<PAGE>
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
National High Yield Municipal Bond Fund
(various photos demonstrating service and guidance,
professional management and goals)
1998
Annual
FOR TAX-EXEMPT INCOME Report
DELAWARE
INVESTMENTS
- ---------------------
Philadelphia o London
<PAGE>
A TRADITION OF SOUND INVESTING
commitment
A Commitment
To Our Investors
Delaware Investments has a money management tradition that dates back to 1929.
We have a long and distinguished history of helping individuals reach their
financial goals through a full range of investment opportunities that include
municipal bond mutual funds.
Headquartered in Philadelphia with an international affiliate in London, the
Delaware organization is one of the nation's leading municipal bond fund
managers.
Delaware Investments manages more than $40 billion in mutual fund assets and
institutional advisory accounts. We offer a wide variety of tax-advantaged
equity and fixed-income investments, retirement plan accounts, IRAs, investment
accounts for single and multiple-manager variable annuities and closed-end
funds.
Delaware's Tax-Advantaged
Investment Line-up
o Tax-Efficient Equity Fund
o Municipal bond funds in 19 states
o Four national tax-exempt bond funds
o Tax-Free Money Fund
Complete information on any fund offered by Delaware Investments can be found in
each fund's current prospectus. Prospectuses for all funds offered by Delaware
Investments are available from your financial adviser. Please read the
prospectus carefully before you invest or send money.
(Photo of Keyboard)
(Photo of illustration from Tax-Exempt Income Brochure)
Fund Objectives
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
To seek as high a level of current income exempt from federal income
tax as is available from municipal bonds and as is consistent with
prudent investment management and preservation of capital.
National High Yield Municipal Bond Fund
To seek a high level of current income exempt from federal income tax
primarily through investment in a portfolio of medium and lower grade
municipal obligations.
Table of Contents
Letter to Shareholders Page 1
Portfolio Managers' Review Page 3
Tax-Free USA Fund Page 4
Tax-Free Insured Fund Page 5
Tax-Free USA Intermediate Fund Page 6
National High Yield
Municipal Bond Fund Page 7
Performance Summary Page 10
Statements of Net Assets Page 13
Financial Highlights Page 26
tax-exempt
income
tradition
<PAGE>
for tax-exempt
income
1
September 8, 1998
Dear Shareholder:
FISCAL 1998 WAS A CHALLENGING BUT rewarding time for Delaware Investments'
four national municipal bond funds. Tax-exempt bonds provided attractive returns
during a period of increased stock market volatility and global economic
uncertainty.
Since August 1997, municipal bond supplies have increased substantially in
many states, with education, health care and transportation issues leading the
way. This provided the Funds' portfolio managers ample opportunity to select
bonds with attractive yields, total return potential and favorable credit
characteristics.
We have changed National High Yield Municipal Bond Fund's fiscal year end to
August 31 to match the fiscal year end of Delaware Investments' three other
national municipal bond funds. This alignment will give you an opportunity to
easily review the performance of each Fund in one combined annual report each
November. Semi-annual reports will be provided by early May.
We are pleased to say that the total returns of National High Yield Municipal
Bond Fund and Tax-Free USA Intermediate Fund outpaced that of their respective
unmanaged benchmarks and peer group averages for the 12 months ended August 31,
1998, as shown below (for Class A shares at net asset value with distributions
reinvested). In fiscal 1998, the total return of Tax-Free USA Fund was the
highest since fiscal 1993 (for Class A shares at net asset value with
distributions reinvested).
On the pages that follow, the Funds' portfolio managers - Patrick P. Coyne
and Mitchell L. Conery -- explain the steps they
For bond
investors, the
U.S. economic
environment has
been close to ideal.
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Six Months Ended 12 Months Ended
August 31, 1998 August 31, 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tax-Free USA Fund A Class +3.03% +8.00%
Lehman Brothers Municipal Bond Index +3.44% +8.65%
Lipper General Municipal Debt Fund Average +3.03% (251 funds) +8.20% (242 funds)
- ----------------------------------------------------------------------------------------------------------
Tax-Free Insured Fund A Class +2.76% +7.57%
Lehman Brothers Insured Bond Index +3.62% +9.19%
Lipper Insured Municipal Debt Fund Average +3.02% (52 funds) +8.04% (52 funds)
- ----------------------------------------------------------------------------------------------------------
Tax-Free USA Intermediate Fund A Class +3.16% +7.34%
Merrill Lynch Three-to-Seven Year
Municipal Bond Index +3.11% +6.98%
Lipper Intermediate Municipal Debt Average +2.82% (148 funds) +7.01% (142 funds)
- ----------------------------------------------------------------------------------------------------------
National High Yield Municipal Bond Fund A Class +3.61% +9.12%
Lipper High-Yield Municipal Debt Fund Average +3.03% (55 funds) +8.62% (50 funds)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
All performance quoted above is at net asset value with distributions
reinvested. Past performance does not guarantee future results. Performance of
other classes of each Fund varies due to different charges and expenses. The
unmanaged Lehman and Merrill Lynch indexes are composed of municipal bonds with
a variety of quality ratings. Complete performance information can be found on
page 10 to 12.
<PAGE>
for tax-exempt
income
2
are taking to further increase the Funds' competitiveness within their
respective peer groups.
For bond investors, the U.S. economic environment has been close to ideal.
Domestic growth has helped many states and the federal government post budget
surpluses. Weak emerging market economies and volatile global equity markets,
meanwhile, have increased demand for fixed-income securities. U.S. consumer
inflation has been kept in check by prudent Federal Reserve Board monetary
policy, falling commodity prices and a surge in inexpensive imports.
We view the municipal debt market's current prospects as compelling,
especially when viewed against taxable fixed-income alternatives. Yields on
longer term municipal bonds averaged more than 93.8% of U.S. Treasury bonds as
of August 31, a level not seen in a decade.
Cash flows in bond mutual funds have accelerated in recent months as equity
investors have sought to diversify their portfolios and reduce their federal
income tax burden. For example, the assets of National High Yield Municipal Bond
Fund grew more than 40% in the eight months ended August 31, 1998, as shown on
page 25. This provided the Fund's portfolio managers with plenty of resources to
select new bonds.
Given today's dynamic investment environment, we strongly encourage you to
meet with your financial adviser to update your mutual fund portfolio,
especially the bond component. We appreciate the confidence you have shown in
Delaware Investments.
Sincerely,
/s/ Wayne A. Stork
- -------------------------------------
Wayne A. Stork
Chairman
/s/ Jeffrey J. Nick
- -------------------------------------
Jeffrey J. Nick
President and Chief Executive Officer
discipline
High quality municipal
bonds offered the
highest income potential
relative to Treasuries in
more than nine years at
the end of fiscal 1998.
<PAGE>
MUNICIPAL BONDS OFFER GOOD VALUE COMPARED TO TREASURIES
March 1989 to August 31, 1998)
Municipal Bond Yields/
Treasury Bond Yields,
1989 to 1998
Mar. '89 83.09%
Jun. '89 85.26%
Sep. '89 87.41%
Dec. '89 85.93%
Mar. '90 82.96%
Jun. '90 84.54%
Sep. '90 81.03%
Dec. '90 85.00%
Mar. '91 84.27%
Jun. '91 82.72%
Sep. '91 84.55%
Dec. '91 86.56%
Mar. '92 82.91%
Jun. '92 80.41%
Sep. '92 84.02%
Dec. '92 82.52%
Mar. '93 83.79%
Jun. '93 81.69%
Sep. '93 86.31%
Dec. '93 82.04%
Mar. '94 86.76%
Jun. '94 82.76%
Sep. '94 81.30%
Dec. '94 83.80%
Mar. '95 80.05%
Jun. '95 89.13%
Sep. '95 89.51%
Dec. '95 87.50%
Mar. '96 85.57%
Jun. '96 83.43%
Sep. '96 80.13%
Dec. '96 82.15%
Mar. '97 81.04%
Jun. '97 80.36%
Sep. '97 81.97%
Dec. '97 84.84%
Mar. '98 86.50%
Jun. '98 89.73%
Aug. '98 93.80%
The above chart represents the percentage of income that the average 30-year
AAA-rated general obligation bond provided compared to a 30-year U.S. Treasury
bond. Principal and interest of municipal bonds, unlike Treasuries, are not
guaranteed by the U.S. government. Source: Bloomberg Business News.
<PAGE>
for tax-exempt
income
3
Portfolio Managers' Review
By Patrick P. Coyne and Mitchell L. Conery
Vice Presidents /Senior Portfolio Managers
September 8, 1998
A remarkable rally in U.S. Treasury bond prices occurred in fiscal 1998. As of
August 31, 1998, prices had risen so much that 30-year bond yields had fallen to
5.24%, the lowest level in three decades. Just 12 months earlier, long-term
Treasuries yielded 6.61%.
As many emerging market economies have been grappling with recession and
currency devaluation, U.S. government debt has become the safe haven of choice
for overseas investors. Municipal bond prices have risen, though not nearly as
much as Treasuries. Most foreign investors do not buy America's state and local
debt because income from municipal bonds is generally not tax-exempt for
non-U.S. citizens.
Since August 1997, tax-exempt bonds have benefited from strong domestic
growth, high average credit quality and state fiscal prudence. Indeed, state tax
revenues are growing at the fastest pace in eight years in calendar 1998,
according to the Nelson A. Rockefeller Institute of Government, a think tank in
Albany, N.Y. As of mid-year, state personal income tax receipts were up 19.5%
nationwide from year ago levels.
However, a major problem facing the municipal bond market this past year was
a huge increase in new bond supplies as municipalities sought to refinance their
obligations at lower interest rates. The bond market absorbed unusually large
bond issues in many states, including New York, California and Michigan. Overall
issuance in calendar 1998 has been more than $192 billion, up nearly 44% from
year ago levels, according to The Bond Buyer, a trade publication.
Yet even with all this additional supply, municipal bonds provided excellent
returns. In fact, the Lehman Brothers Municipal Bond Index (up +3.44%)
outperformed stocks, as measured by the Standard & Poor's 500 Index (-8.08%),
for the six months ended August 31, 1998.
In our view, the strong performance of Treasuries relative to other types of
bonds during the summer of 1998 was temporary. A sharp drop in global equity
markets created unusually high demand for the safest fixed-income securities. At
current
The Lehman Brothers
Municipal Bond Index
outperformed stocks, as
measured by the Standard
& Poor's 500 Index, for
the six months ended
August 31, 1998.
market
overview
(Photo of family on beach)
<PAGE>
for tax-exempt
income
4
prices, we believe high quality, municipal bonds offer exceptional value and
relatively modest risks.
For individual investors in the highest federal tax bracket (39.6%),
medium-quality, 30-year general obligation municipal bonds provided taxable
equivalent yields of nearly 9% as of August 31. After factoring out inflation,
long-term, tax-exempt debt provided an attractive annualized real rate of return
of more than 7%.
Given the high volume of U.S. stock trading this past summer, we believe many
equity mutual fund investors could receive large capital gains distributions
this fall - and thus have higher 1998 income tax liabilities. We feel many
equity investors will see that it can be more tax savvy to reduce their
portfolios' risk profile by allocating assets to municipal bonds rather than
Treasuries. That is because, unlike Treasury income, municipal bond income does
not increase an investor's federal tax burden. With that as background, we will
now turn to a discussion of how the Funds fared in this environment.
Tax-Free USA Fund
In fiscal 1998, we successfully resolved credit quality problems that dogged
Tax-Free USA Fund's performance for almost two years. The bonds of two paper
recycling plants in Massachusetts and West Virginia that went into default in
1996 were again providing tax-exempt interest income for the Fund as of year's
end.
This good news, coupled with the Fund's historic focus on maximizing income
potential, helped us provide a competitive total return of +8.00% for the 12
months ended August 31, 1998 (for Class A shares at net asset value with
distributions reinvested). Our returns would have been about 70 basis points
higher (0.70%) - surpassing that of our benchmark -- had the paper plant bonds
(2.9% of net assets) paid interest the whole fiscal year.
Since August 1997, we have increased the Fund's average duration (sensitivity
to interest rates) by half-a-year to 6.7 years, a level just under that of the
Fund's benchmark, the unmanaged Lehman Brothers Municipal Bond Index. This
positioning allowed the Fund to benefit from rising bond prices since the spring
of 1998. Compared to
tax-free
usa
We increased Tax-Free USA Fund's average effective duration during fiscal 1998.
This allowed the Fund to benefit from a rise in bond prices.
CREDIT QUALITY
August 31, 1998
Tax-Free Tax-Free Tax-Free USA National High Yield
USA Insured Intermediate Municipal
Fund Fund Fund Bond Fund
- ------------------------------------------------------------------------------
AAA 35.8% 83.5% 54.9% 0.2%
AA 9.6% 2.7% 11.7% 2.7%
A 18.6% 4.1% 0% 3.2%
BBB 20.7% 7.2% 26.9% 24.1%
BB & B 6.3% 1.1% 6.5% 6.4%
Unrated 9.0% 1.4% 0% 63.4%
<PAGE>
for tax-exempt
income
5
(Photo of globes)
the Fund's 89 peers in Morningstar's National Intermediate Bond Fund Category
(the category where Morningstar places the Fund), Tax-Free USA's duration was
slightly longer than average as of year's end.
More than half the bonds in the Fund's portfolio had a credit rating of A or
higher as of August 31. As a rule, we keep a minimum of 80% of the Fund's assets
invested in investment grade securities (bonds with ratings of BBB or higher) at
all times.
The Fund holds bonds in more than 30 states and many sectors of the municipal
bond market. Virginia bonds joined the ranks of the Fund's five largest state
holdings as of August 31, displacing Florida, a state where we decided to sell
some issues. New issuance in Virginia rose more than 80% during the first eight
months of 1998, providing us with ample opportunity to purchase attractive bonds
at reasonable prices.
We enjoyed strong returns from transportation, hospital and pollution control
bonds in fiscal 1998. Prices of moderate quality bonds generally rose by greater
amounts than bonds of the highest quality as investors grew comfortable assuming
more credit risk to capture more income potential.
Tax-Free Insured Fund
Insured bonds sometimes benefit from falling interest rates to a greater degree
than uninsured bonds. That was not the case in fiscal 1998, however, because the
U.S. economy remained strong. Since the summer of 1997, investors' search for
higher yields has outweighed concerns about credit risk. Because insured bonds
offer less income potential, they were less in demand.
Still, Tax-Free Insured Fund provided an attractive total return of +7.57%
for the 12 months ended August 31, 1998 (for Class A shares at net asset value
with distributions reinvested).
The Fund invests primarily in municipal bonds protected by insurance issued
by private companies that guarantee the payment of principal and interest when
due.
Tax-Free Insured Fund
benefited from the fact
that an increasing
percentage of new bond
issues carried insurance.
This provided us with
ample bond selection
opportunities.
tax-free
insured
PORTFOLIO HIGHLIGHTS
August 31, 1988
National
Tax-Free Tax-Free Tax-Free USA High Yield
USA Insured Intermediate Municipal
Fund Fund Fund Bond Fund
- ------------------------------------------------------------------------------
Average Maturity 12.0 years 9.2 years 8.1 years 10.5 years
Average Duration 6.7 years 6.1 years 5.6 years 6.6 years
AMT Income* 14.17% 5.86% 7.85% 6.45%
Current 30-Day
SEC Yield**
(A Class) 4.17% 3.56% 3.75% 4.40%
(B and C Classes) 3.53% 2.91% 3.01% 3.81%***
* Amount of income subject to the federal alternative minimum tax for the
eight months ended 8/31/98.
