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: 811-3850
Exact name of registrant as specified in charter: Delaware Group Tax-Free Fund
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 USA Fund, Delaware Tax-Free USA Intermediate Fund and Delaware
Tax-Free Insured Fund of the Registrant and the Delaware National High-Yield
Municipal Bond Fund, a series of Voyageur Mutual Funds, information on which is
included in the following shareholder report.
Delaware
Investments(SM)
--------------------------------------
A member of Lincoln Financial Group(R)
FIXED INCOME
Annual Report 2003
- --------------------------------------------------------------------------------
DELAWARE TAX-FREE USA FUND
DELAWARE TAX-FREE INSURED FUND
DELAWARE TAX-FREE USA INTERMEDIATE FUND
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
[LOGO] POWERED BY RESEARCH.(SM)
Table
OF CONTENTS
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PORTFOLIO MANAGEMENT REVIEW 1
- -----------------------------------------------------------------
PERFORMANCE SUMMARIES
Delaware Tax-Free USA Fund 4
Delaware Tax-Free Insured Fund 5
Delaware Tax-Free USA Intermediate Fund 6
Delaware National High-Yield
Municipal Bond Fund 7
- -----------------------------------------------------------------
FINANCIAL STATEMENTS:
Statements of Net Assets 8
Statement of Assets and Liabilities 22
Statements of Operations 23
Statements of Changes in Net Assets 24
Financial Highlights 26
Notes to Financial Statements 38
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REPORT OF INDEPENDENT AUDITORS 43
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BOARD OF TRUSTEES/OFFICERS 44
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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 Delaware National Tax-Free Funds
MANAGEMENT REVIEW September 10, 2003
Fund Managers
Patrick P. Coyne
Chief Investment Officer -- Fixed Income
M. L. Conery
Senior Portfolio Manager
Joseph R. Baxter
Portfolio Manager
Delaware Tax-Free USA Fund
Delaware Tax-Free USA Intermediate Fund
Q: Please describe the overall bond market conditions during the fiscal year.
A: All bond fund performance occurred against a backdrop of much lower
short-term rates throughout the markets, anchored by Federal Reserve interest
rate cuts that left the fed funds rate at 1%. One-year, AAA-rated municipal
bonds began the fiscal year yielding 1.40% and finished at 1.05% on August 31,
2003 (Source: Municipal Market Data).
As short-term yields decreased, longer-term (10- and 30-year) yields increased,
causing the yield curve to steepen slightly. 30-year AAA-rated general
obligation bonds, for example, began the period yielding 4.89% and ended the
period at 5.02%, in part because the Fed concluded that it does not plan to buy
long bonds directly at this time. The yield curve also steepened because
investors seemed to anticipate an improving U.S. economy.
Though some states saw their credit ratings improve, a number of states
experienced downgraded credit ratings. This was likely due to weak national and
regional economies, poor equity market performance, and decreased tax revenues.
States have faced unprecedented revenue shortfalls, budget gaps, and increased
social service obligations in a period of elevated unemployment and high debt
levels in some states.
The past two years have experienced soaring bond supply, as municipalities
refinanced older, more expensive debt at lower rates. Municipalities have also
seen less tax revenue since the U.S. economic downturn, and so have been more
likely to finance some projects, conserving their cash. This story continued
through the first seven months of 2003. In August, however, rates jumped, and
the markets saw a 31 percent reduction in new bond issuance. Despite this one
month decline, year-to-date issuance was up 13 percent as of the end of August
(Source: Thomson Financial).
Delaware Tax-Free USA Fund
Q: How did Delaware Tax-Free USA Fund perform during the fiscal year?
A: Delaware Tax-Free USA Fund returned +3.84% (Class A shares at net asset value
with distributions reinvested) for the fiscal year ended August 31, 2003. It
outperformed its benchmark (the Lehman Brothers Municipal Bond Index), which
gained +3.14%. Its performance also bested the Fund's peer group, as represented
by the 304 funds of the Lipper General Municipal Debt Funds Average, which
returned +2.12% for the same period.
Q: What strategies contributed to Fund performance?
A: As rates climbed, we sold some lower-coupon bonds, particularly those that
involved a tax loss. That has allowed us to reinvest at a higher coupon level,
which should provide a better payout and allow us to offset Fund gains.
We took advantage of opportunities where we perceived relative value, such as in
specialty states like California that saw periods of heavy supply. We intend to
sell certain California bonds when we believe the supply is reduced and there is
heavy buyer demand.
We slightly extended average maturity and duration throughout the fiscal year.
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.
Q: What activity contributed to performance?
A: We found value in AA- and A-rated hospital bonds. We were particularly happy
to find these issues, as the healthcare sector once again experienced more
credit downgrades than upgrades, reflecting additional debt, operational stress,
and diminished liquidity. Even so, many healthcare facilities have demonstrated
improved operations in our opinion. Your Fund's largest healthcare positions
include Cleveland Clinic Health Systems and South Carolina's Bon Secours Health
System.
Q: What activity detracted from performance?
A: We sold airline bonds because we saw an increased risk to credit quality and
performance as conditions in the industry continued to weaken, as they have
since the aftermath of September 11. We sold positions backed by leases from
Continental Airlines and American Airlines at prices slightly below our original
cost basis. We feel, however, that pruning these holdings from the Fund will
ultimately be to shareholders' advantage.
1
Delaware Tax-Free Insured Fund
Q: How did Delaware Tax-Free Insured Fund perform during the fiscal year?
A: The Fund gained +3.02% (Class A shares at net asset value with distributions
reinvested) for the fiscal year ended August 31, 2003, slightly below the +3.14%
gained by its benchmark, the Lehman Brothers Municipal Bond Index. The Fund
outperformed its peer group as represented by the 50 funds composing the Lipper
Insured Municipal Debt Funds Average, which returned +2.30% for the same period.
Q: What strategies contributed to Fund performance?
A: As rates climbed, we sold some lower-coupon bonds, particularly those that
involved a tax loss. This allowed us to reinvest at a higher coupon rate,
which should provide a better regular payout and allow us to offset capital
gains in the Fund.
We took advantage of opportunities where we perceived relative value, such as in
specialty states like California that saw periods of heavy supply. We intend to
sell certain California bonds when we believe the supply is reduced and there is
heavy buyer demand.
We slightly shortened average maturity and duration during the fiscal year in
response to the movement of funds in our peer group. 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.
The Fund kept roughly 86 percent of its holdings in AAA-rated paper, with
smaller amounts in AA-, A-, and BBB-rated debt.
Q: What activity contributed to performance?
A: We found value in the investor-owned utilities and multi family housing
sectors. As stated above, we took particular advantage of relative value
opportunities in specialty states when we felt that the risk/reward profile of
using the strategy was favorable. In some cases, we were able to buy
attractively valued bonds when supply was plentiful, intending to collect the
coupon for a time and then resell the bonds for a profit when the market has
shifted toward decreased supply and increased demand.
Q: What activity detracted from performance?
A: We eliminated our airline revenue bond backed by American Airlines at a net
loss. We believe that airlines are at risk for further underperformance, and
thus used our proceeds from the sale to look at new opportunities.
Delaware Tax-Free USA Intermediate Fund
Q: How did Delaware Tax-Free USA Intermediate Fund perform during the fiscal
year?
A: The Fund returned +3.89% (Class A shares at net asset value with
distributions reinvested) for the fiscal year ended August 31, 2003. It equaled
its benchmark, the Merrill Lynch 3-7 Year Municipal Bond Index, which gained
+3.89%, and surpassed the 150 funds of its peer group, as represented by the
Lipper Intermediate Municipal Debt Fund Average, which gained +2.48% for the
same period.
Q: What strategies did you pursue during the fiscal year?
A: As rates climbed we sold some lower-coupon bonds, particularly those that
involved a tax loss. This action allowed us to reinvest at a higher coupon rate,
which should provide a better payout and allow us to offset capital gains in the
Fund.
We took advantage of relative value opportunities, watching for periods of heavy
supply in specialty states such as California. We intend to sell these bonds
when we believe the supply has dried up and there is heavy buyer demand.
Our numbers show a slightly shortened average maturity and duration. 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. The Fund's duration, however, should be viewed in
light of new cash flows. Cash has a zero duration until it is invested, thereby
skewing the duration figure. We intend to invest this new cash in longer-term
debt.
Q: What activity contributed to performance?
A: Healthcare was the year's best performer on a total return basis; we
increased holdings in this sector by 8 percent. Higher education, which also
increased by 8 percent, showed average performance, but we hope it will do well
in the future.
We took advantages of attractive, A- or AA-rated yield opportunities and moved
toward higher credit quality in the hospital sector.
Also of note, we declined to purchase positions in tobacco bonds. We were
concerned by ongoing litigation risk on this debt, which is backed by state
tobacco settlements. We believed that in most cases there was more supply than
demand for these bonds.
2
Delaware National High-Yield Municipal Bond Fund
Q: How did Delaware High-Yield Municipal Bond Fund perform during the
fiscal year?
A: Your Fund returned +3.13% (Class A shares at net asset value with
distributions reinvested) for the fiscal year ended August 31, 2003. The Fund
slightly underperformed its benchmark, the Lehman Brothers Municipal Bond Index,
which rose +3.14%. However, the Fund bested its peer group as represented by the
Lipper High-Yield Municipal Debt Funds Average, which returned +2.74% for the
same period.
Q: What strategies did you pursue during the fiscal year?
A: As rates climbed, we sold some lower-coupon bonds, particularly those that
involved a tax loss. This action allowed us to reinvest at a higher level, which
may provide a better payout moving forward.
We extended average maturity and duration somewhat in response to overall market
conditions, which suggest better future performance on the long end of the yield
curve. 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.
Your Fund's average credit quality has held stable at mid-BBB.
Q: What activity contributed positively to performance?
A: We saw good municipal bond supply in higher education and healthcare sectors,
and increased your Fund's positions in these sectors from 14 percent to 20
percent of total net assets, and from 11 percent to 20 percent, respectively.
Healthcare especially rewarded the Fund with strong price performance.
Concerned by ongoing litigation risk, we decided against acquiring debt backed
by state tobacco settlements. We also believe supply is outpacing demand for
these issues.
Q: What activity detracted from performance?
A: We trimmed positions in airline bonds, including those issued by American
Airlines, Continental Airlines, and Northwest Airlines. Though these sales
detracted from short-term performance, we believe it will ultimately be to the
Fund's benefit to avoid issues from the airline industry, which has suffered
since September 11.
3
Delaware
TAX-FREE USA FUND
Fund Basics
As of August 31, 2003
- -------------------------------------
Fund Objective:
The Fund seeks as high a level of
current interest income exempt from
federal income tax as is available
from municipal obligations as is
consistent with prudent investment
management and preservation of
capital.
- -------------------------------------
Total Fund Net Assets:
$497.48 million
- -------------------------------------
Number of Holdings:
132
- -------------------------------------
Fund Start Date:
January 11, 1984
- -------------------------------------
Your Fund Managers:
Patrick P. Coyne joined Delaware in
1990 and earned his bachelor's
degree from Harvard University and
MBA from the University of
Pennsylvania's Wharton School.
M. L. Conery joined Delaware in
1997 and holds a bachelor's degree
from Boston University and an MBA
from the State University of New
York at Albany.
Joe Baxter is a graduate of LaSalle
University and joined Delaware in
1999.
- -------------------------------------
Nasdaq Symbols:
Class A DMTFX
Class B DTFCX
Class C DUSCX
Fund Performance
Average Annual Total Returns
Through August 31, 2003 Lifetime 10 Years Five Years One Year
- ----------------------------------------------------------------------------------------------
Class A (Est. 1/11/84)
Excluding Sales Charge +7.93% +4.64% +4.13% +3.84%
Including Sales Charge +7.68% +4.15% +3.17% -0.82%
- ----------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +4.17% +3.31% +3.03%
Including Sales Charge +4.17% +3.06% -0.93%
- ----------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +3.74% +3.31% +3.03%
Including Sales Charge +3.74% +3.31% +2.04%
- ----------------------------------------------------------------------------------------------
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 up to 0.30%.
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 USA
Fund beginning August 1, 2001. Performance would have been lower had the expense
limitation not been in effect.
The performance table and graph does 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 Lehman Brothers
USA Fund Municipal Bond Index
Aug-93 $9,550 $10,000
Aug-94 $9,692 $10,014
Aug-95 $10,345 $10,902
Aug-96 $10,543 $11,474
Aug-97 $11,365 $12,534
Aug-98 $12,260 $13,618
Aug-99 $11,903 $13,692
Aug-00 $12,510 $14,614
Aug-01 $13,786 $16,106
Aug-02 $14,457 $17,102
Aug-03 $15,009 $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.
4
Delaware
TAX-FREE INSURED FUND
Fund Basics
As of August 31, 2003
- -----------------------------------------------------
Fund Objective:
The Fund seeks as high a level of current
interest income exempt from federal income tax
as is available from municipal obligations as is
consistent with prudent investment
management and preservation of capital.
- -----------------------------------------------------
Total Fund Net Assets:
$66.69 million
- -----------------------------------------------------
Number of Holdings:
39
- -----------------------------------------------------
Fund Start Date:
March 25, 1985
- -----------------------------------------------------
Your Fund Managers:
Patrick P. Coyne
M. L. Conery
- -----------------------------------------------------
Nasdaq Symbols:
Class A DMFIX
Class B DTXBX
Class C DTXCX
Fund Performance
Average Annual Total Returns
Through August 31, 2003 Lifetime 10 Years Five Years One Year
- ----------------------------------------------------------------------------------------------------------
Class A (Est. 3/25/85)
Excluding Sales Charge +6.99% +4.85% +4.45% +3.02%
Including Sales Charge +6.72% +4.36% +3.49% -1.62%
- ----------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +4.55% +3.63% +2.22%
Including Sales Charge +4.55% +3.38% -1.73%
- ----------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +4.12% +3.63% +2.22%
Including Sales Charge +4.12% +3.63% +1.24%
- ----------------------------------------------------------------------------------------------------------
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 up to 0.30%.
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%.
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 Lehman Brothers
Insured Fund Municipal Bond Index
Aug-93 $9,550 $10,000
Aug-94 $9,601 $10,014
Aug-95 $10,209 $10,902
Aug-96 $10,605 $11,474
Aug-97 $11,460 $12,534
Aug-98 $12,314 $13,618
Aug-99 $12,130 $13,692
Aug-00 $12,798 $14,614
Aug-01 $14,117 $16,106
Aug-02 $14,861 $17,102
Aug-03 $15,324 $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 USA INTERMEDIATE FUND
Fund Basics
As of August 31, 2003
- -----------------------------------------------------
Fund Objective:
The Fund seeks as high a level of current
interest income exempt from federal income tax
as is available from municipal obligations as is
consistent with prudent investment
management and preservation of capital.
