<PAGE>
MARCH 31, 1998
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 2, 1997
The following provides updated information in the section of the
Statement of Additional Information entitled Performance Information.
The performance of Class A Shares, Class B Shares and Class C Shares of
Tax-Free Pennsylvania Fund, as shown below, is the average annual total return
quotations through August 31, 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.
The average annual total return for Class B Shares and Class C Shares including
deferred sales charge reflects the deduction of the applicable CDSC that would
have been paid if the shares were redeemed at August 31, 1997. The average
annual total return for Class B Shares and Class C Shares excluding deferred
sales charge assumes the shares were not redeemed at August 31, 1997 and
therefore does not reflect the deduction of a CDSC.
<TABLE>
<CAPTION>
Average Annual Total Return
Tax-Free Pennsylvania Fund
Class B Shares Class B Shares Class C Shares Class C Shares
Class A Shares(1) Class A Shares(1) (Including Deferred (Excluding Deferred (Including Deferred (Excluding Deferred
(at Offer)(2) (at NAV) Sales Charge) Sales Charge) Sales Charge) Sales Charge)
------------- -------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 year ended
8/31/97 3.61% 7.64% 2.79% 6.79% 5.79% 6.79%
3 years ended
8/31/97 4.95% 6.28% 4.52% 5.43% N/A N/A
5 years ended
8/31/97 5.25% 6.07% N/A N/A N/A N/A
10 years ended
8/31/97 7.24% 7.66% N/A N/A N/A N/A
15 years ended
8/31/97 9.39% 9.68% N/A N/A N/A N/A
Commencement of
Operations(3)
through 8/31/97 6.44% 6.64% 4.64% 5.44% 4.24% 4.24%
</TABLE>
(1) Performance figures for periods after May 31, 1992 reflect applicable Rule
12b-1 distribution expenses. Future performance will be affected by such
expenses.
(2) 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.
(3) Class A Shares commenced operations on March 23, 1977; Class B Shares
commenced operations on May 2, 1994; Class C Shares commenced operations on
November 29, 1995.
<PAGE>
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 Tax-Free Pennsylvania Fund through August 31, 1997, and of
Class A Shares and Class B Shares Tax-Free New Jersey Fund and of Class A Shares
of Tax-Free Ohio Fund through February 28, 1998.
<TABLE>
<CAPTION>
Cumulative Total Return
Tax-Free Pennsylvania Fund
Class B Shares Class B Shares Class C Shares Class C Shares
Class A Shares(1) (Including Deferred (Excluding Deferred (Including Deferred (Excluding Deferred
(at Offer)(2) Sales Charge) Sales Charge) Sales Charge) Sales Charge)
<S> <C> <C> <C> <C> <C>
3 months ended
8/31/97 (1.42%) (1.77%) 2.23% 1.23% 2.23%
6 months ended
8/31/97 (0.75%)(3) (1.33%) 2.69% 1.69% 2.69%
9 months ended
8/31/97 (0.47%) (1.23%) 2.74% 1.74% 2.74%
1 year ended
8/31/97 3.61% 2.79% 6.79% 5.79% 6.79%
3 years ended
8/31/97 15.59% 14.20% 17.18% N/A N/A
5 years ended
8/31/97 29.15% N/A N/A N/A N/A
10 years ended
8/31/97 101.23% N/A N/A N/A N/A
15 years ended
8/31/97 284.47% N/A N/A N/A N/A
Commencement of
Operations(4)
through 8/31/97 258.18% 16.33% 19.31% 7.58% 7.58%
</TABLE>
(1) Performance figures for periods after May 31, 1992 reflect applicable Rule
12b-1 distribution expenses. Future performance will be affected by such
expenses.
(2) 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.
(3) For the six months ended August 31, 1997, cumulative total return at net
asset value was 3.10%.
(4) Class A Shares commenced operations on March 23, 1977; Class B Shares
commenced operations on May 2, 1994; Class C Shares commenced operations on
November 29, 1995.
