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: 811-6411
Exact name of registrant as specified in charter: Voyageur Investment Trust
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 Florida Insured Fund, Delaware Tax-Free Missouri Insured Fund
and Delaware Tax-Free Oregon Insured Fund of the Registrant, information on
which is included in the following shareholder reports.
Delaware
Investments(R)
-----------------------------------
FIXED INCOME A member of Lincoln Financial Group
ANNUAL REPORT AUGUST 31, 2005
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DELAWARE TAX-FREE FLORIDA INSURED 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 Florida Insured Fund 6
Delaware Tax-Free New York Fund 8
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DISCLOSURE OF FUND EXPENSES 10
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SECTOR ALLOCATIONS 11
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FINANCIAL STATEMENTS:
Statements of Net Assets 12
Statements of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 19
Notes to Financial Statements 25
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 30
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OTHER FUND INFORMATION 31
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BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 34
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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.
DELAWARE TAX-FREE FLORIDA INSURED AND
DELAWARE TAX-FREE NEW YORK FUNDS
PORTFOLIO September 13, 2005
MANAGEMENT REVIEW
FUND MANAGERS
Patrick Coyne
Managing Director/Head of Equity Investments
Joseph R. Baxter
Senior Portfolio Manager
Robert F. Collins
Senior Portfolio Manager
Q: PLEASE DESCRIBE THE OVERALL MARKET CONDITIONS DURING THE FISCAL YEAR.
A: 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, many market participants
appeared 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 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 percentage 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." In the Treasury market, the difference between the 2-
and 30-year yields narrowed dramatically, from about two-and-a-half percentage
points to less than half of a percent at the end of the fiscal year. Some market
strategists have started discussing the prospects for, and implications of, an
inverted 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 percent, ending the year with a 1.4% differential (source: Bloomberg).
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.
Credit has performed 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 ended August 31, 2005, while
the unemployment rate decreased from 5.5% to 5.0% (source: U.S. 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).
1
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 will also have to deal with
traditional budget issues such as social service programs and education funding.
The future in most states may depend on economic performance, sustained
structural balance, and progress in re-building budget reserves.
Overall, 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.
Q: WHAT WAS THE INVESTMENT ENVIRONMENT LIKE DURING THE LAST 12 MONTHS IN FLORIDA
AND NEW YORK?
A: Florida's economy has been resilient, with above-average growth in recent
years despite the 2001 recession, a general decline in travel and tourism
following September 11, 2001, and hurricanes in 2004. Despite the heavy
influence on tourism-related employment, Florida has remained ahead of the
nation in terms of employment growth, with construction and the leisure and
hospitality sector leading the way. For the first eight months of fiscal year
2005, state revenues increased almost 13%, and the forecast for 2006 revenues
was revised upward in April 2005 due to strong sales tax, corporate tax, and
documentary stamp taxes. Among the states, Florida expects to have the highest
funding level for its budget stabilization fund at fiscal year end 2005. These
reserves have been achieved despite a budget amendment to fund hurricane
disaster relief. In the fiscal 2006 budget, the governor has proposed for the
complete elimination of the state intangibles tax, which is a tax on certain
financial assets such as stocks and bonds. Revenues from the intangibles tax
finance approximately 1.2% of total state expenditures. While spending demands
are significant in fiscal 2006 and budget gaps are projected in the following
years, the state has effectively managed its budget and retained financial
flexibility not seen in other states (source: Municipal Market Data).
The New York economy began to recover in 2004, largely due to the improving
conditions in New York City, with moderate employment gains across various
sectors. The unemployment rate for the state of 5.1% in July 2005 was slightly
above the national level of 5.0%. The state's economic recovery is reflected in
recent tax revenues. For the first eight months of fiscal 2005, total tax
revenues were up approximately 4.5%, supported by even stronger personal income
tax receipts. The state's financial operations are characterized by a dependence
upon economically sensitive income tax revenue, high recurring expenditure
demands, and a chronic lack of structural budget balance. The governor has
proposed to close the $4 billion forecast budget gap for 2005-2006 with a
combination of spending cuts, revenue enhancements, and several one-time
sources. The proposed Medicaid cuts are the single largest item in the budget
and will likely be controversial (source: Municipal Market Data).
Neither state is an exception to the national trend of strong municipal bond
issuance. Florida had an issuance rise of 50.8% for the first eight months of
2005, ranking it fourth in debt issuance. An additional catalyst in Florida was
issuance for hurricane disaster relief. New York's issuance for the first eight
months of 2005 increased 17.6%, slightly higher than the national average. Total
issuance year-to-date was approximately $27 billion compared to $23 billion a
year ago, which places New York third in debt issuance among the states. Some of
the larger issuers year-to-date are New York State, New York City, New York
Dormitory Authority, and New York City Municipal Water Authority (source: The
Bond Buyer).
Q: How did Delaware Tax-Free Florida Insured Fund perform during the fiscal
year?
A: For the fiscal year ended August 31, 2005, Delaware Tax-Free Florida Insured
Fund returned 5.32% (Class A shares at net asset value with distributions
reinvested) and 0.59% (at maximum offer price with distributions reinvested)*.
Class A shares (at net asset value with distributions reinvested) outperformed
the Lipper Florida Insured Municipal Debt Funds Average, which returned 4.53%,
and was in line with the Lehman Brothers Municipal Bond Index, which returned
5.31% for the 12-month period, both of which exclude sales charges (source:
Lipper, Inc.).
* For complete annualized performance, see table on page 6.
2
Q: FOR EACH FUND, WHAT STRATEGIES INFLUENCED FUND PERFORMANCE?
A: 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 by prospectus. The fourth factor, security selection, is the
heart of our investment process and is the primary source of our excess 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 that
participate in the rally 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 an allotment to these higher-risk 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 and the managed care industry.
* For complete annualized performance, see table on page 8.
The demographics provided by the baby boom generation have provided favorable
enrollment trends at colleges and universities, while a 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.
Delaware Tax-Free Florida Insured Fund was well positioned for a flattening of
the yield curve, with a significant allocation of bonds having maturities 20
years and longer. Legacy bonds that have short due dates or short calls help
offset the longer positions. These legacy bonds finance various multifamily
housing projects that are AAA insured, have high coupons and short calls. While
their price appreciation is limited, they do provide the Fund with an
above-market yield. The incremental price return in the Fund was derived from
non-insured securities, but the Fund's mandate limits this amount. 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 New York Fund has a broad mandate, and has therefore been able
to participate in all four sources of return mentioned earlier. The Fund had a
meaningful allotment in mid-to-low investment grade rated credits that has
allowed it to participate in our preferred sectors. But New York is a diverse
market with frequent issuers in many sectors. This allows excess total return to
be derived from multiple securities.
Q: CAN YOU NAME SOME KEY HOLDINGS IN DELAWARE TAX-FREE FLORIDA INSURED FUND?
A: Positions included hospitals such as Adventist Health Systems in Highland and
Orange Counties, as well as Boca Raton Community Hospital in Palm Beach County.
Other key holdings included Nova Southeastern University, a bond financing a
land development deal in Hollywood, Florida, and positions in territorial bonds
for Puerto Rico.
Q: CAN YOU NAME SOME KEY HOLDINGS IN DELAWARE
TAX-FREE NEW YORK FUND?
A: The Fund's total return was influenced by securities such as North Shore Long
Island Health System and Winthrop South Nassau Health System. Higher education
bonds included Marist College and Columbia University. The best performing bond
was for a co-generation plant at the Brooklyn Navy Yard and not far behind was a
gas utility - Keyspan, in Suffolk County. Such positions were in addition to
traditional holdings such as New York City general obligations, New York City
Water Authority issues, and various Puerto Rico bonds.
3
Q: WHAT DETRACTED FROM FUND PERFORMANCE?
A: Detracting from each of our Funds' performance relative to its benchmark
index was the significant decision to avoid the unenhanced tobacco sector. This
section, in which we did not participate, 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 these bonds. However, the sector is subject to litigation
risk and, therfore, volatile. We are comfortable foregoing this potential
volatility in the Funds.
Airline securities significantly outperformed the municipal market this year
during the second and third quarters, which are a traditional busy season.
Although the Funds held several airport revenue bonds, we have been
underweighted in the sector and have generally avoided securites backed by
airline corporation revenues. We are concerned about the long-term fundamentals
of the industry.
The decision to hold high coupon, short-call legacy bonds provides an above
market yield to the Funds 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. This decision to hold these
underperforming securities also detracted from relative performance.
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 FLORIDA INSURED FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges and expenses of the investment carefully before
investing. The Delaware Tax-Free Florida Insured 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. 1/1/92)
Excluding Sales Charge +6.24% +5.81% +5.85% +5.32%
Including Sales Charge +5.88% +5.32% +4.88% +0.59%
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Class B (Est. 3/11/94)
Excluding Sales Charge +5.12% +5.22% +5.05% +4.45%
Including Sales Charge +5.12% +5.22% +4.81% +0.45%
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Class C (Est. 9/29/97)*
Excluding Sales Charge +4.38% +5.04% +4.45%
Including Sales Charge +4.38% +5.04% +3.45%
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* Class C shares were sold and outstanding from September 29, 1997 until
December 18, 1997, when all of the outstanding Class C shares were redeemed.
There were no outstanding Class C shares or shareholder activity from December
19, 1997 through January 7, 1999. The performance for Class C shares during
the period from December 19, 1997 through January 7, 1999 is based on the
performance of Class B shares.
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 that 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 4.50% and have an annual distribution and
service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%. Lifetime and 10-year performance figures for
Class B shares reflect conversion to Class A shares after eight years.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware Tax-Free Florida
Insured Fund during the periods shown. Performance would have been lower had the
expense limitation not been in effect.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
6
FUND BASICS
As of August 31, 2005
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FUND OBJECTIVE:
The Fund seeks as high a level of current income exempt from federal income tax
and from Florida state personal income tax, as is consistent with preservation
of capital.
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TOTAL FUND NET ASSETS:
$107 million
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NUMBER OF HOLDINGS:
68
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FUND START DATE:
January 1, 1992
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YOUR FUND MANAGERS:
Patrick P. Coyne, Executive Vice President, Managing Director, Head of Equity
Investments, is a graduate of Harvard University with an MBA from the University
of Pennsylvania's Wharton School. Patrick Coyne joined Delaware Investments'
fixed-income department in 1990. Prior to joining Delaware Investments, he was a
manager of Kidder, Peabody & Co. Inc.'s trading desk, and specialized in trading
high-grade municipal bonds and municipal futures contracts.
Joseph R. Baxter, Senior Vice President, Head of Municipal Bond Department,
Senior Portfolio Manager, is a graduate of LaSalle University where he earned
his undergraduate degree in finance and marketing. Prior to joining Delaware
Investments in 1999, he held investment positions with First Union. Most
recently, he served as a municipal portfolio manager for the Evergreen Funds.
Robert F. Collins, Senior Vice President and Senior Portfolio Manger, is a
graduate of Ursinus College where he earned his undergraduate degree in
economics. Prior to joining Delaware Investments in 2004, he co-managed the
municipal portfolio management group of PNC Advisors, overseeing the tax-exempt
investments of high-net worth and institutional accounts. Previously, he headed
the municipal fixed-income team at Wilmington Trust Company, managing funds and
high-net worth accounts. Mr. Collins is a CFA charterholder.
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NASDAQ SYMBOLS:
Class A VFLIX
Class B DVDBX
Class C DVDCX
PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1995 through August 31, 2005
Performance of a $10,000 investment chart
Delaware Tax-Free Lehman Brothers
Florida Insured Fund Municipal Bond Index
Aug-95 $9,550 $10,000
Aug-96 $10,114 $10,524
Aug-97 $11,103 $11,496
Aug-98 $12,098 $12,491
Aug-99 $11,998 $12,553
Aug-00 $12,633 $13,403
Aug-01 $13,819 $14,769
Aug-02 $14,625 $15,691
Aug-03 $15,014 $16,183
Aug-04 $15,932 $17,334
Aug-05 $16,782 $18,254
Chart assumes $10,000 invested on August 31, 1995 and includes the effect of a
4.50% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that
generally tracks the performance of municipal bonds. An index is unmanaged and
does not reflect the costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities. You cannot invest directly in an index.
An expense limitation was in effect for all classes of Delaware Tax-Free Florida
Insured Fund during the period shown. Performance would have been lower had the
expense limitation not been in effect. The performance graph does not reflect
the deduction of taxes the shareholder would pay on fund distributions or
redemption of Fund shares. 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 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 return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in 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 the tables is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. The Funds' actual expenses shown in the 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 Funds' annualized expense ratio,
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
DELAWARE TAX-FREE FLORIDA INSURED 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 $1,027.30 0.93% $4.75
Class B 1,000.00 1,022.60 1.68% 8.56
Class C 1,000.00 1,022.60 1.68% 8.56
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HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.52 0.93% $4.74
Class B 1,000.00 1,016.74 1.68% 8.54
Class C 1,000.00 1,016.74 1.68% 8.54
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8
SECTOR ALLOCATIONS As of August 31, 2005
Sector designations may be different than the sector designations presented in
other Fund materials.
