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March 15, 1995
Dear Shareholder:
Since February 4, 1994, the Federal Reserve, our nation's central bank, has
raised interest rates seven separate times, "tightening" its monetary policy
in an effort to slow economic growth and control the pace of inflation. Six
of those increases occurred during your Fund's fiscal year, which ended
February 28, 1995.
The brunt of the Fed's actions was felt in 1994, as short and long-term bond
prices declined sharply. So far in 1995, the Fed has raised rates only once,
and confidence in the bond markets has increased. Prices have subsequently
risen, helping to recover some of last year's losses.
For the 12-month period, Tax-Free Pennsylvania Fund A Class had a +0.91%
total return at net asset value (capital change plus reinvested dividends of
$0.494 per share). Though significantly lower than its long-term historical
average, Tax-Free PA Fund's positive return is notable given the steep and
rapid increase in rates during this period. The table below shows the Fund's
results compared with the return of the unmanaged Lehman Brothers' Municipal
Bond Index, which includes national municipal bonds with an average maturity
similar to the Fund's.
- ---------------------------------------------------------------------------
Total Return
Year Ended
February 28, 1995
Tax-Free Pennsylvania Fund +0.91%
Lehman Brothers' Municipal Bond Index +1.88%
Lipper PA Municipal Bond Fund Average +0.66%
Tax-Free Pennsylvania Fund's performance is based on net asset value.
Performance information for all Classes of the Fund can be found on page 5.
There are 46 funds in the Lipper category for this period.
- ---------------------------------------------------------------------------
We attribute Tax-Free PA Fund's performance to our focus on producing above-
average tax-free income, which helps protect principal in weak market periods
like this fiscal year. The tradeoff for the defensive nature of this income
strategy is that we would generally not expect to capture the full potential
of a rising bond market, such as we have experienced for the past several
months. However, over a full economic and interest rate cycle, we believe our
strategy will provide the results shareholders are looking for. It is
important to note that all income paid by your Fund during this fiscal year
was tax-exempt interest income, free of federal income taxes and, for
Pennsylvania residents, free of state and certain local taxes as well.
Amid signs that economic growth has slowed and inflation has remained
relatively low, the Fed, at the present, seems to have assumed a "hold
steady" position with regard to further rate increases. However, the fall of
the U.S. dollar relative to other currencies has raised the specter of
possible Fed intervention to again boost rates, this time to support the
dollar. Nevertheless, we believe the vast majority of rate increases is
behind us and do not anticipate a bond market as difficult as we saw in 1994.
The remainder of this report contains an update from Michael Pokorny,
Senior Portfolio Manager of the Fund, who explains in more detail how Tax-Free
Pennsylvania Fund responded to market conditions. We've also included a
review of the Fund's long-term performance which should put this past year
in perspective. As always, we thank you for your continued confidence.
Sincerely,
(Signature) (Signature)
Wayne A. Stork Brian F. Wruble
Chairman, Board of Directors President and Chief Executive Officer
Delaware Group Delaware Group
Tax-Free Pennsylvania Fund Tax-Free Pennsylvania Fund
1
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Portfolio Manager's Review
We have not seen interest rate moves such as we had last year since the
mid-1920s, and I am sure that few of us remember that period. The Federal
Reserve raised interest rates seven times with the U.S. economy continuing to
show strength. Bond prices fell sharply in the first six months of the year as
investors struggled to maintain confidence in the bond markets amid concern
about impending inflation.
In spite of "on again, off again" inflation fears, inflation itself was well-
behaved. Even as the growing economy approached capacity constraints in terms
of both manufacturing and employment, there was little, if any, ability to
raise prices. With the 1994 annual inflation rate at a mere 2.8% and investors
apparently optimistic about the Fed's ability to navigate a "soft landing" for
the economy, the yield on the benchmark 30-year Treasury peaked at 8.16% on
November 7, 1994. The bond market then began a rally that carried through 1994
and into the beginning of 1995.
For investors who stayed the course during the very difficult period of
early 1994, the later period provided an opportunity to recover the majority
of their losses and begin to take advantage of the income potential presented
by the higher level of current interest rates.
2/28/94 2/28/95 8/31/94
1 year 2.78 4.48 3.72
2 year 3.19 4.69 4.12
3 year 3.57 4.81 4.34
4 year 3.80 4.91 4.54
5 year 4.02 5.01 4.71
7 year 4.34 5.15 4.96
10 year 4.63 5.33 5.27
15 year 5.09 5.63 5.76
20 year 5.26 5.78 5.96
25 year 5.28 5.86 5.98
30 year 5.31 5.88 6.01
Source: Bloomberg, AAA general obligation municipal bonds.
Your Fund's Strategy
The yield curve to the right shows interest rates on municipal bonds with
various maturities (in effect showing the cost of borrowing money for
different lengths of time). One of the notable effects of the Fed's tightening
was a flattening of the yield curve, whereby yields on short and intermediate-
term securities rose more than yields on longer term securities. With long-
term bonds still offering a higher level of income, we did lengthen maturity
slightly, though we resisted extending any further than we deemed prudent.
This reflected our focus on preservation of capital, one of the two
fundamental tenants on which we have always based our strategy.
The other tenant of our strategy is an emphasis on above-average income.
Because income is the primary component of a fixed-income investment's total
return (see table on page 6) and because our shareholders have clearly chosen
Tax-Free Pennsylvania Fund for its ability to generate tax-free income, we
have positioned the portfolio to seek a high stream of current income. We
-----------------------------------------------
Tax-Free Pennsylvania Fund Investment Objective
To seek a high level of current income exempt
from federal income tax and Pennsylvania state
and local taxes, consistent with preservation
of capital.
-----------------------------------------------
have tried to avoid any changes to the portfolio that would have resulted in a
lower income stream and have actively strived to benefit from the rising rate
environment. As bonds in the portfolio matured, we have invested that money in
comparable or higher yielding bonds.
2
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In replacing those maturing bonds, we also looked for bonds with greater
"call protection", that is, bonds that have a longer period of time before
the issuer can pay off the underlying debt and refinance at a lower interest
rate. Given the possibility that interest rates could decline further and
spur more refinancings, protection against refinancing was an important
consideration.
We believe that our combination of above-average income and capital
preservation was a key factor in our ability to provide a positive total
return in the harsh environment we faced this past fiscal year. We also
believe that the steps we have taken this year -- increasing our average
coupon, adding additional call protection and slightly adjusting our maturity
- -- will allow the Fund to benefit from rising bond prices if rates decline
further.
Higher Quality Bias
We have maintained Tax-Free PA Fund's high-quality bias, with the average
quality of the bonds in the portfolio at AA, the second highest rating
given. We also continue to maintain a large percentage of net assets in
pre-refunded bonds, bonds that are extremely creditworthy because the issuing
municipality has already set aside money in U.S. Treasury bonds to repay
principal.
In spite of the publicity surrounding losses in the municipal bond portfolio
of Orange County, California, the national municipal bond market--excluding
Orange Country--has improved in quality during this past year, according to
Standard & Poor's.
