<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
1999
Annual Report
goals
DELAWARE INVESTMENTS(SM)
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PHILADELPHIA o LONDON
<PAGE>
A TRADITION OF SOUND INVESTING
A Commitment
To Our Investors
commitment
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 annuities and closed-end funds as well as offer a wide
range of retirement plan services for individuals and businesses.
Delaware manages approximately $45 billion in mutual fund assets and
institutional advisory accounts for more than half-a-million investors.
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.
Fund Objectives
TAX-FREE PENNSYLVANIA FUND
Seeks a high level of current interest income exempt from federal income tax and
Pennsylvania state and local taxes, consistent with preservation of capital.
TAX-FREE NEW JERSEY FUND
Seeks a high level of current interest income exempt from federal income tax and
New Jersey state and local taxes, consistent with preservation of capital.
TAX-FREE OHIO FUND
Seeks a high level of current interest income exempt from federal income tax and
Ohio state and local taxes, consistent with preservation of capital.
Table of Contents
LETTER TO SHAREHOLDERS Page 1
PORTFOLIO MANAGERS' REVIEW Page 3
TAX-FREE PENNSYLVANIA FUND Page 4
TAX-FREE NEW JERSEY FUND Page 5
TAX-FREE OHIO FUND Page 5
STATEMENT OF NET ASSETS Page 9
FINANCIAL HIGHLIGHTS Page 18
tax exempt income
tradition
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tax-exempt
income
1
March 12, 1999
Dear Shareholder:
DURING FISCAL 1999, GLOBAL ECONOMIC
turmoil drove foreign and domestic investors to the safety and liquidity of U.S.
Treasuries. Increased demand bolstered Treasury prices and pushed yields lower.
Municipal bond yields declined also, but to a much lesser extent. This narrowed
the gap that normally exists between yields on tax-free municipal bonds and
taxable Treasuries.
By October, at the height of the Treasury market's price rally, longer term
municipal bonds offered as much as 98% of the income potential of comparable
Treasuries. Although this fell to about 89% by the end of our reporting period,
historically municipal bonds have yielded 83% of Treasuries (Source: Municipal
Market Data). Therefore, we believe municipal bonds are still undervalued
relative to Treasuries and still offer attractive income potential.
For the 12 months ended February 28, 1999, total returns for Tax-Free
Pennsylvania Fund, Tax-Free New Jersey Fund and Tax-Free Ohio Fund (for Class A
shares at net asset value) outpaced the average of comparable funds in their
respective states, as shown in the table below. However, we fell short of the
broad-based Lehman Brothers Municipal Bond Index.
In fiscal 1999, we increased the average duration (sensitivity to interest
rates) on all three funds in order to take advantage of higher yields available
on longer term tax-exempt bonds and to benefit from a possible recovery in bond
prices if interest rates rose. This had a positive impact on the Funds'
performance.
Supply of high-grade municipal bonds was unusually strong over the past 12
months. Over $285 billion in new bonds
ANNUAL TOTAL RETURN AT NET ASSET VALUE
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12 Months Ended
February 28, 1999
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Tax-Free Pennsylvania Fund Class A +4.64%
Lipper Pennsylvania Municipal Bond Fund Average (61 funds) +4.62%
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Tax-Free New Jersey Fund Class A +5.93%
Lipper New Jersey Municipal Bond Fund Average (55 funds) +5.22%
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Tax-Free Ohio Fund Class A +5.12%
Lipper Ohio Municipal Bond Fund Average (52 funds) +5.04%
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Lehman Brothers Municipal Bond Index +6.15%
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All performance shown above is at net asset value and assumes reinvestment of
distributions. For complete performance for all Classes, see pages 7 and 8. Each
index shown above is unmanaged. The Lehman Brothers Municipal Bond Index
includes bonds of various qualities from many states.
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for tax-exempt
income
2
was available in 1998, the second largest annual supply on record. Pennsylvania
was the nation's 4th largest issuer, up 33% over the previous year, while New
Jersey and Ohio ranked 9th and 10th, respectively, according to The Bond Buyer,
a municipal bond trade publication.
