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: 811-4977
Exact name of registrant as specified in charter: Voyageur Insured Funds
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
The Registrant's shareholder reports are combined with the shareholder
reports of other investment company registrants. This Form N-CSR pertains to the
Delaware Tax-Free Arizona Insured Fund and Delaware Tax-Free Minnesota Insured
Fund of the Registrant, information on which is included in the following
shareholder reports.
Delaware
Investments(SM)
--------------------------------------
A member of Lincoln Financial Group(R)
FIXED INCOME
ANNUAL REPORT AUGUST 31, 2004
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DELAWARE TAX-FREE ARIZONA INSURED FUND
[LOGO]
POWERED BY RESEARCH.(SM)
PORTFOLIO SEPTEMBER 10, 2004
MANAGEMENT REVIEW
FUND MANAGERS
Andrew M. McCullagh
Senior Portfolio Manager
Joseph R. Baxter
Senior Portfolio Manager
Robert F. Collins
Senior Portfolio Manager
Q: HOW DID THE FIXED-INCOME MARKETS AND THE DELAWARE WESTERN STATES TAX-FREE
FUNDS PERFORM DURING THE PAST YEAR?
A: For the 12-months ended August 31, 2004, the fixed-income markets produced
positive returns as ongoing uncertainties surrounding the domestic economy, a
"too-close-to-call" presidential campaign, and continued geo-political threats
highlighted the period. Such uncertain times often result in a
"flight-to-quality" as many investors seek the perceived safe-haven of
fixed-income securities. Despite a late shift in Federal Reserve policy
resulting in two short-term rate increases, bond prices generally rose across
most fixed-income markets. The benchmark 10-year U.S. Treasury note, which began
the period yielding around 4.50%, experienced some volatile price swings before
ending the fiscal year with a yield of roughly 4.15%. An inverse relationship
exists between bond prices and bond yields.
Despite lagging its fixed-income counterparts in prior fiscal years, the
tax-free municipal bond market performed quite well for the 12-month period,
benefiting from both the overall lower interest rate environment and economic
recoveries within many states. The broad national average, as measured by the
Lehman Brothers Municipal Bond Index, returned +7.11% during the fiscal year,
while state-specific indexes produced similar results. Many states, including
Arizona, California and Colorado, experienced improved tax rolls and upgrades
among tax-free bond issues as their economies moved beyond the previous
recessionary environments.
Q: WHAT DEVELOPMENTS IMPACTED YOUR INVESTMENT DECISIONS DURING THE 12-MONTH
PERIOD?
A: First, as the state economies recovered, many lower-rated bonds that had been
negatively impacted by the recent period of recession and ensuing modest
economic recovery significantly appreciated in price. Early in the fiscal year,
we were able to catch the wave of this rebound as certain lower-quality holdings
in the Funds' portfolios contributed to solid return for the fiscal year.
As the 12-month period progressed, we took advantage of this "compression" of
yields by upgrading the quality of securities within the Funds. In some cases,
certain debt issues were upgraded by the credit rating services. In other cases,
this strategy involved a rebalancing out of lower-quality bonds into
higher-quality issues. As a result, we sought to reduce overall risk within the
Funds without forgoing much upside yield potential.
Second, the Federal Reserve finally raised short-term interest rates, with the
fed funds rate moving from 1.0% to 1.5%. Because of these anticipated moves to
higher rates, we reduced the overall durations (and risks) of the Funds by
shifting into less volatile shorter-term securities. 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: PLEASE DISCUSS THE PERFORMANCES AND UNDERLYING INVESTMENT STRATEGIES IN EACH
OF THE FUNDS DURING THE FISCAL YEAR.
A: For the 12 months ended August 31, 2004, Delaware Tax-Free Arizona Fund
appreciated +7.53% (Class A shares at net asset value with distributions
reinvested), outperforming the +6.33% return of the Lipper Arizona Municipal
Debt Funds Average, the Fund's peer group, and the +7.11% return of the Lehman
Brothers Municipal Bond Index, the Fund's benchmark (Source: Lipper Inc.).*
During the period, the state of Arizona reaped substantial benefit of strong
revenue growth from both state sales taxes and personal income taxes. These
increased receipts helped to remedy the serious budget issues that had plagued
the state in recent years. Further, the overall employment rate dropped
significantly during the 12-month period. The bond rating services took note of
these economic developments, as both Moody's and Standard & Poor's changed their
respective outlooks from "negative" to "stable" for the state.
Because the supply of tax-free debt is limited in Arizona, we used our stringent
fundamental analysis and bottom-up security selection process to seek out bonds
with the best relative value, regardless of sector. During the period, we
generated a competitive dividend stream while upgrading the Fund's credit
quality and shortening its duration. 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.
* A portion of the income from tax-exempt Funds may be subject to the
alternative minimum tax.
1
At fiscal year-end, higher education-related bonds (including those issued for
public universities, which dominate the holdings in your Fund and are typically
of a higher credit quality) made up the largest sector allocation by net assets
within your Fund. Also notable, the Maricopa County Industrial Development
Authority multi-family housing revenue bonds that had been a drag on Fund
performance in the past were partially liquidated from the portfolio. On the
other hand, Winslow Memorial Hospital Revenue Bonds experienced internal
management challenges that hindered expected revenues. While we pared down our
exposure this year, the bonds negatively impacted the Fund's return and remain a
candidate for upcoming sale.
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For the 12 months ended August 31, 2004, DELAWARE TAX-FREE ARIZONA INSURED FUND
appreciated +7.09% (Class A shares at net asset value with distributions
reinvested). During the same timeframe, the Lipper Arizona Muni Debt Funds
Average, which serves as the Fund's peer group, returned +6.33%. The Fund
slightly underperformed its benchmark, the Lehman Brothers Municipal Bond Index,
which returned +7.11% (Source: Lipper Inc.).*
During the 12-month period, your Fund benefited significantly from economic
strength experienced throughout the state. While our selection of bonds is
largely limited to insured status, we were able to enhance Fund return by
identifying selected higher yielding mid-investment-grade issues for up to 20
percent of the Fund's net assets. Despite its majority AAA-rated insured
holdings, your Fund generated a competitive stream of dividends. However,
because of our high-quality requirements and your Fund's insured profile, the
dividend yield is not as high as many other tax-free funds and its performance
does not rank in the top quartile.
At fiscal year-end, the main bond market sectors held within your Fund were
hospitals and institutions of higher education, representing 12.3% and 10.3% of
net assets, respectively. We avoided certain charter school issues because the
Arizona legislature, in our opinion, does not embrace these public education
entities as do the legislatures of other states.
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For the 12 months ended August 31, 2004, DELAWARE TAX-FREE CALIFORNIA FUND
returned +8.34% (Class A shares at net asset value with distributions
reinvested). This performance surpassed the +7.04% return of the Lipper
California Muni Debt Funds Average, the Fund's peer group, and the +7.11% return
of the Lehman Brothers Municipal Bond Index, the Fund's benchmark (Source:
Lipper Inc.).*
During the fiscal year, a new governor was elected in California. Arnold
Schwarzenegger is considered pro-business and has repeatedly spoken of his goals
to create jobs and further improve an economy that generally expanded in line
with the rest of the country during the 12-month period. The state has moved to
overcome its significant budgetary issues, including the issuance of economic
recovery bonds to improve the liquidity and strive for a balanced budget. In
late August, Standard & Poor's upgraded its rating for the state from BBB+ to A,
a move that should reap significant benefits for California's debt. Likewise,
Moody's placed California's A3 rating on a "positive" track.
Still, we exercised 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. Anticipating the rating moves and improving
economic outlook, we invested in state general obligation bonds that performed
well during the fiscal period.
Also benefiting from California's upward credit trend are the state
appropriation supported tobacco settlement bonds. While we have avoided the
stand-alone tobacco bonds, which have been highly volatile and are subject to
litigation risk, our bonds are double barreled, with State appropriations
backing up any shortfalls from the master settlement agreement.
One holding, San Diego County Museum Bonds, which are certificates of
participation for the Natural History Museum, under-performed during the year as
the museum suffered from lower than anticipated attendance. While we still owned
this issue at year-end, its status remains under review and is a candidate for
sale.
* A portion of the income from tax-exempt Funds may be subject to the
alternative minimum tax.
2
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For the 12 months ended August 31, 2004, DELAWARE TAX-FREE CALIFORNIA INSURED
FUND gained +7.85% (Class A shares at net asset value with distributions
reinvested). The Fund outperformed its peer group, as measured by the Lipper
California Insured Muni Debt Funds Average, which returned +6.50%, and its
benchmark, the Lehman Brothers Municipal Bond Index, which returned +7.11%
(Source: Lipper Inc.).*
During the 12-month period, the state of California experienced an improved
employment situation and increased receipts from sales taxes and personal income
taxes. Likewise, the state's improved credit rating picture boded well for the
issues held by your Fund. We invested in select higher-yielding,
mid-investment-grade holdings to enhance Fund return, while avoiding some of the
hardest hit issues, such as development projects in the Silicon Valley region.
At fiscal year-end, multi-family housing issues represented the largest sector
allocation within your Fund at 15.1% of net assets. On a negative note, San
Diego School District general obligation bonds encountered some financial
challenges that negatively impacted performance. During the year, the school
district faced ongoing budgetary issues.
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For the 12 months ended August 31, 2004, DELAWARE TAX-FREE COLORADO FUND
appreciated +7.04% (Class A shares at net asset value with distributions
reinvested). The Fund's performance bested the +6.49% return of its peer group,
the Lipper Colorado Municipal Debt Funds Average, and slightly trailed the
+7.11% return of its benchmark, the Lehman Brothers Municipal Bond Index
(Source: Lipper Inc.).*
The Colorado economy continued to lag much of the country during the 12-month
period as state employment and growth in personal income trailed national
averages. Voter initiatives such as TABOR (Colorado's Taxpayer's Bill of Rights)
and education funding also served to limit the state's financial flexibility.
Despite such ongoing economic issues, Moody's revised the outlook for the state
from "negative" to "stable." Political subdivisions and higher education bonds
are the top two sectors represented in your fund.
Political subdivisions have been among the largest bond issuers in the state
over the past few years and higher education bonds issued for public
universities are typically of high credit quality. However, the Fund's return
was affected by some challenges faced by one related issue, Colorado Education
and Cultural Facility Authority Revenue Bonds. The beneficiary of this funding,
The Renaissance School, experienced decreased enrollment following a move from
charter to magnet school status.
* A portion of the income from tax-exempt Funds may be subject to the
alternative minimum tax.
3
DELAWARE
TAX-FREE ARIZONA 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 Arizona 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
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Class A (Est. 4/1/91)
Excluding Sales Charge +6.54% +5.95% +5.85% +7.09%
Including Sales Charge +6.18% +5.46% +4.88% +2.23%
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Class B (Est. 3/10/95)
Excluding Sales Charge +5.30% +5.08% +6.28%
Including Sales Charge +5.30% +4.83% +2.28%
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Class C (Est. 5/26/94)
Excluding Sales Charge +5.16% +5.14% +5.09% +6.27%
Including Sales Charge +5.16% +5.14% +5.09% +5.27%
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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 0.25%.
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%. 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 Arizona
Insured Fund during the periods 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.
4
DELAWARE
TAX-FREE ARIZONA INSURED 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 and the Arizona state personal income tax as is consistent with
preservation of capital.
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TOTAL FUND NET ASSETS:
$142.44 million
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NUMBER OF HOLDINGS:
67
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FUND START DATE:
April 1, 1991
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YOUR FUND MANAGERS:
Andrew M. McCullagh, Jr.
