<PAGE> 1
1995
Annual
Report
----------------
DELAWARE GROUP
TAX-FREE FUND
----------------
TAX-FREE USA FUND
TAX-FREE INSURED FUND
[PHOTO OF VARIOUS PHILADELPHIA HISTORICAL SITES]
A Tradition of Sound Investing Since 1929
[DELAWARE GROUP LOGO]
<PAGE> 2
FUND INVESTMENT
- ----------------
OBJECTIVES
- ----------------
TAX-FREE USA FUND
To seek as high a level of current interest income exempt from Federal income
tax as is available from municipal bonds and is consistent with prudent
investment management and preservation of capital.
TAX-FREE INSURED FUND
To seek as high a level of current interest income exempt from Federal income
tax as is available from municipal bonds which are protected by insurance
guaranteeing the payment of principal and interest when due and is consistent
with prudent investment management and preservation of capital.
[PHOTO OF VARIOUS PHILADELPHIA HISTORICAL SITES]
ABOUT OUR COVER
- ----------------
Headquartered in Philadelphia, Pennsylvania, Delaware Group shares in the
tradition of a city built on the vision of opportunity. Amidst the city's
historic sites, symbolic of our nation's freedom and prosperity, Delaware Group
provides both individual and institutional investors with a conservative,
disciplined approach to money management.
DELAWARE GROUP
- ----------------
A TRADITION OF
- ----------------
SOUND INVESTING
- ----------------
Delaware Management Company's investment experience dates back to 1929. Our
first mutual fund was established in 1938. Headquartered in Philadelphia with
an affiliate in London, Delaware provides a full range of mutual fund
investments, annuities and retirement plan services. Delaware International
Advisers Ltd., our London-based international affiliate, was established in
1990.
Delaware Group manages mutual funds with the same time-tested, disciplined
strategies demanded by the large public and private pension plans, foundations
and endowments that are among our clients. With over 60 years of experience we
have demonstrated our commitment to quality investment management and service.
Today, Delaware manages some $27 billion in mutual funds and institutional
investment advisory accounts. We measure our success by the financial success
and satisfaction of our nearly 500,000 shareholders.
<PAGE> 3
SEPTEMBER 15, 1995
DEAR
- ----------------
SHAREHOLDER:
- ----------------
Lower interest rates since February have helped lift municipal bond prices.
However, the market remains burdened with the uncertainty surrounding current
proposals for Federal income tax relief.
The lyrics of a popular song during the early 1960s laud the ambitions of
a ram and an ant with "high hopes...high, apple pie in the sky hopes." As of
this writing, would-be tax reformers in Congress have generated lots of ideas
and enthusiasm, yet no policy consensus.
Amid the lack of agreement on legislation, the municipal bond market's
performance was not as strong during the past year as that of other
fixed-income securities. Bond prices on longer term municipal issues fell
relative to prices of U.S. Treasuries in the spring of 1995. The reason was
fear that a pending proposal to end taxation of investment income would, if
enacted into law, reduce the value of municipal bonds relative to U.S.
Treasuries and corporate bonds.
While it appears some change in Federal tax policy is likely, what form
that change will take is still unclear. We believe promises of a new deal for
income tax payers should be viewed skeptically since there are many obstacles
to reform.
However, this uncertainty has, in our opinion, created a buying
opportunity for long-term municipal bond funds such as Tax-Free USA Fund and
Tax-Free Insured Fund. Current prices offer good value because we believe the
tax plans offered so far are unlikely to be passed. Indeed, we think it likely
that wage earners and the real estate industry will protest if it appears a
Federal "flat tax" would lead to higher local property taxes and lower housing
values.
<TABLE>
<CAPTION>
================================================================================
TOTAL RETURN
6 Months 12 Months
Ended Ended
-----------------------------------
2/28/95 8/31/95 8/31/95
<S> <C> <C> <C>
Tax-Free USA
Fund A Class +2.03% +4.62% +6.74%
Lipper Municipal Debt
Fund Average +2.58% +4.62% +7.34%
Tax-Free Insured
Fund A Class +2.07% +4.18% +6.33%
Lipper Insured Municipal
Debt Fund Average +3.08% +4.27% +7.48%
</TABLE>
The performance of Tax-Free USA Fund and Tax-Free Insured Fund is based on net
asset value. Performance for all classes can be found on page 7.
================================================================================
For the 12 months ended August 31, 1995, our tenth fiscal year of
operations, Tax-Free USA Fund A Class and Tax-Free Insured Fund A Class had
positive total returns (capital change plus reinvested dividends), though
returns slightly trailed those of the average municipal bond fund. The table
above shows the Funds' results compared to the return of two municipal bond
debt fund averages compiled by Lipper Analytical Services.
1
<PAGE> 4
As you can see, both Funds and both averages have performed much better
since February 28 than in the prior six months. Between August 1994 and
February 1995, the Federal Reserve Board raised the Federal Funds rate by 1.75
percentage points to fight anticipated inflation. Rising rates pushed municipal
bond prices lower. Then in the spring, amid signs of slower economic growth,
the market correctly anticipated a reversal of Fed policy, and bond prices
began to rise. The rally halted in May, when flat tax proposals were introduced
in Congress.
Despite this short-term volatility, the long-term fundamentals of the
municipal bond market appear positive. Credit quality as measured by rating
services is improving; investor demand remains healthy and the supply of new
issues continues to decline. In our report, Patrick P. Coyne, Senior Portfolio
Manager, discusses these trends, reviews both Funds' performance and outlines
his approach for the coming months.
We are confident that the disciplined strategy and experienced management
of Tax-Free USA Fund and Tax-Free Insured Fund can help investors benefit from
attractive opportunities in the municipal bond market regardless of the
prevailing political wind.
Wayne A. Stork
Chairman
PORTFOLIO
- ----------------
MANAGER'S
- ----------------
MARKET REVIEW
- ----------------
Our 1995 fiscal year has been marked by sharp contrasts. In the last five
months of 1994, fixed-income markets were dramatically affected by the strength
of the U.S. economy and the fear of impending inflation. In response to these
influences, the Federal Reserve Board continued to tighten monetary policy,
bringing the total increase in short-term interest rates to 2.50 percentage
points for all of calendar year 1994 and another 0.50% in February 1995.
Long-term municipal bond yields rose to a peak of 7.37% in November, 1994.
Long-term U.S. Treasury yields at the time rose to 8.05%. As interest rates
climbed, bond prices declined and total return performance for the overall
market was weak. Municipal bonds were also negatively affected by concern over
the Orange County, California bankruptcy filing.
In this rising interest rate environment, Tax-Free USA Fund and Tax-Free
Insured Fund continued to seek a high level of current income consistent with
preservation of capital. We did this by buying older, higher coupon bonds with
superior credit characteristics. Coupon rate is the initial interest rate set
at the time a bond is issued.
We also maintained relatively long average maturities in both Funds in
order to capture high, current tax-free income.
As the first quarter of calendar 1995 progressed, it became clear to the
bond market that some parts of the economy were weakening. Interest rates fell
in anticipation that the Fed would reverse course. As quickly as municipal bond
prices
2
<PAGE> 5
MUNICIPAL BOND YIELDS IN THE WAKE OF TAX CHANGES
[GRAPH]
<TABLE>
<CAPTION>
Yield
-----
<S> <C>
Jan-81 9.68%
Feb-81 10.22
Mar-81 9.81
Apr-81 10.80
May-81 10.73
Jun-81 10.73
Jul-81 11.34
Aug-81 12.49
Sep-81 12.79
Oct-81 12.99
Nov-81 11.71
Dec-81 13.17
Jan-82 13.16
Feb-82 12.96
Mar-82 12.99
Apr-82 12.29
May-82 11.96
Jun-82 12.63
Jul-82 12.01
Aug-82 10.82
Sep-82 10.58
Oct-82 9.69
Nov-82 10.20
Dec-82 9.84
Jan-83 9.48
Feb-83 9.53
Mar-83 9.15
Apr-83 9.09
May-83 9.29
Jun-83 9.38
Jul-83 9.44
Aug-83 9.70
Sep-83 9.42
Oct-83 9.68
Nov-83 9.70
Dec-83 9.92
Jan-84 9.60
Feb-84 9.68
Mar-84 10.01
Apr-84 9.89
May-84 10.83
Jun-84 10.56
Jul-84 10.36
Aug-84 10.02
Sep-84 9.95
Oct-84 10.24
Nov-84 10.24
Dec-84 9.93
Jan-85 9.21
Feb-85 9.71
Mar-85 9.82
Apr-85 9.25
May-85 8.91
Jun-85 8.69
Jul-85 8.73
Aug-85 9.18
Sep-85 9.35
Oct-85 8.95
Nov-85 8.37
Dec-85 8.38
Jan-86 8.05
Feb-86 7.44
Mar-86 7.34
Apr-86 7.16
May-86 7.78
Jun-86 7.82
Jul-86 7.60
Aug-86 7.06
Sep-86 7.14
Oct-86 7.11
Nov-86 6.78
Dec-86 6.92
Jan-87 6.54
Feb-87 6.62
Mar-87 6.68
Apr-87 7.82
May-87 8.31
Jun-87 7.63
Jul-87 7.72
Aug-87 7.81
Sep-87 8.32
Oct-87 8.72
Nov-87 7.91
Dec-87 7.95
Jan-88 7.61
Feb-88 7.55
Mar-88 7.89
Apr-88 7.87
May-88 7.97
Jun-88 7.77
Jul-88 7.77
Aug-88 7.80
Sep-88 7.64
Oct-88 7.36
Nov-88 7.58
Dec-88 7.50
Jan-89 7.29
Feb-89 7.55
Mar-89 7.64
Apr-89 7.10
May-89 7.11
Jun-89 7.02
Jul-89 6.95
Aug-89 7.16
Sep-89 7.40
Oct-89 7.22
Nov-89 7.04
Dec-89 6.99
Jan-90 7.19
Feb-90 7.23
Mar-90 7.33
Apr-90 7.51
May-90 7.26
Jun-90 7.27
Jul-90 7.15
Aug-90 7.47
Sep-90 7.53
Oct-90 7.43
Nov-90 7.08
Dec-90 7.14
Jan-91 7.00
Feb-91 7.01
Mar-91 7.14
Apr-91 7.01
May-91 6.95
Jun-91 7.13
Jul-91 7.05
Aug-91 6.90
Sep-91 6.80
Oct-91 6.68
Nov-91 6.73
Dec-91 6.69
Jan-92 6.54
Feb-92 6.74
Mar-92 6.76
Apr-92 6.67
May-92 6.57
Jun-92 6.49
Jul-92 6.13
Aug-92 6.16
Sep-92 6.25
Oct-92 6.41
Nov-92 6.36
Dec-92 6.22
Jan-93 6.16
Feb-93 5.87
Mar-93 5.64
Apr-93 5.76
May-93 5.73
Jun-93 5.63
Jul-93 5.57
Aug-93 5.45
Sep-93 5.29
Oct-93 5.31
Nov-93 5.47
Dec-93 5.35
Jan-94 5.28
Feb-94 5.58
Mar-94 6.07
Apr-94 6.16
May-94 6.16
Jun-94 6.28
Jul-94 6.22
Aug-94 6.16
Sep-94 6.43
Oct-94 6.64
Nov-94 7.03
Dec-94 6.71
Jan-95 6.49
Feb-95 6.11
Mar-95 6.07
Apr-95 6.06
May-95 5.83
Jun-95 5.97
Jul-95 5.97
Aug-95 5.98
</TABLE>
Highlight points in chart:
Apr-81 - '81 Tax Cut
Apr-87 - Impact of '86 Tax Reform Act
Apr-93 - '93 Tax Increase
Sources: Bloomberg Business News, The Bond Buyer
Municipal bond yields have fallen steadily since 1981 despite a temporary
increase in 1987 after passage of the 1986 Tax Reform Act. A falling yield
means bond prices are rising, enhancing the market value of an investor's bond
holdings.
declined in 1994, they increased rapidly and dramatically in 1995 even before
the 0.25% rate cut on July 6 - the Fed's first interest rate reduction in three
years.
