<PAGE>
National Tax-Free Funds
Tax-Free USAFund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
service and guidance
professional management
goals
1998
Semi-Annual Report
(Photo of illustration from Tax Exempt Income Brochure)
<PAGE>
for tax-
exempt
income
2
March 5, 1998
Dear Shareholder:
The strong performance of the U.S. economy generated higher state tax revenues
during the first half of fiscal 1998 while low interest rates spurred a near
record issuance of municipal bonds.
Approximately $220.4 billion in municipal bond insurance made 1997 the third
busiest calendar year ever according to The Bond Buyer, a trade publication.
This expanded supply was met by increased demand from investors who were
attracted by municipal bonds' tax-free income potential.
Contributing to the strength of the municipal bond market was:
o The Federal Reserve Board's ability to fight inflation;
o Washington's commitment to keep the income provided by municipal bonds
generally exempt from Federal taxes; and,
o Many states being able to project a modest budget surplus for the 1998 fiscal
year.
While participating in the bond market rally during the autumn and
winter, the portfolio managers of Tax-Free USA Fund, Tax-Free Insured Fund and
Tax-Free USA Intermediate Fund focused primarily on maximizing tax-exempt
income.
While participating in the bond
market rally during the autumn
and winter, the portfolio managers
of Tax-Free USA Fund, Tax-Free
Insured Fund and Tax-Free USA
Intermediate Fund focused on
maximizing tax-exempt income.
<TABLE>
<CAPTION>
Cumulative Total Return and Yield
- -------------------------------------------------------------------------------------------------------------
February 28, 1998
Six months Thirty Day Current Taxable Equivalent
Ended Feb. 28, 1998 SEC Yield Yield*
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Tax-Free USA Fund A Class +4.83% 4.31% 6.08%
Lehman Brothers Municipal Bond Index +5.04% 4.64% 7.68%
Lipper Municipal Debt Fund Average (247 funds) +4.99% 3.96% 6.56%
- -------------------------------------------------------------------------------------------------------------
Tax-Free Insured Fund A Class +4.68% 3.67% 7.14%
Lehman Brothers Insured Bond Index +5.38% 4.70% 7.78%
Lipper Insured Municipal Debt Fund Average (52 funds) +4.87% 3.71% 6.14%
- -------------------------------------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund A Class +4.05% 3.64% 6.03%
Merrill Lynch Three-to-Seven Year Municipal Bond Index +3.67% 4.10% 6.78%
Lipper Intermediate Municipal Debt Average (144 funds) +4.07% 3.62% 6.00%
- -------------------------------------------------------------------------------------------------------------
</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. Performance of
other Fund Classes varies due to different expenses. Yields calculated according
to Securities and Exchange Commission guidelines. B and C Class thirty-day
current yields were, respectively, 3.68% for Tax-Free USA Fund; 3.01% for
Tax-Free Insured Fund and 2.90% for Tax-Free USA Intermediate Fund.
* Taxable equivalent yield is calculated based on a federal income tax bracket
of 39.6%. Results for Tax-Free USA Intermediate Fund reflect a voluntary expense
limitation as shown on pages 25-27.
<PAGE>
for tax-
exempt
income
3
Our defensive approach did not allow the Funds to benefit as much from
bond price appreciation, as our respective indexes and peer groups.
Capital appreciation can be a strong contributor to total return for
short periods. However, a bond fund's income has been the primary component of
total return over the long term according to Ibbotson Associates.
At the start of the 1998 fiscal year, we were concerned over a possible
increase in interest rates. Unemployment was at its lowest level in a
generation, suggesting that employers' costs would increase triggering higher
inflation.
Remarkably, consumer and producer price increases have been milder than
many economists anticipated and the Consumer Price Index (CPI) rose just 1.7%
for calendar 1997. This low inflationary environment has carried over into 1998.
Some economists predict that Asia's financial storm may result in lower
consumer and producer prices in the U.S. during 1998. However, others believe
the Pacific Rim's financial crises may not have as much punch as originally
feared. Some parts of the nation's manufacturing sector seem to be fending off
the effects of Asia's economic turmoil, as demonstrated by growth in durable
goods orders.
The difference in short and long-term interest rates has narrowed since
the beginning of the 1998 fiscal year. Also, the income advantage offered by
moderate quality investment grade municipal bonds, compared to bonds rated AAA,
declined. In our view, this offered the Funds an opportunity to maximize income
without the potential risk to principal associated with lower quality bonds.
On the pages that follow, your Funds' portfolio managers - Mitchell L.
Conery and Patrick P. Coyne - explain the Tax-Free Funds' positioning since
September and share their outlook for the remainder of 1998.
Sincerely,
/s/ Wayne A. Stork
- ------------------
Wayne A. Stork
Chairman
/s/ Jeffrey J. Nick
- -------------------
Jeffrey J. Nick
President and Chief Executive Officer
The difference in short and long-term interest rates has narrowed since the
beginning of the 1998 fiscal year.
<PAGE>
for tax-
exempt
income
4
Portfolio Managers' Review
Many states took advantage of low interest rates during the first half of
fiscal 1998 to refinance old debt and issue new debt for municipal projects.
The growth of the U.S. economy has helped generate a substantial need for
public financing for roads, water treatment facilities and hospitals.
For the 1997 calendar year, city, county and state governments across
the nation issued $220.4 billion in new bonds - a 19.4% increase from a year
earlier. Industrial development bonds enjoyed the biggest increase, at 82.1%, as
municipalities sought to increase their tax base by attracting industry. Credit
ratings of new bonds have also been exceptionally strong. In 1997, Standard &
Poor's upgraded a record number of U.S. municipalities.
Many bond issuers in the higher education and health-care sectors,
earned ratings upgrades as balance sheets improved. The public power and solid
waste sectors bounced back after the negative impact of deregulation and
competitive pressures during the previous two years.
The tax reform act of 1986 transformed municipal bonds into one of the
few remaining tax shelters available to investors. In our opinion, investing in
municipal bond mutual funds offer distinct advantages over investing in specific
municipal bonds such as:
o Professional management - our team of analysts travels nationwide to
investigate investment opportunities.
o Diversification - by investing in bonds across the country, we try to reduce
the risk against an economic downturn in any one particular region.
o Buying bonds at a discount - buying a large lot of municipal bonds makes it
possible for us to obtain a lower price when bonds are purchased and a higher
price when bonds are sold.
<TABLE>
<CAPTION>
portfolio characteristics
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
August 31, 1997 February 28, 1998
- ------------------------------------------------------------------------------------------------------------
Tax-Free USA Fund
Average Effective Maturity 10.3 years 9.7 years
Average Effective Duration 6.2 years 5.9 years
Average Quality A1 A1
- ------------------------------------------------------------------------------------------------------------
Tax-Free Insured Fund
Average Effective Maturity 13.1 years 9.3 years
Average Effective Duration 7.7 years 6.2 years
Average Quality AA1 AA1
- ------------------------------------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund
Average Effective Maturity 5.3 years 6.0 years
Average Effective Duration 4.4 years 4.9 years
Average Quality AA3 AA1
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
for tax-
exempt
income
5
Strategic Positioning
Tax-Free USA Fund
Minimal inflation,
Maximum income
At the start of the 1998 fiscal year we positioned Tax-Free USA Fund defensively
for what we believed to be the start of an inflationary period in the U.S.
economic cycle.
By slightly lowering the duration of your Fund by almost one quarter of
a year, to 5.9 years as of mid-year, we believed we could maximize income
opportunities while reducing the effect of any decline in bond prices. Duration
measures a bond's sensitivity to interest rates by indicating the approximate
percentage of change in a bond's price given a 1% change in interest rates.
Surprisingly, inflation has been milder than many economists anticipated
- - helped along by the banking and currency turmoil in several Pacific Rim
countries. Low inflation contributed to a bond market rally. For the balance of
1998, we are considering a modest extension of the Fund's duration to attempt to
benefit from a potential bond market rally.
As of February 28, 1998, Tax-Free USA Fund held bonds issued by 36
states and 18 sectors of the municipal bond market. Massachusetts made up the
largest share of the Fund's net assets as shown below. The Boston area's
resurgence, aided by a growing high technology sector, helped increase
Massachusetts' tax coffers.
While most of our Massachusetts bonds fared well, one bad apple remained
in the barrel. Our modest holdings of waste disposal bonds, issued by a paper
recycling plant, continued to disappoint us.
A glut of wood pulp, partly due to low priced exports from Asia, has
pushed down the price of paper - causing financial difficulties for the
recycling industry. We are continuing to address the situation and would prefer
to sell these bonds to offset any of the Fund's future capital gains.
At mid year, the Fund's largest sector allocation was transportation
revenue bonds, which accounted for 14.7% of Tax-Free USA Fund's net assets.
Prerefunding allows a municipality to refinance bonds that were issued
during a period of higher interest rates. We believe that prerefunded bonds tend
to lower default risk because principal and interest are guaranteed by the U.S.
government.
CREDIT QUALITY OF TAX-FREE USA FUND'S PORTFOLIO
- --------------------------------------------------------------------------------
February 28, 1998 Tax-Free USA Fund
Top Five States (February 28, 1998)
-----------------------------------------------
State Percent of Net Assets
-----------------------------------------------
Massachusetts 12.0%
AAA 29.1% Pennsylvania 8.1%
AA 14.7% Florida 7.6%
A 22.0% New York 7.3%
BBB 20.3% Louisiana 6.1%
BB 5.2%
Not Rated 8.7%
Approximately 13.7% of Tax-Free USA Fund's income for the six months ended
February 28, 1998 was subject to the federal alternative minimum tax.
Source of ratings: Standard & Poor's
<PAGE>
for tax-
exempt
income
6
Tax-Free Insured Fund
Potential Protection
Against Default
More than half of all municipal bonds issued during the 1997 calendar year were
protected by private insurance. This insurance guarantees that if the issuer
experiences financial problems, the insurer will step in and take over payment
of both interest and principal.
Tax-Free Insured Fund invests primarily in insured bonds rated AAA or
Aaa by Standard & Poor's and Moody's, respectively. Bond insurance is intended
to provide a layer of protection against unforeseeable credit risk.
During the first half of fiscal 1998 we reduced the Fund's duration by
one and a quarter years to 6.2 years. This reflected a combination of bond price
appreciation and an effort to preserve principal.
