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: 811-4989
Exact name of registrant as specified in charter: Voyageur Mutual Funds II
the Investment Company Act of 1940, the registrant has duly caused this
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: February 28, 2006
Item 1. Reports to Stockholders
The Registrant's shareholder report is combined with the shareholder
reports of other investment company registrants. This Form N-CSR pertains to the
DELAWARE TAX-FREE COLORADO FUND of the Registrant, information on which is
included in the following shareholder reports.
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[DELAWARE INVESTMENTS(R) LOGO]
FIXED INCOME
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Semiannual Report FEBRUARY 28, 2006
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DELAWARE TAX-FREE ARIZONA INSURED FUND
DELAWARE TAX-FREE CALIFORNIA FUND
DELAWARE TAX-FREE COLORADO FUND
[POWERED BY RESEARCH(R) LOGO]
Table
OF CONTENTS
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DISCLOSURE OF FUND EXPENSES 1
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SECTOR ALLOCATIONS 2
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FINANCIAL STATEMENTS:
Statements of Net Assets 4
Statements of Operations 13
Statements of Changes in Net Assets 14
Financial Highlights 15
Notes to Financial Statements 24
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ABOUT THE ORGANIZATION 30
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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)2006 Delaware Distributors, L.P.
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Disclosure For the Period September 1, 2005 to February 28, 2006
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OF FUND EXPENSES
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments, reinvested dividends, or
other distributions; redemption fees; and exchange fees; and (2) ongoing costs,
including management fees; distribution and/or service (12b-1) fees; and other
Fund expenses. The following examples are intended to help you understand your
ongoing costs (in dollars) of investing in a Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of
the period and held for the entire period September 1, 2005 to February 28,
2006.
Actual Expenses
The first section of the tables shown, "Actual Fund Return," provides
information about actual account values and actual expenses. You may use the
information in this section of the table, together with the amount you invested,
to estimate the expenses that you paid over the period. Simply divide your
account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the result by the number in the first section under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.
Hypothetical Example for Comparison Purposes
The second section of the tables shown, "Hypothetical 5% Return," provides
information about hypothetical account values and hypothetical expenses based on
the Funds' actual expense ratio and an assumed rate of return of 5% per year
before expenses, which is not the Funds' actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in a Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the tables are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second
section of each table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher. Each Fund's actual expenses shown in the tables reflect fee waivers in
effect. The expenses shown in each table assume reinvestment of all dividends
and distributions. "Expenses Paid During Period" are equal to the Fund's
annualized expense ratio, multiplied by the average account value over the
period, multiplied by 181/365 (to reflect the one-half year period).
Delaware Tax-Free Arizona Insured Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 9/1/05 to
9/1/05 2/28/06 Ratio 2/28/06
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Actual Fund Return
Class A $ 1,000.00 $ 1,006.40 0.77% $ 3.83
Class B 1,000.00 1,002.60 1.52% 7.55
Class C 1,000.00 1,003.50 1.52% 7.55
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Hypothetical 5% Return (5% return before expenses)
Class A $ 1,000.00 $ 1,020.98 0.77% $ 3.86
Class B 1,000.00 1,017.26 1.52% 7.60
Class C 1,000.00 1,017.26 1.52% 7.60
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Delaware Tax-Free California Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 9/1/05 to
9/1/05 2/28/06 Ratio 2/28/06
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Actual Fund Return
Class A $ 1,000.00 $ 1,011.80 0.88% $ 4.39
Class B 1,000.00 1,008.00 1.63% 8.12
Class C 1,000.00 1,008.00 1.63% 8.12
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Hypothetical 5% Return (5% return before expenses)
Class A $ 1,000.00 $ 1,020.43 0.88% $ 4.41
Class B 1,000.00 1,016.71 1.63% 8.15
Class C 1,000.00 1,016.71 1.63% 8.15
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Delaware Tax-Free Colorado Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 9/1/05 to
9/1/05 2/28/06 Ratio 2/28/06
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Actual Fund Return
Class A $ 1,000.00 $ 1,011.20 0.93% $ 4.64
Class B 1,000.00 1,008.30 1.68% 8.37
Class C 1,000.00 1,008.30 1.68% 8.37
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Hypothetical 5% Return (5% return before expenses)
Class A $ 1,000.00 $ 1,020.18 0.93% $ 4.66
Class B 1,000.00 1,016.46 1.68% 8.40
Class C 1,000.00 1,016.46 1.68% 8.40
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1
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Sector Allocations As of February 28, 2006
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Sector designations may be different than the sector designations presented in
other Fund materials.
DELAWARE TAX-FREE ARIZONA INSURED FUND
Percentage
Sector of Net Assets
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Municipal Bonds 98.29%
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Airport Revenue Bonds 10.68%
Continuing Care/Retirement Revenue Bonds 0.64%
Convention Center/Auditorium/Hotel Revenue Bonds 3.38%
Dedicated Tax & Fees Revenue Bonds 1.48%
Electric & Gas Revenue Bonds 9.26%
Escrowed to Maturity Bonds 0.30%
Higher Education Revenue Bonds 8.37%
Hospital Revenue Bonds 6.32%
Multifamily Housing Revenue Bonds 5.15%
Municipal Lease Revenue Bonds 12.41%
Political Subdivision General Obligation Bonds 2.26%
Pre-Refunded Bonds 25.49%
School District General Obligation Bonds 2.29%
Single Family Housing Revenue Bonds 0.11%
Territorial General Obligation Bonds 4.07%
Transportation Revenue Bonds 0.67%
Water & Sewer Revenue Bonds 5.41%
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Short-Term Investments 0.73%
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Total Market Value of Securities 99.02%
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Receivables and Other Assets Net of Liabilities 0.98%
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Total Net Assets 100.00%
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DELAWARE TAX-FREE CALIFORNIA FUND
Percentage
Sector of Net Assets
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Municipal Bonds 94.23%
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Airport Revenue Bonds 2.11%
Continuing Care/Retirement Revenue Bonds 4.27%
Dedicated Tax & Fees Revenue Bonds 8.24%
Electric & Gas Revenue Bonds 2.21%
Higher Education Revenue Bonds 9.69%
Hospital Revenue Bonds 5.65%
Multifamily Housing Revenue Bonds 7.93%
Municipal Lease Revenue Bonds 8.43%
Parking Revenue Bonds 1.07%
Ports & Harbors Revenue Bonds 2.19%
Pre-Refunded Bonds 8.20%
Primary Education Revenue Bonds 1.11%
Resource Recovery Revenue Bonds 4.28%
School District General Obligation Bonds 5.99%
State General Obligation Bonds 6.70%
Tax Increment/Special Assessment Bonds 10.77%
Water & Sewer Revenue Bonds 5.39%
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Short-Term Investments 5.35%
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Money Market Instruments 2.08%
Variable Rate Demand Notes 3.27%
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Total Market Value of Securities 99.58%
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Receivables and Other Assets Net of Liabilities 0.42%
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Total Net Assets 100.00%
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2
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Sector Allocations (CONTINUED) As of February 28, 2006
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Sector designations may be different than the sector designations presented in
other Fund materials.
DELAWARE TAX-FREE COLORADO FUND
Percentage
Sector of Net Assets
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Municipal Bonds 98.22%
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Airport Revenue Bonds 4.48%
Charter School Revenue Bonds 7.57%
Combined Utility Revenue Bonds 1.82%
Continuing Care/Retirement Revenue Bonds 5.58%
Dedicated Tax & Fees Revenue Bonds 1.03%
Electric & Gas Revenue Bonds 0.37%
Escrowed to Maturity Bonds 2.23%
Higher Education Revenue Bonds 10.26%
Hospital Revenue Bonds 8.63%
Library/Museum Revenue Bonds 0.74%
Multifamily Housing Revenue Bonds 6.23%
Municipal Lease Revenue Bonds 3.39%
Political Subdivision General Obligation Bonds 10.63%
Pre-Refunded Bonds 14.52%
Recreational Area Revenue Bonds 1.20%
School District General Obligation Bonds 5.12%
Tax Increment/Special Assessment Bonds 5.03%
Territorial General Obligation Bonds 2.23%
Turnpike/Toll Road Revenue Bonds 5.42%
Water & Sewer Revenue Bonds 1.74%
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Short-Term Investments 0.52%
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Total Market Value of Securities 98.74%
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Receivables and Other Assets Net of Liabilities 1.26%
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Total Net Assets 100.00%
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3
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Delaware Tax-Free Arizona Insured Fund
Statements February 28, 2006 (Unaudited)
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OF NET ASSETS
Principal Market
Amount Value
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Municipal Bonds - 98.29%
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Airport Revenue Bonds - 10.68%
Phoenix Civic Improvement Corporation
Airport Revenue Series B
5.25% 7/1/27 (FGIC) (AMT) $ 1,000,000 $ 1,045,410
5.25% 7/1/32 (FGIC) (AMT) 10,300,000 10,741,664
Tucson Airport Authority
5.35% 6/1/31 (AMBAC) (AMT) 5,000,000 5,210,450
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16,997,524
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Continuing Care/Retirement Revenue Bonds - 0.64%
Maricopa County Industrial Development
Authority Senior Living Healthcare Revenue
5.00% 8/20/35 (GNMA) 1,000,000 1,020,630
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1,020,630
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Convention Center/Auditorium/Hotel Revenue Bonds - 3.38%
Arizona Tourism & Sports Authority Tax
Revenue Multipurpose Stadium
Facilities Series A
5.00% 7/1/28 (MBIA) 2,500,000 2,624,300
5.00% 7/1/31 (MBIA) 1,500,000 1,572,645
Phoenix Civic Improvement Corporation
Distribution Revenue (Civic Plaza)
Series B 5.50% 7/1/31 (FGIC) 1,500,000 1,189,425
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5,386,370
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Dedicated Tax & Fees Revenue Bonds - 1.48%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series K 5.00% 7/1/35 750,000 774,833
