<PAGE>
SEPTEMBER 20, 1996
DEAR
- -------------------------
SHAREHOLDER:
- -------------------------
The first half of fiscal 1997 has been a challenging period for the municipal
bond market. Inflation fears and renewed calls for federal tax reform have
had a negative effect on interest rates and bond prices.
During the six months ended August 31, 1996, Tax-Free Pennsylvania Fund
provided a total return of -0.05% (capital change for Class A shares plus
reinvested dividends at net asset value). Such short-term results, while
disappointing, mask the fact that your Fund provided a relatively high level of
monthly income.
Income has historically been the dominant component of return from
bonds. While short-term market volatility presents opportunities to buy
undervalued fixed-income securities, we believe municipal bond investors are
more interested over the long term in a high level of tax-exempt current
income. We are pleased to report that your Fund's yield (for Class A shares)
as of August 31 was higher than the average of comparable mutual funds.
While the future can't be predicted with certainty, we have reason to
believe the interest rate climate will improve after the U.S. Presidential
election in November. In our opinion, questions about federal tax reform are
likely to be resolved without undue disruption of the bond market.
================================================================================
TOTAL RETURN 30-DAY YIELD
--------------------- ----------------
SIX MONTHS ENDED AS OF
AUGUST 31, 1996 AUGUST 31, 1996
--------------------- -----------------
Tax-Free Pennsylvania
Fund A -0.05% 4.89%
- -------------------------------------------------------------------------------
Lipper PA Municipal
Bond Fund Average
(67 Funds) +0.09% 4.70%
- -------------------------------------------------------------------------------
All performance quoted above is based on net asset value. Performance
information for all Fund classes can be found on pages 4 and 5. Yield
calculated according to Securities and Exchange Commission guidelines.
================================================================================
Overall, our research suggests that most municipal governments
within Pennsylvania can continue to offer high quality securities. In
our opinion, many local and regional governments retain a strong ability to
make regular interest payments to bondholders despite rhetoric about
the fiscal consequences of efforts in Harrisburg and Washington to reform
social programs.
We believe the disciplined strategy employed by J. Michael
Pokorny, portfolio manager of the Tax-Free Pennsylvania Fund for nearly two
decades, can help you benefit from the potential of the state's municipal
bond market. Inside, Mr. Pokorny highlights how he has positioned the Fund
for the coming months. We thank you for your commitment to the Fund.
Sincerely,
/s/ Wayne A. Stork
Wayne A. Stork
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
1
<PAGE>
PORTFOLIO
- --------------------------
MANAGER'S
- --------------------------
REVIEW
- --------------------------
Presidential election years have frequently generated short-term anxiety in
the municipal bond market. Historically, it is a time when office seekers of
both major parties make a wide range of tax proposals. Ten years ago, for
example, tax reform had a significant but temporary effect on bond prices.
In 1996, history repeated itself, and municipal bond investors were
again faced with the difficult challenge of anticipating future federal tax
policy. This year, however, tax law uncertainty has been compounded by a fear
of inflation.
The level of U.S. economic growth has generally been stronger than
expected, and since February, some bond market investors have believed that the
Federal Reserve Board needs to raise short-term interest rates to prevent an
acceleration in consumer prices.
(Chart Goes Here)
Pennsylvania Municipal Bond and U.S. Treasury Bond Yields
August 31, 1996
8/31/96
Pennsylvania
General 8/31/96
Obligation U.S.
Bonds Treasuries
3 month 3.50%
1 year 4.03% 4.23%
5 year 4.73% 4.84%
10 year 5.23% 4.99%
15 year 5.64% 5.11%
20 year 5.82% 5.23%
25 year 5.85% 5.17%
30 year 5.88% 5.12%
The U.S. Treasury yield curve shown here is adjusted downward to reflect the
payment of federal taxes for an investor in the 28% tax bracket. Pennsylvania
bonds on which the above yield curve are based vary in quality, unlike U.S.
Treasury bonds.
Source: Bloomberg Business News
Municipal bond prices have fallen, although not as significantly as
U.S. Treasury securities. The yield on 30-year Pennsylvania general
obligation bonds rose 32 basis points (0.32%) to 5.88% during the six months
ended August 31, 1996. For someone in the highest combined federal /
Pennsylvania tax bracket (41.3%), the taxable equivalent yield on such bonds
would have been 10.02%, a level we consider attractive.
THE FUND'S INVESTMENT STRATEGY
Your Fund seeks a high level of interest income exempt from federal,
Pennsylvania state and local income taxes. To maximize income, preserve
capital and increase returns in situations where a bond may be undervalued,
we:
* CAREFULLY EXAMINE QUALITY. Our primary focus is on securities rated A or
better. When we purchase municipal bonds, we personally review the
financial statements of the issuer and meet with management and/or public
officials.
* INVEST WITH A 2 TO 3-YEAR PERSPECTIVE. We analyze long-term trends in the
municipal finance market that could affect the performance of
Pennsylvania bonds.
* SEEK DIVERSIFICATION. As of August 31, no one type of municipal bond
accounted for more than 15% of the Fund's portfolio. No one community
accounted for more than 6%.
2
<PAGE>
During the first half of fiscal 1997, to increase your Fund's income
potential, we modestly increased our holdings of non-rated bonds. These bonds
generally pay higher rates of interest than bonds that have been evaluated by
rating services such as Standard & Poor's or Moody's Investors Services because
of the uncertainty associated with not having a letter grade.
Sometimes the amount of the bond issue is too small to justify the
expense of obtaining a rating. Such a situation presents us with an
opportunity for higher income if we can ascertain for ourselves that the
issuer has the resources to meet its obligations.
An example of what we believe is a high quality, non-rated issue in
your Fund's portfolio as of August 31 was a $10 million higher education
revenue bond issued on behalf of Holy Family College by Dauphin County. It
bears a 7.5% interest rate and provided the Fund with stable, above-average
income.
(Chart goes here)
Credit Quality of Your Fund's Portfolio
August 31, 1996
AAA 47.61%
AA 8.89%
A 14.60%
BBB 13.89%
BB&B 2.45%
Non-Rated 12.56%
A GREATER FOCUS ON DISCOUNT BONDS
Since the spring, we have sought to increase the Fund's return
potential by buying long-term bonds at prices that were less than face
value. This emphasis on discounted bonds reflects our belief that the U.S.
economy will grow at a moderate rather than robust pace and that interest
rates are likely to head lower after November.
One effect of buying so-called discount bonds is that a mutual
fund's average duration can rise even though the average maturity of bonds in
the portfolio stays about the same. That is because a discount bond generally
has a longer "life" than a comparable maturity bond that sells at a premium
to face value. A longer duration can have a beneficial effect on a bond
fund's return when interest rates fall, although it may also increase the
magnitude of price declines when rates rise.
