<PAGE>
For Tax-Exempt Income
Tax-Free Pennsylvania Fund
Tax-Free New Jersey Fund
Tax-Free Ohio Fund
(various photos demonstrating service and guidance,
professional management and goals)
service and guidance
professional management
goals
1998
Annual
Report
[logo here]
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A TRADITION OF SOUND INVESTING
commitment
A Commitment
To Our Investors
(photo of keyboard)
(photo of illustration from
Tax-Exempt Income Brochures)
Delaware Investments has a tradition of money management that dates back to
1929. We have a long and distinguished history of helping individuals and
institutions - including some of America's largest pension funds - reach their
financial goals.
Headquartered in Philadelphia, a block from the nation's oldest stock
exchange, the Delaware organization established its first mutual fund in
1938. Delaware International Advisers Ltd., our international affiliate, was
established in 1990 and is headquartered in London.
Delaware Investments offers a full range of mutual funds. We also
manage investments for variable annuity products, unit investment trusts and
closed-end funds, and offer retirement plan services for individuals and
businesses.
Delaware manages more than $45 billion in mutual fund assets and
institutional advisory accounts for more than half-a-million investors. We're
part of a global financial service and investment management business owned
by Lincoln National Corporation, whose subsidiaries manage more than $120
billion in assets.
Fund Objectives
Tax-Free Pennsylvania Fund
To seek as high a level of current interest income exempt from federal income
tax and Pennsylvania state and local taxes as is consistent with preservation
of capital.
Tax-Free New Jersey Fund
To seek as high a level of current interest income exempt from federal income
tax and New Jersey state and local taxes as is consistent with preservation
of capital.
Tax-Free Ohio Fund
To seek as high a level of current interest income exempt from federal income
tax and Ohio state and local taxes as is consistent with preservation of
capital.
tax-exempt
income
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March 5, 1998
for tax-exempt
income
1
Dear Shareholder:
Fiscal 1998 was a rewarding time to be a municipal bond investor.
Low inflation, favorable federal tax law changes and surging state
tax revenues have helped bolster returns on tax-exempt debt. From the Jersey
Shore to the banks of the Ohio River, strong regional growth produced state
budget surpluses.
We are pleased to present the first annual report for Tax-Free New
Jersey Fund and Tax-Free Ohio Fund, both of which began operating on
September 3, 1997. Also included on the pages that follow are the 1998
results of Tax-Free Pennsylvania Fund, the largest and oldest municipal bond
fund in the Delaware Investments family.
The relatively small size of our New Jersey and Ohio Funds provided
your portfolio managers - Patrick P. Coyne and Mitchell L. Conery - with an
exceptional opportunity to build a solid long-term portfolio. The supply of
tax-exempt debt in both states rose substantially during
calendar 1997, giving management ample freedom to pick and choose bonds.
Tax-Free Pennsylvania Fund, nearly $1 billion in assets, faced a much
more challenging environment in 1998 as Pennsylvania bonds with attractive
yields remained scarce despite an increase in overall bond supply. In
addition, credit problems surfaced in the multifamily housing and paper
recycling segments of the municipal bond market, reducing the Fund's return.
Each Fund's results reflected the managers' efforts to reduce
sensitivity to changes in interest rates, a response to the strong growth
rate of the U.S. economy. We took a somewhat more conservative approach than
our peers, particularly in Pennsylvania. The pages that follow detail our
investment approach.
We believe each Fund's portfolio can provide an attractive level of
tax-exempt income at a prudent level of risk.
Total Return
- ------------------------------------------------------------------------------
12 months ended
February 28, 1998
- ------------------------------------------------------------------------------
Tax-Free Pennsylvania Fund A Class +7.78%
Lipper PA Municipal Bond Fund Average (66 funds) +8.83%
Lehman Brothers Municipal Bond Index +9.14%
- ------------------------------------------------------------------------------
September 3, 1997
to February 28, 1998
- ------------------------------------------------------------------------------
Tax-Free New Jersey Fund A Class +5.77%
Lipper NJ Municipal Bond Fund Average (57 funds) +4.70%
- ------------------------------------------------------------------------------
Tax-Free Ohio Fund A Class +6.41%
Lipper Ohio Municipal Bond Fund Average (53 funds) +4.57%
- ------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index +5.04%
- ------------------------------------------------------------------------------
All performance quoted above is based on net asset value and assumes
reinvestment of distributions. Performance of other Fund classes varies due
to different expenses. Performance information for all Fund classes can be
found on page 9 and 10. Performance for the short time since inception for
Tax-Free New Jersey Fund and Tax-Free Ohio Fund may not be indicative of
longer term results. The unmanaged Lehman Brothers Municipal Bond Index
includes bonds of various quality from many states.
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2
We consider the municipal bond market's long-term prospects
attractive. Although Pennsylvania and New Jersey state income tax rates are
relatively moderate, federal tax rates on dividend income remain as high as
39.6%. In Ohio, the top state income tax rate has risen from 7% to 7.5% in
1998.
While the federal Taxpayer Relief Act passed last July offered many
potential benefits to growth oriented investors, it provided few breaks to
investors seeking income. Municipal bond funds remain one of the few
investments that can provide monthly income and reduce an investor's income
tax bill.
It is our belief that as the nation's population ages, the baby-boom
generation may allocate a greater share of assets to municipal bonds. In our
opinion, many investors will strive to reduce the risk profile of their
portfolios as their need for regular monthly income increases.
We are pleased to report that in fiscal
1998 Delaware expanded its fixed-income and equity investment options for
people in every stage of life. These options include individual retirement
accounts for education, Roth IRAs for retirement savings, variable annuities
and a coast-to-coast selection of single-state municipal bond funds.
With the help of your financial adviser, we believe Delaware
Investments and you can build an investment plan for the 21st Century.
Sincerely,
/s/ Wayne A. Stork
- --------------------------------------
Wayne A. Stork
Chairman
/s/ Jeffrey J. Nick
- ---------------------------------------
Jeffrey J. Nick
President and Chief Executive Officer
discipline
States At A Glance
<TABLE>
<CAPTION>
Data as of February 28, 1998
Pennsylvania New Jersey Ohio
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Obligation Bond Rating AA3 AAA AA+
Budget Surplus $178 million $1.1 billion $260 million
Per Capita Income $24,668 $31,053 $23,537
Population 12 million 8 million 11.2 million
Individual Income Tax Rate 2.8% 3.5% 7.5%
Unemployment Rate 4.8% 4.9% 4.5%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Sources: Bloomberg Business News, financenet.org, Standard & Poor's, Moody's
Investors Service.
Your Funds' Portfolio Managers
Patrick P. Coyne has managed fixed-income securities at Delaware Management
Company since 1990. He holds an MBA in finance from the University of
Pennsylvania's Wharton School of Business.
Mitchell L. Conery joined Delaware Management Company in January 1997 and
holds an MBA in finance from the State University of New York at Albany. He
had been managing a $5 billion municipal portfolio for Travelers Corp. in New
York prior to joining Delaware.
<PAGE>
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3
Portfolio Managers' Review
Falling interest rates have prompted
municipalities to offer more bonds to investors. New issuance in Ohio and
Pennsylvania rose by more than 30% during calendar 1997 to a combined total
of $19.6 billion, according to The Bond Buyer, a trade publication. In New
Jersey, the amount of new bonds rose by 56% to $9 billion, mainly because of
state pension financing.
Fortunately, investor demand has been robust. Bond prices in all
three states have risen sharply since the summer, in line with the overall
national municipal market.
New Jersey, Ohio and most of Pennsylvania have enjoyed steady job growth as
leading industry groups such as pharmaceuticals have expanded and posted
strong earnings.
Across the country, inflation remains firmly under control. Increases
in employers' payroll costs have been tempered by good gains in productivity
and falling prices for commodities such as oil. In our opinion, investors'
concern about the impact of currency devaluations and recession in Asia
have helped fuel a bond market rally, especially in U.S. government
securities.
In calendar 1997, prices of U.S. Treasuries generally outperformed
municipal securities, especially since the summer. Overseas demand for U.S.
government debt was strong in the wake of Pacific Rim economic turmoil.
Washington also appeared to be successful in balancing the federal budget for
the first time since 1969.
Augmenting the income potential of your Funds was challenging during
the past year because the market did not offer investors much additional
yield for buying:
* lower quality bonds instead of bonds rated AAA;
* longer term (10 years or more) bonds rather than intermediate or
short-term bonds; or
* sectors such as health care and housing that historically have offered
attractive
Nearly half of the total return of the unmanaged Lehman Brothers Municipal
Bond Index for the six and 12 month periods ended February 28, 1998 was from
price appreciation, an unusual occurrence.
