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: 811-3910
Exact name of registrant as specified in charter:
Voyageur Tax-Free Funds
Address of principal executive offices:
2005 Market Street
Philadelphia, PA 19103
Name and address of agent for service:
David F. Connor, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: August 31
Date of reporting period: August 31, 2006
Item 1. Reports to Stockholders
The Registrant's shareholder reports are combined with the shareholder reports
of other investment company registrants. This Form N-CSR pertains to the
DELAWARE TAX-FREE MINNESOTA FUND of the Registrant, information on which is
included in the following shareholder reports.
Annual Report Delaware
Tax-Free Minnesota Fund
Delaware
Tax-Free Minnesota
Insured Fund
Delaware
Tax-Free Minnesota
Intermediate Fund
Delaware
Minnesota High-Yield
Municipal Bond Fund
August 31, 2006
Fixed income mutual funds
[DELAWARE INVESTMENTS LOGO] [LOGO] POWERED BY RESEARCH(R)
<page>
Table of contents
> Portfolio management review .................................................1
> Performance summaries .......................................................6
> Disclosure of Fund expenses ................................................14
> Sector allocation and credit rating breakdowns..............................16
> Statements of net assets ...................................................18
> Statements of operations ...................................................34
> Statements of changes in net assets ........................................35
> Financial highlights .......................................................37
> Notes to financial statements ..............................................49
> Report of independent registered public accounting firm ....................56
> Other Fund information .....................................................57
> Board of trustees/directors and officers addendum ..........................60
> About the organization .....................................................62
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.
<page>
Portfolio management review
Delaware Minnesota Municipal Bond Funds
August 31, 2006
Joseph R. Baxter
Robert Collins
Co-managers of the funds
The managers of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota
Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund, and Delaware
Minnesota High-Yield Municipal Bond Fund 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 caused concerns in the
capital markets and weighed on 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 environment, 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: What conditions prevailed in the Minnesota debt market?
A: According to an August 1, 2006 report released by The Bond Buyer, bond
issuance by state and local governments has decreased overall. The Bond Buyer
further reported that Minnesota state issuance decreased by 43% over the period
from January 2006 through June 2006 (compared to the same period the previous
year).
(continues) 1
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Portfolio management review
Minnesota's economy continues to expand due to its manufacturing sector
concentration. The state has steady demographic trends including high personal
income levels, high employment diversity and performance, and low unemployment.
As of August 2006, the state's unemployment rate remained low at 3.7% compared
to the national unemployment rate of 4.7% (source: U.S. Department of Labor).
Through March of fiscal 2006, tax revenues were up 8.3% (source: Nelson A.
Rockefeller State Revenue Report #64). The state's general fund ended fiscal
2005 at $92.9 million. The budget reserve has rebounded to $1 billion, on a
budgetary basis. The 2006-2007 budget projects a total spending increase of
8.4%. Most of the spending increases are going toward K-12 education, health and
human services, and public safety. The state is paying for these increases with
approximately $1 billion in new ongoing revenues, including a $0.75 per pack
increase in the cigarette tax (source: Moody's).
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 our 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.
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.
Overall, we 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 Minnesota Fund
Q: How did the Fund perform versus its benchmark index and peer group?
A: Delaware Tax-Free Minnesota Fund returned 2.78% at net asset value and -1.86%
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 3.03%. Its peer
group - as measured by the Lipper Minnesota Municipal Debt Funds Average -
returned 2.35% (source: Lipper). For the complete, annualized performance of
Delaware Tax-Free Minnesota 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 Minnesota Fund's legacy bonds would not be called,
and we 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, which 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. Both stances generally were not beneficial when comparing Fund
performance to the benchmark and many of our peer funds, as the airline and
tobacco industries 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
2
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outperformed. At times, the margin of outperformance between two adjacent credit
ratings was significant.
Within the portfolio, our exposure to bonds accorded AAA ratings was reduced
during the fiscal year, and we increased the allocation of bonds rated BBB. The
Fund gained some measure of improved performance relative to the benchmark due
to multi-family housing securities. However, we experienced weakness with our
exposure to Puerto Rico bonds because of budget problems in the commonwealth.
These difficulties now appear to have been resolved, but we have reduced our
exposure to Puerto Rico bonds in the Fund over the course of the period.
At fiscal year end, healthcare bonds, largely hospitals, comprised 27.77% of the
Fund's portfolio upon the closure of the fiscal year period. A notable
allocation for the Fund, although not a particularly large one, was bonds that
finance continuing care retirement centers. During the year, we often found
these securities to offer appealing risk-and-return characteristics.
Delaware Tax-Free Minnesota Insured Fund
Q: How did the Fund perform versus its benchmark index and peer group?
A: Delaware Tax-Free Minnesota Insured Fund returned 2.23% at net asset value
and -2.34% 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 3.03%.
Its peer group, as measured by the Lipper Minnesota Municipal Debt Funds
Average, returned 2.35% (source: Lipper). For the complete, annualized
performance of Delaware Tax-Free Minnesota Insured 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 did have 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 duration values 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, which 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. Both stances generally were not beneficial when comparing Fund
performance to the benchmark and many of our peer funds, as the airline and
tobacco industries did perform 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.
The Fund keeps at least 80% of its assets in insured securities. Because
lower-quality investments outperformed during the year, we often were near the
full 20% allowed in non-insured bonds. A good portion of these holdings had A
ratings - an investment-grade category that outperformed AAA insured bonds.
At fiscal year end, of the Fund's net assets, local general obligation bonds
comprised 23.3%, healthcare bonds (with a focus on hospitals) 16.8%, and
escrowed-to-maturity bonds 15.5%.
Delaware Tax-Free Minnesota Intermediate Fund
Q: How did the Fund perform versus its benchmark index and peer group?
A: Delaware Tax-Free Minnesota Intermediate Fund returned 2.62% at net asset
value and -0.19% at maximum offer price (both figures represent Class A shares
with
(continues) 3
<page>
Portfolio management review
distributions reinvested) for the fiscal year ended August 31, 2006.
As of August 31, 2006, Tax-Free Minnesota Intermediate Fund's benchmark index
was changed from the Lehman Brothers 5-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 fiscal year ended August 31, 2006, the Lehman Brothers Municipal 5-Year
Index gained 2.27%, while 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 Minnesota
Intermediate 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 did have 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 duration values 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 intended range, a consideration that we were monitoring. Should the
market move toward favoring longer-term securities, we might be inclined to
extend Fund duration intentionally.
In keeping with our long-term commitment to holding a high-quality portfolio of
investments, we again generally avoided the tobacco industry bonds, which 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. Both stances generally were not beneficial when comparing Fund
performance to the benchmark and many of our peer funds, as the airline and
tobacco industries did perform 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.
Within the portfolio, our exposure to bonds accorded AAA ratings was reduced
during the fiscal year, and we increased the allocation of bonds rated both A
and BBB. Our allocation to non-rated bonds also rose slightly. The Fund gained
some measure of performance relative to the benchmark due to multi-family
housing securities. However, we experienced weakness with our exposure to Puerto
Rico bonds because of budget problems in the commonwealth. These difficulties
now appear to have been resolved, but we have reduced our exposure to Puerto
Rico bonds over the course of the period in the Fund. At fiscal year end, local
general obligation bonds comprised 32.9% of the Fund's net assets, healthcare
22.48% with a focus on hospital bonds, and bonds related to higher education
10.4%.
Delaware Minnesota High-Yield Municipal Bond Fund
Q: How did the Fund perform versus its benchmark index and peer group?
A: Delaware Minnesota High-Yield Municipal Bond Fund returned 3.54% at net asset
value and -1.12% 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
3.03%. Its peer group - as measured by the Lipper Minnesota Municipal Debt Funds
Average
4
<page>
- - returned 2.35% (source: Lipper). For the complete, annualized performance of
Delaware Minnesota High-Yield Municipal Bond Fund, please see the table on page
12.
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.
In keeping with our long-term commitment to holding a high-quality portfolio of
investments, we again generally avoided the tobacco industry bonds, which 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. Both stances generally were not beneficial when comparing Fund
performance to the benchmark and many of our peer funds, as the airline and
tobacco industries did perform 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.
The trend toward outperformance by lower-quality securities generally helped
high yield funds, and in keeping with the market environment, Delaware Minnesota
High-Yield Municipal Bond Fund was the best performer among the four Minnesota
open-end mutual funds managed by Delaware Management Company.
The Fund gained some measure of improved performance relative to the benchmark
due to multi-family housing securities, which made up a significant portion of
assets. However, we experienced weakness with our exposure to Puerto Rico bonds
because of budget problems in the commonwealth. These difficulties now appear to
have been resolved, but we have reduced our exposure to Puerto Rico bonds over
the course of the period in the Fund.
Housing bonds, including large holdings of multi-family housing bonds, were the
second-largest position in the Fund at fiscal year end. Healthcare bond
positions, primarily hospital bonds and bonds issued to finance continuing care
retirement centers, were larger in size and comprised 41% of the Fund's net
assets.
5
<page>
Performance summary
Delaware Tax-Free Minnesota 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 Minnesota 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. 2/27/84)
Excluding sales charge +2.78% +5.18% +5.58% +7.45%
Including sales charge -1.86% +4.22% +5.10% +7.23%
________________________________________________________________________________
Class B (Est. 3/11/95)
Excluding sales charge +2.01% +4.39% +4.96% +5.21%
Including sales charge -1.93% +4.14% +4.96% +5.21%
________________________________________________________________________________
Class C (Est. 5/4/94)
Excluding sales charge +2.08% +4.41% +4.82% +4.92%
Including sales charge +1.10% +4.41% +4.82% +4.92%
________________________________________________________________________________
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 that 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 0.25%.
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%. 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
Minnesota 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.
6
<page>
Fund basics
As of August 31, 2006
________________________________________________________________________________
Fund objective
________________________________________________________________________________
The Fund seeks as high a level of current income exempt from federal income tax
and from the Minnesota state personal income tax as is consistent with
preservation of capital.
________________________________________________________________________________
Total Fund net assets
________________________________________________________________________________
$408 million
________________________________________________________________________________
Number of holdings
________________________________________________________________________________
147
________________________________________________________________________________
Fund start date
________________________________________________________________________________
February 27, 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 DEFFX 928918101
Class B DMOBX 928928696
Class C DMOCX 928918408
[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
<page>
Performance summary
Delaware Tax-Free Minnesota Insured 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 Minnesota
Insured 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. 5/1/87)
Excluding sales charge +2.23% +4.55% +5.25% +6.30%
Including sales charge -2.34% +3.60% +4.76% +6.04%
________________________________________________________________________________
Class B (Est. 3/7/95)
Excluding sales charge +1.47% +3.78% +4.62% +4.93%
Including sales charge -2.45% +3.52% +4.62% +4.93%
________________________________________________________________________________
Class C (Est. 5/4/94)
Excluding sales charge +1.46% +3.77% +4.47% +4.62%
Including sales charge +0.48% +3.77% +4.47% +4.62%
________________________________________________________________________________
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 that 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 0.25%.
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%. 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
Minnesota Insured 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
<page>
Fund basics
As of August 31, 2006
________________________________________________________________________________
Fund objective
________________________________________________________________________________
The Fund seeks as high a level of current income exempt from federal income tax
and from the Minnesota state personal income tax, as is consistent with
preservation of capital.
________________________________________________________________________________
Total Fund net assets
________________________________________________________________________________
$236 million
________________________________________________________________________________
Number of holdings
________________________________________________________________________________
77
________________________________________________________________________________
Fund start date
________________________________________________________________________________
May 1, 1987
________________________________________________________________________________
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 MNINX 928916105
Class B DVMBX 928928563
Class C DVMCX 928916600
[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) 9
<page>
Performance summary
Delaware Tax-Free Minnesota 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 Minnesota
Intermediate 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. 10/27/85)
Excluding sales charge +2.62% +4.83% +4.65% +5.43%
Including sales charge -0.19% +4.25% +4.35% +5.29%
________________________________________________________________________________
Class B (Est. 8/15/95)
Excluding sales charge +1.75% +3.95% +4.22% +4.26%
Including sales charge -0.23% +3.95% +4.22% +4.26%
________________________________________________________________________________
Class C (Est. 5/4/94)
Excluding sales charge +1.75% +3.96% +3.79% +3.91%
Including sales charge +0.76% +3.96% +3.79% +3.91%
________________________________________________________________________________
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 that the investment was
not redeemed.
The Fund offers Class A, B, and C shares. Class A shares are sold with a
front-end sales charge of up to 2.75% and have an annual distribution and
service fee of up to 0.25%. The distributor has contracted to limit this 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
Minnesota 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.
10
<page>
Fund basics
As of August 31, 2006
________________________________________________________________________________
Fund objective
________________________________________________________________________________
The Fund seeks to provide investors with preservation of capital and,
secondarily, current income exempt from federal income tax and the Minnesota
state personal income tax, by maintaining a dollar-weighted average effective
portfolio maturity of 10 years or less.
________________________________________________________________________________
Total Fund net assets
________________________________________________________________________________
$55 million
________________________________________________________________________________
Number of holdings
________________________________________________________________________________
47
________________________________________________________________________________
Fund start date
________________________________________________________________________________
October 27, 1985
________________________________________________________________________________
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 DXCCX 928930106
Class B DVSBX 928928399
Class C DVSCX 928930205
[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 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. The Lehman Brothers 5-Year Municipal Bond Index is an unmanaged index
that generally tracks the performance of municipal bonds with maturities of 5
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) 11
<page>
Performance summary
Delaware Minnesota 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 Minnesota 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. 6/4/96)
Excluding sales charge +3.54% +6.51% +6.18% +6.16%
Including sales charge -1.12% +5.53% +5.69% +5.68%
________________________________________________________________________________
Class B (Est. 6/12/96)
Excluding sales charge +2.77% +5.73% +5.54% +5.78%
Including sales charge -1.20% +5.49% +5.54% +5.78%
________________________________________________________________________________
Class C (Est. 6/7/96)
Excluding sales charge +2.76% +5.73% +5.40% +5.39%
Including sales charge +1.77% +5.73% +5.40% +5.39%
________________________________________________________________________________
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 that 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 0.25%.
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%. 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 Minnesota
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.
12
<page>
Fund basics
As of August 31, 2006
________________________________________________________________________________
Fund objective
________________________________________________________________________________
The Fund seeks as high a level of current income exempt from federal income tax
and from the Minnesota state personal income tax, primarily through investment
in medium-and lower-grade municipal obligations.
________________________________________________________________________________
Total Fund net assets
________________________________________________________________________________
$118 million
________________________________________________________________________________
Number of holdings
________________________________________________________________________________
102
________________________________________________________________________________
Fund start date
________________________________________________________________________________
June 4, 1996
________________________________________________________________________________
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 DVMHX 928928316
Class B DVMYX 928928290
Class C DVMMX 928928282
[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.
13
<page>
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. Each Fund's actual expenses shown in the tables reflect fee waivers in
effect. The expenses shown in each table assume reinvestment of all dividends
and distributions.
"Expenses Paid During Period" are equal to the Funds' annualized expense ratios,
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period).