As you can see in the table on page 4, we increased your Fund's
duration by 3.7 years during the past six months.
Last year, we sold bonds that were worth more than their face value
because we believed there was a good chance these securities would be
refinanced. We continued this strategy during the past six months. Generally,
we believe discount bonds offer better value as well as a degree of call
protection since local governments are unlikely to refinance debt issued at
"bargain" rates.
We have continued to reduce the percentage of the Fund's portfolio
invested in hospital revenue bonds. We concluded in 1996 that increased
industry competition and hospital mergers would result in greater risk. This
analysis was fortuitous, as a major hospital bond issue that we sold last
year was recently downgraded by rating services.
OUTLOOK
Overall, credit quality of many Pennsylvania municipalities remains
high, and we believe that the state's finances are likely to remain sound. We
also believe it is unlikely that America's federal tax burden will be
significantly reduced given the
3
<PAGE>
current political environment. Consequently, we believe Pennsylvanians will
continue to invest in the state's municipal bonds as a prudent way to reduce tax
liabilities. High demand can help support bond prices when supply is stable or
growing at a slower pace.
If inflation remains low and U.S. economic growth slows, we would
not be surprised if 30-year U.S. Treasury Bond yields fall as low as 6.25% by
the end of the fiscal year. All things being equal, a drop of such a
magnitude in Treasuries has the potential to lead to a significant rally in
municipal bond prices.
Over the long term, we believe Pennsylvania investors should benefit
from the state's increasing need to repair and replace an aging
infrastructure.
In the coming years, we believe public officials throughout the
state are likely to seek a significant amount of funding from private
investors rather than raise taxes to meet such needs. Your Fund will seek out
these opportunities as they arise.
Sincerely,
/s/ J. Michael Pokorny
J. Michael Pokorny
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
SEPTEMBER 20, 1996
================================================================================
PORTFOLIO CHARACTERISTICS
FEBRUARY 29, AUGUST 31,
1996 1996
---------------------------
Average Maturity 22.0 years 21.3 years
Average Duration 7.1 years 10.8 years
Average Quality AA AA
A Class 30-Day Yield* 4.59% 4.89%
*Measured according to Securities and Exchange Commission Guidelines. SEC
yield for B and C classes was 4.30% as of August 31, 1996. See page 5 for
performance information for all classes.
================================================================================
A LOOK AT
- ---------------------
LONG-TERM
- ---------------------
PERFORMANCE
- ---------------------
For nearly a generation, Tax-Free Pennsylvania Fund has remained focused
on providing a high level of income, free from federal and Pennsylvania
income taxes. An investor who bought $10,000 worth of Tax-Free Pennsylvania
Fund A Class shares on August 31, 1981, would have a portfolio worth $42,901 as
of August 31, 1996 if dividends were reinvested. That's a +10.25% average annual
return that was nearly three times the average annual increase in consumer
prices during the period. During the 15 years ended August 31, 1996, the fund's
annual distributions would have risen from $1,026 to $2,611 assuming
distributions were reinvested in additional shares.
(Chart goes here)
Tax-Free Pennsylvania Fund Class A
Dividend and Capital Gains History
Total Distributions 1981-1996 $26,967
Capital
Dividends Gains Total
82 $1,026 0 $1,026
84 $1,186 0 $1,186
86 $1,586 0 $1,586
88 $1,680 0 $1,680
90 $1,904 0 $1,904
92 $2,089 0 $2,089
94 $2,208 0 $2,208
96 $2,363 $248 $2,611
12 Months Ended 8/31
A $10,000 investment in Tax-Free Pennsylvania Fund A would have provided a
total of $26,967 in distributions since August 31, 1981, assuming
reinvestment of distributions. Some dividends may have been subject to the
alternative minimum tax. Capital gains are also subject to federal income
tax. The chart includes the effect of the 4.75% sales charge. Dividends for
classes B and C differ due to different expenses and charges.
4
<PAGE>
Tax-Free Pennsylvania Fund A Class vs. Inflation
Growth of a $10,000 Initial Investment
August 31, 1981 to August 31, 1996
(Chart goes here)
U.S. Consumer Tax-Free
Price Index Pennsylvania Fund A
8/82 10,589 11,536
8/84 11,320 15,325
8/86 11,884 21,524
8/88 12,889 23,718
8/90 14,254 27,566
8/92 15,261 34,398
8/94 16,138 38,472
8/96 17,034 42,901
Source of CPI Data: Bloomberg Business News
Chart assumes $10,000 invested on August 31, 1981 and includes the effect of
a 4.75% sales charge and reinvestment of all distributions. Performance of
other classes of Tax-Free Pennsylvania Fund will vary due to differing
charges and expenses.
AN INVESTMENT IN TAX-FREE PENNSYLVANIA FUND DURING THE PAST 15 YEARS WOULD HAVE
PROVIDED INFLATION PROTECTION AND INCOME EXEMPT FROM FEDERAL TAXATION.
TAX-FREE PENNSYLVANIA FUND PERFORMANCE
AVERAGE ANNUAL RETURN THROUGH AUGUST 31, 1996
<TABLE>
<CAPTION>
TEN YEARS FIVE YEARS ONE YEAR
Class A (Est.1977) +6.63% +5.82% -0.78%
LIFETIME ONE YEAR
<S> <C> <C> <C>
Class B (Est.1994)
Excluding Sales Charge +4.87% - +3.36%
Including Sales Charge +3.66% - -0.56%
Class C* (Est.1995)
Excluding Sales Charge +0.74% - -
Including Sales Charge -0.23% - -
</TABLE>
*aggregate return through August 31, 1996
ALL RETURNS REFLECT REINVESTMENT OF DISTRIBUTIONS. TAX-FREE PENNSYLVANIA
FUND'S 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. UP TO 20% OF THE ASSETS OF THE FUND MAY BE
INVESTED IN MUNICIPAL SECURITIES THAT GENERATE INCOME SUBJECT TO THE FEDERAL
ALTERNATIVE MINIMUM TAX.
Class A returns reflect the effect of the 4.75% maximum sales charge and, for
periods after June 1,1992, a 12b-1 fee of up to 0.30%.
Class B shares, initially offered May 2, 1994, do not carry a front-end
sales charge, but are subject to a 1% annual distribution and service fee.
They are subject to a deferred sales charge of up to 4%. Performance
"excluding sales charge" assumes the investment was not redeemed. Class B's
six-month return for the period ended August 31, 1996 was -0.45%, excluding
sales charge.
Class C shares, initially offered November 29, 1995, have a 1% annual
distribution and service fee. If redeemed within 12 months, a 1% contingent
deferred sales charge applies. Class C's six-month return for the period
ended August 31, 1996 was -0.45%, excluding sales charge.