Tax-Equivalent Yields
Pennsylvania, New Jersey and Ohio Vs. U.S. Treasuries
Pennsylvania 8.64%
New Jersey 8.82%
Ohio 9.33%
30-Year US Treasuries 5.92%
The chart to the left shows how much an investor in the highest federal tax
bracket (39.6%) would have to earn from a taxable investment to match the
income potential of long-term municipal bonds in each respective state.
Yields as of 2/28/98 for 30-year, high quality, general obligation bonds.
Municipal bonds vary in quality and unlike U.S. Treasuries are not guaranteed
by the U.S. government. This illustration is not intended to reflect the
current thirty-day SEC yield of any Delaware mutual fund. Source: Bloomberg
Business News.
<PAGE>
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4
yields because of the perception of economic risk in these two industries.
Indeed, nearly half of the total return of the unmanaged Lehman
Brothers Municipal Bond Index for the six and 12 months ended February 28,
1998 was from price appreciation, an unusual occurrence. Over the longer
term, income has been the dominant component of return from all categories of
bonds since the 1920s, according to Ibbotson Associates. It is our belief
that most investors in municipal bonds are income-oriented, and our
investment approach reflects this view.
Investment Strategy
For more than 20 years, Delaware Investments has sought a high level of
interest income exempt from federal, state and local taxes. To maximize
income and preserve capital, we:
* Examine quality. As of February 28, 1998, more than half of each Fund's
net assets were invested in bonds rated AAA. When we purchase municipal
bonds rated lower than A or non-rated bonds, we personally
review the financial statements of the issuer and meet with management
and/or public officials.
* Invest with a multi-year perspective. We analyze long-term trends in the
municipal finance market and generally seek bonds with ample call
protection features.
* Seek diversification in terms of bond types and communities. To reduce
risk, we invest in the widest possible range of sectors and limit our
exposure to any one industry or municipality.
Tax-Free Pennsylvania Fund
Balancing Risk and Reward
During fiscal 1998, we reduced Tax-Free Pennsylvania Fund's holdings of lower
rated and unrated bonds. In many cases, we felt the extra income potential of
securities rated less than A was not enough to justify the credit risks. We
also believed some recently issued lower rated securities were somewhat more
susceptible to being refinanced by the issuer, which limits their appeal to
investors.
Duration was kept within a relatively narrow range during the year.
As the bond
strategy
TAX-FREE PENNSYLVANIA FUND
PORTFOLIO HIGHLIGHTS AND CREDIT QUALITY
February 28, 1998
Tax-Free Pennsylvania Fund
Portfolio Highlights and Credit Quality
February 28, 1998
AAA 55%
AA 13%
A 14%
BBB 6%
BB & B 10%
Unrated 2%
Average Effective Maturity 9.1 years
Average Effective Duration 6.1 years
Average Quality AA2
Average Coupon 6.40%
Thirty Day Current SEC Yield* 4.13%
*For A Class shares based on Securities and Exchange Commission guidelines.
Thirty-day current SEC yield for B and C classes was 3.49% as of 2/28/98.
Approximately 1.5% of the income generated by the Fund during fiscal 1998 was
subject to the federal alternative minimum tax.
Source of ratings: Standard & Poor's.
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5
PEER COMPARISON
Morningstar
Tax-Free Pennsylvania
Pennsylvania Fund Category
Fund (43 funds)
Portfolio Turnover Rate 32% 41%
Alternative Minimum Tax* 1.5% 11%
Five-Year Risk Score 0.74 1.01
* Percent of Fund's net assets subject to the federal alternative minimum tax.
Morningstar data is the latest available and is as of 11/30/97.
Morningstar's average risk factor for all bond funds equals 1.00. Numbers
greater than 1.00 indicate more relative risk, less than 1.00 indicates
lower relative risk. To calculate risk, Morningstar concentrates on those
months during which a fund underperformed the average return of a
three-month U.S. Treasury bill. It adds up the amounts by which a fund
fell short of a Treasury bill's return and divides the result by the
total number of months in the rating period.
market has rallied, we allowed the Fund's sensitivity to interest rates to
decline so that by fiscal year's end the Fund's average effective duration
was slightly shorter than many of our peers. In our opinion, this defensive
posture is prudent given what we see as limited opportunities for further
bond price increases in calendar 1998.
To maximize the Fund's current income potential, about 75% of the
bonds we hold have a market value that's higher than their face value. While
helping us to provide higher-than-average monthly dividends, these premium
bonds generally experienced less price appreciation during the autumn rally
than bonds that traded at par or at a discount to face value. Overall, your
Fund's total return was less than some of its peers who aggressively bet that
interest rates would fall.
Tax-Free Pennsylvania Fund's return was also reduced in fiscal 1998 by
two poorly performing bond issues whose credit quality deteriorated. One
Philadelphia bond which financed a paper recycling plant lost about half its
market value during the first half of the year as prices for its products
weakened more than expected. As of February 28, 1998, this holding represented
less than 1% of the Fund's net assets.
The other bond was issued for an apartment complex in Montgomery
County whose finances weakened as efforts to convert the development into
condominiums were not as successful as the developer anticipated. We sold the
bonds at a loss this past May.
While these two problem bonds were a short-term negative for the
Fund, they do offer a potential silver lining for the coming year. Any
capital losses we realize can be used to offset any gains we may realize from
the sale of other bonds in the portfolio.
tax-free
pennsylvania
TAX-FREE PENNSYLVANIA FUND SECTOR DIVERSIFICATION
February 28, 1998
Tax-Free Pennsylvania Fund
Sector Diversification
February 28, 1998
Pre-Refunded Bonds 24.3%
Hospitals 20.2%
Education 14.8%
Pollution Control 8.8%
Industrial Development 3.8%
Housing 6.1%
Water/Sewer 8.0%
General Obligation Bonds 5.6%
Other Revenue Bonds 8.4%
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6
Tax-Free New Jersey Fund
Planting Seeds in the
Garden State
Between 1994 and the end of Gov. Christine Whitman's first term during
calendar 1997, New Jersey's income tax rates were cut 30%. The state has
maintained a high AAA bond rating and enjoyed an economic revival in the
1990s, boosted by a strong pharmaceutical industry and increased
international trade.
In our view, fiscal 1998 presented an opportune time to build a
municipal bond portfolio, as New Jersey issued $2.8 billion in new debt to
finance pension obligations for state employees. Investor demand remained
strong this autumn amid uncertainty about the outcome of the state's
gubernatorial election.
Tax-Free New Jersey Fund provided a return of +5.77% during its
initial fiscal year which ended February 28, 1998 (for Class A shares at net
asset value with
distributions reinvested). This outpaced the average of its peers as shown on
page 1.
Our top performing position during fiscal 1998 was an unrated bond
issued by the New Jersey Economic Development Authority on behalf of a
nursing home (4% of net assets). Territorial bonds and water/sewer bonds were
the two largest sectors within the portfolio as of
February 28, 1998.
At the end of 1997, a New Jersey law that subsidizes hospitals
providing charity care expired, a potential negative for some institutions'
bond ratings. The law was replaced with a 40-cent-a-pack cigarette tax to
help finance hospital care for the uninsured. We've focused the Fund's health
care holdings on institutions that we believe are well-managed, have an
expanding revenue base and are poised to thrive in a competitive environment.
More than half of your Fund's portfolio as of year's end was invested
in AAA bonds
Tax-Free New Jersey Fund
Portfolio Highlights and Credit Quality
February 28, 1998
Pie Slices
AAA 68%
A 24%
BBB 5%
Unrated 1%
Cash 2%
Approximately 4% of the income generated by the Fund during its initial
fiscal year was subject to the federal alternative minimum tax.
Source of ratings: Standard & Poor's.
Average Effective Maturity 17.6 years
Average Effective Duration 9.3 years
Average Quality AA2
Average Coupon 5.31%
Thirty Day Current SEC Yield* 4.54%
*For A Class shares based on Securities and Exchange Commission guidelines.
Thirty-day current SEC yield for B Class was 3.96% as of 2/28/98. As of 2/28/98,
there were no C Class shareholders.
tax-free
new jersey
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7
[photo of keyboard]
- - the highest quality available. The Fund's relatively small size gives us
the flexibility to seek the most attractive bonds available, and to respond
rapidly to market conditions.