A surge in refunding activity - up 42% since 1997 - contributed to the high
volume of new municipal bonds in 1998. Like homeowners who take advantage of low
interest rates to refinance their mortgage, municipalities can refinance older
bonds that were issued when interest rates were higher. Many states, including
Pennsylvania, capitalized on lower interest rates to reduce existing debt
payments.
On the pages that follow, portfolio managers Patrick Coyne and Mitchell
Conery review developments in the municipal bond market during fiscal 1999, as
well as the performance and current portfolio positioning of Tax-Free
Pennsylvania, New Jersey and Ohio Funds. They also share their outlook for
fiscal 2000.
We appreciate your investment, and we look forward to helping you reach your
financial goals well into the new millennium.
Sincerely,
/s/ Jeffrey J. Nick
- ------------------------------------
JEFFREY J. NICK
Chairman, President and
Chief Executive Officer
Delaware Investments Family of Funds
discipline
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JEFFREY J. NICK NAMED CHAIRMAN
On December 17, 1998, Jeffrey J. Nick was named Chairman of the Delaware
Investments Family of Funds. He replaces Wayne A. Stork who has retired as
Chairman of the Board of Directors, but continues to serve as a Board Member.
Mr. Nick was named President and Chief Executive Officer of Delaware Investments
Family of Funds in October 1997. He has been CEO of Lincoln National Investment
Companies, an indirect parent company of Delaware Investments, since October
1996, and previously managed Lincoln's operations in the United Kingdom. Mr.
Nick holds an MBA from the University of Chicago and a bachelor of arts degree
from Princeton University.
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for tax-exempt
income
3
Portfolio Managers' Review
Patrick P. Coyne and Mitchell L. Conery
Vice Presidents/Senior Portfolio Managers
March 12, 1999
MUNICIPAL BOND YIELDS RIVALED TREASURIES
Last spring as we began fiscal 1999, the U.S. economy had entered its eighth
consecutive year of expansion, the stock market was posting solid gains, and
fixed-income securities offered attractive income amid a low inflation
environment.
But over the summer and early fall, economic and currency problems erupted in
Russia and along the Pacific Rim, and U.S. corporate earnings slowed. Investors
sought refuge in U.S. Treasury bonds. As bond prices rose, the yield on the
30-year U.S. Treasury hit an historic low of 4.72% in October. As a result,
municipal bond yields gained ground on Treasury yields.
By late fall, 30-year AAA (the highest quality rating) general obligation
municipal bonds had a yield of 4.82%, approximately 98% of the yield available
from comparable maturity Treasuries. This was a compelling value given that the
interest on municipal bonds is exempt from federal income tax.
As we concluded fiscal 1999, the yield on the 30-year U.S. Treasury had moved
up to 5.58%. (Source: Bloomberg Business News) Though this widened the yield gap
between municipal bonds and Treasuries, municipal bond yields were still closer
to Treasuries than they normally are.
MUNICIPAL CREDIT
QUALITY IMPROVED
Other reasons municipal bonds remain an attractive investment, in our opinion,
are the financial strength of state and local governments and the improving
credit quality of their debt issues. In 1998, credit quality upgrades exceeded
downgrades by a seven-to-one margin, according to Standard & Poor's.
AAA MUNICIPAL YIELDS AS A PERCENTAGE OF TREASURY YIELDS
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MARCH 1, 1998 - FEBRUARY 28, 1999
Average
Duration February 28, 1999 High Low
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30 Years 89% 97% 86%
20 Years 90% 98% 84%
10 Years 80% 91% 78%
5 Years 72% 88% 72%
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Higher percentages indicate that municipal bonds offer attractive income levels
compared to U.S. Treasuries. Historically, long-term municipal bonds have
yielded about 83% of what comparable Treasuries yield. Based on this measure, we
believe long-term municipals offer the best value currently.
Source: Municipal Market Data.
