-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QlKe5bhpMCvCrei7rG3QXZ/eqRxkHjBBUman9DbWn8JLOl40meNmMj4KcwL9MJ78 iy0zGQXHJELQipXRMZmfoQ== 0000950116-03-004225.txt : 20031030 0000950116-03-004225.hdr.sgml : 20031030 20031030153044 ACCESSION NUMBER: 0000950116-03-004225 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031030 EFFECTIVENESS DATE: 20031030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOYAGEUR INSURED FUNDS CENTRAL INDEX KEY: 0000809064 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-04973 FILM NUMBER: 03966604 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: (215) 2155-2127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR INSURED FUNDS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR MINNESOTA INSURED FUNDS INC DATE OF NAME CHANGE: 19910926 FORMER COMPANY: FORMER CONFORMED NAME: MINNESOTA INSURED FUND INC DATE OF NAME CHANGE: 19900131 N-CSR 1 ncsr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4977 Exact name of registrant as specified in charter: Voyageur Insured Funds Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: Richelle S. Maestro, Esq. 2005 Market Street Philadelphia, PA 19103 Registrant's telephone number, including area code: (800) 523-1918 Date of fiscal year end: August 31 Date of reporting period: August 31, 2003
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 Arizona Insured Fund and Delaware Tax-Free Minnesota Insured Fund of the Registrant, information on which is included in the following shareholder reports. Delaware Investments(SM) -------------------------------------- FIXED INCOME A member of Lincoln Financial Group(R) Annual Report 2003 - -------------------------------------------------------------------------------- DELAWARE TAX-FREE ARIZONA FUND DELAWARE TAX-FREE ARIZONA INSURED FUND DELAWARE TAX-FREE CALIFORNIA FUND DELAWARE TAX-FREE CALIFORNIA INSURED FUND DELAWARE TAX-FREE COLORADO FUND [LOGO] POWERED BY RESEARCH.(SM) Table OF CONTENTS - ----------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 - ----------------------------------------------------------------- PERFORMANCE SUMMARIES: Delaware Tax-Free Arizona Fund 4 Delaware Tax-Free Arizona Insured Fund 5 Delaware Tax-Free California Fund 6 Delaware Tax-Free California Insured Fund 7 Delaware Tax-Free Colorado Fund 8 - ----------------------------------------------------------------- FINANCIAL STATEMENTS: Statements of Net Assets 9 Statements of Operations 21 Statements of Changes in Net Assets 22 Financial Highlights 25 Notes to Financial Statements 40 - ----------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS 45 - ----------------------------------------------------------------- BOARD OF TRUSTEES/OFFICERS 46 - ----------------------------------------------------------------- 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) 2003 Delaware Distributors, L.P. Portfolio September 10, 2003 MANAGEMENT REVIEW Fund Manager Andrew M. McCullagh Senior Portfolio Manager Q: How did the fixed-income markets fare during the 12-month period? A: Municipal bonds produced modestly positive returns during the fiscal year ended August 31, 2003. Declining interest rates in a lackluster economy generally provided a positive bond market environment for most of the year. Interest rates steadily declined through mid-June when the bellwether 10-year U.S. Treasury bond yield fell to 3.07%. However, the bond market was jolted in early summer by an uncharacteristically ambiguous message from the Federal Reserve Board. In June, the Fed shared its concern relating to deflation along with possible remedial steps, such as purchasing Treasury bonds. Investors expected that this action would bolster bond prices and reduce interest rates even further. A few weeks after this statement, the Fed inexplicably reversed course, saying deflation was no longer the primary policy issue. This caused yields to rise and bond prices to decline sharply in one of the worst sell-offs in years. Fortunately, our strategy prior to this dramatic bond market move was to shorten the Funds' durations. Duration is a common measure of a bond's or bond fund's sensitivity to interest rate changes. The longer the duration, the more sensitive the bond or bond fund is to changes in interest rates. In fact, we had shortened duration as early as late 2002 because we anticipated that interest rates would rise as the economy recovered. While we didn't know exactly when this reversal would take place, we also knew that it can take months to reposition a bond portfolio's duration. By doing so early in the fiscal year, the funds were not nearly as vulnerable to a selloff as their peers. Indeed, four out of the five funds discussed below outperformed their peers, as measured by Lipper Inc. Q: What were some of the factors that influenced performance in the Funds during the fiscal year? A: One of our general strategies was to buy bonds with intermediate maturities rather than lengthier 30-year debt, because the former offered more attractive yields on a risk/reward basis. In addition, we attempted to lighten our exposure to multifamily housing bonds, as rentals were vacated in favor of home purchases given historically low mortgage rates. A focus on call protection was another positive factor, particularly when interest rates were declining and issuers were seeking to refinance debt. Finally, we sought to generate a competitive income stream for the portfolios relative to their fund peer groups, as measured by Lipper Inc. The yields for all funds, except for the Tax-Free Arizona Insured Fund, exceeded the average yield of their respective Lipper fund peer groups for the 12-month period. We believed this measure would help protect against the effect of price declines in a rising interest rate environment. Still, municipal securities lagged behind the overall bond market during the fiscal year. The primary reason was record issuance by states and municipalities seeking to take advantage of low interest rates, which in turn exerted downward pressure on bond prices. In addition, the economies of Arizona, California, and Colorado -- which have become heavily dependent on the technology sector in recent years -- continued to be negatively affected by the slow recovery in capital spending. Q: Please discuss performance and your strategies in each of the Funds during the year. For the 12 months ended August 31, 2003, Delaware Tax-Free Arizona Fund's return of -0.88% (Class A shares at net asset value with distributions reinvested) lagged the +1.92% return of the Lipper Arizona Municipal Debt Funds Average. In addition, the benchmark Lehman Brothers Municipal Bond Index gained +3.14% for the same period. Two bond issues in particular contributed to the Fund's underperformance relative to its peer group and benchmark during the year. Maricopa County Industrial Development Authority Multifamily Housing Revenue (Bay Club at Mesa Cove Project) bonds declined in value, reflecting dwindling apartment occupancy rates. Because this investment did not work out as planned, we are hoping to negotiate an arrangement with the underwriter of these bonds in an effort to restore some value. Yet we cannot know if these efforts will be successful. In addition, our investment in Winslow Industrial Development Authority Hospital Revenue bonds have created challenges, although we think a pending merger might boost their price. Overall, though, the Fund's credit quality is quite strong, with an average rating of AA by Standard & Poor's (S&P). During the past six months, we have cut the Fund's allocation to multifamily housing bonds in half. Currently, the largest percentage of the Fund's holdings are issues related to education, both K-12 and college, with the next largest allocation in healthcare. 1 ================================================================================ For the 12-month period ended August 31, 2003, Delaware Tax-Free Arizona Insured Fund returned +2.17% (Class A shares at net asset value with distributions reinvested), surpassing its peer group, as measured by the Lipper Arizona Municipal Debt Funds Average, which returned +1.92%. The Lehman Brothers Municipal Bond Index managed to rise +3.14% during the same period. We took a very conservative approach in managing the Fund during the fiscal year, investing more than 80 percent of its total net assets in AAA-rated insured bonds and keeping portfolio duration shorter than that of its Lipper peer group average. Although tourism is down, our investment in airport bonds remains strong. The state's tourism industry has not rebounded, with airline passenger miles and hotel receipts below levels of one year ago. Arizona's economy mirrors that of the nation in general, with flat job growth and a decline in construction activity. Arizona was forced to deplete its reserve funds in order to cover a projected shortfall in its fiscal 2003 budget. However, we believe that the recent strength in the high-technology sector is a positive sign for the future. The state's exposure to industries was a negative factor in recent years. ================================================================================ Delaware Tax-Free California Fund returned +2.51% (Class A shares at net asset value with distributions reinvested) for the fiscal year ended August 31, 2003. For the same period, the Lipper California Municipal Debt Funds Average returned +1.36%, while the Lehman Brothers Municipal Bond Index gained +3.14%. Although the state has a large budget deficit, its economy is actually outpacing the nation in terms of employment and personal income growth. It is also benefiting from federal defense and homeland security spending. Orders are rising among the state's defense contractors, particularly in aerospace and shipbuilding. Although the state's technology sector is not expected to rebound much over the near term, it is also not expected to be the drag on the economy that it has been over the past two years. Still, the state's general obligation bond ratings have recently been downgraded to BBB (S&P) amid controversy surrounding the budget and the recent recall election. The Fund's relatively strong performance is partly due to above- average dividends, as well as a broadly diversified portfolio. In addition, we have generally avoided bonds that have had problems that can be linked to California's economic woes. Despite the state's well-publicized budget problems, the Fund's credit rating remains strong at A (S&P). ================================================================================ For the 12 months ended August 31, 2003, Delaware Tax-Free California Insured Fund's return of +1.84% (Class A shares at net asset value with distributions reinvested) compared favorably to the +1.53% return of the Lipper California Insured Municipal Debt Funds Average for the same period. The Fund's benchmark, the Lehman Brothers Municipal Bond Index, rose +3.14% for the same period. The Fund's slight relative advantage over its peer group partly reflects a portfolio with a higher-than-average distribution yield. We have been able to generate this yield advantage by allocating 20 percent of the Fund's assets to non-insured bonds. The State of California continues to issue billions of dollars in general obligation bonds, causing upward pressure on yields and downward pressure on prices throughout the municipal bond market. It is important for shareholders to note that, at fiscal year-end, the Fund held less than 10 percent of total net assets in general obligation bonds issued by the state. We believe this has been a good decision, since the state government's credit rating was downgraded by Standard & Poor's and Moody's Investors Service. General obligation bonds are secured by the taxing and borrowing power of the issuing municipality. Your Fund instead is focused on revenue bonds, where regular interest payments are made from revenues generated by the specific projects. The Fund's average credit quality at fiscal year-end was AA. 2 ================================================================================ For the 12 months ended August 31, 2003, Delaware Tax-Free Colorado Fund's return of +2.52% (Class A shares at net asset value with distributions reinvested) compared favorably to the +2.29% return of the Lipper Colorado Municipal Debt Funds Average. The Lehman Brothers Municipal Bond Index gained +3.14% during the same period. Colorado's economy performed relatively well during the period, with unemployment below the national average and per capita personal income above the national average. While the state's exposure to the technology and telecommunication sectors has resulted in slower growth in recent years, capital spending for education, roads, and other public services remained strong. We have continued to upgrade the credit quality of the portfolio. One problematic bond issue resulted in less of a loss than we had earlier anticipated. Once dependent on a financially troubled Denver aquarium, Colorado's Ocean Journey, the bond appeared more stable to investors when the aquarium was acquired by Landry's Restaurants, a national restaurant chain based in Houston, Texas. 3 Delaware TAX-FREE ARIZONA FUND Fund Basics As of August 31, 2003 - -------------------------------------------------- Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and from the Arizona state personal income tax as is consistent with preservation of capital. - -------------------------------------------------- Total Fund Net Assets: $35.78 million - -------------------------------------------------- Number of Holdings: 41 - -------------------------------------------------- Fund Start Date: March 2, 1995 - -------------------------------------------------- Your Fund Manager: Andrew M. McCullagh is a graduate of Washington College and has a Graduate Certificate in public finance from the University of Michigan. Prior to joining Delaware Investments, he served as a Senior Vice President and Senior Portfolio Manager of Voyageur Asset Management. Mr. McCullagh currently has over 28 years' experience in municipal bond trading, underwriting, and portfolio management. - -------------------------------------------------- Nasdaq Symbols: Class A DVAAX Class B DVATX Class C DVAZX Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime Five Years One Year - ----------------------------------------------------------------------------- Class A (Est. 3/2/95) Excluding Sales Charge +5.78% +3.15% -0.88% Including Sales Charge +5.21% +2.20% -5.35% - ----------------------------------------------------------------------------- Class B (Est. 6/29/95) Excluding Sales Charge +4.66% +2.41% -1.62% Including Sales Charge +4.66% +2.16% -5.40% - ----------------------------------------------------------------------------- Class C (Est. 5/13/95) Excluding Sales Charge +4.76% +2.38% -1.53% Including Sales Charge +4.76% +2.38% -2.48% - ----------------------------------------------------------------------------- Returns reflect the reinvestment of distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 Arizona Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment March 2, 1995 (Fund's inception) through August 31, 2003 Delaware Tax-Free Arizona Fund -- Class A Lehman Brothers Shares Municipal Bond Index ----------------------- -------------------- Mar-95 $ 9,630 $10,000 Aug-95 $10,073 $10,469 Aug-96 $10,961 $11,017 Aug-97 $11,991 $12,036 Aug-98 $13,127 $13,077 Aug-99 $12,985 $13,148 Aug-00 $13,460 $14,033 Aug-01 $14,738 $15,466 Aug-02 $15,466 $16,431 Aug-03 $15,397 $16,947 Chart assumes $10,000 invested on March 2, 1995 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 chart also assumes $10,000 invested in the Lehman Brothers Municipal Bond Index at that month's end, March 31, 1995. After March 31, 1995, returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 4 Delaware TAX-FREE ARIZONA INSURED FUND Fund Basics As of August 31, 2003 - ------------------------------------------------- Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and from the Arizona state personal income tax as is consistent with preservation of capital. - ------------------------------------------------- Total Fund Net Assets: $152.89 million - ------------------------------------------------- Number of Holdings: 66 - ------------------------------------------------- Fund Start Date: April 1, 1991 - ------------------------------------------------- Your Fund Manager: Andrew M. McCullagh - ------------------------------------------------- Nasdaq Symbols: Class A VAZIX Class B DVABX Class C DVACX
Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime 10 Years Five Years One Year - -------------------------------------------------------------------------------------------------- Class A (Est. 4/1/91) Excluding Sales Charge +6.50% +5.01% +4.34% +2.17% Including Sales Charge +6.10% +4.53% +3.39% -2.40% - -------------------------------------------------------------------------------------------------- Class B (Est. 3/10/95) Excluding Sales Charge +5.06% +3.57% +1.41% Including Sales Charge +5.06% +3.32% -2.46% - -------------------------------------------------------------------------------------------------- Class C (Est. 5/26/94) Excluding Sales Charge +5.04% +3.57% +1.40% Including Sales Charge +5.04% +3.57% +0.43% - --------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 Arizona Insured Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment August 31, 1993 through August 31, 2003 Delaware Tax-Free Arizona Insured Fund -- Lehmann Brothers Class A Shares Municipal Bond Index ------------------------ -------------------- Aug-93 $ 9,550 $10,000 Aug-94 $ 9,346 $10,014 Aug-95 $10,167 $10,902 Aug-96 $10,724 $11,474 Aug-97 $11,662 $12,534 Aug-98 $12,583 $13,618 Aug-99 $12,537 $13,692 Aug-00 $13,222 $14,614 Aug-01 $14,429 $16,106 Aug-02 $15,228 $17,102 Aug-03 $15,573 $17,639 Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 5 Delaware TAX-FREE CALIFORNIA FUND Fund Basics As of August 31, 2003 - ------------------------------------------------ Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and from the California state personal income tax as is consistent with preservation of capital. - ------------------------------------------------ Total Fund Net Assets: $45.35 million - ------------------------------------------------ Number of Holdings: 43 - ------------------------------------------------ Fund Start Date: March 2, 1995 - ------------------------------------------------ Your Fund Manager: Andrew M. McCullagh - ------------------------------------------------ Nasdaq Symbols: Class A DVTAX Class B DVTFX Class C DVFTX Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime Five Years One Year - ------------------------------------------------------------------------------- Class A (Est. 3/2/95) Excluding Sales Charge +6.49% +4.36% +2.51% Including Sales Charge +5.91% +3.40% -2.12% - ------------------------------------------------------------------------------- Class B (Est. 8/23/95) Excluding Sales Charge +5.91% +3.57% +1.73% Including Sales Charge +5.91% +3.32% -2.18% - ------------------------------------------------------------------------------- Class C (Est. 4/9/96) Excluding Sales Charge +5.62% +3.58% +1.74% Including Sales Charge +5.62% +3.58% +0.76% - ------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 California Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment March 2, 1995 (Fund's inception) through August 31, 2003 Delaware Tax-Free California Fund -- Lehman Brothers Class A Shares Municipal Bond Index ------------------ -------------------- Mar-95 $ 9,657 $10,000 Aug-95 $ 9,913 $10,469 Aug-96 $10,629 $11,017 Aug-97 $11,830 $12,036 Aug-98 $13,086 $13,077 Aug-99 $12,885 $13,148 Aug-00 $13,529 $14,033 Aug-01 $14,940 $15,466 Aug-02 $15,801 $16,431 Aug-03 $16,296 $16,947 Chart assumes $10,000 invested on March 2, 1995 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 chart also assumes $10,000 invested in the Lehman Brothers Municipal Bond Index at that month's end, March 31, 1995. After March 31, 1995, returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 6 Delaware TAX-FREE CALIFORNIA INSURED FUND Fund Basics As of August 31, 2003 - ------------------------------------------------- Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and from the California state personal income tax as is consistent with preservation of capital. - ------------------------------------------------- Total Fund Net Assets: $40.39 million - ------------------------------------------------- Number of Holdings: 35 - ------------------------------------------------- Fund Start Date: October 15, 1992 - ------------------------------------------------- Your Fund Manager: Andrew M. McCullagh - ------------------------------------------------- Nasdaq Symbols: Class A VCINX Class B DVNBX Class C DVNCX
Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime 10 Years Five Years One Year - ------------------------------------------------------------------------------------------------- Class A (Est. 10/15/92) Excluding Sales Charge +5.85% +4.84% +4.06% +1.84% Including Sales Charge +5.41% +4.36% +3.12% -2.79% - ------------------------------------------------------------------------------------------------- Class B (Est. 3/2/94) Excluding Sales Charge +4.43% +3.29% +1.07% Including Sales Charge +4.43% +3.03% -2.83% - ------------------------------------------------------------------------------------------------- Class C (Est. 4/12/95) Excluding Sales Charge +4.74% +3.32% +1.17% Including Sales Charge +4.74% +3.32% +0.19% - -------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 California Insured Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment August 31, 1993 through August 31, 2003 Delaware Tax-Free Californa Insured Fund -- Lehman Brothers Class A Shares Municipal Bond Index --------------------------- -------------------- Aug-93 $ 9,550 $10,000 Aug-94 $ 9,256 $10,014 Aug-95 $ 9,897 $10,902 Aug-96 $10,489 $11,474 Aug-97 $11,524 $12,534 Aug-98 $12,548 $13,618 Aug-99 $12,301 $13,692 Aug-00 $13,174 $14,614 Aug-01 $14,428 $16,106 Aug-02 $15,039 $17,102 Aug-03 $15,321 $17,639 Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 7 Delaware TAX-FREE COLORADO FUND Fund Basics As of August 31, 2003 - ----------------------------------------------- Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and from the Colorado state personal income tax as is consistent with preservation of capital. - ----------------------------------------------- Total Fund Net Assets: $321.24 million - ----------------------------------------------- Number of Holdings: 98 - ----------------------------------------------- Fund Start Date: April 23, 1987 - ----------------------------------------------- Your Fund Manager: Andrew M. McCullagh - ----------------------------------------------- Nasdaq Symbols: Class A VCTFX Class B DVBTX Class C DVCTX
Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime 10 Years Five Years One Year - ------------------------------------------------------------------------------------------------------------ Class A (Est. 4/23/87) Excluding Sales Charge +6.95% +5.09% +3.81% +2.52% Including Sales Charge +6.65% +4.61% +2.86% -2.08% - ------------------------------------------------------------------------------------------------------------ Class B (Est. 3/22/95) Excluding Sales Charge +5.02% +3.03% +1.66% Including Sales Charge +5.02% +2.77% -2.25% - ------------------------------------------------------------------------------------------------------------ Class C (Est. 5/6/94) Excluding Sales Charge +5.06% +3.04% +1.74% Including Sales Charge +5.06% +3.04% +0.77% - ------------------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 Colorado Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment August 31, 1993 through August 31, 2003 Delaware Tax-Free Colorado Fund -- Lehman Brothers Class A Shares Municipal Bond Index ------------------- -------------------- Aug-93 $ 9,550 $10,000 Aug-94 $ 9,356 $10,014 Aug-95 $10,137 $10,902 Aug-96 $10,768 $11,474 Aug-97 $11,845 $12,534 Aug-98 $13,004 $13,618 Aug-99 $12,783 $13,692 Aug-00 $13,280 $14,614 Aug-01 $14,616 $16,106 Aug-02 $15,291 $17,102 Aug-03 $15,691 $17,639 Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 8 Statements Delaware Tax-Free Arizona Fund OF NET ASSETS August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 100.66% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 9.78% Phoenix Civic Improvement Corporation Series B 5.25% 7/1/27 (FGIC/AMT) $2,500,000 $ 2,498,125 5.25% 7/1/32 (FGIC/AMT) 1,000,000 999,190 ----------- 3,497,315 ----------- Charter School Revenue Bonds - 9.23% Maricopa County Industrial Development Authority School District Revenue 6.75% 7/1/29 1,000,000 982,490 Pima County Industrial Development Authority (Arizona Charter Schools Project II) Series A 6.75% 7/1/31 500,000 491,015 Pima County Industrial Development Authority (Life School College Project) Series A 7.875% 7/1/21 2,000,000 1,827,140 ----------- 3,300,645 ----------- Dedicated Tax & Fees Revenue Bonds - 9.87% Arizona Tourism & Sports Authority Tax Revenue Multipurpose Stadium Facilities Series A 5.00% 7/1/31 (MBIA) 1,000,000 990,290 Glendale Municipal Property Corporation Excise Tax Revenue Series A 5.00% 7/1/33 (AMBAC) 750,000 742,485 Marana Municipal Property Corporation 5.00% 7/1/28 (AMBAC) 575,000 571,159 Phoenix Civic Improvement Corporation Excise Tax Revenue 4.50% 7/1/29 1,350,000 1,226,219 ----------- 3,530,153 ----------- Higher Education Revenue Bonds - 15.89% Glendale Industrial Development Authority 5.875% 5/15/31 1,000,000 1,024,539 Northern Arizona University Systems Revenue 5.00% 6/1/34 (FGIC) 1,000,000 987,850 Southern Arizona Capital Facilities Finance (University of Arizona Project) 5.10% 9/1/33 (MBIA) 850,000 851,029 Tucson Industrial Development Authority (University of Arizona-Marshall Foundation) Series A 5.00% 7/15/27 (AMBAC) 1,000,000 995,390 University of Arizona Certificates of Participation (University of Arizona Projects) Series B 5.125% 6/1/22 (AMBAC) 1,000,000 1,016,279 West Campus Housing Revenue (Arizona State University Project) 6.375% 7/1/22 (ACA) 750,000 808,748 ----------- 5,683,835 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Hospital Revenue Bonds - 12.50% Mesa Industrial Development Authority (Discovery Health Systems) Series A 5.625% 1/1/29 (MBIA) $ 750,000 $ 779,288 Mohave County Industrial Development Authority (Chris/Silver Ridge) 6.375% 11/1/31 (GNMA) 550,000 579,343 Scottsdale Industrial Development Authority Hospital Revenue (Scottsdale Healthcare) 5.70% 12/1/21 500,000 504,280 Winslow Industrial Development Authority Hospital Revenue (Winslow Memorial Hospital Project) 5.50% 6/1/22 1,000,000 673,430 Yavapai County Industrial Development Authority Hospital Revenue (Yavapai Regional Medical Center) Series A 5.25% 8/1/21 (RADIAN) 1,000,000 1,004,179 Yuma Industrial Development Authority Hospital Revenue (Yuma Regional Medical Center) 5.00% 8/1/31 (FSA) 950,000 933,812 ----------- 4,474,332 ----------- Investor Owned Utilities Revenue Bonds - 5.67% Maricopa County Pollution Control (Palo Verde Project) Series A 5.05% 5/1/29 (AMBAC) 1,000,000 994,370 Maricopa County Pollution Control Corporation Pollution Control Revenue (El Paso Electric Company Project) Series A 6.375% 8/1/15 1,000,000 1,034,490 ----------- 2,028,860 ----------- Multifamily Housing Revenue Bonds - 10.75% **Maricopa County Industrial Development Authority Multifamily Housing Revenue (Bay Club at Mesa Cove Project) Series B 8.25% 9/1/35 1,875,000 656,250 Maricopa County Industrial Development Authority Multifamily Housing Revenue (Sly-Mar Apartments) 6.10% 4/20/36 (GNMA/AMT) 700,000 729,722 Maricopa County Industrial Development Authority Multifamily Housing Revenue (Villas at Augusta Project) 6.50% 10/20/33 (GNMA) 850,000 886,941 Peoria Casa Del Rio Industrial Development Authority Multifamily Housing Revenue (Casa Del Rio) 7.30% 2/20/28 (GNMA) 500,000 524,905 Phoenix Industrial Development Authority Multifamily Housing Revenue (Camelback Crossing) 6.35% 9/20/35 (GNMA) 500,000 531,285 Pima County Industrial Development Authority Multifamily Housing Revenue (Sunbriar Apartments Project) 7.25% 7/1/25 (MBIA/FHA) 500,000 518,675 ----------- 3,847,778 ----------- 9 Statements Delaware Tax-Free Arizona Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Municipal Lease Revenue Bonds - 5.55% Maricopa County Industrial Development Authority Correctional Facilities (Phoenix West Prison) 5.375% 7/1/22 (ACA) $ 750,000 $ 751,508 Prescott Valley Municipal Property Corporate Facilities Revenue 5.00% 1/1/27 (FGIC) 700,000 700,210 Sedona Partner Certificates of Participation Series 1999 5.75% 7/1/16 500,000 535,735 ---------- 1,987,453 ---------- Political Subdivision General Obligation Bonds - 9.94% DC Ranch Community Facilities 5.00% 7/15/27 (AMBAC) 500,000 498,865 Eagle Mountain Community Facility District 6.50% 7/1/21 1,010,000 1,122,049 Phoenix Variable Purpose Series B 5.00% 7/1/27 1,935,000 1,937,342 ---------- 3,558,256 ---------- Public Power Revenue Bonds - 2.77% Salt River Project Arizona Agricultural Improvement & Power District Electric System Revenue (Salt River Project) Series A 5.00% 1/1/31 1,000,000 991,830 ---------- 991,830 ---------- School District General Obligation Bonds - 0.52% Maricopa County School District #69 (Paradise Valley) 3.375% 7/1/13 (FGIC) 200,000 185,430 ---------- 185,430 ---------- Single Family Housing Revenue Bonds - 0.55% Pima County Industrial Development Authority Single Family Mortgage Revenue Series A 6.125% 11/1/33 (GNMA/FNMA/FHLMC/AMT) 190,000 198,421 ---------- 198,421 ---------- Territorial General Obligation Bonds - 2.77% Puerto Rico Commonwealth Public Improvement Series A 5.125% 7/1/31 1,000,000 989,690 ---------- 989,690 ---------- Territorial Revenue Bonds - 2.78% Puerto Rico Public Buildings Authority Guaranteed Government Facilities Revenue Series D 5.25% 7/1/36 1,000,000 994,810 ---------- 994,810 ---------- Water & Sewer Revenue Bonds - 2.09% Phoenix Civic Improvement Corporation Water Systems Revenue 5.00% 7/1/26 (FGIC) 750,000 747,420 ---------- 747,420 ---------- Total Municipal Bonds (cost $37,497,256) 36,016,228 ---------- Total Market Value of Securities - 100.66% (cost $37,497,256) $36,016,228 Liabilities Net of Receivables and Other Assets - (0.66%) (235,270) ----------- Net Assets Applicable to 3,573,341 Shares Outstanding - 100.00% $35,780,958 =========== Net Asset Value - Delaware Tax-Free Arizona Fund Class A ($22,400,694/2,237,570 Shares) $10.01 ------ Net Asset Value - Delaware Tax-Free Arizona Fund Class B ($8,956,323/894,988 Shares) $10.01 ------ Net Asset Value - Delaware Tax-Free Arizona Fund Class C ($4,423,941/440,783 Shares) $10.04 ------ Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $38,557,252 Distributions in excess of net investment income (1,660) Accumulated net realized loss on investments (1,293,606) Net unrealized depreciation of investments (1,481,028) ----------- Total net assets $35,780,958 =========== **Non-income producing security. Security is currently in default. Summary of Abbreviations: ACA - Insured by American Capital Access AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FHLMC - Insured by the Federal Home Loan Mortgage Corporation FNMA - Insured by Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance Net Asset Value and Offering Price per Share - Delaware Tax-Free Arizona Fund Net asset value Class A (A) $10.01 Sales charge (4.50% of offering price, or 4.70% of amount invested per share) (B) 0.47 ------ Offering price $10.48 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 10 Statements Delaware Tax-Free Arizona Insured Fund OF NET ASSETS (CONTINUED) August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 98.77% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 9.68% Phoenix Civic Improvement Corporation Series B 5.25% 7/1/27 (FGIC/AMT) $ 500,000 $ 499,625 5.25% 7/1/32 (FGIC/AMT) 9,300,000 9,292,467 Tucson Airport Authority 5.35% 6/1/31 (AMBAC/AMT) 5,000,000 5,004,250 ----------- 14,796,342 ----------- Charter School Revenue Bonds - 4.54% Pima County Industrial Development Authority (Arizona Charter Schools Project II) Series A 6.75% 7/1/31 500,000 491,015 Pima County Industrial Development Authority (Arizona Charter Schools Project) Series C 6.75% 7/1/31 6,570,000 6,451,937 ----------- 6,942,952 ----------- Continuing Care/Retirement Revenue Bonds - 2.59% Maricopa County Industrial Development Authority Health Facilities Revenue (Pennington Gardens) Series A 6.30% 9/20/38 (GNMA/FHA) 3,715,000 3,954,395 ----------- 3,954,395 ----------- Dedicated Tax & Fees Revenue Bonds - 7.49% Arizona Tourism & Sports Authority Tax Revenue Multipurpose Stadium Facilities Series A 5.00% 7/1/28 (MBIA) 2,500,000 2,483,300 5.00% 7/1/31 (MBIA) 1,500,000 1,485,435 Oro Valley Common Trust Funds Partnership 5.75% 7/1/17 (MBIA) 1,000,000 1,094,060 Phoenix Civic Improvement Corporation Excise Tax Revenue 5.00% 7/1/26 1,000,000 999,260 Surprise Municipal Property Excise Tax Revenue 5.70% 7/1/20 (FGIC) 5,000,000 5,394,350 ----------- 11,456,405 ----------- Escrowed to Maturity Bonds - 0.23% Phoenix Street & Highway Revenue 6.50% 7/1/09 (AMBAC) 350,000 355,611 ----------- 355,611 ----------- Higher Education Revenue Bonds - 9.77% Arizona State Board of Regents Certificates of Participation 5.125% 6/1/25 (AMBAC) 1,250,000 1,263,613 Glendale Industrial Development Authority Educational Facilities (American Graduate School International) 5.625% 7/1/20 (Connie Lee) 1,000,000 1,069,890 5.875% 7/1/15 (Connie Lee) 2,500,000 2,713,575 Mohave County Community College 6.00% 3/1/20 (MBIA) 1,000,000 1,114,110 South Campus Group Student Housing Revenue (Arizona State University South Campus Project) 5.625% 9/1/35 (MBIA) 1,000,000 1,051,790 Southern Arizona Capital Facilities Finance (University of Arizona Project) 5.10% 9/1/33 (MBIA) 2,400,000 2,402,904 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Higher Education Revenue Bonds (continued) University of Arizona Certificates of Participation 4.75% 6/1/23 (AMBAC) $1,000,000 $ 973,060 5.125% 6/1/21 (AMBAC) 1,000,000 1,020,570 5.75% 6/1/19 (AMBAC) 1,000,000 1,091,250 West Campus Housing (Arizona State University Project) 5.50% 7/1/34 (ACA) 2,250,000 2,239,560 ----------- 14,940,322 ----------- Hospital Revenue Bonds - 10.84% Mesa Industrial Development Authority (Discovery Health Systems) Series A 5.625% 1/1/29 (MBIA) 9,250,000 9,611,212 Phoenix Industrial Development Authority Hospital Revenue (John C. Lincoln Health) Series B 5.75% 12/1/16 (Connie Lee) 4,110,000 4,488,531 University of Arizona Medical Center 6.25% 7/1/10 (MBIA) 1,445,000 1,465,143 Yavapai County Industrial Development Authority Hospital Revenue (Yavapai Regional Medical Center) Series A 5.25% 8/1/21 (RADIAN) 1,000,000 1,004,180 ----------- 16,569,066 ----------- Investor Owned Utilities Revenue Bonds - 4.60% Maricopa County Pollution Control (Palo Verde Project) Series A 5.05% 5/1/29 (AMBAC) 5,000,000 4,971,850 Puerto Rico Industrial Tourist Facilities Financing Authority 6.625% 6/1/26 (AMT) 2,000,000 2,061,140 ----------- 7,032,990 ----------- Multifamily Housing Revenue Bonds - 13.14% Maricopa County Industrial Development Authority Multifamily Housing Revenue (Sly-Mar Apartments) 6.10% 4/20/36 (GNMA/AMT) 1,300,000 1,355,198 Maricopa County Industrial Development Authority Multifamily Housing Revenue (Villas at Augusta Project) 6.50% 10/20/33 (GNMA/AMT) 1,650,000 1,721,709 Phoenix Industrial Development Authority Multifamily Housing Revenue (Camelback Crossing) 6.35% 9/20/35 (GNMA) 1,500,000 1,593,855 Phoenix Industrial Development Authority Multifamily Housing Revenue (Capital Mews Apartments) 5.70% 12/20/40 (GNMA/AMT) 4,000,000 4,078,919 Phoenix Industrial Development Authority Multifamily Housing Revenue (Ventana Palms Apartments) 6.15% 10/1/29 (MBIA) 510,000 536,168 6.20% 10/1/34 (MBIA) 940,000 997,105 Pima County Industrial Development Authority Multifamily Housing Revenue (Columbus Village) Series A 6.00% 10/20/31 (GNMA) 1,150,000 1,201,785 6.05% 10/20/41 (GNMA) 1,520,000 1,586,652 11 Statements Delaware Tax-Free Arizona Insured Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Multifamily Housing Revenue Bonds (continued) Pima County Industrial Development Authority Multifamily Housing Revenue (Sunbriar Apartments Project) 7.25% 7/1/25 (MBIA/FHA) $1,225,000 $ 1,270,754 Tolleson Industrial Development Authority Multifamily Housing Revenue (Copper Cove Project) Series A 5.45% 11/20/32 (GNMA/AMT) 1,285,000 1,295,691 Yuma Industrial Development Authority Multifamily Revenue 6.10% 9/20/19 (GNMA/AMT) 2,340,000 2,450,354 Yuma Industrial Development Authority Multifamily Revenue (Regency Apartments) Series A 5.50% 12/20/32 (GNMA/FHA) 2,000,000 2,009,460 ----------- 20,097,650 ----------- Municipal Lease Revenue Bonds - 9.28% Maricopa County Industrial Development Authority Correctional Facilities (Phoenix West Prison) 5.375% 7/1/22 (ACA) 250,000 250,503 Phoenix Industrial Development Authority Lease Revenue (Capitol Mall LLC Project) 5.50% 9/15/27 (AMBAC) 5,000,000 5,196,399 Phoenix Industrial Development Authority Lease Revenue (Capitol Mall LLC II Project) 5.00% 9/15/28 (AMBAC) 4,000,000 3,971,080 Pinal County Certificates of Participation 5.125% 6/1/21 (AMBAC) 4,675,000 4,771,165 ----------- 14,189,147 ----------- Political Subdivision General Obligation Bonds - 1.31% DC Ranch Community Facilities 5.00% 7/15/27 (AMBAC) 1,000,000 997,730 Phoenix Variable Purpose Series B 5.00% 7/1/27 1,000,000 1,001,210 ----------- 1,998,940 ----------- Public Power Revenue Bonds - 5.60% Energy Management Services (Arizona State University - Main Campus) 5.25% 7/1/17 (MBIA) 1,500,000 1,593,000 Puerto Rico Electric Power Authority Power Revenue 5.00% 7/1/32 2,000,000 2,006,800 Salt River Project Arizona Agricultural Improvement & Power District Electric System Revenue (Salt River Project) Series A 5.00% 1/1/31 3,000,000 2,975,490 Series B 5.00% 1/1/31 (MBIA) 2,000,000 1,983,660 ----------- 8,558,950 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- School District General Obligation Bonds - 5.20% Cochise County Unified School District #68 7.50% 7/1/10 (FGIC) $1,000,000 $ 1,238,940 Maricopa County School District #3 (Tempe Elementary) Series E 5.70% 7/1/16 (FGIC) 1,025,000 1,133,835 Maricopa County School District #14 (Creighton School Improvement Project of 1990) Series C 6.50% 7/1/08 (FGIC) 1,000,000 1,168,530 Maricopa County School District #69 (Paradise Valley) 3.375% 7/1/13 (FGIC) 4,750,000 4,403,962 ----------- 7,945,267 ----------- Single Family Housing Revenue Bonds - 0.81% Pima County Industrial Development Authority Single Family Housing Revenue 6.10% 5/1/31 (GNMA/AMT) 1,200,000 1,242,372 ----------- 1,242,372 ----------- Territorial General Obligation Bonds - 4.62% Puerto Rico Commonwealth Public Improvement Series A 5.125% 7/1/30 (FSA) 1,250,000 1,264,550 5.125% 7/1/31 4,450,000 4,404,121 Puerto Rico Commonwealth Refunding Public Improvements Series A 5.50% 7/1/19 1,300,000 1,390,337 ----------- 7,059,008 ----------- Transportation Revenue Bonds - 3.02% Arizona State Transportation Board Highway Revenue Series A 5.00% 7/1/21 2,500,000 2,549,500 Arizona State Transportation Board Highway Revenue Series B 5.25% 7/1/21 1,000,000 1,039,710 5.25% 7/1/22 1,000,000 1,035,320 ----------- 4,624,530 ----------- Water & Sewer Revenue Bonds - 6.05% Gilbert Water & Waste Water Revenue 6.50% 7/1/12 (FGIC) 1,000,000 1,052,510 6.50% 7/1/22 (FGIC) 2,650,000 2,780,645 Phoenix Civic Improvement Corporation Wastewater Systems Revenue 5.00% 7/1/24 (FGIC) 1,000,000 1,000,900 5.00% 7/1/26 (FGIC) 3,750,000 3,737,100 Prescott Valley Sewer Revenue 5.00% 1/1/23 (MBIA) 670,000 674,677 ----------- 9,245,832 ----------- Total Municipal Bonds (cost $147,511,486) 151,009,779 ----------- 12 Statements Delaware Tax-Free Arizona Insured Fund OF NET ASSETS (CONTINUED) Total Market Value of Securities - 98.77% (cost $147,511,486) $151,009,779 Receivables and Other Assets Net of Liabilities - 1.23% 1,883,142 ------------ Net Assets Applicable to 13,697,515 Shares Outstanding - 100.00% $152,892,921 ============ Net Asset Value - Delaware Tax-Free Arizona Insured Fund Class A ($129,682,965/11,620,196 Shares) $11.16 ------ Net Asset Value - Delaware Tax-Free Arizona Insured Fund Class B ($14,665,502/1,313,229 Shares) $11.17 ------ Net Asset Value - Delaware Tax-Free Arizona Insured Fund Class C ($8,544,454/764,090 Shares) $11.18 ------ Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $148,675,771 Undistributed net investment income 7,314 Accumulated net realized gain on investments 711,543 Net unrealized appreciation of investments 3,498,293 ------------ Total net assets $152,892,921 ============ Summary of Abbreviations: ACA -- Insured by American Capital Access AMBAC -- Insured by the AMBAC Indemnity Corporation AMT -- Subject to Alternative Minimum Tax Connie Lee -- Insured by the College Construction Insurance Association FGIC -- Insured by the Financial Guaranty Insurance Company FHA -- Insured by the Federal Housing Administration FSA -- Insured by Financial Security Assurance GNMA -- Insured by Government National Mortgage Association MBIA -- Insured by the Municipal Bond Insurance Association RADIAN -- Insured by Radian Asset Assurance Net Asset Value and Offering Price per Share - Delaware Tax-Free Arizona Insured Fund Net asset value Class A (A) $11.16 Sales charge (4.50% of offering price, or 4.75% of amount invested per share) (B) 0.53 ------ Offering price $11.69 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 13 Statements Delaware Tax-Free California Fund OF NET ASSETS (CONTINUED) August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 98.81% - -------------------------------------------------------------------------------- Continuing Care/Retirement Revenue Bonds - 5.80% Abag Finance Authority of California (Nonprofit Corporations) Certificates of Participation (Lincoln Glen Manor Senior Citizens) 6.10% 2/15/25 $2,575,000 $ 2,630,620 ----------- 2,630,620 ----------- Dedicated Tax & Fees Revenue Bonds - 4.19% Poway Unified School District 5.60% 9/1/33 1,000,000 947,960 San Bernardino County Special Tax Community Facilities 5.90% 9/1/33 1,000,000 952,570 ----------- 1,900,530 ----------- Higher Education Revenue Bonds - 7.77% California Educational Facilities Authority Revenue (Pepperdine University) Series A 5.50% 8/1/32 1,000,000 1,020,950 California Statewide Communities Revenue Authority East Campus Apartments LLC Series A 5.625% 8/1/34 (ACA) 1,000,000 1,007,130 San Diego County Certificates of Participation (University of San Diego) 5.375% 10/1/41 1,000,000 1,002,290 University of California Revenues Series A 5.00% 5/15/33 (AMBAC) 500,000 491,975 ----------- 3,522,345 ----------- Hospital Revenue Bonds - 9.18% Abag Finance Authority of California (Nonprofit Corporations-San Diego Hospital Association) Series A 6.125% 8/15/20 1,250,000 1,288,875 California Health Facilities Financing Authority (Adventist Health Systems) Series A 5.00% 3/1/33 1,000,000 901,240 California Health Facilities Financing Authority (The Episcopal Home) 5.30% 2/1/32 1,000,000 979,390 California Infrastructure & Economic Development Bank Revenue (Kaiser Hospital Associates I, LLC) Series A 5.55% 8/1/31 1,000,000 990,280 ----------- 4,159,785 ----------- Miscellaneous Revenue Bonds - 6.97% California Statewide Communities Development Authority Revenue (Bentley School) 6.75% 7/1/32 1,000,000 1,005,940 San Diego County Certificates of Participation 5.70% 2/1/28 1,200,000 1,130,544 San Diego County Certificates of Participation (The Burnham Institute) 6.25% 9/1/29 1,000,000 1,024,310 ----------- 3,160,794 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Multifamily Housing Revenue Bonds - 19.50% California Mobile Home Park Financing Authority Revenue (Ranch Vallecitos, San Marcos) Series A 5.25% 11/15/36 (ACA) $1,000,000 $ 973,560 California Statewide Communities Development Authority Multifamily Housing Revenue (Citrus Gardens Apartments Project) Series D1 5.375% 7/1/32 1,000,000 974,190 California Statewide Communities Development Authority Multifamily Housing Revenue (Silver Ridge Apartments) 5.80% 8/1/33 (AMT) 1,000,000 1,041,179 California Statewide Communities Development Authority Multifamily Housing Revenue (Stonehaven Apartments Project) Series A 5.875% 7/1/32 (ACA) 1,000,000 1,017,090 Fairfield Housing Authority 5.625% 9/1/23 1,000,000 965,670 Monterey County Housing Authority (Parkside Manor Apartments) 5.00% 7/1/19 1,000,000 941,460 Palm Springs Mobile Home Park Revenue (Sahara Mobile Home Park) 5.625% 5/15/26 1,000,000 984,160 5.75% 5/15/37 1,000,000 976,630 Santa Clara County Housing Authority (Rivertown Apartments Project) Series A 5.85% 8/1/31 (AMT) 1,000,000 964,280 ----------- 8,838,219 ----------- Municipal Lease Revenue Bonds - 6.91% California State Public Works Board Lease Revenue 5.00% 12/1/27 (AMBAC) 1,000,000 988,430 Orange County Water Distribution Revenue 5.00% 8/15/34 (MBIA) 1,180,000 1,159,893 San Jose Financing Authority Lease Revenue (Civic Center Project) Series B 5.00% 6/1/32 (AMBAC) 1,000,000 984,180 ----------- 3,132,503 ----------- Parking Revenue Bonds - 2.33% San Diego Redevelopment Agency 6.40% 9/1/25 1,000,000 1,056,970 ----------- 1,056,970 ----------- *Pre-Refunded Bonds - 2.62% Tustin Unified School District 6.375% 9/1/35-08 1,000,000 1,189,930 ----------- 1,189,930 ----------- Public Power Revenue Bonds - 5.55% California State Department Water Reserve Power Supply Revenue Series A 5.375% 5/1/21 1,000,000 1,014,990 Puerto Rico Electric Power Authority Power Revenue 5.00% 7/1/32 (MBIA) 1,000,000 1,003,400 Vernon Electric Systems Revenue 5.30% 4/1/26 515,000 498,577 ----------- 2,516,967 ----------- 14 Statements Delaware Tax-Free California Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- School District General Obligation Bonds - 6.53% Gilroy Unified School District (Malbor Generating State Project) 5.00% 8/1/27 (FGIC) $1,000,000 $ 989,360 Lawndale Elementary School District 5.00% 8/1/32 (FSA) 1,000,000 984,180 San Diego Unified School District 5.00% 7/1/28 (FSA) 1,000,000 988,020 ----------- 2,961,560 ----------- State General Obligation Bonds - 1.43% California State Veterans Series B 5.70% 12/1/32 (AMT) 640,000 649,728 ----------- 649,728 ----------- Tax Increment/Special Assessment Bonds - 9.08% Lake Elisnore Public Financing Authority 5.50% 9/1/30 1,000,000 999,300 5.80% 9/2/15 1,110,000 1,136,074 San Francisco City & County Redevelopment Agency 6.125% 8/1/31 1,000,000 979,000 Southern California Logistics Airport Authority (Southern California Logistics Airport Project) 6.50% 12/1/31 1,000,000 1,003,130 ----------- 4,117,504 ----------- Transportation Revenue Bonds - 2.23% Port of Oakland 5.375% 11/1/27 (FGIC/AMT) 1,000,000 1,012,630 ----------- 1,012,630 ----------- Waste Disposal Revenue Bonds - 4.42% Salinas Valley Solid Waste Authority Revenue 5.25% 8/1/31 (AMBAC/AMT) 2,000,000 2,003,440 ----------- 2,003,440 ----------- Water & Sewer Revenue Bonds - 4.30% Los Angeles Department of Water & Power Waterworks Revenue Series A 5.00% 7/1/43 (FGIC) 1,000,000 968,400 San Juan Basin Authority (Ground Water Recovery Project) 5.00% 12/1/34 (AMBAC) 1,000,000 982,540 ----------- 1,950,940 ----------- Total Municipal Bonds (cost $44,643,718) 44,804,465 ----------- Number of Shares - -------------------------------------------------------------------------------- Short-Term Investments - 1.26% - -------------------------------------------------------------------------------- Federated California Municipal Trust 573,362 573,362 ----------- Total Short-Term Investments (cost $573,362) 573,362 ----------- Total Market Value of Securities - 100.07% (cost $45,217,080) 45,377,827 Liabilities Net of Receivables and Other Assets - (0.07%) (30,754) ----------- Net Assets Applicable to 4,212,731 Shares Outstanding - 100.00% $45,347,073 =========== Net Asset Value - Delaware Tax-Free California Fund Class A ($22,168,838/2,062,824 Shares) $10.75 ------ Net Asset Value - Delaware Tax-Free California Fund Class B ($16,164,902/1,498,224 Shares) $10.79 ------ Net Asset Value - Delaware Tax-Free California Fund Class C ($7,013,333/651,683 Shares) $10.76 ------ Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization-- no par) $46,492,842 Undistributed net investment income 1,300 Accumulated net realized loss on investments (1,307,816) Net unrealized appreciation of investments 160,747 ----------- Total net assets $45,347,073 =========== *For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. Summary of Abbreviations: ACA - Insured by American Capital Access AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance MBIA - Insured by the Municipal Bond Insurance Association Net Asset Value and Offering Price per Share - Delaware Tax-Free California Fund Net asset value Class A (A) $10.75 Sales charge (4.50% of offering price, or 4.74% of amount invested per share) (B) 0.51 ------ Offering price $11.26 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 15 Statements Delaware Tax-Free California Insured Fund OF NET ASSETS (CONTINUED) August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 99.05% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 4.87% Sacramento County Airport System Revenue Series A 5.00% 7/1/32 (FSA) $1,000,000 $ 984,170 San Jose Airport Revenue Series A 5.00% 3/1/31 (FGIC) 1,000,000 984,570 ---------- 1,968,740 ---------- Dedicated Tax & Fees Revenue Bonds - 4.83% San Bernardino County Special Tax Community Facilities 5.90% 9/1/33 1,000,000 952,570 San Francisco Bay Area Rapid Transit District Sales Tax Revenue 5.125% 7/1/36 (AMBAC) 1,000,000 998,510 ---------- 1,951,080 ---------- Higher Education Revenue Bonds - 13.97% California Educational Facilities Authority Revenue 5.00% 10/1/32 1,000,000 991,620 5.75% 11/1/30 (MBIA) 1,000,000 1,065,610 California State Los Angeles University Auxiliary Services 5.125% 6/1/33 (MBIA) 1,600,000 1,600,880 San Diego County Certificates of Participation (University of San Diego) 5.375% 10/1/41 1,000,000 1,002,290 University of California Revenues Series A 5.00% 5/15/33 (AMBAC) 1,000,000 983,950 ---------- 5,644,350 ---------- Hospital Revenue Bonds - 5.97% California Health Facilities Financing Authority (The Episcopal Home) 5.30% 2/1/32 1,000,000 979,390 Oakland Industrial Revenue (Harrison Foundation) Series B 6.00% 1/1/29 (AMBAC) 1,300,000 1,433,289 ---------- 2,412,679 ---------- Miscellaneous Revenue Bonds - 5.16% California Statewide Communities Development Authority Revenue (Bentley School) 6.75% 7/1/32 1,000,000 1,005,940 San Diego County Certificates of Participation 5.75% 7/1/31 (MBIA) 1,000,000 1,076,940 ---------- 2,082,880 ---------- Multifamily Housing Revenue Bonds - 12.08% California Statewide Communities Development Authority Multifamily Housing Revenue (Citrus Gardens Apartments Project) Series D1 5.375% 7/1/32 800,000 779,352 California Statewide Communities Development Authority Multifamily Housing Revenue (East Tabor Apartments) 6.85% 8/20/36 (GNMA) 1,500,000 1,588,754 Los Angeles Multifamily Housing Revenue (Park Plaza) 5.50% 1/20/43 (GNMA) 1,430,000 1,449,520 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Multifamily Housing Revenue Bonds (continued) Ventura County Area Housing Authority Multifamily Housing Revenue (Glen Oaks Apartments) Series A 6.35% 7/20/34 (GNMA) $1,027,000 $ 1,061,672 ----------- 4,879,298 ----------- Municipal Lease Revenue Bonds - 7.32% California State Public Works Board Lease Revenue 5.00% 3/1/27 (AMBAC) 1,000,000 984,100 5.00% 12/1/27 (AMBAC) 1,000,000 988,430 San Jose Financing Authority Lease Revenue (Civic Center Project) Series B 5.00% 6/1/32 (AMBAC) 1,000,000 984,180 ----------- 2,956,710 ----------- Public Power Revenue Bonds - 5.00% California State Department Water Reserve Power Supply Revenue Series A 5.375% 5/1/21 1,000,000 1,014,990 Puerto Rico Electric Power Authority Power Revenue 5.00% 7/1/32 (MBIA) 1,000,000 1,003,400 ----------- 2,018,390 ----------- School District General Obligation Bonds - 9.83% Gilroy Unified School District (Malbor Generating State Project) 5.00% 8/1/27 (FGIC) 1,000,000 989,360 Placer Unified High School District 5.00% 8/1/25 (FSA) 1,000,000 992,720 San Diego Unified School District 5.00% 7/1/28 (FSA) 1,000,000 988,020 Sequoia Unified High School District 5.125% 7/1/31 (FSA) 1,000,000 1,000,700 ----------- 3,970,800 ----------- School District Revenue Bonds - 2.59% Franklin-McKinley School District Certificates of Participation (Financing Project) Series B 5.00% 9/1/27 (AMBAC) 1,060,000 1,044,259 ----------- 1,044,259 ----------- Tax Increment/Special Assessment Bonds - 15.05% La Quinta Redevelopment Agency Tax Allocation 5.10% 9/1/31 (AMBAC) 2,000,000 1,987,300 Poway Redevelopment Agency Certificates of Participation 5.75% 6/15/33 (MBIA) 1,400,000 1,509,116 Riverside County Redevelopment Agency 5.25% 10/1/35 (AMBAC) 1,590,000 1,606,298 San Francisco City & County Redevelopment Agency 6.125% 8/1/31 1,000,000 979,000 ----------- 6,081,714 ----------- Transportation Revenue Bonds - 2.57% Port of Oakland 5.75% 11/1/29 (FGIC/AMT) 1,000,000 1,038,870 ----------- 1,038,870 ----------- Waste Disposal Revenue Bonds - 4.97% Salinas Valley Solid Waste Authority Revenue 5.25% 8/1/27 (AMBAC) 2,000,000 2,007,260 ----------- 2,007,260 ----------- 16 Statements Delaware Tax-Free California Insured Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Water & Sewer Revenue Bonds - 4.84% California State Department of Water Resources Water Systems Revenue (Central Valley Project) Series X 5.00% 12/1/29 (FGIC) $1,000,000 $ 986,250 Los Angeles Department of Water & Power Waterworks Revenue Series A 5.00% 7/1/43 (FGIC) 1,000,000 968,400 ----------- 1,954,650 ----------- Total Municipal Bonds (cost $39,298,008) 40,011,680 ----------- Number of Shares - -------------------------------------------------------------------------------- Short-Term Investments - 2.35% - -------------------------------------------------------------------------------- Federated California Municipal Trust 947,474 947,474 ----------- Total Short-Term Investments (cost $947,474) 947,474 ----------- Total Market Value of Securities - 101.40% (cost $40,245,482) 40,959,154 Liabilities Net of Receivables and Other Assets - (1.40%) (566,598) ----------- Net Assets Applicable to 3,786,656 Shares Outstanding - 100.00% $40,392,556 =========== Net Asset Value - Delaware Tax-Free California Insured Fund Class A ($28,822,019/2,701,617 Shares) $10.67 ------ Net Asset Value - Delaware Tax-Free California Insured Fund Class B ($8,628,328/808,553 Shares) $10.67 ------ Net Asset Value - Delaware Tax-Free California Insured Fund Class C ($2,942,209/276,486 Shares) $10.64 ------ Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $39,698,745 Accumulated net realized loss on investments (19,861) Net unrealized appreciation of investments 713,672 ----------- Total net assets $40,392,556 =========== Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity 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 MBIA - Insured by the Municipal Bond Insurance Association Net Asset Value and Offering Price per Share - Delaware Tax-Free California Insured Fund Net asset value Class A (A) $10.67 Sales charge (4.50% of offering price, or 4.69% of amount invested per share) (B) 0.50 ------ Offering price $11.17 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 17 Statements Delaware Tax-Free Colorado Fund OF NET ASSETS (CONTINUED) August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 98.50% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 3.81% Denver City & County Airport 5.00% 11/15/33 (XLCA) $4,000,000 $ 3,887,360 5.25% 11/15/23 (MBIA) 8,250,000 8,371,523 ----------- 12,258,883 ----------- Charter School Revenue Bonds - 8.91% Colorado Educational & Cultural Facilities Authority (Aspen Foundation Colorado) 6.125% 7/1/12 560,000 551,331 6.50% 7/1/24 1,710,000 1,606,990 Colorado Educational & Cultural Facilities Authority (Collegiate Academy Charter School Project) 7.375% 12/15/21 1,000,000 1,021,570 7.50% 12/15/31 1,000,000 1,023,030 Colorado Educational & Cultural Facilities Authority (Compass Montessori