Joseph R. Baxter
Robert F. Collins
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NASDAQ SYMBOLS:
Class A VAZIX
Class B DVABX
Class C DVACX
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PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1994 through August 31, 2004
DELAWARE TAX-FREE ARIZONA INSURED FUND -- GROWTH OF $10,000 INVESTMENT CHART
DELAWARE TAX-FREE
ARIZONA INSURED FUND LEHMAN BROTHERS
CLASS A SHARES MUNICIPAL BOND INDEX
31-AUG-94 $ 9,546 $10,000
31-AUG-95 $10,384 $10,886
31-AUG-96 $10,954 $11,456
31-AUG-97 $11,912 $12,514
31-AUG-98 $12,852 $13,597
31-AUG-99 $12,805 $13,665
31-AUG-00 $13,506 $14,590
31-AUG-01 $14,738 $16,077
31-AUG-02 $15,554 $17,080
31-AUG-03 $15,893 $17,617
31-AUG-04 $17,021 $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 for 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
redemptions of Fund shares.
5
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; end 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 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 the
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
a 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 the 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of 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 Funds' actual expenses shown in the tables reflect fee waivers in
effect. The expenses shown in the tables assume reinvestment of all dividends
and distributions.
In each case, "Expenses Paid During Period" are equal to the Fund's annualized
expense ratio, multiplied by the average account value over the period,
multiplied by 184/366 (to reflect the one-half year period).
6
DISCLOSURE FOR THE PERIOD MARCH 1, 2004 TO AUGUST 31, 2004
OF FUND EXPENSES (CONTINUED)
DELAWARE TAX-FREE ARIZONA INSURED FUND(1)
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expense
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 3/1/04 to
3/1/04 8/31/04 Ratio 8/31/04
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ACTUAL FUND RETURN
Class A $1,000.00 $999.90 0.90% $4.52
Class B 1,000.00 996.10 1.65% 8.28
Class C 1,000.00 996.10 1.65% 8.28
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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
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(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:
Expense
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 3/1/04 to
3/1/04 8/31/04 Ratio 8/31/04
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ACTUAL FUND RETURN
Class A $1,000.00 $1,000.40 0.80% $4.02
Class B 1,000.00 996.60 1.55% 7.78
Class C 1,000.00 996.60 1.55% 7.78
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HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.93 0.80% $4.07
Class B 1,000.00 1,017.11 1.55% 7.89
Class C 1,000.00 1,017.11 1.55% 7.89
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7
SECTOR ALLOCATION DELAWARE TAX-FREE ARIZONA INSURED FUND
As of August 31, 2004
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
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MUNICIPAL BONDS 96.67%
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Airport Revenue Bonds 10.28%
City General Obligation Bonds 0.72%
Convention Center/Auditorium/Hotel Revenue Bonds 2.33%
Dedicated Tax & Fees Revenue Bonds 6.34%
Escrowed to Maturity Bonds 0.25%
Higher Education Revenue Bonds 10.31%
Hospital Revenue Bonds 12.30%
Multifamily Housing Revenue Bonds 9.77%
Municipal Lease Revenue Bonds 8.20%
Political Subdivision General Obligation Bonds 1.04%
Pre-Refunded Bonds 8.53%
Public Power Revenue Bonds 4.02%
Public Utility District Revenue Bonds 3.60%
School District General Obligation Bonds 3.05%
Single Family Housing Revenue Bonds 0.18%
Territorial General Obligation Bonds 1.04%
Territorial Revenue Bonds 5.74%
Transportation Revenue Bonds 4.11%
Water & Sewer Revenue Bonds 4.86%
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SHORT-TERM INVESTMENTS 0.79%
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TOTAL MARKET VALUE OF SECURITIES 97.46%
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RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.54%
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TOTAL NET ASSETS 100.00%
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8
STATEMENTS DELAWARE TAX-FREE ARIZONA INSURED FUND
OF NET ASSETS August 31, 2004
Principal Market
Amount Value
MUNICIPAL BONDS - 96.67%
Airport Revenue Bonds - 10.28%
Phoenix Civic Improvement Corporation
Airport Revenue Series B 5.25% 7/1/32
(FGIC)(AMT) $ 9,300,000 $ 9,508,970
Tucson Airport Authority 5.35% 6/1/31
(AMBAC)(AMT) 5,000,000 5,131,950
-----------
14,640,920
-----------
City General Obligation Bonds - 0.72%
DC Ranch Community Facilities
5.00% 7/15/27 (AMBAC) 1,000,000 1,025,450
-----------
1,025,450
-----------
Convention Center/Auditorium/Hotel Revenue Bonds - 2.33%
Arizona Tourism & Sports Authority
Tax Revenue Multipurpose
Stadium Facilities Series A
5.00% 7/1/28 (MBIA) 2,500,000 2,556,275
5.00% 7/1/31 (MBIA) 750,000 765,248
-----------
3,321,523
-----------
Dedicated Tax & Fees Revenue Bonds - 6.34%
Phoenix Industrial Development Authority
Lease Revenue (Capitol Mall LLC II
Project) 5.00% 9/15/28 (AMBAC) 4,000,000 4,077,120
Pinal County Certificates of Participation
5.125% 6/1/21 (AMBAC) 4,675,000 4,947,786
-----------
9,024,906
-----------
Escrowed to Maturity Bonds - 0.25%
Phoenix Street & Highway Revenue
6.50% 7/1/09 (AMBAC) 350,000 352,041
-----------
352,041
-----------
Higher Education Revenue Bonds - 10.31%
Arizona State Board of Regents Certificates
of Participation 5.125% 6/1/25 (AMBAC) 1,250,000 1,299,313
Arizona State University Certificates of
Participation 5.00% 9/1/30 (AMBAC) 2,500,000 2,554,300
Glendale Industrial Development Authority
Educational Facilities (American
Graduate School International)
5.625% 7/1/20 (Connie Lee) 1,000,000 1,066,500
5.875% 7/1/15 (Connie Lee) 2,500,000 2,668,225
Mohave County Community College
6.00% 3/1/20 (MBIA) 1,000,000 1,133,720
South Campus Group Student Housing
Revenue (Arizona State University South
Campus Project) 5.625% 9/1/35 (MBIA) 1,000,000 1,086,130
Southern Arizona Capital Facilities Finance
(University of Arizona Project)
5.10% 9/1/33 (MBIA) 2,650,000 2,720,012
University of Arizona
Certificates of Participation
5.125% 6/1/21 (AMBAC) 1,000,000 1,058,350
5.75% 6/1/19 (AMBAC) 1,000,000 1,114,940
-----------
14,701,490
-----------
Hospital Revenue Bonds - 12.30%
Maricopa County Industrial Development
Authority (Catholic Healthcare West)
Series A 5.50% 7/1/26 1,000,000 998,660
Principal Market
Amount Value
MUNICIPAL BONDS (CONTINUED)
Hospital Revenue Bonds (continued)
Mesa Industrial Development Authority
(Discovery Health Systems)
Series A 5.625% 1/1/29 (MBIA) $ 9,250,000 $ 9,917,757
Phoenix Industrial Development Authority
Hospital Revenue (John C. Lincoln Health)
Series B 5.75% 12/1/16 (Connie Lee) 4,110,000 4,584,047
University Medical Center Corporation
Arizona Hospital Revenue 5.00% 7/1/33 1,000,000 985,660
Yavapai County Industrial Development
Authority (Yavapai Regional Medical
Center) 5.25% 8/1/21 (RADIAN) 1,000,000 1,047,810
-----------
17,533,934
-----------
Multifamily Housing Revenue Bonds - 9.77%
Maricopa County Industrial Development
Authority Multifamily Housing Revenue
(Sly-Mar Apartments Project)
6.10% 4/20/36 (GNMA)(AMT) 1,300,000 1,396,798
Phoenix Industrial Development Authority
Multifamily Housing Revenue
(Capital Mews Apartments)
5.70% 12/20/40 (GNMA)(AMT) 2,000,000 2,089,460
Phoenix Industrial Development Authority
Multifamily Housing Revenue
(Sunrise Vista Apartments)
Series A 1.42% 6/1/31 (AMT) 1,600,000 1,600,000
Phoenix Industrial Development
Authority Multifamily Housing Revenue
(Ventana Palms Apartments)
6.15% 10/1/29 (MBIA) 510,000 543,380
6.20% 10/1/34 (MBIA) 940,000 1,003,694
Pima County Industrial Development
Authority Multifamily Housing Revenue
(Columbus Village) Series A
6.00% 10/20/31 (GNMA) 1,150,000 1,160,856
6.05% 10/20/41 (GNMA) 1,520,000 1,534,318
Yuma Industrial Development Authority
Multifamily Revenue 6.10% 9/20/19
(GNMA)(AMT) 2,340,000 2,583,992
Yuma Industrial Development Authority
Multifamily Revenue
(Regency Apartments)
Series A 5.50% 12/20/32 (GNMA)(FHA) 2,000,000 2,003,860
-----------
13,916,358
-----------
Municipal Lease Revenue Bonds - 8.20%
Arizona School Facilities Board
Certificates of Participation
Series A 5.00% 9/1/18 (FGIC) 1,000,000 1,082,190
Maricopa County Industrial Development
Authority Correctional Facilities
(Phoenix West Prison)
5.375% 7/1/22 (ACA) 250,000 256,160
Phoenix Industrial Development Authority
Lease Revenue (Capitol Mall LLC Project)
5.50% 9/15/27 (AMBAC) 5,000,000 5,366,600
Salt River Project Arizona Agricultural
Improvement & Power District
Certificates of Participation
5.00% 12/1/18 (MBIA) 2,500,000 2,682,550
9
STATEMENTS DELAWARE TAX-FREE ARIZONA INSURED FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (CONTINUED)
Municipal Lease Revenue Bonds - 8.20%
University of Arizona Certificates of
Participation Series B
5.00% 6/1/31 (AMBAC) $ 2,250,000 $ 2,292,143
-----------
11,679,643
-----------
Political Subdivision General Obligation Bonds - 1.04%
Phoenix Variable Purpose
Series B 5.00% 7/1/27 1,435,000 1,474,204
-----------
1,474,204
-----------
*Pre-Refunded Bonds - 8.53%
Maricopa County School District #3
(Tempe Elementary) Series E
5.70% 7/1/16-09 (FGIC) 1,025,000 1,174,681
Oro Valley Common Trust Funds Partnership
5.75% 7/1/17-06 (MBIA) 1,000,000 1,082,560
Puerto Rico Commonwealth Public
Improvement 5.125% 7/1/30-11 (FSA) 770,000 867,089
Puerto Rico Commonwealth Public
Improvement Series A
5.00% 7/1/27-12 1,000,000 1,119,760
5.125% 7/1/31-11 1,205,000 1,354,577
Puerto Rico Public Buildings Authority
Series D 5.25% 7/1/27-12 730,000 828,331
Surprise Municipal Property Excise Tax
Revenue 5.70% 7/1/20-09 (FGIC) 5,000,000 5,730,150
-----------
12,157,148
-----------
Public Power Revenue Bonds - 4.02%
Energy Management Services
(Arizona State University - Main Campus)
5.25% 7/1/17 (MBIA) 1,500,000 1,655,490
Salt River Project Arizona Agricultural
Improvement & Power District Electric
System Revenue (Salt River Project)
Series A 5.00% 1/1/31 2,000,000 2,038,780
Series B 5.00% 1/1/31 (MBIA) 2,000,000 2,038,780
-----------
5,733,050
-----------
Public Utility District Revenue Bonds - 3.60%
Maricopa County Pollution Control
(Palo Verde Project) Series A
5.05% 5/1/29 (AMBAC) 5,000,000 5,122,700
-----------
5,122,700
-----------
School District General Obligation Bonds - 3.05%
Cochise County Unified School
District #68 7.50% 7/1/10 (FGIC) 1,000,000 1,238,810
Maricopa County School District #14
(Creighton School Improvement Project
of 1990) Series C 6.50% 7/1/08 (FGIC) 1,000,000 1,148,660
Maricopa County School
District #38 (Madison Elementary)
5.00% 7/1/14 (FSA) 1,750,000 1,951,303
-----------
4,338,773
-----------
Single Family Housing Revenue Bonds - 0.18%
Pima County Industrial Development
Authority Single Family Housing
Revenue 6.10% 5/1/31 (GNMA)(AMT) 240,000 250,980
-----------
250,980
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (CONTINUED)
Territorial General Obligation Bonds - 1.04%
Puerto Rico Commonwealth Refunding
Public Improvements Series A
5.50% 7/1/19 $ 1,300,000 $ 1,481,220
------------
1,481,220
------------
Territorial Revenue Bonds - 5.74%
Puerto Rico Commonwealth Public
Improvement (Unrefunded Balance)
5.125% 7/1/30 (FSA) 480,000 496,282
Puerto Rico Commonwealth Public
Improvement Series A 5.125% 7/1/31 2,370,000 2,410,124
Puerto Rico Electric Power Authority
Power Revenue
Series NN 5.00% 7/1/32 (MBIA) 1,750,000 1,799,595
Series OO 5.00% 7/1/13 (CIFG) 1,500,000 1,669,020
Puerto Rico Public Buildings Authority
Revenue (Unrefunded Balance)
5.25% 7/1/27 270,000 279,315
