<PAGE>
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 manages a full range of mutual fund and annuity
investments and also offers 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 more than $30 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.
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.
Investment
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Objectives
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Tax-Free USA Fund
To seek as high a level of current interest 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.
Tax-Free USA Intermediate 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.
<PAGE>
September 5, 1996
Dear
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Shareholder:
- ---------------------------
This past fiscal year has taxed the patience of municipal bond investors. A
combination of political rhetoric, interest rate fluctuations and the
possibility of federal tax reform undermined the municipal bond market's
fundamental strengths.
For the 12 months ended August 31, 1996, Delaware Group's three national
tax-free funds provided attractive income relative to their peers and positive
total returns. We are pleased to report that the Tax-Free USA Intermediate Fund
outperformed both the average of similar funds and the unmanaged Merrill Lynch
index shown below.
Tax-Free USA Fund's total return was below that of the unmanaged Lehman Brothers
Municipal Bond Index and the average of comparable mutual funds primarily
because two paper recycling plant bonds in the Fund's portfolio declined in
price in response to weak industry conditions. We discuss this further on page
4.
Overall, we are encouraged by the fact that municipal bond prices have been
stronger than Treasuries in the past several months. The long-term outlook for
tax-free securities should become clearer after the Presidential election.
No matter who wins at the federal level, we expect state and local governments
to take on greater responsibilities for a broad spectrum of services. We think
this will be a healthy development for municipal bond investors for two reasons:
* a less intrusive federal bureaucracy may permit local governments to
develop innovative solutions to regional problems;
* a greater need to rely on bond investors rather than federal resources to
finance programs may prompt local officials to adopt more prudent fiscal
disciplines.
During the past fiscal year, a strong U.S. economy has helped increase the
fiscal health of many communities across the country. Through mid-1996,
municipal bond rating upgrades by Moody's Investors Services outnumbered
downgrades by a nearly four-to-one ratio.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Total Return 30-Day Yield
-------------------- -------------------
12 Months Ended As of
Aug. 31, 1996 Aug. 31, 1996
-------------------- -------------------
<S> <C> <C>
Tax-Free USA Fund A +1.91% 5.24%
Lehman Brothers Municipal Bond Index +5.24% 5.49%
Lipper Municipal Debt Fund Average (228 funds) +4.68% 4.79%
- -----------------------------------------------------------------------------------------------------
Tax-Free Insured Fund A +3.88% 4.60%
Lipper Insured Municipal Debt Fund Average (48 funds) +4.90% 4.49%
- -----------------------------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund A +4.52% 4.83%
Merrill Lynch Three-to-Seven Year Municipal Bond Index +3.69% 4.67%
Lipper Intermediate Municipal Debt Average (148 funds) +3.89% 4.26%
- -----------------------------------------------------------------------------------------------------
All performance quoted above is based on net asset value. Performance and SEC
yield for all classes of the three funds can be found on pages 7 and 8. Yield
calculated according to Securities and Exchange Commission guidelines.
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
In fiscal 1996, Patrick P. Coyne, senior portfolio manager of Delaware Group's
three national tax-free funds, repositioned the Tax-Free USA and Tax-Free
Insured Funds to favor slightly longer term bonds. Tax-Free USA Intermediate
Fund's focus, meanwhile, was unchanged. We believe Mr. Coyne's actions should
help enhance the income potential of your Funds. Inside, he reviews the funds'
performance and outlines his approach for the coming months.
While some change in federal tax policy is possible in 1997, what form that
change may take is unclear. We can say with reasonable certainty, however, that
elected officials are affected by the "vote" of the bond market.
On behalf of our investment professionals here in Philadelphia, I would like to
thank you for your vote of confidence. Next March, Delaware Group will mark 20
years of managing municipal bond funds for investors seeking regular income
without the burden of federal taxation.
Sincerely,
/s/ Wayne A. Stork
- ---------------------------------
Wayne A. Stork
Chairman, President
and Chief Executive Officer
Portfolio
- ---------------------------
Manager's
- ---------------------------
Review
- ---------------------------
Uncertainty can create opportunity, and this was certainly the case in the
municipal bond market during the past fiscal year. Despite hype about "flat tax"
reform, a quasi-shutdown of the federal government this past winter and recent
rhetoric about the impact of federal social services legislation on major
cities, municipal bonds generally outperformed other investment grade,
fixed-income securities.
The Lehman Brothers Municipal Index rose +5.24% for the 12 months ended August
31, 1996, more than 150 basis points (1.5%) higher than the Lehman Brothers
Government/Corporate Index, which includes Treasuries, government-backed
mortgages and corporate bonds rated BBB and higher.
Higher interest rates since February, 1996 have nevertheless taken their toll on
the municipal market. The Lehman Brothers Municipal Index rose a scant +0.45%
during the six months ended August 31 amid investor concern about a possible
acceleration in consumer prices. Monthly government statistics have sent mixed
signals about future inflation. Our conclusion is that U.S. economic growth will
moderate in the months ahead.
Although short-term volatility in municipal bond prices has been high for the
past two years, two fundamental factors suggest the market is quite healthy:
Municipal Bond Yields vs. U.S. Treasury Yields
Tax-Adjusted for the 28% Bracket
Tax Adjusted
AAA Municipal Bonds U.S. Treasuries AAA Municipal Bonds
August 31, 1996 August 31, 1996 August 31, 1995
------------------- ---------------- -------------------
1 yr. 3.87% 4.272% 3.65%
2 yr. 4.12% 4.563% 3.85%
3 yr. 4.32% 4.686% 4.01%
4 yr. 4.47% 4.756% 4.16%
5 yr. 4.57% 4.825% 4.31%
7 yr. 4.77% 4.882% 4.56%
10 yr. 5.07% 4.966% 4.86%
15 yr. 5.48% 4.996% 5.46%
20 yr. 5.65% 5.026% 5.73%
25 yr. 5.69% 5.056% 5.85%
30 yr. 5.71% 5.086% 5.87%
As of August 31, 1996, yields on long-term municipal bonds exceeded yields on
Treasuries on a tax-adjusted basis for most investors. Treasury yields are
adjusted downward to reflect a 28% federal income tax.
<PAGE>
* Declining Supplies of New Bonds. Since 1993, the amount of new tax-exempt
securities issued by states and municipalities has dropped significantly and
the overall amount of municipal debt outstanding has declined by $124
billion. This should help support bond prices if investor demand remains
steady or increases.
* Improving Credit Quality. Some 150 municipalities had their bonds' credit
rating upgraded during the first six months of 1996 by Moody's Investors
Services while only 39 municipalities had their debt downgraded. This shows
that many states and cities remain financially sound.
The Funds' Investment Strategies
Tax-Free USA Fund
Historically, Tax-Free USA Fund has invested in high- and medium-quality bonds
with high coupons. Higher coupon bonds tend to be impacted less by changes in
interest rates than bonds which pay interest in line with current rates.
In falling rate environments, bonds that generate higher levels of income
(higher coupons) tend to underperform other types of fixed-income securities.
This is because they are more likely to be called (redeemed by the issuer).
Conversely, when rates rise, as they have since February, portfolios of high
coupon bonds tend to outperform the rest of the bond market. We believe this
strategy can produce a higher level of tax-free income and a greater degree of
price stability than strategies that attempt to seek capital appreciation when
interest rates fall.
And, in fact, this defensive strategy served the Fund relatively
well during the fiscal year, allowing us to provide a greater level of
tax-free income than many of our peers. However, your Fund's short-term total
return was not as strong as the overall municipal bond market, primarily for
two reasons:
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Portfolio Characteristics
August 31, 1995 August 31, 1996
--------------- ---------------
Tax-Free USA Fund
Average Effective Maturity 9.6 years 11.7 years
Average Effective Duration 6.1 years 6.9 years
Average Quality AA AA
Tax-Free Insured Fund
Average Effective Maturity 11.0 years 12.3 years
Average Effective Duration 6.8 years 7.5 years
Average Quality AAA AAA
Tax-Free USA Intermediate Fund
Average Effective Maturity 5.9 years 5.6 years
Average Effective Duration 4.9 years 4.6 years
Average Quality AA AA
- -------------------------------------------------------------------------------
<PAGE>
Credit Quality of Your Fund's Portfolio
August 31, 1996
AAA 38.38%
AA 14.37%
A 15.32%
BBB 17.6%
BB 3.51%
Non-Rated 10.81%
1. Poor performance from two bond issues that made up a total of 5% of your
Fund's net assets as of August 31. These bonds financed paper recycling plants
whose revenue stream was negatively affected by production problems and by weak
demand for recycled pulp.
2. During the first half of the fiscal year, we increased your Fund's duration
by nearly a year to maintain your Fund's income potential as interest rates
fell. Duration is the most common measure of a bond's sensitivity to interest
rates. It indicates the likely percentage change in a bond's price given a 1%
movement in interest rates. When interest rates unexpectedly rose beginning in
February, the Fund was adversely affected by the overall decline in bond prices.
Generally, we strive to keep portfolio turnover low. Historically, this has
helped the Fund maximize its tax-efficiency since this strategy tends to reduce
capital gains payouts, which are taxable. (See page 6 for more on the Fund's
tax-adjusted total returns). At times, however, it is prudent for the Fund to
realize a capital gain to a) reduce the risk that a portion of the portfolio
might be called prior to maturity and b) maximize the Fund's income potential.
National Diversity Can Help Reduce Risk
To improve income, we invest in bonds from states that have little or no income
taxes such as Florida and Texas. Generally, the Fund is able to get higher
yields on bonds from low-tax states - as opposed to high-tax states such as
California and New York - because demand for these bonds is lower, forcing
municipalities to offer higher yields to attract investors. During the past
year, our Florida bonds, among them issues that financed an aquarium in Tampa,
did well.
Although Massachusetts is a very high tax state, the Fund had an opportunity to
buy the state's bonds at attractive yields during the last recession and has
held them ever since. As of August 31, Tax-Free USA Fund held more municipal
bonds from Massachusetts than any other state, followed respectively by
Pennsylvania, Florida and Texas.
Tax-Free Insured Fund
Employing national diversification and high coupon strategies similar to
Tax-Free USA Fund, Tax-Free Insured Fund 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. The value of the insurance depends on the financial
strength of the insurance company guaranteeing the bonds.
The Fund focuses on very high quality securities. Overall, the financial health
of the municipal bond market was quite sound during the past fiscal year.
Insurance companies have guaranteed more than half of all bonds issued during
1996, and rating services' credit quality upgrades have substantially
outnumbered downgrades.
<PAGE>
Tax-Free USA Intermediate Fund
Intermediate-term securities were the municipal bond market's "sweet spot"
during the past fiscal year. Generally, intermediate-term municipal bonds
offered a high percentage of the tax-free income available from very-long-term
bonds with less interest rate risk.