San Luis Civic Improvement Corporation
Municipal Facilities Excise Tax Revenue
5.00% 7/1/38 (XLCA) 1,500,000 1,573,515
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2,348,348
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Electric & Gas Revenue Bonds - 9.26%
Energy Management Services
(Arizona State University - Main Campus)
5.25% 7/1/17 (MBIA) 1,500,000 1,619,280
Maricopa County Pollution Control
(Palo Verde Project) Series A
5.05% 5/1/29 (AMBAC) 6,000,000 6,254,460
Puerto Rico Electric Power
Authority Revenue
Series NN 5.00% 7/1/32 (MBIA) 2,500,000 2,630,750
Series OO 5.00% 7/1/13 (CIFG) 1,500,000 1,624,800
Salt River Project Agricultural
Improvement & Power District
Electric System Revenue
(Salt River Project)
Series A 5.00% 1/1/31 500,000 522,185
Series B 5.00% 1/1/31 (MBIA) 2,000,000 2,088,740
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14,740,215
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Principal Market
Amount Value
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Municipal Bonds (continued)
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Escrowed to Maturity Bonds - 0.30%
Maricopa County School District #14
(Creighton School Improvement Project)
Series C 6.50% 7/1/08 (FGIC) $ 455,000 $ 486,095
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486,095
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Higher Education Revenue Bonds - 8.37%
Arizona State Board of Regents
(Northern Arizona University)
5.00% 6/1/34 (FGIC) 1,000,000 1,037,710
5.50% 6/1/34 (FGIC) 1,250,000 1,376,525
Certificates of Participation
(University of Arizona Main Campus)
Series 2000 A1 5.125% 6/1/25 (AMBAC) 1,250,000 1,322,825
Arizona State University
Certificates of Participation
(Research Infrastructure Project)
5.00% 9/1/30 (AMBAC) 3,000,000 3,149,400
Glendale Industrial Development
Authority Revenue (Midwestern University)
Series A 5.875% 5/15/31 1,000,000 1,071,360
Mohave County Community
College District Revenue
(State Board of Directors)
6.00% 3/1/20 (MBIA) 1,000,000 1,088,910
South Campus Group Student
Housing Revenue (Arizona State
University South Campus Project)
5.625% 9/1/35 (MBIA) 1,000,000 1,105,040
Tucson Industrial Development Authority
(University of Arizona-Marshall Foundation)
Series A 5.00% 7/15/27 (AMBAC) 1,000,000 1,042,900
University of Arizona
Certificates of Participation
(University of Arizona Project)
Series A 5.125% 6/1/21 (AMBAC) 1,000,000 1,062,360
Series B 5.125% 6/1/22 (AMBAC) 1,000,000 1,062,360
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13,319,390
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Hospital Revenue Bonds - 6.32%
Glendale Industrial Development
Authority Hospital Revenue
5.00% 12/1/35 1,000,000 1,004,910
Maricopa County Industrial Development
Authority Health Facilities Revenue
(Catholic Healthcare West)
Series A 5.50% 7/1/26 1,000,000 1,060,630
Mohave County Industrial
Development Authority
(Chris Ridge & Silver)
6.375% 11/1/31 (GNMA) 185,000 191,179
Phoenix Industrial Development
Authority Hospital Revenue
(John C. Lincoln Health)
Series B 5.75% 12/1/16 (Connie Lee) 4,110,000 4,323,556
Scottsdale Industrial Development
Authority Hospital Revenue
(Scottsdale Healthcare)
5.70% 12/1/21 500,000 539,965
4
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Delaware Tax-Free Arizona Insured Fund
Statements
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OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
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Municipal Bonds (continued)
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Hospital Revenue Bonds (continued)
University Medical Center Hospital Revenue
5.00% 7/1/24 $ 800,000 $ 819,960
Yavapai County Industrial Development
Authority Revenue
(Yavapai Regional Medical Center)
5.25% 8/1/21 (RADIAN) 2,000,000 2,111,800
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10,052,000
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Multifamily Housing Revenue Bonds - 5.15%
Phoenix Industrial Development
Authority Multifamily Housing Revenue
(Capital Mews Apartments)
Series A 5.70% 12/20/40 (GNMA) (AMT) 2,000,000 2,091,560
(Ventana Palms Apartments) Series A
6.15% 10/1/29 (MBIA) 510,000 540,524
6.20% 10/1/34 (MBIA) 940,000 997,143
Yuma Industrial Development
Authority Multifamily Revenue
(Regency Apartments) Series A
5.50% 12/20/32 (GNMA) (FHA) 2,000,000 2,004,920
6.10% 9/20/19 (GNMA) (AMT) 2,340,000 2,561,644
-------------
8,195,791
-------------
Municipal Lease Revenue Bonds - 12.41%
Arizona Agricultural Improvement &
Power District Certificates of Participation
(Salt River Project)
5.00% 12/1/18 (MBIA) 2,500,000 2,659,175
Arizona School Facilities Board
Certificates of Participation
Series A 5.00% 9/1/18 (FGIC) 1,000,000 1,070,400
Greater Arizona Development
Authority Infrastructure Revenue
Series A 5.00% 8/1/22 (MBIA) 500,000 535,880
Marana Municipal Property
Corporation Municipal Facilities Revenue
5.00% 7/1/28 (AMBAC) 575,000 601,738
Maricopa County Industrial
Development Authority Correctional
Contract Facilities
(Phoenix West Prison)
5.375% 7/1/22 (ACA) 1,000,000 1,048,030
Phoenix Industrial Development Authority
Government Office Lease Revenue
(Capitol Mall LLC Project)
5.00% 9/15/27 (AMBAC) 1,000,000 1,054,720
5.00% 9/15/28 (AMBAC) 4,000,000 4,153,000
Pinal County Certificates of Participation
5.125% 6/1/21 (AMBAC) 4,675,000 4,965,784
Puerto Rico Public Buildings
Authority Revenue
(Guaranteed Government Facilities)
Series D 5.25% 7/1/27 470,000 494,261
Series D 5.25% 7/1/36 270,000 283,630
Series I 5.25% 7/1/33 500,000 532,250
University of Arizona
Certificates of Participation
Series B 5.00% 6/1/31 (AMBAC) 2,250,000 2,346,458
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19,745,326
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Principal Market
Amount Value
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Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Political Subdivision General Obligation Bonds - 2.26%
DC Ranch Community Facilities
5.00% 7/15/27 (AMBAC) $ 1,000,000 $ 1,050,600
Phoenix Variable Purpose Series B
5.00% 7/1/27 2,435,000 2,543,017
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3,593,617
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- -/-Pre-Refunded Bonds - 25.49%
Arizona State Transportation Board
Highway Revenue Series B
5.25% 7/1/22-12 1,000,000 1,091,870
Eagle Mountain Community Facility
District Revenue Series A
6.50% 7/1/21-06 1,010,000 1,030,877
Glendale Industrial Development
Authority Educational Facilities Revenue
(American Graduate School International)
5.625% 7/1/20-06 (Connie Lee) 1,000,000 1,017,730
5.875% 7/1/15-06 (Connie Lee) 2,500,000 2,546,425
Maricopa County School District #3
(Tempe Elementary Project of 1997)
Series E 5.70% 7/1/16-09 (FGIC) 1,025,000 1,105,791
Mesa Industrial Development Authority
(Discovery Health Systems) Series A
5.625% 1/1/29-10 (MBIA) 10,000,000 10,801,499
Phoenix Industrial Development
Authority Lease Revenue
(Capitol Mall LLC Project)
5.50% 9/15/27-10 (AMBAC) 5,000,000 5,401,000
Puerto Rico Commonwealth
Public Improvement Revenue
5.125% 7/1/30-11 (FSA) 770,000 829,475
Series A 5.00% 7/1/27-12 1,000,000 1,080,170
Series A 5.125% 7/1/31-11 1,705,000 1,836,694
Puerto Rico Public Buildings Authority
Guaranteed Government Facilities
Revenue Series D
5.25% 7/1/36-12 730,000 792,327
5.25% 7/1/27-12 1,280,000 1,389,286
Phoenix Street & Highway Revenue
6.50% 7/1/09-02 (AMBAC) 350,000 351,197
Sedona Certificates of Participation
5.75% 7/1/16-09 500,000 539,370
Southern Arizona Capital Facilities Finance
(University of Arizona Project)
5.10% 9/1/33-12 (MBIA) 3,250,000 3,526,283
Surprise Municipal Property
Excise Tax Revenue
5.70% 7/1/20-09 (FGIC) 5,000,000 5,394,100
University of Arizona
Certificates of Participation
(University of Arizona Parking
& Student Housing)
5.75% 6/1/19-09 (AMBAC) 1,000,000 1,069,870
Yuma Industrial Development
Authority Hospital Revenue
(Yuma Regional Medical Center)
5.00% 8/1/31-11 (FSA) 700,000 752,290
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40,556,254
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5
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Delaware Tax-Free Arizona Insured Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
School District General Obligation Bonds - 2.29%
Cochise County Unified School
District #68 7.50% 7/1/10 (FGIC) $ 1,000,000 $ 1,155,830
Maricopa County School District #14
(Creighton School Improvement
Project of 1990)
Series C 6.50% 7/1/08 (FGIC) 545,000 581,738
Maricopa County School District #38
(Madison Elementary)
5.00% 7/1/14 (FSA) 1,750,000 1,903,405
-------------
3,640,973
-------------
Single Family Housing Revenue Bonds - 0.11%
Pima County Industrial Development
Authority Single Family Housing Revenue
Series A-1 6.125% 11/1/33
(GNMA) (FNMA) (FHLMC) (AMT) 55,000 55,233
Series B-1 6.10% 5/1/31 (GNMA) (AMT) 115,000 115,469
-------------
170,702
-------------
Territorial General Obligation Bonds - 4.07%
Puerto Rico Commonwealth
Public Improvements Refunding
Series A 5.50% 7/1/19 1,300,000 1,469,065
Puerto Rico Commonwealth
Public Improvement
(Unrefunded Balance) Series A
5.125% 7/1/30 (FSA) 480,000 509,510
5.125% 7/1/31 3,370,000 3,467,191
Virgin Islands Public Finance
Authority Revenue
(Gross Receipts Taxes)
5.00% 10/1/31 (ACA) 1,000,000 1,027,730
-------------
6,473,496
-------------
Transportation Revenue Bonds - 0.67%
Arizona State Transportation
Board Highway Revenue Series A
5.00% 7/1/23 1,000,000 1,064,080
-------------
1,064,080
-------------
Water & Sewer Revenue Bonds - 5.41%
Gilbert Water Resource Municipal
Property Corporation Wastewater
System & Utility Revenue
4.90% 4/1/19 1,500,000 1,512,450
Glendale Water & Sewer Revenue
5.00% 7/1/28 (AMBAC) 2,000,000 2,099,440
Phoenix Civic Improvement Corporation
Wastewater Systems Revenue Junior Lien
5.00% 7/1/24 (FGIC) 1,000,000 1,056,480
5.00% 7/1/26 (FGIC) 3,750,000 3,933,375
-------------
8,601,745
-------------
Total Municipal Bonds (cost $147,940,313) 156,392,556
-------------
Number of Market
Shares Value
- --------------------------------------------------------------------------------
Short-Term Investments - 0.73%
- --------------------------------------------------------------------------------
Money Market Instruments - 0.73%
Federated Arizona Municipal Cash Trust 1,153,903 $ 1,153,903
-------------
Total Short-Term Investments
(cost $1,153,903) 1,153,903
-------------
Total Market Value of Securities - 99.02%
(cost $149,094,216) 157,546,459
Receivables and Other Assets
Net of Liabilities - 0.98% 1,567,011
-------------
Net Assets Applicable to 13,949,251 Shares
Outstanding - 100.00% $ 159,113,470
=============
Net Asset Value - Delaware Tax-Free Arizona Insured Fund
Class A ($132,879,926 / 11,651,711 Shares) $ 11.40
-------------
Net Asset Value - Delaware Tax-Free Arizona Insured Fund
Class B ($17,822,544 / 1,561,658 Shares) $ 11.41
-------------
Net Asset Value - Delaware Tax-Free Arizona Insured Fund
Class C ($8,411,000 / 735,882 Shares) $ 11.43
-------------
Components of Net Assets at February 28, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $ 153,572,016
Distributions in excess of net investment income (20,294)
Accumulated net realized loss on investments (2,890,495)
Net unrealized appreciation of investments 8,452,243
-------------
Total net assets $ 159,113,470
=============
- -/- Pre-Refunded Bonds. Municipals that are generally backed or secured by
U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is
followed by the year in which the bond is pre-refunded. See Note 8 in
"Notes to Financial Statements."
