UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-3850
Exact name of registrant as specified in charter:
Delaware Group Tax Free Fund
Address of principal executive offices:
2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service:
David F. Connor, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: August 31
Date of reporting period: August 31, 2006
<page>
Item 1. Reports to Stockholders
The Registrant's shareholder reports are combined with the shareholder reports
of other investment company registrants. This Form N-CSR pertains to the
DELAWARE TAX-FREE USA INTERMEDIATE FUND and DELWARE TAX-FREE USA FUND of the
Registrant, information on which is included in the following shareholder
reports.
Annual Report Delaware
Tax-Free USA Fund
Delaware
Tax-Free USA Intermediate
Fund
Delaware
National High-Yield Municipal
Bond Fund
August 31, 2006
Fixed income mutual funds
[DELAWARE INVESTMENTS LOGO] [LOGO] POWERED BY RESEARCH(R)
Table of contents
> Portfolio management review .................................................1
> Performance summaries .......................................................6
> Disclosure of Fund expenses ................................................12
> Sector allocations and credit rating breakdowns ............................14
> Statements of net assets ...................................................16
> Statements of operations ...................................................35
> Statements of changes in net assets ........................................36
> Financial highlights .......................................................37
> Notes to financial statements ..............................................46
> Report of independent registered public accounting firm ....................53
> Other Fund information .....................................................54
> Board of trustees/directors and officers addendum ..........................57
> About the organization .....................................................59
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.
Portfolio management review
Delaware National Tax-Free Funds
August 31, 2006
Joseph R. Baxter
Robert Collins
Co-managers of the funds
The managers of Delaware Tax-Free USA Fund, Delaware Tax-Free USA Intermediate
Fund, and Delaware National High-Yield Municipal Bond Fund provided the answers
to the questions below as a review of the Funds' activities for the fiscal year
ended August 31, 2006.
Q: What was the investment environment for the Delaware Investments municipal
bond mutual funds during the fiscal year ended August 31, 2006?
A: Higher gasoline prices, rising short-term interest rates, and ongoing
uneasiness about changes in the housing market generally weighed on the capital
markets and many investors' outlook for the U.S. economy during our fiscal year.
However, the U.S. economy continued its expansion throughout the year,
recovering somewhat from a period of slower growth that occurred just after the
August and September 2005 hurricanes. Property and casualty insurers held steady
and provided a solid source of capital for the tax-exempt debt arena as the year
progressed. To summarize, we generally viewed the national-level municipal bond
market to be sound over the fiscal year, despite challenges.
During most of the fiscal year, the U.S. Federal Reserve (Fed) continued to
raise interest rates. After gradually moving the target for the fed funds rate
from 3.50% to 5.25%, the Fed finally paused a long string of increases at its
August 2006 meeting. A key tool in the Fed's monetary policy, the Fed funds rate
reflects the percentage of interest that banks charge to lend money to each
other overnight. Through the rate increases, the Fed aimed to moderate the pace
of economic activity and head off inflation.
Earlier in 2006, the interest rate environment was such that the Treasury yield
curve began to flatten, which means that the difference between short- and
long-term bond yields grew smaller across the spectrum of maturities. This
"flattening" was generally present throughout the second half of the fiscal
year. In this type of situation, bonds with intermediate maturities - those in
the three- to seven-year range - tend to underperform.
Low interest rates provided many issuers with refinancing opportunities early in
the fiscal year, but new bond issuance dropped off significantly beginning in
2006 because more and more municipal issuers had already taken the opportunity
to refinance bonds. For instance, through August 2006, the pace of new issuance
of municipal securities year-to-date had retreated 15% versus the same period
one year earlier (source: Thomson Financial).
Comparing tax-exempt and taxable holdings, municipal bond yields began the
fiscal year at nearly the same level as Treasuries. By period end, however, that
gap had widened, which reflected the greater decline in the value of Treasury
bonds versus their municipal peers (source: Thomson Financial).
Q: What other market-related events influenced performance of the funds?
A: Credit quality among bond issuers remained strong or improved during the
fiscal year, generally contributing to demand for lower-rated securities.
In the fiscal period's later stages, we saw more bonds coming to market that we
believed to be of increased risk. Also of note, non-traditional buyers (those
more interested in the relative valuation of the asset class than the
tax-advantaged status of municipal bonds) continued to make their presence felt.
These changes influenced trading patterns in the market and presented a new
challenge to both mutual fund managers and individual investors.
Q: How did the market environment affect your approach to municipal bond
investing at large?
A: In the interest rate environment that prevailed, our approach to municipal
bond markets at times dictated that we retain current holdings and ultimately
our strategy resulted in limited transactions. During much of the year, we
preferred to seek that objective by holding legacy bonds - securities purchased
in prior fiscal periods - and relying on the attractive bond yields that already
existed within our portfolio of investments.
1
Portfolio management review
Generally speaking, it became increasingly difficult in the prevailing interest
rate environment to identify bonds in the market that were more attractive than
the holdings in our portfolio. Frequently during the year, we opted to focus our
resources on monitoring the credit of legacy bonds.
We also adhered to our bottom-up investment style, which is based on
security-by-security analysis and a free exchange of information among the
various members of a deep team that includes portfolio managers, credit
analysts, and traders.
Delaware Tax-Free USA Fund
Q: How did the Fund perform versus its benchmark index and peer group?
A: Delaware Tax-Free USA Fund returned 2.42% at net asset value and -2.16% at
maximum offer price (both figures represent Class A shares with distributions
reinvested) for the fiscal year ended August 31, 2006. The Fund's performance
benchmark, the Lehman Brothers Municipal Bond Index, returned 2.56%. Its peer
group - as measured by the Lipper General Municipal Funds Average - returned
2.70% (source: Lipper). For the complete, annualized performance of Delaware
Tax-Free USA Fund, please see the table on page 6.
Q: What strategies affected Fund performance?
A: Despite a high level of refinancing activity in the market, we believed that
many of the Delaware Tax-Free USA Fund legacy bonds would not be called, and
decided to hold them for their relatively attractive yields.
In keeping with our long-term commitment to holding a high-quality portfolio of
investments, we again generally avoided the tobacco industry bonds that have so
greatly influenced performance in the municipal market in recent years, as we
believe the sector has an elevated risk for litigation. We also remained
underweighted versus the benchmark index in bonds backed by airline corporation
revenues, although a small number of airline and airline-related holdings did
influence performance in the Fund.
During the 12-month span, it seemed that investors tended to seek the added
yield and total return potential of lower-quality bonds, and thus securities
with ratings further down the credit spectrum generally outperformed. At times,
the margin of outperformance between two adjacent credit ratings was
significant.
As the fiscal year began, we employed a barbell portfolio strategy, which favors
short- and long-term maturity bonds over their intermediate term peers. We did
so because it appeared likely that further flattening of the yield curve was in
store. In 2006, we added more mid-maturity securities to the portfolio. Although
the Fund was still generally oriented for further yield curve flattening, we
believed that this move would give us better positioning should yields rise.
We also incorporated the assets of three other Delaware Investments municipal
bond funds (Delaware Tax-Free Insured Fund, Delaware Tax-Free Oregon Insured
Fund, and Delaware Tax-Free Missouri Insured Fund) into the Fund during the
year. With the merger of these assets into the investment portfolio, our
exposure to very high-quality securities rose. Because trimming the higher rated
securities took some time, we believe Fund total return performance in the
interim was slightly lower than it would have been otherwise.
The Fund gained performance relative to its benchmark index with air cargo
bonds, which constituted three of the five top performing securities. On the
other hand, exposure to Michigan's Midland Cogeneration Venture impeded return,
as did debt holdings in Northwest Air, which filed for Chapter 11 bankruptcy
protection during the 12-month period. As for sector representation within the
Fund portfolio, healthcare bonds, largely hospitals, came in first at 17% of net
assets at fiscal year end.
Delaware Tax-Free USA Intermediate Fund
Q: How did the Fund perform versus its benchmark index and peer group?
A: Delaware Tax-Free USA Intermediate Fund returned 2.38% at net asset value and
- -0.45% at maximum offer price (both figures represent Class A shares with
2
distributions reinvested) for the fiscal year ended August 31, 2006.
As of August 31, 2006, the Delaware Tax-Free USA Intermediate Fund benchmark
index was changed from the Merrill Lynch 3-7 Year Municipal Bond Index to the
Lehman Brothers Municipal 3-15 Year Index. Management believes the new benchmark
index more accurately reflects the portion of the municipal market in which the
Fund invests. There were no material changes to the Fund's investment objective
or strategy.
For the year fiscal year ended August 31, 2006, the Merrill Lynch 3-7 Year
Municipal Bond Index gained 2.38% and the Lehman Brothers 3-15 Year Municipal
Bond Index gained 2.64%. The Fund's peer group - as measured by the Lipper Other
States Intermediate Municipal Debt Funds Average - returned 3.01% (source:
Lipper).
For the complete, annualized performance of Delaware Tax-Free USA Intermediate
Fund, please see the table on page 8.
Q: What strategies affected Fund performance?
A: Despite a high level of refinancing activity in the market, we believed that
many of the Fund's legacy bonds would not be called, and decided to hold them
for their relatively attractive yields.
This strategy had the effect of shortening the Fund's average duration, which is
a measure of a bond or a bond fund's sensitivity to changes in interest rates.
Longer durations typically indicate greater interest rate sensitivity, and
shorter durations generally limit a bond fund's volatility and total return
potential.
In keeping with our long-term commitment to holding a high-quality portfolio of
investments, we again generally avoided the tobacco industry bonds that have so
greatly influenced performance in the municipal market in recent years, as we
believe the sector has an elevated risk for litigation. We also remained
underweighted versus the benchmark index in bonds backed by airline corporation
revenues. Neither stance was generally beneficial when comparing Fund
performance to the benchmark and many of our peer funds because those two
sectors performed well on a total return basis.
During the 12-month span, it seemed that investors tended to seek the added
yield and total return potential of lower-quality bonds, and thus securities
with ratings further down the credit spectrum generally outperformed. At times,
the margin of outperformance between two adjacent credit ratings was
significant.
As the fiscal year began, we employed a barbell portfolio strategy, which favors
short- and long maturity bonds over their intermediate term peers. We did so
because it appeared likely that further flattening of the yield curve was in
store. In 2006, we added more mid-maturity securities to the portfolio. Although
the fund was still generally oriented for further yield curve flattening, we
believed that this move would give us better positioning should yields rise.
In reviewing performance attribution, we added positively to portfolio return
with our acquisition of continued care and retirement center bonds, which also
accounted for the portfolio's increased exposure to non-rated securities. Fund
return was enhanced by New York City general obligation bonds and air cargo
securities. The calling of some of our bonds (retired by their issuer prior to
maturity) caused the portfolio to lose a measure of return during the period.
The same may be said of municipal securities issued by Puerto Rico, which
experienced budgetary concerns during the period.
In other adjustments, we trimmed the Fund portfolio's exposure to insured bonds
from 40% to roughly 25% of net assets. We maintained the portfolio's high credit
quality by opting for state general obligation bonds, which constituted 17% of
net assets upon fiscal year end.
Delaware National High-Yield Municipal Bond Fund
Q: How did the Fund perform versus its benchmark index and peer group?
A: Delaware National High-Yield Municipal Bond Fund returned 4.15% at net asset
value and -0.54% at maximum offer price (both figures represent Class A
3
Portfolio management review
shares with distributions reinvested) for the fiscal year ended August 31, 2006.
For the same period, the Lehman Brothers Municipal Bond Index returned 2.56% and
the Fund's peer group - as measured by the Lipper High-Yield Municipal Debt
Funds Average - returned 5.12% (source: Lipper).
For the complete, annualized performance of Delaware National High-Yield
Municipal Bond Fund, please see the table on page 10.
Q: What strategies affected Fund performance?
A: Despite a high level of refinancing activity in the market, we believed that
many of the Fund's legacy bonds would not be called, and decided to hold them
for their relatively attractive yields.
This strategy had the effect of shortening the Fund's average duration, which is
a measure of a bond or a bond fund's sensitivity to changes in interest rates.
Longer durations indicate greater interest rate sensitivity, and shorter
durations generally limit a bond fund's volatility and total return potential.
The Fund's duration profile at fiscal year end was near the lower end of our
target range, a consideration that we monitored.
In keeping with our long-term commitment to holding a high-quality portfolio of
investments, we again generally avoided the tobacco industry bonds that have so
greatly influenced performance in the municipal market in recent years, as we
believe the sector has an elevated risk for litigation. We also remained
underweighted versus the benchmark index in bonds backed by airline corporation
revenues, although a small number of airline and airline-related holdings did
influence performance in the Fund.
During the 12-month span, it seemed that investors tended to seek the added
yield and total return potential of lower-quality bonds. Thus, securities with
ratings further down the credit spectrum generally outperformed. At times, the
margin of outperformance between two adjacent credit ratings was significant.
Over the course of the fiscal year, we trimmed the portfolio's allocation to
bonds rated BBB and increased exposure to tax increment financing bonds (TIFs).
Used principally with redevelopment projects, TIFs proved to be valuable sources
of income and accounted for our increased exposure to non-rated securities. We
also found that continuing care retirement center bonds were beneficial to Fund
performance.
Conversely, our exposure to a Northwest Airlines, which filed for Chapter 11
bankruptcy protection, impeded Fund return. In addition, the rise in natural gas
prices during the period worked against our position in Michigan's Midland
Cogeneration Venture bonds. These bonds were no longer held in the Fund at the
end of August 2006.
4
Performance summary
Delaware Tax-Free USA Fund
The performance data quoted represent past performance; past performance does
not guarantee future results. A rise or fall in interest rates can have a
significant impact on bond prices and the NAV (net asset value) of the Fund.
Funds that invest in bonds can lose their value as interest rates rise, and an
investor can lose principal. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting www.delawareinvestments.com/performance.
You should consider the investment objectives, risks, charges, and expenses of
the investment carefully before investing. The Delaware Tax-Free USA Fund
prospectus contains this and other important information about the Fund. Please
request a prospectus through your financial advisor, or by calling 800 523-1918
or visiting our Web site. Read it carefully before you invest or send money.
Fund performance
Average annual total returns
Through August 31, 2006 1 year 5 years 10 years Lifetime
________________________________________________________________________________
Class A (Est. 1/11/84)
Excluding sales charge +2.42% +5.16% +5.35% +7.63%
Including sales charge -2.16% +4.20% +4.87% +7.42%
________________________________________________________________________________
Class B (Est. 5/2/94)
Excluding sales charge +1.63% +4.35% +4.68% +4.62%
Including sales charge -2.30% +4.09% +4.68% +4.62%
________________________________________________________________________________
Class C (Est. 11/29/95)
Excluding sales charge +1.63% +4.35% +4.52% +4.06%
Including sales charge +0.63% +4.35% +4.52% +4.06%
________________________________________________________________________________
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below.
Performance for Class B and C shares, excluding sales charges, assumes either
that contingent deferred sales charges did not apply or the investment was not
redeemed.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 4.50% and have an annual distribution and
service fee of up to 0.30%. The distributor has contracted to limit the amount
to 0.25% through December 31, 2006.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%. Ten-year and lifetime performance figures
for Class B shares reflect conversion to Class A shares after eight years.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware Tax-Free USA
Fund during periods shown above and on the next page. Performance would have
been lower had the expense limitation not been in effect.
The performance table above and the graph on the next page do not reflect the
deduction of taxes the shareholder would pay on Fund distributions or
redemptions of Fund shares.
A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
6
Fund basics
As of August 31, 2006
________________________________________________________________________________
Fund objective
________________________________________________________________________________
The Fund seeks to provide as high a level of current interest income exempt from
federal income tax as is available from municipal obligations as is consistent
with prudent investment management and preservation of capital.
________________________________________________________________________________
Total Fund net assets
________________________________________________________________________________
$694 million
________________________________________________________________________________
Number of holdings
________________________________________________________________________________
250
________________________________________________________________________________
Fund start date
________________________________________________________________________________
January 11, 1984
________________________________________________________________________________
Your Fund managers
________________________________________________________________________________
Joseph R. Baxter joined Delaware Investments in 1999. He heads the firm's
municipal bond department and is responsible for setting the department's
investment strategy. He is also a co-portfolio manager of the firm's municipal
bond funds and several client accounts. Formerly, he held investment positions
with First Union. He received a bachelor's degree in finance and marketing from
LaSalle University.
Robert F. Collins, CFA, joined Delaware Investments in 2004. He is a
co-portfolio manager of several of the firm's municipal bond funds and client
accounts. Formerly, he spent five years as a co-manager of the municipal
portfolio management group, where he oversaw the tax-exempt investments of high
net worth and institutional accounts. He earned a bachelor's degree in economics
from Ursinus College.
________________________________________________________________________________
Nasdaq symbols CUSIPs
________________________________________________________________________________
Class A DMTFX 245909106
Class B DTFCX 245909403
Class C DUSCX 245909700
[PERFORMANCE OF $10,000 INVESTMENT LINE GRAPH]
Chart assumes $10,000 invested on August 31, 1996 and includes the effect of a
4.50% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses.
The Lehman Brothers Municipal Bond Index is an unmanaged index that generally
tracks the performance of municipal bonds. An index is unmanaged and does not
reflect the costs of operating a mutual fund, such as the costs of buying,
selling, and holding securities. You cannot invest directly in an index.
Past performance is not a guarantee of future results.
(continues) 7
Performance summary
Delaware Tax-Free USA Intermediate Fund
The performance data quoted represent past performance; past performance does
not guarantee future results. A rise or fall in interest rates can have a
significant impact on bond prices and the NAV (net asset value) of the Fund.
Funds that invest in bonds can lose their value as interest rates rise, and an
investor can lose principal. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting www.delawareinvestments.com/performance.
You should consider the investment objectives, risks, charges, and expenses of
the investment carefully before investing. The Delaware Tax-Free USA
Intermediate Fund prospectus contains this and other important information about
the Fund. Please request a prospectus through your financial advisor, by calling
800 523-1918 or visiting our Web site. Read it carefully before you invest or
send money.
Fund performance
Average annual total returns
Through August 31, 2006 1 year 5 years 10 years Lifetime
________________________________________________________________________________
Class A (Est. 1/7/93)
Excluding sales charge +2.38% +4.97% +5.45% +5.65%
Including sales charge -0.45% +4.38% +5.15% +5.44%
________________________________________________________________________________
Class B (Est. 5/2/94)
Excluding sales charge +1.43% +4.06% +4.99% +5.15%
Including sales charge -0.54% +4.06% +4.99% +5.15%
________________________________________________________________________________
Class C (Est. 11/29/95)
Excluding sales charge +1.52% +4.08% +4.56% +4.41%
Including sales charge +0.52% +4.08% +4.56% +4.41%
________________________________________________________________________________
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below.
Performance for Class B and C shares, excluding sales charges, assumes either
that contingent deferred sales charges did not apply or the investment was not
redeemed.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 2.75% and have an annual distribution and
service fee of up to 0.30%. The distributor has contracted to limit the amount
to 0.15% through December 31, 2006.
Class B shares are sold with a contingent deferred sales charge that declines
from 2% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately five years after purchase. They are also subject to an annual
distribution and service fee of 1%. Ten-year and lifetime performance figures
for Class B shares reflect conversion to Class A shares after five years.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware Tax-Free USA
Intermediate Fund during the periods shown above and on the next page.
Performance would have been lower had the expense limitation not been in effect.
The performance table above and the graph on the next page do not reflect the
deduction of taxes the shareholder would pay on Fund distributions or
redemptions of Fund shares.
A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
8
Fund basics
As of August 31, 2006
________________________________________________________________________________
Fund objective
________________________________________________________________________________
The Fund seeks as high a level of current interest income exempt from federal
income tax as is available from municipal obligations as is consistent with
prudent investment management and preservation of capital.
________________________________________________________________________________
Total Fund net assets
________________________________________________________________________________
$235 million
________________________________________________________________________________
Number of holdings
________________________________________________________________________________
165
________________________________________________________________________________
Fund start date
________________________________________________________________________________
January 7, 1993
________________________________________________________________________________
Your Fund managers
________________________________________________________________________________
Joseph R. Baxter joined Delaware Investments in 1999. He heads the firm's
municipal bond department and is responsible for setting the department's
investment strategy. He is also a co-portfolio manager of the firm's municipal
bond funds and several client accounts. Formerly, he held investment positions
with First Union. He received a bachelor's degree in finance and marketing from
LaSalle University.
Robert F. Collins, CFA, joined Delaware Investments in 2004. He is a
co-portfolio manager of several of the firm's municipal bond funds and client
accounts. Formerly, he spent five years as a co-manager of the municipal
portfolio management group, where he oversaw the tax-exempt investments of high
net worth and institutional accounts. He earned a bachelor's degree in economics
from Ursinus College.
________________________________________________________________________________
Nasdaq symbols CUSIPs
________________________________________________________________________________
Class A DMUSX 245909304
Class B DUIBX 245909601
Class C DUICX 245909882
[PERFORMANCE OF $10,000 INVESTMENT LINE GRAPH]
Chart assumes $10,000 invested on August 31, 1996 and includes the effect of a
2.75% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses.
The Merrill Lynch 3-7 Year Municipal Bond Index is an unmanaged index that
generally tracks the performance of municipal bonds with maturities of 3 to 7
years. The Lehman Brothers 3-15 Year Municipal Bond Index is an unmanaged index
that generally tracks the performance of municipal bonds with maturities of 3 to
15 years. An index is unmanaged and does not reflect the costs of operating a
mutual fund, such as the costs of buying, selling, and holding securities. You
cannot invest directly in an index.
Past performance is not a guarantee of future results.
(continues) 9
Performance summary
Delaware National High-Yield Municipal Bond Fund
The performance data quoted represent past performance; past performance does
not guarantee future results. A rise or fall in interest rates can have a
significant impact on bond prices and the NAV (net asset value) of the Fund.