Charter School Project) 7.75% 7/15/31 2,125,000 2,041,785 Colorado Educational & Cultural Facilities Authority (Compass Montessori R1 Charter School Project) 8.00% 2/15/32 2,645,000 2,679,623 Colorado Educational & Cultural Facilities Authority (Core Knowledge Charter School Project) 7.00% 11/1/29 1,000,000 1,061,670 Colorado Educational & Cultural Facilities Authority (Frontier Academy Charter School Project) 7.25% 6/1/20 1,450,000 1,490,803 7.375% 6/1/31 1,775,000 1,827,398 Colorado Educational & Cultural Facilities Authority (Lincoln Academy Charter School Project) 8.375% 3/1/26 2,400,000 2,430,288 Colorado Educational & Cultural Facilities Authority (Littleton Academy Charter School Project) 6.125% 1/15/31 2,000,000 1,927,960 Colorado Educational & Cultural Facilities Authority (Montessori Districts Charter School Projects) 6.125% 7/15/32 5,590,000 5,349,350 Colorado Educational & Cultural Facilities Authority (Pinnacle Charter School Project) 6.00% 12/1/21 1,750,000 1,729,753 Colorado Educational & Cultural Facilities Authority (Renaissance Charter School Project) 6.75% 6/1/29 2,000,000 1,925,440 Colorado Educational & Cultural Facilities Authority (Stargate Charter School Project) 6.125% 5/1/33 2,000,000 1,951,740 ----------- 28,618,731 ----------- Continuing Care/Retirement Revenue Bonds - 3.79% Colorado Health Facilities Authority (Covenant Retirement Communities) 5.50% 12/1/33 (RADIAN) 5,000,000 5,012,100 Colorado Health Facilities Authority (Porter Place) 6.00% 1/20/36 (GNMA) 5,000,000 5,209,050 Mesa County Residential Care Facilities Mortgage Revenue (Hilltop Community Resources) Series A 5.375% 12/1/28 (RADIAN) 2,000,000 1,969,940 ----------- 12,191,090 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Dedicated Tax & Fees Revenue Bonds - 0.60% Broomfield Sales & Use Tax Revenue Refunding & Improvement Series A 5.00% 12/1/31 (AMBAC) $1,950,000 $ 1,930,910 ----------- 1,930,910 ----------- Higher Education Revenue Bonds - 12.81% Boulder County Development Revenue University Corporation for Atmospheric Research 5.00% 9/1/33 (MBIA) 1,200,000 1,186,200 Colorado Educational & Cultural Facilities Authority (Johnson & Wales University Project) Series A 4.75% 4/1/33 (XLCA) 2,500,000 2,339,850 Colorado Educational & Cultural Facilities Authority (University of Colorado Foundation Project) 5.00% 7/1/32 (AMBAC) 6,000,000 5,936,280 Colorado Educational & Cultural Facilities Authority (University of Denver Project) 5.375% 3/1/23 (AMBAC) 2,000,000 2,067,300 Colorado Educational & Cultural Facilities Authority (University of Denver Project) Series A 5.00% 3/1/27 (MBIA) 5,000,000 4,974,650 Colorado Educational & Cultural Facilities Authority (University of Northern Colorado Student Housing Project) 5.125% 7/1/37 (MBIA) 7,500,000 7,510,049 Colorado School Mines Auxiliary Facilities Revenue 5.00% 12/1/37 (AMBAC) 3,630,000 3,574,098 Colorado Springs Revenue (Colorado College Project) 5.375% 6/1/32 5,570,000 5,710,030 Colorado State University Systems Series B 5.00% 3/1/35 (AMBAC) 3,500,000 3,457,860 University of Colorado Enterprise System 5.375% 6/1/26 1,000,000 1,028,640 University of Colorado Enterprise System Series B 5.125% 6/1/28 (FGIC) 3,350,000 3,367,353 ----------- 41,152,310 ----------- Hospital Revenue Bonds - 9.63% Boulder County Hospital Revenue Development (Longmont United Hospital Project) 5.60% 12/1/27 (RADIAN) 1,250,000 1,265,288 5.875% 12/1/20 3,000,000 3,011,610 6.00% 12/1/30 (RADIAN) 5,000,000 5,298,199 Colorado Health Facilities Authority (Catholic Health Initiatives) 5.50% 3/1/32 5,000,000 5,042,200 Colorado Health Facilities Authority (Vail Valley Medical Center Project) 5.75% 1/15/22 500,000 503,100 5.80% 1/15/27 3,475,000 3,483,201 6.60% 1/15/20 (ACA) 1,000,000 1,032,410 Delta County Memorial Hospital District 5.35% 9/1/17 4,000,000 3,900,760 Denver Health & Hospital Authority Healthcare Revenue Series A 5.375% 12/1/28 (ACA) 2,770,000 2,739,558 6.00% 12/1/31 1,000,000 983,190 18 Statements Delaware Tax-Free Colorado Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Hospital Revenue Bonds (continued) University of Colorado Hospital Authority Series A 5.60% 11/15/31 $3,650,000 $ 3,667,520 ----------- 30,927,036 ----------- Miscellaneous Revenue Bonds - 8.07% Colorado Educational & Cultural Facilities Authority Revenue 5.25% 6/1/21 2,000,000 2,006,780 **Colorado Post Secondary Education (Ocean Journey Project) 8.375% 12/1/26 8,000,000 252,000 Denver Convention Center Series A 5.00% 12/1/33 (XLCA) 11,000,000 10,690,020 Lowry Economic Redevelopment Authority Revenue 7.80% 12/1/10 11,040,000 11,852,986 Lowry Economic Redevelopment Authority Revenue Series A (Private Placement) 7.30% 12/1/10 1,055,000 1,117,266 ----------- 25,919,052 ----------- Multifamily Housing Revenue Bonds - 9.71% Adams County Housing Authority Mortgage Revenue (Aztec Villa Apartments Project) 5.85% 12/1/27 1,825,000 1,867,632 Adams County Housing Authority Mortgage Revenue (Greenbriar Project) 6.75% 7/1/21 1,730,000 1,797,574 Burlingame Multifamily Housing Revenue Series A 6.00% 11/1/29 (MBIA) 1,250,000 1,302,675 Colorado Housing & Finance Authority (Multifamily Housing Insured Mortgage) Series A3 6.25% 10/1/26 (FHA) 6,205,000 6,443,272 Series C3 6.15% 10/1/41 1,590,000 1,660,119 Colorado Housing & Finance Authority (Multifamily Project Class I) Series A5 5.45% 10/1/33 720,000 688,126 Denver City & County Multifamily Housing Revenue Federal Housing Authority (Insured Mortgage Loan - Garden Court) 5.40% 7/1/39 (FHA) 2,000,000 2,020,100 Englewood Multifamily Housing Revenue (Marks Apartments Project) 6.65% 12/1/26 5,700,000 5,767,089 Englewood Multifamily Housing Revenue (Marks Apartments Project) Series B 6.00% 12/15/18 7,515,000 7,521,087 Lake County Multifamily Housing Mortgage Revenue (Sawatch Apartments) 6.80% 10/20/35 (GNMA) 1,955,000 2,112,866 ----------- 31,180,540 ----------- Municipal Lease Revenue Bonds - 8.48% Aurora Certificates of Participation 5.50% 12/1/30 (AMBAC) 8,000,000 8,273,680 Conejos & Alamosa Counties School District Region Certificates of Participation 6.50% 4/1/11 1,315,000 1,371,769 El Paso County Certificates of Participation (Detention Facilities Project) Series B 5.00% 12/1/27 (AMBAC) 1,500,000 1,486,560 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Municipal Lease Revenue Bonds (continued) El Paso County Certificates of Participation (Judicial Building Project) Series A 5.00% 12/1/27 (AMBAC) $2,000,000 $ 1,982,080 Fremont County Certificates of Participation Refunding & Improvement Series A 5.25% 12/15/24 (MBIA) 3,045,000 3,126,423 5.25% 12/15/26 (MBIA) 1,025,000 1,041,093 Greeley County Building Authority Certificates of Participation 6.10% 8/15/16 2,600,000 2,725,814 Paint Brush Hills Metropolitan District Certificates of Participation 7.75% 9/1/21 1,594,248 1,564,723 Pueblo County Certificates of Participation 6.50% 12/1/24 5,460,000 5,671,684 ----------- 27,243,826 ----------- Political Subdivision General Obligation Bonds - 11.79% Arapahoe County Water & Wastewater Public Improvement District Series A 5.125% 12/1/32 (MBIA) 5,000,000 5,018,600 Bowles Metropolitan District 5.00% 12/1/33 (FSA) 2,000,000 1,979,820 Concord Metropolitan District 8.00% 12/1/19 5,000,000 5,180,800 Galleria Metropolitan District 7.25% 12/1/09 1,125,000 1,169,696 Lincoln Park Metropolitan District 7.75% 12/1/26 2,610,000 2,675,328 Meridian Metropolitan District Refunding Series A 5.00% 12/1/31 (RADIAN) 7,000,000 6,677,790 North Range Metropolitan District #1 7.25% 12/15/31 3,400,000 3,381,266 Saddle Rock Colorado Metropolitan District 5.35% 12/1/31 1,580,000 1,575,070 Silver Dollar Metropolitan District 7.05% 12/1/30 5,000,000 5,086,900 Tri-Pointe Commercial Metropolitan District 7.75% 12/1/19 5,000,000 5,138,400 ----------- 37,883,670 ----------- Public Utility District Revenue Bonds - 3.09% Colorado Springs Utilities Revenue Series A 5.00% 11/15/29 10,000,000 9,919,800 ----------- 9,919,800 ----------- Recreational Area Revenue Bonds - 1.71% Aurora Golf Course Enterprise System Revenue (Saddle Rock Golf Course) 6.20% 12/1/15 2,000,000 2,047,620 South Suburban Park & Recreation District (Golf & Ice Arena Facility) 6.00% 11/1/15 2,330,000 2,412,785 Westminster Golf Course 5.55% 12/1/23 (RADIAN) 1,000,000 1,026,180 ----------- 5,486,585 ----------- 19 Statements Delaware Tax-Free Colorado Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- School District General Obligation Bonds - 5.59% Arapahoe County Colorado School District 5.00% 12/1/22 (FGIC) $1,000,000 $ 1,010,630 Douglas County School District No Re 1 Building (Douglas & Elbert Counties) Series B 5.125% 12/15/25 (FSA) 5,000,000 5,051,950 El Paso County School District #2 (Harrison) 5.00% 12/1/27 (MBIA) 2,615,000 2,606,423 El Paso County School District #49 (Falcon) 5.50% 12/1/21 (FGIC) 3,580,000 3,788,642 Garfield County School District No Re 2 5.00% 12/1/25 (FSA) 1,000,000 997,920 La Plata County School District No 9-R 5.125% 11/1/24 (MBIA) 1,000,000 1,011,230 Larimer Weld & Boulder Counties School Districts No R-2J 5.00% 12/15/15 (FSA) 3,260,000 3,503,392 ------------ 17,970,187 ------------ Tax Increment/Special Assessment Bonds - 2.53% Loveland Special Improvements District #1 7.50% 7/1/29 6,140,000 6,153,692 Pueblo Urban Renewal Authority Tax Increment Revenue 6.625% 12/1/19 1,890,000 1,965,222 ------------ 8,118,914 ------------ Territorial General Obligation Bonds - 0.46% Puerto Rico Commonwealth Public Improvement Series A 5.00% 7/1/27 1,000,000 974,780 5.125% 7/1/31 500,000 494,845 ------------ 1,469,625 ------------ Territorial Revenue Bonds - 0.55% Puerto Rico Public Buildings Authority Revenue Series D 5.25% 7/1/27 1,750,000 1,752,695 ------------ 1,752,695 ------------ Turnpike/Toll Road Revenue Bonds - 5.12% E-470 Public Highway Authority 5.75% 9/1/35 (MBIA) 3,100,000 3,333,709 Northwest Parkway Public Highway Authority Series A 5.25% 6/15/41 (FSA) 13,000,000 13,122,850 ------------ 16,456,559 ------------ Water & Sewer Revenue Bonds - 1.85% Erie Water Enterprise Revenue 5.00% 12/1/23 (ACA) 1,750,000 1,671,740 Lafayette Water Revenue Series A 5.00% 12/1/27 (MBIA) 1,100,000 1,093,180 Ute Utility Water Conservancy District Water Revenue 5.75% 6/15/20 (MBIA) 2,900,000 3,167,525 ------------ 5,932,445 ------------ Total Municipal Bonds (cost $313,338,478) 316,412,858 ------------ Total Market Value of Securities - 98.50% (cost $313,338,478) $316,412,858 Receivables and Other Assets Net of Liabilities - 1.50% 4,829,417 ------------ Net Assets Applicable to 29,662,747 Shares Outstanding - 100.00% $321,242,275 ============ Net Asset Value - Delaware Tax-Free Colorado Fund Class A ($299,528,129/27,659,508 Shares) $10.83 ------ Net Asset Value - Delaware Tax-Free Colorado Fund Class B ($13,108,408/1,209,840 Shares) $10.83 ------ Net Asset Value - Delaware Tax-Free Colorado Fund Class C ($8,605,738/793,399 Shares) $10.85 ------ Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization-- no par) $320,225,904 Accumulated net realized loss on investments (2,058,009) Net unrealized appreciation of investments 3,074,380 ------------ Total net assets $321,242,275 ------------ **Non-income producing security. Security currently in default. Summary of Abbreviations: ACA - Insured by American Capital Access AMBAC - Insured by the AMBAC Indemnity Corporation FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance XLCA - Insured by XL Capital Assurance Net Asset Value and Offering Price per Share - Delaware Tax-Free Colorado Fund Net asset value Class A (A) $10.83 Sales charge (4.50% of offering price, or 4.71% of amount invested per share) (B) 0.51 ------ Offering price $11.34 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 20 Statements Year Ended August 31, 2003 OF OPERATIONS
Delaware Delaware Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Arizona Arizona Insured California California Insured Colorado Fund Fund Fund Fund Fund Investment Income: Interest $2,160,169 $8,433,286 $2,552,829 $2,094,859 $19,185,116 ---------- ---------- ---------- ---------- ----------- Expenses: Management fees 216,689 806,609 262,705 203,606 1,836,240 Dividend disbursing and transfer agent fees and expenses 17,700 88,960 24,906 23,070 196,200 Distribution expenses-- Class A 61,854 342,504 61,650 74,125 776,218 Distribution expenses-- Class B 100,986 147,937 161,084 92,336 146,361 Distribution expenses-- Class C 45,831 94,365 69,498 18,180 87,649 Accounting and administration expenses 17,576 73,353 21,582 18,124 148,765 Registration fees 8,026 6,709 572 696 5,394 Reports and statements to shareholders 1,894 16,813 -- 9,724 91,136 Professional fees 13,146 19,100 4,590 7,458 62,748 Custodian fees 3,147 7,820 3,684 3,768 17,091 Trustees' fees 1,610 8,317 2,644 2,700 17,750 Other 10,931 38,724 7,729 10,021 91,246 ---------- ---------- ---------- ---------- ----------- 499,390 1,651,211 620,644 463,808 3,476,798 Less expenses absorbed or waived (92,635) (78,576) (207,820) -- -- Less expenses paid indirectly (1,007) (3,946) (1,187) (1,215) (8,956) ---------- ---------- ---------- ---------- ----------- Total expenses 405,748 1,568,689 411,637 462,593 3,467,842 ---------- ---------- ---------- ---------- ----------- Net Investment Income 1,754,421 6,864,597 2,141,192 1,632,266 15,717,274 ---------- ---------- ---------- ---------- ----------- Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain on investments 140,622 754,322 216,651 166,983 631,030 Net change in unrealized appreciation/ depreciation of investments (2,328,563) (4,291,338) (1,294,988) (1,149,222) (8,259,671) ---------- ---------- ---------- ---------- ----------- Net Realized and Unrealized Loss on Investments (2,187,941) (3,537,016) (1,078,337) (982,239) (7,628,641) ---------- ---------- ---------- ---------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations ($433,520) $3,327,581 $1,062,855 $650,027 $8,088,633 ========== ========== ========== ========== ===========
See accompanying notes 21 Statements OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware Tax-Free Arizona Fund Arizona Insured Fund Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 Increase (Decrease) in Net Assets from Operations: Net investment income $ 1,754,421 $ 1,783,251 $ 6,864,597 $ 6,941,384 Net realized gain (loss) on investments 140,622 (73,813) 754,322 2,596,988 Net change in unrealized appreciation/depreciation of investments (2,328,563) 33,806 (4,291,338) (1,097,360) ----------- ----------- ------------ ------------ Net increase (decrease) in net assets resulting from operations (433,520) 1,743,244 3,327,581 8,441,012 ----------- ----------- ------------ ------------ Dividends and Distributions to Shareholders from: Net investment income: Class A (1,170,970) (1,213,829) (5,989,214) (6,301,205) Class B (401,931) (413,805) (534,860) (432,125) Class C (181,499) (155,617) (340,523) (208,054) Net realized gain on investments: Class A -- -- (1,396,185) (865,976) Class B -- -- (143,720) (62,839) Class C -- -- (91,428) (28,435) ----------- ----------- ------------ ------------ (1,754,400) (1,783,251) (8,495,930) (7,898,634) ----------- ----------- ------------ ------------ Capital Share Transactions: Proceeds from shares sold: Class A 3,550,052 10,514,069 13,366,725 13,506,834 Class B 833,181 2,176,368 3,326,803 5,743,574 Class C 573,736 1,971,388 3,929,559 5,512,689 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 502,292 549,306 3,663,972 3,385,866 Class B 159,824 153,041 380,126 259,825 Class C 132,415 123,314 334,202 190,296 ----------- ----------- ------------ ------------ 5,751,500 15,487,486 25,001,387 28,599,084 ----------- ----------- ------------ ------------ Cost of shares repurchased: Class A (6,928,421) (3,162,787) (24,391,768) (17,114,099) Class B (2,123,309) (365,597) (2,246,828) (1,297,726) Class C (579,367) (192,302) (3,517,552) (905,756) ----------- ----------- ------------ ------------ (9,631,097) (3,720,686) (30,156,148) (19,317,581) ----------- ----------- ------------ ------------ Increase (decrease) in net assets derived from capital share transactions (3,879,597) 11,766,800 (5,154,761) 9,281,503 ----------- ----------- ------------ ------------ Net Increase (Decrease) in Net Assets (6,067,517) 11,726,793 (10,323,110) 9,823,881 Net Assets: Beginning of year 41,848,475 30,121,682 163,216,031 153,392,150 ----------- ----------- ------------ ------------ End of year $35,780,958 $41,848,475 $152,892,921 $163,216,031 =========== =========== ============ ============
See accompanying notes 22 Statements OF CHANGES IN NET ASSETS (CONTINUED)
Delaware Tax-Free Delaware Tax-Free California Fund California Insured Fund Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 Increase (Decrease) in Net Assets from Operations: Net investment income $ 2,141,192 $ 2,115,292 $ 1,632,266 $ 1,539,100 Net realized gain (loss) on investments 216,651 (157,317) 166,983 (35,039) Net change in unrealized appreciation/depreciation of investments (1,294,988) 314,498 (1,149,222) (12,835) ----------- ----------- ----------- ----------- Net increase in net assets resulting from operations 1,062,855 2,272,473 650,027 1,491,226 ----------- ----------- ----------- ----------- Dividends and Distributions to Shareholders from: Net investment income: Class A (1,198,163) (1,205,949) (1,249,365) (1,194,000) Class B (658,337) (615,935) (319,704) (316,220) Class C (284,692) (293,408) (63,197) (28,880) Net realized gain on investments: Class A -- -- -- (431,988) Class B -- -- -- (134,873) Class C -- -- -- (12,025) ----------- ----------- ----------- ----------- (2,141,192) (2,115,292) (1,632,266) (2,117,986) ----------- ----------- ----------- ----------- Capital Share Transactions: Proceeds from shares sold: Class A 6,900,365 4,478,047 4,039,278 3,028,178 Class B 3,123,917 1,924,681 1,648,826 3,012,575 Class C 2,400,582 1,660,298 2,003,403 1,342,130 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 420,231 523,361 655,264 845,801 Class B 225,516 198,541 161,774 242,589 Class C 190,408 170,057 26,743 13,665 ----------- ----------- ----------- ----------- 13,261,019 8,954,985 8,535,288 8,484,938 ----------- ----------- ----------- ----------- Cost of shares repurchased: Class A (8,123,457) (6,495,544) (3,785,642) (2,796,439) Class B (1,891,459) (1,886,367) (2,732,015) (1,037,452) Class C (2,745,126) (749,274) (360,679) (179,715) ----------- ----------- ----------- ----------- (12,760,042) (9,131,185) (6,878,336) (4,013,606) ----------- ----------- ----------- ----------- Increase (decrease) in net assets derived from capital share transactions 500,977 (176,200) 1,656,952 4,471,332 ----------- ----------- ----------- ----------- Net Increase (Decrease) in Net Assets (577,360) (19,019) 674,713 3,844,572 Net Assets: Beginning of year 45,924,433 45,943,452 39,717,843 35,873,271 ----------- ----------- ----------- ----------- End of year $45,347,073 $45,924,433 $40,392,556 $39,717,843 =========== =========== =========== ===========
See accompanying notes 23 Statements OF CHANGES IN NET ASSETS (CONTINUED)
Delaware Tax-Free Colorado Fund Year Ended 8/31/03 8/31/02 Increase (Decrease) in Net Assets from Operations: Net investment income $ 15,717,274 $ 16,136,974 Net realized gain on investments 631,030 2,605,316 Net change in unrealized appreciation/depreciation of investments (8,259,671) (3,729,898) ------------ ------------ Net increase in net assets resulting from operations 8,088,633 15,012,392 ------------ ------------ Dividends and Distributions to Shareholders from: Net investment income: Class A (14,774,600) (15,269,995) Class B (586,453) (592,108) Class C (349,930) (275,325) ------------ ------------ (15,710,983) (16,137,428) ------------ ------------ Capital Share Transactions: Proceeds from shares sold: Class A 18,044,255 18,451,081 Class B 1,399,969 2,320,838 Class C 4,139,859 3,462,982 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 8,886,403 9,541,898 Class B 378,269 400,849 Class C 252,301 207,164 ------------ ------------ 33,101,056 34,384,812 ------------ ------------ Cost of shares repurchased: Class A (35,022,951) (30,747,830) Class B (3,195,659) (2,173,560) Class C (3,630,231) (1,223,433) ------------ ------------ (41,848,841) (34,144,823) ------------ ------------ Increase (decrease) in net assets derived from capital share transactions (8,747,785) 239,989 ------------ ------------ Net Decrease in Net Assets (16,370,135) (885,047) Net Assets: Beginning of year 337,612,410 338,497,457 ------------ ------------ End of year $321,242,275 $337,612,410 ============ ============
See accompanying notes 24 Financial HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free Arizona Fund Class A ---------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.590 $10.620 $10.250 $10.450 $11.210 Income (loss) from investment operations: Net investment income 0.491 0.532 0.572 0.555 0.538 Net realized and unrealized gain (loss) on investments (0.580) (0.030) 0.370 (0.200) (0.645) ------- ------- ------- ------- ------- Total from investment operations (0.089) 0.502 0.942 0.355 (0.107) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.491) (0.532) (0.572) (0.555) (0.538) Net realized gain on investments -- -- -- -- (0.115) ------- ------- ------- ------- ------- Total dividends and distributions (0.491) (0.532) (0.572) (0.555) (0.653) ------- ------- ------- ------- ------- Net asset value, end of period $10.010 $10.590 $10.620 $10.250 $10.450 ======= ======= ======= ======= ======= Total return(1) (0.88%) 4.93% 9.48% 3.68% (1.09%) Ratios and supplemental data: Net assets, end of period (000 omitted) $22,401 $26,664 $18,809 $13,873 $18,586 Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.60% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.99% 0.98% 1.01% 1.06% 1.10% Ratio of net investment income to average net assets 4.73% 5.09% 5.50% 5.53% 4.88% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.49% 4.86% 5.24% 5.22% 4.38% Portfolio turnover 70% 111% 108% 115% 68%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 25 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free Arizona Fund Class B --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.590 $10.620 $10.240 $10.450 $11.200 Income (loss) from investment operations: Net investment income 0.413 0.454 0.495 0.481 0.456 Net realized and unrealized gain (loss) on investments (0.580) (0.030) 0.380 (0.210) (0.635) ------- ------- ------- ------- ------- Total from investment operations (0.167) 0.424 0.875 0.271 (0.179) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.413) (0.454) (0.495) (0.481) (0.456) Net realized gain on investments -- -- -- -- (0.115) ------- ------- ------- ------- ------- Total dividends and distributions (0.413) (0.454) (0.495) (0.481) (0.571) ------- ------- ------- ------- ------- Net asset value, end of period $10.010 $10.590 $10.620 $10.240 $10.450 ======= ======= ======= ======= ======= Total return(1) (1.62%) 4.16% 8.78% 2.82% (1.74%) Ratios and supplemental data: Net assets, end of period (000 omitted) $8,956 $10,629 $8,681 $4,911 $5,956 Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50% 1.35% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.74% 1.73% 1.76% 1.81% 1.85% Ratio of net investment income to average net assets 3.98% 4.34% 4.75% 4.78% 4.13% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.74% 4.11% 4.49% 4.47% 3.63% Portfolio turnover 70% 111% 108% 115% 68%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 26 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free Arizona Fund Class C --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.610 $10.640 $10.270 $10.470 $11.230 Income (loss) from investment operations: Net investment income 0.413 0.454 0.492 0.478 0.456 Net realized and unrealized gain (loss) on investments (0.570) (0.030) 0.370 (0.200) (0.645) ------- ------- ------- ------- ------- Total from investment operations (0.157) 0.424 0.862 0.278 (0.189) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.413) (0.454) (0.492) (0.478) (0.456) Net realized gain on investments -- -- -- -- (0.115) ------- ------- ------- ------- ------- Total dividends and distributions (0.413) (0.454) (0.492) (0.478) (0.571) ------- ------- ------- ------- ------- Net asset value, end of period $10.040 $10.610 $10.640 $10.270 $10.470 ======= ======= ======= ======= ======= Total return(1) (1.53%) 4.14% 8.62% 2.88% (1.82%) Ratios and supplemental data: Net assets, end of period (000 omitted) $4,424 $4,555 $2,632 $1,880 $1,957 Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50% 1.35% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.74% 1.73% 1.76% 1.81% 1.85% Ratio of net investment income to average net assets 3.98% 4.34% 4.75% 4.78% 4.13% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.74% 4.11% 4.49% 4.47% 3.63% Portfolio turnover 70% 111% 108% 115% 68%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 27 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free Arizona Insured Fund Class A --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.530 $11.500 $11.040 $10.990 $11.550 Income (loss) from investment operations: Net investment income 0.502 0.510 0.521 0.525 0.528 Net realized and unrealized gain (loss) on investments (0.253) 0.100 0.460 0.050 (0.560) ------- ------- ------- ------- ------- Total from investment operations 0.249 0.610 0.981 0.575 (0.032) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.502) (0.510) (0.521) (0.525) (0.528) Net realized gain on investments (0.117) (0.070) -- -- -- ------- ------- ------- ------- ------- Total dividends and distributions (0.619) (0.580) (0.521) (0.525) (0.528) ------- ------- ------- ------- ------- Net asset value, end of period $11.160 $11.530 $11.500 $11.040 $10.990 ======= ======= ======= ======= ======= Total return(1) 2.17% 5.54% 9.12% 5.47% (0.36%) Ratios and supplemental data: Net assets, end of period (000 omitted) $129,683 $141,424 $141,298 $142,018 $166,368 Ratio of expenses to average net assets 0.86% 0.90% 0.95% 0.95% 0.91% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.91% 0.90% 0.97% 0.98% 0.91% Ratio of net investment income to average net assets 4.37% 4.50% 4.65% 4.88% 4.60% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.32% 4.50% 4.63% 4.85% 4.60% Portfolio turnover 29% 46% 45% 50% 29%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 28 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free Arizona Insured Fund Class B --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.540 $11.500 $11.040 $10.990 $11.550 Income (loss) from investment operations: Net investment income 0.416 0.426 0.437 0.444 0.441 Net realized and unrealized gain (loss) on investments (0.253) 0.110 0.460 0.050 (0.560) ------- ------- ------- ------- ------- Total from investment operations 0.163 0.536 0.897 0.494 (0.119) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.416) (0.426) (0.437) (0.444) (0.441) Net realized gain on investments (0.117) (0.070) -- -- -- ------- ------- ------- ------- ------- Total dividends and distributions (0.533) (0.496) (0.437) (0.444) (0.441) ------- ------- ------- ------- ------- Net asset value, end of period $11.170 $11.540 $11.500 $11.040 $10.990 ======= ======= ======= ======= ======= Total return(1) 1.41% 4.83% 8.31% 4.68% (1.11%) Ratios and supplemental data: Net assets, end of period (000 omitted) $14,666 $13,678 $8,864 $6,630 $6,059 Ratio of expenses to average net assets 1.61% 1.65% 1.70% 1.70% 1.66% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.66% 1.65% 1.72% 1.73% 1.66% Ratio of net investment income to average net assets 3.62% 3.75% 3.90% 4.13% 3.85% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.57% 3.75% 3.88% 4.10% 3.85% Portfolio turnover 29% 46% 45% 50% 29%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 29 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free Arizona Insured Fund Class C --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.550 $11.520 $11.040 $10.990 $11.560 Income (loss) from investment operations: Net investment income 0.415 0.426 0.438 0.444 0.441 Net realized and unrealized gain (loss) on investments (0.253) 0.100 0.480 0.050 (0.570) ------- ------- ------- ------- ------- Total from investment operations 0.162 0.526 0.918 0.494 (0.129) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.415) (0.426) (0.438) (0.444) (0.441) Net realized gain on investments (0.117) (0.070) -- -- -- ------- ------- ------- ------- ------- Total dividends and distributions (0.532) (0.496) (0.438) (0.444) (0.441) ------- ------- ------- ------- ------- Net asset value, end of period $11.180 $11.550 $11.520 $11.040 $10.990 ======= ======= ======= ======= ======= Total return(1) 1.40% 4.73% 8.50% 4.68% (1.20%) Ratios and supplemental data: Net assets, end of period (000 omitted) $8,544 $8,115 $3,230 $1,322 $1,373 Ratio of expenses to average net assets 1.61% 1.65% 1.70% 1.70% 1.66% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.66% 1.65% 1.72% 1.73% 1.66% Ratio of net investment income to average net assets 3.62% 3.75% 3.90% 4.13% 3.85% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.57% 3.75% 3.88% 4.10% 3.85% Portfolio turnover 29% 46% 45% 50% 29%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 30 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free California Fund Class A --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.010 $10.950 $10.430 $10.490 $11.220 Income (loss) from investment operations: Net investment income 0.537 0.546 0.538 0.547 0.556 Net realized and unrealized gain (loss) on investments (0.260) 0.060 0.520 (0.060) (0.709) ------- ------- ------- ------- ------- Total from investment operations 0.277 0.606 1.058 0.487 (0.153) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.537) (0.546) (0.538) (0.547) (0.554) Net realized gain on investments -- -- -- -- (0.023) ------- ------- ------- ------- ------- Total dividends and distributions (0.537) (0.546) (0.538) (0.547) (0.577) ------- ------- ------- ------- ------- Net asset value, end of period $10.750 $11.010 $10.950 $10.430 $10.490 ======= ======= ======= ======= ======= Total return(1) 2.51% 5.77% 10.43% 5.00% (1.53%) Ratios and supplemental data: Net assets, end of period (000 omitted) $22,169 $23,462 $24,925 $24,794 $24,515 Ratio of expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.33% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.93% 0.97% 0.99% 1.04% 0.97% Ratio of net investment income to average net assets 4.84% 5.05% 5.07% 5.46% 4.95% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.41% 4.58% 4.58% 4.92% 4.31% Portfolio turnover 56% 93% 130% 82% 123%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 31 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free California Fund Class B --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.050 $10.990 $10.460 $10.520 $11.260 Income (loss) from investment operations: Net investment income 0.453 0.465 0.459 0.473 0.470 Net realized and unrealized gain (loss) on investments (0.260) 0.060 0.530 (0.060) (0.717) ------- ------- ------- ------- ------- Total from investment operations 0.193 0.525 0.989 0.413 (0.247) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.453) (0.465) (0.459) (0.473) (0.470) ------- ------- ------- ------- ------- Net realized gain on investments -- -- -- -- (0.023) ------- ------- ------- ------- ------- Total dividends and distributions (0.453) (0.465) (0.459) (0.473) (0.493) ------- ------- ------- ------- ------- Net asset value, end of period $10.790 $11.050 $10.990 $10.460 $10.520 ======= ======= ======= ======= ======= Total return(1) 1.73% 4.95% 9.58% 4.31% (2.35%) Ratios and supplemental data: Net assets, end of period (000 omitted) $16,165 $15,105 $14,792 $14,449 $13,676 Ratio of expenses to average net assets 1.25% 1.25% 1.25% 1.25% 1.08% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.68% 1.72% 1.74% 1.79% 1.72% Ratio of net investment income to average net assets 4.09% 4.30% 4.32% 4.71% 4.20% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.66% 3.83% 3.83% 4.17% 3.56% Portfolio turnover 56% 93% 130% 82% 123%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 32 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free California Fund Class C --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.020 $10.970 $10.440 $10.500 $11.230 Income (loss) from investment operations: Net investment income 0.454 0.465 0.459 0.472 0.470 Net realized and unrealized gain (loss) on investments (0.260) 0.050 0.530 (0.060) (0.707) ------- ------- ------- ------- ------- Total from investment operations 0.194 0.515 0.989 0.412 (0.237) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.454) (0.465) (0.459) (0.472) (0.470) Net realized gain on investments -- -- -- -- (0.023) ------- ------- ------- ------- ------- Total dividends and distributions (0.454) (0.465) (0.459) (0.472) (0.493) ------- ------- ------- ------- ------- Net asset value, end of period $10.760 $11.020 $10.970 $10.440 $10.500 ======= ======= ======= ======= ======= Total return(1) 1.74% 4.86% 9.70% 4.22% (2.26%) Ratios and supplemental data: Net assets, end of period (000 omitted) $7,013 $7,357 $6,227 $4,179 $5,132 Ratio of expenses to average net assets 1.25% 1.25% 1.25% 1.25% 1.08% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.68% 1.72% 1.74% 1.79% 1.72% Ratio of net investment income to average net assets 4.09% 4.30% 4.32% 4.71% 4.20% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.66% 3.83% 3.83% 4.17% 3.56% Portfolio turnover 56% 93% 130% 82% 123%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 33 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free California Insured Fund Class A --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.930 $11.130 $10.640 $10.430 $11.130 Income (loss) from investment operations: Net investment income 0.463 0.470 0.496 0.500 0.497 Net realized and unrealized gain (loss) on investments (0.260) (0.027) 0.490 0.210 (0.700) ------- ------- ------- ------- ------- Total from investment operations 0.203 0.443 0.986 0.710 (0.203) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.463) (0.470) (0.496) (0.500) (0.497) Net realized gain on investments -- (0.173) -- -- -- ------- ------- ------- ------- ------- Total dividends and distributions (0.463) (0.643) (0.496) (0.500) (0.497) ------- ------- ------- ------- ------- Net asset value, end of period $10.670 $10.930 $11.130 $10.640 $10.430 ======= ======= ======= ======= ======= Total return(1) 1.84% 4.23% 9.51% 7.10% (1.97%) Ratios and supplemental data: Net assets, end of period (000 omitted) $28,822 $28,630 $28,045 $23,877 $25,042 Ratio of expenses to average net assets 0.93% 0.92% 0.87% 1.00% 0.99% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.93% 0.92% 0.87% 1.09% 1.10% Ratio of net investment income to average net assets 4.21% 4.36% 4.59% 4.87% 4.51% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.21% 4.36% 4.59% 4.78% 4.40% Portfolio turnover 44% 111% 162% 91% 114%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 34 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free California Insured Fund Class B --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.930 $11.130 $10.640 $10.430 $11.130 Income (loss) from investment operations: Net investment income 0.381 0.389 0.415 0.423 0.414 Net realized and unrealized gain (loss) on investments (0.260) (0.027) 0.490 0.210 (0.700) ------- ------- ------- ------- ------- Total from investment operations 0.121 0.362 0.905 0.633 (0.286) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.381) (0.389) (0.415) (0.423) (0.414) Net realized gain on investments -- (0.173) -- -- -- ------- ------- ------- ------- ------- Total dividends and distributions (0.381) (0.562) (0.415) (0.423) (0.414) ------- ------- ------- ------- ------- Net asset value, end of period $10.670 $10.930 $11.130 $10.640 $10.430 ======= ======= ======= ======= ======= Total return(1) 1.07% 3.44% 8.70% 6.30% (2.70%) Ratios and supplemental data: Net assets, end of period (000 omitted) $8,628 $9,714 $7,628 $6,440 $6,588 Ratio of expenses to average net assets 1.68% 1.67% 1.62% 1.75% 1.74% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.68% 1.67% 1.62% 1.84% 1.85% Ratio of net investment income to average net assets 3.46% 3.61% 3.84% 4.12% 3.76% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.46% 3.61% 3.84% 4.03% 3.65% Portfolio turnover 44% 111% 162% 91% 114%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 35 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free California Insured Fund Class C --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.890 $11.090 $10.600 $10.390 $11.090 Income (loss) from investment operations: Net investment income 0.380 0.392 0.417 0.423 0.414 Net realized and unrealized gain (loss) on investments (0.250) (0.027) 0.490 0.210 (0.700) ------- ------- ------- ------- ------- Total from investment operations 0.130 0.365 0.907 0.633 (0.286) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.380) (0.392) (0.417) (0.423) (0.414) Net realized gain on investments -- (0.173) -- -- -- ------- ------- ------- ------- ------- Total dividends and distributions (0.380) (0.565) (0.417) (0.423) (0.414) ------- ------- ------- ------- ------- Net asset value, end of period $10.640 $10.890 $11.090 $10.600 $10.390 ======= ======= ======= ======= ======= Total return(1) 1.17% 3.45% 8.75% 6.32% (2.70%) Ratios and supplemental data: Net assets, end of period (000 omitted) $2,942 $1,374 $200 $439 $592 Ratio of expenses to average net assets 1.68% 1.67% 1.62% 1.75% 1.74% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.68% 1.67% 1.62% 1.84% 1.85% Ratio of net investment income to average net assets 3.46% 3.61% 3.84% 4.12% 3.76% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.46% 3.61% 3.84% 4.03% 3.65% Portfolio turnover 44% 111% 162% 91% 114%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change in accounting had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 36 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free Colorado Fund Class A --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.080 $11.120 $10.630 $10.780 $11.510 Income (loss) from investment operations: Net investment income 0.527 0.532 0.549 0.543 0.552 Net realized and unrealized gain (loss) on investments (0.250) (0.040) 0.490 (0.150) (0.730) ------- ------- ------- ------- ------- Total from investment operations 0.277 0.492 1.039 0.393 (0.178) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.527) (0.532) (0.549) (0.543) (0.552) ------- ------- ------- ------- ------- Total dividends and distributions (0.527) (0.532) (0.549) (0.543) (0.552) ------- ------- ------- ------- ------- Net asset value, end of period $10.830 $11.080 $11.120 $10.630 $10.780 ======= ======= ======= ======= ======= Total return(1) 2.52% 4.60% 10.05% 3.89% (1.69%) Ratios and supplemental data: Net assets, end of period (000 omitted) $299,528 $314,695 $318,550 $304,409 $338,184 Ratio of expenses to average net assets 0.99% 0.95% 1.00% 1.00% 0.91% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.99% 0.95% 1.00% 1.04% 0.91% Ratio of net investment income to average net assets 4.76% 4.86% 5.09% 5.22% 4.86% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.76% 4.86% 5.09% 5.18% 4.86% Portfolio turnover 30% 36% 64% 53% 55%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of less than $0.001, a decrease in net realized and unrealized gain (loss) per share of less than $0.001, and an increase in the ratio of net investment income to average net assets of less than 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 37 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
--------------------------------------------------------- Delaware Tax-Free Colorado Fund Class B --------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.090 $11.120 $10.630 $10.790 $11.510 Income (loss) from investment operations: Net investment income 0.444 0.450 0.468 0.463 0.466 Net realized and unrealized gain (loss) on investments (0.260) (0.030) 0.490 (0.160) (0.719) ------- ------- ------- ------- ------- Total from investment operations 0.184 0.420 0.958 0.303 (0.253) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.444) (0.450) (0.468) (0.463) (0.467) ------- ------- ------- ------- ------- Total dividends and distributions (0.444) (0.450) (0.468) (0.463) (0.467) ------- ------- ------- ------- ------- Net asset value, end of period $10.830 $11.090 $11.120 $10.630 $10.790 ======= ======= ======= ======= ======= Total return(1) 1.66% 3.92% 9.24% 3.00% (2.34%) Ratios and supplemental data: Net assets, end of period (000 omitted) $13,108 $14,843 $14,330 $13,441 $13,530 Ratio of expenses to average net assets 1.74% 1.70% 1.75% 1.75% 1.66% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.74% 1.70% 1.75% 1.79% 1.66% Ratio of net investment income (loss) to average net assets 4.01% 4.11% 4.34% 4.47% 4.11% Ratio of net investment income (loss) to average net assets prior to expense limitation and expenses paid indirectly 4.01% 4.11% 4.34% 4.43% 4.11% Portfolio turnover 30% 36% 64% 53% 55%
(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. (2) As required, effective September 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premium and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of less than $0.001, a decrease in net realized and unrealized gain (loss) per share of less than $0.001, and an increase in the ratio of net investment income to average net assets of less than 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 38 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
---------------------------------------------------------- Delaware Tax-Free Colorado Fund Class C ---------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.100 $11.130 $10.640 $10.790 $11.520 Income (loss) from investment operations: Net investment income 0.444 0.450 0.468 0.465 0.463 Net realized and unrealized gain (loss) on investments (0.250) (0.030) 0.490 (0.150) (0.726) ------ ------ ----- ------ ------ Total from investment operations 0.194 0.420 0.958 0.315 (0.263) ===== ===== ===== ===== ====== Less dividends and distributions from: Net investment income (0.444) (0.450) (0.468) (0.465) (0.467) ------ ------ ------ ------ ------ Total dividends and distributions (0.444) (0.450) (0.468) (0.465) (0.467) ------ ------ ------ ------ ------ Net asset value, end of period $10.850 $11.100 $11.130 $10.640 $10.790 ======= ======= ======= ======= ======= Total return1 1.74% 3.91% 9.23% 3.11% (2.42%) Ratios and supplemental data: Net assets, end of period (000 omitted) $8,606 $8,074 $5,617 $4,254 $4,332 Ratio of expenses to average net assets 1.74% 1.70% 1.75% 1.75% 1.66% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.74% 1.70% 1.75% 1.79% 1.66% Ratio of net investment income to average net assets 4.01% 4.11% 4.34% 4.47% 4.11% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.01% 4.11% 4.34% 4.43% 4.11% Portfolio turnover 30% 36% 64% 53% 55%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of less than $0.001, a decrease in net realized and unrealized gain (loss) per share of less than $0.001, and an increase in the ratio of net investment income to average net assets of less than 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 39 Notes August 31, 2003 TO FINANCIAL STATEMENTS Voyageur Mutual Funds (the "Trust") is organized as a Delaware business trust and offers six series: Delaware Tax-Free Arizona Fund, Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, Delaware Minnesota High-Yield Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund and Delaware Tax-Free New York Fund. Voyageur Insured Funds (the "Trust") is organized as a Delaware business trust and offers two series: Delaware Tax-Free Arizona Insured Fund and Delaware Tax-Free Minnesota Insured Fund. Voyageur Investment Trust (the "Trust") is organized as a Massachusetts business trust and offers five series: Delaware Tax-Free California Insured Fund, Delaware Tax-Free Florida Fund, Delaware Tax-Free Florida Insured Fund, Delaware Tax-Free Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund. Voyageur Mutual Funds II (the "Trust") is organized as a Delaware business trust and offers one series: Delaware Tax-Free Colorado Fund. These financial statements and the related notes pertain to Delaware Tax-Free Arizona Fund, Delaware Tax-Free Arizona Insured Fund, Delaware Tax-Free California Fund, Delaware Tax-Free California Insured Fund and Delaware Tax-Free Colorado Fund (each a "Fund" and, collectively, the "Funds"). The above Trusts are open-end investment companies. The Funds are considered non-diversified under the Investment Company Act of 1940, as amended. The Funds offer Class A, Class B, and Class C shares. Class A shares are sold with a front-end sales charge of up to 4.50%. 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. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. The investment objective of Delaware Tax-Free Arizona Fund, Delaware Tax-Free Arizona Insured Fund, Delaware Tax-Free California Fund, Delaware Tax-Free California Insured Fund and Delaware Tax-Free Colorado Fund is to seek as high a level of current income exempt from federal income tax and personal income tax in their respective states, as is consistent with preservation of capital. 1. Significant Accounting Policies The following accounting policies are in accordance with accounting principles generally accepted in the United States and are consistently followed by the Funds. Security Valuation -- Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of each Fund's Board of Trustees. Federal Income Taxes -- Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income and common expenses are allocated to the classes of each Fund 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 each Fund 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 accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. Certain expenses of the Funds are paid through commission arrangements with brokers. These transactions are done subject to best execution. In addition, the Funds may receive earnings credits from their custodian when positive balances are maintained, which are used to offset custody fees. The expenses paid under the above arrangements are included in their respective expense captions on the Statements of Operations with the corresponding expense offset shown as "expenses paid indirectly". The amounts of these expenses for the year ended August 31, 2003 were as follows:
Delaware Delaware Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Arizona Arizona Insured California California Insured Colorado Fund Fund Fund Fund Fund ----------------------------------------------------------------------- Commission reimbursements $946 $3,872 $1,147 $977 $8,015 Earnings credits 61 74 40 238 941
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 Delaware Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Arizona Arizona Insured California California Insured Colorado Fund Fund Fund Fund Fund ----------------------------------------------------------------------- On the first $500 million 0.550% 0.500% 0.550% 0.500% 0.550% On the next $500 million 0.500% 0.475% 0.500% 0.475% 0.500% On the next $1.5 billion 0.450% 0.450% 0.450% 0.450% 0.450% In excess of $2.5 billion 0.425% 0.425% 0.425% 0.425% 0.425%
40 Notes TO FINANCIAL STATEMENTS (CONTINUED) 2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued) 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, and extraordinary expenses do not exceed specified percentages of average daily net assets of the Funds through October 31, 2004 and until revoked for the Delaware Tax-Free California Fund, as shown below:
Delaware Delaware Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Arizona Arizona Insured California California Insured Colorado Fund Fund Fund Fund Fund ----------------------------------------------------------------------- Operating expense limitations a percentage of average daily net assets (per annum) 0.50% 0.70% 0.25% 0.75% 0.75%
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Funds pay DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. Each Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend and disbursing and transfer agent services. Prior to June 1, 2003, the monthly fee for dividend disbursing and transfer agent services was based on the number of shareholder accounts and shareholder transactions. 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. Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trusts. These officers and/or trustees are paid no compensation by the Funds. At August 31, 2003, each Fund had liabilities payable to affiliates as follows:
Delaware Delaware Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Arizona Arizona Insured California California Insured Colorado Fund Fund Fund Fund Fund ----------------------------------------------------------------------- Investment management fee payable to DMC $9,976 $50,352 $3,975 $7,139 $14,917 Dividend disbursing, transfer agent fees, accounting and other expenses payable to DSC 2,938 14,489 4,098 3,530 31,326 Other expenses payable to DMC and affiliates 4,880 20,874 6,029 5,606 44,121
For the year ended August 31, 2003, DDLP earned commissions on sales of Class A shares for each Fund as follows:
Delaware Delaware Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Arizona Arizona Insured California California Insured Colorado Fund Fund Fund Fund Fund ----------------------------------------------------------------------- $7,297 $36,679 $15,919 $7,447 $47,613
3. Investments For the year ended August 31, 2003, the Funds made purchases and sales of investment securities other than short-term investments as follows:
Delaware Delaware Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Arizona Arizona Insured California California Insured Colorado Fund Fund Fund Fund Fund ----------------------------------------------------------------------- Purchases $27,381,668 $46,430,802 $27,068,223 $19,770,785 $98,578,683 Sales 30,388,395 53,518,119 26,342,281 17,968,179 105,936,604
At August 31, 2003, the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows:
Delaware Delaware Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Arizona Arizona Insured California California Insured Colorado Fund Fund Fund Fund Fund ----------------------------------------------------------------------- Cost of investments $37,497,256 $147,511,486 $45,217,080 $40,247,192 $313,342,462 ----------- ------------ ----------- ----------- ------------ Aggregate unrealized appreciation $507,357 $ 4,504,235 $716,432 $937,034 $10,283,358 Aggregate unrealized depreciation (1,988,385) (1,005,942) (555,685) (225,072) (7,212,962) ---------- ---------- -------- -------- ---------- Net unrealized appreciation (depreciation) $(1,481,028) $3,498,293 $160,747 $711,962 $3,070,396 =========== ========== ======== ======== ==========
41 Notes TO FINANCIAL STATEMENTS (CONTINUED) 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 accounting principles generally accepted in the United States. The tax character of dividends and distributions paid during the years ended August 31, 2003 and 2002 was as follows: Delaware Tax-Free Delaware Tax-Free Arizona Fund Arizona Insured Fund 2003 2002 2003 2002 ---------------------- ------------------------- Tax-exempt income $1,754,400 $1,783,251 $6,864,597 $6,941,384 Long-term capital gain -- -- 1,631,333 957,250 ---------- ---------- ---------- ---------- Total $1,754,400 $1,783,251 $8,495,930 $7,898,634 ========== ========== ========== ==========
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free California Fund California Insured Fund Colorado Fund 2003 2002 2003 2002 2003 2002 ----------------- ----------------------- ------------------- Tax-exempt income $2,141,192 $2,115,292 $1,632,266 $1,539,100 $15,710,983 $16,137,428 Long-term capital gain -- -- -- 578,886 -- -- ---------- ---------- ---------- ---------- ----------- ----------- Total $2,141,192 $2,115,292 $1,632,266 $2,117,986 $15,710,983 $16,137,428 ========== ========== ========== ========== =========== ===========
As of August 31, 2003, the components of net assets on a tax basis were as follows:
Delaware Delaware Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Tax-Free Tax-Free Arizona Arizona Insured California California Insured Colorado Fund Fund Fund Fund Fund --------- ---------------- ---------- ------------------- ---------- Shares of beneficial interest $38,557,252 $148,675,771 $46,492,842 $39,698,745 $320,225,904 Undistributed ordinary income -- 267,384 -- -- -- Undistributed tax-exempt income (1,660) 7,314 1,300 -- -- Undistributed long-term capital gains -- 444,159 -- -- -- Capital loss carryforwards (1,293,606) -- (1,307,816) (18,151) (2,054,025) Unrealized appreciation (depreciation) of investments (1,481,028) 3,498,293 160,747 711,962 3,070,396 ----------- ------------ ----------- ----------- ------------ Net assets $35,780,958 $152,892,921 $45,347,073 $40,392,556 $321,242,275 =========== ============ =========== =========== ============
For federal income tax purposes, certain Funds had accumulated capital carryforwards as of August 31, 2003, which may be carried forward and applied against future capital gains. Such capital loss carryforward amounts will expire as follows: Delaware Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Tax-Free Arizona California California Colorado Fund Fund Insured Fund Fund - -------------------------------------------------------------------------------- 2008 $178,280 $312,850 $ -- $ -- 2009 1,115,326 988,927 -- 2,054,025 2011 -- 6,039 18,151 -- ---------- ---------- ------- ---------- Total $1,293,606 $1,307,816 $18,151 $2,054,025 ========== ========== ======= ========== 42 Notes TO FINANCIAL STATMENTS (CONTINUED) 5. Capital Shares Transactions in capital shares were as follows: Delaware Tax-Free Delaware Tax-Free Arizona Fund Arizona Insured Fund ------------------- ------------------------- Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 Shares sold: Class A 337,393 998,634 1,161,855 1,188,859 Class B 80,252 207,042 289,628 506,895 Class C 54,996 188,502 340,061 485,497 Shares issued upon reinvestment of dividends and distributions: Class A 48,516 52,596 321,230 299,499 Class B 15,446 14,627 33,321 22,972 Class C 12,766 11,787 29,256 16,802 ------- ------ --------- ---------- 549,369 1,473,188 2,175,351 2,520,524 ------- --------- --------- ---------- Shares repurchased: Class A (666,442) (303,849) (2,129,562) (1,508,141) Class B (204,908) (35,111) (195,453) (114,718) Class C (56,113) (18,407) (307,819) (80,204) -------- --------- ---------- ---------- (927,463) (357,367) (2,632,834) (1,703,063) -------- --------- ---------- ---------- Net increase (decrease) (378,094) 1,115,821 (457,483) 817,461 ======== ========= ========== ==========
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free California Fund California Insured Fund Colorado Fund ------------------- ------------------------ ----------------- Year Ended Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 8/31/03 8/31/02 Shares sold: Class A 621,318 415,654 367,203 280,614 1,626,357 1,686,867 Class B 281,164 177,634 150,611 278,036 126,659 212,572 Class C 215,978 153,338 180,673 123,676 371,742 315,903 Shares issued upon reinvestment of dividends and distributions: Class A 38,142 48,533 59,858 78,531 804,609 872,985 Class B 20,392 18,345 14,770 22,516 34,219 36,659 Class C 17,256 15,747 2,450 1,274 22,801 18,930 --------- ------- ------- ------- --------- --------- 1,194,250 829,251 775,565 784,647 2,986,387 3,143,916 ========= ======= ======= ======= ========= ========= Shares repurchased: Class A (728,137) (607,868) (345,875) (258,049) (3,170,253) (2,812,639) Class B (170,371) (174,325) (245,676) (96,865) (289,898) (198,732) Class C (248,969) (69,388) (32,732) (16,875) (328,831) (111,812) ---------- -------- -------- -------- ---------- ---------- (1,147,477) (851,581) (624,283) (371,789) (3,788,982) (3,123,183) ---------- -------- -------- -------- ---------- ---------- Net increase (decrease) 46,773 (22,330) 151,282 412,858 (802,595) 20,733 ========== ========= ======== ======== ========== ==========
For the year ended August 31, 2003, the following shares were converted from Class B to Class A. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and in the Statements of Changes in Net Assets.
