N-CSR 1 delavoytaxfree_ncsr.txt CERTIFIED SHAREHOLDER REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-3910 Exact name of registrant as specified in charter: Voyageur Tax-Free Funds Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: David F. Connor, Esq. 2005 Market Street Philadelphia, PA 19103 Registrant's telephone number, including area code: (800) 523-1918 Date of fiscal year end: August 31 Date of reporting period: August 31, 2006 Item 1. Reports to Stockholders The Registrant's shareholder reports are combined with the shareholder reports of other investment company registrants. This Form N-CSR pertains to the DELAWARE TAX-FREE MINNESOTA FUND of the Registrant, information on which is included in the following shareholder reports. Annual Report Delaware Tax-Free Minnesota Fund Delaware Tax-Free Minnesota Insured Fund Delaware Tax-Free Minnesota Intermediate Fund Delaware Minnesota High-Yield Municipal Bond Fund August 31, 2006 Fixed income mutual funds [DELAWARE INVESTMENTS LOGO] [LOGO] POWERED BY RESEARCH(R) Table of contents > Portfolio management review .................................................1 > Performance summaries .......................................................6 > Disclosure of Fund expenses ................................................14 > Sector allocation and credit rating breakdowns..............................16 > Statements of net assets ...................................................18 > Statements of operations ...................................................34 > Statements of changes in net assets ........................................35 > Financial highlights .......................................................37 > Notes to financial statements ..............................................49 > Report of independent registered public accounting firm ....................56 > Other Fund information .....................................................57 > Board of trustees/directors and officers addendum ..........................60 > About the organization .....................................................62 Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. (C) 2006 Delaware Distributors, L.P. Portfolio management review Delaware Minnesota Municipal Bond Funds August 31, 2006 Joseph R. Baxter Robert Collins Co-managers of the funds The managers of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund, and Delaware Minnesota High-Yield Municipal Bond Fund provided the answers to the questions below as a review of the funds' activities for the fiscal year ended August 31, 2006. Q: What was the investment environment for the Delaware Investments municipal bond mutual funds during the fiscal year ended August 31, 2006? A: Higher gasoline prices, rising short-term interest rates, and ongoing uneasiness about changes in the housing market generally caused concerns in the capital markets and weighed on many investors' outlook for the U.S. economy during our fiscal year. However, the U.S. economy continued its expansion throughout the year, recovering somewhat from a period of slower growth that occurred just after the August and September 2005 hurricanes. Property and casualty insurers held steady and provided a solid source of capital for the tax-exempt debt arena as the year progressed. To summarize, we generally viewed the national-level municipal bond market to be sound over the fiscal year, despite challenges. During most of the fiscal year, the U.S. Federal Reserve (Fed) continued to raise interest rates. After gradually moving the target for the Fed funds rate from 3.50% to 5.25%, the Fed finally paused a long string of increases at its August 2006 meeting. A key tool in the Fed's monetary policy, the Fed funds rate reflects the percentage of interest that banks charge to lend money to each other overnight. Through the rate increases, the Fed aimed to moderate the pace of economic activity and head off inflation. Earlier in 2006, the interest rate environment was such that the Treasury yield curve began to flatten, which means that the difference between short- and long-term bond yields grew smaller across the spectrum of maturities. This "flattening" was generally present throughout the second half of the fiscal year. In this type of environment, bonds with intermediate maturities - those in the three- to seven-year range - tend to underperform. Low interest rates provided many issuers with refinancing opportunities early in the fiscal year, but new bond issuance dropped off significantly beginning in 2006 because more and more municipal issuers had already taken the opportunity to refinance bonds. For instance, through August 2006, the pace of new issuance of municipal securities year-to-date had retreated 15% versus the same period one year earlier (source: Thomson Financial). Comparing tax-exempt and taxable holdings, municipal bond yields began the fiscal year at nearly the same level as Treasuries. By period end, however, that gap had widened, which reflected the greater decline in the value of Treasury bonds versus their municipal peers (source: Thomson Financial). Q: What other market-related events influenced performance of the funds? A: Credit quality among bond issuers remained strong or improved during the fiscal year, generally contributing to demand for lower-rated securities. In the fiscal period's later stages, we saw more bonds coming to market that we believed to be of increased risk. Also of note, non-traditional buyers (those more interested in the relative valuation of the asset class than the tax-advantaged status of municipal bonds) continued to make their presence felt. These changes influenced trading patterns in the market and presented a new challenge to both mutual fund managers and individual investors. Q: What conditions prevailed in the Minnesota debt market? A: According to an August 1, 2006 report released by The Bond Buyer, bond issuance by state and local governments has decreased overall. The Bond Buyer further reported that Minnesota state issuance decreased by 43% over the period from January 2006 through June 2006 (compared to the same period the previous year). (continues) 1 Portfolio management review Minnesota's economy continues to expand due to its manufacturing sector concentration. The state has steady demographic trends including high personal income levels, high employment diversity and performance, and low unemployment. As of August 2006, the state's unemployment rate remained low at 3.7% compared to the national unemployment rate of 4.7% (source: U.S. Department of Labor). Through March of fiscal 2006, tax revenues were up 8.3% (source: Nelson A. Rockefeller State Revenue Report #64). The state's general fund ended fiscal 2005 at $92.9 million. The budget reserve has rebounded to $1 billion, on a budgetary basis. The 2006-2007 budget projects a total spending increase of 8.4%. Most of the spending increases are going toward K-12 education, health and human services, and public safety. The state is paying for these increases with approximately $1 billion in new ongoing revenues, including a $0.75 per pack increase in the cigarette tax (source: Moody's). Q: How did the market environment affect your approach to municipal bond investing at large? A: In the interest rate environment that prevailed, our approach to municipal bond markets at times dictated that we retain current holdings, and ultimately our strategy resulted in limited transactions. During much of the year, we preferred to seek our objective by holding legacy bonds - securities purchased in prior fiscal periods - and relying on the attractive bond yields that already existed within our portfolio of investments. Generally speaking, it became increasingly difficult in the prevailing interest rate environment to identify bonds in the market that were more attractive than the holdings in our portfolio. Frequently during the year, we opted to focus our resources on monitoring the credit of legacy bonds. Overall, we adhered to our bottom-up investment style, which is based on security-by-security analysis and a free exchange of information among the various members of a deep team that includes portfolio managers, credit analysts, and traders. Delaware Tax-Free Minnesota Fund Q: How did the Fund perform versus its benchmark index and peer group? A: Delaware Tax-Free Minnesota Fund returned 2.78% at net asset value and -1.86% at maximum offer price (both figures represent Class A shares with distributions reinvested) for the fiscal year ended August 31, 2006. The Fund's performance benchmark, the Lehman Brothers Municipal Bond Index, returned 3.03%. Its peer group - as measured by the Lipper Minnesota Municipal Debt Funds Average - returned 2.35% (source: Lipper). For the complete, annualized performance of Delaware Tax-Free Minnesota Fund, please see the table on page 6. Q: What strategies affected Fund performance? A: Despite a high level of refinancing activity in the market, we believed that many of the Delaware Tax-Free Minnesota Fund's legacy bonds would not be called, and we decided to hold them for their relatively attractive yields. In keeping with our long-term commitment to holding a high-quality portfolio of investments, we again generally avoided the tobacco industry bonds, which have so greatly influenced performance in the municipal market in recent years, as we believe the sector has an elevated risk for litigation. We also remained underweighted versus the benchmark index in bonds backed by airline corporation revenues. Both stances generally were not beneficial when comparing Fund performance to the benchmark and many of our peer funds, as the airline and tobacco industries performed well on a total return basis. During the 12-month span, it seemed that investors tended to seek the added yield and total return potential of lower-quality bonds, and thus securities with ratings further down the credit spectrum generally 2 outperformed. At times, the margin of outperformance between two adjacent credit ratings was significant. Within the portfolio, our exposure to bonds accorded AAA ratings was reduced during the fiscal year, and we increased the allocation of bonds rated BBB. The Fund gained some measure of improved performance relative to the benchmark due to multi-family housing securities. However, we experienced weakness with our exposure to Puerto Rico bonds because of budget problems in the commonwealth. These difficulties now appear to have been resolved, but we have reduced our exposure to Puerto Rico bonds in the Fund over the course of the period. At fiscal year end, healthcare bonds, largely hospitals, comprised 27.77% of the Fund's portfolio upon the closure of the fiscal year period. A notable allocation for the Fund, although not a particularly large one, was bonds that finance continuing care retirement centers. During the year, we often found these securities to offer appealing risk-and-return characteristics. Delaware Tax-Free Minnesota Insured Fund Q: How did the Fund perform versus its benchmark index and peer group? A: Delaware Tax-Free Minnesota Insured Fund returned 2.23% at net asset value and -2.34% at maximum offer price (both figures represent Class A shares with distributions reinvested) for the fiscal year ended August 31, 2006. The Fund's performance benchmark, the Lehman Brothers Municipal Bond Index, returned 3.03%. Its peer group, as measured by the Lipper Minnesota Municipal Debt Funds Average, returned 2.35% (source: Lipper). For the complete, annualized performance of Delaware Tax-Free Minnesota Insured Fund, please see the table on page 8. Q: What strategies affected Fund performance? A: Despite a high level of refinancing activity in the market, we believed that many of the Fund's legacy bonds would not be called, and decided to hold them for their relatively attractive yields. This strategy did have the effect of shortening the Fund's average duration, which is a measure of a bond or a bond fund's sensitivity to changes in interest rates. Longer duration values indicate greater interest rate sensitivity, and shorter durations generally limit a bond fund's volatility and total return potential. In keeping with our long-term commitment to holding a high-quality portfolio of investments, we again generally avoided the tobacco industry bonds, which have so greatly influenced performance in the municipal market in recent years, as we believe the sector has an elevated risk for litigation. We also remained underweighted versus the benchmark index in bonds backed by airline corporation revenues. Both stances generally were not beneficial when comparing Fund performance to the benchmark and many of our peer funds, as the airline and tobacco industries did perform well on a total return basis. During the 12-month span, it seemed that investors tended to seek the added yield and total return potential of lower-quality bonds, and thus securities with ratings further down the credit spectrum generally outperformed. At times, the margin of outperformance between two adjacent credit ratings was significant. The Fund keeps at least 80% of its assets in insured securities. Because lower-quality investments outperformed during the year, we often were near the full 20% allowed in non-insured bonds. A good portion of these holdings had A ratings - an investment-grade category that outperformed AAA insured bonds. At fiscal year end, of the Fund's net assets, local general obligation bonds comprised 23.3%, healthcare bonds (with a focus on hospitals) 16.8%, and escrowed-to-maturity bonds 15.5%. Delaware Tax-Free Minnesota Intermediate Fund Q: How did the Fund perform versus its benchmark index and peer group? A: Delaware Tax-Free Minnesota Intermediate Fund returned 2.62% at net asset value and -0.19% at maximum offer price (both figures represent Class A shares with (continues) 3 Portfolio management review distributions reinvested) for the fiscal year ended August 31, 2006. As of August 31, 2006, Tax-Free Minnesota Intermediate Fund's benchmark index was changed from the Lehman Brothers 5-Year Municipal Bond Index to the Lehman Brothers Municipal 3-15 Year Index. Management believes the new benchmark index more accurately reflects the portion of the municipal market in which the Fund invests. There were no material changes to the Fund's investment objective or strategy. For the fiscal year ended August 31, 2006, the Lehman Brothers Municipal 5-Year Index gained 2.27%, while the Lehman Brothers 3-15 Year Municipal Bond Index gained 2.64%. The Fund's peer group - as measured by the Lipper Other States Intermediate Municipal Debt Funds Average - returned 3.01% (source: Lipper). For the complete, annualized performance of Delaware Tax-Free Minnesota Intermediate Fund, please see the table on page 10. Q: What strategies affected Fund performance? A: Despite a high level of refinancing activity in the market, we believed that many of the Fund's legacy bonds would not be called, and decided to hold them for their relatively attractive yields. This strategy did have the effect of shortening the Fund's average duration, which is a measure of a bond or a bond fund's sensitivity to changes in interest rates. Longer duration values indicate greater interest rate sensitivity, and shorter durations generally limit a bond fund's volatility and total return potential. The Fund's duration profile at fiscal year end was near the lower end of our intended range, a consideration that we were monitoring. Should the market move toward favoring longer-term securities, we might be inclined to extend Fund duration intentionally. In keeping with our long-term commitment to holding a high-quality portfolio of investments, we again generally avoided the tobacco industry bonds, which have so greatly influenced performance in the municipal market in recent years, as we believe the sector has an elevated risk for litigation. We also remained underweighted versus the benchmark index in bonds backed by airline corporation revenues. Both stances generally were not beneficial when comparing Fund performance to the benchmark and many of our peer funds, as the airline and tobacco industries did perform well on a total return basis. During the 12-month span, it seemed that investors tended to seek the added yield and total return potential of lower-quality bonds, and thus securities with ratings further down the credit spectrum generally outperformed. At times, the margin of outperformance between two adjacent credit ratings was significant. Within the portfolio, our exposure to bonds accorded AAA ratings was reduced during the fiscal year, and we increased the allocation of bonds rated both A and BBB. Our allocation to non-rated bonds also rose slightly. The Fund gained some measure of performance relative to the benchmark due to multi-family housing securities. However, we experienced weakness with our exposure to Puerto Rico bonds because of budget problems in the commonwealth. These difficulties now appear to have been resolved, but we have reduced our exposure to Puerto Rico bonds over the course of the period in the Fund. At fiscal year end, local general obligation bonds comprised 32.9% of the Fund's net assets, healthcare 22.48% with a focus on hospital bonds, and bonds related to higher education 10.4%. Delaware Minnesota High-Yield Municipal Bond Fund Q: How did the Fund perform versus its benchmark index and peer group? A: Delaware Minnesota High-Yield Municipal Bond Fund returned 3.54% at net asset value and -1.12% at maximum offer price (both figures represent Class A shares with distributions reinvested) for the fiscal year ended August 31, 2006. The Fund's performance benchmark, the Lehman Brothers Municipal Bond Index, returned 3.03%. Its peer group - as measured by the Lipper Minnesota Municipal Debt Funds Average 4 - returned 2.35% (source: Lipper). For the complete, annualized performance of Delaware Minnesota High-Yield Municipal Bond Fund, please see the table on page 12. Q: What strategies affected Fund performance? A: Despite a high level of refinancing activity in the market, we believed that many of the Fund's legacy bonds would not be called, and decided to hold them for their relatively attractive yields. In keeping with our long-term commitment to holding a high-quality portfolio of investments, we again generally avoided the tobacco industry bonds, which have so greatly influenced performance in the municipal market in recent years, as we believe the sector has an elevated risk for litigation. We also remained underweighted versus the benchmark index in bonds backed by airline corporation revenues. Both stances generally were not beneficial when comparing Fund performance to the benchmark and many of our peer funds, as the airline and tobacco industries did perform well on a total return basis. During the 12-month span, it seemed that investors tended to seek the added yield and total return potential of lower-quality bonds, and thus securities with ratings further down the credit spectrum generally outperformed. At times, the margin of outperformance between two adjacent credit ratings was significant. The trend toward outperformance by lower-quality securities generally helped high yield funds, and in keeping with the market environment, Delaware Minnesota High-Yield Municipal Bond Fund was the best performer among the four Minnesota open-end mutual funds managed by Delaware Management Company. The Fund gained some measure of improved performance relative to the benchmark due to multi-family housing securities, which made up a significant portion of assets. However, we experienced weakness with our exposure to Puerto Rico bonds because of budget problems in the commonwealth. These difficulties now appear to have been resolved, but we have reduced our exposure to Puerto Rico bonds over the course of the period in the Fund. Housing bonds, including large holdings of multi-family housing bonds, were the second-largest position in the Fund at fiscal year end. Healthcare bond positions, primarily hospital bonds and bonds issued to finance continuing care retirement centers, were larger in size and comprised 41% of the Fund's net assets. 5 Performance summary Delaware Tax-Free Minnesota Fund The performance data quoted represent past performance; past performance does not guarantee future results. A rise or fall in interest rates can have a significant impact on bond prices and the NAV (net asset value) of the Fund. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware Tax-Free Minnesota Fund prospectus contains this and other important information about the Fund. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site. Read it carefully before you invest or send money. Fund Performance Average annual total returns Through August 31, 2006 1 year 5 years 10 years Lifetime ________________________________________________________________________________ Class A (Est. 2/27/84) Excluding sales charge +2.78% +5.18% +5.58% +7.45% Including sales charge -1.86% +4.22% +5.10% +7.23% ________________________________________________________________________________ Class B (Est. 3/11/95) Excluding sales charge +2.01% +4.39% +4.96% +5.21% Including sales charge -1.93% +4.14% +4.96% +5.21% ________________________________________________________________________________ Class C (Est. 5/4/94) Excluding sales charge +2.08% +4.41% +4.82% +4.92% Including sales charge +1.10% +4.41% +4.82% +4.92% ________________________________________________________________________________ Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of up to 0.25%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1%. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after eight years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Tax-Free Minnesota Fund during the periods shown above and on the next page. Performance would have been lower had the expense limitation not been in effect. The performance table above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 6 Fund basics As of August 31, 2006 ________________________________________________________________________________ Fund objective ________________________________________________________________________________ The Fund seeks as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax as is consistent with preservation of capital. ________________________________________________________________________________ Total Fund net assets ________________________________________________________________________________ $408 million ________________________________________________________________________________ Number of holdings ________________________________________________________________________________ 147 ________________________________________________________________________________ Fund start date ________________________________________________________________________________ February 27, 1984 ________________________________________________________________________________ Your Fund managers ________________________________________________________________________________ Joseph R. Baxter joined Delaware Investments in 1999. He heads the firm's municipal bond department and is responsible for setting the department's investment strategy. He is also a co-portfolio manager of the firm's municipal bond funds and several client accounts. Formerly, he held investment positions with First Union. He received a bachelor's degree in finance and marketing from LaSalle University. Robert F. Collins, CFA, joined Delaware Investments in 2004. He is a co-portfolio manager of several of the firm's municipal bond funds and client accounts. Formerly, he spent five years as a co-manager of the municipal portfolio management group, where he oversaw the tax-exempt investments of high net worth and institutional accounts. He earned a bachelor's degree in economics from Ursinus College. ________________________________________________________________________________ Nasdaq symbols CUSIPs ________________________________________________________________________________ Class A DEFFX 928918101 Class B DMOBX 928928696 Class C DMOCX 928918408 [PERFORMANCE OF $10,000 INVESTMENT LINE GRAPH] Chart assumes $10,000 invested on August 31, 1996 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. (continues) 7 Performance summary Delaware Tax-Free Minnesota Insured Fund The performance data quoted represent past performance; past performance does not guarantee future results. A rise or fall in interest rates can have a significant impact on bond prices and the NAV (net asset value) of the Fund. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware Tax-Free Minnesota Insured Fund prospectus contains this and other important information about the Fund. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site. Read it carefully before you invest or send money. Fund Performance Average annual total returns Through August 31, 2006 1 year 5 years 10 years Lifetime ________________________________________________________________________________ Class A (Est. 5/1/87) Excluding sales charge +2.23% +4.55% +5.25% +6.30% Including sales charge -2.34% +3.60% +4.76% +6.04% ________________________________________________________________________________ Class B (Est. 3/7/95) Excluding sales charge +1.47% +3.78% +4.62% +4.93% Including sales charge -2.45% +3.52% +4.62% +4.93% ________________________________________________________________________________ Class C (Est. 5/4/94) Excluding sales charge +1.46% +3.77% +4.47% +4.62% Including sales charge +0.48% +3.77% +4.47% +4.62% ________________________________________________________________________________ Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of up to 0.25%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1%. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after eight years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Tax-Free Minnesota Insured Fund during the periods shown above and on the next page. Performance would have been lower had the expense limitation not been in effect. The performance table above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 8 Fund basics As of August 31, 2006 ________________________________________________________________________________ Fund objective ________________________________________________________________________________ The Fund seeks as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, as is consistent with preservation of capital. ________________________________________________________________________________ Total Fund net assets ________________________________________________________________________________ $236 million ________________________________________________________________________________ Number of holdings ________________________________________________________________________________ 77 ________________________________________________________________________________ Fund start date ________________________________________________________________________________ May 1, 1987 ________________________________________________________________________________ Your Fund managers ________________________________________________________________________________ Joseph R. Baxter joined Delaware Investments in 1999. He heads the firm's municipal bond department and is responsible for setting the department's investment strategy. He is also a co-portfolio manager of the firm's municipal bond funds and several client accounts. Formerly, he held investment positions with First Union. He received a bachelor's degree in finance and marketing from LaSalle University. Robert F. Collins, CFA, joined Delaware Investments in 2004. He is a co-portfolio manager of several of the firm's municipal bond funds and client accounts. Formerly, he spent five years as a co-manager of the municipal portfolio management group, where he oversaw the tax-exempt investments of high net worth and institutional accounts. He earned a bachelor's degree in economics from Ursinus College. ________________________________________________________________________________ Nasdaq symbols CUSIPs ________________________________________________________________________________ Class A MNINX 928916105 Class B DVMBX 928928563 Class C DVMCX 928916600 [PERFORMANCE OF $10,000 INVESTMENT LINE GRAPH] Chart assumes $10,000 invested on August 31, 1996 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. (continues) 9 Performance summary Delaware Tax-Free Minnesota Intermediate Fund The performance data quoted represent past performance; past performance does not guarantee future results. A rise or fall in interest rates can have a significant impact on bond prices and the NAV (net asset value) of the Fund. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware Tax-Free Minnesota Intermediate Fund prospectus contains this and other important information about the Fund. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site. Read it carefully before you invest or send money. Fund Performance Average annual total returns Through August 31, 2006 1 year 5 years 10 years Lifetime ________________________________________________________________________________ Class A (Est. 10/27/85) Excluding sales charge +2.62% +4.83% +4.65% +5.43% Including sales charge -0.19% +4.25% +4.35% +5.29% ________________________________________________________________________________ Class B (Est. 8/15/95) Excluding sales charge +1.75% +3.95% +4.22% +4.26% Including sales charge -0.23% +3.95% +4.22% +4.26% ________________________________________________________________________________ Class C (Est. 5/4/94) Excluding sales charge +1.75% +3.96% +3.79% +3.91% Including sales charge +0.76% +3.96% +3.79% +3.91% ________________________________________________________________________________ Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 2.75% and have an annual distribution and service fee of up to 0.25%. The distributor has contracted to limit this amount to 0.15% through December 31, 2006. Class B shares are sold with a contingent deferred sales charge that declines from 2% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately five years after purchase. They are also subject to an annual distribution and service fee of 1%. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after five years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Tax-Free Minnesota Intermediate Fund during the periods shown above and on the next page. Performance would have been lower had the expense limitation not been in effect. The performance table above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 10 Fund basics As of August 31, 2006 ________________________________________________________________________________ Fund objective ________________________________________________________________________________ The Fund seeks to provide investors with preservation of capital and, secondarily, current income exempt from federal income tax and the Minnesota state personal income tax, by maintaining a dollar-weighted average effective portfolio maturity of 10 years or less. ________________________________________________________________________________ Total Fund net assets ________________________________________________________________________________ $55 million ________________________________________________________________________________ Number of holdings ________________________________________________________________________________ 47 ________________________________________________________________________________ Fund start date ________________________________________________________________________________ October 27, 1985 ________________________________________________________________________________ Your Fund managers ________________________________________________________________________________ Joseph R. Baxter joined Delaware Investments in 1999. He heads the firm's municipal bond department and is responsible for setting the department's investment strategy. He is also a co-portfolio manager of the firm's municipal bond funds and several client accounts. Formerly, he held investment positions with First Union. He received a bachelor's degree in finance and marketing from LaSalle University. Robert F. Collins, CFA, joined Delaware Investments in 2004. He is a co-portfolio manager of several of the firm's municipal bond funds and client accounts. Formerly, he spent five years as a co-manager of the municipal portfolio management group, where he oversaw the tax-exempt investments of high net worth and institutional accounts. He earned a bachelor's degree in economics from Ursinus College. ________________________________________________________________________________ Nasdaq symbols CUSIPs ________________________________________________________________________________ Class A DXCCX 928930106 Class B DVSBX 928928399 Class C DVSCX 928930205 [PERFORMANCE OF $10,000 INVESTMENT LINE GRAPH] Chart assumes $10,000 invested on August 31, 1996 and includes the effect of a 2.75% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. The Lehman Brothers 3-15 Year Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds with maturities of 3 to 15 years. The Lehman Brothers 5-Year Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds with maturities of 5 years. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. (continues) 11 Performance summary Delaware Minnesota High-Yield Municipal Bond Fund The performance data quoted represent past performance; past performance does not guarantee future results. A rise or fall in interest rates can have a significant impact on bond prices and the NAV (net asset value) of the Fund. Funds that invest in bonds can lose their value as interest rates rise, and an investor can lose principal. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The Delaware Minnesota High-Yield Municipal Bond Fund prospectus contains this and other important information about the Fund. Please request a prospectus through your financial advisor or by calling 800 523-1918 or visiting our Web site. Read it carefully before you invest or send money. Fund Performance Average annual total returns Through August 31, 2006 1 year 5 years 10 years Lifetime ________________________________________________________________________________ Class A (Est. 6/4/96) Excluding sales charge +3.54% +6.51% +6.18% +6.16% Including sales charge -1.12% +5.53% +5.69% +5.68% ________________________________________________________________________________ Class B (Est. 6/12/96) Excluding sales charge +2.77% +5.73% +5.54% +5.78% Including sales charge -1.20% +5.49% +5.54% +5.78% ________________________________________________________________________________ Class C (Est. 6/7/96) Excluding sales charge +2.76% +5.73% +5.40% +5.39% Including sales charge +1.77% +5.73% +5.40% +5.39% ________________________________________________________________________________ Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of up to 0.25%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1%. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after eight years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Minnesota High-Yield Municipal Bond Fund during the periods shown above and on the next page. Performance would have been lower had the expense limitation not been in effect. The performance table above and the graph on the next page do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 12 Fund basics As of August 31, 2006 ________________________________________________________________________________ Fund objective ________________________________________________________________________________ The Fund seeks as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, primarily through investment in medium-and lower-grade municipal obligations. ________________________________________________________________________________ Total Fund net assets ________________________________________________________________________________ $118 million ________________________________________________________________________________ Number of holdings ________________________________________________________________________________ 102 ________________________________________________________________________________ Fund start date ________________________________________________________________________________ June 4, 1996 ________________________________________________________________________________ Your Fund managers ________________________________________________________________________________ Joseph R. Baxter joined Delaware Investments in 1999. He heads the firm's municipal bond department and is responsible for setting the department's investment strategy. He is also a co-portfolio manager of the firm's municipal bond funds and several client accounts. Formerly, he held investment positions with First Union. He received a bachelor's degree in finance and marketing from LaSalle University. Robert F. Collins, CFA, joined Delaware Investments in 2004. He is a co-portfolio manager of several of the firm's municipal bond funds and client accounts. Formerly, he spent five years as a co-manager of the municipal portfolio management group, where he oversaw the tax-exempt investments of high net worth and institutional accounts. He earned a bachelor's degree in economics from Ursinus College. ________________________________________________________________________________ Nasdaq symbols CUSIPs ________________________________________________________________________________ Class A DVMHX 928928316 Class B DVMYX 928928290 Class C DVMMX 928928282 [PERFORMANCE OF $10,000 INVESTMENT LINE GRAPH] Chart assumes $10,000 invested on August 31, 1996 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index is unmanaged and does not reflect the costs of operating a mutual fund, such as the costs of buying, selling, and holding securities. You cannot invest directly in an index. Past performance is not a guarantee of future results. 13 Disclosure of Fund expenses For the period March 1, 2006 to August 31, 2006 As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2006 to August 31, 2006. Actual Expenses The first section of the tables shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The second section of the tables shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on the Funds' actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Funds' actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of each table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. Each Fund's actual expenses shown in the tables reflect fee waivers in effect. The expenses shown in each table assume reinvestment of all dividends and distributions. "Expenses Paid During Period" are equal to the Funds' annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Delaware Tax-Free Minnesota Fund Expense Analysis of an Investment of $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 3/1/06 to 3/1/06 8/31/06 Ratio 8/31/06 ________________________________________________________________________________ Actual Fund Return Class A $1,000.00 $1,018.40 0.93% $4.73 Class B 1,000.00 1,014.60 1.68% 8.53 Class C 1,000.00 1,015.30 1.68% 8.53 ________________________________________________________________________________ Hypothetical 5% Return (5% return before expenses) Class A $1,000.00 $1,020.52 0.93% $4.74 Class B 1,000.00 1,016.74 1.68% 8.54 Class C 1,000.00 1,016.74 1.68% 8.54 ________________________________________________________________________________ Delaware Tax-Free Minnesota Insured Fund Expense Analysis of an Investment of $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 3/1/06 to 3/1/06 8/31/06 Ratio 8/31/06 ________________________________________________________________________________ Actual Fund Return Class A $1,000.00 $1,014.90 0.89% $4.52 Class B 1,000.00 1,011.10 1.64% 8.31 Class C 1,000.00 1,010.20 1.64% 8.31 ________________________________________________________________________________ Hypothetical 5% Return (5% return before expenses) Class A $1,000.00 $1,020.72 0.89% $4.53 Class B 1,000.00 1,016.94 1.64% 8.34 Class C 1,000.00 1,016.94 1.64% 8.34 ________________________________________________________________________________ 14 Delaware Tax-Free Minnesota Intermediate Fund Expense Analysis of an Investment of $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 3/1/06 to 3/1/06 8/31/06 Ratio 8/31/06 ________________________________________________________________________________ Actual Fund Return Class A $1,000.00 $1,018.70 0.75% $3.82 Class B 1,000.00 1,014.40 1.60% 8.12 Class C 1,000.00 1,014.40 1.60% 8.12 ________________________________________________________________________________ Hypothetical 5% Return (5% return before expenses) Class A $1,000.00 $1,021.42 0.75% $3.82 Class B 1,000.00 1,017.14 1.60% 8.13 Class C 1,000.00 1,017.14 1.60% 8.13 ________________________________________________________________________________ Delaware Minnesota High-Yield Municipal Bond Fund Expense Analysis of an Investment of $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 3/1/06 to 3/1/06 8/31/06 Ratio 8/31/06 ________________________________________________________________________________ Actual Fund Return Class A $1,000.00 $1,023.70 0.89% $4.54 Class B 1,000.00 1,019.80 1.64% 8.35 Class C 1,000.00 1,019.80 1.64% 8.35 ________________________________________________________________________________ Hypothetical 5% Return (5% return before expenses) Class A $1,000.00 $1,020.72 0.89% $4.53 Class B 1,000.00 1,016.94 1.64% 8.34 Class C 1,000.00 1,016.94 1.64% 8.34 ________________________________________________________________________________ 15 Sector allocations and credit rating breakdowns As of August 31, 2006 Sector designations may be different than the sector designations presented in other Fund materials. Delaware Tax-Free Minnesota Fund Percentage Sector of Net Assets ________________________________________________________________________________ Municipal Bonds 97.12% Corporate-Backed Revenue Bonds 6.10% Education Revenue Bonds 4.49% Electric Revenue Bonds 11.23% Escrowed to Maturity Bonds 0.89% Health Care Revenue Bonds 27.77% Housing Revenue Bonds 7.51% Lease Revenue Bonds 2.51% Local General Obligation Bonds 14.87% Pre-Refunded Bonds 9.21% Special Tax Bonds 1.26% State General Obligation Bonds 6.20% Transportation Revenue Bonds 3.76% Water & Sewer Revenue Bonds 1.32% ________________________________________________________________________________ Short-Term Investments 2.06% Money Market Instruments 0.10% Variable Rate Demand Notes 1.96% ________________________________________________________________________________ Total Market Value of Securities 99.18% ________________________________________________________________________________ Receivables and Other Assets Net of Liabilities 0.82% ________________________________________________________________________________ Total Net Assets 100.00% ________________________________________________________________________________ Credit Rating Breakdown Percentage (as a % of fixed income investments) of Net Assets ________________________________________________________________________________ AAA 37.36% AA 16.55% A 17.94% BBB 15.13% BB 2.11% Not Rated 10.91% ________________________________________________________________________________ Total 100.00% ________________________________________________________________________________ Delaware Tax-Free Minnesota Insured Fund Percentage Sector of Net Assets ________________________________________________________________________________ Municipal Bonds 95.85% Corporate-Backed Revenue Bonds 0.78% Education Revenue Bonds 5.94% Electric Revenue Bonds 6.20% Escrowed to Maturity Bonds 15.45% Health Care Revenue Bonds 16.82% Housing Revenue Bonds 4.15% Lease Revenue Bonds 5.29% Local General Obligation Bonds 23.30% Pre-Refunded Bonds 9.92% Special Tax Bonds 0.80% State General Obligation Bonds 2.45% Transportation Revenue Bonds 4.75% ________________________________________________________________________________ Short-Term Investments 3.11% Money Market Instruments 0.37% Variable Rate Demand Notes 2.74% ________________________________________________________________________________ Total Market Value of Securities 98.96% ________________________________________________________________________________ Receivables and Other Assets Net of Liabilities 1.04% ________________________________________________________________________________ Total Net Assets 100.00% ________________________________________________________________________________ Credit Rating Breakdown Percentage (as a % of fixed income investments) of Net Assets ________________________________________________________________________________ AAA 79.11% AA 4.85% A 12.69% BBB 3.35% ________________________________________________________________________________ Total 100.00% ________________________________________________________________________________ 16 Sector designations may be different than the sector designations presented in other Fund materials. Delaware Tax-Free Minnesota Intermediate Fund Percentage Sector of Net Assets ________________________________________________________________________________ Municipal Bonds 98.97% Corporate-Backed Revenue Bonds 7.53% Education Revenue Bonds 6.34% Electric Revenue Bonds 1.92% Escrowed to Maturity Bonds 2.08% Health Care Revenue Bonds 22.48% Housing Revenue Bonds 6.96% Lease Revenue Bonds 4.06% Local General Obligation Bonds 32.94% Pre-Refunded Bonds 6.41% State General Obligation Bonds 6.80% Transportation Revenue Bonds 1.45% ________________________________________________________________________________ Short-Term Investments 0.13% Money Market Instruments 0.13% ________________________________________________________________________________ Total Market Value of Securities 99.10% ________________________________________________________________________________ Receivables and Other Assets Net of Liabilities 0.90% ________________________________________________________________________________ Total Net Assets 100.00% ________________________________________________________________________________ Credit Rating Breakdown Percentage (as a % of fixed income investments) of Net Assets ________________________________________________________________________________ AAA 41.84% AA 11.42% A 18.36% BBB 17.11% Not Rated 11.27% ________________________________________________________________________________ Total 100.00% ________________________________________________________________________________ Delaware Minnesota High-Yield Municipal Bond Fund Percentage Sector of Net Assets ________________________________________________________________________________ Municipal Bonds 95.23% Corporate-Backed Revenue Bonds 4.50% Education Revenue Bonds 4.38% Electric Revenue Bonds 7.19% Health Care Revenue Bonds 40.75% Housing Revenue Bonds 15.84% Lease Revenue Bonds 2.23% Local General Obligation Bonds 9.05% Pre-Refunded Bonds 6.39% Special Tax Bonds 0.89% State General Obligation Bonds 2.24% Transportation Revenue Bonds 1.77% ________________________________________________________________________________ Short-Term Investments 3.99% Money Market Instruments 0.67% Variable Rate Demand Notes 3.32% ________________________________________________________________________________ Total Market Value of Securities 99.22% ________________________________________________________________________________ Receivables and Other Assets Net of Liabilities 0.78% ________________________________________________________________________________ Total Net Assets 100.00% ________________________________________________________________________________ Credit Rating Breakdown Percentage (as a % of fixed income investments) of Net Assets ________________________________________________________________________________ AAA 16.74% AA 10.97% A 21.78% BBB 18.09% BB 1.50% Not Rated 30.92% ________________________________________________________________________________ Total 100.00% ________________________________________________________________________________ 17 Statements of net assets Delaware Tax-Free Minnesota Fund August 31, 2006 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds - 97.12% ________________________________________________________________________________ Corporate-Backed Revenue Bonds - 6.10% Cloquet Pollution Control Revenue (Potlatch Corp. Project) 5.90% 10/1/26 $6,500,000 $ 6,612,255 Laurentian Energy Authority I Cogeneration Revenue Series A 5.00% 12/1/21 8,000,000 8,082,080 Sartell Environmental Improvement Revenue (International Paper) Series A 5.20% 6/1/27 5,465,000 5,615,014 Seaway Port Authority of Duluth Industrial Development Dock & Wharf Revenues (Cargill, Inc. Project) Series E 6.125% 11/1/14 4,500,000 4,598,010 ___________ 24,907,359 ___________ Education Revenue Bonds - 4.49% Minnesota State Colleges & Universities Revenue Fund Series A 5.00% 10/1/29 (MBIA) 1,665,000 1,758,873 Minnesota State Higher Education Facilities Authority Revenue (Augsburg College) Series 6-C 5.00% 5/1/20 1,250,000 1,293,763 Series 6-J1 5.00% 5/1/36 2,225,000 2,257,685 (College of St. Benedict) Series 4-G 6.20% 3/1/16 1,000,000 1,001,380 (St. Catherine College) Series 5-N1 5.25% 10/1/22 1,500,000 1,559,640 5.375% 10/1/32 1,000,000 1,047,430 & University of Minnesota, Inverse Floater ROLs Series II-R-29 7.453% 7/1/21 5,250,000 6,815,497 7.96% 7/1/18 1,920,000 2,570,112 ___________ 18,304,380 ___________ Electric Revenue Bonds - 11.23% Chaska Electric Revenue (Generating Facilities) Series A 5.00% 10/1/30 3,000,000 3,096,030 Minnesota State Municipal Power Agency 5.00% 10/1/35 3,000,000 3,087,030 Series A 5.00% 10/1/34 4,250,000 4,363,518 Series A 5.125% 10/1/29 3,000,000 3,114,450 Northern Minnesota Municipal Power Agency Electric System Revenue ^ Series A 5.849% 1/1/09 (AMBAC) 3,815,000 3,505,413 Series B 4.75% 1/1/20 (AMBAC) 2,500,000 2,565,300 Rochester Electric Utilities Revenue 5.25% 12/1/30 4,915,000 5,091,350 Shakopee Public Utilities Commission Revenue 5.125% 2/1/26 (MBIA) 1,000,000 1,026,100 Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.00% 1/1/12 (AMBAC) 4,205,000 4,476,601 5.00% 1/1/13 (MBIA) 5,820,000 6,248,526 5.25% 1/1/15 (AMBAC) 3,000,000 3,309,180 & Southern Minnesota Municipal Power Agency Supply System Revenue, Inverse Floater ROLs Series II-R-189 7.251% 1/1/15 (AMBAC) 2,950,000 3,558,084 Series II-R-189-3 6.966% 1/1/14 (AMBAC) 2,000,000 2,382,720 ___________ 45,824,302 ___________ Escrowed to Maturity Bonds - 0.89% Southern Minnesota Municipal Power Agency Supply System Revenue Series B 5.50% 1/1/15 (AMBAC) 990,000 1,048,024 University of Minnesota Series A 5.50% 7/1/21 2,000,000 2,298,160 Western Minnesota Municipal Power Agency Supply Revenue Series A 9.75% 1/1/16 (MBIA) 185,000 266,172 ___________ 3,612,356 ___________ Health Care Revenue Bonds - 27.77% Aitkin Health Care Facilities Revenue (Riverwood Health Care Center) 5.60% 2/1/32 1,500,000 1,534,395 Apple Valley Economic Development Authority Health Care Revenue (Augustana Home St. Paul Project) Series A 6.00% 1/1/40 2,700,000 2,742,336 (Evercare Senior Living Project) Series A 6.125% 6/1/35 4,000,000 4,027,440 Bemidji Hospital Facilities First Meeting Revenue (North Country Health Services) 5.00% 9/1/24 (RADIAN) 740,000 763,391 Bloomington Housing & Redevelopment Authority Housing Revenue (Senior Summerhouse Bloomington Project, Presbyterian Homes Housing & Assisted Living) 6.125% 5/1/35 3,420,000 3,490,110 Breckenridge Catholic Health Initiatives 5.00% 5/1/30 2,000,000 2,085,860 18 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Health Care Revenue Bonds (continued) Buffalo Health Care Revenue (Central Minnesota Senior Housing Project) Series A 5.50% 9/1/33 $ 1,270,000 $ 1,262,926 Duluth Economic Development Authority Health Care Facilities Revenue Benedictine Health System (St. Mary's Hospital) 5.25% 2/15/33 10,000,000 10,377,300 5.50% 2/15/23 1,000,000 1,070,240 Maple Grove Health Care Facilities Revenue (North Memorial Health Care) 5.00% 9/1/29 1,000,000 1,032,560 5.00% 9/1/35 5,850,000 6,005,669 Marshall Medical Center Gross Revenue (Weiner Memorial Medical Center Project) 6.00% 11/1/28 1,000,000 1,044,190 Minneapolis Health Care Facility Revenue (Jones-Harrison Residence Project) 5.60% 10/1/30 1,550,000 1,562,943 Minneapolis Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 9,500,000 10,198,725 (Fairview Health Services) Series D 5.00% 11/15/30 (AMBAC) 2,500,000 2,624,925 5.00% 11/15/34 (AMBAC) 2,500,000 2,617,775 Minnesota Agricultural & Economic Development Board Revenue (Benedictine Health Systems) 5.75% 2/1/29 1,895,000 1,924,733 (Fairview Health Care System) Series A 6.375% 11/15/29 15,000 16,235 Northfield Hospital Revenue 5.375% 11/1/26 3,785,000 4,011,343 Prior Lake Senior Housing Revenue (Shepherds Path Senior Housing) Series B 5.70% 8/1/36 2,000,000 2,016,760 5.75% 8/1/41 1,000,000 1,008,820 Rochester Health Care Facilities Revenue (Mayo Clinic) 5.00% 11/15/36 7,000,000 7,303,100 (Mayo Foundation) Series B 5.50% 11/15/27 700,000 725,522 & Rochester Health Care Facilities Revenue (Mayo Foundation), Inverse Floater ROLs Series II-R-28 Series A 7.453% 11/15/27 2,100,000 2,253,153 & Rochester Health Care Facilities Revenue (Mayo Foundation), Inverse Floater ROLs Series II-R-28 (continued) Series B 7.453% 11/15/27 8,375,000 8,985,789 Rochester Multifamily Housing Revenue (Wedum Shorewood Campus Project) 6.60% 6/1/36 3,890,000 4,015,997 Shakopee Health Care Facilities Revenue (St. Francis Regional Medical Center) 5.10% 9/1/25 2,000,000 2,074,840 5.25% 9/1/34 7,000,000 7,281,750 St. Louis Park Health Care Facilities Revenue (Park Nicollet Health Services) Series B 5.25% 7/1/30 9,420,000 9,871,972 St. Paul Housing & Redevelopment Authority Hospital Revenue (Health East Project) 6.00% 11/15/35 4,340,000 4,769,573 Series A 5.70% 11/1/15 1,300,000 1,341,678 Washington County Housing & Redevelopment Authority Hospital Facilities Revenue (Health East Project) 5.50% 11/15/27 1,000,000 1,023,100 Woodbury Economic Development Authority Housing Revenue (Senior Summerhouse Woodbury Project) Series B 5.75% 6/1/41 2,250,000 2,294,550 ____________ 113,359,700 ____________ Housing Revenue Bonds - 7.51% Brooklyn Center Multifamily Housing Revenue (Shingle Creek) 5.40% 5/20/43 (GNMA) (AMT) 1,000,000 1,026,180 Hopkins Multifamily Housing Revenue (Hopkins Renaissance Project-Section 8) 6.375% 4/1/20 1,000,000 1,033,180 @ Hutchinson Multifamily Housing Revenue (Evergreen Apartments Project-Section 8) 5.75% 11/1/28 890,000 848,490 Minneapolis Multifamily Housing Revenue (Grant Street Apartments Project) Series A 7.25% 11/1/29 750,000 776,745 (Seward Towers Project) 5.00% 5/20/36 (GNMA) 4,000,000 4,157,280 (Sumner Field) Series A 5.50% 11/20/26 (GNMA) (AMT) 990,000 1,034,649 (continues) 19 Statements of net assets Delaware Tax-Free Minnesota Fund Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Minneapolis Multifamily Housing Revenue (continued) (Trinity Apartments-Section 8) Series A 6.75% 5/1/21 $1,780,000 $ 1,864,924 Minnesota State Housing Finance Agency Residential Housing Series I 5.15% 7/1/38 (AMT) 5,550,000 5,688,918 Minnesota State Housing Finance Agency Single Family Mortgage Series A 5.30% 7/1/19 585,000 609,084 Series B 5.35% 1/1/33 (AMT) 2,965,000 3,042,742 Series J 5.90% 7/1/28 (AMT) 495,000 509,909 @ Park Rapids Multifamily Revenue (The Court Apartments Project- Section 8) 6.30% 2/1/20 2,835,000 2,630,228 St. Cloud Housing & Redevelopment Authority Revenue (Sterling Heights Apartments Project) 7.55% 4/1/39 (AMT) 1,000,000 1,057,410 St. Louis Park Residential Mortgage Revenue Series A 7.25% 4/20/23 (GNMA) 78,000 78,179 Stillwater Multifamily Housing Revenue (Stillwater Cottages Project) 7.25% 11/1/27 (AMT) 1,540,000 1,573,587 Series A 7.00% 11/1/27 1,000,000 1,021,570 Wadena Housing & Redevelopment Authority Multifamily Housing Revenue (Humphrey Manor East Project) 6.00% 2/1/19 1,860,000 1,860,316 Washington County Housing & Redevelopment Authority Governmental Revenue (Briar Pond) Series C 7.25% 8/20/34 955,000 922,329 Willmar Housing & Redevelopment Authority Multifamily Housing Revenue (Highland Apartments-Section 8) 5.85% 6/1/19 935,000 935,000 ____________ 30,670,720 ____________ Lease Revenue Bonds - 2.51% Puerto Rico Public Buildings Authority Revenue (Government Facilities) Series D 5.25% 7/1/36 1,070,000 1,105,995 St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.00% 12/1/22 2,500,000 2,639,725 5.125% 12/1/27 1,000,000 1,053,270 St. Paul Port Authority Lease Revenue (Robert Street Office Building Project) 4.75% 12/1/23 2,000,000 2,054,800 5.00% 12/1/27 2,500,000 2,618,150 Series 9 5.25% 12/1/27 725,000 769,899 ____________ 10,241,839 ____________ Local General Obligation Bonds - 14.87% Bloomington Independent School District #271 Series B 5.00% 2/1/17 5,300,000 5,516,505 Cambridge Independent School District #911 Series A 4.75% 2/1/30 (MBIA) 1,035,000 1,060,585 Dakota County Capital Improvement Series A 4.75% 2/1/26 1,000,000 1,021,730 Farmington Independent School District #192 Capital Appreciation Series B 5.00% 2/1/27 (FSA) 6,705,000 7,074,445 ^ 5.34% 2/1/21 (FSA) 1,500,000 730,455 ^ 5.422% 2/1/20 (FSA) 1,650,000 849,272 Hennepin County Regional Railroad Authority 5.00% 12/1/31 4,030,000 4,169,881 ^ Lakeville Independent School District #194 Capital Appreciation Series B 5.45% 2/1/19 (FSA) 8,000,000 4,281,440 Lakeville Independent School District #194 Series A 4.75% 2/1/22 (FSA) 5,500,000 5,698,164 ^ Mahtomedi Independent School District #832 Capital Appreciation Series B 5.898% 2/1/14 (MBIA) 1,540,000 1,151,366 Metropolitan Council Waste Water Treatment Series B 5.00% 12/1/21 1,200,000 1,280,508 Minneapolis Library 5.00% 12/1/25 1,500,000 1,577,640 Minneapolis Tax Increment Revenue (St. Anthony Falls Project) 5.75% 2/1/27 1,000,000 1,027,560 New Brighton Tax Increment Series A 5.00% 2/1/27 (MBIA) 1,000,000 1,065,600 5.00% 2/1/28 (MBIA) 1,000,000 1,064,730 Prior Lake Independent School District #719 Series B 5.00% 2/1/19 (FSA) 3,145,000 3,373,358 Ramsey County State Aid Series C 5.00% 2/1/28 1,060,000 1,110,573 20 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Local General Obligation Bonds (continued) & Rockford Independent School District #883, Inverse Floater ROLs Series II-R-30-A 7.706% 2/1/23 (FSA) $ 3,510,000 $ 3,936,290 ^ Rosemont Independent School District #196 Capital Appreciation Series B 5.931% 4/1/11 (FSA) 2,600,000 2,191,930 5.96% 4/1/12 (FSA) 1,850,000 1,498,500 6.008% 4/1/13 (FSA) 1,915,000 1,486,959 ^ Sartell Independent School District #748 Capital Appreciation Series B 5.976% 2/1/13 (MBIA) 540,000 419,186 6.099% 2/1/15 (MBIA) 1,075,000 766,647 6.15% 2/1/16 (MBIA) 1,750,000 1,191,173 St. Paul Housing & Redevelopment Authority Tax Increment (Upper Landing Project) Series A 6.80% 3/1/29 1,000,000 1,073,320 St. Peter's Hospital Series A 5.00% 9/1/24 (MBIA) 1,905,000 1,975,980 Todd Morrison Cass & Wadena Counties United Hospital District (Health Care Facilities-Lakewood) 5.00% 12/1/21 2,000,000 2,061,880 5.00% 12/1/34 1,000,000 1,015,870 5.125% 12/1/24 1,000,000 1,035,980 ____________ 60,707,527 ____________ $ Pre-Refunded Bonds - 9.21% Chaska Electric Revenue Series A 6.00% 10/1/25-10 1,000,000 1,090,550 Little Canada Multifamily Housing Revenue Alternative Development (Montreal Courts Apartments Project) Series A 6.10% 12/1/17-07 1,230,000 1,255,449 6.25% 12/1/27-07 2,900,000 2,985,666 Minneapolis Health Care System Revenue (Fairview Health Services) Series A 5.625% 5/15/32-12 11,525,000 12,765,204 Minneapolis Tax Increment Revenue Series E 5.00% 3/1/13-09 6,265,000 6,481,268 Minnesota Agricultural & Economic Development Board Revenue (Fairview Health Care System) Series A 6.375% 11/15/29-10 485,000 540,630 Minnesota Higher Education Facilities Series 4-1 6.00% 10/1/12-06 980,000 981,901 6.00% 10/1/16-06 1,400,000 1,402,716 Minnesota Public Facilities Authority Water Pollution Control Revenue Series A 5.00% 3/1/20-10 3,000,000 3,138,480 Series B 4.75% 3/1/19-09 2,000,000 2,056,200 Minnesota State Higher Education Facilities Authority Revenue (Hameline University) Series 4-1 6.00% 10/1/12-06 270,000 270,532 6.00% 10/1/16-06 390,000 390,768 Puerto Rico Public Buildings Authority Guaranteed Government Facilities Revenue Series D 5.25% 7/1/36-12 2,930,000 3,168,561 Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.75% 1/1/18-13 (MBIA) 1,000,000 1,055,450 ____________ 37,583,375 ____________ Special Tax Bonds - 1.26% ^ Minneapolis Community Development Agency Tax Increment Revenue 6.674% 9/1/09 (MBIA) 5,750,000 5,157,175 ____________ 5,157,175 ____________ State General Obligation Bonds - 6.20% Minnesota State 5.00% 11/1/20 (FSA) 8,175,000 8,564,784 5.00% 8/1/21 2,400,000 2,538,216 Minnesota State Refunding Various Purposes 5.00% 6/1/13 5,175,000 5,296,509 Puerto Rico Commonwealth Public Improvement Series A 5.00% 7/1/34 4,500,000 4,597,695 5.50% 7/1/19 (MBIA) 1,500,000 1,723,230 Puerto Rico Commonwealth Series B 5.00% 7/1/35 1,500,000 1,537,980 Puerto Rico Government Development Bank Senior Notes Series B 5.00% 12/1/14 1,000,000 1,064,340 ____________ 25,322,754 ____________ Transportation Revenue Bonds - 3.76% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/22 (AMBAC) 3,440,000 3,513,066 5.25% 1/1/16 (MBIA) 1,460,000 1,570,011 5.25% 1/1/32 (FGIC) 5,000,000 5,235,999 Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series C 5.25% 1/1/32 (FGIC) 2,250,000 2,354,378 5.50% 1/1/17 (FGIC) 2,500,000 2,669,725 ____________ 15,343,179 ____________ (continues) 21 Statements of net assets Delaware Tax-Free Minnesota Fund Principal Market Amount Value _______________________________________________________________________________ Municipal Bonds (continued) _______________________________________________________________________________ Water & Sewer Revenue Bonds - 1.32% & Minnesota Public Facilities Authority Water Pollution Control Revenue, Inverse Floater ROLs Series II-R-31 6.946% 3/1/18 $5,000,000 $ 5,399,650 ____________ 5,399,650 ____________ Total Municipal Bonds (cost $378,506,073) 396,434,316 ____________ Number of Shares _______________________________________________________________________________ Short-Term Investments - 2.06% _______________________________________________________________________________ Money Market Instruments - 0.10% Federated Minnesota Municipal Cash Trust 418,165 418,165 ____________ 418,165 ____________ Principal Amount ~ Variable Rate Demand Notes - 1.96% Midwest Consortium of Municipal Utilities Revenue Series A (LOC-U.S. Bank) 3.40% 1/1/25 $1,000,000 1,000,000 Minneapolis Guthrie Parking Ramp 3.27% 12/1/33 (SPA) 1,000,000 1,000,000 Minnesota State Higher Education Facilities Authority Revenue (Carleton College) Series 6-D 3.30% 4/1/35 (SPA) 6,000,000 6,000,000 ____________ 8,000,000 ____________ Total Short-Term Investments (cost $8,418,165) 8,418,165 ____________ Total Market Value of Securities - 99.18% (cost $386,924,238) 404,852,481 Receivables and Other Assets Net of Liabilities - 0.82% 3,346,254 ____________ Net Assets Applicable to 32,667,613 Shares Outstanding - 100.00% $408,198,735 ____________ Net Asset Value - Delaware Tax-Free Minnesota Fund Class A ($381,719,633 / 30,552,280 Shares) $12.49 ______ Net Asset Value - Delaware Tax-Free Minnesota Fund Class B ($11,353,799 / 908,021 Shares) $12.50 ______ Net Asset Value - Delaware Tax-Free Minnesota Fund Class C ($15,125,303 / 1,207,312 Shares) $12.53 ______ Components of Net Assets at August 31, 2006: Shares of beneficial interest (unlimited authorization - no par) $389,782,636 Distributions in excess of net investment income (22,418) Accumulated net realized gain on investments 510,274 Net unrealized appreciation of investments 17,928,243 ____________ Total net assets $408,198,735 ____________ Summary of Abbreviations: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association LOC - Letter of Credit MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance ROLs - Residual Option Longs SPA - Stand-by Purchase Agreement $ Pre-Refunded Bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 7 in "Notes to Financial Statements." & An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of August 31, 2006. See Note 7 in "Notes to Financial Statements." ~ Variable rate security. The interest rate shown is the rate as of August 31, 2006. ^ Zero coupon security. The interest rate shown is the yield at the time of purchase. @ Illiquid security. At August 31, 2006, the aggregate amount of illiquid securities equaled $3,478,718, which represented 0.85% of the Fund's net assets. See Note 7 in "Notes to Financial Statements." Net Asset Value and Offering Price Per Share - Delaware Tax-Free Minnesota Fund Net asset value Class A (A) $12.49 Sales charge (4.50% of offering price) (B) 0.59 ______ Offering price $13.08 ______ (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 22 Delaware Tax-Free Minnesota Insured Fund August 31, 2006 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds - 95.85% ________________________________________________________________________________ Corporate-Backed Revenue Bonds - 0.78% Sartell Environmental Improvement Revenue (International Paper) Series A 5.20% 6/1/27 $1,800,000 $ 1,849,410 ____________ 1,849,410 ____________ Education Revenue Bonds - 5.94% Minnesota State Colleges & Universities