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: 811-4364
Exact name of registrant as specified in charter: Voyageur Intermediate Tax Free Funds
Address of principal executive offices: 2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service: David F. Connor, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: August 31
Date of reporting period: October 31, 2005
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 Minnesota Intermediate Fund of the Registrant, information on
which is included in the following shareholder reports.
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Financial Group
FIXED INCOME
ANNUAL REPORT AUGUST 31, 2005
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DELAWARE TAX-FREE
MINNESOTA INTERMEDIATE FUND
[Graphic Omitted] POWERED BY RESEARCH(R)
TABLE
OF CONTENTS
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PORTFOLIO MANAGEMENT REVIEW 1
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PERFORMANCE SUMMARIES
Delaware Tax-Free Minnesota Fund 6
Delaware Tax-Free Minnesota Insured Fund 8
Delaware Tax-Free Minnesota Intermediate Fund 10
Delaware Minnesota High-Yield
Municipal Bond Fund 12
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DISCLOSURE OF FUND EXPENSES 14
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SECTOR ALLOCATIONS 16
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FINANCIAL STATEMENTS:
Statements of Net Assets 18
Statements of Operations 31
Statements of Changes in Net Assets 32
Financial Highlights 34
Notes to FinancialStatements 46
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 52
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OTHER FUND INFORMATION 53
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BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 56
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Funds are not FDIC insured and are not guaranteed.It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a
series of Delaware Management Business Trust, which is a registered
investment advisor.
(C) 2005 Delaware Distributors, L.P.
PORTFOLIO DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
MANAGEMENT REVIEW August 31, 2005
FUND MANAGERS
Joseph R. Baxter, Co-manager
Robert F. Collins, Co-manager
Patrick P. Coyne, Co-manager
PLEASE DESCRIBE THE OVERALL MARKET CONDITIONS DURING
THE FISCAL YEAR.
The last three years have been remarkably similar; at least as it pertains to
market expectations and how the actual markets can prove them wrong. In the
beginning of calendar years 2003, 2004, and 2005, market participants were
convinced that interest rates were unreasonably low, and many managers adjusted
the risk profiles of their portfolios to reflect the coming of higher rates and
lower bond prices. In each year, the markets weathered the storms and generated
positive results, with price gains adding to the income generated. Defensive
strategies did not pan out.
Over the last 12 months ended August 31, 2005, the fixed income markets rallied
while the Federal Reserve was in the midst of tightening credit by raising
short-term rates - notably, the fed funds rate. The tightening cycle started at
the end of June 2004, prior to the start of the fiscal year, and continues
today. As of August 31, 2005, the Federal Reserve raised rates by one quarter of
a percentage point at every one of its meetings - a total of eight rate hikes
that took the fed funds rate from 1.50% to 3.50%.
While the Federal Reserve's actions sent short-term yields in both the taxable
and the tax-exempt bond markets higher, the reaction of the intermediate and
long-term markets prompted Fed Chairman Alan Greenspan's "conundrum" comment
earlier this year. This type of sustained market rally through a Fed tightening
is highly unusual and is precisely what confounded many investors. In the
municipal market, yields on two-year, AAA-rated bonds increased by 1.2% during
the year, from 1.7% to end the fiscal year near 2.9%. The crossover point where
rates were relatively flat year-over-year was in the 10-year maturity range,
where rates began and ended the year at about 3.5%. Longer rates fell. For
example, yields dropped by four tenths of a percent on 30-year AAA-rated
municipals, ending the fiscal year with yields of approximately 4.3%. (source:
Municipal Market Data)
These divergent moves between short-term and long-term rates continued to
flatten the yield curve. Historically, an inverted yield curve has been
associated with the onset of an economic recession. The curve in the tax-exempt
markets flattened as well, but not quite as dramatically. While the difference
between 2- and 30-year high-grade municipal bonds started the year at 2.9%, it
narrowed by 1.5%, ending the year with a 1.4% differential (Source: Municipal
Market Data). Historically, when the Treasury market has inverted, the municipal
market has maintained a positively sloped curve.
Municipal bonds, particularly long-term bonds, traded weaker relative to
Treasuries during the year. Yields on 30-year AAA-rated municipals, measured as
a percentage of the yield on long Treasury bonds, started the fiscal year at
about 95%. By the end of June 2005, the ratio had increased above 100%. This
would be typical - the market was rallying and the Treasury market led the way
toward lower yields. The municipal market recaptured some of that
underperformance in the last two months, ending the year with yields at about
98% of the long Treasury bond.
In our opinion, credit has performed very well this year, partially due to
investors' desire to seek higher yields, but also due to the fact that quality
continued to improve throughout the municipal market. A strong economic backdrop
has largely been the cause. Revenue recovery has firmly taken hold and is easing
the transition to structural budget balance for most states. Driving the revenue
gains, total non-farm payrolls increased 1.7% in the 12-months ending August
2005, while the unemployment rate decreased from 5.5% to 5.0%(source: US
Department of Labor). As a result, most states are experiencing
better-than-budgeted growth to date for fiscal 2005, which is providing
additional resources to balance fiscal 2006 and lending support for growing
spending demands.
For the first eight months of fiscal 2005, state revenues were up a total of
9.5%, with personal income tax and sales tax increases leading the way.
Additional factors contributing to positive revenue trends were conservative
budget forecasting, low interest rates and the strong real estate market
(source: Municipal Market Data).
Spending pressures still loom, threatening budget stability. The federal
government will likely be a source of budget strain in the coming years as it
grapples with its own budget deficit. States may also have to deal with
traditional budget issues such as social service programs and education funding.
The future in most states will depend on economic performance, sustained
structural balance, and progress in re-building financial/budget reserves.
1
Municipal bond issuance remained robust in 2005. As of August 31, 2005, issuance
totaled $275.49 billion, a 13.10% increase over the same period last year. Total
issuance in 2005 may even surpass the record of $384 billion sold in 2003 if
this pace continues. Drivers of this record volume continue to be the low
interest rate environment and the flattening yield curve, both of which
stimulate refunding activity. Year-to-date, refunding activity was up 62.1% from
the same period a year ago. At the same time, low rates are attractive for new
money sales, which increased 12.8% (source: Municipal Market Data). The
healthcare sector has seen significant increase in new-money issuance due to the
sector's improved credit conditions and need to invest in facilities. Other
sectors that registered significant jumps in issuance included transportation
and general purpose bonds.
WHAT WAS THE ECONOMIC AND MUNICIPAL MARKET ENVIRONMENT IN MINNESOTA DURING THE
LAST 12 MONTHS?
Minnesota enjoys a deep and diverse economy, supported by several regional
economic centers and anchored by the Minneapolis-St. Paul MSA. However,
Minnesota's manufacturing concentration and the state's reliance on the income
tax revenue generated by those jobs combined to hit the state hard during and
after the manufacturing-led 2001 recession. Employment increased 1.5% in the
past twelve months through August 2005. The recovery is broad, with gains in
services, construction and manufacturing. Minnesota's unemployment rate has also
improved to 3.6% as of August 2005 (source: Municipal Market Data).
In fiscal 2004, revenues came in above estimates. The additional revenues were
primarily in personal income tax, a sharp departure from the last several years
when actual receipts from the personal income tax continually came in below
forecast. According to the state, economically sensitive revenues continue to
perform close to forecast, with better-than-expected growth in corporate profits
offsetting slightly below average growth in more consumer-based revenues such as
sales. During the first nine months of fiscal 2005, total revenues grew almost
6% (source: Municipal Market Data).
For the first eight months of 2005, new issuance in Minnesota was up 25.3% over
the same period a year ago. As of August 31, 2005, Minnesota issued $4.9 billion
of debt compared to $3.9 billion a year ago. One of the larger issuances was
from Minneapolis & St. Paul Minnesota Metropolitan Airports (source: The Bond
Buyer).
HOW DID DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND PERFORM DURING THE
FISCAL YEAR?
For the fiscal year ended August 31, 2005, Delaware Tax-Free Minnesota
Intermediate Fund returned 4.93% (Class A shares at net asset value with
distributions reinvested) and 2.03% (at maximum offer price with distributions
reinvested). Class A shares (at net asset value with distributions reinvested)
outperformed the Lipper Other States Intermediate Municipal Debt Funds Average,
which returned 3.70%, for the 12-month period (source: Lipper, Inc.).*
* For complete annualized performance, see tables on pages six, eight, 10 and
12. A portion of the income from tax-exempt funds may be subject to the
alternative minimum tax.
2
FOR EACH FUND, WHAT STRATEGIES CONTRIBUTED TO FUND PERFORMANCE?