Delaware Tax-Free Minnesota 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 Ratio 8/31/06
________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,018.40 0.93% $4.73
Class B 1,000.00 1,014.60 1.68% 8.53
Class C 1,000.00 1,015.30 1.68% 8.53
________________________________________________________________________________
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,020.52 0.93% $4.74
Class B 1,000.00 1,016.74 1.68% 8.54
Class C 1,000.00 1,016.74 1.68% 8.54
________________________________________________________________________________
Delaware Tax-Free Minnesota Insured 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 Ratio 8/31/06
________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,014.90 0.89% $4.52
Class B 1,000.00 1,011.10 1.64% 8.31
Class C 1,000.00 1,010.20 1.64% 8.31
________________________________________________________________________________
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,020.72 0.89% $4.53
Class B 1,000.00 1,016.94 1.64% 8.34
Class C 1,000.00 1,016.94 1.64% 8.34
________________________________________________________________________________
14
<page>
Delaware Tax-Free Minnesota Intermediate Fund
Expense Analysis of an Investment of $1,000
Expenses
Beginning Ending Paid During
Account Account Annualized Period
Value Value Expense 3/1/06 to
3/1/06 8/31/06 Ratio 8/31/06
________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,018.70 0.75% $3.82
Class B 1,000.00 1,014.40 1.60% 8.12
Class C 1,000.00 1,014.40 1.60% 8.12
________________________________________________________________________________
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
________________________________________________________________________________
Delaware Minnesota 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 Ratio 8/31/06
________________________________________________________________________________
Actual Fund Return
Class A $1,000.00 $1,023.70 0.89% $4.54
Class B 1,000.00 1,019.80 1.64% 8.35
Class C 1,000.00 1,019.80 1.64% 8.35
________________________________________________________________________________
Hypothetical 5% Return (5% return before expenses)
Class A $1,000.00 $1,020.72 0.89% $4.53
Class B 1,000.00 1,016.94 1.64% 8.34
Class C 1,000.00 1,016.94 1.64% 8.34
________________________________________________________________________________
15
<page>
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 Minnesota Fund
Percentage
Sector of Net Assets
________________________________________________________________________________
Municipal Bonds 97.12%
Corporate-Backed Revenue Bonds 6.10%
Education Revenue Bonds 4.49%
Electric Revenue Bonds 11.23%
Escrowed to Maturity Bonds 0.89%
Health Care Revenue Bonds 27.77%
Housing Revenue Bonds 7.51%
Lease Revenue Bonds 2.51%
Local General Obligation Bonds 14.87%
Pre-Refunded Bonds 9.21%
Special Tax Bonds 1.26%
State General Obligation Bonds 6.20%
Transportation Revenue Bonds 3.76%
Water & Sewer Revenue Bonds 1.32%
________________________________________________________________________________
Short-Term Investments 2.06%
Money Market Instruments 0.10%
Variable Rate Demand Notes 1.96%
________________________________________________________________________________
Total Market Value of Securities 99.18%
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 0.82%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
Credit Rating Breakdown Percentage
(as a % of fixed income investments) of Net Assets
________________________________________________________________________________
AAA 37.36%
AA 16.55%
A 17.94%
BBB 15.13%
BB 2.11%
Not Rated 10.91%
________________________________________________________________________________
Total 100.00%
________________________________________________________________________________
Delaware Tax-Free Minnesota Insured Fund
Percentage
Sector of Net Assets
________________________________________________________________________________
Municipal Bonds 95.85%
Corporate-Backed Revenue Bonds 0.78%
Education Revenue Bonds 5.94%
Electric Revenue Bonds 6.20%
Escrowed to Maturity Bonds 15.45%
Health Care Revenue Bonds 16.82%
Housing Revenue Bonds 4.15%
Lease Revenue Bonds 5.29%
Local General Obligation Bonds 23.30%
Pre-Refunded Bonds 9.92%
Special Tax Bonds 0.80%
State General Obligation Bonds 2.45%
Transportation Revenue Bonds 4.75%
________________________________________________________________________________
Short-Term Investments 3.11%
Money Market Instruments 0.37%
Variable Rate Demand Notes 2.74%
________________________________________________________________________________
Total Market Value of Securities 98.96%
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 1.04%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
Credit Rating Breakdown Percentage
(as a % of fixed income investments) of Net Assets
________________________________________________________________________________
AAA 79.11%
AA 4.85%
A 12.69%
BBB 3.35%
________________________________________________________________________________
Total 100.00%
________________________________________________________________________________
16
<page>
Sector designations may be different than the sector designations presented in
other Fund materials.
Delaware Tax-Free Minnesota Intermediate Fund
Percentage
Sector of Net Assets
________________________________________________________________________________
Municipal Bonds 98.97%
Corporate-Backed Revenue Bonds 7.53%
Education Revenue Bonds 6.34%
Electric Revenue Bonds 1.92%
Escrowed to Maturity Bonds 2.08%
Health Care Revenue Bonds 22.48%
Housing Revenue Bonds 6.96%
Lease Revenue Bonds 4.06%
Local General Obligation Bonds 32.94%
Pre-Refunded Bonds 6.41%
State General Obligation Bonds 6.80%
Transportation Revenue Bonds 1.45%
________________________________________________________________________________
Short-Term Investments 0.13%
Money Market Instruments 0.13%
________________________________________________________________________________
Total Market Value of Securities 99.10%
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 0.90%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
Credit Rating Breakdown Percentage
(as a % of fixed income investments) of Net Assets
________________________________________________________________________________
AAA 41.84%
AA 11.42%
A 18.36%
BBB 17.11%
Not Rated 11.27%
________________________________________________________________________________
Total 100.00%
________________________________________________________________________________
Delaware Minnesota High-Yield Municipal Bond Fund
Percentage
Sector of Net Assets
________________________________________________________________________________
Municipal Bonds 95.23%
Corporate-Backed Revenue Bonds 4.50%
Education Revenue Bonds 4.38%
Electric Revenue Bonds 7.19%
Health Care Revenue Bonds 40.75%
Housing Revenue Bonds 15.84%
Lease Revenue Bonds 2.23%
Local General Obligation Bonds 9.05%
Pre-Refunded Bonds 6.39%
Special Tax Bonds 0.89%
State General Obligation Bonds 2.24%
Transportation Revenue Bonds 1.77%
________________________________________________________________________________
Short-Term Investments 3.99%
Money Market Instruments 0.67%
Variable Rate Demand Notes 3.32%
________________________________________________________________________________
Total Market Value of Securities 99.22%
________________________________________________________________________________
Receivables and Other Assets Net of Liabilities 0.78%
________________________________________________________________________________
Total Net Assets 100.00%
________________________________________________________________________________
Credit Rating Breakdown Percentage
(as a % of fixed income investments) of Net Assets
________________________________________________________________________________
AAA 16.74%
AA 10.97%
A 21.78%
BBB 18.09%
BB 1.50%
Not Rated 30.92%
________________________________________________________________________________
Total 100.00%
________________________________________________________________________________
17
<page>
Statements of net assets
Delaware Tax-Free Minnesota Fund
August 31, 2006
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds - 97.12%
________________________________________________________________________________
Corporate-Backed Revenue Bonds - 6.10%
Cloquet Pollution Control Revenue
(Potlatch Corp. Project)
5.90% 10/1/26 $6,500,000 $ 6,612,255
Laurentian Energy Authority I
Cogeneration Revenue Series A
5.00% 12/1/21 8,000,000 8,082,080
Sartell Environmental Improvement
Revenue (International Paper)
Series A 5.20% 6/1/27 5,465,000 5,615,014
Seaway Port Authority of Duluth
Industrial Development
Dock & Wharf Revenues
(Cargill, Inc. Project) Series E
6.125% 11/1/14 4,500,000 4,598,010
___________
24,907,359
___________
Education Revenue Bonds - 4.49%
Minnesota State Colleges &
Universities Revenue Fund
Series A 5.00% 10/1/29 (MBIA) 1,665,000 1,758,873
Minnesota State Higher Education
Facilities Authority Revenue
(Augsburg College)
Series 6-C 5.00% 5/1/20 1,250,000 1,293,763
Series 6-J1 5.00% 5/1/36 2,225,000 2,257,685
(College of St. Benedict)
Series 4-G 6.20% 3/1/16 1,000,000 1,001,380
(St. Catherine College)
Series 5-N1
5.25% 10/1/22 1,500,000 1,559,640
5.375% 10/1/32 1,000,000 1,047,430
& University of Minnesota, Inverse
Floater ROLs Series II-R-29
7.453% 7/1/21 5,250,000 6,815,497
7.96% 7/1/18 1,920,000 2,570,112
___________
18,304,380
___________
Electric Revenue Bonds - 11.23%
Chaska Electric Revenue
(Generating Facilities) Series A
5.00% 10/1/30 3,000,000 3,096,030
Minnesota State Municipal Power
Agency
5.00% 10/1/35 3,000,000 3,087,030
Series A 5.00% 10/1/34 4,250,000 4,363,518
Series A 5.125% 10/1/29 3,000,000 3,114,450
Northern Minnesota Municipal
Power Agency Electric System
Revenue
^ Series A 5.849% 1/1/09 (AMBAC) 3,815,000 3,505,413
Series B 4.75% 1/1/20 (AMBAC) 2,500,000 2,565,300
Rochester Electric Utilities Revenue
5.25% 12/1/30 4,915,000 5,091,350
Shakopee Public Utilities
Commission Revenue
5.125% 2/1/26 (MBIA) 1,000,000 1,026,100
Southern Minnesota Municipal
Power Agency Supply System
Revenue Series A
5.00% 1/1/12 (AMBAC) 4,205,000 4,476,601
5.00% 1/1/13 (MBIA) 5,820,000 6,248,526
5.25% 1/1/15 (AMBAC) 3,000,000 3,309,180
& Southern Minnesota Municipal
Power Agency Supply System
Revenue, Inverse Floater ROLs
Series II-R-189
7.251% 1/1/15 (AMBAC) 2,950,000 3,558,084
Series II-R-189-3
6.966% 1/1/14 (AMBAC) 2,000,000 2,382,720
___________
45,824,302
___________
Escrowed to Maturity Bonds - 0.89%
Southern Minnesota Municipal
Power Agency Supply System
Revenue Series B
5.50% 1/1/15 (AMBAC) 990,000 1,048,024
University of Minnesota Series A
5.50% 7/1/21 2,000,000 2,298,160
Western Minnesota Municipal
Power Agency Supply Revenue
Series A 9.75% 1/1/16 (MBIA) 185,000 266,172
___________
3,612,356
___________
Health Care Revenue Bonds - 27.77%
Aitkin Health Care Facilities
Revenue (Riverwood Health
Care Center) 5.60% 2/1/32 1,500,000 1,534,395
Apple Valley Economic
Development Authority Health
Care Revenue
(Augustana Home St.
Paul Project) Series A
6.00% 1/1/40 2,700,000 2,742,336
(Evercare Senior Living Project)
Series A 6.125% 6/1/35 4,000,000 4,027,440
Bemidji Hospital Facilities First
Meeting Revenue (North
Country Health Services)
5.00% 9/1/24 (RADIAN) 740,000 763,391
Bloomington Housing &
Redevelopment Authority
Housing Revenue (Senior
Summerhouse Bloomington
Project, Presbyterian Homes
Housing & Assisted Living)
6.125% 5/1/35 3,420,000 3,490,110
Breckenridge Catholic Health
Initiatives 5.00% 5/1/30 2,000,000 2,085,860
18
<page>
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Health Care Revenue Bonds (continued)
Buffalo Health Care Revenue
(Central Minnesota Senior
Housing Project) Series A
5.50% 9/1/33 $ 1,270,000 $ 1,262,926
Duluth Economic Development
Authority Health Care Facilities
Revenue Benedictine Health
System (St. Mary's Hospital)
5.25% 2/15/33 10,000,000 10,377,300
5.50% 2/15/23 1,000,000 1,070,240
Maple Grove Health Care Facilities
Revenue (North Memorial
Health Care)
5.00% 9/1/29 1,000,000 1,032,560
5.00% 9/1/35 5,850,000 6,005,669
Marshall Medical Center Gross
Revenue (Weiner Memorial
Medical Center Project)
6.00% 11/1/28 1,000,000 1,044,190
Minneapolis Health Care Facility
Revenue (Jones-Harrison
Residence Project)
5.60% 10/1/30 1,550,000 1,562,943
Minneapolis Health Care System
Revenue
(Allina Health Systems) Series A
5.75% 11/15/32 9,500,000 10,198,725
(Fairview Health Services)
Series D
5.00% 11/15/30 (AMBAC) 2,500,000 2,624,925
5.00% 11/15/34 (AMBAC) 2,500,000 2,617,775
Minnesota Agricultural &
Economic Development Board
Revenue
(Benedictine Health Systems)
5.75% 2/1/29 1,895,000 1,924,733
(Fairview Health Care System)
Series A 6.375% 11/15/29 15,000 16,235
Northfield Hospital Revenue
5.375% 11/1/26 3,785,000 4,011,343
Prior Lake Senior Housing Revenue
(Shepherds Path Senior
Housing) Series B
5.70% 8/1/36 2,000,000 2,016,760
5.75% 8/1/41 1,000,000 1,008,820
Rochester Health Care Facilities
Revenue
(Mayo Clinic) 5.00% 11/15/36 7,000,000 7,303,100
(Mayo Foundation) Series B
5.50% 11/15/27 700,000 725,522
& Rochester Health Care Facilities
Revenue (Mayo Foundation),
Inverse Floater ROLs
Series II-R-28
Series A 7.453% 11/15/27 2,100,000 2,253,153
& Rochester Health Care Facilities
Revenue (Mayo Foundation),
Inverse Floater ROLs
Series II-R-28 (continued)
Series B 7.453% 11/15/27 8,375,000 8,985,789
Rochester Multifamily Housing
Revenue (Wedum Shorewood
Campus Project) 6.60% 6/1/36 3,890,000 4,015,997
Shakopee Health Care Facilities
Revenue (St. Francis Regional
Medical Center)
5.10% 9/1/25 2,000,000 2,074,840
5.25% 9/1/34 7,000,000 7,281,750
St. Louis Park Health Care Facilities
Revenue (Park Nicollet Health
Services) Series B 5.25% 7/1/30 9,420,000 9,871,972
St. Paul Housing & Redevelopment
Authority Hospital Revenue
(Health East Project)
6.00% 11/15/35 4,340,000 4,769,573
Series A 5.70% 11/1/15 1,300,000 1,341,678
Washington County Housing &
Redevelopment Authority
Hospital Facilities Revenue
(Health East Project)
5.50% 11/15/27 1,000,000 1,023,100
Woodbury Economic Development
Authority Housing Revenue
(Senior Summerhouse
Woodbury Project) Series B
5.75% 6/1/41 2,250,000 2,294,550
____________
113,359,700
____________
Housing Revenue Bonds - 7.51%
Brooklyn Center Multifamily
Housing Revenue (Shingle
Creek) 5.40% 5/20/43 (GNMA)
(AMT) 1,000,000 1,026,180
Hopkins Multifamily Housing
Revenue (Hopkins Renaissance
Project-Section 8)
6.375% 4/1/20 1,000,000 1,033,180
@ Hutchinson Multifamily
Housing Revenue (Evergreen
Apartments Project-Section 8)
5.75% 11/1/28 890,000 848,490
Minneapolis Multifamily Housing
Revenue
(Grant Street Apartments
Project) Series A
