<PAGE>
For Tax-Exempt Income
DELAWARE GROUP
National Tax-Free Funds
(Various photos demonstrating service and guidance,
professional management and goals)
service and guidance
professional management
1997
Annual
Report
goals
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
DELAWARE
GROUP
- --------
<PAGE>
A Commitment To Our Investors
Delaware Group's investment tradition dates back to 1929. We have a long and
distinguished history of helping individuals and institutions including
some of America's largest pension funds reach their financial goals.
Headquartered in Philadelphia, a block from the nation's oldest stock
exchange, Delaware Group's first mutual fund was established in 1938.
Delaware International Advisers Ltd., our international affiliate, was
established in 1990 and is headquartered in London.
Delaware Group offers a full range of mutual funds. We also manage
variable annuity investments, unit investment trusts and closed-end funds,
and offer retirement plan services for individuals and businesses.
Delaware manages more than $39 billion in mutual fund assets and
institutional advisory accounts for more than half-a-million investors. We're
part of a global financial service and investment management business owned
by Lincoln National Corporation, whose subsidiaries manage more than $115
billion in assets.
tax-exempt
national income
(Photo of glasses, pen and keyboard)
A TRADITION OF SOUND INVESTING
(Photo of illustration)
Tax-Free Funds' Objectives
Tax-Free USA Fund
To seek as high a level of current interest income exempt from Federal income
tax as is available from municipal bonds and is consistent with prudent
investment management and preservation of capital.
Tax-Free Insured Fund
To seek as high a level of current interest income exempt from Federal income
tax as is available from municipal bonds which are protected by insurance
guaranteeing the payment of principal and interest when due and is consistent
with prudent investment management and preservation of capital.
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.
commitment
<PAGE>
September 3, 1997
(Photo of Wayne A. Stork, Chairman)
Wayne A. Stork
Chairman
Dear Shareholder:
I AM PLEASED TO REPORT THAT DURING FISCAL 1997
Delaware Group became one of the nation's largest managers of municipal bond
funds with the April 30 acquisition of the Voyageur family of funds.
Delaware also strengthened its commitment to prudently managing your
investment dollars by adding Mitchell L. Conery, a veteran portfolio manager
from New York, as co-manager of its national tax-free funds.
Dynamic change was a hallmark of the tax-exempt securities market
during the 12 months ended August 31, 1997. Despite investor uncertainty
about consumer price trends and tax changes in Washington, municipal bond
prices rose, enabling Tax-Free USA Fund, Tax-Free Insured Fund and Tax-Free
USA Intermediate Fund to each achieve its highest total return since 1993, as
shown on pages 23 to 25 (for A Class shares).
Delaware's investment strategy of maximizing tax-exempt income did
not allow these funds to fully benefit from the rise in bond prices that
occurred in the late spring and early summer. On a total return basis, each
fund underperformed its unmanaged benchmark and the average of its peers, as
shown on page 2.
However, making short-term bets on the direction of interest rates
has never been Delaware's style. Income has typically been the primary
component of total return from fixed-income investments, and our approach to
the municipal bond market has consistently reflected the lessons of history.
Several events helped bolster confidence in tax-exempt securities
during fiscal 1997 and auger well for the municipal bond market in the coming
year:
* The Federal Reserve Board's monetary policy has allowed the U.S. to enjoy
healthy economic growth and benign inflation;
During the past year, Tax-Free USA Fund, Tax-Free Insured Fund and Tax-Free USA
Intermediate Fund each achieved its highest total return since 1993 (for A
Class shares).
1 9 9 7 a n n u a l r e p o r t 1
<PAGE>
TOTAL RETURN AND YIELD
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Return 30-Day SEC Yield
- ------------------------------------------------------------------------------------------
12 Months Ended As of
August 31, 1997 August 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Tax-Free USA Fund A +7.79% 4.35%
Lehman Brothers Municipal Bond Index +9.25% 5.01%
Lipper Municipal Debt Fund Average
(233 funds) +8.83% 4.27%
- ------------------------------------------------------------------------------------------
Tax-Free Insured Fund A +8.07% 3.76%
Lehman Brothers Insured Bond Index +9.47% 5.07%
Lipper Insured Municipal Debt Fund Average
(48 funds) +8.20% 4.04%
- ------------------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund A +6.57% 3.91%
Merrill Lynch Three-to-Seven Year
Municipal Bond Index +7.41% 4.67%
Lipper Intermediate Municipal Debt Average
(135 funds) +7.03% 3.71%
</TABLE>
All performance quoted above is based on net asset value and reinvestment of
distributions. Performance for all classes of the three Funds above can be found
on pages 12 and 13. Yields calculated according to Securities and Exchange
Commission guidelines. B and C Class 30-day current yields were, respectively,
3.68% for Tax-Free USA Fund; 3.08% for Tax-Free Insured Fund and 3.15% for
Tax-Free USA Intermediate Fund. Past performance does not guarantee future
results.
research &
discipline
* Most states have budget surpluses and high credit ratings;
* The overall supply of new municipal bonds has remained relatively modest,
helping bolster bond prices since investor demand has generally been steady;
and,
* Dividends are still taxed at a higher rate than capital gains at the federal
level, providing an incentive for income-oriented investors to consider
tax-exempt alternatives.
In the pages that follow, Mr. Coyne and Mr. Conery outline the Fund's
strategy and provide an outlook for fiscal 1998. Your Funds' managers
generally believe that hospital and transportation-related debt as well as
bonds issued by U.S. territories are among the sectors likely to do well for
the balance of the calendar year.
In our opinion, the acquisition of Voyageur may give Delaware
additional clout in the municipal bond market. Delaware now manages more than
$5 billion in municipal securities, nearly double the amount a year ago. We
believe this larger size may benefit investors by providing portfolio
managers with more pricing leverage when they select securities.
2 1 9 9 7 a n n u a l r e p o r t
<PAGE>
Unlike many stocks, municipal bonds are not traded on an exchange. At
times, large institutional buyers such as mutual funds may have an advantage
in locating and purchasing securities on favorable terms. With a growing
stable of national and single-state funds, we believe Delaware is
well-positioned to be a major competitor in the municipal arena as we enter a
new millennium.
As one of the more than 16,000 shareholders in our national tax-free
funds, you can take heart from the fact that your investment dollars are
managed by a team of experienced professionals who are among the leaders in
their field. On behalf of Delaware, I thank you for your continued support.
Sincerely,
signature
Wayne A. Stork
Chairman, President and Chief Executive Officer
Your Fund's Portfolio Managers
Patrick P. Coyne has managed fixed-income securities at Delaware since 1990.
He holds an undergraduate degree in European History and Classics from
Harvard University and an MBA in finance from the University of
Pennsylvania's Wharton School of Business.
(Photo of Patrick P. Coyne)
Patrick P. Coyne
Mitchell L. Conery joined Delaware on January 2, 1997. He had been managing a $5
billion municipal bond portfolio for Travelers Group in New York City. Mr.
Conery holds an MBA from the State University of New York at Albany. He holds a
bachelor's degree from Boston University.
(Photo of Mitchell L. Conery)
Mitchell L. Conery
1 9 9 7 a n n u a l r e p o r t 3
<PAGE>
MUNICIPAL BONDS OFFER
A YIELD ADVANTAGE OVER TREASURIES
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<TABLE>
<CAPTION>
AAA-rated AAA-rated U.S. Treasury Yields
Municipal Bonds Municipal Bonds Adjusted for the 39.6% Tax Bracket
August 31, 1997 August 31, 1996 (August 31, 1997)
<S> <C> <C> <C>
1 Year 3.77% 3.87% 3.35%
M 2 Year 3.97% 4.12% 3.59%
A 3 Year 4.11% 4.32% 3.67%
T 4 Year 4.22% 4.47% 3.72%
U 5 Year 4.32% 4.57% 3.75%
R 7 Year 4.49% 4.77% 3.80%
I 10 Year 4.70% 5.07% 3.82%
T 15 Year 5.08% 5.48% 3.92%
Y 20 Year 5.23% 5.65% 4.03%
25 Year 5.26% 5.69% 4.01%
30 Year 5.28% 5.71% 3.99%
YIELD
</TABLE>
As municipal bond prices rose in fiscal 1997, yields on intermediate-term bonds
declined 25 to 40 basis points (0.25 to 0.40%).
Treasury yields are adjusted downward to reflect the effect of a 39.6%
federal income tax. Unlike Treasuries, municipal bonds are not guaranteed by
the U.S. government.
Source: Bloomberg Business News.
Portfolio Managers' Review
THE 1997 FISCAL YEAR WAS perhaps the most significant time for the municipal
bond market since federal tax laws were overhauled in 1986. Congress' Taxpayer
Relief Act of 1997, passed in July, offered provisions that we believe are
beneficial to municipal bond mutual fund investors. Consider that the law:
* Eliminated an element of uncertainty that surrounded tax-exempt securities
ever since flat-tax proposals had surfaced prior to the 1996 federal elections;
* Increased the after-tax total return potential of municipal bonds by cutting
the long-term capital gains tax from 28% to as low as 20%; and,
* Maintained municipal bonds' after-tax income advantage over bonds that
generate taxable income because Congress did not reduce taxes on dividends.
Thus, we believe municipal bond mutual funds remain one of the most
attractive investments available for investors whose primary goal is to
generate high after-tax income.
4 1 9 9 7 a n n u a l r e p o r t
<PAGE>
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
August 31, 1996 August 31, 1997
- --------------------------------------------------------------------------------
Tax-Free USA Fund
Average Effective Duration 6.9 years 6.2 years
Average Effective Maturity 11.6 years 10.3 years
Average Quality AA A1
Average Weighted Coupon 6.75% 6.52%
- --------------------------------------------------------------------------------
Tax-Free Insured Fund
Average Effective Duration 7.7 years 7.7 years
Average Effective Maturity 13.5 years 13.1 years
Average Quality AA1 AA1
Average Weighted Coupon 6.37% 6.25%
- --------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund
Average Effective Duration 4.6 years 4.4 years
Average Effective Maturity 5.6 years 5.3 years
Average Quality AA3 AA3
Average Weighted Coupon 5.59% 5.49%
tax-exempt
income
Since last August, we believe several positive trends made fiscal
1997 a banner year for municipal bonds. The Federal Reserve Board's monetary
policy has effectively controlled the pace of inflation, leading to lower
interest rates. Two fundamental factors also helped boost bond prices during
fiscal 1997:
* Modest Supply and High Demand. Since January, the amount of new tax-exempt
securities issued by states and municipalities has risen by only 12% compared to
a year earlier. Modest supplies have helped support bond prices since investor
demand, primarily that of institutions such as mutual funds, has been high.
* Strong Credit Quality. More than 150 municipalities have had their bonds'
credit rating upgraded during calendar 1997, according to Moody's Investors
Services. Only one-third as many communities had their debt downgraded. As of
August 31, 1997, eight states had AAA bond ratings, the highest rating
available. That was three more states than a year earlier.
