12/1/14 | 1,000,000 | 1,028,360 | |||
| 7,249,069 | |||||
| Transportation Revenue Bond – 1.32% | |||||
| Minneapolis - St. Paul Metropolitan Airports | |||||
| Commission Revenue Series A 5.00% 1/1/28 (MBIA) | 2,000,000 | 1,999,860 | |||
| 1,999,860 | |||||
| Water & Sewer Revenue Bonds – 4.14% | |||||
| Minnesota Public Facilities Authority Clean Water Revenue | |||||
| Series B 5.00% 3/1/18 | 2,000,000 | 2,216,060 | |||
| Minnesota Public Facilities Authority Water Pollution | |||||
| Control Revenue Refunding | |||||
| Series C 5.00% 3/1/18 | 1,000,000 | 1,072,760 | |||
| Series D 5.00% 3/1/14 | 1,500,000 | 1,652,565 | |||
| St. Paul Sewer Revenue Series D 5.00% 12/1/19 | 1,220,000 | 1,336,460 | |||
| 6,277,845 | |||||
| Total Municipal Bonds (cost $150,724,226) | 146,021,443 | ||||
| Number of shares | |||||
| Short-Term Investments – 4.92% | |||||
| Money Market Instrument – 1.69% | |||||
| Federated Minnesota Municipal Cash Trust | 2,557,933 | 2,557,933 | |||
| 2,557,933 | |||||
50
| Principal amount | Value | ||||||
| Short-Term Investments (continued) | |||||||
| ·Variable Rate Demand Notes – 3.23% | |||||||
| St. Paul Port Authority Industrial Development Revenue | |||||||
| (Camada Limited Partnership-711) | |||||||
| 1.94% 12/1/22 (AMT) | $ | 100,000 | $ | 100,000 | |||
| University of Minnesota | |||||||
| Series A 1.93% 1/1/34 | 800,000 | 800,000 | |||||
| Series C 1.93% 12/1/36 | 4,000,000 | 4,000,000 | |||||
| 4,900,000 | |||||||
| Total Short-Term Investments (cost $7,457,933) | 7,457,933 | ||||||
| Total Value of Securities – 101.14% | |||||||
| (cost $158,182,159) | 153,479,376 | ||||||
| Liabilities Net of Receivables and | |||||||
| Other Assets – (1.14%) | (1,723,990 | ) | |||||
| Net Assets Applicable to 15,173,748 | |||||||
| Shares Outstanding – 100.00% | $ | 151,755,386 | |||||
| Net Asset Value – Delaware Minnesota High-Yield Municipal Bond Fund | |||||||
| Class A ($116,998,770 / 11,703,495 Shares) | $10.00 | ||||||
| Net Asset Value – Delaware Minnesota High-Yield Municipal Bond Fund | |||||||
| Class B ($5,906,897 / 590,044 Shares) | $10.01 | ||||||
| Net Asset Value – Delaware Minnesota High-Yield Municipal Bond Fund | |||||||
| Class C ($28,849,719 / 2,880,209 Shares) | $10.02 | ||||||
| Components of Net Assets at August 31, 2008: | |||||||
| Shares of beneficial interest (unlimited authorization – no par) | $ | 159,306,245 | |||||
| Accumulated net realized loss on investments | (2,565,305 | ) | |||||
| Net unrealized depreciation of investments | (4,985,554 | ) | |||||
| Total net assets | $ | 151,755,386 | |||||
51
Statements of net assets
Delaware Minnesota High-Yield Municipal Bond Fund
§Pre-Refunded bonds. 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. See Note 11 in “Notes to financial statements.” |
·Variable rate security. The rate shown is the rate as of August 31, 2008. |
@Illiquid security. At August 31, 2008, the aggregate amount of illiquid securities was $4,411,720, which represented 2.91% of the Fund’s net assets. See Note 11 in “Notes to financial statements.” |
Summary of abbreviations:
AMBAC — Insured by the AMBAC Assurance Corporation
AMT — Subject to Alternative Minimum Tax
Assured Gty — Assured Guaranty
FHA — Insured by the Federal Housing Administration
FNMA — Insured by Federal National Mortgage Association
FSA — Insured by Financial Security Assurance
GNMA — Insured by Government National Mortgage Association
MBIA — Insured by the Municipal Bond Insurance Association
HUD — Housing and Urban Development
RADIAN — Insured by Radian Asset Assurance
| Net Asset Value and Offering Price Per Share – | ||
| Delaware Minnesota High-Yield Municipal Bond Fund | ||
| Net asset value Class A (A) | $ | 10.00 |
| Sales charge (4.50% of offering price) (B) | 0.47 | |
| Offering price | $ | 10.47 |
| (A) | Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. | |
| (B) | See the current prospectus for purchases of $100,000 or more. |
52
At August 31, 2008, the Fund had the following Interest rate swap contract outstanding: |
| Interest Rate Swap Contract1 | ||||||
| Unrealized | ||||||
| Notional Value | Expiration Date | Description | Depreciation | |||
| $10,000,000 | 10/2/38 | Agreement with JPMorgan to receive the notional amount multiplied by the fixed rate of 3.925% and to pay the notional amount multiplied by the BMA floating rate, modified on a quarterly basis. | $(282,771) | |||
The use of swap contracts involves elements of market risk and risks in excess of the amount recognized in the financial statements. The notional value presented above represents the Fund’s total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund’s net assets.
1See Note 10 in “Notes to financial statements.”
See accompanying notes
53
| Statements of operations | |
| Year Ended August 31, 2008 |
| Delaware | Delaware | |||||||||||
| Delaware | Tax-Free | Minnesota | ||||||||||
| Tax-Free | Minnesota | High-Yield | ||||||||||
| Minnesota | Intermediate | Municipal | ||||||||||
| Fund | Fund | Bond Fund | ||||||||||
| Investment Income: | ||||||||||||
| Interest | $ | 31,892,431 | $ | 2,696,610 | $ | 7,323,812 | ||||||
| Expenses: | ||||||||||||
| Management fees | 3,345,601 | 294,326 | 806,049 | |||||||||
| Distribution expenses – Class A | 1,448,066 | 129,841 | 281,260 | |||||||||
| Distribution expenses – Class B | 135,059 | 13,018 | 64,294 | |||||||||
| Distribution expenses – Class C | 268,813 | 55,770 | 275,740 | |||||||||
| Interest and related expenses | 1,118,083 | — | — | |||||||||
| Dividend disbursing and transfer agent fees | ||||||||||||
| and expenses | 299,532 | 34,875 | 90,292 | |||||||||
| Accounting and administration expenses | 247,600 | 23,544 | 58,615 | |||||||||
| Legal fees | 101,847 | 17,126 | 32,922 | |||||||||
| Reports and statements to shareholders | 57,052 | 4,914 | 14,152 | |||||||||
| Audit and tax | 47,021 | 12,637 | 18,226 | |||||||||
| Trustees’ fees | 30,520 | 2,900 | 7,197 | |||||||||
| Registration fees | 29,130 | 14,842 | 4,555 | |||||||||
| Custodian fees | 26,940 | 2,856 | 5,211 | |||||||||
| Insurance fees | 16,987 | 1,574 | 4,055 | |||||||||
| Pricing fees | 13,484 | 4,272 | 8,800 | |||||||||
| Consulting fees | 8,537 | 834 | 2,000 | |||||||||
| Trustees’ expenses | 3,380 | 307 | 797 | |||||||||
| Dues and services | 2,433 | 147 | 507 | |||||||||
| Taxes (other than taxes on income) | 1,166 | 80 | 302 | |||||||||
| 7,201,251 | 613,863 | 1,674,974 | ||||||||||
| Less fees waived | (1,985 | ) | (60,630 | ) | (110,959 | ) | ||||||
| Less waived distribution expenses – Class A | — | (51,937 | ) | — | ||||||||
| Less expenses paid indirectly | (52 | ) | (239 | ) | (1,338 | ) | ||||||
| Total operating expenses | 7,199,214 | 501,057 | 1,562,677 | |||||||||
| Net Investment Income | 24,693,217 | 2,195,553 | 5,761,135 | |||||||||
54
| Delaware | Delaware | |||||||||||
| Delaware | Tax-Free | Minnesota | ||||||||||
| Tax-Free | Minnesota | High-Yield | ||||||||||
| Minnesota | Intermediate | Municipal | ||||||||||
| Fund | Fund | Bond Fund | ||||||||||
| Net Realized and Unrealized Gain | ||||||||||||
| (Loss) on Investments: | ||||||||||||
| Net realized gain (loss) on investments | $ | 1,644,874 | $ | 48,395 | $ | (153,335 | ) | |||||
| Net change in unrealized appreciation/ | ||||||||||||
| depreciation of investments | (3,545,582 | ) | 549,365 | (2,719,275 | ) | |||||||
| Net Realized and Unrealized Gain | ||||||||||||
| (Loss) on Investments | (1,900,708 | ) | 597,760 | (2,872,610 | ) | |||||||
| Net Increase in Net Assets | ||||||||||||
| Resulting from Operations | $ | 22,792,509 | $ | 2,793,313 | $ | 2,888,525 | ||||||
See accompanying notes
55
Statements of changes in net assets
Delaware Tax-Free Minnesota Fund
| Year Ended | ||||||||
| 8/31/08 | 8/31/07 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 24,693,217 | $ | 20,063,656 | ||||
| Net realized gain on investments | 1,644,874 | 33,546 | ||||||
| Net change in unrealized | ||||||||
| appreciation/depreciation of investments | (3,545,582 | ) | (15,848,509 | ) | ||||
| Net increase in net assets resulting from operations | 22,792,509 | 4,248,693 | ||||||
| Dividends and Distributions to Shareholders from: | ||||||||
| Net Investment Income: | ||||||||
| Class A | (23,717,797 | ) | (18,683,231 | ) | ||||
| Class B | (452,818 | ) | (434,393 | ) | ||||
| Class C | (894,686 | ) | (671,635 | ) | ||||
| Net realized gain on investments: | ||||||||
| Class A | (94,009 | ) | (332,881 | ) | ||||
| Class B | (2,390 | ) | (9,630 | ) | ||||
| Class C | (4,208 | ) | (13,628 | ) | ||||
| (25,165,908 | ) | (20,145,398 | ) | |||||
| Capital Share Transactions: | ||||||||
| Proceeds from shares sold: | ||||||||
| Class A | 43,057,506 | 45,483,808 | ||||||
| Class B | 119,269 | 425,118 | ||||||
| Class C | 5,336,417 | 4,739,708 | ||||||
| Net asset value of shares issued upon reinvestment | ||||||||
| of dividends and distributions: | ||||||||
| Class A | 15,526,838 | 12,201,845 | ||||||
| Class B | 307,575 | 282,247 | ||||||
| Class C | 698,797 | 527,388 | ||||||
| Net assets from Fund merger1: | ||||||||
| Class A | — | 205,624,133 | ||||||
| Class B | — | 8,764,578 | ||||||
| Class C | — | 11,631,916 | ||||||
| 65,046,402 | 289,680,741 | |||||||
56
| Year Ended | ||||||||
| 8/31/08 | 8/31/07 | |||||||
| Capital Share Transactions (continued): | ||||||||
| Cost of shares repurchased: | ||||||||
| Class A | $ | (59,622,788 | ) | $ | (52,066,708 | ) | ||
| Class B | (4,483,911 | ) | (4,727,364 | ) | ||||
| Class C | (5,172,765 | ) | (4,490,541 | ) | ||||
| (69,279,464 | ) | (61,284,613 | ) | |||||
| Increase (decrease) in net assets derived from | ||||||||
| capital share transactions | (4,233,062 | ) | 228,396,128 | |||||
| Net Increase (Decrease) in Net Assets | (6,606,461 | ) | 212,499,423 | |||||
| Net Assets: | ||||||||
| Beginning of year | 620,698,158 | 408,198,735 | ||||||
| End of year | $ | 614,091,697 | $ | 620,698,158 | ||||
| Distributions in excess of net investment income | $ | (22,417 | ) | $ | (22,488 | ) | ||
1See Note 8 in “Notes to financial statements.”
