<PAGE>
FOR TAX-FREE INCOME
DELAWARE GROUP
National Tax-Free Funds
1997
Semi-Annual Report
professional management
service and guidance
goals
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
(Photo of bridge, buildings and airport)
LOGO
<PAGE>
- --------------------------------------------------------------------------------
MARCH 24, 1997
Dear Shareholder:
I write to you at a fortuitous moment in Delaware Group's history as a municipal
bond manager - a time of change, challenge and growth.
On January 1, 1997, Mitchell Conery, a veteran municipal bond manager in
New York, joined Delaware as co-manager of our three national tax-free funds. He
works with Patrick P. Coyne, who has managed bonds at Delaware for nearly seven
years.
As you'll see on page 2, Tax-Free Insured Fund and Tax-Free USA
Intermediate Fund both outperformed the average of their peers for the six
months ended February 28, 1997. Tax-Free USA Fund's results were a significant
improvement over the Fund's returns during fiscal 1996.
IN THE COMING YEARS, WE BELIEVE IT WILL BECOME MORE IMPORTANT THAN EVER TO
CONSIDER THE IMPACT OF TAXES ON THE PERFORMANCE OF AN INVESTMENT PORTFOLIO.
In February, Delaware's parent company, Lincoln National Corp.,
announced plans to acquire the Minneapolis-based Voyageur family of funds, which
includes many single-state, tax-exempt funds and a high-yield national
tax-exempt fund. If approved by Voyageur's shareholders, this transaction would
more than double Delaware's municipal bond assets under management to more than
$5 billion.
The purchase will not affect the three funds discussed in this report.
However, we believe our expansion may interest you. It expresses our confidence
in the potential of this asset class, and illustrates Delaware's commitment to
help investors maximize tax-exempt income.
(Photo of glasses, pen and keyboard)
GRAPHIC
We view the municipal bond market's long-term prospects as very
attractive. However, the balance of fiscal 1997 could be challenging. In our
opinion, it is more likely than not that the Federal Reserve Board will continue
to raise interest rates modestly in the months ahead to prevent higher
inflation.
We are encouraged by the fact that municipal bond prices have been
stronger than U.S. Treasuries since August. We believe this pattern has the
potential to continue since municipal bond credit quality remains high and
major changes in tax law are unlikely. Inside, Mr. Coyne and Mr. Conery
review each Fund's performance and outline their approach for the coming
months.
2 1997 semi-annual report
<PAGE>
TOTAL RETURN AND YIELD
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Total Return 30-Day Yield
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended As of
February 28, 1997 February 28, 1997
<S> <C> <C>
Tax-Free USA Fund A Class +4.17% 4.97%
Lehman Brothers Municipal Bond Index +5.13% 5.16%
Lipper Municipal Debt Fund Average (234 funds) +4.79% 4.63%
- ---------------------------------------------------------------------------------------------------------------
Tax-Free Insured Fund A Class +4.64% 4.49%
Lehman Brothers Insured Bond Index +5.25% 5.19%
Lipper Insured Municipal Debt Fund Average (51 funds) +4.48% 4.32%
- ---------------------------------------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund A Class +4.06% 4.23%
Merrill Lynch Three-to-Seven Year Municipal Bond Index +3.60% 4.54%
Lipper Intermediate Municipal Debt Average (144 funds) +3.98% 4.13%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
ALL PERFORMANCE QUOTED ABOVE IS BASED ON NET ASSET VALUE. PERFORMANCE FOR ALL
CLASSES OF THE THREE FUNDS ABOVE CAN BE FOUND ON PAGES 9 AND 10. YIELDS
CALCULATED ACCORDING TO SECURITIES AND EXCHANGE COMMISSION GUIDELINES. B AND C
CLASS 30-DAY CURRENT YIELDS WERE, RESPECTIVELY, 4.47% FOR TAX-FREE USA FUND;
3.97% FOR TAX-FREE INSURED FUND AND 3.48% FOR TAX-FREE USA INTERMEDIATE FUND.
As our nation's leaders grapple with issues such as Social Security and
Medicare reform and states take on a greater role in managing social and public
works programs, we believe it will become more important than ever to consider
the impact of taxes on the performance of an investment portfolio.
Twenty years ago, when Delaware offered its first municipal bond fund,
federal taxpayers were able to take deductions on their tax returns that cannot
be taken today. Among these were:
o Interest on student and consumer loans;
o More extensive job-related moving expenses;
o Sales and gasoline taxes; and,
o A portion of dividend income.
Despite promises of tax relief since the 1996 election, our country's
long-term demographic and social trends suggest that the path to the 21st
century may be a toll road of higher taxes on wages and investment income. In
our opinion, the income from municipal bonds and the tax-free compounding of
such income over time has the potential to help heavily taxed investors reach
their financial goals more quickly than investing in some asset classes that
generate taxable income.
On behalf of Delaware, I would like to thank you for your continued
confidence.
current income
Sincerely,
/s/ Wayne A. Stork
- -----------------------------------------------
Wayne A. Stork
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
1997 semi-annual report 3
<PAGE>
Portfolio Managers' Review
Since August, municipal bond investors have had to sort through a lot of
rhetorical and statistical noise. First, the fall federal elections prompted
speculation about possible changes in tax policy. Second, municipalities began
to assess the impact of a new welfare reform law. Finally, U.S. government
indicators offered inconclusive clues to the future course of inflation and
economic growth.
The Lehman Brothers Municipal Index rose +5.13% for the six months ended
February 28, 1997, about 30 basis points (0.3%) more than the Lehman Brothers
Treasury Index, which consists of intermediate and long-term Treasury bonds.
Part of the reason why municipal bonds did well was that the federal
flat tax idea died for lack of support. Investors generally concluded that our
nation's leaders were unlikely to advocate tax changes that would affect the
attractiveness of municipal bonds.
NEW BOND SUPPLIES REMAINED MODEST
In calendar 1996, the amount of new tax-exempt securities issued by states and
municipalities rose 14%, the first increase since 1993. Still, the annual volume
of new bonds coming to market was more than $100 billion less than a few years
ago. Modest supplies can help support bond prices if investor demand remains
steady or increases.
CREDIT QUALITY WAS STRONG
More than 200 municipalities had their bonds' credit rating upgraded during
calendar 1996, according to Moody's Investors Services. Less than half as many
had their debt downgraded. This shows many states and cities remain financially
sound.
PORTFOLIO CHARACTERISTICS
- -------------------------------------------------------------------------------
August 31, 1996 February 28, 1997
- -------------------------------------------------------------------------------
Tax-Free USA Fund
Average Effective Maturity 12 years 11.9 years
Average Effective Duration 6.9 years 6.7 years
Average Quality AA AA
- -------------------------------------------------------------------------------
Tax-Free Insured Fund
Average Effective Maturity 13.5 years 11.3 years
Average Effective Duration 7.7 years 7.0 years
Average Quality AAA AAA
- -------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund
Average Effective Maturity 5.6 years 4.9 years
Average Effective Duration 4.6 years 4.1 years
Average Quality AA AA
4 1997 semi-annual report
<PAGE>
CREDIT QUALITY OF TAX-FREE USA FUND'S PORTFOLIO
- --------------------------------------------------------------------------------
February 28, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TAX-FREE USA FUND
Top Five States (February 28, 1997)
--------------------------------------------------------------
State Percent of Net Assets
--------------------------------------------------------------
Florida 9.3%
AAA 37% Massachusetts 8.7%
AA 14% Texas 6.7%
A 14% Pennsylvania 6.7%
BBB 21% Louisiana 5.4%
BB 14%
Non-rated 14% NEARLY TWO-THIRDS OF THE BONDS IN YOUR FUND'S PORTFOLIO WERE RATED A OR
BETTER BY STANDARD & POOR'S AS OF FEBRUARY 28.
</TABLE>
Investment Strategy
TAX-FREE USA FUND
Since August, we've slightly reduced Tax-Free USA Fund's sensitivity to interest
rate changes by modestly reducing the Fund's average effective duration.
Generally, we strive to approximate the effective duration of our benchmark, the
Lehman Brothers Municipal Bond Index. This measure stood at 7.2 years as of
February 28, compared to 6.7 years for the Fund.
Should interest rates rise further in 1997, our positioning may help
preserve principal to a greater degree than more aggressive investment
strategies.
Your Fund remains broadly diversified across 34 states and a dozen
different sectors of the municipal bond market. In recent months, we have been
increasing our holdings of California toll road bonds and decreasing our
holdings of electric utility bonds nationwide.
Tax-Free USA Fund also invests a small portion of net assets in
non-rated bonds. These bonds tend to pay higher rates of interest, and have
historically offered an attractive risk/reward.
Unfortunately, we own unrated bond issues of two paper recycling plants
in Massachusetts and West Virginia that have fared poorly. Your Fund's results
relative to its peers suffered in fiscal 1996 as a result of financial problems
at these paper plants, and though these bonds represented just 3.5% of the
Fund's net assets as of February 28, 1997, they remained a drag on our overall
returns for the first half of fiscal 1997. We are taking legal steps that we
believe will enable us to dispose of these securities at a reasonable price in
the coming months.
discipline
1997 semi-annual report 5
<PAGE>
TAX-FREE INSURED FUND
Employing national diversification and high coupon strategies similar to
Tax-Free USA Fund, Tax-Free Insured Fund invests primarily in municipal bonds
protected by private insurance guaranteeing the payment of principal and
interest when due.
Overall, the financial health of the municipal bond market was quite
sound during the past fiscal year. Insurance companies guaranteed 43% of all
bonds issued during 1996. Rating services' credit quality upgrades have also
substantially outnumbered downgrades.
During the first half of fiscal 1997, Tax-Free Insured Fund outperformed
Tax-Free USA Fund, primarily because Tax-Free Insured Fund had a very 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 also outperformed the
average of its peers during the first half of fiscal 1997.
Since August, we have reduced the Fund's duration slightly to seven
years and we expect to maintain this positioning for the balance of the year. We
believe there are attractive income opportunities in insured hospital bonds and
have been selectively adding to our holdings in this sector. In our opinion,
prices have been temporarily depressed because of concern about the effect of
Medicare reform.