<PAGE>
Cumulative Total Return
Tax-Free New Jersey Fund(1)
Class B Shares Class B Shares
Class A Shares (Including Deferred (Excluding Deferred
(at Offer) Sales Charge) Sales Charge)
3 months ended
2/28/98 (1.34%) (1.66%) 2.34%
9/3/97(2)
through 2/28/98 1.88% 0.90% 4.90%
(1) The Manager elected voluntarily to waive that portion, if any, of the
annual management fees payable by Tax-Free New Jersey Fund and to pay
certain expenses of the Fund to the extent necessary to ensure that the
Total Operating Expenses of each Class of the Fund, excluding each such
Class' 12b-1 fees, did not exceed 0.75%, from the commencement of the
public offering of the Classes through January 21, 1998. Beginning
January 22, 1998, the Manager has elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain of the Fund's expenses to the extent necessary to ensure
that the Total Operating Expenses of each Class of the Fund do not
exceed 0.25% (excluding the 12b-1 plan expenses). This waiver and
expense limitation will extend through July 31, 1998.
(2) Commencement of operations.
Cumulative Total Return
Tax-Free Ohio Fund(1)
Class A Shares
(at Offer)
3 months ended
2/28/98 (0.79%)
9/3/97(2)
through 2/28/98 2.49%
(1) The Manager elected voluntarily to waive that portion, if any, of the
annual management fees payable by Tax-Free Ohio Fund and to pay certain
expenses of the Fund to the extent necessary to ensure that the Total
Operating Expenses of each Class of the Fund, excluding each such
Class' 12b-1 fees, did not exceed 0.75%, from the commencement of the
public offering of the Classes through January 21, 1998. Beginning
January 22, 1998, the Manager has elected voluntarily to waive that
portion, if any, of the annual management fees payable by the Fund and
to pay certain of the Fund's expenses to the extent necessary to ensure
that the Total Operating Expenses of each Class of the Fund do not
exceed 0.25% (excluding the 12b-1 plan expenses). This waiver and
expense limitation will extend through July 31, 1998.
(2) Commencement of operations.
For the 30-day period ended August 31, 1997, the yields of Class A
Shares, Class B Shares and Class C Shares of Tax-Free Pennsylvania Fund were
4.35%, 3.69% and 3.60%, respectively. For the 30-day period ended February 28,
1998, the yields of Class A Shares and Class B Shares of Tax-Free New Jersey
Fund were 4.54% and 3.96%, respectively and the yield of Class A Shares of
Tax-Free Ohio Fund was 4.67%. The yields for Tax-Free New Jersey Fund and
Tax-Free Ohio Fund reflect the voluntary waiver and payment of fees by the
Manager.
For the 30-day period ended August 31, 1997, the tax-equivalent yields
of Class A Shares, Class B Shares and Class C Shares of Tax-Free Pennsylvania
Fund were 6.30%, 5.35% and 5.35%, respectively, assuming a federal income tax
rate of 31%. For the 30-day period ended February 28, 1998, the tax-equivalent
yields of Class A Shares and Class B Shares of Tax-Free New Jersey Fund were
6.58% and 5.74%, respectively, and the tax-equivalent yield of Class A Shares of
Tax-Free Ohio Fund was 6.77%, assuming a federal income tax rate of 31%. The
yields for Tax-Free New Jersey Fund and Tax-Free Ohio Fund reflect the voluntary
waiver and payment of fees by the Manager.
<PAGE>
The following provides updated information in the section of the
Statement of Additional Information entitled Officers and Trustees.
As of February 28, 1998, the Trust's officers and trustees, as a group,
owned approximately 1.12% of the outstanding shares of Class A Shares of
Tax-Free Pennsylvania Fund and less than 1% of the outstanding shares of Class B
Shares and C Shares of this Fund. As of the same date, the Trust's officers and
trustees, as a group, owned and less than 1% of the outstanding shares of each
of the Class A Shares, B Shares and C Shares of Tax-Free New Jersey Fund and
Tax-Free Ohio Fund.