5
<PAGE>
FINANCIAL
- --------------------------
STATEMENTS
- --------------------------
DELAWARE GROUP
TAX-FREE PENNSYLVANIA FUND*
STATEMENT OF NET ASSETS
AUGUST 31, 1996
(UNAUDITED)
Principal Market
Amount Value
MUNICIPAL BONDS - 98.58%
Higher Education Revenue Bonds - 7.45%
Dauphin County College Revenue
(Holy Family College)
7.50% 12/01/19 ............................... $3,025,000 $ 3,059,031
Delaware County Authority University
Revenue (Haverford College)
5.50% 11/15/23 (MBIA)......................... 2,215,000 2,090,406
Delaware County Authority University
Revenue (Villanova University)
9.63% 08/01/02............................... 495,000 560,588
Delaware County Authority University
Revenue (Villanova University)
5.50% 08/01/23 (MBIA)......................... 2,975,000 2,796,500
Delaware County Pennsylvania Authority
University (Villanova University)
5.80% 08/01/25 (AMBAC)........................ 7,000,000 6,851,250
Montgomery County Higher Education and
Health Authority (Beaver College) Revenue
5.85% 04/01/21................................ 5,465,000 5,383,025
Pennsylvania Higher Education Facilities
Authority College Revenue
(Elizabethtown College)
6.50% 06/15/15................................ 6,700,000 6,825,625
Pennsylvania Higher Education Facilities
Authority College Revenue (LaSalle
University) (Escrowed to Maturity)
9.50% 05/01/03................................ 415,000 472,581
Pennsylvania Higher Education Facilities
Authority College Revenue
(Rosemont College)
8.00% 12/01/16................................ 250,000 250,318
Pennsylvania Higher Education Facilities
Authority College Revenue
(Temple University)
5.75% 04/01/31 (MBIA)......................... 8,000,000 7,620,000
*The Fund's legal name is DMC Tax-Free Income Trust-Pennsylvania
6
<PAGE>
Principal Market
Amount Value
Municipal Bonds (Continued)
Higher Education
Revenue Bonds (Continued)
Pennsylvania Higher Education Facilities
Authority State System Revenue
5.75% 06/15/20 (AMBAC) .................... $17,730,000 $17,087,288
Pennsylvania State University
5.50% 08/15/16 ............................ 12,500,000 11,937,500
Swarthmore Borough Authority
(Swarthmore College)
7.38% 09/15/08 ............................ 990,000 1,049,400
Swarthmore Borough Authority
(Swarthmore College)
6.00% 09/15/12 ............................ 7,000,000 7,052,500
-----------
73,036,012
----------
Hospital Revenue Bonds - 13.52%
Allegheny County Hospital Development
Authority Revenue Refunding
(Allegheny Valley Hospital Facility
Management Corp. & Allegheny
Valley Hosp)
7.50% 08/01/13 ............................ 4,275,000 4,401,797
Allegheny County Hospital Development
Authority Revenue Refunding
(Mercy Hospital-Pittsburgh)
7.375% 04/01/15 ........................... 1,000,000 1,021,050
Allegheny County Hospital Development
Authority Revenue Refunding
(St. Margaret Hospital)
9.80% 07/01/10 ............................ 2,500,000 2,535,050
Allegheny County Hospital Development
Authority Revenue (University of Pittsburgh
Medical Center)
5.375% 12/01/25 (MBIA) .................... 12,575,000 11,490,406
Allegheny County Health Facilities
(South Hills Health)
6.00% 05/01/20 (MBIA) ..................... 1,500,000 1,503,750
Delaware County Authority Hospital Revenue
(Riddle Memorial Hospital)
7.125% 01/01/10 ........................... 1,130,000 1,155,244
Monroeville, Pennsylvania Hospital Authority
(Forbes Health System)
7.00% 10/01/13 ............................ 7,000,000 7,236,250
Philadelphia Hospital & Higher Education
Facilities Authority Hospital Revenue
(Albert Einstein Medical Center)
7.625% 04/01/11 ........................... 19,110,000 20,232,713
<PAGE>
Statements of Net Assets (Continued)
Principal Market
Amount Value
Municipal Bonds (Continued)
Hospital Revenue Bonds (Continued)
Philadelphia Hospitals & Higher Education
Facilities Authority Hospital Revenue
(Children's Hospital, Philadelphia)
5.00% 02/15/21............................... $ 5,200,000 $ 4,517,500
Philadelphia Hospitals & Higher Education
Facilities Authority Hospital Revenue
(Children's Hospital, Philadelphia)
5.50% 02/15/22............................... 5,600,000 5,215,000
Philadelphia Hospitals & Higher Education
Facilities Authority Hospital Revenue
(Children's Seashore House Series A)
7.00% 08/15/17............................... 3,100,000 3,227,875
Philadelphia Hospitals & Higher Education
Facilities Authority Hospital Revenue
(Children's Seashore House Series B)
7.00% 08/15/22............................... 2,100,000 2,178,750
Philadelphia Hospital & Higher Education
Facilities Authority Hospital Revenue
(Jeanes Health System Project)
6.85% 07/01/22............................... 18,020,000 18,312,825
Philadelphia Hospitals & Higher Education
Facilities Authority Hospital Revenue
(Presbyterian Medical Center)
(Escrowed to Maturity)
6.65% 12/01/19............................... 13,000,000 14,397,500
Philadelphia Hospitals & Higher Education
Facilities Authority Hospital Revenue
(Roxborough Memorial Hospital)
7.25% 03/01/24............................... 12,505,000 12,051,694
Philadelphia Hospitals & Higher Education
Facilities Authority Hospital Revenue
(Temple University Hospital)
6.625% 11/15/23.............................. 6,500,000 6,548,750
Sayre-Health Care Facilities (VHA of
Pennsylvania, Inc.) (Capital Asset Financing
Program-Guthrie Medical Center) Series A
7.625% 12/01/15 (AMBAC)...................... 1,000,000 1,096,250
Sayre-Health Care Facilities (VHA of
Pennsylvania, Inc.) (Capital Asset Financing
Program-Guthrie Medical Center) Series B
7.625% 12/01/15 (AMBAC)...................... 2,490,000 2,729,663
<PAGE>
Principal Market
Amount Value
Municipal Bonds (Continued)
Hospital Revenue Bonds (Continued)
Sayre-Health Care Facilities (VHA of
Pennsylvania, Inc.) (Capital Asset Financing
Program-Guthrie Medical Center) Series 91A
6.00% 03/01/21 (AMBAC) .................... $ 7,000,000 $ 7,035,000
Scranton-Lackawanna, Pennsylvania Health
and Welfare Authority (Allied Services
Rehabilitation Hospitals)
7.60% 07/15/20 ............................ 5,640,000 5,766,900
------------
132,653,967
------------
Housing Revenue Bonds - 5.72%
Montgomery County Housing Redevelopment
Authority (Montgomery Woods Project)
7.50% 01/01/24 ............................ 11,405,000 11,347,975
Montgomery County Multi-Family Housing
(KBF Associates Project)
6.50% 07/01/25 ............................ 19,810,000 19,042,363
Montgomery County, Pennsylvania