Puerto Rico Public Buildings Authority
Revenue Series I 5.25% 7/1/33 500,000 517,440
Virgin Islands Public Finance Authority
5.00% 10/1/31 (ACA) 1,000,000 1,000,350
------------
8,172,126
------------
Transportation Revenue Bonds - 4.11%
Arizona State Transportation Board
Highway Revenue Series A
5.00% 7/1/21 2,500,000 2,650,925
5.00% 7/1/23 1,000,000 1,048,640
Arizona State Transportation Board
Highway Revenue Series B
5.25% 7/1/21 1,000,000 1,076,680
5.25% 7/1/22 1,000,000 1,071,140
------------
5,847,385
------------
Water & Sewer Revenue Bonds - 4.86%
Glendale Water & Sewer Revenue
5.00% 7/1/28 (AMBAC) 2,000,000 2,045,020
Phoenix Civic Improvement Corporation
Wastewater Systems Revenue Junior Lien
5.00% 7/1/24 (FGIC) 1,000,000 1,029,960
5.00% 7/1/26 (FGIC) 3,750,000 3,848,738
------------
6,923,718
------------
TOTAL MUNICIPAL BONDS (COST $130,495,311) 137,697,569
------------
Number
of Shares
SHORT-TERM INVESTMENTS - 0.79%
Federated Arizona Municipal Cash Trust 1,126,773 1,126,773
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $1,126,773) 1,126,773
------------
TOTAL MARKET VALUE OF SECURITIES - 97.46%
(COST $131,622,084) 138,824,342
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 2.54% 3,617,330
------------
NET ASSETS APPLICABLE TO 12,481,893
SHARES OUTSTANDING - 100.00% $142,441,672
============
10
STATEMENTS DELAWARE TAX-FREE ARIZONA INSURED FUND
OF NET ASSETS (CONTINUED)
Net Asset Value - Delaware Tax-Free Arizona Insured Fund
Class A ($122,436,469 / 10,730,590 Shares) $11.41
------
Net Asset Value - Delaware Tax-Free Arizona Insured Fund
Class B ($13,354,490 / 1,169,592 Shares) $11.42
------
Net Asset Value - Delaware Tax-Free Arizona Insured Fund
Class C ($6,650,713 / 581,711 Shares) $11.43
------
COMPONENTS OF NET ASSETS AT AUGUST 31, 2004:
Shares of beneficial interest
(unlimited authorization - no par) $134,970,175
Undistributed net investment income 7,314
Accumulated net realized gain on investments 261,925
Net unrealized appreciation of investments 7,202,258
------------
Total net assets $142,441,672
============
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
SUMMARY OF ABBREVIATIONS:
ACA - Insured by American Capital Access
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
CIFG - Insured by CDC IXIS Financial Guaranty
Connie Lee - Insured by the College Construction Insurance Association
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE TAX-FREE ARIZONA INSURED FUND
Net asset value Class A (A) $11.41
Sales charge (4.50% of offering price,
or 4.73% of amount invested per share) (B) 0.54
------
Offering price $11.95
======
(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
11
STATEMENTS YEAR ENDED AUGUST 31, 2004
OF OPERATIONS
Delaware
Tax-Free Arizona
Insured Fund
INVESTMENT INCOME:
Interest $ 7,512,395
-----------
EXPENSES:
Management fees 746,015
Distribution expenses -- Class A 319,858
Distribution expenses -- Class B 140,754
Distribution expenses -- Class C 74,821
Dividend disbursing and transfer agent fees and expenses 82,939
Accounting and administration expenses 55,837
Registration fees 15,900
Reports and statements to shareholders 15,675
Legal and professional fees 31,496
Custodian fees 9,018
Trustees' fees 8,403
Other 9,702
-----------
1,510,418
Less expenses absorbed or waived --
Less expenses paid indirectly (1,418)
-----------
Total expenses 1,509,000
-----------
NET INVESTMENT INCOME 6,003,395
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 336,166
Net change in unrealized appreciation/depreciation of investments 3,703,965
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 4,040,131
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,043,526
===========
See accompanying notes
12
STATEMENTS
OF CHANGES IN NET ASSETS
Delaware Tax-Free
Arizona Insured Fund
Year Ended
8/31/04 8/31/03
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 6,003,395 $ 6,864,597
Net realized gain (loss) on investments 336,166 754,322
Net change in unrealized appreciation/depreciation of investments 3,703,965 (4,291,338)
------------ ------------
Net increase (decrease) in net assets resulting from operations 10,043,526 3,327,581
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (5,277,055) (5,989,214)
Class B (474,572) (534,860)
Class C (251,768) (340,523)
Net realized gain on investments:
Class A (670,678) (1,396,185)
Class B (74,157) (143,720)
Class C (40,949) (91,428)
------------ ------------
(6,789,179) (8,495,930)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 8,836,672 13,366,725
Class B 1,082,105 3,326,803
Class C 1,206,593 3,929,559
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 3,027,025 3,663,972
Class B 294,483 380,126
Class C 230,858 334,202
------------ ------------
4,677,736 25,001,387
------------ ------------
Cost of shares repurchased:
Class A (21,886,157) (24,391,768)
Class B (3,007,102) (2,246,828)
Class C (3,490,073) (3,517,552)
------------ ------------
(28,383,332) (30,156,148)
------------ ------------
Decrease in net assets derived from capital share transactions (13,705,596) (5,154,761)
------------ ------------
NET DECREASE IN NET ASSETS (10,451,249) (10,323,110)
NET ASSETS:
Beginning of year 152,892,921 163,216,031
------------ ------------
End of year(1) $142,441,672 $152,892,921
============ ============
(1) Including undistributed (distributions in excess of) net investment income $ 7,314 $ 7,314
============ ============
See accompanying notes
13
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Arizona Insured Fund Class A
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/04 8/31/03 8/31/02(2) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $11.160 $11.530 $11.500 $11.040 $10.990
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.469 0.502 0.510 0.521 0.525
Net realized and unrealized gain (loss) on investments 0.308 (0.253) 0.100 0.460 0.050
------- ------- ------- ------- -------
Total from investment operations 0.777 0.249 0.610 0.981 0.575
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.469) (0.502) (0.510) (0.521) (0.525)
Net realized gain on investments (0.058) (0.117) (0.070) -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.527) (0.619) (0.580) (0.521) (0.525)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.410 $11.160 $11.530 $11.500 $11.040
======= ======= ======= ======= =======
TOTAL RETURN(1) 7.09% 2.17% 5.54% 9.12% 5.47%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $122,436 $129,683 $141,424 $141,298 $142,018
Ratio of expenses to average net assets 0.90% 0.86% 0.90% 0.95% 0.95%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 0.90% 0.91% 0.90% 0.97% 0.98%
Ratio of net investment income to average net assets 4.14% 4.37% 4.50% 4.65% 4.88%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.14% 4.32% 4.50% 4.63% 4.85%
Portfolio turnover 19% 29% 46% 45% 50%
(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. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
14
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Arizona Insured Fund Class B
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/04 8/31/03 8/31/02(2) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $11.170 $11.540 $11.500 $11.040 $10.990
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.384 0.416 0.426 0.437 0.444
Net realized and unrealized gain (loss) on investments 0.308 (0.253) 0.110 0.460 0.050
------- ------- ------- ------- -------
Total from investment operations 0.692 0.163 0.536 0.897 0.494
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.384) (0.416) (0.426) (0.437) (0.444)
Net realized gain on investments (0.058) (0.117) (0.070) -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.442) (0.533) (0.496) (0.437) (0.444)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.420 $11.170 $11.540 $11.500 $11.040
======= ======= ======= ======= =======
TOTAL RETURN(1) 6.28% 1.41% 4.83% 8.31% 4.68%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $13,355 $14,666 $13,678 $8,864 $6,630
Ratio of expenses to average net assets 1.65% 1.61% 1.65% 1.70% 1.70%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.65% 1.66% 1.65% 1.72% 1.73%
Ratio of net investment income to average net assets 3.39% 3.62% 3.75% 3.90% 4.13%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.39% 3.57% 3.75% 3.88% 4.10%
Portfolio turnover 19% 29% 46% 45% 50%
(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. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
15
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Arizona Insured Fund Class C
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/04 8/31/03 8/31/02(2) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $11.180 $11.550 $11.520 $11.040 $10.990
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.384 0.415 0.426 0.438 0.444
Net realized and unrealized gain (loss) on investments 0.308 (0.253) 0.100 0.480 0.050
------- ------- ------- ------- -------
Total from investment operations 0.692 0.162 0.526 0.918 0.494
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.384) (0.415) (0.426) (0.438) (0.444)
Net realized gain on investments (0.058) (0.117) (0.070) -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.442) (0.532) (0.496) (0.438) (0.444)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.430 $11.180 $11.550 $11.520 $11.040
======= ======= ======= ======= =======
TOTAL RETURN(1) 6.27% 1.40% 4.73% 8.50% 4.68%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $6,651 $8,544 $8,115 $3,230 $1,322
Ratio of expenses to average net assets 1.65% 1.61% 1.65% 1.70% 1.70%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.65% 1.66% 1.65% 1.72% 1.73%
Ratio of net investment income to average net assets 3.39% 3.62% 3.75% 3.90% 4.13%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.39% 3.57% 3.75% 3.88% 4.10%
Portfolio turnover 19% 29% 46% 45% 50%
(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. This change
in accounting had no impact for the year ended August 31, 2002. Per share
data and ratios for periods prior to September 1, 2001 have not been
restated to reflect this change in accounting.
See accompanying notes
16
NOTES AUGUST 31, 2004
TO FINANCIAL STATEMENTS
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. Voyageur Insured Funds (the "Trust") is
organized as a Delaware statutory trust and offers two series: Delaware Tax-Free
Arizona Insured Fund and Delaware Tax-Free Minnesota Insured Fund. Voyageur
Investment Trust (the "Trust") is organized as a Massachusetts statutory trust
and offers five series: Delaware Tax-Free California Insured Fund, Delaware
Tax-Free Florida Fund, Delaware Tax-Free Florida Insured Fund, Delaware Tax-Free
Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund. Voyageur Mutual
Funds II (the "Trust") is organized as a Delaware statutory trust and offers one
series: Delaware Tax-Free Colorado Fund. These financial statements and related
notes pertain to Delaware Tax-Free Arizona Fund, Delaware Tax-Free Arizona
Insured Fund, Delaware Tax-Free California Fund, Delaware Tax-Free California
Insured Fund and Delaware Tax-Free Colorado Fund (each a "Fund" and,
collectively, the "Funds"). The above Trusts are open-end investment companies.
The Funds are considered non-diversified under the Investment Company Act of
1940, as amended. The Funds offer Class A, Class B, and Class C shares. Class A
shares are sold with a front-end sales charge of up to 4.50%. Class B shares are
sold with a contingent deferred sales charge that declines from 4% to zero
depending upon the period of time the shares are held. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately eight
years after purchase. Class C shares are sold with a contingent deferred sales
charge of 1%, if redeemed during the first 12 months.