For the municipal bond market, however, coupled with falling interest
rates was the fear of tax reform in Washington, and what it might do to the
relative attractiveness of municipal bonds compared to U.S. Treasuries and
corporate bonds. Investors were concerned about a key proposal that would
eliminate taxation of investment income, fearing that such a policy change
would make municipal bonds less competitive.
As you can see from the chart above, municipal bond interest rates have
risen three times amid changes in tax policy since 1981. However, the effect is
generally short-lived and has been more than offset by the long-term decline in
interest rates that has continued since the early 1980s.
THE FUNDS' INVESTMENT STRATEGIES
Tax-Free USA Fund generally employs a defensive strategy that involves
investing in bonds with higher coupons and above-average quality ratings. The
market values of higher coupon bonds tend to be less impacted by rising
interest rates than the values of these bonds, paying interest in line with
current rates. Though this strategy is defensive, we believe it will produce a
higher level of tax-free income than more aggressive strategies.
Tax-Free Insured Fund employs a similar strategy, but is even more
defensive because it invests primarily in municipal bonds protected by
insurance guaranteeing the payment of principal and interest when due. Bond
insurance reduces the risk of loss due to financial difficulties of an issuer;
however, such bonds are still subject to price fluctuations as interest rates
rise and fall, and there is no guarantee that the independent insurance
companies will meet their obligations.
Below is a summary of how the characteristics of each Fund's portfolio
changed during the fiscal year.
<TABLE>
==============================================================
PORTFOLIO CHARACTERISTICS
Aug. 31, Aug. 31,
1994 1995
<S> <C> <C>
TAX-FREE USA FUND
Average Maturity 21.4 yrs. 23.0 yrs.
Average Duration 5.4 yrs. 6.1 yrs.
Average Quality AA AA
TAX-FREE INSURED FUND
Average Maturity 20.6 yrs. 23.91 yrs.
Average Duration 5.4 yrs. 6.8 yrs.
Average Quality AA1 AAA
==============================================================
</TABLE>
3
<PAGE> 6
As you can see, we have responded to positive changes in the interest rate
environment and the opportunity created by the tax debate by increasing the
average duration of the bonds in each Fund's portfolio. Duration, the most
common measure of bond's sensitivity to interest rates, indicates the likely
percentage change in a bond's price given a 1% movement in interest rates.
The chart on the previous page also shows the credit quality of each
Fund's portfolio. Standard & Poor's AAA is the highest rating available. The AA
ratings imply that a bond issuer has a very strong capacity to pay interest and
repay principal. Within each rating category, S&P uses a 1 to 3 scale to
evaluate minor variations in quality. As you can see, we maintained the high
quality of Tax-Free USA and slightly increased the quality of Tax-Free Insured.
[PHOTO OF PATRICK C. COYNE]
Patrick P. Coyne
Senior Portfolio Manager
During fiscal 1995, we adjusted the average maturity of both Funds'
portfolios to respond to changes in the shape of the municipal yield curve.
Discussion surrounding tax reform caused conservative investors to flock to
municipal bonds with shorter maturities (one to five years). This, in turn,
made municipal bond yields in this maturity range unattractive compared to
similar maturity U.S. Treasury securities. On the other hand, as long-term
municipal bond prices fell, they yielded 90% of what comparable maturity U.S.
Treasury securities were yielding, a level we considered very attractive.
We concluded that shorter maturity securities were overvalued and that
long-term issues were undervalued, and we began to sell bonds that matured in
one to three years, replacing them with 30-year bonds.
As you see from the municipal bond yield chart on page 5, yields on
long-term municipal bonds (15- to 30-year maturity) as of August 31 were about
1 percentage point higher than comparable U.S. Treasuries on a tax-adjusted
basis, for a household in the 28% tax bracket. The advantage was even greater
for investors in higher tax brackets.
TAX-FREE INCOME WITH A
NATIONAL FOCUS
Federal tax rates have risen since 1993, negatively affecting the after-tax
returns of fixed-income investors whose income was not tax-free or
tax-deferred.
Our focus is on high, federal tax-free income consistent with reasonable
safety. As a consequence, the prices of municipal bonds in each Fund's
portfolio tend not to rise as much as the overall municipal market when
interest rates fall. This was the reason why the performance as measured by the
total return of Tax-Free USA Fund and Tax-Free Insured Fund lagged the Lipper
averages for their respective peer groups.
We put more emphasis on income than price appreciation because such
appreciation may lead to capital gains distributions - an event which many
municipal bond fund shareholders would probably rather avoid since such
distributions are taxable.
As with any fixed-income investment, yield isn't the only criteria by
which to measure a mutual fund. Stability of principal is another, and we
believe our national focus is consistent with this objective.
Having a national fund - as opposed to a single-state fund - may require
some shareholders to pay state income tax on dividends, depending on where you
live. However, this focus provides a much greater investment diversity than can
be found by investing in a single-state fund. It reduces the potential effect
of political change, government management problems as happened in Orange
County, California or a natural disaster in any single state.
4
<PAGE> 7
AAA-RATED MUNICIPAL BOND YIELDS
VS. U.S. TREASURY YIELDS (AS OF AUGUST 31, 1995)
TAX-ADJUSTED FOR THE 28% BRACKET
[GRAPH]
<TABLE>
<CAPTION>
Maturity in Years AAA-rated Municipal Bond U.S. Treasury
<S> <C> <C>
1 Yr 3.65% 4.066%
2 Yr 3.85 4.233
3 Yr 4.01 4.290
4 Yr 4.16 4.332
5 Yr 4.31 4.375
7 Yr 4.56 4.437
10 Yr 4.86 4.527
15 Yr 5.46 4.593
20 Yr 5.73 4.658
25 Yr 5.85 4.724
30 Yr 5.87 4.789
</TABLE>
Source: Bloomberg Business News
Tax reform uncertainty during a period of falling interest rates has allowed
yields on long-term municipal bonds to exceed yields on U.S. Treasury Bonds on
a tax-adjusted basis for both middle and upper tax bracket households.
As of August 31, no single state's bonds accounted for more than 15% of
either Fund's net assets. Our largest holdings at the end of the 1995 fiscal
year were obligations issued in Massachusetts, Florida, Pennsylvania and Texas.
In some cases, we were able to get very favorable bonds yield from states such
as Florida and Texas, which have no income tax. Investor demand for bonds from
these states is generally less than demand for bonds from high income tax
states such as New York, therefore their yields are relatively high.
OUTLOOK
We are optimistic about the future of the municipal bond market. Overall
investor demand, although it has temporarily shifted to short-term securities,
remains stable even amid the prospect of Federal tax reform.
During 1995, the supply of new municipal bond issues coming to market is
expected to decline for the second year in a row with an estimated total of
$138 billion in new issues, the lowest level since 1990, according to The Bond
Buyer, an independent trade journal.
History has shown that market turmoil related to major changes in Federal
tax policy has generally been temporary. Based on that information, we believe
that patient municipal bond investors who give greater weight to economic
factors such as interest rates and credit quality - as opposed to political
rhetoric - are more likely to be rewarded.
No matter what Congress does, municipal governments across the country
need private investors and therefore offer competitive interest rates to fund
operations, refinance debt or make capital improvements. With holdings that
finance projects from Alaska's North Slope to Central Florida, your national
tax-exempt fund is poised to take advantage of opportunities as they arise.
The past year has been a volatile one for all types of municipal bond
funds. However, we have every reason to believe that the uncertainty generated
by Congress' current tax debate is counterbalanced by the long-term trend
toward lower interest rates - and higher municipal bond prices - that has been
underway since the early 1980s.
/s/ PATRICK P. COYNE
- --------------------
Patrick P. Coyne
Senior Portfolio Manager
5
<PAGE> 8
A LOOK AT
- ----------------
LONG-TERM
- ----------------
PERFORMANCE
- ----------------
TAX-FREE USA FUND
As you can see from the chart below, an investor who bought $10,000 worth of
Tax-Free USA Fund A in August 31, 1985, and reinvested all dividends would have
had holdings worth $23,414 as of August 31, 1995. Much of this gain would have
been achieved through the compounding effect of purchasing more shares with
dividends. Investors would have received $11,665 in dividends since August
1995, dividends that have been free from Federal income tax, though state and
local taxes as well as the Federal alternative minimum tax may have applied.
Tax-Free USA Fund's performance has nearly matched that of the unmanaged
Lehman Brothers Municipal Bond Index, a hypothetical portfolio of bonds that
does not include the "real world" costs of buying and selling bonds or running
a mutual fund.
TAX-FREE FUND'S LONG-TERM PERFORMANCE (10 YEARS)
[GRAPH]
<TABLE>
<CAPTION>
Tax-Free Tax-Free
USA Fund Insured Fund
Class A Class A Lehman Brothers Municipal Index
<S> <C> <C> <C>
Aug. '85 $ 9,597.68 $ 9,509.02 $10,000
Dec. '85 10,011.30 9,932.94 10,699
Dec. '85 12,415.64 118,650.68 12,766
Dec. '85 12,057.83 11,843.99 12,958
Dec. '85 13,830.03 13,164.80 14,275
Dec. '85 15,457.90 14,537.66 15,815
Dec. '85 16,066.68 15,457.70 16,968
Dec. '85 18,120.66 17,389.65 19,028
Dec. '85 19,878.61 18,603.65 20,706
Dec. '85 22,188.59 20,345.25 23,249
Dec. '85 21,517.90 19,750.12 22,047
Aug. '85 23,413.75 21,362.19 24,403
</TABLE>
Chart assumes $10,000 invested on August 31, 1985, and includes the impact of
the 4.75% sales charge on Fund returns and the reinvestment of all dividends.
The illustration does not show the impact of any applicable taxes.
For more complete performance information for both Funds, please see page 7.
6
<PAGE> 9
TAX-FREE INSURED FUND
An investor who bought $10,000 worth of Tax-Free Insured A Class shares on
August 31, 1985, and reinvested all dividends would have had holdings worth
$21,362 as of August 31, 1995. As with Tax-Free USA Fund, much of this gain
would have been achieved through compounding.
