<PAGE>
DELAWARE GROUP
For Tax-Exempt Income
Tax-Free Pennsylvania Fund
1997
Semi-Annual
Report
professional management
service and guidance
goals
(Photo of illustration from Tax Exempt Brochure)
DELAWARE
GROUP
=========
<PAGE>
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S E P T E M B E R 9 , 1 9 9 7
Dear Shareholder:
THE FIRST HALF OF FISCAL 1998 WAS A TIME OF NEW BEGINNINGS AND challenges for
Tax-Free Pennsylvania Fund, one of America's oldest single-state municipal bond
funds.
For the six months ended August 31, 1997, your Fund provided a total
return of +3.10% (for Class A shares at net asset value with distributions
reinvested). This was less than the average of our peers and that of our
unmanaged benchmark, the Lehman Brothers Municipal Bond Index.
YOUR FUND'S SHORT-TERM RESULTS REFLECTED MANAGEMENT'S EFFORTS TO REDUCE THE
FUND'S SENSITIVITY TO CHANGES IN INTEREST RATES, A RESPONSE TO THE STRONG
GROWTH RATE OF THE U.S. ECONOMY.
Your Fund's short-term results reflected management's efforts to lower
the Fund's sensitivity to changes in interest rates, a response to the strong
growth rate of the U.S. economy. Average effective duration was reduced by more
than a full year to a level lower than that of the Lehman Index as of August 31.
These efforts reflected a more conservative approach than other tax-exempt
Pennsylvania bond funds.
In the opinion of the Fund's managers, these actions may help protect
principal should interest rates rise for the balance of the fiscal year. It may
also help Tax-Free Pennsylvania achieve its long-term goals by providing an
attractive level of tax-exempt income at a prudent level of risk. However, our
approach negatively affected short-term performance when the bond market rallied
this past spring.
At the start of fiscal 1998, bond market conditions were less than
ideal. Many investors were concerned that inflation would accelerate given the
fact that the U.S unemployment rate had dropped to its lowest level since the
early 1970s while the nation's output of goods and services was rising at a
robust pace. Nevertheless, consumer price increases unexpectedly remained tame,
prompting some investors to bid up bond prices beginning in April. During the
summer, a lingering fear that the Federal Reserve Board would raise interest
rates to keep inflation in check dissipated like morning fog.
We believe that in Pennsylvania, bond prices have risen because the
state is generally in sound fiscal shape. For the state fiscal year ended June
30, 1997, general fund tax revenues were $575 million more than anticipated, or
3.4% ahead of budget. Personal income tax and inheritance tax revenues were 4.3%
and 9.1% more than expected, respectively, according to the Pennsylvania
Department of Revenue.
1997 semi-annual report
2
<PAGE>
Credit quality within Pennsylvania remains high, as measured by rating
services such as Standard & Poor's. In addition, nearly three-quarters of
Pennsylvania municipal securities issued since February have been insured,
compared to half nationally. Municipal bond insurance can help protect principal
if a community faces a financial crisis.
In July, Congress passed tax legislation that offered provisions we
consider beneficial to municipal bond investors, including: 1) cutting the
long-term capital gains tax from 28% to 20%, thereby increasing after-tax total
return potential of municipal bond funds and 2) maintaining municipal bonds'
after-tax income advantage over bonds that generate taxable income.
At the state level, Pennsylvania has also been making modest tax reform
efforts. However, many communities in the state, especially its urban centers,
still have tax policies that tend to be less than friendly to investors. In our
opinion, municipal bonds remain one of the most attractive alternatives
available for income-oriented Pennsylvania residents.
The first half of fiscal 1998 was the first complete fiscal period that
Patrick P. Coyne and Mitchell L. Conery, your Fund's managers, worked together
as a team. They are continuing to implement the same disciplined investment
strategy that built Tax-Free Pennsylvania Fund into one of the largest funds of
its kind over the past 20 years.
In the pages that follow, Mr. Coyne and Mr. Conery outline their outlook
for the balance of the year. On behalf of Delaware, I thank you for your
continued confidence in the Fund and I look forward to reporting to you again
next spring.
Sincerely,
/s/ Wayne A. Stork
- ------------------------------------
Wayne A. Stork
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
tax-exempt income
<TABLE>
<CAPTION>
PERFORMANCE SUMMARY
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SIX MONTHS ENDED CURRENT 30-DAY
AUGUST 31, 1997 SEC YIELD
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tax-Free Pennsylvania Fund A Class +3.10% 4.35%
Lipper PA Municipal Bond Fund Average (66 funds) +3.80% 4.25%
</TABLE>
TAX-FREE PENNSYLVANIA FUND PERFORMANCE AND THAT OF THE LIPPER FUND AVERAGE IS
BASED ON NET ASSET VALUE WITHOUT THE EFFECT OF SALES CHARGES AND ASSUMES
REINVESTMENT OF DIVIDENDS. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE
RESULTS. PERFORMANCE INFORMATION FOR ALL FUND CLASSES CAN BE FOUND ON PAGE 7.
YIELD IS CALCULATED ACCORDING TO SECURITIES AND EXCHANGE COMMISSION GUIDELINES.
THIRTY-DAY CURRENT SEC YIELD FOR B AND C CLASSES WAS 3.69% AS OF AUGUST 31,
1997.
1997 semi-annual report
3
<PAGE>
Portfolio Managers' Review
quality
Since February, federal economic statistics have provided a mixed message to
Pennsylvania municipal bond investors. In the first calendar quarter of 1997,
our country's output of goods and services grew at a robust 5.9% pace - the
highest rate since 1988. This prompted the Federal Reserve Board to raise its
target for short-term interest rates by a modest 25 basis points (0.25%) to 5.5%
in an effort to forestall inflation.
As the second and third calendar quarters of 1997 progressed, the bond
market welcomed news of possible slower U.S. economic growth. Indeed, producer
prices - what companies pay for raw materials and semi-finished goods - have
actually fallen in recent months. By the end of August, long-term U.S. Treasury
bonds yielded 6.61%, compared to more than 7% this past spring.
During the six months ended August 31, prices of municipal securities
generally outperformed U.S. Treasuries. Unlike municipal bonds, Treasuries
are guaranteed by the U.S. government. The difference in yield between the
highest quality municipal securities and lower quality bonds narrowed. Many
issuers had success in obtaining bond insurance.