7.25% 11/1/29 750,000 776,745
(Seward Towers Project)
5.00% 5/20/36 (GNMA) 4,000,000 4,157,280
(Sumner Field) Series A
5.50% 11/20/26 (GNMA) (AMT) 990,000 1,034,649
(continues) 19
<page>
Statements of net assets
Delaware Tax-Free Minnesota Fund
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Minneapolis Multifamily Housing
Revenue (continued)
(Trinity Apartments-Section 8)
Series A 6.75% 5/1/21 $1,780,000 $ 1,864,924
Minnesota State Housing Finance
Agency Residential Housing
Series I 5.15% 7/1/38 (AMT) 5,550,000 5,688,918
Minnesota State Housing Finance
Agency Single Family Mortgage
Series A 5.30% 7/1/19 585,000 609,084
Series B 5.35% 1/1/33 (AMT) 2,965,000 3,042,742
Series J 5.90% 7/1/28 (AMT) 495,000 509,909
@ Park Rapids Multifamily Revenue
(The Court Apartments Project-
Section 8) 6.30% 2/1/20 2,835,000 2,630,228
St. Cloud Housing &
Redevelopment Authority
Revenue (Sterling Heights
Apartments Project)
7.55% 4/1/39 (AMT) 1,000,000 1,057,410
St. Louis Park Residential
Mortgage Revenue Series A
7.25% 4/20/23 (GNMA) 78,000 78,179
Stillwater Multifamily Housing
Revenue (Stillwater Cottages
Project)
7.25% 11/1/27 (AMT) 1,540,000 1,573,587
Series A 7.00% 11/1/27 1,000,000 1,021,570
Wadena Housing &
Redevelopment Authority
Multifamily Housing Revenue
(Humphrey Manor East Project)
6.00% 2/1/19 1,860,000 1,860,316
Washington County Housing &
Redevelopment Authority
Governmental Revenue (Briar
Pond) Series C 7.25% 8/20/34 955,000 922,329
Willmar Housing & Redevelopment
Authority Multifamily
Housing Revenue (Highland
Apartments-Section 8)
5.85% 6/1/19 935,000 935,000
____________
30,670,720
____________
Lease Revenue Bonds - 2.51%
Puerto Rico Public Buildings
Authority Revenue
(Government Facilities) Series D
5.25% 7/1/36 1,070,000 1,105,995
St. Paul Port Authority Lease
Revenue
(Cedar Street Office Building
Project)
5.00% 12/1/22 2,500,000 2,639,725
5.125% 12/1/27 1,000,000 1,053,270
St. Paul Port Authority Lease
Revenue
(Robert Street Office Building
Project)
4.75% 12/1/23 2,000,000 2,054,800
5.00% 12/1/27 2,500,000 2,618,150
Series 9 5.25% 12/1/27 725,000 769,899
____________
10,241,839
____________
Local General Obligation Bonds - 14.87%
Bloomington Independent
School District #271 Series B
5.00% 2/1/17 5,300,000 5,516,505
Cambridge Independent School
District #911 Series A
4.75% 2/1/30 (MBIA) 1,035,000 1,060,585
Dakota County Capital
Improvement Series A
4.75% 2/1/26 1,000,000 1,021,730
Farmington Independent
School District #192 Capital
Appreciation Series B
5.00% 2/1/27 (FSA) 6,705,000 7,074,445
^ 5.34% 2/1/21 (FSA) 1,500,000 730,455
^ 5.422% 2/1/20 (FSA) 1,650,000 849,272
Hennepin County Regional
Railroad Authority
5.00% 12/1/31 4,030,000 4,169,881
^ Lakeville Independent School
District #194 Capital
Appreciation Series B
5.45% 2/1/19 (FSA) 8,000,000 4,281,440
Lakeville Independent School
District #194 Series A
4.75% 2/1/22 (FSA) 5,500,000 5,698,164
^ Mahtomedi Independent
School District #832 Capital
Appreciation Series B
5.898% 2/1/14 (MBIA) 1,540,000 1,151,366
Metropolitan Council Waste
Water Treatment Series B
5.00% 12/1/21 1,200,000 1,280,508
Minneapolis Library
5.00% 12/1/25 1,500,000 1,577,640
Minneapolis Tax Increment
Revenue (St. Anthony Falls
Project) 5.75% 2/1/27 1,000,000 1,027,560
New Brighton Tax Increment
Series A
5.00% 2/1/27 (MBIA) 1,000,000 1,065,600
5.00% 2/1/28 (MBIA) 1,000,000 1,064,730
Prior Lake Independent School
District #719 Series B
5.00% 2/1/19 (FSA) 3,145,000 3,373,358
Ramsey County State Aid Series C
5.00% 2/1/28 1,060,000 1,110,573
20
<page>
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Local General Obligation Bonds (continued)
& Rockford Independent School
District #883, Inverse
Floater ROLs Series II-R-30-A
7.706% 2/1/23 (FSA) $ 3,510,000 $ 3,936,290
^ Rosemont Independent School
District #196 Capital
Appreciation Series B
5.931% 4/1/11 (FSA) 2,600,000 2,191,930
5.96% 4/1/12 (FSA) 1,850,000 1,498,500
6.008% 4/1/13 (FSA) 1,915,000 1,486,959
^ Sartell Independent School District
#748 Capital Appreciation
Series B
5.976% 2/1/13 (MBIA) 540,000 419,186
6.099% 2/1/15 (MBIA) 1,075,000 766,647
6.15% 2/1/16 (MBIA) 1,750,000 1,191,173
St. Paul Housing & Redevelopment
Authority Tax Increment (Upper
Landing Project) Series A
6.80% 3/1/29 1,000,000 1,073,320
St. Peter's Hospital Series A
5.00% 9/1/24 (MBIA) 1,905,000 1,975,980
Todd Morrison Cass & Wadena
Counties United Hospital
District (Health Care
Facilities-Lakewood)
5.00% 12/1/21 2,000,000 2,061,880
5.00% 12/1/34 1,000,000 1,015,870
5.125% 12/1/24 1,000,000 1,035,980
____________
60,707,527
____________
$ Pre-Refunded Bonds - 9.21%
Chaska Electric Revenue Series A
6.00% 10/1/25-10 1,000,000 1,090,550
Little Canada Multifamily
Housing Revenue Alternative
Development (Montreal Courts
Apartments Project) Series A
6.10% 12/1/17-07 1,230,000 1,255,449
6.25% 12/1/27-07 2,900,000 2,985,666
Minneapolis Health Care
System Revenue (Fairview
Health Services) Series A
5.625% 5/15/32-12 11,525,000 12,765,204
Minneapolis Tax Increment
Revenue Series E
5.00% 3/1/13-09 6,265,000 6,481,268
Minnesota Agricultural &
Economic Development
Board Revenue (Fairview
Health Care System) Series A
6.375% 11/15/29-10 485,000 540,630
Minnesota Higher Education
Facilities Series 4-1
6.00% 10/1/12-06 980,000 981,901
6.00% 10/1/16-06 1,400,000 1,402,716
Minnesota Public Facilities
Authority Water Pollution
Control Revenue
Series A 5.00% 3/1/20-10 3,000,000 3,138,480
Series B 4.75% 3/1/19-09 2,000,000 2,056,200
Minnesota State Higher Education
Facilities Authority Revenue
(Hameline University) Series 4-1
6.00% 10/1/12-06 270,000 270,532
6.00% 10/1/16-06 390,000 390,768
Puerto Rico Public Buildings
Authority Guaranteed
Government Facilities Revenue
Series D 5.25% 7/1/36-12 2,930,000 3,168,561
Southern Minnesota Municipal
Power Agency Supply
System Revenue Series A
5.75% 1/1/18-13 (MBIA) 1,000,000 1,055,450
____________
37,583,375
____________
Special Tax Bonds - 1.26%
^ Minneapolis Community
Development Agency
Tax Increment Revenue
6.674% 9/1/09 (MBIA) 5,750,000 5,157,175
____________
5,157,175
____________
State General Obligation Bonds - 6.20%
Minnesota State
5.00% 11/1/20 (FSA) 8,175,000 8,564,784
5.00% 8/1/21 2,400,000 2,538,216
Minnesota State Refunding
Various Purposes 5.00% 6/1/13 5,175,000 5,296,509
Puerto Rico Commonwealth Public
Improvement Series A
5.00% 7/1/34 4,500,000 4,597,695
5.50% 7/1/19 (MBIA) 1,500,000 1,723,230
Puerto Rico Commonwealth
Series B 5.00% 7/1/35 1,500,000 1,537,980
Puerto Rico Government
Development Bank Senior
Notes Series B 5.00% 12/1/14 1,000,000 1,064,340
____________
25,322,754
____________
Transportation Revenue Bonds - 3.76%
Minneapolis/St. Paul Metropolitan
Airports Commission Revenue
Series A
5.00% 1/1/22 (AMBAC) 3,440,000 3,513,066
5.25% 1/1/16 (MBIA) 1,460,000 1,570,011
5.25% 1/1/32 (FGIC) 5,000,000 5,235,999
Minneapolis/St. Paul Metropolitan
Airports Commission Revenue
Series C
5.25% 1/1/32 (FGIC) 2,250,000 2,354,378
5.50% 1/1/17 (FGIC) 2,500,000 2,669,725
____________
15,343,179
____________
(continues) 21
Statements of net assets
Delaware Tax-Free Minnesota Fund
Principal Market
Amount Value
_______________________________________________________________________________
Municipal Bonds (continued)
_______________________________________________________________________________
Water & Sewer Revenue Bonds - 1.32%
& Minnesota Public Facilities
Authority Water Pollution
Control Revenue, Inverse
Floater ROLs Series II-R-31
6.946% 3/1/18 $5,000,000 $ 5,399,650
____________
5,399,650
____________
Total Municipal Bonds
(cost $378,506,073) 396,434,316
____________
Number of
Shares
_______________________________________________________________________________
Short-Term Investments - 2.06%
_______________________________________________________________________________
Money Market Instruments - 0.10%
Federated Minnesota Municipal
Cash Trust 418,165 418,165
____________
418,165
____________
Principal
Amount
~ Variable Rate Demand Notes - 1.96%
Midwest Consortium of Municipal
Utilities Revenue Series A
(LOC-U.S. Bank) 3.40% 1/1/25 $1,000,000 1,000,000
Minneapolis Guthrie Parking Ramp
3.27% 12/1/33 (SPA) 1,000,000 1,000,000
Minnesota State Higher Education
Facilities Authority Revenue
(Carleton College) Series 6-D
3.30% 4/1/35 (SPA) 6,000,000 6,000,000
____________
8,000,000
____________
Total Short-Term Investments
(cost $8,418,165) 8,418,165
____________
Total Market Value of Securities - 99.18%
(cost $386,924,238) 404,852,481
Receivables and Other Assets
Net of Liabilities - 0.82% 3,346,254
____________
Net Assets Applicable to 32,667,613
Shares Outstanding - 100.00% $408,198,735
____________
Net Asset Value - Delaware Tax-Free Minnesota Fund
Class A ($381,719,633 / 30,552,280 Shares) $12.49
______
Net Asset Value - Delaware Tax-Free Minnesota Fund
Class B ($11,353,799 / 908,021 Shares) $12.50
______
Net Asset Value - Delaware Tax-Free Minnesota Fund
Class C ($15,125,303 / 1,207,312 Shares) $12.53
______
Components of Net Assets at August 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $389,782,636
Distributions in excess of net investment income (22,418)
Accumulated net realized gain on investments 510,274
Net unrealized appreciation of investments 17,928,243
____________
Total net assets $408,198,735
____________
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
ROLs - Residual Option Longs
SPA - Stand-by Purchase Agreement
$ 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 7 in "Notes to
Financial Statements."
& An inverse floater bond is a type of bond with variable or floating interest
rates that move in the opposite direction of short-term interest rates.
Interest rate disclosed is in effect as of August 31, 2006. See Note 7 in
"Notes to Financial Statements."
~ Variable rate security. The interest rate shown is the rate as of August 31,
2006.
^ Zero coupon security. The interest rate shown is the yield at the time of
purchase.
@ Illiquid security. At August 31, 2006, the aggregate amount of illiquid
securities equaled $3,478,718, which represented 0.85% of the Fund's net
assets. See Note 7 in "Notes to Financial Statements."
Net Asset Value and Offering Price Per Share -
Delaware Tax-Free Minnesota Fund
Net asset value Class A (A) $12.49
Sales charge (4.50% of offering price) (B) 0.59
______
Offering price $13.08
______
(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
22
Delaware Tax-Free Minnesota Insured Fund
August 31, 2006
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds - 95.85%
________________________________________________________________________________
Corporate-Backed Revenue Bonds - 0.78%
Sartell Environmental Improvement
Revenue (International Paper)
Series A 5.20% 6/1/27 $1,800,000 $ 1,849,410
____________
1,849,410
____________
Education Revenue Bonds - 5.94%
Minnesota State Colleges &
Universities Revenue Fund
Series A
5.00% 10/1/22 (FSA) 5,135,000 5,420,198
5.00% 10/1/29 (MBIA) 4,000,000 4,225,520
Minnesota State Higher Education
Facilities Authority Revenue
(St. Catherine College)
Series 5-N1 5.00% 10/1/18 2,200,000 2,272,666
St. Cloud Housing &
Redevelopment Authority
Revenue (State University
Foundation Project)
5.00% 5/1/23 2,000,000 2,084,440
____________
14,002,824
____________
Electric Revenue Bonds - 6.20%
Minnesota State Municipal
Power Agency Series A
5.00% 10/1/34 2,000,000 2,053,420
& Northern Municipal Power
Agency Electric System
Revenue, Inverse Floater ROLs
Series II-R-32 6.946% 1/1/13
(FSA) 4,585,000 5,078,437
Puerto Rico Electric Power
Authority Power Revenue
Series GG 4.75% 7/1/21 (FSA) 1,000,000 1,024,320
Series OO 5.00% 7/1/13 (CIFG) 1,315,000 1,419,385
Shakopee Public Utilities
Commission Revenue
5.125% 2/1/26 (MBIA) 1,850,000 1,898,285
Southern Minnesota Municipal
Power Agency Supply
System Revenue Series A
5.25% 1/1/15 (AMBAC) 1,500,000 1,654,590
Western Minnesota Municipal
Power Agency Series B
5.00% 1/1/15 (MBIA) 1,365,000 1,481,503
____________
14,609,940
____________
Escrowed to Maturity Bonds - 15.45%
Dakota/Washington Counties
Housing & Redevelopment
Authority Anoka Single Family
Residential Mortgage Revenue
8.45% 9/1/19 (GNMA) (AMT) 9,000,000 12,815,280
Bloomington Mortgage Single
Family Residential Mortgage
Revenue 8.15% 9/1/16
(MBIA) (GNMA) (AMT) 405,000 540,076
8.375% 9/1/21 (GNMA)
(FHA) (VA) (AMT) 14,115,000 20,532,384
Western Minnesota Municipal
Power Agency Supply Revenue
Series A
6.60% 1/1/10 1,650,000 1,738,473
9.75% 1/1/16 (MBIA) 530,000 762,548
____________
36,388,761
____________
Health Care Revenue Bonds - 16.82%
Duluth Economic Development
Authority Health Care
Facilities Benedictine Health
System (St. Mary's Hospital)
5.25% 2/15/28 8,500,000 8,897,034
Minneapolis Health Care System
Revenue
(Allina Health Systems) Series A
5.75% 11/15/32 7,800,000 8,373,690
(Fairview Health Services)
Series D 5.00% 11/15/34 (AMBAC) 8,250,000 8,638,658
Minneapolis/St. Paul Housing
& Redevelopment Authority
Health Care System Revenue
(Allina Health System)
5.00% 11/15/13 (AMBAC) 6,490,000 6,496,166
(Healthpartners Obligation
Group Project)
5.625% 12/1/22 650,000 695,799
5.875% 12/1/29 1,000,000 1,081,610
Minnesota Agricultural &
Economic Development
Board Revenue (Fairview
Health Care System) Series A
5.75% 11/15/26 (MBIA) 180,000 187,549
St. Louis Park Health Care Facilities
Revenue (Park Nicollet Health
Services) Series B 5.50% 7/1/25 2,000,000 2,145,000
St. Paul Housing & Redevelopment
Authority Hospital Revenue
(St. Paul/Ramsey Medical
Center Project) 5.50% 5/15/13
(AMBAC) 1,000,000 1,001,360
Willmar (Rice Memorial Hospital
Project)
5.00% 2/1/22 (FSA) 1,000,000 1,052,890
5.00% 2/1/25 (FSA) 1,000,000 1,049,430
____________
39,619,186
____________
(continues) 23
Statements of net assets
Delaware Tax-Free Minnesota Insured Fund
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Housing Revenue Bonds - 4.15%
Dakota County Housing &
Redevelopment Authority
Single Family Mortgage
Revenue Series B
5.85% 10/1/30 (GNMA)
(FNMA) (AMT) $ 288,000 $ 294,684
Eagan Multifamily Revenue
(Woodridge Apartments)
Series A 5.90% 8/1/20 (GNMA) 1,000,000 1,025,670
Minneapolis Multifamily Housing
Revenue
(Bottineau Commons Project)
5.45% 4/20/43 (GNMA) (AMT) 1,500,000 1,566,135
(Seward Towers Project)
5.00% 5/20/36 (GNMA) 4,000,000 4,157,280
Minnesota State Housing
Finance Agency Rental
Housing Revenue Series C-2
5.95% 2/1/15 (AMBAC) 1,642,000 1,652,279
White Bear Lake Multifamily
Revenue (Lake Square) Series A
5.875% 2/1/15 (FHA) 1,055,000 1,081,407
____________
9,777,455
____________
Lease Revenue Bonds - 5.29%
Hopkins Housing & Redevelopment
Authority Public Works and Fire
Station Series A 5.00% 2/1/23
(MBIA) 1,210,000 1,269,810
Minneapolis Special School District
#001 Series A
5.00% 2/1/18 (FSA) 1,545,000 1,629,141
5.00% 2/1/19 (FSA) 1,535,000 1,618,596
