-----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, AJ1d43s8MqJW/8iKTY3XClIFpx9mS8QM/yii2fslSMJ7YTCkWXN6h3fp7F2seARE cgE4s1KeZp2mLZOgFonx9w== 0000950116-05-003420.txt : 20051104 0000950116-05-003420.hdr.sgml : 20051104 20051104140057 ACCESSION NUMBER: 0000950116-05-003420 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050831 FILED AS OF DATE: 20051104 DATE AS OF CHANGE: 20051104 EFFECTIVENESS DATE: 20051104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOYAGEUR INVESTMENT TRUST CENTRAL INDEX KEY: 0000879342 IRS NUMBER: 000000000 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06411 FILM NUMBER: 051179614 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: (215) 255-2127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 N-CSR 1 n-csr.txt N-CSR.TXT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-6411 Exact name of registrant as specified in charter: Voyageur Investment Trust Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: David F. Connor, Esq. 2005 Market Street Philadelphia, PA 19103 Registrant's telephone number, including area code: (800) 523-1918 Date of fiscal year end: August 31 Date of reporting period: October 31, 2005
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 Florida Insured Fund, Delaware Tax-Free Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund of the Registrant, information on which is included in the following shareholder reports. Delaware Investments(R) ----------------------------------- FIXED INCOME A member of Lincoln Financial Group ANNUAL REPORT AUGUST 31, 2005 - -------------------------------------------------------------------------------- DELAWARE TAX-FREE FLORIDA INSURED FUND [GRAPHIC OMITTED] POWERED BY RESEARCH(R) TABLE OF CONTENTS - ------------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 - ------------------------------------------------------------------- PERFORMANCE SUMMARIES: Delaware Tax-Free Florida Insured Fund 6 Delaware Tax-Free New York Fund 8 - ------------------------------------------------------------------- DISCLOSURE OF FUND EXPENSES 10 - ------------------------------------------------------------------- SECTOR ALLOCATIONS 11 - ------------------------------------------------------------------- FINANCIAL STATEMENTS: Statements of Net Assets 12 Statements of Operations 17 Statements of Changes in Net Assets 18 Financial Highlights 19 Notes to Financial Statements 25 - ------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 30 - ------------------------------------------------------------------- OTHER FUND INFORMATION 31 - ------------------------------------------------------------------- BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 34 - ------------------------------------------------------------------- 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) 2005 Delaware Distributors, L.P. DELAWARE TAX-FREE FLORIDA INSURED AND DELAWARE TAX-FREE NEW YORK FUNDS PORTFOLIO September 13, 2005 MANAGEMENT REVIEW FUND MANAGERS Patrick Coyne Managing Director/Head of Equity Investments Joseph R. Baxter Senior Portfolio Manager Robert F. Collins Senior Portfolio Manager Q: PLEASE DESCRIBE THE OVERALL MARKET CONDITIONS DURING THE FISCAL YEAR. A: The last three years have been remarkably similar; at least as it pertains to market expectations and how the actual markets can prove them wrong. In the beginning of calendar years 2003, 2004, and 2005, many market participants appeared convinced that interest rates were unreasonably low, and many managers adjusted the risk profiles of their portfolios to reflect the coming of higher rates and lower bond prices. In each year, the markets weathered the storms and generated positive results, with price gains adding to the income generated. Defensive strategies did not pan out. Over the 12 months ended August 31, 2005, the fixed income markets rallied while the Federal Reserve was in the midst of tightening credit by raising short-term rates - notably, the fed- funds rate. The tightening cycle started at the end of June 2004, prior to the start of the fiscal year, and continues today. As of August 31, 2005, the Federal Reserve raised rates by one quarter of a percentage point at every one of its meetings - a total of eight rate hikes that took the fed-funds rate from 1.50% to 3.50%. While the Federal Reserve's actions sent short-term yields in both the taxable and the tax-exempt bond markets higher, the reaction of the intermediate and long-term markets prompted Fed Chairman Alan Greenspan's "conundrum" comment earlier this year. This type of sustained market rally through a Fed tightening is highly unusual and is precisely what confounded many investors. In the municipal market, yields on two-year, AAA-rated bonds increased by 1.2% during the year, from 1.7%, to end the fiscal year near 2.9%. The crossover point where rates were relatively flat year-over-year was in the 10-year maturity range, where rates began and ended the year at about 3.5%. Longer rates fell. For example, yields dropped by four tenths of a percentage on 30-year AAA-rated municipals, ending the fiscal year with yields of approximately 4.3%. (source: Municipal Market Data) These divergent moves between short-term and long-term rates continued to "flatten the yield curve." In the Treasury market, the difference between the 2- and 30-year yields narrowed dramatically, from about two-and-a-half percentage points to less than half of a percent at the end of the fiscal year. Some market strategists have started discussing the prospects for, and implications of, an inverted yield curve. Historically, an inverted yield curve has been associated with the onset of an economic recession. The curve in the tax-exempt markets flattened as well, but not quite as dramatically. While the difference between 2- and 30-year high-grade municipal bonds started the year at 2.9%, it narrowed by 1.5 percent, ending the year with a 1.4% differential (source: Bloomberg). Historically, when the Treasury market has inverted, the municipal market has maintained a positively sloped curve. Municipal bonds, particularly long-term bonds, traded weaker relative to Treasuries during the year. Yields on 30-year AAA-rated municipals, measured as a percentage of the yield on long Treasury bonds, started the fiscal year at about 95%. By the end of June 2005, the ratio had increased above 100%. This would be typical - the market was rallying and the Treasury market led the way toward lower yields. The municipal market recaptured some of that underperformance in the last two months, ending the year with yields at about 98% of the long Treasury bond. Credit has performed well this year, partially due to investors' desire to seek higher yields, but also due to the fact that quality continued to improve throughout the municipal market. A strong economic backdrop has largely been the cause. Revenue recovery has firmly taken hold and is easing the transition to structural budget balance for most states. Driving the revenue gains, total non-farm payrolls increased 1.7% in the 12-months ended August 31, 2005, while the unemployment rate decreased from 5.5% to 5.0% (source: U.S. Department of Labor). As a result, most states are experiencing better-than-budgeted growth to date for fiscal 2005, which is providing additional resources to balance fiscal 2006 and lending support for growing spending demands. For the first eight months of fiscal 2005, state revenues were up a total of 9.5%, with personal income tax and sales tax increases leading the way. Additional factors contributing to positive revenue trends were conservative budget forecasting, low interest rates, and the strong real estate market (source: Municipal Market Data). 1 Spending pressures still loom, threatening budget stability. The federal government will likely be a source of budget strain in the coming years as it grapples with its own budget deficit. States will also have to deal with traditional budget issues such as social service programs and education funding. The future in most states may depend on economic performance, sustained structural balance, and progress in re-building budget reserves. Overall, municipal bond issuance remained robust in 2005. As of August 31, 2005, issuance totaled $275.49 billion, a 13.10% increase over the same period last year. Total issuance in 2005 may even surpass the record of $384 billion sold in 2003 if this pace continues. Drivers of this record volume continue to be the low interest rate environment and the flattening yield curve, both of which stimulate refunding activity. Year-to-date, refunding activity was up 62.1% from the same period a year ago. At the same time, low rates are attractive for new money sales, which increased 12.8% (source: Municipal Market Data). The healthcare sector has seen significant increase in new-money issuance due to the sector's improved credit conditions and need to invest in facilities. Other sectors that registered significant jumps in issuance included transportation and general purpose bonds. Q: WHAT WAS THE INVESTMENT ENVIRONMENT LIKE DURING THE LAST 12 MONTHS IN FLORIDA AND NEW YORK? A: Florida's economy has been resilient, with above-average growth in recent years despite the 2001 recession, a general decline in travel and tourism following September 11, 2001, and hurricanes in 2004. Despite the heavy influence on tourism-related employment, Florida has remained ahead of the nation in terms of employment growth, with construction and the leisure and hospitality sector leading the way. For the first eight months of fiscal year 2005, state revenues increased almost 13%, and the forecast for 2006 revenues was revised upward in April 2005 due to strong sales tax, corporate tax, and documentary stamp taxes. Among the states, Florida expects to have the highest funding level for its budget stabilization fund at fiscal year end 2005. These reserves have been achieved despite a budget amendment to fund hurricane disaster relief. In the fiscal 2006 budget, the governor has proposed for the complete elimination of the state intangibles tax, which is a tax on certain financial assets such as stocks and bonds. Revenues from the intangibles tax finance approximately 1.2% of total state expenditures. While spending demands are significant in fiscal 2006 and budget gaps are projected in the following years, the state has effectively managed its budget and retained financial flexibility not seen in other states (source: Municipal Market Data). The New York economy began to recover in 2004, largely due to the improving conditions in New York City, with moderate employment gains across various sectors. The unemployment rate for the state of 5.1% in July 2005 was slightly above the national level of 5.0%. The state's economic recovery is reflected in recent tax revenues. For the first eight months of fiscal 2005, total tax revenues were up approximately 4.5%, supported by even stronger personal income tax receipts. The state's financial operations are characterized by a dependence upon economically sensitive income tax revenue, high recurring expenditure demands, and a chronic lack of structural budget balance. The governor has proposed to close the $4 billion forecast budget gap for 2005-2006 with a combination of spending cuts, revenue enhancements, and several one-time sources. The proposed Medicaid cuts are the single largest item in the budget and will likely be controversial (source: Municipal Market Data). Neither state is an exception to the national trend of strong municipal bond issuance. Florida had an issuance rise of 50.8% for the first eight months of 2005, ranking it fourth in debt issuance. An additional catalyst in Florida was issuance for hurricane disaster relief. New York's issuance for the first eight months of 2005 increased 17.6%, slightly higher than the national average. Total issuance year-to-date was approximately $27 billion compared to $23 billion a year ago, which places New York third in debt issuance among the states. Some of the larger issuers year-to-date are New York State, New York City, New York Dormitory Authority, and New York City Municipal Water Authority (source: The Bond Buyer). Q: How did Delaware Tax-Free Florida Insured Fund perform during the fiscal year? A: For the fiscal year ended August 31, 2005, Delaware Tax-Free Florida Insured Fund returned 5.32% (Class A shares at net asset value with distributions reinvested) and 0.59% (at maximum offer price with distributions reinvested)*. Class A shares (at net asset value with distributions reinvested) outperformed the Lipper Florida Insured Municipal Debt Funds Average, which returned 4.53%, and was in line with the Lehman Brothers Municipal Bond Index, which returned 5.31% for the 12-month period, both of which exclude sales charges (source: Lipper, Inc.). * For complete annualized performance, see table on page 6. 2 Q: FOR EACH FUND, WHAT STRATEGIES INFLUENCED FUND PERFORMANCE? A: The Funds' returns were generally aided by yield curve positioning, credit spread tightening, sector concentration, and security selection. The relative contribution of these first three components varies based on the individual Fund's mandate by prospectus. The fourth factor, security selection, is the heart of our investment process and is the primary source of our excess returns. While the Federal Reserve raised short-term rates, long-term bond yields declined as inflation remained tame during a period of moderate growth. This resulted in what is termed as a "flattening of the yield curve," where the difference between long- and short-term rates narrows. The Funds are positioned to take advantage of this environment, combining long maturity bonds that participate in the rally and shorter-duration securities with high coupons trading to short calls, that are less price sensitive. This is known as a "barbell" portfolio structure, and it generally aided our performance. When the yield curve flattens and long-term interest rates decline, market participants seek alternative sources of yield. This is often found in lower-rated bonds, and as the market reaches for this yield it causes the credit curve to tighten and results in good performance for those securities. Securities rated A, BBB and non-investment grade have all outperformed high-grade and insured bonds in the municipal market over the past year. The Funds benefited from an allotment to these higher-risk credits. Two of our favored sectors, healthcare and higher education, benefited from both the market's reach for yield as well as positive fundamentals. The credit and financial environments have been positive for hospitals, as they have received favorable reimbursements from Medicare and the managed care industry. * For complete annualized performance, see table on page 8. The demographics provided by the baby boom generation have provided favorable enrollment trends at colleges and universities, while a recovering stock market has bolstered endowments. Despite a structural deficit, various bonds issued by the Commonwealth of Puerto Rico also performed well during the period. Delaware Tax-Free Florida Insured Fund was well positioned for a flattening of the yield curve, with a significant allocation of bonds having maturities 20 years and longer. Legacy bonds that have short due dates or short calls help offset the longer positions. These legacy bonds finance various multifamily housing projects that are AAA insured, have high coupons and short calls. While their price appreciation is limited, they do provide the Fund with an above-market yield. The incremental price return in the Fund was derived from non-insured securities, but the Fund's mandate limits this amount. The Fund is allowed to own up to 20% of its securities in non-insured bonds and we maximized our use of non-insureds during the period to gain excess returns. Delaware Tax-Free New York Fund has a broad mandate, and has therefore been able to participate in all four sources of return mentioned earlier. The Fund had a meaningful allotment in mid-to-low investment grade rated credits that has allowed it to participate in our preferred sectors. But New York is a diverse market with frequent issuers in many sectors. This allows excess total return to be derived from multiple securities. Q: CAN YOU NAME SOME KEY HOLDINGS IN DELAWARE TAX-FREE FLORIDA INSURED FUND? A: Positions included hospitals such as Adventist Health Systems in Highland and Orange Counties, as well as Boca Raton Community Hospital in Palm Beach County. Other key holdings included Nova Southeastern University, a bond financing a land development deal in Hollywood, Florida, and positions in territorial bonds for Puerto Rico. Q: CAN YOU NAME SOME KEY HOLDINGS IN DELAWARE TAX-FREE NEW YORK FUND? A: The Fund's total return was influenced by securities such as North Shore Long Island Health System and Winthrop South Nassau Health System. Higher education bonds included Marist College and Columbia University. The best performing bond was for a co-generation plant at the Brooklyn Navy Yard and not far behind was a gas utility - Keyspan, in Suffolk County. Such positions were in addition to traditional holdings such as New York City general obligations, New York City Water Authority issues, and various Puerto Rico bonds. 3 Q: WHAT DETRACTED FROM FUND PERFORMANCE? A: Detracting from each of our Funds' performance relative to its benchmark index was the significant decision to avoid the unenhanced tobacco sector. This section, in which we did not participate, has been the best performing sector in the municipal bond market over the past year and the biggest influence on market performance. The master settlement agreement between the major tobacco companies and 46 states secures these bonds. However, the sector is subject to litigation risk and, therfore, volatile. We are comfortable foregoing this potential volatility in the Funds. Airline securities significantly outperformed the municipal market this year during the second and third quarters, which are a traditional busy season. Although the Funds held several airport revenue bonds, we have been underweighted in the sector and have generally avoided securites backed by airline corporation revenues. We are concerned about the long-term fundamentals of the industry. The decision to hold high coupon, short-call legacy bonds provides an above market yield to the Funds and helps to balance the Funds' interest rate exposure, offsetting the bonds with long maturities. However, during the fiscal year it resulted in negligible price performance during market rallies due to the short duration of the securities. This decision to hold these underperforming securities also detracted from relative performance. GLOSSARY AVERAGE MATURITY: For a bond fund, this is the weighted average of the stated maturity dates of the portfolio's securities. In general, the longer the average maturity, the greater the fund's sensitivity to interest rate changes, which can mean greater price fluctuation. A shorter average maturity usually means less interest rate sensitivity and, consequently, a less volatile portfolio. BASIS POINT: One one-hundredth of one percentage point, or 0.01%. DURATION: A measure of a bond or bond fund's sensitivity to changes in interest rates. All else being equal, a fund with a duration of four years would fall about 4% in response to a one-percentage-point rise in rates, and vice versa. SPREAD: the difference between any two prices or yields. YIELD CURVE: A curve that shows the relationship between yields and maturity dates for a set of similar bonds, usually Treasuries, at a given point in time. 4 This page intentionally left blank. 5 PERFORMANCE SUMMARY DELAWARE TAX-FREE FLORIDA INSURED FUND The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges and expenses of the investment carefully before investing. The Delaware Tax-Free Florida Insured Fund prospectus contains this and other important information about the Fund. Please request a prospectus by calling 800 523-1918. Read it carefully before you invest or send money. Performance includes reinvestment of all distributions and is subject to change. A rise/fall in the interest rates can have a significant impact on bond prices and the NAV (net asset value) of the fund. Funds that invest in bonds can lose their value as interest rates rise and an investor can lose principal.