Redevelopment Authority Multi-Family
Housing (KBF Associates Project)
7.25% 07/01/25 ............................ 15,185,000 14,729,450
Pennsylvania Housing Finance Agency
7.50% 10/01/10 ............................ 1,250,000 1,320,313
Pennsylvania Housing Finance Agency
7.45% 04/01/16 ............................ 2,000,000 2,090,000
Philadelphia Redevelopment Authority Home
Improvement Series 86A
7.375% 06/01/03 (FHA) ..................... 1,820,000 1,847,300
Philadelphia Redevelopment Authority Home
Mortgage Series 86A
7.125% 12/01/13 (GNMA) .................... 495,000 505,588
Pittsburgh Urban Redevelopment Authority
Mortgage Revenue Series 87B
8.30% 04/01/17 ............................ 800,000 835,408
Pittsburgh Urban Redevelopment Authority
Mortgage Revenue Series 86A
7.625% 10/01/17 ........................... 4,300,000 4,387,161
------------
56,105,558
------------
Pollution Control Revenue Bonds - 8.41%
Beaver County Industrial Development
Authority Pollution Control Revenue
(Cleveland Electric Project)
7.625% 05/01/25 ........................... 13,500,000 13,618,125
Beaver County Industrial Development
Authority Pollution Control Revenue
(Cleveland Electric Project)
7.75% 07/15/25 ............................ 10,000,000 10,175,000
7
<PAGE>
Statements of Net Assets (Continued)
Principal Market
Amount Value
Municipal Bonds (Continued)
Pollution Control Revenue
Bonds (Continued)
Delaware County Industrial Development
Authority Pollution Control Revenue
(Philadelphia Electric Co.)
7.375% 04/01/21 ............................... $10,250,000 $10,903,438
Lehigh County Industrial Development
Authority Pollution Control Revenue
6.40% 11/01/21 (MBIA) ......................... 7,000,000 7,271,250
Lehigh County Industrial Development
Authority Pollution Control Revenue
5.50% 02/15/27 (MBIA) ......................... 15,500,000 14,337,500
Lehigh County Industrial Development
Authority Pollution Control Revenue
6.40% 09/01/29 (MBIA) ......................... 15,000,000 15,618,750
Montgomery County Industrial Development
Authority Pollution Control Revenue
(Philadelphia Electric Co.)
6.70% 12/01/21 (MBIA) ......................... 10,000,000 10,637,500
-----------
82,561,563
-----------
Pre-Refunded Bonds** - 25.84%
Allegheny County Hospital Development
Authority (Magee-Womens Hospital)
8.25% 10/01/13-97 ............................. 5,000,000 5,315,350
Allegheny County, Pennsylvania Sanitary
Authority
7.50% 06/01/16-99 (FGIC) ...................... 1,780,000 1,917,950
Allegheny County Sanitation Authority
Revenue Series 86B
7.50% 06/01/16-99 (FGIC) ...................... 4,020,000 4,331,550
Allegheny County Sanitation Authority
Revenue Series 91C
6.50% 12/01/16-01 (FGIC) ...................... 4,500,000 4,854,375
Berks County Municipal Authority Revenue
(The Highlands at Wyomissing Project)
9.125% 10/01/17-97 ............................ 4,000,000 4,209,800
Bucks County Water and Sewer Authority
Revenue (Collection Sewer System) ............. 4,240,000 4,393,700
Revenue (Southwest Region Water System)
Series C
7.00% 12/01/19-97 (FGIC) ...................... 1,000,000 1,036,250
Delaware County Authority University
Revenue (Hartford College)
7.375% 11/15/20-00 (MBIA) ..................... 3,275,000 3,663,906
<PAGE>
Principal Market
Amount Value
Municipal Bonds (Continued)
Pre-Refunded Bonds (Continued)
Delaware River Joint Toll Bridge Commission
Bridge System Revenue
7.875% 07/01/18-98 ............................ $ 4,600,000 $ 4,979,500
Doylestown Hospital Authority
(Doylestown Hospital) Series C
6.90% 07/01/19-99 (AMBAC) ..................... 1,750,000 1,892,188
Harrisburg Water Authority Revenue
7.00% 07/15/15-01 (FGIC) ...................... 12,000,000 13,155,000
Harrisburg Water and Sewer Authority
Revenue (Daulphin County) Series 88A
8.00% 05/01/12-98 (AMBAC) ..................... 6,000,000 6,360,000
Huntingdon Borough General Obligation
7.50% 12/01/17-97 ............................. 875,000 911,094
Lackawanna County Multi-Purpose Stadium
Authority Stadium Revenue Guaranteed
8.625% 08/15/07-98 ............................ 700,000 775,250
Pennsylvania Higher Education Facilities
Authority College Revenue (Hahnemann
University)
6.90% 07/01/21-01 (MBIA) ...................... 3,000,000 14,413,750
Pennsylvania Higher Educational Facilities
Authority College & University Revenue
(Holy Family)
8.00% 12/01/06-98 ............................. 380,000 409,450
Pennsylvania Higher Education Facilities
Authority (The Medical College
of Philadelphia)
7.50% 03/01/14-99 ............................. 1,000,000 1,071,250
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue (City of
Philadelphia Funding Program)
6.80% 06/15/22-02 ............................. 2,125,000 2,329,531
Pennsylvania State University Revenue
Series 89
6.75% 07/01/14-99 ............................. 14,195,000 15,277,369
Pennsylvania Turnpike Commission Turnpike
Revenue Series D
7.625% 12/01/17-98 (FGIC) ..................... 3,500,000 3,815,000
Pennsylvania Turnpike Commission Turnpike
Revenue Series E
7.55% 12/01/17-99 (MBIA) ...................... 495,000 548,213
Pennsylvania Turnpike Commission Turnpike
Revenue Series I
7.20% 12/01/17-01 (FGIC) ...................... 8,915,000 10,051,663
Pennsylvania Turnpike Commission Turnpike
Revenue Series J
7.20% 12/01/17-01 (FGIC) ........................ 8,995,000 10,141,863
8
<PAGE>
Statements of Net Assets (Continued)
Principal Market
Amount Value
Municipal Bonds (Continued)
Pennsylvania Turnpike Commission Turnpike
Revenue Series K
7.50% 12/01/19-99 ............................... $10,000,000 $11,062,500
Philadelphia General Obligation
8.125% 08/01/17-97 .............................. 7,410,000 7,827,183
Philadelphia, Pennsylvania Regional Port
Authority Lease Revenue
7.15% 08/01/20-00 (MBIA) ........................ 16,315,000 17,742,563
Philadelphia Water & Sewer Revenue
7.00% 08/01/18-01 ............................... 20,650,000 22,637,563
Puerto Rico (Commonwealth of) General
Obligation 8.00% 07/01/07-98 .................... 2,545,000 2,764,506
Puerto Rico (Commonwealth of) General
Obligation 7.25% 07/01/10-00 .................... 1,370,000 1,520,700
Puerto Rico (Commonwealth of) General
Obligation 7.75% 07/01/13-98 .................... 12,775,000 13,844,906
Puerto Rico (Commonwealth of) General
Obligation 7.75% 07/01/17-99 .................... 7,700,000 8,498,875
Puerto Rico (Commonwealth of) General