Investors who choose Tax-Free Insured Fund are giving up some of the
potential return available from long-term municipal bonds in exchange for a
higher comfort level that comes from owning a portfolio of bonds whose
principal and interest are insured in case of a default by the bond issuer.
Consequently, Tax-Free Insured Fund A Class performance has not matched that of
the Index, which includes bonds of all maturity and quality levels.
While past performance doesn't guarantee future results, we believe these
10-year records - a period that includes the 1986 tax reform act and the
implementation of the alternative minimum tax - illustrates the long-term
potential of municipal bond investments.
TAX-FREE USA FUND PERFORMANCE
Total Return through August 31, 1995
<TABLE>
<CAPTION>
CLASS A (EST. 1984)
AVERAGE ANNUAL TOTAL RETURNS
<S> <C>
Lifetime +9.69%
Five Year +7.61%
One Year +1.68%
Including Sales Charge
</TABLE>
<TABLE>
<CAPTION>
CLASS B (EST. 1994)
AVERAGE ANNUAL TOTAL RETURNS
<S> <C>
Lifetime
+5.51% Excluding Sales Charge
+2.55% Including Sales Charge
One Year
+5.88% Excluding Sales Charge
+1.88% Including Sales Charge
</TABLE>
TAX-FREE INSURED FUND PERFORMANCE
Total Return through August 31, 1995
<TABLE>
<CAPTION>
CLASS A (EST. 1984)
AVERAGE ANNUAL TOTAL RETURNS
<S> <C>
Lifetime +7.86%
Five Year +6.45%
One Year +1.28%
Including Sales Charge
</TABLE>
<TABLE>
<CAPTION>
CLASS B (EST. 1994)
AVERAGE ANNUAL TOTAL RETURNS
<S> <C>
Lifetime
+6.01% Excluding Sales Charge
+3.05% Including Sales Charge
One Year
+6.16% Excluding Sales Charge
+2.16% Including Sales Charge
</TABLE>
RETURN AND SHARE VALUE OF BOTH FUNDS 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. UP
TO 20% OF THE ASSETS OF THE FUNDS MAY BE INVESTED IN MUNICIPAL SECURITIES THAT
GENERATE INCOME SUBJECT TO THE FEDERAL ALTERNATIVE MINIMUM TAX.
Class A returns reflect the impact of the 4.75% maximum sales charge,
reinvestment of all distributions, and for periods after June 1, 1992, a 12b-1
fee of up to 0.30%.
Class B performance reflects the reinvestment of all distributions. Class B
shares do not carry a front-end sales charge, but are subject to a 1% annual
distribution and service fee. They are subject to a deferred sales charge of up
to 4%. Lifetime performance "excluding sales charge" assumes the investment was
not redeemed. Class B shares were initially offered on 5/2/94.
7
<PAGE> 10
FINANCIAL
- ----------------
STATEMENTS
- ----------------
DELAWARE GROUP TAX-FREE USA FUND
STATEMENT OF NET ASSETS
AUGUST 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS - 98.55%
HOSPITAL REVENUE BONDS - 8.31%
Louisiana Public Facilities Authority Hospital
Revenue (Southern Baptist Hosp., Inc.)
(Escrowed to Maturity)
8.00% 5/15/12 . . . . . . . . . . . . . . . . . . . $9,500,000 $11,221,875
Michigan State Hospital Finance Authority
(Genesys Health System)
8.125% 10/1/21 . . . . . . . . . . . . . . . . . . . 4,000,000 4,325,000
7.50% 10/1/27 . . . . . . . . . . . . . . . . . . . 8,130,000 8,353,575
Monroeville, Pennsylvania Hospital Authority
(Forbes Health System)
7.00% 10/1/13 . . . . . . . . . . . . . . . . . . . 3,000,000 3,082,500
North Central Texas Health Facilities
Devel. Corp. (University Medical
Center Inc.) 8.20% 4/1/19 . . . . . . . . . . . . . 4,250,000 4,446,563
Philadelphia Hospital & Higher Education
Facilities Authority Hospital Revenue
(Albert Einstein Medical Center)
7.625% 4/1/11 . . . . . . . . . . . . . . . . . . . 15,000,000 15,975,000
(Jeanes Health System Project)
6.85% 7/1/22 . . . . . . . . . . . . . . . . . . . . 7,000,000 6,702,500
Royal Oak, Michigan Hospital Finance Agency
(William Beaumont Hospital)
Series D, 6.75% 1/1/20 . . . . . . . . . . . . . . . 10,000,000 10,437,500
-----------
64,544,513
-----------
Housing Revenue Bonds - 6.40%
Alaska State Housing Finance Collateralized
Mortgage Obligation (GNMA/FNMA)
7.05% 6/1/25 . . . . . . . . . . . . . . . . . . . . 1,730,000 1,790,550
** Dade County Housing Finance Authority
(GNMA)
6.70% 4/1/28 . . . . . . . . . . . . . . . . . . . . 4,500,000 4,601,250
** Illinois Housing Development Authority
(Homeowner Mortgage)
7.125% 8/1/26 . . . . . . . . . . . . . . . . . . . 2,000,000 2,085,000
Massachusetts State Housing Finance
Agency Residential Development
(FNMA)
6.875% 11/15/11 . . . . . . . . . . . . . . . . . . 2,955,000 3,128,606
Massachusetts State Housing Revenue
Single Family Mortgage
6.95% 6/1/16 . . . . . . . . . . . . . . . . . . . . 2,500,000 2,593,750
Montgomery County, Pennsylvania
Redevel. Authority Multi-Family
Housing Revenue (KBF Assoc. L.P.)
7.25% 7/1/25 . . . . . . . . . . . . . . . . . . . . 5,000,000 4,631,250
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
HOUSING REVENUE BONDS (CONTINUED)
New Mexico Mortgage Finance Authority
Single Family Mortgage (GNMA)
6.20% 7/1/26 . . . . . . . . . . . . . . . . . . . . $5,000,000 $ 4,993,750
** Tennessee Housing Development Agency
6.60% 7/1/25 . . . . . . . . . . . . . . . . . . . . 3,500,000 3,543,750
** Utah State Housing Finance Agency,
Single Family Mortgage (FHA/VA)
7.20% 1/1/27 . . . . . . . . . . . . . . . . . . . . 3,750,000 3,876,563
Virginia State Housing Development Authority
7.10% 1/1/25 . . . . . . . . . . . . . . . . . . . . 7,500,000 7,837,500
** 6.80% 1/1/27 . . . . . . . . . . . . . . . . . . . . 6,500,000 6,589,375
** Wisconsin Housing & Economic
Development Authority Home
Ownership 6.75% 9/1/25 . . . . . . . . . . . . . . . 3,950,000 4,043,813
-----------
49,715,157
-----------
POLLUTION CONTROL REVENUE BONDS - 16.80%
Appling County, Georgia Devel. Authority
(Georgia Power Co.)
10.60% 10/1/15 . . . . . . . . . . . . . . . . . . . 2,245,000 2,298,319
Beaver County Industrial Development
(Toledo Edison Co. Project)
7.625% 5/1/20 . . . . . . . . . . . . . . . . . . . 7,500,000 7,659,375
Buncombe County, North Carolina Industrial
Facilities & Pollution Control
Financing Authority (Wagner Electric
Project) 7.125% 5/1/09 . . . . . . . . . . . . . . . 3,000,000 3,007,500
Burke County, Georgia Devel. Authority
(Georgia Power Co.)
10.50% 11/1/15 . . . . . . . . . . . . . . . . . . . 565,000 581,244
6.10% 4/1/25 . . . . . . . . . . . . . . . . . . . . 7,000,000 6,973,750
Claiborne County, Mississippi
(Middle South Energy, Inc.)
9.50% 12/1/13 . . . . . . . . . . . . . . . . . . . 2,000,000 2,287,500
8.25% 6/1/14 . . . . . . . . . . . . . . . . . . . . 7,365,000 8,101,500
9.875% 12/1/14 . . . . . . . . . . . . . . . . . . . 1,000,000 1,155,000
9.50% 4/1/16 . . . . . . . . . . . . . . . . . . . . 3,600,000 3,793,500
Claiborne County, Mississippi Pollution
Control Rev. Sys. Energy Resources
7.30% 5/1/25 . . . . . . . . . . . . . . . . . . . . 3,000,000 3,108,750
Clark County, Nevada Industrial Devel.
Revenue (Nevada Power Co. Project)
7.20% 10/1/22 . . . . . . . . . . . . . . . . . . . 9,000,000 9,416,250
Heard County, Georgia Devel. Authority
(Georgia Power Co.)
8.00% 10/1/16 . . . . . . . . . . . . . . . . . . . 1,485,000 1,564,819
Illinois Devel. Finance Authority
(Central Illinois Public Service Co.)
7.60% 3/1/14 . . . . . . . . . . . . . . . . . . . . 6,000,000 6,660,000
Monroe County, Michigan
(The Detroit Edison Co.)
10.50% 12/1/16 . . . . . . . . . . . . . . . . . . . 4,500,000 4,696,875
Ohio State Air Quality Devel. Authority
(Cincinnati Gas & Elec. Co.)
10.125% 12/1/15 . . . . . . . . . . . . . . . . . . 4,250,000 4,409,375
</TABLE>
8
<PAGE> 11
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
POLLUTION CONTROL REVENUE BONDS
(CONTINUED)
Petersburg, Indiana
(Indianapolis Power & Light Co.)
9.625% 9/1/12 . . . . . . . . . . . . . . . . . . . $ 1,500,000 $ 1,565,625
6.10% 1/1/16 . . . . . . . . . . . . . . . . . . . . 6,625,000 6,682,969
5.50% 10/1/23 . . . . . . . . . . . . . . . . . . . 4,000,000 3,740,000
6.625% 12/1/24 . . . . . . . . . . . . . . . . . . . 9,350,000 9,840,875
Pope County, Arkansas
(Arkansas Power & Light Co.)
11.00% 12/1/15 . . . . . . . . . . . . . . . . . . . 6,000,000 6,195,000
Princeton, Indiana
(Public Service Co. Of Indiana)
7.60% 3/15/12 . . . . . . . . . . . . . . . . . . . 3,400,000 3,574,250
Putnam County, Georgia Devel. Authority
(Georgia Power Co.)
8.375% 7/1/17 . . . . . . . . . . . . . . . . . . . 7,300,000 7,838,375
Parish of Saint Charles, Louisiana
Pollution Control (Louisiana Power & Light)
8.25% 6/1/14 . . . . . . . . . . . . . . . . . . . . 1,350,000 1,490,063
Parish of West Feliciana, Louisiana
(Gulf States Utilities Co. Project)
Series A, 7.50% 5/1/15 . . . . . . . . . . . . . . . 22,700,000 23,749,875
------------
130,390,789
------------
POWER AUTHORITY REVENUE BONDS - 7.49%
Georgia Municipal Electric Authority Series 86L
0% 1/1/09 . . . . . . . . . . . . . . . . . . . . . 5,000,000 2,168,750
Indiana Municipal Power Agency Power
Supply Sys.Rev.