- -----------------------------------------------------
Total Fund Net Assets:
$66.56 million
- -----------------------------------------------------
Number of Holdings:
64
- -----------------------------------------------------
Fund Start Date:
January 7, 1993
- -----------------------------------------------------
Your Fund Managers:
Patrick P. Coyne
M. L. Conery
Joseph R. Baxter
- -----------------------------------------------------
Nasdaq Symbols:
Class A DMUSX
Class B DUIBX
Class C DUICX
Fund Performance
Average Annual Total Returns
Through August 31, 2003 Lifetime 10 Years Five Years One Year
- ----------------------------------------------------------------------------------------------------------
Class A (Est. 1/17/93)
Excluding Sales Charge +5.81% +5.21% +5.05% +3.89%
Including Sales Charge +5.53% +4.92% +4.48% +1.05%
- ----------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +4.76% +4.17% +3.02%
Including Sales Charge +4.76% +4.17% +1.02%
- ----------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +4.48% +4.17% +3.02%
Including Sales Charge +4.48% +4.17% +2.02%
- ----------------------------------------------------------------------------------------------------------
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 2.75% and have an annual distribution and
service fee of up to 0.30%.
Class B shares are sold with a contingent deferred sales charge that declines
from 2% 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 five 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 USA
Intermediate 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 Merrill Lynch 3-7 Year
USA Intermediate Fund Municipal Bond Index
Aug-93 $9,725 $10,000
Aug-94 $9,928 $10,188
Aug-95 $10,566 $10,877
Aug-96 $11,043 $11,279
Aug-97 $11,769 $11,990
Aug-98 $12,618 $12,828
Aug-99 $12,655 $13,134
Aug-00 $13,373 $13,830
Aug-01 $14,712 $15,190
Aug-02 $15,645 $16,206
Aug-03 $16,310 $16,836
Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a
2.75% 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 Merrill Lynch 3-7 Year Municipal Bond Index is an unmanaged index
that generally tracks the performance of municipal bonds with maturities of
three to seven years. An index is unmanaged and does not reflect the costs of
operating a mutual fund, such as the costs of buying, selling, and holding
securities. You cannot invest directly in an index. Past performance is not a
guarantee of future results.
6
Delaware
NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
Fund Basics
As of August 31, 2003
- -----------------------------------------------------
Fund Objective:
The Fund seeks a high level of current income
exempt from federal income tax primarily
through investment in medium- and lower-grade
municipal obligations.
- -----------------------------------------------------
Total Fund Net Assets:
$81.65 million
- -----------------------------------------------------
Number of Holdings:
82
- -----------------------------------------------------
Fund Start Date:
September 22, 1986
- -----------------------------------------------------
Your Fund Managers:
Patrick P. Coyne
M. L. Conery
- -----------------------------------------------------
Nasdaq Symbols:
Class A CXHYX
Class B DVNYX
Class C DVHCX
Fund Performance
Average Annual Total Returns
Through August 31, 2003 Lifetime 10 Years Five Years One Year
- ----------------------------------------------------------------------------------------------------------
Class A (Est. 9/22/86)
Excluding Sales Charge +6.76% +5.33% +3.46% +3.13%
Including Sales Charge +6.47% +4.84% +2.51% -1.52%
- ----------------------------------------------------------------------------------------------------------
Class B (Est. 12/18/96)
Excluding Sales Charge +4.15% +2.70% +2.36%
Including Sales Charge +4.15% +2.45% -1.56%
- ----------------------------------------------------------------------------------------------------------
Class C (Est. 5/26/97)
Excluding Sales Charge +3.95% +2.69% +2.35%
Including Sales Charge +3.95% +2.69% +1.37%
- ----------------------------------------------------------------------------------------------------------
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 National
High-Yield Municipal Bond 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 National Lehman Brothers
High-Yield Municipal Fund Municipal Bond Index
Aug-93 $9,550 $10,000
Aug-94 $9,718 $10,014
Aug-95 $10,472 $10,902
Aug-96 $11,228 $11,474
Aug-97 $12,375 $12,534
Aug-98 $13,506 $13,618
Aug-99 $13,652 $13,692
Aug-00 $13,902 $14,614
Aug-01 $15,128 $16,106
Aug-02 $15,522 $17,102
Aug-03 $15,956 $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.
Statements Delaware Tax-Free USA Fund
OF NET ASSETS August 31, 2003
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 96.55%
- --------------------------------------------------------------------------------
Airline Revenue Bonds - 2.50%
Kenton County, Kentucky Airport Board
Revenue (Delta Airlines, Inc.)
Series A 7.50% 2/1/12 (AMT) $ 5,000,000 $ 4,644,200
Series B 7.25% 2/1/22 3,750,000 3,276,412
Minneapolis/St. Paul, Minnesota
Metropolitan Airports Commission
Special Facilities Revenue
(Northwest Airlines, Inc.)
Series A 7.00% 4/1/25 (AMT) 1,300,000 1,079,156
New Jersey Economic Development
Authority Special Facility Revenue
(Continental Airlines, Inc.)
6.25% 9/15/29 (AMT) 2,500,000 1,956,650
Tulsa, Oklahoma Municipal Airport
Trust Revenue (American Airlines
Corp.) 7.35% 12/1/11 2,250,000 1,462,522
-----------
12,418,940
-----------
Airport Revenue Bonds - 3.98%
Capital Trust Agency Florida Revenue
(Orlando/Cargo Project) 6.75% 1/1/32 2,000,000 1,869,940
Dallas-Fort Worth, Texas International
Airport Revenue Series A
5.00% 11/1/32 (AMBAC) (AMT) 10,000,000 9,520,700
Grapevine, Texas Industrial Development
Corporate Revenue (Air Cargo)
6.50% 1/1/24 (AMT) 920,000 941,666
Houston, Texas Industrial Development
Corporate Revenue (Air Cargo)
6.375% 1/1/23 (AMT) 2,000,000 2,026,440
Metropolitan Washington DC Airport
Authority System Series A
5.25% 10/1/32 (FGIC) (AMT) 3,000,000 2,993,190
Miami-Dade County, Florida Aviation
Revenue (Miami International Airport)
5.375% 10/1/32 (FGIC) (AMT) 1,000,000 1,009,250
Northwest Arkansas Regional Airport
Authority Revenue
5.375% 2/1/27 (ACA) 1,450,000 1,432,803
-----------
19,793,989
-----------
City General Obligation Bonds - 3.35%
New York City, New York
Series H 6.125% 8/1/25 4,960,000 5,407,987
Series I 5.125% 3/1/23 5,875,000 5,860,606
Series J 5.25% 6/1/28 5,400,000 5,388,390
-----------
16,656,983
-----------
Continuing Care/Retirement Revenue Bonds - 1.69%
Cass County, North Dakota Health
Facilities Revenue (Catholic
Health-Villa Nazareth Project)
6.25% 11/15/14 1,000,000 1,023,630
+Delaware County, Pennsylvania
Authority Revenue
(Main Line & Haverford Nursing and
Rehabilitation Center) 9.00% 8/1/22 1,860,000 1,114,977
Gainesville & Hall County, Georgia
Development Authority Revenue
(Lanier Village Estates) Series C
7.25% 11/15/29 1,000,000 980,320
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Continuing Care/Retirement Revenue Bonds (continued)
Grand Forks, North Dakota Senior
Housing Revenue (4000 Valley
Square Project) 6.25% 12/1/34 $ 2,000,000 $ 1,661,420
Lucas County, Ohio Health Care Facility
Revenue (Sunset Retirement
Communities) Series A
6.625% 8/15/30 2,000,000 2,078,780
Waukesha, Wisconsin Housing Authority
(Westgrove Woods) Series A
6.00% 12/1/31 (GNMA) (AMT) 1,500,000 1,525,470
-----------
8,384,597
-----------
Convention Center Revenue Bonds - 0.29%
Denver, Colorado Convention Center
Series A 5.00% 12/1/33 (XLCA) 1,500,000 1,457,730
-----------
1,457,730
-----------
Corporate-Backed Revenue Bonds - 6.13%
Alliance, Texas Airport Authority Special
Facilities Revenue (Federal Express
Corp.) 6.375% 4/1/21 (AMT) 2,000,000 2,092,880
Ashland, Kentucky Sewer & Solid Waste
Revenue (Ashland, Inc.)
7.125% 2/1/22 (AMT) 5,000,000 5,260,550
Columbus, Kansas Industrial Revenue
(ACE Electrical Acquisition)
7.00% 8/1/17 (AMT) 800,000 460,416
Indianapolis, Indiana Airport Authority
Revenue (Federal Express Corp.
Project) 7.10%1/15/17 (AMT) 7,800,000 8,211,840
Pennsylvania Economic Development
Financing Authority Wastewater
Treatment Revenue (Sun Co. Inc.
-R & M Project) Series A
7.60% 12/1/24 (AMT) 5,000,000 5,261,650
Phenix County, Alaska Industrial
Development Board Environmental
Improvement Revenue (Mead
Westvaco Corp.) Series A
6.35% 5/15/35 (AMT) 3,000,000 3,037,620
Puerto Rico Industrial, Medical &
Environmental Pollution Control
Facilities Financing Authority Revenue
(PepsiCo, Inc. Project) 6.25% 11/15/13 1,250,000 1,314,188
Richmond County, Georgia Development
Authority Environmental Improvement
Revenue (International Paper Co.)
Series B 5.95% 11/15/25 (AMT) 5,000,000 4,873,300
-----------
30,512,444
-----------
Dedicated Tax & Fees Revenue Bonds - 5.57%
Bi-State Development Agency Missouri,
Illinois Metropolitan District
(Metrolink Cross County Project)
Series B 5.00% 10/1/32 (FSA) 1,500,000 1,494,915
Jacksonville, Florida Sales Tax Revenue
5.00% 10/1/30 (MBIA) 9,500,000 9,422,955
New York City, New York Transitional
Finance Authority Series D
5.00% 2/1/31 10,000,000 9,802,100
8
Statements Delaware Tax-Free USA Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Dedicated Tax & Fees Revenue Bonds (continued)
Southeast Wisconsin Professional
Baseball Park District Sales Tax
Revenue Series A
5.50% 12/15/26 (MBIA) $ 5,500,000 $ 5,934,940
Truth or Consequences, New Mexico
Gross Receipts Tax Revenue
6.30% 7/1/16 1,000,000 1,043,470
-----------
27,698,380
-----------
Escrowed to Maturity Bonds - 5.34%
Louisiana Public Facilities Authority
Hospital Revenue (Southern Baptist
Hospital, Inc.) 8.00% 5/15/12 6,695,000 8,210,279
Oklahoma State Turnpike Authority
Revenue (First Senior) 6.00% 1/1/22 13,535,000 15,544,812
Virgin Islands Public Finance Authority
Revenue Series A 7.30% 10/1/18 2,200,000 2,812,282
-----------
26,567,373
-----------
Higher Education Revenue Bonds - 8.45%
California Educational Facilities Authority
Revenue (University of South California)
Series A 5.00% 10/1/33 8,000,000 7,871,200
Illinois Educational Facilities Authority
Student Housing Revenue
(Educational Advancement
Fund-University Center Project)
6.25% 5/1/30 5,000,000 5,059,100
Maryland State Economic Development
Corporation, Student Housing Revenue
(University of Maryland College Park
Project) 5.625% 6/1/35 1,125,000 1,072,519
Massachusetts State Health &
Educational Facilities Authority
Revenue (Nichols College) Series C
6.00% 10/1/17 1,000,000 919,220
6.125% 10/1/29 1,400,000 1,208,536
New Hampshire Higher Educational &
Health Facilities Authority Revenue
(New Hampton School Issue)
5.375% 10/1/28 3,070,000 2,731,778
++New York State Dormitory Authority
Revenues (Drivers-107) Inverse
Floater 10.328% 5/15/15 (MBIA) 10,500,000 13,279,770
Oregon Health Sciences University
Revenue Series A 5.00% 7/1/32 (MBIA) 1,000,000 998,420
Payne County, Oklahoma Economic
Development Authority Student
Housing Revenue (Collegiate Housing
Foundation-Oklahoma State University)
Series A 6.375% 6/1/30 4,000,000 4,706,840
University of California Revenues
Series A 5.00% 5/15/33 (AMBAC) 3,250,000 3,197,838
Vermont University & State Agriculture
College 5.125% 10/1/37 (AMBAC) 1,000,000 1,002,260
-----------
42,047,481
-----------
Hospital Revenue Bonds - 11.22%
Cando, North Dakota Nursing Facility
Revenue (Towner County Medical
Center Project) 7.125% 8/1/22 1,000,000 1,009,960
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Hospital Revenue Bonds (continued)
Chatham County, Georgia Hospital
Authority Revenue
(Memorial Health Medical Center)
Series A 6.125% 1/1/24 $ 1,000,000 $ 1,053,210
Cuyahoga County, Ohio Revenue
(Cleveland Clinic Health Systems)
Series A 5.50% 1/1/29 9,800,000 9,877,028
Harris County, Texas Health Facilities
Development Corporation Revenue
(St. Luke's Episcopal Hospital)
5.125% 2/15/32 2,250,000 2,149,515
Henrico County, Virginia Economic
Development Authority Revenue
(Bon Secours Health System, Inc.)
Series A 5.60% 11/15/30 2,000,000 2,024,920
Illinois Health Facilities Authority
Revenue (Elmhurst Memorial
Healthcare) 5.625%1/1/28 2,000,000 1,971,160
Macomb County, Michigan Hospital
Finance Authority Revenue
(Mt. Clemens General Hospital)
Series B 5.875% 11/15/34 5,000,000 4,723,800
Maryland State Health & Higher
Educational Facilities Authority
Revenue (Sheppard Pratt)
Series A 5.25% 7/1/35 2,250,000 2,217,645
Michigan State Hospital Finance
Authority Revenue
(Ascension Health Credit Group)
Series B 5.25% 11/15/26 3,500,000 3,451,210
(Oakwood Obligation Group)
Series A 5.75% 4/1/32 2,500,000 2,558,100
(Trinity Health Credit)
Series C 5.375% 12/1/30 6,000,000 6,012,480
Montgomery County, Pennsylvania
Higher Education & Health Authority
Hospital Revenue (Abington Memorial
Hospital) Series A 5.125% 6/1/32 800,000 755,192
New York State Dormitory Authority
Revenue (North Shore Long Island
Jewish Group) 5.50% 5/1/33 500,000 502,940
South Carolina Jobs Economic
Development Authority Revenue
(Bon Secours Health System, Inc.)
Series A 5.625% 11/15/30 9,000,000 8,924,850
South Miami, Florida Health Facilities
Authority Hospital Revenue
(Baptist Health South Florida Group)
5.25% 11/15/33 4,000,000 3,907,840
Tangipahoa Parish, Louisiana Hospital
Service District #1 Hospital Revenue
(North Oaks Medical Center Project)
Series A 5.00% 2/1/30 5,000,000 4,676,700
-----------
55,816,550
-----------
Investor Owned Utilities Revenue Bonds - 13.26%
Brazos, Texas River Authority Pollution
Revenue (TXU Energy Co. Project)
Series B 6.30% 7/1/32 (AMT) 3,500,000 3,467,450
9
Statements Delaware Tax-Free USA Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Investor Owned Utilities Revenue Bonds (continued)
Claiborne County, Mississippi Pollution
Control Revenue (System Energy
Resources, Inc. Project) 7.30% 5/1/25 $ 3,000,000 $ 3,010,800
Clark County, Nevada Industrial
Development Revenue (Nevada Power
Co. Project) Series C 7.20% 10/1/22 8,000,000 8,034,640
Luzerne County, Pennsylvania Industrial
Development Authority (Pennsylvania
Gas & Water Co. Project) Series A
7.00% 12/1/17 (AMBAC) (AMT) 4,000,000 4,324,600
Midland County, Michigan Economic
Development Subordinate Limited
Obligation (Midland Congeneration)
Series A 6.875% 7/23/09 (AMT) 3,050,000 3,025,752
Mississippi Business Finance
Corporation Pollution Control Revenue
(System Energy Resources, Inc.