DELAWARE TAX-FREE FLORIDA INSURED FUND
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PERCENTAGE
SECTOR OF NET ASSETS
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MUNICIPAL BONDS 98.54%
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Airport Revenue Bonds 4.58%
Dedicated Tax & Fees Revenue Bonds 12.83%
Higher Education Revenue Bonds 5.07%
Hospital Revenue Bonds 13.89%
Miscellaneous Revenue Bonds 2.05%
Multifamily Housing Revenue Bonds 26.65%
Municipal Lease Revenue Bonds 9.66%
Ports & Harbors Revenue Bonds 0.30%
Pre-Refunded Bonds 2.98%
Public Power Revenue Bonds 1.97%
Public Utility District Revenue Bonds 1.16%
Single Family Housing Revenue Bonds 0.40%
Tax Increment/Special Assessment Bonds 2.05%
Territorial General Obligation Bonds 2.77%
Territorial Revenue Bonds 8.74%
Water & Sewer Revenue Bonds 3.44%
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TOTAL MARKET VALUE OF SECURITIES 98.54%
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RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.46%
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TOTAL NET ASSETS 100.00%
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9
DELAWARE TAX-FREE FLORIDA INSURED FUND
STATEMENTS August 31, 2005
OF NET ASSETS
Principal Market
Amount Value
MUNICIPAL BONDS - 98.54%
Airport Revenue Bonds - 4.58%
Lee County Florida Airport Revenue
Series B 5.75% 10/1/33 (FSA) $3,000,000 $ 3,330,960
Miami-Dade County Aviation Revenue
(Miami International Airport)
Series B 5.00% 10/1/37 (FGIC) 1,000,000 1,059,090
Miami-Dade County Aviation Revenue
Series A 5.00% 10/1/33 (FSA) (AMT) 500,000 519,455
-----------
4,909,505
-----------
Dedicated Tax & Fees Revenue Bonds - 12.83%
Florida State Department of
Transportation 5.00% 7/1/31 (FGIC) 1,875,000 1,985,044
Jacksonville Excise Taxes Revenue Series B
5.00% 10/1/26 (AMBAC) 1,000,000 1,055,750
5.125% 10/1/32 (FGIC) 1,000,000 1,061,160
&Palm Beach County Florida
Criminal Justice Facilities
Revenue Inverse Floater
9.47% 6/1/12 (FGIC) 7,500,000 9,646,200
-----------
13,748,154
-----------
Higher Education Revenue Bonds - 5.07%
Broward County Educational Facilities
Authority Revenue
(Nova Southeastern University)
5.25% 4/1/27 (RADIAN) 1,000,000 1,053,930
Miami-Dade County Educational Facilities
Authority (University of Miami) Series A
5.75% 4/1/29 (AMBAC) 2,000,000 2,211,400
University of Central Florida Athletics
Association Certificates of
Participation Series A
5.25% 10/1/34 (FGIC) 2,000,000 2,173,680
-----------
5,439,010
-----------
Hospital Revenue Bonds - 13.89%
Escambia County Health Facilities
Authority (Florida Health Care
Facilities -- VHA Program)
5.95% 7/1/20 (AMBAC) 560,000 603,002
Highlands County Health Facilities
Authority (Adventist Health
System/Sunbelt) Series A
6.00% 11/15/31 1,500,000 1,643,430
Indian River County Hospital District
(Indian River Memorial Hospital)
6.10% 10/1/18 (FSA) 3,000,000 3,156,240
North Miami Health Facilities Authority
(Catholic Health Services) LOC Suntrust
Bank-Miami 6.00% 8/15/16 500,000 518,590
Orange County Health Facilities Authority
Revenue (Adventist Health System)
5.625% 11/15/32 1,000,000 1,078,640
Palm Beach County Health Facilities
Authority Revenue
(Boca Raton Community Hospital)
5.625% 12/1/31 2,000,000 2,125,640
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds (continued)
South Broward Hospital District Revenue
(Memorial Healthcare System)
5.625% 5/1/32 $3,000,000 $ 3,253,410
Tallahassee Health Facilities
(Tallahassee Memorial Regional
Medical Center) Series B
6.00% 12/1/15 (MBIA) 2,500,000 2,506,225
-----------
14,885,177
-----------
Miscellaneous Revenue Bonds - 2.05%
Florida State Board of Education
(Lottery Revenue) Series A
6.00% 7/1/14 (FGIC) 1,000,000 1,129,160
Florida State Municipal Loan
(Council Revenue) Series A
5.00% 2/1/35 (MBIA) 1,000,000 1,063,660
-----------
2,192,820
-----------
Multifamily Housing Revenue Bonds - 26.65%
Duval Housing Finance Authority
(St. Augustine Apartments),
6.00% 3/1/21 300,000 307,587
Florida Housing Finance Agency
(Crossings Indian Run
Apartments HUD) Series V
6.10% 12/1/26 (AMBAC) (AMT) 750,000 776,123
Florida Housing Finance Agency (Landings
at Sea Forest Apartments) Series T
5.85% 12/1/18 (AMBAC) (FHA) (AMT) 400,000 413,168
6.05% 12/1/36 (AMBAC) (FHA) (AMT) 700,000 722,932
Florida Housing Finance Agency (Leigh
Meadows Apartments HUD) Series N
6.20% 9/1/26 (AMBAC) (AMT) 2,765,000 2,855,719
6.30% 9/1/36 (AMBAC) (AMT) 2,000,000 2,064,960
Florida Housing Finance Agency
(Mariner Club Apartments) Series K-1
6.25% 9/1/26 (AMBAC) (AMT) 2,000,000 2,066,440
6.375% 9/1/36 (AMBAC) (AMT) 3,500,000 3,615,884
Florida Housing Finance Agency
(Riverfront Apartments
Section 8 HUD) Series A
6.25% 4/1/37 (AMBAC) (AMT) 1,000,000 1,040,280
Florida Housing Finance Agency
(Spinnaker Cove Apartments) Series G
6.50% 7/1/36 (AMBAC) (FHA) (AMT) 500,000 515,910
Florida Housing Finance Agency
(Sterling Palms Apartments) Series D-1
6.30% 12/1/16 (AMBAC) (AMT) 950,000 978,092
6.40% 12/1/26 (AMBAC) (AMT) 1,500,000 1,550,820
6.50% 6/1/36 (AMBAC) (AMT) 6,540,000 6,740,581
Florida Housing Finance Agency
(The Vineyards Project) Series H
6.40% 11/1/15 500,000 512,295
10
STATEMENTS Delaware Tax-Free Florida Insured Fund
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Multifamily Housing Revenue Bonds (continued)
Florida Housing Finance Agency
(Woodbridge Apartments) Series L
6.15% 12/1/26 (AMBAC) (AMT) $1,750,000 $ 1,811,828
6.25% 6/1/36 (AMBAC) (AMT) 2,000,000 2,070,020
Volusia County Multifamily Housing
Finance Authority (San Marco
Apartments) Series A
5.60% 1/1/44 (FSA) (AMT) 500,000 520,225
-----------
28,562,864
-----------
Municipal Lease Revenue Bonds - 9.66%
Florida Municipal Loan Council Revenue
Series B 5.00% 11/1/29 (MBIA) 1,590,000 1,703,129
Lake County Florida School Board
5.00% 6/1/30 (AMBAC) 1,750,000 1,861,668
Osceola County School Board Series A
5.25% 6/1/27 (AMBAC) 4,000,000 4,342,119
Palm Beach County School Board
Certificates of Participation Series D
5.00% 8/1/28 (FSA) 300,000 315,645
Pasco County Florida School Board
Series A 5.00% 8/1/30 (AMBAC) 1,000,000 1,064,720
St. Augustine Capital Improvement
Revenue 5.00% 10/1/34 (AMBAC) 1,000,000 1,065,690
-----------
10,352,971
-----------
Ports & Harbors Revenue Bonds - 0.30%
Jacksonville Port Authority Seaport Revenue
5.70% 11/1/30 (MBIA) (AMT) 295,000 320,405
-----------
320,405
-----------
$Pre-Refunded Bonds - 2.98%
Jacksonville Port Authority Seaport Revenue
5.70% 11/1/30-10 (MBIA) (AMT) 205,000 226,320
Northern Palm Beach County Improvement
District Special Assessment
(Abacoa Water Control)
7.20% 8/1/16-06 300,000 317,376
Pinellas County Educational Facilities
Authority (Clearwater Christian College)
Private Placement 8.00% 2/1/11-06 205,000 213,079
Tampa Utilities Tax Revenue Series A
6.00% 10/1/17-09 (AMBAC) 1,000,000 1,118,600
6.125% 10/1/18-09 (AMBAC) 1,000,000 1,123,360
Volusia County Industrial Development
Authority Mortgage Revenue
(Bishops Glen Retirement
Health Facilities Project)
7.50% 11/1/16-06 180,000 192,355
-----------
3,191,090
-----------
Public Power Revenue Bonds - 1.97%
Florida State Municipal Power Agency
Revenue (Stanton II Project)
5.00% 10/1/26 (AMBAC) 2,000,000 2,115,280
-----------
2,115,280
-----------
Public Utility District Revenue Bonds - 1.16%
Ocala Utility System Revenue
Series B 5.25% 10/1/25 (FGIC) 1,125,000 1,249,099
-----------
1,249,099
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Single Family Housing Revenue Bonds - 0.40%
Florida Housing Finance Agency
Homeowner Mortgage Series 1B
6.00% 7/1/17 (FHA) (VA) $ 80,000 $ 81,994
Orange County Florida Housing Finance
Authority Homeowner Revenue Series B
5.25% 3/1/33 (GNMA) (FNMA) (AMT) 335,000 344,976
------------
426,970
------------
Tax Increment/Special Assessment Bonds - 2.05%
Hollywood Community Redevelopment
Agency 5.625% 3/1/24 1,200,000 1,290,972
Julington Creek Plantation Community
Development District Special
Assessment 5.00% 5/1/29 (MBIA) 200,000 211,256
Osceola County Enterprise Community
Development District Special
Assessment 6.10% 5/1/16 (MBIA) 695,000 696,863
------------
2,199,091
------------
Territorial General Obligation Bonds - 2.77%
Puerto Rico Commonwealth Public
Improvement Series A
5.50% 7/1/19 (MBIA) 2,500,000 2,964,225
------------
2,964,225
------------
Territorial Revenue Bonds - 8.74%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series G 5.00% 7/1/42 800,000 837,136
Puerto Rico Commonwealth Highway &
Transportation Authority Transportation
Revenue Series D 5.25% 7/1/38 3,000,000 3,192,600
Puerto Rico Commonwealth Highway &
Transportation Authority Transportation
Revenue Series J 5.50% 7/1/22 1,600,000 1,782,064
^Puerto Rico Commonwealth Infrastructure
Authority Series A 4.60% 7/1/30 (FGIC) 5,000,000 1,663,100
Puerto Rico Electric Power Authority Power
Revenue Series OO 5.00% 7/1/13 (CIFG) 750,000 827,273
Puerto Rico Public Buildings Authority
Revenue (Government Facilities)
Series F 5.25% 7/1/25 930,000 1,061,167
------------
9,363,340
------------
Water & Sewer Revenue Bonds - 3.44%
Riviera Beach Utilities Special District
Water & Sewer Revenue
5.00% 10/1/34 (FGIC) 400,000 424,408
Tampa Water and Sewer Revenue
6.00% 10/1/16 (FSA) 1,000,000 1,210,070
Village Center Community Development
District Utility Revenue
5.00% 10/1/36 (MBIA) 500,000 530,320
Winter Haven Utility Systems Revenue
5.00% 10/1/30 (MBIA) 1,415,000 1,519,866
------------
3,684,664
------------
TOTAL MUNICIPAL BONDS
(cost $98,895,139) 105,604,665
------------
11
STATEMENTS Delaware Tax-Free Florida Insured Fund
OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES - 98.54%
(cost $98,895,139) $105,604,665
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.46% 1,564,150
------------
NET ASSETS APPLICABLE TO 9,459,738
SHARES OUTSTANDING - 100.00% $107,168,815
============
Net Asset Value - Delaware Tax-Free Florida Insured Fund
Class A ($98,326,023 / 8,679,493 Shares) $11.33
------
Net Asset Value - Delaware Tax-Free Florida Insured Fund
Class B ($5,531,915 / 488,107 Shares) $11.33
------
Net Asset Value - Delaware Tax-Free Florida Insured Fund
Class C ($3,310,877 / 292,138 Shares) $11.33
------
COMPONENTS OF NET ASSETS AT AUGUST 31, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $101,149,546
Accumulated net realized loss on investments (690,257)
Net unrealized appreciation of investments 6,709,526
------------
TOTAL NET ASSETS $107,168,815
============
&An inverse floater is a type of bond with variable or floating interest rates
that move in the opposite direction of short-term rates. Interest rate
disclosed is in effect as of August 31, 2005. See Note 8 in "Notes to
Financial Statements."
^Zero coupon security. The interest rate shown is the yield at the time of
purchase.
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 8 in "Notes to
Financial Statements."
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
CIFG - Insured by the CDC IXIS Financial Guaranty
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
FNMA - Insured by Federal National Mortgage Association
FSA - Insured by the Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
VA - Insured by the Veterans Administration
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE TAX-FREE FLORIDA INSURED FUND
Net asset value Class A (A) $11.33
Sales charge (4.50% of offering price) (B) 0.53
------
Offering price $11.86
======
(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 Year Ended August 31, 2005
OF OPERATIONS
Delaware
Tax-Free
Florida Insured Fund
INVESTMENT INCOME:
Interest $5,329,570
EXPENSES:
Management fees 496,063
Distribution expenses -- Class A 230,230
Distribution expenses -- Class B 52,336
Distribution expenses -- Class C 18,411
Dividend disbursing and transfer agent fees and expenses 69,486
Accounting and administration expenses 34,496
Professional fees 38,534
Reports and statements to shareholders 42,182
Custodian fees 5,089
Trustees' fees 5,181
Pricing fees 1,912
Insurance 7,659
Taxes 574
Registration fees 15,976
Other 9,211
----------
225,436
Less expenses absorbed or waived (94,489)
Less expense paid indirectly (3,563)
----------
Total expenses 929,288
----------
NET INVESTMENT INCOME 4,400,282
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 332,797
Net change in unrealized appreciation/depreciation
of investments 426,912
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 759,709
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,159,991
==========
See accompanying notes
13
STATEMENTS
OF CHANGES IN NET ASSETS
Delaware Tax-Free
Florida Insured Fund
Year Ended
8/31/05 8/31/04
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 4,400,282 $ 4,650,828
Net realized gain on investments 332,797 177,786
Net change in unrealized appreciation/depreciation of investments 426,912 1,004,732
------------ -----------
Net increase in net assets resulting from operations 5,159,991 5,833,346
------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (4,136,398) (4,392,087)
Class B (195,487) (220,713)
Class C (68,397) (38,028)
------------ -----------
(4,400,282) (4,650,828)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 8,716,486 4,069,521
Class B 392,192 591,446
Class C 339,297 524,409
Net assets from reorganization(1):
Class A 10,617,811 --
Class B 2,665,962 --
Class C 2,237,525 --
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 1,690,235 1,422,253
Class B 49,113 86,919
Class C 34,037 24,843
------------ -----------
26,742,658 6,719,391
------------ -----------
Cost of shares repurchased:
Class A (10,965,231) (14,966,660)
Class B (2,629,629) (1,533,316)
Class C (419,581) (317,623)
------------ -----------
(14,014,441) (16,817,599)
------------ -----------
Increase (decrease) in net assets derived from capital share transactions 12,728,217 (10,098,208)
------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS 13,487,926 (8,915,690)
NET ASSETS:
Beginning of Year 93,680,889 102,596,579
------------ -----------
End of Year $107,168,815 $93,680,889
============ ===========
(Distributions in excess of net investment income) $-- $--
(1) See Note 6 in "Notes to Financial Statements."
See accompanying notes
14
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Florida Insured 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 $11.250 $11.110 $11.330 $11.230 $10.770
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.507 0.533 0.523 0.532 0.527
Net realized and unrealized gain (loss) on investments 0.080 0.140 (0.220) 0.100 0.460
------- ------- ------- -------- --------
Total from investment operations 0.587 0.673 0.303 0.632 0.987
------- ------- ------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.507) (0.533) (0.523) (0.532) (0.527)
------- ------- ------- -------- --------
Total dividends and distributions (0.507) (0.533) (0.523) (0.532) (0.527)
------- ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD $11.330 $11.250 $11.110 $11.330 $11.230
======= ======= ======= ======== ========
TOTAL RETURN(2) 5.32% 6.15% 2.68% 5.83% 9.39%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $98,326 $87,591 $95,951 $105,773 $107,365
Ratio of expenses to average net assets 0.88% 0.90% 0.90% 0.90% 0.90%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 0.98% 0.94% 0.94% 0.99% 0.97%
Ratio of net investment income to average net assets 4.48% 4.72% 4.60% 4.80% 4.81%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 4.38% 4.68% 4.56% 4.71% 4.74%
Portfolio turnover 17% 3% 26% 46% 12%
(1) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit & Accounting Guide for Investment companies
that requires amortization of all premiums and discounts on debt securities.
This change had no impact for the year ended August 31, 2002. Per share data
for periods prior to September 1, 2001 have not been restated to reflect
this change in accounting.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager.