By maintaining an effective duration of between four and five years, Tax-Free
USA Intermediate Fund provided greater rewards and less price volatility than a
portfolio of longer term bonds.
During the fiscal year, Tax-Free USA Intermediate Fund Class A outperformed the
unmanaged Merrill Lynch Three-to-Seven Year Municipal Bond Index, a benchmark of
the intermediate bond market, by more than 80 basis points (0.80%) primarily
because:
1. We focused on bonds with relatively high coupons, which generated higher
income. More than half the Fund's portfolio was composed of bonds with coupons
in excess of 5.75% as of August 31.
2. Our effective duration was shorter than that of the Merrill Lynch Index by
about two years. Although this prevented the Fund from fully benefiting when
interest rates fell during the fall of 1995, this strategy helped preserve
principal in the spring when interest rates rose and bond prices declined.
Outlook
On November 5, America will pick the last President of the 20th Century. Whoever
wins, we believe the task of building the bridges of the future and maintaining
existing highway, water and school systems rests with local and state
governments rather than centralized authority in Washington.
We believe municipalities will continue to need private investors to fund
operations, refinance debt and make capital improvements. Bond issuers will
therefore have to offer competitive interest rates while community leaders will
be compelled to act responsibly or lose credibility with the municipal bond
market, which is dominated by individual investors and mutual funds. Our funds
will remain focused on states with growing populations, healthy tax bases and
generally prudent fiscal management.
Credit Quality of
Tax-Free Insured Fund's Portfolio
August 31, 1996
AAA 83.32%
A 4.65%
BBB 10.33%
Non-Rated 1.71%
More than eight out of every 10 bonds in your Fund's portfolio were rated AAA by
Standard & Poor's - the highest rating available - as of August 31.
Credit Quality of
Tax-Free Intermediate Fund's Portfolio
August 31, 1996
AAA 83.32%
A 4.65%
BBB 10.33%
Non-Rated 1.71%
More than two-thirds of the bonds in your Fund's portfolio were rated AA or
better by Standard & Poor's as of August 31.
<PAGE>
(Photo of Patrick P. Coyne)
By seeking a balance between quality and high income potential, we believe
Tax-Free USA Fund, Tax-Free Insured Fund and Tax-Free USA Intermediate Fund are
well-positioned for whatever change lies ahead, including the inevitable
potholes of federal tax reform proposals and volatility in interest rates.
/s/ Patrick P. Coyne)
- ------------------------------
Patrick P. Coyne
Vice President
Senior Portfolio Manager
September 5, 1996
A Look at Taxes
- ------------------------------
and Performance
- ------------------------------
Since inception, Delaware Group's national tax-free funds have been dedicated to
providing high income free from federal taxation as well as minimizing
shareholders' exposure to capital gains taxes.
When a municipal bond fund distributes a capital gain or income subject to the
federal alternative minimum tax, it reduces tax-adjusted total return. We are
pleased to report that Tax-Free USA Fund has a superior record of tax-efficiency
relative to its peers, as tracked by Morningstar Inc.
Tax-Free USA Fund's
Tax-Adjusted Average Annual Total Return (Class A shares, dividends and capital
gains reinvested Assumes 4.75% front-end sales charge and a 39.6% federal tax
bracket)
Morningstar Municipal
Tax-Free National Bond
USA Fund Fund Average
-------------- ---------------------
Three Years +4.63% +4.40% (301 funds)
Five Years +7.33% +6.74% (190 funds)
10 Years +7.56% +6.98% (106 funds)
Source: Morningstar Inc. Morningstar does not calculate one-year tax-adjusted
returns or report the tax-efficiency of insured and intermediate-term municipal
bond funds separately. Above results for the above periods reflect the latest
available data for the periods ended April 30, 1996. The next update is expected
to be in November. The Fund has capital gains and losses that have not yet been
realized and this may affect future tax-adjusted returns. Returns would be
higher for investors in lower tax brackets. Some taxpayers may be affected by
the federal alternative minimum tax. Non-tax adjusted returns for all classes
can be found on pages 7and 8. Past performance does not guarantee future
results.
<PAGE>
A Look at
- ------------------------------
Long-Term Performance
- ------------------------------
Tax-Free USA Fund and Tax-Free Insured Fund
vs. Lehman Brothers Municipal Indes and Inflation
Lehman Brothers Tax-Free U.S. Consumer Tax-Free
Municipal Bond Index USA Fund A Price Index Insured B
-------------------- --------- ------------- ---------
Aug.'86 $10000 $10000 $10000 $10000
Aug.'87 $10463 $ 9678 $10429 $ 9744
Aug.'88 $11182 $10631 $10846 $10470
Aug.'89 $12410 $12212 $11356 $11781
Aug.'90 $13208 $12695 $11994 $12459
Aug.'91 $14765 $13852 $12450 $13595
Aug.'92 $16377 $15502 $12841 $14987
Aug.'93 $18416 $17309 $13197 $16407
Aug.'94 $18442 $17566 $13580 $16495
Aug.'95 $20077 $18750 $13935 $17540
Aug.'96 $21129 $19109 $14333 $18220
Chart includes the effect of a 4.75% front-end sales charge and reinvestment of
distributions. The Lehman Brothers Municipal Bond Index is unmanaged. The U.S.
Comsumer Price Index is the government's main measure of inflation.
More than half of all shareholders in each of Delaware Group's three national
tax-free funds reinvest monthly distributions, thus benefiting from long-term
compounding of returns over time.
Performance Summary
Average Annual Total Return Through August 31, 1996
Tax-Free USA Fund 10 Years Five Years One Year
Class A (Est.1984) +6.69% +5.61% -2.91%
Lifetime One Year
Class B (Est.1994)
Excluding Sales Charge +3.60% -- +1.11%
Including Sales Charge +2.42% -- -2.72%
Class C* (Est.1995)
Excluding Sales Charge -1.44% -- --
Including Sales Charge -2.38% -- --
- ------------------------------------------------------------------------------
Tax-Free Insured Fund 10 Years Five Years One Year
Class A (Est.1985) +6.18% +5.01% -1.05%
Lifetime One Year
Class B (Est.1994)
Excluding Sales Charge +4.48% -- +3.05%
Including Sales Charge +3.27% -- -0.88%
Class C* (Est.1995)
Excluding Sales Charge +0.01% -- --
Including Sales Charge -0.95% -- --
*Aggregate return through August 31, 1996.
- ------------------------------------------------------------------------------
Please turn to page 8 for important additional information. All performance
includes reinvestment of distributions and applicable sales charges and fees as
described on page 8. Past performance is not a guarantee of future results.
<PAGE>
A Look at Tax-Free USA Intermediate Fund's
Long-Term Performance
Merrill Lynch
Three-to-Seven Tax-Free USA
Year Municipal Bond Intermediate U.S. Consumer
Index Fund A Price Index
------------------- ------------- -------------
Jan.'93 $10000 $10000 $10000
Aug.'93 $10579 $10644 $10154
Feb.'94 $10730 $10828 $10288
Aug.'94 $10779 $10866 $10449
Feb.'95 $10913 $11018 $10582
Aug.'95 $11510 $11564 $10722
Feb.'96 $11868 $11962 $10854
Aug.'96 $11935 $12087 $11029
Chart includes the effects of a 3% front-end sales charge and reinvestment
of distributions. The Merrill Lynch Three-to-Seven Year Municipal Bond Index
is unmanaged. The U.S. Consumer Price Index is the government's main measure
of inflation.
- -------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund has outperformed its benchmark since its
inception.
Performance Summary
Average Annual Total Return Through August 31, 1996
Tax-Free USA Intermediate Fund Lifetime One Year
Class A (Est.1993) +5.33% +1.40%
Class B (Est.1994)
Excluding Sales Charge +4.93% +3.63%
Including Sales Charge +4.53% +1.65%
Class C* (Est.1995)
Excluding Sales Charge +1.84% --
Including Sales Charge +0.86% --
*aggregate return through August 31, 1996
All results assume reinvestment of distributions and sales charges as described
below. The Funds' return and share value 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. For
B and C shares, lifetime performance "excluding sales charge" assumes the
investment was not redeemed. Up to 20% of the assets of each Fund may be
invested in municipal securities that generate income subject to the federal
alternative minimum tax.
Class A returns for Tax-Free USA Fund and Tax-Free Insured Fund reflect the
effect of a 4.75% front-end sales charge and, for periods after June 1,1992, a
12b-1 fee of up to 0.30%. Class A returns for Tax-Free Intermediate Fund reflect
the effect of a 3% front-end sales charge and a 12b-1 fee of up to 0.30%,
currently set at 0.15%. Tax-Free Intermediate Fund has had a 12b-1 expense
limitation in effect since inception.
Class B shares, initially offered on May 2, 1994, 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% for Tax-Free USA Fund and
Tax-Free Insured Fund and 2% for Tax-Free USA Intermediate Fund.
Class C shares, initially offered November 29, 1995, have a 1% annual
distribution and service fee. If redeemed within 12 months, a 1% contingent
deferred sales charge applies.
SEC yields for Class B and C shares for the 30-day period ended August 31, 1996
were 4.67%, 4.25% and 4.11% for Tax-Free USA Fund, Tax-Free Insured Fund and
Tax-Free USA Intermediate Fund, respectively.
<PAGE>
Financial
- ----------------------------
Statements
- ----------------------------
*Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Statement of Net Assets
August 31, 1996
Principal Market
Amount Value
MUNICIPAL BONDS - 98.45%
General Obligation Bonds - 2.71%
Florida State Board of Education
Capital Outlay 7.25% 06/01/23 ................. $ 2,445,000 $ 2,677,275
Mobile, Alabama Warrants
5.00% 02/15/16 (AMBAC) ........................ 5,000,000 4,518,750
North Slope Borough, Alaska
8.35% 06/30/98 ................................ 2,500,000 2,662,500
Pennsylvania Intergovernmental Co-op
Authority Special Tax Revenue
5.625% 06/15/23 (MBIA) ........................ 7,000,000 6,632,500
Texas State GO (Veterans Land Bank)
7.40% 12/01/20 ................................ 3,000,000 3,303,750
-----------
19,794,775
-----------
Higher Education Revenue Bonds - 2.24%
District of Columbia Higher Education
Revenue (Georgetown University)
7.15% 04/01/21 ................................ 7,000,000 7,481,250
Montana State University Higher Education
5.375% 11/15/21 (MBIA) ........................ 5,000,000 4,681,250
New Hampshire Higher Educational
& Health Facilities
5.75% 07/01/24 (MBIA) ......................... 4,390,000 4,219,888
-----------
16,382,388
-----------
Hospital Revenue Bonds - 8.67%
Louisiana Public Facilities Authority
Hospital Revenue (Southern Baptist
Hospital, Inc.) (Escrowed to Maturity)
8.00% 05/15/12 ................................ 9,500,000 10,948,750
Michigan State Hospital Finance Authority
(Genesys Health System)
8.125% 10/01/21 ............................... 4,000,000 4,390,000
7.50% 10/01/27 ................................ 8,130,000 8,475,525
Monroeville,Pennsylvania Hospital Authority
(Forbes Health System)
7.00% 10/01/13 ................................ 3,000,000 3,101,250
North Central Texas Health Facilities
Development Corporation (University
Medical Center Inc.)
