-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GxEaFOwwtNegh27FEjIOMSCr+qKmRO5lki/PNGpQrV6FoOoSYnZgxkqxFHiboZ5J 1wh461qDBTyd7Nbz7LHwBA== 0001206774-06-002292.txt : 20061108 0001206774-06-002292.hdr.sgml : 20061108 20061108164224 ACCESSION NUMBER: 0001206774-06-002292 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060831 FILED AS OF DATE: 20061108 DATE AS OF CHANGE: 20061108 EFFECTIVENESS DATE: 20061108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE GROUP TAX FREE FUND CENTRAL INDEX KEY: 0000728352 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-03850 FILM NUMBER: 061198008 BUSINESS ADDRESS: STREET 1: 2005 MARKET ST COMMERCE SQ CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2157512127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQ STREET 2: 2005 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: DELAWARE GROUP TAX FREE FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DMC TAX FREE INCOME USA INC DATE OF NAME CHANGE: 19890904 FORMER COMPANY: FORMER CONFORMED NAME: DMC TAX FREE BOND FUND INC DATE OF NAME CHANGE: 19831122 0000728352 S000002403 DELAWARE TAX-FREE USA FUND C000006385 DELAWARE TAX-FREE USA FUND CLASS A DMTFX C000006386 DELAWARE TAX-FREE USA FUND CLASS B DTFCX C000006387 DELAWARE TAX-FREE USA FUND CLASS C DUSCX 0000728352 S000002404 DELAWARE TAX-FREE USA INTERMEDIATE FUND C000006388 DELAWARE TAX-FREE USA INTERMEDIATE FUND CLASS A DMUSX C000006389 DELAWARE TAX-FREE USA INTERMEDIATE FUND CLASS B DUIBX C000006390 DELAWARE TAX-FREE USA INTERMEDIATE FUND CLASS C DUICX N-CSR 1 delawaregrouptaxfreefund.txt CERTIFIED SHAREHOLDER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-3850 Exact name of registrant as specified in charter: Delaware Group Tax Free Fund Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: David F. Connor, Esq. 2005 Market Street Philadelphia, PA 19103 Registrant's telephone number, including area code: (800) 523-1918 Date of fiscal year end: August 31 Date of reporting period: August 31, 2006 Item 1. Reports to Stockholders The Registrant's shareholder reports are combined with the shareholder reports of other investment company registrants. This Form N-CSR pertains to the DELAWARE TAX-FREE USA INTERMEDIATE FUND and DELWARE TAX-FREE USA FUND of the Registrant, information on which is included in the following shareholder reports. Annual Report Delaware Tax-Free USA Fund Delaware Tax-Free USA Intermediate Fund Delaware National High-Yield Municipal Bond Fund August 31, 2006 Fixed income mutual funds [DELAWARE INVESTMENTS LOGO] [LOGO] POWERED BY RESEARCH(R) Table of contents > Portfolio management review .................................................1 > Performance summaries .......................................................6 > Disclosure of Fund expenses ................................................12 > Sector allocations and credit rating breakdowns ............................14 > Statements of net assets ...................................................16 > Statements of operations ...................................................35 > Statements of changes in net assets ........................................36 > Financial highlights .......................................................37 > Notes to financial statements ..............................................46 > Report of independent registered public accounting firm ....................53 > Other Fund information .....................................................54 > Board of trustees/directors and officers addendum ..........................57 > About the organization .....................................................59 Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (C) 2006 Delaware Distributors, L.P. Portfolio management review Delaware National Tax-Free Funds August 31, 2006 Joseph R. Baxter Robert Collins Co-managers of the funds The managers of Delaware Tax-Free USA Fund, Delaware Tax-Free USA Intermediate Fund, and Delaware National High-Yield Municipal Bond Fund provided the answers to the questions below as a review of the Funds' activities for the fiscal year ended August 31, 2006. Q: What was the investment environment for the Delaware Investments municipal bond mutual funds during the fiscal year ended August 31, 2006? A: Higher gasoline prices, rising short-term interest rates, and ongoing uneasiness about changes in the housing market generally weighed on the capital markets and many investors' outlook for the U.S. economy during our fiscal year. However, the U.S. economy continued its expansion throughout the year, recovering somewhat from a period of slower growth that occurred just after the August and September 2005 hurricanes. Property and casualty insurers held steady and provided a solid source of capital for the tax-exempt debt arena as the year progressed. To summarize, we generally viewed the national-level municipal bond market to be sound over the fiscal year, despite challenges. During most of the fiscal year, the U.S. Federal Reserve (Fed) continued to raise interest rates. After gradually moving the target for the fed funds rate from 3.50% to 5.25%, the Fed finally paused a long string of increases at its August 2006 meeting. A key tool in the Fed's monetary policy, the Fed funds rate reflects the percentage of interest that banks charge to lend money to each other overnight. Through the rate increases, the Fed aimed to moderate the pace of economic activity and head off inflation. Earlier in 2006, the interest rate environment was such that the Treasury yield curve began to flatten, which means that the difference between short- and long-term bond yields grew smaller across the spectrum of maturities. This "flattening" was generally present throughout the second half of the fiscal year. In this type of situation, bonds with intermediate maturities - those in the three- to seven-year range - tend to underperform. Low interest rates provided many issuers with refinancing opportunities early in the fiscal year, but new bond issuance dropped off significantly beginning in 2006 because more and more municipal issuers had already taken the opportunity to refinance bonds. For instance, through August 2006, the pace of new issuance of municipal securities year-to-date had retreated 15% versus the same period one year earlier (source: Thomson Financial). Comparing tax-exempt and taxable holdings, municipal bond yields began the fiscal year at nearly the same level as Treasuries. By period end, however, that gap had widened, which reflected the greater decline in the value of Treasury bonds versus their municipal peers (source: Thomson Financial). Q: What other market-related events influenced performance of the funds? A: Credit quality among bond issuers remained strong or improved during the fiscal year, generally contributing to demand for lower-rated securities. In the fiscal period's later stages, we saw more bonds coming to market that we believed to be of increased risk. Also of note, non-traditional buyers (those more interested in the relative valuation of the asset class than the tax-advantaged status of municipal bonds) continued to make their presence felt. These changes influenced trading patterns in the market and presented a new challenge to both mutual fund managers and individual investors. Q: How did the market environment affect your approach to municipal bond investing at large? A: In the interest rate environment that prevailed, our approach to municipal bond markets at times dictated that we retain current holdings and ultimately our strategy resulted in limited transactions. During much of the year, we preferred to seek that objective by holding legacy bonds - securities purchased in prior fiscal periods - and relying on the attractive bond yields that already existed within our portfolio of investments. 1 Portfolio management review Generally speaking, it became increasingly difficult in the prevailing interest rate environment to identify bonds in the market that were more attractive than the holdings in our portfolio. Frequently during the year, we opted to focus our resources on monitoring the credit of legacy bonds. We also adhered to our bottom-up investment style, which is based on security-by-security analysis and a free exchange of information among the various members of a deep team that includes portfolio managers, credit analysts, and traders. Delaware Tax-Free USA Fund Q: How did the Fund perform versus its benchmark index and peer group? A: Delaware Tax-Free USA Fund returned 2.42% at net asset value and -2.16% at maximum offer price (both figures represent Class A shares with distributions reinvested) for the fiscal year ended August 31, 2006. The Fund's performance benchmark, the Lehman Brothers Municipal Bond Index, returned 2.56%. Its peer group - as measured by the Lipper General Municipal Funds Average - returned 2.70% (source: Lipper). For the complete, annualized performance of Delaware Tax-Free USA Fund, please see the table on page 6. Q: What strategies affected Fund performance? A: Despite a high level of refinancing activity in the market, we believed that many of the Delaware Tax-Free USA Fund legacy bonds would not be called, and decided to hold them for their relatively attractive yields. In keeping with our long-term commitment to holding a high-quality portfolio of investments, we again generally avoided the tobacco industry bonds that have so greatly influenced performance in the municipal market in recent years, as we believe the sector has an elevated risk for litigation. We also remained underweighted versus the benchmark index in bonds backed by airline corporation revenues, although a small number of airline and airline-related holdings did influence performance in the Fund. During the 12-month span, it seemed that investors tended to seek the added yield and total return potential of lower-quality bonds, and thus securities with ratings further down the credit spectrum generally outperformed. At times, the margin of outperformance between two adjacent credit ratings was significant. As the fiscal year began, we employed a barbell portfolio strategy, which favors short- and long-term maturity bonds over their intermediate term peers. We did so because it appeared likely that further flattening of the yield curve was in store. In 2006, we added more mid-maturity securities to the portfolio. Although the Fund was still generally oriented for further yield curve flattening, we believed that this move would give us better positioning should yields rise. We also incorporated the assets of three other Delaware Investments municipal bond funds (Delaware Tax-Free Insured Fund, Delaware Tax-Free Oregon Insured Fund, and Delaware Tax-Free Missouri Insured Fund) into the Fund during the year. With the merger of these assets into the investment portfolio, our exposure to very high-quality securities rose. Because trimming the higher rated securities took some time, we believe Fund total return performance in the interim was slightly lower than it would have been otherwise. The Fund gained performance relative to its benchmark index with air cargo bonds, which constituted three of the five top performing securities. On the other hand, exposure to Michigan's Midland Cogeneration Venture impeded return, as did debt holdings in Northwest Air, which filed for Chapter 11 bankruptcy protection during the 12-month period. As for sector representation within the Fund portfolio, healthcare bonds, largely hospitals, came in first at 17% of net assets at fiscal year end. Delaware Tax-Free USA Intermediate Fund Q: How did the Fund perform versus its benchmark index and peer group? A: Delaware Tax-Free USA Intermediate Fund returned 2.38% at net asset value and - -0.45% at maximum offer price (both figures represent Class A shares with 2 distributions reinvested) for the fiscal year ended August 31, 2006. As of August 31, 2006, the Delaware Tax-Free USA Intermediate Fund benchmark index was changed from the Merrill Lynch 3-7 Year Municipal Bond Index to the Lehman Brothers Municipal 3-15 Year Index. Management believes the new benchmark index more accurately reflects the portion of the municipal market in which the Fund invests. There were no material changes to the Fund's investment objective or strategy. For the year fiscal year ended August 31, 2006, the Merrill Lynch 3-7 Year Municipal Bond Index gained 2.38% and the Lehman Brothers 3-15 Year Municipal Bond Index gained 2.64%. The Fund's peer group - as measured by the Lipper Other States Intermediate Municipal Debt Funds Average - returned 3.01% (source: Lipper). For the complete, annualized performance of Delaware Tax-Free USA Intermediate Fund, please see the table on page 8. Q: What strategies affected Fund performance? A: Despite a high level of refinancing activity in the market, we believed that many of the Fund's legacy bonds would not be called, and decided to hold them for their relatively attractive yields. This strategy had the effect of shortening the Fund's average duration, which is a measure of a bond or a bond fund's sensitivity to changes in interest rates. Longer durations typically indicate greater interest rate sensitivity, and shorter durations generally limit a bond fund's volatility and total return potential. In keeping with our long-term commitment to holding a high-quality portfolio of investments, we again generally avoided the tobacco industry bonds that have so greatly influenced performance in the municipal market in recent years, as we believe the sector has an elevated risk for litigation. We also remained underweighted versus the benchmark index in bonds backed by airline corporation revenues. Neither stance was generally beneficial when comparing Fund performance to the benchmark and many of our peer funds because those two sectors performed well on a total return basis. During the 12-month span, it seemed that investors tended to seek the added yield and total return potential of lower-quality bonds, and thus securities with ratings further down the credit spectrum generally outperformed. At times, the margin of outperformance between two adjacent credit ratings was significant. As the fiscal year began, we employed a barbell portfolio strategy, which favors short- and long maturity bonds over their intermediate term peers. We did so because it appeared likely that further flattening of the yield curve was in store. In 2006, we added more mid-maturity securities to the portfolio. Although the fund was still generally oriented for further yield curve flattening, we believed that this move would give us better positioning should yields rise. In reviewing performance attribution, we added positively to portfolio return with our acquisition of continued care and retirement center bonds, which also accounted for the portfolio's increased exposure to non-rated securities. Fund return was enhanced by New York City general obligation bonds and air cargo securities. The calling of some of our bonds (retired by their issuer prior to maturity) caused the portfolio to lose a measure of return during the period. The same may be said of municipal securities issued by Puerto Rico, which experienced budgetary concerns during the period. In other adjustments, we trimmed the Fund portfolio's exposure to insured bonds from 40% to roughly 25% of net assets. We maintained the portfolio's high credit quality by opting for state general obligation bonds, which constituted 17% of net assets upon fiscal year end. Delaware National High-Yield Municipal Bond Fund Q: How did the Fund perform versus its benchmark index and peer group? A: Delaware National High-Yield Municipal Bond Fund returned 4.15% at net asset value and -0.54% at maximum offer price (both figures represent Class A 3 Portfolio management review shares with distributions reinvested) for the fiscal year ended August 31, 2006. For the same period, the Lehman Brothers Municipal Bond Index returned 2.56% and the Fund's peer group - as measured by the Lipper High-Yield Municipal Debt Funds Average - returned 5.12% (source: Lipper). For the complete, annualized performance of Delaware National High-Yield Municipal Bond Fund, please see the table on page 10. Q: What strategies affected Fund performance? A: Despite a high level of refinancing activity in the market, we believed that many of the Fund's legacy bonds would not be called, and decided to hold them for their relatively attractive yields. This strategy had the effect of shortening the Fund's average duration, which is a measure of a bond or a bond fund's sensitivity to changes in interest rates. Longer durations indicate greater interest rate sensitivity, and shorter durations generally limit a bond fund's volatility and total return potential. The Fund's duration profile at fiscal year end was near the lower end of our target range, a consideration that we monitored. In keeping with our long-term commitment to holding a high-quality portfolio of investments, we again generally avoided the tobacco industry bonds that have so greatly influenced performance in the municipal market in recent years, as we believe the sector has an elevated risk for litigation. We also remained underweighted versus the benchmark index in bonds backed by airline corporation revenues, although a small number of airline and airline-related holdings did influence performance in the Fund. During the 12-month span, it seemed that investors tended to seek the added yield and total return potential of lower-quality bonds. Thus, securities with ratings further down the credit spectrum generally outperformed. At times, the margin of outperformance between two adjacent credit ratings was significant. Over the course of the fiscal year, we trimmed the portfolio's allocation to bonds rated BBB and increased exposure to tax increment financing bonds (TIFs). Used principally with redevelopment projects, TIFs proved to be valuable sources of income and accounted for our increased exposure to non-rated securities. We also found that continuing care retirement center bonds were beneficial to Fund performance. Conversely, our exposure to a Northwest Airlines, which filed for Chapter 11 bankruptcy protection, impeded Fund return. In addition, the rise in natural gas prices during the period worked against our position in Michigan's Midland Cogeneration Venture bonds. These bonds were no longer held in the Fund at the end of August 2006. 4 Performance summary Delaware Tax-Free USA Fund The performance data quoted represent past performance; past performance does not guarantee future results. A rise or fall in interest rates can have a significant impact on bond prices and the NAV (net asset value) of the Fund. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware Tax-Free USA Fund prospectus contains this and other important information about the Fund. Please request a prospectus through your financial advisor, or by calling 800 523-1918 or visiting our Web site. Read it carefully before you invest or send money. Fund performance Average annual total returns Through August 31, 2006 1 year 5 years 10 years Lifetime ________________________________________________________________________________ Class A (Est. 1/11/84) Excluding sales charge +2.42% +5.16% +5.35% +7.63% Including sales charge -2.16% +4.20% +4.87% +7.42% ________________________________________________________________________________ Class B (Est. 5/2/94) Excluding sales charge +1.63% +4.35% +4.68% +4.62% Including sales charge -2.30% +4.09% +4.68% +4.62% ________________________________________________________________________________ Class C (Est. 11/29/95) Excluding sales charge +1.63% +4.35% +4.52% +4.06% Including sales charge +0.63% +4.35% +4.52% +4.06% ________________________________________________________________________________ Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of up to 0.30%. The distributor has contracted to limit the amount to 0.25% through December 31, 2006. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1%. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after eight years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Tax-Free USA Fund during periods shown above and on the next page. Performance would have been lower had the expense limitation not been in effect. The performance table above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 6 Fund basics As of August 31, 2006 ________________________________________________________________________________ Fund objective ________________________________________________________________________________ The Fund seeks to provide as high a level of current interest income exempt from federal income tax as is available from municipal obligations as is consistent with prudent investment management and preservation of capital. ________________________________________________________________________________ Total Fund net assets ________________________________________________________________________________ $694 million ________________________________________________________________________________ Number of holdings ________________________________________________________________________________ 250 ________________________________________________________________________________ Fund start date ________________________________________________________________________________ January 11, 1984 ________________________________________________________________________________ Your Fund managers ________________________________________________________________________________ Joseph R. Baxter joined Delaware Investments in 1999. He heads the firm's municipal bond department and is responsible for setting the department's investment strategy. He is also a co-portfolio manager of the firm's municipal bond funds and several client accounts. Formerly, he held investment positions with First Union. He received a bachelor's degree in finance and marketing from LaSalle University. Robert F. Collins, CFA, joined Delaware Investments in 2004. He is a co-portfolio manager of several of the firm's municipal bond funds and client accounts. Formerly, he spent five years as a co-manager of the municipal portfolio management group, where he oversaw the tax-exempt investments of high net worth and institutional accounts. He earned a bachelor's degree in economics from Ursinus College. ________________________________________________________________________________ Nasdaq symbols CUSIPs ________________________________________________________________________________ Class A DMTFX 245909106 Class B DTFCX 245909403 Class C DUSCX 245909700 [PERFORMANCE OF $10,000 INVESTMENT LINE GRAPH] Chart assumes $10,000 invested on August 31, 1996 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. (continues) 7 Performance summary Delaware Tax-Free USA Intermediate Fund The performance data quoted represent past performance; past performance does not guarantee future results. A rise or fall in interest rates can have a significant impact on bond prices and the NAV (net asset value) of the Fund. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware Tax-Free USA Intermediate Fund prospectus contains this and other important information about the Fund. Please request a prospectus through your financial advisor, by calling 800 523-1918 or visiting our Web site. Read it carefully before you invest or send money. Fund performance Average annual total returns Through August 31, 2006 1 year 5 years 10 years Lifetime ________________________________________________________________________________ Class A (Est. 1/7/93) Excluding sales charge +2.38% +4.97% +5.45% +5.65% Including sales charge -0.45% +4.38% +5.15% +5.44% ________________________________________________________________________________ Class B (Est. 5/2/94) Excluding sales charge +1.43% +4.06% +4.99% +5.15% Including sales charge -0.54% +4.06% +4.99% +5.15% ________________________________________________________________________________ Class C (Est. 11/29/95) Excluding sales charge +1.52% +4.08% +4.56% +4.41% Including sales charge +0.52% +4.08% +4.56% +4.41% ________________________________________________________________________________ Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 2.75% and have an annual distribution and service fee of up to 0.30%. The distributor has contracted to limit the amount to 0.15% through December 31, 2006. Class B shares are sold with a contingent deferred sales charge that declines from 2% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately five years after purchase. They are also subject to an annual distribution and service fee of 1%. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after five years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Tax-Free USA Intermediate Fund during the periods shown above and on the next page. Performance would have been lower had the expense limitation not been in effect. The performance table above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 8 Fund basics As of August 31, 2006 ________________________________________________________________________________ Fund objective ________________________________________________________________________________ The Fund seeks as high a level of current interest income exempt from federal income tax as is available from municipal obligations as is consistent with prudent investment management and preservation of capital. ________________________________________________________________________________ Total Fund net assets ________________________________________________________________________________ $235 million ________________________________________________________________________________ Number of holdings ________________________________________________________________________________ 165 ________________________________________________________________________________ Fund start date ________________________________________________________________________________ January 7, 1993 ________________________________________________________________________________ Your Fund managers ________________________________________________________________________________ Joseph R. Baxter joined Delaware Investments in 1999. He heads the firm's municipal bond department and is responsible for setting the department's investment strategy. He is also a co-portfolio manager of the firm's municipal bond funds and several client accounts. Formerly, he held investment positions with First Union. He received a bachelor's degree in finance and marketing from LaSalle University. Robert F. Collins, CFA, joined Delaware Investments in 2004. He is a co-portfolio manager of several of the firm's municipal bond funds and client accounts. Formerly, he spent five years as a co-manager of the municipal portfolio management group, where he oversaw the tax-exempt investments of high net worth and institutional accounts. He earned a bachelor's degree in economics from Ursinus College. ________________________________________________________________________________ Nasdaq symbols CUSIPs ________________________________________________________________________________ Class A DMUSX 245909304 Class B DUIBX 245909601 Class C DUICX 245909882 [PERFORMANCE OF $10,000 INVESTMENT LINE GRAPH] Chart assumes $10,000 invested on August 31, 1996 and includes the effect of a 2.75% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. The Merrill Lynch 3-7 Year Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds with maturities of 3 to 7 years. The Lehman Brothers 3-15 Year Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds with maturities of 3 to 15 years. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. (continues) 9 Performance summary Delaware National High-Yield Municipal Bond Fund The performance data quoted represent past performance; past performance does not guarantee future results. A rise or fall in interest rates can have a significant impact on bond prices and the NAV (net asset value) of the Fund. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware National High-Yield Municipal Bond Fund prospectus contains this and other important information about the Fund. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site. Read it carefully before you invest or send money. Fund performance Average annual total returns Through August 31, 2006 1 year 5 years 10 years Lifetime ________________________________________________________________________________ Class A (Est. 9/22/86) Excluding sales charge +4.15% +5.35% +5.78% +6.80% Including sales charge -0.54% +4.39% +5.29% +6.56% ________________________________________________________________________________ Class B (Est. 12/18/96) Excluding sales charge +3.47% +4.58% N/A +4.91% Including sales charge -0.51% +4.32% N/A +4.91% ________________________________________________________________________________ Class C (Est. 5/26/97) Excluding sales charge +3.36% +4.57% N/A +4.68% Including sales charge +2.36% +4.57% N/A +4.68% ________________________________________________________________________________ Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 0.25%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1%. Lifetime performance figures for Class B shares reflect conversion to Class A shares after eight years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware National High-Yield Municipal Bond Fund during the periods shown above and on the next page. Performance would have been lower had the expense limitation not been in effect. The performance table above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 10 Fund basics As of August 31, 2006 ________________________________________________________________________________ Fund objective ________________________________________________________________________________ The Fund seeks a high level of current income exempt from federal income tax primarily through investment in medium- and lower-grade municipal obligations. ________________________________________________________________________________ Total Fund net assets ________________________________________________________________________________ $84 million ________________________________________________________________________________ Number of holdings ________________________________________________________________________________ 85 ________________________________________________________________________________ Fund start date ________________________________________________________________________________ September 22, 1986 ________________________________________________________________________________ Your Fund managers ________________________________________________________________________________ Joseph R. Baxter joined Delaware Investments in 1999. He heads the firm's municipal bond department and is responsible for setting the department's investment strategy. He is also a co-portfolio manager of the firm's municipal bond funds and several client accounts. Formerly, he held investment positions with First Union. He received a bachelor's degree in finance and marketing from LaSalle University. Robert F. Collins, CFA, joined Delaware Investments in 2004. He is a co-portfolio manager of several of the firm's municipal bond funds and client accounts. Formerly, he spent five years as a co-manager of the municipal portfolio management group, where he oversaw the tax-exempt investments of high net worth and institutional accounts. He earned a bachelor's degree in economics from Ursinus College. ________________________________________________________________________________ Nasdaq symbols CUSIPs ________________________________________________________________________________ Class A CXHYX 928928241 Class B DVNYX 928928233 Class C DVHCX 928928225 [PERFORMANCE OF $10,000 INVESTMENT LINE GRAPH] Chart assumes $10,000 invested on August 31, 1996 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. 11 Disclosure of Fund expenses For the period March 1, 2006 to August 31, 2006 As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2006 to August 31, 2006. Actual Expenses The first section of the tables shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second section of the tables shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on the Funds' actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Funds' actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Funds' actual expenses shown in the tables reflect fee waivers in effect. The expenses shown in each table assume reinvestment of all dividends and distributions. In each case, "Expenses Paid During Period" are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Delaware Tax-Free USA Fund Expense Analysis of an Investment of $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 3/1/06 to 3/1/06 8/31/06 Ratios 8/31/06 ________________________________________________________________________________ Actual Fund Return Class A $1,000.00 $1,020.20 0.86% $4.38 Class B 1,000.00 1,016.30 1.62% 8.23 Class C 1,000.00 1,016.30 1.62% 8.23 ________________________________________________________________________________ Hypothetical 5% Return (5% return before expenses) Class A $1,000.00 $1,020.87 0.86% $4.38 Class B 1,000.00 1,017.04 1.62% 8.24 Class C 1,000.00 1,017.04 1.62% 8.24 ________________________________________________________________________________ Delaware Tax-Free USA Intermediate Fund Expense Analysis of an Investment of $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 3/1/06 to 3/1/06 8/31/06 Ratios 8/31/06 ________________________________________________________________________________ Actual Fund Return Class A $1,000.00 $1,016.40 0.75% $3.81 Class B 1,000.00 1,012.10 1.60% 8.11 Class C 1,000.00 1,012.00 1.60% 8.11 ________________________________________________________________________________ Hypothetical 5% Return (5% return before expenses) Class A $1,000.00 $1,021.42 0.75% $3.82 Class B 1,000.00 1,017.14 1.60% 8.13 Class C 1,000.00 1,017.14 1.60% 8.13 ________________________________________________________________________________ 12 Delaware National High-Yield Municipal Bond Fund Expense Analysis of an Investment of $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 3/1/06 to 3/1/06 8/31/06 Ratios 8/31/06 ________________________________________________________________________________ Actual Fund Return Class A $1,000.00 $1,029.60 0.90% $4.60 Class B 1,000.00 1,025.70 1.65% 8.42 Class C 1,000.00 1,025.60 1.65% 8.42 ________________________________________________________________________________ Hypothetical 5% Return (5% return before expenses) Class A $1,000.00 $1,020.67 0.90% $4.58 Class B 1,000.00 1,016.89 1.65% 8.39 Class C 1,000.00 1,016.89 1.65% 8.39 ________________________________________________________________________________ 13 Sector allocations and credit rating breakdowns As of August 31, 2006 Sector designations may be different than the sector designations presented in other Fund materials. Delaware Tax-Free USA Fund Percentage Sector of Net Assets ________________________________________________________________________________ Municipal Bonds 98.57% Corporate Revenue Bonds 9.26% Education Revenue Bonds 6.69% Electric Revenue Bonds 6.69% Escrowed to Maturity Bonds 6.17% Health Care Revenue Bonds 17.31% Housing Revenue Bonds 2.46% Lease Revenue Bonds 5.94% Local General Obligation Bonds 7.72% Pre-Refunded Bonds 8.14% Special Tax Bonds 5.36% State General Obligation Bonds 12.11% Transportation Revenue Bonds 5.50% Water & Sewer Revenue Bonds 5.22% ________________________________________________________________________________ Variable Rate Demand Notes 0.49% ________________________________________________________________________________ Total Market Value of Securities 99.06% ________________________________________________________________________________ Receivables and Other Assets Net of Liabilities 0.94% ________________________________________________________________________________ Total Net Assets 100.00% ________________________________________________________________________________ Credit Rating Breakdown (as a % of fixed income investments) ________________________________________________________________________________ AAA 45.66% AA 18.15% A 9.30% BBB 19.86% BB 0.63% Not Rated 6.40% ________________________________________________________________________________ Total 100.00% ________________________________________________________________________________ Delaware Tax-Free USA Intermediate Fund Percentage Sector of Net Assets ________________________________________________________________________________ Municipal Bonds 96.43% Corporate Revenue Bonds 6.35% Education Revenue Bonds 7.42% Electric Revenue Bonds 4.84% Escrowed to Maturity Bonds 0.08% Health Care Revenue Bonds 15.16% Lease Revenue Bonds 5.31% Local General Obligation Bonds 15.03% Pre-Refunded Bonds 7.02% Resource Recovery Bonds 0.64% Special Tax Bonds 9.47% State General Obligation Bonds 17.26% Transportation Revenue Bonds 5.81% Water & Sewer Revenue Bonds 2.04% ________________________________________________________________________________ Variable Rate Demand Notes 1.45% ________________________________________________________________________________ Total Market Value of Securities 97.88% ________________________________________________________________________________ Receivables and Other Assets Net of Liabilities 2.12% ________________________________________________________________________________ Total Net Assets 100.00% ________________________________________________________________________________ Credit Rating Breakdown (as a % of fixed income investments) ________________________________________________________________________________ AAA 47.59% AA 15.94% A 13.44% BBB 12.84% BB 0.53% Not Rated 9.66% ________________________________________________________________________________ Total 100.00% ________________________________________________________________________________ 14 Sector designations may be different than the sector designations presented in other Fund materials. Delaware National High-Yield Municipal Bond Fund Percentage Sector of Net Assets ________________________________________________________________________________ Municipal Bonds 97.95% Corporate Revenue Bonds 13.06% Education Revenue Bonds 12.53% Health Care Revenue Bonds 38.51% Lease Revenue Bonds 3.15% Local General Obligation Bonds 8.80% Pre-Refunded Bonds 10.68% Special Tax Bonds 7.02% State General Obligation Bonds 0.95% Transportation Revenue Bonds 3.25% ________________________________________________________________________________ Variable Rate Demand Notes 0.72% ________________________________________________________________________________ Total Market Value of Securities 98.67% ________________________________________________________________________________ Receivables and Other Assets Net of Liabilities 1.33% ________________________________________________________________________________ Total Net Assets 100.00% ________________________________________________________________________________ Credit Rating Breakdown (as a % of fixed income investments) ________________________________________________________________________________ AAA 4.17% A 10.49% BBB 36.90% BB 4.39% Not Rated 44.05% ________________________________________________________________________________ Total 100.00% ________________________________________________________________________________ 15 Statements of net assets Delaware Tax-Free USA Fund August 31, 2006 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds - 98.57% ________________________________________________________________________________ Corporate Revenue Bonds - 9.26% Alliance Airport Authority, Texas Special Facilities Revenue (Federal Express Corp. Project) 4.85% 4/1/21 (AMT) $ 2,000,000 $ 2,015,180 Brazos, Texas River Authority Pollution Control Revenue (Texas Utilities) 5.40% 5/1/29 (AMT) 3,000,000 3,105,000 ~ (TXU Energy Co. Project) Series B 6.30% 7/1/32 (AMT) 3,500,000 3,799,705 Cloquet, Minnesota Pollution Control Revenue (Potlatch Corp. Project) 5.90% 10/1/26 1,695,000 1,724,273 @ Columbus, Kansas Industrial Revenue (ACE Electrical Acquisition) 7.00% 8/1/17 (AMT) 800,000 208,000 Connecticut State Development Authority Pollution Control Revenue (Connecticut Light & Power) Series A 5.85% 9/1/28 4,000,000 4,189,360 Indianapolis, Indiana Airport Authority Revenue Special Facilities (Federal Express Corp. Project) 5.10% 1/15/17 (AMT) 2,750,000 2,886,098 Series 1998 5.50% 5/1/29 (AMT) 2,000,000 2,045,180 Mason County, West Virginia Pollution Control Revenue (Appalachian Power Co. Project) Series K 6.05% 12/1/24 (AMBAC) 3,000,000 3,241,410 Mississippi Business Finance Corporation Pollution Control Revenue (System Energy Resources, Inc. Project) 5.90% 5/1/22 3,000,000 3,004,920 Missouri State Development Finance Board Infrastructure Facilities Revenue (Triumph Foods Project) Series A 5.25% 3/1/25 500,000 517,475 Petersburg, Indiana Pollution Control Revenue (Indianapolis Power & Light Co. Project) 6.375% 11/1/29 (AMT) 5,000,000 5,399,649 6.625% 12/1/24 4,500,000 4,590,180 Phenix City, Alabama Industrial Development Board Environmental Improvement Revenue (Mead Westvaco Corp. Project) Series A 6.35% 5/15/35 (AMT) 3,000,000 3,225,090 ~ Port Morrow, Oregon Pollution Control Revenue (Portland General Electric Co.) Series A 5.20% 5/1/33 2,600,000 2,666,586 Puerto Rico Industrial, Medical & Environmental Pollution Control Facilities Financing