Tax-Free Pennsylvania Fund
Tax-Free New Jersey Fund
Tax-Free Ohio Fund
service and guidance
professional management
[GRAPHIC OMITTED: GRAPHIC OF BRIDGE, BUILDINGS AND AIRPLANES]
goals
1998
Semi-Annual
Report
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
September 21, 1998
Dear Shareholder:
WE ARE PLEASED TO PRESENT THE FISCAL 1999 semi-annual report for
Delaware Investments' Tax-Free Pennsylvania, New Jersey and Ohio
Funds.
Rising state budget surpluses, low unemployment and strong
investor demand helped lead to solid performance for municipal bond
funds during the six months ended August 31, 1998. During the period,
municipal bonds provided investors with tax-exempt income that nearly
matched comparable taxable investments.
Since January, the municipal bond market was flooded with an
unprecedented volume of new issues. Pennsylvania, Ohio and New Jersey
were significant contributors, ranking 4th, 9th and 10th respectively
in volume. This increase in municipal bond supply temporarily slowed
price gains in the marketplace overall, as it struggled to absorb the
high volume of new issues.
With substantial supplies of new bond issues to select from and
rising asset bases, your Funds' portfolio managers found ample resources
to build solid, long-term foundations for our relatively smaller funds
in New Jersey and Ohio. In both states, we found substantial
opportunities in bonds that offered attractive yields, total return
potential and solid credit ratings.
FOR THE SIX MONTHS ENDED AUGUST 31, 1998, MUNICIPAL BONDS PROVIDED
INVESTORS WITH TAX-EXEMPT INCOME THAT NEARLY MATCHED COMPARABLE
TAXABLE INVESTMENTS.
Returns for Tax-Free New Jersey Fund were impressive during the
first half of fiscal 1999, outperforming both the Lehman Brothers
Municipal Bond Index and the average of its peers. Tax-Free Ohio Fund
outperformed the average of its peers for the six-month period ended
August 31, 1998. We have extended the Fund's average duration to
position it to benefit from a possible rise in bond prices for the
balance of fiscal 1999.
CUMULATIVE TOTAL RETURN
Six Months Ended
August 31, 1998
Tax-Free Pennsylvania Fund A Class +2.93%
Lipper Pennsylvania Municipal Bond Fund
Average (64 funds) +2.81%
Tax-Free New Jersey Fund A Class +4.04%
Lipper New Jersey Municipal Bond Fund
Average (58 funds) +3.20%
Tax-Free Ohio Fund A Class +3.26%
Lipper Ohio Municipal Bond Fund Average (52 funds) +2.93%
Lehman Brothers Municipal Bond Index +3.44%
All performance shown above is at net asset value and assumes
reinvestment of distributions. For complete performance for all
Classes, see page 9. Each index shown above is unmanaged. The Lehman
Brothers Municipal Bond Index includes bonds of various quality from
many states.
Total returns for Tax-Free Pennsylvania Fund, our largest and
oldest tax-exempt Fund, were limited by problems with a waste disposal
bond. While the Fund managed to outperform the average of comparable
funds in the state, total return fell short of the Lehman Brothers
Municipal Bond Index, the Fund's unmanaged benchmark.
With yields on Treasury bonds at historic lows, municipal bonds
are becoming an increasingly attractive investment, in our view. As of
August 31, 1998, municipal bonds offered 93.8% of the income available
in U.S. Treasuries, without the burden of federal tax liability.
In the following pages, portfolio managers, Patrick P. Coyne, and
Mitchell L. Conery, provide a review of Tax-Free Pennsylvania, New
Jersey and Ohio Funds, and offer their outlook for the remainder of
fiscal 1999.
MUNICIPAL BONDS OFFERED 93.8% OF THE INCOME AVAILABLE IN U.S.
TREASURIES, WITHOUT THE BURDEN OF FEDERAL TAX LIABILITY.
We encourage you to meet with your financial adviser to discuss
the performance of your Fund and review your overall investment
portfolio's asset mix. Thank you for your confidence in Delaware
Investments.
Sincerely,
/S/Wayne A. Stork
WAYNE A. STORK
Chairman
/S/Jeffrey J. Nick
JEFFREY J. NICK
President and Chief Executive Officer
[GRAPHIC OMITTED: WORM CHART MUNICIPAL BONDS COMPARED TO TREASURIES]
MUNICIPAL BONDS OFFER GOOD VALUE COMPARED TO TREASURIES
MARCH 1989 TO AUGUST 1998
Municipal Bond Yields/Treasury Bond Yields
Mar. 89 83.09%
June 89 85.26%
Sep. 89 87.41%
Dec. 89 85.93%
Mar. 90 82.96%
June 90 84.54%
Sep. 90 81.03%
Dec. 90 85.00%
Mar. 91 84.27%
June 91 82.72%
Sep 30, 91 84.55%
Dec 31, 91 86.56%
Mar. 92 82.91%
Jun 30, 92 80.41%
Sep 30, 92 84.02%
Dec 31, 92 82.52%
Mar. 93 83.79%
Jun 30, 93 81.69%
Sep 30, 93 86.31%
Dec 31, 93 82.04%
Mar. 94 86.76%
Jun 30, 94 82.76%
Sep 30, 94 81.30%
Dec 31, 94 83.80%
Mar. 95 80.05%
Jun 30, 95 89.13%
Sep 30, 95 89.51%
Dec 31, 95 87.50%
Mar. 96 85.57%
Jun 30, 96 83.43%
Sep 30, 96 80.13%
Dec 31, 96 82.15%
Mar. 97 81.04%
Jun 30, 97 80.36%
Sep 30, 97 81.97%
Dec 31, 97 84.84%
Mar. 98 86.50%
Jun 30, 98 89.73%
Aug. 98 93.78%
High quality municipal bonds offered the highest income potential
relative to Treasuries in more than nine years as of August 31.
The above chart represents the percentage of income that the average
30-year AAA-rated general obligation bond provided compared to a
30-year U.S. Treasury bond. The U.S. government does not guarantee
principal and interest of municipal bonds, unlike Treasuries.
Municipal bonds have historically had annual default rates of less
than 2%. Source: Bloomberg Business News.
Portfolio Managers' Review
BY PATRICK P. COYNE AND MITCHELL L. CONERY
Vice Presidents/Senior Portfolio Managers
September 21, 1998
DURING THE FIRST SIX MONTHS OF FISCAL 1999, many investors sought the
safety of U.S. government debt. Rising demand for U.S. Treasuries sent
bond prices soaring, and pushed yields to historic lows. During the
six months ended August 31, 1998, the average yield of 30-year
Treasury bonds fell from 6.08%, down to just 5.27%.
Strength in the Treasury market was driven by the increasing
appeal of less volatile investments in an uncertain global economy.
Changing economic conditions prompted investors to seek refuge in
bonds. These conditions included:
(bullet) Slowing U.S. economic growth, especially since June;
(bullet) Increasing volatility in global equity markets, and;
(bullet) Economic decline and currency devaluations in Asia, Russia
and other emerging markets.
Foreign investors contributed heavily to the Treasury bond rally,
as economic conditions in Asia and Russia continued to worsen. Foreign
investors and governments now own nearly one third of all outstanding
Treasury debt, up from 20% in 1994. Foreigners, however, are not
eligible for the tax breaks available by investing in state and local
government bonds, and as a consequence, do not invest heavily in them.
This explains in part why municipal bonds underperformed Treasuries
during the first six months of fiscal 1999.
The volume of new long-term municipal bonds issued during the
first eight months of 1998 increased more than 43% over the same
period in 1997, with some issues exceeding $1 billion. Rising budget
surpluses and low interest rates created an attractive environment for
state and local governments to issue debt. State and local governments
refinanced bonds to pay off older, higher interest debt.
MUNICIPAL BONDS HAVE BEEN A SOUND INVESTMENT IN CALENDAR 1998,
PROVIDING RETURNS THAT OUTPERFORMED THE STANDARD & POOR'S 500 INDEX, A
MEASURE OF LARGE COMPANY STOCKS.
After expanding at a rate of nearly 5.5% during the first quarter
of 1998, economic growth in the U.S slowed dramatically during the
second quarter to just 1.4%. We anticipate a more moderate pace of
domestic economic growth which should benefit municipal bond prices by
reducing inflation.
During the past six months, large numbers of investors attempted
to reduce their exposure to short-term market fluctuations by
reallocating more assets to bonds. This strategy not only helped to
reduce volatility, but outperformed the stock market for the first
time in a decade. During the period, municipal bonds, as measured by
the unmanaged Lehman Brothers Municipal Bond Index returned +3.44%,
while the Standard and Poor's 500 Index, a measure of large company
stocks, lost 8.08% of its value.
TAX-FREE PENNSYLVANIA FUND
BALANCING RISK AND REWARD
In Pennsylvania, insured municipal bonds account for nearly 70% of new
issues. Tax-Free Pennsylvania Fund attempts to provide an attractive
level of tax-exempt income and careful management of the Fund's
sensitivity to changes in interest rates.
During the past six months, the difference in income potential
between low- and high-quality bonds narrowed. With little additional
yield available as an incentive to take on credit risk, we maintained
a portfolio heavily weighted toward high-quality bonds. Nearly 80% of
the portfolio was invested in securities rated A or better by Standard
& Poor's as of August 31.
The Fund's average duration stood at 6.3 years as of August 31.
Since February, the difference between short-term and long-term
interest rates tightened and reduced the benefit of locking into
securities with extended maturities.
In an attempt to generate a high level of tax-exempt income for
the Fund, we invested nearly three-quarters of the Fund's net assets
in premium bonds -- bonds that sell at prices more than their face
value. During the bond market rally this past spring and summer,
prices of these securities generally lagged those of bonds selling at
par or at a discount to face value.
Since February, credit problems have surfaced at Allegheny Health
Systems, a Philadelphia health care provider. Fortunately, the Fund's
credit research discipline led us away from bonds of this issuer well
before Allegheny required U.S. Bankruptcy Court relief this past summer.
This helped Tax-Free Pennsylvania Fund's performance outpace most of
its peers, many of whom invested in Allegheny bonds.