5.50% 1/1/23 (MBIA) . . . . . . . . . . . . . . . . 7,700,000 7,141,750
Intermountain Power Agcy., Utah
Series 86C, 7.50% 7/1/16 . . . . . . . . . . . . . . 3,815,000 4,000,981
Series 87D, 0% 7/1/20 . . . . . . . . . . . . . . . 95,575,000 13,619,438
Series 88B, 7.50% 7/1/21 . . . . . . . . . . . . . . 2,415,000 2,593,106
Los Angeles, Calif. Dept. Wtr. & Pwr Electric
5.25% 11/15/26 (FGIC) . . . . . . . . . . . . . . . 6,750,000 5,931,563
Lower Colorado River Authority, Texas
Series B, 6.00% 1/1/15 (AMBAC) . . . . . . . . . . . 5,000,000 5,037,500
North Carolina Eastern Municipal Power Agcy.
7.25% 1/1/21 . . . . . . . . . . . . . . . . . . . . 2,350,000 2,429,312
6.00% 1/1/26 . . . . . . . . . . . . . . . . . . . . 3,030,000 2,810,325
Northern Municipal Power Agcy., Minnesota
Series A, 5.00% 1/1/21 . . . . . . . . . . . . . . . 8,500,000 7,246,250
Orlando Fla. Util. Commission Rev. 94/A
5.00% 10/1/20 . . . . . . . . . . . . . . . . . . . 2,650,000 2,318,750
San Antonio, Texas Electric & Gas
System Revenue Refunding
Series 89, 7.00% 2/1/09 . . . . . . . . . . . . . . 1,010,000 1,076,913
Washington State Public Power Supply
System Nuclear Project #1, 7.50%
7/1/15 . . . . . . . . . . . . . . . . . . . . . . . 1,645,000 1,778,656
------------
58,153,294
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
PRE-REFUNDED BONDS - 24.68%*
Beaver County Industrial Devel. Authority
Pennsylvania (Ohio Edison Co.)
10.50% 10/1/15-95 . . . . . . . . . . . . . . . . . $ 2,000,000 $ 2,070,000
Cleveland, Ohio School Dist.
9.00% 12/1/08-98 . . . . . . . . . . . . . . . . . . 800,000 929,000
District of Columbia
8.00% 6/1/05-96 . . . . . . . . . . . . . . . . . . 2,300,000 2,409,250
7.875% 6/1/06-96 . . . . . . . . . . . . . . . . . . 7,350,000 7,699,125
8.00% 6/1/07-97 . . . . . . . . . . . . . . . . . . 750,000 806,250
Florida Department of Transportation Tpk.
Revenue Series 89, 7.50% 7/1/19-99 . . . . . . . . . 5,000,000 5,662,500
Florida State Board of Education
7.25% 6/1/23-00 . . . . . . . . . . . . . . . . . . 2,555,000 2,915,894
Georgia Municipal Electric Authority
Series 86L 7.75% 1/1/18-97 . . . . . . . . . . . . . 1,250,000 1,335,938
Harris County, Texas Toll Road Revenue
Sr. Lien 8.125% 8/15/17-98 . . . . . . . . . . . . . 2,600,000 2,908,750
Intermountain Power Agcy.,
Utah Series 86A
7.75% 7/1/17-96 . . . . . . . . . . . . . . . . . . 4,925,000 5,177,406
Interstate South Metropolitan Dist.,
(Arapahoe County) Colorado
9.50% 12/1/06-96 . . . . . . . . . . . . . . . . . . 1,000,000 1,076,250
Kentucky Turnpike Authority
7.25% 5/15/10-00 . . . . . . . . . . . . . . . . . . 1,145,000 1,295,281
7.25% 5/15/10-00 . . . . . . . . . . . . . . . . . . 6,855,000 7,754,719
Mansfield, Texas Waterworks and Sewer
Sys. Rev. 7.375% 8/1/07-97 . . . . . . . . . . . . . 2,920,000 3,091,550
Massachusetts State General Obligation
Series C
7.50% 12/1/07-00 . . . . . . . . . . . . . . . . . . 3,295,000 3,822,200
7.50% 12/1/07-00 . . . . . . . . . . . . . . . . . . 3,320,000 3,851,200
Massachusetts Water Resource Authority
7.50% 4/1/09-00 . . . . . . . . . . . . . . . . . . 1,080,000 1,235,250
7.50% 4/1/16-00 . . . . . . . . . . . . . . . . . . 7,300,000 8,349,375
7.00% 4/1/18-00 . . . . . . . . . . . . . . . . . . 14,510,000 16,287,475
Metropolitan Atlanta Rapid Transit Authority,
Georgia, Sales Tax Series L,
7.20% 7/1/20-99 (AMBAC) . . . . . . . . . . . . . . 2,000,000 2,240,000
Metropolitan Transportation Authority,
New York Series F,
8.375% 7/1/16-96 . . . . . . . . . . . . . . . . . . 7,445,000 7,873,088
Monroe County, Georgia Devel. Authority
(Georgia Power Co.)
10.50% 9/1/15-95 . . . . . . . . . . . . . . . . . . 1,120,000 1,142,400
Monroe County, Michigan
(The Detroit Edison Co.)
10.125% 9/1/05-95 . . . . . . . . . . . . . . . . . 2,200,000 2,255,000
New Hampshire State Turnpike
System Revenue
7.375% 4/1/12-00 . . . . . . . . . . . . . . . . . . 3,000,000 3,416,250
8.375% 11/1/17-97 . . . . . . . . . . . . . . . . . 6,750,000 7,467,188
7.40% 4/1/20-00 . . . . . . . . . . . . . . . . . . 11,675,000 13,294,906
</TABLE>
9
<PAGE> 12
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
PRE-REFUNDED BONDS (CONTINUED)
New York City Municipal Water Finance Authority,
New York Water and Sewer
Sys. Revenue
7.625% 6/15/16-97 . . . . . . . . . . . . . . . . . $ 2,000,000 $ 2,155,000
8.25% 6/15/16-97 . . . . . . . . . . . . . . . . . . 700,000 764,750
6.00% 6/15/20-00 . . . . . . . . . . . . . . . . . . 1,675,000 1,792,250
New York City, New York Gen. Obligation
8.50% 11/1/11-97 . . . . . . . . . . . . . . . . . . 3,000,000 3,318,750
North Carolina Eastern Municipal Power Agcy.
7.50% 1/1/15-97 . . . . . . . . . . . . . . . . . . 1,425,000 1,517,625
7.25% 1/1/21-97 . . . . . . . . . . . . . . . . . . 350,000 371,875
7.25% 1/1/23-99 . . . . . . . . . . . . . . . . . . 2,000,000 2,222,500
North Carolina Municipal Power Agcy. #1 -
Catawba 7.875% 1/1/19-98 . . . . . . . . . . . . . . 4,565,000 5,032,913
Orlando-Orange County, Florida
Expressway Authority
Series 86 Jr. Lien,
7.50% 7/1/16-96 . . . . . . . . . . . . . . . . . 3,155,000 3,312,750
Philadelphia, Pennsylvania Regional
Port Authority Lease Revenue
7.15% 8/1/20-00 (MBIA) . . . . . . . . . . . . . . . 1,050,000 1,178,625
Salt River Project Agricultural Improvement
& Power Dist. (Arizona)
Series 90A, 7.25% 1/1/19-00 . . . . . . . . . . . . 2,750,000 3,107,500
Series 89A, 7.50% 1/1/27-97 . . . . . . . . . . . . 9,455,000 10,069,575
San Antonio, Texas Electric & Gas Sys. Rev.
Refunding Series 89,
7.00% 2/1/09-99 . . . . . . . . . . . . . . . . . . 8,990,000 9,866,525
Seattle, Washington Metropolitan Municipality
7.20% 1/1/20-97 . . . . . . . . . . . . . . . . . . 2,630,000 2,791,088
Seattle, Washington Municipality Metropolitan
Seattle Sewer Devel.
Series S, 7.375% 1/1/30-98 . . . . . . . . . . . . . 4,000,000 4,360,000
Snohomish County, Washington Public
Utility Dist. #1
8.00% 1/1/15-97 . . . . . . . . . . . . . . . . . . 10,500,000 11,248,125
Tacoma, Washington Department of
Public Utilities-Light Division U-92
9.375% 1/1/15-96 . . . . . . . . . . . . . . . . . . 1,660,000 1,722,250
University of California
(Seismic Safety Projects)
7.30% 9/1/20-98 . . . . . . . . . . . . . . . . . . 5,000,000 5,531,250
Washington State Public Power Supply
System Nuclear Project
#1, 7.50% 7/1/15-99 . . . . . . . . . . . . . . . . 2,535,000 2,861,381
#3, 7.25% 7/1/15-00 . . . . . . . . . . . . . . . . 1,760,000 1,984,400
------------
191,575,377
------------
TRANSPORTATION REVENUE BONDS - 11.67%
Atlanta, Georgia Special Purpose Facilities
Revenue (Delta Airlines Project)
Series B, 7.50% 12/1/19 . . . . . . . . . . . . . . 1,500,000 1,565,625
Chesapeake Bay Bridge & Tunnel
5.75% 7/1/25 (MBIA) . . . . . . . . . . . . . . . . 3,820,000 3,714,950
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
TRANSPORTATION REVENUE BONDS (CONTINUED)
City of Chicago, Illinois O'Hare Int'l. Airport
5.00% 1/1/16 (MBIA) . . . . . . . . . . . . . . . . $ 5,000,000 $ 4,393,750
City of Chicago, Illinois Skyway Toll Brdg.
Reve. Ref 6.75% 1/1/17 . . . . . . . . . . . . . . . 3,300,000 3,341,250
** Dallas-Fort Worth, Texas Int'l. Airport
(American Airlines, AMT)
7.50% 11/1/25 . . . . . . . . . . . . . . . . . . . 8,250,000 8,693,438
Foothill/Eastern Transportation California
Toll Road
0.00% 1/1/05 . . . . . . . . . . . . . . . . . . . . 1,000,000 540,000
6.00% 1/1/34 . . . . . . . . . . . . . . . . . . . . 14,650,000 13,349,813
Illinois State Toll Hwy. Authority
6.75% 1/1/09 . . . . . . . . . . . . . . . . . . . . 940,000 962,325
Indiana State Toll Finance Authority
7.00% 7/1/07 . . . . . . . . . . . . . . . . . . . . 2,000,000 2,077,500
6.00% 7/1/15 . . . . . . . . . . . . . . . . . . . . 3,000,000 2,932,500
** Indianapolis Indiana Airport Authority
(Federal Express Project)
7.10% 1/15/17 . . . . . . . . . . . . . . . . . . . 7,800,000 8,170,500
Kenton County, Kentucky Airport
(Delta Airlines)
** Series 92A 7.50% 2/1/12 . . . . . . . . . . . . . . 2,000,000 2,110,000
Series 92B 7.25% 2/1/22 . . . . . . . . . . . . . . 4,250,000 4,451,875
Oklahoma Turnpike Authority
1st Sr. Rev. Series 89
6.00% 1/1/22 . . . . . . . . . . . . . . . . . . . . 13,535,000 13,568,838
Oklahoma Turnpike Authority
1st Sr. Rev. Series 89
6.00% 1/1/22 . . . . . . . . . . . . . . . . . . . . 7,465,000 7,502,325
Orlando-Orange County, Florida
Expressway Authority
(Escrowed to Maturity)
Sr. Lien, 7.625% 7/1/18 (AMBAC) . . . . . . . . . . 715,000 794,536
San Mateo County, California Trans. Series A
5.00% 6/1/08 (MBIA) . . . . . . . . . . . . . . . . 2,000,000 1,922,500
State of Michigan Comprehensive
Transportation Rev.