CREDIT QUALITY OF TAX-FREE INSURED FUND'S PORTFOLIO
- --------------------------------------------------------------------------------
February 28, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TAX-FREE INSURED FUND
Top Five States (February 28, 1997)
-------------------------------------------------------------
INSERT CHART HERE
Plot Points: State Percent of Net Assets
-------------------------------------------------------------
AAA 84% Illinois 22.4%
AA 6% Massachusetts 11.7%
BBB 8% Pennsylvania 10.3%
Non-rated 2% New Jersey 8.2%
Ohio 8.1%
NINE OUT OF EVERY 10 BONDS IN YOUR FUND'S
PORTFOLIO WERE RATED A OR BETTER BY STANDARD &
POOR'S AS OF FEBRUARY 28, 1997.
</TABLE>
6 1997 semi-annual report
<PAGE>
TAX-FREE USA
INTERMEDIATE FUND
Since August, intermediate-term municipal bonds have offered a high percentage
of the tax-free income available from very long-term bonds with considerably
less risk from interest rate fluctuations. This enabled the Fund to outperform
both its unmanaged benchmark index and the average of its peers as shown on page
3 for the six months ended February 28, 1997.
BY MAINTAINING AN EFFECTIVE DURATION OF SLIGHTLY LESS THAN FIVE YEARS,
TAX-FREE USA INTERMEDIATE FUND PROVIDED GREATER INCOME AND MORE PRICE
STABILITY THAN A PORTFOLIO OF LONGER TERM BONDS.
The Fund's effective duration was more than two years shorter than that
of the Merrill Lynch Three-to-Seven-Year Municipal Bond Index. We believe this
strategy can help preserve principal during periods when bond prices decline,
with only a modest reduction in income potential. During the first half of
fiscal 1997, the yield difference between five- and seven-year securities was
relatively narrow.
CREDIT QUALITY OF TAX-FREE USA INTERMEDIATE FUND'S PORTFOLIO
- --------------------------------------------------------------------------------
February 28, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TAX-FREE USA INTERMEDIATE FUND
Top Five States (February 28, 1997)
---------------------------------------------------------------------
State Percent of Net Assets
---------------------------------------------------------------------
AAA 59% Pennsylvania 23.9%
AA 12% Oregon 5.6%
A 2% Michigan 8.5%
BBB 20% Missouri 10.4%
Non-rated 4% South Carolina 6.9%
MORE THAN TWO-THIRDS OF THE BONDS IN YOUR
FUND'S PORTFOLIO WERE RATED AA OR BETTER BY
STANDARD & POOR'S AS OF FEBRUARY 28, 1997.
</TABLE>
1997 semi-annual report 7
<PAGE>
OUTLOOK
The balance of fiscal 1997 may well be a period of uncertainty for bonds. In our
opinion, bond investors could remain preoccupied with Federal Reserve Board
chairman Alan Greenspan's ongoing concerns about equity market speculation and
how the strength of the U.S. economy might affect inflation trends. We believe
interest rates on long-term U.S. Treasuries may move slightly higher.
outlook
The silver lining in this however, is that municipal bonds have tended
to perform relatively well compared to other investment grade bonds in the face
of moderately higher interest rates. Also, the municipal bond market is no
longer affected by the possibility of changes in tax law that would put
tax-exempt securities at a disadvantage.
This is clearly a promising development that bodes well for the future.
We believe municipalities will continue to need private investors to fund
operations, refinance debt and make capital improvements. To maximize income and
preserve principal, each of our funds will continue to focus on states with
healthy tax bases and prudent fiscal management.
Patrick P. Coyne
Vice President
Senior Portfolio Manager
Mitchell Conery
Vice President
Senior Portfolio Manager
March 24, 1997
MUNICIPAL BONDS OFFER A YIELD ADVANTAGE
AAA-rated Municipal Bond Yields vs. U.S. Treasury Yields (February 28, 1997)
- --------------------------------------------------------------------------------
Treasuries Adjusted for the 28% Tax Bracket
U.S. TREASURIES FEBRUARY 28, 1997
Municipal Bonds Municipal Bonds U.S. Treasury
August 31, 1996 August 31, 1996 February 28, 1997
1 year 3.33% 3.65% 4.08%
2 year 3.63% 3.92% 4.37%
3 year 3.83% 4.10% 4.48%
5 year 4.07% 4.34% 4.59%
10 year 4.59% 4.84% 4.72%
15 year 5.08% 5.22% 4.84%
20 year 5.25% 5.38% 4.97%
25 year 5.30% 5.42% 4.93%
30 year 5.33% 5.44% 4.90%
As of February 28, yields on 15-year to 30-year municipal bonds exceeded yields
on Treasuries on a tax-adjusted basis for most investors.
TREASURY YIELDS ARE ADJUSTED DOWNWARD TO REFLECT THE EFFECT OF A 28% FEDERAL
INCOME TAX. INVESTORS IN HIGHER TAX BRACKETS WOULD HAVE EVEN LOWER YIELDS ON
TREASURIES AFTER TAXES. SOURCE: BLOOMBERG BUSINESS NEWS.
8 1997 semi-annual report
<PAGE>
FUND PERFORMANCE
THE POWER OF TAX-FREE COMPOUNDING
TAX-FREE USA FUND A
Income from a $100,000 Investment 1987-1997
- -------------------------------------------
Dividends Capital Gains
1988 $ 7,059 $ 0
1989 $ 7,520 $ 0
1990 $ 8,055 $ 0
1991 $ 8,296 $ 0
1992 $ 8,556 $ 0
1993 $ 8,994 $ 1206
1994 $ 9,520 $ 439
1995 $10,163 $ 0
1996 $10,422 $ 875
1997 $10,505 $ 776
12 months ended February
More than half of all shareholders in Delaware Group's three national tax-free
funds reinvest monthly distributions, thus benefiting from long-term compounding
of income and capital gains.
CHART INCLUDES THE EFFECT OF A 3.75% FRONT-END SALES CHARGE AND REINVESTMENT
OF DISTRIBUTIONS. PERFORMANCE OF OTHER FUND CLASSES WILL VARY DUE TO
DIFFERENT CHARGES AND EXPENSES.
<TABLE>
<CAPTION>
TAX-FREE USA FUND
Average Annual Total Return Through February 28, 1997
- ------------------------------------------------------------------------------------------------------
10 Years Five Years One Year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Est.1984)
Excluding Sales Charge +6.75% +6.50% +2.08%
Including Sales Charge +6.23% +5.46% -2.81%
- ------------------------------------------------------------------------------------------------------
Lifetime One Year
Class B (Est.1994)
Excluding Sales Charge +4.31% - +1.27%
Including Sales Charge +3.36% - -2.57%
- ------------------------------------------------------------------------------------------------------
Class C (Est.1995)
Excluding Sales Charge +1.80% - +1.26%
Including Sales Charge +1.80% - +0.30%
TAX-FREE INSURED FUND
Average Annual Total Return Through February 28, 1997
- ------------------------------------------------------------------------------------------------------
10 Years Five Years One Year
- ------------------------------------------------------------------------------------------------------
Class A (Est.1985)
Excluding Sales Charge +6.45% +6.07% +3.17%
Including Sales Charge +5.94% +5.05% -1.70%
- ------------------------------------------------------------------------------------------------------
Lifetime One Year
Class B (Est.1994)
Excluding Sales Charge +5.21% - +2.35%
Including Sales Charge +4.23% - -1.53%
- ------------------------------------------------------------------------------------------------------
Class C (Est.1995)
Excluding Sales Charge +4.24% - +2.36%
Including Sales Charge +3.37% - +1.39%
</TABLE>
PLEASE TURN TO PAGE 10 FOR IMPORTANT ADDITIONAL INFORMATION. ALL PERFORMANCE
INCLUDES REINVESTMENT OF DISTRIBUTIONS AND APPLICABLE SALES CHARGES AS
DESCRIBED ON PAGE 10. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
1997 semi-annual report 9
<PAGE>
TAX-FREE INSURED FUND A
Income from a $100,000 Investment 1987-1997
- --------------------------------------------------------------------------------
12 months ended February
Dividends Capital Gains
1988 $6,515 $ 0
1989 $6,939 $ 0
1990 $7,428 $ 0
1991 $7,773 $ 0
1992 $8,078 $ 0
1993 $8,145 $ 381
1994 $8,327 $ 1344
1995 $8,915 $ 0
1996 $9,224 $ 454
1997 $9,182 $ 1454
CHART INCLUDES THE EFFECT OF A 3.75% FRONT-END SALES CHARGE AND REINVESTMENT
OF DISTRIBUTIONS. PERFORMANCE OF OTHER FUND CLASSES WILL VARY DUE TO OTHER
CHARGES AND EXPENSES.
<TABLE>
<CAPTION>
TAX-FREE USA INTERMEDIATE FUND
Average Annual Total Return Through February 28, 1997
- -----------------------------------------------------------------------------------------
LIFETIME ONE YEAR
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Class A (Est.1993)
Excluding Sales Charge +6.47% +5.15%
Including Sales Charge +5.69% +2.04%
- -----------------------------------------------------------------------------------------
Class B (Est.1994)
Excluding Sales Charge +5.37% +4.26%
Including Sales Charge +5.05% +2.27%
- -----------------------------------------------------------------------------------------
Class C (Est.1995)
Excluding Sales Charge +4.38% +4.26%
Including Sales Charge +4.38% +3.26%
</TABLE>
ALL RESULTS ASSUME REINVESTMENT OF DISTRIBUTIONS. THE FUNDS' RETURN AND SHARE
VALUES 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
CLASS B AND CLASS 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 "INCLUDING SALES CHARGE" FOR TAX-FREE USA FUND AND TAX-FREE
INSURED FUND REFLECT THE EFFECT OF A 4.75% FRONT-END SALES CHARGE AND, FOR
PERIODS AFTER JUNE 1, 1992, A 12B-1 FEE OF UP TO 0.30%. SUCH CLASS A RETURNS FOR
TAX-FREE INTERMEDIATE FUND REFLECT THE EFFECT OF A 3% FRONT-END SALES CHARGE AND
A 12B-1 FEE OF UP TO 0.30%, CURRENTLY SET AT 0.15%.
CLASS B SHARES, INITIALLY OFFERED ON MAY 2, 1994, DO NOT CARRY A FRONT-END SALES
CHARGE, BUT ARE SUBJECT TO A 1% ANNUAL DISTRIBUTION AND SERVICE FEE. THEY ARE
SUBJECT TO A DEFERRED SALES CHARGE OF UP TO 4% FOR TAX-FREE USA FUND AND
TAX-FREE INSURED FUND AND 2% FOR TAX-FREE USA INTERMEDIATE FUND.