8.20% 04/01/19 ................................ 4,250,000 4,400,068
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds (Continued)
Philadelphia Hospital & Higher Education
Facilities Authority Hospital Revenue
(Albert Einstein Medical Center)
7.625% 04/01/11 ............................... $15,000,000 $15,881,250
(Jeanes Health System Project)
6.85% 07/01/22 ................................ 7,000,000 7,113,750
Royal Oak, Michigan Hospital Finance
Authority (William Beaumont Hospital)
5.25% 01/01/20 ................................ 10,000,000 9,137,500
-----------
63,448,093
-----------
Housing Revenue Bonds - 6.84%
Alaska State Housing Finance
Collateralized Mortgage Obligation
7.05% 06/01/25 (GNMA/FNMA) .................. 1,700,000 1,770,125
**Dade County Housing Finance Authority
6.70% 04/01/28 (GNMA) ....................... 4,500,000 4,623,750
**Illinois Housing Development Authority
(Homeowner Mortgage)
7.125% 08/01/26 ............................. 1,940,000 2,046,700
**Massachusetts State Housing Finance
Agency Residential Development
6.875% 11/15/11 (FNMA) ...................... 2,955,000 3,161,850
Massachusetts State Housing Revenue
Single Family Mortgage
6.95% 06/01/16 .............................. 2,500,000 2,609,375
Montgomery County, Pennsylvania
Redevelopment Authority Multi-Family
Housing Revenue (KBF Associates L.P.)
7.25% 07/01/25 .............................. 5,000,000 4,850,000
New Mexico Mortgage Finance Authority
Single Family Mortgage
6.20% 07/01/26 (GNMA) ....................... 5,000,000 5,056,250
**Tennessee Housing Development Agency
6.60% 07/01/25 .............................. 3,500,000 3,583,125
**Utah State Housing Finance Agency,
Single Family Mortgage
7.20% 01/01/27 (FHA/VA) ..................... 3,485,000 3,637,469
Virginia State Housing Development Authority
7.10% 01/01/25 .............................. 7,500,000 7,875,000
**6.80% 01/01/27 .............................. 6,500,000 6,760,000
Wisconsin Housing & Economic
Development Authority Home
Ownership 6.75% 09/01/25 .................... 3,950,000 4,083,313
-----------
50,056,957
-----------
Pollution Control Revenue Bonds - 15.71%
Buncombe County Facilities & Pollution
Control Financing Authority
(Wagner Electric Project)
7.125% 05/01/09 ............................... 3,000,000 3,006,360
Burke County, Georgia Development
Authority (Georgia Power Co.)
6.10% 04/01/25 ................................ 3,500,000 3,504,375
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pollution Control Revenue Bonds (Continued)
Cambria County, Pennsylvania Industrial
Development Authority Pollution
Control Revenue
5.35% 11/01/10 (MBIA) ........................ $ 3,500,000 $ 3,395,000
Claiborne County, Mississippi
(Middle South Energy, Inc)
9.50% 12/01/13 ............................... 2,000,000 2,212,500
8.25% 06/01/14 ............................... 7,365,000 7,944,994
9.875% 12/01/14 .............................. 1,000,000 1,113,750
Claiborne County, Mississippi
Pollution Control Revenue System
Energy Resources, Inc.
7.30% 05/01/25 ............................... 3,000,000 3,108,750
6.20% 02/01/26 ............................... 7,675,000 7,281,656
Clark County, Nevada Industrial
Development Revenue
(Nevada Power Co. Project)
7.20% 10/01/22 ............................... 9,000,000 9,405,000
Heard County, Georgia Development
Authority (Georgia Power Co.)
8.00% 10/01/16 ............................... 1,485,000 1,518,012
Illinois Development Finance Authority
(Central Illinois Public Service Co.)
7.60% 03/01/14 ............................... 6,000,000 6,562,500
Petersburg, Indiana Pollution Control
Revenue Bonds (Indianapolis
Power & Light Co.)
6.10% 01/01/16 ............................... 6,625,000 6,699,531
5.50% 10/01/23 ............................... 4,000,000 3,705,000
6.625% 12/01/24 .............................. 9,350,000 9,875,938
Princeton, Indiana Pollution Control
Revenue Bonds (Public Service Co.
of Indiana) 7.60% 03/15/12 ................... 3,400,000 3,506,046
Putnam County, Georgia Development
Authority (Georgia Power Co.)
8.375% 07/01/17 .............................. 7,300,000 7,630,544
Sabine River Authority Texas Pollution
Control (Southwestern Electric Power)
6.10% 04/01/18 (MBIA) ........................ 4,000,000 4,035,000
Parish of Saint Charles, Louisiana
Pollution Control (Louisiana Power
& Light) 8.25% 06/01/14 ...................... 1,350,000 1,468,125
Sweetwater County, Wyoming Pollution
Control Revenue (Idaho Power Company -
Series A) 6.05% 07/15/26 ..................... 5,000,000 4,918,750
Parish of West Feliciana, Louisiana
(Gulf States Utilities Co. Project) Series A
7.50% 05/01/15 ............................... 22,700,000 24,005,250
-----------
114,897,081
-----------
Power Authority Revenue Bonds - 5.42%
Georgia Municipal Electric Authority
Series 86L 0.00% 01/01/09 .................... 5,000,000 2,318,750
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Power Authority Revenue Bonds (Continued)
Intermountain Power Agency, Utah
Series 87D 0.00% 07/01/20 ................ $95,575,000 $14,455,719
Series 88B 7.50% 07/01/21 ................ 2,415,000 2,562,919
Lower Colorado River Authority,
Texas Series B 6.00% 01/01/15
(AMBAC) .................................. 5,000,000 5,031,250
North Carolina Eastern Municipal Power
Agency - Series A
7.25% 01/01/21 ........................... 2,350,000 2,407,739
6.00% 01/01/26 ........................... 3,030,000 2,848,200
Northern Municipal Power Agency,
Minnesota Series A
5.00% 01/01/21 ........................... 8,500,000 7,214,375
San Antonio Texas Electric
& Gas System Revenue Refunding
7.00% 02/01/09 ........................... 1,010,000 1,065,550
Washington State Public Power Supply
System Nuclear Project #1
7.50% 07/01/15 ........................... 1,645,000 1,764,263
-----------
39,668,765
-----------
*Pre-Refunded Bonds - 19.34%
Cleveland Ohio School District
9.00% 12/01/08-98 ........................ 800,000 896,000
Florida Department of Transportation
Turnpike Revenue
7.50% 07/01/19-99 ........................ 5,000,000 5,493,750
Florida State Board of Education
7.25% 06/01/23-00 ........................ 2,555,000 2,826,469
Harris County, Texas Toll Road Revenue
8.125% 08/15/17-98 ....................... 2,600,000 2,814,500
Kentucky Turnpike Authority
7.25% 05/15/10-00 ........................ 1,145,000 1,258,069
7.25% 05/15/10-00 ........................ 6,855,000 7,531,931
Mansfield, Texas Waterworks
and Sewer System Revenue
7.375% 08/01/07-97 ....................... 2,920,000 3,007,396
Massachusetts State General Obligation
7.50% 12/01/07-00 ........................ 3,295,000 3,710,994
7.50% 12/01/07-00 ........................ 3,320,000 3,739,150
Massachusetts Water Resource Authority
7.50% 04/01/09-00 ........................ 1,080,000 1,200,150
7.50% 04/01/16-00 ........................ 7,300,000 8,112,125
7.00% 04/01/18-00 ........................ 14,510,000 15,888,450
Metropolitan Atlanta Rapid Transit
Authority, Georgia, Sales Tax Series L
7.20% 07/01/20-99 ........................ 2,000,000 2,180,000
Minnesota Public Facilities Authority
(Water Pollution Control) Series 90A
7.10% 03/01/12-00 ........................ 4,000,000 4,385,000
New Hampshire State Turnpike
System Revenue
8.375% 11/01/17-97 ....................... 6,750,000 7,205,625
7.40% 04/01/20-00 ........................ 11,675,000 12,915,469
7.375% 04/01/12-00 ....................... 3,000,000 3,315,000
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds (Continued)
New York City Municipal Water Finance
Authority, New York Water
and Sewer System Revenue
7.625% 06/15/16-97 ........................ $ 2,000,000 $ 2,086,720
6.00% 06/15/20-00 ......................... 1,675,000 1,750,375
New York City, New York General
Obligation 8.50% 11/01/11-97 .............. 3,000,000 3,191,250
North Carolina Eastern Municipal Power
Agcy. Series 89A
7.25% 01/01/23-99 ......................... 2,000,000 2,162,500
North Carolina Municipal Power Agcy
#1 - Catawba
7.875% 01/01/19-98 ........................ 4,565,000 4,873,138
St. Augustine, Florida Water
& Sewer Revenue
8.125% 10/01/12-96 ........................ 3,000,000 3,065,100
Salt River Project Agricultural
Improvement & Power Dist. (Arizona)
7.25% 01/01/19-00 ......................... 2,750,000 3,021,563
San Antonio, Texas Electric & Gas
System Revenue Refunding Series 89
7.00% 02/01/09-99 ......................... 8,990,000 9,619,300
Seattle, Washington Municipality
Metropolitan Seattle Sewer Development
7.375% 01/01/30-98 ........................ 4,000,000 4,240,000
Snohomish County, Washington Public
Utility Dist.#1 8.00% 01/01/15-97 ......... 10,500,000 10,843,560
University of California
(Seismic Safety Projects)
7.30% 09/01/20-98 ......................... 5,000,000 5,393,750
Washington State Public Power Supply
System Nuclear Project
7.50% 07/01/15-99 ......................... 2,535,000 2,782,163
7.25% 07/01/15-00 ......................... 1,760,000 1,927,200
------------
141,436,697
------------
Transportation Revenue Bonds - 13.75%
Atlanta, Georgia Special Purpose
Facilities Revenue (Delta Airlines Project)
7.50 12/01/19 ............................. 1,500,000 1,575,000
City of Chicago, Illinois Skyway
Toll Bridge Revenue
6.75% 1/01/17 ............................. 3,300,000 3,337,125
**Dallas-Fort Worth, Texas International
Airport (American Airlines, AMT)
7.50% 11/01/25 ............................ 8,250,000 8,745,000
Florida State Turnpike Authority Revenue
(Department of Transportation)
Series A 5.625% 07/01/25 (FGIC) ........... 5,775,000 5,594,531
Foothill/Eastern Transportation Corridor
Agency California Toll Road Revenue
Series 95A 6.00% 01/01/34 ................. 20,000,000 18,850,000
Indiana State Toll Finance Authority
7.00% 07/01/07 ............................ 2,000,000 2,059,120
6.00% 07/01/15 ............................ 3,000,000 2,913,750
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Transportation Revenue Bonds (Continued)
**Indianapolis Indiana Airport Authority
(Federal Express Project)
7.10% 01/15/17 ........................... $ 7,800,000 $ 8,180,250
Kenton County, Kentucky Airport
(Delta Airlines)
**Series 92A 7.50% 02/01/12 ................. 2,000,000 2,125,000
Series 92B 7.25% 02/01/22 ................. 4,250,000 4,478,438
Ohio State Turnpike Series 96A
5.50% 02/15/26 (MBIA) .................... 10,000,000 9,475,000
Oklahoma Turnpike Authority 1st Sr ..........