Authority Revenue (PepsiCo Inc. Project) 6.25% 11/15/13 1,250,000 1,295,150 Richmond County, Georgia Development Authority Environmental Improvement Revenue (International Paper Co. Project) Series B 5.95% 11/15/25 (AMT) 5,000,000 5,306,200 South Carolina Jobs Economic Development Authority Industrial Revenue (South Carolina Electric & Gas Co. Project) Series B 5.45% 11/1/32 (AMBAC) (AMT) 500,000 529,380 Suffolk County, New York Industrial Development Agency Revenue (Keyspan-Port Jefferson Energy Center) 5.25% 6/1/27 (AMT) 3,500,000 3,637,690 Sugar Creek, Missouri Industrial Development Revenue (Lafarge North America Project) Series A 5.65% 6/1/37 (AMT) 500,000 520,465 ~ Sweetwater County, Wyoming Pollution Control Revenue (Idaho Power Co. Project) Series A 6.05% 7/15/26 5,000,000 5,107,800 Sweetwater County, Wyoming Solid Waste Disposal Revenue (FMC Corp. Project) 5.60% 12/1/35 (AMT) 5,000,000 5,264,250 ___________ 64,279,041 ___________ Education Revenue Bonds - 6.69% Amherst, New York Industrial Development Agency Civic Facilities Revenue (UBF Faculty Student Housing) Series A 5.75% 8/1/30 (AMBAC) 1,300,000 1,415,323 Chattanooga, Tennessee Health Educational & Housing Facilities Board Revenue (CDFI Phase I, LLC. Project) Series A 5.125% 10/1/35 3,500,000 3,511,200 Illinois Educational Facilities Authority Student Housing Revenue (Educational Advancement Fund - University Center Project) 6.25% 5/1/30 5,000,000 5,439,200 Illinois Financial Authority Revenue (Illinois Institute of Technology) Series A 5.00% 4/1/36 2,600,000 2,660,528 16 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Education Revenue Bonds (continued) Massachusetts State Development Finance Agency Revenue (Massachusetts College of Pharmacy Project) Series C 5.75% 7/1/33 $ 500,000 $ 532,350 Massachusetts State Health & Educational Facilities Authority Revenue (Harvard University) Series A 5.00% 7/15/36 5,005,000 5,277,923 (Nichols College Project) Series C 6.00% 10/1/17 950,000 1,002,469 6.125% 10/1/29 1,000,000 1,054,340 Milledgeville-Baldwin County, Georgia Development Authority Revenue (Georgia College & State University Foundation Project) 6.00% 9/1/33 1,000,000 1,093,100 Missouri State Health & Educational Facilities Authority Educational Facilities Revenue (University of Health Sciences) 5.00% 6/1/31 (MBIA) 1,000,000 1,029,940 New Hampshire Higher Educational & Health Facilities Authority Revenue (New Hampton School Issue) 5.375% 10/1/28 3,070,000 3,085,473 New Jersey State Educational Facilities Authority Revenue (Stevens Institute of Technology) Series B 5.25% 7/1/24 2,085,000 2,178,033 New York State Dormitory Authority Revenue (Fashion Institute Student Housing Corp.) 5.00% 7/1/13 (FGIC) 1,000,000 1,079,380 Oregon Health & Science University Revenue (Capital Appreciation Insured) Series A 5.00% 7/1/32 (MBIA) 2,000,000 2,077,340 ^ 5.50% 7/1/21 (MBIA) 2,000,000 1,048,700 Oregon State Facilities Authority Revenue (College Housing Northwest Project) Series A 5.45% 10/1/32 1,000,000 1,026,820 (College Independent Student Housing Project) Series A 5.25% 7/1/30 (XLCA) 1,630,000 1,738,395 (Linfield College Project) Series A 5.00% 10/1/30 600,000 616,062 Pennsylvania State Higher Educational Facilities Authority Revenue (Widener University) 5.375% 7/15/29 1,000,000 1,052,690 Texas University Revenue (FING System) Series B 5.00% 8/15/37 7,070,000 7,397,269 University of Central Florida Athletics Association Revenue Certificates of Participation Series A 5.25% 10/1/34 (FGIC) 500,000 530,375 University of the Virgin Islands Series A 5.375% 6/1/34 500,000 524,460 Vermont University & State Agriculture College 5.125% 10/1/37 (AMBAC) 1,000,000 1,050,810 ___________ 46,422,180 ___________ Electric Revenue Bonds - 6.69% Chelan County, Washington Public Utilities District #001Consolidated Revenue (Chelan Hydro System) Series A 5.45% 7/1/37 (AMBAC) (AMT) 5,000,000 5,339,550 Emerald Peoples, Oregon Utilities District Series A 5.25% 11/1/22 (FSA) 750,000 808,845 Long Island, New York Power Authority Electric Systems Revenue Series B 5.00% 12/1/35 1,770,000 1,845,491 Lower Colorado River Authority Texas Revenue Refunding Series A 5.875% 5/15/17 (AMBAC) 5,500,000 5,849,030 Missouri Joint Municipal Electric Utilities Commission Revenue Power Project (Plum Point Project) 5.00% 1/1/34 (MBIA) 7,000,000 7,359,310 Missouri State Environmental Improvement & Energy Resource Authority Pollution Control Revenue Refunding (St. Joseph Light & Power Company Project) 5.85% 2/1/13 (AMBAC) 2,200,000 2,214,806 Orlando, Florida Utilities Commission Water & Electric Revenue 5.25% 10/1/20 2,500,000 2,685,500 Puerto Rico Electric Power Authority Power Revenue Series II 5.25% 7/1/31 6,000,000 6,281,580 Series NN 5.125% 7/1/29 1,400,000 1,470,210 Series PP 5.00% 7/1/25 (FGIC) 1,000,000 1,060,070 Richmond, Virginia Public Utilities Revenue 5.00% 1/15/27 (FSA) 10,000,000 10,378,300 Sikeston, Missouri Electric Revenue Refunding 6.00% 6/1/13 (MBIA) 1,000,000 1,136,720 ___________ 46,429,412 ___________ (continues) 17 Statements of net assets Delaware Tax-Free USA Fund Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Escrowed to Maturity Bonds - 6.17% Cape Girardeau County, Missouri Industrial Development Authority Health Care Facilities Revenue (Southeast Missouri Hospital) 5.25% 6/1/16 (MBIA) $ 440,000 $ 478,900 ^ Greene County, Missouri Single Family Mortgage Revenue Municipal Multiplier (Private Mortgage Insurance) 6.10% 3/1/16 1,225,000 834,482 Liberty, Missouri Sewer System Revenue 6.00% 2/1/08 (MBIA) 260,000 264,711 Louisiana Public Facilities Authority Hospital Revenue (Southern Baptist Hospital, Inc.) 8.00% 5/15/12 4,930,000 5,543,933 Missouri State Health & Educational Facilities Authority Health Facilities Revenue Refunding (SSM Health Care) Series AA 6.40% 6/1/10 (MBIA) 500,000 547,470 New Jersey State Highway Authority Garden State Parkway General Revenue (Senior Parkway) 5.50% 1/1/14 (FGIC) 5,000,000 5,561,300 5.50% 1/1/15 (FGIC) 7,310,000 8,181,791 5.50% 1/1/16 (FGIC) 1,000,000 1,127,030 Oklahoma State Turnpike Authority Revenue (First Senior) 6.00% 1/1/22 13,535,000 16,483,465 Umatilla County, Oregon Hospital Facility Authority Revenue (Catholic Health Initiatives) Series A 5.50% 3/1/32 1,000,000 1,072,380 Virgin Islands Public Finance Authority Revenue Series A 7.30% 10/1/18 2,200,000 2,749,318 ___________ 42,844,780 ___________ Health Care Revenue Bonds - 17.31% Akron Bath Copley, Ohio Joint Township Hospital District Revenue (Summa Health System) Series A 5.25% 11/15/31 (RADIAN) 3,000,000 3,153,780 California Statewide Communities Development Authority Revenue (Kaiser Permenante) 5.25% 3/1/45 8,500,000 8,884,709 Cape Girardeau County, Missouri Industrial Development Authority Health Care Facilities Revenue Unrefunded Balance (Southeast Missouri Hospital) 5.25% 6/1/16 (MBIA) 560,000 602,986 (St. Francis Medical Center) Series A 5.50% 6/1/32 1,000,000 1,060,030 Chatham County, Georgia Hospital Authority Revenue (Memorial Health Medical Center) Series A 6.125% 1/1/24 1,000,000 1,089,700 Cleveland-Cuyahoga County, Ohio Port Authority Revenue Senior Housing (St. Clarence Geac) Series A 6.25% 5/1/38 1,500,000 1,525,845 Colorado Health Facilities Authority Revenue (Evangelical Lutheran) Series A 5.25% 6/1/34 4,275,000 4,435,227 Cuyahoga County, Ohio Revenue (Cleveland Clinic Health Systems) Series A 5.50% 1/1/29 7,500,000 8,006,924 Delaware County, Pennsylvania Industrial Development Authority Revenue Care Institute (Main Line Care Institute Project) 9.00% 8/1/31 1,777,611 1,486,741 Duluth, Minnesota Economic Development Authority Health Care Facilities Revenue (Benedictine Health System St. Mary's Hospital) 5.25% 2/15/33 5,000,000 5,188,650 Florence County, South Carolina Hospital Revenue (McLeod Regional Medical Center Project) Series A 5.25% 11/1/27 (FSA) 3,355,000 3,578,309 Gainesville & Hall County, Georgia Development Authority Revenue Senior Living Facilities (Lanier Village Estates Project) Series C 7.25% 11/15/29 1,000,000 1,093,770 Henrico County, Virginia Economic Development Authority Revenue (Bon Secours Health System, Inc.) Series A 5.60% 11/15/30 3,140,000 3,318,195 Highlands County, Florida Health Facilities Authority Revenue (Adventist Health System) Series C 5.25% 11/15/36 3,500,000 3,690,680 Illinois Financial Authority Revenue Series A (Clarke Oaks Project) 6.00% 11/15/39 5,800,000 5,939,896 (Luther Oaks Project) 6.00% 8/15/39 3,000,000 3,094,230 Illinois Health Facilities Authority Revenue (Elmhurst Memorial Healthcare Project) 5.625% 1/1/28 2,000,000 2,125,500 Jacksonville, Florida Economic Development Community Health Care Facilities Revenue (Mayo Clinic) 5.00% 11/15/36 7,000,000 7,280,699 18 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Health Care Revenue Bonds (continued) Johnson City, Tennessee Health and Educational Facilities Board Hospital Revenue First Mortgage (Mountain States Health) Series A 5.50% 7/1/36 $ 3,000,000 $ 3,180,990 Joplin, Missouri Industrial Development Authority Health Facilities Revenue (Freeman Health System Project) 5.375% 2/15/35 255,000 267,023 5.75% 2/15/35 405,000 439,591 Knox County, Tennessee Health Educational & Housing Facilities Board Hospital Revenue (East Tennessee Hospital Project) Series B 5.75% 7/1/33 1,000,000 1,061,590 Louisiana Public Facilities Authority Revenue (Ochsner Clinic Foundation Project) Series B 5.50% 5/15/32 1,500,000 1,568,655 Lucas County, Ohio Health Care Facility Revenue (Sunset Retirement Communities) Series A 6.625% 8/15/30 2,000,000 2,143,620 Maryland State Health & Higher Education Facilities Authority Revenue (Union Hospital Cecil County Issue) 5.00% 7/1/40 2,345,000 2,401,538 Michigan State Hospital Finance Authority Revenue (Ascension Health Credit Group) Series B 5.25% 11/15/26 3,500,000 3,680,670 (Oakwood Obligation Group) Series A 5.75% 4/1/32 2,500,000 2,678,450 (Trinity Health Credit) Series C 5.375% 12/1/30 6,000,000 6,338,040 Missouri State Health & Educational Facilities Authority Health Facilities Revenue Refunding (Lake Regional Health System Project) 5.70% 2/15/34 500,000 531,130 Multnomah County, Oregon Hospital Facilities Authority Revenue (Providence Health System) 5.25% 10/1/22 3,500,000 3,750,810 New York State Dormitory Authority Revenue (Catholic Health Services of Long Island - St. Francis Hospital Project) 5.10% 7/1/34 2,500,000 2,562,750 North Carolina Medical Care Commission Health Care Facilities Revenue (First Mortgage - Presbyterian Homes) 5.40% 10/1/27 4,000,000 4,112,560 (Pennybryn at Mayfield Project) Series A 6.125% 10/1/35 6,000,000 6,228,060 North Carolina Medical Care Commission Hospital Revenue (Northeast Medical Center Project) 5.125% 11/1/34 1,250,000 1,299,188 North Kansas City, Missouri Hospital Revenue Series A 5.00% 11/15/28 (FSA) 500,000 523,510 Prince William County, Virginia Industrial Development Authority Hospital Revenue (Potomac Hospital Corp.) 5.35% 10/1/36 1,750,000 1,860,233 Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Revenue (Hospital Auxilio Mutuo Obligated Group) Series A 6.25% 7/1/24 (MBIA) 1,200,000 1,210,128 Shelby County, Tennessee Health Educational & Housing Facilities Board Revenue (Trezevant Manor Project) Series A 5.625% 9/1/26 2,500,000 2,518,625 South Miami, Florida Health Facilities Authority Hospital Revenue (Baptist Health South Florida Group) 5.25% 11/15/33 4,000,000 4,157,520 University Colorado Hospital Authority Revenue Series A 5.25% 11/15/39 2,000,000 2,076,740 ____________ 120,147,292 ____________ Housing Revenue Bonds - 2.46% Franklin County, Ohio Multi Family Revenue (Alger Green) Series A 5.80% 5/20/44 (GNMA) (AMT) 1,150,000 1,205,074 Illinois Development Finance Authority Revenue (Section 8) Series A 5.80% 7/1/28 (MBIA) (FHA) 2,790,000 2,869,739 Illinois Housing Development Authority Multi Family Revenue (Crystal Lake Preservation) Series A-1 5.80% 12/20/41 (GNMA) 2,000,000 2,115,060 Milwaukee, Wisconsin Redevelopment Authority Multifamily Revenue (City Hall Square) 6.30% 8/1/38 (FHA) (AMT) 1,455,000 1,507,947 Missouri State Housing Development Commission Mortgage Revenue Series C 7.45% 9/1/27 (GNMA) (FNMA) (AMT) 110,000 111,848 (continues) 19 Statements of net assets Delaware Tax-Free USA Fund Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Housing Revenue Bonds (continued) Missouri State Housing Development Commission Mortgage Revenue Single Family Homeowner Loan A 5.20% 9/1/33 (GNMA) (FNMA) (AMT) $ 285,000 $ 291,404 Loan A 7.20% 9/1/26 (GNMA) (FNMA) (AMT) 80,000 81,720 Loan B 7.55% 9/1/27 (GNMA) (FNMA) (AMT) 25,000 25,429 Loan C 7.25% 9/1/26 (GNMA) (FNMA) (AMT) 115,000 116,783 Missouri State Housing Development Commission Multifamily Housing Revenue (Hyder) Series 3 5.60% 7/1/34 (FHA) (AMT) 1,435,000 1,495,256 (San Remo) Series 5 5.45% 1/1/36 (FHA) (AMT) 500,000 517,510 New Mexico Mortgage Finance Authority Revenue Series B Class III 6.75% 7/1/25 (GNMA) (FNMA) 235,000 241,662 Series E 6.95% 1/1/26 (GNMA) (FNMA) 195,000 197,088 North Dakota State Housing Finance Agency Multifamily Revenue Series A 6.15% 12/1/17 (FNMA) 1,300,000 1,324,713 Oregon Health, Housing, Educational, & Cultural Facilities Authority Revenue (Pier Park Project) Series A 6.05% 4/1/18 (GNMA) (AMT) 1,095,000 1,097,113 Oregon State Housing & Community Services Department Mortgage Revenue Single Family Mortgage Program Series R 5.375% 7/1/32 (AMT) 1,100,000 1,124,299 Santa Fe, New Mexico Single Family Mortgage Revenue Series B -1 6.20% 11/1/16 (GNMA) (FNMA) (AMT) 175,000 177,357 St. Louis County, Missouri Industrial Development Authority Housing Development Revenue Refunding (Southfield & Oak Forest Apartment-A) 5.20% 1/20/36 (GNMA) 1,000,000 1,025,760 Waukesha, Wisconsin Housing Authority Multifamily Revenue (Westgrove Woods) Series A 6.00% 12/1/31 (GNMA) (AMT) 1,500,000 1,530,285 ___________ 17,056,047 ___________ Lease Revenue Bonds - 5.94% Battery Park City, New York Authority Revenue Series A 5.25% 11/1/22 2,250,000 2,432,363 California State Public Works Board Lease Revenue (Department of General Services-Butterfield Street) Series A 5.25% 6/1/30 2,750,000 2,908,840 Chesterfield, Missouri Certificates of Participation 5.00% 12/1/24 (FGIC) 1,000,000 1,057,980 Golden State, California Tobacco Securitization Corporation Settlement Revenue Series A 5.00% 6/1/21 (AMBAC) 1,000,000 1,051,020 Loudoun County, Virginia Industrial Development Authority Public Safety Facility Lease Revenue Series A 5.25% 12/15/23 (FSA) 700,000 755,832 Missouri State Development Finance Board Infrastructure Facilities Revenue (Branson Landing Project) Series A 5.25% 12/1/19 1,435,000 1,497,509 5.50% 12/1/24 2,480,000 2,621,459 5.625% 12/1/28 2,930,000 3,118,780 (Crackerneck Creek Project) Series C 5.00% 3/1/26 500,000 512,090 (Sewer System Improvement Project) Series C 5.00% 3/1/25 605,000 619,659 New York City, New York Industrial Development Agency Revenue (Yankee Stadium Project - Pilot) 4.75% 3/1/46 (MBIA) 3,000,000 3,045,360 Oregon State Department of Administrative Services Certificates of Participation Refunding Revenue Series A 5.00% 5/1/30 (FSA) 500,000 522,675 Series C 5.25% 11/1/15 (MBIA) 1,000,000 1,073,610 Puerto Rico Commonwealth Industrial Development Company General Purpose Revenue Series B 5.375% 7/1/16 1,000,000 1,031,040 Puerto Rico Public Buildings Authority Revenue (Guaranteed Government Facilities) Series I 5.25% 7/1/33 12,000,000 12,535,440 ~ Series J 5.00%7/1/36 (AMBAC) 2,000,000 2,129,260 St. Charles County, Missouri Public Water Supply District #2 Revenue Certificate of Participation (Missouri Project) Series A 5.25% 12/1/28 (MBIA) 1,000,000 1,056,660 Series B 5.10% 12/1/25 (MBIA) 500,000 516,635 20 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Lease Revenue Bonds (continued) St. Louis, Missouri College District Leasehold Revenue 5.00% 3/1/23 (AMBAC) $ 1,000,000 $ 1,057,060 ^ St. Louis, Missouri Industrial Development Authority Leasehold Revenue (Convention Center Hotel) 5.80% 7/15/20 (AMBAC) 3,035,000 1,654,894 ___________ 41,198,166 ___________ Local General Obligation Bonds - 7.72% Benton & Linn Counties, Oregon School District #509J (Corvallis) 5.00% 6/1/21 (FSA) 1,000,000 1,055,250 Boerne, Texas Independent School District Building 5.25% 2/1/27 (PSF) 4,000,000 4,254,760 5.25% 2/1/29 (PSF) 2,960,000 3,145,089 Clackamas County, Oregon School District #86 (Canby) 5.00% 6/15/25 (FSA) 500,000 530,810 Des Peres, Missouri Refunding 5.375% 2/1/20 (AMBAC) 1,000,000 1,102,290 Deschutes County, Oregon Refunding 5.00% 12/1/16 (FSA) 500,000 532,815 Greene County, Missouri Reorganization School District R8 (Direct Deposit Project) 5.10% 3/1/22 (FSA) 1,500,000 1,585,590 Henderson, Nevada Local Improvement Districts #T-18 5.30% 9/1/35 3,475,000 3,518,855 Jackson County, Missouri Special Obligation 5.50% 12/1/17 (MBIA) 845,000 924,438 Jefferson County, Oregon School District #509J 5.00% 6/15/22 (FGIC) 500,000 526,635 Lammersville, California School District Community Facilities District #2002 (Mountain House) 5.125% 9/1/35 3,750,000 3,790,950 Lane County, Oregon School District #19 (Springfield) Refunding 6.00% 10/15/14 (FGIC) 500,000 577,855 Lewisville, Texas Independent School District 6.15% 8/15/21 (PSF) 2,160,000 2,306,210 Lincoln County, Oregon School District 5.25% 6/15/12 (FGIC) 700,000 728,742 Melrose Park, Illinois Tax Increment Series B 6.00% 12/15/19 (FSA) 1,250,000 1,359,663 New York City, New York Series G 5.00% 12/1/33 4,900,000 5,089,189 Series H 6.125% 8/1/25 315,000 324,771 Series I 5.00% 8/1/21 2,500,000 2,625,700 Series I 5.125% 3/1/23 5,875,000 6,176,211 Series J 5.00% 3/1/35 4,000,000 4,155,720 Series J 5.25% 6/1/28 5,400,000 5,718,492 Portland River, Oregon District Urban Renewal & Redevelopment Interstate Corridor Series A 5.00% 6/15/23 (AMBAC) 250,000 262,975 Powell, Ohio 5.50% 12/1/32 (FGIC) 2,000,000 2,167,780 Taney County, Missouri Reorganization School District R-V (Hollister School District Direct Deposit Project) 5.00% 3/1/22 (FSA) 1,000,000 1,051,770 ^ Umatilla County, Oregon School District #6 R Umatilla Refunding 5.50% 12/15/22 (AMBAC) 200,000 98,434 ___________ 53,610,994 ___________ $ Pre-Refunded Bonds - 8.14% Alexandria, Virginia Industrial Development Authority Revenue (Institute for Defense Analyses) Series A 5.90% 10/1/30-10 (AMBAC) 6,000,000 6,579,720 Deschutes County, Oregon Administrative School District #1 Series A 5.125% 6/15/21-11 (FSA) 1,000,000 1,065,800 Deschutes County, Oregon Hospital Facilities Authority Hospital Revenue (Cascade Health Services) 5.60% 1/1/32-12 1,250,000 1,362,988 Golden State, California Tobacco Securitization Corporation Settlement Revenue Series B 5.50% 6/1/43-13 8,500,000 9,397,939 5.625% 6/1/38-13 7,500,000 8,347,800 Illinois Educational Facilities Authority Student Housing Revenue (Educational Advancement Fund - University Center Project) 6.25% 5/1/34-07 500,000 506,805 Jackson, Oregon School District #6 Central Point 5.25% 6/15/20-10 (FGIC) 1,175,000 1,243,326 Jackson, Ohio Local School District (Stark & Summit Counties) School Facilities Construction & Improvement 5.625% 12/1/25- 10 (FSA) 1,000,000 1,079,000 Liberty, Missouri Sewer System Revenue 6.15% 2/1/15-09 (MBIA) 1,500,000 1,589,115 Linn County, Oregon Community School District #9 Lebanon 5.60% 6/15/30-13 (FGIC) 2,000,000 2,228,320 (continues) 21 Statements of net assets Delaware Tax-Free USA Fund Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Pre-Refunded Bonds (continued) Maryland State Economic Development Corporation, Student Housing Revenue (University of Maryland College Park Project) 5.625% 6/1/35-13 $ 1,125,000 $ 1,245,308 Mississippi Development Bank Special Obligation (Madison County Hospital Project) 6.30% 7/1/22-09 2,070,000 2,254,499 New York City, New York Series H 6.125% 8/1/25-07 4,685,000 4,842,885 Oregon State Department of Administrative Services Certificates of Participation Series A 5.80% 5/1/24-07 (AMBAC) 1,000,000 1,024,710 Payne County, Oklahoma Economic Development Authority Student Housing Revenue (Collegiate Housing Foundation-Oklahoma State University) Series A 6.375% 6/1/30-11 4,000,000 4,460,960 Puerto Rico Commonwealth Public Improvement 5.125% 7/1/30-11 (FSA) 920,000 982,321 5.375% 7/1/21-07 (MBIA) 50,000 51,521 Series A 5.125% 7/1/31-11 3,495,000 3,731,751 Puerto Rico Housing, Bank & Finance Agency Single Family Mortgage Revenue 6.25% 4/1/29-07 (GNMA) (FNMA) (FHLMC) (AMT) 1,240,000 1,255,599 Southeast Wisconsin Professional Baseball Park District Sales Tax Revenue 5.80% 12/15/26-07 (MBIA) 1,000,000 1,021,720 Vancouver, Washington Limited Tax 5.50% 12/1/25-10 (AMBAC) 1,250,000 1,341,625 Wisconsin Housing & Economic Developing Authority Revenue 6.10% 6/1/21-17 (FHA) 800,000 884,976 ___________ 56,498,688 ___________ Special Tax Bonds - 5.36% Bi-State Development Agency Missouri - Illinois Metropolitan District (Metrolink