FUND PERFORMANCE Average Annual Total Returns Through August 31, 2005 Lifetime 10 Years Five Years One Year - ----------------------------------------------------------------------------------------------------------- Class A (Est. 1/1/92) Excluding Sales Charge +6.24% +5.81% +5.85% +5.32% Including Sales Charge +5.88% +5.32% +4.88% +0.59% - ----------------------------------------------------------------------------------------------------------- Class B (Est. 3/11/94) Excluding Sales Charge +5.12% +5.22% +5.05% +4.45% Including Sales Charge +5.12% +5.22% +4.81% +0.45% - ----------------------------------------------------------------------------------------------------------- Class C (Est. 9/29/97)* Excluding Sales Charge +4.38% +5.04% +4.45% Including Sales Charge +4.38% +5.04% +3.45% - -----------------------------------------------------------------------------------------------------------
* 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. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 0.25%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1%. Lifetime and 10-year performance figures for Class B shares reflect conversion to Class A shares after eight years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Tax-Free Florida Insured Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 6 FUND BASICS As of August 31, 2005 - -------------------------------------------------------------------------------- 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: $107 million - -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: 68 - -------------------------------------------------------------------------------- FUND START DATE: January 1, 1992 - -------------------------------------------------------------------------------- YOUR FUND MANAGERS: Patrick P. Coyne, Executive Vice President, Managing Director, Head of Equity Investments, is a graduate of Harvard University with an MBA from the University of Pennsylvania's Wharton School. Patrick Coyne joined Delaware Investments' fixed-income department in 1990. Prior to joining Delaware Investments, he was a manager of Kidder, Peabody & Co. Inc.'s trading desk, and specialized in trading high-grade municipal bonds and municipal futures contracts. Joseph R. Baxter, Senior Vice President, Head of Municipal Bond Department, Senior Portfolio Manager, is a graduate of LaSalle University where he earned his undergraduate degree in finance and marketing. Prior to joining Delaware Investments in 1999, he held investment positions with First Union. Most recently, he served as a municipal portfolio manager for the Evergreen Funds. Robert F. Collins, Senior Vice President and Senior Portfolio Manger, is a graduate of Ursinus College where he earned his undergraduate degree in economics. Prior to joining Delaware Investments in 2004, he co-managed the municipal portfolio management group of PNC Advisors, overseeing the tax-exempt investments of high-net worth and institutional accounts. Previously, he headed the municipal fixed-income team at Wilmington Trust Company, managing funds and high-net worth accounts. Mr. Collins is a CFA charterholder. - -------------------------------------------------------------------------------- NASDAQ SYMBOLS: Class A VFLIX Class B DVDBX Class C DVDCX PERFORMANCE OF A $10,000 INVESTMENT August 31, 1995 through August 31, 2005 Performance of a $10,000 investment chart Delaware Tax-Free Lehman Brothers Florida Insured Fund Municipal Bond Index Aug-95 $9,550 $10,000 Aug-96 $10,114 $10,524 Aug-97 $11,103 $11,496 Aug-98 $12,098 $12,491 Aug-99 $11,998 $12,553 Aug-00 $12,633 $13,403 Aug-01 $13,819 $14,769 Aug-02 $14,625 $15,691 Aug-03 $15,014 $16,183 Aug-04 $15,932 $17,334 Aug-05 $16,782 $18,254 Chart assumes $10,000 invested on August 31, 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. 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. An expense limitation was in effect for all classes of Delaware Tax-Free Florida Insured Fund during the period shown. Performance would have been lower had the expense limitation not been in effect. The performance graph does not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of Fund shares. Past performance is not a guarantee of future results. 7 DISCLOSURE For the Period March 1, 2005 to August 31, 2005 OF FUND EXPENSES As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2005 to August 31, 2005. ACTUAL EXPENSES The first section of the tables shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the tables shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on the Funds' actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds' actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in a Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the tables is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Funds' actual expenses shown in the table reflect fee waivers in effect. The expenses shown in each table assume reinvestment of all dividends and distributions. "Expenses Paid During Period" are equal to the Funds' annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). DELAWARE TAX-FREE FLORIDA INSURED FUND EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 3/1/05 to 3/1/05 8/31/05 Ratio 8/31/05 - ------------------------------------------------------------------------ ACTUAL FUND RETURN Class A $1,000.00 $1,027.30 0.93% $4.75 Class B 1,000.00 1,022.60 1.68% 8.56 Class C 1,000.00 1,022.60 1.68% 8.56 - ------------------------------------------------------------------------ HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,020.52 0.93% $4.74 Class B 1,000.00 1,016.74 1.68% 8.54 Class C 1,000.00 1,016.74 1.68% 8.54 - ------------------------------------------------------------------------ 8 SECTOR ALLOCATIONS As of August 31, 2005 Sector designations may be different than the sector designations presented in other Fund materials. DELAWARE TAX-FREE FLORIDA INSURED FUND - ------------------------------------------------------------------------- PERCENTAGE SECTOR OF NET ASSETS - ------------------------------------------------------------------------- MUNICIPAL BONDS 98.54% - ------------------------------------------------------------------------- Airport Revenue Bonds 4.58% Dedicated Tax & Fees Revenue Bonds 12.83% Higher Education Revenue Bonds 5.07% Hospital Revenue Bonds 13.89% Miscellaneous Revenue Bonds 2.05% Multifamily Housing Revenue Bonds 26.65% Municipal Lease Revenue Bonds 9.66% Ports & Harbors Revenue Bonds 0.30% Pre-Refunded Bonds 2.98% Public Power Revenue Bonds 1.97% Public Utility District Revenue Bonds 1.16% Single Family Housing Revenue Bonds 0.40% Tax Increment/Special Assessment Bonds 2.05% Territorial General Obligation Bonds 2.77% Territorial Revenue Bonds 8.74% Water & Sewer Revenue Bonds 3.44% - ------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 98.54% - ------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.46% - ------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% - ------------------------------------------------------------------------- 9 DELAWARE TAX-FREE FLORIDA INSURED FUND STATEMENTS August 31, 2005 OF NET ASSETS Principal Market Amount Value MUNICIPAL BONDS - 98.54% Airport Revenue Bonds - 4.58% Lee County Florida Airport Revenue Series B 5.75% 10/1/33 (FSA) $3,000,000 $ 3,330,960 Miami-Dade County Aviation Revenue (Miami International Airport) Series B 5.00% 10/1/37 (FGIC) 1,000,000 1,059,090 Miami-Dade County Aviation Revenue Series A 5.00% 10/1/33 (FSA) (AMT) 500,000 519,455 ----------- 4,909,505 ----------- Dedicated Tax & Fees Revenue Bonds - 12.83% Florida State Department of Transportation 5.00% 7/1/31 (FGIC) 1,875,000 1,985,044 Jacksonville Excise Taxes Revenue Series B 5.00% 10/1/26 (AMBAC) 1,000,000 1,055,750 5.125% 10/1/32 (FGIC) 1,000,000 1,061,160 &Palm Beach County Florida Criminal Justice Facilities Revenue Inverse Floater 9.47% 6/1/12 (FGIC) 7,500,000 9,646,200 ----------- 13,748,154 ----------- Higher Education Revenue Bonds - 5.07% Broward County Educational Facilities Authority Revenue (Nova Southeastern University) 5.25% 4/1/27 (RADIAN) 1,000,000 1,053,930 Miami-Dade County Educational Facilities Authority (University of Miami) Series A 5.75% 4/1/29 (AMBAC) 2,000,000 2,211,400 University of Central Florida Athletics Association Certificates of Participation Series A 5.25% 10/1/34 (FGIC) 2,000,000 2,173,680 ----------- 5,439,010 ----------- Hospital Revenue Bonds - 13.89% Escambia County Health Facilities Authority (Florida Health Care Facilities -- VHA Program) 5.95% 7/1/20 (AMBAC) 560,000 603,002 Highlands County Health Facilities Authority (Adventist Health System/Sunbelt) Series A 6.00% 11/15/31 1,500,000 1,643,430 Indian River County Hospital District (Indian River Memorial Hospital) 6.10% 10/1/18 (FSA) 3,000,000 3,156,240 North Miami Health Facilities Authority (Catholic Health Services) LOC Suntrust Bank-Miami 6.00% 8/15/16 500,000 518,590 Orange County Health Facilities Authority Revenue (Adventist Health System) 5.625% 11/15/32 1,000,000 1,078,640 Palm Beach County Health Facilities Authority Revenue (Boca Raton Community Hospital) 5.625% 12/1/31 2,000,000 2,125,640 Principal Market Amount Value MUNICIPAL BONDS (Continued) Hospital Revenue Bonds (continued) South Broward Hospital District Revenue (Memorial Healthcare System) 5.625% 5/1/32 $3,000,000 $ 3,253,410 Tallahassee Health Facilities (Tallahassee Memorial Regional Medical Center) Series B 6.00% 12/1/15 (MBIA) 2,500,000 2,506,225 ----------- 14,885,177 ----------- Miscellaneous Revenue Bonds - 2.05% Florida State Board of Education (Lottery Revenue) Series A 6.00% 7/1/14 (FGIC) 1,000,000 1,129,160 Florida State Municipal Loan (Council Revenue) Series A 5.00% 2/1/35 (MBIA) 1,000,000 1,063,660 ----------- 2,192,820 ----------- Multifamily Housing Revenue Bonds - 26.65% Duval Housing Finance Authority (St. Augustine Apartments), 6.00% 3/1/21 300,000 307,587 Florida Housing Finance Agency (Crossings Indian Run Apartments HUD) Series V 6.10% 12/1/26 (AMBAC) (AMT) 750,000 776,123 Florida Housing Finance Agency (Landings at Sea Forest Apartments) Series T 5.85% 12/1/18 (AMBAC) (FHA) (AMT) 400,000 413,168 6.05% 12/1/36 (AMBAC) (FHA) (AMT) 700,000 722,932 Florida Housing Finance Agency (Leigh Meadows Apartments HUD) Series N 6.20% 9/1/26 (AMBAC) (AMT) 2,765,000 2,855,719 6.30% 9/1/36 (AMBAC) (AMT) 2,000,000 2,064,960 Florida Housing Finance Agency (Mariner Club Apartments) Series K-1 6.25% 9/1/26 (AMBAC) (AMT) 2,000,000 2,066,440 6.375% 9/1/36 (AMBAC) (AMT) 3,500,000 3,615,884 Florida Housing Finance Agency (Riverfront Apartments Section 8 HUD) Series A 6.25% 4/1/37 (AMBAC) (AMT) 1,000,000 1,040,280 Florida Housing Finance Agency (Spinnaker Cove Apartments) Series G 6.50% 7/1/36 (AMBAC) (FHA) (AMT) 500,000 515,910 Florida Housing Finance Agency (Sterling Palms Apartments) Series D-1 6.30% 12/1/16 (AMBAC) (AMT) 950,000 978,092 6.40% 12/1/26 (AMBAC) (AMT) 1,500,000 1,550,820 6.50% 6/1/36 (AMBAC) (AMT) 6,540,000 6,740,581 Florida Housing Finance Agency (The Vineyards Project) Series H 6.40% 11/1/15 500,000 512,295 10 STATEMENTS Delaware Tax-Free Florida Insured Fund OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (Continued) Multifamily Housing Revenue Bonds (continued) Florida Housing Finance Agency (Woodbridge Apartments) Series L 6.15% 12/1/26 (AMBAC) (AMT) $1,750,000 $ 1,811,828 6.25% 6/1/36 (AMBAC) (AMT) 2,000,000 2,070,020 Volusia County Multifamily Housing Finance Authority (San Marco Apartments) Series A 5.60% 1/1/44 (FSA) (AMT) 500,000 520,225 ----------- 28,562,864 ----------- Municipal Lease Revenue Bonds - 9.66% Florida Municipal Loan Council Revenue Series B 5.00% 11/1/29 (MBIA) 1,590,000 1,703,129 Lake County Florida School Board 5.00% 6/1/30 (AMBAC) 1,750,000 1,861,668 Osceola County School Board Series A 5.25% 6/1/27 (AMBAC) 4,000,000 4,342,119 Palm Beach County School Board Certificates of Participation Series D 5.00% 8/1/28 (FSA) 300,000 315,645 Pasco County Florida School Board Series A 5.00% 8/1/30 (AMBAC) 1,000,000 1,064,720 St. Augustine Capital Improvement Revenue 5.00% 10/1/34 (AMBAC) 1,000,000 1,065,690 ----------- 10,352,971 ----------- Ports & Harbors Revenue Bonds - 0.30% Jacksonville Port Authority Seaport Revenue 5.70% 11/1/30 (MBIA) (AMT) 295,000 320,405 ----------- 320,405 ----------- $Pre-Refunded Bonds - 2.98% Jacksonville Port Authority Seaport Revenue 5.70% 11/1/30-10 (MBIA) (AMT) 205,000 226,320 Northern Palm Beach County Improvement District Special Assessment (Abacoa Water Control) 7.20% 8/1/16-06 300,000 317,376 Pinellas County Educational Facilities Authority (Clearwater Christian College) Private Placement 8.00% 2/1/11-06 205,000 213,079 Tampa Utilities Tax Revenue Series A 6.00% 10/1/17-09 (AMBAC) 1,000,000 1,118,600 6.125% 10/1/18-09 (AMBAC) 1,000,000 1,123,360 Volusia County Industrial Development Authority Mortgage Revenue (Bishops Glen Retirement Health Facilities Project) 7.50% 11/1/16-06 180,000 192,355 ----------- 3,191,090 ----------- Public Power Revenue Bonds - 1.97% Florida State Municipal Power Agency Revenue (Stanton II Project) 5.00% 10/1/26 (AMBAC) 2,000,000 2,115,280 ----------- 2,115,280 ----------- Public Utility District Revenue Bonds - 1.16% Ocala Utility System Revenue Series B 5.25% 10/1/25 (FGIC) 1,125,000 1,249,099 ----------- 1,249,099 ----------- Principal Market Amount Value MUNICIPAL BONDS (Continued) Single Family Housing Revenue Bonds - 0.40% Florida Housing Finance Agency Homeowner Mortgage Series 1B 6.00% 7/1/17 (FHA) (VA) $ 80,000 $ 81,994 Orange County Florida Housing Finance Authority Homeowner Revenue Series B 5.25% 3/1/33 (GNMA) (FNMA) (AMT) 335,000 344,976 ------------ 426,970 ------------ Tax Increment/Special Assessment Bonds - 2.05% Hollywood Community Redevelopment Agency 5.625% 3/1/24 1,200,000 1,290,972 Julington Creek Plantation Community Development District Special Assessment 5.00% 5/1/29 (MBIA) 200,000 211,256 Osceola County Enterprise Community Development District Special Assessment 6.10% 5/1/16 (MBIA) 695,000 696,863 ------------ 2,199,091 ------------ Territorial General Obligation Bonds - 2.77% Puerto Rico Commonwealth Public Improvement Series A 5.50% 7/1/19 (MBIA) 2,500,000 2,964,225 ------------ 2,964,225 ------------ Territorial Revenue Bonds - 8.74% Puerto Rico Commonwealth Highway & Transportation Authority Revenue Series G 5.00% 7/1/42 800,000 837,136 Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series D 5.25% 7/1/38 3,000,000 3,192,600 Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series J 5.50% 7/1/22 1,600,000 1,782,064 ^Puerto Rico Commonwealth Infrastructure Authority Series A 4.60% 7/1/30 (FGIC) 5,000,000 1,663,100 Puerto Rico Electric Power Authority Power Revenue Series OO 5.00% 7/1/13 (CIFG) 750,000 827,273 Puerto Rico Public Buildings Authority Revenue (Government Facilities) Series F 5.25% 7/1/25 930,000 1,061,167 ------------ 9,363,340 ------------ Water & Sewer Revenue Bonds - 3.44% Riviera Beach Utilities Special District Water & Sewer Revenue 5.00% 10/1/34 (FGIC) 400,000 424,408 Tampa Water and Sewer Revenue 6.00% 10/1/16 (FSA) 1,000,000 1,210,070 Village Center Community Development District Utility Revenue 5.00% 10/1/36 (MBIA) 500,000 530,320 Winter Haven Utility Systems Revenue 5.00% 10/1/30 (MBIA) 1,415,000 1,519,866 ------------ 3,684,664 ------------ TOTAL MUNICIPAL BONDS (cost $98,895,139) 105,604,665 ------------ 11 STATEMENTS Delaware Tax-Free Florida Insured Fund OF NET ASSETS (CONTINUED) TOTAL MARKET VALUE OF SECURITIES - 98.54% (cost $98,895,139) $105,604,665 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.46% 1,564,150 ------------ NET ASSETS APPLICABLE TO 9,459,738 SHARES OUTSTANDING - 100.00% $107,168,815 ============ Net Asset Value - Delaware Tax-Free Florida Insured Fund Class A ($98,326,023 / 8,679,493 Shares) $11.33 ------ Net Asset Value - Delaware Tax-Free Florida Insured Fund Class B ($5,531,915 / 488,107 Shares) $11.33 ------ Net Asset Value - Delaware Tax-Free Florida Insured Fund Class C ($3,310,877 / 292,138 Shares) $11.33 ------ COMPONENTS OF NET ASSETS AT AUGUST 31, 2005: Shares of beneficial interest (unlimited authorization - no par) $101,149,546 Accumulated net realized loss on investments (690,257) Net unrealized appreciation of investments 6,709,526 ------------ TOTAL NET ASSETS $107,168,815 ============ &An inverse floater 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, 2005. See Note 8 in "Notes to Financial Statements." ^Zero coupon security. The interest rate shown is the yield at the time of purchase. ss.Pre-Refunded Bonds are municipals that are generally backed or secured by U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 8 in "Notes to Financial Statements." SUMMARY OF ABBREVIATIONS: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax CIFG - Insured by the CDC IXIS Financial Guaranty FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FNMA - Insured by Federal National Mortgage Association FSA - Insured by the Financial Security Assurance GNMA - Insured by Government National Mortgage Association LOC - Letter of Credit MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance VA - Insured by the Veterans Administration NET ASSET VALUE AND OFFERING PRICE PER SHARE - DELAWARE TAX-FREE FLORIDA INSURED FUND Net asset value Class A (A) $11.33 Sales charge (4.50% of offering price) (B) 0.53 ------ Offering price $11.86 ====== (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 12 STATEMENTS Year Ended August 31, 2005 OF OPERATIONS
Delaware Tax-Free Florida Insured Fund INVESTMENT INCOME: Interest $5,329,570 EXPENSES: Management fees 496,063 Distribution expenses -- Class A 230,230 Distribution expenses -- Class B 52,336 Distribution expenses -- Class C 18,411 Dividend disbursing and transfer agent fees and expenses 69,486 Accounting and administration expenses 34,496 Professional fees 38,534 Reports and statements to shareholders 42,182 Custodian fees 5,089 Trustees' fees 5,181 Pricing fees 1,912 Insurance 7,659 Taxes 574 Registration fees 15,976 Other 9,211 ---------- 225,436 Less expenses absorbed or waived (94,489) Less expense paid indirectly (3,563) ---------- Total expenses 929,288 ---------- NET INVESTMENT INCOME 4,400,282 ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments 332,797 Net change in unrealized appreciation/depreciation of investments 426,912 ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 759,709 ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,159,991 ==========
See accompanying notes 13 STATEMENTS OF CHANGES IN NET ASSETS
Delaware Tax-Free Florida Insured Fund Year Ended 8/31/05 8/31/04 INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 4,400,282 $ 4,650,828 Net realized gain on investments 332,797 177,786 Net change in unrealized appreciation/depreciation of investments 426,912 1,004,732 ------------ ----------- Net increase in net assets resulting from operations 5,159,991 5,833,346 ------------ ----------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class A (4,136,398) (4,392,087) Class B (195,487) (220,713) Class C (68,397) (38,028) ------------ ----------- (4,400,282) (4,650,828) ------------ ----------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: Class A 8,716,486 4,069,521 Class B 392,192 591,446 Class C 339,297 524,409 Net assets from reorganization(1): Class A 10,617,811 -- Class B 2,665,962 -- Class C 2,237,525 -- Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 1,690,235 1,422,253 Class B 49,113 86,919 Class C 34,037 24,843 ------------ ----------- 26,742,658 6,719,391 ------------ ----------- Cost of shares repurchased: Class A (10,965,231) (14,966,660) Class B (2,629,629) (1,533,316) Class C (419,581) (317,623) ------------ ----------- (14,014,441) (16,817,599) ------------ ----------- Increase (decrease) in net assets derived from capital share transactions 12,728,217 (10,098,208) ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS 13,487,926 (8,915,690) NET ASSETS: Beginning of Year 93,680,889 102,596,579 ------------ ----------- End of Year $107,168,815 $93,680,889 ============ =========== (Distributions in excess of net investment income) $-- $--
(1) See Note 6 in "Notes to Financial Statements." See accompanying notes 14 FINANCIAL HIGHLIGHTS 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 8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $11.250 $11.110 $11.330 $11.230 $10.770 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.507 0.533 0.523 0.532 0.527 Net realized and unrealized gain (loss) on investments 0.080 0.140 (0.220) 0.100 0.460 ------- ------- ------- -------- -------- Total from investment operations 0.587 0.673 0.303 0.632 0.987 ------- ------- ------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.507) (0.533) (0.523) (0.532) (0.527) ------- ------- ------- -------- -------- Total dividends and distributions (0.507) (0.533) (0.523) (0.532) (0.527) ------- ------- ------- -------- -------- NET ASSET VALUE, END OF PERIOD $11.330 $11.250 $11.110 $11.330 $11.230 ======= ======= ======= ======== ======== TOTAL RETURN(2) 5.32% 6.15% 2.68% 5.83% 9.39% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $98,326 $87,591 $95,951 $105,773 $107,365 Ratio of expenses to average net assets 0.88% 0.90% 0.90% 0.90% 0.90% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.98% 0.94% 0.94% 0.99% 0.97% Ratio of net investment income to average net assets 4.48% 4.72% 4.60% 4.80% 4.81% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.38% 4.68% 4.56% 4.71% 4.74% Portfolio turnover 17% 3% 26% 46% 12%
(1) As required, effective September 1, 2001, the Fund has adopted the 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 for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 15 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Tax-Free Florida Insured Fund Class B Year Ended 8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $11.260 $11.120 $11.330 $11.230 $10.770 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.422 0.448 0.437 0.445 0.443 Net realized and unrealized gain (loss) on investments 0.070 0.140 (0.210) 0.100 0.460 ------- ------- ------- ------- ------- Total from investment operations 0.492 0.588 0.227 0.545 0.903 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.422) (0.448) (0.437) (0.445) (0.443) ------- ------- ------- ------- ------- Total dividends and distributions (0.422) (0.448) (0.437) (0.445) (0.443) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $11.330 $11.260 $11.120 $11.330 $11.230 ======= ======= ======= ======= ======= TOTAL RETURN(2) 4.45% 5.36% 2.00% 5.01% 8.56% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $5,532 $5,002 $5,800 $5,223 $5,014 Ratio of expenses to average net assets 1.63% 1.65% 1.65% 1.65% 1.65% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.73% 1.69% 1.69% 1.74% 1.72% Ratio of net investment income to average net assets 3.74% 3.97% 3.85% 4.05% 4.06% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.64% 3.93% 3.81% 3.96% 3.99% Portfolio turnover 17% 3% 26% 46% 12%
(1) As required, effective September 1, 2001, the Fund has adopted the 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 for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. 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 C Year Ended 8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $11.260 $11.120 $11.330 $11.240 $10.780 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.422 0.448 0.437 0.447 0.443 Net realized and unrealized gain (loss) on investments 0.070 0.140 (0.210) 0.090 0.460 ------- ------- ------- ------- ------- Total from investment operations 0.492 0.588 0.227 0.537 0.903 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.422) (0.448) (0.437) (0.447) (0.443) ------- ------- ------- ------- ------- Total dividends and distributions (0.422) (0.448) (0.437) (0.447) (0.443) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $11.330 $11.260 $11.120 $11.330 $11.240 ======= ======= ======= ======= ======= TOTAL RETURN(2) 4.45% 5.36% 2.00% 4.93% 8.45% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $3,311 $1,088 $846 $560 $53 Ratio of expenses to average net assets 1.63% 1.65% 1.65% 1.65% 1.65% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.73% 1.69% 1.69% 1.74% 1.72% Ratio of net investment income to average net assets 3.74% 3.97% 3.85% 4.05% 4.06% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.64% 3.93% 3.81% 3.96% 3.99% Portfolio turnover 17% 3% 26% 46% 12%
