DMC TAX FREE INCOME TRUST PA, 485BPOS, 1997-08-29

DMC TAX FREE INCOME TRUST PA
485BPOS, 1997-08-29

Previous: DIALYSIS CORP OF AMERICA, 8-K, 1997-08-29

Next: HARRIS CORP /DE/, 10-K405, 1997-08-29

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

File No. 2-57791
File No. 811-2715

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No.
------
Post-Effective Amendment No. 39 X
------

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 39 X
------

DMC TAX-FREE INCOME TRUST - PENNSYLVANIA
(to be renamed Delaware Group State Tax-Free Income Trust)
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

1818 Market Street, Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (215) 255-2923
--------------

George M. Chamberlain, Jr., 1818 Market Street, Philadelphia, PA 19103
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)

Approximate Date of Public Offering: September 2, 1997
-----------------
It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
------
X on September 2, 1997 pursuant to paragraph (b)
------
60 days after filing pursuant to paragraph (a)(1)
------
on (date) pursuant to paragraph (a)(1)
------
75 days after filing pursuant to paragraph (a)(2)
------
on (date) pursuant to paragraph (a)(2) of Rule 485
------

Registrant has registered an indefinite amount of securities
under the Securities Act of 1933 pursuant to Section 24(f)
of the Investment Company Act of 1940. The Rule 24f-2 Notice
for Registrant's most recent fiscal year was filed on April 21, 1997.

<PAGE>

--- C O N T E N T S ---

This Post-Effective Amendment No. 39 to Registration File No. 2-57791 includes
the following:

1. Facing Page

2. Contents Page

3. Cross-Reference Sheet

4. Part A - Prospectuses*

5. Part B - Statements of Additional Information*

6. Part C - Other Information*

7. Signatures

* This Post-Effective Amendment relates to the Registrant's three
series of shares and their classes: Tax-Free Pennsylvania Fund A
Class, Tax-Free Pennsylvania Fund B Class, Tax-Free Pennsylvania
Fund C Class, Tax-Free New Jersey Fund A Class, Tax-Free New
Jersey Fund B Class, Tax-Free New Jersey Fund C Class, Tax-Free
Ohio Fund A Class, Tax-Free Ohio Fund B Class and Tax-Free Ohio
Fund C Class. Shares of each Fund are described in a combined
prospectus and Statement of Additional Information and they
share a common Part C.

<PAGE>

CROSS-REFERENCE SHEET*
PART A**
<TABLE>
<CAPTION>

Item No. Description Location in Prospectus
-------- ----------- ----------------------
<S> <C> <C>
1 Cover Page.......................................................... Cover Page

2 Synopsis............................................................ Synopsis; Summary of
Expenses

3 Condensed Financial Information..................................... Financial Highlights

4 General Description of Registrant .................................. Investment Objective
and Policies; Shares;
Additional Information
on Investment Policies
and Risk Considerations

5 Management of the Fund ............................................. Management of the Funds

6 Capital Stock and Other Securities ................................. The Delaware Difference;
Dividends and Distributions;
Taxes; Shares

7 Purchase of Securities Being Offered................................ Cover; How to Buy
Shares; Calculation of
Offering Price and Net
Asset Value; Management
of the Funds

8 Redemption or Repurchase............................................ How to Buy Shares;
Redemption and Exchange

9 Pending Legal Proceedings........................................... None
</TABLE>

* This filing relates to Registrant's Tax-Free Pennsylvania Fund A Class,
Tax-Free Pennsylvania Fund B Class, Tax-Free Pennsylvania Fund C Class,
Tax-Free New Jersey Fund A Class, Tax-Free New Jersey Fund B Class,
Tax-Free New Jersey Fund C Class, Tax-Free Ohio Fund A Class, Tax-Free
Ohio Fund B Class and Tax-Free Ohio Fund C Class. Shares of each Fund
are described in a combined prospectus.

<PAGE>

CROSS-REFERENCE SHEET
PART B*
<TABLE>
<CAPTION>

Location in Statement
Item No. Description of Additional Information
-------- ----------- -------------------------
<S> <C> <C>

10 Cover Page.......................................................... Cover

11 Table of Contents................................................... Table of Contents

12 General Information and History..................................... General Information

13 Investment Objectives and Policies.................................. Investment Objectives
and Policies

14 Management of the Registrant........................................ Officers and Trustees

15 Control Persons and Principal Holders
of Securities....................................................... Officers and Trustees

16 Investment Advisory and Other Services.............................. Plans Under Rule 12b-1
for the Fund Classes
(under Purchasing Shares);
Investment Management
Agreements; Officers and
Trustees; General Information;
Financial Statements

17 Brokerage Allocation................................................ Trading Practices
and Brokerage

18 Capital Stock and Other Securities.................................. Capitalization and
Noncumulative Voting
(under General Information)

19 Purchase, Redemption and Pricing of
Securities Being Offered............................................ Purchasing Shares;
Determining Offering Price
and Net Asset Value;
Redemption and Repurchase;
Exchange Privilege

20 Tax Status.......................................................... Taxes
</TABLE>

* This filing relates to Registrant's Tax-Free Pennsylvania
Fund A Class, Tax-Free Pennsylvania Fund B Class, Tax-Free
Pennsylvania Fund C Class, Tax-Free New Jersey Fund A Class,
Tax-Free New Jersey Fund B Class, Tax-Free New Jersey Fund C
Class, Tax-Free Ohio Fund A Class, Tax-Free Ohio Fund B
Class and Tax-Free Ohio Fund C Class. Shares of each Fund
are described in a combined Statement of Additional
Information.

<PAGE>

CROSS-REFERENCE SHEET
PART B
(Continued)

Location in Statement
Item No. Description of Additional Information
-------- ----------- -------------------------
<S> <C> <C>

21 Underwriters ....................................................... Purchasing Shares

22 Calculation of Performance Data..................................... Performance Information

23 Financial Statements................................................ Financial Statements

</TABLE>

<PAGE>

CROSS REFERENCE SHEET

PART C
<TABLE>
<CAPTION>

Location
Item No. Description in Part C
-------- ----------- -------------------------
<S> <C> <C>

24 Financial Statements and Exhibits................................... Item 24

25 Persons Controlled by or under Common
Control with Registrant............................................. Item 25

26 Number of Holders of Securities..................................... Item 26

27 Indemnification..................................................... Item 27

28 Business and Other Connections of
Investment Adviser.................................................. Item 28

29 Principal Underwriters.............................................. Item 29

30 Location of Accounts and Records.................................... Item 30

31 Management Services................................................. Item 31

32 Undertakings........................................................ Item 32

</TABLE>

<PAGE>

(PA-ABC)

TAX-FREE NEW JERSEY FUND PROSPECTUS
TAX-FREE OHIO FUND September 2, 1997
TAX-FREE PENNSYLVANIA FUND

A CLASS SHARES
B CLASS SHARES
C CLASS SHARES

-------------------------------------------------
1818 Market Street, Philadelphia, PA 19103

For Prospectus and Performance: Nationwide 800-523-4640

Information on Existing Accounts: (SHAREHOLDERS ONLY)
Nationwide 800-523-1918

Dealer Services: (BROKER/DEALERS ONLY)
Nationwide 800-362-7500

Representatives of Financial Institutions:
Nationwide 800-659-2265

This Prospectus describes the shares of Tax-Free New Jersey Fund ("New
Jersey Fund"), Tax-Free Ohio Fund ("Ohio Fund") and Tax-Free Pennsylvania Fund
("Pennsylvania Fund") (individually, a "Fund" and collectively, the "Funds") of
Delaware Group State Tax-Free Income Trust (the "Trust") (formerly DMC Tax-Free
Income Trust - Pennsylvania), a professionally-managed mutual fund of the series
type. New Jersey Fund's objective is to seek a high level of current interest
income exempt from federal income tax and New Jersey state and local taxes,
consistent with preservation of capital. Ohio Fund's objective is to seek a high
level of current interest income exempt from federal income tax and Ohio state
and local taxes, consistent with preservation of capital. Pennsylvania Fund'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.

Each Fund offers Class A Shares, Class B Shares and Class C Shares
(individually, a "Class" and collectively, the "Classes").

This Prospectus relates only to the Classes listed above and sets forth
information that you should read and consider before you invest. Please retain
it for future reference. Each Fund's Statement of Additional Information ("Part
B" of the Trust's registration statement), dated September 2, 1997, as it may be
amended from time to time, contains additional information about each Fund and
has been filed with the Securities and Exchange Commission. Part B is
incorporated by reference into this Prospectus and is available, without charge,
by writing to Delaware Distributors, L.P. at the above address or by calling the
above numbers. Pennsylvania Fund's financial statements appear in its Annual
Report which will accompany any response to requests for Part B. New Jersey Fund
and Ohio Fund were not offered to the public prior to the date of this
Prospectus.

<PAGE>

(PA-ABC)

TABLE OF CONTENTS

Cover Page How to Buy Shares
Synopsis Redemption and Exchange
Summary of Expenses Dividends and Distributions
Financial Highlights Taxes
Investment Objective and Policies Calculation of Offering Price and
Suitability Net Asset Value Per Share
Investment Strategy Management of the Funds
and Risk Factors Additional Information on Investment
The Delaware Difference Policies and Risk Considerations
Plans and Services Appendix A - Investment Illustrations
Classes of Shares Appendix B - Classes Offered

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL FUNDS
CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE FUND ARE
NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY BANK OR ANY CREDIT UNION,
ARE NOT OBLIGATIONS OF ANY BANK OR ANY CREDIT UNION, AND INVOLVE INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. SHARES OF
THE FUND ARE NOT BANK OR CREDIT UNION DEPOSITS.

<PAGE>

(PA-ABC)

SYNOPSIS

Investment Objectives
New Jersey Fund --The investment objective of the Fund is to seek a high
level of current interest income exempt from federal income tax and New Jersey
state and local taxes, consistent with preservation of capital.

Ohio Fund -- The investment objective of the Fund is to seek a high
level of current interest income exempt from federal income tax and Ohio state
and local taxes, consistent with preservation of capital.

Pennsylvania Fund -- The investment objective of the Fund 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.

Although exempt from regular federal income tax, interest paid on
certain types of municipal obligations is deemed to be a preference item under
federal tax law and is subject to the federal alternative minimum tax. Up to 20%
of each Fund's net assets may be invested in bonds, the income from which is
subject to the federal alternative minimum tax.

For further details, see Investment Objectives and Policies and
Additional Information on Investment Policies and Risk Considerations.

Risk Factors and Special Considerations
Each Fund is a nondiversified investment company under the Investment
Company Act of 1940 (the "1940 Act") and may be subject to greater risks than if
the Fund were diversified. See Diversification and Special Considerations
Relating to New Jersey, Ohio and Pennsylvania Tax-Exempt Securities under
Investment Strategy and Risk Factors.

Investment Manager, Distributor and Service Agent
Delaware Management Company, Inc. (the "Manager") furnishes investment
management services to each Fund, subject to the supervision and direction of
the Trust's Board of Trustees. The Manager also provides investment management
services to certain of the other funds in the Delaware Group. Delaware
Distributors, L.P. (the "Distributor") is the national distributor for each Fund
and for all of the other mutual funds in the Delaware Group. Delaware Service
Company, Inc. (the "Transfer Agent") is the shareholder servicing, dividend
disbursing, accounting services and transfer agent for each Fund and for all of
the other mutual funds in the Delaware Group. See Summary of Expenses and
Management of the Funds for further information regarding the Manager and the
fees payable under each Fund's Investment Management Agreement.

Sales Charges
The price of the Class A Shares includes a maximum front-end sales
charge of 3.75% of the offering price, which, based on the net asset value per
share of the Class A Shares as of the end of the Trust's most recent fiscal
year, is equivalent to 3.88% of the amount invested for Pennsylvania Fund, and,
based on an initial net asset value of $5.50 per share of New Jersey and Ohio
Funds, is equivalent to 3.82% of the amount invested for New Jersey Fund A Class
and Ohio Fund A Class. The sales charge is reduced on certain transactions of at
least $100,000 but under $1,000,000. For purchases of $1,000,000 or more, the
front-end sales charge is eliminated. Class A Shares are subject to annual 12b-1
Plan expenses for the life of the investment.

The price of Class B Shares is equal to the net asset value per share.
Class B Shares are subject to a contingent deferred sales charge ("CDSC") of:
(i) 4% if shares are redeemed within two years of purchase; (ii) 3% if shares
are redeemed during the third or fourth year following purchase; (iii) 2% if
shares are redeemed during the

<PAGE>

(PA-ABC)

fifth year following purchase; and (iv) 1% if shares are redeemed during the
sixth year following purchase. Class B Shares are subject to annual 12b-1 Plan
expenses which are assessed against Class B Shares for approximately eight years
after purchase. See Deferred Sales Charge Alternative--Class B Shares and
Automatic Conversion of Class B Shares under Classes of Shares.

The price of Class C Shares is equal to the net asset value per share.
Class C Shares are subject to a CDSC of 1% if shares are redeemed within 12
months of purchase. Class C Shares are subject to annual 12b-1 Plan expenses for
the life of the investment.

See Classes of Shares and Distribution (12b-1) and Service under
Management of the Funds.

Purchase Amounts
Generally, the minimum initial investment in any Class is $1,000.
Subsequent investments must generally be at least $100.

Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that is less than $1,000,000. An investor may exceed the maximum purchase
limitations for Class B Shares and Class C Shares by making cumulative purchases
over a period of time. An investor should keep in mind, however, that reduced
front-end sales charges apply to investments of $100,000 or more of Class A
Shares, which are subject to lower annual 12b-1 Plan expenses than Class B
Shares and Class C Shares and generally are not subject to a CDSC. See How to
Buy Shares.

Redemption and Exchange
Class A Shares of each Fund may be redeemed or exchanged at the net
asset value calculated after receipt of the redemption or exchange request.
Neither the Funds nor the Distributor assesses a charge for redemptions or
exchanges of Class A Shares, except for certain redemptions of shares purchased
at net asset value, which may be subject to a CDSC if a dealer's commission was
paid in connection with such purchases. See Front-End Sales Charge Alternative -
Class A Shares under Classes of Shares.

Class B Shares and Class C Shares may be redeemed or exchanged at the
net asset value calculated after receipt of the redemption or exchange request
subject, in the case of redemptions, to any applicable CDSC. Neither the Funds
nor the Distributor assesses any charges other than the CDSC for redemptions or
exchanges of Class B or Class C Shares. There are certain limitations on an
investor's ability to exchange shares between the various classes of shares that
are offered. See Redemption and Exchange.

Open-End Investment Company
The Trust, which was organized as a Pennsylvania business trust on
November 23, 1976, is an open-end management investment company. Each Fund's
portfolio of assets is nondiversified as defined by the 1940 Act.
See Shares under Management of the Funds.

<PAGE>

(PA-ABC)

SUMMARY OF EXPENSES

A general comparison of the sales arrangements and other expenses
applicable to Class A, Class B and Class C Shares follows:

New Jersey Fund Ohio Fund Pennsylvania Fund
Class A Class B Class C Class A Class B Class C Class A Class B Class C
Shareholder Transaction Expenses Shares Shares Shares Shares Shares Shares Shares Shares Shares
- -------------------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price). . . . . . . . . 3.75% None None 3.75% None None 3.75% None None

Maximum Sales Charge Imposed
on Reinvested Dividends
(as a percentage of
offering price) . . . . . . . . . . None None None None None None None None None

Maximum Contingent Deferred Sales
Charge (as a percentage of
original purchase price or
redemption proceeds,
whichever is lower) . . . . . . . . None* 4.00%** 1.00%+ None* 4.00%** 1.00%+ None* 4.00%** 1.00%+

Redemption Fees. . . . . . . . . . . . None++ None++ None++ None++ None++ None++ None++ None++ None++

</TABLE>

*Class A purchases of $1 million or more may be made at net asset value.
However, if in connection with any such purchase a dealer commission is paid to
the financial adviser through whom such purchase is effected, a CDSC of 1% will
be imposed on certain redemptions within 12 months of purchase ("Limited CDSC").
See Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value under Redemption and Exchange.

**Class B Shares are subject to a CDSC of: (i) 4% if shares are redeemed within
two years of purchase; (ii) 3% if shares are redeemed during the third or fourth
year following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; (iv) 1% if shares are redeemed during the sixth year
following purchase; and (v) 0% thereafter.
See Deferred Sales Charge Alternative - Class B Shares under Classes of Shares.

+Class C Shares of each Fund are subject to a CDSC of 1% if shares are redeemed
within 12 months of purchase. See Level Sales Charge Alternative--Class C Shares
under Classes of Shares.

++CoreStates Bank, N.A. currently charges $7.50 per redemption for redemptions
payable by wire.

Investors utilizing the Delaware Group Asset Planner asset allocation
service also typically incur an annual maintenance fee of $35 per Strategy.
However, effective November 1, 1996, the annual maintenance fee is waived until
further notice. See Delaware Group Asset Planner under How to Buy Shares.

<PAGE>

(PA-ABC)
<TABLE>
<CAPTION>

Annual Operating Expenses New Jersey Fund Ohio Fund
(as a percentage of Class A Class B Class C Class A Class B Class C
average daily net assets) Shares Shares Shares Shares Shares Shares
- ------------------------- ------ ------ ------ ------ ------ ------

<S> <C> <C> <C> <C> <C> <C>
Management Fees
(after voluntary waivers in
the case of New Jersey and Ohio Funds). . 0.00%* 0.00%* 0.00%* 0.00%* 0.00%* 0.00%*

12b-1 Plan Expenses
(including service fees). . . . . . . . . 0.25%+/++ 1.00%+ 1.00%+ 0.25%+/++ 1.00%+ 1.00%+

Other Operating Expenses
(after expense limitations in the
case of New Jersey and Ohio Funds). . . 0.75%* 0.75%* 0.75%* 0.75%* 0.75%* 0.75%*
---- ---- ---- ---- ---- ----

Total Operating Expenses
(after voluntary waivers
and expense limitations in the
case of New Jersey and Ohio Funds). . . 1.00%* 1.75%* 1.75%* 1.00%* 1.75%* 1.75%*
==== ==== ==== ==== ==== ====

Annual Operating Expenses Pennsylvania Fund
(as a percentage of Class A Class B Class C
average daily net assets) Shares Shares Shares
- ------------------------- ------ ------ ------

<S> <C> <C> <C>
Management Fees
(after voluntary waivers in
the case of New Jersey and Ohio Funds). . 0.58% 0.58% 0.58%

12b-1 Plan Expenses
(including service fees). . . . . . . . . 0.20%+/** 1.00%+ 1.00%+

Other Operating Expenses
(after expense limitations in the
case of New Jersey and Ohio Funds). . . 0.13% 0.13% 0.13%
---- ---- ----

Total Operating Expenses
(after voluntary waivers
and expense limitations in the
case of New Jersey and Ohio Funds). . . 0.91% 1.71% 1.71%
==== ==== ====
</TABLE>

<PAGE>

*"Other Operating Expenses" and "Total Operating Expenses" of New Jersey Fund
and Ohio Fund are based on estimates for each Fund's initial fiscal year in
which it conducts operations, after giving effect to voluntary fee waivers and
payments. The Manager elected voluntarily to waive that portion, if any, of the
annual management fees payable by New Jersey and Ohio Funds and to reimburse
each Fund's expenses to the extent necessary to ensure that the Total Operating
Expenses of a Fund, do not exceed 0.75% on an annual basis (exclusive of taxes,
interest, brokerage commissions, extraordinary expenses and 12b-1 expenses
during the commencement of the public offering of these Funds through February
28, 1998. If the voluntary expense waivers were not in effect, the Total
Operating Expenses of New Jersey Fund A Class, B Class and C Class, as a
percentage of average daily net assets, are estimated to be 1.96%, 2.71% and
2.71%, respectively, reflecting Management Fees of 0.55%. If the voluntary
expense waivers were not in effect, the Total Operating Expenses of Ohio Fund A
Class, B Class and C Class, as a percentage of average daily net assets, are
estimated to be 1.96%, 2.71% and 2.71%, respectively, reflecting Management Fees
of 0.55%.

+Class A Shares, Class B Shares and Class C Shares of each Fund are subject to
separate 12b-1 Plans. Long-term shareholders of the Classes may pay more than
the economic equivalent of the maximum front-end sales charges permitted by
rules of the National Association of Securities Dealers, Inc. (the "NASD"). See
Distribution (12b-1) and Service under Management of the Funds.

++The annual 12b-1 Plan expenses for Class A Shares have been set by the Board
of Trustees at 0.25% of the average daily net assets of such Class, although the
maximum annual 12b-1 Plan expenses permitted under the 12b-1 Plan for Class A
Shares are 0.30% of the average daily net assets of such Class. See Distribution
(12b-1) and Service under Management of the Funds.

**The actual 12b-1 Plan expenses to be paid and, consequently, the "Total
Operating Expenses" of Class A Shares may vary because of the formula adopted by
the Board of Trustees for use in calculating the 12b-1 Plan expenses for this
Class beginning June 1, 1992, but the 12b-1 Plan expenses will not be more than
0.30% nor less than 0.10%. See Distribution (12b-1) and Service under Management
of the Funds and Part B.

<PAGE>

(PA-ABC)

The following example illustrates the expenses that an investor would
pay on a $1,000 investment over various time periods, assuming (1) a 5% annual
rate of return, (2) redemption and no redemption at the end of each time period
and (3) for Class B Shares and Class C Shares, payment of a CDSC at the time of
redemption, if applicable. For New Jersey Fund and Ohio Fund, the following
example assumes the voluntary waiver of the management fee by the Manager as
discussed in this Prospectus.
<TABLE>
<CAPTION>

New Jersey Fund Assuming Redemption Assuming No Redemption
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A Shares $47(1) $68 N/A N/A $47 $68 N/A N/A
Class B Shares(2) $58 $85 N/A N/A $18 $55 N/A N/A
Class C Shares $28 $55 N/A N/A $18 $55 N/A N/A

Ohio Fund Assuming Redemption Assuming No Redemption
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
Class A Shares $47(1) $68 N/A N/A $47 $68 N/A N/A
Class B Shares(2) $58 $85 N/A N/A $18 $55 N/A N/A
Class C Shares $28 $55 N/A N/A $18 $55 N/A N/A

Pennsylvania Fund Assuming Redemption Assuming No Redemption
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
------ ------- ------- -------- ------ ------- ------- --------
Class A Shares $46(1) $65 $86 $145 $46 $65 $86 $145
Class B Shares $57 $84 $113 $181(3) $17 $54 $93 $181(3)
Class C Shares $27 $54 $93 $202 $17 $54 $93 $202
</TABLE>

(1) Generally, no redemption charge is assessed upon redemption of Class A
Shares. Under certain circumstances, however, a Limited CDSC, which has
not been reflected in this calculation, may be imposed on certain
redemptions within 12 months of purchase. See Contingent Deferred Sales
Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.

(2) At the end of approximately eight years after purchase, Class B Shares
will be automatically converted into Class A Shares. The example above
does not assume conversion of Class B Shares since it reflects figures
only for one and three years. See Automatic Conversion of Class B
Shares under Classes of Shares for a description of the automatic
conversion feature.

(3) At the end of approximately eight years after purchase, Class B Shares
will be automatically converted into Class A Shares. The example above
assumes conversion of Class B Shares at the end of the eighth year.
However, the conversion may occur as late as three months after the
eighth anniversary of purchase, during which time the higher 12b-1 Plan
fees payable by Class B Shares will continue to be assessed.
Information for the ninth and tenth years reflects expenses of the
Class A Shares. See Automatic Conversion of Class B Shares under
Classes of Shares for a description of the automatic conversion
feature.

This example should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or less than
those shown.

The purpose of the above tables is to assist the investor in
understanding the various costs and expenses that an investor in each Class will
bear directly or indirectly.

<PAGE>

(PA-ABC)

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

The following financial highlights are derived from the financial statements of
Delaware Group State Tax-Free Income Trust - Tax-Free Pennsylvania Fund and
have been audited by Ernst & Young LLP, independent auditors. The data should be
read in conjunction with the financial statements, related notes, and the report
of Ernst & Young LLP covering such financial information and highlights, all of
which are incorporated by reference into Part B. Further information about this
Fund's performance is contained in its Annual Report to shareholders. A copy of
this Fund's Annual Report (including the report of Ernst & Young LLP) may be
obtained from the Fund upon request at no charge. Financial highlights for the
New Jersey Fund and Ohio Fund are not provided because these Funds were not
operating prior to the date of this Prospectus.
- --------------------------------------------------------------------------------

<PAGE>

PA-CHT

Class A Shares
----------------------------------------------------------------
Year Ended
2/28/97(1) 2/29/96(1) 2/28/95(1) 2/28/94(1) 2/28/93(1)
---------- ---------- ---------- ---------- ----------
<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 Gains (Losses) on Securities
(both realized and unrealized)..................... (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 Investment Income......................... (0.456) (0.476) (0.494) (0.496) (0.514)
Distributions from Capital Gains............................. (0.115) (0.050) --- --- ---
Returns of Capital........................................... --- --- --- --- ---
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(2).............................................. 4.35% 10.08% 0.91% 5.64% 13.20%

Ratios/Supplemental Data

Net Assets, End of Period (000's omitted).................... $954,258 $1,002,888 $976,313 $1,026,903 $940,616
Ratio of Expenses to Average Daily Net Assets................ 0.91% 0.90% 0.90% 0.88% 0.83%
Ratio of Net Investment Income to Average Daily
Net Assets............................................... 5.52% 5.67% 6.03% 5.70% 6.18%
Portfolio Turnover Rate...................................... 27% 25% 18% 14% 11%

</TABLE>

Class A Shares
-----------------------------------------------------
Year Ended
2/29/92 2/28/91 2/28/90 2/28/89 2/29/88
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $7.800 $7.800 $7.700 $7.730 $8.210

Income From Investment Operations
Net Investment Income........................................ 0.532 0.542 0.554 0.554 0.559
Net Gains (Losses) on Securities
(both realized and unrealized)..................... 0.310 --- 0.100 (0.030) (0.480)
------ ------ ------ ------ ------
Total From Investment Operations......................... 0.842 0.542 0.654 0.524 0.079
------ ------ ------ ------ ------
Less Distributions
Dividends from Net Investment Income......................... (0.532) (0.542) (0.554) (0.554) (0.559)
Distributions from Capital Gains............................. --- --- --- --- ---
Returns of Capital........................................... --- --- --- --- ---
Total Distributions...................................... (0.532) (0.542) (0.554) (0.554) (0.559)
------ ------ ------ ------ ------

Net Asset Value, End of Period............................... $8.110 $7.800 $7.800 $7.700 $7.730
====== ====== ====== ====== ======

Total Return(2).............................................. 11.11% 7.24% 8.67% 7.08% 1.39%

Ratios/Supplemental Data

Net Assets, End of Period (000's omitted).................... $766,625 $668,345 $613,223 $534,287 $472,648
Ratio of Expenses to Average Daily Net Assets................ 0.72% 0.72% 0.73% 0.77% 0.78%
Ratio of Net Investment Income to Average Daily
Net Assets............................................... 6.65% 7.00% 7.03% 7.24% 7.38%
Portfolio Turnover Rate...................................... 7% 31% 22% 8% 31%

</TABLE>

(1) Reflects 12b-1 distribution expenses beginning June 1, 1992.
(2) Does not reflect the maximum sales charge of 4.75%, nor the 1% Limited
CDSC that would apply in the event of certain redemptions within 12
months of purchase. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value.

<PAGE>

PA-CHT
<TABLE>
<CAPTION>
Class B Shares Class C Shares
-------------- --------------
Period Period
5/2/94(1) Year 11/29/95(1)
Year Ended through Ended through
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 Gains (Losses) on Securities
(both realized and unrealized)...................... (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 Investment Income.......................... (0.390) (0.408) (0.353) (0.390) (0.102)
Distributions from Capital Gains.............................. (0.115) (0.050) --- (0.115) (0.050)
Returns of Capital............................................ --- --- --- --- ---
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(2)............................................... 3.52% 9.19% 2.79% 3.52% 1.19%

Ratios/Supplemental Data

Net Assets, End of Period (000's omitted)..................... $31,644 $20,861 $10,239 $1,181 $123
Ratio of Expenses to Average Daily Net Assets................. 1.71% 1.71% 1.73% 1.71% 1.71%
Ratio of Net Investment Income to Average Daily Net Assets 4.72% 4.86% 5.20% 4.72% 4.86%
Portfolio Turnover Rate....................................... 27% 25% 18% 27% 25%

</TABLE>

(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.

(2) Does not reflect the contingent deferred sales charge which varies
depending upon holding period.

<PAGE>

(PA-ABC)

INVESTMENT OBJECTIVE AND POLICIES

The objective of New Jersey Fund is to seek as high a level of current
interest income exempt from federal income tax and certain New Jersey state and
local taxes as is available from municipal bonds and as is consistent with
preservation of capital. The Fund will invest primarily in municipal bonds and
notes that are exempt from federal and New Jersey income taxes.

The objective of Ohio Fund is to seek as high a level of current
interest income exempt from federal income tax and certain Ohio state and local
taxes as is available from municipal bonds and as is consistent with
preservation of capital. The Fund will invest primarily in municipal bonds and
notes that are exempt from federal and Ohio income taxes.

The objective of Pennsylvania Fund is to seek as high a level of
current interest income exempt from federal income tax and certain Pennsylvania
state and local taxes as is available from municipal bonds and as is consistent
with preservation of capital. The Fund will invest primarily in municipal bonds
and notes that are exempt from federal and Pennsylvania income taxes.

The objective of each Fund cannot be changed without shareholder
approval.

Municipal securities are debt obligations issued by state and local
governments to raise funds for various public purposes such as hospitals,
schools and general operating expenses. The Fund will invest its assets in
securities of varying maturities, without limitation, depending on market
conditions. Typically, the remaining maturity of municipal bonds will range
between five and 30 years. The Manager will attempt to adjust the maturity
structure of the portfolio to provide a high level of tax-exempt income
consistent with preservation of capital.

SUITABILITY

Each Fund may be suitable for the longer-term investor who is a
resident subject to, as applicable, New Jersey, Ohio or Pennsylvania income tax.
The investor should be willing to accept the risks of investment in municipal
bonds in general and, as applicable, New Jersey, Ohio or Pennsylvania bonds in
particular. The net asset value of each Fund's shares can generally be expected
to fluctuate inversely to changes in interest rates.

The risks associated with an investment in each Fund are discussed
below under Investment Strategy and Risk Factors. The risks inherent in an
investment in a fund that invests in obligations of a specific state, such as
the Funds, are described below under Diversification and Special Considerations
Relating to New Jersey, Ohio and Pennsylvania Tax-Exempt Securities.

INVESTMENT STRATEGY AND RISK FACTORS

Tax-Exempt Investments

New Jersey Fund--The Fund invests primarily in municipal securities
paying interest income which, in the opinion of the bond issuer's counsel, is
exempt from federal and New Jersey income taxes. These securities include debt
obligations of the State of New Jersey and its political subdivisions, agencies,
authorities and instrumentalities and also other qualifying issuers such as
Puerto Rico and the Virgin Islands.

<PAGE>

(PA-ABC)

securities and eliminate investments not consistent with the preservation of the
capital or the tax status of the Fund; honor redemption orders, meet anticipated
redemption requirements, and negate gains from discount purchases; eliminate
unsafe investments; or defray normal administrative expenses. The Fund will
generally not exceed a portfolio turnover rate of 100%.

Ohio Fund--The Fund invests primarily in municipal securities paying
interest income which, in the opinion of the bond issuer's counsel, is exempt
from federal and Ohio income taxes. These securities include debt obligations of
the State of Ohio and its political subdivisions, agencies, authorities and
instrumentalities and also other qualifying issuers such as Puerto Rico and the
Virgin Islands.

The Fund will, as a fundamental policy, invest at least 80% of its net
assets in the types of tax-exempt securities listed above. Many of the
securities in which the Fund invests generate income that is exempt from Ohio
state or local income taxes. In order to obtain the tax benefit of these
securities for pass-through to shareholders, the Fund will invest in securities
for income rather than trading for profit. However, the Fund may sell securities
held in its portfolio and, as a result, realize capital gain or loss, in order
to reinvest the earnings from portfolio securities in like securities and
eliminate investments not consistent with the preservation of the capital or the
tax status of the Fund; honor redemption orders, meet anticipated redemption
requirements, and negate gains from discount purchases; eliminate unsafe
investments; or defray normal administrative expenses. The Fund will generally
not exceed a portfolio turnover rate of 100%.

Pennsylvania Fund--The Fund invests primarily in municipal securities
paying interest income which, in the opinion of the bond issuer's counsel, is
exempt from federal and Pennsylvania income taxes. These securities include debt
obligations of the Commonwealth of Pennsylvania and its political subdivisions,
agencies, authorities and instrumentalities and also other qualifying issuers
such as Puerto Rico and the Virgin Islands.

The Fund will, as a fundamental policy, invest at least 80% of its net
assets in the types of tax-exempt securities listed above. Many of the
securities in which the Fund invests generate income that is exempt from
Pennsylvania state or local income taxes. In order to obtain the tax benefit of
these securities for pass-through to shareholders, the Fund will invest in
securities for income rather than trading for profit. However, the Fund may sell
securities held in its portfolio and, as a result, realize capital gain or loss,
in order to reinvest the earnings from portfolio securities in like securities
and eliminate investments not consistent with the preservation of the capital or
the tax status of the Fund; honor redemption orders, meet anticipated redemption
requirements, and negate gains from discount purchases; eliminate unsafe
investments; or defray normal administrative expenses. The Fund will generally
not exceed a portfolio turnover rate of 100%.

* * *

Each Fund may invest up to 20% of its net assets in bonds the income
from which is subject to the federal alternative minimum tax. Although exempt
from regular federal income tax, interest paid on certain types of municipal
obligations (commonly referred to as "private activity" or "private purpose"
bonds) is deemed to be a preference item under federal tax law and is subject to
the federal alternative minimum tax. For more information on the alternative
minimum tax, see Private Purpose Bonds under Other Considerations.

Quality Restrictions
Each Fund intends to invest at least 80% of its net assets in debt
obligations that are rated in the top four grades by Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P") or Fitch Investors
Service, Inc. ("Fitch") at the time of purchase. Each Fund may include in that
80% portion securities that have not been rated, but which in the opinion of the
Manager are comparable in quality to the top four grades. The fourth grade is
considered medium grade and may have speculative characteristics. Each Fund may
invest up to 20% of its net assets in securities with a rating lower than the
top four grades and in comparable unrated securities. These securities,

<PAGE>

(PA-ABC)

commonly known as "junk bonds," are speculative and may involve greater risks
and have higher yields. See High Yield, High Risk Securities under Additional
Information on Investment Policies and Risk Considerations and see Part B for
descriptions of Moody's, S&P and Fitch ratings.

Diversification
Each Fund is a nondiversified investment company. This means that the
Manager has the flexibility to invest as much as 50% of a Fund's assets in as
few as two issuers provided no single issuer accounts for more than 25% of the
portfolio. The remaining 50% of the portfolio must be diversified so that no
more than 5% of the Fund's assets is invested in the securities of a single
issuer. Each Fund may invest without limitation in U.S. government and
government agency securities backed by the U.S. government, its agencies or
instrumentalities. Because a Fund may invest its assets in fewer issuers, the
value of Fund shares may increase or decrease more rapidly than if the Fund were
fully diversified. If a Fund were to invest more than 5% of its assets in a
single issuer, the Fund would be affected more than a fully-diversified fund in
the event that issuer encountered difficulties in satisfying its financial
obligations.

Concentration
Each Fund may invest more than 25% of its assets in municipal
obligations relating to similar types of projects or with other similar
economic, business or political characteristics (such as bonds of housing
finance agencies or health care facilities). In addition, New Jersey Fund and
Ohio Fund may invest more than 25% of its assets in industrial development bonds
or pollution control bonds which may be backed only by the assets and revenues
of a nongovernmental issuer. Neither Fund will, however, invest more than 25% of
its total assets in bonds issued for companies in the same industry.

Percentage limitations outlined above are determined at the time an
investment is made.

Other Considerations
Each Fund may invest without limit in short-term, tax-free instruments
such as tax-exempt commercial paper and general obligation, revenue and project
notes, as well as variable and floating rate demand obligations. New Jersey Fund
and Ohio Fund may also invest without limit in advance refunded bonds. Advanced
refunded bonds and variable rate obligations are described more fully under
Additional Information on Investment Policies and Risk Considerations.

Under abnormal conditions, each Fund may invest in taxable instruments
for temporary defensive purposes. These would include instruments of the U.S.
government, its agencies and instrumentalities.

Each Fund may invest in both "general obligation" and "revenue" bonds,
the two principal classifications of municipal bonds. General obligation bonds
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue bonds are payable only from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise tax or other specific revenue
source, but not from the general taxing power. Tax-exempt industrial development
bonds, in most cases, are revenue bonds and do not generally carry the pledge of
credit of the issuing municipality. See Municipal Bonds in Part B.

Municipal Bond Insurance
Various municipal issuers may obtain insurance for their obligations. At
different times a substantial portion of a Fund's portfolio may consist of
municipal bonds that are insured by a single insurance company. In the event of
a default, the insurer is required to make payments of interest and principal
when due to the bondholders. There is no assurance that the insurance company
will meet its obligations. The Manager does not evaluate the creditworthiness of
a private insurer. But the Manager focuses first on the creditworthiness of the
actual issuer and its ability to pay interest and principal. Because insured
obligations are typically rated in the top grades by Moody's and S&P, they will
usually qualify for investment under the ratings standards of each Fund
described above. Similar insurance is available to each Fund for uninsured
obligations, and each Fund may acquire such obligations and purchase such
insurance directly, but only if that would result in a comparable benefit to the
Fund from such a security. Municipal bond

<PAGE>

(PA-ABC)

insurance is discussed more fully in Part B.

Private Purpose Bonds
The Tax Reform Act of 1986 (the "Act") limits the amount of new "private
purpose" bonds that each state can issue and subjects interest income from these
bonds to the federal alternative minimum tax. "Private purpose" bonds are issues
whose proceeds are used to finance certain nongovernment activities, and could
include some types of industrial revenue bonds such as privately-owned sports
and convention facilities. The Act also makes the tax-exempt status of certain
bonds depend on the issuer's compliance with specific requirements after the
bonds are issued.

If a Fund invests in newly-issued "private purpose" bonds, a portion of
the Fund's distributions would be subject to the federal alternative minimum tax
applicable to certain shareholders. A Fund may invest up to 20% of its assets in
bonds the income from which is subject to the federal alternative minimum tax.

When-Issued Securities
Each Fund may invest in "when-issued securities." When-issued securities
involve commitments to buy a new issue with settlement up to 45 days later.
During the time between the commitment and settlement the Fund does not accrue
interest, but the market value may fluctuate. This can result in the Fund's
share value increasing or decreasing above or below the purchase price to which
the Fund has committed. If the Fund invests in securities of this type, it will
maintain a segregated account to pay for them and mark them to market daily.

Municipal Leases
Each Fund may also invest in municipal lease obligations primarily
through certificates of participation ("COPs") which are described more fully
under Additional Information on Investment Policies and Risk Considerations. As
with its other investments, each Fund expects that its investments in municipal
lease obligations will consist of such obligations which are exempt from regular
federal income taxes.

Repurchase Agreements, Restricted Securities, Borrowing
Each Fund may invest in repurchase agreements, which are described more
fully in Part B, and restricted securities which are described more fully under
Additional Information on Investment Policies and Risk Considerations.

While each Fund is permitted to borrow money and invest in repurchase
agreements, the Funds normally do not do so. As a temporary measure for
extraordinary purposes, New Jersey Fund and Ohio Fund may borrow up to 10% of
the value of its assets. A Fund will not normally purchase investment securities
while it has an outstanding borrowing.

Options and Futures
New Jersey Fund and Ohio Fund have the right to engage in options and
futures transactions for hedging purposes, to counterbalance portfolio
volatility and, in connection with futures transactions, will maintain certain
collateral in special accounts established by futures commission merchants in
the care of Bankers Trust Company (the "Custodian Bank"). While a Fund does not
engage in options and futures for speculative purposes, there are risks that
result from the use of these instruments by the Fund, and an investor should
carefully review the descriptions of such in this Prospectus. Certain options
and futures may be considered to be derivative securities. The Funds are not
registered as commodity pool operators nor is the Manager registered as a
commodities trading adviser, in reliance upon various exemptive rules. See
Options and Futures under Additional Information on Investment Policies and Risk
Considerations.

Inverse Floaters
New Jersey and Ohio Fund may invest up to 10% of its assets in inverse
floaters which may be considered to be derivative securities. The interest rates
attributable to inverse floaters typically move in the opposite direction to
short-term interest rates at an accelerated speed. This may cause rapid
fluctuations in the value of such securities. See Inverse Floaters under
Additional Information on Investment Policies and Risk Considerations.

<PAGE>

(PA-ABC)

Zero-Coupon Bonds
New Jersey Fund and Ohio Fund may also invest in zero-coupon bonds which
do not entitle a Fund to payment of interest until maturity or a specified date.
See Zero-Coupon Bonds under Additional Information on Investment Policies and
Risk Considerations.

Derivative Tax Exempt Obligations
New Jersey Fund and Ohio Fund may invest in Derivative Tax Exempt
Obligations which are described more fully under Additional Information on
Investment Policies and Risk Considerations.

Special Considerations Relating to New Jersey, Ohio and Pennsylvania Tax-Exempt
Securities

New Jersey Fund--The Fund concentrates its investments in the State of
New Jersey. Therefore, there are risks associated with the Fund that would not
be present if the Fund were diversified nationally. These risks include any new
legislation that would adversely affect New Jersey tax-exempt obligations,
regional or local economic conditions that could adversely affect these
obligations, and differing levels of supply and demand for municipal bonds
particular to the State of New Jersey.

New Jersey as well as the rest of the Northeast slipped into an economic
slowdown and then a recession which officially began in July 1990. Economic
growth in New Jersey has continued at a moderate rate since a rapid recovery
which occurred in 1994. The economic forecast and revenue projections underlying
the Governor's Fiscal Year 1998 Budget predicts that the New Jersey economy will
continue on a moderate growth course. However, inflation or a loss of consumer
confidence could adversely affect New Jersey's economy. Also, Federal budget
cuts have placed additional financial burdens on state and local governments.
Such difficulties could affect outstanding obligations of the State of New
Jersey and its local governments, including obligations held by the Fund. The
Fund monitors these developments and takes them into consideration in managing
its portfolio.

Ohio Fund--The Fund concentrates its investments in the State of Ohio.
Therefore, there are risks associated with the Fund that would not be present if
the Fund were diversified nationally. These risks include any new legislation
that would adversely affect Ohio tax-exempt obligations, regional or local
economic conditions that could adversely affect these obligations, and differing
levels of supply and demand for municipal bonds particular to the State of Ohio.

Economic activity in Ohio, as in many other industrially developed
states, tends to be more cyclical than in some other states and in the nation as
a whole. Also, federal budget cuts have placed financial burdens on state and
local governments. Such difficulties could affect outstanding obligations of
such entities, including obligations held by the Fund. In Ohio, state and
national fiscal uncertainties during the fiscal years 1991 through 1993 required
several executive and legislative measures to address anticipated shortfalls in
revenue and increases in expenditures. However, no measures relating to
expenditures were applied to appropriations needed for debt service on or lease
payments relating to any State obligations. While the economic forecast
underlying revenue projections for Ohio's Fiscal Year 1998-1999 Executive Budget
do not predict a recession, economic growth is expected to continue to be fairly
slow and to produce slower growth in State revenues. The Fund monitors these
developments and takes them into consideration in managing its portfolio.

Pennsylvania Fund--The Fund concentrates its investments in the
Commonwealth of Pennsylvania. Therefore, there are risks associated with the
Fund that would not be present if the Fund were diversified nationally. These
risks include any new legislation that would adversely affect Pennsylvania
tax-exempt obligations, regional or local economic conditions that could
adversely affect these obligations, and differing levels of supply and demand
for municipal bonds particular to the Commonwealth of Pennsylvania.

Pennsylvania and certain of its counties, cities, school districts and
public bodies (most notably the City of Philadelphia) have in the recent past
encountered financial difficulties which have adversely affected their
respective credit standings. Federal budget cuts have placed additional
financial burdens on state and local governments. Such

<PAGE>

(PA-ABC)

difficulties could affect outstanding obligations of such entities, including
obligations held by the Fund. Financial conditions in Pennsylvania during the
fiscal years 1990 through 1994 were distinguished by slow economic growth and a
rapid expansion of the costs of certain governmental programs that together
produced a significant stress on the Commonwealth's budget. Although economic
conditions have recently improved, Pennsylvania's growth rate still lags the
national averages. Employment growth in Pennsylvania has shifted to the trade
and services sector, with losses in more high-paying manufacturing jobs. The
Fund monitors these developments and takes them into consideration in managing
its portfolio.

See Part B for a more detailed discussion of the risks attendant to New
Jersey, Ohio and Pennsylvania obligations.

* * *

Part B sets forth other more specific investment restrictions and
descriptions of Moody's and S&P ratings. A brief discussion of those factors
that materially affected the Pennsylvania Fund's performance during its most
recently completed fiscal year appears in the Fund's Annual Report.

<PAGE>

(PA-ABC)

THE DELAWARE DIFFERENCE

PLANS AND SERVICES
The Delaware Difference is our commitment to provide you with superior
information and quality service on your investments in the Delaware Group of
funds.

SHAREHOLDER PHONE DIRECTORY

Investor Information Center
800-523-4640
Fund Information; Literature; Price; Yield and Performance
Figures

Shareholder Service Center
800-523-1918
Information on Existing Regular Investment Accounts; Wire
Investments; Wire Liquidations; Telephone Liquidations and
Telephone Exchanges

Delaphone
800-362-FUND
(800-362-3863)

Performance Information
During business hours, you can call the Investor Information Center for
current yield information. Current yield and total return information may also
be included in advertisements and information given to shareholders. Yields are
computed on an annualized basis over a 30-day period.

Shareholder Services
During business hours, you can call the Delaware Group's Shareholder
Service Center. Our representatives can answer any questions about your account,
the Funds, the various service features and other funds in the Delaware Group.

Delaphone Service
Delaphone is an account inquiry service for investors with Touch-Tone(R)
phone service. It enables you to get information on your account faster than the
mailed statements and confirmations. Delaphone also provides current performance
information on the Funds, as well as other funds in the Delaware Group.
Delaphone is available seven days a week, 24 hours a day.

Statements and Confirmations
You will receive quarterly statements of your account summarizing all
transactions during the period. A confirmation statement will be sent following
all transactions other than those involving a reinvestment of dividends. You
should examine statements and confirmations immediately and promptly report any
discrepancy by calling the Shareholder Service Center.

Duplicate Confirmations
If your financial adviser or investment dealer is noted on your
investment application, we will send a duplicate confirmation to him or her.
This makes it easier for your adviser to help you manage your investments.

Dividend Payments
Dividends, capital gains and other distributions are automatically
reinvested in your account, unless you elect to receive them in cash. You may
also elect to have the dividends earned in one fund automatically invested in
another Delaware Group fund with a different investment objective, subject to
certain exceptions and limitations.

<PAGE>

(PA-ABC)

For more information, see Additional Methods of Adding to Your
Investment - Dividend Reinvestment Plan under How to Buy Shares or call the
Shareholder Service Center.

MoneyLine(sm) Services
Delaware Group offers the following services for fast and convenient
transfer of funds between your personal bank account and your Delaware Group
fund account.

1. MoneyLine(sm) Direct Deposit Service
If you elect to have your dividends and distributions paid in
cash and such dividends and distributions are in an amount of $25 or
more, you may choose the MoneyLine(sm) Direct Deposit Service and have
such payments transferred from your Fund account to your predesignated
bank account. See Dividends and Distributions. In addition, you may
elect to have your Systematic Withdrawal Plan payments transferred from
your Fund account to your predesignated bank account through this
service. See Systematic Withdrawal Plans under Redemption and Exchange.

2. MoneyLine(sm) On Demand
You or your investment dealer may request purchases and
redemptions of Fund shares by phone using MoneyLine(sm) On Demand. When
you authorize a Fund to accept such requests from you or your investment
dealer, funds will be withdrawn from (for share purchases) or deposited
to (for share redemptions) your predesignated bank account. Your request
will be processed the same day if you call prior to 4 p.m., Eastern
time. There is a $25 minimum and $50,000 maximum limit for MoneyLine(sm)
On Demand transactions.

For each MoneyLine(sm) Service, it may take up to four business days for
the transactions to be completed. You can initiate either service by completing
an Account Services form. If your name and address are not identical to the name
and address on your Fund account, you must have your signature guaranteed. No
Fund charges a fee for MoneyLine(sm) services; however, your bank may charge a
fee. Please call the Shareholder Service Center for additional information about
these services.

Right of Accumulation
With respect to Class A Shares, the Right of Accumulation feature allows
you to combine the value of your current holdings of Class A Shares, Class B
Shares and Class C Shares of a Fund with the dollar amount of new purchases of
Class A Shares to qualify for a reduced front-end sales charge on such purchases
of Class A Shares. Under the Combined Purchases Privilege, you may also include
certain shares that you own in other funds in the Delaware Group. See Classes of
Shares.

Letter of Intention
The Letter of Intention feature permits you to obtain a reduced
front-end sales charge on purchases of Class A Shares by aggregating certain of
your purchases of Delaware Group fund shares over a 13-month period. See Classes
of Shares and Part B.

12-Month Reinvestment Privilege
The 12-Month Reinvestment Privilege permits you to reinvest proceeds
from a redemption of Class A Shares, within one year of the date of the
redemption, without paying a front-end sales charge. See Part B.

Exchange Privilege
The Exchange Privilege permits you to exchange all or part of your
shares into shares of other mutual funds in the Delaware Group, subject to
certain exceptions and limitations. For additional information on exchanges, see
Investing by Exchange under How to Buy Shares and Redemption and Exchange.

Wealth Builder Option
You may elect to invest in the Funds through regular liquidations of
shares in your accounts in other funds in the

<PAGE>

(PA-ABC)

Delaware Group. Investments under this feature are exchanges and are therefore
subject to the same conditions and limitations as other exchanges of the Funds.
See Additional Methods of Adding to Your Investment -- Wealth Builder Option and
Investing by Exchange under How to Buy Shares and Redemption and Exchange.

Delaware Group Asset Planner
Delaware Group Asset Planner is an asset allocation service that gives
you, when working with a professional financial adviser, the ability to more
easily design and maintain investments in a diversified selection of Delaware
Group mutual funds. The Asset Planner service offers a choice of four
predesigned allocation strategies (each with a different risk/reward profile)
made up of separate investments in predetermined percentages of Delaware Group
funds. With the guidance of a financial adviser, you may also tailor an
allocation strategy that meets your personal needs and goals. See How to Buy
Shares.

Financial Information about the Fund
Each fiscal year, you will receive an audited annual report and an
unaudited semi-annual report. These reports provide detailed information about
each Fund's investments and performance. The Trust's fiscal year ends on the
last day of February.

<PAGE>

(PA-ABC)

CLASSES OF SHARES

Alternative Purchase Arrangements
Shares may be purchased at a price equal to the next determined net
asset value per share, subject to a sales charge which may be imposed, at the
election of the purchaser, at the time of purchase for Class A Shares
("front-end sales charge alternative"), or on a contingent deferred basis for
Class B Shares ("deferred sales charge alternative") or Class C Shares ("level
sales charge alternative").

Class A Shares. An investor who elects the front-end sales charge
alternative acquires Class A Shares. Class A Shares, which incur a sales charge
when they are purchased, but generally are not subject to any sales charge when
they are redeemed. Class A Shares are subject to annual 12b-1 Plan expenses of
up to a maximum of 0.30% (currently, no more than 0.25% for New Jersey and Ohio
Funds Pursuant to Board action) of average daily net assets of such shares.
Certain purchases of Class A Shares qualify for reduced front-end sales charges.
See Front-End Sales Charge Alternative - Class A Shares, below. See also
Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value and Distribution (12b-1) and Service.

Class B Shares. An investor who elects the deferred sales charge
alternative acquires Class B Shares, which do not incur a front-end sales charge
when are purchased, but are subject to a contingent deferred sales charge if
they are redeemed within six years of purchase. Class B Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for approximately eight years after purchase. Class B Shares permit
all of the investor's dollars to work from the time the investment is made. The
higher 12b-1 Plan expenses paid by Class B Shares will cause such shares to have
a higher expense ratio and to pay lower dividends than Class A Shares. At the
end of approximately eight years after purchase, Class B Shares of a Fund are
automatically converted into Class A Shares of that Fund and, thereafter, for
the remainder of the life of the investment, the annual 12b-1 Plan fee of up to
0.30% (currently, no more than 0.25% for New Jersey and Ohio Funds pursuant to
Board action) for Class A Shares will apply. See Automatic Conversion of Class B
Shares, below.

Class C Shares. An investor who elects the level sales charge
alternative acquires Class C Shares, which do not incur a front-end sales charge
when they are purchased, but are subject to a contingent deferred sales charge
if they are redeemed within 12 months of purchase. Class C Shares are subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
such shares for the life of the investment. The higher 12b-1 Plan expenses paid
by Class C Shares will cause such shares to have a higher expense ratio and to
pay lower dividends than Class A Shares. Unlike Class B Shares, Class C Shares
do not convert to another class.

The alternative purchase arrangements described above permit investors
to choose the method of purchasing shares that is most suitable given the amount
of their purchase, the length of time they expect to hold their shares and other
relevant circumstances. Investors should determine whether, given their
particular circumstances, it is more advantageous to purchase Class A Shares and
incur a front-end sales charge, purchase Class B Shares and have the entire
initial purchase amount invested in the Fund with their investment being subject
to a CDSC if they redeem shares within six years of purchase, or purchase Class
C Shares and have the entire initial purchase amount invested in the Fund with
their investment being subject to a CDSC if they redeem shares within 12 months
of purchase. In addition, investors should consider the level of annual 12b-1
Plan expenses applicable to each Class. The higher 12b-1 Plan expenses on Class
B Shares and Class C Shares will be offset to the extent a return is realized on
the additional money initially invested upon the purchase of such shares.
However, there can be no assurance as to the return, if any, that will be
realized on such additional money and the effect of earning a return on such
additional money will diminish over time. In comparing Class B Shares to Class C
Shares, investors should also consider the desirability of an automatic
conversion feature, which is available only for Class B Shares.

<PAGE>

(PA-ABC)

Prospective investors should refer to Appendix A --Investment
Illustrations in this Prospectus for an illustration of the potential effect
that each of the purchase options may have on a long-term shareholder's
investment.