See accompanying notes
57
Statements of changes in net assets
Delaware Tax-Free Minnesota Intermediate Fund
| Year Ended | ||||||||
| 8/31/08 | 8/31/07 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 2,195,553 | $ | 2,196,287 | ||||
| Net realized gain (loss) on investments | 48,395 | (89,813 | ) | |||||
| Net change in unrealized appreciation/depreciation of investments | 549,365 | (1,183,650 | ) | |||||
| Net increase in net assets resulting from operations | 2,793,313 | 922,824 | ||||||
| Dividends and Distributions to Shareholders from: | ||||||||
| Net Investment Income: | ||||||||
| Class A | (1,992,475 | ) | (1,971,803 | ) | ||||
| Class B | (39,255 | ) | (60,183 | ) | ||||
| Class C | (165,689 | ) | (164,296 | ) | ||||
| (2,197,419 | ) | (2,196,282 | ) | |||||
| Capital Share Transactions: | ||||||||
| Proceeds from shares sold: | ||||||||
| Class A | 14,394,866 | 6,159,265 | ||||||
| Class B | 229,426 | 13,368 | ||||||
| Class C | 2,683,011 | 709,963 | ||||||
| Net asset value of shares issued upon reinvestment of dividends and distributions: | ||||||||
| Class A | 1,376,198 | 1,387,160 | ||||||
| Class B | 29,283 | 46,325 | ||||||
| Class C | 128,094 | 120,231 | ||||||
| 18,840,878 | 8,436,312 | |||||||
58
| Year Ended | ||||||||
| 8/31/08 | 8/31/07 | |||||||
| Capital Share Transactions (continued): | ||||||||
| Cost of shares repurchased: | ||||||||
| Class A | $ | (6,309,982 | ) | $ | (6,246,465 | ) | ||
| Class B | (1,078,787 | ) | (300,624 | ) | ||||
| Class C | (675,375 | ) | (941,586 | ) | ||||
| (8,064,144 | ) | (7,488,675 | ) | |||||
| Increase in net assets derived from capital share transactions | 10,776,734 | 947,637 | ||||||
| Net Increase (Decrease) in Net Assets | 11,372,628 | (325,821 | ) | |||||
| Net Assets: | ||||||||
| Beginning of year | 55,125,890 | 55,451,711 | ||||||
| End of year | $ | 66,498,518 | $ | 55,125,890 | ||||
| Distributions in excess of net investment income | $ | (1,866 | ) | $ | — | |||
See accompanying notes
59
Statements of changes in net assets
Delaware Minnesota High-Yield Municipal Bond Fund
| Year Ended | ||||||||
| 8/31/08 | 8/31/07 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 5,761,135 | $ | 5,320,666 | ||||
| Net realized loss on investments | (153,335 | ) | (71,140 | ) | ||||
| Net change in unrealized appreciation/depreciation of investments | (2,719,275 | ) | (5,199,371 | ) | ||||
| Net increase in net assets resulting from operations | 2,888,525 | 50,155 | ||||||
| Dividends and Distributions to Shareholders from: | ||||||||
| Net Investment Income: | ||||||||
| Class A | (4,613,123 | ) | (4,206,568 | ) | ||||
| Class B | (215,135 | ) | (292,864 | ) | ||||
| Class C | (921,847 | ) | (801,099 | ) | ||||
| (5,750,105 | ) | (5,300,531 | ) | |||||
| Capital Share Transactions: | ||||||||
| Proceeds from shares sold: | ||||||||
| Class A | 29,618,345 | 39,562,284 | ||||||
| Class B | 52,811 | 718,339 | ||||||
| Class C | 7,621,141 | 10,413,630 | ||||||
| Net asset value of shares issued upon reinvestment of dividends and distributions: | ||||||||
| Class A | 3,092,127 | 2,699,180 | ||||||
| Class B | 138,356 | 194,713 | ||||||
| Class C | 692,751 | 574,257 | ||||||
| 41,215,531 | 54,162,403 | |||||||
60
| Year Ended | ||||||||
| 8/31/08 | 8/31/07 | |||||||
| Capital Share Transactions (continued): | ||||||||
| Cost of shares repurchased: | ||||||||
| Class A | $ | (23,292,776 | ) | $ | (15,928,387 | ) | ||
| Class B | (1,519,206 | ) | (2,897,155 | ) | ||||
| Class C | (4,943,787 | ) | (4,527,479 | ) | ||||
| (29,755,769 | ) | (23,353,021 | ) | |||||
| Increase in net assets derived from capital share transactions | 11,459,762 | 30,809,382 | ||||||
| Net Increase in Net Assets | 8,598,182 | 25,559,006 | ||||||
| Net Assets: | ||||||||
| Beginning of year | 143,157,204 | 117,598,198 | ||||||
| End of year | $ | 151,755,386 | $ | 143,157,204 | ||||
| Undistributed net investment income | $ | — | $ | 45 | ||||
See accompanying notes
61
Financial highlights
Delaware Tax-Free Minnesota Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Net asset value, beginning of period |
| Income (loss) from investment operations: |
| Net investment income |
| Net realized and unrealized gain (loss) on investments |
| Total from investment operations |
| Less dividends and distributions from: |
| Net investment income |
| Net realized gain on investments |
| Total dividends and distributions |
| Net asset value, end of period |
| Total return1 |
| Ratios and supplemental data: |
| Net assets, end of period (000 omitted) |
| Ratio of expenses to average net assets excluding interest and fees on short-term floating |
| rate notes issued |
| Interest and fees on short-term floating rate notes issued |
| Total expenses2 |
| Ratio of expenses to average net assets excluding interest and fees on short-term floating |
| rate notes issued prior to fees waived and expenses paid indirectly |
| Interest and fees on short-term floating rate notes issued |
| Total expenses prior to fees waived and expense paid indirectly2 |
| Ratio of net investment income to average net assets |
| Ratio of net investment income to average net assets |
| prior to fees waived and expenses paid indirectly |
| Portfolio turnover |
1 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver by the manager, as applicable. Performance would have been lower had the waiver not been in effect.
See accompanying notes
62
| Year Ended | |||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/06 | 8/31/05 | 8/31/04 | |||||||||||
| $12.170 | $12.490 | $12.690 | $12.620 | $12.450 | |||||||||||
| 0.495 | 0.511 | 0.511 | 0.527 | 0.590 | |||||||||||
| (0.041 | ) | (0.313 | ) | (0.172 | ) | 0.222 | 0.348 | ||||||||
| 0.454 | 0.198 | 0.339 | 0.749 | 0.938 | |||||||||||
| (0.502 | ) | (0.507 | ) | (0.513 | ) | (0.526 | ) | (0.600 | ) | ||||||
| (0.002 | ) | (0.011 | ) | (0.026 | ) | (0.153 | ) | (0.168 | ) | ||||||
| (0.504 | ) | (0.518 | ) | (0.539 | ) | (0.679 | ) | (0.768 | ) | ||||||
| $12.120 | $12.170 | $12.490 | $12.690 | $12.620 | |||||||||||
| 3.77% | 1.58% | 2.78% | 6.12% | 7.72% | |||||||||||
| $574,914 | $578,194 | $381,720 | $364,491 | $348,000 | |||||||||||
| 0.93% | 0.94% | 0.93% | 0.93% | 0.94% | |||||||||||
| 0.18% | 0.29% | 0.26% | 0.19% | 0.14% | |||||||||||
| 1.11% | 1.23% | 1.19% | 1.12% | 1.08% | |||||||||||
| 0.93% | 0.96% | 0.94% | 0.94% | 0.94% | |||||||||||
| 0.18% | 0.29% | 0.26% | 0.19% | 0.14% | |||||||||||
| 1.11% | 1.25% | 1.20% | 1.13% | 1.08% | |||||||||||
| 4.05% | 4.12% | 4.11% | 4.19% | 4.68% | |||||||||||
| 4.05% | 4.10% | 4.10% | 4.18% | 4.68% | |||||||||||
| 17% | 7% | 13% | 10% | 25% | |||||||||||
2 Total expenses and total expenses prior to fees waived and expense paid indirectly includes interest and related expenses which include, but are not limited to, interest expense, remarketing fees, liquidity fees, and trustees’ fees in connection with the Fund’s participation in inverse floater programs. See Notes 1 and 7 in “Notes to financial statements”.
63
Financial highlights
Delaware Tax-Free Minnesota Fund Class B
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Net asset value, beginning of period |
| Income (loss) from investment operations: |
| Net investment income |
| Net realized and unrealized gain (loss) on investments |
| Total from investment operations |
| Less dividends and distributions from: |
| Net investment income |
| Net realized gain on investments |
| Total dividends and distributions |
| Net asset value, end of period |
| Total return1 |
| Ratios and supplemental data: |
| Net assets, end of period (000 omitted) |
| Ratio of expenses to average net assets excluding interest and fees on short-term floating |
| rate notes issued |
| Interest and fees on short-term floating rate notes issued |
| Total expenses2 |
| Ratio of expenses to average net assets excluding interest and fees on short-term floating |
| rate notes issued prior to fees waived and expenses paid indirectly |
| Interest and fees on short-term floating rate notes issued |
| Total expenses prior to fees waived and expense paid indirectly2 |
| Ratio of net investment income to average net assets |
| Ratio of net investment income to average net assets |
| prior to fees waived and expenses paid indirectly |
| Portfolio turnover |
1 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver by the manager, as applicable. Performance would have been lower had the waiver not been in effect.
See accompanying notes
64
| Year Ended | |||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/06 | 8/31/05 | 8/31/04 | |||||||||||
| $12.180 | $12.500 | $12.700 | $12.630 | $12.460 | |||||||||||
| 0.403 | 0.419 | 0.418 | 0.433 | 0.496 | |||||||||||
| (0.041 | ) | (0.314 | ) | (0.172 | ) | 0.222 | 0.348 | ||||||||
| 0.362 | 0.105 | 0.246 | 0.655 | 0.844 | |||||||||||
| (0.410 | ) | (0.414 | ) | (0.420 | ) | (0.432 | ) | (0.506 | ) | ||||||
| (0.002 | ) | (0.011 | ) | (0.026 | ) | (0.153 | ) | (0.168 | ) | ||||||
| (0.412 | ) | (0.425 | ) | (0.446 | ) | (0.585 | ) | (0.674 | ) | ||||||
| $12.130 | $12.180 | $12.500 | $12.700 | $12.630 | |||||||||||
| 2.99% | 0.82% | 2.01% | 5.33% | 6.91% | |||||||||||
| $11,593 | $15,674 | $11,354 | $12,810 | $14,588 | |||||||||||
| 1.68% | 1.69% | 1.68% | 1.68% | 1.69% | |||||||||||
| 0.18% | 0.29% | 0.26% | 0.19% | 0.14% | |||||||||||
| 1.86% | 1.98% | 1.94% | 1.87% | 1.83% | |||||||||||
| 1.68% | 1.71% | 1.69% | 1.69% | 1.69% | |||||||||||
| 0.18% | 0.29% | 0.26% | 0.19% | 0.14% | |||||||||||
| 1.86% | 2.00% | 1.95% | 1.88% | 1.83% | |||||||||||
| 3.30% | 3.37% | 3.36% | 3.44% | 3.93% | |||||||||||
| 3.30% | 3.35% | 3.35% | 3.43% | 3.93% | |||||||||||
| 17% | 7% | 13% | 10% | 25% | |||||||||||
2 Total expenses and total expenses prior to fees waived and expense paid indirectly includes interest and related expenses which include, but are not limited to, interest expense, remarketing fees, liquidity fees, and trustees’ fees in connection with the Fund’s participation in inverse floater programs. See Notes 1 and 7 in “Notes to financial statements”.
