<PAGE>
DELAWARE GROUP
Tax-Free
Pennsylvania Fund
(VARIOUS PHOTOS DEMONSTRATING SERVICE AND GUIDANCE,
PROFESSIONAL MANAGEMENT AND GOALS)
service and guidance
professional management
goals
1997
Annual
Report
For Current Tax-Free Income
DELAWARE
GROUP
========
<PAGE>
A Commitment
To Our
Investors
(insert photo of glasses/ pen and keyboard)
A tradition of sound investing
Tax-Free
Currant Income
Tax-Free Pennsylvania
Fund Objective
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.
The Delaware Group investing tradition dates back to 1929. We have a long and
distinguished history of helping individuals and institutions -- including
some of America's largest pension funds -- reach their financial goals.
Headquartered in Philadelphia a block from the nation's oldest stock
exchange, Delaware Group's first mutual fund was established in 1938.
Delaware International Advisers Ltd., our international affiliate, was
established in 1990 and is headquartered in London.
Delaware Group offers a full range of mutual funds. We also manage
annuity investments and closed-end funds, and offer retirement plan services
for individuals and businesses.
Delaware manages more than $32 billion in mutual fund assets and
institutional advisory accounts for nearly half-a-million investors. We're
part of a global financial services and investment management business owned
by Lincoln National Corp., whose subsidiaries manage more than $100 billion
in assets.
(photo of illustration from total return brochures)
Commitment
<PAGE>
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March 24, 1997
(PHOTO OF WAYNE A. STORK, CHAIRMAN)
Dear Shareholder:
I write to you with strong emotions as Tax-Free Pennsylvania Fund, one of
America's oldest single-state municipal bond funds, marks its 20th
anniversary.
All of us at Delaware were deeply saddened by the death of your
Fund's longtime portfolio manager, J. Michael Pokorny, this past fall. He was
one of the pioneers of the municipal bond fund industry, and had managed
tax-exempt securities at Delaware since the late 1970s.
Patrick P. Coyne and Mitchell Conery--two veteran bond managers in
their own right--were appointed to manage the portfolio using the same
investment discipline that has become Tax-Free Pennsylvania Fund's hallmark.
Your Fund's change in leadership comes at a time when Delaware is on
the threshold of a new era of growth as a municipal bond manager. Two months
ago, our parent company agreed to buy the Voyageur family of funds. Based in
Minneapolis, Voyageur's core business is managing single-state municipal bond
funds.
YOUR FUND'S CHANGE IN LEADERSHIP COMES AT A TIME WHEN DELAWARE IS ON THE
THRESHOLD OF A NEW ERA OF GROWTH AS A MUNICIPAL BOND MANAGER.
This transaction will not affect your Fund. However, you may
be interested to know that beginning this spring, Delaware expects to also
offer single-state bond funds specializing in municipal securities of western
and sunbelt states where many Pennsylvanians reside for retirement.
Here in Pennsylvania, fiscal 1997 was challenging for the state's
municipal bond market. Recurring inflation fears and calls for federal tax
reform had a negative effect on bond prices that was not offset even with a
post-election rally. Local concerns about education, health care and welfare
reform also had an impact.
During the 12 months ended February 28, 1997, Tax-Free Pennsylvania
Fund provided a total return of +4.35% (capital change for Class A shares
plus reinvested dividends at net asset value). This was generally in line
with the returns provided by our peers.
1997 Annual Report
1
<PAGE>
Average Annual Total Return
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12 months ended From March 23, 1977* to
February 28, 1997 February 28, 1997
- --------------------------------------------------------------------------------
Tax-Free Pennsylvania Fund A +4.35% +6.65%
Lipper PA Municipal Bond Fund Average +4.68% N/A
- --------------------------------------------------------------------------------
*Fund's inception date. The Fund was Pennsylvania's first municipal
securities fund, so there is no Lipper average for the lifetime period
shown above. There were 67 funds in the average for the one-year period
ended February 28, 1997. All performance quoted above is based on net asset
value. Performance information for all Fund classes can be found on page 8.
Overall, our research suggests that credit quality within Pennsylvania
remains high. In our opinion, local and regional governments retain a strong
ability to make regular interest payments to bondholders. In addition, more
than 70% of Pennsylvania municipal securities issued during calendar 1996
were insured, compared to just 43% nationally, according to The Bond Buyer.
Municipal bond insurance can help protect principal in the event a
community faces a financial crisis.
We believe the disciplined investment strategy employed by Mr. Coyne
and Mr. Conery can help you benefit from the income and total return
potential of the state's municipal bond market. Inside, they highlight how
they have positioned the Fund for the coming months.
Despite recent rhetoric about tax relief, we believe the road to the
21st century will be paved with high federal, state and local tax rates. In
our opinion, municipal bond mutual funds can be a prudent choice for
investors who seek current, tax-free income or benefit from the tax-free
compounding of income over time.
We thank you for being among the more than 23,000 investors who have
chosen Tax-Free Pennsylvania Fund to meet your investing needs and we look
forward to serving you as we approach the next millennium.
Sincerely,
/s/ Wayne A. Stork
- ------------------
Wayne A. Stork
Chairman, President and Chief Executive Officer
DISCIPLINE
1997 Annual Report
2
<PAGE>
Introducing Your Fund's Portfolio Managers
Patrick P. Coyne has managed fixed-income securities at Delaware since 1990.
He holds an MBA in finance from the University of Pennsylvania's Wharton
School of Business and an undergraduate degree in European history and
classics from Harvard University.
Mitchell Conery joined Delaware on January 2, 1997. He had been managing a $5
billion municipal bond portfolio for a major financial services firm in New
York City. Mr. Conery holds an MBA from the State University of New York at
Albany. He holds a bachelor's degree in economics and mathematics from Boston
University.
Performance Review
Your Fund's 1997 fiscal year was dominated by the bond market's persistent
fear of inflation. The average yield on 30-year Pennsylvania general
obligation bonds was 5.67% as of February 28, 1997, some 15 basis points
(0.15%) higher than a year earlier.
U.S. economic growth has generally been stronger than expected, and
since February, 1996, some investors have believed the Federal Reserve Board
needs to raise short-term interest rates to prevent an acceleration in
consumer prices.
Historically, Presidential election years have generated short-term
anxiety in the municipal bond market. These are times when office seekers
make a wide range of tax promises.
Voters' endorsement of the status quo in fall 1996 lifted municipal
bond prices when it became clear that no immediate tax changes were likely.