Funds that invest in bonds can lose their value as interest rates rise, and an
investor can lose principal. Investment return and principal value will
fluctuate so your shares, when redeemed, may be worth more or less than their
original cost. Current performance may be lower or higher than the performance
data quoted. Please obtain the performance data for the most recent month end by
calling 800 523-1918 or visiting www.delawareinvestments.com/performance.
You should consider the investment objectives, risks, charges, and expenses of
the investment carefully before investing. The Delaware National High-Yield
Municipal Bond Fund prospectus contains this and other important information
about the Fund. Please request a prospectus through your financial advisor or by
calling 800 523-1918 or visiting our Web site. Read it carefully before you
invest or send money.
Fund performance
Average annual total returns
Through August 31, 2006 1 year 5 years 10 years Lifetime
________________________________________________________________________________
Class A (Est. 9/22/86)
Excluding sales charge +4.15% +5.35% +5.78% +6.80%
Including sales charge -0.54% +4.39% +5.29% +6.56%
________________________________________________________________________________
Class B (Est. 12/18/96)
Excluding sales charge +3.47% +4.58% N/A +4.91%
Including sales charge -0.51% +4.32% N/A +4.91%
________________________________________________________________________________
Class C (Est. 5/26/97)
Excluding sales charge +3.36% +4.57% N/A +4.68%
Including sales charge +2.36% +4.57% N/A +4.68%
________________________________________________________________________________
Returns reflect the reinvestment of all distributions and any applicable sales
charges as noted below.
Performance for Class B and C shares, excluding sales charges, assumes either
that contingent deferred sales charges did not apply or the investment was not
redeemed.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 4.50% and have an annual distribution and
service fee of 0.25%.
Class B shares are sold with a contingent deferred sales charge that declines
from 4% to zero depending upon the period of time the shares are held. Class B
shares will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. They are also subject to an annual
distribution and service fee of 1%. Lifetime performance figures for Class B
shares reflect conversion to Class A shares after eight years.
Class C shares are sold with a contingent deferred sales charge of 1%, if
redeemed during the first 12 months. They are also subject to an annual
distribution and service fee of 1%.
An expense limitation was in effect for all classes of Delaware National
High-Yield Municipal Bond Fund during the periods shown above and on the next
page. Performance would have been lower had the expense limitation not been in
effect.
The performance table above and the graph on the next page do not reflect the
deduction of taxes the shareholder would pay on Fund distributions or
redemptions of Fund shares.
A portion of the income from tax-exempt funds may be subject to the alternative
minimum tax.
10
Fund basics
As of August 31, 2006
________________________________________________________________________________
Fund objective
________________________________________________________________________________
The Fund seeks a high level of current income exempt from federal income tax
primarily through investment in medium- and lower-grade municipal obligations.
________________________________________________________________________________
Total Fund net assets
________________________________________________________________________________
$84 million
________________________________________________________________________________
Number of holdings
________________________________________________________________________________
85
________________________________________________________________________________
Fund start date
________________________________________________________________________________
September 22, 1986
________________________________________________________________________________
Your Fund managers
________________________________________________________________________________
Joseph R. Baxter joined Delaware Investments in 1999. He heads the firm's
municipal bond department and is responsible for setting the department's
investment strategy. He is also a co-portfolio manager of the firm's municipal
bond funds and several client accounts. Formerly, he held investment positions
with First Union. He received a bachelor's degree in finance and marketing from
LaSalle University.
Robert F. Collins, CFA, joined Delaware Investments in 2004. He is a
co-portfolio manager of several of the firm's municipal bond funds and client
accounts. Formerly, he spent five years as a co-manager of the municipal
portfolio management group, where he oversaw the tax-exempt investments of high
net worth and institutional accounts. He earned a bachelor's degree in economics
from Ursinus College.
________________________________________________________________________________
Nasdaq symbols CUSIPs
________________________________________________________________________________
Class A CXHYX 928928241
Class B DVNYX 928928233
Class C DVHCX 928928225
[PERFORMANCE OF $10,000 INVESTMENT LINE GRAPH]
Chart assumes $10,000 invested on August 31, 1996 and includes the effect of a
4.50% front-end sales charge and the reinvestment of all distributions.
Performance for other Fund classes will vary due to differing charges and
expenses.
The Lehman Brothers Municipal Bond Index is an unmanaged index that generally
tracks the performance of municipal bonds. An index is unmanaged and does not
reflect the costs of operating a mutual fund, such as the costs of buying,
selling, and holding securities. You cannot invest directly in an index.
Past performance is not a guarantee of future results.
11
Disclosure of Fund expenses
For the period March 1, 2006 to August 31, 2006
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs,
including sales charges (loads) on purchase payments, reinvested dividends, or
other distributions; redemption fees; and exchange fees; and (2) ongoing costs,
including management fees; distribution and/or service (12b-1) fees; and other
Fund expenses. The following examples are intended to help you understand your
ongoing costs (in dollars) of investing in a Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of
the period and held for the entire period March 1, 2006 to August 31, 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 ratios 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 the Fund and other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the 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. The Funds' actual expenses shown in the tables reflect fee waivers in
effect. The expenses shown in each table assume reinvestment of all dividends
and distributions.
In each case, "Expenses Paid During Period" are equal to the Fund's annualized
expense ratio, multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
Delaware Tax-Free USA Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 3/1/06 to
3/1/06 8/31/06 Ratios 8/31/06
________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,020.20 0.86% $4.38
Class B 1,000.00 1,016.30 1.62% 8.23
Class C 1,000.00 1,016.30 1.62% 8.23
________________________________________________________________________________
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,020.87 0.86% $4.38
Class B 1,000.00 1,017.04 1.62% 8.24
Class C 1,000.00 1,017.04 1.62% 8.24
________________________________________________________________________________
Delaware Tax-Free USA Intermediate Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 3/1/06 to
3/1/06 8/31/06 Ratios 8/31/06
________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,016.40 0.75% $3.81
Class B 1,000.00 1,012.10 1.60% 8.11
Class C 1,000.00 1,012.00 1.60% 8.11
________________________________________________________________________________
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,021.42 0.75% $3.82
Class B 1,000.00 1,017.14 1.60% 8.13
Class C 1,000.00 1,017.14 1.60% 8.13
________________________________________________________________________________
12
Delaware National High-Yield Municipal Bond Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 3/1/06 to
3/1/06 8/31/06 Ratios 8/31/06
________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,029.60 0.90% $4.60
Class B 1,000.00 1,025.70 1.65% 8.42
Class C 1,000.00 1,025.60 1.65% 8.42
________________________________________________________________________________
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,020.67 0.90% $4.58
Class B 1,000.00 1,016.89 1.65% 8.39
Class C 1,000.00 1,016.89 1.65% 8.39
________________________________________________________________________________
13
Sector allocations and credit rating breakdowns
As of August 31, 2006
Sector designations may be different than the sector designations presented in
other Fund materials.
Delaware Tax-Free USA Fund
Percentage
Sector of Net Assets
________________________________________________________________________________
Municipal Bonds 98.57%
Corporate Revenue Bonds 9.26%
Education Revenue Bonds 6.69%
Electric Revenue Bonds 6.69%
Escrowed to Maturity Bonds 6.17%
Health Care Revenue Bonds 17.31%
Housing Revenue Bonds 2.46%
Lease Revenue Bonds 5.94%
Local General Obligation Bonds 7.72%
Pre-Refunded Bonds 8.14%
Special Tax Bonds 5.36%
State General Obligation Bonds 12.11%
Transportation Revenue Bonds 5.50%
Water & Sewer Revenue Bonds 5.22%
________________________________________________________________________________
Variable Rate Demand Notes 0.49%
________________________________________________________________________________
Total Market Value of Securities 99.06%
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 0.94%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
Credit Rating Breakdown
(as a % of fixed income investments)
________________________________________________________________________________
AAA 45.66%
AA 18.15%
A 9.30%
BBB 19.86%
BB 0.63%
Not Rated 6.40%
________________________________________________________________________________
Total 100.00%
________________________________________________________________________________
Delaware Tax-Free USA Intermediate Fund
Percentage
Sector of Net Assets
________________________________________________________________________________
Municipal Bonds 96.43%
Corporate Revenue Bonds 6.35%
Education Revenue Bonds 7.42%
Electric Revenue Bonds 4.84%
Escrowed to Maturity Bonds 0.08%
Health Care Revenue Bonds 15.16%
Lease Revenue Bonds 5.31%
Local General Obligation Bonds 15.03%
Pre-Refunded Bonds 7.02%
Resource Recovery Bonds 0.64%
Special Tax Bonds 9.47%
State General Obligation Bonds 17.26%
Transportation Revenue Bonds 5.81%
Water & Sewer Revenue Bonds 2.04%
________________________________________________________________________________
Variable Rate Demand Notes 1.45%
________________________________________________________________________________
Total Market Value of Securities 97.88%
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 2.12%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
Credit Rating Breakdown
(as a % of fixed income investments)
________________________________________________________________________________
AAA 47.59%
AA 15.94%
A 13.44%
BBB 12.84%
BB 0.53%
Not Rated 9.66%
________________________________________________________________________________
Total 100.00%
________________________________________________________________________________
14
Sector designations may be different than the sector designations presented in
other Fund materials.
Delaware National High-Yield Municipal Bond Fund
Percentage
Sector of Net Assets
________________________________________________________________________________
Municipal Bonds 97.95%
Corporate Revenue Bonds 13.06%
Education Revenue Bonds 12.53%
Health Care Revenue Bonds 38.51%
Lease Revenue Bonds 3.15%
Local General Obligation Bonds 8.80%
Pre-Refunded Bonds 10.68%
Special Tax Bonds 7.02%
State General Obligation Bonds 0.95%
Transportation Revenue Bonds 3.25%
________________________________________________________________________________
Variable Rate Demand Notes 0.72%
________________________________________________________________________________
Total Market Value of Securities 98.67%
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 1.33%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
Credit Rating Breakdown
(as a % of fixed income investments)
________________________________________________________________________________
AAA 4.17%
A 10.49%
BBB 36.90%
BB 4.39%
Not Rated 44.05%
________________________________________________________________________________
Total 100.00%
________________________________________________________________________________
15
Statements of net assets
Delaware Tax-Free USA Fund
August 31, 2006
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds - 98.57%
________________________________________________________________________________
Corporate Revenue Bonds - 9.26%
Alliance Airport Authority, Texas
Special Facilities Revenue
(Federal Express Corp. Project)
4.85% 4/1/21 (AMT) $ 2,000,000 $ 2,015,180
Brazos, Texas River Authority
Pollution Control Revenue
(Texas Utilities) 5.40% 5/1/29 (AMT) 3,000,000 3,105,000
~ (TXU Energy Co. Project) Series B
6.30% 7/1/32 (AMT) 3,500,000 3,799,705
Cloquet, Minnesota Pollution
Control Revenue (Potlatch Corp.
Project) 5.90% 10/1/26 1,695,000 1,724,273
@ Columbus, Kansas Industrial
Revenue (ACE Electrical
Acquisition) 7.00% 8/1/17 (AMT) 800,000 208,000
Connecticut State Development
Authority Pollution Control
Revenue (Connecticut Light &
Power) Series A 5.85% 9/1/28 4,000,000 4,189,360
Indianapolis, Indiana Airport
Authority Revenue Special
Facilities (Federal Express
Corp. Project)
5.10% 1/15/17 (AMT) 2,750,000 2,886,098
Series 1998 5.50% 5/1/29 (AMT) 2,000,000 2,045,180
Mason County, West Virginia
Pollution Control Revenue
(Appalachian Power Co.
Project) Series K 6.05% 12/1/24
(AMBAC) 3,000,000 3,241,410
Mississippi Business Finance
Corporation Pollution Control
Revenue (System Energy
Resources, Inc. Project)
5.90% 5/1/22 3,000,000 3,004,920
Missouri State Development Finance
Board Infrastructure Facilities
Revenue (Triumph Foods Project)
Series A 5.25% 3/1/25 500,000 517,475
Petersburg, Indiana Pollution
Control Revenue (Indianapolis
Power & Light Co. Project)
6.375% 11/1/29 (AMT) 5,000,000 5,399,649
6.625% 12/1/24 4,500,000 4,590,180
Phenix City, Alabama Industrial
Development Board
Environmental Improvement
Revenue (Mead Westvaco Corp.
Project) Series A 6.35% 5/15/35
(AMT) 3,000,000 3,225,090
~ Port Morrow, Oregon Pollution
Control Revenue (Portland
General Electric Co.) Series A
5.20% 5/1/33 2,600,000 2,666,586
Puerto Rico Industrial, Medical &
Environmental Pollution Control
Facilities Financing Authority
Revenue (PepsiCo Inc. Project)
6.25% 11/15/13 1,250,000 1,295,150
Richmond County, Georgia
Development Authority
Environmental Improvement
Revenue (International Paper Co.
Project) Series B 5.95% 11/15/25
(AMT) 5,000,000 5,306,200
South Carolina Jobs Economic
Development Authority Industrial
Revenue (South Carolina Electric
& Gas Co. Project) Series B
5.45% 11/1/32 (AMBAC) (AMT) 500,000 529,380
Suffolk County, New York Industrial
Development Agency Revenue
(Keyspan-Port Jefferson Energy
Center) 5.25% 6/1/27 (AMT) 3,500,000 3,637,690
Sugar Creek, Missouri Industrial
Development Revenue (Lafarge
North America Project) Series A
5.65% 6/1/37 (AMT) 500,000 520,465
~ Sweetwater County, Wyoming
Pollution Control Revenue (Idaho
Power Co. Project) Series A
6.05% 7/15/26 5,000,000 5,107,800
Sweetwater County, Wyoming Solid
Waste Disposal Revenue (FMC
Corp. Project) 5.60% 12/1/35
(AMT) 5,000,000 5,264,250
___________
64,279,041
___________
Education Revenue Bonds - 6.69%
Amherst, New York Industrial
Development Agency Civic
Facilities Revenue (UBF Faculty
Student Housing) Series A
5.75% 8/1/30 (AMBAC) 1,300,000 1,415,323
Chattanooga, Tennessee Health
Educational & Housing
Facilities Board Revenue (CDFI
Phase I, LLC. Project) Series A
5.125% 10/1/35 3,500,000 3,511,200
Illinois Educational Facilities
Authority Student Housing
Revenue (Educational
Advancement Fund - University
Center Project) 6.25% 5/1/30 5,000,000 5,439,200
Illinois Financial Authority Revenue
(Illinois Institute of Technology)
Series A 5.00% 4/1/36 2,600,000 2,660,528
16
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Education Revenue Bonds (continued)
Massachusetts State Development
Finance Agency Revenue
(Massachusetts College of
Pharmacy Project) Series C
5.75% 7/1/33 $ 500,000 $ 532,350
Massachusetts State Health &
Educational Facilities
Authority Revenue
(Harvard University) Series A
5.00% 7/15/36 5,005,000 5,277,923
(Nichols College Project) Series C
6.00% 10/1/17 950,000 1,002,469
6.125% 10/1/29 1,000,000 1,054,340
Milledgeville-Baldwin County,
Georgia Development Authority
Revenue (Georgia College &
State University Foundation
Project) 6.00% 9/1/33 1,000,000 1,093,100
Missouri State Health & Educational
Facilities Authority Educational
Facilities Revenue (University of
Health Sciences) 5.00% 6/1/31
(MBIA) 1,000,000 1,029,940
New Hampshire Higher Educational
& Health Facilities Authority
Revenue (New Hampton School
Issue) 5.375% 10/1/28 3,070,000 3,085,473
New Jersey State Educational
Facilities Authority Revenue
(Stevens Institute of Technology)
Series B 5.25% 7/1/24 2,085,000 2,178,033
New York State Dormitory Authority
Revenue (Fashion Institute
Student Housing Corp.)
5.00% 7/1/13 (FGIC) 1,000,000 1,079,380
Oregon Health & Science University
Revenue (Capital Appreciation
Insured) Series A
5.00% 7/1/32 (MBIA) 2,000,000 2,077,340
^ 5.50% 7/1/21 (MBIA) 2,000,000 1,048,700
Oregon State Facilities
Authority Revenue
(College Housing Northwest
Project) Series A
5.45% 10/1/32 1,000,000 1,026,820
(College Independent Student
Housing Project) Series A
5.25% 7/1/30 (XLCA) 1,630,000 1,738,395
(Linfield College Project) Series A
5.00% 10/1/30 600,000 616,062
Pennsylvania State Higher
Educational Facilities Authority
Revenue (Widener University)
5.375% 7/15/29 1,000,000 1,052,690
Texas University Revenue (FING
System) Series B 5.00% 8/15/37 7,070,000 7,397,269
University of Central Florida
Athletics Association Revenue
Certificates of Participation
Series A 5.25% 10/1/34 (FGIC) 500,000 530,375
University of the Virgin Islands
Series A 5.375% 6/1/34 500,000 524,460
Vermont University & State
Agriculture College
5.125% 10/1/37 (AMBAC) 1,000,000 1,050,810
___________
46,422,180
___________
Electric Revenue Bonds - 6.69%
Chelan County, Washington
Public Utilities District
#001Consolidated Revenue
(Chelan Hydro System) Series A
5.45% 7/1/37 (AMBAC) (AMT) 5,000,000 5,339,550
Emerald Peoples, Oregon Utilities
District Series A 5.25% 11/1/22
(FSA) 750,000 808,845
Long Island, New York Power
Authority Electric Systems
Revenue Series B 5.00% 12/1/35 1,770,000 1,845,491
Lower Colorado River Authority
Texas Revenue Refunding
Series A 5.875% 5/15/17
(AMBAC) 5,500,000 5,849,030
Missouri Joint Municipal Electric
Utilities Commission Revenue
Power Project (Plum Point
Project) 5.00% 1/1/34 (MBIA) 7,000,000 7,359,310
Missouri State Environmental
Improvement & Energy Resource
Authority Pollution Control
Revenue Refunding (St. Joseph
Light & Power Company Project)
5.85% 2/1/13 (AMBAC) 2,200,000 2,214,806
Orlando, Florida Utilities
Commission Water & Electric
Revenue 5.25% 10/1/20 2,500,000 2,685,500
Puerto Rico Electric Power Authority
Power Revenue
Series II 5.25% 7/1/31 6,000,000 6,281,580
Series NN 5.125% 7/1/29 1,400,000 1,470,210
Series PP 5.00% 7/1/25 (FGIC) 1,000,000 1,060,070
Richmond, Virginia Public Utilities
Revenue 5.00% 1/15/27 (FSA) 10,000,000 10,378,300
Sikeston, Missouri Electric Revenue
Refunding 6.00% 6/1/13 (MBIA) 1,000,000 1,136,720
___________
46,429,412
___________
(continues) 17
Statements of net assets
Delaware Tax-Free USA Fund
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Escrowed to Maturity Bonds - 6.17%
Cape Girardeau County, Missouri
Industrial Development Authority
Health Care Facilities Revenue
(Southeast Missouri Hospital)
5.25% 6/1/16 (MBIA) $ 440,000 $ 478,900
^ Greene County, Missouri Single
Family Mortgage Revenue
Municipal Multiplier (Private
Mortgage Insurance)
6.10% 3/1/16 1,225,000 834,482
Liberty, Missouri Sewer System
Revenue 6.00% 2/1/08 (MBIA) 260,000 264,711
Louisiana Public Facilities
Authority Hospital Revenue
(Southern Baptist Hospital, Inc.)
8.00% 5/15/12 4,930,000 5,543,933
Missouri State Health & Educational
Facilities Authority Health
Facilities Revenue Refunding
(SSM Health Care) Series AA
6.40% 6/1/10 (MBIA) 500,000 547,470
New Jersey State Highway Authority
Garden State Parkway General
Revenue (Senior Parkway)
5.50% 1/1/14 (FGIC) 5,000,000 5,561,300
5.50% 1/1/15 (FGIC) 7,310,000 8,181,791
5.50% 1/1/16 (FGIC) 1,000,000 1,127,030
Oklahoma State Turnpike
Authority Revenue (First Senior)
6.00% 1/1/22 13,535,000 16,483,465
Umatilla County, Oregon Hospital
Facility Authority Revenue
(Catholic Health Initiatives)
Series A 5.50% 3/1/32 1,000,000 1,072,380
Virgin Islands Public Finance
Authority Revenue Series A
7.30% 10/1/18 2,200,000 2,749,318
___________
42,844,780
___________
Health Care Revenue Bonds - 17.31%
Akron Bath Copley, Ohio Joint
Township Hospital District
Revenue (Summa Health System)
Series A 5.25% 11/15/31
(RADIAN) 3,000,000 3,153,780
California Statewide Communities
Development Authority
Revenue (Kaiser Permenante)
5.25% 3/1/45 8,500,000 8,884,709
Cape Girardeau County, Missouri
Industrial Development Authority
Health Care Facilities Revenue
Unrefunded Balance
(Southeast Missouri Hospital)
5.25% 6/1/16 (MBIA) 560,000 602,986
(St. Francis Medical Center)
Series A 5.50% 6/1/32 1,000,000 1,060,030
Chatham County, Georgia Hospital
Authority Revenue (Memorial
Health Medical Center) Series A
6.125% 1/1/24 1,000,000 1,089,700
Cleveland-Cuyahoga County, Ohio
Port Authority Revenue Senior
Housing (St. Clarence Geac)
Series A 6.25% 5/1/38 1,500,000 1,525,845
Colorado Health Facilities Authority
Revenue (Evangelical Lutheran)
Series A 5.25% 6/1/34 4,275,000 4,435,227
Cuyahoga County, Ohio Revenue
(Cleveland Clinic Health Systems)
Series A 5.50% 1/1/29 7,500,000 8,006,924
Delaware County, Pennsylvania
Industrial Development Authority
Revenue Care Institute (Main
Line Care Institute Project)
9.00% 8/1/31 1,777,611 1,486,741
Duluth, Minnesota Economic
Development Authority
Health Care Facilities Revenue
(Benedictine Health System St.