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for tax-exempt
income
4
During the year, the difference between yields of bonds with a quality rating
of AAA (the highest rating available) and those with lower ratings narrowed.
Because of this, we felt that it was more prudent to purchase higher quality
bonds because we weren't gaining sufficient extra income in return for the extra
risk related to lower grade bonds. The table below reflects our focus on higher
credit quality.
STRATEGIC POSITIONING
Tax-Free Pennsylvania Fund
Late in fiscal 1999, we began to lengthen the average duration of Tax-Free
Pennsylvania Fund. Our goal was to capture the higher income potential of
long-term bonds. As of February 28, the Fund's average duration (sensitivity to
interest rates) was 7.2 years, up 1.1 from 6.1 years at the end of last fiscal
year.
Our longer durations and our focus on bonds rated BBB or better contributed
positively to the Fund's performance. As of fiscal year-end, over 86% of
Tax-Free Pennsylvania Fund was allocated to investment-grade bonds; 60% was
invested in securities rated AAA. Our emphasis on very high quality bonds also
helps reduce overall credit risk in the portfolio.
Bonds that were pre-refunded made up the largest portion of the Fund's sector
allocation. With interest rates at their lowest levels in years, many
municipalities refinanced their existing debt to reduce their long-term
obligations. Many of our pre-refunded holdings have high coupon rates (the
stated rate of interest on the bond) and have added nicely to the Fund's
dividend.
Hospital revenue bonds accounted for 20.38% of the portfolio's net assets as
of February 28, 1999. We remain cautiously optimistic about the hospital sector.
After last year's highly publicized bankruptcy of Allegheny Health Systems, many
Pennsylvania hospitals have begun to trim costs and manage their facilities more
efficiently. This is an encouraging development, but one that has not yet spread
to all hospitals. Extensive credit analysis is essential to distinguish between
the good and bad apples.
We did not own Allegheny at the time it filed for bankruptcy; our credit
research led us to sell it well ahead of its troubles.
PORTFOLIO CREDIT QUALITY
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FEBRUARY 28, 1999
Tax-Free Tax-Free Tax-Free
Pennsylvania Fund New Jersey Fund Ohio Fund
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AAA 60.07% 77.13% 42.17%
AA 8.87% 2.48% 7.10%
A 6.83% 8.33% 0.00%
BBB 6.49% 6.59% 21.67%
BB & B 3.76% 1.32% 17.31%
Not Rated 13.98% 4.15% 11.75%
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for tax-exempt
income
5
We believe this in-depth credit research has enabled us to pinpoint hospitals in
solid financial condition.
TAX-FREE NEW JERSEY FUND
In her 1999 State of the State Address this past January, New Jersey Governor
Christine Todd Whitman called the health of the nation's Garden State "vibrant
and vigorous." A strong growing economy and low unemployment have contributed to
a positive outlook for the state and strong credit ratings for its
municipalities.
As of February 28, Tax-Free New Jersey Fund held nearly 95% of its total net
assets in investment-grade municipal bonds, with more than 77% in AAA bonds.
This offered us additional credit protection during the year, and helped us
lower our overall credit risk.
In order to capture higher income, we extended the Fund's average duration.
This was a significant driving force in the Fund's performance.
For the 12-month period, Tax-Free New Jersey Fund delivered a total return of
5.93%, (for class A shares at net asset value) outpacing the average of its
peers. The Fund's largest holding was a revenue bond issued by the New Jersey
Economic Development Authority to fund the United Water New Jersey Project. This
project has helped municipalities to save on wastewater management costs by
aligning public water utilities with private service providers.
Because New Jersey residents bear a higher overall tax burden than half the
country - New Jersey ranked 22nd among all states in 1998 for state and local
taxes+ - investor demand for New Jersey tax-exempt bonds is strong. However,
there has not been a tremendous amount of supply, which can occasionally make
our job of investing portfolio assets more challenging.