Project) 5.90% 5/1/22 3,000,000 2,959,650
Petersburg, Indiana Pollution
Control Revenue (Indianapolis
Power & Light Co. Project)
6.375% 11/1/29 (AMT) 4,250,000 3,876,043
6.625% 12/1/24 4,500,000 4,571,955
Port Morrow, Oregon Pollution Control
Revenue (Portland General)
5.20% 5/1/33 2,000,000 2,013,020
Sabine River Authority, Texas Pollution
Control Revenue
(Southwestern Electric Power Co.)
6.10% 4/1/18 (MBIA) 4,000,000 4,349,720
Sweetwater County, Wyoming Pollution
Control Revenue (Idaho Power Co.
Project) Series A 6.05% 7/15/26 5,000,000 5,078,100
West Feliciana Parish, Louisiana Pollution
Control Revenue (Gulf States Utilities
Co. Project) Series A 7.50% 5/1/15 20,700,000 21,271,941
-----------
65,983,671
-----------
Miscellaneous Revenue Bonds - 0.70%
Director State, Nevada Department of
Business & Industry (Las Vegas
Monorail Project) 2nd Tier
7.375% 1/1/40 1,500,000 1,401,000
Wisconsin Center District Tax Revenue
(Junior Dedicated)
5.25% 12/15/23 (FSA) 2,000,000 2,103,760
-----------
3,504,760
-----------
Multi Family Housing Revenue Bonds - 0.93%
Carlsbad, New Mexico Housing
Corporation Multifamily Revenue
(Colonial Hillcrest) 7.375% 8/15/27 1,000,000 945,920
Milwaukee, Wisconsin Redevelopment
Authority Multifamily Revenue
(City Hall Square)
6.30% 8/1/38 (FHA) (AMT) 1,455,000 1,473,508
North Dakota State Housing Finance
Agency Multifamily Revenue Series A
6.15% 12/1/17 (FNMA) 1,300,000 1,320,709
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Multi Family Housing Revenue Bonds (continued)
Southeastern New Mexico Affordable
Housing Corporation Multifamily
Revenue (Casa Hermosa Apartments)
7.25% 12/1/27 $ 1,000,000 $ 874,110
-----------
4,614,247
-----------
Municipal Lease Revenue Bonds - 3.03%
Alexandria, Virginia Industrial
Development Authority Revenue
(Institute for Defense Analyses)
Series A 5.90% 10/1/30 (AMBAC) 5,000,000 5,482,300
Cudahy, Wisconsin Community
Development Authority Lease
Revenue 6.00% 6/1/11 1,000,000 1,063,900
Idaho State Building Authority Revenue
Series A 5.00% 9/1/43 (XLCA) 2,275,000 2,244,742
Linn County, Kansas Certificates of
Participation 7.25% 3/1/13 (AMT) 350,000 340,319
State Public School Building Authority
Pennsylvania School Revenue Lease
(Philadelphia School District Project)
5.00% 6/1/33 (FSA) 6,000,000 5,921,760
-----------
15,053,021
-----------
*Pre-Refunded Bonds - 5.54%
Iowa Finance Authority Revenue
(State Revolving Fund)
Combined Series 6.25% 5/1/24-04 1,750,000 1,829,100
Michigan State Hospital Finance
Authority Revenue (Genesys Health
Systems) Series A
7.50% 10/1/27-05 8,130,000 9,151,778
8.125% 10/1/21-05 4,000,000 4,630,400
Mississippi Development Bank Special
Obligation (Madison County Hospital
Project) 6.30% 7/1/22-09 2,070,000 2,458,850
New York City, New York Series H
6.125% 8/1/25-07 40,000 46,112
North Dakota State Building Authority
Lease Revenue Series A
6.10% 12/1/16-04 (FSA) 1,480,000 1,572,204
Puerto Rico Industrial, Tourist,
Educational, Medical & Environmental
Control Facilities (Polytechnic
University Project) Series A
6.50% 8/1/24-04 1,910,000 2,043,012
Puerto Rico Municipal Finance Agency
Series A 6.00% 7/1/14-04 (FSA) 3,500,000 3,698,905
Southeast Wisconsin Professional
Baseball Park District Sales Tax
Revenue 5.80% 12/15/26-07 (MBIA) 1,000,000 1,129,190
Wisconsin Housing Finance Authority
Revenue 6.10% 6/1/21-17 (FHA) 890,000 1,009,171
-----------
27,568,722
-----------
Public Power Revenue Bonds - 1.24%
Austin, Texas Revenue Subordinate
Lien 5.25% 5/15/25 (MBIA) 5,000,000 5,160,700
South Carolina State Public Service
Authority Revenue Series A
5.125% 1/1/21 (FSA) 1,000,000 1,021,010
-----------
6,181,710
-----------
10
Statements Delaware Tax-Free USA Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Public Utility District Revenue Bonds - 3.14%
Chelan County, Washington Public
Utilities District #001 Consolidated
Revenue (Chelan Hydro System)
Series A 5.45% 7/1/37 (AMBAC) (AMT) $ 5,000,000 $ 5,018,050
Richmond, Virginia Pubic Utilities
Revenue 5.00% 1/15/27 (FSA) 10,600,000 10,602,226
-----------
15,620,276
-----------
Recreational Area Revenue Bonds - 0.23%
Santa Fe, New Mexico Municipal
Recreation Complex Net Revenue
5.625% 12/1/23 1,190,000 1,120,694
-----------
1,120,694
-----------
School District General Obligation Bonds - 0.49%
Lewisville, Texas Independent School
District Permanent School Fund
6.15% 8/15/21 2,160,000 2,424,406
-----------
2,424,406
-----------
Single Family Housing Revenue Bonds - 0.99%
New Mexico Mortgage Finance Authority
Series B Class III 6.75% 7/1/25
(FNMA) (GNMA) 670,000 679,286
Series E 6.95% 1/1/26 (FNMA) (GNMA) 635,000 673,398
Series F 6.85% 1/1/21 (FNMA) (GNMA) 430,000 446,830
North Dakota State Housing Finance
Agency Revenue
Series A 6.30% 7/1/16 (AMT) 1,110,000 1,150,038
Series B 6.25% 1/1/17 (AMT) 1,095,000 1,142,370
Santa Fe, New Mexico Single Family
Mortgage Revenue 6.20% 11/1/16
(FNMA) (GNMA) (AMT) 375,000 384,491
Tennessee Housing Development
Agency Mortgage Finance Series B
6.60% 7/1/25 (AMT) 235,000 238,276
Utah State Housing Finance Agency
Single Family Mortgage Series A
7.20% 1/1/27 (FHA) (VA) (AMT) 210,000 217,466
-----------
4,932,155
-----------
State General Obligation Bonds - 2.87%
California State
5.00% 2/1/31 (MBIA) 5,000,000 4,901,050
5.00% 2/1/33 10,000,000 9,364,400
-----------
14,265,450
-----------
Territorial General Obligation Bonds - 3.68%
Puerto Rico Commonwealth
Public Improvement
5.375% 7/1/21 (MBIA) 50,000 56,472
Series A 5.125% 7/1/31 10,000,000 9,896,900
Series A 5.50% 7/1/19 (MBIA) 7,500,000 8,338,050
-----------
18,291,422
-----------
Territorial Revenue Bonds - 4.49%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series G 5.00% 7/1/42 10,000,000 9,543,800
Puerto Rico Commonwealth Industrial
Development Company General
Purpose Revenues Series B
5.375% 7/1/16 1,000,000 1,055,290
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Territorial Revenue Bonds (continued)
Puerto Rico Electric Power
Authority Revenue
Series II 5.25% 7/1/31 $ 6,000,000 $ 6,001,860
Series U 6.00% 7/1/14 2,550,000 2,681,861
Puerto Rico Housing, Bank & Finance
Agency Single Family Mortgage
Revenue 6.25% 4/1/29
(FHLMC) (FNMA) (GNMA) (AMT) 1,240,000 1,290,456
Puerto Rico Industrial, Tourist,
Educational, Medical & Environmental
Control Facilities (Hospital Auxilio
Mutuo Obligated Group) Series A
6.25% 7/1/24 (MBIA) 1,200,000 1,280,892
Virgin Islands Water & Power Authority
Water System Revenue 5.50% 7/1/17 510,000 501,478
------------
22,355,637
------------
Turnpike/Toll Road Revenue Bonds - 4.40%
New Jersey State Highway Authority
Garden State Parkway
General Revenue (Senior Parkway)
5.50% 1/1/14 (FGIC) 5,000,000 5,569,150
5.50% 1/1/15 (FGIC) 7,310,000 8,128,428
Ohio State Turnpike Commission
Revenue Series A
5.50% 2/15/24 (FGIC) 5,000,000 5,415,200
5.50% 2/15/26 (FGIC) 2,590,000 2,794,636
------------
21,907,414
------------
Water & Sewer Revenue Bonds - 3.04%
New York City, New York Municipal
Water Finance Authority Water &
Sewer System Revenue Series A
5.125% 6/15/34 12,000,000 12,003,240
West Virginia State Water Development
Authority Revenue (Loan Program III)
Series A 6.375% 7/1/39 (AMBAC) (AMT) 2,890,000 3,135,534
------------
15,138,774
------------
Total Municipal Bonds
(cost $465,636,111) 480,316,826
------------
- --------------------------------------------------------------------------------
**Variable Rate Demand Notes - 1.35%
- --------------------------------------------------------------------------------
Hospital Revenue Bonds - 0.40%
Cumberland, Pennsylvania Municipal
Authority Revenue (Missiah Village
Project) 0.87% 7/1/27
(LOC Citizens Bank of Pennsylvania) 2,000,000 2,000,000
------------
2,000,000
------------
Miscellaneous Revenue Bonds - 0.95%
Allentown, Pennsylvania Commercial &
Industrial Development (Diocese of
Allentown) 0.85% 12/1/29
(LOC First Union National Bank) 4,705,000 4,705,000
------------
4,705,000
------------
Total Variable Rate Demand Notes
(cost $6,705,000) 6,705,000
------------
11
Statements Delaware Tax-Free USA Fund
OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
Total Market Value of Securities - 97.90%
(cost $472,341,111) $487,021,826
Receivables and Other Assets
Net of Liabilities - 2.10% 10,455,542
------------
Net Assets Applicable to 44,528,572
Shares Outstanding - 100.00% $497,477,368
============
Net Asset Value - Delaware Tax-Free USA Fund Class A
($460,917,002 / 41,256,093 Shares) $11.17
------
Net Asset Value - Delaware Tax-Free USA Fund Class B
($31,052,422 / 2,779,478 Shares) $11.17
------
Net Asset Value - Delaware Tax-Free USA Fund Class C
($5,507,944 / 493,001 Shares) $11.17
------
Components of Net Assets at August 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $494,012,164
Distributions in excess of net investment income (12,071)
Accumulated net realized loss on investments (11,203,440)
Net unrealized appreciation of investments 14,680,715
------------
Total net assets $497,477,368
============
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
**The interest rate shown is the rate as of August 31, 2003.
++An inverse floater bond is a type of bond with variable or floating interest
rates that move in the opposite direction of short-term interest rates.
Interest rate disclosed is in effect as of August 31, 2003.
+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
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
VA - Insured by the Veterans Administration
XLCA - Insured by XL Capital Assurance
Net Asset Value and Offering Price per Share -
Delaware Tax-Free USA Fund
Net asset value Class A (A) $11.17
Sales charge (4.50% of offering price,
or 4.74% of amount invested per share) (B) 0.53
------
Offering price $11.70
======
(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
12
Statements Delaware Tax-Free Insured Fund
OF NET ASSETS (CONTINUED) August 31, 2003
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 95.15%
- --------------------------------------------------------------------------------
Airport Revenue Bonds - 4.48%
Dallas-Fort Worth, Texas International
Airport Revenue Series A
5.00% 11/1/32 (AMBAC) (AMT) $ 500,000 $ 476,035
5.50% 11/1/31 (FGIC) (AMT) 1,500,000 1,516,095
Metropolitan Washington DC Airport
Authority System Series A
5.25% 10/1/32 (FGIC) (AMT) 1,000,000 997,730
-----------
2,989,860
-----------
City General Obligation Bonds - 7.35%
Melrose Park, Illinois Tax Increment
Series B 6.00% 12/15/19 (FSA) 1,250,000 1,400,188
Powell, Ohio 5.50% 12/1/32 (FGIC) 2,000,000 2,084,499
Vancouver, Washington Limited Tax
5.50% 12/1/25 (AMBAC) 1,250,000 1,417,288
-----------
4,901,975
-----------
Dedicated Tax & Fees Revenue Bonds - 5.40%
Jacksonville, Florida Sales Tax Revenue
5.00% 10/1/30 (MBIA) 1,000,000 991,890
New York City, New York Transitional
Finance Authority Future Tax Secured
Series D 5.00% 2/1/27 1,500,000 1,478,565
Tampa, Florida Sports Authority Revenue
(Tampa Bay Arena Project) Sales Tax
5.75% 10/1/20 (MBIA) 1,000,000 1,130,570
-----------
3,601,025
-----------
Higher Education Revenue Bonds - 4.81%
Amherst, New York Industrial Agency
Civic Facilities Revenue (UBF Faculty
Student Housing) Series A
5.75% 8/1/30 (AMBAC) 1,300,000 1,395,069
Massachusetts State Development
Finance Agency Revenue
(Massachusetts College of Pharmacy)
Series C 5.75% 7/1/33 500,000 490,515
Massachusetts State Industrial Finance
Agency Revenue Higher Education
(Clark University Project) 6.10% 7/1/16 1,250,000 1,321,763
-----------
3,207,347
-----------
Hospital Revenue Bonds - 6.97%
Cuyahoga County, Ohio Revenue
(Cleveland Clinic Health Systems)
Series A 5.50% 1/1/29 1,000,000 1,007,860
Knox County, Tennessee Health,
Educational & Housing Facilities
Board Hospital Revenue
(East Tennessee Hospital Project)
Series B 5.75% 7/1/33 1,000,000 999,200
Maryland State Health & Higher
Educational Facilities Authority
Revenue (Sheppard Pratt) Series A
5.25% 7/1/35 500,000 492,810
New Jersey Health Care Facilities
Financing Authority Revenue Health
Systems (Catholic Health East Project)
Series A 5.375% 11/15/33 900,000 891,288
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Hospital Revenue Bonds (continued)
Tangipahoa Parish, Louisiana Hospital
Service District #1 Hospital Revenue
(North Oaks Medical Center Project)
Series A 5.00% 2/1/25 $1,330,000 $ 1,258,685
-----------
4,649,843
-----------
Investor Owned Utilities Revenue Bonds - 15.62%
Forsyth, Montana Pollution Control
Revenue (Puget Sound Energy)
Series A 5.00% 3/1/31 (AMBAC) 1,000,000 991,870
Luzerne County, Pennsylvania Industrial
Development Authority Exempt
Facilities (Pennsylvania
Gas & Water Co. Project) Series A
7.00% 12/1/17 (AMBAC) (AMT) 1,000,000 1,081,150
Mason County, West Virginia Pollution
Control Revenue (Appalachian
Power Co. Project) Series K
6.05% 12/1/24 (AMBAC) 3,000,000 3,300,240
Petersburg, Indiana Pollution Control
Revenue (Indianapolis Power & Light
Co. Project) 6.375% 11/1/29 (AMT) 750,000 684,008
Salem County, New Jersey Industrial
Pollution Control Financing Authority
(Public Service Electric & Gas Co.)