The investment objective of Delaware Tax-Free Arizona Fund, Delaware Tax-Free
Arizona Insured Fund, Delaware Tax-Free California Fund, Delaware Tax-Free
California Insured Fund and Delaware Tax-Free Colorado Fund is to seek as high a
level of current income exempt from federal income tax and personal income tax
in their respective states, as is consistent with preservation of capital.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with 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 each Fund on the basis of "settled shares" of each class in relation
to the net assets of each Fund. Realized and unrealized gain (loss) on
investments are allocated to the various classes of each Fund on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
Use of Estimates - The preparation of financial statements in conformity with
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 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 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 Arizona
Insured Fund
----------------
Commission reimbursements $1,232
Earnings credits 186
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 Arizona
Insured Fund
----------------
On the first $500 million 0.500%
On the next $500 million 0.475%
On the next $1.5 billion 0.450%
In excess of $2.5 billion 0.425%
17
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburses 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 Arizona
Insured Fund
----------------
Operating expense limitation as a percentage
of average daily net assets (per annum) 0.70%
Expiration date 10/31/04
Effective November 1, 2004, operating
expense limitation as a percentage of
average daily net assets (per annum) 0.55%
Expiration date 3/31/06
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Funds pay
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. Each Fund pays DSC a monthly fee based
on the number of shareholder accounts for dividend and disbursing and transfer
agent services.
Pursuant to a distribution agreement and distribution plan, each Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.25% of the average daily net
assets of the Class A shares and 1.00% of the average daily net assets of the
Class B and C shares.
At August 31, 2004, each Fund had liabilities payable to affiliates as follows:
Delaware
Tax-Free Arizona
Insured Fund
----------------
Investment management fee payable
to (receivable from) DMC $15,075
Dividend disbursing, transfer agent fees,
accounting and administration fees
and other expenses payable to DSC 10,499
Other expenses payable to DMC and affiliates* 2,742
*DMC, as a part of its administrative services, pays operating expenses on
behalf of the Funds 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, the Funds bear the cost of
certain legal services expenses, including in-house legal services provided to
the Funds by DMC employees. For the year ended August 31, 2004, Delaware
Tax-Free Arizona Fund, Delaware Tax-Free Arizona Insured Fund, Delaware Tax-Free
California Fund, Delaware Tax-Free California Insured Fund, and Delaware
Tax-Free Colorado Fund had costs of $1,744, $13,646, $3,664, $1,867, and
$20,562, respectively.
For the year ended August 31, 2004, DDLP earned commissions on sales of Class A
shares for each Fund as follows:
Delaware
Tax-Free Arizona
Insured Fund
----------------
$23,312
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the
Trusts. These officers and/or trustees are paid no compensation by the Funds.
3. INVESTMENTS
For the year ended August 31, 2004, the Funds made purchases and sales of
investment securities as follows:
Delaware
Tax-Free Arizona
Insured Fund
----------------
Purchases other than short-term investments $27,275,899
Sales other than short-term investments 44,540,460
18
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
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 Arizona
Insured Fund
----------------
Cost of investments $131,622,084
------------
Aggregate unrealized appreciation $ 7,410,864
Aggregate unrealized depreciation (208,606)
------------
Net unrealized appreciation $ 7,202,258
============
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
Arizona Insured Fund
2004 2003
----------------------
Tax-exempt income $6,003,395 $6,864,597
Ordinary income 203,220 --
Long-term capital gain 582,564 1,631,333
---------- ----------
Total $6,789,179 $8,495,930
========== ==========
As of August 31, 2004, the components of net assets on a tax basis was as
follows:
Delaware
Tax-Free Arizona
Insured Fund
----------------
Shares of beneficial interest $134,970,175
Undistributed ordinary income --
Undistributed tax-exempt income 7,314
Undistributed long-term capital gains 261,925
Post-October losses --
Capital loss carryforwards --
Unrealized appreciation of investments 7,202,258
------------
Net assets $142,441,672
============
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.
19
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Delaware Tax-Free
Arizona Insured Fund
--------------------
Year Ended
8/31/04 8/31/03
Shares sold:
Class A 778,110 1,161,855
Class B 95,417 289,628
Class C 105,384 340,061
Shares issued upon reinvestments
of dividends and distributions:
Class A 266,257 321,230
Class B 25,870 33,321
Class C 20,248 29,256
---------- ----------
1,291,286 2,175,351
---------- ----------
Shares repurchased:
Class A (1,933,973) (2,129,562)
Class B (264,924) (195,453)
Class C (308,011) (307,819)
---------- ----------
(2,506,908) (2,632,834)
---------- ----------
Net decrease (1,215,622) (457,483)
========== ==========
20
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES (CONTINUED)
For the years ended August 31, 2004 and 2003, the following shares and value
were converted from Class B to Class A. The respective amounts are included in
Class B redemptions and Class A subscriptions in the table 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 Arizona Insured Fund 45,338 45,373 $516,109 43,904 43,915 $512,431
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 Funds' 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 fiscal 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.
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 the Funds' 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) (C)
Long Term Ordinary Tax-
Capital Gains Income Exempt Total
Distributions Distributions Distribution Distributions
(Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis)
------------- ------------- ------------ -------------
Delaware Tax-Free Arizona Insured Fund 9% 3% 88% 100%
(A), (B), and (C) are based on a percentage of each Fund's total distributions.
21
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Voyageur Mutual Funds - Delaware Tax-Free Arizona Fund
and Delaware Tax-Free California Fund
Voyageur Insured Funds - Delaware Tax-Free Arizona
Insured Fund
Voyageur Investment Trust - Delaware Tax-Free California
Insured Fund
Voyageur Mutual Funds II - Delaware Tax-Free Colorado Fund
We have audited the accompanying statements of net assets of Delaware Tax-Free
Arizona Fund and Delaware Tax-Free California Fund (two of the series
constituting Voyageur Mutual Funds), Delaware Tax-Free Arizona Insured Fund (one
of the series constituting Voyageur Insured Funds), Delaware Tax-Free California
Insured Fund (one of the series constituting Voyageur Investment Trust) and
Voyageur Mutual Funds II (comprised of Delaware Tax-Free Colorado Fund) (the
"Funds") as of August 31, 2004, 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. 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 the
Delaware Tax-Free Arizona Fund and Delaware Tax-Free California Fund of Voyageur
Mutual Funds, the Delaware Tax-Free Arizona Insured Fund of Voyageur Insured
Funds, the Delaware Tax-Free California Insured Fund of Voyageur Investment
Trust, and the Delaware Tax-Free Colorado Fund of Voyageur Mutual Funds II 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
22
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 OR 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
23
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE/DIRECTOR TRUSTEE/DIRECTOR
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
ANN R. LEVEN Trustee 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
Director -
Systemax Inc.
November 1, 1940
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.
24
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This annual report is for the information of Delaware Tax-Free Arizona Fund,
Delaware Tax-Free Arizona Insured Fund, Delaware Tax-Free California Fund,
Tax-Free California Insured Fund, and Delaware Tax-Free Colorado Fund, but may
be used with a prospective investors when preceded or accompanied by a current
prospectus for Delaware Tax-Free Arizona Fund, Delaware Tax-Free Arizona Insured
Fund, Delaware Tax-Free California Fund, Tax-Free California Insured Fund, and
Delaware Tax-Free Colorado Fund and the Delaware Investments Performance Update
for the most recently completed calendar quarter. The prospectus sets forth
details about charges, expenses, investment objectives, and operating policies
of 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
WALTER P. BABICH JUDE T. DRISCOLL INVESTMENT MANAGER
Board Chairman Chairman Delaware Management Company
Citadel Construction Corporation Delaware Investments Family of Funds Philadelphia, PA
King of Prussia, PA Philadelphia, PA
INTERNATIONAL AFFILIATE
JOHN H. DURHAM JOSEPH H. HASTINGS Delaware International Advisers Ltd.
Private Investor Executive Vice President and London, England
Gwynedd Valley, PA Chief Financial Officer
Delaware Investments Family of Funds NATIONAL DISTRIBUTOR
ANTHONY D. KNERR Philadelphia, PA Delaware Distributors, L.P.
Managing Director Philadelphia, PA
Anthony Knerr & Associates RICHELLE S. MAESTRO
New York, NY Executive Vice President, SHAREHOLDER SERVICING, DIVIDEND
Chief Legal Officer and Secretary DISBURSING AND TRANSFER AGENT
ANN R. LEVEN Delaware Investments Family of Funds Delaware Service Company, Inc.
Former Treasurer/Chief Fiscal Officer Philadelphia, PA 2005 Market Street
National Gallery of Art Philadelphia, PA 19103-7094
Washington, DC MICHAEL P. BISHOF
Senior Vice President and Treasurer FOR SHAREHOLDERS
THOMAS F. MADISON Delaware Investments Family of Funds 800 523-1918
President and Chief Executive Officer Philadelphia, PA
MLM Partners, Inc. FOR SECURITIES DEALERS AND FINANCIAL
Minneapolis, MN INSTITUTIONS REPRESENTATIVES ONLY
800 362-7500
JANET L. YEOMANS
Vice President/Mergers & Acquisitions WEB SITE
3M Corporation www.delawareinvestments.com
St. Paul, MN
- --------------------------------------------------------------------------------
Each Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. Each Fund's Forms N-Q, as well as a description of the policies and
procedures that each Fund uses to determine how to vote proxies (if any)
relating to portfolio securities is available without charge (i) upon request,
by calling 800 523-1918; (ii) on each Fund's Web site at
http://www.delawareinvestments.com; and (iii) on the Commission's Web site at
http://www.sec.gov. Each Fund's 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 each Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
- --------------------------------------------------------------------------------
(8919) Printed in the USA
AR-WEST [8/04] IVES 10/04 J9813
Delaware
Investments(SM)
--------------------------------------
A member of Lincoln Financial Group(R)
FIXED INCOME
ANNUAL REPORT AUGUST 31, 2004
- --------------------------------------------------------------------------------
DELAWARE TAX-FREE MINNESOTA INSURED FUND
[LOGO]
POWERED BY RESEARCH.(SM)
PORTFOLIO DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
MANAGEMENT REVIEW September 10, 2004
FUND MANAGERS
Patrick P. Coyne
Managing Director/Head of Equity Investments
Joseph R. Baxter
Senior Vice President/Senior Portfolio Manager
Robert F. Collins
Vice President/Senior Portfolio Manager
Q: WHAT KIND OF ENVIRONMENT WAS IT FOR THE MUNICIPAL MARKETS DURING THE PAST 12
MONTHS?
A: In all, the environment for municipal bonds was surprisingly favorable
considering volatile market conditions and generally negative fixed-income
investor sentiment at the start of the fiscal period. In September 2003, market
data indicated a rapidly strengthening economy and accelerating corporate
earnings. These results prompted investor fears of rising inflation and Federal
Reserve interest rate hikes. Unemployment levels trended higher than expected,
however, suggesting the growing economy was not yet operating at its full
potential. This enabled the Fed to maintain short-term interest rates at
historically low levels throughout the period.
It was not until spring 2004, when a substantial increase in hiring activity
became evident, that concern about rising rates returned. The expectation for
interest rate hikes weighed on the bond markets, as did continued worries about
terrorism, rising oil prices, and weakness in the U.S. dollar. The Fed
eventually raised short-term rates twice during the period, first in late June
and then again in August. During the final three months of the period, however,
job growth trailed off unexpectedly, surprising investors who had expected
faster economic growth. Against this backdrop, tax-free bonds, which had lost
ground in the prior few months, made up some of their recent losses.
For the 12-month period, yields on shorter-maturity bonds rose in line with
expectations for higher short-term interest rates. By contrast, yields on
longer-term bonds fell, while their prices rose accordingly (bond yields and
prices move in opposite directions). The difference in yield between two-year
and 30-year AAA-rated municipal bonds went from 3.6% to 2.9% during the 12
months, reflecting the better relative results of longer bonds.
Strong performance from lower-rated bonds was a second evident trend for the
fiscal year. As states' revenue collections have increased, their credit outlook
has improved as well. Investors have become increasingly willing to invest in
lower-rated investment-grade and non-rated securities to obtain a higher degree
of income.
