<PAGE>
1996
Annual
Report
=====================
DELAWARE
GROUP
TAX-FREE
PENNSYLVANIA
FUND
=====================
A Tradition of Sound Investing Since 1929
DELAWARE
GROUP
========
Philadelphia*London
<PAGE>
TAX-FREE
- --------------------------------------------------------------------------------
PENNSYLVANIA FUND
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INVESTMENT
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OBJECTIVE
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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.
ABOUT OUR COVER
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Headquartered in Philadelphia, Pennsylvania, Delaware Group shares in the
tradition of a city built on the vision of opportunity. Amidst the city's
historic sites, symbolic of our nation's freedom and prosperity, Delaware Group
provides both individual and institutional investors with a conservative,
disciplined approach to money management.
DELAWARE GROUP
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A TRADITION OF
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SOUND INVESTING
- --------------------------------------------------------------------------------
Delaware Management Company's investment experience dates back to 1929. Our
first mutual fund was established in 1938. Headquartered in Philadelphia with
an affiliate in London, Delaware provides a full range of mutual fund
investments, annuities and retirement plan services. Delaware International
Advisers Ltd., our London-based international affiliate, was established in
1990.
Delaware Group manages mutual funds with the same time-tested,
disciplined strategies demanded by the large public and private pension
plans, foundations and endowments that are among our clients. With over 60
years of experience, we have demonstrated our commitment to quality
investment management and service.
Today, Delaware manages some $29 billion in mutual funds and
institutional investment advisory accounts. We measure our success by the
financial success and satisfaction of our nearly 500,000 shareholders.
<PAGE>
March 11, 1996
DEAR
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SHAREHOLDER:
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We are pleased to report that during the fiscal year ended February 29, 1996,
Tax-Free Pennsylvania Fund provided a total return of +10.08% (capital change
for Class A shares plus reinvested dividends at net asset value). As you can see
in the table below, your Fund provided a higher-than-average 30-day yield
relative to its competitors as of February 29.
Historically, double-digit returns for any municipal bond fund are
unusual. Since the early 1980s, robust results in the municipal bond market have
generally coincided with debates about major legislation affecting federal tax
policy.
This past year's strong performance of the bond market and of your Fund
was influenced by two events - a sharp decline in long-term interest rates and
the possibility of a "flat tax" to replace the current federal income tax.
Early in the fiscal year, several Congressional leaders introduced
proposals to end taxation of investment income. The bond market initially
believed such proposals would negatively affect the attractiveness of municipal
bonds relative to bonds that currently provide taxable interest income.
For several months in the spring of calendar 1995, municipal bonds
underperformed other fixed-income investments, providing the Fund with an
opportunity to purchase securities at favorable prices. As prospects for a "flat
tax" fizzled during the summer of 1995, municipal bond prices recovered.
In recent months, the "flat tax" has been resuscitated as Presidential
election campaign rhetoric has heated up. However, this time municipal bond
prices have generally held firm and even outperformed U.S. Treasury bonds. It
appears the bond market has taken a skeptical view of flat tax promises. It is a
view we generally share.
================================================================================
30-Day
Annualized
Total Return Yield
----------------- -----------------
12 months ended As of
February 29, 1996 February 29, 1996
----------------- -----------------
Tax-Free Pennsylvania Fund A +10.08% 4.59%
Lipper PA Municipal Bond Fund Average
(57 Funds) +10.20% 4.35%
All performance quoted above does not reflect the effect of sales charges.
Performance and yield information for all Fund classes can be found on pages 6
and 7. The 30-day yield is calculated according to Securities and Exchange
Commission guidelines.
================================================================================
<PAGE>
Whoever wins the national elections this fall, both major parties seem
to be saying "the era of big government is over." What this means for
Pennsylvania and its municipalities should fiscal restraints be imposed in
Washington is unclear. We do believe, however, that Pennsylvania governments
will continue to offer competitive interest rates to attract capital from
private investors to fund operations, refinance debt and make capital
improvements.
Despite federal budget and tax uncertainties, and expenses generated by
an abominable blizzard and subsequent floods, credit quality remains high for
many Pennsylvania municipalities. We believe many local and regional governments
retain a strong ability to make regular interest payments to bondholders.
We are confident that the disciplined strategy employed by J. Michael
Pokorny, portfolio manager of the Tax-Free Pennsylvania Fund, can help our
24,000 shareholders continue to benefit from the potential of the state's
municipal bond market.
Sincerely,
/s/ Wayne A. Stork
- --------------------------
Wayne A. Stork
Chairman, President
and Chief Executive Officer
PORTFOLIO
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MANAGER'S
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REVIEW
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Fiscal 1996 may have been the most significant year in the Pennsylvania
municipal bond market since federal tax reform in 1986. Amid the specter of tax
reform, credit quality improved, bond prices rose and the supply of new bonds
declined. During the 12 months ended February 29, 1996, as bond prices rose,
average yields fell between 60 and 108 basis points (0.60% to 1.08%), depending
on maturity.
As of February 29, Pennsylvania municipal bonds were yielding, on
average, about 86% of what a comparable maturity U.S. Treasury Bond yielded, a
level we consider attractive. While past performance isn't a guarantee of future
results, in the past municipal bond prices have generally risen following
periods when they yielded more than 79% of Treasuries.
State residents in the moderate 28% federal income tax bracket had an
opportunity to earn a greater tax-adjusted income from intermediate and
long-term Pennsylvania bonds than from comparable maturity U.S. Treasuries as of
February 29, as you can see in the chart on the next page.
<PAGE>
Pennsylvania Municipal Bond and
U.S. Treasury Bond Yield Curves
Pennsylvania Municipal Bond and U.S. Treasury Bond Yield Curves
February 28, 1995, vs. February 29, 1996
Pennsylvania Municipal Bonds, 2/28/95
Pennsylvania Municipal Bonds, 2/29/96
U.S. Treasury Bond Yield Curves, 2/29/96
3 Month 4.04% 3.30%
6 Month 4.20% 3.40%
1 Year 4.65% 3.54% 3.765%
2 Years 4.86% 3.84% 3.906%
3 Years 4.98% 4.04% 4.002%
4 Years 5.08% 4.16% 4.067%
5 Years 5.18% 4.28% 4.131%
7 Years 5.32% 4.50% 4.237%
10 Years 5.50% 4.80% 4.396%
15 Years 5.80% 5.29% 4.462%
20 Years 5.95% 5.48% 4.528%
30 Years 6.05% 5.56% 4.660%
The U.S. Treasury yield curve shown here is adjusted downward to reflect the
payment of taxes for an investor in the 28% tax bracket. Pennsylvania bonds on
which the above yield curve are based vary in quality, and are not guaranteed by
the U.S. government, unlike U.S. Treasury bonds. Source: Bloomberg Business
News.