As of February 28, 1998, 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 each Fund:
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
Tax-Free
Pennsylvania Fund
<S> <C> <C> <C>
Class A Shares Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Dear Lake Drive East, 3rd Floor
Jacksonville, FL 32246 6,651,329 6.10%
Class B Shares Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Dear Lake Drive East, 3rd Floor
Jacksonville, FL 32246 267,249 5.97%
Class C Shares Christopher Stephano Jr. &
Joanne Stephano
1152 Thrush Lane
Norristown, PA 19403 44,744 14.66%
David N. Arms and Janet E. Arms JT WROS
2147 Deep Creek Road
Perkiomenville, PA 18074 42,517 13.93%
Francis A Gress
1701 Hottle RD
Coopersburg, PA 18036 17,900 5.86%
Brett K. Young
and Beth Ann Young
962 Gravel Pike
Schwenksville, PA 19473 15,607 5.11%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
Tax-Free New Jersey Fund
<S> <C> <C> <C>
Class A Shares Lincoln National Life Insurance Company
c/o Lincoln Investment Management, Inc.
200 East Berry Street
Fort Wayne IN 46802 185,406 92.63%
Class B Shares Wheat First Securities, Inc.
John A. Lanckowski &
Lillian Lanckowski
4 Delford Drive
North Cape May, NJ 08204 15,763 61.46%
Jacqueline Small
Terry Small
118 Vesper Ave.
Westmont, NJ 08108 4,347 16.95%
Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Dear Lake Drive East, 3rd Floor
Jacksonville, FL 32246 2,932 11.43%
Wanda S. Toman
#7 MacArthur Blvd. 912 N
Westmont, NJ 08108 2,599 10.13%
Class C Shares Delaware Management Company, Inc.
1818 Market Street
Philadelphia, PA 19103 1 100%
Tax-Free Ohio Fund
Class A Shares Merrill Lynch, Pierce, Fenner & Smith
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Dear Lake Drive East, 3rd Floor
Jacksonville, FL 32246 185,546 89.23%
David J. Littell and
Mary Ann Littell
3804 Long Road
Avon, OH 44011 13,342 6.40%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class Name and Address of Account Share Amount Percentage
- ----- --------------------------- ------------ ----------
Tax-Free Ohio Fund
<S> <C> <C> <C>
Class B Shares Delaware Management Company, Inc.
1818 Market Street
Philadelphia, PA 19103 1 100%
Class C Shares Delaware Management Company, Inc.
1818 Market Street
Philadelphia, PA 19103 1 100%
</TABLE>
<PAGE>
The following replaces the section of the Statement of Additional Information
entitled Financial Statements.
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. Tax-Free 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. Unaudited
financial statements and the notes relating thereto for the six-month period
ended August 31, 1998 for Tax-Free Pennsylvania Fund are incorporated by
reference from the Semi-Annual Report into Part B. Unaudited financial
information for the period September 3, 1997 (date of initial public offering)
through February 28, 1998 for the Tax-Free New Jersey Fund and Tax-Free Ohio
Fund follows.
<PAGE>
Delaware Group State Tax-Free Income Trust
Tax Free New Jersey Fund
Statement of Net Assets
February 28, 1998
<TABLE>
<CAPTION>
Principal Market
Amount Value
<S> <C> <C>
Municipal Bonds - 98.97%
Continueing Care / Retirement
Revenue Bonds - 4.03%
New Jersey Economic Development Authority Revenue
Reference First Mortgage The Evergreens 6.00% 10/01/22 $50,000 $51,857
---------------------
51,857
---------------------
Higher Education Revenue Bonds - 7.82%
New Jersey St. Educational Facilities Authority
(Montclair St. University) Series F 5.40% 7/01/25 (AMBAC) 30,000 30,459
New Jersey State Education Facilities Authority
(University Medicine & Dentistry) Series B 5.25% 12/01/21 (AMBAC) 50,000 50,185
New Jersey State Educational Facilities Authority-
(Princeton Theological) Series A 5.00% 7/01/22 20,000 19,998
---------------------
100,642
---------------------
Hospitals Revenue Bonds - 15.26%
New Jersey Health Care Facilities Authority