For the distribution and related services provided to, and the expenses
borne on behalf of, the Fund, the Distributor and others will be paid, in the
case of the Class A Shares, from the proceeds of the front-end sales charge and
12b-1 Plan fees and, in the case of the Class B Shares and the Class C Shares,
from the proceeds of the 12b-1 Plan fees and, if applicable, the CDSC incurred
upon redemption. Financial advisers may receive different compensation for
selling Class A, Class B and Class C Shares. Investors should understand that
the purpose and function of the respective 12b-1 Plans and the CDSCs applicable
to Class B Shares and Class C Shares are the same as those of the 12b-1 Plan and
the front-end sales charge applicable to Class A Shares in that such fees and
charges are used to finance the distribution of the respective Classes. See
12b-1 Distribution Plans - Class A, Class B and Class C Shares.

Dividends paid on Class A, Class B and Class C Shares, to the extent any
dividends are paid, will be calculated in the same manner, at the same time, on
the same day and will be in the same amount, except that the additional amount
of 12b-1 Plan expenses relating to Class B Shares and Class C Shares will be
borne exclusively by such shares. See Calculation of Offering Price and Net
Asset Value Per Share.

The NASD has adopted certain rules relating to investment company sales
charges. The Fund and the Distributor intend to operate in compliance with these
rules.

Front-End Sales Charge Alternative - Class A Shares
Class A Shares may be purchased at the offering price which reflects a
maximum front-end sales charge of 3.75%. See Calculation of Offering Price and
Net Asset Value Per Share.

<PAGE>

(PA-ABC)

Purchases of $100,000 or more carry a reduced front-end sales charge as
shown in the following table.
<TABLE>
<CAPTION>

Class A Shares
- --------------------------------------------------------------------------------------------------------------------------

Front-End Sales Charge as % of Dealer's
Commission****
Amount of Purchase Offering Amount as % of
Price Invested Offering Price
- --------------------------------------------------------------------------------------------------------------------------

New Jersey** Ohio** Pennsylvania***
<S> <C> <C> <C> <C> <C> <C>
Less than $100,000 3.75% 3.82% 3.82% 3.88% 3.25%
$100,000 but under $250,000 3.00 3.09 3.09 3.03 2.50
$250,000 but under $500,000 2.50 2.55 2.55 2.55 2.00
$500,000 but under $1,000,000* 2.00 2.00 2.00 2.06 1.75

</TABLE>

* There is no front-end sales charge on purchases of Class A Shares of $1
million or more but, under certain limited circumstances, a 1% Limited
CDSC may apply upon redemption of such shares.

** Based on an initial net asset value of $5.50 per share of Class A
Shares.

*** Based on the net asset value per share of Class A Shares as of the end
of the Fund's most recent fiscal year.

**** Financial institutions or their affiliated brokers may receive an
agency transaction fee in the percentages set forth above.
- --------------------------------------------------------------------------------

A Fund must be notified when a sale takes place which would qualify
for the reduced front-end sales charge on the basis of previous or
current purchases. The reduced front-end sales charge will be granted
upon confirmation of the shareholder's holdings by such Fund. Such
reduced front-end sales charges are not retroactive.

From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
the front-end sales charge shown above. In addition, certain dealers
who enter into an agreement to provide extra training and information
on Delaware Group products and services and who increase sales of
Delaware Group funds may receive an additional commission of up to
0.15% of the offering price. Dealers who receive 90% or more of the
sales charge may be deemed to be underwriters under the Securities
Act of 1933.
- --------------------------------------------------------------------------------

<PAGE>

(PA-ABC)

For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are made in accordance with the following schedule:

Dealer's Commission
(as a percentage of
Amount of Purchase amount purchased)
------------------ -----------------
Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25

In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies may be aggregated with those of the Class A Shares
of a Fund. Financial advisers also may be eligible for a dealer's commission in
connection with certain purchases made under a Letter of Intention or pursuant
to an investor's Right of Accumulation. Financial advisers should contact the
Distributor concerning the applicability and calculation of the dealer's
commission in the case of combined purchases.

An exchange from other Delaware Group funds will not qualify for payment
of the dealer's commission, unless a dealer's commission or similar payment has
not been previously paid on the assets being exchanged. The schedule and program
for payment of the dealer's commission are subject to change or termination at
any time by the Distributor at its discretion.

Redemptions of Class A Shares purchased at net asset value may result in
the imposition of a Limited CDSC if the dealer's commission described above was
paid in connection with the purchase of those shares. See Contingent Deferred
Sales Charge for Certain Redemptions of Class A Shares Purchased at Net Asset
Value under Redemption and Exchange.

Combined Purchases Privilege
By combining your holdings of Class A Shares with your holdings of Class
B Shares and/or Class C Shares of a Fund and shares of the other funds in the
Delaware Group, except those noted below, you can reduce the front-end sales
charges on any additional purchases of Class A Shares. Shares of Delaware Group
Premium Fund, Inc. beneficially owned in connection with ownership of variable
insurance products may be combined with other Delaware Group fund holdings.
Assets held in any stable value product available through the Delaware Group may
be combined with other Delaware Group fund holdings. Shares of other funds that
do not carry a front-end sales charge or CDSC may not be included unless they
were acquired through an exchange from a Delaware Group fund that does carry a
front-end sales charge or CDSC.

This privilege permits you to combine your purchases and holdings with
those of your spouse, your children under 21 and any trust, fiduciary or
retirement account for the benefit of such family members.

It also permits you to use these combinations under a Letter of
Intention. A Letter of Intention allows you to make purchases over a 13-month
period and qualify the entire purchase for a reduction in front-end sales
charges on Class A Shares.

Combined purchases of $1,000,000 or more, including certain purchases
made at net asset value pursuant to a Right of Accumulation or under a Letter of
Intention, may result in the payment of a dealer's commission and the
applicability of a Limited CDSC. Investors should consult their financial
advisers or the Shareholder Service Center about the operation of these
features. See Front-End Sales Charge Alternative - Class A Shares, above.

<PAGE>

(PA-ABC)

Buying Class A Shares at Net Asset Value
Class A Shares of each Fund may be purchased at net asset value under the
Delaware Group Dividend Reinvestment Plan and, under certain circumstances, the
Exchange Privilege and the 12-Month Reinvestment Privilege. See The Delaware
Difference and Redemption and Exchange for additional information.

Purchases of Class A Shares may be made at net asset value by current and
former officers, trustees and employees (and members of their families) of the
Manager, any affiliate, any of the funds in the Delaware Group, certain of their
agents and registered representatives and employees of authorized investment
dealers and by employee benefit plans for such entities. Individual purchases,
including those in retirement accounts, must be for accounts in the name of the
individual or a qualifying family member.

Purchases of Class A Shares may also be made by clients of registered
representatives of an authorized investment dealer at net asset value within 12
months after the registered representative changes employment, if the purchase
is funded by proceeds from an investment where a front-end sales charge,
contingent deferred sales charge or other sales charge has been assessed.
Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of Delaware Group
funds. Officers, directors and key employees of institutional clients of the
Manager or any of its affiliates may purchase Class A Shares at net asset value.
Moreover, purchases may be effected at net asset value for the benefit of the
clients of brokers, dealers and registered investment advisers affiliated with a
broker or dealer, if such broker, dealer or investment adviser has entered into
an agreement with the Distributor providing specifically for the purchase of
Class A Shares in connection with special investment products, such as wrap
accounts or similar fee based programs.

Investors in Delaware-Voyageur Unit Investment Trusts may reinvest
monthly dividend checks and/or repayment of invested capital into Class A Shares
of any of the funds in the Delaware Group at net asset value.

A Fund must be notified in advance that an investment qualifies for
purchase at net asset value.

Deferred Sales Charge Alternative - Class B Shares
Class B Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class B Shares at the time of
purchase from its own assets in an amount equal to no more than 4% of the dollar
amount purchased. In addition, from time to time, upon written notice to all of
its dealers, the Distributor may hold special promotions for specified periods
during which the Distributor may pay additional compensation to dealers or
brokers for selling Class B Shares at the time of purchase. As discussed below,
however, Class B Shares are subject to annual 12b-1 Plan expenses and, if
redeemed within six years of purchase, a CDSC.

Proceeds from the CDSC and the annual 12b-1 Plan fees are paid to the
Distributor and others for providing distribution and related services, and
bearing related expenses, in connection with the sale of Class B Shares. These
payments support the compensation paid to dealers or brokers for selling Class B
Shares. Payments to the Distributor and others under the Class B 12b-1 Plan may
be in an amount equal to no more than 1% annually. The combination of the CDSC
and the proceeds of the 12b-1 Plan fees makes it possible for a Fund to sell
Class B Shares without deducting a front-end sales charge at the time of
purchase.

Holders of Class B Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class B Shares
described in this Prospectus, even after exchange. Such CDSC schedule may be
higher than the CDSC schedule relating to the Class B Shares acquired as a
result of the exchange. See Redemption and Exchange.

<PAGE>

(PA-ABC)

Automatic Conversion of Class B Shares

Class B Shares, other than shares acquired through reinvestment of
dividends, held for eight years after purchase are eligible for automatic
conversion into Class A Shares. Conversions of Class B Shares into Class A
Shares will occur only four times in any calendar year, on the last business day
of the second full week of March, June, September and December (each, a
"Conversion Date"). If the eighth anniversary after a purchase of Class B Shares
falls on a Conversion Date, an investor's Class B Shares will be converted on
that date. If the eighth anniversary occurs between Conversion Dates, an
investor's Class B Shares will be converted on the next Conversion Date after
such anniversary. Consequently, if a shareholder's eighth anniversary falls on
the day after a Conversion Date, that shareholder will have to hold Class B
Shares for as long as three additional months after the eighth anniversary of
purchase before the shares will automatically convert into Class A Shares.

Class B Shares of a fund acquired through a reinvestment of dividends
will convert to the corresponding Class A Shares of that fund (or, in the case
of Delaware Group Cash Reserve, Inc., the Delaware Cash Reserve Consultant
Class) pro-rata with Class B Shares of that fund not acquired through dividend
reinvestment.

All such automatic conversions of Class B Shares will constitute
tax-free exchanges for federal income tax purposes. See Taxes.

Level Sales Charge Alternative - Class C Shares
Class C Shares may be purchased at net asset value without a front-end
sales charge and, as a result, the full amount of the investor's purchase
payment will be invested in Fund shares. The Distributor currently anticipates
compensating dealers or brokers for selling Class C Shares at the time of
purchase from its own assets in an amount equal to no more than 1% of the dollar
amount purchased. As discussed below, however, Class C Shares are subject to
annual 12b-1 Plan expenses and, if redeemed within 12 months of purchase, a
CDSC.

These payments support the compensation paid to dealers or brokers for
selling Class C Shares. Payments to the Distributor and others under the Class C
12b-1 Plan may be in an amount equal to no more than 1% annually.

Holders of Class C Shares who exercise the exchange privilege described
below will continue to be subject to the CDSC schedule for the Class C Shares as
described in this Prospectus. See Redemption and Exchange.

Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares redeemed within six years of purchase may be subject to a
CDSC at the rates set forth below and Class C Shares redeemed within 12 months
of purchase may be subject to a CDSC of 1%. CDSCs are charged as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the net asset value at the time of purchase of the shares
being redeemed or the net asset value of those shares at the time of redemption.
No CDSC will be imposed on increases in net asset value above the initial
purchase price, nor will a CDSC be assessed on redemptions of shares acquired
through reinvestments of dividends or capital gains distributions. For purposes
of this formula, the "net asset value at the time of purchase" will be the net
asset value at purchase of the Class B Shares or the Class C Shares of a Fund,
even if those shares are later exchanged for shares of another Delaware Group
fund. In the event of an exchange of the shares, the "net asset value of such
shares at the time of redemption" will be the net asset value of the shares that
were acquired in the exchange.

<PAGE>

(PA-ABC)

The following table sets forth the rates of the CDSC for Class B Shares
of each Fund:

Contingent Deferred Sales
Charge (as a Percentage
of Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ ------------------

0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None

During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. See Automatic Conversion of Class B Shares, above. Investors are
reminded that the Class A Shares into which Class B Shares will convert are
subject to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30%
(currently, no more than 0.25% for New Jersey and Ohio Funds pursuant to Board
action) of average daily net assets of such shares.

In determining whether a CDSC applies to a redemption of Class B Shares,
it will be assumed that shares held for more than six years are redeemed first,
followed by shares acquired through the reinvestment of dividends or
distributions, and finally by shares held longest during the six-year period.
With respect to Class C Shares, it will be assumed that shares held for more
than 12 months are redeemed first followed by shares acquired through the
reinvestment of dividends or distributions, and finally by shares held for 12
months or less.

All investments made during a calendar month, regardless of what day of
the month the investment occurred, will age one month on the last day of that
month and each subsequent month.

The CDSC is waived on certain redemptions of Class B Shares and Class C
Shares. See Waiver of Contingent Deferred Sales Charge - Class B Shares and
Class C Shares under Redemption and Exchange.

Other Payments to Dealers -- Class A, Class B and Class C Shares
From time to time at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Classes exceed certain limits, as
set by the Distributor, may receive from the Distributor an additional payment
of up to 0.25% of the dollar amount of such sales. The Distributor may also
provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares.

Subject to pending amendments to the NASD's Rules of Fair Practice, in
connection with the promotion of Delaware Group fund shares, the Distributor
may, from time to time, pay to participate in dealer-sponsored seminars and
conferences, reimburse dealers for expenses incurred in connection with
preapproved seminars, conferences and advertising and may, from time to time,
pay or allow additional promotional incentives to dealers, which shall include
non-cash concessions, such as certain luxury merchandise or a trip to or
attendance at a business or investment seminar at a luxury resort, as part of
preapproved sales contests. Payment of non-cash compensation to dealers is
currently under review by the NASD and the Securities and Exchange Commission.
It is likely that the NASD's Rules of Fair Practice will be amended such that
the ability of the Distributor to pay non-cash compensation as described above
will be restricted in some fashion. The Distributor intends to comply with the
NASD's Rules of Fair Practice as they may be amended.

<PAGE>

(PA-ABC)

HOW TO BUY SHARES

Purchase Amounts
Generally, the minimum initial purchase is generally $1,000 for Class A
Shares, Class B Shares and Class C Shares. Subsequent purchases of shares of any
Class generally must be $100 or more. For purchases under a Uniform Gifts to
Minors Act or Uniform Transfers to Minors Act or through an Automatic Investing
Plan, there is a minimum initial purchase of $250 and a minimum subsequent
purchase of $25.

There is a maximum purchase limitation of $250,000 on each purchase of
Class B Shares. For Class C Shares, each purchase must be in an amount that is
less than $1,000,000. An investor may exceed these maximum purchase
limitations by making cumulative purchases over a period of time. In doing so,
an investor should keep in mind that reduced front-end sales charges are
available on investments of $100,000 or more in Class A Shares, and that Class A
Shares (i) are subject to lower annual 12b-1 Plan expenses than Class B Shares
and Class C Shares and (ii) generally are not subject to a CDSC.

Investing through Your Investment Dealer
You can make a purchase of shares of each Fund through most investment
dealers who, as part of the service they provide, must transmit orders promptly.
They may charge for this service. If you want a dealer but do not have one, we
can refer you to one.

Investing by Mail
1. Initial Purchases--An Investment Application must be completed, signed and
sent with a check payable to the specific Fund and Class selected to Delaware
Group at 1818 Market Street, Philadelphia, PA 19103.

2. Subsequent Purchases--Additional purchases may be made at any time by mailing
a check payable to the specific Fund and Class selected. Your check should be
identified with your name(s) and account number. An investment slip (similar to
a deposit slip) is provided at the bottom of transaction confirmations and
dividend statements that you will receive from the Trust. Use of this investment
slip can help expedite processing of your check when making additional
purchases. Your investment may be delayed if you send additional purchases by
certified mail.

Investing by Wire
You may purchase shares by requesting your bank to transmit funds by wire
to CoreStates Bank, N.A., ABA #031000011, account number 1412893401 (include
your name(s) and your Class account number in the wire).

1. Initial Purchases--Before you invest, telephone the Shareholder Service
Center to get an account number. If you do not call first, processing of your
investment may be delayed. In addition, you must promptly send your Investment
Application to the specific Fund and Class selected at 1818 Market Street,
Philadelphia, PA 19103.

2. Subsequent Purchases--You may make additional investments anytime by wiring
funds to CoreStates Bank, N.A., as described above. You should advise the
Shareholder Service Center by telephone of each wire you send.

Investing by Exchange
If you have an investment in another mutual fund in the Delaware Group,
you may write and authorize an exchange of part or all of your investment into
shares of a Fund. If you wish to open an account by exchange, call the
Shareholder Service Center for more information. All exchanges are subject to
the eligibility and minimum purchase requirements set forth in each fund's
prospectus.

<PAGE>

(PA-ABC)

Holders of Class A Shares of a Fund may exchange all or part of their
shares for certain of the shares of other funds in the Delaware Group, including
other Class A Shares, but may not exchange their Class A Shares for Class B
Shares or Class C Shares of the Fund or of any other fund in the Delaware Group.
Holders of Class B Shares of a Fund are permitted to exchange all or part of
their Class B Shares only into Class B Shares of other Delaware Group funds.
Similarly, holders of Class C Shares of a Fund are permitted to exchange all or
part of their Class C Shares only into Class C Shares of other Delaware Group
funds. See Appendix B-- Classes Offered for a list of Delaware Group funds and
the classes they offer. Class B Shares of a Fund and Class C Shares of a Fund
acquired by exchange will continue to carry the CDSC and, in the case of Class B
Shares, the automatic conversion schedule of the fund from which the exchange is
made. The holding period of Class B Shares of a Fund acquired by exchange will
be added to that of the shares that were exchanged for purposes of determining
the time of the automatic conversion into Class A Shares of that Fund.

Permissible exchanges into Class A Shares of a Fund will be made without
a front-end sales charge, except for exchanges of shares that were not
previously subject to a front-end sales charge (unless such shares were acquired
through the reinvestment of dividends). Permissible exchanges into Class B
Shares or Class C Shares of a Fund will be made without the imposition of a CDSC
by the fund from which the exchange is being made at the time of the exchange.

Additional Methods of Adding to Your Investment
Call the Shareholder Service Center for more information if you wish to
use the following services:

1. Automatic Investing Plan
The Automatic Investing Plan enables you to make regular monthly
investments without writing or mailing checks. You may authorize the Trust to
transfer a designated amount monthly from your checking account to your Fund
account. Many shareholders use this as an automatic savings plan. Shareholders
should allow a reasonable amount of time for initial purchases and changes to
these plans to become effective.

2. Direct Deposit
You may have your employer or bank make regular investments directly to
your account for you (for example: payroll deduction, pay by phone, annuity
payments). Each Fund also accepts preauthorized recurring government and private
payments by Electronic Fund Transfer, which avoids mail time and check clearing
holds on payments such as social security, federal salaries, Railroad Retirement
benefits, etc.

* * *

Should investments through an automatic investing plan or by direct
deposit be reclaimed or returned for some reason, the Trust has the right to
liquidate your shares to reimburse the government or transmitting bank. If there
are insufficient funds in your account, you are obligated to reimburse the Fund.

3. MoneyLine(sm) On Demand
Through the MoneyLine(sm) On Demand service, you or your investment
dealer may call a Fund to request a transfer of funds from your predesignated
bank account to your Fund account. See MoneyLine(sm) Services under The Delaware
Difference for additional information about this service.

4. Wealth Builder Option
You can use the Wealth Builder Option to invest in a Fund through regular
liquidations of shares in your accounts in other funds in the Delaware Group.
You also may elect to invest in other mutual funds in the Delaware Group through
the Wealth Builder Option through exchanges from your Fund account.

<PAGE>

(PA-ABC)

Under this automatic exchange program, you can authorize regular monthly
investments (minimum of $100 per fund) to be liquidated from your account in one
or more funds in the Delaware Group and invested automatically into any other
account in a Delaware Group mutual fund that you may specify. If in connection
with the election of the Wealth Builder Option, you wish to open a new account
to receive the automatic investment, such new account must meet the minimum
initial purchase requirements described in the prospectus of the fund that you
select. All investments under this option are exchanges and are therefore
subject to the same conditions and limitations as other exchanges noted above.
You can terminate your participation in Wealth Builder at any time by giving
written notice to the fund from which the exchanges are made. See Redemption and
Exchange.

5. Dividend Reinvestment Plan
You can elect to have your distributions (capital gains and/or dividend
income) paid to you by check or reinvested in your account. Or, you may invest
your distributions in certain other funds in the Delaware Group, subject to the
exceptions noted below as well as the eligibility and minimum purchase
requirements set forth in each fund's prospectus.

Reinvestments of distributions into Class A Shares of a Fund or of other
Delaware Group funds are made without a front-end sales charge. Reinvestments of
distributions into Class B Shares of a Fund or of other Delaware Group funds or
into Class C Shares of a Fund or of other Delaware Group funds are also made
without any sales charge and will not be subject to a CDSC if later redeemed.
See Automatic Conversion of Class B Shares under Classes of Shares for
information concerning the automatic conversion of Class B Shares acquired by
reinvesting dividends.

Holders of Class A Shares of a Fund may not reinvest their distributions
into Class B Shares or Class C Shares of any fund in the Delaware Group,
including the Funds. Holders of Class B Shares of a Fund may reinvest their
distributions only into Class B Shares of a funds in the Delaware Group which
offer that class of shares. Similarly, holders of Class C Shares of a Fund may
reinvest their distributions only into Class C Shares of the funds in the
Delaware Group which offer that class of shares. See Appendix B--Classes Offered
for a list of the funds offering those classes of shares. For more information
about reinvestments, call the Shareholder Service Center.

Delaware Group Asset Planner
To invest in Delaware Group funds using the Delaware Group Asset Planner
asset allocation service, you should complete a Delaware Group Asset Planner
Account Registration Form, which is available only from a financial adviser or
investment dealer. As previously described under The Delaware Difference, the
Delaware Group Asset Planner service offers a choice of four predesigned asset
allocation strategies (each with a different risk/reward profile) in
predetermined percentages in Delaware Group funds. With the help of a financial
adviser, you may design a customized asset allocation strategy.

The sales charge on an investment through the Asset Planner service is
determined by the individual sales charges of the underlying funds and their
percentage allocation in the selected Strategy. Exchanges from existing Delaware
Group accounts into the Asset Planner service may be made at net asset value
under the circumstances described under Investing by Exchange, above. The
minimum initial investment per Strategy is $2,000; subsequent investments must
be at least $100. Individual fund minimums do not apply to investments made
using the Asset Planner service. Generally, only shares within the same class
may be used within the same Strategy. However, Class A Shares of a Fund and of
other funds in the Delaware Group may be used in the same Strategy with
consultant class shares that are offered by certain other Delaware Group funds.
See Appendix B--Classes Offered for the funds in the Delaware Group that offer
consultant class shares.

An annual maintenance fee, currently $35 per Strategy, is typically due
at the time of initial investment and by September 30 of each subsequent year.
The fee, payable to Delaware Service Company, Inc. to defray extra costs
associated with administering the Asset Planner service, will be deducted
automatically from one of the funds within your Asset Planner account if not
paid by September 30. However, effective November 1, 1996, the annual fee is
waived until further notice. See Part B

<PAGE>

(PA-ABC)

Investors will receive a customized quarterly Strategy Report summarizing
all Delaware Group Asset Planner investment performance and account activity
during the prior period. Confirmation statements will be sent following all
transactions other than those involving a reinvestment of distributions.

Certain shareholder services are not available to investors using the
Asset Planner service, due to its special design. These include Delaphone,
Checkwriting, Wealth Builder Option and Letter of Intention. Systematic
Withdrawal Plans are available after the account has been open for two years.

Purchase Price and Effective Date
The offering price and net asset value of Class A, Class B and Class C
Shares are determined as of the close of regular trading on the New York Stock
Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is open.

The effective date of a purchase made through an investment dealer is the
date the order is received by a Fund, its agent or designee. The effective date
of a direct purchase is the day your wire, electronic transfer or check is
received unless it is received after the time the offering price of shares is
determined, as noted above. Purchase orders received after such time will be
effective the next business day.

The Conditions of Your Purchase
Each Fund reserves the right to reject any purchase order. If a purchase
is canceled because your check is returned unpaid, you are responsible for any
loss incurred. A Fund can redeem shares from your account(s) to reimburse itself
for any loss, and you may be restricted from making future purchases in any of
the funds in the Delaware Group. Each Fund reserves the right to reject purchase
orders paid by third-party checks or checks that are not drawn on a domestic
branch of a United States financial institution. If a check drawn on a foreign
financial institution is accepted, you may be subject to additional bank charges
for clearance and currency conversion.

Each Fund also reserves the right, following shareholder notification, to
charge a service fee on accounts that, as a result of a redemption, have
remained below the minimum stated account balance for a period of three or more
consecutive months. Holders of such accounts may be notified of their
insufficient account balance and advised that they have until the end of the
current calendar quarter to raise their balance to the stated minimum. If the
account has not reached the minimum balance requirement by that time, the Fund
will charge a $9 fee for that quarter and each subsequent calendar quarter until
the account is brought up to the minimum balance. The service fee will be
deducted from the account during the first week of each calendar quarter for the
previous quarter, and will be used to help defray the cost of maintaining
low-balance accounts. No fees will be charged without proper notice, and no CDSC
will apply to such assessments.

Each Fund also reserves the right, upon 60 days' written notice, to
involuntarily redeem accounts that remain under the minimum initial purchase
amount as a result of redemptions. An investor making the minimum initial
investment may be subject to involuntary redemption without the imposition of a
CDSC or Limited CDSC if he or she redeems any portion of his or her account.

<PAGE>

(PA-ABC)

REDEMPTION AND EXCHANGE

You can redeem or exchange your shares in a number of different ways. The
exchange service is useful if your investment requirements change and you want
an easy way to invest in other tax-advantaged funds, equity funds, bond funds or
money market funds. This service is also useful if you are anticipating a major
expenditure and want to move a portion of your investment into a fund that has
the checkwriting feature. Exchanges are subject to the requirements of each fund
and all exchanges of shares constitute taxable events. See Taxes. Further, in
order for an exchange to be processed, shares of the fund being acquired must be
registered in the state where the acquiring shareholder resides. You may want to
consult your financial adviser or investment dealer to discuss which funds in
the Delaware Group will best meet your changing objectives and the consequences
of any exchange transaction. You may also call the Delaware Group directly for
fund information.

Your shares will be redeemed or exchanged at a price based on the net
asset value next determined after a Fund receives your request in good order,
subject, in the case of a redemption, to any applicable CDSC or Limited CDSC.
Redemption or exchange requests received in good order after the time the
offering price of shares is determined, as noted above, will be processed on the
next business day. See Purchase Price and Effective Date under How to Buy
Shares. A shareholder submitting a redemption request may indicate that he or
she wishes to receive redemption proceeds of a specific dollar amount. In the
case of such a request, and in the case of certain redemptions from retirement
plan accounts, a Fund will redeem the number of shares necessary to deduct the
applicable CDSC in the case of Class B and Class C Shares and, if applicable,
the Limited CDSC in the case of Class A Shares and tender to the shareholder the
requested amount, assuming the shareholder holds enough shares in his or her
account for the redemption to be processed in this manner. Otherwise, the amount
tendered to the shareholder upon redemption will be reduced by the amount of the
applicable CDSC or Limited CDSC. Redemption proceeds will be distributed
promptly, as described below, but not later than seven days after receipt of a
redemption request.

Except as noted below, for a redemption request to be in "good order,"
you must provide your account number, account registration, and the total number
of shares or dollar amount of the transaction. For exchange requests, you must
also provide the name of the fund you want to receive the proceeds. Exchange
instructions and redemption requests must be signed by the record owner(s)
exactly as the shares are registered. You may request a redemption or an
exchange by calling the Shareholder Service Center at 800-523-1918. Each Fund
may suspend, terminate, or amend the terms of the exchange privilege upon 60
days' written notice to shareholders.

Each Fund will process written and telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already
settled. The Fund will honor redemption requests as to shares for which a check
was tendered as payment, but a Fund will not mail or wire the proceeds until it
is reasonably satisfied that the purchase check has cleared, which may take up
to 15 days from the purchase date. You can avoid this potential delay if you
purchase shares by wiring Federal Funds. Each Fund reserves the right to reject
a written or telephone redemption request or delay payment of redemption
proceeds if there has been a recent change to the shareholder's address of
record.

There is no front-end sales charge or fee for exchanges made between
shares of funds which both carry a front-end sales charge. Any applicable
front-end sales charge will apply to exchanges from shares of funds not subject
to a front-end sales charge, except for exchanges involving assets that were
previously invested in a fund with a front-end sales charge and/or exchanges
involving the reinvestment of dividends.

Holders of Class B Shares or Class C Shares that exchange their shares
("Original Shares") for shares of other funds in the Delaware Group (in each
case, "New Shares") in a permitted exchange, will not be subject to a CDSC that

<PAGE>

(PA-ABC)

might otherwise be due upon redemption of the Original Shares. However, such
shareholders will continue to be subject to the CDSC and, in the case of Class B
Shares, the automatic conversion schedule of the Original Shares as described in
this Prospectus and any CDSC assessed upon redemption will be charged by the
fund from which the Original Shares were exchanged. In an exchange of Class B
Shares from a Fund, the Fund's CDSC schedule may be higher than the CDSC
schedule relating to the New Shares acquired as a result of the exchange. For
purposes of computing the CDSC that may be payable upon a disposition of the New
Shares, the period of time that an investor held the Original Shares is added to
the period of time that an investor held the New Shares. With respect to Class B
Shares, the automatic conversion schedule of the Original Shares may be longer
than that of the New Shares. Consequently, an investment in New Shares by
exchange may subject an investor to the higher 12b-1 fees applicable to Class B
Shares of a Fund for a longer period of time than if the investment in New
Shares were made directly.

Various redemption and exchange methods are outlined below. Except for
the CDSC applicable to certain redemptions of Class B and Class C Shares and the
Limited CDSC applicable to certain redemptions of Class A Shares purchased at
net asset value, there is no fee charged by the Funds or the Distributor for
redeeming or exchanging your shares, but such fees could be charged in the
future. You may have your investment dealer arrange to have your shares redeemed
or exchanged. Your investment dealer may charge for this service.

All authorizations given by shareholders, including selection of any of
the features described below, shall continue in effect until such time as a
written revocation or modification has been received by a Fund or its agent.

Written Redemption
You can write to a Fund at 1818 Market Street, Philadelphia, PA 19103 to
redeem some or all of your shares. The request must be signed by all owners of
the account or your investment dealer of record. For redemptions of more than
$50,000, or when the proceeds are not sent to the shareholder(s) at the address
of record, the Funds requires a signature by all owners of the account and a
signature guarantee for each owner. Each signature guarantee must be supplied by
an eligible guarantor institution. Each Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. The Funds may require further documentation from corporations,
executors, retirement plans, administrators, trustees or guardians.

Payment is normally mailed the next business day after receipt of your
redemption request. If your Class A Shares are in certificate form, the
certificate(s) must accompany your request and also be in good order.
Certificates are issued for Class A Shares only if a shareholder submits a
specific request. Certificates are not issued for Class B Shares or Class C
Shares.

Written Exchange
You may also write to each Fund (at 1818 Market Street, Philadelphia, PA
19103) to request an exchange of any or all of your shares into another mutual
fund in the Delaware Group subject to the same conditions and limitations as
other exchanges noted above.

Telephone Redemption and Exchange
To get the added convenience of the telephone redemption and exchange
methods, you must have the Transfer Agent hold your shares (without charge) for
you. If you choose to have your Class A Shares in certificate form, you may
redeem or exchange only by written request and you must return your
certificates.

The Telephone Redemption--Check to Your Address of Record service and the
Telephone Exchange service, both of which are described below, are automatically
provided unless you notify the Fund in which you have your account in writing
that you do not wish to have such services available with respect to your
account. Each Fund reserves the right to modify, terminate or suspend these
procedures upon 60 days' written notice to shareholders. It may be difficult to
reach the Funds by telephone during periods when market or economic conditions
lead to an unusually large volume of telephone requests.

<PAGE>

(PA-ABC)

Neither the Funds nor their Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Instructions received by telephone are
generally tape recorded, and a written confirmation will be provided for all
purchase, exchange and redemption transactions initiated by telephone. By
exchanging shares by telephone, you are acknowledging prior receipt of a
prospectus for the fund into which your shares are being exchanged.

Telephone Redemption--Check to Your Address of Record
The Telephone Redemption feature is a quick and easy method to redeem
shares. You or your investment dealer of record can have redemption proceeds of
$50,000 or less mailed to you at your address of record. Checks will be payable
to the shareholder(s) of record. Payment is normally mailed the next business
day after receipt of the redemption request. This service is only available to
individual, joint and individual fiduciary-type accounts.

Telephone Redemption--Proceeds to Your Bank
Redemption proceeds of $1,000 or more can be transferred to your
predesignated bank account by wire or by check. You should authorize this
service when you open your account. If you change your predesignated bank
account, you must complete an Authorization Form and have your signature
guaranteed. For your protection, your authorization must be on file. If you
request a wire, your funds will normally be sent the next business day.
CoreStates Bank, N.A.'s fee (currently $7.50) will be deducted from your
redemption proceeds. If you ask for a check, it will normally be mailed the next
business day after receipt of your redemption request to your predesignated bank
account. There are no fees for this redemption method, but the mail time may
delay getting funds into your bank account. Simply call the Shareholder Service
Center prior to the time the offering price and net asset value are determined,
as noted above.

MoneyLine(sm) on Demand
Through the MoneyLine(sm) On Demand service, you or your investment
dealer may call a Fund to request a transfer of funds from your Fund account to
your predesignated bank account. See MoneyLine (sm) Services under The Delaware
Difference for additional information about this service.

Telephone Exchange
The Telephone Exchange feature is a convenient and efficient way to
adjust your investment holdings as your liquidity requirements and investment
objectives change. You or your investment dealer of record can exchange your
shares into other funds in the Delaware Group under the same registration,
subject to the same conditions and limitations as other exchanges noted above.
As with the written exchange service, telephone exchanges are subject to the
requirements of each fund, as described above. Telephone exchanges may be
subject to limitations as to amounts or frequency.

<PAGE>

(PA-ABC)

Systematic Withdrawal Plans
This plan provides shareholders with a consistent monthly (or quarterly)
payment. This is particularly useful to shareholders living on fixed incomes,
since it provides them with a stable supplemental amount. With accounts of at
least $5,000, you may elect monthly withdrawals of $25 (quarterly $75) or more.
The Fund does not recommend any particular monthly amount, as each shareholder's
situation and needs vary. Payments are normally made by check. In the
alternative, you may elect to have your payments transferred from your Fund
account to your predesignated bank account through the MoneyLine(sm) Direct
Deposit Service. Through the MoneyLine(sm) Direct Deposit Service, it may take
up to four business days for the transaction to be completed. There are no
separate fees for this redemption method. See MoneyLine(sm) Services under The
Delaware Difference for more information about this service.

* * *

Shareholders should not purchase additional shares while participating in
a Systematic Withdrawal Plan.

Redemptions of Class A Shares via a Systematic Withdrawal Plan may be
subject to a Limited CDSC if the original purchase was made at net asset value
within the 12 months prior to the withdrawal and a dealer's commission has been
paid on that purchase. See Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value, below.

The applicable CDSC for Class B Shares and Class C Shares redeemed via a
Systematic Withdrawal Plan will be waived if, on the date that the Plan is
established, the annual amount selected to be withdrawn is less than 12% of the
account balance. If the annual amount selected to be withdrawn exceeds 12% of
the account balance on the date that the Systematic Withdrawal Plan is
established, all redemptions under the Plan will be subject to the applicable
CDSC. Whether a waiver of the CDSC is available or not, the first shares to be
redeemed for each Systematic Withdrawal Plan payment will be those not subject
to a CDSC because they have either satisfied the required holding period or were
acquired through the reinvestment of distributions. The 12% annual limit will be
reset on the date that any Systematic Withdrawal Plan is modified (for example,
a change in the amount selected to be withdrawn or the frequency or date of
withdrawals), based on the balance in the account on that date. See Waiver of
Contingent Deferred Sales Charge Class B Shares and Class C Shares, below.

For more information on Systematic Withdrawal Plans, call the Shareholder
Service Center.

Contingent Deferred Sales Charge for Certain Redemptions of Class A Shares
Purchased at Net Asset Value A Limited CDSC will be imposed on certain
redemptions of Class A Shares (or shares into which such Class A
Shares are exchanged) made within 12 months of purchase, if such purchases were
made at net asset value and triggered the payment by the Distributor of the
dealer's commission previously described. See Classes of Shares.

The Limited CDSC will be paid to the Distributor and will be equal to the
lesser of 1% of: (1) the net asset value at the time of purchase of Class A
Shares being redeemed; or (2) the net asset value of such Class A Shares at the
time of redemption. For purposes of this formula, the "net asset value at the
time of purchase" will be the net asset value at purchase of Class A Shares even
if those shares are later exchanged for shares of another Delaware Group fund
and, in the event of an exchange of Class A Shares, the "net asset value of such
shares at the time of redemption" will be the net asset value of the shares
acquired in the exchange.

Redemptions of such Class A Shares held for more than 12 months will not
be subjected to the Limited CDSC and an exchange of such Class A Shares into
another Delaware Group fund will not trigger the imposition of the Limited CDSC
at the time of such exchange. The period a shareholder owns shares into which
Class A Shares are exchanged will count towards satisfying the 12-month holding
period. The Limited CDSC is assessed if such 12-month period is not satisfied
irrespective of whether the redemption triggering its payment is of Class A
Shares of a Fund or Class A Shares acquired in the exchange.

<PAGE>

In determining whether a Limited CDSC is payable, it will be assumed that
shares not subject to the Limited CDSC are the first redeemed followed by other
shares held for the longest period of time. The Limited CDSC will not be imposed
upon shares representing reinvested dividends or capital gains distributions, or
upon amounts representing share appreciation. All investments made during a
calendar month, regardless of what day of the month the investment occurred,
will age one month on the last day of that month and each subsequent month.

Waiver of Limited Contingent Deferred Sales Charge -- Class A Shares
The Limited CDSC for Class A Shares on which a dealer's commission has
been paid will be waived in the following instances: (i) redemptions that result
from a Fund's right to liquidate a shareholder's account if the aggregate net
asset value of the shares held in the account is less than the then-effective
minimum account size; and (ii) redemptions by the classes of shareholders who
are permitted to purchase shares at net asset value, regardless of the size of
the purchase (see Buying Class A Shares at Net Asset Value under Classes of
Shares).

<PAGE>

(PA-ABC)

Waiver of Contingent Deferred Sales Charge -- Class B Shares and Class C Shares
The CDSC is waived on certain redemptions of Class B Shares in connection
with the following redemptions: (i) redemptions that result from a Fund's right
to liquidate a shareholder's account if the aggregate net asset value of the
shares held in the account is less than the then-effective minimum account size;
and (ii) distributions from an account if the redemption results from the death
of all registered owners of the account (in the case of accounts established
under the Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust
accounts, the waiver applies upon the death of all beneficial owners) or a total
and permanent disability (as defined in Section 72 of the Internal Revenue Code)
of all registered owners occurring after the purchase of the shares being
redeemed.

The CDSC of Class C Shares is waived in connection with the following
redemptions: (i) redemptions that result from a Fund's right to liquidate a
shareholder's account if the aggregate net asset value of the shares held in the
account is less than the then-effective minimum account size; and (ii)
distributions from an account if the redemption results from the death of all
registered owners of the account (in the case of accounts established under the
Uniform Gifts to Minors or Uniform Transfers to Minors Acts or trust accounts,
the waiver applies upon the death of all beneficial owners) or a total and
permanent disability (as defined in Section 72 of the Internal Revenue Code) of
all registered owners occurring after the purchase of the shares being redeemed.

In addition, the CDSC will be waived on Class B and Class C Shares
redeemed in accordance with a Systematic Withdrawal Plan if the annual amount
selected to be withdrawn under the Plan does not exceed 12% of the value of the
account on the date that the Systematic Withdrawal Plan was established or
modified.

<PAGE>

(PA-ABC)

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared daily and paid monthly on the first business day
following the end of each month. Payment by check of cash dividends will
ordinarily be mailed within three business days after the payable date. Any
distributions from net realized securities profits will be distributed annually
in the quarter following the close of the fiscal year.

Purchases of shares by wire begin earning dividends when converted into
Federal Funds and available for investment, normally the next business day after
receipt. However, if a Fund is given prior notice of Federal Funds wire and an
acceptable written guarantee of timely receipt from an investor satisfying the
Fund's credit policies, the purchase will start earning dividends on the date
the wire is received. Purchases by check earn dividends upon conversion to
Federal Funds, normally one business day after receipt.

Each business day, the Funds declare a dividend to all shareholders of
record at the time the offering price of shares is determined. See Purchase
Price and Effective Date under How to Buy Shares. Thus, when redeeming shares,
dividends continue to be credited up to and including the date of redemption.

Each Class of each Fund will share proportionately in the investment
income and expenses of that Fund, except that the per share dividends from net
investment income on Class A Shares, Class B Shares and Class C Shares will vary
due to the expenses under the 12b-1 Plan applicable to each Class. Generally,
the dividends per share on Class B Shares and Class C Shares can be expected to
be lower than the dividends per share on Class A Shares because the expenses
under the 12b-1 Plans relating to Class B and Class C Shares will be higher than
the expenses under the 12b- 1 Plan relating to Class A Shares. See Distribution
(12b-1) and Service under Management of the Funds.

Both dividends and distributions, if any, are automatically reinvested in
your account at net asset value unless you elect otherwise. Any check in payment
of dividends or other distributions which cannot be delivered by the United
States Post Office or which remains uncashed for a period of more than one year
may be reinvested in your account at the then-current net asset value and the
dividend option may be changed from cash to reinvest. If you elect to take your
dividends and distributions in cash and such dividends and distributions are in
an amount of $25 or more, you may choose the MoneyLine Direct(sm) Deposit
Service and have such payments transferred from your Fund account to your
predesignated bank account. See MoneyLine(sm) Services under The Delaware
Difference for more information about this service.

<PAGE>

(PA-ABC)

TAXES

The tax discussion set forth below is included for general information
only. Investors should consult their own tax advisers concerning the federal,
state, local or foreign tax consequences of an investment in the Funds.

Pennsylvania Fund has qualified, and intends to continue to qualify, and
New Jersey Fund and Ohio Fund intend to qualify as regulated investment
companies under Subchapter M of the Internal Revenue Code (the "Code"). As such,
a Fund will not be subject to federal income tax, or to any excise tax, to the
extent its earnings are distributed as provided in the Code. Each Fund intends
to distribute substantially all of its net investment income and net capital
gains, if any.

Each Fund intends to invest a sufficient portion of its assets in
municipal bonds and notes so that it will qualify to pay "exempt-interest
dividends" to shareholders. Such exempt-interest dividends distributed to
shareholders are excluded from a shareholder's gross income for federal tax
purposes. A portion of a Fund's dividends may, however, be derived from income
on "private activity" municipal bonds and therefore may be a preference item
under federal tax law and subject to the federal alternative minimum tax.

To the extent dividends are derived from taxable income on temporary
investments or short-term capital gains, they are treated as ordinary income,
whether received in cash or in additional shares. In addition, gain from the
disposition of a tax-exempt bond that was acquired after April 30, 1993 for a
price less than the principal amount of the bond is taxable to shareholders as
ordinary income to the extent of the accrued market discount. No portion of a
Fund's distributions will be eligible for the dividends-received deduction for
corporations.

Distributions paid by a Fund from long-term capital gains, whether
received in cash or in additional shares, are taxable to those investors who are
subject to income taxes as long-term capital gains, regardless of the length of
time an investor has owned shares in the Fund. The Funds do not seek to realize
any particular amount of capital gains during a year; rather, realized gains are
a by-product of Fund management activities. Consequently, capital gains
distributions may be expected to vary considerably from year to year. Also, for
those investors subject to tax, if purchases of shares in a Fund are made
shortly before the record date for a capital gains distribution, a portion of
the investment will be returned as taxable distribution.

Dividends or capital gains which are declared in October, November or
December to shareholders of record in such a month but which, for operational
reasons, may not be paid to the shareholder until the following January, will be
treated for tax purposes as if paid by a Fund and received by the shareholder on
December 31 of the calendar year in which they are declared.

The sale of shares of a Fund is a taxable event and may result in a
capital gain or loss to shareholders subject to tax. Capital gain or loss may be
realized from an ordinary redemption of shares or an exchange of shares between
a Fund and any other fund in the Delaware Group. Any loss incurred on a sale or
exchange of Fund shares that had been held for six months or less will be
treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares and will be disallowed to the extent of
exempt-interest dividends paid with respect to such shares. All or a portion of
the sales charge incurred in acquiring a Fund's shares will be excluded from the
federal tax basis of any of such shares sold or exchanged within 90 days of
their purchase (for purposes of determining gain or loss upon sale of such
shares) if the sale proceeds are reinvested in the Fund or in another fund in
the Delaware Group of funds and a sales charge that would otherwise apply to the
reinvestment is reduced or eliminated. Any portion of such sales charge excluded
from the tax basis of the shares sold will be added to the tax basis of the
shares acquired in the reinvestment.

<PAGE>

(PA-ABC)

Exempt-interest dividends paid by a Fund, although exempt from regular
federal income tax in the hands of a shareholder, are includable in the tax base
for determining the extent to which a shareholder's Social Security benefits
would be subject to federal income tax. Shareholders are required to disclose
their receipt of tax-exempt interest on their federal income tax returns.

The automatic conversion of Class B Shares into Class A Shares at the end
of approximately eight years after purchase will be tax-free for federal tax
purposes. See Automatic Conversion of Class B Shares under Classes of Shares.

Each year, the Trust will mail to you information on the tax status of
your Fund's dividends and distributions.

The Trust is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not complied with
IRS taxpayer identification regulations. You may avoid this withholding
requirement by certifying on your Investment Application your proper Taxpayer
Identification Number and by certifying that you are not subject to backup
withholding.

See Taxes in Part B for additional information on tax matters relating to
each Fund and its shareholders.

New Jersey Fund
The Fund intends to qualify as a "qualified investment fund" under the
New Jersey gross income tax law except when investing for defensive purposes
under certain circumstances. As long as the Fund is a qualified investment fund
and to the extent its distributions are derived from interest or net gains on
tax-exempt securities, such distributions will be exempt from the New Jersey
gross income tax. The exemption from the New Jersey gross income tax will also
extend to interest or net gains on obligations of the United States, its
territories and certain of its agencies and instrumentalities which pay interest
free from state or local taxation under any laws of New Jersey or under the
Constitution or other laws of the United States. Gains resulting from the
redemption or sale of shares of the Fund will also be exempt from New Jersey
gross income tax.

In order to be a qualified investment fund, at least 80% of the aggregate
principal amount of the Fund's investments at the end of each calendar quarter
(excluding financial options, futures, forward contracts, or other similar
financial instruments related to interest-bearing obligations, obligations
issued at a discount or bond indexes related thereto to the extent such
instruments are authorized under the regulated investment company rules under
the Internal Revenue Code, and cash and cash items, which cash items shall
include receivables) will consist of the exempt obligations referred to above,
and the Fund will have no investments other than interest-bearing obligations,
obligations issued at a discount, and cash and cash items (including
receivables) and financial options, futures, forward contracts or certain other
similar instruments related to interest-bearing, obligations issued at a
discount or bond indexes related thereto. If the Fund fails to be a qualified
investment fund, as a result of employing alternative investment strategies or
otherwise, none of its distributions for the entire taxable year will qualify
for tax-exempt status under New Jersey law.

For New Jersey gross income tax purposes, distributions derived by the
fund from income or net gains on investments other than tax-exempt securities
and obligations of the United States, its territories and certain of its
agencies and instrumentalities will be taxable as ordinary income, whether paid
in cash or reinvested in additional shares.

Ohio Fund
Distributions received from the Fund are exempt from Ohio personal income
tax and school district and municipal income taxes in Ohio to the extent they
are properly attributable to interest on obligations issued by the State of
Ohio, political subdivisions thereof, or agencies or instrumentalities thereof
("Ohio Obligations"), provided that the Fund continues to qualify as a regulated
investment company for federal income tax purposes and that at all times at
least 50% of the value of the total assets of the Fund consists of Ohio
Obligations or similar obligations of other states or their subdivisions. It is
assumed for purposes of this discussion of Ohio taxation that these requirements
are satisfied. All distributions received from the Fund are excluded from the
net income base of the Ohio corporation franchise tax to the extent that they
(a) are properly attributable to interest on Ohio Obligations, or (b) represent
exempt-interest dividends for federal income tax purposes. The Fund's shares
will be included in a shareholder's tax base for purposes of computing the Ohio
franchise tax on the net worth basis.

<PAGE>

(PA-ABC)

Distributions of capital gain received from the Fund will be exempt from
Ohio personal income tax and school district income taxes and municipal income
taxes in Ohio and will be excluded from the net income base of the Ohio
corporation franchise tax, in each case to the extent that such distributions
are properly attributable to profit made on the sale, exchange or other
disposition by the Fund of Ohio Obligations.

Distributions properly attributable to interest on obligations of the
United States or of any authority, commission, or instrumentality of the United
States or obligations of Puerto Rico, the Virgin Islands, or Guam or their
authorities or instrumentalities will be exempt from Ohio personal income tax
and school district and municipal income taxes in Ohio, and are excluded from
the net income base of the Ohio corporation franchise tax.

Pennsylvania Fund
Interest income derived from Pennsylvania state and municipal obligations
and other qualifying obligations, and U.S. government obligations, if any, that
are distributed to shareholders will be exempt from Pennsylvania personal income
tax. Should the Fund invest in municipal bonds other than those issued by
Pennsylvania or other exempt issuers, the income distributed from these
investments may be subject to Pennsylvania personal income tax. Shareholders of
the Fund will receive notification from the Fund annually as to the taxability
of such distributions in Pennsylvania. For shareholders who are residents of
Philadelphia, distributions that are derived from interest on Pennsylvania state
and municipal obligations and other qualifying obligations, and U.S. government
obligations, if any, will be exempt from Philadelphia School District Income
Tax. Distributions designated as capital gain dividends for federal income tax
purposes will also be exempt from the Philadelphia School District Income Tax.
Shares of the Fund will be exempt from Pennsylvania county personal property
tax.

38
<PAGE>

(PA-ABC)

CALCULATION OF OFFERING PRICE AND NET ASSET VALUE PER SHARE

The net asset value ("NAV") per share is computed by adding the value of
all securities and other assets in the portfolio, deducting any liabilities
(expenses and fees are accrued daily) and dividing by the number of shares
outstanding. Debt securities are priced at fair value by an independent pricing
service using methods approved by the Trust's Board of Trustees. Short-term
investments having a maturity of less than 60 days are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value as determined in good faith and in a method approved by the Trust's Board
of Trustees.

Class A Shares are purchased at the offering price per share, while Class
B Shares and Class C Shares are purchased at the NAV per share. The offering
price per share of Class A Shares consists of the NAV per share next computed
after the order is received, plus any applicable front-end sales charges.

The offering price and NAV are computed as of the close of regular
trading on the New York Stock Exchange (ordinarily, 4 p.m., Eastern time) on
days when the Exchange is open.

The net asset values of all outstanding shares of each Class of a Fund
will be computed on a pro-rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
that Class. All income earned and expenses incurred by a Fund will be borne on a
pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in that Fund represented by the value of shares of such Classes,
except that shares of the Classes will bear only those 12b-1 Plan expenses
payable under their respective Plans. Due to the specific distribution expenses
and other costs that will be allocable to each Class, the dividends paid to each
Class of a Fund may vary. However, the NAV per share of each Class of a Fund is
expected to be equivalent.

<PAGE>

(PA-ABC)

MANAGEMENT OF THE FUND

Trustees
The business and affairs of the Funds are managed under the direction of
the Trust's Board of Trustees. Part B contains additional information regarding
the Trust's trustees and officers.

Investment Manager
The Manager furnishes investment management services to each Fund.

The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On June 30, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $37 billion in assets in the various
institutional or separately managed (approximately $22,302,518,000) and
investment company (approximately $15,246,733,000) accounts.

The Manager is an indirect, wholly owned subsidiary of Delaware
Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between DMH and a
wholly owned subsidiary of Lincoln National Corporation ("Lincoln National") was
completed. DMH and the Manager are now indirect, wholly owned subsidiaries, and
subject to the ultimate control, of Lincoln National. Lincoln National, with
headquarters in Fort Wayne, Indiana, is a diversified organization with
operations in many aspects of the financial services industry, including
insurance and investment management. In connection with the merger, a new
Investment Management Agreement between the Fund and the Manager was executed
following shareholder approval.

The Manager manages each Fund's portfolio and makes investment decisions
for the Fund which are implemented by the Funds Trading Department. The Manager
also administers the Funds affairs and pays the salaries of all the trustees,
officers and employees of the Funds who are affiliated with the Manager. The
annual compensation paid by New Jersey Fund and Ohio Fund for investment
management services is equal to 0.55% on the first $500 million of average daily
net assets of the Fund, 0.525% on the next $500 million and 0.50% on the average
daily net assets in excess of $1 billion. The annual compensation paid by
Pennsylvania Fund for investment management services is equal to 0.60% on the
first $500 million of average daily net assets of the Fund, 0.575% on the next
$250 million and 0.55% on the average daily net assets in excess of $750
million, less all trustees' fees paid to the unaffiliated trustees. Investment
management fees paid by Pennsylvania Fund for the fiscal year ended February 28,
1997 were 0.58% of average daily net assets.

Patrick P. Coyne and Mitchell L. Conery, each a Vice President/Senior
Portfolio Manager of the Trust, have primary responsibility for making
day-to-day investment decisions for each Fund. Mr. Coyne and Mr. Conery have
managed New Jersey Fund and Ohio Fund since their inception. Mr. Coyne assumed
primary responsibility for managing Pennsylvania Fund on November 26, 1996. Mr.
Conery became co-manager of Pennsylvania Fund in January 1997. A graduate of
Harvard University with an MBA from the University of Pennsylvania's Wharton
School, Mr. Coyne joined the Delaware Group's fixed-income department in 1990.
Prior to joining the Delaware Group, he was a manager of Kidder, Peabody & Co.
Inc.'s trading desk, and specialized in trading high grade municipal bonds and
municipal futures contracts. Mr. Coyne is a member of the Municipal Bond Club of
Philadelphia. Mr. Conery joined Delaware Group in January 1997. Mr. Conery holds
a bachelor's degree from Boston University and an MBA in Finance from the State
University of New York at Albany. He has served as an investment officer with
Travelers Insurance and as a research analyst with CS First Boston and MBIA
Corporation.