** Calculated according to Securities and Exchange Commission guidelines.
*** C Class yield was 3.80%.
<PAGE>
for tax-exempt
income
6
We take an income-oriented investment approach and diversify the portfolio
across many states. Bond insurance reduces the risk of loss due to financial
difficulties of an issuer. Like all bonds, insured securities fluctuate in price
and are not protected from losing value. The benefit of the insurance depends on
the financial strength of the insurance company guaranteeing the bonds.
In fiscal 1998, Tax-Free Insured Fund benefited from the fact that most new
bond issues carried insurance. This provided us with ample bond selection
opportunities. Insurance companies guaranteed 51% of all bonds issued during the
first eight months of calendar 1998, according to The Bond Buyer. In some states
such as Pennsylvania nearly three-quarters of all new bonds were insured.
Tax-Free Insured Fund's total return was less than that of the unmanaged
Lehman Brothers Insured Bond Index primarily because the Fund's average duration
was slightly shorter, and because we had a poorly performing paper plant bond.
During the year, the Fund's average duration declined, primarily as a result of
appreciation of bonds in the Fund's portfolio.
Insured Washington and California bonds were among the Fund's five largest
state holdings as of year's end, displacing Texas and Massachusetts from a year
ago. These West Coast states offered attractive income and value. Investors were
worried that tax revenues in California and Washington would be significantly
affected by Asia's problems, a view we generally do not share.
Tax-Free USA Intermediate Fund
Tax-Free USA Intermediate Fund provided an above average total return of +7.34%
for the 12 months ended August 31, 1998 (for Class A shares at net asset value
with distributions reinvested).
During fiscal 1998, the extra income potential of lower quality
intermediate-term bonds, compared to higher quality bonds, narrowed
substantially. So we tended to focus on bonds of higher quality. As you can see
in the table on page 4, more than half of the Fund's portfolio as of year's end
consisted
More than half of
Tax-Free USA
Intermediate Fund's
portfolio as of
August 31, 1998
consisted of bonds with
AAA ratings, the highest
rating available.
tax-free
usa intermediate
TOP FIVE ALLOCATIONS BY STATE
August 31, 1998 (Percent of Net Assets)
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free USA National High Yield
USA Insured Intermediate Municipal
Fund Fund Fund Bond Fund
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania 11.9% Illinois 22.5% Pennsylvania 21.9% Illinois 12.7%
Massachusetts 9.1% Washington 9.6% Illinois 13.7% Pennsylvania 11.0%
Texas 6.0% California 9.1% Michigan 11.6% Alabama 8.3%
Virginia 5.9% Pennsylvania 9.1% Texas 6.5% Ohio 6.0%
Louisiana 5.8% Ohio 7.8% Oklahoma 6.0% Colorado 5.8%
</TABLE>
<PAGE>
for tax-exempt
income
7
of bonds with AAA ratings, the highest rating available. We did not own any
unrated bonds during the period.
The Fund focuses on securities with maturities of five to 10 years. During
the year the additional income potential of bonds in the upper end of this range
declined. We kept the Fund's average effective duration at 5.6 years as of
August 31, more than a year longer than it was 12 months earlier.
Still, as of August 31, 1998, Tax-Free USA Intermediate Fund's duration was
slightly shorter than that of its benchmark, the unmanaged Merrill Lynch
Three-to-Seven Year Municipal Bond Index. This reflected an effort to preserve
principal while generating a relatively attractive level of income. Our
conservative approach generated a total return that was higher than the average
of our peers and the Fund's benchmark index.
With the increased supply of bonds in the market this year, we have focused
on finding value. We tend to concentrate our efforts on states that have high
marginal income tax rates.
A huge but temporary increase in bond supply in states that historically
don't issue many bonds created opportunities to buy securities at attractive
prices. For example, Oklahoma has issued 155% more bonds in calendar 1998 than a
year ago. This past spring we added Oklahoma Turnpike bonds to the Fund's
portfolio, making Oklahoma one of the five largest states in the Fund.
National High Yield
Municipal Bond Fund
Fiscal 1998 was a rewarding year for National High Yield Municipal Bond Fund.
The Fund's Class A shares provided a strong total return of +9.12% (at net asset
value with distributions reinvested) for the 12 months ended August 31, 1998.
Not only did the Fund's fiscal year results outpace the average of its peers
and its benchmark - the unmanaged Lehman Brothers Municipal Bond Index; the
Fund's total return in fiscal 1998 was higher than the +8.10% total return of
the Standard & Poor's 500 Index for the period. This was also true for the first
eight months of
high-yield
THE POWER OF TAX-FREE COMPOUNDING
Annual Income From a $100,000 Investment
September 22, 1986 to August 31, 1988
National High Yield Municipal Bond Fund A Class
Total Income = $119,437
Period Ended
Aug. '87 $ 5,934
Aug. '88 $ 7,265
Aug. '89 $ 7,653
Aug. '90 $ 8,031
Aug. '91 $ 8,889
Aug. '92 $ 9,662
Aug. '93 $ 9,563
Aug. '94 $ 9,791
Aug. '95 $10,789
Aug. '96 $11,152
Aug. '97 $11,764
Aug. '98 $14,661
Chart assumes a $100,000 investment on September 22, 1986, a 3.0% front-end
sales charge and reinvestment of distributions. High-yield securities involve
greater risks than bonds with investment grade credit ratings. Performance of
other Fund classes differs because of different charges and expenses. See page
12 for performance and sales charge information for all Fund classes. Past
performance does not guarantee future results.
<PAGE>
for tax-exempt
income
8
calendar 1998. National High Yield Municipal Bond Fund provided a total return
of +4.87% for the period (Class A shares at net asset value with distributions
reinvested) versus a loss of 0.38% for the S&P 500.
In our view, this unusual occurrence illustrates;
1) the potential benefits of including municipal bonds as part of a portfolio
diversification strategy, and
2) the effects of emerging market economic turmoil on domestic equity
investments during the past 12 months.
Domestic high-yield municipal bond investments were relatively unaffected by
troubles from Moscow to Malaysia. In fiscal 1998, lower quality bonds provided
the highest returns among U.S. municipal securities, as default rates remained
low. This superior performance reduced the yield advantage of lower quality
bonds, making it challenging to increase National High Yield Municipal Bond
Fund's income potential without taking on more credit risk than desirable.
To maximize income potential in this environment, we extended your Fund's
average duration, or sensitivity to interest rates, by nearly two years to 6.6
years. Still, your Fund's duration as of August 31 remained half-a-year shorter
than that of its benchmark, the Lehman Brothers Municipal Bond Index.
National High Yield Municipal Bond Fund generally assumes higher-than-average
credit risk by investing in high-yield securities. We believe striking a prudent
balance between interest rate risk and credit risk puts us in a position to help
protect principal should either interest rates rise or the economy begin to
weaken.
Overall, the high-yield municipal bond market is small and fragmented,
representing less than 10% of municipal debt outstanding. We seek to add value
by focusing on a combination of large issues in selected urban areas and small,
unrated bonds issued by rural communities.
Health care bonds were one of the largest components of your Fund's portfolio
in fiscal 1998, consisting of high-yielding bonds financing hospitals and
continuing care centers. We generally seek bonds that are likely to do well as
the industry consolidates. In fact, your Fund's portfolio benefited from a major
hospital bond rating upgrade in Illinois this past spring.
During the last week of fiscal 1998, we purchased some long-term insured
municipal bonds at 97% of the yield of comparable maturity Treasury bonds.
WHY THE HIGH SUPPLY?
Top 1998 Sources of Municipal Bond Issuance
Billions of Par Value Change from 1997
- --------------------------------------------------------------------------------
General Purpose $42.6 +27%
Education $41.1 +40%
Health Care $25.8 +92%
Transportation $22.7 +68%
Utilities $13.6 +8%
Housing $12.9 +7%
Electric Power $12.3 +260%
Source: The Bond Buyer, year-to-date data through 8/31.
<PAGE>
for tax-exempt
income
9
Summary Outlook
The finances of America's municipalities are very healthy. State government
surpluses are the highest in 20 years. Many state budgets have benefited from
the interest savings generated by refinancing activity. We expect that municipal
bond supplies will ease in fiscal 1999, in part because the Internal Revenue
Service imposes limits on how often municipalities can refund their debt.
We believe municipal bond prices have the potential to outperform Treasuries
in the coming year. One reason is that the difference in yield between
high-quality municipal debt and Treasuries hasn't been this narrow since former
Sen. Robert Packwood proposed the removal of tax exemption for municipal bonds
in 1986.
Historically, municipal bond yields have averaged between 80% and 85% of
Treasury yields, making the current environment - with yields averaging more
than 93.8% - unusually attractive. In fact, during the last week of fiscal 1998,
we purchased some long-term insured municipal bonds for Tax-Free Insured Fund at
97% of the yield of comparable maturity Treasury bonds.
Overall, despite devastating economic problems in Asia and Russia, we believe
the U.S. economy is likely to continue to grow in the year ahead. We think that
if a domestic recession were likely, the difference in interest rates between
higher grade and lower grade credits in the municipal bond market would be
widening. That is not happening.
Since America's economy appears healthy, we believe municipal bonds currently
offer investors three distinct advantages over taxable bonds:
o most of the income potential of investment grade fixed-income securities;
o less risk than the equity market and the taxable corporate high-yield bond
market; and
o none of the federal income tax liability (for most taxpayers).
In fiscal 1999, we plan to position each Fund to take advantage of what we
see as an historic opportunity for savvy investors seeking to diversify their
portfolios and increase income potential without paying more taxes.
outlook
TREASURIES VS.MUNICIPAL BONDS
WHAT AN INVESTOR REALLY EARNS AFTER TAXES
(Yields as August 31, 1998)
30-Year Treasury Bond Yield Before Taxes 5.24%
30-Year AAA General Obligation Bond Yield 4.86%
30-Year Treasury Bond Yield After Taxes 3.13%
The Difference (bracket out this part of GO bond yield) 1.73%
The chart to the left shows 30-year Treasury bond yields vs. AAA rated municipal
bond yields for an investor in the 39.6% income tax bracket.
Principal and interest of municipal bonds, unlike Treasuries, are not guaranteed
by the US government. The above illustration is not intended to represent the
yield of any mutual fund from Delaware Investments.
Source: Bloomberg Business News.
<PAGE>
for tax-exempt
income
10
Performance Summary
TAX-FREE USA FUND
TAX-FREE INSURED FUND
GROWTH OF A $10,000 INVESTMENT
SEPTEMBER 1, 1998 TO AUGUST 31, 1998
<TABLE>
<CAPTION>
U.S. Consumer
Lehman Brothers Tax-Free USA Tax-Free USA Price Index
Municipal Bond Index Fund A Class Insured Fund A Class (Inflation)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aug. '88 $10,000 $ 9,626 $ 9,624 $10,000
Aug. '89 $11,098 $10,699 $10,905 $10,471
Aug. '90 $11,812 $11,178 $11,195 $11,059
Aug. '91 $13,205 $12,506 $12,450 $11,479
Aug. '92 $14,679 $13,996 $13,724 $11,840
Aug. '93 $16,470 $15,628 $15,024 $12,168
Aug. '94 $16,493 $15,860 $15,105 $12,521
Aug. '95 $17,955 $16,929 $16,062 $12,849
Aug. '96 $18,896 $17,253 $16,684 $13,216
Aug. '97 $20,642 $18,597 $18,030 $13,513
Aug. '98 $22,487 $20,061 $19,373 $13,741
</TABLE>
Chart assumes a $10,000 investment on September 1, 1988, a 3.75% front-end sales
charge and reinvestment of distributions. Performance of other classes of each
Fund will vary due to different charges and expenses.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE USA FUND
- ---------------------------------------------------------------------------------------------------------------
Average Annual Returns Through August 31, 1998
Lifetime Ten Years Five Years One Year
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (Est. 1/11/84)
Excluding Sales Charge +9.26% +7.63% +5.15% +8.00%
Including Sales Charge +8.98% +7.22% +4.35% +3.92%
- ---------------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +5.17% +7.15%
Including Sales Charge +4.79% +3.15%
- ---------------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +4.51% +7.15%
Including Sales Charge +4.51% +6.15%
TAX-FREE INSURED FUND
- ----------------------------------------------------------------------------------------------------------------
Average Annual Returns Through August 31, 1998
Lifetime Ten Years Five Years One Year
- ---------------------------------------------------------------------------------------------------------------
Class A (Est. 3/25/85)
Excluding Sales Charge +7.95% +7.26% +5.24% +7.57%
Including Sales Charge +7.64% +6.85% +4.43% +3.54%
- ---------------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +5.62% -- -- +6.72%
Including Sales Charge +5.23% -- -- +2.72%
- ---------------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +5.01% -- -- +6.72%
Including Sales Charge +5.01% -- -- +5.72%
</TABLE>
Please turn to page 12 for important additional information. All performance
includes reinvestment of distributions and applicable sales charges as described
on page 12. Past performance is not a guarantee of future results. Return and
share value fluctuate so that shares, when redeemed, may be worth more or less
than their original cost.
<PAGE>
for tax-exempt
income
11
TAX-FREE USA INTERMEDIATE FUND
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
January 7, 1993 to August 31, 1998
Merrill Lynch
Tax-Free USA Three-to-Seven
Intermediate Year Municipal US Consumer Index
Fund A Class Bond Index (Inflation)
------------ -------------- -----------------
Jan. '93 $ 9,728 $10,000 $10,000
Aug. '93 $10,676 $10,572 $10,154
Aug. '94 $10,899 $10,771 $10,449
Aug. '95 $11,599 $11,502 $10,722
Aug. '96 $12,123 $11,927 $11,029
Aug. '97 $12,920 $12,680 $11,276
Aug. '98 $13,852 $13,566 $11,445
Chart assumes a $10,000 investment on January 7, 1993, a 2.75% front-end sales
charge and reinvestment of distributions. Performance of other Fund classes
differs because of different charges and expenses.
TAX-FREE USA INTERMEDIATE FUND
- --------------------------------------------------------------------------------
Average Annual Returns Through August 31, 1998
Lifetime Five Years One Year
- -------------------------------------------------------------------------
Class A (Est. 1/7/93)
Excluding Sales Charge +6.48% +5.37% +7.34%
Including Sales Charge +5.96% +4.79% +4.35%
- -------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +5.45% +6.43%
Including Sales Charge +5.45% +4.43%
- -------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +5.05% +6.43%
Including Sales Charge +5.05% +5.43%
See page 12 for important information. All performance includes reinvestment of
distributions and sales charges as described on page 12. Past performance does
not guarantee future results. Return and share value fluctuate so that shares,
when redeemed, may be worth or less than their original cost.
<PAGE>
for tax-exempt
income
12
NATIONAL HIGH YIELD MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment
September 1, 1988 to August 31, 1998
National High US Consumer
Yield Municipal Lehman Brothers Price Index
Bond Fund A Class Municipal Bond Index (Inflation)
Aug. '88 $ 9,627 $10,000 $10,000
Aug. '89 $10,674 $11,098 $10,471
Aug. '90 $11,308 $11,812 $11,059
Aug. '91 $12,501 $13,205 $11,479
Aug. '92 $13,982 $14,679 $11,840
Aug. '93 $15,593 $16,470 $12,168
Aug. '94 $15,867 $16,493 $12,521
Aug. '95 $17,099 $17,955 $12,849
Aug. '96 $18,333 $18,896 $13,216
Aug. '97 $20,206 $20,642 $13,513
Aug. '98 $22,053 $22,427 $13,741
Chart assumes a $10,000 investment on September 1, 1988, a 3.75% front-end sales
charge and reinvestment of distributions. High yield securities involve greater
risks than bonds with investment grade credit ratings. Performance of other Fund
classes differs because of different charges and expenses.
