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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, both Tax-Free USA Fund A Class and Tax-Free
Insured Fund A Class had total returns (capital change plus reinvested
dividends) that slightly trailed the broad municipal bond market. The table
below shows the Funds' results compared to the return of the Lehman Brothers'
Municipal Bond Index, an unmanaged index with an average maturity similar to
both Funds.
- ----------------------------------------------------------------------------
TOTAL RETURN
SIX MONTHS ENDED
FEBRUARY 28, 1995
Tax-Free USA Fund A +2.03%
Tax-Free Insured Fund A +2.07%
Lehman Brothers' Municipal Bond Index +2.81%
Tax-Free USA Fund and Tax-Free Insured Fund performance is based on net asset
value.
Performance information for all classes of the Funds can be found on page 4.
- ---------------------------------------------------------------------------
Each Fund's return for the latest six-month period is respectable,
but falls short of the Index by some 75 basis points (0.75%). This reversal
from the prior six months when we performed better in relation to the Index
is, in effect, a "cost" we expected to bear. Our strong focus on producing
current income, which helps protect principal in weak markets, typically
precludes our capturing a greater share of appreciation in strong markets.
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 possible intervention by the Fed to
boost rates yet again 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 market as difficult as we saw in 1994.
This report contains an update from Patrick Coyne, Senior Portfolio
Manager of the Funds, who explains how Tax-Free USA Fund and Tax-Free Insured
Fund are being positioned to seek high current income exempt from federal tax
while preserving principal 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,
/s/ Wayne A. Stork /s/ Brian F. Wruble
- ------------------------------ ---------------------------------
Wayne A. Stork Brian F. Wruble
Chairman, Board of Directors President and Chief Executive Officer
Delaware Group Tax-Free USA Fund, Delaware Group Tax-Free USA Fund,
Delaware Group Tax-Free Insured Fund Delaware Group Tax-Free Insured Fund
1
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Portfolio Manager's Market Review
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, the Federal Reserve Board in February 1994 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 have climbed, so too have yields on intermediate and long-term
U.S. Treasury and municipal bonds. Yields tend to rise as interest rates
increase so that yields on existing bonds will remain in line with 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.) That is, yields on bonds with shorter maturities have risen
more than those of bonds with longer maturities. As a result, short and
intermediate-term securities now offer a greater percentage of the income
available from long-term bonds.
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.
Excluding Orange County, California, where Tax-Free USA Fund and
Tax-Free Insured Fund had no holdings, the overall credit strength of the
municipal market improved in 1994. According to Standard & Poor's, a leading
rating agency, more municipal bonds rose in credit quality than declined as
the growing domestic economy played an important role in upgrading credit
qualities. Currently, both Tax-Free USA Fund and Tax-Free Insured Fund have
average quality ratings of "AA", the second highest rating issued.
THE YIELD CURVE IS 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.
YIELD CURVE 2/28/94 TO 2/28/95 CHART
Source: Bloomberg
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
2
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THE FUNDS' INVESTMENT STRATEGIES
In spite of the "flattening" of the yield curve, longer term bonds still
offer an attractive yield advantage over short and intermediate bonds. Both
Tax-Free USA Fund and Tax-Free Insured Fund invest in bonds at the longer end
of the maturity spectrum--typically, bonds with 20- to 30- year
maturities--where the highest level of income is generally available.
In order to help protect principal, we also tend to buy bonds with a
higher coupon, or a higher rate of interest, than current coupon bonds (which
pay interest in line with current rates). Higher coupon bonds are less
impacted by rising interest rates than are current coupon bonds. The Funds'
high income emphasis has helped cushion the Funds from some of the negative
effects of rising interest rates as the greater income offsets some principal
loss.
SHORTENING DURATION TO REDUCE INTEREST RATE SENSITIVITY
In the last six months, we have responded to changes in the interest
rate environment by reducing the average duration of Tax-Free Insured Fund.
Duration is the most common measure of a bond's sensitivity to interest
rates. It indicates the approximate percentage of change in a bond's price
given a 1% movement in interest rates. When interest rates rise, bond prices
generally decline; when rates fall, bond prices generally rise. The shorter
the duration, the less the price will be affected when interest rates rise or
fall and the more defensive the Fund. Thus, by shortening Tax-Free Insured
Fund's duration, we hope to decrease the Fund's sensitivity to rising rates.
Though, duration increased slightly in Tax-Free USA Fund, that was
only as result of our having sold our shortest maturity, pre-refunded bonds
over the course of the year. These bonds were scheduled to be "called" or
refinanced and to avoid having them be called at an inopportune time, we sold
them to pursue other investment opportunities. Excluding these bonds, the
duration on Tax-Free USA Fund would also have decreased.
* TAX-FREE USA FUND
Tax-Free USA Fund's slightly increased duration is in line with its
income-driven investment approach. In seeking added stability of its high
level of income, the Fund typically invests in investment-grade municipal
bonds (quality ratings of AAA to BBB) to help ensure income payments. As of
February 28th, investment-grade municipal bonds represented 87.5% of the
Fund's total net assets. Included in the investment-grade portion of the
portfolio was 34.5% in insured bonds.
* TAX-FREE INSURED FUND
A more conservative approach to investing in municipal bonds, Tax-Free
Insured Fund puts an added emphasis on quality. The Fund invests primarily in
municipal bonds that are 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. As of February 28th,
95% of net assets was invested in investment-grade municipal bonds with about
87% of that in insured bonds.
In addition to the slight changes in the average durations of the
portfolios, we also increased their average coupons. The coupon is the rate
at which interest is paid to bondholders. Since income is the primary
component of a bonds return, by increasing our coupon rate, we have strived
to stabilize return.
3
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LOOKING AHEAD
The issuance of new bonds by municipalities declined from a high of $292
billion in 1993 to $162 billion in 1994. The Public Securities Association
(PSA) has estimated that new bond issuance in 1995 will total just $157
billion, a 4.5% decrease from 1994. 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 also bode well for prices.
We believe that our emphasis on income, designed to protect principal
in down markets and provide high current income through full economic and
interest rate cycles, makes this a sound strategy for long term investors.
We will continue to manage Tax-Free USA Fund and Tax-Free Insured Fund to
seek as high a level of current income exempt from federal tax, as is
consistent with prudent investment management and preservation of capital.
LONG-TERM PERFORMANCE
The primary reason that shareholders invest in Tax-Free USA Fund and
Tax-Free Insured Fund is to seek a high level of income exempt from federal
tax. Over time, both Funds have succeeded in providing a high degree of
income. We believe that through rising and falling markets, our defensive
strategy will lead to attractive long-term total return.
