<PAGE> 1
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March 28, 1995
Dear Shareholder:
Higher interest rates continued to influence the financial markets during
the first half of our 1995 fiscal year, September 1, 1994, through February
28, 1995. Over the past 12 months, the Federal Reserve, our nation's central
bank, raised interest rates seven separate times as it "tightened" its
previously relaxed monetary policy in an effort to slow economic growth and
control the pace of inflation.
The brunt of the Fed's actions was felt in 1994, as six rate
increases caused short- and long-term bond prices to decline sharply. So far
in 1995, the Fed has raised rates only once and confidence in the bond
markets has risen. Bond prices have responded nicely, helping to recover some
of last year's losses.
For the six month period ended February 28, 1995, Tax-Free USA
Intermediate Fund A Class had a total return of +1.40% based on net asset
value (capital change plus reinvested dividends of $.267 per share). By
comparison, the unmanaged Merrill Lynch Three- to Seven-Year Municipal Bond
Index, which has an average maturity similar to the Fund, returned +1.11%.
- ------------------------------------------------------------------------------
TOTAL RETURN
SIX MONTHS ENDED
FEBRUARY 28, 1995
Tax-Free USA Intermediate Fund A +1.40%
Merrill Lynch Three- to Seven-Year
Municipal Bond Index +1.11%
Tax-Free USA Intermediate Fund's performance is based on net asset value.
Performance information for all classes of the Funds can be found on page 4.
- ------------------------------------------------------------------------------
One of the key aims of Tax-Free USA Intermediate's conservative
philosophy is relative price stability. Its strategy of investing primarily
in intermediate maturity bonds places emphasis on capital preservation and
that is what helped the Fund provide a positive return despite 1994's
difficult market conditions. In fact, in the down markets of 1994, your Fund
performed relatively better than its peers with similar investment
objectives, based on the average total return of the 86 funds in the Lipper
Intermediate Municipal Bond Average.
Though we believe Tax-Free USA Intermediate will benefit from market
rallies like the present one, our relatively conservative strategy might
underperform more aggressive municipal funds in rising markets. However, we
believe through rising and falling interest rate environments, our strategy is
preferable for income-oriented investors.
Amid signs that economic growth has slowed and inflation has remained
relatively low, the Fed appears to have assumed a "hold steady" position with
regard to further rate increases. While concerns about higher inflation have
momentarily subsided, the fall of the U.S. dollar relative to other
currencies has raised the specter of Fed intervention to boost rates to
support the dollar. Despite this possible action, we believe that the vast
majority of rate increases are behind us and we do not anticipate a bond
market as difficult as we saw in 1994.
The remainder of this report contains an update from Patrick Coyne,
Senior Portfolio Manager of the Fund, on how Tax-Free USA Intermediate Fund
is positioned in the bond market environment we see ahead. He also discusses
the prospect for a favorable balance of supply and demand of municipal bonds
in 1995.
Sincerely,
Wayne A. Stork Brian F. Wruble
- --------------------- -----------------------------
Wayne A. Stork Brian F. Wruble
Chairman, Board of Directors President and Chief Executive
Delaware Group Tax-Free USA Intermediate Officer
Fund Delaware Group Tax-Free
USA Intermediate Fund
1
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Portfolio Manager's Market Review
Overall investment returns in 1994 were dramatically affected by the
resurgent strength in the U.S. economy and the fear of impending inflation.
In response to these influences, on February 4, 1994, the Federal Reserve
Board began the process of raising short-term interest rates in what was to
be a series of seven increases over the next 12 months.
As rates rose, prices on intermediate and long-term U.S. Treasury and
municipal bonds fell. Prices tend to fall as interest rates increase so that
yields on existing bonds will remain in line with the yields on new bonds
being issued. Since short-term interest rates rose more than long-term rates,
the municipal yield curve has "flattened" significantly. (See chart.) This
means that investors no longer gain as much extra income for choosing bonds
with longer maturities over shorter maturities even though they are taking on
additional risk.
Even as higher interest rates forced bond prices lower, they helped
to create a more favorable balance of supply and demand for municipal bonds.