This improvement in quality was evident in Pennsylvania as well. The growing
economy has helped many municipalities to solidify their balance sheets. One
area to which we have paid particular attention is Philadelphia. A year ago,
we reported that we had begun investing in Philadelphia once again, as the
city appeared to be resolving its fiscal problems. Philadelphia's debt rating
was subsequently upgraded to Baa. The city is now considered an investment-
grade issuer.
As the use of leveraged derivative securities was a key factor in the
losses experienced in Orange County and something I'm sure most of our
shareholders have read about throughout this year, I should stress that we do
not own any leveraged derivative securities in the Tax-Free Pennsylvania
portfolio. Though derivatives can be a valuable risk management tool when used
properly, we have traditionally relied on other income-based strategies to
reduce risk in your Fund and do not anticipate using derivatives in the
foreseeable future.
Diversification Within Pennsylvania
Diversification continues to be an important consideration for all municipal
bond investors. We have tried to take full advantage of the Pennsylvania
market's size and the consequent opportunities for diversification. Our
holdings represent a mix of urban and rural projects. A majority of the Fund's
assets are in revenue bonds, which are backed by the revenue stream of a
particular project. Because we continue to believe that revenue streams can
be more accurately analyzed than a municipality's taxing power, we consider
these bonds more attractive than general obligation bonds.
3
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Looking Ahead
Even as higher interest rates forced bond prices lower, they helped to
create a more favorable balance of supply and demand for municipal bonds.
Higher rates have made it less attractive for municipalities to refinance debt,
causing a decline in the supply of new bonds. For the whole of 1994, the
level of tax-exempt new issues nationwide decreased 44% from the previous
year. This lack of municipal supply has helped the tax-exempt market
outperform other types of fixed-income investments over the past six months.
The Public Securities Association (PSA) has estimated that total new
bond issuance in 1995 will total just $157 billion nationwide, compared to
$292 billion at its peak in 1993.
The situation in Pennsylvania is similar.For the first quarter of 1995,new
bond issuance in the state was down some 14% and refinancings were down over
88% compared to one year ago. (Source:Securities Data Company) Generally, when
supply decreases and demand stays steady or increases, prices tend to rise.
Though the demand side of the equation is more difficult to gauge, if the
Federal Reserve ceases its monetary tightening policies during the second half
of 1995, we believe investors will return to the market, which would also bode
well for prices.
(Photo of Michael Pokorny)
It has never been our policy to try to predict interest rate moves or
the effect of such external factors as the current international monetary
situation with the dollar at record lows versus many foreign currencies.
Clearly these factors may have an impact on performance in coming months. But,
as always, our approach will be to adhere to our established disciplines. We
believe that is the way to provide the high, current tax-free income and
strong long-term returns that Tax-Free Pennsylvania shareholders have enjoyed
in the past.
(Signature)
J. Michael Pokorny
Senior Portfolio Manager
4
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Long-Term Performance
Though we are pleased that your Fund was able to provide a positive return of
0.91%, at net asset value, in spite of the significant obstacles of the past
year, we recognize that it was a difficult year for shareholders who probably
found it harder to maintain a long-term perspective. For that reason, we think
it is important to look at this year's return in the context of the Fund's
fine long-term performance. Over the past 10 years, Tax-Free Pennsylvania Fund
A Class has provided an average annual total return of +8.52% including sales
charge.
A $10,000 investment in the Fund on March 1, 1985, with all
dividends reinvested would have grown to $22,648. As you can see from the
chart below, this compares favorably with the broad national market as
represented by the unmanaged Lehman Brothers' Municipal Bond Index. However,
as always, the Index has an advantage in that it doesn't include any of the
transaction or holding costs associated with maintaining a portfolio. During
this period shareholders who reinvested all dividends would have earned total
tax-free dividends of $11,092 from the Tax-Free PA Fund investment.
Tax-Free Lehman Bros. Municipal
PA Returns Bond Index Returns
---------- ----------------------
Mar-85 10000 10000
May-86 11878.03 12617
May-87 13370.65 13441
May-88 13574.44 14647
May-89 14498.48 16333
May-90 15775.97 17529
May-91 16874.54 19295
Feb-92 18772.54 20751
Feb-93 21249.82 23607
Feb-94 22443.51 24914
Feb-95 22648.56 25384
Tax-Free Pennsylvania Fund
Class A Class B
Average Annual Total Returns(1) Aggregate Total Returns (2)
(Introduced May 2, 1994)
10 Years +8.52% Lifetime +2.79%
Excluding Sales Charge
5 Years +6.48% Lifetime -1.15%
Including Sales Charge
1 Year -3.89%
Including Sales Charge
Through February 28, 1995
Return and share value will 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. The chart above
includes the reinvestment of all distributions.
(1)Class A returns reflect the reinvestment of all distributions, the maximum
sales charge of 4.75%, and for the periods after June 1, 1992, include the
impact of a 12b-1 fee of up to 0.30%.
(2)Class B returns including deferred sales charge reflect the impact of the
maximum 4% contingent deferred sales charge and a 1% annual distribution and
service fee, for the period from introduction of the B Class on May 2, 1994,
through February 28, 1995. Returns excluding the deferred sales charge assume
that the investment was not redeemed. All distributions have been reinvested.
Performance for this short time period may not be representative of longer
term performance of this class.
Performance through March 31, 1995
Tax-Free Pennsylvania Fund
Class A Class B
Average Annual Total Returns(1) Aggregate Total Returns (2)
(Introduced May 2, 1994)
10 Years +8.61% Lifetime +3.99%
Excluding Sales Charge
5 Years +6.70% Lifetime +0.03%
Including Sales Charge
1 Year -0.32%
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A Closer Look at Tax-Free PA Fund's
10-Year History
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Cumulative Total Investment Return
Income
Year Ended Net Asset Income Dividends Dividends Return from Return from Total
February 28 Value Per Share Per Share Income Capital Change Return
Per Share (In Cash) (In Cash) (Dividends Reinvested)
- -----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1986 $7.85 $0.716 $0.716 11.78% 12.79 +24.57%
- -----------------------------------------------------------------------------------------------------
1987 8.21 0.584 1.300 7.98 4.59 +12.57
- -----------------------------------------------------------------------------------------------------
1988 7.73 0.559 1.859 7.24 -5.85 +1.39
- -----------------------------------------------------------------------------------------------------
1989 7.70 0.554 2.413 7.47 -0.39 +7.08
- -----------------------------------------------------------------------------------------------------
1990 7.80 0.554 2.967 7.37 1.30 +8.67
- -----------------------------------------------------------------------------------------------------
1991 7.80 0.542 3.509 7.24 0.00 +7.24
- -----------------------------------------------------------------------------------------------------
1992 8.11 0.532 4.041 7.14 3.97 +11.11
- -----------------------------------------------------------------------------------------------------
1993 8.63 0.514 4.555 6.79 6.41 +13.20
- -----------------------------------------------------------------------------------------------------
1994 8.61 0.496 5.051 5.87 -0.23 +5.64
- -----------------------------------------------------------------------------------------------------
1995 8.18 0.494 5.545 5.90 -4.99 +0.91
- -----------------------------------------------------------------------------------------------------
</TABLE>
Chart above is based on Tax-Free PA Fund A Class performance at net asset value.
