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: 811-4989
Exact name of registrant as specified in charter: Voyageur Mutual Funds II
Address of principal executive offices: 2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service: Richelle S. Maestro, 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, 2003
Item 1. Reports to Stockholders
The Registrant's shareholder reports are combined with the shareholder
reports of other investment company registrants. This Form N-CSR pertains to the
Delaware Tax-Free Colorado Fund of the Registrant, information on which is
included in the following shareholder reports.
Delaware
Investments(SM)
--------------------------------------
FIXED INCOME A member of Lincoln Financial Group(R)
Annual Report 2003
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DELAWARE TAX-FREE ARIZONA FUND
DELAWARE TAX-FREE ARIZONA INSURED FUND
DELAWARE TAX-FREE CALIFORNIA FUND
DELAWARE TAX-FREE CALIFORNIA INSURED FUND
DELAWARE TAX-FREE COLORADO FUND
[LOGO] POWERED BY RESEARCH.(SM)
Table
OF CONTENTS
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PORTFOLIO MANAGEMENT REVIEW 1
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PERFORMANCE SUMMARIES:
Delaware Tax-Free Arizona Fund 4
Delaware Tax-Free Arizona Insured Fund 5
Delaware Tax-Free California Fund 6
Delaware Tax-Free California Insured Fund 7
Delaware Tax-Free Colorado Fund 8
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FINANCIAL STATEMENTS:
Statements of Net Assets 9
Statements of Operations 21
Statements of Changes in Net Assets 22
Financial Highlights 25
Notes to Financial Statements 40
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REPORT OF INDEPENDENT AUDITORS 45
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BOARD OF TRUSTEES/OFFICERS 46
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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.
(C) 2003 Delaware Distributors, L.P.
Portfolio September 10, 2003
MANAGEMENT REVIEW
Fund Manager
Andrew M. McCullagh
Senior Portfolio Manager
Q: How did the fixed-income markets fare during the
12-month period?
A: Municipal bonds produced modestly positive returns during the fiscal year
ended August 31, 2003. Declining interest rates in a lackluster economy
generally provided a positive bond market environment for most of the year.
Interest rates steadily declined through mid-June when the bellwether 10-year
U.S. Treasury bond yield fell to 3.07%. However, the bond market was jolted in
early summer by an uncharacteristically ambiguous message from the Federal
Reserve Board. In June, the Fed shared its concern relating to deflation along
with possible remedial steps, such as purchasing Treasury bonds. Investors
expected that this action would bolster bond prices and reduce interest rates
even further. A few weeks after this statement, the Fed inexplicably reversed
course, saying deflation was no longer the primary policy issue. This caused
yields to rise and bond prices to decline sharply in one of the worst sell-offs
in years.
Fortunately, our strategy prior to this dramatic bond market move was to shorten
the Funds' durations. Duration is a common measure of a bond's or bond fund's
sensitivity to interest rate changes. The longer the duration, the more
sensitive the bond or bond fund is to changes in interest rates. In fact, we had
shortened duration as early as late 2002 because we anticipated that interest
rates would rise as the economy recovered. While we didn't know exactly when
this reversal would take place, we also knew that it can take months to
reposition a bond portfolio's duration. By doing so early in the fiscal year,
the funds were not nearly as vulnerable to a selloff as their peers. Indeed,
four out of the five funds discussed below outperformed their peers, as measured
by Lipper Inc.
Q: What were some of the factors that influenced performance in
the Funds during the fiscal year?
A: One of our general strategies was to buy bonds with intermediate maturities
rather than lengthier 30-year debt, because the former offered more attractive
yields on a risk/reward basis. In addition, we attempted to lighten our exposure
to multifamily housing bonds, as rentals were vacated in favor of home purchases
given historically low mortgage rates.
A focus on call protection was another positive factor, particularly when
interest rates were declining and issuers were seeking to refinance debt.
Finally, we sought to generate a competitive income stream for the portfolios
relative to their fund peer groups, as measured by Lipper Inc. The yields for
all funds, except for the Tax-Free Arizona Insured Fund, exceeded the average
yield of their respective Lipper fund peer groups for the 12-month period. We
believed this measure would help protect against the effect of price declines in
a rising interest rate environment.
Still, municipal securities lagged behind the overall bond market during the
fiscal year. The primary reason was record issuance by states and municipalities
seeking to take advantage of low interest rates, which in turn exerted downward
pressure on bond prices. In addition, the economies of Arizona, California, and
Colorado -- which have become heavily dependent on the technology sector in
recent years -- continued to be negatively affected by the slow recovery in
capital spending.
Q: Please discuss performance and your strategies in each of the Funds during
the year.
For the 12 months ended August 31, 2003, Delaware Tax-Free Arizona Fund's return
of -0.88% (Class A shares at net asset value with distributions reinvested)
lagged the +1.92% return of the Lipper Arizona Municipal Debt Funds Average. In
addition, the benchmark Lehman Brothers Municipal Bond Index gained +3.14% for
the same period.
Two bond issues in particular contributed to the Fund's underperformance
relative to its peer group and benchmark during the year. Maricopa County
Industrial Development Authority Multifamily Housing Revenue (Bay Club at Mesa
Cove Project) bonds declined in value, reflecting dwindling apartment occupancy
rates. Because this investment did not work out as planned, we are hoping to
negotiate an arrangement with the underwriter of these bonds in an effort to
restore some value. Yet we cannot know if these efforts will be successful. In
addition, our investment in Winslow Industrial Development Authority Hospital
Revenue bonds have created challenges, although we think a pending merger might
boost their price. Overall, though, the Fund's credit quality is quite strong,
with an average rating of AA by Standard & Poor's (S&P).
During the past six months, we have cut the Fund's allocation to multifamily
housing bonds in half. Currently, the largest percentage of the Fund's holdings
are issues related to education, both K-12 and college, with the next largest
allocation in healthcare.
1
================================================================================
For the 12-month period ended August 31, 2003, Delaware Tax-Free Arizona Insured
Fund returned +2.17% (Class A shares at net asset value with distributions
reinvested), surpassing its peer group, as measured by the Lipper Arizona
Municipal Debt Funds Average, which returned +1.92%. The Lehman Brothers
Municipal Bond Index managed to rise +3.14% during the same period.
We took a very conservative approach in managing the Fund during the fiscal
year, investing more than 80 percent of its total net assets in AAA-rated
insured bonds and keeping portfolio duration shorter than that of its Lipper
peer group average.
Although tourism is down, our investment in airport bonds remains strong. The
state's tourism industry has not rebounded, with airline passenger miles and
hotel receipts below levels of one year ago.
Arizona's economy mirrors that of the nation in general, with flat job growth
and a decline in construction activity. Arizona was forced to deplete its
reserve funds in order to cover a projected shortfall in its fiscal 2003 budget.
However, we believe that the recent strength in the high-technology sector is a
positive sign for the future. The state's exposure to industries was a negative
factor in recent years.
================================================================================
Delaware Tax-Free California Fund returned +2.51% (Class A shares at net asset
value with distributions reinvested) for the fiscal year ended August 31, 2003.
For the same period, the Lipper California Municipal Debt Funds Average returned
+1.36%, while the Lehman Brothers Municipal Bond Index gained +3.14%.
Although the state has a large budget deficit, its economy is actually outpacing
the nation in terms of employment and personal income growth. It is also
benefiting from federal defense and homeland security spending. Orders are
rising among the state's defense contractors, particularly in aerospace and
shipbuilding. Although the state's technology sector is not expected to rebound
much over the near term, it is also not expected to be the drag on the economy
that it has been over the past two years. Still, the state's general obligation
bond ratings have recently been downgraded to BBB (S&P) amid controversy
surrounding the budget and the recent recall election.
The Fund's relatively strong performance is partly due to above- average
dividends, as well as a broadly diversified portfolio. In addition, we have
generally avoided bonds that have had problems that can be linked to
California's economic woes. Despite the state's well-publicized budget problems,
the Fund's credit rating remains strong at A (S&P).
================================================================================
For the 12 months ended August 31, 2003, Delaware Tax-Free California Insured
Fund's return of +1.84% (Class A shares at net asset value with distributions
reinvested) compared favorably to the +1.53% return of the Lipper California
Insured Municipal Debt Funds Average for the same period. The Fund's benchmark,
the Lehman Brothers Municipal Bond Index, rose +3.14% for the same period.
The Fund's slight relative advantage over its peer group partly reflects a
portfolio with a higher-than-average distribution yield. We have been able to
generate this yield advantage by allocating 20 percent of the Fund's assets to
non-insured bonds.
The State of California continues to issue billions of dollars in general
obligation bonds, causing upward pressure on yields and downward pressure on
prices throughout the municipal bond market. It is important for shareholders to
note that, at fiscal year-end, the Fund held less than 10 percent of total net
assets in general obligation bonds issued by the state. We believe this has been
a good decision, since the state government's credit rating was downgraded by
Standard & Poor's and Moody's Investors Service. General obligation bonds are
secured by the taxing and borrowing power of the issuing municipality. Your Fund
instead is focused on revenue bonds, where regular interest payments are made
from revenues generated by the specific projects. The Fund's average credit
quality at fiscal year-end was AA.
2
================================================================================
For the 12 months ended August 31, 2003, Delaware Tax-Free Colorado Fund's
return of +2.52% (Class A shares at net asset value with distributions
reinvested) compared favorably to the +2.29% return of the Lipper Colorado
Municipal Debt Funds Average. The Lehman Brothers Municipal Bond Index gained
+3.14% during the same period.
Colorado's economy performed relatively well during the period, with
unemployment below the national average and per capita personal income above the
national average. While the state's exposure to the technology and
telecommunication sectors has resulted in slower growth in recent years, capital
spending for education, roads, and other public services remained strong.
We have continued to upgrade the credit quality of the portfolio. One
problematic bond issue resulted in less of a loss than we had earlier
anticipated. Once dependent on a financially troubled Denver aquarium,
Colorado's Ocean Journey, the bond appeared more stable to investors when the
aquarium was acquired by Landry's Restaurants, a national restaurant chain based
in Houston, Texas.
3
Delaware
TAX-FREE ARIZONA FUND
Fund Basics
As of August 31, 2003
- --------------------------------------------------
Fund Objective:
The Fund seeks as high a level of current
income exempt from federal income tax and
from the Arizona state personal income tax as is
consistent with preservation of capital.
- --------------------------------------------------
Total Fund Net Assets:
$35.78 million
- --------------------------------------------------
Number of Holdings:
41
- --------------------------------------------------
Fund Start Date:
March 2, 1995
- --------------------------------------------------
Your Fund Manager:
Andrew M. McCullagh is a graduate of
Washington College and has a Graduate
Certificate in public finance from the University
of Michigan. Prior to joining Delaware
Investments, he served as a Senior Vice
President and Senior Portfolio Manager of
Voyageur Asset Management. Mr. McCullagh
currently has over 28 years' experience in
municipal bond trading, underwriting, and
portfolio management.
- --------------------------------------------------
Nasdaq Symbols:
Class A DVAAX
Class B DVATX
Class C DVAZX
Fund Performance
Average Annual Total Returns
Through August 31, 2003 Lifetime Five Years One Year
- -----------------------------------------------------------------------------
Class A (Est. 3/2/95)
Excluding Sales Charge +5.78% +3.15% -0.88%
Including Sales Charge +5.21% +2.20% -5.35%
- -----------------------------------------------------------------------------
Class B (Est. 6/29/95)
Excluding Sales Charge +4.66% +2.41% -1.62%
Including Sales Charge +4.66% +2.16% -5.40%
- -----------------------------------------------------------------------------
Class C (Est. 5/13/95)
Excluding Sales Charge +4.76% +2.38% -1.53%
Including Sales Charge +4.76% +2.38% -2.48%
- -----------------------------------------------------------------------------
Returns reflect the reinvestment of distributions and any applicable sales
charges as noted below. Returns and share values will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost. Performance
for Class B and C shares, excluding sales charges, assumes either that
contingent deferred sales charges did not apply or the investment was not
redeemed. Past performance is not a guarantee of future results.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 4.50% and have an annual distribution and
service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware Tax-Free Arizona
Fund during the periods shown. Performance would have been lower had the expense
limitation not been in effect.
The performance table and graph do not reflect the deduction of taxes the
shareholder would pay on Fund distributions or redemptions of Fund shares.
Performance of a $10,000 Investment
March 2, 1995 (Fund's inception) through August 31, 2003
Delaware Tax-Free
Arizona Fund -- Class A Lehman Brothers
Shares Municipal Bond Index
----------------------- --------------------
Mar-95 $ 9,630 $10,000
Aug-95 $10,073 $10,469
Aug-96 $10,961 $11,017
Aug-97 $11,991 $12,036
Aug-98 $13,127 $13,077
Aug-99 $12,985 $13,148
Aug-00 $13,460 $14,033
Aug-01 $14,738 $15,466
Aug-02 $15,466 $16,431
Aug-03 $15,397 $16,947
Chart assumes $10,000 invested on March 2, 1995 and includes the effect of a
4.50% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses. The chart also assumes $10,000 invested in the Lehman Brothers
Municipal Bond Index at that month's end, March 31, 1995. After March 31, 1995,
returns plotted on the chart were as of the last day of each month shown. The
Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks
the performance of municipal bonds. 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.
4
Delaware
TAX-FREE ARIZONA INSURED FUND
Fund Basics
As of August 31, 2003
- -------------------------------------------------
Fund Objective:
The Fund seeks as high a level of current
income exempt from federal income tax and
from the Arizona state personal income tax as is
consistent with preservation of capital.
- -------------------------------------------------
Total Fund Net Assets:
$152.89 million
- -------------------------------------------------
Number of Holdings:
66
- -------------------------------------------------
Fund Start Date:
April 1, 1991
- -------------------------------------------------
Your Fund Manager:
Andrew M. McCullagh
- -------------------------------------------------
Nasdaq Symbols:
Class A VAZIX
Class B DVABX
Class C DVACX
Fund Performance
Average Annual Total Returns
Through August 31, 2003 Lifetime 10 Years Five Years One Year
- --------------------------------------------------------------------------------------------------
Class A (Est. 4/1/91)
Excluding Sales Charge +6.50% +5.01% +4.34% +2.17%
Including Sales Charge +6.10% +4.53% +3.39% -2.40%
- --------------------------------------------------------------------------------------------------
Class B (Est. 3/10/95)
Excluding Sales Charge +5.06% +3.57% +1.41%
Including Sales Charge +5.06% +3.32% -2.46%
- --------------------------------------------------------------------------------------------------
Class C (Est. 5/26/94)
Excluding Sales Charge +5.04% +3.57% +1.40%
Including Sales Charge +5.04% +3.57% +0.43%
- --------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Returns and share values will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost. Performance
for Class B and C shares, excluding sales charges, assumes either that
contingent deferred sales charges did not apply or the investment was not
redeemed. Past performance is not a guarantee of future results.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 4.50% and have an annual distribution and
service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware Tax-Free Arizona
Insured Fund during the periods shown. Performance would have been lower had the
expense limitation not been in effect.
The performance table and graph do not reflect the deduction of taxes the
shareholder would pay on Fund distributions or redemptions of Fund shares.
Performance of a $10,000 Investment
August 31, 1993 through August 31, 2003
Delaware Tax-Free
Arizona Insured Fund -- Lehmann Brothers
Class A Shares Municipal Bond Index
------------------------ --------------------
Aug-93 $ 9,550 $10,000
Aug-94 $ 9,346 $10,014
Aug-95 $10,167 $10,902
Aug-96 $10,724 $11,474
Aug-97 $11,662 $12,534
Aug-98 $12,583 $13,618
Aug-99 $12,537 $13,692
Aug-00 $13,222 $14,614
Aug-01 $14,429 $16,106
Aug-02 $15,228 $17,102
Aug-03 $15,573 $17,639
Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a
4.50% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that
generally tracks the performance of municipal bonds. 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.