As of August 31, some $6.8 billion worth of new bonds had been issued in
Pennsylvania in calendar 1997, an amount that was 12.6% more than a year
earlier, according to THE BOND BUYER, a trade publication. Competition among
bond insurers to back new Pennsylvania issues was intense, illustrating the
state's financial strength.
STRATEGIC POSITIONING
Your Fund seeks a high level of interest income exempt from federal, state and
local taxes. To maximize income, preserve capital and increase total return, we:
* SCRUTINIZE QUALITY. As of August 31, 1997, more than half the Fund's net
assets were invested in bonds rated AAA. We've been gradually reducing the
percentage of the Fund's portfolio invested in unrated bonds because we believe
the income advantage of these securities no longer outweighs the risks.
* INVEST WITH A MULTI-YEAR HORIZON. Historically, the Fund's portfolio turnover
rate (see page 13) has been lower than its peers, as measured by Morningstar. We
strive to minimize the possibility that an issuer will refinance the bond at
lower interest rates by buying bonds with good call protection. This allows us
to hold a bond longer.
1997 semi-annual report
4
<PAGE>
TAX-FREE PENNSYLVANIA FUND
CREDIT QUALITY AND PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
AUGUST 31, 1997
AAA 55%
AA 10.3 %
A 13.4 %
BBB 8.6 %
BB & B 2.2 %
Unrated 10.5 %
- ---------------------------------------------------
Average Effective Maturity 9.1 years
Average Effective Duration 6.1 years
Average Quality AA2
Average Coupon 6.48%
Thirty Day Current SEC Yield* 4.35%
*FOR A CLASS SHARES BASED ON SECURITIES AND EXCHANGE
COMMISSION GUIDELINES. SEC YIELD FOR B AND C CLASSES
WAS 3.69% AS OF AUGUST 31, 1997.
APPROXIMATELY 3.6% OF THE INCOME GENERATED BY TAX-FREE PENNSYLVANIA FUND FOR THE
SIX MONTHS ENDED AUGUST 31, 1997, WAS SUBJECT TO THE ALTERNATE MINIMUM TAX.
To protect principal over the long term, we reduced your Fund's duration by
more than a year to 6.1 years as of August 31. Duration measures a bond's
sensitivity to interest rates. It generally indicates the probable change in a
bond's price - both upward and downward - given a 1% movement in interest rates.
Our timing was less than fortuitous because inflation remained
unexpectedly benign and the Fed did not raise its short-term interest rate
target beyond 5.5%. We believe the Fund's conservative posture, coupled with our
efforts to improve the credit quality of your Fund's portfolio, resulted in
total returns that lagged your Fund's peers during the first half. When interest
rates declined, lower quality, investment-grade Pennsylvania bonds tended to
outperform the highest quality issues, a development we believe is temporary.
OUTLOOK
In our opinion, some Pennsylvania bonds are currently overvalued. High-quality,
long-term municipal bonds generally provided a modest level of income relative
to comparable maturity U.S. Treasuries as of August 31. This leads us to be
cautious for the months ahead.
outlook
1997 semi-annual report
5
<PAGE>
If Pennsylvania bond yields rise substantially, we are prepared to be
more aggressive buyers. In the meantime, we are generally focusing on higher
quality issues in sectors where credit risk can be easily defined. Despite
current market conditions, we are optimistic we can continue to find bonds with
superior income potential at attractive prices.
In our opinion, many hospital bonds remain undervalued, offering
relatively superior yield and understandable risks. We're focusing on bonds
issued on behalf of institutions that dominate a given market.
Historically, ratings of hospital bonds have tended to be more volatile
than other types of municipal bonds, according to THE BOND BUYER. However,
through careful research and analysis - including meeting with hospital
administrators - we believe we can distinguish the financially strong from the
weak. We have positioned the Fund to benefit from what we believe will be
continued industry consolidation and increased competition.
Since February, we've also added more discount bonds to the portfolio,
bonds that trade at less than face value and generally rise in price as they
near maturity. Our target over the coming months will be to have between 20% and
25% of the Fund's net assets in this type of bond. We believe this has the
potential to help the Fund provide more competitive returns when bond prices
rise, without adding a lot of risk.
Patrick P. Coyne
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
Mitchell L. Conery
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
September 9, 1997
YOUR FUND'S SECTOR WEIGHTINGS
- ---------------------------------
AUGUST 31, 1997
Pre-Refunded Bonds 24.5%
Hospitals 18.3%
Higher Education/School District 9.6%
Pollution Control 8.8%
Cash 0.7%
Industrial Development 2.5%
Housing 4.8%
Water/Sewer 4.9%
Waste Disposal 2.2%
General Obligation Bonds 11.2%
Other Revenue Bonds and Demand Notes 10.3%
Transportation 2.2 %
Since February, your Fund's management has added more health care and discount
bonds. We've also reduced our exposure to electric utility bonds.
1997 semi-annual report
6
<PAGE>
TWENTY YEARS OF TAX FREEDOM
TAX-FREE PENNSYLVANIA FUND'S DIVIDEND HISTORY SINCE INCEPTION
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INCOME FROM A $100,000 INVESTMENT
MARCH 23, 1977, TO AUGUST 31, 1997
8/31/77 $ 1,223
8/31/78 $ 5,185
8/31/79 $ 5,743
8/29/80 $ 6,205
8/31/81 $ 7,098
8/31/82 $ 8,011
8/31/83 $ 9,281 Total Dividends = $252,729
8/31/84 $ 9,256 Account Value on August 31, 1997 = $360,565
8/30/85 $13,004
8/29/86 $12,375
8/31/87 $12,290
8/31/88 $13,109
8/31/89 $14,025
8/31/90 $14,856
8/30/91 $15,576
8/31/92 $16,307
8/31/93 $16,646
8/31/94 $17,231
8/31/95 $18,121
8/31/96 $18,442
8/29/97 $18,745
CHART ASSUMES A $100,000 INVESTMENT IN TAX-FREE PENNSYLVANIA FUND A CLASS ON
MARCH 23, 1977, AND REINVESTMENT OF DISTRIBUTIONS. SOME DIVIDENDS MAY HAVE BEEN
SUBJECT TO THE ALTERNATIVE MINIMUM TAX. THE CHART INCLUDES THE EFFECT OF A 3%
SALES CHARGE. SALES CHARGES HAVE VARIED OVER THE LIFE OF THE FUND. THE FUND PAID
TAXABLE CAPITAL GAINS OF $1,920 IN 1996 AND $4,674 IN 1997, BASED ON THIS
$100,000 INVESTMENT.