NATIONAL HIGH YIELD MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Average Annual Returns Through August 31, 1998
Lifetime Ten Years Five Years One Year
- -------------------------------------------------------------------------------
Class A (Est. 9/22/86)
Excluding Sales Charge +8.18% +8.67% +7.23% +9.12%
Including Sales Charge +7.83% +8.26% +6.42% +5.05%
- -------------------------------------------------------------------------------
Class B (Est. 12/18/96)
Excluding Sales Charge +8.51% +8.40%
Including Sales Charge +6.28% +4.40%
- -------------------------------------------------------------------------------
Class C (Est. 5/26/97)
Excluding Sales Charge +9.08% +8.49%
Including Sales Charge +9.08% +7.49%
All results assume reinvestment of distributions. The Funds' return and share
value fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Past performance is not a guarantee of future results. For
B and C shares, lifetime performance excluding sales charge assumes the
investment was either not redeemed or that contingent sales charges did not
apply. Each Fund may invest in municipal securities that generate income subject
to the federal alternative minimum tax.
Voluntary expense limitations were in effect for Tax-Free USA Intermediate Fund
and National High Yield Municipal Bond Fund for the periods shown. Returns would
have been lower without the limitations.
Class A returns for all Funds except Tax-Free USA Intermediate Fund reflect the
effect of a 3.75% front-end sales charge and, for periods after 6/1/92, a 12b-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 have a front-end sales charge, but are subject to a 1%
annual distribution and service fee. All Funds are subject to a deferred sales
charge of up to 4% if redeemed before the end of the sixth year except Tax-Free
USA Intermediate Fund, which has a 2% deferred sales charge if redeemed before
the end of the third year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
<PAGE>
for tax-exempt income 13
Financial Statements
Delaware Group Tax-Free Fund, Inc.
Tax-Free USA Fund
Statement of Net Assets
August 31, 1998
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS - 103.11%
Continuing Care/Retirement Revenue Bonds - 1.20%
Clark County, Nevada Assisted Living Homestead
Boulder City Project/ Volunteers of America
6.50% 12/01/27 .................................. $ 500,000 $ 520,175
Delaware County, Pennsylvania Authority Revenue
Main Line & Haverford Nursing Home
9.00% 08/01/22 .................................. 1,975,000 2,297,537
Delaware State Economic Development Authority
First Mortgage Peninsula United Methodist
Series A 6.20% 05/01/15 ......................... 4,000,000 4,226,560
Delaware State Economic Development Authority
Unrefunded Balance First Mortgage Peninsula
United Methodist Series A 8.50% 05/01/22 ........ 455,000 510,337
-----------
7,554,609
-----------
General Obligation Bonds - 4.27%
Florida State Board of Education Capital Outlay
Unrefunded Balance Series A
7.25% 06/01/23 .................................. 2,445,000 2,621,749
New York City, New York Unrefunded Balance
Series E 6.00% 08/01/26 ......................... 9,220,000 9,940,820
New York City, New York
Series H 6.125% 08/01/25 ........................ 10,000,000 10,902,600
Texas State General Obligation (Veteran's Land Bank)
7.40% 12/01/20 .................................. 3,000,000 3,260,670
-----------
26,725,839
-----------
Higher Education Revenue Bonds - 4.06%
District of Columbia Higher Education Revenue
(Georgetown University)
Series B 7.15% 04/01/21 ......................... 7,000,000 7,256,690
Missouri State Health and Educational Facilities
Authority (Washington University)
4.75% 11/15/37 .................................. 15,000,000 14,160,900
St. Lawrence County New York Industrial
Development Civic Facilities Revenue
St Lawrence University Project Series A
5.00% 07/01/28 .................................. 3,000,000 2,985,960
Winston Salem State University Revenue
University of North Carolina Housing and
Dining System Series B
5.00% 01/01/17 (MBIA) ........................... 1,000,000 1,003,940
-----------
25,407,490
-----------
Hospital Revenue Bonds - 4.19%
Louisiana Public Facilities Authority Hospital
Revenue (Southern Baptist Hospital, Inc.)
(Escrowed to Maturity) 8.00% 05/15/12 .......... 8,860,000 10,902,141
Monroeville, Pennsylvania Hospital Authority
(Forbes Health System) 7.00% 10/01/13 .......... 3,000,000 2,983,770
<PAGE>
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds (Continued)
Philadelphia Hospital & Higher Education Facilities
Authority Hospital Revenue
(Jeanes Health System Project)
5.875% 07/01/17 ................................ $ 4,575,000 $ 4,793,090
6.85% 07/01/22 ................................. 7,000,000 7,580,510
-----------
26,259,511
-----------
Housing Revenue Bonds - 6.79%
Alaska State Housing Finance Corp Collateralized
Mortgage Obligation Series A
7.05% 06/01/25 (GNMA/FNMA) ..................... 880,000 942,330
Dade County Housing Finance Authority Single
Family Mortgage 6.70% 04/01/28
(GNMA/FNMA) AMT ................................ 4,500,000 4,878,225
Illinois Housing Development Authority
Subseries A2 (Homeowner Mortgage)
7.125% 8/01/26 ................................. 1,200,000 1,322,400
Massachusetts State Housing Finance Agency
Residential Development Series C
6.875% 11/15/11(FNMA) .......................... 2,955,000 3,244,826
Massachusetts State Housing Finance Agency
Revenue Family Mortgage
6.95% 06/01/16 ................................. 2,500,000 2,681,025
Montgomery County, Pennsylvania Redevelopment
Authority Multi-Family Housing Revenue
(KBF Associates L.P.) 7.25% 07/01/25 ........... 5,000,000 5,346,250
Tennessee Housing Development Agency
Series B 6.60% 07/01/25 AMT .................... 2,610,000 2,813,711
Utah State Housing Finance Agency, Single Family
Mortgage Series A 7.20% 01/01/27
(FHA/VA) AMT ................................... 2,020,000 2,203,780
Virginia State Housing Development Authority
Series A 7.10% 01/01/25 ........................ 7,500,000 7,977,750
Series B 6.80% 01/01/27 AMT .................... 6,500,000 6,871,800
Wisconsin Housing & Economic Development
Authority Home Ownership Series B
6.75% 09/01/25 AMT ............................. 3,950,000 4,267,383
-----------
42,549,480
-----------
Pollution Control Revenue Bonds - 14.39 %
Claiborne County, Mississippi
System Energy Resources Inc. ...................
7.30% 05/01/25 ................................. 3,000,000 3,168,600
8.25% 06/01/14 ................................. 7,365,000 7,759,911
Clark County, Nevada Industrial Development
Revenue (Nevada Power Co. Project) Series C
7.20% 10/01/22 ................................. 9,000,000 9,971,100
<PAGE>
14 for tax-exempt income
Tax-Free USA Fund
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
Pollution Control Revenue Bonds (Continued)
Illinois Development Finance Authority
(Central Illinois Public Service Co.)
Series A 7.60% 03/01/14 ...................... $ 6,000,000 $ 6,408,000
Michigan State Strategic Fund Limited
Obligation Revenue Refunding Detroit Edison
Series A 5.55% 09/01/29 AMT .................. 5,000,000 5,009,150
New Hampshire State Business Finance Authority
Pollution Control Revenue Refunding Public
Service Company Series D
6.00% 05/01/21 AMT ........................... 3,000,000 3,077,760
Nez Perce County, Idaho Refunding (Potlatch Corp
Project) 6.00% 10/01/24 ...................... 7,000,000 7,542,780
Parish of Saint Charles, Louisiana
(Louisiana Power & Light Co.)
8.25% 06/01/14 ............................... 1,350,000 1,425,897
Parish of West Feliciana, Louisiana
(Gulf States Utilities Co. Project)
Series A 7.50% 05/01/15 ...................... 22,700,000 25,420,141
Petersburg, Indiana
(Indianapolis Power & Light Co. Project)
6.625% 12/01/24 .............................. 9,350,000 10,507,437
Sabine River Authority Texas
(Southwestern Electric Power)
6.10% 04/01/18 (MBIA) ........................ 4,000,000 4,369,360
Sweetwater County, Wyoming Pollution Control
Revenue (Idaho Power Company) Series A
6.05% 07/15/26 ............................... 5,000,000 5,419,100
-----------
90,079,236
-----------
Power Authority Revenue Bonds - 7.72%
**Georgia Municipal Electric Authority Series L
6.20% 01/01/09 ............................... 5,000,000 2,904,250
**Intermountain Power Agency, Utah Series 87D
Power Supply Revenue 7.07% 07/01/20 .......... 95,575,000 16,369,130
Lower Colorado River Authority, Texas Series B
6.00% 01/01/15 (AMBAC) ....................... 5,000,000 5,172,550
Northern Municipal Power Agency, Minnesota
Electric System Revenue Series A
5.00% 01/01/21 ............................... 8,500,000 8,398,000
Puerto Rico Electric Power Authority Series EE
4.75% 07/01/24 ............................... 16,200,000 15,501,942
-----------
48,345,872
-----------
*Pre-Refunded - 20.69%
City of Chicago, Illinois Skyway Toll Bridge
Revenue 6.75% 01/01/17-04 .................... 3,300,000 3,767,643
Delaware State Economic Development Authority
Peninsula United Methodist First Mortgage
Series A 8.50% 05/01/22-02 ................... 3,045,000 3,574,617
Florida State Board of Education Series A
Prerefunded Balance 7.25% 06/01/23-00 ........ 2,555,000 2,755,951
Kentucky State Turnpike Authority
7.25% 05/15/10-00 ............................ 8,000,000 8,580,001
Massachusetts State General Obligation
7.50% 12/01/07-00 ............................ 6,615,000 7,277,492
<PAGE>
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
*Pre-Refunded (Continued)
Massachusetts State Water Resource
Authority Series A
7.00% 04/01/18-00 ............................. $ 14,510,000 $ 15,529,182
7.50% 04/01/09-00 ............................. 1,080,000 1,164,067
7.50% 04/01/16-00 ............................. 7,300,000 7,868,232
Michigan State Hospital Finance Authority
Revenue (Genesys Health Systems) Series A
7.500% 10/01/27-05 ............................ 8,130,000 9,812,910
8.125% 10/01/21-05 ............................ 4,000,000 5,026,160
Minnesota Public Facilities Authority (Water
Pollution Control) Series A
7.10% 03/01/12-00 ............................. 4,000,000 4,276,560
New Hampshire State Turnpike System Revenue
7.375 04/01/12-00 ............................. 3,000,000 3,225,420
7.40% 04/01/20-00 ............................. 11,675,000 12,556,696
New York City, New York Prerefunded Series E
6.00% 8/01/26-06 .............................. 780,000 879,247
New York City Municipal Water Finance
Authority, New York Water & Sewer System
Revenue Series A 6.00% 06/15/20-00 ............ 1,675,000 1,740,191
Philadelphia Hospital & Higher Education
Facilities Authority Hospital Revenue
(Albert Einstein Medical Center)
7.625% 04/01/11-99 ............................ 15,000,000 15,642,450
Salt River Project Agricultural Improvement &
Power District Electric System
Revenue (Arizona) Series A 7.25%
01/01/19-00 ................................... 2,750,000 2,930,510
Tampa, Florida (Florida Aquarium Project)
7.75% 05/01/27-02 ............................. 20,000,000 22,971,400
------------
129,578,729
------------
Solid Waste Disposal Revenue Bonds - 6.75%
Ashland, Kentucky Waste Water Treatment
Sewer & Solid Waste Revenue (Ashland,
Inc. Project) 7.125% 02/01/22 AMT ............. 13,200,000 14,898,444
Marion County, West Virginia Solid Waste
Disposal Facility Revenue-Adirondack
Recycling
Series A 8.00% 12/01/25 ....................... 7,602,661 7,602,661
Series B 10.00% 12/01/25 AMT .................. 1,069,392 1,069,392
+Massachusetts State Industrial Finance Agency
Solid Waste Disposal Revenue Senior Lien
(Massachusetts Recycling Associates)
Series A 9.00% 08/01/16 AMT ................... 32,000,000 11,648,000
Pennsylvania Economic Development Financing
Authority Wastewater Treatment
(Sun Co. R & M Project)
Series A 7.60% 12/01/24 AMT ................... 6,000,000 7,021,320
------------
42,239,817
------------
Transportation Revenue Bonds - 19.40%
Atlanta, Georgia Special Purpose Facilities
Revenue (Delta Airlines Project) Series A
7.50% 12/01/19 ................................ 1,500,000 1,584,540
Bi-State Development Agency Missouri/Illinois
Metropolitan District Saint Clair
County MetrolinkExtension Series A 5.00%
07/01/28 (MBIA) ............................... 2,000,000 1,981,480
<PAGE>
for tax-exempt income 15
TAX-FREE USA FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
Transportation Revenue Bonds (Continued)
Chicago, Illinois Midway Airport Revenue
Series A 5.125% 01/01/35 (MBIA) AMT ............ $ 10,000,000 $ 9,829,300
Series B 5.00% 01/01/31 (MBIA) ................. 10,000,000 9,795,200
Connector 2000 Assn Inc. South Carolina Toll Road
Revenue Senior (Southern Connector Project)
Series A 5.375% 01/01/38 ....................... 4,000,000 3,737,480
Dallas-Fort Worth, Texas Intl. Airport Facilities
Improvement (American Airlines Inc.)
7.50% 11/01/25 AMT ............................. 8,250,000 8,901,668
Foothill/Eastern Transportation Corridor Agency
California Toll Road Revenue Senior Lien
Series A 6.00% 01/01/34 ........................ 20,000,000 21,375,200
Kenton County, Kentucky Airport Board Special
Facilities (Delta Airlines Project) Series A
Series A 7.50% 02/01/12 ........................ 2,000,000 2,215,320
Series B 7.25% 02/01/22 ........................ 4,250,000 4,655,960
Massachusetts State Turnpike Authority
Metropolitan Highway System Revenue Series A
5.00% 01/01/37 ................................. 10,000,000 9,881,500
Oklahoma State Turnpike Authority 1st Senior
6.00% 01/01/22 ................................. 7,465,000 7,512,552
6.00% 01/01/22 (Escrowed to Maturity) .......... 13,535,000 15,631,572
Philadelphia, Pennsylvania Authority for
Industrial Development Airport Revenue Systems
Project Series A 5.125% 07/01/28
(FGIC) AMT ..................................... 12,600,000 12,475,512
Puerto Rico Commonwealth Highway & Transportation
Authority (Highway Improvements) Series Y
5.00% 07/01/36 ................................. 3,000,000 3,006,840
5.50% 07/01/36 ................................. 3,000,000 3,219,570
Tulsa, Oklahoma Municipal Airport (American Airlines)
7.35% 12/01/11 ................................. 5,000,000 5,594,300
------------
121,397,994
------------
Water & Sewer Revenue Bonds - 3.69%
Fulton County Georgia Water and Sewer
4.75% 01/01/28 (FGIC) .......................... 6,000,000 5,761,200
Harrison County Mississippi Wastewater Management
& Solid Waste 4.75% 02/01/27 (FGIC) ............ 10,000,000 9,520,600
Melrose Park Illinois Water Revenue - Series A
5.00% 07/01/20 (MBIA) .......................... 2,400,000 2,380,944
North Jersey District Water Supply
(Wanaque North Project) Series A
5.125% 11/15/21 (MBIA) ......................... 850,000 859,690
<PAGE>
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
Water & Sewer Revenue Bonds (Continued)
Texas Water Resources Finance Authority Revenue
7.50% 08/15/13 (AMBAC) ......................... $ 1,155,000 $ 1,196,441
Titusville Florida Water and Sewer
4.75% 10/01/24 (MBIA) .......................... 3,500,000 3,353,595
------------
23,072,470
------------
Other Revenue Bonds - 9.96%
Alliance, Texas Special Facilities Revenue
(Federal Express Corp. Project)
6.375% 04/01/21 AMT ............................ 6,000,000 6,517,920
Harris County Houston Texas Sports Authority
Special Revenue Senior Lien Series A
5.00% 11/15/25 (MBIA) AMT ...................... 10,000,000 9,867,500
Indianapolis, Indiana Airport Authority Special
Facilities (Federal Express Corp. Project)
7.10% 01/15/17 AMT ............................. 7,800,000 8,795,436
Luzerne County Industrial Development Authority
(Pennsylvania Gas & Water Co. Project) Series A
7.00% 12/01/17 AMT ............................. 4,000,000 4,606,440
Luzerne County, Pennsylvania Flood Protection
Authority (County - Guaranteed) Series A
5.00% 01/15/23 ................................. 5,000,000 4,985,750
Metropolitan Pier & Exposition Authority Illinois
Hospitality Facilities Revenue -
McCormick PL Convention
6.25% 07/01/17 ................................. 3,300,000 3,602,313
Rappahannock, Virginia Regional Jail
5.00% 12/01/30 ................................. 4,000,000 3,955,440
Richmond, Virginia Public Utility Revenue Refunding
Series A 5.125% 01/15/28 ....................... 20,000,000 20,058,600
------------
62,389,399
------------
Total Municipal Bonds (cost $606,599,390) ......... 645,600,446
------------
+Variable Rate Notes - 1.83%
Allegheny County, Pennsylvania Industrial
Development Authority Revenue
(Eye & Ear Properties Corp) (LOC, PNC Bank)
3.35% 01/01/15 ................................. 5,250,000 5,250,000
Pennsylvania State Turnpike Commission Revenue
Series Q (Stand by Purchase Agreement,
Mellon Bank, NA) 3.35% 06/01/28 ................ 6,200,000 6,200,000
------------
Total Variable Rate Notes
(cost $11,450,000) ............................. 11,450,000
------------
<PAGE>
16 for tax-exempt income
Tax-Free USA Fund
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES - 104.94%
(COST $618,049,390) ............................. $657,050,446
LIABILITIES NET OF RECEIVABLES
AND OTHER ASSETS - (4.94%) ...................... (30,940,974)
-------------
NET ASSETS APPLICABLE TO 49,604,980 TAX-FREE USA
FUND CLASS A SHARES, 3,120,645 TAX-FREE USA
FUND CLASS B SHARES AND 198,066 TAX-FREE USA
FUND CLASS C SHARES ($0.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $11.83
PER SHARE - 100.00% ............................. $626,109,472
=============
- ----------------------
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
each bond is pre-refunded.