Per share information for Class B can be found in the Financial report on page
16. Past performance is not a guarantee of future results.
The table above gives you a more detailed look at the Fund's performance
over the past 10 years. We've listed the Fund's net asset value at the end of
each fiscal year, as well as the income it provided and its total return. Two
points seem worthy of your attention. First, 1994 is not the first difficult
year that the Fund has faced. Nonetheless, Tax-Free PA Fund's long-term
performance has been strong. Secondly, income has clearly been the more
consistent component of total return. This reinforces our commitment to an
income-oriented strategy, a strategy we believe will provide very competitive
income and help to preserve principal in difficult periods, thereby better
serving investors over time.
6
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Financial Statements
DMC Tax-Free Income Trust-Pennsylvania*
Statement of Net Assets
February 28, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Value
MUNICIPAL BONDS--98.08%
State General Obligation Bonds--0.72%
<S> <C> <C>
Pennsylvania State First Series General Obligation 5.375% 4/15/12.................................. $ 2,000,000 $ 1,860,000
Pennsylvania State Second Series General Obligation Series A 6.60% 11/1/11......................... 5,000,000 5,231,250
---------
7,091,250
---------
Higher Education Revenue Bonds--6.43%
Berks County Municipal Authority Higher Education Revenue
(Trustees of the University of Pennsylvania) 7.00% 9/1/15......................................... 9,325,000 9,523,156
Dauphin County College Revenue (Holy Family College) 7.50% 12/1/19................................. 10,000,000 10,225,000
Delaware County Authority University Revenue
(Haverford College) 5.50% 11/15/23 (MBIA)......................................................... 2,215,000 2,037,800
(Villanova University, Escrowed to Maturity) 9.625% 8/1/02........................................ 555,000 663,919
Northampton County Higher Education Authority University Revenue
(Lehigh University) 7.10% 9/1/05.................................................................. 2,140,000 2,268,400
Pennsylvania Higher Education Facilities Authority College Revenue
(Drexel University) 7.70% 5/1/12 (MBIA)........................................................... 1,555,000 1,617,200
(Elizabethtown College) 6.50% 6/15/15............................................................. 6,700,000 6,700,000
(Hahnemann University) 6.90% 7/1/21 (MBIA)........................................................ 13,000,000 13,585,000
(Holy Family College) 8.00% 12/1/06............................................................... 380,000 418,000
(La Salle University, Escrowed to Maturity) 9.50% 5/1/03.......................................... 500,000 585,000
(Rosemont College) 8.00% 12/1/16.................................................................. 250,000 250,000
(Temple University) 5.75% 4/1/31 (MBIA)........................................................... 8,000,000 7,520,000
Swarthmore Borough Authority (Swarthmore College)
7.375% 9/15/08.................................................................................... 990,000 1,067,963
6.00% 9/15/12..................................................................................... 7,000,000 6,938,750
----------
63,400,188
----------
Hospital Revenue Bonds--15.45%
Allegheny County Hospital Development Authority Revenue Refunding
(Allegheny Valley Health Facility Management Corporation and Allegheny Valley Hospital)
7.50% 8/1/13..................................................................................... 4,275,000 4,424,625
(Mercy Hospital-Pittsburgh) 7.375% 4/1/15......................................................... 1,000,000 1,027,500
(St. Margaret Memorial Hospital) 9.80% 7/1/10..................................................... 2,500,000 2,581,250
(South Hills Health) 6.00% 5/1/20................................................................. 1,500,000 1,393,125
Cambria County Hospital Development Authority Health Care Revenue
(Allegheny Lutheran Social Ministries Project) 8.25% 6/15/17...................................... 3,250,000 3,266,250
Delaware County Authority Hospital Revenue (Riddle Memorial Hospital) 7.125% 1/1/10................ 1,130,000 1,161,075
Langhorne Manor Borough Higher Education & Health Authority Revenue
(Lower Bucks Hospital) 7.35% 7/1/22............................................................... 10,700,000 9,469,500
Lehigh County General Purpose Authority Hospital Revenue (HealthEast, Inc.) 9.00% 7/1/15........... 6,000,000 6,555,000
Monroeville Hospital Authority Revenue (Forbes Health System) 7.00% 10/1/13........................ 7,000,000 7,000,000
Pennsylvania Higher Education Facilities Authority
(The Medical College of Pennsylvania) 7.50% 3/1/14................................................ 1,000,000 1,028,750
(Thomas Jefferson University Hospital) 9.25% 7/1/08............................................... 3,255,000 3,421,819
Philadelphia Hospitals & Higher Education Facilities Authority Hospital Revenue
(Albert Einstein Medical Center) 7.625% 4/1/11.................................................... 19,110,000 20,232,713
(Children's Hospital, Philadelphia) 5.25% 2/15/10................................................. 5,500,000 4,963,750
(Children's Seashore House Series A) 7.00% 8/15/17................................................ 3,100,000 3,057,375
(Children's Seashore House Series B) 7.00% 8/15/22................................................ 2,100,000 2,065,875
(Graduate Health System) 6.625% 7/1/21............................................................ 11,315,000 10,268,363
(Jeanes Health System Project) 6.85% 7/1/22....................................................... 18,020,000 16,308,100
</TABLE>
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*This Fund is known and does business as Tax-Free Pennslyvania Fund.
7
<PAGE> 8
Statement of Net Assets (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds (Continued)
Philadelphia Hospitals & Higher Education Facilities Authority Hospital Revenue (Continued)
<S> <C> <C>
(Pennsylvania Hospital) 7.25% 7/1/14.............................................................. $ 7,315,000 $ 7,452,156
(Presbyterian Medical Center) 6.65% 12/1/19....................................................... 13,000,000 12,447,500
(Roxborough Memorial Hospital) 7.25% 3/1/24....................................................... 12,775,000 11,082,313
(Temple University Hospital) 6.625% 11/15/23...................................................... 7,500,000 7,087,500
Sayre Health Care Facilities (VHA of Pennsylvania, Inc. Capital Asset Financing
Program-Guthrie Medical Center)
Series A, 7.625% 12/1/15 (AMBAC).................................................................. 1,000,000 1,085,000
Series B, 7.625% 12/1/15 (AMBAC).................................................................. 2,490,000 2,701,650
Series 91A, 6.00% 3/1/21 (AMBAC).................................................................. 7,000,000 6,825,000
Scranton-Lackawanna, Pennsylvania Health and Welfare Authority (Allied Services
Rehabilitation Hospitals) 7.60% 7/15/20........................................................... 5,640,000 5,555,400
-----------
152,461,589
-----------
Housing Revenue Bonds--5.44%
Montgomery County Multi-Family Housing (KBF Associates Project)
6.50% 7/1/25...................................................................................... 19,810,000 17,630,900
7.25% 7/1/25...................................................................................... 15,185,000 13,552,613
Montgomery County, Pennsylvania Housing Redevelopment Authority (Montgomery Woods Project)
7.50% 1/1/24...................................................................................... 11,405,000 11,319,463
Pennsylvania Housing Finance Agency
7.50% 10/1/10..................................................................................... 1,250,000 1,332,813
7.45% 4/1/16...................................................................................... 2,000,000 2,097,500
Philadelphia Redevelopment Authority Home Improvement Series 86A, 7.375% 6/1/03 (FHA).............. 1,820,000 1,849,575
Philadelphia Redevelopment Authority Home Mortgage
Series 85A, 10.00% 12/1/10........................................................................ 145,000 148,625
Series 86A, (collateralized by GNMA Mortgage), 7.125% 12/1/13 .................................... 500,000 513,750
Pittsburgh Urban Redevelopment Authority Mortgage Revenue
Series 87B, 8.30% 4/1/17.......................................................................... 800,000 832,000
Series 86A, 7.625% 10/1/17........................................................................ 4,300,000 4,423,625
----------
53,700,864
----------
Pollution Control Revenue Bonds--7.75%
Beaver County Industrial Development Authority Pollution Control Revenue
(Cleveland Electric Illuminating Company) 11.125% 11/15/14........................................ 250,000 258,750
(Ohio Edison Company) 10.50% 10/1/15.............................................................. 1,350,000 1,434,375
(Toledo Edison Co. Beaver Valley).................................................................
