<PAGE>
March 11, 1996
DEAR
- -------------------------------------------------------------------------------
SHAREHOLDER:
- -------------------------------------------------------------------------------
Two interest rate cuts by the Federal Reserve Board since August 31, 1995,
have helped lift prices of fixed-income securities. However, the proposed
federal "flat tax" has reemerged as a proverbial terrier nipping at municipal
bond investors' heels.
For the six months ended February 29, 1996, Tax-Free USA Fund and
Tax-Free Insured Fund provided positive returns that remained competitive
with similarly managed municipal bond funds, as shown at right. As you
can see, your Funds' yields -- and thus their potential for generating
income free of federal income taxes -- were higher than many peers as of
February 29. (Some 15% and 4.6%, respectively, of the net assets of Tax-Free
USA Fund and Tax-Free Insured Fund generated income subject to the federal
alternative minimum tax as of February 29).
Until the U.S. Presidential election in November, investors can
expect greater than normal volatility in the municipal bond market, although
we believe the effects of campaign rhetoric and federal budget posturing will
be mitigated by the slow pace of growth in the U.S. economy.
===============================================================================
TOTAL RETURN ANNUALIZED YIELD
---------------- ----------------
SIX MONTHS ENDED AS OF
FEB. 29, 1996 FEB. 29, 1996
---------------- ----------------
Tax-Free USA Fund A Class +4.01% 4.78%
Lipper Municipal Debt
Fund Average (238 funds) +4.99% 4.42%
- -------------------------------------------------------------------------------
Tax-Free Insured Fund A Class +5.35% 4.22%
Lipper Insured Municipal Debt
Fund Average (51 funds) +5.33% 4.14%
All performance quoted above is based on net asset value. Performance and
yield for all classes of Tax-Free USA Fund and Tax-Free Insured Fund can be
found on pages 4 and 5. The 30-day annualized yield is calculated according
to Securities and Exchange Commission guidelines.
===============================================================================
Some versions of the proposed "flat tax" could affect the
attractiveness of municipal bonds by eliminating federal taxes on investment
income. In our opinion, however, such a change is unlikely. In fact, during
the past six months, we have cap-italized on the uncertainty surrounding the
flat tax.
<PAGE>
Since August, Patrick P. Coyne, senior portfolio manager of Tax-Free
USA Fund and Tax-Free Insured Fund, has slightly repositioned the portfolios
to favor longer term bonds bought at what we believed were favorable prices.
Over time, this may help enhance the income potential of your Funds with only
a modest increase in principal risk should interest rates rise. It is our
philosophy that investors seek tax-free funds primarily for a high level of
tax-free income rather than capital appreciation.
Our optimism about municipal bonds reflects what we believe are
positive, long-term market trends. Credit quality as measured by rating
services is improving and the supply of new issues continues to decline,
which can be favorable for municipal bond prices. In our report, Mr. Coyne
discusses these trends, reviews the performance both of Tax-Free USA Fund and
Tax-Free Insured Fund and outlines his approach for the coming months.
While some change in federal tax policy is possible, what form that
change will take is still unclear. We believe tax reform promises should be
viewed skeptically, even if proponents appear to be winning favor with some
voters.
Sincerely,
/s/ Wayne A. Stork
- -------------------
Wayne A. Stork
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
1
<PAGE>
PORTFOLIO
- -------------------------------------------------------------------------------
MANAGER'S REVIEW
- -------------------------------------------------------------------------------
As our elected officials in Washington debated the size of the federal budget
deficit and office seekers toyed with the idea of a "flat tax" to replace the
current federal income tax, U.S. economic growth slowed during the first half
of fiscal 1996.
For the most part, the municipal bond market has ignored the
political rhetoric of recent months, preferring instead to focus on four
favorable fundamental factors listed below that we believe will remain firmly
in place for the coming months.
* LOW INFLATION. During calendar 1995, consumer prices rose a very modest 2.5%,
the smallest increase since 1986, as measured by the government's consumer
price index. Many economists as well as U.S. government forecasters predict
inflation will be around 3% during 1996, a relatively low level.
* FAVORABLE FEDERAL RESERVE BOARD POLICY. Since August, the Fed has twice
lowered the Federal Funds target rate by a total of 50 basis points (0.50%)
to help spur economic growth. This overnight lending rate between banks now
stands at 5.25%.
* DECLINING SUPPLIES OF NEW BONDS. The dollar amount of new tax-exempt
securities issued by states and municipalities declined by 5% in 1995 to $156
billion, according to Moody's Investors Services. Since peaking in 1993, the
supply of new bonds has fallen more than 46%. This limited supply should help
bond prices if investor demand remains steady or increases.
* IMPROVING CREDIT QUALITY. Some 325 municipalities had their bonds' credit
ratings upgraded during calendar 1995 by Moody's Investors Services, while
only 196 municipalities had their debt downgraded. This shows that many
states and cities remain financially sound, despite federal budget cuts.
<PAGE>
THE FUNDS' INVESTMENT STRATEGY
Tax-Free USA Fund employs a defensive investment strategy that involves
investing in bonds with higher coupons. Higher coupon bonds tend to be
impacted less by changes in interest rates than current coupon bonds, which
pay interest in line with current rates. 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 maximize capital appreciation.
Tax-Free Insured Fund employs a similar investment strategy but is
even more conservative because it invests primarily in municipal bonds
protected by insurance guaranteeing the payment of principal and interest
when due. Bond insurance reduces the risk of loss due to financial
difficulties of an issuer; however, such bonds are still subject to price
fluctuations as interest rates rise and fall. The value of the insurance
depends on the financial strength of the insurance company guaranteeing
the bonds.
We have responded to positive changes in the interest rate
environment and the opportunity created by the tax debate by increasing the
average duration of the bonds in each Fund's portfolio while maintain-ing
high credit quality. Duration is the most common measure of a bond's
sensitivity to interest rates. It indicates the approximate percentage change
in a bond's price given a 1% movement in interest rates.
When interest rates have fallen substantially in the past, bonds
that generate higher levels of income (higher coupons) have tended to
underperform other types of fixed-income securities. This is because they are
less sensitive to interest rate movement and may be more likely to be
refinanced by the issuer.
==============================================================================
PORTFOLIO CHARACTERISTICS
AUGUST 31, FEBRUARY 29,
1995 1996
---------- ------------
TAX-FREE USA FUND
Average Effective Maturity 9.6 years 11.3 years
Average Duration 6.1 years 7.0 years
Average Quality AA AA
TAX-FREE INSURED FUND
Average Effective Maturity 11.0 years 12.0 years
Average Duration 6.8 years 7.4 years
Average Quality AAA AAA
==============================================================================
2
<PAGE>
Conversely, when rates rise, portfolios of high coupon bonds tend to
outperform the rest of the bond market.
During the past six months we reduced the average coupon of the
bonds in Tax-Free USA Fund (from 7.17% to 6.77%) and Tax-Free Insured Fund
(from 6.73% to 6.42%). We sold bonds scheduled to mature within a year and
then reinvested the proceeds in longer term bonds. By investing in the longer
term bonds, we extend duration and maximize your Funds' income potential with
a relatively modest increase in risk.
Tax-Free Insured Fund performed slightly better than Tax-Free USA
Fund during the six months ended February 29, because insured municipal bonds
are more sensitive to changes in interest rates than other municipal bonds.
Longer duration portfolios are also more affected by interest rate changes
than portfolios with shorter durations. Tax-Free Insured Fund had a somewhat
longer duration than Tax-Free USA Fund as of February 29, a benefit in the
falling rate environment.
==============================================================================
AAA-rated Municipal Bond Yields vs.
U.S. Treasury Yields (as of February 29, 1996)
Adjusted for the 28% Tax Bracket
U.S. Treasury AAA-Rated Municipal Bond Yields
------------- -------------------------------
1 yr 3.765% 3.35%
2 yr 3.906% 3.65%
3 yr 4.002% 3.85%
4 yr 4.067% 3.97%
5 yr 4.131% 4.09%
7 yr 4.237% 4.31%
10 yr 4.396% 4.61%
15 yr 4.462% 5.10%
20 yr 4.528% 5.29%
25 yr 4.594% 5.34%
30 yr 4.660% 5.37%
Source: Bloomberg Business News.