Summary of Abbreviations:
ACA - Insured by American Capital Access
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
CIFG - CDC IXIS Financial Guaranty
Connie Lee - Insured by the College Construction Insurance Association
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
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
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
XLCA - Insured by XL Capital Insurance
Net Asset Value and Offering Price per Share -
Delaware Tax-Free Arizona Insured Fund
Net asset value Class A (A) $ 11.40
Sales charge (4.50% of offering price) (B) 0.54
-------------
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
6
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Delaware Tax-Free California Fund
Statements February 28, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 94.23%
- --------------------------------------------------------------------------------
Airport Revenue Bonds - 2.11%
Sacramento County Airport System
Revenue Series A 5.00% 7/1/32 (FSA) $ 1,000,000 $ 1,035,630
San Jose Airport Revenue
Series A 5.00% 3/1/31 (FGIC) 1,000,000 1,029,650
-------------
2,065,280
-------------
Continuing Care/Retirement Revenue Bonds - 4.27%
Abag Finance Authority of California
(Nonprofit Corporations -
Lincoln Glen Manor)
6.10% 2/15/25 (RADIAN) 2,000,000 2,107,560
California Health Facilities
Financing Authority Revenue
(The Episcopal Home) Series A
5.30% 2/1/32 (RADIAN) 2,000,000 2,079,480
-------------
4,187,040
-------------
Dedicated Tax & Fees Revenue Bonds - 8.24%
Palm Drive Health Care District
Parcel Tax Revenue 5.25% 4/1/30 2,000,000 2,096,380
Poway Unified School District
Community Facilities District #6
5.60% 9/1/33 1,000,000 1,031,730
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series K 5.00% 7/1/35 1,750,000 1,807,943
San Bernardino County Special Tax
Community Facilities District #2002-1
5.90% 9/1/33 2,000,000 2,097,360
San Francisco Bay Area Rapid Transit
District Sales Tax Revenue
5.125% 7/1/36 (AMBAC) 1,000,000 1,040,150
-------------
8,073,563
-------------
Electric & Gas Revenue Bonds - 2.21%
Puerto Rico Electric Power Authority
Revenue Series OO
5.00% 7/1/13 (CIFG) 2,000,000 2,166,400
-------------
2,166,400
-------------
Higher Education Revenue Bonds - 9.69%
California Educational Facilities
Authority Revenue
(University of the Pacific)
5.25% 5/1/34 1,000,000 1,056,030
5.75% 11/1/30 (MBIA) 1,000,000 1,090,120
(Woodbury University)
5.00% 1/1/36 1,000,000 1,006,680
California Public Works Board
Lease Revenue
(Various University of California Projects)
Series D 5.00% 5/1/30 1,000,000 1,045,220
Series F 5.00% 11/1/29 1,000,000 1,042,450
California State University
Systemwide Revenue Series A
5.25% 11/1/20 (FSA) 1,000,000 1,099,320
California Statewide Communities
Development Authority Student Revenue
(East Campus Apartments, LLC)
Series A 5.625% 8/1/34 (ACA) 1,000,000 1,056,930
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Higher Education Revenue Bonds (continued)
San Diego County Certificates of
Participation (University of San Diego)
5.375% 10/1/41 $ 1,000,000 $ 1,044,400
University of California Revenue
5.00% 5/15/33 (FSA) 1,000,000 1,049,000
-------------
9,490,150
-------------
Hospital Revenue Bonds - 5.65%
Abag Finance Authority of California
(Nonprofit Corporations - San Diego
Hospital Association)
Series A 6.125% 8/15/20 1,250,000 1,360,212
California Health Facilities Financing
Authority Revenue
(Catholic Healthcare West)
Series G 5.25% 7/1/23 1,000,000 1,060,540
California Infrastructure & Economic
Development Bank Revenue
(Kaiser Hospital Associates I, LLC)
Series A 5.55% 8/1/31 1,000,000 1,065,360
California Statewide Community
Development Authority Revenue
(Health Facilities - Adventist Health)
Series A 5.00% 3/1/35 2,000,000 2,045,860
-------------
5,531,972
-------------
Multifamily Housing Revenue Bonds - 7.93%
California Statewide Communities
Development Authority Multifamily
Housing Revenue
(Citrus Gardens Apartments)
Series D1 5.375% 7/1/32 1,800,000 1,858,464
(Silver Ridge Apartments)
Series H 5.80% 8/1/33 (AMT) (FNMA) 1,000,000 1,068,070
(Village East Tabor Apartments)
Series C 6.85% 8/20/36 (GNMA) (AMT) 1,500,000 1,600,350
Palm Springs Mobile Home Park Revenue
(Sahara Mobile Home Park)
Series A 5.75% 5/15/37 1,000,000 1,069,730
Santa Clara County Housing Authority
Multifamily Housing Revenue
(Rivertown Apartments Project)
Series A 5.85% 8/1/31 (AMT) 1,000,000 1,035,410
Ventura County Area Housing Authority
Multifamily Housing Revenue
(Glen Oaks Apartments)
Series A 6.35% 7/20/34 (GNMA) 1,001,000 1,139,929
-------------
7,771,953
-------------
Municipal Lease Revenue Bonds - 8.43%
California State Public Works
Board Lease Revenue
(Department of Corrections)
Series A 5.00% 3/1/27 (AMBAC) 1,000,000 1,041,820
Series C 5.25% 6/1/28 1,500,000 1,583,235
(Department of General
Services-Butterfield)
Series A 5.25% 6/1/30 1,000,000 1,065,170
7
- --------------------------------------------------------------------------------
Delaware Tax-Free California Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Municipal Lease Revenue Bonds (continued)
Franklin-McKinley School District
Certificates of Participation
(Financing Project)
Series B 5.00% 9/1/27 (AMBAC) $ 1,060,000 $ 1,109,608
Sacramento City Financing Authority
Revenue 5.00% 12/1/29 (FGIC) 1,250,000 1,317,525
San Diego County Certificates of
Participation 5.75% 7/1/31 (MBIA) 1,000,000 1,100,020
San Juan Basin Authority
(Ground Water Recovery Project)
5.00% 12/1/34 (AMBAC) 1,000,000 1,039,190
-------------
8,256,568
-------------
Parking Revenue Bonds - 1.07%
San Diego Redevelopment Agency
(Centre City Redevelopment Project)
Series A 6.40% 9/1/25 1,000,000 1,049,890
-------------
1,049,890
-------------
Ports & Harbors Revenue Bonds - 2.19%
Port of Oakland Revenue
Series K 5.75% 11/1/29 (FGIC) (AMT) 1,000,000 1,069,190
Series L 5.375% 11/1/27 (FGIC) (AMT) 1,000,000 1,072,830
-------------
2,142,020
-------------
- -/-Pre-Refunded Bonds - 8.20%
California Educational Facilities
Authority Revenue (Pepperdine University)
Series A 5.50% 8/1/32-09 1,000,000 1,069,930
California State Department Water
Resources Power Supply Revenue
Series A 5.375% 5/1/21-12 2,000,000 2,215,860
Golden State Tobacco
Securitization Corporation
5.50% 6/1/43-13 (RADIAN) 1,000,000 1,109,440
5.625% 6/1/33-13 1,000,000 1,117,310
Oakland Industrial Revenue
(Harrison Foundation)
Series B 6.00% 1/1/29-10 (AMBAC) 1,300,000 1,426,347
San Diego County
Certificates of Participation
(The Burnham Institute)
6.25% 9/1/29-09 1,000,000 1,096,430
-------------
8,035,317
-------------
Primary Education Revenue Bonds - 1.11%
California Statewide Communities
Development Authority Revenue
(Viewpoint School Project)
5.75% 10/1/33 (ACA) 1,000,000 1,086,360
-------------
1,086,360
-------------
Resource Recovery Revenue Bonds - 4.28%
Salinas Valley Solid Waste Authority Revenue
5.25% 8/1/27 (AMBAC) (AMT) 2,000,000 2,097,020
5.25% 8/1/31 (AMBAC) (AMT) 2,000,000 2,090,200
-------------
4,187,220
-------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
School District General Obligation Bonds - 5.99%
Beverly Hills Unified School
District Election 2002 Series B
5.00% 8/1/30 $ 1,000,000 $ 1,058,110
Fairfield-Suisun Unified School
District Election 2002
5.50% 8/1/28 (MBIA) 500,000 553,745
Lawndale Elementary School District
5.00% 8/1/32 (FSA) 1,000,000 1,040,500
San Diego Unified School District
5.00% 7/1/28 (FSA) 2,000,000 2,157,060
Sequoia Unified High School
District Election 2001
5.125% 7/1/31 (FSA) 1,000,000 1,054,950
-------------
5,864,365
-------------
State General Obligation Bonds - 6.70%
California State
5.00% 2/1/26 (AMBAC) 1,500,000 1,565,925
5.00% 2/1/33 1,000,000 1,034,670
5.50% 11/1/33 2,000,000 2,210,800
California State Veterans Series B
5.70% 12/1/32 (AMT) 640,000 658,310
Puerto Rico Public Buildings
Authority Revenue
(Guaranteed Government Facilities)
Series I 5.50% 7/1/23 1,000,000 1,096,530
-------------
6,566,235
-------------
Tax Increment/Special Assessment Bonds - 10.77%
Commerce Joint Powers Financing Authority
Revenue (Redevelopment Projects)
Series A 5.00% 8/1/28 (RADIAN) 1,000,000 1,026,150
Culver City Redevelopment Agency
(Tax Allocation Redevelopment Project)
Series A 5.00% 11/1/25 (AMBAC) 1,000,000 1,059,470
Fremont Community Facilities District #1
(Special Tax Pacific Commons)
5.375% 9/1/36 1,000,000 1,014,120
La Quinta Redevelopment Agency
(Tax Allocation Redevelopment
Project Area #1)
Series A 5.10% 9/1/31 (AMBAC) 2,000,000 2,098,199
Lake Elisnore Public Financing
Authority Tax Allocation
Series A 5.50% 9/1/30 1,000,000 1,027,870
Poway Redevelopment Agency Tax Allocation
5.75% 6/15/33 (MBIA) 1,400,000 1,553,790
Riverside County Redevelopment
Agency Tax Allocation
(Jurupa Valley Project)
5.25% 10/1/35 (AMBAC) 1,590,000 1,699,631
Southern California Logistics Airport
Authority Tax Allocation
(Southern California Logistics
Airport Project) 6.50% 12/1/31 1,000,000 1,067,660
-------------
10,546,890
-------------
8
- --------------------------------------------------------------------------------
Delaware Tax-Free California Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Water & Sewer Revenue Bonds - 5.39%
Banning Utilities Authority Water
Enterprise Revenue
5.25% 11/1/35 (FGIC) $ 1,000,000 $ 1,088,180
California State Department of Water
Resources Water Systems Revenue
(Central Valley Project)
Series X 5.00% 12/1/29 (FGIC) 1,000,000 1,044,490
Clovis Public Financing Authority
Wastewater Revenue
5.25% 8/1/30 (MBIA) 1,000,000 1,078,980
Metropolitan Water District of Southern
California Waterworks Authority Revenue
Series B-1 5.00% 10/1/36 (FGIC) 1,000,000 1,045,220
San Francisco City & County Public
Utilities Commission Series A
4.75% 11/1/36 (FSA) 1,000,000 1,024,100
-------------
5,280,970
-------------
Total Municipal Bonds (cost $87,804,080) 92,302,193
-------------
Number of
Shares
- --------------------------------------------------------------------------------
Short-Term Investments - 5.35%
- --------------------------------------------------------------------------------
Money Market Instruments - 2.08%
Federated California Municipal Cash Trust 2,040,080 2,040,080
-------------
2,040,080
-------------
Principal
Amount
- --------------------------------------------------------------------------------
oVariable Rate Demand Notes - 3.27%
California State Department of Water
Resources Power Supply
Series G-10 3.22% 5/1/18 (FGIC)
(SPA - Depfa Bank PLC) $ 1,700,000 1,700,000
East Bay Municipal Utilities District
Water System Revenue
Series B-2 3.12% 6/1/38 (XLCA)
(SPA - Dexia Credit Local) 1,500,000 1,500,000
-------------
3,200,000
-------------
Total Short-Term Investments
(cost $5,240,080) 5,240,080
-------------
Total Market Value of Securities - 99.58%
(cost $93,044,160) 97,542,273
Receivables and Other Assets
Net of Liabilities - 0.42% 408,369
-------------
Net Assets Applicable to 8,586,072 Shares
Outstanding - 100.00% $ 97,950,642
=============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net Asset Value - Delaware Tax-Free California Fund
Class A ($69,466,316 / 6,094,155 Shares) $ 11.40
-------------
Net Asset Value - Delaware Tax-Free California Fund
Class B ($16,430,573 / 1,435,888 Shares) $ 11.44
-------------
Net Asset Value - Delaware Tax-Free California Fund
Class C ($12,053,753 / 1,056,029 Shares) $ 11.41
-------------
Components of Net Assets at February 28, 2006:
Shares of beneficial interest
(unlimited authorization -- no par) $ 94,214,351
Undistributed net investment income 1,300
Accumulated net realized loss on investments (763,122)
Net unrealized appreciation of investments 4,498,113
-------------
Total net assets $ 97,950,642
=============
o Variable rate security. The interest rate shown is the rate as of February
28, 2006.