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 Florida Insured 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 $11.260 $11.120 $11.330 $11.230 $10.770
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.422 0.448 0.437 0.445 0.443
Net realized and unrealized gain (loss) on investments 0.070 0.140 (0.210) 0.100 0.460
------- ------- ------- ------- -------
Total from investment operations 0.492 0.588 0.227 0.545 0.903
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.422) (0.448) (0.437) (0.445) (0.443)
------- ------- ------- ------- -------
Total dividends and distributions (0.422) (0.448) (0.437) (0.445) (0.443)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.330 $11.260 $11.120 $11.330 $11.230
======= ======= ======= ======= =======
TOTAL RETURN(2) 4.45% 5.36% 2.00% 5.01% 8.56%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $5,532 $5,002 $5,800 $5,223 $5,014
Ratio of expenses to average net assets 1.63% 1.65% 1.65% 1.65% 1.65%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.73% 1.69% 1.69% 1.74% 1.72%
Ratio of net investment income to average net assets 3.74% 3.97% 3.85% 4.05% 4.06%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 3.64% 3.93% 3.81% 3.96% 3.99%
Portfolio turnover 17% 3% 26% 46% 12%
(1) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit & Accounting Guide for Investment companies
that requires amortization of all premiums and discounts on debt securities.
This change had no impact for the year ended August 31, 2002. Per share data
for periods prior to September 1, 2001 have not been restated to reflect
this change in accounting.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
16
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Florida Insured 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 $11.260 $11.120 $11.330 $11.240 $10.780
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.422 0.448 0.437 0.447 0.443
Net realized and unrealized gain (loss) on investments 0.070 0.140 (0.210) 0.090 0.460
------- ------- ------- ------- -------
Total from investment operations 0.492 0.588 0.227 0.537 0.903
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.422) (0.448) (0.437) (0.447) (0.443)
------- ------- ------- ------- -------
Total dividends and distributions (0.422) (0.448) (0.437) (0.447) (0.443)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.330 $11.260 $11.120 $11.330 $11.240
======= ======= ======= ======= =======
TOTAL RETURN(2) 4.45% 5.36% 2.00% 4.93% 8.45%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $3,311 $1,088 $846 $560 $53
Ratio of expenses to average net assets 1.63% 1.65% 1.65% 1.65% 1.65%
Ratio of expenses to average net assets prior to expense
limitation and expenses paid indirectly 1.73% 1.69% 1.69% 1.74% 1.72%
Ratio of net investment income to average net assets 3.74% 3.97% 3.85% 4.05% 4.06%
Ratio of net investment income to average net assets prior
to expense limitation and expenses paid indirectly 3.64% 3.93% 3.81% 3.96% 3.99%
Portfolio turnover 17% 3% 26% 46% 12%
(1) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit & Accounting Guide for Investment companies
that requires amortization of all premiums and discounts on debt securities.
This change had no impact for the year ended August 31, 2002. Per share data
for periods prior to September 1, 2001 have not been restated to reflect
this change in accounting.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager.
Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
17
NOTES August 31, 2005
TO FINANCIAL STATEMENTS
Voyageur Mutual Funds (the "Trust") is organized as a Delaware statutory trust
and offers six series: Delaware Tax-Free Arizona Fund, Delaware Tax-Free
California Fund, Delaware Tax-Free Idaho Fund, Delaware Minnesota High-Yield
Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund, and
Delaware Tax-Free New York Fund. Voyageur Investment Trust (the "Trust") is
organized as a Delaware statutory trust and offers three series: Delaware
Tax-Free Florida Insured Fund, Delaware Tax-Free Missouri Insured Fund, and
Delaware Tax-Free Oregon Insured Fund. These financial statements and the
related notes pertain to Delaware Tax-Free Florida Insured Fund and Delaware
Tax-Free New York Fund (each a "Fund" or, collectively, the "Funds"). The Trusts
are open-end investment companies. The Funds are considered non-diversified
under the Investment Company Act of 1940, as amended. The Funds offer Class A,
Class B, and Class C shares. Class A shares are sold with a front-end sales
charge of up to 4.50%. Class B shares are sold with a contingent deferred sales
charge that declines from 4% to zero depending upon the period of time the
shares are held. Class B shares will automatically convert to Class A shares on
a quarterly basis approximately eight years after purchase. Class C shares are
sold with a contingent deferred sales charge of 1%, if redeemed during the first
twelve months.
The investment objective of Delaware Tax-Free Florida Insured Fund and Delaware
Tax-Free New York Fund is to seek a high a level of current income exempt from
federal income tax and the state personal income tax in their respective states,
as is consistent with preservation of capital.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Funds.
Security Valuation -- Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith under the direction of each Fund's Board of
Trustees. 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 the Funds on the basis of "settled shares" of each class in relation
to the net assets of the Funds. Realized and unrealized gain (loss) on
investments are allocated to the various classes of the Funds on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
Use of Estimates -- The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other -- Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date).
Costs used in calculating realized gains and losses on the sale of investment
securities are those of the specific securities sold. Interest income is
recorded on the accrual basis. Discounts and premiums are amortized to interest
income over the lives of the respective securities. Each Fund declares dividends
daily from net investment income and pays such dividends monthly and declares
and pays distributions from net realized gain on investments, if any, annually.
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 expense offset shown as "expense paid
indirectly." The amount of this expense for the year ended August 31, 2005 were
as follows:
Delaware
Tax-Free
Florida Insured
Fund
----------------
Earnings credits $3,563
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
Florida Insured
Fund
---------------
On the first $500 million 0.50%
On the next $500 million 0.475%
On the next $1.5 billion 0.45%
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 through March 31, 2006
for the Tax-Free Florida Insured Fund and through December 29, 2005 for the
Delaware Tax-Free New York Fund, as shown below.
Delaware
Tax-Free
Florida Insured
Fund
---------------
The operating expense limitation
as a percentage of average daily
net assets (per annum) 0.65%
Expiration date 10/31/04
Effective November 1, 2004,
operating expense limitation as a
percentage of average daily
net assets (per annum) 0.62%
Expiration date 3/31/06
18
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND
OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing, and transfer agent services. Effective May
19, 2005, the Funds pay DSC a monthly fee computed at the annual rate of 0.04%
of the Funds' average daily net assets for accounting and administration
services. Prior to May 19, 2005, the Funds 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.
At August 31, 2005, the Funds had receivables due from or liabilities payable to
affiliates as follows:
Delaware
Tax-Free
Florida Insured
Fund
---------------
Receivable from DMC under
expense limitation agreement $--
Investment Management
fee payable to DMC (28,655)
Dividend disbursing,
transfer agent fees,
accounting and administration
fees and other expenses
payable to DSC (10,282)
Other expenses payable
to DMC and affiliates* (47,112)
*DMC, as part of its administrative services, pays operating expenses on behalf
of each Fund and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax
services, registration fees and trustees' fees.
As provided in the investment management agreement, each Fund bears the cost of
certain legal services expenses, including internal legal services provided to
each Fund by DMC employees. For the year ended August 31, 2005, the Funds' were
charged for internal legal sevices provided by DMC as follows:
Delaware
Tax-Free
Florida Insured
Fund
---------------
$5,674
For the year ended August 31, 2005, DDLP earned commissions on sales of Class A
shares for each Fund as follows:
Delaware
Tax-Free
Florida Insured
Fund
---------------
$14,945
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
Florida Insured
Fund
---------------
Class A $--
Class B 4,959
Class C 391
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Funds.
3. Investments
For the year ended August 31, 2005, the Funds made purchases and sales of
investment securities other than short-term investments as follows:
Delaware
Tax-Free
Florida Insured
Fund
----------------
Purchases $16,782,443
Sales 17,482,051
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
Florida Insured
Fund
---------------
Cost of investments $98,895,139
===========
Aggregate unrealized appreciation $6,709,526
Aggregate unrealized depreciation --
----------
Net unrealized appreciation $6,709,526
==========
19
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from 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
Florida Insured Fund
--------------------
Year Ended
8/31/05 8/31/04
------- -------
Tax-exempt income $4,400,282 $4,650,828
As of August 31, 2005, the components of net assets on a tax basis were as
follows:
Delaware Tax-Free
Florida Insured Fund
--------------------
Shares of beneficial interest $101,149,546
Other temporary differences --
Capital loss carryforwards (690,257)
Unrealized appreciation of investments 6,709,526
------------
Net assets $107,168,815
============
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. For federal income tax
purposes, Delaware Tax-Free Florida Insured Fund and the Delaware Tax-Free New
York Fund utilized in 2005 $332,797 and $71,842, respectively, of capital loss
carryforwards from prior years in 2005. Capital loss carryforward amounts
remaining at August 31, 2005 expire as follows:
Year of Delaware Tax-Free
Expiration Florida Insured Fund
---------- --------------------
2008 $690,257
2009 --
--------
Total $690,257
========
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Delaware Tax Free
Florida Insured Fund
--------------------
Year Ended
8/31/05 8/31/04
Shares sold:
Class A 771,683 361,036
Class B 34,695 52,775
Class C 30,020 46,726
Shares issued from reorganization:
Class A 948,019 --
Class B 238,033 --
Class C 199,779 --
Shares issued upon reinvestment of
dividends and distributions:
Class A 149,719 126,274
Class B 4,348 7,699
Class C 3,014 2,205
----------- ----------
2,379,310 596,715
----------- ----------
Shares repurchased:
Class A (973,048) (1,339,780)
Class B (233,220) (137,961)
Class C (37,307) (28,419)
----------- ----------
(1,243,575) (1,506,160)
----------- ----------
Net increase (decrease) 1,135,735 (909,445)
----------- ----------
20
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES (CONTINUED)
For the years ended August 31, 2005 and 2004, the following shares were
converted from Class B to Class A shares. The respective amounts are included in
Class B redemptions and Class A subscriptions in the tables on the prior page
and the Statements of Changes in Net Assets.
Year Ended Year Ended
8/31/05 8/31/04
----------------------------------------- -----------------------------------------
Class B Shares Class A Shares Value Class B Shares Class A Shares Value
-------------- -------------- -------- -------------- -------------- ---------
Delaware Tax-Free Florida Insured Fund 62,454 62,490 $703,111 20,016 20,022 $225,865
6. FUND REORGANIZATION
Effective April 11, 2005, Delaware Tax-Free Florida Insured Fund (the "Fund")
acquired all of the assets and assumed all of the liabilities of Delaware
Tax-Free Florida Fund, an open-end investment company, pursuant to a Plan and
Agreement of Reorganization (the "Reorganization"). The shareholders of Delaware
Tax-Free Florida Fund received shares of the respective class of the Fund equal
to the aggregate net asset value of their shares prior to the Reorganization
based on the net asset value per share of the respective classes of the Fund.
The Reorganization was treated as a non-taxable event and, accordingly, the
Fund's basis in the securities acquired reflected the historical cost basis as
of the date of transfer. The net assets, net unrealized appreciation and
accumulated net realized loss of Delaware Tax-Free Florida Fund as of the close
of business on April 8, 2005 were as follows:
Accumulated
Net Unrealized Net Realized
Net Assets Appreciation Losses
----------- ------------ -------------
Delaware Tax-Free Florida Fund $15,521,298 $648,070 $(515,360)*
*Includes prior capital loss carry forwards.
The net assets of the Fund prior to the Reorganization were $92,098,392. The
combined net assets of the Fund after the reorganization were $107,619,690.
7. LINE OF CREDIT
The Funds, along with certain other funds in the Delaware Investments Family of
Funds (the "Participants"), participate 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 funds' allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Funds had no amounts outstanding as of August 31, 2005, or at any time during
the year.
8. CREDIT AND MARKET RISKS
The Funds concentrate their investments in securities issued by each
corresponding state's municipalities. The value of these investments may be
adversely affected by new legislation within the states, regional or local
economic conditions, and differing levels of supply and demand for municipal
bonds. Many municipalities insure repayment for their obligations. Although bond
insurance reduces the risk of loss due to default by an issuer, such bonds
remain subject to the risk that market value may fluctuate for other reasons and
there is no assurance that the insurance company will meet its obligations.
These securities have been identified in the Statements of Net Assets.
The Funds may invest in inverse floating rate securities ("inverse floaters"), a
type of derivative tax-exempt obligation with floating or variable interest
rates that move in the opposite direction of short-term interest rates, usually
at an accelerated speed. Consequently, the market values of inverse floaters
will generally be more volatile than other tax-exempt investments. Such
securities are denoted on the Statements of Net Assets.
The Funds 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 that time,
including any required premium. Bonds become "defeased" when the rights and
interests of the bondholders and 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 Delaware Tax-Free
Florida 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 up to 15% 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 the 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 Funds' 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 Fund's limitation on investments in illiquid assets.
28
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
9. CONTRACTUAL OBLIGATIONS
The Funds enter into contracts in the normal course of business that contain a
variety of indemnifications. The Funds' maximum exposure under these
arrangements is unknown. However, the Funds have not had prior claims or losses
pursuant to these contracts. Management has reviewed the Funds' existing
contracts and expects the risk of loss to be remote.
10. 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:
Delaware Tax-Free
Florida Insured Fund
--------------------
(A) Long Term Capital Gains Distributions (Tax Basis) --
(B) Ordinary Income Distributions (Tax Basis) --
(C) Tax-Exempt Distributions (Tax Basis) 100%
-------- ----
Total Distributions (Tax Basis) 100%
-------- ---
(A), (B) and (C) are based on a percentage of each Fund's total distributions.
29
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Voyageur Investment Trust - Delaware Tax-Free Florida
Insured Fund
Voyageur Mutual Funds - Delaware Tax-Free New York Fund
We have audited the accompanying statements of net assets of Delaware Tax-Free
Florida Insured Fund (one of the series constituting Voyageur Investment Trust)
and Delaware Tax-Free New York 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' internal 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 Florida Insured Fund of Voyageur Investment Trust and the
Delaware Tax-Free New York 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
30
OTHER
FUND INFORMATION
PROXY RESULTS
The shareholders of Voyageur Mutual Funds and Voyageur Investment Trust (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 each of the Trusts.
Voyageur Mutual Funds Voyageur Investment Trust
-------------------------------------- -------------------------------------
Shares Voted Shares Voted
Shares Voted For Withheld Authority Shares Voted For Withheld Authority
---------------- ------------------ ---------------- ------------------
Thomas L. Bennett 20,895,278.656 360,093.724 14,252,335.197 431,663.104
Jude T. Driscoll 20,914,639.656 340,732.724 14,251,143.991 432,854.310
John A. Fry 20,894,793.656 360,578.724 14,258,738.991 425,259.310
Anthony D. Knerr 20,894,488.656 360,883.724 14,258,994.991 425,003.310
Lucinda S. Landreth 20,879,031.656 376,340.724 14,254,091.179 429,907.104
Ann R. Leven 20,857,874.656 397,497.724 14,252,611.991 431,386.310
Thomas F. Madison 20,905,985,656 349,386.724 14,259,138.991 424,859.310
Janet L. Yeomans 20,859,670.656 395,701.724 14,251,014.197 432,984.104
J. Richard Zecher 20,914,639.656 340,732.724 14,248,580.991 432,417.310
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 subadvisers without shareholder approval.
For Against Abstain
--- ------- -------
Delaware Tax-Free Florida Insured Fund 3,582,081.061 375,237.993 199,180.980
3. To approve the Plan of Reorganization for Voyageur Investment Trust to merge
Delaware Tax-Free Florida Fund into Delaware Tax-Free Florida Insured Fund.
For Against Abstain
--- ------- -------
Delaware Tax-Free Florida Fund 771,340.129 13,994.000 84,609.180
4. To approve the restructuring of Voyageur Investment Trust from a
Massachusetts business trust to a Delaware statutory trust.