<TABLE>
<CAPTION>
TAX-FREE PENNSYLVANIA FUND PERFORMANCE
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Average Annual Return Through August 31, 1997
LIFETIME TEN YEARS FIVE YEARS ONE YEAR
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<S> <C> <C> <C> <C>
Class A (Est. 3/23/77)
Excluding Sales Charge +6.64% +7.66% +6.07% +7.64%
Including Sales Charge +6.44% +7.24% +5.25% +3.61%
- ----------------------------------------------------------------------------------------------------------
Class B (Est. 5/2/94)
Excluding Sales Charge +5.44% - - +6.79%
Including Sales Charge +4.64% - - +2.79%
- ----------------------------------------------------------------------------------------------------------
Class C (Est. 11/29/95)
Excluding Sales Charge +4.24% - - +6.79%
Including Sales Charge +4.24% - - +5.79%
</TABLE>
ALL RETURNS REFLECT REINVESTMENT OF DISTRIBUTIONS. TAX-FREE PENNSYLVANIA FUND'S
RETURN AND SHARE VALUE FLUCTUATE WITH RISING AND FALLING INTEREST RATES SO THAT
SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST
PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. CLASS B AND CLASS C
PERFORMANCE "EXCLUDING SALES CHARGE" ASSUMES THE INVESTMENT WAS NOT REDEEMED. 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 SHARES HAVE A 3.75% MAXIMUM SALES CHARGE AND, FOR PERIODS AFTER JUNE 1,
1992, A 12B-1 FEE OF UP TO 0.30%.
CLASS B SHARES DO NOT CARRY A FRONT-END SALES CHARGE, BUT ARE SUBJECT TO A 1%
ANNUAL DISTRIBUTION AND SERVICE FEE. THEY ARE SUBJECT TO A DEFERRED SALES CHARGE
OF UP TO 4% IF REDEEMED BEFORE THE END OF THE SIXTH YEAR.
CLASS C SHARES HAVE A 1% ANNUAL DISTRIBUTION AND SERVICE FEE. IF REDEEMED
WITHIN 12 MONTHS, A 1% CONTINGENT DEFERRED SALES CHARGE APPLIES.
1997 semi-annual report
7
<PAGE>
Financial Statements
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND+ -
STATEMENT OF NET ASSETS -
AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
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Principal Market
Amount Value
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<S> <C> <C>
MUNICIPAL BONDS - 98.93%
HIGHER EDUCATION REVENUE BONDS - 7.39%
Dauphin County College Revenue (Holy Family
College) 7.50% 12/01/19 ......................... $ 3,025,000 $ 3,121,407
Delaware County Authority University Revenue
(Villanova University) (Escrowed to Maturity)
9.625% 8/01/02 .................................. 430,000 488,162
(Villanova University) 5.80% 8/01/25
(AMBAC) ......................................... 7,000,000 7,147,630
Montgomery County Higher Education and Health
Authority Revenue (Beaver College)
5.85% 4/01/21 (Connie Lee) ....................... 5,465,000 5,616,544
Northhampton County Higher Education Authority
Revenue (Lehigh University)
5.25% 11/15/21 .................................. 9,025,000 8,783,130
Pennsylvania Higher Education Facilities Authority
College Revenue (Elizabethtown College)
6.50% 6/15/15 ................................... 6,700,000 6,953,059
(LaSalle University) (Escrowed to Maturity)
9.50% 5/01/03 ................................... 370,000 420,002
(Rosemont College) 8.00% 12/01/16 ................ 250,000 250,608
(Temple University) 5.75% 4/01/31
(MBIA) .......................................... 8,000,000 8,035,360
(University of Pennsylvania)
5.90% 9/01/15 ................................... 4,205,000 4,356,506
Pennsylvania Higher Education Facilities
Authority State System Revenue
5.75% 6/15/20 (AMBAC) ........................... 17,730,000 17,983,362
Swarthmore Borough Authority
(Swarthmore College) 7.375% 9/15/08 .............. 990,000 1,034,144
6.00% 9/15/12 ................................... 7,000,000 7,218,050
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71,407,964
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HOSPITAL REVENUE BONDS - 18.27%
Allegheny County Hospital Development Authority
Revenue (University of Pittsburgh Medical Center)
5.375% 12/01/25 (MBIA) .......................... 13,000,000 12,694,240
5.625% 4/01/27 (MBIA) ........................... 10,500,000 10,503,885
(South Hills Health) 6.00% 5/01/20 ............... 1,500,000 1,532,160
Delaware County Authority Revenue Health Facilities
(Mercy Health Corp.) 6.00% 12/15/26 .............. 3,500,000 3,519,565
Monroeville Hospital Authority Revenue
(Forbes Health System) 7.00% 10/01/13 ............ 7,000,000 7,581,560
Pennsylvania Higher Education Facilities
Authority Health Services Revenue
(University of Pennsylvania)
5.75% 1/01/22 ................................... 20,000,000 20,372,200
</TABLE>
- -----------
+ The Fund's legal name is DMC Tax-Free Income Trust - Pennsylvania.
