-----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, HkiN/lV7BxX+9PmhO4i7QYzJqNbLuzEfUGAM4K+xBdfqlBfO0kC4LPTaw2PdiNuX MWysSTDAS74sNVTpqkLd8g== 0000950116-04-003262.txt : 20041105 0000950116-04-003262.hdr.sgml : 20041105 20041105131534 ACCESSION NUMBER: 0000950116-04-003262 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040831 FILED AS OF DATE: 20041105 DATE AS OF CHANGE: 20041105 EFFECTIVENESS DATE: 20041105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOYAGEUR TAX FREE FUNDS CENTRAL INDEX KEY: 0000733362 IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-03910 FILM NUMBER: 041122036 BUSINESS ADDRESS: STREET 1: 90 SOUTH SEVENTH STREET STREET 2: SUITE 4400 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 2152552127 MAIL ADDRESS: STREET 1: 90 SOUTH SEVENTH STREET STREET 2: SUITE 4400 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR TAX FREE FUNDS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR MINNESOTA TAX FREE FUNDS INC DATE OF NAME CHANGE: 19910226 FORMER COMPANY: FORMER CONFORMED NAME: DOUBLE EXEMPT FLEX FUND INC DATE OF NAME CHANGE: 19900131 N-CSR 1 n-csr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-3910 Exact name of registrant as specified in charter: Voyageur Tax Free Funds Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: Richelle S. Maestro, 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, 2004 Item 1. Reports to Stockholders The Registrant's shareholder reports are combined with the shareholder reports of other investment company registrants. This Form N-CSR pertains to the Delaware Tax-Free Minnesota Fund of the Registrant, information on which is included in the following shareholder reports. Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) FIXED INCOME ANNUAL REPORT AUGUST 31, 2004 - -------------------------------------------------------------------------------- DELAWARE TAX-FREE MINNESOTA FUND [GRAPHIC OMITTED] POWERED BY RESEARCH.(SM) PORTFOLIO Delaware Minnesota Municipal Bond Funds MANAGEMENT REVIEW September 10, 2004 FUND MANAGERS Patrick P. Coyne Managing Director/Head of Equity Investments Joseph R. Baxter Senior Vice President/Senior Portfolio Manager Robert F. Collins Vice President/Senior Portfolio Manager Q: WHAT KIND OF ENVIRONMENT WAS IT FOR THE MUNICIPAL MARKETS DURING THE PAST 12 MONTHS? A: In all, the environment for municipal bonds was surprisingly favorable considering volatile market conditions and generally negative fixed-income investor sentiment at the start of the fiscal period. In September 2003, market data indicated a rapidly strengthening economy and accelerating corporate earnings. These results prompted investor fears of rising inflation and Federal Reserve interest rate hikes. Unemployment levels trended higher than expected, however, suggesting the growing economy was not yet operating at its full potential. This enabled the Fed to maintain short-term interest rates at historically low levels throughout the period. It was not until spring 2004, when a substantial increase in hiring activity became evident, that concern about rising rates returned. The expectation for interest rate hikes weighed on the bond markets, as did continued worries about terrorism, rising oil prices, and weakness in the U.S. dollar. The Fed eventually raised short-term rates twice during the period, first in late June and then again in August. During the final three months of the period, however, job growth trailed off unexpectedly, surprising investors who had expected faster economic growth. Against this backdrop, tax-free bonds, which had lost ground in the prior few months, made up some of their recent losses. For the 12-month period, yields on shorter-maturity bonds rose in line with expectations for higher short-term interest rates. By contrast, yields on longer-term bonds fell, while their prices rose accordingly (bond yields and prices move in opposite directions). The difference in yield between two-year and 30-year AAA-rated municipal bonds went from 3.6% to 2.9% during the 12 months, reflecting the better relative results of longer bonds. Strong performance from lower-rated bonds was a second evident trend for the fiscal year. As states' revenue collections have increased, their credit outlook has improved as well. Investors have become increasingly willing to invest in lower-rated investment-grade and non-rated securities to obtain a higher degree of income. For the first eight months of 2004, national municipal issuance was down about nine percent nationwide when compared to the same period in 2003 (Source: The Bond Buyer). This decline in new supply reflected the improved financial position of states and municipalities. Greater tax collections limited the need to rely on the debt markets for funds to support needed projects. Higher interest rates also made it relatively less attractive to refinance outstanding bonds. Q: WHAT ECONOMIC AND MUNICIPAL ENVIRONMENT DID YOU ENCOUNTER SPECIFICALLY IN MINNESOTA? A: In the first eight months of 2004, new supply of Minnesota tax-free bonds fell by 4% compared to the previous year --slightly below the 9% national decline (Source: The Bond Buyer). As in the rest of the country, the fall-off in issuance can partly be attributed to the state's improving economic fortunes. During the first nine months of Minnesota's 2004 fiscal year, the state saw a 3.6% year-over-year rise in its revenue collections. Also, the state's unemployment rate stood at just 4.4% as of July 2004, well below the national rate of 5.5% (Source: Fiscal Studies Program, June 2004). Minnesota's improved financial position led to a number of credit-quality upgrades in the state, further supporting the performance of its lower-rated bonds. Q: HOW DID THE FOUR FUNDS PERFORM DURING THEIR FISCAL YEAR, AND WHAT MANAGEMENT STRATEGIES DID YOU PURSUE FOR EACH? A: Delaware Tax-Free Minnesota Fund appreciated +7.72% (Class A shares at net asset value with distributions reinvested) for the fiscal year, outpacing both its peer group, as measured by the +6.42% return of the Lipper Minnesota Municipal Debt Funds Average, and its performance benchmark, the Lehman Brothers Municipal Bond Index, which returned +7.11% (Source: Lipper Inc.). The Fund's dividend payments during the past 12 months were exempt from federal and Minnesota state taxes.* In part, we attribute the Fund's outperformance to strong security selection. To choose investments for the portfolio, we use a bottom-up approach, meaning we evaluate securities one-by-one and select those we believe offer the best combination of reward potential and risk. We do not, by contrast, invest according to our expectations for how interest rates may behave and, consequently, influence municipal yields. *A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 1 For this bottom-up approach, we rely on the experience of our research staff to help us identify securities that exhibit stable or improving credit trends. Our confidence in the group allowed us to invest in selected lower-rated investment-grade bonds that, in our opinion, offered attractive value. Such an approach helped the Fund's results during an environment in which lower-rated bonds were among the market's best performers. Although trading activity in the portfolio was only moderate during the past 12 months, we established several significant new positions, especially in the healthcare sector. For example, we purchased healthcare bonds issued by the Benedictine Health System for the Duluth Economic Development Authority. Although our existing bonds from this issuer were due to be called in full, our trading staff was able to arrange a tender for these bonds and then sell our existing holdings and negotiate a favorable purchase arrangement for the new replacement securities. A second noteworthy purchase was of bonds issued by Park Nicollet Health Services which performed well for the Fund as did the healthcare sector. Another strategy we employed was to keep a portion of the Fund's assets in securities with very short maturities. We wished to keep liquid assets on hand to take advantage of suitably structured tax-free investment opportunities whenever they became available. We also increased our exposure to municipal bonds with lower- and mid-investment-grade credit ratings. Finally, we modestly reduced the Fund's interest-rate sensitivity by selling some of our longest-duration holdings, thereby moderating volatility. On the negative side, the Fund's allocation to Puerto Rico bonds detracted from results. During the past 12 months, Puerto Rico was one of the top-performing municipal markets in the United States. Maintaining an underweighted position in these securities hurt performance, especially during the summer of 2004 when Puerto Rico bonds did especially well. The total return of DELAWARE TAX-FREE MINNESOTA INSURED FUND was +7.20% (Class A shares at net asset value with distributions reinvested) for the fiscal year, surpassing the Lipper Minnesota Municipal Debt Funds Average, which returned +6.42%. The Fund also outperformed the +7.11% return of its benchmark Lehman Brothers Municipal Bond Index (Source: Lipper Inc.). The Fund's dividend payments during the past 12 months were exempt from federal and Minnesota state taxes.