CLASS C SHARES, INITIALLY OFFERED NOVEMBER 29, 1995, HAVE A 1% ANNUAL
DISTRIBUTION AND SERVICE FEE. IF REDEEMED WITHIN 12 MONTHS, A 1% CONTINGENT
DEFERRED SALES CHARGE APPLIES.
10 1997 semi-annual report
<PAGE>
Financial Statements
DELAWARE GROUP TAX-FREE FUND, INC.-TAX-FREE USA FUND
STATEMENT OF NET ASSETS
FEBRUARY 28, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
MUNICIPAL BONDS - 98.36%
GENERAL OBLIGATION BONDS - 2.69%
Florida State Board of
Education Capital
Outlay 7.25% 06/01/23 ............................ $ 2,445,000 $ 2,677,275
New York, New York Series E
6.00% 08/01/26 ................................... 10,000,000 9,775,000
North Slope Borough, Alaska
8.35% 06/30/98 ................................... 2,500,000 2,637,500
Texas State (Veterans Land Bank)
7.40% 12/01/20 ................................... 3,000,000 3,311,250
-----------
18,401,025
-----------
HIGHER EDUCATION REVENUE BONDS - 1.09%
District of Columbia Higher Education Revenue
(Georgetown University)
7.15% 04/01/21 ................................... 7,000,000 7,446,250
-----------
7,446,250
-----------
HOSPITAL REVENUE BONDS - 10.22%
Louisiana Public Facilities Authority Hospital
Revenue (Southern Baptist Hospital, Inc.)
(Escrowed to Maturity)
8.00% 05/15/12 ................................... 9,500,000 11,150,625
Michigan State Hospital Finance Authority
(Genesys Health System)
8.125% 10/01/21 .................................. 4,000,000 4,600,000
7.50% 10/01/27 ................................... 8,130,000 8,882,025
Monroeville, Pennsylvania Hospital Authority
(Forbes Health System)
7.00% 10/01/13 ................................... 3,000,000 3,172,500
North Carolina Medical Care Community Hospital
Revenue (Duke University Hospital PJ-Series C)
5.25% 06/01/26 ................................... 10,000,000 9,512,500
Philadelphia Hospital & Higher Education Facilities
Authority Hospital Revenue
(Albert Einstein Medical Center)
7.625% 04/01/11 .................................. 15,000,000 15,881,250
(Jeanes Health System Project)
6.85% 07/01/22 ................................... 7,000,000 7,218,750
Royal Oak, Michigan Hospital Finance Authority
(William Beaumont Hospital)
5.25% 01/01/20 ................................... 10,000,000 9,500,000
-----------
69,917,650
-----------
HOUSING REVENUE BONDS - 7.31%
Alaska State Housing Finance Collateralized
Mortgage Obligation 7.05% 06/01/25
(GNMA/FNMA) ...................................... 1,545,000 1,624,181
Dade County Housing Finance Authority
6.70% 04/01/28 (GNMA) ............................ 4,500,000 4,685,625
Illinois Housing Development Authority
(Homeowner Mortgage)
7.125% 08/01/26 .................................. 1,870,000 1,996,225
Massachusetts State Housing Finance Agency
Residential Development
6.875% 11/15/11 (FNMA) ........................... 2,955,000 3,180,319
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
MUNICIPAL BONDS (CONTINUED)
HOUSING REVENUE BONDS (CONTINUED)
Massachusetts State Housing Revenue
Single Family Mortgage
6.95% 06/01/16 ................................. $ 2,500,000 $ 2,634,375
Montgomery County, Pennsylvania Redevelopment
Authority Multi-Family Housing Revenue
(KBF Associates L.P.) 7.25% 07/01/25 ............ 5,000,000 4,968,750
New Mexico Mortgage Finance Authority
Single Family Mortgage
6.20% 07/01/26 (GNMA) .......................... 4,995,000 5,126,119
Tennessee Housing Development Agency
6.60% 07/01/25 ................................. 3,500,000 3,631,250
Utah State Housing Finance Agency,
Single Family Mortgage
7.20% 01/01/27 (FHA/VA) ........................ 3,210,000 3,394,575
Virginia State Housing Development Authority
7.10% 01/01/25 ................................. 7,500,000 7,837,500
6.80% 01/01/27 ................................. 6,500,000 6,816,875
Wisconsin Housing & Economic Development
Authority Home Ownership
6.75% 09/01/25 ................................. 3,950,000 4,132,688
-----------
50,028,482
-----------
POLLUTION CONTROL REVENUE BONDS - 14.93%
Claiborne County, Mississippi
(Middle South Energy, Inc.)
8.25% 06/01/14 ................................. 7,365,000 7,944,994
Clairborne County, Mississippi Pollution Control
Revenue System Energy Resources, Inc. ...........
7.30% 05/01/25 ................................. 3,000,000 3,150,000
6.20% 02/01/26 ................................. 7,675,000 7,617,438
Clark County, Nevada Industrial Development
Revenue (Nevada Power Co. Project)
7.20% 10/01/22 ................................. 9,000,000 9,585,000
Illinois Development Finance Authority
(Central Illinois Public Service Co.)
7.60% 03/01/14 ................................. 6,000,000 6,570,000
Nez Perce County, Idaho Pollution Control Revenue
Refunding (Potlatch Corp. Project)
6.00% 10/01/24 ................................. 7,000,000 7,043,750
Petersburg, Indiana Pollution Control Revenue
Bonds (Indianapolis Power & Light Co.)
5.50% 10/01/23 ................................. 4,000,000 3,840,000
6.625% 12/01/24 ................................ 9,350,000 10,144,750
Princeton, Indiana Pollution Control Revenue Bonds
(Public Service Co. of Indiana)
7.60% 03/15/12 ................................. 3,400,000 3,470,244
Putnam County, Georgia Development Authority
(Georgia Power Co.) 8.375% 07/01/17 ............. 7,300,000 7,527,322
Sabine River Authority Texas Pollution Control
(Southwestern Electric Power)
6.10% 04/01/18 (MBIA) .......................... 4,000,000 4,155,000
1997 semi-annual report 11
<PAGE>
Delaware Group Tax-Free USA Fund (Continued)
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
MUNICIPAL BONDS (CONTINUED)
POLLUTION CONTROL REVENUE BONDS (CONTINUED)
Sweetwater County, Wyoming Pollution Control
Revenue (Idaho Power Company Project) Series A
6.05% 07/15/26 ................................ $ 5,000,000 $ 5,131,250
Parish of Saint Charles, Louisiana Pollution
Control (Louisiana Power & Light)
8.25% 06/01/14 ................................ 1,350,000 1,464,750
Parish of West Feliciana, Louisiana
(Gulf States Utilities Co. Project) Series A
7.50% 05/01/15 ................................ 22,700,000 24,430,875
------------
102,075,373
------------
POWER AUTHORITY REVENUE BONDS - 4.81%
***Georgia Municipal Electric Authority
Series 86L
8.40% 01/01/09 ................................ 5,000,000 2,493,750
Intermountain Power Agency, Utah Series
Series 87D 0.00% 07/01/20 ..................... 95,575,000 15,053,063
Series 88B 7.50% 07/01/21 ..................... 2,415,000 2,547,825
Lower Colorado River Authority, Texas Series B
6.00% 01/01/15 (AMBAC) ........................ 5,000,000 5,087,500
Northern Municipal Power Agency, Minnesota
Series A 5.00% 01/01/21 ....................... 8,500,000 7,692,500
------------
32,874,638
------------
*PRE-REFUNDED BONDS - 18.78%
City of Chicago, Illinois Skyway Toll Bridge
Revenue
6.75% 1/1/17-04 ............................... 3,300,000 3,737,250
Florida Department of Transportation
Turnpike Revenue 7.50% 7/1/19-99 .............. 5,000,000 5,468,750
Florida State Board of Education
7.25% 6/1/23-00 ............................... 2,555,000 2,829,663
Harris County, Texas Toll Road Revenue
8.125% 8/15/17-98 ............................. 2,600,000 2,783,612
Kentucky Turnpike Authority
7.25% 5/15/10-00 .............................. 1,145,000 1,259,500
7.25% 5/15/10-00 .............................. 6,855,000 7,540,500
Massachusetts State General Obligation
7.50% 12/1/07-00 .............................. 3,295,000 3,719,231
7.50% 12/1/07-00 .............................. 3,320,000 3,747,450
Massachusetts Water Resource Authority
7.50% 4/1/09-00 ............................... 1,080,000 1,198,800
7.50% 4/1/16-00 ............................... 7,300,000 8,103,000
7.00% 4/1/18-00 ............................... 14,510,000 15,906,588
Metropolitan Atlanta Rapid Transit Authority,
Georgia, Sales Tax Series L
7.20% 7/1/20-99 (AMBAC) ....................... 2,000,000 2,175,000
Minnesota Public Facilities Authority
(Water Pollution Control) Series 90A
7.10% 3/1/12-00 ............................... 4,000,000 4,385,000
New Hampshire State Turnpike System Revenue
8.375% 11/1/17-97 ............................. 6,750,000 7,088,310
7.40% 4/1/20-00 ............................... 11,675,000 12,915,469
7.375% 4/1/12-00 .............................. 3,000,000 3,315,000
New York City Municipal Water Finance Authority,
New York Water & Sewer System
Revenue Series A 6.00% 6/15/20-00 ............. 1,675,000 1,760,844
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
MUNICIPAL BONDS (CONTINUED)
*PRE-REFUNDED BONDS (CONTINUED)
New York City, New York General Obligation
8.50% 11/1/11-97 .............................. $ 3,000,000 $ 3,139,110
North Carolina Municipal Power Agency
#1- Catawba 7.875% 1/1/19-98 4,565,0004,813,838
North Central Texas Health Facilities Development
Corporation (University Medical Center Inc.)