<PAGE>
<TABLE>
<CAPTION>
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Principal Market
Amount Value
---------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
HOSPITAL REVENUE BONDS (CONTINUED)
Philadelphia Hospitals & Higher Education
Facilities Authority Hospital Revenue
(Albert Einstein Medical Center)
7.625% 4/01/11 ................................. $ 19,110,000 $ 20,225,069
(Children's Hospital of Philadelphia)
5.00% 2/15/21 .................................. 5,200,000 4,827,264
5.50% 2/15/22 .................................. 5,600,000 5,599,776
(Children's Seashore House Series A)
7.00% 8/15/17 .................................. 3,100,000 3,322,580
(Children's Seashore House Series B)
7.00% 8/15/22 .................................. 2,100,000 2,246,076
(Jeanes Health System Project)
6.85% 7/01/22 .................................. 18,020,000 19,078,495
(Presbyterian Medical Center)
(Escrowed to Maturity)
6.65% 12/01/19 ................................. 13,000,000 15,032,160
(Roxborough Memorial Hospital)
7.25% 3/01/24 .................................. 12,355,000 12,416,775
(Temple University Hospital)
6.625% 11/15/23 ................................ 16,500,000 17,508,810
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 1,088,690
Series B 7.625% 12/01/15 (AMBAC) ................ 2,490,000 2,710,838
Sayre-Health Care Facilities
(Guthrie Healthcare Systems)
Series 91A, 6.00% 3/01/21(AMBAC) ................ 7,000,000 7,127,540
Scranton-Lackawanna Health and Welfare Authority
(Allied Services Rehabilitation Hospitals)
7.60% 7/15/20 .................................. 5,640,000 6,067,456
(Moses Taylor Hospital)
6.15% 7/01/14 .................................. 3,000,000 3,007,170
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176,462,309
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HOUSING REVENUE BONDS - 4.83%
Montgomery County Multi-Family Housing
(KBF Associates Project)
6.50% 7/01/25 .................................. 20,810,000 20,870,557
7.25% 7/01/25 .................................. 15,185,000 15,208,689
Pennsylvania Housing Finance Agency
7.50% 10/01/10 ................................. 1,250,000 1,326,313
7.45% 4/01/16 (FHA) ............................ 1,545,000 1,616,858
6.15% 4/01/27 (FHA/VA) ......................... 5,000,000 5,188,500
</TABLE>
1997 semi-annual report
8
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
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Principal Market
Amount Value
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<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
HOUSING REVENUE BONDS (CONTINUED)
Philadelphia Redevelopment Authority Home
Improvement Series 86A
7.375% 6/01/03 (FHA) ........................... $ 1,570,000 $ 1,595,874
Pittsburgh Urban Redevelopment Authority
Mortgage Revenue Series 87B
8.30% 4/01/17 .................................. 800,000 824,976
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46,631,767
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INDUSTRIAL DEVELOPMENT
REVENUE BONDS - 2.50%
Delaware County Pennsylvania Industrial
Development Authority Revenue
Series A 6.10% 7/01/13 ......................... 12,000,000 12,538,680
Series A 6.20% 7/01/19 ......................... 9,000,000 9,401,760
Philadelphia Pennsylvania Authority for Industrial
Development Industrial and Commercial Revenue
(Girard Estates Facilities Leasing Project)
5.00% 5/15/19 .................................. 2,400,000 2,251,728
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24,192,168
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POLLUTION CONTROL
REVENUE BONDS - 8.83%
Beaver County Industrial Development Authority
Pollution Control Revenue
(Cleveland Electric Project) 7.625% 5/1/25 ...... 8,500,000 9,568,280
7.75% 7/15/25 .................................. 10,000,000 11,357,500
Cambria County Industrial Development Authority
Pollution Control Revenue (Pennsylvania Electric
Project ) 5.35% 11/01/10 (MBIA) ................. 3,500,000 3,609,970
Delaware County Industrial Development Authority
Pollution Control Revenue
(Philadelphia Electric Co.) 7.375% 4/01/21 ...... 10,250,000 11,156,305
Lehigh County Industrial Development Authority
Pollution Control Revenue
6.40% 11/01/21 (MBIA) .......................... 7,000,000 7,462,910
5.50% 2/15/27 (MBIA) ........................... 15,500,000 15,124,280
6.40% 9/01/29 (MBIA) ........................... 15,000,000 16,134,150
Montgomery County Industrial Development
Authority Pollution Control Revenue (Philadelphia
Electric Co.) 6.70% 12/01/21 (MBIA) ............. 10,000,000 10,875,800
-----------
85,289,195
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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Principal Market
Amount Value
---------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
**PRE-REFUNDED BONDS - 24.48%
Allegheny County, Pennsylvania Sanitary
Authority Revenue
Series 86A, 7.50% 12/1/16-99 (FGIC) ....... $ 1,780,000 $ 1,880,552
Series 86B, 7.50% 12/1/16-99 (FGIC) ....... 4,020,000 4,247,090
Series 91C, 6.50% 12/1/16-99 (FGIC) ....... 4,500,000 4,870,665
Berks County Municipal Authority Revenue
(The Highlands at Wyomissing Project)
9.125% 10/01/17-97 ....................... 4,000,000 4,015,640
Bucks County Water and Sewer Authority
Revenue (Collection Sewer System)
7.00% 12/01/19-97 (FGIC) ................. 4,240,000 4,272,818
Delaware County Authority University Revenue
(Haverford College)
7.375% 11/15/20-00 (MBIA) ................ 3,275,000 3,629,683
Delaware River Joint Toll Bridge Commission
Bridge System Revenue
7.875% 07/01/18-98 ....................... 4,600,000 4,837,682
Doylestown Hospital Authority
(Doylestown Hospital)
Series C, 6.90% 7/1/19-99 (AMBAC) ......... 1,750,000 1,867,670
Harrisburg Water Authority Revenue
7.00% 07/15/15-01 (FGIC) ................. 12,000,000 13,118,880
Harrisburg Water and Sewer Authority Revenue
(Daulphin County) Series 88A 8.00%
11/01/12-5/01/98 (AMBAC) ................. 6,000,000 6,161,820
Huntingdon Borough General Obligation
7.50% 12/01/17-97 ........................ 875,000 882,700
Lackawanna County Multi-Purpose Stadium
Authority Revenue Guaranteed
8.625% 08/15/07-98 ....................... 660,000 708,107
Pennsylvania Higher Educational Facilities
Authority College & University Revenue
(Hahnemann University)
6.90% 7/01/21-01 (MBIA) .................. 13,000,000 14,400,360
(Holy Family College)
8.00% 12/01/06-98 ........................ 380,000 397,959
(The Medical College of Pennsylvania)