5
Delaware
TAX-FREE CALIFORNIA FUND
Fund Basics
As of August 31, 2003
- ------------------------------------------------
Fund Objective:
The Fund seeks as high a level of current
income exempt from federal income tax and
from the California state personal income tax as
is consistent with preservation of capital.
- ------------------------------------------------
Total Fund Net Assets:
$45.35 million
- ------------------------------------------------
Number of Holdings:
43
- ------------------------------------------------
Fund Start Date:
March 2, 1995
- ------------------------------------------------
Your Fund Manager:
Andrew M. McCullagh
- ------------------------------------------------
Nasdaq Symbols:
Class A DVTAX
Class B DVTFX
Class C DVFTX
Fund Performance
Average Annual Total Returns
Through August 31, 2003 Lifetime Five Years One Year
- -------------------------------------------------------------------------------
Class A (Est. 3/2/95)
Excluding Sales Charge +6.49% +4.36% +2.51%
Including Sales Charge +5.91% +3.40% -2.12%
- -------------------------------------------------------------------------------
Class B (Est. 8/23/95)
Excluding Sales Charge +5.91% +3.57% +1.73%
Including Sales Charge +5.91% +3.32% -2.18%
- -------------------------------------------------------------------------------
Class C (Est. 4/9/96)
Excluding Sales Charge +5.62% +3.58% +1.74%
Including Sales Charge +5.62% +3.58% +0.76%
- -------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Returns and share values will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost. Performance
for Class B and C shares, excluding sales charges, assumes either that
contingent deferred sales charges did not apply or the investment was not
redeemed. Past performance is not a guarantee of future results.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 4.50% and have an annual distribution and
service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware Tax-Free
California Fund during the periods shown. Performance would have been lower had
the expense limitation not been in effect.
The performance table and graph do not reflect the deduction of taxes the
shareholder would pay on Fund distributions or redemptions of Fund shares.
Performance of a $10,000 Investment
March 2, 1995 (Fund's inception) through August 31, 2003
Delaware Tax-Free
California Fund -- Lehman Brothers
Class A Shares Municipal Bond Index
------------------ --------------------
Mar-95 $ 9,657 $10,000
Aug-95 $ 9,913 $10,469
Aug-96 $10,629 $11,017
Aug-97 $11,830 $12,036
Aug-98 $13,086 $13,077
Aug-99 $12,885 $13,148
Aug-00 $13,529 $14,033
Aug-01 $14,940 $15,466
Aug-02 $15,801 $16,431
Aug-03 $16,296 $16,947
Chart assumes $10,000 invested on March 2, 1995 and includes the effect of a
4.50% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses. The chart also assumes $10,000 invested in the Lehman Brothers
Municipal Bond Index at that month's end, March 31, 1995. After March 31, 1995,
returns plotted on the chart were as of the last day of each month shown. The
Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks
the performance of municipal bonds. 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.
6
Delaware
TAX-FREE CALIFORNIA INSURED FUND
Fund Basics
As of August 31, 2003
- -------------------------------------------------
Fund Objective:
The Fund seeks as high a level of current
income exempt from federal income tax and
from the California state personal income tax as
is consistent with preservation of capital.
- -------------------------------------------------
Total Fund Net Assets:
$40.39 million
- -------------------------------------------------
Number of Holdings:
35
- -------------------------------------------------
Fund Start Date:
October 15, 1992
- -------------------------------------------------
Your Fund Manager:
Andrew M. McCullagh
- -------------------------------------------------
Nasdaq Symbols:
Class A VCINX
Class B DVNBX
Class C DVNCX
Fund Performance
Average Annual Total Returns
Through August 31, 2003 Lifetime 10 Years Five Years One Year
- -------------------------------------------------------------------------------------------------
Class A (Est. 10/15/92)
Excluding Sales Charge +5.85% +4.84% +4.06% +1.84%
Including Sales Charge +5.41% +4.36% +3.12% -2.79%
- -------------------------------------------------------------------------------------------------
Class B (Est. 3/2/94)
Excluding Sales Charge +4.43% +3.29% +1.07%
Including Sales Charge +4.43% +3.03% -2.83%
- -------------------------------------------------------------------------------------------------
Class C (Est. 4/12/95)
Excluding Sales Charge +4.74% +3.32% +1.17%
Including Sales Charge +4.74% +3.32% +0.19%
- -------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Returns and share values will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost. Performance
for Class B and C shares, excluding sales charges, assumes either that
contingent deferred sales charges did not apply or the investment was not
redeemed. Past performance is not a guarantee of future results.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 4.50% and have an annual distribution and
service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware Tax-Free
California Insured Fund during the periods shown. Performance would have been
lower had the expense limitation not been in effect.
The performance table and graph do not reflect the deduction of taxes the
shareholder would pay on Fund distributions or redemptions of Fund shares.
Performance of a $10,000 Investment
August 31, 1993 through August 31, 2003
Delaware Tax-Free
Californa Insured Fund -- Lehman Brothers
Class A Shares Municipal Bond Index
--------------------------- --------------------
Aug-93 $ 9,550 $10,000
Aug-94 $ 9,256 $10,014
Aug-95 $ 9,897 $10,902
Aug-96 $10,489 $11,474
Aug-97 $11,524 $12,534
Aug-98 $12,548 $13,618
Aug-99 $12,301 $13,692
Aug-00 $13,174 $14,614
Aug-01 $14,428 $16,106
Aug-02 $15,039 $17,102
Aug-03 $15,321 $17,639
Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a
4.50% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that
generally tracks the performance of municipal bonds. 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.
7
Delaware
TAX-FREE COLORADO FUND
Fund Basics
As of August 31, 2003
- -----------------------------------------------
Fund Objective:
The Fund seeks as high a level of current
income exempt from federal income tax and
from the Colorado state personal income tax as
is consistent with preservation of capital.
- -----------------------------------------------
Total Fund Net Assets:
$321.24 million
- -----------------------------------------------
Number of Holdings:
98
- -----------------------------------------------
Fund Start Date:
April 23, 1987
- -----------------------------------------------
Your Fund Manager:
Andrew M. McCullagh
- -----------------------------------------------
Nasdaq Symbols:
Class A VCTFX
Class B DVBTX
Class C DVCTX
Fund Performance
Average Annual Total Returns
Through August 31, 2003 Lifetime 10 Years Five Years One Year
- ------------------------------------------------------------------------------------------------------------
Class A (Est. 4/23/87)
Excluding Sales Charge +6.95% +5.09% +3.81% +2.52%
Including Sales Charge +6.65% +4.61% +2.86% -2.08%
- ------------------------------------------------------------------------------------------------------------
Class B (Est. 3/22/95)
Excluding Sales Charge +5.02% +3.03% +1.66%
Including Sales Charge +5.02% +2.77% -2.25%
- ------------------------------------------------------------------------------------------------------------
Class C (Est. 5/6/94)
Excluding Sales Charge +5.06% +3.04% +1.74%
Including Sales Charge +5.06% +3.04% +0.77%
- ------------------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Returns and share values will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost. Performance
for Class B and C shares, excluding sales charges, assumes either that
contingent deferred sales charges did not apply or the investment was not
redeemed. Past performance is not a guarantee of future results.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 4.50% and have an annual distribution and
service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware Tax-Free
Colorado Fund during the periods shown. Performance would have been lower had
the expense limitation not been in effect.
The performance table and graph do not reflect the deduction of taxes the
shareholder would pay on Fund distributions or redemptions of Fund shares.
Performance of a $10,000 Investment
August 31, 1993 through August 31, 2003
Delaware Tax-Free
Colorado Fund -- Lehman Brothers
Class A Shares Municipal Bond Index
------------------- --------------------
Aug-93 $ 9,550 $10,000
Aug-94 $ 9,356 $10,014
Aug-95 $10,137 $10,902
Aug-96 $10,768 $11,474
Aug-97 $11,845 $12,534
Aug-98 $13,004 $13,618
Aug-99 $12,783 $13,692
Aug-00 $13,280 $14,614
Aug-01 $14,616 $16,106
Aug-02 $15,291 $17,102
Aug-03 $15,691 $17,639
Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a
4.50% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that
generally tracks the performance of municipal bonds. 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.
8
Statements Delaware Tax-Free Arizona Fund
OF NET ASSETS August 31, 2003
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 100.66%
- --------------------------------------------------------------------------------
Airport Revenue Bonds - 9.78%
Phoenix Civic Improvement Corporation
Series B
5.25% 7/1/27 (FGIC/AMT) $2,500,000 $ 2,498,125
5.25% 7/1/32 (FGIC/AMT) 1,000,000 999,190
-----------
3,497,315
-----------
Charter School Revenue Bonds - 9.23%
Maricopa County Industrial Development
Authority School District Revenue
6.75% 7/1/29 1,000,000 982,490
Pima County Industrial Development
Authority (Arizona Charter Schools
Project II) Series A
6.75% 7/1/31 500,000 491,015
Pima County Industrial Development
Authority (Life School College Project)
Series A 7.875% 7/1/21 2,000,000 1,827,140
-----------
3,300,645
-----------
Dedicated Tax & Fees Revenue Bonds - 9.87%
Arizona Tourism & Sports Authority Tax
Revenue Multipurpose Stadium
Facilities Series A 5.00% 7/1/31 (MBIA) 1,000,000 990,290
Glendale Municipal Property Corporation
Excise Tax Revenue Series A
5.00% 7/1/33 (AMBAC) 750,000 742,485
Marana Municipal Property Corporation
5.00% 7/1/28 (AMBAC) 575,000 571,159
Phoenix Civic Improvement Corporation
Excise Tax Revenue 4.50% 7/1/29 1,350,000 1,226,219
-----------
3,530,153
-----------
Higher Education Revenue Bonds - 15.89%
Glendale Industrial Development Authority
5.875% 5/15/31 1,000,000 1,024,539
Northern Arizona University Systems
Revenue 5.00% 6/1/34 (FGIC) 1,000,000 987,850
Southern Arizona Capital Facilities Finance
(University of Arizona Project)
5.10% 9/1/33 (MBIA) 850,000 851,029
Tucson Industrial Development Authority
(University of Arizona-Marshall
Foundation) Series A
5.00% 7/15/27 (AMBAC) 1,000,000 995,390
University of Arizona Certificates of
Participation (University of Arizona
Projects) Series B
5.125% 6/1/22 (AMBAC) 1,000,000 1,016,279
West Campus Housing Revenue
(Arizona State University Project)
6.375% 7/1/22 (ACA) 750,000 808,748
-----------
5,683,835
-----------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Hospital Revenue Bonds - 12.50%
Mesa Industrial Development Authority
(Discovery Health Systems) Series A
5.625% 1/1/29 (MBIA) $ 750,000 $ 779,288
Mohave County Industrial Development
Authority (Chris/Silver Ridge)
6.375% 11/1/31 (GNMA) 550,000 579,343
Scottsdale Industrial Development Authority
Hospital Revenue
(Scottsdale Healthcare)
5.70% 12/1/21 500,000 504,280
Winslow Industrial Development Authority
Hospital Revenue
(Winslow Memorial Hospital Project)
5.50% 6/1/22 1,000,000 673,430
Yavapai County Industrial Development
Authority Hospital Revenue
(Yavapai Regional Medical Center)
Series A 5.25% 8/1/21 (RADIAN) 1,000,000 1,004,179
Yuma Industrial Development Authority
Hospital Revenue
(Yuma Regional Medical Center)
5.00% 8/1/31 (FSA) 950,000 933,812
-----------
4,474,332
-----------
Investor Owned Utilities Revenue Bonds - 5.67%
Maricopa County Pollution Control
(Palo Verde Project) Series A
5.05% 5/1/29 (AMBAC) 1,000,000 994,370
Maricopa County Pollution Control
Corporation Pollution Control Revenue
(El Paso Electric Company Project)
Series A 6.375% 8/1/15 1,000,000 1,034,490
-----------
2,028,860
-----------
Multifamily Housing Revenue Bonds - 10.75%
**Maricopa County Industrial Development
Authority Multifamily Housing Revenue
(Bay Club at Mesa Cove Project)
Series B 8.25% 9/1/35 1,875,000 656,250
Maricopa County Industrial Development
Authority Multifamily Housing Revenue
(Sly-Mar Apartments)
6.10% 4/20/36 (GNMA/AMT) 700,000 729,722
Maricopa County Industrial Development
Authority Multifamily Housing Revenue
(Villas at Augusta Project)
6.50% 10/20/33 (GNMA) 850,000 886,941
Peoria Casa Del Rio Industrial Development
Authority Multifamily Housing Revenue
(Casa Del Rio) 7.30% 2/20/28 (GNMA) 500,000 524,905
Phoenix Industrial Development Authority
Multifamily Housing Revenue
(Camelback Crossing)
6.35% 9/20/35 (GNMA) 500,000 531,285
Pima County Industrial Development
Authority Multifamily Housing Revenue
(Sunbriar Apartments Project)
7.25% 7/1/25 (MBIA/FHA) 500,000 518,675
-----------
3,847,778
-----------
9
Statements Delaware Tax-Free Arizona Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Municipal Lease Revenue Bonds - 5.55%
Maricopa County Industrial Development
Authority Correctional Facilities
(Phoenix West Prison)
5.375% 7/1/22 (ACA) $ 750,000 $ 751,508
Prescott Valley Municipal Property
Corporate Facilities Revenue
5.00% 1/1/27 (FGIC) 700,000 700,210
Sedona Partner Certificates of
Participation Series 1999
5.75% 7/1/16 500,000 535,735
----------
1,987,453
----------
Political Subdivision General Obligation Bonds - 9.94%
DC Ranch Community Facilities
5.00% 7/15/27 (AMBAC) 500,000 498,865
Eagle Mountain Community Facility District
6.50% 7/1/21 1,010,000 1,122,049
Phoenix Variable Purpose Series B
5.00% 7/1/27 1,935,000 1,937,342
----------
3,558,256
----------
Public Power Revenue Bonds - 2.77%
Salt River Project Arizona Agricultural
Improvement & Power District Electric
System Revenue (Salt River Project)
Series A 5.00% 1/1/31 1,000,000 991,830
----------
991,830
----------
School District General Obligation Bonds - 0.52%
Maricopa County School District #69
(Paradise Valley) 3.375% 7/1/13 (FGIC) 200,000 185,430
----------
185,430
----------
Single Family Housing Revenue Bonds - 0.55%
Pima County Industrial Development
Authority Single Family Mortgage
Revenue Series A 6.125% 11/1/33
(GNMA/FNMA/FHLMC/AMT) 190,000 198,421
----------
198,421
----------
Territorial General Obligation Bonds - 2.77%
Puerto Rico Commonwealth Public
Improvement Series A 5.125% 7/1/31 1,000,000 989,690
----------
989,690
----------
Territorial Revenue Bonds - 2.78%
Puerto Rico Public Buildings Authority
Guaranteed Government Facilities
Revenue Series D 5.25% 7/1/36 1,000,000 994,810
----------
994,810
----------
Water & Sewer Revenue Bonds - 2.09%
Phoenix Civic Improvement Corporation
Water Systems Revenue
5.00% 7/1/26 (FGIC) 750,000 747,420
----------
747,420
----------
Total Municipal Bonds
(cost $37,497,256) 36,016,228
----------
Total Market Value of Securities - 100.66%
(cost $37,497,256) $36,016,228
Liabilities Net of Receivables and
Other Assets - (0.66%) (235,270)
-----------
Net Assets Applicable to 3,573,341 Shares
Outstanding - 100.00% $35,780,958
===========
Net Asset Value - Delaware Tax-Free
Arizona Fund Class A
($22,400,694/2,237,570 Shares) $10.01
------
Net Asset Value - Delaware Tax-Free
Arizona Fund Class B
($8,956,323/894,988 Shares) $10.01
------
Net Asset Value - Delaware Tax-Free
Arizona Fund Class C
($4,423,941/440,783 Shares) $10.04
------
Components of Net Assets at August 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $38,557,252
Distributions in excess of net investment income (1,660)
Accumulated net realized loss on investments (1,293,606)
Net unrealized depreciation of investments (1,481,028)