The Fund's six-month total return would have been even better had
it not been for a waste disposal bond issued by the Philadelphia
Authority for Industrial Development which was in default.
CREDIT QUALITY
AUGUST 31,1998
Tax-Free Tax-Free Tax-Free
Pennsylvania Fund New Jersey Fund Ohio Fund
AAA 55.79% 69.02% 44.44%
AA 15.46% 4.44% 7.01%
A 8.54% 14.62% 0%
BBB 6.95% 2.41% 23.86%
BB 3.02% 2.35% 18.48%
B 0.13% 0% 0%
Not Rated 10.11% 7.16% 6.21%
TAX-FREE NEW JERSEY FUND
A SEED GROWS IN THE
GARDEN STATE
Under the leadership of Gov. Christine Todd Whitman, New Jersey has
benefited from reduced government spending and meaningful cuts to the
state income tax. Economic growth in the state, particularly in the
pharmaceutical industry, has created a positive employment outlook and
helped maintain strong credit ratings for state and local government
debt.
The performance of Tax-Free New Jersey Fund mirrored the positive
economic developments in the state. For the six months ended August
31, 1998, total return for the Fund was +4.04%, outperforming the
Fund's unmanaged benchmark, the Lehman Brothers Municipal Bond Index.
Tax-Free New Jersey Fund also outpaced the average returns of
comparable funds in the state.
An unrated bond issued by the New Jersey Economic Development
Authority, for the funding of a nursing home, continued to be the
Fund's top-performing bond. The bond now represents 7% of the Fund's
net assets. Water and sewer bonds, hospital bonds, and higher
education bonds, represented three of the Fund's largest sector
allocations.
During the past six months, increasing cash flow and more than $5
billion in new issues provided us with the resources and selection to
build a solid municipal bond portfolio. Due to the relatively small
size of the Fund, we focused on high quality 30-year bonds with high
credit ratings in order to increase the income potential of the Fund.
With inflation in check, we believe investing in longer term
securities will allow the Fund to generate higher potential yield with
a minimal increase to risk.
We also gave careful consideration to credit quality when
selecting bonds for the Tax-Free New Jersey Fund. Currently, more than
88% of the Fund's securities are rated A or better by Standard &
Poors, with a concentration of nearly 70% in the AAA category.
STATES AT A GLANCE
AUGUST 31,1998
Per Capita Unemployment Existing Single Family
Income Rate Home Sales+
New Jersey $31,053 4.8% +11.1%
Ohio 23,537 4.3% unchanged
Pennsylvania 24,668 4.4% -3.1%
+ 2nd quarter change from 1st quarter 1998.
Source: Bloomberg Business News.
TAX-FREE OHIO FUND
AN INCOME ORIENTED APPROACH
Ohio was the first state to impose an income tax nearly 86 years ago,
and residents have faced higher-than-average taxes ever since. In
1998, Ohio residents earning more than $200,000 saw the top state
income tax bracket rise from 7% to 7.5%. This has helped further
increase investor demand in a state that has historically been a
strong market for municipal bonds and tax-exempt bond funds.
Tax-Free Ohio Fund provided a six-month cumulative return of
+3.26% for the six months ended August 31, 1998. This was modestly
less than its unmanaged benchmark, the Lehman Brothers Municipal Bond
Index, but more than the average return of the Fund's peers.
We attribute this in part to the Fund's focus on maximizing tax-
exempt income. By investing in bonds (with credit ratings of BBB and
BB) that generated above-average income, we limited the Fund's ability
to participate in the municipal bond market price rally this past
summer. However, we remain convinced of the soundness of the Fund's
investment strategy because income rather than price appreciation has
proven to be the overwhelming component of total return from municipal
bonds.
Bonds issued to finance transportation projects accounted for
more than one quarter of the Fund's securities, followed by holdings
in the health care and higher education sectors. We selected bonds in
these sectors from institutions demonstrating solid management ability
and an expanding revenue base.
PRUDENT STATE FISCAL POLICIES, A STRONG RECOVERY IN THE AUTOMOTIVE
INDUSTRY FOLLOWING THE GENERAL MOTORS STRIKE, AND HIGHER CORPORATE
EARNINGS HAVE LED TO RISING TAX REVENUES IN OHIO.
Prudent state fiscal policies, a strong recovery in the
automotive industry following the General Motors strike, and higher
corporate earnings led to rising tax revenues in Ohio. Ohio has posted
a budget surplus since 1995, which is expected to reach $131 million
in 1999. We expect these positive economic trends to continue, leading
to higher prices and improving credit ratings for the state's
municipalities.
PORTFOLIO HIGHLIGHTS
AUGUST 31, 1998
Tax-Free Tax-Free Tax-Free
Pennsylvania New Jersey Ohio
Fund Fund Fund
Average Maturity 9.6 years 14.0 years 14.2 years
Average Duration 6.3 years 9.1 years 9.2 years
AMT Income* 2.06% 6.09% 19.32%
Average Coupon 6.32% 5.17% 5.51%
Current 30-Day SEC Yield**
(A Class) 4.19% 4.29% 4.66%
(B Class) 3.56% 3.71% 4.09%
(C Class) 3.56% 3.70% 4.09%
* Amount of income subject to the federal alternative minimum tax
for the six months ended August 31, 1998.
** Calculated according to Securities and Exchange Commission
Guidelines.
SUMMARY OUTLOOK
Pennsylvania, New Jersey and Ohio residents continue to benefit from
high employment rates, rising personal incomes and tame inflation. The
resulting consumer confidence has bolstered domestic spending and
provided fuel for continued economic growth as overseas demand for
U.S. goods, products and services diminished.
In the coming months, we expect the supply pressures that stifled
price gains in the municipal bond market to ease. Since many
municipalities have already taken advantage of the opportunity to
refinance their debt, and because the IRS limits how frequently
municipalities are allowed to issue refunding bonds, the supply of new
municipal bonds should decrease in the coming year.
Because they offer investors the added advantage of tax-exempt
income, municipal bonds normally provide lower yields than U.S.
Treasury bonds. As of August 31, 1998, however, average yields for
state and local government bonds reached a historically compelling
value, at 94% of Treasuries.
Increased volatility in equity markets and the ongoing recession
in Asia and Russia point to potentially higher demand for fixed-income
investments in the coming months. In our view, investors seeking to
diversify their portfolios with less volatile investments may find
attractive opportunities in municipal bonds. Lower interest rates
should also benefit municipal bond prices for the balance of fiscal
1999.
[GRAPHIC OMITTED; BAR CHART TAX-FREE PENNSYLVANIA FUND'S INCOME HISTORY]
TAX-FREE PENNSYLVANIA FUND'S INCOME HISTORY
ANNUAL INCOME FROM A $100,000 INVESTMENT 1978-1998
WITH REINVESTMENT OF DISTRIBUTIONS
TAX-FREE PENNSYLVANIA FUND A CLASS
TOTAL INCOME $271,069
Period Ended Income
August 1978 $ 5,095
August 1979 5,644
August 1980 6,097
August 1981 6,975
August 1982 7,872
August 1983 9,120
August 1984 9,096
August 1985 12,779
August 1986 12,160
August 1987 12,077
August 1988 12,881
August 1989 13,781
August 1990 14,599
August 1991 15,306
August 1992 16,024
August 1993 16,357
August 1994 16,932
August 1995 17,806
August 1996 18,122
August 1997 18,420
August 1998 $18,021
Chart assumes $100,000 investment on March 23, 1977, includes the
effect of a 3.0% front-end sales charge and reinvestment of
distributions. Performance of other Fund classes will vary due to
other charges and expenses. Past performance does not guarantee future
results. Sales charges are reduced on purchases of $100,000 or more.
Performance Summary
TAX-FREE PENNSYLVANIA FUND
AVERAGE ANNUAL RETURNS THROUGH AUGUST 31, 1998
Lifetime Ten Years Five Years One Year
Class A (Est. 3/23/77)
Excluding Sales Charge +6.68% +7.69% +5.35% +7.60%
Including Sales Charge +6.49% +7.29% +4.56% +3.59%
Class B (Est. 5/2/94)
Excluding Sales Charge +5.74% +6.74%
Including Sales Charge +5.35% +2.74%
Class C (Est. 11/29/95)
Excluding Sales Charge +5.14% +6.74%
Including Sales Charge +5.14% +5.74%
TAX-FREE NEW JERSEY AND OHIO FUNDS
LIFETIME PERFORMANCE
CUMULATIVE TOTAL RETURNS THROUGH AUGUST 31, 1998
Tax-Free Tax-Free
New Jersey Fund Ohio Fund
Class A (Est. 9/3/97)
Excluding Sales Charge +10.04% +9.87%
Including Sales Charge +5.99% +5.83%
Class B (Est. 9/3/97)
Excluding Sales Charge +8.72% +5.40%
Including Sales Charge +4.72% +1.40%
Class C (Est. 9/3/97)
Excluding Sales Charge +7.78% +6.13%
Including Sales Charge +6.78% +5.13%
Performance for all Funds includes reinvestment of distributions and
applicable sales charge as described below. Return and share value
will fluctuate so those shares, when redeemed, may be worth more or
less than the original cost. Past performance is not a guarantee of
future results. Performance for Class B and C shares excluding sales
charge assumes either contingent sales charge did not apply or the
investment was not redeemed. Returns reflect voluntary expense
limitations and would have been lower without the limitations.
Class A Shares have a 3.75% maximum front-end sales charge, and for
periods after 6/1/92, a 12b-1 fee.
Class B shares do not carry a front-end sales charge, but are subject
to a 1% annual distribution and service fee. They are also subject to
a deferred sales charge of up to 4% if redeemed before the end of the
sixth year.
Class C shares have a 1% annual distribution and service fee. If
shares are redeemed within 12 months, a 1% contingent deferred sales
charge applies.