(Holy Name Hospital) 5.25% 7/01/20 (AMBAC) 50,000 50,507
New Jersey Health Care Facilities-
AHS Hospital-Series A 5.00% 7/01/27 (AMBAC) 150,000 145,940
---------------------
196,447
---------------------
Housing Revenue Bonds - 3.94%
New Jersey State Housing and Mortgage Finance
Agency AMT - Series A 5.65% 5/01/40 (AMBAC) 50,000 50,764
---------------------
50,764
---------------------
Parking Revenue Bonds - 3.13%
Essex County New Jersey IMPT Authority Parking
Facility 5.25% 10/01/27 (MBIA) 40,000 40,309
---------------------
40,309
---------------------
Political Subdivision Revenue Bonds - 3.88%
Evesham Township New Jersey 5.00% 9/15/17 (FGIC) 50,000 49,937
---------------------
49,937
---------------------
Ports & Harbors Revenue Bonds - 3.92%
Delaware River And Bay Authority 5.25% 1/01/26 (FGIC) 50,000 50,416
---------------------
50,416
---------------------
School Authority/District Revenue Bonds - 9.86%
Freehold Township, New Jersey Board of Education 5.40% 7/15/23 (FSA) 50,000 51,065
Mount Olive Township New Jersey
Board of Education 5.00% 1/15/19 (FGIC) 25,000 24,554
*Newark New Jersey Schools 5.30% 9/01/15 (MBIA) 50,000 51,351
---------------------
126,970
---------------------
Special Utility Revenue Bonds - 3.78%
*Bayonee New Jersey Municipal Utlities Authority
Water Systems 5.00% 1/01/28 (MBIA) 50,000 48,636
---------------------
48,636
---------------------
Territorial Revenue Bonds - 27.78%
*Puerto Rico Commonwealth 5.38% 7/01/21 (MBIA) 50,000 51,254
Puerto Rico Commonwealth Highway & Transportation
Authority (Highway Improvements)Series Y 5.50% 7/01/26 250,000 255,712
Puerto Rico Industrial Tourist Educational
Medical and Envrionmental Control Facilities
Mennonite General Hospital Series A 5.63% 7/01/27 50,000 50,638
---------------------
357,604
---------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
<S> <C> <C>
Water & Sewer Revenue Bonds - 15.57%
North Jersey District Water Supply Series A
(Wanaque North Project) 5.13% 11/15/21 (MBIA) $ 150,000 $ 150,052
Wanaque Borough New Jersey Sewer Authority Sewer
Revenue 5.25% 12/01/21 50,000 50,424
---------------------
200,476
---------------------
Total Municipal Bonds (cost $1,239,893) 1,274,058
---------------------
Total Market Value of Securities Owned - 98.97%
(cost $1,240,114) 1,274,058
Receivables and Other Assets Net of Liabilities - 1.03% 13,272
---------------------
Net Assets Applicable to 225,789 Shares Outstanding - 100.00% 1,287,330
=====================
Net Asset Value - Tax-Free New Jersey
Fund A Class ($1,140,612 / 200,144 Shares) $5.70
=====================
Net Asset Value - Tax-Free New Jersey
Fund B Class ($146,274 / 25,644 Shares) $5.70
=====================
Summary of Abreviations:
AMBAC - Insured by the AMBAC Indemnity Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by the Financial Security Assurance
MBIA - Insured by the Municipal Bond Insurance Association
_________________________________________
Components of Net Assets at February 28, 1998:
Capital Shares (unlimited authorization-no par) 1,245,366
Accumulated net realized gain on investments 8,020
Net unrealized appreciation of investments 33,944
---------------------
Total Net Assets 1,287,330
=====================
NET ASSET VALUE AND OFFERING PRICE PER SHARE - TAX FREE
NEW JERSEY FUND A CLASS
Net asset value per share (A) $5.70
Sales charge (3.75% of offering price or 3.85% of
amount invested per share) (B) 0.22
---------------------
Offering price $5.92
=====================
(A) Net asset value per share illustrated is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchases of
$100,000 or more.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Delaware Group State Tax-Free Income Trust
Tax Free Ohio Fund
Statement of Net Assets
February 28, 1998
Principal Market
Amount Value
<S> <C> <C>
Municipal Bonds 97.95%
Hospitals Revenue Bonds 17.10%
Lorain County Ohio Hospital Revenue