-----------
Total net assets $35,780,958
===========
**Non-income producing security. Security is currently in default.
Summary of Abbreviations:
ACA - Insured by American Capital Access
AMBAC - Insured by the AMBAC Indemnity Corporation
AMT - Subject to Alternative Minimum Tax
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
FHLMC - Insured by the Federal Home Loan Mortgage Corporation
FNMA - Insured by Federal National Mortgage Association
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
Net Asset Value and Offering Price per Share -
Delaware Tax-Free Arizona Fund
Net asset value Class A (A) $10.01
Sales charge (4.50% of offering price, or 4.70% of
amount invested per share) (B) 0.47
------
Offering price $10.48
======
(A) Net asset value per share, as illustrated, is the estimated 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
10
Statements Delaware Tax-Free Arizona Insured Fund
OF NET ASSETS (CONTINUED) August 31, 2003
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 98.77%
- --------------------------------------------------------------------------------
Airport Revenue Bonds - 9.68%
Phoenix Civic Improvement Corporation
Series B
5.25% 7/1/27 (FGIC/AMT) $ 500,000 $ 499,625
5.25% 7/1/32 (FGIC/AMT) 9,300,000 9,292,467
Tucson Airport Authority
5.35% 6/1/31 (AMBAC/AMT) 5,000,000 5,004,250
-----------
14,796,342
-----------
Charter School Revenue Bonds - 4.54%
Pima County Industrial Development
Authority (Arizona Charter Schools
Project II) Series A 6.75% 7/1/31 500,000 491,015
Pima County Industrial Development
Authority (Arizona Charter
Schools Project) Series C 6.75% 7/1/31 6,570,000 6,451,937
-----------
6,942,952
-----------
Continuing Care/Retirement Revenue Bonds - 2.59%
Maricopa County Industrial Development
Authority Health Facilities Revenue
(Pennington Gardens) Series A
6.30% 9/20/38 (GNMA/FHA) 3,715,000 3,954,395
-----------
3,954,395
-----------
Dedicated Tax & Fees Revenue Bonds - 7.49%
Arizona Tourism & Sports Authority Tax
Revenue Multipurpose Stadium Facilities
Series A
5.00% 7/1/28 (MBIA) 2,500,000 2,483,300
5.00% 7/1/31 (MBIA) 1,500,000 1,485,435
Oro Valley Common Trust Funds Partnership
5.75% 7/1/17 (MBIA) 1,000,000 1,094,060
Phoenix Civic Improvement Corporation
Excise Tax Revenue 5.00% 7/1/26 1,000,000 999,260
Surprise Municipal Property Excise Tax
Revenue 5.70% 7/1/20 (FGIC) 5,000,000 5,394,350
-----------
11,456,405
-----------
Escrowed to Maturity Bonds - 0.23%
Phoenix Street & Highway Revenue
6.50% 7/1/09 (AMBAC) 350,000 355,611
-----------
355,611
-----------
Higher Education Revenue Bonds - 9.77%
Arizona State Board of Regents Certificates
of Participation 5.125% 6/1/25 (AMBAC) 1,250,000 1,263,613
Glendale Industrial Development Authority
Educational Facilities (American
Graduate School International)
5.625% 7/1/20 (Connie Lee) 1,000,000 1,069,890
5.875% 7/1/15 (Connie Lee) 2,500,000 2,713,575
Mohave County Community College
6.00% 3/1/20 (MBIA) 1,000,000 1,114,110
South Campus Group Student Housing
Revenue (Arizona State University South
Campus Project) 5.625% 9/1/35 (MBIA) 1,000,000 1,051,790
Southern Arizona Capital Facilities Finance
(University of Arizona Project)
5.10% 9/1/33 (MBIA) 2,400,000 2,402,904
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Higher Education Revenue Bonds (continued)
University of Arizona Certificates
of Participation
4.75% 6/1/23 (AMBAC) $1,000,000 $ 973,060
5.125% 6/1/21 (AMBAC) 1,000,000 1,020,570
5.75% 6/1/19 (AMBAC) 1,000,000 1,091,250
West Campus Housing
(Arizona State University Project)
5.50% 7/1/34 (ACA) 2,250,000 2,239,560
-----------
14,940,322
-----------
Hospital Revenue Bonds - 10.84%
Mesa Industrial Development Authority
(Discovery Health Systems) Series A
5.625% 1/1/29 (MBIA) 9,250,000 9,611,212
Phoenix Industrial Development Authority
Hospital Revenue (John C. Lincoln Health)
Series B 5.75% 12/1/16 (Connie Lee) 4,110,000 4,488,531
University of Arizona Medical Center
6.25% 7/1/10 (MBIA) 1,445,000 1,465,143
Yavapai County Industrial Development
Authority Hospital Revenue
(Yavapai Regional Medical Center)
Series A 5.25% 8/1/21 (RADIAN) 1,000,000 1,004,180
-----------
16,569,066
-----------
Investor Owned Utilities Revenue Bonds - 4.60%
Maricopa County Pollution Control
(Palo Verde Project) Series A
5.05% 5/1/29 (AMBAC) 5,000,000 4,971,850
Puerto Rico Industrial Tourist Facilities
Financing Authority
6.625% 6/1/26 (AMT) 2,000,000 2,061,140
-----------
7,032,990
-----------
Multifamily Housing Revenue Bonds - 13.14%
Maricopa County Industrial Development
Authority Multifamily Housing Revenue
(Sly-Mar Apartments)
6.10% 4/20/36 (GNMA/AMT) 1,300,000 1,355,198
Maricopa County Industrial Development
Authority Multifamily Housing Revenue
(Villas at Augusta Project)
6.50% 10/20/33 (GNMA/AMT) 1,650,000 1,721,709
Phoenix Industrial Development Authority
Multifamily Housing Revenue
(Camelback Crossing)
6.35% 9/20/35 (GNMA) 1,500,000 1,593,855
Phoenix Industrial Development Authority
Multifamily Housing Revenue
(Capital Mews Apartments)
5.70% 12/20/40 (GNMA/AMT) 4,000,000 4,078,919
Phoenix Industrial Development Authority
Multifamily Housing Revenue
(Ventana Palms Apartments)
6.15% 10/1/29 (MBIA) 510,000 536,168
6.20% 10/1/34 (MBIA) 940,000 997,105
Pima County Industrial Development
Authority Multifamily Housing Revenue
(Columbus Village) Series A
6.00% 10/20/31 (GNMA) 1,150,000 1,201,785
6.05% 10/20/41 (GNMA) 1,520,000 1,586,652
11
Statements Delaware Tax-Free Arizona Insured Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Multifamily Housing Revenue Bonds (continued)
Pima County Industrial Development
Authority Multifamily Housing Revenue
(Sunbriar Apartments Project)
7.25% 7/1/25 (MBIA/FHA) $1,225,000 $ 1,270,754
Tolleson Industrial Development Authority
Multifamily Housing Revenue
(Copper Cove Project) Series A
5.45% 11/20/32 (GNMA/AMT) 1,285,000 1,295,691
Yuma Industrial Development Authority
Multifamily Revenue
6.10% 9/20/19 (GNMA/AMT) 2,340,000 2,450,354
Yuma Industrial Development Authority
Multifamily Revenue
(Regency Apartments)
Series A 5.50% 12/20/32 (GNMA/FHA) 2,000,000 2,009,460
-----------
20,097,650
-----------
Municipal Lease Revenue Bonds - 9.28%
Maricopa County Industrial Development
Authority Correctional Facilities
(Phoenix West Prison)
5.375% 7/1/22 (ACA) 250,000 250,503
Phoenix Industrial Development Authority
Lease Revenue (Capitol Mall LLC Project)
5.50% 9/15/27 (AMBAC) 5,000,000 5,196,399
Phoenix Industrial Development Authority
Lease Revenue (Capitol Mall LLC II Project)
5.00% 9/15/28 (AMBAC) 4,000,000 3,971,080
Pinal County Certificates of Participation
5.125% 6/1/21 (AMBAC) 4,675,000 4,771,165
-----------
14,189,147
-----------
Political Subdivision General Obligation Bonds - 1.31%
DC Ranch Community Facilities
5.00% 7/15/27 (AMBAC) 1,000,000 997,730
Phoenix Variable Purpose Series B
5.00% 7/1/27 1,000,000 1,001,210
-----------
1,998,940
-----------
Public Power Revenue Bonds - 5.60%
Energy Management Services
(Arizona State University - Main Campus)
5.25% 7/1/17 (MBIA) 1,500,000 1,593,000
Puerto Rico Electric Power Authority Power
Revenue 5.00% 7/1/32 2,000,000 2,006,800
Salt River Project Arizona Agricultural
Improvement & Power District Electric
System Revenue (Salt River Project)
Series A 5.00% 1/1/31 3,000,000 2,975,490
Series B 5.00% 1/1/31 (MBIA) 2,000,000 1,983,660
-----------
8,558,950
-----------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
School District General Obligation Bonds - 5.20%
Cochise County Unified School District #68
7.50% 7/1/10 (FGIC) $1,000,000 $ 1,238,940
Maricopa County School District #3
(Tempe Elementary) Series E
5.70% 7/1/16 (FGIC) 1,025,000 1,133,835
Maricopa County School District #14
(Creighton School Improvement Project
of 1990) Series C 6.50% 7/1/08 (FGIC) 1,000,000 1,168,530
Maricopa County School District #69
(Paradise Valley) 3.375% 7/1/13 (FGIC) 4,750,000 4,403,962
-----------
7,945,267
-----------
Single Family Housing Revenue Bonds - 0.81%
Pima County Industrial Development
Authority Single Family Housing
Revenue 6.10% 5/1/31 (GNMA/AMT) 1,200,000 1,242,372
-----------
1,242,372
-----------
Territorial General Obligation Bonds - 4.62%
Puerto Rico Commonwealth Public
Improvement Series A
5.125% 7/1/30 (FSA) 1,250,000 1,264,550
5.125% 7/1/31 4,450,000 4,404,121
Puerto Rico Commonwealth Refunding
Public Improvements Series A
5.50% 7/1/19 1,300,000 1,390,337
-----------
7,059,008
-----------
Transportation Revenue Bonds - 3.02%
Arizona State Transportation Board Highway
Revenue Series A 5.00% 7/1/21 2,500,000 2,549,500
Arizona State Transportation Board Highway
Revenue Series B
5.25% 7/1/21 1,000,000 1,039,710
5.25% 7/1/22 1,000,000 1,035,320
-----------
4,624,530
-----------
Water & Sewer Revenue Bonds - 6.05%
Gilbert Water & Waste Water Revenue
6.50% 7/1/12 (FGIC) 1,000,000 1,052,510
6.50% 7/1/22 (FGIC) 2,650,000 2,780,645
Phoenix Civic Improvement Corporation
Wastewater Systems Revenue
5.00% 7/1/24 (FGIC) 1,000,000 1,000,900
5.00% 7/1/26 (FGIC) 3,750,000 3,737,100
Prescott Valley Sewer Revenue
5.00% 1/1/23 (MBIA) 670,000 674,677
-----------
9,245,832
-----------
Total Municipal Bonds (cost $147,511,486) 151,009,779
-----------
12
Statements Delaware Tax-Free Arizona Insured Fund
OF NET ASSETS (CONTINUED)
Total Market Value of Securities - 98.77%
(cost $147,511,486) $151,009,779
Receivables and Other Assets
Net of Liabilities - 1.23% 1,883,142
------------
Net Assets Applicable to 13,697,515 Shares
Outstanding - 100.00% $152,892,921
============
Net Asset Value - Delaware Tax-Free
Arizona Insured Fund Class A
($129,682,965/11,620,196 Shares) $11.16
------
Net Asset Value - Delaware Tax-Free
Arizona Insured Fund Class B
($14,665,502/1,313,229 Shares) $11.17
------
Net Asset Value - Delaware Tax-Free
Arizona Insured Fund Class C
($8,544,454/764,090 Shares) $11.18
------
Components of Net Assets at August 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $148,675,771
Undistributed net investment income 7,314
Accumulated net realized gain on investments 711,543
Net unrealized appreciation of investments 3,498,293
------------
Total net assets $152,892,921
============
Summary of Abbreviations:
ACA -- Insured by American Capital Access
AMBAC -- Insured by the AMBAC Indemnity Corporation
AMT -- Subject to Alternative Minimum Tax
Connie Lee -- Insured by the College Construction Insurance Association
FGIC -- Insured by the Financial Guaranty Insurance Company
FHA -- Insured by the Federal Housing Administration
FSA -- Insured by Financial Security Assurance
GNMA -- Insured by Government National Mortgage Association
MBIA -- Insured by the Municipal Bond Insurance Association
RADIAN -- Insured by Radian Asset Assurance
Net Asset Value and Offering Price per Share -
Delaware Tax-Free Arizona Insured Fund
Net asset value Class A (A) $11.16
Sales charge (4.50% of offering price, or 4.75% of
amount invested per share) (B) 0.53
------
Offering price $11.69
======
(A) Net asset value per share, as illustrated, is the estimated 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
13
Statements Delaware Tax-Free California Fund
OF NET ASSETS (CONTINUED) August 31, 2003
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 98.81%
- --------------------------------------------------------------------------------
Continuing Care/Retirement Revenue Bonds - 5.80%
Abag Finance Authority of California
(Nonprofit Corporations)
Certificates of Participation
(Lincoln Glen Manor Senior Citizens)
6.10% 2/15/25 $2,575,000 $ 2,630,620
-----------
2,630,620
-----------
Dedicated Tax & Fees Revenue Bonds - 4.19%
Poway Unified School District
5.60% 9/1/33 1,000,000 947,960
San Bernardino County Special Tax
Community Facilities 5.90% 9/1/33 1,000,000 952,570
-----------
1,900,530
-----------
Higher Education Revenue Bonds - 7.77%
California Educational Facilities Authority
Revenue (Pepperdine University)
Series A 5.50% 8/1/32 1,000,000 1,020,950
California Statewide Communities Revenue
Authority East Campus Apartments LLC
Series A 5.625% 8/1/34 (ACA) 1,000,000 1,007,130
San Diego County Certificates of Participation
(University of San Diego)
5.375% 10/1/41 1,000,000 1,002,290
University of California Revenues Series A
5.00% 5/15/33 (AMBAC) 500,000 491,975
-----------
3,522,345
-----------
Hospital Revenue Bonds - 9.18%
Abag Finance Authority of California
(Nonprofit Corporations-San Diego
Hospital Association) Series A
6.125% 8/15/20 1,250,000 1,288,875