Series D 6.55% 10/1/29 (MBIA) 3,600,000 3,850,847
South Carolina Jobs Economic
Development Authority Industrial
Revenue (South Carolina Electric &
Gas Co. Project) Series B
5.45% 11/1/32 (AMBAC) (AMT) 500,000 506,005
-----------
10,414,120
-----------
Multi Family Housing Revenue Bonds - 9.14%
Franklin County, Ohio Multi Family
Revenue (Alger Green) Series A
5.80% 5/20/44 (GNMA) (AMT) 1,150,000 1,171,310
Illinois Development Finance Authority
Revenue (Section 8) Series A
5.80% 7/1/28 (FHA) (MBIA) 2,790,000 2,869,040
Illinois Housing Development Authority
Multi Family Revenue
(Crystal Lake Preservation)
Series A-1 5.80% 12/20/41 (GNMA) 2,000,000 2,055,160
-----------
6,095,510
-----------
Municipal Lease Revenue Bonds - 1.64%
Alexandria, Virginia Industrial
Development Authority Revenue
(Institute for Defense Analyses)
Series A 5.90% 10/1/30 (AMBAC) 1,000,000 1,096,460
-----------
1,096,460
-----------
*Pre-Refunded Bonds - 15.24%
Michigan State Hospital Finance
Authority Revenue (Genesys Health
Systems) Series A 7.50% 10/1/27-05 1,500,000 1,688,520
Regional Transportation Authority
Illinois Revenue Series D
6.75% 6/1/25-04 (FGIC) 7,970,000 8,473,545
-----------
10,162,065
-----------
13
Statements Delaware Tax-Free Insured Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Public Utility District Revenue Bonds - 7.97%
Austin, Texas Revenue Subordinate Lien
5.25% 5/15/20 (MBIA) $5,000,000 $ 5,318,500
-----------
5,318,500
-----------
School District General Obligation Bonds - 4.55%
Brookville, Ohio Local School District
5.00% 12/1/26 (FSA) 750,000 750,840
Jackson, Ohio Local School District
(Stark & Summit Counties)
School Facilities 5.625% 12/1/25 (FSA) 1,000,000 1,059,570
Pomona, California United School
District Series A 6.55% 8/1/29 (MBIA) 1,000,000 1,224,610
-----------
3,035,020
-----------
Single Family Housing Revenue Bonds - 1.55%
New Mexico Mortgage Finance Authority
Single Family Mortgage Program
Series C 6.20% 7/1/26 (FNMA) (GNMA) 1,000,000 1,032,310
-----------
1,032,310
-----------
Territorial General Obligation Bonds - 1.67%
Puerto Rico Commonwealth Public
Improvement Series A
5.50% 7/1/19 (MBIA) 1,000,000 1,111,740
-----------
1,111,740
-----------
Territorial Revenue Bonds - 7.10%
Puerto Rico Commonwealth Highway &
Transportation Authority Series E
5.50% 7/1/17 (FSA) 1,250,000 1,401,675
5.50% 7/1/19 (FSA) 3,000,000 3,335,220
-----------
4,736,895
-----------
Turnpike/Toll Road Revenue Bonds - 1.66%
New Jersey State Highway Authority
Garden State Parkway General
Revenue 5.50% 1/1/16 (FGIC) 1,000,000 1,108,340
-----------
1,108,340
-----------
Total Municipal Bonds (cost $60,286,136) 63,461,010
-----------
- --------------------------------------------------------------------------------
**Variable Rate Demand Notes - 1.50%
- --------------------------------------------------------------------------------
Hospital Revenue Bonds - 1.50%
Cumberland, Pennsylvania Municipal
Authority Revenue (Missiah Village
Project) 0.87% 7/1/27
(LOC Citizens Bank of Pennsylvania) 1,000,000 1,000,000
-----------
Total Variable Rate Demand Notes
(cost $1,000,000) 1,000,000
-----------
Total Market Value of Securities - 96.65%
(cost $61,286,136) 64,461,010
Receivables and Other Assets
Net of Liabilities - 3.35% 2,231,441
-----------
Net Assets Applicable to 6,131,182
Shares Outstanding - 100.00% $66,692,451
===========
- --------------------------------------------------------------------------------
Net Asset Value - Delaware Tax-Free Insured Fund
Class A ($57,629,701 / 5,298,032 Shares) $10.88
------
Net Asset Value - Delaware Tax-Free Insured Fund
Class B ($7,614,352 / 699,996 Shares) $10.88
------
Net Asset Value - Delaware Tax-Free Insured Fund
Class C ($1,448,398 / 133,154 Shares) $10.88
------
Components of Net Assets at August 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $64,192,099
Distributions in excess of net investment income (1,520)
Accumulated net realized loss on investments (673,002)
Net unrealized appreciation of investments 3,174,874
-----------
Total net assets $66,692,451
===========
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
**The interest rate shown is the rate as of August 31, 2003.
Summary of Abbreviations:
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
FNMA - Insured by Federal National Mortgage Association
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
Net Asset Value and Offering Price per Share -
Delaware Tax-Free Insured Fund
Net asset value Class A (A) $10.88
Sales charge (4.50% offering price,
or 4.69% of amount invested per share) (B) 0.51
------
Offering price $11.39
======
(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
14
Statements Delaware Tax-Free USA Intermediate Fund
OF NET ASSETS (CONTINUED) August 31, 2003
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 85.90%
- --------------------------------------------------------------------------------
Airport Revenue Bonds - 1.58%
Chicago, Illinois O' Hare International
Airport Revenue General-Airport-
Third Lien Series A-2
5.75% 1/1/20 (FSA)(AMT) $1,000,000 $1,053,710
-----------
1,053,710
-----------
City General Obligation Bonds - 3.90%
New York City, New York Series J
5.50% 6/1/23 1,000,000 1,026,880
Powell, Ohio 5.50% 12/1/25 (FGIC) 1,500,000 1,571,325
-----------
2,598,205
-----------
Corporate-Backed Revenue Bonds - 11.63%
Alliance, Texas Airport Authority Special
Facilities Revenue (Federal Express
Corp. Project) 6.375% 4/1/21 (AMT) 1,000,000 1,046,440
Cartersville, Georgia Development
Authority Waste & Wastewater
Facilities Revenue (Anheuser Busch
Project) 5.10% 2/1/12 (AMT) 450,000 471,794
Michigan State Strategic Funding Limited
Obligation Revenue (Detroit Edison Co.
Project) Series A 5.50% 6/1/30 (XLCA) 1,000,000 1,011,240
Ohio State Air Quality Development
Authority Revenue Environmental
Improvement (USX Project)
5.00% 11/1/15 1,000,000 1,041,450
Pennsylvania Economic Development
Financing Authority Wastewater
Treatment Revenue
(Sun Co. Inc. -R & M Project)
Series A 7.60% 12/1/24 (AMT) 1,000,000 1,052,330
Prattville, Alabama Industrial
Development Board Environmental
Improvement Revenue
(International Paper Co. Project)
Series A 6.70% 3/1/24 1,500,000 1,561,155
Sugar Creek, Missouri Industrial
Development Revenue (Lafarge North
America) Series A 5.65% 6/1/37 500,000 478,430
Toledo, Lucas County, Ohio Port
Authority Development Revenue
(Northwest Ohio Bond Fund-
Alex Products Inc.)
Series B 6.125% 11/15/09
(LOC Fifth Third Bank) (AMT) 1,000,000 1,075,630
-----------
7,738,469
-----------
Dedicated Tax & Fees Revenue Bonds - 3.80%
Ernest N. Morial - New Orleans,
Louisiana Exhibit Hall Authority
Special Tax Senior Subordinate
Series A 5.25% 7/15/28 (AMBAC) 1,000,000 1,015,500
New York City Transitional Finance
Authority Future Tax Secured
Series D 5.00% 2/1/27 1,535,000 1,513,065
-----------
2,528,565
-----------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Escrowed to Maturity Bonds - 0.51%
Metropolitan Pier & Exposition Authority
Illinois Hospitality Facilities
(McCormick Place Convention)
5.75% 7/1/06 $ 315,000 $ 337,494
-----------
337,494
-----------
Higher Education Revenue Bonds - 17.63%
Forest Grove, Oregon Revenue Campus
(Pacific University)
6.30% 5/1/25 (RADIAN) 1,000,000 1,091,009
Illinois Educational Facilities Authority
Student Housing Revenue
(Educational Advancement -University
Center Project) 6.00% 5/1/22 750,000 750,743
Lynchburg, Virginia Industrial
Development Authority Educational
Facilities Revenue (Lynchburg College)
5.25% 9/1/33 1,000,000 974,210
Michigan Higher Education Facilities
Authority Revenue (Kalamazoo
College Project) 5.50% 12/1/19 500,000 519,990
New Jersey State Educational Facilities
Authority Revenue (Georgian Court
College Project) Series C 6.50% 7/1/33 500,000 535,400
New York State Dormitory
Authority Revenues
(Brooklyn Law School) Series A
5.50% 7/1/18 (RADIAN) 1,000,000 1,052,310
(Long Island University) Series B
5.50% 9/1/20 (RADIAN) 1,000,000 1,035,400
Ohio State Higher Educational
Facility Revenue
(John Carroll University)
5.50% 11/15/18 335,000 354,698
(Kenyon College Project)
4.70% 7/1/37 1,000,000 1,004,640
Ohio State University General Receipts
Series B 5.25% 6/1/21 1,000,000 1,033,470
Pennsylvania State Higher Educational
Facilities Authority College &
University Revenue
(Geneva College Project)
6.125% 4/1/22 1,000,000 1,005,230
(Ursinus College Project)
5.90% 1/1/27 1,000,000 1,037,280
University of California Revenue
Series A 5.125% 5/15/20 (AMBAC) 250,000 257,110
University of Oklahoma Research
Facilities 5.00% 3/1/23 (AMBAC) 1,065,000 1,079,889
-----------
11,731,379
-----------
Hospital Revenue Bonds - 12.80%
Carrington, North Dakota Health
Facilities Revenue (Carrington Health
Center Project) 6.25% 11/15/15 500,000 509,360
Chatham County, Georgia Hospital
Authority Revenue (Memorial
Health Medical Center)
Series A 6.125% 1/1/24 1,000,000 1,053,210
15
Statements Delaware Tax-Free USA Intermediate Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Hospital Revenue Bonds (continued)
Cuyahoga County, Ohio Revenue
(Cleveland Clinic Health System)
Series A 6.00% 1/1/21 $1,000,000 $ 1,060,530
Denver, Colorado Health & Hospital
Authority Healthcare Revenue
Series A 6.00% 12/1/31 1,000,000 983,190
Maryland State Health & Higher
Education Facilities Authority
Revenue (Union Hospital of Cecil
County) 5.625% 7/1/32 500,000 504,460
Michigan State Hospital Finance
Authority Revenue (Trinity Health
Credit) Series C 5.375% 12/1/23 500,000 502,490
Minneapolis Health Care System
Revenue (Allina Health System)
Series A 5.75% 11/15/32 500,000 511,250
New Jersey Health Care Facilities
Financing Authority Revenue Health
Systems (Catholic Health East Project)
Series A 5.375% 11/15/33 845,000 836,820
North Texas Health Facilities
Development Corporation Hospital
Revenue (United Regional Health
Care System, Inc. Project)
6.00% 9/1/23 1,000,000 1,013,120
Terrebonne Parish, Louisiana Hospital
Service District #1 Hospital Revenue
(Terrebonne General Medical Center
Project) 5.50% 4/1/33 (AMBAC) 1,500,000 1,547,925
-----------
8,522,355
-----------
Investor Owned Utilities Revenue Bonds - 8.91%
Cambria County, Pennsylvania Industrial
Development Authority Pollution
Control Revenue (Pennsylvania
Electric Co. Project) Series A
5.80% 11/1/20 (MBIA) 500,000 544,835
Forsyth, Montana Pollution Control
Revenue (Portland General)
Series A 5.20% 5/1/33 1,005,000 1,010,065
Maricopa County, Arizona Pollution
Control Corporation Pollution Control
Revenue (El Paso Electric Co. Project)
Series A 6.375% 8/1/15 750,000 775,868
Montgomery County, Pennsylvania
Industrial Development Authority
Pollution Control Revenue (PECO
Energy Co.) Series A 5.20% 10/1/30 1,000,000 1,033,800
Saint Charles Parish, Louisiana Pollution
Control Revenue (Entergy Louisiana,
Inc.) Series A 4.90% 6/1/30 1,000,000 1,030,440
South Carolina Jobs Economic
Development Authority Industrial
Revenue (South Carolina Electric &
Gas Co. Project) Series B
5.45% 11/1/32 (AMBAC) (AMT) 500,000 506,005
West Feliciana Parish, Louisiana Pollution
Control Revenue (Gulf States Utilities
Co. Project) Series A 7.50% 5/1/15 1,000,000 1,027,630
-----------
5,928,643
-----------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Municipal Lease Revenue Bonds - 2.90%
Albany, New York Industrial Development
Agency Civic Facility Revenue
(Charitable Leadership Project)
Series A 5.75% 7/1/26 $ 500,000 $ 497,125
Nelson County, Virginia Industrial
Development Authority Lease
Revenue 5.00% 8/15/22 (AMBAC) 1,425,000 1,436,343
-----------
1,933,468
-----------
Political Subdivision General Obligation Bonds - 1.10%
Lunenburg County, Virginia
Series B 5.25% 2/1/29 (MBIA) 715,000 730,230
-----------
730,230
-----------
Ports & Harbors Revenue Bonds - 0.79%
Virginia Port Authority Commonwealth
Port Fund Revenue Resolution
5.00% 7/1/12 (AMT) 500,000 528,310
-----------
528,310
-----------
*Pre-Refunded Bonds - 3.26%
Arizona State Transportation Board
Highway Revenue 6.25% 7/1/16-09 1,850,000 2,172,455
-----------
2,172,455
-----------
Public Power Revenue Bonds - 4.65%
Long Island Power Authority New York
Electric System Revenue Series C
5.00% 9/1/23 500,000 492,235
5.00% 9/1/27 500,000 481,860
Metropolitan Government Nashville &
Davidson County, Tennessee Electric
Revenue Series B 5.50% 5/15/14 1,000,000 1,116,180
Texas Municipal Power Agency Revenue
4.125% 9/1/12 (MBIA) 1,000,000 1,001,660
-----------
3,091,935
-----------
Recreational Area Revenue Bonds - 1.55%
Hampton, Virginia Convention Center
Revenue 5.25% 1/15/23 (AMBAC) 1,000,000 1,029,420
-----------
1,029,420
-----------
School District General Obligation Bonds - 3.05%
Brookville, Ohio Local School District
5.00% 12/1/26 (FSA) 1,000,000 1,001,120
Licking County, Ohio Joint Vocational
School District 5.00% 12/1/19 (MBIA) 1,000,000 1,028,660
-----------
2,029,780
-----------
Territorial Revenue Bonds - 3.19%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series B 6.00% 7/1/26 1,000,000 1,052,800
University of Puerto Rico Revenue
Series M 5.50% 6/1/15 (MBIA) 1,000,000 1,073,450
-----------
2,126,250
-----------
Turnpike/Toll Road Revenue Bonds - 1.27%
Dunes, Florida Community Development
District Revenue - Intracoastal
Waterway Bridge (ITT Industries Corp.)