(1) As required, effective September 1, 2001, the Fund has adopted the 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 for periods prior to September 1, 2001 have not been restated to reflect this change in accounting. (2) Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return reflects waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 17 NOTES August 31, 2005 TO FINANCIAL STATEMENTS Voyageur Mutual Funds (the "Trust") is organized as a Delaware statutory 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 Delaware statutory trust and offers three series: 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 Insured Fund and Delaware Tax-Free New York Fund (each a "Fund" or, collectively, the "Funds"). The 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 Insured Fund and Delaware Tax-Free New York Fund is to seek a high a level of current income exempt from federal income tax and the state 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 U.S. generally accepted accounting principles and are consistently followed by the Funds. Security Valuation -- Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of each Fund's Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes -- Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Class Accounting -- Investment income and common expenses are allocated to the classes of the Funds on the basis of "settled shares" of each class in relation to the net assets of the Funds. Realized and unrealized gain (loss) on investments are allocated to the various classes of the Funds on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class. Use of Estimates -- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. The Funds receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under the above arrangement is included in custodian fees on the Statements of Operations with the corresponding expense offset shown as "expense paid indirectly." The amount of this expense for the year ended August 31, 2005 were as follows: Delaware Tax-Free Florida Insured Fund ---------------- Earnings credits $3,563 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 Florida Insured Fund --------------- On the first $500 million 0.50% On the next $500 million 0.475% On the next $1.5 billion 0.45% In excess of $2.5 billion 0.425% DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse each Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, distribution fees, certain insurance costs and extraordinary expenses, do not exceed specified percentages of average daily net assets through March 31, 2006 for the Tax-Free Florida Insured Fund and through December 29, 2005 for the Delaware Tax-Free New York Fund, as shown below. Delaware Tax-Free Florida Insured Fund --------------- The operating expense limitation as a percentage of average daily net assets (per annum) 0.65% Expiration date 10/31/04 Effective November 1, 2004, operating expense limitation as a percentage of average daily net assets (per annum) 0.62% Expiration date 3/31/06 18 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED) Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing, and transfer agent services. Effective May 19, 2005, the Funds pay DSC a monthly fee computed at the annual rate of 0.04% of the Funds' average daily net assets for accounting and administration services. Prior to May 19, 2005, the Funds paid DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. Each Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, each Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.25% of the average daily net assets of the Class A shares and 1.00% of the average daily net assets of the Class B and C shares. At August 31, 2005, the Funds had receivables due from or liabilities payable to affiliates as follows: Delaware Tax-Free Florida Insured Fund --------------- Receivable from DMC under expense limitation agreement $-- Investment Management fee payable to DMC (28,655) Dividend disbursing, transfer agent fees, accounting and administration fees and other expenses payable to DSC (10,282) Other expenses payable to DMC and affiliates* (47,112) *DMC, as part of its administrative services, pays operating expenses on behalf of each Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees' fees. As provided in the investment management agreement, each Fund bears the cost of certain legal services expenses, including internal legal services provided to each Fund by DMC employees. For the year ended August 31, 2005, the Funds' were charged for internal legal sevices provided by DMC as follows: Delaware Tax-Free Florida Insured Fund --------------- $5,674 For the year ended August 31, 2005, DDLP earned commissions on sales of Class A shares for each Fund as follows: Delaware Tax-Free Florida Insured Fund --------------- $14,945 For the year ended August 31, 2005, DDLP received gross contingent deferred sales charge commissions on redemption of each Fund's Class A, Class B and Class C shares, respectively. These commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares. The amounts received were as follows: Delaware Tax-Free Florida Insured Fund --------------- Class A $-- Class B 4,959 Class C 391 Certain officers of DMC, DSC and DDLP are officers and/or trustees of the Trust. These officers and trustees are paid no compensation by the Funds. 3. Investments For the year ended August 31, 2005, the Funds made purchases and sales of investment securities other than short-term investments as follows: Delaware Tax-Free Florida Insured Fund ---------------- Purchases $16,782,443 Sales 17,482,051 At August 31, 2005, the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows: Delaware Tax-Free Florida Insured Fund --------------- Cost of investments $98,895,139 =========== Aggregate unrealized appreciation $6,709,526 Aggregate unrealized depreciation -- ---------- Net unrealized appreciation $6,709,526 ========== 19 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 U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended August 31, 2005 and 2004 was as follows: Delaware Tax-Free Florida Insured Fund -------------------- Year Ended 8/31/05 8/31/04 ------- ------- Tax-exempt income $4,400,282 $4,650,828 As of August 31, 2005, the components of net assets on a tax basis were as follows: Delaware Tax-Free Florida Insured Fund -------------------- Shares of beneficial interest $101,149,546 Other temporary differences -- Capital loss carryforwards (690,257) Unrealized appreciation of investments 6,709,526 ------------ Net assets $107,168,815 ============ For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. For federal income tax purposes, Delaware Tax-Free Florida Insured Fund and the Delaware Tax-Free New York Fund utilized in 2005 $332,797 and $71,842, respectively, of capital loss carryforwards from prior years in 2005. Capital loss carryforward amounts remaining at August 31, 2005 expire as follows: Year of Delaware Tax-Free Expiration Florida Insured Fund ---------- -------------------- 2008 $690,257 2009 -- -------- Total $690,257 ======== 5. CAPITAL SHARES Transactions in capital shares were as follows: Delaware Tax Free Florida Insured Fund -------------------- Year Ended 8/31/05 8/31/04 Shares sold: Class A 771,683 361,036 Class B 34,695 52,775 Class C 30,020 46,726 Shares issued from reorganization: Class A 948,019 -- Class B 238,033 -- Class C 199,779 -- Shares issued upon reinvestment of dividends and distributions: Class A 149,719 126,274 Class B 4,348 7,699 Class C 3,014 2,205 ----------- ---------- 2,379,310 596,715 ----------- ---------- Shares repurchased: Class A (973,048) (1,339,780) Class B (233,220) (137,961) Class C (37,307) (28,419) ----------- ---------- (1,243,575) (1,506,160) ----------- ---------- Net increase (decrease) 1,135,735 (909,445) ----------- ---------- 20 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. CAPITAL SHARES (CONTINUED) For the years ended August 31, 2005 and 2004, the following shares were converted from Class B to Class A shares. The respective amounts are included in Class B redemptions and Class A subscriptions in the tables on the prior page and the Statements of Changes in Net Assets.
Year Ended Year Ended 8/31/05 8/31/04 ----------------------------------------- ----------------------------------------- Class B Shares Class A Shares Value Class B Shares Class A Shares Value -------------- -------------- -------- -------------- -------------- --------- Delaware Tax-Free Florida Insured Fund 62,454 62,490 $703,111 20,016 20,022 $225,865
6. FUND REORGANIZATION Effective April 11, 2005, Delaware Tax-Free Florida Insured Fund (the "Fund") acquired all of the assets and assumed all of the liabilities of Delaware Tax-Free Florida Fund, an open-end investment company, pursuant to a Plan and Agreement of Reorganization (the "Reorganization"). The shareholders of Delaware Tax-Free Florida Fund received shares of the respective class of the Fund equal to the aggregate net asset value of their shares prior to the Reorganization based on the net asset value per share of the respective classes of the Fund. The Reorganization was treated as a non-taxable event and, accordingly, the Fund's basis in the securities acquired reflected the historical cost basis as of the date of transfer. The net assets, net unrealized appreciation and accumulated net realized loss of Delaware Tax-Free Florida Fund as of the close of business on April 8, 2005 were as follows:
Accumulated Net Unrealized Net Realized Net Assets Appreciation Losses ----------- ------------ ------------- Delaware Tax-Free Florida Fund $15,521,298 $648,070 $(515,360)*
*Includes prior capital loss carry forwards. The net assets of the Fund prior to the Reorganization were $92,098,392. The combined net assets of the Fund after the reorganization were $107,619,690. 7. LINE OF CREDIT The Funds, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participate in a $183,100,000 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 funds' 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, 2005, or at any time during the year. 8. 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. The Funds may invest in advanced refunded bonds, escrow secured bonds or defeased bonds. Under current federal tax laws and regulations, state and local government borrowers are permitted to refinance outstanding bonds by issuing new bonds. The issuer refinances the outstanding debt to either reduce interest costs or to remove or alter restrictive covenants imposed by the bonds being refinanced. A refunding transaction where the municipal securities are being refunded within 90 days or less from the issuance of the refunding issue is known as a "current refunding." "Advance refunded bonds" are bonds in which the refunded bond issue remains outstanding for more than 90 days following the issuance of the refunding issue. In an advance refunding, the issuer will use the proceeds of a new bond issue to purchase high grade interest bearing debt securities which are then deposited in an irrevocable escrow account held by an escrow agent to secure all future payments of principal and interest and bond premium of the advance refunded bond. Bonds are "escrowed to maturity" when the proceeds of the refunding issue are deposited in an escrow account for investment sufficient to pay all of the principal and interest on the original interest payment and maturity dates. Bonds are considered "pre-refunded" when the refunding issue's proceeds are escrowed only until a permitted call date or dates on the refunded issue with the refunded issue being redeemed at that time, including any required premium. Bonds become "defeased" when the rights and interests of the bondholders and their lien on the pledged revenues or other security under the terms of the bond contract are substituted with an alternative source of revenues (the escrow securities) sufficient to meet payments of principal and interest to maturity or to the first call dates. Escrowed secured bonds will often receive a rating of AAA from Moody's, S&P, and/or Fitch due to the strong credit quality of the escrow securities and the irrevocable nature of the escrow deposit agreement. The Delaware Tax-Free Florida Insured Fund will purchase escrow secured bonds without additional insurance only where the escrow is invested in securities of the U.S. government or agencies or instrumentalities of the U.S. government. Each Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. At August 31, 2005, there were no Rule 144A securities and no securities have been determined to be illiquid under the Funds' Liquidity Procedures. While maintaining oversight, the Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund's limitation on investments in illiquid assets. 28 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. CONTRACTUAL OBLIGATIONS The Funds enter into contracts in the normal course of business that contain a variety of indemnifications. The Funds' maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts. Management has reviewed the Funds' existing contracts and expects the risk of loss to be remote. 10. TAX INFORMATION (UNAUDITED) The information set forth below is for each Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended August 31, 2005, each Fund designates distributions paid during the year as follows: Delaware Tax-Free Florida Insured Fund -------------------- (A) Long Term Capital Gains Distributions (Tax Basis) -- (B) Ordinary Income Distributions (Tax Basis) -- (C) Tax-Exempt Distributions (Tax Basis) 100% -------- ---- Total Distributions (Tax Basis) 100% -------- --- (A), (B) and (C) are based on a percentage of each Fund's total distributions. 29 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees 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 Insured Fund (one of the series constituting Voyageur Investment Trust) and Delaware Tax-Free New York Fund (one of the series constituting Voyageur Mutual Funds) (the "Funds") as of August 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit procedures included confirmation of securities owned as of August 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Tax-Free Florida Insured Fund of Voyageur Investment Trust and the Delaware Tax-Free New York Fund of Voyageur Mutual Funds at August 31, 2005, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. ERNST & YOUNG LLP Philadelphia, Pennsylvania October 14, 2005 30 OTHER FUND INFORMATION PROXY RESULTS The shareholders of Voyageur Mutual Funds and Voyageur Investment Trust (each, a "Trust") voted on the following proposals (as applicable) at the special meeting of shareholders on March 23, 2005 or as adjourned. The description of each proposal and number of shares voted are as follows: 1. To elect a Board of Trustees for each of the Trusts.
Voyageur Mutual Funds Voyageur Investment Trust -------------------------------------- ------------------------------------- Shares Voted Shares Voted Shares Voted For Withheld Authority Shares Voted For Withheld Authority ---------------- ------------------ ---------------- ------------------ Thomas L. Bennett 20,895,278.656 360,093.724 14,252,335.197 431,663.104 Jude T. Driscoll 20,914,639.656 340,732.724 14,251,143.991 432,854.310 John A. Fry 20,894,793.656 360,578.724 14,258,738.991 425,259.310 Anthony D. Knerr 20,894,488.656 360,883.724 14,258,994.991 425,003.310 Lucinda S. Landreth 20,879,031.656 376,340.724 14,254,091.179 429,907.104 Ann R. Leven 20,857,874.656 397,497.724 14,252,611.991 431,386.310 Thomas F. Madison 20,905,985,656 349,386.724 14,259,138.991 424,859.310 Janet L. Yeomans 20,859,670.656 395,701.724 14,251,014.197 432,984.104 J. Richard Zecher 20,914,639.656 340,732.724 14,248,580.991 432,417.310
2. To approve the use of a "manager of managers" structure whereby the investment manager of the funds of each Trust will be able to hire and replace subadvisers without shareholder approval.
For Against Abstain --- ------- ------- Delaware Tax-Free Florida Insured Fund 3,582,081.061 375,237.993 199,180.980
3. To approve the Plan of Reorganization for Voyageur Investment Trust to merge Delaware Tax-Free Florida Fund into Delaware Tax-Free Florida Insured Fund.
For Against Abstain --- ------- ------- Delaware Tax-Free Florida Fund 771,340.129 13,994.000 84,609.180
4. To approve the restructuring of Voyageur Investment Trust from a Massachusetts business trust to a Delaware statutory trust.
For Against Abstain --- ------- ------- Delaware Tax-Free Florida Insured Fund 3,851,059.434 150,530.005 154,910.595
31 OTHER FUND INFORMATION (CONTINUED) BOARD CONSIDERATION OF DELAWARE NAME OF FUND INVESTMENT ADVISORY AGREEMENT At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of Trustees, including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreements for the Delaware Tax-Free Florida Insured Fund and Delaware Tax-Free New York Fund (each a "Fund" and together the "Funds"). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the Annual Meeting. Information furnished and discussed throughout the year included reports detailing Fund performance, investment strategies, expenses, compliance matters and other services provided by Delaware Management Company ("DMC"), the investment advisor. Information furnished specifically in connection with the Annual Meeting included materials provided by DMC and its affiliates ("Delaware Investments") concerning, among other things, the level of services provided to the Funds, the costs of such services to the Funds, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, the Board separately received and reviewed independent historical and comparative reports prepared by Lipper Inc. ("Lipper"), an independent statistical compilation organization. The Lipper reports compared each Fund's investment performance and expenses with those of other comparable mutual funds. The Board also requested and received certain supplemental information regarding management's policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager's profitability organized by client type, including the Funds; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit the advisor's ability to fully invest in accordance with each Fund's policies. In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel and representatives from Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman of the Delaware Investments Family of Funds, and Chairman and Chief Executive Officer of the investment advisor, was present to respond to questions raised by Lipper and the independent Trustees. While the Board considered the Investment Advisory Agreements for all of the funds in the Delaware Investments Family of Funds at the same Board meeting, information was provided and considered by the Board for each fund individually. In approving the continuance of the Investment Advisory Agreements for the Funds, the Board, including a majority of independent Trustees, determined that the existing advisory fee structure was fair and reasonable and that the continuance of the Investment Advisory Agreements was in the best interests of the Funds and their shareholders. While attention was given to all information furnished, the following discusses the primary factors relevant to the Board's deliberations and determination, including those relating to the selection of the investment advisor and the approval of the advisory fee. NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Funds and their shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the compliance of portfolio managers with the investment policies, strategies and restrictions for the Funds, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex, the adherence to fair value pricing procedures as established by the Board, and the accuracy of net asset value calculations.The Board noted that it was pleased with the current staffing of the Funds' investment advisor during the past year, the emphasis on research and the compensation system for advisory personnel. Favorable consideration was given to DMC's efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. Other factors taken into account by the Board were Delaware Investments' preparedness for, and response to, legal and regulatory matters. The Board also considered the transfer agent and shareholder services provided to Fund shareholders by Delaware Investments' affiliate, Delaware Service Company, Inc., noting the receipt by such affiliate of the DALBAR Pyramid Award in four of the last six years and the continuing expenditures by Delaware Investments to increase and improve the scope of shareholder services. Additionally, the Board noted the extent of benefits provided to Fund shareholders for being part of the Delaware Investments Family of Funds, including the privilege to exchange investments between the same class of funds without a sales charge, the ability to reinvest Fund dividends into other funds and the privilege to combine holdings in other funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments. INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Funds. The Board was pleased by DMC's investment performance, noting Barron's ranking of the Delaware Investments Family of Funds in the top quartile of mutual fund families for 2002 - 2004. The Board placed significant emphasis on the investment performance of the Funds in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for each Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the "Performance Universe"). A fund with the highest performance is ranked first, and a fund with the lowest is ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% - the second quartile; the next 25% - the third quartile; and the lowest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Funds was shown for the past one, three, five and 10 year periods ended February 28, 2005. The Board noted its objective that each Fund's performance be at or above the median of its Performance Universe. The following paragraphs summarize the performance results for the Funds and the Board's view of such performance. Delaware Tax-Free Florida Insured Fund -- The Performance Universe for this Fund consisted of the Fund and all retail and institutional Florida insured municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one and three year periods was in the first quartile of such Performance Universe. The report further showed that the Fund's total return for the five and 10 year periods was in the second quartile. The Board was satisfied with such performance. 32 OTHER FUND INFORMATION (CONTINUED) COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds, Delaware Investments' institutional separate account business and other lines of business at Delaware Investments. The Board stated its belief that, given the differing level of service provided to Delaware Investments' various clients and other factors that related to the establishment of fee levels, variations in the levels of fees and expenses were justified. The Board placed significant emphasis on the comparative analysis of the management fees and total expense ratios of each Fund compared with those of a group of similar funds as selected by Lipper (the "Expense Group") and among the other Delaware Investments funds. In reviewing comparative costs, each Fund's contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into effect any applicable breakpoints and fee waivers. Each Fund's total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and compared total expenses including 12b-1 and non-12b-1 service fees. The Board noted its objective to limit each Fund's total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraphs summarize the expense results for the Funds and the Board's view of such expenses. DELAWARE TAX-FREE FLORIDA INSURED FUND -- The expense comparisons for the Fund showed that its management fee was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the highest expenses of its Expense Group. The Board gave favorable consideration to the Fund's management fee, but noted that the Fund's total expenses were not in line with the Board's objective. In evaluating the total expenses, the Board considered waivers in place through March 2006. The Board was satisfied with management's efforts to improve the Fund's total expense ratio and bring it in line with the Board's objective. MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Funds. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments' business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments' expenditures to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds, the benefits from allocation of fund brokerage to improve trading efficiencies and the use of "soft" commission dollars to pay for proprietary and non-proprietary research. At the Board's request, management also provided information relating to Delaware Investments' profitability by client type. The information provided set forth the revenue, expenses and pre-tax income/loss attributable to the Delaware Investments Family of Funds, Delaware Investments' separate account business and other lines of business at Delaware Investments. Emphasis was given to the level and type of service provided to the various clients. The Board was satisfied with the level of profits realized by Delaware Investments from its relationships with the Funds and the Delaware Investments Family of Funds. ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as each Fund's assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure approved by the Board and shareholders as part of a complex-wide shareholder meeting conducted in 1998/1999. At that time, Delaware Investments introduced breakpoints to account for management economies of scale. The Board noted that the fee under each Fund's management contract fell within the standard structure. Although the Funds have not reached a size at which they can take advantage of breakpoints, the Board recognized that the fee was structured so that when the Funds grow, economies of scale may be shared. 33 DELAWARE INVESTMENTS(R) FAMILY OF FUNDS BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others 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 and Officers with certain background and related information.