Revenue Series 89
6.00% 01/01/22 ........................... 7,465,000 7,483,663
Oklahoma Turnpike Authority 1st. Sr .........
Revenue Series 89
(Escrowed to Maturity)
6.00% 01/01/22 ........................... 13,535,000 13,365,813
Orlando-Orange County, Florida Expressway
Authority (Escrowed to Maturity)
7.625% 07/01/18 .......................... 715,000 770,413
Puerto Rico Commonwealth Highway
& Transportation Authority (Highway
Improvements) Series Y
5.50% 07/01/26 ........................... 4,000,000 3,735,000
5.00% 07/01/36 ........................... 3,000,000 2,553,750
Tulsa, Oklahoma Municipal Airport
(American Airlines)
7.35% 12/01/11 ............................ 5,000,000 5,356,250
------------
100,598,103
-----------
Waste Disposal Revenue Bonds - 7.42%
**Ashland, Kentucky Sewer & Solid Waste
Revenue (Ashland, Inc. Project)
7.125% 02/01/22 ........................... 13,200,000 13,843,500
Broward County, Florida Resource
Recovery (South Project/Allied
Signal) Series 84 7.95% 12/01/08 .......... 3,550,000 3,896,125
**Marion County, West Virginia County
Commonwealth Solid Waste
Disposal Facilities Revenue (American
Power Paper Recycling Project)
7.75% 12/01/11 ............................ 18,000,000 10,800,000
**Massachusetts State Industrial Finance
Agency Solid Waste Disposal
(Massachusetts Recycling Associates
Project-Fitchburg) 9.00% 08/01/16 ......... 32,000,000 16,000,000
**Ohio State Solid Waste Revenue
(Republic Engineered Steels,Inc.)
9.00% 06/01/21 ............................ 3,000,000 3,120,000
**Pennsylvania Economic Development
Financing Authority Wastewater Treatment
(Sun Co. R & M Project)
7.60% 12/01/24 ............................ 6,000,000 6,615,000
----------
54,274,625
----------
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
City of Baltimore, Maryland (Mayor
& Council of Baltimore) Project &
Refunding Revenue Bonds Water
Project Series 96A
5.50% 07/01/26 (FGIC) ..................... $ 4,000,000 $ 3,805,000
Dade County, Florida Water
& Sewer System Revenue
5.50% 10/01/25 (FGIC) ..................... 5,295,000 5,017,013
Massachusetts State Water
Resource Authority
6.00% 04/01/20 ............................ 6,200,000 6,200,000
New York City Municipal Water
Finance Authority Water & Sewer
System Revenue Bonds 1996
Series B 5.75% 06/15/26 (MBIA) .............. 21,500,000 20,774,375
Norfolk, Virginia Water Revenue
5.875% 11/01/20 (MBIA) .................... 4,000,000 3,965,000
Texas Water Resources Finance
Authority Revenue
7.50% 08/15/13 (AMBAC) .................... 1,295,000 1,382,413
-----------
41,143,801
-----------
Other Revenue Bonds - 10.72%
**Alliance, Texas Special Facility Revenue
Bonds - Series 1996 (Federal Express
Corp. Project ) 6.375% 04/01/21 ........... 3,000,000 2,910,000
County, Tennessee Sports Authority Public
Improvement Stadium Project
5.75% 07/01/26 (AMBAC) .................... 5,315,000 5,175,481
Delaware County, Pennsylvania Authority
(Main Line & Haverford Nursing)
9.00% 08/01/22 ............................ 2,000,000 2,155,000
Delaware River & Bay Authority
5.25% 1/01/26 (FGIC) ...................... 5,200,000 4,732,000
Delaware River Port Authority
Pennsylvania & New Jersey Revenue
5.50% 01/01/26 (FGIC) ..................... 10,000,000 9,475,000
Delaware State Economic Development
Authority (Peninsula United Methodist
Homes, Inc.) 8.50% 05/01/22 ............... 3,500,000 3,653,125
District of Columbia Revenue
(Carnegie Endowment)
5.75% 11/15/16 ............................ 8,145,000 7,839,563
Indianapolis, Indiana Local Public
Improvement Bond Bank,
Series 92D 6.50% 02/01/22 ................. 1,500,000 1,520,625
**Luzerne County Industrial Development
Authority (Pennsylvania Gas & Water
Co. Project) 7.00% 12/01/17
(AMBAC) ................................... 4,000,000 4,425,000
Maryland State Stadium Sports
Authority F (Recreational
Facility Improvements)
5.80% 03/01/26 (AMBAC) .................... 5,500,000 5,307,500
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Other Revenue Bonds (Continued)
Metropolitan Pier & Exposition Authority
Illinois Hospital Facilities Revenue
6.25% 07/01/17 .............................. $ 3,300,000 $ 3,196,875
New York State Local Assistance -
Series D (Miscellaneous Purposes)
5.00% 04/01/23 .............................. 6,500,000 5,590,000
Orleans Levee District Louisiana
8.25% 11/01/15 .............................. 750,000 768,090
Tampa, Florida (Florida Aquarium Project)
7.75% 05/01/27 .............................. 20,000,000 21,675,000
------------
78,423,259
------------
Total Municipal Bonds
(cost $699,919,517) ......................... 720,124,544
------------
VARIABLE RATE DEMAND NOTES-0.29%
Allegheny County, Pennsylvania Hospital
Development Authority Revenue
(Health Facility For Central
Blood Bank) 3.55% 12/01/02 .................. 1,000,000 1,000,000
Allegheny County, Pennsylvania Hospital
Development Authority Revenue
(Presbyterian University Hospital)
Series B-2 3.50% 03/01/18 ................... 700,000 700,000
Port Authority New York & New Jersey
Special Obligation Revenue
(Versatile Structure Obligation)
3.65% 08/01/24 .............................. 400,000 400,000
------------
Total Variable Rate Demand Notes
(cost $2,100,000) ........................... 2,100,000
------------
TOTAL MARKET VALUE OF SECURITIES OWNED - 98.74%
(cost $702,019,517 ) ........................ $722,224,544
RECEIVABLES AND OTHER ASSETS NET OF
LIABILITIES - 1.26% ......................... 9,206,942
NET ASSETS APPLICABLE TO 60,689,827
TAX-FREE USA FUND A CLASS SHARES, 2,578,182
TAX-FREE USA FUND B CLASS SHARES AND 69,731
TAX-FREE USA FUND C CLASS SHARES
($.01 PAR VALUE) OUTSTANDING; EQUIVALENT
TO $11.55 PER SHARE - 100.00% ................ $731,431,486
============
COMPONENTS OF NET ASSETS at August 31, 1996:
Common Stock, $.01 par value,
500,000,000 shares authorized to
the Tax-Free USA Fund ....................... $709,525,046
Accumulated undistributed:
Net realized gain on investments ............ 1,701,413
Net unrealized appreciation
of investments ............................ 20,205,027
Total net assets ............................ $731,431,486
============
See accompanying notes
<PAGE>
- -----------
*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 the AMBAC Indemnity Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
FHA/VA - Insured by the Federal Housing Authority/Veterans Administration
FNMA - Insured by the Federal National Mortgage Association
GNMA - Insured by the Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Statement of Net Assets
August 31,1996
Principal Market
Amount Value
MUNICIPAL BONDS - 98.59%
General Obligation Bonds - 4.07%
Louisiana State General Obligation
7.00% 08/01/02 ............................. $1,000,000 $1,045,480
Huron Valley Michigan School District
5.75% 5/01/22 (FGIC) ....................... 750,000 733,125
Williamston Community School
General Obligation
5.50% 05/01/25 (MBIA) ...................... 1,725,000 1,666,781
----------
3,445,386
----------
Higher Education Revenue Bonds - 7.53%
Delaware County Pennsylvania Authority
University (Villanova University)
5.80% 08/01/25 (AMBAC) ..................... 1,600,000 1,566,000
Massachusetts State Health
& Educational Facilities Authority
(Boston College)
6.625% 07/01/21 (FGIC) ..................... 2,500,000 2,631,250
Massachusetts State Industrial Finance
Agency Revenue Higher Education
(Clark University Project)
6.10% 07/01/16 ............................. 1,250,000 1,242,188
Montana State University
Higher Education
5.375% 11/15/21 (MBIA) ..................... 1,000,000 936,250
----------
6,375,688
----------
Hospital Revenue Bonds - 12.44%
Fort Wayne Indiana Hospital Authority
(Parkview Memorial Hospital)
6.40% 11/15/22 (MBIA) ...................... 2,250,000 2,325,938
Illinois Health Facilities Authority
Revenue Bonds Series 1996
(Trinity Medical Center)
6.00% 07/01/28 (FSA) ....................... 4,200,000 4,158,000
Michigan State Hospital
Finance Authority Revenue
(Genesys Health System)
7.50% 10/01/27 ............................. 3,000,000 3,127,500
<PAGE>
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds (Continued)
Monroeville, Pennsylvania Hospital
Authority Hospital Revenue
(Forbes Health System)
7.00% 10/01/03 ......................... $ 865,000 $ 917,981
-----------
10,529,419
-----------
Housing Revenue Bonds - 5.98%
California Housing Finance Agency
Revenue Series B
6.85% 08/01/23 (MBIA) .................. 3,860,000 4,024,050
New Mexico Mortgage Finance Authority
Single Family Mortgage
6.20% 07/01/26 (GNMA) .................. 1,000,000 1,011,250
Rhode Island Housing and Mortgage
Finance Corp. Single Family
Mortgage 9.30% 07/01/04 (FGIC) .......... 10,000 10,050
St. Louis County, Missouri
Single Family Mortgage
9.25% 10/01/06 (AMBAC) ................. 20,000 20,800
-----------
5,066,150
-----------
Pollution Control Revenue Bonds - 10.92%
Northampton County Industrial
Development Revenue
(Citizen's Utilities Co.)