Catholic Healthcare Partners 5.50% 9/1/27 (MBIA) $50,000 $51,591
Montgomery County Ohio Hospital (Grandview Hospital) 5.65% 12/01/12 100,000 103,198
Puerto Rico Industrial Tourist Educational
Medical and Environmental Control Facilities
(Mennonite General Hospital) Series A 5.625% 7/01/27 50,000 50,639
---------
205,428
----------
Higher Education Revenue Bonds - 12.84%
University of Akron, Ohio 5.25% 1/0/22 (AMBAC) 50,000 50,325
Ohio State Higher Educational Facility Revenue
Case Western Reserve University C 5.125% 10/01/17 50,000 50,237
University of Cincinnati Ohio
Series T 5.00% 6/01/18 55,000 53,695
----------
154,257
----------
Continuing Care/Retirement Revenue Bonds - 9.89%
Montgomery County Ohio 6.25% 2/01/22 115,000 118,798
----------
118,798
----------
Pollution Control Revenue Bonds - 8.77%
Ohio State Air Quality Development Authority
Revenue Pollution Control Series B 6.00% 8/01/20 100,000 105,403
----------
105,403
----------
Industrial Development Authority Revenue Bonds - 8.75%
Ohio State Air Quality Authority - 97 5.625% 10/01/22 (AMBAC) 100,000 105,087
----------
105,087
----------
Housing Revenue Bonds - 8.52%
Franklin County Ohio Mortgage Revenue
Briggs/Wedgewood 5.55% 11/20/17 (GNMA) 50,000 50,909
Ohio Housing Finance Agency Mortgage Revenue
Residential-Series C 5.75% 9/01/28 (GNMA) 50,000 51,484
----------
102,393
Power Authority Revenue Bonds - 6.47%
Cleveland Ohio Public Power Systems Revenue 5.00% 11/15/24 (MBIA) 80,000 77,698
----------
77,698
----------
City Revenue Bonds - 4.23%
Elyria,Ohio General Obligations 97 5.400% 12/01/22 (FGIC) 50,000 50,867
----------
50,867
----------
Convention Center/Audit/Stadiums - 4.24%
Cleveland Ohio Cleveland Stadium Project 5.250% 11/15/17 (AMBAC) 50,000 50,827
----------
50,827
----------
School Authority District - 8.36%
Brecksville-Broadview Heights Ohio School
District 5.25% 12/01/21 (FGIC) 50,000 50,363
Oak Hills Ohio Local School District 5.125% 12/01/25 (MBIA) 50,000 50,098
----------
100,461
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
<S> <C> <C>
Municipal Bonds 97.95%
Transportation Revenue Bonds - 7.97%
Dayton Ohio Special Facilities Revenue
(Air Freight-F) 6.05% 10/01/09 $ 45,000 $ 49,013
Ohio State Turnpike Commission Turnpike Revenue 1996-
Series A 5.50% 02/15/26 (MBIA) 45,000 46,745
----------
95,758
----------
Airports- .81%
Cleveland Ohio Airport Special Revenue (Continental
Airlines Project) 5.375% 9/15/27 10,000 9,775
----------
9,775
----------
Total Municipal Bonds (cost $1,139,281) 1,176,752
----------
Total Market Value of Securities -97.95% $1,176,752
(cost $1,139,281)
Receivables and other assets net of liabilities -2.05% 24,650
----------
Net assets applicable to 209,636 Ohio Fund A Class Shares, 1
Ohio Fund B Class Share, and 1 Ohio Fund C Class Shares ($.01 Par
Value) Outstanding; Equivalent to $5.73 Per Share - 100% $1,201,402
==========
- -------------------------
Summary of Abbreviations:
AMBAC - Insured by AMBAC Indemnity Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
GNMA - Insured by the Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
- --------------------------------------------------------------------------------------
Components of Net Assets at February 28, 1998:
Capital Shares (unlimited authorization-no par) 1,158,475
Accumulated net realized gain on investments 5,456
Net unrealized appreciation of investments 37,471
----------
Total Net Assets $1,201,402
==========
Net asset value and offering price per share Tax-Free Ohio
Fund A Class
Net asset value per share (A) $5.73
Sales charge (3.75% of offering price or 3.84% of amount invested per share) (B) 0.22
----------
Offering Price $5.95
==========
(A) Net asset value per share illustrated is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B) See How to Buy Shares in the current Prospectus for purchases of
$100,000 or more.