5.50% 5/15/22 . . . . . . . . . . . . . . . . . . . 1,000,000 922,500
Tulsa, Oklahoma Municipal Airport
(American Airlines)
7.35% 12/1/11 . . . . . . . . . . . . . . . . . . . 5,000,000 5,318,750
9.50% 6/1/20 . . . . . . . . . . . . . . . . . . . . 4,100,000 4,217,875
------------
90,550,850
------------
WASTE DISPOSAL REVENUE BONDS - 8.54%
** Ashland, Kentucky Sewer & Solid Waste
Revenue (Ashland, Inc. Project)
7.125% 2/1/22 . . . . . . . . . . . . . . . . . . . 13,200,000 13,810,500
Broward County, Florida Resource Recovery
(South Project/Allied Signal) Series 84,
7.95% 12/1/08 . . . . . . . . . . . . . . . . . . . 3,670,000 4,101,225
** Marion County, West Virginia County
Commonwealth Solid Waste Disposal
Facilities Revenue (American Power
Paper Recycling Project)
7.75% 12/1/11 . . . . . . . . . . . . . . . . . . . 18,000,000 16,402,500
</TABLE>
10
<PAGE> 13
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
WASTE DISPOSAL REVENUE BONDS (CONTINUED)
** Massachusetts Industrial Finance Agency
Solid Waste Disposal Mass. Recycling
Associates Project (Fitchburg)
9.00% 8/1/16 . . . . . . . . . . . . . . . . . . . . $30,750,000 $31,980,000
-----------
66,294,225
-----------
WATER AND SEWER REVENUE BONDS -
5.21%
Hilton Head Public Service District Water
& Sewer 5.50% 8/1/20 (MBIA) . . . . . . . . . . . . 3,000,000 2,865,000
Massachusetts Water Resources Authority
6.00% 4/1/20 . . . . . . . . . . . . . . . . . . . . 6,200,000 6,138,000
5.75% 12/1/21 (MBIA) . . . . . . . . . . . . . . . . 3,750,000 3,632,813
Minnesota Public Facilities Authority
(Water Pollution Control)
Series 90A, 7.10% 3/1/12 . . . . . . . . . . . . . . 4,000,000 4,335,000
Norfolk, Virginia Water Rev.
5.875% 11/1/20 (MBIA) . . . . . . . . . . . . . . . 4,000,000 3,980,000
Orlando, Florida Utilities Commission
Water and Electric
5.50% 10/1/26 . . . . . . . . . . . . . . . . . . . 9,000,000 8,392,500
** Pennsylvania Economic Development
Financing Authority Wastewater Treatment
(Sun Co. R&M Project)
7.60% 12/1/24 . . . . . . . . . . . . . . . . . . . 6,000,000 6,532,500
St. Augustine, Florida Water and Sewer
Revenue 8.125% 10/1/12 . . . . . . . . . . . . . . . 3,000,000 3,135,000
Texas Water Resources Finance Authority
Revenue 7.50% 8/15/13
(AMBAC) . . . . . . . . . . . . . . . . . . . . . . 1,300,000 1,394,250
-----------
40,405,063
-----------
OTHER REVENUE BONDS - 8.11%
Delaware County, Pennsylvania Authority
(Main Line & Haverford Nursing)
9.00% 8/1/22 . . . . . . . . . . . . . . . . . . . . 2,000,000 2,135,000
Delaware State Economic Devel. Authority
(Peninsula United Methodist Homes, Inc.)
8.50% 5/1/22 . . . . . . . . . . . . . . . . . . . . 3,500,000 3,657,500
District of Columbia Higher Education
Revenue (Georgetown University)
7.15% 4/1/21 . . . . . . . . . . . . . . . . . . . . 7,000,000 7,516,250
Indianapolis, Indiana Local Public
Improvement Bond Bank,
Series 1992D, 6.50% 2/1/22 . . . . . . . . . . . . . 1,500,000 1,505,625
Kirbyville, Texas Health Facilities Devel.
Corp., Health Facilities Devel. Rev.
(Heartway-III Corp. Project)
Mandatory Put 3/20/18
11.25% 3/20/21 . . . . . . . . . . . . . . . . . . . 2,280,000 1,482,000
** Luzerne County, Pennsylvania Industrial
Development Authority
(Pennsylvania Gas & Water Co. Project)
7.00% 12/1/17 (AMBAC) . . . . . . . . . . . . . . . 4,000,000 4,435,000
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
OTHER REVENUE BONDS (CONTINUED)
Michigan State University Rev.
5.50% 8/15/22 . . . . . . . . . . . . . . . . . . . $ 3,000,000 $ 2,816,250
New Hampshire Higher Educational &
Health Facilities
5.75% 7/1/24 (MBIA) . . . . . . . . . . . . . . . . 4,390,000 4,252,813
Orange County, Florida Tourist Devel.
Tax Rev.
6.00% 10/1/16 (AMBAC) . . . . . . . . . . . . . . . 2,000,000 2,017,500
Orleans Levee Dist. Louisiana
8.25% 11/1/15 . . . . . . . . . . . . . . . . . . . 750,000 771,563
Tampa, Florida (Florida Aquarium Project)
7.75% 5/1/27 . . . . . . . . . . . . . . . . . . . . 20,000,000 20,750,000
Tampa, Florida Capital Improvement
Program Rev. 8.375% 10/1/18 . . . . . . . . . . . . 4,905,000 5,266,744
Valdez Alaska Marine Terminal BP Pipeline Inc.
Project Rev. Ref. 5.50% 10/1/28 . . . . . . . . . . 7,000,000 6,378,750
------------
62,984,995
------------
GENERAL OBLIGATIONS BONDS - 1.34%
Florida State Board of Education
5.25% 6/1/23 . . . . . . . . . . . . . . . . . . . . 1,815,000 1,649,381
7.25% 6/1/23 . . . . . . . . . . . . . . . . . . . . 2,445,000 2,717,006
North Slope Borough, Alaska
8.35% 6/30/98 . . . . . . . . . . . . . . . . . . . 2,500,000 2,750,000
Texas State GO (Veterans Land Bank),
7.40% 12/1/20 . . . . . . . . . . . . . . . . . . . 3,000,000 3,281,250
------------
10,397,637
------------
TOTAL MUNICIPAL BONDS
(cost $712,165,121) . . . . . . . . . . . . . . . . 765,011,900
------------
VARIABLE RATE DEMAND NOTES - 1.13%
Allegheny County, Pennsylvania Hospital
(Ear & Eye Properties Corp.)
3.60% 2/1/15 . . . . . . . . . . . . . . . . . . . . 3,180,000 3,180,000
Montgomery, Alabama Special Care
Facilities Financing Authority,
Series A 3.55% 12/1/30 (AMBAC) . . . . . . . . . . . 1,770,000 1,770,000
Series B 3.55% 12/1/30 (AMBAC) . . . . . . . . . . . 1,130,000 1,130,000
Series D 3.55% 12/1/30 (AMBAC) . . . . . . . . . . . 1,000,000 1,000,000
Series G 3.55% 12/1/30 (AMBAC) . . . . . . . . . . . 800,000 800,000
New York City General Obligation
3.60% 10/1/20 (FGIC) . . . . . . . . . . . . . . . . 800,000 800,000
New York City Municipal Water and
Sewer System
3.60% 6/15/25 (FGIC) . . . . . . . . . . . . . . . . 100,000 100,000
------------
TOTAL VARIABLE RATE DEMAND NOTES
(cost $8,780,000) . . . . . . . . . . . . . . . . . 8,780,000
------------
</TABLE>
11
<PAGE> 14
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MARKET
VALUE
<S> <C>
TOTAL MARKET VALUE OF SECURITIES OWNED -
99.68% (COST $720,945,121) . . . . . . . . . . . . . . . . . . . . . . . $773,791,900
RECEIVABLES AND OTHER ASSETS NET OF
LIABILITIES - 0.32% . . . . . . . . . . . . . . . . . . . . . . . . . . 2,457,453
------------
NET ASSETS APPLICABLE TO 62,849,328 TAX-FREE USA
FUND A CLASS AND 1,473,239 TAX-FREE USA FUND
B CLASS SHARES ($.01 PAR VALUE) OUTSTANDING;
EQUIVALENT TO $12.07 PER SHARE - 100.00% . . . . . . . . . . . . . . . . $776,249,353
============
</TABLE>
-----------------
* For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
** These Securities are subject to the federal alternative minimum tax.
AMBAC - Insured by AMBAC Indemnity Corporation.
FGIC - Insured by the Financial Guaranty Insurance Company.
MBIA - Insured by the Municipal Bond Insurance Association.
<TABLE>
<S> <C>
COMPONENTS OF NET ASSETS:
Common stock, $.01 par value, 500,000,000
shares authorized to the Tax-Free USA Fund . . . . . . . . . . . . . . . $720,889,749
Accumulated undistributed:
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . 2,512,825
Net unrealized appreciation of investments . . . . . . . . . . . . . . . 52,846,779
------------
Total net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $776,249,353
============
</TABLE>
See accompanying notes
DELAWARE GROUP TAX-FREE INSURED FUND
STATEMENT OF NET ASSETS
AUGUST 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS - 97.50%
Transportation Revenue Bond - 18.88%
Chicago O'Hare International Airport
(Illinois) 5.00% 1/1/16 (MBIA) . . . . . . . . . . . $5,000,000 $ 4,393,750
Illinois Regional Transportation Authority
Series D 6.75% 6/1/25 (FGIC) . . . . . . . . . . . . 7,970,000 8,537,863
Massachusetts Bay Transportation Authority
5.75% 3/1/22 (FGIC) . . . . . . . . . . . . . . . . 2,370,000 2,284,088
Tulsa International Airport (Oklahoma)
General Revenue, Consolidated
Fixed Rate Series
7.50% 6/1/08 (MBIA) . . . . . . . . . . . . . . . . 1,500,000 1,627,500
-----------
16,843,201
-----------
HIGHER EDUCATION REVENUE BONDS - 4.71%
Delaware County Pennsylvania Authority
University (Villanova University)
5.80% 8/1/25 (AMBAC) . . . . . . . . . . . . . . . . 1,600,000 1,568,000
Massachusetts State Health & Educational
Facilities Authority (Boston College)
6.625% 7/1/21 (FGIC) . . . . . . . . . . . . . . . . 2,500,000 2,631,250
-----------
4,199,250
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
HOSPITAL REVENUE BONDS - 7.08%
Fort Wayne Indiana Hospital Authority
(Parkview Memorial Hospital)
6.40% 11/15/22 (MBIA) . . . . . . . . . . . . . . . $2,250,000 $2,300,625
Michigan State Hospital Finance Authority
(Genesys Health System)
7.50% 10/1/27 . . . . . . . . . . . . . . . . . . . 3,000,000 3,082,500
Monroeville, Pennsylvania Hospital Authority
Hospital Revenue (Forbes Health
System) 7.00% 10/1/03 . . . . . . . . . . . . . . . 865,000 932,038
-----------
6,315,163
-----------
HOUSING REVENUE BOND - 6.93%
California Housing Finance Agcy.