The Funds' returns were generally aided by yield curve positioning, credit
spread tightening, sector concentration, and security selection. The relative
contribution of these first three components varies based on the individual
Fund's mandate asset forth in its prospectus. The fourth factor, security
selection, is the heart of our investment process and is the primary source of
our returns.
While the Federal Reserve raised short-term rates, long-term bond yields
declined as inflation remained tame during a period of moderate growth. This
resulted in what is termed as a "flattening of the yield curve," where the
difference between long- and short-term rates narrows. The Funds are positioned
to take advantage of this environment, combining long maturity bonds and shorter
duration securities with high coupons trading to short calls that are less price
sensitive. This is known as a "barbell" portfolio structure, and it generally
aided our performance.
When the yield curve flattens and long-term interest rates decline, market
participants seek alternative sources of yield. This is often found in
lower-rated bonds, and as the market reaches for this yield it causes the credit
curve to tighten and results in good performance for those securities.
Securities rated A, BBB and non-investment grade have all outperformed
high-grade and insured bonds in the municipal market over the past year. The
Funds benefited from a meaningful allotment to these credits.
Two of our favored sectors, healthcare and higher education, benefited from both
the market's reach for yield as well as positive fundamentals. The credit and
financial environments have been positive for hospitals, as they have received
favorable reimbursements from Medicare. The demographics provided by the baby
boom generation have provided favorable enrollment trends at colleges and
universities, while recovering stock market has bolstered endowments. Despite a
structural deficit, various bonds issued by the Commonwealth of Puerto Rico also
performed well during the period.
The Delaware Tax-Free Minnesota Fund has the broadest mandate of the four
Minnesota funds and has therefore been able to participate in all four sources
of return. The Fund's portfolio is structured as a "barbell"; it has a
meaningful allotment in mid-to-lower investment grade credits and therefore
participated in some of the better performing sectors, but it also received a
significant contribution from the high-quality, pre-refunded sector. That
contribution came primarily from the refinancing (pre-refunding) of a large
position of Fairview Hospital in Minneapolis and provided an above market price
appreciation on that bond. This leaves the Fund with a security escrowed in U.S.
government securities and an above market coupon that we will collect for years
to come.
Delaware Tax-Free Minnesota Insured Fund was well positioned for a flattening of
the yield curve with a significant allocation of bonds having maturities 15
years and longer. Legacy bonds that have short due dates or short calls complete
the barbell. The Fund's insured mandate limits it from participating fully in
the credit spread tightening of lower rated bonds and the associated sectors of
the market. The Fund is allowed to own up to 20% of its securities in
non-insured bonds and we maximized our use of non-insureds during the period to
gain excess returns.
Delaware Tax-Free Minnesota Intermediate Fund was also well positioned to
benefit from a flatter yield curve, but due to its intermediate mandate, the
long end of the barbell is structured in the 10- to 20-year part of the curve.
The Fund has also benefited from an allocation to Single A and Triple BBB rated
securities and some of their associated sectors. Excess returns were found in
the Healthcare sector in Park Nicollet and Allina Health Systems.
While Delaware Minnesota High-Yield Municipal Bond Fund's structure is that of a
barbell, the securities in it are less sensitive to interest rate movements and
more dependent on credit quality. This fund not only has a healthy allotment in
A and BBB bonds, but also in non-investment grade securities. It owns both
BB-rated bonds and comparable quality non-rated securities. These rating classes
and their corresponding sectors have generally led the way in the municipal
market over the last year.
CAN YOU NAME SOME KEY HOLDINGS IN THE FUNDS?
In the Delaware Tax-Free Minnesota Fund, other hospital positions that have
performed well in terms of total return are Benedictine Health Systems in
Duluth, Park Nicollet Health Systems in St. Louis Park and St. Francis Regional
Medical Center in Shakopee. Also aiding in performance were multifamily housing
projects in Minneapolis, St. Cloud, Stillwater, and Hutchinson.
In the Delaware Tax-Free Minnesota Insured Fund, securities in this category
were some of the same healthcare systems previously mentioned such as
Benedictine and Park Nicollet, but Allina Health System in Minneapolis also
joined them. Also in the Fund were bonds for an International Paper plant
3
located in Sartell. There were plenty of AAA securities including the insured
Minneapolis Airport bonds, insured Southern Minnesota Municipal Power Agency
bonds, and the escrowed Dakota & Washington Counties single family housing
bonds. The Fund also owned large positions in Fairview Hospital that were
pre-refunded during the period and appreciated in price.
In the Delaware Tax-Free Minnesota Intermediate Fund, securities for the
Healtheast Hospital Project in St. Paul also provided additional return when
Moody's upgraded the bonds to investment grade. Other significant contributors
to performance in this fund were various higher education bonds such as the
Walker Art Center in Minneapolis and the Minnesota College of Art & Design,
along with securities for the State University Foundation Project in St. Cloud.
The top two performers were a multifamily housing project in Minneapolis for the
Trinity Apartments and the aforementioned Fairview Hospital bonds that were
refinanced.
In the Delaware Tax-Free Minnesota High-Yield Municipal Bond Fund, excess
returns have come from a variety of securities for hospitals, multifamily
housing projects, corporate backed debt, higher education institutions and
senior living facilities. The senior living bonds can be for either one or some
combination of independent living, assisted living and skilled nursing
facilities. Holdings included, a nursing home known as the Forest Health
Services Project, the Jones-Harrison Residence in Minneapolis and in Twin
Valley, the Living Options community. Other individual securities included the
previously mentioned hospitals or health systems such as Benedictine, Allina,
Park Nicollet, St. Francis Medical Center and the pre-refunded Fairview Hospital
bonds. We also held bonds financing various multifamily housing projects such as
Trinity Apartments and Grant Street Apartments in Minneapolis, along with the
Evergreen Apartments in Hutchinson. Corporate backed debt has contributed
through securities such as industrial development bonds for International Paper
and special facility bonds for Northwest Airlines.
WHAT DETRACTED FROM FUND PERFORMANCE?
Detracting from our Funds' performance relative to the benchmark index was the
decision to avoid the unenhanced tobacco sector. This sector, which we did not
participate in, has been the best performing sector in the municipal bond market
over the past year and the biggest influence on market performance. The master
settlement agreement between the major tobacco companies and 46 states secures
unenhanced tobacco bonds. The sector is subject to litigation risk, and thus may
add volatility. We are comfortable foregoing a potential source of volatility in
the Funds.
Airline securities significantly outperformed the municipal market this year
during the second and third quarter, which is a traditional busy season.
Although the Funds held several airport revenue bonds, we have been under weight
in this sector and we have generally avoided securities backed by airport
corporation revenues. We are concerned about the long-term fundamentals of the
industry.
The decision to hold high coupon, short-call bonds provides an above market
yield to the portfolios and helps to balance the Funds' interest rate exposure,
offsetting the bonds with long maturities. However, during the fiscal year it
resulted in negligible price performance during market rallies due to the short
duration of the securities. The decision to hold these underperfoming bonds
resulted in weakened performance, relative to the benchmark and our peers.
GLOSSARY
AVERAGE MATURITY: For a bond fund, this is the weighted average of the stated
maturity dates of the portfolio's securities. In general, the longer the average
maturity, the greater the fund's sensitivity to interest rate changes, which can
mean greater price fluctuation. A shorter average maturity usually means less
interest rate sensitivity and, consequently, a less volatile portfolio.
BASIS POINT: One one-hundredth of one percentage point,
or 0.01%.
DURATION: A measure of a bond or bond fund's sensitivity to changes in interest
rates. All else being equal, a fund with a duration of four years would fall
about 4% in response to a one-percentage-point rise in rates, and vice versa.
SPREAD: the difference between any two prices or yields.
YIELD CURVE: A curve that shows the relationship between yields and maturity
dates for a set of similar bonds, usually Treasuries, at a given point in time.
4
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5
PERFORMANCE SUMMARY
DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges and expenses of the investment carefully before
investing. The Delaware Tax-Free Minnesota Intermediate Fund prospectus contains
this and other important information about the Fund. Please request a prospectus
by calling 800 523-1918. Read it carefully before you invest or send money.
Performance includes reinvestment of all distributions and is subject to change.
A rise/fall in the interest rates can have a significant impact on bond prices
and the NAV (net asset value) of the fund. Funds that invest in bonds can lose
their value as interest rates rise and an investor can lose principal.