Obligation 6.50% 07/01/18-99 .................... 2,745,000 2,902,838
Sewickley Valley Hospital Authority Refunding
(Sewickley Valley Hospital Project)
7.50% 10/01/06-99 ............................... 1,295,000 1,424,500
Swarthmore Borough Authority (Swarthmore
College) 7.375% 09/15/08-98 ..................... 1,810,000 1,945,750
Swarthmore Boro Authority (Swarthmore
College) 7.375% 09/15/20-00 ..................... 14,000,000 15,470,000
University Area Joint Authority Water and
Sewer Revenue
7.10% 09/01/20-00 (MBIA) ........................ 6,000,000 6,540,000
Upper Darby Township (Delaware County)
General Obligation
7.875% 07/15/18-98 .............................. 4,345,000 4,627,425
Washington County Authority Revenue
(Shadyside Hospital) Series 85D
7.45% 12/15/18-00 (AMBAC) ....................... 7,500,000 8,400,000
York County Hospital Revenue Authority
(York Hospital) (AMBAC)
7.00% 07/01/21-01 ............................... 9,500,000 10,473,750
-----------
253,537,061
-----------
<PAGE>
Principal Market
Amount Value
Municipal Bonds (Continued)
School Authority/District Bonds - 1.42%
Abington PA Sch Dist
6.00% 05/15/26 (FGIC) ........................... $ 6,000,000 $ 6,060,000
Altoona Area School District (Blair County)
(Escrowed to Maturity)
10.00% 06/15/98 ................................. 285,000 304,238
Lakeland School District General Obligation
(Lackawanna County)
9.50% 08/15/10 .................................. 485,000 488,128
Parkland Penn Sch Dist
5.80% 09/01/16 .................................. 5,510,000 5,489,338
Pottsville Area School District (Escrowed to
Maturity)
9.375% 05/01/06 (AMBAC) ......................... 900,000 1,140,750
Sourhmoreland School District (Escrowed to
Maturity)
10.50% 10/01/97 (AMBAC) ......................... 465,000 484,065
-----------
13,966,519
-----------
State General Obligation Bonds - 1.31%
Pennsylvania State First Series General
Obligation 5.375% 04/15/12 ...................... 2,000,000 1,932,500
Pennsylvania State Second Series General
Obligation 5.25% 06/15/12 ....................... 5,000,000 4,768,750
Pennsylvania State Series 1996 General
Obligation 5.375% 11/15/10 ...................... 1,525,000 1,498,313
Pennsylvania State Third Series General
Obligation 5.00% 09/01/12 ....................... 5,000,000 4,606,250
-----------
12,805,813
-----------
Transportation Revenue Bonds - 3.29%
Pennsylvania State Turnpike Commission
Turnpike Revenue Series L
6.25% 06/01/11 (AMBAC) .......................... 9,000,000 9,348,750
Pennsylvania State Turnpike Commission
Turnpike Revenue Series N
6.50% 12/01/13 .................................. 3,000,000 3,127,500
Pennsylvania State Turnpike Commission
Turnpike Revenue Series N
5.50% 12/01/17 .................................. 14,000,000 13,072,500
Pennsylvania State Turnpike Commission
Turnpike Revenue Series N
5.50% 12/01/17 (MBIA) ........................... 2,000,000 1,890,000
Philadelphia Airport Revenue (Philadelphia
Airport System) 9.00% 06/15/15 .................. 4,730,000 4,871,380
-----------
$32,310,130
-----------
9
<PAGE>
Statements of Net Assets (Continued)
Principal Market
Amount Value
Municipal Bonds (Continued)
Waste Disposal Revenue Bonds - 2.25%
Greater Lebanon Refuse Authority Revenue
Refunding (Lancaster County)
7.00% 11/15/04 ................................. $ 1,200,000 $ 1,261,500
York County Solid Waste and Refuse Authority
Revenue 8.20% 12/01/14 ......................... 19,500,000 20,840,625
------------
22,102,125
------------
Water & Sewer Revenue Bonds - 3.11%
Dauphin County Industrial Development
Authority Water Development Revenue
Series 92B 6.70% 06/01/17 ....................... 1,750,000 1,870,313
Pittsburgh Pennsylvania Water & Sewer
Authority Water & Sewer Systems Revenue
Series A 4.90% 09/01/07 (FGIC) .................. 4,785,000 4,617,525
Pittsburgh Water and Sewer Revenue Bonds
(Escrowed to Maturity)
7.25% 09/01/14 (FGIC) .......................... 9,000,000 9,967,500
Pittsburgh Pennsylvania Water & Sewer
Authority Water & Sewer Systems Revenue
Series A 4.75% 09/01/16 (FGIC) .................. 12,500,000 10,781,250
Pittsburgh Water & Sewer Authority Water &
Sewer Systems Revenue Series B
5.00% 09/01/23 ................................. 3,800,000 3,310,750
------------
30,547,338
------------
Other General Obligation Bonds - 11.63%
Elizabeth Township (Allegheny County)
Pennsylvania General Obligation
5.25% 12/15/26 (FGIC) .......................... 2,715,000 2,474,044
Erie County General Obligation
5.25% 09/01/12 (FGIC) .......................... 1,570,000 1,505,238
Falls Township General Obligation
7.00% 12/15/10 (MBIA) .......................... 3,000,000 3,251,250
New Morgan Obligation Guaranteed Revenue
8.00% 11/01/05 ................................. 10,000,000 10,037,500
Philadelphia, Pennsylvania General Obligation
5.00% 05/15/25 (MBIA) .......................... 31,690,000 27,887,200
Pittsburgh, Pennsylvania General Obligation
5.20% 03/01/10 (FGIC) .......................... 32,580,000 31,236,075
Puerto Rico (Commonwealth of)
General Obligation 0.00% 07/01/04 ............... 45,380,000 30,007,525
Puerto Rico (Commonwealth of)
General Obligation 8.00% 07/01/07 ............... 715,000 765,944
Puerto Rico (Commonwealth of)
General Obligation 6.00% 07/01/22 ............... 3,585,000 3,562,594
Radnor Township, Pennsylvania Recreational
Facilities Improvement General Obligation
5.25% 11/01/26 ................................. 3,785,000 3,411,231
------------
114,138,601
------------
<PAGE>
Principal Market
Amount Value
Municipal Bonds (Continued)
Other Revenue Bonds - 14.63%
Cambria County Hospital Development Authority
Health Care Revenue
(Allegheny Luthern Ministries Project)
8.25% 06/15/17 .................................. $ 3,250,000 $ 3,424,688
Chester Pennsylvania Guaranteed
Community Revenue
7.25% 12/01/05 .................................. 13,000,000 12,658,750
Dauphin County, Pennsylvania General
Authority (Bedford Springs Golf Course)
6.00% 11/01/17 .................................. 3,480,000 3,005,850
Delaware County Authority Revenue
(Main Line & Haverford Nursing)
9.00% 08/01/22 .................................. 2,000,000 2,155,000
Delaware River Port Authority
6.50% 01/01/08 (AMBAC) .......................... 5,000,000 5,143,750
Delaware River Port Authority
Pennsylvania & New Jersey Revenue
5.50% 01/01/26 (FGIC) ........................... 17,400,000 16,486,500
Pennsylvania Intergovernmental Cooperative
Authority (City of Philadelphia