65
Financial highlights
Delaware Tax-Free Minnesota Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Net asset value, beginning of period |
| Income (loss) from investment operations: |
| Net investment income |
| Net realized and unrealized gain (loss) on investments |
| Total from investment operations |
| Less dividends and distributions from: |
| Net investment income |
| Net realized gain on investments |
| Total dividends and distributions |
| Net asset value, end of period |
| Total return1 |
| Ratios and supplemental data: |
| Net assets, end of period (000 omitted) |
| Ratio of expenses to average net assets excluding interest and fees on short-term floating |
| rate notes issued |
| Interest and fees on short-term floating rate notes issued |
| Total expenses2 |
| Ratio of expenses to average net assets excluding interest and fees on short-term floating |
| rate notes issued prior to fees waived and expenses paid indirectly |
| Interest and fees on short-term floating rate notes issued |
| Total expenses prior to fees waived and expense paid indirectly2 |
| Ratio of net investment income to average net assets |
| Ratio of net investment income to average net assets |
| prior to fees waived and expense paid indirectly |
| Portfolio turnover |
1 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver by the manager, as applicable. Performance would have been lower had the waiver not been in effect.
See accompanying notes
66
| Year Ended | |||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/06 | 8/31/05 | 8/31/04 | |||||||||||
| $12.200 | $12.530 | $12.720 | $12.650 | $12.480 | |||||||||||
| 0.403 | 0.418 | 0.418 | 0.433 | 0.495 | |||||||||||
| (0.031 | ) | (0.323 | ) | (0.162 | ) | 0.222 | 0.348 | ||||||||
| 0.372 | 0.095 | 0.256 | 0.655 | 0.843 | |||||||||||
| (0.410 | ) | (0.414 | ) | (0.420 | ) | (0.432 | ) | (0.505 | ) | ||||||
| (0.002 | ) | (0.011 | ) | (0.026 | ) | (0.153 | ) | (0.168 | ) | ||||||
| (0.412 | ) | (0.425 | ) | (0.446 | ) | (0.585 | ) | (0.673 | ) | ||||||
| $12.160 | $12.200 | $12.530 | $12.720 | $12.650 | |||||||||||
| 3.06% | 0.73% | 2.08% | 5.32% | 6.90% | |||||||||||
| $27,585 | $26,830 | $15,125 | $13,971 | $10,811 | |||||||||||
| 1.68% | 1.69% | 1.68% | 1.68% | 1.69% | |||||||||||
| 0.18% | 0.29% | 0.26% | 0.19% | 0.14% | |||||||||||
| 1.86% | 1.98% | 1.94% | 1.87% | 1.83% | |||||||||||
| 1.68% | 1.71% | 1.69% | 1.69% | 1.69% | |||||||||||
| 0.18% | 0.29% | 0.26% | 0.19% | 0.14% | |||||||||||
| 1.86% | 2.00% | 1.95% | 1.88% | 1.83% | |||||||||||
| 3.30% | 3.37% | 3.36% | 3.44% | 3.93% | |||||||||||
| 3.30% | 3.35% | 3.35% | 3.43% | 3.93% | |||||||||||
| 17% | 7% | 13% | 10% | 25% | |||||||||||
2 Total expenses and total expenses prior to fees waived and expense paid indirectly includes interest and related expenses which include, but are not limited to, interest expense, remarketing fees, liquidity fees, and trustees’ fees in connection with the Fund’s participation in inverse floater programs. See Notes 1 and 7 in “Notes to financial statements”.
67
Financial highlights
Delaware Tax-Free Minnesota Intermediate Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Net asset value, beginning of period |
| Income (loss) from investment operations: |
| Net investment income |
| Net realized and unrealized gain (loss) on investments |
| Total from investment operations |
| Less dividends and distributions from: |
| Net investment income |
| Total dividends and distributions |
| Net asset value, end of period |
| Total return1 |
| Ratios and supplemental data: |
| Net assets, end of period (000 omitted) |
| Ratio of expenses to average net assets2 |
| Ratio of expenses to average net assets |
| prior to fees waived and expenses paid indirectly2 |
| Ratio of net investment income to average net assets |
| Ratio of net investment income to average net assets |
| prior to fees waived and expense paid indirectly |
| Portfolio turnover |
1 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflect waivers by the manager and distributor, as applicable. Performance would have been lower had the waivers not been in effect. |
2 The ratio of expenses to average net assets and ratio of expenses to average net assets prior to fees waived and expense paid indirectly for the year ended August 31, 2004, includes interest and related expenses which include, but are not limited to, interest expense, remarketing fees, liquidity fees, and trustees’ fees in connection with the Fund’s participation in inverse floater programs. See Notes 1 and 7 in “Notes to financial statements”. |
See accompanying notes
68
| Year Ended | |||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/06 | 8/31/05 | 8/31/04 | |||||||||||
| $10.610 | $10.860 | $11.010 | $10.890 | $10.630 | |||||||||||
| 0.414 | 0.445 | 0.429 | 0.407 | 0.444 | |||||||||||
| 0.110 | (0.250 | ) | (0.150 | ) | 0.120 | 0.260 | |||||||||
| 0.524 | 0.195 | 0.279 | 0.527 | 0.704 | |||||||||||
| (0.414 | ) | (0.445 | ) | (0.429 | ) | (0.407 | ) | (0.444 | ) | ||||||
| (0.414 | ) | (0.445 | ) | (0.429 | ) | (0.407 | ) | (0.444 | ) | ||||||
| $10.720 | $10.610 | $10.860 | $11.010 | $10.890 | |||||||||||
| 5.00% | 1.80% | 2.62% | 4.93% | 6.73% | |||||||||||
| $58,465 | $48,477 | $48,297 | $52,958 | $57,012 | |||||||||||
| 0.75% | 0.76% | 0.75% | 0.79% | 0.89% | |||||||||||
| 0.95% | 1.00% | 0.97% | 0.95% | 1.00% | |||||||||||
| 3.83% | 4.11% | 3.96% | 3.72% | 4.10% | |||||||||||
| 3.63% | 3.87% | 3.74% | 3.56% | 3.99% | |||||||||||
| 27% | 15% | 11% | 25% | 30% | |||||||||||
69
Financial highlights
Delaware Tax-Free Minnesota Intermediate Fund Class B
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Net asset value, beginning of period |
| Income (loss) from investment operations: |
| Net investment income |
| Net realized and unrealized gain (loss) on investments |
| Total from investment operations |
| Less dividends and distributions from: |
| Net investment income |
| Total dividends and distributions |
| Net asset value, end of period |
| Total return1 |
| Ratios and supplemental data: |
| Net assets, end of period (000 omitted) |
| Ratio of expenses to average net assets2 |
| Ratio of expenses to average net assets |
| prior to fees waived and expenses paid indirectly2 |
| Ratio of net investment income to average net assets |
| Ratio of net investment income to average net assets |
| prior to fees waived and expense paid indirectly |
| Portfolio turnover |
1 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver by the manager, as applicable. Performance would have been lower had the waiver not been in effect. |
2 The ratio of expenses to average net assets and ratio of expenses to average net assets prior to fees waived and expense paid indirectly for the year ended August 31, 2004, includes interest and related expenses which include, but are not limited to, interest expense, remarketing fees, liquidity fees, and trustees’ fees in connection with the Fund’s participation in inverse floater programs. See Notes 1 and 7 in “Notes to financial statements”. |
See accompanying notes
70
| Year Ended | |||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/06 | 8/31/05 | 8/31/04 | |||||||||||
| $10.640 | $10.890 | $11.040 | $10.920 | $10.650 | |||||||||||
| 0.322 | 0.353 | 0.337 | 0.314 | 0.352 | |||||||||||
| 0.110 | (0.250 | ) | (0.150 | ) | 0.120 | 0.270 | |||||||||
| 0.432 | 0.103 | 0.187 | 0.434 | 0.622 | |||||||||||
| (0.322 | ) | (0.353 | ) | (0.337 | ) | (0.314 | ) | (0.352 | ) | ||||||
| (0.322 | ) | (0.353 | ) | (0.337 | ) | (0.314 | ) | (0.352 | ) | ||||||
| $10.750 | $10.640 | $10.890 | $11.040 | $10.920 | |||||||||||
| 4.10% | 0.94% | 1.75% | 4.03% | 5.91% | |||||||||||
| $908 | $1,713 | $1,993 | $2,811 | $3,224 | |||||||||||
| 1.60% | 1.61% | 1.60% | 1.64% | 1.74% | |||||||||||
| 1.70% | 1.75% | 1.72% | 1.70% | 1.75% | |||||||||||
| 2.98% | 3.26% | 3.11% | 2.87% | 3.25% | |||||||||||
| 2.88% | 3.12% | 2.99% | 2.81% | 3.24% | |||||||||||
| 27% | 15% | 11% | 25% | 30% | |||||||||||
71
Financial highlights
Delaware Tax-Free Minnesota Intermediate Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Net asset value, beginning of period |
| Income (loss) from investment operations: |
| Net investment income |
| Net realized and unrealized gain (loss) on investments |
| Total from investment operations |
| Less dividends and distributions from: |
| Net investment income |
| Total dividends and distributions |
| Net asset value, end of period |
| Total return1 |
| Ratios and supplemental data: |
| Net assets, end of period (000 omitted) |
| Ratio of expenses to average net assets2 |
| Ratio of expenses to average net assets |
| prior to fees waived and expenses paid indirectly2 |
| Ratio of net investment income to average net assets |
| Ratio of net investment income to average net assets |
| prior to fees waived and expense paid indirectly |
| Portfolio turnover |
1 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver by the manager, as applicable. Performance would have been lower had the waiver not been in effect. |
2 The ratio of expenses to average net assets and ratio of expenses to average net assets prior to fees waived and expense paid indirectly for the year ended August 31, 2004, includes interest and related expenses which include, but are not limited to, interest expense, remarketing fees, liquidity fees, and trustees’ fees in connection with the Fund’s participation in inverse floater programs. See Notes 1 and 7 in “Notes to financial statements”. |
See accompanying notes
72
| Year Ended | ||||||||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/06 | 8/31/05 | 8/31/04 | ||||||||||||||||
| $ | 10.630 | $ | 10.880 | $ | 11.030 | $ | 10.910 | $ | 10.640 | |||||||||||
| 0.322 | 0.353 | 0.337 | 0.314 | 0.352 | ||||||||||||||||
| 0.110 | (0.250 | ) | (0.150 | ) | 0.120 | 0.270 | ||||||||||||||
| 0.432 | 0.103 | 0.187 | 0.434 | 0.622 | ||||||||||||||||
| (0.322 | ) | (0.353 | ) | (0.337 | ) | (0.314 | ) | (0.352 | ) | |||||||||||
| (0.322 | ) | (0.353 | ) | (0.337 | ) | (0.314 | ) | (0.352 | ) | |||||||||||
| $ | 10.740 | $ | 10.630 | $ | 10.880 | $ | 11.030 | $ | 10.910 | |||||||||||
| 4.10% | 0.94% | 1.75% | 4.04% | 5.91% | ||||||||||||||||
| $7,126 | $4,936 | $5,162 | $5,996 | $7,188 | ||||||||||||||||
| 1.60% | 1.61% | 1.60% | 1.64% | 1.74% | ||||||||||||||||
| 1.70% | 1.75% | 1.72% | 1.70% | 1.75% | ||||||||||||||||
| 2.98% | 3.26% | 3.11% | 2.87% | 3.25% | ||||||||||||||||
| 2.88% | 3.12% | 2.99% | 2.81% | 3.24% | ||||||||||||||||
| 27% | 15% | 11% | 25% | 30% | ||||||||||||||||
73
Financial highlights
Delaware Minnesota High-Yield Municipal Bond Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Net asset value, beginning of period |
| Income (loss) from investment operations: |
| Net investment income |
| Net realized and unrealized gain (loss) on investments |
| Total from investment operations |
| Less dividends and distributions from: |
| Net investment income |
| Total dividends and distributions |
| Net asset value, end of period |
| Total return1 |
| Ratios and supplemental data: |
| Net assets, end of period (000 omitted) |
| Ratio of expenses to average net assets |
| Ratio of expenses to average net assets |
| prior to fees waived and expenses paid indirectly |
| Ratio of net investment income to average net assets |
| Ratio of net investment income to average net assets |
| prior to fees waived and expense paid indirectly |
| Portfolio turnover |
1 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect.