Year Ended Year Ended 8/31/03 8/31/02 Class B shares Class A shares Amount Class B shares Class A shares Amount -------------- -------------- -------- -------------- -------------- ------- Delaware Tax-Free Arizona Fund 1,366 1,366 $ 14,383 -- -- $ -- Delaware Tax-Free Arizona Insured Fund 43,904 43,915 512,431 -- -- -- Delaware Tax-Free California Insured Fund 69,884 69,884 782,105 20,221 20,221 215,940 Delaware Tax-Free Colorado Fund 14,623 14,635 165,677 -- -- --
43 Notes TO FINANCIAL STATEMENTS (CONTINUED) 6. Line of Credit The Funds, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participate in a $202,300,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Funds had no amounts outstanding as of August 31, 2003, or at any time during the fiscal year. 7. Credit and Market Risks The Funds concentrate their investments in securities issued by each corresponding state's municipalities. The value of these investments may be adversely affected by new legislation within the states, regional or local economic conditions, and differing levels of supply and demand for municipal bonds. Many municipalities insure repayment for their obligations. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that market value may fluctuate for other reasons and there is no assurance that the insurance company will meet its obligations. These securities have been identified in the Statements of Net Assets. 8. 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 is 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, 2003, each Fund designates distributions paid during the year as follows:
(A) (B) (C) Long Term Ordinary Tax- Capital Gains Income Exempt Total Distributions Distributions Distributions Distributions (Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis) ---------------- -------------- ------------- ------------- Delaware Tax-Free Arizona Fund -- -- 100% 100% Delaware Tax-Free Arizona Insured Fund 19% -- 81% 100% Delaware Tax-Free California Fund -- -- 100% 100% Delaware Tax-Free California Insured Fund -- -- 100% 100% Delaware Tax-Free Colorado Fund -- -- 100% 100%
(A), (B), and (C) are based on a percentage of each Fund's total distributions. 44 Report OF INDEPENDENT AUDITORS To the Shareholders and Board of Trustees Voyageur Mutual Funds - Delaware Tax-Free Arizona Fund Voyageur Insured Funds - Delaware Tax-Free Arizona Insured Fund Voyageur Mutual Funds - Delaware Tax-Free California Fund Voyageur Investment Trust - Delaware Tax-Free California Insured Fund Voyageur Mutual Funds II - Delaware Tax-Free Colorado Fund We have audited the accompanying statements of net assets of Delaware Tax-Free Arizona Fund, Delaware Tax-Free Arizona Insured Fund, Delaware Tax-Free California Fund, Delaware Tax-Free California Insured Fund and Delaware Tax-Free Colorado Fund (the "Funds") as of August 31, 2003, 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the above listed Funds at August 31, 2003, 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 accounting principles generally accepted in the United States. Ernst + Young LLP Philadelphia, Pennsylvania October 3, 2003 45 Delaware Investments Family of Funds BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of 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 that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees/Officers and certain background and related information.
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES Jude T. Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None 2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in Philadelphia, PA various executive capacities 19103 Trustee since at different times at May 15, 2003 Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process -- Conseco Capital Management (June 1998 -- August 2000) Managing Director -- NationsBanc Capital Markets (February 1996 -- June 1998) - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES Walter P. Babich Trustee 15 Years Board Chairman -- 101 None 2005 Market Street Citadel Construction Corporation Philadelphia, PA (1989 -- Present) 19103 October 1, 1927 - ------------------------------------------------------------------------------------------------------------------------------------ John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee -- Abington 2005 Market Street Memorial Hospital Philadelphia, PA 19103 President/Director -- 22 WR Corporation August 7, 1937 - ------------------------------------------------------------------------------------------------------------------------------------ John A. Fry Trustee(4) 2 Years President -- 83 None 2005 Market Street Franklin & Marshall College Philadelphia, PA (June 2002 - Present) 19103 Executive Vice President -- May 28, 1960 University of Pennsylvania (April 1995 -- June 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Anthony D. Knerr Trustee 10 Years Founder/Managing Director -- 101 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 -- Present) December 7, 1938
46
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES (CONTINUED) Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal 101 Director -- Andy 2005 Market Street Officer -- Warhol Foundation Philadelphia, PA National Gallery of Art Director -- Systemax Inc. 19103 (1994 -- 1999) November 1, 1940 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas F. Madison Trustee 9 Years President/Chief 101 Director -- 2005 Market Street Executive Officer -- CenterPoint Energy Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director -- Digital and Consulting) River Inc. February 25, 1936 (January 1993 -- Present) Director -- Rimage Corporation Director -- Valmont Industries, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None 2005 Market Street Acquisitions -- 3M Corporation Philadelphia, PA (January 2003 -- Present) 19103 Ms. Yeomans has held July 31,1948 various management positions at 3M Corporation since 1983. - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS Joseph H. Hastings Executive Executive Mr. Hastings has served in 101 None 2005 Market Street Vice President Vice President various executive capacities Philadelphia, PA and and at different times at 19103 Chief Financial Chief Financial Delaware Investments. Officer Officer since December 19, 1949 August 21, 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Richelle S. Maestro Senior Vice Chief Legal Ms. Maestro has served in 101 None 2005 Market Street President, Officer various executive capacities Philadelphia, PA Chief Legal Officer since at different times at 19103 and Secretary March 17, 2003 Delaware Investments. November 26, 1957 - ------------------------------------------------------------------------------------------------------------------------------------ Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Registrant's investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's manager and distributor. (3) Mr. Durham served as a Director Emeritus from 1995 through 1998. (4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III and Voyageur Tax Free Funds. 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. 47 This page intentionally left blank. Delaware Investments(SM) - --------------- A member of Lincoln Financial Group(R) This annual report is for the information of Delaware Tax-Free Arizona Fund, Delaware Tax-Free Arizona Insured Fund, Delaware Tax-Free California Fund, Delaware Tax-Free California Insured Fund, and Delaware Tax-Free Colorado Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Tax-Free Arizona Fund, Delaware Tax-Free Arizona Insured Fund, Delaware Tax-Free California Fund, Delaware Tax-Free California Insured Fund, and Delaware Tax-Free Colorado Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Funds. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in the Funds will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION Walter P. Babich Jude T. Driscoll Investment Manager Board Chairman Chairman Delaware Management Company Citadel Construction Corporation Delaware Investments Family of Funds Philadelphia, PA King of Prussia, PA Philadelphia, PA International Affiliate John H. Durham Joseph H. Hastings Delaware International Advisers Ltd. Private Investor Executive Vice President and London, England Gwynedd Valley, PA Chief Financial Officer Delaware Investments Family of Funds National Distributor Anthony D. Knerr Philadelphia, PA Delaware Distributors, L.P. Managing Director Philadelphia, PA Anthony Knerr & Associates Richelle S. Maestro New York, NY Senior Vice President, Shareholder Servicing, Dividend Chief Legal Officer and Secretary Disbursing and Transfer Agent Ann R. Leven Delaware Investments Family of Funds Delaware Service Company, Inc. Former Treasurer/Chief Fiscal Officer Philadelphia, PA 2005 Market Street National Gallery of Art Philadelphia, PA 19103-7094 Washington, DC Michael P. Bishof Senior Vice President and Treasurer For Shareholders Thomas F. Madison Delaware Investments Family of Funds 800 523-1918 President and Chief Executive Officer Philadelphia, PA MLM Partners, Inc. For Securities Dealers and Financial Minneapolis, MN Institutions Representatives Only 800 362-7500 Janet L. Yeomans Vice President/Mergers & Acquisitions Web site 3M Corporation www.delawareinvestments.com St. Paul, MN
- ------------------------------------------------------------------------------- A description of the policies and procedures that each Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Funds' website at http://www.delawareinvestments.com; and (iii) on the Commission's website at http://www.sec.gov. Beginning no later than August 31, 2004, information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) through the Funds' website at http://www.delawareinvestments.com; and (ii) on the Commission's website at http://www.sec.gov. - ------------------------------------------------------------------------------- (8249) Printed in the USA AR-WEST [8/03] IVES 10/03 J9414 Delaware Investments(SM) -------------------------------------- A member of Lincoln Financial Group(R) FIXED INCOME Annual Report 2003 - -------------------------------------------------------------------------------- DELAWARE TAX-FREE IDAHO FUND DELAWARE TAX-FREE MISSOURI INSURED FUND DELAWARE TAX-FREE OREGON INSURED FUND [Graphic Omitted:Logo] POWERED BY RESEARCH.(SM) Table OF CONTENTS - ----------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 - ----------------------------------------------------------------- PERFORMANCE SUMMARIES: Delaware Tax-Free Idaho Fund 4 Delaware Tax-Free Missouri Insured Fund 5 Delaware Tax-Free Oregon Insured Fund 6 - ----------------------------------------------------------------- FINANCIAL STATEMENTS: Statements of Net Assets 7 Statements of Operations 15 Statements of Changes in Net Assets 16 Financial Highlights 17 Notes to Financial Statements 26 - ----------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS 30 - ----------------------------------------------------------------- BOARD OF TRUSTEES/OFFICERS 31 - ----------------------------------------------------------------- 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) 2003 Delaware Distributors, L.P. Portfolio MANAGEMENT REVIEW September 10, 2003 Fund Managers Patrick P. Coyne Chief Investment Officer - Fixed Income M. L. Conery Senior Portfolio Manager Q: How did the fixed-income markets fare during the 12-month period? A: During the past 12 months, investors became increasingly confident about the U.S. economy's growth potential. Although we are far from out of the woods, favorable data surrounding corporate earnings, consumer spending, and business investment support an optimistic view. During the year, the stock market was the primary beneficiary of improved sentiment. Once depressed by concerns about corporate accounting scandals, war in Iraq, and the spread of SARS, stocks suddenly recorded their sharpest gains in years --especially during the Spring of 2003. Between March 11, 2003, when the stock market reached a low, and August 31, the Standard & Poor's 500 Index gained a surprising +26% (Source: Lipper Inc.). As investors gravitated to stocks, an increasing number became reluctant to invest in fixed income. Bonds have been very strong performers in recent years and remained so early in our fiscal year. During the fiscal first half, bonds, and especially U.S. Treasuries and high-quality municipal securities, benefited from the preference for stable investments during an uncertain economic climate. As interest rates gradually declined, so did bond yields, while prices rose accordingly (bond prices and yields move in opposite directions). Over time, however, conditions became less favorable in the fixed-income markets. Seeking to spur growth, the Federal Reserve this summer revealed its intention to keep interest rates low for the foreseeable future. This caused bond investors to worry about the future potential for inflation, which often occurs when the economy is expanding. Inflation is troublesome because it causes interest payments to be worth less over time and, thus, depresses bond values. In this environment, municipal bond yields with relatively short maturities fell in line with interest rates during the period, while 10-year municipal bond yields rose on inflation fears. Q: What factors affected the municipal bond markets in particular? A: States and municipalities continued to struggle with their budgets due to the increased demand for services. Finding it politically difficult to raise taxes or cut spending, many governments experienced substantial budget shortfalls and issued municipal debt to raise needed funds. This higher rate of issuance, along with historically low interest rates, led to an extremely large supply of new bonds. During the first eight months of 2003, $254 million in new bonds were issued nationwide, a 13 percent increase over the prior year's record (Source: Thomson Financial). The rise in supply was evident in Oregon, for example, a state that experienced a 51 percent jump in issuance during those eight months. However, Idaho and Missouri did not follow this national trend. Missouri saw its supply increase by a more modest one percent, while Idaho saw new supply decline three percent and was ranked third-to-last nationwide in issuance of municipal bonds between January and August 2003. Also of note, municipal new issuance in August 2003 was 31 percent below the amount issued in August 2002 despite the large national supply overall (Source: Thomson Financial). The sharp decline resulted from an increase in interest rates, which made debt issuance a less-attractive proposition for states and municipalities. Q: How did the three funds perform during the year, and what were your strategies in each? Delaware Tax-Free Idaho Fund returned +2.81% (Class A shares at net asset value with distributions reinvested) for the 12 months ended August 31, 2003, beating the performance of the Lipper Other States Municipal Debt Funds Average, which returned +1.75% during the same time frame. As an additional point of comparison, the Lehman Brothers Municipal Bond Index gained +3.14%. The Fund's outperformance relative to its peers can be attributed, in part, to a higher-than-average yield, which provided a steady stream of income payments as well as a regular boost to total return. The Fund's dividend payments during the last 12 months were exempt from federal and Idaho state taxes.* *A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 1 Idaho's state government endured a very challenging financial environment during the period. The state depleted its budget reserves while also temporarily raising sales taxes to address its fiscal problems. As of period end, the state's credit rating was AA, as issued by Standard & Poor's (S&P). Throughout the year, the Fund received a significant amount of new investment. This situation posed a management challenge due to the limited supply of new Idaho bonds from which to choose. We kept a close eye on the state's municipal market and looked to invest in suitable opportunities as they became available. As a result, we purchased new revenue bonds issued by Boise State University during the past year. When we were unable to find suitable Idaho opportunities, we continued to look to Puerto Rico, which we believe has served the Fund well as an alternative municipal market in the past. Bonds issued by Puerto Rico and other U.S. territories are generally exempt from federal, state, and local taxes. During the period, however, the percentage of Idaho bonds in the portfolio increased from 72 percent of total net assets on August 31, 2002, to 75 percent on August 31, 2003. The portfolio's Puerto Rican holdings declined from 24 percent to 22 percent. - -------------------------------------------------------------------------------- Delaware Tax-Free Missouri Insured Fund returned +2.75% (Class A shares at net asset value with distributions reinvested) for the fiscal year ended August 31, 2003. This performance surpassed that of the Fund's peer group, the Lipper Missouri Municipal Debt Funds Average, which returned +2.48% during the same period. As an additional point of comparison, the Lehman Brothers Municipal Bond Index returned +3.14%. The Fund's dividend payments during the last 12 months were exempt from federal and Missouri state taxes.* The State of Missouri faced substantial financial challenges during the period and expects a $1 billion budget gap in 2004. To address that shortfall, state government looked to a combination of increased taxes and spending cuts, including cuts in Medicaid spending. Despite those budget problems, Missouri was in generally solid financial shape, and the state earned the highest credit rating from S&P (AAA). With interest rates remaining low, we generally looked to avoid making excessive trades. We believe it is not a good idea to sell older bonds offering higher coupon payments and reinvest the proceeds in new bonds offering lower prevailing yields. Toward the end of the period, however, as interest rates inched upward, we increasingly sought opportunities to remove lower-yielding securities from the portfolio and replace them with higher-coupon, longer-term bonds. Most of the Fund's assets were invested in insured municipal securities issued in Missouri. We did, however, pursue select non-insured, investment-grade opportunities when we believed those offerings provided additional yield potential without adding excessive risk. On August 31, 2003, nearly 22 percent of the Fund's total net assets were held in pre-refunded securities, up from nearly 19 percent the previous year. Pre-refunded securities are longer-maturity bonds issued at low interest rates and are used to redeem older bonds paying higher rates. Until the older bonds leave the portfolio, their income payments are backed by high-quality securities such as U.S. Treasuries. We managed the Fund's exposure to pre-refunded bonds by holding on to them as long as possible when interest rates were low and reinvestment options were therefore limited. We believe that it made sense to continue receiving the high-quality income stream provided by these bonds. If rates continue to rise as we anticipate, we would look to reinvest the proceeds at higher future yields. - -------------------------------------------------------------------------------- Delaware Tax-Free Oregon Insured Fund returned +2.97% (Class A shares at net asset value with distributions reinvested) for the 12 months ended August 31, 2003. This result surpassed that of its peer group, the Lipper Oregon Municipal Debt Funds Average, which returned +2.44% during the same time frame. As an additional point of comparison, the Lehman Brothers Municipal Bond Index returned +3.14%. Relative to its peer group, the Fund benefited from having a shorter-than-average duration, which made it somewhat less vulnerable when interest rates rose late in the period. The Fund's dividend payments during the last 12 months were exempt from federal and Oregon state taxes.* *A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 2 The State of Oregon encountered financial problems of its own during the period. To balance its $1.1 billion budget gap, the government depended on funds gained from a legal settlement with the tobacco industry, and also looked to a combination of tax increases and debt issuance. As of August 2003, Oregon earned a credit rating of AA from S&P, which noted a negative bias to its outlook. We focused on managing the Fund's duration, seeking to keep it relatively short. Duration is a common measure of a bond's or bond fund's sensitivity to interest rate changes. The longer the duration, the more sensitive the bond or bond fund is to changes in interest rates. Given that the Fund is composed predominantly of insured bonds, we thought it made equal sense to minimize interest-rate risk for our shareholders. Although the supply of new Oregon bonds rose sharply during the period, much of that issuance came to market without insurance, and thus was not a primary focus for us. When we did have new cash to invest -- either because of new investments into the Fund or because of pre-refunded securities leaving the portfolio -- we looked to invest the proceeds in a handful of opportunities that we believed were attractive. The vast majority of the Fund's assets was invested in insured municipal securities, though we did look to take advantage of select non-insured, investment-grade opportunities when we believed that we could obtain added yield while assuming only modest additional risk. For example, we bought a series of Catholic Health Initiative hospital bonds, issued by Umatilla County. These bonds were rated AA (S&P) and offered attractive income potential, in our opinion. 3 Delaware TAX-FREE IDAHO FUND Fund Basics As of August 31, 2003 - -------------------------------------------------------------------------------- Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and Idaho state personal income tax, as is consistent with preservation of capital. - -------------------------------------------------------------------------------- Total Fund Net Assets: $84.78 million - -------------------------------------------------------------------------------- Number of Holdings: 78 - -------------------------------------------------------------------------------- Fund Start Date: January 4, 1995 - -------------------------------------------------------------------------------- Your Fund Managers: Patrick P. Coyne is a graduate of Harvard University with an MBA from the University of Pennsylvania's Wharton School. Patrick Coyne joined Delaware Investments' fixed-income department in 1990. Prior to joining Delaware Investments, he was a manager of Kidder, Peabody & Co. Inc.'s trading desk, and specialized in trading high-grade municipal bonds and municipal futures contracts. M. L. Conery joined Delaware Investments in January 1997 and holds a bachelor's degree from Boston University and an MBA in finance from the State University of New York at Albany. Prior to joining Delaware, M. L. Conery has served as an investment officer with Travelers Insurance and as a research analyst with CS First Boston and MBIA Corporation. - -------------------------------------------------------------------------------- Nasdaq Symbols: Class A VIDAX Class B DVTIX Class C DVICX Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 1/4/95) Excluding Sales Charge +6.48% +4.07% +2.81% Including Sales Charge +5.91% +3.12% -1.79% - -------------------------------------------------------------------------------- Class B (Est. 3/16/95) Excluding Sales Charge +5.13% +3.30% +2.05% Including Sales Charge +5.13% +3.04% -1.89% - -------------------------------------------------------------------------------- Class C (Est. 1/11/95) Excluding Sales Charge +5.60% +3.30% +2.05% Including Sales Charge +5.60% +3.30% +1.07% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 Idaho Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment January 4, 1995 (Fund's inception) through August 31, 2003 Delaware Tax-Free Idaho Fund -- Class Lehman Brothers A Shares Municipal Bond Index ------------------- -------------------- Jan-95 $9,810 $10,000 Aug-95 $10,594 $10,897 Aug-96 $11,227 $11,468 Aug-97 $12,341 $12,528 Aug-98 $13,456 $13,612 Aug-99 $13,322 $13,686 Aug-00 $13,754 $14,607 Aug-01 $15,164 $16,099 Aug-02 $15,978 $17,104 Aug-03 $16,426 $17,641 Chart assumes $10,000 invested on January 4, 1995 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 chart also assumes $10,000 invested in the Lehman Brothers Municipal Bond Index at that month's end, January 31, 1995. After January 31, 1995, returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 4 Delaware TAX-FREE MISSOURI INSURED FUND Fund Basics As of August 31, 2003 - -------------------------------------------------------------------------------- Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and Missouri state personal income tax, as is consistent with preservation of capital. - -------------------------------------------------------------------------------- Total Fund Net Assets: $52.69 million - -------------------------------------------------------------------------------- Number of Holdings: 50 - -------------------------------------------------------------------------------- Fund Start Date: November 2, 1992 - -------------------------------------------------------------------------------- Your Fund Managers: Patrick P. Coyne M. L. Conery - -------------------------------------------------------------------------------- Nasdaq Symbols: Class A VMOIX Class B DVTBX Class C DVTCX Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime 10 Years Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 11/2/92) Excluding Sales Charge +5.71% +5.04% +4.28% +2.75% Including Sales Charge +5.27% +4.55% +3.33% -1.87% - -------------------------------------------------------------------------------- Class B (Est. 3/12/94) Excluding Sales Charge +4.60% +3.50% +1.99% Including Sales Charge +4.60% +3.25% -1.95% - -------------------------------------------------------------------------------- Class C (Est. 11/11/95) Excluding Sales Charge +4.36% +3.52% +2.08% Including Sales Charge +4.36% +3.52% +1.09% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 Missouri Insured Fund during the periods included in the lifetime and five-year total return numbers shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment August 31, 1993 through August 31, 2003 Delaware Tax-Free Missouri Insured Fund Lehman Brothers - Class A Shares Municipal Bond Index --------------------- -------------------- Aug-93 $9,550 $10,000 Aug-94 $9,394 $10,014 Aug-95 $10,157 $10,902 Aug-96 $10,729 $11,474 Aug-97 $11,703 $12,534 Aug-98 $12,653 $13,618 Aug-99 $12,605 $13,692 Aug-00 $13,233 $14,614 Aug-01 $14,410 $16,106 Aug-02 $15,187 $17,102 Aug-03 $15,602 $17,639 Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 5 Delaware TAX-FREE OREGON INSURED FUND Fund Basics As of August 31, 2003 - -------------------------------------------------------------------------------- Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and Oregon state personal income tax, as is consistent with preservation of capital. - -------------------------------------------------------------------------------- Total Fund Net Assets: $43.56 million - -------------------------------------------------------------------------------- Number of Holdings: 48 - -------------------------------------------------------------------------------- Fund Start Date: August 1, 1993 - -------------------------------------------------------------------------------- Your Fund Managers: Patrick P. Coyne M. L. Conery - -------------------------------------------------------------------------------- Nasdaq Symbols: Class A VORIX Class B DVYBX Class C DVYCX Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime 10 Years Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 8/1/93) Excluding Sales Charge +5.29% +5.14% +4.55% +2.97% Including Sales Charge +4.81% +4.65% +3.60% -1.70% - -------------------------------------------------------------------------------- Class B (Est. 3/12/94) Excluding Sales Charge +4.75% +3.79% +2.20% Including Sales Charge +4.75% +3.53% -1.74% - -------------------------------------------------------------------------------- Class C (Est. 7/7/95) Excluding Sales Charge +4.92% +3.78% +2.19% Including Sales Charge +4.92% +3.78% +1.20% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 Oregon Insured Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment August 31, 1993 through August 31, 2003 Delaware Tax-Free Oregon Insured Fund Lehman Brothers - Class A Shares Municipal Bond Index ------------------- -------------------- Aug-93 $9,550 $10,000 Aug-94 $9,348 $10,014 Aug-95 $10,085 $10,902 Aug-96 $10,611 $11,474 Aug-97 $11,589 $12,534 Aug-98 $12,606 $13,618 Aug-99 $12,395 $13,692 Aug-00 $13,144 $14,614 Aug-01 $14,511 $16,106 Aug-02 $15,297 $17,102 Aug-03 $15,758 $17,639 Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 6 Statements Delaware Tax-Free Idaho Fund OF NET ASSETS August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 96.72% - -------------------------------------------------------------------------------- Continuing Care/Retirement Revenue Bonds - 3.47% Idaho Health Facilities Authority Revenue Refunding (Valley Vista Care) Series A 7.875% 11/15/22 $3,000,000 $ 2,938,500 ----------- 2,938,500 ----------- Corporate-Backed Revenue Bonds - 6.71% Meridan Economic Development Corporation Revenue Refunding Industrial Development (Hi-Micro Project) 5.85% 8/15/11 (AMT) 1,250,000 1,292,238 Nez Perce County Pollution Control Revenue Refunding (Potlatch Corporation Project) 6.00% 10/1/24 2,535,000 2,239,774 Power County Pollution Control Revenue Refunding (FMC Corporation Project) 5.625% 10/1/14 2,475,000 2,157,383 ----------- 5,689,395 ----------- Escrowed to Maturity Bonds - 2.15% Puerto Rico Commonwealth Infrastructure Financing Authority Special Series A 5.375% 10/1/24 1,750,000 1,823,273 ----------- 1,823,273 ----------- Higher Education Revenue Bonds - 12.38% Boise State University Revenue 5.00% 4/1/17 (AMBAC) 500,000 524,240 5.125% 4/1/31 (FGIC) 1,000,000 1,006,310 Idaho State University Revenue Improvement Refunding 5.00% 4/1/20 (FSA) 1,130,000 1,151,945 5.00% 4/1/23 (FSA) 3,115,000 3,125,465 North Idaho College Dormitory Housing Certificate of Participation 6.45% 10/1/16 1,000,000 1,031,910 University of Idaho University Revenue Student Fee (Housing Improvements Project) 5.25% 4/1/31 (FGIC) 2,195,000 2,228,496 University of Idaho University Revenue Student Fee Telecommunications 5.85% 4/1/11 (FSA) 1,300,000 1,429,987 ----------- 10,498,353 ----------- Hospital Revenue Bonds - 5.83% Idaho Health Facilities Authority Hospital Revenue (Bannock Regional Medical Center Project) 6.375% 5/1/17 1,445,000 1,516,282 (Bingham Memorial Hospital Project) 6.00% 3/1/29 1,000,000 955,700 (Idaho Elks Rehabilitation Hospital Project) 5.30% 7/15/18 625,000 593,138 5.45% 7/15/23 2,000,000 1,873,119 ----------- 4,938,239 ----------- Miscellaneous Revenue Bonds - 0.60% Boise City Revenue Refunding Series A 5.375% 12/1/31 (MBIA) 500,000 512,005 ----------- 512,005 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Multi Family Housing Revenue Bonds - 1.18% Idaho State Housing Agency Housing Revenue (Park Place Project) Series A 6.50% 12/1/36 (AMT) $ 975,000 $ 996,041 ----------- 996,041 ----------- Municipal Lease Revenue Bonds - 9.70% Blaine Idaho School District #61 Certificate of Participation 5.00% 7/30/10 (AMBAC) 1,000,000 1,092,220 Boise City Certificate of Participation 5.375% 9/1/20 (FGIC) (AMT) 2,100,000 2,136,497 Idaho State Building Authority Revenue Series A 5.00% 9/1/21 (MBIA) 1,150,000 1,158,085 Series A 5.00% 9/1/33 (XLCA) 1,500,000 1,473,675 Series A 5.00% 9/1/43 (XLCA) 1,630,000 1,608,321 Series B 5.00% 9/1/21 (MBIA) 750,000 758,625 ----------- 8,227,423 ----------- Political Subdivision General Obligation Bonds - 2.57% Lemhi County 5.20% 8/1/27 (FSA) 2,145,000 2,176,682 ----------- 2,176,682 ----------- *Pre-Refunded Bonds - 6.15% Ada & Canyon Counties Joint School District #2 Meridian 5.60% 7/30/12-05 1,125,000 1,226,509 Ammon Urban Renewal Agency Revenue Sub Lien Tax Increment Series B 6.25% 8/1/18-06 445,000 500,060 Ammon Urban Renewal Agency Revenue Tax Increment 5.875% 8/1/17-04 350,000 372,460 Boise City Independent School District 5.50% 7/30/16-05 400,000 439,236 Gooding & Lincoln Counties Joint School District #231 Gooding 6.30% 2/1/14-04 (FSA) 100,000 102,249 Idaho Health Facilities Authority Revenue (Bonner General Hospital Project) 6.50% 10/1/28-07 1,500,000 1,761,149 Pocatello Development Authority Revenue Allocation Tax Increment Series B 7.25% 12/1/08-04 280,000 294,935 Puerto Rico Public Buildings Authority Guaranteed Public Education & Health Facilities Series M 5.50% 7/1/21-05 485,000 521,288 ----------- 5,217,886 ----------- School District General Obligation Bonds - 9.17% Ada & Canyon Counties Joint School District #2 Meridan 5.00% 7/30/20 2,155,000 2,197,647 5.125% 7/30/19 1,005,000 1,042,909 5.50% 7/30/16 1,055,000 1,186,706 Canyon County School District #132 5.00% 7/30/15 (FGIC) 2,000,000 2,145,860 Power & Cassia Counties Joint School District #381 (American Falls Project) 5.00% 8/1/17 1,155,000 1,204,342 ----------- 7,777,464 ----------- 7 Statements Delaware Tax-Free Idaho Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Single Family Housing Revenue Bonds - 7.89% Idaho Housing & Finance Association Single Family Mortgage Series A Class I 5.55% 1/1/33 (AMT) $ 750,000 $ 758,715 Series A-2 Class I 5.20% 1/1/34 (AMT) 500,000 490,830 Series B Class I 5.00% 7/1/34 (AMT) 1,000,000 950,239 Series C Class I 4.55% 7/1/34 (AMT) 1,000,000 877,030 5.55% 1/1/33 (AMT) 750,000 758,715 Series D Class III 5.45% 7/1/23 (AMT) 500,000 509,265 Series E Class I 5.35% 1/1/33 (AMT) 250,000 249,688 5.45% 1/1/31 (AMT) 290,000 292,627 Idaho State Housing Agency Single Family Mortgage Series A 6.05% 7/1/13 (AMBAC) (AMT) 165,000 169,991 Series A 6.10% 7/1/16 (AMT) 215,000 221,538 Series A-1 6.85% 7/1/12 (AMT) 40,000 40,438 Series B 6.45% 7/1/15 (AMT) 90,000 92,678 Series C-2 6.35% 7/1/15 (AMT) 110,000 113,144 Series E 6.35% 7/1/15 (AMT) 210,000 217,256 Series E-1 6.60% 7/1/11 45,000 45,651 Series G-2 6.15% 7/1/15 (AMT) 880,000 902,194 ----------- 6,689,999 ----------- Tax Increment/Special Assessment Bonds - 6.48% Boise Urban Renewal Agency Parking Revenue Refunding Tax Increment Series A 6.125% 9/1/15 2,370,000 2,468,686 Series B 6.125% 9/1/15 1,930,000 2,010,365 Bonner County Local Improvement District #93-1 6.20% 4/30/05 150,000 152,454 6.35% 4/30/06 185,000 187,892 6.40% 4/30/07 195,000 197,900 6.50% 4/30/08 110,000 111,577 6.50% 4/30/10 100,000 101,303 Coeur D'Alene Local Improvement District #6 Series 1995 6.00% 7/1/09 85,000 86,491 Series 1996 6.05% 7/1/10 90,000 91,478 Series 1997 6.10% 7/1/12 40,000 40,563 Series 1998 6.10% 7/1/14 45,000 45,568 ----------- 5,494,277 ----------- Territorial General Obligation Bonds - 3.50% Puerto Rico Commonwealth Refunding Public Improvement Series A 5.125% 7/1/31 3,000,000 2,969,070 ----------- 2,969,070 ----------- Territorial Revenue Bonds - 16.03% Puerto Rico Commonwealth Highway & Transportation Authority Highway Revenue Series D 5.25% 7/1/38 1,000,000 991,230 Series G 5.00% 7/1/33 4,000,000 3,876,198 Series W 5.50% 7/1/15 175,000 190,495 Series Y 5.00% 7/1/36 2,000,000 1,926,220 Puerto Rico Electric Power Authority Power Revenue 5.00% 7/1/20 (MBIA) 1,000,000 1,049,460 Series N 5.125% 7/1/29 500,000 495,720 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Territorial Revenue Bonds (continued) +Puerto Rico Electric Power Authority Revenue Inverse Floater ROLs 5.93% 7/1/19 (FSA) $3,100,000 $ 3,054,554 Puerto Rico Electric Power Authority Revenue Series II 5.25% 7/1/31 1,000,000 1,000,310 Puerto Rico Public Finance Corporation Commonwealth Appropriated Series A 5.00% 8/1/31 (MBIA) 1,000,000 1,002,880 ----------- 13,587,067 ----------- Water & Sewer Revenue Bonds - 2.91% Chubbuck Water Revenue Certificate of Participation 6.35% 4/1/08 125,000 130,079 6.40% 4/1/10 135,000 139,054 Moscow Sewer Revenue 5.00% 11/1/22 (FSA) 2,175,000 2,194,771 ----------- 2,463,904 ----------- Total Municipal Bonds (cost $81,327,540) 81,999,578 ----------- Number of Shares - -------------------------------------------------------------------------------- Short-Term Investments - 2.20% - -------------------------------------------------------------------------------- Dreyfus Tax-Exempt Cash Management Fund 1,860,821 1,860,821 ----------- Total Short-Term Investments (cost $1,860,821) 1,860,821 ----------- Total Market Value of Securities - 98.92% (cost $83,188,361) 83,860,399 Receivables and Other Assets Net of Liabilities - 1.08% 917,950 ----------- Net Assets Applicable to 7,613,435 Shares Outstanding - 100.00% $84,778,349 =========== Net Asset Value - Delaware Tax-Free Idaho Fund Class A ($51,681,689 / 4,639,846 Shares) $11.14 ------ Net Asset Value - Delaware Tax-Free Idaho Fund Class B ($16,800,537 / 1,509,985 Shares) $11.13 ------ Net Asset Value - Delaware Tax-Free Idaho Fund Class C ($16,296,123 / 1,463,604 Shares) $11.13 ------ 8 Statements Delaware Tax-Free Idaho Fund OF NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $84,919,111 Distributions in excess of net investment income (11,301) Accumulated net realized loss on investments (801,499) Net unrealized appreciation of investments 672,038 ----------- Total net assets $84,778,349 =========== *For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. +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, 2003. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance MBIA - Insured by the Municipal Bond Insurance Association ROLs -- Residual Options Long XLCA - Insured by XL Capital Assurance Net Asset Value and Offering Price per Share - Delaware Tax-Free Idaho Fund Net asset value Class A (A) $11.14 Sales charge (4.50% of offering price, or 4.67% of amount invested per share) (B) 0.52 ------ Offering price $11.66 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See current prospectus for purchases of $100,000 or more. See accompanying notes 9 Statements Delaware Tax-Free Missouri Insured Fund OF NET ASSETS (CONTINUED) August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 99.15% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 3.24% St. Louis Airport (Capital Improvement Project) Series A 5.375% 7/1/21 (MBIA) $1,635,000 $ 1,706,155 ----------- 1,706,155 ----------- Corporate-Backed Revenue Bonds - 2.77% Missouri State Development Finance Board Solid Waste Disposal (Procter & Gamble Paper Products) 5.20% 3/15/29 500,000 500,340 Sugar Creek, Missouri Industrial Development Revenue (Lafarge North America) Series A 5.65% 6/1/37 1,000,000 956,860 ----------- 1,457,200 ----------- Dedicated Tax & Fees Revenue Bonds - 5.21% Bi-State Development Agency Missouri Illinois Metropolitan District (Metrolink Cross County Project) Series B 5.00% 10/1/32 (FSA) 1,500,000 1,494,915 Jackson County Special Obligation 5.00% 12/1/27 (MBIA) 1,250,000 1,249,375 ----------- 2,744,290 ----------- Escrowed to Maturity Bonds - 2.17% Cape Girardeau County Industrial Development Authority Health Care Facilities Revenue (Southeast Missouri Hospital) 5.25% 6/1/16 (MBIA) 440,000 478,108 **Greene County Single Family Mortgage Revenue Municipal Multiplier (Private Mortgage Insurance) 6.10% 3/1/16 1,225,000 664,612 ----------- 1,142,720 ----------- Higher Education Revenue Bonds - 3.94% Missouri State Health & Educational Facilities Authority Educational Facilities Revenue (Central Missouri State University Project) 5.75% 10/1/25 (AMBAC) 1,000,000 1,089,990 (University of Health Sciences) 5.00% 6/1/31 (MBIA) 1,000,000 982,970 ----------- 2,072,960 ----------- Hospital Revenue Bonds - 11.98% Cape Girardeau County Industrial Development Authority Health Care Facilities Revenue (Southeast Missouri Hospital) 5.25% 6/1/16 (MBIA) 560,000 598,422 (St. Francis Medical Center) Series A 5.50% 6/1/32 (MBIA) 2,000,000 2,005,060 Hannibal Industrial Development Authority Health Facilities Revenue Refunding (Hannibal Regional Hospital) Series A 5.625% 3/1/12 (FSA) 1,000,000 1,077,820 5.75% 3/1/22 (FSA) 1,000,000 1,044,690 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Hospital Revenue Bonds (continued) Missouri State Health & Educational Facilities Authority Health Facilities Revenue Refunding (SSM Health Care) Series AA 6.40% 6/1/10 (MBIA) 500,000 $ 585,155 (St. Luke's Health System) 5.125% 11/15/19 (MBIA) 1,000,000 1,001,890 ----------- 6,313,037 ----------- Investor Owned Utilities Revenue Bonds - 4.53% Missouri State Environmental Improvement & Energy Resource Authority Pollution Control Revenue Refunding (St. Joseph Light & Power Company Project) 5.85% 2/1/13 (AMBAC) 2,200,000 2,388,826 ----------- 2,388,826 ----------- Miscellaneous Revenue Bonds - 2.12% Missouri State Environmental Improvement & Energy Resource Authority Water Pollution Control Revenue Unrefunded Balance (State Revolving Fund Project) Series A 6.05% 7/1/16 (FSA) 1,060,000 1,118,565 ----------- 1,118,565 ----------- Multi Family Housing Revenue Bonds - 4.58% Missouri State Housing Development Commission Multifamily Housing-Hyder Series 3 5.60% 7/1/34 1,435,000 1,439,405 St. Louis County Industrial Development Authority Housing Development Revenue Refunding Sub (Southfield & Oak Forest Apartment-A) 5.20% 1/20/36 1,000,000 975,170 ----------- 2,414,575 ----------- Municipal Lease Revenue Bonds - 9.29% Kansas City Land Clearance Redevelopment Authority Lease Revenue (Muehlebach Hotel) Series A 5.90% 12/1/18 (FSA) 1,000,000 1,104,440 Kansas City Municipal Assistance Corporation Revenue Refunding Leasehold (Bartle Convention Center) Series A 5.60% 4/15/16 (MBIA) 940,000 1,001,279 St. Charles County Public Water Supply District #2 Certificate of Participation (Missouri Project) Series A 5.25% 12/1/28 (MBIA) 1,000,000 1,018,420 St. Charles County Public Water Supply District #2 Certificates of Participation Series B 5.10% 12/1/25 (MBIA) 500,000 502,540 **St. Louis Missouri Industrial Development Authority Leasehold Revenue (Convention Center Hotel) 5.80% 7/15/20 (AMBAC) 3,035,000 1,265,625 ----------- 4,892,304 ----------- 10 Statements Delaware Tax-Free Missouri Insured Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Political Subdivision General Obligation Bonds - 5.10% Kearney 5.00% 3/1/21 (AMBAC) $ 625,000 $ 632,600 St. Charles 5.75% 3/1/15 (FSA) 1,000,000 1,043,990 Taney County Reorganization School District R-V Hollister School District 5.00% 3/1/22 (FSA) 1,000,000 1,010,930 ----------- 2,687,520 ----------- *Pre-Refunded Bonds - 21.90% Jackson County Industrial Development Authority Health Care Corporation Revenue (Carondelet Health St. Mary's Hospital) 5.75% 7/1/24-04 1,750,000 1,853,880 Kansas City Airport Revenue General Improvement Series B 6.875% 9/1/14-04 (FSA) 1,675,000 1,789,403 Missouri State Environmental Improvement & Energy Resource Authority Water Pollution Control Revenue (State Revolving Fund) Series A 6.05% 7/1/16-04 (FSA) 1,205,000 1,279,855 St. Charles School District 6.50% 2/1/14-06 (FGIC) 1,250,000 1,391,800 St. Louis Municipal Finance Corporation Leasehold Revenue Improvement (City Justice Center) Series A 5.95% 2/15/16-06 (AMBAC) 1,000,000 1,118,860 St. Louis Municipal Finance Corporation Leasehold Revenue Refunding & Improvement 6.25% 2/15/12-05 (FGIC) 1,850,000 1,983,495 Troy Reorganization School District #3 Lincoln County 6.10% 3/1/14-05 (MBIA) 1,235,000 1,320,116 West Platte School District R-11 5.85% 3/1/15-05 (MBIA) 750,000 801,555 ----------- 11,538,964 ----------- Public Power Revenue Bonds - 2.19% Sikeston Electric Revenue Refunding 6.00% 6/1/13 (MBIA) 1,000,000 1,155,880 ----------- 1,155,880 ----------- School District General Obligation Bonds - 4.38% Greene County Reorganization School District R8 (Direct Deposit Project) 5.10% 3/1/22 (FSA) 1,500,000 1,525,350 **St. Charles County Francis Howell School District (Capital Appreciation Direct Deposit Project) Series A 5.15% 3/1/17 (FGIC) 1,500,000 782,160 ----------- 2,307,510 ----------- Single-Family Housing Revenue Bonds - 4.86% Missouri State Housing Development Commission Mortgage Revenue Series C 7.45% 9/1/27 (GNMA/FNMA) 540,000 565,682 Missouri State Housing Development Commission Mortgage Revenue Single Family Homeowner Loan A 7.20% 9/1/26 (GNMA/FNMA) 500,000 506,505 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Single-Family Housing Revenue Bonds (continued) Missouri State Housing Development Commission Mortgage Revenue Single Family Homeowner Loan B 7.55% 9/1/27 (GNMA/FNMA) $ 280,000 $ 285,102 Single Family Homeowner Loan C 7.25% 9/1/26 (GNMA/FNMA) 555,000 573,270 Missouri State Housing Development Commission Mortgage Revenue Single Family Mortgage Series A 7.20% 12/1/17 (GNMA) 45,000 46,183 7.25% 12/1/20 (GNMA) 95,000 97,494 Missouri State Housing Development Commission Single Family Mortgage Revenue (Homeowner Loan Project) Series A 5.20% 9/1/33 (GNMA) 500,000 486,525 ----------- 2,560,761 ----------- Territorial Revenue Bonds - 6.37% Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series A 4.75% 7/1/38 (MBIA) 1,000,000 962,870 Puerto Rico Electric Power Authority Revenue Series N 5.125% 7/1/29 500,000 495,720 +Puerto Rico Electric Power Authority Revenue, Inverse Floater ROLs 5.93% 7/1/19 (FSA) 1,925,000 1,896,780 ----------- 3,355,370 ----------- Water & Sewer Revenue Bonds - 4.52% Liberty Sewer System Revenue 6.00% 2/1/08 (MBIA) 600,000 682,752 6.15% 2/1/15 (MBIA) 1,500,000 1,701,060 ----------- 2,383,812 ----------- Total Municipal Bonds (cost $49,482,450) 52,240,449 ----------- Total Market Value of Securities - 99.15% (cost $49,482,450) 52,240,449 Receivables and Other Assets Net of Liabilities - 0.85% 448,201 ----------- Net Assets Applicable to 4,951,073 Shares Outstanding - 100.00% $52,688,650 =========== Net Asset Value - Delaware Tax-Free Missouri Insured Fund Class A ($44,025,564 / 4,136,925 Shares) $10.64 ------ Net Asset Value - Delaware Tax-Free Missouri Insured Fund Class B ($7,406,001 / 696,180 Shares) $10.64 ------ Net Asset Value - Delaware Tax-Free Missouri Insured Fund Class C ($1,257,085 / 117,968 Shares) $10.66 ------ 11 Statements Delaware Tax-Free Missouri Insured Fund OF NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization-- no par) $50,356,532 Accumulated net realized loss on investments (425,881) Net unrealized appreciation of investments 2,757,999 ----------- Total net assets $52,688,650 =========== *For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. **Zero coupon bond. The interest rate shown is the yield at the time of purchase. +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, 2003. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation FGIC - Insured by the Financial Guaranty Insurance Company FNMA - Insured by Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association ROLs - Residual Options Long Net Asset Value and Offering Price per Share - Delaware Tax-Free Missouri Insured Fund Net asset value Class A (A) $10.64 Sales charge (4.50% of offering price, or 4.70% of amount invested per share) (B) 0.50 ------ Offering price $11.14 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 12 Statements Delaware Tax-Free Oregon Insured Fund OF NET ASSETS (CONTINUED) August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 96.66% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 3.51% Portland Oregon Airport Revenue (Portland International Airport) Series 11 5.625% 7/1/26 (FGIC) $1,500,000 $ 1,529,295 ----------- 1,529,295 ----------- Higher Education Revenue Bonds - 12.78% **Oregon Health Sciences University Revenue (Capital Appreciation Insured) Series A 5.50% 7/1/21 (MBIA) 2,000,000 794,880 Oregon Health Sciences University Revenue Series A 5.00% 7/1/32 (MBIA) 2,000,000 1,996,840 Oregon State Facilities Authority Revenue (College Housing Northwest Project) Series A 5.45% 10/1/32 1,700,000 1,650,921 Oregon State Health, Housing, Educational & Cultural Facilities Refunding (Lewis & Clark College Project) Series A 6.125% 10/1/24 (MBIA) 1,055,000 1,122,509 ----------- 5,565,150 ----------- Hospital Revenue Bonds - 6.45% Deschutes County Hospital Facilities Authority Hospital Revenue (Cascade Health Services) 5.60% 1/1/32 1,250,000 1,261,075 Umatilla County Hospital Facility Authority Revenue (Catholic Health Initiatives) Series A 5.50% 3/1/32 1,000,000 1,021,300 Western Lane Hospital District Hospital Facility Authority Revenue Refunding (Sisters of St. Joseph Peace) 5.875% 8/1/12 (MBIA) 500,000 526,710 ----------- 2,809,085 ----------- Investor Owned Utilities Revenue Bonds - 1.39% Port Morrow, Oregon Pollution Control Revenue (Portland General) 5.20% 5/1/33-03 600,000 603,906 ----------- 603,906 ----------- Miscellaneous Revenue Bonds - 1.99% Oregon State Department Administrative Services 5.00% 9/1/13 (FSA) 800,000 865,984 ----------- 865,984 ----------- Multi Family Housing Revenue Bonds - 2.55% Oregon Health, Housing, Educational, & Cultural Facilities Authority (Pier Park Project) Series A 6.05% 4/1/18 (GNMA) 1,095,000 1,110,078 ----------- 1,110,078 ----------- Municipal Lease Revenue Bonds - 2.46% Oregon State Department Administration Services Certificate of Participation Refunding Series C 5.25% 11/1/15 (MBIA) 1,000,000 1,072,970 ----------- 1,072,970 ----------- - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Political Subdivision General Obligation Bonds - 4.81% Deschutes County Administrative School District #1 Series A 5.125% 6/15/21 (FSA) $1,000,000 $ 1,020,010 Deschutes County Refunding 5.00% 12/1/16 (FSA) 500,000 524,705 Malheur County (Jail Buildings) 6.30% 12/1/12 (MBIA) 500,000 549,955 ----------- 2,094,670 ----------- *Pre-Refunded Bonds - 27.68% Central Oregon Community College District Oregon 5.90% 6/1/09-04 (FGIC) 750,000 777,765 Chemeketa County Community College District 5.80% 6/1/12-06 (FGIC) 1,500,000 1,660,454 Eugene Electric Utility Revenue Series C 5.80% 8/1/22-04 (MBIA) 1,250,000 1,317,325 Hermiston Oregon 6.20% 8/1/24-04 (AMBAC) 500,000 523,810 Klamath Falls Water Revenue 6.10% 6/1/14-04 (FSA) 500,000 524,225 Lane County School District #019 Springfield 6.30% 10/15/14-04 (MBIA) 500,000 534,270 Multnomah County School District #3 Park Rose 5.50% 12/1/11-05 (FGIC) 500,000 545,725 Multnomah County School District #39 Corbet 6.00% 12/1/13-04 (MBIA) 500,000 530,595 Oregon State Department Administrative Services Certificate of Participation Series A 5.80% 5/1/24-07 (AMBAC) 1,000,000 1,133,060 Portland Series A 5.75% 6/1/15-05 (MBIA) 500,000 538,465 Portland Sewer System Revenue Series A 6.25% 6/1/15-04 (FSA) 1,000,000 1,049,580 Salem Water & Sewer Revenue 5.625% 6/1/16-06 (MBIA) 1,000,000 1,102,290 Tillamook County 6.25% 1/1/14-05 (FGIC) 250,000 269,193 Umatilla County School District #016R Pendelton 6.00% 7/1/14-04 (AMBAC) 500,000 525,890 Washington County Education Services District Certificate of Participation 7.10% 6/1/25-05 (MBIA) 700,000 770,196 Washington County School District #088 J Sherwood 6.10% 6/1/12-05 (FSA) 235,000 254,500 ----------- 12,057,343 ----------- Public Utility District Revenue Bonds - 1.79% Emerald Peoples Utilities District Series A 5.25% 11/1/22 (FSA) 750,000 778,388 ----------- 778,388 ----------- School District General Obligation Bonds - 15.53% Benton & Linn Counties School District #509J Corvallis 5.00% 6/1/21 (FSA) 1,000,000 1,018,090 Jackson County School District #6 Central Point 5.25% 6/15/20 (FGIC) 1,175,000 1,217,523 Jefferson County School District #509J 5.00% 6/15/22 (FGIC) 500,000 506,535 Lane County School District #019 Springfield Refunding 6.00% 10/15/14 (FGIC) 500,000 580,530 13 Statements Delaware Tax-Free Oregon Insured Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- School District General Obligation Bonds (continued) Lincoln County School District 5.25% 6/15/12 (FGIC) $ 700,000 $ 759,654 ++Linn County Community School District #9 Lebanon 5.60% 6/15/30 (FGIC) 2,000,000 2,037,320 **Umatilla County School District #6 R Umatilla Refunding 5.50% 12/15/22 (AMBAC) 200,000 73,032 Washington & Clackamas Counties School District #13 J Tigard 4.875% 6/15/22 (MBIA) 500,000 501,030 Washington County School District #088 J Sherwood 6.10% 6/1/12 (FSA) 65,000 70,382 ----------- 6,764,096 ----------- Single Family Housing Revenue Bonds - 4.53% Oregon State Housing & Community Services Department Mortgage Revenue Single Family Mortgage Program Series R 5.375% 7/1/32 1,970,000 1,975,477 ----------- 1,975,477 ----------- Tax Increment/Special Assessment Bonds - 2.49% North Unit Irrigation District 5.75% 6/1/16 (MBIA) 1,000,000 1,082,920 ----------- 1,082,920 ----------- Territorial Revenue Bonds - 6.76% Puerto Rico Commonwealth Highway & Transportation Authority Revenue Series G 5.00% 7/1/42 500,000 477,190 Puerto Rico Electric Power Authority Revenue Series N 5.125% 7/1/29 1,000,000 991,440 +Puerto Rico Electric Power Authority Revenue, Inverse Floater ROLs 5.93% 7/1/19 (FSA) 1,500,000 1,478,010 ----------- 2,946,640 ----------- Water & Sewer Revenue Bonds - 1.94% Beaverton County Water Revenue 6.125% 6/1/14 (FSA) 500,000 521,225 Portland Sewer Systems Revenue (Second Lien) Series A 5.00% 6/1/23 (FSA) 325,000 326,346 ----------- 847,571 ----------- Total Municipal Bonds (cost $40,291,961) 42,103,573 ----------- Number of Shares - -------------------------------------------------------------------------------- Short-Term Investments - 2.76% - -------------------------------------------------------------------------------- Dreyfus Tax-Exempt Cash Management Fund 1,200,551 1,200,551 ----------- Total Short-Term Investments (cost $1,200,551) 1,200,551 ----------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total Market Value of Securities - 99.42% (cost $41,492,512) $43,304,124 Receivables and Other Assets Net of Liabilities - 0.58% 251,196 ----------- Net Assets Applicable to 4,194,175 Shares Outstanding - 100.00% $43,555,320 =========== Net Asset Value - Delaware Tax-Free Oregon Insured Fund Class A ($29,410,023 / 2,833,099 Shares) $10.38 ------ Net Asset Value - Delaware Tax-Free Oregon Insured Fund Class B ($8,750,271 / 842,485 Shares) $10.39 ------ Net Asset Value - Delaware Tax-Free Oregon Insured Fund Class C ($5,395,026 / 518,591 Shares) $10.40 ------ Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization-- no par) $42,179,666 Accumulated net realized loss on investments (435,958) Net unrealized appreciation of investments 1,811,612 ----------- Total net assets $43,555,320 =========== *For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. **Zero coupon bond. The interest rate shown is the yield at the time of purchase. +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, 2003. ++Step coupon bond. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association ROLs - Residual Options Long Net Asset Value and Offering Price per Share - Delaware Tax-Free Oregon Insured Fund Net asset value Class A (A) $10.38 Sales charge (4.50% of offering price, or 4.72% of amount invested per share) (B) 0.49 ------ Offering price $10.87 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 14 Statements OF OPERATIONS Year Ended August 31, 2003
Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Idaho Missouri Insured Oregon Insured Fund Fund Fund Investment Income: Interest $4,273,774 $2,861,977 $2,108,240 ---------- ---------- ---------- Expenses: Management fees 444,719 270,332 203,522 Distribution expenses-- Class A 127,086 110,940 68,531 Distribution expenses-- Class B 160,720 83,551 88,553 Distribution expenses-- Class C 137,064 13,197 43,052 Dividend disbursing and transfer agent fees and expenses 55,336 47,333 30,781 Accounting and administration expenses 35,948 24,600 18,200 Reports and statements to shareholders 15,189 16,160 7,600 Professional fees 21,147 13,908 12,157 Registration fees 5,871 4,680 1,735 Custodian fees 4,841 4,319 2,707 Trustees' fees 3,057 3,162 2,610 Other 18,783 14,282 10,398 ---------- ---------- ---------- 1,029,761 606,464 489,846 Less expenses absorbed or waived (56,236) - (50,054) Less expenses paid indirectly (2,121) (1,392) (1,132) ---------- ---------- ---------- Total expenses 971,404 605,072 438,660 ---------- ---------- ---------- Net Investment Income 3,302,370 2,256,905 1,669,580 ---------- ---------- ---------- Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain on investments 355,852 281,149 214,112 Net change in unrealized appreciation/depreciation of investments (1,839,181) (1,135,869) (924,292) ---------- ---------- ---------- Net Realized and Unrealized Loss on Investments (1,483,329) (854,720) (710,180) ---------- ---------- ---------- Net Increase in Net Assets Resulting from Operations $1,819,041 $1,402,185 $ 959,400 ========== ========== ==========
See accompanying notes 15 Statements OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund Year Ended Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 8/31/03 8/31/02 Increase (Decrease) in Net Assets from Operations: Net investment income $3,302,370 $2,695,449 $2,256,905 $2,293,224 $1,669,580 $1,467,546 Net realized gain (loss) on investments 355,852 (268,373) 281,149 147,916 214,112 44,183 Net change in unrealized appreciation/depreciation of investments (1,839,181) 704,757 (1,135,869) 253,738 (924,292) 282,015 ---------- ---------- ---------- ---------- ---------- ---------- Net increase in net assets resulting from operations 1,819,041 3,131,833 1,402,185 2,694,878 959,400 1,793,744 ---------- ---------- ---------- ---------- ---------- ---------- Dividends and Distributions to Shareholders from: Net investment income: Class A (2,218,414) (1,897,634) (1,906,317) (1,887,783) (1,192,516) (1,067,623) Class B (582,004) (536,959) (295,924) (359,927) (318,633) (302,631) Class C (495,347) (253,783) (46,691) (37,619) (154,374) (93,153) ---------- ---------- ---------- ---------- ---------- ---------- (3,295,765) (2,688,376) (2,248,932) (2,285,329) (1,665,523) (1,463,407) ---------- ---------- ---------- ---------- ---------- ---------- Capital Share Transactions: Proceeds from shares sold: Class A 16,371,596 10,485,386 5,521,827 3,584,351 6,845,055 2,824,677 Class B 3,331,668 2,829,608 440,239 358,082 2,122,381 1,409,340 Class C 8,793,031 5,452,541 649,304 620,108 3,223,917 1,650,211 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 1,505,826 1,246,173 934,595 952,960 697,048 602,070 Class B 345,692 332,034 176,563 221,803 174,625 168,039 Class C 296,266 165,168 39,136 33,459 89,992 58,050 ---------- ---------- ---------- ---------- ---------- ---------- 30,644,079 20,510,910 7,761,664 5,770,763 13,153,018 6,712,387 ---------- ---------- ---------- ---------- ---------- ---------- Cost of shares repurchased: Class A (10,420,017) (5,120,599) (4,318,513) (2,610,120) (2,735,631) (1,525,920) Class B (1,409,479) (818,538) (2,372,010) (1,067,791) (1,896,972) (1,089,559) Class C (2,304,901) (794,760) (650,350) (56,194) (1,082,332) (324,977) ---------- ---------- ---------- ---------- ---------- ---------- (14,134,397) (6,733,897) (7,340,873) (3,734,105) (5,714,935) (2,940,456) ---------- ---------- ---------- ---------- ---------- ---------- Increase in net assets derived from capital share transactions 16,509,682 13,777,013 420,791 2,036,658 7,438,083 3,771,931 ---------- ---------- ---------- ---------- ---------- ---------- Net Increase (Decrease) in Net Assets 15,032,958 14,220,470 (425,956) 2,446,207 6,731,960 4,102,268 Net Assets: Beginning of year 69,745,391 55,524,921 53,114,606 50,668,399 36,823,360 32,721,092 ---------- ---------- ---------- ---------- ---------- ---------- End of year $84,778,349 $69,745,391 $52,688,650 $53,114,606 $43,555,320 $36,823,360 =========== =========== =========== =========== =========== ===========
See accompanying notes 16 Financial HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Idaho Fund Class A - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.320 $11.260 $10.730 $10.940 $11.560 Income (loss) from investment operations: Net investment income 0.497 0.522 0.541 0.541 0.517 Net realized and unrealized gain (loss) on investments (0.181) 0.059 0.530 (0.210) (0.620) ------- ------- ------- ------- ------- Total from investment operations 0.316 0.581 1.071 0.331 (0.103) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.496) (0.521) (0.541) (0.541) (0.517) ------- ------- ------- ------- ------- Total dividends and distributions (0.496) (0.521) (0.541) (0.541) (0.517) ------- ------- ------- ------- ------- Net asset value, end of period $11.140 $11.320 $11.260 $10.730 $10.940 ======= ======= ======= ======= ======= Total return(2) 2.81% 5.36% 10.24% 3.25% (0.99%) Ratios and supplemental data: Net assets, end of period (000 omitted) $51,682 $45,108 $38,228 $34,674 $44,299 Ratio of expenses to average net assets 0.93% 1.00% 1.00% 1.00% 1.00% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.00% 1.03% 1.03% 1.09% 1.04% Ratio of net investment income to average net assets 4.36% 4.69% 4.94% 5.13% 4.52% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.29% 4.66% 4.91% 5.04% 4.48% Portfolio turnover 18% 11% 14% 10% 2%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of $0.001, a decrease in net realized and unrealized gain (loss) per share of $0.001, and an increase in the ratio of net investment income to average net assets of 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 17 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Idaho Fund Class B - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.310 $11.250 $10.720 $10.920 $11.550 Income (loss) from investment operations: Net investment income 0.412 0.439 0.460 0.462 0.432 Net realized and unrealized gain (loss) on investments (0.181) 0.059 0.530 (0.200) (0.630) ------- ------- ------- ------- ------- Total from investment operations 0.231 0.498 0.990 0.262 (0.198) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.411) (0.438) (0.460) (0.462) (0.432) ------- ------- ------- ------- ------- Total dividends and distributions (0.411) (0.438) (0.460) (0.462) (0.432) ------- ------- ------- ------- ------- Net asset value, end of period $11.130 $11.310 $11.250 $10.720 $10.920 ======= ======= ======= ======= ======= Total return(2) 2.05% 4.58% 9.43% 2.58% (1.82%) Ratios and supplemental data: Net assets, end of period (000 omitted) $16,801 $14,809 $12,366 $10,320 $10,199 Ratio of expenses to average net assets 1.68% 1.75% 1.75% 1.75% 1.75% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.75% 1.78% 1.78% 1.84% 1.79% Ratio of net investment income to average net assets 3.61% 3.94% 4.19% 4.38% 3.77% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.54% 3.91% 4.16% 4.29% 3.73% Portfolio turnover 18% 11% 14% 10% 2%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of $0.001, a decrease in net realized and unrealized gain (loss) per share of $0.001, and an increase in the ratio of net investment income to average net assets of 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 18 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Idaho Fund Class C - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.310 $11.250 $10.720 $10.920 $11.550 Income (loss) from investment operations: Net investment income 0.413 0.439 0.460 0.462 0.432 Net realized and unrealized gain (loss) on investments (0.181) 0.059 0.530 (0.200) (0.630) ------- ------- ------- ------- ------- Total from investment operations 0.232 0.498 0.990 0.262 (0.198) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.412) (0.438) (0.460) (0.462) (0.432) ------- ------- ------- ------- ------- Total dividends and distributions (0.412) (0.438) (0.460) (0.462) (0.432) ------- ------- ------- ------- ------- Net asset value, end of period $11.130 $11.310 $11.250 $10.720 $10.920 ======= ======= ======= ======= ======= Total return(2) 2.05% 4.57% 9.43% 2.58% (1.82%) Ratios and supplemental data: Net assets, end of period (000 omitted) $16,296 $9,829 $4,931 $3,621 $3,411 Ratio of expenses to average net assets 1.68% 1.75% 1.75% 1.75% 1.75% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.75% 1.78% 1.78% 1.84% 1.79% Ratio of net investment income to average net assets 3.61% 3.94% 4.19% 4.38% 3.77% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.54% 3.91% 4.16% 4.29% 3.73% Portfolio turnover 18% 11% 14% 10% 2%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of $0.001, a decrease in net realized and unrealized gain (loss) per share of $0.001, and an increase in the ratio of net investment income to average net assets of 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 19 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Missouri Insured Fund Class A - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.810 $10.740 $10.340 $10.340 $10.870 Income (loss) from investment operations: Net investment income 0.469 0.489 0.497 0.494 0.498 Net realized and unrealized gain (loss) on investments (0.172) 0.068 0.400 -- (0.530) ------- ------- ------- ------- ------- Total from investment operations 0.297 0.557 0.897 0.494 (0.032) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.467) (0.487) (0.497) (0.494) (0.498) ------- ------- ------- ------- ------- Total dividends and distributions (0.467) (0.487) (0.497) (0.494) (0.498) ------- ------- ------- ------- ------- Net asset value, end of period $10.640 $10.810 $10.740 $10.340 $10.340 ======= ======= ======= ======= ======= Total return(2) 2.75% 5.38% 8.89% 4.99% (0.38%) Ratios and supplemental data: Net assets, end of period (000 omitted) $44,026 $42,610 $40,349 $38,314 $42,337 Ratio of expenses to average net assets 0.98% 0.97% 0.95% 1.03% 0.97% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.98% 0.97% 0.95% 1.03% 1.02% Ratio of net investment income to average net assets 4.31% 4.61% 4.74% 4.88% 4.62% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.31% 4.61% 4.74% 4.88% 4.57% Portfolio turnover 31% 23% 14% 1% 7%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of $0.002, a decrease in net realized and unrealized gain (loss) per share of $0.002, and an increase in the ratio of net investment income to average net assets of 0.02%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 20 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Missouri Insured Fund Class B - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.810 $10.730 $10.340 $10.340 $10.870 Income (loss) from investment operations: Net investment income 0.387 0.410 0.418 0.418 0.416 Net realized and unrealized gain (loss) on investments (0.172) 0.078 0.390 -- (0.530) ------- ------- ------- ------- ------- Total from investment operations 0.215 0.488 0.808 0.418 (0.114) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.385) (0.408) (0.418) (0.418) (0.416) ------- ------- ------- ------- ------- Total dividends and distributions (0.385) (0.408) (0.418) (0.418) (0.416) ------- ------- ------- ------- ------- Net asset value, end of period $10.640 $10.810 $10.730 $10.340 $10.340 ======= ======= ======= ======= ======= Total return(2) 1.99% 4.70% 7.98% 4.21% (1.13%) Ratios and supplemental data: Net assets, end of period (000 omitted) $7,406 $9,264 $9,693 $10,053 $10,572 Ratio of expenses to average net assets 1.73% 1.72% 1.70% 1.78% 1.72% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.73% 1.72% 1.70% 1.78% 1.77% Ratio of net investment income to average net assets 3.56% 3.86% 3.99% 4.13% 3.87% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.56% 3.86% 3.99% 4.13% 3.82% Portfolio turnover 31% 23% 14% 1% 7%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of $0.002, a decrease in net realized and unrealized gain (loss) per share of $0.002, and an increase in the ratio of net investment income to average net assets of 0.02%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 21 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Missouri Insured Fund Class C - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.820 $10.740 $10.350 $10.350 $10.880 Income (loss) from investment operations: Net investment income 0.387 0.410 0.418 0.418 0.419 Net realized and unrealized gain (loss) on investments (0.162) 0.078 0.390 -- (0.530) ------- ------- ------- ------- ------- Total from investment operations 0.225 0.488 0.808 0.418 (0.111) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.385) (0.408) (0.418) (0.418) (0.419) ------- ------- ------- ------- ------- Total dividends and distributions (0.385) (0.408) (0.418) (0.418) (0.419) ------- ------- ------- ------- ------- Net asset value, end of period $10.660 $10.820 $10.740 $10.350 $10.350 ======= ======= ======= ======= ======= Total return(2) 2.08% 4.68% 7.97% 4.20% (1.12%) Ratios and supplemental data: Net assets, end of period (000 omitted) $1,257 $1,241 $626 $343 $231 Ratio of expenses to average net assets 1.73% 1.72% 1.70% 1.78% 1.72% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.73% 1.72% 1.70% 1.78% 1.77% Ratio of net investment income to average net assets 3.56% 3.86% 3.99% 4.13% 3.87% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.56% 3.86% 3.99% 4.13% 3.82% Portfolio turnover 31% 23% 14% 1% 7%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of $0.002, a decrease in net realized and unrealized gain (loss) per share of $0.002, and an increase in the ratio of net investment income to average net assets of 0.02%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 22 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Oregon Insured Fund Class A - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.530 $10.450 $9.910 $9.810 $10.430 Income (loss) from investment operations: Net investment income 0.461 0.467 0.465 0.467 0.458 Net realized and unrealized gain (loss) on investments (0.151) 0.079 0.540 0.100 (0.620) ------- ------- ------- ------- ------- Total from investment operations 0.310 0.546 1.005 0.567 (0.162) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.460) (0.466) (0.465) (0.467) (0.458) ------- ------- ------- ------- ------- Total dividends and distributions (0.460) (0.466) (0.465) (0.467) (0.458) ------- ------- ------- ------- ------- Net asset value, end of period $10.380 $10.530 $10.450 $9.910 $9.810 ======= ======= ======= ======= ======= Total return(2) 2.97% 5.41% 10.39% 6.04% (1.67%) Ratios and supplemental data: Net assets, end of period (000 omitted) $29,410 $25,082 $22,973 $22,712 $27,518 Ratio of expenses to average net assets 0.84% 0.85% 0.85% 0.85% 0.80% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.96% 1.00% 0.99% 1.01% 1.02% Ratio of net investment income to average net assets 4.35% 4.52% 4.59% 4.85% 4.44% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.23% 4.37% 4.45% 4.69% 4.22% Portfolio turnover 16% 20% 28% 0% 10%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of $0.001, a decrease in net realized and unrealized gain (loss) per share of $0.001, and an increase in the ratio of net investment income to average net assets of 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 23 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Oregon Insured Fund Class B - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.540 $10.450 $9.910 $9.810 $10.430 Income (loss) from investment operations: Net investment income 0.382 0.390 0.389 0.394 0.381 Net realized and unrealized gain (loss) on investments (0.151) 0.089 0.540 0.100 (0.620) ------- ------- ------- ------- ------- Total from investment operations 0.231 0.479 0.929 0.494 (0.239) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.381) (0.389) (0.389) (0.394) (0.381) ------- ------- ------- ------- ------- Total dividends and distributions (0.381) (0.389) (0.389) (0.394) (0.381) ------- ------- ------- ------- ------- Net asset value, end of period $10.390 $10.540 $10.450 $9.910 $9.810 ======= ======= ======= ======= ======= Total return(2) 2.20% 4.73% 9.57% 5.24% (2.41%) Ratios and supplemental data: Net assets, end of period (000 omitted) $8,750 $8,489 $7,928 $7,484 $7,999 Ratio of expenses to average net assets 1.59% 1.60% 1.60% 1.60% 1.55% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.71% 1.75% 1.74% 1.76% 1.77% Ratio of net investment income to average net assets 3.60% 3.77% 3.84% 4.10% 3.69% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.48% 3.62% 3.70% 3.94% 3.47% Portfolio turnover 16% 20% 28% 0% 10%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of $0.001, a decrease in net realized and unrealized gain (loss) per share of $0.001, and an increase in the ratio of net investment income to average net assets of 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 24 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Oregon Insured Fund Class C - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.550 $10.470 $9.920 $9.820 $10.440 Income (loss) from investment operations: Net investment income 0.381 0.389 0.388 0.394 0.380 Net realized and unrealized gain (loss) on investments (0.151) 0.079 0.550 0.100 (0.620) ------- ------- ------- ------- ------- Total from investment operations 0.230 0.468 0.938 0.494 (0.240) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.380) (0.388) (0.388) (0.394) (0.380) ------- ------- ------- ------- ------- Total dividends and distributions (0.380) (0.388) (0.388) (0.394) (0.380) ------- ------- ------- ------- ------- Net asset value, end of period $10.400 $10.550 $10.470 $9.920 $9.820 ======= ======= ======= ======= ======= Total return(2) 2.19% 4.62% 9.66% 5.24% (2.41%) Ratios and supplemental data: Net assets, end of period (000 omitted) $5,395 $3,253 $1,820 $1,609 $1,603 Ratio of expenses to average net assets 1.59% 1.60% 1.60% 1.60% 1.55% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.71% 1.75% 1.74% 1.76% 1.77% Ratio of net investment income to average net assets 3.60% 3.77% 3.84% 4.10% 3.69% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.48% 3.62% 3.70% 3.94% 3.47% Portfolio turnover 16% 20% 28% 0% 10%
(1) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of $0.001, a decrease in net realized and unrealized gain (loss) per share of $0.001, and an increase in the ratio of net investment income to average net assets of 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 25 Notes August 31, 2003 TO FINANCIAL STATEMENTS Voyageur Mutual Funds (the "Trust") is organized as a Delaware business trust and offers six series: Delaware Minnesota High-Yield Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund, Delaware Tax-Free Arizona Fund, Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, and Delaware Tax-Free New York Fund. Voyageur Investment Trust (the "Trust") is organized as a Massachusetts business trust and offers five series: Delaware Tax-Free California Insured Fund, Delaware Tax-Free Florida Fund, Delaware Tax-Free Florida Insured Fund, Delaware Tax-Free Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund. These financial statements and the related notes pertain to Delaware Tax-Free Idaho Fund, Delaware Tax-Free Missouri Insured Fund, and Delaware Tax-Free Oregon Insured Fund (each a "Fund" or, collectively, as the "Funds"). The above Trusts are open-end investment companies. The Funds are considered non-diversified under the Investment Company Act of 1940, as amended. The Funds offer Class A, Class B and Class C shares. Class A shares are sold with a front-end sales charge of up to 4.50%. Class B shares are sold with a contingent deferred sales charge that declines from 4.00% 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. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. The investment objective of Delaware Tax-Free Idaho Fund, Delaware Tax-Free Missouri Insured Fund, and Delaware Tax-Free Oregon Insured Fund is to seek as high a level of current income exempt from federal income tax and personal income tax in their respective states, as is consistent with preservation of capital. 1. Significant Accounting Policies The following accounting policies are in accordance with accounting principles generally accepted in the United States and are consistently followed by the Funds. Security Valuation -- Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of each Fund's Board of Trustees. Federal Income Taxes -- Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income and common expenses are allocated to the classes of the Funds on the basis of "settled shares" of each class in relation to the net assets of the Funds. Realized and unrealized gain (loss) on investments are allocated to the various classes of the Funds on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Use of Estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. Certain expenses of the Funds are paid through commission arrangements with brokers. These transactions are done subject to best execution. In addition, the Funds may receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expenses paid under the above arrangements are included in their respective expense captions on the Statements of Operations with the corresponding expense offset shown as "expenses paid indirectly". The amounts of these expenses for the year ended August 31, 2003 were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- Commission reimbursements $1,940 $1,298 $975 Earnings credits 181 94 157
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 Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- On the first $500 million 0.55% 0.50% 0.50% On the next $500 million 0.50% 0.475% 0.475% On the next $1.5 billion 0.45% 0.45% 0.45% In excess of $2.5 billion 0.425% 0.425% 0.425%
26 Notes TO FINANCIAL STATEMENTS (CONTINUED) 2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued) 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, and extraordinary expenses, do not exceed specified percentages of average daily net assets through October 31, 2004, as shown below.
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- The operating expense limitation as a percentage of average daily net assets (per annum) 0.75% N/A 0.60%
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 based on average net assets subject to certain minimums for accounting and administration services. Each Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Prior to June 1, 2003, the monthly fee for dividend disbursing and transfer agent services was based on the number of shareholder accounts and shareholder transactions. 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. At August 31, 2003, each Fund had liabilities payable to affiliates as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- Investment management fee payable to DMC $9,604 $7,449 $8,522 Dividend disbursing, transfer agent fees, accounting and other expenses payable to DSC 8,414 5,985 4,560 Other expenses payable to DMC and affiliates 11,466 7,183 5,906
For the year ended August 31, 2003, DDLP earned commissions on sales of Class A shares for each Fund as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- $54,962 $6,900 $24,860
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, 2003, the Funds made purchases and sales of investment securities other than short-term investments as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- Purchases $31,208,243 $17,870,514 $13,391,035 Sales 14,553,084 16,579,537 6,386,535
At August 31, 2003, 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 Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- Cost of investments $83,165,350 $49,440,809 $41,469,744 ----------- ----------- ----------- Aggregate unrealized appreciation $2,201,564 $3,016,453 $1,973,931 Aggregate unrealized depreciation (1,506,515) (216,813) (139,551) ----------- ----------- ----------- Net unrealized appreciation $695,049 $2,799,640 $1,834,380 ----------- ----------- -----------
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 accounting principles generally accepted in the United States. The tax character of dividends and distributions paid during the years ended August 31, 2003, and 2002 was as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- Year Ended Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 8/31/03 8/31/02 Tax-exempt income $3,295,765 $2,688,376 $2,248,932 $2,285,329 $1,665,523 $1,463,407
27 Notes TO FINANCIAL STATEMENTS (CONTINUED) 4. Dividend and Distribution Information (continued) As of August 31, 2003, the components of net assets on a tax basis were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- Shares of beneficial interest $84,919,111 $50,356,532 $42,179,666 Undistributed tax-exempt income (11,301) -- -- Capital loss carryforwards (824,510) (467,522) (458,726) Net unrealized appreciation of investments 695,049 2,799,640 1,834,380 ----------- ----------- ----------- Net assets $84,778,349 $52,688,650 $43,555,320 =========== =========== ===========
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Such capital loss carryforward amounts will expire as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- Year of expiration - ------------------ 2004 $ -- $279,740 $162,740 2008 -- 187,782 -- 2009 657,561 -- 217,063 2010 166,949 -- 78,923 -------- -------- -------- Total $824,510 $467,522 $458,726 ======== ======== ========
5. Capital Shares Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- Year Ended Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 8/31/03 8/31/02 Shares sold: Class A 1,441,194 940,628 506,831 339,265 644,131 273,549 Class B 293,778 254,042 40,296 33,865 199,885 136,072 Class C 773,442 487,362 59,018 58,513 303,936 160,470 Shares issued upon reinvestment of dividends and distributions: Class A 132,956 112,086 86,307 89,875 66,096 58,418 Class B 30,561 29,886 16,310 20,924 16,553 16,296 Class C 26,162 14,866 3,613 3,153 8,512 5,621 ---------- --------- -------- -------- --------- -------- 2,698,093 1,838,870 712,375 545,595 1,239,113 650,426 ---------- --------- -------- -------- --------- -------- Shares repurchased: Class A (919,781) (462,545) (397,871) (245,854) (259,058) (148,535) Class B (124,210) (73,529) (217,615) (100,721) (179,667) (105,017) Class C (204,972) (71,616) (59,346) (5,294) (102,244) (31,622) ---------- --------- -------- -------- --------- -------- (1,248,963) (607,690) (674,832) (351,869) (540,969) (285,174) ---------- --------- -------- -------- --------- -------- Net increase 1,449,130 1,231,180 37,543 193,726 698,144 365,252 ========== ========= ======== ======== ========= ========
28 Notes TO FINANCIAL STATEMENTS (CONTINUED) 5. Capital Shares (continued) For the years ended August 31, 2003 and 2002, the following shares were converted from Class B to Class A. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets.
Year Ended Year Ended 8/31/03 8/31/02 Class B Shares Class A Shares Value Class B Shares Class A Shares Value -------------- -------------- ----- -------------- -------------- ----- Delaware Tax-Free Idaho Fund 8,678 8,671 $ 100,845 -- -- $ -- Delaware Tax-Free Missouri Insured Fund 126,971 126,971 1,389,281 5,483 5,483 58,227 Delaware Tax-Free Oregon Insured Fund 80,709 80,756 860,427 24,568 24,568 254,101
6. Line of Credit Each Fund, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $202,300,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Funds had no amounts outstanding as of August 31, 2003 or at any time during the year. 7. Credit And Market Risks The Funds concentrate their investments in securities issued by each corresponding state's municipalities. The value of these investments may be adversely affected by new legislation within the states, regional or local economic conditions, and differing levels of supply and demand for municipal bonds. Many municipalities insure repayment for their obligations. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that market value may fluctuate for other reasons and there is no assurance that the insurance company will meet its obligations. These securities have been identified in the Statements of Net Assets. The Funds may invest in inverse floating rate securities ("inverse floaters"), a type of derivative tax-exempt obligation with floating or variable interest rates that move in the opposite direction of short-term interest rates, usually at an accelerated speed. Consequently, the market values of inverse floaters will generally be more volatile than other tax-exempt investments. Such securities are denoted on the Statements of Net Assets. 8. 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, 2003, each Fund designates distributions paid during the year as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Idaho Fund Missouri Insured Fund Oregon Insured Fund ----------------- --------------------- ------------------- (A) Long-Term Capital Gains Distributions (Tax Basis) -- -- -- (B) Ordinary Income Distributions (Tax Basis) -- -- -- (C) Tax-Exempt Distributions (Tax Basis) 100% 100% 100% ---- ---- ---- Total Distributions (Tax Basis) 100% 100% 100% ---- ---- ----
(A), (B) and (C) are based on a percentage of each Fund's total distributions. 29 Report OF INDEPENDENT AUDITORS To the Shareholders and Board of Trustees Voyageur Mutual Funds -- Delaware Tax-Free Idaho Fund Voyageur Investment Trust -- Delaware Tax-Free Missouri Insured Fund Voyageur Investment Trust -- Delaware Tax-Free Oregon Insured Fund We have audited the accompanying statements of net assets of Delaware Tax-Free Idaho Fund, Delaware Tax-Free Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund (the "Funds") as of August 31, 2003, 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the above listed Funds at August 31, 2003, 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 accounting principles generally accepted in the United States. Ernst & Young LLP Philadelphia, Pennsylvania October 3, 2003 30 Delaware Investments Family of Funds BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of 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 that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees/Officers and certain background and related information.
