UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-3850
Exact name of registrant as specified in charter: Delaware Group Tax Free Fund
Address of principal executive offices: 2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service: 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 Insured Fund, Delaware Tax-Free USA Fund and Delaware Tax-Free
USA Intermediate Fund of the Registrant, information on which is included in the
following shareholder reports.
Delaware
Investments(R)
-----------------------------------
A member of Lincoln Financial Group
FIXED INCOME
ANNUAL REPORT AUGUST 31, 2005
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DELAWARE TAX-FREE USA FUND
DELAWARE TAX-FREE INSURED FUND
DELAWARE TAX-FREE USA INTERMEDIATE FUND
[Grapic 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 USA Fund 6
Delaware Tax-Free Insured Fund 8
Delaware Tax-Free USA Intermediate Fund 10
Delaware National High-Yield
Municipal Bond Fund 12
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DISCLOSURE OF FUND EXPENSES 14
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SECTOR ALLOCATIONS 16
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FINANCIAL STATEMENTS:
Statements of Net Assets 18
Statements of Operations 35
Statements of Changes in Net Assets 36
Financial Highlights 38
Notes to Financial Statements 50
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 56
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OTHER FUND INFORMATION 57
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BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 60
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Funds are not FDIC insured and are not guaranteed. It is possible to lose
the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a
series of Delaware Management Business Trust, which is a registered
investment advisor.
(C) 2005 Delaware Distributors, L.P.
PORTFOLIO DELAWARE NATIONAL TAX-FREE FUNDS
MANAGEMENT REVIEW August 31, 2005
FUND MANAGERS
Joseph R. Baxter, Co-manager
Robert Collins, Co-manager
Patrick P. Coyne, Co-manager
PLEASE DESCRIBE THE OVERALL MARKET CONDITIONS DURING THE FISCAL YEAR.
The last three years have been remarkably similar; at least as it pertains to
market expectations and how the actual markets can prove them wrong. In the
beginning of calendar years 2003, 2004, and 2005, 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 two-
and 30-year yields narrowed 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
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 two- and 30-year
high-grade municipal bonds started the year at 2.9%, it narrowed by 1.5%, ending
the year with a 1.4% differential. 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 ending July 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 nine 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 may also have to deal with
traditional budget issues such as social service programs and education funding.
The future in most states will depend on economic performance, sustained
structural balance, and progress in re-building budget reserves.
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.
HOW DID THE FUNDS PERFORM DURING THE FISCAL YEAR?
For the fiscal year ended August 31, 2005, Delaware Tax-Free USA Fund returned
7.23% (Class A shares at net asset value with distributions reinvested) and
2.41% (at maximum offer price with distributions reinvested). Class A shares (at
net asset value with distributions reinvested) outperformed both the Lipper
General Municipal Debt Funds Average, which returned 4.73%, and the Lehman
Brothers Municipal Bond Index, which returned 5.31% for the 12-month period
(source: Lipper, Inc.).*
For the fiscal year ended August 31, 2005, Delaware Tax-Free Insured Fund
returned 5.73% (Class A shares at net asset value with distributions reinvested)
and 1.01% (at maximum offer price with distributions reinvested). Class A shares
(at net asset value with distributions reinvested) outperformed both the Lipper
Insured Municipal Debt Funds Average, which returned 4.33%, and the Lehman
Brothers Municipal Bond Index, which returned 5.31% for the 12-month period
(source: Lipper, Inc.).*
For the fiscal year ended August 31, 2005, Delaware Tax-Free USA Intermediate
Fund returned 5.63% (Class A shares at net asset value with distributions
reinvested) and 2.75% (at maximum offer price with distributions reinvested).
Class A shares (at net asset value with distributions reinvested) outperformed
both the Lipper Intermediate Municipal Debt Funds Average, which returned 3.70%,
and the Merrill Lynch 3-7 Year Municipal Bond Index, which returned 2.11% for
the 12-month period (source: Lipper, Inc.).*
For the fiscal year ended August 31, 2005, Delaware National High-Yield
Municipal Bond Fund returned 8.93% (Class A shares at net asset value with
distributions reinvested) and 4.04% (at maximum offer price with distributions
reinvested). Class A shares (at net asset value with distributions reinvested)
outperformed both the Lipper High Yield Municipal Debt Funds Average, which
returned 8.71%, and the Lehman Brothers Municipal Bond Index, which returned
5.31% for the 12-month period (source: Lipper, Inc.).*
FOR EACH FUND, WHAT STRATEGIES CONTRIBUTED TO FUND PERFORMANCE?
The Funds' returns were generally aided by yield curve positioning, credit
spread tightening, sector concentration, and security selection. The relative
contribution of these first three components varies based on the individual
Fund's mandate 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 allotment to these higher risk credits.
*For complete annualized performance, see tables on pages six, eight, 10, and
12.
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 trend 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 USA Fund has the broadest mandate of our four national funds
and has therefore been able to participate in all four sources of return. The
Fund is structured as a "barbell"; it has a meaningful allotment in mid-to-lower
investment-grade credits and this allowed it to participate in our preferred
sectors.
Delaware Tax-Free Insured Fund was positioned to benefit from the flattening of
the yield curve with a significant allocation of bonds having final maturities
20 years or longer. Legacy bonds that have short due dates or short calls offset
these positions. The Fund's insured mandate limits it from participating in the
credit spread tightening of lower rated bonds and therefore certain 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 in an attempt to gain excess
returns.
Delaware Tax-Free USA Intermediate Fund was also positioned to benefit from a
flatter yield curve, but due to its intermediate mandate, the long end of the
barbell is structured in the 10- to 20-year part of the curve. The Fund also
took advantage of credit spread tightening with a meaningful allotment to
A-rated and BBB- rated securities, and some of the sectors that issue in those
categories. Excess returns were found in the dedicated tax sector with the bonds
issued by the state of New Jersey, which are backed by the cigarette sales tax
and in the healthcare sector, in names such as Benedictine Hospital in Duluth,
Minnesota and Elliot Hospital in New Hampshire. Higher education securities
included the Geneva College in Pennsylvania and an Illinois student housing
facility in Chicago. The Fund also owns bonds for Nichols College in
Massachusetts.
While Delaware National High-Yield Municipal Bond Fund's structure is also that
of a barbell, the securities in it are less sensitive to interest rate movements
and more dependent on credit quality. This Fund not only has a healthy allotment
in A and BBB-rated bonds, but also in non-investment grade securities. It owns
both BB-rated bonds and comparable quality non-rated securities. These rating
classes and their corresponding sectors have generally led the way in the
municipal market over the last year. In addition to the above-mentioned
healthcare and higher education sectors, the continuing care retirement
community (CCRC) and tax increment financing (TIF) sectors have been strong
performers. CCRC's are retirement communities, combining on campus independent
living, assisted-living and skilled nursing facilities. TIFs are land
development deals that can be for residential, industrial or commercial use or a
combination thereof.
CAN YOU NAME SOME KEY HOLDINGS IN DELAWARE TAX-FREE USA FUND AND DELAWARE
NATIONAL HIGH-YIELD FUND?
Some securities that performed well during the fiscal year in Delaware Tax-Free
USA Fund include Benedictine Hospital in Duluth Minnesota, Cleveland Clinic in
Cuyahoga County Ohio, and Nichols College in Massachusetts. Nichols College was
upgraded to investment grade in early 2004 and its market value received the
benefit of both the higher rating and the tighter credit spreads. Also in the
Fund are the California tobacco bonds that are enhanced by a state
appropriation. This is a repeat performer from last year, as the bonds were
pre-refunded to their first call date and appreciated significantly in price. We
participated in a airline sector performance through industrial development
revenue bonds (IDRs) -- tax-exempt securities that are backed by corporate
revenues. We held bonds backed by Delta, American, Northwestern, and Continental
Airlines, although we currently hold only the American and Northwest bonds.
In the Delaware National High-Yield Municipal Bond Fund, securities held include
such hospitals as St. Francis in Shakopee Minnesota, Jordan Hospital in
Massachusetts, and Yavapai Regional Medical Center in Arizona. Also contributing
were a TIF deal in Midtown Miami, a CCRC in Gainesville Georgia and a
multifamily housing project in Rochester Minnesota. Also among the top returning
securities were Continental and Northwest Airlines IDRs, but the latter is the
only position we currently hold.
3
WHAT DETRACTED FROM FUND PERFORMANCE?
Detracting from our Funds' performance relative to the benchmark was the
decision to avoid the unenhanced tobacco sector. This has been the best
performing sector in the municipal bond market over the past year. The master
settlement agreement between the major tobacco companies and 46 states secures
these bonds. However, the sector is subject to litigation risk. We are
comfortable foregoing this potential source of volatility in the Funds.
Airline securities significantly outperformed the municipal market this year
during the second quarter, which is a traditional busy season. We underperformed
when we did participate in this sector, due to an underweight, as we are
concerned about the long-term fundamentals of the industry. We did hold the
aforementioned positions in several funds, but were underweight versus the
benchmark and our peers.
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. Our decision to hold underperforming
bonds, too, detracted from 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 USA FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges and expenses of the investment carefully before
investing. The Delaware Tax-Free USAFund 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. 1/11/84)
Excluding Sales Charge +7.88% +5.29% +6.71% +7.23%
Including Sales Charge +7.65% +4.81% +5.73% +2.41%
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Class B (Est. 5/2/94)
Excluding Sales Charge +4.82% +4.62% +5.88% +6.42%
Including Sales Charge +4.82% +4.62% +5.64% +2.42%
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Class C (Est. 11/29/95)
Excluding Sales Charge +4.31% +5.88% +6.42%
Including Sales Charge +4.31% +5.88% +5.42%
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Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Performance for Class B and C shares, excluding sales
charges, assumes either 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 up to 0.30%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%. Lifetime 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%.
Performance reflects certain expense limitations in effect for 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 interest income exempt from federal
income tax as is available from municipal obligations as is consistent with
prudent investment management and preservation of capital.
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TOTAL FUND NET ASSETS:
$476 million
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NUMBER OF HOLDINGS:
121
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FUND START DATE:
January 11, 1984
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YOUR FUND MANAGERS:
Joseph R. Baxter is a graduate of LaSalle University where he earned his
undergraduate degree in finance and marketing. Prior to joining Delaware in
1999, he held investment positions with First Union. Most recently, he served as
a municipal portfolio manager for the Evergreen Funds.
Robert Collins is Vice President and Senior Portfolio Manager of municipal bond
development. Prior to joining Delaware Investments, Mr. Collins was a Senior
Vice President and Director of Portfolio Management in the Municipal Investment
Group within PNC Advisors.
Patrick P. Coyne is a graduate of Harvard University with an MBA from the
University of Pennsylvania's Wharton School. Patrick Coyne joined Delaware
Investments fixed-income department in 1990. Prior to joining Delaware
Investments, he was a manager of Kidder, Peabody & Co. Inc.'s trading desk, and
specialized in trading high-grade municipal bonds and municipal futures
contracts.
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NASDAQ SYMBOLS:
Class A DMTFX
Class B DTFCX
Class C DUSCX
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PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1995 through August 31, 2005
[Graphic Omitted]
DELAWARE TAX-FREE LEHMAN BROTHERS
USA FUND MUNICIPAL BOND INDEX
AUG-95 $9,550 $10,000
AUG-96 $9,732 $10,524
AUG-97 $10,491 $11,496
AUG-98 $11,331 $12,491
AUG-99 $11,002 $12,553
AUG-00 $11,563 $13,403
AUG-01 $12,742 $14,769
AUG-02 $13,361 $15,691
AUG-03 $13,871 $16,183
AUG-04 $14,912 $17,334
AUG-05 $15,990 $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 limit was in effect beginning August 1, 2001. Performance would have
been lower had the expense limit not been in effect. The performance graph does
not reflect the deduction of taxes the shareholder would pay on Fund
distributions or redemptions of Fund shares. Past performance is not a guarantee
of future results.
7
PERFORMANCE SUMMARY
DELAWARE TAX-FREE INSURED FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges and expenses of the investment carefully before
investing. The Delaware Tax-Free Insured Fund prospectus contains this and other
important information about the 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. 3/25/85)
Excluding Sales Charge +6.91% +5.40% +6.15% +5.73%
Including Sales Charge +6.66% +4.91% +5.18% +1.01%
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Class B (Est. 5/2/94)
Excluding Sales Charge +4.92% +4.72% +5.32% +4.92%
Including Sales Charge +4.92% +4.72% +5.08% +0.92%
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Class C (Est. 11/29/95)
Excluding Sales Charge +4.36% +5.32% +4.92%
Including Sales Charge +4.36% +5.32% +3.92%
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Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below. Performance for Class B and C shares, excluding sales
charges, assumes either 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 up to 0.30%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%. Lifetime 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%.
Performance reflects certain expense limitations in effect for 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.
8
FUND BASICS
As of August 31, 2005
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FUND OBJECTIVE:
The Fund seeks as high a level of current interest income exempt from federal
income tax as is available from municipal obligations as is consistent with
prudent investment management and preservation of capital.
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TOTAL FUND NET ASSETS:
$61 million
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NUMBER OF HOLDINGS:
49
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FUND START DATE:
March 25, 1985
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YOUR FUND MANAGER:
Joseph R. Baxter
Patrick P. Coyne
Robert Collins
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NASDAQ SYMBOLS:
Class A DMFIX
Class B DTXBX
Class C DTXCX
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PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1995 through August 31, 2005
[Graphic Omitted]
DELAWARE TAX-FREE LEHMAN BROTHERS MUNICIPAL
INSURED FUND BOND INDEX
AUG-95 $9,550 $10,000
AUG-96 $9,921 $10,524
AUG-97 $10,720 $11,496
AUG-98 $11,533 $12,491
AUG-99 $11,362 $12,553
AUG-00 $11,987 $13,403
AUG-01 $13,222 $14,769
AUG-02 $13,920 $15,691
AUG-03 $14,339 $16,183
AUG-04 $15,274 $17,334
AUG-05 $16,149 $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 beginning September 1, 2001. Performance
would have been lower had the expense limit not been in effect. The performance
graph does not reflect the deduction of taxes the shareholder would pay on Fund
distributions or redemptions of Fund shares. Past performance is not a guarantee
of future results.
9
PERFORMANCE SUMMARY
DELAWARE TAX-FREE USA INTERMEDIATE FUND
The performance data quoted represent past performance; past performance does
not guarantee future results. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month
end by calling 800 523-1918 or visiting our Web site at
www.delawareinvestments.com/performance. You should consider the investment
objectives, risks, charges and expenses of the investment carefully before
investing. The Delaware Tax-Free USA Intermediate Fund prospectus contains this
and other important information about the 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. 1/7/93)
Excluding Sales Charge +5.92% +5.66% +6.48% +5.63%
Including Sales Charge +5.68% +5.37% +5.90% +2.75%
- ---------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +5.40% +5.21% +5.59% +4.83%
Including Sales Charge +5.40% +5.21% +5.59% +2.83%
- ---------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +4.71% +5.59% +4.74%
Including Sales Charge +4.71% +5.59% +3.74%
- ---------------------------------------------------------------------------------------------------
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 2.75% and have an annual distribution and
service fee of up to 0.30%.
Class B shares are sold with a contingent deferred sales charge that declines
from 2% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately five years after purchase. They are also subject to an annual
distribution and service fee of 1%.Lifetime and 10-year performance figures for
Class B shares reflect conversion to Class A shares after five years.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%. Performance reflects certain expense
limitations in effect for 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.