6.95% 08/01/15 ......................... 1,000,000 1,056,250
Ohio State Air Quality Development
Authority (Ohio Edison)
7.45% 03/01/16 (FGIC) .................. 2,000,000 2,200,000
Salem County, New Jersey
(Public Service Electric & Gas Co.)
6.55% 10/01/29 (MBIA) .................. 4,000,000 4,245,000
**Trinity River, Texas Pollution Central
Revenue Bonds (Texas Instruments
Inc. Project) 6.20% 03/01/20 ............ 1,750,000 1,743,438
-----------
9,244,688
-----------
Power Authority Revenue Bonds - 2.44%
Georgia Municipal Electric Authority
8.10% 01/01/12 (BIGI) .................. 2,000,000 2,063,860
-----------
2,063,860
-----------
*Pre-Refunded Bonds - 16.34%
Allegheny County, Pennsylvania
Sanitary Authority
7.50% 12/01/16-99 (FGIC) ............... 750,000 808,125
Chicago, Illinois Public Building
Commission (Chicago Board of
Education) Series A
7.75% 01/01/06-99 (FGIC) ............... 500,000 545,625
Illinois Regional Transit Authority Revenue
6.75% 06/01/25-04 (FGIC) ............... 7,970,000 8,956,288
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds (Continued)
Louisiana Public Facilities Authority
Health & Education Capital Facilities
Revenue (Our Lady of the Lake
Regional Medical Center)
8.20% 12/01/15-98 (BIGI) ............. $ 800,000 $ 874,000
Pennsylvania Turnpike Commission Revenue
7.625% 12/01/17-98 (FGIC) ............. 2,425,000 2,643,250
-----------
13,827,288
-----------
Transportation Revenue Bonds - 15.02%
Bay Transit Authority Revenue Series A
5.75% 03/01/22 (FGIC) ................ 2,370,000 2,307,788
Chicago O'Hare International Airport
(Illinois) 5.00% 01/01/16 (MBIA) ...... 5,000,000 4,450,000
Dayton, Ohio (Emery Air Freight)
6.05% 10/01/09 ........................ 2,500,000 2,481,250
Ohio State Turnpike 1996 -
Series A 5.50% 02/15/26 (MBIA) ........ 2,000,000 1,895,000
Tulsa International Airport (Oklahoma)
General Revenue, Consolidated Fixed
Rate Series 7.50%
06/01/08 (MBIA) ...................... 1,500,000 1,576,740
-----------
12,710,778
-----------
Water and Sewer Revenue Bonds - 13.53%
Austin, Texas Combined Utilities System
Series 90A 6.00%
05/15/15 (FGIC) ...................... 1,275,000 1,286,156
Massachusetts Water Resources Authority
5.75% 12/01/21 (MBIA) ................ 2,000,000 1,925,000
New York City Municipal Water Finance
Authority Water & Sewer System
Revenue Bonds 1996 Series B
5.75% 06/15/26 (MBIA) ................ 2,000,000 1,932,500
Norfolk, Virginia Water Revenue
5.875% 11/01/20 (MBIA) ............... 1,000,000 991,250
Seattle, Washington Municipality
Metropolitan Seattle Sewer Revenue
6.60% 01/01/32 (FGIC) ................ 5,000,000 5,318,750
-----------
11,453,656
-----------
Other Revenue Bonds - 10.32%
*Alliance, Texas Special Facility Revenue
Bonds - Series 1996 (Federal Express
Corp. Project ) 6.375% 04/01/21 ....... 1,000,000 970,000
City of Pasadena,California(Certificates
of Participation-Multi Purpose Project)
Pasadena Civic Improvement
Corporation 5.25%
02/01/16 (AMBAC) ..................... 3,000,000 2,812,500
**Luzerne County Industrial Development
Authority (Pennsylvania Gas & Water
Co. Project) 7.00%
12/01/17 (AMBAC) ..................... 1,000,000 1,106,250
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Other Revenue Bonds (Continued)
**Massachusetts State Industrial
Finance Agency Solid Waste
Disposal (Massachusetts Recycling
Associates Project - Fitchburg)
9.00% 08/01/16 .......................... $ 3,000,000 $ 1,500,000
**New Jersey Economic Development
Authority (Elizabethtown Water
Company Project)
5.60% 12/01/25 (MBIA) ................... 2,500,000 2,343,750
------------
8,732,500
------------
Total Municipal Bonds
(cost $81,164,672) ...................... 83,449,413
------------
Variable Rate Demand Notes - 3.31%
Allegheny County,Pennsylvania
Hospital Development Authority
Revenue (Presbyterian University
Hospital) Series A
3.50% 03/01/20 (MBIA) ................... 2,000,000 2,000,000
Sayre, Pennsylvania Health Care Facilities
Authority Revenue (Pennsylvania
Capital Funding Project - Series B)
3.35%12/01/20 (AMBAC) ................... 400,000 400,000
Sayre, Pennsylvania Health Care Facilities
Authority Revenue (Pennsylvania
Capital Funding Project - Series J)
3.35% 12/01/20 (AMBAC) .................. 200,000 200,000
Port Authority New York & New Jersey
Special Obligation Revenue
(Versatile Structure Obligation)
3.65% 08/01/24 .......................... 200,000 200,000
------------
Total Variable Rate Demand Notes
(cost $2,800,000 ) ...................... 2,800,000
------------
TOTAL MARKET VALUE OF SECURITIES OWNED -
101.90% (cost $83,964,672) .............. 86,249,413
LIABILITIES NET OF RECEIVABLES
AND OTHER ASSETS (1.90%) ................ (1,604,995)
------------
NET ASSETS APPLICABLE TO 7,475,095 TAX-FREE
INSURED FUND A CLASS shares, 310,903
TAX-FREE INSURED FUND B CLASS SHARES
AND 11,046 TAX-FREE INSURED FUND C
CLASS SHARES ($.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $10.86
PER SHARE - 100.00% ..................... $ 84,644,418
============
<PAGE>
Statement of Net Assets (Continued)
COMPONENTS OF NET ASSETS at AUGUST 31, 1996:
Common stock, $.01 par value,
500,000,000 shares authorized
to the Tax-Free Insured Fund .......................... $81,718,174
Accumulated undistributed:
Net realized gain on investments. ..................... 641,503
Net unrealized appreciation of investments ............ 2,284,741
-----------
Total net assets ........................................ $84,644,418
===========
See accompanying notes
- -----------
*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 the AMBAC Indemnity Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
FHA/VA - Insured by the Federal Housing Authority/Veterans Administration
FNMA - Insured by the Federal National Mortgage Association
GNMA - Insured by the Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Intermediate Fund
Statement of Net Assets
August 31, 1996
Principal Market
Amount Value
MUNICIPAL BONDS - 97.59%
City Leaseback Revenue Bonds - 4.14%
Orange County, California Municipal
Water Facilities (Certificate of
Participation) (Allen-McColloch
Pipeline) 5.50% 07/01/05 (MBIA) ........... $ 500,000 $ 511,250
Pasadena, California (Certificates of
Participation Multi Purpose Projects)
5.00% 02/01/05 (AMBAC) ................... 500,000 495,000
----------
1,006,250
----------
General Obligation Bonds - 11.75%
Jackson County, Oregon
School District
5.50% 06/01/06 (FSA) ..................... 500,000 511,875
Kansas City Missouri Municipal
Assistance Corp. ..........................
5.50% 03/01/00 (FSA) ..................... 1,250,000 1,282,813
Philadelphia, Pennsylvania
School District
6.25% 05/15/01 (AMBAC) ................... 1,000,000 1,061,250
----------
2,855,938
----------
Higher Education Revenue Bonds - 4.33%
Virginia College Building
Authority (University of Richmond
Project) Mandatory Put 11/1/01
6.40% 11/01/22 ........................... 1,000,000 1,051,250
----------
1,051,250
----------
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds - 3.23%
Michigan State Hospital Finance
Authority (Genesys Health System)
Series 95A 6.10% 10/01/96 ................. $ 285,000 $ 285,188
Missouri State Health & Education
Facilities Authority Revenue (Lake of
The Ozarks General Hospital)
5.25% 02/15/00 ........................... 500,000 499,375
----------
784,563
----------
Housing Revenue Bonds - 12.26%
Maryland State Community Development
Administration (Single Family Program)
6th Series 5.90% 04/01/01 ................. 1,000,000 1,025,000
Montgomery County, Pennsylvania
Redevelopment Authority Multifamily
Housing Revenue (KBF Associates)
6.00% 07/01/04 ........................... 2,000,000 1,955,000
----------
2,980,000
----------
Industrial Development Revenue Bonds -
6.73%
Florence County, South Carolina
Industrial Development Revenue
(Stone Container)
7.375% 02/01/07 .......................... 1,000,000 1,025,000
Philadelphia Industrial Development
Authority (Gallery II Parking
Garage Project) 6.125% 02/15/03 ........... 620,000 611,475
----------
1,636,475
----------
Power Authority Revenue Bonds - 8.41%
Klamath Falls, Oregon Electric Revenue
(Salt Caves HydroElectric B)
4.50% 05/01/23 ........................... 1,000,000 1,003,610
New Madrid, Missouri Power Plant
5.65% 06/01/03 (AMBAC) ................... 1,000,000 1,038,750
----------
2,042,360
----------
School Authority/District Revenue Bonds -
4.26%
West Virginia School Building Authority
Capital Improvement
5.625% 07/01/02 (MBIA) ................... 1,000,000 1,035,000
----------
1,035,000
----------
State Agency Bonds - 17.56%
Indiana Bond Bank (State Revolving
Fund Program) 6.00% 02/01/01 .............. 500,000 516,875
Michigan Municipal Board Authority
Revenue (Local Government
Loan Program)
5.85% 05/01/01 (AMBAC) ................... 2,195,000 2,293,775
Pennsylvania State Industrial
Development Authority Revenue
6.00% 07/01/99 (AMBAC) ................... 1,400,000 1,456,000
----------
4,266,650
----------
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Transportation Revenue Bonds - 3.23%
Foothill/Eastern Transportation
Corridor Agency California Toll Road
Revenue Series 95A
0.00% 01/01/05 ........................... $ 1,500,000 $ 915,000
*Rhode Island Port Authority and Economic
Development Corp. Airport Revenue
5.80% 07/01/02 (FSA) ..................... 565,000 585,481
5.90% 07/01/03 (FSA) ..................... 490,000 510,213
Southeastern Pennsylvania
Transportation Authority (Letter 0f
Credit-Canadian Imperial)
6.00% 06/01/99 ........................... 1,000,000 1,035,000
-----------
3,045,694
-----------
Waste Disposal Revenue Bonds - 3.95%
*Pinal County, Arizona Industrial
Development Authority Solid Waste
Disposal Revenue (Browning-Ferris
Industries Inc. Project)
5.00% 02/01/06 ............................. 1,000,000 958,750
-----------
958,750
-----------
Water and Sewer Revenue Bonds - 2.82%
Alabama Water Pollution Control
Authority Revolving - Series A
5.00% 08/15/06 (AMBAC) ..................... 280,000 271,950
Easton, Pennsylvania Joint
Sewer Authority
5.60% 04/01/03 (ASSET GTY) .................. 200,000 205,750
Marysville, Washington Water
& Sewer Revenue
5.50% 12/01/02 (MBIA) ...................... 200,000 206,500
-----------
684,200
-----------
Other Revenue Bonds - 5.62%
Charleston County, South Carolina
(Charleston Public
Facilities Corp.)