To maximize income during the period, we slightly lowered our allocation
in bonds rated AAA to 78.4% an approximate five percentage point decrease from
the beginning of the fiscal year and increased our allocation in bonds rated BBB
to 11.3%, a three-and-one half percentage point increase from the start of the
fiscal period.
Our positioning in hospital bonds represented 11.3% of net assets at mid
year and helped maintain the Fund's income potential. Hospital bonds tend to
offer higher yields than other types of municipal bonds because of the
industry's competitive environment. We seek to reduce risk by investing only in
insured hospital bonds.
Two states, Illinois and Ohio, accounted for approximately one third of
the Fund's net assets as of mid-year. Illinois serves as a hub to the Midwest's
heavy manufacturing and agricultural economy and is enjoying strong economic
growth.
Ohio's municipal bonds performed better than the national average
because of high retail demand throughout the state. We believe this higher
demand resulted in part from Ohio residents' desire to protect more of their
income from taxes because the state is raising the personal income tax rate from
seven percent to 7.5% in 1998.
Two states, Illinois and Ohio, accounted for approximately one third of the
Fund's net assets as of mid-year.
CREDIT QUALITY OF TAX-FREE Insured FUND'S PORTFOLIO
- --------------------------------------------------------------------------------
February 28, 1998 Tax-Free Insured Fund
Top Five States (February 28, 1998)
--------------------------------------------------
State Percent of Net Assets
--------------------------------------------------
Illinois 22.1%
AAA 78.4% Ohio 10.3%
AA 2.6% Washington 9.5%
BBB 11.3% Pennsylvania 8.2%
Unrated 2.5% Texas 7.8%
A 5.2%
Approximately 5.2% of Tax-Free Insured Fund's income for the six months ended
February 28, 1998, was subject to the federal alternative minimum tax.
Source of ratings: Standard & Poor's
<PAGE>
for tax-
exempt
income
7
Tax-Free USA
Intermediate Fund
The middle path - a balance
between stability and income
The difference in yield between shorter and longer term bonds narrowed during
the first half of fiscal 1998. This allowed Tax-Free USA Intermediate Fund to
provide much of the income offered by longer term bonds during the period with
less risk to principal.
To balance high income potential and principal stability, the Fund's
average maturity is kept in the intermediate range of three-to-10 years. As of
February 28, 1998, Tax-Free USA Intermediate Fund had an average maturity of 6.0
years.
Similar to Tax-Free USA and Tax-Free Insured Funds, we primarily invest
in the highest quality tiers of the municipal bond market. At mid-year, bonds
with a credit rating of AAA made up 51.1% of the portfolio's net assets, a five
percentage point decrease from August 1997. We slightly increased our position
in bonds rated A and BBB in order to maximize the income potential of the Fund
during a period of declining interest rates.
Pennsylvania remained the Fund's largest state allocation for the first
half of the 1998 fiscal year. The state's political leaders appear to be
committed to cutting the corporate income tax rate, which is among the highest
in the nation. We believe this bodes well for the state's long term economic
health as it may attract more industry.
Among the Fund's larger holdings were housing bonds issued by Montgomery
County, PA, which accounted for 8.0% of net assets at mid year. This once rural
county is due west of Philadelphia and is enjoying a multifamily housing boom.
At mid year, 21.7% of the Fund's net assets were allocated to housing bonds.
The state of Florida was a welcome addition to the Fund's top five
states during the first half of fiscal 1998. Florida's growth and demographic
makeup generate a substantial need for public financing for roads, schools,
water treatment facilities and hospitals. However, job growth in sectors such as
housing development, tourism and health care have provided a sufficient stream
of revenue to meet municipal financing needs.
CREDIT QUALITY OF TAX-FREE USA INTERMEDIATE FUND'S PORTFOLIO
- --------------------------------------------------------------------------------
February 28, 1998 Tax-Free USA Intermediate Fund
Top Five States (February 28, 1998)
--------------------------------------------
State Percent of Net Assets
--------------------------------------------
Pennsylvania 22.9%
AAA 51.1% Michigan 11.3%
AA 14.1% Illinois 11.1%
A 5.1% Missouri 8.3%
BBB 23.2% Florida 7.5%
BB 6.5%
Approximately 4.5% of Tax-Free USA Intermediate Fund's income for the six months
ended February 28, 1998, was subject to the federal alternative minimum tax.
Source of ratings: Standard & Poor's
<PAGE>
for tax-
exempt
income
8
Outlook
State legislatures across the nation appear to have implemented effective fiscal
policies and exercised fiscal restraint. Many states had a budget surplus at
year's end, and some states are expected to post one in 1998.
However, we'd like to offer a note of caution for the year ahead
because we believe reports suggesting that inflation is dead are premature.
U.S. job growth has continued at a brisk pace and Federal Reserve Board
chairman Alan Greenspan spoke of the continuing expansion of the U.S. economy
before Congress in February.
The Fed predicts that the economy will grow in 1998 at a 2%-2.75%
rate after inflation, and that inflation will hover around 1.75%-2.25%. The
Fed's outlook implies that it is not likely to raise its interest rate target in
the near term.
States, cities and local agencies have issued more new debt during early
calendar 1998 as issuers continued to take advantage of attractive borrowing
rates. This has resulted in a temporary glut of municipal securities which we
believe represents a buying opportunity.
Nonetheless, we still believe selected bonds can offer solid income
opportunities with relatively moderate credit risk. For investors in high tax
brackets, municipal bonds may provide a way to both diversify a portfolio
heavily weighted in equities and reduce income taxes on one's annual investment
income.
Mitchell L. Conery
Vice President
Senior Portfolio Manager
Patrick P. Coyne
Vice President
Senior Portfolio Manager
March 5, 1998
(Photo of Keyboard)
Glossary
Coupon
Interest rate on a bond the issuer promises to pay the holder until maturity,
expressed as an annual percentage of face value. For instance, a bond with a 10%
coupon will pay $10 per $100 of the face amount per year.
Credit Spread
The difference in yield between higher quality bonds and lower quality bonds.
Generally, lower quality bonds provide higher yields because they carry greater
credit risk.
General Obligation Bonds
Municipal bonds backed by the full faith and credit of a municipality. General
obligation (GO) bonds provide higher yields because they carry greater credit
risk.
Prerefunding
A procedure whereby a new bond is issued in order to refinance a previously
issued bond. This occurs during periods of low interest rates so the issuer can
lower their interest cost.
Revenue Bonds
Bonds issued to finance public works and supported directly from the revenues of
the project. For instance, if a revenue bond is issued to build a bridge, the
tolls collected from motorists using the bridges are applied to paying off the
bond.
<PAGE>
for tax-
exempt
income
9
Tax Free USA Fund
Income From a $100,000 Investment 1988-1998
A Class Shares
2/28/89 $ 7,518
2/28/90 $ 8,052
2/28/91 $ 8,294
2/29/92 $ 8,554
2/28/93 $ 8,992
2/28/94 $ 9,518
2/28/95 $10,161
2/29/96 $10,420
2/28/97 $10,502
2/28/98 $10,029
Yearly Income
Chart assumes a $100,000 investment on February 28, 1988, and 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 Returns Through February 28, 1998
<S> <C> <C> <C> <C>
Lifetime Ten Years Five Years One Year
- -------------------------------------------------------------------------------------------------------
Class A (Est. 1/11/84)
Excluding Sales Charge +9.38% +7.54% +5.46% +8.47%
Including Sales Charge +9.08% +7.13% +4.64% +4.43%
- -------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +5.16% +7.61%
Including Sales Charge +4.49% +3.61%
- -------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +4.34% +7.61%
Including Sales Charge +4.34% +6.61%
TAX-FREE INSURED FUND
- -------------------------------------------------------------------------------------------------------
Average Annual Total Returns Through February 28, 1998
Lifetime Ten Years Five Years One Year
- -------------------------------------------------------------------------------------------------------
Class A (Est. 3/25/85)
Excluding Sales Charge +8.04% +7.11% +5.47% +8.12%
Including Sales Charge +7.73% +6.71% +4.67% +4.04%
- -------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +5.74% +7.26%
Including Sales Charge +5.06% +3.26%
- -------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +5.07% +7.26%
Including Sales Charge +5.07% +6.26%
</TABLE>
See page 10 for important information. All performance includes reinvestment of
distributions and applicable sales charges as described on page 10. Past
performance does not guarantee future results.
<PAGE>
for tax-
exempt
income
10
TAX-FREE INSURED FUND
Income From a $100,000 Investment 1988-1998
A Class Shares
2/28/89 $6,876
2/28/90 $7,361
2/28/91 $7,703
2/29/92 $8,005
2/28/93 $8,072
2/28/94 $8,252
2/28/95 $8,835
2/29/96 $9,141
2/28/97 $9,099
2/28/98 $8,843
Yearly Income
Chart assumes a $100,000 investment on February 28, 1988, and 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 Intermediate Fund Performance
- ---------------------------------------------------------------------------------------------------------
Average Annual Total Returns Through February 28, 1998
<S> <C> <C> <C>
Lifetime Five Years One Year
Class A (Est. 1/7/93)
Excluding Sales Charge +6.49% +5.85% +6.57%
Including Sales Charge +5.92% +5.27% +3.60%
- ---------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +5.45% +5.67%
Including Sales Charge +5.45% +3.67%
- ---------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +4.95% +5.67%
Including Sales Charge +4.95% +4.67%
</TABLE>
All performance includes reinvestment of distributions and applicable sales
charge as described below. Return and share value will fluctuate so that shares
when redeemed may be worth more or less than the original cost. Past performance
is not a guarantee of future results. Performance for Class B and C shares
excluding sales charge assumes either contingent sales charges did not apply or
the investment was not redeemed.
Returns for Tax-Free USA Intermediate Fund reflect a voluntary expense
limitation in effect at the time. Returns would have been lower without the
limitation.
CLASS A shares of Tax-Free USA Fund and Tax-Free Insured Fund have a 3.75%
maximum front-end sales charge. Both Funds have a 12 b-1 fee. 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.
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are subject to a 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 up to 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 shares are
redeemed within 12 months, a 1% contingent deferred sales charge applies.