Cross County Project) Series B 5.00% 10/1/32 (FSA) 2,000,000 2,085,260 Florida Hurricane Catastrophe Fund Financial Corporation Revenue Series A 5.00% 7/1/12 2,500,000 2,668,325 Jackson County, Missouri Special Obligation 5.00% 12/1/27 (MBIA) 1,000,000 1,049,680 Middlesex County, New Jersey Improvement Authority Senior Revenue (Heldrich Center Hotel/ Conference Project) Series A 5.00% 1/1/32 1,500,000 1,492,425 5.125% 1/1/37 1,500,000 1,507,470 New Jersey Economic Development Authority (Cigarette Tax) 5.50% 6/15/31 1,000,000 1,049,340 5.75% 6/15/34 2,000,000 2,130,920 New York City, New York Transitional Finance Authority Series D 5.00% 2/1/31 5,000,000 5,195,700 New York State Dormitory Authority State Personal Income Tax Revenue Education 5.00% 3/15/31 5,200,000 5,471,856 New York State Sales Tax Asset Receivables Series A 5.25% 10/15/27 (AMBAC) 1,000,000 1,080,510 Puerto Rico Convention Center District Authority Revenue (Hotel Occupancy Tax) 5.00% 7/1/31 (AMBAC) 6,250,000 6,636,125 Tampa, Florida Sports Authority Revenue Sales Tax (Tampa Bay Arena Project) 5.75% 10/1/20 (MBIA) 1,000,000 1,164,760 Truth or Consequences, New Mexico Gross Receipts Tax Revenue 6.30% 7/1/16 1,000,000 1,001,820 Westminster, Colorado Sales & Use Tax Revenue (Sales Tax Revenue Project) Series A 5.60% 12/1/16 4,500,000 4,688,055 ___________ 37,222,246 ___________ State General Obligation Bonds - 12.11% California State 5.00% 2/1/26 (AMBAC) 5,570,000 5,819,369 5.00% 2/1/33 6,350,000 6,550,025 5.25% 2/1/30 (MBIA) 3,500,000 3,711,050 Illinois State Series A 5.00% 3/1/34 7,000,000 7,259,070 Maryland State & Local Facilities Land Capital Improvement Series A 5.00% 8/1/11 5,000,000 5,327,300 5.00% 3/1/12 8,000,000 8,567,520 5.25% 3/1/13 10,000,000 10,947,500 5.50% 8/1/14 5,000,000 5,620,600 Pennsylvania State First Series 5.00% 7/1/11 5,955,000 6,320,161 5.00% 7/1/13 3,000,000 3,236,250 Puerto Rico Commonwealth Public Improvement 5.125% 7/1/30 (FSA) 965,000 1,011,368 5.25% 7/1/27 (FSA) 705,000 745,248 22 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ State General Obligation Bonds (continued) Series A 5.125% 7/1/31 $ 7,880,000 $ 8,058,640 Series A 5.25% 7/1/23 500,000 529,400 Series A 5.50% 7/1/19 (MBIA) 9,000,000 10,339,380 ___________ 84,042,881 ___________ Transportation Revenue Bonds - 5.50% Bay Area, California Toll Authority Revenue Series F 5.00% 4/1/31 7,100,000 7,489,577 Capital Trust Agency Florida Revenue (Fort Lauderdale/Cargo Acquisition Project) 5.75% 1/1/32 (AMT) 3,750,000 3,921,263 (Orlando/Cargo Acquisition Project) 6.75% 1/1/32 (AMT) 2,395,000 2,579,008 Dallas-Fort Worth, Texas International Airport Revenue Series A 5.50% 11/1/31 (FGIC) (AMT) 1,500,000 1,597,875 Grapevine, Texas Industrial Development Corporate Revenue (Air Cargo) 6.50% 1/1/24 (AMT) 920,000 991,797 Houston, Texas Industrial Development Corporate Revenue (Air Cargo) 6.375% 1/1/23 (AMT) 2,000,000 2,142,740 Metropolitan, New York Transportation Authority Revenue Refunding Series A 5.00% 11/15/30 (FSA) 3,000,000 3,132,390 Pennsylvania State Turnpike Commission Revenue Series A 5.00% 12/1/34 (AMBAC) 500,000 523,530 Port of Oakland, California Revenue Series K 5.75% 11/1/29 (FGIC) (AMT) 3,500,000 3,703,700 Puerto Rico Commonwealth Highway & Transportation Authority Revenue Series K 5.00% 7/1/35 2,500,000 2,558,100 South Carolina Transportation Infrastructure Revenue Series A 5.00% 10/1/33 (AMBAC) 7,500,000 7,796,474 St. Louis, Missouri Airport Revenue (Capital Improvement Project) Series A 5.375% 7/1/21 (MBIA) 1,635,000 1,749,957 ___________ 38,186,411 ___________ Water & Sewer Revenue Bonds - 5.22% Augusta, Georgia Water & Sewer Revenue 5.25% 10/1/34 (FSA) 4,375,000 4,688,513 Clovis, California Public Financing Authority Wastewater Revenue 5.25% 8/1/30 (MBIA) 1,000,000 1,080,090 Fulton County, Georgia Water & Sewer Revenue 5.25% 1/1/35 (FGIC) 1,000,000 1,065,300 Metropolitan St. Louis, Missouri Sewer District Wastewater Revenue Series A 5.00% 5/1/34 (MBIA) 1,250,000 1,305,313 Missouri State Environmental Improvement & Energy Resource Authority Water Pollution Control Revenue Unrefunded Balance (State Revolving Fund Project) Series A 6.05% 7/1/16 (FSA) 1,060,000 1,062,056 New York City, New York Municipal Water Finance Authority Water & Sewer System Revenue Series A 5.125% 6/15/34 12,125,000 12,720,700 Series A 5.25% 6/15/34 3,705,000 3,930,190 Series B 5.00% 6/15/23 (FSA) 1,000,000 1,057,040 Portland, Oregon Sewer Systems Revenue (Second Lien) Series A 5.00% 6/1/23 (FSA) 325,000 341,783 Series B 5.00% 6/15/27 (MBIA) 1,000,000 1,061,130 Sacramento County, California Sanitation District Financing Authority Revenue 5.00% 12/1/36 (FGIC) 4,000,000 4,222,440 Virgin Islands Water & Power Authority Water System Revenue 5.50% 7/1/17 510,000 525,479 West Virginia State Water Development Authority Revenue (Loan Program III) Series A 6.375% 7/1/39 (AMBAC) (AMT) 2,890,000 3,162,267 ____________ 36,222,301 ____________ Total Municipal Bonds (cost $650,673,277) 684,160,439 ____________ ________________________________________________________________________________ ~ Variable Rate Demand Notes - 0.49% ________________________________________________________________________________ Alexandria, Virginia Industrial Development Authority (Institutional Defense Analyses Project) 3.44% 10/1/30 (AMBAC) 1,925,000 1,925,000 New Jersey Health Care Facilities Financing Authority Revenue (Computer Program) Series A1 3.38% 7/1/30 1,500,000 1,500,000 ____________ Total Variable Rate Demand Notes (cost $3,425,000) 3,425,000 ____________ Total Market Value of Securities - 99.06% (cost $654,098,277) 687,585,439 Receivables and Other Assets Net of Liabilities - 0.94% 6,526,425 ____________ Net Assets Applicable to 59,979,087 Shares Outstanding - 100.00% $694,111,864 ____________ (continues) 23 Statements of net assets Delaware Tax-Free USA Fund ________________________________________________________________________________ ________________________________________________________________________________ Net Asset Value - Delaware Tax-Free USA Fund Class A ($656,813,443 / 56,755,557 Shares) $11.57 ______ Net Asset Value - Delaware Tax-Free USA Fund Class B ($22,188,800 / 1,918,042 Shares) $11.57 ______ Net Asset Value - Delaware Tax-Free USA Fund Class C ($15,109,621 / 1,305,488 Shares) $11.57 ______ Components of Net Assets at August 31, 2006: Shares of beneficial interest (unlimited authorization - no par) $666,215,275 Distributions in excess of net investment income (12,071) Accumulated net realized loss on investments (5,578,502) Net unrealized appreciation of investments 33,487,162 ____________ Total net assets $694,111,864 ____________ $ Pre-Refunded Bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 8 in "Notes to Financial Statements." ~ Variable rate security. The interest rate shown is the rate as of August 31, 2006. @ Illiquid security. At August 31, 2006, the aggregate amount of illiquid securities equals $208,000, which represented 0.03% of the Fund's net assets. See Note 8 in "Notes to Financial Statements." ^ Zero coupon security. The interest rate shown is the yield at the time of purchase. Summary of Abbreviations: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax CDFI - Community Development Financial Institutions FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FHLMC - Insured by the Federal Home Loan Mortgage Corporation FNMA - Insured by Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association PSF - Insured by Permanent School Fund RADIAN - Insured by Radian Asset Assurance XLCA - Insured by XL Capital Assurance Net Asset Value and Offering Price Per Share - Delaware Tax-Free USA Fund Net asset value Class A (A) $11.57 Sales charge (4.50% of offering price) (B) 0.55 ______ Offering price $12.12 ______ (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 24 Delaware Tax-Free USA Intermediate Fund August 31, 2006 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds - 96.43% ________________________________________________________________________________ Corporate Revenue Bonds - 6.35% Alliance Airport Authority, Texas Special Facilities Revenue (Federal Express Corp. Project) 4.85% 4/1/21 (AMT) $ 2,000,000 $ 2,015,180 Brazos, Texas River Authority Pollution Control Revenue (Texas Utilities) 5.40% 5/1/29 (AMT) 1,000,000 1,035,000 Cartersville, Georgia Development Authority Waste & Wastewater Facilities Revenue (Anheuser Busch Project) 5.10% 2/1/12 (AMT) 450,000 474,552 Connecticut State Development Authority Pollution Control Revenue (Connecticut Light & Power) Series A ~ 3.35% 5/1/31 (AMBAC) (AMT) 1,300,000 1,283,113 5.85% 9/1/28 1,145,000 1,199,204 ~ Farmington, New Mexico Pollution Control Revenue (El Paso Electric Co. Project) Series A 4.00% 6/1/32 (FGIC) 1,000,000 1,000,870 ~ Forsyth, Montana Pollution Control Revenue (Portland General Project) Series A 5.20% 5/1/33 1,005,000 1,033,029 Indianapolis, Indiana Airport Authority Revenue Special Facilities (Federal Express Corp. Project) 5.10% 1/15/17 (AMT) 750,000 787,118 Michigan State Strategic Funding Limited Obligation Revenue (Detroit Edison Co. Project) Series A 5.50% 6/1/30 (XLCA) (AMT) 1,000,000 1,073,030 Ohio State Air Quality Development Authority Revenue Environmental Improvement (USX Project) 5.00% 11/1/15 1,000,000 1,051,490 Prattville, Alabama Industrial Development Board Environmental Improvement Revenue (International Paper Co. Project) Series A 6.70% 3/1/24 (AMT) 1,000,000 1,075,540 ~ Sabine, Texas River Authority Pollution Control Revenue (TXU Electric Co. Project) Series A 5.50% 5/1/22 1,000,000 1,060,470 South Carolina Jobs Economic Development Authority Industrial Revenue (South Carolina Electric & Gas Co. Project) Series B 5.45% 11/1/32 (AMBAC) (AMT) 500,000 529,380 Sugar Creek, Missouri Industrial Development Revenue (Lafarge North America Project) Series A 5.65% 6/1/37 (AMT) 500,000 520,465 Toledo, Lucas County, Ohio Port Authority Development Revenue (Northwest Ohio Bond Fund - Alex Products, Inc.) Series B 6.125% 11/15/09 (AMT) 755,000 784,445 ___________ 14,922,886 ___________ Education Revenue Bonds - 7.42% California Municipal Finance Authority Educational Revenue (American Heritage Education Foundation Project) Series A 5.25% 6/1/26 1,000,000 1,027,190 Chattanooga, Tennessee Health Educational & Housing Facilities Board Revenue (CDFI Phase I, LLC Project) Series B 5.50% 10/1/20 1,280,000 1,322,470 Fulton County, Georgia Development Authority Revenue (Molecular Science Building Project) 5.25% 5/1/21 (MBIA) 1,000,000 1,082,460 Illinois Educational Facilities Authority Student Housing Revenue (Educational Advancement Fund - University Center Project) 6.00% 5/1/22 750,000 811,688 Illinois Financial Authority Revenue (Illinois Institute of Technology) Series A 5.00% 4/1/36 825,000 844,206 Massachusetts State Health & Educational Facilities Authority Revenue (Nichols College Project) Series C 6.125% 10/1/29 1,000,000 1,054,340 Michigan Higher Education Facilities Authority Revenue (Kalamazoo College Project) 5.50% 12/1/19 500,000 535,255 New Jersey State Educational Facilities Authority Revenue (Georgian Court College Project) Series C 6.50% 7/1/33 500,000 557,450 New York State Dormitory Authority Revenue (Brooklyn Law School) Series A 5.50% 7/1/18 (RADIAN) 1,000,000 1,083,260 (Fashion Institute Student Housing Corp.) 5.00% 7/1/13 (FGIC) 1,000,000 1,079,380 (continues) 25 Statements of net assets Delaware Tax-Free USA Intermediate Fund Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Education Revenue Bonds (continued) (Long Island University) Series B 5.50% 9/1/20 (RADIAN) $ 1,000,000 $ 1,077,830 Ohio State Higher Educational Facility Revenue (John Carroll University) 5.50% 11/15/18 335,000 366,078 ~ (Kenyon College Project) 4.70% 7/1/37 1,000,000 1,036,180 Ohio State University General Receipts Revenue Series B 5.25% 6/1/21 1,000,000 1,075,690 Pennsylvania State Higher Educational Facilities Authority College & University Revenue (Geneva College Project) 6.125% 4/1/22 1,000,000 1,073,020 Tulsa, Oklahoma Industrial Authority Student Housing Revenue (University of Tulsa) 5.00% 10/1/37 1,000,000 1,021,660 University of California Revenue Series A 5.125% 5/15/20 (AMBAC) 250,000 269,355 University of Oklahoma Research Facilities Revenue 5.00% 3/1/23 (AMBAC) 1,065,000 1,117,664 University of Puerto Rico Revenue Series M 5.50% 6/1/15 (MBIA) 1,000,000 1,008,940 ___________ 17,444,116 ___________ Electric Revenue Bonds - 4.84% Lower Colorado River Authority Texas Revenue Refunding Series A 5.875% 5/15/17 (AMBAC) 3,000,000 3,190,380 Metropolitan Government Nashville & Davidson County, Tennessee Electric Revenue Series B 5.50% 5/15/14 1,000,000 1,113,280 Oliver County North Dakota Pollution Control Revenue (Square Butte Electric Coop) Series A 5.30% 1/1/27 (AMBAC) 1,500,000 1,571,595 Orlando, Florida Utilities Commission Water & Electric Revenue 5.25% 10/1/20 1,500,000 1,611,300 Philadelphia, Pennsylvania Gas Works Revenue First Series A 5.375% 7/1/15 (FSA) 2,000,000 2,055,880 South Carolina State Public Service Authority Revenue Refunding Series A 5.125% 1/1/21 (FSA) 1,000,000 1,068,910 Texas Municipal Power Agency Revenue 4.00% 9/1/11 (AMBAC) 750,000 752,168 ___________ 11,363,513 ___________ Escrowed to Maturity Bonds - 0.08% Southcentral, Pennsylvania General Authority Revenue Refunding (Wellspan Health Obligated Project) 5.625% 5/15/26 180,000 195,205 ___________ 195,205 ___________ Health Care Revenue Bonds - 15.16% Apple Valley, Minnesota Economic Development Authority Health Care Revenue (Evercare Senior Living LLC Projects) Series A 6.00% 12/1/25 1,000,000 1,006,880 California Health Facilities Financing Authority Revenue Insured (California-Nevada- Methodist) 5.00% 7/1/26 1,745,000 1,832,721 California Statewide Communities Development Authority Revenue (Kaiser Permenante) 5.25% 3/1/45 2,000,000 2,090,521 Chatham County, Georgia Hospital Authority Revenue (Memorial Health Medical Center) Series A 6.125% 1/1/24 1,000,000 1,089,700 Cleveland-Cuyahoga County, Ohio Port Authority Revenue (Saint Clarence-Geac) Series A 6.125% 5/1/26 715,000 726,497 Cuyahoga County, Ohio Revenue (Cleveland Clinic Health System) Series A 6.00% 1/1/21 1,000,000 1,117,540 Duluth, Minnesota Economic Development Authority Health Care Facilities Revenue (Benedictine Health System St. Mary's Hospital) 5.50% 2/15/23 1,000,000 1,070,240 Florence County, South Carolina Hospital Revenue (McLeod Regional Medical Center Project) Series A 5.25% 11/1/27 (FSA) 1,000,000 1,066,560 ~ Highlands County, Florida Health Facilities Authority Revenue (Adventist Health System) Series I 5.00% 11/15/29 2,000,000 2,059,960 Illinois Financial Authority Revenue Series A (Luther Oaks Project) 6.00% 8/15/26 850,000 886,856 (Clare Oaks Project) 6.00% 11/15/27 2,000,000 2,055,100 Indiana Health Facility Financing Authority Hospital Revenue (Deaconess Hospital Obligation) Series A 5.375% 3/1/29 (AMBAC) 700,000 749,889 26 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Health Care Revenue Bonds (continued) Lancaster County, Pennsylvania Hospital Authority Revenue (Lancaster General Hospital Project) 5.75% 3/15/21 $ 1,000,000 $ 1,094,550 Lawrence, Kansas Hospital Authority Revenue 5.125% 7/1/36 2,000,000 2,082,980 Maple Grove, Minnesota Health Care Facilities Revenue (North Memorial Health Care) 5.00% 9/1/29 2,000,000 2,065,120 Maryland State Health & Higher Education Facilities Authority Revenue (Union Hospital of Cecil County) 5.625% 7/1/32 500,000 530,520 Michigan State Hospital Finance Authority Revenue (Henry Ford Health System) Series A 5.25% 11/15/46 1,000,000 1,048,410 (Trinity Health Credit) Series C 5.375% 12/1/23 500,000 527,330 Minneapolis, Minnesota Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 500,000 536,775 Multnomah County, Oregon Hospital Facilities Authority Revenue (Providence Health System) 5.25% 10/1/22 1,000,000 1,071,660 New Hampshire Health & Education Facilities Authority Revenue (Elliot Hospital) Series B 5.60% 10/1/22 1,000,000 1,073,630 North Carolina Medical Care Commission Health Care Facilities Revenue (First Mortgage - Presbyterian Homes) 5.40% 10/1/27 1,200,000 1,233,768 (Pennybryn at Mayfield Project) Series A 6.125% 10/1/35 1,700,000 1,764,617 North Texas Health Facilities Development Corporation Hospital Revenue (United Regional Health Care System, Inc. Project) 6.00% 9/1/23 1,000,000 1,088,910 Shelby County, Tennessee Health Educational & Housing Facilities Board Revenue (Trezvan Manor Project) Series A 5.75% 9/1/37 1,000,000 1,005,740 St. Mary Hospital Authority Pennsylvania Health System Revenue (Catholic Health East) Series A 5.25% 11/15/16 1,200,000 1,282,236 St. Paul, Minnesota Housing & Redevelopment Authority Hospital Revenue (Health East Project) 6.00% 11/15/25 1,000,000 1,105,210 Suffolk, Virginia Industrial Development Authority Retirement Facilities Revenue (First Mortgage - Lake Prince) 5.15% 9/1/24 725,000 732,054 Terrebonne Parish, Louisiana Hospital Service District #1 Hospital Revenue (Terrebonne General Medical Center Project) 5.50% 4/1/33 (AMBAC) 1,500,000 1,627,905 ___________ 35,623,879 ___________ Lease Revenue Bonds - 5.31% Albany, New York Industrial Development Agency Civic Facility Revenue (Charitable Leadership Project) Series A 5.75% 7/1/26 500,000 518,950 California State Public Works Board Lease Revenue (Department of General Services Butterfield Street) Series A 5.25% 6/1/25 1,000,000 1,073,500 Golden State, California Tobacco Securitization Corporation Settlement Revenue Series A 5.00% 6/1/18 2,000,000 2,034,240 Series A 5.00% 6/1/21 (AMBAC) 1,000,000 1,051,020 Michigan State Building Authority Revenue Series I 5.50% 10/15/18 2,175,000 2,344,389 Missouri State Development Finance Board Infrastructure Facilities Revenue (Crackerneck Creek Project) Series C 5.00% 3/1/28 1,600,000 1,650,672 New York State Municipal Bond Bank Agency Special School Purpose Revenue Series C 5.25% 6/1/22 1,000,000 1,070,190 New York City, New York Industrial Development Agency Revenue (Yankee Stadium Project - Pilot) 4.75% 3/1/46 (MBIA) 1,000,000 1,015,120 ~ Puerto Rico Public Buildings Authority Revenue (Government Facilities) Series J 5.00% 7/1/28 1,000,000 1,042,790 ~ Puerto Rico Public Finance Corporate Revenue Series A 5.25% 8/1/29 (MBIA) 620,000 665,031 ___________ 12,465,902 ___________ Local General Obligation Bonds - 15.03% Baywinds Community Development District Florida Special Assessment Series B 4.90% 5/1/12 1,000,000 1,010,630 Belton, Missouri School District #124 Series B 5.25% 3/1/23 1,000,000 1,085,200 (continues) 27 Statements of net assets Delaware Tax-Free USA Intermediate Fund Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Local General Obligation Bonds (continued) Boerne, Texas Independent School District Building 5.25% 2/1/26 $ 4,495,000 $ 4,781,287 5.25% 2/1/29 (PSF) 1,500,000 1,593,795 East Homestead Community Development District Florida Special Assessment Revenue Series B 5.00% 5/1/11 500,000 504,415 Florida State Board Education Capital Outlay Public Education Series D 5.75% 6/1/22 2,000,000 2,153,940 Lansing, Michigan Community College (College Building and Site) 5.00% 5/1/21 (MBIA) 1,325,000 1,394,271 Licking County, Ohio Joint Vocational School District School Facilities Construction and Improvement 5.00% 12/1/19 (MBIA) 1,000,000 1,060,150 Los Angeles, California Unified School District Election 2004 Series G 5.00% 7/1/13 (AMBAC) 2,000,000 2,171,340 Lunenburg County, Virginia Series B 5.25% 2/1/29 (MBIA) 715,000 771,506 Mecklenburg County, North Carolina Public Improvement Series A 5.00% 2/1/11 4,775,000 5,056,582 Middlesex County, New Jersey Improvement Authority Revenue (County Guaranteed Open Space Trust) 5.25% 9/15/20 1,000,000 1,085,270 Modesto, California Special Tax Community Facilities District #04-1 Village 2 5.15% 9/1/36 1,500,000 1,513,425 New York City, New York Series G 5.25% 8/1/15 1,000,000 1,081,300 Series I 5.00% 8/1/21 1,000,000 1,050,280 Series J 5.00% 3/1/35 2,000,000 2,077,860 Series J 5.50% 6/1/23 990,000 1,071,239 Paseo, Florida Community Development District Capital Improvement Revenue Series B 4.875% 5/1/10 1,000,000 1,007,610 Powell, Ohio 5.50% 12/1/25 (FGIC) 1,500,000 1,625,835 Richmond Heights, Missouri Tax Increment & Transaction Sales Tax Revenue Refunding & Improvement (Francis Place Redevelopment Project) 5.625% 11/1/25 1,200,000 1,213,800 St. Joseph, Missouri Industrial Development Authority Tax Increment Revenue (Shoppes at North Village Project) Series A 5.10% 11/1/19 500,000 501,055 Series B 5.375% 11/1/23 1,000,000 1,009,790 Texas Water Development Board Revenue (State Revolving Federal-Senior Lien) Series B 5.25% 7/15/17 500,000 502,700 ___________ 35,323,280 ___________ $ Pre-Refunded Bonds - 7.02% Arizona State Transportation Board Highway Revenue 6.25% 7/1/16-09 1,850,000 