- -------------------------------------------------------------------------------
AS OF FEBRUARY 29, TAX-ADJUSTED YIELDS ON LONG-TERM MUNICIPAL BONDS
SUBSTANTIALLY EXCEEDED YIELDS ON TREASURIES FOR MANY INVESTORS. OVER THE COURSE
OF A YEAR, THIS MEANS THAT A $100,000 LONG-TERM MUNICIPAL BOND PORTFOLIO COULD
PROVIDE UP TO AN EXTRA $750 TO $1,400 IN AFTER-TAX INCOME RELATIVE TO SIMILAR
MATURITY TREASURIES, DEPENDING ON ONE'S TAX BRACKET.
PRICES REMAIN ATTRACTIVE
In recent months, longer term bonds have been yielding about 85% of
comparable maturity Treasury securities, a level we consider attractive.
Historically, municipal bond prices have risen following periods when they yield
more than 79% of what Treasuries yield.
If one adjusts for the fact that Treasury bond interest is subject
to federal income tax, as shown above, the income advantage provided by
municipal bonds becomes clear.
Yields on long-term municipal bonds (15- to 30-year maturity) as of
February 29, 1996, were about 75 basis points (0.75%) higher than
comparable U.S. Treasuries on a tax-adjusted basis, for a household in the
28% tax bracket. The advantage was even greater for investors in higher tax
brackets.
OUR NATIONAL FOCUS ADDS DIVERSITY
Income potential isn't the only criteria by which to measure a
mutual fund. Another criteria is a fund's potential risk to principal. Our
national focus is consistent with an effort to preserve capital. This could
be important in the year ahead. We believe proposed changes in federal tax
policy may adversely affect some states more than others. States that depend
heavily on sales taxes, for example, might face reduced revenue if a national
sales or consumption tax is enacted, as some in Congress are proposing.
However, as of this writing, no one reform idea, including the much
publicized "flat tax," has captured more than a modest level of support among
voters. Investors should keep in mind no matter who wins the Presidential and
Congressional elections this fall, municipal governments will continue to
need private investors to fund operations, refinance debt or make capital
improvements. Municipalities will therefore have to offer competitive
interest rates. We believe Tax-Free USA Fund and Tax-Free Insured Fund are
well-positioned for whatever changes lie ahead.
/s/ Patrick P. Coyne
- --------------------------
Patrick P. Coyne
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
MARCH 11, 1996
3
<PAGE>
LONG-TERM
- -------------------------------------------------------------------------------
PERFORMANCE
- -------------------------------------------------------------------------------
TAX-FREE USA FUND
An investor who bought $10,000 worth of Tax-Free USA Fund Class A shares on
February 28, 1986, and reinvested all distributions would have received $10,334
in total dividends and capital gains as of February 29, 1996. Much of this
growing stream of income would have been achieved through the compounding effect
of purchasing more shares with distributions.
Almost two-thirds of Tax-Free USA Fund's nearly 17,000 shareholders
reinvest distributions. While past performance doesn't guarantee future
results, you can see that reinvestment has helped the amount of annual
dividends rise substantially during the past 10 years even as interest rates
have generally declined.
TAX-FREE INSURED FUND
Investors who choose Tax-Free Insured Fund give up some of the potential
return available from long-term municipal bonds in exchange for a higher
comfortlevel that comes from owning a portfolio of bonds whose principal and
interest are guaranteed by insurance in case of a default by the bond issuer.
An investor who bought $10,000 worth of Tax-Free Insured Class A shares
on February 28, 1986, and reinvested all dividends and capital gains would
have received total distributions of $8,868. A substantial part of this
income growth would also have been achieved by purchasing more shares with
distributions.
More than half of Tax-Free Insured Fund's shareholders reinvest
distributions. Many shareholders have found the Fund an attractive way to
minimize federal income tax obligations in a fixed-income fund where
shareholders' principal has protection from credit risk.
===============================================================================
TAX-FREE USA Class A Dividend
and Capital Gains History
- -------------------------------------------------------------------------------
$10,000 Investment 1986-1996
Total Distributions $10,334
Capital
Dividends Gains Total
--------- ------- -----
1987 788 228 $1,016
1988 811
1989 864
1990 925
1991 953
1992 983
1993 1,033 139 1,172
1994 1,094 50 1,144
1995 1,168
1996 1,197 101 1,298
12 Months Ended February
- -------------------------------------------------------------------------------
===============================================================================
Tax-Free Insured Class A Dividend
and Capital Gains History
- -------------------------------------------------------------------------------
$10,000 Investment 1986-1996
Total Distributions $8,868
Capital
Dividends Gains Total
--------- ------- -----
1987 $ 699
1988 723
1989 771
1990 825
1991 864
1992 898
1993 905 42 947
1994 926 149 1,075
1995 991
1996 1,025 50 1,075
12 Months Ended February
- -------------------------------------------------------------------------------
Charts assume $10,000 invested on February 28, 1986, and include the effect
of the 4.75% sales charge and the reinvestment of all distributions.
Distributions for Class B and Class C shares can be expected to be lower
than Class A distributions due to different sales charges and expenses.
Past performance is not a guarantee of future results.
4
<PAGE>
TAX-FREE USA FUND PERFORMANCE
Average Annual Total Return Through February 29, 1996
<TABLE>
<CAPTION>
LIFETIME 10 YEARS FIVE YEARS ONE YEAR
<S> <C> <C> <C> <C>
Class A (Est. 1984) +9.63% +7.61% +7.17% +3.68%
- -------------------------------------------------------------------------------------------------------
Class B (Est. 1994)
Excluding Sales Charge +6.01% -- -- +7.94%
Including Sales Charge +3.91% -- -- +3.94%
- -------------------------------------------------------------------------------------------------------
Class C* (Est. 1995)
Excluding Sales Charge +0.99% -- -- --
Including Sales Charge +0.00% -- -- --
</TABLE>
*aggregate return through February 29, 1996
TAX-FREE INSURED FUND PERFORMANCE
Average Annual Total Return Through February 29, 1996
<TABLE>
<CAPTION>
LIFETIME 10 YEARS FIVE YEARS ONE YEAR
<S> <C> <C> <C> <C>
Class A (Est. 1984) +8.01% +6.84% +6.27% +4.58%
- -------------------------------------------------------------------------------------------------------
Class B (Est. 1994)
Excluding Sales Charge +6.80% -- -- +8.87%
Including Sales Charge +4.71% -- -- +4.87%
- -------------------------------------------------------------------------------------------------------
Class C* (Est. 1995)
Excluding Sales Charge +1.84% -- -- --
Including Sales Charge +0.84% -- -- --
</TABLE>
*aggregate return through February 29, 1996
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. 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 reflect the effect of the 4.75% maximum sales charge,
reinvestment of all distributions, and, for periods after June 1, 1992, a
12b-1 fee of up to 0.30%. The 30-day yields as of February 29, 1996, for
Tax-Free USAFund and Tax-Free Insured Fund were, respectively, 4.78% and
4.22%, calculated according to Securities and Exchange Commission guidelines.
Class B performance reflects the reinvestment of all distributions. Class B
shares do not carry a front-end sales charge, but are subject to a 1% annual
distribution and service fee. They are subject to a contingent deferred sales
charge of up to 4% if redeemed before the end of the eighth year. Lifetime
performance "Excluding Sales Charge" assumes the investment was not redeemed.
Class B was initially offered on May 2, 1994. The 30-day yields as of
February 29, 1996, for Class B Tax-Free USA Fund and Tax-Free Insured Fund
were, respectively, 4.24% and 3.64%, calculated according to Securities and
Exchange Commission guidelines.
Class C performance is presented for only a three-month period and may not be
representative of longer term results. C shares have a 1% annual distribution
and service fee. If redeemed within 12 months, a 1% contingent deferred sales
charge applies. Class C was initially offered on November 29, 1995. The
30-day yields as of February 29, 1996, for Class C of Tax-Free USAFund and
Tax-Free Insured Fund were, respectively, 4.24% and 3.64%, calculated
according to Securities and Exchange Commission guidelines.