The bond rally reclaimed some of the losses during
(PHOTOS OF PATRICK P. COYNE AND MITCHELL CONERY)
PATRICK P. COYNE
MITCHELL CONERY
1997 Annual Report
3
<PAGE>
Some Pennsylvania Bonds Yield More Than U.S. Treasuries After Taxes
February 29, 1996 vs. February 28, 1997
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PA G.O. 2/96 PA G.O. 2/97 Treasury 2/97
- --------------------------------------------------------------------------------
3 mo. 3.28% 3.42%
6 mo. 3.38% 3.62%
1 yr. 3.52% 3.79% 4.08%
2 yr. 3.82% 4.09% 4.37%
3 yr. 4.02% 4.29% 4.48%
4 yr. 4.14% 4.44% 4.53%
5 yr. 4.26% 4.54% 4.59%
7 yr. 4.48% 4.74% 4.65%
10 yr. 4.78% 5.04% 4.71%
15 yr. 5.27% 5.44% 4.84%
20 yr. 5.44% 5.60% 4.97%
30 yr. 5.52% 5.67% 4.90%
Yields on Pennsylvania bonds maturing in seven years or more exceed the
after-tax yields on comparable maturity U.S. Treasuries for investors in the
28% federal tax bracket.
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 is based vary in quality, unlike U.S. Treasury
bonds which are guaranteed by the U.S. government.
Source: Bloomberg Business News
the spring and summer, when concerns about flat tax proposals and inflation
fears peaked. Since November, the possibility of a bipartisan federal budget
compromise also had a positive effect on bond prices.
For the 12 months ended February 28, 1997, prices of municipal
securities generally outperformed U.S. Treasuries. The difference in yield
between the highest quality municipal securities and lower quality bonds also
narrowed in fiscal 1997 because many issuers had great success in obtaining
bond insurance. Municipalities generally have to offer higher interest on
bonds without insurance to attract investors.
More New Bonds Issued
In calendar 1996, some $8.7 billion worth of new bonds were issued in
Pennsylvania, 18.9% more than in 1995. Both investors and bond insurers
responded favorably to the first increase in new bond supply in the state
since 1993. Competition among bond insurers to back new Pennsylvania issues
was intense, illustrating the state's financial strength.
State residents in the moderate 28% federal income tax bracket had an
opportunity to receive a greater tax-adjusted income from long-term
Pennsylvania municipal bonds than from comparable maturity U.S. Treasuries as
shown above.
Investment Strategy
For nearly 20 years, your Fund has sought a high level of interest income
exempt from federal, state and local taxes. To maximize income, preserve
capital and increase total return in situations where a bond may be
undervalued, we:
o Carefully examine quality. As of February 28, 1997, more than half the
Fund's net assets were invested in bonds rated AAA. When we purchase
1997 Annual Report
4
<PAGE>
We've Shifted to Higher Quality Bonds
Credit Quality Breakdown
(PIE CHART #1)
February 29, 1996
AAA 43%
AA 10%
A 15%
BBB 16%
Other/Non-Rated 16%
(PIE CHART #2)
February 28, 1997
AAA 55%
AA 14%
A 11%
BBB 8%
Other/Non-Rated 12%
municipal bonds rated lower than A or non-rated bonds, we personally review
the financial statements of the issuer and meet with management and/or public
officials.
o Invest with a multi-year perspective. We analyze long-term trends in the
municipal finance market that could affect the performance of Pennsylvania
bonds. We strive to minimize the possibility that the issuer will "call" or
refinance the bond at lower interest rates.
o Seek diversification in terms of sectors and communities. As of February 28,
no one type of municipal bond accounted for more than 18% of the Fund's
portfolio. No one city or county accounted for more than 6%.
During the second half of fiscal 1997, we substantially reduced our
holdings of lower rated and non-rated bonds. Although these bonds paid higher
rates of interest than higher quality bonds, the difference in many cases was
not enough to justify additional credit risks, in our opinion. We also
believed some lower-rated securities were somewhat more susceptible to being
refinanced by the issuer.
To maximize income potential, we slightly increased your Fund's
duration by several months during fiscal 1997. Duration measures a bond's
sensitivity to changes in interest rates. It indicates the probable change in
a bond's price--both upward and downward--given a 1% movement in interest
rates.
portfolio highlights
- --------------------------------------------------------------------------------
February 29, 1996 February 28, 1997
- --------------------------------------------------------------------------------
Average Effective Maturity 11.2 years 12.7 years
Average Effective Duration 7.2 years 7.5 years
A Class Current 30-Day Yield* 4.59% 4.70%
*Measured according to Securities and Exchange Commission Guidelines. SEC
yield for B and C classes was 4.10% as of February 28, 1997.
Eighty percent of the bonds in your Fund's portfolio were rated A or better
by Standard & Poor's as of February 28, 1997.
STRATEGY
1997 Annual Report
5
<PAGE>
More State Bonds, Fewer From Philadelphia
Beginning in the first half of fiscal 1997, your Fund sold many of its
Philadelphia bond holdings. These bonds had appreciated considerably during
the past few years as the city put itself on a firmer financial footing and
the city's credit rating was raised by rating services. We sold these bonds
because, in our opinion, these bonds' value may be negatively affected by
changes in federal welfare policy. Some of the appreciation we realized from
the sale of our Philadelphia bonds was included in the 11.5 cent a share
capital gains distribution the Fund made on November 1, 1996.
Your Fund increased its weighting in state-issued general obligation
bonds during the second half of fiscal 1997 because Pennsylvania appears to
be implementing prudent fiscal policies. We also took a second look at health
care bonds, an area where the Fund had previously reduced its holdings. In
our opinion, the risk/reward ratio in this sector is becoming attractive, at
least for bonds issued by hospitals that are dominant health care providers
in a given market.
Outlook
In the 1990s, the municipal bond market has had to cope with a lot of
"noise". Among the uncertainties that have temporarily spooked investors have
been the proposed flat tax, regional recessions, threats of a shutdown of
federal government operations and investment mismanagement in California.
The market's challenge for 1997 is likely to be higher interest
rates. We believe the Federal Reserve Board may need to raise interest rates
further in 1997 in order to keep the inflation beast caged. In this
environment we have positioned your Fund to maximize tax-free income without
taking undue risk.
We believe it is unlikely that Pennsylvania's federal, state and
local tax burden will be significantly reduced given the current political
environment. Hence, we believe Pennsylvanians will continue to invest in the
state's municipal bonds as a prudent way to both diversify an investment
portfolio and reduce tax liabilities, especially if short-term returns from
other asset classes should turn negative.