**The interest rate shown for this security is the effective
yield.
+Security in default.
++Variable Rate Notes - The interest rate shown is the rate as of
August 31, 1998.
AMBAC - Insured by the AMBAC Indemnity Corporation
AMT - Subject to Federal Alternative Minimum Tax
FHA/VA - Insured by the Federal Housing Association/Veterans
Association
FGIC - Insured by the Financial Guaranty Insurance Company
FNMA - Insured by the Federal National Mortgage Association
GNMA - Insured by the Government National Mortgage Association
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT AUGUST 31, 1998:
Common stock, $0.01 par value, 500,000,000 shares authorized to
the Tax-Free USA Fund ...................................... $587,784,122
Accumulated net realized loss on investments .................. (675,706)
Net unrealized appreciation of investments .................... 39,001,056
-------------
Total net assets .............................................. $626,109,472
=============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE USA FUND A CLASS
Net asset value A Class (A) ................................... $11.83
Sales charge (3.75% of offering price or 3.89% of amount
invested per share) (B) .................................... 0.46
------
Offering price ................................................ $12.29
======
- ----------------------
(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 Buy Shares in the current Prospectus for purchases of $100,000
or more.
See accompanying notes
<PAGE>
Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Statement of Net Assets
August 31, 1998
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS - 99.12%
General Obligation Bonds - 0.23%
Oak Hills, Ohio School District
5.125% 12/01/25 (MBIA) ......................... $180,000 $181,341
------------
181,341
------------
Higher Education Revenue Bonds - 6.45%
California Educational Facilities Authority Revenue
(LA College Chiropractic) 5.60% 11/01/17 ....... 1,000,000 1,029,200
Massachusetts State Health & Educational Facilities
Authority (Boston College) Series J
6.625% 07/01/21 (FGIC) ......................... 2,500,000 2,719,050
Massachusetts State Industrial Finance Agency
Revenue Higher Education (Clark University
Project) 6.10% 07/01/16 ........................ 1,250,000 1,339,588
------------
5,087,838
------------
Hospital Revenue Bonds - 9.86%
Fort Wayne, Indiana Hospital Authority
Parkview Memorial Hospital Inc.
6.40% 11/15/22 (MBIA) .......................... 2,250,000 2,463,615
Monroeville, Pennsylvania Hospital Authority
Hospital Revenue (Forbes Health System)
7.00% 10/01/03 ................................. 865,000 871,150
Wisconsin State Health & Education Facilities Authority
(Sisters Of The Sorrowful Mother) Series A
5.70% 08/15/26 (MBIA) .......................... 4,200,000 4,440,408
------------
7,775,173
------------
Housing Revenue Bonds - 10.25%
California Housing Finance Agency Series B
6.85% 08/01/23 (MBIA) .......................... 3,860,000 4,123,792
Illinois Development Finance Authority
Revenue Refunding Mortgage Federal
Housing Authority Section 8 Series A
5.80% 07/01/28 (MBIA) .......................... 2,790,000 2,893,787
New Mexico Mortgage Finance Authority
Single Family Mortgage Program
Series C 6.20% 07/01/26 (GNMA/FNMA) ............ 1,000,000 1,066,340
------------
8,083,919
------------
Lease/Certificate of Participation - 2.14%
Hillsborough County, Florida School Board
Certificates of Participation Master Lease Program
5.00% 07/01/23 Series A (MBIA) ................. 200,000 198,300
Miami-Dade County, Florida School Board
Certificates of Participation Series A
5.00% 08/01/26 (AMBAC) ......................... 1,500,000 1,486,560
------------
1,684,860
------------
Pollution Control Revenue Bonds - 13.55%
Jefferson County, Arkansas Pollution Control
(Entergy Arkansas Inc. Project)
5.60% 10/01/17 ................................. 1,000,000 1,016,740
<PAGE>
for tax-exempt income 17
TAX-FREE INSURED FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
*Pollution Control Revenue Bonds (Continued)
Northampton County, Pennsylvania Industrial
Development Authority
(Citizens Utilities Co.) 6.95% 08/01/15 .......... $1,000,000 $1,068,990
Ohio State Air Quality Development Authority
(Ohio Edison) Series A 7.45% 03/01/16
(FGIC) ........................................... 2,000,000 2,135,920
Ohio State Air Quality Development Authority
Revenue JMG Funding LTD Partnership Project
5.625% 10/01/22 (AMBAC) AMT ...................... 35,000 37,163
Salem County, New Jersey Industrial Pollution Control
Financing Authority
(Public Service Electric & Gas Co.)
Series D 6.55% 10/01/29 (MBIA) ................... 4,000,000 4,526,960
Trinity River Authority, Texas Pollution Control
Revenue (Texas Instruments Inc. Project)
6.20% 03/01/20 AMT ............................... 1,750,000 1,892,643
------------
10,678,416
------------
Power Authority Revenue Bonds - 4.00%
Austin, Texas Combined Utilities System Revenue
6.00% 05/15/15 (FGIC) ............................ 185,000 190,028
Central Valley Financing Authority California
Cogeneration Project Revenue Refunding
(Carson Ice-General Project)
5.00% 07/01/18 (MBIA) ............................ 2,000,000 1,984,940
Gastonia, North Carolina Combined Utilities System
4.75% 05/01/19 (MBIA) ............................ 1,000,000 975,510
------------
3,150,478
------------
*Pre-Refunded Bonds - 26.38%
Allegheny County, Pennsylvania Sanitation Authority
7.50% 12/01/16-99 (FGIC) ......................... 750,000 771,968
Austin, Texas Revenue
Series A 6.00% 05/15/15-00 (FGIC) ................ 1,090,000 1,131,420
Chicago, Illinois Public Building Commission
(Chicago Board of Education) Series A
7.75% 01/01/06-99 (FGIC) ......................... 500,000 516,750
Louisiana Public Facilities Authority Health &
Education Capital Facilities Revenue (Our Lady of
the Lake Regional Medical Center)
8.20% 12/01/15-98 (BIGI) ......................... 800,000 823,856
Michigan State Hospital Finance Authority Revenue
Series A (Genesys Health Systems)
7.50% 10/01/27-05 ................................ 1,500,000 1,810,500
Ohio State Turnpike Commission Series A
5.50% 02/15/26-06 (MBIA) ......................... 1,115,000 1,169,390
Regional Transportation Authority Illinois Revenue
Series D 6.75% 06/01/25-04 (FGIC) ................ 7,970,000 9,166,854
<PAGE>
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
*Pre-Refunded Bonds (Continued)
Seattle, Washington Municipality Metropolitan
Seattle Sewer Revenue Series U
6.60% 01/01/32-01 (FGIC) ......................... $5,000,000 $5,403,850
------------
20,794,588
------------
Transportation Revenue Bonds - 10.45%
Chicago, Illinois O'Hare International Airport Senior
Lien Series A 5.00% 01/01/16 (MBIA) .............. 5,000,000 5,020,950
Philadelphia Pennsylvania Authority For
Industrial Development Airport Revenue Systems
Project Series A 5.125% 07/01/28
(FGIC) AMT ....................................... 3,250,000 3,217,890
------------
8,238,840
------------
Water & Sewer Revenue Bonds - 0.63%
Peace River/Manasota Regional Water Supply
Authority Florida Series A
5.00% 10/01/28 (MBIA) ............................ 500,000 500,400
------------
500,400
------------
Other Revenue Bonds - 15.18%
Alliance, Texas Special Facilities Revenue
(Federal Express Corp. Project)
6.375% 04/01/21 AMT .............................. 1,000,000 1,086,320
Broward County, Florida Port Facilities
Revenue Series B
5.00% 09/01/27 (MBIA) ............................ 1,000,000 983,450
Dayton, Ohio Special Facilities Revenue
(Air Freight) Series F 6.05% 10/01/09 ............ 2,370,000 2,569,104
Luzerne County Industrial Development Authority
(Pennsylvania Gas & Water Co. Project)
7.00% 12/01/17 (AMBAC) AMT ....................... 1,000,000 1,151,610
Maine Finance Authority Revenue Electric
Rate Stabilization (Penobscot Energy) Series A
5.00% 07/01/18 (FSA) ............................. 2,000,000 1,997,360
+Massachusetts State Industrial Finance Agency
Solid Waste Disposal Revenue Senior Lien
(Massachusetts Recycling Associates Project)
Series A 9.00% 08/01/16 AMT ...................... 3,000,000 1,092,000
Village Center Community Development District
Florida Recreational, Refunding Series A
5.00% 11/01/21 (MBIA) ............................ 1,000,000 1,000,780
Washington State Housing Finance Commission
Nonprofit (VA Mason Research Center Project)
Series A 5.70% 01/01/24
(LOC US Bank Trust N.A.) ......................... 2,000,000 2,088,120
------------
11,968,744
------------
Total Municipal Bonds (cost $73,709,940) ............ 78,144,597
------------
<PAGE>
18 for tax-exempt income
Tax-Free Insured Fund
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES - 99.12%
(cost $73,709,940) .......................................... $78,144,597
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 0.88% ........ 690,166
------------
NET ASSETS APPLICABLE TO 6,656,318 TAX-FREE
INSURED FUND CLASS A SHARES, 382,593 TAX-FREE
INSURED FUND CLASS B SHARES, AND 28,742 TAX-FREE
INSURED FUND CLASS C SHARES ($0.01 PAR VALUE)
OUTSTANDING; EQUIVALENT TO $11.15
PER SHARE - 100.00% ......................................... $78,834,763
============
- ----------------------
*For Pre-Refunded Bonds, the stated maturity is followed by the
year in which each bond is pre-refunded.
+Security in default
AMBAC - Insured by the AMBAC Indemnity Corporation
AMT - Subject to Federal Alternative Minimum Tax
BIGI - Insured by the Bond Investors Guaranty Insurance Company
FGIC - Insured by the Financial Guaranty Insurance Company
FNMA - Insured by the Federal National Mortgage Association
FSA - Insured by Financial Security Assurance
GNMA - Insured by the Government National Mortgage Association
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT AUGUST 31, 1998:
Common stock, $0.01 par value, 500,000,000 shares authorized to
the Tax-Free Insured Fund ................................... $73,651,631
Accumulated net realized gain on investments ................... 748,475
Net unrealized appreciation of investments ..................... 4,434,657
-----------
Total net assets $78,834,763
===========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE INSURED FUND A CLASS
Net asset value A Class (A) .................................... $11.15
Sales charge (3.75% of offering price or 3.86% of amount
invested per share) (B) ..................................... 0.43
-----------
Offering price ................................................. $11.58
===========
- ----------------------
(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 Buy Shares in the current Prospectus for purchases
of $100,000 or more.