5
<PAGE>
FINANCIAL
- -------------------------------------------------------------------------------
STATEMENTS
- -------------------------------------------------------------------------------
DELAWARE GROUP TAX-FREE USA FUND
STATEMENT OF NET ASSETS
FEBRUARY 29, 1996
(UNAUDITED)
Principal Market
Amount Value
MUNICIPAL BONDS - 99.10%
General Obligation Bonds - 3.19%
Chicago, Illinois Project & Refunding
Series B 5.125% 1/1/25 (FGIC) .............. $5,000,000 $ 4,662,500
Florida State Board of Education
Series A 7.25% 6/1/23 ...................... 2,445,000 2,720,063
Mobile, Alabama Warrants
5.00% 2/15/16 (AMBAC) ...................... 5,000,000 4,681,250
North Slope Borough, Alaska
8.35% 6/30/98 .............................. 2,500,000 2,731,250
Pennsylvania Intergovernmental Co-Op
Authority Special Tax Revenue
5.625% 6/15/23 (MBIA) ....................... 7,000,000 6,842,500
Texas State GO (Veterans Land Bank)
7.40% 12/1/20 .............................. 3,000,000 3,378,750
-----------
25,016,313
-----------
Higher Education Revenue Bonds - 2.16%
District of Columbia Higher Education
Revenue (Georgetown University)
Series B 7.15% 4/1/21 ...................... 7,000,000 7,603,750
Michigan State University Revenue
5.50% 8/15/22 .............................. 5,000,000 4,906,250
New Hampshire Higher Educational &
Health Facilities Authority Revenue
(University System of New Hampshire)
5.75% 7/1/24 (MBIA) ........................ 4,390,000 4,411,950
-----------
16,921,950
-----------
Hospital Revenue Bonds - 8.39%
Louisiana Public Facilities Authority Hospital
Revenue (Southern Baptist Hospital, Inc.)
(Escrowed to Maturity)
8.00% 5/15/12 .............................. 9,500,000 11,518,750
Michigan State Hospital Finance Authority
(Genesys Health System)
8.125% 10/1/21 ............................. 4,000,000 4,420,000
7.50% 10/1/27 .............................. 8,130,000 8,556,825
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds (Continued)
Monroeville, Pennsylvania Hospital Authority
(Forbes Health System)
7.00% 10/1/13 ........................... $ 3,000,000 $ 3,131,250
North Central Texas Health Facilities
Development Corporation
(University Medical Center Inc.)
8.20% 4/1/19 ............................ 4,250,000 4,436,023
Philadelphia Hospital & Higher Education
Facilities Authority Hospital Revenue
(Albert Einstein Medical Center)
7.625% 4/1/11 ........................... 15,000,000 16,106,250
(Jeanes Health System Project)
6.85% 7/1/22 ............................ 7,000,000 6,965,000
Royal Oak, Michigan Hospital Finance
Agency (William Beaumont Hospital)
Series D 6.75% 1/1/20 ................... 10,000,000 10,562,500
-----------
65,696,598
-----------
Housing Revenue Bonds - 6.46%
Alaska State Housing Finance Collateralized
Mortgage Obligation
7.05% 6/1/25 (GNMA/FNMA) ................. 1,730,000 1,820,825
**Dade County, Florida Housing Finance
Authority 6.70% 4/1/28 (GNMA) ........... 4,500,000 4,635,000
**Illinois Housing Development Authority
(Homeowner Mortgage)
7.125% 8/1/26 ........................... 1,990,000 2,121,838
Massachusetts State Housing Finance
Agency Residential Development
6.875% 11/15/11 (FNMA) .................. 2,955,000 3,187,706
Massachusetts State Housing Revenue
Single Family Mortgage
6.95% 6/1/16 ............................ 2,500,000 2,628,125
Montgomery County, Pennsylvania
Redevelopment Authority Multi-Family
Housing Revenue (KBF Associates L.P.)
Series B 7.25% 7/1/25 ................... 5,000,000 4,881,250
New Mexico Mortgage Finance Authority
Single Family Mortgage
6.20% 7/1/26 (GNMA) ..................... 5,000,000 5,112,500
**Tennessee Housing Development Agency
Series B 6.60% 7/1/25 ................... 3,500,000 3,609,375
**Utah State Housing Finance Agency,
Single Family Mortgage
7.20% 1/1/27 (FHA/VA) ................... 3,625,000 3,828,906
Virginia State Housing Development
Authority
7.10% 1/1/25 ............................ 7,500,000 7,959,375
** 6.80% 1/1/27 ............................ 6,500,000 6,678,750
6
<PAGE>
Tax-Free USA Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Housing Revenue Bonds (Continued)
**Wisconsin Housing & Economic Development
Authority Home Ownership
Series B 6.75% 9/1/25 ..................... $3,950,000 $ 4,108,000
-----------
50,571,650
-----------
Pollution Control Revenue Bonds - 15.31%
Beaver County Industrial Development
(Toledo Edison Co. Project)
7.625% 5/1/20 ............................. 7,500,000 7,987,500
Buncombe County, North Carolina Industrial
Facilities & Pollution Control Financing
Authority Revenue (Wagner Electric Project)
7.125% 5/1/09 ............................. 3,000,000 3,007,770
Burke County, Georgia Development
Authority Pollution Control Revenue
(Georgia Power Co.)
6.10% 4/1/25 .............................. 7,000,000 7,043,750
Cambria County, Pennsylvania Industrial
Development Authority Pollution
Control Revenue (Pennsylvania Electric
Co. Project) Series A
5.35% 11/1/10 (MBIA) ...................... 3,500,000 3,521,875
Claiborne County, Mississippi Polution
Control Revenue (Middle South Energy, Inc)
9.50% 12/1/13 ............................. 2,000,000 2,275,000
8.25% 6/1/14 .............................. 7,365,000 8,119,913
Series C 9.875% 12/1/14 ................... 1,000,000 1,146,250
Claiborne County, Mississippi Polution
Control Revenue (System Energy
Resources, Inc.)
7.30% 5/1/25 .............................. 3,000,000 3,153,750
6.20% 2/1/26 .............................. 7,675,000 7,550,281
Clark County, Nevada Industrial Development
Revenue (Nevada Power Co. Project)
Series C 7.20% 10/1/22 .................... 9,000,000 9,607,500
Heard County, Georgia Development
Authority Pollution Control Revenue
(Georgia Power Co.)
8.00% 10/1/16 ............................. 1,485,000 1,544,281
Illinois Development Finance Authority
Pollution Control Revenue
(Central Illinois Public Service Co.)
Series A 7.60% 3/1/14 ..................... 6,000,000 6,690,000
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pollution Control Revenue Bonds
(Continued)
Petersburg, Indiana
(Indianapolis Power & Light Co.)
6.10% 1/1/16 ............................. $ 6,625,000 $ 6,840,313
5.50% 10/1/23 ............................ 4,000,000 3,960,000
6.625% 12/1/24 ........................... 9,350,000 10,133,063
Princeton, Indiana
(Public Service Co. of Indiana)
7.60% 3/15/12 ............................ 3,400,000 3,551,674
Putnam County, Georgia Development
Authority (Georgia Power, Co.)