Revenue Fund Series A 5.00% 10/1/22 (FSA) 5,135,000 5,420,198 5.00% 10/1/29 (MBIA) 4,000,000 4,225,520 Minnesota State Higher Education Facilities Authority Revenue (St. Catherine College) Series 5-N1 5.00% 10/1/18 2,200,000 2,272,666 St. Cloud Housing & Redevelopment Authority Revenue (State University Foundation Project) 5.00% 5/1/23 2,000,000 2,084,440 ____________ 14,002,824 ____________ Electric Revenue Bonds - 6.20% Minnesota State Municipal Power Agency Series A 5.00% 10/1/34 2,000,000 2,053,420 & Northern Municipal Power Agency Electric System Revenue, Inverse Floater ROLs Series II-R-32 6.946% 1/1/13 (FSA) 4,585,000 5,078,437 Puerto Rico Electric Power Authority Power Revenue Series GG 4.75% 7/1/21 (FSA) 1,000,000 1,024,320 Series OO 5.00% 7/1/13 (CIFG) 1,315,000 1,419,385 Shakopee Public Utilities Commission Revenue 5.125% 2/1/26 (MBIA) 1,850,000 1,898,285 Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.25% 1/1/15 (AMBAC) 1,500,000 1,654,590 Western Minnesota Municipal Power Agency Series B 5.00% 1/1/15 (MBIA) 1,365,000 1,481,503 ____________ 14,609,940 ____________ Escrowed to Maturity Bonds - 15.45% Dakota/Washington Counties Housing & Redevelopment Authority Anoka Single Family Residential Mortgage Revenue 8.45% 9/1/19 (GNMA) (AMT) 9,000,000 12,815,280 Bloomington Mortgage Single Family Residential Mortgage Revenue 8.15% 9/1/16 (MBIA) (GNMA) (AMT) 405,000 540,076 8.375% 9/1/21 (GNMA) (FHA) (VA) (AMT) 14,115,000 20,532,384 Western Minnesota Municipal Power Agency Supply Revenue Series A 6.60% 1/1/10 1,650,000 1,738,473 9.75% 1/1/16 (MBIA) 530,000 762,548 ____________ 36,388,761 ____________ Health Care Revenue Bonds - 16.82% Duluth Economic Development Authority Health Care Facilities Benedictine Health System (St. Mary's Hospital) 5.25% 2/15/28 8,500,000 8,897,034 Minneapolis Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 7,800,000 8,373,690 (Fairview Health Services) Series D 5.00% 11/15/34 (AMBAC) 8,250,000 8,638,658 Minneapolis/St. Paul Housing & Redevelopment Authority Health Care System Revenue (Allina Health System) 5.00% 11/15/13 (AMBAC) 6,490,000 6,496,166 (Healthpartners Obligation Group Project) 5.625% 12/1/22 650,000 695,799 5.875% 12/1/29 1,000,000 1,081,610 Minnesota Agricultural & Economic Development Board Revenue (Fairview Health Care System) Series A 5.75% 11/15/26 (MBIA) 180,000 187,549 St. Louis Park Health Care Facilities Revenue (Park Nicollet Health Services) Series B 5.50% 7/1/25 2,000,000 2,145,000 St. Paul Housing & Redevelopment Authority Hospital Revenue (St. Paul/Ramsey Medical Center Project) 5.50% 5/15/13 (AMBAC) 1,000,000 1,001,360 Willmar (Rice Memorial Hospital Project) 5.00% 2/1/22 (FSA) 1,000,000 1,052,890 5.00% 2/1/25 (FSA) 1,000,000 1,049,430 ____________ 39,619,186 ____________ (continues) 23 Statements of net assets Delaware Tax-Free Minnesota Insured Fund Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Housing Revenue Bonds - 4.15% Dakota County Housing & Redevelopment Authority Single Family Mortgage Revenue Series B 5.85% 10/1/30 (GNMA) (FNMA) (AMT) $ 288,000 $ 294,684 Eagan Multifamily Revenue (Woodridge Apartments) Series A 5.90% 8/1/20 (GNMA) 1,000,000 1,025,670 Minneapolis Multifamily Housing Revenue (Bottineau Commons Project) 5.45% 4/20/43 (GNMA) (AMT) 1,500,000 1,566,135 (Seward Towers Project) 5.00% 5/20/36 (GNMA) 4,000,000 4,157,280 Minnesota State Housing Finance Agency Rental Housing Revenue Series C-2 5.95% 2/1/15 (AMBAC) 1,642,000 1,652,279 White Bear Lake Multifamily Revenue (Lake Square) Series A 5.875% 2/1/15 (FHA) 1,055,000 1,081,407 ____________ 9,777,455 ____________ Lease Revenue Bonds - 5.29% Hopkins Housing & Redevelopment Authority Public Works and Fire Station Series A 5.00% 2/1/23 (MBIA) 1,210,000 1,269,810 Minneapolis Special School District #001 Series A 5.00% 2/1/18 (FSA) 1,545,000 1,629,141 5.00% 2/1/19 (FSA) 1,535,000 1,618,596 5.00% 2/1/20 (FSA) 1,690,000 1,782,037 St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.125% 12/1/27 2,000,000 2,106,540 5.25% 12/1/27 3,840,000 4,062,605 ____________ 12,468,729 ____________ Local General Obligation Bonds - 23.30% Big Lake Independent School District #727 Series A 5.00% 2/1/17 (FSA) 1,040,000 1,082,484 5.00% 2/1/20 (FSA) 1,000,000 1,040,850 Centennial Independent School District #012 Series A 5.00% 2/1/18 (FSA) 1,270,000 1,339,164 Dakota County Community Development Agency Governmental Housing Development 5.00% 1/1/21 1,275,000 1,327,237 Farmington Independent School District #192 Series B 5.00% 2/1/27 (FSA) 4,000,000 4,220,400 Lakeville Independent School District #194 Series A 4.75% 2/1/22 (FSA) 2,350,000 2,434,671 Morris Independent School District #769 5.00% 2/1/24 (MBIA) 4,875,000 5,191,485 Mounds View Independent School District #621 5.00% 2/1/20 (MBIA) 2,970,000 3,125,806 5.375% 2/1/24 (FGIC) 6,170,000 6,572,346 New Brighton Tax Increment Series A 5.00% 2/1/26 (MBIA) 1,185,000 1,266,860 Osseo Independent School District #279 Series A 5.00% 2/1/21 (FSA) 3,570,000 3,764,422 Robbinsdale Independent School District #281 5.00% 2/1/21 (FSA) 1,310,000 1,381,343 & Rockford Independent School District #883, Inverse Floater ROLs Series II-R-30-B 7.656% 2/1/21 (FSA) 1,605,000 1,797,359 ^ Rosemount Independent School District #196 Series B 5.80% 4/1/09 (FSA) 1,860,000 1,693,214 5.85% 4/1/10 (FSA) 2,240,000 1,962,845 ^ Sauk Rapids Independent School District #047 Series B 5.982% 2/1/15 (FSA) 2,700,000 1,788,723 6.083% 2/1/17 (FSA) 2,245,000 1,316,288 & South Washington County Independent School District #833, Inverse Floater ROLs Series II-R-34-A 7.656% 2/1/20 (MBIA) 3,440,000 3,852,284 7.656% 2/1/21 (MBIA) 3,645,000 4,081,853 St. Michael Independent School District #885 5.00% 2/1/20 (FSA) 1,970,000 2,073,346 5.00% 2/1/27 (FSA) 3,435,000 3,572,675 ____________ 54,885,655 ____________ $ Pre-Refunded Bonds - 9.92% Minneapolis Community Development Agency (Supported Development Revenue) Series G-3 5.45% 12/1/31-11 2,000,000 2,169,280 Minneapolis Health Care System Revenue (Fairview Health Services) Series A 5.625% 5/15/32-12 5,400,000 5,981,094 Minnesota Agricultural & Economic Development Board Revenue (Fairview Health Care System) Series A 5.75% 11/15/26-07 (MBIA) 10,070,000 10,525,264 24 Principal Market Amount Value _______________________________________________________________________________ Municipal Bonds (continued) _______________________________________________________________________________ $ Pre-Refunded Bonds (continued) Southern Minnesota Municipal Power Agency Supply Revenue Series A 5.75% 1/1/18-13 $3,790,000 $ 4,000,156 5.75% 1/1/18-13 (AMBAC) 670,000 707,152 ____________ 23,382,946 ____________ Special Tax Bonds - 0.80% Virgin Islands Public Finance Authority Revenue (Matching Fund Loan) Series A 5.25% 10/1/22 1,785,000 1,882,854 ____________ 1,882,854 ____________ State General Obligation Bonds - 2.45% Minnesota State 5.00% 11/1/20 (FSA) 5,500,000 5,762,240 ____________ 5,762,240 ____________ Transportation Revenue Bonds - 4.75% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/22 (MBIA) 2,000,000 2,092,020 5.125% 1/1/25 (FGIC) 100,000 103,457 Series C 5.125% 1/1/20 (FGIC) 2,000,000 2,099,560 5.25% 1/1/32 (FGIC) 6,595,000 6,900,942 ____________ 11,195,979 ____________ Total Municipal Bonds (cost $210,790,438) 225,825,979 ____________ Number of Shares _______________________________________________________________________________ Short-Term Investments - 3.11% _______________________________________________________________________________ Money Market Instruments - 0.37% Federated Minnesota Municipal Cash Trust 857,402 857,402 ____________ 857,402 ____________ Principal Amount ~ Variable Rate Demand Notes - 2.74% Midwest Consortium of Municipal Utilities Revenue Series A (LOC - U.S. Bank) 3.40% 1/1/25 $1,000,000 1,000,000 Minneapolis Health Care System Revenue (Fairview Health Services) Series A 3.40% 11/15/32 (AMBAC) (SPA) 1,400,000 1,400,000 Minneapolis Revenue (Guthrie Theater Project) Series A (LOC - Wells Fargo Bank) 3.27% 10/1/23 1,000,000 1,000,000 Minnesota State Higher Education Facilities Authority Revenue (Carleton College) Series 6-D 3.30% 4/1/35 (SPA) 3,060,000 3,060,000 ____________ 6,460,000 ____________ Total Short-Term Investments (cost $7,317,402) 7,317,402 ____________ Total Market Value of Securities - 98.96% (cost $218,107,840) 233,143,381 Receivables and Other Assets Net of Liabilities - 1.04% 2,451,670 ____________ Net Assets Applicable to 21,640,206 Shares Outstanding - 100.00% $235,595,051 ____________ Net Asset Value - Delaware Tax-Free Minnesota Insured Fund Class A ($212,859,134 / 19,552,653 Shares) $10.89 ______ Net Asset Value - Delaware Tax-Free Minnesota Insured Fund Class B ($10,182,240 / 936,209 Shares) $10.88 ______ Net Asset Value - Delaware Tax-Free Minnesota Insured Fund Class C ($12,553,677 / 1,151,344 Shares) $10.90 ______ Components of Net Assets at August 31, 2006: Shares of beneficial interest (unlimited authorization - no par) $220,321,556 Accumulated net realized gain on investments 237,954 Net unrealized appreciation of investments 15,035,541 ____________ Total net assets $235,595,051 ____________ Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax CIFG - CDC IXIS Financial Guaranty FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FNMA - Insured by Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association LOC - Letter of Credit MBIA - Insured by the Municipal Bond Insurance Association ROLs - Residual Option Longs SPA - Stand-by Purchase Agreement VA - Insured by the Veterans Administration (continues) 25 Statements of net assets Delaware Tax-Free Minnesota Insured Fund ________________________________________________________________________________ ________________________________________________________________________________ $ Pre-Refunded Bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 7 in "Notes to Financial Statements." & An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of August 31, 2006. See Note 7 in "Notes to Financial Statements." ~ Variable rate security. The interest rate shown is the rate as of August 31, 2006. ^ Zero coupon security. The interest rate shown is the yield at the time of purchase. Net Asset Value and Offering Price Per Share - Delaware Tax-Free Minnesota Insured Fund Net asset value Class A (A) $10.89 Sales charge (4.50% of offering price) (B) 0.51 ______ Offering price $11.40 ______ (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 26 Delaware Tax-Free Minnesota Intermediate Fund August 31, 2006 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds - 98.97% ________________________________________________________________________________ Corporate-Backed Revenue Bonds - 7.53% Laurentian Energy Authority I Cogeneration Revenue Series A 5.00% 12/1/21 $ 750,000 $ 757,695 Minneapolis Art Center Facilities Revenue (Walker Art Center Project) 5.125% 7/1/21 2,250,000 2,346,750 Minneapolis Community Development Agency Supported Revenue Common Bond Fund Series 4 6.20% 6/1/17 (AMT) 1,055,000 1,069,337 ____________ 4,173,782 ____________ Education Revenue Bonds - 6.34% Minnesota State Higher Education Facilities Authority Revenue (Augsburg College) Series 6-J1 5.00% 5/1/28 750,000 767,430 (University of St. Thomas) Series 5-Y 5.25% 10/1/19 1,590,000 1,708,789 St. Cloud Housing & Redevelopment Authority Revenue (State University Foundation Project) 5.00% 5/1/23 1,000,000 1,042,220 ____________ 3,518,439 ____________ Electric Revenue Bonds - 1.92% Chaska Electric Revenue (Generating Facilities) Series A 5.25% 10/1/25 1,000,000 1,063,430 ____________ 1,063,430 ____________ Escrowed to Maturity Bonds - 2.08% University of Minnesota Series A 5.75% 7/1/16 1,000,000 1,152,930 ____________ 1,152,930 ____________ Health Care Revenue Bonds - 22.48% Apple Valley Economic Development Authority Health Care Revenue (Evercare Senior Living Projects) Series A 6.00% 12/1/25 500,000 503,440 Bemidji Hospital Facilities First Meeting Revenue (North Country Health Services) 5.00% 9/1/24 (RADIAN) 500,000 515,805 Glencoe Health Care Facilities Revenue (Glencoe Regional Health Services Project) 5.00% 4/1/20 1,250,000 1,294,500 Maple Grove Health Care Facilities Revenue (North Memorial Health Care) 5.00% 9/1/29 1,000,000 1,032,560 Minneapolis Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 1,500,000 1,610,325 Minneapolis/St. Paul Housing & Redevelopment Authority Health Care System (Health Partners Obligation Group Project) 6.00% 12/1/17 1,125,000 1,240,526 Moorhead Economic Development Authority Multifamily Revenue (Eventide Lutheran Home Project) Series B 6.00% 6/1/18 1,000,000 1,000,650 Northfield Hospital Revenue 5.25% 11/1/21 1,000,000 1,054,320 Oakdale Elderly Housing Revenue (PHM/Oakdale, Inc. Project) 5.75% 3/1/18 1,400,000 1,407,140 St. Louis Park Health Care Facilities Revenue (Park Nicollet Health Services) Series B 5.50% 7/1/25 1,500,000 1,608,750 St. Paul Housing & Redevelopment Authority Hospital Revenue (Health East Project) Series B 5.85% 11/1/17 1,160,000 1,197,828 ____________ 12,465,844 ____________ Housing Revenue Bonds - 6.96% Minneapolis Multifamily Housing Revenue (Trinity Apartments-Section 8) Series A 6.75% 5/1/21 1,855,000 1,943,502 Minnesota State Housing Finance Agency Residential Housing Series I 5.10% 7/1/20 (AMT) 845,000 867,435 Minnesota State Housing Finance Agency Single Family Mortgage Series J 5.90% 7/1/28 (AMT) 445,000 458,403 @ Park Rapids Multifamily Revenue (The Court Apartments Project- Section 8) 6.05% 8/1/12 615,000 590,056 ____________ 3,859,396 ____________ Lease Revenue Bonds - 4.06% Edina Housing & Redevelopment Authority Public Project Revenue (Appropriate Lease Obligation) 5.125% 2/1/19 1,000,000 1,051,040 Hibbing Economic Development Authority Revenue (Hibbing Lease Obligation) 6.10% 2/1/08 285,000 286,416 Virginia Housing & Redevelopment Authority Health Care Facility (Lease Revenue) 5.25% 10/1/25 880,000 913,766 ____________ 2,251,222 ____________ Local General Obligation Bonds - 32.94% Big Lake Independent School District #727 Series C 5.00% 2/1/16 (FSA) 1,180,000 1,240,369 5.00% 2/1/17 (FSA) 1,000,000 1,047,220 (continues) 27 Statements of net assets Delaware Tax-Free Minnesota Intermediate Fund Principal Market Amount Value _______________________________________________________________________________ Municipal Bonds (continued) _______________________________________________________________________________ Local General Obligation Bonds (continued) Centennial Independent School District #012 Series A 5.00% 2/1/18 (FSA) $1,000,000 $ 1,054,460 5.00% 2/1/20 (FSA) 750,000 790,845 Dakota County Capital Improvement Series A 4.75% 2/1/17 1,000,000 1,036,820 Dakota County Community Development Agency Governmental Housing Refunding (Senior Housing Facilities) Series A 5.00% 1/1/22 1,150,000 1,216,965 Hennepin County Series B 4.75% 12/1/14 1,000,000 1,039,210 Hopkins Independent School District #270 5.125% 2/1/17 (FGIC) 2,000,000 2,127,060 Minneapolis Tax Increment Revenue (Ivy Tower Project) 5.50% 2/1/22 415,000 418,876 Moorhead Independent School District #152 5.00% 4/1/10 (FGIC) 2,585,000 2,710,449 Osseo Independent School District #279 Series A 5.00% 2/1/21 (FSA) 1,500,000 1,581,690 Ramsey County (Capital Improvement Plan) Series B 5.25% 2/1/11 1,445,000 1,545,471 South Washington County Independent School District #833 Series B 5.00% 2/1/16 (FSA) 1,560,000 1,651,525 St. Paul Independent School District #625 Series B 5.00% 2/1/20 (FSA) 750,000 803,955 ___________ 18,264,915 ___________ $ Pre-Refunded Bonds - 6.41% Minneapolis Health Care System Revenue (Fairview Health Services) Series A 5.625% 5/15/32-12 1,750,000 1,938,318 Minnesota State Higher Education Facilities Authority Revenue (College of Art & Design Project) Series 5-D 6.625% 5/1/20-10 1,000,000 1,072,060 Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series D 5.25% 7/1/38-12 500,000 541,805 ___________ 3,552,183 ___________ State General Obligation Bonds - 6.80% Minnesota State 5.00% 8/1/21 2,550,000 2,696,855 ~ Puerto Rico Public Finance Corporation Commonwealth Appropriation Series A (LOC - Puerto Rico Government Bank) 5.75% 8/1/27 1,000,000 1,075,110 ___________ 3,771,965 ___________ Transportation Revenue Bonds - 1.45% Minneapolis/St. Paul Metropolitan Airports Commission Series 14 5.50% 1/1/11 (AMT) 750,000 805,575 ___________ 805,575 ___________ Total Municipal Bonds (cost $52,880,454) 54,879,681 ___________ Number of Shares _______________________________________________________________________________ Short-Term Investments - 0.13% _______________________________________________________________________________ Money Market Instruments - 0.13% Federated Minnesota Municipal Cash Trust 71,637 71,637 ___________ Total Short-Term Investments (cost $71,637) 71,637 ___________ Total Market Value of Securities - 99.10% (cost $52,952,091) 54,951,318 Receivables and Other Assets Net of Liabilities - 0.90% 500,393 ___________ Net Assets Applicable to 5,104,233 Shares Outstanding - 100.00% $55,451,711 ___________ Net Asset Value - Delaware Tax-Free Minnesota Intermediate Fund Class A ($48,296,958 / 4,446,800 Shares) $10.86 ______ Net Asset Value - Delaware Tax-Free Minnesota Intermediate Fund Class B ($1,993,169 / 183,052 Shares) $10.89 ______ Net Asset Value - Delaware Tax-Free Minnesota Intermediate Fund Class C ($5,161,584 / 474,381 Shares) $10.88 ______ Components of Net Assets at August 31, 2006: Shares of beneficial interest (unlimited authorization - no par) $54,908,696 Accumulated net realized loss on investments (1,456,212) Net unrealized appreciation of investments 1,999,227 ___________ Total net assets $55,451,711 ___________ 28 ________________________________________________________________________________ ________________________________________________________________________________ Summary of Abbreviations: AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance LOC - Letter of Credit RADIAN - Insured by Radian Asset Assurance @ Illiquid security. At August 31, 2006, the aggregate amount of illiquid securities equaled $590,056, which represented 1.06% of the Fund's net assets. See Note 7 in "Notes to Financial Statements." $ Pre-Refunded Bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 7 in "Notes to Financial Statements." ~ Variable rate security. The interest rate shown is the rate as of August 31, 2006. Net Asset Value and Offering Price Per Share - Delaware Tax-Free Minnesota Intermediate Fund Net asset value Class A (A) $10.86 Sales charge (2.75% of offering price) (B) 0.31 ______ Offering price $11.17 ______ (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes (continues) 29 Statements of net assets Delaware Minnesota High-Yield Municipal Bond Fund August 31, 2006 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds - 95.23% ________________________________________________________________________________ Corporate-Backed Revenue Bonds - 4.50% Cloquet Pollution Control Revenue (Potlatch Corp. Project) 5.90% 10/1/26 $1,700,000 $ 1,729,359 Laurentian Energy Authority I Cogeneration Revenue Series A 5.00% 12/1/21 1,750,000 1,767,955 Sartell Environmental Improvement Revenue (International Paper) Series A 5.20% 6/1/27 1,750,000 1,798,038 ___________ 5,295,352 ___________ Education Revenue Bonds - 4.38% Minnesota State Higher Education Facilities Authority Revenue (Augsburg College) Series 6-C 5.00% 5/1/23 700,000 721,294 Series 6-J1 5.00% 5/1/36 1,000,000 1,014,690 (St. Catherine College) Series 5-N1 5.375% 10/1/32 2,000,000 2,094,860 (University St. Thomas) Series 6-I 5.00% 4/1/23 1,250,000 1,319,600 ___________ 5,150,444 ___________ Electric Revenue Bonds - 7.19% Chaska Electric Revenue (Generating Facilities) Series A 5.25% 10/1/25 1,000,000 1,063,430 Minnesota State Municipal Power Agency 5.00% 10/1/35 1,000,000 1,029,010 Series A 5.00% 10/1/34 2,750,000 2,823,453 Puerto Rico Electric Power Authority Power Revenue Series II 5.25% 7/1/31 1,000,000 1,046,930 Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.25% 1/1/16 (AMBAC) 1,000,000 1,109,260 Western Minnesota Municipal Power Agency Series A 5.00% 1/1/30 (MBIA) 1,335,000 1,386,624 ___________ 8,458,707 ___________ Health Care Revenue Bonds - 40.75% Aitkin Health Care Facilities Revenue (Riverwood Health Care Center) 5.50% 2/1/24 700,000 714,399 Apple Valley Economic Development Authority Health Care Revenue (Augustana Home St. Paul Project) Series A 5.80% 1/1/30 1,000,000 1,006,350 (Evercare Senior Living Project) Series A 6.125% 6/1/35 1,000,000 1,006,860 Bemidji Health Care Facilities First Meeting Revenue (North Country Health Services) 5.00% 9/1/20 1,150,000 1,208,662 5.00% 9/1/31 (RADIAN) 2,500,000 2,580,349 Buffalo Health Care Revenue (Central Minnesota Senior Housing Project) Series A 5.375% 9/1/26 1,000,000 996,360 Buhl Nursing Home Revenue (Forest Health Services Project) Series A 6.75% 8/1/33 1,000,000 976,310 Detroit Lakes Housing & Health Facilities Revenue Refunding (Mankato Lutheran Homes) Series D 5.50% 8/1/21 500,000 506,395 Duluth Economic Development Authority Health Care Facilities Revenue (Benedictine Health System - St. Mary's Hospital) 5.25% 2/15/33 2,250,000 2,334,892 Glencoe Health Care Facilities Revenue (Glencoe Regional Health Services Project) 5.00% 4/1/31 1,965,000 2,001,294 Mahtomedi Senior Housing Revenue (St. Andrews Village Project) 5.75% 12/1/40 1,000,000 1,008,390 Maple Grove Health Care Facilities Revenue (North Memorial Health Care) 5.00% 9/1/35 3,590,000 3,685,529 Minneapolis Health Care Facilities Revenue (Augustana Chapel View Homes) Series D 5.75% 6/1/29 1,000,000 1,024,480 (Jones-Harrison Residence Project) 5.60% 10/1/30 1,500,000 1,512,525 Minneapolis Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 2,000,000 2,147,099 (Fairview Health Services) Series D 5.00% 11/15/34 (AMBAC) 1,000,000 1,047,110 Minneapolis/St. Paul Housing & Redevelopment Authority Health Care System (Health Partners Obligation Group Project) 6.00% 12/1/17 1,125,000 1,240,526 Minnesota Agriculture & Economic Development Board Revenue (Benedictine Health Systems) 5.75% 2/1/29 1,000,000 1,015,690 30 Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Health Care Revenue Bonds (continued) Moorhead Economic Development Authority Multifamily Revenue Refunding & Improvement (Eventide Lutheran Home Project) Series B 6.00% 6/1/18 $ 870,000 $ 870,566 Northfield Health Care Facilities Revenue Refunding & Improvement (Northfield Retirement Center Project) Series A 6.00% 5/1/28 1,000,000 1,000,350 Northfield Hospital Revenue 5.375% 11/1/31 1,000,000 1,051,100 Oakdale Elderly Housing Revenue (PHM/Oakdale, Inc. Project) 6.00% 3/1/28 1,800,000 1,810,152 Owatonna Senior Housing Revenue (Senior Living Project) Series A 5.80% 10/1/29 400,000 402,988 6.00% 4/1/41 1,250,000 1,274,363 Prior Lake Senior Housing Revenue (Shepherds Path Senior Housing) Series B 5.75% 8/1/41 1,000,000 1,008,820 Rochester Health Care Facilities Revenue (Mayo Clinic) 5.00% 11/15/36 2,000,000 2,086,600 Rochester Multifamily Housing Revenue (Wedum Shorewood Campus Project) 6.60% 6/1/36 990,000 1,022,066 Shakopee Health Care Facilities Revenue (St. Francis Regional Medical Center) 5.25% 9/1/34 1,000,000 1,040,250 Shoreview Elderly Housing Revenue (PHM/Shoreview, Inc. Project) 6.15% 12/1/33 1,250,000 1,280,150 St. Louis Park Health Care Facilities Revenue (Park Nicollet Health Services) Series B 5.25% 7/1/30 1,000,000 1,047,980 St. Paul Housing & Redevelopment Authority Hospital Revenue (Health East Project) 6.00% 11/15/25 1,000,000 1,105,210 Series A 5.70% 11/1/15 800,000 825,648 Series B 5.85% 11/1/17 250,000 258,153 Stillwater Health Care Revenue (Health System Obligation Group) 5.00% 6/1/25 2,000,000 2,076,660 5.00% 6/1/35 1,000,000 1,030,000 Twin Valley Congregate Housing Revenue (Living Options, Inc. Project) 5.95% 11/1/28 1,825,000 1,699,696 Woodbury Economic Development Authority Housing Revenue Refunding 5.65% 6/1/33 1,000,000 1,012,790 ___________ 47,916,762 ___________ Housing Revenue Bonds - 15.84% Chanhassen Multifamily Revenue Refunding (Heritage Park Apartments Project-Section 8) 6.20% 7/1/30 (FHA) (AMT) 300,000 307,086 Chaska Multifamily Housing Revenue (West Suburban Housing Partners Project) 5.875% 3/1/31 (AMT) 1,000,000 911,970 @ Hutchinson Multifamily Housing Revenue (Evergreen Apartments Project-Section 8) 5.75% 11/1/28 1,955,000 1,863,819 Minneapolis Multifamily Housing Revenue (Grant Street Apartments Project) Series A 7.25% 11/1/29 2,085,000 2,159,351 (Olson Townhomes Project) 6.00% 12/1/19 (AMT) 1,555,000 1,555,249 (Trinity Apartments-Section 8) Series A 6.75% 5/1/21 675,000 707,204 Minneapolis/St. Paul Housing Finance Board (Cityliving Project) Series A-2 5.00% 12/1/38 (FNMA) (GNMA) (AMT) 1,000,000 1,014,210 Minnesota State Housing Finance Agency Rental Housing Series A 4.875% 8/1/24 (AMT) 585,000 591,482 Series A-1 5.00% 8/1/40 (AMT) 2,265,000 2,291,545 Minnesota State Housing Finance Agency Residential Housing Series G 5.00% 7/1/36 (AMT) 1,000,000 1,011,680 Minnesota State Housing Finance Agency Single Family Mortgage Series E 6.25% 1/1/23 (AMT) 15,000 15,264 Series J 5.90% 7/1/28 (AMT) 685,000 705,632 Series M 5.875% 1/1/17 25,000 25,611 St. Cloud Housing & Redevelopment Authority Revenue (Sterling Heights Apartments Project) 7.55% 4/1/39 (AMT) 530,000 560,427 St. Paul Housing & Redevelopment Authority Multifamily Housing Revenue (Selby Grotto Housing Project) 5.50% 9/20/44 (GNMA) (AMT) 750,000 769,928 (continues) 31 Statements of net assets Delaware Minnesota High-Yield Municipal Bond Fund Principal Market Amount Value ________________________________________________________________________________ Municipal Bonds (continued) ________________________________________________________________________________ Housing Revenue Bonds (continued) Stillwater Multifamily Revenue (Stillwater Cottages Project) 7.00% 11/1/16 (AMT) $ 680,000 $ 694,790 Series A 6.75% 11/1/11 205,000 209,471 Series A 7.00% 11/1/27 340,000 347,334 Washington County Housing & Redevelopment Authority Governmental Revenue (Briar Pond Project) Series B 7.125% 8/20/34 840,000 803,796 (Woodland Park Apartments Project) 4.70% 10/1/32 2,075,000 2,085,707 ___________ 18,631,556 ___________ Lease Revenue Bonds - 2.23% Andover Economic Development Authority Public Facilities Lease Revenue (Andover Community Center) 5.20% 2/1/34 1,000,000 1,043,240 Hibbing Economic Development Authority Revenue (Hibbing Lease Obligation Project) 6.40% 2/1/12 530,000 530,387 St. Paul Port Authority Lease Revenue (Robert Street Office Building Project) 5.00% 12/1/27 1,000,000 1,047,260 ___________ 2,620,887 ___________ Local General Obligation Bonds - 9.05% Farmington Independent School District #192 Series B 5.00% 2/1/27 (FSA) 1,000,000 1,055,100 Hopkins Independent School District #270 Facilities 5.00% 2/1/26 (MBIA) 1,055,000 1,116,201 Lakeville Independent School District #194 Series A 4.75% 2/1/22 (FSA) 1,000,000 1,036,030 Metropolitan Council Waste Water Treatment Series B 5.00% 12/1/21 500,000 533,545 Minneapolis Tax Increment Revenue (Ivory Tower Project) 5.70% 2/1/29 785,000 800,111 Minneapolis Tax Increment Revenue Refunding (St. Anthony Falls Project) 5.65% 2/1/27 500,000 507,440 Moorhead Series B 5.00% 2/1/33 (MBIA) 750,000 785,190 Perham Disposal System 6.00% 5/1/22 (AMT) 1,500,000 1,582,350 St. Paul Housing & Redevelopment Authority Tax Increment (Upper Landing Project) Series A 6.80% 3/1/29 1,000,000 1,073,320 St. Paul Independent School District #625 Series B 5.00% 2/1/20 (FSA) 750,000 803,955 Todd Morrison Cass & Wadena Counties United Hospital District (Health Care Facilities- Lakewood) 5.00% 12/1/21 610,000 628,873 5.125% 12/1/24 205,000 212,376 5.25% 12/1/26 490,000 511,795 ___________ 10,646,286 ___________ $ Pre-Refunded Bonds - 6.39% Little Canada Multifamily Housing Revenue Alternative Development (Montreal Courts Apartments Project) Series A 6.25% 12/1/27-07 1,250,000 1,286,925 Minneapolis Community Development Agency (Supported Development Revenue) Series G-3 5.45% 12/1/31-11 1,000,000 1,084,640 Minneapolis Health Care System Revenue (Fairview Health Services) Series A 5.625% 5/15/32-12 2,000,000 2,215,220 Minnesota State Higher Education Facilities Authority Revenue (College of Art & Design Project) Series 5-D 6.75% 5/1/26-10 500,000 536,635 Perham Hospital District Senior Congregate Housing Facilities Revenue (Briarwood Project) 6.25% 11/1/22-07 620,000 636,436 Puerto Rico Commonwealth Highway & Transportation Authority Transportation Refunding Series D 5.25% 7/1/38-12 1,500,000 1,625,415 Rice County Certificates of Participation Series A 6.00% 12/1/21-06 125,000 125,754 ___________ 7,511,025 ___________ Special Tax Bonds - 0.89% Virgin Islands Public Finance Authority Revenue (Senior-Lien- Matching Fund Loan Note) Series A 5.25% 10/1/24 1,000,000 1,053,430 ___________ 1,053,430 ___________ 32 Principal Market Amount Value _______________________________________________________________________________ Municipal Bonds (continued) _______________________________________________________________________________ State General Obligation Bonds - 2.24% & Minnesota State, Inverse Floater ROLs 6.564% 11/1/17 $1,000,000 $ 1,054,560 Puerto Rico Commonwealth Public Improvement Series A 5.00% 7/1/34 500,000 510,855 Puerto Rico Government Development Bank Senior Notes Series B 5.00% 12/1/14 1,000,000 1,064,340 ____________ 2,629,755 ____________ Transportation Revenue Bonds - 1.77% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/28 (MBIA) 2,000,000 2,078,460 ____________ 2,078,460 ____________ Total Municipal Bonds (cost $109,059,572) 111,992,664 ____________ Number of Shares _______________________________________________________________________________ Short-Term Investments - 3.99% _______________________________________________________________________________ Money Market Instruments - 0.67% Federated Minnesota Municipal Cash Trust 784,806 784,806 ____________ 784,806 ____________ Principal Amount ~ Variable Rate Demand Notes - 3.32% Minneapolis Guthrie Parking Ramp 3.27% 12/1/33 (SPA) $2,000,000 2,000,000 Minneapolis Health Care System Revenue (Fairview Health Services) Series A 3.40% 11/15/32 (AMBAC) (SPA) 1,400,000 1,400,000 Minneapolis Revenue (Guthrie Theater Project) Series A (LOC - Wells Fargo Bank) 3.27% 10/1/23 500,000 500,000 ____________ 3,900,000 ____________ Total Short-Term Investments (cost $4,684,806) 4,684,806 ____________ Total Market Value of Securities - 99.22% (cost $113,744,378) 116,677,470 Receivables and Other Assets Net of Liabilities - 0.78% 920,728 ____________ Net Assets Applicable to 11,161,699 Shares Outstanding - 100.00% $117,598,198 ____________ Net Asset Value - Delaware Minnesota High-Yield Municipal Bond Fund Class A ($87,503,922 / 8,308,999 Shares) $10.53 ______ Net Asset Value - Delaware Minnesota High-Yield Municipal Bond Fund Class B ($9,577,877 / 908,064 Shares) $10.55 ______ Net Asset Value - Delaware Minnesota High-Yield Municipal Bond Fund Class C ($20,516,399 / 1,944,636 Shares) $10.55 ______ Components of Net Assets at August 31, 2006: Shares of beneficial interest (unlimited authorization - no par) $117,216,892 Accumulated net realized loss on investments (2,551,786) Net unrealized appreciation of investments 2,933,092 ____________ Total net assets $117,598,198 ____________ Summary of Abbreviations: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax FHA - Insured by the Federal Housing Administration FNMA - Insured by Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association LOC - Letter of Credit MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance ROLs - Residual Option Longs SPA - Stand-by Purchase Agreement $ Pre-Refunded Bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 7 in "Notes to Financial Statements." & An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of August 31, 2006. See Note 7 in "Notes to Financial Statements." ~ Variable rate security. The interest rate shown is the rate as of August 31, 2006. @ Illiquid security. At August 31, 2006, the aggregate amount of illiquid securities equaled $1,863,819, which represented 1.58% of the Fund's net assets. See Note 7 in "Notes to Financial Statements." Net Asset Value and Offering Price Per Share Delaware Minnesota High-Yield Municipal Bond Fund Net asset value Class A (A) $10.53 Sales charge (4.50% of offering price) (B) 0.50 ______ Offering price $11.03 ______ (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 33 Statements of operations Delaware Minnesota Municipal Bond Funds Year Ended August 31, 2006 Delaware Delaware Delaware Delaware Tax-Free Tax-Free Minnesota Tax-Free Minnesota Minnesota High-Yield Minnesota Insured Intermediate Municipal Fund Fund Fund Bond Fund Investment Income: Interest $20,085,468 $11,700,803 $2,687,793 $5,194,380 ___________ ___________ __________ __________ Expenses: Management fees 2,190,839 1,188,037 285,389 555,094 Distribution expenses - Class A 928,423 535,795 124,107 181,263 Distribution expenses - Class B 122,428 111,364 23,021 101,294 Distribution expenses - Class C 144,811 122,115 51,217 179,700 Dividend disbursing and transfer agent fees and expenses 203,190 134,876 38,098 62,552 Accounting and administration expenses 159,334 95,043 22,831 40,370 Legal and professional fees 61,009 47,903 28,572 28,979 Registration fees 27,692 17,639 16,774 31,392 Trustees' fees 20,743 13,468 2,966 5,210 Reports and statements to shareholders 31,031 27,876 9,362 15,156 Custodian fees 19,475 10,740 3,976 6,453 Insurance fees 11,229 5,975 1,325 3,737 Pricing fees 4,009 2,633 1,420 2,520 Taxes (other than taxes on income) 1,302 743 - 455 Other 13,269 8,043 3,403 3,206 ___________ ___________ __________ __________ 3,938,784 2,322,250 612,461 1,217,381 Less expenses absorbed or waived (15,468) (28,216) (69,913) (108,549) Less waived distribution expenses - Class A - - (49,643) - Less expense paid indirectly (2,148) (811) (952) (72) ___________ ___________ __________ __________ Total operating expenses 3,921,168 2,293,223 491,953 1,108,760 ___________ ___________ __________ __________ Net Investment Income 16,164,300 9,407,580 2,195,840 4,085,620 ___________ ___________ __________ __________ Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) on investments 420,471 (191,561) (181,095) (187,727) Net change in unrealized appreciation/depreciation of investments (5,618,279) (4,320,530) (652,780) (226,433) ___________ ___________ __________ __________ Net Realized and Unrealized Loss on Investments (5,197,808) (4,512,091) (833,875) (414,160) ___________ ___________ __________ __________ Net Increase in Net Assets Resulting from Operations $10,966,492 $ 4,895,489 $1,361,965 $3,671,460 ___________ ___________ __________ __________ See accompanying notes
34 Statements of changes in net assets Delaware Minnesota Municipal Bond Funds Delaware Tax-Free Delaware Tax-Free Minnesota Minnesota Fund New York Fund Year Ended Year Ended 8/31/06 8/31/05 8/31/06 8/31/05 Increase (Decrease) in Net Assets from Operations: Net investment income $ 16,164,300 $ 15,842,204 $ 9,407,580 $ 10,006,289 Net realized gain (loss) on investments 420,471 521,727 (191,561) 483,566 Net change in unrealized appreciation/depreciation of investments (5,618,279) 6,325,529 (4,320,530) 2,576,840 ____________ ____________ ____________ ____________ Net increase in net assets resulting from operations 10,966,492 22,689,460 4,895,489 13,066,695 ____________ ____________ ____________ ____________ Dividends and Distributions to Shareholders from: Net investment income: Class A (15,322,571) (14,918,426) (8,597,833) (9,106,255) Class B (413,101) (468,436) (363,586) (438,591) Class C (487,162) (416,235) (397,631) (415,840) Net realized gain on investments: Class A (767,541) (4,220,929) (438,581) (1,001,479) Class B (26,047) (174,978) (23,729) (62,572) Class C (29,894) (135,698) (24,664) (55,205) ____________ ____________ ____________ ____________ (17,046,316) (20,334,702) (9,846,024) (11,079,942) ____________ ____________ ____________ ____________ Capital Share Transactions: Proceeds from shares sold: Class A 46,525,876 32,762,383 11,550,587 13,305,078 Class B 806,782 1,032,796 359,427 762,589 Class C 4,424,369 4,082,514 1,930,187 2,220,317 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 10,254,675 12,557,067 6,080,360 6,840,725 Class B 273,926 421,984 294,382 389,371 Class C 399,762 431,656 296,875 323,100 ____________ ____________ ____________ ____________ 62,685,390 51,288,400 20,511,818 23,841,180 ____________ ____________ ____________ ____________ Cost of shares repurchased: Class A (33,894,118) (31,030,615) (26,983,677) (22,291,529) Class B (2,326,335) (3,294,771) (2,559,927) (3,218,588) Class C (3,458,556) (1,444,705) (1,699,163) (2,404,134) ____________ ____________ ____________ ____________ (39,679,009) (35,770,091) (31,242,767) (27,914,251) ____________ ____________ ____________ ____________ Increase (decrease) in net assets derived from capital share transactions 23,006,381 15,518,309 (10,730,949) (4,073,071) ____________ ____________ ____________ ____________ Net Increase (Decrease) in Net Assets 16,926,557 17,873,067 (15,681,484) (2,086,318) Net Assets: Beginning of year 391,272,178 373,399,111 251,276,535 253,362,853 ____________ ____________ ____________ ____________ End of year $408,198,735 $391,272,178 $235,595,051 $251,276,535 ____________ ____________ ____________ ____________ Undistributed (distributions in excess of) net investment income $ (22,418) $ 147,934 $ - $ - See accompanying notes
(continues) 35 Statements of changes in net assets Delaware Minnesota Municipal Bond Funds Delaware Tax-Free Minnesota Delaware Minnesota High-Yield Intermediate Fund Municipal Bond Fund Year Ended Year Ended 8/31/06 8/31/05 8/31/06 8/31/05 Increase (Decrease) in Net Assets from Operations: Net investment income $ 2,195,840 $ 2,350,094 $ 4,085,620 $ 3,196,642 Net realized gain (loss) on investments (181,095) 799,234 (187,727) 26,471 Net change in unrealized appreciation/depreciation of investments (652,780) (107,313) (226,433) 2,717,449 ___________ ___________ ____________ ___________ Net increase in net assets resulting from operations 1,361,965 3,042,015 3,671,460 5,940,562 ___________ ___________ ____________ ___________ Dividends and Distributions to Shareholders from: Net investment income: Class A (1,965,980) (2,063,392) (3,084,904) (2,292,733) Class B (71,129) (85,793) (353,881) (419,856) Class C (158,749) (200,891) (628,298) (482,033) ___________ ___________ ____________ ___________ (2,195,858) (2,350,076) (4,067,083) (3,194,622) ___________ ___________ ____________ ___________ Capital Share Transactions: Proceeds from shares sold: Class A 4,468,732 8,856,040 33,135,160 22,657,439 Class B 12,810 46,423 1,943,331 1,226,522 Class C 1,086,994 735,412 7,697,199 5,727,603 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 1,416,395 1,526,786 1,867,441 1,387,489 Class B 53,171 62,528 227,202 256,713 Class C 116,926 157,534 437,783 291,405 ___________ ___________ ____________ ___________ 7,155,028 11,384,723 45,308,116 31,547,171 ___________ ___________ ____________ ___________ Cost of shares repurchased: Class A (9,830,857) (15,027,594) (11,064,882) (4,758,836) Class B (841,634) (550,863) (3,010,441) (3,831,970) Class C (1,961,559) (2,157,860) (3,355,422) (2,120,433) ___________ ___________ ____________ ___________ (12,634,050) (17,736,317) (17,430,745) (10,711,239) ___________ ___________ ____________ ___________ Increase (decrease) in net assets derived from capital share transactions (5,479,022) (6,351,594) 27,877,371 20,835,932 ___________ ___________ ____________ ___________ Net Increase (Decrease) in Net Assets (6,312,915) (5,695,655) 27,481,748 23,581,872 Net Assets: Beginning of year 61,764,626 67,424,281 90,116,450 66,534,578 ___________ ___________ ____________ ___________ End of year (there was no undistributed income at either year end) $55,451,711 $61,764,626 $117,598,198 $90,116,450 ___________ ___________ ____________ ___________ See accompanying notes
36 Financial highlights Delaware Tax-Free Minnesota Class A Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $12.690 $12.620 $12.450 $12.610 $12.570 Income (loss) from investment operations: Net investment income 0.511 0.527 0.590 0.622 0.634 Net realized and unrealized gain (loss) on investments (0.172) 0.222 0.348 (0.148) 0.037 _______ _______ _______ _______ _______ Total from investment operations 0.339 0.749 0.938 0.474 0.671 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.513) (0.526) (0.600) (0.625) (0.631) Net realized gain on investments (0.026) (0.153) (0.168) (0.009) - _______ _______ _______ _______ _______ Total dividends and distributions (0.539) (0.679) (0.768) (0.634) (0.631) _______ _______ _______ _______ _______ Net asset value, end of period $12.490 $12.690 $12.620 $12.450 $12.610 _______ _______ _______ _______ _______ Total return (1) 2.78% 6.12% 7.72% 3.80% 5.54% Ratios and supplemental data: Net assets, end of period (000 omitted) $381,720 $364,491 $348,000 $340,029 $356,522 Ratio of expenses to average net assets 0.93% 0.93% 0.94% 0.97% 0.98% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.94% 0.94% 0.94% 0.97% 0.98% Ratio of net investment income to average net assets 4.11% 4.19% 4.68% 4.90% 5.11% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.10% 4.18% 4.68% 4.90% 5.11% Portfolio turnover 13% 10% 25% 27% 13% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
(continues) 37 Financial highlights Delaware Tax-Free Minnesota Fund Class B Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $12.700 $12.630 $12.460 $12.620 $12.580 Income (loss) from investment operations: Net investment income 0.418 0.433 0.496 0.529 0.540 Net realized and unrealized gain (loss) on investments (0.172) 0.222 0.348 (0.150) 0.037 _______ _______ _______ _______ _______ Total from investment operations 0.246 0.655 0.844 0.379 0.577 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.420) (0.432) (0.506) (0.530) (0.537) Net realized gain on investments (0.026) (0.153) (0.168) (0.009) - _______ _______ _______ _______ _______ Total dividends and distributions (0.446) (0.585) (0.674) (0.539) (0.537) _______ _______ _______ _______ _______ Net asset value, end of period $12.500 $12.700 $12.630 $12.460 $12.620 _______ _______ _______ _______ _______ Total return (1) 2.01% 5.33% 6.91% 3.02% 4.75% Ratios and supplemental data: Net assets, end of period (000 omitted) $11,354 $12,810 $14,588 $16,394 $17,043 Ratio of expenses to average net assets 1.68% 1.68% 1.69% 1.72% 1.73% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.69% 1.69% 1.69% 1.72% 1.73% Ratio of net investment income to average net assets 3.36% 3.44% 3.93% 4.15% 4.36% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.35% 3.43% 3.93% 4.15% 4.36% Portfolio turnover 13% 10% 25% 27% 13% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
38 Delaware Tax-Free Minnesota Fund Class C Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $12.720 $12.650 $12.480 $12.640 $12.590 Income (loss) from investment operations: Net investment income 0.418 0.433 0.495 0.529 0.540 Net realized and unrealized gain (loss) on investments (0.162) 0.222 0.348 (0.151) 0.047 _______ _______ _______ _______ _______ Total from investment operations 0.256 0.655 0.843 0.378 0.587 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.420) (0.432) (0.505) (0.529) (0.537) Net realized gain on investments (0.026) (0.153) (0.168) (0.009) - _______ _______ _______ _______ _______ Total dividends and distributions (0.446) (0.585) (0.673) (0.538) (0.537) _______ _______ _______ _______ _______ Net asset value, end of period $12.530 $12.720 $12.650 $12.480 $12.640 _______ _______ _______ _______ _______ Total return (1) 2.08% 5.32% 6.90% 3.01% 4.82% Ratios and supplemental data: Net assets, end of period (000 omitted) $15,125 $13,971 $10,811 $10,161 $7,682 Ratio of expenses to average net assets 1.68% 1.68% 1.69% 1.72% 1.73% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.69% 1.69% 1.69% 1.72% 1.73% Ratio of net investment income to average net assets 3.36% 3.44% 3.93% 4.15% 4.36% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.35% 3.43% 3.93% 4.15% 4.36% Portfolio turnover 13% 10% 25% 27% 13% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