Mary's Hospital) 5.25% 2/15/33 5,000,000 5,188,650
Florence County, South Carolina
Hospital Revenue (McLeod
Regional Medical Center Project)
Series A 5.25% 11/1/27 (FSA) 3,355,000 3,578,309
Gainesville & Hall County, Georgia
Development Authority Revenue
Senior Living Facilities (Lanier
Village Estates Project) Series C
7.25% 11/15/29 1,000,000 1,093,770
Henrico County, Virginia Economic
Development Authority Revenue
(Bon Secours Health System, Inc.)
Series A 5.60% 11/15/30 3,140,000 3,318,195
Highlands County, Florida Health
Facilities Authority Revenue
(Adventist Health System)
Series C 5.25% 11/15/36 3,500,000 3,690,680
Illinois Financial Authority Revenue
Series A
(Clarke Oaks Project)
6.00% 11/15/39 5,800,000 5,939,896
(Luther Oaks Project)
6.00% 8/15/39 3,000,000 3,094,230
Illinois Health Facilities
Authority Revenue (Elmhurst
Memorial Healthcare Project)
5.625% 1/1/28 2,000,000 2,125,500
Jacksonville, Florida Economic
Development Community
Health Care Facilities Revenue
(Mayo Clinic) 5.00% 11/15/36 7,000,000 7,280,699
18
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Health Care Revenue Bonds (continued)
Johnson City, Tennessee Health
and Educational Facilities Board
Hospital Revenue First Mortgage
(Mountain States Health) Series A
5.50% 7/1/36 $ 3,000,000 $ 3,180,990
Joplin, Missouri Industrial
Development Authority Health
Facilities Revenue (Freeman
Health System Project)
5.375% 2/15/35 255,000 267,023
5.75% 2/15/35 405,000 439,591
Knox County, Tennessee Health
Educational & Housing Facilities
Board Hospital Revenue (East
Tennessee Hospital Project)
Series B 5.75% 7/1/33 1,000,000 1,061,590
Louisiana Public Facilities Authority
Revenue (Ochsner Clinic
Foundation Project) Series B
5.50% 5/15/32 1,500,000 1,568,655
Lucas County, Ohio Health Care
Facility Revenue (Sunset
Retirement Communities)
Series A 6.625% 8/15/30 2,000,000 2,143,620
Maryland State Health & Higher
Education Facilities Authority
Revenue (Union Hospital Cecil
County Issue) 5.00% 7/1/40 2,345,000 2,401,538
Michigan State Hospital Finance
Authority Revenue
(Ascension Health Credit Group)
Series B 5.25% 11/15/26 3,500,000 3,680,670
(Oakwood Obligation Group)
Series A 5.75% 4/1/32 2,500,000 2,678,450
(Trinity Health Credit) Series C
5.375% 12/1/30 6,000,000 6,338,040
Missouri State Health & Educational
Facilities Authority Health
Facilities Revenue Refunding
(Lake Regional Health System
Project) 5.70% 2/15/34 500,000 531,130
Multnomah County, Oregon
Hospital Facilities Authority
Revenue (Providence Health
System) 5.25% 10/1/22 3,500,000 3,750,810
New York State Dormitory
Authority Revenue (Catholic
Health Services of Long Island -
St. Francis Hospital Project)
5.10% 7/1/34 2,500,000 2,562,750
North Carolina Medical Care
Commission Health Care
Facilities Revenue
(First Mortgage - Presbyterian
Homes) 5.40% 10/1/27 4,000,000 4,112,560
(Pennybryn at Mayfield Project)
Series A 6.125% 10/1/35 6,000,000 6,228,060
North Carolina Medical Care
Commission Hospital Revenue
(Northeast Medical Center Project)
5.125% 11/1/34 1,250,000 1,299,188
North Kansas City, Missouri
Hospital Revenue Series A
5.00% 11/15/28 (FSA) 500,000 523,510
Prince William County, Virginia
Industrial Development Authority
Hospital Revenue (Potomac
Hospital Corp.) 5.35% 10/1/36 1,750,000 1,860,233
Puerto Rico Industrial, Tourist,
Educational, Medical &
Environmental Control Facilities
Revenue (Hospital Auxilio Mutuo
Obligated Group) Series A
6.25% 7/1/24 (MBIA) 1,200,000 1,210,128
Shelby County, Tennessee Health
Educational & Housing Facilities
Board Revenue (Trezevant Manor
Project) Series A 5.625% 9/1/26 2,500,000 2,518,625
South Miami, Florida Health
Facilities Authority Hospital
Revenue (Baptist Health South
Florida Group) 5.25% 11/15/33 4,000,000 4,157,520
University Colorado Hospital
Authority Revenue Series A
5.25% 11/15/39 2,000,000 2,076,740
____________
120,147,292
____________
Housing Revenue Bonds - 2.46%
Franklin County, Ohio Multi Family
Revenue (Alger Green) Series A
5.80% 5/20/44 (GNMA) (AMT) 1,150,000 1,205,074
Illinois Development Finance
Authority Revenue (Section 8)
Series A 5.80% 7/1/28 (MBIA)
(FHA) 2,790,000 2,869,739
Illinois Housing Development
Authority Multi Family Revenue
(Crystal Lake Preservation)
Series A-1 5.80% 12/20/41
(GNMA) 2,000,000 2,115,060
Milwaukee, Wisconsin
Redevelopment Authority
Multifamily Revenue (City Hall
Square) 6.30% 8/1/38 (FHA)
(AMT) 1,455,000 1,507,947
Missouri State Housing
Development Commission
Mortgage Revenue Series C
7.45% 9/1/27 (GNMA) (FNMA)
(AMT) 110,000 111,848
(continues) 19
Statements of net assets
Delaware Tax-Free USA Fund
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Housing Revenue Bonds (continued)
Missouri State Housing
Development Commission
Mortgage Revenue Single Family
Homeowner
Loan A 5.20% 9/1/33 (GNMA)
(FNMA) (AMT) $ 285,000 $ 291,404
Loan A 7.20% 9/1/26 (GNMA)
(FNMA) (AMT) 80,000 81,720
Loan B 7.55% 9/1/27 (GNMA)
(FNMA) (AMT) 25,000 25,429
Loan C 7.25% 9/1/26 (GNMA)
(FNMA) (AMT) 115,000 116,783
Missouri State Housing
Development Commission
Multifamily Housing Revenue
(Hyder) Series 3 5.60% 7/1/34
(FHA) (AMT) 1,435,000 1,495,256
(San Remo) Series 5
5.45% 1/1/36 (FHA) (AMT) 500,000 517,510
New Mexico Mortgage Finance
Authority Revenue
Series B Class III 6.75% 7/1/25
(GNMA) (FNMA) 235,000 241,662
Series E 6.95% 1/1/26 (GNMA)
(FNMA) 195,000 197,088
North Dakota State Housing Finance
Agency Multifamily Revenue
Series A 6.15% 12/1/17 (FNMA) 1,300,000 1,324,713
Oregon Health, Housing,
Educational, & Cultural Facilities
Authority Revenue (Pier Park
Project) Series A 6.05% 4/1/18
(GNMA) (AMT) 1,095,000 1,097,113
Oregon State Housing &
Community Services Department
Mortgage Revenue Single Family
Mortgage Program Series R
5.375% 7/1/32 (AMT) 1,100,000 1,124,299
Santa Fe, New Mexico Single Family
Mortgage Revenue Series B -1
6.20% 11/1/16 (GNMA) (FNMA)
(AMT) 175,000 177,357
St. Louis County, Missouri Industrial
Development Authority
Housing Development Revenue
Refunding (Southfield &
Oak Forest Apartment-A)
5.20% 1/20/36 (GNMA) 1,000,000 1,025,760
Waukesha, Wisconsin Housing
Authority Multifamily Revenue
(Westgrove Woods) Series A
6.00% 12/1/31 (GNMA) (AMT) 1,500,000 1,530,285
___________
17,056,047
___________
Lease Revenue Bonds - 5.94%
Battery Park City, New York
Authority Revenue Series A
5.25% 11/1/22 2,250,000 2,432,363
California State Public Works Board
Lease Revenue (Department
of General Services-Butterfield
Street) Series A 5.25% 6/1/30 2,750,000 2,908,840
Chesterfield, Missouri Certificates
of Participation 5.00% 12/1/24
(FGIC) 1,000,000 1,057,980
Golden State, California Tobacco
Securitization Corporation
Settlement Revenue Series A
5.00% 6/1/21 (AMBAC) 1,000,000 1,051,020
Loudoun County, Virginia Industrial
Development Authority Public
Safety Facility Lease Revenue
Series A 5.25% 12/15/23 (FSA) 700,000 755,832
Missouri State Development Finance
Board Infrastructure Facilities
Revenue (Branson Landing
Project) Series A
5.25% 12/1/19 1,435,000 1,497,509
5.50% 12/1/24 2,480,000 2,621,459
5.625% 12/1/28 2,930,000 3,118,780
(Crackerneck Creek Project)
Series C 5.00% 3/1/26 500,000 512,090
(Sewer System Improvement
Project) Series C
5.00% 3/1/25 605,000 619,659
New York City, New York Industrial
Development Agency Revenue
(Yankee Stadium Project - Pilot)
4.75% 3/1/46 (MBIA) 3,000,000 3,045,360
Oregon State Department of
Administrative Services
Certificates of Participation
Refunding Revenue
Series A 5.00% 5/1/30 (FSA) 500,000 522,675
Series C 5.25% 11/1/15 (MBIA) 1,000,000 1,073,610
Puerto Rico Commonwealth
Industrial Development
Company General Purpose
Revenue Series B 5.375% 7/1/16 1,000,000 1,031,040
Puerto Rico Public Buildings
Authority Revenue (Guaranteed
Government Facilities)
Series I 5.25% 7/1/33 12,000,000 12,535,440
~ Series J 5.00%7/1/36 (AMBAC) 2,000,000 2,129,260
St. Charles County, Missouri Public
Water Supply District #2 Revenue
Certificate of Participation
(Missouri Project)
Series A 5.25% 12/1/28 (MBIA) 1,000,000 1,056,660
Series B 5.10% 12/1/25 (MBIA) 500,000 516,635
20
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Lease Revenue Bonds (continued)
St. Louis, Missouri College
District Leasehold Revenue
5.00% 3/1/23 (AMBAC) $ 1,000,000 $ 1,057,060
^ St. Louis, Missouri Industrial
Development Authority
Leasehold Revenue (Convention
Center Hotel) 5.80% 7/15/20
(AMBAC) 3,035,000 1,654,894
___________
41,198,166
___________
Local General Obligation Bonds - 7.72%
Benton & Linn Counties, Oregon
School District #509J (Corvallis)
5.00% 6/1/21 (FSA) 1,000,000 1,055,250
Boerne, Texas Independent School
District Building
5.25% 2/1/27 (PSF) 4,000,000 4,254,760
5.25% 2/1/29 (PSF) 2,960,000 3,145,089
Clackamas County, Oregon
School District #86 (Canby)
5.00% 6/15/25 (FSA) 500,000 530,810
Des Peres, Missouri Refunding
5.375% 2/1/20 (AMBAC) 1,000,000 1,102,290
Deschutes County, Oregon
Refunding 5.00% 12/1/16 (FSA) 500,000 532,815
Greene County, Missouri
Reorganization School District
R8 (Direct Deposit Project)
5.10% 3/1/22 (FSA) 1,500,000 1,585,590
Henderson, Nevada Local
Improvement Districts #T-18
5.30% 9/1/35 3,475,000 3,518,855
Jackson County, Missouri Special
Obligation 5.50% 12/1/17
(MBIA) 845,000 924,438
Jefferson County, Oregon School
District #509J 5.00% 6/15/22
(FGIC) 500,000 526,635
Lammersville, California School
District Community Facilities
District #2002 (Mountain House)
5.125% 9/1/35 3,750,000 3,790,950
Lane County, Oregon School District
#19 (Springfield) Refunding
6.00% 10/15/14 (FGIC) 500,000 577,855
Lewisville, Texas Independent School
District 6.15% 8/15/21 (PSF) 2,160,000 2,306,210
Lincoln County, Oregon School
District 5.25% 6/15/12 (FGIC) 700,000 728,742
Melrose Park, Illinois Tax Increment
Series B 6.00% 12/15/19 (FSA) 1,250,000 1,359,663
New York City, New York
Series G 5.00% 12/1/33 4,900,000 5,089,189
Series H 6.125% 8/1/25 315,000 324,771
Series I 5.00% 8/1/21 2,500,000 2,625,700
Series I 5.125% 3/1/23 5,875,000 6,176,211
Series J 5.00% 3/1/35 4,000,000 4,155,720
Series J 5.25% 6/1/28 5,400,000 5,718,492
Portland River, Oregon
District Urban Renewal &
Redevelopment Interstate
Corridor Series A 5.00% 6/15/23
(AMBAC) 250,000 262,975
Powell, Ohio 5.50% 12/1/32 (FGIC) 2,000,000 2,167,780
Taney County, Missouri
Reorganization School
District R-V (Hollister School
District Direct Deposit Project)
5.00% 3/1/22 (FSA) 1,000,000 1,051,770
^ Umatilla County, Oregon School
District #6 R Umatilla Refunding
5.50% 12/15/22 (AMBAC) 200,000 98,434
___________
53,610,994
___________
$ Pre-Refunded Bonds - 8.14%
Alexandria, Virginia Industrial
Development Authority Revenue
(Institute for Defense Analyses)
Series A 5.90% 10/1/30-10
(AMBAC) 6,000,000 6,579,720
Deschutes County, Oregon
Administrative School District
#1 Series A 5.125% 6/15/21-11
(FSA) 1,000,000 1,065,800
Deschutes County, Oregon Hospital
Facilities Authority Hospital
Revenue (Cascade Health
Services) 5.60% 1/1/32-12 1,250,000 1,362,988
Golden State, California Tobacco
Securitization Corporation
Settlement Revenue Series B
5.50% 6/1/43-13 8,500,000 9,397,939
5.625% 6/1/38-13 7,500,000 8,347,800
Illinois Educational Facilities
Authority Student Housing
Revenue (Educational
Advancement Fund - University
Center Project) 6.25% 5/1/34-07 500,000 506,805
Jackson, Oregon School District #6
Central Point 5.25% 6/15/20-10
(FGIC) 1,175,000 1,243,326
Jackson, Ohio Local School District
(Stark & Summit Counties)
School Facilities Construction &
Improvement 5.625% 12/1/25-
10 (FSA) 1,000,000 1,079,000
Liberty, Missouri Sewer System
Revenue 6.15% 2/1/15-09
(MBIA) 1,500,000 1,589,115
Linn County, Oregon Community
School District #9 Lebanon
5.60% 6/15/30-13 (FGIC) 2,000,000 2,228,320
(continues) 21
Statements of net assets
Delaware Tax-Free USA Fund
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Pre-Refunded Bonds (continued)
Maryland State Economic
Development Corporation,
Student Housing Revenue
(University of Maryland College
Park Project) 5.625% 6/1/35-13 $ 1,125,000 $ 1,245,308
Mississippi Development Bank
Special Obligation (Madison
County Hospital Project)
6.30% 7/1/22-09 2,070,000 2,254,499
New York City, New York Series H
6.125% 8/1/25-07 4,685,000 4,842,885
Oregon State Department of
Administrative Services
Certificates of Participation
Series A 5.80% 5/1/24-07
(AMBAC) 1,000,000 1,024,710
Payne County, Oklahoma Economic
Development Authority Student
Housing Revenue (Collegiate
Housing Foundation-Oklahoma
State University) Series A
6.375% 6/1/30-11 4,000,000 4,460,960
Puerto Rico Commonwealth Public
Improvement
5.125% 7/1/30-11 (FSA) 920,000 982,321
5.375% 7/1/21-07 (MBIA) 50,000 51,521
Series A 5.125% 7/1/31-11 3,495,000 3,731,751
Puerto Rico Housing, Bank
& Finance Agency Single
Family Mortgage Revenue
6.25% 4/1/29-07 (GNMA)
(FNMA) (FHLMC) (AMT) 1,240,000 1,255,599
Southeast Wisconsin Professional
Baseball Park District Sales Tax
Revenue 5.80% 12/15/26-07
(MBIA) 1,000,000 1,021,720
Vancouver, Washington Limited Tax
5.50% 12/1/25-10 (AMBAC) 1,250,000 1,341,625
Wisconsin Housing & Economic
Developing Authority Revenue
6.10% 6/1/21-17 (FHA) 800,000 884,976
___________
56,498,688
___________
Special Tax Bonds - 5.36%
Bi-State Development Agency
Missouri - Illinois Metropolitan
District (Metrolink Cross County
Project) Series B 5.00% 10/1/32
(FSA) 2,000,000 2,085,260
Florida Hurricane Catastrophe Fund
Financial Corporation Revenue
Series A 5.00% 7/1/12 2,500,000 2,668,325
Jackson County, Missouri Special
Obligation 5.00% 12/1/27
(MBIA) 1,000,000 1,049,680
Middlesex County, New Jersey
Improvement Authority Senior
Revenue (Heldrich Center Hotel/
Conference Project) Series A
5.00% 1/1/32 1,500,000 1,492,425
5.125% 1/1/37 1,500,000 1,507,470
New Jersey Economic Development
Authority (Cigarette Tax)
5.50% 6/15/31 1,000,000 1,049,340
5.75% 6/15/34 2,000,000 2,130,920
New York City, New York
Transitional Finance Authority
Series D 5.00% 2/1/31 5,000,000 5,195,700
New York State Dormitory
Authority State Personal
Income Tax Revenue Education
5.00% 3/15/31 5,200,000 5,471,856
New York State Sales Tax
Asset Receivables Series A
5.25% 10/15/27 (AMBAC) 1,000,000 1,080,510
Puerto Rico Convention Center
District Authority Revenue (Hotel
Occupancy Tax) 5.00% 7/1/31
(AMBAC) 6,250,000 6,636,125
Tampa, Florida Sports Authority
Revenue Sales Tax (Tampa Bay
Arena Project) 5.75% 10/1/20
(MBIA) 1,000,000 1,164,760
Truth or Consequences, New
Mexico Gross Receipts Tax
Revenue 6.30% 7/1/16 1,000,000 1,001,820
Westminster, Colorado Sales & Use
Tax Revenue (Sales Tax Revenue
Project) Series A 5.60% 12/1/16 4,500,000 4,688,055
___________
37,222,246
___________
State General Obligation Bonds - 12.11%
California State
5.00% 2/1/26 (AMBAC) 5,570,000 5,819,369
5.00% 2/1/33 6,350,000 6,550,025
5.25% 2/1/30 (MBIA) 3,500,000 3,711,050
Illinois State Series A 5.00% 3/1/34 7,000,000 7,259,070
Maryland State & Local Facilities
Land Capital Improvement
Series A
5.00% 8/1/11 5,000,000 5,327,300
5.00% 3/1/12 8,000,000 8,567,520
5.25% 3/1/13 10,000,000 10,947,500
5.50% 8/1/14 5,000,000 5,620,600
Pennsylvania State First Series
5.00% 7/1/11 5,955,000 6,320,161
5.00% 7/1/13 3,000,000 3,236,250
Puerto Rico Commonwealth Public
Improvement
5.125% 7/1/30 (FSA) 965,000 1,011,368
5.25% 7/1/27 (FSA) 705,000 745,248
22
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
State General Obligation Bonds (continued)
Series A 5.125% 7/1/31 $ 7,880,000 $ 8,058,640
Series A 5.25% 7/1/23 500,000 529,400
Series A 5.50% 7/1/19 (MBIA) 9,000,000 10,339,380
___________
84,042,881
___________
Transportation Revenue Bonds - 5.50%
Bay Area, California Toll Authority
Revenue Series F 5.00% 4/1/31 7,100,000 7,489,577
Capital Trust Agency Florida
Revenue
(Fort Lauderdale/Cargo
Acquisition Project)
5.75% 1/1/32 (AMT) 3,750,000 3,921,263
(Orlando/Cargo Acquisition
Project) 6.75% 1/1/32 (AMT) 2,395,000 2,579,008
Dallas-Fort Worth, Texas
International Airport Revenue
Series A 5.50% 11/1/31 (FGIC)
(AMT) 1,500,000 1,597,875
Grapevine, Texas Industrial
Development Corporate Revenue
(Air Cargo) 6.50% 1/1/24 (AMT) 920,000 991,797
Houston, Texas Industrial
Development Corporate Revenue
(Air Cargo) 6.375% 1/1/23
(AMT) 2,000,000 2,142,740
Metropolitan, New York
Transportation Authority
Revenue Refunding Series A
5.00% 11/15/30 (FSA) 3,000,000 3,132,390
Pennsylvania State Turnpike
Commission Revenue Series A
5.00% 12/1/34 (AMBAC) 500,000 523,530
Port of Oakland, California Revenue
Series K 5.75% 11/1/29 (FGIC)
(AMT) 3,500,000 3,703,700
Puerto Rico Commonwealth
Highway & Transportation
Authority Revenue Series K
5.00% 7/1/35 2,500,000 2,558,100
South Carolina Transportation
Infrastructure Revenue Series A
5.00% 10/1/33 (AMBAC) 7,500,000 7,796,474
St. Louis, Missouri Airport Revenue
(Capital Improvement Project)
Series A 5.375% 7/1/21 (MBIA) 1,635,000 1,749,957
___________
38,186,411
___________
Water & Sewer Revenue Bonds - 5.22%
Augusta, Georgia Water & Sewer
Revenue 5.25% 10/1/34 (FSA) 4,375,000 4,688,513
Clovis, California Public Financing
Authority Wastewater Revenue
5.25% 8/1/30 (MBIA) 1,000,000 1,080,090
Fulton County, Georgia Water &
Sewer Revenue 5.25% 1/1/35
(FGIC) 1,000,000 1,065,300
Metropolitan St. Louis, Missouri
Sewer District Wastewater
Revenue Series A 5.00% 5/1/34
(MBIA) 1,250,000 1,305,313
Missouri State Environmental
Improvement & Energy Resource
Authority Water Pollution
Control Revenue Unrefunded
Balance (State Revolving Fund
Project) Series A 6.05% 7/1/16
(FSA) 1,060,000 1,062,056
New York City, New York Municipal
Water Finance Authority Water &
Sewer System Revenue
Series A 5.125% 6/15/34 12,125,000 12,720,700
Series A 5.25% 6/15/34 3,705,000 3,930,190
Series B 5.00% 6/15/23 (FSA) 1,000,000 1,057,040
Portland, Oregon Sewer Systems
Revenue (Second Lien)
Series A 5.00% 6/1/23 (FSA) 325,000 341,783
Series B 5.00% 6/15/27 (MBIA) 1,000,000 1,061,130
Sacramento County, California
Sanitation District Financing
Authority Revenue
5.00% 12/1/36 (FGIC) 4,000,000 4,222,440
Virgin Islands Water & Power
Authority Water System Revenue
5.50% 7/1/17 510,000 525,479
West Virginia State Water
Development Authority Revenue
(Loan Program III) Series A
6.375% 7/1/39 (AMBAC) (AMT) 2,890,000 3,162,267
____________
36,222,301
____________
Total Municipal Bonds (cost $650,673,277) 684,160,439
____________
________________________________________________________________________________
~ Variable Rate Demand Notes - 0.49%
________________________________________________________________________________
Alexandria, Virginia Industrial
Development Authority
(Institutional Defense Analyses
Project) 3.44% 10/1/30 (AMBAC) 1,925,000 1,925,000
New Jersey Health Care Facilities
Financing Authority Revenue
(Computer Program) Series A1
3.38% 7/1/30 1,500,000 1,500,000
____________
Total Variable Rate Demand Notes
(cost $3,425,000) 3,425,000
____________
Total Market Value of Securities - 99.06%
(cost $654,098,277) 687,585,439
Receivables and Other Assets
Net of Liabilities - 0.94% 6,526,425
____________
Net Assets Applicable to 59,979,087
Shares Outstanding - 100.00% $694,111,864
____________
(continues) 23
Statements of net assets
Delaware Tax-Free USA Fund
________________________________________________________________________________
________________________________________________________________________________
Net Asset Value - Delaware Tax-Free USA Fund Class A
($656,813,443 / 56,755,557 Shares) $11.57
______
Net Asset Value - Delaware Tax-Free USA Fund Class B
($22,188,800 / 1,918,042 Shares) $11.57
______
Net Asset Value - Delaware Tax-Free USA Fund Class C
($15,109,621 / 1,305,488 Shares) $11.57
______
Components of Net Assets at August 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $666,215,275
Distributions in excess of net investment income (12,071)
Accumulated net realized loss on investments (5,578,502)
Net unrealized appreciation of investments 33,487,162
____________
Total net assets $694,111,864
____________
$ 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."