<TABLE>
<CAPTION>
Financial Statements
DELAWARE GROUP TAX-FREE PENNSYLVANIA FUND
STATEMENT OF NET ASSETS
AUGUST 31, 1998 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------------------------
MUNICIPAL BONDS - 99.92%
AIRPORT REVENUE BONDS - 1.60%
Philadelphia Pennsylvania Authority For Industrial
Development Airport Revenue Systems
(Philadelphia Airport Project) Series A 5.125%
07/01/28 AMT (FGIC) $15,000,000 $ 14,851,800
------------
14,851,800
------------
CONTINUING CARE/RETIREMENT REVENUE BONDS - 0.71%
Philadelphia Pennsylvania Authority For Industrial
Development Revenue (Stapley In Germantown
Continuing Care Community) 6.60% 01/01/16 5,250,000 5,456,535
Philadelphia Pennsylvania Hospitals and Higher
Education Facilities Authority Revenue
(The Philadelphia Protestant Home Project)
Series A 6.50% 07/01/27 1,100,000 1,139,435
------------
6,595,970
------------
HIGHER EDUCATION REVENUE BONDS - 14.57%
Dauphin County General Authority College Revenue
(Holy Family College) 7.50% 12/01/19 3,025,000 3,272,717
Delaware County Authority University Revenue
(Villanova University) 5.80% 08/01/25
(AMBAC) 7,000,000 7,507,570
(Villanova University) 9.625% 08/01/02
(Escrowed to Maturity) 360,000 404,330
Montgomery County Higher Education and Health
Authority Revenue (Beaver College) 5.85%
04/01/21 (Connie Lee) 5,465,000 5,857,879
Northampton County Higher Education Authority Revenue
(Lehigh University) Series A 5.50% 11/15/11 2,630,0000 2,781,856
(Lehigh University) Series B 5.25% 11/15/21 9,025,0000 9,159,653
Pennsylvania State Higher Educational Facilities
Authority Revenue State System
Series M 5.75% 06/15/20 (AMBAC) 17,730,000 18,620,755
Series P 5.00% 06/15/19 (AMBAC) 10,000,000 9,973,600
Pennsylvania State Higher Educational Facilities
Authority Revenue College Revenue
(Elizabethtown College) 6.50% 06/15/15 6,700,000 7,040,427
(LaSalle University) 9.50% 05/01/03
(Escrowed to Maturity) 315,000 355,988
(Temple University) 5.00% 04/01/29 (MBIA) 8,950,000 8,880,280
(Temple University) 5.75% 04/01/31 (MBIA) 8,000,000 8,353,360
(University of Pennsylvania) 5.90% 09/01/15 4,205,000 4,526,178
(University of Pennsylvania) 4.75% 07/15/33 14,420,000 13,578,160
Pennsylvania State University Series A 5.00%
08/15/27 20,000,000 19,788,200
Swarthmore Borough Authority (Swarthmore College)
5.00% 09/15/28 2,000,000 1,990,720
6.00% 09/15/12 7,000,000 7,532,560
7.375% 09/15/08 2,800,000 2,845,333
University of Pittsburgh Pennsylvania Refunding
Series B 5.00% 06/01/21 (MBIA) 3,000,000 2,991,690
------------
135,461,256
------------
HOSPITAL REVENUE BONDS - 20.37%
Allegheny County Pennsylvania Hosp ital Development
Authority Revenue (Allegheny Valley Hospital)
7.75% 08/01/20 1,340,000 1,255,902
Allegheny County Pennsylvania Hospital Development
Authority Revenue Health Center
(University of Pittsburgh) Series A 5.625%
04/01/27 (MBIA) 5,000,000 5,233,150
(UPMC Health) Series B 6.00% 07/01/23
(MBIA) 5,745,000 6,574,233
(UPMC Health) Series B 6.00% 07/01/26
(MBIA) 4,750,000 5,451,385
(UPMC Health) Series B 6.00% 07/01/27
(MBIA) 5,000,000 5,750,350
Chester County Pennsylvania Health and Educational
Facilities Authority Health System Revenue
(Jefferson Health Systems) Series B 5.375%
05/15/27 24,270,000 24,658,077
Delaware County Pennsylvania Authority
(Escrowed to Maturity)
(Crozer-Chester Medical Center) 5.30%
12/01/27 5,000,000 4,919,250
(Mercy Health Corp.) 6.00% 12/15/26 3,500,000 3,968,685
Monroeville Hospital Authority Revenue
(Forbes Health System) 7.00% 10/01/13 7,000,000 6,962,130
Montgomery County Pennsylvania Higher Education &
Health Authority Hospital Revenue (Abington
Memorial Hospital) Series A 5.00% 06/01/28
(AMBAC) 5,500,000 5,399,295
Pennsylvania Higher Educational Facilities Authority
Health Services Revenue
(University of Pennsylvania Health Services)
Series A 5.75% 01/01/22 20,000,000 21,099,000
Philadelphia Pennsylvania Hospital Higher Education
Facilities Authority Hospital Revenue
(Children's Hospital of Philadelphia) Series A
5.50% 02/15/22 5,600,000 5,673,416
(Children's Seashore House) Series A 7.00%
08/15/17 3,100,000 3,403,459
(Children's Seashore House) Series B 7.00%
08/15/22 2,100,000 2,287,299
(Jeanes Health System Project) 6.85% 07/01/22 18,020,000 19,514,399
(Presbyterian Medical Center) 6.65% 12/01/19
(Escrowed to Maturity) 13,000,000 15,699,450
(Roxborough Memorial Hospital) 7.25%
03/01/24 12,190,000 13,117,903
(Temple University Hospital) 6.625% 11/15/23 16,500,000 17,865,375
Sayre-Health Care Facilities (VHA of Pennsylvania, Inc.)
(Capital Asset Financing Program - Guthrie
Medical Center)
Series A 7.625% 12/01/15 (AMBAC) 1,000,000 1,075,120
Series B 7.625% 12/01/15 (AMBAC) 2,490,000 2,677,049
Sayre-Health Care Facilities (Guthrie Healthcare
Systems) Series A 6.00% 03/01/21 (AMBAC) 7,000,000 7,263,550
Scranton-Lackawanna Health and Welfare Authority
(Allied Services Rehabilitation Hospitals) 7.60%
07/15/20 5,640,000 6,272,470
(Moses Taylor Hospital) 6.15% 07/01/14 3,000,000 3,220,590
------------
189,341,537
------------
HOUSING REVENUE BONDS - 6.31%
Montgomery County Pennsylvania Redevelopment
Authority Multi-Family Housing
(KBF Associates Project)
Series A 6.50% 07/01/25 20,810,000 22,039,871
Series B 7.25% 07/01/25 15,185,000 16,236,561
Pennsylvania Housing Finance Agency
Single Family Mortgage
Series Y 7.45% 04/01/16 (FHA) 1,415,000 1,468,586
Series Z 7.50% 10/01/10 1,250,000 1,319,450
Pennsylvania Housing Finance Agency
Single Family Mortgage AMT
Series 57A 6.15% 04/01/27 5,000,000 5,344,700
Series 59A 5.80% 10/01/29 2,950,000 3,062,218
Series 60A 5.85% 10/01/27 7,300,000 7,627,551
Philadelphia Pennsylvania Redevelopment
Authority Home Improvement Series A 7.375%
06/01/03 770,000 779,625
Pittsburgh Pennsylvania Urban Redevelopment
Authority Mortage Revenue Series B 8.30%
04/01/17 800,000 816,760
------------
58,695,322
------------
INDUSTRIAL DEVELOPMENT REVENUE BONDS - 3.55%
Delaware County Pennsylvania Industrial Development
Authority - Resource Recovery/
Browning Ferris Industries Series A 6.10%
07/01/13 12,000,000 13,134,360
Series A 6.20% 07/01/19 9,000,000 9,867,600
Philadelphia Pennsylvania Authority for Industrial
Development Industrial and Commercial Revenue
(Girard Estates Facilities Leasing Project)
5.00% 05/15/19 2,400,000 2,421,744
5.00% 05/15/27 7,500,000 7,541,475
------------
32,965,179
------------
POLLUTION CONTROL REVENUE BONDS - 8.42%
Beaver County Pennsylvania Industrial Development
Authority Pollution Control Revenue
(Cleveland Electric Illuminating Project) 7.625%
05/01/25 8,500,000 9,674,955
Series A 7.75% 07/15/25 10,000,000 11,483,600
Delaware County Pennsylvania Industrial Development
Authority Pollution Control Revenue
(Philadelphia Electric Company) Series A
7.375% 04/01/21 10,250,000 11,123,608
Lehigh County Pennsylvania Industrial Development
Authority Pollution Control Revenue
(Pennsylvania Power and Light Company Project)
Series A 5.50% 02/15/27 (MBIA) 10,500,000 10,790,010
Series A 6.40% 11/01/21 (MBIA) 7,000,000 7,632,170
Series B 6.40% 09/01/29 (MBIA) 15,000,000 16,704,150
Montgomery County Pennsylvania Industrial
Development Authority Pollution Control Revenue
(Philadelphia Electric Company) 6.70%
12/01/21 (MBIA) 10,000,000 10,883,400
------------
78,291,893
------------
*PRE-REFUNDED BONDS - 23.41%
Abington School District 6.00% 05/15/26-06
(FGIC) 6,000,000 6,682,980
Allegheny County Pennsylvania Hospital Development
Authority Revenue (South Hills Health Facilities)
6.00% 05/01/20-02 (MBIA) 1,500,000 1,608,000
Allegheny County Pennsylvania Sanitation
Authority Revenue
Series A 7.50% 12/01/16-99 (FGIC) 1,780,000 1,832,136
Series B 7.50% 12/01/16-99 (FGIC) 4,020,000 4,137,746