(continues) 39 Financial highlights Delaware Tax-Free Minnesota Insured Fund Class A Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.110 $11.020 $10.740 $10.940 $10.900 Income (loss) from investment operations: Net investment income 0.438 0.446 0.479 0.498 0.514 Net realized and unrealized gain (loss) on investments (0.200) 0.138 0.282 (0.197) 0.038 _______ _______ _______ _______ _______ Total from investment operations 0.238 0.584 0.761 0.301 0.552 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.436) (0.445) (0.481) (0.501) (0.512) Net realized gain on investments (0.022) (0.049) - - - _______ _______ _______ _______ _______ Total dividends and distributions (0.458) (0.494) (0.481) (0.501) (0.512) _______ _______ _______ _______ _______ Net asset value, end of period $10.890 $11.110 $11.020 $10.740 $10.940 _______ _______ _______ _______ _______ Total return (1) 2.23% 5.42% 7.20% 2.75% 5.25% Ratios and supplemental data: Net assets, end of period (000 omitted) $212,859 $226,671 $227,018 $231,738 $239,763 Ratio of expenses to average net assets 0.89% 0.89% 0.89% 0.93% 0.96% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.90% 0.90% 0.89% 0.93% 0.96% Ratio of net investment income to average net assets 4.03% 4.05% 4.37% 4.52% 4.78% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.02% 4.04% 4.37% 4.52% 4.78% Portfolio turnover 5% 10% 15% 30% 15% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
40 Delaware Tax-Free Minnesota Insured Fund Class B Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.100 $11.010 $10.730 $10.940 $10.890 Income (loss) from investment operations: Net investment income 0.357 0.364 0.397 0.415 0.433 Net realized and unrealized gain (loss) on investments (0.200) 0.137 0.282 (0.207) 0.048 _______ _______ _______ _______ _______ Total from investment operations 0.157 0.501 0.679 0.208 0.481 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.355) (0.362) (0.399) (0.418) (0.431) Net realized gain on investments (0.022) (0.049) - - - _______ _______ _______ _______ _______ Total dividends and distributions (0.377) (0.411) (0.399) (0.418) (0.431) _______ _______ _______ _______ _______ Net asset value, end of period $10.880 $11.100 $11.010 $10.730 $10.940 _______ _______ _______ _______ _______ Total return (1) 1.47% 4.64% 6.41% 1.89% 4.56% Ratios and supplemental data: Net assets, end of period (000 omitted) $10,182 $12,337 $14,317 $15,647 $14,341 Ratio of expenses to average net assets 1.64% 1.64% 1.64% 1.68% 1.71% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.65% 1.65% 1.64% 1.68% 1.71% Ratio of net investment income to average net assets 3.28% 3.30% 3.62% 3.77% 4.03% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.27% 3.29% 3.62% 3.77% 4.03% Portfolio turnover 5% 10% 15% 30% 15% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
(continues) 41 Financial highlights Delaware Tax-Free Minnesota Insured Fund Class C Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.120 $11.030 $10.750 $10.950 $10.910 Income (loss) from investment operations: Net investment income 0.356 0.364 0.396 0.414 0.433 Net realized and unrealized gain (loss) on investments (0.200) 0.137 0.282 (0.197) 0.038 _______ _______ _______ _______ _______ Total from investment operations 0.156 0.501 0.678 0.217 0.471 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.354) (0.362) (0.398) (0.417) (0.431) Net realized gain on investments (0.022) (0.049) - - - _______ _______ _______ _______ _______ Total dividends and distributions (0.376) (0.411) (0.398) (0.417) (0.431) _______ _______ _______ _______ _______ Net asset value, end of period $10.900 $11.120 $11.030 $10.750 $10.950 _______ _______ _______ _______ _______ Total return (1) 1.46% 4.63% 6.39% 1.97% 4.46% Ratios and supplemental data: Net assets, end of period (000 omitted) $12,554 $12,269 $12,028 $11,966 $6,083 Ratio of expenses to average net assets 1.64% 1.64% 1.64% 1.68% 1.71% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.65% 1.65% 1.64% 1.68% 1.71% Ratio of net investment income to average net assets 3.28% 3.30% 3.62% 3.77% 4.03% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.27% 3.29% 3.62% 3.77% 4.03% Portfolio turnover 5% 10% 15% 30% 15% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
42 Delaware Tax-Free Minnesota Intermediate Fund Class A Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended ______________________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 ___________________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.010 $10.890 $10.630 $10.720 $10.580 Income (loss) from investment operations: Net investment income 0.429 0.407 0.444 0.469 0.512 Net realized and unrealized gain (loss) on investments (0.150) 0.120 0.260 (0.088) 0.138 _______ _______ _______ _______ _______ Total from investment operations 0.279 0.527 0.704 0.381 0.650 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.429) (0.407) (0.444) (0.471) (0.510) _______ _______ _______ _______ _______ Total dividends and distributions (0.429) (0.407) (0.444) (0.471) (0.510) _______ _______ _______ _______ _______ Net asset value, end of period $10.860 $11.010 $10.890 $10.630 $10.720 _______ _______ _______ _______ _______ Total return (1) 2.62% 4.93% 6.73% 3.59% 6.34% Ratios and supplemental data: Net assets, end of period (000 omitted) $48,297 $52,958 $57,012 $57,635 $51,034 Ratio of expenses to average net assets 0.75% 0.79% 0.84% 0.86% 0.85% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.97% 0.95% 0.95% 0.96% 0.85% Ratio of net investment income to average net assets 3.96% 3.72% 4.10% 4.32% 4.86% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.74% 3.56% 3.99% 4.22% 4.86% Portfolio turnover 11% 25% 30% 23% 35% ___________________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager and distributor, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
(continues) 43 Financial highlights Delaware Tax-Free Minnesota Intermediate Fund Class B Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended _______________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 _________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.040 $10.920 $10.650 $10.740 $10.600 Income (loss) from investment operations: Net investment income 0.337 0.314 0.352 0.377 0.423 Net realized and unrealized gain (loss) on investments (0.150) 0.120 0.270 (0.088) 0.137 _______ _______ _______ _______ _______ Total from investment operations 0.187 0.434 0.622 0.289 0.560 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.337) (0.314) (0.352) (0.379) (0.420) _______ _______ _______ _______ _______ Total dividends and distributions (0.337) (0.314) (0.352) (0.379) (0.420) _______ _______ _______ _______ _______ Net asset value, end of period $10.890 $11.040 $10.920 $10.650 $10.740 _______ _______ _______ _______ _______ Total return (1) 1.75% 4.03% 5.91% 2.70% 5.43% Ratios and supplemental data: Net assets, end of period (000 omitted) $1,993 $2,811 $3,224 $4,002 $2,852 Ratio of expenses to average net assets 1.60% 1.64% 1.69% 1.71% 1.70% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.72% 1.70% 1.70% 1.73% 1.70% Ratio of net investment income to average net assets 3.11% 2.87% 3.25% 3.47% 4.01% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 2.99% 2.81% 3.24% 3.45% 4.01% Portfolio turnover 11% 25% 30% 23% 35% _________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
44 Delaware Tax-Free Minnesota Intermediate Fund Class C Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended _______________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 _________________________________________________________________________________________________________________________ Net asset value, beginning of period $11.030 $10.910 $10.640 $10.730 $10.590 Income (loss) from investment operations: Net investment income 0.337 0.314 0.352 0.377 0.423 Net realized and unrealized gain (loss) on investments (0.150) 0.120 0.270 (0.088) 0.137 _______ _______ _______ _______ _______ Total from investment operations 0.187 0.434 0.622 0.289 0.560 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.337) (0.314) (0.352) (0.379) (0.420) _______ _______ _______ _______ _______ Total dividends and distributions (0.337) (0.314) (0.352) (0.379) (0.420) _______ _______ _______ _______ _______ Net asset value, end of period $10.880 $11.030 $10.910 $10.640 $10.730 _______ _______ _______ _______ _______ Total return (1) 1.75% 4.04% 5.91% 2.71% 5.44% Ratios and supplemental data: Net assets, end of period (000 omitted) $5,162 $5,996 $7,188 $6,544 $4,887 Ratio of expenses to average net assets 1.60% 1.64% 1.69% 1.71% 1.70% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.72% 1.70% 1.70% 1.73% 1.70% Ratio of net investment income to average net assets 3.11% 2.87% 3.25% 3.47% 4.01% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 2.99% 2.81% 3.24% 3.45% 4.01% Portfolio turnover 11% 25% 30% 23% 35% _________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
(continues) 45 Financial highlights Delaware Minnesota High-Yield Municipal Bond Fund Class A Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended _______________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 _________________________________________________________________________________________________________________________ Net asset value, beginning of period $10.610 $10.240 $9.910 $9.950 $9.900 Income (loss) from investment operations: Net investment income 0.445 0.469 0.512 0.550 0.586 Net realized and unrealized gain (loss) on investments (0.082) 0.372 0.328 (0.030) 0.056 _______ _______ _______ _______ _______ Total from investment operations 0.363 0.841 0.840 0.520 0.642 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.443) (0.471) (0.510) (0.560) (0.592) _______ _______ _______ _______ _______ Total dividends and distributions (0.443) (0.471) (0.510) (0.560) (0.592) _______ _______ _______ _______ _______ Net asset value, end of period $10.530 $10.610 $10.240 $9.910 $9.950 _______ _______ _______ _______ _______ Total return (1) 3.54% 8.40% 8.65% 5.33% 6.74% Ratios and supplemental data: Net assets, end of period (000 omitted) $87,504 $63,802 $42,636 $36,644 $34,867 Ratio of expenses to average net assets 0.89% 0.89% 0.75% 0.75% 0.75% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.00% 0.98% 1.00% 1.04% 1.01% Ratio of net investment income to average net assets 4.26% 4.50% 5.03% 5.48% 5.98% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.15% 4.41% 4.78% 5.19% 5.72% Portfolio turnover 4% 3% 24% 32% 33% _________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
46 Delaware Minnesota High-Yield Municipal Bond Fund Class B Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended _______________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 _________________________________________________________________________________________________________________________ Net asset value, beginning of period $10.630 $10.250 $9.930 $9.970 $9.910 Income (loss) from investment operations: Net investment income 0.367 0.391 0.435 0.475 0.513 Net realized and unrealized gain (loss) on investments (0.082) 0.381 0.318 (0.030) 0.063 _______ _______ _______ _______ _______ Total from investment operations 0.285 0.772 0.753 0.445 0.576 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.365) (0.392) (0.433) (0.485) (0.516) _______ _______ _______ _______ _______ Total dividends and distributions (0.365) (0.392) (0.433) (0.485) (0.516) _______ _______ _______ _______ _______ Net asset value, end of period $10.550 $10.630 $10.250 $9.930 $9.970 _______ _______ _______ _______ _______ Total return (1) 2.77% 7.68% 7.71% 4.55% 6.03% Ratios and supplemental data: Net assets, end of period (000 omitted) $9,578 $10,505 $12,463 $12,513 $13,379 Ratio of expenses to average net assets 1.64% 1.64% 1.50% 1.50% 1.50% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.75% 1.73% 1.75% 1.79% 1.76% Ratio of net investment income to average net assets 3.51% 3.75% 4.28% 4.73% 5.23% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.40% 3.66% 4.03% 4.44% 4.97% Portfolio turnover 4% 3% 24% 32% 33% _________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
(continues) 47 Financial highlights Delaware Minnesota High-Yield Municipal Bond Fund Class C Selected data for each share of the Fund outstanding throughout each period were as follows: Year Ended _______________________________________________________ 8/31/06 8/31/05 8/31/04 8/31/03 8/31/02 _________________________________________________________________________________________________________________________ Net asset value, beginning of period $10.630 $10.250 $9.930 $9.970 $9.910 Income (loss) from investment operations: Net investment income 0.367 0.391 0.435 0.475 0.513 Net realized and unrealized gain (loss) on investments (0.082) 0.381 0.318 (0.030) 0.063 _______ _______ _______ _______ _______ Total from investment operations 0.285 0.772 0.753 0.445 0.576 _______ _______ _______ _______ _______ Less dividends and distributions from: Net investment income (0.365) (0.392) (0.433) (0.485) (0.516) _______ _______ _______ _______ _______ Total dividends and distributions (0.365) (0.392) (0.433) (0.485) (0.516) _______ _______ _______ _______ _______ Net asset value, end of period $10.550 $10.630 $10.250 $9.930 $9.970 _______ _______ _______ _______ _______ Total return (1) 2.76% 7.68% 7.71% 4.54% 6.03% Ratios and supplemental data: Net assets, end of period (000 omitted) $20,516 $15,809 $11,435 $10,754 $7,840 Ratio of expenses to average net assets 1.64% 1.64% 1.50% 1.50% 1.50% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.75% 1.73% 1.75% 1.79% 1.76% Ratio of net investment income to average net assets 3.51% 3.75% 4.28% 4.73% 5.23% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.40% 3.66% 4.03% 4.44% 4.97% Portfolio turnover 4% 3% 24% 32% 33% _________________________________________________________________________________________________________________________ (1) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes
48 Notes to financial statements Delaware Minnesota Municipal Bond Funds August 31, 2006 Voyageur Mutual Funds is organized as a Delaware statutory trust and offers five series: Delaware Minnesota High-Yield Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund, Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund and Delaware Tax-Free New York Fund. Voyageur Insured Funds is organized as a Delaware statutory trust and offers two series: Delaware Tax-Free Arizona Insured Fund and Delaware Tax-Free Minnesota Insured Fund. Voyageur Tax Free Funds is organized as a Delaware statutory trust and offers the Delaware Tax-Free Minnesota Fund. Voyageur Intermediate Tax Free Funds is organized as a Delaware statutory trust and offers the Delaware Tax-Free Minnesota Intermediate Fund. Voyageur Mutual Funds, Voyageur Insured Funds, Voyageur Tax Free Funds and Voyageur Intermediate Tax Free Funds are individually referred to as a "Trust" and collectively as the "Trusts." These financial statements and the related notes pertain to Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and Delaware Minnesota High-Yield Municipal Bond Fund (each referred to as a "Fund" or collectively as the "Funds"). The above Trusts are open-end investment companies. The Funds are considered non-diversified under the Investment Company Act of 1940, as amended, and offer Class A, Class B, and Class C shares. Class A shares are sold with a front-end sales charge of up to 4.50% for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield Municipal Bond Fund and up to 2.75% for Delaware Tax-Free Minnesota Intermediate Fund. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge of up to 1% if redeemed during the first two years, provided that a financial advisor was paid commission on the purchase of those shares. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield Municipal Bond Fund and that declines from 2% to zero for Delaware Tax-Free Minnesota Intermediate Fund, depending upon the period of time the shares are held. Class B shares will automatically convert to Class A on a quarterly basis approximately eight years after purchase for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield Municipal Bond Fund and approximately five years after purchase for Delaware Tax-Free Minnesota Intermediate Fund. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first twelve months. The investment objective of Delaware Tax-Free Minnesota Fund and Delaware Tax-Free Minnesota Insured Fund is to seek as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, as is consistent with preservation of capital. The investment objective of Delaware Tax-Free Minnesota Intermediate Fund is to seek to provide investors with preservation of capital and, secondarily, current income exempt from federal income tax and from the Minnesota state personal income tax, by maintaining a dollar-weighted average effective portfolio maturity of 10 years or less. The investment objective of Delaware Minnesota High-Yield Municipal Bond Fund is to seek as high a level of current income exempt from federal income tax and from the Minnesota state personal income tax, primarily through investment in medium- and lower-grade municipal obligations. 1. Significant Accounting Policies The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Funds. Security Valuation - Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Open-end investment companies are valued at their published net asset value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of each Fund's Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes - Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Funds' tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Although the Funds' tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on the Funds' financial statements. Class Accounting - Investment income and common expenses are allocated to the classes of the Funds on the basis of "settled shares" of each class in relation to the net assets of the Funds. Realized and unrealized gain (loss) on investments are allocated to the various classes of the Funds on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (continues) 49 Notes to financial statements Delaware Minnesota Municipal Bond Funds 1. Significant Accounting Policies (continued) Other - Expenses directly attributable to a Fund are charged directly to that Fund. Other expenses common to various funds within the Delaware Investments(R) Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. The Funds receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under the above arrangement is included in custodian fees on the Statements of Operations with the corresponding expense offset shown as "expense paid indirectly." 2. Investment Management, Administration Agreements and Other Transactions with Affiliates In accordance with the terms of its respective investment management agreement, each Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee based on each Fund's average daily net assets as follows: Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ On the first $500 million 0.550% 0.500% 0.500% 0.550% On the next $500 million 0.500% 0.475% 0.475% 0.500% On the next $1.5 billion 0.450% 0.450% 0.450% 0.450% In excess of $2.5 billion 0.425% 0.425% 0.425% 0.425%
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse each Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed specified percentages of average daily net assets as shown below: Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ Operating expense limitation as a percentage of average daily net assets (per annum) 0.69% 0.64% 0.60% 0.64% Expiration date 12/29/05 10/31/06 10/31/06 10/31/06 Effective December 30, 2005, Operating expense limitation as a percentage of average daily net assets (per annum) 0.68% 0.64% 0.60% 0.64% Expiration date 12/31/06 12/31/06 12/31/06 12/31/06
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. Each Fund pays DSC a monthly fee computed at the annual rate of 0.04% of such Fund's average daily net assets for accounting and administration services. Each Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, each Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.25% of the average daily net assets of the Class A shares and 1.00% of the average daily net assets of the Class B and C shares. DDLP has contracted to waive distribution and services fees through December 31, 2006 in order to prevent distribution and service fees of Class A shares from exceeding 0.15% of average daily net assets for Delaware Tax-Free Minnesota Intermediate Fund. 50 2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued) At August 31, 2006, the Funds had liabilities payable to affiliates as follows: Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ Investment management fee payable to DMC $192,838 $97,956 $ 8,596 $33,929 Dividend disbursing, transfer agent, accounting and administration fees and expenses payable to DSC 30,693 18,927 4,983 9,696 Distribution fee payable to DDLP 102,888 64,101 12,142 43,527 Other expenses payable to DMC and affiliates* 11,742 6,906 3,126 3,287 *DMC, as part of its administrative services, pays operating expenses on behalf of each Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees' fees.