8.20% 4/1/19-97 ............................... 4,250,000 4,391,015
Salt River Project Agricultural Improvement &
Power Dist. (Arizona)
7.25% 1/1/19-00 ............................... 2,750,000 3,018,125
Tampa, Florida (Florida Aquarium Project)
7.75% 5/1/27-02 ................................ 20,000,000 23,225,000
Washington State Public Power Supply System
Nuclear Project 7.25% 7/1/15-00 ................ 1,760,000 1,927,200
------------
128,448,255
------------
TRANSPORTATION REVENUE BONDS - 19.28%
Atlanta, Georgia Special Purpose Facilities
Revenue (Delta Airlines Project)
7.50% 12/01/19 ................................. 1,500,000 1,603,125
Chicago, Illinois Midway Airport Revenue Series A
5.50% 01/01/29 (MBIA) ......................... 7,920,000 7,593,300
Dallas-Fort Worth, Texas International Airport
(American Airlines) 7.50% 11/01/25 ............. 8,250,000 8,837,813
Denver, Colorado City & County Airport Revenue
Series D 5.50% 11/15/25 (MBIA) ................. 13,000,000 12,528,750
Foothill/Eastern Transportation Corridor Agency
California Toll Road Revenue
Series 95A 6.00% 01/01/34 ...................... 20,000,000 20,025,000
Series A 5.00% 01/01/35 ....................... 10,000,000 8,612,500
Indianopolis Indiana Airport Authority
(Federal Express Project)
7.10% 01/15/17 ................................ 7,800,000 8,404,500
Kenton County, Kentucky Airport (Delta Airlines)
Series 92A 7.50% 02/01/12 ...................... 2,000,000 2,160,000
Series 92B 7.25% 02/01/22 ...................... 4,250,000 4,568,750
Metropolitan Transportation Authority (New York
Dedicated Tax Fund) Series A
5.25% 04/01/26 (MBIA) ......................... 10,000,000 9,525,000
Ohio State Turnpike Series 96A
5.50% 02/15/26 (MBIA) ......................... 10,000,000 9,787,500
Oklahoma Turnpike Authority 1st Sr. Revenue
Series 89 6.00% 01/01/22 ...................... 7,465,000 7,520,988
Oklahoma Turnpike Authority 1st. Sr. Revenue
Series 89 (Escrowed to Maturity)
6.00% 01/01/22 ................................ 13,535,000 13,907,213
Puerto Rico Commonwealth Highway &
Transportation Authority
(Highway Improvements) Series Y
5.50% 07/01/26 ................................ 4,000,000 3,850,000
5.00% 07/01/36 ................................ 3,000,000 2,688,750
5.50% 07/01/36 ................................ 5,000,000 4,837,500
Tulsa, Oklahoma Municipal Airport
(America Airlines) 7.35% 12/01/11 .............. 5,000,000 5,437,500
------------
131,888,189
------------
12 1997 semi-annual report
<PAGE>
Delware Group Tax-Free USA Fund (Continued)
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
MUNICIPAL BONDS (CONTINUED)
WASTE DISPOSAL REVENUE BONDS - 6.49%
Ashland, Kentucky Sewer & Solid Waste
Revenue (Ashland, Inc. Project)
7.125% 02/01/22 ............................... $13,200,000 $14,239,500
+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 14,400,000
Pennsylvania Economic Development Financing
Authority Wastewater Treatment
(Sun Co. R & M Project)
7.60% 12/01/24 ................................ 6,000,000 6,720,000
-----------
44,359,500
----------
WATER AND SEWER REVENUE BONDS - 6.98%
Dade County, Florida Water & Sewer
System Revenue
5.25% 10/01/26 (FGIC) ......................... 20,000,000 18,875,000
Houston, Texas Water & Sewer Systems Revenue
Series C 5.375% 12/01/27 (FGIC) ................ 10,500,000 9,988,125
Massachusetts State Water Resource Authority
6.00% 04/01/20 ................................ 6,200,000 6,238,750
Metropolitan Water District-Southern California
Waterworks Revenue Series C
5.00% 07/01/27 ................................ 7,275,000 6,629,344
Rockdale County, Georgia Water & Sewer Revenue
5.00% 07/01/22 (FSA) .......................... 5,000,000 4,612,500
Texas Water Resources Finance Authority Revenue
7.50% 08/15/13 (AMBAC) ........................ 1,290,000 1,372,238
-----------
47,715,957
----------
-----------
OTHER REVENUE BONDS - 5.78%
Alliance, Texas Special Facility Revenue Bonds
Series 1996 (Federal Express Corp. Project)
6.375% 04/01/21 ............................... 6,000,000 6,030,000
Dade County, Florida Special Obligation Series B
5.00% 10/01/35 (AMBAC) ........................ 5,890,000 5,308,363
Delaware County, Pennsylvania Authority
(Main Line & Haverford Nursing)
9.00% 08/01/22 ................................ 2,000,000 2,200,000
Delaware State Economic Development Authority
(Peninsula United Methodist Homes, Inc.)
8.50% 05/01/22 ................................ 3,500,000 3,714,375
District of Columbia Revenue (Carnegie Endowment)
5.75% 11/15/26 ................................ 11,900,000 11,810,750
Luzerne County Industrial Development Authority
(Pennsylvania Gas & Water Co. Project)
7.00% 12/01/17 (AMBAC) ........................ 4,000,000 4,495,000
Metropolitan Pier & Exposition Authority
Illinois Hospital Facilities Revenue
6.25% 07/01/17 ................................ 3,300,000 3,333,000
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
MUNICIPAL BONDS (CONTINUED)
OTHER REVENUE BONDS (CONTINUED)
Riverdale Illinois Environmental
Improvement Revenue (ACME Metals Inc. .....
Project) Series A
7.90% 04/01/24 ........................... $ 2,500,000 $ 2,631,250
------------
39,522,738
------------
Total Municipal Bonds
(cost $649,815,281) ...................... 672,678,057
------------
++VARIABLE RATE DEMAND NOTES - 0.24%
Vermont Educational & Health Buildings
Financing Agency Revenue (VHA New England
Hospital)
Series E 3.35% 12/01/25 (AMBAC) ........... 355,000 355,000
Washington County, Pennsylvania Authority
Lease Revenue (Eye & Ear)
3.35% 12/15/18 ........................... 1,300,000 1,300,000
------------
Total Variable Rate Demand Notes
(cost $1,655,000) ........................ 1,655,000
------------
TOTAL MARKET VALUE OF SECURITIES OWNED - 98.60%
(cost $651,470,281)** ....................... $674,333,057
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.40% .................. 9,549,652
------------
NET ASSETS APPLICABLE TO 55,670,588
TAX-FREE USA FUND A CLASS SHARES,
2,959,427 TAX-FREE USA FUND B CLASS
SHARES AND 103,393 TAX-FREE USA FUND
C CLASS SHARES ($.01 PAR VALUE) OUTSTANDING;
EQUIVALENT TO $11.64 PER SHARE - 100.00% ..... $683,882,709
============
- -------------------------
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
each bond is pre-refunded.
**Also cost for federal tax purposes.
***The interest rate shown for this security is its effective yield.
+Non-income producing security for the period ended February 28, 1997.
++Variable Rate Demand Notes The interest rate shown is the rate as of
February 28, 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 FEBRUARY 28, 1997:
Common Stock, $.01 par value, 500,000,000
shares authorized to the Tax-Free USA Fund .................. $655,891,963
Accumulated undistributed:
Net realized gain on investments ............................ 5,127,970
Net unrealized appreciation of investments .................. 22,862,776
------------
Total net assets ............................................ $683,882,709
============
See accompanying notes
1997 semi-annual report 13
<PAGE>
Delaware Group Tax-Free Fund, Inc. -
Tax-Free Insured Fund
Statement of Net Assets
February 28, 1997
(Unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
MUNICIPAL BONDS - 98.24%
GENERAL OBLIGATION BONDS - 2.14%
Williamston Community School
5.50% 05/01/25 (MBIA) ............................ $ 1,725,000 $ 1,744,406
1,744,406
HIGHER EDUCATION REVENUE BONDS - 9.28%
Delaware County Pennsylvania Authority University
(Villanova University)
5.80% 08/01/25 (AMBAC) ........................... 1,600,000 1,616,000
Massachusetts State Health & Educational Facilities
Authority (Boston College)
6.625% 07/01/21 (FGIC) ........................... 2,500,000 2,687,500
(Harvard University) 5.625% 11/01/26 .............. 2,000,000 2,000,000
Massachusetts State Industrial Finance Agency
Revenue Higher Education (Clark University Project)
6.10% 07/01/16 ................................... 1,250,000 1,273,438
-----------
7,576,938
-----------
HOSPITAL REVENUE BONDS - 15.74%
Fort Wayne Indiana Hospital Authority
(Parkview Memorial Hospital)
6.40% 11/15/22 (MBIA) ............................ 2,250,000 2,368,125
Illinois Health Facilities Authority Revenue
Bonds Series 1996 (Trinity Medical Center)
6.00% 07/01/28 (FSA) ............................. 4,200,000 4,284,000
Michigan State Hospital Finance Authority Revenue
(Genesys Health System)
7.50% 10/01/27 ................................... 3,000,000 3,277,500
Monroeville, Pennsylvania Hospital Authority
Hospital Revenue (Forbes Health System)
7.00% 10/01/03 ................................... 865,000 933,119
University Missouri Health Facilities Revenue
(University Missouri Health Systems) Series A
5.60% 11/01/26 (AMBAC) ........................... 2,000,000 1,990,000
-----------
12,852,744
-----------
HOUSING REVENUE BONDS - 6.26%
California Housing Finance Agency Revenue
Series B 6.85% 08/01/23 (MBIA) .................... 3,860,000 4,062,650
New Mexico Mortgage Finance Authority Single Family
Mortgage 6.20% 07/01/26 (GNMA) .................... 1,000,000 1,026,250
Rhode Island Housing and Mortgage Finance Corp. ....
Single Family Mortgage
9.30% 07/01/04(FGIC) ............................. 5,000 5,028
St. Louis County, Missouri Single Family Mortgage
9.25% 10/01/16 (AMBAC) ........................... 15,000 15,863
-----------
5,109,791
-----------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
MUNICIPAL BONDS (CONTINUED)
POLLUTION CONTROL REVENUE BONDS - 11.53%
Northampton County Pennsylvania Industrial
Development Authority Revenue (Citizens
Utilities Co.)