See accompanying notes
<PAGE>
Delaware Group Tax-Free Fund, Inc. -
Tax-Free USA Intermediate Fund
Statement of Net Assets
August 31, 1998
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS - 102.49%
Convention Center/Stadium Revenue
Bonds - 2.01%
Metropolitan Pier & Exposition Authority Illinois
Hospitality Facilities - McCormick PL Convention
5.75% 07/01/06 .................................. $500,000 $531,995
------------
531,995
------------
Higher Education Bonds - 7.63%
Massachusetts State Industrial Finance Agency
Western New England College
5.00% 07/01/28 (AMBAC) .......................... 1,000,000 983,180
Virginia College Building Authority
(University of Richmond Project)
6.40% 11/01/22 .................................. 1,000,000 1,037,490
------------
2,020,670
------------
Highway Revenue Bonds - 13.44%
Dunes, Florida Community Development District-
Intracoastal Waterway Bridge (ITT Industries
Corporation)
5.50% 10/01/07 .................................. 825,000 866,852
*Foothill/Eastern Transportation Corridor Agency
California Toll Road Revenue Senior Lien Series A
6.01% 01/01/05 .................................. 1,500,000 1,115,190
Oklahoma State Turnpike Authority Turnpike Revenue
Second Senior Series A
5.50% 01/01/06 (FGIC) ........................... 1,450,000 1,578,237
------------
3,560,279
------------
Hospital Revenue Bonds - 3.81%
Illinois Health Facilities Authority Revenue
Refunding Midwest Physician Group Limited
5.375% 11/15/08 ................................. 1,000,000 1,010,480
------------
1,010,480
------------
Housing Revenue Bonds - 18.69%
Iowa Finance Authority MultiFamily Housing
Forest Glen Apartments Project
Series A 5.60% 11/01/22 (FNMA) .................. 755,000 778,979
Maryland State Community Development
Administration Department Of Housing &
Community Development
(Single Family Program) 6th Series
5.90% 04/01/01 .................................. 1,000,000 1,044,820
Montgomery County, Pennsylvania Redevelopment
Authority Multifamily Housing Revenue
(KBF Associates) 6.00% 07/01/04 ................. 2,000,000 2,081,420
Palatine, Illinois MultiFamily Housing
(Prairiebrook Project) Series A
5.50% 12/01/06 (FNMA) ........................... 1,000,000 1,047,120
------------
4,952,339
------------
<PAGE>
for tax-exempt income 19
Tax-Free USA Intermediate Fund
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
Industrial Development Revenue
Bonds - 5.68%
New York City, New York Industrial Development
Agency Civic Facility Revenue
YMCA Greater NY Project 5.40% 08/01/04 ........... $1,440,000 $1,503,518
------------
1,503,518
------------
Power Authority Revenue Bonds - 4.05%
New Madrid, Missouri Power Plant
5.65% 06/01/03 (AMBAC) ........................... 1,000,000 1,072,380
------------
1,072,380
------------
School District General Obligation
Bonds - 4.01%
Philadelphia, Pennsylvania School District Series A
6.25% 05/15/01 (AMBAC) ........................... 1,000,000 1,063,560
------------
1,063,560
------------
State Agency Bonds - 15.31%
Indiana Bond Bank (State Revolving Fund Program)
Series A 6.00% 02/01/01 .......................... 500,000 526,395
Michigan Municipal Bond Bank Authority Revenue
Local Government Loan Program -
Series G 5.85% 05/01/01 (AMBAC) .................. 2,000,000 2,102,200
Pennsylvania State Industrial Development Authority
Revenue 6.00% 07/01/99 (AMBAC) ................... 1,400,000 1,427,426
------------
4,056,021
------------
Transportation Revenue Bonds - 22.25%
Chicago, Illinois Midway Airport Revenue Series A AMT
5.125% 01/01/35 (MBIA) ........................... 1,060,000 1,041,906
Harris County, Texas Industrial Development
Corporation Airport Facilities, Refunding
(Continental Airlines Project)
AMT 5.00% 07/01/07 ............................... 1,720,000 1,727,190
Rhode Island Port Authority and Economic
5.80 07/01/02 (FSA) .............................. 565,000 599,697
5.90 07/01/03 (FSA) .............................. 490,000 526,471
Southeastern Pennsylvania Transportation Authority
(Letter 0f Credit-Canadian Imperial)
6.00% 06/01/99 ................................... 1,000,000 1,016,370
Wayne Charter County, Michigan Airport Revenue
Detroit Metro Wayne County Series A AMT
5.00% 12/01/22 (MBIA) ............................ 1,000,000 983,360
------------
5,894,994
------------
Water & Sewer Revenue Bonds - 1.61%
Easton, Pennsylvania Joint Sewer Authority
5.60% 04/01/03 (ASSET GTY) ....................... 200,000 212,828
Marysville, Washington Water & Sewer Revenue
5.50% 12/01/02 (MBIA) ............................ 200,000 212,634
------------
425,462
------------
<PAGE>
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
Other Revenue Bonds - 4.00%
West Virginia School Building Authority Capital
Improvement 5.625% 07/01/02 (MBIA) ............... $1,000,000 $1,058,900
------------
1,058,900
------------
Total Municipal Bonds (cost $26,029,619) ............ 27,150,598
------------
TOTAL MARKET VALUE OF SECURITIES - 102.49%
(cost $26,029,619) ........................................... $27,150,598
LIABILITIES NET OF RECEIVABLES AND OTHER
ASSETS - (2.49%) ............................................. (659,085)
------------
NETASSETS APPLICABLE TO 2,107,019 TAX-FREE USA
INTERMEDIATE FUND CLASS A SHARES,
180,527 TAX-FREE USA INTERMEDIATE FUND CLASS B SHARES,
AND 186,415 TAX-FREE USA INTERMEDIATE FUND CLASS C
SHARES ($0.01 PAR VALUE) OUTSTANDING; EQUIVALENT TO
$10.71 PER SHARE - 100.00% .................................... $26,491,513
============
- ----------------------
* The interest rate shown for this security is the effective yield.
ASSET GTY - Insured by the Asset Guaranty Insurance Corporation
AMT - Subject to Federal Alternative Minimum Tax
AMBAC - Insured by the AMBAC Indemnity Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
FNMA - Insured by the Federal National Mortgage Association
FSA - Insured by Financial Security Assurance
MBIA - Insured by the Municipal Bond Insurance Association
COMPONENTS OF NET ASSETS AT AUGUST 31, 1998:
Common stock, $0.01 par value, 500,000,000 shares authorized to
the Tax-Free USA Intermediate Fund ........................... $26,091,782
Accumulated net realized loss on investments .................... (721,248)
Net unrealized appreciation of investments ...................... 1,120,979
------------
Total net assets ................................................ $26,491,513
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE USA INTERMEDIATE FUND A CLASS
Net asset value A Class (A) ..................................... $10.71
Sales charge (2.75% of offering price or 2.80% of amount
invested per share) (B) ...................................... 0.30
------
Offering price $11.01
======
- ----------------------
(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 Buy Shares in the current Prospectus for purchases of $100,000
or more.
See accompanying notes
<PAGE>
20 for tax-exempt income
Voyageur Mutual Funds, Inc.
National High Yield Municipal Bond Fund
Statement of Net Assets
August 31, 1998
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----
Municipal Bonds - 99.84%
Continuing Care/Retirement Revenue
Bonds - 11.64%
Bridgeton, Missouri Industrial Development
Authority Senior Housing Revenue, The Sarah
Community Project 5.90% 5/1/28 .................. $1,000,000 $1,000,690
Clark County, Nevada Assisted Living Homestead
Boulder City 6.50% 12/1/27 ...................... 2,575,000 2,678,901
Indianapolis, Indiana Economic Development
Revenue - National Benevolent Association
7.25% 10/1/10 ................................... 700,000 773,787
Marion County, Missouri Nursing Home Revenue
7.00% 8/1/13 .................................... 1,050,000 1,110,438
Saint Tammany, Louisiana Public Trust
Financing Authority Revenue - Christwood Project
5.70% 11/15/28 .................................. 1,500,000 1,466,055
South Dakota Health & Education Facilities Revenue -
Westhills Retirement Village 7.25% 9/1/13 ....... 1,125,000 1,175,670
Spring Park, Minnesota Twin Birch Health Care Center
(Guarantor: Presbyterian Homes of Minnesota)
8.25% 8/1/11 .................................... 500,000 534,145
Volusia, Florida Industrial Development Authority-
Bishops Glen Project Retirement Health Facilities
7.50% 11/1/16 ................................... 1,065,000 1,143,991
------------
9,883,677
------------
General Obligation Bonds - 6.07%
Illinois State Development Finance Authority East
St. Louis Debt Restructure Revenue
7.375% 11/15/11 ................................. 1,100,000 1,245,684
Niles, Illinois Park District Unlimited Tax
Series A 6.65% 12/1/14 .......................... 860,000 946,834
Orange Beach, Alabama Refunding and Capital
Improvement Unlimited Tax 6.25% 10/1/13 ......... 1,500,000 1,602,105
Romeoville, Illinois Recreational Facilities
Unlimited Tax Series A 7.80% 1/1/11 ............. 1,000,000 1,103,160
Winter Park West, Colorado Water & Sanitation
District Unlimited Tax 9.25% 12/1/06 ............ 250,000 254,923
------------
5,152,706
------------
Higher Education Revenue Bonds - 4.85%
Dubuque County, Iowa Private College Facilities
Clarke College Project 5.375% 9/1/18 ............ 1,030,000 1,035,881
New Hampshire Education & Health Authority -
Brewster Academy 6.75% 6/1/25 ................... 1,000,000 1,083,730
New Jersey State Educational Facilities Revenue
Fairleigh Dickinson University -
Series G 5.70% 7/1/28 ........................... 2,000,000 1,995,540
------------
4,115,151
------------
Hospital Revenue Bonds - 7.76%
Allegheny County, Pennsylvania Hospital
Development Authority Revenue-Allegheny Valley
Hospital 7.75% 8/1/20 ........................... 1,000,000 937,240
<PAGE>
Principal Market
Amount Value
--------- -----
Municipal Bonds (Continued)
Hospital Revenue Bonds (Continued)
Cuyahoga County, Ohio Health Care Facilities
Revenue - Benjamin Rose Institute Project
5.50% 12/1/28 ................................... $1,750,000 $1,716,960
Illinois Health Facilities Authority Revenue -
Midwest Physician Group Limited
5.50% 11/15/19 .................................. 1,685,000 1,678,580
Saint Joseph County, Indiana Industrial Economic
Development - Madison Center Project
5.50% 2/15/21 ................................... 1,150,000 1,163,639
South Dakota Health & Education Facilities Revenue -
Huron Regional Medical Center
7.00% 4/1/10 .................................... 1,000,000 1,100,640
------------
6,597,059
------------
Housing Revenue Bonds - 2.44%
Bernalillo County, New Mexico Multifamily
Housing-Topke Commons/Arbors Project -
Series D 7.70% 4/1/27 ........................... 1,000,000 1,043,340
Wharton Housing Development Corporation-Texas State
Multifamily Housing Section 8 8.00%
2/1/03 .......................................... 100,000 100,231
2/1/04 .......................................... 105,000 105,244
2/1/05 .......................................... 110,000 110,255
2/1/06 .......................................... 120,000 120,278
2/1/07 .......................................... 130,000 130,302
2/1/08 .......................................... 140,000 140,325
2/1/09 .......................................... 155,000 155,360
2/1/10 .......................................... 165,000 165,383
------------
2,070,718
------------
Industrial Development Revenue Bonds - 9.88%
Brunswick & Glynn County, Georgia Development
Authority Revenue Refunding Georgia Pacific
Corporation Project 5.55% 3/1/26 AMT ............ 1,500,000 1,516,380
Moundville, Alabama Industrial Development Board
Revenue Lawter International, Inc. Project
Series LI 6.75% 12/1/11 ......................... 1,500,000 1,610,385
New Jersey Economic Development Authority
Kapkowski Road Landfill
Series A 6.375% 4/1/18 .......................... 1,150,000 1,156,002
Newbern,Tennessee Industrial Development Board
Newbern Rubber, Inc. (Dana Corporation)
7.90% 3/1/00 .................................... 1,000,000 1,045,810
New York City, New York Industrial Development
Agency - Refunding - Revenue-Field Hotel
Assoc/JFK 6.00% 11/01/28 ........................ 1,500,000 1,504,995
Ohio State Water Development Authority Solid
Waste Disposal, Bay Shore Power Project -
Series A 5.875% 9/1/20 AMT ...................... 500,000 507,395
Virginia Beach, Virginia Development Authority
Revenue Reference Ramada On The Beach
6.625% 12/1/09 .................................. 1,000,000 1,051,670
------------
8,392,637
------------
<PAGE>
for tax-exempt income 21
National High Yield Municipal Bond Fund
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
Lease/Certificates of Participation - 4.09%
Dauphin County, Pennsylvania General Authority
Office & Parking/Riverfront
Series A 5.75% 1/1/10 .............................$2,125,000 $2,139,068
Illinois State Development Finance Authority Harrisburg
Medical Center Project
7.00% 3/1/06 ...................................... 400,000 441,275
7.20% 3/1/07 ...................................... 400,000 445,064
7.20% 3/1/08 ...................................... 400,000 445,064
------------
3,470,471
------------
Pollution Control Revenue Bonds - 10.17%
California Pollution Control Financing Authority -
Pollution Control Revenue - Laidlaw Environmental -
Series A 6.70% 7/1/07 AMT ........................ 1,000,000 1,060,680
Jefferson County, Arkansas Pollution Control-
Energy Arkansas 5.60% 10/1/17 ..................... 1,000,000 1,016,740
Lewis and Clark County, Montana Environmental
Revenue - Asarco Incorporated Project
5.60% 1/1/27 ...................................... 1,500,000 1,546,860
New Hampshire State Business Finance Authority
Pollution Control Revenue Public
Service Company of New Hampshire -
Series D 6.00% 5/1/21 AMT ......................... 3,000,000 3,077,760
Ohio State Air Quality Development Authority
Revenue-Pollution Control Cleveland Electric
Illuminating Series B 6.00% 8/1/20 ................ 975,000 1,014,546
Yarmouth, Maine Pollution Control Revenue -
Central Maine Power 6.75% 6/1/02 .................. 910,000 917,381
------------
8,633,967
------------
*Pre-Refunded Bonds - 14.85%
Alexandria, Minnesota Health Care Facility Revenue -
Board of Social Ministry 8.75% 8/1/21-01 .......... 500,000 576,235
Arapahoe, Colorado Water & Sanitation District Revenue
9.125% 12/1/08-98 ................................. 500,000 511,715
9.25% 12/1/13-98 .................................. 210,000 214,983
Bedford Park, Illinois Tax Increment Revenue
8.00% 12/1/10-04 .................................. 1,200,000 1,438,596
Colorado Technical Center Metropolitan District
Unlimited Tax 9.75% 6/1/09-99 ..................... 545,000 576,397
Easton, Pennsylvania Area Joint Sewer Authority
6.20% 4/1/09-03 ................................... 1,000,000 1,088,980
Elizabeth Borough, Pennsylvania Municipal Authority -
Guaranteed Sewer 7.15% 1/1/21-02 .................. 500,000 558,680
Etowah County, Alabama Refunding Warrants
8.50% 11/1/10-00 .................................. 800,000 882,976
Illinois Health Facility Authority Revenue-Midwest
Physician Group Project 8.10% 11/15/14-04 ......... 980,000 1,201,176
Lead, South Dakota Community Recreation Center
Lease Revenue/ Northern Hills YMCA
8.875% 10/1/18-98 ................................. 590,000 610,066
Lehigh County, Pennsylvania General Purpose
Authority - Wiley House 8.75% 11/1/14-99 .......... 750,000 808,140
Panorama, Colorado Metropolitan District Unlimited
Tax 9.00% 12/1/09-99 .............................. 750,000 806,243
<PAGE>
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
*Pre-Refunded Bonds (Continued)
Pennsylvania Higher Education Facility Authority -
Drexel University 6.75% 5/1/12-03 ................ $1,300,000 $1,469,208
Streamwood, Illinois Special Service Area #3 Tax
Revenue 8.375% 1/1/09-99 ......................... 1,000,000 1,035,340
West Chicago, Illinois Tax Increment
7.375% 12/1/12-02 ................................ 720,000 833,112
------------
12,611,847
------------
Transportation Revenue Bonds - 2.14%
Cleveland, Ohio Airport Special Revenue
Continental Airlines Project
5.375% 9/15/27 AMT ............................... 450,000 441,239
Toledo Lucas County, Ohio Port Authority Airport
Revenue Refunding Improvement
Series 1 5.50% 5/15/20 ........................... 1,405,000 1,376,984
------------
1,818,223
------------
Utility Revenue Bonds - 1.69%
Chelsea, Oklahoma Gas Authority
7.25% 7/1/13 ..................................... 600,000 660,750
7.30% 7/1/19 ..................................... 700,000 770,756
------------
1,431,506
------------
Water & Sewer Revenue Bonds - 7.80%
Franklin County, Missouri Public Water Supply
District Waterworks & Sewer System
7.375% 12/1/18 ................................... 1,255,000 1,362,315
Hopewell Township, Pennsylvania Guaranteed Sewer
6.00% 11/1/13 .................................... 1,215,000 1,239,689
New Kensington, Pennsylvania Municipal Sanitation
Authority Revenue 7.50% 10/1/11 .................. 1,000,000 1,065,460
Upper Bear Creek, Alabama Water, Sewer, & Fire
Revenue District 6.25% 8/1/15 .................... 1,250,000 1,298,863
Vance, Alabama Governmental Utilities Services
Corporation Sewer Services Revenue
7.50% 10/1/18 .................................... 1,550,000 1,658,082
------------
6,624,409
------------
Other Revenue Bonds - 16.46%
Arbor Greene, Florida Community Development District,
Special Assessment Revenue 7.00% 5/1/03 .......... 555,000 575,391
Colorado Postsecondary Education Facilities
Authority Colorado Ocean Journey Project
8.00% 12/1/06 .................................... 1,000,000 1,153,760
Connector 2000 Assn South Carolina Toll Road
Revenue Senior - Southern Connector Project
Series A 5.375% 1/1/38 ........................... 2,000,000 1,868,740
Fishers, Indiana Economic Development Revenue -
Indiana United Student Aid Fund, Inc.