- -/- Pre-Refunded Bonds. Municipals that are generally backed or secured by
U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is
followed by the year in which the bond is pre-refunded. See Note 8 in
"Notes to Financial Statements."
Summary of Abbreviations:
ACA - Insured by American Capital Access
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
CIFG - CDC IXIS Financial Guaranty
FGIC - Insured by the Financial Guaranty Insurance Company
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
RADIAN - Insured by Radian Asset Assurance
SPA - Stand-by Purchase Agreement
XLCA - Insured by XL Capital Assurance
Net Asset Value and Offering Price per Share -
Delaware Tax-Free California Fund
Net asset value Class A (A) $ 11.40
Sales charge (4.50% of offering price) (B) 0.54
-------------
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
9
- --------------------------------------------------------------------------------
Delaware Tax-Free Colorado Fund
Statements February 28, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds - 98.22%
- --------------------------------------------------------------------------------
Airport Revenue Bonds - 4.48%
Denver City & County Airport Revenue
Series B 5.00% 11/15/33 (XLCA) $ 4,000,000 $ 4,177,920
Series E 5.25% 11/15/23 (MBIA) 8,250,000 8,548,650
-------------
12,726,570
-------------
Charter School Revenue Bonds - 7.57%
Colorado Educational & Cultural
Facilities Authority Revenue
(Charter School Project)
5.50% 5/1/36 (XLCA) 2,280,000 2,493,887
(Liberty Common Charter School Project)
5.125% 12/1/33 (XLCA) 2,740,000 2,883,905
(Littleton Academy Charter School Project)
6.125% 1/15/31 2,000,000 2,072,600
(Montessori Districts Charter School
Project) 6.125% 7/15/32 5,590,000 5,805,885
(Pinnacle Charter School Project)
5.00% 6/1/33 (XLCA) 2,170,000 2,258,905
(Renaissance Charter School Project)
6.75% 6/1/29 2,000,000 1,826,600
(Stargate Charter School Project)
6.125% 5/1/33 2,000,000 2,066,520
(Woodrow Wilson Charter School Project)
Series A 5.25% 12/1/34 (XLCA) 1,960,000 2,096,514
-------------
21,504,816
-------------
Combined Utility Revenue Bonds - 1.82%
Colorado Springs Utilities Revenue
Series A 5.00% 11/15/29 5,000,000 5,176,600
-------------
5,176,600
-------------
Continuing Care/Retirement Revenue Bonds - 5.58%
Colorado Health Facilities Authority Revenue
(Covenant Retirement Communities)
Series A 5.50% 12/1/33 (RADIAN) 5,000,000 5,309,150
(Evangelical Lutheran)
5.00% 6/1/35 1,000,000 1,017,440
Series A 5.25% 6/1/34 2,000,000 2,063,780
(Porter Place)
Series A 6.00% 1/20/36 (GNMA) 5,000,000 5,343,000
Mesa County Residential Care
Facilities Mortgage Revenue
(Hilltop Community Resources)
Series A 5.375% 12/1/28 (RADIAN) 2,000,000 2,115,180
-------------
15,848,550
-------------
Dedicated Tax & Fees Revenue Bonds - 1.03%
Gypsum Sales Tax & General
Funding Revenue 5.25% 6/1/30 2,690,000 2,916,444
-------------
2,916,444
-------------
Electric & Gas Revenue Bonds - 0.37%
Puerto Rico Electric Power Authority Revenue
Series NN 5.00% 7/1/32 1,000,000 1,052,300
-------------
1,052,300
-------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Escrowed to Maturity Bonds - 2.23%
Colorado Health Facilities Authority
(Catholic Health Initiatives)
Series A 5.50% 3/1/32 $ 5,000,000 $ 5,448,550
Galleria Metropolitan District
7.25% 12/1/09 830,000 882,921
-------------
6,331,471
-------------
Higher Education Revenue Bonds - 10.26%
Boulder County Development Revenue
University Corporation for
Atmospheric Research
5.00% 9/1/33 (MBIA) 1,000,000 1,039,660
5.00% 9/1/35 (AMBAC) 2,000,000 2,090,980
Colorado Educational &
Cultural Facilities Authority
(Johnson & Wales University Project)
Series A 5.00% 4/1/28 (XLCA) 1,000,000 1,043,910
(Regis University Project)
5.00% 6/1/22 (RADIAN) 1,820,000 1,893,528
5.00% 6/1/24 (RADIAN) 1,700,000 1,761,540
(University of Denver Project)
Series A 5.00% 3/1/27 (MBIA) 5,000,000 5,203,700
Series B 5.25% 3/1/35 (FGIC) 1,750,000 1,901,113
(University of Northern Colorado
Student Housing Project)
Series A 5.125% 7/1/37 (MBIA) 7,500,000 7,795,724
Colorado School Mines Auxiliary
Facilities Revenue
5.00% 12/1/37 (AMBAC) 3,130,000 3,256,202
Colorado State Board of Governors
University Enterprise System Revenue
Series B 5.00% 3/1/35 (AMBAC) 2,000,000 2,087,000
University of Colorado Enterprise
System Revenue Series A
5.375% 6/1/26 1,000,000 1,065,140
-------------
29,138,497
-------------
Hospital Revenue Bonds - 8.63%
Boulder County Hospital
Development Revenue
(Longmont United Hospital Project)
5.60% 12/1/27 (RADIAN) 1,250,000 1,294,675
6.00% 12/1/30 (RADIAN) 5,000,000 5,443,700
Colorado Health Facilities Authority Revenue
(Longmont United Hospital)
5.00% 12/1/19 (ACA) 1,150,000 1,183,051
(Parkview Medical Center) 5.00% 9/1/25 1,000,000 1,032,470
(Vail Valley Medical Center Project)
5.00% 1/15/17 1,000,000 1,042,470
5.80% 1/15/27 3,475,000 3,670,851
Delta County Memorial Hospital
District Enterprise Revenue
5.35% 9/1/17 4,000,000 4,161,840
Denver Health & Hospital Authority
Healthcare Revenue Series A
5.375% 12/1/28 (ACA) 2,770,000 2,856,119
University of Colorado Hospital
Authority Revenue Series A
5.60% 11/15/31 3,650,000 3,816,951
-------------
24,502,127
-------------
10
- --------------------------------------------------------------------------------
Delaware Tax-Free Colorado Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Library/Museum Revenue Bonds - 0.74%
Colorado Educational & Cultural
Facilities Authority Revenue
5.25% 6/1/21 $ 2,000,000 $ 2,093,700
-------------
2,093,700
-------------
Multifamily Housing Revenue Bonds - 6.23%
Adams County Housing Authority
Mortgage Revenue
(Greenbriar Project) 6.75% 7/1/21 1,730,000 1,769,877
Colorado Housing & Finance Authority
(Multifamily Housing Insured Mortgage)
Series A3 6.25% 10/1/26 (FHA) 6,205,000 6,347,963
Series C3 6.15% 10/1/41 1,590,000 1,663,935
Denver City and County Multifamily Housing
Revenue Federal Housing Authority
(Insured Mortgage Loan - Garden Court)
5.40% 7/1/39 (FHA) 2,000,000 2,053,000
Englewood Multifamily Housing Revenue
(Marks Apartments Project)
6.65% 12/1/26 5,700,000 5,864,388
-------------
17,699,163
-------------
Municipal Lease Revenue Bonds - 3.39%
Conejos & Alamosa Counties
School District #11J
Certificates of Participation
6.50% 4/1/11 1,085,000 1,106,125
El Paso County Certificates of Participation
(Detention Facilities Project)
Series B 5.00% 12/1/27 (AMBAC) 1,500,000 1,563,150
(Judicial Building Project)
Series A 5.00% 12/1/27 (AMBAC) 2,000,000 2,084,200
Fremont County Certificates of Participation
Series A 5.25% 12/15/24 (MBIA) 3,045,000 3,271,243
Puerto Rico Public Buildings
Authority Revenue
(Government Facilities)
Series I 5.25% 7/1/33 1,500,000 1,596,750
-------------
9,621,468
-------------
Political Subdivision General Obligation Bonds - 10.63%
Arapahoe County Water & Wastewater Public
Improvement District Series A
5.125% 12/1/32 (MBIA) 4,500,000 4,780,485
Bowles Metropolitan District
5.00% 12/1/33 (FSA) 2,500,000 2,620,125
Denver West Metropolitan District
5.00% 12/1/33 (RADIAN) 4,000,000 4,103,120
Eagle Bend Metropolitan District #2
5.00% 12/1/35 (RADIAN) 3,000,000 3,100,440
Lincoln Park Metropolitan District
7.75% 12/1/26 2,500,000 2,665,575
Meridian Metropolitan District Series A
5.00% 12/1/31 (RADIAN) 7,000,000 7,161,070
North Range Metropolitan District #1
7.25% 12/15/31 3,400,000 3,604,408
Saddle Rock Metropolitan District
5.35% 12/1/31 (RADIAN) 1,580,000 1,651,590
Sand Creek Metropolitan District
5.00% 12/1/31 (XLCA) 500,000 523,015
-------------
30,209,828
-------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
- -/-Pre-Refunded Bonds - 14.52%
Aurora Certificates of Participation
5.50% 12/1/30-10 (AMBAC) $ 8,000,000 $ 8,665,359
Burlingame Multifamily Housing Revenue
Series A 6.00% 11/1/29-09 (MBIA) 1,250,000 1,366,550
Colorado Educational & Cultural
Facilities Authority Revenue
(Core Knowledge Charter School Project)
7.00% 11/1/29-09 1,000,000 1,115,340
(Lincoln Academy Charter School Project)
8.375% 3/1/26-06 2,330,000 2,374,503
(Pinnacle Charter School Project)
6.00% 12/1/21-11 1,750,000 1,958,653
(University of Denver Project)
5.375% 3/1/23-11 (AMBAC) 975,000 1,055,896
(University of Denver Project-
Refunded Balance)
5.375% 3/1/23-11 (AMBAC) 1,025,000 1,106,621
Colorado Springs Revenue
(Colorado College Project)
5.375% 6/1/32-09 5,570,000 5,945,140
El Paso County School District #49 (Falcon)
5.50% 12/1/21-11 (FGIC) 3,580,000 3,898,262
Greeley County Building Authority
Certificates of Participation
6.10% 8/15/16-07 2,600,000 2,698,852
Pueblo County Certificates of Participation
6.50% 12/1/24-10 5,460,000 6,130,651
Silver Dollar Metropolitan District
7.05% 12/1/30-06 4,810,000 4,934,675
-------------
41,250,502
-------------
Recreational Area Revenue Bonds - 1.20%
South Suburban Park & Recreation District
(Golf Course & Ice Arena Facility)
6.00% 11/1/15 2,330,000 2,375,854
Westminster Golf Course
5.55% 12/1/23 (RADIAN) 1,000,000 1,050,200
-------------
3,426,054
-------------
School District General Obligation Bonds - 5.12%
Adams & Arapahoe Counties Joint
School District #28J
5.25% 12/1/25 (MBIA) 2,000,000 2,199,240
Douglas County School District #1 Building
(Douglas & Elbert Counties) Series B
5.00% 12/15/30 (FSA) 2,335,000 2,468,423
5.125% 12/15/25 (FSA) 2,000,000 2,117,860
El Paso County School District #2
(Harrison) 5.00% 12/1/27 (MBIA) 2,115,000 2,210,365
Fremont County School District #1
(Canon City) 5.00% 12/1/24 (MBIA) 1,735,000 1,835,994
Garfield County School District #2
5.00% 12/1/25 (FSA) 1,000,000 1,049,880
Garfield Pitkin & Eagle County
School District #1 Series A
5.00% 12/15/27 (FSA) 1,500,000 1,587,975
La Plata County School District #9-R
5.125% 11/1/24 (MBIA) 1,000,000 1,064,080
-------------
14,533,817
-------------
11
- --------------------------------------------------------------------------------
Delaware Tax-Free Colorado Fund
Statements
- --------------------------------------------------------------------------------
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municipal Bonds (continued)
- --------------------------------------------------------------------------------
Tax Increment/Special Assessment Bonds - 5.03%
Loveland Special Improvements District #1
7.50% 7/1/29 $ 5,540,000 $ 5,556,786
Lowry Economic Redevelopment
Authority Revenue Series A
7.30% 12/1/10 790,000 824,207
7.80% 12/1/10 7,545,000 7,899,540
-------------
14,280,533
-------------
Territorial General Obligation Bonds - 2.23%
Puerto Rico Commonwealth Public
Improvement Series A 5.25% 7/1/21 4,000,000 4,270,560
Virgin Islands Public Finance Authority
(Gross Receipts Taxes)
5.00% 10/1/31 (ACA) 2,000,000 2,055,460
-------------
6,326,020
-------------
Turnpike/Toll Road Revenue Bonds - 5.42%
E-470 Public Highway Authority Revenue
Series A 5.75% 9/1/35 (MBIA) 3,100,000 3,414,216
Northwest Parkway Public Highway
Authority Series A 5.25% 6/15/41 (FSA) 11,250,000 11,997,788
-------------
15,412,004
-------------
Water & Sewer Revenue Bonds - 1.74%
Erie Water Enterprise Revenue
5.00% 12/1/23 (ACA) 1,750,000 1,769,268
Ute Utility Water Conservancy
District Revenue 5.75% 6/15/20 (MBIA) 2,900,000 3,165,553
-------------
4,934,821
-------------
Total Municipal Bonds (cost $261,923,713) 278,985,285
-------------
Number of
Shares
- --------------------------------------------------------------------------------
Short-Term Investments - 0.52%
- --------------------------------------------------------------------------------
Money Market Investments - 0.52%
Dreyfus Cash Management Fund 1,489,742 1,489,742
-------------
Total Short-Term Investments
(cost $1,489,742) 1,489,742
-------------
Total Market Value of Securities - 98.74%
(cost $263,413,455) 280,475,027
Receivables and Other Assets
Net of Liabilities - 1.26% 3,566,347
-------------
Net Assets Applicable to 25,622,802 Shares
Outstanding - 100.00% $ 284,041,374
=============
Net Asset Value - Delaware Tax-Free Colorado Fund
Class A ($264,378,776 / 23,851,395 Shares) $ 11.08
-------------
Net Asset Value - Delaware Tax-Free Colorado Fund
Class B ($9,333,166 / 841,430 Shares) $ 11.09
-------------
Net Asset Value - Delaware Tax-Free Colorado Fund
Class C ($10,329,432 / 929,977 Shares) $ 11.11
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Components of Net Assets at February 28, 2006:
Shares of beneficial interest
(unlimited authorization -- no par) $ 276,096,365
Accumulated net realized loss on investments (9,116,563)
Net unrealized appreciation of investments 17,061,572
-------------
Total net assets $ 284,041,374
=============
- -/- Pre-Refunded Bonds. Municipals that are generally backed or secured by
U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is
followed by the year in which the bond is pre-refunded. See Note 8 in
"Notes to Financial Statements."