6.95% 08/01/15 ................................... $ 1,000,000 $ 1,063,750
Ohio State Air Quality Development Authority
(Ohio Edison)7.45% 03/01/16 (FGIC) ............... 2,000,000 2,197,500
Salem County, New Jersey (Public Service
Electric & Gas Co.) Series D
6.55% 10/01/29 (MBIA) ........................... 4,000,000 4,355,000
Trinity River, Texas Pollution Central Revenue
Bonds (Texas Instruments Inc. Project)
6.20% 03/01/20 .................................. 1,750,000 1,798,125
-----------
9,414,375
-----------
*PRE-REFUNDED BONDS - 23.76%
Allegheny County, Pennsylvania Sanitary Authority
7.50% 12/1/16-99 (FGIC) .......................... 750,000 804,375
Chicago, Illinois Public Building Commission
(Chicago Board of Education) Series A
7.75% 1/1/06-99 (FGIC) ........................... 500,000 541,250
Illinois Regional Transit Authority Revenue
6.75% 6/1/25-04 (FGIC) ........................... 7,970,000 9,105,725
Louisiana Public Facilities Authority Health &
Education Capital Facilities Revenue (Our Lady of
the Lake Regional Medical Center)
8.20% 2/1/15-98 (BIGI) ........................... 800,000 863,000
Pennsylvania Turnpike Commission Revenue
7.625% 12/1/17-98 (FGIC) ......................... 2,425,000 2,622,031
Seattle, Washington Municipality Metropolitan
Seattle Sewer Revenue
6.60% 1/1/32-01 (FGIC) ........................... 5,000,000 5,468,750
-----------
19,405,131
-----------
TRANSPORTATION REVENUE BONDS - 17.17%
Bay Transit Authority Revenue Series A
5.75% 03/01/22 (FGIC) ........................... 2,370,000 2,372,963
Chicago O'Hare International Airport (Illinois)
5.00% 01/01/16 (MBIA) ........................... 5,000,000 4,612,500
Denver, Colorado City & County Airport Revenue
Series D 5.50% 11/15/25 (MBIA) ................... 1,000,000 963,750
Dayton, Ohio Special Facilities Revenue
(Emery Air Freight) 6.05% 10/01/09 ............... 2,500,000 2,565,625
Ohio State Turnpike 1996 Series A
5.50% 02/15/26 (MBIA) ........................... 2,000,000 1,957,500
Tulsa International Airport (Oklahoma) General
Revenue, Consolidated Fixed Rate Series
7.50% 06/01/08 (MBIA) ........................... 1,500,000 1,551,900
-----------
14,024,238
-----------
14 1997 semi-annual report
<PAGE>
Delware Group Tax-Free Insured Fund (Continued)
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
WATER AND SEWER REVENUE BONDS - 3.92%
Austin, Texas Combined Utilities System
Series 90A
6.00% 05/15/15 (FGIC) ..........................$ 1,275,000 $ 1,295,719
Houston, Texas Water & Sewer Systems Revenue
Series C 5.375% 12/01/27 (FGIC) ................ 2,000,000 1,902,500
-----------
3,198,219
-----------
OTHER REVENUE BONDS - 8.44%
Alliance, Texas Special Facility Revenue Bonds
Series 1996 (Federal Express Corp. Project )
6.375% 04/01/21 ................................ 1,000,000 1,005,000
City of Pasadena, California
(Certificates of Participation-Multi Purpose
Project) Pasadena Civic Improvement Corporation
5.25% 02/01/16 (AMBAC) ......................... 1,000,000 972,500
Luzerne County Industrial Development Authority
(Pennsylvania Gas & Water Co. Project)
7.00% 12/01/17 (AMBAC) ......................... 1,000,000 1,123,750
Massachusetts State Industrial Finance Agency
Solid Waste Disposal (Massachusetts Recycling
Associates Project-Fitchburg)
9.00% 08/01/16 ................................. 3,000,000 1,350,000
New Jersey Economic Development Authority
(Elizabethtown Water Company Project)
5.60% 12/01/25 (MBIA) .......................... 2,500,000 2,443,750
-----------
6,895,000
-----------
Total Municipal Bonds (cost $76,639,102) ........ 80,220,842
-----------
***VARIABLE RATE DEMAND NOTES - 0.46%
Washington County Pennsylvania Authority Lease
Revenue (Eye & Ear) 3.35% 12/15/18 ............. 375,000 375,000
-----------
Total Variable Rate Demand Notes
(cost $375,000) ................................ 375,000
-----------
<PAGE>
TOTAL MARKET VALUE OF SECURITIES OWNED - 98.70%
(cost $77,014,102)** ........................................ $80,595,842
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.30% .................................. 1,065,616
-----------
NET ASSETS APPLICABLE TO 7,104,778 TAX-FREE INSURED ...........
FUND A CLASS SHARES, 317,172 TAX-FREE INSURED FUND
B CLASS SHARES AND 13,082 TAX-FREE INSURED FUND
C CLASS SHARES ($.01 PAR VALUE) OUTSTANDING;
EQUIVALENT TO $10.98 PER SHARE - 100.00% ..................... $81,661,458
===========
- ------------------
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
each bond is pre-refunded.
**Also cost for federal tax purposes.
***Variable Rate Demand Notes The interest rate shown is the rate as of February
28, 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 FEBRUARY 28, 1997:
Common stock, $.01 par value, 500,000,000 shares
authorized to the Tax-Free Insured Fund ....................... $77,735,875
Accumulated undistributed:
Net realized gain on investments .............................. 343,843
Net unrealized appreciation of investments .................... 3,581,740
-----------
Total net assets .............................................. $81,661,458
===========
See accompanying notes
1997 semi-annual report 15
<PAGE>
Delaware Group Tax-Free Fund, Inc. -
Tax-Free USA Intermediate Fund
Statement of Net Assets
February 28, 1997
(Unaudited)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
MUNICIPAL BONDS - 99.07%
CITY LEASEBACK REVENUE BONDS - 4.73%
Orange County, California Municipal Water
Facilities (Certificate of Participation)
(Allen-McColloch Pipeline)
5.50% 07/01/05 (MBIA) .............................. $ 500,000 $ 523,750
Weber County Utah Municipal Building Authority
Lease Revenue 5.00% 12/15/06 (MBIA) ................. 750,000 747,083
----------
1,270,833
----------
GENERAL OBLIGATION BONDS - 14.47%
Jackson County, Oregon School District
5.50% 06/01/06 (FSA) ............................... 500,000 524,375
Kansas City Missouri Municipal Assistance Corp. ......
5.50% 03/01/00 (CGIC) .............................. 1,250,000 1,290,625
Philadelphia, Pennsylvania School District
6.25% 05/15/01 (AMBAC) ............................. 1,000,000 1,071,250
Richmond County Georgia Board of Education
5.20% 11/01/06 (MBIA) .............................. 1,000,000 1,005,000
----------
3,891,250
----------
HIGHER EDUCATION REVENUE BONDS - 3.93%
Virginia College Building Authority
(University of Richmond Project)
Mandatory Put 11/1/01
6.40% 11/01/22 ..................................... 1,000,000 1,056,250
----------
1,056,250
----------
HOSPITAL REVENUE BONDS - 1.88%
Missouri State Health & Education Facilities
Authority Revenue (Lake of The Ozarks
General Hospital)
5.25% 02/15/00 ..................................... 500,000 504,375
----------
504,375
----------
HOUSING REVENUE BONDS - 15.02%
Maryland State Community Development
Administration (Single Family Program) 6th Series
5.90% 04/01/01 ..................................... 1,000,000 1,030,000
Montgomery County, Pennsylvania Redevelopment
Authority Multifamily Housing Revenue
(KBF Associates) 6.00% 07/01/04 ..................... 2,000,000 1,997,500
Palatine Illinois Multifamily Housing Revenue
(Prairiebrook Project) Series 96A
5.50% 12/01/06 (FNMA) .............................. 1,000,000 1,010,000
----------
4,037,500
----------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
MUNICIPAL BONDS (CONTINUED)
INDUSTRIAL DEVELOPMENT REVENUE BONDS - 9.12%
Florence County, South Carolina Industrial
Development Revenue (Stone Container)
7.375% 02/01/07 .................................... $1,000,000 $1,002,250
New York City Industrial Developement
Agency Revenue (YMCA Greater New York Project)
5.40% 08/01/04 ..................................... 1,440,000 1,450,800
----------
2,453,050
----------
POWER AUTHORITY REVENUE BONDS - 7.68%
Klamath Falls, Oregon Electric Revenue
(Salt Caves HydroElectric B)
4.50% 05/01/23 ..................................... 1,000,000 1,006,850
New Madrid, Missouri Power Plant
5.65% 06/01/03 (AMBAC) ............................. 1,000,000 1,058,750
----------
2,065,600
----------
SCHOOL AUTHORITY/DISTRICT
REVENUE BONDS - 3.92%
West Virginia School Building Authority
Capital Improvement
5.625% 07/01/02 (MBIA) ............................. 1,000,000 1,053,750
----------
1,053,750
----------
STATE AGENCY BONDS - 16.00%
Indiana Bond Bank (State Revolving Fund Program)
6.00% 02/01/01 ..................................... 500,000 529,375
Michigan Municipal Board Authority Revenue
(Local Government Loan Program)
5.85% 05/01/01 (AMBAC) ............................. 2,195,000 2,321,213
Pennsylvania State Industrial Development
Authority Revenue
6.00% 07/01/99 (AMBAC) ............................. 1,400,000 1,452,500
----------
4,303,088
----------
TRANSPORTATION REVENUE BONDS - 11.59%
*Foothill/Eastern Transportation Corridor Agency
California Toll Road Revenue Series 95A
6.80% 01/01/05 ..................................... 1,500,000 963,750
Rhode Island Port Authority and Economic
Development Corp. Airport Revenue
5.80% 07/01/02 (FSA) ............................... 565,000 595,369
5.90% 07/01/03 (FSA) ............................... 490,000 520,625
Southeastern Pennsylvania Transportation Authority
(Letter 0f Credit-Canadian Imperial)
6.00% 06/01/99 ..................................... 1,000,000 1,036,250
----------
3,115,994
----------
16 1997 semi-annual report
<PAGE>
Delaware Group Tax-Free USA Intermediate Fund (Continued)
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
----------- -----------
MUNICIPAL BONDS (CONTINUED)
WASTE DISPOSAL REVENUE BONDS - 4.03%
Dade County Florida Solid Waste System Revenue
6.00% 10/01/05 (AMBAC) .......................... $ 1,000,000 $ 1,082,500
-----------
1,082,500
-----------
WATER AND SEWER REVENUE BONDS - 1.56%
Easton, Pennsylvania Joint Sewer Authority
5.60% 04/01/03 (ASSET GTY) ....................... 200,000 210,000
Marysville, Washington Water & Sewer Revenue
5.50% 12/01/02 (MBIA) ........................... 200,000 210,250
-----------
420,250
-----------
OTHER REVENUE BONDS - 5.14%
Charleston County, South Carolina
(Charleston Public Facilities Corp.)