Funding Program)
5.50% 06/15/06 (FGIC) ........................... 8,000,000 7,540,000
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue
(City of Philadelphia Funding Program)
5.60% 06/15/15 (MBIA) ........................... 2,245,000 2,152,394
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue
(City of Philadelphia Funding Program)
5.00% 06/15/22 (MBIA) ........................... 25,345,000 22,081,831
Pennsylvania Public School Building
Authority Lease Revenue
(Escrowed to Maturity)
10.375% 11/01/06 ................................ 5,000 5,055
Philadelphia Authority For Industrial
Development Revenue (American
Fiber Supply Project)*
8.00% 12/01/19 .................................. 15,900,000 10,335,000
Philadelphia Authority For Industrial
Development Revenue (Gallery ll
Garage Project)
6.40% 02/15/13 .................................. 9,150,000 8,418,000
Philadelphia Authority For Industrial
Development Revenue (Cathedral Village)
7.25% 04/01/15 .................................. 2,000,000 1,980,000
10
<PAGE>
Statements of Net Assets (Continued)
Principal Market
Amount Value
Municipal Bonds (Continued)
Philadelphia Gas Works Revenue
0.00% 01/01/12 (AMBAC) ...................... $ 2,500,000 $ 1,018,750
Philadelphia Municipal Authority Revenue
Lease Series B
6.40% 11/15/16 .............................. 40,575,000 40,575,000
Philadelphia, Pennsylvania Authority For
Industrial Development Revenue (Stapley
Germantown Continuous Care Community)
6.60% 01/01/16 .............................. 5,250,000 4,954,688
Westmoreland County Municipal Authority
Municipal Service Revenue
0.00% 08/15/23 (FGIC) ....................... 8,000,000 1,560,000
------------
143,495,256
------------
Total Municipal Bonds
(Cost $934,858,575) ..................................... 967,259,943
============
TOTAL MARKET VALUE OF
SECURITIES OWNED - 98.58%
(Cost $934,858,575) ..................................... 967,259,943
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.42% .............................. 13,937,315
------------
NET ASSETS APPLICABLE TO 116,004,013
TAX-FREE PENNSYLVANIA FUND A CLASS
SHARES, 3,271,168 TAX-FREE
PENNSYLVANIA FUND B CLASS SHARES
AND 82,920 TAX-FREE PENNSYLVANIA
FUND C CLASS SHARES OUTSTANDING;
EQUIVALENT TO $8.22 PER
SHARE - 100.00% ......................................... $981,197,258
============
- ----------
AMBAC - Insured by AMBAC Indemnity Corporation ................
FGIC - Insured by the Financial Guaranty Insurance Company.
FHA - Insured by the Federal Housing Administration.
MBIA - Insured by the Municipal Bond Insurance Association.
*This security is subject to the federal alternative minimum tax.
**For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
COMPONENTS OF NET ASSETS AT AUGUST 31, 1996:
Capital shares (unlimited authorization-
no par value) ................................................ $941,346,935
Accumulated undistributed:
Net realized gain on investments ............................... 7,448,965
Net unrealized appreciation of investments ..................... 32,401,358
------------
Total net assets ............................................... $981,197,258
============
See accompanying notes
<PAGE>
DELAWARE GROUP TAX-FREE-PENNSYLVANIA FUND*
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
INVESTMENT INCOME:
Interest ................................................... $32,501,878
EXPENSES:
Management ($2,867,243) and trustees'
($12,067) fees .................................. 2,879,310
Distribution expenses ............................ 1,093,912
Dividend disbursing and transfer agent
fees and expenses ............................... 334,196
Salaries ......................................... 134,024
Reports and statements to shareholders ........... 73,772
Professional fees ................................ 28,153
State Registration Fees .......................... 2,650
Custodial fees ................................... 800
Other ............................................ 30,750 4,577,567
---------- ----------
NET INVESTMENT INCOME ............................ 27,924,311
----------
NET REALIZED GAIN AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized gain from
security transactions ......................................... 2,800,473
Net unrealized depreciation of investments
during the period ............................................. (32,202,891)
------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS ............................................ (29,402,418)
------------
NET decrease IN NET ASSETS
RESULTING FROM OPERATIONS ..................................... $ (1,478,107)
============
*The Fund's legal name is DMC Tax-Free Income Trust-Pennsylvania
See accompanying notes
11
<PAGE>
DELAWARE GROUP TAX-FREE-PENNSYLVANIA FUND*
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
8/31/96 2/29/96
(Unaudited)
<S> <C> <C>
OPERATIONS:
Net investment income ............................ $ 27,924,311 $ 57,413,056
Net realized gain from
security transactions ........................... 2,800,473 13,527,491
Net unrealized appreciation (depreciation)
during the period ............................... (32,202,891) 26,543,167
--------------- ---------------
Net (decrease) increase in net assets
resulting from operations ....................... (1,478,107) 97,483,714
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income
Tax-Free Pennsylvania Fund A Class ............... (27,342,442) (56,634,466)
Tax-Free Pennsylvania Fund B Class ............... (573,072) (777,666)
Tax-Free Pennsylvania Fund C Class ............... (8,797) (924)
Net Realized Gain From Security Transactions:
Tax-Free Pennsylvania Fund A Class ............... -- (5,913,829)
Tax-Free Pennsylvania Fund B Class ............... -- (112,266)
Tax-Free Pennsylvania Fund C Class ............... -- --
--------------- ---------------
(27,924,311) (63,439,151)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold
Tax-Free Pennsylvania Fund A Class .............. 24,494,325 59,712,368
Tax-Free Pennsylvania Fund B Class .............. 6,909,885 11,017,598
Tax-Free Pennsylvania Fund C Class .............. 608,665 123,697
Net asset value of shares issued
upon reinvestment of dividends
from net investment income and
realized securities profits:
Tax-Free Pennsylvania Fund A Class .............. 15,842,656 37,397,581
Tax-Free Pennsylvania Fund B Class .............. 358,712 588,234
Tax-Free Pennsylvania Fund C Class .............. 8,270 885