Strategic Positioning
Tax-Free USA Fund
Fiscal 1997 was a challenging yet rewarding year for Tax-Free USA Fund. Our
conservative, income oriented approach allowed us to provide an attractive
level of tax-exempt monthly dividends. At the
1 9 9 7 a n n u a l r e p o r t 5
<PAGE>
same time, our strategy did not permit the Fund to fully benefit from the rally
in municipal bond prices this past spring. The primary reason was that bonds we
favor - those with superior income potential - tend to be less affected by
short-term interest rate changes.
Since August 1996, we've reduced Tax-Free USA Fund's sensitivity to
changes in rates by reducing the Fund's average effective duration. Over the
long term, we strive to approximate the effective duration of our benchmark,
the Lehman Brothers Municipal Bond Index.
However, as of August 31, the Fund's duration was more than a year
lower than the index and lower than that of most of our peers because we
believe bond prices are unlikely to rally substantially in the coming months.
Although inflation appears tame, we believe the Federal Reserve Board is more
likely than not to raise its target for short-term interest rates a modest
amount by 1998.
In our opinion, the yield on 30-year U.S. Treasury bonds is likely to
remain within a range of 6.25% to 6.75% given the strength of the U.S.
economy. Should interest rates rise beyond 7% in fiscal 1998, we believe our
positioning has the potential to help preserve principal to a greater degree
than more aggressive investment strategies.
Your Fund currently holds bonds in 36 states and a dozen different
sectors of the municipal bond market. In recent months, we purchased New York
General Obligation and Thruway bonds and decreased our holdings of electric
utility bonds nationwide. Toll highway bonds can be attractive because they
are generally financed with a relatively stable source of income from
motorists. Electric
CREDIT QUALITY OF TAX-FREE USA FUND'S PORTFOLIO
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August 31, 1997
AAA 32.6%; AA 12.4%; A 15.2%; BBB 25.0%; BB and B 6.3%
Unrated 8.5%
Top Five States (August 31, 1997)
Percent State's
of General Obligation
State Net Assets Bond Rating
- -------------------------------------------------------
Florida 9.8% AA
Massachusetts 8.7% A1
Pennsylvania 8.6% A1
Louisiana 5.8% A3
Texas 5.3% AA
Approximately 20.8% of the income generated by Tax-Free USA Fund for the 12
months ended August 31, 1997, was subject to the alternative minimum tax.
During fiscal 1997, we reduced the portion of Tax-Free USA Fund's portfolio
invested in unrated bonds and AAA bonds and increased our position in bonds
rated BBB. Florida remained the Fund's top state.
6 1 9 9 7 a n n u a l r e p o r t
<PAGE>
utility bonds, meanwhile, have become less attractive because the industry faces
increasing competition for customers.
In fiscal 1997, Tax-Free USA Fund invested in airport bonds that
offered above-average yields and performed well. During the year, the rising
fortunes of commercial airlines helped lift prices of municipal bonds that
finance airport improvement projects. This sector represented the largest
portion of your Fund's portfolio for much of the fiscal year. Our holdings
included bonds issued for work at Delta Airlines' hub in Atlanta and American
Airlines' hub at Dallas-Fort Worth International.
In fiscal 1997, Tax-Free USA Fund invested in airport bonds that offered
above-average yields and performed well.
Another area of opportunity for Tax-Free USA during fiscal 1997 was
discount bonds - those trading at less than face value. We sought to allocate
between 20% to 25% of the Fund's net assets to discount bonds, which in our
opinion, was a relatively low risk way to benefit from any rise in bond
prices; we generally achieved our goal. As prices of these securities rose to
more than par, we tended to sell and reinvest the proceeds in additional
discount bonds.
Tax-Free USA Fund's success was overshadowed by a thorn in its side
that accounts, in part, for why the Fund's overall return for 1997 was lower
than the average of its peers. We owned bonds of two troubled paper recycling
plants in Massachusetts and West Virginia (about 3.4% of net assets as of
August 31, 1997) which represented a nearly 100 basis point (1%) drag on our
performance in fiscal 1997.
We have been attempting to recover our investment and we will continue
our efforts to resolve the situation.
Tax-Free Insured Fund
Employing national diversification and income-oriented 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 generally 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 effect of the insurance on
opportunity
1 9 9 7 a n n u a l r e p o r t 7
<PAGE>
CREDIT QUALITY OF TAX-FREE INSURED FUND'S PORTFOLIO
- --------------------------------------------------------------------------------
August 31, 1997
AAA 82.6%; AA and A 5.8%; BBB 10.3%; Non-Rated 1.3%
Top Five States (August 31, 1997)
Percent State's
of General Obligation
State Net Assets Bond Rating
- -------------------------------------------------------
Illinois 17.4% AA3
Ohio 10.7% AA1
Pennsylvania 10.6% A1
Texas 9.0% AA
Massachusetts 8.7% A1
Approximately 8.6% of the income generated by Tax-Free Insured Fund for the
12 months ended August 31, 1997 was subject to the alternative minimum tax.
We increased Tax-Free Insured Fund's holdings in Ohio and Texas during fiscal
1997 while maintaining a portfolio of bonds with very high quality ratings.
reducing the risk of loss depends on the financial strength of the insurance
company guaranteeing the bonds.
Insurance companies guaranteed more than 50% of all bonds issued
during 1996, and in some states such as Pennsylvania nearly three-quarters of
all new bonds were insured, according to The Bond Buyer, a trade publication.
Tax-Free Insured Fund favors very high quality securities. During
fiscal 1997, the Fund outperformed Tax-Free USA Fund primarily because
Tax-Free Insured Fund had a large percentage of very high quality securities
in its portfolio. Typically, bonds rated AAA enjoy greater amounts of price
appreciation than lower rated securities when interest rates fall. Tax-Free
Insured Fund's total return was less than that of the unmanaged Lehman
Brothers Insured Bond Index primarily because the Fund's average effective
duration was about three months shorter.
As of August 31, hospital bonds represented the largest portion of
the Fund's net assets - 17.3%. This was almost double the percentage the Fund
held at the end of fiscal 1996. We believe the health care sector
insured
8 1 9 9 7 a n n u a l r e p o r t
<PAGE>
offers especially attractive returns for investors who can successfully select
institutions that can thrive amid a continuing wave of industry competition and
consolidation.
This past spring, we slightly reduced our position in housing bonds
during fiscal 1997 because we were concerned about an increase in mortgage
prepayments. When interest rates fall by a large amount, there has
historically been a greater likelihood that many homeowners will refinance
what they owe.
caption:
We believe the health care sector offers especially attractive returns for
investors who can successfully select institutions that can thrive amid a
continuing wave of industry competition and consolidation.
Tax-Free USA Intermediate Fund
Intermediate-term municipal bonds generally offer a high percentage of the
tax-exempt income typically available from long-term bonds with less risk
from interest rate fluctuations. However, during fiscal 1997, the income
advantage provided by 10-year municipal bonds compared with one-year
municipal securities narrowed from 230 basis points (2.3%) to 150 basis
points (1.5%). This prompted us to focus on shorter term securities and
increase the relative quality of the portfolio by eliminating the modest posit
ion in unrated bonds that we had at the start of fiscal 1997.
As of August 31, 1997, Tax-Free USA Intermediate Fund's duration was
slightly shorter than that of our benchmark, the Merrill Lynch Three-to-Seven
Year Municipal Bond Index. This reflected an effort to preserve principal
while attempting to generate a relatively attractive level of income. Our
conservative approach generated a total return that was lower than that of
the unmanaged Merrill Lynch index.
During the year, your Fund's management increased its positioning in
bonds issued by New York and Illinois municipalities that offered superior
yields. For example, one of the Fund's largest holdings was
quality
CREDIT QUALITY
OF TAX-FREE USA INTERMEDIATE FUND'S PORTFOLIO
- --------------------------------------------------------------------------------
August 31, 1997
AAA 54.6%; AA 17.7%; A 2.1%; BBB 25.6%;
Top Five States (August 31, 1997)
Percent State's
of General Obligation
State Net Assets Bond Rating
- -------------------------------------------------------
Pennsylvania 23.6% A1
Missouri 10.5% AAA
Illinois 10.4% AA3
Michigan 9.3% AA2
New York 5.9% A2
Approximately 11.5% of the income generated by Tax-Free USA Intermediate Fund
for the 12 months ended August 31, 1997 was subject to the alternative
minimum tax.
During fiscal 1997 we eliminated unrated bonds from Tax-Free USA Intermediate
Fund's portfolio and increased our positioning in Illinois and New York bonds
with moderate investment grade ratings.
1 9 9 7 a n n u a l r e p o r t 9
<PAGE>
industrial development bonds issued by New York City to finance a project for
the Greater New York YMCA. This past summer, your Fund's performance was aided
by the fact that Standard & Poor's upgraded New York State's bond rating.
We also selectively added relatively high quality bonds issued by
Puerto Rico. These securities were much in demand by many institutional
investors because they generate income that is generally exempt from federal
and state taxes, making them especially desirable to mutual fund managers
seeking to diversify the portfolios of both single-state and national
municipal bond funds.
We are generally focusing on higher quality issues in states and sectors
where credit risk can be easily defined.
Summary Outlook
In our opinion, some municipal securities are currently overvalued. The
average yield on high-quality, 10-year municipal bonds as of August 31, 1997
was relatively low, in our opinion, and leads us to be cautious for the
months ahead.
If the municipal bond yields rise to more than 80% of Treasuries, we
are prepared to be more aggressive buyers of tax-exempt securities for each
of our national municipal bond funds. In the meantime, we are generally
focusing on higher quality issues in states and sectors where credit risk can
be easily defined.
Despite current market conditions, we are optimistic we can continue to
find bonds with superior income potential at attractive prices. One reason is
that Delaware's April 30, 1997, acquisition of the Voyageur fund family has
provided your Funds' managers with access to the talent, experience and buying
power of a combined firm that is now one of the nation's largest municipal bond
fund managers.
For example, in fiscal 1997 we purchased bonds financing Denver's
major airport at what we believe was an attractive price for Tax-Free USA
Fund's portfolio. The portfolio manager of Delaware-Voyageur's Tax-Free
Colorado Fund, who is based in Denver, provided us with valuable first-hand
insight into the financial dynamics of Colorado's bond market.
outlook
10 1 9 9 7 a n n u a l r e p o r t
<PAGE>
In the coming months, we hope to continue to tap the state-specific
knowledge of our new Voyageur colleagues as we select bonds for our national
tax-free funds. 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 a period where income could
well be the overwhelming component of total return from fixed-income
securities.
Patrick P. Coyne
Vice President
Senior Portfolio Manager
Mitchell L. Conery
Vice President
Senior Portfolio Manager
September 24, 1997
The Power of Tax-Free Compounding
INCOME FROM A $100,000 INVESTMENT 1987-1997
TAX-FREE USA FUND A
- --------------------------------------------------------------------------------
Capital Gains Income Total
------------- ------ -----
8/31/88 $ 0 $ 7,745 $ 7,745
8/31/89 $ 0 $ 8,375 $ 8,375
8/31/90 $ 0 $ 8,708 $ 8,708
8/30/91 $ 0 $ 8,958 $ 8,958
8/31/92 $ 0 $ 9,361 $ 9,361
8/31/93 $1,285 $ 9,837 $11,222
8/31/94 $ 468 $10,503 $10,971
8/31/95 $ 0 $11,097 $11,097
8/30/96 $ 933 $11,050 $11,983
8/29/97 $ 828 $11,251 $12,079
With continuous reinvestment of distributions, a $100,000 investment in Tax-Free
USA Fund A in 1987 would have provided more than $97,000 in income income and
$3,500 in capital gains for the 10 years ended August 31, 1997.