8.375% 9/1/14 .................................... 1,000,000 1,030,000
Lowry, Colorado Economic Redevelopment Authority
Revenue Series A 7.00% 12/1/10 ................... 1,000,000 1,012,320
Mashantucket, Connecticut Western Pequot Tribe
Special Revenue - Series B 5.75% 9/1/27 .......... 1,000,000 1,039,570
<PAGE>
22 for tax-exempt income
National High Yield Municipal Bond Fund
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
--------- -----
MUNICIPAL BONDS (Continued)
Other Revenue Bonds (Continued)
Massachusetts State Industrial Finance Agency
Revenue The Tabor Academy Issue
5.40% 12/1/28 .................................. $2,000,000 $1,982,140
Oklahoma City, Oklahoma Public Property Authority -
City Golf System 8.30% 10/1/16 ................. 1,000,000 1,088,310
Pocatello, Idaho Development Authority Allocation
Tax Increment Revenue 7.25% 12/1/08 ............ 250,000 259,005
Prescott Valley, Arizona Improvement District -
Special Assessment 7.90% 1/1/12 ................ 500,000 565,500
Santa Fe, New Mexico Municipal Recreational
Complex Net Revenue 5.625% 12/1/23 ............. 1,140,000 1,127,015
Washington State Housing Finance Commission -
State School Directors' Association -
Private Placement 8.25% 7/1/02 ................. 140,000 150,760
Washington State Housing Finance Commission -
State School Directors' Association - Private
Placement 8.25% 7/1/12 ......................... 625,000 725,569
Washington State Housing Finance Commonwealth
Nonprofit - Virginia Mason Research Center
Project A (LOC US Bank Trust N.A.)
5.70% 1/1/24 ................................... 1,000,000 1,044,060
Westminster, Colorado Shaw Heights Special
Improvement District 7.50% 12/1/07 ............. 350,000 352,146
------------
13,974,286
------------
Total Municipal Bonds (cost $80,544,329) .......... 84,776,657
------------
Number
of Shares
---------
Short-Term Investments - 2.41%
Norwest Advantage Municipal Money Market Fund ..... 2,047,313 2,047,313
------------
TOTAL SHORT-TERM INVESTMENTS (COST $2,047,313) .... 2,047,313
------------
TOTAL MARKET VALUE OF SECURITIES - 102.25%
(COST $82,591,642) ............................. $86,823,970
LIABILITIES NET OF RECEIVABLES
AND OTHER ASSETS - (2.25%)...................... (1,908,141)
------------
NET ASSETS APPLICABLE TO 7,860,095 SHARES
($0.01 PAR VALUE) OUTSTANDING - 100.00% ........ $84,915,829
============
<PAGE>
NET ASSET VALUE - NATIONAL HIGH YIELD MUNICIPAL BOND FUND
A CLASS ($69,606,440 / 6,445,310 SHARES) .............. $10.80
======
NET ASSET VALUE - NATIONAL HIGH YIELD MUNICIPAL BOND FUND
B CLASS ($10,619,711 / 981,653 SHARES) ................ $10.82
======
NET ASSET VALUE - NATIONAL HIGH YIELD MUNICIPAL BOND FUND
C CLASS ($4,689,678 / 433,132 SHARES) ................. $10.83
======
- ----------------------
* For Pre-Refunded Bonds, the stated maturity is followed by the year in which
each bond is pre-refunded.
AMT - Subject to Federal Alternative Minimum Tax
LOC - Letter of Credit
COMPONENTS OF NET ASSETS AT AUGUST 31, 1998:
Common stock, $0.01 par value, 100,000,000,000 shares authorized
to the Fund with 10,000,000,000 shares allocated to
National High Yield Municipal Bond Fund A Class, 10,000,000,000
shares allocated to National High Yield Municipal Bond Fund B
Class, and 10,000,000,000 shares allocated to National High
Municipal Yield Bond Fund C Class .......................... $80,567,552
Distributions in excess of net investment income .............. (700)
Accumulated net realized gain on investments .................. 116,649
Net unrealized appreciation of investments .................... 4,232,328
------------
Total net assets .............................................. $84,915,829
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE - NATIONAL HIGH
YIELD MUNICIPAL BOND FUND A CLASS
Net asset value per share (A) $10.80
Sales charge (3.75% of offering price or 3.89% of
amount invested per share) (B) 0.42
------
Offering price $11.22
======
- ----------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchases of $100,000
or more.
See accompanying notes
<PAGE>
for tax-exempt income 23
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eight Months Year
Ended Ended
Year Ended August 31, December 31,
August 31, 1998 1998 1997
------------------------------------ ----------- ------------
Tax-Free Tax-Free Tax-Free USA National High Yield
USA Insured Intermediate Municipal Bond
Fund Fund Fund Fund
----------- ---------- ---------- -------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest .......................................... $38,493,327 $4,601,048 $1,381,302 $3,126,337 $3,888,274
----------- ---------- ---------- ---------- ----------
EXPENSES:
Management fees ................................... 3,772,773 476,167 125,100 315,067 362,050
Distribution expense .............................. 1,500,683 189,086 68,682 170,152 151,515
Dividend disbursing and transfer agent fees
and expenses .................................... 489,236 75,906 36,975 23,057 59,896
Accounting ........................................ 255,812 31,190 9,983 17,493 20,729
Reports and statements to shareholders ............ 130,425 21,860 13,263 12,260 --
Registration fees ................................. 48,715 32,746 70,570 20,756 --
Taxes (other than taxes on income) ................ 55,680 9,071 2,750 3,125 --
Professional fees ................................. 49,112 11,438 11,033 2,917 20,362
Amortization of organization expense .............. -- -- 642 -- --
Director's fees ................................... 13,400 3,869 2,931 863 2,309
Custodian fees .................................... 15,021 15,436 1,730 970 5,507
Other ............................................. 129,673 41,748 25,003 28,211 9,778
----------- ---------- ---------- ---------- ----------
6,460,530 908,517 368,662 594,871 632,146
Less expenses absorbed or waived .................. -- -- (167,766) (96,194) (153,755)
----------- ---------- ---------- ---------- ----------
Total operating expenses (before interest expense). 6,460,530 908,517 200,896 498,677 478,391
----------- ---------- ---------- ---------- ----------
Interest expense .................................. -- -- -- 407 --
----------- ---------- ---------- ---------- ----------
Total expenses .................................... 6,460,530 908,517 200,896 499,084 478,391
----------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME ............................. 32,032,797 3,692,531 1,180,406 2,627,253 3,409,883
----------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investment transactions ...... 1,046,343 1,157,316 274,027 116,864 782,775
Net change in unrealized appreciation/depreciation
of investments .................................. 15,815,410 1,050,199 322,706 680,352 1,305,512
----------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ... 16,861,753 2,207,515 596,733 797,216 2,088,287
----------- ---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $48,894,550 $5,900,046 $1,777,139 $3,424,469 $5,498,170
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes
<PAGE>
24 for tax-exempt income
Statements Of Changes In Net Assets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Tax-Free Tax-Free Tax-Free USA
USA Fund Insured Fund Intermediate Fund
----------- ----------- ---------- ---------- ---------- ----------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
8/31/98 8/31/97 8/31/98 8/31/97 8/31/98 8/31/97
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income .............................. $32,032,797 $39,265,992 $3,692,531 $4,264,919 $1,180,406 $1,267,170
Net realized gain on investments ................... 1,046,343 10,051,521 1,157,316 1,042,113 274,027 27,578
Net change in unrealized appreciation/depreciation
of investments .................................. 15,815,410 2,978,780 1,050,199 1,099,718 322,706 305,500
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets resulting from operations 48,894,550 52,296,293 5,900,046 6,406,750 1,777,139 1,600,248
------------ ------------ ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class ......................................... (30,412,332) (37,562,093) (3,545,965) (4,105,498) (1,042,578) (1,147,363)
B Class ......................................... (1,548,295) (1,645,084) (138,959) (153,999) (72,412) (65,780)
C Class ......................................... (72,170) (58,814) (7,607) (5,423) (65,416) (54,027)
Net realized gain on investment transactions:
A Class ......................................... (9,769,741) (2,961,519) (1,342,436) (657,491) -- --
B Class ......................................... (576,564) (138,398) (61,524) (28,164) -- --
C Class ......................................... (23,804) (4,957) (1,755) (1,087) -- --
------------ ------------ ----------- ----------- ----------- -----------
(42,402,906) (42,370,865) (5,098,246) (4,951,662) (1,180,406) (1,267,170)
------------ ------------ ----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ......................................... 144,108,439 65,707,580 6,530,589 8,299,445 7,382,578 7,231,208
B Class ......................................... 5,979,720 11,820,404 1,369,816 1,177,381 373,870 745,655
C Class ......................................... 1,308,160 1,048,230 348,248 18,602 953,661 2,257,479
Net asset value of shares issued upon reinvestment
of distributions from net investment income and
net realized gain on investment transactions:
A Class ......................................... 22,556,978 22,364,182 2,762,483 2,544,126 639,979 731,354
B Class ......................................... 1,254,576 1,005,202 114,231 97,771 49,194 46,197
C Class ......................................... 69,729 50,122 7,917 6,398 58,692 51,393
------------ ------------ ----------- ----------- ----------- -----------
175,277,602 101,995,720 11,133,284 12,143,723 9,457,974 11,063,286
------------ ------------ ----------- ----------- ----------- -----------
Cost of shares repurchased:
A Class ......................................... (201,784,187) (182,537,900) (14,181,256) (15,013,442) (7,609,474) (9,242,056)
B Class ......................................... (5,728,548) (7,991,403) (877,799) (1,087,056) (366,489) (470,777)
C Class ......................................... (559,386) (410,984) (126,525) (57,472) (480,482) (1,090,281)
------------ ------------ ----------- ----------- ----------- -----------
(208,072,121) (190,940,287) (15,185,580) (16,157,970) (8,456,445) (10,803,114)
------------ ------------ ----------- ----------- ----------- -----------
Increase (decrease) in net assets derived from
capital share transactions ......................... (32,794,519) (88,944,567) (4,052,296) (4,014,247) 1,001,529 260,172
------------ ------------ ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ............... (26,302,875) (79,019,139) (3,250,496) (2,559,159) 1,598,262 593,250
NET ASSETS:
Beginning of period ................................. 652,412,347 731,431,486 82,085,259 84,644,418 24,893,251 24,300,001
------------ ------------ ----------- ----------- ----------- -----------
End of period .......................................$626,109,472 $652,412,347 $78,834,763 $82,085,259 $26,491,513 $24,893,251
============ ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes
<PAGE>
for tax-exempt income 25
Statements Of Changes In Net Assets (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
National High Yield Municipal Bond Fund
---------------------------------------
Eight Year Five Months
Months Ended Ended Ended
8/31/98 12/31/97 12/31/96
---------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ...................................... $2,627,253 $3,409,883 $1,546,818
Net realized gain (loss) on investments .................... $116,864 782,775 (97,077)
Net change in unrealized appreciation/depreciation of
investments ............................................. 680,352 1,305,512 1,323,262
----------- ----------- -----------
Net increase in net assets resulting from operations ....... 3,424,469 5,498,170 2,773,003
----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class ................................................. (2,315,936) (3,329,293) (1,541,075)
B Class ................................................. (228,487) (69,276) (121)
C Class ................................................. (83,530) (16,936) N/A
Net realized gain on investment transactions:
A Class ................................................. (224,098) (361,157) --
B Class ................................................. (33,528) (20,891) --
C Class ................................................. (14,611) (6,153) N/A
----------- ----------- -----------
(2,900,190) (3,803,706) (1,541,196)
----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ................................................. 16,001,177 5,556,071 2,208,712
B Class ................................................. 7,552,082 3,486,119 88,126
C Class ................................................. 3,689,595 1,199,065 N/A
Net asset value of shares issued upon reinvestment of
distributions from net investment income and net realized
gain on investment transactions:
A Class ................................................. 1,441,346 2,223,087 625,742
B Class ................................................. 149,917 42,767 --
C Class ................................................. 55,914 9,665 N/A
----------- ----------- -----------
28,890,031 12,516,774 2,922,580
----------- ----------- -----------
Cost of shares repurchased:
A Class ................................................. (3,739,701) (13,058,929) (8,421,106)
B Class ................................................. (711,513) (92,987) --
C Class ................................................. (298,771) (794) N/A
----------- ----------- -----------
(4,749,985) (13,152,710) (8,421,106)
----------- ----------- -----------
Increase (decrease) in net assets derived from capital share
transactions ............................................ 24,140,046 (635,936) (5,498,526)
----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ...................... 24,664,325 1,058,528 (4,266,719)
NET ASSETS:
Beginning of period ........................................ 60,251,504 59,192,976 63,459,695
----------- ----------- -----------
End of period .............................................. $84,915,829 $60,251,504 $59,192,976
=========== =========== ===========
- ----------------------
N/A - The Fund's C Classes did not commence operations until May 26, 1997.
</TABLE>
See accompanying notes
<PAGE>
26 for tax-exempt income
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free USA Fund A Class
-----------------------------------------------------------
Year Ended August 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $11.710 $11.550 $12.070 $12.040 $12.640
Income from investment operations:
Net investment income .................................. 0.597 0.666 0.696 0.746 0.751
Net realized and unrealized gain (loss) on investments . 0.310 0.210 (0.460) 0.030 (0.566)
------- ------- ------- ------- -------
Total from investment operations ....................... 0.907 0.876 0.236 0.776 0.185
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ................... (0.597) (0.666) (0.696) (0.746) (0.751)
Distributions from net realized gain on investment
transactions ........................................ (0.190) (0.050) (0.060) none (0.034)
------- ------- ------- ------- -------
Total dividends and distributions ...................... (0.787) (0.716) (0.756) (0.746) (0.785)
------- ------- ------- ------- -------
Net asset value, end of period ............................ $11.830 $11.710 $11.550 $12.070 $12.040
======= ======= ======= ======= =======
Total return(1) ........................................... 8.00% 7.79% 1.91% 6.74% 1.49%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................ $586,848 $615,852 $700,853 $758,470 $745,796
Ratio of expenses to average net assets ................ 0.97% 0.94% 0.94% 0.92% 0.89%
Ratio of net investment income to average net assets ... 5.08% 5.73% 5.82% 6.29% 6.07%
Portfolio turnover ..................................... 81% 44% 42% 27% 10%
- ----------------------
(1) Does not include maximum sales charge of 3.75% nor the 0.50-1% limited contingent deferred sales charge that would
apply in the event of certain redemptions within 24 months of purchase.
</TABLE>
See accompanying notes
<PAGE>
for tax-exempt income 27
Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Tax-Free USA Fund B Class
------------------------------------------------------------
5/2/94(2)
1998 1997 1996 1995 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 ................................. 0.503 0.573 0.600 0.649 0.214
Net realized and unrealized gain (loss) on investments. 0.310 0.210 (0.460) 0.030 (0.040)
------- ------- ------- ------- -------
Total from investment operations ...................... 0.813 0.783 0.140 0.679 0.174
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income .................. (0.503) (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 ..................... (0.693) (0.623) (0.660) (0.649) (0.214)
------- ------- ------- ------- -------
Net asset value, end of period ........................... $11.830 $11.710 $11.550 $12.070 $12.040
======= ======= ======= ======= =======
Total return(1) .......................................... 7.15% 6.94% 1.11% 5.88% 1.45%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............... $36,919 $35,055 $29,773 $17,779 $3,937
Ratio of expenses to average net assets ............... 1.77% 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 .................................... 81% 44% 42% 27% 10%
- ----------------------
(1) Does not include contingent deferred sales charge which varies from 1-4% depending upon the holding period for Class B
and Class C shares.
(2) Date of commencement of trading; ratios have been annualized and total return has not been annualized.