5.20% 12/01/99 (MBIA) ........................... 860,000 880,425
Metropolitan Pier & Exposition Authority Illinois
Hospital Facilities Revenue
(McCormick Place Convention)
5.75% 07/01/06 .................................. 500,000 503,125
-----------
1,383,550
-----------
Total Municipal Bonds (cost $25,771,045) .......... 26,637,990
-----------
**VARIABLE RATE DEMAND NOTES - 2.98%
Allegheny County, Pennsylvania Hospital Development
Authority Revenue (Presbyterian University
Hospital) Series D
3.35% 03/01/20 (MBIA) ........................... 800,000 800,000
-----------
Total Variable Rate Demand Notes
(cost $800,000) ................................. 800,000
-----------
<PAGE>
TOTAL MARKET VALUE OF SECURITES OWNED - 102.05%
(cost $26,571,045)*** ................................. $ 27,437,990
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - (2.05%) .......................... (551,766)
------------
NET ASSETS APPLICABLE TO 2,252,265
TAX-FREE USA INTERMEDIATE FUND A CLASS SHARES,
145,075 TAX-FREE USA INTERMEDIATE B CLASS
SHARES AND 169,893 TAX-FREE USA INTERMEDIATE
C CLASS SHARES ($0.01 PAR VALUE) OUTSTANDING;
EQUIVALENT TO $10.47 PER SHARE - 100.00% ............... $ 26,886,224
============
- -----------------------
*The interest rate shown for this security is its effective yield.
**Variable Rate Demand Notes - The interest rate shown is the rate as of
February 28, 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.
***Also cost for federal tax purposes.
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.
COMPONENTS OF NET ASSETS AT FEBRUARY 28, 1997
Common stock, $.01 par value, 500,000,000
shares authorized to the Tax-Free USA
Intermediate Fund ....................................... $ 27,045,513
Accumulated undistributed:
Net realized loss on investments ........................ (1,026,234)
Net unrealized appreciation of investments .............. 866,945
------------
Total net assets ........................................ $ 26,886,224
============
See accompanying notes
1997 semi-annual report 17
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Statement of Operations
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended February 28, 1997
----------------------------------------------------------
Tax-Free Tax-Free Tax-Free USA
INVESTMENT INCOME: USA Insured Fund Intermediate Fund
-------- -------- -----------------
<S> <C> <C> <C>
Interest ........................................................... $24,159,569 $ 2,628,284 $ 697,775
EXPENSES:
Management fees .................................................... 2,117,289 248,551 62,445
Distribution expenses .............................................. 866,225 99,809 28,768
Dividend disbursing and transfer agent fees and expenses ........... 258,935 37,778 9,757
Reports and statements to shareholders ............................. 34,294 9,955 6,370
Accounting fees and salaries ....................................... 130,158 13,843 4,507
Registration fees .................................................. 18,976 20,199 4,752
Taxes (other than income) ......................................... -- 1,037 3,769
Custodian and banking fees ......................................... 800 -- 400
Professional fees .................................................. 22,925 5,254 5,300
Directors' fees .................................................... 6,888 2,539 2,088
Amortization of organization expense ............................... -- -- 1,638
Other .............................................................. 34,482 3,999 --
----------- ----------- -----------
3,490,972 442,964 129,794
Less expenses absorbed by Delaware Management Company, Inc. ........ -- -- 77,318
----------- ----------- -----------
Total Expenses .................................................... 3,490,972 442,964 52,476
----------- ----------- -----------
NET INVESTMENT INCOME .............................................. 20,668,597 2,185,320 645,299
NET REALIZED GAIN AND UNREALIZED LOSS ON INVESTMENTS:
Net realized gain (loss) from security transactions ................ 6,533,268 389,082 (3,381)
Net unrealized appreciation of
investments during the period ..................................... 2,657,743 1,296,997 374,172
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .................... 9,191,011 1,686,079 370,791
----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............... $29,859,608 $ 3,871,399 $ 1,016,090
=========== =========== ===========
</TABLE>
See accompanying notes
18 1997 semi-annual report
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended 2/28/97 Year Ended 8/31/96
----------------------------------------------------------------------------------------
Tax-Free Tax-Free
Tax-Free Tax-Free Intermediate Tax-Free Tax-Free Intermediate
USA Fund Insured Fund Fund USA Fund Insured Fund Fund
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income .................... $ 20,668,597 $ 2,185,320 $ 645,299 $ 44,489,437 $ 4,655,823 $ 1,176,233
Net realized gain (loss) from security
transactions ............................ 6,533,268 389,082 (3,381) 3,050,129 872,909 44,088
Net unrealized appreciation (depreciation)
during the period ....................... 2,657,743 1,296,997 374,172 (32,641,752) (2,108,616) (229,173)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in net assets resulting from
operations .............................. 29,859,608 3,871,399 1,016,090 14,897,814 3,420,116 991,148
------------- ------------- ------------- ------------- ------------- -------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
A Class ................................. (19,842,096) (2,105,738) (598,151) (43,239,363) (4,514,658) (1,115,274)
B Class ................................. (800,392) (76,683) (32,031) (1,234,603) (139,227) (56,831)
C Class ................................. (26,109) (2,899) (15,117) (15,471) (1,938) (4,128)
Net realized gain from security
transactions:
A Class ................................. (2,963,350) (657,491) -- (3,755,304) (232,860) --
B Class ................................. (138,398) (28,164) -- (106,237) (7,992) --
C Class ................................. (4,957) (1,087) -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
(23,775,302) (2,872,062) (645,299) (48,350,978) (4,896,675) (1,176,233)
------------- ------------- ------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ................................. 21,100,552 2,394,496 4,406,061 60,298,210 6,816,802 6,815,079
B Class ................................. 6,890,039 712,272 166,873 16,225,670 1,756,769 654,347
C Class ................................. 629,683 18,504 1,572,718 827,557 120,767 192,011
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and distributions
of net realized gain from security
transactions:
A Class ................................. 12,905,832 1,495,777 394,348 26,761,558 2,436,870 750,572
B Class ................................. 546,075 56,071 21,994 774,002 72,362 36,339
C Class ................................. 23,074 3,919 15,073 10,267 1,932 3,898
------------- ------------- ------------- ------------- ------------- -------------
42,095,255 4,681,039 6,577,067 145,108,750 12,490,969 8,452,246
------------- ------------- ------------- ------------- ------------- -------------
Cost of shares repurchased:
A Class ................................. (92,492,733) (7,962,579) (4,172,271) (112,501,070) (13,455,627) (5,274,033)
B Class ................................. (2,977,695) (700,746) (181,764) (3,753,680) (832,530) (133,797)
C Class ................................. (257,910) (11) (7,600) (7,217) (99) (99)
------------- ------------- ------------- ------------- ------------- -------------
(95,728,338) (8,663,336) (4,361,635) (116,261,967) (14,288,256) (5,407,929)
Increase (decrease) in net assets derived
from capital share transactions ......... (53,633,083) (3,982,297) 2,215,432 (11,364,703) (3,082,754) 3,044,317
------------- ------------- ------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS ........ (47,548,777) (2,982,960) 2,586,223 (44,817,867) (4,559,313) 2,859,232
------------- ------------- ------------- ------------- ------------- -------------
NET ASSETS:
Beginning of period ...................... 731,431,486 84,644,418 24,300,001 776,249,353 89,203,731 21,440,769
------------- ------------- ------------- ------------- ------------- -------------
End of period ............................ $ 683,882,709 $ 81,661,458 $ 26,886,224 $ 731,431,486 $ 84,644,418 $ 24,300,001
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes
1997 semi-annual report 19
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Notes to Financial Statements
February 28, 1997
(Unaudited)
- --------------------------------------------------------------------------------
Delaware Group Tax-Free Fund, Inc. (the "Company") is registered as a
non-diversified open-end investment company under the Investment Company Act of
1940, as amended. The Company is organized as a Maryland Corporation and offers
three portfolios, the Tax-Free USA Fund, the Tax-Free Insured Fund and the
Tax-Free USA Intermediate Fund. Each portfolio offers three classes of shares.
The investment objective of the Tax-Free USA Fund and the Tax-Free USA
Intermediate Fund is to seek as high a level of current interest income exempt
from federal income tax as is available from municipal bonds and is consistent
with prudent investment management and preservation of capital.
The investment objective of the Tax-Free Insured Fund is to seek as high a level
of current interest income exempt from federal income tax as is available from
municipal bonds which are protected by insurance guaranteeing the payment of
principal and interest when due and is consistent with prudent investment
management and preservation of capital.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Funds:
Security Valuation - Long-term debt securities are valued by an independent
pricing service and are believed to reflect the fair value of such securities.
Money market instruments having less than 60 days to maturity are valued at
amortized cost which approximates market value.
Federal Income Taxes - The Funds intend to continue to qualify as regulated
investment companies and make the requisite distributions to shareholders.
Accordingly, no provisions for federal income taxes are required in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
Class Accounting - Expenses directly attributable to a class are charged to that
class. Other common expenses are prorated between all classes of the Fund.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principals 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 and unrealized gains and losses
on the sale of investment securities are those of the specific securities sold.
Interest income is recorded on an accrual basis. Original issue discounts are
accreted and premiums are amortized to interest income over the lives of the
respective securities. The Funds declare dividends daily from net investment
income and pay such dividends monthly.
2. Investment Management and Distribution Agreements In accordance with the
terms of the Investment Management Agreements, the Funds pay Delaware Management
Company, Inc. (DMC), the Investment Manager of the Funds, an annual fee which is
calculated daily at the following rates less fees paid to the independent
directors; 0.60% of the first $500 million of average daily net assets, 0.575%
of the next $250 million and 0.55% of the average daily net assets over $750
million for the Tax-Free USA Fund, 0.60% of the average daily net assets of the
Tax-Free Insured Fund and 0.50% of the average daily net assets of the Tax-Free
<PAGE>
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 and 0.35% as of January 1,
1997. Total expenses absorbed or waived by DMC for the six months ended February
28, 1997, were $77,318. At February 28, 1997, the Funds had a liability for
Investment Management fees and other expenses payable to DMC of $29,930, $21,671
and $4,762 for the Tax-Free USA Fund, the Tax-Free Insured Fund and the Tax-Free
USA Intermediate Fund, respectively.