Patrick P. Coyne
Vice President and
Senior Portfolio Manager
Mitchell Conery
Vice President and
Senior Portfolio Manager
March 24, 1997
OUTLOOK
1997 Annual Report
6
<PAGE>
CHART PAGE 7
A SCORE OF TAX FREEDOM:
TAX-FREE PENNSYLVANIA FUND'S DIVIDEND HISTORY SINCE 1977
$100,000 Investment in Class A Shares
Total Dividends = $257,651
Account Value on February 28, 1997 = $358,059
(Assuming Reinvestment of Dividends and Capital Gains)
Feb. 78 $3,716
Feb. 79 $5,423
Feb. 80 $5,955
Feb. 81 $6,494
Feb. 82 $7,561
Feb. 83 $8,587
Feb. 84 $8,795
Feb. 85 $10,445
Feb. 86 $13,707
Feb. 87 $12,184
Feb. 88 $12,563
Feb. 89 $13,403
Feb. 90 $14,372
Feb. 91 $15,096
Feb. 92 $15,856
Feb. 93 $16,357
Feb. 94 $16,751
Feb. 95 $17,678
Feb. 96 $18,089
Feb. 97 $18,483
PERFORMANCE
Chart assumes a $100,000 investment in Tax-Free Pennsylvania Fund on March
23, 1977 and reinvestment of distributions. Some dividends may have been
subject to the alternative minimum tax. The chart includes the effect of a
3.75% sales charge. Sales charges have varied over the life of the Fund. See
page 8 for complete performance information. The Fund also paid taxable
capital gains of $1,920 in 1996 and $4,674 in 1997.
Compounding of tax-free income would have enabled annual dividends from
Tax-Free Pennsylvania Fund to grow from $3,716 beginning in the year Jimmy
Carter became President to $18,483 in the 12 months ended February 28, 1997.
A strategy the Fund has employed over the years to maximize tax-free income
has been to minimize our holdings of bonds that generate income subject to
the alternative minimum tax (AMT). As of February 28, 1997, only 0.8% of your
Fund's portfolio consisted of such bonds. This compares favorably with other
single state municipal bond funds. On average, 10% of our peer funds'
portfolios consisted of bonds whose income was subject to the AMT, according
to Morningstar.
1997 Annual Report
7
<PAGE>
FUND PERFORMANCE
Tax-Free Pennsylvania Fund vs.
Lehman Brothers Municipal Bond Index and Inflation
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Tax-Free U.S. Consumer Lehman Brothers
Pennsylvania Fund Price Index Municipal Bond Index
- -------------------------------------------------------------------------------
Feb. '87 $ 9,525 $10,000 $10,000
Feb. '88 $ 9,657 $10,389 $10,262
Feb. '89 $10,342 $10,890 $10,899
Feb. '90 $11,239 $11,468 $12,017
Feb. '91 $12,053 $12,072 $13,125
Feb. '92 $13,392 $12,413 $14,438
Feb. '93 $15,159 $12,816 $16,423
Feb. '94 $16,011 $13,138 $17,333
Feb. '95 $16,156 $13,514 $17,659
Feb. '96 $17,784 $13,862 $19,610
Feb. '97 $18,558 $14,294 $20,691
Chart assumes $10,000 invested on January 31, 1987 and includes the effect of
a 4.75% maximum sales charge and reinvestment of all distributions.
Performance of other Fund classes will vary due to differing charges and
expenses.
Tax-Free Pennsylvania Fund Performance
Average Annual Return Through February 28, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Lifetime Ten Years Five Years One Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (Est. 1977)
Excluding Sales Charge +6.65% +6.90% +6.74% +4.35%
Including Sales Charge +6.39% +6.38% +5.72% -0.59%
- -----------------------------------------------------------------------------------------------------------
Class B (Est. 1994)
Excluding Sales Charge +5.44% -- -- +3.52%
Including Sales Charge +4.48% -- -- -0.37%
- -----------------------------------------------------------------------------------------------------------
Class C (Est. 1995)
Excluding Sales Charge +3.78% -- -- +3.52%
Including Sales Charge +3.78% -- -- +2.55%
</TABLE>
All returns reflect reinvestment of distributions. Tax-Free Pennsylvania Fund's
return and share value fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Past performance is not a guarantee of
future results. Class B and Class C performance "excluding sales charge" assumes
the investment was not redeemed. Up to 20% of the assets of the Fund may be
invested in municipal securities that generate income subject to the federal
alternative minimum tax.
Class A shares were initially offered March 23, 1977. Returns reflect the
effect of the 4.75% maximum sales charge and, for periods after June 1, 1992,
a 12b-1 fee of up to 0.30%.
Class B shares, initially offered May 2, 1994, do not carry a front-end sales
charge, but are subject to a 1% annual distribution and service fee. They are
subject to a deferred sales charge of up to 4%.
Class C shares, initially offered November 29, 1995, have a 1% annual
distribution and service fee. If redeemed within 12 months, a 1% contingent
deferred sales charge applies.