For the year ahead, we believe New Jersey's economy can continue to
prosper, boosting municipal tax revenues. Although a few large companies such
as AT&T have announced job cutbacks, we believe the state's overall
employment picture remains bright. Per capita income is among the highest in
the nation, and New Jersey's mix of industries is among the nation's most
diverse.
Tax-Free Ohio Fund
Taking Care to Build
Income Potential
We are pleased to report that Tax-Free Ohio Fund got off to a strong start
during its initial fiscal year. The Fund provided a return of +6.41% for the
period ended February 28, 1998 (for Class A shares at net
asset value with distributions reinvested). This outpaced the average of its
peers as shown on page 1.
Bonds issued by hospitals, nursing homes and colleges represented the
largest components of Tax-Free Ohio Fund's portfolio during fiscal 1998.
We've focused the Fund's health care and higher education holdings on
institutions that we believe are well-managed, have an expanding revenue base
and can thrive in increasingly competitive industry environments.
One bond that performed well was issued by Dayton, Ohio to enable
Emery Air Freight to improve its facilities at the city's airport. Falling
jet fuel prices and increased demand for overnight delivery services have
helped propel the company's earnings.
Ohio has historically had a higher-than-average state income tax
rate, and in fact was the first state to adopt an income tax by
constitutional amendment more than 85 years ago. For calendar 1998, the top
tax-free
ohio
Tax-Free Ohio Fund
Portfolio Highlights and Credit Quality
February 28, 1998
Tax-Free Ohio Fund
Portfolio Highlights and Credit Quality
February 28, 1998
Pie Slices
AAA 52%
AA 9%
BBB 18%
BB & B 10%
Unrated 11%
Average Effective Maturity 11.6 years
Average Effective Duration 8.4 years
Average Quality AA2
Average Coupon 5.56%
Thirty Day Current SEC Yield* 4.67%
* For A Class shares based on Securities and
Exchange Commission guidelines. As of 2/28/98, there were no B or C Class
shareholders.
Approximately 15% of the income generated by the Fund during its initial
fiscal year was subject to the federal alternative minimum tax.
Source of ratings: Standard & Poor's.
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8
tax rate has risen from 7% to 7.5% on incomes of more than $200,000. We
believe this will increase the attractiveness of the state's municipal bonds
for investors in high federal and state tax brackets.
In the mid-1990s, prudent fiscal management allowed Ohio to rebuild
its finances, which were depleted during the last recession. A recovery in
key industries such as autos and growing profits at leading multinational
companies such as Proctor & Gamble have helped fill state tax coffers.
Conservative revenue projections have enabled Ohio to post a budget
surplus since 1995. State officials forecast a surplus of $260 million for
fiscal 1998 and a $131 million surplus for 1999. This positive environment,
which we believe will continue, has contributed to higher state bond prices
and a strong credit rating.
Summary Outlook
We'd like to offer a note of caution for the year ahead because we believe
reports suggesting that inflation is dead are premature. U.S. job creation
has continued at a brisk pace in calendar 1998 and recession in Asia does not
appear to be having as much of a moderating effect on the U.S. economy as
originally forecast.
Economic growth in the 1990s has boosted tax revenues and reduced
social expenses. This is especially beneficial for the fiscal health of states
such as Pennsylvania, New Jersey and Ohio, whose major cities still face
population loss and many urban challenges. However, the current pace of growth
nationally suggests that the Federal Reserve Board needs to remain vigilant to
control growth and prevent consumer prices from rising too much.
One trend that may help temper inflation in the Northeast and Midwest
in 1998 is that energy costs have been falling. The region's consumers have
benefited from a mild winter, a worldwide oil glut and increased competition
in the domestic utility industry. Although the region faces a labor shortage
in some occupations, large cutbacks in industries such as banking and
telecommunications in the year ahead could help employers control hiring
costs.
We believe continuing uncertainty about inflation is likely to keep
yields on long-term U.S. Treasury bonds above 5% for the balance of 1998. In
fact, interest rates could rise modestly from current levels. Our positioning
of each Fund's portfolio reflects this relatively defensive outlook.
Patrick P. Coyne
Vice President
Senior Portfolio Manager
Mitchell L. Conery
Vice President
Senior Portfolio Manager
March 5, 1998
One trend that may help temper inflation in the Northeast and Midwest in 1998
is that energy costs have been falling. The region's consumers have benefited
from a mild winter, a worldwide oil glut and increased competition in the
domestic utility industry.
(photo of family on beach)
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9
Performance Summary
TAX-FREE PENNSYLVANIA FUND'S PERFORMANCE
Growth of a $10,000 Investment
February 28, 1988 to February 28, 1998
Lehman Brothers Municipal Bond Index
Tax-Free Pennsylvania Fund A Class
Tax-Free Pennsylvania Lehman Brothers
Fund A Class Municipal Bond Index
Bond Index
Feb. '88 $ 9,626 $10,000
Feb. '89 $10,309 $10,620
Feb. '90 $11,203 $11,710
Feb. '91 $12,015 $12,790
Feb. '92 $13,349 $14,067
Feb. '93 $15,110 $16,004
Feb. '94 $15,959 $16,890
Feb. '95 $16,104 $17,208
Feb. '96 $17,727 $19,109
Feb. '97 $18,498 $20,162
Feb. '98 $19,920 $22,028
Chart assumes $10,000 invested on February 28, 1988, and includes the effect
of a 3.75% sales charge and reinvestment of distributions. Performance of
other Fund Classes will vary due to differing charges and expenses. Past
performance does not guarantee future results.
TAX-FREE PENNSYLVANIA FUND PERFORMANCE
Average Annual Returns Through February 28, 1998
Lifetime Ten Years Five Years One Year
Class A (Est. 3/23/77)
Excluding Sales Charge +6.70% +7.55% +5.70% +7.78%
Including Sales Charge +6.51% +7.14% +4.89% +3.75%
Class B (Est. 5/2/94)
Excluding Sales Charge +5.83% -- -- +6.92%
Including Sales Charge +5.16% -- -- +2.92%
Class C (Est. 11/29/95)
Excluding Sales Charge +5.16% -- -- +6.92%
Including Sales Charge +5.16% -- -- +5.92%
All returns reflect reinvestment of distributions and sales charges as
described below. Returns and share values fluctuate with rising and falling
interest rates so that shares, when redeemed, may be worth more or less than
their original cost. Past performance is not a guarantee of future results.
Class B and Class C performance excluding sales charge assumes either
contingent sales charges did not apply or the investment was not redeemed.
Class A shares have a 3.75% maximum sales charge and, for periods after June
1,1992, a 12b-1 fee.
Class B shares do not carry a front-end sales charge, are subject to a
deferred sales charge of up to 4% if redeemed before the end of the sixth
year, and are subject to a 1% annual distribution and service fee.
Class C shares have a 1% annual distribution and service fee. If redeemed
within 12 months, a 1% contingent deferred sales charge applies.
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10
TAX-FREE NEW JERSEY FUND'S &
TAX-FREE OHIO FUND'S PERFORMANCE
Growth of a $10,000 Investment
September 1, 1997 to February 28, 1998
Lehman Brothers Municipal Bond Index
Tax-Free New Jersey Fund A Class
Tax-Free Ohio Fund A Class
Lehman Brothers Tax-Free New Jersey Tax-Free Ohio
Municipal Bond Index Fund A Class Fund A Class
Sept.'97 $10,000 $ 9,632 $ 9,632
Sept.'97 $10,000 $ 9,755 $ 9,755
Oct. '97 $10,064 $ 9,806 $ 9,808
Nov. '97 $10,123 $ 9,902 $ 9,904
Dec. '97 $10,271 $10,077 $10,098
Feb. '98 $10,377 $10,166 $10,206
Chart assumes $10,000 invested on September 3, 1997, and includes the effect
of a 3.75% sales charge and reinvestment of distributions. Performance of
other Fund classes will vary due to differing charges and expenses. Past
performance does not guarantee future results. Performance of a long-term
municipal bond should be judged over a period of at least several years.
Lifetime Performance
Cumulative Total Returns Through February 28, 1998
Tax-Free Tax-Free
New Jersey Fund Ohio Fund
Class A (Est. 9/3/97)
Excluding Sales Charge +5.77% +6.41%
Including Sales Charge +1.88% +2.49%
Class B (Est. 9/3/97)
Excluding Sales Charge +4.90% +4.18%
Including Sales Charge +0.90% +0.18%
Class C (Est. 9/3/97)
Excluding Sales Charge +4.42% +4.18%
Including Sales Charge +3.42% +3.18%
Performance for the short time since inception may not be indicative of
longer term results.