In making investment decisions for the Funds, Mr. Coyne and Mr. Conery
regularly consult with Paul E. Suckow and other members of Delaware's
fixed-income department. Mr. Suckow is Executive Vice President/Chief Investment
Officer, Fixed Income of the Trust. He is a CFA charterholder and a graduate of
Bradley University with an MBA from Western Illinois University. Mr. Suckow was
a fixed-income portfolio manager at the Delaware Group from 1981-1985. He
returned to the Delaware Group in 1993 after eight years with Oppenheimer
Management Corporation where he served as Executive Vice President and Director
of Fixed Income.

<PAGE>

(PA-ABC)

Portfolio Trading Practices
Each Fund may sell securities without regard to the length of time they
have been held. Trading will be undertaken principally to achieve a Fund's
objective in light of expected changes in interest rates. The degree of trading
activity will affect brokerage costs of a Fund and may affect taxes payable by
the Fund's shareholders. Given each Fund's investment objective, its annual
portfolio turnover rate is not expected to exceed 100%. During the past two
fiscal years, Pennsylvania Fund's portfolio turnover rates were approximately
25% for 1996 and 27% for 1997.

Each Fund uses its best efforts to obtain the best available price and
most favorable execution for portfolio transactions. Orders may be placed with
brokers or dealers who provide brokerage and research services to the Manager or
its advisory clients. These services may be used by the Manager in servicing any
of its accounts. Subject to best price and execution, each Fund may consider a
broker/dealer's sales of shares of funds in the Delaware Group of funds in
placing portfolio orders and may place orders with broker/dealers that have
agreed to defray certain expenses of such funds, such as custodian fees.

Performance Information
From time to time, each Fund may quote yield or total return performance
of its Classes in advertising and other types of literature.

The current yield for each of the Classes is calculated by dividing the
annualized net investment income earned by that Class during a recent 30-day
period by the maximum offering price per share on the last day of the period.
The yield formula provides for semi-annual compounding, which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of a six-month period. Each Fund may also publish a tax- equivalent
yield concerning its Classes based on federal and, if applicable, state tax
rates, which demonstrates the taxable yield necessary to produce an after-tax
yield equivalent to such Class' yield.

Total return will be based on a hypothetical $1,000 investment,
reflecting the reinvestment of all distributions at net asset value and: (i) in
the case of Class A Shares, the impact of the maximum front-end sales charge at
the beginning of each specified period; and (ii) in the case of Class B Shares
and Class C Shares, the deduction of any applicable CDSC at the end of the
relevant period. Each presentation will include the average annual total return
for one-, five- and ten-year (or life-of-fund, if applicable) periods. Each Fund
may also advertise aggregate and average total return information concerning its
Classes over additional periods of time. In addition, each Fund may present
total return information that does not reflect the deduction of the maximum
front-end sales charge or any applicable CDSC. In this case, such total return
would be more favorable than total return information that includes deductions
of the maximum front-end sales charge or any applicable CDSC.

Yield and net asset value fluctuate and are not guaranteed. Past
performance is not a guarantee of future results.

Distribution (12b-1) and Service
The Distributor, Delaware Distributors, L.P., serves as the national
distributor for Pennsylvania Fund's shares under a Distribution Agreement dated
April 3, 1995, as amended on November 29, 1995. The Distributor serves as the
national Distributor for New Jersey and Ohio Funds under separate agreements
dated September 2, 1997.

The Trust has adopted a separate distribution plan under Rule 12b-1 for
each of Class A Shares, Class B Shares and Class C Shares of the Funds (the
"Plans"). Each Plan permits a Fund to which the plan relates to pay the
Distributor from the assets of the respective Classes a monthly fee for the
Distributor's services and expenses in distributing and promoting sales of
shares.

These expenses include, among other things, preparing and distributing
advertisements, sales literature, and prospectuses and reports used for sales
purposes, compensating sales and marketing personnel, holding special promotions
for specified periods of time, and paying distribution and maintenance fees to
brokers, dealers and others. In connection with the promotion of shares of the
Classes, the Distributor may, from time to time, pay to participate in

<PAGE>

(PA-ABC)

dealer-sponsored seminars and conferences, and reimburse dealers for expenses
incurred in connection with preapproved seminars, conferences and advertising.
The Distributor may pay or allow additional promotional incentives to dealers as
part of preapproved sales contests and/or to dealers who provide extra training
and information concerning a Class and increase sales of the Class. In addition,
each Fund may make payments from the 12b-1 Plan fees of its respective Classes
directly to others, such as banks, who aid in the distribution of Class shares
or provide services in respect of a Class, pursuant to service agreements with
the Trust.

The 12b-1 Plan expenses relating to each of the Class B Shares and Class
C Shares of a Fund are also used to pay the Distributor for advancing the
commission costs to dealers with respect to the initial sale of such shares.

The aggregate fees paid by each Fund from the assets of the respective
Classes to the Distributor and others under the Plans may not exceed (i) 0.30%
of Class A Shares' average daily net assets in any year, and (ii) 1% (0.25% of
which are service fees to be paid by a Fund to the Distributor, dealers and
others, for providing personal service and/or maintaining shareholder accounts)
of the Fund's Class B Shares' and Class C Shares' average daily net assets in
any year. Although the maximum fee payable under the Plans relating to Class A
Shares of New Jersey Fund and Ohio Fund is 0.30% of average daily net assets,
the Board of Trustees has currently set the annual fee for such Classes at 0.25%
of average daily net assets. The Board of Trustees may increase the fee to the
full 0.30% on all such Class A Shares' assets at any time. See Shares. The
actual 12b-1 Plan expenses assessed against Class A Shares Pennsylvania Fund may
be less than 0.30%, but may not be less than 0.10%, because of the formula for
calculating the fee adopted by the Trust's Board of Trustees. See Part B. Each
Fund's Class A, Class B and Class C Shares will not incur any distribution
expenses beyond these limits, which may not be increased without shareholder
approval.

While payments pursuant to the Plans may not exceed 0.30% annually with
respect to Class A Shares and 1% annually with respect to each of the Class B
Shares and Class C Shares, the Plans do not limit fees to amounts actually
expended by the Distributor. It is therefore possible that the Distributor may
realize a profit in any particular year. However, the Distributor currently
expects that its distribution expenses will likely equal or exceed payments to
it under the Plans. The Distributor may, however, incur additional expenses and
make additional payments to dealers from its own resources to promote the
distribution of shares of the Classes. The monthly fees paid to the Distributor
are subject to the review and approval of the Trust's unaffiliated trustees, who
may reduce the fees or terminate the Plans at any time.

The Transfer Agent, Delaware Service Company, Inc., serves as the
shareholder servicing, dividend disbursing and transfer agent for the Fund under
an Amended and Restated Shareholders Services Agreement. The Transfer Agent also
provides accounting services to the Fund pursuant to the terms of a separate
Fund Accounting Agreement. The trustees of the Fund annually review service fees
paid to the Transfer Agent.

The Distributor and the Transfer Agent are also indirect, wholly owned
subsidiaries of DMH.

Expenses
Each Fund is responsible for all of its own expenses other than those
borne by the Manager under its Investment Management Agreement and those borne
by the Distributor under the Distribution Agreement. The ratios of expenses to
average daily net assets of Pennsylvania Fund's Class A Shares, Class B Shares
and Class C Shares for the fiscal year ended February 28, 1997 were 0.91%, 1.71%
and 1.71%, respectively. The expense ratio of each Class reflects the impact of
its 12b-1 Plan.

Shares
The Trust is an open-end management investment company. Each Fund's
portfolio of assets is nondiversified as defined by the 1940 Act. Commonly known
as a mutual fund, the Trust is a Pennsylvania business trust which was organized
on November 23, 1976. Each Fund has an unlimited authorized number of shares of
beneficial interest with no par value per share allocated to each Class. All
shares have equal voting rights, except as noted below, and are equal in all
other respects. In addition, all Fund shares have noncumulative voting rights
which means that the holders of

<PAGE>

(PA-ABC)

more than 50% of the Fund's shares voting for the election of trustees can elect
100% of the trustees if they choose to do so.

The assets received by the Trust for the issue or sale of shares of each
series and all income, earnings, profits and proceeds thereof, subject only to
the rights of creditors, are allocated to such series, and constitute the
underlying assets of such series. The underlying assets of each series are
required to be segregated on the books of account, and are to be charged with
the expenses in respect to such series and with a share of the general expenses
of the Trust. Any general expenses of the Trust not readily identifiable as
belonging to a particular series or class shall be allocated among the series or
classes based upon the relative net assets of the series or class at the time
such expenses were accrued. The Trust's Declaration of Trust limits the
liability of the Trustees to the fullest extent permitted by law. For a further
discussion, see General Information in Part B.

Shares of each Class represent a proportionate interest in the assets of
the respective Fund and have the same voting and other rights and preferences,
except that, as a general matter, the shareholders of Class A Shares, Class B
Shares and Class C Shares may vote only on matters affecting the 12b-1 Plan that
relates to the class of shares that they hold. However, Class B Shares of a Fund
may vote on any proposal to increase materially the fees to be paid by that Fund
under the 12b-1 Plan relating to Class A Shares.

In addition, all Fund shares have noncumulative voting rights which means
that the holders of more than 50% of the Fund's shares voting for the election
of trustees can elect 100% of the trustees if they choose to do so.

Prior to May 2, 1994, Tax-Free Pennsylvania Fund A Class was known as
Tax-Free Pennsylvania Fund. Prior to September 2, 1997, Delaware Group State
Tax-Free Income Trust was known as DMC Tax-Free Income Trust - Pennsylvania,
which was known as and did business as Tax-Free Pennsylvania Fund.

<PAGE>

(PA-ABC)

ADDITIONAL INFORMATION ON INVESTMENT POLICIES AND RISK CONSIDERATIONS

High Yield, High Risk Securities
Each Fund may invest up to 20% of its net assets in high yield, high risk
fixed-income securities. These securities are rated lower than BBB by Standard &
Poor's Ratings Group ("S&P"), Baa by Moody's Investors Service, Inc. ("Moody's")
and/or rated similarly by another rating agency, or, if unrated, are considered
by the Manager to be of equivalent quality. A Fund will not invest in securities
which are rated lower than B by S&P, B by Moody's or similarly by another rating
agency, or, if unrated, are considered by the Manager to be of a quality that is
lower than such ratings. See Appendix B---Ratings to this Prospectus for more
rating information. Fixed-income securities of this type are considered to be of
poor standing and predominantly speculative. Such securities are subject to a
substantial degree of credit risk.

Medium and low-grade bonds held by a Fund may be issued as a consequence
of corporate restructurings, such as leveraged buy-outs, mergers, acquisitions,
debt recapitalizations or similar events. Also these bonds are often issued by
smaller, less creditworthy companies or by highly leveraged (indebted) issuers,
which are generally less able than more financially stable issuers to make
scheduled payments of interest and principal. The risks posed by bonds issued
under such circumstances are substantial.

The economy and interest rates may affect these high yield, high risk
securities differently than other securities. Prices have been found to be less
sensitive to interest rate changes than higher rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals and to obtain additional
financing. Changes by recognized rating agencies in their rating of any security
and in the ability of an issuer to make payments of interest and principal will
also ordinarily have a more dramatic effect on the values of these investments
than on the values of higher-rated securities. Such changes in value will not
affect cash income derived from these securities, unless the issuers fail to pay
interest or dividends when due. Such changes will, however, affect a Fund's net
asset value per share.

Restricted Securities
Each Fund may invest in restricted securities, including securities
eligible for resale without registration pursuant to Rule 144A ("Rule 144A
Securities") under the Securities Act of 1933. Rule 144A permits many privately
placed and legally restricted securities to be freely traded among certain
institutional buyers such as the Funds. Pennsylvania Fund may invest no more
than 10% of the value of its net assets in illiquid securities. New Jersey Fund
and Ohio Fund may invest no more than 15% of the value of its net assets in
illiquid securities.

While maintaining oversight, the Board of Trustees has delegated to the
Manager the day-to-day function of determining whether or not individual Rule
144A Securities are liquid for purposes of each Fund's percentage limitation on
investments in illiquid assets. The Board has instructed the Manager to consider
the following factors in determining the liquidity of a Rule 144A Security: (i)
the frequency of trades and trading volume for the security; (ii) whether at
least three dealers are willing to purchase or sell the security and the number
of potential purchasers; (iii) whether at least two dealers are making a market
in the security; and (iv) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer).

If the Manager determines that a Rule 144A Security which was previously
determined to be liquid is no longer liquid and, as a result, a Fund's holdings
of illiquid securities exceed its percentage limitation on investments in such
securities, the Manager will determine what action to take to ensure that the
Fund continues to adhere to such limitation.

<PAGE>

(PA-ABC)

Variable Rate Obligations

Each Fund may purchase "floating-rate" and "variable-rate" obligations.
These obligations bear interest at rates that are not fixed, but that vary with
changes in specified market rates or indices on predesigned dates.

Advance Refunded Bonds
Escrow secured bonds or defeased bonds are created when an issuer refunds
in advance of maturity (or pre-refunds) an outstanding bond issue which is not
immediately callable, and it becomes necessary or desirable to set aside funds
for redemption of the bonds at a future date. In an advance refunding, the
issuer will use the proceeds of a new bond issue to purchase high grade interest
bearing debt securities which are then deposited in an irrevocable escrow
account held by a trustee bank to secure all future payments of principal and
interest of the advance refunded bond.
Escrow secured bonds will often receive the highest rating from S&P and Moody's.

Certificates of Participation
Certificates of Participation are widely used by state and local
governments to finance the purchase of property and facilities. COPs function
much like installment purchase agreements. For example, a governmental
corporation may create a COP when it issues long-term bonds to pay for the
acquisition of property or facilities. The property or facilities are then
leased to a municipality which makes lease payment to repay interest and
principal to the holders of the bonds. Once these lease payments are completed,
the municipality gains ownership of the property for a nominal sum. This lease
format is generally not subject to constitutional limitations on the issuance of
state debt so that COPs enable a governmental issuer to increase government
liabilities beyond constitutional debt limits.

A feature which distinguishes COPs from municipal debt is that the lease
typically contains a "nonappropriation" or "abatement" clause. This means that
the municipality leasing the property or facility must use its best efforts to
make lease payments, but that the municipality may terminate the lease without
penalty if its appropriating body does not allocate the necessary monies.
Therefore, if the municipal government does not appropriate sufficient monies to
make lease payments, the lessor, or its agent, is typically entitled to
repossess the property. In most cases, however, the market value of the property
will be less than the amount the municipality was paying.

While the risk of nonappropriation exists, the Funds believe that this
risk is mitigated by its policy of investing only in COPs rated within the four
highest rating categories of Moody's, S&P or Fitch Investors Service, Inc., or
in unrated COPs believed to be of comparable quality. In assessing such risk the
rating agencies and the Manager consider, among other things, the issuing
municipality's credit rating, the importance of the leased property to the
municipality and the term of the lease compared to the useful life of the leased
property.

COPs will be considered illiquid under each Fund's percentage limitation
on investments in illiquid securities, unless the Manager determines that they
are liquid. The Manager will determine the liquidity by considering factors as
described above under Restricted Securities.

Options
New Jersey Fund and Ohio Fund may write put and call options on a covered
basis only, and will not engage in option writing strategies for speculative
purposes. These Funds may write covered call options and secured put options
from time to time on such portion of its portfolio, without limit, as the
Manager determines is appropriate in seeking to obtain the Fund's investment
objective. Each Fund may also purchase (i) call options to the extent that
premiums paid for such options do not exceed 2% of the Fund's total assets and
(ii) put options to the extent that premiums paid for such options do not exceed
2% of the Fund's total assets.

Futures
New Jersey Fund and Ohio Fund may invest in futures contracts and options
on such futures contracts subject to certain limitations. Futures contracts are
agreements for the purchase or sale for future delivery of securities. When a
futures contract is sold, a Fund incurs a contractual obligation to deliver the
securities called for by the contract at a specified price on a specified future
date. When a Fund purchases a futures contract, it obtains the right to acquire
the securities called for by the contract at a specified price and date.

<PAGE>

(PA-ABC)

Inverse Floaters
New Jersey Fund and Ohio Fund may invest up to 10% of its assets in
inverse floaters. Inverse floaters are instruments with floating or variable
interest rates that move in the opposite direction, usually at an accelerated
speed, to short-term interest rates or interest rate indices. Consequently, the
market values of inverse floaters will generally be more volatile than other
tax-exempt investments and may increase the volatility of the value of shares of
a Fund.

Zero-Coupon Bonds
New Jersey Fund and Ohio Fund may invest in zero-coupon and
payment-in-kind bonds. Zero-coupon bonds do not entitle the holder to any
periodic payment of interest prior to maturity or a specified date when the
securities begin paying current interest. They are issued and traded at a
discount, which discount varies depending on the time remaining until cash
payments begin, prevailing interest rates, liquidity of the security and the
perceived credit quality of the issuer. Since a Fund must distribute at least
90% of its investment income each year, in order to maintain its desired tax
treatment, the Fund may be required to borrow or to liquidate portfolio
securities in order to distribute income which has been attributed to
zero-coupon bonds but which the Fund has not yet received. Payment-in-kind
securities are securities that pay interest through the issuance of additional
securities. Such securities generally are more volatile in response to changes
in interest rates and are more speculative investments than are securities that
pay interest periodically in cash.

Derivative Tax Exempt Obligations
New Jersey Fund and Ohio Fund may also acquire Derivative Tax Exempt
Obligations, which are custodial receipts or certificates that evidence
ownership of future interest payments, principal payments or both on certain tax
exempt securities. The sponsor of these certificates or receipts typically
purchases and deposits the securities in an irrevocable trust or custodial
account with a custodian bank, which then issues the receipts or certificates
that evidence ownership. Although a Fund typically would be authorized to assert
its rights directly against the issuer of the underlying obligation, the Fund
could be required to assert such rights through the custodian bank. Thus, in the
event of a default, a Fund may be subject to delays, expenses and risks that are
greater than those that would have been involved if the Fund had purchased a
direct obligation of the issuer.

In addition, if the trust or custodial account in which the underlying
security had been deposited is determined to be a taxable entity, it would be
subject to state income tax on the income earned on the underlying security.
Furthermore, amounts paid by the trust or custodial account to a Fund would
become taxable in the hands of the Fund and its shareholders. However, a Fund
will only invest in custodial receipts which are accompanied by a tax opinion
stating that interest payable on the receipts is tax exempt. Also, it is
possible that a portion of the discount at which a Fund purchases the receipts
might have to be accrued as taxable income during the period that the Fund holds
the receipts.

<PAGE>

(PA-ABC)

APPENDIX A
Pennsylvania Fund
Illustrations of the Potential Impact on Investment Based on Purchase Option
$10,000 Purchase

Scenario 1 Scenario 2
No Redemption Redeem 1st Year
------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
0 9,625 10,000 10,000 9,625 10,000 10,000
1 10,299 10,630 10,630 10,299 10,230 10,530+
2 11,020 11,300 11,300
3 11,791 12,012 12,012
4 12,616 12,768 12,768
5 13,500 13,573 13,573
6 14,445 14,428 14,428
7 15,456 15,337 15,337
8 16,538+ 16,303 16,303
9 17,695 17,444* 17,330
10 18,934 18,665* 18,422

Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
--------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
0 9,625 10,000 10,000 9,625 10,000 10,000
1 10,298 10,630 10,630 10,299 10,630 10,630
2 11,020 11,300 11,300 11,020 11,300 11,300
3 11,791 11,712 12,012+ 11,791 12,012 12,012
4 12,616 12,768 12,768
5 13,500 13,373 13,573+
6
7
8
9
10

</TABLE>

* This assumes that Class B Shares were converted to Class A Shares at the end
of the eighth year.

<PAGE>

$250,000 Purchase
<TABLE>
<CAPTION>

Scenario 1 Scenario 2
No Redemption Redeem 1st Year
------------- ---------------

<S> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
0 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 255,750 263,250+
2 279,069 282,492 282,492
3 298,604 300,289 300,289
4 319,507+ 319,207 319,207
5 341,872 339,318 339,318
6 365,803 360,695 360,695
7 391,409 383,418 383,418
8 418,808 407,574 407,574
9 448,124 436,104* 433,251
10 479,493 466,631* 460,546

Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
--------------- ---------------

<S> <C> <C> <C> <C> <C> <C>
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
0 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,750 265,750 260,813 265,750 265,750
2 279,069 282,492 282,492 279,069 282,492 282,492
3 298,604 292,789 300,289+ 298,064 300,289 300,289
4 319,507+ 319,207 319,207
5 341,872 334,318 339,318
6
7
8
9
10

</TABLE>

* This assumes that Class B Shares were converted to Class A Shares at the end
of the eighth year.

Assumes a hypothetical return for Class A of 7% per year, a hypothetical return
for Class B of 6.3% for years 1-8 and 7% for years 9-10, and a hypothetical
return for Class C of 6.3% per year. Hypothetical returns vary due to the
different expense structure for each Class and do not represent actual
performance.
Class A purchase subject to appropriate sales charge breakpoint (3.75% @
$10,000; 3.00% @ $100,000; 2.50% @ $250,000; 2.00% @ $500,000)
Class B purchase assessed appropriate CDSC upon redemption (4%-4%-3%-3%-2%-1% in
years 1-2-3-4-5-6).
Class C purchase assessed 1% CDSC upon redemption in year 1.
Figures marked "+" identify which Class offers the greater return potential
based on the investment amount, the holding period and the expense structure of
each Class.

<PAGE>

(PA-ABC)

APPENDIX A - INVESTMENT ILLUSTRATIONS

New Jersey Fund and Ohio Fund
Illustrations of the Potential Impact on Investment Based on Purchase Option
$10,000 Purchase
<TABLE>
<CAPTION>

Scenario 1 Scenario 2
No Redemption Redeem 1st Year
------------- ---------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9,625 10,000 10,000 9,625 10,000 10,000
1 10,192 10,625 10,625 10,192 10,225 10,525+
2 10,905 11,289 11,289
3 11,669 11,995 11,995
4 12,485 12,744 12,744
5 13,359 13,541 13,541
6 14,294 14,387 14,387
7 15,295 15,286 15,286
8 16,366+ 16,242 16,242
9 17,511 17,379* 17,257
10 18,737 18,595* 18,335

Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
--------------- ---------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 9,625 10,000 10,000 9,625 10,000 10,000
1 10,192 10,625 10,625 10,192 10,625 10,625
2 10,905 11,289 11,289 10,905 11,289 11,289
3 11,669 11,695 11,995+ 11,669 11,995 11,995
4 12,485 12,744 12,744
5 13,359 13,341 13,541+
6
7
8
9
10

</TABLE>

* This assumes that Class B Shares were converted to Class A Shares at the end
of the eighth year.

$250,000 Purchase

Scenario 1 Scenario 2
No Redemption Redeem 1st Year
------------- ---------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,625 265,625 260,813 255,625 263,125+
2 279,069 282,227 282,227
3 298,604 299,866 299,866
4 319,507+ 318,607 318,607
5 341,872 338,520 338,520
6 365,803 359,678 359,678
7 391,409 382,158 382,158
8 418,808 406,043 406,043
9 448,124 434,466* 431,420
10 479,493 464,878* 458,384

</TABLE>

Scenario 3 Scenario 4
Redeem 3rd Year Redeem 5th Year
--------------- ---------------
Year Class A Class B Class C Class A Class B Class C
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
0 243,750 250,000 250,000 243,750 250,000 250,000
1 260,813 265,625 265,625 260,813 265,625 265,625
2 279,069 282,227 282,227 279,069 282,227 282,227
3 298,604 292,366 300,866+ 298,604 299,866 299,866
4 319,507+ 318,607 318,607
5 341,872 333,520 338,520
6
7
8
9
10

</TABLE>

* This assumes that Class B Shares were converted to Class A Shares at the end
of the eighth year.

Assumes a hypothetical return for Class A of 7% per year, a hypothetical return
for Class B of 6.25% for years 1-8 and 7% for years 9-10, and a hypothetical
return for Class C of 6.25% per year. Hypothetical returns vary due to the
different expense structure for each Class and do not represent actual
performance.
Class A purchase subject to appropriate sales charge breakpoint (3.75% @
$10,000; 3.00% @ $100,000; 2.50% @ $250,000; 2.00% @ $500,000).
Class B purchase assessed appropriate CDSC upon redemption (4%-4%-3%-3%-2%-1% in
years 1-2-3-4-5-6).
Class C purchase assessed 1% CDSC upon redemption in year 1.
Figures marked "+" identify which Class offers the greater return potential
based on investment amount, the holding period and the expense structure of each
Class.

<PAGE>
(PA-ABC)

APPENDIX B--CLASSES OFFERED

Growth of Capital A Class B Class C Class Consultant Class
<S> <C> <C> <C> <C>
Aggressive Growth Fund x x x -
Trend Fund x x x -
Enterprise Fund x x x -
DelCap Fund x x x -
Value Fund x x x -
U.S. Growth Fund x x x -
Growth Stock Fund x x x -
Tax-Efficient Equity Fund x x x -

Total Return
Blue Chip Fund x x x -
Quantum Fund x x x -
Devon Fund x x x -
Decatur Total Return Fund x x x -
Decatur Income Fund x x x -
Delaware Fund x x x -

International Diversification
Emerging Markets Fund x x x -
New Pacific Fund x x x -
World Growth Fund x x x -
International Equity Fund x x x -
Global Assets Fund x x x -
Global Bond Fund x x x -

Current Income
Delchester Fund x x x -
Strategic Income Fund x x x -
Corporate Income Fund x x x -
Federal Bond Fund x x x -
U.S. Government Fund x x x -
Delaware-Voyageur US Government
Securities Fund x x x -
Limited-Term Government Fund x x x -
</TABLE>

(Not Part of Prospectus)

<PAGE>

(PA-ABC)

APPENDIX B--CLASSES OFFERED - (CON'T)
<TABLE>
<CAPTION>

Tax-Free Income A Class B Class C Class
Consultant Class
<S> <C> <C> <C> <C>
National High Yield Municipal Bond Fund x x x -
Tax-Free USA Fund x x x -
Tax-Free Insured Fund x x x -
Tax-Free USA Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Arizona Insured Fund x x x -
Delaware-Voyageur Tax-Free Arizona Fund x x x -
Delaware-Voyageur Tax-Free California Insured Fund x x x -
Delaware-Voyageur Tax-Free California Fund x x x -
Delaware-Voyageur Tax-Free Colorado Fund x x x -
Delaware-Voyageur Tax-Free Florida Insured Fund x x x -
Delaware-Voyageur Tax-Free Florida Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Florida Fund x x x -
Delaware-Voyageur Tax-Free Idaho Fund x x x -
Delaware-Voyageur Tax-Free Iowa Fund x x x -
Delaware-Voyageur Tax-Free Kansas Fund x x x -
Delaware-Voyageur Minnesota High Yield Municipal Bond Fund x x x -
Delaware-Voyageur Minnesota Insured Fund x x x -
Delaware-Voyageur Tax-Free Minnesota Intermediate Fund x x x -
Delaware-Voyageur Tax-Free Minnesota Fund x x x -
Delaware-Voyageur Tax-Free Missouri Insured Fund x x x -
Tax-Free New Jersey Fund x x x -
Delaware-Voyageur Tax-Free New Mexico Fund x x x -
Delaware-Voyageur Tax-Free New York Fund x x x -
Delaware-Voyageur Tax-Free North Dakota Fund x x x -
Tax-Free Ohio Fund x x x -
Delaware-Voyageur Tax-Free Oregon Insured Fund x x x -
Tax-Free Pennsylvania Fund x x x -
Delaware-Voyageur Tax-Free Utah Fund x x x -
Delaware-Voyageur Tax-Free Washington Insured Fund x x x -
Delaware-Voyageur Tax-Free Wisconsin Fund x x x -

Money Market Funds
Delaware Cash Reserve x x x x
U.S. Government Money Fund x - - x
Tax-Free Money Fund x - - x
</TABLE>

(Not Part of Prospectus)

<PAGE>

The Delaware Group includes funds with a wide range of investment objectives.
Stock funds, income funds, national and state-specific funds, tax-free funds,
money market funds, global and international funds and closed-end equity funds
give investors the ability to create a portfolio that fits their personal
financial goals. For more information, contact your financial adviser or call
Delaware Group at 800-523-4640.

INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006

<PAGE>

- ---------------------------------------------------------

TAX-FREE NEW JERSEY FUND

TAX-FREE OHIO FUND

TAX-FREE PENNSYLVANIA FUND
- ---------------------------------------------------------

A CLASS

- ---------------------------------------------------------

B CLASS

- ---------------------------------------------------------

C CLASS

- ---------------------------------------------------------

P R O S P E C T U S

- ---------------------------------------------------------

SEPTEMBER 2, 1997

DELAWARE
GROUP
--------

<PAGE>

(SAI-PA/PART B)

- --------------------------------------------------------------------------------

PART B--STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 2, 1997
- --------------------------------------------------------------------------------

TAX-FREE NEW JERSEY FUND
TAX-FREE OHIO FUND
TAX-FREE PENNSYLVANIA FUND
- --------------------------------------------------------------------------------

1818 Market Street
Philadelphia, PA 19103

- --------------------------------------------------------------------------------

For Prospectus and Performance: Nationwide 800-523-4640

Information on Existing Accounts: (SHAREHOLDERS ONLY)
Nationwide 800-523-1918

Dealer Services: (BROKER/DEALERS ONLY)
Nationwide 800-362-7500
- --------------------------------------------------------------------------------

TABLE OF CONTENTS

- --------------------------------------------------------------------------------
Cover Page 1
- --------------------------------------------------------------------------------
Investment Objectives and Policies
- --------------------------------------------------------------------------------
Performance Information
- --------------------------------------------------------------------------------
Trading Practices and Brokerage
- --------------------------------------------------------------------------------
Purchasing Shares
- --------------------------------------------------------------------------------
Investment Plans
- --------------------------------------------------------------------------------
Determining Offering Price and
Net Asset Value
- --------------------------------------------------------------------------------
Redemption and Repurchase
- --------------------------------------------------------------------------------
Dividends and Distributions
- --------------------------------------------------------------------------------
Taxes
- --------------------------------------------------------------------------------
Investment Management Agreements
- --------------------------------------------------------------------------------
Officers and Trustees
- --------------------------------------------------------------------------------
Exchange Privilege
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
Appendix A--Description of Ratings
- --------------------------------------------------------------------------------
Appendix B--Tax Exempt vs Taxable Yields
- --------------------------------------------------------------------------------
Appendix C--Investing in New Jersey, Ohio and
Pennsylvania Tax-Exempt Obligations
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------

-1-

<PAGE>

(SAI-PA/PART B)

Delaware Group State Tax-Free Income Trust (the "Trust") (formerly
known as DMC Tax-Free Income Trust-Pennsylvania) is a professionally managed
mutual fund of the series type. This Statement of Additional Information ("Part
B" of the registration statement) supplements the information contained in the
current Prospectus of Tax-Free New Jersey Fund ("New Jersey Fund"), Tax-Free
Ohio Fund ("Ohio Fund") and Tax-Free Pennsylvania Fund ("Pennsylvania Fund")
(individually a "Fund" and collectively the "Funds") dated September 2, 1997, as
it may be amended from time to time. Part B should be read in conjunction with
the Funds' Prospectus. Part B is not itself a prospectus but is, in its
entirety, incorporated by reference into the Prospectus. The Funds' Prospectus
may be obtained by writing or calling your investment dealer or by contacting
the Funds' national distributor, Delaware Distributors, L.P. (the
"Distributor"), 1818 Market Street, Philadelphia, PA 19103.

Each Fund offers Class A Shares, Class B Shares and Class C Shares
(individually, a "Class" and collectively, the "Classes"). Class B Shares and
Class C Shares may be purchased at a price equal to the next determined net
asset value per share. Class A Shares may be purchased at the public offering
price, which is equal to the next determined net asset value per share, plus a
front-end sales charge. Class A Shares are subject to a maximum front-end sales
charge of 3.75% and annual 12b-1 Plan expenses of up to 0.30% (currently, no
more than 0.25% for New Jersey Fund and Ohio Fund pursuant to Board action).
Class B Shares are subject to a contingent deferred sales charge ("CDSC") which
may be imposed on redemptions made within six years of purchase and annual 12b-1
Plan expenses of up to 1% which are assessed against Class B Shares for
approximately eight years after purchase. See Automatic Conversion of Class B
Shares under Classes of Shares in the Classes' Prospectus. Class C Shares are
subject to a CDSC which may be imposed on redemptions made within 12 months of
purchase and annual 12b-1 Plan expenses of up to 1%, which are assessed against
Class C Shares for the life of the investment.

All references to "shares" in this Part B refer to all Classes of
shares of the Fund, except where noted.

-2-

<PAGE>

(SAI-PA/PART B)

INVESTMENT OBJECTIVE AND POLICY

New Jersey Fund--The objective of the Fund is to seek as high a level
of current interest income exempt from federal income tax and certain New Jersey
state and local taxes as is available from municipal bonds and as is consistent
with preservation of capital. There is no assurance that this objective can be
achieved. This objective is a matter of fundamental policy and may not be
changed without shareholder approval.

The Fund seeks to achieve this objective by investing its assets in a
nondiversified portfolio of debt obligations issued by or on behalf of the State
of New Jersey its political subdivisions, agencies, authorities and
instrumentalities, certain interstate agencies, Puerto Rico, the Virgin Islands
and certain other territories and qualified obligations of the United States
that pay interest income which, in the opinion of counsel, is exempt from
federal income taxes and from certain New Jersey state and local taxes. However,
the Fund may invest not more than 20% of its assets in debt obligations issued
by other states.

The Fund intends to invest at least 80% of its net assets in New Jersey
tax-exempt debt obligations which are rated by Standard & Poor's Ratings Group
("S&P"), Moody's Investors Service, Inc. ("Moody's") or Fitch Investors Service,
Inc. ("Fitch") at the time of purchase as being within their top four grades, or
which are unrated but considered by Delaware Management Company, Inc. (the
"Manager") to be comparable in quality to the top four grades. The fourth grade
is considered medium grade and may have speculative characteristics. The Fund
may also invest up to 20% of its net assets in securities with grades lower than
the top four grades of S&P, Moody's or Fitch, and in comparable unrated
securities. These securities are speculative and may involve greater risk and
have higher yields.

Ohio Fund--The objective of the Fund is to seek as high a level of
current interest income exempt from federal income tax and certain Ohio state
and local taxes as is available from municipal bonds and as is consistent with
preservation of capital. There is no assurance that this objective can be
achieved. This objective is a matter of fundamental policy and may not be
changed without shareholder approval.

The Fund seeks to achieve this objective by investing its assets in a
nondiversified portfolio of debt obligations issued by or on behalf of the State
of Ohio its political subdivisions, agencies, authorities and instrumentalities,
certain interstate agencies, Puerto Rico, the Virgin Islands and certain other
territories and qualified obligations of the United States that pay interest
income which, in the opinion of counsel, is exempt from federal income taxes and
from certain Ohio state and local taxes. However, the Fund may invest not more
than 20% of its assets in debt obligations issued by other states.

The Fund intends to invest at least 80% of its net assets in Ohio
tax-exempt debt obligations which are rated by S&P, Moody's or Fitch at the time
of purchase as being within their top four grades, or which are unrated but
considered by the Manager to be comparable in quality to the top four grades.
The fourth grade is considered medium grade and may have speculative
characteristics. The Fund may also invest up to 20% of its net assets in
securities with grades lower than the top four grades of S&P, Moody's or Fitch,
and in comparable unrated securities. These securities are speculative and may
involve greater risk and have higher yields.

Pennsylvania Fund--The objective of the Fund is to seek as high a level
of current interest income exempt from federal income tax and certain
Pennsylvania state and local taxes as is available from municipal bonds and as
is consistent with preservation of capital. There is no assurance that this
objective can be achieved. This objective is a matter of fundamental policy and
may not be changed without shareholder approval.

-3-

<PAGE>

(SAI-PA/PART B)

The Fund seeks to achieve this objective by investing its assets in a
nondiversified portfolio of debt obligations issued by or on behalf of the
Commonwealth of Pennsylvania and its political subdivisions, agencies,
authorities and instrumentalities, certain interstate agencies, Puerto Rico, the
Virgin Islands and certain other territories and qualified obligations of the
United States that pay interest income which, in the opinion of counsel, is
exempt from federal income taxes and from certain Pennsylvania state and local
taxes. However, the Fund may invest not more than 20% of its assets in debt
obligations issued by other states.

The Fund intends to invest at least 80% of its net assets in
Pennsylvania tax-exempt debt obligations which are rated by S&P, Moody's or
Fitch at the time of purchase as being within their top four grades, or which
are unrated but considered by the Manager to be comparable in quality to the top
four grades. The fourth grade is considered medium grade and may have
speculative characteristics. The Fund may also invest up to 20% of its net
assets in securities with grades lower than the top four grades of S&P, Moody's
or Fitch, and in comparable unrated securities. These securities are speculative
and may involve greater risk and have higher yields.

See Appendix A for a description of S&P, Moody's and Fitch ratings.

Each Fund may invest more than 25% of its assets in municipal
obligations relating to similar types of projects or with other similar
economic, business or political characteristics (such as bonds of housing
finance agencies or health care facilities). In addition, the Funds may invest
more than 25% of its assets in industrial development bonds or pollution control
bonds which may be backed only by the assets and revenues of a nongovernmental
user.

Each Fund may invest in restricted securities, including unregistered
securities eligible for resale without registration pursuant to Rule 144A ("Rule
144A Securities") under the Securities Act of 1933 (the "1933 Act"). Rule 144A
Securities may be freely traded among qualified institutional investors without
registration under the 1933 Act.

Investing in Rule 144A Securities could have the effect of increasing
the level of a Fund's illiquidity to the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities. After
the purchase of a Rule 144A Security, however, the Board of Trustees and the
Manager will continue to monitor the liquidity of that security to ensure that
Pennsylvania Fund has no more than 10% and New Jersey Fund and Ohio Fund each
has no more than 15% of its net assets in illiquid securities.

Each Fund may also invest in "when-issued securities" for which a Fund
will maintain a segregated account containing cash or high-grade debt
obligations which it will mark to market daily. When-issued securities involve
commitments to purchase new issues of securities which are offered on a
when-issued basis which usually involve delivery and payment up to 45 days after
the date of transaction. During this period between the date of commitment and
the date of delivery, a Fund does not accrue interest on the investment, but the
market value of the bonds could fluctuate. This would result in a Fund having
unrealized appreciation or depreciation which would affect the net asset value
of its shares.

Each Fund will invest its assets in securities of varying maturities,
without limitation, depending on market conditions. Typically, the remaining
maturity of municipal bonds will range between five and 30 years. From time to
time, a Fund may also invest in short-term, tax-free instruments such as
tax-exempt commercial paper and general obligation, revenue and project notes.
Each Fund may also invest in variable and floating rate demand obligations
(longer-term instruments with an interest rate that fluctuates and a demand
feature that allows the holder to sell the instruments back to the issuer from
time to time) but generally does not intend to invest more than 5% of its net
assets in these instruments. The Manager will attempt to adjust the maturity
structure of the portfolio to

-4-

<PAGE>

(SAI-PA/PART B)

provide a high level of tax-exempt income consistent with preservation of
capital.

Under abnormal conditions, each Fund may invest in taxable instruments
for temporary defensive purposes. These would include obligations of the U.S.
government, its agencies and instrumentalities.

The principal risk to which a Fund is subject is price fluctuation due
to changes in interest rates caused by government policies and economic factors
which are beyond the control of the investment manager. In addition, although
some municipal bonds are government obligations backed by the issuer's full
faith and credit, others are only secured by a specific revenue source and not
by the general taxing power. The Fund will invest in both types.

Each Fund is registered as a nondiversified investment company. Each
Fund has the ability to invest as much as 50% of its assets in as few as two
issuers provided that no single issuer accounts for more than 25% of the
portfolio. The remaining 50% must be diversified so that no more than 5% is
invested in the securities of a single issuer. Because each Fund may invest its
assets in fewer issuers, the value of Fund shares may fluctuate more rapidly
than if the Fund were fully diversified. In the event a Fund invests more than
5% of its assets in a single issuer, it would be affected more than a
fully-diversified fund if that issuer encounters difficulties in satisfying its
financial obligations. Each Fund may invest without limitation in U.S.
government and government agency securities backed by the U.S. government or its
agencies or instrumentalities.

Each Fund will invest in securities for income earnings rather than
trading for profit. A Fund will not vary portfolio investments, except to:

1. eliminate unsafe investments and investments not consistent with the
preservation of the capital or the tax status of the investments of
the Fund;

2. honor redemption orders, meet anticipated redemption requirements,
and negate gains from discount purchases;

3. reinvest the earnings from securities in like securities; or

4. defray normal administrative expenses.

Investment Restrictions
New Jersey Fund--The Fund has adopted the following restrictions which,
along with its investment objective, cannot be changed without approval by the
holders of a "majority of the outstanding voting shares" of the Fund, which is a
vote by the holders of the lesser of a) 67% or more of the voting securities
present in person or by proxy at a meeting, if the holders of more than 50% of
the outstanding voting securities are present or represented by proxy; or b)
more than 50% of the outstanding voting securities. The percentage limitations
contained in the restrictions and policies set forth herein apply at the time of
purchase of securities.

The Fund shall not:

1. Purchase securities other than municipal bonds and taxable
short-term investments.

-5-

<PAGE>

(SAI-PA/PART B)

shall at any time fall below 300%, the Fund shall, within three days thereafter
(not including Sunday or holidays) or such longer period as the Securities and
Exchange Commission may prescribe by rules and regulations, reduce the amount of
its borrowings to such an extent that the asset coverage of such borrowings
shall be at least 300%. The Fund will not issue senior securities as defined in
the 1940 Act, except for notes to banks. Investment securities will not normally
be purchased while there is an outstanding borrowing.

3. Make short sales of securities, or purchase securities on margin,
except that the Fund may satisfy margin requirements with respect to futures
transactions.

4. Underwrite the securities of other issuers, except that the Fund may
participate as part of a group in bidding for the purchase of municipal bonds
directly from an issuer for its own portfolio in order to take advantage of the
lower purchase price available to members of such a group;

5. Make loans, except to the extent that purchases of debt obligations
(including repurchase agreements) in accordance with the Fund's investment
objective and policies are considered loans.

6. With respect to 50% of the value of the assets of the Fund, invest
more than 5% of its assets in the securities of any one issuer or invest in more
than 10% of the outstanding voting securities of any one issuer, except that
U.S. government and government agency securities backed by the U.S. government
or its agencies or instrumentalities may be purchased without limitation. For
the purposes of this limitation, the Fund will regard the state and each
political subdivision, agency or instrumentality of the state, and each
multistate agency of which the state is a member as a separate issuer.

7. Invest in securities of other investment companies, except as part
of a merger, consolidation or other acquisition, or in accordance with the
limitations contained in the Investment Company Act of 1940, as amended (the
"1940 Act").

8. Invest more than 25% of its total assets in any particular industry
or industries, except that the Fund may invest more than 25% of the value of its
total assets in municipal bonds, including industrial development and pollution
control bonds, and in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities.

From time to time, more than 10% of the Fund's assets may be invested
in municipal bonds insured as to payment of principal and interest by a single
insurance company. The Fund believes such investments are consistent with the
foregoing restrictions. As a matter of non-fundamental policy, no more than
15% of the Fund's total assets will be invested in repurchase agreements and
other assets maturing in more than seven days, or invest in companies for the
purpose of exercising control. If a percentage restriction is adhered to at the
time of investment, a later increase or decrease in percentages resulting from
change in value of net assets will not result in a violation of the
restrictions.

Special Considerations Relating to New Jersey Tax-Exempt Securities
New Jersey Fund concentrates its investments in the State of New
Jersey. Therefore, there are risks associated with the Fund that would not be
present if the Fund were diversified nationally. These risks include any new
legislation that would adversely affect New Jersey tax-exempt obligations,
regional or local economic conditions that could adversely affect these
obligations, and differing levels of supply and demand for municipal bonds
particular to the State of New Jersey.

-6-

<PAGE>

(SAI-PA/PART B)

Ohio Fund--The Fund has adopted the following restrictions which, along
with its investment objective, cannot be changed without approval by the holders
of a "majority of the outstanding voting shares" of the Fund, which is a vote by
the holders of the lesser of a) 67% or more of the voting securities present in
person or by proxy at a meeting, if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy; or b) more
than 50% of the outstanding voting securities. The percentage limitations
contained in the restrictions and policies set forth herein apply at the time of
purchase of securities.

The Fund shall not:

1. Purchase securities other than municipal bonds and taxable
short-term investments.

2. Borrow money in excess of 10% of the value of its assets and then
only as a temporary measure for extraordinary purposes. Any borrowing will be
done from a bank and to the extent that such borrowing exceeds 5% of the value
of the Fund's assets, asset coverage of at least 300% is required. In the event
that such asset coverage shall at any time fall below 300%, the Fund shall,
within three days thereafter (not including Sunday or holidays) or such longer
period as the Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to such an extent that the
asset coverage of such borrowings shall be at least 300%. The Fund will not
issue senior securities as defined in the 1940 Act, except for notes to banks.
Investment securities will not normally be purchased while there is an
outstanding borrowing.

3. Make short sales of securities, or purchase securities on margin,
except that the Fund may satisfy margin requirements with respect to futures
transactions.

5. Make loans, except to the extent that purchases of debt obligations
(including repurchase agreements) in accordance with the Fund's investment
objective and policies are considered loans.

From time to time, more than 10% of the Fund's assets may be invested
in municipal bonds insured as to

-7-

<PAGE>

(SAI-PA/PART B)

payment of principal and interest by a single insurance company. The Fund
believes such investments are consistent with the foregoing restrictions. As a
matter of non-fundamental policy, no more than 15% of the Fund's total assets
will be invested in repurchase agreements and other assets maturing in more than
seven days, or invest in companies for the purpose of exercising control. If a
percentage restriction is adhered to at the time of investment, a later increase
or decrease in percentages resulting from change in value of net assets will not
result in a violation of the restrictions.

Special Considerations Relating to Ohio Tax-Exempt Securities
Ohio Fund concentrates its investments in the State of Ohio. Therefore,
there are risks associated with the Fund that would not be present if the Fund
were diversified nationally. These risks include any new legislation that would
adversely affect Ohio tax-exempt obligations, regional or local economic
conditions that could adversely affect these obligations, and differing levels
of supply and demand for municipal bonds particular to the State of Ohio.

Pennsylvania Fund--The Fund has adopted the following restrictions
which, along with its investment objective, cannot be changed without approval
by the holders of a "majority of the outstanding voting shares" of the Fund,
which is a vote by the holders of the lesser of a) 67% or more of the voting
securities present in person or by proxy at a meeting, if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy; or b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions and policies set forth herein apply at
the time of purchase of securities.

The Fund shall not:

1. Purchase securities other than municipal bonds and taxable
short-term investments as defined above.

3. Sell securities short.

4. Write or purchase put or call options.

5. Underwrite the securities of other issuers, except that the Fund may
participate as part of a group in bidding for the purchase of municipal bonds
directly from an issuer for its own portfolio in order to take advantage of the
lower purchase price available to members of such a group; nor invest more than
10% of the value of the Fund's net assets in illiquid assets.

6. Purchase or sell commodities or commodity contracts.

7. Purchase or sell real estate, but this shall not prevent the Fund
from investing in municipal bonds secured by real estate or interests therein.

-8-

<PAGE>

(SAI-PA/PART B)

8. Make loans to other persons except through the use of repurchase
agreements or the purchase of commercial paper. For these purposes the purchase
of a portion of debt securities which is part of an issue to the public shall
not be considered the making of a loan. Not more than 10% of the Fund's total
assets will be invested in repurchase agreements and other assets maturing in
more than seven days.

9. With respect to 50% of the value of the assets of the Fund, invest
more than 5% of its assets in the securities of any one issuer or invest in more
than 10% of the outstanding voting securities of any one issuer, except that
U.S. government and government agency securities backed by the U.S. government
or its agencies or instrumentalities may be purchased without limitation. For
the purposes of this limitation, the Fund will regard the state and each
political subdivision, agency or instrumentality of the state, and each
multistate agency of which the state is a member as a separate issuer.

10. Invest in companies for the purpose of exercising control.

11. Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets.

12. Invest more than 25% of its total assets in any particular industry
or industries, except that the Fund may invest more than 25% of the value of its
total assets in municipal bonds, including industrial development and pollution
control bonds, and in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities.

Although not a fundamental investment restriction, the Fund currently
does not invest its assets in real estate limited partnerships or oil, gas and
other mineral leases.

Special Considerations Relating to Pennsylvania Tax-Exempt Securities
Pennsylvania Fund concentrates its investments in the Commonwealth of
Pennsylvania. Therefore, there are risks associated with the Fund that would not
be present if the Fund were diversified nationally. These risks include any new
legislation that would adversely affect Pennsylvania tax-exempt obligations,
regional or local economic conditions that could adversely affect these
obligations, and differing levels of supply and demand for municipal bonds
particular to the Commonwealth of Pennsylvania.

Repurchase Agreements
While each Fund is permitted to do so, it normally does not invest in
repurchase agreements, except under some circumstances to invest cash balances.

The funds in the Delaware Group have obtained an exemption from the
joint-transaction prohibitions of Section 17(d) of the Investment Company Act of
1940 (the "1940 Act") to allow the Delaware Group funds jointly to invest cash
balances. Each Fund may invest cash balances in a joint repurchase agreement in
accordance with the terms of the Order and subject generally to the conditions
described below.

A repurchase agreement is a short-term investment by which the
purchaser acquires ownership of a debt

-9-

<PAGE>

(SAI-PA/PART B)

security and the seller agrees to repurchase the obligation at a future time and
set price, thereby determining the yield during the purchaser's holding period.
Should an issuer of a repurchase agreement fail to repurchase the underlying
security, the loss to a Fund, if any, would be the difference between the
repurchase price and the market value of the security. Each Fund will limit its
investments in repurchase agreements to those which the Manager, under the
guidelines of the Board of Trustees, determines to present minimal credit risks
and which are of high quality. In addition, a Fund must have collateral of at
least 100% of the repurchase price, including the portion representing the
Fund's yield under such agreements which is monitored on a daily basis.

Municipal Bonds
The term "municipal bonds" is generally understood to include debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities such as airports, bridges,
highways, housing, hospitals, mass transportation, schools, streets and water
and sewer works. Other public purposes for which municipal bonds may be issued
include the refunding of outstanding obligations, obtaining funds for general
operating expenses and the obtaining of funds to lend to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds to provide privately-operated housing facilities, sports facilities,
convention or trade show facilities, airport, mass transit, port or parking
facilities, air or water pollution control facilities and certain local
facilities for water supply, gas, electricity or sewage or solid waste
disposals. Such obligations are included within the term "municipal bonds"
provided that the interest paid thereon qualifies as exempt from federal income
tax in the opinion of bond counsel to the issuer. In addition, the interest paid
on industrial development bonds, the proceeds from which are used for the
construction, equipment, repair or improvement of privately-operated industrial
or commercial facilities, may be exempt from federal income tax, although
current federal tax laws place substantial limitations on the size of such
issues.

The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source, but not from
the general taxing power. Tax-exempt industrial development bonds are in most
cases revenue bonds and do not generally carry the pledge of the credit of the
issuer of such bonds. There are, of course, variations in the security of
municipal bonds, both within a particular classification and between
classifications.

The yields on municipal bonds are dependent on a variety of factors,
including general money market conditions, general conditions of the municipal
bond market, size of a particular offering, maturity of the obligations and
rating of the issue. The imposition of the Fund's management fee, as well as
other operating expenses, will have the effect of reducing the yield to
investors.

Private Purpose Bonds
The Tax Reform Act of 1986 (the "Act") limits the amount of new
"private purpose" bonds that each state can issue and subjects interest income
from these bonds to the federal alternative minimum tax. "Private purpose" bonds
are issues whose proceeds are used to finance certain nongovernment activities,
and could include some types of industrial revenue bonds such as privately-owned
sports and convention facilities. The Act also makes the tax-exempt status of
certain bonds depend upon the issuer's compliance with specific requirements
after the bonds are issued.

Each Fund intends to seek to achieve a high level of tax-exempt income.
However, if a Fund invests in newly-issued private purpose bonds, a portion of
Fund distributions would be subject to the federal alternative

-10-

<PAGE>

(SAI-PA/PART B)

minimum tax applicable to certain shareholders.

Municipal Bond Insurance
The practice has developed among municipal issuers of having their
issues insured by various companies. In particular, the Municipal Bond Insurance
Association ("MBIA") and its affiliate, Municipal Bond Investors Assurance
Corporation ("MBIA Corp."), Financial Guaranty Insurance Company ("FGIC"),
Financial Security Assurance ("FSA") and the AMBAC Indemnity Corporation
("AMBAC") are presently insuring a great many issues. It is expected that other
insurance associations or companies will enter this field, and that a
substantial portion of municipal bond issues available for investment by
companies such as the Fund will be insured. Accordingly, from time to time a
substantial portion of a Fund's assets may be invested in municipal bonds
insured as to payment of principal and interest when due by a single insurance
company. The Manager will review the creditworthiness of the issuer and its
ability to meet its obligations to pay interest and repay principal and not the
creditworthiness of the private insurer. However, since insured obligations are
typically rated in the top grades by Moody's and S&P, most insured obligations
will qualify for investment under each Fund's ratings standards discussed above.
If the issuer defaults on payment of interest or principal, the trustee and/or
payment agent of the issuer will notify the insurer who will make payment to the
bondholders. There is no assurance that any insurance company will meet its
obligations. The Fund believes such investments are consistent with its
fundamental investment policies and restrictions.

Municipal Leases
As stated in the Prospectus, a portion of each Fund's assets may be
invested in municipal lease obligations, primarily through certificates of
participation ("COPs"). COPs function much like installment purchase agreements
and are widely used by state and local governments to finance the purchase of
property. The lease format is generally not subject to constitutional
limitations on the issuance of state debt, and COPs enable a governmental issuer
to increase government liabilities beyond constitutional debt limits. A
principal distinguishing feature separating COPs from municipal debt is the
lease, which contains a "nonappropriation" or "abatement" clause. This clause
provides that, although the municipality will use its best efforts to make lease
payments, it may terminate the lease without penalty if its appropriating body
does not allocate the necessary funds. Each Fund will invest only in COPs rated
within the four highest rating categories of Moody's, S&P or Fitch, or in
unrated COPs believed to be of comparable quality.

Each Fund follows certain guidelines to determine whether the COPs held
in the Fund's portfolio constitute liquid investments. These guidelines set
forth various factors to be reviewed by the Manager and which will be monitored
by the Board. Such factors include (a) the credit quality of such securities and
the extent to which they are rated; (b) the size of the municipal securities
market for the Fund both in general and with respect to COPs; and (c) the extent
to which the type of COPs held by the Fund trade on the same basis and with the
same degree of dealer participation as other municipal bonds of comparable
credit rating or quality.