See accompanying notes
74
| Year Ended | ||||||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/06 | 8/31/05 | 8/31/04 | ||||||||||||||
| $10.180 | $10.530 | $ | 10.610 | $ | 10.240 | $ | 9.910 | |||||||||||
| 0.418 | 0.430 | 0.445 | 0.469 | 0.512 | ||||||||||||||
| (0.180 | ) | (0.350 | ) | (0.082 | ) | 0.372 | 0.328 | |||||||||||
| 0.238 | 0.080 | 0.363 | 0.841 | 0.840 | ||||||||||||||
| (0.418 | ) | (0.430 | ) | (0.443 | ) | (0.471 | ) | (0.510 | ) | |||||||||
| (0.418 | ) | (0.430 | ) | (0.443 | ) | (0.471 | ) | (0.510 | ) | |||||||||
| $10.000 | $10.180 | $ | 10.530 | $ | 10.610 | $ | 10.240 | |||||||||||
| 2.35% | 0.71% | 3.54% | 8.40% | 8.65% | ||||||||||||||
| $116,999 | $109,807 | $ | 87,504 | $ | 63,802 | $ | 42,636 | |||||||||||
| 0.89% | 0.90% | 0.89% | 0.89% | 0.75% | ||||||||||||||
| 0.97% | 1.00% | 1.00% | 0.98% | 1.00% | ||||||||||||||
| 4.11% | 4.09% | 4.26% | 4.50% | 5.03% | ||||||||||||||
| 4.03% | 3.99% | 4.15% | 4.41% | 4.78% | ||||||||||||||
| 10% | 10% | 4% | 3% | 24% | ||||||||||||||
75
Financial highlights
Delaware Minnesota High-Yield Municipal Bond Fund Class B
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Net asset value, beginning of period |
| Income (loss) from investment operations: |
| Net investment income |
| Net realized and unrealized gain (loss) on investments |
| Total from investment operations |
| Less dividends and distributions from: |
| Net investment income |
| Total dividends and distributions |
| Net asset value, end of period |
| Total return1 |
| Ratios and supplemental data: |
| Net assets, end of period (000 omitted) |
| Ratio of expenses to average net assets |
| Ratio of expenses to average net assets |
| prior to fees waived and expenses paid indirectly |
| Ratio of net investment income to average net assets |
| Ratio of net investment income to average net assets |
| prior to fees waived and expense paid indirectly |
| Portfolio turnover |
1 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect.
See accompanying notes
76
| Year Ended | ||||||||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/06 | 8/31/05 | 8/31/04 | ||||||||||||||||
| $ | 10.190 | $ | 10.550 | $ | 10.630 | $ | 10.250 | $ | 9.930 | |||||||||||
| 0.341 | 0.351 | 0.367 | 0.391 | 0.435 | ||||||||||||||||
| (0.179 | ) | (0.360 | ) | (0.082 | ) | 0.381 | 0.318 | |||||||||||||
| 0.162 | (0.009 | ) | 0.285 | 0.772 | 0.753 | |||||||||||||||
| (0.342 | ) | (0.351 | ) | (0.365 | ) | (0.392 | ) | (0.433 | ) | |||||||||||
| (0.342 | ) | (0.351 | ) | (0.365 | ) | (0.392 | ) | (0.433 | ) | |||||||||||
| $ | 10.010 | $ | 10.190 | $ | 10.550 | $ | 10.630 | $ | 10.250 | |||||||||||
| 1.58% | (0.13% | ) | 2.77% | 7.68% | 7.71% | |||||||||||||||
| $5,907 | $7,334 | $9,578 | $ | 10,505 | $ | 12,463 | ||||||||||||||
| 1.64% | 1.65% | 1.64% | 1.64% | 1.50% | ||||||||||||||||
| 1.72% | 1.75% | 1.75% | 1.73% | 1.75% | ||||||||||||||||
| 3.36% | 3.34% | 3.51% | 3.75% | 4.28% | ||||||||||||||||
| 3.28% | 3.24% | 3.40% | 3.66% | 4.03% | ||||||||||||||||
| 10% | 10% | 4% | 3% | 24% | ||||||||||||||||
77
Financial highlights
Delaware Minnesota High-Yield Municipal Bond Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
| Net asset value, beginning of period |
| Income (loss) from investment operations: |
| Net investment income |
| Net realized and unrealized gain (loss) on investments |
| Total from investment operations |
| Less dividends and distributions from: |
| Net investment income |
| Total dividends and distributions |
| Net asset value, end of period |
| Total return1 |
| Ratios and supplemental data: |
| Net assets, end of period (000 omitted) |
| Ratio of expenses to average net assets |
| Ratio of expenses to average net assets |
| prior to fees waived and expenses paid indirectly |
| Ratio of net investment income to average net assets |
| Ratio of net investment income to average net assets |
| prior to fees waived and expense paid indirectly |
| Portfolio turnover |
1 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect.
See accompanying notes
78
| Year Ended | ||||||||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/06 | 8/31/05 | 8/31/04 | ||||||||||||||||
| $ | 10.200 | $ | 10.550 | $ | 10.630 | $ | 10.250 | $ | 9.930 | |||||||||||
| 0.342 | 0.351 | 0.367 | 0.391 | 0.435 | ||||||||||||||||
| (0.181 | ) | (0.350 | ) | (0.082 | ) | 0.381 | 0.318 | |||||||||||||
| 0.161 | 0.001 | 0.285 | 0.772 | 0.753 | ||||||||||||||||
| (0.341 | ) | (0.351 | ) | (0.365 | ) | (0.392 | ) | (0.433 | ) | |||||||||||
| (0.341 | ) | (0.351 | ) | (0.365 | ) | (0.392 | ) | (0.433 | ) | |||||||||||
| $ | 10.020 | $ | 10.200 | $ | 10.550 | $ | 10.630 | $ | 10.250 | |||||||||||
| 1.58% | (0.04% | ) | 2.76% | 7.68% | 7.71% | |||||||||||||||
| $ | 28,849 | $ | 26,016 | $ | 20,516 | $ | 15,809 | $ | 11,435 | |||||||||||
| 1.64% | 1.65% | 1.64% | 1.64% | 1.50% | ||||||||||||||||
| 1.72% | 1.75% | 1.75% | 1.73% | 1.75% | ||||||||||||||||
| 3.36% | 3.34% | 3.51% | 3.75% | 4.28% | ||||||||||||||||
| 3.28% | 3.24% | 3.40% | 3.66% | 4.03% | ||||||||||||||||
| 10% | 10% | 4% | 3% | 24% | ||||||||||||||||
79
| Notes to financial statements | |
| Delaware Minnesota Municipal Bond Funds | August 31, 2008 |
Voyageur Mutual Funds is organized as a Delaware statutory trust and offers five series: Delaware Minnesota High-Yield Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund, Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund and Delaware Tax-Free New York Fund. Voyageur Tax-Free Funds is organized as a Delaware statutory trust and offers the Delaware Tax-Free Minnesota Fund. Voyageur Intermediate Tax-Free Funds is organized as a Delaware statutory trust and offers the Delaware Tax-Free Minnesota Intermediate Fund. Voyageur Mutual Funds, Voyageur Tax-Free Funds and Voyageur Intermediate Tax-Free Funds are individually referred to as Trust and collectively as Trusts. These financial statements and the related notes pertain to Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Intermediate Fund and Delaware Minnesota High-Yield Municipal Bond Fund (each referred to as a Fund or collectively as the Funds). The above Trusts are open-end investment companies. The Funds are considered non-diversified under the Investment Company Act of 1940, as amended, and offer Class A, Class B, and Class C shares. Class A shares are sold with a maximum front-end sales charge of up to 4.50% for Delaware Tax-Free Minnesota Fund and Delaware Minnesota High-Yield Municipal Bond Fund and up to 2.75% for Delaware Tax-Free Minnesota Intermediate Fund. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 1% if redeemed during the first year and 0.50% during the second year for the Delaware Tax-Free Minnesota and Delaware Minnesota High-Yield Municipal Bond Fund and 0.75% for the Tax-Free Minnesota Intermediate Fund if redeemed within the first year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class B shares may only be purchased through dividend reinvestment and certain permitted exchanges. Prior to June 1, 2007, Class B shares were sold with a CDSC that declined from 4% to zero for Delaware Tax-Free Minnesota Fund and Delaware Minnesota High-Yield Municipal Bond Fund, and that declined from 2% to zero for Delaware Tax-Free Minnesota Intermediate Fund depending upon the period of time the shares were held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase for Delaware Tax-Free Minnesota Fund and Delaware Minnesota High-Yield Municipal Bond Fund, and approximately five years after purchase for Delaware Tax-Free Minnesota Intermediate Fund. Class C shares are sold with a CDSC of 1%, if redeemed during the first twelve months.
The investment objective of Delaware Tax-Free Minnesota Fund is to seek as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, as is consistent with preservation of capital.
The investment objective of Delaware Tax-Free Minnesota Intermediate Fund is to seek to provide investors with preservation of capital and, secondarily, current income exempt from federal income tax and from the Minnesota state personal income tax, by maintaining a dollar-weighted average effective portfolio maturity of 10 years or less.
The investment objective of Delaware Minnesota High-Yield Municipal Bond Fund is to seek as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, primarily through investment in medium- and lower-grade municipal obligations.
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1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Funds.
Security Valuation — Long-term debt securities, and interest rate swap contracts are valued by an independent pricing service or broker. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Open-end investment companies are valued at their published net asset value. Generally, 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 each Fund’s Board of Trustees (Board). 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, 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).
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (FAS 157). FAS 157 establishes a framework for measuring fair value in U.S. generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. FAS 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. FAS 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of FAS 157 to have a material impact on the amounts reported in the financial statements.
Federal Income Taxes — Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements.
Effective February 29, 2008, the Funds adopted 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 each 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. The adoption of FIN 48 did not result in the recording of any tax benefit or expense in the current period.
81
Notes to financial statements
Delaware Minnesota Municipal Bond Funds
1. Significant Accounting Policies (continued)
Class Accounting — Investment income and common expenses are allocated to the various classes of the Funds on the basis of “settled shares” of each class in relation to the net assets of the Funds. Realized and unrealized gain (loss) on investments are allocated to the various classes of the Funds on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Interest and Related Expenses — Interest and related expenses include, but are not limited to, interest expense, remarketing fees, liquidity fees, and trustees’ fees from a Fund’s participation in inverse floater programs where the Fund has transferred its own bonds to a trust that issues floating rate securities with an aggregate principal amount equal to the principal of the transferred bonds. In conveyance of the bond, the Fund receives the inverse floating rate securities and cash from the trust. As a result of certain rights retained by the Fund, the transfer of the bond is not considered a sale, but rather a form of financing for accounting purposes whereby the cash received is recorded as a liability and interest expense is recorded 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, 2008, Delaware Tax-Free Minnesota Fund had an average daily liability from the participation in inverse floater program of $33,800,669 and recorded interest expense at an average rate of 3.44%.