</TABLE>
<PAGE>
Deleware Group State Tax-Free Income Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Tax-Free Tax-Free
New Jersey Ohio
---------------- -------------
<S> <C> <C>
9/3/97* 9/3/97*
to to
2/28/98 2/28/98
Increase (decrease) in net assets from operation:
Net investment income $24,060 $22,660
Net realized gain on investments 8,020 5,456
Net change in unrealized appreciation/depreciation on investments 33,944 37,471
--------------- -------------
Net increase in net assets resulting from operations 66,025 65,587
--------------- -------------
Distribution to shareholders from:
Net investment income:
A Class (23,444) (22,660)
B Class (600) 0
C Class (16) 0
Net realized gain on investment transactions:
A Class 0 0
B Class 0 0
C Class 0 0
--------------- -------------
(24,060) (22,660)
--------------- -------------
Capital share transactions:
Proceeds from shares sold:
A Class 1,162,901 1,136,861
B Class 146,118 6
C Class 2,006 6
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on security transactions:
A Class 22,067 21,613
B Class 346 0
C Class 12 0
--------------- -------------
1,333,449 1,158,486
--------------- -------------
Cost of shares repurchased:
A Class (85,960) (10)
B Class (6) 0
C Class (2,118) 0
--------------- -------------
(88,083) (10)
--------------- -------------
Increase (decrease) in assets derived from capital
share transactions 1,245,366 1,158,476
--------------- -------------
Net increase (decrease) in net assets 1,287,330 1,201,402
Net assets:
Beginning of year 0 0
--------------- -------------
End of year $1,287,330 $1,201,402
=============== =============
</TABLE>
Commencement of trading.
See accompanying notes
<PAGE>
Deleware Group State Tax-Free Income Trust
Statements of Operations
<TABLE>
<CAPTION>
Tax-Free Tax-Free
New Jersey Ohio
------------- ----------------
9/3/1997* 9/3/1997*
to to
2/28/98 2/28/98
<S> <C> <C>
Investment Income:
Interest $29,214 $27,221
------------- ----------------
Expenses:
Management fees 3,235 2,856
Distribution expense 1,911 1,470
Dividend disbursing and transfer agent fees and expenses 355 122
Accounting and administration 312 284
Reports and statements to shareholders 1,102 1,262
Professional fees 2,919 2,517
Registration fees 163 163
Trustees' fees 827 827
Custodian fees 126 413
Taxes (other than taxes on income) 145 40
Other 67 34
------------- ----------------
11,162 9,988
Less expenses absorbed by Delaware Management Company (6,008) (5,427)
------------- ----------------
Total Expenses 5,154 4,561
------------- ----------------
Net investment income 24,060 22,660
------------- ----------------
Net realized and unrealized gain on investments:
Net realized gain on investment transactions 8,020 5,456
Net change in unrealized appreciation on investments 33,944 37,471
------------- ----------------
Net realized and unrealized gain on investments 41,965 42,927
------------- ----------------
Net increase in net assets resulting from operations $66,025 $65,587
============= ================
</TABLE>
Commencement of Trading.
See accompanying notes
<PAGE>
Financial Highlights
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Tax-Free
New Jersey New Jersey
Fund A Class Fund B Class
--------------------- --------------------
9/3/1997(1) 9/3/1997(1)
to to
2/28/97 2/28/97
--------------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $5.500 $5.500
Income from investment operations:
Net investment income 0.115 0.070
Net realized and unrealized gain on investments 0.200 0.199
------ ------
Total from investment operations 0.315 0.269
------ ------
Less dividends and distributions:
Dividends from net investment income (0.115) (0.069)
Distributions from net realized gain on security transactions
------ ------
Total dividends and distributions (0.115) (0.069)
------ ------
Net asset value, end of period $5.700 $5.700
====== ======
Total return (2) 5.77% 4.90%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,141 $146
Ratio of expenses to average net assets 0.88% 1.56%
Ratio of expenses to average net assets
prior to expense limitation 1.93% 2.61%
Ratio of net investment income to average net assets 4.23% 3.63%
Ratio of net investment income to average net assets
prior to expense limitation 3.18% 2.58%
Portfolio turnover 47% 47%
</TABLE>
- -----------------------------------------------------
(1) Date of initial pubic offering; ratios have been annualized and total
return has not been annualized.