TAX-FREE OHIO FUND
Like New Jersey, Ohio is also considered a "high tax" state. It ranked 24th
among all states in 1998 for state and local taxes.+ The demand for bonds by
Ohio investors looking to reduce their tax liability has
tax-free
new jersey
tax-free
ohio
PORTFOLIO HIGHLIGHTS
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FEBRUARY 28, 1999
Tax-Free Tax-Free Tax-Free
Pennsylvania Fund New Jersey Fund Ohio Fund
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Number of Securities 120 39 20
Average Effective Maturity 10.83 years 18.7 years 13.43 years
Average Duration 7.2 years 10.9 years 8.7 years
AMT Income* 1.99% 14.92% 21.75%
Average Coupon 5.98% 5.07% 5.51%
Current 30-Day SEC Yield**
Class A 3.52% 4.13% 4.48%
Class B 2.85% 3.52% 3.91%
Class C 2.85% 3.52% 3.91%
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*Amount of income subject to the federal alternative minimum tax for the 12
months ended February 28, 1999.
**Calculated according to Securities and Exchange Commission Guidelines.
+ Source: The Tax Foundation.
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for tax-exempt
income
6
outnumbered the supply of municipal bonds available for investing, a trend
similar to what we've experienced in New Jersey.
Revenue bonds issued to finance projects in transportation, airports and
higher education made up another one-third of the portfolio. AMT revenue bonds -
bonds issued for industrial development and that have interest subject to the
federal alternative minimum tax - accounted for 3.4% of the portfolio's asset
mix.
Tax-Free Ohio Fund benefited from additional income earned as a result of a
longer duration. We slightly lengthened the average duration during this period
from 8.4 years to 8.7 years. This was a longer duration than the average of its
peers and helped boost the Fund's relative performance in fiscal 1999.
The Fund's top holding is Air Freight. This express mail service represented
12.8% of net assets. As intermediate-term interest rates have declined, Air
Freight's 6.05% coupon rate provided attractive income for the Fund. We also
benefited from a pre-refunded revenue bond issued by the Ohio State Turnpike
Commission which offered a higher than average coupon compared to revenue bonds
issued by other states' turnpike commissions.
MARKET OUTLOOK
As we expected, 1999's supply of new municipal bonds has slowed from last
year's levels primarily because most municipalities have already refinanced
existing debt at lower interest rates.
We expect to continue our strategy of increasing each Fund's income potential
by extending average duration, consistent with the Fund's objective. Although
municipal bonds still appear relatively inexpensive when compared to Treasuries,
we believe the real "value opportunities" are at the far end of the maturity
spectrum where interest rates are higher.
To help manage the risks of investing in longer term bonds, we continue to
focus on securities with investment-grade quality ratings. With state and local
governments' credit quality improving, we believe municipal bonds remain a sound
choice for investors seeking to increase their income potential without
increasing their tax liability.
outlook
<PAGE>
for tax-exempt
income
7
Performance Summary
TAX-FREE PENNSYLVANIA FUND
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GROWTH OF A $10,000 INVESTMENT
10 YEARS ENDED FEBRUARY 28,1999
Lehman Brothers Tax-Free Pennsylvania U.S. Consumer Price
Municipal Bond Index Capitalize Fund Class A Index (Inflation)
-------------------- ----------------------- -----------------
2/28/89 $ 9,625 $10,000 $10,000
2/28/90 10,460 11,027 10,526
2/28/91 11,218 12,043 11,085
2/29/92 12,464 13,246 11,398
2/28/93 14,108 15,069 11,768
2/28/94 14,901 15,903 12,064
2/28/95 15,036 16,203 12,409
2/29/96 16,551 17,993 12,728
2/28/97 17,272 18,985 13,125
2/28/98 18,599 20,719 13,314
2/28/99 19,455 22,006 13,568
Chart assumes $10,000 invested on February 28, 1988, a 3.75% front-end sales
charge and reinvestment of all distributions. Performance for other Fund classes
will vary due to differing charges and expenses. Past performance does not
guarantee future results.