5.50% 10/1/07 825,000 844,478
-----------
844,478
-----------
16
Statements Delaware Tax-Free USA Intermediate Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Water & Sewer Revenue Bonds - 3.38%
Ohio State Water Development
Authority Revenue (Fresh Water)
Series B 5.50% 12/1/19 (FSA) $1,000,000 $ 1,106,400
Virginia State Resource Authority
Clean Water Revenue (State
Revolving Fund) 6.00% 10/1/16 1,000,000 1,140,960
-----------
2,247,360
-----------
Total Municipal Bonds (cost $56,017,587) 57,172,506
-----------
- --------------------------------------------------------------------------------
**Variable Rate Demand Notes - 8.86%
- --------------------------------------------------------------------------------
Hospital Revenue Bonds - 3.00%
Cumberland, Pennsylvania Municipal
Authority Revenue (Missiah Village
Project) 0.87% 7/1/27
(LOC Citizens Bank of Pennsylvania) 2,000,000 2,000,000
-----------
2,000,000
-----------
Continuing Care/Retirement Revenue Bonds - 5.86%
Philadelphia, Pennsylvania Authority for
Industrial Development Revenues
(Newcourtland Elder Services Project)
0.85% 3/1/27 (LOC PNC Bank) 3,900,000 3,900,000
-----------
3,900,000
-----------
Total Variable Rate Demand Notes
(cost $5,900,000) 5,900,000
-----------
Total Market Value of Securities - 94.76%
(cost $61,917,587) 63,072,506
Receivables and Other Assets
Net of Liabilities - 5.24% 3,486,895
-----------
Net Assets Applicable to 6,045,392
Shares Outstanding - 100.00% $66,559,401
===========
Net Asset Value - Delaware Tax-Free USA Intermediate Fund
Class A ($51,479,137 / 4,675,681 Shares) $11.01
------
Net Asset Value - Delaware Tax-Free USA Intermediate Fund
Class B ($4,537,829 / 412,162 Shares) $11.01
------
Net Asset Value - Delaware Tax-Free USA Intermediate Fund
Class C ($10,542,435 / 957,549 Shares) $11.01
------
- --------------------------------------------------------------------------------
Components of Net Assets at August 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $65,990,369
Accumulated net realized loss on investments (585,887)
Net unrealized appreciation of investments 1,154,919
-----------
Total net assets $66,559,401
===========
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
**The interest rate shown is the rate as of August 31, 2003.
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
LOC - Letter of Credit
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 USA Intermediate Fund
Net asset value Class A (A) $11.01
Sales charge (2.75% of offering price,
or 2.82% of amount invested per share) (B) 0.31
------
Offering price $11.32
======
(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 National High-Yield Municipal Bond Fund
OF NET ASSETS (CONTINUED) August 31, 2003
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 100.11%
- --------------------------------------------------------------------------------
Airline Revenue Bonds - 1.50%
Minneapolis & St. Paul, Minnesota
Metropolitan Airports Commission
Special Facilities Revenue
(Northwest Airlines, Inc.) Series A
7.00% 4/1/25 (AMT) $ 500,000 $ 415,060
New Jersey Economic Development
Authority Special Facilities Revenue
(Continental Airlines, Inc.)
6.25% 9/15/19 1,000,000 808,070
-----------
1,223,130
-----------
Airport Revenue Bonds - 2.98%
New York City, New York Industrial
Development (JFK Airis Project)
5.50% 7/1/28 (AMT) 905,000 836,890
Oklahoma City, Oklahoma Industrial &
Cultural Facilities Subordinated
(Air Cargo Project) 6.75% 1/1/23 1,160,000 1,094,866
Onondaga County, New York Industrial
Development Authority Revenue
Subordinated (Air Cargo Project)
7.25% 1/1/32 (AMT) 500,000 500,435
-----------
2,432,191
-----------
Continuing Care/Retirement Revenue Bonds - 7.98%
Bexar County, Texas Health Facilities
Development Corporation
(Army Retirement Residence Project)
6.30% 7/1/32 1,000,000 1,012,240
Buhl, Minnesota Nursing Home Revenue
(Forest Health Services Project)
Series A 6.75% 8/1/33 600,000 583,452
Gainesville & Hall County, Georgia
Development Authority Revenue
(Lanier Village Estates) Series C
7.25% 11/15/29 1,000,000 980,320
Marion County, Missouri Nursing Home
District Revenue 7.00% 8/1/13 1,050,000 1,053,833
Montgomery County, Pennsylvania
Higher Education & Health Authority
Revenue (Faulkeways at Gwynedd
Project) 6.75% 11/15/30 1,000,000 1,042,970
Philadelphia, Pennsylvania Hospitals &
Higher Education Facilities Authority
Revenue (The Philadelphia Protestant
Home Project) Series A 6.50% 7/1/27 1,100,000 1,078,472
+Vermont Education & Health Building
Financing Agency Revenue Health
Care Facility (Copley Manor Project)
6.15% 4/1/19 1,730,000 767,584
-----------
6,518,871
-----------
Corporate-Backed Revenue Bonds - 10.52%
Alliance, Texas Airport Authority Special
Facilities Revenue (Federal Express
Corp.) 6.375% 4/1/21 (AMT) 2,000,000 2,092,880
Ashland, Kentucky Sewer & Solid Waste
Revenue (Ashland, Inc.)
7.125% 2/1/22 (AMT) 700,000 736,477
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Corporate-Backed Revenue Bonds (continued)
+California Pollution Control Financing
Authority Pollution Control Revenue
(Laidlaw Environmental, Inc. Project)
Series A 6.70% 7/1/07 (AMT) $1,000,000 $ 44,500
Camden, Alabama Industrial
Development Board Exempt Facilities
Revenue (Weyerhaeuser Co.)
Series B 6.375% 12/1/24 (AMT) 1,000,000 1,014,000
De Soto Parish, Louisiana Environmental
Improvement Revenue (International
Paper Co.) Series A 6.35% 2/1/25 (AMT) 1,650,000 1,672,061
Phenix County, Alaska Industrial
Development Board Environmental
Improvement Revenue
(Mead Westvaco Corp.)
Series A 6.35% 5/15/35 (AMT) 1,000,000 1,012,540
Port Corpus, Texas Christian Authority
(Celanese Project) Series B
6.70% 11/1/30 (AMT) 1,000,000 1,046,460
Virginia Beach, Virginia Development
Authority Revenue Refunding (Ramada
on the Beach Project) 6.625% 12/1/09 1,000,000 967,990
-----------
8,586,908
-----------
Dedicated Tax & Fees Revenue Bonds - 3.21%
Chicago, Illinois Tax Increment
Subordinate (Central Loop
Redevelopment Project) Series A
6.50% 12/1/08 1,000,000 1,073,970
Las Vegas, Nevada Local Improvement
Special District #808 (Summerlin
Area Project) 6.75% 6/1/21 995,000 1,027,148
Prescott Valley, Arizona Improvement
District Special Assessment
7.90% 1/1/12 500,000 518,775
-----------
2,619,893
-----------
Escrowed to Maturity Bonds - 0.53%
Illinois State Development Finance
Authority (Harrisburg Medical Center
Project) 7.00% 3/1/06 400,000 435,108
-----------
435,108
-----------
Higher Education Revenue Bonds - 20.30%
California Statewide Communities
Revenue Authority (East Campus
Apartments LLC) Series A
5.625% 8/1/34 (ACA) 500,000 503,565
Illinois Educational Facilities Authority
Student Housing Revenue
(Educational Advancement Fund-
University Center Project)
6.25% 5/1/30 2,000,000 2,023,640
Lynchburg, Virginia Industrial
Development Authority
Educational Facilities Revenue
(Lynchburg College) 5.25% 9/1/28 1,000,000 980,220
Maine Finance Authority Education
Revenue (Waynflete School)
6.40% 8/1/19 1,000,000 1,048,290
18
Statements Delaware National High-Yield Municipal Bond Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Higher Education Revenue Bonds (continued)
Maryland State Economic Development
Corporation Student Housing
Revenue (University of Maryland
College Park Project) 5.625% 6/1/35 $1,000,000 $ 953,350
Massachusetts State Development
Finance Agency Revenue
(Massachusetts College of Pharmacy)
Series C 5.75% 7/1/33 2,000,000 1,962,060
Massachusetts State Health &
Educational Facilities Authority
Revenue (Nichols College) Series C
6.125% 10/1/29 3,000,000 2,589,719
Minnesota State Higher Education
Facilities Authority Revenue
(College of Art & Design)
Series 5-D 6.75% 5/1/26 500,000 535,185
New Hampshire Higher Education &
Health Facilities Authority
(Brewster Academy) 6.75% 6/1/25 1,000,000 997,040
New Mexico Educational Assistance
Foundation Student Loan Revenue
1st Subordinate Series A-2
6.65% 11/1/25 (AMT) 1,000,000 1,000,870
Savannah, Georgia Economic
Development Authority Revenue
(College of Art & Design)
6.50% 10/1/13 1,000,000 1,068,220
Scranton-Lackawanna, Pennsylvania
Health & Welfare Authority First
Mortgage Revenue
(Lackawanna Junior College)
5.75% 11/1/20 1,510,000 1,447,124
Westminster, Maryland Education
Facilities Revenue (McDaniel College)
5.50% 4/1/32 1,500,000 1,460,925
-----------
16,570,208
-----------
Hospital Revenue Bonds - 20.12%
Cuyahoga County, Ohio Revenue
(Cleveland Clinic Health Systems)
Series A 5.50% 1/1/29 1,000,000 1,007,860
Illinois Health Facilities
Authority Revenue
(Elmhurst Memorial Healthcare)
5.625% 1/1/28 2,000,000 1,971,159
(Midwest Physician Group Limited
Project) 5.50% 11/15/19 35,000 27,509
Knox County, Tennessee Health,
Educational & Housing Facilities
Board Hospital Revenue
(East Tennessee Hospital Project)
Series B 5.75% 7/1/33 1,300,000 1,298,960
Leesburg, Florida Hospital Revenue
(Leesburg Regional Medical Center
Project) 5.50% 7/1/32 1,000,000 994,900
Macomb County, Michigan Hospital
Finance Authority Revenue
(Mt. Clemens General Hospital)
Series B 5.875% 11/15/34 1,000,000 944,760
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Hospital Revenue Bonds (continued)
Massachusetts State Health &
Educational Facilities Authority
Revenue (Jordan Hospital)
Series E 6.75% 10/1/33 $1,000,000 $ 959,770
Montgomery County, Pennsylvania
Higher Education & Health Authority
Hospital Revenue (Abington Memorial
Hospital) Series A 5.125% 6/1/32 900,000 849,591
New Jersey Health Care Facilities
Financing Authority Revenue Health
Systems (Catholic Health East Project)
Series A 5.375% 11/15/33 1,000,000 990,320
New York State Dormitory
Authority Revenue
(North Shore Long Island Jewish
Group) 5.50% 5/1/33 500,000 502,940
(Winthrop University Hospital)
Series A 5.50% 7/1/32 1,000,000 1,001,800
Richland County, Ohio Hospital Facilities
Revenue (Medcentral Health System
Project) Series B 6.375% 11/15/30 1,500,000 1,567,665
Saint Joseph County, Indiana Industrial
Economic Development (Madison
Center Project) 5.50% 2/15/21 1,150,000 1,098,204
South Dakota Health & Education
Facilities Authority Revenue (Huron
Regional Medical Center Project)
7.00% 4/1/10 1,000,000 1,034,690
Tangipahoa Parish, Louisiana Hospital
Service District #1 Hospital Revenue
(North Oaks Medical Center Project)
Series A 5.00% 2/1/30 1,250,000 1,169,175
Yavapai County, Arizona Industrial
Development Authority Hospital
Revenue (Yavapai Medical Center)
Series A 6.00% 8/1/33 1,000,000 1,004,020
-----------
16,423,323
-----------
Investor Owned Utilities Revenue Bonds - 11.10%
Brazos, Texas River Authority Pollution
Revenue (TXU Energy Co. Project)
Series B 6.30% 7/1/32 (AMT) 1,000,000 990,700
Forsyth, Montana Pollution Control
Revenue (Portland General)
Series A 5.20% 5/1/33 1,000,000 1,005,040
Gulf Coast, Texas Waste Disposal
Authority Revenue (Valero Energy
Project) 6.65% 4/1/32 (AMT) 1,000,000 1,014,270
Maricopa County, Arizona Pollution
Control Corporation Pollution
Control Revenue (El Paso Electric Co.