* The Fund's outperformance can partly be attributed to a commitment to the healthcare sector. Hospital bonds generally have been strong performers in recent years. Many issuers have improved their financial positions and strengthened their balance sheets, adding to investors' confidence in the sector. Among the healthcare bonds added to the portfolio which helped performance were those issued by Benedictine Health System for Duluth Economic Development Authority, Park Nicollet Health Services, and Fairview Health Services. Also adding to returns was an approximately 20 percent stake in bonds with credit ratings below AAA. This included a 10 percent position in A-rated investments that we believed offered solid credit quality and added to the Fund's income stream. In an environment in which lower-rated securities generally outperformed their higher-quality counterparts, taking advantage of our ability to invest a portion of the portfolio in non-insured bonds helped performance relative to other insured municipal bond funds. Our management strategy continued to focus on bottom-up security selection and finding securities that offered our shareholders an attractive income stream. In our opinion, focusing on bonds' income potential minimizes volatility and contributes greatly to total return. On the negative side, the Fund's allocation to Puerto Rico bonds detracted from results. During the past 12 months, Puerto Rico was one of the top-performing municipal markets in the United States. Maintaining an underweighted position in these securities hurt performance, especially during the summer of 2004 when Puerto Rico bonds did especially well. DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND gained +6.73% (Class A shares at net asset value with distributions reinvested) for the 12 months ended August 31, 2004. This result bettered that of the Fund's peer group, the Lipper Other States Intermediate Municipal Debt Funds Average, which returned +4.81%, as well as its benchmark, the Lehman Brothers Five-Year Municipal Bond Index, which returned +4.49% (Source: Lipper Inc.). The Fund's dividend payments during the past 12 months were exempt from federal and Minnesota state taxes.* *A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 2 We attributed the Fund's significant outperformance to several factors. First, we continued to choose investments based on our assessment of their income potential. Our focus on bonds' income stream -- as opposed to using a "top-down" approach, choosing investments based on expectations for future moves in interest rates -- helped the Fund during a time of tremendous volatility in the municipal bond market. Second, the Fund's duration declined modestly during the period, benefiting performance when rates rose. Duration is a common measure of a bond's or bond fund's sensitivity to interest rate changes. Third, we added to the portfolio's exposure to tax-free bonds with lower- and mid-investment-grade credit ratings, many of which performed well as municipal investors became less risk averse during the 12-month period. Finally, we also maintained positions in very short-term securities to have liquid assets on hand to take advantage of opportunities as they became available. Some opportunities identified were in the healthcare sector, one of the market's strongest-performing areas during the past 12 months. New bonds added included those issued by Benedictine Health System for the Duluth Economic Development Authority and by Park Nicollet Health Services. We also modestly increased our stake in selected Puerto Rico bonds, as bonds issued by U.S. territories generally are tax-exempt in all 50 states. On the negative side, the Fund's allocation to Puerto Rico bonds detracted from results. During the past 12 months, Puerto Rico was one of the top-performing municipal markets in the United States. Maintaining an underweighted position in these securities hurt performance, especially during the summer of 2004 when Puerto Rico bonds did especially well. Finally, we looked to reduce the Fund's longest-duration positions as a means to moderate performance volatility caused by rising interest rates. For the 12 months ended August 31, 2004, DELAWARE MINNESOTA HIGH-YIELD MUNICIPAL BOND FUND gained +8.65% (Class A shares at net asset value with distributions reinvested), thereby outperforming the +6.42% return of its peer group, the Lipper Minnesota Municipal Debt Funds Average, and the +7.11% return of its benchmark, the Lehman Brothers Municipal Bond Index (Source: Lipper Inc.). The Fund's dividend payments during the past 12 months were exempt from federal and Minnesota state taxes.* In part, the Fund's outperformance can be attributed to our focus on bonds with strong income streams. As always, we continued to select bonds on a bottom-up basis, meaning we conducted thorough research and bought those investments we believed offered the best ratio of reward potential to risk. Our focus on yield led us to establish large positions in sectors such as multi-family housing, continuing care retirement communities, and hospitals. All three tend to generate large amounts of income, helping to offset volatility from interest rate swings. Our emphasis on income generation reduced performance volatility as interest rates fluctuated. The Fund also benefited from the especially strong performance environment for lower-rated bonds. As the economy has improved, state and local municipal issuers have become financially stronger -- enabling investors to invest more confidently in issuers with weaker credit ratings. As high-yield bonds have gained in value, however, their yields have fallen, making it more difficult to identify attractive new investment opportunities. At those times, we occasionally found ourselves unable to identify suitable lower- and non-rated bonds with desirable structural characteristics, limiting total return potential during the period. Accordingly, we held on to those securities that continued to meet our investment criteria. We also periodically bought higher-rated bonds while awaiting future opportunities that we believed would be in our shareholders' best interests. *A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. High-yielding, non-investment-grade bonds ("junk bonds") involve higher risk than investment-grade bonds. Adverse conditions may affect the issuer's ability to pay interest and principal on these securities. 3 DELAWARE TAX-FREE MINNESOTA FUND The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware Tax-Free Minnesota Fund prospectus contains this and other important information about the investment company. Please request a prospectus by calling 800 523-1918. Read it carefully before you invest or send money. Performance includes reinvestment of all distributions. FUND PERFORMANCE Average Annual Total Returns Through August 31, 2004 Lifetime 10 Years Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 2/29/84) Excluding Sales Charge +7.75% +5.94% +6.07% +7.72% Including Sales Charge +7.51% +5.46% +5.10% +2.85% - -------------------------------------------------------------------------------- Class B (Est. 3/11/95) Excluding Sales Charge +5.38% +5.27% +6.91% Including Sales Charge +5.38% +5.03% +2.91% - -------------------------------------------------------------------------------- Class C (Est. 5/4/94) Excluding Sales Charge +5.16% +5.17% +5.29% +6.90% Including Sales Charge +5.16% +5.17% +5.29% +5.90% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. 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. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of up to 0.25%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1%. Lifetime performance figures for Class B shares reflect conversion to Class A shares after approximately eight years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Tax-Free Minnesota Fund through August 31, 2004. Performance would have been lower had the expense limitation not been in effect. The performance table does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 4 DELAWARE TAX-FREE MINNESOTA FUND FUND BASICS As of August 31, 2004 - -------------------------------------------------------------------------------- FUND OBJECTIVE: The Fund seeks as high a level of current income exempt from federal income tax and from Minnesota state personal income tax as is consistent with preservation of capital. - -------------------------------------------------------------------------------- TOTAL FUND NET ASSETS: $373.40 million - -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: 133 - -------------------------------------------------------------------------------- FUND START DATE: February 29, 1984 - -------------------------------------------------------------------------------- YOUR FUND MANAGERS: Patrick P. Coyne is a graduate of Harvard University with an MBA from the University of Pennsylvania's Wharton School. Patrick Coyne joined Delaware Investments' fixed-income department in 1990. Prior to joining Delaware Investments, he was a manager of Kidder, Peabody & Co. Inc.'s trading desk, and specialized in trading high-grade municipal bonds and municipal futures contracts. Joseph R. Baxter is a graduate of LaSalle University where he earned his undergraduate degree in finance and marketing. Prior to joining Delaware Investments in 1999, he held investment positions with First Union. Most recently, he served as a municipal portfolio manager for the Evergreen Funds. Robert F. Collins is a graduate of Ursinus College where he earned his Bachelor of Arts degree in Economics. Prior to joining Delaware Investments in 2004, he co-managed the municipal portfolio management group within PNC Advisors, overseeing the tax-exempt investments of high-net worth and institutional accounts. Previously, Mr. Collins headed the municipal fixed income team at Wilmington Trust Company, managing funds and high-net worth accounts. Mr. Collins is a CFA charterholder and a former president of the Financial Analysts of Wilmington. - -------------------------------------------------------------------------------- NASDAQ SYMBOLS: Class A DEFFX Class B DMOBX Class C DMOCX - -------------------------------------------------------------------------------- PERFORMANCE OF A $10,000 INVESTMENT August 31, 1994 through August 31, 2004 [graphic omitted] DELAWARE TAX-FREE MINNESOTA FUND GROWTH OF $10,000 INVESTMENT CHART DELAWARE TAX-FREE LEHMAN BROTHERS MINNESOTA FUND MUNICIPAL BOND INDEX 8/31/1994 $ 9,550 $10,000 8/31/1995 $10,217 $10,886 8/31/1996 $10,778 $11,457 8/31/1997 $11,773 $12,516 8/31/1998 $12,805 $13,598 8/31/1999 $12,667 $13,673 8/31/2000 $13,224 $14,593 8/31/2001 $14,417 $16,083 8/31/2002 $15,217 $17,078 8/31/2003 $15,793 $17,614 8/31/2004 $17,012 $18,866 Chart assumes $10,000 invested on August 31, 1994 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. An expense limitation was in effect for the period shown. Performance would have been lower had the expense limitation not been in effect. The performance graph does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. 5 DISCLOSURE For the period March 1, 2004 to August 31, 2004 OF FUND EXPENSES As a shareholder of a fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other fund expenses. This Example is 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 Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2004 to August 31, 2004. ACTUAL EXPENSES The first section of the table 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 table shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on a Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund's actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the table below 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 184/366 (to reflect the one-half year period). DELAWARE TAX-FREE MINNESOTA FUND EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Beginning Ending Annualized Expenses Account Account Expense Paid During Value Value Ratio Period 3/1/04 8/31/04 3/1/04 to 8/31/04 - ----------------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN Class A $1,000.00 $1,006.20 0.91% $4.59 Class B 1,000.00 1,002.40 1.66% 8.36 Class C 1,000.00 1,002.40 1.66% 8.36 - ----------------------------------------------------------------------------------------------------------- HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,020.37 0.91% $4.63 Class B 1,000.00 1,016.55 1.66% 8.45 Class C 1,000.00 1,016.55 1.66% 8.45 - -----------------------------------------------------------------------------------------------------------
6 SECTOR ALLOCATION As of August 31, 2004 DELAWARE TAX-FREE MINNESOTA FUND The SEC adopted a requirement that all Funds present their categories of portfolio holdings in a table, chart or graph format in their annual and semiannual shareholder reports, whether or not a schedule of investments is utilized. The following chart, which presents portfolio holdings as a percent of total net assets, and is provided in compliance with such requirement. PERCENTAGE SECTOR OF NET ASSETS - ------------------------------------------------------------------------- MUNICIPAL BONDS 91.76% - ------------------------------------------------------------------------- Airport Revenue Bonds 4.15% City General Obligation Bonds 0.94% Continuing Care/Retirement Revenue Bonds 2.34% Corporate-Backed Revenue Bonds 4.61% Dedicated Tax & Fees Revenue Bonds 1.33% Escrowed to Maturity Bonds 0.35% Higher Education Revenue Bonds 4.73% Hospital Revenue Bonds 19.17% Miscellaneous Revenue Bonds 1.73% Multi Family Housing Revenue Bonds 11.26% Municipal Lease Revenue Bonds 2.28% Political Subdivision General Obligation Bonds 2.00% Pre-Refunded Bonds 7.41% Public Power Revenue Bonds 11.39% School District General Obligation Bonds 6.26% Single Family Housing Revenue Bonds 1.31% State General Obligation Bonds 3.01% Tax Increment/Special Assessment Bonds 2.63% Territorial General Obligation Bonds 0.47% Territorial Revenue Bonds 2.25% Water & Sewer Revenue Bonds 2.14% - ------------------------------------------------------------------------- SHORT-TERM INVESTMENTS 7.21% - ------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 98.97% - ------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.03% - ------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% - ------------------------------------------------------------------------- 7 STATEMENTS DELAWARE TAX-FREE MINNESOTA FUND OF NET ASSETS August 31, 2004 Principal Market Amount Value MUNICIPAL BONDS - 91.76% Airport Revenue Bonds - 4.15% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/22 (AMBAC) $ 3,440,000 $ 3,563,324 5.25% 1/1/16 (MBIA) 1,460,000 1,610,468 5.25% 1/1/32 (FGIC) 5,000,000 5,191,800 Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series C 5.25% 1/1/32 (FGIC) 2,250,000 2,336,310 5.50% 1/1/17 (FGIC) 2,500,000 2,786,200 ----------- 15,488,102 ----------- City General Obligation Bonds - 0.94% Minneapolis Library 5.00% 12/1/25 1,500,000 1,560,030 St. Peter's Hospital Series A 5.00% 9/1/24 (MBIA) 1,905,000 1,953,197 ----------- 3,513,227 ----------- Continuing Care/Retirement Revenue Bonds - 2.34% Bloomington Housing & Redevelopment Authority Housing Revenue (Senior Summerhouse Bloomington Project, Presbyterian Homes Housing & Assisted Living, Inc.) 6.125% 5/1/35 3,420,000 3,420,752 Minnesota Agriculture & Economic Development Board Revenue (Benedictine Health Systems) 5.75% 2/1/29 1,895,000 1,849,975 Rochester Multifamily Revenue (Wedum Shorewood Campus Project) 6.60% 6/1/36 3,490,000 3,461,103 ----------- 8,731,830 ----------- Corporate-Backed Revenue Bonds - 4.61% Cloquet Pollution Control Revenue (Potlatch Corp. Project) 5.90% 10/1/26 6,500,000 6,490,835 International Falls Pollution Control Revenue (Boise Cascade Corp. Project) 6.85% 12/1/29 (AMT) 500,000 508,625 Sartell Environmental Improvement Revenue (International Paper) Series A 5.20% 6/1/27 5,465,000 5,322,364 Seaway Port Authority of Duluth Industrial Development Dock & Wharf Revenues (Cargill, Inc. Project) Series E 6.125% 11/1/14 4,500,000 4,875,570 ----------- 17,197,394 ----------- Dedicated Tax & Fees Revenue Bonds - 1.33% #Minneapolis Community Development Agency Tax Increment Revenue 6.67% 9/1/09 (MBIA) 5,750,000 4,948,968 ----------- 4,948,968 ----------- Escrowed to Maturity Bonds - 0.35% Southern Minnesota Municipal Power Agency Supply System Revenue Series B 5.50% 1/1/15 (AMBAC) 990,000 1,018,067 Western Minnesota Municipal Power Agency Supply Revenue Series A 9.75% 1/1/16 (MBIA) 185,000 282,848 ----------- 1,300,915 ----------- Principal Market Amount Value MUNICIPAL BONDS (continued) Higher Education Revenue Bonds - 4.73% Minnesota State Higher Education Facilities Authority Revenue (College of St. Benedict) Series 4-G 6.20% 3/1/16 $1,000,000 $ 1,026,450 (Hamline University) Series 4-I 6.00% 10/1/12 1,250,000 1,315,700 (Hamline University) Series 4-I 6.00% 10/1/16 1,790,000 1,861,904 (St. Catherine College) Series 5-N1 5.25% 10/1/22 1,500,000 1,555,395 (University of Minnesota) Series A 5.50% 7/1/21 2,000,000 2,318,000 +University of Minnesota, Inverse Floater ROLs Series II-R-29 9.544% 7/1/21 5,250,000 6,919,500 10.052% 7/1/18 1,920,000 2,657,818 ---------- 17,654,767 ---------- Hospital Revenue Bonds - 19.17% Bemidji Hospital Facilities Revenue (North County Health Services) 5.00% 9/1/24 (RADIAN) 740,000 760,121 6.05% 9/1/16 600,000 612,738 6.05% 9/1/24 1,825,000 1,852,156 Duluth Economic Development Authority Health Care Facilities Revenue Benedictine Health System (St. Mary's Hospital) 5.25% 2/15/33 13,500,000 