13.25% 11/15/14.................................................................................. 1,000,000 1,031,250
12.25% 9/15/15................................................................................... 2,100,000 2,191,875
10.75% 11/15/15.................................................................................. 2,000,000 2,080,000
Delaware County Industrial Development Authority Pollution Control Revenue
(Philadelphia Electric Co.) 7.375% 4/1/21......................................................... 10,250,000 10,736,875
Lehigh County Industrial Development Authority Pollution Control Revenue
(Pennsylvania Power & Light)
9.375% 7/1/15..................................................................................... 2,895,000 2,992,706
6.40% 11/1/21 (MBIA).............................................................................. 7,000,000 7,148,750
5.50% 2/15/27 (MBIA).............................................................................. 15,500,000 13,988,750
6.40% 9/1/29 (MBIA)............................................................................... 15,000,000 15,243,750
Montgomery County Industrial Development Authority Pollution Control Revenue
(Philadelphia Electric Co.)
8.875% 6/1/16..................................................................................... 5,500,000 5,830,000
6.70% 12/1/21(MBIA)............................................................................... 10,000,000 10,337,500
</TABLE>
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Statement of Net Assets (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pollution Control Revenue Bonds (Continued)
<S> <C> <C>
Northampton County Industrial Development Authority Pollution Control Revenue
(Metropolitan Edison Co.) 10.50% 9/1/95........................................................... $ 1,000,000 $ 1,028,750
Washington County Industrial Development Authority Pollution Control Revenue
(West Penn Power & Light) 9.375% 4/1/14........................................................... 2,100,000 2,147,250
------------
76,450,581
------------
Pre-Refunded Bonds+--37.74%
Allegheny County Hospital Development Authority (Magee-Womens Hospital) 8.25% 10/1/13-97........... 5,000,000 5,493,750
Allegheny County Institution District 9.25% 3/1/07-95 (MBIA)....................................... 1,800,000 1,836,252
Allegheny County Sanitation Authority Sewer Revenue
9.625% 6/1/00-95 (MBIA)........................................................................... 1,000,000 1,013,910
Series 86A, 7.50% 12/1/16-99 (FGIC)............................................................... 1,780,000 1,946,875
Series 86B, 7.50% 12/1/16-99 (FGIC)............................................................... 4,020,000 4,396,875
Berks County General Obligation 7.25% 11/15/20-00 (FGIC)........................................... 6,700,000 7,520,750
Berks County Municipal Authority Revenue (The Highlands at Wyomissing Project)
9.125% 10/1/17-97................................................................................. 4,000,000 4,400,000
Bucks County Water and Sewer Authority Revenue
(Collection Sewer System) 7.00% 12/1/19-97 (FGIC)................................................. 4,240,000 4,473,200
(Southwest Region Water System) 9.20% 12/1/10-95 (FGIC)........................................... 200,000 207,000
(Southwest Region Water System) Series C, 7.00% 12/1/19-97 (FGIC)................................. 1,000,000 1,055,000
Carlisle Borough Municipal Authority College Revenue (Dickinson College)
Series A, 9.50% 11/1/10-95........................................................................ 1,500,000 1,580,625
Series B, 9.50% 11/1/10-95........................................................................ 1,000,000 1,053,750
Chester County Hospital Authority Revenue (Bryn Mawr Rehabilitation Hospital) 10.00% 7/1/14-95..... 1,250,000 1,298,738
Delaware County Authority University Revenue (Haverford College) 7.375% 11/15/20-00 (MBIA)......... 3,275,000 3,696,656
Delaware River Joint Toll Bridge Commission Bridge System Revenue 7.875% 7/1/18-98................. 4,600,000 5,077,250
Derry Area School District 6.50% 2/1/20-01 (MBIA).................................................. 3,185,000 3,407,950
Doylestown Hospital Authority (Dolyestown Hospital) Series C, 6.90% 7/1/19-99 (AMBAC).............. 1,750,000 1,905,313
Edinboro Sewer Authority Revenue 8.25% 8/1/07-97................................................... 775,000 833,125
Harrisburg Parking Authority (Dauphin County) 7.75% 11/15/06-96.................................... 1,700,000 1,782,875
Harrisburg Water Authority Revenue 7.00% 7/15/15-01 (FGIC)......................................... 12,000,000 13,230,000
Harrisburg Water and Sewer Authority Revenue (Dauphin County) Series 88A, 8.00% 11/1/12-98
(AMBAC)........................................................................................... 6,000,000 6,532,500
Harrison Township Water Authority Water Revenue Guaranteed 7.50% 12/1/10-96........................ 595,000 622,519
Hilltown Township Water and Sewer Authority Revenue Guaranteed 9.00% 12/15/16-96................... 270,000 285,863
Huntingdon Borough General Obligation 7.50% 12/1/17-97............................................. 875,000 932,969
Jefferson-Morgan School District General Obligation (Greene County) 9.60% 6/15/10-95............... 350,000 355,506
Kiski Valley Water Pollution Control Authority Sewer Revenue 9.75% 7/1/13-95....................... 250,000 254,063
Lackawanna County Multi-Purpose Stadium Authority Stadium Revenue Guaranteed
9.00% 8/15/07-97.................................................................................. 4,000,000 4,400,000
8.625% 8/15/07-98................................................................................. 700,000 796,250
Lancaster County General Obligation 7.75% 7/1/07-95 (MBIA)......................................... 8,900,000 9,055,750
Limerick Township Municipal Authority Sewer Revenue Guaranteed (Montgomery County) 7.75%
11/15/16-96....................................................................................... 610,000 639,738
Monroeville Hospital Authority Revenue (Forbes Health System) 9.70% 10/1/13-95..................... 965,000 1,013,250
Montgomery County Higher Education and Health Authority Hospital Revenue
(Bryn Mawr Hospital Project) 9.375% 12/1/19-97.................................................... 2,500,000 2,831,250
Montgomery County Hospital Authority Revenue (Abington Memorial Hospital) 8.00% 6/1/15-96.......... 3,900,000 4,168,125
Montgomery County Industrial Development Authority Pollution Control Revenue
(Philadelphia Electric Company)
10.50% 5/15/15-95................................................................................. 7,100,000 7,392,875
10.50% 10/1/14-95................................................................................. 1,550,000 1,646,875
</TABLE>
9
<PAGE> 10
Statement of Net Assets (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds (Continued)
<S> <C> <C>
Mount Lebanon Hospital Authority Revenue Refunding (St. Clair Memorial Hospital) 9.125%
7/1/06-96 (FGIC).................................................................................. $ 1,500,000 $ 1,584,375
New Holland Borough Authority Sewer Revenue Guaranteed (Lancaster County) 7.25% 3/1/17-95.......... 290,000 290,026
Northeastern York County Sewer Authority Revenue 8.75% 9/1/18-97................................... 1,000,000 1,090,000
Pennsylvania Higher Education Facilities Authority
(Drexel University) 7.70% 5/1/12-95 (MBIA)........................................................ 1,945,000 2,025,231
(Philadelphia College of Textiles & Science) 7.50% 2/1/07-97...................................... 1,100,000 1,155,000