Options--New Jersey Fund and Ohio Fund
New Jersey Fund and Ohio Fund may write put and call options on a
covered basis only, and will not engage in option writing strategies for
speculative purposes. The Funds may write covered call options and secured put
options from time to time on such portion of its portfolio, without limit, as
the Manager determines is appropriate in seeking to obtain a Fund's investment
objective. A Fund may also purchase (i) call options to the extent that
premiums paid for such options do not exceed 2% of the Fund's total assets and
(ii) put options to the extent that premiums paid for such options do not exceed
2% of the Fund's total assets.

A. Covered Call Writing - A call option gives the purchaser of such
option the right to buy, and the writer, in this case the Fund, the obligation
to sell the underlying security at the exercise price during the option

-11-

<PAGE>

(SAI-PA/PART B)

period. There is no percentage limitation on writing covered call options.

The advantage to a Fund of writing covered calls is that the Fund
receives a premium which is additional income. The disadvantage is that if the
security rises in value the Fund will lose the appreciation.

During the option period, a covered call option writer may be assigned
an exercise notice by the broker/dealer through whom such call option was sold
requiring the writer to deliver the underlying security against payment of the
exercise price. This obligation is terminated upon the expiration of the option
period or at such earlier time in which the writer effects a closing purchase
transaction. A closing purchase transaction cannot be effected with respect to
an option once the option writer has received an exercise notice for such
option.

Closing purchase transactions will ordinarily be effected to realize a
profit on an outstanding call option, to prevent an underlying security from
being called, to permit the sale of the underlying security or to enable a Fund
to write another call option on the underlying security with either a different
exercise price or expiration date or both. A Fund may realize a net gain or loss
from a closing purchase transaction depending upon whether the net amount of the
original premium received on the call option is more or less than the cost of
effecting the closing purchase transaction. Any loss incurred in a closing
purchase transaction may be partially or entirely offset by the premium received
from a sale of a different call option on the same underlying security. Such a
loss may also be wholly or partially offset by unrealized appreciation in the
market value of the underlying security. Conversely, a gain resulting from a
closing purchase transaction could be offset in whole or in part by a decline in
the market value of the underlying security.

If a call option expires unexercised, a Fund will realize a short-term
capital gain in the amount of the premium on the option less the commission
paid. Such a gain, however, may be offset by depreciation in the market value of
the underlying security during the option period. If a call option is exercised,
a Fund will realize a gain or loss from the sale of the underlying security
equal to the difference between the cost of the underlying security and the
proceeds of the sale of the security plus the amount of the premium on the
option less the commission paid.

The market value of a call option generally reflects the market price
of the underlying security. Other principal factors affecting market value
include supply and demand, interest rates, the price volatility of the
underlying security and the time remaining until the expiration date.

Call options will be written only on a covered basis, which means that
a Fund will own the underlying security subject to a call option at all times
during the option period. Unless a closing purchase transaction is effected, a
Fund would be required to continue to hold a security which it might otherwise
wish to sell. Options written by the Fund will normally have expiration dates
between three and nine months from the date written. The exercise price of a
call option may be below, equal to or above the current market value of the
underlying security at the time the option is written.

B. Purchasing Call Options - New Jersey Fund and Ohio Fund may purchase
call options to the extent that premiums paid by the Fund do not aggregate more
than 2% of the Fund's total assets. When a Fund purchases a call option, in
return for a premium paid by the Fund to the writer of the option, the Fund
obtains the right to buy the security underlying the option at a specified
exercise price at any time during the term of the option. The writer of the call
option, who receives the premium upon writing the option, has the obligation,
upon exercise of the option, to deliver the underlying security against payment
of the exercise price. The advantage is that a Fund may hedge against an
increase in the price of securities which it ultimately wishes to buy. However,
the premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon

-12-

<PAGE>

(SAI-PA/PART B)

exercise of the option.

A Fund may, following the purchase of a call option, liquidate its
position by effecting a "closing sale transaction." This is accomplished by
selling an option of the same series as the option previously purchased. A Fund
will realize a profit from a closing sale transaction if the price received on
the transaction is more than the premium paid to purchase the original call
option; the Fund will realize a loss from a closing sale transaction if the
price received on the transaction is less than the premium paid to purchase the
original call option.

Although a Fund will generally purchase only those call options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market may exist. In such event, it may not be possible to
effect closing transactions in particular options, with the result that a Fund
would be required to exercise its options in order to realize any profit and
would incur brokerage commissions upon the exercise of such options and upon the
subsequent disposition of the underlying securities acquired through the
exercise of such options. Further, unless the price of the underlying security
changes sufficiently, a call option purchased by the Fund may expire without any
value to a Fund.

C. Secured Put Writing - A put option gives the purchaser of the option
the right to sell, and the writer, in this case a Fund, the obligation to buy
the underlying security at the exercise price during the option period. During
the option period, the writer of a put option may be assigned an exercise notice
by the broker/dealer through whom the option was sold requiring the writer to
make payment of the exercise price against delivery of the underlying security.
In this event, the exercise price will usually exceed the then-market value of
the underlying security. This obligation terminates upon expiration of the put
option or at such earlier time at which the writer effects a closing purchase
transaction. The operation of put options in other respects is substantially
identical to that of call options.

The advantage to a Fund of writing such options is that it receives
premium income. The disadvantage is that a Fund may have to purchase securities
at higher prices than the current market price when the put is exercised.

Put options will be written only on a secured basis, which means that a
Fund will maintain in a segregated account with its Custodian, the Bankers Trust
Company of New York, cash or U.S. government securities in an amount not less
than the exercise price of the option at all times during the option period. The
amount of cash or U.S. government securities held in the segregated account will
be adjusted on a daily basis to reflect changes in the market value of the
securities covered by the put option written by a Fund. Secured put options will
generally be written in circumstances where the Manager wishes to purchase the
underlying security for a Fund's portfolio at a price lower than the current
market price of the security. In such event, a Fund would write a secured put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay.

D. Purchasing Put Options - New Jersey Fund and Ohio Fund may purchase
put options to the extent that premiums paid for such options do not exceed 2%
of the Fund's total assets. A Fund will, at all times during which it holds a
put option, own the security covered by such option.

A Fund intends to purchase put options in order to protect against a
decline in the market value of the underlying security below the exercise price
less the premium paid for the option ("protective puts"). The ability to
purchase put options will allow a Fund to protect unrealized gain in an
appreciated security in its portfolio without actually selling the security. In
addition, a Fund will continue to receive interest income on the security. If
the security does not drop in value, the Fund will lose the value of the premium
paid. A Fund may sell a put option

-13-

<PAGE>

(SAI-PA/PART B)

which it has previously purchased prior to the sale of the securities underlying
such option. Such sales will result in a net gain or loss depending on whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which is sold.

Futures--New Jersey Fund and Ohio Fund
New Jersey Fund and Ohio Fund may enter into contracts for the purchase
or sale for future delivery of securities. While futures contracts provide for
the delivery of securities, deliveries usually do not occur. Contracts are
generally terminated by entering into an offsetting transaction. When a Fund
enters into a futures transaction, it must deliver to the futures commission
merchant selected by the Fund an amount referred to as "initial margin." This
amount is maintained by the futures commission merchant in an account at the
Funds' Custodian Bank. Thereafter, a "variation margin" may be paid by a Fund
to, or drawn by a Fund from, such account in accordance with controls set for
such accounts, depending upon changes in the price of the underlying securities
subject to the futures contract.

A Fund may also purchase and write options to buy or sell futures
contracts. Options on futures are similar to options on securities except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures contract, rather than actually to purchase or
sell the futures contract, at a specified exercise price at any time during the
period of the option.

The purpose of the purchase or sale of futures contracts for a Fund,
which consists of a substantial number of municipal securities, is to protect
the Fund against the adverse effects of fluctuations in interest rates without
actually buying or selling such securities. Similarly, when it is expected that
interest rates may decline, futures contracts may be purchased to hedge in
anticipation of subsequent purchases of municipal securities at higher prices.

With respect to options on futures contracts, when a Fund is not fully
invested, it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates. The writing of a call option on
a futures contract constitutes a partial hedge against declining prices of the
securities which are deliverable upon exercise of the futures contract. If the
futures price at the expiration of the option is below the exercise price, a
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the portfolio holdings. The
writing of a put option on a futures contract constitutes a partial hedge
against increasing prices of the securities which are deliverable upon exercise
of the futures contract. If the futures price at expiration of the option is
higher than the exercise price, a Fund will retain the full amount of the option
premium which provides a partial hedge against any increase in the price of
municipal securities which the Fund intends to purchase.

To the extent that a Fund purchases an option on a futures contract and
fails to exercise the option prior to the exercise date, it will suffer a loss
of the premium paid. Further, with respect to options on futures contracts, a
Fund may seek to close out an option position by writing or buying an offsetting
position covering the same securities or contracts and have the same exercise
price and expiration date. The ability to establish and close out positions on
options will be subject to the maintenance of a liquid secondary market, which
cannot be assured.

In addition, when a Fund engages in futures transactions, to the extent
required by the SEC, it will maintain with its custodian, assets in a segregated
account to cover its obligations with respect to such contracts, which assets
will consist of cash, cash equivalents or high quality debt securities from its
portfolio in an amount equal to the

-14-

<PAGE>

(SAI-PA/PART B)

difference between the fluctuating market value of such futures contracts and
the aggregate value of the margin payments made by the Fund with respect to such
futures contracts.

A Fund may enter into such futures contracts to protect against the
adverse effects of fluctuations in interest rates without actually buying or
selling the securities. For example, if interest rates are expected to increase,
a Fund might enter into futures contracts for the sale of debt securities. Such
a sale would have much the same effect as selling an equivalent value of the
debt securities owned by a Fund. If interest rates did increase, the value of
the debt securities in the portfolio would decline, but the value of the futures
contracts to a Fund would increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have. Similarly, when it is expected that interest rates may decline,
futures contracts may be purchased to hedge in anticipation of subsequent
purchases of securities at higher prices. Since the fluctuations in the value of
futures contracts should be similar to those of debt securities, a Fund could
take advantage of the anticipated rise in value of debt securities without
actually buying them until the market had stabilized. At that time, the futures
contracts could be liquidated and the Fund could then buy debt securities on the
cash market.

With respect to options on futures contracts, when a Fund is not fully
invested, it may purchase a call option on a futures contract to hedge against a
market advance due to declining interest rates. The purchase of a call option on
a futures contract is similar in some respects to the purchase of a call option
on an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based, or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the futures contract or underlying debt securities. As with the purchase of
futures contracts, when a Fund is not fully invested, it may purchase a call
option on a futures contract to hedge against a market advance due to declining
interest rates.

The writing of a call option on a futures contract constitutes a
partial hedge against the declining price of the security which is deliverable
upon exercise of the futures contract. If the futures price at the expiration of
the option is below the exercise price, a Fund will retain the full amount of
the option premium which provides a partial hedge against any decline that may
have occurred in the Fund's portfolio holdings. The writing of a put option on a
futures contract constitutes a partial hedge against the increasing price of the
security which is deliverable upon exercise of the futures contract. If the
futures price at the expiration of the option is higher than the exercise price,
a Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the Fund
intends to purchase.

If a put or call option a Fund has written is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, a Fund's
losses from existing options on futures may, to some extent, be reduced or
increased by changes in the value of portfolio securities. The purchase of a put
option on a futures contract is similar in some respects to the purchase of
protective puts on portfolio securities. For example, a Fund will purchase a put
option on a futures contract to hedge the Fund's portfolio against the risk of
rising interest rates.

To the extent that interest rates move in an unexpected direction, a
Fund may not achieve the anticipated benefits of futures contracts or options on
futures contracts or may realize a loss. For example, if a Fund is hedged
against the possibility of an increase in interest rates which would adversely
affect the price of securities held in its portfolio and interest rates decrease
instead, a Fund will lose part or all of the benefit of the increased value of
its securities which it has because it will have offsetting losses in its
futures position. In addition, in such situations, if a Fund had insufficient
cash, it may be required to sell securities from its portfolio to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the rising market. A Fund may
be required to sell securities at a time when it may be disadvantageous to do
so.

-15-

<PAGE>

(SAI-PA/PART B)

Further, with respect to options on futures contracts, a Fund may seek
to close out an option position by writing or buying an offsetting position
covering the same securities or contracts and have the same exercise price and
expiration date. The ability to establish and close out positions on options
will be subject to the maintenance of a liquid secondary market, which cannot be
assured.

Variable or Floating Rate Demand Notes--New Jersey Fund and Ohio Fund
Variable or floating rate demand notes ("VRDNs") are tax-exempt
obligations which contain a floating or variable interest rate adjustment
formula and an unconditional right of demand to receive payment of the unpaid
principal balance plus accrued interest upon a short notice period (generally up
to 30 days) prior to specified dates, either from the issuer or by drawing on a
bank letter of credit, a guarantee or insurance issued with respect to such
instrument. The interest rates are adjustable at intervals ranging from daily to
up to six months to some prevailing market rate for similar investments, such
adjustment formula being calculated to maintain the market value of the VRDN at
approximately the par value of the VRDN upon the adjustment date. The
adjustments are typically based upon the price rate of a bank or some other
appropriate interest rate adjustment index. The Manager will decide which
variable or floating rate demand instruments a Fund will purchase in accordance
with procedures prescribed by the Board of Trustees to minimize credit risks.
Any VRDN must be of high quality as determined by the Manager and subject to
review by the Board, with respect to both its long-term and short-term aspects,
except where credit support for the instrument is provided even in the event of
default on the underlying security, the Fund may rely only on the high quality
character of the short-term aspect of the demand instrument, i.e., the demand
feature. A VRDN which is unrated must have high quality characteristics similar
to those rated in accordance with policies and guidelines determined by the
Board. If the quality of any VRDN falls below the quality level required by the
Board and any applicable rules adopted by the Securities and Exchange
Commission, the Fund must dispose of the instrument within a reasonable period
of time by exercising the demand feature or by selling the VRDN in the secondary
market, whichever is believed by the Manager to be in the best interests of a
Fund and its shareholders.

-16-

<PAGE>

(SAI-PA/PART B)

PERFORMANCE INFORMATION

From time to time, each Fund may state its Classes' total return in
advertisements and other types of literature. Any statement of total return
performance data for a Class will be accompanied by information on the average
annual compounded rate of return for that Class over, as relevant, the most
recent one-, five- and ten-year (or life of fund, if applicable) periods. Each
Fund may also advertise aggregate and average total return information for its
Classes over additional periods of time.

In presenting performance information for Class A Shares, the Limited
CDSC, applicable only to certain redemptions of those shares, will not be
deducted from any computation of total return. See the Prospectuses for the Fund
Classes for a description of the Limited CDSC and the limited instances in which
it applies. All references to a CDSC in this Performance Information section
will apply to Class B Shares or Class C Shares.

The average annual total rate of return for each Class is based on a
hypothetical $1,000 investment that includes capital appreciation and
depreciation during the stated periods. The following formula will be used for
the actual computations:
n
P(1 + T) = ERV

Where: P = a hypothetical initial purchase order of $1,000 from
which, in the case of only Class A Shares,
the maximum front-end sales charge is deducted;

T = average annual total return;

n = number of years;

ERV = redeemable value of the hypothetical $1,000 purchase
at the end of the period after the deduction of the
applicable CDSC, if any, with respect to Class B Shares
and Class C Shares.

Aggregate or cumulative total return is calculated in a similar manner,
except that the results are not annualized. Each calculation assumes the maximum
front-end sales charge, if any, is deducted from the initial $1,000 investment
at the time it is made with respect to Class A Shares and that all distributions
are reinvested at net asset value, and, with respect to Class B Shares and Class
C Shares, reflects the deduction of the CDSC that would be applicable upon
complete redemption of such shares. In addition, each Fund may present total
return information that does not reflect the deduction of the maximum front-end
sales charge or any applicable CDSC.

The performance of Class A Shares, Class B Shares and Class C Shares of
Pennsylvania Fund, as shown below, is the average annual total return quotations
through February 28, 1997. The average annual total return for Class A Shares at
offer reflects the maximum front-end sales charge of 3.75% paid on the purchase
of shares. The average annual total return for Class A Shares at net asset value
(NAV) does not reflect the payment of any front-end sales charge.

-17-

<PAGE>

(SAI-PA/PART B)

Securities prices fluctuated during the periods covered and past
results should not be considered as representative of future performance.

Pennsylvania Fund
Average Annual Total Return

Class A Shares(1) Class A Shares(1)
(at Offer) (at NAV)
1 year ended
2/28/97 0.44% 4.35%

3 years ended
2/28/97 3.70% 5.04%

5 years ended
2/28/97 5.92% 6.74%

10 years ended
2/28/97 6.49% 6.90%

15 years ended
2/28/97 8.88% 10.77%

Period 3/23/77(2)
through 2/28/97 6.44% 6.65%

(1) Performance figures for periods after May 31, 1992 reflect applicable
Rule 12b-1 distribution expenses. Future performance will be affected by
such expenses. Effective June 9, 1997, the maximum front-end sales charge
was reduced from 4.75% to 3.75%. The above performance numbers are
calculated using 3.75% as the applicable sales charge for all time
periods, and are more favorable than they would have been had they been
calculated using the former front-end sales charges.

(2) Date of initial public offering of Class A Shares.

The performance of Class B Shares, as shown below, is the average annual
total return quotation through February 28, 1997. The average annual total
return for Class B Shares including deferred sales charge reflects the deduction
of the applicable CDSC that would have been paid if the shares were redeemed at
February 28, 1997. The average annual total return for Class B Shares excluding
deferred sales charge assumes the shares were not redeemed at February 28, 1997
and therefore does not reflect the deduction of a CDSC.

-18-

<PAGE>

(SAI-PA/PART B)

Pennsylvania Fund
Average Annual Total Return

Class B Shares Class B Shares
(Including Deferred (Excluding Deferred
Sales Charge) Sales Charge)
1 year ended
2/28/97 (0.37%) 3.52%

Period 5/2/94(1)
through 2/28/97 4.48% 5.44%

(1) Date of initial public offering of Class B Shares.

The performance of Class C Shares, as shown below, is the average
annual total return quotation through February 28, 1997. The average annual
total return for Class C Shares including deferred sales charge reflects the
deduction of the applicable CDSC that would be paid if the shares were redeemed
at February 28, 1997. The average annual total return for Class C Shares
excluding deferred sales charge assumes the shares were not redeemed at February
28, 1997 and therefore does not reflect the deduction of a CDSC.

Pennsylvania Fund
Average Annual Total Return

Class C Shares Class C Shares
(Including Deferred (Excluding Deferred
Sales Charge) Sales Charge)

1 year ended 2/28/97 2.55% 3.52%

Period 11/29/95(1)
through 2/28/97 3.78% 3.78%

(1) Date of initial public offering; total return for this short of a time
period may not be representative of longer-term results.

As stated in the Prospectus, each Fund may also quote its current yield
for each Class in advertisements and investor communications.

-19-

<PAGE>

(SAI-PA/PART B)

The yield computation is determined by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period and annualizing the resulting figure, according to
the following formula:

a--b 6
YIELD = 2[(-------- + 1) -- 1]
cd

Where: a = dividends and interest earned during the period;

b = expenses accrued for the period (net of
reimbursements);

c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends;

d = the maximum offering price per share on the last
day of the period.

The above formula will be used in calculating quotations of yield of
each Class, based on specified 30-day periods identified in advertising by the
Fund. The yields of Class A Shares, Class B Shares and Class C Shares of
Pennsylvania Fund as of February 28, 1997 using this formula were 4.72%, 4.10%
and 4.10%, respectively. Yield calculations assume the maximum front-end sales
charge, if any, and does not reflect the deduction of any CDSC or Limited CDSC.
Actual yield may be affected by variations in sales charges on investments.

Past performance, such as is reflected in quoted yields, should not be
considered as a representation of the results which may be realized from an
investment in any Class of the Fund in the future.

Each Fund may also publish a tax-equivalent yield concerning a Class
based on federal and, if applicable, state tax rates, which demonstrates the
taxable yield necessary to produce an after-tax yield equivalent to such Class'
yield. For the 30-day period ended February 28, 1997, the tax-equivalent yield
of Class A Shares, Class B Shares and Class C Shares of Pennsylvania Fund was
6.84%, 5.94% and 5.94%, respectively, assuming a federal income tax rate of 31%.
These yields were computed by dividing that portion of a Class' yield which is
tax-exempt by one minus a stated income tax rate (in this case, a federal income
tax rate of 31%) and adding the product to that portion, if any, of the yield
that is not tax-exempt. In addition, the Fund may advertise a tax-equivalent
yield assuming other income tax rates, when applicable.

Investors should note that the income earned and dividends paid by a
Fund will vary with the fluctuation of interest rates and performance of the
portfolio. The net asset value of a Fund may change. Unlike money market funds,
each Fund invests in longer-term securities that fluctuate in value and do so in
a manner inversely correlated with changing interest rates. A Fund's net asset
value will tend to rise when interest rates fall. Conversely, a Fund's net asset
value will tend to fall as interest rates rise. Normally, fluctuations in
interest rates have a greater effect on the prices of longer-term bonds. The
value of the securities held in a Fund will vary from day to day and investors
should consider the volatility of the Fund's net asset value as well as its
yield before making a decision to invest.

See Appendix B for additional yield information.

-20-

<PAGE>

(SAI-PA/PART B)

Statistical and performance information and various indices compiled
and maintained by organizations such as the following may also be used in
preparing exhibits comparing certain industry trends and competitive mutual fund
performance to comparable Fund activity and performance and in illustrating
general financial planning principles. From time to time, certain mutual fund
performance ranking information, calculated and provided by these organizations,
may also be used in the promotion of sales in a Fund. Any indices used are not
managed for any investment goal.

CDA Technologies, Inc., Lipper Analytical Services, Inc. and
Morningstar, Inc. are performance evaluation services that maintain
statistical performance databases, as reported by a diverse universe of
independently- managed mutual funds.

Ibbotson Associates, Inc. is a consulting firm that provides a variety
of historical data including total return, capital appreciation and
income on the stock market as well as other investment asset classes,
and inflation. With their permission, this information will be used
primarily for comparative purposes and to illustrate general financial
planning principles.

Interactive Data Corporation is a statistical access service that
maintains a database of various international industry indicators, such
as historical and current price/earning information, individual equity
and fixed-income price and return information.

Compustat Industrial Databases, a service of Standard & Poor's, may
also be used in preparing performance and historical stock and bond
market exhibits. This firm maintains fundamental databases that provide
financial, statistical and market information covering more than 7,000
industrial and non-industrial companies.

Salomon Brothers and Lehman Brothers are statistical research firms
that maintain databases of international market, bond market, corporate
and government-issued securities of various maturities. This
information, as well as unmanaged indices compiled and maintained by
these firms, will be used in preparing comparative illustrations. In
addition, the performance of multiple indices compiled and maintained
by these firms may be combined to create a blended performance result
for comparative purposes. Generally, the indices selected will be
representative of the types of securities in which a Fund may invest
and the assumptions that were used in calculating the blended
performance will be described.

Current interest rate and yield information on government debt
obligations of various durations, as reported weekly by the Federal Reserve
(Bulletin H.15), may also be used. Also, current rate information on municipal
debt obligations of various durations, as reported daily by The Bond Buyer, may
also be used. The Bond Buyer is published daily and is an industry-accepted
source for current municipal bond market information.

From time to time, a Fund may also quote actual yield and/or total
return performance for each Class in advertising and other types of literature
compared to indices or averages of alternative financial products available to
prospective investors.

-21-

<PAGE>

(SAI-PA/PART B)

For example, the performance comparisons may include the average return
of various bank instruments, some of which may carry certain return guarantees
offered by leading banks and thrifts as monitored by Bank Rate Monitor, and
those of corporate bond and government security price indices of various
durations prepared by Lehman Brothers and Salomon Brothers, Inc. These indices
are not managed for any investment goal.

Comparative information on the Consumer Price Index and the CDA
Municipal Bond Index may also be included. The Consumer Price Index, as prepared
by the U.S. Bureau of Labor Statistics, is the most commonly used measure of
inflation. It indicates the cost fluctuations of a representative group of
consumer goods. It does not represent a return from an investment. The CDA
Municipal Bond Index was developed and is maintained by CDA Technologies, Inc.
The Index is comprised of 115 separately-managed municipal bond mutual funds and
tracks the performance of each fund, reflecting the reinvestment of any dividend
and capital gains distributions paid during a specified period.

The total return performance for a Class will reflect the appreciation
or depreciation of principal, reinvestment of income and any capital gains
distributions paid during any indicated period and the impact of the maximum
front-end sales charge or contingent deferred sales charge, if any, paid on the
illustrated investment amount, annualized. The results will not reflect any
income taxes, if applicable, payable by shareholders on the reinvested
distributions included in the calculations. The net asset value of a Fund
fluctuates so shares, when redeemed, may be worth more or less than the original
investment and past Fund performance should not be considered as representative
of future results.

The following tables are examples, for purposes of illustration only,
of cumulative total return performance for Class A Shares, Class B Shares and
Class C Shares of Pennsylvania Fund through February 28, 1997. Comparative
information on the Consumer Price Index is also included. The performance does
not reflect any income taxes payable by shareholders on the reinvested
distributions included in the calculations. The performance of the Class A
Shares as shown below, reflects maximum front-end sales charge paid on the
purchase of shares but may also be shown without reflecting the impact on any
front-end sales charge. The performance of the Class B Shares and Class C Shares
is calculated both with the applicable CDSC included and excluded. The net asset
value of the Fund fluctuates so shares, when redeemed, may be worth more or less
than the original investment, and the Fund's results should not be considered as
representative of future performance.

-22-

<PAGE>

(SAI-PA/PART B)

Pennsylvania Fund
Cumulative Total Return

Class A Shares(1) Consumer
(at Offer) Price Index(2)
3 months ended
2/28/97 (3.46%) 0.63%

6 months ended
2/28/97 0.49%(3) 1.46%

9 months ended
2/28/97 2.03% 1.92%

1 year ended
2/28/97 0.44% 3.03%

3 years ended
2/28/97 11.51% 8.79%

5 years ended
2/28/97 33.31% 15.15%

10 years ended
2/28/97 87.49% 42.97%

15 years ended
2/28/97 216.73% 68.70%

Period 3/23/77(4)
through 2/28/97 247.40% 168.30%

(2) Source--Department of Labor.

(3) For the six months ended February 28, 1997, cumulative total return at
net asset value for Class A Shares was 4.14%.

(4) Date of initial public offering of Class A Shares.

-23-

<PAGE>

(SAI-PA/PART B)

Pennsylvania Fund
Cumulative Total Return

Class B Shares Class B Shares
(Including Deferred (Excluding Deferred Consumer
Sales Charge) Sales Charge) Price Index(2)
<S> <C> <C> <C>
3 months ended
2/28/97 (3.91%) 0.05% 0.63%

6 months ended
2/28/97 (0.01%) 4.00% 1.46%

9 months ended
2/28/97 1.38% 5.38% 1.92%

1 year ended
2/28/97 (0.37%) 3.52% 3.03%

Period 5/2/94(1)
through 2/28/97 13.21% 16.19% 8.28%

</TABLE>

(1) Date of initial public offering of Class B Shares.

(2) Source: Department of Labor.

Pennsylvania Fund
Cumulative Total Return

Class C Shares Class C Shares
(Including Deferred (Excluding Deferred Consumer
Sales Charge) Sales Charge) Price Index(2)
<S> <C> <C> <C>
3 months ended
2/28/97 (0.94%) 0.05% 0.63%

6 months ended
2/28/97 3.00% 4.00% 1.46%

9 months ended
2/28/97 4.38% 5.38% 1.92%

1 year ended
2/28/97 2.55% 3.52% 3.03%

Period 11/29/95(1)
through 2/28/97 4.76% 4.76% 3.91%

</TABLE>

(1) Date of initial public offering of Class C Shares.

(2) Source--Department of Labor.

-24-

<PAGE>

(SAI-PA/PART B)

Because every investor's goals and risk threshold are different, the
Distributor, as distributor for the Funds and other mutual funds in the Delaware
Group, will provide general information about investment alternatives and
scenarios that will allow investors to assess their personal goals. This
information will include general material about investing as well as materials
reinforcing various industry-accepted principles of prudent and responsible
personal financial planning. One typical way of addressing these issues is to
compare an individual's goals and the length of time the individual has to
attain these goals to his or her risk threshold. In addition, the Distributor
will provide information that discusses the Manager's overriding investment
philosophy and how that philosophy impacts the Fund's, and other Delaware Group
funds', investment disciplines employed in seeking their objectives. The
Distributor may also from time to time cite general or specific information
about the institutional clients of the Manager, including the number of such
clients serviced by the Manager.

Dollar-Cost Averaging
For many people, deciding when to invest can be a difficult decision.
Security prices tend to move up and down over various market cycles and logic
says to invest when prices are low. However, even experts can't always pick the
highs and the lows. By using a strategy known as dollar-cost averaging, you
schedule your investments ahead of time. If you invest a set amount on a regular
basis, that money will always buy more shares when the price is low and fewer
when the price is high. You can choose to invest at any regular interval--for
example, monthly or quarterly--as long as you stick to your regular schedule.
Dollar-cost averaging looks simple and it is, but there are important things to
remember.

Dollar-cost averaging works best over longer time periods, and it doesn't
guarantee a profit or protect against losses in declining markets. If you need
to sell your investment when prices are low, you may not realize a profit no
matter what investment strategy you utilize. That's why dollar-cost averaging
can make sense for long-term goals. Since the potential success of a dollar-cost
averaging program depends on continuous investing, even through periods of
fluctuating prices, you should consider your dollar-cost averaging program a
long-term commitment and invest an amount you can afford and probably won't need
to withdraw. You also should consider your financial ability to continue to
purchase shares during periods of high fund share prices. Delaware Group offers
three services -- Automatic Investing Program, Direct Deposit Program and the
Wealth Builder Option -- that can help to keep your regular investment program
on track. See Investing by Electronic Fund Transfer - Direct Deposit Purchase
Plan and Automatic Investing Plan under Investment Plans and Wealth Builder
Option under Redemption and Repurchase for a complete description of these
services including restrictions or limitations.

-25-

<PAGE>

(SAI-PA/PART B)

The example below illustrates how dollar-cost averaging can work. In a
fluctuating market, the average cost per share over a period of time will be
lower than the average price per share for the same time period.

Investment Price Per Number of Shares
Amount Share Purchased

Month 1 $100 $10.00 10
Month 2 $100 $12.50 8
Month 3 $100 $ 5.00 20
Month 4 $100 $10.00 10

$400 $37.50 48

Total Amount Invested: $400
Total Number of Shares Purchased: 48
Average Price Per Share: $9.38 ($37.50/4)
Average Cost Per Share: $8.33 ($400/48 shares)

This example is for illustration purposes only. It is not intended to represent
the actual performance of a Fund.

-26-

<PAGE>

(SAI-PA/PART B)

THE POWER OF COMPOUNDING
When you opt to reinvest your current income for additional Fund shares,
your investment is given yet another opportunity to grow. It's called the Power
of Compounding and the following chart illustrates just how powerful it can be.

COMPOUNDED RETURNS
Results at various assumed fixed rates of return on a $10,000 investment
compounded monthly tax-free for 10 years:

5% 6% 7% 8%
Rate of Rate of Rate of Rate of
Return Return Return Return

1 Year $10,512 $10,617 $10,723 $10,830
2 Years $11,049 $11,272 $11,498 $11,729
3 Years $11,615 $11,967 $12,330 $12,702
4 Years $12,209 $12,705 $13,221 $13,757
5 Years $12,833 $13,488 $14,177 $14,898
6 Years $13,490 $14,320 $15,201 $16,135
7 Years $14,180 $15,203 $16,300 $17,474
8 Years $14,906 $16,141 $17,479 $18,924
9 Years $15,668 $17,137 $18,743 $20,495
10 Years $16,470 $18,194 $20,097 $22,196

These figures are calculated on a fixed interest rate and assume no
fluctuation in the value of principal. These figures are not intended to be a
projection of investment results and do not reflect any sales charges or any
actual performance results of any of the Classes.

-27-

<PAGE>

(SAI-PA/PART B)

TRADING PRACTICES AND BROKERAGE

Each Fund selects brokers, dealers and banks to execute transactions for
the purchase or sale of portfolio securities on the basis of its judgment of
their professional capability to provide the service. The primary consideration
is to have brokers, dealers or banks execute transactions at best price and
execution. Best price and execution refers to many factors, including the price
paid or received for a security, the commission charged, the promptness and
reliability of execution, the confidentiality and placement accorded the order
and other factors affecting the overall benefit obtained by the account on the
transaction. In nearly all instances, trades are made on a net basis where a
Fund either buys the securities directly from the dealer or sells them to the
dealer. In these instances, there is no direct commission charged, but there is
a spread (the difference between the buy and sell price) which is the equivalent
of a commission. When a commission is paid, a Fund pays reasonably competitive
brokerage commission rates based upon the professional knowledge of its trading
department as to rates paid and charged for similar transactions throughout the
securities industry. In some instances, a Fund pays a minimal share transaction
cost when the transaction presents no difficulty.

During the past three fiscal years of Pennsylvania Fund, there were no
brokerage commissions paid.

The Manager may allocate out of all commission business generated by all
of the funds and accounts under its management, brokerage business to brokers or
dealers who provide brokerage and research services. These services include
advice, either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities;
furnishing of analyses and reports concerning issuers, securities or industries;
providing information on economic factors and trends; assisting in determining
portfolio strategy; providing computer software and hardware used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. Such services are used by the Manager in connection with its
investment decision-making process with respect to one or more funds and
accounts managed by it, and may not be used, or used exclusively, with respect
to the fund or account generating the brokerage.

As provided in the Securities Exchange Act of 1934 and each Fund's
Investment Management Agreement, higher commissions are permitted to be paid to
broker/dealers who provide brokerage and research services than to
broker/dealers who do not provide such services, if such higher commissions are
deemed reasonable in relation to the value of the brokerage and research
services provided. Although transactions are directed to broker/dealers who
provide such brokerage and research services, a Fund believes that the
commissions paid to such broker/dealers are not, in general, higher than
commissions that would be paid to broker/dealers not providing such services and
that such commissions are reasonable in relation to the value of the brokerage
and research services provided. In some instances, services may be provided to
the Manager which constitute in some part brokerage and research services used
by the Manager in connection with its investment decision-making process and
constitute in some part services used by the Manager in connection with
administrative or other functions not related to its investment decision-making
process. In such cases, the Manager will make a good faith allocation of
brokerage and research services and will pay out of its own resources for
services used by the Manager in connection with administrative or other
functions not related to its investment decision-making process. In addition, so
long as no fund is disadvantaged, portfolio transactions which generate
commissions or their equivalent are allocated to broker/dealers who provide
daily portfolio pricing services to a Fund and to other funds in the Delaware
Group. Subject to best price and execution, commissions allocated to brokers
providing such pricing services may or may not be generated by the funds
receiving the pricing service.

-28-

<PAGE>

(SAI-PA/PART B)

The Manager may place a combined order for two or more accounts or
funds engaged in the purchase or sale of the same security if, in its judgment,
joint execution is in the best interest of each participant and will result in
best price and execution. Transactions involving commingled orders are allocated
in a manner deemed equitable to each account or fund. When a combined order is
executed in a series of transactions at different prices, each account
participating in the order may be allocated an average price obtained from the
executing broker. It is believed that the ability of the accounts to participate
in volume transactions will generally be beneficial to the accounts and funds.
Although it is recognized that, in some cases, the joint execution of orders
could adversely affect the price or volume of the security that a particular
account or fund may obtain, it is the opinion of the Manager and the Board of
Trustees that the advantages of combined orders outweigh the possible
disadvantages of separate transactions.

Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. (the "NASD"), and subject to seeking best price and
execution, the Funds may place orders with broker/dealers that have agreed to
defray certain expenses of the funds in the Delaware Group of funds such as
custodian fees, and may, at the request of the Distributor, give consideration
to sales of such funds' shares as a factor in the selection of brokers and
dealers to execute Fund portfolio transactions.

Portfolio Turnover
Portfolio trading will be undertaken principally to accomplish a Fund's
objective in relation to anticipated movements in the general level of interest
rates. A Fund is free to dispose of portfolio securities at any time, subject to
complying with the Internal Revenue Code and the 1940 Act, when changes in
circumstances or conditions make such a move desirable in light of the
investment objective. A Fund will not attempt to achieve or be limited to a
predetermined rate of portfolio turnover, such a turnover always being
incidental to transactions undertaken with a view to achieving the Fund's
investment objective. Portfolio transactions will be undertaken only to
accomplish a Fund's objectives and not for the purpose of realizing capital
gains, although capital gains may be realized on certain portfolio transactions.
For example, capital gains may be realized when a security is sold: (1) so that,
provided capital is preserved or enhanced, another security can be purchased to
obtain a higher yield; (2) to take advantage of what the Manager believes to be
a temporary disparity in the normal yield relationship between the two
securities to increase income or improve the quality of the portfolio; (3) to
purchase a security which the Manager believes is of higher quality than its
rating or current market value would indicate; or (4) when the Manager
anticipates a decline in value due to market risk or credit risk. A Fund
anticipates the portfolio turnover rate will ordinarily be less than 100%.

During the past two fiscal years, Pennsylvania Fund's portfolio turnover
rates were 25% for 1996 and 27% for 1997. Each Fund's portfolio turnover rate is
calculated by dividing the lesser of purchases or sales of portfolio securities
for the particular fiscal year by the monthly average of the value of the
portfolio securities owned by the Fund during the particular fiscal year,
exclusive of securities whose maturities at the time of acquisition are one year
or less.

-29-

<PAGE>

(SAI-PA/PART B)

PURCHASING SHARES

The Distributor serves as the national distributor for each Fund's three
classes of shares--Class A Shares, Class B Shares and Class C Shares, and has
agreed to use its best efforts to sell shares of the Funds. See the Prospectus
for additional information on how to invest. Shares of each Fund are offered on
a continuous basis, and may be purchased through authorized investment dealers
or directly by contacting the Fund or the Distributor.

The minimum initial purchase is generally $1,000 for each Class.
Subsequent purchases must generally be at least $100. The initial and subsequent
investment minimums for Class A Shares will be waived for purchases by officers,
directors and employees of any Delaware Group fund, the Manager or any of the
Manager's affiliates if the purchases are made pursuant to a payroll deduction
program. Shares purchased pursuant to the Uniform Gifts to Minors Act or the
Uniform Transfers to Minors Act and shares purchased in connection with an
Automatic Investing Plan are subject to a minimum initial purchase of $250 and a
minimum subsequent purchase of $25. Accounts opened under a Delaware Group Asset
Planner Service are subject to a minimum initial investment of $2,000 per Asset
Planner strategy selected.

Each purchase of Class B Shares is subject to a maximum purchase
limitation of $250,000. For Class C Shares, each purchase must be in an amount
that does not exceed $1,000,000. The Fund will reject any purchase order for
more than $250,000 of Class B Shares and $1,000,000 or more of Class C Shares.
An investor may exceed these limitations by making cumulative purchases over a
period of time. In doing so, an investor should keep in mind, however, that
reduced front-end sales charges apply to investments of $100,000 or more in
Class A Shares, and that Class A Shares are subject to lower annual 12b-1 Plan
expenses than Class B Shares and Class C Shares and generally are not subject to
a CDSC.

Selling dealers are responsible for transmitting orders promptly. The
Trust reserves the right to reject any order for the purchase of shares of a
Fund if in the opinion of management such rejection is in the Fund's best
interest.

The NASD has adopted Rules of Fair Practice, as amended, relating to
investment company sales charges. The Trust and the Distributor intend to
operate in compliance with these rules.

Class A Shares are purchased at the offering price, which reflects a
maximum front-end sales charge of 3.75%; however, lower front-end sales charges
apply for larger purchases. See the table below. Class A Shares are also subject
to annual 12b-1 Plan expenses for the life of the investment.

Class B Shares are purchased at net asset value and are subject to a CDSC
of: (i) 4% if shares are redeemed within two years of purchase; (ii) 3% if
shares are redeemed during the third or fourth year following purchase; (iii) 2%
if shares are redeemed during the fifth year following purchase; and (iv) 1% if
shares are redeemed during the sixth year following purchase. Class B Shares are
also subject to annual 12b-1 Plan expenses which are higher than those to which
Class A Shares are subject and are assessed against the Class B Shares
approximately eight years after purchase. See Automatic Conversion of Class B
Shares under Classes of Shares in the Prospectus.

Class C Shares are purchased at net asset value and are subject to a CDSC
of 1% if shares are redeemed within 12 months following purchase. Class C Shares
are also subject to annual 12b-1 Plan expenses for the life of the investment
which are equal to those to which Class B Shares are subject.

Class A Shares, Class B Shares and Class C Shares represent a
proportionate interest in a Fund's assets and will receive a proportionate
interest in the Fund's income, before application, as to the Class A, Class B
and Class C

-30-

<PAGE>

(SAI-PA/PART B)

Shares, of any expenses under the Fund's 12b-1 Plans.

Certificates representing shares purchased are not ordinarily issued in
the Class A Shares, unless a shareholder submits a specific request.
Certificates are not issued in the case of Class B Shares or Class C Shares.
However, purchases not involving the issuance of certificates are confirmed to
the investor and credited to the shareholder's account on the books maintained
by Delaware Service Company, Inc. (the "Transfer Agent"). The investor will have
the same rights of ownership with respect to such shares as if certificates had
been issued. An investor that is permitted to obtain a certificate may receive a
certificate representing full share denominations purchased by sending a letter
signed by each owner of the account to the Transfer Agent requesting the
certificate. No charge is assessed by the Trust for any certificate issued. A
shareholder may be subject to fees for replacement of a lost or stolen
certificate under certain conditions, including the cost of obtaining a bond
covering the lost or stolen certificate. Please contact the Funds for further
information. Investors who hold certificates representing any of their shares
may only redeem those shares by written request. The investor's certificate(s)
must accompany such request.

Alternative Purchase Arrangements
The alternative purchase arrangements of Class A, Class B and Class C
Shares permit investors to choose the method of purchasing shares that is most
suitable for their needs given the amount of their purchase, the length of time
they expect to hold their shares and other relevant circumstances. Investors
should determine whether, given their particular circumstances, it is more
advantageous to purchase Class A Shares and incur a front-end sales charge and
annual 12b-1 Plan expenses of up to a maximum of 0.30% (currently, no more than
0.25% for New Jersey Fund and Ohio Fund pursuant to Board action) of average
daily net assets of Class A Shares or to purchase either Class B or Class C
Shares and have the entire initial purchase amount invested in the Fund with the
investment thereafter subject to a CDSC and annual 12b-1 Plan expenses. Class B
Shares are subject to a CDSC if the shares are redeemed within six years of
purchase, and Class C Shares are subject to a CDSC if the shares are redeemed
within 12 months of purchase. Class B and Class C Shares are each subject to
annual 12b-1 Plan expenses of up to a maximum of 1% (0.25% of which are service
fees to be paid to the Distributor, dealers or others for providing personal
service and/or maintaining shareholder accounts) of average daily net assets of
the respective Class. Class B Shares will automatically convert to Class A
Shares at the end of approximately eight years after purchase and, thereafter,
be subject to annual 12b-1 Plan expenses of up to a maximum of 0.30% (currently,
no more than 0.25% for New Jersey Fund and Ohio Fund pursuant to Board action)
of average daily net assets of such shares. Unlike Class B Shares, Class C
Shares do not convert into another class.

Class A Shares
Purchases of $100,000 or more of Class A Shares at the offering price
carry reduced front-end sales charges as shown in the accompanying table, and
may include a series of purchases over a 13-month period under a Letter of
Intention signed by the purchaser. See Special Purchase Features - Class A
Shares, below, for more information on ways in which investors can avail
themselves of reduced front-end sales charges and other purchase features.

-31-

<PAGE>

(SAI-PA/PART B)
<TABLE>
<CAPTION>

Class A Shares
- --------------------------------------------------------------------------------------------------------------------------

* There is no front-end sales charge on purchases of Class A Shares of
$1 million or more but, under certain limited circumstances, a 1%
Limited CDSC may apply upon redemption of such shares.

** Based on an initial net asset value of $5.50 per share of the Class
A Shares.

*** Based on the net asset value per share of the Class A Shares as of
the end of the Fund's most recent fiscal year.

From time to time, upon written notice to all of its dealers, the
Distributor may hold special promotions for specified periods during
which the Distributor may reallow to dealers up to the full amount of
the front-end sales charges shown above. Dealers who receive 90% or
more of the sales charge may be deemed to be underwriters under the
1933 Act.
- --------------------------------------------------------------------------------

Certain dealers who enter into an agreement to provide extra training
and information on Delaware Group products and services and who increase sales
of Delaware Group funds may receive an additional commission of up to 0.15% of
the offering price in connection with sales of Class A Shares. Such dealers must
meet certain requirements in terms of organization and distribution capabilities
and their ability to increase sales. The Distributor should be contacted for
further information on these requirements as well as the basis and circumstances
upon which the additional commission will be paid. Participating dealers may be
deemed to have additional responsibilities under the securities laws.

-32-

<PAGE>

(SAI-PA/PART B)

Dealer's Commission
For initial purchases of Class A Shares of $1,000,000 or more, a
dealer's commission may be paid by the Distributor to financial advisers through
whom such purchases are effected in accordance with the following schedule:

DEALER'S COMMISSION
(AS A PERCENTAGE OF
Amount of Purchase AMOUNT PURCHASED)
------------------ -------------------

Up to $2 million 1.00%
Next $1 million up to $3 million 0.75
Next $2 million up to $5 million 0.50
Amount over $5 million 0.25

In determining a financial adviser's eligibility for the dealer's
commission, purchases of Class A Shares of other Delaware Group funds as to
which a Limited CDSC applies (see Contingent Deferred Sales Charge for Certain
Redemptions of Class A Shares Purchased at Net Asset Value under Redemption and
Exchange in the Fund Classes' Prospectus) may be aggregated with those of Class
A Shares of a Fund. Financial advisers also may be eligible for a dealer's
commission in connection with certain purchases made under a Letter of Intention
or pursuant to an investor's Right of Accumulation. Financial advisers should
contact the Distributor concerning the applicability and calculation of the
dealer's commission in the case of combined purchases.

An exchange from other Delaware Group funds will not qualify for
payment of the dealer's commission, unless a dealer's commission or similar
payment has not been previously paid on the assets being exchanged. The schedule
and program for payment of the dealer's commission are subject to change or
termination at any time by the Distributor at its discretion.

Contingent Deferred Sales Charge - Class B Shares and Class C Shares
Class B Shares and Class C Shares are purchased without a front-end
sales charge. Class B Shares redeemed within six years of purchase may be
subject to a CDSC at the rates set forth below, and Class C Shares redeemed
within 12 months of purchase may be subject to a CDSC of 1%. CDSCs are charged
as a percentage of the dollar amount subject to the CDSC. The charge will be
assessed on an amount equal to the lesser of the net asset value at the time of
purchase of the shares being redeemed or the net asset value of those shares at
the time of redemption. No CDSC will be imposed on increases in net asset value
above the initial purchase price, nor will a CDSC be assessed on redemptions of
shares acquired through reinvestment of dividends or capital gains
distributions. See Waiver of Contingent Deferred Sales Charge--Class B and Class
C Shares under Redemption and Exchange in the Prospectus for the Fund Classes
for a list of the instances in which the CDSC is waived.

-33-

<PAGE>

(SAI-PA/PART B)

The following table sets forth the rates of the CDSC for Class B
Shares of each Fund:

Contingent Deferred
Sales Charge
(as a Percentage
of Dollar Amount
Year After Purchase Made Subject to Charge)
------------------------ ------------------
0-2 4%
3-4 3%
5 2%
6 1%
7 and thereafter None

During the seventh year after purchase and, thereafter, until converted
automatically into Class A Shares, Class B Shares will still be subject to the
annual 12b-1 Plan expenses of up to 1% of average daily net assets of those
shares. At the end of approximately eight years after purchase, the investor's
Class B Shares will be automatically converted into Class A Shares of the same
Fund. See Automatic Conversion of Class B Shares under Classes of Shares in the
Fund Classes' Prospectus. Such conversion will constitute a tax-free exchange
for federal income tax purposes. See Taxes in the Prospectus for the Fund
Classes.

Plans Under Rule 12b-1
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a
separate plan for each of Class A Shares, the Class B Shares and the Class C
Shares of the Fund (the "Plans"). Each Plan permits the relevant Fund to pay for
certain distribution, promotional and related expenses involved in the marketing
of only the Class to which the Plan applies.

The Plans permit a Fund, pursuant to its Distribution Agreement, to pay
out of the assets of the Class A Shares, Class B Shares and Class C Shares
monthly fees to the Distributor for its services and expenses in distributing
and promoting sales of shares of such classes. These expenses include, among
other things, preparing and distributing advertisements, sales literature and
prospectuses and reports used for sales purposes, compensating sales and
marketing personnel, and paying distribution and maintenance fees to securities
brokers and dealers who enter into dealer's agreements with the Distributor. The
Plan expenses relating to Class B and Class C Shares are also used to pay the
Distributor for advancing the commission costs to dealers with respect to the
initial sale of such shares.

In addition, each Fund may make payments out of the assets of Class A
Shares, Class B Shares and Class C Shares directly to other unaffiliated
parties, such as banks, who either aid in the distribution of shares of, or
provide services to, such classes.

The maximum aggregate fee payable by the Fund under the Plans, and the
Fund's Distribution Agreement, is on an annual basis up to 0.30% (currently, no
more than 0.25% for New Jersey Fund and Ohio Fund pursuant to Board action) of
Class A Shares' average daily net assets for the year, and up to 1% (0.25% of
which are service fees to be paid to the Distributor, dealers and others for
providing personal service and/or maintaining shareholder accounts) of each of
Class B Shares' and Class C Shares' average daily net assets for the year. The
Fund's Board of Trustees may reduce these amounts at any time.

-34-

<PAGE>

(SAI-PA/PART B)

Effective June 1, 1992, the Board of Trustees has determined that the
annual fee payable on a monthly basis for the Class A Shares of Pennsylvania
Fund, pursuant to its Plan, will be equal to the sum of: (i) the amount obtained
by multiplying 0.30% by the average daily net assets represented by Class A
Shares that were acquired by shareholders on or after June 1, 1992, and (ii) the
amount obtained by multiplying 0.10% by the average daily net assets represented
by Class A Shares that were acquired before June 1, 1992. While this is the
method for calculating Class A Shares' 12b-1 expense, such expense is a Class
expense so that all such shareholders of the Class, regardless of when they
purchased their shares, will bear 12b-1 expenses at the same rate per share. As
Class A Shares are sold on or after June 1, 1992, the initial rate of at least
0.10% will increase over time. Thus, as the proportion of Class A Shares
purchased on or after June 1, 1992 to Class A Shares outstanding prior to June
1, 1992 increases, the expenses attributable to payments under the Plan relating
to Class A Shares will also increase (but will not exceed 0.30% of average daily
net assets). In addition, the Board of Directors set the fee for Class A Shares
of New Jersey Fund and Ohio Fund at 0.25% of average daily net assets. While
this describes the current basis for calculating the fees which will be payable
under the Plans with respect to Class A Shares, such Plans permit a full 0.30%
on all Class A Shares' assets to be paid at any time following appropriate Board
approval.

All of the distribution expenses incurred by the Distributor and
others, such as broker/dealers, in excess of the amount paid on behalf of Class
A, Class B and Class C Shares would be borne by such persons without any
reimbursement from the Classes. Subject to seeking best price and execution, the
Classes may, from time to time, buy or sell portfolio securities from or to
firms which receive payments under the Plans.

From time to time, the Distributor may pay additional amounts from its
own resources to dealers for aid in distribution or for aid in providing
administrative services to shareholders.

The Plans and the Distribution Agreement, as amended, have been
approved by the Board of Trustees of the Trust, including a majority of the
trustees who are not "interested persons" (as defined in the 1940 Act) of the
Fund and who have no direct or indirect financial interest in the Plans by vote
cast in person at a meeting duly called for the purpose of voting on the Plans
and such Agreement. Continuation of the Plans and the Distribution Agreement, as
amended, must be approved annually by the Board of Trustees in the same manner,
as specified above.

Each year, the trustees must determine whether continuation of the
Plans is in the best interest of shareholders of, respectively, the Class A
Shares, Class B Shares and Class C Shares and that there is a reasonable
likelihood of the Plan relating to a Class providing a benefit to that Fund
Class. The Plans and the Distribution Agreement, as amended, may be terminated
at any time without penalty by a majority of those trustees who are not
"interested persons" or by a majority vote of the outstanding voting securities
of the relevant Class. Any amendment materially increasing the maximum
percentage payable under the Plans must likewise be approved by a majority vote
of the outstanding voting securities of the relevant Class, as well as by a
majority vote of those trustees who are not "interested persons." With respect
to the Class A Share Plan, any material increase in the maximum percentage
payable thereunder must also be approved by a majority of the outstanding voting
securities of the Class B Shares. Also, any other material amendment to the
Plans must be approved by a majority vote of the trustees including a majority
of the noninterested trustees of the Trust having no interest in the Plans. In
addition, in order for the Plans to remain effective, the selection and
nomination of trustees who are not "interested persons" of the Trust must be
effected by the trustees who themselves are not "interested persons" and who
have no direct or indirect financial interest in the Plans. Persons authorized
to make payments under the Plans must provide written reports at least quarterly
to the Board of Trustees for their review.

-35-

<PAGE>

(SAI-PA/PART B)

For the fiscal year ended February 28, 1997, payments from the Class A
Shares, Class B Shares and Class C Shares of Pennsylvania Fund amounted to
$1,970,561, $264,463 and $6,416, respectively. Such amounts were used for the
following purposes:
<TABLE>
<CAPTION>

Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------

<S> <C> <C> <C>
Advertising $995 --- ---
Annual/Semi-Annual Reports $35,021 --- ---
Broker Trails $1,594,873 $66,043 ---
Broker Sales Charges --- $96,448 $5,939
Dealer Service Expenses $21,497 --- $84
Interest on Broker Sales Charges --- $88,674 $383
Commissions to Wholesalers $79,593 $9,967 $9
Promotional-Broker Meetings $75,556 $2,614 $1
Promotional-Other $31,369 --- ---
Prospectus Printing $32,415 --- ---
Telephone $21,419 --- ---
Wholesaler Expenses $63,195 $717 ---
Other $14,628 --- ---
</TABLE>

The staff of the Securities and Exchange Commission ("SEC") has
proposed amendments to Rule 12b-1 and other related regulations that could
impact Rule 12b-1 Distribution Plans. The Trust intends to amend the Plans, if
necessary, to comply with any new rules or regulations the SEC may adopt with
respect to Rule 12b-1.