Series C 6.50% 12/01/16-01 (FGIC) 4,500,000 4,864,410
Delaware County Authority University Revenue
(Haverford College) 7.375% 11/15/20-00
(MBIA) 3,275,000 3,585,765
Doylestown Hospital Authority (Doylestown Hospital)
Series C 6.90% 07/01/19-99 (AMBAC) 1,750,000 1,832,460
Harrisburg Water Authority Revenue 7.00%
07/15/15-01 (FGIC) 12,000,000 13,026,120
Philadelphia Authority For Industrial Development
Revenue (Cathedral Village) 7.25%
04/01/15-03 2,000,000 2,298,180
Philadelphia Pennsylvania Hospital Higher Education
Facilities Authority Hospital Revenue (Albert Einstein
Medical Center) 7.625% 04/01/11-99 19,110,000 19,928,481
Pennsylvania Higher Education Facilities Authority
College & University Revenue
(Hahnemann University) 6.90% 07/01/21-01
(MBIA) 13,000,000 14,314,820
(Holy Family College) 8.00% 12/01/06-98 380,000 384,108
(The Medical College of Pennsylvania) 7.50%
3/01/14-99 1,000,000 1,019,580
Pennsylvania Intergovernmental Cooperative Authority
Special Tax Revenue (City of Philadelphia
Funding Program) 6.80% 06/15/22-02 2,125,000 2,342,005
Pennsylvania State Turnpike Commission
Turnpike Revenue
Series E 7.55% 12/01/17-99 (MBIA) 495,000 528,521
Series I 7.20% 12/01/17-01 (FGIC) 8,915,000 9,983,284
Series J 7.20% 12/01/17-01 (FGIC) 8,915,000 10,072,871
Series K 7.50% 12/01/19-99 10,000,000 10,671,200
Pennsylvania State University Revenue Series 89
6.75% 07/01/14-99 14,195,000 14,840,731
Philadelphia Regional Port Authority Lease Revenue
7.15% 08/01/20-00 (MBIA) 16,315,000 17,337,461
Philadelphia Water & Sewer Revenue 7.00%
08/01/18-01 20,650,000 22,442,007
Puerto Rico (Commonwealth of) General Obligation
6.50% 07/01/18-99 2,745,000 2,815,519
7.25% 07/01/10-00 1,370,000 1,482,751
7.75% 07/01/17-99 7,700,000 8,088,080
Sewickley Valley Hospital Authority Refunding
(Sewickley Valley Hospital Project) 7.50%
10/01/06-99 1,295,000 1,373,218
Swarthmore Borough Authority (Swarthmore College)
7.375% 09/15/20-00 14,000,000 15,108,520
University Area Joint Authority Water and Sewer
Revenue 7.10% 09/01/20-00 (MBIA) 6,000,000 6,442,080
Washington County Authority Revenue (Shadyside
Hospital) Series 85D 7.45% 12/15/18-00
(AMBAC) 7,500,000 8,188,500
York County Hospital Revenue Authority (York Hospital)
7.00% 07/01/21-01 (AMBAC) 9,500,000 10,351,200
------------
217,582,734
------------
SCHOOL DISTRICT GENERAL OBLIGATION BONDS - 4.56%
Hampton Township Pennsylvania School District
5.00% 09/01/27 (FGIC) 5,500,000 5,474,920
Hazleton Pennsylvania Area School District Series B
5.00% 03/01/23 (FGIC) 2,000,000 1,994,400
Nazareth Pennsylvania Area School District
5.00% 8/15/17 (FGIC) 2,760,000 2,772,310
5.00% 11/15/17 (FGIC) 3,180,000 3,193,133
North Allegheny Pennsylvania School District Series D
5.00% 05/01/21 (FGIC) 9,500,000 9,486,605
Pottsville Pennsylvania Area School District 9.375%
05/01/06 (Escrowed to Maturity) (AMBAC) 900,000 1,161,927
Radnor Township Pennsylvania School District Second
Series 5.00% 03/15/26 6,460,000 6,412,131
South Park Pennsylvania School District 5.00%
05/15/20 (FGIC) 5,800,000 5,799,594
Upper Merion Pennsylvania Area School District
5.00% 07/15/15 2,000,000 1,999,880
5.00% 07/15/16 2,000,000 1,988,200
5.00% 07/15/17 2,150,000 2,131,725
------------
42,414,825
------------
TRANSPORTATION REVENUE BONDS - 1.39%
Pennsylvania State Turnpike Commission
Turnpike Revenue
Series L 6.25% 06/01/11 (AMBAC) 9,000,000 9,648,000
Series N 6.50% 12/01/13 3,000,000 3,270,930
------------
12,918,930
------------
WASTE DISPOSAL REVENUE BONDS - 0.72%
Greater Lebanon Refuse Authority Solid Waste
Revenue Refunding 7.00% 11/15/04 1,200,000 1,312,584
++Philadelphia Pennsylvania Authority for Industrial
Development Revenue Solid Waste (American
RRT Project) 8.00% 12/01/19 AMT 15,900,000 5,366,250
------------
6,678,834
------------
WATER & SEWER REVENUE BONDS - 4.69%
Dauphin County Pennsylvania Industrial Development
Authority Water Development Revenue Series B
6.70% 06/01/17 1,750,000 2,085,230
Philadelphia Pennsylvania Water & Waste
Water Revenue 5.60% 08/01/18 (MBIA) 6,870,000 7,188,287
Series A 5.00% 08/01/22 (AMBAC) 6,320,000 6,310,962
Series A 5.125% 08/01/27 (AMBAC) 14,225,000 14,324,860
Pittsburgh Pennsylvania Water & Sewer Revenue
7.25% 09/01/14 (Escrowed to Maturity)
(FGIC) 9,000,000 11,076,210
West Mifflin Pennsylvania Sanitation Sewer Municipal
Authority Sewer Revenue 5.00% 08/01/28
(MBIA) 2,675,000 2,654,349
------------
43,639,898
------------
OTHER GENERAL OBLIGATION BONDS - 5.39%
Falls Township Pennsylvania General Obligation 7.00%
12/15/10 (MBIA) 3,000,000 3,192,270
New Morgan Pennsylvania General Obligation
Guaranteed Revenue 8.00% 11/01/05 8,525,000 9,343,741
Philadelphia Pennsylvania General Obligation 5.00%
05/15/25 (MBIA) 11,690,000 11,553,227
Puerto Rico (Commonwealth of) General Obligation
5.40% 07/01/25 10,000,000 10,299,000
5.75% 07/01/17 11,000,000 11,786,720
6.00% 07/01/22 3,585,000 3,913,888
------------
50,088,846
------------
OTHER REVENUE BONDS - 4.23%
Cambria County Hospital Development Authority
Health Center Revenue (Allegheny Lutheran Social
Ministries Project) 8.25% 06/15/17 3,250,000 3,523,455
Chester (City Of) Pennsylvania Guaranteed Host
Community Resource Recovery Revenue 7.25%
12/01/05 11,425,000 12,259,596
Dauphin County Pennsylvania General Authority
Office & Parking/Riverfront Office Center Project
Series A 6.00% 01/01/25 8,000,000 8,052,320
Delaware County Authority Revenue (Main Line &
Haverford Nursing and Rehabilitation Center)
9.00% 08/01/22 1,975,000 2,297,537
Delaware River Port Authority 6.50% 01/01/08
(AMBAC) 5,000,000 5,048,450
Erie Western Pennsylvania Port Authority General
Revenue 6.25% 06/15/10 AMT 1,365,000 1,478,691
Harrisburg Pennsylvania Authority Office & Parking
Revenue Series A 6.00% 05/01/19 3,000,000 3,041,400
+Philadelphia Gas Works Revenue 4.99% 01/01/12
(AMBAC) 2,500,000 1,319,975
+Westmoreland County Municipal Authority Municipal
Service Revenue Series A 4.59% 08/15/23
(FGIC) 8,000,000 2,277,200
------------
39,298,624
------------
Total Municipal Bonds (cost $871,249,712) 928,825,648
------------
- -------------------
* For Pre-Refunded Bonds, the stated maturity is followed by the year in which each
bond is pre-refunded.
+ Zero coupon security as of August 31, 1998. The interest rate shown for this
security is the effective yield.
++ Security in default.
TOTAL MARKET VALUE OF SECURITIES - 99.92%
(cost $871,249,712) $928,825,648
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 0.08% 763,505
------------
NET ASSETS APPLICABLE TO 110,524,795
SHARES OUTSTANDING - 100.00% $929,589,153
============
NET ASSET VALUE - TAX-FREE PENNSYLVANIA FUND A CLASS
($886,910,912 / 105,450,513 SHARES) $8.41
=====
NET ASSET VALUE - TAX-FREE PENNSYLVANIA FUND B CLASS
($39,859,562 / 4,739,154 SHARES) $8.41
=====
NET ASSET VALUE - TAX-FREE PENNSYLVANIA FUND C CLASS
($2,818,679 / 335,128 SHARES) $8.41
=====
COMPONENTS OF NET ASSETS AT AUGUST 31, 1998:
Capital shares (unlimited authorization-no par) $867,888,150
Accumulated net realized gain on investments 4,125,067
Net unrealized appreciation of investments 57,575,936
------------
Total net assets $929,589,153
============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE PENNSYLVANIA FUND A CLASS
Net asset value A Class (A) $8.41
Sales charge (3.75% of offering price or 3.92% of
amount invested per share) (B) 0.33
-----
Offering price $8.74
=====
- -------------------
(A)Net asset value per share, as illustrated, is the estimated amount which would
be paid upon the redemption or repurchase of shares.
(B)See How to Buy Shares in the current Prospectus for purchases of $100,000 or
more.