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.
Other — Expenses directly attributable to the Funds are charged directly to the Funds. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such 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. Each 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 Funds receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees on the statements of operations with the corresponding expense offset shown as “expense paid indirectly.”
82
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its respective investment management agreement, each Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee, which is calculated based on each Fund’s average daily net assets as follows:
| Delaware Tax-Free | Delaware Minnesota | ||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||
| On the first $500 million | 0.550% | 0.500% | 0.550% | ||
| On the next $500 million | 0.500% | 0.475% | 0.500% | ||
| On the next $1.5 billion | 0.450% | 0.450% | 0.450% | ||
| In excess of $2.5 billion | 0.425% | 0.425% | 0.425% |
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse each Fund to the extent necessary to ensure that annual operating expenses, (excluding any 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, conducting shareholder meetings, and liquidations (collectively, “non-routine expenses”)), do not exceed specified percentages of average daily net assets as shown below. 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. These expense waivers and reimbursements apply only to expenses paid directly by the Funds.
| Delaware Tax-Free | Delaware Minnesota | ||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||
| Operating expense limitation | |||||
| as a percentage of average | |||||
| daily net assets (per annum) | 0.68% | 0.60% | 0.64% | ||
| Expiration date | 12/31/08 | 12/31/08 | 12/31/08 |
Effective October 1, 2007, Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Funds. For these services, the Funds pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.005% of the first $30 billion; 0.0045% of the next $10 billion; 0.004% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all Funds in the Delaware Investments® Family of Funds on a relative net asset value basis. Prior to October 1, 2007, DSC provided fund accounting and administrative services
83
Notes to financial statements
Delaware Minnesota Municipal Bond Funds
2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
to the Funds and received a fee at an annual rate of 0.04% of average daily net assets. For the year ended August 31, 2008, each Fund was charged for these services as follows:
| Delaware Tax-Free | Delaware Minnesota | ||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||
| $48,918 | $4,531 | $11,502 |
DSC also provides dividend disbursing and transfer agency services. Each 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, each Fund pays 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. DDLP has contracted to limit Delaware Tax-Free Minnesota Intermediate Fund’s 12b-1 fee from January 1, 2008 through December 31, 2008 to no more than 0.15% of average daily net assets.
At August 31, 2008, the Funds had liabilities payable to affiliates as follows:
| Delaware Tax-Free | Delaware Minnesota | ||||||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||||||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||||||
| Investment management fee | |||||||||
| payable to DMC | $280,377 | $25,523 | $77,423 | ||||||
| Dividend disbursing, transfer agent | |||||||||
| and fund accounting oversight fees | |||||||||
| and other expenses payable to DSC | 27,136 | 3,234 | 8,281 | ||||||
| Distribution fee payable to DDLP | 154,381 | 13,995 | 53,662 | ||||||
| Other expenses payable to | |||||||||
| DMC and affiliates* | 22,447 | 7,873 | 3,232 | ||||||
*DMC, as part of its administrative services, pays operating expenses on behalf of each Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees’ fees.
As provided in the investment management agreement, each Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Funds by DMC and/or its affiliates’ employees. For the year ended August 31, 2008, each Fund was charged for internal legal and tax services provided by DMC and/or its affiliates’ employees as follows:
| Delaware Tax-Free | Delaware Minnesota | ||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||
| $43,661 | $4,185 | $10,326 |
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For the year ended August 31, 2008, DDLP earned commissions on sales of Class A shares for each Fund as follows:
| Delaware Tax-Free | Delaware Minnesota | ||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||
| $61,412 | $7,632 | $43,652 |
For the year ended August 31, 2008, DDLP received gross CDSC commissions on redemption of each Fund’s Class A, Class B and Class C shares, respectively. These commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares. The amounts received were as follows:
| Delaware Tax-Free | Delaware Minnesota | ||||||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||||||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||||||
| Class A | $ 5,490 | $ — | $12,189 | ||||||
| Class B | 12,166 | — | 7,734 | ||||||
| Class C | 1,348 | 287 | 5,739 | ||||||
Trustees’ fees include expenses accrued by the Funds for each Trustee’s retainer and meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trusts. These officers and Trustees are paid no compensation by the Funds.
3. Investments
For the year ended August 31, 2008, the Funds made purchases and sales of investment securities other than short-term investments as follows:
| Delaware Tax-Free | Delaware Minnesota | ||||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||||
| Purchases | $107,432,569 | $25,940,892 | $24,242,529 | ||||
| Sales | 102,704,930 | 15,383,038 | 13,977,708 | ||||
At August 31, 2008, the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows:
| Delaware Tax-Free | Delaware Minnesota | ||||||||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||||||||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||||||||
| Cost of investments | $ | 594,170,143 | $ | 65,260,279 | $ | 158,080,210 | |||||
| Aggregate unrealized appreciation | $ | 25,865,517 | $ | 1,886,187 | $ | 2,329,440 | |||||
| Aggregate unrealized depreciation | (12,665,941 | ) | (521,245 | ) | (6,930,274 | ) | |||||
| Net unrealized appreciation | |||||||||||
| (depreciation) | $ | 13,199,576 | $ | 1,364,942 | $ | (4,600,834 | ) | ||||
85
Notes to financial statements
Delaware Minnesota Municipal Bond Funds
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, distributions from net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended August 31, 2008 and 2007 was as follows:
| Delaware Tax-Free | Delaware Minnesota | ||||||||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||||||||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||||||||
| Year ended 8/31/08 | |||||||||||
| Ordinary income | $ 351,958 | $ — | $ 7,114 | ||||||||
| Tax-exempt income | 24,713,343 | 2,197,419 | 5,742,991 | ||||||||
| Long-term capital gain | 100,607 | — | — | ||||||||
| Total | $25,165,908 | $2,197,419 | $5,750,105 | ||||||||
| Year ended 8/31/07 | |||||||||||
| Ordinary income | $ 30,656 | $ — | $ — | ||||||||
| Tax-exempt income | 19,758,603 | 2,196,282 | 5,300,531 | ||||||||
| Long-term capital gain | 356,139 | — | — | ||||||||
| Total | $20,145,398 | $2,196,282 | $5,300,531 | ||||||||
5. Components of Net Assets on a Tax Basis
As of August 31, 2008, the components of net assets on a tax basis were as follows:
| Delaware Tax-Free | Delaware Minnesota | ||||||||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | |||||||||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||||||||
| Shares of beneficial interest | $ | 599,619,054 | $ | 66,633,067 | $ | 159,306,245 | |||||
| Distributions payable | (491,172 | ) | (33,690 | ) | (141,469 | ) | |||||
| Undistributed tax-exempt income | 468,755 | 31,824 | 141,469 | ||||||||
| Undistributed long-term gains | 1,295,484 | — | — | ||||||||
| Capital loss carryforward | — | (1,465,576 | ) | (2,547,560 | ) | ||||||
| Post-October losses | — | (32,049 | ) | (119,694 | ) | ||||||
| Unrealized appreciation (depreciation) | |||||||||||
| of investments and swap contracts | 13,199,576 | 1,364,942 | (4,883,605 | ) | |||||||
| Net assets | $ | 614,091,697 | $ | 66,498,518 | $ | 151,755,386 | |||||
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The differences between book basis and tax basis components of net assets are primarily attributable to tax treatment of market discount on debt instruments.
Post-October losses represent losses realized on investments transactions from November 1, 2007 through August 31, 2008 that, in accordance with federal income tax regulations, each Fund has elected to defer and treat as having arisen in the following fiscal year.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of market discount and premium on certain debt instruments and expiration of capital loss carryforward. Results of operations and net assets were not affected by these reclassifications. For the year ended August 31, 2008, the Funds recorded the following reclassifications:
| Delaware Minnesota | |||||||
| Delaware Tax-Free | High-Yield Municipal | ||||||
| Minnesota Fund | Bond Fund | ||||||
| Undistributed (Distributions in excess of) | |||||||
| net investment income | $ 372,155 | $ (11,075 | ) | ||||
| Accumulated realized gain (loss) | (372,155 | ) | 190,866 | ||||
| Paid-in capital | — | (179,791 | ) | ||||
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. In 2008, the Funds utilized capital losses carryforwards as follows:
| Delaware Tax-Free | |||
| Delaware Tax-Free | Minnesota | ||
| Minnesota Fund | Intermediate Fund | ||
| Capital loss carryforward utilized | $66,896 | $1,044 |
In 2008, $179,791 of capital loss carryforwards expired for Delaware Minnesota High-Yield Bond Fund. Capital loss carryforwards remaining at August 31, 2008 will expire as follows:
| Delaware Tax-Free | Delaware Minnesota | |||||||
| Minnesota | High-Yield Municipal | |||||||
| Year of Expiration | Intermediate Fund | Bond Fund | ||||||
| 2009 | $1,023,795 | $1,267,552 | ||||||
| 2010 | 4,037 | 57,521 | ||||||
| 2011 | 246,659 | 243,334 | ||||||
| 2012 | — | 684,248 | ||||||
| 2014 | 81,340 | — | ||||||
| 2015 | 109,745 | 96,079 | ||||||
| 2016 | — | 198,826 | ||||||
| Total | $1,465,576 | $2,547,560 | ||||||
87
Notes to financial statements
Delaware Minnesota Municipal Bond Funds
6. Capital Shares
Transactions in capital shares were as follows:
| Delaware | Delaware Minnesota | ||||||||||||||||
| Delaware Tax-Free | Tax-Free Minnesota | High-Yield Municipal | |||||||||||||||
| Minnesota Fund | Intermediate Fund | Bond Fund | |||||||||||||||
| Year Ended | Year Ended | Year Ended | |||||||||||||||
| 8/31/08 | 8/31/07 | 8/31/08 | 8/31/07 | 8/31/08 | 8/31/07 | ||||||||||||
| Shares sold: | |||||||||||||||||
| Class A | 3,515,951 | 3,661,506 | 1,344,904 | 569,224 | 2,904,516 | 3,750,543 | |||||||||||
| Class B | 9,707 | 33,935 | 21,281 | 1,226 | 5,135 | 67,763 | |||||||||||
| Class C | 434,456 | 378,988 | 249,737 | 65,839 | 746,020 | 985,801 | |||||||||||
| Shares issued upon reinvestment of dividends and distributions: | |||||||||||||||||
| Class A | 1,268,411 | 983,425 | 128,039 | 128,379 | 304,335 | 257,132 | |||||||||||
| Class B | 25,099 | 22,742 | 2,715 | 4,274 | 13,584 | 18,487 | |||||||||||
| Class C | 56,937 | 42,393 | 11,896 | 11,105 | 68,076 | 54,628 | |||||||||||
| Shares issued from Fund merger:1 | |||||||||||||||||
| Class A | — | 16,515,995 | — | — | — | — | |||||||||||
| Class B | — | 703,417 | — | — | — | — | |||||||||||
| Class C | — | 931,298 | — | — | — | — | |||||||||||
| 5,310,561 | 23,273,699 | 1,758,572 | 780,047 | 4,041,666 | 5,134,354 | ||||||||||||
| Shares repurchased: | |||||||||||||||||
| Class A | (4,868,284 | ) | (4,188,406 | ) | (587,645 | ) | (576,943 | ) | (2,293,959 | ) | (1,528,071 | ) | |||||
| Class B | (366,181 | ) | (380,797 | ) | (100,502 | ) | (27,619 | ) | (148,220 | ) | (274,769 | ) | |||||
| Class C | (420,993 | ) | (361,460 | ) | (62,535 | ) | (87,115 | ) | (485,164 | ) | (433,788 | ) | |||||
| (5,655,458 | ) | (4,930,663 | ) | (750,682 | ) | (691,677 | ) | (2,927,343 | ) | (2,236,628 | ) | ||||||
| Net increase (decrease) | (344,897 | ) | 18,343,036 | 1,007,890 | 88,370 | 1,114,323 | 2,897,726 | ||||||||||
1 See note 8 in “Notes to financial statements.”
For the years ended August 31, 2008 and 2007, the following shares and values were converted from Class B to Class A shares. The respective amounts are included in Class B redemptions and Class A subscriptions in the tables above and the statements of changes in net assets.