10
FUND BASICS
As of August 31, 2005
- --------------------------------------------------------------------------------
FUND OBJECTIVE:
The Fund seeks as high a level of current interest income exempt from federal
income tax as is available from municipal obligations as is consistent with
prudent investment management and preservation of capital.
- --------------------------------------------------------------------------------
TOTAL FUND NET ASSETS:
$149 million
- --------------------------------------------------------------------------------
NUMBER OF HOLDINGS:
136
- --------------------------------------------------------------------------------
FUND START DATE:
January 7, 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOUR FUND MANAGER:
Joseph R. Baxter
Robert Collins
Patrick P. Coyne
- --------------------------------------------------------------------------------
NASDAQ SYMBOLS:
Class A DMUSX
Class B DUIBX
Class C DUICX
- --------------------------------------------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT
August 31, 1995 through August 31, 2005
[Graphic Omitted]
DELAWARE TAX-FREE USA INTERMEDIATE FUND PERFORMANCE OF $10,000 INVESTMENT CHART
DELAWARE TAX-FREE MERRILL LYNCH 3-7 YEAR
USA INTERMEDIATE FUND MUNICIPAL BOND INDEX
AUG-95 $9,725 $10,000
AUG-96 $10,165 $10,369
AUG-97 $10,832 $11,023
AUG-98 $11,627 $11,793
AUG-99 $11,661 $12,075
AUG-00 $12,325 $12,715
AUG-01 $13,557 $13,964
AUG-02 $14,320 $14,899
AUG-03 $14,876 $15,478
AUG-04 $15,967 $16,215
AUG-05 $16,865 $16,557
Chart assumes $10,000 invested on August 31, 1995 and includes the effect of a
2.75% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses. Returns plotted on the chart were as of the last day of each month
shown. The Merrill Lynch 3-7 year Municipal Bond Index is an unmanaged index
that generally tracks the performance of municipal bonds. An index is unmanaged
and does not reflect the costs of operating a mutual fund, such as the costs of
buying, selling, and holding securities. You cannot invest directly in an index.
An expense limitation was in effect during the periods shown. Performance would
have been lower had the expense limit not been in effect. The performance graph
does not reflect the deduction of taxes the shareholder would pay on Fund
distributions or redemptions of Fund shares. Past performance is not a guarantee
of future results.
11
DISCLOSURE For the Period March 1, 2005 to August 31, 2005
OF FUND EXPENSES
As a shareholder of a Fund, you may incur two types of costs:
(1) transaction costs, including sales charges (loads) on purchase payments,
reinvested dividends, or other distributions; redemption fees; and exchange
fees; and (2) ongoing costs, including management fees; distribution and/or
service (12b-1) fees; and other fund expenses. The following examples are
intended to help you understand your ongoing costs (in dollars) of investing in
a Fund and to compare these costs with the ongoing costs of investing in other
mutual funds.
The Examples are based on an investment of $1,000 invested at the beginning of
the period and held for the entire period March 1, 2005 to August 31, 2005.
ACTUAL EXPENSES
The first section of the tables shown, "Actual Fund Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the tables shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Fund's actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. The Fund's actual expenses shown in the table reflect fee waivers in
effect. The expenses shown in the table assume reinvestment of all dividends and
distributions. In each case, "Expenses Paid During 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 USA 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 $1,035.00 0.87% $4.46
Class B 1,000.00 1,031.00 1.64% 8.40
Class C 1,000.00 1,031.00 1.64% 8.40
- --------------------------------------------------------------------------------
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,020.82 0.87% $4.43
Class B 1,000.00 1,016.94 1.64% 8.34
Class C 1,000.00 1,016.94 1.64% 8.34
- --------------------------------------------------------------------------------
DELAWARE TAX-FREE INSURED FUND
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses
Beginning Ending Paid During
Account Account Annualize 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 $1,028.60 0.92% $4.70
Class B 1,000.00 1,024.60 1.69% 8.62
Class C 1,000.00 1,024.60 1.69% 8.62
- --------------------------------------------------------------------------------
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,020.57 0.92% $4.69
Class B 1,000.00 1,016.69 1.69% 8.59
Class C 1,000.00 1,016.69 1.69% 8.59
- --------------------------------------------------------------------------------
12
DELAWARE TAX-FREE USA INTERMEDIATE FUND
EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 3/1/05 to
3/1/05 8/31/05 Ratio 8/31/05
- --------------------------------------------------------------------------------
Actual Fund Return
Class A $1,000.00 $1,030.50 0.82% $4.20
Class B 1,000.00 1,026.10 1.67% 8.53
Class C 1,000.00 1,026.10 1.67% 8.53
- --------------------------------------------------------------------------------
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,021.07 0.82% $4.18
Class B 1,000.00 1,016.79 1.67% 8.49
Class C 1,000.00 1,016.79 1.67% 8.49
- --------------------------------------------------------------------------------
13
SECTOR ALLOCATION As of August 31, 2005
DELAWARE NATIONAL TAX-FREE FUNDS
Sector designations may be different than the sector designations presented in
other Fund materials.
DELAWARE TAX-FREE USA FUND
PERCENTAGE
SECTOR OF NET ASSETS
- --------------------------------------------------------------
MUNICIPAL BONDS 96.40%
- --------------------------------------------------------------
Airline Revenue Bonds 0.72%
Airport Revenue Bonds 1.69%
City General Obligation Bonds 3.48%
Continuing Care/Retirement Revenue Bonds 1.71%
Corporate-Backed Revenue Bonds 3.36%
Dedicated Tax & Fees Revenue Bonds 4.24%
Escrowed to Maturity Bonds 8.48%
Higher Education Revenue Bonds 9.15%
Hospital Revenue Bonds 12.07%
Investor Owned Utilities Revenue Bonds 9.65%
Miscellaneous Revenue Bonds 1.12%
Multifamily Housing Revenue Bonds 0.93%
Municipal Lease Revenue Bonds 5.17%
Pre-Refunded Bonds 9.25%
Public Power Revenue Bonds 3.38%
Public Utility District Revenue Bonds 3.33%
School District General Obligation Bonds 0.50%
Single Family Housing Revenue Bonds 0.17%
Tax Increment/Special Assessment Bonds 0.23%
Territorial General Obligation Bonds 1.99%
Territorial Revenue Bonds 9.69%
Turnpike/Toll Road Revenue Bonds 1.92%
Water & Sewer Revenue Bonds 4.17%
- --------------------------------------------------------------
VARIABLE RATE DEMAND NOTES 4.07%
- --------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 100.47%
- --------------------------------------------------------------
LIABILITIES NET OF RECEIVABLES AND OTHER ASSETS (0.47)%
- --------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- --------------------------------------------------------------
DELAWARE TAX-FREE INSURED FUND
PERCENTAGE
SECTOR OF NET ASSETS
- --------------------------------------------------------------
MUNICIPAL BONDS 96.25%
- --------------------------------------------------------------
Airport Revenue Bonds 2.61%
City General Obligation Bonds 5.93%
Continuing Care/Retirement Revenue Bonds 2.18%
Corporate-Backed Revenue Bonds 1.30%
Dedicated Tax & Fees Revenue Bonds 5.49%
Escrowed to Maturity Bonds 1.88%
Higher Education Revenue Bonds 14.99%
Hospital Revenue Bonds 3.52%
Investor Owned Utilities Revenue Bonds 7.64%
Multifamily Housing Revenue Bonds 10.19%
Municipal Lease Revenue Bonds 6.55%
Political Subdivision General Obligation Bonds 0.99%
Pre-Refunded Bonds 8.35%
School District General Obligation Bonds 4.28%
Single Family Housing Revenue Bonds 1.05%
Territorial General Obligation Bonds 1.93%
Territorial Revenue Bonds 7.58%
Turnpike/Toll Road Revenue Bonds 0.87%
Water & Sewer Revenue Bonds 8.92%
- --------------------------------------------------------------
VARIABLE RATE DEMAND NOTES 1.63%
- --------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 97.88%
- --------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.12%
- --------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- --------------------------------------------------------------
14
SECTOR ALLOCATION As of August 31, 2005
DELAWARE NATIONAL TAX-FREE FUNDS
Sector designations may be different than the sector designations presented in
other Fund materials.
DELAWARE TAX-FREE USA INTERMEDIATE FUND
PERCENTAGE
SECTOR OF NET ASSETS
- --------------------------------------------------------------
MUNICIPAL BONDS 94.01%
- --------------------------------------------------------------
Airport Revenue Bonds 1.50%
City General Obligation Bonds 3.49%
Continuing Care/Retirement Revenue Bonds 1.36%
Corporate-Backed Revenue Bonds 5.85%
Dedicated Tax & Fees Revenue Bonds 6.63%
Escrowed to Maturity Bonds 0.21%
Higher Education Revenue Bonds 15.45%
Hospital Revenue Bonds 11.59%
Investor Owned Utilities Revenue Bonds 6.33%
Miscellaneous Revenue Bonds 2.15%
Municipal Lease Revenue Bonds 3.43%
Political Subdivision General Obligation Bonds 2.24%
Ports & Harbors Revenue Bonds 0.37%
Power Authority Revenue Bonds 1.51%
Pre-Refunded Bonds 4.97%
Public Power Revenue Bonds 1.59%
Recreational Area Revenue Bonds 0.73%
School District General Obligation Bonds 7.68%
School District Revenue Bonds 0.76%
State General Obligation Bonds 2.05%
Tax Increment/Special Assessment Bonds 3.45%
Territorial General Obligation Bonds 2.29%
Territorial Revenue Bonds 4.49%
Transportation Revenue Bonds 0.75%
Turnpike/Toll Road Revenue Bonds 0.92%
Water & Sewer Revenue Bonds 2.22%
- --------------------------------------------------------------
VARIABLE RATE DEMAND NOTES 5.32%
- --------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES 99.33%
- --------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.67%
- --------------------------------------------------------------
TOTAL NET ASSETS 100.00%
- --------------------------------------------------------------
15
STATEMENTS DELAWARE TAX-FREE USA FUND
OF NET ASSETS August 31, 2005
Principal Market
Amount Value
MUNICIPAL BONDS - 96.40%
Airline Revenue Bonds - 0.72%
Minneapolis/St. Paul, Minnesota
Metropolitan Airports Commission
Special Facilities Revenue
(Northwest Airlines, Inc. Project)
Series A 7.00% 4/1/25 (AMT) $1,300,000 $ 1,187,862
Tulsa, Oklahoma Municipal Airport Trust
Revenue (American Airlines Corp.)
7.35% 12/1/11 2,250,000 2,252,880
-----------
3,440,742
-----------
Airport Revenue Bonds - 1.69%
Capital Trust Agency Florida Revenue
(Fort Lauderdale/Cargo Acquisition
Project) 5.75% 1/1/32 (AMT) 2,500,000 2,542,200
(Orlando/Cargo Project)
6.75% 1/1/32 (AMT) 2,395,000 2,431,931
Grapevine, Texas Industrial Development
Corporate Revenue (Air Cargo)
6.50% 1/1/24 (AMT) 920,000 966,892
Houston, Texas Industrial Development
Corporate Revenue (Air Cargo)
6.375% 1/1/23 (AMT) 2,000,000 2,087,100
-----------
8,028,123
-----------
City General Obligation Bonds - 3.48%
New York City, New York
Series H 6.125% 8/1/25 4,245,000 4,511,798
Series I 5.125% 3/1/23 5,875,000 6,262,398
Series J 5.25% 6/1/28 5,400,000 5,817,690
-----------
16,591,886
-----------
Continuing Care/Retirement Revenue Bonds - 1.71%
Colorado Health Facilities Authority
Revenue (Evangelical Lutheran)
Series A 5.25% 6/1/34 3,000,000 3,148,440
Delaware County, Pennsylvania Industrial
Development Authority Revenue
Care Institute (Main Line Care
Institute Project) 9.00% 8/1/31 1,777,611 1,718,719
Gainesville & Hall County, Georgia
Development Authority Revenue
(Lanier Village Estates Project)
Series C 7.25% 11/15/29 1,000,000 1,115,810
Lucas County, Ohio Health Care
Facility Revenue
(Sunset Retirement Communities)
Series A 6.625% 8/15/30 2,000,000 2,172,740
-----------
8,155,709
-----------
Corporate-Backed Revenue Bonds - 3.36%
Alliance, Texas Airport Authority
Special Facilities Revenue
(Federal Express Corp. Project)
6.375% 4/1/21 (AMT) 2,000,000 2,079,660
Cloquet, Minnesota Pollution
Control Revenue (Potlatch Corp.)
5.90% 10/1/26 1,695,000 1,721,086
++Columbus, Kansas Industrial Revenue
(ACE Electrical Acquisition)
7.00% 8/1/17 (AMT) 800,000 228,000
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Corporate-Backed Revenue Bonds (continued)
Indianapolis, Indiana Airport
Authority Revenue
(Federal Express Corp. Project)
5.10% 1/15/17 (AMT) $2,000,000 $ 2,120,260
Phenix City, Alabama Industrial
Development Board Environmental
Improvement Revenue
(Mead Westvaco Corporation Project)
Series A 6.35% 5/15/35 (AMT) 3,000,000 3,260,430
Puerto Rico Industrial, Medical &
Environmental Pollution Control
Facilities Financing Authority Revenue
(PepsiCo, Inc. Project) 6.25% 11/15/13 1,250,000 1,303,338
Richmond County, Georgia Development
Authority Environmental Improvement
Revenue (International Paper Co.)
Series B 5.95% 11/15/25 (AMT) 5,000,000 5,299,800
-----------
16,012,574
-----------
Dedicated Tax & Fees Revenue Bonds - 4.24%
Bi-State Development Agency
Missouri, Illinois Metropolitan District
(Metrolink Cross County Project)
Series B 5.00% 10/1/32 (FSA) 1,000,000 1,058,180
Massachusetts School Building Authority
(Ax Revser) Series A
5.00% 8/15/30 (FSA) 10,000,000 10,716,800
New Jersey Economic Development
Authority (Cigarette Tax)
5.75% 6/15/34 2,000,000 2,151,860
New York City, New York Transitional
Finance Authority Series D
5.00% 2/1/31 5,000,000 5,267,150
Truth or Consequences, New Mexico
Gross Receipts Tax Revenue
6.30% 7/1/16 1,000,000 1,019,300
-----------
20,213,290
-----------
Escrowed to Maturity Bonds - 8.48%
Louisiana Public Facilities Authority
Hospital Revenue
(Southern Baptist Hospital, Inc.)