At fiscal year-end, yields on long-term Pennsylvania bonds exceeded the
after-tax yields on comparable maturity U.S. Treasuries for investors in the 28%
federal tax bracket.
The Fund's Investment Strategy
Generally, the Fund invests with a two- to three-year perspective in mind. That
is, we try to anticipate what is likely to happen in the municipal finance
market during the next few years that could affect the performance of
Pennsylvania bonds. For each bond we buy, we strive to minimize the risk that
the issuer will "call" or refinance the bond at lower interest rates by buying
bonds at a discount to face value.
In 1995, the debate over federal tax reform presented the Fund with a
substantial opportunity to purchase bonds at what proved to be favorable prices.
During the first half of the fiscal year, we were able to buy long-term bonds at
15% to 20% discounts from face value (the amount investors receive at maturity).
As the market's "flat tax" concerns diminished and bond prices rose, these
opportunities narrowed to discounts of between 5% to 7% from face value.
In our opinion, discounted bonds should continue to perform well in the
coming months because we believe interest rates have room to fall. Given low
inflation, stagnant wages and slow U.S. economic growth, we would not be
surprised if 30-year U.S. Treasury Bonds yielded less than 6.75% by the end of
calendar 1996.
How We Increased Income Potential
Most municipal bond investors are income-oriented, and your Fund's objective is
to seek as high a level of current interest income exempt from federal, state
and local taxes as is consistent with capital preservation.
During the year, we sold short-term bonds for more than their face
value - and realized capital gains - because we believed there was a good chance
these securities would be refinanced in a falling interest rate environment.
When such bond "calls" occur, the opportunity to reinvest in bonds offering a
<PAGE>
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Portfolio Characteristics
February 28, 1995 February 29, 1996
------------------- ------------------
Average Maturity 21.4 years 22.0 years
Average Duration 6.4 years 7.1 years
Average Quality AA AA
================================================================================
comparable level of tax-free income can be limited. Thus, we believed it prudent
to "sell high" and use the proceeds to buy longer term, discounted bonds to
maximize your Fund's long-term income potential.
In prior years, when interest rates declined, your Fund had been able
to offset capital gains with tax-loss carryforwards (losses from other bond
sales). However, the unusually robust bond rally of 1995 exhausted your Fund's
"supply" of carryforwards and, for the first time in your Fund's 19-year
history, required us to distribute a modest capital gain (5 cents per share).
For an investor with Fund holdings worth $10,000 as of the record date
of November 29, 1995, this amounted to a $58 capital gain distribution. At a
federal capital gains tax rate of 28%, this distribution generated a federal tax
liability of only $16.24 before any deductions for investment expenses.
By repositioning the portfolio toward longer term, discounted bonds,
your Fund should benefit from reduced exposure to "calls" in the coming months
should interest rates continue to drop.
Bond Supplies Dropped
Our bond sales and purchases during the year had the effect of slightly
increasing the average effective maturity of your Fund's portfolio from 21.4
years as of February 28, 1995, to 22 years as of February 29, 1996. Average
quality remained AA.
During 1995, fewer new bonds were issued in Pennsylvania in the past
calendar year than at any time since 1990, according to The Bond Buyer, an
independent trade publication (see page 5). While this limited your fund's
investment choices, a declining bond supply generally helps support bond price s
if investor demand remains stable or increases.
PHOTO OF J. MICHAEL POKORNY GOES HERE.
<PAGE>
Our Diversified Approach and Outlook
Tax-Free Pennsylvania Fund provides diversification in terms of intrastate
geography and in terms of the type of bonds we hold. Our largest geographic
concentration was in Philadelphia, whose general obligation bonds represented
about 6% of your Fund's portfolio as of February 29.
During the year, we lowered the percentage of the Fund's portfolio
devoted to hospital revenue bonds from 15.5% to 14.2% of net assets. We believe
the industry's dynamics are less than ideal, and that increased industry
competition and hospital mergers have resulted in greater risk.
Over the long term, we believe Pennsylvania investors will benefit from
the state's need to fund road and water projects as well as meet increasing
social needs ranging from higher education to criminal justice.
In our opinion, Pennsylvania's harsh winters of the past several years
may have a more lasting, if gradual, effect on the state's municipal bond
offerings than the recent sound and fury about the "flat tax." As many drivers
in the state know, deferred maintenance in Pennsylvania is common. Eventually,
in our opinion, investors should benefit from the state's need to repair and
replace an aging infrastructure. In the coming years, we believe public
officials are more likely to seek a significant amount of funding from private
investors than raise taxes to meet these needs.
We do not, however, believe this funding need will negatively affect
bond prices.
Given the fact that credit quality of many Pennsylvania municipalities,
including Philadelphia, improved in 1995, we believe the state's income-oriented
residents will continue to invest in its municipal bonds as a prudent way to
reduce substantial tax liabilities.
/s/ J. Michael Pokorny
- --------------------------
J. Michael Pokorny
Vice President
Senior Portfolio Manager
March 11, 1996
The Supply of New Pennsylvania
Municipal Bonds Has Declined Sharply
INSERT: The Supply of New Pennsylvania Municipal Bonds Has Declined Sharply
(New Issues in Billions of Dollars)
1986 $4.6
1988 $5.7
1989 $6.2
1990 $4.8
1991 $9.9
1992 $12.3
1993 $14.5
1994 $8.9
1995 $7.3
SOURCE: THE BOND BUYER
The amount of new bonds issued by Pennsylvania municipalities dropped 22% in
1995 to $7.3 billion, favorably affecting prices. Nationally, the amount of new
municipal bonds issued dropped only 5% last year.
<PAGE>
TAX-FREE PENNSYLVANIA FUND:
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A LOOK AT LONG-TERM PERFORMANCE
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Tax-Free Pennsylvania Fund A Class'
Dividend and Capital Gains History
Tax-Free Pennsylvania Fund A Class' Dividend History
(Bar graph of Tax-Free Pennsylvania dividend performance)
'86 $733
'87 $756
'88 $806
'89 $864
'90 $908
'91 $954
'92 $984
'93 $1008
'94 $1064
'95 $1088-Dividends
$ 116-Capital Gains
--------------------
$1204-Total for 1995
A $10,000 investment in Tax-Free Pennsylvania Fund A Class would have provided a
total of $9,281 in distributions since February 28, 1986, assuming the
continuous reinvestment of dividends and capital gains and a 4.75% front-end
sales charge. During the fiscal year ended February 29,1996, 1.9% of Fund
dividends were subject to the federal alternative minimum tax. Capital gains
were also taxable. Distributions for B and C Class shares can be expected to be
lower than A Class distributions due to different sale charges and expenses.