California Health Facilities Financing
Authority (Adventist Health Systems)
Series A 5.00% 3/1/33 1,000,000 901,240
California Health Facilities Financing
Authority (The Episcopal Home)
5.30% 2/1/32 1,000,000 979,390
California Infrastructure & Economic
Development Bank Revenue
(Kaiser Hospital Associates I, LLC)
Series A 5.55% 8/1/31 1,000,000 990,280
-----------
4,159,785
-----------
Miscellaneous Revenue Bonds - 6.97%
California Statewide Communities
Development Authority Revenue
(Bentley School) 6.75% 7/1/32 1,000,000 1,005,940
San Diego County Certificates of
Participation 5.70% 2/1/28 1,200,000 1,130,544
San Diego County Certificates of
Participation (The Burnham Institute)
6.25% 9/1/29 1,000,000 1,024,310
-----------
3,160,794
-----------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Multifamily Housing Revenue Bonds - 19.50%
California Mobile Home Park Financing
Authority Revenue (Ranch Vallecitos,
San Marcos) Series A
5.25% 11/15/36 (ACA) $1,000,000 $ 973,560
California Statewide Communities
Development Authority Multifamily
Housing Revenue
(Citrus Gardens Apartments Project)
Series D1 5.375% 7/1/32 1,000,000 974,190
California Statewide Communities
Development Authority Multifamily
Housing Revenue
(Silver Ridge Apartments)
5.80% 8/1/33 (AMT) 1,000,000 1,041,179
California Statewide Communities
Development Authority Multifamily
Housing Revenue
(Stonehaven Apartments Project)
Series A 5.875% 7/1/32 (ACA) 1,000,000 1,017,090
Fairfield Housing Authority 5.625% 9/1/23 1,000,000 965,670
Monterey County Housing Authority
(Parkside Manor Apartments)
5.00% 7/1/19 1,000,000 941,460
Palm Springs Mobile Home Park Revenue
(Sahara Mobile Home Park)
5.625% 5/15/26 1,000,000 984,160
5.75% 5/15/37 1,000,000 976,630
Santa Clara County Housing Authority
(Rivertown Apartments Project)
Series A 5.85% 8/1/31 (AMT) 1,000,000 964,280
-----------
8,838,219
-----------
Municipal Lease Revenue Bonds - 6.91%
California State Public Works Board
Lease Revenue 5.00% 12/1/27 (AMBAC) 1,000,000 988,430
Orange County Water Distribution Revenue
5.00% 8/15/34 (MBIA) 1,180,000 1,159,893
San Jose Financing Authority Lease Revenue
(Civic Center Project) Series B
5.00% 6/1/32 (AMBAC) 1,000,000 984,180
-----------
3,132,503
-----------
Parking Revenue Bonds - 2.33%
San Diego Redevelopment Agency
6.40% 9/1/25 1,000,000 1,056,970
-----------
1,056,970
-----------
*Pre-Refunded Bonds - 2.62%
Tustin Unified School District
6.375% 9/1/35-08 1,000,000 1,189,930
-----------
1,189,930
-----------
Public Power Revenue Bonds - 5.55%
California State Department Water Reserve
Power Supply Revenue Series A
5.375% 5/1/21 1,000,000 1,014,990
Puerto Rico Electric Power Authority
Power Revenue 5.00% 7/1/32 (MBIA) 1,000,000 1,003,400
Vernon Electric Systems Revenue
5.30% 4/1/26 515,000 498,577
-----------
2,516,967
-----------
14
Statements Delaware Tax-Free California Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
School District General Obligation Bonds - 6.53%
Gilroy Unified School District
(Malbor Generating State Project)
5.00% 8/1/27 (FGIC) $1,000,000 $ 989,360
Lawndale Elementary School District
5.00% 8/1/32 (FSA) 1,000,000 984,180
San Diego Unified School District
5.00% 7/1/28 (FSA) 1,000,000 988,020
-----------
2,961,560
-----------
State General Obligation Bonds - 1.43%
California State Veterans Series B
5.70% 12/1/32 (AMT) 640,000 649,728
-----------
649,728
-----------
Tax Increment/Special Assessment Bonds - 9.08%
Lake Elisnore Public Financing Authority
5.50% 9/1/30 1,000,000 999,300
5.80% 9/2/15 1,110,000 1,136,074
San Francisco City & County Redevelopment
Agency 6.125% 8/1/31 1,000,000 979,000
Southern California Logistics Airport
Authority (Southern California Logistics
Airport Project) 6.50% 12/1/31 1,000,000 1,003,130
-----------
4,117,504
-----------
Transportation Revenue Bonds - 2.23%
Port of Oakland
5.375% 11/1/27 (FGIC/AMT) 1,000,000 1,012,630
-----------
1,012,630
-----------
Waste Disposal Revenue Bonds - 4.42%
Salinas Valley Solid Waste Authority
Revenue 5.25% 8/1/31 (AMBAC/AMT) 2,000,000 2,003,440
-----------
2,003,440
-----------
Water & Sewer Revenue Bonds - 4.30%
Los Angeles Department of Water & Power
Waterworks Revenue Series A
5.00% 7/1/43 (FGIC) 1,000,000 968,400
San Juan Basin Authority
(Ground Water Recovery Project)
5.00% 12/1/34 (AMBAC) 1,000,000 982,540
-----------
1,950,940
-----------
Total Municipal Bonds (cost $44,643,718) 44,804,465
-----------
Number
of Shares
- --------------------------------------------------------------------------------
Short-Term Investments - 1.26%
- --------------------------------------------------------------------------------
Federated California Municipal Trust 573,362 573,362
-----------
Total Short-Term Investments (cost $573,362) 573,362
-----------
Total Market Value of Securities - 100.07%
(cost $45,217,080) 45,377,827
Liabilities Net of Receivables and
Other Assets - (0.07%) (30,754)
-----------
Net Assets Applicable to 4,212,731 Shares
Outstanding - 100.00% $45,347,073
===========
Net Asset Value - Delaware Tax-Free
California Fund Class A
($22,168,838/2,062,824 Shares) $10.75
------
Net Asset Value - Delaware Tax-Free
California Fund Class B
($16,164,902/1,498,224 Shares) $10.79
------
Net Asset Value - Delaware Tax-Free
California Fund Class C
($7,013,333/651,683 Shares) $10.76
------
Components of Net Assets at August 31, 2003:
Shares of beneficial interest
(unlimited authorization-- no par) $46,492,842
Undistributed net investment income 1,300
Accumulated net realized loss on investments (1,307,816)
Net unrealized appreciation of investments 160,747
-----------
Total net assets $45,347,073
===========
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
Summary of Abbreviations:
ACA - Insured by American Capital Access
AMBAC - Insured by the AMBAC Indemnity Corporation
AMT - Subject to Alternative Minimum Tax
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
MBIA - Insured by the Municipal Bond Insurance Association
Net Asset Value and Offering Price per Share -
Delaware Tax-Free California Fund
Net asset value Class A (A) $10.75
Sales charge (4.50% of offering price, or 4.74% of
amount invested per share) (B) 0.51
------
Offering price $11.26
======
(A) Net asset value per share, as illustrated, is the estimated 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
15
Statements Delaware Tax-Free California Insured Fund
OF NET ASSETS (CONTINUED) August 31, 2003
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 99.05%
- --------------------------------------------------------------------------------
Airport Revenue Bonds - 4.87%
Sacramento County Airport System
Revenue Series A 5.00% 7/1/32 (FSA) $1,000,000 $ 984,170
San Jose Airport Revenue Series A
5.00% 3/1/31 (FGIC) 1,000,000 984,570
----------
1,968,740
----------
Dedicated Tax & Fees Revenue Bonds - 4.83%
San Bernardino County Special Tax
Community Facilities 5.90% 9/1/33 1,000,000 952,570
San Francisco Bay Area Rapid Transit
District Sales Tax Revenue
5.125% 7/1/36 (AMBAC) 1,000,000 998,510
----------
1,951,080
----------
Higher Education Revenue Bonds - 13.97%
California Educational Facilities
Authority Revenue
5.00% 10/1/32 1,000,000 991,620
5.75% 11/1/30 (MBIA) 1,000,000 1,065,610
California State Los Angeles University
Auxiliary Services
5.125% 6/1/33 (MBIA) 1,600,000 1,600,880
San Diego County Certificates
of Participation
(University of San Diego)
5.375% 10/1/41 1,000,000 1,002,290
University of California Revenues Series A
5.00% 5/15/33 (AMBAC) 1,000,000 983,950
----------
5,644,350
----------
Hospital Revenue Bonds - 5.97%
California Health Facilities Financing
Authority (The Episcopal Home)
5.30% 2/1/32 1,000,000 979,390
Oakland Industrial Revenue
(Harrison Foundation) Series B
6.00% 1/1/29 (AMBAC) 1,300,000 1,433,289
----------
2,412,679
----------
Miscellaneous Revenue Bonds - 5.16%
California Statewide Communities
Development Authority Revenue
(Bentley School) 6.75% 7/1/32 1,000,000 1,005,940
San Diego County Certificates of
Participation 5.75% 7/1/31 (MBIA) 1,000,000 1,076,940
----------
2,082,880
----------
Multifamily Housing Revenue Bonds - 12.08%
California Statewide Communities
Development Authority Multifamily
Housing Revenue
(Citrus Gardens Apartments Project)
Series D1 5.375% 7/1/32 800,000 779,352
California Statewide Communities
Development Authority Multifamily
Housing Revenue (East Tabor Apartments)
6.85% 8/20/36 (GNMA) 1,500,000 1,588,754
Los Angeles Multifamily Housing Revenue
(Park Plaza) 5.50% 1/20/43 (GNMA) 1,430,000 1,449,520
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Multifamily Housing Revenue Bonds (continued)
Ventura County Area Housing Authority
Multifamily Housing Revenue
(Glen Oaks Apartments) Series A
6.35% 7/20/34 (GNMA) $1,027,000 $ 1,061,672
-----------
4,879,298
-----------
Municipal Lease Revenue Bonds - 7.32%
California State Public Works Board
Lease Revenue
5.00% 3/1/27 (AMBAC) 1,000,000 984,100
5.00% 12/1/27 (AMBAC) 1,000,000 988,430
San Jose Financing Authority Lease Revenue
(Civic Center Project) Series B
5.00% 6/1/32 (AMBAC) 1,000,000 984,180
-----------
2,956,710
-----------
Public Power Revenue Bonds - 5.00%
California State Department Water Reserve
Power Supply Revenue Series A
5.375% 5/1/21 1,000,000 1,014,990
Puerto Rico Electric Power Authority
Power Revenue 5.00% 7/1/32 (MBIA) 1,000,000 1,003,400
-----------
2,018,390
-----------
School District General Obligation Bonds - 9.83%
Gilroy Unified School District
(Malbor Generating State Project)
5.00% 8/1/27 (FGIC) 1,000,000 989,360
Placer Unified High School District
5.00% 8/1/25 (FSA) 1,000,000 992,720
San Diego Unified School District
5.00% 7/1/28 (FSA) 1,000,000 988,020
Sequoia Unified High School District
5.125% 7/1/31 (FSA) 1,000,000 1,000,700
-----------
3,970,800
-----------
School District Revenue Bonds - 2.59%
Franklin-McKinley School District Certificates
of Participation (Financing Project)
Series B 5.00% 9/1/27 (AMBAC) 1,060,000 1,044,259
-----------
1,044,259
-----------
Tax Increment/Special Assessment Bonds - 15.05%
La Quinta Redevelopment Agency Tax
Allocation 5.10% 9/1/31 (AMBAC) 2,000,000 1,987,300
Poway Redevelopment Agency Certificates
of Participation 5.75% 6/15/33 (MBIA) 1,400,000 1,509,116
Riverside County Redevelopment Agency
5.25% 10/1/35 (AMBAC) 1,590,000 1,606,298
San Francisco City & County Redevelopment
Agency 6.125% 8/1/31 1,000,000 979,000
-----------
6,081,714
-----------
Transportation Revenue Bonds - 2.57%
Port of Oakland 5.75% 11/1/29 (FGIC/AMT) 1,000,000 1,038,870
-----------
1,038,870
-----------
Waste Disposal Revenue Bonds - 4.97%
Salinas Valley Solid Waste Authority Revenue
5.25% 8/1/27 (AMBAC) 2,000,000 2,007,260
-----------
2,007,260
-----------
16
Statements Delaware Tax-Free California Insured Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Water & Sewer Revenue Bonds - 4.84%
California State Department of Water
Resources Water Systems Revenue
(Central Valley Project) Series X
5.00% 12/1/29 (FGIC) $1,000,000 $ 986,250
Los Angeles Department of Water & Power
Waterworks Revenue Series A
5.00% 7/1/43 (FGIC) 1,000,000 968,400
-----------
1,954,650
-----------
Total Municipal Bonds (cost $39,298,008) 40,011,680
-----------
Number
of Shares
- --------------------------------------------------------------------------------
Short-Term Investments - 2.35%
- --------------------------------------------------------------------------------
Federated California Municipal Trust 947,474 947,474
-----------
Total Short-Term Investments
(cost $947,474) 947,474
-----------
Total Market Value of Securities - 101.40%
(cost $40,245,482) 40,959,154
Liabilities Net of Receivables and
Other Assets - (1.40%) (566,598)
-----------
Net Assets Applicable to 3,786,656 Shares
Outstanding - 100.00% $40,392,556
===========
Net Asset Value - Delaware Tax-Free
California Insured Fund Class A
($28,822,019/2,701,617 Shares) $10.67
------
Net Asset Value - Delaware Tax-Free
California Insured Fund Class B
($8,628,328/808,553 Shares) $10.67
------
Net Asset Value - Delaware Tax-Free
California Insured Fund Class C
($2,942,209/276,486 Shares) $10.64
------
Components of Net Assets at August 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $39,698,745
Accumulated net realized loss on investments (19,861)
Net unrealized appreciation of investments 713,672
-----------
Total net assets $40,392,556
===========
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Indemnity Corporation
