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, 2004
Item 1. Reports to Stockholders
Delaware
Investments(SM)
--------------------------------------
FIXED INCOME A member of Lincoln Financial Group(R)
Annual Report AUGUST 31, 2004
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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
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PERFORMANCE SUMMARIES
Delaware Tax-Free USA Fund 4
Delaware Tax-Free Insured Fund 6
Delaware Tax-Free USA Intermediate Fund 8
Delaware National High-Yield
Municipal Bond Fund 10
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DISCLOSURE OF FUND EXPENSES 12
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SECTOR ALLOCATION 15
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FINANCIAL STATEMENTS:
Statements of Net Assets 19
Statements of Operations 35
Statements of Changes in Net Assets 36
Financial Highlights 38
Notes to Financial Statements 50
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 55
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BOARD OF TRUSTEES/OFFICERS 56
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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) 2004 Delaware Distributors, L.P.
Portfolio DELAWARE NATIONAL TAX-FREE FUNDS
MANAGEMENT REVIEW September 10, 2004
FUND MANAGERS
Patrick P. Coyne
Managing Director/Head of Equity Investments
Joseph R. Baxter
Senior Portfolio Manager
Robert F. Collins
Senior Portfolio Manager
Q: PLEASE DESCRIBE OVERALL BOND MARKET CONDITIONS DURING THE FISCAL YEAR.
A: During the fiscal year ended August 31, 2004, economic recovery continued,
though not without uncertainty and volatility that resulted from rising oil
prices, events in the Middle East, and the dollar's weakness versus other major
world currencies. Also troubling the markets, the twin deficits (U.S. budget and
trade) grew and are at or close to record levels. Job creation, often a spur for
sustained growth, never quite reached the levels that economists expected to see
well into an economic recovery.
The Federal Reserve elected to raise the fed funds target rate (the rate at
which banks make short-term loans to other banks) from 1.0% as the fiscal year
began to 1.5% at year's end, reflecting a conviction that economic growth is
sustainable and that the current inflationary pressures are temporary.
For the municipal bond market, two-year, AAA-rated securities began the 12-month
period at 1.4% and ended at 1.7% (Source: Municipal Market Data). Though
short-term rates rose, those of longer-term bonds fell. For AAA-rated bonds
during the fiscal-year period, those of 10-year maturities began at 3.9% and
ended at 3.5% while 30-year issues started at 5.0% and concluded at 4.7%.
In 2004, the yield curve flattened. The difference in yield between two-year and
30-year, AAA-rated municipal bonds began the year at 3.6% and ended the year at
2.9%. Interestingly, this was a "bull-flattening." Short rates rose in sympathy
with the Federal Reserve tightening, but rates for bonds in the intermediate and
long maturities fell (recall that bond yields and prices are inversely related -
prices rise as yields fall). The markets seem to be indicating that the Federal
Reserve is correct in asserting that the inflation pressures were transitory.
Normally, in a Federal Reserve tightening, long rates would rise, but less than
those of short rates, resulting in what is termed a "bear-flattening."
The difference in yield between municipal and Treasury bonds saw little change.
Among two-year issues, the AAA-rated general obligation municipal bond yield
began the 12-month period at 72.7% of like-maturity Treasuries and ended the
period at 71.7%. Among 30-year issues, the yield difference began the fiscal
year at 96.4% and ended at 95.1%.
10-year bonds, however, showed more significant relative yield movement, with
the municipal-to-Treasury bond yield difference moving from 88.8% at the
period's beginning to 84.8% at its end. The change was likely driven by
non-traditional buyers - including hedge funds, arbitrage accounts, and taxable
accounts - purchasing municipal bonds which are typically less sensitive to
interest rate changes, as a hedge against the expectation that rates would rise.
Credit quality, which deteriorated in the prior fiscal year, showed signs of
recovery. Many states experienced increased revenues, although low employment
numbers could impede that progress in the future. Improving credit conditions
contributed to the narrowing yield difference of bonds with different credit
ratings; the "spread" between AAA- and BBB-rated municipal bonds shrank by 0.2%
between January 1 and August 31, 2004. Also contributing to the narrowing spread
was investors' desire to "reach" for yield. With overall market yields at such
low levels, investors seek ways to maintain income levels. One way to add yield
is to add credit risk. This increased demand for lower-quality bonds lowered the
yield of these securities relative to higher-grade bonds.
Debt supply was good during the fiscal year, though trending down from the
record paces of 2002 and 2003 when new issue bonds in the amounts of $359 and
$383 billion, respectively, came to market. Between January 1 and August 31,
2004, about $265 billion in new debt was issued, a decrease of approximately
nine percent from 2003's rate. The drop was likely due to healthier state
balance sheets - states issue less debt when they have more cash - and to a 24
percent drop in refinancing, as most states have already restructured debt where
it made sense to do so.
1
DELAWARE TAX-FREE USA FUND
Q: HOW DID DELAWARE TAX-FREE USA FUND PERFORM DURING THE FISCAL YEAR?
A: Delaware Tax-Free USA Fund appreciated +7.54% (Class A shares at net asset
value with distributions reinvested) for the fiscal year ended August 31, 2004.
The Fund outperformed both its peer group, as represented by the 304 funds of
the Lipper General Municipal Debt Funds Average, which returned +6.44% (Source:
Lipper Inc.) and its benchmark, the Lehman Brothers Municipal Bond Index, which
returned +7.11%*.
Q: WHAT CONTRIBUTED TO FUND PERFORMANCE?
A: Our position in California debt, which made up 7.0% of the Fund's net assets,
made a large, positive contribution to performance for the 12-month period. The
state's general obligation bonds, which were upgraded by each rating service
during the year, performed well, as did securities that combined California's
tobacco settlement with an underlying appropriations budget safeguard. We
continued to avoid bonds backed only by state tobacco settlements, as these
securities are volatile and carry substantial litigation risk.
We generally took a conservative approach when selecting investments for the
Fund, keeping a greater relative weighting in short-term securities. While the
Fund held 1.35% and 1.61%; respectively, of net assets in short-term investments
at the beginning and end of the fiscal year, that amount was higher at various
times throughout the 12-month period.
Duration, which is calculated in years, 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. We elected to
decrease the Fund's duration along with that of the overall market, from 8.7
years to 6.6 years, during the 12-month period. Looking forward, we intend to
focus on buying securities with solid fundamentals at attractive prices.
Q: WHAT DETRACTED FROM FUND PERFORMANCE?
A: A longer duration in July and August would have improved Fund performance.
Even so, we welcomed the flexibility offered by shorter-term investments. Moving
forward, we may increase duration as market opportunities warrant.
DELAWARE TAX-FREE INSURED FUND
Q: HOW DID DELAWARE TAX-FREE INSURED FUND PERFORM DURING THE FISCAL YEAR?
A: Delaware Tax-Free Insured Fund gained +6.55% (Class A shares at net asset
value with distributions reinvested) for the fiscal year ended August 31, 2004,
outperforming its peer group, as represented by the 50 funds of the Lipper
Insured Municipal Debt Funds Average, which returned +6.07% (Source: Lipper
Inc.). However, the Fund underperformed the +7.11% return of its benchmark, the
Lehman Brothers Municipal Bond Index.*
Q: WHAT CONTRIBUTED TO FUND PERFORMANCE?
A: Favorable security analysis and selection contributed to Fund performance. We
particularly benefited from holdings in California's combined tobacco settlement
and appropriations fund bonds. Puerto Rico securities, which we acquired when
supply was good and prices attractive, also performed well, with prices rising
when supply decreased.
The Fund also benefited from our decision to increase the allocation to
mid-investment grade bonds for the 20 percent of portfolio net assets allowed to
be held in uninsured securities. As municipal bond credit quality spreads
narrowed during the 12-month period, these purchases turned in favorable
performances.
Some of the Fund's bonds came due at a time when interest rates were rising, and
we were able to reinvest a portion of those proceeds at higher interest rates.
Fund duration went from 6.9 years to 6.4 years during the 12-month period, a
relatively small change that reflected market forces. Duration, which is
calculated in years, 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 DETRACTED FROM FUND PERFORMANCE?
A: The Fund would have benefited from more opportunities to invest at rising
interest rates. We expect rates to rise in the coming fiscal year and will be
searching for opportunities to invest in sound securities at attractive prices.
*A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
2
DELAWARE TAX-FREE USA INTERMEDIATE FUND
Q: HOW DID DELAWARE TAX-FREE USA INTERMEDIATE FUND PERFORM DURING THE FISCAL
YEAR?
A: Delaware Tax-Free USA Intermediate Fund gained +7.36% (Class A shares at net
asset value with distributions reinvested) for the fiscal year ended August 31,
2004. The Fund outperformed both its peer group, the 150 funds representing the
Lipper Intermediate Municipal Debt Funds Average, which returned +5.06% (Lipper
Inc.) and its benchmark, the Merrill Lynch 3-7 Year Municipal Bond Index, which
returned +4.76%.*
Q: WHAT CONTRIBUTED TO FUND PERFORMANCE?
A: The Fund experienced an influx of new money during the 12-month period,
rising from $66 million as of August 31, 2003 to $98 million six months later
and ending the fiscal year period in excess of $100 million.
We invested these new assets across a variety of sectors and states within the
municipal bond market, maintaining cash in short-term investments when solid,
well-priced debt was not available. Both California general obligation bonds and
those backed by a combination of tobacco settlement payments and the state's
appropriation budget performed well during the fiscal year. A strategic addition
of Puerto Rico bonds in the spring, when prices were relatively attractive due
to heavy new issuance of territorial debt, paid off handsomely. Spreads between
Puerto Rico bonds and general market debt have since narrowed.
Duration, which is calculated in years, 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 moved modestly shorter during the fiscal year, from 5.79 years to 5.73
years. Intermediate-term municipal bond funds were generally less affected by
the overall market move toward shorter durations than were longer-maturity
funds.
Q: WHAT DETRACTED FROM FUND PERFORMANCE?
A: During the reporting period we increased our exposure to AAA-rated debt and
reduced our holdings in BBB-rated debt. The yield difference between higher- and
lower-rated bonds of investment-grade quality contracted during the fiscal year,
and the BBB-rated securities we sold during the period went on to perform well.
Still, we believe our increased exposure to AAA-rated debt reflected our
continued search for high-quality investments at attractive prices.
*A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
Q: HOW DID DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND PERFORM DURING THE
FISCAL YEAR?
A: Delaware National High-Yield Municipal Bond Fund appreciated +8.13% (Class A
shares at net asset value with distributions reinvested) for the fiscal year
ended August 31, 2004. The Fund outperformed its peer group, the Lipper
High-Yield Municipal Debt Funds Average, which returned +7.43% (Lipper Inc.).
The Fund also outperformed its benchmark, the Lehman Brothers Municipal Bond
Index, which returned +7.11%.*
Q: WHAT CONTRIBUTED TO FUND PERFORMANCE?
A: Security selection largely drove Fund performance for the 12-month period.
California bonds, both general obligations issues and those backed by a
combination of tobacco settlement money and state appropriation funds, performed
well. California experienced credit upgrades in general since installing a new
governor, and the state addressed its liquidity crunch with a voter approved
debt package. We have continued to exercise caution, as we are not convinced
that all of the state's financial problems have been solved, there still being
structural imbalances in the State's forward budgets.
Debt of Puerto Rico, which we bought when supply was abundant and prices
relatively low, boosted Fund performance, as the prices of these bonds increased
with dwindling supply.
Performance also benefited from our decisions to avoid bonds backed solely by
tobacco settlement money and to be underweighted in the airline sector. Tobacco
bonds have proven to be extremely volatile and are subject to litigation risk.
The legacy airlines have struggled for years to compete with low-cost carriers
and are now under additional pressure from high fuel prices.
The Fund's duration dropped from 7.3 years to 5.2 years during the 12-month
period, largely following market forces. Duration, which is calculated in years,
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 MAY HAVE DETRACTED FROM FUND PERFORMANCE?
A: In managing Delaware National High-Yield Municipal Bond Fund, we believed we
were at times more conservative than our competitors in selecting securities.
Though this may have detracted from performance during this fiscal year, we
believe that our careful bond selection process is a long-term asset to the
Fund.
3
DELAWARE
TAX-FREE USA FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges, and expenses of the investment carefully before
investing. The Delaware Tax-Free USA Fund prospectus contains this and other
important information about the investment company. Please request a prospectus
by calling 800 523-1918. Read it carefully before you invest or send money.
Performance includes reinvestment of all distributions.
FUND PERFORMANCE
Average Annual Total Returns
Through August 31, 2004 Lifetime 10 Years Five Years One Year
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Class A (Est. 1/11/84)
Excluding Sales Charge +7.91% +5.25% +6.28% +7.54%
Including Sales Charge +7.67% +4.76% +5.31% +2.66%
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Class B (Est. 5/2/94)
Excluding Sales Charge +4.59% +4.57% +5.45% +6.71%
Including Sales Charge +4.59% +4.57% +5.21% +2.71%
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Class C (Est. 11/29/95)
Excluding Sales Charge +4.07% +5.45% +6.71%
Including Sales Charge +4.07% +5.45% +5.71%
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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%. Lifetime performance figures for Class B
shares reflect conversion to Class A shares after approximately eight years.
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 31, 2001. Performance would have been lower had the
expense limitation not been in effect.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
4
DELAWARE
TAX-FREE USA FUND
FUND BASICS
As of August 31, 2004
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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.
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TOTAL FUND NET ASSETS:
$484.37 million
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NUMBER OF HOLDINGS:
132
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FUND START DATE:
January 11, 1984
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YOUR FUND MANAGERS:
Patrick P. Coyne is a graduate of Harvard University with an MBA from
the University of Pennsylvania's Wharton School. Patrick Coyne joined Delaware
Investments' fixed-income department in 1990. Prior to joining Delaware
Investments, he was a manager of Kidder, Peabody & Co. Inc.'s trading desk, and
specialized in trading high-grade municipal bonds and municipal futures
contracts.
Joseph R. Baxter is a graduate of LaSalle University where he earned his
undergraduate degree in finance and marketing. Prior to joining Delaware
Investments in 1999, he held investment positions with First Union. Most
recently, he served as a municipal portfolio manager for the Evergreen Funds.
Robert F. Collins is a graduate of Ursinus College where he earned his
undergraduate degree in economics. Prior to joining Delaware Investments in
2004, he co-managed the municipal portfolio management group of PNC Advisors,
overseeing the tax-exempt investments of high-net worth and institutional
accounts. Previously, he headed the municipal fixed-income team at Wilmington
Trust Company, managing funds and high-net worth accounts. Mr. Collins is a CFA
charterholder.
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NASDAQ SYMBOLS:
Class A DMTFX
Class B DTFCX
Class C DUSCX
PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1994 through August 31, 2004
[CHART OMITTED]
DELAWARE TAX-FREE USA FUND (CLASS A)
Fiscal years ended Aug 31
Inception date = 1/11/84
The Fund versus its benchmark, the
LEHMAN BROTHERS MUNICIPAL BOND INDEX
FUND B/M Index
Beginning value: Aug 31, 1994 $ 9,548 $10,000
1995 $10,192 $10,886
1996 $10,387 $11,456
1997 $11,196 $12,514
1998 $12,077 $13,597
1999 $11,726 $13,665
2000 $12,324 $14,590
2001 $13,581 $16,077
2002 $14,242 $17,080
2003 $14,788 $17,617
Ending value: Aug 31, 2004 $15,902 $18,869
Chart assumes $10,000 invested on August 31, 1994 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.
An expense limitation was in effect beginning August 1, 2001. Performance would
have been lower had the expense limitation not been in effect.
The performance graph does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemption of Fund shares.
5
DELAWARE
TAX-FREE INSURED FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges, and expenses of the investment carefully before
investing. The Delaware Tax-Free Insured Fund prospectus contains this and other
important information about the investment company. Please request a prospectus
by calling 800 523-1918. Read it carefully before you invest or send money.
Performance includes reinvestment of all distributions.
FUND PERFORMANCE
Average Annual Total Returns
Through August 31, 2004 Lifetime 10 Years Five Years One Year
- ------------------------------------------------------------------------------------------------------------
Class A (Est. 3/25/85)
Excluding Sales Charge +6.97% +5.46% +6.10% +6.55%
Including Sales Charge +6.71% +4.97% +5.12% +1.78%
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Class B (Est. 5/2/94)
Excluding Sales Charge +4.84% +4.78% +5.27% +5.72%
Including Sales Charge +4.84% +4.78% +5.03% +1.72%
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Class C (Est. 11/29/95)
Excluding Sales Charge +4.30% +5.27% +5.72%
Including Sales Charge +4.30% +5.27% +4.72%
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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 does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
6
DELAWARE
TAX-FREE INSURED FUND
FUND BASICS
As of August 31, 2004
- --------------------------------------------------------------------------------
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.
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TOTAL FUND NET ASSETS:
$63.12 million
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NUMBER OF HOLDINGS:
44
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FUND START DATE:
March 25, 1985
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YOUR FUND MANAGERS:
Patrick P. Coyne
Joseph R. Baxter
Robert F. Collins
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NASDAQ SYMBOLS:
Class A DMFIX
Class B DTXBX
Class C DTXCX
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PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1994 through August 31, 2004
[GRAPHIC OMITTED]
DELAWARE TAX-FREE INSURED FUND (CLASS A)
Fiscal years ended Aug 31
Inception date = 3/25/85
The Fund versus its benchmark, the
LEHMAN BROTHERS MUNICIPAL BOND INDEX
FUND B/M Index
Beginning value: Aug 31, 1994 $ 9,549 $10,000
1995 $10,154 $10,886
1996 $10,548 $11,456
1997 $11,399 $12,514
1998 $12,248 $13,597
1999 $12,065 $13,665
2000 $12,729 $14,590
2001 $14,041 $16,077
2002 $14,782 $17,080
2003 $15,229 $17,617
Ending value: Aug 31, 2004 $16,226 $18,869
Chart assumes $10,000 invested on August 31, 1994 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.