Other Payments to Dealers - Class A, Class B and Class C Shares
From time to time, at the discretion of the Distributor, all registered
broker/dealers whose aggregate sales of the Fund Classes exceed certain limits
as set by the Distributor, may receive from the Distributor an additional
payment of up to 0.25% of the dollar amount of such sales. The Distributor may
also provide additional promotional incentives or payments to dealers that sell
shares of the Delaware Group of funds. In some instances, these incentives or
payments may be offered only to certain dealers who maintain, have sold or may
sell certain amounts of shares. The Distributor may also pay a portion of the
expense of preapproved dealer advertisements promoting the sale of Delaware
Group fund shares.

Special Purchase Features - Class A Shares

Buying Class A Shares at Net Asset Value
Class A Shares may be purchased without a front-end sales charge under
the Dividend Reinvestment Plan and, under certain circumstances, the Exchange
Privilege and the 12-Month Reinvestment Privilege.

Current and former officers, trustees and employees of the Fund, any
other fund in the Delaware Group, the Manager or any of the Manager's affiliates
that may in the future be created, legal counsel to the funds and registered
representatives and employees of broker/dealers who have entered into Dealer's
Agreements with the Distributor may purchase Class A Shares of the Fund and any
of the funds in the Delaware Group, including any fund that may be created, at
net asset value per share. Family members of such persons at their direction,
and any employee benefit plan established by any of the foregoing funds,
corporations, counsel or broker/dealers may also purchase Class A Shares at net
asset value. Purchases of Class A Shares may also be made by clients of
registered representatives of an authorized investment dealer at net asset value
within 12 months after the registered representative changes

-36-

<PAGE>

(SAI-PA/PART B)

employment, if the purchase is funded by proceeds from an investment where a
front-end sales charge, contingent deferred sales charge or other sales charge
has been assessed. Class A Shares may also be purchased at net asset value by
current and former officers, directors and employees (and members of their
families) of the Dougherty Financial Group LLC.

Purchases of Class A Shares may also be made at net asset value by bank
employees who provide services in connection with agreements between the bank
and unaffiliated brokers or dealers concerning sales of shares of Delaware Group
funds. Officers, directors and key employees of institutional clients of the
Manager, or any of its affiliates, may purchase Class A Shares at net asset
value. Moreover, purchases may be effected at net asset value for the benefit of
the clients of brokers, dealers and registered investment advisers affiliated
with a broker or dealer, if such broker, dealer or investment adviser has
entered into an agreement with the Distributor providing specifically for the
purchase of Class A Shares in connection with special investment products, such
as wrap accounts or similar fee based programs. Such purchasers are required to
sign a letter stating that the purchase is for investment only and that the
securities may not be resold except to the issuer. Such purchasers may also be
required to sign or deliver such other documents as the Fund may reasonably
require to establish eligibility for purchase at net asset value. The Fund must
be notified in advance that the trade qualifies for purchase at net asset value.

A Fund must be notified in advance that the trade qualifies for
purchase at net asset value.

Letter of Intention
The reduced front-end sales charges described above with respect to
Class A Shares are also applicable to the aggregate amount of purchases made
within a 13-month period pursuant to a written Letter of Intention provided by
the Distributor and signed by the purchaser, and not legally binding on the
signer or the Trust, which provides for the holding in escrow by the Transfer
Agent of 5% of the total amount of Class A Shares intended to be purchased until
such purchase is completed within the 13-month period. A Letter of Intention may
be dated to include shares purchased up to 90 days prior to the date the Letter
is signed. The 13-month period begins on the date of the earliest purchase. If
the intended investment is not completed, except as noted below, the purchaser
will be asked to pay an amount equal to the difference between the front-end
sales charge on Class A Shares purchased at the reduced rate and the front-end
sales charge otherwise applicable to the total shares purchased. If such payment
is not made within 20 days following the expiration of the 13-month period, the
Transfer Agent will surrender an appropriate number of the escrowed shares for
redemption in order to realize the difference. Such purchasers may include the
value (at offering price at the level designated in their Letter of Intention)
of all their shares of a Fund and of any class of any of the other mutual funds
in the Delaware Group (except shares of any Delaware Group fund which do not
carry a front-end sales charge, CDSC or Limited CDSC, other than shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange from a Delaware Group fund which carried a front-end sales charge, CDSC
or Limited CDSC) previously purchased and still held as of the date of their
Letter of Intention toward the completion of such Letter. For purposes of
satisfying an investor's obligation under a Letter of Intention, Class B Shares
and Class C Shares of a Fund and the corresponding classes of shares of other
Delaware Group funds which offer such shares may be aggregated with Class A
Shares of the Fund and the corresponding class of shares of the other Delaware
Group funds.

-37-

<PAGE>

(SAI-PA/PART B)

Combined Purchases Privilege
In determining the availability of the reduced front-end sales charge
previously set forth with respect to Class A Shares, purchasers may combine the
total amount of any combination of Class A Shares, Class B Shares and/or Class C
Shares of the Funds, as well as shares of any other class of any of the other
Delaware Group funds (except shares of any Delaware Group fund which do not
carry a front-end sales charge, CDSC or Limited CDSC, other than shares of
Delaware Group Premium Fund, Inc. beneficially owned in connection with the
ownership of variable insurance products, unless they were acquired through an
exchange from a Delaware Group fund which carried a front-end sales charge, CDSC
or Limited CDSC).

The privilege also extends to all purchases made at one time by an
individual; or an individual, his or her spouse and their children under 21; or
a trustee or other fiduciary of trust estates or fiduciary accounts for the
benefit of such family members (including certain employee benefit programs).

Right of Accumulation
In determining the availability of the reduced front-end sales charge
with respect to Class A Shares, purchasers may also combine any subsequent
purchases of Class A Shares, Class B Shares and Class C Shares of a Fund as well
as shares of any other class of any of the other Delaware Group funds which
offer such classes (except shares of any Delaware Group fund which do not carry
a front-end sales charge, CDSC or Limited CDSC, other than shares of Delaware
Group Premium Fund, Inc. beneficially owned in connection with the ownership of
variable insurance products, unless they were acquired through an exchange from
shares from a Delaware Group fund which carried a front-end sales charge, CDSC
or Limited CDSC). If, for example, any such purchaser has previously purchased
and still holds Class A Shares and/or shares of any other of the classes
described in the previous sentence with a value of $40,000 and subsequently
purchases $60,000 at offering price of additional shares of Class A Shares, the
charge applicable to the $60,000 purchase would currently be 3.00%. For the
purpose of this calculation, the shares presently held shall be valued at the
public offering price that would have been in effect were the shares purchased
simultaneously with the current purchase. Investors should refer to the table of
sales charges for Class A Shares to determine the applicability of the Right of
Accumulation to their particular circumstances.

12-Month Reinvestment Privilege
Holders of Class A Shares of a Fund who redeem such shares have one
year from the date of redemption to reinvest all or part of their redemption
proceeds in Class A Shares of the Fund or in Class A Shares of any of the other
funds in the Delaware Group, subject to applicable eligibility and minimum
purchase requirements, in states where shares of such other funds may be sold,
at net asset value without the payment of a front-end sales charge. This
privilege does not extend to Class A Shares where the redemption of the shares
triggered the payment of a Limited CDSC. Persons investing redemption proceeds
from direct investments in mutual funds in the Delaware Group offered without a
front-end sales charge will be required to pay the applicable sales charge when
purchasing Class A Shares. The reinvestment privilege does not extend to a
redemption of either Class B Shares or Class C Shares.

-38-

<PAGE>

(SAI-PA/PART B)

Any such reinvestment cannot exceed the redemption proceeds (plus any
amount necessary to purchase a full share). The reinvestment will be made at the
net asset value next determined after receipt of remittance. A redemption and
reinvestment could have income tax consequences. It is recommended that a tax
adviser be consulted with respect to such transactions. Any reinvestment
directed to a fund in which the investor does not then have an account will be
treated like all other initial purchases of a fund's shares. Consequently, an
investor should obtain and read carefully the prospectus for the fund in which
the investment is intended to be made before investing or sending money. The
prospectus contains more complete information about the fund, including charges
and expenses.

Investors should consult their financial advisers or the Transfer
Agent, which also serves as the Fund's shareholder servicing agent, about the
applicability of the Limited CDSC (see Contingent Deferred Sales Charge for
Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus) in connection with the features
described above.

-39-

<PAGE>

(SAI-PA/PART B)

INVESTMENT PLANS

Reinvestment Plan/Open Account
Unless otherwise designated by shareholders in writing, dividends from
net investment income and distributions from realized securities profits, if
any, will be automatically reinvested in additional shares of the respective
Class (based on the net asset value in effect on the payable date) and will be
credited to the shareholder's account on that date. A confirmation of each
dividend payment from net investment income will be mailed to shareholders
quarterly. A confirmation of any distributions from realized securities profits
will be mailed to shareholders in the first quarter of the fiscal year.

Under the Reinvestment Plan/Open Account, shareholders may purchase and
add full and fractional shares to their plan accounts at any time either through
their investment dealers or by sending a check or money order to the Fund. Such
purchases, which must meet the minimum subsequent purchase requirements stated
in the Prospectus and this Part B, are made for Class A Shares at the public
offering price and for Class B Shares and Class C Shares at the net asset value,
at the end of the day of receipt. A reinvestment plan may be terminated at any
time. This plan does not assure a profit nor protect against depreciation in a
declining market.

Reinvestment of Dividends in Other Delaware Group Funds
Subject to applicable eligibility and minimum initial purchase
requirements of each fund and the limitations set forth below, holders of Class
A, Class B and Class C Shares may automatically reinvest their dividends and/or
distributions in any of the mutual funds in the Delaware Group, including the
Funds, in states where their shares may be sold. Such investments will be at net
asset value at the close of business on the reinvestment date without any
front-end sales charge or service fee. The shareholder must notify the Transfer
Agent in writing and must have established an account in the fund into which the
dividends and/or distributions are to be invested. Any reinvestment directed to
a fund in which the investor does not then have an account, will be treated like
all other initial purchases of a fund's shares. Consequently, an investor should
obtain and read carefully the prospectus for the fund in which the investment is
intended to be made before investing or sending money. The prospectus contains
more complete information about the fund, including charges and expenses. See
also Additional Methods of Adding to Your Investment - Dividend Reinvestment
Plan under How to Buy Shares in the Prospectus.

Subject to the following limitations, dividends and/or distributions
from other funds in the Delaware Group may be invested in shares of a Fund,
provided an account has been established. Dividends from Class A Shares may not
be directed to Class B Shares or Class C Shares. Dividends from Class B Shares
may only be directed to other Class B Shares and dividends from Class C Shares
may only be directed to other Class C Shares. See Appendix B- Classes Offered in
the Prospectus for the funds in the Delaware Group that are eligible for
investment by holders of Fund shares.

Investing by Electronic Fund Transfer
Direct Deposit Purchase Plan--Investors may arrange for a Fund to
accept for investment in Class A, Class B or Class C Shares, through an agent
bank, preauthorized government or private recurring payments. This method of
investment assures the timely credit to the shareholder's account of payments
such as social security, veterans' pension or compensation benefits, federal
salaries, Railroad Retirement benefits, private payroll checks, dividends, and
disability or pension fund benefits. It also eliminates lost, stolen and delayed
checks.

-40-

<PAGE>

(SAI-PA/PART B)

Automatic Investing Plan--Shareholders of Class A, Class B and Class C
Shares may make automatic investments by authorizing, in advance, monthly
payments directly from their checking account for deposit into their Fund
account. This type of investment will be handled in either of the following
ways. (1) If the shareholder's bank is a member of the National Automated
Clearing House Association ("NACHA"), the amount of the investment will be
electronically deducted from his or her account by Electronic Fund Transfer
("EFT"). The shareholder's checking account will reflect a debit each month at a
specified date although no check is required to initiate the transaction. (2) If
the shareholder's bank is not a member of NACHA, deductions will be made by
preauthorized checks, known as Depository Transfer Checks. Should the
shareholder's bank become a member of NACHA in the future, his or her
investments would be handled electronically through EFT.

* * *

Initial investments under the Direct Deposit Purchase Plan and the
Automatic Investing Plan must be for $250 or more and subsequent investments
under such plans must be for $25 or more. An investor wishing to take advantage
of either service must complete an authorization form. Either service can be
discontinued by the shareholder at any time without penalty by giving written
notice.

Payments to a Fund from the federal government or its agencies on
behalf of a shareholder may be credited to the shareholder's account after such
payments should have been terminated by reason of death or otherwise. Any such
payments are subject to reclamation by the federal government or its agencies.
Similarly, under certain circumstances, investments from private sources may be
subject to reclamation by the transmitting bank. In the event of a reclamation,
a Fund may liquidate sufficient shares from a shareholder's account to reimburse
the government or the private source. In the event there are insufficient shares
in the shareholder's account, the shareholder is expected to reimburse the Fund.

Direct Deposit Purchases by Mail
Shareholders may authorize a third party, such as a bank or employer,
to make investments directly to their Fund accounts. A Fund will accept these
investments, such as bank-by-phone, annuity payments and payroll allotments, by
mail directly from the third party. Investors should contact their employers or
financial institutions who in turn should contact their Fund for proper
instructions.

Wealth Builder Option
Shareholders can use the Wealth Builder Option to invest in the
Classes through regular liquidations of shares in their accounts in other mutual
funds in the Delaware Group. Shareholders of the Classes may elect to invest in
one or more of the other mutual funds in the Delaware Group through the Wealth
Builder Option. See Wealth Builder Option and Redemption and Exchange in the
Prospectus for the Classes.

Under this automatic exchange program, shareholders can authorize
regular monthly investments (minimum of $100 per fund) to be liquidated from
their account and invested automatically into other mutual funds in the Delaware
Group, subject to the conditions and limitations set forth in the Classes'
Prospectus. The investment will be made on the 20th day of each month (or, if
the fund selected is not open that day, the next business day) at the public
offering price or net asset value, as applicable, of the fund selected on the
date of investment. No investment will be made for any month if the value of the
shareholder's account is less than the amount specified for investment.

-41-

<PAGE>

(SAI-PA/PART B)

Periodic investment through the Wealth Builder Option does not insure
profits or protect against losses in a declining market. The price of the fund
into which investments are made could fluctuate. Since this program involves
continuous investment regardless of such fluctuating value, investors selecting
this option should consider their financial ability to continue to participate
in the program through periods of low fund share prices. This program involves
automatic exchanges between two or more fund accounts and is treated as a
purchase of shares of the fund into which investments are made through the
program. See Exchange Privilege for a brief summary of the tax consequences of
exchanges. Shareholders can terminate their participation at any time by written
notice to their Fund.

-42-

<PAGE>

(SAI-PA/PART B)

DETERMINING OFFERING PRICE AND NET ASSET VALUE

Orders for purchases of Class A Shares are effected at the offering
price next calculated after receipt of the order by a Fund or its agent. Orders
for purchases of Class B Shares and Class C Shares are effected at the net asset
value per share next calculated by a Fund after receipt of the order by the Fund
or its agent. Selling dealers have the responsibility of transmitting orders
promptly.

The offering price for Class A Shares consists of the net asset value
per share plus any applicable front-end sales charges. Offering price and net
asset value are computed as of the close of regular trading on the New York
Stock Exchange (ordinarily, 4 p.m., Eastern time) on days when the Exchange is
open. The New York Stock Exchange is scheduled to be open Monday through Friday
throughout the year except for New Year's Day, Martin Luther King, Jr.'s
Birthday, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving and Christmas. When the New York Stock Exchange is closed, the
Trust will generally be closed, pricing calculations will not be made and
purchase and redemption orders will not be processed.

An example showing how to calculate the net asset value per share and,
in the case of the Class A Shares of Pennsylvania Fund, the offering price per
share, is included in the Trust's financial statements which are incorporated by
reference into this Part B.

Each Fund's net asset value per share is computed by adding the value
of all securities and other assets in the portfolio, deducting any liabilities
and dividing by the number of Fund shares outstanding. In determining a Fund's
total net assets, portfolio securities are valued at fair value, using methods
determined in good faith by the trustees. This method utilizes the services of
an independent pricing organization which employs a combination of methods
including, among others, the obtaining of market valuations from dealers who
make markets and deal in such securities, and by comparing valuations with those
of other comparable securities in a matrix of such securities. A pricing
service's activities and results are reviewed by the officers of a Fund. In
addition, money market instruments having a maturity of less than 60 days are
valued at amortized cost. Expenses and fees are accrued daily.

Each Class of a Fund will bear, pro-rata, all of the common expenses of
that Fund. The net asset values of all outstanding shares of each Class of a
Fund will be computed on a pro-rata basis for each outstanding share based on
the proportionate participation in the Fund represented by the value of shares
of that Class. All income earned and expenses incurred by a Fund will be borne
on a pro-rata basis by each outstanding share of a Class, based on each Class'
percentage in the Fund represented by the value of shares of such Classes,
except that the Class A, Class B and Class C Shares alone will bear the 12b-1
Plan expenses payable under their respective Plans. Due to the specific
distribution expenses and other costs that would be allocable to each Class, the
dividends paid to each Class of a Fund may vary. However, the net asset value
per share of each Class is expected to be equivalent.

-43-

<PAGE>

(SAI-PA/PART B)

REDEMPTION AND REPURCHASE

Any shareholder may require a Fund to redeem shares by sending a
written request, signed by the record owner or owners exactly as the shares are
registered, to the Fund, at 1818 Market Street, Philadelphia, PA 19103. In
addition, certain expedited redemption methods described below are available
when stock certificates have not been issued. Certificates are issued for the
Class A Shares only if a shareholder specifically requests them. Certificates
are not issued for Class B Shares or Class C Shares. If stock certificates have
been issued for shares being redeemed, they must accompany the written request.
For redemptions of $50,000 or less paid to the shareholder at the address of
record, the request must be signed by all owners of the shares or the investment
dealer of record, but a signature guarantee is not required. When the redemption
is for more than $50,000, or if payment is made to someone else or to another
address, signatures of all record owners are required and a signature guarantee
is required. Each signature guarantee must be supplied by an eligible guarantor
institution. Each Fund reserves the right to reject a signature guarantee
supplied by an eligible institution based on its creditworthiness. Each Fund may
request further documentation from corporations, retirement plans, executors,
administrators, trustees or guardians.

In addition to redemption of Fund shares, the Distributor, acting as
agent of the Funds, offers to repurchase Fund shares from broker/dealers acting
on behalf of shareholders. The redemption or repurchase price, which may be more
or less than the shareholder's cost, is the net asset value per share next
determined after receipt of the request in good order by the respective Fund or
its agent, subject to any applicable CDSC or Limited CDSC. This is computed and
effective at the time the offering price and net asset value are determined. See
Determining Offering Price and Net Asset Value. The Funds and the Distributor
end their business days at 5 p.m., Eastern time. This offer is discretionary and
may be completely withdrawn without further notice by the Distributor.

Orders for the repurchase of Fund shares which are submitted to the
Distributor prior to the close of its business day will be executed at the net
asset value per share computed that day (subject to the applicable CDSC or
Limited CDSC), if the repurchase order was received by the broker/dealer from
the shareholder prior to the time the offering price and net asset value are
determined on such day. The selling dealer has the responsibility of
transmitting orders to the Distributor promptly. Such repurchase is then settled
as an ordinary transaction with the broker/dealer (who may make a charge to the
shareholder for this service) delivering the shares repurchased.

Certain redemptions of Class A Shares purchased at net asset value may
result in the imposition of a Limited CDSC. See Contingent Deferred Sales Charge
for Certain Redemptions of Class A Shares Purchased at Net Asset Value under
Redemption and Exchange in the Prospectus for the Classes. Class B Shares are
subject to a CDSC of: (i) 4% if shares are redeemed within two years of
purchase; (ii) 3% if shares are redeemed during the third or fourth year
following purchase; (iii) 2% if shares are redeemed during the fifth year
following purchase; and (iv) 1% if shares are redeemed during the sixth year
following purchase. Class C Shares are subject to a CDSC of 1% if shares are
redeemed within 12 months following purchase. See Contingent Deferred Sales
Charge - Class B Shares and Class C Shares under Classes of Shares in the
Prospectus for the Classes. Except for the applicable CDSC or Limited CDSC and,
with respect to the expedited payment by wire described below for which there is
currently a $7.50 bank wiring cost, neither the Funds nor the Distributor
charges a fee for redemptions or repurchases, but such fees could be charged at
any time in the future.

Payment for shares redeemed will ordinarily be mailed the next business
day, but in no case later than seven days, after receipt of a redemption request
in good order; provided, however, that each commitment to mail or wire
redemption proceeds by a certain time, as described below, is modified by the
qualifications described in the next paragraph.

-44-

<PAGE>

(SAI-PA/PART B)

Each Fund will process written or telephone redemption requests to the
extent that the purchase orders for the shares being redeemed have already been
settled. A Fund will honor the redemption requests as to shares for which a
check was tendered as payment, but a Fund will not mail or wire the proceeds
until it is reasonably satisfied that the check has cleared. This potential
delay can be avoided by making investments by wiring Federal Funds.

If a shareholder has been credited with a purchase by a check which is
subsequently returned unpaid for insufficient funds or for any other reason, the
Fund involved will automatically redeem from the shareholder's account the
shares purchased by the check plus any dividends earned thereon. Shareholders
may be responsible for any losses to a Fund or to the Distributor.

In case of a suspension of the determination of the net asset value
because the New York Stock Exchange is closed for other than weekends or
holidays, or trading thereon is restricted or an emergency exists as a result of
which disposal by a Fund of securities owned by it is not reasonably practical,
or it is not reasonably practical for a Fund fairly to value its assets, or in
the event that the Securities and Exchange Commission has provided for such
suspension for the protection of shareholders, a Fund may postpone payment or
suspend the right of redemption or repurchase. In such case, the shareholder may
withdraw the request for redemption or leave it standing as a request for
redemption at the net asset value next determined after the suspension has been
terminated.

Payment for shares redeemed or repurchased may be made either in cash
or kind, or partly in cash and partly in kind. Any portfolio securities paid or
distributed in kind would be valued as described in Determining Offering Price
and Net Asset Value. Subsequent sale by an investor receiving a distribution in
kind could result in the payment of brokerage commissions. However, the Trust
has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which
each Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of such Fund during any 90-day period for
any one shareholder.

The value of a Fund's investments is subject to changing market prices.
Thus, a shareholder reselling shares to a Fund may sustain either a gain or
loss, depending upon the price paid and the price received for such shares.

Small Accounts
Before a Fund involuntarily redeems shares from an account that, under
the circumstances listed in the Prospectus, has remained below the minimum
amounts required by the Funds' Prospectus and sends the proceeds to the
shareholder, the shareholder will be notified in writing that the value of the
shares in the account is less than $1,000 and will be allowed 60 days from that
date of notice to make an additional investment to meet the required minimum of
$1,000. See The Conditions of Your Purchase under How to Buy Shares in the
Prospectus. Any redemption in an inactive account established with a minimum
investment may trigger mandatory redemption. No CDSC or Limited CDSC will apply
to the redemptions described in this paragraph.

* * *

The Fund has made available certain redemption privileges, as described
below. The Fund reserves the right to suspend or terminate these expedited
payment procedures upon 60 days' written notice to shareholders.

-45-

<PAGE>

(SAI-PA/PART B)

Expedited Telephone Redemptions
Shareholders of the Classes or their investment dealers of record
wishing to redeem any amount of shares of $50,000 or less for which certificates
have not been issued may call the Shareholder Service Center at 800-523-1918
prior to the time the offering price and net asset value are determined, as
noted above, and have the proceeds mailed to them at the address of record.
Checks payable to the shareholder(s) of record will normally be mailed the next
business day, but no later than seven days, after the receipt of the redemption
request. This option is only available to individual, joint and individual
fiduciary-type accounts.

In addition, redemption proceeds of $1,000 or more can be transferred
to your predesignated bank account by wire or by check by calling the phone
number listed above. An authorization form must have been completed by the
shareholder and filed with a Fund before the request is received. Payment will
be made by wire or check to the bank account designated on the authorization
form as follows:

1. Payment by Wire: Request that Federal Funds be wired to the bank
account designated on the authorization form. Redemption proceeds will normally
be wired on the next business day following receipt of the redemption request.
There is a $7.50 wiring fee (subject to change) charged by CoreStates Bank, N.A.
which will be deducted from the withdrawal proceeds each time the shareholder
requests a redemption. If the proceeds are wired to the shareholder's account at
a bank which is not a member of the Federal Reserve System, there could be a
delay in the crediting of the funds to the shareholder's bank account.

2. Payment by Check: Request a check be mailed to the bank account
designated on the authorization form. Redemption proceeds will normally be
mailed the next business day, but no later than seven days, from the date of the
telephone request. This procedure will take longer than the Payment by Wire
option (1 above) because of the extra time necessary for the mailing and
clearing of the check after the bank receives it.

Redemption Requirements: In order to change the name of the bank and
the account number it will be necessary to send a written request to your Fund
and a signature guarantee may be required. Each signature guarantee must be
supplied by an eligible guarantor institution. Each Fund reserves the right to
reject a signature guarantee supplied by an eligible institution based on its
creditworthiness.

To reduce the shareholder's risk of attempted fraudulent use of the
telephone redemption procedure, payment will be made only to the bank account
designated on the authorization form.

If expedited payment under these procedures could adversely affect a
Fund, the Fund may take up to seven days to pay the shareholder.

Neither the Funds nor the Funds' Transfer Agent is responsible for any
shareholder loss incurred in acting upon written or telephone instructions for
redemption or exchange of Fund shares which are reasonably believed to be
genuine. With respect to such telephone transactions, each Fund will follow
reasonable procedures to confirm that instructions communicated by telephone are
genuine (including verification of a form of personal identification) as, if it
does not, such Fund or the Transfer Agent may be liable for any losses due to
unauthorized or fraudulent transactions. Telephone instructions received by
shareholders are generally tape recorded. A written confirmation will be
provided for all purchase, exchange and redemption transactions initiated by
telephone.

-46-

<PAGE>

(SAI-PA/PART B)

Systematic Withdrawal Plans
Shareholders of Class A Shares, Class B Shares and Class C Shares who
own or purchase $5,000 or more of shares at the offering price or net asset
value, as applicable for which certificates have not been issued may establish a
Systematic Withdrawal Plan for monthly withdrawals of $25 or more, or quarterly
withdrawals of $75 or more, although the Fund do not recommend any specific
amount of withdrawal. Shares purchased with the initial investment and through
reinvestment of cash dividends and realized securities profits distributions
will be credited to the shareholder's account and sufficient full and fractional
shares will be redeemed at the net asset value calculated on the third business
day preceding the mailing date.

Checks are dated either the 1st or the 15th of the month, as selected
by the shareholder (unless such date falls on a holiday or a weekend), and are
normally mailed within two business days. Both ordinary income dividends and
realized securities profits distributions will be automatically reinvested in
additional shares of the Class at net asset value. This plan is not recommended
for all investors and should be started only after careful consideration of its
operation and effect upon the investor's savings and investment program. To the
extent that withdrawal payments from the plan exceed any dividends and/or
realized securities profits distributions paid on shares held under the plan,
the withdrawal payments will represent a return of capital and the share balance
may in time be depleted, particularly in a declining market.

The sale of shares for withdrawal payments constitutes a taxable event
and a shareholder may incur a capital gain or loss for federal income tax
purposes. This gain or loss may be long-term or short-term depending on the
holding period for the specific shares liquidated.

Withdrawals under this plan made concurrently with the purchases of
additional shares may be disadvantageous to the shareholder. Purchases of Class
A Shares through a periodic investment program in a fund managed by the Manager
must be terminated before a Systematic Withdrawal Plan with respect to such
shares can take effect, except if the shareholder is investing in Delaware Group
funds which do not carry a sales charge. Redemptions of Class A Shares pursuant
to a Systematic Withdrawal Plan may be subject to a Limited CDSC if the purchase
was made at net asset value and a dealer's commission has been paid on that
purchase. Redemptions of Class B Shares or Class C Shares pursuant to a
Systematic Withdrawal Plan may be subject to a CDSC, unless the annual amount
selected to be withdrawn is less than 12% of the account balance on the date
that the Systematic Withdrawal Plan was established. See Waiver of Contingent
Deferred Sales Charge - Class B And Class C Shares and Waiver of Limited
Contingent Deferred Sales Charge - Class A Shares under Redemption and Exchange
in the Prospectus. Shareholders should consult their financial adviser to
determine whether a Systematic Withdrawal Plan would be suitable for them.

An investor wishing to start a Systematic Withdrawal Plan must complete
an authorization form. If the recipient of Systematic Withdrawal Plan payments
is other than the registered shareholder, the shareholder's signature on this
authorization must be guaranteed. Each signature guarantee must be supplied by
an eligible guarantor institution. The Fund reserves the right to reject a
signature guarantee supplied by an eligible institution based on its
creditworthiness. This plan may be terminated by the shareholder or the Transfer
Agent at any time by giving written notice.

-47-

<PAGE>

(SAI-PA/PART B)

DIVIDENDS AND DISTRIBUTIONS

Each Fund declares a dividend from net investment income to its
shareholders on a daily basis. Dividends are declared each day the Funds are
open and are paid monthly on the first business day following the end of each
month. Payment by check of cash dividends will ordinarily be mailed within three
business days after the payable date. Net investment income earned on days when
the Funds are not open will be declared as a dividend on the next business day.
Purchases of Fund shares by wire begin earning dividends when converted into
Federal Funds and available for investment, normally the next business day after
receipt. However, if a Fund is given prior notice of Federal Funds wire and an
acceptable written guarantee of timely receipt from an investor satisfying the
Fund's credit policies, the purchase will start earning dividends on the date
the wire is received. Investors desiring to guarantee wire payments must have an
acceptable financial condition and credit history in the sole discretion of a
Fund. Each Fund reserves the right to terminate this option at any time.
Purchases by check earn dividends upon conversion to Federal Funds, normally one
business day after receipt.

Any distributions from net realized securities profits will be made
annually during the quarter following the close of the fiscal year. Such
distributions will be reinvested in shares at the net asset value in effect on
the first business day after month end, unless the shareholder elects to receive
them in cash. The Trust will mail a quarterly statement showing dividends paid
and all the transactions made during the period.

Each Class of a Fund will share proportionately in the investment
income and expenses of that Fund, except that each Class will alone incur
distribution fees under its 12b-1 Plan. See Plans Under Rule 12b-1.

Dividends are automatically reinvested in additional shares at net
asset value on the payable date, unless an election to receive dividends in cash
has been made. Dividend payments of $1.00 or less will be automatically
reinvested, notwithstanding a shareholder's election to receive dividends in
cash. If such a shareholder's dividends increase to greater than $1.00, the
shareholder would have to file a new election in order to begin receiving
dividends in cash again. If a shareholder redeems an entire account, all
dividends accrued to the time of the withdrawal will be paid by separate check
at the end of that particular monthly dividend period, consistent with the
payment and mailing schedule described above. Any check in payment of dividends
or other distributions which cannot be delivered by the United States Post
Office or which remains uncashed for a period of more than one year may be
reinvested in the shareholder's account at the then-current net asset value and
the dividend option may be changed from cash to reinvest. A Fund may deduct from
a shareholder's account the costs of the Fund's effort to locate a shareholder
if a shareholder's mail is returned by the Post Office or the Fund is otherwise
unable to locate the shareholder or verify the shareholder's mailing address.
These costs may include a percentage of the account when a search company
charges a percentage fee in exchange for their location services.

New Jersey Fund anticipates that substantially all dividends paid to
shareholders will be exempt from federal and New Jersey income taxes and from
certain New Jersey state and local taxes. Ohio Fund anticipates that
substantially all dividends paid to shareholders will be exempt from federal and
Ohio income taxes and from certain Ohio state and local taxes. In addition,
Pennsylvania Fund anticipates that substantially all dividends paid to
shareholders will be exempt from federal and Pennsylvania income taxes and from
certain Pennsylvania state and local taxes. Information concerning the tax
status of dividends and distributions will be mailed to shareholders annually,
including what portion, if any, of a Fund's distribution is subject to the
federal alternative minimum tax should the Fund invest in "private purpose"
bonds.

-48-

<PAGE>

(SAI-PA/PART B)

TAXES

Federal Income Tax Aspects
Pennsylvania Fund has qualified, and intends to continue to qualify,
and New Jersey Fund and Ohio Fund intend to qualify as regulated investment
companies under Subchapter M of the Internal Revenue Code of 1986, as amended,
so as not to be liable for federal income tax to the extent its earnings are
distributed. The term "regulated investment company" does not imply the
supervision of management or investment practices or policies by any government
agency.

Distributions by a Fund representing net interest received on municipal
bonds are considered tax-exempt and are not includable by shareholders in gross
income for federal income tax purposes because the Fund intends to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies distributing exempt- interest dividends. Although exempt from regular
federal income tax, interest paid on certain types of municipal obligations is
deemed to be a preference item under federal tax law and is subject to the
federal alternative minimum tax.

For federal income tax purposes, Pennsylvania Fund's portfolio
securities had net unrealized appreciation at February 28, 1997 of $40,452,722
on the basis of specific cost.

Distributions representing net interest income received by a Fund from
certain temporary investments (such as certificates of deposit, commercial paper
and obligations of the U.S. government, its agencies and instrumentalities) and
net short-term capital gains realized by the Fund, if any, will be taxable to
shareholders as ordinary income and will not qualify for the deduction for
dividends-received by corporations. Distributions of long-term capital gains
realized by a Fund, if any, will be taxable to shareholders as long-term capital
gains regardless of the length of time an investor has held such shares, and
these gains are currently taxed at long-term capital gain rates. The tax status
of dividends and distributions paid to shareholders will not be affected by
whether they are paid in cash or in additional shares. Statements as to the tax
status of each investor's dividends or distributions will be mailed annually.
The percentage of taxable income at the end of the year will not necessarily
bear relationship to the experience over a shorter period of time. Shareholders
may incur a tax liability for federal, state and local taxes upon the sale or
redemption of shares of a Fund.

Section 265 of the Internal Revenue Code provides that interest paid on
indebtedness incurred or continued to purchase or carry obligations the interest
on which is tax-exempt, and certain expenses associated with tax-exempt income,
are not deductible. It is probable that interest on indebtedness incurred or
continued to purchase or carry shares of a Fund is not deductible.

A Fund may not be an appropriate investment for persons who are
"substantial users" of facilities financed by "industrial development bonds" or
for investors who are "related persons" thereof within the meaning of Section
103 of the Internal Revenue Code. Persons who are or may be considered
"substantial users" should consult their tax advisers in this matter before
purchasing shares of the Fund.

Each Fund intends to use the "average annual" method of allocation in
the event the Fund realizes any taxable interest income. Under this approach,
the percentage of interest income earned that is deemed to be taxable in any
year will be the same for each shareholder who held shares of the Fund at any
time during the year.

-49-

<PAGE>

(SAI-PA/PART B)

State and Local Taxes
See Taxes in the Prospectus for a discussion of New Jersey, Ohio and
Pennsylvania taxation. Shares of a Fund may be taxable for purposes of, as
applicable, New Jersey, Ohio or Pennsylvania inheritance and estate tax.

Shareholders of the Pennsylvania Fund who are residents of the City of
Pittsburgh may be required to pay Pittsburgh School District and City personal
property tax on their equitable interest of that portion of the assets of the
Fund which are not exempt from such tax. However, since the Fund's inception,
none of its assets have been liable for such tax.

Distributions by a Fund may not be exempt from state or local income
tax in states other than, as applicable, New Jersey, Ohio or Pennsylvania.
Shareholders of each Fund are advised to consult their own tax adviser in this
regard.

-50-

<PAGE>

(SAI-PA/PART B)

INVESTMENT MANAGEMENT AGREEMENTS

The Manager, located at One Commerce Square, Philadelphia, PA 19103,
furnishes investment management services to each Fund, subject to the
supervision and direction of the Trust's Board of Trustees.

The Manager and its predecessors have been managing the funds in the
Delaware Group since 1938. On February 28, 1997, the Manager and its affiliates
within the Delaware Group, including Delaware International Advisers Ltd., were
managing in the aggregate more than $32 billion in assets in the various
institutional or separately managed (approximately $20,548,345,000) and
investment company (approximately $12,216,382,000) accounts.

The Investment Management Agreement for Pennsylvania Fund is dated
April 3, 1995 and was approved by shareholders on March 29, 1995. The Investment
Management Agreement for each of New Jersey Fund and Ohio Fund is dated
September 2, 1997 and was approved by shareholders on August 29, 1997.

The Agreements have an initial term of two years and may be further
renewed after their initial terms only so long as such renewal and continuance
are specifically approved at least annually by the Board of Trustees or by vote
of a majority of the outstanding voting securities of the Fund to which the
Agreement relates, and only if the terms of the renewal thereof have been
approved by the vote of a majority of the trustees of the Trust who are not
parties thereto or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval. The Agreements are
terminable without penalty on 60 days' notice by the directors of the Trust or
by the Manager. The Agreements will terminate automatically in the event of
their assignment.

New Jersey Fund's and Ohio Fund's Investment Management Agreements
provide that each respective Fund shall pay the Manager a management fee equal
to (on an annual basis) 0.55% on the first $500 million of average daily net
assets of the Fund, 0.525% on the next $500 million and 0.50% on the average
daily net assets in excess of $1 billion. The Manager has elected voluntarily to
waive that portion, if any, of the annual management fees payable by New Jersey
Fund and Ohio Fund and to pay each Fund's expenses to the extent necessary to
ensure that the Total Operating Expenses (after voluntary waivers and payments)
of the Class A Shares of each Fund do not exceed 1.00% and each of the Class B
Shares and Class C Shares do not exceed 1.75% (in all cases, exclusive of taxes,
interest, brokerage commissions and extraordinary expenses, but inclusive of
Rule 12b-1 fees), during the first six months of each Fund's operations.

Pennsylvania Fund's Investment Management Agreement provides that the
Fund shall pay the Manager a management fee equal to (on an annual basis) 0.60%
on the first $500 million of the Fund's average daily net assets, 0.575% on the
next $250 million and 0.55% on the average daily net assets in excess of $750
million, less all trustees' fees paid to the unaffiliated trustees of the Fund.

On February 28, 1997, the total net assets of Pennsylvania Fund were
$987,083,386. Investment management fees paid by Pennsylvania Fund for the past
three fiscal years were $5,743,977 for 1995, $5,877,033 for 1996 and $5,727,743
for 1997.

Under the general supervision of the Board of Trustees, the Manager
makes all investment decisions which are implemented by the Funds. The Manager
pays the salaries of all trustees, officers and employees of each Fund who are
affiliated with the Manager. Each Fund pays all of its other expenses, including
its proportionate share of rent and certain other administrative expenses.

-51-

<PAGE>

(SAI-PA/PART B)

The ratios of expenses to average daily net assets for Class A Shares,
Class B Shares and Class C Shares of Pennsylvania Fund for the fiscal year ended
February 28, 1997 were 0.91%, 1.71% and 1.71%, respectively. The ratios for the
Class A Shares, Class B Shares and Class C Shares of the Fund reflect the impact
of their respective 12b-1 Plans.

Distribution and Service
The Distributor, Delaware Distributors, L.P. (which formerly conducted
business as Delaware Distributors, Inc.), located at 1818 Market Street,
Philadelphia, PA 19103, serves as the national distributor for Pennsylvania Fund
under a Distribution Agreement dated April 3, 1995, as amended on November 29,
1995. The Distributor serves as the national distributor for New Jersey Fund and
Ohio Fund under separate Distribution Agreements dated September 2, 1997. The
Distributor is an affiliate of the Manager and bears all of the costs of
promotion and distribution, except for payments by each Fund on behalf of the
Class A Shares, Class B Shares and Class C Shares under their respective 12b-1
Plans. Prior to January 3, 1995, Delaware Distributors, Inc. ("DDI") served as
the national distributor of Pennsylvania Fund's shares. On that date, Delaware
Distributors, L.P., a newly formed limited partnership, succeeded to the
business of DDI. All officers and employees of DDI became officers and employees
of Delaware Distributors, L.P. DDI is the corporate general partner of Delaware
Distributors, L.P. and both DDI and Delaware Distributors, L.P. are indirect,
wholly owned subsidiaries of Delaware Management Holdings, Inc.

The Transfer Agent, Delaware Service Company, Inc., another affiliate
of the Manager located at 1818 Market Street, Philadelphia, PA 19103, serves as
each Fund's shareholder servicing, dividend disbursing and transfer agent
pursuant to an amended and restated agreement dated September 2, 1997. The
Transfer Agent also provides accounting services to each Fund pursuant to the
terms of a separate Fund Accounting Agreement. The Transfer Agent is also an
indirect, wholly owned subsidiary of Delaware Management Holdings, Inc.

-52-

<PAGE>

(SAI-PA/PART B)

OFFICERS AND TRUSTEES

The business and affairs of the Fund are managed under the direction of
its Board of Trustees.

Certain officers and trustees of the Fund hold identical positions in
each of the other funds in the Delaware Group. As of July 31, 1997, the Fund's
officers and trustees, as a group, owned less than 1% of the outstanding shares
of Class B Shares and Class C Shares, respectively, and approximately 1.57% of
the outstanding shares of Class A Shares of Pennsylvania Fund.

As of July 31, 1997, management believes the following accounts held 5%
or more of the outstanding shares of Class A Shares, Class B Shares and Class C
Shares of Pennsylvania Fund:
<TABLE>
<CAPTION>

Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
<S> <C> <C> <C>
Class A Shares Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 6,888,355 6.11%

Class B Shares Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 260,490 6.07%

Class C Shares David N. Arms and Janet E. Arms JT WROS
2147 Deep Creek Road
Perkiomenville, PA 18074 41,295 17.01%

Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 3rd Floor
Jacksonville, FL 32246 15,850 6.53%

Gary R. Dysart
1147 Canterbury Drive
Lansdale, PA 19446 13,467 5.55%

Barbara S. Peters
3640 Academy Road
Philadelphia, PA 19154 12,360 5.09%

</TABLE>

-53-

<PAGE>

(SAI-PA/PART B)

DMH Corp., Delaware Voyageur Holdings, Inc., Delaware Management
Company, Inc., Delaware Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Management Trust Company, Delaware
International Holdings Ltd., Founders Holdings, Inc., Delaware International
Advisers Ltd., Delaware Capital Management, Inc. and Delaware Investment &
Retirement Services, Inc. are direct or indirect, wholly owned subsidiaries of
Delaware Management Holdings, Inc. ("DMH"). On April 3, 1995, a merger between
DMH and a wholly owned subsidiary of Lincoln National Corporation ("Lincoln
National") was completed. In connection with the merger, a new Investment
Management Agreement between the Fund and the Manager was executed following
shareholder approval. DMH and the Manager are now indirect, wholly owned
subsidiaries, and subject to the ultimate control of, Lincoln National. Lincoln
National, with headquarters in Fort Wayne, Indiana, is a diversified
organization with operations in many aspects of the financial services industry,
including insurance and investment management.

Trustees and principal officers of the Fund are noted below along with
their ages and their business experience for the past five years. Unless
otherwise noted, the address of each officer and trustee is One Commerce Square,
Philadelphia, PA 19103.

*Wayne A. Stork (60)
Chairman, President, Chief Executive Officer, Director and/or Trustee
of the Funds, 32 other investment companies in the Delaware
Group, Delaware Management Holdings, Inc., DMH Corp., Delaware
International Holdings Ltd. and Founders Holdings, Inc.
Chairman, President, Chief Executive Officer, Chief Investment Officer
and Director of Delaware Management Company, Inc.
Chairman and Director of Delaware Distributors, Inc. and Delaware
Capital Management, Inc.
Chairman, Chief Executive Officer and Director of Delaware
International Advisers Ltd.
Director of Delaware Service Company, Inc. and Delaware Investment &
Retirement Services, Inc.
During the past five years, Mr. Stork has served in various executive
capacities at different times within the Delaware
organization.

Richard G. Unruh, Jr. (57)
Executive Vice President of the Funds, each of the other 32 investment
companies in the Delaware Group, Delaware Management
Holdings, Inc. and Delaware Capital Management, Inc.
Executive Vice President and Director of Delaware Management Company,
Inc.
Director of Delaware International Advisers Ltd.
During the past five years, Mr. Unruh has served in various executive
capacities at different times within the Delaware
organization.

- ------------------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.

-54-

<PAGE>

(SAI-PA/PART B)

Paul E. Suckow (50)
Executive Vice President/Chief Investment Officer, Fixed Income of the
Funds, each of the other 32 investment companies in the
Delaware Group, Delaware Management Company, Inc. and Delaware
Management Holdings, Inc.
Executive Vice President and Director of Founders Holdings, Inc.
Executive Vice President of Delaware Capital Management, Inc.
Director of Founders CBO Corporation.
Director of HYPPCO Finance Company Ltd.
Before returning to the Delaware Group in 1993, Mr. Suckow was
Executive Vice President and Director of Fixed Income for
Oppenheimer Management Corporation, New York, NY from 1985 to
1992. Prior to that, Mr. Suckow was a fixed-income portfolio
manager for the Delaware Group.

Walter P. Babich (69)
Director and/or Trustee of the Funds and each of the other 32
investment companies in the Delaware Group. 460 North Gulph
Road, King of Prussia, PA 19406.
Board Chairman, Citadel Constructors, Inc.
From 1986 to 1988, Mr. Babich was a partner of Irwin & Leighton and
from 1988 to 1991, he was a partner of I&L Investors.

Anthony D. Knerr (58)
Director and/or Trustee of the Funds and each of the other 32
investment companies in the Delaware Group.
500 Fifth Avenue, New York, NY 10110.
Founder and Managing Director, Anthony Knerr & Associates.
From 1982 to 1988, Mr. Knerr was Executive Vice President/Finance
and Treasurer of Columbia University, New York. From 1987 to
1989, he was also a lecturer in English at the University. In
addition, Mr. Knerr was Chairman of The Publishing Group,
Inc., New York, from 1988 to 1990. Mr. Knerr founded The
Publishing Group, Inc. in 1988.

Ann R. Leven (56)
Director and/or Trustee of the Funds and each of the other 32
investment companies in the Delaware Group.
785 Park Avenue, New York, NY 10021.
Treasurer, National Gallery of Art.
From 1984 to 1990, Ms. Leven was Treasurer and Chief Fiscal Officer
of the Smithsonian Institution, Washington, DC, and from 1975
to 1992, she was Adjunct Professor of Columbia Business
School.

W. Thacher Longstreth (76)
Director and/or Trustee of the Funds and each of the other 32
investment companies in the Delaware Group.
City Hall, Philadelphia, PA 19107.
Philadelphia City Councilman.

-55-

<PAGE>

(SAI-PA/PART B)

Thomas F. Madison (61)
Director and/or Trustee of the Funds and each of the other 32
investment companies in the Delaware Group.
President and Chief Executive Officer, MLM Partners, Inc.
200 South Fifth Street, Suite 2100, Minneapolis, Minnesota 55402.
Mr. Madison has also been Chairman of the Board of Communications
Holdings, Inc. since 1996. From February to September 1994,
Mr. Madison served as Vice Chairman--Office of the CEO of The
Minnesota Mutual Life Insurance Company and from 1988 to 1993,
he was President of U.S. WEST Communications--Markets.

* Jeffrey J. Nick (44)
Director and/or Trustee of the Funds and 32 other investment companies
in the Delaware Group.
President, Chief Executive Officer and Director of Lincoln National
Investment Companies, Inc. From 1992 to 1996, Mr. Nick was
Managing Director of Lincoln National UK plc and from 1989 to
1992, he was Senior Vice President responsible for corporate
planning and development for Lincoln National Corporation.

Charles E. Peck (71)
Director and/or Trustee of the Funds and each of the other 32
investment companies in the Delaware Group.
P.O. Box 1102, Columbia, MD 21044.
Secretary/Treasurer, Enterprise Homes, Inc.
From 1981 to 1990, Mr. Peck was Chairman and Chief Executive
Officer of The Ryland Group, Inc., Columbia, MD.

David K. Downes (57)
Executive Vice President/Chief Operating Officer/Chief Financial
Officer of the Funds, each of the other 32 investment
companies in the Delaware Group, Delaware Management Holdings,
Inc, Founders CBO Corporation, Delaware Capital Management,
Inc. and Delaware Distributors, L.P.
Executive Vice President, Chief Operating Officer, Chief Financial
Officer and Director of Delaware Management Company, Inc., DMH
Corp., Delaware Distributors, Inc., Founders Holdings, Inc.
and Delaware International Holdings Ltd.
President/Chief Executive Officer/Chief Financial Officer and Director
of Delaware Service Company, Inc.
Chairman, Chief Executive Officer and Director of Delaware Investment &
Retirement Services, Inc.
Chairman and Director of Delaware Management Trust Company
Director of Delaware International Advisers Ltd.
Before joining the Delaware Group in 1992, Mr. Downes was Chief
Administrative Officer, Chief Financial Officer and Treasurer
of Equitable Capital Management Corporation, New York, from
December 1985 through August 1992, Executive Vice President
from December 1985 through March 1992, and Vice Chairman from
March 1992 through August 1992.

- ----------------------
* Director affiliated with the Fund's investment manager and considered an
"interested person" as defined in the 1940 Act.

-56-

<PAGE>

(SAI-PA/PART B)

George M. Chamberlain, Jr. (50)
Senior Vice President,Secretary and General Counsel of the Funds, each
of the other 32 investment companies in the Delaware Group,
Delaware Distributors, L.P. and Delaware Management Holdings,
Inc.
Senior Vice President, Secretary, General Counsel and Director of DMH
Corp., Delaware Management Company, Inc., Delaware
Distributors, Inc., Delaware Service Company, Inc., Founders
Holdings, Inc., Delaware Investment & Retirement Services,
Inc. and Delaware Capital Management, Inc.
Executive Vice President, Secretary, General Counsel and Director of
Delaware Management Trust Company.
Secretary and Director of Delaware International Holdings Ltd.
Director of Delaware International Advisers Ltd.
Attorney.
During the past five years, Mr. Chamberlain has served in various
capacities at different times within the Delaware
organization.

Patrick P. Coyne (34)
Vice President/Senior Portfolio Manager of the Funds, and each of
the tax-exempt and the fixed-income funds in the Delaware
Group and Delaware Capital Management, Inc.
During the past five years, Mr. Coyne has served in various
capacities at different times within the Delaware
organization.

Mitchell L. Conery (38)
Vice President/Senior Portfolio Manager of the Funds, each of the
tax-exempt and the fixed-income funds in the Delaware Group
and Delaware Capital Management.
Before joining the Delaware Group in 1997, Mr. Conery was an
investment officer with Travelers Insurance from 1995 through
1996 and a research analyst with CS First Boston from 1992 to
1995.

Joseph H. Hastings (47)
Senior Vice President/Corporate Controller of the Funds, each of the
other 32 investment companies in the Delaware Group and
Founders Holdings, Inc.
Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc., DMH Corp., Delaware Management
Company, Inc., Delaware Distributors, L.P., Delaware
Distributors, Inc., Delaware Service Company, Inc., Delaware
Capital Management, Inc. and Delaware International Holdings
Ltd.
Chief Financial Officer/Treasurer of Delaware Investment &
Retirement Services, Inc.
Executive Vice President/Chief Financial Officer/Treasurer of Delaware
Management Trust Company.
Senior Vice President/Assistant Treasurer of Founders CBO Corporation.
1818 Market Street, Philadelphia, PA 19103.
Before joining the Delaware Group in 1992, Mr. Hastings was Chief
Financial Officer for Prudential Residential Services, L.P.,
New York, NY from 1989 to 1992. Prior to that, Mr. Hastings
served as Controller and Treasurer for Fine Homes
International, L.P., Stamford, CT from 1987 to 1989.

-57-

<PAGE>

(SAI-PA/PART B)

Michael P. Bishof (35)

Senior Vice President/Treasurer of the Funds, each of the other 32
investment companies in the Delaware Group, Delaware
Distributors, Inc. and Founders Holdings, Inc.
Senior Vice President/Investment Accounting of Delaware Management
Company, Inc. and Delaware Service Company, Inc.
Senior Vice President and Treasurer/Manager of Investment Accounting
of Delawre Distributors, L.P.
Senior Vice President and Manager of Investment Accounting of
Delaware International Holdings Ltd.
Assistant Treasurer of Founders CBO Corporation.
Before joining the Delaware Group in 1995, Mr. Bishof was a Vice
President for Bankers Trust, New York, NY from 1994 to 1995, a
Vice President for CS First Boston Investment Management, New
York, NY from 1993 to 1994 and an Assistant Vice President for
Equitable Capital Management Corporation, New York, NY from
1987 to 1993.

The following is a compensation table listing for each trustee entitled
to receive compensation, the aggregate compensation received from the Fund and
the total compensation received from all Delaware Group funds for the fiscal
year ended February 28, 1997 and an estimate of annual benefits to be received
upon retirement under the Delaware Group Retirement Plan for Directors/Trustees
as of February 28, 1997.
<TABLE>
<CAPTION>

Pension or Total
Retirement Estimated Compensation
Benefits Annual from all 18
Aggregate Accrued Benefits Delaware
Compensation as Part of Upon Group Investment
Name from Trust Trust Expenses Retirement* Companies

<S> <C> <C> <C> <C>
W. Thacher Longstreth $3,788 None $30,000 $51,315
Ann R. Leven $4,206 None $30,000 $55,814
Walter P. Babich $4,122 None $30,000 $54,815
Anthony D. Knerr $4,122 None $30,000 $54,815
Charles E. Peck $3,785 None $30,000 $49,542
Thomas F. Madison** N/A None $30,000 N/A
</TABLE>

* Under the terms of the Delaware Group Retirement Plan for
Directors/Trustees, each disinterested trustee who, at the time of his
or her retirement from the Board, has attained the age of 70 and served
on the Board for at least five continuous years, is entitled to receive
payments from each fund in the Delaware Group for a period equal to the
lesser of the number of years that such person served as a
trustee/director or the remainder of such person's life. The amount of
such payments will be equal, on an annual basis, to the amount of the
annual retainer that is paid to trustees/directors of each fund at the
time of such person's retirement. If an eligible trustee/director
retired as of February 28, 1997, he or she would be entitled to annual
payments totaling $30,000, in the aggregate, from all of the funds in
the Delaware Group, based on the number of funds in the Delaware Group
as of that date.

** Thomas F. Madison joined the Board of Trustees on April 30, 1997.

-58-

<PAGE>

(SAI-PA/PART B)

EXCHANGE PRIVILEGE

The exchange privileges available for shareholders of a Fund's classes
and for shareholders of classes of other funds in the Delaware Group are set
forth in the relevant prospectuses for such classes. The following supplements
that information. Each Fund may modify, terminate or suspend the exchange
privilege upon 60 days' notice to shareholders.