TAX-FREE USA FUND
CLASS A CLASS B
Average Annual Total Returns(1) Aggregate Total Returns(2)
10 Years 9.51% Lifetime 3.09%
Excluding Sales Charge
5 Years 6.78% Lifetime -0.85%
Including Sales Charge
1 Year -3.10%
Through February 28, 1995
- ------------------------------------
TAX-FREE USA FUND A CLASS
CHART HERE
Principal Value & Total Return Annual Income
Capital Gains (Capital Change & If Dividends
Reinvested Reinvested Distributions) Taken In Cash
----------------- ------------------------- -----------------
May-85 $ 9393 $ 9467 Feb-86 $232
Aug-85 8778 9041 Feb-87 216
Nov-85 9344 9831 Feb-88 212
Feb-86 9383 10079 Feb-89 212
May-86 9612 10537 Feb-90 205
Aug-86 10179 11385 Feb-91 194
Nov-86 10169 11571 Feb-92 189
Feb-87 10448 12096 Feb-93 189
May-87 11392 13405 Feb-94 191
Aug-87 11183 13373 Feb-95 188
Nov-87 11421 13878
Feb-88 11680 14414
May-88 11959 14984
Aug-88 10894 13871
Nov-88 10874 14075
Feb-89 10388 13677
May-89 10626 14237
Aug-89 10626 14480
Nov-89 10656 14764
Feb-90 10577 14899
May-90 10527 15085
Aug-90 10398 15151
Nov-90 10616 15728
Feb-91 10656 16043
May-91 10776 16489
Aug-91 10835 16849
Nov-91 10935 17269
Feb-92 10974 17593
May-92 11014 17931
Aug-92 11243 18573
Nov-92 11173 18723
Feb-93 11542 19574
May-93 11473 19730
Aug-93 11662 20333
Nov-93 11542 20395
Feb-94 11526 20499
May-94 11121 20059
Aug-94 11171 20441
Nov-94 10644 19768
Feb-95 12267 24772
The chart above shows the results from a $10,000 investment in Tax-Free USA
Fund A Class from March 1, 1985, to February 28, 1995, including the maximum
4.75% sales charge. The black line shows total return assuming the
reinvestment of all dividends. The green line shows the principal value of the
investment with only capital gains reinvested.
4
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- ----------------------------------------
TAX-FREE INSURED FUND A CLASS
CHART HERE
Principal Value & Total Return Annual Income
Capital Gains (Capital Change & If Dividends
Reinvested Reinvested Distributions) Taken In Cash
----------------- ------------------------- -----------------
Feb-86 $ 9383 $11419.90 Feb-86 $193
Feb-87 10448 12826.59 Feb-87 177
Feb-88 11680 13035.82 Feb-88 179
Feb-89 10388 13865.37 Feb-89 179
Feb-90 10577 15089.60 Feb-90 176
Feb-91 10656 16262.56 Feb-91 172
Feb-92 10974 17834.35 Feb-92 166
Feb-93 11542 19841.70 Feb-93 156
Feb-94 11526 20780.04 Feb-94 152
Feb-95 11069 21151.00 Feb-95 160
The chart above shows the results from a $10,000 investment in Tax-Free Insured
Fund A Class March 25, 1985, to February 28, 1995, including the maximum 4.75%
sales charge. The black line shows the total return assuming the reinvestment
of all dividends. The green line shows the principal value of the investment
with only capital gains reinvested.
TAX-FREE INSURED FUND
CLASS A CLASS B
Average Annual Total Returns(1) Aggregate Total Returns(2)
Lifetime 7.83% Lifetime 3.60%
Excluding Sales Charge
5 Years 5.93% Lifetime -0.38%
Including Sales Charge
1 Year -3.08%
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.
(1) CLASS A returns reflect the reinvestment of all distributions, the maximum
sales charge of 4.75%, and for the periods after June 1, 1992, include the
impact of a 12b-1 fee of up to .30%.
(2) CLASS B returns including deferred sales charge reflect the reinvestment of
all distributions, the impact of the maximum 4% 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
Tax-Free USA Fund
Class A Class B
Average Annual Total Returns(1) Aggregate Total Returns(2)
10 Years 9.48% Lifetime 3.74%
Excluding Sales Charge
5 Years 6.99% Lifetime -0.21%
Including Sales Charge
1 Year -0.27%
Tax-Free Insured Fund
Class A Class B
Average Annual Total Returns(1) Aggregate Total Returns(2)
Lifetime 7.85% Lifetime 4.35%
Excluding Sales Charge
5 Years 6.09% Lifetime 0.35%
Including Sales Charge
1 Year -0.01%
5
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FINANCIAL STATEMENTS
DELAWARE GROUP TAX-FREE USA FUND
STATEMENT OF NET ASSETS
February 28, 1995
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS-98.60%
Hospital Revenue Bonds-8.23%
Alabama Special Care Facilities Financing
Auth. of the City of Mobile Hospital Revenue
(Daughters of Charity Health Systems-
Providence Hospital) 10.125% 6/1/15............ $ 1,425,000 $ 1,469,531
Louisiana Public Facilities Auth. Hospital
Revenue (Southern Baptist Hospital Inc.,
Escrowed to Maturity) 8.00% 5/15/12............ 9,500,000 11,138,750
Michigan State Hospital Finance Auth.
(Genesys Health System)
8.125% 10/1/21................................. 4,000,000 4,110,000
7.50% 10/1/27.................................. 5,130,000 4,988,925
Monroeville, Pennsylvania Hospital Auth.
(Forbes Health System) 7.00% 10/1/13........... 3,000,000 3,000,000
North Central Texas Health Facilities
Devel. Corp. (University Medical Center
Inc.) 8.20% 4/1/19............................. 4,250,000 4,388,125
Philadelphia Hospital & Higher Education
Facilities Auth. Hospital Revenue
(Albert Einstein Medical Center)
7.625% 4/1/11.................................. 15,000,000 15,881,250
(Jeanes Health System Project)
6.85% 7/1/22................................... 7,000,000 6,335,000
Royal Oak, Michigan Hospital Finance
Agency (William Beaumont Hospital)
Series D, 6.75% 1/1/20......................... 10,000,000 10,237,500
-----------
61,549,081
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Housing Revenue Bonds-5.30%
Alaska State Housing Finance College
Mortgage Obligation 7.05% 6/1/25............... 1,730,000 1,786,225
** Illinois Housing Development Authority
(Homeowner Mtg.) 7.125% 8/1/26................. 2,000,000 2,077,500
Massachusetts State Housing Finance
Agency Residential Development
(FNMA) 6.875% 11/15/11......................... 2,955,000 3,091,669
Massachusetts State Housing Revenue
Single Family 6.95% 6/1/16..................... 2,500,000 2,600,000
Montgomery County, Pennsylvania Redevel.
Auth. Multi-Family Housing Revenue
(KPF Assoc. L.P.) 7.25% 7/1/25................. 5,000,000 4,462,500
** Tennessee Housing Development Agency
6.60% 7/1/25................................... 3,500,000 3,473,750
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DELAWARE GROUP TAX-FREE USA FUND
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Housing Revenue Bonds (Continued)
** Utah State Housing Finance Agency
7.20% 1/1/27................................... $3,750,000 $ 3,862,500
Virginia State Housing Development Auth.
7.10% 1/1/25................................... 7,500,000 7,771,875
** 6.80% 1/1/27................................... 6,500,000 6,565,000
** Wisconsin Housing & Economic
Development Auth. Home Ownership
6.75% 9/1/25................................... 3,950,000 3,954,938
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39,645,957
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Pollution Control Revenue Bonds-16.33%
Appling County, Georgia Devel. Auth.
(Georgia Power Co.) 10.60% 10/1/15............. 2,245,000 2,357,250
Beaver County Industrial Devel. Auth.
Pennsylvania (Ohio Edison Co.)
10.50% 10/1/15................................. 2,000,000 2,125,000
Buncombe County, North Carolina Industrial
Facilities & Pollution Control Financing
Auth. (Wagner Electric Project)
7.125% 5/1/09.................................. 3,000,000 3,003,750
Burke County, Georgia Devel. Auth.
(Georgia Power Co.) 10.50% 11/1/15............. 565,000 596,075
Claiborne County, Mississippi
(Middle South Energy, Inc.)
9.50% 12/1/13.................................. 2,000,000 2,252,500
8.25% 6/1/14................................... 7,365,000 8,009,438
9.875% 12/1/14................................. 1,000,000 1,137,500
12.50% 6/15/15................................. 4,000,000 4,190,000
9.50% 4/1/16................................... 3,600,000 3,843,000
Clark County, Nevada Industrial Devel.