The performance graph does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemption of Fund shares.
7
DELAWARE
TAX-FREE USA INTERMEDIATE FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges, and expenses of the investment carefully before
investing. The Delaware Tax-Free USA Intermediate Fund prospectus contains this
and other important information about the investment company. Please request a
prospectus by calling 800 523-1918. Read it carefully before you invest or send
money. Performance includes reinvestment of all distributions.
FUND PERFORMANCE
Average Annual Total Returns
Through August 31, 2004 Lifetime 10 Years Five Years One Year
- -----------------------------------------------------------------------------------------------------------
Class A (Est. 1/7/93)
Excluding Sales Charge +5.94% +5.74% +6.49% +7.36%
Including Sales Charge +5.69% +5.45% +5.90% +4.42%
- -----------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +5.38% +5.29% +5.58% +6.36%
Including Sales Charge +5.38% +5.29% +5.58% +4.36%
- -----------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +4.70% +5.60% +6.45%
Including Sales Charge +4.70% +5.60% +5.45%
- -----------------------------------------------------------------------------------------------------------
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 period shown. Performance would have been lower had
the expense limitation not been in effect.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
A portion of the
income from tax-exempt funds may be subject to the alternative minimum tax.
8
DELAWARE
TAX-FREE USA INTERMEDIATE FUND
FUND BASICS
As of August 31, 2004
- --------------------------------------------------------------------------------
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:
$100.39 million
- --------------------------------------------------------------------------------
NUMBER OF HOLDINGS:
95
- --------------------------------------------------------------------------------
FUND START DATE:
January 7, 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOUR FUND MANAGERS:
Patrick P. Coyne
Joseph R. Baxter
Robert F. Collins
- --------------------------------------------------------------------------------
NASDAQ SYMBOLS:
Class A DMUSX
Class B DUIBX
Class C DUICX
- --------------------------------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1994 through August 31, 2004
[GRAPHIC OMITTED]
DELAWARE TAX-FREE USA INTERMEDIATE FUND (A)
Fiscal years ended Aug 31
Inception date = 1/7/93
The Fund versus its benchmark, the
ERRILL LYNCH 3 - 7 YEAR MUNICIPAL BOND INDEX
FUND B/M Index
Beginning value: Aug 31, 1994 $ 9,727 $10,000
1995 $10,352 $10,679
1996 $10,819 $11,073
1997 $11,530 $11,771
1998 $12,362 $12,593
1999 $12,399 $12,894
2000 $13,102 $13,577
2001 $14,414 $14,912
2002 $15,227 $15,910
2003 $15,822 $16,529
Ending value: Aug 31, 2004 $16,986 $17,315
Chart assumes $10,000 invested on August 31, 1994 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. 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.
An expense limitation was in effect during the period shown. Performance would
have been lower had the expense limitation not been in effect.
The performance graph does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemption of Fund shares.
9
DELAWARE
NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges, and expenses of the investment carefully before
investing. The Delaware National High-Yield Municipal Bond Fund prospectus
contains this and other important information about the investment company.
Please request a prospectus by calling 800 523-1918. Read it carefully before
you invest or send money. Performance includes reinvestment of all
distributions.
FUND PERFORMANCE
Average Annual Total Returns
Through August 31, 2004 Lifetime 10 Years Five Years One Year
- ------------------------------------------------------------------------------------------------------------
Class A (Est. 9/22/86)
Excluding Sales Charge +6.84% +5.97% +4.86% +8.13%
Including Sales Charge +6.56% +5.48% +3.89% +3.25%
Class B (Est. 12/18/96)
Excluding Sales Charge +4.54% +4.05% +7.20%
Including Sales Charge +4.54% +3.80% +3.20%
Class C (Est. 5/26/97)
Excluding Sales Charge +4.39% +4.06% +7.19%
Including Sales Charge +4.39% +4.06% +6.19%
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Returns and share values will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost. Performance
for Class B and C shares, excluding sales charges, assumes either that
contingent deferred sales charges did not apply or the investment was not
redeemed. Past performance is not a guarantee of future results.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 4.50% and have an annual distribution and
service fee of up to 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 period shown. Performance would have
been lower had the expense limitation not been in effect.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
10
DELAWARE
NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
FUND BASICS
As of August 31, 2004
- --------------------------------------------------------------------------------
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:
$76.03 million
- --------------------------------------------------------------------------------
NUMBER OF HOLDINGS:
75
- --------------------------------------------------------------------------------
FUND START DATE:
September 22, 1986
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOUR FUND MANAGERS:
Patrick P. Coyne
Joseph R. Baxter
Robert F. Collins
- --------------------------------------------------------------------------------
NASDAQ SYMBOLS:
Class A CXHYX
Class B DVNYX
Class C DVHCX
- --------------------------------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1994 through August 31, 2004
[GRAPHIC OMITTED]
DELAWARE NATIONAL H.Y. MUNI BOND FUND (A)
Fiscal years ended Aug 31
Inception date = 9/2/86
The Fund versus its benchmark, the
LEHMAN BROTHERS MUNICIPAL BOND INDEX
FUND B/M Index
Beginning value: Aug 31, 1994 $ 9,548 $ 10,000
1995 $ 10,290 $ 10,886
1996 $ 11,032 $ 11,456
1997 $ 12,159 $ 12,514
1998 $ 13,271 $ 13,597
1999 $ 13,414 $ 13,665
2000 $ 13,660 $ 14,590
2001 $ 14,865 $ 16,077
2002 $ 15,251 $ 17,080
2003 $ 15,728 $ 17,617
Ending value: Aug 31, 2004 $ 17,008 $ 18,869
Chart assumes $10,000 invested on August 31, 1994 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.
An expense limitation was in effect during the period shown. Performance would
have been lower had the expense limitation not been in effect.
The performance graph does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemption of Fund shares.
11
DISCLOSURE For the period March 1, 2004 to August 31, 2004
OF FUND EXPENSES
As a shareholder of a fund, you incur two types of costs:
(1) transaction costs, including sales charges (loads) on purchase payments,
reinvested dividends, or other distributions; redemption fees; and exchange
fees; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other fund expenses. This Example is intended to help
you understand your ongoing costs (in dollars) of investing in a fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period March 1, 2004 to August 31, 2004.
ACTUAL EXPENSES
The first section of the table shown, "Actual Fund Return," provides information
about actual account values and actual expenses. You may use the information in
this section of the table, together with the amount you invested, to estimate
the expenses that you paid over the period. Simply divide your account value by
$1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then
multiply the result by the number in the first section under the heading
entitled "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant
to highlight your ongoing costs only and do not reflect any transactional costs,
such as sales charges (loads), redemption fees, or exchange fees. Therefore, the
second section of the table is useful in comparing ongoing costs only, and will
not help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. The Fund's actual expenses shown in the table reflect fee waivers, in
effect. The expenses shown in the table assume reinvestment of all dividends and
distributions.
In each case, "Expenses Paid During the Period" are equal to the Fund's
annualized expense ratio, multiplied by the average account value over the
period, multiplied by the 184/366 (to reflect the one-half year period).
DELAWARE TAX-FREE USA FUND(1)
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Beginning Ending Annualized Expenses
Account Account Expense Paid During
Value Value Ratio Period
3/1/04 8/31/04 3/1/04 to
8/31/04
- ---------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,002.20 0.87% $4.38
Class B 1,000.00 998.30 1.65% 8.29
Class C 1,000.00 998.30 1.65% 8.29
- ---------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.57 0.87% $4.43
Class B 1,000.00 1,016.60 1.65% 8.40
Class C 1,000.00 1,016.60 1.65% 8.40
- ---------------------------------------------------------------------------------------------------------------
(1) Effective November 1, 2004, the Fund's manager increased contractual
expense waivers in effect for the Fund, causing the expenses paid by the
Fund to decrease. Had the new expense waivers been in effect during the
period, the Fund's expense analysis would be as follows:
Beginning Ending Annualized Expenses
Account Account Expense Paid During
Value Value Ratio Period
3/1/04 8/31/04 3/1/04 to
8/31/04
- ---------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,002.35 0.84% $4.23
Class B 1,000.00 998.45 1.62% 8.14
Class C 1,000.00 998.45 1.62% 8.14
- ---------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.72 0.84% $4.28
Class B 1,000.00 1,016.75 1.62% 8.25
Class C 1,000.00 1,016.75 1.62% 8.25
- ---------------------------------------------------------------------------------------------------------------
12
In each case, "Expenses Paid During the Period" are equal to the Fund's
annualized expense ratio, multiplied by the average account value over the
period, multiplied by the 184/366 (to reflect the one-half year period).
DELAWARE TAX-FREE INSURED FUND(1)
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Beginning Ending Annualized Expenses
Account Account Expense Paid During
Value Value Ratio Period
3/1/04 8/31/04 3/1/04 to
8/31/04
- ---------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,002.60 0.93% $4.68
Class B 1,000.00 998.70 1.71% 8.59
Class C 1,000.00 998.70 1.71% 8.59
- ---------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.27 0.93% $4.73
Class B 1,000.00 1,016.30 1.71% 8.70
Class C 1,000.00 1,016.30 1.71% 8.70
- ---------------------------------------------------------------------------------------------------------------
(1) Effective November 1, 2004, the Fund's manager increased contractual
expense waivers in effect for the Fund, causing the expenses paid by the
Fund to decrease. Had the new expense waivers been in effect during the
period, the Fund's expense analysis would be as follows:
Beginning Ending Annualized Expenses
Account Account Expense Paid During
Value Value Ratio Period
3/1/04 8/31/04 3/1/04 to
8/31/04
- ---------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,002.80 0.89% $4.48
Class B 1,000.00 998.90 1.67% 8.39
Class C 1,000.00 998.90 1.67% 8.39
- ---------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.47 0.89% $4.53
Class B 1,000.00 1,016.50 1.67% 8.50
Class C 1,000.00 1,016.50 1.67% 8.50
- ---------------------------------------------------------------------------------------------------------------
In each case, "Expenses Paid During the Period" are equal to the Fund's
annualized expense ratio, multiplied by the average account value over the
period, multiplied by the 184/366 (to reflect the one-half year period).
DELAWARE TAX-FREE USA INTERMEDIATE FUND(2)
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Beginning Ending Annualized Expenses
Account Account Expense Paid During
Value Value Ratio Period
3/1/04 8/31/04 3/1/04 to
8/31/04
- ---------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,006.60 0.80% $4.04
Class B 1,000.00 1,001.40 1.65% 8.30
Class C 1,000.00 1,002.30 1.65% 8.30
- ---------------------------------------------------------------------------------------------------------------
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,020.93 0.80% $4.07
Class B 1,000.00 1,016.60 1.65% 8.40
Class C 1,000.00 1,016.60 1.65% 8.40
- ---------------------------------------------------------------------------------------------------------------
(2) Effective November 1, 2004, the Fund's manager increased contractual
expense waivers in effect for the Fund, causing the expenses paid by the
Fund to decrease. Had the new expense waivers been in effect during the
period, the Fund's expense analysis would be as follows:
Beginning Ending Annualized Expenses
Account Account Expense Paid During
Value Value Ratio Period
3/1/04 8/31/04 3/1/04 to
8/31/04
- ---------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,006.86 0.75% $3.78
Class B 1,000.00 1,001.66 1.60% 8.05
Class C 1,000.00 1,002.56 1.60% 8.05
- ---------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,021.18 0.75% $3.82
Class B 1,000.00 1,016.86 1.60% 8.14
Class C 1,000.00 1,016.86 1.60% 8.14
- ---------------------------------------------------------------------------------------------------------------
13
In each case, "Expenses Paid During the Period" are equal to the Fund's
annualized expense ratio, multiplied by the average account value over the
period, multiplied by the 184/366 (to reflect the one-half year period).
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND(1)
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Beginning Ending Annualized Expenses
Account Account Expense Paid During
Value Value Ratio Period
3/1/04 8/31/04 3/1/04 to
8/31/04
- ---------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,014.40 1.00% $5.06
Class B 1,000.00 1,009.50 1.75% 8.84
Class C 1,000.00 1,009.50 1.75% 8.84
- ---------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,019.91 1.00% $5.09
Class B 1,000.00 1,016.09 1.75% 8.91
Class C 1,000.00 1,016.09 1.75% 8.91
- ---------------------------------------------------------------------------------------------------------------
(1) Effective November 1, 2004, the Fund's manager increased contractual
expense waivers in effect for the Fund, causing the expenses paid by the
Fund to decrease. Had the new expense waivers been in effect during the
period, the Fund's expense analysis would be as follows:
Beginning Ending Annualized Expenses
Account Account Expense Paid During
Value Value Ratio Period
3/1/04 8/31/04 3/1/04 to
8/31/04
- ---------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,014.90 0.90% $4.56
Class B 1,000.00 1,010.00 1.65% 8.33
Class C 1,000.00 1,010.00 1.65% 8.33
- ---------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.42 0.90% $4.58
Class B 1,000.00 1,016.60 1.65% 8.40
Class C 1,000.00 1,016.60 1.65% 8.40
- ---------------------------------------------------------------------------------------------------------------
14
SECTOR ALLOCATION As of August 31, 2004
DELAWARE TAX-FREE USA FUND
The SEC adopted a requirement that all funds present their categories of
portfolio holdings in a table, chart, or graph format in their annual and
semiannual shareholder reports, whether or not a schedule of investments is
utilized. The following chart lists the Fund's categories of portfolio holdings,
as a percent of total net assets, and is provided in compliance with such
requirement.
PERCENTAGE
SECTOR OF NET ASSETS
- --------------------------------------------------------------------------
MUNICIPAL BONDS 97.13%
- --------------------------------------------------------------------------
Airline Revenue Bonds 2.12%
Airport Revenue Bonds 1.63%
City General Obligation Bonds 3.53%
Continuing Care/Retirement Revenue Bonds 2.02%
Corporate Backed Revenue Bonds 5.36%
Dedicated Tax & Fees Revenue Bonds 2.97%
Escrowed to Maturity Bonds 5.51%
Higher Education Revenue Bonds 9.88%
Hospital Revenue Bonds 12.44%
Investor Owned Utilities Revenue Bonds 14.55%
Miscellaneous Revenue Bonds 0.66%
Multi Family Housing Revenue Bonds 0.59%
Municipal Lease Revenue Bonds 5.91%
Pre-Refunded Bonds 4.75%
Public Utility District Revenue Bonds 3.19%
Recreational Area Revenue Bonds 0.24%
School District General Obligation Bonds 0.50%
Single Family Housing Revenue Bonds 0.50%
State General Obligation Bonds 1.07%
Territorial General Obligation Bonds 1.95%
Territorial Revenue Bonds 8.75%
Turnpike/Toll Road Revenue Bonds 5.78%
Water & Sewer Revenue Bonds 3.23%
- --------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES 1.61%
- --------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 98.74%
- --------------------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.26%
- --------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- --------------------------------------------------------------------------
15
SECTOR ALLOCATION As of August 31, 2004
DELAWARE TAX-FREE INSURED FUND
The following chart lists the Fund's categories of portfolio holdings, as a
percent of total net assets, and is provided in compliance with such
requirement.
PERCENTAGE
SECTOR OF NET ASSETS
- --------------------------------------------------------------------------
MUNICIPAL BONDS 94.58%
- --------------------------------------------------------------------------
Airport Revenue Bonds 4.08%
City General Obligation Bonds 7.95%
Continuing Care/Retirement Revenue Bonds 2.00%
Corporate Backed Revenue Bonds 1.23%
Dedicated Tax & Fees Revenue Bonds 1.89%
Higher Education Revenue Bonds 10.20%
Hospital Revenue Bonds 6.47%
Investor Owned Utilities Revenue Bonds 14.97%
Multi Family Housing Revenue Bonds 9.82%
Municipal Lease Revenue Bonds 6.23%
Political Subdivision General Obligation Bonds 0.95%
Pre-Refunded Bonds 2.53%
Public Utility District Revenue Bonds 5.34%
School District General Obligation Bonds 3.75%
Single Family Housing Revenue Bonds 1.36%
Territorial General Obligation Bonds 1.86%
Territorial Revenue Bonds 9.64%
Turnpike/Toll Road Revenue Bonds 2.65%
Water & Sewer Revenue Bonds 1.66%
- --------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES 3.65%
- --------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 98.23%
- --------------------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.77%
- --------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- --------------------------------------------------------------------------
16
SECTOR ALLOCATION As of August 31, 2004
DELAWARE TAX-FREE USA INTERMEDIATE FUND
The following chart lists the Fund's categories of portfolio holdings, as a
percent of total net assets, and is provided in compliance with such
requirement.