As provided in the investment management agreement, each Fund bears the cost of certain legal services, including internal legal services provided to each Fund by DMC employees. For the year ended August 31, 2006, each Fund was charged for internal legal services provided by DMC as follows: Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ $22,874 $13,697 $3,306 $5,720
For the year ended August 31, 2006, DDLP earned commissions on sales of Class A shares for each Fund as follows: Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ $65,336 $27,780 $4,745 $70,869
For the year ended August 31, 2006, DDLP received gross contingent deferred sales charge commissions on redemption of each Fund's Class A, Class B and Class C shares, respectively. These commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares. The amounts received were as follows: Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ Class A $ 637 $ 280 $5,522 $ 9,896 Class B 7,493 13,148 1,866 11,279 Class C 6,806 2,045 1,172 8,077
Certain officers of DMC, DSC, and DDLP are officers and/or trustees of the Trusts. These officers and trustees are paid no compensation by the Funds. 3. Investments For the year ended August 31, 2006, the Funds made purchases and sales of investment securities other than short-term investments as follows: Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ Purchases $71,884,416 $11,312,709 $6,166,602 $31,793,098 Sales 51,459,401 19,589,439 9,901,143 3,442,755
At August 31, 2006 the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows: Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ Cost of investments $386,720,288 $217,684,065 $52,951,348 $113,672,073 ____________ ____________ ___________ ____________ Aggregate unrealized appreciation $18,578,507 $ 15,519,744 $2,040,262 $ 3,371,246 Aggregate unrealized depreciation (446,314) (60,428) (40,292) (365,849) ____________ ____________ ___________ ____________ Net unrealized appreciation $ 18,132,193 $ 15,459,316 $1,999,970 $ 3,005,397 ____________ ____________ ___________ ____________
(continues) 51 Notes to financial statements Delaware Minnesota Municipal Bond Funds 4. Dividend and Distribution Information Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended August 31, 2006 and 2005 was as follows: Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ Year Ended 8/31/06 Tax-exempt income $16,312,106 $ 9,369,886 $2,195,858 $4,067,083 Ordinary income 106,715 - - - Long-term capital gain 627,495 476,138 - - ___________ ___________ __________ __________ Total $17,046,316 $ 9,846,024 $2,195,858 $4,067,083 ___________ ___________ __________ __________ Year Ended 8/31/05 Tax-exempt income $15,803,097 $ 9,960,686 $2,350,076 $3,194,622 Long-term capital gain 4,531,605 1,119,256 - - ___________ ___________ __________ __________ Total $20,334,702 $11,079,942 $2,350,076 $3,194,622 ___________ ___________ __________ __________
As of August 31, 2006, the components of net assets on a tax basis were as follows: Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ Shares of beneficial interest $389,782,636 $220,321,556 $54,908,696 $117,216,892 Undistributed long-term capital gain 306,324 - - - Capital loss carryforwards - - (1,356,875) (2,432,446) Post-October losses - (185,821) (100,080) (191,645) Other temporary differences (22,418) - - - Unrealized appreciation of investments 18,132,193 15,459,316 1,999,970 3,005,397 ____________ ____________ ___________ ____________ Net assets $408,198,735 $235,595,051 $55,451,711 $117,598,198 ____________ ____________ ___________ ____________
The differences between book basis and tax basis components of net assets are primarily attributable to tax treatment of market discount on debt instruments. Post-October losses represent losses realized on investment transactions from November 1, 2005 through August 31, 2006 that, in accordance with federal income tax regulations, each Fund has elected to defer and treat as having arisen in the following fiscal year. For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of market discount on certain debt instruments and dividends and distributions. Results of operations and net assets were not affected by these reclassifications. For the year ended August 31, 2006, the Funds recorded the following reclassifications. Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Municipal Minnesota Fund Insured Fund Intermediate Fund Bond Fund _________________ _________________ __________________ ____________________ Paid-in capital $ - $(10,836) $ - $ - Undistributed (Accumulated) net investment income (loss) (111,818) (48,530) 18 (18,537) Accumulated net realized gain (loss) 111,818 59,366 (18) 18,537
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at August 31, 2006 will expire as follows: Delaware Tax-Free Delaware Minnesota Minnesota High-Yield Municipal Year of Expiration Intermediate Fund Bond Fund __________________ _________________ ______________________ 2008 $ - $ 179,791 2009 1,024,839 1,267,552 2010 4,037 57,521 2011 246,659 243,334 2012 - 684,248 2014 81,340 - __________ __________ Total $1,356,875 $2,432,446 __________ __________
For the year ended August 31, 2006, the Delaware Minnesota High-Yield Municipal Bond Fund utilized $1,332 in capital loss carryforwards. 52 5. Capital Shares Transactions in capital shares were as follows: Delaware Tax-Free Delaware Tax-Free Minnesota Fund Minnesota Insured Fund _________________________ __________________________ Year Ended Year Ended 8/31/06 8/31/05 8/31/06 8/31/05 Shares sold: Class A 3,740,009 2,605,601 1,066,208 1,206,325 Class B 64,648 82,005 32,933 68,954 Class C 354,758 323,335 177,451 200,888 Shares issued upon reinvestments of dividends and distributions: Class A 824,435 999,673 559,513 620,080 Class B 22,000 33,587 27,111 35,325 Class C 32,061 34,287 27,286 29,235 __________ __________ __________ __________ 5,037,911 4,078,488 1,890,502 2,160,807 __________ __________ __________ __________ Shares repurchased: Class A (2,730,163) (2,466,727) (2,484,487) (2,021,780) Class B (187,143) (262,319) (235,722) (293,001) Class C (277,488) (114,430) (156,558) (217,296) __________ __________ __________ __________ (3,194,794) (2,843,476) (2,876,767) (2,532,077) __________ __________ __________ __________ Net increase (decrease) 1,843,117 1,235,012 (986,265) (371,270) __________ __________ __________ __________ Delaware Tax-Free Minnesota Delaware Minnesota High-Yield Intermediate Fund Municipal Bond Fund ___________________________ _____________________________ Year Ended Year Ended 8/31/06 8/31/05 8/31/06 8/31/05 Shares sold: Class A 413,224 811,048 3,175,962 2,173,370 Class B 1,162 4,238 185,827 117,618 Class C 100,419 67,333 736,336 547,300 Shares issued upon reinvestment of dividends and distributions: Class A 130,882 139,829 178,840 133,229 Class B 4,900 5,713 21,720 24,644 Class C 10,784 14,403 41,851 27,930 ___________ __________ ___________ __________ 661,371 1,042,564 4,340,536 3,024,091 ___________ __________ ___________ __________ Shares repurchased: Class A (907,954) (1,375,055) (1,059,998) (458,057) Class B (77,656) (50,607) (288,064) (369,311) Class C (180,541) (196,858) (321,249) (202,901) ___________ __________ ___________ __________ (1,166,151) (1,622,520) (1,669,311) (1,030,269) ___________ __________ ___________ __________ Net increase (decrease) (504,780) (579,956) 2,671,225 1,993,822 ___________ __________ ___________ __________
(continues) 53 Notes to financial statements Delaware Minnesota Municipal Bond Funds 5. Capital Shares (continued) For the years ended August 31, 2006 and 2005, the following shares and values were converted from Class B to Class A shares. The respective amounts are included in Class B redemptions and Class A subscriptions in the tables on the previous page and the Statements of Changes in Net Assets. Year Ended Year Ended 8/31/06 8/31/05 _________________________________________ ________________________________________ Class B Class A Class B Class A Shares shares Value shares shares Value ________ ________ _________ ________ ________ __________ Delaware Tax-Free Minnesota Fund 66,784 66,836 $ 831,110 113,069 113,158 $1,420,503 Delaware Tax-Free Minnesota Insured Fund 80,959 80,882 878,177 122,887 122,776 1,352,796 Delaware Tax-Free Minnesota Intermediate Fund 18,914 18,958 203,874 21,297 21,349 231,714 Delaware Minnesota High-Yield Municipal Bond Fund 167,328 167,637 1,747,428 192,047 192,388 1,991,365
6. Line of Credit Each Fund, along with certain other funds in the Delaware Investments(R) Family of Funds (the "Participants"), participates in a $225,000,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each Participant's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Funds had no amounts outstanding as of August 31, 2006, or at any time during the year then ended. 7. Credit and Market Risk The Funds concentrate their investments in securities issued by municipalities, mainly in Minnesota. The value of these investments may be adversely affected by new legislation within the state, regional or local economic conditions, and differing levels of supply and demand for municipal bonds. Many municipalities insure repayment for their obligations. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that market value may fluctuate for other reasons and there is no assurance that the insurance company will meet its obligations. These securities have been identified in the Statements of Net Assets. The Funds may invest in inverse floating rate securities ("inverse floaters"), a type of derivative tax-exempt obligation with floating or variable interest rates that move in the opposite direction of short-term interest rates, usually at an accelerated speed. Consequently, the market values of inverse floaters will generally be more volatile than other tax-exempt investments. Such securities are identified on the Statements of Net Assets. The Funds may invest in advanced refunded bonds, escrow secured bonds or defeased bonds. Under current federal tax laws and regulations, state and local government borrowers are permitted to refinance outstanding bonds by issuing new bonds. The issuer refinances the outstanding debt to either reduce interest costs or to remove or alter restrictive covenants imposed by the bonds being refinanced. A refunding transaction where the municipal securities are being refunded within 90 days or less from the issuance of the refunding issue is known as a "current refunding." "Advance refunded bonds" are bonds in which the refunded bond issue remains outstanding for more than 90 days following the issuance of the refunding issue. In an advance refunding, the issuer will use the proceeds of a new bond issue to purchase high grade interest bearing debt securities which are then deposited in an irrevocable escrow account held by an escrow agent to secure all future payments of principal and interest and bond premium of the advance refunded bond. Bonds are "escrowed to maturity" when the proceeds of the refunding issue are deposited in an escrow account for investment sufficient to pay all of the principal and interest on the original interest payment and maturity dates. Bonds are considered "pre-refunded" when the refunding issue's proceeds are escrowed only until a permitted call date or dates on the refunded issue with the refunded issue being redeemed at the time, including any required premium. Bonds become "defeased" when the rights and interests of the bondholders and of their lien on the pledged revenues or other security under the terms of the bond contract are substituted with an alternative source of revenues (the escrow securities) sufficient to meet payments of principal and interest to maturity or to the first call dates. Escrowed secured bonds will often receive a rating of AAA from Moody's Investors Service, Inc., Standard & Poor's Rating Group, and/or Fitch Ratings due to the strong credit quality of the escrow securities and the irrevocable nature of the escrow deposit agreement. The Tax-Free Minnesota Insured Fund will purchase escrow secured bonds without additional insurance only where the escrow is invested in securities of the U.S. government or agencies or instrumentalities of the U.S. government. Each Fund may invest a portion of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair each Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, each Fund's Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of each Fund's limitation on investments in illiquid assets. At August 31, 2006, there were no Rule 144A securities. Illiquid securities have been identified on the Statements of Net Assets. 54 8. Contractual Obligations The Funds enter into contracts in the normal course of business that contain a variety of indemnifications. The Funds' maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts. Management has reviewed each Fund's existing contracts and expects the risk of loss to be remote. 9. Subsequent Event On August 17, 2006, the Board of Trustees responsible for Delaware Tax-Free Minnesota Insured Fund (the "Reorganizing Fund") approved a proposal to reorganize the Reorganizing Fund with and into the Delaware Tax-Free Minnesota Fund (the "Acquiring Fund") subject to shareholder approval. The Board of Trustees responsible for the Delaware Tax-Free Minnesota Fund also approved the reorganization. Effective as of the close of business on September 1, 2006, the Reorganizing Fund will be closed to new investors. Shareholders of the Reorganizing Fund will receive a proxy statement/prospectus providing them with information about the Delaware Tax-Free Minnesota Fund and requesting their votes on the proposed reorganization of their Fund at a special meeting of shareholders to be held in late November 2006. If approved, the reorganization would be expected to take place in the first quarter of 2007. Additionally, the Delaware Tax-Free Minnesota Insured Fund would continue to accept purchases from existing shareholders (including reinvested dividends or capital gains) until the last business day before the reorganization. 10. Tax Information (Unaudited) The information set forth below is for each Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a Fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended August 31, 2006, each Fund designates distributions paid during the year as follows: (A) (B) Long-Term Ordinary (C) Capital Gains Income Tax Exempt Total Distributions Distributions Distributions Distributions (Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis) _____________ _____________ _____________ _____________ Delaware Tax-Free Minnesota Fund 4% 1% 95% 100% Delaware Tax-Free Minnesota Insured Fund 5% 0% 95% 100% Delaware Tax-Free Minnesota Intermediate Fund 0% 0% 100% 100% Delaware Minnesota High-Yield Municipal Bond Fund 0% 0% 100% 100% (A), (B), and (C) are based on a percentage of each Fund's total distributions.