(Trustees of the University of Pennsylvania) Series 85A, 9.125% 6/1/15-95......................... 1,000,000 1,012,180
Pennsylvania Intergovernmental Cooperative Authority Special Tax Revenue
(City of Philadelphia Funding Program) 6.80% 6/15/22-02........................................... 2,125,000 2,321,563
Pennsylvania State University Revenue
Series A, 9.25% 9/1/08-95......................................................................... 450,000 469,688
Series 86, 7.75% 3/1/11-96........................................................................ 13,145,000 13,802,250
Series 89, 6.75% 7/1/14-99........................................................................ 14,195,000 15,312,856
Pennsylvania Turnpike Commission Turnpike Revenue
Series A, 7.875% 12/1/15-96....................................................................... 19,830,000 21,267,675
Series D, 7.625% 12/1/17-98 (FGIC)................................................................ 3,500,000 3,880,625
Series E, 7.55% 12/1/17-99 (MBIA)................................................................. 495,000 555,638
Series I, 7.20% 12/1/17-01 (FGIC)................................................................. 8,915,000 10,096,238
Series J, 7.20% 12/1/17-01 (FGIC)................................................................. 8,995,000 10,186,838
Series K, 7.50% 12/1/19-99........................................................................ 10,000,000 11,200,000
Philadelphia General Obligation
7.60% 8/1/06-96................................................................................... 185,000 196,100
8.125% 8/1/17-97.................................................................................. 7,410,000 8,095,425
Philadelphia Hospitals & Higher Education Facilities Authority Hospital Revenue
(Albert Einstein Medical Center) 10.00% 4/1/11-95................................................. 5,100,000 5,227,041
(Philadelphia MR Project) 8.625% 8/1/11-96........................................................ 2,000,000 2,147,500
Philadelphia Municipal Authority Revenue 7.875% 7/15/17-97......................................... 15,850,000 17,217,063
Philadelphia Regional Port Revenue Lease Authority 7.15% 8/1/20-00 (MBIA).......................... 16,315,000 17,905,713
Philadelphia Water and Sewer Revenue
7.90% 7/1/05-96................................................................................... 1,305,000 1,386,563
7.25% 7/1/14-96................................................................................... 4,415,000 4,613,675
6.00% 7/1/16-96................................................................................... 4,750,000 4,839,063
Pittsburgh General Obligation 7.125% 9/1/14-97 (AMBAC)............................................. 1,000,000 1,072,500
Pittsburgh Public Parking Authority Revenue 9.50% 12/1/07-95....................................... 6,470,000 6,833,938
Pittsburgh School District Authority Revenue 7.10% 2/1/15-98 (AMBAC)............................... 2,665,000 2,871,538
Puerto Rico General Obligation
7.125% 7/1/02-97.................................................................................. 405,000 434,363
8.00% 7/1/07-98................................................................................... 2,545,000 2,837,675
7.25% 7/1/10-00................................................................................... 1,370,000 1,532,688
7.90% 7/1/11-96................................................................................... 3,405,000 3,656,119
7.25% 7/1/12-97................................................................................... 7,255,000 7,799,125
7.75% 7/1/13-98................................................................................... 12,775,000 14,148,313
7.75% 7/1/17-99................................................................................... 7,700,000 8,652,875
6.50% 7/1/18-99................................................................................... 2,745,000 2,919,994
7.30% 7/1/20-00................................................................................... 1,500,000 1,689,375
</TABLE>
10
<PAGE> 11
Statement of Net Assets (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds (Continued)
<S> <C> <C>
Ringgold School District General Obligation (Washington County) 9.75% 8/1/10-95 (MBIA)............. $ 790,000 $ 822,588
St. Thomas Township Sewer Revenue Guaranteed (Franklin County) Series 85, 10.00% 12/1/17-95........ 480,000 499,200
Sewickley Valley Hospital Authority Revenue Refunding (Sewickley Valley Hospital Project)
7.50% 10/1/06-99.................................................................................. 1,295,000 1,440,688
Swarthmore Borough Authority (Swarthmore College)
7.375% 9/15/08-98................................................................................. 1,810,000 1,970,638
7.375% 9/15/20-00................................................................................. 14,000,000 15,592,500
University Area Joint Authority Water and Sewer Revenue 7.10% 9/1/20-00 (MBIA)..................... 6,000,000 6,585,000
Upper Darby Township (Delaware County) General Obligation 7.875% 7/15/18-98........................ 4,345,000 4,725,188
Washington County Authority Lease Revenue (Shadyside Hospital) Series 85D 7.45%
12/15/18-00 (AMBAC)................................................................................ 7,500,000 8,493,750
West Chester Sewer Revenue Guaranteed 9.625% 11/1/10-95............................................ 1,100,000 1,137,125
Westmoreland County Municipal Authority (Water Revenue Refunding) 9.20% 7/1/10-95 (FGIC)........... 1,000,000 1,015,000
York County Hospital Revenue Authority (York Hospital) 7.00% 7/1/21-01 (AMBAC)..................... 9,500,000 10,545,000
-----------
372,290,933
-----------
School Authority/District--0.75%
Altoona Area School District (Blair County, Escrowed to Maturity) 10.00% 6/15/98................... 545,000 576,338
Dauphin County School District Pooled Financing General Obligation (Central Fulton) 7.75% 6/1/26... 3,000,000 3,018,750
Lakeland School District General Obligation (Lackawanna County) 9.50% 8/15/10...................... 1,000,000 1,041,250
Pottsville Area School District (Escrowed to Maturity) 9.375% 5/1/06 (AMBAC)....................... 900,000 1,120,500
Southmoreland School District (Escrowed to Maturity) 10.50% 10/1/97 (AMBAC)........................ 655,000 692,663
Waynesboro Area School District General Obligation 5.50% 2/1/12.................................... 1,000,000 928,750
---------
7,378,251
---------
Transportation Revenue Bonds--2.95%
Moon Transportation Authority (Allegheny County) Highway Improvement Revenue 9.50% 2/1/16.......... 750,000 813,750
Pennsylvania State Turnpike Commission Turnpike Revenue
Series L, 6.25% 6/1/11 (AMBAC).................................................................... 9,000,000 9,202,500
Series N, 6.50% 12/1/13........................................................................... 3,000,000 3,101,250
Series N, 5.50% 12/1/17........................................................................... 12,000,000 11,130,000
Philadelphia Airport Revenue (Philadelphia Airport System) 9.00% 6/15/15........................... 4,730,000 4,913,288
----------
29,160,788
----------
Waste Disposal Revenue Bonds--2.26%
Greater Lebanon Refuse Authority Revenue Refunding (Lebanon County) 7.00% 11/15/04................. 1,200,000 1,243,500
York County Solid Waste and Refuse Authority Revenue 8.20% 12/1/14................................. 19,500,000 21,108,750
----------
22,352,250
----------
Water & Sewer Revenue Bonds--3.84%
Allegheny County Sanitation Authority Sewer Revenue 6.50% 12/1/16 (FGIC)........................... 4,500,000 4,854,375
Dauphin County Industrial Development Authority Water Development Revenue Series 92B,