When interest rates climb, it becomes less attractive for municipalities to
refinance debt, which causes a decline in the supply of new bonds. For the
whole of 1994, the level of tax-exempt new issues decreased 44% from the
previous year. More significant is that in just the first two months of 1995,
the amount of new issues was down 57% from 1994's meager issuance. This lack
of municipal supply has helped the tax-exempt market outperform taxable
fixed-income investments over the past six months.
In spite of the attention focused on losses in Orange County, California's
bond portfolio, the overall credit quality of the municipal market actually
improved in 1994. According to Standard and Poor's, a leading rating agency,
excluding Orange County, more municipal bonds rose in credit quality than
declined as the growing domestic economy played an important role in upgrading
credit qualities in the municipal market. During the last six months, your
Fund, which had no exposure to Orange County, slightly upgraded its average
rating quality from "Aa3" to "Aa2", one of the highest ratings issued by
Moody's Investors Service.
THE YIELD CURVE IS SIMPLY A DEPICTION OF INTEREST RATES ON BONDS AT VARIOUS
STAGES OF MATURITY, IN EFFECT SHOWING THE COST OF BORROWING MONEY FOR
MUNICIPALITIES FOR DIFFERENT LENGTHS OF TIME.
- --------------------------------------
Chart: YIELD CURVE 2/28/94 TO 2/28/95
2/28/94 2/28/95 8/31/94
1 year 2.78 4.48 3.72
2 year 3.19 4.69 4.12
3 year 3.57 4.81 4.34
4 year 3.8 4.91 4.54
5 year 4.02 5.01 4.71
7 year 4.34 5.15 4.96
10 year 4.63 5.33 5.27
15 year 5.09 5.63 5.76
20 year 5.26 5.78 5.96
25 year 5.28 5.86 5.98
30 year 5.31 5.88 6.01
Source: Bloomberg.
2
<PAGE> 3
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YOUR FUND'S INVESTMENT STRATEGY
Tax-Free USA Intermediate Fund's objective is to provide as high a
level of current interest income exempt from federal taxes as is consistent
with prudent investment management and preservation of capital. In the last
six months, in addition to improving credit quality, we have responded to
changes in the interest rate environment by reducing both our average
maturity and average "duration." Duration is the most common measure of a
bond's sensitivity to interest rates. It indicates the approximate percentage
movement in a bond's price given a 1% change in interest rates. When interest
rates rise, bond prices generally decline; when rates fall, bond prices
generally rise. The shorter the duration, generally the less the price will
be affected when interest rates rise or fall and the more defensive the Fund.
Thus, by shortening Tax-Free USA Intermediate Fund's duration, we hope to
decrease the Fund's sensitivity to rising rates.
With the rise in rates over the last six months, we were able to
purchase higher coupon bonds -- bonds that pay a higher level of income --
further increasing the fund's income bias while reducing average maturity.
LOOKING AHEAD
The Public Securities Association (PSA) has estimated that new bond
issuance in 1995 will total just $157 billion, compared to the high of $292
billion in 1993. In addition, Wall Street analysts have estimated that over
$300 billion of municipal debt will be retired this year through bonds being
called, maturing and being refunded or refinanced. Generally, when supply
decreases and demand stays steady or increases, prices tend to rise. Though
the demand side of the equation is more difficult to gauge, if the Federal
Reserve ceases its monetary tightening policies during the second half of
1995, we believe investors will return to the market, which would bode well
for prices.
Tax-Free USA Intermediate Fund continues to focus on income and
relative price stability. We do not use any of the exotic derivative
securities that have received a great deal of attention lately. And, while we
carefully monitor interest rate movements in an effort to increase tax-free
income for shareholders, our strategy was designed to work over a full
interest rate cycle, so we do not dramatically shift our positioning just to
take advantage of short-term interest rate trends.
We are optimistic about the current outlook for Tax-Free USA
Intermediate Fund because we believe its strategy is particularly well-suited
to stable and rising interest rate environments. We do not foresee an
environment, in the near future, where interest rates would return to 1993's
historically low levels. Given a favorable scenario, we believe that funds
with a high income bias, like your Fund, should prove rewarding.