Project) Series A 6.375% 8/1/15 1,250,000 1,293,113
Midland County, Michigan Economic
Development Subordinate Limited
Obligation (Midland Congeneration)
Series A 6.875% 7/23/09 (AMT) 1,950,000 1,934,497
Mississippi Business Finance
Corporation Pollution Control
Revenue (System Energy Resources,
Inc. Project) 5.90% 5/1/22 900,000 887,895
19
Statements Delaware National High-Yield Municipal Bond Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Investor Owned Utilities Revenue Bonds (continued)
Petersburg, Indiana Pollution Control
Revenue (Indianapolis Power & Light
Co. Project) 6.375% 11/1/29 (AMT) $1,000,000 $ 912,010
West Feliciana Parish, Louisiana
Pollution Control Revenue (Gulf
States Utilities Co. Project)
Series A 7.50% 5/1/15 1,000,000 1,027,630
----------
9,065,155
----------
Miscellaneous Revenue Bonds - 2.86%
Director State, Nevada Department of
Business & Industry
(Las Vegas Monorail Project) 2nd Tier
7.375% 1/1/40 1,000,000 933,999
Lowry, Colorado Economic
Redevelopment Authority Revenue
Series A (Private Placement)
7.30% 12/1/10 725,000 767,790
Massachusetts State Development
Finance Agency Revenue (Boston
Biomedical Research Institute Project)
5.75% 2/1/29 300,000 281,583
Westminster, Colorado Shaw Heights
Special Improvement District
Series A 7.50% 12/1/07 350,000 353,259
-----------
2,336,631
-----------
Municipal Lease Revenue Bonds - 2.32%
Dauphin County, Pennsylvania General
Authority (Riverfront Office & Parking
Project) Series A 5.75% 1/1/10 1,875,000 1,894,913
-----------
1,894,913
-----------
Political Subdivision General Obligation Bonds - 1.47%
Illinois State Development Finance
Authority East St. Louis Debt
Restructure Revenue 7.375% 11/15/11 1,100,000 1,197,438
-----------
1,197,438
-----------
*Pre-Refunded Bonds - 11.33%
Bedford Park, Illinois Tax Increment
Revenue 8.00% 12/1/10-04 1,200,000 1,301,676
Chelsea, Oklahoma Gas Authority
Revenue Gas Systems
7.25% 7/1/13-04 600,000 642,792
7.30% 7/1/19-04 700,000 750,218
Illinois Health Facilities Authority
Revenue (Midwest Physician Group
Project) 8.10% 11/15/14-04 850,000 922,760
Illinois State Development Finance
Authority (Harrisburg Medical Center
Project) 7.20% 3/1/07-06 to 3/1/08-06 800,000 872,584
Mississippi Development Bank Special
Obligation (Madison County Hospital
Project) 6.40% 7/1/29-09 1,585,000 1,891,159
Niles, Illinois Park District Unlimited Tax
Series A 6.65% 12/1/14-04 860,000 919,572
Pocatello, Idaho Development Authority
Revenue Allocation Tax Increment
Series B 7.25% 12/1/08-04 30,000 31,600
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
*Pre-Refunded Bonds (continued)
South Dakota Health & Education
Facilities Authority Revenue
(Westhills Village Retirement Project)
7.25% 9/1/13-03 $1,125,000 $ 1,147,860
Volusia County, Florida Industrial
Development Authority Mortgage
Revenue (Bishops Glen Retirement
Health Facilities Project)
7.50% 11/1/16-06 680,000 771,100
-----------
9,251,321
-----------
Recreational Area Revenue Bonds - 0.95%
+Colorado Postsecondary Educational
Facilities Authority (Colorado Ocean
Journey, Inc. Project) 8.00% 12/1/06 800,000 25,200
Santa Fe, New Mexico Municipal
Recreation Complex Net Revenue
5.625% 12/1/23 800,000 753,408
-----------
778,608
-----------
Tax Increment/Special Assessment Bonds - 1.37%
Chicago Tax Allocation Chatham Ridge
5.95% 12/15/12 750,000 745,957
Orlando, Florida Special Assessment
(Conroy Road Interchange Project)
Series B 5.25% 5/1/05 370,000 369,941
-----------
1,115,898
-----------
Water & Sewer Revenue Bonds - 1.57%
Franklin County, Missouri Public Water
Supply District #3 (Waterworks &
Sewer System Project) Series B
7.375% 12/1/18 1,255,000 1,285,522
-----------
1,285,522
-----------
Total Municipal Bonds
(cost $82,824,145) 81,735,118
-----------
Total Market Value of Securities - 100.11%
(cost $82,824,145) 81,735,118
Liabilities Net of Receivables and
Other Assets - (0.11%) (88,829)
-----------
Net Assets Applicable to 8,381,535
Shares Outstanding - 100.00% $81,646,289
===========
Net Asset Value - Delaware National High-Yield
Municipal Bond Fund Class A
($59,829,247 / 6,146,005 Shares) $9.73
-----
Net Asset Value - Delaware National High-Yield
Municipal Bond Fund Class B
($16,498,726 / 1,691,054 Shares) $9.76
-----
Net Asset Value - Delaware National High-Yield
Municipal Bond Fund Class C
($5,318,316 / 544,476 Shares) $9.77
-----
20
Statements Delaware National High-Yield Municipal Bond Fund
OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
Components of Net Assets at August 31, 2003:
Shares of beneficial interest
(unlimited authorization - no par) $88,779,980
Distributions in excess of net investment income (4,104)
Accumulated net realized loss on investments (6,040,560)
Net unrealized depreciation of investments (1,089,027)
-----------
Total net assets $81,646,289
===========
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
+Non-income producing security. Security is currently in default.
Summary of Abbreviations:
ACA - Insured by American Capital Access
AMT - Subject to Alternative Minimum Tax
Net Asset Value and Offering Price per Share -
Delaware National High-Yield Municipal Bond Fund
Net asset value Class A (A) $ 9.73
Sales charge (4.50% of offering price,
or 4.73% of amount invested per share) (B) 0.46
------
Offering price $10.19
======
(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
21
Statement Delaware Tax-Free USA Intermediate Fund
OF ASSETS AND LIABILITIES August 31, 2003
Assets:
Investments at market $63,072,506
Cash 2,640,733
Receivables for securities sold 970,852
Subscriptions receivable 743,462
Interest receivable 695,787
------------
Total assets 68,123,340
------------
Liabilities:
Payable for securities purchased 1,285,285
Liquidations payable 191,276
Distributions payable 53,876
Other accounts payable and accrued expenses 33,502
------------
Total liabilities 1,563,939
------------
Total Net Assets $66,559,401
============
Investments at cost $61,917,587
============
See accompanying notes
22
Statements Delaware National Tax-Free Funds
OF OPERATIONS Year Ended August 31, 2003
Delaware Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free USA National High-Yield
USA Fund Insured Fund Intermediate Fund Municipal Bond Fund
Investment Income:
Interest $29,349,724 $3,609,678 $2,182,834 $5,465,736
----------- ---------- ---------- ----------
Expenses:
Management fees 2,867,232 349,198 235,080 477,529
Distribution expenses -- Class A 1,072,121 134,027 98,506 156,874
Distribution expenses -- Class B 346,032 75,093 42,055 180,792
Distribution expenses -- Class C 57,446 13,880 77,738 60,309
Dividend disbursing and transfer agent fees and expenses 423,710 46,835 85,930 63,233
Accounting and administration expenses 233,304 31,103 20,763 38,691
Reports and statements to shareholders 129,547 12,163 12,775 25,375
Professional fees 59,831 7,049 6,453 54,032
Registration fees 50,437 21,497 30,590 11,819
Trustees' fees 25,708 5,484 4,675 4,066
Custodian fees 25,563 2,654 2,208 4,233
Other 135,739 19,047 10,811 22,247
----------- ---------- ---------- ----------
5,426,670 718,030 627,584 1,099,200
Less expenses absorbed or waived (521,256) -- (101,832) (51,864)
Less waived distribution expenses--Class A -- -- (46,530) --
Less expenses paid indirectly (26,378) (3,647) (2,637) (5,344)
----------- ---------- ---------- ----------
Total expenses 4,879,036 714,383 476,585 1,041,992
----------- ---------- ---------- ----------
Net Investment Income 24,470,688 2,895,295 1,706,249 4,423,744
----------- ---------- ---------- ----------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments 7,454,521 304,202 (54,314) (1,654,101)
Net change in unrealized appreciation/depreciation of investments (12,187,465) (1,233,636) (476,271) (294,293)
----------- ---------- ---------- ----------
Net Realized and Unrealized Loss on Investments (4,732,944) (929,434) (530,585) (1,948,394)
----------- ---------- ---------- ----------
Net Increase in Net Assets Resulting from Operations $19,737,744 $1,965,861 $1,175,664 $2,475,350
=========== ========== ========== ==========
See accompanying notes
23
Statements Delaware National Tax-Free Funds
OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware Tax-Free
USA Fund 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 $ 24,470,688 $ 26,930,788 $ 2,895,295 $ 3,067,465
Net realized gain on investments 7,454,521 10,785,281 304,202 1,088,612
Net change in unrealized appreciation/depreciation of investments (12,187,465) (12,813,884) (1,233,636) (686,560)
------------ ------------ ------------ -----------
Net increase in net assets resulting from operations 19,737,744 24,902,185 1,965,861 3,469,517
------------ ------------ ------------ -----------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (22,879,537) (25,066,192) (2,586,809) (2,719,161)
Class B (1,369,010) (1,653,588) (260,356) (292,488)
Class C (227,290) (255,350) (48,130) (55,816)
------------ ------------ ------------ -----------
(24,475,837) (26,975,130) (2,895,295) (3,067,465)
------------ ------------ ------------ -----------
Capital Share Transactions:
Proceeds from shares sold:
Class A 25,026,196 22,761,228 8,186,170 3,558,679
Class B 1,727,675 3,162,181 1,748,052 1,515,335
Class C 865,681 996,252 506,312 217,917
Net assets from merger(1):
Class A -- 19,974,956 -- --
Class B -- 1,060,827 -- --
Class C -- 348,890 -- --
Net asset value of shares issued upon reinvestment of dividends
and distributions:
Class A 12,394,890 13,483,213 1,477,059 1,539,402
Class B 725,739 860,313 162,588 170,589
Class C 177,751 199,476 23,909 29,413
------------ ------------ ------------ -----------
40,917,932 62,847,336 12,104,090 7,031,335
------------ ------------ ------------ -----------
Cost of shares repurchased:
Class A (67,824,944) (54,216,358) (11,615,063) (7,468,327)
Class B (8,584,064) (6,773,913) (1,848,762) (1,573,281)
Class C (1,452,089) (1,996,463) (546,998) (355,200)
------------ ------------ ------------ -----------
(77,861,097) (62,986,734) (14,010,823) (9,396,808)
------------ ------------ ------------ -----------
Decrease in net assets derived from capital share transactions (36,943,165) (139,398) (1,906,733) (2,365,473)
------------ ------------ ------------ -----------
Net Decrease in Net Assets (41,681,258) (2,212,343) (2,836,167) (1,963,421)
Net Assets:
Beginning of year 539,158,626 541,370,969 69,528,618 71,492,039
------------ ------------ ------------ -----------
End of year $497,477,368 $539,158,626 $ 66,692,451 $69,528,618
============ ============ ============ ===========
See accompanying notes
(1) See footnote 6
24
Statements Delaware National Tax-Free Funds
OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware National High-Yield
USA Intermediate Fund Municipal Bond 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 $ 1,706,249 $ 1,268,191 $ 4,423,744 $ 5,015,945
Net realized gain (loss) on investments (54,314) 105,927 (1,654,101) (388,338)
Net change in unrealized appreciation/depreciation of investments (476,271) 476,320 (294,293) (2,487,030)
----------- ----------- ----------- -----------
Net increase in net assets resulting from operations 1,175,664 1,850,438 2,475,350 2,140,577
----------- ----------- ----------- -----------
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (1,341,628) (980,249) (3,324,824) (3,775,121)
Class B (128,415) (100,071) (832,210) (925,482)
Class C (236,206) (187,871) (274,313) (312,626)
----------- ----------- ----------- -----------
(1,706,249) (1,268,191) (4,431,347) (5,013,229)
----------- ----------- ----------- -----------
Capital Share Transactions:
Proceeds from shares sold:
Class A 35,622,367 12,248,688 5,184,316 4,070,299
Class B 2,234,615 1,961,013 850,254 2,162,129
Class C 6,248,865 4,652,985 607,442 1,327,090
Net asset value of shares issued upon reinvestment of dividends
and distributions:
Class A 886,165 639,081 1,665,630 1,939,219
Class B 76,567 55,629 379,309 441,369
Class C 130,199 93,876 164,468 196,408
----------- ----------- ----------- -----------
45,198,778 19,651,272 8,851,418 10,136,514
----------- ----------- ----------- -----------
Cost of shares repurchased:
Class A (10,697,739) (6,695,821) (9,870,105) (15,659,205)
Class B (1,165,571) (1,042,597) (4,329,630) (2,302,729)
Class C (2,995,414) (1,184,753) (1,734,418) (2,098,684)
----------- ----------- ----------- -----------
(14,858,724) (8,923,171) (15,934,153) (20,060,618)
----------- ----------- ----------- -----------
Increase (decrease) in net assets derived from capital share transactions 30,340,054 10,728,101 (7,082,735) (9,924,104)
----------- ----------- ----------- -----------
Net Increase (Decrease) in Net Assets 29,809,469 11,310,348 (9,038,732) (12,796,756)
Net Assets:
Beginning of year 36,749,932 25,439,584 90,685,021 103,481,777
----------- ----------- ----------- -----------
End of year $66,559,401 $36,749,932 $81,646,289 $90,685,021
=========== =========== =========== ===========
See accompanying notes
25
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free USA 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 $11.280 $11.320 $10.830 $10.890 $11.830
Income (loss) from investment operations:
Net investment income 0.537 0.566 0.582 0.587 0.593
Net realized and unrealized gain (loss) on investments (0.110) (0.040) 0.490 (0.060) (0.916)
------- ------- ------- ------- -------
Total from investment operations 0.427 0.526 1.072 0.527 (0.323)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.537) (0.566) (0.582) (0.587) (0.593)
Net realized gain on investments -- -- -- -- (0.024)
------- ------- ------- ------- -------
Total dividends and distributions (0.537) (0.566) (0.582) (0.587) (0.617)
------- ------- ------- ------- -------
Net asset value, end of period $11.170 $11.280 $11.320 $10.830 $10.890
======= ======= ======= ======= =======
Total return(1) 3.84% 4.85% 10.19% 5.11% (2.90%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $460,917 $495,731 $495,597 $421,136 $485,240
Ratio of expenses to average net assets 0.87% 0.87% 0.88% 0.97% 1.00%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 0.97% 0.98% 0.89% 0.97% 1.00%
Ratio of net investment income to average net assets 4.74% 5.08% 5.29% 5.54% 5.13%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.64% 4.97% 5.28% 5.54% 5.13%
Portfolio turnover 96% 99% 103% 76% 59%
(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 a decrease in
net investment income per share of $0.001, an increase in net realized and
unrealized gain (loss) per share of $0.001, and a decrease in the ratio of
net investment income to average net assets of 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
26
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free USA 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 $11.280 $11.320 $10.830 $10.890 $11.830
Income (loss) from investment operations:
Net investment income 0.449 0.479 0.494 0.502 0.500
Net realized and unrealized gain (loss) on investments (0.110) (0.040) 0.490 (0.060) (0.916)
------- ------- ------- ------- -------
Total from investment operations 0.339 0.439 0.984 0.442 (0.416)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.449) (0.479) (0.494) (0.502) (0.500)
Net realized gain on investments -- -- -- -- (0.024)
------- ------- ------- ------- -------
Total dividends and distributions (0.449) (0.479) (0.494) (0.502) (0.524)
------- ------- ------- ------- -------
Net asset value, end of period $11.170 $11.280 $11.320 $10.830 $10.890
======= ======= ======= ======= =======
Total return(1) 3.03% 4.04% 9.32% 4.27% (3.67%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $31,052 $37,448 $39,317 $26,059 $34,249
Ratio of expenses to average net assets 1.65% 1.65% 1.68% 1.77% 1.80%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.75% 1.76% 1.69% 1.77% 1.80%
Ratio of net investment income to average net assets 3.96% 4.30% 4.49% 4.74% 4.33%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.86% 4.19% 4.48% 4.74% 4.33%
Portfolio turnover 96% 99% 103% 76% 59%
(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 a decrease in
net investment income per share of $0.001, an increase in net realized and
unrealized gain (loss) per share of $0.001, and a decrease in the ratio of
net investment income to average net assets of 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
27
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free USA 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 $11.280 $11.320 $10.830 $10.890 $11.830
Income (loss) from investment operations:
Net investment income 0.449 0.479 0.494 0.502 0.500
Net realized and unrealized gain (loss) on investments (0.110) (0.040) 0.490 (0.060) (0.916)
------- ------- ------- ------- -------
Total from investment operations 0.339 0.439 0.984 0.442 (0.416)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.449) (0.479) (0.494) (0.502) (0.500)
Net realized gain on investments -- -- -- -- (0.024)
------- ------- ------- ------- -------
Total dividends and distributions (0.449) (0.479) (0.494) (0.502) (0.524)
------- ------- ------- ------- -------
Net asset value, end of period $11.170 $11.280 $11.320 $10.830 $10.890
======= ======= ======= ======= =======
Total return(1) 3.03% 4.04% 9.32% 4.27% (3.67%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $5,508 $5,979 $6,457 $1,851 $3,415
Ratio of expenses to average net assets 1.65% 1.65% 1.68% 1.77% 1.80%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.75% 1.76% 1.69% 1.77% 1.80%
Ratio of net investment income to average net assets 3.96% 4.30% 4.49% 4.74% 4.33%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.86% 4.19% 4.48% 4.74% 4.33%
Portfolio turnover 96% 99% 103% 76% 59%
(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 a decrease in
net investment income per share of $0.001, an increase in net realized and
unrealized gain (loss) per share of $0.001, and a decrease in the ratio of
net investment income to average net assets of 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
28
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free Insured Fund Class A
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/03 8/31/02 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.020 $10.950 $10.390 $10.360 $11.150
Income (loss) from investment operations:
Net investment income 0.473 0.487 0.483 0.513 0.510
Net realized and unrealized gain (loss) on investments (0.140) 0.070 0.560 0.030 (0.667)
------- ------- ------- ------- -------
Total from investment operations 0.333 0.557 1.043 0.543 (0.157)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.473) (0.487) (0.483) (0.513) (0.510)
Net realized gain on investments -- -- -- -- (0.123)
------- ------- ------- ------- -------
Total dividends and distributions (0.473) (0.487) (0.483) (0.513) (0.633)
------- ------- ------- ------- -------
Net asset value, end of period $10.880 $11.020 $10.950 $10.390 $10.360
======= ======= ======= ======= =======
Total return(1) 3.02% 5.27% 10.30% 5.50% (1.48%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $57,630 $60,365 $62,397 $61,722 $68,422
Ratio of expenses to average net assets 0.92% 0.92% 1.02% 0.95% 0.97%
Ratio of net investment income to average net assets 4.25% 4.51% 4.58% 5.07% 4.74%
Portfolio turnover 109% 136% 113% 117% 48%
(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.