PERCENTAGE
SECTOR OF NET ASSETS
- --------------------------------------------------------------------------
MUNICIPAL BONDS 92.42%
- --------------------------------------------------------------------------
Airport Revenue Bonds 2.18%
City General Obligation Bonds 3.79%
Corporate Backed Revenue Bonds 8.12%
Dedicated Tax & Fees Revenue Bonds 1.68%
Escrowed to Maturity Bonds 0.22%
Higher Education Revenue Bonds 15.57%
Hospital Revenue Bonds 14.36%
Investor Owned Utilities Revenue Bonds 8.26%
Miscellaneous Revenue Bonds 2.13%
Municipal Lease Revenue Bonds 5.36%
Political Subdivision General Obligation Bonds 3.23%
Ports & Harbors Revenue Bonds 0.55%
Pre-Refunded Bonds 3.25%
Public Power Revenue Bonds 4.03%
Recreational Area Revenue Bonds 1.06%
School District General Obligation Bonds 3.49%
State General Obligation Bonds 3.05%
Territorial General Obligation Bonds 1.12%
Territorial Revenue Bonds 5.36%
Transportation Revenue Bonds 1.11%
Turnpike/Toll Road Revenue Bonds 2.18%
Water & Sewer Revenue Bonds 2.32%
- --------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES 5.48%
- --------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 97.90%
- --------------------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.10%
- --------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- --------------------------------------------------------------------------
17
SECTOR ALLOCATION As of August 31, 2004
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
The following chart lists the Fund's categories of portfolio holdings, as a
percent of total net assets, and is provided in compliance with such
requirement.
PERCENTAGE
SECTOR OF NET ASSETS
- --------------------------------------------------------------------------
MUNICIPAL BONDS 97.32%
- --------------------------------------------------------------------------
Airline Revenue Bonds 1.58%
Airport Revenue Bonds 3.32%
Continuing Care/Retirement Revenue Bonds 11.09%
Corporate-Backed Revenue Bonds 11.11%
Dedicated Tax & Fees Revenue Bonds 3.28%
Escrowed to Maturity Bonds 0.54%
Higher Education Revenue Bonds 19.76%
Hospital Revenue Bonds 13.48%
Investor Owned Utilities Revenue Bonds 10.99%
Miscellaneous Revenue Bonds 2.26%
Municipal Lease Revenue Bonds 5.46%
Political Subdivision General Obligation Bonds 1.49%
Pre-Refunded Bonds 8.25%
Recreational Area Revenue Bonds 1.05%
School Revenue Bonds 1.30%
Tax Increment/Special Assessment Bonds 2.36%
- --------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 97.32%
- --------------------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.68%
- --------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- --------------------------------------------------------------------------
18
STATEMENTS Delaware Tax-Free USA Fund
OF NET ASSETS August 31, 2004
Principal Market
Amount Value
MUNICIPAL BONDS - 97.13%
Airline Revenue Bonds - 2.12%
Kenton County, Kentucky Airport
Board Revenue (Delta Airlines, Inc.)
Series A 7.50% 2/1/12 (AMT) $ 5,000,000 $ 3,496,400
Minneapolis/St. Paul, Minnesota
Metropolitan Airports Commission
Special Facilities Revenue
(Northwest Airlines, Inc. Project)
Series A 7.00% 4/1/25 (AMT) 1,300,000 1,082,328
New Jersey Economic Development
Authority Special Facility Revenue
(Continental Airlines, Inc. Project)
6.25% 9/15/29 (AMT) 5,000,000 3,661,750
Tulsa, Oklahoma Municipal Airport
Trust Revenue (American Airlines Corp.)
7.35% 12/1/11 2,250,000 2,030,580
-----------
10,271,058
-----------
Airport Revenue Bonds - 1.63%
Capital Trust Agency Florida Revenue
(Orlando/Cargo Project)
6.75% 1/1/32 (AMT) 2,000,000 1,882,620
Grapevine, Texas Industrial Development
Corporate Revenue
(Air Cargo) 6.50% 1/1/24 (AMT) 920,000 942,880
Houston, Texas Industrial Development
Corporate Revenue
(Air Cargo) 6.375% 1/1/23 (AMT) 2,000,000 2,030,740
Metropolitan Washington D.C. Airport
Authority System Series A
5.25% 10/1/32 (FGIC) (AMT) 3,000,000 3,057,840
-----------
7,914,080
-----------
City General Obligation Bonds - 3.53%
New York City, New York
Series H 6.125% 8/1/25 4,960,000 5,434,077
Series I 5.125% 3/1/23 5,875,000 6,079,509
Series J 5.25% 6/1/28 5,400,000 5,584,410
-----------
17,097,996
-----------
Continuing Care/Retirement Revenue Bonds - 2.02%
Cass County, North Dakota Health
Facilities Revenue
(Catholic Health-Villa Nazareth Project)
6.25% 11/15/14 1,000,000 1,008,930
Colorado Health Facilities Authority
Revenue (Evangelical Lutheran)
Series A 5.25% 6/1/34 3,000,000 2,974,740
+Delaware County, Pennsylvania Authority
Revenue (Main Line & Haverford
Nursing and Rehabilitation Center)
9.00% 8/1/22 1,860,000 1,128,983
Gainesville & Hall County, Georgia
Development Authority Revenue
(Lanier Village Estates Project)
Series C 7.25% 11/15/29 1,000,000 1,062,140
Lucas County, Ohio Health Care
Facility Revenue
(Sunset Retirement Communities)
Series A 6.625% 8/15/30 2,000,000 2,082,720
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Continuing Care/Retirement Revenue Bonds (continued)
Waukesha, Wisconsin Housing Authority
(Westgrove Woods) Series A
6.00% 12/1/31 (GNMA) (AMT) $1,500,000 $ 1,539,630
-----------
9,797,143
-----------
Corporate Backed Revenue Bonds - 5.36%
Alliance, Texas Airport Authority Special
Facilities Revenue
(Federal Express Corp. Project)
6.375% 4/1/21 (AMT) 2,000,000 2,093,620
Ashland, Kentucky Sewer & Solid
Waste Revenue
(Ashland, Inc. Project)
7.125% 2/1/22 (AMT) 5,000,000 5,157,850
Cloquet, Minnesota Pollution Control
Revenue (Potlatch Corp.)
5.90% 10/1/26 1,695,000 1,692,610
+Columbus, Kansas Industrial Revenue
(ACE Electrical Acquisition)
7.00% 8/1/17 (AMT) 800,000 200,000
Indianapolis, Indiana Airport
Authority Revenue
(Federal Express Corp. Project)
5.10% 1/15/17 2,000,000 2,062,920
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 5,163,750
Phenix County, Alabama Industrial
Development Board Environmental
Improvement Revenue
(Mead Westvaco Corporation Project)
Series A 6.35% 5/15/35 (AMT) 3,000,000 3,142,770
Puerto Rico Industrial, Medical &
Environmental Pollution Control
Facilities Financing Authority Revenue
(PepsiCo, Inc. Project) 6.25% 11/15/13 1,250,000 1,306,500
Richmond County, Georgia Development
Authority Environmental Improvement
Revenue (International Paper Co.)
Series B 5.95% 11/15/25 (AMT) 5,000,000 5,146,850
-----------
25,966,870
-----------
Dedicated Tax & Fees Revenue Bonds - 2.97%
Bi-State Development Agency
Missouri, Illinois Metropolitan District
(Metrolink Cross County Project)
Series B 5.00% 10/1/32 (FSA) 2,000,000 2,046,540
New York City, New York Transitional
Finance Authority Series D
5.00% 2/1/31 5,000,000 5,059,750
Southeast Wisconsin Professional
Baseball Park District Sales Tax Revenue
Series A 5.50% 12/15/26 (MBIA) 5,500,000 6,222,480
Truth or Consequences, New Mexico
Gross Receipts Tax Revenue
6.30% 7/1/16 1,000,000 1,036,700
-----------
14,365,470
-----------
19
STATEMENTS Delaware Tax-Free USA Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Escrowed to Maturity Bonds - 5.51%
Louisiana Public Facilities Authority
Hospital Revenue
(Southern Baptist Hospital, Inc.)
8.00% 5/15/12 $ 6,135,000 $ 7,370,221
Oklahoma State Turnpike Authority
Revenue (First Senior)
6.00% 1/1/22 13,535,000 16,446,784
Virgin Islands Public Finance Authority
Revenue Series A 7.30% 10/1/18 2,200,000 2,891,966
-----------
26,708,971
-----------
Higher Education Revenue Bonds - 9.88%
California Educational Facilities Authority
Revenue (University of South California)
Series A 5.00% 10/1/33 8,000,000 8,153,440
Illinois Educational Facilities Authority
Student Housing Revenue
(Educational Advancement Fund-
University Center Project) 6.25% 5/1/30 5,000,000 5,201,150
Maryland State Economic Development
Corporation, Student Housing Revenue
(University of Maryland College
Park Project) 5.625% 6/1/35 1,125,000 1,153,316
Massachusetts State Health & Educational
Facilities Authority Revenue
(Nichols College Project) Series C
6.00% 10/1/17 1,000,000 1,046,540
6.125% 10/1/29 1,400,000 1,423,198
Middlesex County, New Jersey
Improvement Authority Revenue
(Street Student Housing Project)
Series A 5.00% 8/15/35 1,000,000 991,720
Milledgeville-Baldwin County, Georgia
Development Authority Revenue
(Georgia College & State University
Foundation) 6.00% 9/1/33 1,000,000 1,058,130
New Hampshire Higher Educational &
Health Facilities Authority Revenue
(New Hampton School Issue)
5.375% 10/1/28 3,070,000 2,856,543
New Jersey State Educational Facilities
Authority Revenue
(Stevens Institute of Technology)
Series B 5.25% 7/1/24 2,085,000 2,148,655
++New York State Dormitory Authority
Revenues (Drivers-107) Inverse Floater
11.883% 5/15/15 (MBIA) 10,500,000 14,497,035
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 4,755,120
University of California Revenues
Series A 5.00% 5/15/33 (AMBAC) 3,500,000 3,567,795
Vermont University & State Agriculture
College 5.125% 10/1/37 (AMBAC) 1,000,000 1,026,100
-----------
47,878,742
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds - 12.44%
Akron Bath Copley, Ohio Joint Township
Hospital District Revenue
(Summa Health System)
Series A 5.25% 11/15/31 (RADIAN) $3,000,000 $3,078,210
Cando, North Dakota Nursing Facility
Revenue (Towner County Medical
Center Project) 7.125% 8/1/22 1,000,000 1,014,010
Chatham County, Georgia Hospital
Authority Revenue
(Memorial Health Medical Center)
Series A 6.125% 1/1/24 1,000,000 1,065,760
Cuyahoga County, Ohio Revenue
(Cleveland Clinic Health Systems)
Series A 5.50% 1/1/29 7,500,000 7,729,500
Duluth Economic Development Authority
Health Care Facilities Revenue
Benedictine Health System
(St. Mary's Hospital) 5.25% 2/15/33 6,325,000 6,301,661
Florence County, South Carolina
Hospital Revenue (McLeod Regional
Medical Center Project) Series A
5.25% 11/1/27 (FSA) 2,355,000 2,460,716
Henrico County, Virginia Economic
Development Authority Revenue
(Bon Secours Health System, Inc.)
Series A 5.60% 11/15/30 2,000,000 2,057,560
Illinois Health Facilities Authority Revenue
(Elmhurst Memorial Healthcare Project)
5.625% 1/1/28 2,000,000 2,056,060
Louisiana Public Facilities Authority
Revenue (Ochsner Clinic Foundation
Project) Series B 5.50% 5/15/32 1,500,000 1,527,375
Maryland State Health & Higher
Educational Facilities Authority
Revenue (Sheppard Pratt) Series A
5.25% 7/1/35 1,900,000 1,931,540
Michigan State Hospital Finance
Authority Revenue
(Ascension Health Credit Group)
Series B 5.25% 11/15/26 3,500,000 3,606,645
(Oakwood Obligation Group)
Series A 5.75% 4/1/32 2,500,000 2,589,725
(Trinity Health Credit)
Series C 5.375% 12/1/30 6,000,000 6,180,780
Multnomah County, Oregon Hospital
Facilities Authority Revenue
(Providence Health System)
5.25% 10/1/22 3,000,000 3,185,670
New Jersey Health Care Facilities
Financing Authority Revenue
(Capital Health System Obligation
Group Project) Series A 5.375% 7/1/33 750,000 753,608
North Carolina Medical Care Commission
Hospital Revenue
(Northeast Medical Center Project)
5.125% 11/1/34 2,000,000 2,021,500
20
STATEMENTS Delaware Tax-Free USA Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds (continued)
North Carolina Medical Care
Commission Revenue
(Rowan Regional Medical Project)
5.00% 9/1/33 (FHA) (FSA) $2,000,000 $ 2,021,960
Prince William County, Virginia Industrial
Development Authority Hospital
Revenue (Potomac Hospital Corp.)
5.35% 10/1/36 1,750,000 1,783,338
South Carolina Jobs Economic Development
Authority Revenue
(Bon Secours Health System, Inc.)
Series A 5.625% 11/15/30 4,750,000 4,808,995
South Miami, Florida Health Facilities
Authority Hospital Revenue
(Baptist Health South Florida Group)
5.25% 11/15/33 4,000,000 4,071,960
-----------
60,246,573
-----------
Investor Owned Utilities Revenue Bonds - 14.55%
Brazos River Authority Texas Pollution
Revenue (TXU Energy Co. Project)
Series B 6.30% 7/1/32 (AMT) 3,500,000 3,597,720
Claiborne County, Mississippi Pollution
Control Revenue
(System Energy Resources, Inc. Project)
7.30% 5/1/25 3,000,000 3,011,700
Clark County, Nevada Industrial
Development Revenue
(Nevada Power Co. Project)
Series C 7.20% 10/1/22 8,000,000 8,161,600
Luzerne County, Pennsylvania Industrial
Development Authority
(Pennsylvania Gas & Water Co. Project)
Series A 7.00% 12/1/17 (AMBAC) (AMT) 4,000,000 4,131,360
Midland County, Michigan Economic
Development Subordinate
Limited Obligation
(Midland Congeneration Project)
Series A 6.875% 7/23/09 (AMT) 3,050,000 3,137,718
Mississippi Business Finance Corporation
Pollution Control Revenue
(System Energy Resources, Inc. Project)
5.90% 5/1/22 3,000,000 3,030,720
Petersburg, Indiana Pollution Control
Revenue (Indianapolis Power &
Light Co. Project)
6.375% 11/1/29 (AMT) 4,250,000 4,427,183
6.625% 12/1/24 4,500,000 4,620,105
Port Morrow, Oregon Pollution Control
Revenue (Portland General Electric Co.)
Series A 5.20% 5/1/33 2,000,000 2,121,760
Sabine River Authority, Texas Pollution
Control Revenue
(Southwestern Electric Power Co.)