See page 9 for important information. All performance includes reinvestment
of distributions and applicable sales charges as described on page 9. Returns
reflect voluntary expense limitations in effect at the time. Returns would
have been lower without the limitations.
<PAGE>
for tax-exempt income 11
Financial Statements
Delaware Group Tax-Free Pennsylvania Fund
Statement of Net Assets
February 28, 1998
Principal Market
Amount Value
Municipal Bonds - 99.46%
Higher Education Revenue Bonds - 10.56%
Dauphin County College Revenue
(Holy Family College) 7.50% 12/1/19 .............. $ 3,025,000 $ 3,187,564
Delaware County Authority University Revenue
(Villanova University) 5.80% 8/1/25
(AMBAC) ......................................... 7,000,000 7,415,800
(Villanova University) 9.625% 8/1/02
(Escrowed to Maturity) .......................... 430,000 487,246
Montgomery County Higher Education and
Health Authority Revenue
(Beaver College) 5.85% 4/1/21
(Connie Lee) ..................................... 5,465,000 5,806,672
Northampton County Higher Education
Authority Revenue (Lehigh University)
Series B 5.25% 11/15/21 .......................... 9,025,000 9,134,834
Pennsylvania State Higher Educational Facilities
Authority Revenue College Revenue
(Elizabethtown College) 6.50% 6/15/15 ............ 6,700,000 7,052,219
(LaSalle University) 9.50% 5/1/03
(Escrowed to Maturity) .......................... 370,000 420,949
(Pennsylvania State University)
Series A 5.00% 8/15/27 .......................... 28,775,000 28,196,047
Series M 5.75% 6/15/20 .......................... 17,730,000 18,454,802
(Temple University) 5.75% 4/1/31 (MBIA) .......... 8,000,000 8,132,240
(University of Pennsylvania) 5.90% 9/1/15 ........ 4,205,000 4,460,580
Swarthmore Borough Authority
(Swarthmore College)
6.00% 9/15/12 .................................... 7,000,000 7,361,900
7.375% 9/15/08 ................................... 990,000 1,022,314
------------
101,133,167
------------
Hospital Revenue Bonds - 20.21%
Allegheny County Pennsylvania Hospital Development
Authority Revenue
(South Hills Health Facilities)
6.00% 5/1/20 (MBIA) ............................. 1,500,000 1,566,435
(University of Pittsburgh Medical Center)
5.625% 4/1/27 (MBIA) ............................ 10,500,000 10,898,475
Chester County Pennsylvania Health and
Educational Facility Authority Health System
Revenue (Jefferson Health Systems)
Series B 5.375% 5/15/27 .......................... 30,270,000 30,469,479
Delaware County Authority Revenue Health Facilities
(Mercy Health Corp.) 6.00% 12/15/26 .............. 3,500,000 3,890,495
Monroeville Hospital Authority Revenue
(Forbes Health System) 7.00% 10/1/13 ............. 7,000,000 7,716,870
Pennsylvania Higher Education Facilities Authority
Health Services Revenue
(University of Pennsylvania) 5.75% 1/1/22 ........ 20,000,000 20,976,600
<PAGE>
Principal Market
Amount Value
Municipal Bonds (Continued)
Hospital Revenue Bonds (Continued)
Philadelphia Hospital & Higher Education Facilities
Authority Hospital Revenue
(Albert Einstein Medical Center)
7.625% 4/1/11 .................................. $ 19,110,000 $ 20,124,168
(Children's Hospital of Philadelphia)
Series A 5.50% 2/15/22 .......................... 5,600,000 5,659,024
(Children's Seashore House)
Series A 7.00% 8/15/17 .......................... 3,100,000 3,408,481
(Children's Seashore House)
Series B 7.00% 8/15/22 .......................... 2,100,000 2,288,706
(Jeanes Health System Project)
6.85% 7/1/22 ................................... 18,020,000 19,423,938
(Presbyterian Medical Center)
6.65% 12/1/19 (Escrowed to Maturity) ............ 13,000,000 15,560,350
(Roxborough Memorial Hospital)
7.25% 3/1/24 ................................... 12,355,000 11,737,250
(Temple University Hospital)
6.625% 11/15/23 ................................ 16,500,000 18,218,310
Philadelphia Pennsylvania Hospitals and
Higher Education Facilities Authority Revenue
(The Philadelphia Protestant Home Project)
Series A 6.50% 7/1/27 .......................... 1,100,000 1,129,238
Sayre-Health Care Facilities
(VHA of Pennsylvania, Inc.)
(Capital Asset Financing Program-Guthrie
Medical Center)
Series A 7.625% 12/1/15 (AMBAC) .................. 1,000,000 1,083,150
Series B 7.625% 12/1/15 (AMBAC) .................. 2,490,000 2,697,044
Sayre-Health Care Facilities
(Guthrie Healthcare Systems)
Series 91A 6.00% 3/1/21(AMBAC) ................... 7,000,000 7,198,100
Scranton-Lackawanna Health and Welfare Authority
(Allied Services Rehabilitation Hospitals)
7.60% 7/15/20 .................................. 5,640,000 6,296,383
(Moses Taylor Hospital)
6.15% 7/1/14 ................................... 3,000,000 3,201,600
------------
193,544,096
------------
Housing Revenue Bonds - 6.09%
Montgomery County Multi-Family Housing
(KBF Associates Project)
6.50% 7/1/25 .................................... 20,810,000 21,704,830
7.25% 7/1/25 .................................... 15,185,000 15,820,492
Pennsylvania Housing Finance Agency
7.45% 4/1/16 (FHA) .............................. 1,515,000 1,582,266
7.50% 10/1/10 ................................... 1,250,000 1,326,588
<PAGE>
12 for tax-exempt income
Tax-Free Pennsylvania Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
Municipal Bonds (Continued)
Pre-Refunded Bonds (Continued)
Pennsylvania Housing Finance Agency -
Single Family Mortgage
Series 57A 6.15% 4/1/27 ............................. $ 5,000,000 $ 5,330,750
Series 59A 5.80% 10/1/29 ............................. 2,950,000 3,063,310
Series 6OA 5.85% 10/1/27 ............................. 7,300,000 7,601,636
Philadelphia Redevelopment Authority
Home Improvement
Series 86A 7.375% 6/1/03 ............................. 1,075,000 1,085,750
Pittsburgh Urban Redevelopment Authority
Mortgage Revenue
Series 87B 8.30% 4/1/17 ............................. 800,000 822,816
-----------
58,338,438
-----------
Industrial Development Revenue
Bonds - 3.81%
Delaware County Pennsylvania Industrial
Development Authority-Resource Recovery
Series A 6.10% 7/1/13 ............................... 12,000,000 12,977,040
Series A 6.20% 7/1/19 ............................... 9,000,000 9,761,850
Montgomery County Pennsylvania Industrial
Development Revenue
(Hill School Project) 5.35% 8/15/27 .................. 8,910,000 9,035,007
Philadelphia Pennsylvania Authority for Industrial
Development Industrial and Commercial Revenue
(Girard Estates Facilities Leasing Project)
5.00% 5/15/19 ....................................... 2,400,000 2,375,064
5.00% 5/15/27 ....................................... 2,400,000 2,352,840
-----------
36,501,801
-----------
Pollution Control Revenue Bonds - 8.75%
Beaver County Industrial Development Authority
Pollution Control Revenue (Cleveland Electric Project)
7.625% 5/1/25 ....................................... 8,500,000 9,736,665
7.75% 7/15/25 ....................................... 10,000,000 11,559,700
Delaware County Industrial Development Authority
Pollution Control Revenue
(Philadelphia Electric Company)
7.375% 4/1/21 ...................................... 10,250,000 11,191,360
Lehigh County Pennsylvania Industrial Development
Authority Pollution Control Revenue
(Pennsylvania Power and Light Company Project)
Series A 5.50% 2/15/27 .............................. 15,500,000 16,033,355
Series A 6.40% 11/01/21 (MBIA) ....................... 7,000,000 7,644,910
Series B 6.40% 9/1/29 ............................... 15,000,000 16,660,950
Montgomery County Industrial Development Authority
Pollution Control Revenue
(Philadelphia Electric Company)
6.70% 12/1/21 (MBIA) ................................ 10,000,000 10,947,300
-----------
83,774,240
-----------
*Pre-Refunded Bonds - 24.30%
Abington School District
6.00% 5/15/26-06 (FGIC) ............................. 6,000,000 6,697,920
<PAGE>
Principal Market
Amount Value
Municipal Bonds (Continued)
Pre-Refunded Bonds (Continued)
Allegheny County, Pennsylvania Sanitary
Authority Revenue
Series 86A 7.50% 12/1/16-99 (FGIC) ................ $ 1,780,000 $ 1,860,527
Series 86B 7.50% 12/1/16-99 (FGIC) ................ 4,020,000 4,201,865
Series 91C 6.50% 12/1/16-01 (FGIC) ................ 4,500,000 4,873,995
Delaware County Authority University Revenue
(Haverford College)
7.375% 11/15/20-00 (MBIA) ......................... 3,275,000 3,619,759
Delaware River Joint Toll Bridge Commission
Bridge System Revenue 7.875% 7/1/18-98 ............ 4,600,000 4,752,904
Doylestown Hospital Authority (Doylestown Hospital)
Series C 6.90% 7/1/19-99 (AMBAC) .................. 1,750,000 1,854,265
Harrisburg Water Authority Revenue
7.00% 7/15/15-01 (FGIC) .......................... 12,000,000 13,090,200
Harrisburg Water and Sewer Authority Revenue
Series 88A 8.00% 11/1/12-98 (AMBAC) ............... 6,000,000 6,040,800