8.375% 7/1/17 ............................ 7,300,000 7,765,375
Parish of Saint Charles, Louisiana
Pollution Control (Louisiana
Power & Light)
8.25% 6/1/14 ............................. 1,350,000 1,493,438
Parish of West Feliciana, Louisiana
(Gulf States Utilities Co. Project)
Series A 7.50% 5/1/15 .................... 22,700,000 24,516,000
-----------
119,907,733
-----------
Power Authority Revenue Bonds - 10.03%
Georgia Municipal Electric Authority
Power Revenue
Series 86L 0.00% 1/1/09 .................. 5,000,000 2,381,250
Indiana Municipal Power Agency Power
Supply System Revenue
Series A 5.50% 1/1/23 (MBIA) ............. 7,700,000 7,401,625
Indianapolis, Indiana Gas Utilities Revenue
Series A 5.375% 6/1/21 (FGIC) ............ 4,200,000 4,037,250
Intermountain Power Agency, Utah
Power Supply Revenue
Series 96D 5.00% 7/1/16 .................. 1,000,000 930,000
Series 86C 7.50% 7/1/16 .................. 3,815,000 3,942,955
Series 87D 0.00% 7/1/20 .................. 95,575,000 14,336,250
Series 93A 5.50% 7/1/20 (AMBAC) .......... 4,680,000 4,592,250
Series 96D 5.00% 7/1/21 .................. 525,000 477,094
Series 88B 7.50% 7/1/21 .................. 2,415,000 2,590,088
Lower Colorado River Authority, Texas
Series B 6.00% 1/1/15 (AMBAC) ............ 5,000,000 5,156,250
North Carolina Eastern Municipal
Power Agency
Series 87A 7.25% 1/1/21 .................. 2,350,000 2,435,399
Series 88A 6.00% 1/1/26 .................. 3,030,000 2,927,738
7
<PAGE>
Tax-Free USA Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Power Authority Revenue Bonds (Continued)
Northern Municipal Power Agency,
Pollution Control Revenue
Minnesota Series A 5.00% 1/1/21 .......... $ 8,500,000 $ 7,671,250
Orlando Florida Utility Commission
Water & Electric Revenue
94/A 5.00% 10/1/20 ....................... 2,650,000 2,457,875
San Antonio, Texas Electric & Gas System
Revenue Refunding Series 89
7.00% 2/1/09 ............................. 1,010,000 1,087,013
Sikeston, Missouri Electric Revenue
5.00% 6/1/22 (MBIA) ...................... 9,100,000 8,428,875
Utah Association Municipal Power
Systems Revenue (St. George Project)
5.375% 12/1/19 (AMBAC) ................... 6,000,000 5,850,000
Washington State Public Power Supply
System Nuclear Project #1
7.50% 7/1/15 ............................. 1,645,000 1,795,106
-----------
78,498,268
-----------
Pre-Refunded Bonds* - 18.09%
Cleveland, Ohio City School District
9.00% 12/1/08-98 ......................... 800,000 920,000
Florida State Board of Education Capital
Outlay 7.25% 6/1/23-00 ................... 2,555,000 2,903,119
Florida Department of Transportation
Turnpike Revenue Series 89
7.50% 7/1/19-99 .......................... 5,000,000 5,637,500
Harris County, Texas Toll Road Revenue
Sr. Lien 8.125% 8/15/17-98 ............... 2,600,000 2,882,750
Kentucky Turnpike Authority
7.25% 5/15/10-00 ......................... 1,145,000 1,289,556
7.25% 5/15/10-00 ......................... 6,855,000 7,720,444
Mansfield, Texas Waterworks and Sewer
System Revenue
7.375% 8/1/07-97 ......................... 2,920,000 3,066,000
Massachusetts State General Obligation
Series C
7.50% 12/1/07-00 ......................... 3,295,000 3,809,844
7.50% 12/1/07-00 ......................... 3,320,000 3,838,750
Massachusetts Water Resource Authority
Series A
7.50% 4/1/09-00 .......................... 1,080,000 1,229,850
7.50% 4/1/16-00 .......................... 7,300,000 8,312,875
7.00% 4/1/18-00 .......................... 14,510,000 16,269,338
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds* (Continued)
Metropolitan Atlanta Rapid Transit Authority,
Georgia, Sales Tax Series L
7.20% 7/1/20-99 (AMBAC) .................... $ 2,000,000 $ 2,232,500
Minnesota Public Facilities Authority
(Water Pollution Control) Series 90A
7.10% 3/1/12-00 ............................ 4,000,000 4,490,000
New Hampshire State Turnpike
System Revenue
7.375% 4/1/12-00 ........................... 3,000,000 3,397,500
8.375% 11/1/17-97 .......................... 6,750,000 7,382,813
7.40% 4/1/20-00 ............................ 11,675,000 13,236,531
New York City Municipal Water Finance
Authority, New York Water & Sewer
System Revenue
7.625% 6/15/16-97 .......................... 2,000,000 2,132,500
6.00% 6/15/20-00 ........................... 1,675,000 1,794,344
New York City, New York General Obligation
8.50% 11/1/11-97 ........................... 3,000,000 3,277,500
North Carolina Eastern Municipal Power
Agency 7.25% 1/1/23-99 ..................... 2,000,000 2,210,000
North Carolina Municipal Power Agency
#1- Catawba 7.875% 1/1/19-98 ............... 4,565,000 4,981,556
Salt River Project Agricultural Improvement
& Power Dist. (Arizona)
7.25% 1/1/19-00 ............................ 2,750,000 3,093,750
San Antonio, Texas Electric & Gas System
Revenue Refunding Series 89
7.00% 2/1/09-99 ............................ 8,990,000 9,832,813
Seattle, Washington Municipality
Metropolitan Seattle Sewer Development
Series 90A 7.375% 1/1/30-98 ................ 4,000,000 4,330,000
Snohomish County, Washington Public
Utility Dist. #1 8.00% 1/1/15-97 ........... 10,500,000 11,078,445
University of California
(Seismic Safety Projects)
7.30% 9/1/20-98 ............................ 5,000,000 5,500,000
Washington State Public Power Supply
System Nuclear Project
#1, 7.50% 7/1/15-99 ........................ 2,535,000 2,848,706
#3, 7.25% 7/1/15-00 ........................ 1,760,000 1,973,400
-----------
141,672,384
-----------
Transportation Revenue Bonds - 13.89%
Atlanta, Georgia Special Purpose Facilities
Revenue (Delta Airlines Project) Series A
7.50% 12/1/19 .............................. 1,500,000 1,586,250
8
<PAGE>
Tax-Free USA Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Transportation Revenue Bonds (Continued)
Chesapeake Bay Bridge & Tunnel
5.00% 7/1/22 (MBIA) ....................... $ 2,500,000 $ 2,318,750
5.75% 7/1/25 (MBIA) ....................... 3,820,000 3,848,650
City of Chicago, Illinois O'Hare
International Airport Revenue
Series 93A 5.00% 1/1/16 (MBIA) ............ 5,000,000 4,668,750
Series 93C 5.00% 1/1/18 (MBIA) ............ 6,530,000 6,023,925
City of Chicago, Illinois Skyway Toll Bridge
Revenue 6.75% 1/1/17 ...................... 3,300,000 3,423,750
**Dallas-Fort Worth, International Airport
(American Airlines)
7.50% 11/1/25 ............................. 8,250,000 8,817,188
Foothill/ Eastern Transportation California
Toll Road Revenue Series A
0.00% 1/1/05 .............................. 1,000,000 591,250
6.00% 1/1/34 .............................. 17,150,000 16,399,688
Indiana State Toll Finance Authority
7.00% 7/1/07 .............................. 2,000,000 2,067,900
6.00% 7/1/15 .............................. 3,000,000 3,000,240
**Indianopolis, Indiana Airport Authority
(Federal Express Project)
7.10% 1/15/17 ............................. 7,800,000 8,414,250
Kenton County, Kentucky Airport
(Delta Airlines)
**Series 92A 7.50% 2/1/12 ................... 2,000,000 2,157,500
Series 92B 7.25% 2/1/22 ................... 4,250,000 4,520,938
State of Michigan Comprehensive
Transportation Revenue
5.50% 5/15/22 ............................. 2,500,000 2,400,000
Michigan State Truck Line Revenue
Series A 5.50% 10/1/21 .................... 5,000,000 4,762,500
Series B-1 5.50% 10/1/21 (AMBAC) .......... 2,150,000 2,123,125
Oklahoma Turnpike Authority 1st Sr. Rev
Series 89 6.00% 1/1/22 .................... 7,465,000 7,558,313
Oklahoma Turnpike Authority 1st. Sr. Rev
Series 89 (Escrowed to Maturity)
6.00% 1/1/22 .............................. 13,535,000 14,651,638
Orlando-Orange County, Florida Expressway
Authority (Escrowed to Maturity)
7.625% 7/1/18 (AMBAC) ..................... 715,000 790,075
Texas State Turnpike Authority Dallas
North Thruway (President George
Bush Turnpike)
5.00% 1/1/25 (FGIC) ....................... 3,500,000 3,202,500
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Transportation Revenue Bonds (Continued)
Tulsa, Oklahoma Municipal Airport
(American Airlines)
7.35% 12/1/11 ............................... $ 5,000,000 $ 5,406,250
-----------
108,733,430
-----------