TAX-FREE PENNSYLVANIA FUND PERFORMANCE
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AVERAGE ANNUAL RETURNS THROUGH FEBRUARY 28, 1999
Lifetime Ten Years Five Years One Year
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Class A (Est. 3/23/77)
Excluding Sales Charge +6.61% +7.30% +5.50% +4.64%
Including Sales Charge +6.42% +6.89% +4.69% +0.70%
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Class B (Est. 5/2/94)
Excluding Sales Charge +5.41% -- -- 3.81%
Including Sales Charge +5.07% -- -- -0.13%
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Class C (Est. 11/29/95)
Excluding Sales Charge +4.74% -- -- +3.81%
Including Sales Charge +4.74% -- -- +2.83%
Returns reflect reinvestment of distributions and any applicable sales charges
as noted below. Return and share value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Class B and Class C
results excluding sales charge assumes either that contingent sales charges did
not apply or the investment was not redeemed. Past performance is not a
guarantee of future results. 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 a 12b-1 fee. (For
Tax-Free Pennsylvania Fund, a 12b-1 fee was effective on 6/1/92).
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are subject to a deferred sales charge
of up to 4% if redeemed before the end of the sixth year.
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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for tax-exempt
income
8
TAX-FREE NEW JERSEY AND OHIO FUNDS
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GROWTH OF A $10,000 INVESTMENT
SEPTEMBER 2, 1997 TO FEBRUARY 28, 1999
Tax-Free New Jersey Tax-Free Ohio Lehman Brothers
A Class Fund A Class Municipal Bond Index
------- ------------ --------------------
9/2/97 $ 9,632 $ 9,632 $10,000
9/30/97 9,772 9,771 10,000
10/31/97 9,825 9,822 10,064
11/30/97 9,921 9,918 10,123
12/31/97 10,116 10,094 10,271
1/31/98 10,224 10,183 10,377
2/28/98 10,230 10,170 10,380
3/31/98 10,250 10,189 10,389
4/30/98 10,167 10,104 10,343
5/31/98 10,333 10,341 10,506
6/30/98 10,393 10,382 10,547
7/31/98 10,407 10,393 10,573
8/31/98 10,560 10,578 10,737
9/30/98 10,694 10,729 10,871
10/31/98 10,606 10,712 10,871
11/30/98 10,627 10,749 10,909
12/31/98 10,669 10,750 10,943
1/31/99 10,769 10,864 11,073
2/28/99 10,750 10,769 11,025
Chart assumes $10,000 invested on September 2, 1997, a 3.75% front-end sales
charge and reinvestment of all distributions. Performance for other Fund classes
will vary due to differing charges and expenses. Past performance does not
guarantee future results.
TAX-FREE NEW JERSEY AND OHIO FUNDS PERFORMANCE
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AVERAGE ANNUAL RETURNS THROUGH FEBRUARY 28, 1999
Tax-Free New Jersey Fund Tax-Free Ohio Fund
Lifetime One Year Lifetime One Year
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Class A (Est. 9/2/97)
Excluding Sales Charge +7.91% +5.93% +7.79% +5.12%
Including Sales Charge +5.23% +1.99% +5.12% +1.23%
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Class B (Est. 9/2/97)
Excluding Sales Charge +6.78% +5.14% +5.78% +4.37%
Including Sales Charge +4.17% +1.14% +3.15% +0.43%
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Class C (Est. 9/2/97)
Excluding Sales Charge +6.15% +5.14% +5.79% +4.37%
Including Sales Charge +6.15% +4.14% +5.79% +3.38%
Returns reflect reinvestment of distributions and any applicable sales charges
as noted below. Return and share value will fluctuate so that shares, when
redeemed, may be worth more or less than the original cost. Class B and Class C
results excluding sales charge assumes either that contingent sales charges did
not apply or the investment was not redeemed. Past performance is not a
guarantee of future results. 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 a 12b-1 fee. (For
Tax-Free Pennsylvania Fund, a 12b-1 fee was effective on 6/1/92).