Revenue (Nevada Power Co. Project)
7.20% 10/1/22.................................. 9,000,000 9,191,250
Heard County, Georgia Devel. Auth.
(Georgia Power Co.) 8.00% 10/1/16.............. 1,485,000 1,575,956
Illinois Devel. Finance Auth.
(Central Illinois Public Service Co.)
7.60% 3/1/14................................... 6,000,000 6,495,000
** Luzerne County, Pennsylvania Industrial
Development Auth. (Pennsylvania Gas
& Water Co. Project)
7.00% 12/1/17 (AMBAC).......................... 4,000,000 4,265,000
Monroe County, Georgia Devel. Auth.
(Georgia Power Co.) 10.50% 9/1/15.............. 1,120,000 1,173,200
6
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DELAWARE GROUP TAX-FREE USA FUND
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Pollution Control Revenue Bonds (Continued)
Monroe County, Michigan
(The Detroit Edison Co.)
10.125% 9/1/05................................. $ 2,200,000 $ 2,310,000
10.50% 12/1/16................................. 4,500,000 4,803,750
Ohio State Air Quality Devel. Auth.
(Cincinnati Gas & Electric Co.)
10.125% 12/1/15................................ 4,250,000 4,510,313
** Pennsylvania Economic Development
Financing Auth. Wastewater Treatment
(Sun Co. R&M Project) 7.60% 12/1/24............ 6,000,000 6,330,000
Petersburg, Indiana (Indianapolis Power &
Light Co.)
9.625% 9/1/12.................................. 1,500,000 1,561,875
6.625% 12/1/24................................. 9,350,000 9,595,438
Pope County, Arkansas (Arkansas Power &
Light Co.) 11.00% 12/1/15...................... 6,000,000 6,330,000
Princeton, Indiana (Public Service Co. of
Indiana) 7.60% 3/15/12......................... 3,400,000 3,553,000
Putnam County, Georgia Devel. Auth.
(Georgia Power Co.) 8.375% 7/1/17.............. 7,300,000 7,865,750
Parish of St. Charles, Louisiana
(Louisiana Power & Light) 8.25% 6/1/14......... 1,350,000 1,451,250
Parish of West Feliciana, Louisiana
(Gulf States Utilities Co. Project)
Series A, 7.50% 5/1/15......................... 22,700,000 23,608,000
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122,134,295
-----------
Power Authority Revenue Bonds-6.61%
Georgia Municipal Electric Auth.
Series 86L, 0% 1/1/09.......................... 5,000,000 2,075,000
Intermountain Power Agcy., Utah
Series 86C, 7.50% 7/1/16....................... 3,815,000 3,981,906
Series 87D, 0% 7/1/20.......................... 95,575,000 12,305,281
Series 88B, 7.50% 7/1/21....................... 2,415,000 2,587,069
Lower Colorado River Auth., Texas
Series B, 6.00% 1/1/15 (AMBAC)................. 5,000,000 4,912,500
North Carolina Eastern Municipal Power Agcy.
7.25% 1/1/21................................... 2,350,000 2,399,938
6.00% 1/1/26................................... 3,030,000 2,719,425
Northern Municipal Power Agcy., Minnesota
Series A, 5.00% 1/1/21......................... 8,500,000 7,097,500
San Antonio, Texas Electric & Gas
System Revenue Refunding
Series 89, 7.00% 2/1/09........................ 1,010,000 1,063,025
<PAGE> 9
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Power Authority Revenue Bonds (Continued)
South Carolina State Public Service Auth.
Series B 5.875% 1/1/23 (FGIC).................. $ 7,000,000 $ 6,790,000
Tacoma, Washington Department of Public
Utilities-Light Division 9.375% 1/1/15......... 1,660,000 1,755,450
Washington State Public Power Supply
System Nuclear Project #1, 7.50% 7/1/15........ 1,645,000 1,749,869
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49,436,963
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Pre-Refunded Bonds***-34.75%
Albuquerque, New Mexico Governmental
Purpose Airport Revenue 9.25% 7/1/19-97........ 2,225,000 2,466,969
Battery Park City Auth., New York
6.50% 5/1/20-99................................ 3,000,000 3,172,500
Chicago, Illinois Wastewater Transmission
Revenue 6.75% 11/15/20-00 (FGIC)............... 2,500,000 2,737,500
Clark County Nevada School Dist.
Series A, 7.00% 6/1/09-01 (MBIA)............... 6,000,000 6,630,000
Cleveland, Ohio School Dist.
9.00% 12/1/08-98............................... 800,000 923,000
District of Columbia Genl. Obligation
8.00% 6/1/06-96................................ 2,300,000 2,432,250
7.375% 6/1/05-96............................... 1,000,000 1,050,000
7.875% 6/1/05-96............................... 7,350,000 7,763,438
8.00% 6/1/07-97................................ 750,000 806,250
Du Page, Illinois Water Commission
Revenue 6.875% 5/1/14-97....................... 7,400,000 7,844,000
Florida Department of Transportation Tpk. Revenue
Series 91A, 7.125% 7/1/18-01 (AMBAC)........... 7,500,000 8,418,750
Series 89, 7.50% 7/1/19-99..................... 5,000,000 5,562,500
Florida State Board of Education
7.25% 6/1/23-00................................ 2,555,000 2,848,825
Georgia Municipal Electric Auth.
Series 86A, 7.875% 1/1/18-96................... 3,600,000 3,766,500
Series 86L, 7.75% 1/1/18-97.................... 1,250,000 1,339,063
Harris County, Texas Toll Road
Revenue Sr. Lien
8.70% 8/15/17-97............................... 1,000,000 1,115,000
8.125% 8/15/17-98.............................. 2,600,000 2,892,500
Hillsborough County, Florida Water and
Wastewater Facilities, Capital Improvement
Program Revenue 8.30% 8/1/16-96................ 8,200,000 8,640,750
Illinois Development Finance Auth.
(Illinois Power Co.) 10.75% 3/1/15-95.......... 2,750,000 2,805,000
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DELAWARE GROUP TAX-FREE USA FUND
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds (Continued)
Illinois Education Facilities Auth.
Revenue (Northwestern University)
6.90% 12/1/21-01............................... $2,150,000 $2,378,438
Illinois State Toll Hwy. Auth.
7.375% 1/1/09-96............................... 1,000,000 1,042,500
Intermountain Power Agcy. Utah
Series 86A, 7.75% 7/1/17-96.................... 4,925,000 5,220,500
Interstate South Metropolitan Dist.,
(Arapahoe County) Colorado
9.50% 12/1/06-96............................... 1,000,000 1,086,250
Kentucky Turnpike Auth.
7.25% 5/15/10-00............................... 1,145,000 1,269,519
7.25% 5/15/10-00............................... 6,855,000 7,600,481
Lower Colorado River Auth., Texas
8.375% 1/1/15-96............................... 1,150,000 1,207,500
Maryland State Health & Higher Education
Facilities Auth. (Memorial Hosp. of
Cumberland) 9.25% 7/1/17-97.................... 1,500,000 1,672,500
Massachusetts Bay Transportation Auth.
Series 91A, 7.00% 3/1/22-01.................... 10,000,000 11,112,500
Massachusetts State General Obligation
Series C, 7.50% 12/1/07-00..................... 3,295,000 3,739,825
7.50% 12/1/07-00............................... 3,320,000 3,768,200
Massachusetts Water Resource Auth.