~ Variable rate security. The interest rate shown is the rate as of August 31,
2006.
@ Illiquid security. At August 31, 2006, the aggregate amount of illiquid
securities equals $208,000, which represented 0.03% of the Fund's net assets.
See Note 8 in "Notes to Financial Statements."
^ Zero coupon security. The interest rate shown is the yield at the time of
purchase.
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
CDFI - Community Development Financial Institutions
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
PSF - Insured by Permanent School Fund
RADIAN - Insured by Radian Asset Assurance
XLCA - Insured by XL Capital Assurance
Net Asset Value and Offering Price Per Share -
Delaware Tax-Free USA Fund
Net asset value Class A (A) $11.57
Sales charge (4.50% of offering price) (B) 0.55
______
Offering price $12.12
______
(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
24
Delaware Tax-Free USA Intermediate Fund
August 31, 2006
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds - 96.43%
________________________________________________________________________________
Corporate Revenue Bonds - 6.35%
Alliance Airport Authority, Texas
Special Facilities Revenue
(Federal Express Corp. Project)
4.85% 4/1/21 (AMT) $ 2,000,000 $ 2,015,180
Brazos, Texas River Authority
Pollution Control Revenue (Texas
Utilities) 5.40% 5/1/29 (AMT) 1,000,000 1,035,000
Cartersville, Georgia Development
Authority Waste & Wastewater
Facilities Revenue (Anheuser
Busch Project) 5.10% 2/1/12
(AMT) 450,000 474,552
Connecticut State Development
Authority Pollution Control
Revenue (Connecticut Light &
Power) Series A
~ 3.35% 5/1/31 (AMBAC) (AMT) 1,300,000 1,283,113
5.85% 9/1/28 1,145,000 1,199,204
~ Farmington, New Mexico Pollution
Control Revenue (El Paso
Electric Co. Project) Series A
4.00% 6/1/32 (FGIC) 1,000,000 1,000,870
~ Forsyth, Montana Pollution Control
Revenue (Portland General
Project) Series A 5.20% 5/1/33 1,005,000 1,033,029
Indianapolis, Indiana Airport
Authority Revenue Special
Facilities (Federal Express Corp.
Project) 5.10% 1/15/17 (AMT) 750,000 787,118
Michigan State Strategic Funding
Limited Obligation Revenue
(Detroit Edison Co. Project)
Series A 5.50% 6/1/30 (XLCA)
(AMT) 1,000,000 1,073,030
Ohio State Air Quality Development
Authority Revenue
Environmental Improvement
(USX Project) 5.00% 11/1/15 1,000,000 1,051,490
Prattville, Alabama Industrial
Development Board
Environmental Improvement
Revenue (International Paper Co.
Project) Series A 6.70% 3/1/24
(AMT) 1,000,000 1,075,540
~ Sabine, Texas River Authority
Pollution Control Revenue (TXU
Electric Co. Project) Series A
5.50% 5/1/22 1,000,000 1,060,470
South Carolina Jobs Economic
Development Authority Industrial
Revenue (South Carolina Electric
& Gas Co. Project) Series B
5.45% 11/1/32 (AMBAC) (AMT) 500,000 529,380
Sugar Creek, Missouri Industrial
Development Revenue (Lafarge
North America Project) Series A
5.65% 6/1/37 (AMT) 500,000 520,465
Toledo, Lucas County, Ohio
Port Authority Development
Revenue (Northwest Ohio Bond
Fund - Alex Products, Inc.)
Series B 6.125% 11/15/09 (AMT) 755,000 784,445
___________
14,922,886
___________
Education Revenue Bonds - 7.42%
California Municipal Finance
Authority Educational Revenue
(American Heritage Education
Foundation Project) Series A
5.25% 6/1/26 1,000,000 1,027,190
Chattanooga, Tennessee Health
Educational & Housing
Facilities Board Revenue (CDFI
Phase I, LLC Project) Series B
5.50% 10/1/20 1,280,000 1,322,470
Fulton County, Georgia
Development Authority Revenue
(Molecular Science Building
Project) 5.25% 5/1/21 (MBIA) 1,000,000 1,082,460
Illinois Educational Facilities
Authority Student Housing
Revenue (Educational
Advancement Fund - University
Center Project) 6.00% 5/1/22 750,000 811,688
Illinois Financial Authority Revenue
(Illinois Institute of Technology)
Series A 5.00% 4/1/36 825,000 844,206
Massachusetts State Health &
Educational Facilities Authority
Revenue (Nichols College Project)
Series C 6.125% 10/1/29 1,000,000 1,054,340
Michigan Higher Education Facilities
Authority Revenue (Kalamazoo
College Project) 5.50% 12/1/19 500,000 535,255
New Jersey State Educational Facilities
Authority Revenue (Georgian
Court College Project) Series C
6.50% 7/1/33 500,000 557,450
New York State Dormitory Authority
Revenue
(Brooklyn Law School) Series A
5.50% 7/1/18 (RADIAN) 1,000,000 1,083,260
(Fashion Institute Student
Housing Corp.) 5.00% 7/1/13
(FGIC) 1,000,000 1,079,380
(continues) 25
Statements of net assets
Delaware Tax-Free USA Intermediate Fund
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Education Revenue Bonds (continued)
(Long Island University) Series B
5.50% 9/1/20 (RADIAN) $ 1,000,000 $ 1,077,830
Ohio State Higher Educational
Facility Revenue
(John Carroll University)
5.50% 11/15/18 335,000 366,078
~ (Kenyon College Project)
4.70% 7/1/37 1,000,000 1,036,180
Ohio State University General
Receipts Revenue Series B
5.25% 6/1/21 1,000,000 1,075,690
Pennsylvania State Higher Educational
Facilities Authority College &
University Revenue (Geneva
College Project) 6.125% 4/1/22 1,000,000 1,073,020
Tulsa, Oklahoma Industrial
Authority Student Housing
Revenue (University of Tulsa)
5.00% 10/1/37 1,000,000 1,021,660
University of California Revenue
Series A 5.125% 5/15/20
(AMBAC) 250,000 269,355
University of Oklahoma Research
Facilities Revenue 5.00% 3/1/23
(AMBAC) 1,065,000 1,117,664
University of Puerto Rico Revenue
Series M 5.50% 6/1/15 (MBIA) 1,000,000 1,008,940
___________
17,444,116
___________
Electric Revenue Bonds - 4.84%
Lower Colorado River Authority
Texas Revenue Refunding
Series A 5.875% 5/15/17
(AMBAC) 3,000,000 3,190,380
Metropolitan Government Nashville
& Davidson County, Tennessee
Electric Revenue Series B
5.50% 5/15/14 1,000,000 1,113,280
Oliver County North Dakota
Pollution Control Revenue
(Square Butte Electric Coop)
Series A 5.30% 1/1/27 (AMBAC) 1,500,000 1,571,595
Orlando, Florida Utilities
Commission Water & Electric
Revenue 5.25% 10/1/20 1,500,000 1,611,300
Philadelphia, Pennsylvania Gas
Works Revenue First Series A
5.375% 7/1/15 (FSA) 2,000,000 2,055,880
South Carolina State Public Service
Authority Revenue Refunding
Series A 5.125% 1/1/21 (FSA) 1,000,000 1,068,910
Texas Municipal Power Agency
Revenue 4.00% 9/1/11 (AMBAC) 750,000 752,168
___________
11,363,513
___________
Escrowed to Maturity Bonds - 0.08%
Southcentral, Pennsylvania General
Authority Revenue Refunding
(Wellspan Health Obligated
Project) 5.625% 5/15/26 180,000 195,205
___________
195,205
___________
Health Care Revenue Bonds - 15.16%
Apple Valley, Minnesota Economic
Development Authority Health
Care Revenue (Evercare Senior
Living LLC Projects) Series A
6.00% 12/1/25 1,000,000 1,006,880
California Health Facilities Financing
Authority Revenue Insured
(California-Nevada- Methodist)
5.00% 7/1/26 1,745,000 1,832,721
California Statewide Communities
Development Authority
Revenue (Kaiser Permenante)
5.25% 3/1/45 2,000,000 2,090,521
Chatham County, Georgia Hospital
Authority Revenue (Memorial
Health Medical Center) Series A
6.125% 1/1/24 1,000,000 1,089,700
Cleveland-Cuyahoga County,
Ohio Port Authority Revenue
(Saint Clarence-Geac) Series A
6.125% 5/1/26 715,000 726,497
Cuyahoga County, Ohio Revenue
(Cleveland Clinic Health System)
Series A 6.00% 1/1/21 1,000,000 1,117,540
Duluth, Minnesota Economic
Development Authority
Health Care Facilities Revenue
(Benedictine Health System St.
Mary's Hospital) 5.50% 2/15/23 1,000,000 1,070,240
Florence County, South Carolina
Hospital Revenue (McLeod
Regional Medical Center Project)
Series A 5.25% 11/1/27 (FSA) 1,000,000 1,066,560
~ Highlands County, Florida Health
Facilities Authority Revenue
(Adventist Health System) Series I
5.00% 11/15/29 2,000,000 2,059,960
Illinois Financial Authority Revenue
Series A
(Luther Oaks Project)
6.00% 8/15/26 850,000 886,856
(Clare Oaks Project)
6.00% 11/15/27 2,000,000 2,055,100
Indiana Health Facility Financing
Authority Hospital Revenue
(Deaconess Hospital Obligation)
Series A 5.375% 3/1/29
(AMBAC) 700,000 749,889
26
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Health Care Revenue Bonds (continued)
Lancaster County, Pennsylvania
Hospital Authority Revenue
(Lancaster General Hospital
Project) 5.75% 3/15/21 $ 1,000,000 $ 1,094,550
Lawrence, Kansas Hospital Authority
Revenue 5.125% 7/1/36 2,000,000 2,082,980
Maple Grove, Minnesota Health
Care Facilities Revenue (North
Memorial Health Care)
5.00% 9/1/29 2,000,000 2,065,120
Maryland State Health & Higher
Education Facilities Authority
Revenue (Union Hospital of Cecil
County) 5.625% 7/1/32 500,000 530,520
Michigan State Hospital Finance
Authority Revenue
(Henry Ford Health System)
Series A 5.25% 11/15/46 1,000,000 1,048,410
(Trinity Health Credit) Series C
5.375% 12/1/23 500,000 527,330
Minneapolis, Minnesota Health
Care System Revenue (Allina
Health Systems) Series A
5.75% 11/15/32 500,000 536,775
Multnomah County, Oregon
Hospital Facilities Authority
Revenue (Providence Health
System) 5.25% 10/1/22 1,000,000 1,071,660
New Hampshire Health & Education
Facilities Authority Revenue
(Elliot Hospital) Series B
5.60% 10/1/22 1,000,000 1,073,630
North Carolina Medical Care
Commission Health Care
Facilities Revenue
(First Mortgage - Presbyterian
Homes) 5.40% 10/1/27 1,200,000 1,233,768
(Pennybryn at Mayfield Project)
Series A 6.125% 10/1/35 1,700,000 1,764,617
North Texas Health Facilities
Development Corporation
Hospital Revenue (United
Regional Health Care System,
Inc. Project) 6.00% 9/1/23 1,000,000 1,088,910
Shelby County, Tennessee Health
Educational & Housing Facilities
Board Revenue (Trezvan Manor
Project) Series A 5.75% 9/1/37 1,000,000 1,005,740
St. Mary Hospital Authority
Pennsylvania Health System
Revenue (Catholic Health East)
Series A 5.25% 11/15/16 1,200,000 1,282,236
St. Paul, Minnesota Housing &
Redevelopment Authority
Hospital Revenue (Health East
Project) 6.00% 11/15/25 1,000,000 1,105,210
Suffolk, Virginia Industrial
Development Authority
Retirement Facilities Revenue
(First Mortgage - Lake Prince)
5.15% 9/1/24 725,000 732,054
Terrebonne Parish, Louisiana
Hospital Service District #1
Hospital Revenue (Terrebonne
General Medical Center Project)
5.50% 4/1/33 (AMBAC) 1,500,000 1,627,905
___________
35,623,879
___________
Lease Revenue Bonds - 5.31%
Albany, New York Industrial
Development Agency Civic
Facility Revenue (Charitable
Leadership Project) Series A
5.75% 7/1/26 500,000 518,950
California State Public Works Board
Lease Revenue (Department
of General Services Butterfield
Street) Series A 5.25% 6/1/25 1,000,000 1,073,500
Golden State, California Tobacco
Securitization Corporation
Settlement Revenue
Series A 5.00% 6/1/18 2,000,000 2,034,240
Series A 5.00% 6/1/21 (AMBAC) 1,000,000 1,051,020
Michigan State Building Authority
Revenue Series I 5.50% 10/15/18 2,175,000 2,344,389
Missouri State Development Finance
Board Infrastructure Facilities
Revenue (Crackerneck Creek
Project) Series C 5.00% 3/1/28 1,600,000 1,650,672
New York State Municipal Bond
Bank Agency Special School
Purpose Revenue Series C
5.25% 6/1/22 1,000,000 1,070,190
New York City, New York Industrial
Development Agency Revenue
(Yankee Stadium Project - Pilot)
4.75% 3/1/46 (MBIA) 1,000,000 1,015,120
~ Puerto Rico Public Buildings
Authority Revenue (Government
Facilities) Series J 5.00% 7/1/28 1,000,000 1,042,790
~ Puerto Rico Public Finance
Corporate Revenue Series A
5.25% 8/1/29 (MBIA) 620,000 665,031
___________
12,465,902
___________
Local General Obligation Bonds - 15.03%
Baywinds Community
Development District Florida
Special Assessment Series B
4.90% 5/1/12 1,000,000 1,010,630
Belton, Missouri School District
#124 Series B 5.25% 3/1/23 1,000,000 1,085,200
(continues) 27
Statements of net assets
Delaware Tax-Free USA Intermediate Fund
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Local General Obligation Bonds (continued)
Boerne, Texas Independent School
District Building
5.25% 2/1/26 $ 4,495,000 $ 4,781,287
5.25% 2/1/29 (PSF) 1,500,000 1,593,795
East Homestead Community
Development District Florida
Special Assessment Revenue
Series B 5.00% 5/1/11 500,000 504,415
Florida State Board Education Capital
Outlay Public Education Series D
5.75% 6/1/22 2,000,000 2,153,940
Lansing, Michigan Community
College (College Building and
Site) 5.00% 5/1/21 (MBIA) 1,325,000 1,394,271
Licking County, Ohio Joint
Vocational School District School
Facilities Construction and
Improvement 5.00% 12/1/19
(MBIA) 1,000,000 1,060,150
Los Angeles, California Unified
School District Election 2004
Series G 5.00% 7/1/13 (AMBAC) 2,000,000 2,171,340
Lunenburg County, Virginia Series B
5.25% 2/1/29 (MBIA) 715,000 771,506
Mecklenburg County, North
Carolina Public Improvement
Series A 5.00% 2/1/11 4,775,000 5,056,582
Middlesex County, New Jersey
Improvement Authority Revenue
(County Guaranteed Open Space
Trust) 5.25% 9/15/20 1,000,000 1,085,270
Modesto, California Special Tax
Community Facilities District
#04-1 Village 2 5.15% 9/1/36 1,500,000 1,513,425
New York City, New York
Series G 5.25% 8/1/15 1,000,000 1,081,300
Series I 5.00% 8/1/21 1,000,000 1,050,280
Series J 5.00% 3/1/35 2,000,000 2,077,860
Series J 5.50% 6/1/23 990,000 1,071,239
Paseo, Florida Community
Development District Capital
Improvement Revenue Series B
4.875% 5/1/10 1,000,000 1,007,610
Powell, Ohio 5.50% 12/1/25 (FGIC) 1,500,000 1,625,835
Richmond Heights, Missouri Tax
Increment & Transaction Sales
Tax Revenue Refunding &
Improvement (Francis Place
Redevelopment Project)
5.625% 11/1/25 1,200,000 1,213,800
St. Joseph, Missouri Industrial
Development Authority Tax
Increment Revenue (Shoppes at
North Village Project)
Series A 5.10% 11/1/19 500,000 501,055
Series B 5.375% 11/1/23 1,000,000 1,009,790
Texas Water Development Board
Revenue (State Revolving
Federal-Senior Lien) Series B
5.25% 7/15/17 500,000 502,700
___________
35,323,280
___________
$ Pre-Refunded Bonds - 7.02%
Arizona State Transportation
Board Highway Revenue
6.25% 7/1/16-09 1,850,000 1,983,145
Cook County, Illinois Series A
5.375% 11/15/21-11 (FGIC) 2,160,000 2,323,015
Forest Grove, Oregon Revenue
Campus (Pacific University)
6.30% 5/1/25-10 (RADIAN) 1,000,000 1,091,980
Golden State, California
Tobacco Securitization
Settlement Revenue Series B
5.75% 6/1/23-08 1,000,000 1,037,780
New York City, New York Series J
5.50% 6/1/23-13 10,000 11,096
Pennsylvania State First
Series 5.125% 1/15/19-11 3,515,000 3,758,976
Pennsylvania State Higher Educational
Facilities Authority College &
University Revenue (Ursinus
College Project) 5.90% 1/1/27-07 1,000,000 1,027,480
Puerto Rico Commonwealth
Highway & Transportation
Authority Revenue Series J
5.50% 7/1/21-14 1,000,000 1,116,700
Southcentral, Pennsylvania General
Authority Revenue (Welllspan
Health Obligated Project)
5.625% 5/15/26-11 820,000 896,121
University of North Carolina
Revenue Series A
5.375% 12/1/14-11 2,000,000 2,152,260
Virginia State Resource Authority
Clean Water Revenue
(State Revolving Fund)
6.00% 10/1/16-10 1,000,000 1,091,740
___________
16,490,293
___________
Resource Recovery Bonds - 0.64%
Pennsylvania Economic
Development Financing
Authority Resource Recovery
Revenue (Subordinate
Colver Project) Series G
5.125% 12/1/15 (AMT) 1,500,000 1,499,220
___________
1,499,220
___________
28
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Special Tax Bonds - 9.47%
Baltimore, Maryland Convention
Center Hotel Revenue
Subordinated Series B
5.00% 9/1/16 $ 1,200,000 $ 1,214,700
Casa Grande, Arizona Excise Tax
Revenue 5.00% 4/1/22 (AMBAC) 1,600,000 1,694,592
Florida Hurricane Catastrophe Fund
Financial Corporation Revenue
Series A 5.00% 7/1/12 2,500,000 2,668,325
Hampton, Virginia Convention
Center Revenue 5.25% 1/15/23
(AMBAC) 1,000,000 1,067,040
Metropolitan Pier and Exposition
Authority Illinois (McCormick
Place Expansion Project) Series D
5.50% 12/15/24 (FGIC) 2,000,000 2,126,200
Middlesex County, New Jersey
Improvement Authority Senior
Revenue (Heldrich Center
Hotel/Conference Project) Series A
5.00% 1/1/32 1,000,000 994,950
New Jersey Economic Development
Authority (Cigarette Tax)
5.50% 6/15/31 1,000,000 1,049,340
5.625% 6/15/18 2,500,000 2,603,025
~ New York City, New York
Transitional Finance Authority
Revenue Refunding - Future Tax
Secured Series A 5.50% 11/1/26 1,000,000 1,079,650
New York State Dormitory
Authority State Personal
Income Tax Revenue Education
5.00% 3/15/31 1,830,000 1,925,672
New York State Sales Tax
Asset Receivables Series A
5.25% 10/15/27 (AMBAC) 1,000,000 1,080,510
Westminster, Colorado Sales & Use
Tax Revenue (Sales Tax Revenue
Project) Series A 5.60% 12/1/16 1,500,000 1,562,685
Wyandotte County, Kansas City,
Kansas Unified Government
Special Obligation Revenue
Refunding-Sales Tax-2nd
Lien-Area B 5.00% 12/1/20 1,500,000 1,559,010
Wyoming State Loan & Investment
Board Facilities Revenue
5.00% 10/1/24 1,550,000 1,633,654
___________
22,259,353
___________
State General Obligation Bonds - 17.26%
California State
5.00% 2/1/26 (AMBAC) 1,500,000 1,567,155
5.00% 2/1/33 1,850,000 1,908,275
5.25% 11/1/17 1,000,000 1,077,810
5.25% 2/1/30 (MBIA) 1,500,000 1,590,450
California State Economic Recovery
Series A 5.25% 7/1/14 1,000,000 1,102,730
Florida State Board Education
Capital Outlay (Public Education)
Series B
5.00% 1/1/09 2,500,000 2,580,650
5.00% 6/1/10 750,000 786,675
Georgia State Series D
5.00% 7/1/11 6,865,000 7,304,772
Maryland State & Local Facilities
Land Capital Improvement
Series A
5.00% 3/1/12 2,000,000 2,141,880
5.25% 3/1/13 2,500,000 2,736,875
Minnesota State Refunding Various
Purposes 5.00% 6/1/13 1,000,000 1,023,480
North Carolina Public Improvement
Series A 5.00% 3/1/12 4,000,000 4,283,760
Pennsylvania State Third
Series 5.00% 7/1/09 2,885,000 2,996,273
Puerto Rico Commonwealth
Public Improvement Series A
5.25% 7/1/23 1,125,000 1,191,150
~ Puerto Rico Commonwealth
Series A 5.00% 7/1/30 1,000,000 1,042,790
Puerto Rico Public Buildings
Authority Revenue Government
Facility Series I 5.50% 7/1/23 2,000,000 2,168,440
~ Puerto Rico Public Finance
Corporation Commonwealth
Appropriation (LOC Puerto Rico
Government Bank) Series A
5.75% 8/1/27 1,000,000 1,075,110
Texas State Water Financial
Assistance Series B 5.50% 8/1/35 3,800,000 3,970,240
___________
40,548,515
___________
Transportation Revenue Bonds - 5.81%
Bay Area, California Toll Authority
Revenue Series F 5.00% 4/1/31 740,000 780,604
Capital Trust Agency Florida
Revenue (Fort Lauderdale/
Cargo Acquisition Project)
5.75% 1/1/32 (AMT) 1,750,000 1,829,923
Chicago, Illinois O'Hare International
Airport Revenue General-
Airport-Third Lien Series A-2
5.75% 1/1/20 (FSA) (AMT) 1,000,000 1,097,890
Dallas-Fort Worth, Texas
International Airport Revenue
Series A 5.00% 11/1/15 (XLCA)
(AMT) 2,000,000 2,062,420
Georgia Federal Highway Road and
Tollway Authority Revenue Bonds
5.00% 6/1/10 (MBIA) 2,000,000 2,101,239
(continues) 29
Statements of net assets
Delaware Tax-Free USA Intermediate Fund
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Transportation Revenue Bonds (continued)
Metropolitan, New York
Transportation Authority
Revenue Refunding Series A
5.00% 11/15/30 (FSA) $ 1,000,000 $ 1,044,130
Metropolitan, Washington D.C.