5.20% 12/01/99 (MBIA) ...................... 860,000 875,050
Metropolitan Pier & Exposition Authority
Illinois Hospital Facilities Revenue
(McCormick Place Convention)
5.75% 07/01/06 ............................. 500,000 490,625
-----------
1,365,675
-----------
Total Municipal Bonds
(cost $23,220,032) ......................... 23,712,805
-----------
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
VARIABLE RATE DEMAND NOTES - 0.82%
Allegheny County, Pennsylvania
Hospital Development Authority
Revenue (Presbyterian University
Hospital) Series B-2
3.50% 03/01/18 .............................. $ 100,000 $ 100,000
Port Authority New York & New Jersey
Special Obligation Revenue (Versatile
Structure Obligation)
3.65% 08/01/24 .............................. 100,000 100,000
------------
Total Variable Rate Demand Notes
(cost $200,000) ............................. 200,000
------------
TOTAL MARKET VALUE OF SECURITIES
OWNED - 98.41%
(cost $23,420,032) .......................... 23,912,805
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.59% .................. 387,196
------------
NET ASSETS APPLICABLE TO 2,191,333
TAX-FREE USA INTERMEDIATE FUND A CLASS
SHARES, 144,374 TAX-FREE USA INTERMEDIATE B
CLASS SHARES AND 18,728 TAX-FREE USA
INTERMEDIATE C CLASS SHARES ($0.01 PAR
VALUE) OUTSTANDING; EQUIVALENT TO $10.32
PER SHARE - 100.00% ......................... $ 24,300,001
============
COMPONENTS OF NET ASSETS AT AUGUST 31, 1996:
Common stock, $.01 par value,
500,000,000 shares
authorized to the Tax-Free USA
Intermediate Fund ............................ $ 24,830,081
Accumulated undistributed:
Net realized loss on investments ............. (1,022,853)
Net unrealized appreciation
of investments ............................... 492,773
------------
Total net assets ............................. $ 24,300,001
============
See accompanying notes
- -----------
*This security is subject to the federal alternative minimum tax.
AMBAC - Insured by AMBAC Indemnity Corporation.
ASSET GTY - Insured by the Asset Guaranty Insurance Corporation.
FSA - Insured by Financial Security Assurance.
MBIA - Insured by the Municipal Bond Insurance Association.
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Statement of Operations
Year Ended August 31, 1996
Tax-Free Tax-Free Tax-Free USA
USA Insured Intermediate
Fund Fund Fund
----------- ---------- ----------
INVESTMENT INCOME:
Interest. . . . . $51,893,462 $5,551,962 $1,244,025
----------- ---------- ----------
EXPENSES:
Management fees 4,540,845 528,860 106,549
Distribution expenses 1,732,271 199,859 45,315
Dividend disbursing
and transfer agent
fees and expenses 448,714 62,587 17,295
Salaries. . . . . 190,465 21,956 5,610
Reports and statements
to shareholders 136,234 3,302 11,883
Registration fees 87,160 29,424 1,282
Taxes (other than
income). . . . . . 71,350 -- 3,351
Custodian and banking
fees 47,400 29,074 8,666
Professional fees 24,996 13,921 6,636
Directors' fees 8,428 6,843 6,585
Amortization of
organization
expense. . . . . . -- -- 3,312
Other. . . . . . . . 116,162 313 7,707
----------- ---------- ----------
7,404,025 896,139 224,191
----------- ---------- ----------
Less expenses absorbed
by Delaware
Management
Company, Inc. -- -- (156,399)
----------- ---------- ----------
Total Expenses 7,404,025 896,139 67,792
----------- ---------- ----------
NET INVESTMENT
INCOME. . . . . . . 44,489,437 4,655,823 1,176,233
----------- ---------- ----------
NET REALIZED GAIN
AND UNREALIZED
LOSS ON
INVESTMENTS:
Net realized gain
from security
transactions. 3,050,129 872,909 44,088
Net unrealized
depreciation of
investments during
the period. . . $(32,641,752) $(2,108,616) $(229,173)
----------- ---------- ----------
<PAGE>
Statement of Operations (Continued)
Tax-Free Tax-Free Tax-Free USA
USA Insured Intermediate
Fund Fund Fund
----------- ---------- ----------
NET REALIZED AND
UNREALIZED LOSS
ON INVESTMENTS ........... (29,591,623) (1,235,707) (185,085)
-------------- ------------- -----------
NET INCREASE IN
NET ASSETS
RESULTING FROM
OPERATIONS ............... $ 14,897,814 $ 3,420,116 $ 991,148
============== ============= ===========
COMPUTATION OF
NET ASSET VALUE
AND OFFERING PRICE
Net asset value
per share (A) ............ $ 11.55 $ 10.86 $ 10.32
Sales charges (4.75% of
offering price for
Tax-Free USA Fund and
Tax-Free Insured Fund
and 3.00% of offering
price for Tax-Free USA
Intermediate Fund, or
5.02%, 4.97% and 3.10%
of amount invested per
share, respectively) (B) 0.58 0.54 0.32
-------------- ------------- -----------
Offering price ........... $ 12.13 $ 11.40 $ 10.64
============== ============= ===========
- -----------
(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
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended 8/31/96 Year Ended 8/31/95
------------------------------------------------ -----------------------------------------------
Tax-Free Tax-Free Tax-Free USA Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate Fund USA Fund Insured Fund Intermediate Fund
------------------------------------------------ -----------------------------------------------
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income $ 44,489,437 $ 4,655,823 $ 1,176,233 $ 46,655,414 $ 5,193,091 $ 1,202,418
Net realized gain (loss) from
security transactions 3,050,129 872,909 44,088 5,528,096 942,322 (623,654)
Net unrealized (depreciation)
appreciation during the period (32,641,752) (2,108,616) (229,173) (3,462,957) (753,311) 560,494
------------- -------------- ---------------- ------------------ -------------- -------------
Net increase in net assets
resulting from operations. . . 14,897,814 3,420,116 991,148 48,720,553 5,382,102 1,139,258
------------- -------------- ---------------- ------------------ --------------- ------------
DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income:
A Class. . . . . . . . . . . . . (43,239,363) (4,514,658) (1,115,274) (46,114,506) (5,114,142) (1,171,911)
B Class. . . . . . . . . . . . . (1,234,603) (139,227) (56,831) (540,908) (78,949) (30,507)
C Class. . . . . . . . . . . . . (15,471) (1,938) (4,128) -- -- --
Net realized gain from security
transactions:
A Class. . . . . . . . . . . . . (3,755,304) (232,860) -- -- -- --
B Class. . . . . . . . . . . . . (106,237) (7,992) -- -- -- --
C Class. . . . . . . . . . . . . -- -- -- -- -- --
-------------- ------------- ---------------- ----------------- -------------- --------------
(48,350,978) (4,896,675) (1,176,233) (46,655,414) (5,193,091) (1,202,418)
-------------- ------------- ---------------- ----------------- -------------- --------------
CAPITAL SHARE
TRANSACTIONS:
Proceeds from shares sold:
A Class. . . . . . . . . . . . . 60,298,210 6,816,802 6,815,079 103,815,190 8,036,953 5,342,070
B Class. . . . . . . . . . . . . 16,225,670 1,756,769 654,347 15,377,684 1,779,510 557,360
C Class. . . . . . . . . . . . . 827,557 120,767 192,011 -- -- --
Net asset value of shares issued
upon reinvestment of dividends
from net investment income
and distributions of net realized
gain from security transactions:
A Class. . . . . . . . . . . . . 26,761,558 2,436,870 750,572 25,638,950 2,632,048 822,660
B Class. . . . . . . . . . . . . 774,002 72,362 36,339 276,926 42,458 23,597
C Class. . . . . . . . . . . . . 10,267 1,932 3,898 -- -- --
-------------- ------------- ---------------- ----------------- -------------- --------------
104,897,264 11,205,502 8,452,246 145,108,750 12,490,969 6,745,687
-------------- ------------- ---------------- ----------------- -------------- --------------
Cost of shares repurchased:
A Class. . . . . . . . . . . . . (112,501,070) (13,455,627) (5,274,033) (118,618,699) (15,303,455) (13,794,758)
B Class. . . . . . . . . . . . . (3,753,680) (832,530) (133,797) (2,038,759) (233,595) (237,151)
C Class. . . . . . . . . . . . . (7,217) (99) (99) -- -- --
-------------- ------------- ---------------- ----------------- -------------- --------------
(116,261,967) (14,288,256) (5,407,929) (120,657,458) (15,537,050) (14,031,909)
-------------- ------------- ---------------- ----------------- -------------- --------------
(Decrease) Increase in net assets
derived from capital share
transactions. . . . . . . . (11,364,703) (3,082,754) 3,044,317 24,451,292 (3,046,081) (7,286,222)
-------------- ------------- ---------------- ----------------- -------------- --------------
(DECREASE) INCREASE
IN NET ASSETS. . . . . . . (44,817,867) (4,559,313) 2,859,232 26,516,431 (2,857,070) (7,349,382)
-------------- ------------- ---------------- ----------------- -------------- --------------
NET ASSETS:
Beginning of period. 776,249,353 89,203,731 21,440,769 749,732,922 92,060,801 28,790,151
-------------- ------------- ---------------- ----------------- -------------- --------------
End of period. . . . . . . $731,431,486 $84,644,418 $24,300,001 $776,249,353 $89,203,731 $21,440,769
============== ============= ================ ================= ============== ==============
</TABLE>
See accompanying notes
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Notes to Financial Statements
August 31, 1996
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, as amended. 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 three classes of shares.