7.50% 4/1/09-00................................ 1,080,000 1,213,650
7.50% 4/1/16-00................................ 7,300,000 8,203,375
7.00% 4/1/18-00................................ 14,510,000 15,979,138
Metropolitan Atlanta Rapid Transit Auth.,
Georgia, Sales Tax
Series L, 7.20% 7/1/20-99 (AMBAC).............. 2,000,000 2,200,000
Metropolitan Transportation Auth., New York
Series F, 8.375% 7/1/16-96..................... 7,445,000 7,956,844
New Hampshire State Turnpike
System Revenue
8.375% 11/1/17-97.............................. 6,750,000 7,450,313
7.375% 4/1/12-00............................... 3,000,000 3,348,750
7.40% 4/1/20-00................................ 11,675,000 13,046,813
New York City Municipal Water Finance
Auth., New York Water and Sewer
System Revenue
7.625% 6/15/16-97.............................. 2,000,000 2,152,500
8.25% 6/15/16-97............................... 700,000 764,750
6.00% 6/15/20-00............................... 1,675,000 1,739,906
<PAGE> 11
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds (Continued)
New York City, New York Genl. Obligation
8.50% 11/1/11-97............................... $3,000,000 $3,315,000
North Carolina Eastern Municipal Power Agcy.
7.50% 1/1/15-97................................ 1,425,000 1,519,406
7.25% 1/1/21-97................................ 350,000 371,875
7.25% 1/1/23-99................................ 2,000,000 2,190,000
6.00% 1/1/26-22................................ 4,980,000 4,911,525
North Carolina Municipal Power Agcy.
#1-Catawba
8.50% 1/1/17-96................................ 1,500,000 1,578,750
7.875% 1/1/19-98............................... 4,565,000 5,004,381
Orlando-Orange County, Florida Expressway
Auth. Series 86 Jr. Lien, 7.50% 7/1/16-96...... 3,155,000 3,336,413
Pennsylvania Turnpike Commission
Series J, 7.20% 12/1/17-01 (FGIC).............. 2,900,000 3,284,250
Philadelphia, Pennsylvania Regional
Port Auth. Lease Revenue
7.15% 8/1/20-00 (MBIA)......................... 1,050,000 1,152,375
Salt River Project Agricultural Improvement
& Power Dist., Arizona
Series 88B, 7.50% 1/1/29-96.................... 2,250,000 2,348,438
Series 89A, 7.50% 1/1/27-97.................... 9,455,000 10,081,394
Series 90A, 7.25% 1/1/19-00.................... 2,750,000 3,049,063
San Antonio, Texas Electric &
Gas System Revenue Refunding Series 86
7.00% 2/1/09-99................................ 8,990,000 9,697,963
Seattle, Washington Metropolitan Municipality
7.20% 1/1/20-97................................ 2,630,000 2,787,800
Seattle, Washington Metropolitan Municipality
Sewer Revenue
Series S, 7.375% 1/1/30-98..................... 4,000,000 4,325,000
Snohomish County, Washington Public
Utility Dist. #1 8.00% 1/1/15-97............... 10,500,000 11,274,375
Tacoma, Washington Department of Public
Utilities-Light Division 9.375% 1/1/15-96...... 2,075,000 2,196,906
University of California (Seismic Safety
Projects) 7.30% 9/1/20-98...................... 5,000,000 5,456,250
Washington State Public Power Supply System
Nuclear Project
#1, 7.50% 7/1/15-99............................ 2,535,000 2,813,850
#3, 7.25% 7/1/15-00............................ 1,760,000 1,938,200
-----------
260,002,261
-----------
8
<PAGE> 12
DELAWARE GROUP TAX-FREE USA FUND
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Transportation Revenue Bonds-8.49%
Atlanta Georgia Special Purpose Facilities
Revenue (Delta Airlines Project)
Series B, 7.50% 12/1/19........................ $1,500,000 $ 1,520,625
** Dallas-Fort Worth, Texas International
Airport (American Airlines)
7.50% 11/1/25.................................. 8,250,000 8,353,125
Dallas-Fort Worth, Texas Regional Airport
9.125% 11/1/15................................. 2,000,000 2,107,500
Illinois State Toll Hwy. Auth.
6.75% 1/1/09................................... 940,000 963,500
Indiana State Toll Finance Auth.
7.00% 7/1/07................................... 2,000,000 2,070,000
6.00% 7/1/15................................... 3,000,000 2,895,000
** Indianapolis Indiana Airport Auth.
(Federal Express Project)
7.10% 1/15/17.................................. 7,800,000 7,926,750
** Kenton County, Kentucky Airport
(Delta Airlines) Series B, 7.25% 2/1/22........ 4,250,000 4,250,000
7.50% 2/1/12................................... 2,000,000 2,015,000
Oklahoma Tpk. Auth. 1st Senior Revenue
Series 89, 6.00% 1/1/22
(escrowed to maturity)......................... 13,535,000 13,264,300
Series 89, 6.00% 1/1/22........................ 7,465,000 7,399,681
Orlando-Orange County, Florida
Expressway Auth., Sr. Lien, 7.625%
7/1/18 Escrowed to Maturity (AMBAC)............ 715,000 761,475
Orlando-Orange County, Florida Expressway
Auth. Series 90, Jr. Lien 6.50% 7/1/20
(escrowed to maturity) (FGIC).................. 540,000 584,550
Tulsa, Oklahoma Municipal Airport
(American Airlines)
7.35% 12/1/11.................................. 5,000,000 5,118,750
9.50% 6/1/20................................... 4,100,000 4,284,500
----------
63,514,756
----------
Waste Disposal Revenue Bonds-7.04%
Broward County, Florida Resource Recovery
(South Project/Allied Signal)
Series 84, 7.95% 12/1/08....................... 3,670,000 4,009,475
** Marion County, West Virginia County
Commonwealth Solid Waste Disposal
Facilities Revenue (American Power Paper
Recycling Project) 7.75% 12/1/11............... 18,000,000 16,650,000
<PAGE> 13
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Waste Disposal Revenue Bonds(Continued)
** Massachusetts State Industrial Finance Agency
Solid Waste Disposal (Massachusetts
Recycling Association) 9.00% 8/1/16............ $30,750,000 $32,018,438
-----------
52,677,913
Water and Sewer Revenue Bonds-4.34% -----------
** Ashland, Kentucky Sewer & Solid Waste
Revenue (Ashland, Inc. Project)
7.125% 2/1/22.................................. 13,200,000 13,315,500
Mansfield, Texas Waterworks and Sewer
System Revenue 7.375% 8/1/07................... 2,920,000 3,003,950
Massachusetts Water Resource Auth.
6.00% 4/1/20................................... 6,200,000 6,006,250
Minnesota Public Facilities Auth.
(Water Pollution Control)
Series 90A, 7.10% 3/1/12....................... 4,000,000 4,305,000
New York City Municipal Water Finance
Auth., New York Water and Sewer
System Revenue 6.00% 6/15/20................... 1,325,000 1,290,219
St. Augustine, Florida Water and Sewer
Revenue 8.125% 10/1/12......................... 3,000,000 3,165,000
Texas Water Resources Finance Auth. Revenue
7.50% 8/15/13 (AMBAC).......................... 1,300,000 1,386,125
----------
32,472,044
Other Revenue Bonds-5.97% ----------
Delaware County, Pennsylvania Auth.
(Main Line & Haverford Nursing)
9.00% 8/1/22................................... 2,000,000 2,067,500
Delaware State Economic Devel. Auth.
(Peninsula United Methodist Homes, Inc.)
8.50% 5/1/22................................... 3,500,000 3,640,000
District of Columbia Higher Education
Revenue (Georgetown University)
7.15% 4/1/21................................... 7,000,000 7,350,000
Indianapolis, Indiana Local Public
Improvement Bond Bank, Series 1992D
6.50% 2/1/22................................... 1,500,000 1,492,500
Kirbyville, Texas Health Facilities Devel.