All exchanges involve a purchase of shares of the fund into which the
exchange is made. As with any purchase, an investor should obtain and carefully
read that fund's prospectus before buying shares in an exchange. The prospectus
contains more complete information about the fund, including charges and
expenses. A shareholder requesting an exchange will be sent a current prospectus
and an authorization form for any of the other mutual funds in the Delaware
Group. Exchange instructions must be signed by the record owner(s) exactly as
the shares are registered.

An exchange constitutes, for tax purposes, the sale of one fund and the
purchase of another. The sale may involve either a capital gain or loss to the
shareholder for federal income tax purposes.

In addition, investment advisers and dealers may make exchanges between
funds in the Delaware Group on behalf of their clients by telephone or other
expedited means. This service may be discontinued or revised at any time by the
Transfer Agent. Such exchange requests may be rejected if it is determined that
a particular request or the total requests at any time could have an adverse
effect on any of the funds. Requests for expedited exchanges may be submitted
with a properly completed exchange authorization form, as described above.

Telephone Exchange Privilege
Shareholders owning shares for which certificates have not been issued or
their investment dealers of record may exchange shares by telephone for shares
in other mutual funds in the Delaware Group. This service is automatically
provided unless the relevant Fund receives written notice from the shareholder
to the contrary.

Shareholders or their investment dealers of record may contact the
Shareholder Service Center at 800-523-1918 or, in the case of shareholders of
the Institutional Classes, their Client Services Representative at 800-828-5052,
to effect an exchange. The shareholder's current Fund account number must be
identified, as well as the registration of the account, the share or dollar
amount to be exchanged and the fund into which the exchange is to be made.
Requests received on any day after the time the offering price and net asset
value are determined will be processed the following day. See Determining
Offering Price and Net Asset Value. Any new account established through the
exchange will automatically carry the same registration, shareholder information
and dividend option as the account from which the shares were exchanged. The
exchange requirements of the fund into which the exchange is being made, such as
sales charges, eligibility and investment minimums, must be met. (See the
prospectus of the fund desired or inquire by calling the Transfer Agent or, as
relevant, your Client Services Representative.) Certain funds are not available
for retirement plans.

The telephone exchange privilege is intended as a convenience to
shareholders and is not intended to be a vehicle to speculate on short-term
swings in the securities market through frequent transactions in and out of the
funds in the Delaware Group. Telephone exchanges may be subject to limitations
as to amounts or frequency. The Transfer Agent and each Fund reserve the right
to record exchange instructions received by telephone and to reject exchange
requests at any time.

As described in the Funds' Prospectus, neither the Funds nor their
Transfer Agent is responsible for any shareholder loss incurred in acting upon
written or telephone instructions for redemption or exchange of Fund shares

-59-

<PAGE>

(SAI-PA/PART B)

which are reasonably believed to be genuine.

Right to Refuse Timing Accounts
With regard to accounts that are administered by market timing services
("Timing Firms") to purchase or redeem shares based on changing economic and
market conditions ("Timing Accounts"), each Fund will refuse any new timing
arrangements, as well as any new purchases (as opposed to exchanges) in Delaware
Group funds from Timing Firms. A Fund reserves the right to temporarily or
permanently terminate the exchange privilege or reject any specific purchase
order for any person whose transactions seem to follow a timing pattern who: (i)
makes an exchange request out of the Fund within two weeks of an earlier
exchange request out of the Fund, or (ii) makes more than two exchanges out of
the Fund per calendar quarter, or (iii) exchanges shares equal in value to at
least $5 million, or more than 1/4 of 1% of the Fund's net assets. Accounts
under common ownership or control, including accounts administered so as to
redeem or purchase shares based upon certain predetermined market indicators,
will be aggregated for purposes of the exchange limits.

Restrictions on Timed Exchanges
Timing Accounts operating under existing timing agreements may only
execute exchanges between the following eight Delaware Group funds: (1) Decatur
Income Fund, (2) Decatur Total Return Fund, (3) Delaware Fund, (4) Limited-Term
Government Fund, (5) Tax-Free USA Fund, (6) Delaware Cash Reserve, (7)
Delchester Fund and (8) Pennsylvania Fund. No other Delaware Group funds are
available for timed exchanges. Assets redeemed or exchanged out of Timing
Accounts in Delaware Group funds not listed above may not be reinvested back
into that Timing Account. Each Fund reserves the right to apply these same
restrictions to the account(s) of any person whose transactions seem to follow a
timing pattern (as described above).

Each Fund also reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in the Manager's
judgment, the Fund would be unable to invest effectively in accordance with its
investment objectives and policies, or would otherwise potentially be adversely
affected. A shareholder's purchase exchanges may be restricted or refused if a
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to a Fund and therefore may be
refused.

Except as noted above, only shareholders and their authorized brokers of
record will be permitted to make exchanges or redemptions.

* * *

Following is a summary of the investment objectives of the other Delaware
Group funds:

Delaware Fund seeks long-term growth by a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. Devon Fund
seeks current income and capital appreciation by investing primarily in
income-producing common stocks, with a focus on common stocks the Manager
believes have the potential for above average dividend increases over time.

-60-

<PAGE>

(SAI-PA/PART B)

Trend Fund seeks long-term growth by investing in common stocks issued by
emerging growth companies exhibiting strong capital appreciation potential.

Small Cap Value Fund seeks capital appreciation by investing primarily
in common stocks whose market values appear low relative to their underlying
value or future potential.

DelCap Fund seeks long-term capital growth by investing in common stocks
and securities convertible into common stocks of companies that have a
demonstrated history of growth and have the potential to support continued
growth.

Decatur Income Fund seeks the highest possible current income by
investing primarily in common stocks that provide the potential for income and
capital appreciation without undue risk to principal. Decatur Total Return Fund
seeks long-term growth by investing primarily in securities that provide the
potential for income and capital appreciation without undue risk to principal.
Blue Chip Fund seeks to achieve long-term capital appreciation. Current income
is a secondary objective. It seeks to achieve these objectives by investing
primarily in equity securities and any securities that are convertible into
equity securities. Quantum Fund seeks to achieve long-term capital appreciation.
It seeks to achieve this objective by investing primarily in equity securities
of medium- to large- sized companies expected to grow over time that meet the
fund's "Social Criteria" strategy.

Delchester Fund seeks as high a current income as possible by investing
principally in high yield, high risk corporate bonds, and also in U.S.
government securities and commercial paper. Strategic Income Fund seeks to
provide investors with high current income and total return by using a
multi-sector investment approach, investing principally in three sectors of the
fixed-income securities markets: high-yield, higher risk securities, investment
grade fixed-income securities and foreign government and other foreign
fixed-income securities.

U.S. Government Fund seeks high current income by investing primarily
in long-term debt obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.

Limited-Term Government Fund seeks high, stable income by investing
primarily in a portfolio of short- and intermediate-term securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities and
instruments secured by such securities. U.S. Government Money Fund seeks maximum
current income with preservation of principal and maintenance of liquidity by
investing only in short-term securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies or instrumentalities, and
repurchase agreements collateralized by such securities, while maintaining a
stable net asset value.

Delaware Cash Reserve seeks the highest level of income consistent with
the preservation of capital and liquidity through investments in short-term
money market instruments, while maintaining a stable net asset value.

Tax-Free USA Fund seeks high current income exempt from federal income
tax by investing in municipal bonds of geographically-diverse issuers. Tax-Free
Insured Fund invests in these same types of securities but with an emphasis on
municipal bonds protected by insurance guaranteeing principal and interest are
paid when due. Tax- Free USA Intermediate Fund seeks a high level of current
interest income exempt from federal income tax, consistent with the preservation
of capital by investing primarily in municipal bonds.

-61-

<PAGE>

(SAI-PA/PART B)

Tax-Free Money Fund seeks high current income, exempt from federal income
tax, by investing in short-term municipal obligations, while maintaining a
stable net asset value.

International Equity Fund seeks to achieve long-term growth without undue
risk to principal by investing primarily in international securities that
provide the potential for capital appreciation and income. Global Bond Fund
seeks to achieve current income consistent with the preservation of principal by
investing primarily in global fixed-income securities that may also provide the
potential for capital appreciation. Global Assets Fund seeks to achieve
long-term total return by investing in global securities which will provide
higher current income than a portfolio comprised exclusively of equity
securities, along with the potential for capital growth. Emerging Markets Fund
seeks long-term capital appreciation by investing primarily in equity securities
of issuers located or operating in emerging countries.

Enterprise Fund seeks to provide maximum appreciation of capital by
investing in medium-sized companies which have a dominant position within their
industry, are undervalued, or have potential for growth in earnings. U.S. Growth
Fund seeks to maximize capital appreciation by investing in companies of all
sizes which have low dividend yields, strong balance sheets and high expected
earnings growth rates relative to their industry. World Growth Fund seeks to
maximize total return (capital appreciation and income), principally through
investments in an internationally diversified portfolio of equity securities.
New Pacific Fund seeks long-term capital appreciation by investing primarily in
companies which are domiciled in or have their principal business activities in
the Pacific Basin. Federal Bond Fund seeks to maximize current income consistent
with preservation of capital. The fund attempts to achieve this objective by
investing primarily in securities issued by the U.S. government, its agencies
and instrumentalities. Corporate Income Fund seeks to provide high current
income consistent with preservation of capital. The fund attempts to achieve
this objective primarily by investing in a diversified portfolio of
investment-grade fixed-income securities issued by U.S. corporations.

Delaware Group Premium Fund, Inc. offers 15 funds available exclusively
as funding vehicles for certain insurance company separate accounts. Decatur
Total Return Series seeks the highest possible total rate of return by selecting
issues that exhibit the potential for capital appreciation while providing
higher than average dividend income. Delchester Series seeks as high a current
income as possible by investing in rated and unrated corporate bonds, U.S.
government securities and commercial paper. Capital Reserves Series seeks a high
stable level of current income while minimizing fluctuations in principal by
investing in a diversified portfolio of short- and intermediate-term securities.
Cash Reserve Series seeks the highest level of income consistent with
preservation of capital and liquidity through investments in short-term money
market instruments. DelCap Series seeks long-term capital appreciation by
investing its assets in a diversified portfolio of securities exhibiting the
potential for significant growth. Delaware Series seeks a balance of capital
appreciation, income and preservation of capital. It uses a dividend-oriented
valuation strategy to select securities issued by established companies that are
believed to demonstrate potential for income and capital growth. International
Equity Series seeks long-term growth without undue risk to principal by
investing primarily in equity securities of foreign issuers that provide the
potential for capital appreciation and income. Value Series seeks capital
appreciation by investing in small- to mid-cap common stocks whose market values
appear low relative to their underlying value or future earnings and growth
potential. Emphasis will also be placed on securities of companies that may be
temporarily out of favor or whose value is not yet recognized by the market.
Trend Series seeks long-term capital appreciation by investing primarily in
small-cap common stocks and convertible securities of emerging and other
growth-oriented companies. These securities will have been judged to be
responsive to changes in the market place and to have fundamental
characteristics to support growth. Income is not an objective. Global Bond
Series seeks to achieve current income consistent with the preservation of
principal by investing primarily in global fixed-income securities that may also
provide the potential for capital appreciation. Strategic Income Series seeks
high current income and total return by using a multi-sector investment
approach, investing primarily in three sectors of the fixed-income securities
markets: high-yield, higher

-62-

<PAGE>

(SAI-PA/PART B)

risk securities; investment grade fixed-income securities; and foreign
government and other foreign fixed-income securities. Devon Series seeks current
income and capital appreciation by investing primarily in income-producing
common stocks, with a focus on common stocks that the investment manager
believes have the potential for above-average dividend increases over time.
Emerging Markets Series seeks to achieve long-term capital appreciation by
investing primarily in equity securities of issuers located or operating in
emerging countries. Convertible Securities Series seeks a high level of total
return on its assets through a combination of capital appreciation and current
income by investing primarily in convertible securities. Quantum Series seeks to
achieve long-term capital appreciation by investing primarily in equity
securities of medium to large-sized companies expected to grow over time that
meet the Series' "Social Criteria" strategy.

Delaware-Voyageur US Government Securities Fund seeks to provide a high
level of current income consistent with the prudent investment risk by investing
in U.S. Treasury bills, notes, bonds, and other obligations issued or
unconditionally guaranteed by the full faith and credit of the U.S. Treasury,
and repurchase agreements fully secured by such obligations.

Delaware-Voyageur Tax-Free Arizona Insured Fund seeks to provide a high
level of current income exempt from federal income tax and the Arizona personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Minnesota Insured Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax, consistent with
the preservation of capital.

Delaware-Voyageur Tax-Free Minnesota Intermediate Fund seeks to provide a
high level of current income exempt from federal income tax and the Minnesota
personal income tax, consistent with preservation of capital. The Fund seeks to
reduce market risk by maintaining an average weighted maturity from five to ten
years.

Delaware-Voyageur Tax-Free California Insured Fund seeks to provide a
high level of current income exempt from federal income tax and the California
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Florida Insured Fund seeks to provide a high level of
current income exempt from federal income tax, consistent with the preservation
of capital. The Fund will seek to select investments that will enable its shares
to be exempt from the Florida intangible personal property tax.
Delaware-Voyageur Tax-Free Florida Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. The Fund will seek to select investments that will enable its shares to
be exempt from the Florida intangible personal property tax. Delaware-Voyageur
Tax-Free Kansas Fund seeks to provide a high level of current income exempt from
federal income tax, the Kansas personal income tax and the Kansas Intangible
personal property tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Missouri Insured Fund seeks to provide a high level
of current income exempt from federal income tax and the Missouri personal
income tax, consistent with the preservation of capital. Delaware-Voyageur
Tax-Free New Mexico Fund seeks to provide a high level of current income exempt
from federal income tax and the New Mexico personal income tax, consistent with
the preservation of capital. Delaware-Voyageur Tax-Free Oregon Insured Fund
seeks to provide a high level of current income exempt from federal income tax
and the Oregon personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Utah Fund seeks to provide a high level of current
income exempt from federal income tax, consistent with the preservation of
capital. Delaware-Voyageur Tax-Free Washington Insured Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital.

Delaware-Voyageur Tax-Free Florida Intermediate Fund seeks to provide a
high level of current income exempt from federal income tax, consistent with the
preservation of capital. The Fund will seek to select investments that will
enable its shares to be exempt from the Florida intangible personal property
tax. The Fund seeks to reduce market risk by maintaining an average weighted
maturity from five to ten years.

-63-

<PAGE>

(SAI-PA/PART B)

Delaware-Voyageur Tax-Free Arizona Fund seeks to provide a high level of
current income exempt from federal income tax and the Arizona personal income
tax, consistent with the preservation of capital. Delaware- Voyageur Tax-Free
California Fund seeks to provide a high level of current income exempt from
federal income tax and the California personal income tax, consistent with the
preservation of capital. Delaware-Voyageur Tax- Free Iowa Fund seeks to provide
a high level of current income exempt from federal income tax and the Iowa
personal income tax, consistent with the preservation of capital.
Delaware-Voyageur Tax-Free Idaho Fund seeks to provide a high level of current
income exempt from federal income tax and the Idaho personal income tax,
consistent with the preservation of capital. Delaware-Voyageur Minnesota High
Yield Municipal Bond Fund seeks to provide a high level of current income exempt
from federal income tax and the Minnesota personal income tax primarily through
investment in medium and lower grade municipal obligations. National High Yield
Municipal Fund seeks to provide a high level of income exempt from federal
income tax, primarily through investment in medium and lower grade municipal
obligations. Delaware-Voyageur Tax-Free New York Fund seeks to provide a high
level of current income exempt from federal income tax and the personal income
tax of the state of New York and the city of New York, consistent with the
preservation of capital. Delaware-Voyageur Tax- Free Wisconsin Fund seeks to
provide a high level of current income exempt from federal income tax and the
Wisconsin personal income tax, consistent with the preservation of capital.

Delaware-Voyageur Tax-Free Colorado Fund seeks to provide a high level of
current income exempt from federal income tax and the Colorado personal income
tax, consistent with the preservation of capital.

Aggressive Growth Fund seeks long-term capital appreciation, which the
Fund attempts to achieve by investing primarily in equity securities believed to
have the potential for high earnings growth. Although the Fund, in seeking its
objective, may receive current income from dividends and interest, income is
only an incidental consideration in the selection of the Fund's investments.
Growth Stock Fund has an objective of long-term capital appreciation. The Fund
seeks to achieve its objective from equity securities diversified among
individual companies and industries. Tax-Efficient Equity Fund seeks to obtain
for taxable investors a high total return on an after-tax basis. The Fund will
attempt to achieve this objective by seeking to provide a high long-term
after-tax total return through managing its portfolio in a manner that will
defer the realization of accrued capital gains and minimize dividend income.

Delaware-Voyageur Tax-Free Minnesota Fund seeks to provide a high level
of current income exempt from federal income tax and the Minnesota personal
income tax, consistent with the preservation of capital. Delaware- Voyageur
Tax-Free North Dakota Fund seeks to provide a high level of current income
exempt from federal income tax and the North Dakota personal income tax,
consistent with the preservation of capital.

For more complete information about any of the Delaware Group funds,
including charges and expenses, you can obtain a prospectus from the
Distributor. Read it carefully before you invest or forward funds.

Each of the summaries above is qualified in its entirety by the
information contained in each fund's prospectus(es).

-64-

<PAGE>

(SAI-PA/PART B)

GENERAL INFORMATION

The Manager is the investment manager of each Fund. The Manager also
provides investment management services to certain other funds in the Delaware
Group. The Manager, through a separate division, also manages private investment
accounts. While investment decisions for the Funds are made independently from
those of the other funds and accounts, investment decisions for such other funds
and accounts may be made at the same time as investment decisions for the Funds.

The Manager, or its affiliate Delaware International Advisers Ltd., also
manages the investment options for Delaware Medallion[sm] III Variable Annuity.
Medallion is issued by Allmerica Financial Life Insurance and Annuity Company
(First Allmerica Financial Life Insurance Company in New York and Hawaii).
Delaware Medallion offers 15 different investment series ranging from domestic
equity funds, international equity and bond funds and domestic fixed income
funds. Each investment series available through Medallion utilizes an investment
strategy and discipline the same as or similar to one of the Delaware Group
mutual funds available outside the annuity. See Delaware Group Premium Fund,
Inc., above.

Access persons and advisory persons of the Delaware Group of funds, as
those terms are defined in SEC Rule 17j-1 under the 1940 Act, who provide
services to the Manager, Delaware International Advisers Ltd. or their
affiliates, are permitted to engage in personal securities transactions subject
to the exceptions set forth in Rule 17j-1 and the following general restrictions
and procedures: (1) certain blackout periods apply to personal securities
transactions of those persons; (2) transactions must receive advance clearance
and must be completed on the same day as the clearance is received; (3) certain
persons are prohibited from investing in initial public offerings of securities
and other restrictions apply to investments in private placements of securities;
(4) opening positions may only be closed-out at a profit after a 60-day holding
period has elapsed; and (5) the Compliance Officer must be informed periodically
of all securities transactions and duplicate copies of brokerage confirmations
and account statements must be supplied to the Compliance Officer.

The Distributor acts as national distributor for the Funds and for the
other mutual funds in the Delaware Group. As previously described, prior to
January 3, 1995, DDI served as the national distributor for Pennsylvania Fund.
The Distributor, and, in its capacity as such, DDI, received net commissions
from Pennsylvania Fund on behalf of Class A Shares, after reallowances to
dealers, as follows:

<TABLE>
<CAPTION>
Total Amount Amounts Net
of Underwriting Reallowed Commission
Fiscal Year Ended Commissions to Dealers to DDLP/DDI
----------------- ----------- ---------- -----------

<S> <C> <C> <C>
2/28/97 $1,327,771 $1,103,552 $224,219
2/29/96 $1,812,149 $1,508,209 $303,940
2/28/95 2,314,576 1,933,079 381,497

</TABLE>

-65-

<PAGE>

(SAI-PA/PART B)

The Distributor and, in its capacity as such, DDI received in the
aggregate Limited CDSC payments with respect to Class A Shares of Pennsylvania
Fund as follows:

Limited CDSC Payments

Fiscal Year Ended Class A Shares
----------------- --------------

2/28/97 ---
2/29/96 ---
2/28/95 $9,359

The Distributor and, in its capacity as such, DDI received in the
aggregate CDSC payments with respect to Class B Shares of Pennsylvania Fund as
follows:

CDSC Payments

Fiscal Year Ended Class B Shares
----------------- --------------

2/28/97 $41,770
2/29/96 $47,610
2/28/95* $4,941

*Date of initial public offering was May 2, 1994.

The Distributor received CDSC payments with respect to Class C Shares of
Pennsylvania Fund as follows:

CDSC Payments

Fiscal Year Ended Class C Shares
----------------- --------------

2/28/97 $1,818
2/29/96* ---

*Date of initial public offering was November 29, 1995.

Effective as of January 3, 1995, all such payments described above have
been paid to the Distributor.

-66-

<PAGE>

(SAI-PA/PART B)

The Transfer Agent, an affiliate of the Manager, acts as shareholder
servicing, dividend disbursing and transfer agent for the Funds and for the
other mutual funds in the Delaware Group. The Transfer Agent is paid a fee by
the Funds for providing these services consisting of an annual per account
charge of $11.00 plus transaction charges for particular services according to a
schedule. Compensation is fixed each year and approved by the Board of Trustees,
including a majority of the unaffiliated trustees.

The Transfer Agent also provides accounting services to the Funds. Those
services include performing all functions related to calculating a Fund's net
asset value and providing all financial reporting services, regulatory
compliance testing and other related accounting services. For its services, the
Transfer Agent is paid a fee based on total assets of all funds in the Delaware
Group for which it provides such accounting services. Such fee is equal to 0.25%
multiplied by the total amount of assets in the complex for which the Transfer
Agent furnishes accounting services, where such aggregate complex assets are $10
billion or less, and 0.20% of assets if such aggregate complex assets exceed $10
billion. The fees are charged to each fund, including the Funds, on an aggregate
pro-rata basis. The asset-based fee payable to the Transfer Agent is subject to
a minimum fee calculated by determining the total number of investment
portfolios and associated classes.

Bankers Trust Company ("Bankers Trust"), One Bankers Trust Plaza, New
York, NY 10006, is custodian of each Fund's securities and cash. As custodian
for a Fund, Bankers Trust maintains a separate account or accounts for the Fund;
receives, holds and releases portfolio securities on account of the Fund;
receives and disbursements of money on behalf of the Fund; and collects and
receives income and other payments and distributions on account of the Fund's
portfolio securities.

Shareholder and Trustee Liability
Under Pennsylvania law, shareholders of the Fund may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund. The Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Fund or the trustees, but this disclaimer may not be effective
in some jurisdictions or as to certain types of claims. The Declaration of Trust
provides for indemnification out of the Fund property of any shareholder held
personally liable for the obligations of the Fund. The Declaration of Trust also
provides that the Fund shall, upon request, assume the defense of any claim made
against any shareholder for any act or obligation of the Fund and satisfy any
judgment thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Fund
itself would be unable to meet its obligations.

The Declaration of Trust further provides that the trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

The legality of the issuance of the shares offered hereby, registered
pursuant to Rule 24f-2 under the 1940 Act, has been passed upon for the Fund by
Stradley, Ronon, Stevens & Young, LLP, Philadelphia, Pennsylvania.

-67-

<PAGE>

(SAI-PA/PART B)

Capitalization
The Trust currently offers three series of shares, Tax-Free New Jersey
Fund, Tax-Free Ohio Fund and Tax-Free Pennsylvania Fund. Each Fund currently
offers three classes of shares and has a present unlimited authorized number of
shares of beneficial interest with no par value allocated to each Class. All
shares have equal voting rights, except as noted below, no preemptive rights,
are fully transferable and, when issued, are fully paid and nonassessable.

Class A Shares, Class B Shares and Class C Shares represent a
proportionate interest in the assets of a Fund and have the same voting and
other rights and preferences, as the other classes of that Fund. As a general
matter, shareholders of the Class A Shares, Class B Shares and Class C Shares
may vote only on matters affecting the 12b-1 Plan that relates to the class of
shares that they hold. However, Class B Shares of a Fund may vote on any
proposal to increase materially the fees to be paid by that Fund under the Plan
relating to Class A Shares. General expenses of a Fund will be allocated on a
pro-rata basis to the Classes according to asset size, except that expenses of
the Rule 12b-1 Plans of Class A Shares, Class B Shares and Class C Shares will
be allocated solely to those classes.

Prior to September 2, 1997, Delaware Group State Tax-Free Income Trust
was known as DMC Tax-Free Income Trust - Pennsylvania. From May 18, 1992 to
August 29, 1997, DMC Tax-Free Income Trust-Pennsylvania was known as and did
business as Tax-Free Pennsylvania Fund. Prior to May 2, 1994, Tax-Free
Pennsylvania Fund A Class was known as Tax-Free Pennsylvania Fund.

Noncumulative Voting
Trust shares have noncumulative voting rights which means that the
holders of more than 50% of the shares of the Trust voting for the election of
trustees can elect all the trustees if they choose to do so, and, in such event,
the holders of the remaining shares will not be able to elect any trustees.

This Part B does not include all of the information contained in the
Registration Statement which is on file with the Securities and Exchange
Commission.

-68-

<PAGE>

(SAI-PA/PART B)

APPENDIX A--DESCRIPTION OF RATINGS

Bonds
Excerpts from Moody's description of its bond ratings: Aaa--judged to be
the best quality. They carry the smallest degree of investment risk; Aa--judged
to be of high quality by all standards; A--possess favorable attributes and are
considered "upper medium" grade obligations; Baa--considered as medium grade
obligations. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; Ba--judged to have
speculative elements; their future cannot be considered as well assured. Often
the protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B--generally lack
characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period
of time may be small; Caa--are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest; Ca--represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings; C--the lowest
rated class of bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.

Excerpts from S&P's description of its bond ratings: AAA--highest grade
obligations. They possess the ultimate degree of protection as to principal and
interest; AA--also qualify as high grade obligations, and in the majority of
instances differ from AAA issues only in a small degree; A--strong ability to
pay interest and repay principal although more susceptible to changes in
circumstances; BBB--regarded as having an adequate capacity to pay interest and
repay principal; BB, B, CCC, CC--regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions; C--reserved
for income bonds on which no interest is being paid; D--in default, and payment
of interest and/or repayment of principal is in arrears.

Excerpts from Fitch's description of its bond ratings: AAA--highest
credit quality, obligor has exceptionally strong ability to pay interest and
repay principal; AA--very high credit quality, obligor's ability to repay
interest and repay principal is very strong; A--high credit quality, obligor's
ability to repay interest and repay principal is strong but more vulnerable to
adverse economic conditions than higher rated bonds; BBB--satisfactory credit
quality, obligor's ability to pay interest and repay principal is adequate,
adverse market conditions could impair timely payment; BB, B, CCC, CC--on
balance, regarded as being increasingly speculative, with the obligor's ability
to pay interest and repay principal very vulnerable to adverse economic
conditions or a limited debt service safety margin; CC--minimal protection,
default in payment of interest or principal seem probable over time; C--bonds
are in imminent default in payment of interest and principal; DDD, DD, D--in
default, with decreasing potential for recovery of interest and/or principal.

State and Municipal Notes
MIG-1/VMIG-1--Notes bearing either of these designations are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established and broad-based access to the market for
refinancing, or both.

MIG-2/VMIG-2--Notes bearing either of these designations are of high
quality, with margins of protection ample although not so large as in the
preceding group.

SP-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess

-69-

<PAGE>

(SAI-PA/PART B)

overwhelming safety characteristics will be given a plus (+) designation.

SP-2--Satisfactory capacity to pay principal and interest.

F-1+/F-1--Exceptionally strong or very strong credit quality, strongest
degree of assurance for timely payment.

F-2--Good credit quality, satisfactory degree of assurance for timely
payment.

-70-

<PAGE>

SAI-PA-CHT

APPENDIX B--TAX EXEMPT vs TAXABLE YIELDS
Tax-Free Pennsylvania Fund
<TABLE>
<CAPTION>

1997 Rates Tax Free Yield--5.0%
--------------------- ----------------------------------------------------

Taxable Income Federal Federal
Federal State State
State County County
Federal County Pittsburgh Philadelphia
Taxable Taxable Taxable Taxable
Single Return Joint Return Fed State Income Equivalent Equivalent Equivalent(1) Equivalent(2)
------------- ------------ --- ------------ ---------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0-24,650 $0-41,200 15% 2.8% 5.88% 6.46% 7.29% 6.81%
$24,651-59,750 $41,201-99,600 28% 2.8% 6.94% 7.56% 8.38% 7.96%
$59,751-124,650 $99,601-151,750 31% 2.8% 7.25% 7.87% 8.69% 8.29%
$124,651-271,050 $151,751-271,050 36%+ 2.8% 7.81% 8.45% 9.27% 8.90%
Over $271,050 Over $271,050 39.6%+ 2.8% 8.28% 8.93% 9.75% 9.41%

Tax Free Yield--6.0%
---------------------------------------------------

Taxable Income Federal Federal
Federal State State
State County County
Federal County Pittsburgh Philadelphia
Taxable Taxable Taxable Taxable
Single Return Joint Return Equivalent Equivalent Equivalent(1) Equivalent(2)
------------- ------------ ---------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C>
$0-24,650 $0-41,200 7.06% 7.67% 8.50% 8.09%
$24,651-59,750 $41,201-99,600 8.33% 8.98% 9.81% 9.47%
$59,751-124,650 $99,601-151,750 8.70% 9.36% 10.18% 9.86%
$124,651-271,050 $151,751-271,050 9.38% 10.06% 10.88% 10.60%
Over $271,050 Over $271,050 9.93% 10.63% 11.45% 11.20%

</TABLE>

<PAGE>

1997 Rates Tax Free Yield--7.0%
--------------------- ----------------------------------------------------
Taxable Income Federal Federal
Federal State State
State County County
Federal County Pittsburgh Philadelphia
Taxable Taxable Taxable Taxable
Single Return Joint Return Fed State Income Equivalent Equivalent Equivalent(1) Equivalent(2)
------------- ------------ --- ------------ ---------- ---------- ---------------------------

<S> <C> <C> <C> <C> <C> <C> <C>
$0-24,650 $0-41,200 15% 2.8% 8.24% 8.88% 9.71% 9.36%
$24,651-59,750 $41,201-99,600 28% 2.8% 9.72% 10.41% 11.24% 10.97%
$59,751-124,650 $99,601-151,750 31% 2.8% 10.14% 10.85% 11.67% 11.43%
$124,651-271,050 $151,751-271,050 36%+ 2.8% 10.94% 11.66% 12.49% 12.29%
Over $271,050 Over $271,050 39.6%+ 2.8% 11.59% 12.33% 13.16% 13.00%

</TABLE>

Tax Free Yield--8.0%
---------------------------------------------------
Taxable Income Federal Federal
Federal State State
State County County
Federal County Pittsburgh Philadelphia
Taxable Taxable Taxable Taxable
Single Return Joint Return Equivalent Equivalent Equivalent(1) Equivalent(2)
------------- ------------ ---------- ---------- ---------------------------

<S> <C> <C> <C> <C> <C>
$0-24,650 $0-41,200 9.41% 10.09% 10.92% 10.64%
$24,651-59,750 $41,201-99,600 11.11% 11.84% 12.67% 12.48%
$59,751-124,650 $99,601-151,750 11.59% 12.34% 13.16% 13.00%
$124,651-271,050 $151,751-271,050 12.50% 13.27% 14.09% 13.99%
Over $271,050 Over $271,050 13.25% 14.04% 14.86% 14.79%

</TABLE>

Equivalent yields are based on a fixed $1,000 investment with all taxes
deducted from income. Included in all areas are the effects of: federal
income tax minus savings from itemizing state and local taxes, a 2.8%
Pennsylvania income tax and a 4 mill county personal property tax. (1)
Pittsburgh equivalent yields also include 4 mill city and 4 mill school
property taxes. (2) Philadelphia equivalent yields also include the 4.96%
school income tax. While it is expected that the Fund will invest primarily
in obligations exempt from taxes, other income received by the Fund may be
taxable. The yield used in the illustration should not be considered
representative of the Fund's yield at any specific time.

+ For tax years beginning after 1992, a 36% tax rate applies to all taxable
income in excess of the maximum dollar amounts subject to the 31% tax rate.
In addition, a 10% surtax (not applicable to capital gains) applies to
certain high-income taxpayers. It is computed by applying a 39.6% rate to
taxable income in excess of $271,050. The above tables do not reflect the
personal exemption phaseout nor the limitations of itemized deductions that
may apply.

<PAGE>

Tax-Free New Jersey Fund

|---------------|------------|------------|-----------|
| If your | | | |
| combined | | | |
| tax rate is: | 29.3% | 34.8% | 43.5% |
| (federal & | | | |
| New Jersey | | | |
| state) | | | |
|---------------|------------|------------|-----------|
| To match a | a taxable investment |
| tax-exempt | would have to pay: |
| yield of: | |
|---------------|------------|-------------|----------|
| 4.0% | 5.7% | 6.1% | 7.1% |
|---------------|------------|-------------|----------|
| 4.5% | 6.4% | 6.9% | 8.0% |
|---------------|------------|-------------|----------|
| 5.0% | 7.1% | 7.7% | 8.8% |
|---------------|------------|-------------|----------|

Illustrates hypothetical tax-free and taxable-equivalent
yields for different tax brackets. Tax brackets do not
take into account the effect of itemized deductions or
AMT. Examples are for illustrative use only are not
intended to represent past or future results of Tax-Free
New Jersey Fund. 1997 tax rates.

Tax-Free Ohio Fund

|---------------|------------|------------|-----------|------------|
| If your | | | | |
| combined | | | | |
| tax rate is: | 31.5% | 34.8% | 40.1% | 43.8% |
| (federal & | | | | |
| Ohio state | | | | |
|---------------|------------|------------|-----------|------------|
| To match a | a taxable investment would have to |
| tax-exempt | pay: |
| yield of: | |
|---------------|------------|-------------|----------|------------|
| 4.0% | 5.8% | 6.1% | 6.7% | 7.1% |
|---------------|------------|-------------|----------|------------|
| 4.5% | 6.6% | 6.9% | 7.5% | 8.0% |
|---------------|------------|-------------|----------|------------|
| 5.0% | 7.3% | 7.7% | 8.3% | 8.9% |
|---------------|------------|-------------|----------|------------|

<PAGE>

(SAI-PA/PART B)

APPENDIX C

Investing in New Jersey Tax-Exempt Obligations

The following information constitutes only a brief summary of some of the
many complex factors that may affect issuers of New Jersey obligations. This
information is derived from official statements published in connection with the
issuance of bonds and notes of the State of New Jersey and from other publicly
available information. It is believed to be accurate, although no independent
verification has been made of any of the following information. The information
is intended to provide a general recent historical description and is not
intended to indicate future or continuing trends in the positions of the State
of New Jersey or local governments.

New Jersey is the ninth largest state in population and the fifth
smallest in land area. With an average of 1,071 persons per square mile, it is
the most densely populated of all the states. New Jersey is located at the
center of the megalopolis which extends from Boston to Washington, and which
includes over one-fifth of the country's population. The extensive facilities of
the Port Authority of New York and New Jersey, the Delaware River Port Authority
and the South Jersey Port Corporation across the Delaware River from
Philadelphia augment the air, land and water transportation complex which has
influenced much of the State's economy. This central location in the
northeastern corridor, the transportation and port facilities and proximity to
New York City make the State an attractive location for corporate headquarters
and international business offices. A number of Fortune Magazine's top 500
companies maintain headquarters or major facilities in New Jersey, and many
foreign-owned firms have located facilities in the State.

The State's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture. New Jersey has the Atlantic seashore on
the east and lakes and mountains in the north and northwest, which provide
recreation for residents as well as for out-of-state visitors. In 1976, voters
approved casino gambling for Atlantic City, which has become an important State
tourist attraction.

New Jersey's population grew rapidly in the years following World War II,
before slowing to an annual rate of 0.27 percent in the 1970s. Between 1980 and
1990, the annual growth rose to 0.49 percent and between 1990 and 1995,
accelerated to 0.52 percent(1). While this rate of growth is less than that
for the United States, it compares favorably with other Middle Atlantic States.
New York has shown a 0.15 percent annual rate of increase since 1990 and
Pennsylvania's population has increased 0.30 percent per year.

The small increase in the State's total population during the past
quarter century masks the redistribution of population within the State. There
has been a significant shift from the northeastern industrial areas toward the
four coastal counties (Cape May, Atlantic, Ocean and Monmouth) and toward the
central New Jersey counties of Hunterdon, Somerset and Middlesex.

Total personal income(2) in New Jersey stood at $224.5 billion for 1994
and $237.2 billion for 1995, an increase of 5.6 percent. Nationally, total
personal income grew by 6.2 percent between 1994 and 1995, while in New York
and Pennsylvania it grew by 5.3 percent and 5.5 percent, respectively. Based on
1973 levels, the personal income index in 1995 stood at 539.2 for New Jersey,
464.0 for New York and 469.4 for Pennsylvania. The United States
- --------
1 U.S. Census Bureau, Population Division, 1995 estimates.
2 U.S. Department of Commerce, Bureau of Economics Analysis.

-71-

<PAGE>

(SAI-PA/PART B)

index stood at 558.3 (1973 = 100).

Historically, New Jersey's average per capita income(3) has been well
above the national average. The differential narrowed during the 1970s, widened
in the 1980s and has narrowed slightly in the 1990s. In 1995, New Jersey ranked
second among all states in per capita personal income ($29,848). It ranked
higher than New York, with per capita income of $27,678 and Pennsylvania with
$23,558. Only Connecticut, with $31,776, exceeded New Jersey.

After enjoying an extraordinary boom during the mid-1980s, New Jersey as
well as the rest of the Northeast slipped into a slowdown well before the onset
of the national recession which officially began in July 1990 (according to the
National Bureau of Economic Research). By the beginning of the national
recession of 1990-1991, construction activity had already been declining in New
Jersey for nearly two years, growth had tapered off markedly in the service
sectors and the long-term downward trend of factory employment had accelerated,
partly because of a leveling off of industrial demand nationally. The onset of
recession caused an acceleration of New Jersey's job losses in construction and
manufacturing, as well as an employment downturn in such previously growing
sectors as wholesale trade, retail trade, finance, utilities, trucking and
warehousing. The net effect was a decline in the State's total nonfarm wage and
salary employment3 from a peak of 3,689,800 in 1989 to a low of 3,457,900 in
1992. This loss was followed by an employment gain of 200,700 from May 1992 to
August 1996, a recovery of 77% of the jobs lost during the recession. More than
two-thirds of this number, nearly 138,000 jobs, were recovered in the 31 month
period from January 1994 to August 1996.

Reflecting the downturn, the rate of unemployment in the State rose from
a low of 3.6 percent during the first quarter of 1989 to a recessionary peak of
8.5% during 1992(4) Since then, the unemployment rate fell to an average of
6.4% in 1995 and 6.1% for the four month period from May 1996 through
August 1996.

For the recovery period as a whole, May 1992 to August 1996,
service-producing employment in New Jersey has expanded by 228,500 jobs. Hiring
has been reported by food stores, auto dealers, wholesale distributors, trucking
and warehousing firms, utilities, business and engineering/management service
firms, hotels/hotel-casinos, social service agencies and health care providers
other than hospitals. Employment growth was particularly strong in business
services and its personnel supply component with increases of 17,500 and 8,100,
respectively, in the 12- month period ending August 1996.

In the manufacturing sector, employment losses slowed between 1992 and
1994. After an average annual job loss of 33,500 from 1989 through 1992, New
Jersey's factory job losses fell to 13,300 during 1993 and 7,300 during 1994.
During 1995, however, manufacturing job losses increased slightly to 9,100,
reflecting a slowdown in national manufacturing production activity. While
experiencing growth in the number of production workers in 1994, the number
declined in 1995 at the same time that managerial and office staff were also
reduced as part of nationwide downsizing. Through August 1996 layoffs of white
collar workers and corporate downsizing appear to be abating.

Conditions have slowly improved in the construction industry, where
employment has risen by 15,600 since its low in May 1992. Between 1992 and 1995,
this sector's hiring rebound was driven primarily by increased homebuilding and
nonresidential projects. During 1996, public works projects and homebuilding
became the growth
- --------
3 New Jersey Department of Labor, Division of Labor Market and Demographic
Research.
4 U.S. Bureau of Labor Statistics and the New Jersey Department of Labor,
Division of Labor Market and Demographic Research.

-72-

<PAGE>

(SAI-PA/PART B)

segments while nonresidential construction lessened.

Nonresidential construction activity, as measured by contract awards,
grew by 9.7% in 1993, 19.6% in 1994 and 3.0% in 1995. More recently,
nonresidential building construction contracts fell by 20.5% in the first eight
months of 1996. This decline is largely attributable to an abundance of large,
one-time contract awards during 1995, including a $202.9 million contract for
the construction of a state prison.

Residential construction contracts through August 1996, despite monthly
fluctuations, increased by 1.4% for the first eight months of 1996 as compared
to the first eight months of 1995 ($1,502 million and $1,481 million,
respectively). Nonbuilding or infrastructure construction rose robustly by 17.8%
during this period. Despite these increases, total construction contracts
declined by 3.9% when comparing the first eight months of 1995 and 1996.

Improvements in overall employment opportunities and the economy in
general have led to increased consumer spending during the recovery. While
overall retail sales in New Jersey grew by only 1.6% during 1993, they performed
much better in 1994, advancing by 7.8% which exceeded the 7.5% growth registered
nationwide.

During 1995, especially the winter months, consumer confidence and actual
consumer spending moderated both nationally and in the State. For all of 1995,
retail sales in New Jersey grew by 2.3%. Retail sales regained momentum in 1996
and have been on a moderately upward trend, rising to an annual rate of $76.5
billion through June. The State's pickup in growth after a blizzard-related
January decline resulted in sales growth of 4.2% when comparing the first six
months of 1995 with those of 1996. The rising trend in retail sales has
translated into steady increases in retail trade jobs (both full- and part-time)
with a rise in retail employment from December 1995 to August 1996 of 6,900
jobs.

Total new vehicle registrations (new passenger cars and light trucks and
vans) rose robustly in 1993 by more than 18%, and in 1994 by 5.8%, but declined
by 4.4% in 1995. Through July 1996 however, total new vehicle registrations rose
by 3.5% compared to the same time period in 1995.

Unemployment in the State through August 1996 has been receding.
According to the U.S. Bureau of Labor Statistics, the jobless rate dropped from
7.5% in 1993 to 6.8% in 1994 and to 6.4% in 1995. Subsequently, it has dropped
to 6.1% for the four-month period from May 1996 through August 1996.

The insured unemployment rate, i.e., the number of individuals claiming
benefits as a percentage of the number of workers covered by unemployment
insurance, declined from 3.9% during calendar years 1991 and 1992 to 3.3% during
1993 and then averaged 3.2% throughout 1994, 1995 and the first six months of
1996. As of August 1, 1996, the State's unemployment insurance trust fund
balance stood at $2.1 billion.

The State has benefitted from the national recovery. New Jersey's
recovery is in its fifth year and appears to be sustainable now that the
national economy has "soft landed." The U.S. economy is in a period of steady,
moderate growth, having slowed enough during the fourth quarter of 1995 and
first quarter of 1996 to avoid inflation, but not enough to slip into a
recession. While the latest national indicators show that economic growth
accelerated during the second quarter of this year, the inflation rate remained
low.

Business investment expenditures and consumer spending have increased
substantially in the nation as well as in the State. Capital and consumer
spending may very well continue to rise due to the sustained character of the
recovery, although the interest-sensitive homebuilding industry may provide only
a moderate amount of stimulus both nationally and in New Jersey. It is expected
that the employment and income growth that has and is taking place will lead to
further growth in consumer outlays. Reasons for cautious optimism in New Jersey
include

-73-

<PAGE>

(SAI-PA/PART B)

increasing employment levels, a declining jobless rate, and a
higher-than-national level of per capita personal income.

If the nation's economic growth rate slows from the robust 4.7% growth in
the second quarter of 1996, business expansion could become somewhat more
subdued in New Jersey as the rest of 1996 unfolds. However, the State's economy
should have enough momentum to keep its trend line pointing upwards. Its growth
potential is not yet limited by the labor supply constraints beginning to affect
some other parts of the country.

Looking further ahead, prospects for New Jersey appear favorable. While
growth is likely to be slower than in the nation, the locational advantages that
have served New Jersey well for many years will still be there. Structural
changes that have been going on for years can be expected to continue, with job
creation concentrated most heavily in the service industries.

Legalized casino gambling was introduced into Atlantic City by the
enactment of the Casino Control Act on June 2, 1977. For the year ended December
31, 1995, nine of Atlantic City's twelve casinos reported a profit. The industry
as a whole reported net income of $147.1 million for the year, reflecting a
$115.7 million increase from the net income of $31.4 million reported for the
prior comparable period.

For the six months ended June 30, 1996, seven of the twelve casinos
reported a loss. The industry as a whole reported a net loss of $190.1 million
compared to net income of $35.7 million for the prior comparable period. This
industry net loss reflects the negative impact of an industry-wide increase in
promotional programs, inclement weather in the first quarter as well as $175.5
million of combined extraordinary losses at Trump Plaza and Trump Taj Mahal
during the second quarter due to certain capital transactions.

For the year ended December 31, 1995 and the eight months ended August
31, 1996, the casino industry reported "Win" of $3.7 billion and $2.6 billion,
respectively. "Win" represents the amount a casino wins at the slot machines and
table games before operating expenses and taxes are deducted.

For the year ended December 31, 1995 and the eight months ended August
31, 1996, the State collected revenue taxes for programs to assist the elderly
and disabled of $298.1 million and $205.7 million, respectively. From May 20,
1978, the date the first casino opened, through August 31, 1996, the industry
had paid a total of $3.4 billion to the State for these programs. As of August
31, 1996, the Casino Revenue Fund has earned $117.5 million in interest.

At present there are several programs funded by the Casino Revenue Fund
which assist the elderly and disabled. The gaming industry has also provided
substantial revenue for municipal, county and school governments through real
estate taxes and payment of the luxury tax which the State has authorized and
which is applied to hotel and amusement revenues.

The New Jersey State Lottery was created as a major source of revenue for
State education and institutions. As of June 30, 1996, the Lottery has generated
over $19.7 billion in gross revenues, paid $9.7 billion in prizes and
contributed $8.24 billion to the State.

The Director of the Division of Budget and Accounting in the New Jersey
Department of the Treasury (the "Budget Director") prescribes and approves the
accounting policies of the State and directs their implementation.

New Jersey's Accounting System

-74-

<PAGE>

(SAI-PA/PART B)

The State prepares its financial statements on a "modified accrual" basis
utilizing the fund method of accounting. The National Council on Governmental
Accounting in its publication entitled Statement Governmental Accounting and
Financial Reporting Principles defines a fund as a fiscal and accounting entity
with a self-balancing set of accounts recording cash and other financial
resources together with all related liabilities and residual equities or
balances, and changes therein, which are segregated for the purpose of carrying
on specific activities or attaining certain objectives in accordance with
special regulations, restrictions or limitations. The State's financial
statements reflect financial reporting practices in accordance with that
definition. Accordingly, the State prepares separate statements for the General
Fund, Special Revenue Funds, Debt Service Funds, Capital Project Funds, Trust
and Agency Funds, Component Units-Authorities Funds, College and University
Funds, General Fixed Asset Account Group and its General Long-Term Debt Account
Group, and its component units.

The General Fund is the fund into which all State revenues not otherwise
restricted by statute are deposited and from which appropriations are made. The
largest part of the total financial operations of the State is accounted for in
the General Fund. Revenues received from taxes and unrestricted by statute, most
federal revenue and certain miscellaneous revenue items are recorded in the
General Fund. The appropriations act provides the basic framework for the
operation of the General Fund.

Special Revenue Funds are used to account for resources legally
restricted to expenditure for specified purposes. Special Revenue Funds include
the Casino Control Fund, the Casino Revenue Fund, the Gubernatorial Elections
Fund and the Property Tax Relief Fund. Other Special Revenue Funds have been
created which are either reported ultimately in the General Fund or are created
to hold revenues derived from private sources. Debt Service Funds are used to
account for the accumulation of resources for, and the payment of, principal and
redemption premium, if any, of and interest on general obligation bonds. Capital
Project Funds are used to account for financial resources to be used for the
acquisition or construction of major State capital facilities. Trust and Agency
Funds are used to account for assets held in a trust capacity or as an agent for
individuals, private organizations, other governments and/or other funds. The
General Fixed Asset Account Group accounts for the State's fixed assets acquired
or constructed for general governmental purposes. The General Long-Term Debt
Account Group accounts for the unmatured general long-term liabilities of the
State.

The Property Tax Relief Fund, the largest of the Special Revenue Funds,
is used to account for revenues from the New Jersey Gross Income Tax. Revenues
realized from the Gross Income Tax are dedicated by the State Constitution. All
receipts from taxes levied on personal income of individuals, estates and trusts
must be appropriated exclusively for the purpose of reducing or offsetting
property taxes. Annual appropriations are made from the fund, pursuant to
formulas established by the State Legislature, to counties, municipalities and
school districts. The Property Tax Relief Fund was established by the New Jersey
Gross Income Tax Act, N.J.S.A. 54A:9- 25, approved July 8, 1976.

Component Units-Authorities account for operations where the intent of
the State is that the cost of providing goods or services to the general public
on a continuing basis be financed or recovered primarily through user charges,
or where periodic measurement of the results of operations is appropriate for
capital maintenance, public policy, management control or accountability. The
College and University Funds account for the operations of Rutgers, the State
University, the University of Medicine and Dentistry of New Jersey and the New
Jersey Institute of Technology, and the nine State colleges including their
foundations and associations, in accordance with existing authoritative
accounting and reporting principles applicable to universities and hospitals.

-75-

<PAGE>

(SAI-PA/PART B)

Audit Reports

The State Auditor is directed by statute (N.J.S.A. 52:24-4) to "examine
and post-audit all the accounts, reports, and statements and make independent
verifications of all assets, liabilities, revenues, and expenditures" of the
State and its agencies. The audit reports containing the opinion of the State
Auditor are available for examination and review upon request to the State
Treasurer.

Fiscal Years 1997 and 1998 Revenue Estimates

Sales and Use Tax. The revised estimate as shown in the Governor's Fiscal
Year 1998 Budget Message as updated by the Treasurer's Report to the Legislature
forecasts Sales and Use tax collections for Fiscal Year 1997 as $4,385.0
million, a 1.5% increase from the Fiscal Year 1996 revenue. The Fiscal Year 1998
estimate of $4,550.0 million, is a 3.8% increase from the Fiscal Year 1997
estimate.

Gross Income Tax. The revised estimate as shown in the Governor's Fiscal
Year 1998 Budget Message as updated by the Treasurer's Report to the Legislature
forecasts Gross Income Tax collections for Fiscal Year 1997 of $4,805.0 million,
a 1.5% increase from Fiscal Year 1996 revenue. The Fiscal Year 1998 estimate of
$4,915.0 million, is a 2.3% increase from the Fiscal Year 1997 estimate.
Included in the Fiscal Year 1998 estimate is the enactment of a property tax
deduction, to be phased in over a three-year period, permitting a deduction by
resident taxpayers against gross income tax of a percentage of their property
taxes.

Corporation Business Tax. The revised estimate as shown in the Governor's
Fiscal Year 1998 Budget Message as updated by the Treasurer's Report to the
Legislature forecasts Corporation Business Tax collection for Fiscal Year 1997
as $1,268.0 million, a 8.2% decrease from Fiscal Year 1996 revenue. The Fiscal
Year 1998 forecast as shown in the Governor's Fiscal Year 1998 Budget Message as
updated by the Treasurer's Report to the Legislature of $1,272.0 million, is a
0.3% increase from the Fiscal Year 1997 estimate.

General Considerations. Estimated receipts from State taxes and revenues,
including the three principal taxes set forth above, are forecasts based on the
best information available at the time of such forecasts. Changes in economic
activity in the State and the nation, consumption of durable goods, corporate
financial performance and other factors that are difficult to predict may result
in actual collections being more or less than forecasted.

Should revenues be less than the amount anticipated in the budget for a
fiscal year, the Governor may, pursuant to statutory authority, prevent any
expenditure under any appropriation. There are additional means by which the
Governor may ensure that the State is operated efficiently and does not incur a
deficit. No supplemental appropriation may be enacted after adoption of an
appropriations act except where there are sufficient revenues on hand or
anticipated, as certified by the Governor, to meet such appropriation. In the
past when actual revenues have been less than the amount anticipated in the
budget, the Governor has exercised her plenary powers leading to, among other
actions, implementation of a hiring freeze for all State departments and the
discontinuation of programs for which appropriations were budgeted but not yet
spent.

Programs Funded in Fiscal Year 1997

Of the $16,278.7 million appropriated in Fiscal Year 1997 from the
General Fund, the Property Tax Relief Fund, the Casino Control Fund, Casino
Revenue Fund and the Gubernatorial Elections Fund, $6,419.0 million (39.5%) is
recommended for State Aid to Local Governments, $3,858.0 million (23.7%) is
recommended for Grants- in-Aid, $5,175.7 million (31.8%) for Direct State
Services, $446.9 million (2.7%) for Debt Service on State general obligation
bonds and $379.1 million (2.3%) for Capital Construction.

-76-

<PAGE>

(SAI-PA/PART B)

State Aid to Local Governments

State Aid to Local Governments is the largest portion of Fiscal Year 1997
recommendation. In Fiscal Year 1997, $6,419.0 million of the State's
appropriations consist of funds which are distributed to municipalities,
counties and school districts.

The largest State Aid appropriation, in the amount of $4,877.4 million,
is provided for local elementary and secondary education programs. Of this
amount, $2,721.7 million is foundation aid. In addition, $292.9 million is
at-risk pupil aid, $247.2 million is pupil transportation aid and $601.1 million
is for special education. Also, $69.6 million provides nonpublic school aid and
$69.9 million pays debt service on school bonds. In addition, $667.4 million is
appropriated on behalf of school districts as the employer shares of the social
security and teachers' pensions and benefits programs.

Appropriations to the Department of Community Affairs (DCA) total $840.4
million in State Aid monies for Fiscal Year 1997. Consolidated Municipal
Property Tax Relief Aid is appropriated in the amount of $755.0 million. In
addition there is $16.7 million for housing programs, $33.0 million for a block
grant program, $30 million for discretionary aid and $5.7 million in other aid.