<PAGE>
for tax-exempt income 11
Financial Statements
Delaware Group Tax-Free Fund, Inc. -
Tax-Free USA Fund
Statement of Net Assets
February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Principal Market
Amount Value
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Municipal Bonds - 99.26%
General Obligation Bonds - 5.93%
Florida State Board of Education
7.25% 06/01/23 ................................... $ 2,555,000 $ 2,784,822
New York, New York
Series C 5.375% 11/15/27 ......................... 7,750,000 7,792,780
Series E 6.00% 08/01/26 .......................... 10,000,000 10,603,200
Series H 6.125% 08/01/25 ......................... 10,000,000 10,757,900
North Slope Borough, Alaska 8.35% 06/30/98 ......... 2,500,000 2,537,050
Texas State (Veterans Land Bank)
7.40% 12/01/20 ................................... 3,000,000 3,291,210
------------
37,766,962
------------
Higher Education Revenue Bonds - 3.18%
District of Columbia Higher Education Revenue
(Georgetown University) 7.15% 04/01/21 ........... 7,000,000 7,346,850
Missouri State Health and Educational Facilities
Authority Washington University
4.75% 11/15/37 ................................... 9,750,000 9,030,743
University of Cincinnati Ohio
Series T 5.00% 06/01/18 .......................... 3,945,000 3,851,425
------------
20,229,018
------------
Hospital Revenue Bonds - 10.44%
Fairfax County Virginia Industrial Development
Authority Revenue, Reference - Health Care
Inova Health - Series A 5.00% 08/15/25 ........... 10,000,000 9,709,000
Louisiana Public Facilities Authority Hospital
Revenue (Southern Baptist Hospital, Inc.)
(Escrowed to Maturity) 8.00% 5/15/12 ............. 9,195,000 11,273,070
Michigan State Hospital Finance Authority
(Genesys Health System)
7.50% 10/01/27 ................................... 8,130,000 9,315,354
8.125% 10/01/21 .................................. 4,000,000 4,792,800
Monroeville, Pennsylvania Hospital Authority
(Forbes Health System) 7.00% 10/01/13 ............ 3,000,000 3,307,230
Philadelphia Hospital & Higher Education Facilities
Authority Hospital Revenue (Albert Einstein
Medical Center) 7.625% 04/01/11 .................... 15,000,000 15,796,050
(Jeanes Health System Project)
5.875% 07/01/17 .................................. 4,575,000 4,733,387
(Jeanes Health System Project)
6.85% 07/01/22 ................................... 7,000,000 7,545,370
------------
66,472,261
------------
Housing Revenue Bonds - 7.10%
Alaska State Housing Finance Collateralized Mortgage
Obligation 7.05% 06/01/25 (GNMA/FNMA) ............ 1,135,000 1,216,414
Clark County Nevada Assisted Living Homestead
Boulder City 6.50% 12/01/27 ...................... 1,000,000 1,022,120
Dade County Housing Finance Authority
6.70% 04/01/28 (GNMA) ............................ 4,500,000 4,865,760
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount Value
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Municipal Bonds (Continued)
Housing Revenue Bonds (Continued)
Illinois Housing Development Authority
(Homeowner Mortgage) 7.125% 08/01/26 ............................... $ 1,665,000 $ 1,832,432
Massachusetts State Housing Finance Agency
Residential Development (FNMA)
6.875% 11/15/11 .................................................... 2,955,000 3,221,925
Massachusetts State Housing Revenue Single Family
Mortgage 6.95% 06/01/16 (FNMA) ..................................... 2,500,000 2,683,750
Montgomery County, Pennsylvania Redevelopment
Authority Multi-Family Housing Revenue
(KBF Associates L.P.) 7.25% 07/01/25 ............................... 5,000,000 5,209,250
Tennessee Housing Development Agency
6.60% 07/01/25 ..................................................... 2,845,000 3,056,696
Utah State Housing Finance Agency, Single Family
Mortgage 7.20% 01/01/27 (FHA/VA) ................................... 2,730,000 2,981,160
Virginia State Housing Development Authority
6.80% 01/01/27 ..................................................... 6,500,000 6,881,290
7.10% 01/01/25 ..................................................... 7,500,000 7,930,800
Wisconsin Housing & Economic Development Authority
Home Ownership 6.75% 09/01/25 ...................................... 3,950,000 4,262,485
-----------
45,164,082
-----------
Pollution Control Revenue Bonds - 12.09%
Claiborne County, Mississippi
(Middle South Energy, Inc.)
8.25% 06/01/14 ..................................................... 7,365,000 7,856,540
Claiborne County, Mississippi Polution Control
Revenue System Energy Resources
7.30% 05/01/25 ..................................................... 3,000,000 3,186,810
Clark County, Nevada Industrial Development
Revenue (Nevada Power Co. Project)
7.20% 10/01/22 ..................................................... 9,000,000 9,990,810
Illinois Development Finance Authority
(Central Illinois Public Service Co.)
7.60% 03/01/14 ..................................................... 6,000,000 6,511,980
Nez Perce County, Idaho Pollution Control Revenue
Refunding-Potlatch Project
6.00% 10/01/24 ..................................................... 7,000,000 7,462,490
Parish of Saint Charles, Louisana Pollution
Control (Louisiana Power & Light)
8.25% 06/01/14 ..................................................... 1,350,000 1,450,359
Parish of West Feliciana, Louisana (Gulf States
Utilities Co. Project) Series A
7.50% 05/01/15 ..................................................... 22,700,000 25,653,266
Petersburg, Indiana Polllution Control Revenue
Bonds (Indianapolis Power & Light Co.)
6.625% 12/01/24 .................................................... 9,350,000 10,475,086
Sabine River Authority Texas Pollution Control
(Southwestern Electric Power)
6.10% 04/01/18 (MBIA) .............................................. 4,000,000 4,340,080
-----------
76,927,421
-----------
</TABLE>
<PAGE>
12 for tax-exempt income
Tax-Free USA Fund
Statement of Net Assets (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Value
----------- ----------
<S> <C> <C>
Municipal Bonds (Continued)
Power Authority Revenue Bonds - 6.02%
Gastonia North Carolina Comb Utilities System
4.75% 05/01/19 .................................. $ 1,000,000 $ 952,460
*Georgia Municipal Electric Authority Series 86L
6.20% 01/01/09 ................................. 5,000,000 2,770,250
Intermountain Power Agency, Utah
*Series 87D 7.07% 07/01/20 ....................... 95,575,000 15,938,087
Series 88B 7.50% 07/01/21 ....................... 2,415,000 2,489,793
Lower Colorado River Authority Texas - Seventh
Seventh Supply Service 4.75% 01/01/28 ........... 3,000,000 2,796,330
Series B 6.00% 01/01/15 (AMBAC) ................. 5,000,000 5,156,350
Northern Municipal Power Agency, Minnesota
Series A 5.00% 01/01/21 ........................ 8,500,000 8,207,600
-----------
38,310,870
-----------
**Pre-Refunded Bonds - 13.82%
City of Chicago, Illinois Skyway Toll Bridge
Revenue 6.75% 01/01/17-04 ....................... 3,300,000 3,782,361
Delaware State Economic Development Authority
Prerefunded First Mortgage Series A
8.50% 05/01/22-02 .............................. 3,045,000 3,603,605
Florida Department of Transportation Turnpike
7.50% 07/01/19-99 .............................. 5,000,000 5,339,700
Kentucky Turnpike Authority
7.25% 05/15/10-00 .............................. 1,145,000 1,241,203
7.25% 05/15/10-00 .............................. 6,855,000 7,430,957
Massachusetts State General Obligation
7.50% 12/01/07-00 .............................. 3,295,000 3,661,404
7.50% 12/01/07-00 .............................. 3,320,000 3,689,184
Massachusetts State Water Residential Authority -
7.00% 04/01/18-00 .............................. 14,510,000 15,686,761
7.50% 04/01/09-00 .............................. 1,080,000 1,178,258
7.50% 04/01/16-00 .............................. 7,300,000 7,964,154
Metropolitan Atlanta Rapid Transit Authority,
Georgia, Sales Tax Series L
7.20% 07/01/20-99 (AMBAC) ....................... 2,000,000 2,128,180
Minnesota Public Facilities Authority (Water
Pollution Control) Series 90A
7.10% 03/01/12-00 .............................. 4,000,000 4,322,680
New Hampshire State Turnpike System Revenue
7.375% 04/01/12-00 ............................. 3,000,000 3,262,350
7.40% 04/01/20-00 .............................. 11,675,000 12,701,816
New York City Municipal Water Finance Authority,
New York Water & Sewer System Revenue
Series A 6.00% 06/15/20-00 ...................... 1,675,000 1,749,806
Salt River Project Agricultural Improvement & Power
Dist. (Arizona) 7.25% 01/01/19-00 ............... 2,750,000 2,965,353
Sweetwater County, Wyoming Pollution Control
Revenue (Idaho Power Company-Series A)
6.05% 07/15/26-00 .............................. 5,000,000 5,365,800
Washington State Public Power Supply System
Nuclear Project 7.25% 07/01/15-00 ............... 1,760,000 1,894,570
-----------
87,968,142
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
----------- ----------
<S> <C> <C>
Municipal Bonds (Continued)
Transportation Revenue Bonds - 14.68%
Atlanta, Georgia Special Purpose Facilities Revenue
(Delta Airlines Project) 7.50% 12/01/19 ........... $ 1,500,000 $ 1,601,130
Dallas-Fort Worth,Texas Intnl. Airport
(American Airlines) 7.50% 11/01/25 ................ 8,250,000 8,970,308
Foothill/ Eastern Transportation Corridor Agency
California Toll Road Revenue Series 95A
6.00% 01/01/34 ................................... 20,000,000 21,061,200
Indianopolis Indiana Airport Authority
(Federal Express Project) 7.10% 01/15/17 .......... 7,800,000 8,819,538
Kenton County, Kentucky Airport (Delta Airlines)
7.25% 02/01/22 ................................... 4,250,000 4,687,410
7.50% 02/01/12 ................................... 2,000,000 2,231,060
Massachusetts State Turnpike Authority Metropolitan
Highway System Revenue - Series A
5.00% 01/01/37 ................................... 10,465,000 10,049,226
Oklahoma Turnpike Authority 1st. Sr. Revenue
Series 89 6.00% 01/01/22 .......................... 7,465,000 7,575,930
Series 89 (Escrowed to Maturity)
6.00% 01/01/22 ................................... 13,535,000 14,615,093
Puerto Rico Commonwealth Highway & Transportation
Authority (Highway Improvements) Series Y
5.00% 07/01/36 ................................... 3,000,000 2,900,520
5.50% 07/01/36 ................................... 5,000,000 5,284,950
Tulsa, Oklahoma Municipal Airport (American Airlines)
7.35% 12/01/11 ................................... 5,000,000 5,605,250
-----------
93,401,615
-----------
Waste Disposal Revenue Bonds - 6.58%