3
<PAGE> 4
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COLONIAL OBJECT
LONG-TERM PERFORMANCE
The chart below is designed to give you a perspective on the lifetime
performance of Tax-Free USA Intermediate Fund. As you can see, it has
outperformed the unmanaged Merrill Lynch Three-to Seven-Year Municipal Bond
Index during this period, even though the performance of the unmanaged index
does not include the expenses associated with a mutual fund such as
administration, research, professional management and the cost of buying and
selling securities.
Delaware remains committed to providing Tax-Free USA Intermediate Fund
shareholders with high current tax-free income and relative stability of
principal through a nationally diversified, professionally managed portfolio.
We believe that over the course of full market cycles, our defensive strategy
will lead to attractive long-term total return.
- ------------------------------------------------------------------------------
Chart: TAX-FREE USA INTERMEDIATE FUND PERFORMANCE
Tax-Free USA Merrill Lynch
Intermediate Fund Three- to Seven-Year
Class A Returns Municipal Bond Index Returns
----------------- ----------------------------
1/7/93 9699 10000
12/31/93 10906 10798
12/31/94 10620 10611
2/28/95 11019 10905
Chart assumes $10,000 was invested in Tax-Free USA Intermediate Fund A Class
on January 7, 1993, and includes the impact of the 3% maximum sales charge and
the reinvestment of all dividends. Tax-Free USA Intermediate Fund's return is
compared to the unmanaged Merrill Lynch Three- to Seven-Year Municipal Bond
Index with all distributions reinvested.
CLASS A CLASS B
Average Annual Total Returns(1) Aggregate Total Returns(2)
Lifetime 4.63% Lifetime 3.31%
Excluding Sales Charge
1 Year -1.32% Lifetime 1.32%
Including Sales Charge
Through February 28, 1995
RETURN AND SHARE VALUE WILL FLUCTUATE WITH RISING AND FALLING INTEREST RATES
SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
(1) CLASS A returns reflect the reinvestment of all distributions, the maximum
sales charge of 3%, the impact of a 0.30% 12b-1 fee and the reinvestment of
all distributions.
(2) CLASS B returns, including the deferred sales charge, reflect the
reinvestment of all distributions, the impact of the maximum 2% contingent
deferred sales charge and a 1% annual distribution and service fee, for the
period from introduction of the B Class on May 2, 1994, through February 28,
1995. Returns excluding the deferred sales charge assume that the investment
was not redeemed. Performance for this short time period may not be
representative of longer term performance of this class.
Performance through March 31, 1995
Class A Class B
Average Annual Total Returns(1) Aggregate Total Returns(2)
Lifetime 4.66% Lifetime 3.72%
Excluding Sales Charge
1 Year 1.70% Lifetime 1.72%
Including Sales Charge
4
<PAGE> 5
FINANCIAL STATEMENTS
DELAWARE GROUP TAX-FREE USA INTERMEDIATE FUND
STATEMENT OF NET ASSETS
February 28, 1995
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS-97.75%
CITY AND STATE AGENCY BONDS-19.62%
Indiana Bond Bank (State Revolving Fund
Project) 6.00% 2/1/01........................ $ 500,000 $ 510,000
Michigan Municipal Bond Authority
(Local Government Loan Project)
5.85% 5/1/01 (AMBAC)......................... 2,195,000 2,269,081
Pennsylvania State Industrial Development
Authority 6.00% 7/1/99 (AMBAC)............... 1,400,000 1,463,000
---------
4,242,081
---------
GENERAL OBLIGATION BONDS-19.48%
Kansas City, Missouri Municipal Assistance
Corp. 5.50% 3/1/00 (CGIC).................... 1,250,000 1,279,688
Philadelphia, Pennsylvania Municipal Authority
5.25% 7/15/98................................ 965,000 950,525
Philadelphia, Pennsylvania School District
6.25% 5/15/01 (AMBAC)........................ 1,875,000 1,980,469
---------
4,210,682
---------
HIGHER EDUCATION REVENUE BONDS-9.53%
*Student Loan Finance Corp.