Airport Authority Systems
Revenue Series A 5.50% 10/1/19
(FGIC) (AMT) 1,000,000 1,082,400
North Texas Tollway Authority Dallas
North Tollway System Revenue
Series A 5.00% 1/1/20 (FGIC) 1,750,000 1,775,025
Pennsylvania State Turnpike
Commission Revenue Series A
5.25% 12/1/20 (AMBAC) 1,230,000 1,337,957
Virginia Port Authority
Commonwealth Port
Fund Revenue Resolution
5.00% 7/1/12 (AMT) 500,000 529,090
____________
13,640,678
____________
Water & Sewer Revenue Bonds - 2.04%
Alabama Water Pollution
Control Authority Revenue
5.50% 8/15/23 (AMBAC) 1,000,000 1,066,520
Clovis, California Public Financing
Authority Wastewater Revenue
5.25% 8/1/30 (MBIA) 1,000,000 1,080,090
Fulton County, Georgia Water &
Sewer Revenue 5.25% 1/1/35
(FGIC) 1,500,000 1,597,950
New York State Environmental
Facilities Corporation State
Clean Water and Drinking
Water Revenue (New York City
Municipal Water Finance
Project Second Resolution)
Series F 5.00% 6/15/34 1,000,000 1,045,850
____________
4,790,410
____________
Total Municipal Bonds (cost $221,837,074) 226,567,250
____________
________________________________________________________________________________
~ Variable Rate Demand Notes - 1.45%
________________________________________________________________________________
Alexandria, Virginia Industrial
Development Authority
(Institutional Defense Analyses
Project) 3.44% 10/1/35 (AMBAC) 1,200,000 1,200,000
Boise City, Idaho Housing Authority
Multifamily Revenue (Civic
Plaza Housing Project) Series C
3.50% 3/1/33 1,195,000 1,195,000
Scottsdale, Arizona Industrial
Development Authority Hospital
Revenue (Scottsdale Healthcare)
Series C 3.40% 9/1/35 (FSA) 1,000,000 1,000,000
____________
Total Variable Rate Demand Notes
(cost $3,395,000) 3,395,000
____________
Total Market Value of Securities - 97.88%
(cost $225,232,073) $229,962,250
Receivables and Other Assets
Net of Liabilities - 2.12% 4,979,820
____________
Net Assets Applicable to 20,482,869
Shares Outstanding - 100.00% $234,942,070
____________
Net Asset Value - Delaware Tax-Free USA Intermediate
Fund Class A ($204,524,834 / 17,830,369 Shares) $11.47
______
Net Asset Value - Delaware Tax-Free USA Intermediate
Fund Class B ($2,412,828 / 210,454 Shares) $11.46
______
Net Asset Value - Delaware Tax-Free USA Intermediate
Fund Class C ($28,004,408 / 2,442,046 Shares) $11.47
______
Components of Net Assets at August 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $230,838,203
Accumulated net realized loss on investments (626,310)
Net unrealized appreciation of investments 4,730,177
____________
Total net assets $234,942,070
____________
$ 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."
~ Variable rate security. The interest rate shown is the rate as of August 31,
2006.
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
CDFI - Community Development Financial Institutions
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
PSF - Insured by the Permanent School Fund
RADIAN - Insured by Radian Asset Assurance
XLCA - Insured by XL Capital Assurance
Net Asset Value and Offering Price Per Share -
Delaware Tax-Free USA Intermediate Fund
Net asset value Class A (A) $11.47
Sales charge (2.75% of offering price) (B) 0.32
______
Offering price $11.79
______
(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
30
Delaware National High-Yield Municipal Bond Fund
August 31, 2006
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds - 97.95%
________________________________________________________________________________
Corporate Revenue Bonds - 13.06%
~ Brazos, Texas River Authority
Pollution Control Revenue (TXU
Energy Co. Project) Series B
6.30% 7/1/32 (AMT) $1,000,000 $ 1,085,630
Cloquet, Minnesota Pollution
Control Revenue (Potlatch Corp.
Project) 5.90% 10/1/26 750,000 762,953
De Soto Parish, Louisiana
Environmental Improvement
Revenue (International Paper Co.
Project) Series A 6.35% 2/1/25
(AMT) 1,650,000 1,769,509
~ Forsyth, Montana Pollution Control
Revenue (Portland General
Project) Series A 5.20% 5/1/33 1,000,000 1,027,890
Gulf Coast, Texas Waste
Disposal Authority Revenue
(Valero Energy Corp. Project)
6.65% 4/1/32 (AMT) 1,000,000 1,079,870
Mississippi Business Finance
Corporation Pollution Control
Revenue (System Energy
Resources, Inc. Project)
5.90% 5/1/22 900,000 901,476
Petersburg, Indiana Pollution
Control Revenue (Indianapolis
Power & Light Co. Project)
6.375% 11/1/29 (AMT) 1,000,000 1,079,930
Phenix City, Alabama Industrial
Development Board
Environmental Improvement
Revenue (Mead Westvaco Corp.
Project) Series A 6.35% 5/15/35
(AMT) 500,000 537,515
Sugar Creek, Missouri Industrial
Development Revenue (Lafarge
North America Project) Series A
5.65% 6/1/37 (AMT) 500,000 520,465
Sweetwater County, Wyoming Solid
Waste Disposal Revenue (FMC
Corp. Project) 5.60% 12/1/35
(AMT) 1,000,000 1,052,850
Toledo, Lucas County, Ohio Port
Authority Development Revenue
(Toledo Express Airport Project)
Series C 6.375% 11/15/32 1,000,000 1,089,879
___________
10,907,967
___________
Education Revenue Bonds - 12.53%
Berks County, Pennsylvania
Municipal Authority College
Revenue (Albright College
Project) 5.375% 10/1/28 700,000 729,911
Chattanooga, Tennessee Health
Educational & Housing Facilities
Broad Revenue (CDFI Phase I,
LLC Project) Subordinate Series B
6.00% 10/1/35 1,000,000 1,046,590
Illinois Educational Facilities
Authority Student Housing
Revenue (Educational
Advancement Fund - University
Center Project) 6.25% 5/1/30 1,000,000 1,087,840
Maine Finance Authority Education
Revenue (Waynflete School
Project) 6.40% 8/1/19 1,000,000 1,058,860
Massachusetts State Development
Finance Agency Revenue
(Massachusetts College of
Pharmacy Project) Series C
5.75% 7/1/33 1,000,000 1,064,700
Massachusetts State Health &
Educational Facilities Authority
Revenue (Nichols College Project)
Series C 6.125% 10/1/29 1,000,000 1,054,340
Milledgeville-Baldwin County,
Georgia Development Authority
Revenue (Georgia College &
State University Foundation
Project) 6.00% 9/1/33 1,000,000 1,093,100
New Jersey State Educational
Facilities Authority Revenue
(Fairleigh Dickinson Project)
Series C 5.50% 7/1/23 750,000 800,790
New Mexico Educational Assistance
Foundation Student Loan
Revenue 1st Subordinate
Series A-2 6.65% 11/1/25 (AMT) 985,000 989,127
Scranton-Lackawanna, Pennsylvania
Health & Welfare Authority First
Mortgage Revenue (Lackawanna
Junior College Project)
5.75% 11/1/20 1,510,000 1,538,917
___________
10,464,175
___________
Health Care Revenue Bonds - 38.51%
Apple Valley, Minnesota Economic
Development Authority Health
Care Revenue Series A
(Augustana Home St. Paul
Project) 6.00% 1/1/40 1,000,000 1,015,680
(Evercare Senior Living Project)
6.125% 6/1/35 1,000,000 1,006,860
Bexar County, Texas Health Facilities
Development Corporation
Revenue (Army Retirement
Residence Project) 6.30% 7/1/32 1,000,000 1,076,640
(continues) 31
Statements of net assets
Delaware National High-Yield Municipal Bond Fund
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Health Care Revenue Bonds (continued)
Buhl, Minnesota Nursing Home
Revenue (Forest Health Services
Project) Series A 6.75% 8/1/33 $ 600,000 $ 585,786
California Statewide Communities
Development Authority
Revenue (Kaiser Permenante)
5.25% 3/1/45 1,000,000 1,045,260
Cleveland-Cuyahoga County, Ohio
Port Authority Revenue Senior
Housing (St.Clarence - Geac)
Series A 6.25% 5/1/38 1,000,000 1,017,230
Coffee County, Georgia Hospital
Authority Revenue (Coffee
Regional Medical Center Project)
5.00% 12/1/26 500,000 508,585
Colorado Health Facilities Authority
Revenue (Evangelical Lutheran)
5.00% 6/1/35 1,000,000 1,018,320
Series A 5.25% 6/1/34 750,000 778,110
East Rochester, New York Housing
Authority Revenue Refunding
(Senior Living - Woodland Village
Project) 5.50% 8/1/33 500,000 507,180
Gainesville & Hall County, Georgia
Development Authority Revenue
Senior Living Facilities (Lanier
Village Estates Project) Series C
7.25% 11/15/29 1,000,000 1,093,770
Illinois Financial Authority Revenue
Series A
(Clarke Oaks Project)
6.00% 11/15/39 1,000,000 1,024,120
(Luther Oaks Project)
6.00% 8/15/26 1,700,000 1,773,712
Illinois Health Facilities Authority
Revenue
(Elmhurst Memorial Healthcare
Project) 5.625% 1/1/28 1,000,000 1,062,750
(Midwest Physician
Group Limited Project)
5.50% 11/15/19 35,000 35,263
Knox County, Tennessee Health
Educational & Housing Facilities
Board Hospital Revenue (East
Tennessee Hospital Project)
Series B 5.75% 7/1/33 1,300,000 1,380,067
Lebanon County, Pennsylvania
Health Facilities Authority
Center Revenue (Pleasant
View Retirement) Series A
5.30% 12/15/26 1,000,000 1,015,400
Louisiana Public Facilities Authority
Revenue (Ochsner Clinic
Foundation Project) Series B
5.50% 5/15/32 1,000,000 1,045,770
Madison County, Idaho Hospital
Revenue Certificates of
Participation 5.25% 9/1/37 1,000,000 1,032,360
Maryland State Health & Higher
Education Facilities Authority
Revenue Series A 5.40% 1/1/37 1,100,000 1,137,829
Massachusetts State Health &
Educational Facilities Authority
Revenue (Jordan Hospital Project)
Series E 6.75% 10/1/33 1,000,000 1,097,940
Montgomery County, Pennsylvania
Higher Education & Health
Authority Revenue (Catholic
Health East) Series C
5.375% 11/15/34 1,000,000 1,057,020
North Carolina Medical Care
Commission Health Care
Facilities Revenue
(First Mortgage-Presbyterian
Homes) 5.60% 10/1/36 1,000,000 1,038,990
(Pennybryn at Mayfield Project)
Series A 6.125% 10/1/35 2,000,000 2,076,019
Philadelphia, Pennsylvania Hospitals
& Higher Education Facilities
Authority Revenue (The
Philadelphia Protestant Home
Project) Series A 6.50% 7/1/27 1,100,000 1,106,864
Richland County, Ohio Hospital
Facilities Revenue (Medcentral
Health System Project) Series B
6.375% 11/15/30 500,000 541,760
Rochester, Minnesota Multifamily
Housing Revenue (Wedum
Shorewood Campus Project)
6.60% 6/1/36 985,000 1,016,904
Shelby County, Tennessee Health
Educational & Housing Facilities
Board Revenue (Trezvan Manor
Project) Series A 5.75% 9/1/37 700,000 704,018
St. Joseph County, Indiana Industrial
Economic Development Revenue
(Madison Center Project)
5.50% 2/15/21 1,150,000 1,168,803
St. Paul, Minnesota Housing &
Redevelopment Authority
Hospital Revenue (Health East
Project) 6.00% 11/15/35 1,000,000 1,098,980
32
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Health Care Revenue Bonds (continued)
Winchester, Virginia Industrial
Development Authority
Residential Care Facility Revenue
(Westminster-Canterbury Project)
Series A 5.30% 1/1/35 $1,000,000 $ 1,015,400
Yavapai County, Arizona Industrial
Development Authority Hospital
Revenue (Yavapai Medical Center
Project) Series A 6.00% 8/1/33 1,000,000 1,077,490
___________
32,160,880
___________
Lease Revenue Bonds - 3.15%
Dauphin County, Pennsylvania
General Authority Revenue
(Riverfront Office & Parking
Project) Series A 5.75% 1/1/10 1,875,000 1,872,581
Missouri State Development Finance
Board Infrastructure Facilities
Revenue (Branson Landing
Project) Series A 5.50% 12/1/24 720,000 761,069
___________
2,633,650
___________
Local General Obligation Bonds - 8.80%
Chicago, Illinois Tax Increment
Allocation (Chatham Ridge
Redevelopment Project)
5.95% 12/15/12 750,000 791,078
Henderson, Nevada Local
Import Distributions #T-18
5.30% 9/1/35 1,000,000 1,012,620
Lammersville, California School
District Community Facilities
District #2002 (Mountain House)
5.125% 9/1/35 375,000 379,095
Lowry, Colorado Economic
Redevelopment Authority
Revenue Series A 7.30% 12/1/10 390,000 400,842
Modesto, California Special Tax
Community Facilities District
#04-1 Village 2 5.15% 9/1/36 1,000,000 1,008,950
Richmond Heights, Missouri Tax
Increment & Transaction Sales
Tax Revenue Refunding &
Improvement (Francis Place
Redevelopment Project)
5.625% 11/1/25 1,200,000 1,213,800
St. Joseph, Missouri Industrial
Development Authority Tax
Increment Revenue (Shoppes at
North Village Project) Series A
5.375% 11/1/24 500,000 507,680
5.50% 11/1/27 1,000,000 1,008,470
Winter Garden Village at
Fowler Groves Community
Development District, Florida
Special Assessment Revenue
5.65% 5/1/37 1,000,000 1,027,270
___________
7,349,805
___________
$ Pre-Refunded Bonds - 10.68%
Golden State, California Tobacco
Securitization Corporation
Settlement Revenue Series B
5.50% 6/1/43-13 1,500,000 1,658,460
Maryland State Economic
Development Corporation,
Student Housing Revenue
(University of Maryland College
Park Project) 5.625% 6/1/35-13 1,000,000 1,106,940
Minnesota State Higher Education
Facilities Authority Revenue
(College of Art & Design Project)
Series 5-D 6.75% 5/1/26-10 500,000 536,635
Mississippi Development Bank
Special Obligation (Madison
County Hospital Project)
6.40% 7/1/29-09 1,585,000 1,730,503
Montgomery County, Pennsylvania
Higher Education & Health
Authority Revenue (Foulkeways
at Gwynedd Project)
6.75% 11/15/30-09 1,000,000 1,103,250
Richland County, Ohio Hospital
Revenue (Medcentral
Health System) Series B
6.375% 11/15/30-10 1,000,000 1,112,630
Savannah, Georgia Economic
Development Authority Revenue
(College of Art & Design Project)
6.50% 10/1/13-09 1,000,000 1,097,320
Volusia County, Florida Industrial
Development Authority First
Mortgage Revenue (Bishops
Glen Retirement Health Facilities
Project) 7.50% 11/1/16-06 555,000 569,358
___________
8,915,096
___________
Special Tax Bonds - 7.02%
Baltimore, Maryland Convention
Center Hotel Revenue
Subordinated Series B
5.875% 9/1/39 1,000,000 1,055,230
Chicago, Illinois Tax Increment
Subordinate (Central Loop
Redevelopment Project)
Series A 6.50% 12/1/08 1,000,000 1,046,070
Las Vegas, Nevada Local
Improvement Special District
#808 (Summerlin Area Project)
6.75% 6/1/21 985,000 1,020,499
Middlesex County, New Jersey
Improvement Authority Senior
Revenue (Heldrich Center Hotel/
Conference Project) Series A
5.00% 1/1/32 500,000 497,475
5.125% 1/1/37 870,000 874,333
(continues) 33
Statements of net assets
Delaware National High-Yield Municipal Bond Fund
Principal Market
Amount Value
_______________________________________________________________________________
Municipal Bonds (continued)
_______________________________________________________________________________
Special Tax Bonds (continued)
New Jersey Economic Development
Authority (Cigarette Tax)
5.75% 6/15/34 $1,000,000 $ 1,065,460
Prescott Valley, Arizona
Improvement District Special
Assessment (Sewer Collection
System Roadway Repair Project)
7.90% 1/1/12 290,000 299,005
___________
5,858,072
___________
State General Obligation Bonds - 0.95%
Puerto Rico Commonwealth Series B
5.25% 7/1/32 750,000 794,558
___________
794,558
___________
Transportation Revenue Bonds - 3.25%
New York City, New York Industrial
Development Agency Special
Airport Facilities (Airis JFK I LLC
Project) Series A 5.50% 7/1/28
(AMT) 905,000 931,073
Oklahoma City, Oklahoma Industrial
& Cultural Facilities Subordinated
(Air Cargo Obligated Group
Project) 6.75% 1/1/23 (AMT) 1,160,000 1,243,334
Onondaga County, New York
Industrial Development
Authority Revenue Subordinated
(Air Cargo Project) 7.25% 1/1/32
(AMT) 500,000 543,180
___________
2,717,587
___________
Total Municipal Bonds (cost $77,461,211) 81,801,790
___________
_______________________________________________________________________________
~ Variable Rate Demand Notes - 0.72%
_______________________________________________________________________________
Jefferson County, Alabama Series B
3.55% 4/1/21 500,000 500,000
Moffat County, Colorado Pollution
Control Revenue Tri State
Generation and Transmission
Company 3.44% 7/1/10
(AMBAC) 100,000 100,000
___________
Total Variable Rate Demand Notes
(cost $600,000) 600,000
___________
Total Market Value of Securities - 98.67%
(cost $78,061,211) 82,401,790
Receivables and Other Assets
Net of Liabilities - 1.33% 1,112,482
___________
Net Assets Applicable to 8,085,615
Shares Outstanding - 100.00% $83,514,272
___________
Net Asset Value - Delaware National High-Yield
Municipal Bond Fund Class A
($68,662,761 / 6,651,130 Shares) $10.32
______
Net Asset Value - Delaware National High-Yield
Municipal Bond Fund Class B
($9,519,558 / 919,996 Shares) $10.35
______
Net Asset Value - Delaware National High-Yield
Municipal Bond Fund Class C
($5,331,953 / 514,489 Shares) $10.36
______
Components of Net Assets at August 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $85,915,775
Distributions in excess of net investment income (4,104)
Accumulated net realized loss on investments (6,737,978)
Net unrealized appreciation of investments 4,340,579
___________
Total net assets $83,514,272
___________
$ 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."