Ashland, Kentucky Sewer & Solid Waste Revenue
(Ashland, Inc. Project) 7.13% 02/01/22 ............ 13,200,000 14,851,452
Marion County West Virginia Solid Waste Disposal
8.00% 12/01/25 ................................... 7,357,414 7,357,414
10.00% 12/01/25 .................................. 1,026,616 1,026,616
+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 7,017,840
-----------
41,901,322
-----------
Water And Sewer Revenue Bonds - 4.71%
Massachusetts State Water Authority
4.75% 08/01/37 ................................... 10,000,000 9,201,700
6.00% 04/01/20 ................................... 6,200,000 6,459,408
North Jersey District Water Supply - Series A
(Wanaque North Project)
5.125% 11/15/21 .................................. 850,000 850,298
Rockdale County, Georgia Water & Sewer Revenue
5.00% 07/01/22 ................................... 5,000,000 4,951,000
Spartanburg, South Carolina Waterworks Revenue
5.00% 06/01/22 ................................... 5,590,000 5,512,243
</TABLE>
<PAGE>
for tax-exempt income 13
Tax-Free USA Fund
Statement of Net Assets (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Value
----------- ----------
<S> <C> <C>
Municipal Bonds (Continued)
Water And Sewer Revenue Bonds (Continued)
Texas Water Resources Finance Authority Revenue
7.50% 08/15/13 ............................... $ 1,290,000 $ 1,331,022
Virginia State Resource Authority, Reference -
Harrisonburg - Rockingham
5.00% 05/01/22 ............................... 1,705,000 1,653,714
-----------
29,959,385
-----------
Other Revenue Bonds - 14.71%
Alliance, Texas Special Facility Revenue Bonds
Series 1996 (Federal Express Corp. Project )
6.375% 04/01/21 .............................. 6,000,000 6,510,000
Dade County Special Obligation-Series B
5.00% 10/01/35 (AMBAC) ....................... 5,890,000 5,743,575
Delaware County, Pennsylvania Authority
(Main Line & Haverford) Nursing
9.00% 08/01/22 ............................... 2,000,000 2,288,960
Delaware State Economic Development Authority
(Peninsula United Methodist Homes)
6.20% 05/01/15 ............................... 4,000,000 4,224,000
Delaware State Economic Development Authority
Unrefunded First Mortgage Series A
8.50% 05/01/22 ............................... 455,000 515,419
District of Columbia Carnegie Endowment
5.75% 11/15/26 ............................... 11,900,000 12,400,990
Florida State Board of Education Capital Outlay
7.25% 06/01/23 ............................... 2,445,000 2,647,813
Luzerne County Industrial Development Authority
(Pennsylvania Gas & Water Co. Project)
7.00% 12/01/17 ............................... 4,000,000 4,612,040
Massachusetts Industrial Financial Agency
WGBH Educational Foundation
5.00% 03/01/28 ............................... 3,000,000 2,891,700
Metropolitan Pier & Exposition Authority Illinois
Hospital Facilities Revenue 6.25% 07/01/17 .... 3,300,000 3,562,878
New York City Industrial Development Agency
Brooklyn Navy Yard Cogen Partners
5.75% 10/01/36 ............................... 5,010,000 5,163,657
New York City Transitional Finance Authority
5.00% 08/15/27 ............................... 10,000,000 9,656,000
Phenix County Alabama Industrial Development
Board Environmental Impt,
Reference - AMT - Mead
Coated Board Series 5.30% 04/01/27 ............ 3,000,000 2,956,080
Riverdale Illinois Environmental Improvement
Revenue (ACME Metals Project - Series A)
7.90% 04/01/24 ............................... 2,500,000 2,843,425
Tampa, Florida (Florida Aquarium Project)
7.75% 05/01/27 ............................... 20,000,000 23,101,000
Village Center Community Development District
Florida Recreational, Reference - Series A
5.00% 11/01/21 ............................... 3,500,000 3,447,220
Washington State Housing Finance Commonwealth
Nonprofit - Virginia Mason Research Center
Project A 5.70% 01/01/24 ...................... 1,000,000 1,033,840
-----------
93,598,597
-----------
Total Municipal Bonds (cost $591,729,896) ....... 631,699,675
-----------
</TABLE>
<PAGE>
Market
Value
----------
Total Market Value of Securities - 99.26%
(cost $591,729,896) ................................. $ 631,699,675
Receivables and Other Assets Net Of Liabilities - 0.74% 4,694,188
---------------
Net Assets Applicable to 54,036,552 shares
($0.01 Par Value) Outstanding - 100.00% .............. $ 636,393,863
===============
Net Asset Value - Tax Free USA Fund A Class
($597,819,254 / 50,761,168) ......................... $11.78
======
Net Asset Value - Tax Free USA Fund B Class
($36,807,622 / 3,125,350) ........................... $11.78
======
Net Asset Value - Tax Free USA Fund C Class
($1,766,987 / 150,034) .............................. $11.78
======
- ----------
* The interest rate shown for this security is the effective yield.
** For Pre-Refunded Bonds, the stated maturity is followed by the year in which
each bond is pre-refunded.
+ Non-income producing security for the period ended February 28, 1998.
AMBAC - Insured by the AMBAC Indemnity Corporation
FHA/VA - Insured by the Federal Housing Authority/Veterans Administration
FNMA - Insured by the Federal National Mortgage Association
GNMA - Insured by the Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
Components of net assets at February 28, 1998
Common stock, $0.01 par value, 500,000,000 shares authorized
to the Tax-Free USA Fund ................................. $ 600,862,092
Undistributed net investment income ........................ 65,587
Accumulated net realized loss on investments ............... (4,503,595)
Net unrealized appreciation of investments ................. 39,969,779
-------------
Total net assets ........................................... $ 636,393,863
=============
Net Asset Value and Offering Price Per Share -
Tax-Free USA Fund A Class
Net asset value A class (A) ............................... $11.78
Sales charge (3.75% of offering price or 3.90% of the amount
invested per share) (B) ................................. 0.46
------
Offering price ............................................. $12.24
======
- ----------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See How to Purchase Shares in the current Prospectus for purchase of
$100,000 or more.
See accompanying notes
<PAGE>
14 for tax-exempt income
Delaware Group Tax-Free Fund, Inc. -
Tax-Free Insured Fund
Statement of Net Assets
February 28, 1998 (Unaudited)
Principal Market
Amount Value
--------------------------------
Municipal Bonds - 98.55%
General Obligation Bonds - 2.34%
Hurst Euless Bedford Texas Independent School
District 4.75% 8/15/28 (PSF).................... $1,000,000 $ 924,390
Oak Hills, Ohio School District
5.125% 12/1/25 (MBIA)........................... 950,000 951,862
----------
1,876,252
----------
Higher Education Revenue Bonds - 6.32%
California Educational Facility Authority Revenue
(L A College Chiropractic) 5.60% 11/1/17........ 1,000,000 1,013,590
Massachusetts State Health & Educational
Facilities Authority (Boston College)
6.625% 7/1/21 (FGIC)............................ 2,500,000 2,712,550
Massachusetts State Industrial Finance Agency
Revenue Higher Education (Clark University
Project) 6.10% 7/1/16........................... 1,250,000 1,340,964
----------
5,067,104
----------
Hospital Revenue Bonds - 11.25%
Fort Wayne Indiana Hospital Authority
6.40% 11/15/22 (MBIA)
(Parkview Memorial Hospital).................... 2,250,000 2,464,516
Monroeville, Pennsylvania Hospital Authority
Hospital Revenue (Forbes Health System)
7.00% 10/1/03................................... 865,000 948,664
New Jersey Health CA - 97A
5.00% 7/1/27 (AMBAC)............................ 1,250,000 1,216,164
Wisconsin Health SSM - 97A
5.70% 8/15/26 (MBIA)............................ 4,200,000 4,387,740
----------
9,017,084
----------
Housing Revenue Bonds - 13.24%
Alaska State Housing Finance Corp. Mortgage
Series A-1 5.50% 12/1/17........................ 2,500,000 2,545,250
California Housing Finance Agency Revenue
Series B 6.85% 8/1/23 (MBIA).................... 3,860,000 4,129,969
Illinois Development Finance Authority Revenue
(Federal Housing Authority Section 8 Series A)
5.80% 7/1/28 (MBIA)............................. 2,790,000 2,866,224
New Mexico Mortgage Finance Authority Single Family
Mortgage 6.20% 7/1/26 (GNMA).................... 1,000,000 1,067,730
----------
10,609,173
----------
Pollution Control Revenue Bonds - 15.12%
Jefferson County Arkansas Pollution Control
Revenue Entergy Arkansas, Inc. Project
5.60% 10/1/17.................................... 1,000,000 1,008,830
Northampton County, Pennsylvania Industrial
Development Authority Revenue
(Citizens Utilities Co.) 6.95% 8/1/15........... 1,000,000 1,068,250
Ohio State Air Quality Development Authority
(Ohio Edison) 7.45% 3/1/16 (FGIC)............... 2,000,000 2,158,560
Port St. Helens Oregon Pollution Control
(Boise Cascade Corp. Project)
5.65% 12/1/27................................... 1,500,000 1,533,466
<PAGE>
Principal Market
Amount Value
--------------------------------
Municipal Bonds (Continued)
Pollution Control Revenue Bonds (Continued)
Salem County, New Jersey (Public Service Electric
& Gas Co.) Series D
6.55% 10/1/29 (MBIA)............................ $4,000,000 $4,480,400
Trinity River, Texas Pollution Central Revenue
Bonds (Texas Instruments Inc. Project)
6.20% 3/1/20.................................... 1,750,000 1,873,743
----------
12,123,249
----------
Power Authority Bonds - 3.83%
Cleveland, Ohio PPS 96/1
5.00% 11/15/24 (AMBAC).......................... 1,220,000 1,184,901
Gastonia North Carolina Combined Utilities
System Revenue 4.75% 5/1/19 (MBIA).............. 1,000,000 952,460
Lower Colorado River Authority Texas-Seventh
Supply Series 4.75% 1/1/28 (FSA)................ 1,000,000 932,100
----------
3,069,461
----------
*Pre-Refunded Bonds - 26.24%
Allegheny County, Pennsylvania Sanitary Authority
7.50% 12/1/16-99 (FGIC)......................... 750,000 783,930
Chicago, Illinois Public Building Commission
(Chicago Board of Education) Series A
7.75% 1/1/06-99 (FGIC).......................... 500,000 526,050
Louisiana Public Facilities Authority Health &
Education Capital Facilities Revenue (Our Lady
of the Lake Regional Medical Center)
8.20% 12/1/15-98 (MBIA)......................... 800,000 839,344
Michigan State Hospital Finance Authority Revenue
(Genesys Health System)
7.50% 10/1/27-05................................ 1,500,000 1,718,700
Pennsylvania Turnpike Commission Revenue
7.625% 12/1/17-98 (FGIC)........................ 2,425,000 2,542,273
Regional Transit Authority Revenue