--------------- ---------------
48,222,513 108,840,363
--------------- ---------------
Cost of shares repurchased:
Tax-Free Pennsylvania Fund A Class .............. (60,827,912) (104,125,438)
Tax-Free Pennsylvania Fund B Class .............. (619,785) (1,438,631)
Tax-Free Pennsylvania Fund C Class .............. (47,403) (99)
--------------- ---------------
(61,495,100) (105,564,168)
--------------- ---------------
Decrease (increase) in net assets derived
from capital share transactions ................. (13,272,587) 3,276,195
--------------- ---------------
NET INCREASE (DECREASE)
IN NET ASSETS ................................... (42,675,005) 37,320,758
--------------- ---------------
NET ASSETS:
Beginning of period .............................. 1,023,872,263 986,551,505
--------------- ---------------
End of period .................................... $ 981,197,258 $ 1,023,872,263
=============== ===============
</TABLE>
See accompanying notes
<PAGE>
DELAWARE GROUP TAX-FREE-PENNSYLVANIA FUND*
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 1996
(UNAUDITED)
DMC Tax-Free Income Trust-Pennsylvania (the "Trust") is registered as a
nondiversified open-end management investment company organized as a
Pennsylvania Business Trust and is registered under the Investment Company
Act of 1940, as amended. The Trust offers three classes of shares. The
Trust's objective is to seek a high level of current interest income exempt
from federal income tax and Pennsylvania state and local taxes, consistent
with preservation of capital.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Trust.
Security Valuation - Long-term debt securities are valued by an independent
pricing service and are believed to reflect the fair value of such
securities. Money market instruments having less than 60 days to maturity are
valued at amortized cost which approximates market value.
Federal Income Taxes - The Trust intends to continue to qualify as a
regulated investment company and make the requisite distributions to
shareholders. Accordingly, no provision for federal income taxes is required
in the financial statements.
Class Accounting - Investment income, common expenses and gain (loss) on
investments are allocated to the various classes of the Trust on the basis of
daily-net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
Other - Expenses common to all Funds within the Delaware Group of Funds are
allocated amongst the funds on the basis of average net assets. Security
transactions are recorded on the date the securities are purchased or sold
(trade date). Costs used in calculating realized gains and losses on the sale
of investment securities are those of the specific securities sold. Interest
income is recorded on an accrual basis. Original issue discounts are accreted
and premiums are amortized to interest income over the lives of the
respective securities. The Trust declares dividends daily from net investment
income and pays such dividends monthly.
Certain Trust expenses are paid directly by brokers. The amount of these
expenses is less than 0.01% of the Trust's average net assets.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the
Trust pays Delaware Management Company, Inc. (DMC), the Investment Manager of
the Trust, 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 Trust, 0.575% on
the next $250 million and 0.55% on the average daily net assets over $750
million, less all amounts paid to the trustees. At August 31, 1996, the Trust
had a liability for investment management fees payable to DMC of $13,912.
*The Fund's legal name is DMC Tax-Free Income Trust-Pennsylvania
12
<PAGE>
Notes to Financial Statements (Continued)
Pursuant to the Distribution Agreement, the Trust pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B Class and the C Class. At August 31, 1996,
the Trust had a liability for distribution fees and other expenses payable to
DDLP of $23,927. For the six months ended August 31, 1996, the Trust paid DDLP
$121,437 for commissions earned on sales of Tax-Free Pennsylvania Fund A
Class shares.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC, to serve as dividend disbursing and transfer agent for the Trust. For
the six months ended August 31, 1996, the Trust expensed $334,196 for these
services. At August 31, 1996, the Trust had a liability for such fees and
other expenses payable to DSC of $42,110.
Effective August 19, 1996, the Trust also engaged DSC to provide accounting
services for the Trust.
Certain officers of the DMC, DDLP and DSC are officers, directors and/or
employees of the Trust. These officers, directors and employees are paid no
compensation by the Trust.
3. Investments
During the six months ended August 31, 1996, the Trust made purchases of
$62,116,309 and sales of $80,684,373 of investment securities other than
direct U.S. government securities and temporary cash investments.
At August 31, 1996 unrealized appreciation for financial reporting and
federal income tax purposes aggregated $32,401,358 of which $43,849,448
related to unrealized appreciation of securities and $11,448,090 related to
unrealized depreciation of securities. The realized gain for federal income
tax purposes was $2,800,473 for the period ended August 31, 1996.
4. Trust Shares
Transactions in Trust shares were as follows:
Six Months
Ended Year Ended
8/31/96 2/29/96
Shares sold:
Tax-Free Pennsylvania Fund A Class ......... 2,962,055 7,115,806
Tax-Free Pennsylvania Fund B Class ......... 837,182 1,313,984
Tax-Free Pennsylvania Fund C Class ......... 73,080 14,483
Shares issued upon reinvestment of dividends
from net investment income and distributions
of realized gain from security transactions:
Tax-Free Pennsylvania Fund A Class ......... 1,919,600 4,443,556
Tax-Free Pennsylvania Fund B Class ......... 43,496 69,751
Tax-Free Pennsylvania Fund C Class ......... 1,003 104
----------- -----------
5,836,416 12,957,684
----------- -----------
Shares repurchased:
Tax-Free Pennsylvania Fund A Class ......... (7,402,294) (12,403,681)
Tax-Free Pennsylvania Fund B Class ......... (74,878) (170,202)
Tax-Free Pennsylvania Fund C Class ......... (5,739) (12)
----------- -----------
(7,482,911) (12,573,895)
----------- -----------
Net (Decrease) Increase ..................... (1,646,495) 383,789
=========== ===========
5. Lines of Credit
The Trust has a committed line of credit for $20 million. No amount was
outstanding at August 31, 1996, or at any time during the period.