6.10% 4/1/18 (MBIA) 4,000,000 4,297,120
Suffolk County, New York Industrial
Agency Development Revenue
(Keyspan-Port Jefferson Project)
5.25% 6/1/27 (AMT) 3,500,000 3,553,935
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Investor Owned Utilities Revenue Bonds (continued)
Sweetwater County, Wyoming Pollution
Control Revenue
(Idaho Power Co. Project)
Series A 6.05% 7/15/26 $5,000,000 $ 5,313,650
West Feliciana Parish, Louisiana Pollution
Control Revenue
(Gulf States Utilities Co. Project)
Series A 7.50% 5/1/15 20,700,000 21,061,008
-----------
70,465,579
-----------
Miscellaneous Revenue Bonds - 0.66%
Director State, Nevada Department of
Business & Industry 2nd Tier
(Las Vegas Monorail Project)
7.375% 1/1/40 1,000,000 981,380
Wisconsin Center District Tax Revenue
(Junior Dedicated)
5.25% 12/15/23 (FSA) 2,000,000 2,229,060
-----------
3,210,440
-----------
Multi Family Housing Revenue Bonds - 0.59%
Milwaukee, Wisconsin Redevelopment
Authority Multifamily Revenue
(City Hall Square)
6.30% 8/1/38 (FHA) (AMT) 1,455,000 1,517,754
North Dakota State Housing Finance
Agency Multifamily Revenue
Series A 6.15% 12/1/17 (FNMA) 1,300,000 1,352,221
-----------
2,869,975
-----------
Municipal Lease Revenue Bonds - 5.91%
Alexandria, Virginia Industrial
Development Authority Revenue
(Institute for Defense Analyses)
Series A 5.90% 10/1/30 (AMBAC) 5,000,000 5,605,400
Cudahy, Wisconsin Community
Development Authority Lease
Revenue 6.00% 6/1/11 1,000,000 1,068,610
Golden State, California Tobacco
Securitization Corporation Settlement
Revenue Series B
5.50% 6/1/43 7,500,000 7,706,325
5.625% 6/1/38 7,500,000 7,766,475
Idaho State Building Authority Revenue
Series A 5.00% 9/1/43 (XLCA) 1,000,000 1,014,170
Linn County, Kansas Certificates
of Participation 7.25% 3/1/13 (AMT) 350,000 335,380
Missouri State Development Finance
Board Infrastructure Facilities Revenue
(Branson Landing Project) Series A
5.50% 12/1/24 980,000 1,015,074
5.625% 12/1/28 2,930,000 3,036,066
New Jersey Economic Development
Authority Revenue Series I
5.25% 9/1/24 1,000,000 1,055,740
-----------
28,603,240
-----------
21
STATEMENTS Delaware Tax-Free USA Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
*Pre-Refunded Bonds - 4.75%
Michigan State Hospital Finance
Authority Revenue
(Genesys Health Systems) Series A
7.50% 10/1/27-05 $8,130,000 $ 8,649,832
8.125% 10/1/21-05 4,000,000 4,359,200
Mississippi Development Bank
Special Obligation
(Madison County Hospital Project)
6.30% 7/1/22-09 2,070,000 2,433,037
New York City, New York Series H
6.125% 8/1/25-07 40,000 45,047
North Dakota State Building Authority
Lease Revenue Series A
6.10% 12/1/16-04 (FSA) 1,480,000 1,497,760
Puerto Rico Commonwealth Public
Improvement Series A
5.125% 7/1/31-11 3,495,000 3,928,834
Southeast Wisconsin Professional
Baseball Park District Sales Tax Revenue
5.80% 12/15/26-07 (MBIA) 1,000,000 1,102,990
Wisconsin Housing Finance Authority
Revenue 6.10% 6/1/21-17 (FHA) 865,000 990,269
-----------
23,006,969
-----------
Public Utility District Revenue Bonds - 3.19%
Chelan County, Washington Public Utilities
District #001 Consolidated Revenue
(Chelan Hydro System) Series A
5.45% 7/1/37 (AMBAC) (AMT) 5,000,000 5,181,050
Richmond, Virginia Public Utilities Revenue
5.00% 1/15/27 (FSA) 10,000,000 10,249,100
-----------
15,430,150
-----------
Recreational Area Revenue Bonds - 0.24%
Santa Fe, New Mexico Municipal Recreation
Complex Net Revenue 5.625% 12/1/23 1,190,000 1,184,348
-----------
1,184,348
-----------
School District General Obligation Bonds - 0.50%
Lewisville, Texas Independent School
District Permanent School Fund
6.15% 8/15/21 2,160,000 2,442,528
-----------
2,442,528
-----------
Single Family Housing Revenue Bonds - 0.50%
New Mexico Mortgage Finance Authority
Series B Class III 6.75% 7/1/25
(FNMA) (GNMA) 410,000 413,797
Series E 6.95% 1/1/26 (FNMA) (GNMA) 405,000 411,691
Series F 6.85% 1/1/21 (FNMA) (GNMA) 20,000 20,184
North Dakota State Housing Finance
Agency Revenue
Series A 6.30% 7/1/16 (AMT) 630,000 658,066
Series B 6.25% 1/1/17 (AMT) 525,000 531,027
Santa Fe, New Mexico Single Family
Mortgage Revenue
6.20% 11/1/16 (FNMA) (GNMA) (AMT) 285,000 286,835
Utah State Housing Finance Agency
Single Family Mortgage
Series A 7.20% 1/1/27 (FHA) (VA) (AMT) 90,000 92,269
-----------
2,413,869
-----------
Principal Market
Amount Value
Municipal Bonds (continued)
State General Obligation Bonds - 1.07%
California State 5.25% 4/1/34 $ 5,000,000 $ 5,160,150
-----------
5,160,150
-----------
Territorial General Obligation Bonds - 1.95%
Puerto Rico Commonwealth
Public Improvement
5.375% 7/1/21 (MBIA) 50,000 55,429
Series A 5.50% 7/1/19 (MBIA) 8,000,000 9,376,560
-----------
9,431,989
-----------
Territorial Revenue Bonds - 8.75%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series G 5.00% 7/1/42 10,000,000 10,020,600
Puerto Rico Commonwealth Industrial
Development Company General
Purpose Revenues Series B
5.375% 7/1/16 1,000,000 1,082,220
Puerto Rico Commonwealth Public
Improvement Series A 5.125% 7/1/31 6,880,000 6,996,478
Puerto Rico Electric Power
Authority Revenue
Series II 5.25% 7/1/31 6,000,000 6,196,500
Series U 6.00% 7/1/14 2,550,000 2,609,823
Puerto Rico Housing, Bank & Finance
Agency Single Family Mortgage
Revenue 6.25% 4/1/29 (FHLMC)
(FNMA) (GNMA) (AMT) 1,240,000 1,273,257
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 1,240,380
Puerto Rico Public Buildings Authority
Revenue 5.25% 7/1/33 12,000,000 12,418,560
Virgin Islands Water & Power Authority
Water System Revenue 5.50% 7/1/17 510,000 521,822
-----------
42,359,640
-----------
Turnpike/Toll Road Revenue Bonds - 5.78%
New Jersey State Highway Authority
Garden State Parkway General Revenue
(Senior Parkway)
5.50% 1/1/14 (FGIC) 5,000,000 5,775,050
5.50% 1/1/15 (FGIC) 7,310,000 8,475,287
Ohio State Turnpike Commission
Revenue Series A
5.50% 2/15/24 (FGIC) 5,000,000 5,703,250
5.50% 2/15/26 (FGIC) 2,590,000 2,926,648
Pennsylvania State Turnpike Commission
Revenue Series A
5.00% 12/1/34 (AMBAC) 5,000,000 5,106,650
-----------
27,986,885
-----------
22
STATEMENTS Delaware Tax-Free USA Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Water & Sewer Revenue Bonds - 3.23%
New York City, New York Municipal Water
Finance Authority Water & Sewer
System Revenue Series A
5.125% 6/15/34 $ 12,125,000 $ 12,377,685
West Virginia State Water Development
Authority Revenue (Loan Program III)
Series A 6.375% 7/1/39 (AMBAC) (AMT) 2,890,000 3,286,103
------------
15,663,788
------------
Total Municipal Bonds
(cost $443,515,055) 470,476,453
------------
**Variable Rate Demand Notes - 1.61%
Continuing Care/Retirement Revenue Bonds - 1.19%
Philadelphia, Pennsylvania Authority for
Industrial Development Revenues
(Newcourtland Elder Services Project)
1.37% 3/1/27 (LOC PNC Bank) 5,775,000 5,775,000
------------
5,775,000
------------
Power Authority Revenue Bonds - 0.42%
California State Department Water Reserve
Power Supply Revenue Series C-7
1.33% 5/1/22 (FSA)
(SPA Dexia Credit Local) 2,000,000 2,000,000
------------
2,000,000
------------
TOTAL VARIABLE RATE DEMAND NOTES
(cost $7,775,000) 7,775,000
------------
TOTAL MARKET VALUE OF SECURITIES - 98.74%
(cost $451,290,055) 478,251,453
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.26% 6,120,802
------------
NET ASSETS APPLICABLE TO 42,275,098 SHARES
OUTSTANDING - 100.00% $484,372,255
------------
Net Asset Value - Delaware Tax-Free USA Fund Class A
($456,191,836 / 39,815,463 Shares) $ 11.46
------------
Net Asset Value - Delaware Tax-Free USA Fund Class B
($22,396,155 / 1,954,793 Shares) $ 11.46
------------
Net Asset Value - Delaware Tax-Free USA Fund Class C
($5,784,264 / 504,842 Shares) $ 11.46
------------
Components of Net Assets at August 31, 2004:
Shares of beneficial interest
(unlimited authorization -- no par) $468,251,368
Distributions in excess of net investment income (12,071)
Accumulated net realized loss on investments (10,828,440)
Net unrealized appreciation of investments 26,961,398
-------------
Total net assets $484,372,255
-------------
*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, 2004.
+Non-income producing security. Security is currently in default.
++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, 2004.
SUMMARY OF ABBREVIATIONS:
Ambac - Insured by the AMBAC Assurance Corporation A
MT - 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
RADIAN - Insured by Radian Asset Assurance
SPA - Stand-by Purchase Agreement
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) $11.46
Sales charge (4.50% of offering price, or 4.71% of
amount invested per share) (B) 0.54
--------
Offering price $12.00
--------
(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
23
STATEMENTS Delaware Tax-Free Insured Fund
OF NET ASSETS (CONTINUED) August 31, 2004
Principal Market
Amount Value
MUNICIPAL BONDS - 94.58%
Airport Revenue Bonds - 4.08%
Dallas-Fort Worth, Texas International
Airport Revenue Series A
5.50% 11/1/31 (FGIC) (AMT) $1,500,000 $1,556,940
Metropolitan Washington D.C. Airport
Authority System Series A
5.25% 10/1/32 (FGIC) (AMT) 1,000,000 1,019,280
----------
2,576,220
----------
City General Obligation Bonds - 7.95%
Melrose Park, Illinois Tax Increment
Series B 6.00% 12/15/19 (FSA) 1,250,000 1,443,638
Powell, Ohio 5.50% 12/1/32 (FGIC) 2,000,000 2,142,960
Vancouver, Washington Limited Tax
5.50% 12/1/25 (AMBAC) 1,250,000 1,427,675
----------
5,014,273
----------
Continuing Care/Retirement Revenue Bonds - 2.00%
Colorado Health Facilities Authority
Revenue (Evangelical Lutheran)
Series A 5.25% 6/1/34 1,275,000 1,264,265
----------
1,264,265
----------
Corporate Backed Revenue Bonds - 1.23%
Indianapolis, Indiana Airport Authority
Revenue (Federal Express Corp. Project)
5.10% 1/15/17 750,000 773,595
----------
773,595
----------
Dedicated Tax & Fees Revenue Bonds - 1.89%
Tampa, Florida Sports Authority Revenue
(Tampa Bay Arena Project) Sales Tax
5.75% 10/1/20 (MBIA) 1,000,000 1,190,920
----------
1,190,920
----------
Higher Education Revenue Bonds - 10.20%
Amherst, New York Industrial Agency
Civic Facilities Revenue
(UBF Faculty Student Housing)
Series A 5.75% 8/1/30 (AMBAC) 1,300,000 1,440,126
Illinois Educational Facilities Authority
Student Housing Revenue
(Educational Advancement Funding -
University Center Project) 6.25% 5/1/34 1,000,000 1,026,820
Massachusetts State Development
Finance Agency Revenue
(Massachusetts College of
Pharmacy Project) Series C
5.75% 7/1/33 500,000 515,985
Massachusetts State Industrial Finance
Agency Revenue Higher Education
(Clark University Project) 6.10% 7/1/16 1,250,000 1,320,913
New York State Dormitory Authority
Revenue (Fashion Institute Student
Housing Corp.) 5.00% 7/1/13 (FGIC) 1,000,000 1,115,900
Pennsylvania State Higher Educational
Facilities Authority Revenue
(Widener University) 5.375% 7/15/29 1,000,000 1,018,290
----------
6,438,034
----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds - 6.47%
Florence County, South Carolina
Hospital Revenue (McLeod Regional
Medical Center Project)
Series A 5.25% 11/1/27 (FSA) $1,000,000 $1,044,890
Knox County, Tennessee Health
Educational & Housing Facilities
Board Hospital Revenue
(East Tennessee Hospital Project)
Series B 5.75% 7/1/33 1,000,000 1,019,670
North Carolina Medical Care Commission
Revenue (Rowan Regional
Medical Project)
5.00% 9/1/33 (FHA) (FSA) 1,000,000 1,010,980
Prince William County, Virginia
Industrial Development Authority
Hospital Revenue
(Potomac Hospital Project)
5.20% 10/1/30 1,000,000 1,008,090
----------
4,083,630
----------
Investor Owned Utilities Revenue Bonds - 14.97%
Luzerne County, Pennsylvania Industrial
Development Authority
(Pennsylvania Gas & Water Co. Project)
Series A 7.00% 12/1/17 (AMBAC) (AMT) 1,000,000 1,032,840
Mason County, West Virginia Pollution
Control Revenue
(Appalachian Power Co. Project)
Series K 6.05% 12/1/24 (AMBAC) 3,000,000 3,426,180
Petersburg, Indiana Pollution
Control Revenue
(Indianapolis Power & Light Co. Project)
6.375% 11/1/29 (AMT) 750,000 781,268
Salem County, New Jersey Industrial
Pollution Control Financing
Authority Revenue
(Public Service Electric & Gas)
Series D 6.55% 10/1/29 (MBIA) 3,600,000 3,687,587
South Carolina Jobs Economic
Development Authority
Industrial Revenue (South Carolina
Electric & Gas Co. Project) Series B
5.45% 11/1/32 (AMBAC) (AMT) 500,000 520,165
----------
9,448,040
----------
Multi Family Housing Revenue Bonds - 9.82%
Franklin County, Ohio Multi Family Revenue
(Alger Green) Series A
5.80% 5/20/44 (GNMA) (AMT) 1,150,000 1,200,945
Illinois Development Finance Authority
Revenue (Section 8) Series A
5.80% 7/1/28 (FHA) (MBIA) 2,790,000 2,900,093
Illinois Housing Development Authority
Multi Family Revenue
(Crystal Lake Preservation)
Series A-1 5.80% 12/20/41 (GNMA) 2,000,000 2,099,700
----------
6,200,738
----------
24
STATEMENTS Delaware Tax-Free Insured Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Municipal Lease Revenue Bonds - 6.23%
Alexandria, Virginia Industrial
Development Authority Revenue
(Institute for Defense Analyses)
Series A 5.90% 10/1/30 (AMBAC) $1,000,000 $1,121,080
Golden State, California Tobacco
Securitization Corporation Settlement
Revenue Series B 5.50% 6/1/43 1,000,000 1,027,510
Loudoun County, Virginia Industrial
Development Authority Public Safety
Facility Lease Revenue
Series A 5.25% 12/15/23 (FSA) 700,000 750,029
Missouri State Development Finance
Board Infrastructure Facilities Revenue
(Branson Landing Project) Series A
5.50% 12/1/24 1,000,000 1,035,790
----------
3,934,409
----------
Political Subdivision General Obligation Bonds - 0.95%
State Clair County, Michigan
5.00% 4/1/21 (AMBAC) 565,000 598,736
----------
598,736
----------
*Pre-Refunded Bonds - 2.53%
Michigan State Hospital Finance
Authority Revenue
(Genesys Health Systems)
Series A 7.50% 10/1/27-05 1,500,000 1,595,910
----------
1,595,910
----------
Public Utility District Revenue Bonds - 5.34%
Austin, Texas Revenue Subordinate Lien
5.25% 5/15/20 (MBIA) 3,000,000 3,372,270
----------
3,372,270
----------
School District General Obligation Bonds - 3.75%
Jackson, Ohio Local School District
(Stark & Summit Counties)
School Facilities Construction &
Improvement 5.625% 12/1/25 (FSA) 1,000,000 1,098,930
Pomona, California United School District
Series A 6.55% 8/1/29 (MBIA) 1,000,000 1,270,730
----------
2,369,660
----------
Single Family Housing Revenue Bonds - 1.36%
New Mexico Mortgage Finance Authority
Single Family Mortgage Program
Series C 6.20% 7/1/26 (FNMA) (GNMA) 830,000 855,257
----------
855,257
----------
Territorial General Obligation Bonds - 1.86%
Puerto Rico Commonwealth Public
Improvement Series A
5.50% 7/1/19 (MBIA) 1,000,000 1,172,070
----------
1,172,070
----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Territorial Revenue Bonds - 9.64%
Puerto Rico Commonwealth
Highway & Transportation Authority
Revenue Series E
5.50% 7/1/17 (FSA) $ 1,250,000 $ 1,463,488
5.50% 7/1/19 (FSA) 3,000,000 3,516,210
Puerto Rico Public Buildings Authority
Revenue Series J
5.00% 7/1/36 (AMBAC) 1,000,000 1,101,950
-----------
6,081,648
-----------
Turnpike/Toll Road Revenue Bonds - 2.65%
New Jersey State Highway Authority Garden
State Parkway General Revenue
5.50% 1/1/16 (FGIC) 1,000,000 1,161,820
Pennsylvania State Turnpike Commission
Revenue Series A
5.00% 12/1/34 (AMBAC) 500,000 510,665
-----------
1,672,485
-----------
Water & Sewer Revenue Bonds - 1.66%
Fulton County, Georgia Water & Sewer
Revenue 5.25% 1/1/35 (FGIC) 1,000,000 1,048,960
-----------
1,048,960
-----------
TOTAL MUNICIPAL BONDS
(cost $55,752,611) 59,691,120
-----------
**VARIABLE RATE DEMAND NOTES - 3.65%
Municipal Lease General Obligation Bonds - 3.65%
Los Angeles, California Convention &
Exhibition Center Authority Lease
Revenue Series D
1.32% 8/15/21 (AMBAC) 2,305,000 2,305,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES
(cost $2,305,000) 2,305,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 98.23%
(cost $58,057,611) 61,996,120
RECEIVABLES AND OTHER ASSETS NET
OF LIABILITIES - 1.77% 1,119,272
-----------
NET ASSETS APPLICABLE TO 5,678,975 SHARES
OUTSTANDING - 100.00% $63,115,392
-----------
Net Asset Value - Delaware Tax-Free Insured Fund
Class A ($54,383,567 / 4,893,335 Shares) $11.11
---------
Net Asset Value - Delaware Tax-Free Insured Fund
Class B ($6,728,342 / 605,384 Shares) $11.11
---------
Net Asset Value - Delaware Tax-Free Insured Fund
Class C ($2,003,483 / 180,256 Shares) $11.11
---------
25
STATEMENTS Delaware Tax-Free Insured Fund
OF NET ASSETS (CONTINUED)
COMPONENTS OF NET ASSETS AT AUGUST 31, 2004:
Shares of beneficial interest
(unlimited authorization - no par) $59,183,304
Distributions in excess of net investment income (1,790)
Accumulated net realized loss on investments (4,631)
Net unrealized appreciation of investments 3,938,509
-----------
Total net assets $63,115,392
-----------
* 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, 2004.