Principal Number of Other Name, Position(s) Occupation(s) Portfolios in Fund Directorships Address Held with Length of Time During Complex Overseen Held by and Birthdate Fund(s) Served Past 5 Years by Trustee Trustee - ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES Jude to Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None 2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in Philadelphia, PA various executive capacities 19103 Trustee since at different times at May 15, 2003 Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process- Conseco Capital Management (June 1998 - August 2000) Managing Director- NationsBanc Capital Markets (February 1996 - June 1998) - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES Walter P. Babich Trustee 15 Years Board Chairman - 101 None 2005 Market Street Citadel Construction Corporation Philadelphia, PA (1989 - Present) 19103 October 1, 1927 John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee - Abington 2005 Market Street Memorial Hospital Philadelphia, PA 19103 August 7, 1937 President/Director - 22 WR Corporation John A. Fry Trustee(4) 2 Years President - 83 None 2005 Market Street Franklin & Marshall College Philadelphia, PA (June 2002 - Present) 19103 Executive Vice President - University of Pennsylvania May 28, 1960 (April 1995 - June 2002) Anthony D. Knerr Trustee 10 Years Founder/Managing Director - 101 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938
31
Principal Number of Other Name, Position(s) Occupation(s) Portfolios in Fund Directorships Address Held with Length of Time During Complex Overseen Held by and Birthdate Fund(s) Served Past 5 Years by Trustee/Director Trustee/Director or Officer or Officer - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 101 Director - Andy 2005 Market Street National Gallery of Art Warhol Foundation Philadelphia, PA (1994 - 1999) 19103 Director - Systemax Inc. November 1, 1940 Thomas F. Madison Trustee 9 Years President/Chief 101 Director - 2005 Market Street Executive Officer - CenterPoint Energy Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director - Digital and Consulting) River Inc. (January 1993 - Present) February 25, 1936 Director - Rimage Corporation Director - Valmont Industries, Inc. Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 Ms. Yeomans has held July 31, 1948 various management positions at 3M Corporation since 1983. - ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS Joseph H. Hastings Executive Vice President Executive Mr. Hastings has served in 101 None 2005 Market Street and Chief Vice President various executive capacities Philadelphia, PA Financial Officer and at different times at 19103 Chief Financial Delaware Investments Officer since December 19, 1949 August 21, 2003 Richelle S. Maestro Senior Vice President, Chief Legal Ms. Maestro has served in 101 None 2005 Market Street Chief Legal Officer Officer since various executive capacities Philadelphia, PA and Secretary March 17, 2003 at different times at 19103 Delaware Investments. November 26, 1957 Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Registrant's investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's manager and distributor. (3) Mr. Durham served as a Director Emeritus from 1995 through 1998. (4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III and Voyageur Tax Free Funds. 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. 32 Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) This annual report is for the information of Delaware Tax-Free Idaho Fund, Delaware Tax-Free Missouri Insured Fund, and Delaware Tax-Free Oregon Insured Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Tax-Free Idaho Fund, Delaware Tax-Free Missouri Insured Fund, and Delaware Tax-Free Oregon Insured Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Funds. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in the Funds will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information Walter P. Babich Jude T. Driscoll Investment Manager Board Chairman Chairman Delaware Management Company Citadel Construction Corporation Delaware Investments Family of Funds Philadelphia, PA King of Prussia, PA Philadelphia, PA International Affiliate John H. Durham Joseph H. Hastings Delaware International Advisers Ltd. Private Investor Executive Vice President and London, England Gwynedd Valley, PA Chief Financial Officer Delaware Investments Family of Funds National Distributor Anthony D. Knerr Philadelphia, PA Delaware Distributors, L.P. Managing Director Philadelphia, PA Anthony Knerr & Associates Richelle S. Maestro New York, NY Senior Vice President, Shareholder Servicing, Dividend Chief Legal Officer and Secretary Disbursing and Transfer Agent Ann R. Leven Delaware Investments Family of Funds Delaware Service Company, Inc. Former Treasurer/Chief Fiscal Officer Philadelphia, PA 2005 Market Street National Gallery of Art Philadelphia, PA 19103-7094 Washington, DC Michael P. Bishof Senior Vice President and Treasurer For Shareholders Thomas F. Madison Delaware Investments Family of Funds 800 523-1918 President and Chief Executive Officer Philadelphia, PA MLM Partners, Inc. For Securities Dealers and Financial Minneapolis, MN Institutions Representatives Only 800 362-7500 Janet L. Yeomans Vice President/Mergers & Acquisitions Web site 3M Corporation www.delawareinvestments.com St. Paul, MN --------------------------------------------------------------------------------- A description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on the Fund's website at http://www.delawareinvestments.com; and (iii) on the Commission's website at http://www.sec.gov.; and beginning no later than August 31, 2004, information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) through the Fund's website at http://www.delawareinvestments.com; and (ii) on the Commission's website at http://www.sec.gov. ---------------------------------------------------------------------------------
(8232) Printed in the USA AR-CORN [8/03] IVES 10/03 (J9413) EXP: 10/04 Delaware Investments(SM) -------------------------------------- A member of Lincoln Financial Group(R) FIXED INCOME Annual Report 2003 - -------------------------------------------------------------------------------- DELAWARE TAX-FREE MINNESOTA FUND DELAWARE TAX-FREE MINNESOTA INSURED FUND DELAWARE TAX-FREE MINNESOTA INTERMEDIATE FUND DELAWARE MINNESOTA HIGH-YIELD MUNICIPAL BOND FUND [Graphic Omitted: Logo] POWERED BY REASEARCH.(SM) Table OF CONTENTS - ----------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 - ----------------------------------------------------------------- PERFORMANCE SUMMARIES: Delaware Tax-Free Minnesota Fund 4 Delaware Tax-Free Minnesota Insured Fund 5 Delaware Tax-Free Minnesota Intermediate Fund 6 Delaware Minnesota High-Yield Municipal Bond Fund 7 - ----------------------------------------------------------------- FINANCIAL STATEMENTS: Statements of Net Assets 8 Statements of Operations 20 Statements of Changes in Net Assets 21 Financial Highlights 23 Notes to Financial Statements 35 - ----------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS 41 - ----------------------------------------------------------------- BOARD OF TRUSTEES/OFFICERS 42 - ----------------------------------------------------------------- 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) 2003 Delaware Distributors, L.P. Portfolio Delaware Minnesota Municipal Bond Funds MANAGEMENT REVIEW September 10, 2003 Fund Managers M. L. Conery Senior Portfolio Manager Patrick P. Coyne Chief Investment Officer -- Fixed Income Q: How did the fixed-income markets fare during the 12-month period? A: During the past 12 months, investors became increasingly confident about the U.S. economy's growth potential. Although we are far from out of the woods, favorable data surrounding corporate earnings, consumer spending, and business investment support an optimistic view. During the year, the stock market was the primary beneficiary of improved sentiment. Once depressed by concerns about corporate accounting scandals, war in Iraq, and the spread of SARS, stocks suddenly recorded their sharpest gains in years -- especially during the Spring of 2003. Between March 11, 2003, when the stock market reached a low, and August 31, the Standard & Poor's 500 Index gained a surprising +26% (Source: Lipper Inc.). As investors gravitated to stocks, an increasing number became reluctant to invest in fixed income. Bonds have been very strong performers in recent years and remained so early in our fiscal year. During the fiscal first half, bonds, and especially U.S. Treasuries and high-quality municipal securities, benefited from the preference for stable investments during an uncertain economic climate. As interest rates gradually declined, so did bond yields, while prices rose accordingly (bond prices and yields move in opposite directions). Over time, however, conditions became less favorable in the fixed-income markets. Seeking to spur growth, the Federal Reserve this summer revealed its intention to keep interest rates low for the foreseeable future. This caused bond investors to worry about the future potential for inflation, which often occurs when the economy is expanding. Inflation is troublesome because it causes interest payments to be worth less over time and, thus, depresses bond values. In this environment, municipal bond yields with relatively short maturities fell in line with interest rates during the period, while 10-year municipal bond yields rose on inflation fears. Q: What factors affected the municipal bond markets in particular? A: States and municipalities continued to struggle with their budgets due to the increased demand for services. Finding it politically difficult to raise taxes or cut spending, many governments experienced substantial budget shortfalls and issued municipal debt to raise needed funds. This higher rate of issuance, along with historically low interest rates, led to an extremely large supply of new bonds. During the first eight months of 2003, $254 million in new bonds were issued nationwide, a 13 percent increase over the prior year's record. This trend was not evident in Minnesota, however, which saw new municipal issuance decline more than 11 percent in the same period (Source: Thomson Financial). Minnesota, paralleling trends around the country, faced substantial financial challenges during the past 12 months. To meet a growing budget gap, the state proposed a variety of spending cuts. Nevertheless, concerns remained whether those cuts would be sufficient to tackle Minnesota's deficit. Because of these concerns, Moody's lowered the state's credit rating to Aa1 from AAA. Standard & Poor's (S&P), however, maintained its rating of AAA -- the highest possible. Q: How did the four funds perform during the fiscal year, and what strategies did you pursue in each? Delaware Tax-Free Minnesota Fund returned +3.80% (Class A shares at net asset value with distributions reinvested) for the fiscal year ended August 31, 2003. This result surpassed that of the Lipper Minnesota Municipal Debt Funds Average, which returned +2.60% during the same time frame. As an additional point of comparison, the Lehman Brothers Municipal Bond Index rose +3.14%. The Fund's dividend payments during the last 12 months were exempt from federal and Minnesota state taxes.* In part, we attribute the Fund's outperformance relative to its peers to a shorter-than-average duration. The shorter duration meant that the Fund was less vulnerable to a July 2003 rise in interest rates. Duration is a common measure of a bonds or bond fund's sensitivity to interest rate changes. The longer the duration, the more sensitive the bond or bond fund is to changes in interest rates. While duration remained shorter than * A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 1 average, it nevertheless rose throughout the period, reflecting a need to reinvest the proceeds of pre-refunded securities leaving the portfolio. Also contributing to the Fund's total return was a relatively high distribution yield, which helped to balance the negative effect of rising interest rates. Interest rates were at historic lows throughout most of the period, despite a rise in the final weeks. Thus, we generally believed it made sense to maintain existing positions in the portfolio rather than selling them and reinvesting the proceeds in new bonds offering lower prevailing yields. During the year, we sought to generate an attractive yield for the Fund and avoid taking on more credit risk than we believed was desirable for shareholders. We constantly looked to buy attractive new Minnesota bonds when they became available, although identifying these opportunities was not always as easy as we would have liked. We did purchase a variety of bonds in the hospital sector, which was the Fund's largest weighting and composed more than 18 percent of total net assets as of the August 31, 2003. - -------------------------------------------------------------------------------- Delaware Tax-Free Minnesota Insured Fund had a total return of +2.75% (Class A shares at net asset value with distributions reinvested) for the 12 months ended August 31, 2003. This result outpaced its peer group, the Lipper Minnesota Municipal Debt Funds Average, which returned +2.60% during the same period. As an additional point of comparison, the Lehman Brothers Municipal Bond Index gained +3.14%. The Fund's dividend payments during the last 12 months were exempt from federal and Minnesota state taxes.* In part, we attribute the Fund's outperformance relative to its peers to a slightly shorter-than-average duration. The portfolio, positioned to be somewhat less sensitive to changes in interest rates, was hurt less than some of our peers when interest rates rose late in the period. We generally sought to minimize trading activity in the Fund during the past year. With interest rates near historic lows, we preferred to hold on to bonds offering higher coupon payments as long as we could, rather than sell and reinvest the proceeds at lower prevailing yields. At the same time, bonds being called from the portfolio sometimes left us with cash to reinvest. When we bought new securities, we tended to invest further out on the yield curve to generate added income for our shareholders. This had the effect of increasing the Fund's duration. Although the vast majority of the Fund's assets were invested in insured Minnesota municipal securities, we did seek out select non-insured, investment-grade opportunities to enhance yield. The healthcare sector was one area of the market where we found attractive bonds to choose from. For example, during the period we bought new A-rated Minneapolis bonds issued for Fairview Health Services. In our opinion, the bond provided the Fund with a healthy yield while adding only an incremental amount of risk. As of the end of August 2003, roughly 17 percent of the Fund's total net assets were invested in hospital bonds, up from approximately 15 percent a year earlier. - -------------------------------------------------------------------------------- Delaware Tax-Free Minnesota Intermediate Fund had a total return of +3.59% (Class A shares at net asset value with distributions reinvested) for the 12-month period ended August 31, 2003. This result beat that of its peer group, the Lipper Other States Intermediate Municipal Debt Funds Average, which returned +2.22%. As an additional point of comparison, the Lehman Brothers Five-Year Municipal Bond Index rose +3.70%. The Fund's dividend payments during the last 12 months were exempt from federal and Minnesota state taxes.* We attribute the Fund's relative outperformance in part to a barbell portfolio structure. In other words, the Fund was disproportionately weighted in short and long bonds, but underweighted in securities due to mature in approximately 10 years. 10-year bonds were generally poor performers during the period, and de-emphasizing them helped the Fund's results relative to its peers. We continued to develop a diverse portfolio of intermediate Minnesota municipal securities and to provide our shareholders with an appropriate balance of yield potential and risk. In addition, we generally looked to reduce portfolio turnover. With interest rates near historic lows during most of the period, we believed it was unwise to sell older bonds offering higher yields and reinvest the proceeds in newer bonds with lower yields. As interest rates began to rise late in the period, however, we became increasingly willing to adjust this approach. Hospital bonds were among the new investments added to the portfolio during the reporting period. At 13 percent of the portfolio's total net assets on August 31, 2003, hospitals represented the Fund's second-largest sector weighting, up from seven percent of total net assets the previous August. Among the new opportunities we invested in were North Country Health Services bonds, as well as Allina hospital bonds. *A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 2 - -------------------------------------------------------------------------------- Delaware Minnesota High-Yield Municipal Bond Fund earned a total return of +5.33% (Class A shares at net asset value with distributions reinvested) for the 12 months ended August 31, 2003. This result was better than that of the Fund's peer group, the Lipper High-Yield Municipal Debt Funds Average, which returned +2.74% during the same time period. As an additional point of comparison, the Lehman Brothers Municipal Bond Index gained +3.14%. The Fund's dividend payments during the last 12 months were exempt from federal and Minnesota state taxes.* During the period, we completed a process begun several years ago of upgrading the Fund's credit quality. Our goal was to reduce risk and improve the portfolio's liquidity. To do so, we sought to balance some of the Fund's lower-rated holdings with a variety of higher-rated securities. We saw the low interest rate environment as an opportunity to sell some of our riskier positions, as many investors were eager to accept the risk in exchange for a generous yield. Although this approach did enable us to accomplish our risk-reduction goal, it did slightly curtail the Fund's income-generating ability. As of the end of the reporting period, multi family housing bonds were the Fund's largest sector weighting. These represented nearly 23 percent of total net assets, down from approximately 24 percent the previous year. In the healthcare sector, we eliminated a number of continuing care facility bonds; these occupied 23 percent of total net assets on August 31, 2003 -- a 5 percent decline from the start of the period. Among the Fund's new investments were a number of hospital bonds, including Allina Health System and Fairview Health Services. Both of these opportunities had a credit rating of A (S&P) and helped us in our efforts to reduce portfolio risk. *A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 3 Delaware TAX-FREE MINNESOTA FUND Fund Basics As of August 31, 2003 - -------------------------------------------------------------------------------- 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: $366.58 million - -------------------------------------------------------------------------------- Number of Holdings: 132 - -------------------------------------------------------------------------------- Fund Start Date: February 29, 1984 - -------------------------------------------------------------------------------- Your Fund Managers: Patrick P. Coyne is a graduate of Harvard University with an MBA from the University of Pennsylvania's Wharton School. Patrick Coyne joined Delaware Investments' fixed-income department in 1990. Prior to joining Delaware Investments, he was a manager of Kidder, Peabody & Co. Inc.'s trading desk, and specialized in trading high-grade municipal bonds and municipal futures contracts. M. L. Conery joined Delaware Investments in January 1997 and holds a bachelor's degree from Boston University and an MBA in finance from the State University of New York at Albany. Prior to joining Delaware, M. L. Conery has served as an investment officer with Travelers Insurance and as a research analyst with CS First Boston and MBIA Corporation. - -------------------------------------------------------------------------------- Nasdaq Symbols: Class A DEFFX Class B DMOBX Class C DMOCX Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime 10 Years Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 2/29/84) Excluding Sales Charge +7.75% +5.12% +4.29% +3.80% Including Sales Charge +7.49% +4.64% +3.34% -0.84% - -------------------------------------------------------------------------------- Class B (Est. 3/11/95) Excluding Sales Charge +5.08% +3.51% +3.02% Including Sales Charge +5.08% +3.26% -0.93% - -------------------------------------------------------------------------------- Class C (Est. 5/4/94) Excluding Sales Charge +4.98% +3.51% +3.01% Including Sales Charge +4.98% +3.51% +2.03% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Tax-Free Minnesota Fund through August 31, 2001. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment August 31, 1993 through August 31, 2003 Delaware Tax-Free Lehman Brothers Minnesota Fund Municipal Bond Index ----------------- -------------------- 8/31/1993 $9,550 $10,000 8/31/1994 $9,512 $10,014 8/31/1995 $10,176 $10,902 8/31/1996 $10,735 $11,474 8/31/1997 $11,726 $12,534 8/31/1998 $12,754 $13,618 8/31/1999 $12,617 $13,692 8/31/2000 $13,171 $14,614 8/31/2001 $14,360 $16,106 8/31/2002 $15,156 $17,102 8/31/2003 $15,730 $17,639 Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 4 Delaware TAX-FREE MINNESOTA INSURED FUND Fund Basics As of August 31, 2003 - -------------------------------------------------------------------------------- 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: $259.35 million - -------------------------------------------------------------------------------- Number of Holdings: 86 - -------------------------------------------------------------------------------- Fund Start Date: May 1, 1987 - -------------------------------------------------------------------------------- Your Fund Managers: Patrick P. Coyne M. L. Conery - -------------------------------------------------------------------------------- Nasdaq Symbols: Class A MNINX Class B DVMBX Class C DVMCX Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime 10 Years Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 5/1/87) Excluding Sales Charge +6.55% +4.94% +4.28% +2.75% Including Sales Charge +6.25% +4.46% +3.32% -1.91% - -------------------------------------------------------------------------------- Class B (Est. 3/7/95) Excluding Sales Charge +4.89% +3.50% +1.89% Including Sales Charge +4.89% +3.25% -2.03% - -------------------------------------------------------------------------------- Class C (Est. 5/4/94) Excluding Sales Charge +4.77% +3.52% +1.97% Including Sales Charge +4.77% +3.52% +0.99% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 through August 31, 2001. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment August 31, 1993 through August 31, 2003 Delaware Tax-Free Lehman Brothers Minnesota Insured Municipal Bond Fund Index ----------------- --------------- 8/31/1993 $9,550 $10,000 8/31/1994 $9,474 $10,014 8/31/1995 $10,177 $10,902 8/31/1996 $10,719 $11,474 8/31/1997 $11,606 $12,534 8/31/1998 $12,551 $13,618 8/31/1999 $12,529 $13,692 8/31/2000 $13,110 $14,614 8/31/2001 $14,308 $16,106 8/31/2002 $15,058 $17,102 8/31/2003 $15,473 $17,639 Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 5 Delaware TAX-FREE MINNESOTA INTERMEDIATE FUND Fund Basics As of August 31, 2003 - -------------------------------------------------------------------------------- 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: $68.18 million - -------------------------------------------------------------------------------- Number of Holdings: 58 - -------------------------------------------------------------------------------- Fund Start Date: October 27, 1985 - -------------------------------------------------------------------------------- Your Fund Managers: Patrick P. Coyne M. L. Conery - -------------------------------------------------------------------------------- Nasdaq Symbols: Class A DXCCX Class B DVSBX Class C DVSCX Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime 10 Years Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 10/27/85) Excluding Sales Charge +5.54% +4.43% +3.98% +3.59% Including Sales Charge +5.38% +4.15% +3.39% +0.77% - -------------------------------------------------------------------------------- Class B (Est. 8/15/95) Excluding Sales Charge +3.74% +3.09% +2.70% Including Sales Charge +3.74% +3.09% +0.72% - -------------------------------------------------------------------------------- Class C (Est. 5/4/94) Excluding Sales Charge +3.92% +3.09% +2.71% Including Sales Charge +3.92% +3.09% +1.72% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 2.75% 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 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%. 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. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment August 31, 1993 through August 31, 2003 Delaware Tax-Free Lehman Brothers Minnesota Five-year Municipal Intermediate Fund Bond Index ----------------- ------------------- 8/31/1993 $9,725 $10,000 8/31/1994 $9,885 $10,182 8/31/1995 $10,579 $10,987 8/31/1996 $10,942 $11,393 8/31/1997 $11,639 $12,147 8/31/1998 $12,371 $12,950 8/31/1999 $12,354 $13,241 8/31/2000 $12,695 $13,952 8/31/2001 $13,648 $15,225 8/31/2002 $14,515 $16,243 8/31/2003 $15,038 $16,844 Chart assumes $10,000 invested on August 31, 1993 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. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Five-Year Municipal Bond Index is an unmanaged index that tracks municipal bonds which have an approximate maturity of five 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. 6 Delaware MINNESOTA HIGH-YIELD MUNICIPAL BOND FUND Fund Basics As of August 31, 2003 - -------------------------------------------------------------------------------- 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: $59.91 million - -------------------------------------------------------------------------------- Number of Holdings: 60 - -------------------------------------------------------------------------------- Fund Start Date: June 4, 1996 - -------------------------------------------------------------------------------- Your Fund Manager: Patrick P. Coyne M. L. Conery - -------------------------------------------------------------------------------- Nasdaq Symbols: Class A DVMHX Class B DVMYX Class C DVMMX Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 6/4/96) Excluding Sales Charge +5.88% +4.13% +5.33% Including Sales Charge +5.21% +3.18% +0.58% - -------------------------------------------------------------------------------- Class B (Est. 6/12/96) Excluding Sales Charge +5.43% +3.37% +4.55% Including Sales Charge +5.43% +3.13% +0.57% - -------------------------------------------------------------------------------- Class C (Est. 6/12/96) Excluding Sales Charge +5.12% +3.37% +4.54% Including Sales Charge +5.12% +3.37% +3.54% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment June 4, 1996 (Fund's inception) through August 31, 2003 Delaware Minnesota High- Lehman Brothers Yield Municipal Municipal Bond Bond Fund Index Jun-96 $9,641 $10,000 Aug-96 $9,656 $10,088 Aug-97 $10,672 $11,021 Aug-98 $11,786 $11,974 Aug-99 $11,754 $12,039 Aug-00 $11,791 $12,849 Aug-01 $12,834 $14,161 Aug-02 $13,698 $15,045 Aug-03 $14,431 $15,517 Chart assumes $10,000 invested on June 4, 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 chart also assumes $10,000 invested in the Lehman Brothers Municipal Bond Index at that month's end, June 30, 1996. After June 30, 1996, returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 7 Statements Delaware Tax-Free Minnesota Fund OF NET ASSETS August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 98.34% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 2.87% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/22 (AMBAC) $3,440,000 $ 3,457,406 Series A 5.25% 1/1/32 (FGIC) 5,000,000 5,039,000 Series C 5.25% 1/1/32 (FGIC) 2,000,000 2,015,600 ----------- 10,512,006 ----------- City General Obligation Bonds - 0.93% Minneapolis Library 5.00% 12/1/25 1,500,000 1,509,270 St. Peter's Hospital Series A 5.00% 9/1/24 (MBIA) 1,905,000 1,908,905 ----------- 3,418,175 ----------- Continuing Care/Retirement Revenue Bonds - 5.28% Bloomington Housing & Redevelopment Authority Housing Revenue (Senior Summerhouse Bloomington Project, Presbyterian Homes Housing & Assisted Living, Inc.) 6.125% 5/1/35 3,420,000 3,222,187 Coon Rapids Senior Housing Revenue (Epiphany Senior Citizens Project) 6.00% 11/1/28 1,000,000 835,130 Minneapolis Housing Facilities Revenue (Augustana Chapel View Project) 7.00% 4/1/18 1,000,000 975,000 Minnesota Agriculture & Economic Development Board Revenue (Benedictine Health Systems) 5.75% 2/1/29 1,195,000 1,106,618 Minnetonka Housing Facilities Revenue (Beacon Hill Housing Project, Presbyterian Homes & Services) 7.70% 6/1/25 3,225,000 3,239,416 Oakdale Revenue (Oak Meadows Project, Family Resources Development, Inc.) 7.00% 4/1/27 6,800,000 6,502,364 Rochester Multifamily Revenue (Wedum Shorewood Campus) 6.60% 6/1/36 3,535,000 3,492,474 ----------- 19,373,189 ----------- Corporate Backed Revenue Bonds - 4.64% Cloquet Pollution Control Revenue (Potlatch Corp. Projects) 5.90% 10/1/26 6,500,000 5,607,160 International Falls Pollution Control Revenue (Boise Cascade Corp. Project) 5.65% 12/1/22 1,930,000 1,695,312 Sartell Environmental Improvement Revenue (International Paper) Series A 5.20% 6/1/27 5,465,000 4,940,305 Seaway Port Authority of Duluth Industrial Development Dock & Wharf Revenues (Cargill, Inc. Project) Series E 6.125% 11/1/14 4,500,000 4,767,030 ----------- 17,009,807 ----------- Dedicated Tax & Fees Revenue Bonds - 1.29% ++Minneapolis Community Development Agency Tax Increment Revenue 6.67% 9/1/09 (MBIA) 5,750,000 4,715,518 ----------- 4,715,518 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Escrowed to Maturity Bonds - 0.35% Southern Minnesota Municipal Power Agency Supply System Revenue Series B 5.50% 1/1/15 (AMBAC) $ 990,000 $ 1,013,602 Western Minnesota Municipal Power Agency Supply Revenue Series A 9.75% 1/1/16 (MBIA) 185,000 278,012 ----------- 1,291,614 ----------- Higher Education Revenue Bonds - 4.82% Minnesota State Higher Education Facilities Authority Revenue (College of St. Benedict) Series 4-G 6.20% 3/1/16 1,000,000 1,028,280 (Hamline University) Series 4-I 6.00% 10/1/12 1,250,000 1,300,788 (Hamline University) Series 4-I 6.00% 10/1/16 1,790,000 1,833,103 (St. Catherine College) Series 5-N1 5.25% 10/1/22 1,500,000 1,495,440 (St. Thomas University) Series 3-R2 5.60% 9/1/14 1,100,000 1,111,891 (University of Minnesota) Series A 5.50% 7/1/21 2,000,000 2,192,920 +University of Minnesota, Inverse Floater ROLs Series II-R-29 8.40% 7/1/21 5,250,000 6,262,935 8.84% 7/1/18 1,920,000 2,446,483 ----------- 17,671,840 ----------- Hospital Revenue Bonds - 18.41% Bemidji Hospital Facilities Revenue (North County Health Services) 6.05% 9/1/16 600,000 619,374 6.05% 9/1/24 1,825,000 1,864,238 Brainerd Health Care Facilities Revenue Benedictine Health (St. Joseph's Hospital) Series E 6.00% 2/15/12 (Connie Lee) 2,250,000 2,303,303 Duluth Economic Development Authority Health Care Facilities Revenue Benedictine Health System (St. Mary's Hospital) Series C 6.00% 2/15/20 (Connie Lee) 9,450,000 9,668,957 Maplewood Healthcare Facility Revenue (Health East Project) 5.95% 11/15/06 2,200,000 2,192,806 Marshall Medical Center Gross Revenue (Weiner Memorial Medical Center Project) 6.00% 11/1/28 1,000,000 1,000,150 Minneapolis Health Care System Revenue Series A (Allina Health System) 5.75% 11/15/32 8,000,000 8,180,000 (Fairview Health Services) 5.625% 5/15/32 10,525,000 10,667,718 Northfield Hospital Revenue Series C 6.00% 11/1/31 1,500,000 1,486,755 Rochester Health Care Facilities Revenue (Mayo Foundation) Series B 5.50% 11/15/27 700,000 708,155 8 Statements Delaware Tax-Free Minnesota Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Hospital Revenue Bonds (continued) +Rochester Health Care Facilities Revenue (Mayo Foundation), Inverse Floater ROLs Series II-R-28-A 8.40% 11/15/27 $ 2,100,000 $ 2,148,909 Series II-R-28-B 8.40% 11/15/27 8,375,000 8,570,054 St. Louis Park Health Care Facilities Revenue (Healthsystem of Minnesota) Series A 5.20% 7/1/23 (AMBAC) 10,220,000 10,221,022 St. Paul Housing & Redevelopment Authority Hospital Revenue (Health East Project) Series A 5.70% 11/1/15 1,300,000 1,207,115 6.625% 11/1/17 5,775,000 5,755,423 Washington County Housing & Redevelopment Authority Hospital Facilities Revenue (Health East Project) 5.50% 11/15/27 1,000,000 845,540 ----------- 67,439,519 ----------- Investor Owned Utilities Revenue Bonds - 4.49% Bass Brook Pollution Control Revenue (Minnesota Power & Light Co. Project) 6.00% 7/1/22 (MBIA) 750,000 759,975 6.00% 7/1/22 15,500,000 15,703,515 ----------- 16,463,490 ----------- Miscellaneous Revenue Bonds - 2.43% Minneapolis Community Development Agency Supported Development Revenue Limited Tax (Common Bond Fund) Series 2A 7.125% 12/1/05 325,000 332,543 Minnesota Public Facilities Authority Water Pollution Control Revenue Series A 5.00% 3/1/20 3,000,000 3,060,900 Richfield Commercial Development Revenue (Richfield Shoppes Project) 8.375% 10/1/13 2,200,000 2,257,838 St. Cloud Commercial Development Revenue (Northwest Center Association Project) 7.50% 8/1/12 3,328,971 3,272,412 ----------- 8,923,693 ----------- Multi Family Housing Revenue Bonds - 12.83% Austin Housing & Redevelopment Authority Housing Gross Revenue (Courtyard Residence Project) Series A 7.25% 1/1/26 500,000 502,875 Brooklyn Center Multifamily Housing Revenue (Ponds Family Housing Project-Section 8) 5.90% 1/1/20 1,250,000 1,252,850 Burnsville Multifamily Housing Revenue (Bridgeway Apartments Project) 7.625% 2/1/24 3,370,000 3,370,169 Carver County Housing & Redevelopment Authority Multifamily Revenue (Lake Grace Apartments Project) Series A 6.00% 7/1/28 1,435,000 1,443,266 Coon Rapids Multifamily Housing Revenue (Browns Meadow Manor Project) Series A 4.70% 1/1/38 (FHA) (AMT) 1,000,000 899,700 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Multi Family Housing Revenue Bonds (continued) Dakota County Housing & Redevelopment Authority Multifamily Housing Revenue (Affordable Housing View Pointe Project) 6.125% 11/1/17 $2,475,000 $ 2,322,119 Eden Prairie Multifamily Housing Revenue (Tanager Creek) Series A 8.05% 6/20/31 (GNMA) 7,605,000 8,170,051 (Windslope Apartments Project) 7.10% 11/1/17 1,585,000 1,588,012 Hopkins Multifamily Housing Revenue (Hopkins Renaissance Project- Section 8) 6.375% 4/1/20 1,000,000 1,030,890 Hutchinson Multifamily Housing Revenue (Evergreen Apartments Project-Section 8) 5.75% 11/1/28 1,000,000 915,640 Little Canada Multifamily Housing Revenue (Housing Alternative Development Co. Project) Series A 6.10% 12/1/17 1,430,000 1,399,241 6.25% 12/1/27 2,900,000 2,784,435 Minneapolis Multifamily Housing Revenue (Grant Street Apartments Project) Series A 7.25% 11/1/29 750,000 728,528 (Trinity Apartments-Section 8) Series A 6.75% 5/1/21 1,940,000 1,890,996 Minneapolis Multifamily Housing Revenue (Sumner Field) Series A 5.50% 11/20/26 (GNMA) (AMT) 1,045,000 1,061,521 Park Rapids Multifamily Revenue (The Court Apartments Project-Section 8) 6.30% 2/1/20 3,020,000 2,812,556 St. Louis Park Multifamily Housing Revenue (Knollwood Apartments Project) 6.25% 12/1/28 (FHA) 3,855,000 3,959,315 (Westwind Apartments Project) 5.75% 1/1/29 (GNMA) 3,865,000 3,900,365 St. Paul Housing & Redevelopment Authority Multifamily Housing Revenue (900 Como Lake Project) Series B 7.50% 3/1/26 (FHA) 1,000,000 1,000,000 Stillwater Multifamily Housing Revenue (Stillwater Cottages Project) Series A 7.00% 11/1/27 1,000,000 962,740 Wadena Housing & Redevelopment Authority Multifamily Housing Revenue (Humphrey Manor East Project) 6.00% 2/1/19 2,130,000 2,130,639 Washington County Housing & Redevelopment Authority Governmental Revenue (Briar Pond) Series C 7.25% 8/20/34 (GNMA) 985,000 932,834 Wells Housing & Redevelopment Authority Housing Revenue (Broadway Apartments Project) 7.00% 1/1/19 920,000 913,910 Willmar Housing & Redevelopment Authority Multifamily Housing Revenue (Highland Apartments-Section 8) 5.85% 6/1/19 1,050,000 1,048,814 ----------- 47,021,466 ----------- 9 Statements Delaware Tax-Free Minnesota Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Municipal Lease Revenue Bonds - 0.97% Beltrami County Housing & Redevelopment Authority Revenue 6.20% 2/1/14 $ 1,010,000 $ 1,034,129 St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.00% 12/1/22 2,500,000 2,524,725 ----------- 3,558,854 ----------- Political Subdivision General Obligation Bonds - 2.31% Dakota County Capital Improvement Series A 4.75% 2/1/26 2,250,000 2,196,810 Hennepin County Regional Railroad Authority 5.00% 12/1/31 4,030,000 4,014,565 +Minnesota State, Inverse Floater ROLs 6.91% 11/1/18 1,145,000 1,209,944 Ramsey County State Aid Series C 5.00% 2/1/28 1,060,000 1,064,622 ----------- 8,485,941 ----------- *Pre-Refunded Bonds - 7.30% Andover Commercial Development Revenue (Downtown Center Project) Series A 7.00% 12/1/12-03 1,000,000 1,034,460 Bloomington Tax Increment Bonds 9.75% 2/1/08-05 500,000 559,205 Faribault Independent School District #656 6.10% 6/1/10-04 1,000,000 1,037,130 Hennepin County Solid Waste 5.75% 10/1/10-03 4,990,000 5,061,008 Kenyon Wanamingo Independent School District #2172 6.00% 2/1/18-05 (MBIA) 2,350,000 2,498,403 Minnesota Public Facilities Authority Water Pollution Control Revenue Series A 6.25% 3/1/16-05 4,400,000 4,726,568 North St. Paul Maplewood Independent School District #622 Series A 7.10% 2/1/25-05 (FSA) 10,000,000 10,823,099 Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.75% 1/1/18-16 (MBIA) 1,000,000 1,023,910 ----------- 26,763,783 ----------- Public Power Revenue Bonds - 8.70% Chaska Electric Revenue Series A 6.00% 10/1/25 1,000,000 1,039,970 Northern Minnesota Municipal Power Agency Electric System Revenue ++Series A 5.85% 1/1/09 (AMBAC) 3,815,000 3,198,305 Series B 4.75% 1/1/20 (AMBAC) 2,500,000 2,498,450 Rochester Electric Utilities Revenue 5.25% 12/1/30 4,915,000 4,948,471 Shakopee Public Utilities Commission Public Utilities Revenue 5.125% 2/1/26 (MBIA) 1,000,000 1,005,270 Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.00% 1/1/12 (AMBAC) 3,000,000 3,236,160 5.25% 1/1/15 (AMBAC) 2,010,000 2,195,885 5.25% 1/1/16 (AMBAC) 2,500,000 2,724,175 ++5.663% 1/1/19 (MBIA) 8,210,000 3,918,879 ++6.136% 1/1/21 (MBIA) 3,000,000 1,265,610 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Public Power Revenue Bonds (continued) +Southern Minnesota Municipal Power Agency Supply System Revenue, Inverse Floater ROLs Series II-R-189 7.44% 1/1/14 (AMBAC) $2,000,000 $ 2,368,400 Series II-R-189 7.44% 1/1/15 (AMBAC) 2,950,000 3,495,603 ----------- 31,895,178 ----------- School District General Obligation Bonds - 5.91% Bloomington Independent School District #271 Series B 5.00% 2/1/17 5,300,000 5,471,560 ++Farmington Independent School District #192 Capital Appreciation Series B 5.424% 2/1/20 (FSA) 1,650,000 692,885 5.34% 2/1/21 (FSA) 1,500,000 592,815 ++Lakeville Independent School District #194 Capital Appreciation Series B 5.45% 2/1/19 (FSA) 8,000,000 3,559,280 ++Mahtomedi Independent School District #832 Capital Appreciation Series B 5.90% 2/1/14 (MBIA) 1,540,000 967,505 +Rockford Independent School District #883, Inverse Floater ROLs Series II-R-30-A 8.62% 2/1/23 (FSA) 3,510,000 3,950,786 ++Rosemont Independent School District #196 Capital Appreciation Series B 5.931% 4/1/11 (FSA) 2,600,000 1,920,750 5.961% 4/1/12 (FSA) 1,850,000 1,290,227 6.008% 4/1/13 (FSA) 1,915,000 1,266,351 ++Sartell Independent School District #748 Capital Appreciation Series B 5.976% 2/1/13 (MBIA) 540,000 358,835 6.10% 2/1/15 (MBIA) 1,075,000 631,993 6.15% 2/1/16 (MBIA) 1,750,000 967,890 ----------- 21,670,877 ----------- Single Family Housing Revenue Bonds - 2.53% Minnesota State Housing Finance Agency Single Family Mortgage Series A 4.30% 7/1/22 (AMT) 3,160,000 2,844,032 Series A 5.30% 7/1/19 895,000 909,562 Series B 5.35% 1/1/33 (AMT) 4,000,000 3,983,239 Series J 5.90% 7/1/28 (AMT) 1,070,000 1,093,583 St. Louis Park Residential Mortgage Revenue Series A 7.25% 4/20/23 (GNMA) 128,000 128,095 St. Paul Housing & Redevelopment Authority Single Family Mortgage Revenue Series C 6.90% 12/1/21 (FNMA) 325,000 325,702 ----------- 9,284,213 ----------- State General Obligation Bonds - 4.00% Minnesota State 5.00% 11/1/20 (FSA) 8,175,000 8,354,768 5.00% 8/1/21 2,400,000 2,445,768 +Minnesota State, Inverse Floater ROLs 6.91% 11/1/16 2,420,000 2,648,787 6.91% 11/1/17 1,135,000 1,220,908 ----------- 14,670,231 ----------- 10 Statements Delaware Tax-Free Minnesota Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Tax Increment/Special Assessment Bonds - 2.35% Minneapolis Tax Increment Series E 5.00% 3/1/13 $6,265,000 $ 6,595,541 Rochester Tax Increment 6.50% 12/1/04 1,000,000 1,013,350 St. Paul Housing & Redevelopment Authority Tax Increment (Upper Landing Project) Series A 6.80% 3/1/29 1,000,000 988,660 ------------ 8,597,551 ------------ Territorial General Obligation Bonds - 1.12% Puerto Rico Commonwealth Public Improvement Series A 5.125% 7/1/30 (FSA) 1,000,000 1,011,640 5.125% 7/1/31 2,000,000 1,979,380 5.50% 7/1/19 (MBIA) 1,000,000 1,111,740 ------------ 4,102,760 ------------ Territorial Revenue Bonds - 2.75% Puerto Rico Electric Power Authority Revenue Series X 5.50% 7/1/25 3,080,000 3,086,160 +Puerto Rico Electric Power Authority Revenue, Inverse Floater ROLs 5.93% 7/1/19 (FSA) 3,050,000 3,005,287 Puerto Rico Public Buildings Authority Guaranteed Government Facilities Revenue Series D 5.25% 7/1/36 4,000,000 3,979,240 ------------ 10,070,687 ------------ Water & Sewer Revenue Bonds - 2.06% Minnesota Public Facilities Authority Water Pollution Control Revenue Series B 4.75% 3/1/19 2,000,000 2,008,640 +Minnesota Public Facilities Authority Water Pollution Control Revenue, Inverse Floater ROLs Series II-R-31 6.83% 3/1/14 5,000,000 5,551,450 ------------ 7,560,090 ------------ Total Municipal Bonds (cost $348,130,214) 360,500,482 ------------ Total Market Value of Securities - 98.34% (cost $348,130,214) 360,500,482 Receivables and Other Assets Net of Liabilities - 1.66% 6,083,964 ------------ Net Assets Applicable to 29,440,770 Shares Outstanding - 100.00% $366,584,446 ============ Net Asset Value - Delaware Tax-Free Minnesota Fund Class A ($340,029,385 / 27,310,571 Shares) $12.45 ------ Net Asset Value - Delaware Tax-Free Minnesota Fund Class B ($16,394,097 / 1,315,825 Shares) $12.46 ------ Net Asset Value - Delaware Tax-Free Minnesota Fund Class C ($10,160,964 / 814,374 Shares) $12.48 ------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $349,128,010 Distributions in excess of net investment income (22,418) Accumulated net realized gain on investments 5,108,586 Net unrealized appreciation of investments 12,370,268 ------------ Total net assets $366,584,446 ============ *For Pre-Refunded Bonds, the stated maturity is followed by the year in which each bond is pre-refunded. +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, 2003. ++Zero Coupon Bond. The interest rate shown is the yield at the time of purchase. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax Connie Lee - Insured by the College Construction Insurance Association FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FNMA - Insured by Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association ROLs - Residual Option Longs Net Asset Value and Offering Price per Share - Delaware Tax-Free Minnesota Fund Net asset value Class A (A) $12.45 Sales charge (4.50% of offering price, or 4.74% of amount invested per share) (B) 0.59 ------ Offering price $13.04 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 11 Statements Delaware Tax-Free Minnesota Insured Fund OF NET ASSETS (CONTINUED) August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 97.44% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 4.55% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/28 (MBIA) $ 3,000,000 $ 2,995,620 Series A 5.125% 1/1/25 (FGIC) 100,000 100,680 Series C 5.125% 1/1/20 (FGIC) 2,000,000 2,049,240 Series C 5.25% 1/1/32 (FGIC) 6,595,000 6,646,441 ----------- 11,791,981 ----------- City General Obligation Bonds - 0.77% Moorhead Series B 5.00% 2/1/33 (MBIA) 2,000,000 1,992,280 ----------- 1,992,280 ----------- Corporate-Backed Revenue Bonds - 0.63% Sartell Environmental Improvement Revenue (International Paper) Series A 5.20% 6/1/27 1,800,000 1,627,182 ----------- 1,627,182 ----------- Escrowed to Maturity Bonds - 15.64% Dakota/Washington Counties Housing & Redevelopment Authority Anoka Single Family Residential Mortgage Revenue 8.45% 9/1/19 (GNMA) (AMT) 9,000,000 12,530,700 Dakota/Washington Counties Housing & Redevelopment Authority Bloomington Single Family Residential Mortgage Revenue 8.15% 9/1/16 (GNMA) (MBIA) (AMT) 405,000 549,873 8.375% 9/1/21 (GNMA) (FHA) (AMT) 14,115,000 19,819,435 Southern Minnesota Municipal Power Agency Supply Revenue Series A 5.75% 1/1/18 (AMBAC) 670,000 686,020 5.75% 1/1/18 (MBIA) 3,790,000 3,880,619 Western Minnesota Municipal Power Agency Supply Revenue Series A 6.60% 1/1/10 2,000,000 2,298,140 9.75% 1/1/16 (MBIA) 530,000 796,468 ----------- 40,561,255 ----------- Higher Education Revenue Bonds - 3.62% Minnesota State Colleges & Universities Revenue Series A 5.00% 10/1/22 (FSA) 5,135,000 5,185,220 Minnesota State Higher Education Facilities Authority Revenue (St. Catherine College) Series 5-N1 5.00% 10/1/18 2,200,000 2,191,838 St. Cloud Housing & Redevelopment Authority Revenue (State University Foundation Project) 5.00% 5/1/23 2,000,000 1,998,620 ----------- 9,375,678 ----------- Hospital Revenue Bonds - 16.72% Bemidji Health Care Facilities First Mortgage Revenue (North Country Health Services) 5.00% 9/1/31 (RADIAN) 1,500,000 1,483,275 Brainerd Health Care Facilities Revenue Benedictine Health (St. Joseph's Hospital) Series E 6.00% 2/15/12 (Connie Lee) 1,500,000 1,535,535 6.00% 2/15/20 (Connie Lee) 2,000,000 2,046,340 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Hospital Revenue Bonds (continued) Duluth Economic Development Authority Health Care Facilities Revenue Benedictine Health System (St. Mary's Hospital) Series C 6.00% 2/15/20 (Connie Lee) $ 1,300,000 $ 1,330,121 Minneapolis Health Care Facilities Revenue (Fairview Hospital & Healthcare Service) Series A 5.25% 11/15/19 (MBIA) 2,250,000 2,267,865 Minneapolis Health Care System Revenue Series A (Allina Health System) 5.75% 11/15/32 11,300,000 11,554,249 (Fairview Health Services) 5.625% 5/15/32 6,400,000 6,486,784 Minneapolis/St. Paul Housing & Redevelopment Authority Health Care Systems Revenue Series A (Children's Health Care Series) 5.50% 8/15/25 (FSA) 2,250,000 2,312,528 (Healthspan Health System) 5.00% 11/15/13 (AMBAC) 6,490,000 6,665,360 +Minnesota Agriculture & Economic Development Board Revenue (Fairview Hospital & Healthcare Service), Inverse Floater ROLs Series II-R-33 8.84% 11/15/26 (MBIA) 5,125,000 5,662,613 St. Paul Housing & Redevelopment Authority Hospital Revenue (St. Paul/Ramsey Medical Center Project) 5.50% 5/15/13 (AMBAC) 1,000,000 1,023,220 Willmar (Rice Memorial Hospital Project) 5.00% 2/1/25 (FSA) 1,000,000 1,007,060 ----------- 43,374,950 ----------- Miscellaneous Revenue Bonds - 0.78% Minneapolis Community Development Agency Supported Development Revenue Series G-3 5.45% 12/1/31 2,000,000 2,018,200 ----------- 2,018,200 ----------- Multi Family Housing Revenue Bonds - 7.45% Chaska Waters Edge Multifamily Revenue Series A 7.30% 1/20/30 (GNMA) 3,257,000 3,479,974 Eagan Multifamily Revenue (Woodridge Apartments) 5.90% 8/1/20 (GNMA) 1,000,000 1,040,070 Hopkins Multifamily Revenue (Auburn Apartments Project) Series A 8.05% 6/20/31 (GNMA) 3,790,000 4,066,480 Minneapolis Multifamily Revenue (Bottineau Commons Project) 5.45% 4/20/43 (GNMA) (AMT) 1,500,000 1,506,450 (Seward Towers Project) 5.00% 5/20/36 (GNMA) 4,000,000 3,909,560 Minneapolis/St. Paul Housing Finance Board Revenue (Trinity Apartments) Series A 8.125% 12/1/14 (GNMA) (FHA) (AMT) 25,000 25,016 12 Statements Delaware Tax-Free Minnesota Insured Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Multi Family Housing Revenue Bonds (continued) Minnesota State Housing Finance Agency Rental Housing Revenue Series C-2 5.95% 2/1/15 (AMBAC) $ 1,882,000 $ 1,935,788 Washington County Housing & Redevelopment Authority Revenue (Woodland Park Apartments Project) 4.70% 10/1/32 2,425,000 2,276,566 White Bear Lake Multifamily Revenue (Lake Square) Series A 5.875% 2/1/15 (FHA) 1,055,000 1,089,224 ----------- 19,329,128 ----------- Municipal Lease Revenue Bonds - 3.87% Hopkins Housing & Redevelopment Authority Public Works and Fire Station Series A 5.00% 2/1/23 (MBIA) 1,210,000 1,216,728 Minneapolis Special School District #001 Series A 5.00% 2/1/18 (FSA) 1,545,000 1,596,958 5.00% 2/1/19 (FSA) 1,535,000 1,575,800 5.00% 2/1/20 (FSA) 1,690,000 1,723,090 St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.25% 12/1/27 3,840,000 3,921,831 ----------- 10,034,407 ----------- Political Subdivision General Obligation Bonds - 1.23% Dakota County Community Agency Governmental Housing Development 5.00% 1/1/21 1,275,000 1,291,830 Western Lake Superior Sanitation District Series A 6.00% 10/1/08 (MBIA) (AMT) 400,000 431,112 6.10% 10/1/09 (MBIA) (AMT) 425,000 461,690 6.20% 10/1/10 (MBIA) (AMT) 450,000 489,803 6.20% 10/1/11 (MBIA) (AMT) 475,000 511,428 ----------- 3,185,863 ----------- *Pre-Refunded Bonds - 8.62% Becker Wastewater Treatment Facility Series A 5.95% 2/1/14-04 (MBIA) 500,000 510,510 Duluth Economic Development Authority Health Care Facilities Revenue (Duluth Clinic) 6.30% 11/1/22-04 (AMBAC) 1,060,000 1,124,490 Hennepin County Solid Waste 5.75% 10/1/10-03 (MBIA) 1,800,000 1,825,614 North St. Paul Maplewood Independent School District #622 Series A 7.10% 2/1/19-05 (MBIA) 5,935,000 6,423,510 7.10% 2/1/25-05 (FSA) 11,525,000 12,473,623 ----------- 22,357,747 ----------- Public Power Revenue Bonds - 9.05% Northern Municipal Power Agency Electric System Revenue Series B 4.75% 1/1/20 (AMBAC) 1,100,000 1,099,318 +Northern Municipal Power Agency Electric System Revenue, Inverse Floater ROLs Series II-R-32 7.97% 1/1/13 (FSA) 4,585,000 5,279,903 Shakopee Public Utilities Commission Public Utilities Revenue 5.125% 2/1/26 (MBIA) 1,850,000 1,859,750 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Public Power Revenue Bonds (continued) Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.00% 1/1/12 (AMBAC) $2,205,000 $ 2,378,578 5.25% 1/1/15 (AMBAC) 1,350,000 1,474,848 5.25% 1/1/16 (AMBAC) 5,000,000 5,448,349 +Southern Minnesota Municipal Power Agency Supply System Revenue Inverse Floater ROLs II-R-189-B 7.44% 1/1/16 (AMBAC) 2,500,000 2,948,350 Western Minnesota Municipal Power Agency Supply System 5.00% 1/1/30 (MBIA) 3,000,000 2,984,580 ----------- 23,473,676 ----------- School District General Obligation Bonds - 16.92% Big Lake Independent School District #727 Series A 5.00% 2/1/17 (FSA) 1,040,000 1,072,490 5.00% 2/1/20 (FSA) 1,000,000 1,014,490 Centennial Independent School District #012 Series A 5.00% 2/1/18 (FSA) 1,270,000 1,312,710 Morris Independent School District #769 5.00% 2/1/24 (MBIA) 4,875,000 4,891,185 Mounds View Independent School District #621 5.00% 2/1/20 (MBIA) 2,970,000 3,028,153 5.375% 2/1/24 (FGIC) 6,170,000 6,359,973 Osseo Independent School District #279 Series A 5.00% 2/1/21 (FSA) 3,570,000 3,620,087 Robbinsdale Independent School District #281 5.00% 2/1/21 (FSA) 1,310,000 1,328,379 +Rockford Independent School District #883, Inverse Floater ROLs Series II-R-30-B 8.57% 2/1/21 (FSA) 1,605,000 1,823,136 ++Rosemount Independent School District #196 Series B 5.80% 4/1/09 (FSA) 1,860,000 1,545,660 5.85% 4/1/10 (FSA) 2,240,000 1,755,891 ++Sauk Rapids Independent School District #047 Series B 5.983% 2/1/15 (FSA) 2,700,000 1,510,191 6.083% 2/1/17 (FSA) 2,245,000 1,098,501 +South Washington County Independent School District #833, Inverse Floater ROLs Series II-R-34-A 8.57% 2/1/20 (MBIA) 3,440,000 3,946,299 Series II-R-34-B 8.57% 2/1/21 (MBIA) 3,645,000 4,140,392 St. Michael Independent School District #885 5.00% 2/1/20 (FSA) 1,970,000 2,008,573 5.00% 2/1/27 (FSA) 3,435,000 3,440,256 ----------- 43,896,366 ----------- Single Family Housing Revenue Bonds - 1.02% Dakota County Housing & Redevelopment Authority Single Family Mortgage Revenue 5.85% 10/1/30 (GNMA/FNMA) (AMT) 2,090,000 2,119,971 6.70% 10/1/17 (FNMA) 515,000 517,101 ----------- 2,637,072 ----------- 13 Statements Delaware Tax-Free Minnesota Insured Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- State General Obligation Bonds - 2.50% Minnesota State 5.00% 11/1/20 (FSA) $5,500,000 $ 5,620,945 +Minnesota State, Inverse Floater ROLs 6.91% 11/1/17 800,000 860,552 ----------- 6,481,497 ----------- Tax Increment/Special Assessment Bonds - 2.51% Becker Tax Increment Series D 6.25% 8/1/15 (MBIA) (AMT) 6,300,000 6,520,374 ----------- 6,520,374 ----------- Territorial General Obligation Bonds - 0.21% Puerto Rico Commonwealth Public Improvement Series A 5.50% 7/1/19 (MBIA) 500,000 555,870 ----------- 555,870 ----------- Territorial Revenue Bonds - 1.35% ++Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series A 5.207% 7/1/18 (AMBAC) 5,000,000 2,509,500 Puerto Rico Electric Power Authority Power Revenue Series GG 4.75% 7/1/21 (FSA) 1,000,000 1,000,860 ----------- 3,510,360 ----------- Total Municipal Bonds (cost $240,718,367) 252,723,886 ----------- Number of Shares - -------------------------------------------------------------------------------- Short-Term Investments - 2.56% - -------------------------------------------------------------------------------- Federated Minnesota Municipal Cash Trust 6,628,366 6,628,366 ------------ Total Short-Term Investments (cost $6,628,366) 6,628,366 ------------ Total Market Value of Securities - 100.00% (cost $247,346,733) 259,352,252 Liabilities Net of Receivables and Other Assets - 0.00% (824) ------------ Net Assets Applicable to 24,147,736 Shares Outstanding - 100.00% $259,351,428 ============ Net Asset Value - Delaware Tax-Free Minnesota Insured Fund Class A ($231,738,082 / 21,576,962 Shares) $10.74 ------ Net Asset Value - Delaware Tax-Free Minnesota Insured Fund Class B ($15,646,754 / 1,457,975 Shares) $10.73 ------ Net Asset Value - Delaware Tax-Free Minnesota Insured Fund Class C ($11,966,592 / 1,112,799 Shares) $10.75 ------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $247,661,352 Accumulated net realized loss on investments (315,443) Net unrealized appreciation of investments 12,005,519 ------------ Total net assets $259,351,428 ============ *For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. +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, 2003. ++Zero coupon bond. The interest rate shown is the yield at the time of purchase. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax Connie Lee - Insured by the College Construction Insurance Association FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FNMA - Insured by Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance ROLs - Residual Option Longs Net Asset Value and Offering Price per Share - Delaware Tax-Free Minnesota Insured Fund Net asset value Class A (A) $10.74 Sales charge (4.50% of offering price, or 4.75% of amount invested per share) (B) 0.51 ------ Offering price $11.25 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 14 Statements Delaware Tax-Free Minnesota Intermediate Fund OF NET ASSETS (CONTINUED) August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 96.99% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 1.20% Minneapolis/St. Paul Metropolitan Airports Commission Series 14 5.50% 1/1/11 (AMT) $ 750,000 $ 815,678 ----------- 815,678 ----------- Continuing Care/Retirement Revenue Bonds - 4.02% Minneapolis Health Care Facilities Revenue (Jones-Harrison Residence Project) 5.90% 10/1/16 125,000 120,116 Oakdale Elderly Housing Revenue (PHM/Oakdale, Inc. Project) 5.75% 3/1/18 1,400,000 1,360,072 Oakdale Revenue (Oak Meadows Project) 6.20% 4/1/07 150,000 153,062 6.30% 4/1/08 260,000 265,179 6.50% 4/1/10 295,000 300,387 Rochester Nursing Home & Multifamily Housing Revenue (Samaritan Bethany, Inc.) Series A 6.00% 5/1/04 300,000 297,120 6.10% 5/1/05 250,000 246,295 ----------- 2,742,231 ----------- Escrowed to Maturity Bonds - 6.06% Duluth Gross Revenue (Duluth Entertainment) 7.00% 12/1/03 440,000 446,741 Metropolitan Council, Minneapolis/ St. Paul Area Sports Facilities Revenue (Hubert H. Humphrey Metrodome) 6.00% 10/1/09 3,520,000 3,684,701 ----------- 4,131,442 ----------- Higher Education Revenue Bonds - 3.98% Minnesota State Higher Education Facilities Authority Revenue (College of Art & Design) Series 5-D 6.625% 5/1/20 1,000,000 1,070,950 (St. Catherine College) Series 5-N1 5.375% 10/1/32 500,000 497,785 University of Minnesota Series A 5.75% 7/1/16 1,000,000 1,142,390 ----------- 2,711,125 ----------- Hospital Revenue Bonds - 13.42% Bemidji Health Care Facilities First Mortgage Revenue (North Country Health Services) 5.00% 9/1/24 (RADIAN) 1,240,000 1,206,210 Minneapolis Health Care System Revenue (Allina Health System) Series A 5.75% 11/15/32 3,000,000 3,067,500 (Fairview Health Services) Series A 5.625% 5/15/32 2,750,000 2,787,290 St. Paul Housing & Redevelopment Authority Hospital Revenue (Health East Project) Series B 5.85% 11/1/17 1,160,000 1,074,438 Willmar (Rice Memorial Hospital Project) 5.00% 2/1/22 (FSA) 1,000,000 1,013,090 ----------- 9,148,528 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Investor Owned Utilities Revenue Bonds - 3.71% Eveleth Industrial Development Revenue (Minnesota Power & Light Co. Project) Series A 6.125% 1/1/04 $2,500,000 $2,532,400 ----------- 2,532,400 ----------- Miscellaneous Revenue Bonds - 5.48% Minneapolis Art Center Facilities Revenue (Walker Art Center Project) 5.125% 7/1/21 2,250,000 2,284,965 Minneapolis Community Development Agency Supported Revenue Common Bond Fund Series 4 6.20% 6/1/17 (AMT) 1,055,000 1,084,930 Richfield Shoppes Commercial Development Revenue (Richfield Shoppes Project) 7.50% 10/1/04 365,000 367,967 ----------- 3,737,862 ----------- Multi Family Housing Revenue Bonds - 6.59% Minneapolis Multifamily Revenue (Seward Towers Project) 5.00% 5/20/36 (GNMA) 1,000,000 977,390 (Trinity Apartments-Section 8) Series A 6.75% 5/1/21 2,775,000 2,704,904 Park Rapids Multifamily Revenue (The Court Apartments Project- Section 8) 6.05% 8/1/12 845,000 808,504 ----------- 4,490,798 ----------- Municipal Lease Revenue Bonds - 5.95% Beltrami County Housing & Redevelopment Authority Revenue 5.90% 2/1/08 355,000 368,983 6.00% 2/1/09 380,000 393,532 6.00% 2/1/10 405,000 417,320 6.10% 2/1/11 430,000 442,113 Edina Housing & Redevelopment Authority Public Project Revenue 5.125% 2/1/19 1,000,000 1,012,920 Hibbing Economic Development Authority Revenue (Hibbing Lease Obligation) 6.10% 2/1/08 650,000 683,820 St. Paul Port Authority Lease Revenue (Robert Street Site) 5.25% 12/1/27 725,000 740,450 ----------- 4,059,138 ----------- Political Subdivision General Obligation Bonds - 8.61% Dakota County Series A 4.75% 2/1/17 1,000,000 1,020,340 5.00% 2/1/13 1,125,000 1,213,841 Hennepin County Series A 4.50% 12/1/17 1,000,000 1,003,320 Series B 4.75% 12/1/14 1,000,000 1,040,060 Ramsey County Series B 5.25% 2/1/11 1,445,000 1,596,277 ----------- 5,873,838 ----------- *Pre-Refunded Bonds - 2.64% Andover Commercial Development Revenue (Downtown Center Project) Series A 6.50% 12/1/06-03 1,480,000 1,529,121 Duluth Gross Revenue (Duluth Entertainment) 7.30% 12/1/06-04 250,000 273,535 ----------- 1,802,656 ----------- 15 Statements Delaware Tax-Free Minnesota Intermediate Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Public Power Revenue Bonds - 5.99% Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.00% 1/1/12 (AMBAC) $1,000,000 $ 1,078,720 5.25% 1/1/15 (AMBAC) 1,000,000 1,092,480 5.25% 1/1/16 (AMBAC) 775,000 844,494 Western Minnesota Municipal Power Agency Revenue Series B 5.00% 1/1/15 (MBIA) 1,000,000 1,069,200 ----------- 4,084,894 ----------- School District General Obligation Bonds - 17.81% Big Lake Independent School District #727 Series C 5.00% 2/1/16 (FSA) 1,180,000 1,229,312 5.00% 2/1/17 (FSA) 1,000,000 1,035,370 Centennial Independent School District #012 Series A 5.00% 2/1/18 (FSA) 1,000,000 1,033,630 5.00% 2/1/20 (FSA) 750,000 764,685 Hopkins Independent School District #270 5.125% 2/1/17 (FGIC) 2,000,000 2,100,480 Moorhead Independent School District #152 5.00% 4/1/10 (FGIC) 2,585,000 2,821,657 Osseo Independent School District #279 Series A 5.00% 2/1/21 (FSA) 1,500,000 1,521,045 South Washington County Independent School District #833 Series B 5.00% 2/1/16 (FSA) 1,560,000 1,634,740 ----------- 12,140,919 ----------- Single Family Housing Revenue Bonds - 1.51% Minnesota State Housing Finance Agency Single Family Housing Series J 5.90% 7/1/28 (AMT) 980,000 1,001,599 St. Paul Housing & Redevelopment Authority Single Family Mortgage Revenue Series C 6.90% 12/1/21 (FNMA) 25,000 25,054 ----------- 1,026,653 ----------- State General Obligation Bonds - 8.56% Minnesota State 5.00% 8/1/21 3,050,000 3,108,164 +Minnesota State, Inverse Floater ROLs 6.91% 11/1/16 2,000,000 2,189,080 6.91% 11/1/17 500,000 537,845 ----------- 5,835,089 ----------- Territorial Revenue Bonds - 1.46% +Puerto Rico Electric Power Authority Revenue, Inverse Floater ROLs 5.93% 7/1/19 (FSA) 500,000 492,670 Puerto Rico Public Buildings Authority Revenue Series D 5.25% 7/1/27 500,000 500,770 ----------- 993,440 ----------- Total Municipal Bonds (cost $64,903,153) 66,126,691 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Short-Term Investments - 3.30% - -------------------------------------------------------------------------------- Federated Minnesota Municipal Cash Trust 2,252,959 $ 2,252,959 ----------- Total Short-Term Investments (cost $2,252,959) 2,252,959 ----------- Total Market Value of Securities - 100.29% (cost $67,156,112) 68,379,650 Liabilities Net of Receivables and Other Assets - (0.29%) (198,583) ----------- Net Assets Applicable to 6,415,078 Shares Outstanding - 100.00% $68,181,067 ----------- Net Asset Value - Delaware Tax-Free Minnesota Intermediate Fund Class A ($57,635,498 / 5,424,384 Shares) $10.63 ------ Net Asset Value - Delaware Tax-Free Minnesota Intermediate Fund Class B ($4,001,570 / 375,725 Shares) $10.65 ------ Net Asset Value - Delaware Tax-Free Minnesota Intermediate Fund Class C ($6,543,999 / 614,969 Shares) $10.64 ------ Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $69,064,649 Undistributed net investment income 1,470 Accumulated net realized loss on investments (2,108,590) Net unrealized appreciation of investments 1,223,538 ----------- Total net assets $68,181,067 =========== *For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. +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, 2003. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by Financial Guaranty Insurance Company FNMA - Insured by Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN -- Insured by Radian Asset Assurance ROLs - Residual Option Longs Net Asset Value and Offering Price per Share - Delaware Tax-Free Minnesota Intermediate Fund Net asset value Class A (A) $10.63 Sales charge (2.75% of offering price, or 2.82% of amount invested per share) (B) 0.30 ------ Offering price $10.93 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 16 Statements Delaware Minnesota High-Yield Municipal Bond Fund OF NET ASSETS (CONTINUED) August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 98.05% - -------------------------------------------------------------------------------- Airline Revenue Bonds - 1.39% Minneapolis/St. Paul Metropolitan Airports Commission Special Facilities Revenue (Northwest Airlines, Inc. Project) Series A 7.00% 4/1/25 (AMT) $1,000,000 $ 830,120 ----------- 830,120 ----------- Airport Revenue Bonds - 3.33% Minneapolis/St. Paul Metropolitan Airports Commission Revenue 5.00% 1/1/28 Series A (MBIA) 2,000,000 1,997,080 ----------- 1,997,080 ----------- Continuing Care/Retirement Revenue Bonds - 22.52% Buhl Nursing Home Revenue (Forest Health Services Project) Series A 6.75% 8/1/33 1,000,000 972,420 Coon Rapids Senior Housing Revenue (Epiphany Senior Citizens Project) 6.00% 11/1/28 2,455,000 2,050,244 Mankato Health Facilities Revenue (Mankato Lutheran Homes Project) Series A 6.875% 10/1/26 300,000 295,038 Minneapolis Health Care Facility Revenue (Jones-Harrison Residence Project) 6.00% 10/1/27 1,000,000 910,280 Minnesota Agriculture & Economic Development Board Revenue (Benedictine Health Systems) 5.75% 2/1/29 1,000,000 926,040 Minnetonka Housing Facilities Revenue (Beacon Hill Senior Housing Project, Presbyterian Homes & Services) 7.55% 6/1/19 200,000 201,638 Moorhead Economic Development Authority Multifamily Revenue (Eventide Lutheran Home Project) Series B 6.00% 6/1/18 870,000 871,897 Northfield Health Care Facilities Revenue (Northfield Retirement Center Project) Series A 6.00% 5/1/28 1,405,000 1,315,473 Oakdale Elderly Housing Revenue (PHM/Oakdale, Inc. Project) 6.00% 3/1/28 1,800,000 1,703,448 Perham Hospital District Senior Congregate Housing Facilities Revenue (Briarwood Project) 6.25% 11/1/22 620,000 553,009 Rochester Multifamily Revenue (Wedum Shorewood Campus) 6.60% 6/1/36 1,000,000 987,970 Shoreview Elderly Housing Revenue (PHM/Shoreview, Inc. Project) 6.15% 12/1/33 1,250,000 1,216,750 Twin Valley Congregate Housing Revenue (Living Options, Inc. Project) 5.95% 11/1/28 1,825,000 1,496,135 ----------- 13,500,342 ----------- Corporate-Backed Revenue Bonds - 5.95% Cloquet Pollution Control Revenue (Potlatch Corp. Projects) 5.90% 10/1/26 1,700,000 1,466,488 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Corporate-Backed Revenue Bonds (continued) International Falls Solid Waste Disposal Revenue (Boise Cascade Corp. Project) 6.85% 12/1/29 (AMT) $1,000,000 $ 985,370 Red Wing Industrial Development Revenue (Kmart Corp. Project) 5.50% 7/1/08 300,000 205,875 Sartell Environmental Improvement Revenue (International Paper) Series A 5.20% 6/1/27 1,000,000 903,990 ----------- 3,561,723 ----------- Higher Education Revenue Bonds - 6.56% Minnesota State Higher Education Facilities Authority Revenue (College of Art & Design) Series 5-D 6.75% 5/1/26 500,000 535,185 (St. Catherine College) Series 5-N1 5.375% 10/1/32 2,500,000 2,488,925 (St. Mary's College) Series 3-Q 6.15% 10/1/23 900,000 909,333 ----------- 3,933,443 ----------- Hospital Revenue Bonds - 12.55% Bermidji Health Care Facilities First Meeting Revenue (North Country Health Services) 5.00% 9/1/31 (RADIAN) 1,100,000 1,087,735 Minneapolis Health Care System Revenue Series A (Allina Health System) 5.75% 11/15/32 2,500,000 2,556,250 (Fairview Health Services) 5.625% 5/15/32 2,450,000 2,483,222 St. Paul Housing & Redevelopment Authority Hospital Revenue (Health East Project) Series A 5.70% 11/1/15 800,000 742,840 Series B 5.85% 11/1/17 250,000 231,560 Series B 6.625% 11/1/17 425,000 423,559 ----------- 7,525,166 ----------- Investor Owned Utilities Revenue Bonds - 2.54% Bass Brook Pollution Control Revenue (Minnesota Power & Light Co. Project) 6.00% 7/1/22 1,500,000 1,519,695 ----------- 1,519,695 ----------- Multi Family Housing Revenue Bonds - 22.92% Brooklyn Center Multifamily Housing Revenue (Four Courts Apartments Project) Series A 7.50% 6/1/25 (AMT) 370,000 344,196 Chanhassen Multifamily Housing Revenue (Heritage Park Project- Section 8) 6.20% 7/1/30 (FHA) (AMT) 300,000 304,452 Chaska Multifamily Housing Revenue (West Suburban Housing Partners Project) 5.875% 3/1/31 (AMT) 1,000,000 885,580 Coon Rapids Multifamily Housing Revenue (Browns Meadow Manor Project) Series A 4.70% 1/1/38 (FHA) (AMT) 1,000,000 899,700 17 Statements Delaware Minnesota High-Yield Municipal Bond Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Multi Family Housing Revenue Bonds (continued) Hutchinson Multifamily Housing Revenue (Evergreen Apartments Project-Section 8) 5.75% 11/1/28 $2,200,000 $ 2,014,408 Little Canada Multifamily Housing Revenue (Housing Alternative Development Co. Project) Series A 6.25% 12/1/27 1,250,000 1,200,188 Minneapolis Multifamily Housing Revenue (Grant Street Apartments Project) Series A 7.25% 11/1/29 2,085,000 2,025,306 (Olson Townhomes Project) 6.00% 12/1/19 (AMT) 1,675,000 1,644,163 St. Anthony Multifamily Housing Revenue (Chandler Place Project) Series A 6.05% 11/20/16 (FHA)(GNMA) 135,000 147,425 St. Cloud Housing & Redevelopment Authority Revenue (Sterling Heights Apartments Project) 7.55% 4/1/39 (AMT) 1,530,000 1,494,795 St. Paul Housing & Redevelopment Authority Multifamily Housing Revenue (Grotto Housing Project) 5.50% 9/20/44 (GNMA) 750,000 743,925 Stillwater Multifamily Revenue (Stillwater Cottages Project) Series A 6.75% 11/1/11 205,000 206,482 7.00% 11/1/16 (AMT) 680,000 672,432 7.00% 11/1/27 340,000 327,332 Washington County Housing & Redevelopment Authority Governmental Revenue (Briar Pond Project) Series B 7.125% 8/20/34 (GNMA) 870,000 825,439 ----------- 13,735,823 ----------- Municipal Lease Revenue Bonds - 3.36% Beltrami County Housing & Redevelopment Authority Revenue 6.10% 2/1/12 460,000 471,873 Hibbing Economic Development Authority Revenue (Hibbing Lease Obligation Project) 6.40% 2/1/12 530,000 519,723 Rice County Certificates of Participation Series A 6.00% 12/1/21 125,000 128,796 St. Paul Housing & Redevelopment Authority Lease Revenue (Acorn Dual Language Community Project) 6.60% 11/1/24 1,000,000 890,130 ----------- 2,010,522 ----------- Political Subdivision General Obligation Bonds - 2.54% Perham Disposal System 6.00% 5/1/22 (AMT) 1,500,000 1,519,605 ----------- 1,519,605 ----------- *Pre-Refunded Bonds - 3.34% Andover Commercial Development Revenue (Downtown Center Project) Series A 7.00% 12/1/12-03 1,640,000 1,696,514 - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- *Pre-Refunded Bonds (continued) Glencoe Health Care Revenue 6.40% 12/1/15-05 $ 275,000 $ 303,295 ----------- 1,999,809 ----------- Public Power Revenue Bonds - 1.82% Southern Minnesota Municipal Power Agency Supply System Revenue Series A 5.25% 1/1/16 (AMBAC) 1,000,000 1,089,670 ----------- 1,089,670 ----------- Recreational Area Revenue Bonds - 0.58% Woodbury Gross Revenue (Golf Course Bonds) 6.75% 2/1/22 365,000 347,111 ----------- 347,111 ----------- Single Family Housing Revenue Bonds - 2.70% Minnesota State Housing Finance Agency Single Family Mortgage Series E 6.25% 1/1/23 (AMT) 55,000 56,761 Series J 5.90% 7/1/28 (AMT) 1,465,000 1,497,288 Series M 5.875% 1/1/17 60,000 62,815 ----------- 1,616,864 ----------- State General Obligation Bonds - 1.80% +Minnesota State, Inverse Floater ROLs 6.91% 11/1/17 1,000,000 1,075,690 ----------- 1,075,690 ----------- Tax Increment/Special Assessment Bonds - 1.65% St. Paul Housing & Redevelopment Authority Tax Increment (Upper Landing Project) Series A 6.80% 3/1/29 1,000,000 988,660 ----------- 988,660 ----------- Territorial Revenue Bonds - 2.50% Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series D 5.25% 7/1/38 500,000 495,615 Puerto Rico Electric Power Authority Revenue Series II 5.25% 7/1/31 1,000,000 1,000,310 ----------- 1,495,925 ----------- Total Municipal Bonds (cost $60,545,989) 58,747,248 ----------- Number of Shares - -------------------------------------------------------------------------------- Short-Term Investments - 0.42% - -------------------------------------------------------------------------------- Federated Minnesota Municipal Cash Trust 250,264 250,264 ----------- Total Short-Term Investments (cost $250,264) 250,264 ----------- 18 Statements Delaware Minnesota High-Yield Municipal Bond Fund OF NET ASSETS (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total Market Value of Securities - 98.47% (cost $60,796,253) $58,997,512 Receivables and Other Assets Net of Liabilities - 1.53% 913,860 ----------- Net Assets Applicable to 6,040,460 Shares Outstanding - 100.00% $59,911,372 =========== Net Asset Value - Delaware Minnesota High-Yield Municipal Bond Fund Class A ($36,644,367 / 3,697,050 Shares) $9.91 ----- Net Asset Value - Delaware Minnesota High-Yield Municipal Bond Fund Class B ($12,513,407 / 1,260,298 Shares) $9.93 ----- Net Asset Value - Delaware Minnesota High-Yield Municipal Bond Fund Class C ($10,753,598 / 1,083,112 Shares) $9.93 ----- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $63,877,311 Accumulated net realized loss on investments (2,167,198) Net unrealized depreciation of investments (1,798,741) ----------- Total net assets $59,911,372 =========== *For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. +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, 2003. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FHA - Insured by the Federal Housing Administration GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN --Insured by Radian Asset Assurance ROLs - Residual Option Longs Net Asset Value and Offering Price per Share - Delaware Minnesota High-Yield Municipal Bond Fund Net asset value Class A (A) $ 9.91 Sales charge (4.50% of offering price, or 4.74% of amount invested per share) (B) 0.47 ------ Offering price $10.38 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 19 Statements Delaware Minnesota Municipal Bond Funds OF OPERATIONS Year Ended August 31, 2003
Delaware Delaware Delaware Delaware Tax-Free Tax-Free Minnesota Tax-Free Minnesota Minnesota High-Yield Minnesota Fund Insured Fund Intermediate Fund Municipal Bond Fund Investment Income: Interest $22,263,363 $14,446,722 $3,336,757 $3,657,164 ----------- ----------- ---------- ---------- Expenses: Management fees 2,085,202 1,326,132 321,881 322,838 Distribution expenses -- Class A 881,282 600,980 129,521 90,569 Distribution expenses -- Class B 173,135 155,249 34,531 128,924 Distribution expenses -- Class C 92,992 92,295 56,475 95,095 Dividend disbursing and transfer agent fees and expenses 215,321 149,208 44,614 42,241 Accounting and administration expenses 168,907 118,096 28,604 26,056 Registration fees 28,250 21,700 24,345 6,000 Reports and statements to shareholders 49,992 39,084 12,408 8,280 Professional fees 57,991 43,600 10,442 11,744 Custodian fees 17,937 15,810 3,358 30,700 Trustees' fees 21,100 12,880 9,057 3,000 Other 104,146 75,357 14,961 15,760 ----------- ----------- ---------- ---------- 3,896,255 2,650,391 690,197 781,207 ----------- ----------- ---------- ---------- Less expenses absorbed or waived -- -- (13,205) (171,544) Less waived distribution expenses -- Class A -- -- (46,773) -- Less expenses paid indirectly (9,530) (7,342) (1,777) (1,679) ----------- ----------- ---------- ---------- Total expenses 3,886,725 2,643,049 628,442 607,984 ----------- ----------- ---------- ---------- Net Investment Income 18,376,638 11,803,673 2,708,315 3,049,180 ----------- ----------- ---------- ---------- Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) on investments 4,703,590 2,440,481 121,249 (441,678) Net change in unrealized appreciation/depreciation of investments (9,247,345) (7,468,306) (834,692) 259,426 ----------- ----------- ---------- ---------- Net Realized and Unrealized Loss on Investments (4,543,755) (5,027,825) (713,443) (182,252) ----------- ----------- ---------- ---------- Net Increase in Net Assets Resulting from Operations $13,832,883 $ 6,775,848 $1,994,872 $2,866,928 =========== =========== ========== ==========
See accompanying notes 20 Statements Delaware Minnesota Municipal Bond Funds OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware Tax-Free Minnesota Fund Minnesota Insured Fund Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 Increase (Decrease) in Net Assets from Operations: Net investment income $ 18,376,638 $ 19,002,863 $ 11,803,673 $ 11,943,243 Net realized gain on investments 4,703,590 589,019 2,440,481 722,262 Net change in unrealized appreciation/depreciation of investments (9,247,345) 565,559 (7,468,306) 240,814 ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations 13,832,883 20,157,441 6,775,848 12,906,319 ------------ ------------ ------------ ------------ Dividends and Distributions to Shareholders from: Net Investment Income: Class A (17,359,077) (17,911,817) (10,931,097) (11,176,754) Class B (721,989) (707,294) (589,404) (524,370) Class C (387,137) (284,214) (348,888) (196,922) Net realized gain on investments: Class A (252,735) -- -- -- Class B (12,269) -- -- -- Class C (5,766) -- -- -- ------------ ------------ ------------ ------------ (18,738,973) (18,903,325) (11,869,389) (11,898,046) ------------ ------------ ------------ ------------ Capital Share Transactions: Proceeds from shares sold: Class A 20,342,994 16,869,206 14,811,513 10,427,770 Class B 2,106,724 2,632,871 3,424,019 2,661,996 Class C 3,551,273 2,604,707 6,800,660 2,822,791 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 10,937,095 11,179,488 7,014,830 7,231,300 Class B 495,977 471,933 430,103 373,487 Class C 299,072 217,770 235,167 151,192 ------------ ------------ ------------ ------------ 37,733,135 33,975,975 32,716,292 23,668,536 ------------ ------------ ------------ ------------ Cost of shares repurchased: Class A (43,234,963) (35,702,678) (25,326,599) (21,492,616) Class B (3,026,712) (2,059,640) (2,239,993) (1,496,479) Class C (1,226,713) (1,223,771) (892,572) (1,213,668) ------------ ------------ ------------ ------------ (47,488,388) (38,986,089) (28,459,164) (24,202,763) ------------ ------------ ------------ ------------ Increase in net assets derived from capital share transactions (9,755,253) (5,010,114) 4,257,128 (534,227) ------------ ------------ ------------ ------------ Net Increase (Decrease) in Net Assets (14,661,343) (3,755,998) (836,413) 474,046 Net Assets: Beginning of year 381,245,789 385,001,787 260,187,841 259,713,795 ------------ ------------ ------------ ------------ End of year $366,584,446 $381,245,789 $259,351,428 $260,187,841 ============ ============ ============ ============
See accompanying notes 21 Statements Delaware Minnesota Municipal Bond Funds OF CHANGES IN NET ASSETS (CONTINUED)
Delaware Tax-Free Delaware Minnesota High-Yield Minnesota Intermediate Fund Municipal Bond Fund Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 Increase (Decrease) in Net Assets from Operations: Net investment income $ 2,708,315 $ 2,606,574 $ 3,049,180 $ 3,032,627 Net realized gain (loss) on investments 121,249 (371,946) (441,678) (265,718) Net change in unrealized appreciation/depreciation of investments (834,692) 1,111,501 259,426 565,582 ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations 1,994,872 3,346,129 2,866,928 3,332,491 ------------ ------------ ------------ ------------ Dividends and Distributions to Shareholders from: Net Investment Income: Class A (2,403,125) (2,352,222) (2,027,800) (2,008,681) Class B (120,101) (91,385) (625,130) (665,433) Class C (196,496) (150,720) (458,610) (369,795) ------------ ------------ ------------ ------------ (2,719,722) (2,594,327) (3,111,540) (3,043,909) ------------ ------------ ------------ ------------ Capital Share Transactions: Proceeds from shares sold: Class A 10,958,724 7,136,136 5,099,181 3,612,856 Class B 1,577,749 1,246,593 1,173,857 1,749,876 Class C 3,741,280 2,492,197 3,744,773 2,087,799 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 1,833,098 1,785,882 1,128,540 1,136,703 Class B 75,061 48,722 357,176 377,589 Class C 154,874 136,215 270,604 217,254 ------------ ------------ ------------ ------------ 18,340,786 12,845,745 11,774,131 9,182,077 ------------ ------------ ------------ ------------ Cost of shares repurchased: Class A (5,595,854) (7,630,163) (4,314,157) (4,666,875) Class B (454,699) (920,238) (2,339,040) (1,750,937) Class C (2,156,934) (865,466) (1,049,878) (1,322,121) ------------ ------------ ------------ ------------ (8,207,487) (9,415,867) (7,703,075) (7,739,933) ------------ ------------ ------------ ------------ Increase in net assets derived from capital share transactions 10,133,299 3,429,878 4,071,056 1,442,144 ------------ ------------ ------------ ------------ Net Increase in Net Assets 9,408,449 4,181,680 3,826,444 1,730,726 Net Assets: Beginning of year 58,772,618 54,590,938 56,084,928 54,354,202 ------------ ------------ ------------ ------------ End of year $68,181,067 $58,772,618 $59,911,372 $56,084,928 ============ ============ ============ ============
See accompanying notes 22 Financial HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Fund Class A - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $12.610 $12.570 $12.120 $12.230 $13.020 Income (loss) from investment operations: Net investment income 0.622 0.634 0.615 0.617 0.628 Net realized and unrealized gain (loss) on investments (0.148) 0.037 0.450 (0.110) (0.752) ------- ------- ------- ------- ------- Total from investment operations 0.474 0.671 1.065 0.507 (0.124) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.625) (0.631) (0.615) (0.617) (0.626) Net realized gain on investments (0.009) -- -- -- (0.040) ------- ------- ------- ------- ------- Total dividends and distributions (0.634) (0.631) (0.615) (0.617) (0.666) ------- ------- ------- ------- ------- Net asset value, end of period $12.450 $12.610 $12.570 $12.120 $12.230 ======= ======= ======= ======= ======= Total return(1) 3.80% 5.54% 9.02% 4.39% (1.06%) Ratios and supplemental data: Net assets, end of period (000 omitted) $340,029 $356,522 $363,033 $355,573 $394,144 Ratio of expenses to average net assets 0.97% 0.98% 1.00% 1.01% 0.94% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.97% 0.98% 1.00% 1.06% 0.94% Ratio of net investment income to average net assets 4.90% 5.11% 5.00% 5.20% 4.89% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.90% 5.11% 5.00% 5.15% 4.89% Portfolio turnover 27% 13% 10% 35% 17%
(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. An expense limitation was in effect for all classes through August 31, 2001. Performance would have been lower had the expense limitation not been in effect. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.003, a decrease in net realized and unrealized gain (loss) per share of $0.003, and an increase in the ratio of net investment income to average net assets of 0.03%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 23 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Fund Class B - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $12.620 $12.580 $12.120 $12.240 $13.020 Income (loss) from investment operations: Net investment income 0.529 0.540 0.523 0.525 0.527 Net realized and unrealized gain (loss) on investments (0.150) 0.037 0.460 (0.120) (0.740) ------- ------- ------- ------- ------- Total from investment operations 0.379 0.577 0.983 0.405 (0.213) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.530) (0.537) (0.523) (0.525) (0.527) Net realized Gain on investments (0.009) -- -- -- (0.040) ------- ------- ------- ------- ------- Total dividends and distributions (0.539) (0.537) (0.523) (0.525) (0.567) ------- ------- ------- ------- ------- Net asset value, end of period $12.460 $12.620 $12.580 $12.120 $12.240 ======= ======= ======= ======= ======= Total return(1) 3.02% 4.75% 8.29% 3.50% (1.74%) Ratios and supplemental data: Net assets, end of period (000 omitted) $16,394 $17,043 $15,927 $13,412 $13,312 Ratio of expenses to average net assets 1.72% 1.73% 1.75% 1.76% 1.69% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.72% 1.73% 1.75% 1.81% 1.69% Ratio of net investment income to average net assets 4.15% 4.36% 4.25% 4.45% 4.14% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.15% 4.36% 4.25% 4.40% 4.14% Portfolio turnover 27% 13% 10% 35% 17%
(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. An expense limitation was in effect for all classes through August 31, 2001. Performance would have been lower had the expense limitation not been in effect. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.003, a decrease in net realized and unrealized gain (loss) per share of $0.003, and an increase in the ratio of net investment income to average net assets of 0.03%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 24 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Fund Class C - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $12.640 $12.590 $12.140 $12.250 $13.040 Income (loss) from investment operations: Net investment income 0.529 0.540 0.523 0.527 0.536 Net realized and unrealized gain (loss) on investments (0.151) 0.047 0.450 (0.110) (0.756) ------- ------- ------- ------- ------- Total from investment operations 0.378 0.587 0.973 0.417 (0.220) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.529) (0.537) (0.523) (0.527) (0.530) Net realized gain on investments (0.009) -- -- -- (0.040) ------- ------- ------- ------- ------- Total dividends and distributions (0.538) (0.537) (0.523) (0.527) (0.570) ------- ------- ------- ------- ------- Net asset value, end of period $12.480 $12.640 $12.590 $12.140 $12.250 ======= ======= ======= ======= ======= Total return(1) 3.01% 4.82% 8.20% 3.60% (1.80%) Ratios and supplemental data: Net assets, end of period (000 omitted) $10,161 $7,682 $6,042 $6,156 $6,814 Ratio of expenses to average net assets 1.72% 1.73% 1.75% 1.76% 1.69% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.72% 1.73% 1.75% 1.81% 1.69% Ratio of net investment income to average net assets 4.15% 4.36% 4.25% 4.45% 4.14% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.15% 4.36% 4.25% 4.40% 4.14% Portfolio turnover 27% 13% 10% 35% 17%
(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. An expense limitation was in effect for all classes through August 31, 2001. Performance would have been lower had the expense limitation not been in effect. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.003, a decrease in net realized and unrealized gain (loss) per share of $0.003, and an increase in the ratio of net investment income to average net assets of 0.03%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 25 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Insured Fund Class A - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.940 $10.900 $10.480 $10.520 $11.050 Income (loss) from investment operations: Net investment income 0.498 0.514 0.514 0.507 0.518 Net realized and unrealized gain (loss) on investments (0.197) 0.038 0.421 (0.041) (0.530) ------- ------- ------- ------- ------- Total from investment operations 0.301 0.552 0.935 0.466 (0.012) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.501) (0.512) (0.515) (0.506) (0.518) ------- ------- ------- ------- ------- Total dividends and distributions (0.501) (0.512) (0.515) (0.506) (0.518) ------- ------- ------- ------- ------- Net asset value, end of period $10.740 $10.940 $10.900 $10.480 $10.520 ======= ======= ======= ======= ======= Total return(1) 2.75% 5.25% 9.14% 4.63% (0.17%) Ratios and supplemental data: Net assets, end of period (000 omitted) $231,738 $239,763 $242,716 $238,486 $268,507 Ratio of expenses to average net assets 0.93% 0.96% 0.90% 1.00% 0.94% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.93% 0.96% 0.90% 1.01% 0.94% Ratio of net investment income to average net assets 4.52% 4.78% 4.82% 4.93% 4.74% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.52% 4.78% 4.82% 4.92% 4.74% Portfolio turnover 30% 15% 7% 35% 4%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.002, a decrease in net realized and unrealized gain (loss) per share of $0.002, and an increase in the ratio of net investment income to average net assets of 0.02%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 26 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Insured Fund Class B - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.940 $10.890 $10.470 $10.510 $11.040 Income (loss) from investment operations: Net investment income 0.415 0.433 0.434 0.431 0.436 Net realized and unrealized gain (loss) on investments (0.207) 0.048 0.422 (0.042) (0.529) ------- ------- ------- ------- ------- Total from investment operations 0.208 0.481 0.856 0.389 (0.093) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.418) (0.431) (0.436) (0.429) (0.437) ------- ------- ------- ------- ------- Total dividends and distributions (0.418) (0.431) (0.436) (0.429) (0.437) ------- ------- ------- ------- ------- Net asset value, end of period $10.730 $10.940 $10.890 $10.470 $10.510 ======= ======= ======= ======= ======= Total return(1) 1.89% 4.56% 8.34% 3.86% (0.91%) Ratios and supplemental data: Net assets, end of period (000 omitted) $15,647 $14,341 $12,732 $10,491 $11,827 Ratio of expenses to average net assets 1.68% 1.71% 1.65% 1.75% 1.69% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.68% 1.71% 1.65% 1.76% 1.69% Ratio of net investment income to average net assets 3.77% 4.03% 4.07% 4.18% 3.99% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.77% 4.03% 4.07% 4.17% 3.99% Portfolio turnover 30% 15% 7% 35% 4%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.002, a decrease in net realized and unrealized gain (loss) per share of $0.002, and an increase in the ratio of net investment income to average net assets of 0.02%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 27 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Insured Fund Class C - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.950 $10.910 $10.480 $10.520 $11.050 Income (loss) from investment operations: Net investment income 0.414 0.433 0.434 0.431 0.438 Net realized and unrealized gain (loss) on investments (0.197) 0.038 0.432 (0.042) (0.531) ------- ------- ------- ------- ------- Total from investment operations 0.217 0.471 0.866 0.389 (0.093) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.417) (0.431) (0.436) (0.429) (0.437) ------- ------- ------- ------- ------- Total dividends and distributions (0.417) (0.431) (0.436) (0.429) (0.437) ------- ------- ------- ------- ------- Net asset value, end of period $10.750 $10.950 $10.910 $10.480 $10.520 ======= ======= ======= ======= ======= Total return(1) 1.97% 4.46% 8.42% 3.85% (0.91%) Ratios and supplemental data: Net assets, end of period (000 omitted) $11,966 $6,083 $4,265 $3,615 $4,253 Ratio of expenses to average net assets 1.68% 1.71% 1.65% 1.75% 1.69% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.68% 1.71% 1.65% 1.76% 1.69% Ratio of net investment income to average net assets 3.77% 4.03% 4.07% 4.18% 3.99% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.77% 4.03% 4.07% 4.17% 3.99% Portfolio turnover 30% 15% 7% 35% 4%
(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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.002, a decrease in net realized and unrealized gain (loss) per share of $0.002, and an increase in the ratio of net investment income to average net assets of 0.02%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 28 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Intermediate Fund Class A - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.720 $10.580 $10.350 $10.610 $11.160 Income (loss) from investment operations: Net investment income 0.469 0.512 0.526 0.538 0.541 Net realized and unrealized gain (loss) on investments (0.088) 0.138 0.230 (0.260) (0.550) ------- ------- ------- ------- ------- Total from investment operations 0.381 0.650 0.756 0.278 (0.009) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.471) (0.510) (0.526) (0.538) (0.541) ------- ------- ------- ------- ------- Total dividends and distributions (0.471) (0.510) (0.526) (0.538) (0.541) ------- ------- ------- ------- ------- Net asset value, end of period $10.630 $10.720 $10.580 $10.350 $10.610 ======= ======= ======= ======= ======= Total return(1) 3.59% 6.34% 7.50% 2.77% (0.14%) Ratios and supplemental data: Net assets, end of period (000 omitted) $57,635 $51,034 $49,089 $46,523 $56,222 Ratio of expenses to average net assets 0.86% 0.85% 0.90% 0.93% 0.79% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.96% 0.85% 0.93% 0.95% 0.79% Ratio of net investment income to average net assets 4.32% 4.86% 5.04% 5.22% 4.91% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.22% 4.86% 5.01% 5.20% 4.91% Portfolio turnover 23% 35% 24% 9% 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 and distributor, as applicable. Performance would have been lower had the expense limitation not been in effect. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of less than $0.001, a decrease in net realized and unrealized gain (loss) per share of less than $0.001, and an increase in the ratio of net investment income to average net assets of less than $0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 29 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Intermediate Fund Class B - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.740 $10.600 $10.370 $10.630 $11.180 Income (loss) from investment operations: Net investment income 0.377 0.423 0.438 0.451 0.450 Net realized and unrealized gain (loss) on investments (0.088) 0.137 0.232 (0.262) (0.552) ------- ------- ------- ------- ------- Total from investment operations 0.289 0.560 0.670 0.189 (0.102) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.379) (0.420) (0.440) (0.449) (0.448) ------- ------- ------- ------- ------- Total dividends and distributions (0.379) (0.420) (0.440) (0.449) (0.448) ------- ------- ------- ------- ------- Net asset value, end of period $10.650 $10.740 $10.600 $10.370 $10.630 ======= ======= ======= ======= ======= Total return(1) 2.70% 5.43% 6.59% 1.89% (0.98%) Ratios and supplemental data: Net assets, end of period (000 omitted) $4,002 $2,852 $2,443 $2,380 $2,878 Ratio of expenses to average net assets 1.71% 1.70% 1.75% 1.78% 1.64% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.73% 1.70% 1.78% 1.80% 1.64% Ratio of net investment income to average net assets 3.47% 4.01% 4.19% 4.37% 4.06% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.45% 4.01% 4.16% 4.35% 4.06% Portfolio turnover 23% 35% 24% 9% 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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of less than $0.001, a decrease in net realized and unrealized gain (loss) per share of less than $0.001, and an increase in the ratio of net investment income to average net assets of less than $0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 30 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Minnesota Intermediate Fund Class C - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.730 $10.590 $10.360 $10.610 $11.170 Income (loss) from investment operations: Net investment income 0.377 0.423 0.437 0.451 0.449 Net realized and unrealized gain (loss) on investments (0.088) 0.137 0.233 (0.253) (0.561) ------- ------- ------- ------- ------- Total from investment operations 0.289 0.560 0.670 0.198 (0.112) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.379) (0.420) (0.440) (0.448) (0.448) ------- ------- ------- ------- ------- Total dividends and distributions (0.379) (0.420) (0.440) (0.448) (0.448) ------- ------- ------- ------- ------- Net asset value, end of period $10.640 $10.730 $10.590 $10.360 $10.610 ======= ======= ======= ======= ======= Total return(1) 2.71% 5.44% 6.59% 1.98% (1.08%) Ratios and supplemental data: Net assets, end of period (000 omitted) $6,544 $4,887 $3,059 $2,358 $2,293 Ratio of expenses to average net assets 1.71% 1.70% 1.75% 1.78% 1.64% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.73% 1.70% 1.78% 1.80% 1.64% Ratio of net investment income to average net assets 3.47% 4.01% 4.19% 4.37% 4.06% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.45% 4.01% 4.16% 4.35% 4.06% Portfolio turnover 23% 35% 24% 9% 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. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year ended August 31, 2002 was an increase in net investment income per share of less than $0.001, a decrease in net realized and unrealized gain (loss) per share of less than $0.001, and an increase in the ratio of net investment income to average net assets of less than $0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 31 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Minnesota High-Yield Municipal Bond Fund Class A - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $9.950 $9.900 $9.650 $10.210 $10.810 Income (loss) from investment operations: Net investment income 0.550 0.586 0.581 0.576 0.583 Net realized and unrealized gain (loss) on investments (0.030) 0.056 0.243 (0.564) (0.603) ------ ------ ------ ------ ------- Total from investment operations 0.520 0.642 0.824 0.012 (0.020) ------ ------ ------ ------ ------- Less dividends and distributions from: Net investment income (0.560) (0.592) (0.574) (0.572) (0.580) ------ ------ ------ ------ ------- Total dividends and distributions (0.560) (0.592) (0.574) (0.572) (0.580) ------ ------ ------ ------ ------- Net asset value, end of period $9.910 $9.950 $9.900 $9.650 $10.210 ====== ====== ====== ====== ======= Total return(1) 5.33% 6.74% 8.84% 0.32% (0.27%) Ratios and supplemental data: Net assets, end of period (000 omitted) $36,644 $34,867 $34,615 $35,689 $41,813 Ratio of expenses to average net assets 0.75% 0.75% 0.75% 0.75% 0.57% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.04% 1.01% 0.94% 1.14% 1.07% Ratio of net investment income to average net assets 5.48% 5.98% 6.01% 5.99% 5.46% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 5.19% 5.72% 5.82% 5.60% 4.96% Portfolio turnover 32% 33% 13% 8% 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. Performance would have been lower had the expense limitation not been in effect. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.001, a decrease in net realized and unrealized gain (loss) per share of $0.001, and an increase in the ratio of net investment income to average net assets of 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 32 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Minnesota High-Yield Municipal Bond Fund Class B - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $9.970 $9.910 $9.650 $10.210 $10.810 Income (loss) from investment operations: Net investment income 0.475 0.513 0.509 0.504 0.507 Net realized and unrealized gain (loss) on investments (0.030) 0.063 0.248 (0.570) (0.604) ------ ------ ------ ------ ------- Total from investment operations 0.445 0.576 0.757 (0.066) (0.097) ------ ------ ------ ------ ------- Less dividends and distributions from: Net investment income (0.485) (0.516) (0.497) (0.494) (0.503) ------ ------ ------ ------ ------- Total dividends and distributions (0.485) (0.516) (0.497) (0.494) (0.503) ------ ------ ------ ------ ------- Net asset value, end of period $9.930 $9.970 $9.910 $9.650 $10.210 ====== ====== ====== ====== ======= Total return(1) 4.55% 6.03% 8.09% (0.49%) (0.99%) Ratios and supplemental data: Net assets, end of period (000 omitted) $12,513 $13,379 $12,932 $13,743 $15,814 Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50% 1.32% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.79% 1.76% 1.69% 1.89% 1.82% Ratio of net investment income to average net assets 4.73% 5.23% 5.26% 5.24% 4.71% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.44% 4.97% 5.07% 4.85% 4.21% Portfolio turnover 32% 33% 13% 8% 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. Performance would have been lower had the expense limitation not been in effect. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.001, a decrease in net realized and unrealized gain (loss) per share of $0.001, and an increase in the ratio of net investment income to average net assets of 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 33 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Minnesota High-Yield Municipal Bond Fund Class C - ---------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(2) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $9.970 $9.910 $9.650 $10.210 $10.810 Income (loss) from investment operations: Net investment income 0.475 0.513 0.509 0.504 0.505 Net realized and unrealized gain (loss) on investments (0.030) 0.063 0.248 (0.570) (0.602) ------ ------ ------ ------ ------- Total from investment operations 0.445 0.576 0.757 (0.066) (0.097) ------ ------ ------ ------ ------- Less dividends and distributions from: Net investment income (0.485) (0.516) (0.497) (0.494) (0.503) ------ ------ ------ ------ ------- Total dividends and distributions (0.485) (0.516) (0.497) (0.494) (0.503) ------ ------ ------ ------ ------- Net asset value, end of period $9.930 $9.970 $9.910 $9.650 $10.210 ====== ====== ====== ====== ======= Total return(1) 4.54% 6.03% 8.09% (0.49%) (0.99%) Ratios and supplemental data: Net assets, end of period (000 omitted) $10,754 $7,840 $6,807 $6,599 $7,515 Ratio of expenses to average net assets 1.50% 1.50% 1.50% 1.50% 1.32% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.79% 1.76% 1.69% 1.89% 1.82% Ratio of net investment income to average net assets 4.73% 5.23% 5.26% 5.24% 4.71% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.44% 4.97% 5.07% 4.85% 4.21% Portfolio turnover 32% 33% 13% 8% 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. Performance would have been lower had the expense limitation not been in effect. (2) As required, effective September 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of these changes for the year ended August 31, 2002 was an increase in net investment income per share of $0.001, a decrease in net realized and unrealized gain (loss) per share of $0.001, and an increase in the ratio of net investment income to average net assets of 0.01%. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflected this change in accounting. See accompanying notes 34 Notes Delaware Minnesota Municipal Bond Funds TO FINANCIAL STATEMENTS August 31, 2003 Voyageur Mutual Funds is organized as a Delaware business trust and offers six series: Delaware Minnesota High-Yield Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund, Delaware Tax-Free Arizona Fund, Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, and Delaware Tax-Free New York Fund. Voyageur Insured Funds is organized as a Delaware business 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 business trust and offers the Delaware Tax-Free Minnesota Fund. Voyageur Intermediate Tax Free Funds is organized as a Delaware business trust and offers the Delaware Tax-Free Minnesota Intermediate Fund. These financial statements and related notes pertain to Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and Delaware Minnesota High-Yield Municipal Bond Fund (each a "Fund" or, collectively, the "Funds"). The above Trusts are open-end investment companies. The Funds are considered non-diversified under the Investment Company Act of 1940, as amended, and offer Class A, Class B, and Class C shares. Class A shares are sold with a front-end sales charge of up to 4.50% for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield Municipal Bond Fund and with a front-end sales charge of up to 2.75% for Delaware Tax-Free Minnesota Intermediate Fund. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield Municipal Bond Fund and that declines from 2% to zero for Delaware Tax-Free Minnesota Intermediate Fund, depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund and Delaware Minnesota High-Yield Municipal Bond Fund and approximately five years after purchase for Delaware Tax-Free Minnesota Intermediate Fund. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. The investment objective of Delaware Tax-Free Minnesota Fund and Delaware Tax-Free Minnesota Insured Fund is to seek as high a level of current income exempt from federal income tax and from 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 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 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 accounting principles generally accepted in the United States and are consistently followed by the Funds. Security Valuation -- Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Funds' Board of Trustees. Federal Income Taxes -- Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income and common expenses are allocated to the classes of the Funds on the basis of "settled shares" of each class in relation to the net assets of the Funds. Realized and unrealized gain (loss) on investments are allocated to the various classes of the Funds on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Use of Estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. 35 Notes Delaware Minnesota Municipal Bond Funds TO FINANCIAL STATEMENTS (CONTINUED) 1. Significant Accounting Policies (continued) Certain expenses of the Funds are paid through commission arrangements with brokers. These transactions are done subject to best execution. In addition, the Funds may receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expenses paid under the above arrangements are included in their respective expense captions on the Statements of Operations with the corresponding expense offset shown as "expenses paid indirectly". The amounts of these expenses for the year ended August 31, 2003 were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Minnesota Fund Insured Fund Intermediate Fund Municipal Bond Fund --------------- ----------------- ------------------ ------------------- Commission reimbursements $9,101 $6,366 $1,544 $1,409 Earnings credits 429 976 233 270
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 Minnesota Fund Insured Fund Intermediate Fund Municipal 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, and extraordinary expenses, do not exceed specified percentages of average daily net assets through October 31, 2004 as shown below:
Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Minnesota Fund Insured Fund Intermediate Fund Municipal Bond Fund --------------- ----------------- ------------------ ------------------- The operating expense limitation as a percentage of average daily net assets (per annum) 0.75% 0.75% 0.75% 0.50%
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing and transfer agent services. The Funds pay DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. Each Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Prior to June 1, 2003, the monthly fee for dividend disbursing and transfer agent services was based on the number of shareholder accounts and shareholder transactions. Pursuant to a distribution agreement and distribution plan, each Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.25% of the average daily net assets of the Class A shares and 1.00% of the average daily net assets of the Class B and C shares for all Funds. DDLP has contracted to waive distribution fees through October 31, 2004 in order to prevent distribution fees of Class A Shares from exceeding 0.15% of average daily net assets for the Delaware Tax-Free Minnesota Intermediate Fund. At August 31, 2003, each Fund had receivables from or liabilities payable to affiliates as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Minnesota Fund Insured Fund Intermediate Fund Municipal Bond Fund --------------- ----------------- ------------------ ------------------- Investment management fee payable to DMC ($41,267) ($15,786) $ -- ($22,835) Dividend disbursing, transfer agent fees, accounting and other expenses payable to DSC (35,716) (25,792) (6,798) (6,633) Other expenses payable to DMC and affiliates (49,794) (35,481) (9,206) (17,894) Receivable from DMC under expense limitation agreement -- -- 2,092 --
36 Notes Delaware Minnesota Municipal Bond Funds TO FINANCIAL STATEMENTS (CONTINUED) 2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued) For the year ended August 31, 2003, 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 Minnesota Fund Insured Fund Intermediate Fund Municipal Bond Fund --------------- ----------------- ------------------ ------------------- $49,242 $52,150 $14,769 $16,971
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, 2003, 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 Minnesota Fund Insured Fund Intermediate Fund Municipal Bond Fund --------------- ----------------- ------------------ ------------------- Purchases $99,536,509 $81,644,406 $24,567,848 $22,733,138 Sales 111,255,196 77,524,780 14,696,546 18,008,763
At August 31, 2003, the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund was as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Minnesota Fund Insured Fund Intermediate Fund Municipal Bond Fund --------------- ----------------- ------------------ ------------------- Cost of investments $347,558,866 $246,945,495 $67,149,838 $60,763,407 ------------ ------------ ----------- ----------- Aggregate unrealized appreciation $ 17,162,542 $ 13,964,621 $ 1,826,688 $ 538,448 Aggregate unrealized depreciation (4,220,926) (1,557,864) (596,876) (2,304,343) ------------ ------------ ----------- ----------- Net unrealized appreciation (depreciation) $ 12,941,616 $ 12,406,757 $ 1,229,81 $(1,765,895) ============ ============ =========== ===========
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 accounting principles generally accepted in the United States. The tax character of dividends and distributions paid during the years ended August 31, 2003 and 2002 was as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Delaware Tax-Free Minnesota Minnesota High-Yield Minnesota Fund Insured Fund Intermediate Fund Municipal Bond Fund --------------- ----------------- ------------------ ------------------- Year ended 8/31/03 - ----------------------- Tax-exempt income $18,468,203 $11,869,389 $2,719,722 $3,111,540 Long-term capital gain 270,770 -- -- -- ----------- ----------- ---------- ---------- Total $18,738,973 $11,869,389 $2,719,722 $3,111,540 =========== =========== ========== ========== Year ended 8/31/02 - ----------------------- Tax-exempt income $18,903,325 $11,898,046 $2,594,327 $3,043,909
As of August 31, 2003, 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 Minnesota Fund Insured Fund Intermediate Fund Municipal Bond Fund --------------- ----------------- ------------------ ------------------- Shares of beneficial interest $349,128,010 $247,661,352 $69,064,649 $63,877,311 Undistributed ordinary income 199,532 -- -- -- Undistributed tax-exempt income (22,418) -- 1,470 -- Undistributed long-term capital gain 4,337,706 -- -- -- Capital loss carryforwards -- (716,681) (2,114,864) (1,782,389) Post-October losses -- -- -- (417,655) Unrealized appreciation (depreciation) of investments 12,941,616 12,406,757 1,229,812 (1,765,895) ------------ ------------ ----------- ----------- Net assets $366,584,446 $259,351,428 $68,181,067 $59,911,372 ============ ============ =========== ===========
Post-October losses represent losses realized on investment transactions from November 1, 2002 through August 31, 2003 that, in accordance with federal income tax regulations the Funds have elected to defer and treat as having arisen in the following fiscal year. 37 Notes Delaware Minnesota Municipal Bond Funds TO FINANCIAL STATEMENTS (CONTINUED) 4. Dividend and Distribution Information (continued) For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Such capital loss carryforwards expire as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Minnesota Minnesota Minnesota High-Yield Year of Expiration Insured Fund Intermediate Fund Municipal Bond Fund - ----------------------- ----------------- ----------------- ------------------- 2004 $ 13,413 $ -- $ 6,809 2005 -- -- 4,334 2006 -- -- 648 2007 -- -- 369 2008 589,183 423,683 201,822 2009 114,085 1,440,485 1,267,552 2010 -- 4,037 57,521 2011 -- 246,659 243,334 --------- ---------- ---------- Total $ 716,681 $2,114,864 $1,782,389 ========= ========== ==========
During the year ended August 31, 2003, $2,784,421 of unused capital loss carryforwards expired for the Delaware Tax-Free Minnesota Insured Fund. 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 8/31/03 8/31/02 8/31/03 8/31/02 Shares sold: Class A 1,598,089 1,357,657 1,341,420 968,339 Class B 165,696 211,626 310,624 247,346 Class C 279,810 209,053 617,494 263,348 Shares issued upon reinvestment of dividends and distributions: Class A 865,142 901,116 639,816 672,254 Class B 39,201 38,015 39,247 34,747 Class C 23,598 17,519 21,407 14,038 ---------- ---------- ---------- ---------- 2,971,536 2,734,986 2,970,008 2,200,072 ---------- ---------- ---------- ---------- Shares repurchased: Class A (3,414,536) (2,873,662) (2,313,055) (1,997,218) Class B (239,163) (165,708) (203,283) (139,579) Class C (96,819) (98,569) (81,525) (113,011) ---------- ---------- ---------- ---------- (3,750,518) (3,137,939) (2,597,863) (2,249,808) ---------- ---------- ---------- ---------- Net increase (decrease) (778,982) (402,953) 372,145 (49,736) ========== ========== ========== ==========
38 Notes Delaware Minnesota Municipal Bond Funds TO FINANCIAL STATEMENTS (CONTINUED) 5. Capital Shares (continued)
Delaware Tax-Free Delaware Minnesota High-Yield Minnesota Intermediate Fund Municipal Bond Fund --------------------------- ----------------------------- Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 Shares sold: Class A 1,012,529 677,876 508,021 367,765 Class B 145,327 117,966 116,993 178,170 Class C 344,972 236,241 374,028 212,604 Shares issued upon reinvestment of dividends and distributions: Class A 170,287 169,701 113,106 115,976 Class B 6,948 4,614 35,758 38,464 Class C 14,355 12,929 27,080 22,134 --------- --------- --------- -------- 1,694,418 1,219,327 1,174,986 935,113 --------- --------- --------- -------- Shares repurchased: Class A (519,538) (725,641) (427,831) (476,413) Class B (42,074) (87,460) (234,605) (179,051) Class C (199,737) (82,670) (104,635) (134,893) --------- --------- --------- -------- (761,349) (895,771) (767,071) (790,357) --------- --------- --------- -------- Net increase 933,069 323,556 407,915 144,756 ========= ========= ========= ========
For the years ended August 31, 2003 and 2002, the following shares were converted from Class B to Class A. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets.