6.70% 6/1/17...................................................................................... 1,750,000 1,767,500
Philadelphia Water & Sewer Revenue 7.00% 8/1/18.................................................... 20,650,000 21,269,500
Pittsburgh Water & Sewer Revenue (Escrowed to Maturity) 7.25% 9/1/14 (FGIC)........................ 9,000,000 9,956,250
----------
37,847,625
----------
</TABLE>
11
<PAGE> 12
Statement of Net Assets (Continued)
<TABLE>
<CAPTION>
Principal Market
Amount Value
<S> <C> <C>
Commonwealth of Puerto Rico General Obligation
7.125% 7/1/02..................................................................................... $ 1,895,000 $ 2,013,438
0% 7/1/04......................................................................................... 45,380,000 26,660,750
8.00% 7/1/07...................................................................................... 715,000 784,713
6.00% 7/1/22...................................................................................... 3,585,000 3,508,819
Falls Township General Obligation 7.00% 12/15/10 (MBIA)............................................ 3,000,000 3,285,000
----------
36,252,720
----------
Other Revenue Bonds--11.08%
Delaware County Authority Revenue (Main Line & Haverford Nursing and Rehabilitation Center)
9.00% 8/1/22...................................................................................... 2,000,000 2,067,500
Delaware River Port Authority 6.50% 1/1/08 (AMBAC)................................................. 15,295,000 15,753,850
Lancaster Parking Authority Revenue Refunding (Lancaster County) 9.50% 1/1/12...................... 800,000 824,000
Pennsylvania Intergovernmental Cooperative Authority Special Tax Revenue
(City of Philadelphia Funding Program) 5.60% 6/15/15 (MBIA)....................................... 2,245,000 2,121,525
Pennsylvania Public School Building Authority Lease Revenue (Escrowed to Maturity) 10.375%
11/1/06 .......................................................................................... 110,000 112,475
Pennsylvania State Finance Authority Revenue 6.60% 11/1/09......................................... 20,000,000 20,300,000
Philadelphia Gas Works Revenue 0% 1/1/12 (AMBAC)................................................... 2,500,000 903,125
Philadelphia Industrial Development Authority
++(American Fiber Supply Project) 8.00% 12/1/19.................................................... 15,900,000 16,317,375
(Cathedral Village) 7.25% 4/1/15.................................................................. 2,000,000 1,870,000
(Gallery II Garage Project) 6.40% 2/15/13......................................................... 9,150,000 8,177,813
Philadelphia Municipal Authority Revenue Lease
Series D, 6.00% 7/15/03........................................................................... 4,000,000 3,885,000
Series B, 6.40% 11/15/16.......................................................................... 40,535,000 36,937,519
------------
109,270,182
------------
TOTAL MARKET VALUE OF SECURITIES OWNED--98.08% (cost $929,596,139).................................................. 967,657,221
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES--1.92%.............................................................. 18,894,284
------------
NET ASSETS APPLICABLE TO 119,368,970 TAX-FREE PENNSYLVANIA FUND A CLASS SHARES AND
1,251,835 TAX-FREE PENNSYLVANIA FUND B CLASS SHARES OUTSTANDING; EQUIVALENT TO $8.18 PER SHARE--100.00%............ $986,551,505
============
</TABLE>
See accompanying notes
- ---------------------
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.
+For Pre-Refunded Bonds, the stated maturity is followed by the year
in which each bond is pre-refunded.
++This security is subject to the federal alternative minimum tax.
12
<PAGE> 13
DMC Tax-Free Income Trust-Pennsylvania
Statement of Operations
Year Ended February 28, 1995
INVESTMENT INCOME:
Interest..................................... $68,756,510
EXPENSES:
Management fees ($5,743,977)
and trustees' fees ($20,613)................ $5,764,590
Distribution expenses........................ 1,777,401
Dividend disbursing and transfer agent fees
and expenses................................ 707,488
Salaries..................................... 261,994
Reports to shareholders...................... 200,655
Custodian fees............................... 72,496
Professional fees............................ 45,472
Federal and state registration fees.......... 32,646
Other........................................ 110,333 8,973,075
---------- ----------
NET INVESTMENT INCOME........................ 59,783,435
----------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss from security
transactions................................ (2,683,926)
Net unrealized depreciation of investments
during the period........................... (49,900,367)
------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS......................... (52,584,293)
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................... $7,199,142
============
COMPUTATION OF NET ASSET VALUE
AND OFFERING PRICE:
Net asset value per share (A)....................................... $8.18
Sales charges (4.75% of offering price, or 5.01% of amount
invested per share) (B)............................................ .41
-----
Offering price...................................................... $8.59
=====
- -----------------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See Purchasing Shares in the current Prospectus for purchases of $100,000
or more.
See accompanying notes
<PAGE> 14
DMC Tax-Free Income Trust-Pennslyvania
Statement of Changes in Net Assets
Year Year
Ended Ended
2/28/95 2/28/94
OPERATIONS:
Net investment income....................... $ 59,783,435 $ 56,973,879
Net realized gain (loss)
from security transactions ................ (2,683,926) 4,168,683
Net unrealized depreciation
during the period.......................... (49,900,367) (7,306,489)
------------- --------------
Net increase in net assets resulting
from operations............................ 7,199,142 53,836,073
------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME:
Tax-Free Pennsylvania Fund A Class.......... (59,553,344) (56,973,879)
Tax-Free Pennsylvania Fund B Class.......... (230,091) --
------------- --------------
(59,783,435) (56,973,879)
------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Tax-Free Pennsylvania Fund A Class......... 87,435,054 142,414,503
Tax-Free Pennsylvania Fund B Class......... 10,316,892 --
Net asset value of shares issued upon
reinvestment of dividends from
net investment income:
Tax-Free Pennsylvania Fund A Class......... 35,336,019 33,619,665
Tax-Free Pennsylvania Fund B Class......... 150,420 --
------------- --------------
133,238,385 176,034,168
Cost of shares repurchased:
Tax-Free Pennsylvania Fund A Class......... (120,782,840) (86,609,385)
Tax-Free Pennsylvania Fund B Class......... (223,211) --
------------- --------------
(121,006,051) (86,609,385)
------------- --------------
Increase in net assets derived from
capital share transactions................. 12,232,334 89,424,783
------------- --------------
NET INCREASE (DECREASE)
IN NET ASSETS.............................. (40,351,959) 86,286,977
NET ASSETS:
Beginning of period......................... 1,026,903,464 940,616,487
------------- --------------
End of period............................... $ 986,551,505 $1,026,903,464
============= ==============
See accompanying notes
13
<PAGE> 15
DMC Tax-Free Income Trust-Pennslyvania
Notes to Financial Statements
February 28, 1995
1. Significant Accounting Policies
DMC Tax-Free Income Trust-Pennsylvania (the "Trust") is a nondiversified
open-end investment company organized as a Pennsylvania Business Trust
and is registered under the Investment Company Act of 1940, as amended.