7.50% 3/01/14-99 ......................... 1,000,000 1,049,440
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue
(City of Philadelphia Funding Program)
6.80% 06/15/22-02 ........................ 2,125,000 2,337,713
Pennsylvania State Turnpike Commission
Turnpike Revenue
Series D, 7.625% 12/01/17-98 (FGIC) ....... 3,500,000 3,718,505
Series E, 7.55% 12/01/17-99 (MBIA) ........ 495,000 540,213
Series I, 7.20% 12/01/17-01 (FGIC) ........ 8,915,000 10,037,131
Series J, 7.20% 12/01/17-01 (FGIC) ........ 8,995,000 10,127,201
Series K, 7.50% 12/01/19-99 ............... 10,000,000 10,902,800
Pennsylvania State University Revenue
Series 89, 6.75% 7/01/14-99 ............... 14,195,000 15,099,505
</TABLE>
1997 semi-annual report
9
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Principal Market
Amount Value
---------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
**PRE-REFUNDED BONDS (CONTINUED)
Philadelphia Regional Port Authority
Lease Revenue
7.15% 8/01/20-00 (MBIA) ..................... $ 16,315,000 $ 17,572,560
Philadelphia Water & Sewer Revenue
7.00% 8/01/18-01 ............................ 20,650,000 22,596,263
Puerto Rico (Commonwealth of) General
Obligation 8.00% 7/01/07-98 .................. 2,545,000 2,683,346
7.25% 7/01/10-00 ............................ 1,370,000 1,504,466
7.75% 7/01/13-98 ............................ 12,775,000 13,443,771
7.75% 7/01/17-99 ............................ 7,700,000 8,317,232
6.50% 7/01/18-99 ............................ 2,745,000 2,866,878
Sewickley Valley Hospital Authority Refunding
(Sewickley Valley Hospital Project)
7.50% 10/01/06-99 ........................... 1,295,000 1,404,117
Swarthmore Borough Authority
(Swarthmore College)
7.375% 9/15/20-00 ........................... 14,000,000 15,312,920
7.375% 9/15/08-98 ........................... 1,810,000 1,899,921
University Area Joint Authority Water and Sewer
Revenue 7.10% 9/01/20-00 (MBIA) .............. 6,000,000 6,519,720
Upper Darby Township (Delaware County)
General Obligation 7.875% 7/15/18-98 ......... 4,345,000 4,491,861
Washington County Authority Revenue
(Shadyside Hospital) Series 85D,
7.45% 12/15/18-00 (AMBAC) ................... 7,500,000 8,333,100
York County Hospital Revenue Authority (York
Hospital)7.00% 07/01/21-01 (AMBAC) ........... 9,500,000 10,435,370
------------
236,485,659
------------
SCHOOL AUTHORITY/
DISTRICT BONDS - 2.21%
Abington School District
6.00% 5/15/26 (FGIC) ........................ 6,000,000 6,276,300
Altoona Area School District (Blair County)
(Escrowed to Maturity)
10.00% 6/15/98 .............................. 120,000 123,521
Bensalem Township School District
General Obligation
5.875% 7/15/16 (FGIC) ....................... 2,900,000 3,010,258
Lakeland School District General Obligation
(Lackawanna County) 9.50% 8/15/10 ............ 145,000 146,335
Philadelphia Pennsylvania School District
General Obligation
5.375% 4/01/22 (AMBAC) ...................... 10,625,000 10,362,775
Pottsville Area School District (Escrowed to
Maturity) 9.375% 5/01/06 (AMBAC) ............. 900,000 1,153,359
Southmoreland School District (Escrowed to
Maturity) 10.50% 10/01/97 (AMBAC) ............ 245,000 246,205
------------
21,318,753
------------
STATE GENERAL OBLIGATION BONDS - 1.83%
Pennsylvania State First Series General
Obligation 5.50% 5/01/13 (FGIC) .............. 8,025,000 8,245,928
5.375% 5/15/16 (FGIC) ....................... 9,340,000 9,388,194
------------
17,634,122
------------
</TABLE>
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Principal Market
Amount Value
---------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
TRANSPORTATION REVENUE BONDS - 2.18%
Allegheny County Pennsylvania Airport Revenue
(Pittsburgh International Airport)
5.25% 1/01/16 .................................. $ 7,500,000 $ 7,209,300
Pennsylvania State Turnpike Commission
Turnpike Revenue
Series L 6.25% 6/01/11 (AMBAC) .................. 9,000,000 9,659,340
Series N 6.50% 12/01/13 ........................ 3,000,000 3,226,800
Series N 5.50% 12/01/17 (MBIA) .................. 1,000,000 1,000,280
-----------
21,095,720
-----------
WASTE DISPOSAL REVENUE BONDS - 2.23%
Greater Lebanon Refuse Authority Revenue Refunding
(Lancaster County) 7.00% 11/15/04 ............... 1,200,000 1,295,436
York County Solid Waste and Refuse Authority
Revenue 8.20% 12/01/14 ......................... 19,500,000 20,256,600
-----------
21,552,036
-----------
WATER & SEWER REVENUE BONDS - 4.93%
Allegheny County Pennsylvania Sanitation Authority
Sewer Revenue 5.375% 12/01/24 ................... 10,000,000 9,754,700
Dauphin County Industrial Development Authority
Water Development Revenue Series 92B
6.70% 6/01/17 .................................. 1,750,000 2,007,705
Philadelphia Water and Waste Water Revenue
5.00% 6/15/16 (CGIC) ........................... 11,040,000 10,409,947
5.60% 8/01/18 (MBIA) ........................... 9,870,000 9,876,810
Pittsburgh Water and Sewer Revenue
4.90% 9/01/07 (FGIC) ........................... 4,785,000 4,803,805
(Escrowed to Maturity)
7.25% 9/01/14 (FGIC) ........................... 9,000,000 10,764,630
-----------
47,617,597
-----------
OTHER GENERAL OBLIGATION BONDS - 9.35%
Chester County General Obligation
5.45% 11/01/16 ................................. 3,400,000 3,446,206
Falls Township General Obligation
7.00% 12/15/10 (MBIA) .......................... 3,000,000 3,254,640
Montgomery County General Obligation Series B
5.375% 10/15/25 ................................ 9,975,000 9,967,120
New Morgan General Obligation
Guaranteed Revenue
8.00% 11/01/05 ................................. 9,245,000 9,711,318
Philadelphia General Obligation
5.00% 5/15/25 (MBIA) ........................... 16,690,000 15,375,663
Pittsburgh General Obligation Series A
5.20% 3/01/10 (FGIC) ........................... 32,580,000 32,897,655
Puerto Rico (Commonwealth of) General Obligation
8.00% 7/01/07 .................................. 715,000 748,991
5.75% 7/01/17 .................................. 11,000,000 11,245,300
6.00% 7/01/22 .................................. 3,585,000 3,652,864
-----------
90,299,757
-----------
</TABLE>
1997 semi-annual report
10
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Principal Market
Amount Value
---------------------------------------
<S> <C> <C>
MUNICIPAL BONDS (CONTINUED)
OTHER REVENUE BONDS - 9.90%
Cambria County Hospital Development Authority
Health Care Revenue (Allegheny Lutheran
Ministries Project) 8.25% 6/15/17 ........... $ 3,250,000 $ 3,486,860