Summary of Abbreviations:
ACA - Insured by American Capital Access
AMBAC - Insured by the AMBAC Assurance Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
XLCA - Insured by XL Capital Assurance
Net Asset Value and Offering Price per Share -
Delaware Tax-Free Colorado Fund
Net asset value Class A (A) $ 11.08
Sales charge (4.50% of offering price) (B) 0.52
-------------
Offering price $ 11.60
=============
(A) Net asset value per share, as illustrated, is the amount which would be
paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $100,000 or more.
See accompanying notes
12
- --------------------------------------------------------------------------------
Statements Six Months Ended February 28, 2006 (Unaudited)
- --------------------------------------------------------------------------------
OF OPERATIONS
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
Investment Income:
Interest $ 3,844,095 $ 2,215,661 $ 7,548,414
------------------ ------------------ -----------------
Expenses:
Management fees 394,575 252,508 775,403
Distribution expenses -- Class A 164,077 79,992 328,657
Distribution expenses -- Class B 90,246 85,510 47,578
Distribution expenses -- Class C 42,606 52,609 47,969
Dividend disbursement and transfer agent fees and expenses 40,770 20,365 78,023
Accounting and administration expenses 31,566 18,364 56,393
Legal and professional fees 16,479 11,281 20,080
Reports and statements to shareholders 11,141 7,839 11,739
Registration fees 9,350 17,785 4,450
Trustees' fees 4,500 2,634 8,051
Custodian fees 4,326 3,500 8,353
Insurance fees 1,658 1,307 4,862
Pricing fees 1,183 1,006 1,290
Taxes (other than taxes on income) 277 67 752
Other 3,638 3,333 8,175
------------------ ------------------ -----------------
816,392 558,100 1,401,775
Less expenses absorbed or waived (109,114) (50,877) (18,798)
Less expense paid indirectly (28) (28) --
------------------ ------------------ -----------------
Total operating expenses 707,250 507,195 1,382,977
------------------ ------------------ -----------------
Net Investment Income 3,136,845 1,708,466 6,165,437
------------------ ------------------ -----------------
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments (101,029) 43,753 200,231
Net change in unrealized appreciation/depreciation of investments (2,068,076) (677,036) (3,114,128)
------------------ ------------------ -----------------
Net Realized and Unrealized Loss on Investments (2,169,105) (633,283) (2,913,897)
------------------ ------------------ -----------------
Net Increase in Net Assets Resulting from Operations $ 967,740 $ 1,075,183 $ 3,251,540
================== ================== =================
See accompanying notes
13
- --------------------------------------------------------------------------------
Statements
- --------------------------------------------------------------------------------
OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
2/28/06 8/31/05 2/28/06 8/31/05 2/28/06 8/31/05
(Unaudited) (Unaudited) (Unaudited)
Increase (Decrease) in Net Assets from
Operations:
Net investment income $ 3,136,845 $ 5,859,541 $ 1,708,466 $ 2,275,968 $ 6,165,437 $ 12,978,314
Net realized gain (loss) on
investments (101,029) 264,284 43,753 43,276 200,231 (2,712,031)
Net change in unrealized appreciation/
depreciation of investments (2,068,076) 2,239,992 (677,036) 2,245,832 (3,114,128) 5,986,463
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations 967,740 8,363,817 1,075,183 4,565,076 3,251,540 16,252,746
------------- ------------- ------------- ------------- ------------- -------------
Dividends and Distributions to
Shareholders from:
Net investment income:
Class A (2,692,234) (5,096,515) (1,266,937) (1,517,382) (5,811,462) (12,211,017)
Class B (302,180) (510,403) (272,955) (520,743) (174,449) (421,258)
Class C (142,431) (252,623) (168,574) (237,843) (175,669) (338,621)
Net realized gain on investments:
Class A -- (248,176) -- -- -- --
Class B -- (27,488) -- -- -- --
Class C -- (13,869) -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
(3,136,845) (6,149,074) (1,708,466) (2,275,968) (6,161,580) (12,970,896)
------------- ------------- ------------- ------------- ------------- -------------
Capital Share Transactions:
Proceeds from shares sold:
Class A 3,420,674 6,855,917 13,554,913 18,776,298 7,214,412 15,027,725
Class B 30,021 441,653 381,042 1,177,507 16,299 899,393
Class C 552,752 1,248,630 2,854,882 3,524,288 1,393,972 1,382,314
Net assets from reorganization*:
Class A -- 18,971,166 -- 23,988,851 -- --
Class B -- 6,819,275 -- 6,171,643 -- --
Class C -- 3,097,336 -- 1,332,252 -- --
Net asset value of shares issued upon
reinvestment of dividends and
distributions:
Class A 1,427,886 2,678,398 597,632 631,234 3,725,382 7,395,797
Class B 144,180 263,680 166,632 235,428 108,439 262,793
Class C 95,839 181,297 111,722 134,429 121,141 234,982
------------- ------------- ------------- ------------- ------------- -------------
5,671,352 40,557,352 17,666,823 55,971,930 12,579,645 25,203,004
------------- ------------- ------------- ------------- ------------- -------------
Cost of shares repurchased:
Class A (5,040,402) (17,883,135) (5,008,505) (8,907,524) (13,988,843) (31,859,739)
Class B (1,103,947) (2,146,762) (2,221,965) (4,436,217) (1,057,481) (3,327,004)
Class C (714,920) (2,713,378) (606,832) (1,084,487) (270,459) (2,134,310)
------------- ------------- ------------- ------------- ------------- -------------
(6,859,269) (22,743,275) (7,837,302) (14,428,228) (15,316,783) (37,321,053)
------------- ------------- ------------- ------------- ------------- -------------
Increase (decrease) in net assets
derived from capital share
transactions (1,187,917) 17,814,077 9,829,521 41,543,702 (2,737,138) (12,118,049)
------------- ------------- ------------- ------------- ------------- -------------
Net Increase (Decrease) in Net Assets (3,357,022) 20,028,820 9,196,238 43,832,810 (5,647,178) (8,836,199)
Net Assets:
Beginning of period 162,470,492 142,441,672 88,754,404 44,921,594 289,688,552 298,524,751
------------- ------------- ------------- ------------- ------------- -------------
End of period(1) $ 159,113,470 $ 162,470,492 $ 97,950,642 $ 88,754,404 $ 284,041,374 $ 289,688,552
============= ============= ============= ============= ============= =============
(1)Including undistributed
(distribution in excess of) net
investment income $ (20,294) $ (20,294) $ 1,300 $ 1,300 $ -- $ --
============= ============= ============= ============= ============= =============
* See Note 6 in "Notes to Financial Statements."
See accompanying notes
14
Financial
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free Arizona Insured Fund Class A
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
2/28/06(1) 8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
(Unaudited)
Net asset value, beginning of period $ 11.560 $ 11.410 $ 11.160 $ 11.530 $ 11.500 $ 11.040
Income (loss) from investment operations:
Net investment income 0.232 0.468 0.469 0.502 0.510 0.521
Net realized and unrealized gain (loss)
on investments (0.160) 0.174 0.308 (0.253) 0.100 0.460
------------ ---------- ----------- ---------- ---------- ---------
Total from investment operations 0.072 0.642 0.777 0.249 0.610 0.981
------------ ---------- ----------- ---------- ---------- ---------
Less dividends and distributions from:
Net investment income (0.232) (0.468) (0.469) (0.502) (0.510) (0.521)
Net realized gain on investments -- (0.024) (0.058) (0.117) (0.070) --
------------ ---------- ----------- ---------- ---------- ---------
Total dividends and distributions (0.232) (0.492) (0.527) (0.619) (0.580) (0.521)
------------ ---------- ----------- ---------- ---------- ---------
Net asset value, end of period $ 11.400 $ 11.560 $ 11.410 $ 11.160 $ 11.530 $ 11.500
============ ========== =========== ========== ========== =========
Total return(3) 0.64% 5.74% 7.09% 2.17% 5.54% 9.12%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 132,880 $ 134,874 $ 122,436 $ 129,683 $ 141,424 $ 141,298
Ratio of expenses to average net assets 0.77% 0.80% 0.90% 0.86% 0.90% 0.95%
Ratio of expenses to average net assets
prior to expense limitation and
expenses paid indirectly 0.91% 0.91% 0.90% 0.91% 0.90% 0.97%
Ratio of net investment income to average
net assets 4.10% 4.07% 4.14% 4.37% 4.50% 4.65%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly 3.96% 3.96% 4.14% 4.32% 4.50% 4.63%
Portfolio turnover 7% 3% 19% 29% 46% 45%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities.
This change in accounting had no impact for the year ended August 31,
2002. Per share data and ratios for periods prior to September 1, 2001
have not been restated to reflect this change in accounting.