AMT - Subject to Alternative Minimum Tax
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
Net Asset Value and Offering Price per Share -
Delaware Tax-Free California Insured Fund
Net asset value Class A (A) $10.67
Sales charge (4.50% of offering price, or 4.69% of
amount invested per share) (B) 0.50
------
Offering price $11.17
======
(A) Net asset value per share, as illustrated, is the estimated 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
17
Statements Delaware Tax-Free Colorado Fund
OF NET ASSETS (CONTINUED) August 31, 2003
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 98.50%
- --------------------------------------------------------------------------------
Airport Revenue Bonds - 3.81%
Denver City & County Airport
5.00% 11/15/33 (XLCA) $4,000,000 $ 3,887,360
5.25% 11/15/23 (MBIA) 8,250,000 8,371,523
-----------
12,258,883
-----------
Charter School Revenue Bonds - 8.91%
Colorado Educational & Cultural Facilities
Authority (Aspen Foundation Colorado)
6.125% 7/1/12 560,000 551,331
6.50% 7/1/24 1,710,000 1,606,990
Colorado Educational & Cultural Facilities
Authority (Collegiate Academy Charter
School Project)
7.375% 12/15/21 1,000,000 1,021,570
7.50% 12/15/31 1,000,000 1,023,030
Colorado Educational & Cultural Facilities
Authority (Compass Montessori Charter
School Project) 7.75% 7/15/31 2,125,000 2,041,785
Colorado Educational & Cultural Facilities
Authority (Compass Montessori R1
Charter School Project) 8.00% 2/15/32 2,645,000 2,679,623
Colorado Educational & Cultural Facilities
Authority (Core Knowledge Charter
School Project) 7.00% 11/1/29 1,000,000 1,061,670
Colorado Educational & Cultural Facilities
Authority (Frontier Academy Charter
School Project)
7.25% 6/1/20 1,450,000 1,490,803
7.375% 6/1/31 1,775,000 1,827,398
Colorado Educational & Cultural Facilities
Authority (Lincoln Academy Charter
School Project) 8.375% 3/1/26 2,400,000 2,430,288
Colorado Educational & Cultural Facilities
Authority (Littleton Academy Charter
School Project) 6.125% 1/15/31 2,000,000 1,927,960
Colorado Educational & Cultural Facilities
Authority (Montessori Districts Charter
School Projects) 6.125% 7/15/32 5,590,000 5,349,350
Colorado Educational & Cultural Facilities
Authority (Pinnacle Charter
School Project) 6.00% 12/1/21 1,750,000 1,729,753
Colorado Educational & Cultural Facilities
Authority (Renaissance Charter School
Project) 6.75% 6/1/29 2,000,000 1,925,440
Colorado Educational & Cultural Facilities
Authority (Stargate Charter
School Project) 6.125% 5/1/33 2,000,000 1,951,740
-----------
28,618,731
-----------
Continuing Care/Retirement Revenue Bonds - 3.79%
Colorado Health Facilities Authority
(Covenant Retirement Communities)
5.50% 12/1/33 (RADIAN) 5,000,000 5,012,100
Colorado Health Facilities Authority
(Porter Place) 6.00% 1/20/36 (GNMA) 5,000,000 5,209,050
Mesa County Residential Care Facilities
Mortgage Revenue (Hilltop Community
Resources) Series A
5.375% 12/1/28 (RADIAN) 2,000,000 1,969,940
-----------
12,191,090
-----------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Dedicated Tax & Fees Revenue Bonds - 0.60%
Broomfield Sales & Use Tax Revenue
Refunding & Improvement Series A
5.00% 12/1/31 (AMBAC) $1,950,000 $ 1,930,910
-----------
1,930,910
-----------
Higher Education Revenue Bonds - 12.81%
Boulder County Development Revenue
University Corporation for Atmospheric
Research 5.00% 9/1/33 (MBIA) 1,200,000 1,186,200
Colorado Educational & Cultural Facilities
Authority (Johnson & Wales University
Project) Series A 4.75% 4/1/33 (XLCA) 2,500,000 2,339,850
Colorado Educational & Cultural Facilities
Authority (University of Colorado
Foundation Project)
5.00% 7/1/32 (AMBAC) 6,000,000 5,936,280
Colorado Educational & Cultural Facilities
Authority (University of Denver Project)
5.375% 3/1/23 (AMBAC) 2,000,000 2,067,300
Colorado Educational & Cultural Facilities
Authority (University of Denver Project)
Series A 5.00% 3/1/27 (MBIA) 5,000,000 4,974,650
Colorado Educational & Cultural Facilities
Authority (University of Northern
Colorado Student Housing Project)
5.125% 7/1/37 (MBIA) 7,500,000 7,510,049
Colorado School Mines Auxiliary Facilities
Revenue 5.00% 12/1/37 (AMBAC) 3,630,000 3,574,098
Colorado Springs Revenue
(Colorado College Project)
5.375% 6/1/32 5,570,000 5,710,030
Colorado State University Systems
Series B 5.00% 3/1/35 (AMBAC) 3,500,000 3,457,860
University of Colorado Enterprise System
5.375% 6/1/26 1,000,000 1,028,640
University of Colorado Enterprise System
Series B 5.125% 6/1/28 (FGIC) 3,350,000 3,367,353
-----------
41,152,310
-----------
Hospital Revenue Bonds - 9.63%
Boulder County Hospital Revenue
Development (Longmont United
Hospital Project)
5.60% 12/1/27 (RADIAN) 1,250,000 1,265,288
5.875% 12/1/20 3,000,000 3,011,610
6.00% 12/1/30 (RADIAN) 5,000,000 5,298,199
Colorado Health Facilities Authority
(Catholic Health Initiatives)
5.50% 3/1/32 5,000,000 5,042,200
Colorado Health Facilities Authority
(Vail Valley Medical Center Project)
5.75% 1/15/22 500,000 503,100
5.80% 1/15/27 3,475,000 3,483,201
6.60% 1/15/20 (ACA) 1,000,000 1,032,410
Delta County Memorial Hospital District
5.35% 9/1/17 4,000,000 3,900,760
Denver Health & Hospital Authority
Healthcare Revenue Series A
5.375% 12/1/28 (ACA) 2,770,000 2,739,558
6.00% 12/1/31 1,000,000 983,190
18
Statements Delaware Tax-Free Colorado Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Hospital Revenue Bonds (continued)
University of Colorado Hospital Authority
Series A 5.60% 11/15/31 $3,650,000 $ 3,667,520
-----------
30,927,036
-----------
Miscellaneous Revenue Bonds - 8.07%
Colorado Educational & Cultural Facilities
Authority Revenue 5.25% 6/1/21 2,000,000 2,006,780
**Colorado Post Secondary Education
(Ocean Journey Project) 8.375% 12/1/26 8,000,000 252,000
Denver Convention Center Series A
5.00% 12/1/33 (XLCA) 11,000,000 10,690,020
Lowry Economic Redevelopment Authority
Revenue 7.80% 12/1/10 11,040,000 11,852,986
Lowry Economic Redevelopment Authority
Revenue Series A (Private Placement)
7.30% 12/1/10 1,055,000 1,117,266
-----------
25,919,052
-----------
Multifamily Housing Revenue Bonds - 9.71%
Adams County Housing Authority Mortgage
Revenue (Aztec Villa Apartments Project)
5.85% 12/1/27 1,825,000 1,867,632
Adams County Housing Authority Mortgage
Revenue (Greenbriar Project)
6.75% 7/1/21 1,730,000 1,797,574
Burlingame Multifamily Housing Revenue
Series A 6.00% 11/1/29 (MBIA) 1,250,000 1,302,675
Colorado Housing & Finance Authority
(Multifamily Housing Insured Mortgage)
Series A3 6.25% 10/1/26 (FHA) 6,205,000 6,443,272
Series C3 6.15% 10/1/41 1,590,000 1,660,119
Colorado Housing & Finance Authority
(Multifamily Project Class I)
Series A5 5.45% 10/1/33 720,000 688,126
Denver City & County Multifamily Housing
Revenue Federal Housing Authority
(Insured Mortgage Loan - Garden Court)
5.40% 7/1/39 (FHA) 2,000,000 2,020,100
Englewood Multifamily Housing Revenue
(Marks Apartments Project)
6.65% 12/1/26 5,700,000 5,767,089
Englewood Multifamily Housing Revenue
(Marks Apartments Project) Series B
6.00% 12/15/18 7,515,000 7,521,087
Lake County Multifamily Housing Mortgage
Revenue (Sawatch Apartments)
6.80% 10/20/35 (GNMA) 1,955,000 2,112,866
-----------
31,180,540
-----------
Municipal Lease Revenue Bonds - 8.48%
Aurora Certificates of Participation
5.50% 12/1/30 (AMBAC) 8,000,000 8,273,680
Conejos & Alamosa Counties School
District Region Certificates of
Participation 6.50% 4/1/11 1,315,000 1,371,769
El Paso County Certificates of Participation
(Detention Facilities Project) Series B
5.00% 12/1/27 (AMBAC) 1,500,000 1,486,560
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Municipal Lease Revenue Bonds (continued)
El Paso County Certificates of Participation
(Judicial Building Project) Series A
5.00% 12/1/27 (AMBAC) $2,000,000 $ 1,982,080
Fremont County Certificates of Participation
Refunding & Improvement Series A
5.25% 12/15/24 (MBIA) 3,045,000 3,126,423
5.25% 12/15/26 (MBIA) 1,025,000 1,041,093
Greeley County Building Authority
Certificates of Participation
6.10% 8/15/16 2,600,000 2,725,814
Paint Brush Hills Metropolitan District
Certificates of Participation
7.75% 9/1/21 1,594,248 1,564,723
Pueblo County Certificates of Participation
6.50% 12/1/24 5,460,000 5,671,684
-----------
27,243,826
-----------
Political Subdivision General Obligation Bonds - 11.79%
Arapahoe County Water & Wastewater
Public Improvement District Series A
5.125% 12/1/32 (MBIA) 5,000,000 5,018,600
Bowles Metropolitan District
5.00% 12/1/33 (FSA) 2,000,000 1,979,820
Concord Metropolitan District
8.00% 12/1/19 5,000,000 5,180,800
Galleria Metropolitan District
7.25% 12/1/09 1,125,000 1,169,696
Lincoln Park Metropolitan District
7.75% 12/1/26 2,610,000 2,675,328
Meridian Metropolitan District Refunding
Series A 5.00% 12/1/31 (RADIAN) 7,000,000 6,677,790
North Range Metropolitan District #1
7.25% 12/15/31 3,400,000 3,381,266
Saddle Rock Colorado Metropolitan District
5.35% 12/1/31 1,580,000 1,575,070
Silver Dollar Metropolitan District
7.05% 12/1/30 5,000,000 5,086,900
Tri-Pointe Commercial Metropolitan District
7.75% 12/1/19 5,000,000 5,138,400
-----------
37,883,670
-----------
Public Utility District Revenue Bonds - 3.09%
Colorado Springs Utilities Revenue
Series A 5.00% 11/15/29 10,000,000 9,919,800
-----------
9,919,800
-----------
Recreational Area Revenue Bonds - 1.71%
Aurora Golf Course Enterprise System
Revenue (Saddle Rock Golf Course)
6.20% 12/1/15 2,000,000 2,047,620
South Suburban Park & Recreation District
(Golf & Ice Arena Facility)
6.00% 11/1/15 2,330,000 2,412,785
Westminster Golf Course
5.55% 12/1/23 (RADIAN) 1,000,000 1,026,180
-----------
5,486,585
-----------
19
Statements Delaware Tax-Free Colorado Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
School District General Obligation Bonds - 5.59%
Arapahoe County Colorado School District
5.00% 12/1/22 (FGIC) $1,000,000 $ 1,010,630
Douglas County School District No Re 1
Building (Douglas & Elbert Counties)
Series B 5.125% 12/15/25 (FSA) 5,000,000 5,051,950
El Paso County School District #2
(Harrison) 5.00% 12/1/27 (MBIA) 2,615,000 2,606,423
El Paso County School District #49
(Falcon) 5.50% 12/1/21 (FGIC) 3,580,000 3,788,642
Garfield County School District No Re 2
5.00% 12/1/25 (FSA) 1,000,000 997,920
La Plata County School District No 9-R
5.125% 11/1/24 (MBIA) 1,000,000 1,011,230
Larimer Weld & Boulder Counties School
Districts No R-2J 5.00% 12/15/15 (FSA) 3,260,000 3,503,392
------------
17,970,187
------------
Tax Increment/Special Assessment Bonds - 2.53%
Loveland Special Improvements District #1
7.50% 7/1/29 6,140,000 6,153,692
Pueblo Urban Renewal Authority Tax
Increment Revenue 6.625% 12/1/19 1,890,000 1,965,222
------------
8,118,914
------------
Territorial General Obligation Bonds - 0.46%
Puerto Rico Commonwealth Public
Improvement Series A
5.00% 7/1/27 1,000,000 974,780
5.125% 7/1/31 500,000 494,845
------------
1,469,625
------------
Territorial Revenue Bonds - 0.55%
Puerto Rico Public Buildings Authority
Revenue Series D 5.25% 7/1/27 1,750,000 1,752,695
------------
1,752,695
------------
Turnpike/Toll Road Revenue Bonds - 5.12%
E-470 Public Highway Authority
5.75% 9/1/35 (MBIA) 3,100,000 3,333,709
Northwest Parkway Public Highway
Authority Series A 5.25% 6/15/41 (FSA) 13,000,000 13,122,850
------------
16,456,559
------------
Water & Sewer Revenue Bonds - 1.85%
Erie Water Enterprise Revenue
5.00% 12/1/23 (ACA) 1,750,000 1,671,740
Lafayette Water Revenue Series A
5.00% 12/1/27 (MBIA) 1,100,000 1,093,180
Ute Utility Water Conservancy District Water
Revenue 5.75% 6/15/20 (MBIA) 2,900,000 3,167,525
------------
5,932,445
------------
Total Municipal Bonds (cost $313,338,478) 316,412,858
------------
Total Market Value of Securities - 98.50%
(cost $313,338,478) $316,412,858
Receivables and Other Assets
Net of Liabilities - 1.50% 4,829,417
------------
Net Assets Applicable to 29,662,747 Shares
Outstanding - 100.00% $321,242,275
============
Net Asset Value - Delaware Tax-Free
Colorado Fund Class A
($299,528,129/27,659,508 Shares) $10.83
------
Net Asset Value - Delaware Tax-Free
Colorado Fund Class B
($13,108,408/1,209,840 Shares) $10.83
------
Net Asset Value - Delaware Tax-Free
Colorado Fund Class C
($8,605,738/793,399 Shares) $10.85
------
Components of Net Assets at August 31, 2003:
Shares of beneficial interest
(unlimited authorization-- no par) $320,225,904
Accumulated net realized loss on investments (2,058,009)