8.00% 5/15/12 5,555,000 6,476,408
New Jersey State Highway Authority
Garden State Parkway General Revenue
(Senior Parkway) (FGIC)
5.50% 1/1/14 5,000,000 5,715,200
5.50% 1/1/15 7,310,000 8,405,477
Oklahoma State Turnpike Authority Revenue
(First Senior) 6.00% 1/1/22 13,535,000 16,953,399
Virgin Islands Public Finance
Authority Revenue Series A
7.30% 10/1/18 2,200,000 2,833,490
-----------
40,383,974
-----------
16
STATEMENTS DELAWARE TAX-FREE USA FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Higher Education Revenue Bonds - 9.15%
Chattanooga Tennessee Health
Educational & Housing Facilities
Board Revenue Series A
5.125% 10/1/35 $3,500,000 $ 3,535,560
Illinois Educational Facilities Authority
Student Housing Revenue
(Educational Advancement Fund-
University Center Project)
6.25% 5/1/30 5,000,000 5,420,200
Maryland State Economic Development
Corporation, Student Housing Revenue
(University of Maryland College
Park Project) 5.625% 6/1/35 1,125,000 1,192,601
Massachusetts State Health & Educational
Facilities Authority Revenue
(Nichols College Project) Series C
6.00% 10/1/17 1,000,000 1,071,430
6.125% 10/1/29 1,000,000 1,064,460
Milledgeville-Baldwin County, Georgia
Development Authority Revenue
(Georgia College & State
University Foundation) 6.00% 9/1/33 1,000,000 1,092,630
New Hampshire Higher Educational &
Health Facilities Authority Revenue
(New Hampton School Issue)
5.375% 10/1/28 3,070,000 3,025,946
New Jersey State Educational Facilities
Authority Revenue
(Stevens Institute of Technology)
Series B 5.25% 7/1/24 2,085,000 2,204,825
&New York State Dormitory Authority
Revenues (Drivers-107) Inverse Floater
6.465% 5/15/15 (MBIA) 20,000,000 23,918,200
Vermont University & State Agriculture
College 5.125% 10/1/37 (AMBAC) 1,000,000 1,060,090
-----------
43,585,942
-----------
Hospital Revenue Bonds - 12.07%
Akron Bath Copley, Ohio Joint Township
Hospital District Revenue
(Summa Health System)
Series A 5.25% 11/15/31 (RADIAN) 3,000,000 3,184,110
Cando, North Dakota Nursing
Facility Revenue
(Towner County Medical Center Project)
7.125% 8/1/22 1,000,000 1,011,810
Chatham County, Georgia Hospital
Authority Revenue
(Memorial Health Medical Center)
Series A 6.125% 1/1/24 1,000,000 1,099,650
Cuyahoga County, Ohio Revenue
(Cleveland Clinic Health Systems)
Series A 5.50% 1/1/29 7,500,000 8,064,300
Duluth Economic Development Authority
Health Care Facilities Revenue
(Benedictine Health System -
St. Mary's Hospital) 5.25% 2/15/33 5,825,000 6,123,007
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds (continued)
Florence County, South Carolina
Hospital Revenue
(McLeod Regional Medical Center
Project) Series A 5.25% 11/1/27 (FSA) $2,355,000 $ 2,558,189
Henrico County, Virginia Economic
Development Authority Revenue
(Bon Secours Health System, Inc.)
Series A 5.60% 11/15/30 3,140,000 3,344,571
Illinois Health Facilities Authority Revenue
(Elmhurst Memorial Health Care Project)
5.625% 1/1/28 2,000,000 2,141,020
Louisiana Public Facilities Authority Revenue
(Ochsner Clinic Foundation Project)
Series B 5.50% 5/15/32 1,500,000 1,558,530
Maryland State Health & Higher Educational
Facilities Authority Revenue
(Union Hospital Cecil County Issue)
5.00% 7/1/40 2,345,000 2,420,063
Michigan State Hospital Finance
Authority Revenue
(Ascension Health Credit Group)
Series B 5.25% 11/15/26 3,500,000 3,718,925
(Oakwood Obligation Group)
Series A 5.75% 4/1/32 2,500,000 2,688,000
(Trinity Health Credit)
Series C 5.375% 12/1/30 6,000,000 6,380,400
Multnomah County, Oregon Hospital
Facilities Authority Revenue
(Providence Health System)
5.25% 10/1/22 3,000,000 3,278,370
New York State Dormitory Authority
(Catholic Health Services of Long Island-
St. Francis Hospital Project)
5.10% 7/1/34 2,500,000 2,584,600
North Carolina Medical Care
Commission Hospital Revenue
(Northeast Medical Center Project)
5.125% 11/1/34 1,250,000 1,320,963
Prince William County, Virginia Industrial
Development Authority Hospital Revenue
(Potomac Hospital Corp.)
5.35% 10/1/36 1,750,000 1,864,328
South Miami, Florida Health Facilities
Authority Hospital Revenue
(Baptist Health South Florida Group)
5.25% 11/15/33 4,000,000 4,198,840
-----------
57,539,676
-----------
Investor Owned Utilities Revenue Bonds - 9.65%
Brazos, Texas River Authority
Pollution Revenue
(TXU Energy Co. Project) Series B
6.30% 7/1/32 (AMT) 3,500,000 3,797,640
Clark County, Nevada Industrial
Development Revenue
(Nevada Power Co. Project) Series C
7.20% 10/1/22 8,000,000 8,127,198
17
STATEMENTS DELAWARE TAX-FREE USA FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Investor Owned Utilities Revenue Bonds (continued)
Midland County, Michigan Economic
Development Subordinate
Limited Obligation
(Midland Congeneration Project)
Series A 6.875% 7/23/09 (AMT) $3,050,000 $ 3,206,008
Mississippi Business Finance Corporation
Pollution Control Revenue
(System Energy Resources, Inc. Project)
5.90% 5/1/22 3,000,000 3,084,480
Pennsylvania Economic Development
Financing (Reliant Energy)
Series B 6.75% 12/1/36 (AMT) 3,250,000 3,508,310
Petersburg, Indiana Pollution
Control Revenue
(Indianapolis Power & Light Co. Project)
6.375% 11/1/29 (AMT) 4,250,000 4,555,703
6.625% 12/1/24 4,500,000 4,600,845
Port Morrow, Oregon Pollution
Control Revenue
(Portland General Electric Co.)
Series A 5.20% 5/1/33 2,000,000 2,089,520
Sabine, Texas River Authority Pollution
Control Revenue
(Southwestern Electric Power Co.)
6.10% 4/1/18 (MBIA) 4,000,000 4,145,760
Suffolk County, New York Industrial
Agency Development Revenue
(Keyspan-Port Jefferson Project)
5.25% 6/1/27 (AMT) 3,500,000 3,667,790
Sweetwater County, Wyoming
Pollution Control Revenue
(Idaho Power Co. Project)
Series A 6.05% 7/15/26 5,000,000 5,190,600
-----------
45,973,854
-----------
Miscellaneous Revenue Bonds - 1.12%
Middlesex County, New Jersey Improvement
Authority Senior Revenue
(Heldrich Center Hotel/
Conference Project) Series A
5.00% 1/1/32 1,500,000 1,508,235
5.125% 1/1/37 1,500,000 1,513,740
Wisconsin Center District Tax Revenue
(Junior Dedicated)
5.25% 12/15/23 (FSA) 2,000,000 2,326,240
-----------
5,348,215
-----------
Multifamily Housing Revenue Bonds - 0.93%
Milwaukee, Wisconsin Redevelopment
Authority Multifamily Revenue
(City Hall Square)
6.30% 8/1/38 (FHA) (AMT) 1,455,000 1,545,254
North Dakota State Housing Finance
Agency Multifamily Revenue
Series A 6.15% 12/1/17 (FNMA) 1,300,000 1,330,758
Waukesha, Wisconsin Housing Authority
(Westgrove Woods)
Series A 6.00% 12/1/31 (GNMA) (AMT) 1,500,000 1,547,415
-----------
4,423,427
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Municipal Lease Revenue Bonds - 5.17%
Alexandria, Virginia Industrial
Development Authority Revenue
(Institute for Defense Analyses)
Series A 5.90% 10/1/30 (AMBAC) $5,000,000 $ 5,618,500
California State Public Works Board
(Department of General
Services-Butterfield)
Series A 5.25% 6/1/30 2,750,000 2,972,035
Golden State, California Tobacco
Securitization Corporation
Settlement Revenue
Series A 5.00% 6/1/45 (AMBAC) 10,000,000 10,434,600
Linn County, Kansas Certificates
of Participation 7.25% 3/1/13 (AMT) 350,000 333,907
Missouri State Development Finance
Board Infrastructure Facilities Revenue
(Branson Landing Project) Series A
5.25% 12/1/19 1,000,000 1,061,860
5.50% 12/1/24 980,000 1,047,973
5.625% 12/1/28 2,930,000 3,146,498
-----------
24,615,373
-----------
ss.Pre-Refunded Bonds - 9.25%
Cudahy, Wisconsin Community
Development Authority Lease Revenue
6.00% 6/1/11-06 1,000,000 1,023,420
Golden State, California Tobacco
Securitization Corporation Settlement
Revenue Series B
5.50% 6/1/43-13 7,500,000 8,519,850
5.625% 6/1/38-13 7,500,000 8,583,074
Michigan State Hospital Finance
Authority Revenue
(Genesys Health Systems) Series A
7.50% 10/1/27-05 8,130,000 8,161,544
8.125% 10/1/21-05 4,000,000 4,097,200
Mississippi Development Bank
Special Obligation
(Madison County Hospital Project)
6.30% 7/1/22-09 2,070,000 2,337,527
New York City, New York Series H
6.125% 8/1/25-07 755,000 808,401
Payne County, Oklahoma Economic
Development Authority Student
Housing Revenue (Collegiate Housing
Foundation-Oklahoma State University)
Series A 6.375% 6/1/30-11 4,000,000 4,623,760
Puerto Rico Commonwealth
Public Improvement Series A
5.125% 7/1/31-11 3,495,000 3,849,288
5.375% 7/1/21-07 (MBIA) 50,000 52,954
Southeast Wisconsin Professional
Baseball Park District Sales Tax Revenue
5.80% 12/15/26-07 (MBIA) 1,000,000 1,051,950
Wisconsin Housing & Economic
Developing Authority Revenue
6.10% 6/1/21-17 (FHA) 835,000 948,877
-----------
44,057,845
-----------
18
STATEMENTS DELAWARE TAX-FREE USA FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Public Power Revenue Bonds - 3.38%
Salt River Project Arizona Agriculture
Improvement & Power District
Electric Revsalt River Project
Series A 5.00% 1/1/35 $15,000,000 $ 16,107,450
-----------
16,107,450
-----------
Public Utility District Revenue Bonds - 3.33%
Chelan County, Washington Public Utilities
District #001 Consolidated Revenue
(Chelan Hydro System) Series A
5.45% 7/1/37 (AMBAC) (AMT) 5,000,000 5,333,950
Richmond, Virginia Public Utilities Revenue
5.00% 1/15/27 (FSA) 10,000,000 10,531,300
-----------
15,865,250
-----------
School District General Obligation Bonds - 0.50%
Lewisville, Texas Independent School
District Permanent School Fund
6.15% 8/15/21 2,160,000 2,382,286
-----------
2,382,286
-----------
Single Family Housing Revenue Bonds - 0.17%
New Mexico Mortgage Finance Authority
Series B Class III 6.75% 7/1/25
(GNMA) (FNMA) 310,000 313,896
Series E 6.95% 1/1/26 (GNMA) (FNMA) 265,000 275,873
Santa Fe, New Mexico Single
Family Mortgage Revenue
Series B -1 6.20% 11/1/16
(GNMA) (FNMA) (AMT) 215,000 215,858
Utah State Housing Finance Agency
Single Family Mortgage Series A-2
7.20% 1/1/27 (FHA) (VA) (AMT) 20,000 20,431
-----------
826,058
-----------
Tax Increment/Special Assessment Bonds - 0.23%
Midtown Miami, Florida Community
Development District Special
Assessment Revenue
(Infrastructure Project) Series B
6.50% 5/1/37 1,000,000 1,074,170
-----------
1,074,170
-----------
Territorial General Obligation Bonds - 1.99%
Puerto Rico Commonwealth Public
Improvement Series A
5.50% 7/1/19 (MBIA) 8,000,000 9,485,520
-----------
9,485,520
-----------
Territorial Revenue Bonds - 9.69%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series G 5.00% 7/1/42 6,750,000 7,063,335
Puerto Rico Commonwealth Industrial
Development Company General
Purpose Revenues
Series B 5.375% 7/1/16 1,000,000 1,056,880
Puerto Rico Commonwealth Infrastructure
Financing Authority Tax Revser B
5.00% 7/1/41 8,000,000 8,436,240
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Territorial Revenue Bonds (continued)
Puerto Rico Commonwealth Public
Improvement Series A 5.125% 7/1/31 $ 6,880,000 $ 7,209,483
Puerto Rico Electric Power Authority
Power Revenue Series II 5.25% 7/1/31 6,000,000 6,448,980
Puerto Rico Housing, Bank & Finance
Agency Single Family Mortgage Revenue
6.25% 4/1/29 (GNMA) (FNMA)
(FHLMC) (AMT) 1,240,000 1,268,867
Puerto Rico Industrial, Tourist, Educational,
Medical & Environmental Control Facilities
(Hospital Auxilio Mutuo Obligated Group)
Series A 6.25% 7/1/24 (MBIA) 1,200,000 1,220,424
Puerto Rico Public Buildings Authority
Revenue (Government Facilities)
Series I 5.25% 7/1/33 12,000,000 12,948,720
Virgin Islands Water & Power Authority
Water System Revenue 5.50% 7/1/17 510,000 526,422
------------
46,179,351
------------
Turnpike/Toll Road Revenue Bonds - 1.92%
Ohio State Turnpike Commission Revenue
Series A (FGIC)
5.50% 2/15/24 5,000,000 6,012,350
5.50% 2/15/26 2,590,000 3,135,325
------------
9,147,675
------------
Water & Sewer Revenue Bonds - 4.17%
Augusta, Georgia Water & Sewer Revenue
5.25% 10/1/34 (FSA) 3,375,000 3,692,216
New York City, New York Municipal
Water Finance Authority Water &
Sewer System Revenue
Series A 5.125% 6/15/34 12,125,000 12,927,433
West Virginia State Water Development
Authority Revenue (Loan Program III)
Series A 6.375% 7/1/39 (AMBAC) (AMT) 2,890,000 3,249,892
-----------
19,869,541
-----------
TOTAL MUNICIPAL BONDS
(cost $422,484,365) 459,307,931
-----------
oVARIABLE RATE DEMAND NOTES - 4.07%
Chester County, Pennsylvania Industrial
Development Authority Revenue
(Archdiocese of Philadelphia)
2.30% 7/1/31 6,000,000 6,000,000
Pennsylvania Turnpike Commission
Series Q - Pennsylvania 2.30% 6/1/27 4,400,000 4,400,000
Philadelphia, Pennsylvania Authority for
Industrial Development Revenues
(Newcourtland Elder Services Project)
2.30% 3/1/27 (LOC PNC Bank) 9,000,000 9,000,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES
(cost $19,400,000) 19,400,000
-----------
19
STATEMENTS DELAWARE TAX-FREE USA FUND
OF NET ASSETS (CONTINUED)
TOTAL MARKET VALUE OF SECURITIES - 100.47%
(cost $441,884,365) $478,707,931
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (0.47%) (2,256,224)
------------
NET ASSETS APPLICABLE TO 40,516,197 SHARES
OUTSTANDING - 100.00% $476,451,707
============
Net Asset Value - Delaware Tax-Free USA Fund
Class A ($453,981,245 / 38,605,351 Shares) $11.76
------
Net Asset Value - Delaware Tax-Free USA Fund
Class B ($16,506,973 / 1,403,728 Shares) $11.76
------
Net Asset Value - Delaware Tax-Free USA Fund
Class C ($5,963,489 / 507,118 Shares) $11.76
------
COMPONENTS OF NET ASSETS AT AUGUST 31, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $447,927,164
Distributions in excess of net investment income (12,071)
Accumulated net realized loss on investments (8,286,952)
Net unrealized appreciation of investments 36,823,566
------------
Total net assets $476,451,707
============
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
FHLMC - Insured by the Federal Home Loan Mortgage Corporation
FNMA - Insured by Federal National Mortgage Association
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
VA - Insured by the Veterans Administration
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."
o Variable rate notes. The interest rate shown is the rate as of August 31,
2005.
& 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."
++ Non-income producing security. Security is currently in default.