Waste Disposal Revenue Bonds - 8.42%
**Ashland, Kentucky Sewer & Solid Waste
Revenue (Ashland, Inc. Project)
7.125% 2/1/22 ............................. 13,200,000 14,173,500
Broward County, Florida Resource Recovery
Revenue (South Project/ Allied Signal)
Series 84 7.95% 12/1/08 .................... 3,550,000 3,953,813
**Marion County, West Virginia County
Commonwealth Solid Waste Disposal
Facilities Revenue (American Power Paper
Recycling Project) 7.75% 12/1/11 ........... 18,000,000 15,750,000
**Massachusetts State Industrial Finance
Agency Solid Waste Disposal
(Massachusetts Recycling Associates
Project-Fitchburg) 9.00% 8/1/16 ................ 32,000,000 32,040,000
-----------
65,917,313
-----------
Water And Sewer Revenue Bonds - 8.02%
St. Augustine, Florida Water & Sewer
Revenue 8.125% 10/1/12 ..................... 3,000,000 3,106,890
Chicago, Illinois Wastewater Transmission
Revenue 5.125% 1/1/25 (FGIC) ............... 12,000,000 11,070,000
Dade County, Florida Water & Sewer System
Revenue 5.50% 10/1/25 (FGIC) ............... 3,000,000 2,951,250
Hilton Head Public Service District #1 South
Carolina Waterworks & Sewer
Systems Revenue
5.50% 8/1/20 (MBIA) ....................... 3,000,000 2,962,500
Massachusetts State Water Resources
Authority Series A
6.00% 4/1/20 .............................. 6,200,000 6,300,750
5.75% 12/1/21 (MBIA) ...................... 3,750,000 3,764,063
Norfolk, Virginia Water Revenue
5.875% 11/1/20 (MBIA) ...................... 4,000,000 4,095,000
Orlando, Florida Utilities Commission Water
and Electric 5.50% 10/1/26 ................. 9,000,000 8,820,000
**Pennsylvania Economic Development
Financing Authority Wastewater Treatment
(Sun Co. R&M Project)
7.60% 12/1/24 ............................. 6,000,000 6,652,500
9
<PAGE>
Tax-Free USA Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Waste Disposal Revenue Bonds (Continued)
San Jose-Santa Clara California Sewer
Revenue 5.375% 11/15/20
(FGIC) ................................... $ 2,500,000 $ 2,425,000
Texas Water Resources Finance Authority
Revenue 7.50% 8/15/13
(AMBAC) .................................. 1,300,000 1,410,500
Upper Occoquan Sewer Authority Virginia
Regulated Sewer Revenue Series A
5.00% 7/1/25 (MBIA) ...................... 10,000,000 9,250,000
-----------
62,808,453
-----------
Other Revenue Bonds - 5.14%
Delaware County, Pennsylvania Authority
Revenue (Main Line & Haverford Nursing)
9.00% 8/1/22 ............................. 2,000,000 2,175,000
Delaware State Economic Development
Authority (Peninsula United Methodist
Homes, Inc.) 8.50% 5/1/22 ................. 3,500,000 3,683,750
Indianapolis, Indiana Local Public
Improvement Bond Bank, Series 1992D
6.50% 2/1/22 ............................. 1,500,000 1,533,750
Kirbyville, Texas Health Facilities
Development Corporation, Health
Facilities Development Revenue
(Heartway-lll Corporation Project)
Mandatory Put 3/20/18
11.25% 3/20/21 ........................... 2,280,000 1,368,000
**Luzerne County, Pennsylvania Industrial
Development Authority
(Pennsylvania Gas & Water Co. Project)
7.00% 12/1/17 (AMBAC) ..................... 4,000,000 4,510,000
Metropolitan Pier & Exposition Authority
Illinois Hospital Facilities Revenue
6.25% 7/1/17 ............................. 3,300,000 3,258,750
Orange County, Florida Tourist Development
Tax Revenue
6.00% 10/1/16 (AMBAC) ..................... 2,000,000 2,067,500
Orleans, Louisiana Levee District Louisana
8.25% 11/1/15 ............................ 750,000 770,130
Tampa, Florida (Florida Aquarium Project)
7.75% 5/1/27 .............................. 20,000,000 20,875,000
-----------
40,241,880
-----------
Total Municipal Bonds
(cost $719,128,764) .......................... 775,985,972
-----------
<PAGE>
Principal Market
Amount Value
VARIABLE RATE DEMAND NOTES - 0.51%
Allegheny County, Pennsylvania Hospital
Development Authority Revenue
(Presbyterian University Hospital)
Series B-1 3.35% 3/1/18 .................... $ 400,000 $ 400,000
Series B 3.35% 3/1/20 (MBIA) .............. 600,000 600,000
Series C 3.35% 3/1/20 (MBIA) ............... 300,000 300,000
New York City General Obligation Series B
3.35% 8/15/04 (MBIA) ...................... 1,000,000 1,000,000
New York City Municipal Water Finance
Authority Water & Sewer Systems Revenue
Series C 3.35% 6/15/23 (FGIC) .............. 1,100,000 1,100,000
Washington County, Pennsylvania Authority
Lease Revenue (Eye & Ear)
Series B-1 3.35% 12/15/18 .................. 600,000 600,000
-----------
Total Variable Rate Demand Notes
(cost $4,000,000) ............................ 4,000,000
-----------
TOTAL MARKET VALUE OF SECURITIES
OWNED - 99.61% (COST $723,128,764) ...................... $779,985,972
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITES - 0.39% ............................... 3,018,891
-----------
NET ASSETS APPLICABLE TO 62,415,016 TAX-FREE USA
FUND A CLASS, 2,043,781 TAX-FREE USA FUND B
CLASS AND 25,575 TAX-FREE USA FUND C CLASS
SHARES ($.01 PAR VALUE) OUTSTANDING; EQUIVALENT
TO $12.14 PER SHARE - 100.00% .......................... $783,004,863
============
- --------
* For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
** These Securities are subject to the federal alternative minimum tax.
AMBAC - Insured by AMBAC Indemnity Corporation.
FGIC - Insured by the Financial Guaranty Insurance Company.
FHA/VA - Insured by the Federal Housing Authority/Veterns 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.
COMPONENTS OF NET ASSETS:
Common stock, $.01 par value, 500,000,000 shares
authorized to the Tax-Free USA Fund ..................... $722,878,789
Accumulated undistributed income:
Net realized gain on investments ........................ 3,268,866
Net unrealized appreciation of investments .............. 56,857,208
------------
Total net assets .......................................... $783,004,863
============
See accompanying notes
10
<PAGE>
DELAWARE GROUP TAX-FREE INSURED FUND
STATEMENT OF NET ASSETS
FEBRUARY 29, 1996
(UNAUDITED)
Principal Market
Amount Value
MUNICIPAL BONDS - 100.04%
General Obligation Bonds - 4.26%
Chicago, Illinois
Series 86A 7.25% 1/1/06 (MBIA) ............. $ 500,000 $ 515,155
Series 86B 7.25% 1/1/06 (MBIA) ............. 500,000 514,660
Louisiana State General Obligation
7.00% 8/1/02 .............................. 1,000,000 1,053,750
Williamston, Michigan Community
School 5.50% 5/1/25 (MBIA) .................. 1,725,000 1,740,094
-----------
3,823,659
-----------
Higher Education Revenue Bonds - 5.95%
Delaware County, Pennsylvania Authority
University Revenue (Villanova University)
5.80% 8/1/25 (AMBAC) ...................... 1,600,000 1,622,000
Massachusetts State Health & Educational
Facilities Authority (Boston College)
6.625% 7/1/21 (FGIC) ...................... 2,500,000 2,706,250
Western Illinois University Revenue
5.25% 4/1/12 (MBIA) ....................... 1,050,000 1,014,563
-----------
5,342,813
-----------
Hospital Revenue Bonds - 7.18%
Fort Wayne, Indiana Hospital Authority
(Parkview Memorial Hospital)
6.40% 11/15/22 (MBIA) ...................... 2,250,000 2,362,500
Michigan State Hospital Finance Authority
Revenue (Genesys Health System)
7.50% 10/1/27 ............................. 3,000,000 3,157,500
Monroeville, Pennsylvania Hospital Authority
Hospital Revenue (Forbes Health System)
7.00% 10/1/03 .............................. 865,000 930,956
-----------
6,450,956
-----------
Housing Revenue Bonds - 5.70%
California Housing Finance Agency
6.85% 8/1/23 (MBIA) ....................... 3,860,000 4,043,350
New Mexico Mortgage Finance Authority
Single Family Mortgage
6.20% 7/1/26 (GNMA) ....................... 1,000,000 1,022,500
Rhode Island Housing and Mortgage Finance
Corp. Single Family Mortgage
9.30% 7/1/04 (FGIC) ....................... 10,000 10,152
St. Louis County, Missouri Single Family
Mortgage 9.25% 10/1/16 (AMBAC) .............. 45,000 46,631
-----------
5,122,633
-----------
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pollution Control Revenue Bonds - 8.53%
Northampton County, Pennsylvania
Industrial Development Authority
(Citizen's Utilities Co.)