SUMMARY OF ABBREVIATIONS:
Ambac - Insured by the AMBAC Assurance 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
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) $11.11
Sales charge (4.50% offering price, or 4.68% of amount
invested per share) (B) 0.52
------
Offering price $11.63
------
(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
26
STATEMENTS Delaware Tax-Free USA Intermediate Fund
OF NET ASSETS (CONTINUED) August 31, 2004
Principal Market
Amount Value
MUNICIPAL BONDS - 92.42%
Airport Revenue Bonds - 2.18%
Chicago, Illinois O' Hare International
Airport Revenue Third Lien Series A-2
5.75% 1/1/20 (FSA) (AMT) $1,000,000 $1,103,560
Metropolitan, Washington D.C. Airport
Authority Systems Series A
5.50% 10/1/19 (FGIC) (AMT) 1,000,000 1,082,760
----------
2,186,320
----------
City General Obligation Bonds - 3.79%
New York City, New York
Series G 5.25% 8/1/15 1,000,000 1,093,550
Series J 5.50% 6/1/23 1,000,000 1,079,480
Powell, Ohio 5.50% 12/1/25 (FGIC) 1,500,000 1,626,510
----------
3,799,540
----------
Corporate Backed Revenue Bonds - 8.12%
Alliance, Texas Airport Authority Special
Facilities Revenue
(Federal Express Corp. Project)
6.375% 4/1/21 (AMT) 1,000,000 1,046,810
Cartersville, Georgia Development
Authority Waste & Wastewater
Facilities Revenue
(Anheuser Busch Project)
5.10% 2/1/12 (AMT) 450,000 488,246
Indianapolis, Indiana Airport
Authority Revenue
(Federal Express Corp. Project)
5.10% 1/15/17 750,000 773,595
Michigan State Strategic Funding
Limited Obligation Revenue
(Detroit Edison Co. Project)
Series A 5.50% 6/1/30 (XLCA) (AMT) 1,000,000 1,047,530
Ohio State Air Quality Development
Authority Revenue Environmental
Improvement (USX Project)
5.00% 11/1/15 1,000,000 1,078,230
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 1,032,750
Prattville, Alabama Industrial
Development Board Environmental
Improvement Revenue
(International Paper Co. Project)
Series A 6.70% 3/1/24 (AMT) 1,000,000 1,082,230
Sugar Creek, Missouri Industrial
Development Revenue
(Lafarge North America) Series A
5.65% 6/1/37 (AMT) 500,000 502,670
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 1,099,640
----------
8,151,701
----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Dedicated Tax & Fees Revenue Bonds - 1.68%
Casa Grande, Arizona Excise Tax Revenue
5.00% 4/1/22 (AMBAC) $1,600,000 $1,687,792
----------
1,687,792
----------
Escrowed to Maturity Bonds - 0.22%
Metropolitan Pier & Exposition Authority
Illinois Hospitality Facilities
(McCormick Place Convention Center)
5.75% 7/1/06 215,000 225,339
----------
225,339
----------
Higher Education Revenue Bonds - 15.57%
Allegheny County, Pennsylvania Higher
Education Building Authority
University Revenue
(Duquesne University) Series A
5.00% 3/1/16 (FGIC) 1,000,000 1,093,690
Forest Grove, Oregon Revenue Campus
(Pacific University)
6.30% 5/1/25 (RADIAN) 1,000,000 1,121,389
Fulton County, Georgia Development
Authority Revenue
(Molecular Science Building Project)
5.25% 5/1/21 (MBIA) 1,000,000 1,087,220
Illinois Educational Facilities Authority
Student Housing Revenue
(Educational Advancement -
University Center Project)
6.00% 5/1/22 750,000 779,963
Massachusetts State Health &
Educational Facilities Authority
Revenue (Nichols College Issue)
Series C 6.125% 10/1/29 1,000,000 1,016,570
Michigan Higher Education Facilities
Authority Revenue
(Kalamazoo College Project)
5.50% 12/1/19 500,000 542,715
New Jersey State Educational Facilities
Authority Revenue
(Georgian Court College Project)
Series C 6.50% 7/1/33 500,000 552,045
New York State Dormitory
Authority Revenue
(Brooklyn Law School)
Series A 5.50% 7/1/18 (RADIAN) 1,000,000 1,101,650
New York State Dormitory
Authority Revenue
(Fashion Institute Student
Housing Corp.) 5.00% 7/1/13 (FGIC) 1,000,000 1,115,900
(Long Island University) Series B
5.50% 9/1/20 (RADIAN) 1,000,000 1,081,020
Ohio State Higher Educational Facility
Commission Revenue
(John Carroll University) 5.50% 11/15/18 335,000 373,086
Ohio State Higher Educational Facility
Revenue (Kenyon College Project)
4.70% 7/1/37 1,000,000 1,056,190
Ohio State University General Receipts
Series B 5.25% 6/1/21 1,000,000 1,077,290
27
STATEMENTS Delaware Tax-Free USA Intermediate Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Higher Education Revenue Bonds (continued)
Pennsylvania State Higher Educational
Facilities Authority College &
University Revenue
(Geneva College Project)
6.125% 4/1/22 $1,000,000 $1,044,890
South Carolina Educational
Facilities Authority For Private
Nonprofit Institutions
(Southern Wesleyan University)
5.00% 3/1/20 1,200,000 1,203,599
University of California Revenue
Series A 5.125% 5/15/20 (AMBAC) 250,000 268,493
University of Oklahoma Research Facilities
5.00% 3/1/23 (AMBAC) 1,065,000 1,114,906
----------
15,630,616
----------
Hospital Revenue Bonds - 14.36%
Carrington, North Dakota Health
Facilities Revenue
(Carrington Health Center Project)
6.25% 11/15/15 500,000 502,220
Chatham County, Georgia Hospital
Authority Revenue
(Memorial Health Medical Center)
Series A 6.125% 1/1/24 1,000,000 1,065,760
Cuyahoga County, Ohio Revenue
(Cleveland Clinic Health System)
Series A 6.00% 1/1/21 1,000,000 1,097,190
Duluth, Minnesota Economic Development
Authority Health Care Facilities
Revenue Benedictine Health System
(St. Mary's Hospital) 5.50% 2/15/23 1,000,000 1,032,340
Florence County, South Carolina Hospital
Revenue (McLeod Regional Medical
Center Project) Series A
5.25% 11/1/27 (FSA) 1,000,000 1,044,890
Indiana Health Facility Financing
Authority Hospital Revenue
(Deaconess Hospital Obligation)
Series A 5.375% 3/1/29 (AMBAC) 700,000 732,592
Lancaster County, Pennsylvania
Hospital Authority Revenue
(Lancaster General Hospital Project)
5.75% 3/15/21 1,000,000 1,059,430
Maryland State Health & Higher Education
Facilities Authority Revenue
(Union Hospital of Cecil County)
5.625% 7/1/32 500,000 518,865
Michigan State Hospital Finance Authority
Revenue (Trinity Health Credit) Series C
5.375% 12/1/23 500,000 524,740
Minneapolis, Minnesota Health Care
System Revenue (Allina Health Systems)
Series A 5.75% 11/15/32 500,000 520,675
Multnomah County, Oregon Hospital
Facilities Authority Revenue
(Providence Health System)
5.25% 10/1/22 1,000,000 1,061,890
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds (continued)
New Hampshire Health & Education
Facilities Authority Revenue
(Elliot Hospital) Series B
5.60% 10/1/22 $ 1,000,000 $ 1,018,250
North Texas Health Facilities Development
Corporation Hospital Revenue
(United Regional Health Care
System, Inc. Project) 6.00% 9/1/23 1,000,000 1,047,770
Prince William County, Virginia Industrial
Development Authority Hospital
Revenue (Potomac Hospital Project)
5.20% 10/1/30 545,000 549,409
Southcentral, Pennsylvania General
Authority Revenue
(Wellspan Health Obligated Project)
5.625% 5/15/26 1,000,000 1,047,620
Terrebonne Parish, Louisiana Hospital
Service District #1 Hospital Revenue
(Terrebonne General Medical
Center Project) 5.50% 4/1/33 (AMBAC) 1,500,000 1,592,865
-----------
14,416,506
-----------
Investor Owned Utilities Revenue Bonds - 8.26%
Cambria County, Pennsylvania Industrial
Development Authority Pollution
Control Revenue
(Pennsylvania Electric Co. Project)
Series A 5.80% 11/1/20 (MBIA) 500,000 530,395
Connecticut State Development
Authority Pollution Control Revenue
(Connecticut Light & Power Co.)
3.35% 5/1/31-08 (Mandatory Put)
(AMBAC) (AMT) 1,300,000 1,308,372
Forsyth, Montana Pollution Control
Revenue (Portland General) Series A
5.20% 5/1/33 1,005,000 1,067,511
Maricopa County, Arizona Pollution
Control Corporation Revenue
(El Paso Electric Co. Project)
Series A 6.375% 8/1/15 750,000 772,763
Montgomery County, Pennsylvania
Industrial Development Authority
Pollution Control Revenue
(PECO Energy Co.) Series A
5.20% 10/1/30 1,000,000 1,002,450
Sabine River Authority, Texas
Pollution Control Revenue
(TXU Electric Co. Project) Series A
5.50% 5/1/22 1,000,000 1,059,990
Saint Charles Parish, Louisiana
Pollution Control Revenue
(Entergy Louisiana, Inc.) Series A
4.90% 6/1/30 1,000,000 1,014,750
South Carolina Jobs Economic
Development Authority
Industrial Revenue (South Carolina
Electric & Gas Co. Project) Series B
5.45% 11/1/32 (AMBAC) (AMT) 500,000 520,165
28
STATEMENTS Delaware Tax-Free USA Intermediate Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Investor Owned Utilities Revenue Bonds (continued)
West Feliciana Parish, Louisiana
Pollution Control Revenue
(Gulf States Utilities Co. Project)
Series A 7.50% 5/1/15 $1,000,000 $ 1,017,440
---------
8,293,836
---------
Miscellaneous Revenue Bonds - 2.13%
New York State Municipal Bond Bank
Agency Special School Purpose
Revenue Series C 5.25% 6/1/22 1,000,000 1,058,870
Oregon State Department Administrative
Services Lottery Revenue Series A
5.00% 4/1/18 (FSA) 1,000,000 1,083,480
---------
2,142,350
---------
Municipal Lease Revenue Bonds - 5.36%
Albany, New York Industrial Development
Agency Civic Facility Revenue
(Charitable Leadership Project)
Series A 5.75% 7/1/26 500,000 510,890
Golden State, California Tobacco
Securitization Settlement Revenue
Series B 5.75% 6/1/23 1,000,000 1,042,440
Middle River, Virginia Regional Jail
Authority Facility Revenue
5.00% 5/15/20 (MBIA) 1,285,000 1,373,395
Missouri State Development Finance
Board Infrastructure Facilities Revenue
(Hartman Heritage Center Phase II)
5.00% 4/1/21 (AMBAC) 1,335,000 1,398,840
New Jersey Economic Development
Authority Revenue
Series I 5.25% 9/1/24 1,000,000 1,055,740
---------
5,381,305
---------
Political Subdivision General Obligation Bonds - 3.23%
Lansing, Michigan Community College
5.00% 5/1/21 (MBIA) 1,325,000 1,397,822
Lunenburg County, Virginia Series B
5.25% 2/1/29 (MBIA) 715,000 753,803
Middlesex County, New Jersey
Improvement Authority Revenue
(County Guaranteed Open Space Trust)
5.25% 9/15/20 1,000,000 1,090,450
---------
3,242,075
---------
Ports & Harbors Revenue Bonds - 0.55%
Virginia Port Authority Commonwealth
Port Fund Revenue Resolution
5.00% 7/1/12 (AMT) 500,000 548,280
---------
548,280
---------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
*Pre-Refunded Bonds - 3.25%
Arizona State Transportation Board
Highway Revenue 6.25% 7/1/16-09 $1,850,000 $2,151,569
Pennsylvania State Higher Educational
Facilities Authority College & University
Revenue (Ursinus College Project)
5.90% 1/1/27-07 1,000,000 1,106,690
----------
3,258,259
----------
Public Power Revenue Bonds - 4.03%
Metropolitan Government Nashville &
Davidson County, Tennessee Electric
Revenue Series B 5.50% 5/15/14 1,000,000 1,153,620
Nebraska Public Power District Revenue
Series A 5.00% 1/1/20 (AMBAC) 1,000,000 1,062,650
South Carolina State Public Service
Authority Revenue Series A
5.125% 1/1/21 (FSA) 1,000,000 1,066,630
Texas Municipal Power Agency Revenue
4.00% 9/1/11 (AMBAC) 750,000 761,190
----------
4,044,090
----------
Recreational Area Revenue Bonds - 1.06%
Hampton, Virginia Convention Center
Revenue 5.25% 1/15/23 (AMBAC) 1,000,000 1,061,460
----------
1,061,460
----------
School District General Obligation Bonds - 3.49%
Bannock County, Idaho School District #025
(Pocatello Idaho School Board
Guaranty Program) 5.00% 8/15/16 1,100,000 1,206,161
Licking County, Ohio Joint Vocational
School District 5.00% 12/1/19 (MBIA) 1,000,000 1,066,360
Salem-Keizer, Oregon School District #24J
5.00% 6/15/19 (FSA) 1,145,000 1,231,642
----------
3,504,163
----------
State General Obligation Bonds - 3.05%
California State 5.25% 11/1/17 1,000,000 1,093,880
California State Economic Recovery
Series A 5.25% 7/1/14 1,000,000 1,132,920
Florida State Board Education
Capital Outlay (Public Education)
Series B 5.00% 6/1/10 750,000 832,200
----------
3,059,000
----------
Territorial General Obligation Bonds - 1.12%
Puerto Rico Public Finance Corporation
Series A 5.75% 8/1/27
(LOC Puerto Rico Government
Development Bank) 1,000,000 1,128,340
----------
1,128,340
----------
29
STATEMENTS Delaware Tax-Free USA Intermediate Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Territorial Revenue Bonds - 5.36%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series B 6.00% 7/1/26 $ 1,000,000 $ 1,048,400
Series J 5.50% 7/1/21 1,000,000 1,097,020
Puerto Rico Electric Power Authority
Series OO 5.00% 7/1/13 (CIFG) 1,000,000 1,112,680
Puerto Rico Public Buildings Authority
Revenue (Government Facilities)
Series J 5.00% 7/1/28
(Commonwealth Guaranteed) 1,000,000 1,084,820
University of Puerto Rico Revenue
Series M 5.50% 6/1/15 (MBIA) 1,000,000 1,042,020
-----------
5,384,940
-----------
Transportation Revenue Bonds - 1.11%
Colorado Department Transportation
Revenue (Antic Notes) Series B
5.00% 12/15/14 (FGIC)
(SPA Bank of New York) 1,000,000 1,118,070
-----------
1,118,070
-----------
Turnpike/Toll Road Revenue Bonds - 2.18%
Dunes, Florida Community Development
District Revenue-Intracoastal
Waterway Bridge (ITT Industries Corp.)
5.50% 10/1/07 825,000 835,874
Pennsylvania State Turnpike
Commission Revenue Series A
5.25% 12/1/20 (AMBAC) 1,230,000 1,354,365
-----------
2,190,239
-----------
Water & Sewer Revenue Bonds - 2.32%
Ohio State Water Development Authority
Revenue (Fresh Water) Series B
5.50% 12/1/19 (FSA) 1,000,000 1,171,830
Virginia State Resource Authority Clean
Water Revenue (State Revolving Fund)
6.00% 10/1/16 1,000,000 1,158,130
-----------
2,329,960
-----------
TOTAL MUNICIPAL BONDS
(cost $89,367,277) 92,784,181
-----------
**VARIABLE RATE DEMAND NOTES - 5.48%
Continuing Care/Retirement Revenue Bonds - 4.98%
Philadelphia, Pennsylvania Authority for
Industrial Development Revenue
(Newcourtland Elder Services Project)
1.37% 3/1/27 (LOC PNC Bank) 5,000,000 5,000,000
-----------
5,000,000
-----------
Municipal Lease General Obligation Bonds - 0.50%
Los Angeles, California Convention &
Exhibition Center Authority Lease
Revenue Series D
1.32% 8/15/21 (AMBAC)
(SPA Dexia Credit Local) 500,000 500,000
-----------
500,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES
(cost $5,500,000) 5,500,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 97.90%
(cost $94,867,277) $98,284,181
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 2.10% 2,107,657
-----------
NET ASSETS APPLICABLE TO 8,817,688 SHARES
OUTSTANDING - 100.00% $100,391,838
-----------
Net Asset Value - Delaware Tax-Free USA Intermediate Fund
Class A ($77,447,920 / 6,802,462 Shares) $11.39
-----------
Net Asset Value - Delaware Tax-Free USA Intermediate Fund
Class B ($3,743,089 / 328,784 Shares) $11.38
-----------
Net Asset Value - Delaware Tax-Free USA Intermediate Fund
Class C ($19,200,829 / 1,686,442 Shares) $11.39
-----------
COMPONENTS OF NET ASSETS AT AUGUST 31, 2004:
Shares of beneficial interest
(unlimited authorization - no par) $97,551,781
Accumulated net realized loss on investments (576,847)
Net unrealized appreciation of investments 3,416,904
-----------
Total net assets $100,391,838
-----------
* 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, 2004.