Chart assumes a $100,000 investment on August 31, 1987, includes the effect
of a 3% front-end sales charge and reinvestment of distributions. Performance
of other Fund classes will vary due to other charges and expenses. Past
performance does not guarantee future results.
1 9 9 7 a n n u a l r e p o r t 11
<PAGE>
A Look at Long-Term Performance
TAX-FREE USA FUND
TAX-FREE INSURED FUND
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
<TABLE>
<CAPTION>
Lehman Brothers US Consumer Price Index
Municipal Bond Index Tax-Free USA Fund A Tax-Free Insured Fund A (Inflation)
<S> <C> <C> <C> <C>
8/31/87 $10,000 $ 9,621 $ 9,626 $10,000
8/31/88 $10,687 $10,480 $10,333 $10,399
8/31/89 $11,860 $11,875 $11,485 $10,889
8/31/90 $12,623 $12,172 $12,017 $11,500
8/31/91 $14,111 $13,618 $13,364 $11,937
8/31/92 $15,687 $15,241 $14,731 $12,313
8/31/93 $17,601 $17,018 $16,127 $12,654
8/31/94 $17,626 $17,270 $16,214 $13,021
8/31/95 $19,188 $18,435 $17,241 $13,362
8/31/96 $20,193 $18,788 $17,909 $13,744
8/31/97 $22,060 $20,251 $19,353 $14,052
</TABLE>
Chart assumes a $10,000 investment in each Fund on August 31, 1987 and includes
the effect of a 3.75% front-end sales charge and reinvestment of distributions.
Performance of other classes of each Fund will vary due to different charges and
expenses.
TAX-FREE USA FUND PERFORMANCE
Average Annual Return Through August 31, 1997
- --------------------------------------------------------------------------------
Lifetime Ten Years Five Years One Year
Class A (Est.1/11/84)
Excluding Sales Charge +9.35% +7.73% +5.85% +7.79%
Including Sales Charge +9.05% +7.31% +5.05% +3.75%
- --------------------------------------------------------------------------------
Class B (Est.5/2/94)
Excluding Sales Charge +4.59% +6.94%
Including Sales Charge +3.80% +2.94%
- --------------------------------------------------------------------------------
Class C (Est.11/29/95)
Excluding Sales Charge +3.03% +6.94%
Including Sales Charge +3.03% +5.94%
TAX-FREE INSURED FUND PERFORMANCE
Average Annual Return Through August 31, 1997
- --------------------------------------------------------------------------------
Lifetime Ten Years Five Years One Year
- --------------------------------------------------------------------------------
Class A (Est.3/25/85)
Excluding Sales Charge +7.98% +7.23% +5.61% +8.07%
Including Sales Charge +7.65% +6.82% +4.81% +4.04%
- --------------------------------------------------------------------------------
Class B (Est.5/2/94)
Excluding Sales Charge +5.29% +7.21%
Including Sales Charge +4.48% +3.21%
- --------------------------------------------------------------------------------
Class C (Est.11/29/95)
Excluding Sales Charge +4.05% +7.21%
Including Sales Charge +4.05% +6.21%
Please turn to page 13 for important additional information. All performance
includes reinvestment of distributions and applicable sales charges as described
on page 13. Past performance is not a guarantee of future results.
12 1 9 9 7 a n n u a l r e p o r t
<PAGE>
TAX-FREE USA INTERMEDIATE FUND'S PERFORMANCE
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
Tax-Free USA Intermediate Fund A
Merrill Lynch Three-to-Seven Year Municipal Bond Index
U.S. Consumer Price Index (Inflation)
<TABLE>
<CAPTION>
Tax-Free USA Intermediate Fund A Merrill Lynch Three-to-Seven Year US Consumer Price Index (Inflation)
Municipal Bond Index
<S> <C> <C> <C>
1/83 $ 9,747 $10,000 $10,000
8/93 $10,697 $10,207 $10,489
8/94 $10,920 $10,503 $10,687
8/95 $11,622 $10,778 $11,413
8/96 $12,146 $11,086 $11,834
8/97 $12,945 $11,328 $12,580
</TABLE>
Chart assumes a $10,000 investment on August 31, 1987 and includes the effect
of a 2.5% front-end sales charge and reinvestment of distributions. Performance
of other Fund classes will vary due to other charges and expenses.
TAX-FREE USA INTERMEDIATE FUND PERFORMANCE
Average Annual Return through August 31, 1997
- --------------------------------------------------------------------------------
Lifetime One Year
- --------------------------------------------------------------------------------
Class A (Est.1/7/93)
Excluding Sales Charge +6.29% +6.57%
Including Sales Charge +5.66% +3.66%
- --------------------------------------------------------------------------------
Class B (Est.5/2/94)
Excluding Sales Charge +5.15% +5.67%
Including Sales Charge +5.15% +3.67%
- --------------------------------------------------------------------------------
Class C (Est.11/29/95)
Excluding Sales Charge +4.27% +5.67%
Including Sales Charge +4.27% +4.67%
All results assume reinvestment of distributions. The Funds' return and share
value fluctuate 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 3.75% 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 USA Intermediate Fund
reflect the effect of a 2.75% front-end sales charge and a 12b-1 fee of up to
0.30%, currently set at 0.15%.
Class B shares do not have 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 if redeemed before
the end of the sixth year and 2% for Tax-Free USA Intermediate Fund if redeemed
before the end of the third year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
1 9 9 7 a n n u a l r e p o r t 13
<PAGE>
Financial Statements
Delaware Group Tax-Free Fund, Inc. -
Tax-Free USA Fund
Statement of Net Assets
August 31, 1997
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------------------------
MUNICIPAL BONDS - 98.61%
General Obligation Bonds - 4.74%
Florida State Board of Education Capital Outlay
7.25% 06/01/23................................ $2,445,000 $2,658,986
Harris County, Texas Toll Road 5.00% 08/15/21.. 2,000,000 1,865,180
New York, New York
Series E 6.00% 08/01/26....................... 10,000,000 10,216,100
Series H 6.125% 08/01/25...................... 10,000,000 10,336,900
North Slope Borough, Alaska 8.35% 06/30/98..... 2,500,000 2,586,450
Texas State (Veterans Land Bank) 7.40%
12/01/20...................................... 3,000,000 3,295,080
----------
30,958,696
----------
Higher Education Revenue Bonds -
1.62%
District of Columbia Higher Education Revenue
(Georgetown University) 7.15% 04/01/21........ 7,000,000 7,392,630
District of Columbia Revenue Association
(American Medical Colleges) Series A 5.375%
02/15/27 (AMBAC).............................. 3,285,000 3,178,829
----------
10,571,459
----------
Hospital Revenue Bonds - 10.05%
Louisiana Public Facilities Authority Hospital
Revenue (Southern Baptist Hospital, Inc.)
(Escrowed to Maturity) 8.00% 05/15/12......... 9,195,000 11,042,459
Michigan State Hospital Finance Authority
(Genesys Health System)
7.50% 10/01/27................................ 8,130,000 9,082,755
8.125% 10/01/21............................... 4,000,000 4,694,120
Monroeville, Pennsylvania Hospital Authority
(Forbes Health System) 7.00% 10/01/13......... 3,000,000 3,249,240
North Carolina Medical Care Community Hospital
Revenue (Duke University Hospital PJ-
Series C) 5.25% 06/01/26...................... 10,000,000 9,612,200
Philadelphia Hospital & Higher Education Facilities
Authority Hospital Revenue (Albert Einstein
Medical Center) 7.625% 04/01/11............... 15,000,000 15,875,250
(Jeanes Health System Project) 5.875%
07/01/17..................................... 4,575,000 4,580,353
(Jeanes Health System Project) 6.85%
07/01/22..................................... 7,000,000 7,411,180
----------
65,547,557
----------
Housing Revenue Bonds - 6.84%
Alaska State Housing Finance Collateralized
Mortgage Obligation 7.05%
06/01/25 (GNMA/FNMA)......................... 1,350,000 1,434,875
Dade County Housing Finance Authority 6.70%
04/01/28 (GNMA).............................. 4,500,000 4,773,735
<PAGE>
Principal Market
Amount Value
--------------------------
MUNICIPAL BONDS (Continued)
Housing Revenue Bonds (Continued)
Illinois Housing Development Authority
(Homeowner Mortgage) 7.125% 08/01/26......... $1,780,000 $1,930,107
Massachusetts State Housing Finance Agency
Residential Development 6.875% 11/15/11
(FNMA)...................................... 2,955,000 3,201,181
Massachusetts State Housing Revenue Single
Family Mortgage 6.95% 06/01/16............... 2,500,000 2,661,950
Montgomery County, Pennsylvania Redevelopment
Authority Multi-Family Housing Revenue
(KBF Associates L.P.) 7.25% 07/01/25......... 5,000,000 5,007,800
Tennessee Housing Development Agency 6.60%
07/01/25..................................... 3,135,000 3,308,209
Utah State Housing Finance Agency, Single
Family Mortgage 7.20% 01/01/27
(FHA/VA)..................................... 3,070,000 3,302,491
Virginia State Housing Development Authority
7.10% 01/01/25............................... 7,500,000 7,984,500
6.80% 01/01/27............................... 6,500,000 6,811,350
Wisconsin Housing & Economic Development
Authority Home Ownership 6.75%
09/01/25..................................... 3,950,000 4,198,771
----------
44,614,969
----------
Pollution Control Revenue Bonds -
12.91%
Claiborne County, Mississippi (Middle South
Energy, Inc.) 8.25% 06/01/14................. 7,365,000 7,908,537
Claiborne County, Mississippi Pollution Control
Revenue System (Energy Resources, Inc.)
7.30% 05/01/25............................... 3,000,000 3,182,700
Clark County, Nevada Industrial Development
Revenue (Nevada Power Co. Project)
7.20% 10/01/22............................... 9,000,000 9,893,970
Illinois Development Finance Authority (Central
Illinois Public Service Co.) 7.60%
03/01/14..................................... 6,000,000 6,544,140
Nez Perce County, Idaho Pollution Control
Revenue Refunding (Potlatch Corp. Project)
6.00% 10/01/24............................... 7,000,000 7,193,480
Ohio State Air Quality Development Authority
Revenue Pollution Control (Cleveland Electric
Series B) 6.00% 08/01/20..................... 3,500,000 3,535,350
Petersburg, Indiana Pollution Control Revenue
Bonds (Indianapolis Power & Light Co.)