For Against Abstain
--- ------- -------
Delaware Tax-Free Florida Insured Fund 3,851,059.434 150,530.005 154,910.595
31
OTHER
FUND INFORMATION (CONTINUED)
BOARD CONSIDERATION OF DELAWARE NAME OF FUND INVESTMENT ADVISORY AGREEMENT
At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of
Trustees, including a majority of disinterested or independent Trustees,
approved the renewal of the Investment Advisory Agreements for the Delaware
Tax-Free Florida Insured Fund and Delaware Tax-Free New York 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 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 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 Tax-Free Florida Insured Fund -- The Performance Universe for this Fund
consisted of the Fund and all retail and institutional Florida insured municipal
debt funds as selected by Lipper. The Lipper report comparison showed that the
Fund's total return for the one and three year periods was in the first quartile
of such Performance Universe. The report further showed that the Fund's total
return for the five and 10 year periods was in the second quartile. The Board
was satisfied with such performance.
32
OTHER
FUND INFORMATION (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 FLORIDA INSURED 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 highest expenses of its Expense Group. The Board gave favorable
consideration to the Fund's management fee, but noted that the Fund's total
expenses were not in line with the Board's objective. In evaluating the total
expenses, the Board considered waivers in place through March 2006. The Board
was satisfied with management's efforts to improve the Fund's total expense
ratio and bring it in line with the Board's objective.
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.
33
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
PORTFOLIOS IN FUND DIRECTORSHIPS
COMPLEX OVERSEEN HELD BY
NAME, ADDRESS AND POSITION(S) HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S) BY TRUSTEE TRUSTEE
BIRTHDATE WITH FUND(S) SERVED DURING PAST 5 YEARS OR OFFICER OR OFFICER
- ---------------------- ------------------- -------------------- --------------------------- ------------------- --------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Executive Since August 2000, Mr. 92 None
2005 Market Street President, Chief Officer Driscoll has served in
Philadelphia, PA Executive Officer various executive
19103 and Trustee 1 Year - Trustee capacities at different
times at Delaware
March 10, 1963 Investments(1)
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 - Franklin & 92 Director - Community
2005 Market Street Marshall College Health Systems
Philadelphia, PA (June 2002 - Present)
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 &
Philadelphia, PA Associates (Strategic
19103 Consulting)
(1990 - Present)
December 7, 1938
- ------------------------------------------------------------------------------------------------------------------------------------
LICINDA 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 92 Director and Audit
2005 Market Street Officer - National Committee
Philadelphia, PA Gallery of Art Chairperson -
19103 (1994 - 1999) Andy Warhol
Foundation
November 1, 1940
Director and Audit
Committee Member -
Systemax Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
34
NUMBER OF OTHER
PORTFOLIOS IN FUND DIRECTORSHIPS
COMPLEX OVERSEEN HELD BY
NAME, ADDRESS AND POSITION(S) HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S) BY TRUSTEE TRUSTEE
BIRTHDATE WITH FUND(S) SERVED DURING PAST 5 YEARS OR OFFICER OR OFFICER
- ---------------------- ------------------- -------------------- --------------------------- ------------------- --------------------
INDEPENDENT TRUSTEES (continued)
THOMAS F. MADISON Trustee 11 Years President/Chief Executive 92 Director -
2005 Market Street Officer - MLM Partners, Banner Health
Philadelphia, PA Inc. (Small Business
19103 Investing and Consulting) Director
and Audit
Committee Member -
(January 1993 - Present) CenterPoint Energy
February 25, 1936
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 -
Philadelphia, PA 3M Corporation
19103 (January 2003 - Present)
July 31, 1948 Ms. Yeomans has 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 Vice Chief Financial Mr. Bishof has served in 92 None(3)
2005 Market Street President and Officer since various executive capacities
Philadelphia, PA Chief Financial February 17, 2005 at different times at
19103 Officer Delaware Investments.
August 18, 1962
- ------------------------------------------------------------------------------------------------------------------------------------
RICHELLE S. MAESTRO Executive Vice 2 Years Ms. Maestro has served in 92 None(3)
2005 Market Street President, Chief various executive capacities
Philadelphia, PA Legal Officer and at different times at
19103 Secretary Delaware Investments.
November 26, 1957
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN J. O'CONNOR Senior Vice Treasurer since Mr. O'Connor has served in 92 None(3)
2005 Market Street President and February 17, 2005 various executive capacities
Philadelphia, PA Treasurer 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.
35
Delaware
Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
This annual report is for the information of Delaware Tax-Free Florida Insured
Fund and Delaware Tax-Free New York Fund shareholders, but it may be used with
prospective investors when preceded or accompanied by a current prospectus for
Delaware Tax-Free Florida Insured Fund and Delaware Tax-Free New York 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.
(9751) Printed in the USA
AR-FLNY [8/05] IVES 10/05 MF-05-09-024 PO10438
- --------------------------------------------------------------------------------
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Financial Group
FIXED INCOME
ANNUAL REPORT AUGUST 31, 2005
- --------------------------------------------------------------------------------
DELAWARE TAX-FREE MISSOURI INSURED FUND
DELAWARE TAX-FREE OREGON INSURED FUND
[LOGO] POWERED BY RESEARCH(R)
TABLE
OF CONTENTS
- -----------------------------------------------------------------
PORTFOLIO MANAGEMENT REVIEW 1
- -----------------------------------------------------------------
PERFORMANCE SUMMARIES
Delaware Tax-Free Missouri Insured Fund 4
Delaware Tax-Free Oregon Insured Fund 6
- -----------------------------------------------------------------
DISCLOSURE OF FUND EXPENSES 8
- -----------------------------------------------------------------
SECTOR ALLOCATIONS 9
- -----------------------------------------------------------------
FINANCIAL STATEMENTS:
Statements of Net Assets 11
Statements of Operations 16
Statements of Changes in Net Assets 17
Financial Highlights 18
Notes to Financial Statements 24
- -----------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 29
- -----------------------------------------------------------------
OTHER FUND INFORMATION 30
- -----------------------------------------------------------------
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 33
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 September 13, 2005
MANAGEMENT REVIEW
FUND MANAGERS
Patrick P. Coyne
Executive Vice President, Managing Director, Head of Equity Investments
Robert F. Collins
Co-Manager
Joseph R. Baxter
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, many market participants
appeared 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 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 percentage point 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." In the Treasury market, the difference between the 2-
and 30-year yields narrowed dramatically, from about two-and-a-half percentage
points to less than half of a percent at the end of the fiscal year. Some market
strategists have started discussing the prospects for, and implications of, an
inverted 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 percent, ending the year with a 1.4% differential. 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.
WHAT WAS THE INVESTMENT ENVIRONMENT LIKE DURING THE LAST 12 MONTHS IN IDAHO,
MISSOURI, AND OREGON?
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.
Idaho's economy has expanded and diversified in recent years, benefiting from
population growth and low business costs. Although the state economy is diverse,
there is an above-average dependence on the natural resources sector. Since
1990, state employment growth has been above U.S. levels. The state has dealt
with revenue declines and growing expenditure needs through spending controls
and fund transfers. Total revenues grew approximately 10% in the first eight
months of fiscal 2005 due to strong increases in personal income and sales tax
(Source: Municipal Market Data). While revenue growth is projected in the next
few fiscal years, projected increases in expenditure needs -- especially in the
areas of education and health and human services -- are expected to result in a
budget gap.
Missouri's greatest economic strength is its diversity, which is partly based on
the state's location at the geographic center of the nation (Source: Municipal
Market Data). This gives it an economic advantage in trade and manufacturing.
For the first nine months of fiscal 2005, total state revenues were up
moderately. The state expects the general fund balance to be drawn down in
fiscal 2005 due to the limitation of taxes imposed by the general assembly.
1
After suffering through three years of job loses, Oregon's economy has provided
solid growth for the last two years. Employment, which grew at 2.5% in 2004, has
continued to grow in 2005, with gains accelerating to over 3% for the 12 months
ended July 2005. State revenues are up moderately for the first nine months of
fiscal 2005 (Source: Municipal Market Data). Oregon's most recent revenue
forecast provides for more General Fund resources for the 2005-2007 biennium
than originally anticipated. Higher-than-expected personal income taxes, which
represent nearly 90% of revenues in the state general fund, account for most of
the upward forecast revision. Oregon has not yet adopted a two-year budget for
2005-2007. In the interim, the state is operating under a continuing
appropriation resolution. Until a new budget is adopted, spending levels are
maintained at the level of the last quarter of the most recent fiscal year. We
believe Oregon should continue to implement tight financial controls to
compensate for low budget reserves and further uncertainty associated with voter
initiative activity.
Overall, municipal bond issuance has remained robust in 2005, and these three
states are no exception. Total national issuance in 2005 may even surpass the
record of $384 billion sold in 2003 if this pace remains. The drivers of this
record volume continue to be the low interest rate environment and the
flattening yield curve, both of which stimulate refunding activity. Idaho and
Missouri, in particular, have experienced significantly higher issuance levels,
up 150% and 39% in volume year-to-date, respectively. In Oregon, the new issue
volume has increased by 4.7% over last year's pace, below the 13% growth rate
for the municipal market in total (source: Municipal Market Data).
HOW DID DELAWARE TAX-FREE MISSOURI INSURED FUND PERFORM DURING THE FISCAL YEAR?
For the fiscal year ended August 31, 2005, Delaware Tax-Free Missouri Insured
Fund returned 5.27% (Class A shares at net asset value with distributions
reinvested) and 0.57% (at maximum offer price with distributions reinvested).*
Class A shares (at net asset value with distributions reinvested) outperformed
the Lipper Missouri Municipal Debt Funds Universe Average, which returned 4.92%,
and was in line with the Lehman Brothers Municipal Bond Index, which returned
5.31% for the 12-month period, both of which excluded sales charges (source:
Lipper, Inc.).
HOW DID DELAWARE TAX-FREE OREGON INSURED FUND PERFORM DURING THE FISCAL YEAR?
For the fiscal year ended August 31, 2005, Delaware Tax-Free Oregon Insured Fund
returned 5.09% (Class A shares at net asset value with distributions reinvested)
and 0.33% (at maximum offer price with distributions reinvested).* Class A
shares (at net asset value with distributions reinvested) outperformed the
Lipper Oregon Municipal Debt Funds Universe Average, which returned 4.22%, and
slightly underperformed the Lehman Brothers Municipal Bond Index, which returned
5.31% for the 12-month period, both of which excluded sales charges (source:
Lipper, Inc.).
FOR EACH FUND, WHAT STRATEGIES INFLUENCED 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 as set forth in its prospectus. The fourth factor, security
selection, is the heart of our investment process and is the primary source of
our excess returns. This selection process has contributed across all funds.
While the Federal Reserve raised short-term rates by increasing the fed-funds
target rate, 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 that participate in the rally and shorter duration
securities with high coupons trading to short calls that are less price
sensitive. This is known as a "barbell" 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.
Bonds rated A and BBB, and non-investment grade securities have all outperformed
high-grade and insured bonds in the municipal market over the past year. The
Funds have benefited from an allotment to these higher-risk credits.
*For complete annualized performance, see tables on pages 4, 6, and 8.
2
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 and the managed care industry. The
demographics provided by the baby boom generation have provided favorable
enrollment environment for colleges and universities, while a recovering stock
market has bolstered endowments. Despite a structural deficit, various bonds
issued by the Commonwealth of Puerto Rico have also performed well during the
period.
The Delaware Tax-Free Idaho Fund has the broadest mandate of these three
funds and has therefore been able to participate in all four sources of return.
The Fund is structured with long maturities that have benefited from the
flattening of the yield curve, it has a meaningful allotment in mid-to-lower
investment grade securities and this has allowed it to participate in some of
the better-performing sectors.
CAN YOU NAME SOME KEY HOLDINGS IN DELAWARE TAX-FREE MISSOURI INSURED FUND?
Positions included St. Francis Medical Center in Cape Girardeau and corporate
backed bonds such as Sugar Creek IDB's for Lafarge North America. AAA-insured
contributors included zero coupon bonds for the St. Louis Convention Center,
bonds for the University of Health Sciences and escrowed single-family housing
bonds in Greene County. Territorial bonds for Puerto Rico and the Virgin Islands
also provided significant returns during the year.
The Delaware Tax-Free Missouri 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 help
offset these longer positions. The Fund's insured mandate limits it from
participating fully in the credit spread tightening of lower-rated bonds and
some of the associated sectors. 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.
WHAT WERE KEY HOLDINGS IN DELAWARE TAX-FREE OREGON INSURED FUND?
Positions included Providence Health Systems in Multnomah County, Cascade Health
Systems in Deschutes County, and student housing bonds for Portland State
University. Other key holdings included securities for Willamette University,
Oregon Health Sciences University, and Lebanon school district in Linn County
that was pre-refunded and escrowed to maturity. The Oregon Health Sciences bonds
are zero coupon bonds that benefited from the decline in long interest rates.
Also contributing to performance were territorial bonds for the Puerto Rico
Power Authority.
The Delaware Tax-Free Oregon Insured Fund was also well positioned for curve
flattening with significant exposure to long maturities and an offsetting
position in legacy bonds with short due dates. The Fund's insured mandate limits
it from participating fully in the credit spread tightening of lower-rated bonds
and some of the associated sectors. 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.
FOR EACH FUND, WHAT DETRACTED FROM PERFORMANCE?
Detracting from each of our Funds' performance, relative to the benchmark index,
was the significant decision to avoid the unenhanced tobacco sector. This
sector, in which we did not participate, 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 these bonds. However, the sector is subject to litigation
risk and therefore, volatile. We are comfortable foregoing this potential
volatility in the Funds.
Airline securities significantly outperformed the municipal market this year
during the second and third quarters, which are a traditional busy season.
Although the Funds held several airport revenue bonds, we have been
underweighted in this sector and have generally avoided securities backed by
airline corporation revenues, as we are concerned about the long-term
fundamentals of the industry.
The decision to hold high coupon, short-call legacy 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. This decision to hold these
underperforming securities also detracted from relative performance.
3
PERFORMANCE SUMMARY
DELAWARE TAX-FREE MISSOURI INSURED FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges and expenses of the investment carefully before
investing. The Delaware Tax-Free Missouri Insured 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
- --------------------------------------------------------------------------------
Class A (Est. 11/2/92)
Excluding Sales Charge +5.63% +5.44% +5.45% +5.27%
Including Sales Charge +5.25% +4.96% +4.48% +0.57%
- --------------------------------------------------------------------------------
Class B (Est. 3/12/94)
Excluding Sales Charge +4.79% +4.84% +4.65% +4.50%
Including Sales Charge +4.79% +4.84% +4.40% +0.50%
- --------------------------------------------------------------------------------
Class C (Est. 11/11/95)
Excluding Sales Charge +4.35% +4.66% +4.48%
Including Sales Charge +4.35% +4.66% +3.48%
- --------------------------------------------------------------------------------
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 that 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 4.50% and have an annual distribution and
service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%. Lifetime and 10-year performance figures for
Class B shares reflect conversion to Class A shares after eight years.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware Tax-Free
Missouri Insured Fund during the periods shown. Performance would have been
lower had the expense limitation not been in effect.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
4
FUND BASICS
As of August 31, 2005
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
The Fund seeks as high a level of current income exempt from federal income tax
and Missouri state personal income tax, as is consistent with preservation of
capital.