Summary of Abbreviations:
Ambac - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
CIFG - Insured by CDC IXIS Financial Guaranty
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
SPA - Stand-by Purchase Agreement
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) $11.39
Sales charge (2.75% of offering price, or 2.81% of
amount invested per share) (B) 0.32
-----------
Offering price $11.71
-----------
(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
30
STATEMENTS Delaware National High-Yield Municipal Bond Fund
OF NET ASSETS (CONTINUED) August 31, 2004
Principal Market
Amount Value
MUNICIPAL BONDS - 97.32%
Airline Revenue Bonds - 1.58%
Minneapolis/St. Paul, Minnesota
Metropolitan Airports Commission
Special Facilities Revenue
(Northwest Airlines, Inc. Project)
Series A 7.00% 4/1/25 (AMT) $ 500,000 $ 416,280
New Jersey Economic Development
Authority Special Facilities Revenue
(Continental Airlines, Inc. Project)
6.25% 9/15/19 (AMT) 1,000,000 786,740
----------
1,203,020
----------
Airport Revenue Bonds - 3.32%
New York City, New York Industrial
Development (JFK Airis Project)
5.50% 7/1/28 (AMT) 905,000 884,945
Oklahoma City, Oklahoma Industrial &
Cultural Facilities Subordinated
(Air Cargo Project) 6.75% 1/1/23 (AMT) 1,160,000 1,125,618
Onondaga County, New York Industrial
Development Authority Revenue
Subordinated (Air Cargo Project)
7.25% 1/1/32 (AMT) 500,000 510,250
----------
2,520,813
----------
Continuing Care/Retirement Revenue Bonds - 11.09%
Bexar County, Texas Health Facilities
Development Corporation
(Army Retirement Residence Project)
6.30% 7/1/32 1,000,000 1,043,840
Buhl, Minnesota Nursing Home Revenue
(Forest Health Services Project)
Series A 6.75% 8/1/33 600,000 612,132
Colorado Health Facilities Authority Revenue
(Evangelical Lutheran Project)
Series A 5.25% 6/1/34 750,000 743,685
Gainesville & Hall County, Georgia
Development Authority Revenue
(Lanier Village Estates Project)
Series C 7.25% 11/15/29 1,000,000 1,062,140
Marion County, Missouri Nursing Home
District Revenue 7.00% 8/1/13 1,050,000 1,052,856
Montgomery County, Pennsylvania Higher
Education & Health Authority Revenue
(Faulkeways at Gwynedd Project)
6.75% 11/15/30 1,000,000 1,045,420
Philadelphia, Pennsylvania Hospitals &
Higher Education Facilities
Authority Revenue (The Philadelphia
Protestant Home Project) Series A
6.50% 7/1/27 1,100,000 1,103,476
Rochester, Minnesota Multifamily Revenue
(Wedum Shorewood Campus Project)
6.60% 6/1/36 985,000 976,844
+Vermont Education & Health Building
Financing Agency Revenue
Health Care Facility
(Copley Manor Project) 6.15% 4/1/19 1,730,000 788,136
----------
8,428,529
----------
Principal Market
Amount Value
Municipal Bonds (continued)
Corporate-Backed Revenue Bonds - 11.11%
Alliance, Texas Airport Authority
Special Facilities Revenue
(Federal Express Corp. Project)
6.375% 4/1/21 (AMT) $2,000,000 $2,093,620
Ashland, Kentucky Sewer & Solid
Waste Revenue (Ashland, Inc. Project)
7.125% 2/1/22 (AMT) 700,000 722,099
+California Pollution Control Financing
Authority Pollution Control Revenue
(Laidlaw Environmental, Inc. Project)
Series A 6.70% 7/1/07 (AMT) 1,000,000 43,000
Cloquet, Minnesota Pollution Control
Revenue (Potlatch Corp. Project)
5.90% 10/1/26 750,000 748,943
De Soto Parish, Louisiana Environmental
Improvement Revenue
(International Paper Co. Project)
Series A 6.35% 2/1/25 (AMT) 1,650,000 1,739,727
Gulf Coast, Texas Waste Disposal
Authority Revenue
(Valero Energy Corp. Project)
6.65% 4/1/32 (AMT) 1,000,000 1,066,030
Phenix County, Alabama Industrial
Development Board Environmental
Improvement Revenue
(Mead Westvaco Corp. Project)
Series A 6.35% 5/15/35 (AMT) 500,000 523,795
Sugar Creek, Missouri Industrial
Development Revenue
(Lafarge North America Project)
Series A 5.65% 6/1/37 (AMT) 500,000 502,670
Toledo Lucas County, Ohio Port
Development Revenue Authority
6.375% 11/15/32 (AMT) 1,000,000 1,011,160
----------
8,451,044
----------
Dedicated Tax & Fees Revenue Bonds - 3.28%
Chicago, Illinois Tax Increment Subordinate
(Central Loop Redevelopment Project)
Series A 6.50% 12/1/08 1,000,000 1,087,501
Las Vegas, Nevada Local Improvement
Special District #808
(Summerlin Area Project) 6.75% 6/1/21 995,000 1,027,427
Prescott Valley, Arizona Improvement
District Special Assessment
7.90% 1/1/12 365,000 379,063
----------
2,493,991
----------
Escrowed to Maturity Bonds - 0.54%
Illinois State Development
Finance Authority
(Harrisburg Medical Center Project)
7.00% 3/1/06 400,000 414,712
----------
414,712
----------
STATEMENTS Delaware National High-Yield Municipal Bond Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Higher Education Revenue Bonds - 19.76%
Berks County, Pennsylvania
Municipal Authority College
(Albright College Project)
5.375% 10/1/28 $ 700,000 $ 704,893
Illinois Educational Facilities Authority
Student Housing Revenue (Educational
Advancement Fund-University
Center Project) 6.25% 5/1/30 2,000,000 2,080,459
Maine Finance Authority Education
Revenue (Waynflete School Project)
6.40% 8/1/19 1,000,000 1,069,730
Maryland State Economic Development
Corporation Student Housing Revenue
(University of Maryland College
Park Project) 5.625% 6/1/35 1,000,000 1,025,170
Massachusetts State Development
Finance Agency Revenue
(Massachusetts College of Pharmacy
Project) Series C 5.75% 7/1/33 1,000,000 1,031,970
Massachusetts State Health &
Educational Facilities Authority Revenue
(Nichols College Project) Series C
6.125% 10/1/29 2,000,000 2,033,140
Milledgeville-Baldwin County, Georgia
Development Authority Revenue
(Georgia College & State University
Foundation Project) 6.00% 9/1/33 1,000,000 1,058,130
Minnesota State Higher Education
Facilities Authority Revenue
(College of Art & Design Project)
Series 5-D 6.75% 5/1/26 500,000 538,715
New Hampshire Higher Education &
Health Facilities Authority
(Brewster Academy Project)
6.75% 6/1/25 1,000,000 1,008,890
New Jersey State Educational Facilities
Authority (Fairleigh Dickinson Project)
Series C 5.50% 7/1/23 750,000 771,458
New Mexico Educational Assistance
Foundation Student Loan Revenue
1st Subordinate Series A-2
6.65% 11/1/25 (AMT) 1,000,000 1,003,870
Savannah, Georgia Economic
Development Authority Revenue
(College of Art & Design Project)
6.50% 10/1/13 1,000,000 1,177,140
Scranton-Lackawanna, Pennsylvania
Health & Welfare Authority First
Mortgage Revenue
(Lackawanna Junior College Project)
5.75% 11/1/20 1,510,000 1,521,808
-----------
15,025,373
-----------
Hospital Revenue Bonds - 13.48%
Illinois Health Facilities Authority Revenue
(Elmhurst Memorial Healthcare
Project) 5.625% 1/1/28 1,000,000 1,028,030
(Midwest Physician Group Limited
Project) 5.50% 11/15/19 35,000 31,133
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds (continued)
Knox County, Tennessee Health
Educational & Housing Facilities Board
Hospital Revenue
(East Tennessee Hospital Project)
Series B 5.75% 7/1/33 $ 1,300,000 $ 1,325,571
Louisiana Public Facilities
Authority Revenue
(Ochsner Clinic Foundation Project)
Series B 5.50% 5/15/32 1,000,000 1,018,250
Massachusetts State Health & Educational
Facilities Authority Revenue
(Jordan Hospital Project)
Series E 6.75% 10/1/33 1,000,000 1,045,810
Prince William County, Virginia Industrial
Development Authority Hospital Revenue
(Potomac Hospital Project)
5.20% 10/1/30 1,000,000 1,008,090
Richland County, Ohio Hospital
Facilities Revenue
(Medcentral Health System Project)
Series B 6.375% 11/15/30 1,500,000 1,597,964
St. Joseph County, Indiana Industrial
Economic Development
(Madison Center Project)
5.50% 2/15/21 1,150,000 1,150,150
South Dakota Health & Education
Facilities Authority Revenue
(Huron Regional Medical
Center Project) 7.00% 4/1/10 1,000,000 1,023,050
Yavapai County, Arizona Industrial
Development Authority Hospital
Revenue (Yavapai Medical Center Project)
Series A 6.00% 8/1/33 1,000,000 1,023,140
-----------
10,251,188
-----------
Investor Owned Utilities Revenue Bonds - 10.99%
Brazos, Texas River Authority
Pollution Revenue
(TXU Energy Co. Project) Series B
6.30% 7/1/32 (AMT) 1,000,000 1,027,920
Forsyth, Montana Pollution Control
Revenue (Portland General Project)
Series A 5.20% 5/1/33 1,000,000 1,062,200
Maricopa County, Arizona Pollution
Control Corporation Revenue
(El Paso Electric Co. Project)
Series A 6.375% 8/1/15 1,250,000 1,287,938
Midland County, Michigan Economic
Development Subordinate Limited
Obligation (Midland Congeneration
Project) Series A 6.875% 7/23/09 (AMT) 1,950,000 2,006,082
Mississippi Business Finance Corporation
Pollution Control Revenue
(System Energy Resources, Inc. Project)
5.90% 5/1/22 900,000 909,216
32
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 $1,041,690
West Feliciana Parish, Louisiana
Pollution Control Revenue
(Gulf States Utilities Co.
Project) Series A 7.50% 5/1/15 1,000,000 1,017,440
---------
8,352,486
---------
Miscellaneous Revenue Bonds - 2.26%
Director State, Nevada Department of
Business & Industry
(Las Vegas Monorail Project) 2nd Tier
7.375% 1/1/40 750,000 736,035
Lowry, Colorado Economic Redevelopment
Authority Revenue Series A
(Private Placement) 7.30% 12/1/10 600,000 628,230
Westminster, Colorado Shaw Heights
Special Improvement District
Series A 7.50% 12/1/07 350,000 353,731
---------
1,717,996
---------
Municipal Lease Revenue Bonds - 5.46%
Dauphin County, Pennsylvania
General Authority
(Riverfront Office & Parking Project)
Series A 5.75% 1/1/10 1,875,000 1,862,456
Golden State, California Tobacco
Securitization Corporation Settlement
Revenue Series B 5.50% 6/1/43 1,500,000 1,541,265
Missouri State Development Finance
Board Infrastructure Facilities Revenue
(Branson Landing Project)
Series A 5.50% 12/1/24 720,000 745,769
---------
4,149,490
---------
Political Subdivision General Obligation Bonds - 1.49%
Illinois State Development Finance
Authority East St. Louis Debt
Restructure Revenue 7.375% 11/15/11 1,100,000 1,134,892
---------
1,134,892
---------
*Pre-Refunded Bonds - 8.25%
Bedford Park, Illinois Tax Increment
Revenue 8.00% 12/1/10-04 1,200,000 1,219,596
Illinois Health Facilities Authority Revenue
(Midwest Physician Group
Limited Project) 8.10% 11/15/14-04 815,000 840,184
Illinois State Development Finance
Authority (Harrisburg Medical
Center Project)
7.20% 3/1/07-06 to 3/1/08-06 800,000 830,216
Mississippi Development Bank
Special Obligation
(Madison County Hospital Project)
6.40% 7/1/29-09 1,585,000 1,870,093
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
*Pre-Refunded Bonds (continued)
Niles, Illinois Park District Unlimited
Tax Series A 6.65% 12/1/14-04 $ 860,000 $ 871,541
Pocatello, Idaho Development Authority
Revenue Allocation Tax Increment
Series B 7.25% 12/1/08-04 20,000 20,292
Volusia County, Florida Industrial
Development Authority Mortgage
Revenue (Bishops Glen Retirement
Health Facilities Project)
7.50% 11/1/16-06 555,000 620,862
----------
6,272,784
----------
Recreational Area Revenue Bonds - 1.05%
Santa Fe, New Mexico Municipal Recreation
Complex Net Revenue 5.625% 12/1/23 800,000 796,200
----------
796,200
----------
School Revenue Bonds - 1.30%
District of Columbia Revenue
(Friendship Public Charter School Project)
5.25% 6/1/33 (ACA) 1,000,000 988,210
----------
988,210
----------
Tax Increment/Special Assessment Bonds - 2.36%
Chicago, Illinois Tax Increment Allocation
(Chatham Ridge Redevelopment Project)
5.95% 12/15/12 750,000 765,900
Midtown Miami, Florida Community
Development Revenue Series B
6.50% 5/1/37 1,000,000 1,029,220
----------
1,795,120
----------
TOTAL MUNICIPAL BONDS
(cost $72,964,333) 73,995,848
-----------
TOTAL MARKET VALUE OF SECURITIES - 97.32%
(cost $72,964,333) 73,995,848
RECEIVABLES AND OTHER ASSETS NET
OF LIABILITIES - 2.68% 2,034,498
-----------
NET ASSETS APPLICABLE TO 7,592,888 SHARES
OUTSTANDING - 100.00% $76,030,346
-----------
Net Asset Value - Delaware National High-Yield
Municipal Bond Fund Class A
($56,697,775 / 5,665,974) $10.01
-----------
Net Asset Value - Delaware National High-Yield
Municipal Bond Fund Class B
($14,534,420 / 1,449,138 Shares) $10.03
-----------
Net Asset Value - Delaware National High-Yield
Municipal Bond Fund Class C
($4,798,151 / 477,776 Shares) $10.04
-----------
33
STATEMENTS Delaware National High-Yield Municipal Bond Fund
OF NET ASSETS (CONTINUED)
COMPONENTS OF NET ASSETS AT AUGUST 31, 2004++:
Shares of beneficial interest
(unlimited authorization - no par) $80,881,299
Distributions in excess of net investment income (4,104)
Accumulated net realized loss on investments (5,878,364)
Net unrealized appreciation of investments 1,031,515
-----------
Total net assets $76,030,346
-----------
SUMMARY OF ABBREVIATIONS:
ACA - Insured by American Capital Access
AMT - Subject to Alternative Minimum Tax
* 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.
++ See Note 4 in "Notes to Financial Statements" for details on
reclassification of components of net assets.
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
Net asset value Class A (A) $10.01
Sales charge (4.50% of offering price, or 4.70% of
amount invested per share) 0.47
-----------
Offering price (B) $10.48
-----------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $100,000 or more.