6.95% 8/1/15 ............................... $ 1,000,000 $ 1,072,500
Ohio State Air Quality Development
Authority (Ohio Edison)
7.45% 3/1/16 (FGIC) ........................ 2,000,000 2,235,000
Salem County, New Jersey (Public Service
Electric & Gas Co.)
6.55% 10/1/29 (MBIA) ....................... 4,000,000 4,350,000
-----------
7,657,500
-----------
Power Authority Revenue Bonds - 14.30%
Georgia Municipal Electric Authority
Power Revenue
8.10% 1/1/12 (BIGI) ........................ 2,000,000 2,107,580
Indiana Municipal Power Agency
5.50% 1/1/23 (MBIA) ........................ 4,500,000 4,325,625
Indianapolis, Indiana Gas Utilities Revenue
5.375% 6/1/21 (FGIC) ....................... 4,115,000 3,955,544
Intermountain Power Agency, Utah Power
Supply Revenue
7.25% 7/1/17 (FGIC) ........................ 600,000 618,228
South Carolina State Public Service
Authority 5.00% 1/1/25 (FGIC) ................ 2,000,000 1,835,000
-----------
12,841,977
-----------
Pre-Refunded Bonds* - 18.13%
Allegheny County, Pennsylvania
Sanitary Authority
7.50% 12/1/16-99 (FGIC) ..................... 750,000 827,813
Chicago, Illinois Public Building Commission
(Chicago Board of Education)
Series A 7.75% 1/1/06-99 (FGIC) ............. 500,000 558,750
Illinois Regional Transportation Authority
Series D 6.75% 6/1/25-04 (FGIC) ............. 7,970,000 9,245,200
Louisiana Public Facilities Authority Health
& Education Capital Facilities Revenue
(Our Lady of the Lake Regional
Medical Center)
8.20% 12/1/15-98 (BIGI) ..................... 800,000 895,000
Orleans Parish, Louisiana School Board,
Public School Capital Funding
7.00% 6/1/09-96 (MBIA) ...................... 2,000,000 2,057,920
Pennsylvania Turnpike Commission Revenue
7.625% 12/1/17-98 (FGIC) ................... 2,425,000 2,700,844
-----------
16,285,527
-----------
11
<PAGE>
Tax-Free Insured Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
State Agency Bonds - 6.05%
Michigan State Trunk Line Series
Series 92A 5.50% 10/1/21
(AMBAC) .................................... $ 2,500,000 $ 2,468,750
Series 92B 5.50% 10/1/21
(MBIA) ..................................... 3,000,000 2,962,500
-----------
5,431,250
-----------
Transportation Revenue Bonds - 9.63%
Chicago O'Hare International Airport
(Illinois) 5.00% 1/1/16 (MBIA) .............. 5,000,000 4,668,750
Massachusetts Bay Transportation Authority
5.75% 3/1/22 (FGIC) ........................ 2,370,000 2,372,963
Tulsa International Airport (Oklahoma)
General Revenue, Consolidated Fixed
Rate Series 7.50% 6/1/08 (MBIA) .............. 1,500,000 1,608,750
-----------
8,650,463
-----------
Water And Sewer Revenue Bonds - 14.05%
Austin, Texas Combined Utilities System
Series 90A 6.00% 5/15/15 (FGIC) ............. 1,275,000 1,298,906
Chicago, Illinois Wastewater Transmission
Revenue 5.125% 1/1/25 (FGIC) ................ 1,000,000 922,500
Hilton Head Public Service District #1
South Carolina Waterworks & Sewer
Systems Revenue 5.50%
8/1/20 (MBIA) .............................. 2,000,000 1,975,000
Massachusetts Water Resources Authority
5.75% 12/1/21 (MBIA) ....................... 2,000,000 2,007,500
Norfolk, Virginia Water Authority
5.875% 11/1/20 (MBIA) ....................... 1,000,000 1,023,750
Seattle, Washington Municipality
Metropolitan Seattle Sewer Revenue
Series U 6.60% 1/1/32 (FGIC) ................. 5,000,000 5,387,500
-----------
12,615,156
-----------
Other Revenue Bonds - 6.26%
**Luzerne County Industrial Development
Authority (Pennsylvania Gas & Water Co.
Project) 7.00% 12/1/17 (AMBAC) .............. 1,000,000 1,127,500
**Massachusetts State Industrial Finance
Agcy. Solid Waste Disposal
(Massachusetts Recycling Associates
Project-Fitchburg) 9.00% 8/1/16 ............. 3,000,000 3,003,750
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Other Revenue Bonds (Continued)
Metropolitan Pier & Exposition Authority
Illinois Hospital Facilities Revenue
(McCormick Place Convention)
5.75% 7/1/06 ............................. $ 1,500,000 $ 1,494,375
-----------
5,625,625
-----------
Total Municipal Bonds
(cost $83,722,604) ........................ 89,847,559
-----------
VARIABLE RATE DEMAND NOTES - 0.45%
Allegheny County, Pennsylvania Hospital
Development Authority Revenue
(Presbyterian University Hospital)
Series B-1 3.35% 3/1/18 ................... 100,000 100,000
Series B 3.35% 3/1/20 (MBIA) .............. 300,000 300,000
-----------
Total Variable Rate Demand Notes
(cost $400,000) ............................. 400,000
-----------
TOTAL MARKET VALUE OF SECURITIES
OWNED - 100.49% (cost $84,122,604) .................... $ 90,247,559
LIABILITIES NET OF RECEIVABLES
AND OTHER ASSETS - (0.49%) .......................... (436,667)
-----------
NET ASSETS APPLICABLE TO 7,659,227 TAX-FREE INSURED
FUND A CLASS, 277,061 TAX-FREE INSURED FUND B
CLASS AND 4,314 TAX FREE INSURED FUND C CLASS
SHARES ($.01 PAR VALUE) OUTSTANDING; EQUIVALENT
TO $11.31 PER SHARE - 100.00% ........................ $ 89,810,892
============
- --------------
* For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
**This security is subject to the federal alternative minimum tax.
AMBAC - Insured by the AMBAC Indemnity Corporation.
BIGI - Insured by the Bond Investors Guaranty Insurance Company.
FGIC - Insured by the Financial Guaranty Insurance Company.
GNMA - Insured by the Government National Mortgage Association.
MBIA - Insured by the Municipal Bond Insurance Association.