13,450,184 Maplewood Healthcare Facility Revenue (Health East Project) 5.95% 11/15/06 2,200,000 2,201,870 Marshall Medical Center Gross Revenue (Weiner Memorial Medical Center Project) 6.00% 11/1/28 1,000,000 1,004,960 Minneapolis Health Care System Revenue Series A (Allina Health System) 5.75% 11/15/32 9,500,000 9,892,825 (Fairview Health Services) 5.625% 5/15/32 11,025,000 11,481,765 Minnesota Agricultural & Economic Development Board Revenue (Fairview Hospital) Series A 6.375% 11/15/29 500,000 541,175 Rochester Health Care Facilities Revenue (Mayo Foundation) Series B 5.50% 11/15/27 700,000 741,230 +Rochester Health Care Facilities Revenue (Mayo Foundation), Inverse Floater ROLs Series II-R-28-A 9.544% 11/15/27 2,100,000 2,347,380 Series II-R-28-B 9.544% 11/15/27 8,375,000 9,361,575 St. Louis Park Health Care Facilities Revenue (Park Nicollet Health Services) Series B 5.25% 7/1/30 9,420,000 9,520,229 St. Paul Housing & Redevelopment Authority Hospital Revenue (Health East Project) Series A 5.70% 11/1/15 1,300,000 1,304,667 6.625% 11/1/17 5,540,000 5,602,547 8 STATEMENTS DELAWARE TAX-FREE MINNESOTA FUND OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) Hospital Revenue Bonds (continued) Washington County Housing & Redevelopment Authority Hospital Facilities Revenue (Health East Project) 5.50% 11/15/27 $ 1,000,000 $ 924,300 ----------- 71,599,722 ----------- Miscellaneous Revenue Bonds - 1.73% Minneapolis Community Development Agency Supported Development Revenue Limited Tax (Common Bond Fund) Series 2A 7.125% 12/1/05 230,000 232,935 Minnesota Public Facilities Authority Water Pollution Control Revenue Series A 5.00% 3/1/20 3,000,000 3,179,460 St. Cloud Commercial Development Revenue (Northwest Center Association Project) 7.50% 8/1/12 3,093,971 3,053,718 ----------- 6,466,113 ----------- Multi Family Housing Revenue Bonds - 11.26% Austin Housing & Redevelopment Authority Housing Gross Revenue (Courtyard Residence Project) Series A 7.25% 1/1/26 500,000 518,090 Brooklyn Center Multifamily Housing Revenue (Ponds Family Housing Project-Section 8) 5.90% 1/1/20 1,250,000 1,260,150 (Shingle Creek) 5.40% 5/20/43 (AMT) 1,000,000 1,022,620 Carver County Housing & Redevelopment Authority Multifamily Revenue (Lake Grace Apartments Project) Series A 6.00% 7/1/28 1,435,000 1,452,536 Dakota County Housing & Redevelopment Authority Multifamily Housing Revenue (Affordable Housing View Pointe Project) 6.125% 11/1/17 2,475,000 2,293,385 Eden Prairie Multifamily Housing Revenue (Tanager Creek) Series A 8.05% 6/20/31 (GNMA) 7,605,000 8,098,716 Hopkins Multifamily Housing Revenue (Hopkins Renaissance Project-Section 8) 6.375% 4/1/20 1,000,000 1,051,610 Hutchinson Multifamily Housing Revenue (Evergreen Apartments Project-Section 8) 5.75% 11/1/28 965,000 869,176 Little Canada Multifamily Housing Revenue (Housing Alternative Development Co. Project) Series A 6.10% 12/1/17 1,370,000 1,374,439 6.25% 12/1/27 2,900,000 2,887,327 Minneapolis Multifamily Housing Revenue (Grant Street Apartments Project) Series A 7.25% 11/1/29 750,000 717,000 (Seward Towers Project) 5.00% 5/20/36 (GNMA) 4,000,000 4,072,199 (Sumner Field) Series A (GNMA) (AMT) 5.50% 11/20/26 1,045,000 1,086,560 (Trinity Apartments-Section 8) Series A 6.75% 5/1/21 1,885,000 1,812,880 Principal Market Amount Value MUNICIPAL BONDS (continued) Multi Family Housing Revenue Bonds (continued) Park Rapids Multifamily Revenue (The Court Apartments Project- Section 8) 6.30% 2/1/20 $ 2,960,000 $ 2,725,716 St. Cloud Housing & Redevelopment Authority Revenue (Sterling Heights Apartments Project) 7.55% 4/1/39 (AMT) 1,000,000 978,890 St. Louis Park Multifamily Housing Revenue (Knollwood Apartments Project) 6.25% 12/1/28 (FHA) 3,855,000 3,978,630 Stillwater Multifamily Housing Revenue (Stillwater Cottages Project) Series A 7.00% 11/1/27 1,000,000 964,950 Wadena Housing & Redevelopment Authority Multifamily Housing Revenue (Humphrey Manor East Project) 6.00% 2/1/19 2,045,000 2,045,327 Washington County Housing & Redevelopment Authority Governmental Revenue (Briar Pond) Series C 7.25% 8/20/34 (GNMA) 975,000 908,271 Wells Housing & Redevelopment Authority Housing Revenue (Broadway Apartments Project) 7.00% 1/1/19 885,000 902,700 Willmar Housing & Redevelopment Authority Multifamily Housing Revenue (Highland Apartments-Section 8) 5.85% 6/1/19 1,030,000 1,029,392 ----------- 42,050,564 ----------- Municipal Lease Revenue Bonds - 2.28% St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.00% 12/1/22 2,500,000 2,621,200 5.125% 12/1/27 1,000,000 1,036,980 (Robert Street Office Building Project) 4.75% 12/1/23 2,000,000 2,027,540 5.00% 12/1/27 2,000,000 2,050,180 (Robert Street Office Building Project) Series 9 5.25% 12/1/27 725,000 761,721 ----------- 8,497,621 ----------- Political Subdivision General Obligation Bonds - 2.00% Dakota County Capital Improvement Series A 4.75% 2/1/26 1,000,000 1,010,710 Hennepin County Regional Railroad Authority 5.00% 12/1/31 4,030,000 4,095,608 Metropolitan Council Waste Water Treatment Series B 5.00% 12/1/21 1,200,000 1,284,900 Ramsey County State Aid Series C 5.00% 2/1/28 1,060,000 1,093,825 ----------- 7,485,043 ----------- 9 STATEMENTS DELAWARE TAX-FREE MINNESOTA FUND OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) *Pre-Refunded Bonds - 7.41% Beltrami County Housing & Redevelopment Authority Revenue 6.20% 2/1/14-05 $1,010,000 $ 1,029,594 Bloomington Tax Increment Bonds 9.75% 2/1/08-05 500,000 517,240 Kenyon Wanamingo Independent School District #2172 6.00% 2/1/18-05 (MBIA) 2,350,000 2,393,499 Minnesota Public Facilities Authority Water Pollution Control Revenue Series A 6.25% 3/1/16-05 4,400,000 4,507,008 North St. Paul Maplewood Independent School District #622 Series A 7.10% 2/1/25-05 (FSA) 10,000,000 10,237,700 Puerto Rico Commonwealth Public Improvement 5.125% 7/1/30-11 (FSA) 615,000 692,545 Series A 5.125% 7/1/31-11 675,000 758,788 Puerto Rico Electric Power Authority Power Revenue Series X 5.50% 7/1/25-05 3,080,000 3,185,890 Puerto Rico Public Buildings Government Facilities Revenue Series D 5.25% 7/1/36-12 2,930,000 3,324,671 Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.75% 1/1/18-16 (MBIA) 1,000,000 1,030,400 ---------- 27,677,335 ---------- Public Power Revenue Bonds - 11.39% Chaska Electric Revenue Series A 6.00% 10/1/25 1,000,000 1,066,140 Minnesota State Municipal Power Agency Series A 5.125% 10/1/29 3,000,000 3,043,530 Northern Minnesota Municipal Power Agency Electric System Revenue #Series A 5.85% 1/1/09 (AMBAC) 3,815,000 3,358,917 Series B 4.75% 1/1/20 (AMBAC) 2,500,000 2,573,750 Rochester Electric Utilities Revenue 5.25% 12/1/30 4,915,000 5,060,925 Shakopee Public Utilities Commission Public Utilities Revenue 5.125% 2/1/26 (MBIA) 1,000,000 1,022,650 Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.00% 1/1/12 (AMBAC) 1,705,000 1,899,984 5.00% 1/1/13 (MBIA) 5,820,000 6,474,924 5.25% 1/1/15 (AMBAC) 3,410,000 3,874,408 5.25% 1/1/16 (AMBAC) 1,000,000 1,136,910 +Southern Minnesota Municipal Power Agency Supply System Revenue, Inverse Floater ROLs Series II-R-189 9.058% 1/1/14 (AMBAC) 2,000,000 2,517,360 Series II-R-189-A 9.058% 1/1/15 2,950,000 3,753,551 Series II-R 189-4 5.066% 1/1/12 2,500,000 2,785,925 Series II-R-189-B 5.32% 1/1/16 (AMBAC) 3,500,000 3,979,220 ---------- 42,548,194 ---------- Principal Market Amount Value MUNICIPAL BONDS (continued) School District General Obligation Bonds - 6.26% Bloomington Independent School District #271 Series B 5.00% 2/1/17 $5,300,000 $ 5,706,616 #Farmington Independent School District #192 Capital Appreciation Series B 5.42% 2/1/20 (FSA) 1,650,000 753,984 5.34% 2/1/21 (FSA) 1,500,000 645,195 #Lakeville Independent School District #194 Capital Appreciation Series B 5.45% 2/1/19 (FSA) 8,000,000 3,952,960 #Mahtomedi Independent School District #832 Capital Appreciation Series B 5.90% 2/1/14 (MBIA) 1,540,000 1,056,686 +Rockford Independent School District #883, Inverse Floater ROLs Series II-R-30-A 9.798% 2/1/23 (FSA) 3,510,000 4,256,366 #Rosemont Independent School District #196 Capital Appreciation Series B 5.93% 4/1/11 (FSA) 2,600,000 2,060,760 5.96% 4/1/12 (FSA) 1,850,000 1,395,566 6.01% 4/1/13 (FSA) 1,915,000 1,372,098 #Sartell Independent School District #748 Capital Appreciation Series B 5.98% 2/1/13 (MBIA) 540,000 386,062 6.10% 2/1/15 (MBIA) 1,075,000 695,450 6.15% 2/1/16 (MBIA) 1,750,000 1,076,093 ---------- 23,357,836 ---------- Single Family Housing Revenue Bonds - 1.31% Minnesota State Housing Finance Agency Single Family Mortgage Series A 5.30% 7/1/19 770,000 817,471 Series B 5.35% 1/1/33 (AMT) 2,990,000 3,041,607 Series J 5.90% 7/1/28 (AMT) 760,000 787,048 St. Louis Park Residential Mortgage Revenue Series A 7.25% 4/20/23 (GNMA) 128,000 128,081 St. Paul Housing & Redevelopment Authority Single Family Mortgage Revenue Series C 6.90% 12/1/21 (FNMA) 125,000 125,069 ---------- 4,899,276 ---------- State General Obligation Bonds - 3.01% Minnesota State 5.00% 11/1/20 (FSA) 8,175,000 