(South Dakota Student Loan Revenue)
5.30% 8/1/97................................. 1,000,000 1,002,500
Virginia College Building Authority
(University of Richmond Project)
6.40% 11/1/22................................ 1,000,000 1,057,500
---------
2,060,000
---------
HOSPITAL REVENUE BONDS-4.03%
Michigan State Hospital Finance Authority
(Genesys Health System)
Series 95A 6.10% 10/1/96..................... 515,000 518,219
Series 95A 6.40% 10/1/97..................... 350,000 353,500
-------
871,719
-------
HOUSING REVENUE BONDS-13.55%
Maryland State Community Development
Administration (Single Family Program)
6th Series 5.90% 4/1/01...................... 1,000,000 1,032,500
Montgomery County, Pennsylvania
Redevelopment Authority Multifamily Housing
Revenue (KBF Associates) 6.00% 7/1/04........ 2,000,000 1,897,500
---------
2,930,000
---------
Industrial Development Revenue Bonds-3.40%
Philadelphia Industrial Development Authority
(Gallery II Parking Garage Project)
6.125% 2/15/03............................... 750,000 734,063
-------
734,063
-------
<PAGE> 6
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (CONTINUED)
POWER AUTHORITY REVENUE BONDS-7.77%
New Madrid, Missouri Power Plant
5.65% 6/1/03 (AMBAC)......................... $ 1,000,000 $ 1,013,750
Utah Associated Municipal Power Systems
5.30% 6/1/00 (MBIA).......................... 660,000 666,600
-----------
1,680,350
-----------
TRANSPORTATION REVENUE BONDS-9.73%
*Rhode Island Port Authority and Economic
Development Corp. Airport Revenue
5.80% 7/1/02 (FSA)............................ 565,000 578,419
5.90% 7/1/03 (FSA)............................ 490,000 502,863
Southeastern Pennsylvania Transportation
Authority 6.00% 6/1/99........................ 1,000,000 1,022,500
---------
2,103,782
---------
WATER & SEWER REVENUE BONDS-1.88%
Easton, Pennsylvania Joint Sewer Authority
5.60% 4/1/03 (ASSET GTY)..................... 200,000 204,250
Marysville, Washington Water and Sewer
Revenue 5.50% 12/1/02 (MBIA)................. 200,000 202,750
-------
407,000
-------
OTHER REVENUE BONDS-8.76%
Charleston County, South Carolina
(Charleston Public Facilities Corp.)
5.20% 12/1/99 (MBIA)......................... 860,000 866,450
West Virginia School Building Authority
Capital Improvement
5.625% 7/1/02 (MBIA)......................... 1,000,000 1,026,250
----------
1,892,700
----------
TOTAL MUNICIPAL BONDS (COST $20,796,391)........ 21,132,377
----------
5
<PAGE> 7
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
VARIABLE RATE DEMAND NOTES-2.31%
Montgomery, Alabama BMC Special Care
Facilities Financing Authority Series E
4.05% 12/1/30 (AMBAC)........................ $ 200,000 $ 200,000
New York, New York Series B
4.05% 10/1/20 (FGIC)......................... 100,000 100,000
New York, New York Series B-2
4.05% 8/15/21................................ 200,000 200,000
----------
TOTAL VARIABLE RATE DEMAND NOTES
(COST $500,000)................................. 500,000
----------
TOTAL MARKET VALUE OF SECURITIES
OWNED-100.06% (COST $21,296,391)............. 21,632,377
LIABILITIES NET OF RECEIVABLES
AND OTHER ASSETS-(0.06%)..................... (13,909)
----------
NET ASSETS APPLICABLE TO 2,059,663 TAX-FREE
USA INTERMEDIATE FUND A CLASS SHARES AND
62,562 TAX-FREE USA INTERMEDIATE FUND
B CLASS SHARES ($.01 PAR VALUE OUTSTANDING)
EQUIVALENT TO $10.19 PER SHARE-100.00%.......... $21,618,468
===========
- ------------
*This security is subject to the federal alternative minimum tax.