NUMBER OF OTHER PORTFOLIOS IN FUND DIRECTORSHIPS COMPLEX OVERSEEN HELD BY NAME, ADDRESS AND POSITION(S) HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S) BY TRUSTEE TRUSTEE BIRTHDATE WITH FUND(S) SERVED DURING PAST 5 YEARS OR OFFICER OR OFFICER - ---------------------- ------------------- -------------------- --------------------------- ------------------- -------------------- INTERESTED TRUSTEES JUDE T. DRISCOLL(2) Chairman, 5 Years - Executive Since August 2000, Mr. 92 None 2005 Market Street President, Chief Officer Driscoll has served in Philadelphia, PA Executive Officer various executive 19103 and Trustee 1 Year - Trustee capacities at different times at Delaware March 10, 1963 Investments(1) Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES THOMAS L. BENNETT Trustee Since Private Investor - 92 None 2005 Market Street March 23, 2005 (March 2004 - Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 4, 1947 (January 1984 - March 2004) - ------------------------------------------------------------------------------------------------------------------------------------ JOHN A. FRY Trustee 4 Years President - Franklin & 92 Director - Community 2005 Market Street Marshall College Health Systems Philadelphia, PA (June 2002 - Present) 19103 Executive Vice President May 28, 1960 - University of Pennsylvania (April 1995 - June 2002) - ------------------------------------------------------------------------------------------------------------------------------------ ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director 92 None 2005 Market Street - Anthony Knerr & Philadelphia, PA Associates (Strategic 19103 Consulting) (1990 - Present) December 7, 1938 - ------------------------------------------------------------------------------------------------------------------------------------ LICINDA S. LANDRETH Trustee Since Chief Investment Officer - 92 None 2005 Market Street March 23, 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002 - 2004) June 24, 1947 - ------------------------------------------------------------------------------------------------------------------------------------ ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 92 Director and Audit 2005 Market Street Officer - National Committee Philadelphia, PA Gallery of Art Chairperson - 19103 (1994 - 1999) Andy Warhol Foundation November 1, 1940 Director and Audit Committee Member - Systemax Inc. - ------------------------------------------------------------------------------------------------------------------------------------
34
NUMBER OF OTHER PORTFOLIOS IN FUND DIRECTORSHIPS COMPLEX OVERSEEN HELD BY NAME, ADDRESS AND POSITION(S) HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S) BY TRUSTEE TRUSTEE BIRTHDATE WITH FUND(S) SERVED DURING PAST 5 YEARS OR OFFICER OR OFFICER - ---------------------- ------------------- -------------------- --------------------------- ------------------- -------------------- INDEPENDENT TRUSTEES (continued) THOMAS F. MADISON Trustee 11 Years President/Chief Executive 92 Director - 2005 Market Street Officer - MLM Partners, Banner Health Philadelphia, PA Inc. (Small Business 19103 Investing and Consulting) Director and Audit Committee Member - (January 1993 - Present) CenterPoint Energy February 25, 1936 Director and Audit Committee Member - Digital River Inc. Director and Audit Committee Member - Rimage Corporation Director - Valmont Industries Inc. - ------------------------------------------------------------------------------------------------------------------------------------ JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 92 None 2005 Market Street Acquisitions - Philadelphia, PA 3M Corporation 19103 (January 2003 - Present) July 31, 1948 Ms. Yeomans has held various management positions at 3M Corporation since 1983. - ------------------------------------------------------------------------------------------------------------------------------------ J. RICHARD ZECHER Trustee Since Founder - 92 Director and Audit 2005 Market Street March 23, 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999 - Present) Director and Audit July 3, 1940 Committee Member - Oxigene, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS MICHAEL P. BISHOF Senior Vice Chief Financial Mr. Bishof has served in 92 None(3) 2005 Market Street President and Officer since various executive capacities Philadelphia, PA Chief Financial February 17, 2005 at different times at 19103 Officer Delaware Investments. August 18, 1962 - ------------------------------------------------------------------------------------------------------------------------------------ RICHELLE S. MAESTRO Executive Vice 2 Years Ms. Maestro has served in 92 None(3) 2005 Market Street President, Chief various executive capacities Philadelphia, PA Legal Officer and at different times at 19103 Secretary Delaware Investments. November 26, 1957 - ------------------------------------------------------------------------------------------------------------------------------------ JOHN J. O'CONNOR Senior Vice Treasurer since Mr. O'Connor has served in 92 None(3) 2005 Market Street President and February 17, 2005 various executive capacities Philadelphia, PA Treasurer at different times at 19103 Delaware Investments. June 16, 1957 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's(s') investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') manager and distributor. (3) Mr. Bishof, Ms. Maestro and Mr. O'Connor also serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees/Directors and Officers and is available, without charge, upon request by calling 800 523-1918. 35 Delaware Investments(R) - ----------------------------------- A member of Lincoln Financial Group This annual report is for the information of 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 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 Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION MICHAEL P. BISHOF JUDE T. DRISCOLL Senior Vice President and INVESTMENT MANAGER Chairman Chief Financial Officer Delaware Management Company, Delaware Investments Family of Funds Delaware Investments Family of Funds a Series of Delaware Management Business Trust Philadelphia, PA Philadelphia, PA Philadelphia, PA THOMAS L. BENNETT RICHELLE S. MAESTRO NATIONAL DISTRIBUTOR Private Investor Executive Vice President, Delaware Distributors, L.P. Rosemont, PA Chief Legal Officer and Secretary Philadelphia, PA Delaware Investments Family of Funds JOHN A. FRY Philadelphia, PA SHAREHOLDER SERVICING, DIVIDEND President DISBURSING AND TRANSFER AGENT Franklin & Marshall College JOHN J. O'CONNOR Delaware Service Company, Inc. Lancaster, PA Senior Vice President and Treasurer 2005 Market Street Delaware Investments Family of Funds Philadelphia, PA 19103-7094 ANTHONY D. KNERR Philadelphia, PA Managing Director FOR SHAREHOLDERS Anthony Knerr & Associates 800 523-1918 New York, NY FOR SECURITIES DEALERS AND FINANCIAL INSTITUTIONS REPRESENTATIVES ONLY LUCINDA S. LANDRETH 800 362-7500 Former Chief Investment Officer Assurant, Inc. WEB SITE Philadelphia, PA www.delawareinvestments.com ANN R. LEVEN Delaware Investments is the marketing name for Former Treasurer/Chief Fiscal Officer Delaware Management Holdings, Inc. and National Gallery of Art its subsidiaries. Washington, DC THOMAS F. MADISON President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN JANET L. YEOMANS Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN J. RICHARD ZECHER Founder Investor Analytics Scottsdale, AZ
- -------------------------------------------------------------------------------- Each Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. Each Fund's Forms N-Q, as well as a description of the policies and procedures that each Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on each Fund's Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. Each Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information (if any) regarding how each Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through each Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. (9751) Printed in the USA AR-FLNY [8/05] IVES 10/05 MF-05-09-024 PO10438 - -------------------------------------------------------------------------------- Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group FIXED INCOME ANNUAL REPORT AUGUST 31, 2005 - -------------------------------------------------------------------------------- DELAWARE TAX-FREE MISSOURI INSURED FUND DELAWARE TAX-FREE OREGON INSURED FUND [LOGO] POWERED BY RESEARCH(R) TABLE OF CONTENTS - ----------------------------------------------------------------- PORTFOLIO MANAGEMENT REVIEW 1 - ----------------------------------------------------------------- PERFORMANCE SUMMARIES Delaware Tax-Free Missouri Insured Fund 4 Delaware Tax-Free Oregon Insured Fund 6 - ----------------------------------------------------------------- DISCLOSURE OF FUND EXPENSES 8 - ----------------------------------------------------------------- SECTOR ALLOCATIONS 9 - ----------------------------------------------------------------- FINANCIAL STATEMENTS: Statements of Net Assets 11 Statements of Operations 16 Statements of Changes in Net Assets 17 Financial Highlights 18 Notes to Financial Statements 24 - ----------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 29 - ----------------------------------------------------------------- OTHER FUND INFORMATION 30 - ----------------------------------------------------------------- BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 33 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) 2005 Delaware Distributors, L.P. PORTFOLIO September 13, 2005 MANAGEMENT REVIEW FUND MANAGERS Patrick P. Coyne Executive Vice President, Managing Director, Head of Equity Investments Robert F. Collins Co-Manager Joseph R. Baxter Co-Manager PLEASE DESCRIBE THE OVERALL MARKET CONDITIONS DURING THE FISCAL YEAR. The last three years have been remarkably similar; at least as it pertains to market expectations and how the actual markets can prove them wrong. In the beginning of calendar years 2003, 2004, and 2005, many market participants appeared convinced that interest rates were unreasonably low, and many managers adjusted the risk profiles of their portfolios to reflect the coming of higher rates and lower bond prices. In each year, the markets weathered the storms and generated positive results, with price gains adding to the income generated. Defensive strategies did not pan out. Over the 12 months ended August 31, 2005, the fixed income markets rallied while the Federal Reserve was in the midst of tightening credit by raising short-term rates -- notably, the fed-funds rate. The tightening cycle started at the end of June 2004, prior to the start of the fiscal year, and continues today. As of August 31, 2005, the Federal Reserve raised rates by one quarter of a percentage point at every one of its meetings -- a total of eight rate hikes that took the fed-funds rate from 1.50% to 3.50%. While the Federal Reserve's actions sent short-term yields in both the taxable and the tax-exempt bond markets higher, the reaction of the intermediate and long-term markets prompted Fed Chairman Alan Greenspan's "conundrum" comment earlier this year. This type of sustained market rally through a Fed tightening is highly unusual and is precisely what confounded many investors. In the municipal market, yields on two-year, AAA-rated bonds increased by 1.2% during the year, from 1.7% to end the fiscal year near 2.9%. The crossover point where rates were relatively flat year-over-year was in the 10-year maturity range, where rates began and ended the year at about 3.5%. Longer rates fell. For example, yields dropped by four tenths of a percentage point on 30-year AAA-rated municipals, ending the fiscal year with yields of approximately 4.3% (Source: Municipal Market Data). These divergent moves between short-term and long-term rates continued to "flatten the yield curve." In the Treasury market, the difference between the 2- and 30-year yields narrowed dramatically, from about two-and-a-half percentage points to less than half of a percent at the end of the fiscal year. Some market strategists have started discussing the prospects for, and implications of, an inverted yield curve. Historically, an inverted yield curve has been associated with the onset of an economic recession. The curve in the tax-exempt markets flattened as well, but not quite as dramatically. While the difference between 2- and 30-year high-grade municipal bonds started the year at 2.9%, it narrowed by 1.5 percent, ending the year with a 1.4% differential. Historically, when the Treasury market has inverted, the municipal market has maintained a positively sloped curve. Municipal bonds, particularly long-term bonds, traded weaker relative to Treasuries during the year. Yields on 30-year AAA-rated municipals, measured as a percentage of the yield on long Treasury bonds, started the fiscal year at about 95%. By the end of June 2005, the ratio had increased above 100%. This would be typical -- the market was rallying and the Treasury market led the way toward lower yields. The municipal market recaptured some of that underperformance in the last two months, ending the year with yields at about 98% of the long Treasury bond. WHAT WAS THE INVESTMENT ENVIRONMENT LIKE DURING THE LAST 12 MONTHS IN IDAHO, MISSOURI, AND OREGON? Credit has performed very well this year, partially due to investors' desire to seek higher yields, but also due to the fact that quality continued to improve throughout the municipal market. A strong economic backdrop has largely been the cause. Idaho's economy has expanded and diversified in recent years, benefiting from population growth and low business costs. Although the state economy is diverse, there is an above-average dependence on the natural resources sector. Since 1990, state employment growth has been above U.S. levels. The state has dealt with revenue declines and growing expenditure needs through spending controls and fund transfers. Total revenues grew approximately 10% in the first eight months of fiscal 2005 due to strong increases in personal income and sales tax (Source: Municipal Market Data). While revenue growth is projected in the next few fiscal years, projected increases in expenditure needs -- especially in the areas of education and health and human services -- are expected to result in a budget gap. Missouri's greatest economic strength is its diversity, which is partly based on the state's location at the geographic center of the nation (Source: Municipal Market Data). This gives it an economic advantage in trade and manufacturing. For the first nine months of fiscal 2005, total state revenues were up moderately. The state expects the general fund balance to be drawn down in fiscal 2005 due to the limitation of taxes imposed by the general assembly. 1 After suffering through three years of job loses, Oregon's economy has provided solid growth for the last two years. Employment, which grew at 2.5% in 2004, has continued to grow in 2005, with gains accelerating to over 3% for the 12 months ended July 2005. State revenues are up moderately for the first nine months of fiscal 2005 (Source: Municipal Market Data). Oregon's most recent revenue forecast provides for more General Fund resources for the 2005-2007 biennium than originally anticipated. Higher-than-expected personal income taxes, which represent nearly 90% of revenues in the state general fund, account for most of the upward forecast revision. Oregon has not yet adopted a two-year budget for 2005-2007. In the interim, the state is operating under a continuing appropriation resolution. Until a new budget is adopted, spending levels are maintained at the level of the last quarter of the most recent fiscal year. We believe Oregon should continue to implement tight financial controls to compensate for low budget reserves and further uncertainty associated with voter initiative activity. Overall, municipal bond issuance has remained robust in 2005, and these three states are no exception. Total national issuance in 2005 may even surpass the record of $384 billion sold in 2003 if this pace remains. The drivers of this record volume continue to be the low interest rate environment and the flattening yield curve, both of which stimulate refunding activity. Idaho and Missouri, in particular, have experienced significantly higher issuance levels, up 150% and 39% in volume year-to-date, respectively. In Oregon, the new issue volume has increased by 4.7% over last year's pace, below the 13% growth rate for the municipal market in total (source: Municipal Market Data). HOW DID DELAWARE TAX-FREE MISSOURI INSURED FUND PERFORM DURING THE FISCAL YEAR? For the fiscal year ended August 31, 2005, Delaware Tax-Free Missouri Insured Fund returned 5.27% (Class A shares at net asset value with distributions reinvested) and 0.57% (at maximum offer price with distributions reinvested).* Class A shares (at net asset value with distributions reinvested) outperformed the Lipper Missouri Municipal Debt Funds Universe Average, which returned 4.92%, and was in line with the Lehman Brothers Municipal Bond Index, which returned 5.31% for the 12-month period, both of which excluded sales charges (source: Lipper, Inc.). HOW DID DELAWARE TAX-FREE OREGON INSURED FUND PERFORM DURING THE FISCAL YEAR? For the fiscal year ended August 31, 2005, Delaware Tax-Free Oregon Insured Fund returned 5.09% (Class A shares at net asset value with distributions reinvested) and 0.33% (at maximum offer price with distributions reinvested).* Class A shares (at net asset value with distributions reinvested) outperformed the Lipper Oregon Municipal Debt Funds Universe Average, which returned 4.22%, and slightly underperformed the Lehman Brothers Municipal Bond Index, which returned 5.31% for the 12-month period, both of which excluded sales charges (source: Lipper, Inc.). FOR EACH FUND, WHAT STRATEGIES INFLUENCED FUND PERFORMANCE? The Funds' returns were generally aided by yield curve positioning, credit spread tightening, sector concentration, and security selection. The relative contribution of these first three components varies based on the individual Fund's mandate as set forth in its prospectus. The fourth factor, security selection, is the heart of our investment process and is the primary source of our excess returns. This selection process has contributed across all funds. While the Federal Reserve raised short-term rates by increasing the fed-funds target rate, long-term bond yields declined, as inflation remained tame during a period of moderate growth. This resulted in what is termed as a "flattening of the yield curve," where the difference between long- and short-term rates narrows. The Funds are positioned to take advantage of this environment, combining long maturity bonds that participate in the rally and shorter duration securities with high coupons trading to short calls that are less price sensitive. This is known as a "barbell" structure and it generally aided our performance. When the yield curve flattens and long-term interest rates decline, market participants seek alternative sources of yield. This is often found in lower-rated bonds, and as the market reaches for this yield, it causes the credit curve to tighten and results in good performance for those securities. Bonds rated A and BBB, and non-investment grade securities have all outperformed high-grade and insured bonds in the municipal market over the past year. The Funds have benefited from an allotment to these higher-risk credits. *For complete annualized performance, see tables on pages 4, 6, and 8. 