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE TAX-FREE USA FUND
Net asset value Class A (A) $11.76
Sales charge (4.50% of offering price) (B) 0.55
------
Offering price $12.31
======
(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
20
STATEMENTS DELAWARE TAX-FREE INSURED FUND
OF NET ASSETS (CONTINUED) August 31, 2005
Principal Market
Amount Value
MUNICIPAL BONDS - 96.25%
Airport Revenue Bonds - 2.61%
Dallas-Fort Worth, Texas International
Airport Revenue Series A
5.50% 11/1/31 (FGIC) (AMT) $1,500,000 $ 1,602,780
-----------
1,602,780
-----------
City General Obligation Bonds - 5.93%
Melrose Park, Illinois Tax Increment
Series B 6.00% 12/15/19 (FSA) 1,250,000 1,410,225
Powell, Ohio 5.50% 12/1/32 (FGIC) 2,000,000 2,229,660
-----------
3,639,885
-----------
Continuing Care/Retirement Revenue Bonds - 2.18%
Colorado Health Facilities Authority Revenue
(Evangelical Lutheran) Series A
5.25% 6/1/34 1,275,000 1,338,087
-----------
1,338,087
-----------
Corporate-Backed Revenue Bonds - 1.30%
Indianapolis, Indiana Airport
Authority Revenue
(Federal Express Corp. Project)
5.10% 1/15/17 (AMT) 750,000 795,098
-----------
795,098
-----------
Dedicated Tax & Fees Revenue Bonds - 5.49%
New Jersey Economic Development Authority
(Cigarette Tax) 5.50% 6/15/31 1,000,000 1,058,090
New York State Sales Tax Asset Receivables
Series A 5.25% 10/15/27 (AMBAC) 1,000,000 1,103,150
Tampa, Florida Sports Authority Revenue
(Tampa Bay Arena Project) Sales Tax
5.75% 10/1/20 (MBIA) 1,000,000 1,210,050
-----------
3,371,290
-----------
Escrowed to Maturity Bonds - 1.88%
New Jersey State Highway Authority
Garden State Parkway General Revenue
5.50% 1/1/16 (FGIC) 1,000,000 1,154,750
-----------
1,154,750
-----------
Higher Education Revenue Bonds - 14.99%
Amherst, New York Industrial Development
Agency Civic Facilities Revenue
(UBF Faculty Student Housing) Series A
5.75% 8/1/30 (AMBAC) 1,300,000 1,459,860
Illinois Educational Facilities Authority
Student Housing Revenue
(Educational Advancement Funding -
University Center Project)
6.25% 5/1/34 1,000,000 1,031,210
Massachusetts State Development
Finance Agency Revenue
(Massachusetts College of
Pharmacy Project) Series C
5.75% 7/1/33 500,000 535,695
Massachusetts State Industrial Finance
Agency Revenue Higher Education
(Clark University Project) 6.10% 7/1/16 1,250,000 1,296,988
New York State Dormitory Authority Revenue
(Fashion Institute Student Housing Corp.)
5.00% 7/1/13 (FGIC) 1,000,000 1,104,470
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Higher Education Revenue Bonds (continued)
Oregon State Facilities Authority Revenue
(College Independent Student Housing
Project) Series A 5.25% 7/1/30 (XLCA) $1,000,000 $ 1,088,440
Pennsylvania State Higher Educational
Facilities Authority Revenue
(Widener University) 5.375% 7/15/29 1,000,000 1,057,070
University Massachusetts Building
Authority Revenue (Refunding-Senior)
Series 2 5.00% 11/1/25 (AMBAC) 1,000,000 1,082,370
University of Central Florida Athletics
Association Certificates of Participation
Series A 5.25% 10/1/34 (FGIC) 500,000 543,420
-----------
9,199,523
-----------
Hospital Revenue Bonds - 3.52%
Florence County, South Carolina Hospital
Revenue (McLeod Regional Medical
Center Project) Series A
5.25% 11/1/27 (FSA) 1,000,000 1,086,280
Knox County, Tennessee Health
Educational & Housing Facilities
Board Hospital Revenue
(East Tennessee Hospital Project)
Series B 5.75% 7/1/33 1,000,000 1,075,190
-----------
2,161,470
-----------
Investor Owned Utilities Revenue Bonds - 7.64%
Mason County, West Virginia
Pollution Control Revenue
(Appalachian Power Co. Project)
Series K 6.05% 12/1/24 (AMBAC) 3,000,000 3,351,840
Petersburg, Indiana Pollution
Control Revenue
(Indianapolis Power & Light Co. Project)
6.375% 11/1/29 (AMT) 750,000 803,948
South Carolina Jobs Economic Development
Authority Industrial Revenue
(South Carolina Electric & Gas Co. Project)
Series B 5.45% 11/1/32 (AMBAC) (AMT) 500,000 537,630
-----------
4,693,418
-----------
Multifamily Housing Revenue Bonds - 10.19%
Franklin County, Ohio Multi Family Revenue
(Alger Green) Series A
5.80% 5/20/44 (GNMA) (AMT) 1,150,000 1,220,702
Illinois Development Finance
Authority Revenue (Section 8) Series A
5.80% 7/1/28 (FHA) (MBIA) 2,790,000 2,899,758
Illinois Housing Development Authority
Multi Family Revenue
(Crystal Lake Preservation) Series A-1
5.80% 12/20/41 (GNMA) 2,000,000 2,133,140
-----------
6,253,600
-----------
21
STATEMENTS DELAWARE TAX-FREE INSURED FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Municipal Lease Revenue Bonds - 6.55%
Alexandria, Virginia Industrial
Development Authority Revenue
(Institute for Defense Analyses)
Series A 5.90% 10/1/30 (AMBAC) $1,000,000 $ 1,123,700
Golden State, California Tobacco
Securitization Corporation Settlement
Revenue Series 2005A
5.00% 6/1/21 (AMBAC) 1,000,000 1,061,140
Loudoun County, Virginia Industrial
Development Authority Public Safety
Facility Lease Revenue Series A
5.25% 12/15/23 (FSA) 700,000 769,979
Missouri State Development Finance Board
Infrastructure Facilities Revenue
(Branson Landing Project) Series A
5.50% 12/1/24 1,000,000 1,069,360
-----------
4,024,179
-----------
Political Subdivision General Obligation Bonds - 0.99%
St. Clair County, Michigan
5.00% 4/1/21 (AMBAC) 565,000 609,737
-----------
609,737
-----------
ss.Pre-Refunded Bonds - 8.35%
Golden State, California Tobacco
Securitization Corporation Settlement
Revenue Series B 5.50% 6/1/43-13 1,000,000 1,135,980
Jackson, Ohio Local School District
(Stark & Summit Counties)
School Facilities Construction &
Improvement 5.625% 12/1/25-10 (FSA) 1,000,000 1,100,540
Michigan State Hospital Finance
Authority Revenue
(Genesys Health Systems)
Series A 7.50% 10/1/27-05 1,500,000 1,505,820
Vancouver, Washington Limited Tax
5.50% 12/1/25-10 (AMBAC) 1,250,000 1,386,075
-----------
5,128,415
-----------
School District General Obligation Bonds - 4.28%
Kenowa Hills, Michigan Public Schools
Refunding 5.00% 5/1/25 (FGIC) 490,000 528,328
Pomona, California United School District
Series A 6.55% 8/1/29 (MBIA) 1,000,000 1,342,280
South Redford, Michigan School District
5.00% 5/1/21 (FGIC) 700,000 758,548
-----------
2,629,156
-----------
Single Family Housing Revenue Bonds - 1.05%
New Mexico Mortgage Finance Authority
Single Family Mortgage Program Series C
6.20% 7/1/26 (GNMA) (FNMA) 630,000 643,362
-----------
643,362
-----------
Territorial General Obligation Bonds - 1.93%
Puerto Rico Commonwealth Public
Improvement Series A
5.50% 7/1/19 (MBIA) 1,000,000 1,185,690
-----------
1,185,690
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Territorial Revenue Bonds - 7.58%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series E 5.50% 7/1/19 (FSA) $3,000,000 $ 3,557,070
Puerto Rico Public Buildings
Authority Revenue
(Government Facilities) Series J
5.00% 7/1/36 (AMBAC) 1,000,000 1,095,190
-----------
4,652,260
-----------
Turnpike/Toll Road Revenue Bonds - 0.87%
Pennsylvania State Turnpike Commission
Series A 5.00% 12/1/34 (AMBAC) 500,000 533,330
-----------
533,330
-----------
Water & Sewer Revenue Bonds - 8.92%
Atlanta, Georgia Water & Waste
Water Revenue 5.00% 11/1/18 (FSA) 1,000,000 1,090,080
Augusta, Georgia Water & Sewer
Revenue 5.25% 10/1/34 (FSA) 1,000,000 1,093,990
Clovis, California Public Financing
Authority Wastewater Revenue
5.25% 8/1/30 (MBIA) 1,000,000 1,097,600
Fulton County, Georgia Water & Sewer
Revenue 5.25% 1/1/35 (FGIC) 1,000,000 1,088,900
Green Bay, Wisconsin Water Systems
Revenue Refunding and Improvements
Bonds 5.25% 11/1/22 (FSA) 1,000,000 1,105,180
-----------
5,475,750
-----------
TOTAL MUNICIPAL BONDS (cost $54,980,051) 59,091,780
-----------
oVARIABLE RATE DEMAND NOTES - 1.63%
Philadelphia, Pennsylvania Authority for
Industrial Development Revenue
(Newcourtland Elder Services Project)
2.30% 3/1/27 1,000,000 1,000,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES
(cost $1,000,000) 1,000,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 97.88%
(cost $55,980,051) 60,091,780
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 2.12% 1,303,118
-----------
NET ASSETS APPLICABLE TO 5,444,317 SHARES
OUTSTANDING - 100.00% $61,394,898
===========
Net Asset Value - Delaware Tax-Free Insured Fund
Class A ($52,291,484 / 4,637,117 Shares) $11.28
------
Net Asset Value - Delaware Tax-Free Insured Fund
Class B ($6,140,888 / 544,550 Shares) $11.28
------
Net Asset Value - Delaware Tax-Free Insured Fund
Class C ($2,962,526 / 262,650 Shares) $11.28
------
22
STATEMENTS DELAWARE TAX-FREE USA FUND
OF NET ASSETS (CONTINUED)
COMPONENTS OF NET ASSETS AT AUGUST 31, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $56,575,484
Distributions in excess of net investment income (1,790)
Accumulated net realized gain on investments 709,475
Net unrealized appreciation of investments 4,111,729
-----------
Total net assets $61,394,898
===========
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
Financials."
oVariable rate notes. The interest rate shown is the rate as of
August 31, 2005.
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
FNMA - Insured by Federal National Mortgage Association
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
XLCA - Insured by XL Capital Assurance
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE TAX-FREE INSURED FUND
Net asset value Class A (A) $11.28
Sales charge (4.50% of offering price) (B) 0.53
------
Offering price $11.81
======
(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
23
STATEMENTS DELAWARE TAX-FREE USA INTERMEDIATE FUND
OF NET ASSETS (CONTINUED) August 31, 2005
Principal Market
Amount Value
MUNICIPAL BONDS - 94.01%
Airport Revenue Bonds - 1.50%
Chicago, Illinois O' Hare International
Airport Revenue General-Airport-Third
Lein Series A-2 5.75% 1/1/20
(FSA) (AMT) $1,000,000 $ 1,124,050
Metropolitan, Washington D.C. Airport
Authority Systems Series A
5.50% 10/1/19 (FGIC) (AMT) 1,000,000 1,101,610
-----------
2,225,660
-----------
City General Obligation Bonds - 3.49%
Cleveland, Ohio 5.25% 12/1/23 (AMBAC) 1,185,000 1,314,473
New York City, New York
Series G 5.25% 8/1/15 1,000,000 1,100,780
Series J 5.50% 6/1/23 1,000,000 1,099,400
Powell, Ohio 5.50% 12/1/25 (FGIC) 1,500,000 1,672,245
-----------
5,186,898
-----------
Continuing Care/Retirement Revenue Bonds - 1.36%
Apple Valley, Minnesota Economic
Development Authority Health
Care Revenue
(Evercare Senior Living LLC Projects)
Series A 6.00% 12/1/25 1,000,000 1,002,340
Winchester, Virginia Industrial Development
Authority Residential Care Facilities
Revenue (Canterbury) Series A
5.20% 1/1/27 1,000,000 1,014,700
-----------
2,017,040
-----------
Corporate-Backed Revenue Bonds - 5.85%
Alliance, Texas Airport Authority
Special Facilities Revenue
(Federal Express Corp. Project)
6.375% 4/1/21 (AMT) 1,000,000 1,039,830
Cartersville, Georgia Development
Authority Waste & Wastewater
Facilities Revenue
(Anheuser Busch Project)
5.10% 2/1/12 (AMT) 450,000 484,880
Dutchess County, New York Industrial
Development Agency Amount
5.45% 12/1/29 (AMT) 1,500,000 1,618,739
Indianapolis, Indiana Airport
Authority Revenue
(Federal Express Corp. Project)
5.10% 1/15/17 (AMT) 750,000 795,098
Michigan State Strategic Funding
Limited Obligation Revenue
(Detroit Edison Co. Project) Series A
5.50% 6/1/30 (XLCA) (AMT) 1,000,000 1,087,970
Ohio State Air Quality Development
Authority Revenue Environmental
Improvement (USX Project)
5.00% 11/1/15 1,000,000 1,071,560
Prattville, Alabama Industrial
Development Board Environmental
Improvement Revenue
(International Paper Co. Project)
Series A 6.70% 3/1/24 (AMT) 1,000,000 1,091,570
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Corporate-Backed Revenue Bonds (continued)
Sugar Creek, Missouri Industrial
Development Revenue
(Lafarge North America) Series A
5.65% 6/1/37 (AMT) $ 500,000 $ 524,025
Toledo, Lucas County, Ohio Port
Authority Development Revenue
(Northwest Ohio Bond Fund -
Alex Products, Inc.) Series B
6.125% 11/15/09 (AMT) 905,000 982,052
-----------
8,695,724
-----------
Dedicated Tax & Fees Revenue Bonds - 6.63%
Casa Grande, Arizona Excise Tax Revenue
5.00% 4/1/22 (AMBAC) 1,600,000 1,727,888
New Jersey Economic Development
Authority (Cigarette Tax) 5.50% 6/15/31 1,000,000 1,058,090
New York City, Transitional Finance
Authority Revenue Refunding -
Future Tax Secured Series A
5.50% 11/1/26 1,000,000 1,107,350
New York State Sales Tax Asset Receivables
Series A 5.25% 10/15/27 (AMBAC) 1,000,000 1,103,150
New York State Thruway Authority
Highway & Bridge (Gen-Second)
Series B 5.00% 4/1/19 (AMBAC) 1,500,000 1,648,905
Wyandotte County, Kansa City Kansas
Unified Government Special Obligation
Revenue Refunding-SaleTax-2ND
Lien-Area B 5.00% 12/1/20 1,500,000 1,546,635
Wyoming State Loan & Investment
Facilities Revenue 5.00% 10/1/24 1,550,000 1,656,671
-----------
9,848,689
-----------
Escrowed to Maturity Bonds - 0.21%
Metropolitan Pier & Exposition Authority
Illinois Hospitality Facilities
(McCormick Place Convention Center)
5.75% 7/1/06 110,000 112,242
Southcentral, Pennsylvania General
Authority Revenue
(Wellspan Health Obligated Project)
5.625% 5/15/26 180,000 199,582
-----------
311,824
-----------
Higher Education Revenue Bonds - 15.45%
Allegheny County, Pennsylvania Higher
Education Building Authority University
Revenue (Duquesne University)
Series A 5.00% 3/1/16 (FGIC) 1,000,000 1,095,220
Chattanooga, Tennessee Health
Educational & Housing Facilities Board
Revenue (CDFI Phase I, LLC Project)
Series B 5.50% 10/1/20 1,300,000 1,315,235
Fulton County, Georgia Development
Authority Revenue
(Molecular Science Building Project)
5.25% 5/1/21 (MBIA) 1,000,000 1,105,780
24
STATEMENTS DELAWARE TAX-FREE USA INTERMEDIATE FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Higher Education Revenue Bonds (continued)
Illinois Educational Facilities Authority
Student Housing Revenue
(Educational Advancement-University
Center Project) 6.00% 5/1/22 $ 750,000 $ 812,708
Indiana State Educational Facilities
Authority Revenue 5.00% 10/1/34 500,000 511,745
Massachusetts State Health & Educational
Facilities Authority Revenue
(Nichols College Issue) Series C
6.125% 10/1/29 1,000,000 1,064,460
Michigan Higher Education Facilities
Authority Revenue
(Kalamazoo College Project)
5.50% 12/1/19 500,000 545,120
New Jersey State Educational Facilities
Authority Revenue
(Georgian Court College Project) Series C
6.50% 7/1/33 500,000 570,145
New York State Dormitory
Authority Revenue
(Brooklyn Law School)
Series A 5.50% 7/1/18 (RADIAN) 1,000,000 1,109,540
(Fashion Institute Student Housing Corp.)