~ Variable rate security. The interest rate shown is the rate as of August 31,
2006.
Summary of Abbreviations:
AMT - Subject to Alternative Minimum Tax
AMBAC - Insured by the AMBAC Assurance Corporation
CDFI - Community Development Financial Institutions
Net Asset Value and Offering Price Per Share -
Delaware National High-Yield Municipal Bond Fund
Net asset value Class A (A) $10.32
Sales charge (4.50% of Offering Price) (B) 0.49
______
Offering price $10.81
______
(A) Net asset value per share, as illustrated, is the amount which would be paid
upon redemption or repurchase of shares.
(B) See the current prospectus for purchases of $100,000 or more.
See accompanying notes
34
Statements of operations
Year Ended August 31, 2006
Delaware
Delaware National
Delaware Tax-Free USA High-Yield
Tax-Free Intermediate Municipal
USA Fund Fund Bond Fund
Investment Income:
Interest $25,934,658 $ 7,979,299 $4,652,296
___________ ___________ ___________
Expenses:
Management fees 2,935,497 925,399 460,384
Distribution expenses - Class A 1,423,472 463,916 167,257
Distribution expenses - Class B 152,276 25,637 113,851
Distribution expenses - Class C 76,997 268,400 53,942
Dividend disbursing and transfer agent fees and expenses 332,516 258,098 60,522
Accounting and administration expenses 212,466 73,855 33,482
Legal and professional fees 129,613 42,170 26,406
Registration fees 126,988 67,024 34,287
Reports and statements to shareholders 89,314 24,777 14,317
Trustees - fees 30,750 9,558 4,758
Insurance fees 20,447 7,783 2,271
Custodian fees 11,121 3,628 4,501
Pricing fees 4,424 4,694 2,331
Taxes (other than taxes on income) 2,992 542 209
Other 12,328 9,973 3,399
___________ ___________ __________
5,561,201 2,185,454 981,917
Less expenses absorbed or waived (518,570) (314,570) (98,270)
Less waived distribution expenses - Class A (230,163) (231,958) -
Less expense paid indirectly (5,730) (2,054) (3,484)
___________ ___________ __________
Total operating expenses 4,806,738 1,636,872 880,163
___________ ___________ __________
Net Investment Income 21,127,920 6,342,427 3,772,133
___________ ___________ __________
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments 2,988,364 (265,888) (833,966)
Net change in unrealized appreciation/depreciation of investments (7,385,302) (992,386) 363,826
___________ ___________ __________
Net Realized and Unrealized Loss on Investments (4,396,938) (1,258,274) (470,140)
___________ ___________ __________
Net Increase in Net Assets Resulting from Operations $16,730,982 $ 5,084,153 $3,301,993
___________ ___________ __________
See accompanying notes
35
Statements of changes in net assets
Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund USA Intermediate Fund Municipal Bond Fund
Year Ended Year Ended Year Ended
8/31/06 8/31/05 8/31/06 8/31/05 8/31/06 8/31/05
Increase (Decrease) in Net Assets
from Operations:
Net investment income $ 21,127,920 $ 20,913,234 $ 6,342,427 $ 4,020,053 $ 3,772,133 $ 3,803,398
Net realized gain (loss) on investments 2,988,364 2,541,488 (265,888) 216,425 (833,966) (20,934)
Net change in unrealized appreciation/
depreciation of investments (7,385,302) 9,862,168 (992,386) 2,305,659 363,826 2,945,238
____________ ____________ ____________ ____________ ___________ ___________
Net increase in net assets resulting from
operations 16,730,982 33,316,890 5,084,153 6,542,137 3,301,993 6,727,702
____________ ____________ ____________ ____________ ___________ ___________
Dividends and Distributions to
Shareholders from:
Net investment income:
Class A (20,605,670) (20,004,240) (5,539,037) (3,353,356) (3,117,557) (3,012,354)
Class B (494,733) (694,792) (70,059) (95,959) (443,794) (584,141)
Class C (249,348) (214,202) (733,331) (570,738) (209,884) (212,515)
____________ ____________ ____________ ____________ ___________ __________
(21,349,751) (20,913,234) (6,342,427) (4,020,053) (3,771,235) (3,809,010)
____________ ____________ ____________ ____________ ___________ __________
Capital Share Transactions:
Proceeds from shares sold:
Class A 167,570,325 24,251,474 119,156,024 60,268,006 11,000,812 11,865,636
Class B 1,380,980 705,667 597,273 329,988 780,564 533,475
Class C 3,261,988 1,035,529 7,130,929 8,118,530 1,576,137 1,761,862
Net asset value of shares issued upon
reinvestment of dividends and distributions:
Class A 10,377,867 10,723,495 3,941,206 2,392,786 1,923,145 1,690,051
Class B 300,459 392,819 54,532 68,135 206,858 270,527
Class C 186,252 170,783 416,628 276,166 131,125 137,144
Net assets from reorganization (1):
Class A 116,026,119 - - - - -
Class B 11,168,095 - - - - -
Class C 8,018,844 - - - - -
____________ ____________ ____________ ____________ ___________ __________
318,290,929 37,279,767 131,296,592 71,453,611 15,618,641 16,258,695
____________ ____________ ____________ ____________ ___________ __________
Cost of shares repurchased:
Class A (86,626,741) (48,950,197) (37,921,560) (21,868,344) (10,375,066) (6,019,664)
Class B (7,029,177) (7,473,113) (1,404,656) (1,002,815) (4,410,676) (2,802,575)
Class C (2,356,085) (1,180,661) (4,371,376) (2,895,030) (1,580,167) (1,654,712)
____________ ____________ ____________ ____________ ___________ __________
(96,012,003) (57,603,971) (43,697,592) (25,766,189) (16,365,909) (10,476,951)
____________ ____________ ____________ ____________ ___________ __________
Increase (decrease) in net assets derived
from capital share transactions 222,278,926 (20,324,204) 87,599,000 45,687,422 (747,268) 5,781,744
____________ ____________ ____________ ____________ ___________ __________
Net Increase (Decrease) in Net Assets 217,660,157 (7,920,548) 86,340,726 48,209,506 (1,216,510) 8,700,436
Net Assets:
Beginning of year 476,451,707 484,372,255 148,601,344 100,391,838 84,730,782 76,030,346
____________ ____________ ____________ ____________ ___________ __________
End of year $694,111,864 $476,451,707 $234,942,070 $148,601,344 $83,514,272 $84,730,782
____________ ____________ ____________ ____________ ___________ ___________
Distributions in excess of net investment $ (12,071) $ (12,071) $ - $ - $ (4,104) $ (4,104)
income ____________ ____________ ____________ ____________ ___________ ___________
(1) See Note 6 in "Notes to Financial Statements."
See accompanying notes
36
Financial highlights
Delaware Tax-Free USA Fund Class A
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
______________________________________________________________
8/31/06 8/31/05 8/31/04 8/31/03 8/31/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.760 $11.460 $11.170 $11.280 $11.320
Income (loss) from investment operations:
Net investment income 0.458 0.512 0.538 0.537 0.566
Net realized and unrealized gain (loss) on investments (0.186) 0.300 0.290 (0.110) (0.040)
_______ _______ _______ _______ _______
Total from investment operations 0.272 0.812 0.828 0.427 0.526
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.462) (0.512) (0.538) (0.537) (0.566)
_______ _______ _______ _______ _______
Total dividends and distributions (0.462) (0.512) (0.538) (0.537) (0.566)
_______ _______ _______ _______ _______
Net asset value, end of period $11.570 $11.760 $11.460 $11.170 $11.280
_______ _______ _______ _______ _______
Total return (1) 2.42% 7.23% 7.54% 3.84% 4.85%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $656,813 $453,982 $456,192 $460,917 $495,731
Ratio of expenses to average net assets 0.86% 0.86% 0.87% 0.87% 0.87%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.00% 0.98% 0.93% 0.97% 0.98%
Ratio of net investment income to average net assets 3.97% 4.43% 4.72% 4.74% 5.08%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.83% 4.31% 4.66% 4.64% 4.97%
Portfolio turnover 41% 47% 32% 96% 99%
___________________________________________________________________________________________________________________________________
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the
expense limitations not been in effect.
See accompanying notes
(continues) 37
Financial highlights
Delaware Tax-Free USA Fund Class B
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
______________________________________________________________
8/31/06 8/31/05 8/31/04 8/31/03 8/31/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.760 $11.460 $11.170 $11.280 $11.320
Income (loss) from investment operations:
Net investment income 0.370 0.423 0.449 0.449 0.479
Net realized and unrealized gain (loss) on investments (0.186) 0.300 0.290 (0.110) (0.040)
_______ _______ _______ _______ _______
Total from investment operations 0.184 0.723 0.739 0.339 0.439
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.374) (0.423) (0.449) (0.449) (0.479)
_______ _______ _______ _______ _______
Total dividends and distributions (0.374) (0.423) (0.449) (0.449) (0.479)
_______ _______ _______ _______ _______
Net asset value, end of period $11.570 $11.760 $11.460 $11.170 $11.280
_______ _______ _______ _______ _______
Total return (1) 1.63% 6.42% 6.71% 3.03% 4.04%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $22,189 $16,507 $22,396 $31,052 $37,448
Ratio of expenses to average net assets 1.63% 1.63% 1.65% 1.65% 1.65%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.73% 1.71% 1.71% 1.75% 1.76%
Ratio of net investment income to average net assets 3.20% 3.66% 3.94% 3.96% 4.30%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.10% 3.58% 3.88% 3.86% 4.19%
Portfolio turnover 41% 47% 32% 96% 99%
___________________________________________________________________________________________________________________________________
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
38
Delaware Tax-Free USA Fund Class C
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
______________________________________________________________
8/31/06 8/31/05 8/31/04 8/31/03 8/31/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.760 $11.460 $11.170 $11.280 $11.320
Income (loss) from investment operations:
Net investment income 0.370 0.423 0.449 0.449 0.479
Net realized and unrealized gain (loss) on investments (0.186) 0.300 0.290 (0.110) (0.040)
_______ _______ _______ _______ _______
Total from investment operations 0.184 0.723 0.739 0.339 0.439
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.374) (0.423) (0.449) (0.449) (0.479)
_______ _______ _______ _______ _______
Total dividends and distributions (0.374) (0.423) (0.449) (0.449) (0.479)
_______ _______ _______ _______ _______
Net asset value, end of period $11.570 $11.760 $11.460 $11.170 $11.280
_______ _______ _______ _______ _______
Total return (1) 1.63% 6.42% 6.71% 3.03% 4.04%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $15,110 $ 5,963 $5,784 $5,508 $5,979
Ratio of expenses to average net assets 1.63% 1.63% 1.65% 1.65% 1.65%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.73% 1.71% 1.71% 1.75% 1.76%
Ratio of net investment income to average net assets 3.20% 3.66% 3.94% 3.96% 4.30%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.10% 3.58% 3.88% 3.86% 4.19%
Portfolio turnover 41% 47% 32% 96% 99%
___________________________________________________________________________________________________________________________________
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
(continues) 39
Financial highlights
Delaware Tax-Free USA Intermediate Fund Class A
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
______________________________________________________________
8/31/06 8/31/05 8/31/04 8/31/03 8/31/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.610 $11.390 $11.010 $11.020 $10.890
Income (loss) from investment operations:
Net investment income 0.408 0.410 0.419 0.435 0.462
Net realized and unrealized gain (loss) on investments (0.140) 0.220 0.380 (0.010) 0.130
_______ _______ _______ _______ _______
Total from investment operations 0.268 0.630 0.799 0.425 0.592
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.408) (0.410) (0.419) (0.435) (0.462)
_______ _______ _______ _______ _______
Total dividends and distributions (0.408) (0.410) (0.419) (0.435) (0.462)
_______ _______ _______ _______ _______
Net asset value, end of period $11.470 $11.610 $11.390 $11.010 $11.020
_______ _______ _______ _______ _______
Total return (1) 2.38% 5.63% 7.36% 3.89% 5.63%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $204,525 $120,273 $77,448 $51,479 $26,075
Ratio of expenses to average net assets 0.75% 0.79% 0.80% (2) 0.80% 0.80%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.07% 1.11% 1.09% 1.15% 0.94%
Ratio of net investment income to average net assets 3.56% 3.55% 3.70% 3.85% 4.28%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.24% 3.23% 3.41% 3.50% 4.14%
Portfolio turnover 37% 18% 27% 130% 195%
___________________________________________________________________________________________________________________________________
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the expense
limitations not been in effect.
(2) Ratio for the year ended August 31, 2004, including fees paid indirectly in accordance with Securities and Exchange Commission
rules was 0.82%.
See accompanying notes
40
Delaware Tax-Free USA Intermediate Fund Class B
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
______________________________________________________________
8/31/06 8/31/05 8/31/04 8/31/03 8/31/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.610 $11.380 $11.010 $11.020 $10.890
Income (loss) from investment operations:
Net investment income 0.311 0.313 0.323 0.340 0.371
Net realized and unrealized gain (loss) on investments (0.150) 0.230 0.370 (0.010) 0.130
_______ _______ _______ _______ _______
Total from investment operations 0.161 0.543 0.693 0.330 0.501
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.311) (0.313) (0.323) (0.340) (0.371)
_______ _______ _______ _______ _______
Total dividends and distributions (0.311) (0.313) (0.323) (0.340) (0.371)
_______ _______ _______ _______ _______
Net asset value, end of period $11.460 $11.610 $11.380 $11.010 $11.020
_______ _______ _______ _______ _______
Total return (1) 1.43% 4.83% 6.36% 3.02% 4.74%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $2,413 $3,203 $3,743 $4,538 $3,384
Ratio of expenses to average net assets 1.60% 1.64% 1.65% (2) 1.65% 1.65%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.77% 1.81% 1.79% 1.87% 1.79%
Ratio of net investment income to average net assets 2.71% 2.70% 2.85% 3.00% 3.43%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 2.54% 2.53% 2.71% 2.78% 3.29%
Portfolio turnover 37% 18% 27% 130% 195%
___________________________________________________________________________________________________________________________________
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitations not been in
effect.
(2) Ratio for the year ended August 31, 2004, including fees paid indirectly in accordance with Securities and Exchange Commission
rules was 1.67%.
See accompanying notes
(continues) 41
Financial highlights
Delaware Tax-Free USA Intermediate Fund Class C
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
______________________________________________________________
8/31/06 8/31/05 8/31/04 8/31/03 8/31/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $11.610 $11.390 $11.010 $11.020 $10.890
Income (loss) from investment operations:
Net investment income 0.311 0.313 0.323 0.340 0.371
Net realized and unrealized gain (loss) on investments (0.140) 0.220 0.380 (0.010) 0.130
_______ _______ _______ _______ _______
Total from investment operations 0.171 0.533 0.703 0.330 0.501
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.311) (0.313) (0.323) (0.340) (0.371)
_______ _______ _______ _______ _______
Total dividends and distributions (0.311) (0.313) (0.323) (0.340) (0.371)
_______ _______ _______ _______ _______
Net asset value, end of period $11.470 $11.610 $11.390 $11.010 $11.020
_______ _______ _______ _______ _______
Total return (1) 1.52% 4.74% 6.45% 3.02% 4.74%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $28,004 $25,125 $19,201 $10,542 $7,291
Ratio of expenses to average net assets 1.60% 1.64% 1.65% (2) 1.65% 1.65%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.77% 1.81% 1.79% 1.87% 1.79%
Ratio of net investment income to average net assets 2.71% 2.70% 2.85% 3.00% 3.43%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 2.54% 2.53% 2.71% 2.78% 3.29%
Portfolio turnover 37% 18% 27% 130% 195%
___________________________________________________________________________________________________________________________________
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in
effect.
(2) Ratio for the year ended August 31, 2004, including fees paid indirectly in accordance with Securities and Exchange Commission
rules was 1.67%.
See accompanying notes
42
Delaware National High-Yield Municipal Bond Fund Class A
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
______________________________________________________________
8/31/06 8/31/05 8/31/04 8/31/03 8/31/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $10.380 $10.010 $9.730 $9.950 $10.240
Income (loss) from investment operations:
Net investment income 0.477 0.503 0.496 0.522 0.542
Net realized and unrealized gain (loss) on investments (0.060) 0.371 0.280 (0.219) (0.290)
_______ _______ _______ _______ _______
Total from investment operations 0.417 0.874 0.776 0.303 0.252
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.477) (0.504) (0.496) (0.523) (0.542)
_______ _______ _______ _______ _______
Total dividends and distributions (0.477) (0.504) (0.496) (0.523) (0.542)
_______ _______ _______ _______ _______
Net asset value, end of period $10.320 $10.380 $10.010 $9.730 $9.950
_______ _______ _______ _______ _______
Total return (1) 4.15% 8.93% 8.13% 3.13% 2.59%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $68,663 $66,451 $56,698 $59,829 $64,259
Ratio of expenses to average net assets 0.90% 0.93% 1.00% 0.99% 0.96%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.02% 1.01% 1.02% 1.05% 1.04%
Ratio of net investment income to average net assets 4.66% 4.92% 5.00% 5.30% 5.42%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.54% 4.84% 4.98% 5.24% 5.34%
Portfolio turnover 73% 36% 46% 64% 53%
___________________________________________________________________________________________________________________________________
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
(continues) 43
Financial highlights
Delaware National High-Yield Municipal Bond Fund Class B
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
______________________________________________________________
8/31/06 8/31/05 8/31/04 8/31/03 8/31/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $10.400 $10.030 $9.760 $9.980 $10.260
Income (loss) from investment operations:
Net investment income 0.400 0.426 0.421 0.448 0.467
Net realized and unrealized gain (loss) on investments (0.050) 0.371 0.270 (0.219) (0.281)
_______ _______ _______ _______ _______
Total from investment operations 0.350 0.797 0.691 0.229 0.186
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.400) (0.427) (0.421) (0.449) (0.466)
_______ _______ _______ _______ _______
Total dividends and distributions (0.400) (0.427) (0.421) (0.449) (0.466)
_______ _______ _______ _______ _______
Net asset value, end of period $10.350 $10.400 $10.030 $9.760 $9.980
_______ _______ _______ _______ _______
Total return (1) 3.47% 8.10% 7.20% 2.36% 1.91%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $9,519 $13,046 $14,534 $16,499 $20,021
Ratio of expenses to average net assets 1.65% 1.68% 1.75% 1.74% 1.71%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.77% 1.76% 1.77% 1.80% 1.79%
Ratio of net investment income to average net assets 3.91% 4.17% 4.25% 4.55% 4.67%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.79% 4.09% 4.23% 4.49% 4.59%
Portfolio turnover 73% 36% 46% 64% 53%
___________________________________________________________________________________________________________________________________
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
44
Delaware National High-Yield Municipal Bond Fund Class C
Selected data for each share of the Fund outstanding throughout each period
were as follows:
Year Ended
______________________________________________________________
8/31/06 8/31/05 8/31/04 8/31/03 8/31/02
___________________________________________________________________________________________________________________________________
Net asset value, beginning of period $10.420 $10.040 $9.770 $9.990 $10.270
Income (loss) from investment operations:
Net investment income 0.400 0.426 0.421 0.448 0.467
Net realized and unrealized gain (loss) on investments (0.060) 0.381 0.270 (0.219) (0.281)
_______ _______ _______ _______ ______
Total from investment operations 0.340 0.807 0.691 0.229 0.186
_______ _______ _______ _______ ______
Less dividends and distributions from:
Net investment income (0.400) (0.427) (0.421) (0.449) (0.466)
_______ _______ _______ _______ ______
Total dividends and distributions (0.400) (0.427) (0.421) (0.449) (0.466)
_______ _______ _______ _______ _______
Net asset value, end of period $10.360 $10.420 $10.040 $9.770 $9.990
_______ _______ _______ _______ _______
Total return (1) 3.36% 8.19% 7.19% 2.35% 1.92%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $5,332 $5,234 $4,798 $5,318 $6,405
Ratio of expenses to average net assets 1.65% 1.68% 1.75% 1.74% 1.71%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.77% 1.76% 1.77% 1.80% 1.79%
Ratio of net investment income to average net assets 3.91% 4.17% 4.25% 4.55% 4.67%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.79% 4.09% 4.23% 4.49% 4.59%
Portfolio turnover 73% 36% 46% 64% 53%
___________________________________________________________________________________________________________________________________
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in
effect.
See accompanying notes
45
Notes to financial statements
Delaware National Tax-Free Funds
August 31, 2006
Delaware Group Tax-Free Fund is organized as a Delaware statutory trust and
offers two series: Delaware Tax-Free USA Fund and Delaware Tax-Free USA
Intermediate Fund. Voyageur Mutual Funds 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.
Delaware Group Tax-Free Fund and Voyageur Mutual Funds are individually referred
to as a "Trust" and collectively as the "Trusts". These financial statements and
the related notes pertain to Delaware Tax-Free USA Fund, Delaware Tax-Free USA
Intermediate Fund and Delaware National High-Yield Municipal Bond Fund (each
referred to as a "Fund" or, collectively, as the "Funds"). The above Trusts are
open-end investment companies. The Funds are considered non-diversified under
the Investment Company Act of 1940, as amended. The Funds offer Class A, Class
B, and Class C shares. Class A shares are sold with a front-end sales charge of
up to 4.50% for Delaware Tax-Free USA Fund and Delaware National High-Yield
Municipal Bond Fund, and up to 2.75% for Delaware Tax-Free USA Intermediate
Fund. Class A share purchases of $1,000,000 or more will incur a contingent
deferred sales charge of up to 1% if redeemed during the first two years,
provided that a financial advisor was paid commission on the purchase of those
shares. Class B shares of the Delaware Tax-Free USA Fund and Delaware National
High-Yield Municipal Bond Fund are sold with a contingent deferred sales charge
that declines from 4% to zero depending upon the period of time the shares are
held and will automatically convert to Class A shares on a quarterly basis
approximately eight years after purchase. Class B shares of Delaware Tax-Free
USA Intermediate Fund are sold with a contingent deferred sales charge that
declines from 2% to zero depending upon the time the shares are held and will
automatically convert to Class A shares on a quarterly basis approximately five
years after purchase. Class C shares are sold with a contingent deferred sales
charge of 1%, if redeemed during the first twelve months.