2 Two of our favored sectors, healthcare and higher education, benefited from both the market's reach for yield as well as positive fundamentals. The credit and financial environments have been positive for hospitals, as they have received favorable reimbursements from Medicare and the managed care industry. The demographics provided by the baby boom generation have provided favorable enrollment environment for colleges and universities, while a recovering stock market has bolstered endowments. Despite a structural deficit, various bonds issued by the Commonwealth of Puerto Rico have also performed well during the period. The Delaware Tax-Free Idaho Fund has the broadest mandate of these three funds and has therefore been able to participate in all four sources of return. The Fund is structured with long maturities that have benefited from the flattening of the yield curve, it has a meaningful allotment in mid-to-lower investment grade securities and this has allowed it to participate in some of the better-performing sectors. CAN YOU NAME SOME KEY HOLDINGS IN DELAWARE TAX-FREE MISSOURI INSURED FUND? Positions included St. Francis Medical Center in Cape Girardeau and corporate backed bonds such as Sugar Creek IDB's for Lafarge North America. AAA-insured contributors included zero coupon bonds for the St. Louis Convention Center, bonds for the University of Health Sciences and escrowed single-family housing bonds in Greene County. Territorial bonds for Puerto Rico and the Virgin Islands also provided significant returns during the year. The Delaware Tax-Free Missouri Insured Fund was well positioned for a flattening of the yield curve with a significant allocation of bonds having maturities 15 years and longer. Legacy bonds that have short due dates or short calls help offset these longer positions. The Fund's insured mandate limits it from participating fully in the credit spread tightening of lower-rated bonds and some of the associated sectors. The Fund is allowed to own up to 20% of its securities in non-insured bonds and we maximized our use of non-insureds during the period to gain excess returns. WHAT WERE KEY HOLDINGS IN DELAWARE TAX-FREE OREGON INSURED FUND? Positions included Providence Health Systems in Multnomah County, Cascade Health Systems in Deschutes County, and student housing bonds for Portland State University. Other key holdings included securities for Willamette University, Oregon Health Sciences University, and Lebanon school district in Linn County that was pre-refunded and escrowed to maturity. The Oregon Health Sciences bonds are zero coupon bonds that benefited from the decline in long interest rates. Also contributing to performance were territorial bonds for the Puerto Rico Power Authority. The Delaware Tax-Free Oregon Insured Fund was also well positioned for curve flattening with significant exposure to long maturities and an offsetting position in legacy bonds with short due dates. The Fund's insured mandate limits it from participating fully in the credit spread tightening of lower-rated bonds and some of the associated sectors. The Fund is allowed to own up to 20% of its securities in non-insured bonds and we maximized our use of non-insureds during the period to gain excess returns. FOR EACH FUND, WHAT DETRACTED FROM PERFORMANCE? Detracting from each of our Funds' performance, relative to the benchmark index, was the significant decision to avoid the unenhanced tobacco sector. This sector, in which we did not participate, has been the best performing sector in the municipal bond market over the past year and the biggest influence on market performance. The master settlement agreement between the major tobacco companies and 46 states secures these bonds. However, the sector is subject to litigation risk and therefore, volatile. We are comfortable foregoing this potential volatility in the Funds. Airline securities significantly outperformed the municipal market this year during the second and third quarters, which are a traditional busy season. Although the Funds held several airport revenue bonds, we have been underweighted in this sector and have generally avoided securities backed by airline corporation revenues, as we are concerned about the long-term fundamentals of the industry. The decision to hold high coupon, short-call legacy bonds provides an above market yield to the portfolios and helps to balance the Funds' interest rate exposure, offsetting the bonds with long maturities. However, during the fiscal year it resulted in negligible price performance during market rallies due to the short duration of the securities. This decision to hold these underperforming securities also detracted from relative performance. 3 PERFORMANCE SUMMARY DELAWARE TAX-FREE MISSOURI INSURED FUND The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges and expenses of the investment carefully before investing. The Delaware Tax-Free Missouri Insured Fund prospectus contains this and other important information about the Fund. Please request a prospectus by calling 800 523-1918. Read it carefully before you invest or send money. Performance includes reinvestment of all distributions and is subject to change. A rise/fall in the interest rates can have a significant impact on bond prices and the NAV (net asset value) of the fund. Funds that invest in bonds can lose their value as interest rates rise and an investor can lose principal. FUND PERFORMANCE Average Annual Total Returns Through August 31, 2005 Lifetime 10 Years Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 11/2/92) Excluding Sales Charge +5.63% +5.44% +5.45% +5.27% Including Sales Charge +5.25% +4.96% +4.48% +0.57% - -------------------------------------------------------------------------------- Class B (Est. 3/12/94) Excluding Sales Charge +4.79% +4.84% +4.65% +4.50% Including Sales Charge +4.79% +4.84% +4.40% +0.50% - -------------------------------------------------------------------------------- Class C (Est. 11/11/95) Excluding Sales Charge +4.35% +4.66% +4.48% Including Sales Charge +4.35% +4.66% +3.48% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 0.25%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1%. Lifetime and 10-year performance figures for Class B shares reflect conversion to Class A shares after eight years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Tax-Free Missouri Insured Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 4 FUND BASICS As of August 31, 2005 - -------------------------------------------------------------------------------- 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: $51 million - -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: 56 - -------------------------------------------------------------------------------- FUND START DATE: November 2, 1992 - -------------------------------------------------------------------------------- YOUR FUND MANAGERS: Joseph R. Baxter Robert F. Collins Patrick P. Coyne - -------------------------------------------------------------------------------- NASDAQ SYMBOLS: Class A VMOIX Class B DVTBX Class C DVTCX - -------------------------------------------------------------------------------- PERFORMANCE OF A $10,000 INVESTMENT August 31, 1995 through August 31, 2005 DELAWARE TAX-FREE MISSOURI INSURED LEHMAN BROTHERS FUND MUNICIPAL BOND INDEX AUG-95 $ 9,550 $10,000 AUG-96 $10,089 $10,524 AUG-97 $11,006 $11,496 AUG-98 $11,899 $12,491 AUG-99 $11,854 $12,553 AUG-00 $12,446 $13,403 AUG-01 $13,552 $14,769 AUG-02 $14,281 $15,691 AUG-03 $14,672 $16,183 AUG-04 $15,410 $17,334 AUG-05 $16,223 $18,254 Chart assumes $10,000 invested on August 31, 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. 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. An expense limitation was in effect for all classes of the Delaware Tax-Free Missouri Insured Fund during the period shown. Performance would have been lower had the expense limitation not been in effect. The performance graph does not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of Fund shares. Past performance is not a guarantee of future results. 5 PERFORMANCE SUMMARY DELAWARE TAX-FREE OREGON INSURED FUND The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please obtain the performance data for the most recent month end by calling 800 523-1918 or visiting our Web site at www.delawareinvestments.com/performance. You should consider the investment objectives, risks, charges and expenses of the investment carefully before investing. The Delaware Tax-Free Oregon Insured Fund prospectus contains this and other important information about the Fund. Please request a prospectus by calling 800 523-1918. Read it carefully before you invest or send money. Performance includes reinvestment of all distributions and is subject to change. A rise/fall in the interest rates can have a significant impact on bond prices and the NAV (net asset value) of the fund. Funds that invest in bonds can lose their value as interest rates rise and an investor can lose principal. FUND PERFORMANCE Average Annual Total Returns Through August 31, 2005 Lifetime 10 Years Five Years One Year - -------------------------------------------------------------------------------- Class A (Est. 8/1/93) Excluding Sales Charge +5.33% +5.70% +5.95% +5.09% Including Sales Charge +4.93% +5.22% +4.98% +0.33% - -------------------------------------------------------------------------------- Class B (Est. 3/12/94) Excluding Sales Charge +4.99% +5.10% +5.18% +4.31% - -------------------------------------------------------------------------------- Including Sales Charge +4.99% +5.10% +4.94% +0.31% Class C (Est. 7/7/95) Excluding Sales Charge +4.90% +4.91% +5.19% +4.30% Including Sales Charge +4.90% +4.91% +5.19% +3.30% - -------------------------------------------------------------------------------- Returns reflect the reinvestment of all distributions and any applicable sales charges as noted below. Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or the investment was not redeemed. The Fund offers Class A, B, and C shares. Class A shares are sold with a front-end sales charge of up to 4.50% and have an annual distribution and service fee of 0.25%. Class B shares are sold with a contingent deferred sales charge that declines from 4% to zero depending upon the period of time the shares are held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. They are also subject to an annual distribution and service fee of 1%. Lifetime and 10-year performance figures for Class B shares reflect conversion to Class A shares after eight years. Class C shares are sold with a contingent deferred sales charge of 1%, if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1%. An expense limitation was in effect for all classes of Delaware Tax-Free Oregon Insured Fund during the periods shown. Performance would have been lower had the expense limitation not been in effect. The performance table does not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares. A portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 6 FUND BASICS As of August 31, 2005 - -------------------------------------------------------------------------------- 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: $48 million - -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: 50 - -------------------------------------------------------------------------------- FUND START DATE: August 1, 1993 - -------------------------------------------------------------------------------- YOUR FUND MANAGERS: Joseph R. Baxter Robert F. Collins Patrick P. Coyne - -------------------------------------------------------------------------------- NASDAQ SYMBOLS: Class A VORIX Class B DVYBX Class C DVYCX - -------------------------------------------------------------------------------- PERFORMANCE OF A $10,000 INVESTMENT August 31, 1995 through August 31, 2005 DELAWARE TAX-FREE LEHMAN BROTHERS OREGON INSURED FUND MUNICIPAL BOND INDEX AUG-95 $ 9,550 $10,000 AUG-96 $10,049 $10,524 AUG-97 $10,976 $11,496 AUG-98 $11,939 $12,491 AUG-99 $11,739 $12,553 AUG-00 $12,448 $13,403 AUG-01 $13,742 $14,769 AUG-02 $14,486 $15,691 AUG-03 $14,914 $16,183 AUG-04 $15,810 $17,334 AUG-05 $16,615 $18,254 Chart assumes $10,000 invested on August 31, 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. 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. An expense limitation was in effect for all classes of the Delaware Tax-Free Oregon Insured Fund during the period shown. Performance would have been lower had the expense limitation not been in effect. The performance graph does not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of Fund shares. Past performance is not a guarantee of future results. 7 DISCLOSURE For the period March 1, 2005 to August 31, 2005 OF FUND EXPENSES As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period March 1, 2005 to August 31, 2005. ACTUAL EXPENSES The first section of the tables shown, "Actual Fund Return," provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the tables shown, "Hypothetical 5% Return," provides information about hypothetical account values and hypothetical expenses based on the Funds' actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds' actual returns. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in a Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the tables is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. Each Fund's actual expenses shown in the table reflect fee waivers in effect. The expenses shown in the tables assume reinvestment of all dividends and distributions. "Expenses Paid During Period" are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). DELAWARE TAX-FREE MISSOURI INSURED FUND EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000
Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 3/1/05 to 3/1/05 8/31/05 Ratio 8/31/05 - --------------------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN Class A $1,000.00 $1,030.30 0.90% $4.61 Class B 1,000.00 1,025.50 1.65% 8.42 Class C 1,000.00 1,026.40 1.65% 8.43 - --------------------------------------------------------------------------------------------------------------- HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,020.67 0.90% $4.58 Class B 1,000.00 1,016.89 1.65% 8.39 Class C 1,000.00 1,016.89 1.65% 8.39 - --------------------------------------------------------------------------------------------------------------- DELAWARE TAX-FREE OREGON INSURED FUND EXPENSE ANALYSIS OF AN INVESTMENT OF $1,000 Expenses Beginning Ending Paid During Account Account Annualized Period Value Value Expense 3/1/05 to 3/1/05 8/31/05 Ratio 8/31/05 - --------------------------------------------------------------------------------------------------------------- ACTUAL FUND RETURN Class A $1,000.00 $1,026.50 0.89% $4.55 Class B 1,000.00 1,022.60 1.64% 8.36 Class C 1,000.00 1,022.60 1.64% 8.36 - --------------------------------------------------------------------------------------------------------------- HYPOTHETICAL 5% RETURN (5% return before expenses) Class A $1,000.00 $1,020.72 0.89% $4.53 Class B 1,000.00 1,016.94 1.64% 8.34 Class C 1,000.00 1,016.94 1.64% 8.34 - ---------------------------------------------------------------------------------------------------------------
8 SECTOR ALLOCATION As of August 31, 2005 DELAWARE TAX-FREE MISSOURI INSURED FUND Sector designations may be different than the sector designations presented in other Fund materials. PERCENTAGE SECTOR OF NET ASSETS - ------------------------------------------------------------------------ MUNICIPAL BONDS 96.72% - ------------------------------------------------------------------------ Airport Revenue Bonds 3.53% City General Obligation Bonds 2.24% Corporate-Backed Revenue Bonds 2.06% Dedicated Tax & Fees Revenue Bonds 4.18% Escrowed to Maturity Bonds 3.35% Higher Education Revenue Bonds 2.06% Hospital Revenue Bonds 12.01% Investor-Owned Utilities Revenue Bonds 4.40% Miscellaneous Revenue Bonds 2.12% Multifamily Housing Revenue Bonds 6.07% Municipal Lease Revenue Bonds 14.32% Political Subdivision General Obligation Bonds 2.11% Pre-Refunded Bonds 11.81% Public Power Revenue Bonds 2.31% School District General Obligation Bonds 7.24% Single Family Housing Revenue Bonds 1.80% Territorial General Obligation Bonds 1.07% Territorial Revenue Bonds 10.19% Water & Sewer Revenue Bonds 3.85% - ------------------------------------------------------------------------ SHORT-TERM INVESTMENTS 2.11% - ------------------------------------------------------------------------ TOTAL MARKET VALUE OF SECURITIES 98.83% - ------------------------------------------------------------------------ RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.17% - ------------------------------------------------------------------------ TOTAL NET ASSETS 100.00% - ------------------------------------------------------------------------ 9 SECTOR ALLOCATION As of August 31, 2005 DELAWARE TAX-FREE OREGON INSURED FUND Sector designations may be different than the sector designations presented in other Fund materials. PERCENTAGE SECTOR OF NET ASSETS - ------------------------------------------------------------------------ MUNICIPAL BONDS 93.36% - ------------------------------------------------------------------------ Airport Revenue Bonds 3.27% Escrowed to Maturity Bonds 2.33% Higher Education Revenue Bonds 14.89% Hospital Revenue Bonds 3.96% Investor-Owned Utilities Revenue Bonds 1.32% Miscellaneous Revenue Bonds 3.01% Multifamily Housing Revenue Bonds 2.32% Municipal Lease Revenue Bonds 3.43% Political Subdivision General Obligation Bonds 5.01% Pre-Refunded Bonds 23.81% Public Utility District Revenue Bonds 1.73% School District General Obligation Bonds 11.05% Single Family Housing Revenue Bonds 2.96% Tax Increment/Special Assessment Bonds 2.65% Territorial Revenue Bonds 10.89% Water & Sewer Revenue Bonds 0.73% - ------------------------------------------------------------------------ SHORT-TERM INVESTMENTS 5.67% - ------------------------------------------------------------------------ Money Market Instruments 3.46% Variable Rate Demand Notes 2.21% - ------------------------------------------------------------------------ TOTAL MARKET VALUE OF SECURITIES 99.03% - ------------------------------------------------------------------------ RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 0.97% - ------------------------------------------------------------------------ TOTAL NET ASSETS 100.00% - ------------------------------------------------------------------------ 10 STATEMENTS DELAWARE TAX-FREE MISSOURI INSURED FUND OF NET ASSETS August 31, 2005 Principal Market Amount Value MUNICIPAL BONDS - 96.72% Airport Revenue Bonds - 3.53% St. Louis Airport (Capital Improvement Project) Series A 5.375% 7/1/21 (MBIA) $1,635,000 $1,790,668 ---------- 1,790,668 ---------- City General Obligation Bonds - 2.24% Des Peres Refunding 5.375% 2/1/20 (AMBAC) 1,000,000 1,135,880 ---------- 1,135,880 ---------- Corporate-Backed Revenue Bonds - 2.06% Missouri State Development Finance Board Infrastructure Facilities (Triumph Foods Project) Series A 5.25% 3/1/25 500,000 518,790 Sugar Creek Industrial Development Revenue (Lafarge North America Project) Series A 5.65% 6/1/37 (AMT) 500,000 524,025 ---------- 1,042,815 ---------- Dedicated Tax & Fees Revenue Bonds - 4.18% Bi-State Development Agency Illinois Metropolitan District (Metrolink Cross County Project) Series B 5.00% 10/1/32 (FSA) 1,000,000 1,058,180 Jackson County Special Obligation 5.00% 12/1/27 (MBIA) 1,000,000 1,057,500 ---------- 2,115,680 ---------- Escrowed to Maturity Bonds - 3.35% Cape Girardeau County Industrial Development Authority Health Care Facilities Revenue (Southeast Missouri Hospital) 5.25% 6/1/16 (MBIA) 440,000 490,701 ^Greene County Single Family Mortgage Revenue Municipal Multiplier 6.10% 3/1/16 1,225,000 802,425 Liberty Sewer System Revenue 6.00% 2/1/08 (MBIA) 380,000 406,630 ---------- 1,699,756 ---------- Higher Education Revenue Bonds - 2.06% Missouri State Health & Educational Facilities Authority Educational Facilities Revenue (University of Health Sciences) 5.00% 6/1/31 (MBIA) 1,000,000 1,041,210 ---------- 1,041,210 ---------- Hospital Revenue Bonds - 12.01% Cape Girardeau County Industrial Development Authority Health Care Facilities Revenue Unrefunded Balance (Southeast Missouri Hospital) 5.25% 6/1/16 (MBIA) 560,000 618,733 (St. Francis Medical Center) Series A 5.50% 6/1/32 1,000,000 1,062,390 Hannibal Industrial Development Authority Health Facilities Revenue Refunding (Hannibal Regional Hospital) Series A 5.625% 3/1/12 (FSA) 1,000,000 1,032,290 5.75% 3/1/22 (FSA) 1,000,000 1,032,540 Principal Market Amount Value MUNICIPAL BONDS (continued) Hospital Revenue Bonds (continued) Joplin Industrial Development Authority Health Facilities Revenue (Freeman Health System Project) 5.375% 2/15/35 $ 255,000 $ 266,518 5.75% 2/15/35 405,000 440,790 Missouri State Health & Educational Facilities Authority Health Facilities Revenue Refunding (Lake Regional Health System Project) 5.70% 2/15/34 500,000 535,840 (SSM Health Care) Series AA 6.40% 6/1/10 (MBIA) 500,000 567,835 North Kansas City Missouri Hospital Revenue Series A 5.00% 11/15/28 (FSA) 500,000 531,235 ---------- 6,088,171 ---------- Investor Owned Utilities Revenue Bonds - 4.40% 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 2,227,346 ---------- 2,227,346 ---------- 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 1,073,324 ---------- 1,073,324 ---------- Multifamily Housing Revenue Bonds - 6.07% Missouri State Housing Development Commission Multifamily Housing Hyder Series 3 5.60% 7/1/34 (FHA) (AMT) 1,435,000 1,512,662 San Remo Series 5 5.45% 1/1/36 (FHA) (AMT) 500,000 522,665 St. Louis County Industrial Development Authority Housing Development Revenue Refunding Sub (Southfield & Oak Forest Apartment-A) 5.20% 1/20/36 (GNMA) 1,000,000 1,038,060 ---------- 3,073,387 ---------- Municipal Lease Revenue Bonds - 14.32% Chesterfield Certificates of Participation 5.00% 12/1/24 (FGIC) 1,000,000 1,085,540 Missouri State Development Finance Board Infrastructure Facilities Revenue (Branson Landing Project) Series A 5.25% 12/1/19 435,000 461,909 5.50% 12/1/24 500,000 534,680 Missouri