AMBAC-Insured by the AMBAC Indemnity Corporation.
ASSET GTY-Insured by the Asset Guaranty Insurance Company.
CGIC-Insured by the Capital Guaranty Insurance Company.
FGIC-Insured by the Financial Guaranty Insurance Company.
FSA-Insured by Financial Security Assurance.
MBIA-Insured by the Municipal Bond Insurance Association.
COMPONENTS OF NET ASSETS AT FEBRUARY 28, 1995:
Common stock, $.01 par value, 500,000,000 shares
authorized to the Tax-Free USA Intermediate Fund............. $22,426,024
Accumulated undistributed income (loss):
Net realized loss on investments............................. (1,143,542)
Net unrealized appreciation of investments................... 335,986
-----------
Total net assets................................................ $21,618,468
===========
See accompanying notes
<PAGE> 8
Delaware Group Tax-Free USA Intermediate Fund
Statement of Operations
Six Months Ended February 28, 1995
(Unaudiated)
INVESTMENT INCOME:
Interest......................................................... $654,276
EXPENSES:
Management fees ($54,675) and directors' fees ($3,999)........... 58,674
Distribution expenses............................................ 20,064
Dividend disbursing and transfer agent
fees and expenses............................................. 13,177
Registration fees ............................................... 12,475
Reports and statements to shareholders........................... 8,260
Professional fees................................................ 7,800
Organization expenses............................................ 4,316
Custodian fees................................................... 2,950
Salaries expenses................................................ 2,919
Taxes (other than taxes on income)............................... 1,080
Other............................................................ 5,522
--------
Total Expenses................................................... 137,237
Less expense absorbed by Delaware
Management Company, Inc....................................... (105,458)
--------
31,779
NET INVESTMENT INCOME............................................ 622,497
-------
NET REALIZED LOSS AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized loss from security transactions..................... (700,255)
Net unrealized appreciation on investments during the period..... 174,534
--------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS............................................ (525,721)
--------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS..................................... $96,776
========
See accompanying notes
6
<PAGE> 9
Delaware Group Tax-Free USA Intermediate Fund
Statement of Changes in Net Assets
SIX
MONTHS
ENDED YEAR
2/28/95 ENDED
(UNAUDITED) 8/31/94
OPERATIONS:
Net investment income........................ $ 622,497 $ 1,110,760
Net realized loss from security transactions. (700,255) (443,287)
Net unrealized appreciation (depreciation)
during the period........................... 174,534 (221,229)
----------- -----------
Net increase in net assets resulting
from operations............................. 96,776 446,244
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME:
Tax-Free USA Intermediate Fund A Class....... (608,938) (1,111,341)
Tax-Free USA Intermediate Fund B Class....... (13,559) (3,182)
----------- -----------
(622,497) (1,114,523)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Tax-Free USA Intermediate Fund A Class....... 2,883,491 21,139,526
Tax-Free USA Intermediate Fund B Class....... 219,564 591,990
Net asset value of shares issued upon reinvestment
of dividends from net investment income:
Tax-Free USA Intermediate Fund A Class....... 437,903 867,862
Tax-Free USA Intermediate Fund B Class....... 11,192 2,550
----------- -----------
3,552,150 22,601,928
Cost of shares repurchased:
Tax-Free USA Intermediate Fund A Class....... (10,018,156) (7,827,573)
Tax-Free USA Intermediate Fund B Class....... (179,956) ---
----------- -----------
(10,198,112) (7,827,573)
----------- -----------
Increase (decrease) in net assets derived
from capital share transactions............. (6,645,962) 14,774,355
----------- -----------
NET INCREASE (DECREASE)
IN NET ASSETS............................... (7,171,683) 14,106,076
NET ASSETS:
Beginning of period.......................... 28,790,151 14,684,075
------------ ------------
End of period................................ $21,618,468 $28,790,151
============ ============
See accompanying notes
<PAGE> 10
DELAWARE GROUP TAX-FREE USA INTERMEDIATE FUND
NOTES TO FINANCIAL STATEMENTS
February 28, 1995
(Unaudited)
Delaware Group Tax-Free Fund, Inc. ("the Company") is registered as a
diversified open-end investment company under the Investment Company Act of
1940. The Company is organized as a Maryland Corporation and offers three
portfolios, the Tax-Free USA Intermediate Fund (the "Fund"), the Tax-Free USA
Fund and the Tax-Free Insured Fund. Each portfolio offers two classes of
shares.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund for financial
statement preparation:
Security Valuation-Securities listed on an exchange are valued at the last
quoted sales price as of 4:00 pm on the valuation date. Securities not traded
are valued at the last quoted bid price. Securities not listed on an exchange
are valued at the mean of the last quoted bid and asked prices. Long-term
debt securities are valued by an independent pricing service when such prices
are believed to reflect the fair value of such securities. Money market
instruments having less than 60 days to maturity are valued at amortized
cost.