The investment objective of Delaware Tax-Free USA Fund and Delaware Tax-Free USA
Intermediate Fund is to seek as high a level of current interest income exempt
from federal income tax as is available from municipal obligations as is
consistent with prudent investment management and preservation of capital.
The investment objective of Delaware National High-Yield Municipal Bond Fund is
to seek a high level of current income exempt from federal income tax primarily
through investment in medium- and lower-grade municipal obligations.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Funds.
Security Valuation - Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith under the direction of each Fund's Board of
Trustees. In determining whether market quotations are readily available or fair
valuation will be used, various factors will be taken into consideration, such
as market closures, or with respect to foreign securities, 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.
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented, and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Although the Fund's tax
positions are currently being evaluated, management does not expect the adoption
of FIN 48 to have a material impact on each Fund's financial statements.
Class Accounting - Investment income and common expenses are allocated to the
classes of the Funds on the basis of "settled shares" of each class in relation
to the net assets of the Funds. Realized and unrealized gains (loss) on
investments are allocated to the various classes of the Funds on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
Use of Estimates - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Other - Expenses directly attributable to a Fund are charged directly to that
Fund. Other expenses common to various funds within the Delaware
Investments(R) Family of Funds are generally allocated amongst such 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.
46
1. Significant Accounting Policies (continued)
The Funds receive earnings credits from their custodian when positive cash
balances are maintained, which are used to offset custody fees. The expense paid
under the above arrangement is included in custodian fees on the Statements of
Operations with the corresponding expense offset shown as "expense paid
indirectly."
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 USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
On the first $500 million 0.550% 0.500% 0.550%
On the next $500 million 0.500% 0.475% 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%
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse each Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed specified percentages of average daily net assets through December 31,
2006 as shown below.
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
The operating expense limitation as a percentage
of average daily net assets (per annum) 0.62% 0.60% 0.65%
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 such 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 0.30% of the average daily net
assets of the Class A shares for Delaware Tax-Free USA Fund and Delaware
Tax-Free USA Intermediate Fund, 0.25% of the average daily net assets of the
Class A shares for the Delaware National High-Yield Municipal Bond Fund and
1.00% of the average daily net assets of the Class B and C shares for all Funds.
The Board of Trustees has adopted a formula for calculating 12b-1 plan fees for
Delaware Tax-Free USA Fund's Class A shares that went into effect on June 1,
1992. The total 12b-1 fees to be paid by Class A shareholders of each Fund will
be the sum of 0.10% of the average daily net assets representing shares that
were acquired prior to June 1, 1992 and 0.30%, waived to 0.25%, of the average
daily net assets representing shares that were acquired on or after June 1,
1992. The contractual 12b-1 fee waiver of 0.25% of average daily net assets is
applied to the shares of each Fund that were acquired on or after June 1, 1992
in calculating the applicable 12b-1 fee rate. All Class A shareholders will bear
12b-1 fees at the same rate, the blended rate based upon the allocation of the
rates described above. DDLP has contracted to waive distribution and service
fees through December 31, 2006 in order to prevent distribution and service fees
of Class A from exceeding 0.25% of the average daily net assets for the Delaware
Tax-Free USA Fund and 0.15% of the average daily net assets for the Delaware
Tax-Free USA Intermediate Fund.
At August 31, 2006, the Funds had liabilities payable to affiliates as follows:
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
Investment management fees payable to DMC $219,210 $48,142 $28,691
Dividend disbursing, transfer agent, accounting and
administration fees and other expenses payable to DSC 60,217 32,597 8,086
Distribution fees payable to DDLP 164,739 51,405 27,236
Other expenses payable to DMC and affiliates* 73,686 14,607 14,556
* 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.
(continues) 47
Notes to financial statements
Delaware National Tax-Free Funds
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
As provided in the investment management agreement, each Fund bears the cost of
certain legal services, including internal legal services provided to each Fund
by DMC employees. For the year ended August 31, 2006, each Fund was charged for
internal legal services provided by DMC as follows:
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
$62,608 $12,955 $7,483
For the year ended August 31, 2006, DDLP earned commissions on sales of Class A
shares for each Fund as follows:
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
$26,422 $21,969 $14,913
For the year ended August 31, 2006, DDLP received gross contingent deferred
sales charge commissions on redemption of each Fund's Class A, Class B and Class
C shares, respectively. These commissions were entirely used to offset up-front
commissions previously paid by DDLP to broker-dealers on sales of those shares.
The amounts received were as follows:
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
Class A $ 155 $ 16 $ 83
Class B 17,217 2,061 9,040
Class C 2,419 1,780 670
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the
Trusts. These officers and trustees are paid no compensation by the Funds.
3. Investments
For the year ended August 31, 2006, the Funds made purchases and sales of
investment securities other than short-term investments as follows:
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
Purchases $313,388,501 $152,765,679 $60,588,447
Sales 211,645,528 63,716,446 61,687,355
At August 31, 2006, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for each Fund were as follows:
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
Cost of investments $654,101,597 $225,232,073 $78,101,111
____________ ____________ ____________
Aggregate unrealized appreciation $ 34,218,767 $ 4,861,141 $ 4,307,047
Aggregate unrealized depreciation (734,925) (130,964) (6,368)
____________ ____________ ___________
Net unrealized appreciation $ 33,483,842 $ 4,730,177 $ 4,300,679
____________ ____________ ___________
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from U.S. generally
accepted accounting principles. Additionally, net short-term gains on sales of
investment securities are treated as ordinary income for federal income tax
purposes. The tax character of dividends and distributions paid during the years
ended August 31, 2006 and 2005 was as follows:
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
Year Ended 8/31/06
Tax-exempt income $21,338,078 $6,301,523 $3,771,235
Ordinary income 11,673 40,904 -
___________ __________ __________
Total $21,349,751 $6,342,427 $3,771,235
___________ __________ __________
Year Ended 8/31/05
Tax-exempt income $20,913,234 $4,020,053 $3,809,010
___________ __________ __________
Total $20,913,234 $4,020,053 $3,809,010
___________ __________ __________
48
4. Dividend and Distribution Information (continued)
As of August 31, 2006, the components of net assets on a tax basis
were as follows:
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
Shares of beneficial interest $666,215,275 $230,838,203 $85,915,775
Other temporary differences (12,071) - (4,104)
Capital loss Carryforwards (5,575,182) (479,849) (5,783,530)
Post-October losses - (146,461) (914,548)
Unrealized appreciation of investments 33,483,842 4,730,177 4,300,679
____________ ____________ ____________
Net assets $694,111,864 $234,942,070 $83,514,272
____________ ____________ ____________
The differences between book basis and tax basis components of net assets are
primarily attributable to tax deferral of losses on wash sales and tax treatment
of market discount on debt instruments.
Post-October losses represent losses realized on investment transactions from
November 1, 2005 through August 31, 2006 that, in accordance with federal income
tax regulations, the Funds have elected to defer and treat as having arisen in
the following fiscal year.
For financial reporting purposes, capital accounts are adjusted to reflect the
tax character of permanent book/tax differences. Reclassifications are primarily
due to tax treatment of market discount on certain debt instruments. Results of
operations and net assets were not affected by these reclassifications. For the
year ended August 31, 2006, the Funds recorded the following reclassifications:
Delaware Tax-Free Delaware National High-Yield
USA Fund Municipal Bond Fund
_________________ ____________________________
Undistributed net investment loss $221,831 $(898)
Accumulated net realized gain (221,831) 898
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Capital loss carryfowards
remaining at August 31, 2006, will expire as follows:
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
Year of Expiration USA Fund Intermediate Fund Municipal Bond Fund
_________________ _____________________ ____________________________
2008 $5,503,036 $ 63,767 $ 708,680
2009 72,146 - 3,025,716
2010 - - 70,671
2011 - 290,864 997,721
2012 - 5,791 980,742
2014 - 119,427 -
__________ _________ __________
Total $5,575,182 $479,849 $5,783,530
__________ _________ __________
For the year ended August 31, 2006, the Funds utilized capital loss
carryforwards as follows:
Delaware Tax-Free Delaware National High-Yield
USA Fund Municipal Bond Fund
_________________ ____________________________
$2,773,512 $44,021
(continues) 49
Notes to financial statements
Delaware National Tax-Free Funds
5. Capital Shares
Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield
USA Fund USA Intermediate Fund Municipal Bond Fund
________________________ _________________________ _____________________________
Year Ended Year Ended Year Ended
8/31/06 8/31/05 8/31/06 8/31/05 8/31/06 8/31/05
Shares sold:
Class A 14,635,287 2,090,513 10,459,356 5,248,577 1,074,816 1,161,795
Class B 120,294 60,705 52,384 28,724 76,007 52,179
Class C 284,293 89,160 625,073 705,277 153,197 172,207
Shares issued upon reinvestment of
dividends and distributions:
Class A 902,479 923,604 345,526 208,201 187,771 165,542
Class B 26,125 33,850 4,778 5,933 20,147 26,452
Class C 16,222 14,713 36,520 24,033 12,756 13,388
Shares issued from reorganization*:
Class A 10,177,730 - - - - -
Class B 980,518 - - - - -
Class C 703,407 - - - - -
__________ _________ ___________ ___________ ___________ _________
27,846,355 3,212,545 11,523,637 6,220,745 1,524,694 1,591,563
__________ _________ ___________ ___________ ___________ _________
Shares repurchased:
Class A (7,565,290) (4,224,229) (3,329,875) (1,903,878) (1,013,868) (590,900)
Class B (612,623) (645,620) (122,548) (87,601) (430,244) (273,683)
Class C (205,552) (101,597) (382,978) (252,321) (153,906) (160,929)
__________ _________ ___________ ___________ ___________ _________
(8,383,465) (4,971,446) (3,835,401) (2,243,800) (1,598,018) (1,025,512)
__________ _________ ___________ ___________ ___________ _________
Net increase (decrease) in net assets 19,462,890 (1,758,901) 7,688,236 3,976,945 (73,324) 566,051
__________ _________ ___________ ___________ ___________ _________
*See note 6.
For the years ended August 31, 2006 and 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 tables above and the
Statements of Changes in Net Assets.
Year Ended Year Ended
8/31/06 8/31/05
Class B Class A Class B Class A
shares shares Value shares shares Value
_______ _______ __________ _______ _______ __________
Delaware Tax-Free USA Fund 186,049 186,006 $2,141,376 365,813 365,721 $4,231,193
Delaware Tax-Free USA
Intermediate Fund 29,508 29,497 338,751 16,264 16,264 185,879
Delaware National High-Yield
Municipal Bond Fund 128,445 128,739 1,317,238 38,897 38,974 397,935
50
6. Fund Merger
Effective July 17, 2006, Delaware Tax-Free USA Fund (the "Acquiring Fund")
acquired all of the assets and assumed all of the liabilities of Delaware
Tax-Free Oregon Insured Fund, Delaware Tax-Free Missouri Insured Fund and
Delaware Tax-Free USA Insured Fund (each an "Acquired Fund"), each an open-end
investment company, in exchange for shares of the Acquiring Fund pursuant to
Plans and Agreements of Reorganization (the "Reorganizations"). The shareholders
of each Acquired Fund received shares of the respective class of the Acquiring
Fund equal to the aggregate net asset value of their shares in the Acquired Fund
prior to the Reorganizations.
The Reorganizations were treated as non-taxable events and, accordingly,
Delaware Tax-Free USA 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 Tax-Free
Oregon Insured Fund, Delaware Tax-Free Missouri Insured Fund and Delaware
Tax-Free USA Insured Fund as of the close of business on July 14, 2006, were as
follows:
Net Unrealized Accumulated Net
Net Assets Appreciation Realized Gain/Loss
____________ _________________ ___________________
Delaware Tax-Free Oregon Insured Fund $36,682,602 $1,088,561 $(62,898)*
Delaware Tax-Free Missouri Insured Fund 44,904,356 1,111,591 4,815
Delaware Tax-Free USA Insured Fund 53,626,100 1,848,746 -
*Includes prior year capital loss carryforwards
The net assets of Delaware Tax-Free USA Fund prior to the Reorganizations were
$568,508,906. The combined net assets of Delaware Tax-Free USA Fund after the
merger were $703,721,964.
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 Participant's allocation of the entire
facility. The Participants may borrow up to a maximum of one third of their net
assets under the agreement. The Funds had no amounts outstanding as of August
31, 2006 or at any time during the year then ended.
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.
Delaware National High-Yield Municipal Bond Fund invests a portion of its assets
in high yield fixed income securities, which carry ratings of BB or lower by
Standard & Poor's Ratings Group and/or Ba or lower by Moody's Investors Service,
Inc. Investments in these higher yielding securities are generally accompanied
by a greater degree of credit risk than higher rated securities. Additionally,
lower rated securities may be more susceptible to adverse economic and
competitive industry conditions than investment grade securities.
The Funds may invest in inverse floating rate securities ("inverse floaters"), a
type of derivative tax-exempt obligation with floating or variable interest
rates that move in the opposite direction of short-term interest rates, usually
at an accelerated speed. Consequently, the market values of inverse floaters
will generally be more volatile than other tax-exempt investments. Such
securities are identified on the Statements of Net Assets.
The Fund may invest in advanced refunded bonds, escrow secured bonds or defeased
bonds. Under current federal tax laws and regulations, state and local
government borrowers are permitted to refinance outstanding bonds by issuing new
bonds. The issuer refinances the outstanding debt to either reduce interest
costs or to remove or alter restrictive covenants imposed by the bonds being
refinanced. A refunding transaction where the municipal securities are being
refunded within 90 days 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.
(continues) 51
Notes to financial statements
Delaware National Tax-Free Funds
8. Credit and Market Risk (continued)
Bonds are considered "pre-refunded" when the refunding issue's proceeds are
escrowed only until a permitted call date or dates on the refunded issue with
the refunded issue being redeemed at the time, including any required premium.
Bonds become "defeased" when the rights and interests of the bondholders and of
their lien on the pledged revenues or other security under the terms of the bond
contract and are substituted with an alternative source of revenues (the escrow
securities) sufficient to meet payments of principal and interest to maturity or
to the first call dates. Escrowed secured bonds will often receive a rating of
AAA from Moody's, S&P, and/or Fitch Ratings due to the strong credit quality of
the escrow securities and the irrevocable nature of the escrow deposit
agreement.
Each Fund may invest a portion of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair each Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, the Fund's Board of Trustees has delegated to DMC
the day-to-day functions of determining whether individual securities are liquid
for purposes of the Fund's limitation on investments in illiquid assets. At
August 31, 2006, there were no Rule 144A securities. Illiquid securities have
been identified on the Statements of Net Assets.
9. Contractual Obligations
The Funds enter into contracts in the normal course of business that contain a
variety of indemnifications. The Funds' maximum exposure under these
arrangements is unknown. However, the Funds have not had prior claims or losses
pursuant to these contracts. Management has reviewed each Fund's existing
contracts and expects the risk of loss to be remote.
10. Tax Information (Unaudited)
The information set forth below is for each Fund's fiscal year as required by
federal laws. Shareholders, however, must report distributions on a calendar
year basis for income tax purposes, which may include distributions for portions
of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes will be sent to them in January of each
year. Please consult your tax advisor for proper treatment of this information.
For the fiscal year ended August 31, 2006, each Fund designates distributions
paid during the year as follows:
(A) (B)
Long Term Ordinary (C)
Capital Gains Income Tax-Exempt Total
Distributions Distributions Distributions Distributions
(Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis)
_____________ _____________ _____________ _____________
Delaware Tax-Free USA Fund - - 100% 100%
Delaware Tax-Free USA intermediate Fund - 1% 99% 100%
Delaware National High-Yield Municipal Bond Fund - - 100% 100%
(A), (B) and (C) are based on a percentage of each Fund's
total distributions.
52
Report of independent
registered public accounting firm
To the Shareholders and Board of Trustees
Delaware Group Tax-Free Fund
Voyageur Mutual Funds - Delaware National High-Yield
Municipal Bond Fund
We have audited the accompanying statements of net assets of Delaware Group
Tax-Free Fund (comprised of Delaware Tax-Free USA Fund and Delaware Tax-Free USA
Intermediate Fund) and Delaware National High-Yield Municipal Bond Fund (one of
the series constituting Voyageur Mutual Funds) (the "Funds") as of August 31,
2006, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of August 31, 2006, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective series constituting the Delaware Group Tax-Free Fund and the
Delaware National High-Yield Municipal Bond Fund of Voyageur Mutual Funds at
August 31, 2006, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and their financial highlights for each of the five years in the period then
ended, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 11, 2006
53
Other Fund information
Delaware National Tax-Free Funds
Proxy Results
The shareholders of Delaware Group Tax-Free Fund (a "Trust") voted on the
following proposals (as applicable) at the special meeting of shareholders on
June 26, 2006 or as adjourned. The description of each proposal and number of
shares voted are as follows:
To approve a Plan of Reorganization by Delaware Group Tax-Free Fund, on behalf
of Delaware Tax-Free Insured Fund and Delaware Tax-Free USA Fund, which provides
for; (1) the acquisition by Delaware Tax-Free USA Fund (the "Acquiring Fund") of
substantially all of the assets of Delaware Tax-Free Insured Fund (the "Acquired
Fund"), in exchange for shares of the Acquiring Fund; (ii) the pro rata
distribution of shares of the Acquiring Fund to the shareholders of such
Acquired Fund; and (iii) the liquidation an dissolution of the Acquired Fund.
For Against Abstain
___ _______ _______
Delaware Group Tax-Free Insured Fund $2,504,912.712 $97,017.190 $137,681.694
Board Consideration of Delaware Tax-Free USA Fund, Delaware Tax-Free USA
Intermediate, and Delaware National High-Yield Municipal Bond Fund Agreements
At a meeting held on May 17-18, 2006 (the "Annual Meeting"), the Board of
Trustees, including a majority of disinterested or independent Trustees,
approved the renewal of the Investment Advisory Agreements for the Delaware
Tax-Free USA Fund, Delaware Tax-Free USA Intermediate Fund and Delaware National
High-Yield Municipal Bond Fund (each a "Fund" and collectively the "Funds"). In
making its decision, the Board considered information furnished throughout the
year at regular Board meetings, as well as information prepared specifically in
connection with the Annual Meeting. Information furnished and discussed
throughout the year included reports detailing Fund performance, investment
strategies, expenses, compliance matters and other services provided by Delaware
Management Company ("DMC"), the investment advisor. Information furnished
specifically in connection with the Annual Meeting included materials provided
by DMC and its affiliates ("Delaware Investments") concerning, among other
things, the level of services provided to the Funds, the costs of such services
to the Funds, economies of scale and the financial condition and profitability
of Delaware Investments. In addition, in connection with the Annual Meeting, the
Board considered independent historical and comparative reports prepared by
Lipper Inc. ("Lipper"), an independent statistical compilation organization. The
Board also considered industry comparative information presented by
representatives from Lipper. The Lipper reports compared each Fund's investment
performance and expenses with those of other comparable mutual funds. The Board
also received certain supplemental information regarding management's policy
with respect to advisory fee levels and its philosophy with respect to
breakpoints; the structure of portfolio manager compensation; and any
constraints or limitations on the availability of securities in certain
investment styles which might inhibit DMC's ability to fully invest in
accordance with Fund policies.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel and representatives from
Lipper. At the meeting with representatives from Lipper, Mr. Driscoll, then
Chairman of the Delaware Investments(R) Family of Funds, and Chairman and
Chief Executive Officer of the investment advisor, was present to respond to
questions by Lipper and the independent Trustees. While the Board considered the
Investment Advisory Agreements for all of the funds in the Delaware Investments
Family of Funds at the same Board meeting, information was provided and
considered by the Board for each fund individually. In approving the continuance
of the Investment Advisory Agreement for each Fund, the Board, including a
majority of independent Trustees, determined that the existing advisory fee
structure was fair and reasonable and that the continuance of the Investment
Advisory Agreement was in the best interests of the Fund and its shareholders.
While attention was given to all information furnished, the following discusses
the primary factors relevant to the Board's deliberations and determination,
including those relating to the selection of the investment advisor and the
approval of the advisory fee.
Nature, Extent and Quality of Service. Consideration was given to the services
provided by Delaware Investments to the Funds and their shareholders. In
reviewing the nature, extent and quality of services, the Board emphasized
reports furnished to it throughout the year at regular Board meetings covering
matters such as the relative performance of the Funds, compliance of portfolio
managers with the investment policies, strategies and restrictions for the
Funds, the compliance of management personnel with the Code of Ethics adopted
throughout the Delaware Investments Family of Funds complex, the adherence to
fair value pricing procedures as established by the Board and the accuracy of
net asset value calculations. The Board noted that it was pleased with the
current staffing of the Funds' investment advisor and management's efforts to
strengthen and deepen portfolio management teams during the past year, the
emphasis on research and the compensation system for advisory personnel.
Favorable consideration was given to DMC's efforts to maintain, and in some
instances increase, financial and human resources committed to fund matters.
Other factors taken into account by the Board were Delaware Investments'
preparedness for, and response to, legal and regulatory matters. The Board also
considered the transfer agent and shareholder services provided to Fund
shareholders by Delaware Investments' affiliate, Delaware Service Company, Inc.
("DSC"), noting DSC's commitment to maintain a high level of service in keeping
with its past receipt of the DALBAR Pyramid Award, and the continuing
expenditures by Delaware Investments to improve the delivery of shareholder
services. Additionally, the Board noted the extent of benefits provided to Fund
shareholders for being part of the Delaware Investments Family of Funds,
including the privilege to exchange investments between the same class of shares
of funds without a sales charge, the ability to reinvest Fund dividends into
other funds and the privilege to combine holdings in other funds to obtain a
reduced sales charge. The Board was satisfied with the nature, extent and
quality of the overall services provided by Delaware Investments.