5.00% 7/1/13 (FGIC) 1,000,000 1,104,470
(Long Island University) Series B
5.50% 9/1/20 (RADIAN) 1,000,000 1,093,240
Ohio State Higher Educational
Facility Revenue
(John Carroll University) 5.50% 11/15/18 335,000 373,803
o(Kenyon College Project) 4.70% 7/1/37 1,000,000 1,058,010
Ohio State University General Receipts
Series B 5.25% 6/1/21 1,000,000 1,109,240
Oregon State Facilities Authority Revenue
(College Independent Student Housing
Project) Series A 5.25% 7/1/30 (XLCA) 1,000,000 1,088,440
(Linfield College Project) Series A
5.00% 10/1/25 1,715,000 1,780,306
Pennsylvania State Higher Educational
Facilities Authority College &
University Revenue
(Geneva College Project) 6.125% 4/1/22 1,000,000 1,077,790
Pennsylvania State Higher Educational
Facilities Authority Revenue
(Widener University)
5.00% 7/15/26 750,000 776,865
5.00% 7/15/31 550,000 573,260
Pennsylvania State University
5.00% 9/1/29 1,000,000 1,071,960
South Carolina Educational Facilities
Authority For Private Nonprofit Institutions
(Southern Wesleyan University)
5.00% 3/1/20 1,200,000 1,231,752
University Northern Colorado Revenue
Refunding 5.00% 6/1/25 (FSA) 1,000,000 1,080,440
University of California Revenue Series A
5.125% 5/15/20 (AMBAC) 250,000 275,443
University of Oklahoma Research Facilities
5.00% 3/1/23 (AMBAC) 1,065,000 1,140,903
-----------
22,965,875
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds - 11.59%
Chatham County, Georgia Hospital
Authority Revenue
(Memorial Health Medical Center)
Series A 6.125% 1/1/24 $1,000,000 $ 1,099,650
Cuyahoga County, Ohio Revenue
(Cleveland Clinic Health System)
Series A 6.00% 1/1/21 1,000,000 1,130,070
Duluth, Minnesota Economic Development
Authority Health Care Facilities Revenue
Benedictine Health System
(St. Mary's Hospital) 5.50% 2/15/23 1,000,000 1,078,050
Florence County, South Carolina
Hospital Revenue
(McLeod Regional Medical Center Project)
Series A 5.25% 11/1/27 (FSA) 1,000,000 1,086,280
Indiana Health Facility Financing
Authority Hospital Revenue
(Deaconess Hospital Obligation)
Series A 5.375% 3/1/29 (AMBAC) 700,000 761,943
Lancaster County, Pennsylvania Hospital
Authority Revenue (Lancaster General
Hospital Project) 5.75% 3/15/21 1,000,000 1,097,300
Maryland State Health & Higher Education
Facilities Authority Revenue
(Union Hospital of Cecil County)
5.00% 7/1/35 1,425,000 1,472,438
5.625% 7/1/32 500,000 537,150
Michigan State Hospital Finance
Authority Revenue
(Trinity Health Credit) Series C
5.375% 12/1/23 500,000 535,550
Minneapolis, Minnesota Health Care
System Revenue (Allina Health Systems)
Series A 5.75% 11/15/32 500,000 539,180
Multnomah County, Oregon Hospital
Facilities Authority Revenue
(Providence Health System)
5.25% 10/1/22 1,000,000 1,092,790
New Hampshire Health & Education
Facilities Authority Revenue
(Elliot Hospital) Series B 5.60% 10/1/22 1,000,000 1,074,580
North Texas Health Facilities Development
Corporation Hospital Revenue
(United Regional Health Care
System, Inc. Project) 6.00% 9/1/23 1,000,000 1,102,310
Prince William County, Virginia Industrial
Development Authority Hospital Revenue
(Potomac Hospital Project)
5.20% 10/1/30 545,000 575,313
St. Mary Hospital Authority Pennsylvania
Health System Revenue
(Catholic Health East) Series A
5.25% 11/15/16 1,200,000 1,311,108
25
STATEMENTS DELAWARE TAX-FREE USA INTERMEDIATE FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds (continued)
St. Paul, Minnesota Housing &
Redevelopment Authority Hospital
Revenue (Healtheast Project)
6.00% 11/15/25 $1,000,000 $ 1,104,770
Terrebonne Parish, Louisiana Hospital
Service District #1 Hospital Revenue
(Terrebonne General Medical Center Project)
5.50% 4/1/33 (AMBAC) 1,500,000 1,626,240
-----------
17,224,722
-----------
Investor Owned Utilities Revenue Bonds - 6.33%
Cambria County, Pennsylvania Industrial
Development Authority Pollution
Control Revenue
(Pennsylvania Electric Co. Project)
Series A 5.80% 11/1/20 (MBIA) 500,000 512,265
Connecticut State Development Authority
Pollution Control Revenue
(Connecticut Light & Power Co.)
3.35% 5/1/31 (AMBAC) (AMT) 1,300,000 1,296,009
Farmington, North Mexico Pollution
Control Revenue
(El Paso Electric Co. Project) Series A
4.00% 6/1/32 (FGIC) 1,000,000 1,004,110
Forsyth, Montana Pollution Control Revenue
(Portland General Project) Series A
5.20% 5/1/33 1,005,000 1,050,547
Oliver County North Dormitory
Pollution Control Revenue
(Square Butte Electric Coop) Series A
5.30% 1/1/27 (AMBAC) 1,500,000 1,606,185
Pennsylvania Economic Development
Financing (AMT)
(Reliant Energy) Series B 6.75% 12/1/36 750,000 809,610
(TXU Electric Co. Project) Series A
5.125% 12/1/15 1,500,000 1,520,790
Sabine River Authority, Texas Pollution
Control Revenue (TXU Electric Co. Project)
Series A 5.50% 5/1/22 1,000,000 1,070,930
South Carolina Jobs Economic Development
Authority Industrial Revenue
(South Carolina Electric & Gas Co. Project)
Series B 5.45% 11/1/32 (AMBAC) (AMT) 500,000 537,630
-----------
9,408,076
-----------
Miscellaneous Revenue Bonds - 2.15%
Middlesex County, New Jersey Improvement
Authority Senior Revenue
(Heldrich Center Hotel)
Series A 5.00% 1/1/32 1,000,000 1,005,490
New York State Municipal Bond Bank
Agency Special School Purpose Revenue
Series C 5.25% 6/1/22 1,000,000 1,097,190
Oregon State Department Administrative
Services Lottery Revenue Refunding
Series A 5.00% 4/1/18 (FSA) 1,000,000 1,090,600
-----------
3,193,280
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Municipal Lease Revenue Bonds - 3.43%
Albany, New York Industrial Development
Agency Civic Facility Revenue
(Charitable Leadership Project)
Series A 5.75% 7/1/26 $ 500,000 $ 524,185
California State Public Works Board Lease
Revenue Department General Services
(Butterfield Street) Series A
5.25% 6/1/25 1,000,000 1,091,600
Golden State, California Tobacco
Securitization Settlement Revenue
Series 2005 A 5.00% 6/1/21 (AMBAC) 1,000,000 1,061,140
Middle River, Virginia Regional Jail Authority
Facility Revenue 5.00% 5/15/20 (MBIA) 1,285,000 1,399,095
New York, New York City Industrial
Development Agency Revenue
(Liberty-IAC/Interactivecorp)
5.00% 9/1/35 1,000,000 1,027,010
-----------
5,103,030
-----------
Political Subdivision General Obligation Bonds - 2.24%
Lansing, Michigan Community College
5.00% 5/1/21 (MBIA) 1,325,000 1,420,254
Lunenburg County, Virginia Series B
5.25% 2/1/29 (MBIA) 715,000 789,775
Middlesex County, New Jersey Improvement
Authority Revenue (County Guaranteed
Open Space Trust) 5.25% 9/15/20 1,000,000 1,116,490
-----------
3,326,519
-----------
Ports & Harbors Revenue Bonds - 0.37%
Virginia Port Authority Commonwealth
Port Fund Revenue Resolution
5.00% 7/1/12 (AMT) 500,000 545,365
-----------
545,365
-----------
Power Authority Revenue Bonds - 1.51%
Metropolitan Government Nashville &
Davidson County, Tennessee Electric
Revenue Series B 5.50% 5/15/14 1,000,000 1,148,110
South Carolina State Public Service
Authority Revenue Series A
5.125% 1/1/21 (FSA) 1,000,000 1,100,080
-----------
2,248,190
-----------
ss.Pre-Refunded Bonds - 4.97%
Arizona State Transportation Board
Highway Revenue 6.25% 7/1/16-09 1,850,000 2,061,492
Forest Grove, Oregon Revenue Campus
(Pacific University)
6.30% 5/1/25-10 (RADIAN) 1,000,000 1,134,830
Golden State, California Tobacco
Securitization Settlement Revenue
Series B Series A 5.75% 6/1/23-08 1,000,000 1,072,350
Pennsylvania State Higher Educational
Facilities Authority College & University
Revenue (Ursinus College Project)
5.90% 1/1/27-07 1,000,000 1,057,960
26
STATEMENTS DELAWARE TAX-FREE USA INTERMEDIATE FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
ss.Pre-Refunded Bonds (continued)
Southcentral, Pennsylvania General
Authority Revenue (Wellspan Health
Obligated Project) 5.625% 5/15/26-11 $ 820,000 $ 927,231
Virginia State Resource Authority Clean
Water Revenue (State Revolving Fund)
6.00% 10/1/16-10 1,000,000 1,132,120
-----------
7,385,983
-----------
Public Power Revenue Bonds - 1.59%
Salt River Project Arizona Agriculture
Improvement & Power District Electric
(System Revsalt River Project)
Series A 5.00% 1/1/35 1,500,000 1,610,745
Texas Municipal Power Agency Revenue
4.00% 9/1/11 (AMBAC) 750,000 756,098
-----------
2,366,843
-----------
Recreational Area Revenue Bonds - 0.73%
Hampton, Virginia Convention Center Revenue
5.25% 1/15/23 (AMBAC) 1,000,000 1,086,060
-----------
1,086,060
-----------
School District General Obligation Bonds - 7.68%
Arlington, Texas Independent School District
5.00% 2/15/25 (PSF) 1,105,000 1,189,919
Bannock County, Idaho School District #025
(Pocatello Idaho School Board
Guaranty Program) 5.00% 8/15/16 1,100,000 1,213,883
Belton, Missouri School District #124
Series B 5.25% 3/1/23 1,000,000 1,110,090
Kenowa Hills, Michigan Public Schools
Refunding 5.00% 5/1/25 (FGIC) 1,000,000 1,078,220
Licking County, Ohio Joint Vocational School
District 5.00% 12/1/19 (MBIA) 1,000,000 1,088,980
Licking Heights, Ohio School District
Refunding (School Facilities
Construction & Improvements) Series A
5.00% 12/1/27 (MBIA) 1,275,000 1,371,161
Los Angeles California University School
District Refunding Series A
5.00% 7/1/25 (FGIC) 1,000,000 1,080,170
Otsego, Michigan Public School District
5.00% 5/1/21 (FSA) 1,185,000 1,279,563
Salem-Keizer, Oregon School District #24J
Refunding 5.00% 6/15/19 (FSA) 1,145,000 1,245,451
South Redford, Michigan School District
5.00% 5/1/21 (FGIC) 700,000 758,548
-----------
11,415,985
-----------
School District Revenue Bonds - 0.76%
Anderson School Building
5.50% 7/15/25 (FSA) 1,000,000 1,124,970
-----------
1,124,970
-----------
State General Obligation Bonds - 2.05%
California State 5.25% 11/1/17 1,000,000 1,102,630
California State Economic Recovery
Series A 5.25% 7/1/14 1,000,000 1,129,100
Florida State Board Education Capital Outlay
(Public Education) Series B 5.00% 6/1/10 750,000 810,045
-----------
3,041,775
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Tax Increment/Special Assessment Bonds - 3.45%
Allegheny County, Pennsylvania
Redevelopment Authority Revenue
(Pittsburgh Mills Project) 5.10% 7/1/14 $ 265,000 $ 276,840
Pasep Community Development B
4.875% 5/1/10 1,000,000 1,006,820
Portland, Oregon Urban Renewal &
Redevelopment Interstate Corridor
Series A 5.25% 6/15/20 (FGIC) 1,000,000 1,114,520
Richmond Heights, Missouri Tax Increment &
Transaction Sales Tax Revenue
(Francis Place Redevelopment Project)
5.625% 11/1/25 1,200,000 1,221,228
St. Joseph, Missouri Industrial Development
Authority Tax Increment Revenue
(Shoppes At North Village Project)
Series A 5.10% 11/1/19 500,000 501,525
Series B 5.375% 11/1/23 1,000,000 1,005,310
-----------
5,126,243
-----------
Territorial General Obligation Bonds - 2.29%
Puerto Rico Commonwealth Improvement
Series A 5.25% 7/1/23 1,125,000 1,224,349
Puerto Rico Commonwealth Series A
5.00% 7/1/30 1,000,000 1,071,880
Puerto Rico Public Finance Corporation
Commonwealth Appropriation Series A
(LOC, Puerto Rico Government Bank)
5.75% 8/1/27 1,000,000 1,110,680
-----------
3,406,909
-----------
Territorial Revenue Bonds - 4.49%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series D 5.75% 7/1/41 1,500,000 1,681,200
Series J 5.50% 7/1/21 1,000,000 1,113,790
Puerto Rico Electric Power Authority Power
Revenue Series OO 5.00% 7/1/13 (CIFG) 1,000,000 1,103,030
Puerto Rico Public Buildings Authority
Revenue (Government Facilities)
Series J 5.00% 7/1/28 1,000,000 1,071,880
Puerto Rico Public Finance Corporate
Series A 5.25% 8/1/29 (MBIA) 620,000 683,730
University of Puerto Rico Revenue
Series M 5.50% 6/1/15 (MBIA) 1,000,000 1,017,130
-----------
6,670,760
-----------
Transportation Revenue Bonds - 0.75%
Colorado Department Transportation Revenue
(Anticipation Notes) Series B
5.00% 12/15/14 (FGIC) 1,000,000 1,114,420
-----------
1,114,420
-----------
Turnpike/Toll Road Revenue Bonds - 0.92%
Pennsylvania State Turnpike Commission
Revenue Series A
5.25% 12/1/20 (AMBAC) 1,230,000 1,369,457
-----------
1,369,457
-----------
27
STATEMENTS DELAWARE TAX-FREE USA INTERMEDIATE FUND
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Water & Sewer Revenue Bonds - 2.22%
Atlanta, Georgia Water & Waste Water
Revenue 5.00% 11/1/18 (FSA) $1,000,000 $ 1,090,080
Clovis, California Public Financing
Authority Wastewater Revenue
5.25% 8/1/30 (MBIA) 1,000,000 1,097,600
Green Bay, Wisconsin Water Systems
Revenue Refunding and
Improvements Bonds
5.25% 11/1/22 (FSA) 1,000,000 1,105,180
-----------
3,292,860
-----------
TOTAL MUNICIPAL BONDS (cost $133,980,594) 139,703,157
-----------
oVARIABLE RATE DEMAND NOTES- 5.32%
Chester County, Pennsylvania Industrial
Development Authority Revenue
(Archdiocese of Philadelphia)
2.30% 7/1/31 1,000,000 1,000,000
East Bay Municipal Utilities Distributed
Water System Revenue
Series B-2 2.28% 6/1/38 (XLCA) 500,000 500,000
Philadelphia, Pennsylvania Authority
for Industrial Development Revenue
(Newcourtland Elder Services Project)
2.30% 3/1/27 6,400,000 6,400,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES
(cost $7,900,000) 7,900,000
-----------
TOTAL MARKET VALUE OF SECURITIES - 99.33%
(cost $141,880,594) 147,603,157
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 0.67% 998,187
-----------
NET ASSETS APPLICABLE TO 12,794,633 SHARES
OUTSTANDING - 100.00% $148,601,344
============
Net Asset Value - Delaware Tax-Free USA Intermediate Fund
Class A ($120,273,079 / 10,355,362 Shares) $11.61
------
Net Asset Value - Delaware Tax-Free USA Intermediate Fund
Class B ($3,202,832 / 275,840 Shares) $11.61
------
Net Asset Value - Delaware Tax-Free USA Intermediate Fund
Class C ($25,125,433 / 2,163,431 Shares) $11.61
------
COMPONENTS OF NET ASSETS AT AUGUST 31, 2005:
Shares of beneficial interest
(unlimited authorization - no par) $143,239,203
Accumulated net realized loss on investments (360,422)
Net unrealized appreciation of investments 5,722,563
------------
Total net assets $148,601,344
============
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
CDFI - Community Development Financial Institutions
CIFG - Insured by CDC IXIS Financial Guaranty
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
PSF - Permanent School Fund
RADIAN - Insured by Radian Asset Assurance
XLCA - Insured by XL Capital Assurance
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
Financials."