1997 Annual Report
8
<PAGE>
Financial Statements
Delaware Group Tax-Free Pennsylvania Fund+
Statement of Net Assets / February 28, 1997
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Principal Market
Amount Value
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MUNICIPAL BONDS -- 99.28%
Higher Education Revenue Bonds -- 8.50%
Dauphin County College Revenue (Holy Family
College) 7.50% 12/01/19 ......................... $ 3,025,000 $ 3,104,406
Delaware County Authority University Revenue
(Haverford College) 5.50% 11/15/23
(MBIA) .......................................... 2,215,000 2,148,550
(Villanova University) (Escrowed to Maturity)
9.625% 8/01/02 .................................. 495,000 563,681
(Villanova University) 5.50% 8/01/23
(MBIA) .......................................... 2,975,000 2,904,344
(Villanova University) 5.80% 8/01/25
(AMBAC) ......................................... 7,000,000 7,070,000
Montgomery County Higher Education and
Health Authority Revenue (Beaver College)
5.85% 4/01/21 (Connie Lee) ....................... 5,465,000 5,553,806
Northhampton County Higher Education Authority
Revenue (Lehigh University)
5.25% 11/15/21 ................................... 9,025,000 8,573,750
Pennsylvania Higher Education Facilities Authority
College Revenue (Elizabethtown College)
6.50% 6/15/15 ................................... 6,700,000 6,917,750
(LaSalle University) (Escrowed to Maturity)
9.50% 5/01/03 ................................... 415,000 471,544
(Rosemont College) 8.00% 12/01/16 ................ 250,000 250,485
(Temple University) 5.75% 4/01/31 (MBIA) ......... 8,000,000 7,990,000
Pennsylvania Higher Education Facilities Authority
State System Revenue 5.75% 6/15/20
(AMBAC) ......................................... 17,730,000 17,818,650
Pennsylvania State University 5.50% 8/15/16 ....... 12,500,000 12,343,750
Swarthmore Borough Authority
(Swarthmore College) 7.375% 9/15/08 .............. 990,000 1,044,450
6.00% 9/15/12 ................................... 7,000,000 7,157,500
-----------
83,912,666
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Hospital Revenue Bonds -- 15.30%
Allegheny County Hospital Development Authority
Revenue Refunding (University of Pittsburgh
Medical Center) 5.375% 12/01/25 (MBIA) ........... 17,575,000 16,608,375
(South Hills Health) 6.00% 5/01/20 ............... 1,500,000 1,522,500
Monroeville Hospital Authority Revenue (Forbes
Health System) 7.00% 10/01/13 .................... 7,000,000 7,402,500
Pennsylvania Higher Education Facilities Authority
Health Services Revenue (University of
Pennsylvania) 5.75% 1/01/22 ...................... 20,000,000 20,100,000
Philadelphia Hospitals & Higher Education
Facilities Authority Hospital Revenue (Albert
Einstein Medical Center) 7.625% 4/01/11 .......... 19,110,000 20,232,713
(Children's Hospital of Philadelphia)
5.00% 2/15/21 ................................... 5,200,000 4,764,500
5.50% 2/15/22 ................................... 5,600,000 5,453,000
<PAGE>
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Principal Market
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (Continued)
Hospital Revenue Bonds (Continued)
(Children's Seashore House Series A) 7.00%
8/15/17 ...................................... $ 3,100,000 $ 3,289,875
(Children's Seashore House Series B) 7.00%
8/15/22 ...................................... 2,100,000 2,220,750
(Jeanes Health System Project) 6.85%
7/01/22 ...................................... 18,020,000 18,583,125
(Presbyterian Medical Center) (Escrowed
to Maturity) 6.65% 12/01/19 .................. 13,000,000 14,738,750
(Roxborough Memorial Hospital) 7.25%
3/01/24 ...................................... 12,505,000 12,458,106
(Temple University Hospital) 6.625%
11/15/23 ..................................... 6,500,000 6,743,750
Sayre-Health Care Facilities (VHA of
Pennsylvania,Inc.) (Capital Asset Financing
Program-Guthrie Medical Center)
Series H-2 7.625% 12/01/15 (AMBAC) ............ 1,000,000 1,095,000
Series H-3 7.625% 12/01/15 (AMBAC) ............ 2,490,000 2,726,550
Sayre-Health Care Facilities (Guthrie Healthcare
Systems) Series 91A, 6.00% 3/01/21
(AMBAC) ....................................... 7,000,000 7,113,750
Scranton-Lackawanna Health and Welfare
Authority (Allied Services Rehabilitation
Hospitals) 7.60% 7/15/20 ...................... 5,640,000 6,013,650
------------
151,066,894
------------
Housing Revenue Bonds -- 5.16%
Montgomery County Housing Redevelopment
Authority (Montgomery Woods Project)
7.50% 1/01/24 ................................ 11,405,000 10,378,550
Montgomery County Multi-Family Housing
(KBF Associates Project)
Series A 6.50% 7/01/25 ........................ 19,810,000 19,735,713
Series B 7.25% 7/01/25 ........................ 15,185,000 15,090,094
Pennsylvania Housing Finance Agency
Series Z 7.50% 10/01/10 ....................... 1,250,000 1,323,438
Series Y 7.45% 4/01/16 (FHA) .................. 1,610,000 1,684,462
Philadelphia Redevelopment Authority Home
Improvement Series 86A 7.375%
6/01/03 (FHA) ................................ 1,820,000 1,848,792
Pittsburgh Urban Redevelopment Authority
Mortgage Revenue Series 87B 8.30%
4/01/17 ...................................... 800,000 830,984
------------
50,892,033
------------
Pollution Control Revenue Bonds -- 8.50%
Beaver County Industrial Development Authority
Pollution Control Revenue (Cleveland
Electric Project)
7.625% 5/1/25 ................................. 8,500,000 9,211,875
7.75% 7/15/25 ................................. 10,000,000 10,937,500
+The Fund's legal name is DMC Tax-Free Income Trust - Pennsylvania
1997 Annual Report
9
<PAGE>
Statement of Net Assets (continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
MUNICIPAL BONDS (Continued)
Pollution Control Revenue Bonds (Continued)
Cambria County Industrial Development Authority
Pollution Control Revenue (Pennsylvania
Electric Project ) Series A 5.35%
11/01/10 (MBIA) .............................. $ 3,500,000 $ 3,561,250
Delaware County Industrial Development Authority
Pollution Control Revenue (Philadelphia
Electric Co.) Series A 7.375% 4/01/21 ......... 10,250,000 11,134,063
Lehigh County Industrial Development Authority
Pollution Control Revenue
6.40% 11/01/21 (MBIA) ........................ 7,000,000 7,402,500
5.50% 2/15/27 (MBIA) ......................... 15,500,000 14,899,375