For the first eight months of 2004, national municipal issuance was down about
nine percent nationwide when compared to the same period in 2003 (Source: The
Bond Buyer). This decline in new supply reflected the improved financial
position of states and municipalities. Greater tax collections limited the need
to rely on the debt markets for funds to support needed projects. Higher
interest rates also made it relatively less attractive to refinance outstanding
bonds.
Q: WHAT ECONOMIC AND MUNICIPAL ENVIRONMENT DID YOU ENCOUNTER SPECIFICALLY IN
MINNESOTA?
A: In the first eight months of 2004, new supply of Minnesota tax-free bonds
fell by 4% compared to the previous year --slightly below the 9% national
decline (Source: The Bond Buyer). As in the rest of the country, the fall-off in
issuance can partly be attributed to the state's improving economic fortunes.
During the first nine months of Minnesota's 2004 fiscal year, the state saw a
3.6% year-over-year rise in its revenue collections. Also, the state's
unemployment rate stood at just 4.4% as of July 2004, well below the national
rate of 5.5% (Source: Fiscal Studies Program, June 2004). Minnesota's improved
financial position led to a number of credit-quality upgrades in the state,
further supporting the performance of its lower-rated bonds.
Q: HOW DID THE FOUR FUNDS PERFORM DURING THEIR FISCAL YEAR, AND WHAT MANAGEMENT
STRATEGIES DID YOU PURSUE FOR EACH?
A: Delaware Tax-Free Minnesota Fund appreciated +7.72%
(Class A shares at net asset value with distributions reinvested) for the fiscal
year, outpacing both its peer group, as measured by the +6.42% return of the
Lipper Minnesota Municipal Debt Funds Average, and its performance benchmark,
the Lehman Brothers Municipal Bond Index, which returned +7.11% (Source: Lipper
Inc.). The Fund's dividend payments during the past 12 months were exempt from
federal and Minnesota state taxes.*
In part, we attribute the Fund's outperformance to strong security selection. To
choose investments for the portfolio, we use a bottom-up approach, meaning we
evaluate securities one-by-one and select those we believe offer the best
combination of reward potential and risk. We do not, by contrast, invest
according to our expectations for how interest rates may behave and,
consequently, influence municipal yields.
*A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
1
For this bottom-up approach, we rely on the experience of our research staff to
help us identify securities that exhibit stable or improving credit trends. Our
confidence in the group allowed us to invest in selected lower-rated
investment-grade bonds that, in our opinion, offered attractive value. Such an
approach helped the Fund's results during an environment in which lower-rated
bonds were among the market's best performers.
Although trading activity in the portfolio was only moderate during the past 12
months, we established several significant new positions, especially in the
healthcare sector. For example, we purchased healthcare bonds issued by the
Benedictine Health System for the Duluth Economic Development Authority.
Although our existing bonds from this issuer were due to be called in full, our
trading staff was able to arrange a tender for these bonds and then sell our
existing holdings and negotiate a favorable purchase arrangement for the new
replacement securities. A second noteworthy purchase was of bonds issued by Park
Nicollet Health Services which performed well for the Fund as did the healthcare
sector.
Another strategy we employed was to keep a portion of the Fund's assets in
securities with very short maturities. We wished to keep liquid assets on hand
to take advantage of suitably structured tax-free investment opportunities
whenever they became available. We also increased our exposure to municipal
bonds with lower- and mid-investment-grade credit ratings. Finally, we modestly
reduced the Fund's interest-rate sensitivity by selling some of our
longest-duration holdings, thereby moderating volatility.
On the negative side, the Fund's allocation to Puerto Rico bonds detracted from
results. During the past 12 months, Puerto Rico was one of the top-performing
municipal markets in the United States. Maintaining an underweighted position in
these securities hurt performance, especially during the summer of 2004 when
Puerto Rico bonds did especially well.
The total return of DELAWARE TAX-FREE MINNESOTA INSURED FUND was +7.20% (Class A
shares at net asset value with distributions reinvested) for the fiscal year,
surpassing the Lipper Minnesota Municipal Debt Funds Average, which returned
+6.42%. The Fund also outperformed the +7.11% return of its benchmark Lehman
Brothers Municipal Bond Index (Source: Lipper Inc.). The Fund's dividend
payments during the past 12 months were exempt from federal and Minnesota state
taxes.*
The Fund's outperformance can partly be attributed to a commitment to the
healthcare sector. Hospital bonds generally have been strong performers in
recent years. Many issuers have improved their financial positions and
strengthened their balance sheets, adding to investors' confidence in the
sector. Among the healthcare bonds added to the portfolio which helped
performance were those issued by Benedictine Health System for Duluth Economic
Development Authority, Park Nicollet Health Services, and Fairview Health
Services.
Also adding to returns was an approximately 20 percent stake in bonds with
credit ratings below AAA. This included a 10 percent position in A-rated
investments that we believed offered solid credit quality and added to the
Fund's income stream. In an environment in which lower-rated securities
generally outperformed their higher-quality counterparts, taking advantage of
our ability to invest a portion of the portfolio in non-insured bonds helped
performance relative to other insured municipal bond funds.
Our management strategy continued to focus on bottom-up security selection and
finding securities that offered our shareholders an attractive income stream. In
our opinion, focusing on bonds' income potential minimizes volatility and
contributes greatly to total return.
On the negative side, the Fund's allocation to Puerto Rico bonds detracted from
results. During the past 12 months, Puerto Rico was one of the top-performing
municipal markets in the United States. Maintaining an underweighted position in
these securities hurt performance, especially during the summer of 2004 when
Puerto Rico bonds did especially well.
DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND gained +6.73% (Class A shares at
net asset value with distributions reinvested) for the 12 months ended August
31, 2004. This result bettered that of the Fund's peer group, the Lipper Other
States Intermediate Municipal Debt Funds Average, which returned +4.81%, as well
as its benchmark, the Lehman Brothers Five-Year Municipal Bond Index, which
returned +4.49% (Source: Lipper Inc.). The Fund's dividend payments during the
past 12 months were exempt from federal and Minnesota state taxes.*
*A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
2
We attributed the Fund's significant outperformance to several factors. First,
we continued to choose investments based on our assessment of their income
potential. Our focus on bonds' income stream -- as opposed to using a "top-down"
approach, choosing investments based on expectations for future moves in
interest rates -- helped the Fund during a time of tremendous volatility in the
municipal bond market. Second, the Fund's duration declined modestly during the
period, benefiting performance when rates rose. Duration is a common measure of
a bond's or bond fund's sensitivity to interest rate changes. Third, we added to
the portfolio's exposure to tax-free bonds with lower- and mid-investment-grade
credit ratings, many of which performed well as municipal investors became less
risk averse during the 12-month period. Finally, we also maintained positions in
very short-term securities to have liquid assets on hand to take advantage of
opportunities as they became available.
Some opportunities identified were in the healthcare sector, one of the market's
strongest-performing areas during the past 12 months. New bonds added included
those issued by Benedictine Health System for the Duluth Economic Development
Authority and by Park Nicollet Health Services. We also modestly increased our
stake in selected Puerto Rico bonds, as bonds issued by U.S. territories
generally are tax-exempt in all 50 states.
On the negative side, the Fund's allocation to Puerto Rico bonds detracted from
results. During the past 12 months, Puerto Rico was one of the top-performing
municipal markets in the United States. Maintaining an underweighted position in
these securities hurt performance, especially during the summer of 2004 when
Puerto Rico bonds did especially well.
Finally, we looked to reduce the Fund's longest-duration positions as a means to
moderate performance volatility caused by rising interest rates.
For the 12 months ended August 31, 2004, DELAWARE MINNESOTA HIGH-YIELD MUNICIPAL
BOND FUND gained +8.65% (Class A shares at net asset value with distributions
reinvested), thereby outperforming the +6.42% return of its peer group, the
Lipper Minnesota Municipal Debt Funds Average, and the +7.11% return of its
benchmark, the Lehman Brothers Municipal Bond Index (Source: Lipper Inc.). The
Fund's dividend payments during the past 12 months were exempt from federal and
Minnesota state taxes.*
In part, the Fund's outperformance can be attributed to our focus on bonds with
strong income streams. As always, we continued to select bonds on a bottom-up
basis, meaning we conducted thorough research and bought those investments we
believed offered the best ratio of reward potential to risk. Our focus on yield
led us to establish large positions in sectors such as multi-family housing,
continuing care retirement communities, and hospitals. All three tend to
generate large amounts of income, helping to offset volatility from interest
rate swings. Our emphasis on income generation reduced performance volatility as
interest rates fluctuated.
The Fund also benefited from the especially strong performance environment for
lower-rated bonds. As the economy has improved, state and local municipal
issuers have become financially stronger -- enabling investors to invest more
confidently in issuers with weaker credit ratings. As high-yield bonds have
gained in value, however, their yields have fallen, making it more difficult to
identify attractive new investment opportunities. At those times, we
occasionally found ourselves unable to identify suitable lower- and non-rated
bonds with desirable structural characteristics, limiting total return potential
during the period. Accordingly, we held on to those securities that continued to
meet our investment criteria. We also periodically bought higher-rated bonds
while awaiting future opportunities that we believed would be in our
shareholders' best interests.
*A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
High-yielding, non-investment-grade bonds ("junk bonds") involve higher risk
than investment-grade bonds. Adverse conditions may affect the issuer's ability
to pay interest and principal on these securities.
3
DELAWARE
TAX-FREE MINNESOTA INSURED FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so that 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 Minnesota 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. 5/1/87)
Excluding Sales Charge +6.59% +5.76% +5.77% +7.20%
Including Sales Charge +6.30% +5.27% +4.79% +2.34%
- --------------------------------------------------------------------------------
Class B (Est. 3/7/95)
Excluding Sales Charge +5.17% +4.99% +6.41%
Including Sales Charge +5.17% +4.74% +2.41%
- --------------------------------------------------------------------------------
Class C (Est. 5/4/94)
Excluding Sales Charge +4.93% +4.97% +5.00% +6.39%
Including Sales Charge +4.93% +4.97% +5.00% +5.39%
- --------------------------------------------------------------------------------
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%. 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
Minnesota Insured Fund through August 31, 2004. 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 MINNESOTA INSURED FUND
FUND BASICS
As of August 31, 2004
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
The Fund seeks as high a level of current income exempt from federal income tax
and from Minnesota state personal income tax as is consistent with preservation
of capital.
- --------------------------------------------------------------------------------
TOTAL FUND NET ASSETS:
$253.36 million
- --------------------------------------------------------------------------------
NUMBER OF HOLDINGS:
80
- --------------------------------------------------------------------------------
FUND START DATE:
May 1, 1987
- --------------------------------------------------------------------------------
YOUR FUND MANAGERS:
Patrick P. Coyne
Joseph R. Baxter
Robert F. Collins
- --------------------------------------------------------------------------------
NASDAQ SYMBOLS:
Class A MNINX
Class B DVMBX
Class C DVMCX
- --------------------------------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1994 through August 31, 2004
DELAWARE TAX-FREE MINNESOTA FUND GROWTH OF $10,000 INVESTMENT CHART
LEHMAN BROTHERS
DELAWARE TAX-FREE MUNICIPAL BOND
MINNESOTA FUND INDEX
8/31/1994 $ 9,550 $10,000
8/31/1995 $10,217 $10,886
8/31/1996 $10,778 $11,457
8/31/1997 $11,773 $12,516
8/31/1998 $12,805 $13,598
8/31/1999 $12,667 $13,673
8/31/2000 $13,224 $14,593
8/31/2001 $14,417 $16,083
8/31/2002 $15,217 $17,078
8/31/2003 $15,793 $17,614
8/31/2004 $16,930 $18,866
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 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 for 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 redemptions of fund shares.
5
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 from 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
a 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 below assume reinvestment of all
dividends and distributions. In each case, "Expenses Paid During Period" are
equal to the Fund's annualized expense ratio, multiplied by the average account
value over the period, multiplied by 184/366 (to reflect the one-half year
period).