FUND PERFORMANCE
Average Annual Total Returns
Through August 31, 2005 Lifetime 10 Years Five Years One Year
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Class A (Est. 10/27/85)
Excluding Sales Charge +5.57% +4.73% +5.81% +4.93%
Including Sales Charge +5.42% +4.44% +5.23% +2.03%
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Class B (Est. 8/15/95)
Excluding Sales Charge +4.42% +4.34% +4.92% +4.03%
Including Sales Charge +4.42% +4.34% +4.92% +2.03%
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Class C (Est. 5/4/94)
Excluding Sales Charge +4.11% +3.87% +4.93% +4.04%
Including Sales Charge +4.11% +3.87% +4.93% +3.04%
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Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Performance for Class B and C shares, excluding sales
charges, assumes either contingent deferred sales charges did not apply or the
investment was not redeemed.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 2.75% and have an annual distribution and
service fee of up to 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 2% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately five years after purchase. They are also subject to an annual
distribution and service fee of 1%. Lifetime and 10-year performance figures for
Class B shares reflect conversion to Class A shares after five years.
Class C shares are sold with a contingent deferred sales charge of 1%, 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 Intermediate 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.
6
FUND BASICS
As of August 31, 2005
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FUND OBJECTIVE:
The Fund seeks to provide investors with preservation of capital and,
secondarily, current income exempt from federal income tax and the Minnesota
state personal income tax, by maintaining a dollar-weighted average effective
portfolio maturity of 10 years or less.
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TOTAL FUND NET ASSETS:
$62 million
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NUMBER OF HOLDINGS:
46
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FUND START DATE:
October 27, 1985
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YOUR FUND MANAGERS:
Joseph R. Baxter
Robert Collins
Patrick P. Coyne
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NASDAQ SYMBOLS:
Class A DXCCX
Class B DVSBX
Class C DVSCX
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PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1995 through August 31, 2005
[Graphic Omitted]
DELAWARE TAX-FREE
MINNESOTA INTERMEDIATE LEHMAN BROTHERS FIVE-YEAR
FUND MUNICIPAL BOND INDEX
AUG-95 $9,550 $10,000
AUG-96 $9,879 $10,370
AUG-97 $10,510 $11,054
AUG-98 $11,141 $11,785
AUG-99 $11,126 $12,047
AUG-00 $11,434 $12,697
AUG-01 $12,293 $13,855
AUG-02 $13,072 $14,782
AUG-03 $13,539 $15,329
AUG-04 $14,446 $16,017
AUG-05 $15,158 $16,299
Chart assumes $10,000 invested on August 31, 1995 and includes the effect of a
2.75% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Lehman Brothers Five-Year Municipal Bond Index is an unmanaged index
that tracks municipal bonds which have an approximate maturity of five years. An
index is unmanaged and does not reflect the costs of operating a mutual fund,
such as the costs of buying, selling, and holding securities. You cannot invest
directly in an index. The performance graph does not reflect the deduction of
taxes the shareholder would pay on Fund distributions or redemptions of Fund
shares. An expense limitation was in effect for all classes of Delaware Tax-Free
Minnesota Intermediate Fund during the periods shown. Performance would have
been lower had the expense limitation not been in effect. Past performance is
not a guarantee of future results.
7
DISCLOSURE For the Period March 1, 2005 to August 31, 2005
OF FUND EXPENSES
As a shareholder of a Fund, you may 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. The following examples are
intended to help you understand your ongoing costs (in dollars) of investing in
a Fund and to compare these costs with the ongoing costs of investing in other
mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of
the period and held for the entire period March 1, 2005 to August 31, 2005.
ACTUAL EXPENSES
The first section of the tables shown, "Actual Fund Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the tables shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Funds' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Funds' actual returns. 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 a 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 tables are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of each table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. Each Fund's actual expenses shown in each table reflect fee waivers in
effect. The expenses shown in each table assume reinvestment of all dividends
and distributions. "Expenses Paid During Period" are equal to the Fund's
annualized expense ratio, multiplied by the average account value over the
period, multiplied by 184/365 (to reflect the one-half year period).
8
DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 3/1/05 to
3/1/05 8/31/05 Ratio 8/31/05
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ACTUAL FUND RETURN
Class A $1,000.00 $1,031.80 0.79% $4.05
Class B 1,000.00 1,027.30 1.64% 8.38
Class C 1,000.00 1,027.40 1.64% 8.38
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HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,021.22 0.79% $4.02
Class B 1,000.00 1,016.94 1.64% 8.34
Class C 1,000.00 1,016.94 1.64% 8.34
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9
SECTOR ALLOCATION As of August 31, 2005
DELAWARE TAX-FREE MINNESOTA FUNDS
Sector designations may be different than the sector designations presented in
other Fund materials.
DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND
PERCENTAGE
SECTOR OF NET ASSETS
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MUNICIPAL BONDS 96.52%
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Airport Revenue Bonds 1.34%
Continuing Care/Retirement Revenue Bonds 4.92%
Higher Education Revenue Bonds 6.35%
Hospital Revenue Bonds 12.20%
Miscellaneous Revenue Bonds 5.63%
Multifamily Housing Revenue Bonds 4.30%
Municipal Lease Revenue Bonds 3.93%
Political Subdivision General Obligation Bonds 10.03%
Power Authority Revenue Bonds 6.21%
Pre-Refunded Bonds 3.22%
Public Power Revenue Bonds 1.77%
School District General Obligation Bonds 21.55%
Single Family Housing Revenue Bonds 2.45%
State General Obligation Bonds 9.96%
Territorial General Obligation Bonds 1.80%
Territorial Revenue Bonds 0.86%
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SHORT-TERM INVESTMENT 2.71%
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Money Market Instrument 2.71%
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TOTAL MARKET VALUE OF SECURITIES 99.23%
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RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.77%
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TOTAL NET ASSETS 100.00%
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10
STATEMENTS DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND
OF NET ASSETS (CONTINUED) August 31, 2005
Principal Market
Amount Value
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MUNICIPAL BONDS - 96.52%
Airport Revenue Bonds - 1.34%
Minneapolis/St. Paul Metropolitan
Airports Commission Series 14
5.50% 1/1/11 (AMT) $ 750,000 $ 829,470
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829,470
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Continuing Care/Retirement Revenue Bonds - 4.92%
Apple Valley Economic Development
Authority Health Care Revenue
(Evercare Senior Living Projects)
Series A 6.00% 12/1/25 500,000 501,170
Minneapolis Health Care Facilities Revenue
(Jones-Harrison Residence Project)
5.90% 10/1/16 125,000 125,043
Moorhead Economic Development
Authority Multifamily Revenue
(Eventide Lutheran Home Project)
Series B 6.00% 6/1/18 1,000,000 1,000,760
Oakdale Elderly Housing Revenue
(PHM/Oakdale, Inc. Project)
5.75% 3/1/18 1,400,000 1,415,190
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3,042,163
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Higher Education Revenue Bonds - 6.35%
Minnesota State Higher Education
Facilities Authority Revenue
(College of Art & Design) Series 5-D
6.625% 5/1/20 1,000,000 1,096,400
(University of St. Thomas) Series 5-Y
5.25% 10/1/19 530,000 581,293
St. Cloud Housing & Redevelopment
Authority Revenue
(State University Foundation Project)
5.00% 5/1/23 1,000,000 1,059,460
University of Minnesota Series A
5.75% 7/1/16 1,000,000 1,185,970
----------
3,923,123
----------
Hospital Revenue Bonds - 12.20%
Bemidji Hospital Facilities First
Meeting Revenue
(North Country Health Services)
5.00% 9/1/24 (RADIAN) 500,000 527,455
Glencoe Health Care Facilities Revenue
(Glencoe Regional Health Services Project)
5.00% 4/1/20 1,250,000 1,290,800
Minneapolis Health Care System Revenue
(Allina Health Systems) Series A
5.75% 11/15/32 1,500,000 1,617,540
Minneapolis/St. Paul Housing &
Redevelopment Authority
Health Care System (Health
Partners Obligation Group Project)
6.00% 12/1/17 1,125,000 1,267,808
St. Louis Park Health Care Facilities Revenue
(Park Nicollet Health Services)
Series B 5.50% 7/1/25 1,500,000 1,624,725
St. Paul Housing & Redevelopment
Authority Hospital Revenue
(Health East Project)
Series B 5.85% 11/1/17 1,160,000 1,207,316
----------
7,535,644
-----------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (continued)
Miscellaneous Revenue Bonds - 5.63%
Minneapolis Art Center Facilities Revenue
(Walker Art Center Project)
5.125% 7/1/21 $2,250,000 $ 2,388,465
Minneapolis Community Development
Agency Supported Revenue Common
Bond Fund Series 4 6.20% 6/1/17 (AMT) 1,055,000 1,090,121
-----------
3,478,586
-----------
Multifamily Housing Revenue Bonds - 4.30%
Minneapolis Multifamily Housing Revenue
(Trinity Apartments-Section 8)
Series A 6.75% 5/1/21 1,915,000 1,986,410
Park Rapids Multifamily Revenue
(The Court Apartments Project-Section 8)
6.05% 8/1/12 695,000 667,492
-----------