Ten years ago, federal tax reform was a major issue in the news. Legislation
passed in 1986 and subsequent laws passed in 1990 and 1993 have generally
reduced the number of federal tax brackets, eliminated and curtailed deductions
and implemented an alternative minimum tax.
Through all this change, Tax-Free Pennsylvania Fund has remained
focused on providing you with a high level of income free from federal and
Pennsylvania income taxes. As you can see on the next page, an investor who
bought $10,000 worth of Tax-Free Pennsylvania Fund A Class shares on February
28, 1986, would have a portfolio worth more than $20,000 as of February 29,
1996, if dividends and capital gains were reinvested. During that time the fund
would have paid $9,281 in dividends and capital gains, as shown to the left.
Your Fund's performance is compared with that of the very broad,
unmanaged Lehman Brothers Municipal Bond Index. Unlike your Fund, which focuses
on Pennsylvania bonds, the Lehman Brothers Municipal Bond Index represents about
15,000 municipal bonds throughout the United States.
<PAGE>
Tax-Free Pennsylvania Fund A Class v.
Lehman Brothers Municipal Bond Index
Tax-Free Pennsylvania Fund A Class
Growth of a $10,000 Initial Investment
February 28, 1986 to February 29, 1996
Lehman Brothers Municipal Bond Index Tax-Free
Pennsylvania Fund A Class
'86 $10000 $ 9539
'87 $11219 $10682
'88 $11514 $10839
'89 $12228 $11579
'90 $13483 $12601
'91 $14726 $13480
'92 $16197 $15076
'93 $18426 $17065
'94 $19446 $18024
'95 $19812 $18188
'96 $22001 $20020
Chart assumes $10,000 invested on February 28, 1986, and includes the effect of
a 4.75% sales charge and reinvestment of all distributions. Performance of other
classes of Tax-Free Pennsylvania Fund will vary due to differing charges and
expenses.
Tax-Free Pennsylvania Fund Performance
Average Annual Return Through February 29, 1996
Ten Years Five Years One Year
Class A (Est.1977) +7.19% +7.04% +4.82%
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Lifetime One Year
Class B (Est.1994)
excluding sales charge +6.51% -- +9.19%
including sales charge +4.42% -- +5.19%
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Class C* (Est.1995)
excluding sales charge +1.19% -- --
including sales charge +0.20% -- --
*aggregate return through February 29, 1996
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.
Up to 20% of the assets of the Fund may be invested in municipal securities that
generate income subject to the federal alternative minimum tax.
Class A returns reflect the effect of the 4.75% maximum sales charge,
reinvestment of all distributions, and, for periods after June 1,1992, a 12b-1
fee of up to 0.30%. The 30-day yield as of February 29, 1996 was 4.59%,
calculated according to SEC guidelines.
Class B performance reflects the reinvestment of all distributions. Class B
shares do not carry a front-end sales charge, but are subject to a 1% annual
distribution and service fee. They are also subject to a deferred sales charge
of up to 4%. Lifetime performance "excluding sales charge" assumes the
investment was not redeemed. Class B was initially offered on May 2, 1994. The
30-day yield as of yield as February 29, 1996 was 4.03%, calculated according to
SEC guidelines.
Class C performance is for only a three-month period and may not be
representative of longer term results. C shares have a 1% annual distribution
and service fee. If redeemed within 12 months, a 1% contingent deferred sales
charge applies. Class C was initially offered on November 29, 1995. The 30-day
yield as of yield as February 29, 1996 was 4.03%, calculated according to SEC
guidelines.
<PAGE>
FINANCIAL
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STATEMENTS
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Delaware Group Tax-Free Pennsylvania Fund+
Statement of Net Assets
February 29, 1996
Principal Market
Amount Value
MUNICIPAL BONDS - 98.73%
Higher Education Revenue Bonds - 9.00%
Dauphin County College Revenue
(Holy Family College) 7.50% 12/1/19 ........... $ 9,850,000 $10,539,500
Delaware County Authority University Revenue
(Haverford College)
5.50% 11/15/23 (MBIA) ........................ 2,215,000 2,173,469
(Villanova University)
(Escrowed to Maturity)
9.625% 8/1/02 ................................ 555,000 649,350
(Villanova University)
5.50% 8/1/23 (MBIA) ......................... 2,975,000 2,934,094
(Villanova University)
5.80% 8/1/25 (AMBAC) ........................ 7,000,000 7,096,250
Pennsylvania Higher Education Facilities
Authority College Revenue
(Elizabethtown College)
6.50% 6/15/15 ............................... 6,700,000 6,976,375
(Hahnemann University)
6.90% 7/1/21 (MBIA) ......................... 13,000,000 14,300,000
(LaSalle University)
(Escrowed to Maturity)
9.50% 5/1/03 ................................ 455,000 536,331
(Rosemont College)
8.00% 12/1/16 ............................... 250,000 251,845
(Temple University)
5.75% 4/1/31 (MBIA) ......................... 8,000,000 7,990,000
Pennsylvania Higher Education Facilities
Authority State System Revenue
5.75% 6/15/20 (AMBAC) ......................... 17,730,000 17,840,813
Pennsylvania State University
5.50% 8/15/16 ................................. 12,500,000 12,468,750
Swarthmore Borough Authority
(Swarthmore College)
7.375% 9/15/08 ................................ 990,000 1,069,200
6.00% 9/15/12 ................................. 7,000,000 7,306,250
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92,132,227
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+ The Fund's legal name is DMC Tax-Free Income Trust -- Pennsylvania.