Chester Pennsylvania Guaranteed Community
Revenue 7.25% 12/01/05 ..................... 12,365,000 12,431,400
Delaware County Authority Revenue
(Main Line & Haverford Nursing and
Rehabilitation Center) 9.00% 8/01/22 ........ 2,000,000 2,239,700
Delaware River Port Authority
6.50% 1/01/08 (AMBAC) ...................... 5,000,000 5,142,400
5.50% 1/01/26 (FGIC) ....................... 15,000,000 15,033,750
Erie Western Pennsylvania Port Authority
General Revenue 6.25% 6/15/10 ............... 1,365,000 1,426,029
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue
(City of Philadelphia Funding Program)
5.50% 6/15/20 (FGIC) ....................... 8,000,000 7,927,440
5.00% 6/15/22 (MBIA) ....................... 14,345,000 13,343,002
Philadelphia Authority For Industrial
Development Revenue
(American Fiber Supply Project)
8.00% 12/01/19 ............................. 15,900,000 7,155,000
(Cathedral Village) 7.25% 4/01/15 ........... 2,000,000 2,046,500
(Stapeley Hall) 6.60% 1/01/16 ............... 5,250,000 5,290,950
*Philadelphia Gas Works Revenue
5.525% 1/01/12 (AMBAC) ..................... 2,500,000 1,144,375
Philadelphia Parking Authority
5.25% 9/01/10 (AMBAC) ...................... 4,875,000 4,944,323
5.50% 9/01/18 (AMBAC) ...................... 6,250,000 6,226,813
Puerto Rico Public Buildings Authority Revenue
5.00% 7/01/27 (AMBAC) ...................... 6,300,000 5,928,048
*Westmoreland County Municipal Authority
Municipal Service Revenue A
5.617% 8/15/23 ............................. 8,000,000 1,898,960
------------
95,665,550
------------
Total Municipal Bonds
(cost $909,313,919) ........................ 955,652,597
------------
***VARIABLE RATE DEMAND NOTES - 0.53%
Harrisburg Pennsylvania
3.50% 9/01/97 .............................. 3,400,000 3,400,000
Washington County Lease Authority Revenue
3.45% 9/15/97 .............................. 550,000 550,000
Washington County Eye & Ear Revenue
3.45% 9/15/97 .............................. 600,000 600,000
Washington County PA Eye
3.45 9/15/97 ............................... 550,000 550,000
------------
Total Variable Rate Demand Notes
(cost $5,100,000) .......................... 5,100,000
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Market
Value
------------------
<S> <C>
TOTAL MARKET VALUE OF SECURITIES - 99.29%
(cost $914,413,919) ......................................... $960,752,597
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 0.71% .................................. 5,208,970
------------
NET ASSETS APPLICABLE TO 112,202,830
TAX-FREE PENNSYLVANIA FUND A CLASS SHARES,
4,291,894 TAX-FREE PENNSYLVANIA FUND
B CLASS SHARES AND 250,691 TAX-FREE
PENNSYLVANIA FUND C CLASS SHARES OUTSTANDING;
EQUIVALENT TO $8.27 PER SHARE - 100.00% ...................... $965,961,567
============
</TABLE>
- ------------
AMBAC - Insured by AMBAC Indemnity Corporation.
CGIC - Insured by the Capital Guaranty Insurance Company.
Connie Lee - Insured by College Construction Insurance Association.
FGIC - Insured by the Financial Guaranty Insurance Company.
FHA/VA - Insured by the Federal Housing Administration/Veterans Administration.
MBIA - Insured by the Municipal Bond Insurance Association.
- -----------------
*The interest rate shown for this security is the effective yield.
**For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
***Variable Rate Demand Notes - The interest rate shown is the rate as of
August 31, 1997 and the maturity shown is the longer of the next interest
readjustment date or the date the principal amount shown can be recovered
through demand.
- ----------------
COMPONENTS OF NET ASSETS AT AUGUST 31, 1997:
Capital shares (unlimited authorization-no par) ............... $ 919,960,744
Accumulated net realized loss on investments .................. (337,855)
Net unrealized appreciation of investments .................... 46,338,678
-------------
Total net assets .............................................. $ 965,961,567
=============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE PENNSYLVANIA FUND A
CLASS - AUGUST 31, 1997 :
Net asset value A Class(A) ................................... $ 8.27
Sales Charge (3.75% of offering price or 3.87%, of the amount
invested per share)(B)......................................... 0.32
--------
Offering price ................................................ $ 8.59
========
- --------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See Buying Shares in the current Prospectus for purchases of $100,000
or more.
See accompanying notes
1997 semi-annual report
11
<PAGE>
DMC TAX-FREE INCOME TRUST -
PENNSYLVANIA
STATMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest........................................................ $30,608,821
EXPENSES:
Management fees ($2,807,585)
and directors' fees ($11,635) .................. 2,819,220
Distribution expenses. . . . . .................. 1,121,376
Dividend disbursing and transfer agent
fees and expenses............................... 306,763
Accounting fees and salaries .................... 244,071
Reports and statements to shareholders .......... 80,647
Professional fees................................ 33,777
Registration fees................................ 9,556
Other............................................ 30,633 4,646,043
-------- -----------
NET INVESTMENT INCOME............................ 25,962,778
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized loss from security transactions .... (1,756,108)
Net change in appreciation of investments
during the period............................... 5,885,951
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS.................................. 4,129,843
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................................. $30,092,621
===========
See accompanying notes
<PAGE>
DCM TAX-FREE INCOME TRUST -
PENNSYLVANIA
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
8/31/97 2/28/97
(UNAUDITED)
---------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS FROM OPERATIONS:
Net investment income ....................... $ 25,962,778 $ 54,379,536
Net realized gain (loss) on investments ..... (1,756,108) 10,401,047
Net change in unrealized appreciation
on investments ............................. 5,885,951 (24,151,527)
--------------- ---------------
Net increase in net assets
resulting from operations .................. 30,092,621 40,629,056
--------------- ---------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
Tax-Free Pennsylvania Fund A Class ......... (25,149,750) (53,105,291)