6.40% 9/01/29 (MBIA) ......................... 15,000,000 15,956,250
Montgomery County Industrial Development
Authority Pollution Control Revenue
(Philadelphia Electric Co.) 6.70%
12/01/21 (MBIA) .............................. 10,000,000 10,775,000
-----------
83,877,813
-----------
Pre-Refunded Bonds** -- 24.25%
Allegheny County, Pennsylvania Sanitary
Authority Revenue
Series 86A, 7.50% 12/1/16-99 (FGIC) ........... 1,780,000 1,909,050
Series 86B, 7.50% 12/1/16-99 (FGIC) ........... 4,020,000 4,311,450
Series 91C, 6.50% 12/1/16-01 (FGIC) ........... 4,500,000 4,899,375
Berks County Municipal Authority Revenue
(The Highlands at Wyomissing Project)
9.125% 10/01/17-97 ........................... 4,000,000 4,122,680
Bucks County Water and Sewer Authority
Revenue (Collection Sewer System) 7.00%
12/01/19-97 (FGIC) ........................... 4,240,000 4,345,406
Delaware County Authority University Revenue
(Haverford College) 7.375% 11/15/20-00
(MBIA) ....................................... 3,275,000 3,672,094
Delaware River Joint Toll Bridge Commission
Bridge System Revenue 7.875%
07/01/18-98 .................................. 4,600,000 4,927,750
Doylestown Hospital Authority
(Doylestown Hospital) Series C, 6.90%
7/1/19-99 (AMBAC) ............................ 1,750,000 1,890,000
Harrisburg Water Authority Revenue 7.00%
07/15/15-01 (FGIC) ........................... 12,000,000 13,230,000
Harrisburg Water and Sewer Authority Revenue
(Daulphin County) Series 88A,8.00%
11/01/12-5/01/98 (AMBAC) ...................... 6,000,000 6,285,000
Huntingdon Borough General Obligation 7.50%
12/01/17-97 .................................. 875,000 899,587
Lackawanna County Multi-Purpose Stadium
Authority Revenue Guaranteed 8.625%
08/15/07-98 .................................. 700,000 766,500
<PAGE>
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Pre-Refunded Bonds (Continued)
Pennsylvania Higher Educational Facilities
Authority College & University Revenue
(Hahnemann University) 6.90%
7/01/21-01 (MBIA) ............................ $ 13,000,000 $ 14,511,250
(Holy Family College) 8.00%
12/01/06-98 .................................. 380,000 405,650
(The Medical College of Pennsylvania)
Series A 7.50% 3/01/14-99 ..................... 1,000,000 1,065,000
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue (City of
Philadelphia Funding Program) 6.80%
06/15/22-02 .................................. 2,125,000 2,353,438
Pennsylvania State Turnpike Commission Turnpike
Revenue Series D, 7.625% 12/01/17-98
(FGIC) ....................................... 3,500,000 3,784,375
Series E, 7.55% 12/01/17-99 (MBIA) ............ 495,000 546,975
Series I, 7.20% 12/01/17-01 (FGIC) ............ 8,915,000 10,118,525
Series J, 7.20% 12/01/17-01 (FGIC) ............ 8,995,000 10,209,325
Series K, 7.50% 12/01/19-99 ................... 10,000,000 11,037,500
Pennsylvania State University Revenue Series 89,
6.75% 7/01/14-99 ............................. 14,195,000 15,259,625
Philadelphia Regional Port Authority Lease
Revenue 7.15% 8/01/20-00 (MBIA) ............... 16,315,000 17,762,956
Philadelphia Water & Sewer Revenue 7.00%
8/01/18-01 ................................... 20,650,000 22,766,625
Puerto Rico (Commonwealth of) General
Obligation 8.00% 7/01/07-98 ................... 2,545,000 2,735,875
7.25% 7/01/10-00 ............................. 1,370,000 1,522,412
7.75% 7/01/13-98 ............................. 12,775,000 13,701,188
7.75% 7/01/17-99 ............................. 7,700,000 8,450,750
6.50% 7/01/18-99 ............................. 2,745,000 2,899,406
Sewickley Valley Hospital Authority Refunding
(Sewickley Valley Hospital Project) 7.50%
10/01/06-99 .................................. 1,295,000 1,421,263
Swarthmore Borough Authority (Swarthmore
College) 7.375% 9/15/20-00 .................... 14,000,000 15,487,500
7.375% 9/15/08-98 ............................ 1,810,000 1,929,913
University Area Joint Authority Water and Sewer
Revenue 7.10% 9/01/20-00 (MBIA) ............... 6,000,000 6,592,500
Upper Darby Township (Delaware County)
General Obligation 7.875% 7/15/18-98 .......... 4,345,000 4,578,544
Washington County Authority Revenue (Shadyside
Hospital) Series 85D, 7.45%
12/15/18-6/15/00 (AMBAC) ...................... 7,500,000 8,409,375
York County Hospital Revenue Authority (York
Hospital) 7.00% 07/01/21-1/01/01
(AMBAC) ...................................... 9,500,000 10,521,250
-----------
239,330,112
-----------
1997 Annual Report
10
<PAGE>
Statement of Net Assets (continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municiple Bonds (Continued)
School Authority/District Bonds --3.66%
Abington School District 6.00% 5/15/26 (FGIC) .... $ 6,000,000 $ 6,210,000
Altoona Area School District (Blair County)
(Escrowed to Maturity) 10.00% 6/15/98 ........... 285,000 297,825
Coatesville School District 5.125% 4/01/17
(FSA) .......................................... 10,050,000 9,561,168
Lakeland School District General Obligation
(Lackawanna County) 9.50% 8/15/10 ............... 145,000 146,180
North Penn School District 5.125% 3/01/17 ........ 8,530,000 8,156,813
Parkland School District 5.80% 9/01/16 (MBIA) .... 5,510,000 5,620,200
Pittsburgh School District Series A, 5.50%
9/01/14 (AMBAC) ................................ 4,715,000 4,720,894
Pottsville Area School District (Escrowed
to Maturity) 9.375% 5/01/06 (AMBAC) ............. 900,000 1,146,375
Southmoreland School District (Escrowed to
Maturity) 10.50% 10/01/97 (AMBAC) ............... 245,000 254,403
-----------
36,113,858
-----------
State General Obligation Bonds -- 3.08%
Pennsylvania State First Series General Obligation
5.50% 5/01/13 (FGIC) ........................... 8,025,000 8,115,281
Pennsylvania State First Series General Obligation
5.375% 5/15/16 (FGIC) .......................... 9,340,000 9,141,525
Pennsylvania State Second Series General
Obligation 5.25% 6/15/12 ........................ 5,000,000 4,937,500
Pennsylvania State Second Series General
Obligation 5.00% 11/15/15 (AMBAC) ............... 8,875,000 8,353,594
-----------
30,547,900
-----------
Transportation Revenue Bonds -- 2.87%
Pennsylvania State Turnpike Commission
Turnpike Revenue
Series L 6.25% 6/01/11 (AMBAC) .................. 9,000,000 9,506,250
Series N 6.50% 12/01/13 ........................ 3,000,000 3,165,000