Summary of Abbreviations:
AMBAC - Insured by AMBAC Indemnity Corporation
Connie Lee - Insured by College Construction Insurance Association
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
MBIA - Insured by the Municipal Bond Insurance Association
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
DELAWARE GROUP TAX-FREE NEW JERSEY FUND
STATEMENT OF NET ASSETS
AUGUST 31,1998 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------------------------
MUNICIPAL BONDS - 103.00%
AIRPORT REVENUE BONDS - 2.35%
New Jersey Economic Development Authority Special
Facilities Revenue (Continental Airlines Project)
AMT 5.50% 04/01/28 $ 50,000 $ 50,036
----------
50,036
----------
CONTINUING CARE/RETIREMENT REVENUE BONDS - 2.44%
New Jersey Economic Development Authority Revenue
Reference First Mortgage The Evergreens 6.00%
10/01/22 50,000 51,925
----------
51,925
----------
GENERAL OBLIGATION REVENUE BONDS - 2.36%
Evesham Township New Jersey Series A 5.00%
09/15/17 (FGIC) 50,000 50,252
----------
50,252
----------
HIGHER EDUCATION REVENUE BONDS - 11.17%
New Jersey State Educational Facilities Authority
Revenue (Drew University Issue) Series C 5.00%
07/01/17 (MBIA) 65,000 65,265
New Jersey State Educational Facilities Authority
(Montclair State University) Series F 5.40%
07/01/25 (AMBAC) 30,000 30,976
New Jersey State Educational Facilities Authority
Revenue (Richard Stockton College) Series C
5.10% 07/01/23 (AMBAC) 70,000 70,696
New Jersey State Educational Facilities Authority
(University Medicine & Dentistry) 5.25%
12/01/21 (AMBAC) 50,000 50,950
New Jersey State Educational Facilities Authority
(Princeton Theological) Series A 5.00%
07/01/22 20,000 20,065
----------
237,952
----------
HOSPITAL REVENUE BONDS - 14.20%
New Jersey Health Care Facilities Financing Authority
(Holy Name Hospital) 5.25% 07/01/20
(AMBAC) 50,000 51,327
New Jersey Health Care Facilities Financing Authority
(JFK Medical Center/Hartwyck) 5.00%
07/01/18 (MBIA) 100,000 100,348
New Jersey Health Care Facilities Financing Authority
(AHS Hospital) Series A 5.00% 07/01/27
(AMBAC) 150,000 150,738
----------
302,413
----------
HOUSING REVENUE BONDS - 2.41%
New Jersey State Housing and Mortgage Finance
Agency AMT Series A 5.65% 05/01/40
(AMBAC) 50,000 51,329
----------
51,329
----------
INDUSTRIAL DEVELOPMENT AUTHORITY REVENUE BONDS - 4.72%
New Jersey Economic Development Authority
(Kapkowski Road Landfill) Series A 6.375%
04/01/18 (AMBAC) 100,000 100,522
----------
100,522
----------
PARKING REVENUE BONDS - 4.71%
Essex County New Jersey Improvement Authority
Parking Facility Series B 5.25% 10/01/27
(MBIA) 40,000 40,637
Essex County New Jersey Improvement Authority
Parking Facilities Revenue 5.00% 10/01/22
(AMBAC) 60,000 59,582
----------
100,219
----------
PORTS & HARBORS REVENUE BONDS - 6.84%
Delaware River and Bay Authority 5.25%
01/01/26 (FGIC) 50,000 51,144
Port Authority of New York and New Jersey
Construction 114th Series 4.75% 08/01/33 100,000 94,627
----------
145,771
----------
SCHOOL DISTRICT GENERAL OBLIGATION BONDS - 6.04%
Freehold Township New Jersey Board of Education
5.40% 07/15/23 (FSA) 50,000 51,524
Mount Olive Township New Jersey Board of Education
5.00% 01/15/19 (FGIC) 25,000 25,083
Newark New Jersey Schools 5.30% 09/01/15
(MBIA) 50,000 52,106
----------
128,713
----------
TERRITORIAL GENERAL OBLIGATION BONDS - 2.43%
Puerto Rico Commonwealth 5.375% 07/01/21
(MBIA) 50,000 51,719
----------
51,719
----------
TERRITORIAL REVENUE BONDS - 14.62%
Puerto Rico Commonwealth Highway & Transportation
Authority (Highway Improvements) Series Y
5.50% 07/01/26 250,000 259,988
Puerto Rico Industrial Tourist Educational Medical and
Environmental Control Facilities (Mennonite
General Hospital) Series A 5.625% 07/01/27 50,000 51,366
----------
311,354
----------
WATER & SEWER REVENUE BONDS - 19.38%
Bayonne New Jersey Municipal Utilities Authority
Water Systems 5.00% 01/01/28 (MBIA) 50,000 49,844
Essex County New Jersey Improvement Authority
Revenue Utility System (East Orange Franchise)
5.00% 07/01/28 (MBIA) 100,000 99,685
North Jersey District Water Supply Series A (Wanaque
North Project) 5.125% 11/15/21 (MBIA) 150,000 151,710
Stafford New Jersey Municipal Utilities Authority Water
and Sewer Revenue 5.00% 12/01/22 (FGIC) 60,000 60,282
Wanaque Borough New Jersey Sewer Authority Sewer
Revenue 5.25% 12/01/21 50,000 51,332
----------
412,853
----------
MISCELLANEOUS REVENUE BONDS - 4.64%
Union County New Jersey Utilities Authority County
Deficiency Series A2 5.00% 06/15/28 100,000 98,922
----------
98,922
----------
VARIABLE RATE DEMAND OBLIGATION - 4.69%
+ New Jersey Economic Development Authority Water
Facilities Revenue United Water New Jersey
Project B 3.20% 11/01/25 (AMBAC) 100,000 100,000
----------
100,000
----------
Total Municipal Bonds (cost $2,126,947) 2,193,980
----------
- -------------------
Summary of Abbreviations:
AMBAC - Insured by 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
+ Variable Rate Demand Obligation - The interest rate shown is the rate as of
August 31,1998 and the maturity shown is the longer of the next interest
readjustment date or the date the principal amount shown can be recovered
through demand.
TOTAL MARKET VALUE OF SECURITIES - 103.00%
(cost $2,126,947) $2,193,980
LIABILITIES NET OF RECEIVABLES AND
OTHER ASSETS - (3.00%) (64,002)
----------
NET ASSETS APPLICABLE TO 369,106
SHARES OUTSTANDING - 100.00% $2,129,978
==========
NET ASSET VALUE - TAX-FREE NEW JERSEY FUND A CLASS
($1,320,483 / 228,838 SHARES) $5.77
=====
NET ASSET VALUE - TAX-FREE NEW JERSEY FUND B CLASS
($799,191 / 138,483 SHARES) $5.77
=====
NET ASSET VALUE - TAX-FREE NEW JERSEY FUND C CLASS
($10,304 / 1,785 SHARES) $5.77
=====
COMPONENTS OF NET ASSETS AT AUGUST 31, 1998:
Capital shares (unlimited authorization - no par) $2,062,990
Undistributed net investment income 59
Accumulated net realized loss on investments (104)
Net unrealized appreciation of investments 67,033
----------
Total net assets $2,129,978
==========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE NEW JERSEY FUND A CLASS
Net asset value A Class (A) $5.77
Sales charge (3.75% of offering price or 3.81% of
amount invested per share) (B) 0.22
-----
Offering price $5.99
=====
- -------------------
(A)Net asset value per share, as illustrated, is the estimated amount which would
be paid upon the redemption or repurchase of shares.
(B)See How to Buy Shares in the current Prospectus for purchases of $100,000 or
more.
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
DELAWARE GROUP TAX-FREE OHIO FUND
STATEMENT OF NET ASSETS
AUGUST 31, 1998 (UNAUDITED)
PRINCIPAL MARKET
AMOUNT VALUE
<S> <C> <C>
- -----------------------------------------------------------------------------------
MUNICIPAL BONDS - 98.76%
AIRPORT REVENUE BONDS - 16.02%
Cleveland Ohio Airport Special Revenue (Continental
Airlines Project) 5.375% 09/15/27 $150,000 $ 147,080
Toledo Lucas County Ohio Port Authority Airport
Revenue Reference Improvement Series 1 5.50%
05/15/20 95,000 93,106
----------
240,186
----------
CITY REVENUE BONDS - 3.43%
Elyria Ohio General Obligations 5.40% 12/01/22
(FGIC) 50,000 51,500
----------
51,500
----------
CONVENTION CENTER/STADIUM REVENUE BONDS - 3.45%
Cleveland Ohio Cleveland Stadium Project 5.25%
11/15/17 (AMBAC) 50,000 51,753
----------
51,753
----------
HIGHER EDUCATION REVENUE BONDS - 10.40%
University of Akron Ohio 5.25% 01/01/22 (AMBAC) 50,000 50,955
Ohio State Higher Educational Facility Revenue
(Case Western Reserve University) 5.125%
10/01/17 50,000 50,482
University of Cincinnati Ohio Series T 5.00%
06/01/18 55,000 54,587
----------
156,024
----------
HOSPITAL REVENUE BONDS - 14.86%
Lorain County Ohio Hospital Revenue Catholic
Healthcare Partners 5.50% 09/01/27 (MBIA) 50,000 52,181
Montgomery County Ohio Hospital
(Grandview Hospital) 5.65% 12/01/12 100,000 103,872
Puerto Rico Industrial Tourist Educational Medical and
Environmental Control Facilities (Mennonite
General Hospital) Series A 5.625% 07/01/27 65,000 66,776
----------
222,829
----------
HOUSING REVENUE - 6.91%
Franklin County Ohio Management Revenue
Briggs/Wedgewood 5.55% 11/20/17 (GNMA) 50,000 51,564
Ohio Housing Finance Agency Mortgage Revenue
Residential - Series C 5.75% 09/01/28 (GNMA) 50,000 52,026
----------
103,590
----------
INDUSTRIAL DEVELOPMENT AUTHORITY REVENUE BONDS - 4.60%
Ohio State Air Quality Authority 5.625% 10/01/22
(AMBAC) 65,000 69,016
----------
69,016
----------
POLLUTION CONTROL REVENUE BONDS - 8.67%
Ohio State Air Quality Development Authority Revenue
Pollution Control Series B 6.00% 08/01/20 125,000 130,070
----------
130,070
----------
POWER AUTHORITY REVENUE BONDS - 8.38%
Cleveland Ohio Public Power Systems Revenue
5.00% 11/15/24 (MBIA) 80,000 79,531
Puerto Rico Electric Power Authority Power Revenue
Series X 5.50% 07/01/25 45,000 46,128
----------
125,659
----------
SCHOOL AUTHORITY/DISTRICT REVENUE BONDS - 8.10%
Brecksville-Broadview Heights Ohio School District
5.25% 12/01/21 (FGIC) 50,000 50,949
Oak Hills Ohio Local School District 5.125%
12/01/25 (MBIA) 70,000 70,522
----------
121,471
----------
TRANSPORTATION REVENUE BONDS - 13.94%
Dayton Ohio Special Facilities Revenue (Air Freight)
6.05% 10/01/09 130,000 140,921
Ohio State Turnpike Commission Turnpike Revenue
1996 Series A 5.50% 02/15/26 (MBIA) 65,000 68,171
----------
209,092
----------
Total Municipal Bonds (cost $1,435,632) 1,481,190
----------
TOTAL MARKET VALUE OF SECURITIES - 98.76%
(cost $1,435,632) $1,481,190
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.24% 18,653
----------
NET ASSETS APPLICABLE TO 260,915
SHARES OUTSTANDING - 100.00% $1,499,843
==========
NET ASSET VALUE - TAX-FREE OHIO FUND A CLASS
($1,252,002 / 217,817 SHARES) $5.75
==========
NET ASSET VALUE - TAX-FREE OHIO FUND B CLASS
($232,467 / 40,423 SHARES) $5.75
==========
NET ASSET VALUE - TAX-FREE OHIO FUND C CLASS
($15,374 / 2,675 SHARES) $5.75
==========
- -------------------
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 AUGUST 31, 1998:
Capital shares (unlimited authorization - no par) $1,450,345
Accumulated net realized gain on investments 3,940
Net unrealized appreciation of investments 45,558
----------
Total net assets $1,499,843
==========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE OHIO FUND A CLASS
Net asset value A Class (A) $5.75
Sales charge (3.75% of offering price or 3.83% of
amount invested per share) (B) 0.22
-----
Offering price $5.97
=====
- -------------------
(A)Net asset value per share, as illustrated, is the estimated amount which
would be paid upon the redemption or repurchase of shares.