6.625% 12/01/24.............................. 9,350,000 10,285,374
14 1 9 9 7 a n n u a l r e p o r t
<PAGE>
Tax-Free USA Fund (Continued)
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------------------------
MUNICIPAL BONDS (Continued)
Pollution Control Revenue
Bonds (Continued)
Sabine River Authority Texas Pollution Control
(Southwestern Electric Power) 6.10%
04/01/18 (MBIA).............................. $4,000,000 $4,203,400
Sweetwater County, Wyoming Pollution Control
Revenue (Idaho Power Company Project)
Series A 6.05% 07/15/26...................... 5,000,000 5,205,650
Parish of Saint Charles, Louisiana Pollution
Control (Louisiana Power & Light) 8.25%
06/01/14..................................... 1,350,000 1,456,461
Parish of West Feliciana, Louisiana (Gulf States
Utilities Co. Project) Series A 7.50%
05/01/15..................................... 22,700,000 24,813,824
----------
84,222,886
----------
Power Authority Revenue Bonds - 5.15%
**Georgia Municipal Electric Authority Series 86L
6.20% 01/01/09............................. 5,000,000 2,602,350
Intermountain Power Agency, Utah
** Series 87D 7.07% 07/01/20.................. 95,575,000 15,500,354
Series 88B 7.50% 07/01/21.................. 2,415,000 2,523,603
Lower Colorado River Authority, Texas Series B
6.00% 01/01/15 (AMBAC)..................... 5,000,000 5,112,600
Northern Municipal Power Agency, Minnesota
Series A 5.00% 01/01/21.................... 8,500,000 7,839,720
----------
33,578,627
----------
*Pre-Refunded Bonds - 17.90%
City of Chicago, Illinois Skyway Toll Bridge
Revenue 6.75% 1/1/17-04..................... 3,300,000 3,734,775
Delaware State Economic Development Authority
(Peninsula United Methodist Homes, Inc.)
8.50% 5/1/22-02............................. 3,500,000 4,073,020
Florida Department of Transportation Turnpike
Revenue 7.50% 7/1/19-99..................... 5,000,000 5,393,050
Florida State Board of Education 7.25%
6/1/23-00................................... 2,555,000 2,803,678
Harris County, Texas Toll Road Revenue 8.125%
8/15/17-98.................................. 2,600,000 2,725,944
Kentucky Turnpike Authority
7.25% 5/15/10-00............................ 1,145,000 1,248,428
7.25% 5/15/10-00............................ 6,855,000 7,474,212
Massachusetts State General Obligation
7.50% 12/1/07-00............................ 3,295,000 3,673,266
7.50% 12/1/07-00............................ 3,320,000 3,701,136
Massachusetts Water Resource Authority
7.50% 4/1/09-00............................. 1,080,000 1,186,877
7.50% 4/1/16-00............................. 7,300,000 8,022,408
7.00% 4/1/18-00............................. 14,510,000 15,770,484
<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 $2,146,760
Minnesota Public Facilities Authority (Water
Pollution Control) Series 90A 7.10%
3/1/12-00.................................... 4,000,000 4,348,800
New Hampshire State Turnpike System Revenue
7.375% 4/1/12-00............................. 3,000,000 3,283,950
7.40% 4/1/20-00.............................. 11,675,000 12,787,044
New York City Municipal Water Finance Authority,
New York Water & Sewer System Revenue
Series A 6.00% 6/15/20-00.................... 1,675,000 1,753,206
North Carolina Municipal Power Agency #1 -
Catawba 7.875% 1/1/19-98..................... 4,565,000 4,714,869
Salt River Project Agricultural Improvement &
Power District (Arizona) 7.25% 1/1/19-00..... 2,750,000 2,990,048
Tampa, Florida (Florida Aquarium Project) 7.75%
5/1/27-02.................................... 20,000,000 23,027,600
Washington State Public Power Supply System
Nuclear Project 7.25% 7/1/15-00.............. 1,760,000 1,905,446
-----------
116,765,001
-----------
Transportation Revenue Bonds - 17.65%
E-470 Public Highway Authority Colorado Revenue
Series A 5.00% 09/01/26 (MBIA)............... 10,000,000 9,279,400
Atlanta, Georgia Special Purpose Facilities Revenue
(Delta Airlines Project) 7.50% 12/01/19...... 1,500,000 1,600,320
Dallas-Fort Worth, Texas International Airport
(American Airlines) 7.50% 11/01/25........... 8,250,000 8,953,230
Denver, Colorado City & County Airport Revenue
Series E 5.25% 11/15/23 (MBIA)............... 10,000,000 9,627,400
Foothill/ Eastern Transportation Corridor Agency
California Toll Road Revenue Series 95A
6.00% 01/01/34............................... 20,000,000 20,398,400
Indianapolis, Indiana Airport Authority (Federal
Express Project) 7.10% 01/15/17.............. 7,800,000 8,650,122
Kenton County, Kentucky Airport (Delta Airlines)
Series 92A 7.50% 02/01/12.................... 2,000,000 2,196,780
Series 92B 7.25% 02/01/2..................... 4,250,000 4,609,465
Metropolitan Transportation Authority New York
(Transportation Facilities Revenue Series C-1)
5.625% 07/01/27.............................. 6,395,000 6,272,088
New York State Highway Authority Revenue
5.25% 01/01/21............................... 5,000,000 4,887,800
Oklahoma Turnpike Authority 1st Sr. Revenue
Series 89 6.00% 01/01/22..................... 7,465,000 7,519,868
1 9 9 7 a n n u a l r e p o r t 15
<PAGE>
Tax-Free USA Fund (Continued)
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------------------------
MUNICIPAL BONDS (Continued)
Transportation Revenue
Bonds (Continued)
Oklahoma Turnpike Authority 1st. Sr. Revenue
Series 89 (Escrowed to Maturity) 6.00%
01/01/22.................................... $13,535,000 $14,028,080
Puerto Rico Commonwealth Highway &
Transportation Authority (Highway
Improvements) Series Y
5.50% 07/01/26.............................. 4,000,000 3,948,360
5.00% 07/01/36.............................. 3,000,000 2,742,360
5.50% 07/01/36.............................. 5,000,000 4,928,500
Tulsa, Oklahoma Municipal Airport (American
Airlines) 7.35% 12/01/11.................... 5,000,000 5,510,150
-----------
115,152,323
-----------
Waste Disposal Revenue Bonds -
6.44%
Ashland, Kentucky Sewer & Solid Waste Revenue
(Ashland, Inc. Project) 7.125% 02/01/22..... 13,200,000 14,581,380
+Marion County, West Virginia County
Commonwealth Solid Waste Disposal
Facilities Revenue (American Power Paper
Recycling Project) 7.75% 12/01/11........... 18,000,000 9,000,000
Massachusetts State Industrial Finance Agency
Solid Waste Disposal (Massachusetts Recycling
Associates Project - Fitchburg) 9.00%
08/01/16.................................... 32,000,000 11,648,000
Pennsylvania Economic Development Financing
Authority Wastewater Treatment (Sun Co.
R & M Project) 7.60% 12/01/24............... 6,000,000 6,801,420
-----------
42,030,800
-----------
Water and Sewer Revenue Bonds -
6.54%
Allegheny County, Pennsylvania Sanitation Authority
Sewer Revenue 5.375% 12/01/24 (MBIA)........ 5,000,000 4,877,350
Dade County, Florida Water & Sewer System
5.25% 10/01/26 (FGIC)....................... 20,000,000 19,277,600
Massachusetts State Water Resource Authority
6.00% 04/01/20.............................. 6,200,000 6,250,964
North Jersey District Water Supply Series A
(Wanaque North Project) 5.125%
11/15/21 (MBIA)............................. 1,000,000 960,410
Rockdale County, Georgia Water & Sewer
Revenue 5.00% 07/01/22 (FSA)................ 5,000,000 4,714,850
Spartanburg, South Carolina Waterworks Revenue
5.00% 06/01/22 (FGIC)....................... 5,590,000 5,249,960
<PAGE>
Principal Market
Amount Value
--------------------------
MUNICIPAL BONDS (Continued)
Water and Sewer Revenue
Bonds (Continued)
Texas Water Resources Finance Authority Revenue
7.50% 08/15/13 (AMBAC)...................... $1,290,000 $1,362,808
-----------
42,693,942
-----------
Other Revenue Bonds - 8.77%
Alliance, Texas Special Facility Revenue Bonds
Series 1996 (Federal Express Corp. Project)
6.375% 04/01/21............................. 6,000,000 6,279,180
California Statewide Communities Development
Authority Lease Revenue Special Facilities
(United Airlines) 5.70% 10/01/33............ 4,500,000 4,385,565
Dade County, Florida Special Obligation Series B
5.00% 10/01/35 (AMBAC)...................... 5,890,000 5,430,875
Delaware County, Pennsylvania Authority (Main
Line & Haverford Nursing) 9.00% 08/01/22.... 2,000,000 2,239,700
Delaware State Economic Development Authority
(Peninsula United Methodist Homes, Inc.)
6.20% 05/01/15.............................. 4,000,000 4,096,320
District of Columbia Revenue (Carnegie
Endowment) 5.75% 11/15/26................... 11,900,000 11,967,116
Los Angeles, California Public Works Funding
Authority Lease Revenue(Multiple Capital
Facilities Project V-B) 5.125% 12/01/29
(AMBAC)..................................... 6,500,000 6,161,415
Luzerne County Industrial Development Authority
(Pennsylvania Gas & Water Co. Project)
7.00% 12/01/17 (AMBAC)...................... 4,000,000 4,539,200
Metropolitan Pier & Exposition Authority Illinois
Hospital Facilities Revenue 6.25% 07/01/17.. 3,300,000 3,447,510
Puerto Rico Public Buildings Authority Revenue
Guaranteed Government Facilities Series B
5.00% 07/01/27 (AMBAC)...................... 6,300,000 5,928,048
Riverdale, Illinois Environmental Improvement
Revenue (ACME Metals Inc. Project) Series A
7.90% 04/01/24.............................. 2,500,000 2,728,350
-----------
57,203,279
-----------
Total Municipal Bonds (cost $620,153,893).... 643,339,539
-----------
++Variable Rate Demand Notes - 0.11%
Harrisburg, Pennsylvania Authority Revenue
Pennsylvania Pool Funding 3.50% 7/01/21... 700,000 700,000
-----------
Total Variable Rate Demand Notes
(cost $700,000)........................... 700,000
-----------
16 1 9 9 7 a n n u a l r e p o r t
<PAGE>
TAX-FREE USA FUNDS (CONTINUED)
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
MARKET
VALUE
---------------
TOTAL MARKET VALUE OF SECURITIES - 98.72%
(cost $620,853,893)........................................... $644,039,539
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.28%....... 8,372,808
------------
NET ASSETS APPLICABLE TO 52,581,057 TAX-FREE USA FUND A
CLASS SHARES, 2,992,940 TAX-FREE USA FUND B CLASS
SHARES AND 128,511 TAX-FREE USA FUND C CLASS
SHARES ($.01 PAR VALUE) OUTSTANDING; EQUIVALENT
TO $11.71 PER SHARE - 100.00%................................ $652,412,347
============
- -----------------
* For Pre-Refunded Bonds, the stated maturity is followed by the year in which
each bond is pre-refunded.
** The interest rate shown for this security is the effective yield.
+ Non-income producing security for the year ended August 31,1997.