Net unrealized appreciation of investments 3,074,380
------------
Total net assets $321,242,275
------------
**Non-income producing security. Security currently in default.
Summary of Abbreviations:
ACA - Insured by American Capital Access
AMBAC - Insured by the AMBAC Indemnity Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
XLCA - Insured by XL Capital Assurance
Net Asset Value and Offering Price per Share -
Delaware Tax-Free Colorado Fund
Net asset value Class A (A) $10.83
Sales charge (4.50% of offering price, or 4.71% of
amount invested per share) (B) 0.51
------
Offering price $11.34
======
(A) Net asset value per share, as illustrated, is the estimated 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
20
Statements Year Ended August 31, 2003
OF OPERATIONS
Delaware Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Arizona Arizona Insured California California Insured Colorado
Fund Fund Fund Fund Fund
Investment Income:
Interest $2,160,169 $8,433,286 $2,552,829 $2,094,859 $19,185,116
---------- ---------- ---------- ---------- -----------
Expenses:
Management fees 216,689 806,609 262,705 203,606 1,836,240
Dividend disbursing and transfer agent fees
and expenses 17,700 88,960 24,906 23,070 196,200
Distribution expenses-- Class A 61,854 342,504 61,650 74,125 776,218
Distribution expenses-- Class B 100,986 147,937 161,084 92,336 146,361
Distribution expenses-- Class C 45,831 94,365 69,498 18,180 87,649
Accounting and administration expenses 17,576 73,353 21,582 18,124 148,765
Registration fees 8,026 6,709 572 696 5,394
Reports and statements to shareholders 1,894 16,813 -- 9,724 91,136
Professional fees 13,146 19,100 4,590 7,458 62,748
Custodian fees 3,147 7,820 3,684 3,768 17,091
Trustees' fees 1,610 8,317 2,644 2,700 17,750
Other 10,931 38,724 7,729 10,021 91,246
---------- ---------- ---------- ---------- -----------
499,390 1,651,211 620,644 463,808 3,476,798
Less expenses absorbed or waived (92,635) (78,576) (207,820) -- --
Less expenses paid indirectly (1,007) (3,946) (1,187) (1,215) (8,956)
---------- ---------- ---------- ---------- -----------
Total expenses 405,748 1,568,689 411,637 462,593 3,467,842
---------- ---------- ---------- ---------- -----------
Net Investment Income 1,754,421 6,864,597 2,141,192 1,632,266 15,717,274
---------- ---------- ---------- ---------- -----------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain on investments 140,622 754,322 216,651 166,983 631,030
Net change in unrealized appreciation/
depreciation of investments (2,328,563) (4,291,338) (1,294,988) (1,149,222) (8,259,671)
---------- ---------- ---------- ---------- -----------
Net Realized and Unrealized Loss
on Investments (2,187,941) (3,537,016) (1,078,337) (982,239) (7,628,641)
---------- ---------- ---------- ---------- -----------
Net Increase (Decrease) in Net Assets
Resulting from Operations ($433,520) $3,327,581 $1,062,855 $650,027 $8,088,633
========== ========== ========== ========== ===========
See accompanying notes
21
Statements
OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware Tax-Free
Arizona Fund Arizona Insured Fund
Year Ended Year Ended
8/31/03 8/31/02 8/31/03 8/31/02
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 1,754,421 $ 1,783,251 $ 6,864,597 $ 6,941,384
Net realized gain (loss) on investments 140,622 (73,813) 754,322 2,596,988
Net change in unrealized appreciation/depreciation of investments (2,328,563) 33,806 (4,291,338) (1,097,360)
----------- ----------- ------------ ------------
Net increase (decrease) in net assets resulting from operations (433,520) 1,743,244 3,327,581 8,441,012
----------- ----------- ------------ ------------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (1,170,970) (1,213,829) (5,989,214) (6,301,205)
Class B (401,931) (413,805) (534,860) (432,125)
Class C (181,499) (155,617) (340,523) (208,054)
Net realized gain on investments:
Class A -- -- (1,396,185) (865,976)
Class B -- -- (143,720) (62,839)
Class C -- -- (91,428) (28,435)
----------- ----------- ------------ ------------
(1,754,400) (1,783,251) (8,495,930) (7,898,634)
----------- ----------- ------------ ------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 3,550,052 10,514,069 13,366,725 13,506,834
Class B 833,181 2,176,368 3,326,803 5,743,574
Class C 573,736 1,971,388 3,929,559 5,512,689
Net asset value of shares issued upon reinvestment of dividends and
distributions:
Class A 502,292 549,306 3,663,972 3,385,866
Class B 159,824 153,041 380,126 259,825
Class C 132,415 123,314 334,202 190,296
----------- ----------- ------------ ------------
5,751,500 15,487,486 25,001,387 28,599,084
----------- ----------- ------------ ------------
Cost of shares repurchased:
Class A (6,928,421) (3,162,787) (24,391,768) (17,114,099)
Class B (2,123,309) (365,597) (2,246,828) (1,297,726)
Class C (579,367) (192,302) (3,517,552) (905,756)
----------- ----------- ------------ ------------
(9,631,097) (3,720,686) (30,156,148) (19,317,581)
----------- ----------- ------------ ------------
Increase (decrease) in net assets derived from capital share transactions (3,879,597) 11,766,800 (5,154,761) 9,281,503
----------- ----------- ------------ ------------
Net Increase (Decrease) in Net Assets (6,067,517) 11,726,793 (10,323,110) 9,823,881
Net Assets:
Beginning of year 41,848,475 30,121,682 163,216,031 153,392,150
----------- ----------- ------------ ------------
End of year $35,780,958 $41,848,475 $152,892,921 $163,216,031
=========== =========== ============ ============
See accompanying notes
22
Statements
OF CHANGES IN NET ASSETS (CONTINUED)
Delaware Tax-Free Delaware Tax-Free
California Fund California Insured Fund
Year Ended Year Ended
8/31/03 8/31/02 8/31/03 8/31/02
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 2,141,192 $ 2,115,292 $ 1,632,266 $ 1,539,100
Net realized gain (loss) on investments 216,651 (157,317) 166,983 (35,039)
Net change in unrealized appreciation/depreciation of investments (1,294,988) 314,498 (1,149,222) (12,835)
----------- ----------- ----------- -----------
Net increase in net assets resulting from operations 1,062,855 2,272,473 650,027 1,491,226
----------- ----------- ----------- -----------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (1,198,163) (1,205,949) (1,249,365) (1,194,000)
Class B (658,337) (615,935) (319,704) (316,220)
Class C (284,692) (293,408) (63,197) (28,880)
Net realized gain on investments:
Class A -- -- -- (431,988)
Class B -- -- -- (134,873)
Class C -- -- -- (12,025)
----------- ----------- ----------- -----------
(2,141,192) (2,115,292) (1,632,266) (2,117,986)
----------- ----------- ----------- -----------
Capital Share Transactions:
Proceeds from shares sold:
Class A 6,900,365 4,478,047 4,039,278 3,028,178
Class B 3,123,917 1,924,681 1,648,826 3,012,575
Class C 2,400,582 1,660,298 2,003,403 1,342,130
Net asset value of shares issued upon reinvestment of dividends and
distributions:
Class A 420,231 523,361 655,264 845,801
Class B 225,516 198,541 161,774 242,589
Class C 190,408 170,057 26,743 13,665
----------- ----------- ----------- -----------
13,261,019 8,954,985 8,535,288 8,484,938
----------- ----------- ----------- -----------
Cost of shares repurchased:
Class A (8,123,457) (6,495,544) (3,785,642) (2,796,439)
Class B (1,891,459) (1,886,367) (2,732,015) (1,037,452)
Class C (2,745,126) (749,274) (360,679) (179,715)
----------- ----------- ----------- -----------
(12,760,042) (9,131,185) (6,878,336) (4,013,606)
----------- ----------- ----------- -----------
Increase (decrease) in net assets derived from capital share transactions 500,977 (176,200) 1,656,952 4,471,332
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets (577,360) (19,019) 674,713 3,844,572
Net Assets:
Beginning of year 45,924,433 45,943,452 39,717,843 35,873,271
----------- ----------- ----------- -----------
End of year $45,347,073 $45,924,433 $40,392,556 $39,717,843
=========== =========== =========== ===========
See accompanying notes
23
Statements
OF CHANGES IN NET ASSETS (CONTINUED)
Delaware Tax-Free Colorado Fund
Year Ended
8/31/03 8/31/02
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 15,717,274 $ 16,136,974
Net realized gain on investments 631,030 2,605,316
Net change in unrealized appreciation/depreciation of investments (8,259,671) (3,729,898)
------------ ------------
Net increase in net assets resulting from operations 8,088,633 15,012,392
------------ ------------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (14,774,600) (15,269,995)
Class B (586,453) (592,108)
Class C (349,930) (275,325)
------------ ------------
(15,710,983) (16,137,428)
------------ ------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 18,044,255 18,451,081
Class B 1,399,969 2,320,838
Class C 4,139,859 3,462,982
Net asset value of shares issued upon reinvestment of dividends and
distributions:
Class A 8,886,403 9,541,898
Class B 378,269 400,849
Class C 252,301 207,164
------------ ------------
33,101,056 34,384,812
------------ ------------
Cost of shares repurchased:
Class A (35,022,951) (30,747,830)
Class B (3,195,659) (2,173,560)
Class C (3,630,231) (1,223,433)
------------ ------------
(41,848,841) (34,144,823)
------------ ------------
Increase (decrease) in net assets derived from capital share transactions (8,747,785) 239,989
------------ ------------
Net Decrease in Net Assets (16,370,135) (885,047)
Net Assets:
Beginning of year 337,612,410 338,497,457
------------ ------------
End of year $321,242,275 $337,612,410
============ ============
See accompanying notes
24
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free Arizona Fund Class A
----------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $10.590 $10.620 $10.250 $10.450 $11.210
Income (loss) from investment operations:
Net investment income 0.491 0.532 0.572 0.555 0.538
Net realized and unrealized gain (loss) on investments (0.580) (0.030) 0.370 (0.200) (0.645)
------- ------- ------- ------- -------
Total from investment operations (0.089) 0.502 0.942 0.355 (0.107)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.491) (0.532) (0.572) (0.555) (0.538)
Net realized gain on investments -- -- -- -- (0.115)
------- ------- ------- ------- -------
Total dividends and distributions (0.491) (0.532) (0.572) (0.555) (0.653)
------- ------- ------- ------- -------
Net asset value, end of period $10.010 $10.590 $10.620 $10.250 $10.450
======= ======= ======= ======= =======
Total return(1) (0.88%) 4.93% 9.48% 3.68% (1.09%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $22,401 $26,664 $18,809 $13,873 $18,586
Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.60%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 0.99% 0.98% 1.01% 1.06% 1.10%
Ratio of net investment income to average net assets 4.73% 5.09% 5.50% 5.53% 4.88%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 4.49% 4.86% 5.24% 5.22% 4.38%
Portfolio turnover 70% 111% 108% 115% 68%
(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 and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
25
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free Arizona Fund Class B
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $10.590 $10.620 $10.240 $10.450 $11.200
Income (loss) from investment operations:
Net investment income 0.413 0.454 0.495 0.481 0.456
Net realized and unrealized gain (loss) on investments (0.580) (0.030) 0.380 (0.210) (0.635)
------- ------- ------- ------- -------
Total from investment operations (0.167) 0.424 0.875 0.271 (0.179)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.413) (0.454) (0.495) (0.481) (0.456)
Net realized gain on investments -- -- -- -- (0.115)
------- ------- ------- ------- -------
Total dividends and distributions (0.413) (0.454) (0.495) (0.481) (0.571)
------- ------- ------- ------- -------
Net asset value, end of period $10.010 $10.590 $10.620 $10.240 $10.450
======= ======= ======= ======= =======
Total return(1) (1.62%) 4.16% 8.78% 2.82% (1.74%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $8,956 $10,629 $8,681 $4,911 $5,956
Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50% 1.35%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.74% 1.73% 1.76% 1.81% 1.85%
Ratio of net investment income to average net assets 3.98% 4.34% 4.75% 4.78% 4.13%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.74% 4.11% 4.49% 4.47% 3.63%
Portfolio turnover 70% 111% 108% 115% 68%
(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 and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
26
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free Arizona Fund Class C
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $10.610 $10.640 $10.270 $10.470 $11.230
Income (loss) from investment operations:
Net investment income 0.413 0.454 0.492 0.478 0.456
Net realized and unrealized gain (loss) on investments (0.570) (0.030) 0.370 (0.200) (0.645)
------- ------- ------- ------- -------
Total from investment operations (0.157) 0.424 0.862 0.278 (0.189)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.413) (0.454) (0.492) (0.478) (0.456)
Net realized gain on investments -- -- -- -- (0.115)
------- ------- ------- ------- -------
Total dividends and distributions (0.413) (0.454) (0.492) (0.478) (0.571)
------- ------- ------- ------- -------
Net asset value, end of period $10.040 $10.610 $10.640 $10.270 $10.470
======= ======= ======= ======= =======
Total return(1) (1.53%) 4.14% 8.62% 2.88% (1.82%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $4,424 $4,555 $2,632 $1,880 $1,957
Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50% 1.35%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.74% 1.73% 1.76% 1.81% 1.85%
Ratio of net investment income to average net assets 3.98% 4.34% 4.75% 4.78% 4.13%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.74% 4.11% 4.49% 4.47% 3.63%
Portfolio turnover 70% 111% 108% 115% 68%
(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 and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
27
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free Arizona Insured Fund Class A
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.530 $11.500 $11.040 $10.990 $11.550
Income (loss) from investment operations:
Net investment income 0.502 0.510 0.521 0.525 0.528
Net realized and unrealized gain (loss) on investments (0.253) 0.100 0.460 0.050 (0.560)
------- ------- ------- ------- -------
Total from investment operations 0.249 0.610 0.981 0.575 (0.032)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.502) (0.510) (0.521) (0.525) (0.528)
Net realized gain on investments (0.117) (0.070) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.619) (0.580) (0.521) (0.525) (0.528)
------- ------- ------- ------- -------
Net asset value, end of period $11.160 $11.530 $11.500 $11.040 $10.990
======= ======= ======= ======= =======
Total return(1) 2.17% 5.54% 9.12% 5.47% (0.36%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $129,683 $141,424 $141,298 $142,018 $166,368
Ratio of expenses to average net assets 0.86% 0.90% 0.95% 0.95% 0.91%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 0.91% 0.90% 0.97% 0.98% 0.91%
Ratio of net investment income to average net assets 4.37% 4.50% 4.65% 4.88% 4.60%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 4.32% 4.50% 4.63% 4.85% 4.60%
Portfolio turnover 29% 46% 45% 50% 29%
(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 and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
28
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free Arizona Insured Fund Class B
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.540 $11.500 $11.040 $10.990 $11.550
Income (loss) from investment operations:
Net investment income 0.416 0.426 0.437 0.444 0.441
Net realized and unrealized gain (loss) on investments (0.253) 0.110 0.460 0.050 (0.560)
------- ------- ------- ------- -------
Total from investment operations 0.163 0.536 0.897 0.494 (0.119)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.416) (0.426) (0.437) (0.444) (0.441)
Net realized gain on investments (0.117) (0.070) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.533) (0.496) (0.437) (0.444) (0.441)
------- ------- ------- ------- -------
Net asset value, end of period $11.170 $11.540 $11.500 $11.040 $10.990
======= ======= ======= ======= =======
Total return(1) 1.41% 4.83% 8.31% 4.68% (1.11%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $14,666 $13,678 $8,864 $6,630 $6,059
Ratio of expenses to average net assets 1.61% 1.65% 1.70% 1.70% 1.66%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.66% 1.65% 1.72% 1.73% 1.66%
Ratio of net investment income to average net assets 3.62% 3.75% 3.90% 4.13% 3.85%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.57% 3.75% 3.88% 4.10% 3.85%
Portfolio turnover 29% 46% 45% 50% 29%
(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 and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
29
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free Arizona Insured Fund Class C
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.550 $11.520 $11.040 $10.990 $11.560
Income (loss) from investment operations:
Net investment income 0.415 0.426 0.438 0.444 0.441
Net realized and unrealized gain (loss) on investments (0.253) 0.100 0.480 0.050 (0.570)
------- ------- ------- ------- -------
Total from investment operations 0.162 0.526 0.918 0.494 (0.129)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.415) (0.426) (0.438) (0.444) (0.441)
Net realized gain on investments (0.117) (0.070) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.532) (0.496) (0.438) (0.444) (0.441)
------- ------- ------- ------- -------
Net asset value, end of period $11.180 $11.550 $11.520 $11.040 $10.990
======= ======= ======= ======= =======
Total return(1) 1.40% 4.73% 8.50% 4.68% (1.20%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $8,544 $8,115 $3,230 $1,322 $1,373
Ratio of expenses to average net assets 1.61% 1.65% 1.70% 1.70% 1.66%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.66% 1.65% 1.72% 1.73% 1.66%
Ratio of net investment income to average net assets 3.62% 3.75% 3.90% 4.13% 3.85%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.57% 3.75% 3.88% 4.10% 3.85%
Portfolio turnover 29% 46% 45% 50% 29%
(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 and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
30
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free California Fund Class A
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.010 $10.950 $10.430 $10.490 $11.220
Income (loss) from investment operations:
Net investment income 0.537 0.546 0.538 0.547 0.556
Net realized and unrealized gain (loss) on investments (0.260) 0.060 0.520 (0.060) (0.709)
------- ------- ------- ------- -------
Total from investment operations 0.277 0.606 1.058 0.487 (0.153)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.537) (0.546) (0.538) (0.547) (0.554)
Net realized gain on investments -- -- -- -- (0.023)
------- ------- ------- ------- -------
Total dividends and distributions (0.537) (0.546) (0.538) (0.547) (0.577)
------- ------- ------- ------- -------
Net asset value, end of period $10.750 $11.010 $10.950 $10.430 $10.490
======= ======= ======= ======= =======
Total return(1) 2.51% 5.77% 10.43% 5.00% (1.53%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $22,169 $23,462 $24,925 $24,794 $24,515
Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.33%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 0.93% 0.97% 0.99% 1.04% 0.97%
Ratio of net investment income to average net assets 4.84% 5.05% 5.07% 5.46% 4.95%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 4.41% 4.58% 4.58% 4.92% 4.31%
Portfolio turnover 56% 93% 130% 82% 123%
(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 and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