</TABLE>
See accompanying notes
TABLE STUB
<TABLE>
<CAPTION>
Tax-Free USA Fund C Class
------------------------------------
Year Ended 11/29/95(2)
August 31, to
1998 1997 8/31/98
<S> <C> <C> <C>
Net asset value, beginning of period ..................... $11.710 $11.550 $12.230
Income from investment operations:
Net investment income ................................. 0.504 0.573 0.450
Net realized and unrealized gain (loss) on investments. 0.310 0.210 (0.620)
------- ------- -------
Total from investment operations ...................... 0.814 0.783 (0.170)
------- ------- -------
Less dividends and distributions:
Dividends from net investment income .................. (0.504) (0.573) (0.450)
Distributions from net realized gain on investment
transactions ....................................... (0.190) (0.050) (0.060)
------- ------- -------
Total dividends and distributions ..................... (0.694) (0.623) (0.510)
------- ------- -------
Net asset value, end of period ........................... $11.830 $11.710 $11.550
======= ======= =======
Total return(1) .......................................... 7.15% 6.94% (1.44%)
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............... $2,343 $1,505 $805
Ratio of expenses to average net assets ............... 1.77% 1.74% 1.74%
Ratio of net investment income to average net assets .. 4.28% 4.93% 5.03%
Portfolio turnover .................................... 81% 44% 42%
</TABLE>
<PAGE>
28 for tax-exempt income
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free Insured Fund A Class
-------------------------------------------------------------
Year Ended August 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $11.050 $10.860 $11.050 $11.020 $11.680
Income from investment operations:
Net investment income 0.517 0.573 0.588 0.639 0.622
Net realized and unrealized gain (loss) on investments. 0.295 0.281 (0.160) 0.030 (0.560)
------- ------- ------- ------- -------
Total from investment operations ...................... 0.812 0.854 0.428 0.669 0.062
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income .................. (0.517) (0.573) (0.588) (0.639) (0.622)
Distributions from net realized gain on investment
transactions ....................................... (0.195) (0.091) (0.030) none (0.100)
------- ------- ------- ------- -------
Total dividends and distributions ..................... (0.712) (0.664) (0.618) (0.639) (0.722)
------- ------- ------- ------- -------
Net asset value, end of period ........................ $11.150 $11.050 $10.860 $11.050 $11.020
======= ======= ======= ======= =======
Total return(1) .......................................... 7.57% 8.07% 3.88% 6.33% 0.54%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............... $74,246 $78,377 $81,149 $86,756 $91,235
Ratio of expenses to average net assets ............... 1.10% 1.05% 0.98% 0.98% 0.98%
Ratio of net investment income to average net assets .. 4.65% 5.23% 5.29% 5.89% 5.48%
Portfolio turnover .................................... 63% 42% 45% 68% 56%
- ----------------------
(1) Does not include maximum sales charge of 3.75% nor the 0.50-1% limited contingent deferred sales charge that
would apply in the event of certain redemptions within 24 months of purchase.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Insured Fund B Class
--------------------------------------------------------------
Year Ended August 31,
1998 1997 1996 1995 8/31/94
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $11.050 $10.860 $11.050 $11.020 $10.990
Income from investment operations:
Net investment income ................................... 0.427 0.485 0.499 0.550 0.179
Net realized and unrealized gain (loss) from investments. 0.295 0.281 (0.160) 0.030 0.030
------- ------- ------- ------- -------
Total from investment operations ........................ 0.722 0.766 0.339 0.580 0.209
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income .................... (0.427) (0.485) (0.499) (0.550) (0.179)
Distributions from net realized gain on investment
transactions ......................................... (0.195) (0.091) (0.030) none none
------- ------- ------- ------- -------
Total dividends and distributions ....................... (0.622) (0.576) (0.529) (0.550) (0.179)
------- ------- ------- ------- -------
Net asset value, end of period ............................. $11.150 $11.050 $10.860 $11.050 $11.020
======= ======= ======= ======= =======
Total return(1) ............................................ 6.72% 7.21% 3.05% 5.47% 1.91%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................. $4,268 $3,619 $3,375 $2,448 $826
Ratio of expenses to average net assets ................. 1.90% 1.85% 1.78% 1.80% 1.83%
Ratio of net investment income to average net assets .... 3.85% 4.43% 4.48% 5.07% 4.63%
Portfolio turnover ...................................... 63% 42% 45% 68% 56%
</TABLE>
TABLE STUB
<TABLE>
<CAPTION>
Tax-Free Insured Fund C Class
-------------------------------------
Year Ended 11/29/95(2)
to August 31, to
1998 1997 8/31/96
<S> <C> <C> <C>
Net asset value, beginning of period ........................ $11.050 $10.860 $11.260
Income from investment operations:
Net investment income .................................... 0.425 0.485 0.375
Net realized and unrealized gain (loss) from investments . 0.295 0.281 (0.370)
------- ------- -------
Total from investment operations ......................... 0.720 0.766 0.005
------- ------- -------
Less dividends and distributions:
Dividends from net investment income...................... (0.425) (0.485) (0.375)
Distributions from net realized gain on investment
transactions .......................................... (0.195) (0.091) (0.030)
------- ------- -------
Total dividends and distributions ........................ (0.620) (0.576) (0.405)
------- ------- -------
Net asset value, end of period .............................. $11.150 $11.050 $10.860
======= ======= =======
Total return(1) ............................................. 6.72% 7.21% 0.01%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................. $321 $89 $120
Ratio of expenses to average net assets .................. 1.90% 1.85% 1.78%
Ratio of net investment income to average net assets ..... 3.85% 4.43% 4.48%
Portfolio turnover ....................................... 63% 42% 45%
- ----------------------
(1) Does not include contingent deferred sales charge which varies from 1-4% depending upon the holding period for
Class B and Class C shares.
(2) Date of commencement of trading; ratios have been annualized and total return has not been annualized.
</TABLE>
See accompanying notes
<PAGE>
for tax-exempt income 29
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Tax-Free USA Intermediate Fund A Class
-------------------------------------------------------------
Year Ended August 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $10.460 $10.320 $10.410 $10.320 $10.630
Income from investment operations:
Net investment income .................................. 0.501 0.524 0.550 0.550 0.530
Net realized and unrealized gain (loss) on investments . 0.250 0.140 (0.090) 0.090 (0.310)
------- ------- ------- ------- -------
Total from investment operations ....................... 0.751 0.664 0.460 0.640 0.220
------- ------- ------- ------- -------
Less dividends:
Dividends from net investment income ................... (0.501) (0.524) (0.550) (0.550) (0.530)
------- ------- ------- ------- -------
Total dividends ........................................ (0.501) (0.524) (0.550) (0.550) (0.530)
------- ------- ------- ------- -------
Net asset value, end of period ............................ $10.710 $10.460 $10.320 $10.410 $10.320
======= ======= ======= ======= =======
Total return(1) ........................................... 7.34% 6.57% 4.52% 6.43% 2.09%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................ $22,562 $21,635 $22,617 $20,492 $28,193
Ratio of expenses to average net assets ................ 0.67% 0.43% 0.25% 0.25% 0.25%
Ratio of expenses to average net assets prior to expense
limitation .......................................... 1.33% 1.02% 0.95% 1.07% 1.19%
Ratio of net investment income to average net assets ... 4.73% 5.03% 5.29% 5.37% 5.00%
Ratio of net investment income to average net assets prior
to expense limitation ............................... 4.07% 4.44% 4.59% 4.55% 4.06%
Portfolio turnover ..................................... 104% 34% 15% 63% 81%
- ----------------------
(1) Does not include maximum sales charge of 2.75% nor the 0.50-1% limited contingent deferred sales charge that would
apply in the event of certain redemptions within 24 months of purchase.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Tax-Free USA Intermediate Fund B Class
--------------------------------------------------------------
5/2/94(2)
Year Ended August 31, to
1998 1997 1996 1995 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 .................................. 0.411 0.436 0.460 0.460 0.150
Net realized and unrealized gain (loss) on investments . 0.250 0.140 (0.090) 0.090 0.090
------- ------- ------- ------- -------
Total from investment operations ....................... 0.661 0.576 0.370 0.550 0.240
------- ------- ------- ------- -------
Less dividends:
Dividends from net investment income ................... (0.411) (0.436) (0.460) (0.460) (0.150)
------- ------- ------- ------- -------
Total dividends ........................................ (0.411) (0.436) (0.460) (0.460) (0.150)
------- ------- ------- ------- -------
Net asset value, end of period ............................ $10.710 $10.460 $10.320 $10.410 $10.320
======= ======= ======= ======= =======
Total return(1) ........................................... 6.43% 5.67% 3.63% 5.53% 2.31%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............ $1,933 $1,832 $1,490 $949 $597
Ratio of expenses to average net assets ................ 1.52% 1.28% 1.10% 1.10% 1.10%
Ratio of expenses to average net assets prior to
expense limitation ..................................... 2.18% 1.87% 1.80% 1.92% 2.04%
Ratio of net investment income to average net assets ... 3.88% 4.18% 4.44% 4.52% 4.15%
Ratio of net investment income to average net assets
prior to expense limitation ......................... 3.22% 3.59% 3.74% 3.70% 3.21%
Portfolio turnover ..................................... 104% 34% 15% 63% 81%
</TABLE>
TABLE STUB
<TABLE>
<CAPTION>
Tax-Free USA Intermediate Fund C Class
---------------------------------------
Year Ended 11/29/95(2)
August 31, to
1998 1997 8/31/96
<S> <C> <C> <C>
Net asset value, beginning of period ...................... $10.460 $10.320 $10.480
Income from investment operations:
Net investment income 0.411 0.436 0.350
Net realized and unrealized gain (loss) on investments . 0.250 0.140 (0.160)
------- ------- -------
Total from investment operations ....................... 0.661 0.576 0.190
------- ------- -------
Less dividends:
Dividends from net investment income ................... (0.411) (0.436) (0.350)
------- ------- -------
Total dividends ........................................ (0.411) (0.436) (0.350)
------- ------- -------
Net asset value, end of period ............................ $10.710 $10.460 $10.320
======= ======= =======
Total return(1) ........................................... 6.43% 5.67% 1.84%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................ $1,996 $1,426 $193
Ratio of expenses to average net assets ................ 1.52% 1.28% 1.10%
Ratio of expenses to average net assets prior to
expense limitation ..................................... 2.18% 1.87% 1.80%
Ratio of net investment income to average net assets ... 3.88% 4.18% 4.44%
Ratio of net investment income to average net assets
prior to expense limitation ......................... 3.22% 3.59% 3.74%
Portfolio turnover ..................................... 104% 34% 15%
- ----------------------
(1) Does not include contingent deferred sales charge which varies from 1-2% depending upon the holding period for
Class B and Class C shares.
(2) Date of commencement of trading; ratios have been annualized and total return has not been annualized.
</TABLE>
See accompanying notes
<PAGE>
30 for tax-exempt income
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
National High Yield Municipal Bond Fund A Class
--------------------------------------------------------------------------
Eight months Year Period from Year Year Year
ended ended to 8/1/96 ended ended ended
8/31/98(1) 12/31/97(4) 12/31/96(5) 7/31/96 7/31/95 7/31/94
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $10.720 $10.400 $10.190 $10.170 $10.170 $10.500
Income from investment operations:
Net investment income .............................. 0.398 0.648 0.260 0.630 0.650 0.620
Net realized and unrealized gain (loss) on
investments ..................................... 0.115 0.390 0.210 0.140 0.040 (0.310)
------- ------- ------- ------- ------- -------
Total from investment operations ................... 0.513 1.038 0.470 0.770 0.690 0.310
------- ------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ............... (0.398) (0.647) (0.260) (0.630) (0.650) (0.620)
Distributions from net realized gain on investment
transactions ..................................... (0.035) (0.071) none (0.120) (0.040) (0.020)
------- ------- ------- ------- ------- -------
Total dividends and distributions .................. (0.433) (0.718) (0.260) (0.750) (0.690) (0.640)
------- ------- ------- ------- ------- -------
Net asset value, end of period ........................ $10.800 $10.720 $10.400 $10.190 $10.170 $10.170
======= ======= ======= ======= ======= =======
Total return(2)........................................ 4.87% 10.32% 4.52% 7.78% 7.16% 2.99%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ............ $69,606 $55,458 $59,105 $63,460 $66,357 $72,172
Ratio of expenses to average net assets ............ 0.92% 0.84% 0.87%(3) 0.85% 0.79% 0.91%
Ratio of expenses to average net assets prior to
expense limitation .............................. 1.12% 1.12% 1.07%(3) 0.96% 0.90% 1.01%
Ratio of net investment income to average net assets 5.52% 6.15% 6.06%(3) 6.10% 6.45% 5.98%
Ratio of net investment income to average net assets
prior to expense limitation ..................... 5.32% 5.87% 5.86%(3) 5.99% 6.34% 5.88%
Portfolio turnover ................................. 43% 45% 7% 0% 8% 28%
- ----------------------
(1) Ratios have been annualized and total return has not been annualized.
(2) Does not include maximum sales charge of 3.75% nor the 0.50-1% limited contingent deferred sales charge that would apply
in the event of certain redemptions within 24 months of purchase.
(3) Annualized.
(4) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager.
(5) On November 6, 1996, the Fund's shareholders approved a change of investment adviser from IFG Asset Management
Services, Inc. to Voyageur Fund Managers, Inc.
</TABLE>
See accompanying notes
<PAGE>
for tax-exempt income 31
Financial Highlights (Continued)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
National High Yield National High Yield
Municipal Bond Fund Municipal Bond Fund
B Class C Class
-----------------------------------------------------------------
Eight Period Eight Period
months Year 12/18/96(5) months 5/26/97(5)
ended ended to ended to
8/31/98(1) 12/31/97(4) 12/31/96 8/31/98(1) 12/31/97(4)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $10.730 $10.400 $10.370 $10.740 $10.440
Income from investment operations:
Net investment income 0.348 0.534 0.010 0.348 0.315
Net realized and unrealized gain (loss) on investments . 0.122 0.433 0.030 0.122 0.391
------- ------- ------- ------- -------
Total from investment operations ....................... 0.470 0.967 0.040 0.470 0.706
------- ------- ------- ------- -------
Less dividends and distributions:
Dividends from net investment income ................... (0.345) (0.566) (0.010) (0.345) (0.335)
Distributions from net realized gain on investment
transactions ........................................ (0.035) (0.071) -- (0.035) (0.071)
------- ------- ------- ------- -------
Total dividends and distributions ...................... (0.380) (0.637) (0.010) (0.380) (0.406)
------- ------- ------- ------- -------
Net asset value, end of period ............................ $10.820 $10.730 $10.400 $10.830 $10.740
======= ======= ======= ======= =======
Total return(2) ........................................... 4.44% 9.57% 0.43% 4.44% 6.88%
Ratios and supplemental data:
Net assets, end of period (000 omitted) ................ $10,620 $3,573 $88 $4,690 $1,220
Ratio of expenses to average net assets ................ 1.67% 1.56% 1.45%(3) 1.67% 1.62%(3)
Ratio of expenses to average net assets prior to expense
limitation .......................................... 1.87% 1.84% 1.66%(3) 1.87% 1.90%(3)
Ratio of net investment income to average net assets ... 4.77% 5.43% 4.65%(3) 4.77% 5.37%(3)
Ratio of net investment income to average net assets
prior to expense limitation ......................... 4.57% 5.15% 4.44%(3) 4.57% 5.09%(3)
Portfolio turnover ..................................... 43% 45% 7% 43% 45%
- ----------------------
(1) Ratios have been annualized and total return has not been annualized.
(2) Does not include contingent deferred sales charge which varies from 1-4% depending upon the holding period for
Class B and Class C shares.
(3) Annualized.
(4) Commencing May 1, 1997, Delaware Management Company replaced Voyageur Fund Managers, Inc. as the Fund's investment manager.
(5) Commencement of operations.