(3) 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
15
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free Arizona Insured Fund Class B
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
2/28/06(1) 8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
(Unaudited)
Net asset value, beginning of period $ 11.570 $ 11.420 $ 11.170 $ 11.540 $ 11.500 $ 11.040
Income (loss) from investment operations:
Net investment income 0.189 0.382 0.384 0.416 0.426 0.437
Net realized and unrealized gain (loss)
on investments (0.160) 0.174 0.308 (0.253) 0.110 0.460
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations 0.029 0.556 0.692 0.163 0.536 0.897
---------- ---------- ---------- ---------- ---------- ----------
Less dividends and distributions from:
Net investment income (0.189) (0.382) (0.384) (0.416) (0.426) (0.437)
Net realized gain on investments -- (0.024) (0.058) (0.117) (0.070) --
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.189) (0.406) (0.442) (0.533) (0.496) (0.437)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.410 $ 11.570 $ 11.420 $ 11.170 $ 11.540 $ 11.500
========== ========== ========== ========== ========== ==========
Total return(3) 0.26% 4.95% 6.28% 1.41% 4.83% 8.31%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 17,822 $ 19,005 $ 13,355 $ 14,666 $ 13,678 $ 8,864
Ratio of expenses to average net assets 1.52% 1.55% 1.65% 1.61% 1.65% 1.70%
Ratio of expenses to average net assets
prior to expense limitation and
expenses paid indirectly 1.66% 1.66% 1.65% 1.66% 1.65% 1.72%
Ratio of net investment income to average
net assets 3.35% 3.32% 3.39% 3.62% 3.75% 3.90%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly 3.21% 3.21% 3.39% 3.57% 3.75% 3.88%
Portfolio turnover 7% 3% 19% 29% 46% 45%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities.
This change in accounting had no impact for the year ended August 31,
2002. Per share data and ratios for periods prior to September 1, 2001
have not been restated to reflect this change in accounting.
(3) 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
16
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free Arizona Insured Fund Class C
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
2/28/06(1) 8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
(Unaudited)
Net asset value, beginning of period $ 11.580 $ 11.430 $ 11.180 $ 11.550 $ 11.520 $ 11.040
Income (loss) from investment operations:
Net investment income 0.189 0.382 0.384 0.415 0.426 0.438
Net realized and unrealized gain (loss)
on investments (0.150) 0.174 0.308 (0.253) 0.100 0.480
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations 0.039 0.556 0.692 0.162 0.526 0.918
----------- ----------- ----------- ----------- ----------- -----------
Less dividends and distributions from:
Net investment income (0.189) (0.382) (0.384) (0.415) (0.426) (0.438)
Net realized gain on investments -- (0.024) (0.058) (0.117) (0.070) --
----------- ----------- ----------- ----------- ----------- -----------
Total dividends and distributions (0.189) (0.406) (0.442) (0.532) (0.496) (0.438)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 11.430 $ 11.580 $ 11.430 $ 11.180 $ 11.550 $ 11.520
=========== =========== =========== =========== =========== ===========
Total return(3) 0.35% 4.94% 6.27% 1.40% 4.73% 8.50%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 8,411 $ 8,591 $ 6,651 $ 8,544 $ 8,115 $ 3,230
Ratio of expenses to average net assets 1.52% 1.55% 1.65% 1.61% 1.65% 1.70%
Ratio of expenses to average net assets
prior to expense limitation and
expenses paid indirectly 1.66% 1.66% 1.65% 1.66% 1.65% 1.72%
Ratio of net investment income to average
net assets 3.35% 3.32% 3.39% 3.62% 3.75% 3.90%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly 3.21% 3.21% 3.39% 3.57% 3.75% 3.88%
Portfolio turnover 7% 3% 19% 29% 46% 45%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities.
This change in accounting had no impact for the year ended August 31,
2002. Per share data and ratios for periods prior to September 1, 2001
have not been restated to reflect this change in accounting.
(3) 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
17
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free California Fund Class A
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
2/28/06(1) 8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
(Unaudited)
Net asset value, beginning of period $ 11.490 $ 11.110 $ 10.750 $ 11.010 $ 10.950 $ 10.430
Income (loss) from investment operations:
Net investment income 0.222 0.462 0.518 0.537 0.546 0.538
Net realized and unrealized gain (loss)
on investments (0.090) 0.380 0.360 (0.260) 0.060 0.520
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations 0.132 0.842 0.878 0.277 0.606 1.058
----------- ----------- ----------- ----------- ----------- -----------
Less dividends and distributions from:
Net investment income (0.222) (0.462) (0.518) (0.537) (0.546) (0.538)
----------- ----------- ----------- ----------- ----------- -----------
Total dividends and distributions (0.222) (0.462) (0.518) (0.537) (0.546) (0.538)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 11.400 $ 11.490 $ 11.110 $ 10.750 $ 11.010 $ 10.950
=========== =========== =========== =========== =========== ===========
Total return(3) 1.18% 7.72% 8.34% 2.51% 5.77% 10.43%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 69,466 $ 60,744 $ 24,797 $ 22,169 $ 23,462 $ 24,925
Ratio of expenses to average net assets 0.88% 0.84% 0.50% 0.50% 0.50% 0.50%
Ratio of expenses to average net assets
prior to expense limitation and
expenses paid indirectly 0.99% 1.06% 0.96% 0.93% 0.97% 0.99%
Ratio of net investment income to average
net assets 3.95% 4.03% 4.72% 4.84% 5.05% 5.07%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly 3.84% 3.81% 4.26% 4.41% 4.58% 4.58%
Portfolio turnover 8% 11% 48% 56% 93% 130%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities.
This change in accounting had no impact for the year ended August 31,
2002. Per share data and ratios for periods prior to September 1, 2001
have not been restated to reflect this change in accounting.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
18
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free California Fund Class B
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
2/28/06(1) 8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
(Unaudited)
Net asset value, beginning of period $ 11.530 $ 11.160 $ 10.790 $ 11.050 $ 10.990 $ 10.460
Income (loss) from investment operations:
Net investment income 0.180 0.377 0.436 0.453 0.465 0.459
Net realized and unrealized gain (loss) on
investments (0.090) 0.370 0.370 (0.260) 0.060 0.530
----------- ----------- ----------- ----------- ----------- -----------
Total from investment operations 0.090 0.747 0.806 0.193 0.525 0.989
----------- ----------- ----------- ----------- ----------- -----------
Less dividends and distributions from:
Net investment income (0.180) (0.377) (0.436) (0.453) (0.465) (0.459)
----------- ----------- ----------- ----------- ----------- -----------
Total dividends and distributions (0.180) (0.377) (0.436) (0.453) (0.465) (0.459)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 11.440 $ 11.530 $ 11.160 $ 10.790 $ 11.050 $ 10.990
=========== =========== =========== =========== =========== ===========
Total return(3) 0.80% 6.80% 7.60% 1.73% 4.95% 9.58%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 16,431 $ 18,254 $ 14,530 $ 16,165 $ 15,105 $ 14,792
Ratio of expenses to average net assets 1.63% 1.59% 1.25% 1.25% 1.25% 1.25%
Ratio of expenses to average net assets
prior to expense limitation and expenses
paid indirectly 1.74% 1.81% 1.71% 1.68% 1.72% 1.74%
Ratio of net investment income to average
net assets 3.20% 3.28% 3.97% 4.09% 4.30% 4.32%
Ratio of net investment income to average
net assets prior to expense limitation
and expenses paid indirectly 3.09% 3.06% 3.51% 3.66% 3.83% 3.83%
Portfolio turnover 8% 11% 48% 56% 93% 130%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities.
This change in accounting had no impact for the year ended August 31,
2002. Per share data and ratios for periods prior to September 1, 2001
have not been restated to reflect this change in accounting.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
19
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -------------------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free California Fund Class C
- -------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
2/28/06(1) 8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
(Unaudited)
Net asset value, beginning of period $ 11.500 $ 11.130 $ 10.760 $ 11.020 $ 10.970 $ 10.440
Income (loss) from investment operations:
Net investment income 0.180 0.377 0.436 0.454 0.465 0.459
Net realized and unrealized gain (loss) on investments (0.090) 0.370 0.370 (0.260) 0.050 0.530
---------- -------- -------- -------- --------- --------
Total from investment operations 0.090 0.747 0.806 0.194 0.515 0.989
---------- -------- -------- -------- --------- --------
Less dividends and distributions from:
Net investment income (0.180) (0.377) (0.436) (0.454) (0.465) (0.459)
---------- -------- -------- -------- --------- --------
Total dividends and distributions (0.180) (0.377) (0.436) (0.454) (0.465) (0.459)
---------- -------- -------- -------- --------- --------
Net asset value, end of period $ 11.410 $ 11.500 $ 11.130 $ 10.760 $ 11.020 $ 10.970
========== ======== ======== ======== ========= ========
Total return(3) 0.80% 6.81% 7.62% 1.74% 4.86% 9.70%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 12,054 $ 9,756 $ 5,595 $7,013 $ 7,357 $ 6,227
Ratio of expenses to average net assets 1.63% 1.59% 1.25% 1.25% 1.25% 1.25%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 1.74% 1.81% 1.71% 1.68% 1.72% 1.74%
Ratio of net investment income to average net assets 3.20% 3.28% 3.97% 4.09% 4.30% 4.32%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 3.09% 3.06% 3.51% 3.66% 3.83% 3.83%
Portfolio turnover 8% 11% 48% 56% 93% 130%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities.
This change in accounting had no impact for the year ended August 31,
2002. Per share data and ratios for periods prior to September 1, 2001
have not been restated to reflect this change in accounting.
(3) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of dividends and
distributions at net asset value and does not reflect the impact of a
sales charge. Total investment return reflects waivers and payment of fees
by the manager. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
20
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -------------------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free Colorado Fund Class A
- -------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
2/28/06(1) 8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
(Unaudited)
Net asset value, beginning of period $ 11.200 $ 11.070 $ 10.830 $ 11.080 $ 11.120 $ 10.630
Income (loss) from investment operations:
Net investment income 0.242 0.495 0.510 0.527 0.532 0.549
Net realized and unrealized gain (loss) on investments (0.120) 0.130 0.240 (0.250) (0.040) 0.490
---------- -------- -------- -------- --------- --------
Total from investment operations 0.122 0.625 0.750 0.277 0.492 1.039
---------- -------- -------- -------- --------- --------
Less dividends and distributions from:
Net investment income (0.242) (0.495) (0.510) (0.527) (0.532) (0.549)
---------- -------- -------- -------- --------- --------
Total dividends and distributions (0.242) (0.495) (0.510) (0.527) (0.532) (0.549)
---------- -------- -------- -------- --------- --------
Net asset value, end of period $ 11.080 $ 11.200 $ 11.070 $ 10.830 $ 11.080 $ 11.120
========== ======== ======== ======== ========= ========
Total return(3) 1.12% 5.78% 7.04% 2.52% 4.60% 10.05%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 264,379 $270,149 $276,534 $299,528 $314,695 $318,550
Ratio of expenses to average net assets 0.93% 0.94% 0.95% 0.99% 0.95% 1.00%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 0.94% 0.94% 0.95% 0.99% 0.95% 1.00%
Ratio of net investment income to average net assets 4.42% 4.46% 4.63% 4.76% 4.86% 5.09%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 4.41% 4.46% 4.63% 4.76% 4.86% 5.09%
Portfolio turnover 8% 8% 13% 30% 36% 64%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities.
The effect of this change for the year ended August 31, 2002 was an
increase in net investment income per share of less than $0.001, a
decrease in net realized and unrealized gain (loss) per share of less than
$0.001, and an increase in the ratio of net investment income to average
net assets of less than 0.01%. Per share data and ratios for periods prior
to September 1, 2001 have not been restated to reflect this change in
accounting.