Lackawanna County Multi-Purpose Stadium Authority
Revenue Guaranteed 8.625% 8/15/07-98 .............. 660,000 692,314
Pennsylvania Higher Education Facilities Authority
College & University Revenue
(Hahnemann University)
6.90% 7/1/21-01 (MBIA) .......................... 13,000,000 14,376,830
(Holy Family College) 8.00% 12/1/06-98 ............ 380,000 391,867
(The Medical College of Pennsylvania)
7.50% 3/1/14-99 ................................. 1,000,000 1,036,860
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue
(City of Philadelphia Funding Program)
6.80% 6/15/22-02 ................................. 2,125,000 2,347,976
Pennsylvania State Turnpike Commission
Turnpike Revenue
Series 89 6.75% 7/1/14-99 ......................... 14,195,000 15,003,973
Series D 7.625% 12/1/17-98 (FGIC) ................. 3,500,000 3,669,260
Series E 7.55% 12/1/17-99 (MBIA) .................. 495,000 535,402
Series I 7.20% 12/1/17-01 (FGIC) .................. 8,915,000 10,023,669
Series J 7.20% 12/1/17-01 (FGIC) .................. 8,995,000 10,113,618
Series K 7.50% 12/1/19-99 ......................... 10,000,000 10,807,800
Philadelphia Regional Port Authority Lease Revenue
7.15% 8/1/20-00 (MBIA) ........................... 16,315,000 17,510,074
Philadelphia Water & Sewer Revenue
7.00% 8/1/18-01 .................................. 20,650,000 22,549,387
Puerto Rico (Commonwealth of) General Obligation
6.50% 7/1/18-99 .................................. 2,745,000 2,847,636
7.25% 7/1/10-00 .................................. 1,370,000 1,498,259
7.75% 7/1/13-98 .................................. 12,775,000 13,203,090
7.75% 7/1/17-99 .................................. 7,700,000 8,221,444
8.00% 7/1/07-98 .................................. 2,545,000 2,632,319
Sewickley Valley Hospital Authority Refunding
(Sewickley Valley Hospital Project)
7.50% 10/1/06-99 ................................. 1,295,000 1,391,309
Swarthmore Borough Authority (Swarthmore College)
7.375% 9/15/08-98 ................................ 1,810,000 1,871,413
7.375% 9/15/20-00 ................................ 14,000,000 15,259,860
<PAGE>
for tax-exempt income 13
Tax-Free Pennsylvania Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
Municipal Bonds (Continued)
Pre-Refunded Bonds (Continued)
University Area Joint Authority Water and
Sewer Revenue 7.10% 9/1/20-00 (MBIA) .............. $ 6,000,000 $ 6,501,660
Upper Darby Township (Delaware County)
General Obligation 7.875% 7/15/18-98 .............. 4,345,000 4,410,610
Washington County Authority Revenue
(Shadyside Hospital)
Series 85D 7.45% 12/15/18-00 (AMBAC) .............. 7,500,000 8,275,725
York County Hospital Revenue Authority
(York Hospital) 7.00% 7/1/21-01 (AMBAC) ........... 9,500,000 10,415,230
-----------
232,579,820
-----------
School Authority/District Bonds - 4.27%
Altoona Area School District (Blair County)
10.00% 6/15/98 (Escrowed to Maturity) ............. 120,000 122,106
Bensalem Township School District General Obligation
5.875% 7/15/16 (FGIC) ............................ 2,900,000 3,093,952
Butler Pennsylvania Area School District
Series B 5.00% 10/1/26 ........................... 4,000,000 3,881,440
Hazleton Pennsylvania Area School District
Series B 5.00% 3/1/23 ............................ 2,000,000 1,958,080
Nazareth Pennsylvania Area School District
5.00% 8/15/17 .................................... 2,760,000 2,716,088
5.00% 11/15/17 ................................... 3,180,000 3,128,866
North Allegheny Pennsylvania School District
Series D 5.00% 5/1/21 ............................ 9,500,000 9,333,085
Owen J. Roberts School District Pennsylvania
5.375% 5/15/18 ................................... 4,565,000 4,665,932
Philadelphia Pennsylvania School District
General Obligation
Series B 5.375% 4/1/22 (AMBAC) .................... 10,625,000 10,765,356
Pottsville Area School District
9.375% 5/1/06 (Escrowed to Maturity)
(AMBAC) .......................................... 900,000 1,165,248
-----------
40,830,153
-----------
Transportation Revenue Bonds - 1.35%
Pennsylvania State Turnpike Commission
Turnpike Revenue
Series L 6.25% 6/1/11 ............................ 9,000,000 9,684,630
Series N 6.50% 12/1/13 ........................... 3,000,000 3,272,400
-----------
12,957,030
-----------
Waste Disposal Revenue Bonds - 0.88%
Greater Lebanon Refuse Authority Revenue Refunding
(Lancaster County) 7.00% 11/15/04 ................. 1,200,000 1,313,412
++Philadelphia Pennsylvania Authority for Industrial
Development Revenue (Solid Waste -
American RRT Project) 8.00% 12/1/19 ............... 15,900,000 7,155,000
-----------
8,468,412
-----------
Water & Sewer Revenue Bonds - 7.20%
Allegheny County Pennsylvania Sanitation Authority
Sewer Revenue 5.375% 12/1/24 ...................... 10,000,000 10,186,700
Dauphin County Industrial Development Authority
Water Development Revenue
Series 92B 6.70% 6/1/17 .......................... 1,750,000 2,050,125
<PAGE>
Principal Market
Amount Value
Municipal Bonds (Continued)
Water & Sewer Revenue Bonds (Continued)
Downington Pennsylvania Municipal Water Authority
Water Revenue 5.00% 9/1/25 ......................... $ 3,835,000 $ 3,696,288
Philadelphia Pennsylvania Water & Waste Water
Revenue 5.60% 8/1/18 (MBIA) ........................ 11,870,000 12,308,478
Philadelphia Pennsylvania Water and Waste Water
Revenue
Series A 5.00% 8/1/22 ............................. 16,320,000 15,761,366
Series A 5.125% 8/1/27 ............................ 14,225,000 13,959,277
Pittsburgh Water & Sewer Revenue
7.25% 9/1/14 (Escrowed to Maturity) (FGIC) ......... 9,000,000 11,015,010
-----------
68,977,244
-----------
Other General Obligation Bonds - 5.64%
Falls Township General Obligation
7.00% 12/15/10 (MBIA) ............................. 3,000,000 3,230,250
New Morgan General Obligation Guaranteed Revenue
8.00% 11/1/05 ..................................... 8,525,000 9,152,952
Philadelphia General Obligation
5.00% 5/15/25 (MBIA) .............................. 11,690,000 11,301,191
Puerto Rico (Commonwealth of) General Obligation
5.375% 7/1/25 ..................................... 4,500,000 4,548,960
5.40% 7/1/25 ...................................... 10,000,000 10,173,400
5.75% 7/1/17 ...................................... 11,000,000 11,647,240
6.00% 7/1/22 ...................................... 3,585,000 3,919,731
-----------
53,973,724
-----------
Other Revenue Bonds - 6.40%
Cambria County Hospital Development Authority
Health Care Revenue
(Allegheny Lutheran Ministries Project)
8.25% 6/15/17 .................................... 3,250,000 3,514,355
Chester Pennsylvania Guaranteed Community
Revenue 7.25% 12/1/05 ............................. 11,905,000 12,264,769
Delaware County Authority Revenue
(Main Line & Haverford Nursing and
Rehabilitation Center) 9.00% 8/1/22 ................ 2,000,000 2,288,960
Delaware River Port Authority
5.50% 1/1/26 (FGIC) ............................... 5,000,000 5,191,800
6.50% 1/1/08 (AMBAC) .............................. 5,000,000 5,098,850
Erie Western Pennsylvania Port Authority
General Revenue 6.25% 6/15/10 ...................... 1,365,000 1,476,971
Pennsylvania Intergovernmental Cooperative Authority
Special Tax Revenue
(City of Philadelphia Funding Program)
5.00% 6/15/22 (MBIA) .............................. 14,345,000 14,008,753
+Philadelphia Gas Works Revenue
5.014% 1/1/12 (AMBAC) ............................. 2,500,000 1,259,650
Philadelphia Authority For Industrial
Development Revenue
(Cathedral Village) 7.25% 4/1/15 ................... 2,000,000 2,160,300
(Stapeley Hall) 6.60% 1/1/16 ....................... 5,250,000 5,450,970
Philadelphia Parking Authority
5.50% 9/1/18 (AMBAC) .............................. 6,250,000 6,448,875
<PAGE>
14 for tax-exempt income
Tax-Free Pennsylvania Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
Municipal Bonds (Continued)
Other Revenue Bonds (Continued)
+Westmoreland County Municipal Authority
Municipal Service Revenue
Series A 5.207% 8/15/23 ...................... $ 8,000,000 $ 2,161,040
------------
61,325,293
------------
Total Municipal Bonds (cost $894,151,178) ...... 952,403,418
------------
**Variable Rate Demand Notes - 0.24%
Pennsylvania State Higher Educational Facilities
Authority Revenue College Revenue
(Council Independent Colleges)
Series A2 3.35% 4/1/22 ....................... 2,250,000 2,250,000
------------
Total Variable Rate Demand Notes
(cost $2,250,000) ............................ 2,250,000
------------
Total Market Value of Securities - 99.70%
(cost $896,401,178).......................................... $954,653,418
Receivables and other assets net of liabilities - 0.30% 2,910,474
------------
Net assets applicable to 113,730,793 shares