Series N 5.50% 12/01/17 ........................ 14,000,000 13,667,500
Series N 5.50% 12/01/17 (MBIA) .................. 2,000,000 1,965,000
-----------
28,303,750
-----------
Waste Disposal Revenue Bonds -- 2.22%
Greater Lebanon Refuse Authority Revenue
Refunding (Lancaster County) 7.00%
11/15/04 ....................................... 1,200,000 1,278,000
York County Solid Waste and Refuse Authority
Revenue 8.20% 12/01/14 ......................... 19,500,000 20,586,735
-----------
21,864,735
-----------
Water & Sewer Revenue Bonds -- 4.91%
Dauphin County Industrial Development Authority
Water Development Revenue Series 92B
6.70% 6/01/17 .................................. 1,750,000 1,966,563
<PAGE>
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Water & Sewer Revenue Bonds (Continued)
Philadelphia Water and Waste Water Revenue
5.00% 6/15/16 (FSA) ........................ $ 11,040,000 $ 10,212,000
5.60% 8/01/18 (MBIA) ....................... 9,870,000 9,758,962
Pittsburgh Water and Sewer Revenue 4.90%
9/01/07 (FGIC) ............................. 4,785,000 4,731,169
(Escrowed to Maturity) 7.25% 9/01/14
(FGIC) ..................................... 9,000,000 10,620,000
4.75% 9/01/16 (FGIC) ....................... 12,500,000 11,140,625
------------
48,429,319
------------
Other General Obligation Bonds -- 10.43%
Chester County General Obligation 5.45%
11/01/16 ................................... 3,400,000 3,387,250
Erie County General Obligation 5.25% 9/01/12
(FGIC) ..................................... 1,570,000 1,546,450
Falls Township General Obligation 7.00%
12/15/10 (MBIA) ............................ 3,000,000 3,262,500
Montgomery County General Obligation Series B
5.375% 10/15/25 ............................ 9,975,000 9,750,562
New Morgan General Obligation Guaranteed
Revenue 8.00% 11/01/05 ..................... 9,245,000 9,545,463
Philadelphia General Obligation 5.00%
5/15/25 (MBIA) ............................. 31,690,000 28,837,900
Pittsburgh General Obligation Series A 5.20%
3/01/10 (FGIC) ............................. 32,580,000 32,294,925
Puerto Rico (Commonwealth of) General
Obligation 8.00% 7/01/07 .................... 715,000 759,688
6.00% 7/01/22 .............................. 3,585,000 3,634,294
Radnor Township General Obligation 5.25%
11/01/26 ................................... 3,785,000 3,567,362
Tredyffrin Township General Obligation 5.25%
11/15/21 ................................... 6,575,000 6,369,531
------------
102,955,925
------------
Other Revenue Bonds -- 10.40%
Cambria County Hospital Development Authority
Health Care Revenue (Allegheny Lutheran
Social Ministries Project) 8.25% 6/15/17 .... 3,250,000 3,461,250
Chester Pennsylvania Guaranteed Community
Revenue 7.25% 12/01/05 ..................... 12,810,000 12,729,938
Dauphin County General Authority Revenue
(Bedford Springs Golf Course Project) 6.00%
11/01/17 ................................... 2,980,000 2,585,150
Delaware County Authority Revenue (Main Line &
Haverford Nursing and Rehabilitation Center)
9.00% 8/01/22 .............................. 2,000,000 2,200,000
Delaware River Port Authority 6.50% 1/01/08
(AMBAC) .................................... 5,000,000 5,156,250
5.50% 1/01/26 (FGIC) ....................... 25,000,000 24,468,750
1997 Annual Report
11
<PAGE>
Statement of Net Assets (Continued)
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
Municiple Bonds (Continued)
Other Revenue Bonds (Continued)
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue (City of
Philadelphia Funding Program)
5.60% 6/15/15 (MBIA) ........................... $ 2,245,000 $ 2,230,969
5.50% 6/15/20 (FGIC) ........................... 8,000,000 7,820,000
5.00% 6/15/22 (MBIA) ........................... 14,345,000 13,053,950
Pennsylvania Public School Building Authority
Lease Revenue (Escrowed to Maturity)
10.375% 11/01/06 ............................... 5,000 5,055
Philadelphia Authority For Industrial Development
Revenue (American Fiber Supply Project)
8.00% 12/01/19 ................................. 15,900,000 7,950,000
(Cathedral Village) 7.25% 4/01/15 .............. 2,000,000 2,012,500
(Stapeley Hall) 6.60% 1/01/16 .................. 5,250,000 5,138,438
Philadelphia Gas Works Revenue 6.49%
1/01/12 (AMBAC)* ............................... 2,500,000 1,090,625
Philadelphia Parking Authority 5.25% 9/01/10
(AMBAC) ........................................ 4,875,000 4,881,094
5.50% 9/01/18 (AMBAC) .......................... 6,250,000 6,148,437
Westmoreland County Municipal Authority
Municipal Service Revenue A 6.18%
8/15/23 (FGIC)* ................................ 8,000,000 1,760,000
------------
102,692,406
------------
Total Municipal Bonds
(cost $939,534,689) ............................ 979,987,411
------------
VARIABLE RATE DEMAND NOTES*** -- 0.25%
Allegheny County Hospital Development Authority
Revenue A (Presbyterian Hospital) 3.35%
3/01/20 ........................................ 300,000 300,000
Allegheny County Industrial Development
Authority Revenue (Eye & Ear Properties)
3.35% 2/01/15 (LOC-PNB) ........................ 125,000 125,000
Washington County Authority Lease
Revenue (Eye & Ear Properties)
Series D 3.35% 12/15/18 (LOC-PNB) .............. 1,800,000 1,800,000
Series E 3.35% 12/15/18 (LOC-PNB) .............. 200,000 200,000
Total Variable Rate Demand Notes
(Cost $2,425,000) .............................. 2,425,000
------------
<PAGE>
- --------------------------------------------------------------------------------
Principal Market
Amount Value
- --------------------------------------------------------------------------------
TOTAL MARKET VALUE OF SECURITIES--99.53%
(COST $941,959,689) .................... $982,412,411
RECEIVABLES AND OTHER ASSETS NET OF
LIABILITIES--0.47% ..................... 4,670,975
------------
NET ASSETS APPLICABLE TO 115,841,642
TAX-FREE PENNSYLVANIA FUND A CLASS
SHARES, 3,841,446 TAX-FREE PENNSYLVANIA
FUND B CLASS SHARES AND 143,430 TAX-FREE
PENNSYLVANIA FUND C CLASS SHARES
OUTSTANDING; EQUIVALENT TO $8.24
PER SHARE--100.00% .................... $987,083,386
============
- ----------
AMBAC -- Insured by AMBAC Indemnity Corporation.
Connie Lee -- Insured by College Construction Insurance Association.
FGIC -- Insured by the Financial Guaranty Insurance Company.
FHA -- Insured by the Federal Housing Administration.
FSA -- Insured by the Financial Security Assurance.