- --------------------------------------------------------------------------------
TOTAL FUND NET ASSETS:
$51 million
- --------------------------------------------------------------------------------
NUMBER OF HOLDINGS:
56
- --------------------------------------------------------------------------------
FUND START DATE:
November 2, 1992
- --------------------------------------------------------------------------------
YOUR FUND MANAGERS:
Joseph R. Baxter
Robert F. Collins
Patrick P. Coyne
- --------------------------------------------------------------------------------
NASDAQ SYMBOLS:
Class A VMOIX
Class B DVTBX
Class C DVTCX
- --------------------------------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1995 through August 31, 2005
DELAWARE TAX-FREE
MISSOURI INSURED LEHMAN BROTHERS
FUND MUNICIPAL BOND INDEX
AUG-95 $ 9,550 $10,000
AUG-96 $10,089 $10,524
AUG-97 $11,006 $11,496
AUG-98 $11,899 $12,491
AUG-99 $11,854 $12,553
AUG-00 $12,446 $13,403
AUG-01 $13,552 $14,769
AUG-02 $14,281 $15,691
AUG-03 $14,672 $16,183
AUG-04 $15,410 $17,334
AUG-05 $16,223 $18,254
Chart assumes $10,000 invested on August 31, 1995 and includes the effect of a
4.50% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that
generally tracks the performance of municipal bonds. An index is unmanaged and
does not reflect the costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities. You cannot invest directly in an index.
An expense limitation was in effect for all classes of the Delaware Tax-Free
Missouri Insured Fund during the period shown. Performance would have been lower
had the expense limitation not been in effect. The performance graph does not
reflect the deduction of taxes the shareholder would pay on fund distributions
or redemption of Fund shares. Past performance is not a guarantee of future
results.
5
PERFORMANCE SUMMARY
DELAWARE TAX-FREE OREGON INSURED FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges and expenses of the investment carefully before
investing. The Delaware Tax-Free Oregon Insured 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
- --------------------------------------------------------------------------------
Class A (Est. 8/1/93)
Excluding Sales Charge +5.33% +5.70% +5.95% +5.09%
Including Sales Charge +4.93% +5.22% +4.98% +0.33%
- --------------------------------------------------------------------------------
Class B (Est. 3/12/94)
Excluding Sales Charge +4.99% +5.10% +5.18% +4.31%
- --------------------------------------------------------------------------------
Including Sales Charge +4.99% +5.10% +4.94% +0.31%
Class C (Est. 7/7/95)
Excluding Sales Charge +4.90% +4.91% +5.19% +4.30%
Including Sales Charge +4.90% +4.91% +5.19% +3.30%
- --------------------------------------------------------------------------------
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 that 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 4.50% and have an annual distribution and
service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%. Lifetime and 10-year performance figures for
Class B shares reflect conversion to Class A shares after eight years.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware Tax-Free Oregon
Insured Fund during the periods shown. Performance would have been lower had the
expense limitation not been in effect.
The performance table does not reflect the deduction of taxes the shareholder
would pay on Fund distributions or redemptions of Fund shares.
A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
6
FUND BASICS
As of August 31, 2005
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
The Fund seeks as high a level of current income exempt from federal income tax
and Oregon state personal income tax, as is consistent with preservation of
capital.
- --------------------------------------------------------------------------------
TOTAL FUND NET ASSETS:
$48 million
- --------------------------------------------------------------------------------
NUMBER OF HOLDINGS:
50
- --------------------------------------------------------------------------------
FUND START DATE:
August 1, 1993
- --------------------------------------------------------------------------------
YOUR FUND MANAGERS:
Joseph R. Baxter
Robert F. Collins
Patrick P. Coyne
- --------------------------------------------------------------------------------
NASDAQ SYMBOLS:
Class A VORIX
Class B DVYBX
Class C DVYCX
- --------------------------------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1995 through August 31, 2005
DELAWARE TAX-FREE LEHMAN BROTHERS
OREGON INSURED FUND MUNICIPAL BOND INDEX
AUG-95 $ 9,550 $10,000
AUG-96 $10,049 $10,524
AUG-97 $10,976 $11,496
AUG-98 $11,939 $12,491
AUG-99 $11,739 $12,553
AUG-00 $12,448 $13,403
AUG-01 $13,742 $14,769
AUG-02 $14,486 $15,691
AUG-03 $14,914 $16,183
AUG-04 $15,810 $17,334
AUG-05 $16,615 $18,254
Chart assumes $10,000 invested on August 31, 1995 and includes the effect of a
4.50% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that
generally tracks the performance of municipal bonds. An index is unmanaged and
does not reflect the costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities. You cannot invest directly in an index.
An expense limitation was in effect for all classes of the Delaware Tax-Free
Oregon Insured Fund during the period shown. Performance would have been lower
had the expense limitation not been in effect. The performance graph does not
reflect the deduction of taxes the shareholder would pay on fund distributions
or redemption of Fund shares. 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 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 the tables 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 the table reflect fee waivers in
effect. The expenses shown in the tables 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).
DELAWARE TAX-FREE MISSOURI INSURED 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
- ---------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,030.30 0.90% $4.61
Class B 1,000.00 1,025.50 1.65% 8.42
Class C 1,000.00 1,026.40 1.65% 8.43
- ---------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.67 0.90% $4.58
Class B 1,000.00 1,016.89 1.65% 8.39
Class C 1,000.00 1,016.89 1.65% 8.39
- ---------------------------------------------------------------------------------------------------------------
DELAWARE TAX-FREE OREGON INSURED 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
- ---------------------------------------------------------------------------------------------------------------
ACTUAL FUND RETURN
Class A $1,000.00 $1,026.50 0.89% $4.55
Class B 1,000.00 1,022.60 1.64% 8.36
Class C 1,000.00 1,022.60 1.64% 8.36
- ---------------------------------------------------------------------------------------------------------------
HYPOTHETICAL 5% RETURN (5% return before expenses)
Class A $1,000.00 $1,020.72 0.89% $4.53
Class B 1,000.00 1,016.94 1.64% 8.34
Class C 1,000.00 1,016.94 1.64% 8.34
- ---------------------------------------------------------------------------------------------------------------
8
SECTOR ALLOCATION As of August 31, 2005
DELAWARE TAX-FREE MISSOURI INSURED FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------------------------------
MUNICIPAL BONDS 96.72%
- ------------------------------------------------------------------------
Airport Revenue Bonds 3.53%
City General Obligation Bonds 2.24%
Corporate-Backed Revenue Bonds 2.06%
Dedicated Tax & Fees Revenue Bonds 4.18%
Escrowed to Maturity Bonds 3.35%
Higher Education Revenue Bonds 2.06%
Hospital Revenue Bonds 12.01%
Investor-Owned Utilities Revenue Bonds 4.40%
Miscellaneous Revenue Bonds 2.12%
Multifamily Housing Revenue Bonds 6.07%
Municipal Lease Revenue Bonds 14.32%
Political Subdivision General Obligation Bonds 2.11%
Pre-Refunded Bonds 11.81%
Public Power Revenue Bonds 2.31%
School District General Obligation Bonds 7.24%
Single Family Housing Revenue Bonds 1.80%
Territorial General Obligation Bonds 1.07%
Territorial Revenue Bonds 10.19%
Water & Sewer Revenue Bonds 3.85%
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 2.11%
- ------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 98.83%
- ------------------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.17%
- ------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- ------------------------------------------------------------------------
9
SECTOR ALLOCATION As of August 31, 2005
DELAWARE TAX-FREE OREGON INSURED FUND
Sector designations may be different than the sector designations presented in
other Fund materials.
PERCENTAGE
SECTOR OF NET ASSETS
- ------------------------------------------------------------------------
MUNICIPAL BONDS 93.36%
- ------------------------------------------------------------------------
Airport Revenue Bonds 3.27%
Escrowed to Maturity Bonds 2.33%
Higher Education Revenue Bonds 14.89%
Hospital Revenue Bonds 3.96%
Investor-Owned Utilities Revenue Bonds 1.32%
Miscellaneous Revenue Bonds 3.01%
Multifamily Housing Revenue Bonds 2.32%
Municipal Lease Revenue Bonds 3.43%
Political Subdivision General Obligation Bonds 5.01%
Pre-Refunded Bonds 23.81%
Public Utility District Revenue Bonds 1.73%
School District General Obligation Bonds 11.05%
Single Family Housing Revenue Bonds 2.96%
Tax Increment/Special Assessment Bonds 2.65%
Territorial Revenue Bonds 10.89%
Water & Sewer Revenue Bonds 0.73%
- ------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 5.67%
- ------------------------------------------------------------------------
Money Market Instruments 3.46%
Variable Rate Demand Notes 2.21%
- ------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 99.03%
- ------------------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.97%
- ------------------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- ------------------------------------------------------------------------
10
STATEMENTS DELAWARE TAX-FREE MISSOURI INSURED FUND
OF NET ASSETS August 31, 2005
Principal Market
Amount Value
MUNICIPAL BONDS - 96.72%
Airport Revenue Bonds - 3.53%
St. Louis Airport (Capital Improvement
Project) Series A 5.375% 7/1/21 (MBIA) $1,635,000 $1,790,668
----------
1,790,668
----------
City General Obligation Bonds - 2.24%
Des Peres Refunding
5.375% 2/1/20 (AMBAC) 1,000,000 1,135,880
----------
1,135,880
----------
Corporate-Backed Revenue Bonds - 2.06%
Missouri State Development Finance
Board Infrastructure Facilities
(Triumph Foods Project)
Series A 5.25% 3/1/25 500,000 518,790
Sugar Creek Industrial Development
Revenue (Lafarge North America Project)
Series A 5.65% 6/1/37 (AMT) 500,000 524,025
----------
1,042,815
----------
Dedicated Tax & Fees Revenue Bonds - 4.18%
Bi-State Development Agency Illinois
Metropolitan District
(Metrolink Cross County Project)
Series B 5.00% 10/1/32 (FSA) 1,000,000 1,058,180
Jackson County Special Obligation
5.00% 12/1/27 (MBIA) 1,000,000 1,057,500
----------
2,115,680
----------
Escrowed to Maturity Bonds - 3.35%
Cape Girardeau County Industrial
Development Authority Health Care
Facilities Revenue (Southeast Missouri
Hospital) 5.25% 6/1/16 (MBIA) 440,000 490,701
^Greene County Single Family Mortgage
Revenue Municipal Multiplier
6.10% 3/1/16 1,225,000 802,425
Liberty Sewer System Revenue
6.00% 2/1/08 (MBIA) 380,000 406,630
----------
1,699,756
----------
Higher Education Revenue Bonds - 2.06%
Missouri State Health & Educational
Facilities Authority Educational
Facilities Revenue (University of
Health Sciences) 5.00% 6/1/31 (MBIA) 1,000,000 1,041,210
----------
1,041,210
----------
Hospital Revenue Bonds - 12.01%
Cape Girardeau County Industrial
Development Authority Health Care
Facilities Revenue Unrefunded Balance
(Southeast Missouri Hospital)
5.25% 6/1/16 (MBIA) 560,000 618,733
(St. Francis Medical Center)
Series A 5.50% 6/1/32 1,000,000 1,062,390
Hannibal Industrial Development Authority
Health Facilities Revenue Refunding
(Hannibal Regional Hospital) Series A
5.625% 3/1/12 (FSA) 1,000,000 1,032,290
5.75% 3/1/22 (FSA) 1,000,000 1,032,540
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds (continued)
Joplin Industrial Development Authority
Health Facilities Revenue
(Freeman Health System Project)
5.375% 2/15/35 $ 255,000 $ 266,518
5.75% 2/15/35 405,000 440,790
Missouri State Health & Educational
Facilities Authority Health Facilities
Revenue Refunding
(Lake Regional Health System Project)
5.70% 2/15/34 500,000 535,840
(SSM Health Care)
Series AA 6.40% 6/1/10 (MBIA) 500,000 567,835
North Kansas City Missouri Hospital
Revenue Series A 5.00% 11/15/28 (FSA) 500,000 531,235
----------
6,088,171
----------
Investor Owned Utilities Revenue Bonds - 4.40%
Missouri State Environmental Improvement
& Energy Resource Authority Pollution
Control Revenue Refunding (St. Joseph
Light & Power Company Project)
5.85% 2/1/13 (AMBAC) 2,200,000 2,227,346
----------
2,227,346
----------
Miscellaneous Revenue Bonds - 2.12%
Missouri State Environmental Improvement
& Energy Resource Authority Water
Pollution Control Revenue Unrefunded
Balance (State Revolving Fund Project)
Series A 6.05% 7/1/16 (FSA) 1,060,000 1,073,324
----------
1,073,324
----------
Multifamily Housing Revenue Bonds - 6.07%
Missouri State Housing Development
Commission Multifamily Housing
Hyder Series 3 5.60% 7/1/34 (FHA) (AMT) 1,435,000 1,512,662
San Remo Series 5 5.45% 1/1/36
(FHA) (AMT) 500,000 522,665
St. Louis County Industrial Development
Authority Housing Development Revenue
Refunding Sub (Southfield & Oak Forest
Apartment-A) 5.20% 1/20/36 (GNMA) 1,000,000 1,038,060
----------
3,073,387
----------
Municipal Lease Revenue Bonds - 14.32%
Chesterfield Certificates of Participation
5.00% 12/1/24 (FGIC) 1,000,000 1,085,540
Missouri State Development Finance Board
Infrastructure Facilities Revenue
(Branson Landing Project) Series A
5.25% 12/1/19 435,000 461,909
5.50% 12/1/24 500,000 534,680
Missouri State Development Finance Board
Infrastructure Facilities Revenue
(Crackerneck Creek Project)
Series C 5.00% 3/1/26 500,000 514,295
(Hartman Heritage Center Phase II)
5.00% 4/1/21 (AMBAC) 335,000 359,623
11
STATEMENTS DELAWARE TAX-FREE MISSOURI INSURED FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Municipal Lease Revenue Bonds (continued)
St. Charles County Public Water Supply
District #2 Certificate of Participation
(Missouri Project)
Series A 5.25% 12/1/28 (MBIA) $1,000,000 $1,083,980
Series B 5.10% 12/1/25 (MBIA) 500,000 527,510
St. Louis College District Leasehold
Revenue 5.00% 3/1/23 (AMBAC) 1,000,000 1,077,980
^St. Louis Industrial Development Authority
Leasehold Revenue (Convention Center
Hotel) 5.80% 7/15/20 (AMBAC) 3,035,000 1,609,673
----------
7,255,190
----------
Political Subdivision General Obligation Bonds - 2.11%
Taney County Reorganization School
District R-V Hollister School District
5.00% 3/1/22 (FSA) 1,000,000 1,071,270
----------
1,071,270
----------
!Pre-Refunded Bonds - 11.81%
Kansas City Land Clearance Redevelopment
Authority Lease Revenue (Muehlebach
Hotel) Series A 5.90% 12/1/18-05 (FSA) 1,000,000 1,027,680
Liberty Sewer System Revenue
6.15% 2/1/15-09 (MBIA) 1,500,000 1,650,150
Missouri State Health & Educational
Facilities Authority Educational
Facilities Revenue (Central Missouri
State University Project)
5.75% 10/1/25-05 (AMBAC) 1,000,000 1,002,490
St. Charles School District
6.50% 2/1/14-06 (FGIC) 1,250,000 1,269,525
St. Louis Municipal Finance Corporation
Leasehold Revenue Improvement
(City Justice Center) Series A
5.95% 2/15/16-06 (AMBAC) 1,000,000 1,034,020
----------
5,983,865
----------
Public Power Revenue Bonds - 2.31%
Sikeston Electric Revenue Refunding
6.00% 6/1/13 (MBIA) 1,000,000 1,171,310
----------
1,171,310
----------
School District General Obligation Bonds - 7.24%
Camdenton Reorganized School
District R-III Camden County Refunding &
Improvement 5.25% 3/1/24 (FSA) 1,000,000 1,110,930
Greene County Reorganization School
District R8 (Direct Deposit Project)
5.10% 3/1/22 (FSA) 1,500,000 1,618,365
^St. Charles County Francis Howell
School District (Capital Appreciation
Direct Deposit Project) Series A
5.15% 3/1/17 (FGIC) 1,500,000 938,460
----------
3,667,755
----------
Single Family Housing Revenue Bonds - 1.80%
Missouri State Housing Development
Commission Mortgage Revenue Series C
7.45% 9/1/27 (GNMA) (FNMA) (AMT) 185,000 185,235
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Single Family Housing Revenue Bonds (continued)
Missouri State Housing Development
Commission Mortgage Revenue
Single Family Homeowner
Loan A 7.20% 9/1/26
(GNMA) (FNMA) (AMT) $ 140,000 $ 140,878
Loan B 7.55% 9/1/27
(GNMA) (FNMA) (AMT) 70,000 70,083
Loan C 7.25% 9/1/26
(GNMA) (FNMA) (AMT) 160,000 162,659
Missouri State Housing Development
Commission Mortgage Revenue
Single Family Mortgage Series A
5.20% 9/1/33 (GNMA) (FNMA) (AMT) 345,000 354,919
-----------
913,774
-----------
Territorial General Obligation Bonds - 1.07%
Puerto Rico Commonwealth Improvement
Series A 5.25% 7/1/23 500,000 544,155
-----------
544,155
-----------
Territorial Revenue Bonds - 10.19%
Puerto Rico Commonwealth Highway &
Transportation Authority Transportation
Revenue Series A 4.75% 7/1/38 (MBIA) 1,000,000 1,057,650
Puerto Rico Electric Power
Authority Power Revenue
Series NN 5.125% 7/1/29 400,000 430,124
Series PP 5.00% 7/1/25 (FGIC) 1,000,000 1,081,090
&Puerto Rico Electric Power Authority
Power Revenue, Inverse Floater
ROLs 6.345% 7/1/19 (FSA) 1,925,000 2,062,695
University of the Virgin Islands
Series A 5.375% 6/1/34 500,000 533,625
-----------
5,165,184
-----------
Water & Sewer Revenue Bonds - 3.85%
Metropolitan St. Louis Sewer District
Wastewater Revenue
5.00% 5/1/34 (MBIA) 1,250,000 1,327,075
Missouri State Development Finance Board
Infrastructure Facilities Revenue
(Sewer System Improvement Project)
Series C 5.00% 3/1/25 605,000 625,050
-----------
1,952,125
-----------
TOTAL MUNICIPAL BONDS (cost $45,889,061) 49,012,865
-----------
Number of
Shares
SHORT-TERM INVESTMENTS - 2.11%
Dreyfus Tax-Exempt Cash
Management Fund 1,068,051 1,068,051
-----------
TOTAL SHORT-TERM INVESTMENTS (cost $1,068,051) 1,068,051
-----------
12
STATEMENTS DELAWARE TAX-FREE MISSOURI INSURED FUND
OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES - 98.83%
(cost $46,957,112) $50,080,916
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.17% 591,443
-----------
NET ASSETS APPLICABLE TO 4,688,927
SHARES OUTSTANDING - 100.00% $50,672,359
===========
Net Asset Value - Delaware Tax-Free Missouri Insured Fund
Class A ($46,182,308 / 4,273,525 Shares) $10.81
--------
Net Asset Value - Delaware Tax-Free Missouri Insured Fund
Class B ($3,098,612 / 286,829 Shares) $10.80
--------
Net Asset Value - Delaware Tax-Free Missouri Insured Fund
Class C ($1,391,439 / 128,573 Shares) $10.82
--------
COMPONENTS OF NET ASSETS AT AUGUST 31, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $47,554,884
Accumulated net realized loss on investments (6,329)
Net unrealized appreciation of investments 3,123,804
-----------
Total net assets $50,672,359
===========
^Zero coupon bond. The interest rate shown is the yield at the time of purchase.