| Year Ended | Year Ended | ||||||||||
| 8/31/08 | 8/31/07 | ||||||||||
| Class B | Class A | Class B | Class A | ||||||||
| Shares | Shares | Value | Shares | Shares | Value | ||||||
| Delaware Tax-Free | |||||||||||
| Minnesota Fund | 154,023 | 154,149 | $1,885,460 | 205,359 | 205,523 | $2,549,549 | |||||
| Delaware Tax-Free Minnesota | |||||||||||
| Intermediate Fund | 92,028 | 92,254 | 987,599 | 15,124 | 15,160 | 164,797 | |||||
| Delaware Minnesota High-Yield | |||||||||||
| Municipal Bond Fund | 56,661 | 56,758 | 583,786 | 157,023 | 157,243 | 1,656,744 |
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7. Inverse Floaters
The Funds may participate in inverse floater programs where a Fund 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 Funds 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 Funds typically use 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 a Fund transferred to the trust, the Fund seeks to adjust its portfolio’s sensitivity to changes in interest rates. The Funds may also invest in inverse floaters to add additional income to the Funds or to adjust the Funds’ exposure to a specific segment of the yield curve. Securities held in trust relating to inverse floater programs are identified on the statements of net assets.
8. Fund Merger
Effective April 13, 2007, the Delaware Tax-Free Minnesota Fund (Acquiring Fund) acquired all of the assets and assumed all of the liabilities of Delaware Tax-Free Minnesota Insured Fund (Acquired Fund), an open end investments company, in exchange for shares of the Acquiring Fund pursuant to a Plan and Agreement of Reorganization (Reorganization). The shareholders of the Acquired Fund received shares of the respective class of the Acquiring Fund equal to the aggregate net asset of their share in the Acquired Fund prior to Reorganization.
The Reorganization was treated as a non-taxable event and, accordingly, Delaware Tax-Free Minnesota Fund’s basis in the securities acquired reflected the historical cost basis as of the date of transfer. The net assets, net unrealized appreciation and accumulated realized gain (loss) of Delaware Tax-Free Minnesota Insured Fund as of the close of business on April 13, 2007, were as follows:
| Accumulated | Net | |||||
| Net Realized | Unrealized | |||||
| Net Assets | Gain | Appreciation | ||||
| Delaware Tax-Free Minnesota | ||||||
| Insured Fund | $226,020,627 | $286,856 | $14,039,792 |
The net assets of the Delaware Tax-Free Minnesota Fund prior to the Reorganization were $407,952,332. The combined net assets of Delaware Tax-Free Minnesota after the merger were $633,972,959.
89
Notes to financial statements
Delaware Minnesota Municipal Bond Funds
9. Line of Credit
Each Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), participates in a $225,000,000 revolving line of credit with the Bank of New York Mellon (BNY Mellon) 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 participants allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Funds had no amounts outstanding as of August 31, 2008 or at any time during the year then ended.
10. Swap Contracts
Each Fund may enter into interest rate swap contracts, index swap contracts and CDS contracts in accordance with its investment objectives. The Funds may use interest rate swaps to adjust the Funds’ sensitivity to interest rates or to hedge against changes in interest rates. Index swaps may be used to gain exposure to markets that each Fund invests in, such as the corporate bond market. The Funds may also use index swaps as a substitute for futures or options contracts if such contracts are not directly available to the Funds on favorable terms. The Funds may enter into CDS contracts in order to hedge against a credit event, to enhance total return or to gain exposure to certain securities or markets.
An interest rate swap involves payments received by the Funds from another party based on a variable or floating interest rate, in return for making payments based on a fixed interest rate. An interest rate swap can also work in reverse with the Funds’ receiving payments based on a fixed interest rate and making payments based on a variable or floating interest rate. Interest rate swaps may be used to adjust the Funds’ sensitivity to interest rates or to hedge against changes in interest rates. Periodic payments on such contracts are accrued daily and recorded as unrealized appreciation/depreciation on swap contracts. Upon periodic payment/receipt or termination of the contract, such amounts are recorded as realized gains or losses on swap contracts.
During the year ended August 31, 2008, the Funds did not enter into index swap contracts or CDS contracts. Because there is no organized market for swap contracts, the value of open swaps may differ from that which would be realized in the event each Fund terminated its position in the agreement. Risks of entering into these agreements include the potential inability of the counterparty to meet the terms of the contracts. This type of risk is generally limited to the amount of favorable movements in the value of the underlying security, instrument, or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the unrealized amounts shown on the statements of net assets.
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11. Credit and Market Risk
The Funds concentrate their investments in securities issued by municipalities, mainly in Minnesota. The value of these investments may be adversely affected by new legislation within the state, 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. A real or perceived decline in creditworthiness of a bond insurer can have an adverse impact on the value of insured bonds held in each Fund. At August 31, 2008, the percentage of each Fund’s net assets insured by insurers are listed below
| Delaware Tax-Free | Delaware Minnesota | |||||
| Delaware Tax-Free | Minnesota | High-Yield Municipal | ||||
| Minnesota Fund | Intermediate Fund | Bond Fund | ||||
| 32% | 21% | 14% |
These securities have been identified in the statements of net assets.
Each Fund invests a portion of its assets in high yield fixed income securities, which carry ratings of BB or lower by Standard & Poor’s Ratings Group and/or Ba or lower by Moody’s Investors Service, Inc. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities.
The Funds 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 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.
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Notes to financial statements
Delaware Minnesota Municipal Bond Funds
11. Credit and Market Risk (continued)
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 Investors Service, Inc., Standard & Poor’s Ratings Group, and/or Fitch Ratings due to the strong credit quality of the escrow securities and the irrevocable nature of the escrow deposit agreement.
Each Fund may invest up to 15% of its net 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 each Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, each Fund’s Board has delegated to DMC the day-today functions of determining whether individual securities are liquid for purposes of each Fund’s limitation on investments in illiquid assets. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Funds’ 15% limit on investments in illiquid securities As of August 31, 2008, there were no Rule 144A securities. Illiquid securities have been identified on the statements of net assets.
12. Contractual Obligations
The Funds enter into contracts in the normal course of business that contain a variety of indemnifications. The Funds’ maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts. Management has reviewed each Fund’s existing contracts and expects the risk of loss to be remote.
13. Tax Information (Unaudited)
The information set forth below is for each Fund’s fiscal year as required by federal tax laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a Fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
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For the fiscal year ended August 31, 2008, each Fund designates distributions paid during the year as follows:
| (A) | (B) | (C) | ||||||||
| Long-Term Capital | Ordinary Income | Tax Exempt | Total | |||||||
| Gains Distributions | Distributions | Distributions | Distributions | |||||||
| (Tax Basis) | (Tax Basis) | (Tax Basis) | (Tax Basis) | |||||||
| Delaware Tax-Free | ||||||||||
| Minnesota Fund | 0.40% | 1.40% | 98.20% | 100.00% | ||||||
| Delaware Tax-Free Minnesota | ||||||||||
| Intermediate Fund | — | — | 100.00% | 100.00% | ||||||
| Delaware Minnesota High-Yield | ||||||||||
| Municipal Bond Fund | — | 0.12% | 99.88% | 100.00% | ||||||
| (A), (B), and (C) are based on a percentage of each Fund’s total distributions. | ||||||||||
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Report of independent
registered public accounting firm
To the Shareholders and Board of Trustees
Voyageur Tax-Free Funds — Delaware Tax-Free Minnesota Fund
Voyageur Intermediate Tax-Free Funds — Delaware Tax-Free Minnesota Intermediate Fund
Voyageur Mutual Funds — Delaware Minnesota High-Yield Municipal Bond Fund
We have audited the accompanying statements of net assets of Delaware Tax-Free Minnesota Fund (the sole series of Voyageur Tax-Free Funds), Delaware Tax-Free Minnesota Intermediate Fund (the sole series of Voyageur Intermediate Tax-Free Funds), and Delaware Minnesota High-Yield Municipal Bond Fund (one of the series constituting Voyageur Mutual Funds) (the “Funds”) as of August 31, 2008, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2008 by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Tax-Free Minnesota Fund of Voyageur Tax-Free Funds, the Delaware Tax-Free Minnesota Intermediate Fund of Voyageur Intermediate Tax-Free Funds, and the Delaware Minnesota High-Yield Municipal Bond Fund of Voyageur Mutual Funds at August 31, 2008, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
October 20, 2008
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Other Fund information
Delaware Minnesota Municipal Bond Funds
Board Consideration of Delaware Minnesota High-Yield Municipal Bond Fund, Delaware Tax-Free Minnesota Fund, and Delaware Tax-Free Minnesota Intermediate Fund Investment Advisory Agreement
At a meeting held on May 20-22, 2008 (the “Annual Meeting”), the Board of Trustees, including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreements for the Delaware Minnesota High-Yield Municipal Bond Fund, Delaware Tax-Free Minnesota Fund and Delaware Tax-Free Minnesota Intermediate Fund (each a “Fund” and collectively, the “Funds”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”) included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality of services provided to the Funds, the costs of such services to the Funds, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, the Board separately received and reviewed in February 2008 independent historical and comparative reports prepared by Lipper Inc. (“Lipper”), an independent statistical compilation organization. The Lipper reports compared each Fund’s investment performance and expenses with those of other comparable mutual funds. The independent Trustees reviewed the Lipper reports with Counsel to the Independent Trustees at the February 2008 Board Meeting and discussed such reports further with counsel earlier in the Annual Meeting. The Board requested and received certain information regarding Management’s policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager’s profitability; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of each Fund’s advisory agreements, the independent Trustees received assistance and advice from and met separately with independent counsel. Although the Trustees gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board in its contract renewal considerations.
Nature, Extent and Quality of Service. The Board considered services provided by Delaware Investments to the Funds and their shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board Meetings covering matters such as the relative performance of the Funds, compliance of portfolio managers with the investment policies, strategies and restrictions for the Funds, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex and the adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Funds’ investment advisor
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Other Fund information
Delaware Minnesota Municipal Bond Funds
Board Consideration of Delaware Minnesota High-Yield Municipal Bond Fund, Delaware Tax-Free Minnesota Fund, and Delaware Tax-Free Minnesota Intermediate Fund Investment Advisory Agreement (continued)
and the emphasis placed on research in the investment process. Favorable consideration was given to DMC’s efforts to maintain expenditures and, in some instances, increase financial and human resources committed to fund matters. The Board also considered the transfer agent and shareholder services provided to Fund shareholders by Delaware Investments’ affiliate, Delaware Service Company, Inc. (“DSC”), noting DSC’s commitment to maintain a high level of service as well as Delaware Investments’ expenditures to improve the delivery of shareholder services. During 2007 Management commenced the outsourcing of certain investment accounting functions that are expected to improve further the quality and the cost of delivering investment accounting services to the Funds. The Board once again noted the benefits provided to Fund shareholders by being part of the Delaware Investments Family of Funds, including each shareholder’s ability to exchange an investment in one Delaware Investments fund for the same class of shares in another Delaware Investments fund without a sales charge, to reinvest Fund dividends into additional shares of the Funds or additional shares of other Delaware Investments funds and the privilege to combine holdings in other Delaware Investments funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
Investment Performance. The Board considered the overall investment performance of DMC and the Funds. The Board placed significant emphasis on the investment performance of the Funds in view of its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Board meetings throughout the year, the Board gave particular weight to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for each Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest, ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% - the second quartile; the next 25% - the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for each Fund was shown for the past one-, three-, five- and ten-year periods ended December 31, 2007. The Board’s objective is that each Fund’s performance for the periods considered be at or above the median of its Performance Universe. The Trustees complimented Management on navigating the Delaware Investments Family of Funds fixed income funds through the turbulent financial markets since 2007 without incurring a major difficulty. The following paragraphs summarize the performance results for each Fund and the Board’s view of such performance.