DELAWARE TAX-FREE MINNESOTA INSURED FUND
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses
Beginning Ending Annualized Paid During
Account Account Expense Period
Value Value Ratio 3/1/04 to
3/1/04 8/31/04 8/31/04
- -------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,002.60 0.86% $4.33
Class B 1,000.00 998.80 1.61% 8.09
Class C 1,000.00 997.90 1.61% 8.09
- -------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.62 0.86% $4.38
Class B 1,000.00 1,016.80 1.61% 8.20
Class C 1,000.00 1,016.80 1.61% 8.20
- -------------------------------------------------------------------------------------------------------------
6
SECTOR ALLOCATION AS OF AUGUST 31, 2004
DELAWARE TAX-FREE MINNESOTA INSURED FUND
The following chart list the Fund's categories of portfolio holdings as a
percent of total net assets, and are provided in compliance with such
requirement.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------------------------------
MUNICIPAL BONDS 96.86%
- ------------------------------------------------------------------------
Airport Revenue Bonds 3.59%
Corporate-Backed Revenue Bonds 0.69%
Escrowed to Maturity Bonds 16.60%
Higher Education Revenue Bonds 3.84%
Hospital Revenue Bonds 19.47%
Miscellaneous Revenue Bonds 0.82%
Multi Family Housing Revenue Bonds 6.72%
Municipal Lease Revenue Bonds 4.91%
Political Subdivision General Obligation Bonds 1.25%
Pre-Refunded Bonds 7.48%
Public Power Revenue Bonds 9.45%
School District General Obligation Bonds 18.18%
Single Family Housing Revenue Bonds 0.38%
State General Obligation Bonds 2.30%
Territorial Revenue Bonds 1.18%
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 2.07%
- ------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 98.93%
- ------------------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.07%
- ------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- ------------------------------------------------------------------------
7
STATEMENTS DELAWARE TAX-FREE MINNESOTA INSURED FUND
OF NET ASSETS AUGUST 31, 2004
Principal Market
Amount Value
MUNICIPAL BONDS - 96.86%
Airport Revenue Bonds - 3.59%
Minneapolis/St. Paul Metropolitan
Airports Commission Revenue
Series A 5.125% 1/1/25 (FGIC) $ 100,000 $ 103,286
Series C 5.125% 1/1/20 (FGIC) 2,000,000 2,144,220
Series C 5.25% 1/1/32 (FGIC) 6,595,000 6,847,984
-----------
9,095,490
-----------
Corporate-Backed Revenue Bonds - 0.69%
Sartell Environmental Improvement Revenue
(International Paper) Series A
5.20% 6/1/27 1,800,000 1,753,020
-----------
1,753,020
-----------
Escrowed to Maturity Bonds - 16.60%
Dakota/Washington Counties Housing &
Redevelopment Authority Anoka Single
Family Residential Mortgage Revenue
8.45% 9/1/19 (GNMA) (AMT) 9,000,000 13,024,350
Dakota/Washington Counties
Housing & Redevelopment Authority
Bloomington Single Family Residential
Mortgage Revenue
8.15% 9/1/16 (GNMA) (MBIA) (AMT) 405,000 564,943
8.375% 9/1/21 (GNMA)(FHA)(AMT) 14,115,000 20,812,567
Southern Minnesota Municipal Power
Agency Supply Revenue Series A
5.75% 1/1/18 3,790,000 3,905,216
5.75% 1/1/18 (AMBAC) 670,000 690,368
Western Minnesota Municipal Power
Agency Supply Revenue Series A
6.60% 1/1/10 2,000,000 2,253,320
9.75% 1/1/16 (MBIA) 530,000 810,322
-----------
42,061,086
-----------
Higher Education Revenue Bonds - 3.84%
Minnesota State Colleges & Universities
Revenue Series A 5.00% 10/1/22 (FSA) 5,135,000 5,379,837
Minnesota State Higher Education Facilities
Authority Revenue (St. Catherine College)
Series 5-N1 5.00% 10/1/18 2,200,000 2,286,614
St. Cloud Housing & Redevelopment
Authority Revenue
(State University Foundation Project)
5.00% 5/1/23 2,000,000 2,071,320
-----------
9,737,771
-----------
Hospital Revenue Bonds - 19.47%
Duluth Economic Development Authority
Health Care Facilities
(Benedictine Health System)
5.25% 2/15/28 8,500,000 8,546,325
Minneapolis Health Care Revenue
Series A
(Allina Health Systems)
5.75% 11/15/32 7,800,000 8,122,530
(Fairview Health Services)
5.625% 5/15/32 5,400,000 5,623,722
Principal Market
Amount Value
MUNICIPAL BONDS (CONTINUED)
Hospital Revenue Bonds (continued)
Minneapolis/St. Paul Housing &
Redevelopment Authority Health
Care Systems Revenue
(Children's Health Care) Series A
5.50% 8/15/25 (FSA) $ 2,250,000 $ 2,351,160
(Healthpartners Obligation
Group Project)
5.625% 12/1/22 650,000 665,516
5.875% 12/1/29 1,000,000 1,023,530
(Healthspan Health System) Series A
5.00% 11/15/13 (AMBAC) 6,490,000 6,637,193
Minnesota Agricultural & Economic
Development Health Care System
(Fairview Hospital) Series 97A
5.75% 11/15/26 (MBIA) 10,250,000 11,178,138
St. Louis Park Health Care
Facilities Revenue
(Park Nicollet Health Services) Series B
5.50% 7/1/25 2,000,000 2,070,500
St. Paul Housing & Redevelopment
Authority Hospital Revenue
(St. Paul/Ramsey Medical Center Project)
5.50% 5/15/13 (AMBAC) 1,000,000 1,013,150
Willmar (Rice Memorial Hospital Project)
5.00% 2/1/22 (FSA) 1,000,000 1,055,100
5.00% 2/1/25 (FSA) 1,000,000 1,041,430
-----------
49,328,294
-----------
Miscellaneous Revenue Bonds - 0.82%
Minneapolis Community Development
Agency Supported Development
Revenue Series G-3 5.45% 12/1/31 2,000,000 2,070,240
-----------
2,070,240
-----------
Multi Family Housing Revenue Bonds - 6.72%
Chaska Waters Edge Multifamily Revenue
Series A 7.30% 1/20/30 (GNMA) 3,257,000 3,441,607
Eagan Multifamily Revenue
(Woodridge Apartments)
5.90% 8/1/20 (GNMA) 1,000,000 1,054,970
Hopkins Multifamily Revenue
(Auburn Apartments Project) Series A
8.05% 6/20/31 (GNMA) 3,790,000 4,052,268
Minneapolis Multifamily Housing Revenue
(Bottineau Commons Project)
5.45% 4/20/43 (GNMA) (AMT) 1,500,000 1,540,680
(Seward Towers Project)
5.00% 5/20/36 (GNMA) 4,000,000 4,072,199
Minneapolis/St. Paul Housing Finance
Board Revenue (Trinity Apartments)
Series A 8.125% 12/1/14
(GNMA) (FHA) (AMT) 10,000 10,006
Minnesota State Housing Finance
Agency Rental Housing Revenue
Series C-2 5.95% 2/1/15 (AMBAC) 1,692,000 1,736,652
White Bear Lake Multifamily Revenue
(Lake Square) Series A
5.875% 2/1/15 (FHA) 1,055,000 1,108,879
-----------
17,017,261
-----------
8
STATEMENTS DELAWARE TAX-FREE MINNESOTA INSURED FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (CONTINUED)
Municipal Lease Revenue Bonds - 4.91%
Hopkins Housing & Redevelopment
Authority Public Works and Fire Station
Series A 5.00% 2/1/23 (MBIA) $ 1,210,000 $ 1,262,732
Minneapolis Special School District #001
Series A
5.00% 2/1/18 (FSA) 1,545,000 1,650,925
5.00% 2/1/19 (FSA) 1,535,000 1,632,119
5.00% 2/1/20 (FSA) 1,690,000 1,788,037
St. Paul Port Authority Lease Revenue
(Cedar Street Office Building Project)
5.125% 12/1/27 2,000,000 2,073,960
5.25% 12/1/27 3,840,000 4,034,496
-----------
12,442,269
-----------
Political Subdivision General Obligation Bonds - 1.25%
Dakota County Community Agency
Governmental Housing Development
5.00% 1/1/21 1,275,000 1,344,500
Western Lake Superior Sanitation
District Series A
6.00% 10/1/08 (MBIA) (AMT) 400,000 416,856
6.10% 10/1/09 (MBIA) (AMT) 425,000 443,738
6.20% 10/1/10 (MBIA) (AMT) 450,000 470,318
6.20% 10/1/11 (MBIA) (AMT) 475,000 495,401
-----------
3,170,813
-----------
*Pre-Refunded Bonds - 7.48%
Duluth Economic Development Authority
Health Care Facilities Revenue
(Duluth Clinic)
6.30% 11/1/22-04 (AMBAC) 1,060,000 1,068,851
North St. Paul Maplewood Independent
School District #622 Series A
7.10% 2/1/19-05 (MBIA) 5,935,000 6,076,075
7.10% 2/1/25-05 (FSA) 11,525,000 11,798,949
-----------
18,943,875
-----------
Public Power Revenue Bonds - 9.45%
+Northern Minnesota Municipal Power
Agency Electric System Revenue,
Inverse Floater ROLs
Series II-R-32 9.036% 1/1/13 (FSA) 4,585,000 5,631,205
Shakopee Public Utilities Commission
Public Utilities Revenue
5.125% 2/1/26 (MBIA) 1,850,000 1,891,903
+Southern Minnesota Municipal Power
Agency Supply System Revenue,
Inverse Floater ROLs Series II-R-189-B
5.32% 1/1/16 (AMBAC) 5,000,000 5,684,600
Southern Minnesota Municipal Power
Agency Supply System Revenue
Series A
5.00% 1/1/12 (AMBAC) 1,000,000 1,114,360
5.00% 1/1/13 (MBIA) 1,000,000 1,112,530
5.25% 1/1/15 (AMBAC) 1,500,000 1,704,285
5.25% 1/1/16 (AMBAC) 5,000,000 5,684,550
Principal Market
Amount Value
MUNICIPAL BONDS (CONTINUED)
Public Power Revenue Bonds (continued)
Western Minnesota Municipal Power
Agency Supply System Series B
5.00% 1/1/15 (MBIA) $ 1,000,000 $ 1,110,290
-----------
23,933,723
-----------
School District General Obligation Bonds - 18.18%
Big Lake Independent School District #727
Series A
5.00% 2/1/17 (FSA) 1,040,000 1,116,606
5.00% 2/1/20 (FSA) 1,000,000 1,059,570
Centennial Independent School District #012
Series A 5.00% 2/1/18 (FSA) 1,270,000 1,357,071
Morris Independent School District #769
5.00% 2/1/24 (MBIA) 4,875,000 5,070,000
Mounds View Independent School
District #621
5.00% 2/1/20 (MBIA) 2,970,000 3,142,290
5.375% 2/1/24 (FGIC) 6,170,000 6,629,851
Osseo Independent School District #279
Series A 5.00% 2/1/21 (FSA) 3,570,000 3,756,068
Robbinsdale Independent School
District #281 5.00% 2/1/21 (FSA) 1,310,000 1,378,277
+Rockford Independent School
District #883, Inverse Floater ROLs
Series II-R-30-B 9.748% 2/1/21 (FSA) 1,605,000 1,948,245
#Rosemount Independent School
District #196 Series B
5.80% 4/1/09 (FSA) 1,860,000 1,623,445
5.85% 4/1/10 (FSA) 2,240,000 1,866,704
#Sauk Rapids Independent School
District #047 Series B
5.983% 2/1/15 (FSA) 2,700,000 1,677,888
6.083% 2/1/17 (FSA) 2,245,000 1,234,750
+South Washington County Independent
School District #833
Inverse Floater ROLs
9.748% 2/1/20 Series II-R-34-A (MBIA) 3,440,000 4,175,678
9.748% 2/1/21 Series II-R-34-B (MBIA) 3,645,000 4,424,520
St. Michael Independent School
District #885
5.00% 2/1/20 (FSA) 1,970,000 2,084,280
5.00% 2/1/27 (FSA) 3,435,000 3,523,005
-----------
46,068,248
-----------
Single Family Housing Revenue Bonds - 0.38%
Dakota County Housing &
Redevelopment Authority Single
Family Mortgage Revenue
5.85% 10/1/30 (GNMA)(FNMA)(AMT) 844,000 866,940
6.70% 10/1/17 (FNMA) 100,000 102,171
-----------
969,111
-----------
State General Obligation Bonds - 2.30%
Minnesota State 5.00% 11/1/20 (FSA) 5,500,000 5,839,020
-----------
5,839,020
-----------
23
STATEMENTS DELAWARE TAX-FREE MINNESOTA INSURED FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (CONTINUED)
Territorial Revenue Bonds - 1.18%
Puerto Rico Electric Power Authority
Power Revenue Series GG
4.75% 7/1/21 (FSA) $ 1,000,000 $ 1,033,340
Puerto Rico Electric Power Authority
Series OO 5.00% 7/1/13 (CIFG) 1,750,000 1,947,190
------------
2,980,530
------------
Total Municipal Bonds
(cost $228,631,520) 245,410,751
------------
Number of/Principal
Shares / Amount
SHORT-TERM INVESTMENTS - 2.07%
Money Market -- 0.49%
Federated Minnesota Municipal Cash Trust 1,239,181 1,239,181
------------
**Variable Rate Demand Notes - 1.58%
Minneapolis Library 1.17% 12/1/32
(SPA, Dexia Credit Local) 4,000,000 4,000,000
------------
4,000,000
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $5,239,181) 5,239,181
------------
TOTAL MARKET VALUE OF SECURITIES - 98.93%
(cost $233,870,701) 250,649,932
RECEIVABLES AND OTHER ASSETS NET
OF LIABILITIES - 1.07% 2,712,921
------------
NET ASSETS APPLICABLE TO 22,997,741 SHARES
OUTSTANDING - 100.00% $253,362,853
============
Net Asset Value - Delaware Tax-Free
Minnesota Insured Fund Class A
($227,017,699 / 20,606,794 Shares) $11.02
------
Net Asset Value - Delaware Tax-Free
Minnesota Insured Fund Class B
($14,316,734 / 1,300,609 Shares) $11.01
------
Net Asset Value - Delaware Tax-Free
Minnesota Insured Fund Class C
($12,028,420 / 1,090,338 Shares) $11.03
------
COMPONENTS OF NET ASSETS AT AUGUST 31, 2004++:
Shares of beneficial interest
(unlimited authorization - no par) $235,136,412
Accumulated net realized gain on investments 1,447,210
Net unrealized appreciation of investments 16,779,231
------------
Total net assets $253,362,853
============
* 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.