++ Variable Rate Demand Notes - The interest rate shown is the rate as of August
31, 1997 and the maturity shown is the longer of the next interest
readjustment date or the date the principal amount shown can be recovered
through demand.
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
FSA - Insured by the Financial Security Assurance
GNMA - Insured by the Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT AUGUST 31, 1997:
Common Stock, $.01 par value, 500,000,000 shares authorized
to the Tax-Free USA Fund..................................... $620,578,641
Accumulated undistributed net realized gain on investments.... 8,648,060
Net unrealized appreciation of investments.................... 23,185,646
------------
Total net assets.............................................. $652,412,347
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE USA FUND A CLASS - August 31, 1997:
Net asset value A Class (A)................................... $ 11.71
Sales Charge (3.75% of offering price or 3.93% of the amount
invested per share) (B)....................................... 0.46
------------
Offering price................................................ $ 12.17
============
- ----------------
(A) Net asset value per share 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 for Tax-Free USA Fund.
See accompanying notes
<PAGE>
DELAWARE GROUP TAX-FREE FUND, INC. -
TAX-FREE INSURED FUND
STATEMENT OF NET ASSETS
AUGUST 31, 1997
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
----------------------------
MUNICIPAL BONDS - 99.05%
GENERAL OBLIGATION BONDS - 1.78%
Philadelphia, PA School District 5.375%
04/01/22 (AMBAC).................................... $1,500,000 $1,462,980
----------
1,462,980
----------
HIGHER EDUCATION REVENUE
BONDS - 7.35%
Massachusetts State Health & Educational
Facilities Authority
(Boston College) 6.625% 07/01/21 (FGIC)............. 2,500,000 2,699,175
(Harvard University) 5.625% 11/01/26................ 2,000,000 2,034,660
Massachusetts State Industrial Finance Agency
Revenue Higher Education (Clark University
Project) 6.10% 07/01/16............................. 1,250,000 1,300,100
----------
6,033,935
----------
HOSPITAL REVENUE BONDS - 17.28%
Fort Wayne, Indiana Hospital Authority (Parkview
Memorial Hospital) 6.40% 11/15/22 (MBIA)............ 2,250,000 2,428,290
Michigan State Hospital Finance Authority
Revenue (Genesys Health System) 7.50%
10/01/27............................................ 3,000,000 3,351,570
Monroeville, Pennsylvania Hospital Authority
Hospital Revenue (Forbes Health System)
7.00% 10/01/03...................................... 865,000 937,210
New Jersey Health CA - 97A 5.00% 07/01/27
(AMBAC)............................................. 1,500,000 1,384,365
Utah Colorado UT-IHC Health 5.25% 08/15/26
(MBIA).............................................. 2,000,000 1,891,980
Wisconsin Health SSM - 97A 5.70% 08/15/26
(MBIA).............................................. 4,200,000 4,193,910
----------
14,187,325
----------
HOUSING REVENUE BONDS - 6.27%
California Housing Finance Agency Revenue
Series B 6.85% 08/01/23 (MBIA)...................... 3,860,000 4,100,208
New Mexico Mortgage Finance Authority Single
Family Mortgage 6.20% 07/01/26 (GNMA)............... 1,000,000 1,044,770
----------
5,144,978
----------
POLLUTION CONTROL REVENUE
BONDS - 11.52%
Northampton County, Pennsylvania Industrial
Development Authority Revenue (Citizens
Utilities Co.) 6.95% 08/01/15....................... 1,000,000 1,066,070
Ohio State Air Quality Development Authority
(Ohio Edison) 7.45% 03/01/16 (FGIC)................. 2,000,000 2,166,960
Salem County, New Jersey (Public Service
Electric & Gas Co.) Series D 6.55%
10/01/29 (MBIA)..................................... 4,000,000 4,411,760
Trinity River, Texas Pollution Central Revenue
Bonds (Texas Instruments Inc. Project) 6.20%
03/01/20............................................ 1,750,000 1,807,208
----------
9,451,998
----------
1 9 9 7 a n n u a l r e p o r t
17
<PAGE>
TAX-FREE INSURED FUND (CONTINUED)
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------
MUNICIPAL BONDS (CONTINUED)
*PRE-REFUNDED BONDS - 23.46%
Allegheny County, Pennsylvania Sanitary Authority
7.50% 12/1/16-99 (FGIC)............................ $ 750,000 $ 792,368
Chicago, Illinois Public Building Commission
(Chicago Board of Education) Series A 7.75%
1/1/06-99 (FGIC)................................... 500,000 533,070
Illinois Regional Transit Authority Revenue 6.75%
6/1/25-04 (FGIC)................................... 7,970,000 9,070,178
Louisiana Public Facilities Authority Health &
Education Capital Facilities Revenue (Our
Lady of the Lake Regional Medical Center)
8.20% 12/1/15-98 (BIGI)............................ 800,000 852,424
Pennsylvania Turnpike Commission Revenue
7.625% 12/1/17-98 (FGIC)........................... 2,425,000 2,576,393
Seattle, Washington Municipality Metropolitan
Seattle Sewer Revenue 6.60% 1/1/32-01
(FGIC)............................................. 5,000,000 5,431,050
----------
19,255,483
----------
TRANSPORTATION REVENUE BONDS - 17.99%
E-470 Highway (Arapahoe) 5.00% 09/01/26
(MBIA)............................................. 2,000,000 1,855,880
Alliance, Texas Special Facility Revenue Bonds
Series 1996 (Federal Express Corp. Project )
6.375% 04/01/21.................................... 1,000,000 1,046,530
Chicago O'Hare International Airport (Illinois)
5.00% 01/01/16 (MBIA).............................. 5,000,000 4,702,250
Denver, Colorado Airport - 97E 5.25%
11/15/23 (MBIA).................................... 2,000,000 1,925,480
Dayton, Ohio Special Facilities Revenue (Emery
Air Freight) 6.05% 10/01/09........................ 2,500,000 2,602,075
Metro Transit Authority, New York - 97C 5.50%
07/01/22........................................... 1,500,000 1,456,395
Ohio State Turnpike 1996 Series A 5.50%
02/15/26 (MBIA).................................... 1,180,000 1,178,265
----------
14,766,875
----------
WATER AND SEWER REVENUE
BONDS - 8.24%
Austin, Texas Combined Utilities System Series
90A 6.00% 05/15/15 (FGIC).......................... 1,275,000 1,299,595
Luzerne County Industrial Development
Authority (Pennsylvania Gas & Water Co.
Project) 7.00% 12/01/17 (AMBAC).................... 1,000,000 1,134,800
Massachusetts State Industrial Finance Agency
Solid Waste Disposal (Massachusetts
Recycling Associates Project - Fitchburg)
9.00% 08/01/16..................................... 3,000,000 1,092,000
Nueces River Austin, Texas Water 5.50%
03/01/27 (FSA)..................................... 3,250,000 3,235,862
----------
6,762,257
----------
OTHER REVENUE BONDS - 5.16%
Los Angeles, California Lease 5.125%
12/01/29 (AMBAC)................................... 1,500,000 1,421,865
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------
MUNICIPAL BONDS (CONTINUED)
OTHER REVENUE BONDS (CONTINUED)
Cleveland, Ohio PPS - 96/1 5.00%
11/15/24 (MBIA).................................... $3,000,000 $ 2,817,510
-----------
4,239,375
-----------
Total Municipal Bonds (cost $77,920,748)............ 81,305,206
-----------
+VARIABLE RATE DEMAND NOTES - 0.85%
Harrisburg, PA Pooled 3.50% 7/01/21................. 700,000 700,000
-----------
Total Variable Rate Demand Notes
(cost $700,000).................................... 700,000
-----------
TOTAL MARKET VALUE OF SECURITIES OWNED - 99.90%
(cost $78,620,748)................................. $82,005,206
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 0.10% 80,053
NET ASSETS APPLICABLE TO 7,095,034 TAX-FREE INSURED
FUND A CLASS SHARES, 327,644 TAX-FREE INSURED
FUND B CLASS SHARES AND 8,045 TAX-FREE INSURED
FUND C CLASS SHARES ($.01 PAR VALUE) OUTSTANDING;
EQUIVALENT TO $11.05 PER SHARE - 100.00%........... $82,085,259
===========
- -----------------
* For Pre-Refunded Bonds, the stated maturity is followed by the year in which
each bond is pre-refunded.
+ Variable Rate Demand Notes - The interest rate shown is the rate as of August
31, 1997 and the maturity shown is the longer of the next interest
readjustment date or the date the principal amount shown can be recovered
through demand.
AMBAC - Insured by the AMBAC Indemnity Corporation
BIGI - Insured by the Bond Investors Guaranty Insurance Company
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
GNMA - Insured by the Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT AUGUST 31, 1997:
Common stock, $.01 par value, 500,000,000 shares authorized
to the Tax-Free Insured Fund....................... $77,703,927
Accumulated net realized gain on investments........ 996,874
Net unrealized appreciation of investments.......... 3,384,458
-----------
Total net assets.................................... $82,085,259
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE INSURED FUND A CLASS - AUGUST 31, 1997:
Net asset value A Class (A)......................... $ 11.05
Sales Charge (3.75% of offering price or 3.89% of the amount
invested per share) (B)............................ 0.43
-----------
Offering price...................................... $ 11.48
===========
-----------------
(A) Net asset value per share 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 for Tax-Free Insured Fund.
See accompanying notes
18 1 9 9 7 a n n u a l r e p o r t
<PAGE>
Delaware Group Tax-Free Fund, Inc. -
Tax-Free USA Intermediate Fund
Statement of Net Assets
August 31, 1997
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------
MUNICIPAL BONDS - 99.18%
Agency General Obligation
Bonds - 4.13%
Kansas City, Missouri Municipal Assistance Corp.