State Development Finance Board Infrastructure Facilities Revenue (Crackerneck Creek Project) Series C 5.00% 3/1/26 500,000 514,295 (Hartman Heritage Center Phase II) 5.00% 4/1/21 (AMBAC) 335,000 359,623 11 STATEMENTS DELAWARE TAX-FREE MISSOURI INSURED FUND OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) Municipal Lease Revenue Bonds (continued) St. Charles County Public Water Supply District #2 Certificate of Participation (Missouri Project) Series A 5.25% 12/1/28 (MBIA) $1,000,000 $1,083,980 Series B 5.10% 12/1/25 (MBIA) 500,000 527,510 St. Louis College District Leasehold Revenue 5.00% 3/1/23 (AMBAC) 1,000,000 1,077,980 ^St. Louis Industrial Development Authority Leasehold Revenue (Convention Center Hotel) 5.80% 7/15/20 (AMBAC) 3,035,000 1,609,673 ---------- 7,255,190 ---------- Political Subdivision General Obligation Bonds - 2.11% Taney County Reorganization School District R-V Hollister School District 5.00% 3/1/22 (FSA) 1,000,000 1,071,270 ---------- 1,071,270 ---------- !Pre-Refunded Bonds - 11.81% Kansas City Land Clearance Redevelopment Authority Lease Revenue (Muehlebach Hotel) Series A 5.90% 12/1/18-05 (FSA) 1,000,000 1,027,680 Liberty Sewer System Revenue 6.15% 2/1/15-09 (MBIA) 1,500,000 1,650,150 Missouri State Health & Educational Facilities Authority Educational Facilities Revenue (Central Missouri State University Project) 5.75% 10/1/25-05 (AMBAC) 1,000,000 1,002,490 St. Charles School District 6.50% 2/1/14-06 (FGIC) 1,250,000 1,269,525 St. Louis Municipal Finance Corporation Leasehold Revenue Improvement (City Justice Center) Series A 5.95% 2/15/16-06 (AMBAC) 1,000,000 1,034,020 ---------- 5,983,865 ---------- Public Power Revenue Bonds - 2.31% Sikeston Electric Revenue Refunding 6.00% 6/1/13 (MBIA) 1,000,000 1,171,310 ---------- 1,171,310 ---------- School District General Obligation Bonds - 7.24% Camdenton Reorganized School District R-III Camden County Refunding & Improvement 5.25% 3/1/24 (FSA) 1,000,000 1,110,930 Greene County Reorganization School District R8 (Direct Deposit Project) 5.10% 3/1/22 (FSA) 1,500,000 1,618,365 ^St. Charles County Francis Howell School District (Capital Appreciation Direct Deposit Project) Series A 5.15% 3/1/17 (FGIC) 1,500,000 938,460 ---------- 3,667,755 ---------- Single Family Housing Revenue Bonds - 1.80% Missouri State Housing Development Commission Mortgage Revenue Series C 7.45% 9/1/27 (GNMA) (FNMA) (AMT) 185,000 185,235 Principal Market Amount Value MUNICIPAL BONDS (continued) Single Family Housing Revenue Bonds (continued) Missouri State Housing Development Commission Mortgage Revenue Single Family Homeowner Loan A 7.20% 9/1/26 (GNMA) (FNMA) (AMT) $ 140,000 $ 140,878 Loan B 7.55% 9/1/27 (GNMA) (FNMA) (AMT) 70,000 70,083 Loan C 7.25% 9/1/26 (GNMA) (FNMA) (AMT) 160,000 162,659 Missouri State Housing Development Commission Mortgage Revenue Single Family Mortgage Series A 5.20% 9/1/33 (GNMA) (FNMA) (AMT) 345,000 354,919 ----------- 913,774 ----------- Territorial General Obligation Bonds - 1.07% Puerto Rico Commonwealth Improvement Series A 5.25% 7/1/23 500,000 544,155 ----------- 544,155 ----------- Territorial Revenue Bonds - 10.19% Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series A 4.75% 7/1/38 (MBIA) 1,000,000 1,057,650 Puerto Rico Electric Power Authority Power Revenue Series NN 5.125% 7/1/29 400,000 430,124 Series PP 5.00% 7/1/25 (FGIC) 1,000,000 1,081,090 &Puerto Rico Electric Power Authority Power Revenue, Inverse Floater ROLs 6.345% 7/1/19 (FSA) 1,925,000 2,062,695 University of the Virgin Islands Series A 5.375% 6/1/34 500,000 533,625 ----------- 5,165,184 ----------- Water & Sewer Revenue Bonds - 3.85% Metropolitan St. Louis Sewer District Wastewater Revenue 5.00% 5/1/34 (MBIA) 1,250,000 1,327,075 Missouri State Development Finance Board Infrastructure Facilities Revenue (Sewer System Improvement Project) Series C 5.00% 3/1/25 605,000 625,050 ----------- 1,952,125 ----------- TOTAL MUNICIPAL BONDS (cost $45,889,061) 49,012,865 ----------- Number of Shares SHORT-TERM INVESTMENTS - 2.11% Dreyfus Tax-Exempt Cash Management Fund 1,068,051 1,068,051 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $1,068,051) 1,068,051 ----------- 12 STATEMENTS DELAWARE TAX-FREE MISSOURI INSURED FUND OF NET ASSETS (CONTINUED) TOTAL MARKET VALUE OF SECURITIES - 98.83% (cost $46,957,112) $50,080,916 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.17% 591,443 ----------- NET ASSETS APPLICABLE TO 4,688,927 SHARES OUTSTANDING - 100.00% $50,672,359 =========== Net Asset Value - Delaware Tax-Free Missouri Insured Fund Class A ($46,182,308 / 4,273,525 Shares) $10.81 -------- Net Asset Value - Delaware Tax-Free Missouri Insured Fund Class B ($3,098,612 / 286,829 Shares) $10.80 -------- Net Asset Value - Delaware Tax-Free Missouri Insured Fund Class C ($1,391,439 / 128,573 Shares) $10.82 -------- COMPONENTS OF NET ASSETS AT AUGUST 31, 2005: Shares of beneficial interest (unlimited authorization - no par) $47,554,884 Accumulated net realized loss on investments (6,329) Net unrealized appreciation of investments 3,123,804 ----------- Total net assets $50,672,359 =========== ^Zero coupon bond. The interest rate shown is the yield at the time of purchase. !Pre-Refunded Bonds are municipals that are generally backed or secured by U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 7 in "Notes to Financial Statements." &An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of August 31, 2005. See Note 7 in "Notes to Financial Statements." SUMMARY OF ABBREVIATIONS: AMBAC - Insured by the AMBAC Assurance Corporation AMT - subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FNMA - Insured by the 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) $10.81 Sales charge (4.50% of offering price) (B) 0.51 ------ Offering price $11.32 ====== (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 13 STATEMENTS DELAWARE TAX-FREE OREGON INSURED FUND OF NET ASSETS (CONTINUED) August 31, 2005 Principal Market Amount Value MUNICIPAL BONDS - 93.36% Airport Revenue Bonds - 3.27% Portland Airport Revenue (Portland International Airport) Series 11 5.625% 7/1/26 (AMT) (FGIC) $1,500,000 $1,555,335 ---------- 1,555,335 ---------- Escrowed to Maturity Bonds - 2.33% Umatilla County Hospital Facility Authority Revenue (Catholic Health Initiatives) Series A 5.50% 3/1/32 1,000,000 1,108,190 ---------- 1,108,190 ---------- Higher Education Revenue Bonds - 14.89% Oregon Health Sciences University Revenue (Capital Appreciation Insured) Series A 5.00% 7/1/32 (MBIA) 2,000,000 2,112,260 ^Series A 5.50% 7/1/21 (MBIA) 2,000,000 1,016,560 Oregon State Facilities Authority Revenue (College Housing Northwest Project) Series A 5.45% 10/1/32 1,000,000 1,034,890 (College Independent Student Housing Project) Series A 5.25% 7/1/30 (XLCA) 630,000 685,717 (Linfield College Project) Series A 5.00% 10/1/30 600,000 618,924 (Willamette University Project) Series A 5.00% 10/1/34 (FGIC) 1,000,000 1,067,260 5.125% 10/1/25 (FGIC) 500,000 547,935 ---------- 7,083,546 ---------- Hospital Revenue Bonds - 3.96% Deschutes County Hospital Facilities Authority Hospital Revenue (Cascade Health Services) 5.60% 1/1/32 1,250,000 1,335,825 Multnomah County Hospital Facilities Authority Revenue (Providence Health System) 5.25% 10/1/22 500,000 546,395 ---------- 1,882,220 ---------- Investor Owned Utilities Revenue Bonds - 1.32% oPort Morrow Pollution Control Revenue (Portland General Electric Co.) Series A 5.20% 5/1/33 600,000 626,856 ---------- 626,856 ---------- Miscellaneous Revenue Bonds - 3.01% Oregon State Department Administrative Services 5.00% 9/1/13 (FSA) 800,000 884,576 Oregon State Department Administrative Services Lottery Revenue Refunding Series A 5.00% 4/1/18 (FSA) 500,000 545,300 ---------- 1,429,876 ---------- Multifamily Housing Revenue Bonds - 2.32% Oregon Health, Housing, Educational, & Cultural Facilities Authority (Pier Park Project) Series A 6.05% 4/1/18 (AMT) (GNMA) 1,095,000 1,102,566 ---------- 1,102,566 ---------- Principal Market Amount Value MUNICIPAL BONDS (continued) Municipal Lease Revenue Bonds - 3.43% Oregon State Department Administration Services Certificate of Participation Refunding Series A 5.00% 5/1/30 (FSA) $ 500,000 $ 532,915 Series C 5.25% 11/1/15 (MBIA) 1,000,000 1,097,910 ----------- 1,630,825 ----------- Political Subdivision General Obligation Bonds - 5.01% Deschutes County Refunding 5.00% 12/1/16 (FSA) 500,000 545,790 Southwestern Oregon Community College District 5.00% 6/1/28 (MBIA) 1,100,000 1,176,868 Treasure Valley Community College District 5.00% 6/1/35 (AMBAC) 620,000 662,123 ----------- 2,384,781 ----------- !Pre-Refunded Bonds - 23.81% Chemeketa County Community College District 5.80% 6/1/12-06 (FGIC) 1,500,000 1,533,405 Deschutes County Administrative School District #1 Series A 5.125% 6/15/21-11 (FSA) 1,000,000 1,097,560 Jackson County School District #6 Central Point 5.25% 6/15/20-10 (FGIC) 1,175,000 1,282,583 Linn County Community School District #9 Lebanon 5.60% 6/15/30-13 (FGIC) 2,000,000 2,295,361 Malheur County (Jail Buildings) 6.30% 12/1/12-05 (MBIA) 500,000 504,465 Multnomah County School District #3 Park Rose 5.50% 12/1/11-05 (FGIC) 500,000 503,410 North Unit Irrigation District 5.75% 6/1/16-06 (MBIA) 1,000,000 1,022,180 Oregon State Department Administrative Services Certificate of Participation Series A 5.80% 5/1/24-07 (AMBAC) 1,000,000 1,056,300 Puerto Rico Commonwealth Public Improvement 5.125% 7/1/30-11 (FSA) 920,000 1,013,260 Salem Water & Sewer Revenue 5.625% 6/1/16-06 (MBIA) 1,000,000 1,020,980 ----------- 11,329,504 ----------- Public Utility District Revenue Bonds - 1.73% Emerald Peoples Utilities District Series A 5.25% 11/1/22 (FSA) 750,000 825,420 ----------- 825,420 ----------- School District General Obligation Bonds - 11.05% Benton & Linn Counties School District #509J Corvallis 5.00% 6/1/21 (FSA) 1,000,000 1,076,020 Clackamas County School District #086 5.00% 6/15/25 (FSA) 500,000 541,615 Clackmas County School District #12 (North Clackamas) 5.00% 6/15/16 (FSA) 1,000,000 1,118,980 Jefferson County School District #509J 5.00% 6/15/22 (FGIC) 500,000 537,745 Lane County School District #019 Springfield Refunding 6.00% 10/15/14 (FGIC) 500,000 595,280 Lincoln County School District 5.25% 6/15/12 (FGIC) 700,000 750,246 Salem-Keizer School District #24J Refunding 5.00% 6/15/19 (FSA) 500,000 543,865 14 STATEMENTS DELAWARE TAX-FREE OREGON INSURED FUND OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) School District General Obligation Bonds (continued) ^Umatilla County School District #6 R Umatilla Refunding 5.50% 12/15/22 (AMBAC) $ 200,000 $ 95,202 ----------- 5,258,953 ----------- Single Family Housing Revenue Bonds - 2.96% Oregon State Housing & Community Services Department Mortgage Revenue Single Family Mortgage Program Series R 5.375% 7/1/32 (AMT) 1,365,000 1,410,031 ----------- 1,410,031 ----------- Tax Increment/Special Assessment Bonds - 2.65% Portland River District Urban Renewal & Redevelopment Interstate Corridor Series A 5.00% 6/15/23 (AMBAC) 250,000 267,870 Portland Urban Renewal & Redevelopment Interstate Corridor Series A 5.25% 6/15/20 (FGIC) 890,000 991,923 ----------- 1,259,793 ----------- Territorial Revenue Bonds - 10.89% Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series J 5.50% 7/1/22 400,000 445,516 ^Puerto Rico Commonwealth Infrastructure Financing Authority Series A 4.60% 7/1/30 (FGIC) 1,000,000 332,620 Puerto Rico Commonwealth Public Improvement (Unrefunded Balance) 5.125% 7/1/30 (FSA) 580,000 623,923 Puerto Rico Electric Power Authority Power Revenue Series NN 5.125% 7/1/29 1,000,000 1,075,310 &Puerto Rico Electric Power Authority Power Revenue, Inverse Floater ROLs 6.345% 7/1/19 (FSA) 1,500,000 1,607,295 Puerto Rico Public Buildings Authority Revenue (Government Facilities) Series J 5.00% 7/1/36 (AMBAC) 1,000,000 1,095,190 ----------- 5,179,854 ----------- Water & Sewer Revenue Bonds - 0.73% Portland Sewer Systems Revenue (Second Lien) Series A 5.00% 6/1/23 (FSA) 325,000 348,134 ----------- 348,134 ----------- TOTAL MUNICIPAL BONDS (cost $41,697,988) 44,415,884 ----------- Number of Shares SHORT-TERM INVESTMENTS - 5.67% Money Market Instruments - 3.46% Dreyfus Tax-Exempt Cash Management Fund 1,645,048 1,645,048 --------- 1,645,048 --------- Principal Amount oVariable Rate Demand Notes - 2.21% Portland Multi-Family Housing Revenue (South Park Block Project) 2.40% 12/1/11 $1,050,000 1,050,000 ---------- 1,050,000 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $2,695,048) 2,695,048 ---------- TOTAL MARKET VALUE OF SECURITIES - 99.03% (cost $44,393,036) $47,110,932 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 0.97% 463,448 ----------- NET ASSETS APPLICABLE TO 4,464,316 SHARES OUTSTANDING - 100.00% $47,574,380 ----------- Net Asset Value - Delaware Tax-Free Oregon Insured Fund Class A ($34,028,751 / 3,194,497 Shares) $10.65 ------ Net Asset Value - Delaware Tax-Free Oregon Insured Fund Class B ($6,889,419 / 646,429 Shares) $10.66 ------ Net Asset Value - Delaware Tax-Free Oregon Insured Fund Class C ($6,656,210 / 623,390 Shares) $10.68 ------ COMPONENTS OF NET ASSETS AT AUGUST 31, 2005: Shares of beneficial interest (unlimited authorization - no par) $45,032,032 Accumulated net realized loss on investments (175,548) Net unrealized appreciation of investments 2,717,896 ----------- Total net assets $47,574,380 =========== !Pre-Refunded Bonds are municipals that are generally backed or secured by U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 7 in "Notes to Financial Statements." oVariable rate notes. The interest rate shown is the rate as of August 31, 2005. ^Zero coupon security. 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 rates disclosed is in effect as of August 31, 2005. See Note 7 in "Notes to Financial Statements." SUMMARY OF ABBREVIATIONS: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association 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 OREGON INSURED FUND Net asset value Class A (A) $10.65 Sales charge (4.50% of offering price) (B) 0.50 ------ Offering price $11.15 ====== (A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. (B) See the current prospectus for purchases of $100,000 or more. See accompanying notes 15 STATEMENTS Year Ended August 31, 2005 OF OPERATIONS
Delaware Delaware Tax-Free Tax-Free Missouri Insured Oregon Insured Fund Fund INVESTMENT INCOME: Interest $2,598,108 $2,184,541 ---------- ---------- EXPENSES: Management fees 256,217 226,722 Distribution expenses - Class A 115,325 79,429 Distribution expenses - Class B 38,115 70,849 Distribution expenses - Class C 13,598 65,012 Dividend disbursing and transfer agent fees and expenses 33,637 27,334 Accounting and administration expenses 17,708 15,712 Legal and professional fees 22,473 20,719 Reports and statements to shareholders 12,797 16,171 Registration fees 2,789 1,417 Custodian fees 3,264 3,083 Trustees' fees 2,430 2,240 Pricing fees 3,408 3,037 Insurance 3,615 3,188 Taxes 149 89 Other 833 857 ---------- ---------- 526,358 535,859 Less expenses absorbed or waived (11,390) (38,527) Less expenses paid indirectly (60) (130) ---------- ---------- Total expenses 514,908 497,202 ---------- ---------- NET INVESTMENT INCOME 2,083,200 1,687,339 ---------- ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments 130,115 106,456 Net change in unrealized appreciation/depreciation of investments 380,933 366,029 ---------- ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 511,048 472,485 ---------- ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,594,248 $2,159,824 ========== ==========
See accompanying notes 16 STATEMENTS OF CHANGES IN NET ASSETS
Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund Year Ended Year Ended 8/31/05 8/31/04 8/31/05 8/31/04 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 2,083,200 $ 2,222,786 $ 1,687,339 $ 1,836,635 Net realized gain on investments 130,115 303,361 106,456 115,703 Net change in unrealized appreciation/depreciation of investments 380,933 (15,128) 366,029 540,255 ----------- ----------- ----------- ----------- Net increase in net assets resulting from operations 2,594,248 2,511,019 2,159,824 2,492,593 ----------- ----------- ----------- ----------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income: Class A (1,901,135) (1,979,157) (1,250,887) (1,347,305) Class B (128,675) (216,405) (225,919) (292,412) Class C (45,752) (48,786) (206,598) (209,645) ----------- ----------- ----------- ----------- (2,075,562) (2,244,348) (1,683,404) (1,849,362) ----------- ----------- ----------- ----------- CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold: Class A 3,524,066 4,941,535 5,524,963 5,392,754 Class B 408 352,151 582,909 741,742 Class C 105,402 314,340 1,199,241 1,644,889 Net asset value of shares issued upon reinvestment of dividends and distributions: Class A 1,017,242 964,654 718,106 765,710 Class B 96,955 144,771 137,290 165,234 Class C 39,754 42,892 126,671 134,610 ----------- ----------- ----------- ----------- 4,783,827 6,760,343 8,289,180 8,844,939 ----------- ----------- ----------- ----------- Cost of shares repurchased: Class A (4,575,966) (4,404,290) (3,366,599) (5,169,155) Class B (1,933,993) (3,044,211) (1,783,006) (1,909,275) Class C (25,210) (362,148) (1,080,203) (926,472) ----------- ----------- ----------- ----------- (6,535,169) (7,810,649) (6,229,808) (8,004,902) ----------- ----------- ----------- ----------- Increase (decrease) in net assets derived from capital share transactions (1,751,342) (1,050,306) 2,059,372 840,037 ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS (1,232,656) (783,635) 2,535,792 1,483,268 NET ASSETS: Beginning of year 51,905,015 52,688,650 45,038,588 43,555,320 ----------- ----------- ----------- ----------- End of year(1) $50,672,359 $51,905,015 $47,574,380 $45,038,588 =========== =========== =========== =========== (1)Including distributions in excess of net investment income $ -- $ -- $ -- $ -- =========== =========== =========== ===========
See accompanying notes 17 FINANCIAL HIGHLIGHTS 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 8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $10.700 $10.640 $10.810 $10.740 $10.340 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.442 0.464 0.469 0.489 0.497 Net realized and unrealized gain (loss) on investments 0.110 0.065 (0.172) 0.068 0.400 ------- ------- ------- ------- ------- Total from investment operations 0.552 0.529 0.297 0.557 0.897 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.442) (0.469) (0.467) (0.487) (0.497) ------- ------- ------- ------- ------- Total dividends and distributions (0.442) (0.469) (0.467) (0.487) (0.497) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $10.810 $10.700 $10.640 $10.810 $10.740 ======= ======= ======= ======= ======= TOTAL RETURN(2) 5.27% 5.06% 2.75% 5.38% 8.89% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $46,182 $45,745 $44,026 $42,610 $40,349 Ratio of expenses to average net assets 0.93% 0.94% 0.98% 0.97% 0.95% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.95% 0.94% 0.98% 0.97% 0.95% Ratio of net investment income to average net assets 4.14% 4.33% 4.31% 4.61% 4.74% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 4.12% 4.33% 4.31% 4.61% 4.74% Portfolio turnover 21% 20% 31% 23% 14%
(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 waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 18 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 8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $10.690 $10.640 $10.810 $10.730 $10.340 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.363 0.385 0.387 0.410 0.418 Net realized and unrealized gain (loss) on investments 0.110 0.054 (0.172) 0.078 0.390 ------- ------- ------- ------- ------- Total from investment operations 0.473 0.439 0.215 0.488 0.808 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.363) (0.389) (0.385) (0.408) (0.418) ------- ------- ------- ------- ------- Total dividends and distributions (0.363) (0.389) (0.385) (0.408) (0.418) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $10.800 $10.690 $10.640 $10.810 $10.730 ======= ======= ======= ======= ======= TOTAL RETURN(2) 4.50% 4.19% 1.99% 4.70% 7.98% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $3,099 $4,903 $7,406 $9,264 $9,693 Ratio of expenses to average net assets 1.68% 1.69% 1.73% 1.72% 1.70% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.70% 1.69% 1.73% 1.72% 1.70% Ratio of net investment income to average net assets 3.39% 3.58% 3.56% 3.86% 3.99% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.37% 3.58% 3.56% 3.86% 3.99% Portfolio turnover 21% 20% 31% 23% 14%