Year Ended Year Ended 8/31/03 8/31/02 ______________________________________ ____________________________________ Class B Class A Class B Class A shares shares Amount shares shares Amount Delaware Tax-Free Minnesota Fund 33,800 33,825 $439,727 -- -- -- Delaware Tax-Free Minnesota Insured Fund 26,832 26,812 301,869 -- -- -- Delaware Tax-Free Minnesota Intermediate Fund 7,322 7,335 80,346 27,324 27,272 $287,894
6. Line of Credit Each Fund, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $202,300,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Funds had no amounts outstanding as of August 31, 2003 or at any time during the year. 7. Credit and Market Risk The Funds concentrate their investments in securities issued by municipalities, mainly in Minnesota. The value of these investments may be adversely affected by new legislation within the state, regional or local economic conditions, and differing levels of supply and demand for municipal bonds. Many municipalities insure repayment for their obligations. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that market value may fluctuate for other reasons and there is no assurance that the insurance company will meet its obligations. These securities have been identified in the Statements of Net Assets. The Funds may invest in inverse floating rate securities ("inverse floaters"), a type of derivative tax-exempt obligation with floating or variable interest rates that move in the opposite direction of short-term interest rates, usually at an accelerated speed. Consequently, the market values of inverse floaters will generally be more volatile than other tax-exempt investments. Such securities are denoted on the Statement of Net Assets. 39 Notes Delaware Minnesota Municipal Bond Funds TO FINANCIAL STATEMENTS (CONTINUED) 8. 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, 2003, each Fund designates distributions paid during the year as follows:
(A) (B) Long-Term Ordinary (C) (D) Capital Gains Income Tax Exempt Total Distributions Distributions Distributions Distributions (Tax Basis) (Tax Basis) (Tax Basis) (Tax Basis) Delaware Tax-Free Minnesota Fund 1% -- 99% 100% Delaware Tax-Free Minnesota Insured Fund -- -- 100% 100% Delaware Tax-Free Minnesota Intermediate Fund -- -- 100% 100% Delaware Minnesota High-Yield Municipal Bond Fund -- -- 100% 100%
(A), (B), and (C) are based on a percentage of each Fund's total distributions. 40 Report OF INDEPENDENT AUDITORS 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, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund and Delaware Minnesota High-Yield Municipal Bond Fund (the "Funds") as of August 31, 2003, 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the above listed Funds at August 31, 2003, 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 accounting principles generally accepted in the United States. Ernst & Young LLP Philadelphia, Pennsylvania October 3, 2003 41 Delaware Investments Family of Funds BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of 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 that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees/Officers and certain background and related information.
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES Jude T. Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None 2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in Philadelphia, PA various executive capacities 19103 Trustee as of at different times at May 15, 2003 Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process -- Conseco Capital Management (June 1998 -- August 2000) Managing Director -- NationsBanc Capital Markets (February 1996 -- June 1998) - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES Walter P. Babich Trustee 15 Years Board Chairman -- 101 None 2005 Market Street Citadel Construction Corporation Philadelphia, PA (1989 -- Present) 19103 October 1, 1927 John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee -- Abington 2005 Market Street Memorial Hospital Philadelphia, PA 19103 President/Director -- 22 WR Corporation August 7, 1937 John A. Fry Trustee(4) 2 Years President -- 83 None 2005 Market Street Franklin & Marshall College Philadelphia, PA (June 2002 -- Present) 19103 Executive Vice President -- May 28, 1960 University of Pennsylvania (April 1995 -- June 2002) Anthony D. Knerr Trustee 10 Years Founder/Managing Director -- 101 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 -- Present) December 7, 1938
42
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES (CONTINUED) Ann R. Leven Trustee 14 Years Treasurer/Chief 101 Director -- Andy 2005 Market Street Fiscal Officer -- Warhol Foundation Philadelphia, PA National Gallery of Art 19103 (1994 -- 1999) Director -- Systemax Inc. November 1, 1940 Thomas F. Madison Trustee 9 Years President/Chief 101 Director -- 2005 Market Street Executive Officer -- CenterPoint Energy Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director -- Digital and Consulting) River Inc. (January 1993 -- Present) February 25, 1936 Director -- Rimage Corporation Director -- Valmont Industries, Inc. Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None 2005 Market Street Acquisitions -- 3M Corporation Philadelphia, PA (January 2003 -- Present) 19103 Ms. Yeomans has held July 31, 1948 various management positions at 3M Corporation since 1983. - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS Joseph H. Hastings Executive Vice Executive Vice Mr. Hastings has served in 101 None 2005 Market Street President President and various executive capacities Philadelphia, PA and Chief Chief at different times at 19103 Financial Officer Financial Officer Delaware Investments. since August 21, 2003 December 19, 1949 Richelle S. Maestro Senior Vice President, General Counsel Ms. Maestro has served in 101 None 2005 Market Street Chief Legal Officer since various executive capacities Philadelphia, PA and Secretary March 17, 2003 at different times at 19103 Delaware Investments. November 26, 1957 Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Registrant's investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's manager and distributor. (3) Mr. Durham served as a Director Emeritus from 1995 through 1998. (4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III and Voyageur Tax Free Funds. 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. 43 This page intentionally left blank. Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) This annual report is for the information of Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund, and Delaware Minnesota High-Yield Municipal Bond Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Tax-Free Minnesota Fund, Delaware Tax-Free Minnesota Insured Fund, Delaware Tax-Free Minnesota Intermediate Fund, and Delaware Minnesota High-Yield Municipal Bond Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies for the Funds. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in the Funds will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information Walter P. Babich Jude T. Driscoll Investment Manager Board Chairman Chairman Delaware Management Company Citadel Construction Corporation Delaware Investments Family of Funds Philadelphia, PA King of Prussia, PA Philadelphia, PA International Affiliate John H. Durham Joseph H. Hastings Delaware International Advisers Ltd. Private Investor Executive Vice President and London, England Gwynedd Valley, PA Chief Financial Officer Delaware Investments Family of Funds National Distributor Anthony D. Knerr Philadelphia, PA Delaware Distributors, L.P. Managing Director Philadelphia, PA Anthony Knerr & Associates Richelle S. Maestro New York, NY Senior Vice President, Shareholder Servicing, Dividend Chief Legal Officer and Secretary Disbursing and Transfer Agent Ann R. Leven Delaware Investments Family of Funds Delaware Service Company, Inc. Former Treasurer/Chief Fiscal Officer Philadelphia, PA 2005 Market Street National Gallery of Art Philadelphia, PA 19103-7094 Washington, DC Michael P. Bishof Senior Vice President and Treasurer For Shareholders Thomas F. Madison Delaware Investments Family of Funds 800 523-1918 President and Chief Executive Officer Philadelphia, PA MLM Partners, Inc. For Securities Dealers and Financial Minneapolis, MN Institutions Representatives Only 800 362-7500 Janet L. Yeomans Vice President/Mergers & Acquisitions Web site 3M Corporation www.delawareinvestments.com St. Paul, MN
- -------------------------------------------------------------------------------- A description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800-523-1918; (ii) on the Fund's website at http://www.delawareinvestments.com; and (iii) on the Commission's website at http://www.sec.gov.; and beginning no later than August 31, 2004, information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) through the Fund's website at http://www.delawareinvestments.com; and (ii) on the Commission's website at http://www.sec.gov. - -------------------------------------------------------------------------------- (8240) Printed in the USA AR-MNALL [8/03] IVES 10/03 J9418 Delaware Investments(SM) -------------------------------------- A member of Lincoln Financial Group(R) FIXED INCOME Annual Report 2003 - -------------------------------------------------------------------------------- DELAWARE TAX-FREE FLORIDA FUND DELAWARE TAX-FREE FLORIDA INSURED FUND DELAWARE TAX-FREE NEW YORK FUND [LOGO] POWERED BY RESEARCH.(SM) Table OF CONTENTS - ------------------------------------------------------------------ PORTFOLIO MANAGEMENT REVIEW 1 - ------------------------------------------------------------------ PERFORMANCE SUMMARIES: Delaware Tax-Free Florida Fund 3 Delaware Tax-Free Florida Insured Fund 4 Delaware Tax-Free New York Fund 5 - ------------------------------------------------------------------ FINANCIAL STATEMENTS: Statements of Net Assets 6 Statements of Operations 12 Statements of Changes in Net Assets 13 Financial Highlights 14 Notes to Financial Statements 23 - ------------------------------------------------------------------ REPORT OF INDEPENDENT AUDITORS 27 - ------------------------------------------------------------------ BOARD OF TRUSTEES/OFFICERS 28 - ------------------------------------------------------------------ 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) 2003 Delaware Distributors, L.P. Portfolio September 10, 2003 MANAGEMENT REVIEW Fund Managers Patrick P. Coyne Chief Investment Officer -- Fixed Income M. L. Conery Senior Portfolio Manager Q: Please describe the overall bond market conditions during the fiscal year. A: All bond fund performance occurred against a backdrop of much lower short-term rates throughout the markets, anchored by Federal Reserve interest rate cuts that left the fed funds rate at 1%. One-year, AAA-rated municipal bonds began the fiscal year yielding 1.40% and finished at 1.05% on August 31, 2003 (Source: Municipal Market Data). As short-term yields decreased, longer-term (10- and 30-year) yields increased, causing the yield curve to steepen slightly. Yields on 10-year, AAA-rated general obligation bonds rose during the year. 30-year AAA-rated general obligation bonds began the period yielding 4.89% and went as low as 4.20% on the Fed's suggestion that it might consider buying long bonds directly. These bonds ended the period at 5.02%, in part because the Fed concluded that it does not plan to buy long bonds directly at this time. The yield curve also steepened because investors seem to anticipate an improving U.S. economy. Though some states saw their credit ratings improve, a number of states experienced downgraded credit ratings. This is likely due to weak national and regional economies, poor equity market performance, and decreased tax revenues. States have faced unprecedented revenue shortfalls, budget gaps, and increased social service obligations in a period of high unemployment and high debt levels in some states. The past two years have seen soaring bond supply, as municipalities refinanced older, more expensive debt at lower rates. Municipalities have also seen less tax revenue since the U.S. economic downturn, and so have been more likely to finance some projects, conserving their cash. This story continued through the first seven months of the 2003 calendar year. In August, however, rates jumped, and the markets saw a 31 percent reduction in new bond issuance. Despite this one month decline, year-to-date issues were up 13 percent at the end of August (Source: Thomson Financial). Q: What conditions prevailed in the Florida and New York municipal debt markets during the year? A: Between January 1 and August 31, 2003, the volume of Florida debt increased by roughly 18 percent. The credit quality was volatile, as is usual in the state, but we continue to find that the state government itself is well run and fiscally conservative, with well-structured debt. Florida is still feeling the loss of tourism dollars, as it has since the events of September 11, 2001. The 2001 recession caused fewer people to travel long distances for pleasure. It also made companies more conservative about business travel, another factor that has hurt Florida's travel revenue stream. Despite the struggles in the travel industry, we believe we are witnessing the start of a gradual recovery for both business and vacation travel to Florida. Debt volume in New York declined between January 1 and August 31, 2003 by approximately 16 percent, and credit quality was below projections. Taxes and other revenue streams are still down in New York, as the economy is still feeling the effects of September 11, 2001. Both New York State and New York City suffer from high debt levels, large social services burdens, and an ongoing, expensive overhaul of the city's schools. On the positive side, the city's service-based economy appears to be rebounding. Financial services, which suffered considerably in the past two years, is also beginning to recover. Q: Please discuss performance and your strategies in each of the funds during the year. Delaware Tax-Free Florida Fund returned +3.67% (Class A shares at net asset value with distributions reinvested) for the fiscal year ended August 31, 2003. It outperformed its benchmark, the Lehman Brothers Municipal Bond Index, which gained +3.14%. Your Fund also beat its peer group, as represented by the 62 funds of the Lipper Florida Municipal Debt Funds Average, which returned +2.34%. As rates climbed, we sold some lower-coupon bonds, particularly those that involve a tax loss. That has allowed us to reinvest at a higher level, providing a better payout and allowing us to offset capital gains in the Fund. 1 We took advantage of opportunities where we perceived relative value. In some such cases, we were able to purchase what we believed to be bargain paper when supply was plentiful, intending to collect the coupon for a time and then resell the bonds for a profit when the market has shifted in a way that supply is diminished and demand rises. We employed this strategy when we felt that the risk/reward profile of using it was favorable. For instance, we watched for periods of heavy supply from specialty issuer Puerto Rico. At present, we intend to sell certain Puerto Rico bonds once supply diminishes and we see heavier demand from buyers. We purchased bonds issued by Miami-Dade County Airport Authority -- the financing and operating entity for Miami International Airport -- as well as bonds issued through Orlando International Airport, which are backed by national cargo facility revenues. We feel that the latter issue, which pays 6.75%, is a good opportunity to be paid for holding a non-investment-grade bond. We sold hospital debt, as we saw a strong demand for this paper in general. However, we did acquire a position in Tampa General Hospital. The Fund's average credit quality at year-end was AA, which represents a small improvement to credit quality compared to the prior year. We felt that our average maturity was a bit short when compared with our peer group. This reduced maturity stance resulted in the Fund underperforming its potential as compared to a longer maturity posture. We intend to lengthen our average maturity going forward. We also slightly extended duration throughout the year, based on our belief for the overall market and on the duration of purchases we made. Duration is a common measure of a bond's or bond fund's sensitivity to interest rate changes. The longer the duration, the more sensitive the bond or bond fund is to changes in interest rates. ................................................................................. Delaware Tax-Free Florida Insured Fund returned +2.68% (Class A shares at net asset value with distributions reinvested) for the fiscal year ended August 31, 2003. Its performance was below that of its benchmark, the Lehman Brothers Municipal Bond Index, which rose +3.14%. Your Fund outperformed its peer group, as represented by the eight funds in the Lipper Florida Insured Municipal Debt Funds Average, which returned +2.34% for the same period. As rates climbed, we sold some lower-coupon bonds, particularly those that involve a tax loss. That has allowed us to reinvest at a higher level, providing a better payout offseting capital gains in the Fund. We also increased our position in Puerto Rican debt obligations from three percent to 10 percent of total net assets, because we felt it was a better investment than pricier Florida paper at a time when we needed to reinvest assets. We continue to favor the healthcare and multifamily housing sectors. As in Delaware Tax-Free Florida Fund and noted previously, we took advantage of relative value opportunities, watching for periods of heavy supply in Puerto Rico. We intend to sell these bonds when supply diminishes and we see heavy demand. We increased duration slightly throughout the year. We felt that our generally short duration posture was a prudent response to volatile market conditions. ................................................................................. Delaware Tax-Free New York Fund returned +3.56% (Class A shares at net asset value with distributions reinvested), outperforming the +3.14% gain of its benchmark, the Lehman Brothers Municipal Bond Index. The Fund also outperformed its peer group, as represented by the 110 funds of the Lipper New York Municipal Debt Funds Average, which returned +2.21%. As rates climbed, we sold some lower-coupon bonds, particularly those that involve a tax loss. That has allowed us to reinvest at a higher level, providing a better payout and allowing us to offset capital gains in the Fund. As mentioned regarding our Florida funds, we took advantage of relative value opportunities, watching for periods of heavy supply in Puerto Rico. We intend to sell these bonds when supply diminishes and we see heavy demand. Our search for good yield and solid credit led us to the healthcare sector, which we increased from nine percent to 18 percent of total net assets. We decreased our position in higher education bonds, reducing them from 18 percent to 15 percent. Notably, we declined to purchase positions in tobacco bonds, which are backed by the state's share of a $200 billion federal court settlement against large tobacco companies. We were concerned by our perception that there was more supply than demand for these bonds. We also avoided airline debt. The airline industry continues to struggle, as it has for several years, and we felt it was prudent to avoid the sector in general. Finally, we lengthened average maturity and duration somewhat, both in response to market conditions and as an effect of individual trades. 2 Delaware TAX-FREE FLORIDA FUND Fund Basics As of August 31, 2003 - ----------------------------------------------------------- Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and from Florida state personal income tax as is consistent with preservation of capital. - ----------------------------------------------------------- Total Fund Net Assets: $16.84 million - ----------------------------------------------------------- Number of Holdings: 38 - ----------------------------------------------------------- Fund Start Date: March 2, 1995 - ----------------------------------------------------------- Your Fund Managers: Patrick P. Coyne is a graduate of Harvard University with an MBA from the University of Pennsylvania's Wharton School. Patrick Coyne joined Delaware Investments' fixed-income department in 1990. Prior to joining Delaware Investments, he was a manager of Kidder, Peabody & Co. Inc.'s trading desk, and specialized in trading high-grade municipal bonds and municipal futures contracts. M. L. Conery joined Delaware Investments in January 1997 and holds a bachelor's degree from Boston University and an MBA in finance from the State University of New York at Albany. Prior to joining Delaware, M. L. Conery has served as an investment officer with Travelers Insurance and as a research analyst with CS First Boston and MBIA Corporation. - ----------------------------------------------------------- Nasdaq Symbols: Class A DVFAX Class B DVFBX Class C DVFCX Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 3/2/95) Excluding Sales Charge +6.37% +4.37% +3.67% Including Sales Charge +5.80% +3.41% -1.00% - -------------------------------------------------------------------------------- Class B (Est. 9/15/95) Excluding Sales Charge +5.26% +3.61% +2.98% Including Sales Charge +5.26% +3.35% -0.99% - -------------------------------------------------------------------------------- Class C (Est. 4/22/95) Excluding Sales Charge +5.36% +3.60% +2.89% Including Sales Charge +5.36% +3.60% +1.90% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 Florida Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment March 2, 1995 (Fund's inception) through August 31, 2003 Delaware Tax-Free Lehman Brothers Florida Fund Municipal Bond Index ------------ -------------------- Mar-95 $9,678 $10,000 Aug-95 $10,011 $10,469 Aug-96 $10,713 $11,017 Aug-97 $11,804 $12,036 Aug-98 $13,022 $13,077 Aug-99 $12,825 $13,148 Aug-00 $13,352 $14,033 Aug-01 $14,619 $15,466 Aug-02 $15,558 $16,423 Aug-03 $16,128 $16,939 Chart assumes $10,000 invested on March 2, 1995 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 chart also assumes $10,000 invested in the Lehman Brothers Municipal Bond Index at that month's end, March 31, 1995. After March 31, 1995, returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 3 Delaware TAX-FREE FLORIDA INSURED FUND Fund Basics As of August 31, 2003 - ---------------------------------------------- Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and from Florida state personal income tax as is consistent with preservation of capital. - ---------------------------------------------- Total Fund Net Assets: $102.60 million - ---------------------------------------------- Number of Holdings: 43 - ---------------------------------------------- Fund Start Date: January 1, 1992 - ---------------------------------------------- Your Fund Managers: Patrick P. Coyne M. L. Conery - ---------------------------------------------- Nasdaq Symbols: Class A VFLIX Class B DVDBX Class C DVDCX
Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime 10 Years Five Years One Year - -------------------------------------------------------------------------------------------- Class A (Est. 1/1/92) Excluding Sales Charge +6.32% +5.16% +4.42% +2.68% Including Sales Charge +5.90% +4.68% +3.45% -1.91% - -------------------------------------------------------------------------------------------- Class B (Est. 3/11/94) Excluding Sales Charge +4.88% +3.64% +2.00% Including Sales Charge +4.88% +3.39% -1.92% - -------------------------------------------------------------------------------------------- Class C (Est. 9/29/97)* Excluding Sales Charge +4.21% +3.65% +2.00% Including Sales Charge +4.21% +3.65% +1.02% - --------------------------------------------------------------------------------------------
* Class C shares were sold and outstanding from September 29, 1997 until December 18, 1997, when all of the outstanding Class C shares were redeemed. There were no outstanding Class C shares or shareholder activity from December 19, 1997 through January 7, 1999. The performance for Class C shares during the period from December 19, 1997 through January 7, 1999 is based on the performance of Class B shares. Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 Florida Insured Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment August 31, 1993 through August 31, 2003 Delaware Tax-Free Lehman Brothers Florida Insured Fund Municipal Bond Index -------------------- -------------------- Aug-93 $9,550 $10,000 Aug-94 $9,292 $10,014 Aug-95 $10,049 $10,902 Aug-96 $10,643 $11,474 Aug-97 $11,680 $12,534 Aug-98 $12,729 $13,618 Aug-99 $12,622 $13,692 Aug-00 $13,291 $14,614 Aug-01 $14,539 $16,106 Aug-02 $15,388 $17,102 Aug-03 $15,799 $17,639 Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 4 Delaware TAX-FREE NEW YORK FUND Fund Basics As of August 31, 2003 - ---------------------------------------------- Fund Objective: The Fund seeks as high a level of current income exempt from federal income tax and from New York state personal income tax as is consistent with preservation of capital. - ---------------------------------------------- Total Fund Net Assets: $17.50 million - ---------------------------------------------- Number of Holdings: 34 - ---------------------------------------------- Fund Start Date: November 6, 1987 - ---------------------------------------------- Your Fund Managers: Patrick P. Coyne M. L. Conery - ---------------------------------------------- Nasdaq Symbols: Class A FTNYX Class B DVTNX Class C DVFNX
Fund Performance Average Annual Total Returns Through August 31, 2003 Lifetime 10 Years Five Years One Year - ---------------------------------------------------------------------------------------------------------- Class A (Est. 11/6/87) Excluding Sales Charge +6.44% +4.50% +4.35% +3.56% Including Sales Charge +6.13% +4.01% +3.40% -1.13% - ---------------------------------------------------------------------------------------------------------- Class B (Est. 11/14/94) Excluding Sales Charge +4.68% +3.58% +2.69% Including Sales Charge +4.68% +3.33% -1.26% - ---------------------------------------------------------------------------------------------------------- Class C (Est. 4/26/95) Excluding Sales Charge +4.11% +3.60% +2.79% Including Sales Charge +4.11% +3.60% +1.80% - ----------------------------------------------------------------------------------------------------------
Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Returns and share values will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Performance for Class B and C shares, excluding sales charges, assume either that contingent deferred sales charges did not apply or the investment was not redeemed. Past performance is not a guarantee of future results. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 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%. 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 New York Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table and graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. Performance of a $10,000 Investment August 31, 1993 through August 31, 2003 Delaware Tax-Free Lehman Brothers New York Fund Municipal Bond Index ------------- -------------------- Aug-93 $9,550 $10,000 Aug-94 $9,617 $10,014 Aug-95 $10,179 $10,902 Aug-96 $10,536 $11,474 Aug-97 $11,155 $12,534 Aug-98 $11,963 $13,618 Aug-99 $11,669 $13,692 Aug-00 $12,262 $14,614 Aug-01 $13,616 $16,106 Aug-02 $14,295 $17,102 Aug-03 $14,803 $17,639 Chart assumes $10,000 invested on August 31, 1993 and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. Performance for other Fund classes will vary due to differing charges and expenses. Returns plotted on the chart were as of the last day of each month shown. The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. An index 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. 5 Statements Delaware Tax-Free Florida Fund OF NET ASSETS August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds- 97.44% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 5.07% Capital Trust Agency Florida Revenue (Orlando/Cargo Project) 6.75% 1/1/32 $395,000 $369,313 Miami-Dade County Florida Aviation Revenue Series A 5.00% 10/1/33 (FSA)(AMT) 500,000 483,740 -------- 853,053 -------- Consumer Non-Durables - 1.60% Volusia County Health Facilities Authority (John Knox Village) Series A 6.00% 6/1/17 (RADIAN) 250,000 268,573 -------- 268,573 -------- Corporate Backed Revenue Bonds - 0.91% Jacksonville Sewer & Solid Waste Disposal Facilities Authority (Anheuser Busch Project) 5.875% 2/1/36 (AMT) 150,000 154,019 -------- 154,019 -------- Dedicated Tax & Fees Revenue Bonds - 4.11% Dade County Special Obligation Series B 5.00% 10/1/35 (AMBAC) 200,000 196,074 Jacksonville, Florida Sales Tax Revenue 5.00% 10/1/30 (MBIA) 500,000 495,945 -------- 692,019 -------- Hospital Revenue Bonds - 22.19% Escambia County Health Facilities Authority (Florida Health Care Facilities - VHA Program) 5.95% 7/1/20 (AMBAC) 425,000 457,309 Highlands County Health Facilities Authority (Adventist Health System/Sunbelt) Series A 6.00% 11/15/31 500,000 521,344 Hillsborough County Florida Industrial Development (Tampa General Hospital Project) Series B 5.25% 10/1/34 500,000 464,840 North Miami Health Facilities Authority (Catholic Health Services) (LOC Suntrust Bank-Miami) 6.00% 8/15/16 500,000 526,404 Orange County, Florida Health Facilities Authority Revenue (Adventist Health System) 5.625% 11/15/32 500,000 502,015 Orange County, Florida Health Facilities Authority Revenue (Orlando Regional Healthcare) 5.75% 12/1/32 250,000 253,828 Palm Beach County Health Facilities Authority Revenue Refunding Hospital (Boca Raton Community Hospital) 5.625% 12/1/31 500,000 499,250 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Hospital Revenue Bonds (continued) South Broward Hospital District Revenue (Memorial Healthcare System) 5.625% 5/1/32 $ 500,000 $ 509,670 ---------- 3,734,660 ---------- Miscellaneous Revenue Bonds - 6.75% Florida State Board of Education (Lottery Revenue) Series A 6.00% 7/1/14 (FGIC) 1,000,000 1,137,070 ---------- 1,137,070 ---------- Multi Family Housing Revenue Bonds - 10.85% Dade County Housing Finance Authority (Lincoln Fields Apartments Section 8) 6.25% 7/1/24 (MBIA) 500,000 501,770 Duval Housing Finance Authority (St. Augustine Apartments) 6.00% 3/1/21 300,000 306,453 Florida Housing Finance Agency (The Vineyards Project) Series H 6.40% 11/1/15 500,000 516,810 Volusia County Housing Finance Authority (San Marco Apartments) Series A 5.60% 1/1/44 (FSA)(AMT) 500,000 501,065 ---------- 1,826,098 ---------- Ports & Harbors Revenue Bonds - 1.81% Jacksonville Florida Port Authority Seaport Revenue 5.70% 11/1/30 (MBIA)(AMT) 295,000 304,888 ---------- 304,888 ---------- *Pre-Refunded Bonds - 20.35% Jacksonville Florida Port Authority Seaport Revenue 5.70% 11/1/30-10 (MBIA)(AMT) 205,000 231,187 Northern Palm Beach County Improvement District Special Assessment (Abacoa Water Control) 7.20% 8/1/16-06 300,000 349,365 Pinellas County Educational Facilities Authority (Clearwater Christian College) Private Placement 8.00% 2/1/11-06 205,000 229,225 Tampa Utilities Tax Revenue Series A 6.00% 10/1/17-09 (AMBAC) 1,000,000 1,174,130 6.125% 10/1/18-09 (AMBAC) 1,000,000 1,181,040 Volusia County, Florida Industrial Development Authority Mortgage Revenue (Bishops Glen Retirement Health Facilities Project) 7.50% 11/1/16-06 230,000 260,813 ---------- 3,425,760 ---------- Public Power Revenue Bonds - 6.18% Jacksonville, Florida Electric Authority Revenue Electric System Series 3-C 5.50% 10/1/30 1,000,000 1,040,720 ---------- 1,040,720 ---------- 6 Statements Delaware Tax-Free Florida Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Single Family Housing Revenue Bonds - 3.66% Florida Housing Finance Agency Homeowner Mortgage Series 1B 6.00% 7/1/17 $125,000 $ 130,269 Orange County Florida Housing Finance Authority Homeowner Revenue Series B 5.25% 3/1/33 (AMT) 500,000 486,120 ----------- 616,389 ----------- Tax Increment / Special Assessment Bonds - 6.32% Julinton Creek Plantation Community Development District Special Assessment 5.00% 5/1/29 (MBIA) 495,000 486,876 Lake Bernadette Community Development District Special Assessment Series A 8.00% 5/1/17 240,000 248,158 Orlando, Florida Special Assessment (Conroy Road Interchange Project) Series B 5.25% 5/1/05 125,000 124,980 Tampa Palms Community Development District (Richmond Place Project) 7.50% 5/1/18 195,000 204,222 ----------- 1,064,236 ----------- Territorial Revenue Bonds - 2.64% Puerto Rico Commonwealth Highway & Transportation Authority Revenue Series B 6.00% 7/1/26 150,000 157,920 Puerto Rico Commonwealth Highway & Transportation Authority Revenue Series G 5.00% 7/1/42 300,000 286,314 ----------- 444,234 ----------- Turnpike / Toll Road Revenue Bonds - 2.02% Dunes, Florida Community Development District Revenue -Intracoastal Waterway Bridge (ITT Industries Corporation) 5.50% 10/1/07 175,000 179,132 Florida State Mid-Bay Bridge Authority Series D 6.125% 10/1/22 160,000 160,859 ----------- 339,991 ----------- Water & Sewer Revenue Bonds - 2.98% Jacksonville Electric Authority Revenue Water & Sewer Systems Series A 5.625% 10/1/37 500,000 502,065 ----------- 502,065 ----------- Total Municipal Bonds (cost $15,590,773) 16,403,775 ----------- Total Market Value of Securities - 97.44% (cost $15,590,773) 16,403,775 Receivables and Other Assets Net of Liabilities - 2.56% 431,543 ----------- Net Assets Applicable to 1,541,080 Shares Outstanding - 100.00% $16,835,318 =========== Net Asset Value - Delaware Tax-Free Florida Fund Class A ($9,694,362 / 888,084 Shares) $10.92 ------ Net Asset Value - Delaware Tax-Free Florida Fund Class B ($5,313,120 / 485,819 Shares) $10.94 ------ Net Asset Value - Delaware Tax-Free Florida Fund Class C ($1,827,836 / 167,177 Shares) $10.93 ------ Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $16,751,043 Distributions in excess of net investment income (181) Accumulated net realized loss on investments (728,546) Net unrealized appreciation of investments 813,002 ----------- Total net assets $16,835,318 =========== Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance LOC - Letter of Credit MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance *For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. Net Asset Value and Offering Price per Share - Delaware Tax-Free Florida Fund Net asset value Class A (A) $10.92 Sales charge (4.50% of offering price, or 4.67% of amount invested per share)(B) 0.51 ------ Offering price $11.43 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 7 Statements Delaware Tax-Free Florida Insured Fund OF NET ASSETS (CONTINUED) August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 98.68% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 3.11% Lee County Florida Airport Revenue Series B 5.75% 10/1/33 (FSA) $3,000,000 $ 3,191,730 ----------- 3,191,730 ----------- Dedicated Tax & Fees Revenue Bonds - 12.72% Florida Department of Transportation 5.00% 7/1/31 (FGIC) 2,000,000 1,977,640 Jacksonville Florida Excise Taxes Revenue Series B 5.00% 10/1/26 (AMBAC) 1,500,000 1,494,840 +Palm Beach County Florida Criminal Justice Facilities Revenue Inverse Floater 9.77% 6/1/12 (FGIC) 7,500,000 9,572,775 ----------- 13,045,255 ----------- Higher Education Revenue Bonds - 3.04% Broward County, Florida Educational Facilities Authority Revenue (Nova Southeastern University) 5.25% 4/1/27 (RADIAN) 1,000,000 989,810 Dade County Florida Educational Facilities Authority (University of Miami) Series A 5.75% 4/1/29 (AMBAC) 2,000,000 2,128,360 ----------- 3,118,170 ----------- Hospital Revenue Bonds - 22.42% Escambia County Health Facilities Authority (Florida Health Care Facilities - VHA Program) 5.95% 7/1/20 (AMBAC) 4,500,000 4,842,089 Highlands County Health Facilities Authority (Adventist Health System/Sunbelt) Series A 6.00% 11/15/31 1,000,000 1,042,690 Hillsborough County Florida Industrial Development (Tampa General Hospital Project) Series B 5.25% 10/1/34 1,500,000 1,394,520 Indian River County Hospital District (Indian River Memorial Hospital) 6.10% 10/1/18 (FSA) 3,000,000 3,349,770 Lee Memorial Health Systems Series A 5.00% 4/1/18 (FSA) 1,250,000 1,287,338 Orange County, Florida Health Facilities Authority Revenue (Adventist Health System) 5.625% 11/15/32 3,965,000 3,980,979 Palm Beach County Health Facilities Authority Revenue Refunding Hospital (Boca Raton Community Hospital) 5.625% 12/1/31 2,000,000 1,997,000 South Broward Hospital District Revenue (Memorial Healthcare System) 5.625% 5/1/32 2,500,000 2,548,350 Tallahassee Health Facilities (Tallahassee Memorial Regional Medical Center) Series B 6.00% 12/1/15 (MBIA) 2,500,000 2,558,300 ----------- 23,001,036 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Multi Family Housing Revenue Bonds - 26.58% Florida Housing Finance Agency (Crossings Indian Run Apartments HUD) Series V (LOC First Union National Bank of North Carolina) 6.10% 12/1/26 (AMBAC)(AMT) $ 750,000 $ 770,018 Florida Housing Finance Agency (Landings at Sea Forest Apartments) Series T (LOC First Union National Bank of North Carolina) 5.85% 12/1/18 (AMBAC)(FHA)(AMT) 440,000 451,990 6.05% 12/1/36 (AMBAC)(FHA)(AMT) 700,000 714,861 Florida Housing Finance Agency (Leigh Meadows Apartments Section 8) Series N (LOC First Union National Bank of North Carolina) 6.20% 9/1/26 (AMBAC)(AMT) 2,765,000 2,846,015 6.30% 9/1/36 (AMBAC)(AMT) 2,000,000 2,058,880 Florida Housing Finance Agency (Mariner Club Apartments) Series K-1 6.25% 9/1/26 (AMBAC)(AMT) 2,000,000 2,062,220 6.375% 9/1/36 (AMBAC)(AMT) 3,500,000 3,611,125 Florida Housing Finance Agency (Riverfront Apartments Section 8) Series A 6.25% 4/1/37 (AMBAC)(AMT) 1,000,000 1,035,610 Florida Housing Finance Agency (Spinnaker Cove Apartments) Series G (LOC First Union National Bank of North Carolina) 6.50% 7/1/36 (AMBAC)(FHA)(AMT) 500,000 517,300 Florida Housing Finance Agency (Sterling Palms Apartments) Series D-1 (LOC First Union National Bank of North Carolina) 6.30% 12/1/16 (AMBAC)(AMT) 1,000,000 1,037,630 6.40% 12/1/26 (AMBAC)(AMT) 1,500,000 1,551,105 6.50% 6/1/36 (AMBAC)(AMT) 6,540,000 6,763,340 Florida Housing Finance Agency (Woodbridge Apartments) Series L 6.15% 12/1/26 (AMBAC)(AMT) 1,750,000 1,799,998 6.25% 6/1/36 (AMBAC)(AMT) 2,000,000 2,058,460 ----------- 27,278,552 ----------- Municipal Lease Revenue Bonds - 4.93% Osceola County Florida School Board Series A 5.25% 6/1/27 (AMBAC) 4,000,000 4,069,040 Palm Beach County Florida School Board Certificates of Participation Series D 5.00% 8/1/28 (FSA) 1,000,000 991,930 ----------- 5,060,970 ----------- *Pre-Refunded Bonds - 7.65% Miramar Wastewater Improvement Assessment 6.75% 10/1/25-04 (FGIC) 2,425,000 2,599,188 Port St. Lucie Florida Utility Revenue 6.00% 9/1/24-04 (FGIC) 5,000,000 5,249,900 ----------- 7,849,088 ----------- 8 Statements Delaware Tax-Free Florida Insured Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Public Power Revenue Bonds - 1.94% Florida State Municipal Power Agency Revenue (Stanton II Project) 5.00% 10/1/26 (AMBAC) $2,000,000 $ 1,993,120 ------------ 1,993,120 ------------ Tax Increment / Special Assessment Bonds - 1.30% Osceola County Celebration Community Development District Assessment 6.10% 5/1/16 (MBIA) 560,000 581,689 Osceola County Enterprise Community Development District Special Assessment 6.10% 5/1/16 (MBIA) 720,000 747,885 ------------ 1,329,574 ------------ Territorial General Obligation Bonds - 4.19% Puerto Rico Commonwealth Public Improvement Series A 5.125% 7/1/30 (FSA) 1,500,000 1,517,460 5.50% 7/1/19 (MBIA) 2,500,000 2,779,350 ------------ 4,296,810 ------------ Territorial Revenue Bonds - 6.23% Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series D 5.25% 7/1/38 5,500,000 5,451,765 Puerto Rico Public Buildings Authority Revenue 5.25% 7/1/25 (Commonwealth Guaranteed) 930,000 935,357 ------------ 6,387,122 ------------ Turnpike / Toll Road Revenue Bonds - 1.44% Tampa-Hillsborough County Expressway Authority 5.00% 7/1/35 (FGIC) 1,500,000 1,480,590 ------------ 1,480,590 ------------ Water & Sewer Revenue Bonds - 3.13% JEA, Florida Water and Sewer Systems Revenue Series A 5.375% 10/1/30 (MBIA) 2,000,000 2,042,960 Tampa Water and Sewer Revenue 6.00% 10/1/16 (FSA) 1,000,000 1,166,030 ------------ 3,208,990 ------------ Total Municipal Bonds (cost $96,611,195) 101,241,007 ------------ Total Market Value of Securities - 98.68% (cost $96,611,195) 101,241,007 Receivables and Other Assets Net of Liabilities - 1.32% 1,355,572 ------------ Net Assets Applicable to 9,233,448 Shares Outstanding - 100.00% $102,596,579 ============ Net Asset Value - Delaware Tax-Free Florida Insured Fund Class A ($95,950,606 / 8,635,590 Shares) $11.11 ------ Net Asset Value - Delaware Tax-Free Florida Insured Fund Class B ($5,799,858 / 521,738 Shares) $11.12 ------ Net Asset Value - Delaware Tax-Free Florida Insured Fund Class C ($846,115 / 76,120 Shares) $11.12 ------ Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $ 99,209,906 Accumulated net realized loss on investments (1,243,139) Net unrealized appreciation of investments 4,629,812 ------------ Total net assets $102,596,579 ============ Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FSA - Insured by Financial Security Assurance LOC - Letter of Credit MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance *For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. +An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term rates. Interest rate disclosed is in effect as of August 31, 2003. Net Asset Value and Offering Price per Share - Delaware Tax-Free Florida Insured Fund Net asset value Class A (A) $11.11 Sales charge (4.50% of offering price, or 4.68% of amount invested per share)(B) 0.52 ------ Offering price $11.63 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 9 Statements Delaware Tax-Free New York Fund OF NET ASSETS August 31, 2003 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds- 97.75% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 5.50% New York City, New York Industrial Development (JFK Airis Project) 5.50% 7/1/28 (AMT) $500,000 $ 462,370 Onondaga County, New York Industrial Development Authority Revenue Subordinated (Air Cargo Project) 7.25% 1/1/32 (AMT) 500,000 500,435 ---------- 962,805 ---------- City General Obligation Bonds - 5.44% New York City Series C 5.375% 11/15/27 450,000 453,029 New York City, New York Series J 5.25% 6/1/28 500,000 498,925 ---------- 951,954 ---------- Dedicated Tax & Fees Revenue Bonds - 2.89% Schenectady, New York Metroplex Development Authority Revenue Series A 5.375% 12/15/21 500,000 505,790 ---------- 505,790 ---------- Higher Education Revenue Bonds - 14.92% Amherst, New York Industrial Agency Civic Facilities Revenue (UBF Faculty Student Housing) Series A 5.75% 8/1/30 (AMBAC) 200,000 214,626 Dutchess County Industrial Development Agency (Marist College) 5.00% 7/1/20 500,000 491,865 New York State Dormitory Authority Revenue (Columbia University) Series A 5.00% 7/1/23 500,000 506,760 New York State Dormitory Authority Revenue (Pratt Institute) 6.00% 7/1/20 (RADIAN) 500,000 561,105 New York State Dormitory Authority Revenue (State University) Series B 7.50% 5/15/11 270,000 326,249 Onondaga County Industrial Development Agency (Le Moyne College) Series A 5.625% 12/1/21 500,000 510,805 ---------- 2,611,410 ---------- Hospital Revenue Bonds - 18.18% New York State Dormitory Authority Revenue (Chapel Oaks) (LOC Allied Irish Bank) 5.45% 7/1/26 450,000 452,691 New York State Dormitory Authority Revenue (Mental Health) Series D 5.90% 2/15/12 250,000 275,748 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Hospital Revenue Bonds (continued) New York State Dormitory Authority Revenue (Millard Fillmore Hospital) 5.375% 2/1/32 (AMBAC) (FHA) $ 450,000 $ 457,961 New York State Dormitory Authority Revenue (North Shore Long Island Jewish Group) 5.50% 5/1/33 500,000 502,939 New York State Dormitory Authority Revenue (Sloan-Kettering Center) Series 1 5.00% 7/1/34 500,000 486,855 New York State Dormitory Authority Revenue (Winthrop South Nassau Hospital) Series B 5.50% 7/1/23 500,000 503,169 New York State Dormitory Authority Revenue (Winthrop University Hospital) Series A 5.50% 7/1/32 500,000 500,900 ---------- 3,180,263 ---------- Investor Owned Utilities Revenue Bonds - 5.21% New York City Industrial Development Agency (Brooklyn Navy Yard Cogen Partners) 5.75% 10/1/36 (AMT) 450,000 397,683 New York State Energy Research & Development Authority Pollution Control Revenue (Central Hudson Gas) Series A 5.45% 8/1/27 (AMBAC) 500,000 514,685 ---------- 912,368 ---------- Municipal Lease Revenue Bonds - 5.76% Albany, New York Industrial Development Agency Civic Facility Revenue (Charitable Leadership Project) Series A 5.75% 7/1/26 500,000 497,125 New York State Dormitory Authority Lease 5.375% 5/15/21 500,000 511,735 ---------- 1,008,860 ---------- Parking Revenue Bonds - 2.89% Albany, New York Parking Authority Revenue Series A 5.625% 7/15/25 500,000 505,535 ---------- 505,535 ---------- *Pre-Refunded Bonds - 10.71% Metropolitan Transportation Authority New York Dedicated Tax Series A 6.125% 4/1/17-10 (FGIC) 1,000,000 1,163,780 New York State Dormitory Authority Revenue (State University) Series B 7.50% 5/15/11-09 130,000 162,195 New York State Thruway Authority Service Contract Revenue Local Highway & Bridge 6.25% 4/1/14-05 500,000 548,965 ---------- 1,874,940 ---------- 10 Statements Delaware Tax-Free New York Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Public Power Revenue Bonds - 2.75% Long Island Power Authority New York Electric System Revenue Series C 5.00% 9/1/27 $500,000 $ 481,860 ----------- 481,860 ----------- Single Family Housing Revenue Bonds - 5.32% New York State Mortgage Agency Revenue Homeowner Mortgage Series 88 6.25% 4/1/30 (AMT) 890,000 931,447 ----------- 931,447 ----------- Territorial Revenue Bonds - 11.24% Puerto Rico Commonwealth Highway & Transportation Authority Highway Revenue Series Y 5.50% 7/1/36 475,000 487,160 Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series G 5.00% 7/1/33 500,000 484,525 Puerto Rico Electric Power Authority Power Revenue Series N 5.125% 7/1/29 500,000 495,720 Puerto Rico Electric Power Authority Revenue Series II 5.25% 7/1/31 500,000 500,155 ----------- 1,967,560 ----------- Water & Sewer Revenue Bonds - 6.94% New York City, New York Municipal Water Finance Authority Water & Sewer System Revenue Series A 5.125% 6/15/34 625,000 625,169 New York City, New York Municipal Water Finance Authority Water & Sewer System Revenue Series E 5.00% 6/15/34 600,000 588,858 ----------- 1,214,027 ----------- Total Municipal Bonds (cost $16,643,208) 17,108,819 ----------- Total Market Value of Securities - 97.75% (cost $16,643,208) 17,108,819 Receivables and Other Assets Net of Liabilities - 2.25% 393,310 ----------- Net Assets Applicable to 1,713,974 Shares Outstanding - 100.00% $17,502,129 =========== Net Asset Value - Delaware Tax-Free New York Fund Class A ($11,436,454 / 1,119,314 Shares) $10.22 ------ Net Asset Value - Delaware Tax-Free New York Fund Class B ($3,238,030 / 317,447 Shares) $10.20 ------ Net Asset Value - Delaware Tax-Free New York Fund Class C ($2,827,645 / 277,213 Shares) $10.20 ------ Components of Net Assets at August 31, 2003: Shares of beneficial interest (unlimited authorization - no par) $17,357,261 Distributions in excess of net investment income (655) Accumulated net realized loss on investments (320,088) Net unrealized appreciation of investments 465,611 ----------- Total net assets $17,502,129 =========== Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration LOC - Letter of Credit RADIAN - Insured by Radian Asset Assurance *For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. Net Asset Value and Offering Price per Share -- Delaware Tax-Free New York Fund Net asset value Class A (A) $10.22 Sales charge (4.50% of offering price, or 4.70% of amount invested per share)(B) 0.48 ------ Offering price $10.70 ====== (A) Net asset value per share, as illustrated, is the estimated amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 11 Statements Year Ended August 31, 2003 OF OPERATIONS
Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Florida Fund Florida Insured Fund New York Fund Investment Income: Interest $ 900,009 $ 6,032,497 $836,503 --------- ----------- -------- Expenses: Management fees 92,696 548,852 89,444 Distribution expenses -- Class A 25,392 258,736 27,795 Distribution expenses -- Class B 54,785 56,796 33,759 Distribution expenses -- Class C 12,118 6,466 17,523 Dividend disbursing and transfer agent fees and expenses 10,955 82,638 15,458 Accounting and administration expenses 7,606 49,552 7,326 Professional fees 2,981 21,470 3,301 Trustees' fees 1,952 5,455 1,678 Registration fees 1,724 10,236 6,365 Reports and statements to shareholders 1,590 9,550 2,942 Custodian fees 1,403 5,396 1,651 Other 4,414 27,393 3,840 --------- ----------- ---------- 217,616 1,082,540 211,082 Less expenses absorbed or waived (39,436) (41,495) (89,588) Less expenses paid indirectly (1,645) (5,409) (1,804) --------- ----------- ---------- Total expenses 176,535 1,035,636 119,690 --------- ----------- ---------- Net Investment Income 723,474 4,996,861 716,813 --------- ----------- ---------- Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain on investments 76,778 614,284 157,510 Net change in unrealized appreciation/depreciation of investments (243,690) (2,605,250) (376,165) --------- ----------- ---------- Net Realized and Unrealized Loss on Investments (166,912) (1,990,966) (218,655) --------- ----------- ---------- Net Increase in Net Assets Resulting from Operations $ 556,562 $ 3,005,895 $ 498,158 ========= =========== ==========
See accompanying notes 12 Statements OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund Year Ended Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 8/31/03 8/31/02 Increase (Decrease) in Net Assets from Operations: Net investment income $723,474 $711,610 $4,996,861 $5,242,579 $716,813 $661,650 Net realized gain on investments 76,778 182,704 614,284 766,040 157,510 51,624 Net change in unrealized appreciation/depreciation of investments (243,690) 50,716 (2,605,250) 255,033 (376,165) (50,467) ----------- ----------- ------------ ------------ ----------- ----------- Net increase in net assets resulting from operations 556,562 945,030 3,005,895 6,263,652 498,158 662,807 ----------- ----------- ------------ ------------ ----------- ----------- Dividends and Distributions to Shareholders from: Net investment income: Class A (466,803) (501,105) (4,753,688) (5,037,013) (516,808) (494,892) Class B (210,191) (187,869) (218,299) (194,236) (132,026) (118,158) Class C (46,480) (22,636) (24,874) (11,330) (67,979) (48,600) ----------- ----------- ------------ ------------ ----------- ----------- (723,474) (711,610) (4,996,861) (5,242,579) (716,813) (661,650) ----------- ----------- ------------ ------------ ----------- ----------- Capital Share Transactions: Proceeds from shares sold: Class A 1,111,543 1,408,493 5,639,680 6,986,446 2,864,348 965,399 Class B 928,820 1,066,869 1,740,052 969,051 207,630 937,942 Class C 1,165,280 200,000 431,204 500,099 1,959,112 68,645 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 182,417 184,329 1,575,119 1,711,943 374,830 313,811 Class B 67,252 73,100 95,718 80,923 56,078 49,223 Class C 20,496 9,025 17,939 8,714 59,428 45,482 ----------- ----------- ------------ ------------ ----------- ----------- 3,475,808 2,941,816 9,499,712 10,257,176 5,521,426 2,380,502 ----------- ----------- ------------ ------------ ----------- ----------- Cost of shares repurchased: Class A (1,976,552) (2,023,575) (15,180,505) (11,258,670) (1,168,843) (1,948,355) Class B (739,284) (756,732) (1,146,474) (883,500) (337,967) (156,584) Class C (64,239) (5,800) (141,785) (11,382) (250,079) (203,370) ----------- ----------- ------------ ------------ ----------- ----------- (2,780,075) (2,786,107) (16,468,764) (12,153,552) (1,756,889) (2,308,309) ----------- ----------- ------------ ------------ ----------- ----------- Increase (decrease) in net assets derived from capital share transactions 695,733 155,709 (6,969,052) (1,896,376) 3,764,537 72,193 ----------- ----------- ------------ ------------ ----------- ----------- Net Increase (Decrease) in Net Assets 528,821 389,129 (8,960,018) (875,303) 3,545,882 73,350 Net Assets: Beginning of year 16,306,497 15,917,368 111,556,597 112,431,900 13,956,247 13,882,897 ----------- ----------- ------------ ------------ ----------- ----------- End of year $16,835,318 $16,306,497 $102,596,579 $111,556,597 $17,502,129 $13,956,247 ----------- ----------- ------------ ------------ ----------- -----------
See accompanying notes 13 Financial HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Florida Fund Class A - ------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.030 $10.870 $10.420 $10.530 $11.230 Income (loss) from investment operations: Net investment income 0.510 0.514 0.513 0.518 0.532 Net realized and unrealized gain (loss) on investments (0.110) 0.160 0.450 (0.110) (0.688) ------- ------- ------- ------- ------- Total from investment operations 0.400 0.674 0.963 0.408 (0.156) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.510) (0.514) (0.513) (0.518) (0.532) Net realized gain on investments -- -- -- -- (0.012) ------- ------- ------- ------- ------- Total dividends and distributions (0.510) (0.514) (0.513) (0.518) (0.544) ------- ------- ------- ------- ------- Net asset value, end of period $10.920 $11.030 $10.870 $10.420 $10.530 ======= ======= ======= ======= ======= Total return(2) 3.67% 6.42% 9.48% 4.11% (1.50%) Ratios and supplemental data: Net assets, end of period (000 omitted) $9,694 $10,464 $10,747 $8,711 $11,406 Ratio of expenses to average net assets(3) 0.75% 0.75% 0.75% 0.75% 0.62% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.98% 1.06% 0.97% 1.10% 1.16% Ratio of net investment income to average net assets 4.59% 4.78% 4.84% 5.11% 4.81% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.36% 4.47% 4.62% 4.76% 4.27% Portfolio turnover 31% 57% 40% 64% 30%
(1) As required, effective September 1, 2001, the Fund adopted provisions of the AICPA Audit & Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. (3) Ratio for the year ended August 31, 2002, including fees paid indirectly in accordance with Securities and Exchange Commission rules, was 0.76%. See accompanying notes 14 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------- Delaware Tax-Free Florida Fund Class B - ----------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.040 $10.890 $10.430 $10.540 $11.240 Income (loss) from investment operations: Net investment income 0.426 0.433 0.434 0.443 0.449 Net realized and unrealized gain (loss) on investments (0.100) 0.150 0.460 (0.110) (0.688) ------- ------- ------- ------- ------- Total from investment operations 0.326 0.583 0.894 0.333 (0.239) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.426) (0.433) (0.434) (0.443) (0.449) Net realized gain on investments -- -- -- -- (0.012) ------- ------- ------- ------- ------- Total dividends and distributions (0.426) (0.433) (0.434) (0.443) (0.461) ------- ------- ------- ------- ------- Net asset value, end of period $10.940 $11.040 $10.890 $10.430 $10.540 ======= ======= ======= ======= ======= Total return(2) 2.98% 5.52% 8.76% 3.34% (2.24%) Ratios and supplemental data: Net assets, end of period (000 omitted) $5,313 $5,110 $4,655 $4,045 $4,468 Ratio of expenses to average net assets(3) 1.50% 1.50% 1.50% 1.50% 1.37% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.73% 1.81% 1.72% 1.85% 1.91% Ratio of net investment income to average net assets 3.84% 4.03% 4.09% 4.36% 4.06% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.61% 3.72% 3.87% 4.01% 3.52% Portfolio turnover 31% 57% 40% 64% 30%
(1) As required, effective September 1, 2001, the Fund adopted provisions of the AICPA Audit & Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. (3) Ratio for the year ended August 31, 2002, including fees paid indirectly in accordance with Securities and Exchange Commission rules, was 1.51%. See accompanying notes 15 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------ Delaware Tax-Free Florida Fund Class C - ------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.040 $10.880 $10.420 $10.530 $11.240 Income (loss) from investment operations: Net investment income 0.426 0.433 0.434 0.446 0.449 Net realized and unrealized gain (loss) on investments (0.110) 0.160 0.460 (0.110) (0.698) ------- ------- ------- ------- ------- Total from investment operations 0.316 0.593 0.894 0.336 (0.249) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.426) (0.433) (0.434) (0.446) (0.449) Net realized gain on investments -- -- -- -- (0.012) ------- ------- ------- ------- ------- Total dividends and distributions (0.426) (0.433) (0.434) (0.446) (0.461) ------- ------- ------- ------- ------- Net asset value, end of period $10.930 $11.040 $10.880 $10.420 $10.530 ======= ======= ======= ======= ======= Total return(2) 2.89% 5.63% 8.79% 3.38% (2.33%) Ratios and supplemental data: Net assets, end of period (000 omitted) $1,828 $732 $516 $433 $722 Ratio of expenses to average net assets(3) 1.50% 1.50% 1.50% 1.50% 1.37% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.73% 1.81% 1.72% 1.85% 1.91% Ratio of net investment income to average net assets 3.84% 4.03% 4.09% 4.36% 4.06% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.61% 3.72% 3.87% 4.01% 3.52% Portfolio turnover 31% 57% 40% 64% 30%
(1) As required, effective September 1, 2001, the Fund adopted provisions of the AICPA Audit & Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. (3) Ratio for the year ended August 31, 2002, including fees paid indirectly in accordance with Securities and Exchange Commission rules, was 1.51%. See accompanying notes 16 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------- Delaware Tax-Free Florida Insured Fund Class A - ----------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.330 $11.230 $10.770 $10.750 $11.370 Income (loss) from investment operations: Net investment income 0.523 0.532 0.527 0.525 0.537 Net realized and unrealized gain (loss) on investments (0.220) 0.100 0.460 0.020 (0.620) ------- ------- ------- ------- ------- Total from investment operations 0.303 0.632 0.987 0.545 (0.083) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.523) (0.532) (0.527) (0.525) (0.537) ------- ------- ------- ------- ------- Total dividends and distributions (0.523) (0.532) (0.527) (0.525) (0.537) ------- ------- ------- ------- ------- Net asset value, end of period $11.110 $11.330 $11.230 $10.770 $10.750 ======= ======= ======= ======= ======= Total return(2) 2.68% 5.83% 9.39% 5.29% (0.83%) Ratios and supplemental data: Net assets, end of period (000 omitted) $95,951 $105,773 $107,365 $110,708 $125,838 Ratio of expenses to average net assets 0.90% 0.90% 0.90% 0.91% 0.85% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.94% 0.99% 0.97% 1.01% 0.85% Ratio of net investment income to average net assets 4.60% 4.80% 4.81% 4.98% 4.77% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.56% 4.71% 4.74% 4.88% 4.77% Portfolio turnover 26% 46% 12% 56% 25%
(1) As required, effective September 1, 2001, the Fund adopted provisions of the AICPA Audit & Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 17 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------- Delaware Tax-Free Florida Insured Fund Class B - ----------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.330 $11.230 $10.770 $10.750 $11.370 Income (loss) from investment operations: Net investment income 0.437 0.445 0.443 0.448 0.452 Net realized and unrealized gain (loss) on investments (0.210) 0.100 0.460 0.016 (0.620) ------- ------- ------- ------- ------- Total from investment operations 0.227 0.545 0.903 0.464 (0.168) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.437) (0.445) (0.443) (0.444) (0.452) ------- ------- ------- ------- ------- Total dividends and distributions (0.437) (0.445) (0.443) (0.444) (0.452) ------- ------- ------- ------- ------- Net asset value, end of period $11.120 $11.330 $11.230 $10.770 $10.750 ======= ======= ======= ======= ======= Total return(2) 2.00% 5.01% 8.56% 4.50% (1.58%) Ratios and supplemental data: Net assets, end of period (000 omitted) $5,800 $5,223 $5,014 $5,272 $4,799 Ratio of expenses to average net assets 1.65% 1.65% 1.65% 1.66% 1.60% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.69% 1.74% 1.72% 1.76% 1.60% Ratio of net investment income to average net assets 3.85% 4.05% 4.06% 4.23% 4.02% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.81% 3.96% 3.99% 4.13% 4.02% Portfolio turnover 26% 46% 12% 56% 25%
(1) As required, effective September 1, 2001, the Fund adopted provisions of the AICPA Audit & Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects 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 18 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------- Delaware Tax-Free Florida Insured Fund Class C - ------------------------------------------------------------------------------------------------------------------------- Year Ended 1/8/99(2)(3) to 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $11.330 $11.240 $10.780 $10.760 $11.370 Income (loss) from investment operations: Net investment income 0.437 0.447 0.443 0.454 0.286 Net realized and unrealized gain (loss) on investments (0.210) 0.090 0.460 0.010 (0.610) ------- ------- ------- ------- ------- Total from investment operations 0.227 0.537 0.903 0.464 (0.324) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.437) (0.447) (0.443) (0.444) (0.286) ------- ------- ------- ------- ------- Total dividends and distributions (0.437) (0.447) (0.443) (0.444) (0.286) ------- ------- ------- ------- ------- Net asset value, end of period $11.120 $11.330 $11.240 $10.780 $10.760 ======= ======= ======= ======= ======= Total return(4) 2.00% 4.93% 8.45% 4.49% (2.91%) Ratios and supplemental data: Net assets, end of period (000 omitted) $846 $560 $53 $51 $107 Ratio of expenses to average net assets 1.65% 1.65% 1.65% 1.66% 1.60% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.69% 1.74% 1.72% 1.76% 1.60% Ratio of net investment income to average net assets 3.85% 4.05% 4.06% 4.23% 4.02% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.81% 3.96% 3.99% 4.13% 4.02% Portfolio turnover 26% 46% 12% 56% 25%
(1) As required, effective September 1, 2001, the Fund adopted provisions of the AICPA Audit & Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Ratios and portfolio turnover have been annualized and total return has not been annualized. (3) Shares of Delaware Investments Tax-Free Florida Insured Fund Class C were initially offered on September 29, 1997. On or about September 29, 1997, Class C sold shares, which were subsequently repurchased on December 18, 1997. There were no shares sold or outstanding from December 19, 1997 through January 7, 1999. Shareholder data for Class C for the period September 29, 1997 through December 18, 1997 are not disclosed because Management does not believe them to be meaningful. (4) 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 19 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------- Delaware Tax-Free New York Fund Class A - ----------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.340 $10.350 $9.820 $9.880 $10.670 Income (loss) from investment operations: Net investment income 0.484 0.503 0.523 0.535 0.523 Net realized and unrealized gain (loss) on investments (0.120) (0.010) 0.530 (0.060) (0.766) ------- ------- ------- ------- ------- Total from investment operations 0.364 0.493 1.053 0.475 (0.243) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.484) (0.503) (0.523) (0.535) (0.523) Net realized gain on investments -- -- -- -- (0.024) ------- ------- ------- ------- ------- Total dividends and distributions (0.484) (0.503) (0.523) (0.535) (0.547) ------- ------- ------- ------- ------- Net asset value, end of period $10.220 $10.340 $10.350 $9.820 $9.880 ======= ======= ======= ======= ======= Total return(2) 3.56% 4.98% 11.03% 5.09% (2.44%) Ratios and supplemental data: Net assets, end of period (000 omitted) $11,436 $9,490 $10,169 $10,082 $10,580 Ratio of expenses to average net assets(3) 0.50% 0.50% 0.50% 0.50% 0.66% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.05% 1.15% 1.02% 1.25% 1.19% Ratio of net investment income to average net assets 4.65% 4.98% 5.23% 5.58% 4.99% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.10% 4.33% 4.71% 4.83% 4.46% Portfolio turnover 64% 43% 27% 34% 21%
(1) As required, effective September 1, 2001, the Fund adopted provisions of the AICPA Audit & Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. (3) Ratios for the years ended August 31, 2003 and 2002, including fees paid indirectly in accordance with Securities and Exchange Commission rules, were 0.51%. See accompanying notes 20 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------- Delaware Tax-Free New York Fund Class B - ----------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.330 $10.330 $9.810 $9.860 $10.650 Income (loss) from investment operations: Net investment income 0.406 0.426 0.448 0.462 0.445 Net realized and unrealized gain (loss) on investments (0.130) -- 0.520 (0.050) (0.766) ------- ------- ------- ------- ------- Total from investment operations 0.276 0.426 0.968 0.412 (0.321) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.406) (0.426) (0.448) (0.462) (0.445) Net realized gain on investments -- -- -- -- (0.024) ------- ------- ------- ------- ------- Total dividends and distributions (0.406) (0.426) (0.448) (0.462) (0.469) ------- ------- ------- ------- ------- Net asset value, end of period $10.200 $10.330 $10.330 $9.810 $9.860 ======= ======= ======= ======= ======= Total return(2) 2.69% 4.30% 10.12% 4.41% (3.18%) Ratios and supplemental data: Net assets, end of period (000 omitted) $3,238 $3,352 $2,507 $1,297 $1,435 Ratio of expenses to average net assets(3) 1.25% 1.25% 1.25% 1.25% 1.41% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.80% 1.90% 1.77% 2.00% 1.94% Ratio of net investment income to average net assets 3.90% 4.23% 4.48% 4.83% 4.24% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.35% 3.58% 3.96% 4.08% 3.71% Portfolio turnover 64% 43% 27% 34% 21%
(1) As required, effective September 1, 2001, the Fund adopted provisions of the AICPA Audit & Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. (3) Ratios for the years ended August 31, 2003 and 2002, including fees paid indirectly in accordance with Securities and Exchange Commission rules, were 1.26%. See accompanying notes 21 Financial HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------- Delaware Tax-Free New York Fund Class C - ----------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/03 8/31/02(1) 8/31/01 8/31/00 8/31/99 Net asset value, beginning of period $10.320 $10.330 $9.800 $9.860 $10.640 Income (loss) from investment operations: Net investment income 0.406 0.426 0.449 0.462 0.445 Net realized and unrealized gain (loss) on investments (0.120) (0.010) 0.530 (0.060) (0.756) ------- ------- ------- ------- ------- Total from investment operations 0.286 0.416 0.979 0.402 (0.311) ------- ------- ------- ------- ------- Less dividends and distributions from: Net investment income (0.406) (0.426) (0.449) (0.462) (0.445) Net realized gain on investments -- -- -- -- (0.024) ------- ------- ------- ------- ------- Total dividends and distributions (0.406) (0.426) (0.449) (0.462) (0.469) ------- ------- ------- ------- ------- Net asset value, end of period $10.200 $10.320 $10.330 $9.800 $9.860 ======= ======= ======= ======= ======= Total return(2) 2.79% 4.20% 10.23% 4.31% (3.08%) Ratios and supplemental data: Net assets, end of period (000 omitted) $2,828 $1,115 $1,206 $66 $112 Ratio of expenses to average net assets(3) 1.25% 1.25% 1.25% 1.25% 1.41% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.80% 1.90% 1.77% 2.00% 1.94% Ratio of net investment income to average net assets 3.90% 4.23% 4.48% 4.83% 4.24% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.35% 3.58% 3.96% 4.08% 3.71% Portfolio turnover 64% 43% 27% 34% 21%
(1) As required, effective September 1, 2001, the Fund adopted provisions of the AICPA Audit & Accounting Guide for Investment Companies that requires amortization of all premiums and discounts on debt securities. This change had no impact for the year ended August 31, 2002. Per share data and ratios for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects a waiver and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. (3) Ratios for the years ended August 31, 2003 and 2002, including fees paid indirectly in accordance with Securities and Exchange Commission rules, were 1.26%. See accompanying notes 22 Notes August 31, 2003 TO FINANCIAL STATEMENTS Voyageur Mutual Funds (the "Trust") is organized as a Delaware business trust and offers six series: Delaware Tax-Free Arizona Fund, Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, Delaware Minnesota High-Yield Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund, and Delaware Tax-Free New York Fund. Voyageur Investment Trust (the "Trust") is organized as a Massachusetts business trust and offers five series: Delaware Tax-Free California Insured Fund, Delaware Tax-Free Florida Fund, Delaware Tax-Free Florida Insured Fund, Delaware Tax-Free Missouri Insured Fund, and Delaware Tax-Free Oregon Insured Fund. These financial statements and the related notes pertain to Delaware Tax-Free Florida Fund, Delaware Tax-Free Florida Insured Fund, and Delaware Tax-Free New York Fund (each "Fund" or, collectively, as the "Funds"). The above Trusts are open-end investment companies. The Funds are considered non-diversified under the Investment Company Act of 1940, as amended. The Funds offer Class A, Class B, and Class C shares. Class A shares are sold with a front-end sales charge of up to 4.50%. 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. 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 Florida Fund and Delaware Tax-Free Florida Insured Fund is to seek as high a level of current income exempt from federal income tax and the Florida state intangibles tax, as is consistent with preservation of capital. The investment objective of Delaware Tax-Free New York Fund is to seek as high a level of current income exempt from federal income tax and from New York state personal income tax, as is consistent with preservation of capital. 1. Significant Accounting Policies The following accounting policies are in accordance with accounting principles generally accepted in the United States and are consistently followed by the Funds. Security Valuation -- Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available, are valued at fair value as determined in good faith under the direction of each Funds' Board of Trustees. Federal Income Taxes -- Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income and common expenses are allocated to the classes of the Funds on the basis of "settled shares" of each class in relation to the net assets of the Funds. Realized and unrealized gain (loss) on investments are allocated to the various classes of the Funds on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Use of Estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. Certain expenses of the Funds are paid through commission arrangements with brokers. These transactions are done subject to best execution. In addition, the Funds may receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expenses paid under the above arrangements are included in their respective expense captions on the Statements of Operations with the corresponding expense offset shown as "expenses paid indirectly". The amounts of these expenses for the year ended August 31, 2003 were as follows: Delaware Delaware Delaware Tax-Free Tax-Free Tax-Free Florida Florida Insured New York Fund Fund Fund _________ ______________ _________ Commission reimbursements $ 404 $2,635 $ 390 Earnings credits 1,241 2,774 1,414 23 Notes TO FINANCIAL STATEMENTS (CONTINUED) 2. Investment Management, Administration Agreements and Other Transactions with Affiliates In accordance with the terms of its respective investment management agreement, each Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee based on each Fund's average daily net assets as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ----------------- -------------------- ----------------- On the first $500 million 0.55% 0.50% 0.55% On the next $500 million 0.50% 0.475% 0.50% On the next $1.5 billion 0.45% 0.45% 0.45% In excess of $2.5 billion 0.425% 0.425% 0.425%
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse each Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, and extraordinary expenses, do not exceed specified percentages of average daily net assets through October 31, 2004 for the Delaware Tax-Free Florida and Tax-Free Florida Insured Funds and until revoked for the Delaware Tax-Free New York Fund, as shown below.
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ----------------- -------------------- ----------------- The operating expense limitation as a percentage of average daily net assets (per annum) 0.50% 0.65% 0.25%
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 based on average net assets subject to certain minimums for accounting and administration services. The Funds pay DSC a monthly fee based on the number of shareholder accounts for dividend and disbursing and transfer agent services. Prior to June 1, 2003, the monthly fee for dividend disbursing and transfer agent services was based on the number of shareholder accounts and shareholder transactions. 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. At August 31, 2003, the Funds had liabilities payable to affiliates as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ----------------- -------------------- ----------------- Investment management fee payable to DMC $9,344 $47,199 $457 Dividend disbursing, transfer agent fees, accounting and other expenses payable to DSC 1,579 12,466 1,954 Other expenses payable to DMC and affiliates 12,482 6,700 2,355
For the year ended August 31, 2003, DDLP earned commissions on sales of Class A shares for each Fund as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ----------------- -------------------- ----------------- $3,942 $5,379 $2,155
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, 2003, the Funds made purchases and sales of investment securities other than short-term investments as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ----------------- -------------------- ----------------- Purchases $5,722,240 $27,800,797 $13,717,621 Sales 5,053,493 33,934,446 10,145,421
24 Notes TO FINANCIAL STATEMENTS (CONTINUED) 3. Investments (continued) At August 31, 2003, the cost of investment and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ----------------- -------------------- ----------------- Cost of investments $15,590,773 $96,611,195 $16,643,208 =========== =========== =========== Aggregate unrealized appreciation $895,008 $4,914,861 $650,517 Aggregate unrealized depreciation (82,006) (285,049) (184,906) ----------- ----------- ----------- Net unrealized appreciation $813,002 $4,629,812 $465,611 =========== =========== ===========
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 accounting principles generally accepted in the United States. The tax character of dividends and distributions paid during the years ended August 31, 2003 and 2002 was as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ----------------- -------------------- ----------------- Year Ended Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 8/31/03 8/31/02 ------- ------- ------- ------- ------- ------- Tax-exempt income $723,474 $711,610 $4,996,861 $5,242,579 $716,813 $661,650
As of August 31, 2003, the components of net assets on a tax basis were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ----------------- -------------------- ----------------- Shares of beneficial interest $16,751,043 $99,209,906 $17,357,261 Undistributed tax-exempt income (181) -- (655) Capital loss carryforwards (728,546) (1,243,139) (320,088) Unrealized appreciation of investments 813,002 4,629,812 465,611 ----------- ------------ ----------- Net assets $16,835,318 $102,596,579 $17,502,129 =========== ============ ===========
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Such capital loss carryforwards expire as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ----------------- -------------------- ----------------- 2004 $ -- $ 735,445 $ -- 2008 85,428 507,694 -- 2009 643,118 -- 320,088 -------- ---------- -------- Total $728,546 $1,243,139 $320,088 ======== ========== ========
During the year ended August 31, 2003, the Delaware Tax-Free Florida Insured Fund had $3,713,679 of unused capital loss carryforward expire. 25 Notes TO FINANCIAL STATEMENTS (CONTINUED) 5. Capital Shares Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ----------------- -------------------- ----------------- Year Ended Year Ended Year Ended 8/31/03 8/31/02 8/31/03 8/31/02 8/31/03 8/31/02 Shares sold: Class A 100,615 131,609 498,628 631,311 278,394 95,323 Class B 83,873 99,043 152,690 86,670 19,961 92,435 Class C 104,884 18,621 37,398 44,972 187,110 6,765 Shares issued upon reinvestment of dividends and distributions: Class A 16,498 17,131 138,879 154,363 36,152 30,996 Class B 6,071 6,776 8,436 7,291 5,417 4,868 Class C 1,847 838 1,582 785 5,722 4,500 ------- ------- ------- ------- ------- ------- 313,788 274,018 837,613 925,392 532,756 234,887 ------- ------- ------- ------- ------- ------- Shares repurchased: Class A (178,105) (188,236) (1,336,825)(1,014,758) (112,653) (191,366) Class B (66,791) (70,614) (100,200) (79,670) (32,493) (15,392) Class C (5,869) (530) (12,304) (1,028) (23,563) (20,091) ------- ------- ------- ------- ------- ------- (250,765) (259,380) (1,449,329) (1,095,456) (168,709) (226,849) ------- ------- ------- ------- ------- ------- Net increase (decrease) 63,023 14,638 (611,716) (170,064) 364,047 8,038 ====== ====== ======== ======== ======= =====
For the year ended August 31, 2003 and 2002, the following shares were converted from Class B to Class A shares. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the Statements of Changes in Net Assets.
Year Ended Year Ended 8/31/03 8/31/02 -------------------------------------------- -------------------------------------------- Class B Shares Class A Shares Amount Class B Shares Class A Shares Amount Delaware Tax-Free Florida Fund 5,872 5,883 $ 65,055 -- -- $ -- Delaware Tax-Free Florida Insured Fund 40,697 40,704 465,070 16,818 16,820 186,792
6. Line of Credit The Funds, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participate in a $203,300,000 revolving line of credit facility to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. The Participants are charged an annual commitment fee, which is allocated across the Participants on the basis of each fund's allocation of the entire facility. The Participants may borrow up to a maximum of one third of their net assets under the agreement. The Funds had no amounts outstanding as of August 31, 2003 or at any time during the year. Notes TO FINANCIAL STATEMENTS (CONTINUED) 7. Credit and Market Risks The Funds concentrate their investments in securities issued by each corresponding state's municipalities. The value of these investments may be adversely affected by new legislation within the states, regional or local economic conditions, and differing levels of supply and demand for municipal bonds. Many municipalities insure repayment for their obligations. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that market value may fluctuate for other reasons and there is no assurance that the insurance company will meet its obligations. These securities have been identified in the Statements of Net Assets. The Funds may invest in inverse floating rate securities ("inverse floaters"), a type of derivative tax-exempt obligation with floating or variable interest rates that move in the opposite direction of short-term interest rates, usually at an accelerated speed. Consequently, the market values of inverse floaters will generally be more volatile than other tax-exempt investments. Such securities are denoted on the Statement of Net Assets. 8. Tax Information (Unaudited) The information set forth below is for each Fund's fiscal year as required by federal laws. Shareholders, however, must report distribution 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, 2003, each Fund designates distributions paid during the year as follows:
Delaware Tax-Free Delaware Tax-Free Delaware Tax-Free Florida Fund Florida Insured Fund New York Fund ------------------- ---------------------- ------------------- (A) Long Term Capital Gains Distributions (Tax Basis) -- -- -- (B) Ordinary Income Distributions (Tax Basis) -- -- -- (C) Tax-Exempt Distributions (Tax Basis) 100% 100% 100% ---- ---- ---- Total Distributions (Tax Basis) 100% 100% 100% ---- ---- ----
(A), (B) and (C) are based on a percentage of each Fund's total distributions. 26 Report OF INDEPENDENT AUDITORS To the Shareholders and Board of Trustees Voyageur Investment Trust - Delaware Tax-Free Florida Fund Voyageur Investment Trust - Delaware Tax-Free Florida Insured Fund Voyageur Mutual Funds - Delaware Tax-Free New York Fund We have audited the accompanying statements of net assets of Delaware Tax-Free Florida Fund, Delaware Tax-Free Florida Insured Fund and Delaware Tax-Free New York Fund (the "Funds") as of August 31, 2003, 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 periods presented therein. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 2003, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the above listed Funds at August 31, 2003, 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 periods presented therein, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Philadelphia, Pennsylvania October 3, 2003 27 Delaware Investments Family of Funds BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of 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 that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Officers/Trustees and certain background and related information.
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ----------------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES Jude T. Driscoll(2) Chairman and 3 Years - Since August 2000, 83 None 2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in Philadelphia, PA various executive capacities 19103 Trustee since at different times at May 15, 2003 Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) Managing Director - NationsBanc Capital Markets (February 1996 - June 1998) - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES Walter P. Babich Trustee 15 Years Board Chairman - 101 None 2005 Market Street Citadel Construction Corporation Philadelphia, PA (1989 - Present) 19103 October 1, 1927 - ------------------------------------------------------------------------------------------------------------------------------------ John H. Durham Trustee 24 Years(3) Private Investor 101 Trustee - Abington 2005 Market Street Memorial Hospital Philadelphia, PA 19103 August 7, 1937 President/Director - 22 WR Corporation - ------------------------------------------------------------------------------------------------------------------------------------ John A. Fry Trustee(4) 2 Years President - 83 None 2005 Market Street Franklin & Marshall College Philadelphia, PA (June 2002 - Present) 19103 Executive Vice President - University of Pennsylvania May 28, 1960 (April 1995 - June 2002) - ------------------------------------------------------------------------------------------------------------------------------------ Anthony D. Knerr Trustee 10 Years Founder/Managing Director - 101 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938
28
Number of Other Principal Portfolios in Fund Directorships Name, Position(s) Occupation(s) Complex Overseen Held by Address Held with Length of Time During by Trustee/Director Trustee/Director and Birthdate Fund(s) Served Past 5 Years or Officer or Officer - ----------------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) Ann R. Leven Trustee 14 Years Treasurer/Chief Fiscal Officer - 101 Director - Andy 2005 Market Street National Gallery of Art Warhol Foundation Philadelphia, PA (1994 - 1999) 19103 Director - Systemax, Inc. November 1, 1940 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas F. Madison Trustee 9 Years President/Chief 101 Director - 2005 Market Street Executive Officer - CenterPoint Energy Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director - Digital and Consulting) River Inc. (January 1993 - Present) February 25, 1936 Director - Rimage Corporation Director - Valmont Industries, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Janet L. Yeomans Trustee 4 Years Vice President/Mergers & 101 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 Ms. Yeomans has held July 31, 1948 various management positions at 3M Corporation since 1983. - ----------------------------------------------------------------------------------------------------------------------------------- OFFICERS Joseph H. Hastings Executive Executive Mr. Hastings has served in 101 None 2005 Market Street Vice President Vice President various executive capacities Philadephia, PA and and at different times at 19103 Chief Financial Chief Financial Delaware Investments. Officer Officer since December 19, 1949 August 21,2003 - ----------------------------------------------------------------------------------------------------------------------------------- Richelle S. Maestro Executive Vice President, Chief Legal Ms. Maestro has served in 101 None 2005 Market Street Chief Legal Officer Officer since various executive capacities Philadelphia, PA and Secretary March 17, 2003 at different times at 19103 Delaware Investments. November 26, 1957 - ----------------------------------------------------------------------------------------------------------------------------------- Michael P. Bishof Senior Vice President 7 Years Mr. Bishof has served in 101 None 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962 - -----------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Registrant's investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's manager and distributor. (3) Mr. Durham served as a Director Emeritus from 1995 through 1998. (4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual Funds III and Voyageur Tax Free Funds. 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. 29 Delaware Investments(SM) - ------------------------------------- A member of Lincoln Financial Group(R) This annual report is for the information of Delaware Tax-Free Florida Fund, Delaware Tax-Free Florida Insured Fund, and Delaware Tax-Free New York Fund shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Tax-Free Florida Fund, Delaware Tax-Free Florida Insured Fund, and Delaware Tax-Free New York Fund and the Delaware Investments Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Funds. You should read the prospectus carefully before you invest. The figures in this report represent past results which are not a guarantee of future results. The return and principal value of an investment in the Funds will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
Board of Trustees Affiliated Officers Contact Information Walter P. Babich Jude T. Driscoll Investment Manager Board Chairman Chairman Delaware Management Company Citadel Construction Corporation Delaware Investments Family of Funds Philadelphia, PA King of Prussia, PA Philadelphia, PA International Affiliate John H. Durham Joseph H. Hastings Delaware International Advisers Ltd. Private Investor Executive Vice President and London, England Gwynedd Valley, PA Chief Financial Officer Delaware Investments Family of Funds National Distributor Anthony D. Knerr Philadelphia, PA Delaware Distributors, L.P. Managing Director Philadelphia, PA Anthony Knerr & Associates Richelle S. Maestro New York, NY Senior Vice President, Shareholder Servicing, Dividend Chief Legal Officer and Secretary Disbursing and Transfer Agent Ann R. Leven Delaware Investments Family of Funds Delaware Service Company, Inc. Former Treasurer/Chief Fiscal Officer Philadelphia, PA 2005 Market Street National Gallery of Art Philadelphia, PA 19103-7094 Washington, DC Michael P. Bishof Senior Vice President and Treasurer For Shareholders Thomas F. Madison Delaware Investments Family of Funds 800 523-1918 President and Chief Executive Officer Philadelphia, PA MLM Partners, Inc. For Securities Dealers and Financial Minneapolis, MN Institutions Representatives Only 800 362-7500 Janet L. Yeomans Vice President/Mergers & Acquisitions Web site 3M Corporation www.delawareinvestments.com St. Paul, MN -------------------------------------------------------------------------------- A description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800-523-1918; (ii) on the Fund's website at http://www.delawareinvestments.com; and (iii) on the Commission's website at http://www.sec.gov.; and beginning no later than August 31, 2004, information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) through the Fund's website at http://www.delawareinvestments.com; and (ii) on the Commission's website at http://www.sec.gov. --------------------------------------------------------------------------------
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.delawareinvesments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months. Item 3. Audit Committee Financial Expert The registrant's Board of Trustees/Directors has determined that each member of the registrant's Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an "audit committee financial expert" is a person who has the following attributes: a. An understanding of generally accepted accounting principles and financial statements; b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's financial statements, or experience actively supervising one or more persons engaged in such activities; d. An understanding of internal controls and procedures for financial reporting; and e. An understanding of audit committee functions. An "audit committee financial expert" shall have acquired such attributes through: a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions; b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions; c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or d. Other relevant experience. The registrant's Board of Trustees/Directors has also determined that each member of the registrant's Audit Committee is independent. In order to be "independent" for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an "interested person" of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940. The names of the audit committee financial experts on the registrant's Audit Committee are set forth below: Ann R. Leven Thomas F. Madison Janet L. Yeomans(1) Item 4. Principal Accountant Fees and Services Required only for fiscal years ending after December 15, 2003. Not applicable. Item 5. Audit Committee of Listed Registrants Not applicable. - ----------------------- (1) The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on "other relevant experience." The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation. Item 6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable. Item 8. [Reserved] Item 9. Controls and Procedures The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There were no significant changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10. Exhibits (a)(1) Code of Ethics Not applicable. (a)(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. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. Voyageur Insured Funds By: Jude T. Driscoll --------------------------- Name: Jude T. Driscoll Title: Chairman Date: October 28, 2003 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. By: Jude T. Driscoll --------------------------- Name: Jude T. Driscoll Title: Chairman Date: October 28, 2003 By: Joseph H. Hastings ----------------------------------- Name: Joseph H. Hastings Title: Chief Financial Officer Date: October 28, 2003 EX-99 3 ex99-cert.txt EXHIBIT 99.CERT EXHIBIT 99.CERT CERTIFICATION I, Jude T. Driscoll, certify that: 1. I have reviewed this report on Form N-CSR of Voyageur Insured Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 28, 2003 By: Jude T. Driscoll ----------------------------------- Name: Jude T. Driscoll Title: Chairman CERTIFICATION I, Joseph H. Hastings, certify that: 1. I have reviewed this report on Form N-CSR of Voyageur Insured Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 28, 2003 By: Joseph H. Hastings ----------------------------------- Name: Joseph H. Hastings Title: Chief Financial Officer EX-99 4 ex99-906cert.txt EXHIBIT 99.906CERT EXHIBIT 99.906CERT Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the attached report of the registrant on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the registrant does hereby certify, to the best of such officer's knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. By: Jude T. Driscoll --------------------------- Name: Jude T. Driscoll Title: Chairman Date: October 28, 2003 By: Joseph H. Hastings ----------------------------------- Name: Joseph H. Hastings Title: Chief Financial Officer Date: October 28, 2003 A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the SEC or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----