LOC-PNB -- Scheduled principal and interest payments are guaranteed
by a bank letter of credit with Pittsburgh National Bank.
MBIA -- Insured by the Municipal Bond Insurance Association.
* The interest rate shown for this security is it's effective
yield.
** For Pre-Refunded Bonds, the stated maturity is followed by the
year in which each bond is pre-refunded.
*** Variable Rate Demand Notes -- The interest rate shown is the
rate as of February 28, 1997 and the maturity shown is
the longer of the next interest readjustment date or the
date the principal amount shown can be recovered through demand.
- ----------
COMPONENTS OF NET ASSETS AT FEBRUARY 28, 1997:
Capital shares (unlimited authorization-no par) ............. $945,212,411
Accumlated undistributed:
Net realized gain on investments. .......................... 1,418,253
Net unrealized appreciation of investment .................. 40,452,722
------------
Total net assets ............................................ $987,083,386
============
See accompanying notes.
1997 Annual Report
12
<PAGE>
DMC Tax-Free Income Trust--
Pennsylvania
Statement of Operations
Year Ended February 28, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
2/28/97 2/29/96
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest ...................................................... $ 63,597,365
EXPENSES:
Management ($5,727,743) and trustees'
($25,429) fees ............................................... $ 5,753,172
Distribution expenses ......................................... 2,241,440
Dividend disbursing and transfer agent fees
and expenses ................................................. 641,456
Accounting fees and salaries 283,369
Reports and statements to shareholders ........................ 109,551
Professional fees ............................................. 55,522
Other ......................................................... 133,319 9,217,829
------------ ------------
NET INVESTMENT INCOME ......................................... 54,379,536
------------
NET REALIZED GAIN AND
UNREALIZED LOSS ON INVESTMENTS:
Net realized gain from security transactions .................. 10,401,047
Net unrealized depreciation of investments
during the year .............................................. (24,151,527)
------------
NET REALIZED GAIN AND UNREALIZED
LOSS ON INVESTMENTS .......................................... (13,750,480)
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................... $ 40,629,056
============
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE FOR
TAX-FREE PENNSYLVANIA FUND A CLASS:
Net asset value per share (A) ................................ $8.24
Sales charge (4.75% of offering price, 4.98% of amount invested
per share) (B) .............................................. .41
-----
Offering price ................................................ $8.65
=====
</TABLE>
- ----------
(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>
DMC Tax-Free Income Trust--
Pennsylvania
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Year Ended Year Ended
2/28/97 2/29/96
- ----------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income ........................ $ 54,379,536 $ 57,413,056
Net realized gain from security transactions . 10,401,047 13,527,491
Net unrealized appreciation (depreciation)
during the year ............................. (24,151,527) 26,543,167
--------------- ---------------
Net increase in net assets resulting
from operations ............................. 40,629,056 97,483,714
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income
A Class ..................................... (53,105,291) (56,634,466)
B Class ..................................... (1,244,693) (777,666)
C Class ..................................... (29,552) (924)
Net realized gain from security transactions:
A Class ..................................... (13,225,478) (5,913,829)
B Class ..................................... (396,374) (112,266)
C Class ..................................... (9,434) --
--------------- ---------------
(68,010,822) (63,439,151)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold
A Class ..................................... 65,667,678 59,712,368
B Class ..................................... 12,305,523 11,017,598
C Class ..................................... 1,342,106 123,697
Net asset value of shares issued upon
reinvestment of dividends from net investment
income and realized gains from securities
transactions:
A Class ..................................... 39,316,223 37,397,581
B Class ..................................... 1,091,578 588,234
C Class ..................................... 34,499 885
--------------- ---------------
119,757,607 108,840,363
--------------- ---------------
Cost of shares repurchased:
A Class ..................................... (126,832,263) (104,125,438)
B Class ..................................... (2,023,820) (1,438,631)
C Class ..................................... (308,635) (99)
--------------- ---------------
(129,164,718) (105,564,168)
--------------- ---------------
Increase (decrease) in net assets derived from
capital share transactions .................. (9,407,111) 3,276,195
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS ........ (36,788,877) 37,320,758
NET ASSETS:
Beginning of year ............................ 1,023,872,263 986,551,505
--------------- ---------------
End of year .................................. $ 987,083,386 $ 1,023,872,263
=============== ===============
</TABLE>
See accompanying notes
1997 Annual Report
13
<PAGE>
DMC Tax-Free Income Trust--
Pennsylvania
Notes to Financial Statements
Year Ended February 28, 1997
- --------------------------------------------------------------------------------
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 has been
made in the financial statements. Income and capital gain distributions are
determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles.
Class Accounting--Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes
of the Trust on the basis of daily net assets of each class. distribution
expenses relating to a specific class are charged directly to that class.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Other--Expenses common to all Funds, including the Trust, within the
Delaware Group of Funds are allocated amongst the funds on the basis of
average net assets. Security transactions are recorded on the date the
securities are purchased or sold (trade date). Costs used in calculating
realized gains and losses on the sale of investment securities are those
of the specific securities sold. 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.
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 28, 1997,
the Trust had a liability for investment management fees and other expenses
payable to DMC of $48,994.
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. For the year ended February 28, 1997, DDLP earned $224,219 for
commissions on sales of Tax-Free Pennsylvania Fund A Class shares.
<PAGE>
The Trust has engaged Delaware Service Company, Inc. (DSC), an affiliate
of DMC, to serve as dividend disbursing and transfer agent for the Trust.
Effective August 19, 1996, the Trust also engaged DSC to provide accounting
services for the Trust. Previously, Trust personnel provided this service
and the related costs were recorded in salaries and other expense
categories in the Statement of Operations. For the year ended February 28,
1997, the Trust expensed $641,456 for dividend disbursing and transfer
agent services and $121,240 for accounting services. At February 28, 1997,
the Trust had a liability for such fees and other expenses payable to DSC
for $25,099.
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.
3. Investments
During the year ended February 28, 1997, the Trust made purchases of
$267,595,500 and sales of $286,312,076 of investment securities other than
temporary cash investments.
At February 28, 1997, the aggregate cost of securities for federal tax
purposes was $941,959,689.
At February 28, 1997 unrealized appreciation for financial reporting and
federal income tax purposes aggregated $40,452,722 of which $50,888,980
related to unrealized appreciation of securities and $10,436,258 related to
unrealized depreciation of securities.