</TABLE>
See accompanying notes
<PAGE>
32 for tax-exempt income
Delaware Group Tax-Free Fund, Inc.
Voyageur Mutual Funds, Inc.
Notes To Financial Statements
August 31, 1998
- --------------------------------------------------------------------------------
Delaware Group Tax-Free Fund, Inc. is registered as a diversified open-end
investment company under the Investment Company Act of 1940 (as amended). The
Fund is organized as a Maryland Corporation and offers three portfolios, the
Tax-Free USA Fund, the Tax-Free Insured Fund, and the Tax-Free USA Intermediate
Fund. National High Yield Municipal Bond Fund, a series of Voyageur Mutual
Funds, Inc., is registered under the Investment Company Act of 1940 (as amended)
as a non-diversified, open-end management investment company. The Tax-Free USA
Fund, Tax-Free Insured Fund, Tax-Free USA Intermediate Fund and National High
Yield Municipal Bond Fund (each referred to as a "Fund" or, collectively, as the
"Funds") each offer three classes of shares. The A Class carries a front-end
sales charge of 3.75% for the Tax-Free USA Fund, Tax-Free Insured Fund and
National High Yield Municipal Bond Fund, and 2.75% for the Tax-Free USA
Intermediate 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 provide investors
with preservation of capital and, as a secondary objective, 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.
The investment objective of the National High Yield Municipal Bond Fund is to
seek a high level of current income exempt from federal income tax through
investing primarily in a portfolio of medium and lower grade municipal bonds.
The National High Yield Municipal Bond Fund has changed its fiscal year end from
December 31 to August 31 to match the fiscal year of Delaware Investments
national municipal bond funds.
1. Fund Reorganization
On April 30, 1997, Lincoln National Corporation ("LNC") acquired Voyageur Fund
Manager Inc.'s ("Voyageur") parent, Dougherty Financial Group, Inc. ("DFG")
pursuant to an agreement and plan of merger dated January 15, 1997, in which LNC
acquired DFG including the mutual fund investment advisory business of DFG
conducted by Voyageur. Upon completion of the acquisition, Delaware Management
Company ("DMC") became the investment adviser to the National High Yield
Municipal Bond Fund, Delaware Distributors, L.P. ("DDLP") became the distributor
for the Fund and Delaware Service Company, Inc. ("DSC") became the transfer,
dividend-disbursing, shareholder servicing and accounting service agent for the
Fund. DMC, DDLP and DSC assumed these services under substantially similar fee
structures that were in effect prior to the acquisition.
2. 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
<PAGE>
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 Funds' 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 Funds on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Other - Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets.
Security transactions are recorded on the date the securities are purchased or
sold (trade date). Costs used in calculating realized gains and losses on the
sale of investment securities are those of the specific securities sold.
Interest income is recorded on the accrual basis. Original issue discounts and
market premiums are amortized 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 capital gains, if any, are distributed
annually.
Certain expenses of the Funds 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.
3. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Fund
pays DMC, the Investment Manager of the Fund, an annual fee which is calculated
daily at the rate of 0.60% of the first $500 million of average daily net assets
of the Fund, 0.575% on the next $250 million and 0.55% on the average daily net
assets over $750 million for the Tax-Free USA Fund, 0.60% of the average daily
net assets of the Tax-Free Insured Fund, 0.50% of the average daily net assets
of the Tax-Free USA Intermediate Fund and 0.65% of the average daily net assets
of the National High Yield Municipal Bond Fund. Effective January 1, 1998, DMC
has elected voluntarily to waive its fee and reimburse the Tax-Free USA
Intermediate Fund to the extent that the annual operating expenses, exclusive of
distribution expenses, exceed 0.55% of average daily net assets through December
31, 1998. Prior to January 1, 1998, DMC absorbed expenses in the Tax-Free USA
Intermediate Fund to the extent that annual operating expenses, exclusive of
distribution expenses, exceeded 0.45% of average daily net assets. Effective May
1, 1998 DMC has elected to waive its fee and reimburse the National High Yield
Municipal Bond Fund to the extent that annual operating expenses exclusive of
distribution fees, taxes, interest, brokerage commissions and extraordinary
expenses, exceed 0.75% of average daily net assets through December 31, 1998.
Prior to May 1, 1998, such operating expenses were reimbursed to the extent that
they exceeded 0.59% of average daily net assets.
<PAGE>
for tax-exempt income 33
Notes to Financial Statements Continued)
- --------------------------------------------------------------------------------
The Funds have engaged DSC, an affiliate of DMC, to provide dividend disbursing,
transfer agent and accounting services. Each Fund pays DSC a monthly fee based
on number of shareholder accounts, shareholder transactions and average net
assets, subject to certain minimums.
On August 31, 1998, the Funds had payables to affiliates as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free USA National High Yield
USA Insured Intermediate Municipal
Fund Fund Fund Bond Fund
------------ ----------- ------------- -------------------
<S> <C> <C> <C> <C>
Investment management fees and other expenses payable to DMC. $58,534 $36,575 -- $55,703
Dividend disbursing, transfer agent fees accounting fees ....
and other expenses payable to DSC ........................ 19,297 2,333 $3,334 7,278
</TABLE>
Pursuant to the Distribution Agreement, the Funds pay 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,
0.15% of the average daily net assets of the A Class for the Tax-Free USA
Intermediate Fund, 0.25% of the average daily net assets of the A Class for the
National High Yield Municipal Bond Fund and 1.00% of the average daily net
assets of the B and C Classes for all four Funds.
For the fiscal year ended August 31, 1998, DDLP earned commissions on sales of
the Class A shares for each Fund were as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free USA National High Yield
USA Insured Intermediate Municipal
Fund Fund Fund Bond Fund
------------ ----------- ------------- -------------------
<S> <C> <C> <C> <C>
$50,125 $5,403 $8,796 $33,960
</TABLE>
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.
4. Investments
During the fiscal year ended August 31, 1998, the Fund had purchases and sales
of investment securities other than U.S. government securities and temporary
cash investments as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free USA National High Yield
USA Insured Intermediate Municipal
Fund Fund Fund Bond Fund
------------ ----------- ------------- -------------------
<S> <C> <C> <C> <C>
Purchases ................................................... $517,163,265 $50,225,651 $28,553,291 $45,072,152
Sales ....................................................... 533,352,234 55,632,419 26,741,621 20,617,967
</TABLE>
At August 31, 1998, the aggregate cost of securities and unrealized appreciation
(depreciation) for federal income tax purposes for each Fund were as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free USA National High Yield
USA Insured Intermediate Municipal
Fund Fund Fund Bond Fund
------------ ----------- ------------- -------------------
<S> <C> <C> <C> <C>
Cost of investments ......................................... $618,113,223 $73,709,940 $26,029,619 $82,591,642
============ =========== =========== ===========
Unrealized appreciation ..................................... $59,396,426 $ 6,342,657 $ 1,120,979 $ 4,254,118
Unrealized depreciation ..................................... (20,459,203) (1,908,000) -- (21,790)
------------ ----------- ----------- -----------
Net unrealized appreciation ................................. $38,937,223 $ 4,434,657 $ 1,120,979 $ 4,232,328
============ =========== =========== ===========
</TABLE>
For federal income tax purposes, the Tax-Free USA Intermediate Fund had
accumulated capital losses at August 31, 1998 of $721,248 which may be carried
forward and applied against future capital gains. The capital loss carryforward
expires as follows: 2002 - $97,594 and 2003 - $623,654.
<PAGE>
34 for tax-exempt income
Notes to Financial Statements Continued)
- --------------------------------------------------------------------------------
5. Capital Stock
Transactions in capital stock shares were as follows:
Tax-Free USA Fund
--------------------------
Year Ended Year Ended
8/31/98 8/31/97
------------ ------------
Shares sold:
A Class ......................................... 12,260,232 5,645,645
B Class ......................................... 508,224 1,015,397
C Class ......................................... 111,168 89,711
Shares issued upon reinvestment of
dividends from net investment income and net
realized gain on investment transactions:
A Class ......................................... 1,922,998 1,917,246
B Class ......................................... 106,985 86,179
C Class ......................................... 5,944 4,299
----------- -----------
14,915,551 8,758,477
----------- -----------
Shares repurchased:
A Class ......................................... (17,159,307) (15,671,660)
B Class ......................................... (487,504) (686,818)
C Class ......................................... (47,557) (35,231)
----------- -----------
(17,694,368) (16,393,709)
----------- -----------
Net decrease ....................................... (2,778,817) (7,635,232)
=========== ===========
Tax-Free Insured Fund
------------------------
Year Ended Year Ended
8/31/98 8/31/97
------------ ------------
Shares sold:
A Class ......................................... 589,585 757,507
B Class ......................................... 123,658 106,909
C Class ......................................... 31,430 1,691
Shares issued upon reinvestment of dividends from net
investment income and net realized gain on
investment transactions:
A Class ......................................... 249,570 231,402
B Class ......................................... 10,322 8,892
C Class ......................................... 715 582
------------ ----------
1,005,280 1,106,983
------------ ----------
Shares repurchased:
A Class ......................................... (1,277,871) (1,368,970)
B Class ......................................... (79,031) (99,060)
C Class ......................................... (11,448) (5,274)
------------ ----------
(1,368,350) (1,473,304)
------------ ----------
Net decrease (363,070) (366,321)
============ ==========
<PAGE>
5. Capital Stock (Continued)
Tax-Free USA
Intermediate Fund
------------------------
Year Ended Year Ended
8/31/98 8/31/97
------------ ------------
Shares sold:
A Class ......................................... 696,975 694,060
B Class ......................................... 35,185 71,587
C Class ......................................... 89,880 216,226
Shares issued upon reinvestment of
dividends from net investment income:
A Class ......................................... 60,354 70,127
B Class ......................................... 4,640 4,414
C Class ......................................... 5,534 4,931
------------ ----------
892,568 1,061,345
------------ ----------
Shares repurchased:
A Class ......................................... (718,872) (886,958)
B Class ......................................... (34,488) (45,185)
C Class ......................................... (45,293) (103,591)
------------ ----------
(798,653) (1,035,734)
------------ ----------
Net increase 93,915 25,611
============ ==========
National High Yield Municipal Bond Fund
---------------------------------------
Eight Months Year Five months
Ended Ended ended
8/31/98 12/31/97 12/31/96
------------ -------- -----------
Shares sold:
A Class ............................ 1,486,196 514,279 213,088
B Class(1) ......................... 700,850 329,079 8,498
C Class(2) ......................... 342,031 112,800 N/A
Shares issued upon reinvestment of
dividends from net investment income
and net realized gain on investment
transactions:
A Class ............................ 133,856 211,092 60,940
B Class(1) ......................... 13,876 4,026 0
C Class(2) ......................... 5,179 908 N/A
--------- ---------- ---------
2,681,988 1,172,184 282,526
--------- ---------- ---------
Shares repurchased:
A Class ............................ (347,504) (1,237,478) (819,364)
B Class1 ........................... (65,936) (8,739) 0
C Class2 ........................... (27,712) (74) N/A
--------- ---------- ---------
(441,152) (1,246,291) (819,364)
--------- ---------- ---------
Net increase (decrease) ............... 2,240,836 (74,107) (536,838)
========= ========== =========
- ----------------------
(1) Commenced operations December 18, 1996.
(2) Commenced operations May 26, 1997.
<PAGE>
for tax-exempt income 35
Notes to Financial Statements Continued)
- --------------------------------------------------------------------------------
6. Lines of Credit
The Funds have committed lines of credit for the following amounts:
Tax-Free USA Fund ............................... $19,500,000
Tax-Free Insured Fund ........................... 2,400,000
Tax-Free USA Intermediate Fund .................. 800,000
National High Yield Municipal Bond Fund ......... 3,000,000
No amounts were outstanding at August 31, 1998, or at any time during the
period.
7. 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
Statements of Net Assets.
The National High Yield Municipal Bond Fund may invest in high-yield fixed
income securities which carry ratings of BB or lower by S&P and/or Ba or lower
by Moody's. Investments in these higher yielding securities may be accompanied
by a greater degree of credit risk than higher rated securities. Additionally,
lower rated securities may be more susceptible to adverse economic and
competitive industry conditions than investment grade securities.
- --------------------------------------------------------------------------------
Delaware Group Tax-Free Fund, Inc.
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Delaware Group Tax-Free Fund, Inc.
We have audited the accompanying statements of net assets of Delaware Group
Tax-Free Fund, Inc. (comprised of the Tax-Free USA Fund, Tax-Free Insured Fund,
and Tax-Free USA Intermediate Fund) as of August 31, 1998, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1998, by correspondence with the Fund's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Delaware Group Tax-Free Fund, Inc.
at August 31, 1998, and the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period then
ended, and their financial highlights for each of the periods indicated therein,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
October 5, 1998
<PAGE>
36 for tax-exempt income
Voyageur Mutual Funds, Inc.
National High Yield Municipal Bond Fund
Report of Independent Auditors
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To the Shareholders and Board of Directors
Voyageur Mutual Funds, Inc. - National High Yield Municipal Bond Fund
We have audited the accompanying statements of net assets of National High Yield
Municipal Bond Fund (the "Fund") as of August 31, 1998, and the related
statements of operations, statements of changes in net assets and financial
highlights for the period January 1, 1998 through August 31, 1998 and for the
year ended December 31, 1997. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The statement of changes in net assets for the periods
presented through December 31, 1996 and the financial highlights for the periods
presented through December 31, 1996 were audited by other auditors whose report
thereon dated February 14, 1997 expressed an unqualified opinion on such
statement and financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of August 31, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund at August 31, 1998, and the results of its operations, the changes in its
net assets and its financial highlights for the period January 1, 1998 through
August 31, 1998 and for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
October 5, 1998
<PAGE>
This annual report is for the information of Tax-Free USA Fund, Tax-Free Insured
Fund, Tax-Free USA Intermediate Fund and National High Yield Municipal Bond Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current Prospectus, which sets forth details about charges,
expenses, investment objectives and operating policies of each Fund. You should
read the prospectus carefully before you invest. Summary investment results are
documented in each Fund's current Statement of Additional Information. The
figures in this report represent past results which are not a guarantee of
future results. The return and principal value of an investment in each Fund
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
Board of Directors
WAYNE A. STORK
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
JEFFREY J. NICK
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
WALTER P. BABICH
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
JOHN H. DURHAM
Partner, Complete Care Services
Horsham, PA
ANTHONY D. KNERR
Consultant, Anthony Knerr & Associates
New York, NY
ANN R. LEVEN
Treasurer, National Gallery of Art
Washington, DC
W. THACHER LONGSTRETH
City Councilman
Philadelphia, PA
THOMAS F. MADISON
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
CHARLES E. PECK
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
Affiliated Officers
DAVID K. DOWNES
Executive Vice President, Chief Financial Officer
and Chief Operating Officer
Delaware Investments Family of Funds
Philadelphia, PA
GEORGE M. CHAMBERLAIN, JR.
Senior Vice President, Secretary
and General Counsel
Delaware Investments Family of Funds
Philadelphia, PA
BRUCE D. BARTON
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
<PAGE>
directors
& officers
INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
Photo of globes
<PAGE>
When used with prospective investors, this report must be preceded or
accompanied by a current Tax-Free USA Fund, Tax-Free Insured Fund, Tax-Free USA
Intermediate Fund and National High Yield Municipal Bond Fund Prospectus and the
Delaware Investments Performance Update for the most recently completed calendar
quarter. For a prospectus of any other mutual fund from Delaware Investments,
contact your financial adviser or Delaware.
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 amount
invested. Shares of the Fund are not bank or credit union deposits.
(C) Delaware Distributors, L.P.
Printed in the USA
on recycled paper
(1105)
AR-011[8/98]TKO10/98
Photo of globes
DELAWARE
INVESTMENTS
- -----------
Philadelphia o London