6.75% 6/1/25-02................................. 7,970,000 9,198,018
Seattle, Washington Municipality Metropolitan
Seattle Sewer Revenue
6.60% 1/1/32-01 (FGIC).......................... 5,000,000 5,428,850
----------
21,037,165
----------
Transporation Revenue Bonds - 12.27%
Alliance, Texas Special Facility Revenue Bonds-
Series 1996 (Federal Express Corp. Project)
6.375% 4/1/21................................... 1,000,000 1,085,000
Chicago O'Hare International Airport (Illinois)
5.00% 1/1/16 (MBIA)............................. 5,000,000 4,895,700
Dayton, Ohio Special Facilities Revenue
(Emery Air Freight) 6.05% 10/1/09............... 2,455,000 2,673,937
Ohio State Turnpike 1996-Series A
5.50% 2/15/26 (MBIA)............................ 1,135,000 1,179,015
----------
9,833,652
----------
<PAGE>
for tax-exempt income 15
Tax-Free Insured Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
--------------------------------
Municipal Bonds (Continued)
Water and Sewer Revenue Bonds - 4.44%
Austin, Texas Combined Utilities System
Series 90A 6.00% 5/15/15 (FGIC)................. $1,275,000 $1,314,755
Luzerne County Industrial Development Authority
(Pennsylvania Gas & Water Co. Project)
7.00% 12/1/17 (AMBAC)........................... 1,000,000 1,153,010
Massachusetts State Industrial Finance Agency Solid
Waste Disposal (Massachusetts Recycling Associates
Project-Fitchburg) 9.00% 8/1/16................. 3,000,000 1,092,000
----------
3,559,765
----------
Other Revenue Bonds - 3.50%
Village Center Community Development District
Florida Recreational, Revenue - Series A
5.00% 11/1/21 (MBIC)............................ 750,000 738,690
Washington State Housing Finance Authority
Community Nonprofit Housing Revenue -
(VA Mason Research Center Project A)
5.70% 1/1/24.................................... 2,000,000 2,067,680
----------
2,806,370
----------
Total Municpal Bonds (cost $74,709,945).......... 78,999,275
----------
Variable Rate Demand Notes - 1.25%
Broward County, Florida Housing Finance Authority
(Multifamily Housing Revenue-Sanctuary Apartments
Project) 3.40% 2/1/09........................... 1,000,000 1,000,000
----------
Total Variable Rate Demand Notes
(cost $1,000,000)............................... 1,000,000
----------
Total market value of securities - 99.80%
(cost $75,709,945).............................. $79,999,275
Receivables and other assets
net of liabIlities - 0.20%...................... 160,161
----------
Net assets applicable to 7,213,495 shares
($0.01 Par Value) outstanding - 100.00% $80,159,436
==========
<PAGE>
Net Asset Value - Tax-Free Insured A Class
($76,696,391 / 6,901,858 shares)................ $11.11
======
Net Asset Value - Tax-Free Insured B Class
($3,332,360 / 299,877 shares)................... $11.11
======
Net Asset Value - Tax-Free Insured C Class
($130,685 / 11,760 shares)...................... $11.11
======
- --------------
* For Pre-Refunded bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
AMBAC - Insured by the AMBAC Indemnity Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
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, 1998:
Common stock, $0.01 par value, 500,000,000 shares
authorized to the Tax-Free Insured Fund.......... $75,267,473
Distributions in excess of net investment income. (106)
Accumulated net realized gain on investments..... 602,739
Net unrealized appreciation of investments....... 4,289,330
-----------
Total net assets................................. $80,159,436
===========
Net Asset Value And Offering Price per share
Tax-Free Insured Fund A Class
Net asset value per share (A).................... $ 11.11
Sales charge (3.75% of offering price or 3.87% of the
amount invested per share) (B).................. 0.43
----------
Offering price................................... $ 11.54
==========
- --------------------
(A) Net asset value per share illustrated is the estimated amount which would
be paid upon the redemption or repurchase of shares.
(B) See How to Purchase Shares in the current Prospectus for purchases
of $100,000 or more.
See accompanying notes
<PAGE>
16 for tax-exempt income
Delaware Group Tax-Free Fund, Inc. -
Tax-Free USA Intermediate Fund
Statement of Net Assets
February 28, 1998 (Unaudited)
Principal Market
Amount Value
--------------------------------
Municipal Bonds - 103.77%
Agency General Obligation Bonds - 3.96%
Kansas City, Missouri Municipal Assistance Corp.
5.50% 03/01/00 (CGIC)........................... $1,000,000 $1,033,080
----------
1,033,080
----------
Convention Center / Stadium Revenue Bonds - 2.01%
Metropolitan Pier & Exposition Authority, Illinois
Hospital Facilities Revenue
(McCormick Place Convention)
5.75% 07/01/06.................................. 500,000 523,820
----------
523,820
----------
Higher Education Revenue Bonds - 4.01%
Virginia College Building Authority
(University of Richmond Project)
6.40% 11/01/22.................................. 1,000,000 1,047,760
----------
1,047,760
----------
Highway Revenue Bonds - 9.59%
Dunes, Florida Community Development District
Revenue-Intracoastal Waterway Bridge
(ITT Industries Corporation)
5.50% 10/01/07.................................. 825,000 863,412
*Foothill/ Eastern Transportation Corridor Agency
California Toll Road Revenue Series 95A
4.868% 01/01/05.............................. 1,500,000 1,079,385
Puerto Rico Commonwealth Highway & Transportation
Authority Series Y 5.50% 07/01/26............ 550,000 562,568
----------
2,505,365
----------
Hospital Revenue Bonds - 1.29%
Grand Forks, North Dakota Health Care Systems Revenue
(ALTRU Health Systems Obligation Group)
6.25% 08/15/06.................................. 300,000 337,443
----------
337,443
----------
Housing Revenue Bonds - 21.66%
Illinois Development Finance Authority Revenue
Reference Mortgage Federal Housing Authority
Section 8 Series A 5.20%
07/01/08 (MBIA)................................. 700,000 712,880
Iowa Finance Authority MultiFamily Housing
(Forest Glen Apartments) 5.60%
11/2/22 (FNMA).................................. 755,000 770,493
Maryland State Community Development Administration
(Single Family Program) 6th Series
5.90% 04/01/01.................................. 1,000,000 1,048,520
<PAGE>
Principal Market
Amount Value
--------------------------------
Municipal Bonds (Continued)
Housing Revenue Bonds (Continued)
Montgomery County, Pennsylvania Redevelopment
Authority Multifamily Housing Revenue
(KBF Associates) 6.00% 07/01/04................. $2,000,000 $2,082,940
Palatine, Illinois Multi-Family Housing
(Prairiebrook Project) Series 96A
5.50% 12/1/06 (FNMA)............................ 1,000,000 1,040,720
----------
5,655,553
----------
Industrial Development Revenue Bonds - 8.65%
Michigan State Strategic Fund Limited (NSF International
Project) Series A 5.10% 8/1/07.................. 750,000 771,990
New York N Y City Industrial Development Agency
Facility Revenue (YMCA Greater New York Project)
5.40% 08/01/04.................................. 1,440,000 1,487,909
----------
2,259,899
----------
Miscellaneous General Obligation - 2.08%
Chicago, Illinois Metropolitan Water Reclamation
District - Greater Chicago 5.50% 12/01/09....... 500,000 542,325
----------
542,325
----------
Power Authority Revenue Bonds - 4.11%
New Madrid, Missouri Power Plant
5.65% 06/01/03 (AMBAC)...................... 1,000,000 1,074,320
----------
1,074,320
----------
Recreational Revenue Bonds - 4.15%
Village Center Community Development District
Florida Recreational Revenue Series A
5.50% 11/01/10.................................. 1,000,000 1,082,560
----------
1,082,560
----------
School Authority/District General
Obligation Bonds - 6.17%
Jackson County, Oregon School District
5.50% 06/01/06 (FSA)............................ 500,000 543,760
Philadelphia, Pennsylvania School District
6.25% 05/15/01 (AMBAC).......................... 1,000,000 1,068,680
----------
1,612,440
----------
<PAGE>
for tax-exempt income 17
Tax-Free USA Intermediate Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
--------------------------------
Municipal Bonds (Continued)
School Authority/District Revenue Bonds - 4.06%
West Virginia School Building Authority Capital
Improvement 5.625% 07/01/02 (MBIA) ................ $1,000,000 $1,061,440
----------
1,061,440
----------
State Agency Bonds - 15.61%
Indiana Bond Bank (State Revolving Fund Program)
6.00% 02/01/01 ................................... 500,000 526,335
Michigan Municipal Board Authority Revenue
(Local Government Loan Program)
5.85% 05/01/01 (AMBAC) ........................... 2,000,000 2,111,059
Pennsylvania State Industrial Development Authority
Revenue 6.00% 07/01/99 (AMBAC) .................... 1,400,000 1,440,250
----------
4,077,644
----------
Transportation Revenue Bonds - 14.79%
Harris County Texas Industrial Development Corporate
Airport Facilities Continental
Airlines Project AMT
5.00% 07/01/07 ................................... 1,735,000 1,709,478
Rhode Island Port Authority and Economic
Development Corp. Airport Revenue
5.80% 07/01/02 (FSA) ............................. 490,000 526,681
5.90% 07/01/03 (FSA) ............................. 565,000 600,143
Southeastern Pennsylvania Transportation Authority
(Letter Of Credit-Canadian Imperial)
6.00% 06/01/99 ................................... 1,000,000 1,026,980
----------
3,863,282
----------
Water and Sewer Revenue Bonds - 1.63%
Easton, Pennsylvania Joint Sewer Authority
5.60% 04/01/03 (ASSET GTY) ........................ 200,000 212,670
Marysville, Washington Water & Sewer Revenue
5.50% 12/01/02 ................................... 200,000 212,294
----------
424,964
----------
Total Municipal Bonds (cost $25,936,854) 27,101,895
----------
TOTAL MARKET VALUE OF SECURITIES - 103.77%
(COST $25,936,854)................................. $27,101,895
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS- (3.77%).............................. (984,814)
-----------
NET ASSETS APPLICABLE TO 2,457,389 SHARES
($0.01 PAR VALUE) OUTSTANDING - 100.00%............ $26,117,081
===========
<PAGE>
Value
-----------
NET ASSET VALUE - TAX-FREE USA INTERMEDIATE FUND A CLASS
($22,523,881 / 2,119,300 SHARES).................... $ 10.63
===========
NET ASSET VALUE - TAX-FREE USA INTERMEDIATE FUND B CLASS
($1,837,482 / 172,891 SHARES)....................... $ 10.63
===========
NET ASSET VALUE - TAX-FREE USA INTERMEDIATE FUND C CLASS
($1,755,718 / 165,198 SHARES)....................... $ 10.63
===========
- ----------------
* The interest rate shown for this security is the effective yield.