+ 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.
++ See Note 4 in "Notes to Financial Statements" for details of
reclassification of components of net assets.
# Zero coupon bond. The interest rate shown is the yield at the time of
purchase.
SUMMARY OF ABBREVIATIONS:
Ambac - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
CIFG - CDC IXIS Financial Guaranty
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
ROLs - Residual Option Longs SPA - Stand-by Purchase Agreement
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE TAX-FREE MINNESOTA INSURED FUND
Net asset value Class A (A) $11.02
Sales charge (4.50% of offering price or 4.72% of
amount invested per share) (B) 0.52
------
Offering price $11.54
======
(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
24
STATEMENTS DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
OF OPERATIONS Year Ended August 31, 2004
Delaware
Tax-Free Minnesota
Insured Fund
INVESTMENT INCOME:
Interest $13,663,495
-----------
EXPENSES:
Management fees 1,295,636
Dividend disbursing and transfer agent fees and expenses 154,703
Distribution expenses -- Class A 581,349
Distribution expenses -- Class B 149,699
Distribution expenses -- Class C 120,824
Accounting and administration expenses 96,908
Registration fees 37,300
Reports and statements to shareholders 19,024
Legal and professional fees 38,732
Custodian fees 13,276
Trustees' fees 10,130
Other 10,717
-----------
2,528,298
Less expenses absorbed or waived --
Less waived distribution expenses -- Class A --
Less expenses paid indirectly (2,638)
-----------
Total expenses 2,525,660
-----------
NET INVESTMENT INCOME 11,137,835
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 1,800,275
Net change in unrealized appreciation/depreciation
of investments 4,773,712
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 6,573,987
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,711,822
===========
See accompanying notes
25
STATEMENTS DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
OF CHANGES IN NET ASSETS
Delaware Tax-Free Minnesota
Insured Fund
Year Ended
8/31/04 8/31/03
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 11,137,835 $ 11,803,673
Net realized gain on investments 1,800,275 2,440,481
Net change in unrealized appreciation/depreciation of investments 4,773,712 (7,468,306)
------------ ------------
Net increase in net assets resulting from operations 17,711,822 6,775,848
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (10,192,697)
Class B (544,393) (589,404)
Class C (438,367) (348,888)
Net realized gain on investments:
Class A -- --
Class B -- --
Class C -- --
------------ ------------
(11,175,457) (11,869,389)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 12,638,625 14,811,513
Class B 1,540,115 3,424,019
Class C 2,017,231 6,800,660
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 6,622,620 7,014,830
Class B 408,614 430,103
Class C 290,080 235,167
------------ ------------
23,517,285 32,716,292
------------ ------------
Cost of shares repurchased:
Class A (29,823,120) (25,326,599)
Class B (3,681,102) (2,239,993)
Class C (2,538,003) (892,572)
------------ ------------
(36,042,225) (28,459,164)
------------ ------------
Increase (decrease) in net assets derived from capital share transactions (12,524,940) 4,257,128
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (5,988,575) (836,413)
NET ASSETS:
Beginning of year 259,351,428 260,187,841
------------ ------------
End of year $253,362,853 $259,351,428
============ ============
Distributions in excess of net investment income -- --
See accompanying notes
26
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Minnesota Insured Fund Class A
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/04 8/31/03 8/31/02(1) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $10.740 $10.940 $10.900 $10.480 $10.520
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.479 0.498 0.514 0.514 0.507
Net realized and unrealized gain (loss) on investments 0.282 (0.197) 0.038 0.421 (0.041)
------- ------- ------- ------- -------
Total from investment operations 0.761 0.301 0.552 0.935 0.466
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.481) (0.501) (0.512) (0.515) (0.506)
------- ------- ------- ------- -------
Total dividends and distributions (0.481) (0.501) (0.512) (0.515) (0.506)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.020 $10.740 $10.940 $10.900 $10.480
======= ======= ======= ======= =======
TOTAL RETURN(2) 7.20% 2.75% 5.25% 9.14% 4.63%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $227,018 $231,738 $239,763 $242,716 $238,486
Ratio of expenses to average net assets 0.89% 0.93% 0.96% 0.90% 1.00%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 0.89% 0.93% 0.96% 0.90% 1.01%
Ratio of net investment income to average net assets 4.37% 4.52% 4.78% 4.82% 4.93%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 4.37% 4.52% 4.78% 4.82% 4.92%
Portfolio turnover 15% 30% 15% 7% 35%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that required
amortization of all premiums and discounts on debt securities as an
adjustment to interest income. The effect of these changes for the year
ended August 31, 2002 was an increase in net investment income per share of
$0.002, a decrease in net realized and unrealized gain (loss) per share of
$0.002, and an increase in the ratio of net investment income to average net
assets of 0.02%. Per share data and ratios for periods prior to September 1,
2001 have not been restated to reflect this change in accounting.
(2) 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.
See accompanying notes
27
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Minnesota Insured Fund Class B
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/04 8/31/03 8/31/02(1) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $10.730 $10.940 $10.890 $10.470 $10.510
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.397 0.415 0.433 0.434 0.431
Net realized and unrealized gain (loss) on investments 0.282 (0.207) 0.048 0.422 (0.042)
------- ------- ------- ------- -------
Total from investment operations 0.679 0.208 0.481 0.856 0.389
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.399) (0.418) (0.431) (0.436) (0.429)
------- ------- ------- ------- -------
Total dividends and distributions (0.399) (0.418) (0.431) (0.436) (0.429)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.010 $10.730 $10.940 $10.890 $10.470
======= ======= ======= ======= =======
TOTAL RETURN(2) 6.41% 1.89% 4.56% 8.34% 3.86%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $14,317 $15,647 $14,341 $12,732 $10,491
Ratio of expenses to average net assets 1.64% 1.68% 1.71% 1.65% 1.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.64% 1.68% 1.71% 1.65% 1.76%
Ratio of net investment income to average net assets 3.62% 3.77% 4.03% 4.07% 4.18%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 3.62% 3.77% 4.03% 4.07% 4.17%
Portfolio turnover 15% 30% 15% 7% 35%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that required
amortization of all premiums and discounts on debt securities as an
adjustment to interest income. The effect of these changes for the year
ended August 31, 2002 was an increase in net investment income per share of
$0.002, a decrease in net realized and unrealized gain (loss) per share of
$0.002, and an increase in the ratio of net investment income to average net
assets of 0.02%. Per share data and ratios for periods prior to September 1,
2001 have not been restated to reflect this change in accounting.
(2) 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.
See accompanying notes
28
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Minnesota Insured Fund Class C
- -----------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/04 8/31/03 8/31/02(1) 8/31/01 8/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $10.750 $10.950 $10.910 $10.480 $10.520
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.396 0.414 0.433 0.434 0.431
Net realized and unrealized gain (loss) on investments 0.282 (0.197) 0.038 0.432 (0.042)
------- ------- ------- ------- -------
Total from investment operations 0.678 0.217 0.471 0.866 0.389
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.398) (0.417) (0.431) (0.436) (0.429)
------- ------- ------- ------- -------
Total dividends and distributions (0.398) (0.417) (0.431) (0.436) (0.429)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.030 $10.750 $10.950 $10.910 $10.480
======= ======= ======= ======= =======
TOTAL RETURN(2) 6.39% 1.97% 4.46% 8.42% 3.85%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $12,028 $11,966 $6,083 $4,265 $3,615
Ratio of expenses to average net assets 1.64% 1.68% 1.71% 1.65% 1.75%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.64% 1.68% 1.71% 1.65% 1.76%
Ratio of net investment income to average net assets 3.62% 3.77% 4.03% 4.07% 4.18%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 3.62% 3.77% 4.03% 4.07% 4.17%
Portfolio turnover 15% 30% 15% 7% 35%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that required
amortization of all premiums and discounts on debt securities as an
adjustment to interest income. The effect of these changes for the year
ended August 31, 2002 was an increase in net investment income per share of
$0.002, a decrease in net realized and unrealized gain (loss) per share of
$0.002, and an increase in the ratio of net investment income to average net
assets of 0.02%. Per share data and ratios for periods prior to September 1,
2001 have not been restated to reflect this change in accounting.
(2) 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.
See accompanying notes
29
NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
TO FINANCIAL STATEMENTS August 31, 2004
Voyageur Mutual Funds (a "Trust") is organized as a Delaware statutory trust and
offers six series: Delaware Minnesota High-Yield Municipal Bond Fund, Delaware
National High-Yield Municipal Bond Fund, Delaware Tax-Free Arizona Fund,
Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, and Delaware
Tax-Free New York Fund. Voyageur Insured Funds (a "Trust") is organized as a
Delaware statutory trust and offers two series: Delaware Tax-Free Arizona
Insured Fund and Delaware Tax-Free Minnesota Insured Fund. Voyageur Tax Free
Funds (a "Trust") is organized as a Delaware business trust and offers the
Delaware Tax-Free Minnesota Fund. Voyageur Intermediate Tax Free Funds (a
"Trust") is organized as a Delaware statutory trust and offers the Delaware
Tax-Free Minnesota Intermediate Fund. These financial statements and related
notes pertain to Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota
Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and Delaware
Minnesota High-Yield Municipal Bond Fund (each a "Fund" or, collectively, the
"Funds"). The above Trusts are open-end investment companies. The Funds are
considered non-diversified under the Investment Company Act of 1940, as amended,
and 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 Minnesota Fund,
Delaware Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield
Municipal Bond Fund and with a front-end sales charge of up to 2.75% for
Delaware Tax-Free Minnesota Intermediate Fund. Class B shares are sold with a
contingent deferred sales charge that declines from 4% to zero for Delaware
Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware
Minnesota High-Yield Municipal Bond Fund and that declines from 2% to zero for
Delaware Tax-Free Minnesota Intermediate Fund, 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 for Delaware
Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware
Minnesota High-Yield Municipal Bond Fund and approximately five years after
purchase for Delaware Tax-Free Minnesota Intermediate Fund. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
12 months.