!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."
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - subject to Alternative Minimum Tax
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
FNMA - Insured by the Federal National Mortgage Association
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
ROLs - Residual Options Long
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE TAX-FREE MISSOURI INSURED FUND
Net asset value Class A (A) $10.81
Sales charge (4.50% of offering price) (B) 0.51
------
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
13
STATEMENTS DELAWARE TAX-FREE OREGON INSURED FUND
OF NET ASSETS (CONTINUED) August 31, 2005
Principal Market
Amount Value
MUNICIPAL BONDS - 93.36%
Airport Revenue Bonds - 3.27%
Portland Airport Revenue
(Portland International Airport)
Series 11 5.625% 7/1/26 (AMT) (FGIC) $1,500,000 $1,555,335
----------
1,555,335
----------
Escrowed to Maturity Bonds - 2.33%
Umatilla County Hospital Facility Authority
Revenue (Catholic Health Initiatives)
Series A 5.50% 3/1/32 1,000,000 1,108,190
----------
1,108,190
----------
Higher Education Revenue Bonds - 14.89%
Oregon Health Sciences University Revenue
(Capital Appreciation Insured)
Series A 5.00% 7/1/32 (MBIA) 2,000,000 2,112,260
^Series A 5.50% 7/1/21 (MBIA) 2,000,000 1,016,560
Oregon State Facilities Authority Revenue
(College Housing Northwest Project)
Series A 5.45% 10/1/32 1,000,000 1,034,890
(College Independent Student Housing
Project) Series A 5.25% 7/1/30 (XLCA) 630,000 685,717
(Linfield College Project)
Series A 5.00% 10/1/30 600,000 618,924
(Willamette University Project)
Series A 5.00% 10/1/34 (FGIC) 1,000,000 1,067,260
5.125% 10/1/25 (FGIC) 500,000 547,935
----------
7,083,546
----------
Hospital Revenue Bonds - 3.96%
Deschutes County Hospital Facilities
Authority Hospital Revenue (Cascade
Health Services) 5.60% 1/1/32 1,250,000 1,335,825
Multnomah County Hospital Facilities
Authority Revenue (Providence Health
System) 5.25% 10/1/22 500,000 546,395
----------
1,882,220
----------
Investor Owned Utilities Revenue Bonds - 1.32%
oPort Morrow Pollution Control Revenue
(Portland General Electric Co.)
Series A 5.20% 5/1/33 600,000 626,856
----------
626,856
----------
Miscellaneous Revenue Bonds - 3.01%
Oregon State Department Administrative
Services 5.00% 9/1/13 (FSA) 800,000 884,576
Oregon State Department Administrative
Services Lottery Revenue Refunding
Series A 5.00% 4/1/18 (FSA) 500,000 545,300
----------
1,429,876
----------
Multifamily Housing Revenue Bonds - 2.32%
Oregon Health, Housing, Educational, &
Cultural Facilities Authority
(Pier Park Project) Series A
6.05% 4/1/18 (AMT) (GNMA) 1,095,000 1,102,566
----------
1,102,566
----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Municipal Lease Revenue Bonds - 3.43%
Oregon State Department
Administration Services
Certificate of Participation Refunding
Series A 5.00% 5/1/30 (FSA) $ 500,000 $ 532,915
Series C 5.25% 11/1/15 (MBIA) 1,000,000 1,097,910
-----------
1,630,825
-----------
Political Subdivision General Obligation
Bonds - 5.01%
Deschutes County Refunding
5.00% 12/1/16 (FSA) 500,000 545,790
Southwestern Oregon Community College
District 5.00% 6/1/28 (MBIA) 1,100,000 1,176,868
Treasure Valley Community College
District 5.00% 6/1/35 (AMBAC) 620,000 662,123
-----------
2,384,781
-----------
!Pre-Refunded Bonds - 23.81%
Chemeketa County Community College
District 5.80% 6/1/12-06 (FGIC) 1,500,000 1,533,405
Deschutes County Administrative
School District #1 Series A
5.125% 6/15/21-11 (FSA) 1,000,000 1,097,560
Jackson County School District #6
Central Point 5.25% 6/15/20-10 (FGIC) 1,175,000 1,282,583
Linn County Community School District #9
Lebanon 5.60% 6/15/30-13 (FGIC) 2,000,000 2,295,361
Malheur County (Jail Buildings)
6.30% 12/1/12-05 (MBIA) 500,000 504,465
Multnomah County School District #3
Park Rose 5.50% 12/1/11-05 (FGIC) 500,000 503,410
North Unit Irrigation District
5.75% 6/1/16-06 (MBIA) 1,000,000 1,022,180
Oregon State Department Administrative
Services Certificate of Participation
Series A 5.80% 5/1/24-07 (AMBAC) 1,000,000 1,056,300
Puerto Rico Commonwealth Public
Improvement 5.125% 7/1/30-11 (FSA) 920,000 1,013,260
Salem Water & Sewer Revenue
5.625% 6/1/16-06 (MBIA) 1,000,000 1,020,980
-----------
11,329,504
-----------
Public Utility District Revenue Bonds - 1.73%
Emerald Peoples Utilities District Series A
5.25% 11/1/22 (FSA) 750,000 825,420
-----------
825,420
-----------
School District General Obligation Bonds - 11.05%
Benton & Linn Counties School District #509J
Corvallis 5.00% 6/1/21 (FSA) 1,000,000 1,076,020
Clackamas County School District #086
5.00% 6/15/25 (FSA) 500,000 541,615
Clackmas County School District #12
(North Clackamas) 5.00% 6/15/16 (FSA) 1,000,000 1,118,980
Jefferson County School District #509J
5.00% 6/15/22 (FGIC) 500,000 537,745
Lane County School District #019 Springfield
Refunding 6.00% 10/15/14 (FGIC) 500,000 595,280
Lincoln County School District
5.25% 6/15/12 (FGIC) 700,000 750,246
Salem-Keizer School District #24J
Refunding 5.00% 6/15/19 (FSA) 500,000 543,865
14
STATEMENTS DELAWARE TAX-FREE OREGON INSURED FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
School District General Obligation Bonds (continued)
^Umatilla County School District #6 R Umatilla
Refunding 5.50% 12/15/22 (AMBAC) $ 200,000 $ 95,202
-----------
5,258,953
-----------
Single Family Housing Revenue Bonds - 2.96%
Oregon State Housing & Community
Services Department Mortgage Revenue
Single Family Mortgage Program
Series R 5.375% 7/1/32 (AMT) 1,365,000 1,410,031
-----------
1,410,031
-----------
Tax Increment/Special Assessment Bonds - 2.65%
Portland River District Urban Renewal &
Redevelopment Interstate Corridor
Series A 5.00% 6/15/23 (AMBAC) 250,000 267,870
Portland Urban Renewal & Redevelopment
Interstate Corridor Series A
5.25% 6/15/20 (FGIC) 890,000 991,923
-----------
1,259,793
-----------
Territorial Revenue Bonds - 10.89%
Puerto Rico Commonwealth Highway &
Transportation Authority Transportation
Revenue Series J 5.50% 7/1/22 400,000 445,516
^Puerto Rico Commonwealth Infrastructure
Financing Authority Series A
4.60% 7/1/30 (FGIC) 1,000,000 332,620
Puerto Rico Commonwealth Public
Improvement (Unrefunded Balance)
5.125% 7/1/30 (FSA) 580,000 623,923
Puerto Rico Electric Power Authority Power
Revenue Series NN 5.125% 7/1/29 1,000,000 1,075,310
&Puerto Rico Electric Power Authority Power
Revenue, Inverse Floater ROLs
6.345% 7/1/19 (FSA) 1,500,000 1,607,295
Puerto Rico Public Buildings Authority
Revenue (Government Facilities) Series J
5.00% 7/1/36 (AMBAC) 1,000,000 1,095,190
-----------
5,179,854
-----------
Water & Sewer Revenue Bonds - 0.73%
Portland Sewer Systems Revenue (Second
Lien) Series A 5.00% 6/1/23 (FSA) 325,000 348,134
-----------
348,134
-----------
TOTAL MUNICIPAL BONDS (cost $41,697,988) 44,415,884
-----------
Number
of Shares
SHORT-TERM INVESTMENTS - 5.67%
Money Market Instruments - 3.46%
Dreyfus Tax-Exempt Cash
Management Fund 1,645,048 1,645,048
---------
1,645,048
---------
Principal
Amount
oVariable Rate Demand Notes - 2.21%
Portland Multi-Family Housing Revenue
(South Park Block Project) 2.40% 12/1/11 $1,050,000 1,050,000
----------
1,050,000
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $2,695,048) 2,695,048
----------
TOTAL MARKET VALUE OF SECURITIES - 99.03%
(cost $44,393,036) $47,110,932
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 0.97% 463,448
-----------
NET ASSETS APPLICABLE TO 4,464,316
SHARES OUTSTANDING - 100.00% $47,574,380
-----------
Net Asset Value - Delaware Tax-Free Oregon Insured Fund
Class A ($34,028,751 / 3,194,497 Shares) $10.65
------
Net Asset Value - Delaware Tax-Free Oregon Insured Fund
Class B ($6,889,419 / 646,429 Shares) $10.66
------
Net Asset Value - Delaware Tax-Free Oregon Insured Fund
Class C ($6,656,210 / 623,390 Shares) $10.68
------
COMPONENTS OF NET ASSETS AT AUGUST 31, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $45,032,032
Accumulated net realized loss on investments (175,548)
Net unrealized appreciation of investments 2,717,896
-----------
Total net assets $47,574,380
===========
!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."
oVariable rate notes. The interest rate shown is the rate as of August 31, 2005.
^Zero coupon security. The interest rate shown is the yield at the time of
purchase.
&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 rates disclosed is in effect as of August 31, 2005. See Note 7 in
"Notes to Financial Statements."