Federal Income Taxes-The Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes is required in the
financial statements.
Class Accounting-Investment income, common expenses, and gain (loss) are
allocated to the various classes of the Fund on the basis of daily net
assets. Distribution expenses relating to a specific class are charged
directly to that class.
Other-Expenses common to all Funds within the Delaware Group Family of Funds
are allocated amongst the funds on the basis of average net assets. Security
transactions are recorded on the date the securities are purchased or sold
(trade date). Costs used in calculating realized gains and losses on the sale
of investment securities are those of the specific securities sold. Interest
income is recorded on the accrual basis. Original issue discounts are accreted
and premiums are amortized to interest income over the lives of the respective
securities. The Fund declares dividends daily from net investment income and
pays such dividends monthly.
7
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company, Inc., the Investment Manager of the Fund,
an annual fee which is calculated daily at the rate of 0.50% of the net
assets of the Fund less fees paid to the Independent Directors.
On April 3, 1995, Delaware Management Company, Inc. was acquired (the
"Acquisition") by Lincoln National Corporation. Other than the resulting
change in ownership, the Acquisition will not materially change the manner in
which Delaware Management Company, Inc. has heretofore conducted its
relationship with the Fund. The same personnel who managed the operations and
affairs of the Fund before the Acquisition have continued to manage its
operations and affairs since the Acquisition.
Pursuant to the Distribution Agreement, the Fund pays Delaware Distributors
L.P., the Distributor and an affiliate of Delaware Management Company, an
annual fee of 0.15% of the average daily net assets of Class A and 1.00% of
the average daily net assets of Class B. For the six months ended February
28, 1995, the Fund paid Delaware Distributors $2,528 for commissions earned
on sales of Tax-Free USA Intermediate Fund Class A shares.
Certain officers of the Investment Manager are officers, directors, and or
employees of the Fund. These officers, directors, and shareholders are paid
no compensation by the Fund. The Fund has engaged Delaware Service Company,
Inc. (DSC), an affiliate of Delaware Management Company, to serve as Dividend
Disbursing and Transfer Agent for the Fund. For the six months ended February
28, 1995, the amounts expensed for these services were $10,661.
3. INVESTMENTS
During the six months ended February 28, 1995, the Fund had purchases of
$12,196,846 and sales of $18,911,550 of investment securities other than U.S.
government securities and temporary cash investments.
At February 28, 1995, unrealized appreciation for financial reporting and
federal income tax purposes aggregated $335,986 of which $464,795 related to
unrealized appreciation of securities and $128,809 related to unrealized
depreciation of securities.
For federal income tax purposes, the Fund had accumulated capital losses at
August 31, 1994, of $443,287, which may be carried forward and applied
against future capital gains. The capital loss carryforward expires in 2002.
The realized loss for federal income tax purposes was $700,255 for the six
months ended February 28, 1995.