Tax-Free Pennsylvania Fund B Class ......... (777,304) (1,244,693)
Tax-Free Pennsylvania Fund C Class ......... (35,723) (29,552)
Net realized gain from security transactions:
Tax-Free Pennsylvania Fund A Class ......... -- (13,225,478)
Tax-Free Pennsylvania Fund B Class ......... -- (396,374)
Tax-Free Pennsylvania Fund C Class ......... -- (9,434)
--------------- ---------------
(25,962,777) (68,010,822)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Tax-Free Pennsylvania Fund A Class ......... 16,728,298 65,667,678
Tax-Free Pennsylvania Fund B Class ......... 4,899,344 12,305,523
Tax-Free Pennsylvania Fund C Class ......... 1,193,617 1,342,106
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on security transactions:
Tax-Free Pennsylvania Fund A Class ......... 14,489,402 39,316,223
Tax-Free Pennsylvania Fund B Class ......... 476,135 1,091,578
Tax-Free Pennsylvania Fund C Class ......... 32,549 34,499
--------------- ---------------
37,819,345 119,757,607
--------------- ---------------
Cost of shares repurchased:
Tax-Free Pennsylvania Fund A Class ......... (61,022,689) (126,832,263)
Tax-Free Pennsylvania Fund B Class ......... (1,703,723) (2,023,820)
Tax-Free Pennsylvania Fund C Class ......... (344,596) (308,635)
--------------- ---------------
(63,071,008) (129,164,718)
--------------- ---------------
Increase in assets derived from capital
share transactions ......................... (25,251,663) (9,407,111)
--------------- ---------------
NET (DECREASE) IN NET ASSETS ................ (21,121,819) (36,788,877)
NET ASSETS:
Beginning of year ........................... 987,083,386 1,023,872,263
--------------- ---------------
End of year ................................. $ 965,961,567 $ 987,083,386
=============== ===============
</TABLE>
See accompanying notes
1997 semi-annual report
12
<PAGE>
DELAWARE GROUP TAX FREE PENNSYLVANIA FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of the Trust outstanding throughout each period was
as follows:
<TABLE>
<CAPTION>
Tax-Free Pennsylvania Fund A Class
--------------------------------------------------------------------
Six Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
8/31/97 2/28/97 2/29/96 2/28/95 2/28/94 2/28/93
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $8.2400 $8.4600 $8.180 $8.610 $8.630 $8.110
Income from investment operations:
Net investment income................... 0.221 0.456 0.476 0.494 0.496 0.514
Net realized and unrealized gain (loss)
from investments....................... 0.030 (0.105) 0.330 (0.430) (0.020) 0.520
------- ------- ------ ------ ------ ------
Net increase in net assets from
investment operations.................. 0.251 0.351 0.806 0.064 0.476 1.034
------- ------- ------ ------ ------ ------
Less dividends and distributions:
Dividends from net investment income ... (0.221) (0.456) (0.476) (0.494) (0.496) (0.514)
Distributions from net realized gain
on security transactions. . ........... - (0.115) (0.050) none none none
------- ------- ------ ------ ------ ------
Total dividends and distributions ....... (0.221) (0.571) (0.526) (0.494) (0.496) (0.514)
------- ------- ------ ------ ------ ------
Net asset value, end of period .......... $8.270 $8.240 $8.460 $8.180 $8.610 $8.630
======= ======= ====== ====== ====== ======
Total return(1).......................... 3.10% 4.35% 10.08% 0.91% 5.64% 13.20%
Ratios and supplemental data:
Net assets, end of period (000 omitted). $928,376 $954,258 $1,002,888 $976,313 $1,026,903 $940,616
Ratio of expenses to average net assets. 0.92% 0.91% 0.90% 0.90% 0.88% 0.83%
Ratio of net investment income
to average net assets.................. 5.35% 5.52% 5.67% 6.03% 5.70% 6.18%
Portfolio turnover...................... 27% 27% 25% 18% 14% 11%
</TABLE>
- -------------------
(1) Does not include maximum sales charge of 3.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase of A Class shares. Does not
include contingent deferred sales charge which varies from 1-4% depending
upon the holding period for Class B and Class C shares.
1997 semi-annual report
13
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Selected data for each share of the Trust outstanding throughout each period was
as follows:
<TABLE>
<CAPTION>
Tax-Free Pennsylvania Fund B Class Tax-Free Pennsylvania Fund C Class
----------------------------------------------- ------------------------------------
Six Months 5/2/94(1) Six Months 11/29/95(1)
Ended Year Ended Year Ended to Ended Year Ended to
8/31/97 2/28/97 2/29/96 2/28/95 8/31/97 2/28/97 11/30/95
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period .. $8.240 $8.460 $8.180 $8.310 $8.240 $8.460 $8.510
Income from investment operations:
Net investment income ................ 0.194 0.390 0.408 0.353 0.194 0.390 0.102
Net realized and unrealized gain (loss)
from investments .................... 0.030 (0.105) 0.330 (0.130) 0.030 (0.105) -
------ ------ ------ ------ ------ ------ ------
Net increase in net assets from
investment operations. .............. 0.224 0.285 0.738 0.223 0.224 0.285 0.102
------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
Dividends from net
investment income.................... (0.194) (0.390) (0.408) (0.353) (0.194) (0.390) (0.102)
Distributions from net realized gain
on security transactions............. - (0.115) (0.050) - - (0.115) (0.050)
------ ------ ------ ------ ------ ------ ------
Total dividends and distributions .... (0.194) (0.505) (0.458) (0.353) (0.194) (0.505) (0.152)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period ........ $8.270 $8.240 $8.460 $8.180 $8.270 $8.240 $8.460
====== ====== ====== ====== ====== ====== ======
Total return(2)........................ 2.69% 3.52% 9.19% 2.79% 2.69% 3.52% 1.19%
Ratios and supplemental data:
Net assets, end of period
(000 omitted)........................ $35,512 $31,644 $20,861 $10,239 $2,074 $1,181 $123
Ratio of expenses to
average net assets................... 1.72% 1.71% 1.71% 1.73% 1.72% 1.71% 1.71%
Ratio of net investment income
to average net assets................ 4.55% 4.72% 4.86% 5.20% 4.55% 4.72% 4.86%
Portfolio turnover.................... 27% 27% 25% 18% 27% 27% 25%
</TABLE>
- --------------------
(1) Date of commencement of trading; ratios have been annualized and total
return has not been annualized.
(2) Does not include maximum sales charge of 3.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase of A Class shares. Does not
include contingent deferred sales charge which varies from 1-4% depending
upon the holding period for Class B and Class C shares.