(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 waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 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 C - ----------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $10.710 $10.660 $10.820 $10.740 $10.350 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.361 0.384 0.387 0.410 0.418 Net realized and unrealized gain (loss) on investments 0.110 0.054 (0.162) 0.078 0.390 ------- ------- ------- ------- ------- Total from investment operations 0.471 0.438 0.225 0.488 0.808 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.361) (0.388) (0.385) (0.408) (0.418) ------- ------- ------- ------- ------- Total dividends and distributions (0.361) (0.388) (0.385) (0.408) (0.418) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $10.820 $10.710 $10.660 $10.820 $10.740 ======= ======= ======= ======= ======= TOTAL RETURN(2) 4.48% 4.17% 2.08% 4.68% 7.97% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $1,391 $1,257 $1,257 $1,241 $626 Ratio of expenses to average net assets 1.68% 1.69% 1.73% 1.72% 1.70% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.70% 1.69% 1.73% 1.72% 1.70% Ratio of net investment income to average net assets 3.39% 3.58% 3.56% 3.86% 3.99% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.37% 3.58% 3.56% 3.86% 3.99% Portfolio turnover 21% 20% 31% 23% 14%
(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 waivers and payment of fees by the manager, as applicable. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 20 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 8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $10.540 $10.380 $10.530 $10.450 $ 9.910 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.417 0.453 0.461 0.467 0.465 Net realized and unrealized gain (loss) on investments 0.110 0.163 (0.151) 0.079 0.540 ------- ------- ------- ------- ------- Total from investment operations 0.527 0.616 0.310 0.546 1.005 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.417) (0.456) (0.460) (0.466) (0.465) ------- ------- ------- ------- ------- Total dividends and distributions (0.417) (0.456) (0.460) (0.466) (0.465) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $10.650 $10.540 $10.380 $10.530 $10.450 ======= ======= ======= ======= ======= TOTAL RETURN(2) 5.09% 6.04% 2.97% 5.41% 10.39% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $34,029 $30,817 $29,410 $25,082 $22,973 Ratio of expenses to average net assets 0.87% 0.85% 0.84% 0.85% 0.85% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 0.96% 0.90% 0.96% 1.00% 0.99% Ratio of net investment income to average net assets 3.94% 4.30% 4.35% 4.52% 4.59% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.85% 4.25% 4.23% 4.37% 4.45% Portfolio turnover 14% 16% 16% 20% 28%
(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 waivers and payment of fees by the manager. 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 Oregon Insured Fund Class B - ----------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $10.550 $10.390 $10.540 $10.450 $ 9.910 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.338 0.374 0.382 0.390 0.389 Net realized and unrealized gain (loss) on investments 0.110 0.163 (0.151) 0.089 0.540 ------- ------- ------- ------- ------- Total from investment operations 0.448 0.537 0.231 0.479 0.929 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.338) (0.377) (0.381) (0.389) (0.389) ------- ------- ------- ------- ------- Total dividends and distributions (0.338) (0.377) (0.381) (0.389) (0.389) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $10.660 $10.550 $10.390 $10.540 $10.450 ======= ======= ======= ======= ======= TOTAL RETURN(2) 4.31% 5.24% 2.20% 4.73% 9.57% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $6,889 $7,878 $8,750 $8,489 $7,928 Ratio of expenses to average net assets 1.62% 1.60% 1.59% 1.60% 1.60% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.71% 1.65% 1.71% 1.75% 1.74% Ratio of net investment income to average net assets 3.19% 3.55% 3.60% 3.77% 3.84% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.10% 3.50% 3.48% 3.62% 3.70% Portfolio turnover 14% 16% 16% 20% 28%
(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 waivers and payment of fees by the manager. 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 C - ----------------------------------------------------------------------------------------------------------------------- Year Ended 8/31/05 8/31/04 8/31/03 8/31/02(1) 8/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $10.570 $10.400 $10.550 $10.470 $ 9.920 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.337 0.374 0.381 0.389 0.388 Net realized and unrealized gain (loss) on investments 0.110 0.173 (0.151) 0.079 0.550 ------- ------- ------- ------- ------- Total from investment operations 0.447 0.547 0.230 0.468 0.938 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS FROM: Net investment income (0.337) (0.377) (0.380) (0.388) (0.388) ------- ------- ------- ------- ------- Total dividends and distributions (0.337) (0.377) (0.380) (0.388) (0.388) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $10.680 $10.570 $10.400 $10.550 $10.470 ======= ======= ======= ======= ======= TOTAL RETURN(2) 4.30% 5.33% 2.19% 4.62% 9.66% RATIOS AND SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $6,656 $6,344 $5,395 $3,253 $1,820 Ratio of expenses to average net assets 1.62% 1.60% 1.59% 1.60% 1.60% Ratio of expenses to average net assets prior to expense limitation and expenses paid indirectly 1.71% 1.65% 1.71% 1.75% 1.74% Ratio of net investment income to average net assets 3.19% 3.55% 3.60% 3.77% 3.84% Ratio of net investment income to average net assets prior to expense limitation and expenses paid indirectly 3.10% 3.50% 3.48% 3.62% 3.70% Portfolio turnover 14% 16% 16% 20% 28%
(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 waivers and payment of fees by the manager. Performance would have been lower had the expense limitation not been in effect. See accompanying notes 23 NOTES August 31, 2005 TO FINANCIAL STATEMENTS Voyageur Mutual Funds (the "Trust") is organized as a Delaware statutory trust and offers six series: Delaware Minnesota High-Yield Municipal Bond Fund, Delaware National High-Yield Municipal Bond Fund, Delaware Tax-Free Arizona Fund, Delaware Tax-Free California Fund, Delaware Tax-Free Idaho Fund, and Delaware Tax-Free New York Fund. Voyageur Investment Trust (the "Trust") is organized as a Delaware statutory trust and offers three series: 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 the Delaware Tax-Free Idaho Fund, Delaware Tax-Free Missouri Insured Fund, and Delaware Tax-Free Oregon Insured Fund (each referred to as a "Fund" or collectively as the "Funds"). The Trusts are open-end investment companies. The Funds are considered non-diversified under the Investment Company Act of 1940, 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 U.S. generally accepted accounting principles and are consistently followed by the Funds. Security Valuation -- Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Open-end investment companies are valued at their published net asset value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of each Fund's Board of Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). Federal Income Taxes -- Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. 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 each Fund. 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 U.S. general accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other -- Expenses common to all funds within the Delaware Investments(R) Family of Funds are allocated amongst the funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. The Funds receive earnings credits from their custodian when positive balances are maintained, which are used to offset custody fees. The expenses paid under the above arrangements are included in custodian fees on the Statements of Operations with the corresponding expense offset shown as "expense paid indirectly." The amount of this expense for the year ended August 31, 2005 was as follows: Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- Earnings credits $60 $130 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 Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- On the first $500 million 0.500% 0.500% On the next $500 million 0.475% 0.475% On the next $1.5 billion 0.450% 0.450% In excess of $2.5 billion 0.425% 0.425% 24 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, certain insurance costs and extraordinary expenses, do not exceed specified percentages of average daily net assets, as shown below.
Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- The operating expense limitation as a percentage of average daily net assets (per annum) N/A 0.60% Expiration date 10/31/04 10/31/04 Effective November 1, 2004, operating expense limitation as a percentage of average daily net assets (per annum) 0.65% 0.60% Expiration date 12/29/05 12/29/05
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting, administration, dividend disbursing, and transfer agent services. Effective May 19, 2005, the Funds pay DSC a monthly fee computed at the annual rate of 0.04% of the Funds' average daily net assets for accounting and administration services. Prior to May 19, 2005, the Funds paid DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. Each Fund pays DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services. Pursuant to a distribution agreement and distribution plan, each Fund pays Delaware Distributors, L.P. (DDLP), the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.25% of the average daily net assets of the Class A shares and 1.00% of the average daily net assets of the Class B and C shares. At August 31, 2005, each Fund had liabilities payable to affiliates as follows:
Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- Investment management fees payable to DMC $19,174 $19,322 Dividend disbursing, transfer agent, accounting and administration fees and other expenses payable to DSC 4,788 4,206 Other expenses payable to DMC and affiliates* 20,798 25,518
*DMC, as a part of its administrative services, pays operating expenses on behalf of each Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees' fees. As provided in the investment management agreement, the Funds bear the cost of certain legal services expenses, including internal legal services provided to the Funds by DMC employees. For the year ended August 31, 2005, Delaware Tax-Free Idaho Fund, Delaware Tax-Free Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund were charged $4,526, $2,730, $2,425, respectively, for internal legal services provided by DMC. For the year ended August 31, 2005, DDLP earned commissions on sales of Class A shares for each Fund as follows:
Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- $5,743 $26,600
For the year ended August 31, 2005, DDLP received gross contingent deferred sales charge commissions on redemption of each Fund's Class A, Class B and Class C shares, respectively. These commissions were entirely used to offset up-front commissions previously paid by DDLP to broker-dealers on sales of those shares. The amounts received were as follows:
Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- Class A $ -- $ -- Class B 1,389 6,785 Class C -- 800
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. 3. INVESTMENTS For the year ended August 31, 2005, the Funds made purchases and sales of investment securities other than short-term investments as follows:
Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- Purchases $10,574,079 $6,599,290 Sales 13,194,283 5,960,160
25 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS (CONTINUED) At August 31, 2005, 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 Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- Cost of investments $46,930,968 $44,379,053 ----------- ----------- Aggregate unrealized appreciation $ 3,176,668 $ 2,750,004 Aggregate unrealized depreciation (26,720) (18,125) ----------- ----------- Net unrealized appreciation $ 3,149,948 $ 2,731,879 =========== ===========
4. DIVIDEND AND DISTRIBUTION INFORMATION Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended August 31, 2005 and 2004 was as follows:
Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- Year Ended Year Ended 8/31/05 8/31/04 8/31/05 8/31/04 Tax-exempt income $2,075,562 $2,244,348 $1,683,404 $1,849,362
As of August 31, 2005, the components of net assets on a tax basis were as follows:
Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- Shares of beneficial interest $47,554,884 $45,032,032 Other temporary differences -- -- Capital loss carryforwards (32,473) (189,531) Net unrealized appreciation of investments 3,149,948 2,731,879 ----------- ----------- Net assets $50,672,359 $47,574,380 =========== ===========
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of market discount and premium on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. For the year ended August 31, 2005, the Funds recorded the following reclassifications.
Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- Undistributed (distributions in excess of) net investment income $(7,638) $(3,935) Accumulated net realized gain (loss) 7,638 3,935
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 Missouri Insured Fund Oregon Insured Fund --------------------- ------------------- 2008 $32,473 $ -- 2009 -- 110,608 2010 -- 78,923 ------- -------- Total $32,473 $189,531 ======= ========
In 2005, the Funds utilized capital loss carryforwards as follows: Capital Loss Carryforward Utilized --------------------- Delaware Tax-Free Missouri Insured Fund $130,695 Delaware Tax-Free Oregon Insured Fund 106,455 26 NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. CAPITAL SHARES Transactions in capital shares were as follows:
Delaware Tax-Free Delaware Tax-Free Missouri Insured Fund Oregon Insured Fund ---------------------- ---------------------- Year Ended Year Ended Year Ended Year Ended 8/31/05 8/31/04 8/31/05 8/31/04 Shares sold: Class A 329,028 460,103 521,536 511,034 Class B 62 33,006 54,948 70,440 Class C 9,871 29,155 112,925 157,187 Shares issued upon reinvestment of dividends and distributions: Class A 94,843 90,070 67,787 72,920 Class B 9,044 13,510 12,953 15,727 Class C 3,701 4,001 11,930 12,786 -------- -------- -------- -------- 446,549 629,845 782,079 840,094 -------- -------- -------- -------- Shares repurchased: Class A (426,911) (410,533) (317,964) (493,915) Class B (180,772) (284,201) (168,301) (181,823) Class C (2,347) (33,776) (101,836) (88,193) -------- -------- -------- -------- (610,030) (728,510) (588,101) (763,931) -------- -------- -------- -------- Net increase (decrease) (163,481) (98,665) 193,978 76,163 ======== ======== ======== ========
For the years ended August 31, 2005 and 2004, the following shares and value 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 8/31/05 8/31/04 Class B Shares Class A Shares Value Class B Shares Class A Shares Value -------------- -------------- ----- -------------- -------------- ----- Delaware Tax-Free Missouri Insured Fund 139,117 139,010 $1,489,016 197,551 197,405 $2,118,117 Delaware Tax-Free Oregon Insured Fund 70,235 70,293 742,841 63,867 63,896 676,263
6. LINE OF CREDIT Each Fund, along with certain other funds in the Delaware Investments Family of Funds (the "Participants"), participates in a $183,100,000 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, 2005, or at any time during the fiscal year. 27 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 Statements of Net Assets. The Funds may invest in advanced refunded bonds, escrow secured bonds or defeased bonds. Under current federal tax laws and regulations, state and local government borrowers are permitted to refinance outstanding bonds by issuing new bonds. The issuer refinances the outstanding debt to either reduce interest costs or to remove or alter restrictive covenants imposed by the bonds being refinanced. A refunding transaction where the municipal securities are being refunded within 90 days or less from the issuance of the refunding issue is known as a "current refunding." "Advance refunded bonds" are bonds in which the refunded bond issue remains outstanding for more than 90 days following the issuance of the refunding issue. In an advance refunding, the issuer will use the proceeds of a new bond issue to purchase high grade interest bearing debt securities which are then deposited in an irrevocable escrow account held by an escrow agent to secure all future payments of principal and interest and bond premium of the advance refunded bond. Bonds are "escrowed to maturity" when the proceeds of the refunding issue are deposited in an escrow account for investment sufficient to pay all of the principal and interest on the original interest payment and maturity dates. Bonds are considered "pre-refunded" when the refunding issue's proceeds are escrowed only until a permitted call date or dates on the refunded issue with the refunded issue being redeemed at the time, including any required premium. Bonds become "defeased" when the rights and interests of the bondholders and of their lien on the pledged revenues or other security under the terms of the bond contract and are substituted with an alternative source of revenues (the escrow securities) sufficient to meet payments of principal and interest to maturity or to the first call dates. Escrowed secured bonds will often receive a rating of AAA from Moody's, S&P, and/or Fitch due to the strong credit quality of the escrow securities and the irrevocable nature of the escrow deposit agreement. The Tax-Free Insured Funds will purchase escrow secured bonds without additional insurance only where the escrow is invested in securities of the U.S. government or agencies or instrumentalities of the U.S. government. Each Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair each Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. At August 31, 2005, there were no Rule 144A securities and no securities have been determined to be illiquid under the Funds' Liquidity Procedures. While maintaining oversight, the Board of Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Funds' limitation on investments in illiquid assets. 8. CONTRACTUAL OBLIGATIONS The Funds enter into contracts in the normal course of business that contain a variety of indemnifications. The Funds' maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts. Management has reviewed the Funds' existing contracts and expects the risk of loss to be remote. 9. TAX INFORMATION (UNAUDITED) The information set forth below is for each Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended August 31, 2005, 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 Missouri Insured Fund -- -- 100% 100% Delaware Tax-Free Oregon Insured Fund -- -- 100% 100%
(A), (B), and (C) are based on a percentage of each Fund's total distributions. 28 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees Voyageur Investment Trust -- Delaware Tax-Free Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund We have audited the accompanying statements of net assets of Delaware Tax-Free Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund (two of the series constituting Voyageur Investment Trust) (the "Funds") as of August 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit procedures included confirmation of securities owned as of August 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Delaware Tax-Free Missouri Insured Fund and Delaware Tax-Free Oregon Insured Fund of Voyageur Investment Trust at August 31, 2005, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. Ernst & Young LLP Philadelphia, Pennsylvania October 14, 2005 29 OTHER FUND INFORMATION PROXY RESULTS (UNAUDITED) The shareholders of Voyageur Mutual Funds and Voyageur Investment Trust (each, a "Trust") voted on the following proposals (as applicable) at the special meeting of shareholders on March 23, 2005 or as adjourned. The description of each proposal and number of shares voted are as follows: 1. To elect a Board of Trustees for each of the Trusts.
Voyageur Mutual Funds Voyageur Investment Trust ------------------------------------------ ----------------------------------------- Shares Voted Shares Voted Shares Voted For Withheld Authority Shares Voted For Withheld Authority ---------------- ------------------ ---------------- ------------------ Thomas L. Bennett 20,895,278.656 360,093.72 414,252,335.19 7431,663.104 Jude T. Driscoll 20,914,639.656 340,732.72 414,251,143.99 1432,854.310 John A. Fry 20,894,793.656 360,578.72 414,258,738.99 1425,259.310 Anthony D. Knerr 20,894,488.656 360,883.72 414,258,994.99 1425,003.310 Lucinda S. Landreth 20,879,031.656 376,340.72 414,254,091.17 9429,907.104 Ann R. Leven 20,857,874.656 397,497.72 414,252,611.99 1431,386.310 Thomas F. Madison 20,905,985,656 349,386.72 414,259,138.99 1424,859.310 Janet L. Yeomans 20,859,670.656 395,701.72 414,251,014.19 7432,984.104 J. Richard Zecher 20,914,639.656 340,732.72 414,248,580.99 1432,417.310
2. To approve the use of a "manager of managers" structure whereby the investment manager of the funds of each Trust will be able to hire and replace subadvisers without shareholder approval.