Corp., Health Facilities Devel. Revenue
(Heartway-III Corp. Project)
11.25% 3/20/21................................. 2,300,000 1,495,000
Orange County, Florida Tourist Devel.
Tax Revenue 6.00% 10/1/16 (AMBAC).............. 2,000,000 2,007,500
Orleans Levee Dist., Louisiana
8.25% 11/1/15.................................. 750,000 760,313
9
<PAGE> 14
DELAWARE GROUP TAX-FREE USA FUND
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Other Revenue Bonds (Continued)
Tampa, Florida (Florida Aquarium Project)
7.75% 5/1/27................................... $20,000,000 $20,525,000
Tampa, Florida Capital Improvement
Program Revenue 8.375% 10/1/18................... 4,905,000 5,180,906
*Town of Castle Rock, Colorado Improvement
District #1988-2 Special Assessment Bonds
10.50% 12/1/08.................................. 1,500,000 150,000
----------
44,668,719
General Obligation Bonds-1.54% ----------
Florida State Board of Education
7.25% 6/1/23................................... 2,445,000 2,661,994
6.00% 6/1/25................................... 3,000,000 2,966,250
North Slope Borough, Alaska
8.35% 6/30/98.................................. 2,500,000 2,700,000
Texas State 7.40% 12/1/20......................... 3,000,000 3,157,500
-----------
11,485,744
-----------
Total Municipal Bonds (cost $687,362,192)......... 737,587,733
-----------
VARIABLE RATE DEMAND NOTES-1.00%
Allegheny County, Pennsylvania Hospital
Development Auth.
(Presbyterian Health Center)
Series B-1 4.00% 3/1/18........................ 1,375,000 1,375,000
Series B 4.00% 3/1/20 (MBIA)................... 1,100,000 1,100,000
Allegheny County, Pennsylvania
Industrial Development Auth.
(Eye & Ear Properties Corp.)
4.00% 2/1/15................................... 300,000 300,000
California Education Facility Auth.
Revenue (California Institute of Technology)
3.75% 1/1/24................................... 800,000 800,000
Montgomery, Alabama Special Care Facilities
Financing Auth. Series E,
4.05% 12/1/30 (AMBAC).......................... 600,000 600,000
New York, New York Series B-2
4.05% 8/15/19.................................. 1,000,000 1,000,000
New York, New York Series B-4
4.00% 8/15/22.................................. 300,000 300,000
Triborough Bridge and Tunnel Auth.
New York Special Obligation
3.75% 1/1/24 (FGIC)............................ 200,000 200,000
Washington County, Pennsylvania Auth.
Lease Revenue (Eye & Ear)
4.00% 12/15/18................................. 1,700,000 1,700,000
<PAGE> 15
PRINCIPAL MARKET
AMOUNT VALUE
VARIABLE RATE DEMAND NOTES (Continued)
West Virginia State Hospital Finance
Auth. (VHA Mid-Atlantic)
3.80% 12/1/25.................................. $100,000 $ 100,000
-----------
Total Variable Rate Demand Notes
(cost $7,475,000).............................. 7,475,000
-----------
TOTAL MARKET VALUE OF SECURITIES
OWNED-99.60% (cost $694,837,192)............... 745,062,733
RECEIVABLES AND OTHER ASSETS NET OF
LIABILITIES-0.40%.............................. 3,023,365
-----------
NET ASSETS APPLICABLE TO 62,058,924 TAX-FREE
USA FUND A CLASS SHARES AND 818,241 TAX-FREE
USA FUND B CLASS SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO
$11.90 PER SHARE-100.00%.......................... $748,086,098
============
- ---------------------------
* Non-income producing security for the six months ended February 28, 1995.
** This security is subject to the federal alternative minimum tax.
*** For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
AMBAC-Insured by AMBAC Indemnity Corporation.
FGIC-Insured by the Financial Guaranty Insurance Company.
MBIA-Insured by the Municipal Bond Insurance Association.
COMPONENTS OF NET ASSETS:
Common stock, $.01 apr value, 500,000,000
shares authorized to the
Tax-Free USA Fund.............................. $703,599,610
Accumulated undistributed income:
Net realized loss on investments............... (5,739,053)
Net unrealized appreciation of investments..... 50,225,541
------------
Total net assets.................................. $748,086,098
============
See accompanying notes
10
<PAGE> 16
DELAWARE GROUP TAX-FREE INSURED FUND
STATEMENT OF NET ASSETS
February 28, 1995
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS-101.30%
Transportation Revenue Bonds-11.68%
Illinois Regional Transportation Auth.
Series D 6.75% 6/1/25 (FGIC)................... $ 7,970,000 $ 8,308,725
Metropolitan Nashville, Tennessee Airport Auth.
9.75% 7/1/15 (FGIC)............................ 500,000 518,125
Tulsa International Airport (Oklahoma)
General Revenue,
Consolidated Fixed Rate Series
7.50% 6/1/08 (MBIA)............................ 1,500,000 1,597,500
----------
10,424,350
----------
Higher Education Revenue Bonds-2.89%
Massachusetts State Health & Educational
Facilities Auth.
(Boston College) 6.625% 7/1/21 (FGIC).......... 2,500,000 2,575,000
---------
2,575,000
---------
Hospital Revenue Bonds-1.94%
Alabama Special Care Facilities
Financing Auth. of the City of
Mobile Hosp. Revenue (Daughters of
Charity Health Systems-Providence
Hospital) 10.125% 6/1/15 (FGIC)................ 825,000 850,781
Monroeville, Pennsylvania Hospital Auth.
Hospital Revenue (Forbes Health System)
7.00% 10/1/03.................................. 865,000 880,138
---------
1,730,919
---------
Housing Revenue Bonds-7.51%
California Housing Finance Agcy.
6.85% 8/1/23 (MBIA)............................ 3,860,000 3,961,325
Michigan State Housing Devel. Auth.
Multi-Family Insured Housing
8.875% 7/1/17 (FGIC)........................... 1,000,000 1,032,500
New Mexico Mtge. Finance Auth. Single
Family Mtge. 9.25% 7/1/12 (FGIC)............... 60,000 62,025
Prince Georges, Maryland
(Emerson House Project) 7.00% 4/15/19.......... 1,500,000 1,524,375
Rhode Island Housing and Mtge. Finance
Corp. Single Family Mtge.
9.30% 7/1/04 (FGIC)............................ 79,000 80,975
St. Louis County, Missouri Single Family
Mtge. 9.25% 10/1/16 (AMBAC).................... 45,000 46,913
---------
6,708,113
---------
<PAGE> 17
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Pollution Control Revenue Bonds-9.95%
Burke County, Georgia Devel. Auth.
(Georgia Power Co.)
10.125% 6/1/15 (FGIC).......................... $500,000 $ 516,250
*Luzerne County, Pennsylvania Industrial
Development Authority (Pennsylvania
Gas & Water Co. Project)
7.00% 12/1/17 (AMBAC).......................... 1,000,000 1,066,250
Northhampton County, Pennsylvania Industrial
Development Authority (Citizen's Utilities
Co.) 6.95% 8/1/15.............................. 1,000,000 1,038,750
Ohio State Air Quality Devel. Auth.
(Ohio Edison)
7.45% 3/1/16 (FGIC)............................ 2,000,000 2,155,000
Salem County, New Jersey
(Public Service Electric & Gas Co.)
6.55% 10/1/29 (MBIA)........................... 4,000,000 4,110,000
---------
8,886,250
---------
Power Authority Revenue Bonds-6.36%
Georgia Municipal Electric Auth.