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds - 14.20%
Allegheny County Hospital Development
Authority Revenue Refunding
(Allegheny Valley Hospital Facility
Management Corporation and
Allegheny Valley Hospital)
7.50% 8/1/13 ................................ $ 4,275,000 $ 4,440,656
(Mercy Hospital-Pittsburgh)
7.375% 4/1/15 ............................... 1,000,000 1,021,280
(St. Margaret Memorial Hospital)
9.80% 7/1/10 ................................ 2,500,000 2,562,025
(South Hills Health) 6.00% 5/1/20 .............. 1,500,000 1,479,375
Delaware County Authority Hospital Revenue
(Riddle Memorial Hospital)
7.125% 1/1/10 ................................. 1,130,000 1,162,454
Langhorne Manor Borough Higher Education
& Health Authority Revenue
(Lower Bucks Hospital)
7.35% 7/1/22 .................................. 10,700,000 9,603,250
Monroeville Hospital Authority Revenue
(Forbes Health System)
7.00% 10/1/13 ................................. 7,000,000 7,306,250
Pennsylvania Higher Education Facilities
Authority (The Medical College of
Pennsylvania) 7.50% 3/1/14 ..................... 1,000,000 1,040,000
Philadelphia Hospitals & Higher Education
Facilities Authority Hospital Revenue
(Albert Einstein Medical Center)
7.625% 4/1/11 ............................... 19,110,000 20,519,363
(Children's Hospital of Philadelphia)
5.25% 2/15/10 ............................... 5,500,000 5,328,125
(Children's Hospital of Philadelphia)
5.00% 2/15/21 ............................... 5,200,000 4,628,000
(Children's Hospital of Philadelphia)
5.50% 2/15/22 ............................... 4,500,000 4,280,625
(Children's Seashore House Series A)
7.00% 8/15/17 ............................... 3,100,000 3,235,625
(Children's Seashore House Series B)
7.00% 8/15/22 ............................... 2,100,000 2,191,875
(Jeanes Health System Project)
6.85% 7/1/22 ................................ 18,020,000 17,929,900
(Pennsylvania Hospital)
7.25% 7/1/14 ................................ 7,315,000 7,417,849
(Presbyterian Medical Center)
(Escrowed to Maturity)
6.65% 12/1/19 ............................... 13,000,000 15,063,750
(Roxborough Memorial Hospital)
7.25% 3/1/24 ................................ 12,645,000 11,554,369
(Temple University Hospital)
6.625% 11/15/23 ............................. 7,500,000 7,753,125
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 1,113,750
Series B, 7.625% 12/1/15 (AMBAC) ............... 2,490,000 2,773,238
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds (Continued)
Sayre Health Care Facilities
(Guthrie Healthcare Systems)
Series 91A, 6.00% 3/1/21 (AMBAC) ............. $ 7,000,000 $ 7,131,250
Scranton-Lackawanna, Pennsylvania Health
and Welfare Authority (Allied Services
Rehabilitation Hospitals)
7.60% 7/15/20 ............................... 5,640,000 5,809,200
-----------
145,345,334
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Housing Revenue Bonds - 5.55%
Montgomery County Multi-Family Housing
(KBF Associates Project)
6.50% 7/1/25 ................................ 19,810,000 19,537,613
7.25% 7/1/25 ................................ 15,185,000 14,824,356
Montgomery County Housing Redevelopment
Authority (Montgomery Woods Project)
7.50% 1/1/24 ................................ 11,405,000 11,462,025
Pennsylvania Housing Finance Agency
7.50% 10/1/10 ............................... 1,250,000 1,331,250
7.45% 4/1/16 ................................ 2,000,000 2,107,500
Philadelphia Redevelopment Authority Home
Improvement Series 86A,
7.375% 6/1/03 (FHA) ......................... 1,820,000 1,854,125
Philadelphia Redevelopment Authority Home
Mortgage Series 86A,
7.125% 12/1/13 (GNMA) ....................... 500,000 512,925
Pittsburgh Urban Redevelopment Authority
Mortgage Revenue
Ser 87B, 8.30% 4/1/17 ....................... 800,000 832,000
Ser 86A, 7.625% 10/1/17 ..................... 4,300,000 4,402,856
-----------
56,864,650
-----------
Pollution Control Revenue Bonds - 8.90%
Beaver County Industrial Development
Authority Pollution Control Revenue
(Cleveland Electric Project)
7.625% 5/1/25 ............................... 13,500,000 14,377,500
7.75% 7/15/25 ............................... 10,000,000 10,762,500
Delaware County Industrial Development
Authority Pollution Control Revenue
(Philadelphia Electric Co.)
7.375% 4/1/21 ............................... 10,250,000 11,095,625
Lehigh County Industrial Development
Authority Pollution Control Revenue
6.40% 11/1/21 (MBIA) ........................ 7,000,000 7,446,250
5.50% 2/15/27 (MBIA) ........................ 15,500,000 15,093,125
6.40% 9/1/29 (MBIA) ......................... 15,000,000 15,937,500
Montgomery County Industrial Development
Authority Pollution Control Revenue
(Philadelphia Electric Co.)
8.875% 6/1/16 ............................... 5,500,000 5,663,515
6.70% 12/1/21 (MBIA) ........................ 10,000,000 10,787,500
-----------
91,163,515
-----------
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds** - 26.79%
Allegheny County Hospital Development
Authority (Magee-Womens Hospital)
8.25% 10/1/13-97 .............................. $ 5,000,000 $ 5,437,500
Allegheny County Sanitation Authority Revenue
Series 86A, 7.50%
12/1/16-99 (FGIC) ........................... 1,780,000 1,964,675
Series 86B, 7.50%
12/1/16-99 (FGIC) ........................... 4,020,000 4,437,075
Series 91C, 6.50%
12/1/16-01 (FGIC) ........................... 4,500,000 4,983,750
Berks County Municipal Authority Higher
Education Revenue (Trustees of the
University of Pennsylvania)
7.00% 9/1/15-97 ............................... 9,325,000 9,791,250
Berks County Municipal Authority Revenue
(The Highlands at Wyomissing Project)
9.125% 10/1/17-97 ............................. 4,000,000 4,325,000
Bucks County Water and Sewer Authority
Revenue
(Collection Sewer System)
7.00% 12/1/19-97 (FGIC) ..................... 4,240,000 4,478,500
(Southwest Region Water System)
Series C, 7.00%
12/1/19-97 (FGIC) ........................... 1,000,000 1,056,250
Delaware County Authority University Revenue
(Haverford College)
7.375% 11/15/20-00 (MBIA) ...................... 3,275,000 3,758,063
Delaware River Joint Toll Bridge Commission
Bridge System Revenue
7.875% 7/1/18-98 .............................. 4,600,000 5,088,750
Doylestown Hospital Authority
(Doylestown Hospital) Series C, 6.90%
7/1/19-99 (AMBAC) ............................. 1,750,000 1,933,750
Harrisburg Water Authority Revenue
7.00% 7/15/15-01 (FGIC) ....................... 12,000,000 13,500,000
Harrisburg Water and Sewer Authority
Revenue (Dauphin County)
Series 88A, 8.00%
11/1/2012-98 (AMBAC) .......................... 6,000,000 6,502,500
Huntingdon Borough General Obligation
7.50% 12/1/17-97 .............................. 875,000 930,781
Lackawanna County Multi-Purpose Stadium
Authority Revenue Guaranteed
8.625% 8/15/07-98 ............................. 700,000 794,500
Lehigh County General Purpose Authority
Hospital Revenue (HealthEast, Inc.)