31
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free California Fund Class B
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.050 $10.990 $10.460 $10.520 $11.260
Income (loss) from investment operations:
Net investment income 0.453 0.465 0.459 0.473 0.470
Net realized and unrealized gain (loss) on investments (0.260) 0.060 0.530 (0.060) (0.717)
------- ------- ------- ------- -------
Total from investment operations 0.193 0.525 0.989 0.413 (0.247)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.453) (0.465) (0.459) (0.473) (0.470)
------- ------- ------- ------- -------
Net realized gain on investments -- -- -- -- (0.023)
------- ------- ------- ------- -------
Total dividends and distributions (0.453) (0.465) (0.459) (0.473) (0.493)
------- ------- ------- ------- -------
Net asset value, end of period $10.790 $11.050 $10.990 $10.460 $10.520
======= ======= ======= ======= =======
Total return(1) 1.73% 4.95% 9.58% 4.31% (2.35%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $16,165 $15,105 $14,792 $14,449 $13,676
Ratio of expenses to average net assets 1.25% 1.25% 1.25% 1.25% 1.08%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.68% 1.72% 1.74% 1.79% 1.72%
Ratio of net investment income to average net assets 4.09% 4.30% 4.32% 4.71% 4.20%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.66% 3.83% 3.83% 4.17% 3.56%
Portfolio turnover 56% 93% 130% 82% 123%
(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 and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
32
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free California Fund Class C
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.020 $10.970 $10.440 $10.500 $11.230
Income (loss) from investment operations:
Net investment income 0.454 0.465 0.459 0.472 0.470
Net realized and unrealized gain (loss) on investments (0.260) 0.050 0.530 (0.060) (0.707)
------- ------- ------- ------- -------
Total from investment operations 0.194 0.515 0.989 0.412 (0.237)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.454) (0.465) (0.459) (0.472) (0.470)
Net realized gain on investments -- -- -- -- (0.023)
------- ------- ------- ------- -------
Total dividends and distributions (0.454) (0.465) (0.459) (0.472) (0.493)
------- ------- ------- ------- -------
Net asset value, end of period $10.760 $11.020 $10.970 $10.440 $10.500
======= ======= ======= ======= =======
Total return(1) 1.74% 4.86% 9.70% 4.22% (2.26%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $7,013 $7,357 $6,227 $4,179 $5,132
Ratio of expenses to average net assets 1.25% 1.25% 1.25% 1.25% 1.08%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.68% 1.72% 1.74% 1.79% 1.72%
Ratio of net investment income to average net assets 4.09% 4.30% 4.32% 4.71% 4.20%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.66% 3.83% 3.83% 4.17% 3.56%
Portfolio turnover 56% 93% 130% 82% 123%
(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 and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
33
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free California Insured Fund Class A
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $10.930 $11.130 $10.640 $10.430 $11.130
Income (loss) from investment operations:
Net investment income 0.463 0.470 0.496 0.500 0.497
Net realized and unrealized gain (loss) on investments (0.260) (0.027) 0.490 0.210 (0.700)
------- ------- ------- ------- -------
Total from investment operations 0.203 0.443 0.986 0.710 (0.203)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.463) (0.470) (0.496) (0.500) (0.497)
Net realized gain on investments -- (0.173) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.463) (0.643) (0.496) (0.500) (0.497)
------- ------- ------- ------- -------
Net asset value, end of period $10.670 $10.930 $11.130 $10.640 $10.430
======= ======= ======= ======= =======
Total return(1) 1.84% 4.23% 9.51% 7.10% (1.97%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $28,822 $28,630 $28,045 $23,877 $25,042
Ratio of expenses to average net assets 0.93% 0.92% 0.87% 1.00% 0.99%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 0.93% 0.92% 0.87% 1.09% 1.10%
Ratio of net investment income to average net assets 4.21% 4.36% 4.59% 4.87% 4.51%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 4.21% 4.36% 4.59% 4.78% 4.40%
Portfolio turnover 44% 111% 162% 91% 114%
(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 and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
34
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free California Insured Fund Class B
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $10.930 $11.130 $10.640 $10.430 $11.130
Income (loss) from investment operations:
Net investment income 0.381 0.389 0.415 0.423 0.414
Net realized and unrealized gain (loss) on investments (0.260) (0.027) 0.490 0.210 (0.700)
------- ------- ------- ------- -------
Total from investment operations 0.121 0.362 0.905 0.633 (0.286)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.381) (0.389) (0.415) (0.423) (0.414)
Net realized gain on investments -- (0.173) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.381) (0.562) (0.415) (0.423) (0.414)
------- ------- ------- ------- -------
Net asset value, end of period $10.670 $10.930 $11.130 $10.640 $10.430
======= ======= ======= ======= =======
Total return(1) 1.07% 3.44% 8.70% 6.30% (2.70%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $8,628 $9,714 $7,628 $6,440 $6,588
Ratio of expenses to average net assets 1.68% 1.67% 1.62% 1.75% 1.74%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.68% 1.67% 1.62% 1.84% 1.85%
Ratio of net investment income to average net assets 3.46% 3.61% 3.84% 4.12% 3.76%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.46% 3.61% 3.84% 4.03% 3.65%
Portfolio turnover 44% 111% 162% 91% 114%
(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 and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
35
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free California Insured Fund Class C
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $10.890 $11.090 $10.600 $10.390 $11.090
Income (loss) from investment operations:
Net investment income 0.380 0.392 0.417 0.423 0.414
Net realized and unrealized gain (loss) on investments (0.250) (0.027) 0.490 0.210 (0.700)
------- ------- ------- ------- -------
Total from investment operations 0.130 0.365 0.907 0.633 (0.286)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.380) (0.392) (0.417) (0.423) (0.414)
Net realized gain on investments -- (0.173) -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.380) (0.565) (0.417) (0.423) (0.414)
------- ------- ------- ------- -------
Net asset value, end of period $10.640 $10.890 $11.090 $10.600 $10.390
======= ======= ======= ======= =======
Total return(1) 1.17% 3.45% 8.75% 6.32% (2.70%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $2,942 $1,374 $200 $439 $592
Ratio of expenses to average net assets 1.68% 1.67% 1.62% 1.75% 1.74%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.68% 1.67% 1.62% 1.84% 1.85%
Ratio of net investment income to average net assets 3.46% 3.61% 3.84% 4.12% 3.76%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.46% 3.61% 3.84% 4.03% 3.65%
Portfolio turnover 44% 111% 162% 91% 114%
(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 and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
36
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free Colorado Fund Class A
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.080 $11.120 $10.630 $10.780 $11.510
Income (loss) from investment operations:
Net investment income 0.527 0.532 0.549 0.543 0.552
Net realized and unrealized gain (loss) on investments (0.250) (0.040) 0.490 (0.150) (0.730)
------- ------- ------- ------- -------
Total from investment operations 0.277 0.492 1.039 0.393 (0.178)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.527) (0.532) (0.549) (0.543) (0.552)
------- ------- ------- ------- -------
Total dividends and distributions (0.527) (0.532) (0.549) (0.543) (0.552)
------- ------- ------- ------- -------
Net asset value, end of period $10.830 $11.080 $11.120 $10.630 $10.780
======= ======= ======= ======= =======
Total return(1) 2.52% 4.60% 10.05% 3.89% (1.69%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $299,528 $314,695 $318,550 $304,409 $338,184
Ratio of expenses to average net assets 0.99% 0.95% 1.00% 1.00% 0.91%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 0.99% 0.95% 1.00% 1.04% 0.91%
Ratio of net investment income to average net assets 4.76% 4.86% 5.09% 5.22% 4.86%
Ratio of net investment income to average net assets prior to
expense limitation and expenses paid indirectly 4.76% 4.86% 5.09% 5.18% 4.86%
Portfolio turnover 30% 36% 64% 53% 55%
(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 and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that requires
amortization of all premiums and discounts on debt securities. The effect of
this change for the year ended August 31, 2002 was an increase in net
investment income per share of less than $0.001, a decrease in net realized
and unrealized gain (loss) per share of less than $0.001, and an increase in
the ratio of net investment income to average net assets of less than 0.01%.
Per share data and ratios for periods prior to September 1, 2001 have not
been restated to reflect this change in accounting.
See accompanying notes
37
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
---------------------------------------------------------
Delaware Tax-Free Colorado Fund Class B
---------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.090 $11.120 $10.630 $10.790 $11.510
Income (loss) from investment operations:
Net investment income 0.444 0.450 0.468 0.463 0.466
Net realized and unrealized gain (loss) on investments (0.260) (0.030) 0.490 (0.160) (0.719)
------- ------- ------- ------- -------
Total from investment operations 0.184 0.420 0.958 0.303 (0.253)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.444) (0.450) (0.468) (0.463) (0.467)
------- ------- ------- ------- -------
Total dividends and distributions (0.444) (0.450) (0.468) (0.463) (0.467)
------- ------- ------- ------- -------
Net asset value, end of period $10.830 $11.090 $11.120 $10.630 $10.790
======= ======= ======= ======= =======
Total return(1) 1.66% 3.92% 9.24% 3.00% (2.34%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $13,108 $14,843 $14,330 $13,441 $13,530
Ratio of expenses to average net assets 1.74% 1.70% 1.75% 1.75% 1.66%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.74% 1.70% 1.75% 1.79% 1.66%
Ratio of net investment income (loss) to average net assets 4.01% 4.11% 4.34% 4.47% 4.11%
Ratio of net investment income (loss) to average net assets prior to
expense limitation and expenses paid indirectly 4.01% 4.11% 4.34% 4.43% 4.11%
Portfolio turnover 30% 36% 64% 53% 55%
(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 and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
(2) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
that requires amortization of all premium and discounts on debt securities.
The effect of this change for the year ended August 31, 2002 was an increase
in net investment income per share of less than $0.001, a decrease in net
realized and unrealized gain (loss) per share of less than $0.001, and an
increase in the ratio of net investment income to average net assets of less
than 0.01%. Per share data and ratios for periods prior to September 1, 2001
have not been restated to reflect this change in accounting.
See accompanying notes
38
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
----------------------------------------------------------
Delaware Tax-Free Colorado Fund Class C
----------------------------------------------------------
Year Ended
8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.100 $11.130 $10.640 $10.790 $11.520
Income (loss) from investment operations:
Net investment income 0.444 0.450 0.468 0.465 0.463
Net realized and unrealized gain (loss) on investments (0.250) (0.030) 0.490 (0.150) (0.726)
------ ------ ----- ------ ------
Total from investment operations 0.194 0.420 0.958 0.315 (0.263)
===== ===== ===== ===== ======
Less dividends and distributions from:
Net investment income (0.444) (0.450) (0.468) (0.465) (0.467)
------ ------ ------ ------ ------
Total dividends and distributions (0.444) (0.450) (0.468) (0.465) (0.467)
------ ------ ------ ------ ------
Net asset value, end of period $10.850 $11.100 $11.130 $10.640 $10.790
======= ======= ======= ======= =======
Total return1 1.74% 3.91% 9.23% 3.11% (2.42%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $8,606 $8,074 $5,617 $4,254 $4,332
Ratio of expenses to average net assets 1.74% 1.70% 1.75% 1.75% 1.66%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.74% 1.70% 1.75% 1.79% 1.66%
Ratio of net investment income to average net assets 4.01% 4.11% 4.34% 4.47% 4.11%
Ratio of net investment income to average net assets prior to
expense limitation and expenses paid indirectly 4.01% 4.11% 4.34% 4.43% 4.11%
Portfolio turnover 30% 36% 64% 53% 55%
(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 and payment of fees by
the manager, as applicable. Performance would have been lower had the
expense limitation not been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities. The
effect of this change for the year ended August 31, 2002 was an increase in
net investment income per share of less than $0.001, a decrease in net
realized and unrealized gain (loss) per share of less than $0.001, and an
increase in the ratio of net investment income to average net assets of
less than 0.01%. Per share data and ratios for periods prior to September
1, 2001 have not been restated to reflect this change in accounting.
See accompanying notes
39
Notes August 31, 2003
TO FINANCIAL STATEMENTS
Voyageur Mutual Funds (the "Trust") is organized as a Delaware business trust
and offers six series: Delaware Tax-Free Arizona Fund, Delaware Tax-Free
California Fund, Delaware Tax-Free Idaho Fund, Delaware Minnesota High-Yield
Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund and
Delaware Tax-Free New York Fund. Voyageur Insured Funds (the "Trust") is
organized as a Delaware business trust and offers two series: Delaware Tax-Free
Arizona Insured Fund and Delaware Tax-Free Minnesota Insured Fund. Voyageur
Investment Trust (the "Trust") is organized as a Massachusetts business trust
and offers five series: Delaware Tax-Free California Insured Fund, Delaware
Tax-Free Florida Fund, Delaware Tax-Free Florida Insured Fund, Delaware Tax-Free
Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund. Voyageur Mutual
Funds II (the "Trust") is organized as a Delaware business trust and offers one
series: Delaware Tax-Free Colorado Fund. These financial statements and the
related notes pertain to Delaware Tax-Free Arizona Fund, Delaware Tax-Free
Arizona Insured Fund, Delaware Tax-Free California Fund, Delaware Tax-Free
California Insured Fund and Delaware Tax-Free Colorado Fund (each a "Fund" and,
collectively, 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. The Funds offer Class A, Class B, and Class C shares. Class A
shares are sold with a front-end sales charge of up to 4.50%. Class B shares are
sold with a contingent deferred sales charge that declines from 4% to zero
depending upon the period of time the shares are held. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately eight
years after purchase. Class C shares are sold with a contingent deferred sales
charge of 1%, if redeemed during the first 12 months.
The investment objective of Delaware Tax-Free Arizona Fund, Delaware Tax-Free
Arizona Insured Fund, Delaware Tax-Free California Fund, Delaware Tax-Free
California Insured Fund and Delaware Tax-Free Colorado Fund is to seek as high a
level of current income exempt from federal income tax and personal income tax
in their respective states, as is consistent with preservation of capital.
1. Significant Accounting Policies
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Funds.
Security Valuation -- Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith under the direction of each Fund's Board of
Trustees.
Federal Income Taxes -- Each Fund intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Class Accounting -- Investment income and common expenses are allocated to the
classes of each Fund 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 each Fund on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Interest income is recorded on the accrual basis. 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.
Certain expenses of the Funds are paid through commission arrangements with
brokers. These transactions are done subject to best execution. In addition, the
Funds may receive earnings credits from their custodian when positive balances
are maintained, which are used to offset custody fees. The expenses paid under
the above arrangements are included in their respective expense captions on the
Statements of Operations with the corresponding expense offset shown as
"expenses paid indirectly". The amounts of these expenses for the year ended
August 31, 2003 were as follows:
Delaware Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Arizona Arizona Insured California California Insured Colorado
Fund Fund Fund Fund Fund
-----------------------------------------------------------------------
Commission reimbursements $946 $3,872 $1,147 $977 $8,015
Earnings credits 61 74 40 238 941
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 based on
each Fund's average daily net assets as follows:
Delaware Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Arizona Arizona Insured California California Insured Colorado
Fund Fund Fund Fund Fund
-----------------------------------------------------------------------
On the first $500 million 0.550% 0.500% 0.550% 0.500% 0.550%
On the next $500 million 0.500% 0.475% 0.500% 0.475% 0.500%
On the next $1.5 billion 0.450% 0.450% 0.450% 0.450% 0.450%
In excess of $2.5 billion 0.425% 0.425% 0.425% 0.425% 0.425%
40
Notes
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreements and Other Transactions
with Affiliates (continued)
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, exclusive of taxes, interest, brokerage commissions,
distribution fees, and extraordinary expenses do not exceed specified
percentages of average daily net assets of the Funds through October 31, 2004
and until revoked for the Delaware Tax-Free California Fund, as shown below:
Delaware Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Arizona Arizona Insured California California Insured Colorado
Fund Fund Fund Fund Fund
-----------------------------------------------------------------------
Operating expense limitations
a percentage of average daily
net assets (per annum) 0.50% 0.70% 0.25% 0.75% 0.75%
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Funds pay
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. Each Fund pays DSC a monthly fee based
on the number of shareholder accounts for dividend and disbursing and transfer
agent services. Prior to June 1, 2003, the monthly fee for dividend disbursing
and transfer agent services was based on the number of shareholder accounts and
shareholder transactions.
Pursuant to a distribution agreement and distribution plan, each Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.25% of the average daily net
assets of the Class A shares and 1.00% of the average daily net assets of the
Class B and C shares.
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the
Trusts. These officers and/or trustees are paid no compensation by the Funds.