1,983,145 Cook County, Illinois Series A 5.375% 11/15/21-11 (FGIC) 2,160,000 2,323,015 Forest Grove, Oregon Revenue Campus (Pacific University) 6.30% 5/1/25-10 (RADIAN) 1,000,000 1,091,980 Golden State, California Tobacco Securitization Settlement Revenue Series B 5.75% 6/1/23-08 1,000,000 1,037,780 New York City, New York Series J 5.50% 6/1/23-13 10,000 11,096 Pennsylvania State First Series 5.125% 1/15/19-11 3,515,000 3,758,976 Pennsylvania State Higher Educational Facilities Authority College & University Revenue (Ursinus College Project) 5.90% 1/1/27-07 1,000,000 1,027,480 Puerto Rico Commonwealth Highway & Transportation Authority Revenue Series J 5.50% 7/1/21-14 1,000,000 1,116,700 Southcentral, Pennsylvania General Authority Revenue (Welllspan Health Obligated Project) 5.625% 5/15/26-11 820,000 896,121 University of North Carolina Revenue Series A 5.375% 12/1/14-11 2,000,000 2,152,260 Virginia State Resource Authority Clean Water Revenue (State Revolving Fund) 6.00% 10/1/16-10 1,000,000 1,091,740 ___________ 16,490,293 ___________ Resource Recovery Bonds - 0.64% Pennsylvania Economic Development Financing Authority Resource Recovery Revenue (Subordinate Colver Project) Series G 5.125% 12/1/15 (AMT) 1,500,000 1,499,220 ___________ 1,499,220 ___________ 28 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Special Tax Bonds - 9.47% Baltimore, Maryland Convention Center Hotel Revenue Subordinated Series B 5.00% 9/1/16 $ 1,200,000 $ 1,214,700 Casa Grande, Arizona Excise Tax Revenue 5.00% 4/1/22 (AMBAC) 1,600,000 1,694,592 Florida Hurricane Catastrophe Fund Financial Corporation Revenue Series A 5.00% 7/1/12 2,500,000 2,668,325 Hampton, Virginia Convention Center Revenue 5.25% 1/15/23 (AMBAC) 1,000,000 1,067,040 Metropolitan Pier and Exposition Authority Illinois (McCormick Place Expansion Project) Series D 5.50% 12/15/24 (FGIC) 2,000,000 2,126,200 Middlesex County, New Jersey Improvement Authority Senior Revenue (Heldrich Center Hotel/Conference Project) Series A 5.00% 1/1/32 1,000,000 994,950 New Jersey Economic Development Authority (Cigarette Tax) 5.50% 6/15/31 1,000,000 1,049,340 5.625% 6/15/18 2,500,000 2,603,025 ~ New York City, New York Transitional Finance Authority Revenue Refunding - Future Tax Secured Series A 5.50% 11/1/26 1,000,000 1,079,650 New York State Dormitory Authority State Personal Income Tax Revenue Education 5.00% 3/15/31 1,830,000 1,925,672 New York State Sales Tax Asset Receivables Series A 5.25% 10/15/27 (AMBAC) 1,000,000 1,080,510 Westminster, Colorado Sales & Use Tax Revenue (Sales Tax Revenue Project) Series A 5.60% 12/1/16 1,500,000 1,562,685 Wyandotte County, Kansas City, Kansas Unified Government Special Obligation Revenue Refunding-Sales Tax-2nd Lien-Area B 5.00% 12/1/20 1,500,000 1,559,010 Wyoming State Loan & Investment Board Facilities Revenue 5.00% 10/1/24 1,550,000 1,633,654 ___________ 22,259,353 ___________ State General Obligation Bonds - 17.26% California State 5.00% 2/1/26 (AMBAC) 1,500,000 1,567,155 5.00% 2/1/33 1,850,000 1,908,275 5.25% 11/1/17 1,000,000 1,077,810 5.25% 2/1/30 (MBIA) 1,500,000 1,590,450 California State Economic Recovery Series A 5.25% 7/1/14 1,000,000 1,102,730 Florida State Board Education Capital Outlay (Public Education) Series B 5.00% 1/1/09 2,500,000 2,580,650 5.00% 6/1/10 750,000 786,675 Georgia State Series D 5.00% 7/1/11 6,865,000 7,304,772 Maryland State & Local Facilities Land Capital Improvement Series A 5.00% 3/1/12 2,000,000 2,141,880 5.25% 3/1/13 2,500,000 2,736,875 Minnesota State Refunding Various Purposes 5.00% 6/1/13 1,000,000 1,023,480 North Carolina Public Improvement Series A 5.00% 3/1/12 4,000,000 4,283,760 Pennsylvania State Third Series 5.00% 7/1/09 2,885,000 2,996,273 Puerto Rico Commonwealth Public Improvement Series A 5.25% 7/1/23 1,125,000 1,191,150 ~ Puerto Rico Commonwealth Series A 5.00% 7/1/30 1,000,000 1,042,790 Puerto Rico Public Buildings Authority Revenue Government Facility Series I 5.50% 7/1/23 2,000,000 2,168,440 ~ Puerto Rico Public Finance Corporation Commonwealth Appropriation (LOC Puerto Rico Government Bank) Series A 5.75% 8/1/27 1,000,000 1,075,110 Texas State Water Financial Assistance Series B 5.50% 8/1/35 3,800,000 3,970,240 ___________ 40,548,515 ___________ Transportation Revenue Bonds - 5.81% Bay Area, California Toll Authority Revenue Series F 5.00% 4/1/31 740,000 780,604 Capital Trust Agency Florida Revenue (Fort Lauderdale/ Cargo Acquisition Project) 5.75% 1/1/32 (AMT) 1,750,000 1,829,923 Chicago, Illinois O'Hare International Airport Revenue General- Airport-Third Lien Series A-2 5.75% 1/1/20 (FSA) (AMT) 1,000,000 1,097,890 Dallas-Fort Worth, Texas International Airport Revenue Series A 5.00% 11/1/15 (XLCA) (AMT) 2,000,000 2,062,420 Georgia Federal Highway Road and Tollway Authority Revenue Bonds 5.00% 6/1/10 (MBIA) 2,000,000 2,101,239 (continues) 29 Statements of net assets Delaware Tax-Free USA Intermediate Fund Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Transportation Revenue Bonds (continued) Metropolitan, New York Transportation Authority Revenue Refunding Series A 5.00% 11/15/30 (FSA) $ 1,000,000 $ 1,044,130 Metropolitan, Washington D.C. Airport Authority Systems Revenue Series A 5.50% 10/1/19 (FGIC) (AMT) 1,000,000 1,082,400 North Texas Tollway Authority Dallas North Tollway System Revenue Series A 5.00% 1/1/20 (FGIC) 1,750,000 1,775,025 Pennsylvania State Turnpike Commission Revenue Series A 5.25% 12/1/20 (AMBAC) 1,230,000 1,337,957 Virginia Port Authority Commonwealth Port Fund Revenue Resolution 5.00% 7/1/12 (AMT) 500,000 529,090 ____________ 13,640,678 ____________ Water & Sewer Revenue Bonds - 2.04% Alabama Water Pollution Control Authority Revenue 5.50% 8/15/23 (AMBAC) 1,000,000 1,066,520 Clovis, California Public Financing Authority Wastewater Revenue 5.25% 8/1/30 (MBIA) 1,000,000 1,080,090 Fulton County, Georgia Water & Sewer Revenue 5.25% 1/1/35 (FGIC) 1,500,000 1,597,950 New York State Environmental Facilities Corporation State Clean Water and Drinking Water Revenue (New York City Municipal Water Finance Project Second Resolution) Series F 5.00% 6/15/34 1,000,000 1,045,850 ____________ 4,790,410 ____________ Total Municipal Bonds (cost $221,837,074) 226,567,250 ____________ ________________________________________________________________________________ ~ Variable Rate Demand Notes - 1.45% ________________________________________________________________________________ Alexandria, Virginia Industrial Development Authority (Institutional Defense Analyses Project) 3.44% 10/1/35 (AMBAC) 1,200,000 1,200,000 Boise City, Idaho Housing Authority Multifamily Revenue (Civic Plaza Housing Project) Series C 3.50% 3/1/33 1,195,000 1,195,000 Scottsdale, Arizona Industrial Development Authority Hospital Revenue (Scottsdale Healthcare) Series C 3.40% 9/1/35 (FSA) 1,000,000 1,000,000 ____________ Total Variable Rate Demand Notes (cost $3,395,000) 3,395,000 ____________ Total Market Value of Securities - 97.88% (cost $225,232,073) $229,962,250 Receivables and Other Assets Net of Liabilities - 2.12% 4,979,820 ____________ Net Assets Applicable to 20,482,869 Shares Outstanding - 100.00% $234,942,070 ____________ Net Asset Value - Delaware Tax-Free USA Intermediate Fund Class A ($204,524,834 / 17,830,369 Shares) $11.47 ______ Net Asset Value - Delaware Tax-Free USA Intermediate Fund Class B ($2,412,828 / 210,454 Shares) $11.46 ______ Net Asset Value - Delaware Tax-Free USA Intermediate Fund Class C ($28,004,408 / 2,442,046 Shares) $11.47 ______ Components of Net Assets at August 31, 2006: Shares of beneficial interest (unlimited authorization - no par) $230,838,203 Accumulated net realized loss on investments (626,310) Net unrealized appreciation of investments 4,730,177 ____________ Total net assets $234,942,070 ____________ $ Pre-Refunded Bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 8 in "Notes to Financial Statements." ~ Variable rate security. The interest rate shown is the rate as of August 31, 2006. Summary of Abbreviations: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax CDFI - Community Development Financial Institutions FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance LOC - Letter of Credit MBIA - Insured by the Municipal Bond Insurance Association PSF - Insured by the Permanent School Fund RADIAN - Insured by Radian Asset Assurance XLCA - Insured by XL Capital Assurance Net Asset Value and Offering Price Per Share - Delaware Tax-Free USA Intermediate Fund Net asset value Class A (A) $11.47 Sales charge (2.75% of offering price) (B) 0.32 ______ Offering price $11.79 ______ (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 30 Delaware National High-Yield Municipal Bond Fund August 31, 2006 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds - 97.95% ________________________________________________________________________________ Corporate Revenue Bonds - 13.06% ~ Brazos, Texas River Authority Pollution Control Revenue (TXU Energy Co. Project) Series B 6.30% 7/1/32 (AMT) $1,000,000 $ 1,085,630 Cloquet, Minnesota Pollution Control Revenue (Potlatch Corp. Project) 5.90% 10/1/26 750,000 762,953 De Soto Parish, Louisiana Environmental Improvement Revenue (International Paper Co. Project) Series A 6.35% 2/1/25 (AMT) 1,650,000 1,769,509 ~ Forsyth, Montana Pollution Control Revenue (Portland General Project) Series A 5.20% 5/1/33 1,000,000 1,027,890 Gulf Coast, Texas Waste Disposal Authority Revenue (Valero Energy Corp. Project) 6.65% 4/1/32 (AMT) 1,000,000 1,079,870 Mississippi Business Finance Corporation Pollution Control Revenue (System Energy Resources, Inc. Project) 5.90% 5/1/22 900,000 901,476 Petersburg, Indiana Pollution Control Revenue (Indianapolis Power & Light Co. Project) 6.375% 11/1/29 (AMT) 1,000,000 1,079,930 Phenix City, Alabama Industrial Development Board Environmental Improvement Revenue (Mead Westvaco Corp. Project) Series A 6.35% 5/15/35 (AMT) 500,000 537,515 Sugar Creek, Missouri Industrial Development Revenue (Lafarge North America Project) Series A 5.65% 6/1/37 (AMT) 500,000 520,465 Sweetwater County, Wyoming Solid Waste Disposal Revenue (FMC Corp. Project) 5.60% 12/1/35 (AMT) 1,000,000 1,052,850 Toledo, Lucas County, Ohio Port Authority Development Revenue (Toledo Express Airport Project) Series C 6.375% 11/15/32 1,000,000 1,089,879 ___________ 10,907,967 ___________ Education Revenue Bonds - 12.53% Berks County, Pennsylvania Municipal Authority College Revenue (Albright College Project) 5.375% 10/1/28 700,000 729,911 Chattanooga, Tennessee Health Educational & Housing Facilities Broad Revenue (CDFI Phase I, LLC Project) Subordinate Series B 6.00% 10/1/35 1,000,000 1,046,590 Illinois Educational Facilities Authority Student Housing Revenue (Educational Advancement Fund - University Center Project) 6.25% 5/1/30 1,000,000 1,087,840 Maine Finance Authority Education Revenue (Waynflete School Project) 6.40% 8/1/19 1,000,000 1,058,860 Massachusetts State Development Finance Agency Revenue (Massachusetts College of Pharmacy Project) Series C 5.75% 7/1/33 1,000,000 1,064,700 Massachusetts State Health & Educational Facilities Authority Revenue (Nichols College Project) Series C 6.125% 10/1/29 1,000,000 1,054,340 Milledgeville-Baldwin County, Georgia Development Authority Revenue (Georgia College & State University Foundation Project) 6.00% 9/1/33 1,000,000 1,093,100 New Jersey State Educational Facilities Authority Revenue (Fairleigh Dickinson Project) Series C 5.50% 7/1/23 750,000 800,790 New Mexico Educational Assistance Foundation Student Loan Revenue 1st Subordinate Series A-2 6.65% 11/1/25 (AMT) 985,000 989,127 Scranton-Lackawanna, Pennsylvania Health & Welfare Authority First Mortgage Revenue (Lackawanna Junior College Project) 5.75% 11/1/20 1,510,000 1,538,917 ___________ 10,464,175 ___________ Health Care Revenue Bonds - 38.51% Apple Valley, Minnesota Economic Development Authority Health Care Revenue Series A (Augustana Home St. Paul Project) 6.00% 1/1/40 1,000,000 1,015,680 (Evercare Senior Living Project) 6.125% 6/1/35 1,000,000 1,006,860 Bexar County, Texas Health Facilities Development Corporation Revenue (Army Retirement Residence Project) 6.30% 7/1/32 1,000,000 1,076,640 (continues) 31 Statements of net assets Delaware National High-Yield Municipal Bond Fund Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Health Care Revenue Bonds (continued) Buhl, Minnesota Nursing Home Revenue (Forest Health Services Project) Series A 6.75% 8/1/33 $ 600,000 $ 585,786 California Statewide Communities Development Authority Revenue (Kaiser Permenante) 5.25% 3/1/45 1,000,000 1,045,260 Cleveland-Cuyahoga County, Ohio Port Authority Revenue Senior Housing (St.Clarence - Geac) Series A 6.25% 5/1/38 1,000,000 1,017,230 Coffee County, Georgia Hospital Authority Revenue (Coffee Regional Medical Center Project) 5.00% 12/1/26 500,000 508,585 Colorado Health Facilities Authority Revenue (Evangelical Lutheran) 5.00% 6/1/35 1,000,000 1,018,320 Series A 5.25% 6/1/34 750,000 778,110 East Rochester, New York Housing Authority Revenue Refunding (Senior Living - Woodland Village Project) 5.50% 8/1/33 500,000 507,180 Gainesville & Hall County, Georgia Development Authority Revenue Senior Living Facilities (Lanier Village Estates Project) Series C 7.25% 11/15/29 1,000,000 1,093,770 Illinois Financial Authority Revenue Series A (Clarke Oaks Project) 6.00% 11/15/39 1,000,000 1,024,120 (Luther Oaks Project) 6.00% 8/15/26 1,700,000 1,773,712 Illinois Health Facilities Authority Revenue (Elmhurst Memorial Healthcare Project) 5.625% 1/1/28 1,000,000 1,062,750 (Midwest Physician Group Limited Project) 5.50% 11/15/19 35,000 35,263 Knox County, Tennessee Health Educational & Housing Facilities Board Hospital Revenue (East Tennessee Hospital Project) Series B 5.75% 7/1/33 1,300,000 1,380,067 Lebanon County, Pennsylvania Health Facilities Authority Center Revenue (Pleasant View Retirement) Series A 5.30% 12/15/26 1,000,000 1,015,400 Louisiana Public Facilities Authority Revenue (Ochsner Clinic Foundation Project) Series B 5.50% 5/15/32 1,000,000 1,045,770 Madison County, Idaho Hospital Revenue Certificates of Participation 5.25% 9/1/37 1,000,000 1,032,360 Maryland State Health & Higher Education Facilities Authority Revenue Series A 5.40% 1/1/37 1,100,000 1,137,829 Massachusetts State Health & Educational Facilities Authority Revenue (Jordan Hospital Project) Series E 6.75% 10/1/33 1,000,000 1,097,940 Montgomery County, Pennsylvania Higher Education & Health Authority Revenue (Catholic Health East) Series C 5.375% 11/15/34 1,000,000 1,057,020 North Carolina Medical Care Commission Health Care Facilities Revenue (First Mortgage-Presbyterian Homes) 5.60% 10/1/36 1,000,000 1,038,990 (Pennybryn at Mayfield Project) Series A 6.125% 10/1/35 2,000,000 2,076,019 Philadelphia, Pennsylvania Hospitals & Higher Education Facilities Authority Revenue (The Philadelphia Protestant Home Project) Series A 6.50% 7/1/27 1,100,000 1,106,864 Richland County, Ohio Hospital Facilities Revenue (Medcentral Health System Project) Series B 6.375% 11/15/30 500,000 541,760 Rochester, Minnesota Multifamily Housing Revenue (Wedum Shorewood Campus Project) 6.60% 6/1/36 985,000 1,016,904 Shelby County, Tennessee Health Educational & Housing Facilities Board Revenue (Trezvan Manor Project) Series A 5.75% 9/1/37 700,000 704,018 St. Joseph County, Indiana Industrial Economic Development Revenue (Madison Center Project) 5.50% 2/15/21 1,150,000 1,168,803 St. Paul, Minnesota Housing & Redevelopment Authority Hospital Revenue (Health East Project) 6.00% 11/15/35 1,000,000 1,098,980 32 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Health Care Revenue Bonds (continued) Winchester, Virginia Industrial Development Authority Residential Care Facility Revenue (Westminster-Canterbury Project) Series A 5.30% 1/1/35 $1,000,000 $ 1,015,400 Yavapai County, Arizona Industrial Development Authority Hospital Revenue (Yavapai Medical Center Project) Series A 6.00% 8/1/33 1,000,000 1,077,490 ___________ 32,160,880 ___________ Lease Revenue Bonds - 3.15% Dauphin County, Pennsylvania General Authority Revenue (Riverfront Office & Parking Project) Series A 5.75% 1/1/10 1,875,000 1,872,581 Missouri State Development Finance Board Infrastructure Facilities Revenue (Branson Landing Project) Series A 5.50% 12/1/24 720,000 761,069 ___________ 2,633,650 ___________ Local General Obligation Bonds - 8.80% Chicago, Illinois Tax Increment Allocation (Chatham Ridge Redevelopment Project) 5.95% 12/15/12 750,000 791,078 Henderson, Nevada Local Import Distributions #T-18 5.30% 9/1/35 1,000,000 1,012,620 Lammersville, California School District Community Facilities District #2002 (Mountain House) 5.125% 9/1/35 375,000 379,095 Lowry, Colorado Economic Redevelopment Authority Revenue Series A 7.30% 12/1/10 390,000 400,842 Modesto, California Special Tax Community Facilities District #04-1 Village 2 5.15% 9/1/36 1,000,000 1,008,950 Richmond Heights, Missouri Tax Increment & Transaction Sales Tax Revenue Refunding & Improvement (Francis Place Redevelopment Project) 5.625% 11/1/25 1,200,000 1,213,800 St. Joseph, Missouri Industrial Development Authority Tax Increment Revenue (Shoppes at North Village Project) Series A 5.375% 11/1/24 500,000 507,680 5.50% 11/1/27 1,000,000 1,008,470 Winter Garden Village at Fowler Groves Community Development District, Florida Special Assessment Revenue 5.65% 5/1/37 1,000,000 1,027,270 ___________ 7,349,805 ___________ $ Pre-Refunded Bonds - 10.68% Golden State, California Tobacco Securitization Corporation Settlement Revenue Series B 5.50% 6/1/43-13 1,500,000 1,658,460 Maryland State Economic Development Corporation, Student Housing Revenue (University of Maryland College Park Project) 5.625% 6/1/35-13 1,000,000 1,106,940 Minnesota State Higher Education Facilities Authority Revenue (College of Art & Design Project) Series 5-D 6.75% 5/1/26-10 500,000 536,635 Mississippi Development Bank Special Obligation (Madison County Hospital Project) 6.40% 7/1/29-09 1,585,000 1,730,503 Montgomery County, Pennsylvania Higher Education & Health Authority Revenue (Foulkeways at Gwynedd Project) 6.75% 11/15/30-09 1,000,000 1,103,250 Richland County, Ohio Hospital Revenue (Medcentral Health System) Series B 6.375% 11/15/30-10 1,000,000 1,112,630 Savannah, Georgia Economic Development Authority Revenue (College of Art & Design Project) 6.50% 10/1/13-09 1,000,000 1,097,320 Volusia County, Florida Industrial Development Authority First Mortgage Revenue (Bishops Glen Retirement Health Facilities Project) 7.50% 11/1/16-06 555,000 569,358 ___________ 8,915,096 ___________ Special Tax Bonds - 7.02% Baltimore, Maryland Convention Center Hotel Revenue Subordinated Series B 5.875% 9/1/39 1,000,000 1,055,230 Chicago, Illinois Tax Increment Subordinate (Central Loop Redevelopment Project) Series A 6.50% 12/1/08 1,000,000 1,046,070 Las Vegas, Nevada Local Improvement Special District #808 (Summerlin Area Project) 6.75% 6/1/21 985,000 1,020,499 Middlesex County, New Jersey Improvement Authority Senior Revenue (Heldrich Center Hotel/ Conference Project) Series A 5.00% 1/1/32 500,000 497,475 5.125% 1/1/37 870,000 874,333 (continues) 33 Statements of net assets Delaware National High-Yield Municipal Bond Fund Principal Market Amount Value _______________________________________________________________________________ Municipal Bonds (continued) _______________________________________________________________________________ Special Tax Bonds (continued) New Jersey Economic Development Authority (Cigarette Tax) 5.75% 6/15/34 $1,000,000 $ 1,065,460 Prescott Valley, Arizona Improvement District Special Assessment (Sewer Collection System Roadway Repair Project) 7.90% 1/1/12 290,000 299,005 ___________ 5,858,072 ___________ State General Obligation Bonds - 0.95% Puerto Rico Commonwealth Series B 5.25% 7/1/32 750,000 794,558 ___________ 794,558 ___________ Transportation Revenue Bonds - 3.25% New York City, New York Industrial Development Agency Special Airport Facilities (Airis JFK I LLC Project) Series A 5.50% 7/1/28 (AMT) 905,000 931,073 Oklahoma City, Oklahoma Industrial & Cultural Facilities Subordinated (Air Cargo Obligated Group Project) 6.75% 1/1/23 (AMT) 1,160,000 1,243,334 Onondaga County, New York Industrial Development Authority Revenue Subordinated (Air Cargo Project) 7.25% 1/1/32 (AMT) 500,000 543,180 ___________ 2,717,587 ___________ Total Municipal Bonds (cost $77,461,211) 81,801,790 ___________ _______________________________________________________________________________ ~ Variable Rate Demand Notes - 0.72% _______________________________________________________________________________ Jefferson County, Alabama Series B 3.55% 4/1/21 500,000 500,000 Moffat County, Colorado Pollution Control Revenue Tri State Generation and Transmission Company 3.44% 7/1/10 (AMBAC) 100,000 100,000 ___________ Total Variable Rate Demand Notes (cost $600,000) 600,000 ___________ Total Market Value of Securities - 98.67% (cost $78,061,211) 82,401,790 Receivables and Other Assets Net of Liabilities - 1.33% 1,112,482 ___________ Net Assets Applicable to 8,085,615 Shares Outstanding - 100.00% $83,514,272 ___________ Net Asset Value - Delaware National High-Yield Municipal Bond Fund Class A ($68,662,761 / 6,651,130 Shares) $10.32 ______ Net Asset Value - Delaware National High-Yield Municipal Bond Fund Class B ($9,519,558 / 919,996 Shares) $10.35 ______ Net Asset Value - Delaware National High-Yield Municipal Bond Fund Class C ($5,331,953 / 514,489 Shares) $10.36 ______ Components of Net Assets at August 31, 2006: Shares of beneficial interest (unlimited authorization - no par) $85,915,775 Distributions in excess of net investment income (4,104) Accumulated net realized loss on investments (6,737,978) Net unrealized appreciation of investments 4,340,579 ___________ Total net assets $83,514,272 ___________ $ Pre-Refunded Bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 8 in "Notes to Financial Statements." ~ Variable rate security. The interest rate shown is the rate as of August 31, 2006. Summary of Abbreviations: AMT - Subject to Alternative Minimum Tax AMBAC - Insured by the AMBAC Assurance Corporation CDFI - Community Development Financial Institutions Net Asset Value and Offering Price Per Share - Delaware National High-Yield Municipal Bond Fund Net asset value Class A (A) $10.32 Sales charge (4.50% of Offering Price) (B) 0.49 ______ Offering price $10.81 ______ (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 34 Statements of operations Year Ended August 31, 2006 Delaware Delaware National Delaware Tax-Free USA High-Yield Tax-Free Intermediate Municipal USA Fund Fund Bond Fund Investment Income: Interest $25,934,658 $ 7,979,299 $4,652,296 ___________ ___________ ___________ Expenses: Management fees 2,935,497 925,399 460,384 Distribution expenses - Class A 1,423,472 463,916 167,257 Distribution expenses - Class B 152,276 25,637 113,851 Distribution expenses - Class C 76,997 268,400 53,942 Dividend disbursing and transfer agent fees and expenses 332,516 258,098 60,522 Accounting and administration expenses 212,466 73,855 33,482 Legal and professional fees 129,613 42,170 26,406 Registration fees 126,988 67,024 34,287 Reports and statements to shareholders 89,314 24,777 14,317 Trustees - fees 30,750 9,558 4,758 Insurance fees 20,447 7,783 2,271 Custodian fees 11,121 3,628 4,501 Pricing fees 4,424 4,694 2,331 Taxes (other than taxes on income) 2,992 542 209 Other 12,328 9,973 3,399 ___________ ___________ __________ 5,561,201 2,185,454 981,917 Less expenses absorbed or waived (518,570) (314,570) (98,270) Less waived distribution expenses - Class A (230,163) (231,958) - Less expense paid indirectly (5,730) (2,054) (3,484) ___________ ___________ __________ Total operating expenses 4,806,738 1,636,872 880,163 ___________ ___________ __________ Net Investment Income 21,127,920 6,342,427 3,772,133 ___________ ___________ __________ Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) on investments 2,988,364 (265,888) (833,966) Net change in unrealized appreciation/depreciation of investments (7,385,302) (992,386) 363,826 ___________ ___________ __________ Net Realized and Unrealized Loss on Investments (4,396,938) (1,258,274) (470,140) ___________ ___________ __________ Net Increase in Net Assets Resulting from Operations $16,730,982 $ 5,084,153 $3,301,993 ___________ ___________ __________ See accompanying notes
35 Statements of changes in net assets Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield USA Fund USA Intermediate Fund Municipal Bond Fund Year Ended Year Ended Year Ended 8/31/06 8/31/05 8/31/06 8/31/05 8/31/06 8/31/05 Increase (Decrease) in Net Assets from Operations: Net investment income $ 21,127,920 $ 20,913,234 $ 6,342,427 $ 4,020,053 $ 3,772,133 $ 3,803,398 Net realized gain (loss) on investments 2,988,364 2,541,488 (265,888) 216,425 (833,966) (20,934) Net change in unrealized appreciation/ depreciation of investments (7,385,302) 9,862,168 (992,386) 2,305,659 363,826 2,945,238 ____________ ____________ ____________ ____________ ___________ ___________ Net increase in net assets resulting from operations 16,730,982 33,316,890 5,084,153 6,542,137 3,301,993 6,727,702 ____________ ____________ ____________ ____________ ___________ ___________ Dividends and Distributions to Shareholders from: Net investment income: Class A (20,605,670) (20,004,240) (5,539,037) (3,353,356) (3,117,557) (3,012,354) Class B (494,733) (694,792) (70,059) (95,959) (443,794) (584,141) Class C (249,348) (214,202) (733,331) (570,738) (209,884) (212,515) ____________ ____________ ____________ ____________ ___________ __________ (21,349,751) (20,913,234) (6,342,427) (4,020,053) (3,771,235) (3,809,010) ____________ ____________ ____________ ____________ ___________ __________ Capital Share Transactions: Proceeds from shares sold: Class A 167,570,325 24,251,474 119,156,024 60,268,006 11,000,812 11,865,636 Class B 1,380,980 705,667 597,273 329,988 780,564 533,475 Class C 3,261,988 1,035,529 7,130,929 8,118,530 1,576,137 1,761,862 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 10,377,867 10,723,495 3,941,206 2,392,786 1,923,145 1,690,051 Class B 300,459 392,819 54,532 68,135 206,858 270,527 Class C 186,252 170,783 416,628 276,166 131,125 137,144 Net assets from reorganization (1): Class A 116,026,119 - - - - - Class B 11,168,095 - - - - - Class C 8,018,844 - - - - - ____________ ____________ ____________ ____________ ___________ __________ 318,290,929 37,279,767 131,296,592 71,453,611 15,618,641 16,258,695 ____________ ____________ ____________ ____________ ___________ __________ Cost of shares repurchased: Class A (86,626,741) (48,950,197) (37,921,560) (21,868,344) (10,375,066) (6,019,664) Class B (7,029,177) (7,473,113) (1,404,656) (1,002,815) (4,410,676) (2,802,575) Class C (2,356,085) (1,180,661) (4,371,376) (2,895,030) (1,580,167) (1,654,712) ____________ ____________ ____________ ____________ ___________ __________ (96,012,003) (57,603,971) (43,697,592) (25,766,189) (16,365,909) (10,476,951) ____________ ____________ ____________ ____________ ___________ __________ Increase (decrease) in net assets derived from capital share transactions 222,278,926 (20,324,204) 87,599,000 45,687,422 (747,268) 5,781,744 ____________ ____________ ____________ ____________ ___________ __________ Net Increase (Decrease) in Net Assets 217,660,157 (7,920,548) 86,340,726 48,209,506 (1,216,510) 8,700,436 Net Assets: Beginning of year 476,451,707 484,372,255 148,601,344 100,391,838 84,730,782 76,030,346 ____________ ____________ ____________ ____________ ___________ __________ End of year $694,111,864 $476,451,707 $234,942,070 $148,601,344 $83,514,272 $84,730,782 ____________ ____________ ____________ ____________ ___________ ___________ Distributions in excess of net investment $ (12,071) $ (12,071) $ - $ - $ (4,104) $ (4,104) income ____________ ____________ ____________ ____________ ___________ ___________ (1) See Note 6 in "Notes to Financial Statements." See accompanying notes
36 Financial highlights Delaware Tax-Free USA Fund Class A Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.760 $11.460 $11.170 $11.280 $11.320 Income (loss) from investment operations: Net investment income 0.458 0.512 0.538 0.537 0.566 Net realized and unrealized gain (loss) on investments (0.186) 0.300 0.290 (0.110) (0.040) _______ _______ _______ _______ _______ Total from investment operations 0.272 0.812 0.828 0.427 0.526 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.462) (0.512) (0.538) (0.537) (0.566) _______ _______ _______ _______ _______ Total dividends and distributions (0.462) (0.512) (0.538) (0.537) (0.566) _______ _______ _______ _______ _______ Net asset value, end of period $11.570 $11.760 $11.460 $11.170 $11.280 _______ _______ _______ _______ _______ Total return (1) 2.42% 7.23% 7.54% 3.84% 4.85% Ratios and supplemental data: Net assets, end of period (000 omitted) $656,813 $453,982 $456,192 $460,917 $495,731 Ratio of expenses to average net assets 0.86% 0.86% 0.87% 0.87% 0.87% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.00% 0.98% 0.93% 0.97% 0.98% Ratio of net investment income to average net assets 3.97% 4.43% 4.72% 4.74% 5.08% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.83% 4.31% 4.66% 4.64% 4.97% Portfolio turnover 41% 47% 32% 96% 99% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitations not been in effect. See accompanying notes
(continues) 37 Financial highlights Delaware Tax-Free USA Fund Class B Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.760 $11.460 $11.170 $11.280 $11.320 Income (loss) from investment operations: Net investment income 0.370 0.423 0.449 0.449 0.479 Net realized and unrealized gain (loss) on investments (0.186) 0.300 0.290 (0.110) (0.040) _______ _______ _______ _______ _______ Total from investment operations 0.184 0.723 0.739 0.339 0.439 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.374) (0.423) (0.449) (0.449) (0.479) _______ _______ _______ _______ _______ Total dividends and distributions (0.374) (0.423) (0.449) (0.449) (0.479) _______ _______ _______ _______ _______ Net asset value, end of period $11.570 $11.760 $11.460 $11.170 $11.280 _______ _______ _______ _______ _______ Total return (1) 1.63% 6.42% 6.71% 3.03% 4.04% Ratios and supplemental data: Net assets, end of period (000 omitted) $22,189 $16,507 $22,396 $31,052 $37,448 Ratio of expenses to average net assets 1.63% 1.63% 1.65% 1.65% 1.65% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.73% 1.71% 1.71% 1.75% 1.76% Ratio of net investment income to average net assets 3.20% 3.66% 3.94% 3.96% 4.30% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.10% 3.58% 3.88% 3.86% 4.19% Portfolio turnover 41% 47% 32% 96% 99% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
38 Delaware Tax-Free USA Fund Class C Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.760 $11.460 $11.170 $11.280 $11.320 Income (loss) from investment operations: Net investment income 0.370 0.423 0.449 0.449 0.479 Net realized and unrealized gain (loss) on investments (0.186) 0.300 0.290 (0.110) (0.040) _______ _______ _______ _______ _______ Total from investment operations 0.184 0.723 0.739 0.339 0.439 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.374) (0.423) (0.449) (0.449) (0.479) _______ _______ _______ _______ _______ Total dividends and distributions (0.374) (0.423) (0.449) (0.449) (0.479) _______ _______ _______ _______ _______ Net asset value, end of period $11.570 $11.760 $11.460 $11.170 $11.280 _______ _______ _______ _______ _______ Total return (1) 1.63% 6.42% 6.71% 3.03% 4.04% Ratios and supplemental data: Net assets, end of period (000 omitted) $15,110 $ 5,963 $5,784 $5,508 $5,979 Ratio of expenses to average net assets 1.63% 1.63% 1.65% 1.65% 1.65% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.73% 1.71% 1.71% 1.75% 1.76% Ratio of net investment income to average net assets 3.20% 3.66% 3.94% 3.96% 4.30% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.10% 3.58% 3.88% 3.86% 4.19% Portfolio turnover 41% 47% 32% 96% 99% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
(continues) 39 Financial highlights Delaware Tax-Free USA Intermediate Fund Class A Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.610 $11.390 $11.010 $11.020 $10.890 Income (loss) from investment operations: Net investment income 0.408 0.410 0.419 0.435 0.462 Net realized and unrealized gain (loss) on investments (0.140) 0.220 0.380 (0.010) 0.130 _______ _______ _______ _______ _______ Total from investment operations 0.268 0.630 0.799 0.425 0.592 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.408) (0.410) (0.419) (0.435) (0.462) _______ _______ _______ _______ _______ Total dividends and distributions (0.408) (0.410) (0.419) (0.435) (0.462) _______ _______ _______ _______ _______ Net asset value, end of period $11.470 $11.610 $11.390 $11.010 $11.020 _______ _______ _______ _______ _______ Total return (1) 2.38% 5.63% 7.36% 3.89% 5.63% Ratios and supplemental data: Net assets, end of period (000 omitted) $204,525 $120,273 $77,448 $51,479 $26,075 Ratio of expenses to average net assets 0.75% 0.79% 0.80% (2) 0.80% 0.80% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.07% 1.11% 1.09% 1.15% 0.94% Ratio of net investment income to average net assets 3.56% 3.55% 3.70% 3.85% 4.28% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.24% 3.23% 3.41% 3.50% 4.14% Portfolio turnover 37% 18% 27% 130% 195% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager and distributor. Performance would have been lower had the expense limitations not been in effect. (2) Ratio for the year ended August 31, 2004, including fees paid indirectly in accordance with Securities and Exchange Commission rules was 0.82%. See accompanying notes
40 Delaware Tax-Free USA Intermediate Fund Class B Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.610 $11.380 $11.010 $11.020 $10.890 Income (loss) from investment operations: Net investment income 0.311 0.313 0.323 0.340 0.371 Net realized and unrealized gain (loss) on investments (0.150) 0.230 0.370 (0.010) 0.130 _______ _______ _______ _______ _______ Total from investment operations 0.161 0.543 0.693 0.330 0.501 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.311) (0.313) (0.323) (0.340) (0.371) _______ _______ _______ _______ _______ Total dividends and distributions (0.311) (0.313) (0.323) (0.340) (0.371) _______ _______ _______ _______ _______ Net asset value, end of period $11.460 $11.610 $11.380 $11.010 $11.020 _______ _______ _______ _______ _______ Total return (1) 1.43% 4.83% 6.36% 3.02% 4.74% Ratios and supplemental data: Net assets, end of period (000 omitted) $2,413 $3,203 $3,743 $4,538 $3,384 Ratio of expenses to average net assets 1.60% 1.64% 1.65% (2) 1.65% 1.65% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.77% 1.81% 1.79% 1.87% 1.79% Ratio of net investment income to average net assets 2.71% 2.70% 2.85% 3.00% 3.43% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 2.54% 2.53% 2.71% 2.78% 3.29% Portfolio turnover 37% 18% 27% 130% 195% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitations not been in effect. (2) Ratio for the year ended August 31, 2004, including fees paid indirectly in accordance with Securities and Exchange Commission rules was 1.67%. See accompanying notes
(continues) 41 Financial highlights Delaware Tax-Free USA Intermediate Fund Class C Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.610 $11.390 $11.010 $11.020 $10.890 Income (loss) from investment operations: Net investment income 0.311 0.313 0.323 0.340 0.371 Net realized and unrealized gain (loss) on investments (0.140) 0.220 0.380 (0.010) 0.130 _______ _______ _______ _______ _______ Total from investment operations 0.171 0.533 0.703 0.330 0.501 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.311) (0.313) (0.323) (0.340) (0.371) _______ _______ _______ _______ _______ Total dividends and distributions (0.311) (0.313) (0.323) (0.340) (0.371) _______ _______ _______ _______ _______ Net asset value, end of period $11.470 $11.610 $11.390 $11.010 $11.020 _______ _______ _______ _______ _______ Total return (1) 1.52% 4.74% 6.45% 3.02% 4.74% Ratios and supplemental data: Net assets, end of period (000 omitted) $28,004 $25,125 $19,201 $10,542 $7,291 Ratio of expenses to average net assets 1.60% 1.64% 1.65% (2) 1.65% 1.65% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.77% 1.81% 1.79% 1.87% 1.79% Ratio of net investment income to average net assets 2.71% 2.70% 2.85% 3.00% 3.43% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 2.54% 2.53% 2.71% 2.78% 3.29% Portfolio turnover 37% 18% 27% 130% 195% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. (2) Ratio for the year ended August 31, 2004, including fees paid indirectly in accordance with Securities and Exchange Commission rules was 1.67%. See accompanying notes
42 Delaware National High-Yield Municipal Bond Fund Class A Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $10.380 $10.010 $9.730 $9.950 $10.240 Income (loss) from investment operations: Net investment income 0.477 0.503 0.496 0.522 0.542 Net realized and unrealized gain (loss) on investments (0.060) 0.371 0.280 (0.219) (0.290) _______ _______ _______ _______ _______ Total from investment operations 0.417 0.874 0.776 0.303 0.252 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.477) (0.504) (0.496) (0.523) (0.542) _______ _______ _______ _______ _______ Total dividends and distributions (0.477) (0.504) (0.496) (0.523) (0.542) _______ _______ _______ _______ _______ Net asset value, end of period $10.320 $10.380 $10.010 $9.730 $9.950 _______ _______ _______ _______ _______ Total return (1) 4.15% 8.93% 8.13% 3.13% 2.59% Ratios and supplemental data: Net assets, end of period (000 omitted) $68,663 $66,451 $56,698 $59,829 $64,259 Ratio of expenses to average net assets 0.90% 0.93% 1.00% 0.99% 0.96% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.02% 1.01% 1.02% 1.05% 1.04% Ratio of net investment income to average net assets 4.66% 4.92% 5.00% 5.30% 5.42% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.54% 4.84% 4.98% 5.24% 5.34% Portfolio turnover 73% 36% 46% 64% 53% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
(continues) 43 Financial highlights Delaware National High-Yield Municipal Bond Fund Class B Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $10.400 $10.030 $9.760 $9.980 $10.260 Income (loss) from investment operations: Net investment income 0.400 0.426 0.421 0.448 0.467 Net realized and unrealized gain (loss) on investments (0.050) 0.371 0.270 (0.219) (0.281) _______ _______ _______ _______ _______ Total from investment operations 0.350 0.797 0.691 0.229 0.186 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.400) (0.427) (0.421) (0.449) (0.466) _______ _______ _______ _______ _______ Total dividends and distributions (0.400) (0.427) (0.421) (0.449) (0.466) _______ _______ _______ _______ _______ Net asset value, end of period $10.350 $10.400 $10.030 $9.760 $9.980 _______ _______ _______ _______ _______ Total return (1) 3.47% 8.10% 7.20% 2.36% 1.91% Ratios and supplemental data: Net assets, end of period (000 omitted) $9,519 $13,046 $14,534 $16,499 $20,021 Ratio of expenses to average net assets 1.65% 1.68% 1.75% 1.74% 1.71% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.77% 1.76% 1.77% 1.80% 1.79% Ratio of net investment income to average net assets 3.91% 4.17% 4.25% 4.55% 4.67% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.79% 4.09% 4.23% 4.49% 4.59% Portfolio turnover 73% 36% 46% 64% 53% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
44 Delaware National High-Yield Municipal Bond Fund Class C Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $10.420 $10.040 $9.770 $9.990 $10.270 Income (loss) from investment operations: Net investment income 0.400 0.426 0.421 0.448 0.467 Net realized and unrealized gain (loss) on investments (0.060) 0.381 0.270 (0.219) (0.281) _______ _______ _______ _______ ______ Total from investment operations 0.340 0.807 0.691 0.229 0.186 _______ _______ _______ _______ ______ Less dividends and distributions from: Net investment income (0.400) (0.427) (0.421) (0.449) (0.466) _______ _______ _______ _______ ______ Total dividends and distributions (0.400) (0.427) (0.421) (0.449) (0.466) _______ _______ _______ _______ _______ Net asset value, end of period $10.360 $10.420 $10.040 $9.770 $9.990 _______ _______ _______ _______ _______ Total return (1) 3.36% 8.19% 7.19% 2.35% 1.92% Ratios and supplemental data: Net assets, end of period (000 omitted) $5,332 $5,234 $4,798 $5,318 $6,405 Ratio of expenses to average net assets 1.65% 1.68% 1.75% 1.74% 1.71% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.77% 1.76% 1.77% 1.80% 1.79% Ratio of net investment income to average net assets 3.91% 4.17% 4.25% 4.55% 4.67% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.79% 4.09% 4.23% 4.49% 4.59% Portfolio turnover 73% 36% 46% 64% 53% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