The Trust currently offers Tax-Free Pennsylvania Fund A Class and effective
May 2, 1994, Tax-Free Pennsylvania Fund B Class.
Securities listed on an exchange are valued at the last quoted sales price as
of 4:00 pm on the valuation date. Securities not traded are valued at the last
quoted bid price. Securities not listed on an exchange are valued at the mean
of the last quoted bid and asked prices. Long term debt securities are valued
by an independent pricing service when 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.
Expenses common to all funds within the Delaware family of funds are allocated
amongst the funds on the basis of average net assets. Security transactions are
recorded on the date the securities are purchased or sold (trade date). Costs
used in calculating realized gains and losses on the sale of investment
securities are those of the specific securities sold. Interest income is
recorded on the accrual basis. Original issue discount are accreted and
premiums are amortized to interest income over the lives of the respective
securities. The Fund declares dividends daily from net investment income and
pays such dividends monthly.
No provision for federal income taxes was made since it is the intention of the
Trust to comply with the provisions of the Internal Revenue Code available to
regulated investment companies and to make requisite distributions to
shareholders.
2. Investment Management Fee and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the
compensation paid to Delaware Management Company, Inc., the investment manager
of the Trust, is equal to (on an annual basis) 0.60% of the first $500 million
of average daily net assets of the Trust, .575% on the next $250 million and
.55% on the average daily net assets over $750 million, less all amounts paid
to the trustees. Pursuant to the Plan of Distribution between the Trust and
Delaware Distributors, L.P., an affiliate of Delaware Management Company, Inc.,
the Distributor will be paid a monthly fee which is computed on the net assets
of the Trust as of the close of business each day at an annual rate not to
exceed .30% of the Trust's daily net assets attributable to the Tax-Free
Pennsylvania Fund A Class and at an annual rate of 1.00% of the Trust's daily
net assets attributable to the Tax-Free Pennsylvania Fund B Class.
On April 3, 1995, Delaware Management Company, Inc. was acquired (the
"Acquisition") by Lincoln National Corporation. Other than the resulting change
in ownership, the Acquisition will not materially change the manner in which
Delaware Management Company, Inc. has heretofore conducted its relationship
with the Trust. The same personnel who managed the operations and affairs
of the Trust before the Acquisition have continued to manage its operations
and affairs since the Acquisition.
Certain officers, directors and shareholders of Delaware Management Company,
Inc. are officers and/or trustees of the Trust. Officers,directors and
employees of Delaware Management Company, Inc., who are also officers, trustees
and employees of the Trust, do not receive any compensation from the Trust.
Salaries of officers and employees who are exclusively employed by the Delaware
Group of Funds are apportioned on the basis of net assets of the respective
Funds. For the year ended February 28, 1995, the Trust's expenses related to
such salaries amounted to $261,994. Delaware Service Company, Inc., an
affiliate of Delaware Management Company, Inc., received $649,802 for providing
dividend disbursing and transfer agent services to the Trust. In addition,
Delaware Distributors, L.P. received $381,497 from commissions earned on sales
of the Tax-Free Pennsylvania Fund A Class capital stock.
On February 28, 1995, The Trust had investment management fees payable to
Delaware Management Company, Inc. of $20,548. Also, the Trust had dividend
disbursing transfer agent fees, and other expenses payable to Delaware Service
Company, Inc. of $10,364. In addition, the Trust owes Delaware Management
Company, Inc. and its affiliates, Delaware Service Company, Inc. and Delaware
Distributors, L.P., $3,479, $4,308 and $31,081 respectively, for other expenses
related to operations.
14
<PAGE> 16
Notes to Financial Statements (Continued)
3. Investments
Investment securities based on cost for federal income tax purposes at
February 28, 1995, are as follows:
Cost of investments......................................... $929,596,991
Aggregate unrealized appreciation........................... 51,228,541
Aggregate unrealized depreciation........................... (13,168,311)
------------
Market value of investments................................. $967,657,221
============
Net realized loss based on cost for federal income tax purposes for the year
ended February 28, 1995, was $2,686,994. For federal income tax purposes, the
Trust had accumulated capital losses at February 28, 1995, of $2,859,869 which
may be carried forward and applied against future capital gains. The capital
loss carryforward expires as follows: 1997--$172,875 and 2003--$2,686,994.
During the year ended February 28, 1995, the Trust had purchases of
$183,608,443 and sales of $176,186,979 of investment securities exclusive of
short-term debt securities having maturities of one year or less.
On February 28, 1995, the Fund has a receivable for investment securities sold
of $4,510,269.
4. Credit Risk
The investment objective of the Trust is to invest at least 80% of its total
net assets in securities issued within the Commonwealth of Pennsylvania. On
February 28, 1995, the Trust held over 92% of its securities from Pennsylvania
issuers. As the Trust concentrates its investments, there are risks that would
not be present if the Trust were diversified nationally. These risks include
any new legislation that would adversely affect Pennsylvania tax-exempt
obligations, regional or local economic conditions, and differing levels of
supply and demand for municipal bonds.
Many municipalities insure their obligations with insurance underwritten by
insurance companies which undertake to pay a holder, when due, the interest
and principal amount of an obligation if the issuer should not pay a holder its
obligation. Approximately 28% of the Trust's investments are insured. 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.
5. Trust Shares
Transactions in Trust shares were as follows:
Year Year
Ended Ended
2/28/95 2/28/94
Shares sold:
Tax-Free Pennsylvania Fund A Class..... 10,622,689 16,389,775
Tax-Free Pennsylvania Fund B Class..... 1,260,370 --
Shares issued upon reinvestment of
dividends from net investment income:
Tax-Free Pennsylvania Fund A Class..... 4,320,331 3,867,331
Tax-Free Pennsylvania Fund B Class..... 18,603 --
----------- ----------
16,221,993 20,257,106
Shares repurchased:
Tax-Free Pennsylvania Fund A Class..... (14,828,773) (9,950,106)
Tax-Free Pennsylvania Fund B Class..... (27,138) --
----------- ----------
(14,855,911) (9,950,106)
----------- ----------
Net increase................................ 1,366,082 10,307,000
=========== ==========
6. Components of Net Assets
Capital shares (unlimited authorization-no par value)....... $951,343,327
Accumulated undistributed income:
Net realized loss on investments....................... (2,852,904)
Net unrealized appreciation of investments............. 38,061,082
------------
Total net assets applicable to 119,368,970 Tax-Free
Pennsylvania Fund A Class shares and 1,251,835 Tax-Free
Pennsylvania Fund B Class shares equivalent to
$8.18 per share........................................ $986,551,505
============
7. Lines of Credit
The Trust has a committed line of credit for $20 million. No amount was
outstanding at February 28, 1995, or at any time during the last fiscal period.