5.00% 2/1/20 (FSA) 1,690,000 1,782,037
St. Paul Port Authority Lease
Revenue (Cedar Street Office
Building Project)
5.125% 12/1/27 2,000,000 2,106,540
5.25% 12/1/27 3,840,000 4,062,605
____________
12,468,729
____________
Local General Obligation Bonds - 23.30%
Big Lake Independent School
District #727 Series A
5.00% 2/1/17 (FSA) 1,040,000 1,082,484
5.00% 2/1/20 (FSA) 1,000,000 1,040,850
Centennial Independent School
District #012 Series A
5.00% 2/1/18 (FSA) 1,270,000 1,339,164
Dakota County Community
Development Agency
Governmental Housing
Development 5.00% 1/1/21 1,275,000 1,327,237
Farmington Independent
School District #192 Series B
5.00% 2/1/27 (FSA) 4,000,000 4,220,400
Lakeville Independent School
District #194 Series A
4.75% 2/1/22 (FSA) 2,350,000 2,434,671
Morris Independent School District
#769 5.00% 2/1/24 (MBIA) 4,875,000 5,191,485
Mounds View Independent School
District #621
5.00% 2/1/20 (MBIA) 2,970,000 3,125,806
5.375% 2/1/24 (FGIC) 6,170,000 6,572,346
New Brighton Tax Increment
Series A 5.00% 2/1/26 (MBIA) 1,185,000 1,266,860
Osseo Independent School District
#279 Series A 5.00% 2/1/21
(FSA) 3,570,000 3,764,422
Robbinsdale Independent School
District #281 5.00% 2/1/21
(FSA) 1,310,000 1,381,343
& Rockford Independent School
District #883, Inverse
Floater ROLs Series II-R-30-B
7.656% 2/1/21 (FSA) 1,605,000 1,797,359
^ Rosemount Independent School
District #196 Series B
5.80% 4/1/09 (FSA) 1,860,000 1,693,214
5.85% 4/1/10 (FSA) 2,240,000 1,962,845
^ Sauk Rapids Independent School
District #047 Series B
5.982% 2/1/15 (FSA) 2,700,000 1,788,723
6.083% 2/1/17 (FSA) 2,245,000 1,316,288
& South Washington County
Independent School District
#833, Inverse Floater ROLs
Series II-R-34-A
7.656% 2/1/20 (MBIA) 3,440,000 3,852,284
7.656% 2/1/21 (MBIA) 3,645,000 4,081,853
St. Michael Independent School
District #885
5.00% 2/1/20 (FSA) 1,970,000 2,073,346
5.00% 2/1/27 (FSA) 3,435,000 3,572,675
____________
54,885,655
____________
$ Pre-Refunded Bonds - 9.92%
Minneapolis Community
Development Agency
(Supported Development
Revenue) Series G-3
5.45% 12/1/31-11 2,000,000 2,169,280
Minneapolis Health Care
System Revenue (Fairview
Health Services) Series A
5.625% 5/15/32-12 5,400,000 5,981,094
Minnesota Agricultural &
Economic Development
Board Revenue (Fairview
Health Care System) Series A
5.75% 11/15/26-07 (MBIA) 10,070,000 10,525,264
24
Principal Market
Amount Value
_______________________________________________________________________________
Municipal Bonds (continued)
_______________________________________________________________________________
$ Pre-Refunded Bonds (continued)
Southern Minnesota Municipal
Power Agency Supply Revenue
Series A
5.75% 1/1/18-13 $3,790,000 $ 4,000,156
5.75% 1/1/18-13 (AMBAC) 670,000 707,152
____________
23,382,946
____________
Special Tax Bonds - 0.80%
Virgin Islands Public Finance
Authority Revenue (Matching
Fund Loan) Series A
5.25% 10/1/22 1,785,000 1,882,854
____________
1,882,854
____________
State General Obligation Bonds - 2.45%
Minnesota State 5.00% 11/1/20
(FSA) 5,500,000 5,762,240
____________
5,762,240
____________
Transportation Revenue Bonds - 4.75%
Minneapolis/St. Paul Metropolitan
Airports Commission Revenue
Series A
5.00% 1/1/22 (MBIA) 2,000,000 2,092,020
5.125% 1/1/25 (FGIC) 100,000 103,457
Series C
5.125% 1/1/20 (FGIC) 2,000,000 2,099,560
5.25% 1/1/32 (FGIC) 6,595,000 6,900,942
____________
11,195,979
____________
Total Municipal Bonds
(cost $210,790,438) 225,825,979
____________
Number of
Shares
_______________________________________________________________________________
Short-Term Investments - 3.11%
_______________________________________________________________________________
Money Market Instruments - 0.37%
Federated Minnesota Municipal
Cash Trust 857,402 857,402
____________
857,402
____________
Principal
Amount
~ Variable Rate Demand Notes - 2.74%
Midwest Consortium of Municipal
Utilities Revenue Series A
(LOC - U.S. Bank) 3.40% 1/1/25 $1,000,000 1,000,000
Minneapolis Health Care
System Revenue (Fairview
Health Services) Series A
3.40% 11/15/32 (AMBAC)
(SPA) 1,400,000 1,400,000
Minneapolis Revenue (Guthrie
Theater Project) Series A
(LOC - Wells Fargo Bank)
3.27% 10/1/23 1,000,000 1,000,000
Minnesota State Higher Education
Facilities Authority Revenue
(Carleton College) Series 6-D
3.30% 4/1/35 (SPA) 3,060,000 3,060,000
____________
6,460,000
____________
Total Short-Term Investments
(cost $7,317,402) 7,317,402
____________
Total Market Value of Securities - 98.96%
(cost $218,107,840) 233,143,381
Receivables and Other Assets
Net of Liabilities - 1.04% 2,451,670
____________
Net Assets Applicable to 21,640,206
Shares Outstanding - 100.00% $235,595,051
____________
Net Asset Value - Delaware Tax-Free Minnesota Insured Fund
Class A ($212,859,134 / 19,552,653 Shares) $10.89
______
Net Asset Value - Delaware Tax-Free Minnesota Insured Fund
Class B ($10,182,240 / 936,209 Shares) $10.88
______
Net Asset Value - Delaware Tax-Free Minnesota Insured Fund
Class C ($12,553,677 / 1,151,344 Shares) $10.90
______
Components of Net Assets at August 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $220,321,556
Accumulated net realized gain on investments 237,954
Net unrealized appreciation of investments 15,035,541
____________
Total net assets $235,595,051
____________
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Indemnity Corporation
AMT - Subject to Alternative Minimum Tax
CIFG - CDC IXIS Financial Guaranty
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
FNMA - Insured by Federal National Mortgage Association
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
ROLs - Residual Option Longs
SPA - Stand-by Purchase Agreement
VA - Insured by the Veterans Administration
(continues) 25
Statements of net assets
Delaware Tax-Free Minnesota Insured Fund
________________________________________________________________________________
________________________________________________________________________________
$ 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 7 in "Notes to Financial
Statements."
& An inverse floater bond is a type of bond with variable or floating interest
rates that move in the opposite direction of short-term interest rates.
Interest rate disclosed is in effect as of August 31, 2006. See Note 7 in
"Notes to Financial Statements."
~ Variable rate security. The interest rate shown is the rate as of August 31,
2006.
^ Zero coupon security. The interest rate shown is the yield at the time of
purchase.
Net Asset Value and Offering Price Per Share -
Delaware Tax-Free Minnesota Insured Fund
Net asset value Class A (A) $10.89
Sales charge (4.50% of offering price) (B) 0.51
______
Offering price $11.40
______
(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
26
Delaware Tax-Free Minnesota Intermediate Fund
August 31, 2006
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds - 98.97%
________________________________________________________________________________
Corporate-Backed Revenue Bonds - 7.53%
Laurentian Energy Authority I
Cogeneration Revenue Series A
5.00% 12/1/21 $ 750,000 $ 757,695
Minneapolis Art Center Facilities
Revenue (Walker Art Center
Project) 5.125% 7/1/21 2,250,000 2,346,750
Minneapolis Community
Development Agency
Supported Revenue
Common Bond Fund Series 4
6.20% 6/1/17 (AMT) 1,055,000 1,069,337
____________
4,173,782
____________
Education Revenue Bonds - 6.34%
Minnesota State Higher Education
Facilities Authority Revenue
(Augsburg College) Series 6-J1
5.00% 5/1/28 750,000 767,430
(University of St. Thomas)
Series 5-Y 5.25% 10/1/19 1,590,000 1,708,789
St. Cloud Housing &
Redevelopment Authority
Revenue (State University
Foundation Project)
5.00% 5/1/23 1,000,000 1,042,220
____________
3,518,439
____________
Electric Revenue Bonds - 1.92%
Chaska Electric Revenue
(Generating Facilities) Series A
5.25% 10/1/25 1,000,000 1,063,430
____________
1,063,430
____________
Escrowed to Maturity Bonds - 2.08%
University of Minnesota Series A
5.75% 7/1/16 1,000,000 1,152,930
____________
1,152,930
____________
Health Care Revenue Bonds - 22.48%
Apple Valley Economic
Development Authority Health
Care Revenue (Evercare
Senior Living Projects) Series A
6.00% 12/1/25 500,000 503,440
Bemidji Hospital Facilities First
Meeting Revenue (North
Country Health Services)
5.00% 9/1/24 (RADIAN) 500,000 515,805
Glencoe Health Care Facilities
Revenue (Glencoe Regional
Health Services Project)
5.00% 4/1/20 1,250,000 1,294,500
Maple Grove Health Care Facilities
Revenue (North Memorial
Health Care) 5.00% 9/1/29 1,000,000 1,032,560
Minneapolis Health Care
System Revenue (Allina
Health Systems) Series A
5.75% 11/15/32 1,500,000 1,610,325
Minneapolis/St. Paul Housing
& Redevelopment Authority
Health Care System (Health
Partners Obligation Group
Project) 6.00% 12/1/17 1,125,000 1,240,526
Moorhead Economic Development
Authority Multifamily Revenue
(Eventide Lutheran Home
Project) Series B 6.00% 6/1/18 1,000,000 1,000,650
Northfield Hospital Revenue
5.25% 11/1/21 1,000,000 1,054,320
Oakdale Elderly Housing Revenue
(PHM/Oakdale, Inc. Project)
5.75% 3/1/18 1,400,000 1,407,140
St. Louis Park Health Care Facilities
Revenue (Park Nicollet Health
Services) Series B 5.50% 7/1/25 1,500,000 1,608,750
St. Paul Housing & Redevelopment
Authority Hospital Revenue
(Health East Project) Series B
5.85% 11/1/17 1,160,000 1,197,828
____________
12,465,844
____________
Housing Revenue Bonds - 6.96%
Minneapolis Multifamily
Housing Revenue (Trinity
Apartments-Section 8) Series A
6.75% 5/1/21 1,855,000 1,943,502
Minnesota State Housing Finance
Agency Residential Housing
Series I 5.10% 7/1/20 (AMT) 845,000 867,435
Minnesota State Housing Finance
Agency Single Family Mortgage
Series J 5.90% 7/1/28 (AMT) 445,000 458,403
@ Park Rapids Multifamily Revenue
(The Court Apartments Project-
Section 8) 6.05% 8/1/12 615,000 590,056
____________
3,859,396
____________
Lease Revenue Bonds - 4.06%
Edina Housing & Redevelopment
Authority Public Project
Revenue (Appropriate Lease
Obligation) 5.125% 2/1/19 1,000,000 1,051,040
Hibbing Economic Development
Authority Revenue
(Hibbing Lease Obligation)
6.10% 2/1/08 285,000 286,416
Virginia Housing & Redevelopment
Authority Health Care
Facility (Lease Revenue)
5.25% 10/1/25 880,000 913,766
____________
2,251,222
____________
Local General Obligation Bonds - 32.94%
Big Lake Independent School
District #727 Series C
5.00% 2/1/16 (FSA) 1,180,000 1,240,369
5.00% 2/1/17 (FSA) 1,000,000 1,047,220
(continues) 27
Statements of net assets
Delaware Tax-Free Minnesota Intermediate Fund
Principal Market
Amount Value
_______________________________________________________________________________
Municipal Bonds (continued)
_______________________________________________________________________________
Local General Obligation Bonds (continued)
Centennial Independent School
District #012 Series A
5.00% 2/1/18 (FSA) $1,000,000 $ 1,054,460
5.00% 2/1/20 (FSA) 750,000 790,845
Dakota County Capital
Improvement Series A
4.75% 2/1/17 1,000,000 1,036,820
Dakota County Community
Development Agency
Governmental Housing
Refunding (Senior
Housing Facilities) Series A
5.00% 1/1/22 1,150,000 1,216,965
Hennepin County Series B
4.75% 12/1/14 1,000,000 1,039,210
Hopkins Independent School
District #270 5.125% 2/1/17
(FGIC) 2,000,000 2,127,060
Minneapolis Tax Increment
Revenue (Ivy Tower Project)
5.50% 2/1/22 415,000 418,876
Moorhead Independent School
District #152 5.00% 4/1/10
(FGIC) 2,585,000 2,710,449
Osseo Independent School District
#279 Series A 5.00% 2/1/21
(FSA) 1,500,000 1,581,690
Ramsey County (Capital
Improvement Plan) Series B
5.25% 2/1/11 1,445,000 1,545,471
South Washington County
Independent School District
#833 Series B 5.00% 2/1/16
(FSA) 1,560,000 1,651,525
St. Paul Independent School
District #625 Series B
5.00% 2/1/20 (FSA) 750,000 803,955
___________
18,264,915
___________
$ Pre-Refunded Bonds - 6.41%
Minneapolis Health Care
System Revenue (Fairview
Health Services) Series A
5.625% 5/15/32-12 1,750,000 1,938,318
Minnesota State Higher
Education Facilities Authority
Revenue (College of Art &
Design Project) Series 5-D
6.625% 5/1/20-10 1,000,000 1,072,060
Puerto Rico Commonwealth
Highway & Transportation
Authority Transportation
Revenue Series D
5.25% 7/1/38-12 500,000 541,805
___________
3,552,183
___________
State General Obligation Bonds - 6.80%
Minnesota State 5.00% 8/1/21 2,550,000 2,696,855
~ Puerto Rico Public Finance
Corporation Commonwealth
Appropriation Series A
(LOC - Puerto Rico
Government Bank)
5.75% 8/1/27 1,000,000 1,075,110
___________
3,771,965
___________
Transportation Revenue Bonds - 1.45%
Minneapolis/St. Paul Metropolitan
Airports Commission Series 14
5.50% 1/1/11 (AMT) 750,000 805,575
___________
805,575
___________
Total Municipal Bonds
(cost $52,880,454) 54,879,681
___________
Number of
Shares
_______________________________________________________________________________
Short-Term Investments - 0.13%
_______________________________________________________________________________
Money Market Instruments - 0.13%
Federated Minnesota Municipal
Cash Trust 71,637 71,637
___________
Total Short-Term Investments
(cost $71,637) 71,637
___________
Total Market Value of Securities - 99.10%
(cost $52,952,091) 54,951,318
Receivables and Other Assets
Net of Liabilities - 0.90% 500,393
___________
Net Assets Applicable to 5,104,233
Shares Outstanding - 100.00% $55,451,711
___________
Net Asset Value - Delaware Tax-Free Minnesota
Intermediate Fund
Class A ($48,296,958 / 4,446,800 Shares) $10.86
______
Net Asset Value - Delaware Tax-Free Minnesota
Intermediate Fund
Class B ($1,993,169 / 183,052 Shares) $10.89
______
Net Asset Value - Delaware Tax-Free Minnesota
Intermediate Fund
Class C ($5,161,584 / 474,381 Shares) $10.88
______
Components of Net Assets at August 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $54,908,696
Accumulated net realized loss on investments (1,456,212)
Net unrealized appreciation of investments 1,999,227
___________
Total net assets $55,451,711
___________
28
________________________________________________________________________________
________________________________________________________________________________
Summary of Abbreviations:
AMT - Subject to Alternative Minimum Tax
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
LOC - Letter of Credit
RADIAN - Insured by Radian Asset Assurance
@ Illiquid security. At August 31, 2006, the aggregate amount of illiquid
securities equaled $590,056, which represented 1.06% of the Fund's net assets.
See Note 7 in "Notes to Financial Statements."
$ 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 7 in "Notes to Financial
Statements."
~ Variable rate security. The interest rate shown is the rate as of August 31,
2006.