4. Trust Shares
Transactions in Trust shares were as follows:
Year Ended Year Ended
2/28/97 2/29/96
Shares sold:
A Class .................................. 7,949,608 7,115,806
B Class .................................. 1,488,828 1,313,984
C Class .................................. 161,709 14,483
Shares issued upon reinvestment of dividends
from net investment income and distributions
of realized gain from security transactions:
A Class .................................. 4,765,329 4,443,556
B Class .................................. 132,364 69,751
C Class .................................. 4,184 104
----------- -----------
14,502,022 12,957,684
Shares repurchased:
A Class .................................. (15,397,947) (12,403,681)
B Class .................................. (245,114) (170,202)
C Class .................................. (37,039) (12)
----------- -----------
(15,680,100) (12,573,895)
----------- -----------
Net Increase (Decrease) ................... (1,178,078) 383,789
----------- -----------
5. Lines of Credit
The Trust has a committed line of credit for $20 million. No amount
was outstanding at February 28, 1997, or at any time during the fiscal
year.
1997 Annual Report
14
<PAGE>
Notes to Financial Statements (Continued)
- ------------------------------------------------------------------------------
6. Concentration of Credit Risk
The Trust concentrates its investments mainly in securities issued by
Pennsylvania municipalities. The value of these investments may be
adversely affected by new legislation within the state, regional or local
economic conditions, and differing levels of supply and demand for
municipal bonds. Many municipalities insure repayment 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 Pennsylvania Fund A Class
------------------------------------------------
Year Ended
2/28/97 2/29/96 2/28/95 2/28/94 2/28/93
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ................................. $8.460 $8.180 $8.610 $8.630 $8.110
Income from investment operations:
Net investment income .................... 0.456 0.476 0.494 0.496 0.514
Net realized and unrealized gain
(loss) from security
transactions ............................. (0.105) 0.330 (0.430) (0.020) 0.520
------ ------ ------ ------ ------
Total from investment operations ............ 0.351 0.806 0.064 0.476 1.034
------ ------ ------ ------ ------
Less distributions:
Dividends from net income ................ (0.456) (0.476) (0.494) (0.496) (0.514)
Distributions from net
realized gain from
security transactions .................. (0.115) (0.050) none none none
------ ------ ------ ------ ------
Total distributions ...................... (0.571) (0.526) (0.494) (0.496) (0.514)
------ ------ ------ ------ ------
Net asset value, end of period .............. $8.240 $8.460 $8.180 $8.610 $8.630
======= ======= ======= ======== ========
Total return(1).............................. 4.35% 10.08% 0.91% 5.64% 13.20%
Ratios/supplemental data:
Net assets, end of period
(000 omitted) .......................... $954,258 $1,002,888 $976,313 $1,026,903 $940,616
Ratio of expenses to
average net assets ..................... 0.91% 0.90% 0.90% 0.88% 0.83%
Ratio of net investment
income to average net
assets ................................. 5.52% 5.67% 6.03% 5.70% 6.18%
Portfolio turnover .......................... 27% 25% 18% 14% 11%
</TABLE>
<PAGE>
RESTUBBED
<TABLE>
<CAPTION>
Tax-Free Tax-Free
Pennsylvania Fund B Class Pennsylvania Fund C Class
----------------------------- -------------------------
Year Year Period from Period from
Ended Ended 5/2/94(2) 11/29/95(2) to
2/28/97 2/29/96 2/28/95 2/28/97 2/29/96
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ................................. $8.460 $8.180 $8.310 $8.460 $8.510
Income from investment operations:
Net investment income .................... 0.390 0.408 0.353 0.390 0.102
Net realized and unrealized gain
(loss) from security
transactions ............................. (0.105) 0.330 (0.130) (0.105) --
------ ------ ------ ------ ------
Total from investment operations ............ 0.285 0.738 0.223 0.285 0.102
------ ------ ------ ------ ------
Less distributions:
Dividends from net income ................ (0.390) (0.408) (0.353) (0.390) (0.102)
Distributions from net
realized gain from
security transactions .................. (0.115) (0.050) none (0.115) (0.050)
------ ------ ------ ------ ------
Total distributions ...................... (0.505) (0.458) (0.353) (0.505) (0.152)
------ ------ ------ ------ ------
Net asset value, end of period .............. $8.240 $8.460 $8.180 $8.240 $8.460
======= ======== ======== ======== ========
Total return(1).............................. 3.52% 9.19% 2.79% 3.52% 1.19%
Ratios/supplemental data:
Net assets, end of period
(000 omitted) ..........................$31,644 $20,861 $10,239 $1,181 $123
Ratio of expenses to
average net assets ..................... 1.71% 1.71% 1.73% 1.71% 1.71%
Ratio of net investment
income to average net
assets ................................. 4.72% 4.86% 5.20% 4.72% 4.86%
Portfolio turnover .......................... 27% 25% 18% 27% 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 Date of initial public offering; ratios have been annualized and total
return has not been annualized.
1997 Annual Report
15
<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 (the "Trust") as of February 28, 1997 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 periods indicated therein.
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 and financial highlights. Our procedures
included confirmation of securities owned as of February 28, 1997, by corres
pondence with the Trust's custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly in all material respects, the financial
position of DMC Tax-Free Income Trust-Pennsylvania at February 28, 1997,
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 periods indicated therein, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
April 4, 1997
1997 Annual Report
16
<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 of Trustees
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
City Councilman
Philadelphia, PA
CHARLES E. PECK
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
Affiliated Officers
GEORGE M. CHAMBERLAIN, JR.
Senior Vice President and Secretary,
Delaware Group of Funds
Philadelphia, PA
DAVID K. DOWNES
Senior Vice President, Chief Financial Officer and
Chief Administrative Officer
Delaware Group of Funds
Philadelphia, PA
BRUCE D. BARTON
President and CEO,
Delaware Distributors, L.P.
Philadelphia, PA
- --------------------------------------------------------------------------------
Trustees and officers
INVESTMENT MANAGER
Delaware Management Company, Inc.
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
AND TRANSFER AGENT
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
<PAGE>
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.
(insert photo of globes)
FOR SHAREHOLDERS
1.800.523.1918
FOR SECURITIES DEALERS
1.800.362.7500
FOR FINANCIAL INSTITUTIONS REPRESENTATIVES
1.800.659.2265
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL
FUNDS CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE
FUND ARE NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY
CREDIT UNION, AND INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED. SHARES OF THE FUND ARE NOT BANK OR CREDIT UNION
DEPOSITS.
DELAWARE
GROUP
========
Philadelphia o London
Copy Rights Delaware Distributors, L.P.
Printed in the USA on recycled paper
AR-007[2/97]TKO4/97