5.50% 03/01/00 (CGIC)............................... $1,000,000 $1,029,250
----------
1,029,250
----------
City Leaseback Revenue Bonds - 3.04%
Weber County, Utah Municipal Building Authority
Lease Revenue 5.00% 12/15/06 (MBIA)................. 750,000 758,265
----------
758,265
----------
Convention Center / Stadium
Revenue Bonds - 2.05%
Metropolitan Pier & Exposition Authority, Illinois
Hospital Facilities Revenue (McCormick Place
Convention) 5.75% 07/01/06.......................... 500,000 510,670
----------
510,670
----------
Higher Education Revenue Bonds - 4.22%
Virginia College Building Authority (University of
Richmond Project) 6.40% 11/01/22.................... 1,000,000 1,049,780
----------
1,049,780
----------
Highway Revenue Bonds - 7.49%
Dunes, Florida Community Development District
Revenue-Intracoastal Waterway Bridge (ITT
Industries Corporation) 5.50 % 10/01/07............. 825,000 844,932
*Foothill/ Eastern Transportation Corridor Agency
California Toll Road Revenue Series 95A
6.01% 01/01/05...................................... 1,500,000 1,018,890
----------
1,863,822
----------
Hospital Revenue Bonds - 3.36%
Grand Forks, North Dakota Health Care Systems
Revenue (ALTRU Health Systems Obligation
Group) 6.25% 08/15/06.............................. 300,000 331,101
Missouri State Health & Education Facilities
Authority Revenue (Lake of The Ozarks
General Hospital) 5.25% 02/15/00................... 500,000 505,695
----------
836,796
----------
Housing Revenue Bonds - 16.34%
Maryland State Community Development
Administration (Single Family Program) 6th
Series 5.90% 04/01/01.............................. 1,000,000 1,044,700
Montgomery County, Pennsylvania
Redevelopment Authority Multifamily Housing
Revenue (KBF Associates) 6.00% 07/01/04............ 2,000,000 2,005,340
Palatine, Illinois MultiFamily Housing (Prairiebrook
Project) Series 96A 5.50% 12/01/06
(FNMA)............................................. 1,000,000 1,018,030
----------
4,068,070
----------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------
MUNICIPAL BONDS (Continued)
Industrial Development Revenue
Bonds - 5.85%
New York, N Y City Industrial Development Agency
Agency Revenue (YMCA Greater New York
Project) 5.40% 08/01/04............................ $1,440,000 $1,455,624
----------
1,455,624
----------
Miscellaneous General Obligation
Bonds - 4.21%
Chicago, Illinois Metropolitan Water Reclamation
District - Greater Chicago 5.50% 12/01/09.......... 1,000,000 1,047,150
----------
1,047,150
----------
Power Authority Revenue
Bonds - 4.24%
New Madrid, Missouri Power Plant 5.65%
06/01/03 (AMBAC)................................... 1,000,000 1,055,990
----------
1,055,990
----------
School Authority/District
General Obligation Bonds - 12.55%
Humble, Texas Independent School District 5.50%
02/15/06 (PSF-GTD)................................. 500,000 528,680
Jackson County, Oregon School District 5.50%
06/01/06 (FSA)..................................... 500,000 530,570
Philadelphia, Pennsylvania School District 6.25%
05/15/01 (AMBAC)................................... 1,000,000 1,061,010
Richmond County, Georgia Board of Education
5.20% 11/01/06 (MBIA).............................. 1,000,000 1,003,710
----------
3,123,970
----------
School Authority/District
Revenue Bonds - 4.22%
West Virginia School Building Authority Capital
Improvement 5.625% 07/01/02 (MBIA)................. 1,000,00 1,050,440
----------
1,050,440
----------
State Agency Bonds - 17.17%
Indiana Bond Bank (State Revolving Fund Program)
6.00% 02/01/01..................................... 500,000 521,825
Michigan Municipal Board Authority Revenue
(Local Government Loan Program) 5.85%
05/01/01........................................... 2,195,000 2,306,616
Pennsylvania State Industrial Development
Authority Revenue 6.00% 07/01/99
(AMBAC)............................................ 1,400,000 1,444,968
----------
4,273,409
----------
Transportation Revenue Bonds - 8.62%
Rhode Island Port Authority and Economic
Development Corp. Airport Revenue
5.85% 07/01/02 (FSA)............................... 565,000 593,996
5.90% 07/01/03 (FSA)............................... 490,000 519,620
1 9 9 7 a n n u a l r e p o r t 19
<PAGE>
Tax-Free USA Intermediate Fund (Continued)
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------
Transportation Revenue Bonds (Continued)
Southeastern Pennsylvania Transportation
Authority (Letter 0f Credit - Canadian Imperial)
6.00% 06/01/99..................................... $1,000,000 $1,031,550
----------
2,145,166
----------
Water and Sewer Revenue Bonds -
1.69%
Easton, Pennsylvania Joint Sewer Authority 5.60%
04/01/03 (ASSET GTY).............................. 200,000 209,828
Marysville, Washington Water & Sewer Revenue
5.50% 12/01/02.................................... 200,000 209,992
----------
419,820
----------
Total Municipal Bonds (cost $23,889,949)........... 24,688,222
----------
+VARIABLE RATE DEMAND
NOTES - 0.40%
Allegheny County, Pennsylvania Hospital
Development Authority Revenue (Presbyterian
University Hospital) Series D
3.45% 03/01/20 (MBIA)............................. 100,000 100,000
----------
Total Variable Rate Demand Notes
(cost $100,000)................................... 100,000
----------
MARKET
VALUE
---------
TOTAL MARKET VALUE OF SECURITIES OWNED - 99.58%
(cost $23,989,949)................................ $24,788,222
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 0.42% 105,029
----------
NET ASSETS APPLICABLE TO 2,068,562 TAX-FREE USA
INTERMEDIATE FUND A CLASS SHARES, 175,190 TAX-FREE
USA INTERMEDIATE FUND B CLASS SHARES AND 136,294
TAX-FREE USA INTERMEDIATE FUND C CLASS SHARES
($0.01 PAR VALUE) OUTSTANDING; EQUIVALENT TO $10.46
PER SHARE - 100.00%............................... $24,893,251
==========
__________________
* The interest rate shown for this security is the effective yield.
+ Variable Rate Demand Notes - The interest rate shown is the rate
as of August 31, 1997 and the maturity shown is the longer of the next
interest readjusment date or the date the principal amount shown can be
recovered through demand.
AMBAC - Insured by AMBAC Indemnity Corporation.
ASSET GTY - Insured by the Asset Guaranty Insurance Corporation.
CGIC - Insured by the Capital Guaranty Insurance Company.
FNMA - Insured by the Federal National Mortgage Association.
FSA - Insured by Financial Security Assurance.
MBIA - Insured by the Municipal Bond Insurance Association.
PSF-GTD - Permanent School Fund Guarantee.
<PAGE>
COMPONENTS OF NET ASSETS AT AUGUST 31, 1997:
Common stock, $.01 par value, 500,000,000 shares authorized
to the Tax-Free USA Intermediate Fund............. $25,090,253
Accumulated net realized loss on investments....... (995,275)
Net unrealized appreciation on investments......... 798,273
----------
Total net assets................................... $24,893,251
==========
NET ASSET VALUE AND OFFERING PRICE FOR
TAX-FREE USA INTERMEDIATE FUND A CLASS
Net asset value per share (A)...................... $10.46
Sales charge (2.75% of offering price or 2.87% of amount
invested per share) (B)........................... 0.30
----------
Offering price..................................... $10.76
==========
__________________
(A) Net asset value per share 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 for Tax-Free USA Intermediate Fund.
See accompanying notes
20 1 9 9 7 a n n u a l r e p o r t
<PAGE>
Delaware Group Tax-Free Fund, Inc. -
Statements of Operations
Year Ended August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate Fund
-------------------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C> <C>
Interest................................................. $46,032,921 $5,158,252 $1,403,670
----------- ---------- ----------
EXPENSES:
Management fees.......................................... 4,082,683 488,651 125,029
Distribution expenses.................................... 1,676,934 197,674 60,759
Dividend disbursing and transfer agent fees and expenses. 494,435 93,377 30,263
Accounting fees and salaries............................. 297,634 34,218 10,968
Reports and statements to shareholders................... 91,099 17,633 7,945
Registration fees........................................ 27,156 28,096 18,846
Professional fees........................................ 36,018 18,308 11,200
Directors' fees.......................................... 13,601 4,416 3,520
Taxes (other than taxes on income)....................... 6,162 1,687 2,534
Custodian fees........................................... 800 764 0
Amortization of organization expense..................... 0 0 3,303
Other.................................................... 40,407 8,509 12,959
----------- ---------- ----------
6,766,929 893,333 287,326
Less expenses absorbed by Delaware Management Company, Inc. -- -- (150,826)
----------- ---------- ----------
Total Expenses........................................... 6,766,929 893,333 136,500
----------- ---------- ----------
NET INVESTMENT INCOME.................................... 39,265,992 4,264,919 1,267,170
----------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions......... 10,051,521 1,042,113 27,578
Change in unrealized appreciation of investments during
the period.......................................... 2,978,780 1,099,718 305,500
----------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS.......... 13,030,301 2,141,831 333,078
----------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $52,296,293 $6,406,750 $1,600,248
=========== ========== ==========
</TABLE>
See accompanying notes
1 9 9 7 a n n u a l r e p o r t 21
<PAGE>
Delaware Group Tax-Free Fund, Inc. -
Statements of Changes in Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended 8/31/97 Year Ended 8/31/96
------------------------------------------- ------------------------------------------
Tax-Free USA Tax-Free USA
Tax-Free Tax-Free Intermediate Tax-Fre Tax-Free Intermediate
USA Fun Insured Fund Fund USA Fund Insured Fund Fund
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income...................... $39,265,992 $4,264,919 $1,267,170 $44,489,437 $4,655,823 $1,176,233
Net realized gain on investments........... 10,051,521 1,042,113 27,578 3,050,129 872,909 44,088
Net change in unrealized appreciation
of investments ........................... 2,978,780 1,099,718 305,500 (32,641,752) (2,108,616) (229,173)
----------- ---------- ---------- ----------- ---------- ----------
Net increase in net assets resulting
from operations........................... 52,296,293 6,406,750 1,600,248 14,897,814 3,420,116 991,148
----------- ---------- ---------- ----------- ---------- ----------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
A Class ............................... (37,562,093) (4,105,498) (1,147,363) (43,239,363) (4,514,658) (1,115,274)
B Class ............................... (1,645,084) (153,999) (65,780) (1,234,603) (139,227) (56,831)
C Class ............................... (58,814) (5,423) (54,027) (15,471) (1,938) (4,128)
Net realized gain from security
transactions:
A Class ............................... (2,961,519) (657,491) -- (3,755,304) (232,860) --
B Class ............................... (138,398) (28,164) -- (106,237) (7,992) --
C Class ............................... (4,957) (1,087) -- -- -- --
----------- ---------- ---------- ----------- ---------- ----------
(42,370,865) (4,951,662) (1,267,170) (48,350,978) (4,896,675) (1,176,233)
----------- ---------- ---------- ----------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ............................... 65,707,580 8,299,445 7,231,208 60,298,210 6,816,802 6,815,079
B Class ............................... 11,820,404 1,177,381 745,655 16,225,670 1,756,769 654,347
C Class ............................... 1,048,230 18,602 2,257,479 827,557 120,767 192,011
Net asset value of shares issued upon
reinvestment of dividends from
net investment income and net realized
gain on security transactions:
A Class ............................... 22,364,182 2,544,126 731,354 26,761,558 2,436,870 750,572
B Class ............................... 1,005,202 97,771 46,197 774,002 72,362 36,339
C Class ............................... 50,122 6,398 51,393 10,267 1,932 3,898
----------- ---------- ---------- ----------- ---------- ----------
101,995,720 12,143,723 11,063,286 104,897,264 11,205,502 8,452,246
----------- ---------- ---------- ----------- ---------- ----------
Cost of shares repurchased:
A Class ............................... (182,537,900) (15,013,442) (9,242,056) (112,501,070) (13,455,627) (5,274,033)
B Class ............................... (7,991,403) (1,087,056) (470,777) (3,753,680) (832,530) (133,797)
C Class ............................... (410,984) (57,472) (1,090,281) (7,217) (99) (99)
----------- ---------- ---------- ----------- ---------- ----------
(190,940,287) (16,157,970) (10,803,114) (116,261,967) (14,288,256) (5,407,929)
----------- ---------- ---------- ----------- ---------- ----------
Increase (decrease) in net assets
derived from capital share transactions .. (88,944,567) (4,014,247) 260,172 (11,364,703) (3,082,754) 3,044,317
----------- ---------- ---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS...... (79,019,139) (2,559,159) 593,250 (44,817,867) (4,559,313) 2,859,232