Net Asset Value and Offering Price Per Share -
Delaware Tax-Free Minnesota Intermediate Fund
Net asset value Class A (A) $10.86
Sales charge (2.75% of offering price) (B) 0.31
______
Offering price $11.17
______
(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
(continues) 29
Statements of net assets
Delaware Minnesota High-Yield Municipal Bond Fund
August 31, 2006
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds - 95.23%
________________________________________________________________________________
Corporate-Backed Revenue Bonds - 4.50%
Cloquet Pollution Control Revenue
(Potlatch Corp. Project)
5.90% 10/1/26 $1,700,000 $ 1,729,359
Laurentian Energy Authority I
Cogeneration Revenue Series A
5.00% 12/1/21 1,750,000 1,767,955
Sartell Environmental Improvement
Revenue (International Paper)
Series A 5.20% 6/1/27 1,750,000 1,798,038
___________
5,295,352
___________
Education Revenue Bonds - 4.38%
Minnesota State Higher Education
Facilities Authority Revenue
(Augsburg College)
Series 6-C 5.00% 5/1/23 700,000 721,294
Series 6-J1 5.00% 5/1/36 1,000,000 1,014,690
(St. Catherine College)
Series 5-N1 5.375% 10/1/32 2,000,000 2,094,860
(University St. Thomas)
Series 6-I 5.00% 4/1/23 1,250,000 1,319,600
___________
5,150,444
___________
Electric Revenue Bonds - 7.19%
Chaska Electric Revenue
(Generating Facilities) Series A
5.25% 10/1/25 1,000,000 1,063,430
Minnesota State Municipal Power
Agency
5.00% 10/1/35 1,000,000 1,029,010
Series A 5.00% 10/1/34 2,750,000 2,823,453
Puerto Rico Electric Power
Authority Power Revenue
Series II 5.25% 7/1/31 1,000,000 1,046,930
Southern Minnesota Municipal
Power Agency Supply
System Revenue Series A
5.25% 1/1/16 (AMBAC) 1,000,000 1,109,260
Western Minnesota Municipal
Power Agency Series A
5.00% 1/1/30 (MBIA) 1,335,000 1,386,624
___________
8,458,707
___________
Health Care Revenue Bonds - 40.75%
Aitkin Health Care Facilities
Revenue (Riverwood Health
Care Center) 5.50% 2/1/24 700,000 714,399
Apple Valley Economic
Development Authority Health
Care Revenue
(Augustana Home St.
Paul Project) Series A
5.80% 1/1/30 1,000,000 1,006,350
(Evercare Senior Living Project)
Series A 6.125% 6/1/35 1,000,000 1,006,860
Bemidji Health Care Facilities
First Meeting Revenue (North
Country Health Services)
5.00% 9/1/20 1,150,000 1,208,662
5.00% 9/1/31 (RADIAN) 2,500,000 2,580,349
Buffalo Health Care Revenue
(Central Minnesota Senior
Housing Project) Series A
5.375% 9/1/26 1,000,000 996,360
Buhl Nursing Home Revenue
(Forest Health Services Project)
Series A 6.75% 8/1/33 1,000,000 976,310
Detroit Lakes Housing & Health
Facilities Revenue Refunding
(Mankato Lutheran Homes)
Series D 5.50% 8/1/21 500,000 506,395
Duluth Economic Development
Authority Health Care Facilities
Revenue (Benedictine Health
System - St. Mary's Hospital)
5.25% 2/15/33 2,250,000 2,334,892
Glencoe Health Care Facilities
Revenue (Glencoe Regional
Health Services Project)
5.00% 4/1/31 1,965,000 2,001,294
Mahtomedi Senior Housing
Revenue (St. Andrews Village
Project) 5.75% 12/1/40 1,000,000 1,008,390
Maple Grove Health Care Facilities
Revenue (North Memorial
Health Care) 5.00% 9/1/35 3,590,000 3,685,529
Minneapolis Health Care Facilities
Revenue
(Augustana Chapel View
Homes) Series D
5.75% 6/1/29 1,000,000 1,024,480
(Jones-Harrison Residence
Project) 5.60% 10/1/30 1,500,000 1,512,525
Minneapolis Health Care System
Revenue
(Allina Health Systems) Series A
5.75% 11/15/32 2,000,000 2,147,099
(Fairview Health Services)
Series D 5.00% 11/15/34
(AMBAC) 1,000,000 1,047,110
Minneapolis/St. Paul Housing
& Redevelopment Authority
Health Care System (Health
Partners Obligation Group
Project) 6.00% 12/1/17 1,125,000 1,240,526
Minnesota Agriculture & Economic
Development Board Revenue
(Benedictine Health Systems)
5.75% 2/1/29 1,000,000 1,015,690
30
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Health Care Revenue Bonds (continued)
Moorhead Economic Development
Authority Multifamily Revenue
Refunding & Improvement
(Eventide Lutheran Home
Project) Series B 6.00% 6/1/18 $ 870,000 $ 870,566
Northfield Health Care Facilities
Revenue Refunding &
Improvement (Northfield
Retirement Center Project)
Series A 6.00% 5/1/28 1,000,000 1,000,350
Northfield Hospital Revenue
5.375% 11/1/31 1,000,000 1,051,100
Oakdale Elderly Housing Revenue
(PHM/Oakdale, Inc. Project)
6.00% 3/1/28 1,800,000 1,810,152
Owatonna Senior Housing
Revenue (Senior Living Project)
Series A
5.80% 10/1/29 400,000 402,988
6.00% 4/1/41 1,250,000 1,274,363
Prior Lake Senior Housing
Revenue (Shepherds Path
Senior Housing) Series B
5.75% 8/1/41 1,000,000 1,008,820
Rochester Health Care Facilities
Revenue (Mayo Clinic)
5.00% 11/15/36 2,000,000 2,086,600
Rochester Multifamily Housing
Revenue (Wedum Shorewood
Campus Project) 6.60% 6/1/36 990,000 1,022,066
Shakopee Health Care Facilities
Revenue (St. Francis Regional
Medical Center) 5.25% 9/1/34 1,000,000 1,040,250
Shoreview Elderly Housing
Revenue (PHM/Shoreview, Inc.
Project) 6.15% 12/1/33 1,250,000 1,280,150
St. Louis Park Health Care Facilities
Revenue (Park Nicollet Health
Services) Series B 5.25% 7/1/30 1,000,000 1,047,980
St. Paul Housing & Redevelopment
Authority Hospital Revenue
(Health East Project)
6.00% 11/15/25 1,000,000 1,105,210
Series A 5.70% 11/1/15 800,000 825,648
Series B 5.85% 11/1/17 250,000 258,153
Stillwater Health Care Revenue
(Health System Obligation
Group)
5.00% 6/1/25 2,000,000 2,076,660
5.00% 6/1/35 1,000,000 1,030,000
Twin Valley Congregate Housing
Revenue (Living Options, Inc.
Project) 5.95% 11/1/28 1,825,000 1,699,696
Woodbury Economic Development
Authority Housing Revenue
Refunding 5.65% 6/1/33 1,000,000 1,012,790
___________
47,916,762
___________
Housing Revenue Bonds - 15.84%
Chanhassen Multifamily Revenue
Refunding (Heritage Park
Apartments Project-Section 8)
6.20% 7/1/30 (FHA) (AMT) 300,000 307,086
Chaska Multifamily Housing
Revenue (West Suburban
Housing Partners Project)
5.875% 3/1/31 (AMT) 1,000,000 911,970
@ Hutchinson Multifamily
Housing Revenue (Evergreen
Apartments Project-Section 8)
5.75% 11/1/28 1,955,000 1,863,819
Minneapolis Multifamily Housing
Revenue
(Grant Street Apartments
Project) Series A
7.25% 11/1/29 2,085,000 2,159,351
(Olson Townhomes Project)
6.00% 12/1/19 (AMT) 1,555,000 1,555,249
(Trinity Apartments-Section 8)
Series A 6.75% 5/1/21 675,000 707,204
Minneapolis/St. Paul Housing
Finance Board (Cityliving
Project) Series A-2
5.00% 12/1/38 (FNMA)
(GNMA) (AMT) 1,000,000 1,014,210
Minnesota State Housing Finance
Agency Rental Housing
Series A 4.875% 8/1/24 (AMT) 585,000 591,482
Series A-1 5.00% 8/1/40 (AMT) 2,265,000 2,291,545
Minnesota State Housing Finance
Agency Residential Housing
Series G 5.00% 7/1/36 (AMT) 1,000,000 1,011,680
Minnesota State Housing Finance
Agency Single Family Mortgage
Series E 6.25% 1/1/23 (AMT) 15,000 15,264
Series J 5.90% 7/1/28 (AMT) 685,000 705,632
Series M 5.875% 1/1/17 25,000 25,611
St. Cloud Housing &
Redevelopment Authority
Revenue (Sterling Heights
Apartments Project)
7.55% 4/1/39 (AMT) 530,000 560,427
St. Paul Housing & Redevelopment
Authority Multifamily Housing
Revenue (Selby Grotto Housing
Project) 5.50% 9/20/44
(GNMA) (AMT) 750,000 769,928
(continues) 31
Statements of net assets
Delaware Minnesota High-Yield Municipal Bond Fund
Principal Market
Amount Value
________________________________________________________________________________
Municipal Bonds (continued)
________________________________________________________________________________
Housing Revenue Bonds (continued)
Stillwater Multifamily Revenue
(Stillwater Cottages Project)
7.00% 11/1/16 (AMT) $ 680,000 $ 694,790
Series A 6.75% 11/1/11 205,000 209,471
Series A 7.00% 11/1/27 340,000 347,334
Washington County Housing &
Redevelopment Authority
Governmental Revenue
(Briar Pond Project) Series B
7.125% 8/20/34 840,000 803,796
(Woodland Park Apartments
Project) 4.70% 10/1/32 2,075,000 2,085,707
___________
18,631,556
___________
Lease Revenue Bonds - 2.23%
Andover Economic Development
Authority Public Facilities Lease
Revenue (Andover Community
Center) 5.20% 2/1/34 1,000,000 1,043,240
Hibbing Economic Development
Authority Revenue (Hibbing
Lease Obligation Project)
6.40% 2/1/12 530,000 530,387
St. Paul Port Authority Lease
Revenue (Robert Street
Office Building Project)
5.00% 12/1/27 1,000,000 1,047,260
___________
2,620,887
___________
Local General Obligation Bonds - 9.05%
Farmington Independent
School District #192 Series B
5.00% 2/1/27 (FSA) 1,000,000 1,055,100
Hopkins Independent School
District #270 Facilities
5.00% 2/1/26 (MBIA) 1,055,000 1,116,201
Lakeville Independent School
District #194 Series A
4.75% 2/1/22 (FSA) 1,000,000 1,036,030
Metropolitan Council Waste
Water Treatment Series B
5.00% 12/1/21 500,000 533,545
Minneapolis Tax Increment
Revenue (Ivory Tower Project)
5.70% 2/1/29 785,000 800,111
Minneapolis Tax Increment
Revenue Refunding
(St. Anthony Falls Project)
5.65% 2/1/27 500,000 507,440
Moorhead Series B 5.00% 2/1/33
(MBIA) 750,000 785,190
Perham Disposal System
6.00% 5/1/22 (AMT) 1,500,000 1,582,350
St. Paul Housing & Redevelopment
Authority Tax Increment (Upper
Landing Project) Series A
6.80% 3/1/29 1,000,000 1,073,320
St. Paul Independent School
District #625 Series B
5.00% 2/1/20 (FSA) 750,000 803,955
Todd Morrison Cass & Wadena
Counties United Hospital
District (Health Care Facilities-
Lakewood)
5.00% 12/1/21 610,000 628,873
5.125% 12/1/24 205,000 212,376
5.25% 12/1/26 490,000 511,795
___________
10,646,286
___________
$ Pre-Refunded Bonds - 6.39%
Little Canada Multifamily
Housing Revenue Alternative
Development (Montreal Courts
Apartments Project) Series A
6.25% 12/1/27-07 1,250,000 1,286,925
Minneapolis Community
Development Agency
(Supported Development
Revenue) Series G-3
5.45% 12/1/31-11 1,000,000 1,084,640
Minneapolis Health Care
System Revenue (Fairview
Health Services) Series A
5.625% 5/15/32-12 2,000,000 2,215,220
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
Perham Hospital District Senior
Congregate Housing Facilities
Revenue (Briarwood Project)
6.25% 11/1/22-07 620,000 636,436
Puerto Rico Commonwealth
Highway & Transportation
Authority Transportation
Refunding Series D
5.25% 7/1/38-12 1,500,000 1,625,415
Rice County Certificates of
Participation Series A
6.00% 12/1/21-06 125,000 125,754
___________
7,511,025
___________
Special Tax Bonds - 0.89%
Virgin Islands Public Finance
Authority Revenue (Senior-Lien-
Matching Fund Loan Note)
Series A 5.25% 10/1/24 1,000,000 1,053,430
___________
1,053,430
___________
32
Principal Market
Amount Value
_______________________________________________________________________________
Municipal Bonds (continued)
_______________________________________________________________________________
State General Obligation Bonds - 2.24%
& Minnesota State, Inverse Floater
ROLs 6.564% 11/1/17 $1,000,000 $ 1,054,560
Puerto Rico Commonwealth
Public Improvement Series A
5.00% 7/1/34 500,000 510,855
Puerto Rico Government
Development Bank Senior
Notes Series B 5.00% 12/1/14 1,000,000 1,064,340
____________
2,629,755
____________
Transportation Revenue Bonds - 1.77%
Minneapolis/St. Paul Metropolitan
Airports Commission Revenue
Series A 5.00% 1/1/28 (MBIA) 2,000,000 2,078,460
____________
2,078,460
____________
Total Municipal Bonds (cost $109,059,572) 111,992,664
____________
Number of
Shares
_______________________________________________________________________________
Short-Term Investments - 3.99%
_______________________________________________________________________________
Money Market Instruments - 0.67%
Federated Minnesota Municipal
Cash Trust 784,806 784,806
____________
784,806
____________
Principal
Amount
~ Variable Rate Demand Notes - 3.32%
Minneapolis Guthrie Parking Ramp
3.27% 12/1/33 (SPA) $2,000,000 2,000,000
Minneapolis Health Care
System Revenue (Fairview
Health Services) Series A
3.40% 11/15/32 (AMBAC)
(SPA) 1,400,000 1,400,000
Minneapolis Revenue (Guthrie
Theater Project) Series A
(LOC - Wells Fargo Bank)
3.27% 10/1/23 500,000 500,000
____________
3,900,000
____________
Total Short-Term Investments
(cost $4,684,806) 4,684,806
____________
Total Market Value of Securities - 99.22%
(cost $113,744,378) 116,677,470
Receivables and Other Assets
Net of Liabilities - 0.78% 920,728
____________
Net Assets Applicable to 11,161,699
Shares Outstanding - 100.00% $117,598,198
____________
Net Asset Value - Delaware Minnesota High-Yield
Municipal Bond Fund
Class A ($87,503,922 / 8,308,999 Shares) $10.53
______
Net Asset Value - Delaware Minnesota High-Yield
Municipal Bond Fund
Class B ($9,577,877 / 908,064 Shares) $10.55
______
Net Asset Value - Delaware Minnesota High-Yield
Municipal Bond Fund
Class C ($20,516,399 / 1,944,636 Shares) $10.55
______
Components of Net Assets at August 31, 2006:
Shares of beneficial interest
(unlimited authorization - no par) $117,216,892
Accumulated net realized loss on investments (2,551,786)
Net unrealized appreciation of investments 2,933,092
____________
Total net assets $117,598,198
____________
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
FHA - Insured by the Federal Housing Administration
FNMA - Insured by Federal National Mortgage Association
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
ROLs - Residual Option Longs
SPA - Stand-by Purchase Agreement
$ 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 7 in "Notes to Financial
Statements."
& An inverse floater bond is a type of bond with variable or floating interest
rates that move in the opposite direction of short-term interest rates.
Interest rate disclosed is in effect as of August 31, 2006. See Note 7 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 equaled $1,863,819, which represented 1.58% of the Fund's net
assets. See Note 7 in "Notes to Financial Statements."