1997 semi-annual report
14
<PAGE>
DMC Tax-Free Income Trust - Pennsylvania
Notes to Financial Statements
August 31, 1997
(Unaudited)
DMC Tax-Free Income Trust-Pennsylvania (the "Trust") is registered as a
diversified open-end investment company under the Investment Company Act of
1940, as amended. The Trust is organized as a Pennsylvania business trust and
offers three classes of shares. The Tax-Free Pennsylvania Fund A Class carries a
front-end sales charge of 3.75%. The Tax-Free Pennsylvania Fund B Class carries
a back-end deferred sales charge and The Tax-Free Pennsylvania Fund C Class
carries a level load deferred sales charge. 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 Funds:
Security Valuation - Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Money market instruments having less than 60 days to maturity are
valued at amortized cost which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Fund's Board
of Directors.
Federal Income Taxes - The Fund intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes has been made in the
financial statements. Income and capital gain distributions are determined in
accordance with federal income tax regulations which may differ from generally
accepted accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Other - Expenses common to all Funds, including the Trust, within the Delaware
Group of Funds are allocated amongst the funds on the basis of average net
assets. Security transactions are recorded on the date the securities are
purchased or sold (trade date). Costs used in calculating realized gains and
losses on the sale of investment securities are those of the specific securities
sold. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis. Original issue disc ounts are accreted to
interest income over the lives of the respective securities. The Trust declares
dividends from net investment income daily and pays monthly capital gains, if
any, annually.
Certain Fund expenses are paid through "soft dollar" arrangements with brokers.
The amount of these expenses is less than 0.01% of the Fund's average daily net
assets.
2. Investment Management and Other Transactions with Affiliates In accordance
with the terms of the Investment Management Agreement, the Fund pays Delaware
Management Company, Inc. (DMC), the Investment Manager of the Fund, an annual
fee which is calculated daily at the rate of 0.60% of the first $500 million of
average daily net assets of the Fund, 0.575% on the next $250 million and 0.55%
on the average daily net assets over $750 million, less all amounts paid to the
trustees.
The Trust has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to serve as dividend disbursing and transfer agent for the Fund. Effective
August 19, 1996, the Fund also engaged DSC to provide accounting services for
the Fund. Previously, fund personnel provided this service and the related costs
were recorded in salaries and other expense categories in the statement of
operations. For the six months ended August 31, 1997, the Trust expensed
$306,763, for dividend disbursing and transfer
<PAGE>
agent services and $167,908 for accounting services. At August 31, 1997 the
Trust had a liability for such fees and other expenses payable to DSC for
$46,000.
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 and C Class. For the six months ended August
31, 1997, the Funds had a liability for distribution fees and other expenses
payable to DDLP of $179,800 and DDLP earned $75,071, for commissions on sales of
the Tax-Free Pennsylvania Fund A Class shares.
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Trust. These officers, directors and employees are paid no compensation
by the Fund.
3. Investments
During the six months ended August 31, 1997, the Trust made purchases of
$130,499,738 and sales of $159,167,846 of investment securities other than
temporary cash investments.
At August 31, 1997, the aggregate cost of securities for federal income tax
purposes was $914,413,919.
At August 31, 1997, unrealized appreciation for federal income tax purposes
aggregated $46,338,678 of which $55,381,744 related to unrealized appreciation
of securities and $9,043,066 related to unrealized depreciation of securities.
4. Trust Shares
Transactions in Trust shares were as follows:
SIX MONTHS
ENDED YEAR ENDED
8/31/97 2/28/97
---------- ----------
Shares sold:
Tax-Free Pennsylvania Fund A Class .. 2,038,951 7,949,608
Tax-Free Pennsylvania Fund B Class .. 599,287 1,488,828
Tax-Free Pennsylvania Fund C Class .. 145,344 161,709
Shares issued upon reinvestment of
dividends from net investment income
and realized gains:
Tax-Free Pennsylvania Fund A Class.. 1,765,413 4,765,329
Tax-Free Pennsylvania Fund B Class.. 58,007 132,364
Tax-Free Pennsylvania Fund C Class.. 3,957 4,184
--------- ----------
4,610,959 14,502,022
--------- ----------
Shares repurchased:
Tax-Free Pennsylvania Fund A Class.. (7,443,177) (15,397,947)
Tax-Free Pennsylvania Fund B Class.. (206,846) (245,114)
Tax-Free Pennsylvania Fund C Class.. (42,039) (37,039)
--------- ----------
(7,692,062) (15,680,100)
Net Decrease ........................ (3,081,103) (1,178,078)
========== ==========
5. Lines of Credit
The Trust has a committed line of credit for $24.3 million. No amount was
outstanding at August 31, 1997, or at any time during the fiscal year.
6. Concentrations of Credit Risk
The Funds concentrate their investments in securities issued by municipalities.
The value of these investments may be adversely affected by new legislation
within the states, regional or local economic conditions, and differing levels
of supply and demand for municipal bonds. Many municipalities insure repayment
for their obligations. Although bond insurance reduces the risk of loss due to
default by an issuer, such bonds remain subject to the risk that market may
fluctuate for other reasons and there is no assurance that the insurance company
will meet its obligations. These securities have been identified in the
Statement of Net Assets.
15
<PAGE>
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, WHICH SETS FORTH DETAILS ABOUT CHARGES,
EXPENSES, INVESTMENT OBJECTIVES AND OPERATING POLICIES OF THE FUND. YOU SHOULD
READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. SUMMARY INVESTMENT RESULTS ARE
DOCUMENTED IN THE FUND'S CURRENT STATEMENT OF ADDITIONAL INFORMATION. THE
FIGURES IN THIS REPORT REPRESENT PAST RESULTS WHICH ARE NOT A GUARANTEE OF
FUTURE RESULTS. THE RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL
FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
INVESTMENT MANAGER
Delaware Management Company, Inc.
Philadelphia
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING AND
TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia
1818 Market Street
Philadelphia, PA 19103-3682
FOR SHAREHOLDERS
1.800.523.1918
FOR SECURITIES DEALERS
1.800.362.7500
FOR FINANCIAL INSTITUTIONS
REPRESENTATIVES
1.800.659.2265
(photo of globes)
Be sure to consult your financial adviser when making investments. Mutual funds
can be a valuable part of your financial plan: however, shares of the Fund are
not FDIC or NCUSIF insured, are not guaranteed by any bank or any credit union,
and involve investment risk, including the possible loss of the principal amount
invested. Shares of the Fund are not bank or credit union deposits.
Copy Rights Delaware Distributors, L.P.
DELAWARE
GROUP
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Philadelphia o London
Printed in the USA on
recycled paper
(238)
SA-007 [8/97] PP10/97