9.00% 7/1/15-97 ............................... 6,000,000 6,517,500
Pennsylvania Higher Education Facilities
Authority College & University Revenue
(Holy Family) 8.00% 12/1/06-98 ................. 380,000 418,950
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue
(City of Philadelphia Funding Program)
6.80% 6/15/22-02 .............................. 2,125,000 2,395,938
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Pre-Refunded Bonds (Continued)
Pennsylvania State University Revenue
Series 89, 6.75% 7/1/14-99 ................... $ 14,195,000 $ 15,596,756
Pennsylvania Turnpike Commission
Turnpike Revenue
Series D, 7.625% 12/1/17-98 (FGIC) ........... 3,500,000 3,898,125
Series E, 7.55% 12/1/17-99 (MBIA) ............ 495,000 561,206
Series I, 7.20% 12/1/17-01 (FGIC) ............ 8,915,000 10,330,256
Series J, 7.20% 12/1/17-01 (FGIC) ............ 8,995,000 10,422,956
Series K, 7.50% 12/1/19-99 ................... 10,000,000 11,325,000
Philadelphia General Obligation
8.125% 8/1/17-97 ............................ 7,410,000 8,002,800
Philadelphia Municipal Authority Hospital
Revenue 7.875% 7/15/17-97 .................... 13,000,000 13,991,250
Philadelphia Regional Port Revenue Lease
Authority 7.15% 8/1/20-00 (MBIA) ............. 16,315,000 18,191,225
Philadelphia Water & Sewer Revenue
7.00% 8/1/18-01 ............................. 20,650,000 23,257,063
Puerto Rico (Commonwealth of)
General Obligation
8.00% 7/1/07-98 ............................. 2,545,000 2,834,494
7.25% 7/1/10-00 ............................. 1,370,000 1,561,800
7.75% 7/1/13-98 ............................. 12,775,000 14,164,281
7.75% 7/1/17-99 ............................. 7,700,000 8,729,875
6.50% 7/1/18-99 ............................. 2,745,000 2,968,031
Sewickley Valley Hospital
Authority Revenue Refunding
(Sewickley Valley Hospital Project)
7.50% 10/1/06-99 ............................ 1,295,000 1,456,875
Swarthmore Borough Authority
(Swarthmore College)
7.375% 9/15/08-98 ........................... 1,810,000 1,984,213
7.375% 9/15/20-00 ........................... 14,000,000 15,872,500
University Area Joint Authority Water and
Sewer Revenue
7.10% 9/1/20-00 (MBIA) ...................... 6,000,000 6,705,000
Upper Darby Township Delaware County
General Obligation 7.875%
7/15/18-98 .................................. 4,345,000 4,730,619
Washington County Authority Revenue
(Shadyside Hospital)
Series 85D, 7.45%
12/15/18-00 (AMBAC) ......................... 7,500,000 8,615,625
York County Hospital Revenue Authority
(York Hospital) 7.00%
7/1/21-01 (AMBAC) ........................... 9,500,000 10,735,000
-----------
274,249,682
-----------
School Authority/District Bonds - 0.55%
Altoona Area School District (Blair County)
(Escrowed to Maturity)
10.00% 6/15/98 .............................. 430,000 454,725
Dauphin County School District Pooled
Financing General Obligation
(Central Fulton) 7.75% 6/1/26 ................ 3,000,000 3,024,870
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
School Authority/District Bonds (Continued)
Lakeland School District General Obligation
(Lackawanna County)
9.50% 8/15/10 ................................. $ 485,000 $ 488,885
Pottsville Area School District
(Escrowed to Maturity)
9.375% 5/1/06 (AMBAC) ......................... 900,000 1,177,875
Southmoreland School District
(Escrowed to Maturity)
10.50% 10/1/97 (AMBAC) ........................ 465,000 487,669
----------
5,634,024
----------
State General Obligation Bonds - 2.27%
Pennsylvania State First Series General
Obligation 5.375% 4/15/12 ...................... 2,000,000 1,990,000
Pennsylvania State Second Series General
Obligation Series A 6.60% 11/1/01 .............. 5,000,000 5,512,500
Pennsylvania State Second Series General
Obligation 5.25% 6/15/12 ...................... 5,000,000 4,906,250
Pennsylvania State Third Series General
Obligation 5.00% 9/1/12 ....................... 11,245,000 10,795,200
----------
23,203,950
----------
Transportation Revenue Bonds - 3.24%
Pennsylvania State Turnpike Commission
Turnpike Revenue
Series L, 6.25% 6/1/11 (AMBAC) ................. 9,000,000 9,483,750
Series N, 6.50% 12/1/13 ....................... 3,000,000 3,198,750
Series N, 5.50% 12/1/17 ....................... 14,000,000 13,632,500
Series N, 5.50% 12/1/17 (MBIA) ................. 2,000,000 1,965,000
Philadelphia Airport Revenue
(Philadelphia Airport System)
9.00% 6/15/15 ................................. 4,730,000 4,876,157
----------
33,156,157
----------
Waste Disposal Revenue Bonds - 2.20%
Greater Lebanon Refuse Authority Revenue
Refunding (Lancaster County)
7.00% 11/15/04 ................................ 1,200,000 1,291,500
York County Solid Waste and Refuse
Authority Revenue 8.20% 12/1/14 ................ 19,500,000 21,255,000
----------
22,546,500
----------
Water & Sewer Revenue Bonds - 3.12%
Dauphin County Industrial Development
Authority Water Development Revenue
Series 92B, 6.70% 6/1/17 ...................... 1,750,000 1,925,000
Pittsburgh Water and Sewer Revenue
4.90% 9/1/07 (FGIC) ........................... 4,785,000 4,701,263
7.25% 9/1/14 (FGIC)
(Escrowed to Maturity) ........................ 9,000,000 10,530,000
4.75% 9/1/16 (FGIC) ........................... 12,500,000 11,296,875
5.00% 9/1/23 (FGIC) ........................... 3,800,000 3,486,500
----------
31,939,638
----------
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Other General Obligation Bonds - 10.80%
City of Philadelphia General Obligation
5.00% 5/15/25 (MBIA) ............................ $ 31,690,000 $ 28,679,444
City of Pittsburgh General Obligation
5.20% 3/1/10 (FGIC) ............................. 32,580,000 32,498,550
Erie County General Obligation
5.25% 9/1/12 (FGIC) ............................. 1,570,000 1,532,713
Falls Township General Obligation
7.00% 12/15/10 (MBIA) ........................... 3,000,000 3,322,500
New Morgan General Obligation
Guaranteed Revenue
8.00% 11/1/05 ................................... 10,000,000 10,287,500
Puerto Rico (Commonwealth of)
General Obligation
0% 7/1/04 ....................................... 45,380,000 29,894,075
8.00% 7/1/07 .................................... 715,000 780,244
6.00% 7/1/22 .................................... 3,585,000 3,625,331
-----------
110,620,357
-----------
Other Revenue Bonds - 12.11%
Cambria County Hospital Development
Authority Health Care Revenue
(Allegheny Lutheran Social Ministries Project)
8.25% 6/15/17 ................................... 3,250,000 3,416,563
Chester Pennsylvania Guaranteed
Community Revenue
7.25% 12/01/05 .................................. 13,000,000 12,983,750
Dauphin County General Authority Revenue
(Bedford Springs Golf Course Project)
6.00% 11/1/17 ................................... 3,480,000 3,236,400
Delaware County Authority Revenue
(Main Line & Haverford Nursing and
Rehabilitation Center)
9.00% 8/1/22 .................................... 2,000,000 2,175,000
Delaware River Port Authority
6.50% 1/1/08 (AMBAC) ............................ 5,000,000 5,200,000
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue
(City of Philadelphia Funding Program)
5.60% 6/15/15 (MBIA) .......................... 2,245,000 2,222,550
(City of Philadelphia Funding Program)
5.00% 6/15/22 (MBIA) .......................... 25,345,000 23,063,950
Pennsylvania Public School Building
Authority Lease Revenue
(Escrowed to Maturity)
10.375% 11/1/06 ................................. 35,000 35,571