See accompanying notes
34
STATEMENTS DELAWARE NATIONAL TAX-FREE FUNDS
OF OPERATIONS Year Ended August 31, 2004
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 $27,589,138 $3,374,782 $4,090,787 $4,832,974
----------- ---------- ---------- ----------
EXPENSES:
Management fees 2,714,203 325,100 454,402 443,964
Distribution expenses -- Class A 1,034,124 124,739 210,532 150,314
Distribution expenses -- Class B 271,595 69,352 40,949 158,575
Distribution expenses -- Class C 58,436 17,918 162,634 48,936
Dividend disbursing and transfer agent fees and expenses 361,551 43,189 141,547 57,301
Accounting and administration expenses 184,614 24,328 33,773 30,207
Legal and professional fees 78,760 10,700 15,894 28,010
Registration fees 66,541 38,366 52,096 47,793
Reports and statements to shareholders 43,782 10,918 14,624 1,257
Custodian fees 33,627 9,549 14,645 4,059
Trustees' fees 17,199 4,465 5,058 3,528
Other 14,959 2,830 2,287 3,439
----------- ---------- ---------- ----------
4,879,391 681,454 1,148,441 977,383
Less expenses absorbed or waived (271,974) -- (129,191) (14,856)
Less waived distribution expenses -- Class A -- -- (105,266) --
Less expenses paid indirectly (29,134) (8,784) (14,279) (3,256)
----------- ---------- ---------- ----------
Total expenses 4,578,283 672,670 899,705 959,271
----------- ---------- ---------- ----------
NET INVESTMENT INCOME 23,010,855 2,702,112 3,191,082 3,873,703
----------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 375,000 668,371 9,040 156,218
Net change in unrealized appreciation/depreciation
of investments 12,280,683 763,635 2,261,985 2,120,542
----------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 12,655,683 1,432,006 2,271,025 2,276,760
----------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $35,666,538 $4,134,118 $5,462,107 $6,150,463
=========== ========== ========== ==========
See accompanying notes
35
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
8/31/04 8/31/03 8/31/04 8/31/03
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 23,010,855 $ 24,470,688 $ 2,702,112 $ 2,895,295
Net realized gain on investments 375,000 7,454,521 668,371 304,202
Net change in unrealized appreciation/depreciation
of investments 12,280,683 (12,187,465) 763,635 (1,233,636)
------------ ------------ ----------- -----------
Net increase in net assets resulting from operations 35,666,538 19,737,744 4,134,118 1,965,861
------------ ------------ ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (21,714,746) (22,879,537) (2,399,145) (2,586,809)
Class B (1,066,585) (1,369,010) (240,793) (260,356)
Class C (229,524) (227,290) (62,174) (48,130)
------------ ------------ ----------- -----------
(23,010,855) (24,475,837) (2,702,112) (2,895,295)
------------ ------------ ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 28,738,384 25,026,196 2,654,253 8,186,170
Class B 1,047,025 1,727,675 966,911 1,748,052
Class C 1,144,768 865,681 563,665 506,312
Net asset value of shares issued upon reinvestment of
dividends and distributions:
Class A 11,673,132 12,394,890 1,325,637 1,477,059
Class B 585,568 725,739 139,876 162,588
Class C 183,313 177,751 31,760 23,909
------------ ------------ ----------- -----------
43,372,190 40,917,932 5,682,102 12,104,090
------------ ------------ ----------- -----------
Cost of shares repurchased:
Class A (56,907,009) (67,824,944) (8,473,975) (11,615,063)
Class B (11,044,588) (8,584,064) (2,141,982) (1,848,762)
Class C (1,181,389) (1,452,089) (75,210) (546,998)
------------ ------------ ----------- -----------
(69,132,986) (77,861,097) (10,691,167) (14,010,823)
------------ ------------ ----------- -----------
Decrease in net assets derived from capital share transactions (25,760,796) (36,943,165) (5,009,065) (1,906,733)
------------ ------------ ----------- -----------
NET DECREASE IN NET ASSETS (13,105,113) (41,681,258) (3,577,059) (2,836,167)
NET ASSETS:
Beginning of year 497,477,368 539,158,626 66,692,451 69,528,618
------------ ------------ ----------- -----------
End of year(1) $484,372,255 $497,477,368 $63,115,392 $66,692,451
============ ============ =========== ===========
(1)Distribution in excess of net investment income ($12,071) ($12,071) ($1,790) ($1,520)
See accompanying notes
36
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
8/31/04 8/31/03 8/31/04 8/31/03
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 3,191,082 $ 1,706,249 $ 3,873,703 $ 4,423,744
Net realized gain (loss) on investments 9,040 (54,314) 156,218 (1,654,101)
Net change in unrealized appreciation/depreciation
of investments 2,261,985 (476,271) 2,120,542 (294,293)
------------ ----------- ---------- -----------
Net increase in net assets resulting from operations 5,462,107 1,175,664 6,150,463 2,475,350
------------ ----------- ---------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (2,607,537) (1,341,628) (2,992,760) (3,324,824)
Class B (117,263) (128,415) (668,880) (832,210)
Class C (466,282) (236,206) (206,085) (274,313)
------------ ----------- ---------- -----------
(3,191,082) (1,706,249) (3,867,725) (4,431,347)
------------ ----------- ---------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 48,901,601 35,622,367 7,733,793 5,184,316
Class B 806,273 2,234,615 690,784 850,254
Class C 10,526,986 6,248,865 687,623 607,442
Net asset value of shares issued upon reinvestment of
dividends and distributions:
Class A 1,857,428 886,165 1,525,650 1,665,630
Class B 73,821 76,567 312,081 379,309
Class C 228,547 130,199 137,511 164,467
------------ ----------- ---------- -----------
62,394,656 45,198,778 11,087,442 8,851,418
------------ ----------- ---------- -----------
Cost of shares repurchased:
Class A (26,542,632) (10,697,739) (14,093,525) (9,870,105)
Class B (1,814,125) (1,165,571) (3,404,857) (4,329,630)
Class C (2,476,487) (2,995,414) (1,487,741) (1,734,418)
------------ ----------- ---------- -----------
(30,833,244) (14,858,724) (18,986,123) (15,934,153)
------------ ----------- ---------- -----------
Increase (decrease) in net assets derived from capital
share transactions 31,561,412 30,340,054 (7,898,681) (7,082,735)
------------ ----------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS 33,832,437 29,809,469 (5,615,943) (9,038,732)
NET ASSETS:
Beginning of year 66,559,401 36,749,932 81,646,289 90,685,021
------------ ----------- ---------- -----------
End of year(1) $100,391,838 $66,559,401 $76,030,346 $81,646,289
============ =========== =========== ===========
(1)Distribution in excess of net investment income -- -- ($4,104) ($4,104)
See accompanying notes
37
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
8/31/04 8/31/03 8/31/02(2) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $11.170 $11.280 $11.320 $10.830 $10.890
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.538 0.537 0.566 0.582 0.587
Net realized and unrealized gain (loss) on investments 0.290 (0.110) (0.040) 0.490 (0.060)
------- ------- ------- ------- -------
Total from investment operations 0.828 0.427 0.526 1.072 0.527
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.538) (0.537) (0.566) (0.582) (0.587)
------- ------- ------- ------- -------
Total dividends and distributions (0.538) (0.537) (0.566) (0.582) (0.587)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.460 $11.170 $11.280 $11.320 $10.830
======= ======= ======= ======= =======
TOTAL RETURN(1) 7.54% 3.84% 4.85% 10.19% 5.11%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $456,192 $460,917 $495,731 $495,597 $421,136
Ratio of expenses to average net assets 0.87% 0.87% 0.87% 0.88% 0.97%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 0.93% 0.97% 0.98% 0.89% 0.97%
Ratio of net investment income to average net assets 4.72% 4.74% 5.08% 5.29% 5.54%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.66% 4.64% 4.97% 5.28% 5.54%
Portfolio turnover 32% 96% 99% 103% 76%
(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 waivers 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
38
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
8/31/04 8/31/03 8/31/02(2) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $11.170 $11.280 $11.320 $10.830 $10.890
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.449 0.449 0.479 0.494 0.502
Net realized and unrealized gain (loss) on investments 0.290 (0.110) (0.040) 0.490 (0.060)
------- ------- ------- ------- -------
Total from investment operations 0.739 0.339 0.439 0.984 0.442
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.449) (0.449) (0.479) (0.494) (0.502)
------- ------- ------- ------- -------
Total dividends and distributions (0.449) (0.449) (0.479) (0.494) (0.502)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.460 $11.170 $11.280 $11.320 $10.830
======= ======= ======= ======= =======
TOTAL RETURN(1) 6.71% 3.03% 4.04% 9.32% 4.27%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $22,396 $31,052 $37,448 $39,317 $26,059
Ratio of expenses to average net assets 1.65% 1.65% 1.65% 1.68% 1.77%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.71% 1.75% 1.76% 1.69% 1.77%
Ratio of net investment income to average net assets 3.94% 3.96% 4.30% 4.49% 4.74%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.88% 3.86% 4.19% 4.48% 4.74%
Portfolio turnover 32% 96% 99% 103% 76%
(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 waivers 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
39
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
8/31/04 8/31/03 8/31/02(2) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $11.170 $11.280 $11.320 $10.830 $10.890
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.449 0.449 0.479 0.494 0.502
Net realized and unrealized gain (loss) on investments 0.290 (0.110) (0.040) 0.490 (0.060)
------- ------- ------- ------- -------
Total from investment operations 0.739 0.339 0.439 0.984 0.442
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.449) (0.449) (0.479) (0.494) (0.502)
------- ------- ------- ------- -------
Total dividends and distributions (0.449) (0.449) (0.479) (0.494) (0.502)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.460 $11.170 $11.280 $11.320 $10.830
======= ======= ======= ======= =======
TOTAL RETURN(1) 6.71% 3.03% 4.04% 9.32% 4.27%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $5,784 $5,508 $5,979 $6,457 $1,851
Ratio of expenses to average net assets 1.65% 1.65% 1.65% 1.68% 1.77%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.71% 1.75% 1.76% 1.69% 1.77%
Ratio of net investment income to average net assets 3.94% 3.96% 4.30% 4.49% 4.74%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.88% 3.86% 4.19% 4.48% 4.74%
Portfolio turnover 32% 96% 99% 103% 76%
(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 waivers 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
40
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
8/31/04 8/31/03 8/31/02 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $10.880 $11.020 $10.950 $10.390 $10.360
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.471 0.473 0.487 0.483 0.513
Net realized and unrealized gain (loss) on investments 0.230 (0.140) 0.070 0.560 0.030
------- ------- ------- ------- -------
Total from investment operations 0.701 0.333 0.557 1.043 0.543
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.471) (0.473) (0.487) (0.483) (0.513)
------- ------- ------- ------- -------
Total dividends and distributions (0.471) (0.473) (0.487) (0.483) (0.513)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.110 $10.880 $11.020 $10.950 $10.390
======= ======= ======= ======= =======
TOTAL RETURN(1) 6.55% 3.02% 5.27% 10.30% 5.50%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $54,384 $57,630 $60,365 $62,397 $61,722
Ratio of expenses to average net assets 0.93% 0.92% 0.92% 1.02% 0.95%
Ratio of net investment income to average net assets 4.26% 4.25% 4.51% 4.58% 5.07%
Portfolio turnover 54% 109% 136% 113% 117%
(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
41
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
8/31/04 8/31/03 8/31/02 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $10.880 $11.020 $10.950 $10.390 $10.360
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.385 0.386 0.403 0.399 0.432
Net realized and unrealized gain (loss) on investments 0.230 (0.140) 0.070 0.560 0.030
------- ------- ------- ------- -------
Total from investment operations 0.615 0.246 0.473 0.959 0.462
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.385) (0.386) (0.403) (0.399) (0.432)
------- ------- ------- ------- -------
Total dividends and distributions (0.385) (0.386) (0.403) (0.399) (0.432)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.110 $10.880 $11.020 $10.950 $10.390
======= ======= ======= ======= =======
TOTAL RETURN(1) 5.72% 2.22% 4.46% 9.43% 4.66%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $6,728 $7,614 $7,677 $7,506 $4,990
Ratio of expenses to average net assets 1.71% 1.70% 1.70% 1.82% 1.75%
Ratio of net investment income to average net assets 3.48% 3.47% 3.73% 3.78% 4.27%
Portfolio turnover 54% 109% 136% 113% 117%
(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
42
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
8/31/04 8/31/03 8/31/02 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $10.880 $11.020 $10.950 $10.390 $10.360
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.385 0.386 0.403 0.399 0.432
Net realized and unrealized gain (loss) on investments 0.230 (0.140) 0.070 0.560 0.030
------- ------- ------- ------- -------
Total from investment operations 0.615 0.246 0.473 0.959 0.462
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.385) (0.386) (0.403) (0.399) (0.432)
------- ------- ------- ------- -------
Total dividends and distributions (0.385) (0.386) (0.403) (0.399) (0.432)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.110 $10.880 $11.020 $10.950 $10.390
======= ======= ======= ======= =======
TOTAL RETURN(1) 5.72% 2.22% 4.46% 9.42% 4.66%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $2,003 $1,448 $1,488 $1,588 $813
Ratio of expenses to average net assets 1.71% 1.70% 1.70% 1.82% 1.75%
Ratio of net investment income to average net assets 3.48% 3.47% 3.73% 3.78% 4.27%
Portfolio turnover 54% 109% 136% 113% 117%
(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
43
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
8/31/04 8/31/03 8/31/02 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $11.010 $11.020 $10.890 $10.360 $10.270
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.419 0.435 0.462 0.480 0.474
Net realized and unrealized gain (loss) on investments 0.380 (0.010) 0.130 0.530 0.090
------- ------- ------- ------- -------
Total from investment operations 0.799 0.425 0.592 1.010 0.564
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.419) (0.435) (0.462) (0.480) (0.474)
------- ------- ------- ------- -------
Total dividends and distributions (0.419) (0.435) (0.462) (0.480) (0.474)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.390 $11.010 $11.020 $10.890 $10.360
======= ======= ======= ======= =======
TOTAL RETURN(1) 7.36% 3.89% 5.63% 10.01% 5.69%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $77,448 $51,479 $26,075 $19,471 $20,646
Ratio of expenses to average net assets(2) 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.09% 1.15% 0.94% 1.06% 0.95%
Ratio of net investment income to average net assets 3.70% 3.85% 4.28% 4.55% 4.65%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.41% 3.50% 4.14% 4.29% 4.50%
Portfolio turnover 27% 130% 195% 231% 199%
(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 waivers and payment of fees by the manager and
distributor. Performance would have been lower had the expense limitation
not been in effect.
(2) Ratio for the year ended August 31, 2004, including fees paid indirectly in
accordance with Securities and Exchange Commission rules, was 0.82%.
See accompanying notes
44
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
8/31/04 8/31/03 8/31/02 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $11.010 $11.020 $10.890 $10.360 $10.270
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.323 0.340 0.371 0.391 0.388
Net realized and unrealized gain (loss) on investments 0.370 (0.010) 0.130 0.530 0.090
------- ------- ------- ------- -------
Total from investment operations 0.693 0.330 0.501 0.921 0.478
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.323) (0.340) (0.371) (0.391) (0.388)
------- ------- ------- ------- -------
Total dividends and distributions (0.323) (0.340) (0.371) (0.391) (0.388)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.380 $11.010 $11.020 $10.890 $10.360
======= ======= ======= ======= =======
TOTAL RETURN(1) 6.36% 3.02% 4.74% 9.08% 4.80%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $3,743 $4,538 $3,384 $2,366 $1,751
Ratio of expenses to average net assets(2) 1.65% 1.65% 1.65% 1.65% 1.65%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.79% 1.87% 1.79% 1.91% 1.80%
Ratio of net investment income to average net assets 2.85% 3.00% 3.43% 3.70% 3.80%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 2.71% 2.78% 3.29% 3.44% 3.65%
Portfolio turnover 27% 130% 195% 231% 199%
(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 waivers and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
(2) Ratio for the year ended August 31, 2004, including fees paid indirectly in
accordance with Securities and Exchange Commission rules, was 1.67%.
See accompanying notes
45
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 C
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/04 8/31/03 8/31/02 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $11.010 $11.020 $10.890 $10.360 $10.270
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.323 0.340 0.371 0.391 0.388
Net realized and unrealized gain (loss) on investments 0.380 (0.010) 0.130 0.530 0.090
------- ------- ------- ------- -------
Total from investment operations 0.703 0.330 0.501 0.921 0.478
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.323) (0.340) (0.371) (0.391) (0.388)
------- ------- ------- ------- -------
Total dividends and distributions (0.323) (0.340) (0.371) (0.391) (0.388)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.390 $11.010 $11.020 $10.890 $10.360
======= ======= ======= ======= =======
TOTAL RETURN(1) 6.45% 3.02% 4.74% 9.08% 4.80%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $19,201 $10,542 $7,291 $3,602 $2,441
Ratio of expenses to average net assets(2) 1.65% 1.65% 1.65% 1.65% 1.65%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.79% 1.87% 1.79% 1.91% 1.80%
Ratio of net investment income to average net assets 2.85% 3.00% 3.43% 3.70% 3.80%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 2.71% 2.78% 3.29% 3.44% 3.65%
Portfolio turnover 27% 130% 195% 231% 199%
(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 waivers and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
(2) Ratio for the year ended August 31, 2004, including fees paid indirectly in
accordance with Securities and Exchange Commission rules, was 1.67%.
See accompanying notes
46
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
8/31/04 8/31/03 8/31/02(2) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.730 $9.950 $10.240 $ 9.950 $10.340
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.496 0.522 0.542 0.556 0.564
Net realized and unrealized gain (loss) on investments 0.280 (0.219) (0.290) 0.293 (0.393)
------- ------ ------- ------- -------
Total from investment operations 0.776 0.303 0.252 0.849 0.171
------- ------ ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.496) (0.523) (0.542) (0.559) (0.561)
------- ------ ------- ------- -------
Total dividends and distributions (0.496) (0.523) (0.542) (0.559) (0.561)
------- ------ ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.010 $9.730 $ 9.950 $10.240 $ 9.950
======= ====== ======= ======= =======
TOTAL RETURN(1) 8.13% 3.13% 2.59% 8.81% 1.85%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $56,698 $59,829 $64,259 $76,018 $78,207
Ratio of expenses to average net assets 1.00% 0.99% 0.96% 0.97% 1.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.02% 1.05% 1.04% 0.97% 1.21%
Ratio of net investment income to average net assets 5.00% 5.30% 5.42% 5.55% 5.71%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.98% 5.24% 5.34% 5.55% 5.50%
Portfolio turnover 46% 64% 53% 49% 61%
(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 waivers 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
47
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
8/31/04 8/31/03 8/31/02(2) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.760 $9.980 $10.260 $ 9.980 $10.360
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.421 0.448 0.467 0.480 0.491
Net realized and unrealized gain (loss) on investments 0.270 (0.219) (0.281) 0.284 (0.384)
------- ------ ------- ------- -------
Total from investment operations 0.691 0.229 0.186 0.764 0.107
------- ------ ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.421) (0.449) (0.466) (0.484) (0.487)
------- ------ ------- ------- -------
Total dividends and distributions (0.421) (0.449) (0.466) (0.484) (0.487)
------- ------ ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.030 $9.760 $ 9.980 $10.260 $ 9.980
======= ====== ======= ======= =======
TOTAL RETURN(1) 7.20% 2.36% 1.91% 7.88% 1.10%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $14,534 $16,499 $20,021 $20,277 $18,374
Ratio of expenses to average net assets 1.75% 1.74% 1.71% 1.72% 1.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.77% 1.80% 1.79% 1.72% 1.96%
Ratio of net investment income to average net assets 4.25% 4.55% 4.67% 4.80% 4.96%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.23% 4.49% 4.59% 4.80% 4.75%
Portfolio turnover 46% 64% 53% 49% 61%
(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 waivers 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
48
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
8/31/04 8/31/03 8/31/02(2) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.770 $9.990 $10.270 $ 9.990 $10.370
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.421 0.448 0.467 0.480 0.492
Net realized and unrealized gain (loss) on investments 0.270 (0.219) (0.281) 0.284 (0.386)
------- ------ ------- ------- -------
Total from investment operations 0.691 0.229 0.186 0.764 0.106
------- ------ ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.421) (0.449) (0.466) (0.484) (0.486)
------- ------ ------- ------- -------
Total dividends and distributions (0.421) (0.449) (0.466) (0.484) (0.486)
------- ------ ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.040 $9.770 $ 9.990 $10.270 $ 9.990
======= ====== ======= ======= =======
TOTAL RETURN(1) 7.19% 2.35% 1.92% 7.98% 1.08%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $4,798 $5,318 $6,405 $7,187 $8,770
Ratio of expenses to average net assets 1.75% 1.74% 1.71% 1.72% 1.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.77% 1.80% 1.79% 1.72% 1.96%
Ratio of net investment income to average net assets 4.25% 4.55% 4.67% 4.80% 4.96%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.23% 4.49% 4.59% 4.80% 4.75%
Portfolio turnover 46% 64% 53% 49% 61%
(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 waivers 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
49
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS August 31, 2004
Delaware Group Tax-Free Fund (the "Trust") is organized as a Delaware statutory
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
(the "Trust") is organized as a Delaware statutory 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. 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 and 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 and 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 U.S. generally accepted
accounting principles 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
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other -- Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date).