55 Report of independent registered public accounting firm To the Shareholders and Board of Trustees Voyageur Tax Free Funds - Delaware Tax-Free Minnesota Fund Voyageur Insured Funds - Delaware Tax-Free Minnesota Insured Fund Voyageur Intermediate Tax Free Funds - Delaware Tax-Free Minnesota Intermediate Fund Voyageur Mutual Funds - Delaware Minnesota High-Yield Municipal Bond Fund We have audited the accompanying statements of net assets of Delaware Tax-Free Minnesota Fund (the sole series of Voyageur Tax Free Funds), Delaware Tax-Free Minnesota Insured Fund (one of the series constituting Voyageur Insured Funds), Delaware Tax-Free Minnesota Intermediate Fund (the sole series of Voyageur Intermediate Tax Free Funds) and Delaware Minnesota High-Yield Municipal Bond Fund (one of the series constituting Voyageur Mutual Funds) (the "Funds") as of August 31, 2006, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Tax-Free Minnesota Fund of Voyageur Tax Free Funds, the Delaware Tax-Free Minnesota Insured Fund of Voyageur Insured Funds, the Delaware Tax-Free Minnesota Intermediate Fund of Voyageur Intermediate Tax Free Funds, and the Delaware Minnesota High-Yield Municipal Bond Fund of Voyageur Mutual Funds at August 31, 2006, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Philadelphia, Pennsylvania October 11, 2006 56 Other Fund information Delaware Minnesota Municipal Bonds Board Consideration of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and Delaware Minnesota High-Yield Municipal Bond Fund Agreement At a meeting held on May 17-18, 2006 (the "Annual Meeting"), the Board of Trustees, including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreements for the Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and Delaware Minnesota High-Yield Municipal Bond Fund (each a "Fund" and collectively the "Funds"). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the Annual Meeting. Information furnished and discussed throughout the year included reports detailing Fund performance, investment strategies, expenses, compliance matters and other services provided by Delaware Management Company ("DMC"), the investment advisor. Information furnished specifically in connection with the Annual Meeting included materials provided by DMC and its affiliates ("Delaware Investments") concerning, among other things, the level of services provided to the Funds, the costs of such services to the Funds, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, the Board considered independent historical and comparative reports prepared by Lipper Inc. ("Lipper"), an independent statistical compilation organization. The Board also considered industry comparative information presented by representatives from Lipper. The Lipper reports compared each Fund's investment performance and expenses with those of other comparable mutual funds. The Board also received certain supplemental information regarding management's policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit DMC's ability to fully invest in accordance with Fund policies. In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel and representatives from Lipper. At the meeting with representatives from Lipper, Mr. Driscoll, then Chairman of the Delaware Investments(R) Family of Funds, and Chairman and Chief Executive Officer of the investment advisor, was present to respond to questions by Lipper and the independent Trustees. While the Board considered the Investment Advisory Agreements for all of the funds in the Delaware Investments Family of Funds at the same Board meeting, information was provided and considered by the Board for each fund individually. In approving the continuance of the Investment Advisory Agreement for each Fund, the Board, including a majority of independent Trustees, determined that the existing advisory fee structure was fair and reasonable and that the continuance of the Investment Advisory Agreement was in the best interests of the Fund and its shareholders. While attention was given to all information furnished, the following discusses the primary factors relevant to the Board's deliberations and determination, including those relating to the selection of the investment advisor and the approval of the advisory fee. Nature, Extent and Quality of Service. Consideration was given to the services provided by Delaware Investments to the Funds and their shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the relative performance of the Funds, compliance of portfolio managers with the investment policies, strategies and restrictions for the Funds, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex, the adherence to fair value pricing procedures as established by the Board and the accuracy of net asset value calculations. The Board noted that it was pleased with the current staffing of the Funds' investment advisor and management's efforts to strengthen and deepen portfolio management teams during the past year, the emphasis on research and the compensation system for advisory personnel. Favorable consideration was given to DMC's efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. Other factors taken into account by the Board were Delaware Investments' preparedness for, and response to, legal and regulatory matters. The Board also considered the transfer agent and shareholder services provided to Fund shareholders by Delaware Investments' affiliate, Delaware Service Company, Inc. ("DSC"), noting DSC's commitment to maintain a high level of service in keeping with its past receipt of the DALBAR Pyramid Award, and the continuing expenditures by Delaware Investments to improve the delivery of shareholder services. Additionally, the Board noted the extent of benefits provided to Fund shareholders for being part of the Delaware Investments Family of Funds, including the privilege to exchange investments between the same class of shares of funds without a sales charge, the ability to reinvest Fund dividends into other funds and the privilege to combine holdings in other funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments. Investment Performance. The Board considered the investment performance of DMC and the Funds. The Board was pleased with DMC's investment performance. The Board placed significant emphasis on the investment performance of the Funds in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular weight was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for each Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the "Performance Universe"). A fund with the best performance is ranked first, and a fund with the poorest performance is ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% - the second quartile; the next 25% - the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Funds was shown for the past one, three, five and 10 year periods, as applicable, ended January 31, 2006. The Board noted its objective that each Fund's performance for the periods considered be at or above the median of its Performance Universe. The following paragraphs summarize the performance results for each Fund and the Board's view of such performance. (continues) 57 Other Fund information Delaware Minnesota Municipal Bonds Board Consideration of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and Delaware Minnesota High-Yield Municipal Bond Fund Agreement (continued) Delaware Tax-Free Minnesota Fund - The Performance Universe for the Fund consisted of the Fund and all retail and institutional Minnesota municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one, three, five and 10 year periods was in the first quartile of such Performance Universe. The Board was satisfied with such performance. Delaware Tax-Free Minnesota Insured Fund - The Performance Universe for the Fund consisted of the Fund and all retail and institutional Minnesota municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one, five and 10 year periods was in the second quartile of such Performance Universe. The report further showed that the Fund's total return for the three year period was in the first quartile. The Board was satisfied with such performance. Delaware Tax-Free Minnesota Intermediate Fund - The Performance Universe for the Fund consisted of the Fund and all retail and institutional other states intermediate municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one, three and five year periods was in the first quartile of such Performance Universe. The report further showed that the Fund's total return for the 10 year period was in the second quartile. The Board was satisfied with such performance. Delaware Minnesota High-Yield Municipal Bond Fund - Lipper currently classifies the Fund as a Minnesota municipal debt fund. However, management believes that it would be more appropriate to include the Fund in the high yield municipal debt funds category, which would allow the Fund to be compared to a representative peer group based on credit quality in addition to its current peer group based on state of issuance. Accordingly, the Lipper report prepared for the Fund compares the Fund's performance to two separate Performance Universes consisting of the Fund and all retail and institutional Minnesota municipal debt funds and all retail and institutional high yield municipal debt funds. When compared to other Minnesota municipal debt funds, the Lipper report comparison showed that the Fund's total return for the one, three and five year periods was in the first quartile of such Performance Universe. When compared to other high yield municipal debt funds, the Lipper report comparison showed that the Fund's total return for the one year period was in the third quartile of such Performance Universe. The report further showed that the Fund's total return for the three and five year periods was in the second quartile and first quartile, respectively. The Board was satisfied with the Fund's performance. Comparative Expenses. The Board considered expense data for the Delaware Investments(R) Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Funds. The Board focused particularly on the comparative analysis of the management fees and total expense ratios of each Fund and the management fees and expense ratios of a group of similar funds as selected by Lipper (the "Expense Group"). In reviewing comparative costs, each Fund's contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into effect any applicable breakpoints and fee waivers. Each Fund's total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and compared total expenses including 12b-1 and non-12b-1 service fees. The Board also considered fees paid to Delaware Investments for non-management services. The Board noted its objective to limit each Fund's total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraph summarizes the expense results for each Fund and the Board's view of such expenses. Delaware Tax-Free Minnesota Fund - The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the second highest expenses of its Expense Group. The Board noted that the Fund's total expenses were not in line with the Board's objective. In evaluating the total expenses, the Board considered waivers in place through December 2006 and recent initiatives implemented by management, such as the outsourcing of certain transfer agency services, creating an opportunity for a reduction in expenses. The Board was satisfied with management's efforts to improve the Fund's total expense ratio and bring it in line with the Board's objective. Delaware Tax-Free Minnesota Insured Fund - The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. Delaware Tax-Free Minnesota Intermediate Fund - The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. Delaware Minnesota High-Yield Municipal Bond Fund - When compared to other Minnesota municipal debt funds, the expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. When compared to other high yield municipal debt funds, the expense comparisons for the Fund showed that its actual management fee was in the quartile with the lowest expenses of the Expense Group and its total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. 58 Board Consideration of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and Delaware Minnesota High-Yield Municipal Bond Fund Agreement (continued) Management Profitability. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Funds. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments' business in providing management and other services to each of the individual funds and the Delaware Investments(R) Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments' expenditures to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent SEC initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds, the benefits from allocation of fund brokerage to improve trading efficiencies and the use of "soft" commission dollars to pay for proprietary and non-proprietary research. The Board did not find that the level of profits realized by Delaware Investments from the relationships with the Funds and the Delaware Investments Family of Funds required negotiation of reduction of fees. Economies of Scale. The Trustees considered whether economies of scale are realized by Delaware Investments as each Fund's assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure approved by the Board and shareholders as part of a complex-wide shareholder meeting conducted in 1998/1999. At that time, Delaware Investments introduced breakpoints to account for management economies of scale. The Board noted that the fee under each Fund's management contract fell within the standard structure. Although the Funds have not reached a size at which they can take advantage of breakpoints, the Board recognized that the fees were structured so that when the Funds grow, economies of scale may be shared. 59 Board of trustees/directors and officers addendum Delaware Investments(R) Family of Funds A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information. Number of Portfolios in Fund Other Name, Complex Overseen Directorships Address, Position(s) Length of Principal Occupation(s) by Trustee Held by and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer ____________________________________________________________________________________________________________________________________ Interested Trustees ____________________________________________________________________________________________________________________________________ Patrick P. Coyne (1) Chairman, Chairman and Trustee Patrick P. Coyne has served in 83 None 2005 Market Street President, since August 16, 2006 various executive capacities Philadelphia, PA Chief Executive at different times at 19103 Officer, and President and Delaware Investments.(2) Trustee Chief Executive Officer April 14, 1963 since August 1, 2006 ____________________________________________________________________________________________________________________________________ Independent Trustees ____________________________________________________________________________________________________________________________________ Thomas L. Bennett Trustee Since Private Investor - 83 None 2005 Market Street March 2005 (March 2004-Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 4, 1947 (January 1984-March 2004) ____________________________________________________________________________________________________________________________________ John A. Fry Trustee Since President - 83 Director - 2005 Market Street January 2001 Franklin & Marshall College Community Health Philadelphia, PA (June 2002-Present) Systems 19103 Executive Vice President - Director - May 28, 1960 University of Pennsylvania Allied Barton (April 1995-June 2002) Security Holdings ____________________________________________________________________________________________________________________________________ Anthony D. Knerr Trustee Since Founder and Managing Director - 83 None 2005 Market Street April 1990 Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990-Present) December 7, 1938 ____________________________________________________________________________________________________________________________________ Lucinda S. Landreth Trustee Since Chief Investment Officer - 83 None 2005 Market Street March 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002-2004) June 24, 1947 ____________________________________________________________________________________________________________________________________ Ann R. Leven Trustee Since Owner - 83 Director and 2005 Market Street September 1989 ARL Associates, Audit Committee Philadelphia, PA Strategic Financial Planning Chairperson - Andy 19103 Consulting Firm Warhol Foundation (1983-Present) November 1, 1940 Director and Audit Committee Member - Systemax, Inc. ____________________________________________________________________________________________________________________________________
60 Number of Portfolios in Fund Other Name, Complex Overseen Directorships Address, Position(s) Length of Principal Occupation(s) by Trustee Held by and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Trustee or Officer ____________________________________________________________________________________________________________________________________ Independent Trustees (continued) ____________________________________________________________________________________________________________________________________ Thomas F. Madison Trustee Since President and Chief 83 Director - 2005 Market Street May 1999 Executive Officer - Banner Health Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director - and Consulting) CenterPoint Energy February 25, 1936 (January 1993-Present) Director and Audit Committee Member - Digital River, Inc. Director and Audit Committee Member - Rimage Corporation Director - Valmont Industries, Inc. ____________________________________________________________________________________________________________________________________ Janet L. Yeomans Trustee Since Vice President 83 None 2005 Market Street April 1999 (January 2003-Present) Philadelphia, PA and Treasurer 19103 (January 2006-Present) 3M Corporation July 31, 1948 Ms. Yeomans has held various management positions at 3M Corporation since 1983. ____________________________________________________________________________________________________________________________________ J. Richard Zecher Trustee Since Founder - 83 Director and Audit 2005 Market Street March 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999-Present) Director and Audit July 3, 1940 Founder - Committee Member - Sutton Asset Management Oxigene, Inc. (Hedge Fund) (September 1998-Present) ____________________________________________________________________________________________________________________________________ Officers ____________________________________________________________________________________________________________________________________ Michael P. Bishof Senior Chief Financial Michael P. Bishof has served in 83 None (3) 2005 Market Street Vice President Officer since various executive capacities Philadelphia, PA and February 2005 at different times at 19103 Chief Financial Delaware Investments. Officer August 18, 1962 ____________________________________________________________________________________________________________________________________ David F. Connor Vice President, Vice President since David F. Connor has served as 83 None (3) 2005 Market Street Deputy General September 21, 2000 Vice President and Deputy Philadelphia, PA Counsel, and and Secretary General Counsel of 19103 Secretary since Delaware Investments October 2005 since 2000. December 2, 1963 ____________________________________________________________________________________________________________________________________ David P. O'Connor Senior Vice Senior Vice President, David P. O'Connor has served in 83 None (3) 2005 Market Street President, General Counsel, and various executive and legal Philadelphia, PA General Counsel, Chief Legal Officer capacities at different times 19103 and Chief since at Delaware Investments. Legal Officer October 2005 February 21, 1966 ____________________________________________________________________________________________________________________________________ John J. O'Connor Senior Vice President Treasurer John J. O'Connor has served in 83 None (3) 2005 Market Street and Treasurer since various executive capacities Philadelphia, PA February 2005 at different times at 19103 Delaware Investments. June 16, 1957 ____________________________________________________________________________________________________________________________________ (1) Patrick P. Coyne is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') investment advisor. (2) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's(s') investment advisor, principal underwriter, and its transfer agent. (3) Michael P. Bishof, David F. Connor, David P. O'Connor, and John J. O'Connor serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. John J. O'Connor also serves in a similar capacity for Lincoln Variable Insurance Products Trust, which has the same investment advisor as the registrant.
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918. 61 About the organization This annual report is for the information of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund, and Delaware Minnesota High-Yield Municipal Bond Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund, Delaware Minnesota High-Yield Municipal Bond Fund, and the Delaware Investments(R) Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Board of trustees Patrick P. Coyne Chairman, President, and Chief Executive Officer Delaware Investments Family of Funds Philadelphia, PA Thomas L. Bennett Private Investor Rosemont, PA John A. Fry President Franklin & Marshall College Lancaster, PA Anthony D. Knerr Founder and Managing Director Anthony Knerr & Associates New York, NY Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. Philadelphia, PA Ann R. Leven Owner - ARL Associates, Strategic Financial Planning Consulting Firm Washington, DC Thomas F. Madison President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN Janet L. Yeomans Vice President and Treasurer 3M Corporation St. Paul, MN J. Richard Zecher Founder Investor Analytics Scottsdale, AZ Affiliated officers Michael P. Bishof Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA David F. Connor Vice President, Deputy General Counsel, and Secretary Delaware Investments Family of Funds Philadelphia, PA David P. O'Connor Senior Vice President, General Counsel, and Chief Legal Officer Delaware Investments Family of Funds Philadelphia, PA John J. O'Connor Senior Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA Contact information Investment manager Delaware Management Company, a series of Delaware Management Business Trust Philadelphia, PA National distributor Delaware Distributors, L.P. Philadelphia, PA Shareholder servicing, dividend disbursing, and transfer agent Delaware Service Company, Inc. 2005 Market Street Philadelphia, PA 19103-7094 For shareholders 800 523-1918 For securities dealers and financial institutions representatives only 800 362-7500 Web site www.delawareinvestments.com Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries. Each Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. Each Fund's Forms N-Q, as well as a description of the policies and procedures that each Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; (ii) on each Fund's Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. Each Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330. Information (if any) regarding how each Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through each Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. 62 Get shareholder reports and prospectuses online instead of in the mail. > Visit www.delawareinvestments.com/edelivery Simplify your life. Manage your investments online! Get Account Access, the Delaware Investments(R) secure Web site that allows you to conduct your business online. Gain 24-hour access to your account and one of the highest levels of Web security available. You also get: o Hassle-free investing - Make online purchases and redemptions at any time. o Simplified tax processing - Automatically retrieve your Delaware Investments accounts' 1099 information and import it directly into your 1040 tax return. Available only with Turbo Tax(R) Online(SM) and Desktop software - www.turbotax.com. o Less mail clutter - Get instant access to your fund materials online with Delaware eDelivery. Register for Account Access today! Please visit us at www.delawareinvestments.com, select Individual Investors, and click Account Access. Please call our Shareholder Service Center at 800 523-1918 Monday through Friday from 8:00 a.m. to 7:00 p.m., Eastern Time, for assistance with any questions. [DELAWARE INVESTMENTS LOGO] (909) Printed in the USA AR-MNALL [8/06] CGI 10/06 MF-06-09-026 PO11257 Item 2. Code of Ethics The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant's Code of Business Ethics has been posted on Delaware Investments' internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months. Item 3. Audit Committee Financial Expert The registrant's Board of Trustees/Directors has determined that each member of the registrant's Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an "audit committee financial expert" is a person who has the following attributes: a. An understanding of generally accepted accounting principles and financial statements; b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's financial statements, or experience actively supervising one or more persons engaged in such activities; d. An understanding of internal controls and procedures for financial reporting; and e. An understanding of audit committee functions. An "audit committee financial expert" shall have acquired such attributes through: a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions; b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions; c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or d. Other relevant experience. The registrant's Board of Trustees/Directors has also determined that each member of the registrant's Audit Committee is independent. In order to be "independent" for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an "interested person" of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940. The names of the audit committee financial experts on the registrant's Audit Committee are set forth below: Thomas L. Bennett (1) Thomas F. Madison Janet L. Yeomans (1) J. Richard Zecher Item 4. Principal Accountant Fees and Services (a) Audit fees. __________ The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $21,200 for the fiscal year ended August 31, 2006. _______________________ (1) The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on "other relevant experience." The Board of Trustees/Directors has determined that Mr. Bennett qualifies as an audit committee financial expert by virtue of his education, Chartered Financial Analyst designation, and his experience as a credit analyst, portfolio manager and the manager of other credit analysts and portfolio managers. The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation. The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $23,500 for the fiscal year ended August 31, 2005. (b) Audit-related fees. __________________ The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended August 31, 2006. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the financial statements of the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $28,300 for the registrant's fiscal year ended August 31, 2006. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of report concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act; and issuance of agreed upon procedures reports to the registrant's Board in connection with the pass-through of internal legal cost relating to the operations of the registrant. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended August 31, 2005. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the financial statements of the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $33,875 for the registrant's fiscal year ended August 31, 2005. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of report concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act; and issuance of agreed upon procedures reports to the registrant's Board in connection with the annual transfer agent and fund accounting service agent contract renewals and the pass-through of internal legal cost relating to the operations of the registrant. (c) Tax fees. ________ The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant were $4,100 for the fiscal year ended August 31, 2006. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2006. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant were $4,600 for the fiscal year ended August 31, 2005. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax return and review of annual excise distribution calculation. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2005. (d) All other fees. ______________ The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended August 31, 2006. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant's independent auditors to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2006. The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended August 31, 2005. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant's independent auditors to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2005. (e) The registrant's Audit Committee has established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the "Pre-Approval Policy") with respect to services provided by the registrant's independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee has pre-approved the services set forth in the table below with respect to the registrant up to the specified fee limits. Certain fee limits are based on aggregate fees to the registrant and other registrants within the Delaware Investments Family of Funds. ______________________________________________________________________________________________________________________ Service Range of Fees ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Audit Services ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Statutory audits or financial audits for new Funds up to $25,000 per Fund ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Services associated with SEC registration statements (e.g., Form N-1A, Form N-14, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters up to $10,000 per Fund for closed-end Fund offerings, consents), and assistance in responding to SEC comment letters ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered "audit-related services" rather than "audit services") ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Audit-Related Services ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and /or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other up to $25,000 in the aggregate regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered "audit services" rather than "audit-related services") ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Tax Services ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ U.S. federal, state and local and international tax planning and advice (e.g., consulting on statutory, regulatory or administrative developments, evaluation up to $25,000 in the aggregate of Funds' tax compliance function, etc.) ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ U.S. federal, state and local tax compliance (e.g., excise distribution reviews, up to $5,000 per Fund etc.) ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Review of federal, state, local and international income, franchise and other up to $5,000 per Fund tax returns ______________________________________________________________________________________________________________________
Under the Pre-Approval Policy, the Audit Committee has also pre-approved the services set forth in the table below with respect to the registrant's investment adviser and other entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the registrant (the "Control Affiliates") up to the specified fee limit. This fee limit is based on aggregate fees to the investment adviser and its Control Affiliates. ______________________________________________________________________________________________________________________ Service Range of Fees ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Non-Audit Services ______________________________________________________________________________________________________________________ ______________________________________________________________________________________________________________________ Services associated with periodic reports and other documents filed with the SEC up to $10,000 in the aggregate and assistance in responding to SEC comment letters ______________________________________________________________________________________________________________________
The Pre-Approval Policy requires the registrant's independent auditors to report to the Audit Committee at each of its regular meetings regarding all services initiated since the last such report was rendered, including those services authorized by the Pre-Approval Policy. (f) Not applicable. (g) The aggregate non-audit fees billed by the registrant's independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $257,920 and $209,835 for the registrant's fiscal years ended August 31, 2006 and August 31, 2005, respectively. (h) In connection with its selection of the independent auditors, the registrant's Audit Committee has considered the independent auditors' provision of non-audit services to the registrant's investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors' provision of these services is compatible with maintaining the auditors' independence. Item 5. Audit Committee of Listed Registrants Not applicable. Item 6. Schedule of Investments Included as part of report to shareholders filed under Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers Not applicable. Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There were no significant changes in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant's fourth fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a) (1) Code of Ethics Not applicable. (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT. (3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934. Not applicable. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. Name of Registrant: Voyageur Tax-Free Funds PATRICK P. COYNE ________________________________ By: Patrick P. Coyne Title: Chief Executive Officer Date: November 6, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. PATRICK P. COYNE ________________________________ By: Patrick P. Coyne Title: Chief Executive Officer Date: November 6, 2006 RICHARD SALUS ________________________________ By: Richard Salus Title: Chief Financial Officer Date: November 6, 2006