Summary of Abbreviations:
AMBAC - Insured by AMBAC Indemnity Corporation.
ASSET GTY - Insured by the Asset Guaranty Insurance Corporation.
CGIC - Insured by the Capital Guaranty Insurance Corporation.
FSA - Insured by the Financial Security Assurance.
MBIA - Insured by the Municipal Bond Insurance Association.
COMPONENTS OF NET ASSETS AT FEBRUARY 28, 1998:
Common stock, $0.01 par value, 500,000,000 shares
authorized to the Tax-Free USA Intermediate Fund ............ $ 25,912,249
Accumulated net realized loss on investments ................. (960,209)
Net unrealized appreciation of investments ................... 1,165,041
------------
Total net assets ............................................. $ 26,117,081
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE USA INTERMEDIATE FUND A CLASS
Net asset value A Class (A) ................................. $ 10.63
Sales charge (2.75% of offering price, or 2.82% of amount
invested per share) (B) .................................... 0.30
------------
Offering price ............................................... $ 10.93
============
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See How to Purchase Shares in the current Prospectus for purchases of
$100,000 or more.
See accompanying notes
<PAGE>
18 for tax-exempt income
Delaware Group Tax-Free Fund, Inc. -
Statements of Operations
Six Months Ended February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate Fund
----------------------------------------------------
INVESTMENT INCOME:
<S> <C> <C> <C>
Interest .................................................................. $ 19,325,171 $ 2,311,179 $ 680,186
------------ ------------ ---------
EXPENSES:
Management fees ........................................................... 1,915,519 238,441 61,867
Distribution expenses ..................................................... 757,291 94,727 34,435
Dividend disbursing and transfer agent fees and expenses .................. 220,023 46,800 19,065
Accounting and administration ............................................. 158,357 13,980 6,990
Reports and statements to shareholders .................................... 45,425 7,110 7,813
Taxes (other than taxes on income) ....................................... 28,380 4,290 1,400
Registration fees ......................................................... 15,715 14,046 55,370
Directors fees ............................................................ 6,735 2,092 1,633
Professional fees ......................................................... 4,212 9,438 10,733
Custodian fees ............................................................ 350 6,600 1,080
Amortization of organization expense ...................................... - - 642
Other ..................................................................... 13,088 30,955 666
------------ ------------ ---------
3,165,095 468,479 201,694
Less expenses absorbed by Delaware Management Company, Inc. ............... - - (107,847)
------------ ------------ ---------
Total Expenses ............................................................ 3,165,095 468,479 93,847
------------ ------------ ---------
NET INVESTMENT INCOME ..................................................... 16,160,076 1,842,700 586,339
------------ ------------ ---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss) on investment transactions ....................... (2,781,546) 1,011,580 35,066
Net change in unrealized appreciation (depreciation) of investments ....... 16,784,133 904,872 366,768
------------ ------------ ---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ........................... 14,002,587 1,916,452 401,834
------------ ------------ ---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... $ 30,162,663 $ 3,759,152 $ 988,173
============ ============ =========
</TABLE>
See accompanying notes
<PAGE>
for tax-exempt income 19
Delaware Group Tax-Free Fund, Inc. -
Statements of Changes In Net Assets
<TABLE>
<CAPTION>
Six Months Ended 2/28/98
(Unaudited)
---------------------------------------------------------
Tax-Free
Tax-Free Tax-Free USA Intermediate
USA Fund Insured Fund Fund
INCREASE IN NET ASSETS FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ............................................. $ 16,160,076 $ 1,842,700 $ 586,339
Net realized gain (loss) on investments ........................... (2,781,546) 1,011,580 35,066
Net change in unrealized appreciation
(depreciation) on investments .................................... 16,784,133 904,872 366,768
------------- ------------- ------------
Net increase in net assets resulting from operations .............. 30,162,663 3,759,152 988,173
------------- ------------- ------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
A Class .......................................................... (15,298,354) (1,774,821) (520,856)
B Class .......................................................... (763,734) (66,081) (36,010)
C Class .......................................................... (32,401) (1,904) (29,473)
Net realized gain on investment transactions:
A Class .......................................................... (9,769,741) (1,342,436) -
B Class .......................................................... (576,564) (61,524) -
C Class .......................................................... (23,804) (1,755) -
------------- ------------- ------------
(26,464,598) (3,248,521) (586,339)
------------- ------------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class .......................................................... 44,974,937 2,268,997 3,324,639
B Class .......................................................... 3,240,711 280,992 91,436
C Class .......................................................... 516,645 38,090 350,258
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on investment transactions:
A Class .......................................................... 14,706,854 1,820,674 315,469
B Class .......................................................... 825,168 75,172 24,370
C Class .......................................................... 43,832 3,540 26,758
------------- ------------- ------------
64,308,147 4,487,465 4,132,930
------------- ------------- ------------
Cost of shares repurchased:
A Class .......................................................... (81,209,821) (6,258,120) (3,100,294)
B Class .......................................................... (2,508,936) (665,446) (140,613)
C Class .......................................................... (305,939) (353) (70,027)
------------- ------------- ------------
(84,024,696) (6,923,919) (3,310,934)
------------- ------------- ------------
Increase (decrease) in net assets derived from capital
share transactions ................................................ (19,716,549) (2,436,454) 821,996
------------- ------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS ............................. (16,018,484) (1,925,823) 1,223,830
NET ASSETS:
Beginning of period ............................................... $ 652,412,347 82,085,259 $ 24,893,251
------------- ------------- ------------
End of period ..................................................... $ 636,393,863 $ 80,159,436 $ 26,117,081
============= ============= ============
</TABLE>
<PAGE>
RESTUBBED
<TABLE>
<CAPTION>
Year Ended 8/31/97
-------------------------------------------------------
Tax-Free
Tax-Free Tax-Free USA Intermediate
USA Fund Insured Fund Fund
INCREASE IN NET ASSETS FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ............................................. $ 39,265,992 $ 4,264,919 $ 1,267,170
Net realized gain (loss) on investments ........................... 10,051,521 1,042,113 27,578
Net change in unrealized appreciation
(depreciation) on investments .................................... 2,978,780 1,099,718 305,500
------------- ------------- -------------
Net increase in net assets resulting from operations .............. 52,296,293 6,406,750 1,600,248
------------- ------------- -------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
A Class .......................................................... (37,562,093) (4,105,498) (1,147,363)
B Class .......................................................... (1,645,084) (153,999) (65,780)
C Class .......................................................... (58,814) (5,423) (54,027)
Net realized gain on investment transactions:
A Class .......................................................... (2,961,519) (657,491) -
B Class .......................................................... (138,398) (28,164) -
C Class .......................................................... (4,957) (1,087) -
------------- ------------- -------------
(42,370,865) (4,951,662) (1,267,170)
------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class .......................................................... 65,707,580 8,299,445 7,231,208
B Class .......................................................... 11,820,404 1,177,381 745,655
C Class .......................................................... 1,048,230 18,602 2,257,479
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on investment transactions:
A Class .......................................................... 22,364,182 2,544,126 731,354
B Class .......................................................... 1,005,202 97,771 46,197
C Class .......................................................... 50,122 6,398 51,393
------------- ------------- -------------
101,995,720 12,143,723 11,063,286
------------- ------------- -------------
Cost of shares repurchased:
A Class .......................................................... (182,537,900) (15,013,442) (9,242,056)
B Class .......................................................... (7,991,403) (1,087,056) (470,777)
C Class .......................................................... (410,984) (57,472) (1,090,281)
------------- ------------- -------------
(190,940,287) (16,157,970) (10,803,114)
------------- ------------- -------------
Increase (decrease) in net assets derived from capital
share transactions ................................................ (88,944,567) (4,014,247) 260,172
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS ............................. (79,019,139) (2,559,159) 593,250
NET ASSETS:
Beginning of period ............................................... 731,431,486 84,644,418 $ 24,300,001
------------- ------------- -------------
End of period ..................................................... $ 652,412,347 $ 82,085,259 $ 24,893,251
============= ============= =============
</TABLE>
See accompanying notes
<PAGE>
20 for tax-exempt income
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
--------------------------------------------------------------------------
Six months Year ended August 31,
ended
2/28/1998(1) 1997 1996 1995 1994 1993
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 11.710 $ 11.550 $ 12.070 $ 12.040 $ 12.640 $ 12.130
Income from investment operations:
Net investment income ................... 0.296 0.666 0.696 0.746 0.751 0.751
Net realized and unrealized gain (loss)
from investments ....................... 0.260 0.210 (0.460) 0.030 (0.566) 0.610
-------- -------- -------- -------- -------- --------
Total from investment operations ........ 0.556 0.876 0.236 0.776 0.185 1.361
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income .... (0.296) (0.666) (0.696) (0.746) (0.751) (0.751)
Distributions from net realized gain
on investment transactions ............. (0.190) (0.050) (0.060) none (0.034) (0.100)
-------- -------- -------- -------- -------- --------
Total dividends and distributions ....... (0.486) (0.716) (0.756) (0.746) (0.785) (0.851)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ........... $ 11.780 $ 11.710 $ 11.550 $ 12.070 $ 12.040 $ 12.640
======== ======== ======== ======== ======== ========
Total return(2)........................... 4.83% 7.79% 1.91% 6.74% 1.49% 11.66%
Ratios and supplemental data:
Net assets, end of period (000 omitted) . $597,819 $615,852 $700,853 $758,470 $745,796 $762,574
Ratio of expenses to average net assets . 0.94% 0.94% 0.94% 0.92% 0.89% 0.89%
Ratio of net investment income to average
net assets ............................. 5.08% 5.73% 5.82% 6.29% 6.07% 6.10%
Portfolio turnover ...................... 68% 44% 42% 27% 10% 12%
</TABLE>
- -----------------------
1 Ratios have been annualized and total return has not been annualized.
2 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.