Delaware Minnesota High-Yield Municipal Bond Fund — Lipper currently classifies the Fund as a Minnesota municipal debt fund. However, Management believes that it would be more appropriate to include the Fund in the high yield municipal debt funds category, which would
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allow the Fund to be compared to a representative peer group based on credit quality instead of a peer group based on state of issuance. Accordingly, the Lipper report prepared for the Fund compares the Fund’s performance to two separate Performance Universes consisting of the Fund and all retail and institutional Minnesota municipal debt funds and all retail and institutional high yield municipal debt funds. When compared to other Minnesota municipal debt funds, the Lipper report comparison showed that the Fund’s total return for the one-year period was in the third quartile of its Performance Universe and the Fund’s total return for the three-, five- and ten-year periods was in the first quartile. When compared to other high yield municipal debt funds, the Lipper report comparison showed that the Fund’s total return for the one-, five and ten-year periods was in the first quartile of the Performance Universe and the Fund’s total return for the three-year period was in the second quartile. The Board was satisfied with performance.
Delaware Tax-Free Minnesota Fund — The Performance Universe for the Fund consisted of the Fund and all retail and institutional Minnesota municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one-year period was in the second quartile of its Performance Universe. The report further showed that the Fund’s total return for the three-, five- and ten-year periods was in the first quartile. The Board was satisfied with performance.
Delaware Tax-Free Minnesota Intermediate Fund — The Performance Universe for the Fund consisted of the Fund and all retail and institutional other state intermediate municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one-year period was in the third quartile of its Performance Universe. The report further showed that the Fund’s total return for the three-, five- and ten-year periods was in the first quartile. The Board noted that the Fund’s performance results were mixed but on an overall basis, above median, which was acceptable.
Comparative Expenses. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Funds as of October 31, 2007 and the most recent fiscal year end for comparative funds as of August 31, 2007 or earlier. For any fund with a fiscal year end after August 31, 2007, such fund’s expense data were measured as of its fiscal year end for 2006. The Board focused on the comparative analysis of the effective management fees and total expense ratios of each Fund versus the effective management fees and expense ratios of a group of similar funds as selected by Lipper (the “Expense Group”). In reviewing comparative costs, each Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into account any applicable breakpoints and fee waivers. Each Fund’s total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and comparative total expenses including 12b-l and non-12b-l service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit each Fund’s
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Other Fund information
Delaware Minnesota Municipal Bond Funds
Board Consideration of Delaware Minnesota High-Yield Municipal Bond Fund, Delaware Tax-Free Minnesota Fund, and Delaware Tax-Free Minnesota Intermediate Fund Investment Advisory Agreement (continued)
total expense ratio to be competitive with that of the Expense Group. The following paragraphs summarize the expense results for each Fund and the Board’s view of such expenses.
Delaware Minnesota High-Yield Municipal Bond Fund — When compared to other Minnesota municipal debt funds, the expense comparisons for the Fund showed that its actual management fee was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the second highest expenses of its Expense Group. When compared to other high yield municipal debt funds, the expense comparisons for the Fund showed that its actual management fee was in the quartile with the lowest expenses of the Expense Group and its total expenses were in the quartile with the second highest expenses of its Expense Group. The Board gave favorable consideration to the Fund’s management fee, but noted that the Fund’s total expenses were not in line with the Board’s objective. In evaluating the total expenses, the Board considered waivers in place through December 2008 and recent initiatives implemented by Management, such as the outsourcing of certain transfer agency and investment accounting services, creating an opportunity for a reduction in expenses. The Board was satisfied with Management’s efforts to improve the Fund’s total expense ratio and bring it in line with the Board’s objective.
Delaware Tax-Free Minnesota Fund — The expense comparisons for the Fund showed that its actual management fee was in the quartile with the second highest expenses of its Expense Group and its total expenses were in the quartile with the highest expenses of its Expense Group. The Board noted that the Fund’s total expenses were not in line with the Board’s objective. In evaluating the total expenses, the Board considered waivers in place through December 2008 and recent initiatives implemented by Management, such as the outsourcing of certain transfer agency and investment accounting services, creating an opportunity for a reduction in expenses. Consequently, the Board was satisfied with Management’s efforts to improve the Fund’s total expense ratio and bring it in line with the Board’s objective.
Delaware Tax-Free Minnesota Intermediate Fund — The expense comparisons for the Fund showed that its actual management fee was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report.
Management Profitability. The Board considered the level of profits realized by Delaware Investments in connection with the operation of the Funds. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability.
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Management stated that the level of profits of Delaware Investments, to a certain extent, reflect operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide SEC initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of Delaware Investments.
Economies of Scale. The Trustees considered whether economies of scale are realized by Delaware Investments as each Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the asset levels specified are exceeded. The Board noted that the fee under each Fund’s management contract fell within the standard structure. With respect to the Delaware Tax-Free Minnesota Fund, the Board also noted that the Fund’s assets exceeded the first breakpoint level. The Board believed that, given the extent to which economies of scale might be realized by the advisor and its affiliates, the schedule of fees under the Investment Advisory Agreement provides a sharing of benefits with the Fund and its shareholders. With respect to the Delaware Minnesota High-Yield Municipal Bond Fund and Delaware Tax-Free Minnesota Intermediate Fund, although each Fund has not reached a size at which it can take advantage of breakpoints, the Board recognized that the fee was structured so that when the Fund grows, economies of scale may be shared.
Fund management
Joseph R. Baxter
Senior Vice President, Head of Municipal Bond Department, Senior Portfolio Manager
Joseph R. Baxter is the head of the 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 funds and several client accounts. Before joining Delaware Investments in 1999, he held investment positions with First Union, most recently as a municipal portfolio manager with the Evergreen Funds. Baxter received a bachelor’s degree in finance and marketing from La Salle University.
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Other Fund information
Delaware Minnesota Municipal Bond Funds
Robert F. Collins, CFA
Senior Vice President, Senior Portfolio Manager
Robert F. Collins is a member of the firm’s municipal fixed income portfolio management team with primary responsibility for portfolio construction and strategic asset allocation. He is a co-portfolio manager of several of the firm’s municipal bond funds and client accounts. Prior to joining Delaware Investments in 2004, 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. 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.
Stephen J. Czepiel
Senior Vice President, Senior Portfolio Manager
Stephen J. Czepiel is a member of the firm’s municipal fixed income portfolio management team with primary responsibility for portfolio construction and strategic asset allocation. He is a co-portfolio manager of the firm’s municipal bond funds and client accounts. He joined Delaware Investments in July 2004 as a senior bond trader. Previously, he was vice president at both Mesirow Financial and Loop Capital Markets. He began his career in the securities industry in 1982 as a municipal bond trader at Kidder Peabody and now has more than 20 years of experience in the municipal securities industry. Czepiel earned his bachelor’s degree in finance and economics from Duquesne University.
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates
| Name, Address, | Position(s) | Length of | ||
| and Birth Date | Held with Fund(s) | Time Served | ||
| Interested Trustees | ||||
| Patrick P. Coyne1 | Chairman, President, | Chairman and Trustee | ||
| 2005 Market Street | Chief Executive Officer, | since August 16, 2006 | ||
| Philadelphia, PA 19103 | and Trustee | |||
| April 1963 | President and | |||
| Chief Executive Officer | ||||
| since August 1, 2006 | ||||
| Independent Trustees | ||||
| Thomas L. Bennett | Trustee | Since March 2005 | ||
| 2005 Market Street | ||||
| Philadelphia, PA 19103 | ||||
| October 1947 | ||||
1 Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
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for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
| Number of Portfolios in | ||||
| Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
| During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
| Patrick P. Coyne has served in | 84 | Director | ||
| various executive capacities | Kaydon Corp. | |||
| at different times at | ||||
| Delaware Investments.2 | Board of Governors Member | |||
| Investment Company | ||||
| Institute (ICI) | ||||
| (2007–Present) | ||||
| Member of Investment Committee | ||||
| Cradle of Liberty Council, BSA | ||||
| (November 2007–Present) | ||||
| Finance Committee Member | ||||
| St. John Vianney | ||||
| Roman Catholic Church | ||||
| (2007–Present) | ||||
| Private Investor | 84 | Director | ||
| (March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |||
| (April 2007–Present) | ||||
| Investment Manager | ||||
| Morgan Stanley & Co. | Chairman of Investment | |||
| (January 1984–March 2004) | Committee | |||
| The Haverford School | ||||
| (2002–Present) | ||||
| Chairman of | ||||
| Investment Committee | ||||
| Pennsylvania Academy of | ||||
| Fine Arts (2007–Present) | ||||
| Trustee (2004–Present) | ||||
2 Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent.
103
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
| Name, Address, | Position(s) | Length of | ||
| and Birth Date | Held with Fund(s) | Time Served | ||
| Independent Trustees (continued) | ||||
| Thomas L. Bennett | ||||
| (continued) | ||||
| John A. Fry | Trustee | Since January 2001 | ||
| 2005 Market Street | ||||
| Philadelphia, PA 19103 | ||||
| May 1960 | ||||
| Anthony D. Knerr | Trustee | Since April 1990 | ||
| 2005 Market Street | ||||
| Philadelphia, PA 19103 | ||||
| December 1938 | ||||
| Lucinda S. Landreth | Trustee | Since March 2005 | ||
| 2005 Market Street | ||||
| Philadelphia, PA 19103 | ||||
| June 1947 | ||||
| Ann R. Leven | Trustee | Since October 1989 | ||
| 2005 Market Street | ||||
| Philadelphia, PA 19103 | ||||
| November 1940 | ||||
| Thomas F. Madison | Trustee | Since May 19973 | ||
| 2005 Market Street | ||||
| Philadelphia, PA 19103 | ||||
| February 1936 | ||||
3 In 1997, several funds managed by Voyageur Fund Managers, Inc. (the “Voyageur Funds”) were incorporated into the Delaware Investments Family of Funds. Mr. Madison served as a director of the Voyageur Funds from 1993 until 1997.