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 Insured Fund Class B
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/03 8/31/02 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.020 $10.950 $10.390 $10.360 $11.150
Income (loss) from investment operations:
Net investment income 0.386 0.403 0.399 0.432 0.430
Net realized and unrealized gain (loss) on investments (0.140) 0.070 0.560 0.030 (0.667)
------- ------- ------- ------- -------
Total from investment operations 0.246 0.473 0.959 0.462 (0.237)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.386) (0.403) (0.399) (0.432) (0.430)
Net realized gain on investments -- -- -- -- (0.123)
------- ------- ------- ------- -------
Total dividends and distributions (0.386) (0.403) (0.399) (0.432) (0.553)
------- ------- ------- ------- -------
Net asset value, end of period $10.880 $11.020 $10.950 $10.390 $10.360
======= ======= ======= ======= =======
Total return(1) 2.22% 4.46% 9.43% 4.66% (2.27%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $7,614 $7,677 $7,506 $4,990 $5,022
Ratio of expenses to average net assets 1.70% 1.70% 1.82% 1.75% 1.77%
Ratio of net investment income to average net assets 3.47% 3.73% 3.78% 4.27% 3.94%
Portfolio turnover 109% 136% 113% 117% 48%
(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.
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 Insured Fund Class C
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/03 8/31/02 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.020 $10.950 $10.390 $10.360 $11.150
Income (loss) from investment operations:
Net investment income 0.386 0.403 0.399 0.432 0.430
Net realized and unrealized gain (loss) on investments (0.140) 0.070 0.560 0.030 (0.667)
------- ------- ------- ------- -------
Total from investment operations 0.246 0.473 0.959 0.462 (0.237)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.386) (0.403) (0.399) (0.432) (0.430)
Net realized gain on investments -- -- -- -- (0.123)
------- ------- ------- ------- -------
Total dividends and distributions (0.386) (0.403) (0.399) (0.432) (0.553)
------- ------- ------- ------- -------
Net asset value, end of period $10.880 $11.020 $10.950 $10.390 $10.360
======= ======= ======= ======= =======
Total return(1) 2.22% 4.46% 9.42% 4.66% (2.27%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,448 $1,488 $1,588 $813 $1,502
Ratio of expenses to average net assets 1.70% 1.70% 1.82% 1.75% 1.77%
Ratio of net investment income to average net assets 3.47% 3.73% 3.78% 4.27% 3.94%
Portfolio turnover 109% 136% 113% 117% 48%
(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.
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 USA Intermediate Fund Class A
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/03 8/31/02 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.020 $10.890 $10.360 $10.270 $10.710
Income (loss) from investment operations:
Net investment income 0.435 0.462 0.480 0.474 0.478
Net realized and unrealized gain (loss) on investments (0.010) 0.130 0.530 0.090 (0.440)
------- ------- ------- ------- -------
Total from investment operations 0.425 0.592 1.010 0.564 0.038
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.435) (0.462) (0.480) (0.474) (0.478)
------- ------- ------- ------- -------
Total dividends and distributions (0.435) (0.462) (0.480) (0.474) (0.478)
------- ------- ------- ------- -------
Net asset value, end of period $11.010 $11.020 $10.890 $10.360 $10.270
======= ======= ======= ======= =======
Total return(1) 3.89% 5.63% 10.01% 5.69% 0.29%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $51,479 $26,075 $19,471 $20,646 $25,186
Ratio of expenses to average net assets 0.80% 0.80% 0.80% 0.80% 0.79%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.15% 0.94% 1.06% 0.95% 0.96%
Ratio of net investment income to average net assets 3.85% 4.28% 4.55% 4.65% 4.47%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.50% 4.14% 4.29% 4.50% 4.25%
Portfolio turnover 130% 195% 231% 199% 109%
(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 and distributor, as applicable. Performance would have been
lower had the expense limitation not been in effect.
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 USA Intermediate Fund Class B
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/03 8/31/02 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.020 $10.890 $10.360 $10.270 $10.710
Income (loss) from investment operations:
Net investment income 0.340 0.371 0.391 0.388 0.387
Net realized and unrealized gain (loss) on investments (0.010) 0.130 0.530 0.090 (0.440)
------- ------- ------- ------- -------
Total from investment operations 0.330 0.501 0.921 0.478 (0.053)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.340) (0.371) (0.391) (0.388) (0.387)
------- ------- ------- ------- -------
Total dividends and distributions (0.340) (0.371) (0.391) (0.388) (0.387)
------- ------- ------- ------- -------
Net asset value, end of period $11.010 $11.020 $10.890 $10.360 $10.270
======= ======= ======= ======= =======
Total return(1) 3.02% 4.74% 9.08% 4.80% (0.56%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $4,538 $3,384 $2,366 $1,751 $2,195
Ratio of expenses to average net assets 1.65% 1.65% 1.65% 1.65% 1.64%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.87% 1.79% 1.91% 1.80% 1.81%
Ratio of net investment income to average net assets 3.00% 3.43% 3.70% 3.80% 3.62%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 2.78% 3.29% 3.44% 3.65% 3.40%
Portfolio turnover 130% 195% 231% 199% 109%
(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.
See accompanying notes
33
Financial
HIGHTLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free USA Intermediate Fund Class C
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/03 8/31/02 8/31/01 8/31/00 8/31/99
Net asset value, beginning of period $11.020 $10.890 $10.360 $10.270 $10.710
Income (loss) from investment operations:
Net investment income 0.340 0.371 0.391 0.388 0.387
Net realized and unrealized gain (loss) on investments (0.010) 0.130 0.530 0.090 (0.440)
------- ------- ------- ------- -------
Total from investment operations 0.330 0.501 0.921 0.478 (0.053)
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.340) (0.371) (0.391) (0.388) (0.387)
------- ------- ------- ------- -------
Total dividends and distributions (0.340) (0.371) (0.391) (0.388) (0.387)
------- ------- ------- ------- -------
Net asset value, end of period $11.010 $11.020 $10.890 $10.360 $10.270
======= ======= ======= ======= =======
Total return(1) 3.02% 4.74% 9.08% 4.80% (0.56%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) $10,542 $7,291 $3,602 $2,441 $3,310
Ratio of expenses to average net assets 1.65% 1.65% 1.65% 1.65% 1.64%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.87% 1.79% 1.91% 1.80% 1.81%
Ratio of net investment income to average net assets 3.00% 3.43% 3.70% 3.80% 3.62%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 2.78% 3.29% 3.44% 3.65% 3.40%
Portfolio turnover 130% 195% 231% 199% 109%
(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 exp ense limitation
not been in effect.
See accompanying notes
34
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------
Delaware National High-Yield Municipal Bond 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 $9.950 $10.240 $9.950 $10.340 $10.800
Income (loss) from investment operations:
Net investment income 0.522 0.542 0.556 0.564 0.557
Net realized and unrealized gain (loss) on investments (0.219) (0.290) 0.293 (0.393) (0.435)
------- ------- ------- ------- -------
Total from investment operations 0.303 0.252 0.849 0.171 0.122
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.523) (0.542) (0.559) (0.561) (0.557)
Net realized gain on investments -- -- -- -- (0.025)
------- ------- ------- ------- -------
Total dividends and distributions (0.523) (0.542) (0.559) (0.561) (0.582)
------- ------- ------- ------- -------
Net asset value, end of period $9.730 $9.950 $10.240 $9.950 $10.340
======= ======= ======= ======= =======
Total return(1) 3.13% 2.59% 8.81% 1.85% 1.08%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $59,829 $64,259 $76,018 $78,207 $86,013
Ratio of expenses to average net assets 0.99% 0.96% 0.97% 1.00% 1.00%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.05% 1.04% 0.97% 1.21% 1.22%
Ratio of net investment income to average net assets 5.30% 5.42% 5.55% 5.71% 5.18%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 5.24% 5.34% 5.55% 5.50% 4.96%
Portfolio turnover 64% 53% 49% 61% 33%
(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
35
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------
Delaware National High-Yield Municipal Bond 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 $9.980 $10.260 $9.980 $10.360 $10.820
Income (loss) from investment operations:
Net investment income 0.448 0.467 0.480 0.491 0.476
Net realized and unrealized gain (loss) on investments (0.219) (0.281) 0.284 (0.384) (0.435)
------- ------- ------- ------- -------
Total from investment operations 0.229 0.186 0.764 0.107 0.041
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.449) (0.466) (0.484) (0.487) (0.476)
Net realized gain on investments -- -- -- -- (0.025)
------- ------- ------- ------- -------
Total dividends and distributions (0.449) (0.466) (0.484) (0.487) (0.501)
------- ------- ------- ------- -------
Net asset value, end of period $9.760 $9.980 $10.260 $9.980 $10.360
======= ======= ======= ======= =======
Total return(1) 2.36% 1.91% 7.88% 1.10% 0.42%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $16,499 $20,021 $20,277 $18,374 $21,423
Ratio of expenses to average net assets 1.74% 1.71% 1.72% 1.75% 1.75%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.80% 1.79% 1.72% 1.96% 1.97%
Ratio of net investment income to average net assets 4.55% 4.67% 4.80% 4.96% 4.43%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.49% 4.59% 4.80% 4.75% 4.21%
Portfolio turnover 64% 53% 49% 61% 33%
(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
36
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------
Delaware National High-Yield Municipal Bond 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 $9.990 $10.270 $9.990 $10.370 $10.830
Income (loss) from investment operations:
Net investment income 0.448 0.467 0.480 0.492 0.476
Net realized and unrealized gain (loss) on investments (0.219) (0.281) 0.284 (0.386) (0.435)
------- ------- ------- ------- -------
Total from investment operations 0.229 0.186 0.764 0.106 0.041
------- ------- ------- ------- -------
Less dividends and distributions from:
Net investment income (0.449) (0.466) (0.484) (0.486) (0.476)
Net realized gain on investments -- -- -- -- (0.025)
------- ------- ------- ------- -------
Total dividends and distributions (0.449) (0.466) (0.484) (0.486) (0.501)
------- ------- ------- ------- -------
Net asset value, end of period $9.770 $9.990 $10.270 $9.990 $10.370
======= ======= ======= ======= =======
Total return(1) 2.35% 1.92% 7.98% 1.08% 0.32%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $5,318 $6,405 $7,187 $8,770 $10,267
Ratio of expenses to average net assets 1.74% 1.71% 1.72% 1.75% 1.75%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.80% 1.79% 1.72% 1.96% 1.97%
Ratio of net investment income to average net assets 4.55% 4.67% 4.80% 4.96% 4.43%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.49% 4.59% 4.80% 4.75% 4.21%
Portfolio turnover 64% 53% 49% 61% 33%
(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
Notes Delaware National Tax-Free Funds
TO FINANCIAL STATEMENTS August 31, 2003
Delaware Group Tax-Free Fund (the "Trust") is organized as a Delaware business
trust and offers three series: Delaware Tax-Free USA Fund, Delaware Tax-Free
Insured Fund, and Delaware Tax-Free USA Intermediate Fund. Voyageur Mutual Funds
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. These
financial statements and the related notes pertain to Delaware Tax-Free USA
Fund, Delaware Tax-Free Insured Fund, Delaware Tax-Free USA Intermediate Fund
and Delaware National High-Yield Municipal Bond Fund (each referred to as a
"Fund" or, collectively, as the "Funds"). The above Trusts are open-end
investment companies. The Funds are considered non-diversified under the
Investment Company Act of 1940, as amended. 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% for Delaware Tax-Free USA Fund, Delaware Tax-Free Insured Fund and
Delaware National High-Yield Municipal Bond Fund, and up to 2.75% for Delaware
Tax-Free USA Intermediate Fund. Prior to November 18, 2002, Class A shares were
sold with a front-end sales charge of up to 3.75% for Delaware Tax-Free USA
Fund, Delaware Tax-Free Insured Fund and Delaware National High-Yield Municipal
Bond Fund. Class B shares of the Delaware Tax-Free USA Fund, Delaware Tax-Free
Insured Fund, and Delaware National High-Yield Municipal Bond Fund, 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 B shares of Delaware Tax-Free USA Intermediate Fund are sold
with a contingent deferred sales charge that declines from 2% to zero depending
upon the time the shares are held. Class B shares of Delaware Tax-Free USA
Intermediate Fund will automatically convert to Class A shares on a quarterly
basis approximately five years after purchase. Class C shares are sold with a
contingent deferred sales charge of 1%, if redeemed during the first twelve
months.
The investment objective of Delaware Tax-Free USA Fund, Delaware Tax-Free
Insured Fund and Delaware Tax-Free USA Intermediate Fund is to seek as high a
level of current interest income exempt from federal income tax as is available
from municipal obligations as is consistent with prudent investment management
and preservation of capital.
The investment objective of Delaware National High-Yield Municipal Bond Fund is
to seek a high level of current income exempt from federal income tax primarily
through investment in medium- and lower-grade municipal obligations.
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 the Funds on the basis of "settled shares" of each class in relation
to the net assets of the Funds. Realized and unrealized gain (loss) on
investments are allocated to the various classes of the Funds on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
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.
38
Notes Delaware National Tax-Free Funds
TO FINANCIAL STATEMENTS (CONTINUED)
1. Significant Accounting Policies (continued)
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 cash
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 amount of these expenses for the year
ended August 31, 2003 were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
----------------- ----------------- --------------------- ----------------------------
Commission reimbursements $12,566 $ 1,677 $1,128 $2,084
Earnings credits 13,812 1,970 1,509 3,260
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 Tax-Free Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
----------------- ----------------- --------------------- ----------------------------
On the first $500 million 0.550% 0.500% 0.500% 0.550%
On the next $500 million 0.500% 0.475% 0.475% 0.500%
On the next $1.5 billion 0.450% 0.450% 0.450% 0.450%
In excess of $2.5 billion 0.425% 0.425% 0.425% 0.425%
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse each Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees and extraordinary expenses, do not exceed specified
percentages of average daily net assets through October 31, 2004 as shown below.