<PAGE> 12
4. CAPITAL STOCK
Transactions in capital stock shares were as follows:
SIX
MONTHS YEAR
ENDED ENDED
2/28/95 8/31/94
Shares Sold:
Tax-Free USA Intermediate Fund A Class....... 287,877 2,020,577
Tax-Free USA Intermediate Fund B Class....... 21,657 57,606
Shares issued upon reinvestment
of dividends from net investment income:
Tax-Free USA Intermediate Fund A Class....... 43,585 83,219
Tax-Free USA Intermediate Fund B Class....... 1,115 248
-------- ---------
354,234 2,161,650
Shares repurchased:
Tax-Free USA Intermediate Fund A Class....... (1,004,686) (752,231)
Tax-Free USA Intermediate Fund B Class....... (18,064) --
---------- ----------
(1,022,750) (752,231)
Net Increase (decrease)...................... (668,516) 1,409,419
========== ==========
5. LINES OF CREDIT
The Fund has a committed line of credit for $1,000,000. No amount was
outstanding at February 28, 1995, or at any time during the last fiscal
period.
6. CONCENTRATION OF CREDIT RISK
The Fund concentrates its investments in securities issued by municipalities.
The value of these investments may be adversely affected by new legislation
within the states, regional or local economic conditions, and differing
levels of supply and demand for municipal bonds. Many municipalities insure
repayment for their obligations. Although bond insurance reduces the risk of
loss due to default by an issuer, such bonds remain subject to the risk that
market value may fluctuate for other reasons and there is no assurance that
the insurance company will meet its obligations. These securities have been
identified in the statement of net assets.
8
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
TAX-FREE USA INTERMEDIATE TAX-FREE USA INTERMEDIATE
FUND A CLASS FUND B CLASS
-------------------------------------- | -----------------------------
SIX(7) PERIOD | SIX(7) PERIOD
MONTHS YEAR 1/7/93(1) | MONTHS 5/2/94(1)
ENDED ENDED TO | ENDED TO
2/28/95 8/31/94 8/31/93 | 2/28/95 8/31/94
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $10.32 $10.63 $10.00 | $10.32 $10.23
|
Income from investment operations: |
Net investment income..................... 0.27 0.53 0.33 | 0.23 0.15
Net realized and unrealized gain (loss) |
from security transactions .............. (0.13) (0.31) 0.63 | (0.13) 0.09
------ ------ ------ | ------ ------
Total from investment operations.......... 0.14 0.22 0.96 | 0.10 0.24
|
Less distributions: |
Dividends from net investment income...... (0.27) (0.53) (0.33) | (0.23) (0.15)
Distributions from net realized gain |
on security transactions................. none none none | none none
------ ------ ------ | ------ ------
Total distributions....................... (0.27) (0.53) (0.33) | (0.23) (0.15)
------ ------ ------ | ------ ------
Net asset value, end of period............. $10.19 $10.32 $10.63 | $10.19 $10.32
====== ====== ====== | ====== ======
|
Total return(2)............................ 2.82% 2.09% 9.75% | 1.96% 2.31%
|
Ratios/supplemental data: |
Net assets, end of period (000 omitted)... $20,981 $28,193 $14,684 | $637 $597
Ratio of expenses to average net assets... 0.25%(3) 0.25%(3) 0.25%(3) | 1.10%(5) 1.10%(5)
Ratio of net investment income to average |
daily net assets......................... 5.38%(4) 5.00%(4) 4.84%(4) | 4.53%(6) 4.15%(6)
Portfolio turnover rate.................... 104% 81% 53% | 104% 81%
</TABLE>
- ------------------------
(1)Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2)Does not reflect maximum sales charge of 3.00% nor the 1.00% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase for the Tax-Free USA Intermediate
Fund A Class and the contingent deferred sales charge which varies from
1%-2% depending upon the holding period for the Tax-Free USA Intermediate
Fund B Class.
(3)Ratio of expenses to average net assets prior to expense limitation was
1.16% for the six months ended February 28, 1995, 1.19% for 1994 and 1.94%
for 1993.
(4)Ratio of net investment income to average net assets prior to expense
limitation was 4.47% for the six months ended February 28, 1995, 4.06% for
1994 and 3.15% for 1993.