oVariable rate notes. The interest rate shown is the rate as of
August 31, 2005.
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
DELAWARE TAX-FREE USA INTERMEDIATE FUND
Net asset value Class A (A) $11.61
Sales charge (2.75% of offering price) (B) 0.33
------
Offering price $11.94
======
(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
28
STATEMENTS DELAWARE NATIONAL TAX-FREE FUNDS
OF OPERATIONS Year Ended August 31, 2005
Delaware Delaware Delaware
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate Fund
INVESTMENT INCOME:
Interest $25,231,691 $2,952,129 $5,158,280
----------- ---------- ----------
EXPENSES:
Management fees 2,621,345 309,141 593,617
Distribution expenses -- Class A 1,229,782 144,780 281,416
Distribution expenses -- Class B 189,661 62,930 35,125
Distribution expenses -- Class C 58,662 23,137 209,370
Dividend disbursing and transfer agent fees and expenses 307,953 35,772 186,686
Accounting and administration expenses 165,019 21,394 41,408
Reports and statements to shareholders 98,828 13,275 44,764
Legal and professional fees 76,207 18,614 26,872
Registration fees 55,087 35,615 40,988
Insurance fees 30,506 4,337 8,491
Trustees' fees 24,809 3,217 6,103
Custodian fees 17,682 2,360 4,544
Pricing fees 4,179 1,608 3,734
Taxes (other than taxes on income) 2,785 365 1,023
Other 17,445 2,757 2,788
----------- ---------- ----------
4,899,950 679,302 1,486,929
Less expenses absorbed or waived (375,304) (29,966) (204,920)
Less waived distribution expenses -- Class A (194,110) (22,759) (140,707)
Less expense paid indirectly (12,079) (1,583) (3,075)
----------- ---------- ----------
Total operating expenses 4,318,457 624,994 1,138,227
----------- ---------- ----------
NET INVESTMENT INCOME 20,913,234 2,327,135 4,020,053
----------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 2,541,488 837,585 216,425
Net change in unrealized appreciation/depreciation
of investments 9,862,168 173,220 2,305,659
----------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 12,403,656 1,010,805 2,522,084
----------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $33,316,890 $3,337,940 $6,542,137
=========== ========== ==========
See accompanying notes
29
STATEMENTS DELAWARE NATIONAL TAX-FREE FUNDS
OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund
Year Ended Year Ended
8/31/05 8/31/04 8/31/05 8/31/04
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 20,913,234 $ 23,010,855 $ 2,327,135 $ 2,702,112
Net realized gain on investments 2,541,488 375,000 837,585 668,371
Net change in unrealized appreciation/depreciation of investments 9,862,168 12,280,683 173,220 763,635
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations 33,316,890 35,666,538 3,337,940 4,134,118
------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (20,004,240) (21,714,746) (2,060,704) (2,399,145)
Class B (694,792) (1,066,585) (194,934) (240,793)
Class C (214,202) (229,524) (71,497) (62,174)
Net realized gain on investments:
Class A -- -- (105,930) --
Class B -- -- (13,185) --
Class C -- -- (4,364) --
------------- ------------- ------------- -------------
(20,913,234) (23,010,855) (2,450,614) (2,702,112)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 24,251,474 28,738,384 2,659,855 2,654,253
Class B 705,667 1,047,025 184,583 966,911
Class C 1,035,529 1,144,768 1,194,109 563,665
Net asset value of shares issued upon reinvestment of dividends and
distributions:
Class A 10,723,495 11,673,132 1,219,344 1,325,637
Class B 392,819 585,568 117,102 139,876
Class C 170,783 183,313 35,327 31,760
------------- ------------- ------------- -------------
37,279,767 43,372,190 5,410,320 5,682,102
------------- ------------- ------------- -------------
Cost of shares repurchased:
Class A (48,950,197) (56,907,009) (6,731,009) (8,473,975)
Class B (7,473,113) (11,044,588) (977,643) (2,141,982)
Class C (1,180,661) (1,181,389) (309,488) (75,210)
------------- ------------- ------------- -------------
(57,603,971) (69,132,986) (8,018,140) (10,691,167)
------------- ------------- ------------- -------------
Decrease in net assets derived from capital share transactions (20,324,204) (25,760,796) (2,607,820) (5,009,065)
------------- ------------- ------------- -------------
NET DECREASE IN NET ASSETS (7,920,548) (13,105,113) (1,720,494) (3,577,059)
NET ASSETS:
Beginning of year 484,372,255 497,477,368 63,115,392 66,692,451
------------- ------------- ------------- -------------
End of year(1) $ 476,451,707 $ 484,372,255 $ 61,394,898 $ 63,115,392
============ ============= ============= =============
(1)Distributions in excess of net investment income $ (12,071) $ (12,071) $ (1,790) $ (1,790)
See accompanying notes
30
STATEMENTS DELAWARE NATIONAL TAX-FREE FUNDS
OF CHANGES IN NET ASSETS (CONTINUED)
Delaware Tax-Free
USA Intermediate Fund
Year Ended
8/31/05 8/31/04
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 4,020,053 $ 3,191,082
Net realized gain (loss) on investments 216,425 9,040
Net change in unrealized appreciation/depreciation of investments 2,305,659 2,261,985
------------ ------------
Net increase in net assets resulting from operations 6,542,137 5,462,107
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A (3,353,356) (2,607,537)
Class B (95,959) (117,263)
Class C (570,738) (466,282)
------------ ------------
(4,020,053) (3,191,082)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A 60,268,006 48,901,601
Class B 329,988 806,273
Class C 8,118,530 10,526,986
Net asset value of shares issued upon reinvestment of dividends and distributions:
Class A 2,392,786 1,857,428
Class B 68,135 73,821
Class C 276,166 228,547
------------ ------------
71,453,611 62,394,656
------------ ------------
Cost of shares repurchased:
Class A (21,868,344) (26,542,632)
Class B (1,002,815) (1,814,125)
Class C (2,895,030) (2,476,487)
------------ ------------
(25,766,189) (30,833,244)
------------ ------------
Increase (decrease) in net assets derived from capital share transactions 45,687,422 31,561,412
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS 48,209,506 33,832,437
NET ASSETS:
Beginning of year 100,391,838 66,559,401
------------ ------------
End of year(1) $148,601,344 $100,391,838
============ ============
(1)Undistributed (distributions in excess of) net investment income $ -- $ --
See accompanying notes
31
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE TAX-FREE USA FUND CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.460 $11.170 $11.280 $11.320 $10.830
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.512 0.538 0.537 0.566 0.582
Net realized and unrealized gain (loss) on investments 0.300 0.290 (0.110) (0.040) 0.490
------- ------- ------- ------- -------
Total from investment operations 0.812 0.828 0.427 0.526 1.072
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.512) (0.538) (0.537) (0.566) (0.582)
------- ------- ------- ------- -------
Total dividends and distributions (0.512) (0.538) (0.537) (0.566) (0.582)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.760 $11.460 $11.170 $11.280 $11.320
======= ======= ======= ======= =======
TOTAL RETURN(1) 7.23% 7.54% 3.84% 4.85% 10.19%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $453,982 $456,192 $460,917 $495,731 $495,597
Ratio of expenses to average net assets 0.86% 0.87% 0.87% 0.87% 0.88%
Ratio of expenses to average net assets prior to expense limitation and
expenses paid indirectly 0.98% 0.93% 0.97% 0.98% 0.89%
Ratio of net investment income to average net assets 4.43% 4.72% 4.74% 5.08% 5.29%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 4.31% 4.66% 4.64% 4.97% 5.28%
Portfolio turnover 47% 32% 96% 99% 103%
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager and distributor, as applicable. Performance would have been lower
had the expense limitation not been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities. The
effect of this change for the year ended August 31, 2002 was a decrease in
net investment income per share of $0.001, an increase in net realized and
unrealized gain (loss) per share of $0.001, and a decrease in the ratio of
net investment income to average net assets of 0.01%. Per share data and
ratios for periods prior to September 1, 2001 have not been restated to
reflect this change in accounting.
See accompanying notes
32
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE TAX-FREE USA FUND CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.460 $11.170 $11.280 $11.320 $10.830
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.423 0.449 0.449 0.479 0.494
Net realized and unrealized gain (loss) on investments 0.300 0.290 (0.110) (0.040) 0.490
------- ------- ------- ------- -------
Total from investment operations 0.723 0.739 0.339 0.439 0.984
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.423) (0.449) (0.449) (0.479) (0.494)
------- ------- ------- ------- -------
Total dividends and distributions (0.423) (0.449) (0.449) (0.479) (0.494)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.760 $11.460 $11.170 $11.280 $11.320
======= ======= ======= ======= =======
TOTAL RETURN(1) 6.42% 6.71% 3.03% 4.04% 9.32%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $16,507 $22,396 $31,052 $37,448 $39,317
Ratio of expenses to average net assets 1.63% 1.65% 1.65% 1.65% 1.68%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.71% 1.71% 1.75% 1.76% 1.69%
Ratio of net investment income to average net assets 3.66% 3.94% 3.96% 4.30% 4.49%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.58% 3.88% 3.86% 4.19% 4.48%
Portfolio turnover 47% 32% 96% 99% 103%
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities. The
effect of this change for the year ended August 31, 2002 was a decrease in
net investment income per share of $0.001, an increase in net realized and
unrealized gain (loss) per share of $0.001, and a decrease in the ratio of
net investment income to average net assets of 0.01%. Per share data and
ratios for periods prior to September 1, 2001 have not been restated to
reflect this change in accounting.
See accompanying notes
33
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE TAX-FREE USA FUND CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.460 $11.170 $11.280 $11.320 $10.830
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.423 0.449 0.449 0.479 0.494
Net realized and unrealized gain (loss) on investments 0.300 0.290 (0.110) (0.040) 0.490
------- ------- ------- ------- -------
Total from investment operations 0.723 0.739 0.339 0.439 0.984
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.423) (0.449) (0.449) (0.479) (0.494)
------- ------- ------- ------- -------
Total dividends and distributions (0.423) (0.449) (0.449) (0.479) (0.494)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.760 $11.460 $11.170 $11.280 $11.320
======= ======= ======= ======= =======
TOTAL RETURN(1) 6.42% 6.71% 3.03% 4.04% 9.32%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $5,963 $5,784 $5,508 $5,979 $6,457
Ratio of expenses to average net assets 1.63% 1.65% 1.65% 1.65% 1.68%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.71% 1.71% 1.75% 1.76% 1.69%
Ratio of net investment income to average net assets 3.66% 3.94% 3.96% 4.30% 4.49%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.58% 3.88% 3.86% 4.19% 4.48%
Portfolio turnover 47% 32% 96% 99% 103%
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
requires amortization of all premiums and discounts on debt securities. The
effect of this change for the year ended August 31, 2002 was a decrease in
net investment income per share of $0.001, an increase in net realized and
unrealized gain (loss) per share of $0.001, and a decrease in the ratio of
net investment income to average net assets of 0.01%. Per share data and
ratios for periods prior to September 1, 2001 have not been restated to
reflect this change in accounting.
See accompanying notes
34
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE TAX-FREE INSURED FUND CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.110 $10.880 $11.020 $10.950 $10.390
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.432 0.471 0.473 0.487 0.483
Net realized and unrealized gain (loss) on investments 0.192 0.230 (0.140) 0.070 0.560
------- ------- ------- ------- -------
Total from investment operations 0.624 0.701 0.333 0.557 1.043
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.432) (0.471) (0.473) (0.487) (0.483)
Net realized gain on investments (0.022) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.454) (0.471) (0.473) (0.487) (0.483)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.280 $11.110 $10.880 $11.020 $10.950
======= ======= ======= ======= =======
TOTAL RETURN(1) 5.73% 6.55% 3.02% 5.27% 10.30%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $52,291 $54,384 $57,630 $60,365 $62,397
Ratio of expenses to average net assets 0.90% 0.93% 0.92% 0.92% 1.02%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 0.99% 0.93% 0.92% 0.92% 1.02%
Ratio of net investment income to average net assets 3.87% 4.26% 4.25% 4.51% 4.58%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.78% 4.26% 4.25% 4.51% 4.58%
Portfolio turnover 28% 54% 109% 136% 113%
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager and distributor, as applicable. Performance would have been lower
had the expense limitation not been in effect.