8.10% 1/1/12 (BIGI)............................ 2,000,000 2,142,500
Intermountain Power Agcy., Utah
7.25% 7/1/17 (FGIC)............................ 600,000 627,000
South Carolina State Public Service Auth.
Series B 5.875% 1/1/23 (FGIC).................. 3,000,000 2,910,000
---------
5,679,500
---------
Pre-Refunded Bonds**-39.12%
Allegheny County, Pennsylvania Sanitary Auth.
7.50% 12/1/16-99 (FGIC)........................ 750,000 820,313
Anchorage, Alaska 7.75% 5/1/06-96 (FGIC).......... 1,000,000 1,055,000
Brownsville, Texas Utilities System
Authority Revenue
7.50% 9/1/09-96 (FGIC)......................... 400,000 424,500
Central Lake County, Illinois Joint Action
Water Agcy. 7.00% 5/1/20-01 (MBIA)............. 2,300,000 2,555,875
Charlotte, North Carolina Convention Facilities
Project 6.75% 12/1/21-01 (AMBAC)............... 2,500,000 2,768,750
Chicago, Illinois Public Building Commission
(Chicago Board of Education) Series A,
7.75% 1/1/06-99 (FGIC)......................... 500,000 555,625
Chicago, Illinois School Finance
Auth. Refunding
8.75% 6/1/09-95 (FGIC)......................... 200,000 206,236
11
<PAGE> 18
DELAWARE GROUP TAX-FREE USA FUND
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds (Continued)
Cook County, Illinois 7.00%
11/1/10-00 (MBIA).............................. $2,800,000 $3,101,000
Dallas County, Texas Utility & Reclamation
Dist. 7.75% 2/15/05-96 (MBIA).................. 1,350,000 1,410,750
District of Columbia
7.75% 6/1/04-96 (FGIC)......................... 1,000,000 1,055,000
Farmington, New Mexico Utility System
Revenue 9.75% 5/15/13-96 (FGIC)................ 580,000 625,675
Heartland, South Dakota Consumers Power Dist.
Electric Revenue
7.875% 1/1/06-97 (AMBAC)....................... 900,000 965,250
Houston, Texas Sewer System
9.375% 12/1/13-95 (FGIC)....................... 500,000 527,500
Intermountain Power Agcy., Utah
9.125% 7/1/18-95 (AMBAC)....................... 200,000 207,194
8.375% 7/1/12-97 (AMBAC)....................... 1,000,000 1,095,000
Lewisville, Texas Water & Sewer
8.00% 2/15/04-97 (AMBAC)....................... 1,005,000 1,064,044
8.05% 2/15/05-97 (AMBAC)....................... 335,000 355,100
Louisiana Public Hospital Facilities Auth.
(General Health, Inc.)
9.50% 11/1/14-95 (MBIA)........................ 250,000 262,813
Louisiana Public Facilities Auth. Health &
Education Capital Facilities Revenue (Our
Lady of the Lake Regional Medical Center)
8.20% 12/1/15-98 (BIGI)........................ 800,000 891,000
Massachusetts State Consolidated Loan
Series C, 7.00% 6/1/09-99 (AMBAC).............. 1,500,000 1,636,875
Michigan Public Power Agcy.
(Belle River Project) 7.25%
1/1/12-96 (AMBAC).............................. 900,000 938,250
Monongalia County, West Virginia
(West Virginia University Hospital)
9.375% 6/1/18-95 (MBIA)........................ 465,000 480,215
New Orleans, Louisiana International Airport
9.00% 8/1/15-95 (MBIA)......................... 300,000 314,250
North Carolina Eastern Municipal Power Agcy.
7.25% 1/1/22-97 (FGIC)......................... 750,000 796,875
North Little Rock, Arkansas Electric
System Revenue
(Murray Lock and Dam Hydroelectric Project)
9.50% 7/1/15-95 (MBIA)......................... 500,000 523,535
Ohio State Water Devel. Auth.
9.375% 12/1/18-95 (AMBAC)...................... 155,000 161,586
<PAGE> 19
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds (Continued)
Pennsylvania Turnpike Commission Revenue
7.625% 12/1/17-98 (FGIC)....................... $2,425,000 $ 2,688,719
Piedmont, South Carolina Municipal
Power Agcy. 9.25% 1/1/19-96 (AMBAC)............ 445,000 475,038
Reno, Nevada (St. Mary's Hospital-85A)
9.75% 7/1/04-95 (MBIA)......................... 250,000 259,550
Snohomish County, Washington Public Utility
Dist. #1 7.375% 1/1/19-97 (BIGI)............... 1,625,000 1,728,594
Texas Municipal Power Agency
9.20% 9/1/11-95 (AMBAC)........................ 150,000 156,375
Valley View, Illinois Public Schools
Community Unit School Dist. (Will County)
9.375% 12/1/02-95 (MBIA)....................... 250,000 259,063
Washington State Health Care Facilities
(General Hospital-Everett)
9.00% 1/1/11-95 (FGIC)......................... 350,000 362,093
Washington State Public Power
Supply System (Nuclear Project #3)
7.25% 7/1/16-99 (BIGI)......................... 2,300,000 2,530,000
Western Minnesota Municipal Power Agency
8.125% 1/1/16-96 (AMBAC)....................... 1,000,000 1,048,750
West View Pennsylvania Municipal Authority
Water Revenue 9.50% 11/15/17-95 (FGIC)......... 600,000 621,000
----------
34,927,393
Water & Sewer Revenue Bonds-8.75% ----------
Austin, Texas Utilities System Series 90A
6.00% 5/15/15 (FGIC)........................... 1,275,000 1,271,813
North Charleston South Carolina Sewer Revenue
Series A, 6.125% 7/01/03 (MBIA)................ 1,330,000 1,413,125
Ohio State Water Devel. Auth.
9.375% 12/1/18 (AMBAC)......................... 31,000 32,163
Seattle, Washington Municipality Metropolitan
Seattle Sewer Revenue Series U
6.60% 1/1/32 (FGIC)............................ 5,000,000 5,093,750
---------
7,810,851
---------
Other Revenue Bonds-8.42%
Arizona Educational Loan Marketing Revenue
Series 92A, 6.70% 3/1/00....................... 1,750,000 1,826,563
Chelan County, Washington Public Utility Dist.
(Columbia River Rock Hydroelectric Project)
9.20% 7/1/13 (FGIC)............................ 185,000 191,244
Convention Center Auth. of Rhode Island
Revenue 6.80% 5/15/00 (MBIA)................... 1,000,000 1,076,250
12
<PAGE> 20
DELAWARE GROUP TAX-FREE USA FUND
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
MUNICIPAL BONDS (Continued)
Other Revenue Bonds (Continued)
*Massachusetts State Industrial Finance
Agency Solid Waste Disposal
(Massachusetts Recycling Association)
9.00% 8/1/16................................... $4,250,000 $4,425,313
----------
7,519,370
General Obligation Bonds-4.68% ----------
Chicago, Illinois
Series 86A, 7.25% 1/1/06 (MBIA)................ 500,000 523,750
Series 86B, 7.25% 1/1/06 (MBIA)................ 500,000 523,750
Louisiana State General Obligation
7.00% 8/1/02................................... 1,000,000 1,056,250
Orleans Parish, Louisiana School Board,
Public School Capital Funding
7.00% 6/1/09 (MBIA)............................ 2,000,000 2,077,500
----------
4,181,250
----------
Total Municipal Bonds (cost $85,235,673).......... 90,442,996
----------
VARIABLE RATE DEMAND NOTES-0.45%
New York City, New York Series B
4.05% 10/1/20 (FGIC)........................... 100,000 100,000
New York City, New York Series B-4
4.00% 8/15/21.................................. 100,000 100,000
New York City, New York Series B-4
4.00% 8/15/22.................................. 200,000 200,000
-------
Total Variable Rate Demand Notes
(cost $400,000)................................ 400,000
-------
Market
Value
TOTAL MARKET VALUE OF SECURITIES
OWNED-101.75% (cost $85,635,673)............... $90,842,996
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS-(1.75%)........................... (1,561,594)
-----------
NET ASSETS APPLICABLE TO 8,047,253 TAX-FREE
INSURED FUND A CLASS AND 129,027 TAX-FREE
INSURED FUND B CLASS SHARES ($.01 par value)
OUTSTANDING; EQUIVALENT TO
$10.92 PER SHARE-100.00%....................... $89,281,402
===========
- ------------------------------
* This security is subject to the federal alternative minimum tax.