Pursuant to the Distribution Agreement, the Funds pay Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of A Class for the Tax-Free USA
Fund and the Tax-Free Insured Fund and 0.15% of the average daily net assets of
Tax-Free USA Intermediate Fund A Class and 1.00% of the average daily net assets
of B Class and C Class for all three portfolios. At February 28, 1997, the Funds
had a liability for distribution fees and other expenses payable to DDLP of
$62,694 for the Tax-Free USA Intermediate Fund. For the six months ended
February 28, 1997, the Funds paid DDLP $61,334, $5,644 and $2,090 for
commissions earned on sales of Tax-Free USA Fund A Class, Tax-Free Insured Fund
A Class and Tax-Free USA Intermediate Fund A Class, respectively.
The Funds have engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC, to serve as dividend disbursing and transfer agent of the Funds. Effective
August 19, 1996, the Funds also engaged DSC to provide accounting services for
the Funds. 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 six months ended February 28, 1997, the Tax-Free USA Fund,
the Tax-Free USA Insured Fund and the Tax-Free USA Intermediate Fund expensed
six months ended February 28, 1997 $258,935, $37,778 and $9,757 for dividend
disbursing and transfer agent services, $130,158, $13,843 and $4,507 for
accounting services and had liabilities for such fees and other expenses payable
to DSC, of $14,029, $4,385 and $29,317, respectively.
Certain officers of DMC are officers, directors and/or employees of the Funds.
These officers, directors, and employees are paid no compensation by the Funds.
3. Investments
During the six months ended February 28, 1997, the Funds 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 .......... $156,949,056 $ 7,721,270 $ 6,361,413
Sales .............. $214,306,098 $ 12,654,028 $ 3,829,907
At February 28, 1997, unrealized appreciation for federal income tax purposes
was as follows:
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate Fund
-------- ------------ -----------------
Unrealized appreciation ... 49,929,622 5,231,740 869,445
Unrealized depreciation ... (27,066,846) (1,650,000) (2,500)
----------- ----------- ---------
Aggregate unrealized
appreciation ............. 22,862,776 3,581,740 866,945
For federal income tax purposes, the Tax-Free USA Intermediate Fund had
accumulated capital losses at August 31, 1996, of $1,022,853 which may be
carried forward and applied against future capital gains. The capital loss
carryforward expires as follows: 2002-$399,199 and 2003-$623,654.
20 1997 semi-annual report
<PAGE>
Notes to financial statements (continued)
- --------------------------------------------------------------------------------
4. Capital Stock
Transactions in capital stock shares were as follows:
Tax-Free USA Fund
--------------------------
Six Months Year
Ended Ended
2/28/97 8/31/96
(Unaudited)
--------------------------
Shares sold:
A Class .................................. 1,809,293 8,764,777
B Class .................................. 590,202 1,293,697
C Class .................................. 53,839 --
Shares issued upon reinvestment of
dividends from net investment income
and distributions of net realized gain
from security transactions:
A Class .................................. 1,103,535 2,163,314
B Class .................................. 46,691 23,267
C Class .................................. 1,974 --
----------- -----------
3,605,534 12,245,055
Share repurchased:
A Class .................................. (7,932,067) (10,009,753)
B Class .................................. (255,648) (170,688)
C Class .................................. (22,152) --
----------- -----------
(8,209,867) (10,180,441)
----------- -----------
Net increase (decrease) .................. (4,604,333) 2,064,614
=========== ===========
Tax-Free Insured Fund
--------------------------
Six Months Year
Ended Ended
2/28/97 8/31/96
(Unaudited)
--------------------------
Shares sold:
A Class ................................... 217,880 741,299
B Class ................................... 64,786 164,244
C Class ................................... 1,681 --
Shares issued upon reinvestment of
dividends from net investment income
and distributions of net realized
gain from security transactions:
A Class .................................. 135,734 242,387
B Class .................................. 5,087 3,885
C Class .................................. 356 --
-------- ----------
425,524 1,151,815
Share repurchased:
A Class .................................. (723,931) (1,410,700)
B Class .................................. (63,605) (21,543)
C Class .................................. (1) --
-------- ----------
(787,537) (1,432,243)
-------- ----------
Net decrease .............................. (362,013) (280,428)
======== ========
<PAGE>
4. Capital Stock (Continued)
Transactions in capital stock shares were as follows:
Tax-Free USA Intermediate Fund
------------------------------
Six Months Year
Ended Ended
2/28/97 8/31/96
(Unaudited)
------------------------------
Shares sold:
A Class ........................................ 422,172 656,206
B Class ........................................ 16,026 62,607
C Class ........................................ 150,448 18,361
Shares issued upon reinvestment of
dividends from net investment income:
A Class ........................................ 37,769 72,116
B Class ........................................ 2,107 3,495
C Class ........................................ 1,442 377
-------- --------
629,964 813,162
Share repurchased:
A Class ........................................ (399,009) (506,192)
B Class ........................................ (17,432) (12,876)
C Class ........................................ (725) (10)
-------- --------
(417,166) (519,078)
-------- --------
Net increase .................................... 212,798 294,084
======== ========
5. Lines of Credit
The Funds have committed lines of credit of $15,000,000 for the Tax-Free USA
Fund, $2,000,000 for the Tax-Free Insured Fund and $1,000,000 for the Tax-Free
USA Intermediate Fund. No amount was outstanding at February 28, 1997, or at any
time during the fiscal year.
6. Concentration of Credit Risk
The Funds concentrate their investments in securities issued by municipalities.
The value of these investments may be adversely affected by new legislation
within the states, regional or local economic conditions, and differing levels
of supply and demand for municipal bonds. Many municipalities insure repayment
for their obligations. Although bond insurance reduces the risk of loss due to
default by an issuer, such bonds remain subject to the risk that market value
may fluctuate for other reasons and there is no assurance that the insurance
company will meet its obligations. These securities have been identified in the
Statement of Net Assets.
1997 semi-annual report 21
<PAGE>
7. Financial Highlights
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free USA Fund A Class
-------------------------------------------------------------------------
Six Months(1)
Ended Year Ended August 31,
2/28/97 1996 1995 1994 1993 1992
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $11.550 $12.070 $12.040 $12.640 $12.130 $11.560
Income from investment operations:
Net investment Income.................... 0.338 0.696 0.746 0.751 0.751 0.765
Net realized and unrealized gain (loss)
from security transactions.............. 0.140 (0.460) 0.030 (0.566) 0.610 0.570
------- ------- -------- ------- ------- --------
Total from investment operations ........ 0.478 0.236 0.776 0.185 1.361 1.335
------- ------- -------- ------- ------- --------
Less distributions:
Dividends from net investment income...... (0.338) (0.696) (0.746) (0.751) (0.751) (0.765)
Distributions from net realized gain
on security transactions................ (0.050) (0.060) none (0.034) (0.100) none
------- ------- -------- ------- ------- --------
Total distributions...................... (0.388) (0.756) (0.746) (0.785) (0.851) (0.765)
------- ------- -------- ------- ------- --------
Net asset value, end of period............ $11.640 $11.550 $12.070 $12.040 $12.640 $12.130
======= ======= ======= ======= ======= =======
Total return(2)........................... 4.17% 1.91% 6.74% 1.49% 11.66% 11.91%
Ratios/supplemental data:
Net assets, end of period (000 omitted).. $648,220 $700,853 $758,470 $745,796 $762,574 $702,988
Ratio of expenses to average net assets.. 0.95% 0.94% 0.92% 0.89% 0.89% 0.80%
Ratio of net investment income to average
net assets ............................. 5.85% 5.82% 6.29% 6.07% 6.10% 6.47%
Portfolio turnover....................... 45% 42% 27% 10% 12% 21%
</TABLE>
- ----------------------------
1 Ratios have been annualized and total return has not been annualized.
2 Does not reflect the maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchases for the Tax-Free USA Fund A Class.
22 1997 semi-annual report
<PAGE>
7. Financial Highlights
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free USA Fund B Class Tax-Free USA Fund C Class
--------------------------------------------------------------------------------
Six Period Period
Months(1) 5/2/94(2) Six Months 11/29/95(2)
Ended Year Ended August 31, to Ended to
2/28/97 1996 1995 8/31/94 2/28/97 2/29/96
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
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.................. 0.292 0.600 0.649 0.214 0.292 0.450
Net realized and unrealized gain (loss)
from security transactions............ 0.140 (0.460) 0.030 (0.040) 0.140 (0.620)
------- ------- ------- ------- ------- -------
Total from investment operations ...... 0.432 0.140 0.679 0.174 0.432 (0.170)
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income... (0.292) (0.600) (0.649) (0.214) (0.292) (0.450)
Distributions from net realized gain
on security transactions.............. (0.050) (0.060) none none (0.050) (0.060)
------- ------- ------- ------- ------- -------
Total distributions.................... (0.342) (0.660) (0.649) (0.214) (0.342) (0.510)
------- ------- ------- ------- ------- -------
Net asset value, end of period.......... $11.640 $11.550 $12.070 $12.040 $11.640 $11.550
======= ======= ======= ======= ======= =======
Total return(3)......................... 3.76% 1.11% 5.88% 1.45% 3.76% (1.44%)
Ratios/supplemental data:
Net assets, end of period (000 omitted) $34,459 $29,773 $17,779 $3,937 $1,204 $805
Ratio of expenses to average net assets 1.75% 1.74% 1.74% 1.74% 1.75% 1.74%
Ratio of net investment income to average
net assets 5.05% 5.03% 5.47% 5.22% 5.05% 5.03%
Portfolio turnover..................... 45% 42% 27% 10% 45% 42%
</TABLE>
- ----------------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of initial public offering; ratios have been annualized and total return
has not been annualized.
3 Does not reflect the contingent deferred sales charge which
varies from 1%-4% depending upon the holding period for Tax-Free USA Fund B
Class and 1% for the Tax-Free USA Fund C Class depending upon the holding
period.