outstanding - 100.00%........................................ $957,563,892
============
Net asset value - Tax-free Pennsylvania Fund A class
($917,363,471 / 108,956,152 shares).......................... $8.42
=====
Net asset value - Tax-free Pennsylvania Fund B class
($37,631,293 / 4,469,501 shares)............................ $8.42
=====
Net asset value - Tax-free Pennsylvania Fund C class
($2,569,128 / 305,140 shares)............................... $8.42
=====
____________________________
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.
____________________________
*For Pre-Refunded Bonds, the stated maturity is followed by the
year in which each bond is pre-refunded.
**Variable Rate Demand Notes - The interest rate shown is the rate as of
February 28, 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.
+The interest rate shown for this security is the effective yield.
++Security in default.
____________________________
Components of net assets at February 28, 1998:
Capital shares (unlimited authorization-no par) .............. $894,767,684
Accumulated net realized gain on investments ................. 4,543,968
Net unrealized appreciation of investments ................... 58,252,240
------------
Total net assets ............................................. $957,563,892
============
<PAGE>
Net asset value and offering price per share -
Tax-Free Pennsylvania Fund A Class
Net asset value A Class (A) ...................................... $8.42
Sales charge (3.75% of offering price or 3.92% of amount invested
per share) (B) .................................................. 0.33
-----
Offering price .................................................... $8.75
=====
____________________________
(A) Net asset value per share, as illustrated, is the estimated amount
which would be paid upon 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
Delaware Group Tax-Free New Jersey Fund
Statement of Net Assets
February 28, 1998
Principal Market
Amount Value
Municipal Bonds - 98.97%
Continuing 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 State Educational Facilities Authority
(Montclair State 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
--------
Hospital Revenue Bonds - 15.26%
New Jersey Health Care Facilities Financing Authority
(Holy Name Hospital)
5.25% 7/01/20 (AMBAC) .................................. 50,000 50,507
New Jersey Health Care Facilities Financing
Authority (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
--------
<PAGE>
for tax-exempt income 15
Tax-Free New Jersey Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
Municipal Bonds (Continued)
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%
Bayonne New Jersey Municipal Utilities 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 Environmental Control Facilities
(Mennonite General Hospital)
Series A 5.63% 7/01/27 ........................... 50,000 50,638
----------
357,604
----------
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 $1,240,114) ............ 1,274,058
----------
Total Market Value of Securities - 98.97%
(cost $1,240,114) ............................................ $1,274,058
Receivables and Other Assets Net of Liabilities - 1.03% ........ 13,272
----------
Net Assets Applicable to 200,144 Tax-free new jersey
fund a class shares, 25,644 tax-free new jersey Fund
b class shares, and 1 tax-free new jersey fund c class
share outstanding; equivalent to $5.70 per
share - 100.00% ............................................... $1,287,330
==========
<PAGE>
____________________________
Summary of Abbreviations:
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 PERSHARE-
TAX-FREE NEW JERSEY FUND A CLASS
Net asset value A Class (A) ......................................... $5.70
Sales charge (3.75% of offering price or 3.86% of
amount invested per share) (B) ...................................... 0.22
-----
Offering price ....................................................... $5.92
=====
(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
Delaware Group Tax-Free Ohio Fund
Statement of Net Assets
February 28, 1998
Principal Market
Amount Value
Municipal Bonds - 97.95%
Airports Revenue Bonds - 0.81%
Cleveland Ohio Airport Special Revenue
(Continental Airlines Project)
5.375% 9/15/27 ................................. $ 10,000 $ 9,775
--------
9,775
--------
City Revenue Bonds - 4.23%
Elyria Ohio General Obligations
5.40% 12/01/22 (FGIC) .......................... 50,000 50,867
--------
50,867
--------
Continuing Care/Retirement
Revenue Bonds - 9.89%
Montgomery County Ohio 6.25% 2/01/22 ............. 115,000 118,798
--------
118,798
--------
Convention Center/Audit/Stadium
Revenue Bonds- 4.24%
Cleveland Ohio Cleveland Stadium Project
5.25% 11/15/17 (AMBAC) ......................... 50,000 50,827
--------
50,827
--------
<PAGE>
16 for tax-exempt income
Tax-Free Ohio Fund
Statement of Net Assets (Continued)
Principal Market
Amount Value
Municipal Bonds (Continued)
Higher Education Revenue Bonds - 12.84%
University of Akron Ohio
5.25% 1/1/22 (AMBAC) ................................. $ 50,000 $ 50,325
Ohio State Higher Educational Facility Revenue
(Case Western Reserve University)
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
--------
Hospital 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
--------
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
--------
Industrial Development Authority
Revenue Bonds - 8.75%
Ohio State Air Quality Authority
5.625% 10/01/22 (AMBAC) .............................. 100,000 105,087
--------
105,087
--------
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
--------
Power Authority Revenue Bonds - 6.47%
Cleveland Ohio Public Power Systems Revenue
5.00% 11/15/24 (MBIA) ................................ 80,000 77,698
--------
77,698
--------
School Authority/District
Revenue Bonds - 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
--------
<PAGE>
Principal Market
AmountValue
Municipal Bonds (Continued)
Transportation Revenue Bonds - 7.97%
Dayton Ohio Special Facilities Revenue
(Air Freight) 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
---------
Total Municipal Bonds (cost $1,139,281) ........ 1,176,752
---------
Total Market Value of Securities - 97.95%
(cost $1,139,281) ............................................ $1,176,752
Receivables and other assets net of liabilities -2.05% ......... 24,650
Net assets applicable to 209,636 Tax-Free Ohio Fund A
Class Shares, 1 Tax-Free Ohio Fund B Class Share, and
1 Tax-Free Ohio Fund C Class Shares 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 PERSHARE -
Tax-Free Ohio Fund A Class
Net asset value A Class (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, 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
<PAGE>
for tax-exempt income 17
Delaware Group State Tax-Free Income Trust
Statements of Operations
<TABLE>
<CAPTION>
Year ended 9/3/97* 9/3/97*
2/28/98 to 2/28/98 to 2/28/98
Tax-Free Tax-Free Tax-Free
Pennsylvania Fund New Jersey Fund Ohio Fund
----------------- --------------- ---------
<S> <C> <C> <C>
Investment Income:
Interest ............................................................. $59,329,581 $29,214 $27,221
Expenses:
Management fees ...................................................... 5,604,856 3,235 2,856
Distribution expense ................................................. 2,190,349 1,911 1,470
Dividend disbursing and transfer agent fees and expenses ............. 636,366 355 122
Accounting and administration ........................................ 479,918 312 284
Reports and statements to shareholders ............................... 202,701 1,102 1,262
Professional fees .................................................... 128,349 2,919 2,517
Registration fees .................................................... 24,470 163 163
Trustees' fees ....................................................... 22,142 827 827
Other ................................................................ 129,637 338 487
9,418,788 11,162 9,988
Less expenses absorbed by Delaware Management Company ................ -- (6,008) (5,427)
Total Expenses ....................................................... 9,418,788 5,154 4,561
Net investment income ................................................ 49,910,793 24,060 22,660
Net realized and unrealized gain on investments:
Net realized gain on investment transactions ......................... 4,571,607 8,020 5,456
Net change in unrealized appreciation on investments ................. 17,799,518 33,944 37,471
Net realized and unrealized gain on investments ...................... 22,371,125 41,964 42,927
Net increase in net assets resulting from operations ................. $72,281,918 $66,024 $65,587
</TABLE>
* Commencement of trading.