(B)See How to Buy Shares in the current Prospectus for purchases of
$100,000 or more.
See accompanying notes
</TABLE>
<TABLE>
<CAPTION>
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED AUGUST 31, 1998
(UNAUDITED)
TAX-FREE TAX-FREE TAX-FREE
PENNSYLVANIA NEW JERSEY OHIO
FUND FUND FUND
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $28,178,344 $40,447 $34,045
----------- ------- -------
EXPENSES:
Management fees 2,727,479 4,386 3,512
Distribution expense 1,112,741 3,479 1,793
Dividend disbursing and transfer
agent fees and expenses 361,703 755 391
Accounting fees and salaries 226,573 379 306
Reports and statements to shareholders 47,100 645 600
Professional fees 77,704 2,902 2,859
Registration fees 18,252 2,798 1,975
Custodian fees 12,336 170 147
Trustees' fees 10,223 688 687
Other 57,280 142 72
----------- ------- -------
4,651,391 16,344 12,342
Less expenses absorbed by Delaware
Management Company -- (10,863) (8,953)
----------- ------- -------
Total expenses 4,651,391 5,481 3,389
----------- ------- -------
NET INVESTMENT INCOME 23,526,953 34,966 30,656
----------- ------- -------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investment transactions 4,143,443 -- 3,931
Net change in unrealized appreciation/
depreciation on investments (676,304) 33,089 8,087
----------- ------- -------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 3,467,139 33,089 12,018
----------- ------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $26,994,092 $68,055 $42,674
=========== ======= =======
See accompanying notes
</TABLE>
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED AUGUST 31, 1998
(UNAUDITED)
TAX-FREE
PENNSYLVANIA FUND
--------------------------
SIX MONTHS YEAR
ENDED ENDED
8/31/98 2/28/98
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONs:
Net investment income $ 23,526,953 $ 49,910,793
------------ ------------
Net realized gain on investments 4,143,443 4,571,607
Net change in unrealized
appreciation/depreciation
on investments (676,304) 17,799,518
------------ ------------
Net increase in net assets
resulting from operations 26,994,092 72,281,918
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class (22,652,715) (48,278,596)
B Class (816,594) (1,549,667)
C Class (57,644) (82,530)
Net realized gain on investment
transactions:
A Class (4,358,628) (1,387,621)
B Class (190,562) (55,005)
C Class (13,154) (3,266)
------------ ------------
(28,089,297) (51,356,685)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class 13,449,402 33,795,787
B Class 4,103,737 8,015,562
C Class 437,518 1,826,972
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on investment transactions:
A Class 15,915,855 28,369,872
B Class 629,803 966,811
C Class 56,147 73,395
------------ ------------
34,592,462 73,048,399
------------ ------------
Cost of shares repurchased:
A Class (58,755,241) (119,106,665)
B Class (2,475,562) (3,827,517)
C Class (241,193) (558,944)
------------ ------------
(61,471,996) (123,493,126)
------------ ------------
Increase (decrease) in net assets
derived from capital share
transactions (26,879,534) (50,444,727)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (27,974,739) (29,519,494)
NET ASSETS:
Beginning of period 957,563,892 987,083,386
------------ ------------
End of period $929,589,153 $957,563,892
============ ============
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED AUGUST 31, 1998
(UNAUDITED)
TAX-FREE
NEW JERSEY FUND
-------------------------
SIX MONTHS 9/3/97*
ENDED TO
8/31/98 2/28/98
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONs:
Net investment income $ 34,966 $ 24,060
---------- ----------
Net realized gain on investments -- 8,020
Net change in unrealized
appreciation/depreciation
on investments 33,089 33,944
---------- ----------
Net increase in net assets
resulting from operations 68,055 66,024
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class (27,461) (23,444)
B Class (7,294) (600)
C Class (152) (16)
Net realized gain on investment
transactions:
A Class (5,549) --
B Class (2,531) --
C Class (44) --
---------- ----------
(43,031) (24,060)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class 133,801 1,162,901
B Class 749,804 146,118
C Class 10,000 2,006
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on investment transactions:
A Class 31,657 22,067
B Class 5,797 346
C Class 188 12
---------- ----------
931,247 1,333,450
---------- ----------
Cost of shares repurchased:
A Class (1,864) (85,960)
B Class (111,759) (6)
C Class -- (2,118)
---------- ----------
(113,623) (88,084)
---------- ----------
Increase (decrease) in net assets
derived from capital share
transactions 817,624 1,245,366
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS 842,648 1,287,330
NET ASSETS:
Beginning of period 1,287,330 --
---------- ----------
End of period $2,129,978 $1,287,330
========== ==========
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED AUGUST 31, 1998
(UNAUDITED)
TAX-FREE
OHIO FUND
-------------------------
SIX MONTHS 9/3/97*
ENDED TO
8/31/98 2/28/98
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONs:
Net investment income $ 30,656 $ 22,660
---------- ----------
Net realized gain on investments 3,931 5,456
Net change in unrealized
appreciation/depreciation
on investments 8,087 37,471
---------- ----------
Net increase in net assets
resulting from operations 42,674 65,587
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class (29,624) (22,660)
B Class (869) --
C Class (163) --
Net realized gain on investment
transactions:
A Class (5,381) --
B Class -- --
C Class (66) --
---------- ----------
(36,103) (22,660)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class 14,602 1,136,860
B Class 230,000 6
C Class 15,000 6
Net asset value of shares issued upon
reinvestment of dividends from net
investment income and net realized
gain on investment transactions:
A Class 32,390 21,613
B Class -- --
C Class 214 --
---------- ----------
292,206 1,158,485
---------- ----------
Cost of shares repurchased:
A Class (336) (10)
B Class -- --
C Class -- --
---------- ----------
(336) (10)
---------- ----------
Increase (decrease) in net assets
derived from capital share
transactions 291,870 1,158,475
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS 298,441 1,201,402
NET ASSETS:
Beginning of period 1,201,402 --
---------- ----------
End of period $1,499,843 $1,201,402
========== ==========
* Commencement of trading.
See accompanying notes
<TABLE>
<CAPTION>
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout each period
were as follows:
TAX-FREE PENNSYLVANIA FUND A CLASS
------------------------------------
SIX MONTHS YEAR YEAR
ENDED ENDED ENDED
8/31/981 2/28/98 2/28/97
(UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period $ 8.420 $ 8.240 $ 8.460
Income from investment operations:
Net investment income 0.211 0.430 0.456
Net realized and unrealized gain
(loss) on investments 0.031 0.193 (0.105)
------- ------- -------
Total from investment operations 0.242 0.623 0.351
------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.211) (0.430) (0.456)
Distributions from net realized gain
on investment transactions (0.041) (0.013) (0.115)
------- ------- -------
Total dividends and distributions (0.252) (0.443) (0.571)
------- ------- -------
Net asset value, end of period $ 8.410 $ 8.420 $ 8.240
======= ======= =======
Total return2 2.93% 7.78% 4.35%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $886,911 $917,364 $954,258
Ratio of expenses to average net assets 0.95% 0.94% 0.91%
Ratio of net investment income to
average net assets 5.01% 5.20% 5.52%
Portfolio turnover 28% 32% 27%
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
TAX-FREE PENNSYLVANIA FUND A CLASS
------------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
2/29/96 2/28/95 2/28/94
<S> <C> <C> <C>
Net asset value, beginning of period $ 8.180 $ 8.610 $ 8.630
Income from investment operations:
Net investment income 0.476 0.494 0.496
Net realized and unrealized gain
(loss) on investments 0.330 (0.430) (0.020)
------- ------- -------
Total from investment operations 0.806 0.064 0.476
------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.476) (0.494) (0.496)
Distributions from net realized gain
on investment transactions (0.050) none none
------- ------- -------
Total dividends and distributions (0.526) (0.494) (0.496)
------- ------- -------
Net asset value, end of period $ 8.460 $ 8.180 $ 8.610
======= ======= =======
Total return2 10.08% 0.91% 5.64%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,002,888 $976,313 $1,026,903
Ratio of expenses to average net assets 0.90% 0.90% 0.88%
Ratio of net investment income to
average net assets 5.67% 6.03% 5.70%
Portfolio turnover 25% 18% 14%
- -------------------
1 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.