1997 semi-annual report 23
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
7. Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free Insured Fund A Class
--------------------------------------------------------------------------------
Six Months(1)
Ended Year Ended August 31,
2/28/97 1996 1995 1994 1993 1992
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......... $10.860 $11.050 $11.020 $11.680 $11.310 $10.900
Income from investment operations:
Net investment income......................... 0.289 0.588 0.639 0.622 0.638 0.674
Net realized and unrealized gain (loss) from
security transactions........................ 0.211 (0.160) 0.030 (0.560) 0.400 0.410
------- ------- ------- ------- ------- -------
Total from investment operations.............. 0.500 0.428 0.669 0.062 1.038 1.084
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income ......... (0.289) (0.588) (0.639) (0.622) (0.638) (0.674)
Distributions from net realized
gain on security transactions................ (0.091) (0.030) none (0.100) (0.030) none
------- ------- ------- ------- ------- -------
Total distributions........................... (0.380) (0.618) (0.639) (0.722) (0.668) (0.674)
------- ------- ------- ------- ------- -------
Net asset value, end of period................. $10.980 $10.860 $11.050 $11.020 $11.680 $11.310
======= ======= ======= ======= ======= =======
Total return(2)................................ 4.64% 3.88% 6.33% 0.54% 9.48% 10.23%
Ratios/supplemental data:
Net assets, end of period (000 omitted) ...... $78,034 $81,149 $86,756 $91,235 $96,118 $85,660
Ratio of expenses to average net assets ...... 1.03% 0.98% 0.98% 0.98% 0.98% 0.86%
Ratio of net investment income to average ....
net assets .................................. 5.29% 5.29% 5.89% 5.48% 5.58% 6.06%
Portfolio turnover............................ 19% 45% 68% 56% 8% 29%
</TABLE>
- ---------------------
1 Ratios have been annualized and total return has not been annualized.
2 Does not reflect the maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase for the Tax-Free Insured Fund A
Class.
24 1997 semi-annual report
<PAGE>
7. Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free Insured
Tax-Free Insured Fund B Class Fund C Class
--------------------------------------------------------------------------------
Six Period Period
Months(1) 5/2/94(2) Six Months 11/29/95(2)
Ended Year Ended August 31, to Ended to
2/28/97 1996 1995 8/31/94 2/28/97 8/31/96
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
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...................... 0.245 0.499 0.550 0.179 0.245 0.375
Net realized and unrealized gain (loss)
from security transactions. . . . . ....... 0.211 (0.160) 0.030 0.030 0.211 (0.370)
Total from investment operations .......... 0.456 0.339 0.580 0.209 0.456 0.005
Less distributions:
Dividends from net investment income ...... (0.245) (0.499) (0.550) (0.179) (0.245) (0.375)
Distributions from net realized
gain on security transactions. ........... (0.091) (0.030) none none (0.091) (0.030)
Total distributions........................ (0.336) (0.529) (0.550) (0.179) (0.336) (0.405)
Net asset value, end of period. ........... $10.980 $10.860 $11.050 $11.020 $10.980 $10.860
Total return(3)............................ 4.22% 3.05% 5.47% 1.91% 4.22% 0.01%
Ratios/supplemental data:
Net assets, end of period (000 omitted) ... $3,483 $3,375 $2,448 $826 $144 $120
Ratio of expenses to average net assets ... 1.83% 1.78% 1.80% 1.83% 1.83% 1.78%
Ratio of net investment income to average
net assets ............................... 4.49% 4.48% 5.07% 4.63% 4.49% 4.48%
Portfolio turnover......................... 19% 45% 68% 56% 19% 45%
</TABLE>
- ----------
1 Ratios have been annualized and total return has not been annualized.
2 Date of initial public offering; ratios have been annualized and total return
has not been annualized.
3 Does not reflect the contingent deferred sales charge which
Class and 1% for the Tax-Free Insured Fund C Class depending upon the holding
period.
1997 semi-annual report 25
<PAGE>
Notes to Financial Statements (Continued)
7. Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free USA Intermediate Fund A Class
----------------------------------------------------------------
Six Months(1) 1/7/93(2)
Ended Year Ended to
2/28/97 1996 1995 1994 1993
(Unaudited)
<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................................ 0.265 0.550 0.550 0.530 0.330
Net realized and unrealized gain
from security transactions........................... 0.150 (0.090) 0.090 (0.310) 0.630
------- ------- ------- ------- -------
Total from investment operations..................... 0.415 0.460 0.640 0.220 0.960
Less distributions:
Dividends from net investment income.................. (0.265) (0.550) (0.550) (0.530) (0.330)
Distributions from net realized
gain on security transactions........................ none none none none none
------- ------- ------- ------- -------
Total distributions................................... (0.265) (0.550) (0.550) (0.530) (0.330)
------- ------- ------- ------- -------
Net asset value, end of period........................ $10.470 $10.320 $10.410 $10.320 $10.630
======= ======= ======= ======= =======
Total return(3)....................................... 4.06% 4.52% 6.43% 2.09% 9.75%
Ratios/supplemental data:
Net assets, end of period (000 omitted)............... $23,588 $22,617 $20,492 $28,193 $14,684
Ratio of expenses to average net assets............... 0.34%(4) 0.25%(4) 0.25%(4) 0.25%(4) 0.25%(4)
Ratio of net investment income to average net assets.. 5.12%(5) 5.29%(5) 5.37%(5) 5.00%(5) 4.84%(5)
Portfolio turnover.................................... 15% 15% 63% 81% 53%
</TABLE>
1 Ratios have been annualized and total return has not been annualized.
2 Date of initial public offering; ratios have been annualized and total return
has not been annualized.
3 Does not reflect the maximum front-end sales charge of 3.00% nor the 1.00%
limited contingent deferred sales charge that would apply in the event of
certain redemptions within 12 months of purchase for the Tax-Free USA
Intermediate Fund A Class.
4 Ratio of expenses to average net assets prior to expense limitation was
0.94% for the six months ended February 28, 1997, 0.95% for the year ended
1996, 1.07% for 1995, 1.19% for 1994 and 1.94% for the period ended August
31, 1993.
5 Ratio of net investment income to average net assets prior to expense
limitation was 4.52% for the six months ended February 28, 1997, 4.59% for the
year ended August 31, 1996, 4.55% for 1995, 4.06% for 1994 and 3.15% for 1993.
26 1997 semi-annual report
<PAGE>
- --------------------------------------------------------------------------------
7. Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free Intermediate
Tax-Free Intermediate Fund B Class Fund C Class
--------------------------------------------------------------------------------
Period Period
Six Months(1) 5/2/94(2) Six Months(1) 11/29/95(2)
Ended Year Ended to Ended to
2/28/97 8/31/96 8/31/95 8/31/94 2/28/97 8/31/96
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
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....................... 0.221 0.460 0.460 0.150 0.221 0.350
Net realized and unrealized gain (loss)
from security transactions.................. 0.150 (0.090) 0.090 0.090 0.150 (0.160)
Total from investment operations............ 0.371 0.370 0.550 0.240 0.371 0.190
Less distributions:
Dividends from net investment income ....... (0.221) (0.460) (0.460) (0.150) (0.221) (0.350)
Distributions from net realized
gain on security transactions............... none none none none none none
Total distributions......................... (0.221) (0.460) (0.460) (0.150) (0.221) (0.350)
Net asset value, end of period.............. $10.470 $10.320 $10.410 $10.320 $10.470 $10.320
Total return(3)............................. 3.62% 3.63% 5.53% 2.31% 3.62% 1.84%
Ratios/supplemental data:
Net assets, end of period (000 omitted) .... $1,519 $1,490 $949 $597 $1,779 $193
Ratio of expenses to average net assets .... 1.19%(4) 1.10%(4) 1.10%(4) 1.10%(4) 1.19%(6) 1.10%(6)
Ratio of net investment income to average
net assets ............................... 5.97%(5) 4.44%(5) 4.52%(5) 4.15%(5) 5.97%(7) 4.44%(7)
Portfolio turnover.......................... 15% 15% 63% 81% 15% 15%
</TABLE>
- ----------
1 Ratios have been annualized and total return has not been annualized.
2 Date of initial public offering; ratios have been annualized and total return
has not been annualized.
3 Does not reflect the contingent deferred sales charge that varies from 1%-2%
for the Tax-Free USA Intermediate Fund B Class and 1% for the Tax-Free USA
Intermediate Fund C Class depending upon the holding period.
4 Ratio of expenses to average net assets prior to expense limitation was 1.79%
for the six month ended February 28, 1997, 1.80% for the year ended
August 1, 1996, 1.92% for 1995 and 2.04% for the period ended August 31,
1994.
5 Ratio of net investment income to average net assets prior to expense
limitation 5.37% for the six months ended February 28, 1997, 3.74% for the
year ended August 31, 1996, 3.70% for 1995 and 3.21% for the period ended
August 31, 1994.
6 Ratio of expenses to average net assets prior to expense limitation was 1.79%
for the six months ended February 28, 1997, and 1.80% for the period ended
August 31, 1996
7 Ratio of net investment income to average net assets prior to expense
limitation was 5.37% for the six months ended February 28, 1997, and 3.74% for
the period ended August 31, 1996.
1997 semi-annual report 27
<PAGE>
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF U.S GOVERNMENT FUND
SHAREHOLDERS, BUT IT MAY BE USED WITH PROSPECTIVE INVESTORS WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS FOR U.S GOVERNMENT FUND, WHICH SETS FORTH
DETAILS ABOUT CHARGES, EXPENSES, INVESTMENT OBJECTIVES AND OPERATING POLICIES OF
THE FUND. YOU SHOULD READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. SUMMARY
INVESTMENT RESULTS ARE DOCUMENTED IN THE FUND'S CURRENT STATEMENT OF ADDITIONAL
INFORMATION. THE FIGURES IN THIS REPORT REPRESENT PAST RESULTS WHICH ARE NOT A
GUARANTEE OF FUTURE RESULTS. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN
THE FUND WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST.
INVESTMENT MANAGER
Delaware Management Company, Inc.
Philadelphia
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia
1818 Market Street
Philadelphia, PA 19103-3682
FOR SHAREHOLDERS
1.800.523.1918
FOR SECURITIES DEALERS
1.800.362.7500
FOR FINANCIAL INSTITUTIONS
REPRESENTATIVES
1.800.659.2265
(GRAPHIC)
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 principal. Shares of
the Fund are not bank or credit union deposits.
DELAWARE
GROUP
=====================
Philadelphia o London
Copy Rights Delaware Distributors, L.P.
Printed in the USA on
recycled paper
SA-USA [3/97] PP4/97
L-152