(2) Does not include maximum sales charge of 3.75% nor the 1% limited
contingent deferred sales charge that would apply in the event of certain
redemptions within 12 months of purchase of Class A shares. Does not
include the contingent deferred sales charge which varies upon the holding
period for Class B shares.
On October 20, 1997, New Jersey Fund Class C sold shares which were subsequently
repurchased on January 13, 1998, leaving a balance of 1 share, which is the
initial seed purchase. This shareholder activity is not being disclosed because
the date is not believed to be meaningful.
<PAGE>
<TABLE>
<CAPTION>
Tax-Free Ohio
Fund A Class
A Class
---------------------
9/3/1997(1)
to
2/28/97
---------------------
<S> <C>
Net asset value, beginning of period $5.500
Income from investment operations:
Net investment income 0.120
Net realized and unrealized gain on investments 0.230
----------
Total from investment operations 0.350
----------
Less dividends and distributions:
Dividends from net investment income (0.120)
Distributions from net realized gain on security transactions
----------
Total dividends and distributions (0.120)
----------
Net asset value, end of period $5.730
==========
Total return (2) 6.41%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,201
Ratio of expenses to average net assets 0.88%
Ratio of expenses to average net assets
prior to expense limitation 1.93%
Ratio of net investment income to average net assets 4.38%
Ratio of net investment income to average net assets
prior to expense limitation 3.33%
Portfolio turnover 66%
</TABLE>
- -----------------------------------------------------
(1) Date of initial pubic offering; ratios have been annualized and total return
has not been annualized.
(2) Does not include maximum sales charge of 3.75% nor the limited contingent
deferred sales charge that would apply in the event of certain redemptions
within 12 months of purchase of Class A shares.
<PAGE>
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
Delaware Group State Tax-Free Income Trust (the "Trust") - Tax-Free New Jersey
Fund and Tax-Free Ohio Fund is registered as a nondiversified open-end
investment company under the Investment Company Act of 1940, as amended. The
Trust is organized as a Pennsylvania business trust. Each Fund offers three
classes of shares. The A Class of each Fund carries a front-end sales charge of
3.75%. The B Class of each Fund carries a back-end deferred sales charge and the
C Class of each Fund carries a level load deferred sales charge.
Tax-Free 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. Tax-Free 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.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Trust:
Security Valuation- Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Money market instruments having less than 60 days to maturity are
valued at amortized cost which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith by or under the direction of the Board of
Trustees.
Federal Income Taxes- Each Fund intends to or continues to intend to qualify as
a regulated investment company and make the requisite distributions to
shareholders. Accordingly, no provision for federal income taxes has been made
in the financial statements. Income and capital gain distributions are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles.
Class Accounting- Investment income, common expenses and realized and unrealized
gain (loss) on investments are allocated to the various classes of the Fund on
the basis of daily net assets of each class. Distribution expenses relating to a
specific class are charged directly to that class.
Use of Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
Other- Expenses common to all Funds, including the Trust, within the Delaware
Investments family of funds are allocated amongst the funds on the basis of
average net assets. Security transactions are recorded on the date the
securities are purchased or sold (trade date). Costs used in calculating
realized gains and losses on the sale of investment securities are those of the
specific securities sold. Interest income is recorded on the accrual basis.
Premiums and discounts are amortized on a pro-rata basis and are included in
interest income. Each Fund declares dividends from net investment income daily
and pays such dividends monthly. Capital gains, if any, are distributed
annually.
Certain Trust expenses are paid through "soft dollar" arrangements with brokers.
The amount of these expenses is less than 0.01% of the Fund's average daily net
assets.