Net Asset Value and Offering Price Per Share Delaware
Minnesota High-Yield Municipal Bond Fund
Net asset value Class A (A) $10.53
Sales charge (4.50% of offering price) (B) 0.50
______
Offering price $11.03
______
(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
33
Statements of operations
Delaware Minnesota Municipal Bond Funds
Year Ended August 31, 2006
Delaware Delaware Delaware
Delaware Tax-Free Tax-Free Minnesota
Tax-Free Minnesota Minnesota High-Yield
Minnesota Insured Intermediate Municipal
Fund Fund Fund Bond Fund
Investment Income:
Interest $20,085,468 $11,700,803 $2,687,793 $5,194,380
___________ ___________ __________ __________
Expenses:
Management fees 2,190,839 1,188,037 285,389 555,094
Distribution expenses - Class A 928,423 535,795 124,107 181,263
Distribution expenses - Class B 122,428 111,364 23,021 101,294
Distribution expenses - Class C 144,811 122,115 51,217 179,700
Dividend disbursing and transfer agent fees and expenses 203,190 134,876 38,098 62,552
Accounting and administration expenses 159,334 95,043 22,831 40,370
Legal and professional fees 61,009 47,903 28,572 28,979
Registration fees 27,692 17,639 16,774 31,392
Trustees' fees 20,743 13,468 2,966 5,210
Reports and statements to shareholders 31,031 27,876 9,362 15,156
Custodian fees 19,475 10,740 3,976 6,453
Insurance fees 11,229 5,975 1,325 3,737
Pricing fees 4,009 2,633 1,420 2,520
Taxes (other than taxes on income) 1,302 743 - 455
Other 13,269 8,043 3,403 3,206
___________ ___________ __________ __________
3,938,784 2,322,250 612,461 1,217,381
Less expenses absorbed or waived (15,468) (28,216) (69,913) (108,549)
Less waived distribution expenses - Class A - - (49,643) -
Less expense paid indirectly (2,148) (811) (952) (72)
___________ ___________ __________ __________
Total operating expenses 3,921,168 2,293,223 491,953 1,108,760
___________ ___________ __________ __________
Net Investment Income 16,164,300 9,407,580 2,195,840 4,085,620
___________ ___________ __________ __________
Net Realized and Unrealized Gain (Loss) on Investments:
Net realized gain (loss) on investments 420,471 (191,561) (181,095) (187,727)
Net change in unrealized appreciation/depreciation of investments (5,618,279) (4,320,530) (652,780) (226,433)
___________ ___________ __________ __________
Net Realized and Unrealized Loss on Investments (5,197,808) (4,512,091) (833,875) (414,160)
___________ ___________ __________ __________
Net Increase in Net Assets Resulting from Operations $10,966,492 $ 4,895,489 $1,361,965 $3,671,460
___________ ___________ __________ __________
See accompanying notes
34
Statements of changes in net assets
Delaware Minnesota Municipal Bond Funds
Delaware Tax-Free Delaware Tax-Free Minnesota
Minnesota Fund New York Fund
Year Ended Year Ended
8/31/06 8/31/05 8/31/06 8/31/05
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 16,164,300 $ 15,842,204 $ 9,407,580 $ 10,006,289
Net realized gain (loss) on investments 420,471 521,727 (191,561) 483,566
Net change in unrealized appreciation/depreciation of investments (5,618,279) 6,325,529 (4,320,530) 2,576,840
____________ ____________ ____________ ____________
Net increase in net assets resulting from operations 10,966,492 22,689,460 4,895,489 13,066,695
____________ ____________ ____________ ____________
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (15,322,571) (14,918,426) (8,597,833) (9,106,255)
Class B (413,101) (468,436) (363,586) (438,591)
Class C (487,162) (416,235) (397,631) (415,840)
Net realized gain on investments:
Class A (767,541) (4,220,929) (438,581) (1,001,479)
Class B (26,047) (174,978) (23,729) (62,572)
Class C (29,894) (135,698) (24,664) (55,205)
____________ ____________ ____________ ____________
(17,046,316) (20,334,702) (9,846,024) (11,079,942)
____________ ____________ ____________ ____________
Capital Share Transactions:
Proceeds from shares sold:
Class A 46,525,876 32,762,383 11,550,587 13,305,078
Class B 806,782 1,032,796 359,427 762,589
Class C 4,424,369 4,082,514 1,930,187 2,220,317
Net asset value of shares issued upon reinvestment of dividends
and distributions:
Class A 10,254,675 12,557,067 6,080,360 6,840,725
Class B 273,926 421,984 294,382 389,371
Class C 399,762 431,656 296,875 323,100
____________ ____________ ____________ ____________
62,685,390 51,288,400 20,511,818 23,841,180
____________ ____________ ____________ ____________
Cost of shares repurchased:
Class A (33,894,118) (31,030,615) (26,983,677) (22,291,529)
Class B (2,326,335) (3,294,771) (2,559,927) (3,218,588)
Class C (3,458,556) (1,444,705) (1,699,163) (2,404,134)
____________ ____________ ____________ ____________
(39,679,009) (35,770,091) (31,242,767) (27,914,251)
____________ ____________ ____________ ____________
Increase (decrease) in net assets derived from capital share transactions 23,006,381 15,518,309 (10,730,949) (4,073,071)
____________ ____________ ____________ ____________
Net Increase (Decrease) in Net Assets 16,926,557 17,873,067 (15,681,484) (2,086,318)
Net Assets:
Beginning of year 391,272,178 373,399,111 251,276,535 253,362,853
____________ ____________ ____________ ____________
End of year $408,198,735 $391,272,178 $235,595,051 $251,276,535
____________ ____________ ____________ ____________
Undistributed (distributions in excess of) net investment income $ (22,418) $ 147,934 $ - $ -
See accompanying notes
(continues) 35
Statements of changes in net assets
Delaware Minnesota Municipal Bond Funds
Delaware Tax-Free Minnesota Delaware Minnesota High-Yield
Intermediate Fund Municipal Bond Fund
Year Ended Year Ended
8/31/06 8/31/05 8/31/06 8/31/05
Increase (Decrease) in Net Assets from Operations:
Net investment income $ 2,195,840 $ 2,350,094 $ 4,085,620 $ 3,196,642
Net realized gain (loss) on investments (181,095) 799,234 (187,727) 26,471
Net change in unrealized appreciation/depreciation of investments (652,780) (107,313) (226,433) 2,717,449
___________ ___________ ____________ ___________
Net increase in net assets resulting from operations 1,361,965 3,042,015 3,671,460 5,940,562
___________ ___________ ____________ ___________
Dividends and Distributions to Shareholders from:
Net investment income:
Class A (1,965,980) (2,063,392) (3,084,904) (2,292,733)
Class B (71,129) (85,793) (353,881) (419,856)
Class C (158,749) (200,891) (628,298) (482,033)
___________ ___________ ____________ ___________
(2,195,858) (2,350,076) (4,067,083) (3,194,622)
___________ ___________ ____________ ___________
Capital Share Transactions:
Proceeds from shares sold:
Class A 4,468,732 8,856,040 33,135,160 22,657,439
Class B 12,810 46,423 1,943,331 1,226,522
Class C 1,086,994 735,412 7,697,199 5,727,603
Net asset value of shares issued upon reinvestment of dividends
and distributions:
Class A 1,416,395 1,526,786 1,867,441 1,387,489
Class B 53,171 62,528 227,202 256,713
Class C 116,926 157,534 437,783 291,405
___________ ___________ ____________ ___________
7,155,028 11,384,723 45,308,116 31,547,171
___________ ___________ ____________ ___________
Cost of shares repurchased:
Class A (9,830,857) (15,027,594) (11,064,882) (4,758,836)
Class B (841,634) (550,863) (3,010,441) (3,831,970)
Class C (1,961,559) (2,157,860) (3,355,422) (2,120,433)
___________ ___________ ____________ ___________
(12,634,050) (17,736,317) (17,430,745) (10,711,239)
___________ ___________ ____________ ___________
Increase (decrease) in net assets derived from capital share transactions (5,479,022) (6,351,594) 27,877,371 20,835,932
___________ ___________ ____________ ___________
Net Increase (Decrease) in Net Assets (6,312,915) (5,695,655) 27,481,748 23,581,872
Net Assets:
Beginning of year 61,764,626 67,424,281 90,116,450 66,534,578
___________ ___________ ____________ ___________
End of year (there was no undistributed income at either year end) $55,451,711 $61,764,626 $117,598,198 $90,116,450
___________ ___________ ____________ ___________
See accompanying notes
36
Financial highlights
Delaware Tax-Free Minnesota 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 $12.690 $12.620 $12.450 $12.610 $12.570
Income (loss) from investment operations:
Net investment income 0.511 0.527 0.590 0.622 0.634
Net realized and unrealized gain (loss) on investments (0.172) 0.222 0.348 (0.148) 0.037
_______ _______ _______ _______ _______
Total from investment operations 0.339 0.749 0.938 0.474 0.671
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.513) (0.526) (0.600) (0.625) (0.631)
Net realized gain on investments (0.026) (0.153) (0.168) (0.009) -
_______ _______ _______ _______ _______
Total dividends and distributions (0.539) (0.679) (0.768) (0.634) (0.631)
_______ _______ _______ _______ _______
Net asset value, end of period $12.490 $12.690 $12.620 $12.450 $12.610
_______ _______ _______ _______ _______
Total return (1) 2.78% 6.12% 7.72% 3.80% 5.54%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $381,720 $364,491 $348,000 $340,029 $356,522
Ratio of expenses to average net assets 0.93% 0.93% 0.94% 0.97% 0.98%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 0.94% 0.94% 0.94% 0.97% 0.98%
Ratio of net investment income to average net assets 4.11% 4.19% 4.68% 4.90% 5.11%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.10% 4.18% 4.68% 4.90% 5.11%
Portfolio turnover 13% 10% 25% 27% 13%
___________________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
(continues) 37
Financial highlights
Delaware Tax-Free Minnesota 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 $12.700 $12.630 $12.460 $12.620 $12.580
Income (loss) from investment operations:
Net investment income 0.418 0.433 0.496 0.529 0.540
Net realized and unrealized gain (loss) on investments (0.172) 0.222 0.348 (0.150) 0.037
_______ _______ _______ _______ _______
Total from investment operations 0.246 0.655 0.844 0.379 0.577
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.420) (0.432) (0.506) (0.530) (0.537)
Net realized gain on investments (0.026) (0.153) (0.168) (0.009) -
_______ _______ _______ _______ _______
Total dividends and distributions (0.446) (0.585) (0.674) (0.539) (0.537)
_______ _______ _______ _______ _______
Net asset value, end of period $12.500 $12.700 $12.630 $12.460 $12.620
_______ _______ _______ _______ _______
Total return (1) 2.01% 5.33% 6.91% 3.02% 4.75%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $11,354 $12,810 $14,588 $16,394 $17,043
Ratio of expenses to average net assets 1.68% 1.68% 1.69% 1.72% 1.73%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.69% 1.69% 1.69% 1.72% 1.73%
Ratio of net investment income to average net assets 3.36% 3.44% 3.93% 4.15% 4.36%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.35% 3.43% 3.93% 4.15% 4.36%
Portfolio turnover 13% 10% 25% 27% 13%
___________________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
38
Delaware Tax-Free Minnesota 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 $12.720 $12.650 $12.480 $12.640 $12.590
Income (loss) from investment operations:
Net investment income 0.418 0.433 0.495 0.529 0.540
Net realized and unrealized gain (loss) on investments (0.162) 0.222 0.348 (0.151) 0.047
_______ _______ _______ _______ _______
Total from investment operations 0.256 0.655 0.843 0.378 0.587
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.420) (0.432) (0.505) (0.529) (0.537)
Net realized gain on investments (0.026) (0.153) (0.168) (0.009) -
_______ _______ _______ _______ _______
Total dividends and distributions (0.446) (0.585) (0.673) (0.538) (0.537)
_______ _______ _______ _______ _______
Net asset value, end of period $12.530 $12.720 $12.650 $12.480 $12.640
_______ _______ _______ _______ _______
Total return (1) 2.08% 5.32% 6.90% 3.01% 4.82%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $15,125 $13,971 $10,811 $10,161 $7,682
Ratio of expenses to average net assets 1.68% 1.68% 1.69% 1.72% 1.73%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.69% 1.69% 1.69% 1.72% 1.73%
Ratio of net investment income to average net assets 3.36% 3.44% 3.93% 4.15% 4.36%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.35% 3.43% 3.93% 4.15% 4.36%
Portfolio turnover 13% 10% 25% 27% 13%
___________________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
(continues) 39
Financial highlights
Delaware Tax-Free Minnesota Insured 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 $11.110 $11.020 $10.740 $10.940 $10.900
Income (loss) from investment operations:
Net investment income 0.438 0.446 0.479 0.498 0.514
Net realized and unrealized gain (loss) on investments (0.200) 0.138 0.282 (0.197) 0.038
_______ _______ _______ _______ _______
Total from investment operations 0.238 0.584 0.761 0.301 0.552
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.436) (0.445) (0.481) (0.501) (0.512)
Net realized gain on investments (0.022) (0.049) - - -
_______ _______ _______ _______ _______
Total dividends and distributions (0.458) (0.494) (0.481) (0.501) (0.512)
_______ _______ _______ _______ _______
Net asset value, end of period $10.890 $11.110 $11.020 $10.740 $10.940
_______ _______ _______ _______ _______
Total return (1) 2.23% 5.42% 7.20% 2.75% 5.25%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $212,859 $226,671 $227,018 $231,738 $239,763
Ratio of expenses to average net assets 0.89% 0.89% 0.89% 0.93% 0.96%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 0.90% 0.90% 0.89% 0.93% 0.96%
Ratio of net investment income to average net assets 4.03% 4.05% 4.37% 4.52% 4.78%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.02% 4.04% 4.37% 4.52% 4.78%
Portfolio turnover 5% 10% 15% 30% 15%
___________________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
40
Delaware Tax-Free Minnesota Insured 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 $11.100 $11.010 $10.730 $10.940 $10.890
Income (loss) from investment operations:
Net investment income 0.357 0.364 0.397 0.415 0.433
Net realized and unrealized gain (loss) on investments (0.200) 0.137 0.282 (0.207) 0.048
_______ _______ _______ _______ _______
Total from investment operations 0.157 0.501 0.679 0.208 0.481
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.355) (0.362) (0.399) (0.418) (0.431)
Net realized gain on investments (0.022) (0.049) - - -
_______ _______ _______ _______ _______
Total dividends and distributions (0.377) (0.411) (0.399) (0.418) (0.431)
_______ _______ _______ _______ _______
Net asset value, end of period $10.880 $11.100 $11.010 $10.730 $10.940
_______ _______ _______ _______ _______
Total return (1) 1.47% 4.64% 6.41% 1.89% 4.56%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $10,182 $12,337 $14,317 $15,647 $14,341
Ratio of expenses to average net assets 1.64% 1.64% 1.64% 1.68% 1.71%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.65% 1.65% 1.64% 1.68% 1.71%
Ratio of net investment income to average net assets 3.28% 3.30% 3.62% 3.77% 4.03%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.27% 3.29% 3.62% 3.77% 4.03%
Portfolio turnover 5% 10% 15% 30% 15%
___________________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
(continues) 41
Financial highlights
Delaware Tax-Free Minnesota Insured 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 $11.120 $11.030 $10.750 $10.950 $10.910
Income (loss) from investment operations:
Net investment income 0.356 0.364 0.396 0.414 0.433
Net realized and unrealized gain (loss) on investments (0.200) 0.137 0.282 (0.197) 0.038
_______ _______ _______ _______ _______
Total from investment operations 0.156 0.501 0.678 0.217 0.471
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.354) (0.362) (0.398) (0.417) (0.431)
Net realized gain on investments (0.022) (0.049) - - -
_______ _______ _______ _______ _______
Total dividends and distributions (0.376) (0.411) (0.398) (0.417) (0.431)
_______ _______ _______ _______ _______
Net asset value, end of period $10.900 $11.120 $11.030 $10.750 $10.950
_______ _______ _______ _______ _______
Total return (1) 1.46% 4.63% 6.39% 1.97% 4.46%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $12,554 $12,269 $12,028 $11,966 $6,083
Ratio of expenses to average net assets 1.64% 1.64% 1.64% 1.68% 1.71%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.65% 1.65% 1.64% 1.68% 1.71%
Ratio of net investment income to average net assets 3.28% 3.30% 3.62% 3.77% 4.03%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.27% 3.29% 3.62% 3.77% 4.03%
Portfolio turnover 5% 10% 15% 30% 15%
___________________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense
limitation not been in effect.