Philadelphia Authority for Industrial
Development Revenue
*(American Fiber Supply Project)
8.00% 12/1/19 ................................. 15,900,000 16,496,250
(Cathedral Village) 7.25% 4/1/15 ................. 2,000,000 2,000,000
(Gallery II Garage Project)
6.40% 2/15/13 ................................. 9,150,000 8,726,813
Philadelphia Gas Works Revenue
0% 1/1/12 (AMBAC) ............................... 2,500,000 1,040,625
<PAGE>
Principal Market
Amount Value
MUNICIPAL BONDS (Continued)
Other Revenue Bonds (Continued)
Philadelphia Municipal Authority
Revenue Lease
Series B, 6.40% 11/15/16 ................. $ 40,575,000 $ 41,741,531
Westmoreland County Municipal Authority
Municipal Service Revenue A
0.00% 8/15/23 (FGIC) ..................... 8,000,000 1,660,000
-------------
123,999,003
-------------
Total Municipal Bonds
(Cost $946,250,788) ...................... 1,010,855,037
-------------
Variable Rate Demand Notes - 0.21%
Washington County Lease Authority
Revenue 3.35% 12/15/08 ................... 2,200,000 2,200,000
-------------
Total Variable Rate Demand Notes
(Cost $2,200,000) ........................ 2,200,000
-------------
TOTAL MARKET VALUE OF SECURITIES OWNED - 98.94%
(Cost $948,450,788) ......................................... 1,013,055,037
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES -
1.06% ........................................................ 10,817,226
-------------
NET ASSETS APPLICABLE TO 118,524,652
TAX-FREE PENNSYLVANIA FUND A CLASS SHARES,
2,465,368 TAX-FREE PENNSYLVANIA FUND
B CLASS SHARES AND 14,576 TAX-FREE
PENNSYLVANIA FUND C CLASS SHARES OUTSTANDING;
EQUIVALENT TO $8.46 PER SHARE - 100.00% ...................... $1,023,872,263
=============
- ------------------
AMBAC - Insured by AMBAC Indemnity Corporation.
FGIC - Insured by the Financial Guaranty Insurance Company.
FHA - Insured by the Federal Housing Administration.
MBIA - Insured by the Municipal Bond Insurance Association.
* This security is subject to the federal alternative minimum tax.
** For Pre-Refunded Bonds, the stated maturity is followed by the year in
which each bond is pre-refunded.
COMPONENTS OF NET ASSETS AT FEBRUARY 29, 1996:
Capital shares (unlimited authorization-no par value) ........ $ 954,619,522
Accumulated undistributed:
Net realized gain on investments ........................... 4,648,492
Net unrealized appreciation of investments ................. 64,604,249
-------------
Total net assets ............................................. $1,023,872,263
=============
See accompanying notes
<PAGE>
Delaware Group Tax-Free Pennsylvania Fund
Statement of Operations
Year Ended February 29, 1996
INVESTMENT INCOME:
Interest ............................................ $ 66,659,696
EXPENSES:
Management fees ($5,877,033) and
trustees' fees ($23,011) ......................... $5,900,044
Distribution expenses ............................... 2,078,312
Dividend disbursing and transfer agent fees
and expenses ...................................... 645,582
Salaries ............................................ 250,039
Reports and statements to shareholders .............. 95,427
Professional fees ................................... 48,650
Custodial fees ...................................... 3,155
Other ............................................... 225,431 9,246,640
----------- -----------
NET INVESTMENT INCOME ............................... 57,413,056
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain from security transactions ..................... 13,527,491
Net unrealized appreciation of investments
during the period .............................................. 26,543,167
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ................................................. 40,070,658
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................................ $97,483,714
===========
COMPUTATION OF NET ASSET VALUE AND OFFERING
PRICE FOR TAX-FREE PENNSYLVANIA FUND
A CLASS:
Net asset value per share (A) .................................... $ 8.46
Sales charge (4.75% of offering price, 4.96% of
amount invested per share) (B) ................................ .42
-------
Offering price ................................................... $ 8.88
=======
- ------------------
(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>
Delaware Group Tax-Free Pennsylvania Fund
Statement of Changes in Net Assets
Year Ended Year Ended
2/29/96 2/28/95
OPERATIONS:
Net investment income ....................... $ 57,413,056 $ 59,783,435
Net realized gain (loss) from
security transactions ..................... 13,527,491 (2,683,926)
Net unrealized appreciation
(depreciation) during the period .......... 26,543,167 (49,900,367)
------------- --------------
Net increase in net assets resulting
from operations ........................... 97,483,714 7,199,142
------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income:
A Class ................................... (56,634,466) (59,553,344)
B Class ................................... (777,666) (230,091)
C Class ................................... (924) --
Net realized gain from security transactions:
A Class ................................... (5,913,829 --
B Class ................................... (112,266) --
C Class ................................... -- --
------------- --------------
(63,439,151) (59,783,435)
------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ................................... 59,712,368 87,435,054
B Class ................................... 11,017,598 10,316,892
C Class ................................... 123,697 --
Net asset value of shares issued
upon reinvestment of dividends
from net investment income and
and realized gain from security
transactions:
A Class ................................... 37,397,581 35,336,019
B Class ................................... 588,234 150,420
C Class ................................... 885 --
------------- --------------
108,840,363 133,238,385
------------- --------------
Cost of shares repurchased:
A Class ................................... (104,125,438) (120,782,840)
B Class ................................... (1,438,631) (223,211)
C Class ................................... (99) --
------------- --------------
(105,564,168) (121,006,051)
------------- --------------
Increase in net assets derived from
capital share transactions ................ 3,276,195 12,232,334
------------- --------------
NET INCREASE (DECREASE)
IN NET ASSETS ............................. 37,320,758 (40,351,959)
------------- --------------
NET ASSETS:
Beginning of period ......................... 986,551,505 1,026,903,464
------------- --------------
End of period ............................... $1,023,872,263 $ 986,551,505
============= ==============
See accompanying notes
<PAGE>
Delaware Group Tax-Free Pennsylvania Fund
Notes to Financial Statements
February 29, 1996
DMC Tax-Free Income Trust - Pennsylvania (the "Trust") is registered as a
non-diversified open-end investment company under the Investment Company Act of
1940, as amended. The Trust is organized as a Pennsylvania Business Trust. The
Trust offers three classes of shares. The Trust's objective is to seek a high
level of current interest income exempt from federal income tax and Pennsylvania
state and local taxes, consistent with preservation of capital.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Trust.