104
| Number of Portfolios in | ||||
| Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
| During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
| Investment Committee | ||||
| Member | ||||
| Pennsylvania Horticultural | ||||
| Society | ||||
| (February 2006–Present) | ||||
| President | 84 | Director | ||
| Franklin & Marshall College | Community Health Systems | |||
| (June 2002–Present) | ||||
| Director | ||||
| Executive Vice President | Allied Barton | |||
| University of Pennsylvania | Security Holdings | |||
| (April 1995–June 2002) | ||||
| Founder and | 84 | None | ||
| Managing Director | ||||
| Anthony Knerr & Associates | ||||
| (Strategic Consulting) | ||||
| (1990–Present) | ||||
| Chief Investment Officer | 84 | None | ||
| Assurant, Inc. (Insurance) | ||||
| (2002–2004) | ||||
| Consultant | 84 | Director and Audit | ||
| ARL Associates | Committee Chair | |||
| (Financial Planning) | Systemax, Inc. | |||
| (1983–Present) | ||||
| President and | 84 | Director and Chair of | ||
| Chief Executive Officer | Compensation Committee, | |||
| MLM Partners, Inc. | Governance Committee | |||
| (Small Business Investing | Member | |||
| and Consulting) | CenterPoint Energy | |||
| (January 1993–Present) | ||||
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
| Name, Address, | Position(s) | Length of | ||
| and Birth Date | Held with Fund(s) | Time Served | ||
| Independent Trustees (continued) | ||||
| Thomas F. Madison | ||||
| (continued) | ||||
| Janet L. Yeomans | Trustee | Since April 1999 | ||
| 2005 Market Street | ||||
| Philadelphia, PA 19103 | ||||
| July 1948 | ||||
| J. Richard Zecher | Trustee | Since March 2005 | ||
| 2005 Market Street | ||||
| Philadelphia, PA 19103 | ||||
| July 1940 | ||||
106
| Number of Portfolios in | ||||
| Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
| During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
| Lead Director and Chair of | ||||
| Audit and Governance | ||||
| Committees, Member of | ||||
| Compensation Committee | ||||
| Digital River, Inc. | ||||
| Director and Chair of | ||||
| Governance Committee, | ||||
| Audit Committee | ||||
| Member | ||||
| Rimage Corporation | ||||
| Director and Chair of | ||||
| the Compensation Committee | ||||
| Spanlink Communications | ||||
| Lead Director and Chair of | ||||
| Compensation and | ||||
| Governance Committees | ||||
| Valmont Industries, Inc. | ||||
| Vice President and Treasurer | 84 | None | ||
| (January 2006–Present) | ||||
| Vice President — Mergers & Acquisitions | ||||
| (January 2003–January 2006), and | ||||
| Vice President | ||||
| (July 1995–January 2003) | ||||
| 3M Corporation | ||||
| Founder | 84 | Director and Audit | ||
| Investor Analytics | Committee Member | |||
| (Risk Management) | Investor Analytics | |||
| (May 1999–Present) | ||||
| Director and Audit | ||||
| Founder | Committee Member | |||
| Sutton Asset Management | Oxigene, Inc. | |||
| (Hedge Fund) | ||||
| (September 1996–Present) | ||||
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
| Name, Address, | Position(s) | Length of | ||
| and Birth Date | Held with Fund(s) | Time Served | ||
| Officers | ||||
| David F. Connor | Vice President, | Vice President since | ||
| 2005 Market Street | Deputy General | September 2000 | ||
| Philadelphia, PA 19103 | Counsel, and Secretary | and Secretary since | ||
| December 1963 | October 2005 | |||
| Daniel V. Geatens | Vice President | Treasurer | ||
| 2005 Market Street | and Treasurer | since October 25, 2007 | ||
| Philadelphia, PA 19103 | ||||
| October 1972 | ||||
| David P. O’Connor | Senior Vice President, | Senior Vice President, | ||
| 2005 Market Street | General Counsel, | General Counsel, and | ||
| Philadelphia, PA 19103 | and Chief Legal Officer | Chief Legal Officer | ||
| February 1966 | since October 2005 | |||
| Richard Salus | Senior Vice President | Chief Financial Officer | ||
| 2005 Market Street | and Chief Financial Officer | since November 2006 | ||
| Philadelphia, PA 19103 | ||||
| October 1963 | ||||
4 David F. Connor, Daniel V. Geatens, David P. O’Connor, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant.
108
| Number of Portfolios in | ||||
| Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
| During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
| David F. Connor has served as | 84 | None4 | ||
| Vice President and Deputy | ||||
| General Counsel of | ||||
| Delaware Investments | ||||
| since 2000. | ||||
| Daniel V. Geatens has served | 84 | None4 | ||
| in various capacities at | ||||
| different times at | ||||
| Delaware Investments. | ||||
| David P. O’Connor has served in | 84 | None4 | ||
| various executive and legal | ||||
| capacities at different times | ||||
| at Delaware Investments. | ||||
| Richard Salus has served in | 84 | None4 | ||
| various executive capacities | ||||
| at different times at | ||||
| Delaware Investments. | ||||
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918.
109
About the organization
This annual report is for the information of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Intermediate Fund, and Delaware Minnesota High-Yield Municipal Bond Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Intermediate Fund, and Delaware Minnesota High-Yield Municipal Bond Fund and the Delaware Investments® Fund profile for the most recently completed calendar quarter. These documents are available at www.delawareinvestments.com. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the investment company. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the investment company will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
| Board of trustees | |
| Patrick P. Coyne | Ann R. Leven |
| Chairman, President, and | Consultant |
| Chief Executive Officer | ARL Associates |
| Delaware Investments Family of Funds | New York, NY |
| Philadelphia, PA | |
| Thomas F. Madison | |
| Thomas L. Bennett | President and Chief Executive Officer |
| Private Investor | MLM Partners, Inc. |
| Rosemont, PA | Minneapolis, MN |
| John A. Fry | Janet L. Yeomans |
| President | Vice President and Treasurer |
| Franklin & Marshall College | 3M Corporation |
| Lancaster, PA | St. Paul, MN |
| Anthony D. Knerr | J. Richard Zecher |
| Founder and Managing Director | Founder |
| Anthony Knerr & Associates | Investor Analytics |
| New York, NY | Scottsdale, AZ |
| Lucinda S. Landreth | |
| Former Chief Investment Officer | |
| Assurant, Inc. | |
| Philadelphia, PA | |
110
| Affiliated officers | Contact information |
| David F. Connor | Investment manager |
| Vice President, Deputy General Counsel, and | Delaware Management Company, a series of |
| Secretary | Delaware Management Business Trust |
| Delaware Investments® Family of Funds | Philadelphia, PA |
| Philadelphia, PA | |
| National distributor | |
| Daniel V. Geatens | Delaware Distributors, L.P. |
| Vice President and Treasurer | Philadelphia, PA |
| Delaware Investments Family of Funds | |
| Philadelphia, PA | Shareholder servicing, dividend disbursing, |
| and transfer agent | |
| David P. O’Connor | Delaware Service Company, Inc. |
| Senior Vice President, General Counsel, | 2005 Market Street |
| and Chief Legal Officer | Philadelphia, PA 19103-7094 |
| Delaware Investments Family of Funds | |
| Philadelphia, PA | For shareholders |
| 800 523-1918 | |
| Richard Salus | |
| Senior Vice President and | For securities dealers and financial |
| Chief Financial Officer | institutions representatives only |
| Delaware Investments Family of Funds | 800 362-7500 |
| Philadelphia, PA | |
| Web site | |
| www.delawareinvestments.com |
Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries.
Each Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. Each Fund’s Forms N-Q, as well as a description of the policies and procedures that each Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the Commission’s Web site at www.sec.gov. In addition, a description of the policies and procedures that each Fund uses to determine how to vote proxies (if any) relating to portfolio securities and each Fund’s Schedule of Investments are available without charge on each Fund’s Web site at www.delawareinvestments.com. Each Fund’s Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how each Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through each Fund’s Web site at www.delawareinvestments.com; and (ii) on the Commission’s Web site at www.sec.gov.
111
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant’s Code of Business Ethics has been posted on Delaware Investments’ internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant’s Board of Trustees/Directors has determined that each member of the registrant’s Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an “audit committee financial expert” is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and financial statements;
b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial reporting; and
e. An understanding of audit committee functions.
An “audit committee financial expert” shall have acquired such attributes through:
a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions;
c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or
d. Other relevant experience.
The registrant’s Board of Trustees/Directors has also determined that each member of the registrant’s Audit Committee is independent. In order to be “independent” for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an “interested person” of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940.
The names of the audit committee financial experts on the registrant’s Audit Committee are set forth below:
Thomas L. Bennett 1
Thomas F. Madison
Janet L. Yeomans 1
J. Richard Zecher
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $31,300 for the fiscal year ended August 31, 2008.
_______________________
1 The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on “other relevant experience.” The Board of Trustees/Directors has determined that Mr. Bennett qualifies as an audit committee financial expert by virtue of his education, Chartered Financial Analyst designation, and his experience as a credit analyst, portfolio manager and the manager of other credit analysts and portfolio managers. The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation.
The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $45,700 for the fiscal year ended August 31, 2007.
(b) Audit-related fees.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended August 31, 2008.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $19,074 for the registrant’s fiscal year ended August 31, 2008. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of report concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended August 31, 2007.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $13,400 for the registrant’s fiscal year ended August 31, 2007. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of report concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act.
(c) Tax fees.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $10,950 for the fiscal year ended August 31, 2008. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended August 31, 2008.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $14,650 for the fiscal year ended August 31, 2007. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended August 31, 2007.
(d) All other fees.
The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended August 31, 2008.
The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended August 31, 2008.
The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended August 31, 2007.
The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended August 31, 2007.
(e) The registrant’s Audit Committee has established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the “Pre-Approval Policy”) with respect to services provided by the registrant’s independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee has pre-approved the services set forth in the table below with respect to the registrant up to the specified fee limits. Certain fee limits are based on aggregate fees to the registrant and other registrants within the Delaware Investments Family of Funds.
| Service | Range of Fees |
| Audit Services | |
| Statutory audits or financial audits for new Funds | up to $25,000 per Fund |
| Services associated with SEC registration statements (e.g., Form N-1A, Form N-14, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters for closed-end Fund offerings, consents), and assistance in responding to SEC comment letters | up to $10,000 per Fund |
| Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered “audit-related services” rather than “audit services”) | up to $25,000 in the aggregate |
| Audit-Related Services | |
| Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and /or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered “audit services” rather than “audit-related services”) | up to $25,000 in the aggregate |
| Tax Services | |
| U.S. federal, state and local and international tax planning and advice (e.g., consulting on statutory, regulatory or administrative developments, evaluation of Funds’ tax compliance function, etc.) | up to $25,000 in the aggregate |
| U.S. federal, state and local tax compliance (e.g., excise distribution reviews, etc.) | up to $5,000 per Fund |
| Review of federal, state, local and international income, franchise and other tax returns | up to $5,000 per Fund |
Under the Pre-Approval Policy, the Audit Committee has also pre-approved the services set forth in the table below with respect to the registrant’s investment adviser and other entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the registrant (the “Control Affiliates”) up to the specified fee limit. This fee limit is based on aggregate fees to the investment adviser and its Control Affiliates.
| Service | Range of Fees |
| Non-Audit Services | |
| Services associated with periodic reports and other documents filed with the SEC and assistance in responding to SEC comment letters | up to $10,000 in the aggregate |
The Pre-Approval Policy requires the registrant’s independent auditors to report to the Audit Committee at each of its regular meetings regarding all services initiated since the last such report was rendered, including those services authorized by the Pre-Approval Policy.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant’s independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $262,952 and $263,338 for the registrant’s fiscal years ended August 31, 2008 and August 31, 2007, respectively.
(h) In connection with its selection of the independent auditors, the registrant’s Audit Committee has considered the independent auditors’ provision of non-audit services to the registrant’s investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors’ provision of these services is compatible with maintaining the auditors’ independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Investments
(a) Included as part of report to shareholders filed under Item 1 of this Form N-CSR.
(b) Divestment of securities in accordance with Section 13(c) of the Investment Company Act of 1940.
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There were no significant changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant’s fourth fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: VOYAGEUR TAX FREE FUNDS
| PATRICK P. COYNE | ||
| By: | Patrick P. Coyne | |
| Title: | Chief Executive Officer | |
| Date: | November 5, 2008 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| PATRICK P. COYNE | ||
| By: | Patrick P. Coyne | |
| Title: | Chief Executive Officer | |
| Date: | November 5, 2008 | |
| RICHARD SALUS | ||
| By: | Richard Salus | |
| Title: | Chief Financial Officer | |
| Date: | November 5, 2008 | |