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
----------------- ----------------- --------------------- ----------------------------
The operating expense limitation
as a percentage of average daily
net assets (per annum) 0.65% 0.75% 0.65% 0.75%
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Each Fund pays
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 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, the Funds pay
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.30% of the average daily net
assets of the Class A shares for Delaware Tax-Free USA Fund, Delaware Tax-Free
Insured Fund, and Delaware Tax-Free USA Intermediate Fund, 0.25% of the average
daily net assets of the Class A shares for the Delaware National High-Yield
Municipal Bond Fund, and 1.00% of the average daily net assets of the Class B
and C shares for all Funds. DDLP has contracted to waive distribution fees
through August 31, 2004 in order to prevent distribution fees of Class A from
exceeding 0.15% of the average daily net assets for the Delaware Tax-Free USA
Intermediate Fund.
At August 31, 2003, the Funds had liabilities payable to affiliates as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
----------------- ----------------- --------------------- ----------------------------
Investment management fee
payable to DMC $50,122 $8,516 $7,973 $21,831
Dividend disbursing, transfer agent
fees, accounting and other
expenses payable to DSC 24,769 2,291 13,217 9,406
Other expenses payable to
DMC and affiliates 53,775 7,868 7,446 12,700
For the year ended August 31, 2003, DDLP earned commissions on sales of Class A
shares for each Fund as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
----------------- ----------------- --------------------- ----------------------------
$39,433 $13,730 $16,553 $7,290
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the
Trusts. These officers and trustees are paid no compensation by the Funds.
39
Notes Delaware National Tax-Free Funds
TO FINANCIAL STATEMENTS (CONTINUED)
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 Tax-Free Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
----------------- ----------------- --------------------- ----------------------------
Purchases $488,905,245 $74,465,029 $86,520,816 $55,010,574
Sales 518,517,703 76,283,388 58,375,415 58,965,215
At August 31, 2003, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for each Fund was as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
----------------- ----------------- --------------------- ----------------------------
Cost of investments $ 472,376,739 $ 61,286,136 $ 61,917,587 $ 82,875,220
------------- ------------- ------------- -------------
Aggregate unrealized appreciation $ 21,878,042 $ 3,433,117 $ 1,353,049 $ 2,169,040
Aggregate unrealized depreciation (7,232,955) (258,243) (198,130) (3,309,142)
------------- ------------- ------------- -------------
Net unrealized appreciation (depreciation) $ 14,645,087 $ 3,174,874 $ 1,154,919 $ (1,140,102)
============= ============= ============= =============
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 Delaware Tax-Free Delaware National High-Yield
USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
----------------- ----------------- --------------------- ----------------------------
Year ended 8/31/03
------------------
Tax-exempt income $24,475,837 $2,895,295 $1,706,249 $4,431,347
Year ended 8/31/02
------------------
Tax-exempt income $26,975,130 $3,067,465 $1,268,191 $5,013,229
As of August 31, 2003, the components of net assets on a tax basis were as
follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
----------------- ----------------- --------------------- ----------------------------
Shares of beneficial interest $ 494,012,164 $ 64,192,099 $ 65,990,369 $ 88,779,980
Undistributed tax-exempt income (12,071) (1,520) -- (4,104)
Capital loss carryforwards (11,100,556) (501,008) (585,887) (4,876,774)
Post-October losses (67,256) (171,994) -- (1,112,711)
Unrealized appreciation
(depreciation) of investments 14,645,087 3,174,874 1,154,919 (1,140,102)
------------- ------------- ------------- -------------
Net assets $ 497,477,368 $ 66,692,451 $ 66,559,401 $ 81,646,289
============= ============= ============= =============
For federal income tax purposes, each Fund had accumulated capital losses as of
August 31, 2003, which may be carried forward and applied against future capital
gains. Such capital loss carryforwards amounts will expire as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
----------------- ----------------- --------------------- ----------------------------
2008 $11,100,238 $501,008 $295,023 $ 782,666
2009 318 -- -- 3,025,716
2010 -- -- -- 70,671
2011 -- -- 290,864 997,721
----------- -------- -------- ----------
Total $11,100,556 $501,008 $585,887 $4,876,774
=========== ======== ======== ==========
Post-October losses represent losses realized on investment transactions from
November 1, 2002 through August 31, 2003 that, in accordance with federal income
tax regulations, the Funds have elected to defer and treat as having arisen in
the following fiscal year.
40
Notes Delaware National Tax-Free Funds
TO FINANCIAL STATEMENTS (CONTINUED)
5. Capital Shares
Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund
-------------------------- --------------------------
Year Ended Year Ended
8/31/03 8/31/02 8/31/03 8/31/02
Shares sold:
Class A 2,205,659 2,046,344 730,539 328,620
Class B 151,949 284,806 154,828 140,707
Class C 76,265 89,824 45,229 20,213
Shares issued from merger:
Class A -- 1,780,758 -- --
Class B -- 94,555 -- --
Class C -- 31,085 -- --
Shares issued upon reinvestment of dividends and distributions:
Class A 1,096,565 1,215,969 133,254 142,573
Class B 64,211 77,592 14,671 15,783
Class C 15,731 17,992 2,159 2,723
---------- ---------- ---------- ----------
3,610,380 5,638,925 1,080,680 650,619
---------- ---------- ---------- ----------
Shares repurchased:
Class A (5,987,662) (4,888,259) (1,041,433) (693,858)
Class B (756,095) (611,236) (165,843) (145,641)
Class C (128,993) (179,402) (49,165) (33,068)
---------- ---------- ---------- ----------
(6,872,750) (5,678,897) (1,256,441) (872,567)
---------- ---------- ---------- ----------
Net decrease (3,262,370) (39,972) (175,761) (221,948)
========== ========== ========== ==========
Delaware Tax-Free Delaware National High-Yield
USA Intermediate Fund Municipal Bond Fund
-------------------------- ----------------------------
Year Ended Year Ended
8/31/03 8/31/02 8/31/03 8/31/02
Shares sold:
Class A 3,185,915 1,141,612 526,041 407,341
Class B 202,146 181,935 86,051 215,936
Class C 555,499 432,654 61,624 132,443
Shares issued upon reinvestment of dividends and
distributions:
Class A 79,702 59,419 169,468 194,745
Class B 6,901 5,170 38,504 44,199
Class C 11,740 8,716 16,676 19,660
---------- ---------- ---------- ----------
4,041,903 1,829,506 898,364 1,014,324
---------- ---------- ---------- ----------
Shares repurchased:
Class A (956,446) (622,703) (1,005,306) (1,572,078)
Class B (104,005) (97,299) (439,234) (229,990)
Class C (271,408) (110,475) (175,175) (210,613)
---------- ---------- ---------- ----------
(1,331,859) (830,477) (1,619,715) (2,012,681)
---------- ---------- ---------- ----------
Net increase (decrease) 2,710,044 999,029 (721,351) (998,357)
========== ========== ========== ==========
41
Notes Delaware National Tax-Free Funds
TO FINANCIAL STATEMENTS (CONTINUED)
5. Capital Shares (continued)
For the years ended August 31, 2003 and 2002, the following shares were
converted from Class B to Class A shares. The respective amounts are included in
Class B redemptions and Class A subscriptions in the tables below and the
Statements of Changes in Net Assets as follows:
Year Ended Year Ended
8/31/03 8/31/02
------------------------------------- ----------------------------------
Class B Class A Class B Class A
shares shares Amount shares shares Amount
------- ------- ---------- -------- ------- --------
Delaware Tax-Free USA Fund 271,987 271,987 $3,117,043 42,511 42,511 $473,146
Delaware Tax-Free Insured Fund 29,043 29,043 327,187 9,576 9,576 103,996
Delaware Tax-Free USA Intermediate Fund 30,412 30,412 341,657 6,344 6,344 67,438
6. Fund Merger
Effective October 8, 2001, Delaware Tax-Free USA Fund acquired all of the assets
and assumed all of the liabilities of Delaware Tax-Free North Dakota Fund,
pursuant to the Agreement and Plan of Reorganization dated October 5, 2001 and
approved by Delaware Tax-Free North Dakota Fund shareholders on August 30, 2001.
The shareholders of Delaware Tax-Free North Dakota Fund received shares of
Delaware Tax-Free USA Fund equal to the aggregate net asset value of their
shares in Delaware Tax-Free North Dakota Fund prior to the Reorganization based
on the net asset value per share of the respective classes of Delaware Tax-Free
USA Fund.
The Reorganization was treated as a non-taxable event and accordingly Delaware
Tax-Free USA Fund's basis in the securities acquired reflected the historical
cost basis as of the date of transfer. The net assets, net unrealized
appreciation and accumulated net realized losses of Delaware Tax-Free North
Dakota Fund as of October 8, 2001 were:
Net Assets Net Unrealized Appreciation Accumulated Net Realized Losses
------------ --------------------------- -------------------------------
$21,384,673 $507,331 $(44,073)
The net assets of Delaware Tax-Free USA Fund prior to the Reorganizations were
$531,821,420.
7. 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
year.
8. Credit and Market Risk
The Funds concentrate their investments in securities issued by municipalities.
The value of these investments may be adversely affected by new legislation
within the states, regional or local economic conditions, and differing levels
of supply and demand for municipal bonds. Many municipalities insure repayment
for their obligations. Although bond insurance reduces the risk of loss due to
default by an issuer, such bonds remain subject to the risk that market value
may fluctuate for other reasons and there is no assurance that the insurance
company will meet its obligations. These securities have been identified in the
Statements of Net Assets.
Delaware National High-Yield Municipal Bond Fund invests in high-yield fixed
income securities, which carry ratings of BB or lower by S&P and/or Ba or lower
by Moody's. Investments in these higher yielding securities are generally
accompanied by a greater degree of credit risk than higher rated securities.
Additionally, lower rated securities may be more susceptible to adverse economic
and competitive industry conditions than investment grade securities.
9. 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 will be 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)
Long-Term Ordinary (C)
Capital Gains Income Tax-Exempt Total
Distributions Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis)
------------- ------------- ------------- -------------
Delaware Tax-Free USA Fund -- -- 100% 100%
Delaware Tax-Free Insured Fund -- -- 100% 100%
Delaware Tax-Free USA Intermediate Fund -- -- 100% 100%
Delaware National High-Yield Municipal Bond Fund -- -- 100% 100%
(A), (B) and (C) are based on a percentage of each Fund's total distributions.
42
Report
OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
Delaware Group Tax-Free Fund
Voyageur Mutual Funds -- Delaware National High-Yield
Municipal Bond Fund
We have audited the accompanying statements of net assets of Delaware Group
Tax-Free Fund (comprised of Delaware Tax-Free USA Fund, Delaware Tax-Free
Insured Fund, and Delaware Tax-Free USA Intermediate Fund) and Delaware National
High-Yield Municipal Bond Fund (collectively, the "Funds") and the statement of
assets and liabilities of Delaware Tax-Free USA Intermediate Fund 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
43
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
Portfolios in Fund Directorships
Principal Complex Overseen Held by
Name, Position(s) Occupation(s) by Trustee/ Trustee/
Address Held with Length of Time During Director or Director or
and Birthdate Fund(s) Served Past 5 Years Officer 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
Philadelphia, PA Corporation (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
August 7, 1937 President/Director -
22 WR Corporation
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 -
University of Pennsylvania
May 28, 1960 (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
44
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex Overseen Held by
and Birthdate Fund(s) Served Past 5 Years by Trustee/Director Trustee/Officer
or Officer or Officer
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 101 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax, Inc.
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.
(January 1993 - Present)
February 25, 1936 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 Vice President Executive Vice Mr. Hastings has served in 101 None
205 Market Street and Chief Financial President and Chief various executive capacities
Philadelphia, PA Officer Financial Officer since at different times at
19103 August 21, 2003 Delaware Investments.
December 19, 1949
Richelle S. Maestro Executive Vice President, General Counsel Ms. Maestro has served in 101 None
2005 Market Street Chief Legal Officer Since March 17, 2003 various executive capacities
Philadelphia, PA and Secretary at different times at
19103 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.
45
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This annual report is for the information of Delaware Tax-Free USA Fund,
Delaware Tax-Free Insured Fund, Delaware Tax-Free USA Intermediate Fund, and
Delaware National High-Yield Municipal Bond Fund shareholders, but it may be
used with prospective investors when preceded or accompanied by a current
prospectus for Delaware Tax-Free USA Fund, Delaware Tax-Free Insured Fund,
Delaware Tax-Free USA Intermediate Fund, and Delaware National High-Yield
Municipal Bond 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
Jude T. Driscoll* Joseph H. Hastings Investment Manager
Chairman Executive Vice President and Delaware Management Company
Delaware Investments Family of Funds Chief Financial Officer Philadelphia, PA
Philadelphia, PA Delaware Investments Family of Funds
Philadelphia, PA International Affiliate
Walter P. Babich Delaware International Advisers Ltd.
Board Chairman Richelle S. Maestro London, England
Citadel Construction Corporation Senior Vice President,
King of Prussia, PA Chief Legal Officer and Secretary National Distributor
Delaware Investments Family of Funds Delaware Distributors, L.P.
John H. Durham Philadelphia, PA Philadelphia, PA
Private Investor
Gwynedd Valley, PA Michael P. Bishof Shareholder Servicing, Dividend
Senior Vice President and Treasurer Disbursing and Transfer Agent
John A. Fry* Delaware Investments Family of Funds Delaware Service Company, Inc.
President Philadelphia, PA 2005 Market Street
Franklin & Marshall College Philadelphia, PA 19103-7094
Lancaster, PA
For Shareholders
Anthony D. Knerr 800 523-1918
Managing Director
Anthony Knerr & Associates For Securities Dealers and Financial
New York, NY Institutions Representatives Only
800 362-7500
Ann R. Leven
Former Treasurer/Chief Fiscal Officer Web site
National Gallery of Art www.delawareinvestments.com
Washington, DC
Thomas F. Madison ---------------------------------------------------------------------
President and Chief Executive Officer
MLM Partners, Inc. A description of the policies and procedures that the Fund uses to
Minneapolis, MN determine how to vote proxies (if any) relating to portfolio
securities is available without charge (i) upon request, by calling
Janet L. Yeomans 800-523-1918; (ii) on the Fund's website at
Vice President/Mergers & Acquisitions http://www.delawareinvestments.com; and (iii) on the Commission's
3M Corporation website at http://www.sec.gov.; and beginning no later than August 31,
St. Paul, MN 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
Fund's website at http://www.delawareinvestments.com; and (ii) on the
*Mr. Driscoll and Mr. Fry are not trustees of the Commission's website at http://www.sec.gov.
Delaware National High-Yield Municipal Bond Fund.
---------------------------------------------------------------------
(8226) Printed in the USA
AR-011 [8/03] IVES 10/03 (J9415) EXP: 10/04
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant, auditor, or person
performing similar functions;
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that
each member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
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]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
- -----------------------
(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 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.
(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.
Name of Registrant:
JUDE T. DRISCOLL
- ----------------
By: Jude T. Driscoll
----------------
Title: Chairman
Date: October 30, 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.
JUDE T. DRISCOLL
- ----------------
By: Jude T. Driscoll
-----------------
Title: Chairman
Date: October 30, 2003
---------------------------
JOSEPH H. HASTINGS
- ------------------
By: Joseph H. Hastings
---------------------------
Title: Chief Financial Officer
Date: October 30, 2003
---------------------------