8,678,907 5.00% 8/1/21 2,400,000 2,559,048 ---------- 11,237,955 ---------- 10 STATEMENTS DELAWARE TAX-FREE MINNESOTA FUND OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) Tax Increment/Special Assessment Bonds - 2.63% Minneapolis Tax Increment Revenue (St. Anthony Falls Project) 5.75% 3/1/27 $ 1,000,000 $ 977,170 Minneapolis Tax Increment Revenue Series E 5.00% 3/1/13 6,265,000 6,814,127 Rochester Tax Increment 6.50% 12/1/04 1,000,000 1,012,940 St. Paul Housing & Redevelopment Authority Tax Increment (Upper Landing Project) Series A 6.80% 3/1/29 1,000,000 1,006,420 ------------ 9,810,657 ------------ Territorial General Obligation Bonds - 0.47% Puerto Rico Commonwealth Public Improvement Series A 5.50% 7/1/19 (MBIA) 1,500,000 1,758,105 ------------ 1,758,105 ------------ Territorial Revenue Bonds - 2.25% Puerto Rico Commonwealth Public Improvement Series A 5.125% 7/1/30 (FSA) 385,000 398,059 5.125% 7/1/31 1,325,000 1,347,432 Puerto Rico Electric Power Authority Series OO 5.00% 7/1/13 (CIFG) 5,000,000 5,563,400 Puerto Rico Public Buildings Authority Guaranteed Government Facilities Revenue Series D 5.25% 7/1/36 1,070,000 1,099,297 ------------ 8,408,188 ------------ Water & Sewer Revenue Bonds - 2.14% Minnesota Public Facilities Authority Water Pollution Control Revenue Series B 4.75% 3/1/19 2,000,000 2,091,900 +Minnesota Public Facilities Authority Water Pollution Control Revenue, Inverse Floater ROLs Series II-R-31 9.036% 3/1/14 5,000,000 5,916,350 ------------ 8,008,250 ------------ TOTAL MUNICIPAL BONDS (cost $325,419,069) 342,640,062 ------------ Number of/Principal Shares /Amount SHORT-TERM INVESTMENTS - 7.21% Money Market -- 1.92% Federated Minnesota Municipal Cash Trust 7,172,351 7,172,351 ----------- 7,172,351 ----------- **Variable Rate Demand Notes - 5.29% Eagan Revenue Anticipation Notes 1.37% 5/30/12 $1,000,000 1,000,000 Minneapolis Library 1.17% 12/1/18 (SPA, Dexia Credit Local) 3,100,000 3,100,000 1.17% 12/1/32 (SPA, Dexia Credit Local) 8,000,000 8,000,000 Minnesota State Higher Education Facilities (Carlton College) 1.17% 11/1/29 5,100,000 5,100,000 Minnesota State Higher Education Facilities 1.36% 7/1/22 (SPA, Dexia Credit Local) 2,550,000 2,550,000 ----------- 19,750,000 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $26,922,351) 26,922,351 ----------- TOTAL MARKET VALUE OF SECURITIES - 98.97% (cost $352,341,420) $369,562,413 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.03% 3,836,698 ----------- NET ASSETS APPLICABLE TO 29,589,485 SHARES OUTSTANDING - 100.00% $373,399,111 ----------- Net Asset Value - Delaware Tax-Free Minnesota Fund Class A ($348,000,236 / 27,579,452 Shares) $12.62 ----------- Net Asset Value - Delaware Tax-Free Minnesota Fund Class B ($14,588,260 / 1,155,243 Shares) $12.63 ----------- Net Asset Value - Delaware Tax-Free Minnesota Fund Class C ($10,810,615 / 854,789 Shares) $12.65 ----------- COMPONENTS OF NET ASSETS AT AUGUST 31, 2004++: Shares of beneficial interest (unlimited authorization -- no par) $351,257,946 Distributions in excess of net investment income (22,418) Accumulated net realized gain on investments 4,942,590 Net unrealized appreciation of investments 17,220,993 ----------- Total net assets $373,399,111 ----------- * For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. **The interest rate shown is the rate as of August 31, 2004. + An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of August 31, 2004. # Zero Coupon Bond. The interest rate shown is the yield at the time of purchase. ++ See Note 4 in "Notes to Financial Statements" for details of reclassification of components of net assets. SUMMARY OF ABBREVIATIONS: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax CIFG - Insured by CDC IXIS Financial Guaranty FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FNMA - Insured by Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance ROLs - Residual Option Longs SPA - Stand-by Purchase Agreement NET ASSET VALUE AND OFFERING PRICE PER SHARE - DELAWARE TAX-FREE MINNESOTA FUND Net asset value Class A (A) $12.62 Sales charge (4.50% of offering price, or 4.68% of amount invested per share) (B) 0.59 -------- Offering price $13.21 -------- (A) Net asset value per share, as illustrated, is the estimated 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 11 STATEMENTS DELAWARE MINNESOTA MUNICIPAL BOND FUNDS OF OPERATIONS Year Ended August 31, 2004 Delaware Tax-Free Minnesota Fund INVESTMENT INCOME: Interest $21,011,936 ----------- Expenses: Management fees 2,051,409 Dividend disbursing and transfer agent fees and expenses 226,159 Distribution expenses -- Class A 868,633 Distribution expenses -- Class B 155,468 Distribution expenses -- Class C 105,495 Accounting and administration expenses 139,398 Registration fees 52,000 Reports and statements to shareholders 22,908 Legal and professional fees 53,145 Custodian fees 19,843 Trustees' fees 17,100 Other 14,829 ----------- 3,726,387 Less expenses absorbed or waived -- Less waived distribution expenses -- Class A -- Less expenses paid indirectly (4,495) ----------- Total expenses 3,721,892 ----------- NET INVESTMENT INCOME 17,290,044 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 5,046,477 Net change in unrealized appreciation/depreciation of investments 4,850,725 ----------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 9,897,202 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $27,187,246 ----------- See accompanying notes 12 STATEMENTS DELAWARE MINNESOTA MUNICIPAL BOND FUNDS OF CHANGES IN NET ASSETS
Delaware Tax-Free Minnesota Fund Year Ended 8/31/04 8/31/03 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 17,290,044 $ 18,376,638 Net realized gain on investments 5,046,477 4,703,590 Net change in unrealized appreciation/depreciation of investments 4,850,725 (9,247,345) ------------- ------------- Net increase in net assets resulting from operations 27,187,246 13,832,883 ------------- ------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class A (16,553,657) (17,359,077) Class B (624,474) (721,989) Class C (422,143) (387,137) Net realized gain on investments: Class A (4,548,007) (252,735) Class B (220,980) (12,269) Class C (133,256) (5,766) ------------- ------------- (22,502,517) (18,738,973) ------------- ------------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: Class A 26,453,454 20,342,994 Class B 1,295,770 2,106,724 Class C 1,853,246 3,551,273 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 13,786,349 10,937,095 Class B 583,309 495,977 Class C 429,799 299,072 ------------- ------------- 44,401,927 37,733,135 ------------- ------------- Cost of shares repurchased: Class A (36,602,634) (43,234,963) Class B (3,906,516) (3,026,712) Class C (1,762,841) (1,226,713) ------------- ------------- (42,271,991) (47,488,388) ------------- ------------- Increase (decrease) in net assets derived from capital share transactions 2,129,936 (9,755,253) ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS 6,814,665 (14,661,343) NET ASSETS: Beginning of year 366,584,446 381,245,789 ------------- ------------- End of year $ 373,399,111 $ 366,584,446 ------------- ------------- Distributions in excess of net investment income ($22,418) ($22,418)
See accompanying notes 13 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Fund Class A Year Ended 8/31/04 8/31/03 8/31/02(1) 8/31/01 8/31/00 NET ASSET VALUE, BEGINNING OF PERIOD $12.450 $12.610 $12.570 $12.120 $12.230 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.590 0.622 0.634 0.615 0.617 Net realized and unrealized gain (loss) on investments 0.348 (0.148) 0.037 0.450 (0.110) -------- -------- ------- ------- ------- Total from investment operations 0.938 0.474 0.671 1.065 0.507 -------- -------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.600) (0.625) (0.631) (0.615) (0.617) Net realized gain on investments (0.168) (0.009) -- -- -- -------- -------- ------- ------- ------- Total dividends and distributions (0.768) (0.634) (0.631) (0.615) (0.617) -------- -------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $12.620 $12.450 $12.610 $12.570 $12.120 ======== ======== ======= ======= ======= TOTAL RETURN(2) 7.72% 3.80% 5.54% 9.02% 4.39% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $348,000 $340,029 $356,522 $363,033 $355,573 Ratio of expenses to average net assets 0.94% 0.97% 0.98% 1.00% 1.01% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.94% 0.97% 0.98% 1.00% 1.06% Ratio of net investment income to average net assets 4.68% 4.90% 5.11% 5.00% 5.20% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.68% 4.90% 5.11% 5.00% 5.15% Portfolio turnover 25% 27% 13% 10% 35%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required amortization of all premiums and discounts on debt securities as an adjustment to interest income. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.003, a decrease in net realized and unrealized gain (loss) per share of $0.003, and an increase in the ratio of net investment income to average net assets of 0.03%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 14 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Fund Class B Year Ended 8/31/04 8/31/03 8/31/02(1) 8/31/01 8/31/00 NET ASSET VALUE, BEGINNING OF PERIOD $12.460 $12.620 $12.580 $12.120 $12.240 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.496 0.529 0.540 0.523 0.525 Net realized and unrealized gain (loss) on investments 0.348 (0.150) 0.037 0.460 (0.120) -------- -------- ------- ------- ------- Total from investment operations 0.844 0.379 0.577 0.983 0.405 -------- -------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.506) (0.530) (0.537) (0.523) (0.525) Net realized gain on investments (0.168) (0.009) -- -- -- -------- -------- ------- ------- ------- Total dividends and distributions (0.674) (0.539) (0.537) (0.523) (0.525) -------- -------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $12.630 $12.460 $12.620 $12.580 $12.120 ======== ======== ======= ======= ======= TOTAL RETURN(2) 6.91% 3.02% 4.75% 8.29% 3.50% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $14,588 $16,394 $17,043 $15,927 $13,412 Ratio of expenses to average net assets 1.69% 1.72% 1.73% 1.75% 1.76% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.69% 1.72% 1.73% 1.75% 1.81% Ratio of net investment income to average net assets 3.93% 4.15% 4.36% 4.25% 4.45% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.93% 4.15% 4.36% 4.25% 4.40% Portfolio turnover 25% 27% 13% 10% 35%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required amortization of all premiums and discounts on debt securities as an adjustment to interest income. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.003, a decrease in net realized and unrealized gain (loss) per share of $0.003, and an increase in the ratio of net investment income to average net assets of 0.03%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 15 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Fund Class C Year Ended 8/31/04 8/31/03 8/31/02(1) 8/31/01 8/31/00 NET ASSET VALUE, BEGINNING OF PERIOD $12.480 $12.640 $12.590 $12.140 $12.250 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.495 0.529 0.540 0.523 0.527 Net realized and unrealized gain (loss) on investments 0.348 (0.151) 0.047 0.450 (0.110) -------- -------- ------- ------- ------- Total from investment operations 0.843 0.378 0.587 0.973 0.417 -------- -------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.505) (0.529) (0.537) (0.523) (0.527) Net realized gain on investments (0.168) (0.009) -- -- -- -------- -------- ------- ------- ------- Total dividends and distributions (0.673) (0.538) (0.537) (0.523) (0.527) -------- -------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $12.650 $12.480 $12.640 $12.590 $12.140 ======== ======== ======= ======= ======= TOTAL RETURN(2) 6.90% 3.01% 4.82% 8.20% 3.60% ratios and supplemental data: Net assets, end of period (000 omitted) $10,811 $10,161 $7,682 $6,042 $6,156 Ratio of expenses to average net assets 1.69% 1.72% 1.73% 1.75% 1.76% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.69% 1.72% 1.73% 1.75% 1.81% Ratio of net investment income to average net assets 3.93% 4.15% 4.36% 4.25% 4.45% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.93% 4.15% 4.36% 4.25% 4.40% Portfolio turnover 25% 27% 13% 10% 35%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required amortization of all premiums and discounts on debt securities as an adjustment to interest income. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.003, a decrease in net realized and unrealized gain (loss) per share of $0.003, and an increase in the ratio of net investment income to average net assets of 0.03%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 16 NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS August 31, 2004 Voyageur Mutual Funds (a "Trust") is organized as a Delaware statutory trust and offers six series: Delaware Minnesota High-Yield Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund, Delaware Tax-Free Arizona Fund, Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, and Delaware Tax-Free New York Fund. Voyageur Insured Funds (a "Trust") is organized as a Delaware statutory trust and offers two series: Delaware Tax-Free Arizona Insured Fund and Delaware Tax-Free Minnesota Insured Fund. Voyageur Tax Free Funds (a "Trust") is organized as a Delaware business trust and offers the Delaware Tax-Free Minnesota Fund. Voyageur Intermediate Tax Free Funds (a "Trust") is organized as a Delaware statutory trust and offers the Delaware Tax-Free Minnesota Intermediate Fund. These financial statements and related notes pertain to Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and Delaware Minnesota High-Yield Municipal Bond Fund (each a "Fund" or, collectively, the "Funds"). The above Trusts are open-end investment companies. The Funds are considered non-diversified under the Investment Company Act of 1940, as amended, and offer Class A, Class B, and Class C shares. Class A shares are sold with a front-end sales charge of up to 4.50% for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield Municipal Bond Fund and with a front-end sales charge of up to 2.75% for Delaware Tax-Free Minnesota Intermediate Fund. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield Municipal Bond Fund and that declines from 2% to zero for Delaware Tax-Free Minnesota Intermediate Fund, depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield Municipal Bond Fund and approximately five years after purchase for Delaware Tax-Free Minnesota Intermediate Fund. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. The investment objective of Delaware Tax-Free Minnesota Fund and Delaware Tax-Free Minnesota Insured Fund is to seek as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, as is consistent with preservation of capital. The investment objective of Delaware Tax-Free Minnesota Intermediate Fund is to seek to provide investors with preservation of capital and, secondarily, current income exempt from federal income tax and from the Minnesota state personal income tax, by maintaining a dollar-weighted average effective portfolio maturity of 10 years or less. The investment objective of Delaware Minnesota High-Yield Municipal Bond Fund is to seek as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, primarily through investment in medium- and lower-grade municipal obligations. 1. SIGNIFICANT ACCOUNTING POLICIES The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Funds. Security Valuation -- Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. 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. Federal Income Taxes -- Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income and common expenses are allocated to the classes of the Funds on the basis of "settled shares" of each class in relation to the net assets of the Funds. Realized and unrealized gain (loss) on investments are allocated to the various classes of the Funds on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Use of Estimates -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Management fees and other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. Through December 31, 2003, certain expenses of the Funds were paid through commission arrangements with brokers. In addition, the Funds may receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expenses paid under the above arrangements are included in their respective expense captions on the Statements of Operations with the corresponding expense offset shown as "expenses paid indirectly". The amounts of these expenses for the year ended August 31, 2004 were as follows: Delaware Tax-Free Minnesota Fund ----------------- Commission reimbursements $2,978 Earnings credits 1,517 17 NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES In accordance with the terms of its respective investment management agreement, each Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee based on each Fund's average daily net assets as follows: Delaware Tax-Free Minnesota Fund ------------------ On the first $500 million 0.550% On the next $500 million 0.500% On the next $1.5 billion 0.450% In excess of $2.5 billion 0.425% DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse each Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed specified percentages of average daily net assets as shown below: Delaware Tax-Free Minnesota Fund ----------------- The operating expense limitation as a percentage of average daily net assets (per annum) 0.75% Expiration date 10/31/04 Effective November 1, 2004 the operating expense limitation as a percentage of average daily net assets (per annum) 0.69% Expiration date 10/31/05 Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Funds pay DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. Each Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, each Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.25% of the average daily net assets of the Class A shares and 1.00% of the average daily net assets of the Class B and C shares for all Funds. DDLP has contracted to waive distribution fees through October 31, 2005 in order to prevent distribution fees of Class A shares from exceeding 0.15% of average daily net assets for the Delaware Tax-Free Minnesota Intermediate Fund. At August 31, 2004, each Fund had receivables from or liabilities payable to affiliates as follows: Delaware Tax-Free Minnesota Fund ----------------- Investment management fee payable to DMC $27,894 Dividend disbursing, transfer agent fees, accounting and administration fees and expenses payable to DSC 27,929 Other expenses payable to DMC and affiliates* 6,916 Receivable from DMC under expense limitation agreement -- * 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. 