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.
Through December 31, 2003, certain expenses of the Funds were paid through
commission arrangements with brokers. 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, 2004 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 $ 4,007 $ 535 $ 612 $ 662
Earnings credits 25,127 8,249 13,667 2,594
50
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
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, certain insurance costs and extraordinary expenses, do not
exceed specified percentages of average daily net assets 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%
Expiration date 10/31/04 10/31/04 10/31/04 10/31/04
Effective November 1, 2004,
the operating expense
limitation as a percentage
of average daily net assets
(per annum) 0.62% 0.67% 0.60% 0.65%
Expiration date 10/31/05 10/31/05 10/31/05 10/31/05
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.
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 and
service fees through October 31, 2005 in order to prevent distribution and
service 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, 2004, 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 $74,898 $26,605 $21,684 $40,588
Dividend disbursing,
transfer agent, accounting
and administration fees
and other expenses payable
to DSC 4,005 17 16,423 6,755
Other expenses payable to DMC
and affiliates* 16,699 7,886 17,456 39,177
*DMC, as part of its administrative services, pays operating expenses on behalf
of each Fund and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax
services, registration fees and trustees' fees.
As provided in the investment management agreement, each Fund bears the cost of
certain legal services expenses, including in-house legal services provided to
each Fund by DMC employees. For the year ended August 31, 2004, each Fund had
costs 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
----------------- ----------------- --------------------- -----------------------------
$21,935 $2,966 $4,289 $3,738
For the year ended August 31, 2004, 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
----------------- ----------------- --------------------- -----------------------------
$28,009 $8,064 $17,055 $7,779
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.
51
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
For the year ended August 31, 2004, the Funds made purchases and sales of
investment securities 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 other than
short-term investments $155,298,253 $34,569,962 $56,556,570 $36,418,082
Sales other than
short-term investments 177,653,463 39,717,787 22,969,971 46,439,614
At August 31, 2004, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for each Fund 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
----------------- ----------------- --------------------- -----------------------------
Cost of investments $451,327,156 $58,057,611 $94,849,762 $72,985,181
------------ ----------- ----------- -----------
Aggregate unrealized
appreciation $ 31,101,204 $ 3,949,830 $ 3,539,152 $ 3,022,034
Aggregate unrealized
depreciation (4,176,907) (11,321) (104,733) (2,011,367)
------------ ----------- ----------- -----------
Net unrealized
appreciation $ 26,924,297 $ 3,938,509 $ 3,434,419 $ 1,010,667
============ =========== =========== ===========
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. The tax character of dividends and distributions
paid during the years ended August 31, 2004 and 2003 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 8/31/04
- ------------------
Tax-exempt income $23,010,855 $2,702,112 $3,191,082 $3,867,725
YEAR ENDED 8/31/03
- ------------------
Tax-exempt income $24,475,837 $2,895,295 $1,706,249 $4,431,347
As of August 31, 2004, 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 $468,251,368 $59,183,304 $97,551,781 $80,881,299
Distributed in excess of
tax-exempt income (12,071) (1,790) (4,104)
Post-October Losses -- -- (2,684) --
Capital loss carryforwards (10,791,339) (4,631) (591,678) (5,857,516)
Unrealized appreciation of
investments 26,924,297 3,938,509 3,434,419 1,010,667
------------ ----------- ------------ -----------
Net assets $484,372,255 $63,115,392 $100,391,838 $76,030,346
============ =========== ============ ===========
Post-October losses represent losses realized on investment transactions from
November 1, 2003 through August 31, 2004 that in accordance with federal income
tax regulations the Funds have elected to defer and treat as having arisen in
the following fiscal year.
For financial reporting purposes, capital accounts and distributions to
shareholders are adjusted to reflect the tax character of permanent book/tax
differences. For the year ended August 31, 2004, the following permanent
reclassifications were recorded. Reclassifications are primarily due to tax
treatment of market discount and premium on certain debt instruments. Results of
operations and net assets were not affected by these reclassifications.
Delaware Tax-Free Delaware National High-Yield
Insured Fund Municipal Bond Fund
----------------- ----------------------------
Undistributed net investment income $(270) $(5,978)
Accumulated realized gain (loss) -- 5,978
Paid-in capital 270 --
52
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
For federal income tax purposes, each Fund had accumulated capital losses as of
August 31, 2004, 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
Year of Expiration USA Fund Insured Fund USA Intermediate Fund Municipal Bond Fund
- ------------------ ----------------- ----------------- --------------------- -----------------------------
2008 $10,791,021 $4,631 $295,023 $ 782,666
2009 318 -- -- 3,025,716
2010 -- -- -- 70,671
2011 -- -- 290,864 997,721
2012 -- -- 5,791 980,742
----------- ------ -------- ----------
Total $10,791,339 $4,631 $591,678 $5,857,516
=========== ====== ======== ==========
For the year ended August 31, 2004, each Fund had capital loss carryforwards
that was utilized as follows:
Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund
----------------- -----------------
$309,217 $496,377
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund
----------------------- ---------------------
Year Ended Year Ended
8/31/04 8/31/03 8/31/04 8/31/03
Shares sold:
Class A 2,542,308 2,205,659 240,752 730,539
Class B 91,678 151,949 86,796 154,828
Class C 100,047 76,265 51,075 45,229
Shares issued upon reinvestment of dividends
and distributions:
Class A 1,022,075 1,096,565 119,786 133,254
Class B 51,247 64,211 12,642 14,671
Class C 16,055 15,731 2,871 2,159
---------- ---------- -------- ----------
3,823,410 3,610,380 513,922 1,080,680
---------- ---------- -------- ----------
Shares repurchased:
Class A (5,005,013) (5,987,662) (765,235) (1,041,433)
Class B (967,610) (756,095) (194,050) (165,843)
Class C (104,261) (128,993) (6,844) (49,165)
---------- ---------- -------- ----------
(6,076,884) (6,872,750) (966,129) (1,256,441)
---------- ---------- -------- ----------
Net decrease (2,253,474) (3,262,370) (452,207) (175,761)
========== ========== ======== ==========
Delaware Tax-Free Delaware National High-Yield
USA Intermediate Fund Municipal Bond Fund
----------------------- ----------------------------
Year Ended Year Ended
8/31/04 8/31/03 8/31/04 8/31/03
Shares sold:
Class A 4,337,621 3,185,915 779,157 526,041
Class B 71,772 202,146 69,306 86,051
Class C 929,113 555,499 68,954 61,624
Shares issued upon reinvestment of dividends
and distributions:
Class A 164,775 79,702 153,547 169,468
Class B 6,543 6,901 31,343 38,504
Class C 20,268 11,740 13,793 16,676
---------- ---------- ---------- ----------
5,530,092 4,041,903 1,116,100 898,364
---------- ---------- ---------- ----------
Shares repurchased:
Class A (2,375,615) (956,446) (1,412,735) (1,005,306)
Class B (161,693) (104,005) (342,565) (439,234)
Class C (220,488) (271,408) (149,447) (175,175)
---------- ---------- ---------- ----------
(2,757,796) (1,331,859) (1,904,747) (1,619,715)
---------- ---------- ---------- ----------
Net increase (decrease) 2,772,296 2,710,044 (788,647) (721,351)
========== ========== ========== ==========
53
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES (CONTINUED)
For the years ended August 31, 2004 and 2003, the following shares and values
were converted from Class B to Class A shares. The respective amounts are
included in Class B redemptions and Class A subscriptions in the tables on the
prior page and the Statements of Changes in Net Assets.
Year Ended Year Ended
8/31/04 8/31/03
--------------------------------------- ------------------------------------
Class B Class A Class B Class A
shares shares Amount shares shares Amount
-------- -------- -------- -------- -------- --------
Delaware Tax-Free USA Fund 407,411 407,411 $4,651,731 271,987 271,987 $3,117,043
Delaware Tax-Free Insured Fund 42,758 42,758 472,881 29,043 29,043 327,187
Delaware Tax-Free USA Intermediate Fund 20,911 20,911 236,413 30,412 30,412 341,657
Delaware National High-Yield Municipal
Bond Fund 972 975 9,691 -- -- --
6. LINE OF CREDIT
The Funds, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participate in a $177,300,000 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, 2004 or at any time during the
year.
7. 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 Standard & Poor's Ratings Group and/or Ba or lower by Moody's Investors
Service, Inc. Investments in these higher yielding securities are generally
accompanied by a greater degree of credit risk than higher rated securities.
Additionally, lower rated securities may be more susceptible to adverse economic
and competitive industry conditions than investment grade securities. The Funds
may invest in inverse floating rate securities ("inverse floaters"), a type of
derivative tax-exempt obligation with floating or variable interest rates that
move in the opposite direction of short-term interest rates, usually at an
accelerated speed. Consequently, the market values of inverse floaters will
generally be more volatile than other tax-exempt investments. Such securities
are denoted on the Statements of Net Assets.
8. CONTRACTUAL OBLIGATIONS
The Funds enter into contracts in the normal course of business that contain a
variety of indemnifications. The Funds' maximum exposure under these
arrangements is unknown. However, the Funds have not had prior claims or losses
pursuant to these contracts. Management has reviewed each Fund's existing
contracts and expects the risk of loss to be remote.
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, 2004, 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.
54
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 (one of the series constituting Voyageur Mutual
Funds) (collectively, the "Funds"), and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. 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, 2004, 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 respective series constituting the Delaware Group Tax-Free Fund and the
Delaware National High-Yield Municipal Bond Fund of Voyageur Mutual Funds at
August 31, 2004, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and their financial highlights for each of the five years in the period then
ended in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
October 4, 2004
55
Delaware Investments Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors which has oversight
responsibility for the management of a fund's business affairs.
Trustees/Directors 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/Directors and
Officers with certain background and related information.
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer of Officer
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman and 4 Years - Since August 2000, 77 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 16 Years Board Chairman - 94 None
2005 Market Street Citadel Constructors, Inc.
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
JOHN H. DURHAM Trustee 25 Years(3) Private Investor 94 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
August 7, 1937 President/Director -
22 WR Corporation
JOHN A. FRY Trustee(4) 3 Years President - 77 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
ANTHONY D. KNERR Trustee 11 Years Founder/Managing Director - 94 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
56
Number of Other
Principal Portfolios in Fund Directorships
Name, Position(s) Occupation(s) Complex Overseen Held by
Address Held with Length of Time During by Trustee/Director Trustee/Director
and Birthdate Fund(s) Served Past 5 Years or Officer of Officer
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
ANN R. LEVEN Trustee 15 Years Treasurer/Chief Fiscal Officer - 94 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director -
Systemax Inc.
THOMAS F. MADISON Trustee 10 Years President/Chief 94 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
February 25, 1936 (January 1993 - Present)
Director -
Digital River, Inc.
Director - Rimage
Corporation
JANET L. YEOMANS Trustee 5 Years Vice President/Mergers & 94 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management
positions at 3M Corporation
since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
JOSEPH H. HASTINGS Executive Executive Mr. Hastings has served in 94 None(5)
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
December 19, 1949 August 21, 2003
RICHELLE S. MAESTRO Executive Vice President, Chief Legal Ms. Maestro has served in 94 None(5)
2005 Market Street Chief Legal Officer Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
MICHAEL P. BISHOF Senior Vice President 8 Years Mr. Bishof has served in 94 None(5)
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.
(5) Mr. Hastings, Mr. Bishof and Ms. Maestro also serve in similar capacities
for the six portfolios of the Optimum Fund Trust, which have the same
investment advisor, principal underwriter, and transfer agent as the
registrant.
The Statement of Additional Information for the Fund(s) includes
additional information about the Trustees/Directors and Officers and is
available, without charge, upon request by calling 800 523-1918.
57
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 may be used
with a 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 each Fund.
You should read 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 each Fund 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 Executive 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.
Minneapolis, MN
JANET L. YEOMANS
Vice President/Mergers & Acquisitions
3M Corporation
St. Paul, MN
*Mr. Driscoll and Mr. Fry are not Trustees of the Delaware National High-Yield
Municipal Bond Fund.
- --------------------------------------------------------------------------------
Each Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. The Fund's Forms N-Q, as well as a description of the policies and
procedures that each Fund uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800 523-1918; (ii) on the Funds' Web site at
http://www.delawareinvestments.com; and (iii) on the Commission's Web site at
http://www.sec.gov. Each Funds' Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC; information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Information (if any) regarding how each Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through the Funds' Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
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(8918) Printed in the USA
AR-011 [8/04] IVES 10/04 J9810
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
(a) Audit fees.
The aggregate fees billed for services provided to the Registrant by
its independent auditors for the audit of the Registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $57,600 for
the fiscal year ended August 31, 2004.
The aggregate fees billed for services provided to the Registrant by
its independent auditors for the audit of the Registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $50,650 for
the fiscal year ended August 31, 2003.
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(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
(b) Audit-related fees.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the Registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended August 31, 2004. The percentage of these fees relating to
services approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the Registrant's investment adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $37,575 for the Registrant's fiscal
year ended August 31, 2004. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These audit-related services were as follows: issuance of
reports concerning transfer agent's system of internal accounting control
pursuant to Rule 17Ad-13 of the Securities Exchange Act; and issuance of agreed
upon procedures reports to the Fund's Board in connection with the annual
transfer agent and fund accounting service agent contract renewals and the
pass-through of internal legal cost relating to the operations of the Funds.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the Registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended August 31, 2003. The percentage of these fees relating to
services approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the Registrant's investment adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $39,600 for the Registrant's fiscal
year ended August 31, 2003. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These audit-related services were as follows: issuance of
reports concerning transfer agent's system of internal accounting control
pursuant to Rule 17Ad-13 of the Securities Exchange Act; and issuance of agreed
upon procedures reports to the Fund's Board in connection with the annual
transfer agent and fund accounting service agent contract renewals and the
pass-through of internal legal cost relating to the operations of the Funds.
(c) Tax fees.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $5,250 for the fiscal year
ended August 31, 2004. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax returns and excise tax returns.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's investment adviser(s) and
other service providers under common control with the adviser(s) and that relate
directly to the operations or financial reporting of the Registrant were $0 for
the Registrant's fiscal year ended August 31, 2004. The percentage of these fees
relating to services approved by the Registrant's Audit Committee pursuant to
the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $3,750 for the fiscal year
ended August 31, 2003. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax returns and excise tax returns.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's adviser(s) and other service
providers under common control with the adviser(s) and that relate directly to
the operations or financial reporting of the Registrant were $0 for the
Registrant's fiscal year ended August 31, 2003. The percentage of these fees
relating to services approved by the Registrant's Audit Committee pursuant to
the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
(d) All other fees.
The aggregate fees billed for all services provided by the independent
auditors to the Registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended August 31, 2004. The
percentage of these fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval requirement
in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the Registrant's independent
auditors to the Registrant's adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's fiscal year
ended August 31, 2004. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
The aggregate fees billed for all services provided by the independent
auditors to the Registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended August 31, 2003. The
percentage of these fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval requirement
in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the Registrant's independent
auditors to the Registrant's adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's fiscal year
ended August 31, 2003. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
(e) The Registrant's Audit Committee has not established pre-approval
policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the Registrant's independent
auditors for services rendered to the Registrant and to its investment
adviser(s) and other service providers under common control with the adviser(s)
were $218,065 and $175,250 for the Registrant's fiscal years ended August 31,
2004 and August 31, 2003, respectively.
(h) In connection with its selection of the independent auditors, the
Registrant's Audit Committee has considered the independent auditors' provision
of non-audit services to the Registrant's investment adviser(s) and other
service providers under common control with the adviser(s) that were not
required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X.
The Audit Committee has determined that the independent auditors' provision of
these services is compatible with maintaining the auditors' independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this
Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. 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 11. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are
furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
NAME OF REGISTRANT: Delaware Group Tax-Free Fund
JUDE T. DRISCOLL
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By: Jude T. Driscoll
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Title: Chairman
Date: 11/5/04
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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
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By: Jude T. Driscoll
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Title: Chairman
Date: 11/5/04
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JOSEPH H. HASTINGS
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By: Joseph H. Hastings
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Title: Chief Financial Officer
Date: 11/5/04
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