** For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
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.
COMPONENTS OF NET ASSETS
Common stock, $.01 par value, 500,000,000 shares
authorized to the Tax-Free Insured Fund........ $85,975,097
Accumulated undistributed income:
Net realized loss on investments............... (1,901,018)
Net unrealized appreciation of investments..... 5,207,323
-----------
Total net assets.................................. $89,281,402
===========
See accompanying notes
13
<PAGE> 21
Delaware Group Tax-Free Fund
Statement of Operations
Six Months Ended February 28, 1995
(Unaudited)
Tax-Free Tax-Free
USA Insured
Fund Fund
-------- --------
INVESTMENT INCOME:
Interest.......................................... $26,384,282 $3,031,178
----------- ----------
EXPENSES:
Management fees................................... 2,142,399 258,695
Distribution expenses............................. 662,998 80,933
Registration fees................................. 29,773 10,075
Dividend disbursing and transfer agent
fees and expenses 260,122 31,716
Reports and statements to shareholders............ 53,502 9,319
Professional fees................................. 7,285 8,129
Custodian fees ................................... 16,610 7,353
Salaries expense.................................. 90,194 10,923
Taxes (other than taxes on income)................ 43,200 1,850
Directors' fees................................... 3,999 3,999
Other............................................. 23,428 13,975
---------- ---------
Total Expenses.................................... 3,333,510 436,967
---------- ---------
NET INVESTMENT INCOME............................. 23,050,772 2,594,211
---------- ---------
NET REALIZED LOSS AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized loss from security transactions....... (2,723,782) (968,142)
Net unrealized appreciation (depreciation) on
investments during the period................... (6,084,195) 60,655
NET REALIZED AND UNREALIZED ----------- ----------
LOSS ON INVESTMENTS............................. (8,807,977) (907,487)
----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS....................... $14,242,795 $1,686,724
=========== ==========
See accompanying notes
<PAGE> 22
Delaware Group Tax-Free Fund
Statement of Changes in Net Assets
Six Months Ended February 28, 1995
(Unaudited)
Tax-Free Tax-Free
USA Insured
Fund Fund
-------- --------
OPERATIONS:
Net investment income.............................. $23,050,772 $2,594,211
Net realized loss from security transactions....... (2,723,782) (968,142)
Net unrealized appreciation (depreciation)
during the period............................... (6,084,195) 60,655
---------- ---------
Net increase in net assets resulting
from operations................................. 14,242,795 1,686,724
---------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income:
Class A............................................ (22,847,074) (2,567,553)
Class B............................................ (203,698) (26,658)
---------- ---------
Net realized gain from security transactions:...... (23,050,772) (2,594,211)
---------- ---------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A............................................ 49,490,760 4,027,371
Class B............................................ 6,207,479 689,093
Net asset value of shares issued upon reinvestment
of dividends from net investment income:
Class A............................................ 12,702,825 1,334,265
Class B............................................ 95,487 11,857
---------- ---------
68,496,551 6,062,586
Cost of shares repurchased:
Class A............................................ (60,787,357) (7,807,698)
Class B............................................ (548,041) (126,800)
---------- ----------
(61,335,398) (7,934,498)
Increase (decrease) in net assets derived ---------- ----------
from capital share transactions................. 7,161,153 (1,871,912)
---------- ----------
NET DECREASE IN NET ASSETS......................... (1,646,824) (2,779,399)
NET ASSETS:
Beginning of period................................ 749,732,922 92,060,801
------------ -----------
End of period...................................... $748,086,098 $89,281,402
============ ===========
See accompanying notes
14
<PAGE> 23
Delaware Group Tax-Free Fund
Statement of Changes in Net Assets (Continued)
Year Ended 8/31/94
Tax-Free Tax-Free
USA Insured
Fund Fund
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 shares 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
============ ===========
See accompanying notes
<PAGE> 24
Delaware Group Tax-Free 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 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-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 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-Investment income, common expenses, and gain (loss) are
allocated to the various classes of the Funds 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 daily 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.
15
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Investment Management and Distribution Agreements
In accordance with the terms of the Investment Management Agreements, the
Funds pay Delaware Management Company, Inc., (the "Investment Manager") 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 February 28,
1995, the liabilities for Investment Management fees payable to Delaware
Management Company, Inc. were $24,399 and $4,137, respectively, for the
Tax-Free USA Fund and the Tax-Free Insured Fund.
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 has heretofore conducted its
relationship with the Funds. The same personnel who managed the operations
and affairs of the Funds before the Acquisition have continued to manage
its operations and affairs since the Acquisition.
Pursuant to the Distribution Agreement, the Funds pay Delaware Distributors
L.P., the Distributor and an affiliate of Delaware Management Company, an
annual fee not to exceed 0.30% of the average daily net assets of Class A
and 1.00% of the average daily net assets of Class B for the Funds. At
February 28, 1995, the liabilities for distribution fees payable to
Delaware Distributors were $23,771 and $1,747 respectively, for the
Tax-Free USA Fund and the Tax-Free Insured Fund. For the six months ended
February 28, 1995, the Funds paid Delaware Distributors $112,437 and
$12,689, respectively for commissions earned on sales of Tax-Free USA Fund
A Class and Tax-Free Insured Fund A Class.
Certain officers of the Investment Manager are officers, directors, and or
employees of the Funds. These officers, directors and shareholders are paid
no compensation by the Funds. The Funds have 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, DSC billed the following amounts for these
services:
Tax-Free USA Fund Tax-Free Insured Fund
----------------- ---------------------
Dividend disbursing and transfer
agent fees and expenses......... $243,622 $31,716
At February 28, 1995, the Funds had liabilities for such fees payable to
Delaware Service Company as follows:
Tax-Free USA Fund Tax-Free Insured Fund
Dividend disbursing and ----------------- ---------------------
transfer agent fees and
expenses payable................ $8,661 $619
<PAGE> 26
3. Investments
During the period ended February 28, 1995, the Funds had purchases and sales
of investment securities other than U.S. Government securities and temporary
cash investments totalling as follows:
Tax-Free USA Fund Tax-Free Insured Fund
----------------- ---------------------
Purchases........................ $126,294,314 $28,200,448
Sales............................ $94,781,955 $24,888,021
At February 28, 1995, unrealized appreciation for federal income tax
purposes was as follows:
Tax-Free USA Fund Tax-Free Insured Fund
----------------- ---------------------
Unrealized appreciation........... $54,899,491 $5,207,323
Unrealized depreciation........... (4,673,950) _
----------- ----------
Aggregated unrealized
appreciation..................... $50,225,541 $5,027,323
=========== ==========
Net realized loss for federal income taxes purposes was $2,726,776 for the
Tax-Free USA Fund and 968,142 for the Tax-Free Insured Fund for the six
months ended February 28, 1995.