See accompanying notes
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each period
were as follows:
TAX-FREE PENNSYLVANIA FUND B CLASS
------------------------------------
SIX MONTHS
ENDED YEAR ENDED
8/31/981 2/28/98 2/28/97
(UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period $ 8.420 $ 8.240 $ 8.460
Income from investment operations:
Net investment income 0.178 0.370 0.390
Net realized and unrealized gain
(loss) on investments 0.031 0.193 (0.105)
------- ------- -------
Total from investment operations 0.209 0.563 0.285
------- ------- -------
Less dividends and distributions:
Dividends from net investment income (0.178) (0.370) (0.390)
Distributions from net realized gain
on investment transactions (0.041) (0.013) (0.115)
------- ------- -------
Total dividends and distributions (0.219) (0.383) (0.505)
------- ------- -------
Net asset value, end of period $ 8.410 $ 8.420 $ 8.240
======= ======= =======
Total return3 2.52% 6.92% 3.52%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $39,860 $37,631 $31,644
Ratio of expenses to average net assets 1.75% 1.74% 1.71%
Ratio of net investment income to
average net assets 4.21% 4.40% 4.72%
Portfolio turnover 28% 32% 27%
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each
period were as follows:
TAX-FREE PENNSYLVANIA
FUND B CLASS
------------------------
YEAR 5/2/942
ENDED TO
2/29/96 2/28/95
<S> <C> <C>
Net asset value, beginning of period $ 8.180 $ 8.310
Income from investment operations:
Net investment income 0.408 0.353
Net realized and unrealized gain
(loss) on investments 0.330 (0.130)
------- -------
Total from investment operations 0.738 0.223
------- -------
Less dividends and distributions:
Dividends from net investment income (0.408) (0.353)
Distributions from net realized gain
on investment transactions (0.050) none
------- -------
Total dividends and distributions (0.458) (0.353)
------- -------
Net asset value, end of period $ 8.460 $ 8.180
======= =======
Total return3 9.19% 2.79%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $20,861 $10,239
Ratio of expenses to average net assets 1.71% 1.73%
Ratio of net investment income to
average net assets 4.86% 5.20%
Portfolio turnover 25% 18%
- -------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of initial public offering; ratios have been annualized and
total return has not been annualized.
3 Does not include contingent deferred sales charge which varies from
1-4% depending upon the holding period.
See accompanying notes
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each
period were as follows:
TAX-FREE PENNSYLVANIA
FUND C CLASS
------------------------
SIX MONTHS YEAR
ENDED ENDED
8/31/981 2/28/98
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period $ 8.420 $ 8.240
Income from investment operations:
Net investment income 0.178 0.364
Net realized and unrealized gain
(loss) on investments 0.031 0.193
------- -------
Total from investment operations 0.209 0.557
------- -------
Less dividends and distributions:
Dividends from net investment income (0.178) (0.364)
Distributions from net realized
gain on investment transactions (0.041) (0.013)
------- -------
Total dividends and distributions (0.219) (0.377)
------- -------
Net asset value, end of period $ 8.410 $ 8.420
======= =======
Total return3 2.52% 6.92%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $2,819 $2,569
Ratio of expenses to average net assets 1.75% 1.74%
Ratio of net investment income to
average net assets 4.21% 4.40%
Portfolio turnover 28% 32%
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each
period were as follows:
TAX-FREE PENNSYLVANIA
FUND C CLASS
------------------------
YEAR 11/29/952
ENDED TO
2/28/98 2/29/96
<S> <C> <C>
Net asset value, beginning of period $ 8.460 $ 8.510
Income from investment operations:
Net investment income 0.390 0.102
Net realized and unrealized gain
(loss) on investments (0.105) none
------- -------
Total from investment operations 0.285 0.102
------- -------
Less dividends and distributions:
Dividends from net investment income (0.390) (0.102)
Distributions from net realized
gain on investment transactions (0.115) (0.050)
------- -------
Total dividends and distributions (0.505) (0.152)
------- -------
Net asset value, end of period $ 8.240 $ 8.460
======= =======
Total return3 3.52% 1.19%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,181 $123
Ratio of expenses to average net assets 1.71% 1.71%
Ratio of net investment income to
average net assets 4.72% 4.86%
Portfolio turnover 27% 25%
- -------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of initial public offering; ratios have been annualized and
total return has not been annualized.
3 Does not include contingent deferred sales charge of 1%.
See accompanying notes
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each
period were as follows:
TAX-FREE NEW JERSEY FUND
A CLASS
------------------------
SIX MONTHS 9/3/972
ENDED TO
8/31/981 2/28/97
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period $ 5.700 $ 5.500
Income from investment operations:
Net investment income 0.131 0.115
Net realized and unrealized gain
(loss) on investments 0.095 0.200
------- -------
Total from investment operations 0.226 0.315
------- -------
Less dividends and distributions:
Dividends from net investment income (0.131) (0.115)
Distributions from net realized gain
on investment transactions (0.025) none
------- -------
Total dividends and distributions (0.156) (0.115)
------- -------
Net asset value, end of period $ 5.770 $ 5.700
======= =======
Total return3 4.04% 5.77%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,320 $1,141
Ratio of expenses to average net assets 0.50% 0.88%
Ratio of expenses to average net assets
prior to expense limitation 1.85% 1.93%
Ratio of net investment income to
average net assets 4.54% 4.23%
Ratio of net investment income to average
net assets prior to expense limitation 3.19% 3.18%
Portfolio turnover 0% 47%
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each
period were as follows:
TAX-FREE NEW JERSEY FUND
B CLASS
------------------------
SIX MONTHS 9/3/972
ENDED TO
8/31/981 2/28/97
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period $ 5.700 $ 5.500
Income from investment operations:
Net investment income 0.110 0.069
Net realized and unrealized gain
(loss) on investments 0.095 0.200
------- -------
Total from investment operations 0.205 0.269
------- -------
Less dividends and distributions:
Dividends from net investment income (0.110) (0.069)
Distributions from net realized gain
on investment transactions (0.025) none
------- -------
Total dividends and distributions (0.135) (0.069)
------- -------
Net asset value, end of period $ 5.770 $ 5.700
======= =======
Total return3 3.65% 4.90%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $799 $146
Ratio of expenses to average net assets 1.25% 1.56%
Ratio of expenses to average net assets
prior to expense limitation 2.60% 2.61%
Ratio of net investment income to
average net assets 3.79% 3.63%
Ratio of net investment income to average
net assets prior to expense limitation 2.44% 2.58%
Portfolio turnover 0% 47%
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout
each period were as follows:
TAX-FREE NEW JERSEY FUND
C CLASS
------------------------
SIX MONTHS
ENDED
8/31/981
(UNAUDITED)
<S> <C>
Net asset value, beginning of period $ 5.700
Income from investment operations:
Net investment income 0.086
Net realized and unrealized gain
(loss) on investments 0.095
-------
Total from investment operations 0.181
-------
Less dividends and distributions:
Dividends from net investment income (0.086)
Distributions from net realized gain
on investment transactions (0.025)
-------
Total dividends and distributions (0.111)
-------
Net asset value, end of period $ 5.770
=======
Total return3 3.22%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $10
Ratio of expenses to average net assets 1.25%
Ratio of expenses to average net assets
prior to expense limitation 2.60%
Ratio of net investment income to
average net assets 3.79%
Ratio of net investment income to average
net assets prior to expense limitation 2.44%
Portfolio turnover 0%
- -------------------
1 Ratios have been annualized and total return has not been annualized.
2 Date of initial public offering; ratios have been annualized and
total return has not been annualized.
3 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
from 1-4% depending upon the holding period for Class B shares and
1% for Class C shares.
See accompanying notes
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each
period were as follows:
TAX-FREE OHIO FUND
A CLASS
------------------------
SIX MONTHS 9/3/972
ENDED TO
8/31/981 2/28/97
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period $ 5.730 $ 5.500
Income from investment operations:
Net investment income 0.139 0.120
Net realized and unrealized gain
(loss) on investments 0.045 0.230
------- -------
Total from investment operations 0.184 0.350
------- -------
Less dividends and distributions:
Dividends from net investment income (0.139) (0.120)
Distributions from net realized gain on
investment transactions (0.025) none
------- -------
Total dividends and distributions (0.164) (0.120)
------- -------
Net asset value, end of period $ 5.750 $ 5.730
======= =======
Total return3 3.26% 6.41%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $1,252 $1,201
Ratio of expenses to average net assets 0.50% 0.88%
Ratio of expenses to average net assets
prior to expense limitation 1.89% 1.93%
Ratio of net investment income to
average net assets 4.79% 4.38%
Ratio of net investment income to average
net assets prior to expense
limitation 3.40% 3.33%
Portfolio turnover 34% 66%
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding throughout each
period were as follows:
TAX-FREE OHIO FUND
B CLASS C CLASS
------------------------
SIX MONTHS SIX MONTHS
ENDED ENDED
8/31/981 8/31/981
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period $ 5.730 $ 5.730
Income from investment operations:
Net investment income 0.022 0.061
Net realized and unrealized gain
(loss) on investments 0.045 0.045
------- -------
Total from investment operations 0.067 0.106
------- -------
Less dividends and distributions:
Dividends from net investment income (0.022) (0.061)
Distributions from net realized gain on
investment transactions (0.025) (0.025)
------- -------
Total dividends and distributions (0.047) (0.086)
------- -------
Net asset value, end of period $ 5.750 $ 5.750
======= =======
Total return3 1.17% 1.87%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $232 $15
Ratio of expenses to average net assets 1.25% 1.25%
Ratio of expenses to average net assets
prior to expense limitation 2.64% 2.64%
Ratio of net investment income to
average net assets 4.04% 4.04%
Ratio of net investment income to average
net assets prior to expense
limitation 2.65% 2.65%
Portfolio turnover 34% 34%
- -------------------
1 Ratios have been annualized and total return has not been
annualized.
2 Date of initial public offering; ratios have been annualized and
total return has not been annualized.
3 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
from 1-4% depending upon the holding period for Class B shares and
1% for Class C shares.
See accompanying notes
</TABLE>
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 (UNAUDITED)
Delaware Group State Tax-Free Income Trust (the "Trust") is registered
as a non-diversified open-end investment company under the Investment
Company Act of 1940, as amended. The Trust is organized as a
Pennsylvania trust and offers three series: the Tax-Free Pennsylvania
Fund, the Tax-Free New Jersey Fund, and the Tax-Free Ohio Fund (each
referred to as the "Fund" or collectively as the "Funds"). Each Fund
offers three classes of shares. The A Class carries a front-end sales
charge of 3.75%. The B Class carries a back-end deferred sales charge
and the C Class carries a level load deferred sales charge.