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
GNMA - Insured by Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
ROLs - Residual Options Long
XLCA - Insured by XL Capital Assurance
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE TAX-FREE OREGON INSURED FUND
Net asset value Class A (A) $10.65
Sales charge (4.50% of offering price) (B) 0.50
------
Offering price $11.15
======
(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
15
STATEMENTS Year Ended August 31, 2005
OF OPERATIONS
Delaware Delaware
Tax-Free Tax-Free
Missouri Insured Oregon Insured
Fund Fund
INVESTMENT INCOME:
Interest $2,598,108 $2,184,541
---------- ----------
EXPENSES:
Management fees 256,217 226,722
Distribution expenses - Class A 115,325 79,429
Distribution expenses - Class B 38,115 70,849
Distribution expenses - Class C 13,598 65,012
Dividend disbursing and transfer agent fees and expenses 33,637 27,334
Accounting and administration expenses 17,708 15,712
Legal and professional fees 22,473 20,719
Reports and statements to shareholders 12,797 16,171
Registration fees 2,789 1,417
Custodian fees 3,264 3,083
Trustees' fees 2,430 2,240
Pricing fees 3,408 3,037
Insurance 3,615 3,188
Taxes 149 89
Other 833 857
---------- ----------
526,358 535,859
Less expenses absorbed or waived (11,390) (38,527)
Less expenses paid indirectly (60) (130)
---------- ----------
Total expenses 514,908 497,202
---------- ----------
NET INVESTMENT INCOME 2,083,200 1,687,339
---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 130,115 106,456
Net change in unrealized appreciation/depreciation of investments 380,933 366,029
---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 511,048 472,485
---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,594,248 $2,159,824
========== ==========
See accompanying notes
16
STATEMENTS
OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
Year Ended Year Ended
8/31/05 8/31/04 8/31/05 8/31/04
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,083,200 $ 2,222,786 $ 1,687,339 $ 1,836,635
Net realized gain on investments 130,115 303,361 106,456 115,703
Net change in unrealized
appreciation/depreciation of investments 380,933 (15,128) 366,029 540,255
----------- ----------- ----------- -----------
Net increase in net assets resulting from operations 2,594,248 2,511,019 2,159,824 2,492,593
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (1,901,135) (1,979,157) (1,250,887) (1,347,305)
Class B (128,675) (216,405) (225,919) (292,412)
Class C (45,752) (48,786) (206,598) (209,645)
----------- ----------- ----------- -----------
(2,075,562) (2,244,348) (1,683,404) (1,849,362)
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 3,524,066 4,941,535 5,524,963 5,392,754
Class B 408 352,151 582,909 741,742
Class C 105,402 314,340 1,199,241 1,644,889
Net asset value of shares issued upon reinvestment
of dividends and distributions:
Class A 1,017,242 964,654 718,106 765,710
Class B 96,955 144,771 137,290 165,234
Class C 39,754 42,892 126,671 134,610
----------- ----------- ----------- -----------
4,783,827 6,760,343 8,289,180 8,844,939
----------- ----------- ----------- -----------
Cost of shares repurchased:
Class A (4,575,966) (4,404,290) (3,366,599) (5,169,155)
Class B (1,933,993) (3,044,211) (1,783,006) (1,909,275)
Class C (25,210) (362,148) (1,080,203) (926,472)
----------- ----------- ----------- -----------
(6,535,169) (7,810,649) (6,229,808) (8,004,902)
----------- ----------- ----------- -----------
Increase (decrease) in net assets derived
from capital share transactions (1,751,342) (1,050,306) 2,059,372 840,037
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS (1,232,656) (783,635) 2,535,792 1,483,268
NET ASSETS:
Beginning of year 51,905,015 52,688,650 45,038,588 43,555,320
----------- ----------- ----------- -----------
End of year(1) $50,672,359 $51,905,015 $47,574,380 $45,038,588
=========== =========== =========== ===========
(1)Including distributions in excess of
net investment income $ -- $ -- $ -- $ --
=========== =========== =========== ===========
See accompanying notes
17
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Missouri Insured 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 $10.700 $10.640 $10.810 $10.740 $10.340
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.442 0.464 0.469 0.489 0.497
Net realized and unrealized gain (loss) on investments 0.110 0.065 (0.172) 0.068 0.400
------- ------- ------- ------- -------
Total from investment operations 0.552 0.529 0.297 0.557 0.897
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.442) (0.469) (0.467) (0.487) (0.497)
------- ------- ------- ------- -------
Total dividends and distributions (0.442) (0.469) (0.467) (0.487) (0.497)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.810 $10.700 $10.640 $10.810 $10.740
======= ======= ======= ======= =======
TOTAL RETURN(2) 5.27% 5.06% 2.75% 5.38% 8.89%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $46,182 $45,745 $44,026 $42,610 $40,349
Ratio of expenses to average net assets 0.93% 0.94% 0.98% 0.97% 0.95%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 0.95% 0.94% 0.98% 0.97% 0.95%
Ratio of net investment income to average net assets 4.14% 4.33% 4.31% 4.61% 4.74%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.12% 4.33% 4.31% 4.61% 4.74%
Portfolio turnover 21% 20% 31% 23% 14%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect of
this change for the year ended August 31, 2002 was an increase in net
investment income per share of $0.002, a decrease in net realized and
unrealized gain (loss) per share of $0.002, and an increase in the ratio of
net investment income to average net assets of 0.02%. Per share data and
ratios for periods prior to September 1, 2001 have not been restated to
reflect this change in accounting.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
18
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Missouri Insured 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 $10.690 $10.640 $10.810 $10.730 $10.340
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.363 0.385 0.387 0.410 0.418
Net realized and unrealized gain (loss) on investments 0.110 0.054 (0.172) 0.078 0.390
------- ------- ------- ------- -------
Total from investment operations 0.473 0.439 0.215 0.488 0.808
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.363) (0.389) (0.385) (0.408) (0.418)
------- ------- ------- ------- -------
Total dividends and distributions (0.363) (0.389) (0.385) (0.408) (0.418)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.800 $10.690 $10.640 $10.810 $10.730
======= ======= ======= ======= =======
TOTAL RETURN(2) 4.50% 4.19% 1.99% 4.70% 7.98%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $3,099 $4,903 $7,406 $9,264 $9,693
Ratio of expenses to average net assets 1.68% 1.69% 1.73% 1.72% 1.70%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.70% 1.69% 1.73% 1.72% 1.70%
Ratio of net investment income to average net assets 3.39% 3.58% 3.56% 3.86% 3.99%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.37% 3.58% 3.56% 3.86% 3.99%
Portfolio turnover 21% 20% 31% 23% 14%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect of
this change for the year ended August 31, 2002 was an increase in net
investment income per share of $0.002, a decrease in net realized and
unrealized gain (loss) per share of $0.002, and an increase in the ratio of
net investment income to average net assets of 0.02%. Per share data and
ratios for periods prior to September 1, 2001 have not been restated to
reflect this change in accounting.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
19
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Missouri Insured 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 $10.710 $10.660 $10.820 $10.740 $10.350
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.361 0.384 0.387 0.410 0.418
Net realized and unrealized gain (loss) on investments 0.110 0.054 (0.162) 0.078 0.390
------- ------- ------- ------- -------
Total from investment operations 0.471 0.438 0.225 0.488 0.808
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.361) (0.388) (0.385) (0.408) (0.418)
------- ------- ------- ------- -------
Total dividends and distributions (0.361) (0.388) (0.385) (0.408) (0.418)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.820 $10.710 $10.660 $10.820 $10.740
======= ======= ======= ======= =======
TOTAL RETURN(2) 4.48% 4.17% 2.08% 4.68% 7.97%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $1,391 $1,257 $1,257 $1,241 $626
Ratio of expenses to average net assets 1.68% 1.69% 1.73% 1.72% 1.70%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.70% 1.69% 1.73% 1.72% 1.70%
Ratio of net investment income to average net assets 3.39% 3.58% 3.56% 3.86% 3.99%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.37% 3.58% 3.56% 3.86% 3.99%
Portfolio turnover 21% 20% 31% 23% 14%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect of
this change for the year ended August 31, 2002 was an increase in net
investment income per share of $0.002, a decrease in net realized and
unrealized gain (loss) per share of $0.002, and an increase in the ratio of
net investment income to average net assets of 0.02%. Per share data and
ratios for periods prior to September 1, 2001 have not been restated to
reflect this change in accounting.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager, as
applicable. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
20
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Oregon Insured 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 $10.540 $10.380 $10.530 $10.450 $ 9.910
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.417 0.453 0.461 0.467 0.465
Net realized and unrealized gain (loss) on investments 0.110 0.163 (0.151) 0.079 0.540
------- ------- ------- ------- -------
Total from investment operations 0.527 0.616 0.310 0.546 1.005
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.417) (0.456) (0.460) (0.466) (0.465)
------- ------- ------- ------- -------
Total dividends and distributions (0.417) (0.456) (0.460) (0.466) (0.465)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.650 $10.540 $10.380 $10.530 $10.450
======= ======= ======= ======= =======
TOTAL RETURN(2) 5.09% 6.04% 2.97% 5.41% 10.39%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $34,029 $30,817 $29,410 $25,082 $22,973
Ratio of expenses to average net assets 0.87% 0.85% 0.84% 0.85% 0.85%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 0.96% 0.90% 0.96% 1.00% 0.99%
Ratio of net investment income to average net assets 3.94% 4.30% 4.35% 4.52% 4.59%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.85% 4.25% 4.23% 4.37% 4.45%
Portfolio turnover 14% 16% 16% 20% 28%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect of
this change for the year ended August 31, 2002 was an increase in net
investment income per share of $0.001, a decrease in net realized and
unrealized gain (loss) per share of $0.001, and an increase in the ratio of
net investment income to average net assets of 0.01%. Per share data and
ratios for periods prior to September 1, 2001 have not been restated to
reflect this change in accounting.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager.
Performance would have been lower had the expense limitation not been
in effect.
See accompanying notes
21
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Oregon Insured 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 $10.550 $10.390 $10.540 $10.450 $ 9.910
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.338 0.374 0.382 0.390 0.389
Net realized and unrealized gain (loss) on investments 0.110 0.163 (0.151) 0.089 0.540
------- ------- ------- ------- -------
Total from investment operations 0.448 0.537 0.231 0.479 0.929
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.338) (0.377) (0.381) (0.389) (0.389)
------- ------- ------- ------- -------
Total dividends and distributions (0.338) (0.377) (0.381) (0.389) (0.389)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.660 $10.550 $10.390 $10.540 $10.450
======= ======= ======= ======= =======
TOTAL RETURN(2) 4.31% 5.24% 2.20% 4.73% 9.57%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $6,889 $7,878 $8,750 $8,489 $7,928
Ratio of expenses to average net assets 1.62% 1.60% 1.59% 1.60% 1.60%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.71% 1.65% 1.71% 1.75% 1.74%
Ratio of net investment income to average net assets 3.19% 3.55% 3.60% 3.77% 3.84%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.10% 3.50% 3.48% 3.62% 3.70%
Portfolio turnover 14% 16% 16% 20% 28%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect of
this change for the year ended August 31, 2002 was an increase in net
investment income per share of $0.001, a decrease in net realized and
unrealized gain (loss) per share of $0.001, and an increase in the ratio of
net investment income to average net assets of 0.01%. Per share data and
ratios for periods prior to September 1, 2001 have not been restated to
reflect this change in accounting.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager.
Performance would have been lower had the expense limitation not been
in effect.
See accompanying notes
22
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
Delaware Tax-Free Oregon Insured 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 $10.570 $10.400 $10.550 $10.470 $ 9.920
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.337 0.374 0.381 0.389 0.388
Net realized and unrealized gain (loss) on investments 0.110 0.173 (0.151) 0.079 0.550
------- ------- ------- ------- -------
Total from investment operations 0.447 0.547 0.230 0.468 0.938
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.337) (0.377) (0.380) (0.388) (0.388)
------- ------- ------- ------- -------
Total dividends and distributions (0.337) (0.377) (0.380) (0.388) (0.388)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.680 $10.570 $10.400 $10.550 $10.470
======= ======= ======= ======= =======
TOTAL RETURN(2) 4.30% 5.33% 2.19% 4.62% 9.66%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $6,656 $6,344 $5,395 $3,253 $1,820
Ratio of expenses to average net assets 1.62% 1.60% 1.59% 1.60% 1.60%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.71% 1.65% 1.71% 1.75% 1.74%
Ratio of net investment income to average net assets 3.19% 3.55% 3.60% 3.77% 3.84%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.10% 3.50% 3.48% 3.62% 3.70%
Portfolio turnover 14% 16% 16% 20% 28%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect of
this change for the year ended August 31, 2002 was an increase in net
investment income per share of $0.001, a decrease in net realized and
unrealized gain (loss) per share of $0.001, and an increase in the ratio of
net investment income to average net assets of 0.01%. Per share data and
ratios for periods prior to September 1, 2001 have not been restated to
reflect this change in accounting.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of dividends and distributions at
net asset value and does not reflect the impact of a sales charge. Total
investment return reflects waivers and payment of fees by the manager.
Performance would have been lower had the expense limitation not been
in effect.
See accompanying notes
23
NOTES August 31, 2005
TO FINANCIAL STATEMENTS
Voyageur Mutual Funds (the "Trust") is organized as a Delaware statutory trust
and offers six series: Delaware Minnesota High-Yield Municipal Bond Fund,
Delaware National High-Yield Municipal Bond Fund, Delaware Tax-Free Arizona
Fund, Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, and
Delaware Tax-Free New York Fund. Voyageur Investment Trust (the "Trust") is
organized as a Delaware statutory trust and offers three series: Delaware
Tax-Free Florida Insured Fund, Delaware Tax-Free Missouri Insured Fund and
Delaware Tax-Free Oregon Insured Fund. These financial statements and the
related notes pertain to the Delaware Tax-Free Idaho Fund, Delaware Tax-Free
Missouri Insured Fund, and Delaware Tax-Free Oregon Insured Fund (each referred
to as a "Fund" or collectively as the "Funds"). The Trusts are open-end
investment companies. The Funds are considered non-diversified under the
Investment Company Act of 1940, amended. The Funds offer Class A, Class B and
Class C shares. Class A shares are sold with a front-end sales charge of up to
4.50%. Class B shares are sold with a contingent deferred sales charge that
declines from 4.00% to zero depending upon the period of time the shares are
held. Class B shares will automatically convert to Class A shares on a quarterly
basis approximately eight years after purchase. Class C shares are sold with a
contingent deferred sales charge of 1%, if redeemed during the first 12 months.
The investment objective of Delaware Tax-Free Idaho Fund, Delaware Tax-Free
Missouri Insured Fund, and Delaware Tax-Free Oregon Insured Fund is to seek as
high a level of current income exempt from federal income tax and personal
income tax in their respective states, as is consistent with preservation
of capital.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Funds.
Security Valuation -- Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Open-end investment
companies are valued at their published net asset 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 assets of each Fund. Realized and unrealized gain (loss) on
investments are allocated to the various classes of each Fund on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
Use of Estimates -- The preparation of financial statements in conformity with
U.S. general accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other -- Expenses common to all funds within the Delaware Investments(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 balances
are maintained, which are used to offset custody fees. The expenses paid under
the above arrangements are included in custodian fees on the Statements of
Operations with the corresponding expense offset shown as "expense paid
indirectly." The amount of this expense for the year ended August 31, 2005 was
as follows:
Delaware Tax-Free Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
Earnings credits $60 $130
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES
In accordance with the terms of its respective investment management agreement,
each Fund pays Delaware Management Company (DMC), a series of Delaware
Management Business Trust and the investment manager, an annual fee based on
each Fund's average daily net assets as follows:
Delaware Tax-Free Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
On the first $500 million 0.500% 0.500%
On the next $500 million 0.475% 0.475%
On the next $1.5 billion 0.450% 0.450%
In excess of $2.5 billion 0.425% 0.425%
24
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse each Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed specified percentages of average daily net assets, as shown below.
Delaware Tax-Free Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
The operating expense limitation as a percentage
of average daily net assets (per annum) N/A 0.60%
Expiration date 10/31/04 10/31/04
Effective November 1, 2004, operating expense
limitation as a percentage of average
daily net assets (per annum) 0.65% 0.60%
Expiration date 12/29/05 12/29/05
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing, and transfer agent services. Effective May
19, 2005, the Funds pay DSC a monthly fee computed at the annual rate of 0.04%
of the Funds' average daily net assets for accounting and administration
services. Prior to May 19, 2005, the Funds 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.
At August 31, 2005, each Fund had liabilities payable to affiliates as follows:
Delaware Tax-Free Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
Investment management fees payable to DMC $19,174 $19,322
Dividend disbursing, transfer agent,
accounting and administration fees and
other expenses payable to DSC 4,788 4,206
Other expenses payable to DMC and affiliates* 20,798 25,518
*DMC, as a part of its administrative services, pays operating expenses on
behalf of each Fund and is reimbursed on a periodic basis. Such expenses
include items such as printing of shareholder reports, fees for audit, legal
and tax services, registration fees and trustees' fees.
As provided in the investment management agreement, the Funds bear the cost of
certain legal services expenses, including internal legal services provided to
the Funds by DMC employees. For the year ended August 31, 2005, Delaware
Tax-Free Idaho Fund, Delaware Tax-Free Missouri Insured Fund and Delaware
Tax-Free Oregon Insured Fund were charged $4,526, $2,730, $2,425, respectively,
for internal legal services provided by DMC.