2,653,902
-----------
Municipal Lease Revenue Bonds - 3.93%
Edina Housing & Redevelopment Authority
Public Project Revenue
(Lease Appropriate Lease Obligation)
5.125% 2/1/19 1,000,000 1,070,500
Hibbing Economic Development
Authority Revenue
(Hibbing Lease Obligation Project)
6.10% 2/1/08 415,000 424,952
Virginia Housing & Redeveloping Authority
Health Care Facility Lease Revenue
5.25% 10/1/25 880,000 930,433
-----------
2,425,885
-----------
Political Subdivision General Obligation Bonds - 10.03%
Dakota County Capital Improvements
Series A 4.75% 2/1/17 1,000,000 1,053,840
Dakota County Open Space Series A
5.00% 2/1/13 1,125,000 1,244,419
Dakota County Community Development
Agency Governmental Housing Refunding
(Senior Housing Facilities) Series A
5.00% 1/1/22 1,150,000 1,241,103
Hennepin County Series B 4.75% 12/1/14 1,000,000 1,059,330
Ramsey County (Capital Improvements Plan)
Series B 5.25% 2/1/11 1,445,000 1,593,474
-----------
6,192,166
-----------
Power Authority Revenue Bonds - 6.21%
Chaska Electric Revenue
(Generating Facilities) Series A
5.25% 10/1/25 1,000,000 1,085,550
Southern Minnesota Municipal
Power Agency Supply System Revenue
Series A 5.00% 1/1/13 (MBIA) 2,500,000 2,749,925
-----------
3,835,475
-----------
ss.Pre-Refunded Bonds - 3.22%
Minneapolis Health Care System Revenue
(Fairview Health Services) Series A
5.625% 5/15/32-12 1,750,000 1,987,685
-----------
1,987,685
-----------
11
STATEMENTS DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND
OF NET ASSETS (CONTINUED) August 31, 2005
Principal Market
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (continued)
Public Power Revenue Bonds - 1.77%
&Southern Minnesota Municipal
Power Agency Supply System Revenue,
Inverse Floater ROLs Series II-R-189-4
5.054% 1/1/12 (AMBAC) $1,000,000 $ 1,094,310
-----------
1,094,310
-----------
School District General Obligation Bonds - 21.55%
Big Lake Independent School
District #727 Series C
5.00% 2/1/16 (FSA) 1,180,000 1,269,326
5.00% 2/1/17 (FSA) 1,000,000 1,075,190
Centennial Independent School
District #012 Series 2002A
5.00% 2/1/18 (FSA) 1,000,000 1,080,440
5.00% 2/1/20 (FSA) 750,000 803,888
Hopkins Independent School
District #270 5.125% 2/1/17 (FGIC) 2,000,000 2,177,479
Moorhead Independent School
District #152 5.00% 4/1/10 (FGIC) 2,585,000 2,790,998
Osseo Independent School
District #279 Series A
5.00% 2/1/21 (FSA) 1,500,000 1,607,775
South Washington County Independent
School District #833 Series B
5.00% 2/1/16 (FSA) 1,560,000 1,688,279
St. Paul Independent School
District #625 Series B
5.00% 2/1/20 (FSA) 750,000 821,595
-----------
13,314,970
-----------
Single Family Housing Revenue Bonds - 2.45%
Minnesota State Housing Finance Agency
Residential Housing Series I
5.10% 7/1/20 (AMT) 945,000 981,751
Minnesota State Housing Finance Agency
Single Family Mortgage Series J
5.90% 7/1/28 (AMT) 510,000 531,940
-----------
1,513,691
-----------
State General Obligation Bonds - 9.96%
Minnesota State 5.00% 8/1/21 2,550,000 2,765,169
Minnesota State Refunding & Variable
Purpose 5.00% 11/1/16 3,200,000 3,384,384
-----------
6,149,553
-----------
Territorial General Obligation Bonds - 1.80%
oPuerto Rico Public Finance Corporation
Commonwealth Appropriation Series A
(LOC, Puerto Rico Government Bank)
5.75% 8/1/27 1,000,000 1,110,680
-----------
1,110,680
-----------
Territorial Revenue Bonds - 0.86%
Puerto Rico Commonwealth Highway &
Transportation Authority Transportation
Revenue Series D 5.25% 7/1/38 500,000 532,100
-----------
532,100
-----------
TOTAL MUNICIPAL BONDS (cost $56,967,396) 59,619,403
-----------
Number of Market
Shares Value
SHORT-TERM INVESTMENT - 2.71%
Money Market Instrument - 2.71%
Federated Minnesota Municipal Cash Trust 1,671,425 $ 1,671,425
-----------
TOTAL SHORT-TERM INVESTMENT
(cost $1,671,425) 1,671,425
-----------
TOTAL MARKET VALUE OF SECURITIES - 99.23%
(cost $58,638,821) 61,290,828
RECEIVABLES AND OTHER ASSETS NET
OF LIABILITIES - 0.77% 473,798
-----------
NET ASSETS APPLICABLE TO 5,609,013 SHARES
OUTSTANDING - 100.00% $61,764,626
===========
Net Asset Value -- Delaware Tax-Free
Minnesota Intermediate Fund Class A
($52,958,276 / 4,810,648 Shares) $11.01
------
Net Asset Value -- Delaware Tax-Free
Minnesota Intermediate Fund Class B
($2,810,345 / 254,646 Shares) $11.04
------
Net Asset Value - Delaware Tax-Free
Minnesota Intermediate Fund Class C
($5,996,005 / 543,719 Shares) $11.03
------
COMPONENTS OF NET ASSETS AT AUGUST 31, 2005:
Shares of beneficial interest
(unlimited authorization -- no par) $60,387,718
Accumulated net realized loss on investments (1,275,099)
Net unrealized appreciation of investments 2,652,007
-----------
Total net assets $61,764,626
===========
ss.Pre-Refunded Bonds are municipals that are generally backed or secured by
U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is followed
by the year in which the bond is pre-refunded. See Note 7 in "Notes to
Financial Statements."
&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, 2005. See Note 7 in
"Notes to Financial Statements."
oVariable rate securities. The interest rate shown is the rate as of August
31, 2005.
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
ROLs - Residual Option Longs
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND
Net asset value Class A (A) $11.01
Sales charge (2.75% of offering price) (B) 0.31
------
Offering price $11.32
======
(A) Net asset value per share, as illustrated, is the amount which would be paid
upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $100,000 or more.
See accompanying notes.
12
STATEMENTS DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
OF OPERATIONS Year Ended August 31, 2005
Delaware
Tax-Free Minnesota
Intermediate Fund
INVESTMENT INCOME:
Interest $2,954,441
----------
EXPENSES:
Management fees 326,565
Dividend disbursing and transfer agent fees and expenses 38,934
Distribution expenses - Class A 138,474
Distribution expenses - Class B 29,916
Distribution expenses - Class C 70,054
Accounting and administration expenses 22,604
Registration fees 15,866
Reports and statements to shareholders 20,523
Legal and professional fees 18,903
Custodian fees 3,608
Trustees' fees 3,342
Insurance fees 4,508
Taxes (other than taxes on income) 767
Pricing fees 1,634
Other 2,906
----------
698,604
Less expenses absorbed or waived (38,477)
Less waived distribution expenses -- Class A (55,390)
Less expense paid indirectly (390)
----------
Total expenses 604,347
----------
NET INVESTMENT INCOME 2,350,094
----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 799,234
Net change in unrealized appreciation/depreciation
of investments (107,313)
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 691,921
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,042,015
==========
See accompanying notes
13
STATEMENTS DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
OF CHANGES IN NET ASSETS (CONTINUED)
Delaware Tax-Free
Minnesota Intermediate Fund
Year Ended
8/31/05 8/31/04
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $2,350,094 $2,634,791
Net realized gain (loss) on investments 799,234 34,239
Net change in unrealized appreciation/depreciation of investments (107,313) 1,535,782
----------- -----------
Net increase in net assets resulting from operations 3,042,015 4,204,812
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income:
Class A (2,063,392) (2,293,153)
Class B (85,793) (113,212)
Class C (200,891) (229,896)
----------- -----------
(2,350,076) (2,636,261)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 8,856,040 10,140,227
Class B 46,423 873,725
Class C 735,412 1,876,817
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 1,526,786 1,713,217
Class B 62,528 79,888
Class C 157,534 173,660
----------- -----------
11,384,723 14,857,534
----------- -----------
Cost of shares repurchased:
Class A (15,027,594) (13,769,735)
Class B (550,863) (1,840,297)
Class C (2,157,860) (1,572,839)
----------- -----------
(17,736,317) (17,182,871)
----------- -----------
Increase (decrease) in net assets derived from capital share transactions (6,351,594) (2,325,337)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS (5,659,655) (756,786)
NET ASSETS:
Beginning of year 67,424,281 68,181,067
----------- -----------
End of year $61,764,626 $67,424,281
=========== ===========
Undistributed net investment income -- --
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 MINNESOTA INTERMEDIATE FUND CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $10.890 $10.630 $10.720 $10.580 $10.350
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.407 0.444 0.469 0.512 0.526
Net realized and unrealized gain (loss) on investments 0.120 0.260 (0.088) 0.138 0.230
------- ------- ------- ------- -------
Total from investment operations 0.527 0.704 0.381 0.650 0.756
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.407) (0.444) (0.471) (0.510) (0.526)
Total dividends and distributions (0.407) (0.444) (0.471) (0.510) (0.526)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.010 $10.890 $10.630 $10.720 $10.580
======= ======= ======= ======= =======
TOTAL RETURN(2) 4.93% 6.73% 3.59% 6.34% 7.50%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $52,958 $57,012 $57,635 $51,034 $49,089
Ratio of expenses to average net assets 0.79% 0.84% 0.86% 0.85% 0.90%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 0.95% 0.95% 0.96% 0.85% 0.93%
Ratio of net investment income to average net assets 3.72% 4.10% 4.32% 4.86% 5.04%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.56% 3.99% 4.22% 4.86% 5.01%
Portfolio turnover 25% 30% 23% 35% 24%
(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
less than $0.001, a decrease in net realized and unrealized gain (loss) per
share of less than $0.001, and an increase in the ratio of net investment
income to average net assets of less than 0.01%. Per share data and ratios
for periods prior to September 1, 2001 have not been restated to reflected
these changes 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 a waiver and payment of fees by the manager and
distributor, as applicable. Performance would have been lower had the
expense limitation not been in effect.