4. Capital Stock
Tax-Free USA Fund Tax-Free Insured Fund
----------------- ---------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
2/28/95 8/31/94 2/28/95 8/31/94
Shares Sold:
Class A.......................... 4,234,744 7,648,471 376,480 708,738
Class B.......................... 529,857 325,960 64,767 75,701
Shares issued upon
reinvestment of dividends
from net investment income:
Class A.......................... 1,085,549 2,191,177 124,383 293,357
Class B.......................... 8,162 1,013 1,104 115
--------- ---------- ------- ---------
5,858,312 10,166,621 566,734 1,077,911
Share repurchased:
Class A..........................(5,192,358)(8,257,447) (730,493) (952,546)
Class B.......................... (46,741) (10) (11,750) (910)
--------- --------- ------- -------
(5,239,099)(8,257,457) (742,243) (953,456)
Net Increase (decrease) 619,213 1,909,164 (175,509) 124,455
======= ========= ======= =======
5. LINES OF CREDIT
The Funds have a committed line of credit of fifteen million dollars for the
Tax-Free USA Fund and two million dollars for the Tax-Free Insured Fund. No
amounts were outstanding at February 28, 1995, or at any time during the last
fiscal period.
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 statements of net
assets.
16
<PAGE> 27
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
TAX-FREE USA FUND A CLASS FUND B CLASS
---------------------------------------------------- ----------------------
SIX MONTHS | SIX MONTHS PERIOD
ENDED YEAR ENDED | ENDED 5/2/94(3) TO
2/28/95(4) 8/31/94 8/31/93 8/31/92(*) 8/31/91 8/31/90 | 2/28/95(4) 8/31/94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $12.040 $12.640 $12.130 $11.560 $11.070 $11.600 | $12.040 $12.080
|
Income from investment operations: |
Net investment income.................... 0.373 0.751 0.751 0.765 0.783 0.817 | 0.325 0.214
Net realized and unrealized |
gain (loss) from security transactions.. (0.140) (0.566) 0.610 0.570 0.490 (0.530) | (0.140) (0.040)
------- ------- ------- ------- ------- ------- | ------- -------
|
Total from investment operations......... 0.233 0.185 1.361 1.335 1.273 0.287 | 0.185 0.174
------- ------- ------- ------- ------- ------- | ------- -------
|
Less distributions: |
Dividends from net investment income..... (0.373) (0.751) (0.751) (0.765) (0.783) (0.817) | (0.325) (0.214)
Distributions from net |
realized gain on security transactions.. none (0.034) (0.100) none none none | none none
------- ------- ------- ------- ------- ------- | ------- -------
|
Total distributions...................... (0.373) (0.785) (0.851) (0.765) (0.783) (0.817) | (0.325) (0.214)
------- ------- ------- ------- ------- ------- | ------- -------
|
Net asset value, end of period............ $11.900 $12.040 $12.640 $12.130 $11.560 $11.070 | $11.900 $12.040
======= ======= ======= ======= ======= ======= | ======= =======
|
Total return(2)........................... 4.09% 1.49% 11.66% 11.91% 11.88% 2.50% | 3.25% 1.45%
|
Ratios/supplemental data: |
Net assets, end of period (000 omitted)..$738,351 $745,796 $762,574 $702,988 $669,546 $611,505 | $9,735 $3,937
Ratio of expenses to average net assets.. 0.92% 0.89% 0.89% 0.80% 0.74% 0.75% | 1.74% 1.74%
Ratio of net investment |
income to average net assets........... 6.42% 6.07% 6.10% 6.47% 6.91% 7.12% | 5.60% 5.22%
Portfolio turnover....................... 27% 10% 12% 21% 19% 14% | 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 load of 4.75% nor the 1% limited contingent
deferred sales charge that would apply in the event of certain redemption
within 12 months of purchase for the Tax-Free USA Fund A Class or contingent
deferred sales charge for Tax-Free USA Fund B Class. Six month returns have
been annualized.
(3)Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(4)Ratios and total return have been annualized.
17
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
TAX-FREE INSURED
TAX-FREE INSURED FUND A CLASS FUND B CLASS
---------------------------------------------------------------- ---------------------
SIX MONTHS | SIX MONTHS PERIOD
ENDED YEAR ENDED | ENDED 5/2/94(1) TO
2/28/95(4) 8/31/94 8/31/93 8/31/92(2) 8/31/91 8/31/90 | 2/28/95(4) 8/31/94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.......$11.020 $11.680 $11.310 $10.900 $10.460 $10.690 | $11.020 $10.990
|
Income from investment operations: |
Net investment income..................... 0.318 0.622 0.638 0.674 0.699 0.714 | 0.274 0.179
Net realized and unrealized gain |
(loss) from security transactions.......... (0.100) (0.560) 0.400 0.410 0.440 (0.230) | (0.100) 0.030
------- ------- ------- ------- ------- ------- | ------- -------
|
Total from investment operations........... 0.218 0.062 1.038 1.084 1.139 0.484 | 0.174 0.209
------- ------- ------- ------- ------- ------- | ------- -------
|
Less distributions: |
Dividends from net investment income...... (0.318) (0.622) (0.638) (0.674) (0.699) (0.714) | (0.274) (0.179)
Distributions from net realized gain |
on security transactions................. none (0.100) (0.030) none none none | none none
------- ------- ------- ------- ------- ------- | ------- -------
|
Total distributions....................... (0.318) (0.722) (0.668) (0.674) (0.699) (0.714) | (0.274) (0.179)
------- ------- ------- ------- ------- ------- | ------- -------
|
Net asset value, end of period.............$10.920 $11.020 $11.680 $11.310 $10.900 $10.460 | $10.920 $11.020
======= ======= ======= ======= ======= ======= | ======= =======
|
Total return(3)............................ 4.17% 0.54% 9.48% 10.23% 11.20% 4.63% | 3.33% 1.91%
|
Ratios/supplemental data: |
Net assets, end of period (000 omitted)...$87,872 $91,235 $96,118 $85,660 $76,700 $61,394 | $1,409 $826
Ratio of expenses to average net assets... 1.00% 0.98% 0.98% 0.86% 0.83% 0.83% | 1.82% 1.83%
|
Ratio of net investment income |
to average net assets................... 5.99% 5.48% 5.58% 6.06% 6.50% 6.69% | 5.17% 4.63%
Portfolio turnover........................ 58% 56% 8% 29% 10% 13% | 58% 56%
</TABLE>
- ------------
(1)Date of initial public offering; ratios have been annualized and 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 the contingent deferred sales charge for the Tax-Free Insured Fund B
Class. Six month returns have been annualized.
(4)Ratios and total return have been annualized.
18
<PAGE> 29
<TABLE>
BOARD MEMBERS OTHER AFFILIATED OFFICERS
<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 Tax-Free 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 Tax-Free 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> 30
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.
DELAWARE GROUP
Be sure to consult your financial A TRADITION OF SOUND INVESTING SINCE 1929
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 (PHOTO OF VARIOUS COLONIAL OBJECTS)
or any credit union, and involve
investment risk, including the
possible loss of principal. Shares
of the Fund are not bank or credit
union deposits.
INVESTMENT MANAGER
Delaware Management Company, Inc.
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd. 1995
NATIONAL DISTRIBUTOR Semi-
Delaware Distributors, L.P.
Annual
SHAREHOLDER SERVICING, DELAWARE
DIVIDEND DISBURSING Report GROUP
AND TRANSFER AGENT ========
Delaware Service Company, Inc. Tax-Free Fund
Tax-Free USA
4/95-PP-SA-011 Tax-Free Insured
Printed in the U.S.A.