At August 31, 2003, each Fund had liabilities payable to affiliates as follows:
Delaware Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Arizona Arizona Insured California California Insured Colorado
Fund Fund Fund Fund Fund
-----------------------------------------------------------------------
Investment management fee
payable to DMC $9,976 $50,352 $3,975 $7,139 $14,917
Dividend disbursing, transfer
agent fees, accounting and
other expenses payable to DSC 2,938 14,489 4,098 3,530 31,326
Other expenses payable to DMC
and affiliates 4,880 20,874 6,029 5,606 44,121
For the year ended August 31, 2003, DDLP earned commissions on sales of
Class A shares for each Fund as follows:
Delaware Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Arizona Arizona Insured California California Insured Colorado
Fund Fund Fund Fund Fund
-----------------------------------------------------------------------
$7,297 $36,679 $15,919 $7,447 $47,613
3. Investments
For the year ended August 31, 2003, the Funds made purchases and sales of
investment securities other than short-term investments as follows:
Delaware Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Arizona Arizona Insured California California Insured Colorado
Fund Fund Fund Fund Fund
-----------------------------------------------------------------------
Purchases $27,381,668 $46,430,802 $27,068,223 $19,770,785 $98,578,683
Sales 30,388,395 53,518,119 26,342,281 17,968,179 105,936,604
At August 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for each Fund were as follows:
Delaware Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Arizona Arizona Insured California California Insured Colorado
Fund Fund Fund Fund Fund
-----------------------------------------------------------------------
Cost of investments $37,497,256 $147,511,486 $45,217,080 $40,247,192 $313,342,462
----------- ------------ ----------- ----------- ------------
Aggregate unrealized appreciation $507,357 $ 4,504,235 $716,432 $937,034 $10,283,358
Aggregate unrealized depreciation (1,988,385) (1,005,942) (555,685) (225,072) (7,212,962)
---------- ---------- -------- -------- ----------
Net unrealized appreciation (depreciation) $(1,481,028) $3,498,293 $160,747 $711,962 $3,070,396
=========== ========== ======== ======== ==========
41
Notes
TO FINANCIAL STATEMENTS (CONTINUED)
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 accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended August 31, 2003 and 2002 was as
follows:
Delaware Tax-Free Delaware Tax-Free
Arizona Fund Arizona Insured Fund
2003 2002 2003 2002
---------------------- -------------------------
Tax-exempt income $1,754,400 $1,783,251 $6,864,597 $6,941,384
Long-term capital gain -- -- 1,631,333 957,250
---------- ---------- ---------- ----------
Total $1,754,400 $1,783,251 $8,495,930 $7,898,634
========== ========== ========== ==========
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
California Fund California Insured Fund Colorado Fund
2003 2002 2003 2002 2003 2002
----------------- ----------------------- -------------------
Tax-exempt income $2,141,192 $2,115,292 $1,632,266 $1,539,100 $15,710,983 $16,137,428
Long-term capital gain -- -- -- 578,886 -- --
---------- ---------- ---------- ---------- ----------- -----------
Total $2,141,192 $2,115,292 $1,632,266 $2,117,986 $15,710,983 $16,137,428
========== ========== ========== ========== =========== ===========
As of August 31, 2003, the components of net assets on a tax basis were as
follows:
Delaware Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free
Arizona Arizona Insured California California Insured Colorado
Fund Fund Fund Fund Fund
--------- ---------------- ---------- ------------------- ----------
Shares of beneficial interest $38,557,252 $148,675,771 $46,492,842 $39,698,745 $320,225,904
Undistributed ordinary income -- 267,384 -- -- --
Undistributed tax-exempt income (1,660) 7,314 1,300 -- --
Undistributed long-term capital gains -- 444,159 -- -- --
Capital loss carryforwards (1,293,606) -- (1,307,816) (18,151) (2,054,025)
Unrealized appreciation (depreciation)
of investments (1,481,028) 3,498,293 160,747 711,962 3,070,396
----------- ------------ ----------- ----------- ------------
Net assets $35,780,958 $152,892,921 $45,347,073 $40,392,556 $321,242,275
=========== ============ =========== =========== ============
For federal income tax purposes, certain Funds had accumulated capital
carryforwards as of August 31, 2003, which may be carried forward and applied
against future capital gains. Such capital loss carryforward amounts will expire
as follows:
Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free Tax-Free
Arizona California California Colorado
Fund Fund Insured Fund Fund
- --------------------------------------------------------------------------------
2008 $178,280 $312,850 $ -- $ --
2009 1,115,326 988,927 -- 2,054,025
2011 -- 6,039 18,151 --
---------- ---------- ------- ----------
Total $1,293,606 $1,307,816 $18,151 $2,054,025
========== ========== ======= ==========
42
Notes
TO FINANCIAL STATMENTS (CONTINUED)
5. Capital Shares
Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free
Arizona Fund Arizona Insured Fund
------------------- -------------------------
Year Ended Year Ended
8/31/03 8/31/02 8/31/03 8/31/02
Shares sold:
Class A 337,393 998,634 1,161,855 1,188,859
Class B 80,252 207,042 289,628 506,895
Class C 54,996 188,502 340,061 485,497
Shares issued upon
reinvestment of
dividends and
distributions:
Class A 48,516 52,596 321,230 299,499
Class B 15,446 14,627 33,321 22,972
Class C 12,766 11,787 29,256 16,802
------- ------ --------- ----------
549,369 1,473,188 2,175,351 2,520,524
------- --------- --------- ----------
Shares repurchased:
Class A (666,442) (303,849) (2,129,562) (1,508,141)
Class B (204,908) (35,111) (195,453) (114,718)
Class C (56,113) (18,407) (307,819) (80,204)
-------- --------- ---------- ----------
(927,463) (357,367) (2,632,834) (1,703,063)
-------- --------- ---------- ----------
Net increase (decrease) (378,094) 1,115,821 (457,483) 817,461
======== ========= ========== ==========
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
California Fund California Insured Fund Colorado Fund
------------------- ------------------------ -----------------
Year Ended Year Ended Year Ended
8/31/03 8/31/02 8/31/03 8/31/02 8/31/03 8/31/02
Shares sold:
Class A 621,318 415,654 367,203 280,614 1,626,357 1,686,867
Class B 281,164 177,634 150,611 278,036 126,659 212,572
Class C 215,978 153,338 180,673 123,676 371,742 315,903
Shares issued upon
reinvestment of dividends
and distributions:
Class A 38,142 48,533 59,858 78,531 804,609 872,985
Class B 20,392 18,345 14,770 22,516 34,219 36,659
Class C 17,256 15,747 2,450 1,274 22,801 18,930
--------- ------- ------- ------- --------- ---------
1,194,250 829,251 775,565 784,647 2,986,387 3,143,916
========= ======= ======= ======= ========= =========
Shares repurchased:
Class A (728,137) (607,868) (345,875) (258,049) (3,170,253) (2,812,639)
Class B (170,371) (174,325) (245,676) (96,865) (289,898) (198,732)
Class C (248,969) (69,388) (32,732) (16,875) (328,831) (111,812)
---------- -------- -------- -------- ---------- ----------
(1,147,477) (851,581) (624,283) (371,789) (3,788,982) (3,123,183)
---------- -------- -------- -------- ---------- ----------
Net increase (decrease) 46,773 (22,330) 151,282 412,858 (802,595) 20,733
========== ========= ======== ======== ========== ==========
For the year ended August 31, 2003, the following shares were converted from
Class B to Class A. The respective amounts are included in Class B redemptions
and Class A subscriptions in the table above and in the Statements of Changes in
Net Assets.
Year Ended Year Ended
8/31/03 8/31/02
Class B shares Class A shares Amount Class B shares Class A shares Amount
-------------- -------------- -------- -------------- -------------- -------
Delaware Tax-Free Arizona Fund 1,366 1,366 $ 14,383 -- -- $ --
Delaware Tax-Free Arizona Insured Fund 43,904 43,915 512,431 -- -- --
Delaware Tax-Free California Insured Fund 69,884 69,884 782,105 20,221 20,221 215,940
Delaware Tax-Free Colorado Fund 14,623 14,635 165,677 -- -- --
43
Notes
TO FINANCIAL STATEMENTS (CONTINUED)
6. Line of Credit
The Funds, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participate in a $202,300,000 revolving line of
credit facility to be used for temporary or emergency purposes as an additional
source of liquidity to fund redemptions of investor shares. The Participants are
charged an annual commitment fee, which is allocated across the Participants on
the basis of each fund's 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, 2003, or at any time during
the fiscal year.
7. Credit and Market Risks
The Funds concentrate their investments in securities issued by each
corresponding state's municipalities. The value of these investments may be
adversely affected by new legislation within the states, regional or local
economic conditions, and differing levels of supply and demand for municipal
bonds. Many municipalities insure repayment for their obligations. Although bond
insurance reduces the risk of loss due to default by an issuer, such bonds
remain subject to the risk that market value may fluctuate for other reasons and
there is no assurance that the insurance company will meet its obligations.
These securities have been identified in the Statements of Net Assets.
8. Tax Information (Unaudited)
The information set forth below is for each Fund's fiscal year as required by
federal 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 is sent to them in January of each year.
Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended August 31, 2003, each Fund designates distributions
paid during the year as follows:
(A) (B) (C)
Long Term Ordinary Tax-
Capital Gains Income Exempt Total
Distributions Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis)
---------------- -------------- ------------- -------------
Delaware Tax-Free Arizona Fund -- -- 100% 100%
Delaware Tax-Free Arizona Insured Fund 19% -- 81% 100%
Delaware Tax-Free California Fund -- -- 100% 100%
Delaware Tax-Free California Insured Fund -- -- 100% 100%
Delaware Tax-Free Colorado Fund -- -- 100% 100%
(A), (B), and (C) are based on a percentage of each Fund's total
distributions.
44
Report
OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
Voyageur Mutual Funds - Delaware Tax-Free Arizona Fund
Voyageur Insured Funds - Delaware Tax-Free Arizona
Insured Fund
Voyageur Mutual Funds - Delaware Tax-Free California Fund
Voyageur Investment Trust - Delaware Tax-Free California
Insured Fund
Voyageur Mutual Funds II - Delaware Tax-Free Colorado Fund
We have audited the accompanying statements of net assets of Delaware Tax-Free
Arizona Fund, Delaware Tax-Free Arizona Insured Fund, Delaware Tax-Free
California Fund, Delaware Tax-Free California Insured Fund and Delaware Tax-Free
Colorado Fund (the "Funds") as of August 31, 2003, 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 auditing standards generally accepted
in the 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 2003, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above listed Funds at August 31, 2003, 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 accounting principles
generally accepted in the United States.
Ernst + Young LLP
Philadelphia, Pennsylvania
October 3, 2003
45
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of 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 that perform services for the fund. The
independent fund trustees, in particular, are advocates for shareholder
interests. The following is a list of the Trustees/Officers and certain
background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Jude T. Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process --
Conseco Capital Management
(June 1998 -- August 2000)
Managing Director --
NationsBanc Capital Markets
(February 1996 -- June 1998)
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Walter P. Babich Trustee 15 Years Board Chairman -- 101 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 -- Present)
19103
October 1, 1927
- ------------------------------------------------------------------------------------------------------------------------------------
John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee -- Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103 President/Director --
22 WR Corporation
August 7, 1937
- ------------------------------------------------------------------------------------------------------------------------------------
John A. Fry Trustee(4) 2 Years President -- 83 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President --
May 28, 1960 University of Pennsylvania
(April 1995 -- June 2002)
- ------------------------------------------------------------------------------------------------------------------------------------
Anthony D. Knerr Trustee 10 Years Founder/Managing Director -- 101 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 -- Present)
December 7, 1938
46
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer or Officer
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal 101 Director -- Andy
2005 Market Street Officer -- Warhol Foundation
Philadelphia, PA National Gallery of Art Director -- Systemax Inc.
19103 (1994 -- 1999)
November 1, 1940
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas F. Madison Trustee 9 Years President/Chief 101 Director --
2005 Market Street Executive Officer -- CenterPoint Energy
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -- Digital
and Consulting) River Inc.
February 25, 1936 (January 1993 -- Present) Director -- Rimage
Corporation
Director -- Valmont
Industries, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None
2005 Market Street Acquisitions -- 3M Corporation
Philadelphia, PA (January 2003 -- Present)
19103
Ms. Yeomans has held
July 31,1948 various management positions
at 3M Corporation since 1983.
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Joseph H. Hastings Executive Executive Mr. Hastings has served in 101 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
December 19, 1949 August 21, 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Richelle S. Maestro Senior Vice Chief Legal Ms. Maestro has served in 101 None
2005 Market Street President, Officer various executive capacities
Philadelphia, PA Chief Legal Officer since at different times at
19103 and Secretary March 17, 2003 Delaware Investments.
November 26, 1957
- ------------------------------------------------------------------------------------------------------------------------------------
Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries, including the Registrant's investment advisor,
principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
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.
47
This page intentionally left blank.
Delaware
Investments(SM)
- ---------------
A member of Lincoln Financial Group(R)
This annual report is for the information of Delaware Tax-Free Arizona Fund,
Delaware Tax-Free Arizona Insured Fund, Delaware Tax-Free California Fund,
Delaware Tax-Free California Insured Fund, and Delaware Tax-Free Colorado Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Tax-Free Arizona Fund, Delaware
Tax-Free Arizona Insured Fund, Delaware Tax-Free California Fund, Delaware
Tax-Free California Insured Fund, and Delaware Tax-Free Colorado Fund and the
Delaware Investments Performance Update for the most recently completed calendar
quarter. The prospectus sets forth details about charges, expenses, investment
objectives, and operating policies of the Funds. You should read the prospectus
carefully before you invest. The figures in this report represent past results
which are not a guarantee of future results. The return and principal value of
an investment in the Funds will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION
Walter P. Babich Jude T. Driscoll Investment Manager
Board Chairman Chairman Delaware Management Company
Citadel Construction Corporation Delaware Investments Family of Funds Philadelphia, PA
King of Prussia, PA Philadelphia, PA
International Affiliate
John H. Durham Joseph H. Hastings Delaware International Advisers Ltd.
Private Investor Executive Vice President and London, England
Gwynedd Valley, PA Chief Financial Officer
Delaware Investments Family of Funds National Distributor
Anthony D. Knerr Philadelphia, PA Delaware Distributors, L.P.
Managing Director Philadelphia, PA
Anthony Knerr & Associates Richelle S. Maestro
New York, NY Senior Vice President, Shareholder Servicing, Dividend
Chief Legal Officer and Secretary Disbursing and Transfer Agent
Ann R. Leven Delaware Investments Family of Funds Delaware Service Company, Inc.
Former Treasurer/Chief Fiscal Officer Philadelphia, PA 2005 Market Street
National Gallery of Art Philadelphia, PA 19103-7094
Washington, DC Michael P. Bishof
Senior Vice President and Treasurer For Shareholders
Thomas F. Madison Delaware Investments Family of Funds 800 523-1918
President and Chief Executive Officer Philadelphia, PA
MLM Partners, Inc. For Securities Dealers and Financial
Minneapolis, MN Institutions Representatives Only
800 362-7500
Janet L. Yeomans
Vice President/Mergers & Acquisitions Web site
3M Corporation www.delawareinvestments.com
St. Paul, MN
- -------------------------------------------------------------------------------
A description of the policies and procedures that each Fund uses to determine
how to vote proxies (if any) relating to portfolio securities is available
without charge (i) upon request, by calling 800 523-1918; (ii) on the Funds'
website at http://www.delawareinvestments.com; and (iii) on the Commission's
website at http://www.sec.gov. Beginning no later than August 31, 2004,
information (if any) regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is available
without charge (i) through the Funds' website at
http://www.delawareinvestments.com; and (ii) on the Commission's website at
http://www.sec.gov.
- -------------------------------------------------------------------------------
(8249) Printed in the USA
AR-WEST [8/03] IVES 10/03 J9414
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.delawareinvesments.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:
Ann R. Leven
Thomas F. Madison
Janet L. Yeomans 1
Item 4. Principal Accountant Fees and Services
Required only for fiscal years ending after December 15, 2003.
Not applicable.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. [Reserved]
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(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 Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. [Reserved]
Item 9. 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 registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an annual
report) that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 10. Exhibits
(a)(1) Code of Ethics
Not applicable.
(a)(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.
(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.
Voyageur Mutual Funds II
By: Jude T. Driscoll
----------------
Name: Jude T. Driscoll
Title: Chairman
Date: October 28, 2003
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.
By: Jude T. Driscoll
----------------
Name: Jude T. Driscoll
Title: Chairman
Date: October 28, 2003
By: Joseph H. Hastings
----------------
Name: Joseph H. Hastings
Title: Chief Financial Officer
Date: October 28, 2003