See accompanying notes
15
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $10.920 $10.650 $10.740 $10.600 $10.370
Income (loss) from investment operations:
Net investment income 0.314 0.352 0.377 0.423 0.438
Net realized and unrealized gain (loss) on investments 0.120 0.270 (0.088) 0.137 0.232
-------- -------- ------- ------- -------
Total from investment operations 0.434 0.622 0.289 0.560 0.670
-------- -------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.314) (0.352) (0.379) (0.420) (0.440)
-------- -------- ------- ------- -------
Total dividends and distributions (0.314) (0.352) (0.379) (0.420) (0.440)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.040 $10.920 $10.650 $10.740 $10.600
======== ======== ======= ======= =======
TOTAL RETURN(2) 4.03% 5.91% 2.70% 5.43% 6.59%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $2,811 $3,224 $4,002 $2,852 $2,443
Ratio of expenses to average net assets 1.64% 1.69% 1.71% 1.70% 1.75%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.70% 1.70% 1.73% 1.70% 1.78%
Ratio of net investment income to average net assets 2.87% 3.25% 3.47% 4.01% 4.19%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 2.81% 3.24% 3.45% 4.01% 4.16%
Portfolio turnover 25% 30% 23% 35% 24%
(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 less than $0.001, a decrease in net realized and unrealized gain (loss)
per share of less than $0.001, and an increase in the ratio of net
investment income to average net assets of less than 0.01%. Per share data
and ratios for periods prior to September 1, 2001 have not been restated
to reflected these changes 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 a waiver 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
15
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND CLASS C
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $10.910 $10.640 $10.730 $10.590 $10.360
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.314 0.352 0.377 0.423 0.437
Net realized and unrealized gain (loss) on investments 0.120 0.270 (0.088) 0.137 0.233
-------- -------- ------- ------- -------
Total from investment operations 0.434 0.622 0.289 0.560 0.670
-------- -------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.314) (0.352) (0.379) (0.420) (0.440)
-------- -------- ------- ------- -------
Total dividends and distributions (0.314) (0.352) (0.379) (0.420) (0.440)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.030 $10.910 $10.640 $10.730 $10.590
======== ======== ======= ======= =======
TOTAL RETURN(2) 4.04% 5.91% 2.71% 5.44% 6.59%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $5,996 $7,188 $6,544 $4,887 $3,059
Ratio of expenses to average net assets 1.64% 1.69% 1.71% 1.70% 1.75%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.70% 1.70% 1.73% 1.70% 1.78%
Ratio of net investment income to average net assets 2.87% 3.25% 3.47% 4.01% 4.19%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 2.81% 3.24% 3.45% 4.01% 4.16%
Portfolio turnover 25% 30% 23% 35% 24%
(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 less than $0.001, a decrease in net realized and unrealized gain (loss)
per share of less than $0.001, and an increase in the ratio of net
investment income to average net assets of less than 0.01%. Per share data
and ratios for periods prior to September 1, 2001 have not been restated
to reflected these changes 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 a waiver 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
16
NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
TO FINANCIAL STATEMENTS August 31, 2005
Voyageur Mutual Funds (the "Trust") is organized as a Delaware statutory trust
and offers five series: Delaware Minnesota High-Yield Municipal Bond Fund,
Delaware National High-Yield Municipal Bond Fund, Delaware Tax-Free California
Fund, Delaware Tax-Free Idaho Fund, and Delaware Tax-Free New York Fund.
Voyageur 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 Tax Free Funds (the "Trust") is
organized as a Delaware business trust and offers the Delaware Tax-Free
Minnesota Fund. Voyageur Intermediate Tax Free Funds (the "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 referred to as 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 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 on a quarterly basis approximately eight years
after purchase for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota
Insured Fund and 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. In determining whether market quotations are readily available or fair
valuation will be used, various factors will be taken into consideration, such
as market closures, aftermarket trading or significant events after local market
trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
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 asset 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 each 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(R)
Family of Funds are allocated amongst the funds on the basis OF average net
assets. Management fees and some other expenses are paid monthly. Security
transactions are recorded on the date the securities are purchased or sold
(trade date). Costs used in calculating realized gains and losses on the sale of
investment securities are those of the specific securities sold. Interest income
is recorded on the accrual basis. Discounts and premiums are amortized to
interest income over the lives of the respective securities. Each Fund declares
dividends daily from net investment income and pays such dividends monthly and
declares and pays distributions from net realized gain on investments, if any,
annually.
The Funds receive earnings credits from their custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statements of
Operations with the corresponding expenses offset shown as "expense paid
indirectly". The amount of this expense for the year ended August 31, 2005 was
as follows:
Delaware Tax-Free
Minnesota
Intermediate Fund
------------------
Earnings credits $390
17
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
Intermediate 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
Intermediate Fund
----------------------
Operating expense limitation
as a percentage of average daily
net assets (per annum) 0.75%
Expiration date 10/31/04
Effective November 1, 2004,
Operating expense limitation
as a percentage of average daily
net assets (per annum) 0.60%
Expiration date 10/31/06
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Effective May
19, 2005, each Fund pays DSC a monthly fee computed at the annual rate of 0.04%
of each Fund's average daily net assets for accounting and administration
services. Prior to May 19, 2005, each Fund paid 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. DDLP has contracted to waive distribution fees through
October 31, 2005 in order to prevent distribution fees of Class A from exceeding
0.15% of average daily net assets for Delaware Tax-Free Minnesota Intermediate
Fund.
At August 31, 2005, each Fund had liabilities payable to affiliates as follows:
Delaware Tax-Free
Minnesota
Intermediate Fund
-----------------------
Investment management
fee payable to DMC $34,350
Dividend disbursing,
transfer agent, accounting
and administration fees
and other expenses payable to DSC 6,165
Other expenses payable to
DMC and affiliates* 20,833
*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.
18
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 internal legal services provided to
each Fund by DMC employees. For the year ended August 31, 2005, each Fund was
charged for internal legal services provided by DMC as follows:
Delaware Tax-Free
Minnesota
Intermediate Fund
------------------
$3,411
For the year ended August 31, 2005, DDLP earned commissions on sales of Class A
shares for each Fund as follows:
Delaware Tax-Free
Minnesota
Intermediate Fund
------------------
$10,132
For the year ended August 31, 2005, DDLP received gross contingent deferred
sales charge commissions on redemption of each Fund's Class A, Class B and Class
C shares, respectively. These commissions were entirely used to offset up-front
commissions previously paid by DDLP to broker-dealers on sales of those shares.
The amounts received were as follows:
Delaware Tax-Free
Minnesota
Intermediate Fund
------------------
Class A $ --
Class B 2,165
Class C 1,374
Certain officers of DMC, DSC, and DDLP are officers and/or trustees of the
Trusts. These officers and trustees are paid no compensation by the Funds.