18 NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 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 expenses, including in-house legal services provided to each Fund by DMC employees. For the year ended August 31, 2004, each Fund had costs as follows: Delaware Tax-Free Minnesota Fund ----------------- $18,345 For the year ended August 31, 2004, DDLP earned commissions on sales of Class A shares for each Fund as follows: Delaware Tax-Free Minnesota Fund ----------------- $67,149 Certain officers of DMC, DSC, and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Funds. 3. INVESTMENTS For the year ended August 31, 2004, the Funds made purchases and sales of investment securities as follows: Delaware Tax-Free Minnesota Fund ----------------- Purchases other than short-term investments $90,873,527 Sales other than short-term investments 119,489,357 At August 31, 2004, the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows: Delaware Tax-Free Minnesota Fund ----------------- Cost of investments $352,079,530 ------------- Aggregate unrealized appreciation $ 18,769,257 Aggregate unrealized depreciation (1,286,374) ============= Net unrealized appreciation $ 17,482,883 ============= 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. The tax character of dividends and distributions paid during the years ended August 31, 2004 and 2003 was as follows: Delaware Tax-Free Minnesota Fund ------------------ YEAR ENDED 8/31/04 - ------------------ Tax-exempt income $17,303,423 Ordinary Income 326,031 Long-term capital gain 4,873,063 ------------- Total $22,502,517 ============= YEAR ENDED 8/31/03 - ------------------ Tax-exempt income $18,468,203 Long-term capital gain 270,770 ------------- Total $18,738,973 ============= 19 NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED) As of August 31, 2004, the components of net assets on a tax basis were as follows: Delaware Tax-Free Minnesota Fund ------------------- Shares of beneficial interest $351,257,946 Undistributed tax-exempt income 147,934 Undistributed long-term capital gain 4,510,348 Capital loss carryforwards -- Unrealized appreciation of investments 17,482,883 ------------- Net assets $373,399,111 ============= For financial reporting purposes, capital accounts and distributions to shareholders are adjusted to reflect the tax character of permanent book/tax differences. For the year ended August 31, 2004, the following permanent reclassifications were recorded. Reclassifications are primarily due to tax treatment of market discount and premium on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. Delaware Tax-Free Minnesota Fund ------------------ Undistributed (accumulated) net investment income (loss) $310,230 Accumulated realized gain (loss) (310,230) Paid-in capital -- 20 NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 5. CAPITAL SHARES Transactions in capital shares were as follows: Delaware Tax-Free Minnesota Fund ---------------------- Year Ended 8/31/04 8/31/03 Shares sold: Class A 2,097,640 1,598,089 Class B 103,001 165,696 Class C 146,758 279,810 Shares issued upon reinvestment of dividends and distributions: Class A 1,095,629 865,142 Class B 46,297 39,201 Class C 34,090 23,598 ----------- ---------- 3,523,415 2,971,536 ----------- ---------- Shares repurchased: Class A (2,924,388) (3,414,536) Class B (309,880) (239,163) Class C (140,433) (96,819) ----------- ---------- (3,374,701) (3,750,518) ----------- ---------- Net increase (decrease) 148,714 (778,982) =========== ========== For the years ended August 31, 2004 and August 31, 2003, the following shares and values were converted from Class B to Class A. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets.
Year Ended Year Ended 8/31/04 8/31/03 --------------------------------- --------------------------------- Class B Class A Class B Class A shares shares Amount shares shares Amount -------- -------- -------- -------- -------- -------- Delaware Tax-Free Minnesota Fund 129,441 129,542 $1,644,607 33,800 33,825 $439,727
21 NOTES DELAWARE MINNESOTA MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 6. LINE OF CREDIT The Funds, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $177,300,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Funds had no amounts outstanding as of August 31, 2004 or at any time during the year. 7. CREDIT AND MARKET RISK The Funds concentrate their investments in securities issued by municipalities, mainly in Minnesota. The value of these investments may be adversely affected by new legislation within the state, regional or local economic conditions, and differing levels of supply and demand for municipal bonds. Many municipalities insure repayment for their obligations. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that market value may fluctuate for other reasons and there is no assurance that the insurance company will meet its obligations. These securities have been identified in the Statements of Net Assets. The Funds may invest in inverse floating rate securities ("inverse floaters"), a type of derivative tax-exempt obligation with floating or variable interest rates that move in the opposite direction of short-term interest rates, usually at an accelerated speed. Consequently, the market values of inverse floaters will generally be more volatile than other tax-exempt investments. Such securities are denoted on the Statement of Net Assets. 8. CONTRACTUAL OBLIGATIONS The Funds enter into contracts in the normal course of business that contain a variety of indemnifications. The Funds' maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts. Management has reviewed each Fund's existing contracts and expects the risk of loss to be remote. 9. 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, 2004, each Fund designates distributions paid during the year as follows:
(A) (B) Long-Term Ordinary (C) (D) Capital Gains Income Tax Exempt Total Distributions Distributions Distributions Distributions (Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis) ------------- -------------- ------------- -------------- Delaware Tax-Free Minnesota Fund 22% 1% 77% 100%
(A), (B), and (C) are based on a percentage of each Fund's total distributions. 22 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees Voyageur Tax Free Funds - Delaware Tax-Free Minnesota Fund Voyageur Insured Funds - Delaware Tax-Free Minnesota Insured Fund Voyageur Intermediate Tax Free Funds - Delaware Tax-Free Minnesota Intermediate Fund Voyageur Mutual Funds - Delaware Minnesota High-Yield Municipal Bond Fund We have audited the accompanying statements of net assets of Voyageur Tax Free Funds (comprised of Delaware Tax-Free Minnesota Fund), Delaware Tax-Free Minnesota Insured Fund (one of the series constituting Voyageur Insured Funds), Voyageur Intermediate Tax Free Funds (comprised of Delaware Tax-Free Minnesota Intermediate Fund) and Delaware Minnesota High-Yield Municipal Bond Fund (one of the series constituting Voyageur Mutual Funds) (the "Funds") as of August 31, 2004, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 2004, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Tax-Free Minnesota Fund of Voyageur Tax Free Funds, the Delaware Tax-Free Minnesota Insured Fund of Voyageur Insured Funds, the Delaware Tax-Free Minnesota Intermediate Fund of Voyageur Intermediate Tax Free Funds, and the Delaware Minnesota High-Yield Municipal Bond Fund of Voyageur Mutual Funds at August 31, 2004, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended in conformity with U.S. generally accepted accounting principles. Ernst & Young LLP Philadelphia, Pennsylvania October 4, 2004 23 DELAWARE INVESTMENTS FAMILY OF FUNDS BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees/Directors which has oversight responsibility for the management of a fund's business affairs. Trustees/Directors establish procedures and oversee and review the performance of the investment manager, the distributor and others that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees/Directors and Officers with certain background and related information.