See accompanying notes
35
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE TAX-FREE INSURED FUND CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.110 $10.880 $11.020 $10.950 $10.390
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.346 0.385 0.386 0.403 0.399
Net realized and unrealized gain (loss) on investments 0.192 0.230 (0.140) 0.070 0.560
------- ------- ------- ------- -------
Total from investment operations 0.538 0.615 0.246 0.473 0.959
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.346) (0.385) (0.386) (0.403) (0.399)
Net realized gain on investments (0.022) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.368) (0.385) (0.386) (0.403) (0.399)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.280 $11.110 $10.880 $11.020 $10.950
======= ======= ======= ======= =======
TOTAL RETURN(1) 4.92% 5.72% 2.22% 4.46% 9.43%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $6,141 $6,728 $7,614 $7,677 $7,506
Ratio of expenses to average net assets 1.67% 1.71% 1.70% 1.70% 1.82%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.72% 1.71% 1.70% 1.70% 1.82%
Ratio of net investment income to average net assets 3.10% 3.48% 3.47% 3.73% 3.78%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.05% 3.48% 3.47% 3.73% 3.78%
Portfolio turnover 28% 54% 109% 136% 113%
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
36
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE TAX-FREE INSURED FUND CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.110 $10.880 $11.020 $10.950 $10.390
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.346 0.385 0.386 0.403 0.399
Net realized and unrealized gain (loss) on investments 0.192 0.230 (0.140) 0.070 0.560
------- ------- ------- ------- -------
Total from investment operations 0.538 0.615 0.246 0.473 0.959
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.346) (0.385) (0.386) (0.403) (0.399)
Net realized gain on investments (0.022) -- -- -- --
------- ------- ------- ------- -------
Total dividends and distributions (0.368) (0.385) (0.386) (0.403) (0.399)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.280 $11.110 $10.880 $11.020 $10.950
======= ======= ======= ======= =======
TOTAL RETURN(1) 4.92% 5.72% 2.22% 4.46% 9.42%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $2,963 $2,003 $1,448 $1,488 $1,588
Ratio of expenses to average net assets 1.67% 1.71% 1.70% 1.70% 1.82%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.72% 1.71% 1.70% 1.70% 1.82%
Ratio of net investment income to average net assets 3.10% 3.48% 3.47% 3.73% 3.78%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.05% 3.48% 3.47% 3.73% 3.78%
Portfolio turnover 28% 54% 109% 136% 113%
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
37
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE TAX-FREE USA INTERMEDIATE FUND CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.390 $11.010 $11.020 $10.890 $10.360
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.410 0.419 0.435 0.462 0.480
Net realized and unrealized gain (loss) on investments 0.220 0.380 (0.010) 0.130 0.530
------- ------- ------- ------- -------
Total from investment operations 0.630 0.799 0.425 0.592 1.010
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.410) (0.419) (0.435) (0.462) (0.480)
------- ------- ------- ------- -------
Total dividends and distributions (0.410) (0.419) (0.435) (0.462) (0.480)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.610 $11.390 $11.010 $11.020 $10.890
======= ======= ======= ======= =======
TOTAL RETURN(1) 5.63% 7.36% 3.89% 5.63% 10.01%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $120,273 $77,448 $51,479 $26,075 $19,471
Ratio of expenses to average net assets(2) 0.79% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses to average net assets prior to expense limitation and
expenses paid indirectly 1.11% 1.09% 1.15% 0.94% 1.06%
Ratio of net investment income to average net assets 3.55% 3.70% 3.85% 4.28% 4.55%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 3.23% 3.41% 3.50% 4.14% 4.29%
Portfolio turnover 18% 27% 130% 195% 231%
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager and distributor, as applicable. Performance would have been lower
had the expense limitation not been in effect.
(2) Ratio for the year ended August 31, 2004, including fees paid indirectly in
accordance with Securities an Exchange Commission rules, was 0.82%.
See accompanying notes
38
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE TAX-FREE USA INTERMEDIATE FUND CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.380 $11.010 $11.020 $10.890 $10.360
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.313 0.323 0.340 0.371 0.391
Net realized and unrealized gain (loss) on investments 0.230 0.370 (0.010) 0.130 0.530
------- ------- ------- ------- -------
Total from investment operations 0.543 0.693 0.330 0.501 0.921
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.313) (0.323) (0.340) (0.371) (0.391)
------- ------- ------- ------- -------
Total dividends and distributions (0.313) (0.323) (0.340) (0.371) (0.391)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.610 $11.380 $11.010 $11.020 $10.890
======= ======= ======= ======= =======
TOTAL RETURN(1) 4.83% 6.36% 3.02% 4.74% 9.08%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $3,203 $3,743 $4,538 $3,384 $2,366
Ratio of expenses to average net assets(2) 1.64% 1.65% 1.65% 1.65% 1.65%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.81% 1.79% 1.87% 1.79% 1.91%
Ratio of net investment income to average net assets 2.70% 2.85% 3.00% 3.43% 3.70%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 2.53% 2.71% 2.78% 3.29% 3.44%
Portfolio turnover 18% 27% 130% 195% 231%
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
(2) Ratio for the year ended August 31, 2004, including fees paid indirectly in
accordance with Securities an Exchange Commission rules, was 1.67%.
See accompanying notes
39
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE TAX-FREE USA INTERMEDIATE FUND CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
8/31/05 8/31/04 8/31/03 8/31/02 8/31/01
NET ASSET VALUE, BEGINNING OF PERIOD $11.390 $11.010 $11.020 $10.890 $10.360
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.313 0.323 0.340 0.371 0.391
Net realized and unrealized gain (loss) on investments 0.220 0.380 (0.010) 0.130 0.530
------- ------- ------- ------- -------
Total from investment operations 0.533 0.703 0.330 0.501 0.921
------- ------- ------- ------- -------
LESS DIVIDENDS AND DISTRIBUTIONS FROM:
Net investment income (0.313) (0.323) (0.340) (0.371) (0.391)
------- ------- ------- ------- -------
Total dividends and distributions (0.313) (0.323) (0.340) (0.371) (0.391)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.610 $11.390 $11.010 $11.020 $10.890
======= ======= ======= ======= =======
TOTAL RETURN(1) 4.74% 6.45% 3.02% 4.74% 9.08%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $25,125 $19,201 $10,542 $7,291 $3,602
Ratio of expenses to average net assets(2) 1.64% 1.65% 1.65% 1.65% 1.65%
Ratio of expenses to average net assets prior to expense limitation
and expenses paid indirectly 1.81% 1.79% 1.87% 1.79% 1.91%
Ratio of net investment income to average net assets 2.70% 2.85% 3.00% 3.43% 3.70%
Ratio of net investment income to average net assets prior to expense
limitation and expenses paid indirectly 2.53% 2.71% 2.78% 3.29% 3.44%
Portfolio turnover 18% 27 % 130% 195% 231%
(1) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a sales
charge. Total investment return reflects waivers and payment of fees by the
manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
(2) Ratio for the year ended August 31, 2004, including fees paid indirectly in
accordance with Securities an Exchange Commission rules, was 1.67%.
See accompanying notes
40
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS August 31, 2005
Delaware Group Tax-Free Fund (the "Trust") is organized as a Delaware statutory
trust and offers three series: Delaware Tax-Free USA Fund, Delaware Tax-Free
Insured Fund, and Delaware Tax-Free USA Intermediate Fund. Voyageur Mutual Funds
(the "Trust") is organized as a Delaware statutory trust and offers six series:
Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, Delaware
Minnesota High-Yield Municipal Bond Fund, Delaware National High-Yield Municipal
Bond Fund, and Delaware Tax-Free New York Fund. These financial statements and
the related notes pertain to Delaware Tax-Free USA Fund, Delaware Tax-Free
Insured Fund, Delaware Tax-Free USA Intermediate Fund and Delaware National
High-Yield Municipal Bond Fund (each referred to as a "Fund" or, collectively,
as the "Funds"). The above Trusts are open-end investment companies. The Funds
are considered non-diversified under the Investment Company Act of 1940, as
amended. The Funds offer Class A, Class B, and Class C shares. Class A shares
are sold with a front-end sales charge of up to 4.50% for Delaware Tax-Free USA
Fund, Delaware Tax-Free Insured Fund and Delaware National High-Yield Municipal
Bond Fund, and up to 2.75% for Delaware Tax-Free USA Intermediate Fund. Class B
shares of the Delaware Tax-Free USA Fund, Delaware Tax-Free Insured Fund, and
Delaware National High-Yield Municipal Bond Fund are sold with a contingent
deferred sales charge that declines from 4% to zero depending upon the period of
time the shares are held and will automatically convert to Class A shares on a
quarterly basis approximately eight years after purchase. Class B shares of
Delaware Tax-Free USA Intermediate Fund are sold with a contingent deferred
sales charge that declines from 2% to zero depending upon the time the shares
are held and will automatically convert to Class A shares on a quarterly basis
approximately five years after purchase. Class C shares are sold with a
contingent deferred sales charge of 1%, if redeemed during the first twelve
months.
The investment objective of Delaware Tax-Free USA Fund, Delaware Tax-Free
Insured Fund and Delaware Tax-Free USA Intermediate Fund is to seek as high a
level of current interest income exempt from federal income tax as is available
from municipal obligations as is consistent with prudent investment management
and preservation of capital.
The investment objective of Delaware National High-Yield Municipal Bond Fund is
to seek a high level of current income exempt from federal income tax primarily
through investment in medium- and lower-grade municipal obligations.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Funds.
Security Valuation -- Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith under the direction of each Fund's Board of
Trustees. 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(R) Family
of Funds are allocated amongst the funds on the basis of average net assets.
Management fees and some other expenses are paid monthly. Security transactions
are recorded on the date the securities are purchased or sold (trade date).
Costs used in calculating realized gains and losses on the sale of investment
securities are those of the specific securities sold. Interest income is
recorded on the accrual basis. Discounts and premiums are amortized to interest
income over the lives of the respective securities. Each Fund declares dividends
daily from net investment income and pays such dividends monthly and declares
and pays distributions from net realized gain on investments, if any, annually.
The Funds receive earnings credits from their custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statements of
Operations with the corresponding 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 Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ---------------------
Earnings credits $12,079 $1,583 $3,075
41
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS
WITH AFFILIATES
In accordance with the terms of its respective investment management agreement,
each Fund pays Delaware Management Company (DMC), a series of Delaware
Management Business Trust and the investment manager, an annual fee based on
each Fund's average daily net assets as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
On the first $500 million 0.550% 0.500% 0.500%
On the next $500 million 0.500% 0.475% 0.475%
On the next $1.5 billion 0.450% 0.450% 0.450%
In excess of $2.5 billion 0.425% 0.425% 0.425%
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse each Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed specified percentages of average daily net assets as shown below.
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
The operating expense limitation
as a percentage of average daily
net assets (per annum) 0.65% 0.75% 0.65%
Expiration date 10/31/04 10/31/04 10/31/04
Effective November 1, 2004, the operating
expense limitation as a percentage of
average daily net assets (per annum) 0.62% 0.67% 0.60%
Expiration date 12/29/05 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, each Fund pays DSC a monthly fee computed at the annual rate of 0.04%
of each Fund's average daily net assets for accounting and administration
services. Prior to May 19, 2005, the Funds paid DSC a monthly fee based on
average net assets subject to certain minimums for accounting and administration
services. Each Fund paid 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 0.30% of the average daily net
assets of the Class A shares for Delaware Tax-Free USA Fund, Delaware Tax-Free
Insured Fund, and Delaware Tax-Free USA Intermediate Fund, 0.25% of the average
daily net assets of the Class A shares for the Delaware National High-Yield
Municipal Bond Fund, and 1.00% of the average daily net assets of the Class B
and C shares for all Funds. The Board of Trustees has adopted a formula for
calculating 12b-1 plan fees for Delaware Tax-Free USA Fund's Class A shares and
Delaware Tax-Free Insured Fund's Class A shares that went into effect on June 1,
1992. The total 12b-1 fees to be paid by Class A shareholders of each Fund will
be the sum of 0.10% of the average daily net assets representing shares that
were acquired prior to June 1, 1992 and 0.30%, waived to 0.25%, of the average
daily net assets representing shares that were acquired on or after June 1,
1992. The contractual 12b-1 fee waiver of 0.25% of average daily net assets is
applied to the shares of each Fund that were aquired on or after June 1, 1992 in
calculating the applicable 12b-1 fee rate. All Class A shareholders will bear
12b-1 fees at the same rate, the blended rate based upon the allocation of the
rates described above. DDLP has contracted to waive distribution and service
fees through December 29, 2005 in order to prevent distribution and service fees
of Class A from exceeding 0.25% of the average daily net assets for the Delaware
Tax-Free USA Fund and Delaware Tax-Free Insured Fund and 0.15% of the average
daily net assets for the Delaware Tax-Free USA Intermediate Fund.
At August 31, 2005, the Funds had liabilities payable to affiliates as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
Investment management fee payable
to DMC $156,575 $15,224 $40,785
Dividend disbursing, transfer agent,
accounting and administration fees
and other expenses payable to DSC 44,504 5,420 23,915
Other expenses payable to DMC
and affiliates* 143,639 24,000 61,540
*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, each Fund was
charged for internal legal services provided by DMC as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
$24,999 $3,303 $6,384
42
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS
WITH AFFILIATES (CONTINUED)
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 Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
$39,715 $4,260 $27,544
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 Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
Class A $6,068 $ -- $4,870
Class B 8,849 9,767 3,713
Class C 1,176 471 920
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the
Trusts. These officers and trustees are paid no compensation by the Funds.
3. INVESTMENTS
For the year ended August 31, 2005, the Funds made purchases and sales of
investment securities other than short-term investments as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
Purchases $217,533,603 $16,531,234 $64,438,311
Sales 240,699,835 18,037,733 19,612,652
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 Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
Cost of investments $441,894,451 $55,980,051 $141,880,594
------------ ----------- ------------
Aggregate unrealized appreciation $ 37,303,047 $ 4,111,729 $ 5,767,561
Aggregate unrealized depreciation (489,567) -- (44,998)
------------ ----------- ------------
Net unrealized appreciation $ 36,813,480 $ 4,111,729 $ 5,722,563
============ =========== ============
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 Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
Year ended 8/31/05
- ------------------
Tax-exempt income $20,913,234 $2,327,135 $4,020,053
Ordinary income -- 33,676 --
Long-term capital gain -- 89,803 --
----------- ---------- ----------
Total $20,913,234 $2,450,614 $4,020,053
=========== ========== ==========
Year ended 8/31/04
- ------------------
Tax-exempt income $23,010,855 $2,702,112 $3,191,082
----------- ---------- ----------
Total $23,010,855 $2,702,112 $3,191,082
=========== ========== ==========
43
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of August 31, 2005, the components of net assets on a tax basis were as
follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
Shares of beneficial interest $447,927,164 $56,575,484 $143,239,203
Other temporary differences (12,071) (1,790) --
Undistributed ordinary income -- 54,728 --
Undistributed long-term capital gain -- 654,747 --
Capital loss carryforwards (8,276,866) -- (360,422)
Post-October losses -- -- --
Unrealized appreciation (depreciation)
of investments 36,813,480 4,111,729 5,722,563
------------ ----------- ------------
Net assets $476,451,707 $61,394,898 $148,601,344
============ =========== ============
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales and tax treatment
of market discount on debt instruments.
Post-October losses represent losses realized on investment transactions from
November 1, 2004 through August 31, 2005 that, in accordance with federal income
tax regulations, the Funds have elected to defer and treat as having arisen in
the following fiscal year.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of market discount on certain debt instruments. Results of
operations and net assets were not affected by these reclassifications.