For Against Abstain --- ------- ------- Delaware Tax-Free Missouri Insured Fund 2,547,568.583 127,364.617 50,056.412 Delaware Tax-Free Oregon Insured Fund 2,275,818.354 163,301.607 165,753.881
3. To approve the restructuring of Voyageur Investment Trust from a Massachusetts business trust to a Delaware statutory trust. For Against
For Against Abstain --- ------- ------- Delaware Tax-Free Missouri Insured Fund 2,604,153.347 62,240.404 56,595.861 Delaware Tax-Free Oregon Insured Fund 2,345,020.965 143,072.177 116,780.700
BOARD CONSIDERATION OF DELAWARE TAX-FREE IDAHO FUND, DELAWARE TAX-FREE MISSOURI INSURED FUND AND DELAWARE TAX-FREE OREGON INSURED FUND INVESTMENT ADVISORY AGREEMENT At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Boards of Trustees, including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreements for the Delaware Tax-Free Idaho Fund, Delaware Tax-Free Missouri Insured Fund and Delaware Oregon Insured Fund (each a "Fund" and together the "Funds"). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the Annual Meeting. Information furnished and discussed throughout the year included reports detailing Fund performance, investment strategies, expenses, compliance matters and other services provided by Delaware Management Company ("DMC"), the investment advisor. Information furnished specifically in connection with the Annual Meeting included materials provided by DMC and its affiliates ("Delaware Investments") concerning, among other things, the level of services provided to the Funds, the costs of such services to the Funds, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, the Board separately received and reviewed independent historical and comparative reports prepared by Lipper Inc. ("Lipper"), an independent statistical compilation organization. The Lipper reports compared each Fund's investment performance and expenses with those of other comparable mutual funds. The Board also requested and received certain supplemental information regarding management's policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager's profitability organized by client type, including the Funds; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit the advisor's ability to fully invest in accordance with each Fund's policies. In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel and representatives from Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman of the Delaware Investments(R) Family of Funds, and Chairman and Chief Executive Officer of the investment advisor, was present to respond to questions raised by Lipper and the independent Trustees. While the Board considered the Investment Advisory Agreements for all of the funds in the Delaware Investments(R) Family of Funds at the same Board meeting, information was provided and considered by the Board for each fund individually. In approving the continuance of the 30 OTHER FUND INFORMATION (CONTINUED) BOARD CONSIDERATION OF DELAWARE TAX-FREE MISSOURI INSURED FUND AND DELAWARE TAX-FREE OREGON INSURED FUND INVESTMENT ADVISORY AGREEMENT (CONTINUED) Investment Advisory Agreements for the Funds, the Board, including a majority of independent Trustees, determined that the existing advisory fee structure was fair and reasonable and that the continuance of the Investment Advisory Agreements was in the best interests of the Funds and their shareholders. While attention was given to all information furnished, the following discusses the primary factors relevant to the Board's deliberations and determination, including those relating to the selection of the investment advisor and the approval of the advisory fee. NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Funds and their shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the compliance of portfolio managers with the investment policies, strategies and restrictions for the Funds, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments(R) Family of Funds complex, the adherence to fair value pricing procedures as established by the Board, and the accuracy of net asset value calculations. The Board noted that it was pleased with the current staffing of the Funds' investment advisor during the past year, the emphasis on research and the compensation system for advisory personnel. Favorable consideration was given to DMC's efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. Other factors taken into account by the Board were Delaware Investments' preparedness for, and response to, legal and regulatory matters. The Board also considered the transfer agent and shareholder services provided to Fund shareholders by Delaware Investments' affiliate, Delaware Service Company, Inc., noting the receipt by such affiliate of the DALBAR Pyramid Award in four of the last six years and the continuing expenditures by Delaware Investments to increase and improve the scope of shareholder services. Additionally, the Board noted the extent of benefits provided to Fund shareholders for being part of the Delaware Investments Family of Funds, including the privilege to exchange investments between the same class of funds without a sales charge, the ability to reinvest Fund dividends into other funds and the privilege to combine holdings in other funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments. INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Funds. The Board was pleased by DMC's investment performance, noting Barron's ranking of the Delaware Investments(R) Family of Funds in the top quartile of mutual fund families for 2002 - 2004. The Board placed significant emphasis on the investment performance of the Funds in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for each Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the "Performance Universe"). A fund with the highest performance is ranked first, and a fund with the lowest is ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% - the second quartile; the next 25% - the third quartile; and the lowest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Funds was shown for the past one, three, five and 10 year periods ended February 28, 2005. The Board noted its objective that each Fund's performance be at or above the median of its Performance Universe. The following paragraphs summarize the performance results for the Funds and the Board's view of such performance. DELAWARE TAX-FREE MISSOURI INSURED FUND -- The Performance Universe for this Fund consisted of the Fund and all retail and institutional Missouri municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one year period was in the second quartile of such Performance Universe. The report further showed that the Fund's total return for the three, five and 10 year periods was in the third quartile. The Board noted that the Fund's performance results were mixed. The Board also noted that, relative to the other funds in the Fund's Performance Universe, the Fund was underexposed to uninsured paper. Based upon the Fund's investment restrictions and the composition of the Performance Universe, the Board was satisfied with the Fund's performance results. DELAWARE TAX-FREE OREGON INSURED FUND -- The Performance Universe for this Fund consisted of the Fund and all retail and institutional single-state municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one, three, five and 10 year periods was in the first quartile of such Performance Universe. The Board was satisfied with such performance. 31 OTHER FUND INFORMATION (CONTINUED) BOARD CONSIDERATION OF DELAWARE TAX-FREE MISSOURI INSURED FUND AND DELAWARE TAX-FREE OREGON INSURED FUND INVESTMENT ADVISORY AGREEMENT (CONTINUED) COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds, Delaware Investments' institutional separate account business and other lines of business at Delaware Investments. The Board stated its belief that, given the differing level of service provided to Delaware Investments' various clients and other factors that related to the establishment of fee levels, variations in the levels of fees and expenses were justified. The Board placed significant emphasis on the comparative analysis of the management fees and total expense ratios of each Fund compared with those of a group of similar funds as selected by Lipper (the "Expense Group") and among the other Delaware Investments funds. In reviewing comparative costs, each Fund's contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into effect any applicable breakpoints and fee waivers. Each Fund's total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and compared total expenses including 12b-1 and non-12b-1 service fees. The Board noted its objective to limit each Fund's total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraphs summarize the expense results for the Funds and the Board's view of such expenses. DELAWARE TAX-FREE MISSOURI INSURED FUND -- The expense comparisons for the Fund showed that its management fee was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the second highest expenses of its Expense Group. The Board gave favorable consideration to the Fund's management fee, but noted that the Fund's total expenses were not in line with the Board's objective. In evaluating the total expenses, the Board considered waivers in place through October 2005. The Board was satisfied with management's efforts to improve the Fund's total expense ratio and bring it in line with the Board's objective. DELAWARE TAX-FREE OREGON INSURED FUND -- The expense comparisons for the Fund showed that its management fee and total expenses were in the quartile with the second highest expenses of its Expense Group. The Board noted that the Fund's total expenses were not in line with the Board's objective. In evaluating the total expenses, the Board considered waivers in place through October 2005. The Board was satisfied with management's efforts to improve the Fund's total expense ratio and bring it in line with the Board's objective. MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Funds. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments' business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments' expenditures to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds, the benefits from allocation of fund brokerage to improve trading efficiencies and the use of "soft" commission dollars to pay for proprietary and non-proprietary research. At the Board's request, management also provided information relating to Delaware Investments' profitability by client type. The information provided set forth the revenue, expenses and pre-tax income/loss attributable to the Delaware Investments Family of Funds, Delaware Investments' separate account business and other lines of business at Delaware Investments. Emphasis was given to the level and type of service provided to the various clients. The Board was satisfied with the level of profits realized by Delaware Investments from its relationships with the Funds and the Delaware Investments Family of Funds. ECONOMIES OF SCALE. The Trustees considered whether economies of scale are realized by Delaware Investments as each Fund's assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees took into account the standardized advisory fee pricing and structure approved by the Board and shareholders as part of a complex-wide shareholder meeting conducted in 1998/1999. At that time, Delaware Investments introduced breakpoints to account for management economies of scale. The Board noted that the fee under each Fund's management contract fell within the standard structure. Although the Funds have not reached a size at which they can take advantage of breakpoints, the Board recognized that the fee was structured so that when the Funds grow, economies of scale may be shared. 32 DELAWARE INVESTMENTS(R) FAMILY OF FUNDS BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others 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 and Officers with certain background and related information.
NUMBER OF OTHER PORTFOLIOS IN FUND DIRECTORSHIPS POSITION(S) HELD COMPLEX OVERSEEN HELD BY NAME, ADDRESS AND WITH THE EQUITY LENGTH OF TIME PRINCIPAL OCCUPATION(S) BY TRUSTEE TRUSTEE BIRTHDATE FUND(S) SERVED DURING PAST 5 YEARS OR OFFICER OR OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES JUDE T. DRISCOLL(2) Chairman, 5 Years - Executive Since August 2000, Mr. 92 None 2005 Market Street President, Chief Officer Driscoll has served in Philadelphia, PA Executive Officer various executive 19103 and Trustee 1 Year - Trustee capacities at different times at Delaware March 10, 1963 Investments(1) Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES THOMAS L. BENNETT Trustee Since Private Investor - 92 None 2005 Market Street March 23, 2005 (March 2004 - Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 1, 1927 (January 1984 - March 2004) - ------------------------------------------------------------------------------------------------------------------------------------ JOHN A. FRY Trustee 4 Years President - Franklin & 75 Director - Community 2005 Market Street Marshall College Health Systems Philadelphia, PA (June 2002 - Present) 19103 Executive Vice President May 28, 1960 - University of Pennsylvania (April 1995 - June 2002) - ------------------------------------------------------------------------------------------------------------------------------------ ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director 92 None 2005 Market Street - Anthony Knerr & Philadelphia, PA Associates (Strategic 19103 Consulting) (1990 - Present) December 7, 1938 LICINDA S. LANDRETH Trustee Since Chief Investment Officer - 92 None 2005 Market Street March 23, 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002 - 2004) June 24, 1947 - ------------------------------------------------------------------------------------------------------------------------------------ ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal 92 Director and Audit 2005 Market Street Officer - National Committee Philadelphia, PA Gallery of Art Chairperson - 19103 (1994 - 1999) Andy Warhol Foundation November 1, 1940 Director and Audit Committee Member - Systemax Inc. - ------------------------------------------------------------------------------------------------------------------------------------
33
NUMBER OF OTHER PORTFOLIOS IN FUND DIRECTORSHIPS POSITION(S) HELD COMPLEX OVERSEEN HELD BY NAME, ADDRESS AND WITH THE EQUITY LENGTH OF TIME PRINCIPAL OCCUPATION(S) BY TRUSTEE TRUSTEE BIRTHDATE FUND(S) SERVED DURING PAST 5 YEARS OR OFFICER OR OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES (continued) THOMAS F. MADISON Trustee 11 Years President/Chief Executive 92 Director - 2005 Market Street Officer - MLM Partners, Banner Health Philadelphia, PA Inc. (Small Business 19103 Investing and Consulting) Director (January 1993 - Present) and Audit Committee Member - CenterPoint Energy February 25, 1936 Director and Audit Committee Member - Digital River Inc. Director and Audit Committee Member - Rimage Corporation Director and Audit Committee Member - Valmont Industries Inc. - ------------------------------------------------------------------------------------------------------------------------------------ JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 92 None 2005 Market Street Acquisitions - Philadelphia, PA 3M Corporation 19103 (January 2003 - Present) July 31, 1948 Ms. Yeomans has held various management positions at 3M Corporation since 1983. - ------------------------------------------------------------------------------------------------------------------------------------ J. RICHARD ZECHER Trustee Since Founder - 92 Director and Audit 2005 Market Street March 23, 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999 - Present) Director and Audit July 3, 1940 Committee Member - Oxigene, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS MICHAEL P. BISHOF Senior Vice Chief Financial Mr. Bishof has served in 92 None(3) 2005 Market Street President and Officer since various executive capacities Philadelphia, PA Chief Financial February 17, 2005 at different times at 19103 Officer Delaware Investments August 18, 1962 - ------------------------------------------------------------------------------------------------------------------------------------ RICHELLE S. MAESTRO Executive Vice 2 Years Ms. Maestro has served in 92 None(3) 2005 Market Street President, Chief various executive capacities Philadelphia, PA Legal Officer and at different times at 19103 Secretary Delaware Investments November 26, 1957 - ------------------------------------------------------------------------------------------------------------------------------------ JOHN J. O'CONNOR Senior Vice Treasurer since Mr. O'Connor has served in 92 None(3) 2005 Market Street President and February 17, 2005 various executive capacities Philadelphia, PA Treasurer at different times at 19103 Delaware Investments June 16, 1957 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund's(s') investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') manager and distributor. (3) Mr. Bishof, Ms. Maestro and Mr. O'Connor also serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees/Directors and Officers and is available, without charge, upon request by calling 800 523-1918. 34 Delaware Investments(R) - ----------------------------------- A member of Lincoln Financial Group 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 Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER Chairman Senior Vice President and Delaware Management Company, Delaware Investments Family of Funds Chief Financial Officer a Series of Delaware Management Business Trust Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA Philadelphia, PA THOMAS L. BENNETT National Distributor Private Investor RICHELLE S. MAESTRO Delaware Distributors, L.P. Rosemont, PA Executive Vice President, Philadelphia, PA Chief Legal Officer and Secretary JOHN A. FRY Delaware Investments Family of Funds SHAREHOLDER SERVICING, DIVIDEND President Philadelphia, PA DISBURSING AND TRANSFER AGENT Franklin & Marshall College Delaware Service Company, Inc. Lancaster, PA JOHN J. O'CONNOR 2005 Market Street Senior Vice President and Treasurer Philadelphia, PA 19103-7094 ANTHONY D. KNERR Delaware Investments Family of Funds Managing Director Philadelphia, PA FOR SHAREHOLDERS Anthony Knerr & Associates 800 523-1918 New York, NY FOR SECURITIES DEALERS AND FINANCIAL LUCINDA S. LANDRETH INSTITUTIONS REPRESENTATIVES ONLY Former Chief Investment Officer 800 362-7500 Assurant, Inc. Philadelphia, PA WEB SITE www.delawareinvestments.com ANN R. LEVEN Former Treasurer/Chief Fiscal Officer National Gallery of Art Washington, DC THOMAS F. MADISON President and Chief Executive Officer MLM Partners, Inc. Minneapolis, MN JANET L. YEOMANS Vice President/Mergers & Acquisitions 3M Corporation St. Paul, MN J. RICHARD ZECHER Founder Investor Analytics Scottsdale, AZ
Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries. - -------------------------------------------------------------------------------- Each Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. Each Fund's Forms N-Q, as well as a description of the policies and procedures that each Fund uses to determine how to vote proxies (if any) relating to portfolio securities is available without charge (i) upon request, by calling 800 523-1918; (ii) on each Fund's Web site at http://www.delawareinvestments.com; and (iii) on the Commission's Web site at http://www.sec.gov. Each Fund's Forms N-Q may be reviewed and copied at the Commission's Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Information (if any) regarding how each Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through each Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. - -------------------------------------------------------------------------------- (9755) Printed in the USA AR-CORN [8/05] IVES 10/05 MF-05-07-034 PO10447 Item 2. Code of Ethics The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant's Code of Business Ethics has been posted on Delaware Investments' internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months. Item 3. Audit Committee Financial Expert The registrant's Board of Trustees/Directors has determined that each member of the registrant's Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an "audit committee financial expert" is a person who has the following attributes: a. An understanding of generally accepted accounting principles and financial statements; b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's financial statements, or experience actively supervising one or more persons engaged in such activities; d. An understanding of internal controls and procedures for financial reporting; and e. An understanding of audit committee functions. An "audit committee financial expert" shall have acquired such attributes through: a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions; b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions; c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or d. Other relevant experience. The registrant's Board of Trustees/Directors has also determined that each member of the registrant's Audit Committee is independent. In order to be "independent" for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an "interested person" of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940. The names of the audit committee financial experts on the registrant's Audit Committee are set forth below: Thomas L. Bennett(1) Thomas F. Madison Janet L. Yeomans (1) J. Richard Zecher Item 4. Principal Accountant Fees and Services (a) Audit fees. The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $39,000 for the fiscal year ended August 31, 2005. The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $65,070 for the fiscal year ended August 31, 2004. (b) Audit-related fees. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended August 31, 2005. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the financial statements of the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $33,875 for the registrant's fiscal year ended August 31, 2005. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of reports concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act and issuance of agreed upon procedures reports to the Registrant's Board in connection with the annual transfer agent and fund accounting service agent contract renewals and the pass-through of internal legal cost relating to the operations of the Registrant. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended August 31, 2004. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the financial statements of the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $37,575 for the registrant's fiscal year ended August 31, 2004. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of reports concerning transfer agent's system of internal accounting control pursuant to Rule 17Ad-13 of the Securities Exchange Act and issuance of agreed upon procedures reports to the Registrant's Board in connection with the annual transfer agent and fund accounting service agent contract renewals and the pass-through of internal legal cost relating to the operations of the Registrant. - ---------- (1) The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on "other relevant experience." The Board of Trustees/Directors has determined that Mr. Bennett qualifies as an audit committee financial expert by virtue of his education, Chartered Financial Analyst designation, and his experience as a credit analyst, portfolio manager and the manager of other credit analysts and portfolio managers. The Board of Trustees/ Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation. (c) Tax fees. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant were $7,700 for the fiscal year ended August 31, 2005. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax return and review of annual excise distribution calculation. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2005. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant were $8,750 for the fiscal year ended August 31, 2004. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax return and review of annual excise distribution calculation. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2004. (d) All other fees. The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended August 31, 2005. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant's independent auditors to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2005. The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended August 31, 2004. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant's independent auditors to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended August 31, 2004. (e) The registrant's Audit Committee has not established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X. (f) Not applicable. (g) The aggregate non-audit fees billed by the registrant's independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $212,935 and $221,565 for the registrant's fiscal years ended August 31, 2005 and August 31, 2004, respectively. (h) In connection with its selection of the independent auditors, the registrant's Audit Committee has considered the independent auditors' provision of non-audit services to the registrant's investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors' provision of these services is compatible with maintaining the auditors' independence. Item 5. Audit Committee of Listed Registrants Not applicable. Item 6. Schedule of Investments Included as part of report to shareholders filed under Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers Not applicable. Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There were no significant changes in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant's fourth fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a) (1) Code of Ethics Not applicable. (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT. (3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934. Not applicable. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. VOYAGEUR INVESTMENT TRUST Jude T. Driscoll - -------------------------------- By: Jude T. Driscoll Title: Chief Executive Officer Date: November 2, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Jude T. Driscoll - -------------------------------- By: Jude T. Driscoll Title: Chief Executive Officer Date: November 2, 2005 Michael P. Bishof - -------------------------------- By: Michael P. Bishof Title: Chief Financial Officer Date: November 2, 2005 EX-99.CERT 2 ex99-cert.txt EXHIBIT 99.CERT EXHIBIT 99.CERT CERTIFICATION ------------- I, Jude T. Driscoll, certify that: 1. I have reviewed this report on Form N-CSR of Voyageur Investment Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 2, 2005 Jude T. Driscoll By: Jude T. Driscoll Title: Chief Executive Officer CERTIFICATION ------------- I, Michael P. Bishof, certify that: 1. I have reviewed this report on Form N-CSR of Voyageur Investment Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 2, 2005 Michael P. Bishof - -------------------------------- By: Michael P. Bishof Title: Chief Financial Officer EX-99.906CERT 3 ex99-906cert.txt EXHIBIT 99.906CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the attached report of the registrant on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the registrant does hereby certify, to the best of such officer's knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. Date: November 2, 2005 Jude T. Driscoll - -------------------------------- By: Jude T. Driscoll Title: Chief Executive Officer Michael P. Bishof - -------------------------------- By: Michael P. Bishof Title: Chief Financial Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the SEC or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----