3. INVESTMENTS
For the year ended August 31, 2005, the Funds made purchases and sales of
investment securities other than short-term investments as follows:
Delaware Tax-Free
Minnesota
Intermediate Fund
------------------
Purchases $16,055,753
Sales 22,477,278
At August 31, 2005, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for each Fund were as follows:
Delaware Tax-Free
Minnesota
Intermediate Fund
------------------
Cost of investments $58,638,385
=============
Aggregate unrealized appreciation $ 2,728,022
Aggregate unrealized depreciation (75,579)
-------------
Net unrealized appreciation $ 2,652,443
=============
19
NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the years
ended August 31, 2005 and 2004 was as follows:
Delaware Tax-Free
Minnesota
Intermediate Fund
------------------
YEAR ENDED 8/31/05
-----------------------
Tax-exempt income $2,350,076
Long-term capital gain --
----------
Total $2,350,076
==========
YEAR ENDED 8/31/04
-----------------------
Tax-exempt income $2,636,261
Ordinary income --
Long-term capital gain --
----------
Total $2,636,261
==========
As of August 31, 2005, the components of net assets on a tax basis were as
follows:
Delaware Tax-Free
Minnesota
Intermediate Fund
-----------------
Shares of beneficial interest $60,387,718
Undistributed tax-exempt income --
Undistributed long-term capital gain --
Capital loss carryforwards (1,275,535)
Unrealized appreciation
of investments 2,652,443
------------
Net assets $61,764,626
------------
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales and tax treatment
of market discount on debt instruments. For financial reporting purposes,
capital accounts are adjusted to reflect the tax character of permanent book/tax
differences. Reclassifications are primarily due to tax treatment of market
discount on certain debt instruments. Results of operations and net assets were
not affected by these reclassifications. For the year ended August 31, 2005, the
Funds recorded the following reclassifications:
Delaware Tax-Free
Minnesota
Intermediate Fund
-----------------------
Undistributed net investment
income (loss) ($18)
Accumulated realized gain (loss) 18
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
Year of Expiration Intermediate Fund
- ------------------ -----------------
2008 $ --
2009 1,024,839
2010 4,037
2011 246,659
2012 --
----------
Total $1,275,535
==========
For the year ended August 31, 2005, the Funds had capital loss carryforwards
that were utilized as follows:
Delaware Tax-Free Minnesota Intermediate Fund $798,976
20
NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Delaware Tax-Free
Minnesota Intermediate Fund
-----------------------------
Year Ended
8/31/05
Shares sold:
Class A 811,048 931,698
Class B 4,238 81,291
Class C 67,333 172,877
Shares issued upon reinvestment
of dividends and distributions:
Class A 139,829 158,175
Class B 5,713 7,360
Class C 14,403 16,005
----------- ----------
1,042,564 1,367,406
----------- ----------
Shares repurchased:
Class A (1,375,055) (1,279,431)
Class B (50,607) (169,074)
Class C (196,858) (145,010)
----------- ----------
(1,622,520) (1,593,515)
----------- ----------
Net increase (decrease) (579,956) (226,109)
=========== ==========
For the years ended August 31, 2005 and August 31, 2004, 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 tables above
and the Statements of Changes in Net Assets as follows:
Year Ended Year Ended
8/31/05 8/31/04
------------------------------------------------------------------------
Class B Class A Class B Class A
shares shares Value shares shares Value
-------- -------- -------- -------- -------- --------
Delaware Tax-Free Minnesota Intermediate Fund 21,297 21,349 231,714 60,061 60,210 655,817
21
NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
6. LINE OF CREDIT
Each Fund, along with certain other funds in the Delaware Investments(R)
Family of Funds (the "Participants"), participates in a $183,100,000 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, 2005 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.
Each Fund 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.
The Fund's may invest in advanced refunded bonds, escrow secured bonds or
defeased bonds. Under current federal tax laws and regulations, state and local
government borrowers are permitted to refinance outstanding bonds by issuing new
bonds. The issuer refinances the outstanding debt to either reduce interest
costs or to remove or alter restrictive covenants imposed by the bonds being
refinanced. A refunding transaction where the municipal securities are being
refunded within 90 days or less from the issuance of the refunding issue is
known as a "current refunding". "Advance refunded bonds" are bonds in which the
refunded bond issue remains outstanding for more than 90 days following the
issuance of the refunding issue. In an advance refunding, the issuer will use
the proceeds of a new bond issue to purchase high grade interest bearing debt
securities which are then deposited in an irrevocable escrow account held by an
escrow agent to secure all future payments of principal and interest and bond
premium of the advance refunded bond. Bonds are "escrowed to maturity" when the
proceeds of the refunding issue are deposited in an escrow account for
investment sufficient to pay all of the principal and interest on the original
interest payment and maturity dates. Bonds are considered "pre-refunded" when
the refunding issue's proceeds are escrowed only until a permitted call date or
dates on the refunded issue with the refunded issue being redeemed at the time,
including any required premium. Bonds become "defeased" when the rights and
interests of the bondholders and of their lien on the pledged revenues or other
security under the terms of the bond contract are substituted with an
alternative source of revenues (the escrow securities) sufficient to meet
payments of principal and interest to maturity or to the first call
dates.Escrowed secured bonds will often receive a rating of AAA from Moody's,
S&P, and/or Fitch due to the strong credit quality of the escrow securities and
the irrevocable nature of the escrow deposit agreement. The Tax-Free Minnesota
Insured Fund will purchase escrow secured bonds without additional insurance
only where the escrow is invested in securities of the U.S. government or
agencies or instrumentalities of the U.S. government.
Each Fund may invest a portion of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair each Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
At August 31, 2005, there were no Rule 144A securities and no securities have
been determined to be illiquid under the Fund's Liquidity Procedures. While
maintaining oversight, the Board of Trustees has delegated to DMC the day-to-day
functions of determining whether individual securities are liquid for purposes
of the Funds' limitation on investments in illiquid 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, 2005, 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 Intermediate Fund -- -- 100% 100%
(A), (B), and (C) are based on a percentage of each Fund's total distributions.
22
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,
2005, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit procedures included confirmation of securities owned as
of August 31, 2005, by correspondence with the custodian and brokers or by other
appropriate auditing procedures where replies from brokers were not received.
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, 2005, 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 14, 2005
23
OTHER DELAWARE MINNESOTA MUNICIPAL BOND FUNDS
FUND INFORMATION
PROXY RESULTS
The shareholders of Voyageur Mutual Funds, Voyageur Insured Funds, Voyageur Tax
Free Funds and Voyageur Intermediate Tax Free Funds (each a "Trust") voted on
the following proposals (as applicable) at the special meeting of shareholders
on March 23, 2005 or as adjourned. The description of each proposal and number
of shares voted are as follows:
1. To elect a Board of Trustees for the Trusts.
Voyageur Mutual Funds Voyageur Insured Funds
--------------------- ------------------------
Shares Voted Shares Voted
Shares Voted For Withheld Authority Shares Voted For Withheld Authority
---------------- -------------------- ------------------ --------------------
Thomas L. Bennett 20,895,278.656 360,093.724 25,076,354.183 602,982.118
Jude T. Driscoll 20,914,639.656 340,732.724 25,120,168.869 559,167.432
John A. Fry 20,894,793.656 360,578.724 25,085,403.645 593,932.656
Anthony D. Knerr 20,894,488.656 360,883.724 25,066,460.446 612,875.855
Lucinda S. Landreth 20,879,031.656 376,340.724 25,124,950.648 554,385.653
Ann R. Leven 20,857,874.656 397,497.724 25,085,383.078 593,953.223
Thomas F. Madison 20,905,985.656 349,386.724 25,067,669.009 611,667.292
Janet L. Yeomans 20,859,670.656 395,701.724 25,123,301.246 556,035.055
J. Richard Zecher 20,914,639.656 340,732.724 25,055,313.488 624,022.813
Voyageur Tax-Free Funds Voyageur Intermediate Funds
----------------------- ---------------------------
Shares Voted Shares Voted
Shares Voted For Withheld Authority Shares Voted For Withheld Authority
------------------- -------------------- ------------------ --------------------
Thomas L. Bennett 18,586,436.738 608,860.670 4,026,206.062 144,905.269
Jude T. Driscoll 18,587,461.058 607,836.350 4,026,206.062 144,905.269
John A. Fry 18,585,558.201 609,739.207 4,026,206.062 144,905.269
Anthony D. Knerr 18,583,231.072 612,066.336 4,023,117.364 147,993.967
Lucinda S. Landreth 18,602,679.414 492,617.994 4,025,699.062 145,412.269
Ann R. Leven 18,594,412.969 600,884.739 4,025,699.062 145,412.269
Thomas F. Madison 18,543,027.456 652,269.952 4,023,117.364 147,993.967
Janet L. Yeomans 18,604,510.673 590,786.735 4,022,610.364 148,500.967
J. Richard Zecher 18,579,609.373 615,688.035 4,025,699.062 145,412.269
2. To approve the use of a "manager of managers" structure whereby the
investment manager of the funds of each Trust will be able to hire and
replace sub advisors without shareholder approval.