(5)Ratio of expenses to average net assets prior to expense limitation was
2.01% for the six months ended February 28, 1995, and 2.04% for 1994.
(6)Ratio of net investment income to average net assets prior to expense
limitation was 3.62% for the six months ended February 28, 1995, and 3.21%
for 1994.
(7)Ratios and total return have been annualized.
9
<PAGE> 14
DELAWARE GROUP OF FUNDS
FOR GROWTH OF CAPITAL FOR TAX-FREE
Trend Fund CURRENT INCOME
DelCap Fund Tax-Free USA Fund
Value Fund Tax-Free Insured Fund
Tax-Free USA
FOR TOTAL RETURN Intermediate Fund
Dividend Growth Fund Tax-Free Pennsylvania Fund
Decatur Total Return Fund
Decatur Income Fund MONEY MARKET FUNDS
Delaware Fund Delaware Cash Reserve
U.S. Government Money Fund
FOR GLOBAL Tax-Free Money Fund
DIVERSIFICATION
International Equity Fund CLOSED-END EQUITY/INCOME*
Global Assets Fund Delaware Group Dividend and
Global Bond Fund Income Fund
Delaware Group Global Dividend
FOR CURRENT INCOME and Income Fund
Delchester Fund
U.S. Government Fund
Treasury Reserves
Intermediate Fund
<PAGE> 15
BOARD MEMBERS OTHER AFFILIATED OFFICERS
<TABLE>
<S> <C> <C>
MR. WAYNE A. STORK MS. ANN R. LEVEN MR. KEITH E. MITCHELL
Chairman Treasurer President and CEO
Delaware Group of Funds National Gallery of Art Delaware Distributors, L.P.
Philadelphia, PA Washington, DC
MR. DAVID K. DOWNES
MR. WALTER P. BABICH MR. W. THACHER LONGSTRETH President
Board Chairman Vice Chairman Delaware Management Trust Company
Citadel Constructors, Inc. Packquisition Corp.
King of Prussia, PA Philadelphia, PA MR. GEORGE M. CHAMBERLAIN, JR.
Secretary
MR. ANTHONY D. KNERR MR. CHARLES E. PECK Delaware Group of Funds
Consultant Secretary of Enterprise Homes, Inc.
Anthony Knerr & Associates Fredericksburg, VA
New York, NY former Chairman and CEO
The Ryland Group, Inc.
Columbia, MD
</TABLE>
This semi-annual report is for the information of Delaware Group Tax-Free USA
Intermediate Fund shareholders, but it may be used with prospective investors
when preceded or accompanied by a current Prospectus, which gives details
about charges, expenses, investment objectives and operating policies of the
Fund. Summary investment results are documented in the current Statement
of Additional Information. If used with prospective investors after June 30,
1995, this report must also be accompanied by a Delaware Group Tax-Free USA
Intermediate Fund Performance Update for the most recently completed calendar
quarter. The figures in this report represent past results, which are not a
guarantee of future results. The return and principal value of an investment
in the Fund will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
<PAGE> 16
The Delaware Group includes funds with a wide range of investment objectives.
Stock funds, income funds, tax-free funds, money market funds, closed-end
equity/income funds and global funds give investors the ability to create a
portfolio that fits their personal financial goals.
For more information, including a prospectus of any Delaware Group fund,
contact your financial adviser or call Delaware Group at 800-523-4640 or
215-988-1333 in Philadelphia. Read the prospectus carefully before investing.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL
FUNDS CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUND
ARE NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT
UNION, ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUND ARE
NOT BANK OR CREDIT UNION DEPOSITS.
INVESTMENT MANAGER DELAWARE GROUP
Delaware Management Company, Inc. A TRADITION OF SOUND INVESTING SINCE 1929
Philadelphia
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London
(PHOTO OF VARIOUS COLONIAL OBJECTS)
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia
4/95-PP-SA-037
1995
SEMI-
ANNUAL
REPORT
DELAWARE
GROUP
============
Tax-Free USA
Intermediate Fund