Security Valuation - Long-term debt securities are valued by an independent
pricing service and are believed to reflect the fair value of such securities.
Money market instruments having less than 60 days to maturity are valued at
amortized cost which approximates market value.
Federal Income Taxes - The Trust intends to continue to qualify as a regulated
investment company and make the requisite distributions to shareholders.
Accordingly, no provision for federal income taxes is required in the financial
statements.
Class Accounting - Investment income, common expenses and gain (loss) on
investments are allocated to the various classes of the Trust on the basis of
daily net assets of each class. Distribution expenses relating to a specific
class are charged directly to that class.
Other - Expenses common to all Funds, 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. Interest income is recorded on an accrual basis. Original issue discounts
are accreted and premiums are amortized to interest income over the lives of the
respective securities. The Trust declares dividends daily from net investment
income and pays such dividends monthly.
Certain Trust expenses are paid directly by brokers. The amount of these
expenses is less than 0.01% of the Trust's average net assets.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, the Trust
pays Delaware Management Company, Inc. (DMC), the Investment Manager of the
Trust, an annual fee which is calculated daily at the rate of 0.60% of the first
$500 million of average daily net assets of the Trust, 0.575% on the next $250
million and 0.55% on the average daily net assets over $750 million, less all
amounts paid to the trustees. At February 29, 1996, the Trust had a liability
for investment management fees and other expenses payable to DMC of $40,477.
Pursuant to the Distribution Agreement, the Trust pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.30% of the average daily net assets of the A Class and 1.00% of the
average daily net assets of the B Class and the C Class. At February 29, 1996,
the Trust had a liability for distribution fees and other expenses payable to
DDLP of $18,076. For the year ended February 29, 1996, DDLP earned $303,940 for
commissions on sales of Tax-Free Pennsylvania Fund A Class shares.
<PAGE>
2. Investment Management and Other Transactions with Affiliates (Continued)
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to serve as dividend disbursing and transfer agent for the Trust. For the year
ended February 29, 1996, the Trust expensed $645,582 for these services. At
February 29, 1996, the Trust had a liability for such fees and other expenses
payable to DSC of $44,197.
Certain officers of DMC, DDLP and DSC are officers, directors and/or employees
of the Trust. These officers, directors and employees are paid no compensation
by the Trust.
On April 3, 1995, Delaware Management Holdings, Inc., the indirect parent of
DMC, DDLP and DSC, through a merger transaction (the "Merger") became a
wholly-owned subsidiary of Lincoln National Corporation. Other than the
resulting change in ownership, the Merger will not materially change the manner
in which DMC, DDLP or DSC have heretofore conducted their relationships with the
Trust.
3. Investments
During the year ended February 29, 1996, the Trust made purchases of
$254,781,336 and sales of $253,521,138 of investment securities other than
temporary cash investments.
At February 29, 1996, unrealized appreciation for financial reporting and
federal income tax purposes aggregated $64,604,249 of which $68,054,093 related
to unrealized appreciation of securities and $3,449,844 related to unrealized
depreciation of securities. The realized gain for federal income tax purposes
was $13,526,639 for the year ended February 29, 1996.
On February 29, 1996, the Trust had a payable for investment securities
purchased of $2,200,000.
4. Trust Shares
Transactions in Trust shares were as follows:
Year Ended Year Ended
2/29/96 2/28/95
---------- ----------
Shares sold:
Tax-Free Pennsylvania Fund A Class ......... 7,115,807 10,622,689
Tax-Free Pennsylvania Fund B Class ......... 1,313,984 1,260,370
Tax-Free Pennsylvania Fund C Class ......... 14,484 --
Shares issued upon reinvestment of
dividends from net investment income
and distributions of realized gain from
security transactions:
Tax-Free Pennsylvania Fund A Class ......... 4,443,556 4,320,331
Tax-Free Pennsylvania Fund B Class ......... 69,751 18,603
Tax-Free Pennsylvania Fund C Class ......... 104 --
----------- -----------
12,957,684 16,221,993
Shares repurchased:
Tax-Free Pennsylvania Fund A Class ......... (12,403,681) (14,828,773)
Tax-Free Pennsylvania Fund B Class ......... (170,202) (27,138)
Tax-Free Pennsylvania Fund C Class ......... (12) --
----------- -----------
(12,573,895) (14,855,911)
----------- -----------
Net Increase ................................. 383,789 1,366,082
=========== ===========
<PAGE>
Notes to Financial Statements (Continued)
5. Lines of Credit
The Trust has a committed line of credit for $20 million. No amount was
outstanding at February 29, 1996, or at any time during the fiscal year.
6. Concentration of Credit Risk
The Trust concentrates its investments in securities issued by Pennsylvania
municipalities. The value of these investments may be adversely affected by new
legislation within the state, regional or local economic conditions, and
differing levels of supply and demand for municipal bonds. Many municipalities
insure repayment 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 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.