See accompanying notes
<PAGE>
18 for tax-exempt income
Delaware Group State Tax-Free Income Trust
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Tax-Free Tax-Free Tax-Free Tax-Free
Pennsylvania Fund Pennsylvania Fund New Jersey Fund Ohio Fund
----------------- ----------------- --------------- ---------
9/3/97* 9/3/97*
Year Ended Year Ended to to
2/28/98 2/28/97 2/28/98 2/28/98
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from operation:
Net investment income......................................... $ 49,910,793 $ 54,379,536 $ 24,060 $ 22,660
Net realized gain on investments.............................. 4,571,607 10,401,047 8,020 5,456
Net change in unrealized appreciation/depreciation
on investments................................................ 17,799,518 (24,151,527) 33,944 37,471
------------ -------------- ---------- ----------
Net increase in net assets resulting from operations.......... 72,281,918 40,629,056 66,024 65,587
------------ -------------- ---------- ----------
Distributions to shareholders from:
Net investment income:
A Class................................................... (48,278,596) (53,105,291) (23,444) (22,660)
B Class................................................... (1,549,667) (1,244,693) (600) --
C Class................................................... (82,530) (29,552) (16) --
Net realized gain on investment transactions:
A Class................................................... (1,387,621) (13,225,478) -- --
B Class................................................... (55,005) (396,374) -- --
C Class................................................... (3,266) (9,434) -- --
------------ -------------- ---------- ----------
(51,356,685) (68,010,822) (24,060) (22,660)
------------ -------------- ---------- ----------
Capital share transactions:
Proceeds from shares sold:
A Class................................................... 33,795,787 65,667,678 1,162,901 1,136,860
B Class................................................... 8,015,562 12,305,523 146,118 6
C Class................................................... 1,826,972 1,342,106 2,006 6
Net asset value of shares issued upon reinvestment of
dividends from net investment income
and net realized gain on investment transactions:
A Class................................................... 28,369,872 39,316,223 22,067 21,613
B Class................................................... 966,811 1,091,578 346 --
C Class................................................... 73,395 34,499 12 --
------------ -------------- ---------- ----------
73,048,399 119,757,607 1,333,450 1,158,485
------------ -------------- ---------- ----------
Cost of shares repurchased:
A Class................................................... 119,106,665) (126,832,263) (85,960) (10)
B Class................................................... (3,827,517) (2,023,820) (6) --
C Class................................................... (558,944) (308,635) (2,118) --
------------ -------------- ---------- ----------
(123,493,126) (129,164,718) (88,084) (10)
------------ -------------- ---------- ----------
Increase (decrease) in net assets derived from capital
share transactions............................................ (50,444,727) (9,407,111) 1,245,366 1,158,475
------------ -------------- ---------- ----------
Net increase (decrease) in net assets......................... (29,519,494) (36,788,877) 1,287,330 1,201,402
Net assets:
Beginning of period........................................... 987,083,386 1,023,872,263 -- --
------------ -------------- ---------- ----------
End of period................................................. $957,563,892 $ 987,083,386 $1,287,330 $1,201,402
============ ============== ========== ==========
</TABLE>
* Commencement of trading.
See accompanying notes
<PAGE>
for tax-exempt income 19
Delaware Group State Tax-Free Income Trust
Financial Highlights
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Pennsylvania Fund A Class
----------------------------------
2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period................ $ 8.240 $ 8.460 $ 8.180 $ 8.610 $ 8.630
Income from investment operations:
Net investment income.............................. 0.430 0.456 0.476 0.494 0.496
Net realized and unrealized gain (loss)
on investments..................................... 0.193 (0.105) 0.330 (0.430) (0.020)
-------- -------- ---------- -------- ----------
Total from investment operations................... 0.623 0.351 0.806 0.064 0.476
-------- -------- ---------- -------- ----------
Less dividends and distributions:
Dividends from net investment income............... (0.430) (0.456) (0.476) (0.494) (0.496)
Distributions from net realized gain on
investment transactions............................ (0.013) (0.115) (0.050) none none
-------- -------- ---------- -------- ----------
Total dividends and distributions.................. (0.443) (0.571) (0.526) (0.494) (0.496)
-------- -------- ---------- -------- ----------
Net asset value, end of period...................... $ 8.420 $ 8.240 $ 8.460 $ 8.180 $ 8.610
======== ======== ========== ======== ==========
Total return (1).................................... 7.78% 4.35% 10.08% 0.91% 5.64%
Ratios and supplemental data:
Net assets, end of period (000 omitted)............ $917,364 $954,258 $1,002,888 $976,313 $1,026,903
Ratio of expenses to average net assets............ 0.94% 0.91% 0.90% 0.90% 0.88%
Ratio of net investment income to average net assets 5.20% 5.52% 5.67% 6.03% 5.70%
Portfolio turnover................................. 32% 27% 25% 18% 14%
</TABLE>
- ------------------
(1) 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.
<PAGE>
20 for tax-exempt income
Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
Tax-Free Pennsylvania Fund B Class Tax-Free Pennsylvania Fund C Class
------------------------------------- ----------------------------------
5/2/94(1) 11/29/95(1)
to to
2/28/98 2/28/97 2/29/96 2/28/95 2/28/98 2/28/97 2/29/96
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 8.240 $ 8.460 $ 8.180 $ 8.310 $ 8.240 $ 8.460 $ 8.510
Income from investment operations:
Net investment income.......................... 0.370 0.390 0.408 0.353 0.364 0.390 0.102
Net realized and unrealized gain (loss)
on investments................................. 0.193 (0.105) 0.330 (0.130) 0.193 (0.105) none
Total from investment operations............... 0.563 0.285 0.738 0.223 0.557 0.285 0.102
Less dividends and distributions:
Dividends from net investment income........... (0.370) (0.390) (0.408) (0.353) (0.364) (0.390) (0.102)
Distributions from net realized gain on
investment transactions........................ (0.013) (0.115) (0.050) none (0.013) (0.115) (0.050)
Total dividends and distributions.............. (0.383) (0.505) (0.458) (0.353) (0.377) (0.505) (0.152)
Net asset value, end of period................. $ 8.420 $ 8.240 $ 8.460 $ 8.180 $ 8.420 $ 8.240 $ 8.460
Total return(2)................................. 6.92% 3.52% 9.19% 2.79% 6.92% 3.52% 1.19%
Ratios and supplemental data:
Net assets, end of period (000 omitted)........ $ 37,631 $31,644 $20,861 $10,239 $ 2,569 $ 1,181 $ 123
Ratio of expenses to average net assets........ 1.74% 1.71% 1.71% 1.73% 1.74% 1.71% 1.71%
Ratio of net investment income to average
net assets..................................... 4.40% 4.72% 4.86% 5.20% 4.40% 4.72% 4.86%
Portfolio turnover............................. 32% 27% 25% 18% 32% 27% 25%
</TABLE>
- ----------------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Does not include contingent deferred sales charge which varies from 1-4%
depending upon the holding period for Class B shares and 1% for Class C
shares.