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE/DIRECTOR TRUSTEE/DIRECTOR AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER - ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES JUDE T. DRISCOLL(2) Chairman and 4 Years - Since August 2000, 77 None 2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in Philadelphia, PA various executive capacities 19103 Trustee since at different times at May 15, 2003 Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) Managing Director - NationsBanc Capital Markets (February 1996 - June 1998) - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES WALTER P. BABICH Trustee 16 Years Board Chairman - 94 None 2005 Market Street Citadel Constructors, Inc. Philadelphia, PA (1989 - Present) 19103 October 1, 1927 JOHN H. DURHAM Trustee 25 Years(3) Private Investor 94 Trustee - Abington 2005 Market Street Memorial Hospital Philadelphia, PA 19103 August 7, 1937 President/Director - 22 WR Corporation JOHN A. FRY Trustee(4) 3 Years President - 77 Director - 2005 Market Street Franklin & Marshall College Community Health Philadelphia, PA (June 2002 - Present) Systems 19103 Executive Vice President - University of Pennsylvania May 28, 1960 (April 1995 - June 2002) ANTHONY D. KNERR Trustee 11 Years Founder/Managing Director - 94 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938
24
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE/DIRECTOR TRUSTEE/DIRECTOR AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) ANN R. LEVEN Trustee 15 Years Treasurer/Chief Fiscal Officer - 94 Director and 2005 Market Street National Gallery of Art Audit Committee Philadelphia, PA (1994 - 1999) Chairperson - Andy 19103 Warhol Foundation Director - Systemax Inc. November 1, 1940 THOMAS F. MADISON Trustee 10 Years President/Chief 94 Director - 2005 Market Street 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 - Digital River, Inc. Director - Rimage Corporation JANET L. YEOMANS Trustee 5 Years Vice President/Mergers & 94 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 Ms. Yeomans has held July 31, 1948 various management positions at 3M Corporation since 1983. - ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS JOSEPH H. HASTINGS Executive Executive Mr. Hastings has served in 94 None(5) 2005 Market Street Vice President Vice President various executive capacities Philadelphia, PA and and at different times at 19103 Chief Financial Chief Financial Delaware Investments. Officer Officer since December 19,1949 August 21, 2003 RICHELLE S. MAESTRO Executive Vice President, Chief Legal Ms. Maestro has served in 94 None(5) 2005 Market Street Chief Legal Officer Officer since various executive capacities Philadelphia, PA and Secretary March 17, 2003 at different times at 19103 Delaware Investments. November 26, 1957 MICHAEL P. BISHOF Senior Vice President 8 Years Mr. Bishof has served in 94 None(5) 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Registrant's investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's manager and distributor. (3) Mr. Durham served as a Director Emeritus from 1995 through 1998. (4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III and Voyageur Tax Free Funds. (5) Mr. Hastings, Mr. Bishof and Ms. Maestro also serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees/Directors and Officers and is available, without charge, upon request by calling 800 523-1918. 25 Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) This annual report is for the information of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund, and Delaware Minnesota High-Yield Municipal Bond Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund, and Delaware Minnesota High-Yield Municipal Bond Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies for each Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in each Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION WALTER P. BABICH JUDE T. DRISCOLL INVESTMENT MANAGER Board Chairman Chairman Delaware Management Company Citadel Construction Corporation Delaware Investments Family of Funds Philadelphia, PA King of Prussia, PA Philadelphia, PA INTERNATIONAL AFFILIATE JOHN H. DURHAM JOSEPH H. HASTINGS Delaware International Advisers Ltd. Private Investor Executive Vice President and London, England Gwynedd Valley, PA Chief Financial Officer Delaware Investments Family of Funds NATIONAL DISTRIBUTOR ANTHONY D. KNERR Philadelphia, PA Delaware Distributors, L.P. Managing Director Philadelphia, PA Anthony Knerr & Associates RICHELLE S. MAESTRO New York, NY Executive Vice President, SHAREHOLDER SERVICING, DIVIDEND Chief Legal Officer and Secretary DISBURSING AND TRANSFER AGENT ANN R. LEVEN Delaware Investments Family of Funds Delaware Service Company, Inc. Former Treasurer/Chief Fiscal Officer Philadelphia, PA 2005 Market Street National Gallery of Art Philadelphia, PA 19103-7094 Washington, DC MICHAEL P. BISHOF Senior Vice President and Treasurer FOR SHAREHOLDERS THOMAS F. MADISON Delaware Investments Family of Funds 800 523-1918 President and Chief Executive Officer Philadelphia, PA MLM Partners, Inc. FOR SECURITIES DEALERS AND FINANCIAL Minneapolis, MN INSTITUTIONS REPRESENTATIVES ONLY 800 362-7500 JANET L. YEOMANS Vice President/Mergers & Acquisitions WEB SITE 3M Corporation www.delawareinvestments.com St. Paul, MN
- -------------------------------------------------------------------------------- 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. The Fund Forms N-Q, as well as a description of the policies and procedures that each Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on each Fund Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. Each Fund Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information (if any) regarding how each Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through each Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. - -------------------------------------------------------------------------------- (8920) Printed in the USA AR-MNALL [9/04] IVES 10/04 J9819 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: Ann R. Leven Thomas F. Madison Janet L. Yeomans(1) 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 $13,010 for the fiscal year ended August 31, 2004. 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 $11,490 for the fiscal year ended August 31, 2003. (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, 2004. The aggregate fees billed by the Registrant's independent auditors for services relating to the performance of the audit of the financial statements of the Registrant's investment adviser(s) and other service providers under common control with the adviser(s) and that relate directly to the operations or financial reporting of the Registrant were $37,575 for the Registrant's fiscal year ended August 31, 2004. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of reports concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act; and issuance of agreed upon procedures reports to the Fund'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 Funds. - -------- (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 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 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, 2003. 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(s) and other service providers under common control with the adviser(s) and that relate directly to the operations or financial reporting of the Registrant were $39,600 for the Registrant's fiscal year ended August 31, 2003. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of reports concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act; and issuance of agreed upon procedures reports to the Fund'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 Funds. (c) Tax fees. --------- The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant were $1,750 for the fiscal year ended August 31, 2004. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and 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(s) and other service providers under common control with the adviser(s) and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended August 31, 2004. The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant were $1,250 for the fiscal year ended August 31, 2003. 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 annual excise distribution calculations. The aggregate fees billed by the Registrant's independent auditors for tax-related services provided to the Registrant's adviser(s) and other service providers under common control with the adviser(s) and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended August 31, 2003. (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, 2004. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the Registrant's independent auditors to the Registrant's adviser(s) and other service providers under common control with the adviser(s) and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended August 31, 2004. 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, 2003. 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(s) and other service providers under common control with the adviser(s) and that relate directly to the operations or financial reporting of the Registrant were $0 for the Registrant's fiscal year ended August 31, 2003. (e) The Registrant's Audit Committee has not established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X. (f) Not applicable. (g) The aggregate non-audit fees billed by the Registrant's independent auditors for services rendered to the Registrant and to its investment adviser(s) and other service providers under common control with the adviser(s) were $214,565 and $172,750 for the Registrant's fiscal years ended August 31, 2004 and August 31, 2003, 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(s) and other service providers under common control with the adviser(s) 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. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers Not applicable. Item 9. Submission of Matters to a Vote of Security Holders. Not applicable. Item 10. 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 registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11. Exhibits (a) (1) Code of Ethics Not applicable. (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT. (3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934. Not applicable. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. VOYAGEUR TAX FREE FUNDS Jude T. Driscoll - ------------------------------ By: Jude T. Driscoll Title: Chairman Date: November 4, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Jude T. Driscoll - ------------------------------ By: Jude T. Driscoll Title: Chairman Date: November 4, 2004 Joseph H. Hastings - ------------------------------ By: Joseph H. Hastings Title: Chief Financial Officer Date: November 4, 2004 EX-99.CERT 2 ex99-cert.txt EXHIBIT 99.CERT EXHIBIT 99.CERT CERTIFICATION I, Jude T. Driscoll, certify that: 1. I have reviewed this report on Form N-CSR of Voyageur Tax Free Funds; 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 registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual 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 4, 2004 Jude T. Driscoll -------------------------- By: Jude T. Driscoll Title: Chairman CERTIFICATION I, Joseph H. Hastings, certify that: 1. I have reviewed this report on Form N-CSR of Voyageur Tax Free Funds; 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 registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual 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 4, 2004 Joseph H. Hastings ------------------------------- By: Joseph H. Hastings Title: Chief Financial Officer EX-99.906 3 ex99-906cert.txt EXHIBIT 99.906CERT 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 4, 2004 Jude T. Driscoll - ----------------------------------- By: Jude T. Driscoll Title: Chairman Joseph H. Hastings - ----------------------------------- By: Joseph H. Hastings 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-----