For federal income tax purposes, each Fund had accumulated capital losses as of
August 31, 2005, which may be carried forward and applied against future capital
gains. Such capital loss carryfowards expire as follows:
Delaware Tax-Free Delaware Tax-Free
Year of Expiration USA Fund USA Intermediate Fund
- ------------------ ----------------- ----------------------
2008 $8,276,548 $63,767
2009 318 --
2010 -- --
2011 -- 290,864
2012 -- 5,791
---------- --------
Total $8,276,866 $360,422
========== ========
For the year ended August 31, 2005, the Funds had capital loss carryforwards
that were utilized as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund USA Intermediate Fund
----------------- ----------------- ----------------------
$2,514,473 $4,631 $231,256
44
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
5. CAPITAL SHARES
Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free
USA Fund Insured Fund
-------------------- ----------------------
Year Ended Year Ended
8/31/05 8/31/04 8/31/05 8/31/04
Shares sold:
Class A 2,090,513 2,542,308 237,100 240,752
Class B 60,705 91,678 16,473 86,796
Class C 89,160 100,047 106,968 51,075
Shares issued upon reinvestment of
dividends and distributions:
Class A 923,604 1,022,075 109,000 119,786
Class B 33,850 51,247 10,470 12,642
Class C 14,713 16,055 3,158 2,871
----------- ---------- ---------- ----------
3,212,545 3,823,410 483,169 513,922
----------- ---------- ---------- ----------
Shares repurchased:
Class A (4,224,229) (5,005,013) (602,318) (765,235)
Class B (645,620) (967,610) (87,777) (194,050)
Class C (101,597) (104,261) (27,732) (6,844)
----------- ---------- ---------- ----------
(4,971,446) (6,076,884) (717,827) (966,129)
----------- ---------- ---------- ----------
Net decrease (1,758,901) (2,253,474) (234,658) (452,207)
=========== ========== ========== ==========
Delaware Tax-Free
USA Intermediate Fund
---------------------------
Year Ended
8/31/05 8/31/04
Shares sold:
Class A 5,248,577 4,337,621
Class B 28,724 71,772
Class C 705,277 929,113
Shares issued upon reinvestment of dividends
and distributions:
Class A 208,201 164,775
Class B 5,933 6,543
Class C 24,033 20,268
----------- ----------
6,220,745 5,530,092
----------- ----------
Shares repurchased:
Class A (1,903,878) (2,375,615)
Class B (87,601) (161,693)
Class C (252,321) (220,488)
----------- ----------
(2,243,800) (2,757,796)
----------- ----------
Net increase (decrease) 3,976,945 2,772,296
=========== ==========
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 above and the
Statements of Changes in Net Assets.
Year Ended Year Ended
8/31/05 8/31/04
----------------------------------- -----------------------------------
Class B Class A Class B Class A
shares shares Value shares shares Value
-------- -------- ---------- -------- -------- ----------
Delaware Tax-Free USA Fund 365,813 365,721 $4,231,193 407,411 407,411 $4,651,731
Delaware Tax-Free Insured Fund 21,036 21,036 233,581 42,758 42,758 472,881
Delaware Tax-Free USA Intermediate Fund 16,264 16,264 185,879 20,911 20,911 236,413
6. LINE OF CREDIT
The Funds, along with certain other funds in the Delaware Investments(R) 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 fund's allocation of the entire facility. The Participants may
borrow up to a maximum of one third of their net assets under the agreement. The
Funds had no amounts outstanding as of August 31, 2005 or at any time during the
year.
45
NOTES DELAWARE NATIONAL TAX-FREE FUNDS
TO FINANCIAL STATEMENTS (CONTINUED)
7. CREDIT AND MARKET RISK
The Funds concentrate their investments in securities issued by municipalities.
The value of these investments may be adversely affected by new legislation
within the states, regional or local economic conditions, and differing levels
of supply and demand for municipal bonds. Many municipalities insure repayment
for their obligations. Although bond insurance reduces the risk of loss due to
default by an issuer, such bonds remain subject to the risk that market value
may fluctuate for other reasons and there is no assurance that the insurance
company will meet its obligations. These securities have been identified in the
Statements of Net Assets.
Delaware National High-Yield Municipal Bond Fund invests a portion of its assets
in high-yield fixed income securities, which carry ratings of BB or lower by
Standard & Poor's Ratings Group and/or Ba or lower by Moody's Investors Service,
Inc. Investments in these higher yielding securities are generally accompanied
by a greater degree of credit risk than higher rated securities. Additionally,
lower rated securities may be more susceptible to adverse economic and
competitive industry conditions than investment grade securities.
The Funds may invest in inverse floating rate securities ("inverse floaters"), a
type of derivative tax-exempt obligation with floating or variable interest
rates that move in the opposite direction of short-term interest rates, usually
at an accelerated speed. Consequently, the market values of inverse floaters
will generally be more volatile than other tax-exempt investments. Such
securities are denoted on the Statements of Net Assets.
The Funds may invest a portion of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair each Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so. At
August 31, 2005, there were no Rule 144A securities and no securities have been
determined to be illiquid under the 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. PRE-REFUNDED BONDS
The Fund 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.
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.
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 each Fund's 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:
(A) (B)
Long-Term Ordinary (C)
Capital Gains Income Tax-Exempt Total
Distributions Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis)
--------------- ------------- -------------- --------------
Delaware Tax-Free USA Fund -- -- 100% 100%
Delaware Tax-Free Insured Fund 4% 1% 95% 100%
Delaware Tax-Free USA Intermediate Fund -- -- 100% 100%
(A), (B) and (C) are based on a percentage of each Fund's total distributions.
46
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Delaware Group Tax-Free Fund
Voyageur Mutual Funds - Delaware National High-Yield
Municipal Bond Fund
We have audited the accompanying statements of net assets of Delaware Group
Tax-Free Fund (comprised of Delaware Tax-Free USA Fund, Delaware Tax-Free
Insured Fund, and Delaware Tax-Free USA Intermediate Fund) and Delaware National
High-Yield Municipal Bond Fund (one of the series constituting Voyageur Mutual
Funds) (collectively, the "Funds") 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 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 each
of the respective series constituting the Delaware Group Tax-Free Fund and the
Delaware National High-Yield Municipal Bond Fund of Voyageur Mutual Funds at
August 31, 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
47
OTHER DELAWARE NATIONAL TAX-FREE FUNDS
FUND INFORMATION
PROXY RESULTS
The shareholders of Delaware Group Tax-Free Funds and Voyageur Mutual Funds
(each, the "Trust") voted on the following proposals 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.
Delaware Group
Tax-Free Funds Voyageur Mutual Funds
------------------ ---------------------
Shares Voted Shares Voted
Shares Voted For Withheld Authority Shares Voted For Withheld Authority
------------------- -------------------- ------------------- --------------------
Thomas L. Bennett 37,979,036.513 1,048,233.841 20,895,278.656 360,093.724
Jude T. Driscoll 38,000,153.644 1,027,116.713 20,914,639.656 340,732.724
John A. Fry 38,003,289.743 1,023,980.614 20,894,793.656 360,578.724
Anthony D. Knerr 37,979,818.032 1,037,452.325 20,894,488.656 360,883.724
Lucinda S. Landreth 37,961,415.917 1,065,854.440 20,879,031.656 376,340.724
Ann R. Leven 37,961,430.648 1,065,839.709 20,857,874.656 397,497.724
Thomas F. Madison 37,996,204.955 1,031,065.402 20,905,985.656 349,386.724
Janet L. Yeomans 37,983,172.594 1,044,097.763 20,859,670.656 395,701.724
J. Richard Zecher 37,951,191.521 1,076,078.836 20,914,639.656 340,732.724
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 Insured Fund 2,901,910.367 203,102.434 188,821.454
Delaware Tax-Free USA Fund 22,052,517.324 1,738,327.316 1,287,024.842
Delaware Tax-Free USA Intermediate Fund 3,874,386.962 210,011.168 129,857.255
BOARD CONSIDERATION OF DELAWARE NATIONAL TAX-FREE FUNDS 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 Insured Fund, Delaware Tax-Free USA Fund, Delaware Tax-Free USA
Intermediate Fund and Delaware National High-Yield Municipal Bond 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
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.
48
OTHER DELAWARE NATIONAL TAX-FREE FUNDS
FUND INFORMATION (CONTINUED)
BOARD CONSIDERATION OF DELAWARE NATIONAL TAX-FREE FUNDS INVESTMENT ADVISORY
AGREEMENT (CONTINUED)
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(R)
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 INSURED FUND - The Performance Universe for this Fund
consisted of the Fund and all retail and institutional municipal insured debt
funds as selected by Lipper. The Lipper report comparison showed that the Fund's
total return for the one, three and five year periods was in the first quartile
of such Performance Universe. The report further showed that the Fund's total
return for the 10 year period was in the second quartile. The Board was
satisfied with such performance.
DELAWARE TAX-FREE USA FUND -- The Performance Universe for this Fund consisted
of the Fund and all retail and institutional general municipal debt funds as
selected by Lipper. The Lipper report comparison showed that the Fund's total
return for the one, three and five year periods was in the first quartile of
such Performance Universe. The report further showed that the Fund's total
return for the 10 year period was in the third quartile. The Board was satisfied
with such performance.
DELAWARE TAX-FREE USA INTERMEDIATE FUND -- The Performance Universe for this
Fund consisted of the Fund and all retail and institutional intermediate
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.
COMPARATIVE EXPENSES. The Board considered expense comparison data for the
Delaware Investments(R) 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 Insured Fund -- The expense comparisons for the Fund showed
that its management fee and total expenses were in the quartile with the second
lowest expenses of its Expense Group. The Board was satisfied with the
management fees and total expenses of the Fund in comparison to its Expense
Group as shown in the Lipper report.
49
OTHER DELAWARE NATIONAL TAX-FREE FUNDS
FUND INFORMATION (CONTINUED)
BOARD CONSIDERATION OF DELAWARE NATIONAL TAX-FREE FUNDS INVESTMENT ADVISORY
AGREEMENT (CONTINUED)
DELAWARE TAX-FREE USA FUND -- The expense comparisons for the Fund showed that
its management fee was in the quartile with the lowest expenses of its Expense
Group and its total expenses were in the quartile with the second lowest
expenses of its Expense Group. The Board was satisfied with the management fees
and total expenses of the Fund in comparison to its Expense Group as shown in
the Lipper report.
DELAWARE TAX-FREE USA INTERMEDIATE FUND -- The expense comparisons for the Fund
showed that its management fee and total expenses were in the quartile with the
lowest expenses of its Expense Group. The Board was satisfied with the
management fees and total expenses of the Fund in comparison to its Expense
Group as shown in the Lipper report.
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND -- The expense comparisons for
the Fund showed that its management fee was in the quartile with the lowest
expenses of its Expense Group and its total expenses were in the quartile with
the second lowest expenses of its Expense Group. The Board was satisified with
the management fees and total expenses of the Fund in comparison to its Expense
Group as shown in the Lipper report.
MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any,
realized by Delaware Investments in connection with the operation of the Funds.
In this respect, the Board reviewed the Investment Management Profitability
Analysis that addressed the overall profitability of Delaware Investments'
business in providing management and other services to each of the individual
funds and the Delaware Investments(R) 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(R) 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(R) 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.
50
DELAWARE INVESTMENTS(R) Family of Funds
BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor and others that perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. The following is a list of the Trustees and Officers with
certain background and related information.
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- -----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 92 None
2005 Market Street President, Executive Officer Mr. Driscoll has served in
Philadelphia, PA Chief Executive various executive capacities
19103 Officer and 1 Year - at different times at
Trustee Trustee Delaware Investments1
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
THOMAS L. BENNETT Trustee Since Private Investor - 92 None
2005 Market Street March 23, 2005 (March 2004 - Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984 - March 2004)
- -----------------------------------------------------------------------------------------------------------------------------------
JOHN A. FRY Trustee 4 Years President - 92 Director -
2005 Market Street Franklin & Marshall College Community Health
Philadelphia, PA (June 2002 - Present) Systems
19103
Executive Vice President -
May 28, 1960 University of Pennsylvania
(April 1995 - June 2002)
- -----------------------------------------------------------------------------------------------------------------------------------
ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 92 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
- -----------------------------------------------------------------------------------------------------------------------------------
LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 92 None
2005 Market Street March 23, 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002 - 2004)
June 24, 1947
- -----------------------------------------------------------------------------------------------------------------------------------
ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 92 Director and
2005 Market Street National Gallery of Art Audit Committee
Philadelphia, PA (1994 - 1999) Chairperson - Andy
19103 Warhol Foundation
November 1, 1940 Director and Audit
Committee Member -
Systemax Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
51
NUMBER OF OTHER
PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS
NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY
ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE
AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER
- -----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
THOMAS F. MADISON Trustee 11 Years President/Chief 92 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director and Audit
and Consulting) Committee Member -
February 25, 1936 (January 1993 - Present) CenterPoint Energy
Director and Audit
Committee Member -
Digital River Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 92 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has
held various
July 31, 1948 management positions
at 3M Corporation
since 1983.
- -----------------------------------------------------------------------------------------------------------------------------------
J. RICHARD ZECHER Trustee Since Founder - 92 Director and Audit
2005 Market Street March 23, 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999 - Present)
Director and Audit
July 3, 1940 Committee Member -
Oxigene, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served in 92 None(3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 17, 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
- -----------------------------------------------------------------------------------------------------------------------------------
RICHELLE S. MAESTRO Executive Vice President, 2 Years Ms. Maestro has served in 92 None(3)
2005 Market Street Chief Legal Officer various executive capacities
Philadelphia, PA and Secretary at different times at
19103 Delaware Investments.
November 26, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
JOHN J. O'CONNOR Senior Vice President Treasurer Mr. O'Connor has served in 92 None(3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 17, 2005 at different times at
19103 Delaware Investments.
June 16, 1957
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries, including the Fund's(s') investment
advisor, principal underwriter and its transfer agent.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's(s') manager and distributor.
(3) Mr. Bishof, Ms. Maestro and Mr. O'Connor also serve in similar capacities
for the six portfolios of the Optimum Fund Trust, which have the same
investment advisor, principal underwriter, and transfer agent as the
registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees/Directors and Officers and is available, without
charge, upon request by calling 800 523-1918.
52
Delaware
Investments(R)
- -----------------------------------
A member of Lincoln Financial Group
This annual report is for the information of Delaware Tax-Free USA Fund,
Delaware Tax-Free Insured Fund, Delaware Tax-Free USA Intermediate Fund, and
Delaware National High-Yield Municipal Bond Fund shareholders, but it may be
used with prospective investors when preceded or accompanied by a current
prospectus for Delaware Tax-Free USA Fund, Delaware Tax-Free Insured Fund,
Delaware Tax-Free USA Intermediate Fund, and Delaware National High-Yield
Municipal Bond Fund and the Delaware Investments Performance Update for the most
recently completed calendar quarter. The prospectus sets forth details about
charges, expenses, investment objectives, and operating policies of the 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
JOHN A. FRY Chief Legal Officer and Secretary SHAREHOLDER SERVICING, DIVIDEND
President Delaware Investments Family of Funds DISBURSING AND TRANSFER AGENT
Franklin & Marshall College Philadelphia, PA Delaware Service Company, Inc.
Lancaster, PA 2005 Market Street
JOHN J. O'CONNOR Philadelphia, PA 19103-7094
ANTHONY D. KNERR Senior Vice President and Treasurer
Managing Director Delaware Investments Family of Funds FOR SHAREHOLDERS
Anthony Knerr & Associates Philadelphia, PA 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 Delaware Investments is the marketing name for
National Gallery of Art Delaware Management Holdings, Inc. and
Washington, DC its subsidiaries.
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.
- --------------------------------------------------------------------------------
(9750) Printed in the USA
AR-011 [8/05] IVES 10/05 MF-05-09-031 PO10446
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 $51,200
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 $57,600
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 $9,800 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 $5,250 for the fiscal
year ended August 31, 2004. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax 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
$215,035 and $218,065 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.
DELAWARE GROUP TAX FREE FUND
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