6. Concentration of Credit Risk
The Trust concentrates its investments mainly in securities issued by
Pennsylvania municipalities. The value of these investments may be adversely
affected by new legislation within the state, regional or local economic
conditions, and differing levels of supply and demand for municipal bonds. Many
municipalities insure repayment of their obligations. Although bond insurance
reduces the risk of loss due to default by an issuer, such bonds remain subject
to the risk that market value may fluctuate for other reasons and there is no
assurance that the insurance company will meet its obligations. These securities
have been identified in the Statement of Net Assets.
13
<PAGE>
Notes to Financial Statements (Continued)
7. Financial Highlights
Selected data for each share of the Trust outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Pennsylvania Fund A Class
------------------------------------------------------------------------------
Six
Months
Ended Year Ended
8/31/96(3) 2/29/96 2/28/95 2/28/94 2/28/93(2) 2/29/92
---------- ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period......... $8.460 $8.180 $8.610 $8.630 $8.110 $7.800
Income from investment operations:
Net investment income....................... 0.234 0.476 0.494 0.496 0.514 0.532
Net realized and unrealized
gain (loss) from security transactions..... (0.240) 0.330 (0.430) (0.020) 0.520 0.310
------ ------ ------ ------ ------ ------
Total from investment operations............. (0.006) 0.806 0.064 0.476 1.034 0.842
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income........ (0.234) (0.525) (0.494) (0.496) (0.514) (0.532)
Distributions from net realized gain
from security transactions................. none (0.050) none none none none
------ ------ ------ ------ ------ ------
Total distributions......................... (0.234) (0.525) (0.494) (0.496) (0.514) (0.532)
------ ------ ------ ------ ------ ------
Net asset value, end of period............... $8.220 $8.460 $8.180 $8.610 $8.630 $8.110
====== ====== ====== ====== ====== ======
Total return(1).............................. (0.05%) 10.08% 0.91% 5.64% 13.20% 11.11%
Ratios/supplemental data:
Net assets, end of period (000 omitted)..... $953,624 $1,002,888 $976,313 $1,026,903 $940,616 $766,625
Ratio of expenses to average net assets..... 0.90% 0.90% 0.90% 0.88% 0.83% 0.72%
Ratio of net investment income to
average net assets......................... 5.61% 5.67% 6.03% 5.70% 6.18% 6.65%
Portfolio turnover.......................... 14% 25% 18% 14% 11% 7%
</TABLE>
- -----------------------
1 Does not reflect maximum sales charge of 4.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase for the Tax-Free Pennsylvania
Fund A Class.
2 Reflects 12b-1 distribution expenses beginning June 1, 1992.
3 Ratios have been annualized and total return has not been annualized.
14
<PAGE>
Notes to Financial Statements (Continued)
7. Financial Highlights (Continued)
Selected data for each share of the Trust outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Tax Free
Pennsylvania Pennsylvania
Fund B Class Fund C Class
---------------------------------- ------------------------
Six Period From Six Period From
Months Year 5/2/94(3) Months 11/29/95(2)
Ended Ended to Ended to
8/31/963 2/29/96 2/28/95 8/31/963 2/29/96
-------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................. $8.460 $8.180 $8.310 $8.460 $8.510
Income from investment operations:
Net investment income............................... 0.200 0.408 0.353 0.200 0.102
Net realized and unrealized
gain (loss) from security transactions............. (0.240) 0.330 (0.130) (0.240) 0.000
------ ------ ------ ------ ------
Total from investment operations..................... (0.040) 0.738 0.223 (0.04) 0.102
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income................ (0.200) (0.408) (0.353) (0.200) (0.102)
Distributions from net realized gain
from security transactions......................... none (0.050) none none (0.050)
------ ------ ------ ------ ------
Total distributions................................. (0.200) (0.458) (0.353) (0.200) (0.152)
------ ------ ------ ------ ------
Net asset value, end of period....................... $8.220 $8.460 $8.180 $8.220 $8.460
====== ====== ====== ====== ======
Total return(1)...................................... (0.45%) 9.19% 2.79% (0.45%) 1.19%
Ratios/supplemental data:
Net assets, end of period (000 omitted)............. $26,891 $20,861 $10,239 $682 $123
Ratio of expenses to average net assets............. 1.70% 1.71% 1.73% 1.70% 1.71%
Ratio of net investment income to
average net assets................................. 4.81% 4.86% 5.20% 4.81% 4.86%
Portfolio turnover................................... 14% 25% 18% 14% 25%
</TABLE>
- -----------------------
1 Does not reflect the contingent deferred sales charge which varies from
1%-4% depending upon the holding period for Tax-Free Pennsylvania Fund B
Class and 1% for the Tax-Free Pennsylvania Fund C Class for the 12 months
from the date of the purchase.
2 Date of initial public offering; ratios have been annualized and total
return has not been annualized.
3 Ratios have been annualized and total return has not been annualized.
- --------------------------------------------------------------------------------
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF TAX-FREE PENNSYLVANIA FUND
SHAREHOLDERS, BUT IT MAY BE USED WITH PROSPECTIVE INVESTORS WHEN PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS FOR TAX-FREE PENNSYLVANIA FUND, WHICH
SETS FORTH DETAILS ABOUT CHARGES, EXPENSES, INVESTMENT OBJECTIVES AND
OPERATING POLICIES OF THE FUND. YOU SHOULD READ THE PROSPECTUS CAREFULLY
BEFORE YOU INVEST. SUMMARY INVESTMENT RESULTS ARE DOCUMENTED IN THE FUND'S
CURRENT STATEMENT OF ADDITIONAL INFORMATION. THE FIGURES IN THIS REPORT
REPRESENT PAST RESULTS WHICH ARE NOT A GUARANTEE OF FUTURE RESULTS. THE
RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO
THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
15
<PAGE>
Be sure to consult your financial adviser when making investments. Mutual
funds can be a valuable part of your financial plan; however, shares of the
Fund are not FDIC or NCUSIF insured, are not guaranteed by any bank or any
credit union, are not obligations of any bank or any credit union, and involve
investment risk, including the possible loss of principal. Shares of the Fund
are not bank or credit union deposits.
This report must be preceded or accompanied by a current Tax-Free Pennsylvania
Fund prospectus.
INVESTMENT MANAGER
Delaware Management Company, Inc.
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING, DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
Nationwide (800) 523-4640
SECURITIES DEALERS ONLY
Nationwide (800) 362-7500
[LOGO] Copy Rights Delaware Distributors, L.P.
Printed in the U.S.A. on recycled paper.
SA - 007 [8/96] PP10/96
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DELAWARE
GROUP
TAX-FREE
PENNSYLVANIA
Fund
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1996
SEMI-ANNUAL
REPORT
A Tradition of Sound Investing Since 1929
LOGO