45 Notes to financial statements Delaware National Tax-Free Funds August 31, 2006 Delaware Group Tax-Free Fund is organized as a Delaware statutory trust and offers two series: Delaware Tax-Free USA Fund and Delaware Tax-Free USA Intermediate Fund. Voyageur Mutual Funds is organized as a Delaware statutory trust and offers five series: Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, Delaware Minnesota High-Yield Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund and Delaware Tax-Free New York Fund. Delaware Group Tax-Free Fund and Voyageur Mutual Funds are individually referred to as a "Trust" and collectively as the "Trusts". These financial statements and the related notes pertain to Delaware Tax-Free USA Fund, Delaware Tax-Free USA Intermediate Fund and Delaware National High-Yield Municipal Bond Fund (each referred to as a "Fund" or, collectively, as the "Funds"). The above Trusts are open-end investment companies. The Funds are considered non-diversified under the Investment Company Act of 1940, as amended. The Funds offer Class A, Class B, and Class C shares. Class A shares are sold with a front-end sales charge of up to 4.50% for Delaware Tax-Free USA Fund and Delaware National High-Yield Municipal Bond Fund, and up to 2.75% for Delaware Tax-Free USA Intermediate Fund. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge of up to 1% if redeemed during the first two years, provided that a financial advisor was paid commission on the purchase of those shares. Class B shares of the Delaware Tax-Free USA Fund and Delaware National High-Yield Municipal Bond Fund are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held and will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class B shares of Delaware Tax-Free USA Intermediate Fund are sold with a contingent deferred sales charge that declines from 2% to zero depending upon the time the shares are held and will automatically convert to Class A shares on a quarterly basis approximately five years after purchase. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first twelve months. The investment objective of Delaware Tax-Free USA Fund and Delaware Tax-Free USA Intermediate Fund is to seek as high a level of current interest income exempt from federal income tax as is available from municipal obligations as is consistent with prudent investment management and preservation of capital. The investment objective of Delaware National High-Yield Municipal Bond Fund is to seek a high level of current income exempt from federal income tax primarily through investment in medium- and lower-grade municipal obligations. 1. Significant Accounting Policies The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Funds. Security Valuation - Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of each Fund's Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, or with respect to foreign securities, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes - Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund's tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Although the Fund's tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on each Fund's financial statements. Class Accounting - Investment income and common expenses are allocated to the classes of the Funds on the basis of "settled shares" of each class in relation to the net assets of the Funds. Realized and unrealized gains (loss) on investments are allocated to the various classes of the Funds on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other - Expenses directly attributable to a Fund are charged directly to that Fund. Other expenses common to various funds within the Delaware Investments(R) Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. 46 1. Significant Accounting Policies (continued) The Funds receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under the above arrangement is included in custodian fees on the Statements of Operations with the corresponding expense offset shown as "expense paid indirectly." 2. Investment Management, Administration Agreements and Other Transactions with Affiliates In accordance with the terms of its respective investment management agreement, each Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee based on each Fund's average daily net assets as follows: Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ On the first $500 million 0.550% 0.500% 0.550% On the next $500 million 0.500% 0.475% 0.500% On the next $1.5 billion 0.450% 0.450% 0.450% In excess of $2.5 billion 0.425% 0.425% 0.425%
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse each Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed specified percentages of average daily net assets through December 31, 2006 as shown below. Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ The operating expense limitation as a percentage of average daily net assets (per annum) 0.62% 0.60% 0.65%
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. Each Fund pays DSC a monthly fee computed at the annual rate of 0.04% of such Fund's average daily net assets for accounting and administration services. Each Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, each Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares for Delaware Tax-Free USA Fund and Delaware Tax-Free USA Intermediate Fund, 0.25% of the average daily net assets of the Class A shares for the Delaware National High-Yield Municipal Bond Fund and 1.00% of the average daily net assets of the Class B and C shares for all Funds. The Board of Trustees has adopted a formula for calculating 12b-1 plan fees for Delaware Tax-Free USA Fund's Class A shares that went into effect on June 1, 1992. The total 12b-1 fees to be paid by Class A shareholders of each Fund will be the sum of 0.10% of the average daily net assets representing shares that were acquired prior to June 1, 1992 and 0.30%, waived to 0.25%, of the average daily net assets representing shares that were acquired on or after June 1, 1992. The contractual 12b-1 fee waiver of 0.25% of average daily net assets is applied to the shares of each Fund that were acquired on or after June 1, 1992 in calculating the applicable 12b-1 fee rate. All Class A shareholders will bear 12b-1 fees at the same rate, the blended rate based upon the allocation of the rates described above. DDLP has contracted to waive distribution and service fees through December 31, 2006 in order to prevent distribution and service fees of Class A from exceeding 0.25% of the average daily net assets for the Delaware Tax-Free USA Fund and 0.15% of the average daily net assets for the Delaware Tax-Free USA Intermediate Fund. At August 31, 2006, the Funds had liabilities payable to affiliates as follows: Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ Investment management fees payable to DMC $219,210 $48,142 $28,691 Dividend disbursing, transfer agent, accounting and administration fees and other expenses payable to DSC 60,217 32,597 8,086 Distribution fees payable to DDLP 164,739 51,405 27,236 Other expenses payable to DMC and affiliates* 73,686 14,607 14,556 * DMC, as part of its administrative services, pays operating expenses on behalf of each Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees' fees.
(continues) 47 Notes to financial statements Delaware National Tax-Free Funds 2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued) As provided in the investment management agreement, each Fund bears the cost of certain legal services, including internal legal services provided to each Fund by DMC employees. For the year ended August 31, 2006, each Fund was charged for internal legal services provided by DMC as follows: Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ $62,608 $12,955 $7,483
For the year ended August 31, 2006, DDLP earned commissions on sales of Class A shares for each Fund as follows: Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ $26,422 $21,969 $14,913
For the year ended August 31, 2006, DDLP received gross contingent deferred sales charge commissions on redemption of each Fund's Class A, Class B and Class C shares, respectively. These commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares. The amounts received were as follows: Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ Class A $ 155 $ 16 $ 83 Class B 17,217 2,061 9,040 Class C 2,419 1,780 670
Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trusts. These officers and trustees are paid no compensation by the Funds. 3. Investments For the year ended August 31, 2006, the Funds made purchases and sales of investment securities other than short-term investments as follows: Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ Purchases $313,388,501 $152,765,679 $60,588,447 Sales 211,645,528 63,716,446 61,687,355
At August 31, 2006, the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows: Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ Cost of investments $654,101,597 $225,232,073 $78,101,111 ____________ ____________ ____________ Aggregate unrealized appreciation $ 34,218,767 $ 4,861,141 $ 4,307,047 Aggregate unrealized depreciation (734,925) (130,964) (6,368) ____________ ____________ ___________ Net unrealized appreciation $ 33,483,842 $ 4,730,177 $ 4,300,679 ____________ ____________ ___________
4. Dividend and Distribution Information Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended August 31, 2006 and 2005 was as follows: Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ Year Ended 8/31/06 Tax-exempt income $21,338,078 $6,301,523 $3,771,235 Ordinary income 11,673 40,904 - ___________ __________ __________ Total $21,349,751 $6,342,427 $3,771,235 ___________ __________ __________ Year Ended 8/31/05 Tax-exempt income $20,913,234 $4,020,053 $3,809,010 ___________ __________ __________ Total $20,913,234 $4,020,053 $3,809,010 ___________ __________ __________
48 4. Dividend and Distribution Information (continued) As of August 31, 2006, the components of net assets on a tax basis were as follows: Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ Shares of beneficial interest $666,215,275 $230,838,203 $85,915,775 Other temporary differences (12,071) - (4,104) Capital loss Carryforwards (5,575,182) (479,849) (5,783,530) Post-October losses - (146,461) (914,548) Unrealized appreciation of investments 33,483,842 4,730,177 4,300,679 ____________ ____________ ____________ Net assets $694,111,864 $234,942,070 $83,514,272 ____________ ____________ ____________
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and tax treatment of market discount on debt instruments. Post-October losses represent losses realized on investment transactions from November 1, 2005 through August 31, 2006 that, in accordance with federal income tax regulations, the Funds have elected to defer and treat as having arisen in the following fiscal year. For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of market discount on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. For the year ended August 31, 2006, the Funds recorded the following reclassifications: Delaware Tax-Free Delaware National High-Yield USA Fund Municipal Bond Fund _________________ ____________________________ Undistributed net investment loss $221,831 $(898) Accumulated net realized gain (221,831) 898
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryfowards remaining at August 31, 2006, will expire as follows: Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield Year of Expiration USA Fund Intermediate Fund Municipal Bond Fund _________________ _____________________ ____________________________ 2008 $5,503,036 $ 63,767 $ 708,680 2009 72,146 - 3,025,716 2010 - - 70,671 2011 - 290,864 997,721 2012 - 5,791 980,742 2014 - 119,427 - __________ _________ __________ Total $5,575,182 $479,849 $5,783,530 __________ _________ __________
For the year ended August 31, 2006, the Funds utilized capital loss carryforwards as follows: Delaware Tax-Free Delaware National High-Yield USA Fund Municipal Bond Fund _________________ ____________________________ $2,773,512 $44,021 (continues) 49 Notes to financial statements Delaware National Tax-Free Funds 5. Capital Shares Transactions in capital shares were as follows: Delaware Tax-Free Delaware Tax-Free Delaware National High-Yield USA Fund USA Intermediate Fund Municipal Bond Fund ________________________ _________________________ _____________________________ Year Ended Year Ended Year Ended 8/31/06 8/31/05 8/31/06 8/31/05 8/31/06 8/31/05 Shares sold: Class A 14,635,287 2,090,513 10,459,356 5,248,577 1,074,816 1,161,795 Class B 120,294 60,705 52,384 28,724 76,007 52,179 Class C 284,293 89,160 625,073 705,277 153,197 172,207 Shares issued upon reinvestment of dividends and distributions: Class A 902,479 923,604 345,526 208,201 187,771 165,542 Class B 26,125 33,850 4,778 5,933 20,147 26,452 Class C 16,222 14,713 36,520 24,033 12,756 13,388 Shares issued from reorganization*: Class A 10,177,730 - - - - - Class B 980,518 - - - - - Class C 703,407 - - - - - __________ _________ ___________ ___________ ___________ _________ 27,846,355 3,212,545 11,523,637 6,220,745 1,524,694 1,591,563 __________ _________ ___________ ___________ ___________ _________ Shares repurchased: Class A (7,565,290) (4,224,229) (3,329,875) (1,903,878) (1,013,868) (590,900) Class B (612,623) (645,620) (122,548) (87,601) (430,244) (273,683) Class C (205,552) (101,597) (382,978) (252,321) (153,906) (160,929) __________ _________ ___________ ___________ ___________ _________ (8,383,465) (4,971,446) (3,835,401) (2,243,800) (1,598,018) (1,025,512) __________ _________ ___________ ___________ ___________ _________ Net increase (decrease) in net assets 19,462,890 (1,758,901) 7,688,236 3,976,945 (73,324) 566,051 __________ _________ ___________ ___________ ___________ _________ *See note 6.
For the years ended August 31, 2006 and 2005, the following shares were converted from Class B to Class A shares. The respective amounts are included in Class B redemptions and Class A subscriptions in the tables above and the Statements of Changes in Net Assets. Year Ended Year Ended 8/31/06 8/31/05 Class B Class A Class B Class A shares shares Value shares shares Value _______ _______ __________ _______ _______ __________ Delaware Tax-Free USA Fund 186,049 186,006 $2,141,376 365,813 365,721 $4,231,193 Delaware Tax-Free USA Intermediate Fund 29,508 29,497 338,751 16,264 16,264 185,879 Delaware National High-Yield Municipal Bond Fund 128,445 128,739 1,317,238 38,897 38,974 397,935
50 6. Fund Merger Effective July 17, 2006, Delaware Tax-Free USA Fund (the "Acquiring Fund") acquired all of the assets and assumed all of the liabilities of Delaware Tax-Free Oregon Insured Fund, Delaware Tax-Free Missouri Insured Fund and Delaware Tax-Free USA Insured Fund (each an "Acquired Fund"), each an open-end investment company, in exchange for shares of the Acquiring Fund pursuant to Plans and Agreements of Reorganization (the "Reorganizations"). The shareholders of each Acquired Fund received shares of the respective class of the Acquiring Fund equal to the aggregate net asset value of their shares in the Acquired Fund prior to the Reorganizations. The Reorganizations were treated as non-taxable events and, accordingly, Delaware Tax-Free USA Fund's basis in the securities acquired reflected the historical cost basis as of the date of transfer. The net assets, net unrealized appreciation and accumulated net realized gain (loss) of Delaware Tax Tax-Free Oregon Insured Fund, Delaware Tax-Free Missouri Insured Fund and Delaware Tax-Free USA Insured Fund as of the close of business on July 14, 2006, were as follows: Net Unrealized Accumulated Net Net Assets Appreciation Realized Gain/Loss ____________ _________________ ___________________ Delaware Tax-Free Oregon Insured Fund $36,682,602 $1,088,561 $(62,898)* Delaware Tax-Free Missouri Insured Fund 44,904,356 1,111,591 4,815 Delaware Tax-Free USA Insured Fund 53,626,100 1,848,746 - *Includes prior year capital loss carryforwards
The net assets of Delaware Tax-Free USA Fund prior to the Reorganizations were $568,508,906. The combined net assets of Delaware Tax-Free USA Fund after the merger were $703,721,964. 7. Line of Credit Each Fund, along with certain other funds in the Delaware Investments(R) Family of Funds (the "Participants"), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Funds had no amounts outstanding as of August 31, 2006 or at any time during the year then ended. 8. Credit and Market Risk The Funds concentrate their investments in securities issued by municipalities. The value of these investments may be adversely affected by new legislation within the states, regional or local economic conditions, and differing levels of supply and demand for municipal bonds. Many municipalities insure repayment for their obligations. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that market value may fluctuate for other reasons and there is no assurance that the insurance company will meet its obligations. These securities have been identified in the Statements of Net Assets. Delaware National High-Yield Municipal Bond Fund invests a portion of its assets in high yield fixed income securities, which carry ratings of BB or lower by Standard & Poor's Ratings Group and/or Ba or lower by Moody's Investors Service, Inc. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities. The Funds may invest in inverse floating rate securities ("inverse floaters"), a type of derivative tax-exempt obligation with floating or variable interest rates that move in the opposite direction of short-term interest rates, usually at an accelerated speed. Consequently, the market values of inverse floaters will generally be more volatile than other tax-exempt investments. Such securities are identified on the Statements of Net Assets. The Fund may invest in advanced refunded bonds, escrow secured bonds or defeased bonds. Under current federal tax laws and regulations, state and local government borrowers are permitted to refinance outstanding bonds by issuing new bonds. The issuer refinances the outstanding debt to either reduce interest costs or to remove or alter restrictive covenants imposed by the bonds being refinanced. A refunding transaction where the municipal securities are being refunded within 90 days from the issuance of the refunding issue is known as a "current refunding". "Advance refunded bonds" are bonds in which the refunded bond issue remains outstanding for more than 90 days following the issuance of the refunding issue. In an advance refunding, the issuer will use the proceeds of a new bond issue to purchase high grade interest bearing debt securities which are then deposited in an irrevocable escrow account held by an escrow agent to secure all future payments of principal and interest and bond premium of the advance refunded bond. Bonds are "escrowed to maturity" when the proceeds of the refunding issue are deposited in an escrow account for investment sufficient to pay all of the principal and interest on the original interest payment and maturity dates. (continues) 51 Notes to financial statements Delaware National Tax-Free Funds 8. Credit and Market Risk (continued) Bonds are considered "pre-refunded" when the refunding issue's proceeds are escrowed only until a permitted call date or dates on the refunded issue with the refunded issue being redeemed at the time, including any required premium. Bonds become "defeased" when the rights and interests of the bondholders and of their lien on the pledged revenues or other security under the terms of the bond contract and are substituted with an alternative source of revenues (the escrow securities) sufficient to meet payments of principal and interest to maturity or to the first call dates. Escrowed secured bonds will often receive a rating of AAA from Moody's, S&P, and/or Fitch Ratings due to the strong credit quality of the escrow securities and the irrevocable nature of the escrow deposit agreement. Each Fund may invest a portion of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended and other securities which may not be readily marketable. The relative illiquidity of these securities may impair each Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund's Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund's limitation on investments in illiquid assets. At August 31, 2006, there were no Rule 144A securities. Illiquid securities have been identified on the Statements of Net Assets. 9. Contractual Obligations The Funds enter into contracts in the normal course of business that contain a variety of indemnifications. The Funds' maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts. Management has reviewed each Fund's existing contracts and expects the risk of loss to be remote. 10. Tax Information (Unaudited) The information set forth below is for each Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended August 31, 2006, each Fund designates distributions paid during the year as follows: (A) (B) Long Term Ordinary (C) Capital Gains Income Tax-Exempt Total Distributions Distributions Distributions Distributions (Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis) _____________ _____________ _____________ _____________ Delaware Tax-Free USA Fund - - 100% 100% Delaware Tax-Free USA intermediate Fund - 1% 99% 100% Delaware National High-Yield Municipal Bond Fund - - 100% 100% (A), (B) and (C) are based on a percentage of each Fund's total distributions.