15
<PAGE> 17
Notes to Financial Statements (Continued)
8. Financial Highlights
Selected data for each share of the Trust outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free
Pennsylvania Fund
Tax-Free Pennsylvania Fund A Class
--------------------------------------------------------------------
2/28/95 2/28/94 2/28/93(2) 2/29/92 2/28/91 2/28/90 2/28/89
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $8.610 $8.630 $8.110 $7.800 $7.800 $7.700 $7.730
Income from investment operations:
Net investment income....................... 0.494 0.496 0.514 0.532 0.542 0.554 0.554
Net realized and unrealized
gain (loss) from security transactions.... (0.430) (0.020) 0.520 0.310 -- 0.100 (0.030)
------ ------ ------ ------ ------ ------ ------
Total from investment operations............ 0.064 0.476 1.034 0.842 0.542 0.654 0.524
------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income........ (0.494) (0.496) (0.514) (0.532) (0.542) (0.554) (0.554)
------ ------ ------ ------ ------ ------ ------
Total distributions......................... (0.494) (0.496) (0.514) (0.532) (0.542) (0.554) (0.554)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period.............. $8.180 $8.610 $8.630 $8.110 $7.800 $7.800 $7.700
====== ====== ====== ====== ====== ====== ======
Total return(1)............................. 0.91% 5.64% 13.20% 11.11% 7.24% 8.67% 7.08%
Ratios/supplemental data:
Net assets, end of period (000 omitted)..... $976,313 $1,026,903 $940,616 $766,625 $668,345 $613,223 $534,287
Ratio of expenses to average net assets..... 0.90% 0.88% 0.83% 0.72% 0.72% 0.73% 0.77%
Ratio of net investment income
to average net assets..................... 6.03% 5.70% 6.18% 6.65% 7.00% 7.03% 7.24%
Portfolio turnover.......................... 18% 14% 11% 7% 31% 22% 8%
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania Fund
Tax-Free
Pennsylvania
Fund
B Class
---------------
Period from
5/2/94(3)
to
2/29/88 2/28/87 2/28/86 2/28/95
<S> <C> <C> <C> <C>
Net asset value, beginning of period........ $8.210 $7.850 $6.960 $8.310
Income from investment operations:
Net investment income....................... 0.559 0.584 0.593 0.353
Net realized and unrealized
gain (loss) from security transactions.... (0.480) 0.360 1.013 (0.130)
------ ------ ------ ------
Total from investment operations............ 0.079 0.944 1.606 0.223
------ ------ ------ ------
Less distributions:
Dividends from net investment income........ (0.559) (0.584) (0.716) (0.353)
------ ------ ------ ------
Total distributions......................... (0.559) (0.584) (0.716) (0.353)
------ ------ ------ ------
Net asset value, end of period.............. $7.730 $8.210 $7.850 $8.180
====== ====== ====== ======
Total return(1)............................. 1.39% 12.57% 24.57% 2.79%
Ratios/supplemental data:
Net assets, end of period (000 omitted)..... $472,648 $419,768 $186,394 $10,239
Ratio of expenses to average net assets..... 0.78% 0.75% 0.77% 1.73%
Ratio of net investment income
to average net assets..................... 7.38% 7.20% 8.55% 5.20%
Portfolio turnover.......................... 31% 36% 52% 18%
</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 and
contingent deferred sales charge for Tax-Free Pennsylvania Fund B Class.
(2) Reflects 12b-1 distribution expenses beginning June 1, 1992.
(3) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
16
<PAGE> 18
DMC Tax-Free Income Trust--Pennsylvania
Report of Independent Auditors
To the Trustees and Beneficial Shareholders
DMC Tax-Free Income Trust--Pennsylvania
We have audited the accompanying statement of net assets of DMC Tax-Free
Income Trust-Pennsylvania as of February 28, 1995, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and financial highlights
for each of the ten years in the period then ended. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of February 28, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of DMC
Tax-Free Income Trust--Pennsylvania at February 28, 1995, the results of its
operations for the year then ended and the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the ten years in the period then ended, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 6, 1995
17
<PAGE> 19
Board Members
Mr. Wayne A. Stork
Chairman
Delaware Group of Funds
Philadelphia, PA
Mr. Walter P. Babich
Board Chairman
Citadel Constructors, Inc.
King of Prussia, PA
Mr. Anthony D. Knerr
Consultant
Anthony Knerr & Associates
New York, NY
Ms. Ann R. Leven
Treasurer
National Gallery of Art
Washington, DC
Mr. W. Thacher Longstreth
Vice Chairman
Packquisition Corp.
Philadelphia, PA
Mr. Charles E. Peck
Secretary of Enterprise Homes, Inc.
Fredericksburg, VA
former Chairman and CEO
The Ryland Group, Inc.
Columbia, MD
Other Affiliated Officers
Mr. Keith E. Mitchell
President and CEO
Delaware Distributors, Inc.
Mr. David K. Downes
President
Delaware Management Trust Company
Mr. George M. Chamberlain, Jr.
Secretary
Delaware Group of Funds
<PAGE> 20
Delaware Group of Funds
For Growth of Capital
Trend Fund
DelCap Fund
Value Fund
For Total Return
Dividend Growth Fund
Decatur Total Return Fund
Decatur Income Fund
Delaware Fund
For Global Diversification
International Equity Fund
Global Assets Fund
Global Bond Fund
For Current Income
Delchester Fund
U.S. Government Fund
Treasury Reserves
Intermediate Fund
For Tax-Free
Current Income
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA
Intermediate Fund
Tax-Free Pennsylvania Fund
Money Market Funds
Delaware Cash Reserve
U.S. Government Money Fund
Tax-Free Money Fund
Closed-End Equity/Income*
Delaware Group Dividend and
Income Fund
Delaware Group Global Dividend
and Income Fund
This annual report is for the information of Delaware Group Tax-Free
Pennsylvania Fund shareholders, but it may be used with prospective investors
when preceded or accompanied by a current Prospectus, which gives details
about charges, expenses, investment objectives and operating policies of the
Fund. Summary investment results are documented in the current Statement of
Additional Information. If used with prospective investors after June 30, 1995,
this report must also be accompanied by a Tax-Free Pennsylvania Fund
Performance Update for the most recently completed calendar quarter. 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.
* Delaware Group Dividend and Income Fund and Delaware Group Global Dividend
and Income Fund purchases can be made through registered broker/dealers.
<PAGE> 21
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, tax-free funds, money market funds,
closed-end equity/income funds and global funds give investors the ability to
create a portfolio that fits their personal financial goals.
For more information, including a prospectus of any Delaware Group fund,
contact your financial adviser or call Delaware Group at 800-523-4640 or
215-988-1333 in Philadelphia. Read the prospectus carefully before
investing.
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 possible loss of principal. Shares of the
Fund are not bank or credit union deposits.
Investment Manager
Delaware Management Company, Inc.
Philadelphia
International Affiliate
Delaware International Advisers Ltd.
London
National Distributor (PHOTO OF VARIOUS
Delaware Distributors, L.P. COLONIAL OBJECTS)
Philadelphia
Shareholder Servicing,
Dividend Disbursing
and Transfer Agent
Delaware Service Company, Inc.
Philadelphia
Delaware Group
A Tradition of Sound Investing Since 1929
1995
Annual
Report
Delaware Group
==================
Tax-Free
Pennsylvania Fund
4/95-PP-AR-007