7. Financial Highlights
Selected data for each share of the Trust outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free
Pennsylvania Pennsylvania Pennsylvania
Fund A Class Fund B Class Fund C Class
---------------------------------------------- ------------------- ------------
Year Year Period from Period from
Ended Ended 5/2/943 to 11/29/95(3)
2/29/96 2/28/95 2/28/94 2/28/93(2) 2/29/92 2/29/96 2/28/95 to 2/29/96
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period. . . . . . . . $8.180 $8.610 $8.630 $8.110 $7.800 $8.180 $8.310 $8.510
Income from investment operations:
Net investment income. . . . . . . 0.476 0.494 0.496 0.514 0.532 0.408 0.353 0.102
Net realized and unrealized gain
(loss) from security transactions 0.330 (0.430) (0.020) 0.520 0.310 0.330 (0.130) --
------- ------- ------- ------- ------- ------- ------- -------
Total from investment operations.. 0.805 0.064 0.476 1.034 0.842 0.738 0.223 0.102
------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income . . . . . . . (0.476) (0.494) (0.496) (0.514) (0.532) (0.408) (0.353) (0.102)
Distributions from net realized
gain from security transactions (0.050) none none none none (0.050) none (0.050)
------- ------- ------- ------- ------- ------- ------- -------
Total distributions. . . . . . . (0.526) (0.494) (0.496) (0.514) (0.532) (0.458) (0.353) (0.152)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $8.460 $8.180 $8.610 $8.630 $8.110 $8.460 $8.180 $8.460
====== ====== ====== ====== ====== ====== ====== ======
Total return1 . . . . . . . . . . . 10.08% 0.91% 5.64% 13.20% 11.11% 9.19% 2.79% 1.19%
Ratios/supplemental data:
Net assets, end of period
(000 omitted) . . . . . . . . . $1,002,888 $976,313 $1,026,903 $940,616 $766,625 $20,861 $10,239 $123
Ratio of expenses to average
net assets. . . . . . . . . . . 0.90% 0.90% 0.88% 0.83% 0.72% 1.71% 1.73% 1.71%
Ratio of net investment income
to average net assets. 5.67% 6.03% 5.70% 6.18% 6.65% 4.86% 5.20% 4.86%
Portfolio turnover. . . . . . . . 25% 18% 14% 11% 7% 25% 18% 25%
</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 which varies from 1%-4%
depending upon the holding period for Tax-Free Pennsylvania Fund B Class
and 1% for the Tax-Free Pennsylvania Fund C Class depending on the holding
period.
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.
<PAGE>
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 29, 1996 and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five 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 29,1996, 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 29, 1996, the results of its
operations for the year then ended, 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 five years in the period then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 2, 1996
<PAGE>
A Report on Delaware Group Tax-Free Pennsylvania Fund's Annual Meeting
At an annual meeting of shareholders held on March 29, 1995, the following
matters were submitted for shareholder vote: the election of directors, the
ratification of the selection of Ernst & Young LLP as independent auditors of
the Fund and the approval of a new investment management agreement. The new
investment management agreement was proposed in connection with the April 3,
1995, merger of Delaware Management Holdings, Inc. (the parent of Delaware
Management Company, Inc.) and a subsidiary of Lincoln National Corporation.
Whenever there is a change in control of an investment manager, the Investment
Company Act of 1940 requires shareholders to vote on a new investment management
agreement.
Below are the names of each director elected at the meeting as well as the
results of the other matters voted on by shareholders.
Number of Votes+
-----------------------------------------------
For Against/Withheld Abstentions
Election of Directors:
Wayne A. Stork. . . . . . . 82,722,058 1,996,250 --
Walter P. Babich. . . . . . 82,732,715 1,985,593 --
Anthony D. Knerr. . . . . . 82,732,547 1,985,761 --
Ann R. Leven. . . . . . . . 82,731,796 1,986,512 --
W. Thacher Longstreth . . . 82,692,712 2,025,596 --
Charles E. Peck . . . . . . 82,732,258 1,986,050 --
Selection of Ernst & Young LLP
as Independent Auditors*. . 81,435,517 392,715 2,890,075
Approval of the New Investment
Management Agreement . . . . 79,414,415 1,400,508 3,903,384
- ------------------
+Please note that the results of this meeting were not audited by Ernst & Young
LLP.
<PAGE>
This annual report is for the information of Tax-Free Pennsylvania Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current Prospectus for Tax-Free Pennsylvania Fund, which sets
forth details about charges, expenses, investment objectives and operating
policies of the Fund. You should read the prospectus carefully before you
invest. Summary investment results are documented in the Fund's current
Statement of Additional Information. The figures in this report represent past
results which are not a guarantee of future results. The return and principal
value of an investment in the Fund will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost.
BOARD
- --------------------------------------------------------------------------------
MEMBERS
- --------------------------------------------------------------------------------
Wayne A. Stork
Chairman, President and Chief Executive Officer
Delaware Group of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates
New York, NY
Ann R. Leven
Treasurer, National Gallery of Art
Washington, DC
W. Thacher Longstreth
Vice Chairman, Packquisition Corp.
Philadelphia, PA
Charles E. Peck
Secretary of Enterprise Homes, Inc.
Fredericksburg, VA
former Chairman and CEO
The Ryland Group, Inc.
Columbia, MD
AFFILIATED
- --------------------------------------------------------------------------------
OFFICERS
- --------------------------------------------------------------------------------
George M. Chamberlain, Jr.
Senior Vice President and Secretary,
Delaware Group of Funds
Philadelphia, PA
Keith E. Mitchell
President and CEO,
Delaware Distributors, L.P.
Philadelphia, PA
David K. Downes
Senior Vice President, Chief Financial Officer and
Chief Administrative Officer
Delaware Group of Funds
Philadelphia, PA
<PAGE>
DELAWARE GROUP
- --------------------------------------------------------------------------------
OF FUNDS
- --------------------------------------------------------------------------------
For Growth of Capital
Trend Fund
DelCap Fund
Value Fund
For Total Return
Devon 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
Limited-Term Government 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*
Dividend and Income Fund
Global Dividend and Income Fund
This report must be preceded or accompanied by a current Tax-Free Pennsylvania
Fund prospectus and the Delaware Group Fund Performance Update for the most
recently completed calendar quarter. For a prospectus of any other Delaware
Group fund, contact your financial adviser or Delaware Group.
* Delaware Group Dividend and Income Fund and Delaware Group Global Dividend and
Income Fund purchases can be made through any registered broker.
DELAWARE
GROUP
===================
Philadelphia*London
<PAGE>
Be sure to consult your financial adviser when making investments. Mutual funds
can be a valuable part of your financial plan; however, shares of the Fund are
not FDIC or NCUSIF insured, are not guaranteed by any bank or any credit union,
are not obligations of or deposits of any bank or any credit union, and involve
investment risk, including the possible loss of principal. Shares of the Fund
are not bank or credit union deposits.
Investment Manager
Delaware Management Company, Inc.
Philadelphia
International Affiliate
Delaware International Advisers Ltd.
London
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
Nationwide (800) 523-4640
Securities Dealers Only
Nationwide (800) 362-7500
Financial Institutions Representatives Only
Nationwide (800) 659-2265
Copy Rights Delaware Distributors, L.P.
Printed in the U.S.A. on recycled paper.
AR-007[2/96] TKO 4/96