52 Report of independent registered public accounting firm To the Shareholders and Board of Trustees Delaware Group Tax-Free Fund Voyageur Mutual Funds - Delaware National High-Yield Municipal Bond Fund We have audited the accompanying statements of net assets of Delaware Group Tax-Free Fund (comprised of Delaware Tax-Free USA Fund and Delaware Tax-Free USA Intermediate Fund) and Delaware National High-Yield Municipal Bond Fund (one of the series constituting Voyageur Mutual Funds) (the "Funds") as of August 31, 2006, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective series constituting the Delaware Group Tax-Free Fund and the Delaware National High-Yield Municipal Bond Fund of Voyageur Mutual Funds at August 31, 2006, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Philadelphia, Pennsylvania October 11, 2006 53 Other Fund information Delaware National Tax-Free Funds Proxy Results The shareholders of Delaware Group Tax-Free Fund (a "Trust") voted on the following proposals (as applicable) at the special meeting of shareholders on June 26, 2006 or as adjourned. The description of each proposal and number of shares voted are as follows: To approve a Plan of Reorganization by Delaware Group Tax-Free Fund, on behalf of Delaware Tax-Free Insured Fund and Delaware Tax-Free USA Fund, which provides for; (1) the acquisition by Delaware Tax-Free USA Fund (the "Acquiring Fund") of substantially all of the assets of Delaware Tax-Free Insured Fund (the "Acquired Fund"), in exchange for shares of the Acquiring Fund; (ii) the pro rata distribution of shares of the Acquiring Fund to the shareholders of such Acquired Fund; and (iii) the liquidation an dissolution of the Acquired Fund. For Against Abstain ___ _______ _______ Delaware Group Tax-Free Insured Fund $2,504,912.712 $97,017.190 $137,681.694
Board Consideration of Delaware Tax-Free USA Fund, Delaware Tax-Free USA Intermediate, and Delaware National High-Yield Municipal Bond Fund Agreements At a meeting held on May 17-18, 2006 (the "Annual Meeting"), the Board of Trustees, including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreements for the Delaware Tax-Free USA Fund, Delaware Tax-Free USA Intermediate Fund and Delaware National High-Yield Municipal Bond Fund (each a "Fund" and collectively the "Funds"). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the Annual Meeting. Information furnished and discussed throughout the year included reports detailing Fund performance, investment strategies, expenses, compliance matters and other services provided by Delaware Management Company ("DMC"), the investment advisor. Information furnished specifically in connection with the Annual Meeting included materials provided by DMC and its affiliates ("Delaware Investments") concerning, among other things, the level of services provided to the Funds, the costs of such services to the Funds, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, the Board considered independent historical and comparative reports prepared by Lipper Inc. ("Lipper"), an independent statistical compilation organization. The Board also considered industry comparative information presented by representatives from Lipper. The Lipper reports compared each Fund's investment performance and expenses with those of other comparable mutual funds. The Board also received certain supplemental information regarding management's policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC's ability to fully invest in accordance with Fund policies. In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel and representatives from Lipper. At the meeting with representatives from Lipper, Mr. Driscoll, then Chairman of the Delaware Investments(R) Family of Funds, and Chairman and Chief Executive Officer of the investment advisor, was present to respond to questions by Lipper and the independent Trustees. While the Board considered the Investment Advisory Agreements for all of the funds in the Delaware Investments Family of Funds at the same Board meeting, information was provided and considered by the Board for each fund individually. In approving the continuance of the Investment Advisory Agreement for each Fund, the Board, including a majority of independent Trustees, determined that the existing advisory fee structure was fair and reasonable and that the continuance of the Investment Advisory Agreement was in the best interests of the Fund and its shareholders. While attention was given to all information furnished, the following discusses the primary factors relevant to the Board's deliberations and determination, including those relating to the selection of the investment advisor and the approval of the advisory fee. Nature, Extent and Quality of Service. Consideration was given to the services provided by Delaware Investments to the Funds and their shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Funds, compliance of portfolio managers with the investment policies, strategies and restrictions for the Funds, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex, the adherence to fair value pricing procedures as established by the Board and the accuracy of net asset value calculations. The Board noted that it was pleased with the current staffing of the Funds' investment advisor and management's efforts to strengthen and deepen portfolio management teams during the past year, the emphasis on research and the compensation system for advisory personnel. Favorable consideration was given to DMC's efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. Other factors taken into account by the Board were Delaware Investments' preparedness for, and response to, legal and regulatory matters. The Board also considered the transfer agent and shareholder services provided to Fund shareholders by Delaware Investments' affiliate, Delaware Service Company, Inc. ("DSC"), noting DSC's commitment to maintain a high level of service in keeping with its past receipt of the DALBAR Pyramid Award, and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. Additionally, the Board noted the extent of benefits provided to Fund shareholders for being part of the Delaware Investments Family of Funds, including the privilege to exchange investments between the same class of shares of funds without a sales charge, the ability to reinvest Fund dividends into other funds and the privilege to combine holdings in other funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments. 54 Other Fund information Delaware National Tax-Free Funds Board Consideration of Delaware Tax-Free USA Fund, Delaware Tax-Free USA Intermediate, and Delaware National High-Yield Municipal Bond Fund Agreements (continued) Investment Performance. The Board considered the investment performance of DMC and the Funds. The Board was pleased with DMC's investment performance. The Board placed significant emphasis on the investment performance of the Funds in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for each Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the "Performance Universe"). A fund with the best performance is ranked first, and a fund with the poorest performance is ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% - the second quartile; the next 25% - the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Funds was shown for the past one, three, five and 10 year periods, as applicable, ended January 31, 2006. The Board noted its objective that each Fund's performance for the periods considered be at or above the median of its Performance Universe. The following paragraphs summarize the performance results for each Fund and the Board's view of such performance. Delaware Tax-Free USA Fund - The Performance Universe for the Fund consisted of the Fund and all retail and institutional general municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one and 10 year periods was in the second quartile of such Performance Universe. The report further showed that the Fund's total return for the three and five year periods was in the first quartile. The Board was satisfied with such performance. Delaware Tax-Free USA Intermediate Fund - The Performance Universe for the Fund consisted of the Fund and all retail and institutional intermediate municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one, three, five and 10 year periods was in the first quartile of such Performance Universe. The Board was satisfied with such performance. Delaware National High-Yield Municipal Bond Fund - The Performance Universe for the Fund consisted of the Fund and all retail and institutional high yield municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one year period was in the third quartile of such Performance Universe. The report further showed that the Fund's total return for three and five year periods was in the second quartile and the Fund's total return for the 10 year period was in the first quartile. The Board noted that the Fund's performance results were mixed but on an overall basis tended toward above median, which was acceptable. Comparative Expenses. The Board considered expense data for the Delaware Investments(R) Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Funds. The Board focused particularly on the comparative analysis of the management fees and total expense ratios of each Fund and the management fees and expense ratios of a group of similar funds as selected by Lipper (the "Expense Group"). In reviewing comparative costs, each Fund's contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into effect any applicable breakpoints and fee waivers. Each Fund's total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and compared total expenses including 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit each Fund's total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for each Fund and the Board's view of such expenses. Delaware Tax-Free USA Fund - The expense comparisons for the Fund showed that its actual management fee was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the second highest expenses of its Expense Group. The Board gave favorable consideration to the Fund's management fee, but noted that the Fund's total expenses were not in line with the Board's stated objective. In evaluating the total expenses, the Board considered fee waivers in place through December 2006 and recent initiatives implemented by management, such as the outsourcing of certain transfer agency services, creating an opportunity for a reduction in expenses. The Board was satisfied with management's efforts to improve the Fund's total expense ratio and bring it in line with the Board's objective. Delaware Tax-Free USA Intermediate Fund - The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. Delaware National High-Yield Municipal Bond Fund - The expense comparisons for the Fund showed that its actual management fee was in the quartile with the lowest expenses of its Expense Group and its total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. Management Profitability. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Funds. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments' business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments' expenditures to improve services provided to fund shareholders and to meet additional regulatory and 55 Other Fund information Delaware National Tax-Free Funds compliance requirements resulting from recent SEC initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds, the benefits from allocation of fund brokerage to improve trading efficiencies and the use of "soft" commission dollars to pay for proprietary and non-proprietary research. The Board did not find that the level of profits realized by Delaware Investments from the relationships with the Funds and the Delaware Investments Family of Funds required negotiation of reduction of fees. Economies of Scale. The Trustees considered whether economies of scale are realized by Delaware Investments as each Fund's assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure approved by the Board and shareholders as part of a complex-wide shareholder meeting conducted in 1998/1999. At that time, Delaware Investments introduced breakpoints to account for management economies of scale. The Board noted that the fee under each Fund's management contract fell within the standard structure. With respect to the Delaware Tax-Free USA Intermediate Fund and Delaware National High-Yield Municipal Bond Fund, although the Funds have not reached a size at which they can take advantage of breakpoints, the Board recognized that the fees were structured so that when the Funds grow, economies of scale may be shared. With respect to the Delaware Tax-Free USA Fund, the Board also noted that the Fund's assets exceeded the first breakpoint level. The Board believed that, given the extent to which economics of scale might be realized by the advisor and its affiliates, the schedule of fees under the Investment Advisory Agreement provides a sharing of benefits with the Fund and its shareholders. 56 Board of trustees/directors and officers addendum Delaware Investments(R) Family of Funds A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information. Number of Portfolios in Fund Other Name, Complex Overseen Directorships Address, Position(s) Length of Principal Occupation(s) by Trustee Held by and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer ____________________________________________________________________________________________________________________________________ Interested Trustees ____________________________________________________________________________________________________________________________________ Patrick P. Coyne (1) Chairman, Chairman and Trustee Patrick P. Coyne has served in 83 None 2005 Market Street President, since August 16, 2006 various executive capacities Philadelphia, PA Chief Executive at different times at 19103 Officer, and President and Delaware Investments.(2) Trustee Chief Executive Officer April 14, 1963 since August 1, 2006 ____________________________________________________________________________________________________________________________________ Independent Trustees ____________________________________________________________________________________________________________________________________ Thomas L. Bennett Trustee Since Private Investor - 83 None 2005 Market Street March 2005 (March 2004-Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 4, 1947 (January 1984-March 2004) ____________________________________________________________________________________________________________________________________ John A. Fry Trustee Since President - 83 Director - 2005 Market Street January 2001 Franklin & Marshall College Community Health Philadelphia, PA (June 2002-Present) Systems 19103 Executive Vice President - Director - May 28, 1960 University of Pennsylvania Allied Barton (April 1995-June 2002) Security Holdings ____________________________________________________________________________________________________________________________________ Anthony D. Knerr Trustee Since Founder and Managing Director - 83 None 2005 Market Street April 1990 Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990-Present) December 7, 1938 ____________________________________________________________________________________________________________________________________ Lucinda S. Landreth Trustee Since Chief Investment Officer - 83 None 2005 Market Street March 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002-2004) June 24, 1947 ____________________________________________________________________________________________________________________________________ Ann R. Leven Trustee Since Owner - 83 Director and 2005 Market Street September 1989 ARL Associates, Audit Committee Philadelphia, PA Strategic Financial Planning Chairperson - Andy 19103 Consulting Firm Warhol Foundation (1983-Present) November 1, 1940 Director and Audit Committee Member - Systemax, Inc. ____________________________________________________________________________________________________________________________________
(continues) 57 Number of Portfolios in Fund Other Name, Complex Overseen Directorships Address, Position(s) Length of Principal Occupation(s) by Trustee Held by and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer ____________________________________________________________________________________________________________________________________ Independent Trustees (continued) ____________________________________________________________________________________________________________________________________ Thomas F. Madison Trustee Since President and Chief 83 Director - 2005 Market Street May 1999 Executive Officer - Banner Health Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director - and Consulting) CenterPoint Energy February 25, 1936 (January 1993-Present) Director and Audit Committee Member - Digital River, Inc. Director and Audit Committee Member - Rimage Corporation Director - Valmont Industries, Inc. ____________________________________________________________________________________________________________________________________ Janet L. Yeomans Trustee Since Vice President 83 None 2005 Market Street April 1999 (January 2003-Present) Philadelphia, PA and Treasurer 19103 (January 2006-Present) 3M Corporation July 31, 1948 Ms. Yeomans has held various management positions at 3M Corporation since 1983. ____________________________________________________________________________________________________________________________________ J. Richard Zecher Trustee Since Founder - 83 Director and Audit 2005 Market Street March 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999-Present) Director and Audit July 3, 1940 Founder - Committee Member - Sutton Asset Management Oxigene, Inc. (Hedge Fund) (September 1998-Present) ____________________________________________________________________________________________________________________________________ Officers ____________________________________________________________________________________________________________________________________ Michael P. Bishof Senior Chief Financial Michael P. Bishof has served in 83 None (3) 2005 Market Street Vice President Officer since various executive capacities Philadelphia, PA and February 2005 at different times at 19103 Chief Financial Delaware Investments. Officer August 18, 1962 ____________________________________________________________________________________________________________________________________ David F. Connor Vice President, Vice President since David F. Connor has served as 83 None (3) 2005 Market Street Deputy General September 21, 2000 Vice President and Deputy Philadelphia, PA Counsel, and Secretary and Secretary General Counsel of 19103 since Delaware Investments October 2005 since 2000. December 2, 1963 ____________________________________________________________________________________________________________________________________ David P. O'Connor Senior Vice Senior Vice President, David P. O'Connor has served in 83 None (3) 2005 Market Street President, General Counsel, and various executive and legal Philadelphia, PA General Counsel, Chief Legal Officer capacities at different times 19103 and Chief since at Delaware Investments. Legal Officer October 2005 February 21, 1966 ____________________________________________________________________________________________________________________________________ John J. O'Connor Senior Vice President Treasurer John J. O'Connor has served in 83 None (3) 2005 Market Street and Treasurer since various executive capacities Philadelphia, PA February 2005 at different times at 19103 Delaware Investments. June 16, 1957 ____________________________________________________________________________________________________________________________________ (1) Patrick P. Coyne is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') investment advisor. (2) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's(s') investment advisor, principal underwriter, and its transfer agent. (3) Michael P. Bishof, David F. Connor, David P. O'Connor, and John J. O'Connor serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. John J. O'Connor also serves in a similar capacity for Lincoln Variable Insurance Products Trust, which has the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918. 58 About the organization This annual report is for the information of Delaware Tax-Free USA Fund, Delaware Tax-Free USA Intermediate Fund, and Delaware National High-Yield Municipal Bond Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Tax-Free USA Fund, Delaware Tax-Free USA Intermediate Fund, Delaware National High-Yield Municipal Bond Fund, and the Delaware Investments(R) Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Funds. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Board of trustees Patrick P. Coyne Chairman, President, and Chief Executive Officer Delaware Investments Family of Funds Philadelphia, PA Thomas L. Bennett Private Investor Rosemont, PA John A. Fry President Franklin & Marshall College Lancaster, PA Anthony D. Knerr Founder and Managing Director Anthony Knerr & Associates New York, NY Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. Philadelphia, PA Ann R. Leven Owner - ARL Associates, Strategic Financial Planning Consulting Firm Washington, DC Thomas F. Madison President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN Janet L. Yeomans Vice President and Treasurer 3M Corporation St. Paul, MN J. Richard Zecher Founder Investor Analytics Scottsdale, AZ Affiliated officers Michael P. Bishof Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA David F. Connor Vice President, Deputy General Counsel, and Secretary Delaware Investments Family of Funds Philadelphia, PA David P. O'Connor Senior Vice President, General Counsel, and Chief Legal Officer Delaware Investments Family of Funds Philadelphia, PA John J. O'Connor Senior Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA Contact information Investment manager Delaware Management Company, a series of Delaware Management Business Trust Philadelphia, PA National distributor Delaware Distributors, L.P. Philadelphia, PA Shareholder servicing, dividend disbursing, and transfer agent Delaware Service Company, Inc. 2005 Market Street Philadelphia, PA 19103-7094 For shareholders 800 523-1918 For securities dealers and financial institutions representatives only 800 362-7500 Web site www.delawareinvestments.com Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries. Each Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. Each Fund's Forms N-Q, as well as a description of the policies and procedures that each Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; (ii) on each Fund's Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. Each Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330. Information (if any) regarding how each Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through each Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. 59 Get shareholder reports and prospectuses online instead of in the mail. > Visit www.delawareinvestments.com/edelivery Simplify your life. Manage your investments online! Get Account Access, the Delaware Investments(R) secure Web site that allows you to conduct your business online. Gain 24-hour access to your account and one of the highest levels of Web security available. You also get: o Hassle-free investing - Make online purchases and redemptions at any time. o Simplified tax processing - Automatically retrieve your Delaware Investments accounts' 1099 information and import it directly into your 1040 tax return. Available only with Turbo Tax(R) Online(SM) and Desktop software - www.turbotax.com. o Less mail clutter - Get instant access to your fund materials online with Delaware eDelivery. Register for Account Access today! Please visit us at www.delawareinvestments.com, select Individual Investors, and click Account Access. Please call our Shareholder Service Center at 800 523-1918 Monday through Friday from 8:00 a.m. to 7:00 p.m., Eastern Time, for assistance with any questions. [DELAWARE INVESTMENTS LOGO] (923) Printed in the USA AR-011 [8/06] CGI 10/06 MF-06-09-025 PO11258 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 $67,700 for the fiscal year ended August 31, 2006. ____________________ (1) The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on "other relevant experience." The Board of Trustees/Directors has determined that Mr. Bennett qualifies as an audit committee financial expert by virtue of his education, Chartered Financial Analyst designation, and his experience as a credit analyst, portfolio manager and the manager of other credit analysts and portfolio managers. The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation. The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $51,200 for the fiscal year ended August 31, 2005. (b) Audit-related fees. __________________ The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended August 31, 2006. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the financial statements of the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $28,300 for the registrant's fiscal year ended August 31, 2006. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of report concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act; and issuance of agreed upon procedures reports to the registrant's Board in connection with the pass-through of internal legal cost relating to the operations of the registrant. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended August 31, 2005. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the financial statements of the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $33,875 for the registrant's fiscal year ended August 31, 2005. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of report concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act; and issuance of agreed upon procedures reports to the registrant's Board in connection with the annual transfer agent and fund accounting service agent contract renewals and the pass-through of internal legal cost relating to the operations of the registrant. (c) Tax fees. ________ The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant were $12,400 for the fiscal year ended August 31, 2006. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2006. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant were $9,800 for the fiscal year ended August 31, 2005. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2005. (d) All other fees. ______________ The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended August 31, 2006. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant's independent auditors to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2006. The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended August 31, 2005. 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 $266,220 and $213,035 for the registrant's fiscal years ended August 31, 2006 and August 31, 2005, respectively. (h) In connection with its selection of the independent auditors, the registrant's Audit Committee has considered the independent auditors' provision of non-audit services to the registrant's investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors' provision of these services is compatible with maintaining the auditors' independence. Item 5. Audit Committee of Listed Registrants Not applicable. 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: Delaware Group Tax Free Fund PATRICK P. COYNE _________________________________ By: Patrick P. Coyne Title: Chief Executive Officer Date: November 6, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. PATRICK P. COYNE _________________________________ By: Patrick P. Coyne Title: Chief Executive Officer Date: November 6, 2006 RICHARD SALUS _________________________________ By: Richard Salus Title: Chief Financial Officer Date: November 6, 2006 EX-99.CERT 2 exhibit99-cert.txt CERTIFICATION EXHIBIT 99.CERT CERTIFICATION _____________ I, Patrick P. Coyne, certify that: 1. I have reviewed this report on Form N-CSR of Delaware Group Tax Free Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 6, 2006 PATRICK P. COYNE ______________________________ By: Patrick P. Coyne Title: Chief Executive Officer CERTIFICATION _____________ I, Richard Salus, certify that: 1. I have reviewed this report on Form N-CSR of Delaware Group Tax Free Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 6, 2006 RICHARD SALUS ______________________________ By: Richard Salus Title: Chief Financial Officer EX-99.906CERT 3 exhibit99_906-cert.txt CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 99.906CERT Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the attached report of the registrant on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the registrant does hereby certify, to the best of such officer's knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. Date: November 6, 2006 PATRCIK P. COYNE _________________________________ By: Patrick P. Coyne Title: Chief Executive Officer RICHARD SALUS _________________________________ By: Richard Salus Title: Chief Financial Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the SEC or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----