(3) 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 for the years ended August 31, 2005
and 2001 reflect waivers and payment of fees by the manager of less than
0.01%. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
21
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -------------------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free Colorado Fund Class B
- -------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
2/28/06(1) 8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
(Unaudited)
Net asset value, beginning of period $ 11.200 $ 11.080 $ 10.830 $ 11.090 $ 11.120 $ 10.630
Income (loss) from investment operations:
Net investment income 0.201 0.412 0.427 0.444 0.450 0.468
Net realized and unrealized gain (loss) on investments (0.110) 0.120 0.250 (0.260) (0.030) 0.490
---------- -------- -------- -------- --------- --------
Total from investment operations 0.091 0.532 0.677 0.184 0.420 0.958
---------- -------- -------- -------- --------- --------
Less dividends and distributions from:
Net investment income (0.201) (0.412) (0.427) (0.444) (0.450) (0.468)
---------- -------- -------- -------- --------- --------
Total dividends and distributions (0.201) (0.412) (0.427) (0.444) (0.450) (0.468)
---------- -------- -------- -------- --------- --------
Net asset value, end of period $ 11.090 $ 11.200 $ 11.080 $ 10.830 $ 11.090 $ 11.120
========== ======== ======== ======== ========= ========
Total return(3) 0.83% 4.89% 6.34% 1.66% 3.92% 9.24%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 9,333 $ 10,370 $ 12,411 $ 13,108 $ 14,843 $ 14,330
Ratio of expenses to average net assets 1.68% 1.69% 1.70% 1.74% 1.70% 1.75%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 1.69% 1.69% 1.70% 1.74% 1.70% 1.75%
Ratio of net investment income to average net assets 3.67% 3.71% 3.88% 4.01% 4.11% 4.34%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 3.66% 3.71% 3.88% 4.01% 4.11% 4.34%
Portfolio turnover 8% 8% 13% 30% 36% 64%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities.
The effect of this change for the year ended August 31, 2002 was an
increase in net investment income per share of less than $0.001, a
decrease in net realized and unrealized gain (loss) per share of less than
$0.001, and an increase in the ratio of net investment income to average
net assets of less than 0.01%. Per share data and ratios for periods prior
to September 1, 2001 have not been restated to reflect this change in
accounting.
(3) 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 for the years ended August 31, 2005
and 2001 reflect waivers and payment of fees by the manager of less than
0.01%. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
22
Financial
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
- -------------------------------------------------------------------------------------------------------------------------------
Delaware Tax-Free Colorado Fund Class C
- -------------------------------------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended
2/28/06(1) 8/31/05 8/31/04 8/31/03 8/31/02(2) 8/31/01
(Unaudited)
Net asset value, beginning of period $ 11.220 $ 11.090 $ 10.850 $ 11.100 $ 11.130 $ 10.640
Income (loss) from investment operations:
Net investment income 0.201 0.413 0.427 0.444 0.450 0.468
Net realized and unrealized gain (loss) on investments (0.110) 0.130 0.240 (0.250) (0.030) 0.490
---------- -------- -------- -------- --------- --------
Total from investment operations 0.091 0.543 0.667 0.194 0.420 0.958
---------- -------- -------- -------- --------- --------
Less dividends and distributions from:
Net investment income (0.201) (0.413) (0.427) (0.444) (0.450) (0.468)
---------- -------- -------- -------- --------- --------
Total dividends and distributions (0.201) (0.413) (0.427) (0.444) (0.450) (0.468)
---------- -------- -------- -------- --------- --------
Net asset value, end of period $ 11.110 $ 11.220 $ 11.090 $ 10.850 $ 11.100 $ 11.130
========== ======== ======== ======== ========= ========
Total return(3) 0.83% 4.99% 6.23% 1.74% 3.91% 9.23%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 10,329 $ 9,170 $ 9,579 $ 8,606 $ 8,074 $ 5,617
Ratio of expenses to average net assets 1.68% 1.69% 1.70% 1.74% 1.70% 1.75%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly 1.69% 1.69% 1.70% 1.74% 1.70% 1.75%
Ratio of net investment income to average net assets 3.67% 3.71% 3.88% 4.01% 4.11% 4.34%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly 3.66% 3.71% 3.88% 4.01% 4.11% 4.34%
Portfolio turnover 8% 8% 13% 30% 36% 64%
(1) Ratios and portfolio turnover have been annualized and total return has
not been annualized.
(2) As required, effective September 1, 2001, the Fund adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies that
required amortization of all premiums and discounts on debt securities.
The effect of this change for the year ended August 31, 2002 was an
increase in net investment income per share of less than $0.001, a
decrease in net realized and unrealized gain (loss) per share of less than
$0.001, and an increase in the ratio of net investment income to average
net assets of less than 0.01%. Per share data and ratios for periods prior
to September 1, 2001 have not been restated to reflect this change in
accounting.
(3) 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 for the years ended August 31, 2005
and 2001 reflect waivers and payment of fees by the manager of less than
0.01%. Performance would have been lower had the expense limitation not
been in effect.
See accompanying notes
23
- --------------------------------------------------------------------------------
Notes February 28, 2006 (Unaudited)
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS
Voyageur Mutual Funds (the "Trust") is organized as a Delaware statutory trust
and offers five 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. Voyageur
Insured Funds (the "Trust") is organized as a Delaware statutory trust and
offers two series: Delaware Tax-Free Arizona Insured Fund and Delaware Tax-Free
Minnesota Insured Fund. Voyageur Mutual Funds II (the "Trust") is organized as a
Delaware statutory trust and offers one series: Delaware Tax-Free Colorado Fund.
These financial statements and related notes pertain to Delaware Tax-Free
Arizona Insured Fund, Delaware Tax-Free California Fund and Delaware Tax-Free
Colorado Fund (each a "Fund" and, collectively, the "Funds"). The above Trusts
are open-end investment companies. The Funds are considered non-diversified
under the Investment Company Act of 1940, as amended, and offer Class A, Class
B, and Class C shares. Class A shares are sold with a front-end sales charge of
up to 4.50%. Class B shares are sold with a contingent deferred sales charge
that declines from 4% to zero depending upon the period of time the shares are
held. Class B shares will automatically convert to Class A shares on a quarterly
basis approximately eight years after purchase. Class C shares are sold with a
contingent deferred sales charge of 1%, if redeemed during the first 12 months.
The investment objective of Delaware Tax-Free Arizona Insured Fund, Delaware
Tax-Free California Fund and Delaware Tax-Free Colorado Fund is to seek as high
a level of current income exempt from federal income tax and personal income tax
in their respective states, as is consistent with preservation of capital.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Funds.
Security Valuation -- Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Open-end investment
companies are valued at their published net asset value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith under the direction of each Fund's Board of
Trustees. In determining whether market quotations are readily available or fair
valuation will be used, various factors will be taken into consideration, such
as market closures, aftermarket trading or significant events after local market
trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
Federal Income Taxes -- Each Fund intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Class Accounting -- Investment income and common expenses are allocated to the
classes of each Fund on the basis of "settled shares" of each class in relation
to the net assets of each Fund. Realized and unrealized gain (loss) on
investments are allocated to the various classes of each Fund on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
Use of Estimates -- The preparation of financial statements in conformity with
U.S. 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) for
financial reporting purposes. 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 and on the Statements
of Operations with the corresponding expense offset shown as "expense paid
indirectly."
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
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
On the first $500 million 0.500% 0.550% 0.550%
On the next $500 million 0.475% 0.500% 0.500%
On the next $1.5 billion 0.450% 0.450% 0.450%
In excess of $2.5 billion 0.425% 0.425% 0.425%
24
- --------------------------------------------------------------------------------
Notes
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management, Administration Agreements and Other Transactions
with Affiliates (continued)
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse each Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed specified percentages of average daily net assets as shown below.
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
Operating expense limitation as a percentage of
average daily net assets (per annum) 0.53% 0.63% 0.68%
Expiration Date 12/29/05 12/29/05 12/29/05
Effective December 30, 2005, operating expense
limitation as a percentage of average
daily net assets (per annum) 0.50% 0.63% 0.68%
Expiration Date 12/31/06 12/31/06 12/31/06
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Each Fund pays
DSC a monthly fee computed at the annual rate of 0.04% of each Fund's average
daily net assets for accounting and administration services. Each Fund pays DSC
a monthly fee based on the number of shareholder accounts for dividend
disbursing and transfer agent services.
Pursuant to a distribution agreement and distribution plan, each Fund pays
Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an
annual distribution and service fee not to exceed 0.25% of the average daily net
assets, of the Class A shares and 1.00% of the average daily net assets of the
Class B and C shares.
At February 28, 2006, each Fund had liabilities payable to affiliates as
follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
Investment management fees payable to DMC $ 40,979 $ 30,260 $115,160
Dividend disbursing, transfer agent, accounting
and administration fees and other expenses
payable to DSC 25,433 14,404 46,537
Distribution fees payable to DDLP 33,834 32,361 57,992
Other expenses payable
to DMC and affiliates* 9,315 3,997 10,792
* 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 six months ended February 28, 2006, Delaware
Tax-Free Arizona Insured Fund, Delaware Tax-Free California Fund and Delaware
Tax-Free Colorado Fund were charged $5,887, $3,421, and $10,518, respectively,
for internal legal services provided by DMC.
For the six months ended February 28, 2006, DDLP earned commissions on sales of
Class A shares for each Fund as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
$ 9,670 -- $ 16,132
For the six months ended February 28, 2006, DDLP received gross contingent
deferred sales charge commissions on redemption of each Fund's Class A, Class B
and Class C shares. 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
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
Class A $ -- $ 115 $ --
Class B 7,312 9,719 3,112
Class C 238 288 102
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust.
These officers and trustees are paid no compensation by the Funds.
25
- --------------------------------------------------------------------------------
Notes
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
3. Investments
For the six months ended February 28, 2006, 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
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
Purchases $ 5,528,545 $11,613,595 $ 10,552,215
Sales 6,926,122 3,535,395 15,020,123
At February 28, 2006, the cost of investments for federal income tax purposes
has been estimated since the final tax characteristics cannot be determined
until the fiscal year end. At February 28, 2006, the cost of investments and
unrealized appreciation (depreciation) for each Fund were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
Cost of investments $149,094,216 $93,044,160 $263,396,739
============ =========== ============
Aggregate unrealized appreciation $ 8,492,598 $ 4,556,041 $ 17,251,688
Aggregate unrealized depreciation (40,355) (57,928) (173,400)
------------ ----------- ------------
Net unrealized appreciation $ 8,452,243 $ 4,498,113 $ 17,078,288
============ =========== ============
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 six
months ended February 28, 2006 and the year ended August 31, 2005 was as
follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
Six Months Ended 2/28/06*
Tax-exempt income $ 3,136,845 $ 1,708,466 $ 6,161,580
Year Ended 8/31/05
Tax-exempt income $ 5,887,149 $ 2,275,968 $ 12,970,896
Long-term capital gain 261,925 -- --
------------ ----------- ------------
Total $ 6,149,074 $ 2,275,968 $ 12,970,896
============ =========== ============
* Tax information for the period ended February 28, 2006 is an estimate and
the tax character of dividends and distributions may be redesignated at
fiscal year end.
The components of net assets are estimated since final tax characteristics
cannot be determined until fiscal year end. As of February 28, 2006, the
estimated components of net assets on a tax basis were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
Shares of beneficial interest $153,572,016 $94,214,351 $276,096,365
Undistributed tax-exempt income -- 1,300 --
Other temporary differences (20,294) -- --
Six month period realized gains (losses) (101,029) 43,809 (2,450,516)
Capital loss carryforwards (2,789,466)* (806,875) (6,682,763)
Post-October losses -- (56) --
Unrealized appreciation of investments 8,452,243 4,498,113 17,078,288
------------ ----------- ------------
Net assets $159,113,470 $97,950,642 $284,041,374
============ =========== ============
* The amount of this loss which can be utilized in subsequent years is
subject to an annual limitation in accordance with the Internal Revenue
Code due to the fund reorganization with Delaware Tax-Free Arizona Fund
(see Note 6).