Appropriations to the State Department of the Treasury total $212.4
million in State Aid monies for Fiscal Year 1997. The principal programs funded
by these appropriations are aid to county colleges ($128.8 million); the cost of
senior citizens, disabled and veterans property tax deductions and exemptions
($55.8 million); the State contribution to the Consolidated Police and Firemen's
Pension Fund ($9.7 million); and aid to densely populated municipalities ($9.0
million).

Other appropriations for State Aid in Fiscal Year 1997 include: welfare
programs ($340.6 million); and aid to county mental hospitals ($76.0 million).

Direct State Services

The second largest portion of appropriations in Fiscal Year 1997 is
applied to Direct State Services which supports the operation of State
government's sixteen departments, the Executive Office, several commissions, the
State Legislature and the Judiciary. In Fiscal Year 1997, appropriations for
Direct State Services aggregate to $5,175.7 million. Some of the major
appropriations for Direct State Services during Fiscal Year 1997 are detailed
below.

$602.1 million is appropriated for programs administered by the
Department of Human Services. Of that amount, $439.2 million is appropriated for
mental health and developmentally disabled programs, including the operation of
seven psychiatric institutions and eight developmental centers.

$19.4 million is appropriated for administration of the Medicaid program;
$37.7 million for administration of the various income maintenance programs,
including Work First New Jersey; and $72.2 million for the Division of Youth and
Family Services, which protects the children of the State from abuse and
neglect.

The Department of Labor is appropriated $55.5 million for the
administration of programs for workers compensation, unemployment and temporary
disability insurance, manpower development and health safety inspection.

The Department of Health and Senior Services is appropriated $45.1
million for the prevention and treatment of

-77-

<PAGE>

(SAI-PA/PART B)

diseases, alcohol and drug abuse programs, regulation of health care facilities,
the uncompensated care program, and senior services programs.

$732.3 million is appropriated for the support of nine State colleges,
Rutgers University, the New Jersey Institute of Technology and the University of
Medicine and Dentistry of New Jersey.

$908.4 million is appropriated to the Department of Law and Public Safety
(excluding the Division of Juvenile Services) and the State Department of
Corrections. Among the programs funded by this appropriation are the
administration of the State's correctional facilities and parole activities, and
the investigative and enforcement activities of the State Police.

$57.6 million is appropriated for the programs operated by the Division
of Juvenile Services, including $19.7 million for the New Jersey Training School
for Boys and $14.8 million for the Juvenile Medium Security Center.

$159.4 million is appropriated to the Department of Transportation for
the various programs it administers, such as the maintenance and improvement of
the State highway system and the registration and regulation of motor vehicles
and licensed drivers.

$179.9 million is appropriated to the Department of Environmental
Protection for the protection of air, land, water, forest, wildlife and
shellfish resources and for the provision of outdoor recreational facilities.

Grants-in-Aid

The third largest portion of appropriations in Fiscal Year 1997 is for
grants-in-aid. These represent payments to individuals or public or private
agencies for benefits to which a recipient is entitled to by law, or for the
provision of services on behalf of the State. The amount appropriated in Fiscal
Year 1997 for grants-in-aid is $3,858.0 million.

$1,927.4 million is appropriated for programs administered by the
Department of Human Services. Of that amount, $1,304.1 million is for medical
services provided under the Medicaid program, $172.9 million is for community
programs for the developmentally disabled, $159.5 million is for community
programs for the mentally ill, $211.3 million is for grant programs administered
by the Division of Youth and Family Services, and $75.5 million is for welfare
reform and homeless services.

$905.4 million is appropriated for programs administered by the
Department of Health and Senior Services. Of that amount, $585.1 million is for
medical services provided under the Medicaid program, $185.7 million is for
pharmaceutical assistance to the aged and disabled and $76.3 million is for the
Lifeline Program.

$325.0 million is appropriated to the Department of the Treasury for the
Homestead Rebate program, which provides property tax relief to homeowners and
renters.

$219.6 million is appropriated to the Department of Transportation for
bus and railroad subsidies.

Higher Education functions are appropriated $248.5 million for various
grant programs including $149.3 million for student financial assistance, $19.7
million to support independent colleges and universities, $40.3 million for debt
service for the Equipment Leasing Fund and the Higher Education Facilities Trust
Fund and $32.2 million for Educational Opportunity Fund Grants.

The Department of Corrections is appropriated $119.8 million for
grants-in-aid. The largest items of

-78-

<PAGE>

(SAI-PA/PART B)

appropriation in this Department are $92.5 million for payments to county penal
facilities to house State inmates and $22.8 million for the purchase of
community services.

Debt Service

The primary method for State financing of capital projects is through the
sale of the general obligation bonds of the State. These bonds are backed by the
full faith and credit of the State. State tax revenues and certain other fees
are pledged to meet the principal payments, interest payments and if provided,
redemption premium payments, if any, required to fully pay the bonds. The
appropriation for the debt service obligation on outstanding indebtedness is
$446.9 million for Fiscal Year 1997.

Capital Construction

In addition to payments from bond proceeds, capital construction can also
be funded by appropriation of current revenues on a pay-as-you-go basis. In
Fiscal Year 1997, the amount appropriated to this purpose is $379.1 million.
$304.5 million is for transportation projects and is being credited to the
Transportation Trust Fund Account of the General Fund, $22.0 million is for
hazardous substance remediation and underground tank remediation and $15.0
million is for shore protection.

All appropriations for capital projects and all proposals for State bond
authorization are subject to the review and recommendation of the New Jersey
Commission on Capital Budgeting and Planning. This permanent commission was
established in November 1975, and is charged with the preparation of the State
Capital Improvement Plan, which contains proposals for State spending for
capital projects.

Subsequent Events

Subsequent to the Governor's Fiscal Year 1998 Budget Message as updated
by the Treasurer's Report to the Legislature, the Treasurer has revised his
revenue estimates for Fiscal Year 1998 based on tax collection data as of May
30, 1997. Based upon the increased flow of tax collections, it is estimated that
approximately $200 million to $300 million in additional revenues will be
received by the end of Fiscal Year 1998. The Department of Education has
recommended that the appropriation for School Aid for Fiscal Year 1998 be
increased by $246 million to comply with the decision by the New Jersey Supreme
Court in Abbott v. Burke. Other budgetary savings have been identified by the
Treasurer to ensure that the increased appropriation in school aid will not
reduce the ending Undesignated Fund Balance (the "Surplus") for Fiscal Year 1998
below the level recommended in the Governor's Fiscal Year 1998 Budget Message
which is $550 million.

The State Legislature is required by the Constitution to adopt an annual
appropriations act by the end of the State's fiscal year which is June 30, 1997.
The State Legislature may propose other spending and saving initiatives. While
the annual appropriations bill has not yet been introduced to the Legislature,
it is anticipated that any changes made in such appropriations bill will not
materially adversely impact the Surplus.

In Fiscal Year 1992 the State initiated a program under which it issued
tax and revenue anticipation notes to aid in providing effective cash flow
management to fund balances which occur in the collection and disbursement of
the General Fund and Property Tax Relief Fund revenues. There are presently $600
million of tax and revenue anticipation notes outstanding. These notes shall
mature on June 13, 1997.

Such tax and revenue anticipation notes do not constitute a general
obligation of the State or a debt or liability within the meaning of the State
Constitution. Such notes constitute special obligations of the State payable
solely

-79-

<PAGE>

(SAI-PA/PART B)

from moneys on deposit in the General Fund and the Property Tax Relief Fund and
legally available for such payment.

The following are cases presently pending or threatened in which the
State has the potential for either a significant loss of revenue or a
significant unanticipated expenditure.

New Jersey Education Association et. al v. State of New Jersey et. al.
This case represents a challenge to amendments to the pension laws enacted on
June 30, 1994 (P.L. 1994, Chapter 62), which concerned the funding of the
Teachers Pension and Annuity Fund ("TPAF"), the Public Employee's Retirement
System ("PERS"), the Police and Fireman's Retirement System ("PFRS"), the State
Police Retirement System ("SPRS") and the Judicial Retirement System ("JRS").
The complaint was filed in the United States District Court of New Jersey on
October 17, 1994. The statute, P.L. 1994, Chapter 62 ("Chapter 62"), as enacted,
made several changes affecting these retirement systems including changing the
actuarial funding method to projected unit credit; continuing the prefunding of
post-retirement medical benefits but at a reduced level for TPAF and PERS;
revising the employee member contribution rate to a flat 5% for TPAF and PERS;
extending the phase in period for the revised TPAF actuarial assumptions;
changing the phase-in period for funding of cost-of-living adjustments and
reducing the inflation assumption for the Cost of Living Adjustment ("COLA") for
all retirement systems; and decreasing the average salary increase assumption
for all retirement systems. Plaintiffs allege that the changes resulted in lower
employer contributions in order to reduce a general budget deficit. The
complaint further alleges that certain provisions of Chapter 62 violate the
contract, due process, and taking clauses of the United States and New Jersey
Constitutions, and further constitute a breach of the State's fiduciary duty to
participants in TPAF and PERS. Plaintiffs seek to permanently enjoin the State
from administering, enforcing or otherwise implementing Chapter 62. An adverse
determination against the State would have a significant impact upon the Fiscal
Year 1997 and Fiscal Year 1998 budgets. The State filed a motion to dismiss and
a motion for summary judgment.

On October 6, 1995, the Court issued its opinion in which it dismissed
the State as a party to the action. The only defendant is Treasurer Clymer. The
claims surviving the motion are: (1) breach of trust and fiduciary duty (against
the Treasurer in both his individual and official capacities); (2) violation of
Due Process (against the Treasurer in both his individual and official
capacities); and (3) a 42 U.S. C ss.1983 claim (against the Treasurer in his
individual capacity).

The forms of relief sought related to these surviving claims are: (1) a
declaration that certain provisions of Chapter 62 violate Due Process of law
under the Fifth and Fourteenth Amendments to the U.S. Constitution; (2) a
declaration that the enactment and implementation of certain provisions of
Chapter 62 constitute a breach of the fiduciary obligations owed to contributing
participants, vested participants and retirees of the TPAF and PERS; (3) a
declaration that Chapter 62 contravenes the statutory and common law duties to
administer and fund the plans in an actuarially sound and fiscally responsible
manner; (4) a permanent injunction against administering, enforcing or otherwise
implementing certain provisions of Chapter 62; (5) directing payment of
plaintiffs' attorneys' fees, disbursements and costs pursuant to 42 U.S.C
ss.1988.

The State filed a motion for reconsideration or, in the alternative, for
certification to the Third Circuit Court of Appeals, of the remaining claims. By
order dated December 19, 1995, the District Court denied the motion in all
respects. On January 29, 1996, the State, on behalf of Treasurer Clymer, filed a
Petition for a Writ of Mandamus and a Motion for a Stay of the Proceedings
below, pending consideration and disposition of the petition, with the Third
Circuit Court of Appeals. In the petition, Treasurer Clymer asked the Court of
Appeals to direct the District Court to dismiss the complaint or enter summary
judgment in his favor. Alternatively, the Treasurer asked the Court of Appeals
to order the District Court to vacate its order denying summary judgment and
resolve that motion as a matter of law without discovery or fact finding or to
certify the issues for interlocutory appeal. The Third Circuit Court of

-80-

<PAGE>

(SAI-PA/PART B)

Appeals denied the motion and petition on February 20, 1996. The matter is
currently stayed pending the adoption of the Appropriations Act for Fiscal Year
1998. The State intends to vigorously defend this action.

Beth Israel Hospital et. al. v. Essential Health Services Commission.
This case represents a challenge by eleven New Jersey hospitals to the .53%
hospital assessment authorized by the Health Care Reform Act of 1992,
specifically N.J.S.A. 26:2H-18.62. Amounts collected pursuant to the assessment
are paid into the hospital and other health care initiatives account of the
Health Care Subsidy Fund, to be used for various health care programs.
Specifically, the funds are currently used for those programs previously
established pursuant to N.J.S.A. 26:2H- 18.47. In this appeal of the assessment,
filed with the Appellate Division on December 6, 1993, appellants argue that
collection of the assessment is invalid in the absence of Hospital Rate Setting
Commission approval of the approved revenue base used in the calculation. At the
same time, appellants filed an application for injunctive relief, seeking to
stay any collection, which application was denied. In a decision dated July 10,
1995, the Appellate Division rejected appellants' contention that the
respondents were prohibited from collecting the assessment. However, the court
also found that the hospitals had not been afforded an opportunity to be heard
on the assessment, and thus remanded the case to the Essential Health Services
Commission for a hearing. Because the Commission has been abolished by L. 1995,
c. 133, and its responsibilities assigned to the Department of Health, the
Department of Health held the hearing on August 30, 1995. By letters dated March
26, 1996, the Department of Health affirmed the prior assessments. The hospitals
filed a notice of appeal challenging that decision on May 10, 1996 and the case
has now been briefed. The State intends to vigorously defend this action.

Tort, Contract and Other Claims. At any given time, there are various
numbers of claims and cases pending against the State, State agencies and
employees, seeking recovery of monetary damages that are primarily paid out of
the fund created pursuant to the New Jersey Tort Claims Act (N.J.S.A. 59:1-1, et
seq.). The State does not formally estimate its reserve representing potential
exposure for these claims and cases. The State is unable to estimate its
exposure for these claims and cases.

The State routinely receives notices of claim seeking substantial sums of
money. The majority of those claims have historically proven to be of
substantially less value than the amount originally claimed. Under the New
Jersey Tort Claims Act, any tort litigation against the State must be preceded
by a notice of claim, which affords the State the opportunity for a six-month
investigation prior to the filing of any suit against it.

In addition, at any given time, there are various numbers of contract and
other claims against the State and State agencies, including environmental
claims asserted against the State, among other parties, arising from the alleged
disposal of hazardous waste. Claimants in such matters are seeking recovery of
monetary damages or other relief which, if granted, would require the
expenditure of funds. The State is unable to estimate its exposure for these
claims.

At any given time, there are various numbers of claims and cases pending
against the University of Medicine and Dentistry and its employees, seeking
recovery of monetary damages that are primarily paid out of the Self Insurance
Reserve Fund created pursuant to the New Jersey Tort Claims Act (N.J.S.A.
59:1-1, et seq.). An independent study estimated an aggregate potential exposure
of $86,795,000 for tort and medical malpractice claims pending as of June 30,
1996. In addition, at any given time, there are various numbers of contract and
other claims against the University of Medicine and Dentistry, seeking recovery
of monetary damages or other relief which, if granted, would require the
expenditure of funds. The State is unable to estimate its exposure for these
claims.

County of Passaic v. State of New Jersey. This action filed by the
County of Passaic, the Passaic County Utilities Authority, and the Passaic
County Pollution Control Financing Authority ("plaintiffs"), alleged tort and
contractual claims against the State of New Jersey ("State") and the New Jersey
Department of Environmental

-81-

<PAGE>

(SAI-PA/PART B)

Protection ("NJDEP") associated with a resource recovery facility which
plaintiffs had once planned to build. The plaintiffs alleged that the State and
the NJDEP violated a 1984 consent order concerning the construction of a
resource recovery facility in Passaic County. Plaintiffs' complaint alleged
approximately $30 million in damages against the State and the NJDEP. On March
17, 1995, the court granted the State's motion for summary judgment, dismissing
all counts of plaintiffs' complaint against the State and the NJDEP, with
prejudice. The court found that there was no legal obligation or duty on the
part of the State or the NJDEP concerning the project. Plaintiffs have filed an
appeal of the court's decision. The State intends to vigorously defend this
appeal.

Interfaith Community Organization v. Shinn, et al. In late October, 1993,
the Interfaith Community Organization ("ICO") a coalition of churches and church
leaders in Hudson County, filed suit on behalf of the ICO's membership and the
citizens of Hudson County against the Governor, the Commissioner of the New
Jersey Department of Environmental Protection ("DEP"), Commissioner of the
Department of Health ("DOH"), and Lance Miller, Assistant Commissioner of DEP.
The multicount complaint alleged violations of numerous laws, allegedly
resulting from the existence of chromium contamination in the State-owned
Liberty State Park in Jersey City. It also asserted the alleged failure by DEP
and DOH to properly conduct remediation and health screens in Hudson County
concerning chromium contamination. No immediate relief was sought, but
injunctive and monetary relief was asked for.

In June 1994, ICO hired a law firm to represent it in this matter. The
firm filed amended complaints, naming only Commissioner Shinn of DEP and
Governor Whitman as defendants and alleges only Clean Water Act ("CWA") and
Resource Conservation Recovery Act ("RCRA") violations at Liberty State Park.
Under the "citizen suit" provisions of these federal acts, plaintiff is seeking
remediation, health studies and attorneys' fees. ICO has served the defendants
with a motion for a preliminary injunction requesting that the court order the
closure of Liberty State Park, security which will permit no entry to the park,
emergency dust suppression efforts and a plan to remediate the park. The State
intends to oppose the motion. The State is unable to estimate its exposure for
this claim. In March, 1995, ICO filed another lawsuit over the shipments of soil
from the 1-287 Wetlands Mitigation Project to Liberty State Park. The defendants
in that suit are Commissioner Shinn, Governor Whitman, Commissioner Wilson of
the Department of Transportation ("DOT") and R. W. Vogel, Inc., the transporter
of the soil. The new suit seeks a declaration that the CWA is being violated and
demands cessation of all construction at Liberty State Park and penalties
against Vogel. The State intends to defend these suits vigorously.

American Trucking Associations, Inc. and Tri-State Motor Transit, Co. v.
State of New Jersey. The American Trucking Associations, Inc. ("ATA") and
Tri-State Motor Transit, Co. filed a complaint in the Tax Court on March 23,
1994 against the State of New Jersey and certain state officials challenging the
constitutionality of annual A-901 hazardous and solid waste licensure renewal
fees collected by the Department of Environmental Protection ("DEP"). A-901
refers to the Assembly bill number which was adopted in 1983 as an amendment to
the Solid Waste Management Act, N.J.S.A. 13:1E-I et seq., and codified at
N.J.S.A. 13:1E-1-26 et seq., establishing a requirement that all persons and
entities engaged in solid and hazardous waste activities in the State be
investigated prior to the issuance of a license. Plaintiffs are alleging that
the A-901 renewal fees discriminate against interstate commerce in violation of
the Commerce Clause of the United States Constitution; that the fees are not
used for the purposes for which they are levied; and that the fees do not
reflect the duration or complexity of the services rendered by the government
entities receiving the fees as required under the A-901 statute. Plaintiffs are
seeking a declaration that the fees are unconstitutional; a permanent injunction
enjoining the future collection of the fees; a refund of all annual A-901
renewal fees and all fines and penalties collected pursuant to enforcement of
these provisions; and attorneys' fees and costs. Plaintiffs are also seeking
class certification of their action.

The DEP currently collects approximately $3.5 to $4 million in A-901 fees
annually. In previous years, the total amount of fees collected was higher
because the number of applicants and licensees subject to the fees was

-82-

<PAGE>

(SAI-PA/PART B)

much larger. It is presently unknown what portion of the A-901 fees are paid by
haulers engaged in interstate commerce, and what percentage of the monies are
renewal fees as opposed to initial application fees. Consequently, the State is
unable to estimate its exposure for this claim and intends to defend this suit
vigorously.

Abbott v. Burke. On January 6, 1997 the Education Law Center filed a
motion in aid of litigants' rights with the Supreme Court of New Jersey in
Abbott v. Burke. In 1994 the Supreme Court ruled in Abbott v. Burke that the
State had to enact a funding formula that would close the spending gap between
poor urban school districts and wealthy suburban districts by fiscal year 1998.
On December 20, 1996 the Comprehensive Education Improvement and Financing Act
("CEIFA") was enacted. CEIFA is a departure from the mechanisms of previous
funding formulas. The CEIFA is centered upon the Core Curriculum Content
Standards -- a comprehensive description of what all students should know and be
able to accomplish upon completion of a thirteen year public education. The
State projects that special needs districts will be spending between 91% and 96%
of the wealthy suburban districts in the 1997-1998 school year under CEIFA.
Plaintiffs concede that, under CEIFA, special needs districts are projected to
be spending at 91% of the wealthy suburban districts in the 1997-1998 fiscal
year. In its motion, the Education Law Center requests, in part, relief in the
form of 100% spending parity or State aid in the amount of approximately $200
million dollars to be redistributed to the special needs districts. On May 14,
1997, the Supreme Court rendered a decision in Abbott v. Burke and held that
CEIFA was unconstitutional as applied to the 28 Abbott districts. The Court
ordered the State to appropriate additional funds, beginning in the 1997-98
school year, so that each Abbott district would be able to spend at the average
of the wealthy suburban districts. In addition, the Court remanded the matter to
the Superior Court to oversee a directive to the Commissioner of Education to
study and report on the special educational needs of students in the Abbott
districts and the facilities needs in those districts. The Superior Court is
required to issue a final determination on those issues by December 31, 1997.
The Supreme Court retained jurisdiction of the matter.

Affiliated FM Insurance Company, et al. v. State of New Jersey, et al.
The plaintiffs in this action are insurers licensed or admitted to write
property and casualty insurance in the State of New Jersey pursuant to N.J.S.A.
17:17-1 et seq. and are all members of the New Jersey Property-Liability
Insurance Guaranty Association ("PLIGA"), a private, non-profit organization
created to cover claims against certain insolvent insurers. Plaintiffs have
filed suit in the Superior Court of New Jersey, Chancery Division, Mercer County
against the State of New Jersey, the Commission of Banking, the Department of
Bank and Insurance, PLIGA and the State Treasurer. Plaintiffs contend that their
assessments are being used to retire debt of the Market Transition Fund ("MTF").
The plaintiffs argue that they were never members of the MTF, are not
statutorily responsible for its losses, have not agreed to assume its losses and
did not relinquish any right to repayment of loan assessments to PLIGA. Under
the Fair Automobile Insurance Reform Act of 1990 ("FAIRA"), PLIGA is responsible
for assessing and collecting from its member insurers the amounts necessary to
make certain loans to the Auto Guaranty Fund (the "Auto Guaranty Fund"), a
special nonlapsing fund create pursuant to FAIRA. Plaintiffs contend that
assessments dating back to 1990 are in dispute and challenge the
constitutionality of the assessments and legislation which allow the assessments
and request declaratory relief and an order that the monies assessed since 1990
be returned as well as an accounting. The State intends to vigorously defend
this action and has filed a motion to dismiss this case.

C.F., et al. v. Fauver, et al. This case is brought as a purported class
action consisting of prisoners with serious mental disorders who are confined
within the facilities of the Department of Corrections (the "Class") against the
Commission of the Department of Corrections and other officers of the Department
of Corrections. The Class alleges cruel and unusual punishment, violation of the
Americans with Disabilities Act of 1990, discrimination against members of the
Class, sex discrimination and violation of due process. The suit was brought by
the Class in the United States District Court of the District of New Jersey.
Through this action, the Class seeks injunctive relief in the form of changes to
the manner in which mental health services are provided to inmates. The Class
also seeks changes in the disciplinary process to the extent that an inmate's
mental health is taken into consideration by a

-83-

<PAGE>

(SAI-PA/PART B)

hearing officer when adjudicating a disciplinary charge. Discovery has
commenced and is continuing. The State intends to vigorously defend this
action.

Cleary v. Waldman. This case involves the spousal impoverishment
provisions of the Medicare Catastrophic Coverage Act ("MCCA"). Under this
provision, the spouse of an institutionalized husband or wife, is allowed to
have sufficient funds to live in the community, called the monthly needs
allowance.

The State in determining a spouse's monthly needs allowance,
uses a system called the "income first" rule. If a community spouse does not
have sufficient funds to meet the monthly needs allowance, an institutionalized
spouse is allowed to shift his or her income to the community spouse to make up
the difference. If the institutionalized spouse's income is insufficient to meet
the monthly needs allowance, then the institutionalized spouse is allowed to
shift resources to the community spouse to generate income to make up the
difference.

A class action was brought in federal court in which plaintiffs' argue
that the income first rule is disallowed under the MCCA. Rather plaintiffs claim
that the MCCA mandates the use of what is called the "resource-first" rule.
Under this scheme, before income is shifted form the institutionalized spouse to
the community spouse to meet the monthly needs allowance, resources must be
shifted first and income generated from these resources used to meet the monthly
needs allowance.

Estimates of exposure if a court were to find that the MCAA only allows
the "resource-first" rule has been estimated in the area of $50 million per year
from both State and Federal sources combined.

Plaintiffs filed for a preliminary injunction arguing that, under federal
law, only the resource first rule was allowed under the MCCA. The State opposed
the motion and the New Jersey Association of Health Care Facilities and the New
Jersey Association for Non-Profit Homes for the Aging moved for intervenor
status, opposing the plaintiffs' motion. The court granted the motion of
intervention and denied the motion for preliminary injunction, finding that
plaintiffs were unlikely to prevail on the merits since New Jersey's methodology
was at least a permissible application of the federal law.

Subsequently, plaintiffs filed for class certification which was granted
on March 25, 1996. On March 26, 1997, Plaintiffs have filed a Notice of Appeal
to the Court of Appeals for the Third Circuit. The State intends to vigorously
defend this action.

United Hospitals et al. v. State of New Jersey and William Waldman. This
case represents a challenge by 18 New Jersey hospitals to Medicaid hospital
reimbursement since February, 1995. The matter was filed in the Appellate
Division of the Superior Court of New Jersey in January, 1997. The hospitals
challenge all of the following: (i) whether the State complied with ceratin
federal requirements for Medicaid reimbursement; (ii) whether the State's
reimbursement regulations, N.J.A.C. 10:52-1 et seq., are arbitrary, capricious
and unreasonable; (iii) whether the Department of Human Services (DHS)
incorrectly calculated the rates; (iv) whether DHS denied hospitals of a
meaningful appeal process; (v) whether the 1996-7 State Appropriation Act
(L.1996, c.42) violates the New Jersey Constitution with respect to the
provision for Medicaid reimbursement to hospitals; and (vi) whether DHS violated
the Medicaid State Plan, filed with the U.S. Department of Health and Human
Services, in implementing hospital rates in 1995 and 1996. The State intends to
vigorously defend this action.

Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Incorporated, The
State of New Jersey at al. An action was filed in Federal District Court to
enjoin and declare unlawful the actions of the Mirage Resorts Incorporated
("Mirage"), the State of New Jersey, the New Jersey Department of
Transportation, the South Jersey Transportation Authority, the Casino
Reinvestment Development Authority ("CRDA"), the New Jersey Transportation Trust
Fund

-84-

<PAGE>

(SAI-PA/PART B)

Authority and certain officials of the aforesaid agencies and authorities in
their efforts to revitalize Atlantic City through the design and construction of
a highway and tunnel funded by Mirage, the New Jersey Transportation Trust Fund
Authority and $55,000,000 in bonds to be issued by the South Jersey
Transportation Authority and collateralized by future alternative investment
obligations of casinos to be located in the marina district of Atlantic City.
Plaintiffs claim that the highway and tunnel development funding violates a
provision of the New Jersey State Constitution that requires the State to
dedicate all State revenues derived from gambling to programs benefiting the
elderly and the disabled pursuant to the New Jersey State Constitution, Article
IV, Section 7, Paragraph 2. The plaintiffs further allege that (i) the failure
to disclose the constitutional infirmities alleged in the financing for the
highway and tunnel project will be material omissions within the meaning of Rule
10b-5 of the Securities and Exchange Act of 1934; (ii) the defendants have
sought to avoid the federal requirements of the Clean Water Act, the Federal
Highway Act, and the Clean Air Act; and (iii) the defendants have sought to
avoid the requirement of the New Jersey Coastal Area Facility Review Act. The
State has filed a motion to dismiss the federal action and filed a declaratory
judgment action in Superior Court of New Jersey, Law Division-Atlantic County,
seeking a declaration that the alternative investment program established under
N.J.S.A. 5:12-144.1 of the CRDA legislation and the use of parking fees and
sales tax revenues under the CRDA legislation to fund eligible projects do not
violate the New Jersey State Constitution. In opinion filed May 1, 1997,
defendant's motion to dismiss the federal suit was granted. In opinion filed May
14, 1997, declaratory judgment was granted in favor of the State and CRDA in
Superior Court. Defendants have moved for direct certification to the Supreme
Court of New Jersey in opposition to the declaratory judgment.

Four additional cases have been filed in opposition to the road and
tunnel project which also contain similar challenges. The four matters, Bryant
et al. v. New Jersey Department of Transportation et al., Merolla and Brady v.
The Casino Reinvestment Development Authority et al., Monmouth County v. the
Casino Reinvestment Development Authority et al., and Gallagher et al. v. The
Casino Reinvestment Development Authority et al. are also being vigorously
defended by the State. These matters have been consolidated into one action in
Atlantic County.

Blecker v. State of New Jersey. This is a class action lawsuit filed in
Superior Court-Law Division, Atlantic County, on behalf of all providers of
Medicare Part B services to Qualified Medicare Beneficiaries (QMB's) seeking
reimbursement for Medicare co-insurance and deductibles not paid by the State
Medicaid program from 1988 to February 10, 1995. QMB's are persons who are
eligible for Medicare and Medicaid and from whom Medicaid pays the premiums for
Medicare Part B benefits. From 1988 until February 10, 1995 the State did not
pay providers for co-insurance and deductibles unless the Medicare rate plus the
co-insurance and deductibles was equal to or less than the Medicaid
reimbursement rate for the service. Plaintiff alleges a breach of the contract
between the State and Federal governments intended to benefit providers, and a
breach of a contract between the State Medicaid program and its providers, as
well as a claimed violation of federal civil rights law. Plaintiff is seeking
all co-insurance and deductibles for Medicare Part B benefits provided to all
QMB's for the period from 1988 to 1995. The State intends to vigorously defend
this lawsuit.

Investing in Ohio Tax-Exempt Obligations
As described above, the Ohio Trust will invest most of its net assets in
securities issued by or on behalf of (or in certificates of participation in
lease-purchase obligations of) the State of Ohio, political subdivisions of the
State, or agencies or instrumentalities of the State or its political
subdivisions (Ohio Obligations). The Ohio Trust is therefore susceptible to
general or particular economic, political or regulatory factors that may affect
issuers of Ohio Obligations. The following information constitutes only a brief
summary of some of the many complex factors that may have an effect. The
information does not apply to "conduit" obligations on which the public issuer
itself has no financial responsibility. This information is derived from
official statements of certain Ohio issuers published in connection with their
issuance of securities and from other publicly available information, and is
believed to be accurate. No independent verification has been made of any of the
following information.

-85-

<PAGE>

(SAI-PA/PART B)

Generally, the creditworthiness of Ohio Obligations of local issuers is
unrelated to that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations.

There may be specific factors that at particular times apply in
connection with investment in particular Ohio Obligations or in those
obligations of particular Ohio issuers. It is possible that the investment may
be in particular Ohio Obligations, or in those of particular issuers, as to
which those factors apply. However, the information below is intended only as a
general summary, and is not intended as a discussion of any specific factors
that may affect any particular obligation or issuer.

Ohio is the seventh most populous state. The 1990 Census count of
10,847,000 indicated a 0.5% population increase from 1980. The Census estimate
for 1995 is 11,157,000.

While diversifying more into the service and other non-manufacturing
areas, the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products and
household appliances. As a result, general economic activity, as in many other
industrially-developed states, tends to be more cyclical than in some other
states and in the nation as a whole. Agriculture is an important segment of the
economy, with over half the State's area devoted to farming and approximately
16% of total employment in agribusiness.

In prior years, the State's overall unemployment rate was commonly
somewhat higher than the national figure. For example, the reported 1990 average
monthly State rate was 5.7%, compared to the 5.5 % national figure. However, for
the last six years the State rates were below the national rates (4.9% versus
5.4% in 1996). The unemployment rate and its effects vary among geographic areas
of the State.

There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of Ohio
Obligations held in the Ohio Trust or the ability of particular obligors to make
timely payments of debt service on (or lease payments relating to) those
Obligations.

The State operates on the basis of a fiscal biennium for its
appropriations and expenditures, and is precluded by law from ending its July 1
to June 30 fiscal year (FY) or fiscal biennium in a deficit position. Most State
operations are financed through the General Revenue Fund (GRF), for which the
personal income and sales-use taxes are the major sources. Growth and depletion
of GRF ending fund balances show a consistent pattern related to national
economic conditions, with the ending FY balance reduced during less favorable
and increased during more favorable economic periods. The State has
well-established procedures for, and has timely taken, necessary actions to
ensure resource/expenditure balances during less favorable economic periods.
Those procedures included general and selected reductions in appropriations
spending.

Key biennium-ending fund balances at June 30, 1989 were $475.1 million in
the GRF and $353 million in the Budget Stabilization Fund (BSF, a cash and
budgetary management fund). June 30, 1991 ending fund balances were $135.3
million (GRF) and $300 million (BSF).

The next biennium, 1992-93, presented significant challenges to State
finances, successfully addressed. To allow time to resolve certain budget
differences an interim appropriations act was enacted effective July 1, 1991; it
included GRF debt service and lease rental appropriations for the entire
biennium, while continuing most other appropriations for a month. Pursuant to
the general appropriations act for the entire biennium, passed on July 11, 1991,
$200 million was transferred from the BSF to the GRF in FY 1992.

-86-

<PAGE>

(SAI-PA/PART B)

Based on updated results and forecasts in the course of that FY, both in
light of a continuing uncertain nationwide economic situation, there was
projected and then timely addressed an FY 1992 imbalance in GRF resources and
expenditures. In response, the Governor ordered most State agencies to reduce
GRF spending in the last six months of FY 1992 by a total of approximately $184
million; the $100.4 million BSF balance and additional amounts from certain
other funds were transferred late in the FY to the GRF; and adjustments were
made in the timing of certain tax payments.

A significant GRF shortfall (approximately $520 million) was then
projected for FY 1993. It was addressed by appropriate legislative and
administrative actions, including the Governor's ordering $300 million in
selected GRF spending reductions and subsequent executive and legislative action
(a combination of tax revisions and additional spending reductions). The June
30, 1993 ending GRF fund balance was approximately $111 million, of which, as a
first step to BSF replenishment, $21 million was deposited in the BSF.

None of the spending reductions were applied to appropriations needed for
debt service or lease rentals relating to any State obligations.

The 1994-95 biennium presented a more affirmative financial picture.
Based on June 30, 1994 balances, an additional $260 million was deposited in the
BSF. The biennium ended June 30, 1995 with a GRF ending fund balance of $928
million, of which $535.2 million was transferred into the BSF (which had an June
17, 1997 balance of over $828 million). The significant GRF fund balance, after
leaving in the GRF an unreserved and undesignated balance of $70 million, was
transferred to the BSF and other funds including school assistance funds and, in
anticipation of possible federal program changes, a human services stabilization
fund.

In the biennium ending June 30, 1997, the Office of Budget and Management
projected, early in June, a GRF ending final balance of approximately $472
million.

The GRF appropriations act for the 1997-98 biennium was passed on June
25, 1997 and promptly signed (after selective vetoes) by the Governor. All
necessary GRF appropriations for State debt service and lease rental payments
then projected for the biennium were included in that act.

The State's incurrence or assumption of debt without a vote of the people
is, with limited exceptions, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)

By 14 constitutional amendments approved from 1921 to date (the latest
adopted in 1995) Ohio voters authorized the incurrence of State debt and the
pledge of taxes or excises to its payment. At June 16, 1997, $1.02 billion
(excluding certain highway bonds payable primarily from highway use receipts) of
this debt was outstanding or awaiting delivery. The only such State debt at that
date still authorized to be incurred were portions of the highway bonds, and the
following: (a) up to $100 million of obligations for coal research and
development may be outstanding at any one time ($32.3 million outstanding); (b)
$240 million of obligations previously authorized for local infrastructure
improvements, no more than $120 million of which may be issued in any calendar
year ($879 million outstanding); and (c) up to $200 million in general
obligation bonds for parks, recreation and natural resources purposes which may
be outstanding at any one time ($94.2 million outstanding or in the process of
delivery, with no more than $50 million to be issued in any one year).

The electors in 1995 approved a constitutional amendment extending the
local infrastructure bond program

-87-

<PAGE>

(SAI-PA/PART B)

(authorizing an additional $1.2 billion of State full faith and credit
obligations to be issued over 10 years for the purpose), and authorizing
additional highway bonds (expected to be payable primarily from highway use
receipts). The latter supersedes the prior $500 million outstanding
authorization, and authorizes not more that $1.2 billion to be outstanding at
any time and not more than $220 million to be issued in a fiscal year.

The Constitution also authorizes the issuance of State obligations for
certain purposes, the owners of which do not have the right to have excises or
taxes levied to pay debt service. Those special obligations include obligations
issued by the Ohio Public Facilities Commission and the Ohio Building Authority,
and certain obligations issued by the State Treasurer, over $4.8 billion of
which were outstanding at June 16, 1997.

A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing. The
General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as it authorizes of State
revenues or receipts (but not by a pledge of the State's full faith and credit).

A 1994 constitutional amendment pledges the full faith and credit and
taxing power of the State to meeting certain guarantees under the State's
tuition credit program which provides for purchase of tuition credits, for the
benefit of State residents, guaranteed to cover a specified amount when applied
to the cost of higher education tuition. (A 1965 constitutional provision that
authorized student loan guarantees payable from available State moneys has never
been implemented, apart from a "guarantee fund" approach funded essentially from
program revenues.)

State and local agencies issue obligations that are payable from revenues
from or relating to certain facilities (but not from taxes). By judicial
interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued) are
limited in duration to the agency's fiscal period, and are renewable only upon
appropriations being made available for the subsequent fiscal period.

Local school districts in Ohio receive a major portion (state-wide
aggregate approximately 44% in recent years) of their operating moneys from
State subsidies, but are dependent on local property taxes, and in 119 districts
from voter-authorized income taxes, for significant portions of their budgets.
Litigation, similar to that in other states, has been pending questioning the
constitutionality of Ohio's system of school funding. The Ohio Supreme Court has
recently concluded that aspects of the system (including basic operating
assistance and the loan program described below) are unconstitutional, and
ordered the State to provide for and fund a system complying with the Ohio
Constitution, staying its order for a year to permit time for responsive
corrective actions. A small number of the State's 612 local school districts
have in any year required special assistance to avoid year-end deficits. A
current program provides for school district cash need borrowing directly from
commercial lenders, with diversion of State subsidy distributions to repayment
if needed. Recent borrowings under this program totalled $94.5 million for 27
districts (including $75 million for one) in FY 1993, $41.1 million for 28
districts in FY 1994, $71.1 million for 29 districts in FY 1995 (including $29.5
million for one), and $87.2 million for 20 districts in FY 1996 (including $42.1
million for one).

Ohio's 943 incorporated cities and villages rely primarily on property
and municipal income taxes for their operations. With other subdivisions, they
also receive local government support and property tax relief moneys distributed
by the State.

For those few municipalities and school districts that on occasion have
faced significant financial problems, there are statutory procedures for a joint
State/local commission to monitor the fiscal affairs and for development of a

-88-

<PAGE>

(SAI-PA/PART B)

financial plan to eliminate deficits and cure any defaults. (Similar procedures
have recently been extended to counties and townships.) Since inception for
municipalities in 1979, these "fiscal emergency" procedures have been applied to
24 cities and villages; for 19 of them the fiscal situation was resolved and the
procedures terminated. As of June 16, 1997, the 1996 school district "fiscal
emergency" provision had been applied to four districts, and eight districts had
been placed on preliminary "fiscal watch" status.

At present the State itself does not levy ad valorem taxes on real or
tangible personal property. Those taxes are levied by political subdivisions and
other local taxing districts. The Constitution has since 1934 limited to 1% of
true value in money the amount of the aggregate levy (including a levy for
unvoted general obligations) of property taxes by all overlapping subdivisions,
without a vote of the electors or a municipal charter provision, and statutes
limit the amount of that aggregate levy to 10 mills per $1 of assessed valuation
(commonly referred to as the "ten-mill limitation"). Voted general obligations
of subdivisions are payable from property taxes that are unlimited as to amount
or rate.

Investing in Pennsylvania Tax-Exempt Obligations
The following information constitutes only a brief summary, does not
purport to be a complete description, and is derived from official statements
prepared in connection with the issuance of bonds and notes of the Commonwealth
of Pennsylvania (the "Commonwealth") and other sources that are generally
available to investors. The information is provided as general information
intended to give a recent historical description and is not intended to indicate
future or continuing trends in the financial or other positions of the
Commonwealth or of local government units located in the Commonwealth. The Fund
has not independently verified this information.

The General Fund, the Commonwealth's largest fund, receives all tax
revenues, non-tax revenues and federal grants and entitlements that are not
specified by law to be deposited elsewhere. The majority of the Commonwealth's
operating and administrative expenses are payable from the General Fund. Debt
service on all bonded indebtedness of the Commonwealth, except that issued for
highway purposes or for the benefit of other special revenue funds, is payable
from the General Fund.

For the five year period from fiscal 1992 through fiscal 1996, revenues
and other sources (determined on a general accepted accounting principles -
"GAAP" - basis) increased by an average annual rate of 4.6%. Intergovernmental
revenues increased by an average annual rate of 13.2% due, in part, to an
accounting change. Tax revenues during this period increased an average of 2.5%
as modest economic growth, low inflation rates and several tax rate reductions
and other tax reduction measures constrained growth of tax revenues. The tax
reduction measure followed a $2.7 billion tax increase adopted for the 1992
fiscal year.

Expenditures and other uses during the fiscal 1992 through fiscal 1996
period rose at an average annual rate of 6.0%, led by increases of 14.2% for
protection of persons and property. A prison expansion program and other
correctional program expenses are responsible for the large percentage increase
in this area. Efforts to control costs for various social welfare programs and
the presence of favorable economic conditions have led to a modest 5.6% increase
for public health and welfare costs for the five year period.

The fund balance at June 30, 1996 totaled $635.2 million, a $547.7
million increase from the balance of $87.5 million at June 30, 1992.

Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth
reported an increase in its fiscal year-end unappropriated General Fund balance.
The fiscal 1995 unappropriated surplus (prior to reserves for transfer to the
Tax Stabilization Fund) was $540 million, an increase of $204.2 million over the
fiscal 1994 unappropriated surplus (prior to transfers). Commonwealth revenues
were $459.4 million (2.9%) above the estimate of revenues used at the

-89-

<PAGE>

(SAI-PA/PART B)

time the budget was enacted. The higher than estimated revenues from tax sources
were due to faster economic growth in the national and state economy than had
been projected when the budget was adopted. Expenditures from Commonwealth
revenues (excluding pooled financing expenditures), including $65.5 million of
supplemental appropriations enacted at the close of the 1995 fiscal year,
totaled $15,674 million, representing an increase of 5% over spending during
fiscal 1994.

For GAAP purposes, the General Fund recorded a $49.8 million deficit for
fiscal 1995, leading to a decline in the fund balance to $688.3 million at June
30, 1995. The two items which predominantly contributed to the decline in the
fund balance were (i) the use of a more comprehensive procedure to compute the
liabilities for certain public welfare programs, leading to an increase for the
year-end accruals, and (ii) a change in the methodology used to calculate the
year-end accrual for corporate tax payables which increased the tax refund
liability by $72 million for the 1995 fiscal year when compared to the previous
fiscal year.

The fiscal 1996 unappropriated surplus (prior to transfer to the Tax
Stabilization Reserve Fund) was $183.8 million, $65.5 million above estimate.
Net expenditures and encumbrances from Commonwealth revenues, including $113
million of supplemental appropriations (but excluding pooled financing
expenditures) totaled $16,162.9 million. Expenditures exceeded available
revenues and lapses by $253.2 million. The difference was funded from a planned
partial drawdown of the $437 million fiscal year adjusted beginning
unappropriated surplus.

Commonwealth revenues (prior to tax refunds) for fiscal 1996 increased by
$113.9 million over the prior year to $16,338.5 million (representing a growth
rate of .7%). Tax rate reductions and other law changes substantially reduced
the amount and rate of revenue growth for the fiscal year. It is estimated the
tax changes enacted for the fiscal year reduced Commonwealth revenues by $283.4
million.

For GAAP purposes, the fiscal 1996 fund balance was drawn down $53.1
million to $635.2 million. A planned draw down of the budgetary unappropriated
surplus during the fiscal year contributed to expenditures and other uses
exceeding revenues and other sources by $28.0 million. As a result, the
unreserved fund balance declined by $61.1 million, reducing the balance to
$381.8 million at the end of fiscal 1996. Total revenues and other sources
increased by 8.7% for the fiscal year, led by a 24.2% increase in
intergovernmental revenues (due mainly to an accounting change in the way in
which food stamp coupon revenue received from the federal government is counted
as income to the Commonwealth). Expenditures and other uses increased by 8.6%
for fiscal 1996.

The enacted fiscal 1997 budget provides for expenditures from
Commonwealth revenues of $16,375.8 million, an increase of .6% over appropriated
amounts from Commonwealth revenues for fiscal 1996. The fiscal 1997 budget is
based on anticipated Commonwealth revenues (before refunds) of $16,744.5
million, an increase over actual fiscal 1996 revenues of 2.5%. The revenue
estimate includes provisions for a $15 million tax credit program enacted with
the fiscal 1997 budget for businesses creating new jobs. Staggered corporation
tax years will cause fiscal 1997 revenues to continue to be affected by the
business tax reductions enacted during the two prior completed fiscal years.
Those reductions, together with the new jobs creation tax credit, cause revenue
growth comparisons between fiscal 1996 and fiscal 1997 to be understated. When
the changes are taken into account, revenues in the fiscal 1997 budget are
anticipated to increase at the rate of 3%.

Increased authorized spending for fiscal 1997 is driven largely by
increased costs of the corrections and probation and payroll programs. The
fiscal 1997 budget contains an appropriation increase in excess of $110 million
for these programs. The fiscal 1997 budget also contains some departmental
restructurings.

Providing funding for certain program increases required reductions and
savings in other programs funded from the General Fund. A major reform of the
current welfare system was enacted in May 1996 to encourage

-90-

<PAGE>

(SAI-PA/PART B)

recipients towards self-sufficiency through work requirements, to provide
temporary support for families showing personal responsibility and to maintain
safeguards for those who cannot help themselves.

The fiscal 1997 budget anticipated receiving $60 million of proceeds from
the securitization of $151.7 million of loans held by the Sunny Day Fund. This
fund was created to finance large-scale economic development loans to attract
significant employment opportunities to the Commonwealth. Its funding was
generally obtained from General Fund appropriations. The fund has been abolished
and its loans have been transferred to the Pennsylvania Industrial Development
Fund ("PIDA"). In September 1996, PIDA issued bonds secured by its loan
revenues, including the Sunny Day Fund loans. These bond proceeds will be used
to refund outstanding debt of the Commonwealth. The affect of this transaction
on the fiscal 1997 budget is to reduce the amount of debt service needed to be
appropriated from the General Fund by $84.7 million.

The fiscal 1997 budget is based on the presumption that federally enacted
reforms to Medicaid will raise the federal reimbursement percentage for those
costs to 57% from an approximate 53% rate for fiscal 1996. The higher
reimbursement rate was anticipated to provide an additional $260 million of
federal funds during fiscal 1997 and enable the Commonwealth to reduce its
appropriations for the medical assistance program by a like amount for fiscal
1997. However, the U.S. Congress has not approved the legislation making these
changes and current expectations are that additional federal funds will not be
available at the time and in the amount as anticipated in the approved fiscal
1997 budget. The Commonwealth expected to use intergovernmental transfer funds
obtained through a pooling transaction to help make up for the loss of this
funding.

The fiscal 1997 budget assumes a drawdown of the $156.3 million fiscal
year beginning unappropriated surplus to fund the enacted level of
appropriations within the current estimate of revenues. Actual Commonwealth
revenues for the fiscal year through January 1997 are $189.2 million above
estimates levels, and could be significantly higher by the end of the fiscal
year. The higher than estimated revenues are attributed to economic conditions
in the nation and the state exceeding the projections used to project revenues.

On February 4, 1997, the Governor presented his proposed budget for
fiscal 1998. Total Commonwealth revenues in the proposed budget, before
reductions for refunds and proposed tax changes, are estimated to be $17,339.2
million, 2.4% above revised estimates for fiscal 1997. Proposed appropriations
total $16,915.7 million, a 2.7% increase over currently estimated fiscal 1997
appropriates. The proposed fiscal 1998 budget assumes the drawdown of the
currently estimated $177.6 million unappropriated surplus at June 30, 1997. Four
tax law proposals and a proposed increase transfer of taxes to a special purpose
are included in the proposed budget. Together these items are estimated to
reduce fiscal 1998 revenues by $66.9 million. All require legislative enactment.

A disaster emergency was declared by the Governor and a federal major
disaster declaration was made by the President of the United States for certain
counties in the Commonwealth for a blizzard and subsequent flooding in January
1996. Substantial damage to public and private facilities occurred and many
municipalities' financial resources have been strained by the costs of
responding to these weather-related conditions. Legislation was enacted that
authorized $110 million of general obligation debt to provide for the state's
share of the required match for federal public assistance and disaster
mitigation funds. The legislation also appropriated $13 million from tax amnesty
receipts to fund the state match for the federal individual assistance program,
and authorized the use of current motor license fund revenues for capital
projects to repair flood damaged state highways and bridges.

Pennsylvania has historically been identified as a heavy industry state
although that reputation has changed over the last thirty years as the coal,
steel and railroad industries declined and the Commonwealth's business
environment readjusted to reflect a more diversified industrial base. The
economic readjustment was a direct result of a long-term shift in jobs,
investment and workers away from the northeast part of the nation. Currently,
the major

-91-

<PAGE>

(SAI-PA/PART B)

source of growth in Pennsylvania are in the service sector, including trade,
medical and the health services, education and financial institutions.
Non-agricultural employment in Pennsylvania over the last ten years increased at
an annual rate of 1.02%. This compares to a .36% for the Middle Atlantic region
and 1.8% for the United States as a whole during the period 1986 through 1995.
For the last three years, employment in the Commonwealth has increased 3.4%, as
compared to 2.9% growth in the Middle Atlantic region. The unemployment rate in
Pennsylvania for January, 1997 stood at a seasonably adjusted rate of 4.7%. The
seasonably adjusted national unemployment rate for January, 1997 was 5.4%.

The current Constitutional provisions pertaining to Commonwealth debt
permit the issuance of the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by disaster; (ii)
electorate-approved debt; (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years; and (iv) tax anticipation notes payable in the
fiscal year of issuance. All debt except tax anticipation notes must be
amortized in substantial and regular amounts.

Debt service on all bonded indebtedness of Pennsylvania, except that
issued for highway purposes or the benefit of other special revenue funds, is
payable from Pennsylvania's General Fund, which receives all Commonwealth
revenues that are not specified by law to be deposited elsewhere. As of June 30,
1996, the Commonwealth had $5,054.5 million of general obligation debt
outstanding.

Other state-related obligations include "moral obligations." Moral
obligation indebtedness may be issued by the Pennsylvania Housing Finance Agency
("PHFA"), a state agency which provides financing for housing for lower and
moderate income families, and The Hospitals and Higher Education Facilities
Authority of Philadelphia, a municipal authority organized by the City of
Philadelphia to, among other things, acquire and prepare various sites for use
as intermediate care facilities for the mentally handicapped. PHFA's bonds, but
not its notes, are partially secured by a capital reserve fund required to be
maintained by PHFA in an amount equal to the maximum annual debt service on its
outstanding bonds in any succeeding calendar year. PHFA is not permitted to
borrow additional funds as long as any deficiency exists in the capital reserve
fund.

The Commonwealth, through several of its departments and agencies, has
entered into various agreements to lease, as lessee, certain real property and
equipment, and to make lease payments for the use of such property and
equipment. Some of these leases and their respective lease payments are, with
Commonwealth approval, pledged as security for debt obligations issued by
certain public authorities and other entities within the state. All lease
payments due from Commonwealth departments and agencies are subject to and
dependent upon an annual spending authorization approved through the
Commonwealth's annual budget process. The Commonwealth is not required by law to
appropriate or otherwise provide monies from which the lease payments are to be
made. The obligations to be paid from such lease payments are not bonded debt of
the Commonwealth.

Certain state-created agencies have statutory authorization to incur debt
for which state appropriations to pay debt service thereon is not required. The
debt of these agencies is supported by assets of, or revenues derived from, the
various projects financed and is not an obligation of the Commonwealth. Some of
these agencies, however, are indirectly dependent on Pennsylvania
appropriations. In addition, the Commonwealth maintains pension plans covering
state employees, public school employees and employees of certain state-related
organizations. For their fiscal years ended in 1994 the State Employees'
Retirement System had a $249 million surplus and the Public School Employees'
Retirement System had a total unfunded actuarial accrued liability of $3,797
million.

The City of Philadelphia is the largest city in the Commonwealth with an
estimated population of 1,585,577 according to the 1990 Census. Legislation
providing for the establishment of Pennsylvania Intergovernmental Cooperation
Authority ("PICA") to assist Philadelphia in remedying fiscal emergencies was
enacted by the Pennsylvania General Assembly and approved by the Governor in
June 1991. PICA is designed to provide

-92-

<PAGE>

(SAI-PA/PART B)

assistance through the issuance of funding debt and to make factual findings and
recommendations to Philadelphia concerning its budgetary and fiscal affairs. At
this time, Philadelphia is operating under a five year fiscal plan approved by
PICA on April 30, 1996.

-93-

<PAGE>

(SAI-PA/PART B)

PICA has issued $1.76 billion of its Special Tax Revenue Bonds. This
financial assistance has included the refunding of certain general obligation
bonds, funding of capital projects and the liquidation of the cumulative General
Fund balance deficit as of June 30, 1992 of $224.9 million. The audited General
Fund balance of Philadelphia as of June 30, 1996 shows a surplus of
approximately $118.5 million, up from approximately $80.5 million as of June 30,
1995.

No further bonds are to be issued by PICA for the purpose of financing a
capital project or deficit as the authority for such bond sales expired December
31, 1994. PICA's authority to issue debt for the purpose of financing a cash
flow deficit expired on December 31, 1996. Its ability to refund existing
outstanding debt is unrestricted. PICA had $1,146.2 million in special revenue
bonds outstanding as of June 30, 1996.

There is various litigation pending against the Commonwealth, its
officers and employees. In 1978, the Pennsylvania General Assembly approved a
limited waiver of sovereign immunity. Damages for any loss are limited to
$250,000 for each person and $1 million for each accident. The Supreme Court
held that this limitation is constitutional. Approximately 3,500 suits against
the Commonwealth are pending, some of which, if decided adversely to the
Commonwealth, could have a material adverse impact on governmental operations.

-94-

<PAGE>

(SAI-PA/PART B)

FINANCIAL STATEMENTS

Ernst & Young LLP serves as the independent auditors for each Fund and,
in its capacity as such, audits the annual financial statements contained in the
Trust's Annual Report. Pennsylvania Fund's Statement of Net Assets, Statement of
Operations, Statements of Changes in Net Assets, and Notes to Financial
Statements, as well as the report of Ernst & Young LLP, independent auditors,
for the fiscal year ended February 28, 1997, are included in the Fund's Annual
Report to shareholders. The financial statements, the notes relating thereto and
the report of Ernst & Young LLP listed above are incorporated by reference from
the Annual Report into this Part B. New Jersey Fund and Ohio Fund were not
offered prior to the date of this Part B.