NET ASSETS:
Beginning of year ......................... 731,431,486 84,644,418 24,300,001 776,249,353 89,203,731 21,440,769
----------- ---------- ---------- ----------- ---------- ----------
End of year ............................... $652,412,347 $82,085,259 $24,893,251 $731,431,486 $84,644,418 $24,300,001
============ =========== =========== ============ =========== ===========
</TABLE>
See accompanying notes
22 1 9 9 7 a n n u a l r e p o r t
<PAGE>
Delaware Group Tax-Free Fund, Inc. -
Financial Highlights
- -------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
was as follows:
<TABLE>
<CAPTION>
Tax-Free USA Fund A Class
-----------------------------------------------------
Year Ended August 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................................... $11.550 $12.070 $12.040 $12.640 $12.130
Income from investment operations:
Net investment income .................................................... 0.666 0.696 0.746 0.751 0.751
Net realized and unrealized gain (loss) from investments ................. 0.210 (0.460) 0.030 (0.566) 0.610
------- ------- ------- ------- -------
Net increase in net assets from investment operations..................... 0.876 0.236 0.776 0.185 1.361
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ..................................... (0.666) (0.696) (0.746) (0.751) (0.751)
Distributions from net realized gain on security transactions ............ (0.050) (0.060) none (0.034) (0.100)
------- ------- ------- ------- -------
Total dividends and distributions ........................................ (0.716) (0.756) (0.746) (0.785) (0.851)
------- ------- ------- ------- -------
Net asset value, end of period ............................................ $11.710 $11.550 $12.070 $12.040 $12.640
======= ======= ======= ======= =======
Total return(1) ........................................................... 7.79% 1.91% 6.74% 1.49% 11.66%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................................. $615,85 $700,853 $758,470 $745,796 $762,574
Ratio of expenses to average net assets .................................. 0.94% 0.94% 0.92% 0.89% 0.89%
Ratio of net investment income to average net assets ..................... 5.73% 5.82% 6.29% 6.07% 6.10%
Portfolio turnover ....................................................... 44% 42% 27% 10% 12%
Tax-Free USA
Tax-Free USA Fund B Class Fund C Class
------------------------------------------------ ---------------------------
05/02/94(2) 11/29/95(2)
Year Ended August 31, TO Year Ended TO
1997 1996 1995 08/31/94 08/31/97 08/31/96
Net asset value, beginning of period................. $11.550 $12.070 $12.040 $12.080 $11.550 $12.230
Income from investment operations:
Net investment income .............................. 0.573 0.600 0.649 0.214 0.573 0.450
Net realized and unrealized gain (loss)
from investments.................................... 0.210 (0.460) 0.030 (0.040) 0.210 (0.620)
------- ------- ------- ------- ------- -------
Net increase (decrease) in net assets from
investment operations .............................. 0.783 0.140 0.679 0.174 0.783 (0.170)
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income................ (0.573) (0.600) (0.649) (0.214) (0.573) (0.450)
Distributions from net realized gain on security
transactions....................................... (0.050) (0.060) none none (0.050) (0.060)
------- ------- ------- ------- ------- -------
Total dividends and distributions .................. (0.623) (0.660) (0.649) (0.214) (0.623) (0.510)
------- ------- ------- ------- ------- -------
Net asset value, end of period ...................... $11.710 $11.550 $12.070 $12.040 $11.710 $11.550
======= ======= ======= ======= ======= =======
Total return(1)...................................... 6.94% 1.11% 5.88% 1.45% 6.94% (1.44%)
Ratios and supplemental data:
Net assets, end of period (000 omitted)............. $35,055 $29,773 $17,779 $3,937 $1,505 $805
Ratio of expenses to average net assets............. 1.74% 1.74% 1.74% 1.74% 1.74% 1.74%
Ratio of net investment income to average net assets 4.93% 5.03% 5.47% 5.22% 4.93% 5.03%
Portfolio turnover ................................. 44% 42% 27% 10% 44% 42%
</TABLE>
- ----------------
(1) Does not include maximum sales charge of 3.75% nor the 1% limited contingent
deferred sales charge that would apply in the event of certain redemptions
within 12 months of purchase of A Class shares. Does not include contingent
deferred sales charge which varies from 1-4% depending upon the holding
period for Class B and Class C shares.
(2) Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
1 9 9 7 a n n u a l r e p o r t 23
<PAGE>
Financial Highlights (Continued)
- -------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each
period was as follows:
<TABLE>
<CAPTION>
Tax-Free Insured Fund A Class
-----------------------------------------------------
Year Ended August 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...................................... $10.860 $11.050 $11.020 $11.680 $11.310
Income from investment operations:
Net investment income ................................................... 0.573 0.588 0.639 0.622 0.638
Net realized and unrealized gain (loss) from investments ................ 0.281 (0.160) 0.030 (0.560) 0.400
------- ------- ------- ------- -------
Net increase in net assets from investment operations ................... 0.854 0.428 0.669 0.062 1.038
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income .................................... (0.573) (0.588) (0.639) (0.622) (0.638)
Distributions from net realized gain on security transactions............ (0.091) (0.030) none (0.100) (0.030)
------- ------- ------- ------- -------
Total dividends and distributions........................................ (0.664) (0.618) (0.639) (0.722) (0.668)
------- ------- ------- ------- -------
Net asset value, end of period............................................ $11.050 $10.860 $11.050 $11.020 $11.680
======= ======= ======= ======= =======
Total return(1)........................................................... 8.07% 3.88% 6.33% 0.54% 9.48%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................................. $78,377 $81,149 $86,756 $91,235 $96,118
Ratio of expenses to average net assets ................................. 1.05% 0.98% 0.98% 0.98% 0.98%
Ratio of net investment income to average net assets .................... 5.23% 5.29% 5.89% 5.48% 5.58%
Portfolio turnover....................................................... 42% 45% 68% 56% 8%
Tax-Free Insured
Tax-Free Insured Fund B Class Fund C Class
------------------------------------------------ ---------------------------
05/02/94(2) 11/29/95(2)
Year Ended August 31, TO Year Ended TO
1997 1996 1995 08/31/94 08/31/97 08/31/96
Net asset value, beginning of period................. $10.860 $11.050 $11.020 $10.990 $10.860 $11.260
Income from investment operations:
Net investment income............................... 0.485 0.499 0.550 0.179 0.485 0.375
Net realized and unrealized gain (loss)
from investments................................... 0.281 (0.160) 0.030 0.030 0.281 (0.370)
------- ------- ------- ------- ------- -------
Net increase in net assets from investment
operations ........................................ 0.766 0.339 0.580 0.209 0.766 0.005
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income................ (0.485) (0.499) (0.550) (0.179) (0.485) (0.375)
Distributions from net realized gain on
security transactions ............................. (0.091) (0.030) none none (0.091) (0.030)
------- ------- ------- ------- ------- -------
Total dividends and distributions................... (0.576) (0.529) (0.550) (0.179) (0.576) (0.405)
------- ------- ------- ------- ------- -------
Net asset value, end of period ...................... $11.050 $10.860 $11.050 $11.020 $11.050 $10.860
======= ======= ======= ======= ======= =======
Total return(1)...................................... 7.21% 3.05% 5.47% 1.91% 7.21% 0.01%
Ratios and supplemental data:
Net assets, end of period (000 omitted)............. $3,619 $3,375 $2,448 $826 $89 $120
Ratio of expenses to average net assets............. 1.85% 1.78% 1.80% 1.83% 1.85% 1.78%
Ratio of net investment income to average net assets 4.43% 4.48% 5.07% 4.63% 4.43% 4.48%
Portfolio turnover ................................. 42% 45% 68% 56% 42% 45%
</TABLE>
- --------------------
(1) Does not include maximum sales charge of 3.75% nor the 1% limited contingent
deferred sales charge that would apply in the event of certain redemptions
within 12 months of purchase of A Class shares. Does not include contingent
deferred sales charge which varies from 1-4% depending upon the holding
period for Class B and Class C shares.
(2) Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
24 1 9 9 7 a n n u a l r e p o r t
<PAGE>
Financial Highlights (Continued)
- -------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period
was as follows:
<TABLE>
<CAPTION>
Tax-Free USA Intermediate Fund A Class
---------------------------------------------------------
01/07/93(1)
Year Ended August 31, TO
1997 1996 1995 1994 08/31/93
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................................... $10.320 $10.410 $10.320 $10.630 $10.000
Income from investment operations:
Net investment income ................................................ 0.524 0.550 0.550 0.530 0.330
Net realized and unrealized gain (loss) from investments ............. 0.140 (0.090) 0.090 (0.310) 0.630
------- ------- ------- ------- -------
Net increase in net assets from investment operations ................ 0.664 0.460 0.640 0.220 0.960
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ................................. (0.524) (0.550) (0.550) (0.530) (0.330)
Distributions from net realized gain on security transactions......... none none none none none
------- ------- ------- ------- -------
Total dividends and distributions..................................... (0.524) (0.550) (0.550) (0.530) (0.330)
------- ------- ------- ------- -------
Net asset value, end of period ........................................ $10.460 $10.320 $10.410 $10.320 $10.630
======= ======= ======= ======= =======
Total return(2)........................................................ 6.57% 4.52% 6.43% 2.09% 9.75%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............................. $21,635 $22,617 $20,492 $28,193 $14,684
Ratio of expenses to average net assets ............................. 0.43%(3) 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3)
Ratio of net investment income to average net assets................. 5.03%(4) 5.29%(4) 5.37%(4) 5.00%(4) 4.84%(4)
Portfolio turnover .................................................. 34% 15% 63% 81% 53%
Tax-Free USA Intermediate
Tax-Free USA Intermediate Fund B Class Fund C Class
----------------------------------------------------------------------------------
05/02/94(1) 11/29/95(1)
Year Ended August 31, TO Year Ended TO
1997 1996 1995 08/31/94 08/31/97 08/31/96
Net asset value, beginning of period ............ $10.320 $10.410 $10.320 $10.230 $10.320 $10.480
Income from investment operations:
Net investment income........................... 0.436 0.460 0.460 0.150 0.436 0.350
Net realized and unrealized gain (loss)
from investments .............................. 0.140 (0.090) 0.090 0.090 0.140 (0.160)
------- ------- ------- ------- ------- -------
Net increase in net assets from investment
operations..................................... 0.576 0.370 0.550 0.240 0.576 0.190
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income............ (0.436) (0.460) (0.460) (0.150) (0.436) (0.350)
Distributions from net realized gain on
security transactions.......................... none none none none none none
------- ------- ------- ------- ------- -------
Total dividends and distributions............... (0.436) (0.460) (0.460) (0.150) (0.436) (0.350)
------- ------- ------- ------- ------- -------
Net asset value, end of period .................. $10.460 $10.320 $10.410 $10.320 $10.460 $10.320
======= ======= ======= ======= ======= =======
Total return(2) ................................. 5.67% 3.63% 5.53% 2.31% 5.67% 1.84%
Ratios and supplemental data:
Net assets, end of period (000 omitted)......... $1,832 $1,490 $949 $597 $1,426 $193
Ratio of expenses to average net assets ........ 1.28%(5) 1.10%(5) 1.10%(5) 1.10%(5) 1.28%(7) 1.10%(7)
Ratio of net investment income to average net
assets.......................................... 4.18%(6) 4.44%(6) 4.52%(6) 4.15%(6) 4.18%(8) 4.44%(8)
Portfolio turnover............................... 34% 15% 63% 81% 34% 15%
</TABLE>
- ------------
(1) Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
(2) Does not include maximum sales charge of 2.75% nor the 1% limited contingent
deferred sales charge that would apply in the event of certain redemptions
within 12 months of purchase of A Class shares. Does not include contingent
deferred sales charge which varies from 1.0 -- 2.0% depending upon the
holding period for Class B and Class C shares.