Post-October losses represent losses realized on investment transactions from
November 1, 2005 through February 28, 2006 that, in accordance with federal
income tax regulations, the Fund has elected to defer and treat as having arisen
in the following fiscal year.
26
- --------------------------------------------------------------------------------
Notes
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
4. Dividend and Distribution Information (continued)
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of market discount and premium on certain debt instruments.
Results of operations and net assets were not affected by these
reclassifications. For the six months ended February 28, 2006, the Fund recorded
an estimate of these differences since the final tax characteristics cannot be
determined until fiscal year end.
Delaware Tax-Free
Colorado Fund
--------------------
Undistributed net investment income $ (3,857)
Accumulated net realized gain (loss) 3,857
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Capital loss carryforwards
remaining at August 31, 2005 will expire as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
2008 $ 1,029,322 $ -- $ --
2009 -- 800,836 2,054,025
2011 78,759 6,039 --
2012 1,681,385 -- 4,571,043
2013 -- -- 57,695
------------ ----------- ------------
Total $ 2,789,466 $ 806,875 $ 6,682,763
============ =========== ============
For the six months ended February 28, 2006, each Fund had capital gains
(losses), which may reduce (increase) the capital loss carryforwards as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
-------------------- ----------------- -----------------
$ (101,029) $ 43,809 $ (2,450,516)
5. Capital Shares
Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free
Arizona Insured Fund California Fund Colorado Fund
--------------------- ---------------------- ----------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
2/28/06 8/31/05 2/28/06 8/31/05 2/28/06 8/31/05
Shares sold:
Class A 300,079 596,855 1,196,673 1,654,876 652,833 1,352,576
Class B 2,616 38,240 33,393 103,646 1,477 80,929
Class C 48,608 108,394 251,422 310,646 126,118 124,689
Shares issued in connection with reorganization*:
Class A -- 1,668,528 -- 2,134,239 -- --
Class B -- 599,233 -- 547,132 -- --
Class C -- 271,696 -- 118,422 -- --
Shares issued upon reinvestment of
dividends and distributions:
Class A 125,288 233,045 52,687 55,362 336,574 665,732
Class B 12,645 23,191 14,634 20,826 9,789 23,640
Class C 8,393 15,658 9,838 11,984 10,922 21,109
---------- ---------- ---------- ---------- ---------- ----------
497,629 3,554,840 1,558,647 4,957,133 1,137,713 2,268,675
---------- ---------- ---------- ---------- ---------- ----------
Shares repurchased:
Class A (442,853) (1,559,821) (442,501) (789,011) (1,265,677) (2,870,841)
Class B (96,728) (187,131) (194,943) (391,206) (95,351) (299,511)
Class C (62,777) (235,801) (53,315) (95,803) (24,410) (192,223)
---------- ---------- ---------- ---------- ---------- ----------
(602,358) (1,982,753) (690,759) (1,276,020) (1,385,438) (3,362,575)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) (104,729) 1,572,087 867,888 3,681,113 (247,725) (1,093,900)
---------- ---------- ---------- ---------- ---------- ----------
* See note 6
27
- --------------------------------------------------------------------------------
Notes
- --------------------------------------------------------------------------------
TO FINANCIAL STATEMENTS (CONTINUED)
5. Capital Shares (continued)
For the six months ended February 28, 2006 and the year ended August 31, 2005,
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 table above and the Statements of Changes in Net Assets.
Six Months Ended Year Ended
2/28/06 8/31/05
---------------------------- -----------------------------
Class B Class A Class B Class A
shares shares Value shares shares Value
------- ------- ---------- ------- -------- ----------
Delaware Tax-Free Arizona
Insured Fund 48,039 48,082 $ 548,352 40,161 40,197 $ 460,050
Delaware Tax-Free California Fund 87,893 88,280 1,002,344 99,446 99,804 1,132,607
Delaware Tax-Free Colorado Fund 42,477 42,494 470,301 179,542 179,584 1,993,160
6. Fund Reorganization
Effective April 11, 2005, Delaware Tax-Free Arizona Insured Fund and Delaware
Tax-Free California Fund acquired all of the assets and assumed all of the
liabilities of Delaware Tax-Free Arizona Fund and Delaware Tax-Free California
Insured Fund, respectively, each an open-end investment company, pursuant to
Plans and Agreements of Reorganization (the "Reorganizations"). The shareholders
of Delaware Tax-Free Arizona Fund and Delaware Tax-Free California Insured Fund
received shares of the respective class of Delaware Tax-Free Arizona Insured
Fund and Delaware Tax-Free California Fund, respectively, equal to the aggregate
net asset value of their shares prior to the Reorganizations based on the net
asset value per share of the respective classes of Delaware Tax-Free Arizona
Insured Fund and Delaware Tax-Free California Fund.
The Reorganizations were treated as non-taxable events and, accordingly, each of
Delaware Tax-Free Arizona Insured Fund's and Delaware Tax-Free California Fund's
basis in the securities acquired reflected the historical cost basis as of the
date of transfer. The net assets, net unrealized appreciation and accumulated
net realized gain (loss) of Delaware Tax-Free Arizona Fund and Delaware Tax-Free
California Insured Fund as of the close of business on April 8, 2005, were as
follows:
Net Unrealized Accumulated Net
Net Assets Appreciation Realized Gain/Loss
----------- -------------- ------------------
Delaware Tax-Free Arizona Fund $28,887,777 $ 1,078,069 $ (3,053,750)*
Delaware Tax-Free California Insured Fund 31,492,746 1,782,779 --
* Includes prior year capital loss carryforwards
The net assets of Delaware Tax-Free Arizona Insured Fund and Delaware Tax-Free
California Fund prior to the Reorganizations were $134,516,468 and $46,891,287,
respectively. The combined net assets of Delaware Tax-Free Arizona Insured Fund
and Delaware Tax-Free California Fund after the Reorganization were $163,404,245
and $78,384,033, respectively.
7. Line of Credit
Each Fund, along with certain other funds in the Delaware Investments(R) Family
of Funds (the "Participants"), participates in a $225,000,000 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 February 28, 2006, or at any time during
the period.
28
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Notes
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TO FINANCIAL STATEMENTS (CONTINUED)
8. 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.
Each 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 that time,
including any required premium. Bonds become "defeased" when the rights and
interests of the bondholders and of their lien on the pledged revenues or other
security under the terms of the bond contract are substituted with an
alternative source of revenues (the escrow securities) sufficient to meet
payments of principal and interest to maturity or to the first call dates.
Escrowed secured bonds will often receive a rating of AAA from Moody's Investors
Service, Inc., Standard & Poor's Rating Group, and/or Fitch due to the strong
credit quality of the escrow securities and the irrevocable nature of the escrow
deposit agreement. The Tax-Free Insured Funds will purchase escrow secured bonds
without additional insurance only where the escrow is invested in securities of
the U.S. government or agencies or instrumentalities of the U.S. government.
Each Fund may invest up to 15% of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair each Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, each Fund's Board of Trustees has delegated to DMC
the day-to-day functions of determining whether individual securities are liquid
for purposes of each Fund's limitation on investments in illiquid assets. At
February 28, 2006, there were no Rule 144A securities and no securities have
been determined to be illiquid under the Funds' Liquidity Procedures.
9. Contractual Obligations
The Funds enter into contracts in the normal course of business that contain a
variety of indemnifications. The Funds' maximum exposure under these
arrangements is unknown. However, the Funds have not had prior claims or losses
pursuant to these contracts. Management has reviewed the Funds' existing
contracts and expects the risk of loss to be remote.
29
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About
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THE ORGANIZATION
This semiannual report is for the information of Delaware Tax-Free Arizona
Insured Fund, Delaware Tax-Free California Fund and Delaware Tax-Free Colorado
Fund shareholders, but it may be used with prospective investors when preceded
or accompanied by a current prospectus for Delaware Tax-Free Arizona Insured
Fund, Delaware Tax-Free California Fund and Delaware Tax-Free Colorado Fund and
the Delaware Investments(R) Performance Update for the most recently completed
calendar quarter. The prospectus sets forth details about charges, expenses,
investment objectives, and operating policies of the Funds. 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 each Fund will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost.
Board of Trustees
Jude T. Driscoll
Chairman
Delaware Investments(R) Family of Funds
Philadelphia, PA
Thomas L. Bennett
Private Investor
Rosemont, PA
John A. Fry
President
Franklin & Marshall College
Lancaster, PA
Anthony D. Knerr
Founder/Managing Director
Anthony Knerr & Associates
New York, NY
Lucinda S. Landreth
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA
Ann R. Leven
Former Treasurer/Chief Fiscal Officer
National Gallery of Art
Washington, DC
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN
J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ
Affiliated Officers
Michael P. Bishof
Senior Vice President and
Chief Financial Officer
Delaware Investments(R) Family of Funds
Philadelphia, PA
David F. Connor
Vice President, Deputy General Counsel and Secretary
Delaware Investments(R) Family of Funds
Philadelphia, PA
David P. O'Connor
Senior Vice President, General Counsel and Chief Legal Officer
Delaware Investments(R) Family of Funds
Philadelphia, PA
John J. O'Connor
Senior Vice President and Treasurer
Delaware Investments(R) Family of Funds
Philadelphia, PA
Contact Information
Investment Manager
Delaware Management Company,
a Series of Delaware Management Business Trust
Philadelphia, PA
National Distributor
Delaware Distributors, L.P.
Philadelphia, PA
Shareholder Servicing, Dividend
Disbursing and Transfer Agent
Delaware Service Company, Inc.
2005 Market Street
Philadelphia, PA 19103-7094
For Shareholders
800 523-1918
For Securities Dealers and Financial
Institutions Representatives Only
800 362-7500
Web Site
www.delawareinvestments.com
Delaware Investments is the marketing name for Delaware Management Holdings,
Inc. and its subsidiaries.
- --------------------------------------------------------------------------------
Each Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission for the first and third quarters of each fiscal year on
Form N-Q. Each Fund's Forms N-Q, as well as a description of the policies and
procedures that each Fund uses to determine how to vote proxies (if any)
relating to portfolio securities are available without charge (i) upon request,
by calling 800 523-1918; (ii) on the Funds' Web site at
http://www.delawareinvestments.com; and (iii) on the Commission's Web site at
http://www.sec.gov. Each 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 800 SEC-0330.
Information (if any) regarding how each Fund voted proxies relating to portfolio
securities during the most recently disclosed 12-month period ended June 30 is
available without charge (i) through the Funds' Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
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30
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[DELAWARE INVESTMENTS(R) LOGO]
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Contact Information
Web Site
www.delawareinvestments.com
E-mail
service@delinvest.com
Shareholder Service Center
800 523-1918
Call the Shareholder Service Center Monday to Friday, 8:00 a.m. to 7:00 p.m.
Eastern Time:
o For fund information, literature, price, yield, and performance figures.
o For information on existing regular investment accounts and retirement
plan accounts including wire investments, wire redemptions, telephone
redemptions, and telephone exchanges.
Delaphone Service
800 362-FUND (800 362-3863)
o For convenient access to account information or current performance
information on all Delaware Investments(R) Funds seven days a week, 24
hours a day, use this Touch-Tone(R) service.
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(330) Printed in the USA
SA-WEST [2/06] CGI 4/06 SEMI-WESTERN PO10912
Item 2. Code of Ethics
Not applicable.
Item 3. Audit Committee Financial Expert
Not applicable.
Item 4. Principal Accountant Fees and Services
Not applicable.
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
Companies 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 second fiscal quarter) that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are
furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
VOYAGEUR MUTUAL FUNDS II
Jude T. Driscoll
-----------------------
By: Jude T. Driscoll
Title: Chief Executive Officer
Date: May 8, 2006
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: May 8, 2006
Michael P. Bishof
-----------------------
By: Michael P. Bishof
Title: Chief Financial Officer
Date: May 8, 2006