2. Investment Management and Other Transactions with Affiliates
In accordance with the terms of the Investment Management Agreement, each Fund
pays Delaware Management Company (DMC), the investment manager, an annual fee
which is calculated daily at the rate of 0.55% of the first $500 million of
average daily net assets, 0.525% on the next $500 million and 0.50% on the
average daily net assets over $1 billion, less all amounts paid to the Trust,
for the Tax-Free New Jersey Fund and the Tax-Free Ohio Fund. DMC has elected to
waive its fees and reimburse the Tax-Free New Jersey and the Tax-Free Ohio Fund
to the extent that annual operating expenses exclusive of taxes, interest,
brokerage commissions, distribution expenses and extraordinary expenses, exceed
0.25% of average daily net assets for the Tax-Free New Jersey Fund and the
Tax-Free Ohio Fund, through July 31, 1998. Total expenses absorbed by DMC for
the year ended February 28,1998 were $6,008 for the Tax-Free New Jersey Fund and
$5,427 for the Tax-Free Ohio Fund. On February 28, 1998, the Fund had a
liability for investment management fees and other expenses payable to DMC of
$3,235 for the Tax-Free New Jersey Fund and $2,856 for the Tax-Free Ohio Fund.
The Trust has engaged Delaware Service Company, Inc. (DSC), an affiliate of
DMC, to serve as dividend disbursing, transfer agent and accounting services
agent for the Funds. For the year ended February 28, 1998, the Tax-Free New
Jersey Fund and The Tax-Free Ohio Fund expensed $355 and $122 for dividend
disbursing, transfer agent fees and other expenses and $230 and $209 for
accounting services and had liabilities for such fees and other expenses payable
to DSC for $126 and $101, respectively.
Pursuant to the Distribution Agreement, the Trust pays Delaware Distributors,
L.P. (DDLP), the Distributor and an affiliate of DMC, an annual fee not to
exceed 0.25% of the average daily net assets of the Tax-Free New Jersey Fund and
Tax-Free Ohio Fund A Classes and 1.00% of the average daily net assets of the B
and C Class for each portfolio. On February 28, 1998, the Funds had a liability
for distribution fees and other expenses payable to DDLP of $947 for Tax-Free
New Jersey Fund and $883 for Tax-Free Ohio Fund.
For the period ended February 28, 1998, DDLP earned $178 and $45 for commissions
on sales of the Tax-Free New Jersey Fund A Class and the Tax-Free Ohio Fund A
Class, respectively.
Certain officers of DMC, DSC and DDLP are officers, trustees and/or employees of
the Trust. These officers, trustees and employees are paid no compensation by
the Trust.
<PAGE>
3. Investments
During the year ended February 28,1998, each Fund had purchases and sales of
investment securities other than temporary cash investments as follows:
Tax-Free Tax-Free
New Jersey Fund Ohio Fund
--------------- ---------
Purchases: $1,505,039 $1,484,323
Sales: $273,241 $350,503
At February 28, 1998, the aggregate cost of securities for federal income tax
purposes was as follows:
Tax-Free Tax-Free
New Jersey Fund Ohio Fund
--------------- ---------
Cost of investments $1,240,114 $1,139,282
Unrealized appreciation $4,543 $37,648
Unrealized depreciation $599 $178
Net unrealized appreciation $33,944 $37,470
4. Capital Stock
Transactions in Capital Stock were as follows:
Tax-Free New Jersey
-------------------
9/3/97*
to
2/28/98
-------
Shares sold:
A Class 211,252
B Class 25,585
C Class 365
Shares issued upon reinvestment
of dividends from net investment income:
A Class 3,894
B Class 61
C Class 2
---------
241,159
---------
Shares repurchased:
A Class (15,002)
B Class (1)
C Class (366)
---------
(15,369)
Net Increase 255,790
=========
* Commencement of trading.
<PAGE>
Tax-Free Ohio
-------------
9/3/97*
to
2/28/98
-------
Shares sold:
A Class 205,829
B Class 1
C Class 1
Shares issued upon reinvestment
of dividends from net investment income:
A Class 3,809
B Class 0
C Class 0
---------
209,640
---------
Shares repurchased:
A Class (2)
B Class 0
C Class 0
---------
(2)
Net Increase 209,638
=========
5. Market and Credit Risk
The Funds concentrate their investments in securities issued by municipalities.
The value of these investments may be adversely affected by new legislation
within the states, regional or local economic conditions, and differing levels
of supply and demand for municipal bonds. Many municipalities insure repayment
for their obligations. Although bond insurance reduces the risk of loss due to
default by an issuer, such bonds remain subject to the risk that market may
fluctuate for other reasons and there is no assurance that the insurance company
will meet its obligations. These securities have been identified in the
Statement of Net Assets.