For the year ended August 31, 2005, DDLP earned commissions on sales of Class A
shares for each Fund as follows:
Delaware Tax-Free Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
$5,743 $26,600
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 Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
Class A $ -- $ --
Class B 1,389 6,785
Class C -- 800
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the
Trusts. These officers and/or trustees are paid no compensation by the Funds.
3. INVESTMENTS
For the year ended August 31, 2005, the Funds made purchases and sales of
investment securities other than short-term investments as follows:
Delaware Tax-Free Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
Purchases $10,574,079 $6,599,290
Sales 13,194,283 5,960,160
25
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS (CONTINUED)
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 Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
Cost of investments $46,930,968 $44,379,053
----------- -----------
Aggregate unrealized appreciation $ 3,176,668 $ 2,750,004
Aggregate unrealized depreciation (26,720) (18,125)
----------- -----------
Net unrealized appreciation $ 3,149,948 $ 2,731,879
=========== ===========
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 Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
Year Ended Year Ended
8/31/05 8/31/04 8/31/05 8/31/04
Tax-exempt income $2,075,562 $2,244,348 $1,683,404 $1,849,362
As of August 31, 2005, the components of net assets on a tax basis were
as follows:
Delaware Tax-Free Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
Shares of beneficial interest $47,554,884 $45,032,032
Other temporary differences -- --
Capital loss carryforwards (32,473) (189,531)
Net unrealized appreciation of investments 3,149,948 2,731,879
----------- -----------
Net assets $50,672,359 $47,574,380
=========== ===========
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 and premium 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 Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
Undistributed (distributions in excess
of) net investment income $(7,638) $(3,935)
Accumulated net realized gain (loss) 7,638 3,935
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Such capital loss carryforward
amounts will expire as follows:
Delaware Tax-Free Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
--------------------- -------------------
2008 $32,473 $ --
2009 -- 110,608
2010 -- 78,923
------- --------
Total $32,473 $189,531
======= ========
In 2005, the Funds utilized capital loss carryforwards as follows:
Capital Loss
Carryforward Utilized
---------------------
Delaware Tax-Free Missouri Insured Fund $130,695
Delaware Tax-Free Oregon Insured Fund 106,455
26
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free
Missouri Insured Fund Oregon Insured Fund
---------------------- ----------------------
Year Ended Year Ended Year Ended Year Ended
8/31/05 8/31/04 8/31/05 8/31/04
Shares sold:
Class A 329,028 460,103 521,536 511,034
Class B 62 33,006 54,948 70,440
Class C 9,871 29,155 112,925 157,187
Shares issued upon reinvestment of
dividends and distributions:
Class A 94,843 90,070 67,787 72,920
Class B 9,044 13,510 12,953 15,727
Class C 3,701 4,001 11,930 12,786
-------- -------- -------- --------
446,549 629,845 782,079 840,094
-------- -------- -------- --------
Shares repurchased:
Class A (426,911) (410,533) (317,964) (493,915)
Class B (180,772) (284,201) (168,301) (181,823)
Class C (2,347) (33,776) (101,836) (88,193)
-------- -------- -------- --------
(610,030) (728,510) (588,101) (763,931)
-------- -------- -------- --------
Net increase (decrease) (163,481) (98,665) 193,978 76,163
======== ======== ======== ========
For the years ended August 31, 2005 and 2004, the following shares and value
were converted from Class B to Class A. The respective amounts are included in
Class B redemptions and Class A subscriptions in the table above and the
Statements of Changes in Net Assets.
Year Ended Year Ended
8/31/05 8/31/04
Class B Shares Class A Shares Value Class B Shares Class A Shares Value
-------------- -------------- ----- -------------- -------------- -----
Delaware Tax-Free Missouri Insured Fund 139,117 139,010 $1,489,016 197,551 197,405 $2,118,117
Delaware Tax-Free Oregon Insured Fund 70,235 70,293 742,841 63,867 63,896 676,263
6. LINE OF CREDIT
Each Fund, along with certain other funds in the Delaware Investments 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 fiscal year.
27
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
7. CREDIT AND MARKET RISKS
The Funds concentrate their investments in securities issued by each
corresponding state's municipalities. The value of these investments may be
adversely affected by new legislation within the states, regional or local
economic conditions, and differing levels of supply and demand for municipal
bonds. Many municipalities insure repayment for their obligations. Although bond
insurance reduces the risk of loss due to default by an issuer, such bonds
remain subject to the risk that market value may fluctuate for other reasons and
there is no assurance that the insurance company will meet its obligations.
These securities have been identified in the Statements of Net Assets.
The Funds may invest in inverse floating rate securities ("inverse floaters"), a
type of derivative tax-exempt obligation with floating or variable interest
rates that move in the opposite direction of short-term interest rates, usually
at an accelerated speed. Consequently, the market values of inverse floaters
will generally be more volatile than other tax-exempt investments. Such
securities are denoted on the Statements of Net Assets.
The Funds 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 and 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 Insured Funds 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 up to 15% 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 Funds' 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 the Funds' existing
contracts and expects the risk of loss to be remote.
9. TAX INFORMATION (UNAUDITED)
The information set forth below is for each Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended August 31, 2005, each Fund designates distributions
paid during the year as follows:
(A) (B) (C)
Long Term Ordinary Tax-
Capital Gains Income Exempt Total
Distributions Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis)
- --------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free Missouri Insured Fund -- -- 100% 100%
Delaware Tax-Free Oregon Insured Fund -- -- 100% 100%
(A), (B), and (C) are based on a percentage of each Fund's total distributions.
28
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Voyageur Investment Trust -- Delaware Tax-Free Missouri
Insured Fund and Delaware Tax-Free Oregon Insured Fund
We have audited the accompanying statements of net assets of Delaware Tax-Free
Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund (two of the
series constituting Voyageur Investment Trust) (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' internal 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 Missouri Insured Fund and Delaware Tax-Free Oregon Insured
Fund of Voyageur Investment Trust 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
29
OTHER
FUND INFORMATION
PROXY RESULTS (UNAUDITED)
The shareholders of Voyageur Mutual Funds and Voyageur Investment Trust (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 each of the Trusts.
Voyageur Mutual Funds Voyageur Investment Trust
------------------------------------------ -----------------------------------------
Shares Voted Shares Voted
Shares Voted For Withheld Authority Shares Voted For Withheld Authority
---------------- ------------------ ---------------- ------------------
Thomas L. Bennett 20,895,278.656 360,093.72 414,252,335.19 7431,663.104
Jude T. Driscoll 20,914,639.656 340,732.72 414,251,143.99 1432,854.310
John A. Fry 20,894,793.656 360,578.72 414,258,738.99 1425,259.310
Anthony D. Knerr 20,894,488.656 360,883.72 414,258,994.99 1425,003.310
Lucinda S. Landreth 20,879,031.656 376,340.72 414,254,091.17 9429,907.104
Ann R. Leven 20,857,874.656 397,497.72 414,252,611.99 1431,386.310
Thomas F. Madison 20,905,985,656 349,386.72 414,259,138.99 1424,859.310
Janet L. Yeomans 20,859,670.656 395,701.72 414,251,014.19 7432,984.104
J. Richard Zecher 20,914,639.656 340,732.72 414,248,580.99 1432,417.310
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 subadvisers without shareholder approval.
For Against Abstain
--- ------- -------
Delaware Tax-Free Missouri Insured Fund 2,547,568.583 127,364.617 50,056.412
Delaware Tax-Free Oregon Insured Fund 2,275,818.354 163,301.607 165,753.881
3. To approve the restructuring of Voyageur Investment Trust from a
Massachusetts business trust to a Delaware statutory trust. For Against
For Against Abstain
--- ------- -------
Delaware Tax-Free Missouri Insured Fund 2,604,153.347 62,240.404 56,595.861
Delaware Tax-Free Oregon Insured Fund 2,345,020.965 143,072.177 116,780.700
BOARD CONSIDERATION OF DELAWARE TAX-FREE IDAHO FUND, DELAWARE TAX-FREE MISSOURI
INSURED FUND AND DELAWARE TAX-FREE OREGON INSURED FUND 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
Tax-Free Idaho Fund, Delaware Tax-Free Missouri Insured Fund and Delaware Oregon
Insured 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 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(R) 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(R) 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
30
OTHER
FUND INFORMATION (CONTINUED)
BOARD CONSIDERATION OF DELAWARE TAX-FREE MISSOURI INSURED FUND AND DELAWARE
TAX-FREE OREGON INSURED FUND INVESTMENT ADVISORY AGREEMENT (CONTINUED)
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(R) 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(R) 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 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 TAX-FREE MISSOURI INSURED FUND -- The Performance Universe for this
Fund consisted of the Fund and all retail and institutional Missouri municipal
debt funds as selected by Lipper. The Lipper report comparison showed that the
Fund's total return for the one year period was in the second quartile of such
Performance Universe. The report further showed that the Fund's total return for
the three, five and 10 year periods was in the third quartile. The Board noted
that the Fund's performance results were mixed. The Board also noted that,
relative to the other funds in the Fund's Performance Universe, the Fund was
underexposed to uninsured paper. Based upon the Fund's investment restrictions
and the composition of the Performance Universe, the Board was satisfied with
the Fund's performance results.
DELAWARE TAX-FREE OREGON INSURED FUND -- The Performance Universe for this Fund
consisted of the Fund and all retail and institutional single-state 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.
31
OTHER
FUND INFORMATION (CONTINUED)
BOARD CONSIDERATION OF DELAWARE TAX-FREE MISSOURI INSURED FUND AND DELAWARE
TAX-FREE OREGON INSURED FUND 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 MISSOURI INSURED 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 second highest expenses of its Expense Group. The Board gave favorable
consideration to the Fund's management fee, but noted that the Fund's total
expenses were not in line with the Board's objective. In evaluating the total
expenses, the Board considered waivers in place through October 2005. The Board
was satisfied with management's efforts to improve the Fund's total expense
ratio and bring it in line with the Board's objective.
DELAWARE TAX-FREE OREGON INSURED FUND -- The expense comparisons for the Fund
showed that its management fee and total expenses were in the quartile with the
second highest expenses of its Expense Group. The Board noted that the Fund's
total expenses were not in line with the Board's objective. In evaluating the
total expenses, the Board considered waivers in place through October 2005. The
Board was satisfied with management's efforts to improve the Fund's total
expense ratio and bring it in line with the Board's objective.
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.
32
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
PORTFOLIOS IN FUND DIRECTORSHIPS
POSITION(S) HELD COMPLEX OVERSEEN HELD BY
NAME, ADDRESS AND WITH THE EQUITY LENGTH OF TIME PRINCIPAL OCCUPATION(S) BY TRUSTEE TRUSTEE
BIRTHDATE FUND(S) SERVED DURING PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Executive Since August 2000, Mr. 92 None
2005 Market Street President, Chief Officer Driscoll has served in
Philadelphia, PA Executive Officer various executive
19103 and Trustee 1 Year - Trustee capacities at different
times at Delaware
March 10, 1963 Investments(1)
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 1, 1927 (January 1984 - March 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN A. FRY Trustee 4 Years President - Franklin & 75 Director - Community
2005 Market Street Marshall College Health Systems
Philadelphia, PA (June 2002 - Present)
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 &
Philadelphia, PA Associates (Strategic
19103 Consulting)
(1990 - Present)
December 7, 1938
LICINDA 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 92 Director and Audit
2005 Market Street Officer - National Committee
Philadelphia, PA Gallery of Art Chairperson -
19103 (1994 - 1999) Andy Warhol
Foundation
November 1, 1940
Director and Audit
Committee Member -
Systemax Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
33
NUMBER OF OTHER
PORTFOLIOS IN FUND DIRECTORSHIPS
POSITION(S) HELD COMPLEX OVERSEEN HELD BY
NAME, ADDRESS AND WITH THE EQUITY LENGTH OF TIME PRINCIPAL OCCUPATION(S) BY TRUSTEE TRUSTEE
BIRTHDATE FUND(S) SERVED DURING PAST 5 YEARS OR OFFICER OR OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (continued)
THOMAS F. MADISON Trustee 11 Years President/Chief Executive 92 Director -
2005 Market Street Officer - MLM Partners, Banner Health
Philadelphia, PA Inc. (Small Business
19103 Investing and Consulting) Director
(January 1993 - Present) and Audit
Committee Member -
CenterPoint Energy
February 25, 1936
Director
and Audit
Committee Member -
Digital River Inc.
Director
and Audit
Committee Member -
Rimage Corporation
Director
and Audit
Committee Member -
Valmont Industries
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 92 None
2005 Market Street Acquisitions -
Philadelphia, PA 3M Corporation
19103 (January 2003 - Present)
July 31, 1948 Ms. Yeomans has 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 Vice Chief Financial Mr. Bishof has served in 92 None(3)
2005 Market Street President and Officer since various executive capacities
Philadelphia, PA Chief Financial February 17, 2005 at different times at
19103 Officer Delaware Investments
August 18, 1962
- ------------------------------------------------------------------------------------------------------------------------------------
RICHELLE S. MAESTRO Executive Vice 2 Years Ms. Maestro has served in 92 None(3)
2005 Market Street President, Chief various executive capacities
Philadelphia, PA Legal Officer and at different times at
19103 Secretary Delaware Investments
November 26, 1957
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN J. O'CONNOR Senior Vice Treasurer since Mr. O'Connor has served in 92 None(3)
2005 Market Street President and February 17, 2005 various executive capacities
Philadelphia, PA Treasurer 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.
34
Delaware
Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
This annual report is for the information of Delaware Tax-Free Idaho Fund,
Delaware Tax-Free Missouri Insured Fund, and Delaware Tax-Free Oregon Insured
Fund shareholders, but it may be used with prospective investors when preceded
or accompanied by a current prospectus for Delaware Tax-Free Idaho Fund,
Delaware Tax-Free Missouri Insured Fund, and Delaware Tax-Free Oregon Insured
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
JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER
Chairman Senior Vice President and Delaware Management Company,
Delaware Investments Family of Funds Chief Financial Officer a Series of Delaware Management Business Trust
Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA
Philadelphia, PA
THOMAS L. BENNETT National Distributor
Private Investor RICHELLE S. MAESTRO Delaware Distributors, L.P.
Rosemont, PA Executive Vice President, Philadelphia, PA
Chief Legal Officer and Secretary
JOHN A. FRY Delaware Investments Family of Funds SHAREHOLDER SERVICING, DIVIDEND
President Philadelphia, PA DISBURSING AND TRANSFER AGENT
Franklin & Marshall College Delaware Service Company, Inc.
Lancaster, PA JOHN J. O'CONNOR 2005 Market Street
Senior Vice President and Treasurer Philadelphia, PA 19103-7094
ANTHONY D. KNERR Delaware Investments Family of Funds
Managing Director Philadelphia, PA FOR SHAREHOLDERS
Anthony Knerr & Associates 800 523-1918
New York, NY
FOR SECURITIES DEALERS AND FINANCIAL
LUCINDA S. LANDRETH INSTITUTIONS REPRESENTATIVES ONLY
Former Chief Investment Officer 800 362-7500
Assurant, Inc.
Philadelphia, PA WEB SITE
www.delawareinvestments.com
ANN R. LEVEN
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
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
Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
(9755) Printed in the USA
AR-CORN [8/05] IVES 10/05 MF-05-07-034 PO10447
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 $39,000
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 $65,070
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 pass-through of internal
legal cost relating to the operations of the Registrant.
- ----------
(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.
(c) Tax fees.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $7,700 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 $8,750 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
$212,935 and $221,565 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 INVESTMENT TRUST
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