-95-

<PAGE>

(SAI-PA/PART B)

The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, national and state-specific funds,
tax-free funds, money market funds, global and international funds and
closed-end equity funds give investors the ability to create a portfolio that
fits their personal financial goals. For more information, contact your
financial adviser or call Delaware Group at 800-523-4640.

INVESTMENT MANAGER
Delaware Management Company, Inc.
One Commerce Square
Philadelphia, PA 19103

NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
1818 Market Street
Philadelphia, PA 19103

SHAREHOLDER SERVICING,
DIVIDEND DISBURSING,
ACCOUNTING SERVICES
AND TRANSFER AGENT
Delaware Service Company, Inc.
1818 Market Street
Philadelphia, PA 19103

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
One Commerce Square
Philadelphia, PA 19103

INDEPENDENT AUDITORS
Ernst & Young LLP
Two Commerce Square
Philadelphia, PA 19103

CUSTODIAN
Bankers Trust Company
One Bankers Trust Plaza
New York, NY 10006

<PAGE>

- ------------------------------------------------------------

DELAWARE GROUP

- ------------------------------------------------------------

STATE TAX-FREE INCOME TRUST

- ------------------------------------------------------------

TAX-FREE NEW JERSEY FUND

- ------------------------------------------------------------

TAX-FREE OHIO FUND

- ------------------------------------------------------------

TAX-FREE PENNSYLVANIA FUND

- ------------------------------------------------------------

PART B

STATEMENT OF
ADDITIONAL INFORMATION

- ---------------------------------------------------------

SEPTEMBER 2, 1997

DELAWARE
GROUP
--------

<PAGE>

PART C

Other Information

Item 24. Financial Statements and Exhibits

(a) Financial Statements:

Part A - Financial Highlights

*Part B - Statement of Net Assets
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Accountant's Report

* The financial statements and Accountant's Report for
Tax-Free Pennsylvania Fund listed above are incorporated
by reference into Part B from the Registrant's Annual
Report for the fiscal year ended February 28, 1997.

(b) Exhibits:

(1) Declaration of Trust.

(a) Declaration of Trust, as amended
through November 27, 1995,
incorporated into this filing by
reference to Post-Effective Amendment
No. 35 filed November 27, 1995.

(b) Amendment to Declaration of Trust
(July 17,1997) attached as Exhibit.

(2) Procedural Guidelines.

(a) Procedural Guidelines, as amended
through November 27, 1995 incorporated
into this filing by reference to
Post-Effective Amendment No. 34 filed
April 28, 1995.

(b) Amendment to Procedural Guidelines
(April 1995) incorporated into this
filing by reference to Post-Effective
Amendment No. 35 filed November 27,
1995.

(3) Voting Trust Agreement. Inapplicable.

<PAGE>

PART C - Other Information
(Continued)

(4) Copies of All Instruments Defining the
Rights of Holders.

(a) Declaration of Trust. Articles V
and IX of the Declaration of Trust
(February 28, 1977) and Article V,
as amended (February 17, 1994), of
the Declaration of Trust
incorporated into this filing by
reference to Post-Effective
Amendment No. 35 filed November 27,
1995.

(i) Amendment to Declaration of
Trust (July 17, 1997)
attached as Exhibit
24(B)(1)(b).

(b) Procedural Guidelines. Articles II,
IV, as amended, and VII of the
Procedural Guidelines incorporated
into this filing by reference to
Post-Effective Amendment No. 34
filed April 28, 1995.

(5) Investment Management Agreement.

(a) Investment Management Agreement (April
3, 1995) between Delaware Management
Company, Inc. and the Registrant on
behalf of Tax-Free Pennsylvania Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 34 filed April 28, 1995.

(b) Proposed Investment Management
Agreements (1997) between Delaware
Management Company, Inc. and the
Registrant on behalf of Tax-Free New
Jersey Fund and Tax-Free Ohio Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 38 filed June 16, 1997.

(6) (a) Distribution Agreement.

(i) Form of Distribution
Agreement (April 1995) on
behalf of Tax-Free
Pennsylvania Fund
incorporated into this
filing by reference to
Post- Effective Amendment
No. 35 filed November 27,
1995.

(ii) Proposed Distribution
Agreements (1997) between
Delaware Distributors, L.P.
and the Registrant on
behalf of Tax-Free New
Jersey Fund and Tax-Free
Ohio Fund (Module)
incorporated into this
filing by reference to
Post-Effective Amendment
No. 38 filed June 16, 1997.

(iii) Form of Amendment No. 1 to
Distribution Agreement
(November 1995) on behalf
of Tax-Free Pennsylvania
Fund incorporated into this
filing by reference to
Post-Effective Amendment
No. 35 filed November 27,
1995.

(b) Administration and Service Agreement.
Form of Administration and Service
Agreement (as amended November 1995)
incorporated into this filing by
reference to Post-Effective Amendment
No. 35 filed November 27, 1995.

<PAGE>

PART C - Other Information
(Continued)

(c) Dealer's Agreement. Dealer's Agreement
(as amended November 1995)
incorporated into this filing by
reference to Post-Effective Amendment
No. 35 filed November 27, 1995.

(d) Mutual Fund Agreement for the Delaware
Group of Funds (as amended November
1995) (Module) incorporated into this
filing by reference to Post- Effective
Amendment No. 36 filed April 29, 1996.

(7) Bonus, Profit Sharing, Pension Contracts.

(a) Amended and Restated Profit Sharing
Plan (November 17, 1994) incorporated
into this filing by reference to
Post-Effective Amendment No. 34 filed
April 28, 1995.

(b) Amendment to Profit Sharing Plan
(December 21, 1995) (Module)
incorporated into this filing by
reference to Post-Effective Amendment
No. 36 filed April 29, 1996.

(8) Custodian Agreement.

(a) Form of Custodian Agreement (May 1996)
between Bankers Trust Company and the
Registrant on behalf of Tax-Free
Pennsylvania Fund incorporated into
this filing by reference to
Post-Effective Amendment No. 37 filed
April 29, 1997.

(b) Form of Custodian Agreement (1997)
between Bankers Trust Company and the
Registrant on behalf of Tax-Free New
Jersey Fund and Tax-Free Ohio Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 38 filed June 16, 1997.

(9) Other Material Contracts.

(a) Shareholders Services Agreement (June
29, 1988) between Delaware Service
Company, Inc. and the Registrant on
behalf of Tax-Free Pennsylvania Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 37 filed April 29, 1997.

(b) Form of Amended and Restated
Shareholders Services Agreement (1997)
(Module) between Delaware Service
Company, Inc. and the Registrant on
behalf of each Fund incorporated into
this filing by reference to
Post-Effective Amendment No. 38 filed
June 16, 1997.

(c) Form of Fund Accounting Agreement
(1997) (Module) between Delaware
Service Company, Inc. and the
Registrant on behalf of each Fund
incorporated into this filing by
reference to Post-Effective Amendment
No. 38 filed June 16, 1997.

<PAGE>

PART C - Other Information
(Continued)

(i) Executed Amendment No. 4A
(April 14, 1997) to
Delaware Group of Funds
Fund Accounting Agreement
attached as Exhibit.

(ii) Executed Amendment No. 5
(May 1, 1997) to Delaware
Group of Funds Fund
Accounting Agreement
attached as Exhibit.

(iii) Executed Amendment No. 6
(July 21, 1997) to Delaware
Group of Funds Fund
Accounting Agreement
attached as Exhibit.

(10) Opinion of Counsel. Filed with letter
relating to Rule 24f-2 on April 21, 1997.

(11) Consent of Auditors. Attached as Exhibit.

(12-14) Inapplicable.

(15) Plans under Rule 12b-1.

(a) Form of Plan under Rule 12b-1 for
Class A (November 1995) on behalf
of Tax-Free Pennsylvania Fund
incorporated into this filing by
reference to Post- Effective
Amendment No. 35 filed November 27,
1995.

(b) Form of Plan under Rule 12b-1 for
Class B (November 1995) on behalf
of Tax-Free Pennsylvania Fund
incorporated into this filing by
reference to Post- Effective
Amendment No. 35 filed November 27,
1995.

(c) Form of Plan under Rule 12b-1 for
Class C (November 1995) on behalf
of Tax-Free Pennsylvania Fund
incorporated into this filing by
reference to Post- Effective
Amendment No. 35 filed November 27,
1995.

(d) Proposed Plan under Rule 12b-1 for
Class A (1997) (Module) on behalf
of Tax- Free New Jersey Fund and
Tax-Free Ohio Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 38
filed June 16, 1997.

(e) Proposed Plan under Rule 12b-1 for
Class B (1997) (Module) on behalf
of Tax- Free New Jersey Fund and
Tax-Free Ohio Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 38
filed June 16, 1997.

<PAGE>

PART C - Other Information
(Continued)

(f) Proposed Plan under Rule 12b-1 for
Class C (1997) (Module) on behalf
of Tax- Free New Jersey Fund and
Tax-Free Ohio Fund incorporated
into this filing by reference to
Post-Effective Amendment No. 38
filed June 16, 1997.

(16) Schedules of Computation for each
Performance Quotation. Incorporated into
this filing by reference to Post-Effective
Amendment No. 34 filed April 28, 1995, Post-
Effective Amendment No. 35 filed November
27, 1995, Post-Effective Amendment No. 36
filed April 30, 1996 and Post-Effective
Amendment No. 37 filed April 29, 1997.

(17) Financial Data Schedules. Incorporated into
this filing by reference to Post-Effective
Amendment No. 37 filed April 29, 1997.

(18) Inapplicable.

(19) Other: Trustees' Power of Attorney.

(a) Incorporated into this filing by
reference to Post-Effective Amendment
No. 34 filed April 28, 1995.

(b) Power of Attorney for Thomas F.
Madison and Jeffrey J. Nick
incorporated into this filing by
reference to Post-Effective Amendment
No. 38 filed June 16, 1997.

Item 25. Persons Controlled by or under Common Control with
Registrant. None.

Item 26. Number of Holders of Securities.

(1) (2)

Number of
Title of Class Record Holders
-------------- --------------

DMC Tax-Free Income Trust - Pennsylvania's:

Tax-Free Pennsylvania Fund A Class
Shares of Beneficial Interest 20,705 Accounts as of
with No Par Value Per Share July 31, 1997

Tax-Free Pennsylvania Fund B Class
Shares of Beneficial Interest 1,117 Accounts as of
with No Par Value Per Share July 31, 1997

<PAGE>

PART C - Other Information
(Continued)

(1) (2)

Number of
Title of Class Record Holders*
-------------- ---------------

Tax-Free Pennsylvania Fund C Class
Shares of Beneficial Interest 55 Accounts as of
with No Par Value Per Share July 31, 1997

DMC Tax-Free Income Trust - Pennsylvania's:

Tax-Free New Jersey Fund A Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share July 31, 1997

Tax-Free New Jersey Fund B Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share July 31, 1997

Tax-Free New Jersey Fund C Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share July 31, 1997

DMC Tax-Free Income Trust - Pennsylvania's:

Tax-Free Ohio Fund A Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share July 31, 1997

Tax-Free Ohio Fund B Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share July 31, 1997

Tax-Free Ohio Fund C Class
Shares of Beneficial Interest 0 Accounts as of
with No Par Value Per Share July 31, 1997

* Shares of Tax-Free New Jersey Fund and Tax-Free Ohio Fund were not
offered prior to the effective date of this Registration Statement.

<PAGE>

PART C - Other Information
(Continued)

Item 27. Indemnification. Incorporated into this filing by reference
to Post-Effective Amendment No. 10 filed May 12, 1980.

Item 28. Business and Other Connections of Investment Adviser.

Delaware Management Company, Inc. (the "Manager") serves as investment
manager to the Registrant and also serves as investment manager or sub-adviser
to certain of the other funds in the Delaware Group (Delaware Group Equity Funds
I, Inc., Delaware Group Equity Funds II, Inc., Delaware Group Trend Fund, Inc.,
Delaware Group Equity Funds IV, Inc., Delaware Group Equity Funds V, Inc.,
Delaware Group Government Fund, Inc., Delaware Group Limited-Term Government
Funds, Inc., Delaware Group Cash Reserve, Inc., Delaware Group Tax-Free Fund,
Inc., DMC Tax-Free Income Trust-Pennsylvania, Delaware Group Tax-Free Money
Fund, Inc., Delaware Group Premium Fund, Inc., Delaware Group Global &
International Funds, Inc., Delaware Pooled Trust, Inc., Delaware Group Adviser
Funds, Inc., Delaware Group Dividend and Income Fund, Inc., Delaware Group
Global Dividend and Income Fund, Inc., Voyageur Tax-Free Funds, Inc., Voyageur
Intermediate Tax-Free Funds, Inc., Voyageur Insured Funds, Inc., Voyageur Funds,
Inc., Voyageur Investment Trust, Voyageur Investment Trust II, Voyageur Mutual
Funds, Inc., Voyageur Mutual Funds II, Inc., Voyageur Mutual Funds III, Inc.,
Voyageur Arizona Municipal Income Fund, Inc., Voyageur Colorado Insured
Municipal Income Fund, Inc., Voyageur Florida Insured Municipal Income Fund,
Voyageur Minnesota Municipal Fund, Inc., Voyageur Minnesota Municipal Fund II,
Inc. and Voyageur Minnesota Municipal Fund III, Inc.) and provides investment
advisory services to institutional accounts, primarily retirement plans and
endowment funds. In addition, certain directors of the Manager also serve as
directors/trustees of the other Delaware Group funds, and certain officers are
also officers of these other funds. A company owned by the Manager's parent
company acts as principal underwriter to the mutual funds in the Delaware Group
(see Item 29 below) and another such company acts as the shareholder services,
dividend disbursing, accounting servicing and transfer agent for all of the
mutual funds in the Delaware Group.

The following persons serving as directors or officers of the Manager have
held the following positions during the past two years:
<TABLE>
<CAPTION>

Name and Principal Positions and Offices with the Manager and its
Business Address * Affiliates and Other Positions and Offices Held
- ------------------ -----------------------------------------------

<S> <C>
Wayne A. Stork Chairman of the Board, President, Chief Executive Officer, Chief Investment
Officer and Director of Delaware Management Company, Inc.; Chairman of the
Board, President, Chief Executive Officer and Director of the Registrant, each of
the other funds in the Delaware Group, Delaware Management Holdings, Inc.,
DMH Corp., Delaware International Holdings Ltd. and Founders Holdings, Inc.;
Chairman of the Board and Director of Delaware Distributors, Inc. and Delaware
Capital Management, Inc.; Director of Delaware Service Company, Inc. and Delaware
Investment & Retirement Services, Inc.; and Chairman, Chief Executive Officer and
Director of Delaware International Advisers Ltd.

</TABLE>

* Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

<S> <C>
Richard G. Unruh, Jr. Executive Vice President and Director of Delaware Management Company, Inc.;
Executive Vice President of the Registrant, each of the other funds in the
Delaware Group and Delaware Management Holdings, Inc; Executive Vice
President of Delaware Capital Management, Inc; and Director of Delaware
International Advisers Ltd.

Board of Directors, Chairman of Finance Committee, Keystone Insurance Company
since 1989, 2040 Market Street, Philadelphia, PA; Board of Directors,
Chairman of Finance Committee, AAA Mid Atlantic, Inc. since 1989, 2040 Market
Street, Philadelphia, PA; Board of Directors, Metron, Inc. since 1995, 11911
Freedom Drive, Reston, VA

Paul E. Suckow Executive Vice President/Chief Investment Officer, Fixed Income of Delaware
Management Company, Inc., the Registrant, each of the other funds in the
Delaware Group and Delaware Management Holdings, Inc.; Executive Vice
President and Director of Founders Holdings, Inc.; Executive Vice President
of Delaware Capital Management, Inc.; and Director of Founders CBO
Corporation

Director, HYPPCO Finance Company Ltd.

David K. Downes Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Director of Delaware Management Company,Inc., DMH Corp, Delaware
Distributors, Inc., Founders Holdings, Inc. and Delaware International Holdings
Ltd.; Executive Vice President, Chief Operating Officer and Chief Financial
Officer of the Registrant and each of the other funds in the Delaware Group,
Delaware Management Holdings, Inc., Founders CBO Corporation, Delaware
Capital Management, Inc. and Delaware Distributors, L.P.; President, Chief
Executive Officer, Chief Financial Officer and Director of Delaware Service
Company, Inc.; Chairman, Chief Executive Officer and Director of Delaware
Investment & Retirement Services, Inc. and Delaware Management Trust
Company; and Director of Delaware International Advisers Ltd.

Chief Executive Officer and Director of Forewarn, Inc. since 1993, 8 Clayton
Place, Newtown Square, PA

</TABLE>

* Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

<S> <C>

George M. Senior Vice President, General Counsel, Secretary and Director of
Chamberlain, Jr. Delaware Management Company, Inc., DMH Corp., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Founders Holdings, Inc., Delaware Capital
Management, Inc. and Delaware Investment & Retirement Services, Inc.; Senior
Vice President, Secretary and General Counsel of the Registrant, each of the
other funds in the Delaware Group, Delaware Distributors, L.P. and Delaware
Management Holdings, Inc.; Executive Vice President, Secretary, General
Counsel and Director of Delaware Management Trust Company; Secretary and
Director of Delaware International Holdings Ltd.; and Director of Delaware
International Advisers Ltd.

Richard J. Flannery Senior Vice President/Corporate and International Affairs of the Registrant, each
of the other funds in the Delaware Group, Delaware Management Holdings, Inc.,
DMH Corp., Delaware Management Company, Inc., Delaware Distributors, Inc.,
Delaware Distributors, L.P., Delaware Management Trust Company and Delaware
Capital Management, Inc., Delaware Service Company, Inc. and Delaware
Investment & Retirement Services, Inc.; Senior Vice President/ Corporate and
International Affairs and Director of Founders Holdings, Inc. and Delaware
International Holdings Ltd.; Senior Vice President of Founders CBO Corporation;
and Director of Delaware International Advisers Ltd.

Director, HYPPCO Finance Company Ltd.

Limited Partner of Stonewall Links, L.P. since 1991, Bulltown Rd., Elverton, PA;
Director and Member of Executive Committee of Stonewall Links, Inc. since
1991, Bulltown Rd., Elverton, PA

Michael P. Bishof Senior Vice President and Treasurer of the Registrant, each of the other funds in
the Delaware Group, Delaware Distributors, Inc. and Founders Holdings, Inc.;
Senior Vice President/Investment Accounting of Delaware Management
Company, Inc. and Delaware Service company, Inc.; Senior Vice President and
Treasurer/ Manager, Investment Accounting of Delaware Distributors, L.P.;
Assistant Treasurer of Founders CBO Corporation; and Senior Vice President and
Manager of Investment Accounting of Delaware International Holdings Ltd.

</TABLE>

* Business address of each is 1818 Market Street, Philadelphia, PA 19103

<PAGE>

PART C - Other Information
(Continued)

<S> <C>
Joseph H. Hastings Senior Vice President/Corporate Controller and Treasurer of Delaware
Management Holdings, Inc., DMH Corp. and Delaware Management Company,
Inc., Delaware Distributors, Inc., Delaware Capital Management, Inc., Delaware
Distributors, L.P., Delaware Service Company, Inc. and Delaware International
Holdings Ltd.; Senior Vice President/Corporate Controller of the Registrant, each
of the other funds in the Delaware Group and Founders Holdings, Inc.; Executive
Vice President, Chief Financial Officer and Treasurer of Delaware Management
Trust Company; Chief Financial Officer and Treasurer of Delaware Investment &
Retirement Services, Inc.; and Senior Vice President/Assistant Treasurer of
Founders CBO Corporation

Michael T. Taggart Senior Vice President/Facilities Management and Administrative Services of
Delaware Management Company, Inc.

Douglas L. Anderson Senior Vice President/Operations of Delaware Management Company, Inc.,
Delaware Investment and Retirement Services, Inc. and Delaware Service
Company, Inc.; Senior Vice President/ Operations and Director of Delaware
Management Trust Company

James L. Shields Senior Vice President/Chief Information Officer of Delaware Management
Company, Inc.

Eric E. Miller Vice President, Assistant Secretary and Deputy General Counsel of the Registrant
and each of the other funds in the Delaware Group, Delaware Management
Company, Inc., Delaware Management Holdings, Inc., DMH Corp., Delaware
Distributors, L.P., Delaware Distributors Inc., Delaware Service Company, Inc.,
Delaware Management Trust Company, Founders Holdings, Inc., Delaware
Capital Management, Inc. and Delaware Investment & Retirement Services, Inc.

Richelle S. Maestro Vice President and Assistant Secretary of Delaware Management Company, Inc.,
the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., Delaware Distributors, L.P., Delaware Distributors,
Inc., Delaware Service Company, Inc., DMH Corp., Delaware Management Trust
Company, Delaware Capital Management, Inc., Delaware Investment &
Retirement Services, Inc. and Founders Holdings, Inc.; Secretary of Founders
CBO Corporation; and Assistant Secretary of Delaware International Holdings
Ltd.

Partner of Tri-R Associates since 1989, 10001 Sandmeyer Lane, Philadelphia, PA

Richard Salus/1 Vice President/Assistant Controller of Delaware Management Company, Inc. and
Delaware Management Trust Company

</TABLE>

* Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

<S> <C>
Bruce A. Ulmer Vice President/Director of LNC Internal Audit of Delaware Management Company,
Inc., the Registrant, each of the other funds in the Delaware Group, Delaware
Management Holdings, Inc., DMH Corp., Delaware Management Trust Company and
Delaware Investment & Retirement Services, Inc.

Steven T. Lampe/2 Vice President/Taxation of Delaware Management Company, Inc., the Registrant,
each of the other funds in the Delaware Group, Delaware Management Holdings,
Inc., DMH Corp., Delaware Distributors, L.P., Delaware Distributors, Inc.,
Delaware Service Company, Inc., Delaware Management Trust Company,
Founders Holdings, Inc., Founders CBO Corporation, Delaware Capital
Management, Inc. and Delaware Investment & Retirement Services, Inc.

Christopher Adams/3 Vice President/Strategic Planning of Delaware Management Company, Inc.

Susan L. Hanson Vice President/Strategic Planning of Delaware Management Company, Inc.

Dennis J. Mara/4 Vice President/Acquisitions of Delaware Management Company, Inc.

Scott Metzger Vice President/Business Development of Delaware Management Company, Inc.

Lisa O. Brinkley Vice President/Compliance of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, DMH Corp., Delaware
Distributors, L.P., Delaware Distributors, Inc., Delaware Service Company,
Inc., Delaware Management Trust Company, Delaware Capital Management, Inc. and
Delaware Investment & Retirement Services, Inc.

Rosemary E. Milner Vice President/Legal Registrations of Delaware Management Company, Inc., the
Registrant, each of the other funds in the Delaware Group, Delaware Distributors,
L.P. and Delaware Distributors, Inc.

Gerald T. Nichols Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.,
the Registrant, each of the tax-exempt funds, the fixed income funds and the
closed-end funds in the Delaware Group; Vice President of Founders Holdings,
Inc.; and Treasurer, Assistant Secretary and Director of Founders CBO
Corporation

Paul A. Matlack Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.
and each of the tax-exempt funds, the fixed income funds and the closed-end
funds in the Delaware Group; Vice President of Founders Holdings, Inc.; and
President and Director of Founders CBO Corporation.

Gary A. Reed Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.,
each of the tax-exempt funds and the fixed income funds in the Delaware Group
and Delaware Capital Management, Inc.
</TABLE>

* Business address is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)

<S> <C>
Patrick P. Coyne Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.,
the Registrant, each of the tax-exempt funds and the fixed income funds in the
Delaware Group and Delaware Capital Management, Inc.

Roger A. Early Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc.and each of the tax-exempt funds and the fixed income funds in the
Delaware Group

Mitchell L. Conery/5 Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.,
the Registrant and each of the tax-exempt and fixed income funds in the
Delaware Group

George H. Burwell Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.
and each of the equity funds in the Delaware Group

John B. Fields Vice President/Senior Portfolio Manager of Delaware Management Company,
Inc., each of the equity funds in the Delaware Group and Delaware Capital
Management, Inc.
Gerald S. Frey/6 Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.
and each of the equity funds in the Delaware Group

Christopher Beck Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.
and each of the equity funds in the Delaware Group

Elizabeth H. Howell/7 Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.

Andrew M. McCullagh, Jr./8 Vice President/Senior Portfolio Manager of Delaware Management Company, Inc.

Paul Grillo Vice President/Portfolio Manager of Delaware Management Company, Inc. and
each of the tax-exempt and fixed income funds in the Delaware Group

William H. Miller Vice President/Assistant Portfolio Manager of Delaware Management Company,
Inc.
</TABLE>

* Business address of each is 1818 Market Street, Philadelphia, PA 19103.

1 SENIOR MANAGER, Ernst & Young LLP prior to December 1996.

2 TAX MANAGER, Price Waterhouse LLP prior to October 1995.

3 SENIOR ASSOCIATE, FAS, Coopers & Lybrand LLP prior to October 1995.

4 CORPORATE CONTROLLER, IIS prior to July 1997 and DIRECTOR, FINANCIAL
PLANNING, Decision One prior to March 1996.

5 INVESTMENT OFFICER, Travelers Insurance prior to January 1997.

6 SENIOR DIRECTOR, Morgan Grenfell Capital Management prior to June 1996.

7 SENIOR PORTFOLIO MANAGER, Voyageur Fund Managers, Inc. prior to May 1997.

8 SENIOR VICE PRESIDENT/SENIOR PORTFOLIO MANAGER, Voyageur Asset Manager LLC
prior to April 1997.

<PAGE>

PART C - Other Information
(Continued)

Item 29. Principal Underwriters.

(a) Delaware Distributors, L.P. serves as
principal underwriter for all the mutual
funds in the Delaware Group.

(b) Information with respect to each director,
officer or partner of principal underwriter:
<TABLE>
<CAPTION>

Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------

<S> <C> <C>
Delaware Distributors, Inc. General Partner None

Delaware Management
Company, Inc. Limited Partner Investment Manager

Delaware Capital
Management, Inc. Limited Partner None

Bruce D. Barton President and Chief Executive None
Officer

David K. Downes Senior Vice President, Executive Vice
Chief Administrative Officer President/Chief
and Chief Financial Officer Operating Officer/
Chief Financial Officer

George M. Chamberlain, Jr. Senior Vice President/Secretary/ Senior Vice President/
General Counsel Secretary/General Counsel

Terrence P. Cunningham Senior Vice President/ Financial None
Institutions

Thomas E. Sawyer Senior Vice President/ None
National Sales Director

Dana B. Hall Senior Vice President/ None
Key Accounts

Mac McAuliffe Senior Vice President/Sales None
Manager, Western Division

William F. Hostler Senior Vice President/ None
Marketing Services

J. Chris Meyer Senior Vice President/ None
Director Product Management
</TABLE>

* Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)
<TABLE>
<CAPTION>

Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------

<S> <C> <C>
Stephen H. Slack Senior Vice President/Wholesaler None

William M. Kimbrough Senior Vice President/Wholesaler None

Daniel J. Brooks Senior Vice President/Wholesaler None

Richard J. Flannery Senior Vice President/Corporate Senior Vice President/
and International Affairs Corporate and International Affairs

Bradley L. Kolstoe Senior Vice President/Western None
Division Sales Manager

Henry W. Orvin Senior Vice President/Eastern None
Division Sales Manager - Wire/
Regional Channel

Michael P. Bishof Senior Vice President and Senior Vice
Treasurer/Manager President/Treasurer
Investment Accounting

Eric E. Miller Vice President/Assistant Secretary/ Vice President/
Deputy General Counsel Assistant Secretary/
Deputy General Counsel

Richelle S. Maestro Vice President/ Vice President/
Assistant Secretary Assistant Secretary

Steven T. Lampe Vice President/Taxation Vice President/Taxation

Joseph H. Hastings Vice President/Corporate Senior Vice President/
Controller & Treasurer Corporate Controller

Lisa O. Brinkley Vice President/Compliance Vice President/ Compliance

Rosemary E. Milner Vice President/Legal Registrations Vice President/Legal Registrations

Daniel H. Carlson Vice President/Strategic Marketing None

Diane M. Anderson Vice President/Plan Record Keeping None
and Administration

Anthony J. Scalia Vice President/Defined Contribution None
Sales, Southwest Territory
</TABLE>

* Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)
<TABLE>
<CAPTION>

Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Courtney S. West Vice President/Defined Contribution None
Sales, Northeast Territory

Denise F. Guerriere Vice President/Client Services None

Gordon E. Searles Vice President/Client Services None

Julia R. Vander Els Vice President/Participant Services None

Jerome J. Alrutz Vice President/Retail Sales None

Joanne A. Mettenheimer Vice President/New Business None
Development

Scott Metzger Vice President/Business Vice President/Business
Development Development

Stephen C. Hall Vice President/Institutional Sales None

Gregory J. McMillan Vice President/National Accounts None

Christopher H. Price Vice President/Manager, None
Insurance

Stephen J. DeAngelis Vice President/Product None
Development

Zina DeVassal Vice President/Financial Institutions None

Andrew W. Whitaker Vice President/Financial Institutions None

Jesse Emery Vice President/ Marketing None
Communications

Darryl S. Grayson Vice President, Broker/Dealer None
Internal Sales

Susan T. Friestedt Vice President/Client Service None

Dinah J. Huntoon Vice President/Product None
Manager Equity

Soohee Lee Vice President/Fixed Income None
Product Management

</TABLE>

* Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)
<TABLE>
<CAPTION>

Name and Principal Positions and Offices Positions and Offices
Business Address * with Underwriter with Registrant
- ------------------ ---------------- ---------------
<S> <C> <C>
Michael J. Woods Vice President/ UIT Product None
Management

Ellen M. Krott Vice President/Marketing None

Dale L. Kurtz Vice President/Marketing Support None

Holly W. Reimel Vice President/Manager, None
Key Accounts

David P. Anderson Vice President/Wholesaler None

Lee D. Beck Vice President/Wholesaler None

Gabriella Bercze Vice President/Wholesaler None

Terrence L. Bussard Vice President/Wholesaler None

William S. Carroll Vice President/Wholesaler None

William L. Castetter Vice President/Wholesaler None

Thomas J. Chadie Vice President/Wholesaler None

Thomas C. Gallagher Vice President/Wholesaler None

Douglas R. Glennon Vice President/Wholesaler None

Ronald A. Haimowitz Vice President/Wholesaler None

Christopher L. Johnston Vice President/Wholesaler None

Michael P. Jordan Vice President/Wholesaler None

Jeffrey A. Keinert Vice President/Wholesaler None

Thomas P. Kennett Vice President/ Wholesaler None

Debbie A. Marler Vice President/Wholesaler None

Nathan W. Medin Vice President/Wholesaler None

Roger J. Miller Vice President/Wholesaler None

</TABLE>

* Business address of each is 1818 Market Street, Philadelphia, PA 19103.

<PAGE>

PART C - Other Information
(Continued)
<TABLE>
<CAPTION>

Stephen C. Nell Vice President/Wholesaler None

Julia A. Nye Vice President/Wholesaler None

Joseph T. Owczarek Vice President/Wholesaler None

Marey Ellen Pernice-Fadden Vice President/Wholesaler None

Mark A. Pletts Vice President/Wholesaler None

Philip G. Rickards Vice President/Wholesaler None

Laura E. Roman Vice President/Wholesaler None

Linda Schulz Vice President/Wholesaler None

Edward B. Sheridan Vice President/Wholesaler None

Robert E. Stansbury Vice President/Wholesaler None

Julia A. Stanton Vice President/Wholesaler None

Larry D. Stone Vice President/Wholesaler None

Edward J. Wagner Vice President/Wholesaler None

Wayne W. Wagner Vice President/Wholesaler None

Scott Whitehouse Vice President/Wholesaler None

John A. Wells Vice President/Marketing None
Technology
</TABLE>

* Business address of each is 1818 Market Street, Philadelphia, PA 19103.

Item 30. Location of Accounts and Records.

All accounts and records are maintained in
Philadelphia at 1818 Market Street, Philadelphia,
PA 19103 or One Commerce Square, Philadelphia, PA
19103.

<PAGE>

PART C - Other Information
(Continued)

Item 31. Management Services. None.

Item 32. Undertakings.

(a) Not Applicable.

(b) The Registrant hereby undertakes to file a
post-effective amendment, using financial
statements which need not be certified,
within four to six months from the initial
public offering of shares of Tax-Free New
Jersey Fund and Tax-Free Ohio Fund.

(c) The Registrant hereby undertakes to
furnish each person to whom a prospectus
is delivered with a copy of the
Registrant's annual report to
shareholders, upon request and without
charge.

(d) The Registrant hereby undertakes to
promptly call a meeting of shareholders
for the purpose of voting upon the
question of removal of any trustee when
requested in writing to do so by the
record holders of not less than 10% of the
outstanding shares.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, this Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in this City of Philadelphia and Commonwealth of Pennsylvania on
this 26th day of August, 1997.

DMC TAX-FREE INCOME TRUST -PENNSYLVANIA

(to be renamed Delaware Group State Tax-Free Income Trust)

By /s/ Wayne A. Stork
---------------------------------
Wayne A. Stork
Chairman of the Board, President,
Chief Executive Officer and Trustee

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>

Signature Title Date
--------- ----- ----

/s/Wayne A. Stork Chairman of the Board, President, August 26, 1997
- ---------------------------------- Chief Executive Officer and Trustee
Wayne A. Stork

/s/David K. Downes Executive Vice President/Chief Operating August 26, 1997
- ---------------------------------- Officer/Chief Financial Officer
David K. Downes (Principal Financial Officer and
Principal Accounting Officer)

/s/Walter P. Babich * Trustee August 26, 1997
- ----------------------------------
Walter P. Babich

/s/Charles E. Peck * Trustee August 26, 1997
- ----------------------------------
Charles E. Peck

/s/Ann R. Leven * Trustee August 26, 1997
- ----------------------------------
Ann R. Leven

/s/Anthony D. Knerr * Trustee August 26, 1997
- ----------------------------------
Anthony D. Knerr

/s/W. Thacher Longstreth * Trustee August 26, 1997
- ----------------------------------
W. Thacher Longstreth

/s/Thomas F. Madison * Trustee August 26, 1997
- ----------------------------------
Thomas F. Madison

/s/Jeffrey J. Nick * Trustee August 26, 1997
- ----------------------------------
Jeffrey J. Nick

*By /s/Wayne A. Stork
-----------------------
Wayne A. Stork
as Attorney-in-Fact
for each of the persons indicated

</TABLE>

<PAGE>

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Exhibits

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

<PAGE>

INDEX TO EXHIBITS

Exhibit No. Exhibit
- ----------- -------

EX-99.B1B Amendment to Declaration of Trust (July 17, 1997)

EX-99.B9CI Executed Amendment No. 4A (April 14, 1997) to
Delaware Group of Funds Fund Accounting Agreement

EX-99.B9CII Executed Amendment No. 5 (May 1, 1997) to Delaware
Group of Funds Fund Accounting Agreement

EX-99.B9CIII Executed Amendment No.6 (July 21, 1997) to Delaware
Group of Funds Fund Accounting Agreement

EX-99.B11 Consent of Auditors

<PAGE>

DMC TAX-FREE INCOME TRUST - PENNSYLVANIA

At a meeting of the Board of Trustees held July 17, 1997, the
following Resolutions amending the Trust Agreement of DMC Tax-Free Income Trust
- - Pennsylvania (the "Fund") were adopted:

Changes in Names

RESOLVED, that, subject to the issuance of beneficial shares
of the Fund designated as a series not related to
Pennsylvania, the name of the Fund shall be changed from "DMC
Tax-Free Income Trust - Pennsylvania" to "Delaware Group
State Tax-Free Income Trust"; and it is further

RESOLVED, that, subject to the issuance of beneficial shares
of the Fund designated as a series not related to
Pennsylvania, the name of the existing series of the Fund
shall be redesignated and changed to "Tax-Free Pennsylvania
Fund"; and it is further

RESOLVED, that the appropriate officers of the Fund are
hereby authorized and directed to prepare, execute and file
with the proceedings of the Trust an amendment to the Amended
and Restated Declaration of Trust relating to the
redesignations and changes in the names of the Fund and the
existing series, and to take such other actions as they may
deem necessary or advisable and proper to accomplish the
intent of the foregoing resolution.

Creation and Designation of an Additional Series and Classes
of Shares

WHEREAS, pursuant to Section 5.1 of Article V of the Amended
and Restated Declaration of Trust, the beneficial interest of
the Fund is divided into an unlimited number of transferable
beneficial shares and the Board of Trustees may authorize the
division of such shares into separate series and the division
of such series into separate classes, with such
characteristics as the Board of Trustees may determine in the
absence of a contrary determination set forth in the Amended
and Restated Declaration of Trust; and

WHEREAS, the Board of Trustees has previously approved the
establishment of a multiple class system for the Fund; and

WHEREAS, Delaware Management Company, Inc. (the
"Manager" or "Delaware Management") and Delaware

<PAGE>

Distributors, L.P. (the "Distributor") have recommended to
the Board of Trustees that two additional series of the Fund
be established, as hereinafter described, and that each
series offer for sale to the public three classes of shares;

NOW, THEREFORE, IT IS RESOLVED, that two additional series of
beneficial shares of the Fund are hereby established and
designated as the Tax-Free Ohio Fund series and the Tax-Free
New Jersey Fund series, each of which shall comprise an
unlimited number of beneficial shares; and it is further

RESOLVED, that the shares of the Tax-Free Ohio Fund series
(the "Tax-Free Ohio Fund Shares") shall be further divided
into three classes (each a "Tax-Free Ohio Fund Class" and
collectively, the "Tax-Free Ohio Fund Classes"), with an
unlimited number of shares allocated to each class, and the
classes shall be designated as follows: Tax-Free Ohio Fund
Class A; Tax-Free Ohio Fund Class B; and Tax-Free Ohio Fund
Class C; and it is further

RESOLVED, that the shares of the Tax-Free New Jersey Fund
series (the "Tax-Free New Jersey Fund Shares") shall be
further divided into three classes (each a "Tax-Free New
Jersey Fund Class" and collectively, the "Tax-Free New Jersey
Fund Classes"), with an unlimited number of shares allocated
to each class, and the classes shall be designated as
follows: Tax-Free New Jersey Fund Class A; Tax-Free New
Jersey Fund Class B; and Tax-Free New Jersey Fund Class C;
and it is further

RESOLVED, that the holders of the Shares of the Tax-Free Ohio
Fund Classes and the Tax-Free New Jersey Fund Classes
(individually, a "Class" and collectively, the "Classes")
shall have the rights and limitations as set forth in Section
5.1 of Article V of the Amended and Restated Declaration of
Trust; except that (i) dividends paid on the Shares of each
Class shall reflect reductions for payments of fees under the
Distribution Plan, if any, relating to the Shares of such
Class adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended, (the "1940 Act") and shall
not reflect reductions for payments of fees under any
Distribution Plan relating to any other Class; and (ii) only
the Shares of each Class shall be entitled to vote upon or
with respect to any matter relating to or arising from the
Distribution Plan relating to such Class and shall not be
entitled to vote upon or with respect to any matter relating
to or arising from any Distribution Plan relating to any
other Class; and it is further

<PAGE>

RESOLVED, that each share of the Tax-Free Ohio Fund Class B
and the Tax-Free New Jersey Fund Class B (collectively, the
"B Class"), other than shares described in the next following
resolution, shall be converted automatically, and without any
action or choice on the part of the holder thereof, into
shares of the Tax-Free Ohio Fund Class A and the Tax-Free New
Jersey Fund Class A, respectively, (collectively, the "A
Class") on the Conversion Date. The term "Conversion Date"
when used herein shall mean either (i) the date that is the
last business day of the second full week of March, June,
September and December following the eighth anniversary date
of the date of issuance of the share, or (ii) any such other
date as may be determined by the Board of Trustees and set
forth in the Trust's prospectus, as such prospectus may be
amended from time to time; provided that any such other date
determined by the Board of Trustees shall be a date that will
occur prior to the date set forth in clause (i) and any such
other date theretofore determined by the Board of Trustees
pursuant to this clause (ii). For the purpose of calculating
the holding period required for conversion, the date of
issuance of a share of the B Class shall mean (i) in the case
of a share of the B Class obtained by the holder thereof
through an original subscription to the Trust, the date of
the issuance of such share of the B Class, or (ii) in the
case of a share of the B Class obtained by the holder thereof
through an exchange, or through a series of exchanges, as
permitted by the Trust as provided in the Trust's prospectus,
as such prospectus may be amended from time to time, from
another investment company (an "eligible investment
company"), the date of issuance of the share of the eligible
investment company to which the holder originally subscribed;
and it is further

RESOLVED, that each share of the B Class (i) purchased
through the automatic reinvestment of a dividend or
distribution with respect to the B Class or (ii) issued
pursuant to an exchange privilege granted by the Trust in an
exchange or series of exchanges for shares originally
purchased through the automatic reinvestment of a dividend or
distribution with respect to shares of capital stock of an
eligible investment company shall be segregated in a separate
sub-account on the share records of the Trust for each of the
holders of record thereof. On any Conversion Date, a number
of the shares held in the separate sub-account of the holder
of record of the share or shares being converted, calculated
in accordance with the next following sentence, shall be
converted automatically, and without any action or choice on
the part of the holder, into shares of the Class A. The
number of shares in the

<PAGE>

holder's separate sub-account so converted shall (i) bear the
same ratio to the total number of shares maintained in the
sub-account on the Conversion Date (immediately prior to
conversion) as the number of shares of the holder converted
on the Conversion Date pursuant to the above resolution bears
to the total number of B Class shares of the holder on the
Conversion Date (immediately prior to conversion) after
subtracting the shares then maintained in the holder's
separate sub-account; or (ii) be such other number as may be
calculated in such other manner as may be determined by the
Board of Trustees and set forth in the Trust's prospectus, as
such prospectus may be amended from time to time; and it is
further

RESOLVED, that the number of shares of the A Class into which
a share of the B Class is converted pursuant to the preceding
resolutions shall equal the number (including for this
purpose fractions of a share) obtained by dividing the net
asset value per share of the B Class for purposes of sales
and redemption thereof on the Conversion Date by the net
asset value per share of the A Class for purposes of sales
and redemption thereof on the Conversion Date; and it is
further

RESOLVED, that on the Conversion Date, the shares of the B
Class converted into shares of A Class will cease to accrue
dividends and will no longer be deemed outstanding and the
rights of the holders thereof (except the right to receive
(i) the number of shares of A Class into which the shares of
the B Class have been converted and (ii) declared but unpaid
dividends to the Conversion Date or such other date as set
forth in the Corporation's prospectus, as such prospectus may
be amended from time to time and (iii) the right to vote
converting shares of the B Class held as of any record date
occurring on or before the Conversion Date and theretofore
set with respect to any meeting held after the Conversion
Date) will cease. Certificates representing shares of the A
Class resulting from the conversion need not be issued until
certificates representing shares of the B Class converted, if
issued, have been received by the Trust or its agent duly
endorsed for transfer; and it is further

RESOLVED, that the automatic conversion of the B Class into A
Class as set forth in the resolutions above shall be
suspended at any time that the Board of Trustees determines
(i) that there is not available a reasonably satisfactory
opinion of counsel to the effect that (x) the assessment of
the higher fee under the Distribution Plan adopted with
respect to the B Class pursuant to Rule 12b-1 under

<PAGE>

the 1940 Act does not result in the Trust's dividends or
distributions constituting a "preferential dividend" under
the Internal Revenue Code of 1986, as amended, and (y) the
conversion of the B Class does not constitute a taxable event
under federal income tax law; (ii) any other condition to
conversion set forth in the Trust's prospectus, as such
prospectus may be amended from time to time, is not
satisfied; or (iii) such suspension to be appropriate in
order to comply with, or satisfy the requirements of the 1940
Act and in effect from time to time, or any rule, regulation
or order issued thereunder relating to voting by the holders
of the B Class on any plan with respect to the A Class
imposed under Rule 12b-1 of the 1940 Act and in effect from
time to time, and in connection with, or in lieu of, any such
suspension, the Board of Trustees may provide holders of the
B Class with alternative conversion or exchange rights into
other classes of stock of the Trust in a manner consistent
with the law, rule, regulation or order giving rise to the
possible suspension of the conversion right.

I, George M. Chamberlain, Esq., Secretary of the Fund, do hereby
certify that the foregoing is a true and correct copy of the Resolutions
adopted by the Board of Trustees at the above-referenced meeting.

/s/ George M. Chamberlain, Esq.
----------------------------------
George M. Chamberlain, Esq.
Secretary

<PAGE>

AMENDMENT NO. 4A
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT

Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund

Delaware Group Cash Reserve, Inc.

Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund

Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)

Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund

Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)

Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund)
- --------------------
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule
B to that Fund Accounting Agreement between Delaware Service Company, Inc. and
the Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on
behalf of such Portfolio hereof shall be a New Portfolio for purposes of
Schedule B to the Agreement.

<PAGE>

Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund

Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)

Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U.S. Government Money Fund

Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New) The Emerging
Markets Portfolio (New) The Fixed Income Portfolio The Global Fixed
Income Portfolio The High-Yield Bond Portfolio (New) The International
Equity Portfolio The International Fixed Income Portfolio (New) The
Labor Select International Equity Portfolio The Limited-Term Maturity
Portfolio (New) The Real Estate Investment Trust Portfolio

Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Decatur Total Return Series
Delaware Series
Delchester Series
DelCap Series
Global Bond Series (New)
International Equity Series
Trend Series
Value Series

<PAGE>

Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund

Delaware Group Tax-Free Money Fund, Inc.

Delaware Group Trend Fund, Inc.

DMC Tax-Free Income Trust - Pennsylvania (doing business as Tax-Free
Pennsylvania Fund)

Dated as of: April 14, 1997

<PAGE>

DELAWARE SERVICE COMPANY, INC.

By: /s/ David K. Downes
-----------------------------
David K. Downes
President, Chief Executive Officer and Chief Financial Officer

By: /s/ Wayne A. Stork
-----------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer

DELAWARE POOLED TRUST, INC.

By: /s/ Wayne A. Stork
-----------------------------
Wayne A. Stork
President and
Chief Executive Officer

<PAGE>

AMENDMENT NO. 5
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT

Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund

Delaware Group Cash Reserve, Inc.

Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund

Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)

Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund

Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)

Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund )

- ------------------
*Except as otherwise noted, all Portfolios included on this Schedule A
are Existing Portfolios for purposes of the compensation described on Schedule
B to that Fund Accounting Agreement between Delaware Service Company, Inc. and
the Delaware Group of Funds dated as of August 19, 1996 ("Agreement"). All
portfolios added to this Schedule A by amendment executed by a Company on
behalf of such Portfolio hereof shall be a New Portfolio for purposes of
Schedule B to the Agreement.

<PAGE>

Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund

Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)

Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund

Delaware Pooled Trust, Inc.
The Aggressive Growth Portfolio
The Defensive Equity Portfolio
The Defensive Equity Small/Mid-Cap Portfolio (New) The Defensive
Equity Utility Portfolio (New) The Emerging Markets Portfolio (New)
The Fixed Income Portfolio The Global Fixed Income Portfolio The
High-Yield Bond Portfolio (New) The International Equity Portfolio The
International Fixed Income Portfolio (New) The Labor Select
International Equity Portfolio The Limited-Term Maturity Portfolio
(New) The Real Estate Investment Trust Portfolio

Delaware Group Premium Fund, Inc.
Capital Reserves Series
Cash Reserve Series
Convertible Securities Series (New)
Decatur Total Return Series
Delaware Series
Delchester Series
Devon Series (New)
Emerging Markets Series (New)
DelCap Series
Global Bond Series (New)
International Equity Series
Quantum Series (New)
Strategic Income Series (New)
Trend Series
Value Series

<PAGE>

Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund

Delaware Group Tax-Free Money Fund, Inc.

Delaware Group Trend Fund, Inc.

DMC Tax-Free Income Trust-Pennsylvania (doing business as Tax-Free
Pennsylvania Fund)

Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund (New)

Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)

Voyageur Intermediate Tax Free Funds, Inc.
Arizona Limited Term Tax Free Fund (New)
California Limited Term Tax Free Fund (New)
Colorado Limited Term Tax Free Fund (New)
Minnesota Limited Term Tax Free Fund (New)
National Limited Term Tax Free Fund (New)

Voyageur Investment Trust
California Insured Tax Free Fund (New) Florida Insured Tax Free Fund
(New) Florida Tax Free Fund (New) Kansas Tax Free Fund (New) Missouri
Insured Tax Free Fund (New) New Mexico Tax Free Fund (New) Oregon
Insured Tax Free Fund (New) Utah Tax Free Fund (New) Washington
Insured Tax Free Fund (New)

<PAGE>

Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)

Voyageur Mutual Funds, Inc.
Arizona Tax Free Fund (New)
California Tax Free Fund (New)
Iowa Tax Free Fund (New)
Idaho Tax Free Fund (New)
Minnesota High Yield Municipal Bond Fund (New)
National High Yield Municipal Bond Fund (New)
National Tax Free Fund (New)
New York Tax Free Fund (New)
Wisconsin Tax Free Fund (New)

Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)

Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)

Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)

Dated as of May 1, 1997

<PAGE>

DELAWARE SERVICE COMPANY, INC.

By: /s/ David K. Downes
-----------------------------
David K. Downes
President, Chief Executive Officer and Chief Financial Officer

DELAWARE GROUP ADVISER FUNDS, INC.
DELAWARE GROUP CASH RESERVE, INC.
DELAWARE GROUP EQUITY FUNDS I, INC.
DELAWARE GROUP EQUITY FUNDS II, INC.
DELAWARE GROUP EQUITY FUNDS IV, INC.
DELAWARE GROUP EQUITY FUNDS V, INC.
DELAWARE GROUP GOVERNMENT FUND, INC.
DELAWARE GROUP GLOBAL & INTERNATIONAL FUNDS, INC.
DELAWARE GROUP INCOME FUNDS, INC.
DELAWARE GROUP LIMITED -TERM GOVERNMENT FUNDS, INC.
DELAWARE POOLED TRUST, INC.
DELAWARE GROUP PREMIUM FUND, INC.
DELAWARE GROUP TAX-FREE FUND, INC.
DELAWARE GROUP TAX FREE MONEY FUND, INC.
DELAWARE GROUP TREND FUND, INC.
DMC TAX-FREE INCOME TRUST-PENNSYLVANIA
VOYAGEUR FUNDS, INC.
VOYAGEUR INSURED FUNDS, INC.
VOYAGEUR INTERMEDIATE TAX FREE FUNDS, INC.
VOYAGEUR INVESTMENT TRUST
VOYAGEUR INVESTMENT TRUST II
VOYAGEUR MUTUAL FUNDS, INC.
VOYAGEUR MUTUAL FUNDS II, INC.
VOYAGEUR MUTUAL FUNDS III, INC.

By: /s/ Wayne A. Stork
-----------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer

AMENDMENT NO. 6
to
SCHEDULE A
of
DELAWARE GROUP OF FUNDS*
FUND ACCOUNTING AGREEMENT

Delaware Group Adviser Funds, Inc.
Corporate Income Fund
Enterprise Fund
Federal Bond Fund
New Pacific Fund
U.S. Growth Fund
World Growth Fund

Delaware Group Cash Reserve, Inc.

Delaware Group Equity Funds I, Inc. (formerly Delaware)
Delaware Fund
Devon Fund

Delaware Group Equity Funds II, Inc. (formerly Decatur)
Blue Chip Fund (New)
Decatur Income Fund
Decatur Total Return Fund
Quantum Fund (New)

Delaware Group Equity Funds IV, Inc. (formerly DelCap)
Capital Appreciation Fund (New)
DelCap Fund

Delaware Group Equity Funds V, Inc. (formerly Value)
Value Fund
Retirement Income Fund (New)

Delaware Group Government Fund, Inc.
Government Income Series (U.S. Government Fund )

<PAGE>

Delaware Group Global & International Funds, Inc.
Emerging Markets Fund (New)
Global Assets Fund
Global Bond Fund
International Equity Fund
Global Equity Fund (New)
International Small Cap Fund (New)

Delaware Group Income Funds, Inc. (formerly Delchester)
Delchester Fund
High-Yield Opportunities Fund (New)
Strategic Income Fund (New)

Delaware Group Limited-Term Government Funds, Inc.
Limited-Term Government Fund
U. S. Government Money Fund

<PAGE>

Trend Series
Value Series

Delaware Group State Tax-Free Income Trust
Tax-Free New Jersey Fund (New)
Tax-Free Ohio Fund (New)
Tax-Free Pennsylvania Fund

Delaware Group Tax-Free Fund, Inc.
Tax-Free Insured Fund
Tax-Free USA Fund
Tax-Free USA Intermediate Fund

Delaware Group Tax-Free Money Fund, Inc.

Delaware Group Trend Fund, Inc.

Voyageur Funds, Inc.
Voyageur U.S. Government Securities Fund (New)

Voyageur Insured Funds, Inc.
Arizona Insured Tax Free Fund (New)
Colorado Insured Fund (New)
Minnesota Insured Fund (New)
National Insured Tax Free Fund (New)

<PAGE>

Voyageur Investment Trust II
Florida Limited Term Tax Free Fund (New)

Voyageur Mutual Funds II, Inc.
Colorado Tax Free Fund (New)

Voyageur Mutual Funds III, Inc.
Aggressive Growth Fund (New)
Growth Stock Fund (New)
International Equity Fund (New)
Tax Efficient Equity Fund (New)

Voyageur Tax Free Funds, Inc.
Minnesota Tax Free Fund (New)
North Dakota Tax Free Fund (New)

Dated as of July 21, 1997

<PAGE>

DELAWARE SERVICE COMPANY, INC.

By: /s/ David K. Downes
David K. Downes
President, Chief Executive Officer and Chief Financial Officer

By: /s/ Wayne A. Stork
------------------------
Wayne A. Stork
Chairman, President and
Chief Executive Officer

<PAGE>

Consent of Ernst & Young LLP, Independent Auditors

We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Financial Statements" in the Statement of
Additional Information and to the incorporation by reference in this
Post-Effective Amendment Number 39 to the Registration Statement (Form N-1A)
(No. 2-57791) of DMC Tax-Free Income Trust - Pennsylvania (to be renamed
Delaware Group State Tax-Free Income Trust) of our report dated April 4, 1997,
included in the 1997 Annual Report to shareholders of the Tax-Free Pennsylvania
Fund.

/s/Ernst & Young LLP
--------------------
Ernst & Young LLP

Philadelphia, Pennsylvania
August 28, 1997