<PAGE>
for tax-exempt income 21
Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period
was as follows:
<TABLE>
<CAPTION>
Tax-Free USA Fund B Class
--------------------------------------------------------------
Six months Year ended August 31,
ended 5/2/94(2)
2/28/1998(1) 1997 1996 1995 to
(Unaudited) 8/31/94
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ... $ 11.710 $ 11.550 $ 12.070 $ 12.040 $ 12.080
Income from investment operations:
Net investment income ................. 0.249 0.573 0.600 0.649 0.214
Net realized and unrealized gain (loss)
from investments ..................... 0.260 0.210 (0.460) 0.030 (0.040)
-------- -------- -------- -------- --------
Total from investment operations ...... 0.509 0.783 0.140 0.679 0.174
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net
investment income .................... (0.249) (0.573) (0.600) (0.649) (0.214)
Distributions from net realized gain
on investment transactions ........... (0.190) (0.050) (0.060) none none
-------- -------- -------- -------- --------
Total dividends and distributions ..... (0.439) (0.623) (0.660) (0.649) (0.214)
-------- -------- -------- -------- --------
Net asset value, end of period ......... $ 11.780 $ 11.710 $ 11.550 $ 12.070 $ 12.040
======== ======== ======== ======== ========
Total return(3)......................... 4.42% 6.94% 1.11% 5.88% 1.45%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ........................ $ 36,808 $ 35,055 $ 29,773 $ 17,779 $ 3,937
Ratio of expenses to
average net asset .................... 1.74% 1.74% 1.74% 1.74% 1.74%
Ratio of net investment income to
average net assets ................... 4.28% 4.93% 5.03% 5.47% 5.22%
Portfolio turnover .................... 68% 44% 42% 27% 10%
</TABLE>
<PAGE>
Tax-Free USA Fund C Class
--------------------------------------
Six months Year 11/29/1995(2)
ended ended to
2/28/1998(1) 8/31/97 8/31/96
(Unaudited)
Net asset value, beginning of period ... $ 11.710 $ 11.550 $ 12.230
Income from investment operations:
Net investment income ................. 0.249 0.573 0.450
Net realized and unrealized gain (loss)
from investments ..................... 0.260 0.210 (0.620)
-------- -------- --------
Total from investment operations ...... 0.509 0.783 (0.170)
-------- -------- --------
Less dividends and distributions:
Dividends from net
investment income .................... (0.249) (0.573) (0.450)
Distributions from net realized gain
on investment transactions ........... (0.190) (0.050) (0.060)
-------- -------- --------
Total dividends and distributions ..... (0.439) (0.623) (0.510)
-------- -------- --------
Net asset value, end of period ......... $ 11.780 $ 11.710 $ 11.550
======== ======== ========
Total return(3)......................... 4.42% 6.94% (1.44%)
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ........................ $ 1,767 $ 1,505 $ 805
Ratio of expenses to
average net asset .................... 1.74% 1.74% 1.74%
Ratio of net investment income to
average net assets ................... 4.28% 4.93% 5.03%
Portfolio turnover .................... 68% 44% 42%
- ------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
3 Does not include contingent deferred sales charge which varies from 1-4%
depending upon the holding period for Class B and Class C shares.
<PAGE>
22 for tax-exempt income
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
----------------------------------------------------------------
Six months Year Ended August 31,
ended
2/28/1998(1) 1997 1996 1995 1994 1993
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 11.050 $ 10.860 $ 11.050 $ 11.020 $ 11.680 $ 11.310
Income from investment operations:
Net investment income ................... 0.255 0.573 0.588 0.639 0.622 0.638
Net realized and unrealized gain (loss)
from investments ....................... 0.254 0.281 (0.160) 0.030 (0.560) 0.400
-------- -------- -------- -------- -------- --------
Total from investment operations ........ 0.509 0.854 0.428 0.669 0.062 1.038
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income .... (0.254) (0.573) (0.588) (0.639) (0.622) (0.638)
Distributions from net realized gain
on investment transactions ............. (0.195) (0.091) (0.030) none (0.100) (0.030)
-------- -------- -------- -------- -------- --------
Total dividends and distributions ....... (0.449) (0.664) (0.618) (0.639) (0.722) (0.668)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ........... $ 11.110 $ 11.050 $ 10.860 $ 11.050 $ 11.020 $ 11.680
======== ======== ======== ======== ======== ========
Total return(2) .......................... 4.68% 8.07% 3.88% 6.33% 0.54% 9.48%
Ratios and supplemental data:
Net assets, end of period (000 omitted) . $ 76,696 $ 78,377 $ 81,149 $ 86,756 $ 91,235 $ 96,118
Ratio of expenses to average net assets . 1.13% 1.05% 0.98% 0.98% 0.98% 0.98%
Ratio of net investment income to average
net assets ............................. 4.61% 5.23% 5.29% 5.89% 5.48% 5.58%
Portfolio turnover ...................... 77% 42% 45% 68% 56% 8%
</TABLE>
- --------------------
1 Ratios have been annualized and total return has not been annualized.
2 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.
<PAGE>
for tax-exempt income 23
Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period
was as follows:
<TABLE>
<CAPTION>
Tax-Free Insured Fund B Class Tax-Free Insured Fund C Class
----------------------------------------------------- ----------------------------------
Six months Year ended August 31, Six months
ended 5/2/94(2) ended Year 11/29/1995(2)
2/28/1998(1) to 2/28/1998(1) ended to
(Unaudited) 1997 1996 1995 8/31/94 (Unaudited) 8/31/97 8/31/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ... $ 11.050 $ 10.860 $ 11.050 $ 11.020 $ 10.990 $ 11.050 $ 10.860 $ 11.260
Income from investment operations:
Net investment income ................. 0.208 0.485 0.499 0.550 0.179 0.206 0.485 0.375
Net realized and unrealized gain (loss)
from investments ..................... 0.255 0.281 (0.160) 0.030 0.030 0.255 0.281 (0.370)
-------- -------- -------- -------- -------- -------- -------- --------
0.463 0.766 0.339 0.580 0.209 0.461 0.766 0.005
-------- -------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income .. (0.208) (0.485) (0.499) (0.550) (0.179) (0.206) (0.485) (0.375)
Distributions from net realized gain
on investment transactions ........... (0.195) (0.091) (0.030) none none (0.195) (0.091) (0.030)
-------- -------- -------- -------- -------- -------- -------- --------
Total dividends and distributions ..... (0.403) (0.576) (0.529) (0.550) (0.179) (0.401) (0.576) (0.405)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of period ......... $ 11.110 $ 11.050 $ 10.860 $ 11.050 $ 11.020 $ 11.110 $ 11.050 $ 10.860
======== ======== ======== ======== ======== ======== ======== ========
Total return(3) ........................ 4.28% 7.21% 3.05% 5.47% 1.91% 4.28% 7.21% 0.01%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ........................ $ 3,332 $ 3,619 $ 3,375 $ 2,448 $ 826 $ 131 $ 89 $ 120
Ratio of expenses to
average net assets ................... 1.93% 1.85% 1.78% 1.80% 1.83% 1.93% 1.85% 1.78%
Ratio of net investment income to
average net assets ................... 3.81% 4.43% 4.48% 5.07% 4.63% 3.81% 4.43% 4.48%
Portfolio turnover .................... 77% 42% 45% 68% 56% 77% 42% 45%
</TABLE>
- -------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
3 Does not include contingent deferred sales charge which varies from 1-4%
depending upon the holding period for Class B and Class C shares.
<PAGE>
24 for tax-exempt income
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
----------------------------------------------------------------------
Six months Year ended August 31, 1/7/93(2)
ended to
2/28/1998(1) 1997 1996 1995 1994 8/31/93
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 10.460 $ 10.320 $ 10.410 $ 10.320 $ 10.630 $ 10.000
Income from investment operations:
Net investment income ....................... 0.242 0.524 0.550 0.550 0.530 0.330
Net realized and unrealized gain (loss)
from investments ........................... 0.170 0.140 (0.090) 0.090 (0.310) 0.630
-------- -------- -------- -------- -------- --------
Total from investment operations ............ 0.412 0.664 0.460 0.640 0.220 0.960
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ........ (0.242) (0.524) (0.550) (0.550) (0.530) (0.330)
Distributions from net realized gain
on investment transactions ................. none none none none none none
-------- -------- -------- -------- -------- --------
Total dividends and distributions ........... (0.242) (0.524) (0.550) (0.550) (0.530) (0.330)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ............... $ 10.630 $ 10.460 $ 10.320 $ 10.410 $ 10.320 $ 10.630
======== ======== ======== ======== ======== ========
Total return(3) ............................. 4.05% 6.57% 4.52% 6.43% 2.09% 9.75%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ..... $ 22,524 $ 21,635 $ 22,617 $ 20,492 $ 28,193 $ 14,684
Ratio of expenses to average net assets ..... 0.63% 0.43% 0.25% 0.25% 0.25% 0.25%
Ratio of expenses to average net assets prior
to the expense limitation .................. 1.49% 1.02% 0.95% 1.07% 1.19% 1.94%
Ratio of net investment income to
average net assets ......................... 4.77% 5.03% 5.29% 5.37% 5.00% 4.84%
Ratio of net investment income to
average net assets prior to
the expense limitation ..................... 3.91% 4.44% 4.59% 4.55% 4.06% 3.15%
Portfolio turnover .......................... 28% 34% 15% 63% 81% 53%
</TABLE>
- -----------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of commencement of trading; ratios have been annualized and total
return has not been annualized
3 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.