See accompanying notes
42
Delaware Tax-Free Minnesota 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 $11.010 $10.890 $10.630 $10.720 $10.580
Income (loss) from investment operations:
Net investment income 0.429 0.407 0.444 0.469 0.512
Net realized and unrealized gain (loss) on investments (0.150) 0.120 0.260 (0.088) 0.138
_______ _______ _______ _______ _______
Total from investment operations 0.279 0.527 0.704 0.381 0.650
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.429) (0.407) (0.444) (0.471) (0.510)
_______ _______ _______ _______ _______
Total dividends and distributions (0.429) (0.407) (0.444) (0.471) (0.510)
_______ _______ _______ _______ _______
Net asset value, end of period $10.860 $11.010 $10.890 $10.630 $10.720
_______ _______ _______ _______ _______
Total return (1) 2.62% 4.93% 6.73% 3.59% 6.34%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $48,297 $52,958 $57,012 $57,635 $51,034
Ratio of expenses to average net assets 0.75% 0.79% 0.84% 0.86% 0.85%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 0.97% 0.95% 0.95% 0.96% 0.85%
Ratio of net investment income to average net assets 3.96% 3.72% 4.10% 4.32% 4.86%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.74% 3.56% 3.99% 4.22% 4.86%
Portfolio turnover 11% 25% 30% 23% 35%
___________________________________________________________________________________________________________________________________
(1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of
dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return
reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the
expense limitation not been in effect.
See accompanying notes
(continues) 43
<page>
Financial highlights
Delaware Tax-Free Minnesota 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 $11.040 $10.920 $10.650 $10.740 $10.600
Income (loss) from investment operations:
Net investment income 0.337 0.314 0.352 0.377 0.423
Net realized and unrealized gain (loss) on investments (0.150) 0.120 0.270 (0.088) 0.137
_______ _______ _______ _______ _______
Total from investment operations 0.187 0.434 0.622 0.289 0.560
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.337) (0.314) (0.352) (0.379) (0.420)
_______ _______ _______ _______ _______
Total dividends and distributions (0.337) (0.314) (0.352) (0.379) (0.420)
_______ _______ _______ _______ _______
Net asset value, end of period $10.890 $11.040 $10.920 $10.650 $10.740
_______ _______ _______ _______ _______
Total return (1) 1.75% 4.03% 5.91% 2.70% 5.43%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,993 $2,811 $3,224 $4,002 $2,852
Ratio of expenses to average net assets 1.60% 1.64% 1.69% 1.71% 1.70%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.72% 1.70% 1.70% 1.73% 1.70%
Ratio of net investment income to average net assets 3.11% 2.87% 3.25% 3.47% 4.01%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 2.99% 2.81% 3.24% 3.45% 4.01%
Portfolio turnover 11% 25% 30% 23% 35%
_________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
44
Delaware Tax-Free Minnesota 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 $11.030 $10.910 $10.640 $10.730 $10.590
Income (loss) from investment operations:
Net investment income 0.337 0.314 0.352 0.377 0.423
Net realized and unrealized gain (loss) on investments (0.150) 0.120 0.270 (0.088) 0.137
_______ _______ _______ _______ _______
Total from investment operations 0.187 0.434 0.622 0.289 0.560
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.337) (0.314) (0.352) (0.379) (0.420)
_______ _______ _______ _______ _______
Total dividends and distributions (0.337) (0.314) (0.352) (0.379) (0.420)
_______ _______ _______ _______ _______
Net asset value, end of period $10.880 $11.030 $10.910 $10.640 $10.730
_______ _______ _______ _______ _______
Total return (1) 1.75% 4.04% 5.91% 2.71% 5.44%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $5,162 $5,996 $7,188 $6,544 $4,887
Ratio of expenses to average net assets 1.60% 1.64% 1.69% 1.71% 1.70%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.72% 1.70% 1.70% 1.73% 1.70%
Ratio of net investment income to average net assets 3.11% 2.87% 3.25% 3.47% 4.01%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 2.99% 2.81% 3.24% 3.45% 4.01%
Portfolio turnover 11% 25% 30% 23% 35%
_________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager, as applicable. Performance would have
been lower had the expense limitation not been in effect.
See accompanying notes
(continues) 45
Financial highlights
Delaware Minnesota 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 $10.610 $10.240 $9.910 $9.950 $9.900
Income (loss) from investment operations:
Net investment income 0.445 0.469 0.512 0.550 0.586
Net realized and unrealized gain (loss) on investments (0.082) 0.372 0.328 (0.030) 0.056
_______ _______ _______ _______ _______
Total from investment operations 0.363 0.841 0.840 0.520 0.642
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.443) (0.471) (0.510) (0.560) (0.592)
_______ _______ _______ _______ _______
Total dividends and distributions (0.443) (0.471) (0.510) (0.560) (0.592)
_______ _______ _______ _______ _______
Net asset value, end of period $10.530 $10.610 $10.240 $9.910 $9.950
_______ _______ _______ _______ _______
Total return (1) 3.54% 8.40% 8.65% 5.33% 6.74%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $87,504 $63,802 $42,636 $36,644 $34,867
Ratio of expenses to average net assets 0.89% 0.89% 0.75% 0.75% 0.75%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.00% 0.98% 1.00% 1.04% 1.01%
Ratio of net investment income to average net assets 4.26% 4.50% 5.03% 5.48% 5.98%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 4.15% 4.41% 4.78% 5.19% 5.72%
Portfolio turnover 4% 3% 24% 32% 33%
_________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
46
Delaware Minnesota 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 $10.630 $10.250 $9.930 $9.970 $9.910
Income (loss) from investment operations:
Net investment income 0.367 0.391 0.435 0.475 0.513
Net realized and unrealized gain (loss) on investments (0.082) 0.381 0.318 (0.030) 0.063
_______ _______ _______ _______ _______
Total from investment operations 0.285 0.772 0.753 0.445 0.576
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.365) (0.392) (0.433) (0.485) (0.516)
_______ _______ _______ _______ _______
Total dividends and distributions (0.365) (0.392) (0.433) (0.485) (0.516)
_______ _______ _______ _______ _______
Net asset value, end of period $10.550 $10.630 $10.250 $9.930 $9.970
_______ _______ _______ _______ _______
Total return (1) 2.77% 7.68% 7.71% 4.55% 6.03%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $9,578 $10,505 $12,463 $12,513 $13,379
Ratio of expenses to average net assets 1.64% 1.64% 1.50% 1.50% 1.50%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.75% 1.73% 1.75% 1.79% 1.76%
Ratio of net investment income to average net assets 3.51% 3.75% 4.28% 4.73% 5.23%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.40% 3.66% 4.03% 4.44% 4.97%
Portfolio turnover 4% 3% 24% 32% 33%
_________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
(continues) 47
Financial highlights
Delaware Minnesota 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 $10.630 $10.250 $9.930 $9.970 $9.910
Income (loss) from investment operations:
Net investment income 0.367 0.391 0.435 0.475 0.513
Net realized and unrealized gain (loss) on investments (0.082) 0.381 0.318 (0.030) 0.063
_______ _______ _______ _______ _______
Total from investment operations 0.285 0.772 0.753 0.445 0.576
_______ _______ _______ _______ _______
Less dividends and distributions from:
Net investment income (0.365) (0.392) (0.433) (0.485) (0.516)
_______ _______ _______ _______ _______
Total dividends and distributions (0.365) (0.392) (0.433) (0.485) (0.516)
_______ _______ _______ _______ _______
Net asset value, end of period $10.550 $10.630 $10.250 $9.930 $9.970
_______ _______ _______ _______ _______
Total return (1) 2.76% 7.68% 7.71% 4.54% 6.03%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $20,516 $15,809 $11,435 $10,754 $7,840
Ratio of expenses to average net assets 1.64% 1.64% 1.50% 1.50% 1.50%
Ratio of expenses to average net assets
prior to expense limitation and expenses paid indirectly 1.75% 1.73% 1.75% 1.79% 1.76%
Ratio of net investment income to average net assets 3.51% 3.75% 4.28% 4.73% 5.23%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid indirectly 3.40% 3.66% 4.03% 4.44% 4.97%
Portfolio turnover 4% 3% 24% 32% 33%
_________________________________________________________________________________________________________________________
(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 a waiver and payment of fees by the manager. Performance would have been lower had
the expense limitation not been in effect.
See accompanying notes
48
Notes to financial statements
Delaware Minnesota Municipal Bond Funds
August 31, 2006
Voyageur Mutual Funds is organized as a Delaware statutory trust and offers five
series: Delaware Minnesota High-Yield Municipal Bond Fund, Delaware National
High-Yield Municipal Bond Fund, Delaware Tax-Free California Fund, Delaware
Tax-Free Idaho Fund and Delaware Tax-Free New York Fund. Voyageur Insured Funds
is organized as a Delaware statutory trust and offers two series: Delaware
Tax-Free Arizona Insured Fund and Delaware Tax-Free Minnesota Insured Fund.
Voyageur Tax Free Funds is organized as a Delaware statutory trust and offers
the Delaware Tax-Free Minnesota Fund. Voyageur Intermediate Tax Free Funds is
organized as a Delaware statutory trust and offers the Delaware Tax-Free
Minnesota Intermediate Fund. Voyageur Mutual Funds, Voyageur Insured Funds,
Voyageur Tax Free Funds and Voyageur Intermediate Tax Free 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
Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free
Minnesota Intermediate Fund and Delaware Minnesota High-Yield Municipal Bond
Fund (each referred to as a "Fund" or collectively 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, and offer
Class A, Class B, and Class C shares. Class A shares are sold with a front-end
sales charge of up to 4.50% for Delaware Tax-Free Minnesota Fund, Delaware
Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield Municipal Bond
Fund and up to 2.75% for Delaware Tax-Free Minnesota Intermediate Fund. Class 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 are sold with a contingent deferred sales charge that declines from 4% to
zero for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured
Fund and Delaware Minnesota High-Yield Municipal Bond Fund and that declines
from 2% to zero for Delaware Tax-Free Minnesota Intermediate Fund, depending
upon the period of time the shares are held. Class B shares will automatically
convert to Class A on a quarterly basis approximately eight years after purchase
for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund
and Delaware Minnesota High-Yield Municipal Bond Fund and approximately five
years after purchase for Delaware Tax-Free Minnesota Intermediate Fund. Class C
shares are sold with a contingent deferred sales charge of 1%, if redeemed
during the first twelve months.
The investment objective of Delaware Tax-Free Minnesota Fund and Delaware
Tax-Free Minnesota Insured Fund is to seek as high a level of current income
exempt from federal income tax and from the Minnesota state personal income tax,
as is consistent with preservation of capital.
The investment objective of Delaware Tax-Free Minnesota Intermediate Fund is to
seek to provide investors with preservation of capital and, secondarily, current
income exempt from federal income tax and from the Minnesota state personal
income tax, by maintaining a dollar-weighted average effective portfolio
maturity of 10 years or less.
The investment objective of Delaware Minnesota High-Yield Municipal Bond Fund is
to seek as high a level of current income exempt from federal income tax and
from the Minnesota state personal income tax, primarily through investment in
medium- and lower-grade municipal obligations.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by the Funds.
Security Valuation - Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Open-end investment
companies are valued at their published net asset value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith under the direction of each Fund's Board of
Trustees. In determining whether market quotations are readily available or fair
valuation will be used, various factors will be taken into consideration, such
as market closures, aftermarket trading or significant events after local market
trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
Federal Income Taxes - Each Fund intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
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 Funds' 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 Funds' tax
positions are currently being evaluated, management does not expect the adoption
of FIN 48 to have a material impact on the Funds' financial statements.
Class Accounting - Investment income and common expenses are allocated to the
classes of the Funds on the basis of "settled shares" of each class in relation
to the net assets of the Funds. Realized and unrealized gain (loss) on
investments are allocated to the various classes of the Funds on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
Use of Estimates - The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(continues) 49
Notes to financial statements
Delaware Minnesota Municipal Bond Funds
1. Significant Accounting Policies (continued)
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.
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 Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
On the first $500 million 0.550% 0.500% 0.500% 0.550%
On the next $500 million 0.500% 0.475% 0.475% 0.500%
On the next $1.5 billion 0.450% 0.450% 0.450% 0.450%
In excess of $2.5 billion 0.425% 0.425% 0.425% 0.425%
DMC has contractually agreed to waive that portion, if any, of its management
fee and reimburse each Fund to the extent necessary to ensure that annual
operating expenses, exclusive of taxes, interest, brokerage commissions,
distribution fees, certain insurance costs and extraordinary expenses, do not
exceed specified percentages of average daily net assets as shown below:
Delaware Tax-Free Delaware Tax-Free Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
Operating expense limitation as a percentage
of average daily net assets (per annum) 0.69% 0.64% 0.60% 0.64%
Expiration date 12/29/05 10/31/06 10/31/06 10/31/06
Effective December 30, 2005,
Operating expense limitation as a
percentage of average daily net assets (per
annum) 0.68% 0.64% 0.60% 0.64%
Expiration date 12/31/06 12/31/06 12/31/06 12/31/06
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting,
administration, dividend disbursing and transfer agent services. Each Fund pays
DSC a monthly fee computed at the annual rate of 0.04% of 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 0.25% of the average daily net
assets of the Class A shares and 1.00% of the average daily net assets of the
Class B and C shares. DDLP has contracted to waive distribution and services
fees through December 31, 2006 in order to prevent distribution and service fees
of Class A shares from exceeding 0.15% of average daily net assets for Delaware
Tax-Free Minnesota Intermediate Fund.
50
2. Investment Management, Administration Agreements and Other Transactions with
Affiliates (continued)
At August 31, 2006, the Funds had liabilities payable to affiliates as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
Investment management fee payable to DMC $192,838 $97,956 $ 8,596 $33,929
Dividend disbursing, transfer agent,
accounting and administration fees and
expenses payable to DSC 30,693 18,927 4,983 9,696
Distribution fee payable to DDLP 102,888 64,101 12,142 43,527
Other expenses payable to DMC and affiliates* 11,742 6,906 3,126 3,287
*DMC, as part of its administrative services, pays operating expenses on behalf of each Fund and is reimbursed on a periodic basis.
Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and
trustees' fees.
As provided in the investment management agreement, each Fund bears the cost of
certain legal services, 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 Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
$22,874 $13,697 $3,306 $5,720
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 Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
$65,336 $27,780 $4,745 $70,869
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 Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
Class A $ 637 $ 280 $5,522 $ 9,896
Class B 7,493 13,148 1,866 11,279
Class C 6,806 2,045 1,172 8,077
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 Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
Purchases $71,884,416 $11,312,709 $6,166,602 $31,793,098
Sales 51,459,401 19,589,439 9,901,143 3,442,755
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 Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
Cost of investments $386,720,288 $217,684,065 $52,951,348 $113,672,073
____________ ____________ ___________ ____________
Aggregate unrealized appreciation $18,578,507 $ 15,519,744 $2,040,262 $ 3,371,246
Aggregate unrealized depreciation (446,314) (60,428) (40,292) (365,849)
____________ ____________ ___________ ____________
Net unrealized appreciation $ 18,132,193 $ 15,459,316 $1,999,970 $ 3,005,397
____________ ____________ ___________ ____________
(continues) 51
Notes to financial statements
Delaware Minnesota Municipal Bond Funds
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 Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
Year Ended 8/31/06
Tax-exempt income $16,312,106 $ 9,369,886 $2,195,858 $4,067,083
Ordinary income 106,715 - - -
Long-term capital gain 627,495 476,138 - -
___________ ___________ __________ __________
Total $17,046,316 $ 9,846,024 $2,195,858 $4,067,083
___________ ___________ __________ __________
Year Ended 8/31/05
Tax-exempt income $15,803,097 $ 9,960,686 $2,350,076 $3,194,622
Long-term capital gain 4,531,605 1,119,256 - -
___________ ___________ __________ __________
Total $20,334,702 $11,079,942 $2,350,076 $3,194,622
___________ ___________ __________ __________
As of August 31, 2006, the components of net assets on a tax basis were as
follows:
Delaware Tax-Free Delaware Tax-Free Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
Shares of beneficial interest $389,782,636 $220,321,556 $54,908,696 $117,216,892
Undistributed long-term capital gain 306,324 - - -
Capital loss carryforwards - - (1,356,875) (2,432,446)
Post-October losses - (185,821) (100,080) (191,645)
Other temporary differences (22,418) - - -
Unrealized appreciation of investments 18,132,193 15,459,316 1,999,970 3,005,397
____________ ____________ ___________ ____________
Net assets $408,198,735 $235,595,051 $55,451,711 $117,598,198
____________ ____________ ___________ ____________
The differences between book basis and tax basis components of net assets are
primarily attributable to 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, each Fund has 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 and
dividends and distributions. 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 Tax-Free Delaware Minnesota
Delaware Tax-Free Minnesota Minnesota High-Yield Municipal
Minnesota Fund Insured Fund Intermediate Fund Bond Fund
_________________ _________________ __________________ ____________________
Paid-in capital $ - $(10,836) $ - $ -
Undistributed (Accumulated)
net investment income (loss) (111,818) (48,530) 18 (18,537)
Accumulated net realized gain (loss) 111,818 59,366 (18) 18,537
For federal income tax purposes, capital loss carryforwards may be carried
forward and applied against future capital gains. Capital loss carryforwards
remaining at August 31, 2006 will expire as follows:
Delaware Tax-Free Delaware Minnesota
Minnesota High-Yield Municipal
Year of Expiration Intermediate Fund Bond Fund
__________________ _________________ ______________________
2008 $ - $ 179,791
2009 1,024,839 1,267,552
2010 4,037 57,521
2011 246,659 243,334
2012 - 684,248
2014 81,340 -
__________ __________
Total $1,356,875 $2,432,446
__________ __________
For the year ended August 31, 2006, the Delaware Minnesota High-Yield Municipal
Bond Fund utilized $1,332 in capital loss carryforwards.