COMPONENTS OF NET ASSETS AT FEBRUARY 29, 1996:
Common stock, $.01 par value, 500,000,000 shares
authorized to the Tax-Free Insured Fund .................. $83,305,744
Accumulated undistributed income:
Net realized gain on investments ......................... 380,193
Net unrealized appreciation of investments ............... 6,124,955
-----------
Total net assets ........................................... $89,810,892
===========
See accompanying notes
12
<PAGE>
DELAWARE GROUP TAX-FREE FUND, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 29, 1996
(UNAUDITED)
Tax-Free Tax-Free
USA Fund Insured Fund
----------- ------------
INVESTMENT INCOME:
Interest .................................. $26,238,353 $2,813,402
----------- ----------
EXPENSES:
Management fees ........................... 2,315,367 268,622
Distribution expenses ..................... 858,532 98,816
Dividend disbursing and transfer agent
fees and expenses ........................ 240,973 27,608
Salaries .................................. 88,801 10,204
Reports and statements to shareholders .... 70,134 302
Registration fees ......................... 48,260 13,424
Taxes (other than income) ................. 28,350 --
Custodian fees ............................ 24,000 13,474
Professional fees ......................... 12,498 6,973
Directors' fees ........................... 3,912 3,912
Other ..................................... 59,729 402
----------- ----------
Total Expenses .......................... 3,750,556 443,737
----------- ----------
NET INVESTMENT INCOME ..................... 22,487,797 2,369,665
----------- ----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain from security
transactions ............................. 4,617,582 611,599
Net unrealized appreciation of
investments during the period ............ 4,010,429 1,731,598
----------- ----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS .............................. 8,628,011 2,343,197
----------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .......................... $31,115,808 $4,712,862
=========== ==========
See accompanying notes
13
<PAGE>
DELAWARE GROUP TAX-FREE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
2/29/96 (Unaudited) 8/31/95
--------------------------------- ----------------------------------
Tax-Free Tax-Free Tax-Free Tax-Free
USA Fund Insured Fund USA Fund Insured Fund
-------- ------------ -------- ------------
OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income ....................... $ 22,487,797 $ 2,369,665 $ 46,655,414 $ 5,193,091
Net realized gain from security transaction . 4,617,582 611,599 5,528,096 942,322
Net unrealized appreciation (depreciation)
during the period .......................... 4,010,429 1,731,598 (3,462,957) (753,311)
------------- ------------- ------------ ------------
Net increase in net assets resulting from
operations ................................ 31,115,808 4,712,862 48,720,553 5,382,102
------------- ------------- ------------ ------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
Class A ................................... (21,950,290) (2,305,988) (46,114,506) (5,114,142)
Class B ................................... (535,295) (63,384) (540,908) (78,949)
Class C ................................... (2,212) (293) -- --
Net realized gain from security transactions:
Class A ................................... (3,755,304) (232,860) -- --
Class B ................................... (106,237) (7,992) -- --
Class C ................................... -- -- -- --
------------- ------------- ------------ ------------
(26,349,338) (2,610,517) (46,655,414) (5,193,091)
------------- ------------- ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Class A ................................... 29,268,154 2,906,619 103,815,190 8,036,953
Class B ................................... 7,978,662 989,433 15,377,684 1,779,510
Class C ................................... 311,796 48,763 -- --
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and distributions
of net realized gain from security
transactions:
Class A ................................... 14,894,164 1,323,534 25,638,950 2,632,048
Class B ................................... 379,335 36,195 276,926 42,458
Class C ................................... 1,655 292 -- --
------------- ------------- ------------ ------------
52,833,766 5,304,836 145,108,750 12,490,969
------------- ------------- ------------ ------------
Cost of shares repurchased:
Class A ................................... (49,442,548) (6,396,200) (118,618,699) (15,303,455)
Class B ................................... (1,402,079) (403,721) (2,038,759) (233,595)
Class C ................................... (99) (99) -- --
------------- ------------- ------------ ------------
(50,844,726) (6,800,020) (120,657,458) (15,537,050)
------------- ------------- ------------ ------------
Increase (decrease) in net assets derived
from capital share transactions ............ 1,989,040 (1,495,184) 24,451,292 (3,046,081)
------------- ------------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS ........... 6,755,510 607,161 26,516,431 (2,857,070)
NET ASSETS:
Beginning of period ......................... 776,249,353 89,203,731 749,732,922 92,060,801
------------- ------------- ------------ ------------
End of period ............................... $ 783,004,863 $ 89,810,892 $ 776,249,353 $ 89,203,731
============= ============= ============= =============
</TABLE>
See accompanying notes
14
<PAGE>
DELAWARE GROUP TAX-FREE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
(UNAUDITED)
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 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 Tax-Free USA Fund
and the Tax-Free Insured Fund (the "Funds") for financial statement
preparation.
Security Valuation - Long-term debt securities are valued by an independent
pricing service and are believed to reflect the fair value of such
securities. Money market instruments having less than 60 days to maturity are
valued at amortized cost, 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 - Investment income, common expenses and gain (loss) on
investments are allocated to the various classes of the Funds on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
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 is 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% on the next $250 million and 0.55% on the
average daily net assets over $750 million for the Tax-Free USA Fund, and
0.60% of the average daily net assets of the Tax-Free Insured Fund. At
February 29, 1996, the Funds had a liability for Investment Management fees
and other expenses payable to DMC of $50,232 and $8,889 for the Tax-Free USA
Fund and the Tax-Free Insured 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 Class A of the Funds and 1.00%
of the average daily net assets of Class B and Class C of the Funds. At February
29, 1996, the Funds had a liability for distribution fees and other expenses
payable to DDLP of $14,512 and $1,662 for Tax-Free USA Fund and Tax-Free Insured
Fund, respectively. For the six months ended February 29, 1996, the Funds paid
DDLP $131,880 and $16,564 for commissions earned on sales of Tax-Free USA Fund A
Class and Tax-Free Insured 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 six months ended February 29, 1996, the Funds expensed the following
amounts for these services:
Tax-Free Tax-Free
USA Fund Insured Fund
--------- -------------
Dividend disbursing and transfer agent
fees and other expenses. . . . . $240,973 $27,608
At February 29, 1996, the Funds had a liability for such fees and other
expenses payable to DSC as follows:
Tax-Free Tax-Free
USA Fund Insured Fund
--------- -------------
Dividend disbursing and transfer agent fees
and expenses payable. . . $33,535 $4,900
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.
15
<PAGE>
Notes to Financial Statements (Continued)
3. Investments
During the six months ended February 29, 1996, the Funds had purchases and
sales of investment securities other than temporary cash investments as
follows:
Tax-Free Tax-Free
USA Fund Insured Fund
--------- ------------
Purchases ................... $127,698,061 $12,075,516
Sales ....................... $126,067,724 $11,564,404
At February 29, 1996, unrealized appreciation for federal income tax purposes
was as follows:
Tax-Free Tax-Free
USA Fund Insured Fund
----------- ------------
Unrealized appreciation ............... $ 61,145,100 $ 6,157,587
Unrealized depreciation ............... (4,296,093) (32,632)
------------ -----------
Aggregate unrealized appreciation ..... $ 56,849,007 $ 6,124,955
============ ===========
Net realized gain for federal income tax purposes was $4,622,788 for the
Tax-Free USA Fund and $611,599 for the Tax-Free Insured Fund.
4. Capital Stock
Transactions in capital stock shares were as follows:
Tax-Free USA Fund
----------------------------------
Six Months Ended Year Ended
2/29/96 8/31/95
------- -------
Shares sold:
Class A ........................ 2,396,619 8,764,777
Class B ........................ 654,056 1,293,697
Class C ........................ 25,448 --
Shares issued upon reinvestment of
dividends from net investment income
and distributions of net realized gain
from security transactions:
Class A ........................ 1,219,964 2,163,314
Class B ........................ 31,086 23,267
Class C ........................ 135 --
---------- ----------
4,327,308 12,245,055
Shares repurchased:
Class A ........................ (4,050,895) (10,009,753)
Class B......................... (114,600) (170,688)
Class C ........................ (8) --
---------- ----------
(4,165,503) (10,180,441)
---------- ----------
Net increase ................... 161,805 2,064,614
========== ==========
<PAGE>
Tax-Free Insured Fund
-----------------------------------
Six Months Ended Year Ended
2/29/96 8/31/95
------- -------
Shares sold:
Class A .......................... 259,168 741,299
Class B .......................... 87,908 164,244
Class C .......................... 4,297 --
Shares issued upon reinvestment of
dividends from net investment income
and distributions of net realized
gain from security transactions:
Class A ........................ 117,299 242,387
Class B ........................ 3,208 3,885
Class C ........................ 26 --
--------- -----------
471,906 1,151,815
Shares repurchased:
Class A ........................ (567,109) (1,410,700)
Class B ........................ (35,548) (21,543)
Class C ........................ (9) --
--------- -----------
(602,666) (1,432,243)
--------- -----------
Net decrease ................... (130,760) (280,428)
========= ==========
5. Lines of Credit
The Funds have committed lines of credit of $15 million for the Tax-Free USA
Fund and $2 million for the Tax-Free Insured Fund. No amount was outstanding
at February 29, 1996, or at any time during the last fiscal period.