<PAGE>
for tax-exempt income 25
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 B Class
--------------------------------------------------------------
Six months Year ended August 31, Year
ended 5/2/94(2)
2/28/1998(1) 1997 1996 1995 to
(Unaudited) 8/31/94
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ... $ 10.460 $ 10.320 $ 10.410 $ 10.320 $ 10.230
Income from investment operations:
Net investment income ................. 0.199 0.436 0.460 0.460 0.150
Net realized and unrealized gain (loss)
from investments ..................... 0.170 0.140 (0.090) 0.090 0.090
-------- -------- -------- -------- --------
Total from investment operations ...... 0.369 0.576 0.370 0.550 0.240
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net
investment income .................... (0.199) (0.436) (0.460) (0.460) (0.150)
Distributions from net realized gain
on investment transactions ........... none none none none none
-------- -------- -------- -------- --------
Total dividends and distributions ..... (0.199) (0.436) (0.460) (0.460) (0.150)
-------- -------- -------- -------- --------
Net asset value, end of period ......... $ 10.630 $ 10.460 $ 10.320 $ 10.410 $ 10.320
======== ======== ======== ========= ========
Total return(3) ........................ 3.61% 5.67% 3.63% 5.53% 2.31%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ........................ $ 1,837 $ 1,832 $ 1,490 $ 949 $ 597
Ratio of expenses to
average net assets ................... 1.48% 1.28% 1.10% 1.10% 1.10%
Ratio of expenses to average net assets
prior to the expense limitation ...... 2.34% 1.87% 1.80% 1.92% 2.04%
Ratio of net investment income to
average net assets ................... 3.92% 4.18% 4.44% 4.52% 4.15%
Ratio of net investment income to
average net assets prior to the
expense limitation ................... 3.06% 3.59% 3.74% 3.70% 3.21%
Portfolio turnover .................... 28% 34% 15% 63% 81%
</TABLE>
<PAGE>
RESTUBBED
Tax-Free USA Intermediate Fund C Class
---------------------------------------
Six months Year 11/29/1995(2)
ended ended to
2/28/1998(1) 8/31/97 8/31/96
(Unaudited)
Net asset value, beginning of period ... $ 10.460 $ 10.320 $ 10.480
Income from investment operations:
Net investment income ................. 0.199 0.436 0.350
Net realized and unrealized gain (loss)
from investments ..................... 0.170 0.140 (0.160)
-------- -------- --------
Total from investment operations ...... 0.369 0.576 0.190
-------- -------- --------
Less dividends and distributions:
Dividends from net
investment income .................... (0.199) (0.436) (0.350)
Distributions from net realized gain
on investment transactions ........... none none none
-------- -------- --------
Total dividends and distributions ..... (0.199) (0.436) (0.350)
-------- -------- --------
Net asset value, end of period ......... $ 10.630 $ 10.460 $ 10.320
======== ======== ========
Total return(3) ........................ 3.61% 5.67% 1.84%
Ratios and supplemental data:
Net assets, end of period
(000 omitted) ........................ $ 1,756 $ 1,426 $ 193
Ratio of expenses to
average net assets ................... 1.48% 1.28% 1.10%
Ratio of expenses to average net assets
prior to the expense limitation ...... 2.34% 1.87% 1.80%
Ratio of net investment income to
average net assets ................... 3.92% 4.18% 4.44%
Ratio of net investment income to
average net assets prior to the
expense limitation ................... 3.06% 3.59% 3.74%
Portfolio turnover .................... 28% 34% 15%
- --------------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of commencement of trading; ratios have been annualized and total
return has not been annualized
3 Does not include contingent deferred sales charge which varies from 1-2%
depending upon the holding period for Class B and Class C shares.
<PAGE>
26 for tax-exempt income
Delaware Group Tax-Free Fund, Inc.
Notes to Financial Statements
February 28, 1998
(Unaudited)
Delaware Group Tax-Free Fund, Inc. (The "Company") is registered as a
diversified open-end investment company under the Investment Company Act of
1940, as amended. The Company is organized as a Maryland Corporation and offers
three Funds, the Tax-Free USA Fund, the Tax-Free Insured Fund and the Tax-Free
USA Intermediate Fund. Each Fund offers three classes of shares. The A Class
carries a front-end sales charge of 3.75% for the Tax-Free USAand Tax-Free
Insured Funds and 2.75% for the Tax-Free Intermedia te Fund. The B Class carries
a back-end deferred sales charge. The C Class carries a level load deferred
sales charge.
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 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 Fund 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.
<PAGE>
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 Funds declare dividends from net
investment income daily and pay such dividends monthly, and pay distributions
from net realized gain on investment transactions if any, annually.
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 Funds pay Delaware
Management Company, Inc. (DMC), the Investment Manager of the Funds, 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 Intermediate Fund. DMC has elected
voluntarily to waive its fee and absorb those expenses of the Tax-Free
Intermediate Fund to the extent that the Fund's annual operating expenses exceed
0.45% of average daily net assets exclusive of 12b-1 expenses through December
31, 1997 and 0.55% as of January 1, 1998 through June 30 1998. Total expenses
absorbed or waived by DMC for the period ended February 28, 1998 were $107,847.
At February 28, 1998 the Fund had a liability for Investment Management fees and
other expenses payable to DMC of $32,179 and $30,385 for the Tax-Free USA Fund
and the Tax-Free Insured Fund, respectively.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to serve as dividend disbursing, accounting services and transfer agent for the
Fund. For the period ended February 28, 1998, the Tax-Free USA Fund, the
Tax-Free Insured Fund and The Tax-Free USA Intermediate Fund expensed $220,023,
$46,800 and $19,065 for dividend disbursing and transfer agent services and
$126,449, $13,980 and $4,967 for accounting services and had liabilities for
such fees and other expenses payable to DSC for $34,139 and $17,048 for the
Tax-Free USA Fund and the Tax-Free Insured Fund.
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 Funds. For the period ended February
28, 1998, the Tax-Free Insured Fund had a liability for distribution fees and
other expenses payable to DDLP of $13,492.
DDLP earned $25,959, $17,763, and $4,080 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 Funds. These officers, directors and employees are paid no compensation
by the Funds.
<PAGE>
for tax-exempt income 27
Notes to Financial Statments (Continued)
3. Investments
During the period ended February 28, 1998, the Funds had purchases and sales
of investment securities other than temporary cash investments as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate Fund
-------- ------------ -----------------
<S> <C> <C> <C>
Purchases: .............................................................. $215,180,519 $ 30,947,346 $ 5,516,564
Sales: .................................................................. $241,593,275 $ 35,189,931 $ 3,530,329
At February 28, 1998, the aggregate cost of securities and related
appreciation/depreciation for federal income tax purposes was as follows:
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate Fund
-------- ------------ -----------------
Cost of investments ..................................................... $591,729,896 $ 75,709,945 $ 25,936,854
------------ ------------ ------------
Unrealized appreciation ................................................. 60,644,154 6,243,090 1,165,145
Unrealized depreciation ................................................. 20,674,530 1,953,760 104
------------ ------------ ------------
Net unrealized appreciation ............................................. $ 39,969,624 $ 4,289,330 $ 1,165,041
============ ============ ============
</TABLE>
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 shares were as follows:
<TABLE>
<CAPTION>
Tax-Free USA Fund Tax-Free Insured Fund
Six months ended Year Ended Six months ended Year Ended
2/28/98 8/31/97 2/28/98 8/31/97
-------------------------------------------------------------
Shares sold:
<S> <C> <C> <C> <C>
A Class .................................................... 3,815,237 5,645,645 204,796 757,507
B Class .................................................... 275,042 1,015,397 25,279 106,909
C Class .................................................... 43,814 89,711 3,427 1,691
Shares issued upon reinvestment of dividends from
net investment income and realized gains:
A Class .................................................... 1,255,149 1,917,246 164,608 231,402
B Class .................................................... 70,452 86,179 6,799 8,892
C Class .................................................... 3,741 4,299 320 582
--------- --------- ------- ---------
5,463,435 8,758,477 405,299 1,106,983
--------- --------- ------- ---------
Shares repurchased:
A Class .................................................... (6,890,275) (15,671,660) (562,580) (1,368,970)
B Class .................................................... (213,084) (686,818) (59,846) (99,060)
C Class .................................................... (26,032) (35,231) (32) (5,274)
--------- --------- ------- ---------
(7,129,391) (16,393,709) (622,458) (1,473,304)
--------- --------- ------- ---------
Net Increase (Decrease) .................................... (1,665,956) (7,635,232) (217,159) (366,321)
========= ========= ======= =========
</TABLE>
<PAGE>
RESTUBBED
<TABLE>
<CAPTION>
Tax-Free USA Intermediate Fund
Six months ended Year Ended
2/28/98 8/31/97
---------------------------------
Shares sold:
<S> <C> <C>
A Class .................................................... 314,702 694,060
B Class .................................................... 8,642 71,587
C Class .................................................... 33,026 216,226
Shares issued upon reinvestment of dividends from
net investment income and realized gains:
A Class .................................................... 29,799 70,127
B Class .................................................... 2,302 4,414
C Class .................................................... 2,527 4,931
------- ---------
390,998 1,061,345
------- ---------
Shares repurchased:
A Class .................................................... (293,763) (886,958)
B Class .................................................... (13,243) (45,185)
C Class .................................................... (6,649) (103,591)
------- ---------
(313,655) (1,035,734)
------- ---------
Net Increase (Decrease) .................................... 77,343 25,611
======= =========
</TABLE>
5. Lines of Credit
The Funds have 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 February 28, 1998, or at any
time during the period.
6. Market and 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 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.
<PAGE>
This Semi-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
Statement of Additional Information. The figures in this report represent past
performance 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 Only
1.800.659.2265
www.delawarefunds.com
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.
Shares of the Fund are not bank or credit union deposits.
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