The investment objective of the Tax-Free USA Fund and the Tax-Free USA
Intermediate Fund is 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.
The investment objective of the Tax-Free Insured Fund is 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.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Funds:
Security Valuation - Long-term debt securities are valued by an independent
pricing service and 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 which approximates market value.
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 Fund.
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.
Certain fund expenses are paid directly by brokers. The amount of these expenses
was less than 0.01% of each Fund's average net assets.
<PAGE>
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% of the next $250 million and 0.55% of the average daily
net assets over $750 million for the Tax-Free USA Fund, 0.60% of the average
daily net assets of the Tax-Free Insured Fund and 0.50% of the average daily net
assets of the Tax-Free USA Intermediate Fund. DMC has elected voluntarily to
waive its fee and absorb those expenses of the Tax-Free USA Intermediate Fund to
the extent that the Fund's annual operating expenses exceed 0.10% of average
daily net assets exclusive of 12b-1 expenses through December 31, 1996. Total
expenses absorbed or waived by DMC for the year ended August 31, 1996 were
$156,399. At August 31, 1996, the Funds had a liability for Investment
Management fees and other expenses payable to DMC of $22,151, $12,351 and $4,293
for the Tax-Free USA Fund, the Tax-Free Insured Fund and the Tax-Free USA
Intermediate Fund, respectively.
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 A Class for the Tax-Free USA Fund and
the Tax-Free Insured Fund and 0.15% of the average daily net assets of Tax-Free
USA Intermediate Fund A Class and 1.00% of the average daily net assets of B
Class and C Class for all three Funds. At August 31, 1996, the Funds had a
liability for distribution fees and other expenses payable to DDLP of $18,767,
$1,624 and $8,687 for the Tax-Free USA Fund, the Tax-Free Insured Fund and the
Tax-Free USA Intermediate Fund, respectively. For the year ended August 31,
1996, the Funds paid DDLP $215,462, $36,519 and $11,971 for commissions earned
on sales of Tax-Free USA Fund A Class, Tax-Free Insured Fund A Class and
Tax-Free USA Intermediate Fund A Class, respectively.
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, 1996, the Funds expensed the following amounts for these
services:
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate
---------- ---------------- -------------
Dividend disbursing and
transfer agent fees and
other expenses ........... $448,714 $62,587 $17,295
Effective August 31, 1996, the Funds had a liability for such fees and other
expenses payable to DSC as follows:
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate
----------- --------------- --------------
Dividend disbursing and
transfer agent fees and
expenses payable ......... $31,892 $3,963 $4,310
Effective August 19, 1996 the Funds also engaged DSC to provide accounting
services for the Funds.
Certain officers of DMC are officers, directors and/or employees of the
Funds. These officers, directors, and employees are paid no compensation by
the Funds.
<PAGE>
Notes to Financial Statements (Continued)
3. Investments
During the year ended August 31, 1996, the Funds had purchases and sales of
investment securities other than temporary cash investments as follows:
Tax-Free Tax-Free Tax-Free USA
USA Insured Intermediate
Fund Fund Fund
------------- ------------- ----------------
Purchases ................. $316,878,079 $38,926,481 $6,143,146
Sales ..................... $333,644,167 $41,254,310 $3,304,848
At August 31, 1996, unrealized appreciation for federal income tax purposes was
as follows:
Tax-Free Tax-Free Tax-Free USA
USA Insured Intermediate
Fund Fund Fund
------------- ------------ ----------------
Unrealized appreciation ... $45,545,154 $3,947,333 $599,003
Unrealized depreciation ... (25,421,367) (1,662,592) (106,230)
----------- ---------- --------
Aggregate unrealized
appreciation. ............. $20,123,787 $2,284,741 $492,773
=========== ========== ========
Investment securities based on cost for federal income tax purposes was
$702,100,757, $83,964,672 and $23,420,032 for the Tax-Free USA Fund, Tax-Free
Insured Fund and the Tax-Free USA Intermediate Fund, respectively.
Net realized gain for federal income tax purposes was $3,128,375 for the
Tax-Free USA Fund, $872,909 for the Tax-Free Insured Fund and $44,088 for the
Tax-Free USA Intermediate Fund for the year ended August 31, 1996. For federal
income tax purposes, the Tax-Free USA Intermediate Fund had accumulated capital
losses at August 31, 1996, of $1,022,853 which may be carried forward and
applied against future capital gains. The capital loss carryforward expires as
follows: 2002-$399,199 and 2003-$623,654.
4. Capital Stock
Transactions in capital stock shares were as follows:
Tax-Free USA Fund
------------------------------
Year Ended Year Ended
8/31/95 8/31/95
----------- ----------
Shares sold:
A Class .......................... 5,026,095 8,764,777
B Class .......................... 1,356,289 1,293,697
C Class .......................... 69,470 --
Shares issued upon reinvestment of dividends from net investment income and
distributions of net realized gain from security transactions:
A Class .......................... 2,233,585 2,163,314
B Class .......................... 64,824 23,267
C Class .......................... 873 --
----------- -----------
8,751,136 12,245,055
<PAGE>
Shares repurchased:
A Class. . . . . . . . . . . . . . . .(9,419,181) (10,009,753)
B Class. . . . . . . . . . . . . . . . .(316,170) (170,688)
C Class. . . . . . . . . . . . . . . . . . (612) --
----------- -----------
(9,735,963) (10,180,441)
----------- -----------
Net (decrease) increase. . (984,827) 2,064,614
=========== ===========
Tax-Free Insured Fund
-------------------------------
Year Ended Year Ended
8/31/96 8/31/95
----------- ----------
Shares sold:
A Class ......................... 614,995 741,299
B Class ......................... 157,540 164,244
C Class ......................... 10,879 --
Shares issued upon reinvestment of dividends from net investment income and
distributions of net realized gain from security transactions
A Class ............................ 218,789 242,387
B Class ............................ 6,507 3,885
C Class ............................ 176 --
----------- -----------
1,008,886 1,151,815
Shares repurchased:
A Class ......................... (1,208,558) (1,410,700)
B Class ......................... (74,637) (21,543)
C Class ......................... (9) --
---------- ----------
(1,283,204) (1,432,243)
---------- ----------
Net decrease ...................... (274,318) (280,428)
========== ==========
Tax-Free USA Intermediate Fund
------------------------------
Year Ended Year Ended
8/31/96 8/31/95
----------- -----------
Shares sold:
A Class .......................... 656,206 526,910
B Class .......................... 62,607 54,596
C Class .......................... 18,361 --
Shares issued upon reinvestment of dividends from net investment income:
A Class .......................... 72,116 80,984
B Class .......................... 3,495 2,320
C Class .......................... 377 --
---------- -----------
813,162 664,810
Shares repurchased:
A Class .......................... (506,192) (1,371,578)
B Class .......................... (12,876) (23,622)
C Class .......................... (10) --
---------- ----------
(519,078) (1,395,200)
---------- ----------
Net increase(decrease) ............. 294,084 (730,390)
=========== ==========
<PAGE>
Notes to Financial Statements (Continued)
5. Lines of Credit
The Funds have committed lines of credit of $15,000,000 for the Tax-Free USA
Fund, $2,000,000 for the Tax-Free Insured Fund and $1,000,000 for the Tax-Free
USA Intermediate Fund. No amount was outstanding at August 31, 1996 or at any
time during the 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.
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 Tax-Free USA Fund B Class Fund C Class
-------------------------------------------- ---------------------------- ---------------
Year Ended Year Ended Period Period
August 31, August 31, 5/2/942 1/29/95(2) to
1996 1995 1994 1993 1992 1996 1995 8/31/94 8/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.070 $12.040 $12.640 $12.130 $11.560 $12.070 $12.040 $12.080 $12.230
Income from investment
operations:
Net investment income 0.696 0.746 0.751 0.751 0.765 0.600 0.649 0.214 0.450
Net realized and unrealized
(loss) gain from security
transactions. . . . . . . (0.460) 0.030 (0.566) 0.610 0.570 (0.460) 0.030 (0.040) (0.620)
-------- ------ ------- ------ ------ ------- ------- ------ -------
Total from investment
operations. . . . . . . . . 0.236 0.776 0.185 1.361 1.335 0.140 0.679 0.174 (0.170)
-------- ------ ------- ------ ------ ------- ------- ------ -------
Less distributions:
Dividends from net investment
income. . . . . . . . . . . . (0.696) (0.746) (0.751) (0.751) (0.765) (0.600) (0.649) (0.214) (0.450)
Distributions from net
realized gain on security
transactions. . . . . . . (0.060) none (0.034) (0.100) none (0.060) none none (0.060)
-------- ------ ------- ------ ------ ------- ------- ------ -------
Total distributions (0.756) (0.746) (0.785) (0.851) (0.765) (0.660) (0.649) (0.214) (0.510)
-------- ------ ------- ------ ------ ------- ------- ------ -------
Net asset value,
end of period. . . . . . $11.550 $12.070 $12.040 $12.640 $12.130 $11.550 $12.070 $12.040 $11.550
======== ====== ======= ====== ====== ======= ======= ====== =======
Total return\1. . . . . . 1.91% 6.74% 1.49% 11.66% 11.91% 1.11% 5.88% 1.45% (1.44%)
Ratios/supplemental data:
Net assets, end of period
(000 omitted). . . . . . $700,853 $758,470 $745,796 $762,574 $702,988 $29,773 $17,779 $ 3,937 $ 805
Ratio of expenses to average
net assets. . . . . . . . . 0.94% 0.92% 0.89% 0.89% 0.80% 1.74% 1.74% 1.74% 1.74%
Ratio of net investment
income to average net
assets. . . . . . . . . . . .5.82% 6.29% 6.07% 6.10% 6.47% 5.03% 5.47% 5.22% 5.03%
Portfolio turnover. . . . . 42% 27% 10% 12% 21% 42% 27% 10% 42%
</TABLE>
- -----------
1 Does not reflect the 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
nor the contingent deferred sales charge which varies from 1%-4% depending
upon the holding period for Tax-Free USA Fund B Class and 1% for the Tax-Free
USA Fund C Class for 12 months from the date of purchase.
2 Date of initial public offering; ratios have been annualized and total return
has not been annualized.