54
Other Fund information
Delaware National Tax-Free Funds
Board Consideration of Delaware Tax-Free USA Fund, Delaware Tax-Free USA
Intermediate, and Delaware National High-Yield Municipal Bond Fund Agreements
(continued)
Investment Performance. The Board considered the investment performance of DMC
and the Funds. The Board was pleased with DMC's investment performance. The
Board placed significant emphasis on the investment performance of the Funds in
view of its importance to shareholders. While consideration was given to
performance reports and discussions with portfolio managers at Board meetings
throughout the year, particular weight was given to the Lipper reports furnished
for the Annual Meeting. The Lipper reports prepared for each Fund showed the
investment performance of its Class A shares in comparison to a group of similar
funds as selected by Lipper (the "Performance Universe"). A fund with the best
performance is ranked first, and a fund with the poorest performance is ranked
last. The highest/best performing 25% of funds in the Performance Universe make
up the first quartile; the next 25% - the second quartile; the next 25% - the
third quartile; and the poorest/worst performing 25% of funds in the Performance
Universe make up the fourth quartile. Comparative annualized performance for the
Funds was shown for the past one, three, five and 10 year periods, as
applicable, ended January 31, 2006. The Board noted its objective that each
Fund's performance for the periods considered be at or above the median of its
Performance Universe. The following paragraphs summarize the performance results
for each Fund and the Board's view of such performance.
Delaware Tax-Free USA Fund - The Performance Universe for the Fund consisted of
the Fund and all retail and institutional general municipal debt funds as
selected by Lipper. The Lipper report comparison showed that the Fund's total
return for the one and 10 year periods was in the second quartile of such
Performance Universe. The report further showed that the Fund's total return for
the three and five year periods was in the first quartile. The Board was
satisfied with such performance.
Delaware Tax-Free USA Intermediate Fund - The Performance Universe for the Fund
consisted of the Fund and all retail and institutional intermediate municipal
debt funds as selected by Lipper. The Lipper report comparison showed that the
Fund's total return for the one, three, five and 10 year periods was in the
first quartile of such Performance Universe. The Board was satisfied with such
performance.
Delaware National High-Yield Municipal Bond Fund - The Performance Universe for
the Fund consisted of the Fund and all retail and institutional high yield
municipal debt funds as selected by Lipper. The Lipper report comparison showed
that the Fund's total return for the one year period was in the third quartile
of such Performance Universe. The report further showed that the Fund's total
return for three and five year periods was in the second quartile and the Fund's
total return for the 10 year period was in the first quartile. The Board noted
that the Fund's performance results were mixed but on an overall basis tended
toward above median, which was acceptable.
Comparative Expenses. The Board considered expense data for the Delaware
Investments(R) Family of Funds. Management provided the Board with information
on pricing levels and fee structures for the Funds. The Board focused
particularly on the comparative analysis of the management fees and total
expense ratios of each Fund and the management fees and expense ratios of a
group of similar funds as selected by Lipper (the "Expense Group"). In reviewing
comparative costs, each Fund's contractual management fee and the actual
management fee incurred by the Fund were compared with the contractual
management fees (assuming all funds in the Expense Group were similar in size to
the Fund) and actual management fees (as reported by each fund) of other funds
within the Expense Group, taking into effect any applicable breakpoints and fee
waivers. Each Fund's total expenses were also compared with those of its Expense
Group. The Lipper total expenses, for comparative consistency, were shown by
Lipper for Class A shares and compared total expenses including 12b-1 and
non-12b-1 service fees. The Board also considered fees paid to Delaware
Investments for non-management services. The Board noted its objective to limit
each Fund's total expense ratio to an acceptable range as compared to the median
of the Expense Group. The following paragraph summarizes the expense results for
each Fund and the Board's view of such expenses.
Delaware Tax-Free USA Fund - The expense comparisons for the Fund showed that
its actual management fee was in the quartile with the second lowest expenses of
its Expense Group and its total expenses were in the quartile with the second
highest expenses of its Expense Group. The Board gave favorable consideration to
the Fund's management fee, but noted that the Fund's total expenses were not in
line with the Board's stated objective. In evaluating the total expenses, the
Board considered fee waivers in place through December 2006 and recent
initiatives implemented by management, such as the outsourcing of certain
transfer agency services, creating an opportunity for a reduction in expenses.
The Board was satisfied with management's efforts to improve the Fund's total
expense ratio and bring it in line with the Board's objective.
Delaware Tax-Free USA Intermediate Fund - The expense comparisons for the Fund
showed that its actual management fee and total expenses were in the quartile
with the lowest expenses of its Expense Group. The Board was satisfied with the
management fees and total expenses of the Fund in comparison to its Expense
Group as shown in the Lipper report.
Delaware National High-Yield Municipal Bond Fund - The expense comparisons for
the Fund showed that its actual management fee was in the quartile with the
lowest expenses of its Expense Group and its total expenses were in the quartile
with the second lowest expenses of its Expense Group. The Board was satisfied
with the management fees and total expenses of the Fund in comparison to its
Expense Group as shown in the Lipper report. Management Profitability. The Board
considered the level of profits, if any, realized by Delaware Investments in
connection with the operation of the Funds. In this respect, the Board reviewed
the Investment Management Profitability Analysis that addressed the overall
profitability of Delaware Investments' business in providing management and
other services to each of the individual funds and the Delaware Investments
Family of Funds as a whole. Specific attention was given to the methodology
followed in allocating costs for the purpose of determining profitability.
Management stated that the level of profits of Delaware Investments, to a
certain extent, reflected operational cost savings and efficiencies initiated by
Delaware Investments. The Board considered Delaware Investments' expenditures to
improve services provided to fund shareholders and to meet additional regulatory
and
55
Other Fund information
Delaware National Tax-Free Funds
compliance requirements resulting from recent SEC initiatives. The Board also
considered the extent to which Delaware Investments might derive ancillary
benefits from fund operations, including the potential for procuring additional
business as a result of the prestige and visibility associated with its role as
service provider to the Delaware Investments Family of Funds, the benefits from
allocation of fund brokerage to improve trading efficiencies and the use of
"soft" commission dollars to pay for proprietary and non-proprietary research.
The Board did not find that the level of profits realized by Delaware
Investments from the relationships with the Funds and the Delaware Investments
Family of Funds required negotiation of reduction of fees.
Economies of Scale. The Trustees considered whether economies of scale are
realized by Delaware Investments as each Fund's assets increase and the extent
to which any economies of scale are reflected in the level of management fees
charged. The Trustees took into account the standardized advisory fee pricing
and structure approved by the Board and shareholders as part of a complex-wide
shareholder meeting conducted in 1998/1999. At that time, Delaware Investments
introduced breakpoints to account for management economies of scale. The Board
noted that the fee under each Fund's management contract fell within the
standard structure. With respect to the Delaware Tax-Free USA Intermediate Fund
and Delaware National High-Yield Municipal Bond Fund, although the Funds have
not reached a size at which they can take advantage of breakpoints, the Board
recognized that the fees were structured so that when the Funds grow, economies
of scale may be shared. With respect to the Delaware Tax-Free USA Fund, the
Board also noted that the Fund's assets exceeded the first breakpoint level. The
Board believed that, given the extent to which economics of scale might be
realized by the advisor and its affiliates, the schedule of fees under the
Investment Advisory Agreement provides a sharing of benefits with the Fund and
its shareholders.
56
Board of trustees/directors
and officers addendum
Delaware Investments(R) Family of Funds
A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which
has oversight responsibility for the management of a fund's business affairs.
Trustees establish procedures and oversee and review the performance of the
investment manager, the distributor, and others who perform services for the
fund. The independent fund trustees, in particular, are advocates for
shareholder interests. Each trustee has served in that capacity since he or she
was elected to or appointed to the Board of Trustees, and will continue to serve
until his or her retirement or the election of a new trustee in his or her
place. The following is a list of the Trustees and Officers with certain
background and related information.
Number of
Portfolios in Fund Other
Name, Complex Overseen Directorships
Address, Position(s) Length of Principal Occupation(s) by Trustee Held by
and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer
____________________________________________________________________________________________________________________________________
Interested Trustees
____________________________________________________________________________________________________________________________________
Patrick P. Coyne (1) Chairman, Chairman and Trustee Patrick P. Coyne has served in 83 None
2005 Market Street President, since August 16, 2006 various executive capacities
Philadelphia, PA Chief Executive at different times at
19103 Officer, and President and Delaware Investments.(2)
Trustee Chief Executive Officer
April 14, 1963 since August 1, 2006
____________________________________________________________________________________________________________________________________
Independent Trustees
____________________________________________________________________________________________________________________________________
Thomas L. Bennett Trustee Since Private Investor - 83 None
2005 Market Street March 2005 (March 2004-Present)
Philadelphia, PA
19103 Investment Manager -
Morgan Stanley & Co.
October 4, 1947 (January 1984-March 2004)
____________________________________________________________________________________________________________________________________
John A. Fry Trustee Since President - 83 Director -
2005 Market Street January 2001 Franklin & Marshall College Community Health
Philadelphia, PA (June 2002-Present) Systems
19103
Executive Vice President - Director -
May 28, 1960 University of Pennsylvania Allied Barton
(April 1995-June 2002) Security Holdings
____________________________________________________________________________________________________________________________________
Anthony D. Knerr Trustee Since Founder and Managing Director - 83 None
2005 Market Street April 1990 Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990-Present)
December 7, 1938
____________________________________________________________________________________________________________________________________
Lucinda S. Landreth Trustee Since Chief Investment Officer - 83 None
2005 Market Street March 2005 Assurant, Inc.
Philadelphia, PA (Insurance)
19103 (2002-2004)
June 24, 1947
____________________________________________________________________________________________________________________________________
Ann R. Leven Trustee Since Owner - 83 Director and
2005 Market Street September 1989 ARL Associates, Audit Committee
Philadelphia, PA Strategic Financial Planning Chairperson - Andy
19103 Consulting Firm Warhol Foundation
(1983-Present)
November 1, 1940 Director and Audit
Committee Member -
Systemax, Inc.
____________________________________________________________________________________________________________________________________
(continues) 57
Number of
Portfolios in Fund Other
Name, Complex Overseen Directorships
Address, Position(s) Length of Principal Occupation(s) by Trustee Held by
and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer
____________________________________________________________________________________________________________________________________
Independent Trustees (continued)
____________________________________________________________________________________________________________________________________
Thomas F. Madison Trustee Since President and Chief 83 Director -
2005 Market Street May 1999 Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
February 25, 1936 (January 1993-Present)
Director and Audit
Committee Member -
Digital River, Inc.
Director and Audit
Committee Member -
Rimage
Corporation
Director - Valmont
Industries, Inc.
____________________________________________________________________________________________________________________________________
Janet L. Yeomans Trustee Since Vice President 83 None
2005 Market Street April 1999 (January 2003-Present)
Philadelphia, PA and Treasurer
19103 (January 2006-Present)
3M Corporation
July 31, 1948
Ms. Yeomans has held
various management positions
at 3M Corporation since 1983.
____________________________________________________________________________________________________________________________________
J. Richard Zecher Trustee Since Founder - 83 Director and Audit
2005 Market Street March 2005 Investor Analytics Committee Member -
Philadelphia, PA (Risk Management) Investor Analytics
19103 (May 1999-Present)
Director and Audit
July 3, 1940 Founder - Committee Member -
Sutton Asset Management Oxigene, Inc.
(Hedge Fund)
(September 1998-Present)
____________________________________________________________________________________________________________________________________
Officers
____________________________________________________________________________________________________________________________________
Michael P. Bishof Senior Chief Financial Michael P. Bishof has served in 83 None (3)
2005 Market Street Vice President Officer since various executive capacities
Philadelphia, PA and February 2005 at different times at
19103 Chief Financial Delaware Investments.
Officer
August 18, 1962
____________________________________________________________________________________________________________________________________
David F. Connor Vice President, Vice President since David F. Connor has served as 83 None (3)
2005 Market Street Deputy General September 21, 2000 Vice President and Deputy
Philadelphia, PA Counsel, and Secretary and Secretary General Counsel of
19103 since Delaware Investments
October 2005 since 2000.
December 2, 1963
____________________________________________________________________________________________________________________________________
David P. O'Connor Senior Vice Senior Vice President, David P. O'Connor has served in 83 None (3)
2005 Market Street President, General Counsel, and various executive and legal
Philadelphia, PA General Counsel, Chief Legal Officer capacities at different times
19103 and Chief since at Delaware Investments.
Legal Officer October 2005
February 21, 1966
____________________________________________________________________________________________________________________________________
John J. O'Connor Senior Vice President Treasurer John J. O'Connor has served in 83 None (3)
2005 Market Street and Treasurer since various executive capacities
Philadelphia, PA February 2005 at different times at
19103 Delaware Investments.
June 16, 1957
____________________________________________________________________________________________________________________________________
(1) Patrick P. Coyne is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') investment
advisor.
(2) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's(s')
investment advisor, principal underwriter, and its transfer agent.
(3) Michael P. Bishof, David F. Connor, David P. O'Connor, and John J. O'Connor serve in similar capacities for the six portfolios
of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant.
John J. O'Connor also serves in a similar capacity for Lincoln Variable Insurance Products Trust, which has the same investment
advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
58
About the organization
This annual report is for the information of Delaware Tax-Free USA Fund,
Delaware Tax-Free USA Intermediate Fund, and Delaware National High-Yield
Municipal Bond Fund shareholders, but it may be used with prospective investors
when preceded or accompanied by a current prospectus for Delaware Tax-Free USA
Fund, Delaware Tax-Free USA Intermediate Fund, Delaware National High-Yield
Municipal Bond 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 the Fund will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
Board of trustees
Patrick P. Coyne
Chairman, President, and
Chief Executive Officer
Delaware Investments 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 and Managing Director
Anthony Knerr & Associates
New York, NY
Lucinda S. Landreth
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA
Ann R. Leven
Owner - ARL Associates,
Strategic Financial Planning
Consulting Firm
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 Family of Funds
Philadelphia, PA
David F. Connor
Vice President, Deputy General Counsel,
and Secretary
Delaware Investments Family of Funds
Philadelphia, PA
David P. O'Connor
Senior Vice President, General Counsel,
and Chief Legal Officer
Delaware Investments Family of Funds
Philadelphia, PA
John J. O'Connor
Senior Vice President and Treasurer
Delaware Investments 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 of 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 each Fund's Web site at
http://www.delawareinvestments.com; and (iii) on the Commission's Web site at
http://www.sec.gov. Each Fund's Forms N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, D.C.; 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 each Fund's Web site at
http://www.delawareinvestments.com; and (ii) on the Commission's Web site at
http://www.sec.gov.
59
Get shareholder reports and prospectuses online instead of in the mail.
> Visit www.delawareinvestments.com/edelivery
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to conduct your business online. Gain 24-hour access to your account and one of
the highest levels of Web security available. You also get:
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Available only with Turbo Tax(R) Online(SM) and Desktop software -
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Register for Account Access today! Please visit us at
www.delawareinvestments.com, select Individual Investors, and click Account
Access.
Please call our Shareholder Service Center at 800 523-1918 Monday through Friday
from 8:00 a.m. to 7:00 p.m., Eastern Time, for assistance with any questions.
[DELAWARE INVESTMENTS LOGO]
(923) Printed in the USA
AR-011 [8/06] CGI 10/06 MF-06-09-025 PO11258
<page>
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer, principal
accounting officer, controller, public accountant, auditor, or person performing
similar functions;
<page>
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that each
member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Thomas L. Bennett (1)
Thomas F. Madison
Janet L. Yeomans (1)
J. Richard Zecher
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
__________
The aggregate fees billed for services provided to the registrant by its
independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $67,700 for
the fiscal year ended August 31, 2006.
____________________
(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Mr.
Bennett qualifies as an audit committee financial expert by virtue of his
education, Chartered Financial Analyst designation, and his experience as a
credit analyst, portfolio manager and the manager of other credit analysts and
portfolio managers. The Board of Trustees/Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
<page>
The aggregate fees billed for services provided to the registrant by its
independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $51,200 for
the fiscal year ended August 31, 2005.
(b) Audit-related fees.
__________________
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended August 31, 2006.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the registrant's investment adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $28,300 for the registrant's fiscal year ended
August 31, 2006. The percentage of these fees relating to services approved by
the registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These audit-related services were as follows: issuance of report concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; and issuance of agreed upon procedures reports
to the registrant's Board in connection with the pass-through of internal legal
cost relating to the operations of the registrant.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the registrant's financial
statements and not reported under paragraph (a) of this Item were $0 for the
fiscal year ended August 31, 2005.
The aggregate fees billed by the registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the registrant's investment adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $33,875 for the registrant's fiscal year ended
August 31, 2005. The percentage of these fees relating to services approved by
the registrant's Audit Committee pursuant to the de minimis exception from the
pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These audit-related services were as follows: issuance of report concerning
transfer agent's system of internal accounting control pursuant to Rule 17Ad-13
of the Securities Exchange Act; and issuance of agreed upon procedures reports
to the registrant's Board in connection with the annual transfer agent and fund
accounting service agent contract renewals and the pass-through of internal
legal cost relating to the operations of the registrant.
<page>
(c) Tax fees.
________
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $12,400 for the fiscal year
ended August 31, 2006. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's investment adviser and other
service providers under common control with the adviser and that relate directly
to the operations or financial reporting of the registrant were $0 for the
registrant's fiscal year ended August 31, 2006.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $9,800 for the fiscal year
ended August 31, 2005. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's investment adviser and other
service providers under common control with the adviser and that relate directly
to the operations or financial reporting of the registrant were $0 for the
registrant's fiscal year ended August 31, 2005.
(d) All other fees.
______________
The aggregate fees billed for all services provided by the independent
auditors to the registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended August 31, 2006.
The aggregate fees billed for all services other than those set forth in
paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
August 31, 2006.
The aggregate fees billed for all services provided by the independent
auditors to the registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended August 31, 2005.
<page>
The aggregate fees billed for all services other than those set forth in
paragraphs (b) and (c) of this Item provided by the registrant's independent
auditors to the registrant's adviser and other service providers under common
control with the adviser and that relate directly to the operations or financial
reporting of the registrant were $0 for the registrant's fiscal year ended
August 31, 2005.
(e) The registrant's Audit Committee has established pre-approval policies
and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the
"Pre-Approval Policy") with respect to services provided by the registrant's
independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee
has pre-approved the services set forth in the table below with respect to the
registrant up to the specified fee limits. Certain fee limits are based on
aggregate fees to the registrant and other registrants within the Delaware
Investments Family of Funds.
______________________________________________________________________________________________________________________
Service Range of Fees
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Audit Services
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Statutory audits or financial audits for new Funds up to $25,000 per Fund
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Services associated with SEC registration statements (e.g., Form N-1A, Form
N-14, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings (e.g., comfort letters up to $10,000 per Fund
for closed-end Fund offerings, consents), and assistance in responding to SEC
comment letters
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit-related services" rather than "audit services")
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Audit-Related Services
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Consultations by Fund management as to the accounting or disclosure treatment of
transactions or events and /or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate
regulatory or standard-setting bodies (Note: Under SEC rules, some consultations
may be considered "audit services" rather than "audit-related services")
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Tax Services
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
U.S. federal, state and local and international tax planning and advice (e.g.,
consulting on statutory, regulatory or administrative developments, evaluation up to $25,000 in the aggregate
of Funds' tax compliance function, etc.)
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
U.S. federal, state and local tax compliance (e.g., excise distribution reviews, up to $5,000 per Fund
etc.)
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Review of federal, state, local and international income, franchise and other up to $5,000 per Fund
tax returns
______________________________________________________________________________________________________________________
Under the Pre-Approval Policy, the Audit Committee has also pre-approved
the services set forth in the table below with respect to the registrant's
investment adviser and other entities controlling, controlled by or under common
control with the investment adviser that provide ongoing services to the
registrant (the "Control Affiliates") up to the specified fee limit. This fee
limit is based on aggregate fees to the investment adviser and its Control
Affiliates.
<page>
______________________________________________________________________________________________________________________
Service Range of Fees
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Non-Audit Services
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Services associated with periodic reports and other documents filed with the SEC up to $10,000 in the aggregate
and assistance in responding to SEC comment letters
______________________________________________________________________________________________________________________
The Pre-Approval Policy requires the registrant's independent auditors to
report to the Audit Committee at each of its regular meetings regarding all
services initiated since the last such report was rendered, including those
services authorized by the Pre-Approval Policy.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant's independent
auditors for services rendered to the registrant and to its investment adviser
and other service providers under common control with the adviser were $266,220
and $213,035 for the registrant's fiscal years ended August 31, 2006 and August
31, 2005, respectively.
(h) In connection with its selection of the independent auditors, the
registrant's Audit Committee has considered the independent auditors' provision
of non-audit services to the registrant's investment adviser and other service
providers under common control with the adviser that were not required to be
pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit
Committee has determined that the independent auditors' provision of these
services is compatible with maintaining the auditors' independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
<page>
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or statements filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.
There were no significant changes in the registrant's internal control over
financial reporting that occurred during the second fiscal quarter of the period
covered by the report to stockholders included herein (i.e., the registrant's
fourth fiscal quarter) that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
<page>
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.
<page>
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.
Name of Registrant: Delaware Group Tax Free Fund
PATRICK P. COYNE
_________________________________
By: Patrick P. Coyne
Title: Chief Executive Officer
Date: November 6, 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.
PATRICK P. COYNE
_________________________________
By: Patrick P. Coyne
Title: Chief Executive Officer
Date: November 6, 2006
RICHARD SALUS
_________________________________
By: Richard Salus
Title: Chief Financial Officer
Date: November 6, 2006