The Tax-Free Pennsylvania Fund seeks as high a level of current income
exempt from federal income tax and Pennsylvania state income tax as is
consistent with preservation of principal. The Tax-Free New Jersey
Fund seeks as high a level of current income exempt from federal
income tax and New Jersey state income tax as is consistent with
preservation of principal. The Tax-Free Ohio Fund seeks as high a
level of current income exempt from federal income tax and Ohio state
income tax as is consistent with preservation of principal.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally
accepted accounting principles and are consistently followed by the
Funds:
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 qualify or continue to
qualify as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal
income taxes has been made in the financial statements. Income and
capital gain distributions are determined in accordance with federal
income tax regulations which may differ from generally accepted
accounting principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various
classes of the 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.
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. Original issue
discounts and market premiums are amortized to interest income over
the lives of the respective securities. 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 0.60%
of 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 over $750 million, less all amounts paid to the trustees, for
the Tax-Free Pennsylvania Fund, and 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, 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 Fund and the Tax-Free Ohio Fund to the extent that annual
operating expenses exclusive of distribution expenses exceed 0.25% of
average daily net assets through January 31, 1999. Total expenses
absorbed by DMC for the six months ended August 31,1998 were $10,863
for the Tax-Free New Jersey Fund and $8,953 for the Tax-Free Ohio
Fund. On August 31, 1998, the Fund had a liability for investment
management fees and other expenses payable to DMC of $92,097 for the
Tax-Free Pennsylvania Fund and $70 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 six months ended
August 31, 1998, the Tax-Free Pennsylvania Fund, the Tax-Free New
Jersey Fund and The Tax-Free Ohio Fund expensed $361,703, $755 and
$391, respectively, for dividend disbursing, transfer agent fees and
other expenses, and $182,442, $310 and $248, respectively, for
accounting services and had liabilities for such fees and other
expenses payable to DSC for $31,167, $1,581 and $1,405, respectively.
Pursuant to the Distribution Agreement, each Fund pays Delaware
Distributors, L.P. (DDLP), the Distributor and an affiliate of DMC, an
annual fee not to exceed 0.30% of the average daily net assets of the
A Class for the Tax-Free Pennsylvania Fund and 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 all three Funds. For the six months ended August 31, 1998,
the Funds had a liability for distribution fees and other expenses
payable to DDLP of $6,865 for Tax-Free New Jersey Fund and $5,428 for
Tax-Free Ohio Fund.
For the six months ended August 31, 1998 DDLP earned $49,641, and $41
for commissions on sales of the Tax-Free Pennsylvania Fund A Class and
Tax-Free New Jersey Fund A Class, respectively.
Certain officers of DMC, DSC and DDLP are officers, directors and/or
employees of the Trust. These officers, directors and employees are
paid no compensation by the Trust.
3. Investments
During the six months ended August 31,1998, each Fund had purchases
and sales of investment securities other than temporary cash
investments as follows:
TAX-FREE TAX-FREE TAX-FREE
PENNSYLVANIA NEW JERSEY OHIO
FUND FUND FUND
------------ ---------- ----------
Purchases: $130,957,259 $786,590 $510,811
Sales: $158,177,510 $ -- $218,255
At August 31, 1998, the aggregate cost of securities for federal
income tax purposes was as follows:
TAX-FREE TAX-FREE TAX-FREE
PENNSYLVANIA NEW JERSEY OHIO
FUND FUND FUND
------------ ---------- ----------
Cost of investments $871,249,712 $2,126,947 $1,435,632
============ ========== ==========
Unrealized appreciation $ 68,109,686 $ 67,033 $ 45,558
Unrealized depreciation 10,533,750 -- --
------------ ---------- ----------
Net unrealized appreciation $ 57,575,936 $ 67,033 $ 45,558
============ ========== ==========
4. Capital Stock
Transactions in capital stock shares were as follows:
TAX-FREE PENNSYLVANIA
------------------------
SIX MONTHS YEAR
ENDED ENDED
8/31/98 2/28/98
------------------------
Shares sold:
A Class 1,604,942 4,077,711
B Class 490,049 971,854
C Class 52,183 220,582
Shares issued upon reinvestment of dividends from net investment
income and net realized gain on investment transactions:
A Class 1,899,960 3,420,943
B Class 75,165 116,535
C Class 6,703 8,828
--------- ----------
4,129,002 8,816,453
--------- ----------
Shares repurchased:
A Class (7,010,541) (14,384,144)
B Class (295,561) (460,334)
C Class (28,898) (67,700)
--------- ----------
(7,335,000) (14,912,178)
--------- ----------
Net Increase (Decrease) (3,205,998) (6,095,725)
========= ==========
TAX-FREE NEW JERSEY
---------------------
SIX MONTHS 9/3/97*
ENDED TO
8/31/98 2/28/98
---------------------
Shares sold:
A Class 23,467 211,252
B Class 131,441 25,584
C Class 1,751 365
Shares issued upon reinvestment of dividends from net investment
income and net realized gain on investment transactions:
A Class 5,554 3,894
B Class 1,016 61
C Class 33 2
--------- ---------
163,262 241,158
--------- ---------
Shares repurchased:
A Class (327) (15,002)
B Class (19,618) (1)
C Class -- (366)
--------- ---------
(19,945) (15,369)
--------- ---------
Net Increase (Decrease) 143,317 225,789
========= =========
TAX-FREE OHIO
---------------------
SIX MONTHS 9/3/97*
ENDED TO
8/31/98 2/28/98
---------------------
Shares sold:
A Class 2,562 205,829
B Class 40,422 1
C Class 2,636 1
Shares issued upon reinvestment of dividends from net investment
income and net realized gain on investment transactions:
A Class 5,678 3,809
B Class -- --
C Class 38 --
--------- ---------
51,336 209,640
--------- ---------
Shares repurchased:
A Class (59) (2)
B Class -- --
C Class -- --
--------- ---------
(59) (2)
--------- ---------
Net Increase (Decrease) 51,277 209,638
========= =========
*Commencement of trading
5. Lines of Credit
The Trust has a committed line of credit for $29.1 million for the
Tax-Free Pennsylvania Fund, $100,000 for the Tax-Free New Jersey Fund
and $100,000 for the Tax-Free Ohio Fund. No amount
was outstanding at August 31, 1998, or at any time during the fiscal
period.
6. Concentrations of 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
the 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.
DELAWARE INVESTMENTS FAMILY OF FUNDS
FOR GROWTH OF CAPITAL
Aggressive Growth Fund
Trend Fund
DelCap Fund
Small Cap Value Fund
U.S. Growth Fund
Growth Stock Fund
Tax-Efficient Equity Fund
FOR TOTAL RETURN
Social Awareness Fund
Blue Chip Fund
Devon Fund
Decatur Total Return Fund
Decatur Income Fund
REIT Fund
Delaware Fund
FOR INTERNATIONAL DIVERSIFICATION
Emerging Markets Fund
New Pacific Fund
Overseas Equity Fund
International Equity Fund
Global Equity Fund
Global Bond Fund
FOR CURRENT INCOME
Delchester Fund
High-Yield Opportunities Fund
Extended Duration Fund
Strategic Income Fund
Corporate Bond Fund
U.S. Government Fund
Delaware-Voyageur
US Government Securities Fund
Limited-Term Government Fund
FOR TAX-EXEMPT INCOME
National High Yield Municipal Bond Fund
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
State Tax-Free Funds*
MONEY MARKET FUNDS
Delaware Cash Reserve
Tax-Free Money Fund
ASSET ALLOCATION FUNDS
Foundation Growth Portfolio
Foundation Balanced Portfolio
Foundation Income Portfolio
* Available for the following states: Arizona, California,
Colorado, Florida, Idaho, Iowa, Kansas, Minnesota, Missouri, North
Dakota, New Jersey, New Mexico, New York, Ohio, Oregon, Pennsylvania,
Utah, Washington, Wisconsin. Insured bond funds are available in
selected states.
Complete information on any fund offered by Delaware Investments can
be found in each fund's current prospectus. Prospectuses for all funds
offered by Delaware Investments are available from your financial
adviser. Please read the prospectus carefully before you invest or
send money.
funds
THIS SEMI-ANNUAL REPORT IS FOR THE INFORMATION OF PENNSYLVANIA TAX-
FREE FUND, NEW JERSEY TAX-FREE FUND AND OHIO Tax-Free Fund
shareholders, but it may be used with prospective investors when
preceded or accompanied by a current Prospectus for Pennsylvania Tax-
Free Fund, New Jersey Tax-Free Fund and Ohio Tax-Free Fund which sets
forth details about charges, expenses, investment objectives and
operating policies of the Funds. You should read the prospectus
carefully before you invest. Summary investment results are documented
in the Funds' current Statement of Additional Information. The figures
in this report represent past results which are not a guarantee of
future results. The return and principal value of an investment in the
Funds will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
INVESTMENT MANAGER
Delaware Management Company
Philadelphia, Pennsylvania
INTERNATIONAL AFFILIATE
Delaware International Advisers Ltd.
London, England
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
Philadelphia, Pennsylvania
SHAREHOLDER SERVICING,
DIVIDEND DISBURSING
and Transfer Agent
Delaware Service Company, Inc.
Philadelphia, Pennsylvania
1818 Market Street
Philadelphia, PA 19103-3682
For Shareholders
1.800.523.1918
For Securities Dealers
1.800.362.7500
For Financial Institutions
Representatives Only
1.800.659.2265
www.delawarefunds.com
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 Funds are not FDIC or NCUSIF insured, are not guaranteed
by any bank or any credit union, and involve investment risk,
including the possible loss of the principal amount invested. Shares
of the Funds are not bank or credit union deposits.
(copyright) Delaware Distributors, L.P.
[GRAPHIC OMITTED: LOGO OF DELAWARE INVESTMENTS
----------------------------
Philadelphia * London]
Printed in the USA
on recycled paper
SA-007 [8/98] PP10/98
(1157)