For Against Abstain
---- -------- --------
Delaware Tax-Free Minnesota Intermediate Fund 3,035,795.738 244,537.728 252,272.865
BOARD CONSIDERATION OF DELAWARE MINNESOTA MUNICIPAL BOND FUNDS INVESTMENT
ADVISORY AGREEMENT
At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Boards of
Trustees, including a majority of disinterested or independent Trustees,
approved the renewal of the Investment Advisory Agreements for the Delaware
Minnesota High-Yield Municipal Bond Fund, Delaware Tax-Free Minnesota Fund,
Delaware Tax-Free Minnesota Insured Fund and Delaware Tax-Free Minnesota
Intermediate Fund (each a "Fund" and together the "Funds"). In making its
decision, the Board considered information furnished throughout the year at
regular Board meetings, as well as information prepared specifically in
connection with the Annual Meeting. Information furnished and discussed
throughout the year included reports detailing Fund performance, investment
strategies, expenses, compliance matters and other services provided by Delaware
Management Company ("DMC"), the investment advisor. Information furnished
specifically in connection with the Annual Meeting included materials provided
by DMC and its affiliates ("Delaware Investments") concerning, among other
things, the level of services provided to the Funds, the costs of such services
to the Funds, economies of scale and the financial condition and profitability
of Delaware Investments. In addition, in connection with the Annual Meeting, the
Board separately received and reviewed independent historical and comparative
reports prepared by Lipper Inc. ("Lipper"), an independent
24
BOARD CONSIDERATION OF DELAWARE MINNESOTA MUNICIPAL BOND FUNDS INVESTMENT
ADVISORY AGREEMENT (CONTINUED)
statistical compilation organization. The Lipper reports compared each Fund's
investment performance and expenses with those of other comparable mutual funds.
The Board also requested and received certain supplemental information regarding
management's policy with respect to advisory fee levels and its philosophy with
respect to breakpoints; the structure of portfolio manager compensation; the
investment manager's profitability organized by client type, including the
Funds; and any constraints or limitations on the availability of securities in
certain investment styles which might inhibit the advisor's ability to fully
invest in accordance with each Fund's policies.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel and representatives from
Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman
of the Delaware Investments Family of Funds, and Chairman and Chief Executive
Officer of the investment advisor, was present to respond to questions raised by
Lipper and the independent Trustees. While the Board considered the Investment
Advisory Agreements for all of the funds in the Delaware Investments Family of
Funds at the same Board meeting, information was provided and considered by the
Board for each fund individually. In approving the continuance of the Investment
Advisory Agreements for the Funds, the Board, including a majority of
independent Trustees, determined that the existing advisory fee structure was
fair and reasonable and that the continuance of the Investment Advisory
Agreements was in the best interests of the Funds and their shareholders. While
attention was given to all information furnished, the following discusses the
primary factors relevant to the Board's deliberations and determination,
including those relating to the selection of the investment advisor and the
approval of the advisory fee.
NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services
provided by Delaware Investments to the Funds and their shareholders. In
reviewing the nature, extent and quality of services, the Board emphasized
reports furnished to it throughout the year at regular Board meetings covering
matters such as the compliance of portfolio managers with the investment
policies, strategies and restrictions for the Funds, the compliance of
management personnel with the Code of Ethics adopted throughout the Delaware
Investments Family of Funds complex, the adherence to fair value pricing
procedures as established by the Board, and the accuracy of net asset value
calculations. The Board noted that it was pleased with the current staffing of
the Funds' investment advisor during the past year, the emphasis on research and
the compensation system for advisory personnel. Favorable consideration was
given to DMC's efforts to maintain, and in some instances increase, financial
and human resources committed to fund matters. Other factors taken into account
by the Board were Delaware Investments' preparedness for, and response to, legal
and regulatory matters. The Board also considered the transfer agent and
shareholder services provided to Fund shareholders by Delaware Investments'
affiliate, Delaware Service Company, Inc., noting the receipt by such affiliate
of the DALBAR Pyramid Award in four of the last six years and the continuing
expenditures by Delaware Investments to increase and improve the scope of
shareholder services. Additionally, the Board noted the extent of benefits
provided to Fund shareholders for being part of the Delaware Investments Family
of Funds, including the privilege to exchange investments between the same class
of funds without a sales charge, the ability to reinvest Fund dividends into
other funds and the privilege to combine holdings in other funds to obtain a
reduced sales charge. The Board was satisfied with the nature, extent and
quality of the overall services provided by Delaware Investments.
INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC
and the Funds. The Board was pleased by DMC's investment performance, noting
Barron's ranking of the Delaware Investments Family of Funds in the top quartile
of mutual fund families for 2002 - 2004. The Board placed significant emphasis
on the investment performance of the Funds in view of its importance to
shareholders. While consideration was given to performance reports and
discussions with portfolio managers at Board meetings throughout the year,
particular attention in assessing performance was given to the Lipper reports
furnished for the Annual Meeting. The Lipper reports prepared for each Fund
showed the investment performance of its Class A shares in comparison to a group
of similar funds as selected by Lipper (the "Performance Universe"). A fund with
the highest performance is ranked first, and a fund with the lowest is ranked
last. The highest/best performing 25% of funds in the Performance Universe make
up the first quartile; the next 25% - the second quartile; the next 25% - the
third quartile; and the lowest/worst performing 25% of funds in the Performance
Universe make up the fourth quartile. Comparative annualized performance for the
Funds was shown for the past one, three, five and 10 year periods, as
applicable, ended February 28, 2005. The Board noted its objective that each
Fund's performance be at or above the median of its Performance Universe. The
following paragraphs summarize the performance results for the Funds and the
Board's view of such performance.
DELAWARE MINNESOTA HIGH-YIELD MUNICIPAL BOND FUND -- The Performance Universe
for this Fund consisted of the Fund and all retail and institutional Minnesota
municipal debt funds as selected by Lipper. The Lipper report comparison showed
that the Fund's total return for the one, three and five year periods was in the
first quartile of such Performance Universe. The Board was satisfied with such
performance.
DELAWARE TAX-FREE MINNESOTA FUND -- The Performance Universe for this Fund
consisted of the Fund and all retail and institutional Minnesota municipal debt
funds as selected by Lipper. The Lipper report comparison showed that the Fund's
total return for the one, three, five and 10 year periods was in the first
quartile of such Performance Universe. The Board was satisfied with such
performance.
DELAWARE TAX-FREE MINNESOTA INSURED FUND -- The Performance Universe for this
Fund consisted of the Fund and all retail and institutional Minnesota municipal
debt funds as selected by Lipper. The Lipper report comparison showed that the
Fund's total return for the one, five and 10 year periods was in the second
quartile of such Performance Universe. The report further showed that the Fund's
total return for the three year period was in the first quartile. The Board was
satisfied with such performance.
DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND -- The Performance Universe for
this Fund consisted of the Fund and all retail and institutional other states
intermediate municipal debt funds as selected by Lipper. The Lipper report
comparison showed that the Fund's total return for the one, three and five year
periods was in the first quartile of such Performance Universe. The report
further showed that the Fund's total return for the 10 year period was in the
third quartile. The Board was satisfied with such performance.
25
BOARD CONSIDERATION OF DELAWARE MINNESOTA MUNICIPAL BOND FUNDS INVESTMENT
ADVISORY AGREEMENT (CONTINUED)
COMPARATIVE EXPENSES. The Board considered expense comparison data for the
Delaware Investments Family of Funds, Delaware Investments' institutional
separate account business and other lines of business at Delaware Investments.
The Board stated its belief that, given the differing level of service provided
to Delaware Investments' various clients and other factors that related to the
establishment of fee levels, variations in the levels of fees and expenses were
justified. The Board placed significant emphasis on the comparative analysis of
the management fees and total expense ratios of each Fund compared with those of
a group of similar funds as selected by Lipper (the "Expense Group") and among
the other Delaware Investments funds. In reviewing comparative costs, each
Fund's contractual management fee and the actual management fee incurred by the
Fund were compared with the contractual management fees (assuming all funds in
the Expense Group were similar in size to the Fund) and actual management fees
(as reported by each fund) of other funds within the Expense Group, taking into
effect any applicable breakpoints and fee waivers. Each Fund's total expenses
were also compared with those of its Expense Group. The Lipper total expenses,
for comparative consistency, were shown by Lipper for Class A shares and
compared total expenses including 12b-1 and non-12b-1 service fees. The Board
noted its objective to limit each Fund's total expense ratio to an acceptable
range as compared to the median of the Expense Group. The following paragraphs
summarize the expense results for the Funds and the Board's view of such
expenses.
DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND -- The expense comparisons for the
Fund showed that its management fee was in the quartile with the second lowest
expenses of its Expense Group and its total expenses were in the quartile with
the lowest expenses of its Expense Group. The Board was satisfied with the
management fees and total expenses of the Fund in comparison to its Expense
Group as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any,
realized by Delaware Investments in connection with the operation of the Funds.
In this respect, the Board reviewed the Investment Management Profitability
Analysis that addressed the overall profitability of Delaware Investments'
business in providing management and other services to each of the individual
funds and the Delaware Investments Family of Funds as a whole. Specific
attention was given to the methodology followed in allocating costs for the
purpose of determining profitability. Management stated that the level of
profits of Delaware Investments, to a certain extent, reflected operational cost
savings and efficiencies initiated by Delaware Investments. The Board considered
Delaware Investments' expenditures to improve services provided to fund
shareholders and to meet additional regulatory and compliance requirements
resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also
considered the extent to which Delaware Investments might derive ancillary
benefits from fund operations, including the potential for procuring additional
business as a result of the prestige and visibility associated with its role as
service provider to the Delaware Investments Family of Funds, the benefits from
allocation of fund brokerage to improve trading efficiencies and the use of
"soft" commission dollars to pay for proprietary and non-proprietary research.
At the Board's request, management also provided information relating to
Delaware Investments' profitability by client type. The information provided set
forth the revenue, expenses and pre-tax income/loss attributable to the Delaware
Investments Family of Funds, Delaware Investments' separate account business and
other lines of business at Delaware Investments. Emphasis was given to the level
and type of service provided to the various clients. The Board was satisfied
with the level of profits realized by Delaware Investments from its
relationships with the Funds and the Delaware Investments Family of Funds.
ECONOMIES OF SCALE. The Trustees considered whether economies of scale are
realized by Delaware Investments as each Fund's assets increase and the extent
to which any economies of scale are reflected in the level of management fees
charged. The Trustees took into account the standardized advisory fee pricing
and structure approved by the Board and shareholders as part of a complex-wide
shareholder meeting conducted in 1998/1999. At that time, Delaware Investments
introduced breakpoints to account for management economies of scale. The Board
noted that the fee under each Fund's management contract fell within the
standard structure. Although the Funds have not reached a size at which they can
take advantage of breakpoints, the Board recognized that the fee was structured
so that when the Funds grow, economies of scale may be shared.
26
DELAWARE INVESTMENTS(R) FAMILY OF FUNDS
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others 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 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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 92 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 1 Year - at different times at
Trustee Trustee Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 92 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
- -----------------------------------------------------------------------------------------------------------------------------------
JOHN A. FRY Trustee 4 Years President - 92 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 92 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 92 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
- -----------------------------------------------------------------------------------------------------------------------------------
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 92 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
27
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 TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
THOMAS F. MADISON Trustee 11 Years President/Chief 92 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director and Audit
and Consulting) Committee Member -
February 25, 1936 (January 1993 - Present) CenterPoint Energy
Director and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 92 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has
July 31, 1948 held various
management positions
at 3M Corporation
since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
J. RICHARD ZECHER Trustee Since Founder - 92 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served in 92 None(3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 17, 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
RICHELLE S. MAESTRO Executive Vice President, 2 Years Ms. Maestro has served in 92 None(3)
2005 Market Street Chief Legal Officer various executive capacities
Philadelphia, PA and Secretary at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
JOHN J. O'CONNOR Senior Vice President Treasurer Mr. O'Connor has served in 92 None(3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(s') investment
advisor, principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's(s') manager and distributor.
(3) Mr. Bishof, Ms. Maestro and Mr. O'Connor 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.
28
Delaware
Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
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 of the Fund. You should read the prospectus
carefully before you invest. The figures in this report represent past results
that are not a guarantee of future results. The return and principal value of an
investment in the 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
MICHAEL P. BISHOF
JUDE T. DRISCOLL Senior Vice President and INVESTMENT MANAGER
Chairman Chief Financial Officer Delaware Management Company,
Delaware Investments Family of Funds Delaware Investments Family of Funds a Series of Delaware Management Business Trust
Philadelphia, PA Philadelphia, PA Philadelphia, PA
THOMAS L. BENNETT RICHELLE S. MAESTRO NATIONAL DISTRIBUTOR
Private Investor Executive Vice President, Delaware Distributors, L.P.
Rosemont, PA Chief Legal Officer and Secretary Philadelphia, PA
Delaware Investments Family of Funds
JOHN A. FRY Philadelphia, PA SHAREHOLDER SERVICING, DIVIDEND
President DISBURSING AND TRANSFER AGENT
Franklin & Marshall College JOHN J. O'CONNOR Delaware Service Company, Inc.
Lancaster, PA Senior Vice President and Treasurer 2005 Market Street
Delaware Investments Family of Funds Philadelphia, PA 19103-7094
ANTHONY D. KNERR Philadelphia, PA
Managing Director FOR SHAREHOLDERS
Anthony Knerr & Associates 800 523-1918
New York, NY FOR SECURITIES DEALERS AND FINANCIAL
INSTITUTIONS REPRESENTATIVES ONLY
LUCINDA S. LANDRETH 800 362-7500
Former Chief Investment Officer
Assurant, Inc. WEB SITE
Philadelphia, PA www.delawareinvestments.com
ANN R. LEVEN Delaware Investments is the marketing name for
Former Treasurer/Chief Fiscal Officer Delaware Management Holdings, Inc. and
National Gallery of Art its subsidiaries.
Washington, DC
THOMAS F. MADISON
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
JANET L. YEOMANS
Vice President/Mergers & Acquisitions
3M Corporation
St. Paul, MN
J. RICHARD ZECHER
Founder
Investor Analytics
Scottsdale, AZ
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
(9754) Printed in the USA
AR-MNALL [8/05] IVES 10/05 MF-05-09-025 PO10437
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant, auditor, or person
performing similar functions;
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that
each member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Thomas L. Bennett(1)
Thomas F. Madison
Janet L. Yeomans (1)
J. Richard Zecher
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
-----------
The aggregate fees billed for services provided to the registrant by
its independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $11,000
for the fiscal year ended August 31, 2005.
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 $13,010
for the fiscal year ended August 31, 2004.
(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, 2005.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the registrant's investment adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $33,875 for the registrant's fiscal year ended
August 31, 2005. 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 Registrant'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 Registrant.
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 and other service providers under common
control with the adviser 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 Registrant's Board in connection with the annual transfer agent and fund
accounting service agent contract renewals and the
- ---------------
(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Mr.
Bennett qualifies as an audit committee financial expert by virtue of his
education, Chartered Financial Analyst designation, and his experience as a
credit analyst, portfolio manager and the manager of other credit analysts and
portfolio managers. The Board of Trustees/ Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
pass-through of internal legal cost relating to the operations of the
Registrant.
(c) Tax fees.
---------
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $2,000 for the fiscal
year ended August 31, 2005. 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 return and review of annual excise distribution calculation.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's investment adviser and other
service providers under common control with the adviser and that relate directly
to the operations or financial reporting of the registrant were $0 for the
registrant's fiscal year ended August 31, 2005.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $1,750 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 return and review of annual excise distribution calculation.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's adviser and other service
providers under common control with the adviser and that relate directly to the
operations or financial reporting of the registrant were $0 for the registrant's
fiscal year ended August 31, 2004.
(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, 2005.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
August 31, 2005.
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 and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
August 31, 2004.
(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
and other service providers under common control with the adviser were $207,235
and $214,565 for the registrant's fiscal years ended August 31, 2005 and
August 31, 2004, respectively.
(h) In connection with its selection of the independent auditors, the
registrant's Audit Committee has considered the independent auditors' provision
of non-audit services to the registrant's investment adviser and other service
providers under common control with the adviser that were not required to be
pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit
Committee has determined that the independent auditors' provision of these
services is compatible with maintaining the auditors' independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. 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. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or statements filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.
There were no significant changes in the registrant's internal control
over financial reporting that occurred during the second fiscal quarter of the
period covered by the report to stockholders included herein (i.e., the
registrant's fourth fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are
furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS
Jude T. Driscoll
- --------------------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: November 2, 2005
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: Chief Executive Officer
Date: November 2, 2005
Michael P. Bishof
- --------------------------------
By: Michael P. Bishof
Title: Chief Financial Officer
Date: November 2, 2005