(3) Ratio of expenses to average net assets prior to expense limitation was
1.02% for the year ended August 31, 1997, 0.95% for 1996, 1.07% for 1995,
1.19% for 1994 and 1.94% for the period ended August 31, 1993.
<PAGE>
(4) Ratio of net investment income to average net assets prior to the expense
limitation was 4.44% for the year ended August 31, 1997, 4.59% for 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
1.87% for the year ended August 31, 1997, 1.80% for 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 3.59% for the year ended August 31, 1997, 3.74% for 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
1.87% for the year ended August 31, 1997 and 1.80% for the period ended
August 31, 1996.
(8) Ratio of net investment income to average net assets prior to expense
limitation was 3.59% for the year ended August 31, 1997 and 3.74% for the
period ended August 31, 1996.
1 9 9 7 a n n u a l r e p o r t 25
<PAGE>
Delaware Group
Tax-Free Fund, Inc. -
Notes to Financial Statements
August 31, 1997
- --------------------------------------------------------------------------------
Delaware Group Tax-Free Fund, Inc. (The "Fund") is registered as a
diversified open-end investment company under the Investment Company Act of
1940, as amended. The Fund 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 Fund.
Security Valuation - Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Money market instruments having less than 60 days to maturity are
valued at amortized cost which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
Federal Income Taxes - Each portfolio intends to continue to qualify as a
regulated investment company and make the requisite distributions to
shareholders. Accordingly, no provision for federal income taxes has been made
in the financial statements. Income and capital gain distributions are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
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. Dividend income
is recorded on the ex-dividend date and interest income is recorded on the
accrual basis.Original issue discounts are accreted to interest income over the
lives of the respective securities. The Fund declares dividends from net
investment income daily and pays monthly, and capital gains, if any, annually.
<PAGE>
Certain Fund expenses are paid through "soft dollar" arrangements with brokers.
The amount of these expenses is less than 0.01% of the Fund's average daily net
assets.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company, Inc. (DMC), the Investment Manager of the
Fund, an annual fee which is calculated daily at the rate of 0.60% of the first
$500 million of average daily net assets of the Fund, 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, 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, 0.35% for the period of January 1,
1997 thru June 30, 1997 and 0.45% as of July 1, 1997. Total expenses absorbed or
waived by DMC for the year ended August 31, 1997 were $150,826. At August 31,
1997 the Fund had a liability for Investment Management fees and other expenses
payable to DMC of $3,656 for the Tax-Free USA Intermediate Fund.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC, to serve as dividend disbursing and transfer agent for the Fund. Effective
August 19, 1996, the Fund also engaged DSC to provide accounting services for
the Fund. Previously, fund personnel provided this service and the related costs
were recorded in salaries and other expense categories in the statement of
operations. For the year ended August 31, 1997, the Tax-Free USA Fund, the
Tax-Free Insured Fund and the Tax-Free USA Intermediate Fund expensed $494,435,
$93,377 and $30,263 for dividend disbursing and transfer agent services and
$213,110, $25,460 and $8,203 for accounting services and had liabilities for
such fees and other expenses payable to DSC for $37,000, $5,000 and $6,173,
respectively.
Pursuant to the Distribution Agreement, the Fund pays 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 the A Class for the Tax-Free USA
Fund and the Tax-Free Insured Fund and 0.15% of the average daily net assets of
the Tax-Free USA Intermediate Fund A Class and 1.00% of the average daily net
assets of the B and C Class for all three portfolios. For the year ended August
31, 1997, the Funds had a liability for distribution fees and other expenses
payable to DDLP of $129,472, $15,739 and $1,385. DDLP earned $104,830, $15,236
and $4,292 for commissions on sales of the Tax-Free USA Fund A Class, Tax-Free
Insured Fund A Class and the Tax-Free USA Intermediate Fund A Class,
respectively.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Fund. These officers, directors and employees are paid no compensation by
the Fund.
26 1 9 9 7 a n n u a l r e p o r t
<PAGE>
Notes to Financial Statements (Continued)
- --------------------------------------------------------------------------------
3. Investments
During the year ended August 31, 1997, the Fund had purchases and sales of
investment securities other than temporary cash investments as follows:
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate Fund
-------- ------------ -----------------
Purchases:............. $302,688,848 $34,099,665 $9,091,757
Sales:................. 393,992,434 38,423,697 8,499,446
Investment securities based on cost for Federal income tax purposes at August
31, 1997 are as follows:
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate Fund
-------- ------------ -----------------
Cost of investments.... $620,853,893 $78,620,748 $23,989,949
Aggregate unrealized
appreciation.......... 52,859,976 5,313,458 805,691
Aggregate unrealized
depreciation........... 29,674,330 1,929,000 7,418
Net unrealized
appreciation.......... 23,185,646 3,384,458 798,273
For federal income tax purposes, the Tax-Free USA Intermediate Fund had
accumulated capital losses at August 31, 1997 of $995,275 which may be
carried forward and applied against future capital gains. The capital loss
carryforward expires as follows: 2002 - $371,621 and 2003 - $623,654.
4. Capital Stock
Transactions in capital stock were as follows:
Tax-Free USA Fund
-----------------------------------
Year Ended Year Ended
08/31/97 08/31/96
---------------- -------------
Shares sold:
A Class.......................... 5,645,645 5,026,095
B Class.......................... 1,015,397 1,356,289
C Class.......................... 89,711 69,470
Shares issued upon reinvestment of dividends from
net investment income and realized gains:
A Class.......................... 1,917,246 2,233,585
B Class.......................... 86,179 64,824
C Class.......................... 4,299 873
----------- ----------
8,758,477 8,751,136
----------- ----------
Shares repurchased:
A Class.......................... (15,671,660) (9,419,181)
B Class.......................... (686,818) (316,170)
C Class.......................... (35,231) (612)
----------- ----------
(16,393,709) (9,735,963)
----------- ----------
Net Decrease...................... (7,635,232) (984,827)
=========== ==========
<PAGE>
Tax-Free Insured Fund
-----------------------------------
Year Ended Year Ended
08/31/97 08/31/96
---------------- -------------
Shares sold:
A Class.......................... 757,507 614,995
B Class.......................... 106,909 157,540
C Class.......................... 1,691 10,879
Shares issued upon reinvestment of
dividends from net investment income
and realized gains:
A Class.......................... 231,402 218,789
B Class.......................... 8,892 6,507
C Class.......................... 582 176
----------- ----------
1,106,983 1,008,886
----------- ----------
Shares repurchased:
A Class.......................... (1,368,970) (1,208,558)
B Class.......................... (99,060) (74,637)
C Class.......................... (5,274) (9)
----------- ----------
(1,473,304) (1,283,204)
----------- ----------
Net Decrease...................... (366,321) (274,318)
=========== ==========
Tax-Free USA Intermediate Fund
-----------------------------------
Year Ended Year Ended
08/31/97 08/31/96
---------------- -------------
Shares sold:
A Class.......................... 694,060 656,206
B Class.......................... 71,587 62,607
C Class.......................... 216,226 18,361
Shares issued upon reinvestment of
dividends from net investment income:
A Class.......................... 70,127 72,116
B Class.......................... 4,414 3,495
C Class.......................... 4,931 377
----------- ----------
1,061,345 813,162
----------- ----------
Shares repurchased:
A Class.......................... (886,958) (506,192)
B Class.......................... (45,185) (12,876)
C Class.......................... (103,591) (10)
----------- ----------
(1,035,734) (519,078)
----------- ----------
Net Increase...................... 25,611 294,084
=========== ==========
5. Lines of Credit
The Fund has committed lines of credit of $18,600,000 for the Tax-Free USA Fund,
$2,200,000 for the Tax-Free Insured Fund and $600,000 for the Tax-Free USA
Intermediate Fund. No amount was outstanding at August 31, 1997, or at any time
during the fiscal year.
6. Concentrations 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 the market may
fluctuate for other reasons and there is no assurance that the insurance company
will meet its obligations. These securities have been identified in the
Statements of Net Assets.
1 9 9 7 a n n u a l r e p o r t 27
<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 Delaware Group
Tax-Free Fund, Inc. (comprised of the Tax-Free USA Fund, the Tax-Free Insured
Fund, and the Tax-Free USA Intermediate Fund) as of August 31, 1997, 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 periods indicated therein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1997, by correspo ndence with the Fund's
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, for each of the respective
portfolios constituting the Delaware Group Tax-Free Fund, Inc. at August 31,
1997, their financial position, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 8, 1997
28 1 9 9 7 a n n u a l r e p o r t
<PAGE>
This annual report is for the information of National Tax-Free Funds
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current Prospectus for National Tax-Free Funds, 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 Statem
ent 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 of Directors
Wayne A. Stork
Chairman, President and Chief Executive Officer,
Delaware Group of Funds
Philadelphia, PA
Jeffrey J. Nick
President and Chief Executive Officer,
Lincoln National Investment Companies, Inc.
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
City Councilman
Philadelphia, PA
Thomas F. Madison
President and Chief Executive Officer,
MLM Partners, Inc.
Minneapolis, MN
Charles E. Peck
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
Affiliated Officers
David K. Downes
Executive Vice President, Chief Financial Officer
and Chief Operating Officer
Delaware Group of Funds
Philadelphia, PA
George M. Chamberlain, Jr.
Senior Vice President,
Secretary and General Counsel
Delaware Group of Funds
Philadelphia, PA
Bruce D. Barton
President and CEO,
Delaware Distributors, L.P.
Philadelphia, PA
<PAGE>
directors & officers
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
<PAGE>
This report must be preceded or accompanied by a current National Tax-Free
Funds 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.
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions Representatives Only
1.800.659.2265
Be sure to consult your financial adviser when making investments. Mutual
funds can be a valuable part of your financial plan; however, shares of the
Fund are not FDIC or NCUSIF insured, are not guaranteed by any bank or any
credit union, and involve investment risk, including the possible loss of the
principal amount invested. Shares of the Fund are not bank or credit union
deposits.
Copy Rights Delaware Distributors, L.P.
DELAWARE
GROUP
- --------
Philadelphia o London
Printed in the USA on
recycled paper
(253)
AR-011[8/97]TKO10/97