6. Concentration of Credit Risk
The Funds concentrate their investments in securities issued by
municipalities. The value of these investments may be adversely affected by
new legislation within the states, regional or local economic conditions, and
differing levels of supply and demand for municipal bonds. Many
municipalities insure repayment for their obligations. Although bond
insurance reduces the risk of loss due to default by an issuer, such bonds
remain subject to the risk that market value may fluctuate for other reasons
and there is no assurance that the insurance company will meet its
obligations. These securities have been identified in the Statement of Net
Assets.
16
<PAGE>
Notes to Financial Statements (Continued)
7. Financial Highlights
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free USA
Tax-Free USA Fund A Class Tax-Free USA Fund B Class Fund C Class
-------------------------------------------------------------- -------------------------- ------------
Six Months Year Ended Six Months Year Period Period
Ended Ended Ended 5/2/94(3) to 11/29/95(3)
2/29/96(1) 8/31/95 8/31/94 8/31/93 8/31/92(2) 8/31/91 2/29/96(1) 8/31/95 8/31/94 to 2/29/96
<S> <C> <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 $11.070 $12.070 $12.040 $12.080 $12.230
Income from investment
operations:
Net investment income . 0.351 0.746 0.751 0.751 0.765 0.783 0.302 0.649 0.214 0.152
Net realized and
unrealized gain
(loss) from security
transactions ........ 0.130 0.030 (0.566) 0.610 0.570 0.490 0.130 0.030 (0.040) (0.030)
------- ------ ------- ------ ------ ------- ------- ------- ------ ------
Total from
investment operations 0.481 0.776 0.185 1.361 1.335 1.273 0.432 0.679 0.174 0.122
Less distributions:
Dividends from net
investment income ... (0.351) (0.746) (0.751) (0.751) (0.765) (0.783) (0.302) (0.649) (0.214) (0.152)
Distributions from
net realized gain
on security
transactions ........ (0.060) none (0.034) (0.100) none none (0.060) none none (0.060)
------- ------ ------- ------ ------ ------- ------- ------- ------ ------
Total distributions . (0.411) (0.746) (0.785) (0.851) (0.765) (0.783) (0.362) (0.649) (0.214) (0.212)
------- ------ ------- ------ ------ ------- ------- ------- ------ ------
Net asset value,
end of period ....... $12.140 $12.070 $12.040 $12.640 $12.130 $11.560 $12.140 $12.070 $12.040 $12.140
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return(4) ..... 4.01% 6.74% 1.49% 11.66% 11.91% 11.88% 3.60% 5.88% 1.45% 0.99%
Ratios/supplemental data:
Net assets, end of period
(000 omitted) ....... $757,878 $758,470 $745,796 $762,574 $702,988 $669,546 $24,817 $17,779 $3,937 $310
Ratio of expenses to
average net assets .... 0.94% 0.92% 0.89% 0.89% 0.80% 0.74% 1.74% 1.74% 1.74% 1.74%
Ratio of net investment
income to average net
assets ............... 5.78% 6.29% 6.07% 6.10% 6.47% 6.91% 4.98% 5.47% 5.22% 4.98%
Portfolio turnover .... 33% 27% 10% 12% 21% 19% 33% 27% 10% 33%
</TABLE>
- --------
(1) Ratios have been annualized and total return has not been annualized.
(2) Beginning June 1, 1992, the Fund began paying distribution expenses
pursuant to a Rule 12b-1 Plan.
(3) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(4) Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchases for the Tax-Free USA Fund A
Class or contingent deferred sales charge which varies from 1%-4% for
Tax-Free USA Fund B Class and 1% for the Tax-Free USA Fund C Class
depending upon the holding period.
17
<PAGE>
Notes to Financial Statements (Continued)
7. Financial Highlights
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Insured
Tax-Free Insured Fund A Class Tax-Free Insured Fund B Class Fund C Class
---------------------------------------------------------- ------------------------------ ---------------
Six Months Year Ended Six Months Year Period Period
Ended Ended Ended 5/2/94(3) to 11/29/95(3)
2/29/96(1) 8/31/95 8/31/94 8/31/93 8/31/92(2) 8/31/91 2/29/96(1) 8/31/95 8/31/94 to 2/29/96
<S> <C> <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 $10.460 $11.050 $11.020 $10.990 $11.260
Income from
investment operations:
Net investment income . 0.297 0.639 0.622 0.638 0.674 0.699 0.251 0.550 0.179 0.128
Net realized and
unrealized gain (loss)
from security
transactions .......... 0.290 0.030 (0.560) 0.400 0.410 0.440 0.290 0.030 0.030 0.080
------ ------- ------ ------ ------ ------- ------ ------ ------ ------
Total from investment
operations ............ 0.587 0.669 0.062 1.038 1.084 1.139 0.541 0.580 0.209 0.208
------ ------- ------ ------ ------ ------- ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ..... (0.297) (0.639) (0.622) (0.638) (0.674) (0.699) (0.251) (0.550) (0.179) (0.128)
Distributions from net
realized gain on
security transactions . (0.030) none (0.100) (0.030) none none (0.030) none none (0.030)
------ ------- ------ ------ ------ ------- ------ ------ ------ ------
Total distributions ...(0.327) (0.639) (0.722) (0.668) (0.674) (0.699) (0.281) (0.550) (0.179) (0.158)
------ ------- ------ ------ ------ ------- ------ ------ ------ ------
Net asset value,
end of period ........ $11.310 $11.050 $11.020 $11.680 $11.310 $10.900 $11.310 $11.050 $11.020 $11.310
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return(4) ...... 5.35% 6.33% 0.54% 9.48% 10.23% 11.20% 4.93% 5.47% 1.91% 1.84%
Ratios/supplemental data:
Net assets, end of period
000 omitted) ....... $86,628 $86,756 $91,235 $96,118 $85,660 $76,700 $3,134 $2,448 $826 $49
Ratio of expenses to
average net assets .. 0.96% 0.98% 0.98% 0.98% 0.86% 0.83% 1.77% 1.80% 1.83% 1.77%
Ratio of net
investment income
to average net assets 5.30% 5.89% 5.48% 5.58% 6.06% 6.50% 4.49% 5.07% 4.63% 4.49%
Portfolio turnover ... 26% 68% 56% 8% 29% 10% 26% 68% 56% 26%
</TABLE>
- --------
(1)Ratios have been annualized and total return has not been annualized.
(2)Beginning June 1, 1992, the Fund began paying distribution expenses
pursuant to a Rule 12b-1 Plan.
(3)Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(4)Does not include maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase for the Tax-Free Insured Fund A
Class or contingent deferred sales charge which varies from 1%-4% for
Tax-Free Insured Fund B Class and 1% for the Tax-Free Insured Fund C Class
depending upon the holding period.
18
<PAGE>
This semi-annual report is for the information of Tax-Free Funds'
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current PROSPECTUS, which sets forth details about charges,
expenses, investment objectives and operating policies of the Fund. 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 Funds will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost.
Delaware Group
=============================
of Funds
=============================
FOR GROWTH OF CAPITAL
Trend Fund
DelCap Fund
Value Fund
FOR TOTAL RETURN
Devon Fund
Decatur Total Return Fund
Decatur Income Fund
Delaware Fund
FOR GLOBAL DIVERSIFICATION
International Equity Fund
Global Assets Fund
Global Bond Fund
FOR CURRENT INCOME
Delchester Fund
U.S. Government Fund
Limited-Term Government Fund
FOR TAX-FREE CURRENT INCOME
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Tax-Free Pennsylvania 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
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.
19
<PAGE>
Be sure to consult your financial adviser when making investments. Mutual
funds can be a valuable part of your financial plan; however, shares of the
Funds 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 Funds are not bank or credit union deposits.
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.
INVESTMENT MANAGER
Delaware Management Company, Inc.
Philadelphia
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia
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-BANK
Copy Rights Delaware Distributors, L.P.
Printed in the U.S.A. on recycled paper.
SA - 011 [2/96] PP4/96
<PAGE>
==========================
TAX-FREE FUND
TAX-FREE USA
TAX-FREE INSURED
==========================
1996
SEMI-ANNUAL
REPORT
A Tradition of Sound Investing Since 1929
DELAWARE
GROUP
=====================
Philadelphia o London