6.85% 8/1/23 (MBIA) . . . . . . . . . . . . . . . . 3,860,000 4,028,875
Michigan State Housing Devel. Authority
Multi-Family Insured Housing
8.875% 7/1/17 (FGIC) . . . . . . . . . . . . . . . . 1,000,000 1,030,000
New Mexico Mtge. Finance Authority Single
Family Mtge.
9.25% 7/1/12 (FGIC) . . . . . . . . . . . . . . . . 50,000 51,500
6.20% 7/1/26 (GNMA) . . . . . . . . . . . . . . . . 1,000,000 998,750
Rhode Island Housing and Mtge. Finance
Corp. Single Family Mtge.
9.30% 7/1/04 (FGIC) . . . . . . . . . . . . . . . . 24,000 24,510
St. Louis County, Missouri Single Family
Mtge. 9.25% 10/1/16 (AMBAC) . . . . . . . . . . . . 45,000 46,969
-----------
6,180,604
-----------
POLLUTION CONTROL REVENUE BONDS - 8.33%
Northampton County, Pennsylvania
Industrial Development Authority
(Citizen's Utilities Co.) 6.95%
8/1/15 . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,061,250
Ohio State Air Quality Devel. Authority
(Ohio Edison) 7.45% 3/1/16
(FGIC) . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,227,500
Salem County, New Jersey (Public Service
Electric & Gas Co.)
6.55% 10/1/29 (MBIA) . . . . . . . . . . . . . . . . 4,000,000 4,140,000
-----------
7,428,750
-----------
POWER AUTHORITY REVENUE BONDS - 7.77%
Georgia Municipal Electric Authority
8.10% 1/1/12 (BIGI) . . . . . . . . . . . . . . . . 2,000,000 2,127,500
Indiana Municipal Power Agcy.
5.50% 1/1/23 (MBIA) . . . . . . . . . . . . . . . . 4,500,000 4,173,750
Intermountain Power Agcy., Utah
7.25% 7/1/17 (FGIC) . . . . . . . . . . . . . . . . 600,000 626,250
-----------
6,927,500
-----------
PRE-REFUNDED BONDS* - 14.47%
Allegheny County, Pennsylvania Sanitary
Authority 7.50% 12/1/16-99
(FGIC) . . . . . . . . . . . . . . . . . . . . . . . 750,000 833,438
Brownsville, Texas Utilities System Authority
Revenue 7.50% 9/1/09-96 (FGIC) . . . . . . . . . . . 400,000 422,000
Chicago, Illinois Public Building Commission
(Chicago Board of Education) Series A,
7.75% 1/1/06-99 (FGIC) . . . . . . . . . . . . . . . 500,000 562,500
</TABLE>
12
<PAGE> 15
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
PRE-REFUNDED BONDS (CONTINUED)
Heartland, South Dakota Consumers Power
Dist. Electric Revenue 7.875%
1/1/06-97 (AMBAC) . . . . . . . . . . . . . . . . . $ 900,000 $ 963,000
Lewisville, Texas Water & Sewer
8.00% 2/15/04-97 (AMBAC) . . . . . . . . . . . . . . 1,005,000 1,061,531
8.05% 2/15/05-97 (AMBAC) . . . . . . . . . . . . . . 335,000 354,263
Louisiana Public Facilities Authority Health
& Education Capital Facilities Revenue
(Our Lady of the Lake Regional
Medical Center)
8.20% 12/1/15-98 (BIGI) . . . . . . . . . . . . . . 800,000 894,000
North Carolina Eastern Municipal Power
Agcy. 7.25% 1/1/22-97 (FGIC) . . . . . . . . . . . . 750,000 796,875
Pennsylvania Turnpike Commission Revenue
7.625% 12/1/17-98 (FGIC) . . . . . . . . . . . . . . 2,425,000 2,719,031
Snohomish County, Washington Public
Utility Dist. #1 7.375% 1/1/19-97
(BIGI) . . . . . . . . . . . . . . . . . . . . . . . 1,625,000 1,728,594
Washington State Public Power Supply
System (Nuclear Project #3)
7.25% 7/1/16-99 (BIGI) . . . . . . . . . . . . . . . 2,300,000 2,576,000
-----------
12,911,232
-----------
WATER & SEWER REVENUE BONDS - 12.69%
Austin, Texas Combined Utilities System
Series 90A
6.00% 5/15/15 (FGIC) . . . . . . . . . . . . . . . . 1,275,000 1,282.969
Hilton Head Public Service District #1
South Carolina Waterworks &
Sewer Systems. 5.50% 8/1/20
(MBIA) . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,910,000
Massachusetts Water Resources Authority
5.75% 12/1/21 (MBIA) . . . . . . . . . . . . . . . . 2,000,000 1,937,500
Norfolk Virginia Water Authority
5.875% 11/1/20 (MBIA) . . . . . . . . . . . . . . . 1,000,000 995,000
Ohio State Water Devel. Authority
9.375% 12/1/18 (AMBAC) . . . . . . . . . . . . . . . 26,000 26,975
Seattle, Washington Municipality
Metropolitan Seattle Sewer Revenue
Series U, 6.60% 1/1/32 (FGIC) . . . . . . . . . . . 5,000,000 5,168,750
-----------
11,321,194
-----------
OTHER REVENUE BONDS - 11.96%
** Luzerne County Industrial Development
Authority (Pennsylvania Gas & Water Co.
Project) 7.00% 12/1/17 (AMBAC) . . . . . . . . . . . 1,000,000 1,108,750
** Massachusetts State Industrial Finance
Agcy. Solid Waste Disposal
(Massachusetts Recycling Associates
Project - Fitchburg)
9.00% 8/1/16 . . . . . . . . . . . . . . . . . . . . 4,250,000 4,420,000
Michigan State Trunk Line
Series 92A, 5.50% 10/1/21
(AMBAC) . . . . . . . . . . . . . . . . . . . . . 2,500,000 2,325,000
Series 92B, 5.50% 10/1/21
(MBIA) . . . . . . . . . . . . . . . . . . . . . 3,000,000 2,812,500
-----------
10,666,250
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
GENERAL OBLIGATION BONDS - 4.68%
Chicago, Illinois
Series 86A, 7.25% 1/1/06 (MBIA) . . . . . . . . . . $ 500,000 $ 521,250
Series 86B, 7.25% 1/1/06 (MBIA) . . . . . . . . . . 500,000 521,250
Louisiana State General Obligation
7.00% 8/1/02 . . . . . . . . . . . . . . . . . . . . 1,000,000 1,060,000
Orleans Parish, Louisiana School Board,
Public School Capital Funding
7.00% 6/1/09 (MBIA) . . . . . . . . . . . . . . . . 2,000,000 2,072,500
-----------
4,175,000
-----------
TOTAL MUNICIPAL BONDS
(cost $82,574,787) . . . . . . . . . . . . . . . . . 86,968,144
-----------
VARIABLE RATE DEMAND NOTES - 0.67%
Allegheny County, Pennsylvania Hospital
Devel. Auth. (Presbyterian Health
Center) Series B, 3.60% 3/1/18 . . . . . . . . . . . 100,000 100,000
Allegheny County, Pennsylvania Industrial
Devel. Auth. (Eye & Ear Properties Corp.)
3.60% 2/1/15 . . . . . . . . . . . . . . . . . . . . 500,000 500,000
-----------
TOTAL VARIABLE RATE DEMAND NOTES
(cost $600,000) . . . . . . . . . . . . . . . . . . 600,000
-----------
TOTAL MARKET VALUE OF SECURITIES OWNED - 98.17%
(cost $83,174,787) . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,568,144
-----------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES
- 1.83% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,635,587
-----------
NET ASSETS APPLICABLE TO 7,849,869 TAX-FREE
INSURED FUND A CLASS AND 221,493 TAX-FREE
INSURED FUND B CLASS SHARES ($.01 par value)
OUTSTANDING; EQUIVALENT TO $11.05 PER SHARE
- 100.00% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $89,203,731
===========
</TABLE>
-----------------
* For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
** This security is subject to the federal alternative minimum tax.
AMBAC - Insured by the AMBAC Indemnity Corporation.
BIGI - Insured by the Bond Investors Guaranty Insurance Company.
FGIC - Insured by the Financial Guaranty Insurance Company.
MBIA - Insured by the Municipal Bond Insurance Association.
<TABLE>
<S> <C>
COMPONENTS OF NET ASSETS
Common stock, $.01 par value, 500,000,000 shares
authorized to the Tax-Free Insured Fund . . . . . . . . . . . . . . . . $84,800,928
Accumulated undistributed:
Net realized gain on investments . . . . . . . . . . . . . . . . . . . . 9,446
Net unrealized appreciation of investments . . . . . . . . . . . . . . . 4,393,357
-----------
Total net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $89,203,731
===========
</TABLE>
See accompanying notes
13
<PAGE> 16
DELAWARE GROUP TAX-FREE FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
TAX-FREE TAX-FREE
USA FUND INSURED FUND
----------- ------------
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . $53,570,933 $6,072,946
----------- ----------
EXPENSES:
Management fees . . . . . . . . . . . . . . . . . . . . 4,388,886 523,070
Distribution expenses . . . . . . . . . . . . . . . . . 1,443,879 173,740
Registration fees . . . . . . . . . . . . . . . . . . . 39,673 21,050
Dividend disbursing and transfer agent fees
and expenses . . . . . . . . . . . . . . . . . . . . 496,851 60,234
Reports and statements to shareholders . . . . . . . . 87,781 11,736
Professional fees . . . . . . . . . . . . . . . . . . . 55,627 15,459
Custodian fees . . . . . . . . . . . . . . . . . . . . 45,810 18,271
Salaries expenses . . . . . . . . . . . . . . . . . . . 191,771 22,824
Taxes (other than taxes on income) . . . . . . . . . . 50,750 4,260
Directors' fees . . . . . . . . . . . . . . . . . . . . 7,824 7,824
Other . . . . . . . . . . . . . . . . . . . . . . . . . 106,667 21,387
----------- ----------
6,915,519 879,855
----------- ----------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . 46,655,414 5,193,091
----------- ----------
NET REALIZED GAIN AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized gain from security transactions . . . . . 5,528,096 942,322
Net unrealized depreciation of investments
during the period . . . . . . . . . . . . . . . . . (3,462,957) (753,311)
----------- ----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS . . . . . . . . . . . . . . . . . . . 2,065,139 189,008
----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS . . . . . . . . . . . . . $48,720,553 $5,382,102
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE TAX-FREE
USA FUND INSURED FUND
CLASS A CLASS A
----------- ----------
<S> <C> <C>
COMPUTATION OF NET ASSET VALUE
AND OFFERING PRICE
Net asset value per share (A) . . . . . . . . . . . . . $12.07 $11.05
Sales charges (4.75% of offering price,
4.97% and 4.98% of amount
invested per share, respectively (B) . . . . . . . . .60 .55
------- -------
Offering price . . . . . . . . . . . . . . . . . . . . $12.67 $11.60
======= =======
</TABLE>
-----------------
(A) Net asset value per share, as illustrated, is the estimated amount
which would be paid upon the redemption or repurchase of shares.