The investment objective of Delaware Tax-Free Minnesota Fund and Delaware
Tax-Free Minnesota Insured Fund is to seek as high a level of current income
exempt from federal income tax and from the Minnesota state personal income tax,
as is consistent with preservation of capital.
The investment objective of Delaware Tax-Free Minnesota Intermediate Fund is to
seek to provide investors with preservation of capital and, secondarily, current
income exempt from federal income tax and from the Minnesota state personal
income tax, by maintaining a dollar-weighted average effective portfolio
maturity of 10 years or less.
The investment objective of Delaware Minnesota High-Yield Municipal Bond Fund is
to seek as high a level of current income exempt from federal income tax and
from the Minnesota state personal income tax, primarily through investment in
medium- and lower-grade municipal obligations.
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 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 amounts of these expenses for the year ended
August 31, 2004 were as follows:
Delaware Tax-Free
Minnesota
Insured Fund
-----------------
Commission reimbursements $2,105
Earnings credits 533
30
NOTES DELAWARE MINNESOTA MUNICIPAL BOND 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
Minnesota
Insured Fund
-----------------
On the first $500 million 0.500%
On the next $500 million 0.475%
On the next $1.5 billion 0.450%
In excess of $2.5 billion 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
Minnesota
Insured Fund
-----------------
The operating expense limitation
as a percentage of average daily
net assets (per annum) 0.75%
Expiration date 10/31/04
Effective November 1, 2004 the
operating expense limitation as
a percentage of average daily
net assets (per annum) 0.64%
Expiration date 10/31/05
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. The Funds pay
DSC a monthly fee based on average net assets subject to certain minimums for
accounting and administration services. Each Fund pays DSC a monthly fee based
on the number of shareholder accounts for dividend disbursing and transfer agent
services.
Pursuant to a distribution agreement and distribution plan, each Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.25% of the average daily net
assets of the Class A shares and 1.00% of the average daily net assets of the
Class B and C shares for all Funds. DDLP has contracted to waive distribution
fees through October 31, 2005 in order to prevent distribution fees of Class A
shares from exceeding 0.15% of average daily net assets for the Delaware
Tax-Free Minnesota Intermediate Fund.
At August 31, 2004, each Fund had receivables from or liabilities payable to
affiliates as follows:
Delaware Tax-Free
Minnesota
Insured Fund
-----------------
Investment management
fee payable to DMC $16,690
Dividend disbursing,
transfer agent fees,
accounting and administration fees
and expenses payable to DSC 19,534
Other expenses payable to
DMC and affiliates* 4,923
Receivable from DMC under
expense limitation agreement --
*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.
31
NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
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
Minnesota
Insured Fund
-----------------
$13,182
For the year ended August 31, 2004, DDLP earned commissions on sales of Class A
shares for each Fund as follows:
Delaware Tax-Free
Minnesota
Insured Fund
-----------------
$38,071
Certain officers of DMC, DSC, and DDLP are officers and/or trustees of the
Trust. These officers and trustees are paid no compensation by the Funds.
3. Investments
For the year ended August 31, 2004, the Funds made purchases and sales of
investment securities as follows:
Delaware Tax-Free
Minnesota
Insured Fund
-----------------
Purchases other than
short-term investments $37,959,557
Sales other than
short-term investments 51,541,266
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
Minnesota
Insured Fund
-----------------
Cost of investments $233,535,319
============
Aggregate unrealized appreciation $ 17,358,132
Aggregate unrealized depreciation (243,520)
------------
Net unrealized appreciation $ 17,114,612
============
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
Minnesota
Insured Fund
-----------------
Year ended 8/31/04
- ------------------
Tax-exempt income $11,175,457
Ordinary Income --
Long-term capital gain --
-----------
Total $11,175,457
===========
Year ended 8/31/03
- ------------------
Tax-exempt income $11,869,389
Long-term capital gain --
-----------
Total $11,869,389
===========
32
NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of August 31, 2004, the components of net assets on a tax basis were as
follows:
Delaware Tax-Free
Minnesota
Insured Fund
-----------------
Shares of beneficial interest $235,136,412
Undistributed tax-exempt income
Undistributed long-term capital gain 1,111,829
Capital loss carryforwards --
Unrealized appreciation of investments 17,114,612
------------
Net assets $253,362,853
============
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
Minnesota
Insured Fund
-----------------
Undistributed (accumulated) net
investment income (loss) $37,622
Accumulated realized gain (loss) (37,622)
Paid-in capital --
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss
carryforwards expire as follows:
Delaware Tax-Free
Minnesota
Insured Fund
-----------------
2005 $ 4,334
2006 648
2007 369
2008 201,822
2009 1,267,552
2010 57,521
2011 243,334
2012 684,248
----------
Total $2,459,828
==========
For the year ended August 31, 2004, the Funds had capital loss carryforwards
that were utilized as follows:
Delaware Tax-Free Minnesota Insured Fund $716,681
33
NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Delaware Tax-Free
Minnesota
Insured Fund
----------------------
Year Ended
8/31/04 8/31/03
Shares sold:
Class A 1,150,773 1,341,420
Class B 140,969 310,624
Class C 184,070 617,494
Shares issued upon reinvestment
of dividends and distributions:
Class A 604,266 639,816
Class B 37,314 39,247
Class C 26,432 21,407
---------- ----------
2,143,824 2,970,008
---------- ----------
Shares repurchased:
Class A (2,725,207) (2,313,055)
Class B (335,649) (203,283)
Class C (232,963) (81,525)
---------- ----------
(3,293,819) (2,597,863)
---------- ----------
Net increase (decrease) (1,149,995) 372,145
========== ==========
For the years ended August 31, 2004 and August 31, 2003, the following shares
and values were converted from Class B to Class A. The respective amounts are
included in Class B redemptions and Class A subscriptions in the table above and
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 Minnesota Insured Fund 174,818 174,712 1,927,930 26,832 26,812 301,869
34
NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
6. LINE OF CREDIT
The Funds, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participates 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,
mainly in Minnesota. The value of these investments may be adversely affected by
new legislation within the state, regional or local economic conditions, and
differing levels of supply and demand for municipal bonds. Many municipalities
insure repayment for their obligations. Although bond insurance reduces the risk
of loss due to default by an issuer, such bonds remain subject to the risk that
market value may fluctuate for other reasons and there is no assurance that the
insurance company will meet its obligations. These securities have been
identified in the Statements of Net Assets.
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 Statement 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) (D)
Capital Gains Income Tax Exempt Total
Distributions Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis)
------------- ------------- ------------- -------------
Delaware Tax-Free Minnesota Insured Fund -- -- 100% 100%
(A), (B), and (C) are based on a percentage of each Fund's total distributions.
35
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Voyageur Tax Free Funds - Delaware Tax-Free Minnesota Fund
Voyageur Insured Funds - Delaware Tax-Free Minnesota Insured Fund
Voyageur Intermediate Tax Free Funds - Delaware Tax-Free Minnesota
Intermediate Fund
Voyageur Mutual Funds - Delaware Minnesota High-Yield Municipal Bond Fund
We have audited the accompanying statements of net assets of Voyageur Tax Free
Funds (comprised of Delaware Tax-Free Minnesota Fund), Delaware Tax-Free
Minnesota Insured Fund (one of the series constituting Voyageur Insured Funds),
Voyageur Intermediate Tax Free Funds (comprised of Delaware Tax-Free Minnesota
Intermediate Fund) and Delaware Minnesota High-Yield Municipal Bond Fund (one of
the series constituting Voyageur Mutual Funds) (the "Funds") as of August 31,
2004, 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. 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 the
Delaware Tax-Free Minnesota Fund of Voyageur Tax Free Funds, the Delaware
Tax-Free Minnesota Insured Fund of Voyageur Insured Funds, the Delaware Tax-Free
Minnesota Intermediate Fund of Voyageur Intermediate Tax Free Funds, and the
Delaware Minnesota High-Yield Municipal Bond Fund of Voyageur Mutual Funds at
August 31, 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
36
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
37
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.
38
Delaware
Investments(SM)
- --------------------------------------
A member of Lincoln Financial Group(R)
This annual report is for the information of Delaware Tax-Free Minnesota Fund,
Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota
Intermediate Fund, and Delaware Minnesota High-Yield Municipal Bond Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Tax-Free Minnesota Fund,
Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota
Intermediate Fund, and Delaware Minnesota 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 for each Fund. You should read the prospectus
carefully before you invest. The figures in this report represent past results
which are not a guarantee of future results. The return and principal value of
an investment in 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
WALTER P. BABICH JUDE T. DRISCOLL INVESTMENT MANAGER
Board Chairman Chairman Delaware Management Company
Citadel Construction Corporation Delaware Investments Family of Funds Philadelphia, PA
King of Prussia, PA Philadelphia, PA
INTERNATIONAL AFFILIATE
JOHN H. DURHAM JOSEPH H. HASTINGS Delaware International Advisers Ltd.
Private Investor Executive Vice President and London, England
Gwynedd Valley, PA Chief Financial Officer
Delaware Investments Family of Funds NATIONAL DISTRIBUTOR
ANTHONY D. KNERR Philadelphia, PA Delaware Distributors, L.P.
Managing Director Philadelphia, PA
Anthony Knerr & Associates RICHELLE S. MAESTRO
New York, NY Executive Vice President, SHAREHOLDER SERVICING, DIVIDEND
Chief Legal Officer and Secretary DISBURSING AND TRANSFER AGENT
ANN R. LEVEN Delaware Investments Family of Funds Delaware Service Company, Inc.
Former Treasurer/Chief Fiscal Officer Philadelphia, PA 2005 Market Street
National Gallery of Art Philadelphia, PA 19103-7094
Washington, DC MICHAEL P. BISHOF
Senior Vice President and Treasurer FOR SHAREHOLDERS
THOMAS F. MADISON Delaware Investments Family of Funds 800 523-1918
President and Chief Executive Officer Philadelphia, PA
MLM Partners, Inc. FOR SECURITIES DEALERS AND FINANCIAL
Minneapolis, MN INSTITUTIONS REPRESENTATIVES ONLY
800 362-7500
JANET L. YEOMANS
Vice President/Mergers & Acquisitions WEB SITE
3M Corporation www.delawareinvestments.com
St. Paul, MN
|----------------------------------------------------------------------------------|
| 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 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 each Fund Web site at |
| http://www.delawareinvestments.com; and (iii) on the Commission's Web site at |
| http://www.sec.gov. Each Fund 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 Fund Web site at |
| http://www.delawareinvestments.com; and (ii) on the Commission's Web site at |
| http://www.sec.gov. |
|----------------------------------------------------------------------------------|
(8920) Printed in the USA
AR-MNALL [9/04] IVES 10/04 J9819
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 $26,020 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 $22,970 for
the fiscal year ended August 31, 2003.
(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 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.
- ------------------------
(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.
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 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 $3,500 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 annual excise distribution calculations.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's investment adviser(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 aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $2,500 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 annual excise distribution calculations.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's investment adviser(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.
(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 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 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 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.
(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 $216,315 and $174,000 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.
VOYAGEUR INSURED FUNDS
Jude T. Driscoll
- -------------------------------
By: Jude T. Driscoll
Title: Chairman
Date: November 4, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Jude T. Driscoll
- -------------------------------
By: Jude T. Driscoll
Title: Chairman
Date: November 4, 2004
Joseph H. Hastings
- -------------------------------
By: Joseph H. Hastings
Title: Chief Financial Officer
Date: November 4, 2004