<PAGE>
for tax-exempt income 21
Financial Highlights (Continued)
Selected data for each share of the Funds outstanding throughout each
period were as follows:
<TABLE>
<CAPTION>
Tax-Free New Jersey Tax-Free New Jersey Tax-Free Ohio
Fund A Class Fund B Class Fund A Class
9/3/97(1) 9/3/97(1) 9/3/97(1)
to to to
2/28/98 2/28/98 2/28/98
<S> <C> <C> <C>
Net asset value, beginning of period................ $ 5.500 $ 5.500 $ 5.500
Income from investment operations:
Net investment income.............................. 0.115 0.069 0.120
Net realized and unrealized gain on investments.... 0.200 0.200 0.230
Total from investment operations................... 0.315 0.269 0.350
Less dividends:
Dividends from net investment income............... (0.115) (0.069) (0.120)
Total dividends.................................... (0.115) (0.069) (0.120)
Net asset value, end of period..................... $ 5.700 $ 5.700 $ 5.730
Total return(2)..................................... 5.77% 4.90% 6.41%
Ratios and supplemental data:
Net assets, end of period (000 omitted)............ $ 1,141 $ 146 $ 1,201
Ratio of expenses to average net assets............ 0.88% 1.56% 0.88%
Ratio of expenses to average net assets prior to
expense limitation................................. 1.93% 2.61% 1.93%
Ratio of net investment income to average net
assets............................................. 4.23% 3.63% 4.38%
Ratio of net investment income to average net
assets prior to expense limitation 3.18% 2.58% 3.33%
Portfolio turnover................................. 47% 47% 66%
</TABLE>
- -------------------
(1) Date of initial public 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 from 1-4%
depending 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. For the period September 3, 1997
through February 28, 1998, there was no shareholder activity in Ohio Fund
Class B and Ohio Fund Class C besides the initial seed purchase of 1 share.
This shareholder data is not being disclosed because the data is not
believed to be meaningful.
<PAGE>
22 for tax-exempt income
Delaware Group State Tax-Free Income Trust
Notes to Financial Statements
February 28, 1998
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 a "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 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 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.
<PAGE>
Certain Trust expenses are paid through "soft dollar" arrangements with
brokers. The amount of these expenses is less than 0.01% of each 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. Effective January 22, 1998, DMC
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 July
31, 1998. Prior to January 22, 1998, DMC absorbed expenses for the Tax-Free
New Jersey Fund and the Tax-Free Ohio Fund to the extent that annual operating
expenses exclusive of distribution expenses exceeded 0.75% of average daily
net assets. Total expenses absorbed by DMC for the period 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 $27,600 for
the Tax-Free Pennsylvania Fund, $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 period ended February 28, 1998, the Tax-Free
Pennsylvania Fund, the Tax-Free New Jersey Fund and the Tax-Free Ohio Fund
expensed $636,366, $355 and $122, respectively, for dividend disbursing,
transfer agent fees and other expenses and $356,397, $230 and $209,
respectively, for accounting services and had liabilities for such fees and
other expenses payable to DSC for $51,501, $126 and $101, 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. 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 $133,584, $178 and $45 for
commissions on sales of the Tax-Free Pennsylvania Fund A Class, 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, directors and/or employees
of the Trust. These officers, directors and employees are paid no compensation
by the Trust.
<PAGE>
for tax-exempt income 23
Notes to Financial Statements (Continued)
3. Investments
During the period ended February 28,1998, 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:............. $310,868,173 $1,505,039 $1,484,323
Sales:................. 361,181,592 273,241 350,503
At February 28, 1998, the aggregate cost of securities for federal income
tax purposes was as follows:
Tax-Free Tax-Free Tax-Free
Pennsylvania New Jersey Ohio
Fund Fund Fund
------------ ---------- ----------
Cost of investments............ $896,407,178 $1,240,114 $1,139,281
============ ========== ==========
Unrealized appreciation........ $ 67,206,700 $ 34,543 $ 37,649
Unrealized depreciation........ 8,960,460 599 178
------------ ---------- ----------
Net unrealized appreciation.... $ 58,246,240 $ 33,944 $ 37,471
============ ========== ==========
4. Capital Stock
Transactions in capital stock were as follows:
Tax-Free Pennsylvania
---------------------
Year Ended Year Ended
2/28/98 2/28/97
Shares sold:
A Class........................... 4,077,711 7,949,608
B Class........................... 971,854 1,488,828
C Class........................... 220,582 161,709
Shares issued upon reinvestment of
dividends from net investment income and
net realized gain on investment transactions:
A Class........................... 3,420,943 4,765,329
B Class........................... 116,535 132,364
C Class........................... 8,828 4,184
--------- ----------
8,816,453 14,502,022
========= ==========
Shares repurchased:
A Class........................... (14,384,144) (15,397,947)
B Class........................... (460,334) (245,114)
C Class........................... (67,700) (37,039)
---------- ----------
(14,912,178) (15,680,100)
========== ==========
Net Decrease...................... (6,095,725) (1,178,078)
<PAGE>
4. Capital Stock (Continued)
Tax-Free Tax-Free
New Jersey Ohio
9/3/97* 9/3/97*
to to
2/28/98 2/28/98
Shares sold:
A Class............................... 211,252 205,829
B Class............................... 25,584 1
C Class............................... 365 1
Shares issued upon reinvestment of
dividends from net investment income:
A Class............................... 3,894 3,809
B Class............................... 61 --
C Class............................... 2 --
------- -------
241,158 209,640
------- -------
Shares repurchased:
A Class............................... (15,002) (2)
B Class............................... (1) --
C Class............................... (366) --
------- -------
(15,369) (2)
------- -------
Net Increase.......................... 225,789 209,638
======= =======
* Commencement of trading.
5. Lines of Credit
The Tax-Free Pennsylvania Fund has a committed line of credit for $24.9
million. No amount was outstanding at February 28, 1998, or at any time during
the fiscal year.
6. 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 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 Statements of Net Assets.
<PAGE>
24 for tax-exempt income
Delaware Group State Tax-Free Income Trust
Report of Independent Auditors
To the Trustees and Beneficial Shareholders
Delaware Group State Tax-Free Income Trust
We have audited the accompanying statements of net assets of Delaware Group
State Tax-Free Income Trust (the "Trust") (comprised of Tax-Free Pennsylvania
Fund, Tax-Free New Jersey Fund, and Tax-Free Ohio Fund) as of February 28,
1998, and the related statements of operations, statements of changes in net
assets and financial highlights for each of the periods indicated therein.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to expre ss an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of February 28, 1998, by corres pondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds constituting the Delaware Group State Tax-Free Income
Trust at February 28, 1998, the results of their operations, the changes in
their net assets, and their financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
------------------------
Philadelphia, Pennsylvania
April 3, 1998
<PAGE>
This annual report is for the information of Tax-Free Pennsylvania Fund,
Tax-Free New Jersey Fund, and Tax-Free Ohio Fund shareholders, but it may be
used with prospective investors when preceded or accompanied by a current
Prospectus for the appropriate Funds, which sets forth details about charges,
expenses, investment objectives and operating policies of each Fund. You shoul
d 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 each Fund
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
Board of Trustees
Wayne A. Stork
Chairman
Delaware Investments Family of Funds
Philadelphia, PA
Jeffrey J. Nick
President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates
New York, NY
Ann R. Leven
Treasurer, National Gallery of Art
Washington, DC
W. Thacher Longstreth
City Councilman
Philadelphia, PA
Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
Charles E. Peck
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
<PAGE>
Affiliated Officers
David K. Downes
Executive Vice President, Chief Financial Officer and Chief Operating Officer
Delaware Investments Family of Funds
Philadelphia, PA
George M. Chamberlain, Jr.
Senior Vice President, Secretary
and General Counsel
Delaware Investments Family of Funds
Philadelphia, PA
Bruce D. Barton
President and Chief Executive Officer
Delaware Distributors, L.P.
Philadelphia, PA
trustees
& officers
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
[photo of globes]
<PAGE>
This report must be preceded or accompanied by a current Prospectus for
Tax-Free Pennsylvania Fund, Tax-Free New Jersey Fund, Tax-Free Ohio Fund, and
the Delaware Investments Fund Performance Update for the most recently
completed calendar quarter. For a prospectus of any other mutual fund from
Delaware Investments, contact your financial adviser or Delaware.
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
Fund are not FDIC or NCUSIF insured, are not guaranteed by any bank or any
credit union, and involve investment risk, including the possible loss of the
principal amount invested. Shares of the Funds are not bank or credit union
deposits.
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(C)Delaware Distributors, L.P.
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