(B) See Purchasing Shares in the current Prospectus for purchases of
$100,000 or more.
See accompanying notes
DELAWARE GROUP TAX-FREE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED 8/31/95
-------------------------------
TAX-FREE TAX-FREE
USA FUND INSURED FUND
----------- ------------
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . $ 46,655,414 $ 5,193,091
Net realized gain from
security transactions . . . . . . . . . . . . . . . 5,528,096 942,322
Net unrealized depreciation
during the period . . . . . . . . . . . . . . . . . (3,462,957) (753,311)
------------ -----------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . . . . 48,720,553 5,382,102
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A . . . . . . . . . . . . . . . . . . . . . . (46,114,506) (5,114,142)
Class B . . . . . . . . . . . . . . . . . . . . . . (540,908) (78,949)
------------ -----------
(46,655,414) (5,193,091)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A . . . . . . . . . . . . . . . . . . . . . . 103,815,190 8,036,953
Class B . . . . . . . . . . . . . . . . . . . . . . 15,377,684 1,779,510
Net asset value of shares issued upon
reinvestment of dividends from
net investment income:
Class A . . . . . . . . . . . . . . . . . . . . . . 25,638,950 2,632,048
Class B . . . . . . . . . . . . . . . . . . . . . . 276,926 42,458
------------ -----------
145,108,750 12,490,969
------------ -----------
Cost of shares repurchased:
Class A . . . . . . . . . . . . . . . . . . . . . . (118,618,699) (15,303,455)
Class B . . . . . . . . . . . . . . . . . . . . . . (2,038,759) (233,595)
------------ -----------
(120,657,458) (15,537,050)
------------ -----------
Increase (decrease) in net assets derived
from capital share transactions . . . . . . . . . . 24,451,292 (3,046,081)
------------ -----------
INCREASE (DECREASE) IN NET ASSETS . . . . . . . . . . . 26,516,431 (2,857,070)
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . 749,732,922 92,060,801
------------ -----------
End of period . . . . . . . . . . . . . . . . . . . . . $776,249,353 $89,203,731
============ ===========
</TABLE>
See accompanying notes
14
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED 8/31/94
-------------------------------
TAX-FREE TAX-FREE
USA FUND INSURED FUND
------------ -------------
<S> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . $ 45,721,137 $ 5,162,606
Net realized loss from
security transactions . . . . . . . . . . . . . . . (2,953,233) (195,676)
Net unrealized depreciation
during the period . . . . . . . . . . . . . . . . . (31,078,559) (4,486,946)
------------ -----------
Net increase in net assets resulting
from operations . . . . . . . . . . . . . . . . . . 11,689,345 479,984
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A . . . . . . . . . . . . . . . . . . . . . . (45,693,851) (5,158,157)
Class B . . . . . . . . . . . . . . . . . . . . . . (27,286) (4,449)
Net realized gain from security transactions:
Class A . . . . . . . . . . . . . . . . . . . . . . (2,054,284) (828,917)
Class B . . . . . . . . . . . . . . . . . . . . . . -- --
------------ -----------
(47,775,421) (5,991,523)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A . . . . . . . . . . . . . . . . . . . . . . 94,219,825 8,067,438
Class B . . . . . . . . . . . . . . . . . . . . . . 3,931,658 832,259
Net asset value of share issued upon
reinvestment of dividends from
net investment income:
Class A . . . . . . . . . . . . . . . . . . . . . . 27,090,667 3,326,879
Class B . . . . . . . . . . . . . . . . . . . . . . 12,207 1,265
------------ -----------
125,254,357 12,227,841
------------ -----------
Cost of shares repurchased:
Class A . . . . . . . . . . . . . . . . . . . . . . (102,009,328) (10,763,221)
Class B . . . . . . . . . . . . . . . . . . . . . . (125) (10,037)
------------ -----------
(102,009,453) (10,773,258)
------------ -----------
Increase in net assets derived
from capital share transactions . . . . . . . . . . 23,244,904 1,454,583
------------ -----------
NET DECREASE IN NET ASSETS . . . . . . . . . . . . . . (12,841,172) (4,056,956)
NET ASSETS:
Beginning of period . . . . . . . . . . . . . . . . . . 762,574,094 96,117,757
------------ -----------
End of period . . . . . . . . . . . . . . . . . . . . . $749,732,922 $92,060,801
============ ===========
</TABLE>
See accompanying notes
DELAWARE GROUP TAX-FREE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
Delaware Group Tax-Free Fund, Inc. ("The Company") is registered as a
non-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 Fund, the Tax-Free Insured Fund and the
Tax-Free USA Intermediate 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 Tax-Free USA Fund
and the Tax-Free Insured Fund (the "Funds") for financial statement
preparation:
SECURITY VALUATION - Long term debt securities are valued by an independent
pricing service and 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 Funds intend to continue to qualify as regulated
investment companies and make the requisite distributions to shareholders.
Accordingly, no provisions for federal income taxes are required in the
financial statements.
CLASS ACCOUNTING - Expenses directly attributable to a class are charged to
that class. Other common expenses are prorated between all classes of the
Funds.
OTHER - Expenses common to all Funds within the Delaware Group 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 an accrual basis. Original issue discounts
are accreted and premiums are amortized to interest income over the lives of
the respective securities. The Funds declare dividends daily from net
investment income and pay such dividends monthly.
2. INVESTMENT MANAGEMENT AND DISTRIBUTION AGREEMENTS
In accordance with the terms of the Investment Management Agreements, the
Funds pay Delaware Management Company, Inc. (DMC), the Investment Manager of
the Funds, an annual fee which is calculated daily at the following rates
less fees paid to the Independent Directors; 0.60% of the first $500 million
of average daily net assets, 0.575% on the next $250 million and 0.55% on
the average daily net assets over $750 million for the Tax-Free USA Fund,
and 0.60% of average daily net assets of the Tax-Free Insured Fund. At
August 31, 1995, the Funds had a liability for Investment Management fees
payable to DMC of $34,448 and $4,814 for the Tax-Free USA Fund and the
Tax-Free Insured Fund, respectively.
15
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Pursuant to the Distribution Agreement, the Funds pay Delaware Distributors
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of Class A for the Tax-Free USA
Fund and Tax- Free Insured Fund and 1.00% of the average daily net assets of
Class B for both portfolios. At August 31, 1995, the Funds had a liability
for distribution fees payable to DDLP of $17,851 and $2,064 respectively,
for Tax-Free USA Fund and Tax-Free Insured Fund. For the year ended August
31, 1995, the Funds paid DDLP $249,279 and $27,637 for commissions earned on
sales of Tax-Free USA Fund A Class and Tax-Free Insured Fund A Class,
respectively.
Certain officers of the Investment Manager are officers, directors, and/or
employees of the Funds. These officers, directors, and employees are paid no
compensation by the Funds. The Funds have engaged Delaware Service Company,
Inc. (DSC), an affiliate of DMC, to serve as Dividend Disbursing and
Transfer Agent for the Funds. For the year ended August 31, 1995, DSC
received the following amounts for these services:
<TABLE>
<CAPTION>
TAX-FREE TAX-FREE
USA FUND INSURED FUND
-------- ------------
<S> <C> <C>
Dividend disbursing and transfer agent
fees and expenses . . . . . . . . . . . . . . . . . $496,851 $60,234
</TABLE>
At August 31, 1995, the Funds had a liability for such fees and expenses
payable to DSC as follows:
<TABLE>
<CAPTION>
TAX-FREE TAX-FREE
USA FUND INSURED FUND
-------- ------------
<S> <C> <C>
Dividend disbursing and transfer agent
fees and expenses payable . . . . . . . . . . . . . $33,194 $4,136
</TABLE>
On April 3, 1995, Delaware Management Holdings, Inc. the indirect parent of
DMC, DDLP, and DSC, through a merger transaction (the"Merger") became a
wholly-owned subsidiary of Lincoln National Corporation. Other than the
resulting change in ownership, the Merger will not materially change the
manner in which DMC, DDLP, or DSC have heretofore conducted their
relationship with the Funds.
3. INVESTMENTS
During the year ended August 31, 1995 the Funds had purchases and sales of
investment securities other than U.S. Government securities and temporary
cash investments as follows:
<TABLE>
<CAPTION>
TAX-FREE TAX-FREE
USA FUND INSURED FUND
-------- ------------
<S> <C> <C>
Purchases . . . . . . . . . . . . . . . . . . . . . . . $246,920,347 $59,312,253
Sales . . . . . . . . . . . . . . . . . . . . . . . . . $199,437,263 $60,574,304
</TABLE>
At August 31, 1995 unrealized appreciation for federal income tax purposes
was as follows:
<TABLE>
<CAPTION>
TAX-FREE TAX-FREE
USA FUND INSURED FUND
-------- ------------
<S> <C> <C>
Unrealized appreciation . . . . . . . . . . . . . . . . 55,929,431 4,434,508
Unrealized depreciation . . . . . . . . . . . . . . . . (3,085,646) (41,151)
----------- -----------
Aggregated unrealized appreciation . . . . . . . . . . 52,843,785 4,393,357
=========== ===========
</TABLE>
Net realized gain for federal income tax purposes was $2,524,206 for the
Tax-Free USA Fund and $1,167 for the Tax-Free Insured Fund.