<PAGE>
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 Tax-Free Insured
Tax-Free Insured Fund A Class Insured Fund B Class Fund C Class
-------------------------------------------- ----------------------------- ----------------
Year Ended Year Ended Period Period
August 31, August 31, 5/2/94(2) 11/29/95(2) to
1996 1995 1994 1993 1992 1996 1995 8/31/94 8/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.050 $11.020 $11.680 $11.310 $10.900 $11.050 $11.020 $10.990 $11.260
Income from investment
operations:
Net investment income 0.588 0.639 0.622 0.638 0.674 0.499 0.550 0.179 0.375
Net realized and unrealized
(loss) gain from security
transactions. . . . . . . (0.160) 0.030 (0.560) 0.400 0.410 (0.160) 0.030 0.030 (0.370)
-------- ------ ------- ------ ------ ------- ------- ------ -------
Total from investment
operations. . . . . . . . . 0.428 0.669 0.062 1.038 1.084 0.339 0.580 0.209 0.005
-------- ------ ------- ------ ------ ------- ------- ------ -------
Less distributions:
Dividends from net investment
income. . . . . . . . . . . . (0.588) (0.639) (0.622) (0.638) (0.674) (0.499) (0.550) (0.179) (0.375)
Distributions from net
realized gain on security
transactions. . . . . . . (0.030) none (0.100) (0.030) none (0.030) none none (0.030)
-------- ------ ------- ------ ------ ------- ------- ------ -------
Total distributions (0.618) (0.639) (0.722) (0.668) (0.674) (0.529) (0.550) (0.179) (0.405)
-------- ------ ------- ------ ------ ------- ------- ------ -------
Net asset value,
end of period. . . . . . $10.860 $11.050 $11.020 $11.680 $11.310 $10.860 $11.050 $11.020 $10.860
======== ======= ======= ======= ======= ======= ======= ======= =======
Total return\1. . . . . . 3.88% 6.33% 0.54% 9.48% 10.23% 3.05% 5.47% 1.91% 0.01%
Ratios/supplemental data:
Net assets, end of period
(000 omitted). . . . . . $81,149 $86,756 $91,235 $96,118 $85,660 $ 3,375 $ 2,448 $ 826 $ 120
Ratio of expenses to average
net assets. . . . . . . . . 0.98% 0.98% 0.98% 0.98% 0.86% 1.78% 1.80% 1.83% 1.78%
Ratio of net investment income
to average net assets 5.29% 5.89% 5.48% 5.58% 6.06% 4.48% 5.07% 4.63% 4.48%
Portfolio turnover. 45% 68% 56% 8% 29% 45% 68% 56% 45%
</TABLE>
- -----------
1 Does not reflect the 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
nor the contingent deferred sales charge which varies from 1%-4% depending
upon the holding period for Tax-Free Insured Fund B Class and 1% for the
Tax-Free Insured Fund C Class for 12 months from the date of purchase.
2 Date of initial public offering; ratios have been annualized and total return
has not been annualized.
<PAGE>
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 USA
Tax-Free USA Intermediate Intermediate
Tax-Free USA Intermediate Fund A Class Fund B Class Fund C Class
----------------------------------------- ------------------------------- ---------------
Year Ended 1/7/93(2) Year Ended Period Period
August 31, to August 31, 5/2/94(2) 11/29/95(2)
1996 1995 1994 8/31/93 1996 1995 to 8/31/94 to 8/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.410 $10.320 $10.630 $ 10.000 $10.410 $10.320 $10.230 $10.480
Income from investment operations:
Net investment income. 0.550 0.550 0.530 0.330 0.460 0.460 0.150 0.350
Net realized and unrealized (loss)
gain from security transactions (0.090) 0.090 (0.310) 0.630 (0.090) 0.090 0.090 (0.160)
------- ------- ------- -------- ------- ------- ------- -------
Total from investment operations 0.460 0.640 0.220 0.960 0.370 0.550 0.240 0.190
------- ------- ------- -------- ------- ------- ------- -------
Less distributions:
Dividends from net investment
income. . . . . . . . . . . . . . . (0.550) (0.550) (0.530) (0.330) (0.460) (0.460) (0.150) (0.350)
Distributions from net realized gain
on security transactions none none none none none none none none
------- ------- ------- -------- ------- ------- ------- -------
Total distributions. . . . . . . . . (0.550) (0.550) (0.530) (0.330) (0.460) (0.460) (0.150) (0.350)
------- ------- ------- -------- ------- ------- ------- -------
Net asset value, end of period $10.320 $10.410 $10.320 $ 10.630 $10.320 $10.410 $10.320 $10.320
======= ======= ======= ======== ======= ======= ======= =======
Total return\1. . . . . . . . . . . 4.52% 6.43% 2.09% 9.75% 3.63% 5.53% 2.31% 1.84%
Ratios/supplemental data:
Net assets, end of period
(000 omitted). . . . . . . . . . . $22,617 $20,492 $28,193 $14,684 $1,490 $ 949 $ 597 $ 193
Ratio of expenses to average
net assets. . . . . . . . . . . . . 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3) 1.10%(5) 1.10%(5) 1.10%(5) 1.10%(7)
Ratio of net investment income
to average net assets. . . . . . . . 5.29%(4) 5.37%(4) 5.00%(4) 4.84%(4) 4.44%(6) 4.52%(6) 4.15%(6) 4.44%(8)
Portfolio turnover. . . . . . . . . . 15% 63% 81% 53% 15% 63% 81% 15%
</TABLE>
- -----------
1 Does not reflect the maximum front-end sales charge of 3.00% nor the 1.00%
limited contingent deferred sales charge that would apply in the event of
certain redemptions within 12 months of purchase for the Tax-Free USA
Intermediate Fund A Class nor the contingent deferred sales charge that varies
from 1%-2% for the Tax-Free USA Intermediate Fund B Class and 1% for the
Tax-Free USA Intermediate Fund C Class for 12 months from the date of
purchase.
2 Date of initial public offering; ratios have been annualized and total return
has not been annualized.
3 Ratio of expenses to average net assets prior to expense limitation was 0.95%
for the year ended August 31, 1996, 1.07% for 1995, 1.19% for 1994 and 1.94%
for the period ended August 31, 1993.
4 Ratio of net investment income to average net assets prior to expense
limitation was 4.59% for the year ended August 31, 1996, 4.55% for 1995, 4.06%
for 1994 and 3.15% for the period ended August 31, 1993.
5 Ratio of expenses to average net assets prior to expense limitation was 1.80%
for the year ended August 31, 1996, 1.92% for 1995 and 2.04% for the period
ended August 31, 1994.
6 Ratio of net investment income to average net assets prior to expense
limitation was 3.74% for the year ended August 31, 1996, 3.70% for 1995 and
3.21% for the period ended August 31, 1994.
7 Ratio of expenses to average net assets prior to expense limitation was 1.80%
for the period ended August 31, 1996.
8 Ratio of net investment income to average net assets prior to expense
limitation was 3.74% for the period ended August 31, 1996.
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Tax-Free Fund, Inc.
We have audited the accompanying statements of net assets of Tax-Free USA Fund,
Tax-Free Insured Fund and Tax-Free USA Intermediate Fund (collectively referred
to as "Delaware Group Tax-Free Fund, Inc." or the "Fund") as of August 31, 1996,
and the related statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended for
the Tax-Free USA Fund and the Tax-Free Insured Fund and the financial highlights
for each of the three years in the period then ended and for the period from
January 7, 1993 (date of initial public offering) to August 31, 1993 for the
Tax-Free USA Intermediate Fund. 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 investments owned as of
August 31, 1996, 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
Tax-Free USA Fund, Tax-Free Insured Fund and Tax-Free USA Intermediate Fund at
August 31, 1996, the results of its operations for the year then ended, the
changes in its 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 for
the Tax-Free USA Fund and the Tax-Free Insured Fund and the financial highlights
for each of the three years in the period then ended and for the period from
January 7, 1993 (date of initial public offering) to August 31, 1993 for the
Tax-Free USA Intermediate Fund, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
October 4, 1996
<PAGE>
This 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 for Tax-free Fund, which sets forth details about charges,
expenses, investment objectives and operating policies of the Fund. You
should read the prospectus carefully before you invest. Summary investment
results are documented in the Fund's current Statement of Additional
Information. 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.
- -------------------------------------------------------------------------------
Board
- -----------------------
Members
- -----------------------
Wayne A. Stork
Chairman, President and Chief Executive Officer
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
<PAGE>
Delaware Group
- -----------------------
of Funds
- -----------------------
For Growth of Capital
Trend Fund
Enterprise Fund
DelCap Fund
Value Fund
U.S. Growth Fund
For Total Return
Devon Fund
Decatur Total Return Fund
Decatur Income Fund
Delaware Fund
For Global Diversification
Emerging Markets Fund
New Pacific Fund
World Growth Fund
International Equity Fund
Global Assets Fund
Global Bond Fund
For Current Income
Delchester Fund
Strategic Income Fund
Corporate Income Fund
Federal Bond Fund
U.S. Government Fund
Limited-Term Government Fund
For Tax-Free Current Income
Tax-Free Pennsylvania Fund
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Money Market Funds
Delaware Cash Reserve
U.S. Government Money Fund
Tax-Free Money Fund
Closed-End Equity/Income*
Dividend and Income Fund
Global Dividend and Income Fund
This report must be preceded or accompanied by a current Tax-Free Fund
prospectus and the Delaware Group Fund Performance Update for the most recently
completed calendar quarter. For a prospectus of any other Delaware Group fund,
contact your financial adviser or Delaware Group.
* Delaware Group Dividend and Income Fund and Delaware Group Global Dividend and
Income Fund purchases can be made through any registered broker.
DELAWARE
GROUP
- -------------
Philadelphia * London
<PAGE>
Be sure to consult your financial adviser when making investment decisions.
Mutual funds can be a valuable part of your financial plan; however, shares of
the Tax-Free Fund are not FDIC or NCUSIF insured, are not guaranteed by any bank
or any credit union, are not obligations of or deposits of any bank 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.
Philadelphia, Pennsylvania
International Affiliate
Delaware International Advisers Ltd.
London, England
National Distributor
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
Shareholder Servicing,
Dividend Disbursing
and Transfer Agent
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
Nationwide (800) 523-4640
Securities Dealers Only
Nationwide (800) 362-7500
Financial Institutions Representatives Only
Nationwide (800) 659-2265
Copy Rights Delaware Distributors, L.P.
Printed in the U.S.A. on recycled paper.
AR-011[8/96]TKO10/96
<PAGE>
1996
Annual
Report
-----------------------
Delaware Group
Tax-Free Funds
-----------------------
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
(Photo of Philadelphia Historical Buildings and sites)
A Tradition of Sound Investing Since 1929
DELAWARE GROUP
=====================
Philadelphia o London