52
5. Capital Shares
Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free
Minnesota Fund Minnesota Insured Fund
_________________________ __________________________
Year Ended Year Ended
8/31/06 8/31/05 8/31/06 8/31/05
Shares sold:
Class A 3,740,009 2,605,601 1,066,208 1,206,325
Class B 64,648 82,005 32,933 68,954
Class C 354,758 323,335 177,451 200,888
Shares issued upon reinvestments of dividends and distributions:
Class A 824,435 999,673 559,513 620,080
Class B 22,000 33,587 27,111 35,325
Class C 32,061 34,287 27,286 29,235
__________ __________ __________ __________
5,037,911 4,078,488 1,890,502 2,160,807
__________ __________ __________ __________
Shares repurchased:
Class A (2,730,163) (2,466,727) (2,484,487) (2,021,780)
Class B (187,143) (262,319) (235,722) (293,001)
Class C (277,488) (114,430) (156,558) (217,296)
__________ __________ __________ __________
(3,194,794) (2,843,476) (2,876,767) (2,532,077)
__________ __________ __________ __________
Net increase (decrease) 1,843,117 1,235,012 (986,265) (371,270)
__________ __________ __________ __________
Delaware Tax-Free Minnesota Delaware Minnesota High-Yield
Intermediate Fund Municipal Bond Fund
___________________________ _____________________________
Year Ended Year Ended
8/31/06 8/31/05 8/31/06 8/31/05
Shares sold:
Class A 413,224 811,048 3,175,962 2,173,370
Class B 1,162 4,238 185,827 117,618
Class C 100,419 67,333 736,336 547,300
Shares issued upon reinvestment of dividends and distributions:
Class A 130,882 139,829 178,840 133,229
Class B 4,900 5,713 21,720 24,644
Class C 10,784 14,403 41,851 27,930
___________ __________ ___________ __________
661,371 1,042,564 4,340,536 3,024,091
___________ __________ ___________ __________
Shares repurchased:
Class A (907,954) (1,375,055) (1,059,998) (458,057)
Class B (77,656) (50,607) (288,064) (369,311)
Class C (180,541) (196,858) (321,249) (202,901)
___________ __________ ___________ __________
(1,166,151) (1,622,520) (1,669,311) (1,030,269)
___________ __________ ___________ __________
Net increase (decrease) (504,780) (579,956) 2,671,225 1,993,822
___________ __________ ___________ __________
(continues) 53
Notes to financial statements
Delaware Minnesota Municipal Bond Funds
5. Capital Shares (continued)
For the years ended August 31, 2006 and 2005, the following shares and values
were converted from Class B to Class A shares. The respective amounts are
included in Class B redemptions and Class A subscriptions in the tables on the
previous page 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 Minnesota Fund 66,784 66,836 $ 831,110 113,069 113,158 $1,420,503
Delaware Tax-Free Minnesota
Insured Fund 80,959 80,882 878,177 122,887 122,776 1,352,796
Delaware Tax-Free Minnesota
Intermediate Fund 18,914 18,958 203,874 21,297 21,349 231,714
Delaware Minnesota High-Yield
Municipal Bond Fund 167,328 167,637 1,747,428 192,047 192,388 1,991,365
6. 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.
7. Credit and Market Risk
The Funds concentrate their investments in securities issued by municipalities,
mainly in Minnesota. The value of these investments may be adversely affected by
new legislation within the state, regional or local economic conditions, and
differing levels of supply and demand for municipal bonds. Many municipalities
insure repayment for their obligations. Although bond insurance reduces the risk
of loss due to default by an issuer, such bonds remain subject to the risk that
market value may fluctuate for other reasons and there is no assurance that the
insurance company will meet its obligations. These securities have been
identified in the Statements of Net Assets.
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 Funds may invest in advanced refunded bonds, escrow secured bonds or
defeased bonds. Under current federal tax laws and regulations, state and local
government borrowers are permitted to refinance outstanding bonds by issuing new
bonds. The issuer refinances the outstanding debt to either reduce interest
costs or to remove or alter restrictive covenants imposed by the bonds being
refinanced. A refunding transaction where the municipal securities are being
refunded within 90 days or less from the issuance of the refunding issue is
known as a "current refunding." "Advance refunded bonds" are bonds in which the
refunded bond issue remains outstanding for more than 90 days following the
issuance of the refunding issue. In an advance refunding, the issuer will use
the proceeds of a new bond issue to purchase high grade interest bearing debt
securities which are then deposited in an irrevocable escrow account held by an
escrow agent to secure all future payments of principal and interest and bond
premium of the advance refunded bond. Bonds are "escrowed to maturity" when the
proceeds of the refunding issue are deposited in an escrow account for
investment sufficient to pay all of the principal and interest on the original
interest payment and maturity dates. Bonds are considered "pre-refunded" when
the refunding issue's proceeds are escrowed only until a permitted call date or
dates on the refunded issue with the refunded issue being redeemed at the time,
including any required premium. Bonds become "defeased" when the rights and
interests of the bondholders and of their lien on the pledged revenues or other
security under the terms of the bond contract are substituted with an
alternative source of revenues (the escrow securities) sufficient to meet
payments of principal and interest to maturity or to the first call dates.
Escrowed secured bonds will often receive a rating of AAA from Moody's Investors
Service, Inc., Standard & Poor's Rating Group, and/or Fitch Ratings due to the
strong credit quality of the escrow securities and the irrevocable nature of the
escrow deposit agreement. The Tax-Free Minnesota Insured Fund will purchase
escrow secured bonds without additional insurance only where the escrow is
invested in securities of the U.S. government or agencies or instrumentalities
of the U.S. government.
Each Fund may invest a portion of its total assets in illiquid securities, which
may include securities with contractual restrictions on resale, securities
exempt from registration under Rule 144A of the Securities Act of 1933, as
amended, and other securities which may not be readily marketable. The relative
illiquidity of these securities may impair each Fund from disposing of them in a
timely manner and at a fair price when it is necessary or desirable to do so.
While maintaining oversight, each Fund's Board of Trustees has delegated to DMC
the day-to-day functions of determining whether individual securities are liquid
for purposes of each Fund's limitation on investments in illiquid assets. At
August 31, 2006, there were no Rule 144A securities. Illiquid securities have
been identified on the Statements of Net Assets.
54
8. Contractual Obligations
The Funds enter into contracts in the normal course of business that contain a
variety of indemnifications. The Funds' maximum exposure under these
arrangements is unknown. However, the Funds have not had prior claims or losses
pursuant to these contracts. Management has reviewed each Fund's existing
contracts and expects the risk of loss to be remote.
9. Subsequent Event
On August 17, 2006, the Board of Trustees responsible for Delaware Tax-Free
Minnesota Insured Fund (the "Reorganizing Fund") approved a proposal to
reorganize the Reorganizing Fund with and into the Delaware Tax-Free Minnesota
Fund (the "Acquiring Fund") subject to shareholder approval. The Board of
Trustees responsible for the Delaware Tax-Free Minnesota Fund also approved the
reorganization.
Effective as of the close of business on September 1, 2006, the Reorganizing
Fund will be closed to new investors. Shareholders of the Reorganizing Fund will
receive a proxy statement/prospectus providing them with information about the
Delaware Tax-Free Minnesota Fund and requesting their votes on the proposed
reorganization of their Fund at a special meeting of shareholders to be held in
late November 2006. If approved, the reorganization would be expected to take
place in the first quarter of 2007. Additionally, the Delaware Tax-Free
Minnesota Insured Fund would continue to accept purchases from existing
shareholders (including reinvested dividends or capital gains) until the last
business day before the reorganization.
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 Minnesota Fund 4% 1% 95% 100%
Delaware Tax-Free Minnesota Insured Fund 5% 0% 95% 100%
Delaware Tax-Free Minnesota Intermediate Fund 0% 0% 100% 100%
Delaware Minnesota High-Yield Municipal Bond Fund 0% 0% 100% 100%
(A), (B), and (C) are based on a percentage of each Fund's total distributions.
55
Report of independent
registered public accounting firm
To the Shareholders and Board of Trustees
Voyageur Tax Free Funds - Delaware Tax-Free
Minnesota Fund
Voyageur Insured Funds - Delaware Tax-Free
Minnesota Insured Fund
Voyageur Intermediate Tax Free Funds - Delaware
Tax-Free Minnesota Intermediate Fund
Voyageur Mutual Funds - Delaware Minnesota
High-Yield Municipal Bond Fund
We have audited the accompanying statements of net assets of Delaware Tax-Free
Minnesota Fund (the sole series of Voyageur Tax Free Funds), Delaware Tax-Free
Minnesota Insured Fund (one of the series constituting Voyageur Insured Funds),
Delaware Tax-Free Minnesota Intermediate Fund (the sole series of Voyageur
Intermediate Tax Free Funds) and Delaware Minnesota 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 the
Delaware Tax-Free Minnesota Fund of Voyageur Tax Free Funds, the Delaware
Tax-Free Minnesota Insured Fund of Voyageur Insured Funds, the Delaware Tax-Free
Minnesota Intermediate Fund of Voyageur Intermediate Tax Free Funds, and the
Delaware Minnesota High-Yield Municipal Bond Fund of Voyageur Mutual Funds at
August 31, 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
56
Other Fund information
Delaware Minnesota Municipal Bonds
Board Consideration of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free
Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and
Delaware Minnesota High-Yield Municipal Bond Fund Agreement
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 Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware
Tax-Free Minnesota Intermediate Fund and Delaware Minnesota 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.
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.
(continues) 57
Other Fund information
Delaware Minnesota Municipal Bonds
Board Consideration of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free
Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and
Delaware Minnesota High-Yield Municipal Bond Fund Agreement (continued)
Delaware Tax-Free Minnesota Fund - The Performance Universe for the Fund
consisted of the Fund and all retail and institutional Minnesota municipal debt
funds as selected by Lipper. The Lipper report comparison showed that the Fund's
total return for the one, three, five and 10 year periods was in the first
quartile of such Performance Universe. The Board was satisfied with such
performance.
Delaware Tax-Free Minnesota Insured Fund - The Performance Universe for the Fund
consisted of the Fund and all retail and institutional Minnesota municipal debt
funds as selected by Lipper. The Lipper report comparison showed that the Fund's
total return for the one, five and 10 year periods was in the second quartile of
such Performance Universe. The report further showed that the Fund's total
return for the three year period was in the first quartile. The Board was
satisfied with such performance.
Delaware Tax-Free Minnesota Intermediate Fund - The Performance Universe for the
Fund consisted of the Fund and all retail and institutional other states
intermediate municipal debt funds as selected by Lipper. The Lipper report
comparison showed that the Fund's total return for the one, three and five year
periods was in the first quartile of such Performance Universe. The report
further showed that the Fund's total return for the 10 year period was in the
second quartile. The Board was satisfied with such performance.
Delaware Minnesota High-Yield Municipal Bond Fund - Lipper currently classifies
the Fund as a Minnesota municipal debt fund. However, management believes that
it would be more appropriate to include the Fund in the high yield municipal
debt funds category, which would allow the Fund to be compared to a
representative peer group based on credit quality in addition to its current
peer group based on state of issuance. Accordingly, the Lipper report prepared
for the Fund compares the Fund's performance to two separate Performance
Universes consisting of the Fund and all retail and institutional Minnesota
municipal debt funds and all retail and institutional high yield municipal debt
funds. When compared to other Minnesota municipal debt funds, the Lipper report
comparison showed that the Fund's total return for the one, three and five year
periods was in the first quartile of such Performance Universe. When compared to
other high yield municipal debt funds, 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 the three and five year periods was in the second quartile and first
quartile, respectively. The Board was satisfied with the Fund's performance.
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 Minnesota Fund - The expense comparisons for the Fund showed
that its actual management fee and total expenses were in the quartile with the
second highest expenses of its Expense Group. The Board noted that the Fund's
total expenses were not in line with the Board's objective. In evaluating the
total expenses, the Board considered waivers in place through 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 Minnesota Insured Fund - The expense comparisons for the Fund
showed that its actual management fee and total expenses were in the quartile
with the second lowest expenses of its Expense Group. The Board was satisfied
with the management fees and total expenses of the Fund in comparison to its
Expense Group as shown in the Lipper report.
Delaware Tax-Free Minnesota 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 Minnesota High-Yield Municipal Bond Fund - When compared to other
Minnesota municipal debt funds, the expense comparisons for the Fund showed that
its actual management fee and total expenses were in the quartile with the
second lowest expenses of its Expense Group. When compared to other high yield
municipal debt funds, the expense comparisons for the Fund showed that its
actual management fee was in the quartile with the lowest expenses of the
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.
58
Board Consideration of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free
Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and
Delaware Minnesota High-Yield Municipal Bond Fund Agreement (continued)
Management Profitability. The Board considered the level of profits, if any,
realized by Delaware Investments in connection with the operation of the Funds.
In this respect, the Board reviewed the Investment Management Profitability
Analysis that addressed the overall profitability of Delaware Investments'
business in providing management and other services to each of the individual
funds and the Delaware Investments(R) Family of Funds as a whole. Specific
attention was given to the methodology followed in allocating costs for the
purpose of determining profitability. Management stated that the level of
profits of Delaware Investments, to a certain extent, reflected operational cost
savings and efficiencies initiated by Delaware Investments. The Board considered
Delaware Investments' expenditures to improve services provided to fund
shareholders and to meet additional regulatory and compliance requirements
resulting from 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. 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.
59
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.
____________________________________________________________________________________________________________________________________
60
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 and Secretary General Counsel of
19103 Secretary 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.
61
About the organization
This annual report is for the information of Delaware Tax-Free Minnesota Fund,
Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota
Intermediate Fund, and Delaware Minnesota High-Yield Municipal Bond Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current prospectus for Delaware Tax-Free Minnesota Fund,
Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota
Intermediate Fund, Delaware Minnesota 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 Fund. You should read the
prospectus carefully before you invest. The figures in this report represent
past results that are not a guarantee of future results. The return and
principal value of an investment in the Fund will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Board of trustees
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.
62
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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]
(909) Printed in the USA
AR-MNALL [8/06] CGI 10/06 MF-06-09-026 PO11257
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer, principal
accounting officer, controller, public accountant, auditor, or person performing
similar functions;
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that each
member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Thomas L. Bennett (1)
Thomas F. Madison
Janet L. Yeomans (1)
J. Richard Zecher
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
__________
The aggregate fees billed for services provided to the registrant by its
independent auditors for the audit of the registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $21,200 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.
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 $23,500 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.
(c) Tax fees.
________
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant were $4,100 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 $4,600 for the fiscal year
ended August 31, 2005. The percentage of these fees relating to services
approved by the registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These tax-related services were as follows: review of
income tax return and review of annual excise distribution calculation.
The aggregate fees billed by the registrant's independent auditors for
tax-related services provided to the registrant's investment adviser and other
service providers under common control with the adviser and that relate directly
to the operations or financial reporting of the registrant were $0 for the
registrant's fiscal year ended August 31, 2005.
(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.
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.
______________________________________________________________________________________________________________________
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 $257,920
and $209,835 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.
Item 6. Schedule of Investments
Included as part of report to shareholders filed under Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or statements filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.
There were no significant changes in the registrant's internal control over
financial reporting that occurred during the second fiscal quarter of the period
covered by the report to stockholders included herein (i.e., the registrant's
fourth fiscal quarter) that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are
attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: Voyageur Tax-Free Funds
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