4. CAPITAL STOCK
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
TAX-FREE USA FUND
-------------------------------
YEAR ENDED YEAR ENDED
8/31/95 8/31/94
<S> <C> <C>
Shares sold:
Class A . . . . . . . . . . . . . . . . . . . . . . 8,764,777 7,648,471
Class B . . . . . . . . . . . . . . . . . . . . . . 1,293,697 325,960
Shares issued upon reinvestment of
dividends from net investment income:
Class A . . . . . . . . . . . . . . . . . . . . . . 2,163,314 2,191,177
Class B . . . . . . . . . . . . . . . . . . . . . . 23,267 1,013
----------- ----------
12,245,055 10,166,621
Shares repurchased:
Class A . . . . . . . . . . . . . . . . . . . . . . (10,009,753) (8,257,447)
Class B . . . . . . . . . . . . . . . . . . . . . . (170,688) (10)
----------- ----------
(10,180,441) (8,257,457)
Net increase . . . . . . . . . . . . . . . . . . . . . 2,064,614 1,909,164
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
TAX-FREE INSURED FUND
------------------------------
YEAR ENDED YEAR ENDED
8/31/95 8/31/94
<S> <C> <C>
Shares sold:
Class A . . . . . . . . . . . . . . . . . . . . . . 741,299 708,738
Class B . . . . . . . . . . . . . . . . . . . . . . 164,244 75,701
Shares issued upon reinvestment of
dividends from net investment income:
Class A . . . . . . . . . . . . . . . . . . . . . . 242,387 293,357
Class B . . . . . . . . . . . . . . . . . . . . . . 3,885 115
---------- ----------
1,151,815 1,077,911
Shares repurchased:
Class A . . . . . . . . . . . . . . . . . . . . . . (1,410,700) (952,546)
Class B . . . . . . . . . . . . . . . . . . . . . . (21,543) (910)
---------- ----------
(1,432,243) (953,456)
Net (decrease) increase . . . . . . . . . . . . . . . (280,428) 124,455
========== ==========
</TABLE>
5. LINES OF CREDIT
The Funds have committed lines of credit of $15 million for the Tax-Free USA
Fund and $2 million for the Tax-Free Insured Fund. No amount was
outstanding at August 31, 1995 or at any time during the last fiscal year.
6. CONCENTRATION OF CREDIT RISK
The Funds concentrate their 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.
16
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FINANCIAL HIGHLIGHTS
Selected data for each share of the Tax-Free USA Fund outstanding throughout
each period were as follows:
<TABLE>
<CAPTION>
TAX-FREE USA TAX-FREE USA
FUND A CLASS FUND B CLASS
---------------------------------------------------- -----------------------
YEAR YEAR PERIOD
ENDED ENDED 5/2/94(3) TO
8/31/95 8/31/94 8/31/93 8/31/92(1) 8/31/91 8/31/95 8/31/94
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . . $12.040 $12.640 $12.130 $11.560 $11.070 $12.040 $12.080
Income from investment operations:
Net investment income . . . . . . . . . . 0.746 0.751 0.751 0.765 0.783 0.649 0.214
Net realized and unrealized gain (loss) from
security transactions . . . . . . . . . 0.030 (0.566) 0.610 0.570 0.490 0.030 (0.040)
------- ------- ------- ------- ------- ------- -------
Total from investment operations . . . . . 0.776 0.185 1.361 1.335 1.273 0.679 0.174
------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income . . . (0.746) (0.751) (0.751) (0.765) (0.783) (0.649) (0.214)
Distributions from net realized gain on
security transactions . . . . . . . . . none (0.034) (0.100) none none none none
------- ------- ------- ------- ------- ------- -------
Total distributions . . . . . . . . . . . (0.746) (0.785) (0.851) (0.765) (0.783) (0.649) (0.214)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period . . . . . . . $12.070 $12.040 $12.640 $12.130 $11.560 $12.070 $12.040
======= ======= ======= ======= ======= ======= =======
Total return(2) . . . . . . . . . . . . . . . 6.74% 1.49% 11.66% 11.91% 11.88% 5.88% 1.45%
Ratios/supplemental data:
Net assets, end of period (000 omitted) . $758,470 $745,796 $762,574 $702,988 $669,546 $17,779 $3,937
Ratio of expenses to average net assets . 0.92% 0.89% 0.89% 0.80% 0.74% 1.74% 1.74%
Ratio of net investment income to average
net assets . . . . . . . . . . . . . . 6.29% 6.07% 6.10% 6.47% 6.91% 5.47% 5.22%
Portfolio turnover . . . . . . . . . . . . 27% 10% 12% 21% 19% 27% 10%
</TABLE>
-----------------
(1) Beginning June 1, 1992, the Fund began paying distribution expenses
pursuant to a Rule 12b-1 Plan.
(2) Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of
certain redemptions within 12 months of purchases for the Tax-Free USA
Fund A Class or contingent deferred sales charge for Tax-Free USA Fund
B Class.
(3) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
17
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FINANCIAL HIGHLIGHTS
Selected data for each share of the Tax-Free Insured Fund outstanding
throughout each period were as follows:
<TABLE>
<CAPTION>
TAX-FREE INSURED TAX-FREE INSURED
FUND A CLASS FUND B CLASS
--------------------------------------------------- ----------------------
YEAR YEAR PERIOD
ENDED ENDED 5/2/94(1) TO
8/31/95 8/31/94 8/31/93 8/31/92(2) 8/31/91 8/31/95 8/31/94
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period . . . . $11.020 $11.680 $11.310 $10.900 $10.460 $11.020 $10.990
Income from investment operations:
Net investment income . . . . . . . . . . 0.639 0.622 0.638 0.674 0.699 0.550 0.179
Net realized and unrealized gain (loss) from
security transactions . . . . . . . . . 0.030 (0.560) 0.400 0.410 0.440 0.030 0.030
------- ------- ------- ------- ------- ------- -------
Total from investment operations . . . . . 0.669 0.062 1.038 1.084 1.139 0.580 0.209
------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income . . . (0.639) (0.622) (0.638) (0.674) (0.699) (0.550) (0.179)
Distributions from net realized gain on
security transactions . . . . . . . . . none (0.100) (0.030) none none none none
------- ------- ------- ------- ------- ------- -------
Total distributions . . . . . . . . . . . (0.639) (0.722) (0.668) (0.674) (0.699) (0.550) (0.179)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period . . . . . . . $11.050 $11.020 $11.680 $11.310 $10.900 $11.050 $11.020
======= ======= ======= ======= ======= ======= =======
Total return(3) . . . . . . . . . . . . . . . 6.33% 0.54% 9.48% 10.23% 11.20% 5.47% 1.91%
Ratios/supplemental data:
Net assets, end of period (000 omitted) . $86,756 $91,235 $96,118 $85,660 $76,700 $2,448 $826
Ratio of expenses to average net assets . . . 0.98% 0.98% 0.98% 0.86% 0.83% 1.80% 1.83%
Ratio of net investment income to average
net assets . . . . . . . . . . . . . . . . 5.89% 5.48% 5.58% 6.06% 6.50% 5.07% 4.63%
Portfolio turnover . . . . . . . . . . . . . 68% 56% 8% 29% 10% 68% 56%
</TABLE>
-----------------
(1) Date of initial public offering; ratios have been annualized but total
return has not been annualized.
(2) Beginning June 1, 1992, the Fund began paying distribution expenses
pursuant to Rule 12b-1 Plan.
(3) Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of
certain redemptions within 12 months of purchase for the Tax-Free
Insured Fund A Class or contingent deferred sales charge for Tax-Free
Insured Fund B Class.
18
<PAGE> 21
DELAWARE GROUP TAX-FREE FUND, INC.
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
DELAWARE GROUP TAX-FREE FUND, INC. - TAX-FREE USA FUND
DELAWARE GROUP TAX-FREE FUND, INC. - TAX-FREE INSURED FUND
We have audited the accompanying statement of net assets of Delaware Group
Tax-Free Fund, Inc. - Tax-Free USA Fund and Delaware Group Tax-Free Fund,
Inc. - Tax-Free Insured Fund as of August 31, 1995, and the related
statement of operations for the year then ended, the statement 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 Fund's 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 1995, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Delaware Group Tax-Free Fund, Inc. - Tax-Free USA Fund and Delaware Group
Tax-Free Fund, Inc. - Tax-Free Insured Fund at August 31, 1995, 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 the financial
highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
October 12, 1995
19
<PAGE> 22
A REPORT ON TAX-FREE FUND, INC.'S ANNUAL MEETING
At an annual meeting of shareholders held on March 29, 1995, the following
matters were submitted for shareholder vote: the election of directors, the
ratification of the selection of Ernst & Young LLP as independent auditors
of the Fund and the approval of a new investment management agreement. The
new investment management agreement was proposed in connection with the
April 3, 1995, merger of Delaware Management Holdings, Inc. (the parent
company of Delaware Management Company, Inc.) and a subsidiary of Lincoln
National Corporation. Whenever there is a change in control of an investment
manager, the Investment Company Act of 1940 requires shareholders to vote on
a new investment management agreement.
Below are the names of each director elected at the meeting as well as the
results of the other matters voted on by shareholders.
<TABLE>
<CAPTION>
NUMBER OF VOTES*
-----------------------------------------
FOR AGAINST/WITHHELD ABSTENTIONS
<S> <C> <C> <C>
Election of Directors:**
Wayne A. Stork . . . . . . . . 49,978,063 1,243,534 --
Walter P. Babich . . . . . . . 49,972,880 1,248,717 --
Anthony D. Knerr . . . . . . . 49,979,565 1,242,032 --
Ann R. Leven . . . . . . . . . 49,980,841 1,240,757 --
W. Thacher Longstreth . . . . 49,955,428 1,266,169 --
Charles E. Peck . . . . . . . 49,979,893 1,241,704 --
Selection of Ernst & Young LLP as
Independent Auditors . . . . . 49,078,243 323,693 1,819,660
Approval of the New
Investment Management
Agreement by Shareholders
the Tax-Free USA Fund . . . 41,361,243 1,004,005 2,372,680
Approval of the New
Investment Management
Agreement by
Shareholders of the
Tax-Free Insured Fund . . . . 4,637,178 70,406 317,687
</TABLE>
* Please note that the results of this meeting were not audited by Ernst &
Young LLP.
** Voted on by all shareholders of the Tax-Free Fund, Inc.
20
<PAGE> 23
This annual report is for the information of Tax-Free USA Fund and Tax Free
Insured 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, this report must be accompanied by a
Tax-Free USA Fund or Tax Free Insured Fund Performance Update for the most
recently completed calendar quarter. The figures in this report represent past
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
- ----------------
MEMBERS
- ----------------
WAYNE A. STORK
Chairman, Delaware Group of Funds
Philadelphia, PA
WALTER P. BABICH
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
ANTHONY D. KNERR
Consultant, Anthony Knerr & Associates
New York, NY
ANN R. LEVEN
Treasurer, National Gallery of Art
Washington, DC
W. THACHER LONGSTRETH
Vice Chairman, Packquisition Corp.
Philadelphia, PA
CHARLES E. PECK
Secretary of Enterprise Homes, Inc.
Fredericksburg, VA
former Chairman and CEO
The Ryland Group, Inc.
Columbia, MD
AFFILIATED
- ----------------
OFFICERS
- ----------------
GEORGE M. CHAMBERLAIN, JR.
Senior Vice President and Secretary,
Delaware Group of Funds
Philadelphia, PA
KEITH E. MITCHELL
President and CEO,
Delaware Distributors, L.P.
Philadelphia, PA
DAVID K. DOWNES
Senior Vice President, Chief Financial Officer and
Chief Administrative Officer
Delaware Group of Funds
Philadelphia, PA