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are subject to a deferred sales charge
of up to 4% if redeemed before the end of the sixth year.
Class C shares have a 1% annual distribution and service fee. If redeemed within
12 months, a 1% contingent deferred sales charge applies.
<PAGE>
for tax-exempt income 9
Financial Statements
DELAWARE GROUP STATE TAX-FREE INCOME TRUST -
TAX-FREE PENNSYLVANIA FUND
STATEMENT OF NET ASSETS
FEBRUARY 28, 1999
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PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
MUNICIPAL BONDS - 98.37%
AIRPORT REVENUE BONDS - 1.08%
Philadelphia Pennsylvania Authority for Industrial
Development Airport Revenue Systems
(Philadelphia Airport Project)
Series A 5.125% 07/01/28 AMT (FGIC) ............. $10,000,000 $9,887,000
-------------
9,887,000
-------------
CONTINUING CARE/RETIREMENT REVENUE BONDS - 0.59%
Philadelphia Pennsylvania Authority for Industrial
Development Revenue (Stapley In Germantown
Continuing Care Community)
6.60% 01/01/16 .................................. 5,250,000 5,463,623
-------------
5,463,623
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HIGHER EDUCATION REVENUE BONDS - 14.12%
Dauphin County General Authority College Revenue
(Holy Family College) 7.50% 12/01/19 ............ 3,025,000 3,239,321
Delaware County Authority University Revenue
(Villanova University) 5.80% 08/01/25
(AMBAC) ....................................... 7,000,000 7,521,570
(Villanova University) 9.625% 08/01/02
(Escrowed to Maturity) ........................ 360,000 400,504
Montgomery County Higher Education and Health
Authority Revenue (Beaver College)
5.85% 04/01/21 (Connie Lee) ..................... 5,465,000 5,870,503
Northampton County Higher Education
Authority Revenue (Lehigh University)
Series A 5.50% 11/15/11 ....................... 2,630,000 2,813,706
(Lehigh University)
Series B 5.25% 11/15/21 ....................... 9,025,000 9,133,751
Northeastern Pennsylvania Hospital and Education
Authority School Revenue (Wyoming Seminary
Project) 4.75% 10/01/28 ......................... 3,000,000 2,827,320
Pennsylvania State Higher Educational Facilities
Authority Revenue College Revenue
(Elizabethtown College) 6.50% 06/15/15 .......... 6,700,000 7,105,819
(LaSalle University) 9.50% 05/01/03
(Escrowed to Maturity) ........................ 315,000 353,474
(Temple University) 5.00% 04/01/29
(MBIA) ........................................ 8,950,000 8,812,707
(Temple University) 5.75% 04/01/31
(MBIA) ........................................ 8,000,000 8,300,480
(University of Pennsylvania)
4.625% 07/15/30 ............................... 4,000,000 3,686,400
(University of Pennsylvania)
4.75% 07/15/33 ................................ 14,420,000 13,494,236
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
MUNICIPAL BONDS (CONTINUED)
HIGHER EDUCATION REVENUE BONDS (CONTINUED)
(University of Pennsylvania)
5.90% 09/01/15 ................................ $4,205,000 $4,504,018
Pennsylvania State Higher Educational Facilities
Authority Revenue State System
Series M 5.75% 06/15/20 (AMBAC) ................. 17,730,000 18,632,812
Series P 5.00% 06/15/19 (AMBAC) ................. 10,000,000 9,936,200
Pennsylvania State University
Series A 5.00% 08/15/27 ......................... 20,000,000 19,700,800
Swarthmore Borough Authority (Swarthmore College)
5.00% 09/15/28 .................................. 2,000,000 1,963,620
6.00% 09/15/12 .................................. 1,270,000 1,392,657
-------------
129,689,898
-------------
HOSPITAL REVENUE BONDS - 20.38%
Allegheny County Pennsylvania Hospital Development
Authority Revenue
(Allegheny Valley Hospital) 7.75% 08/01/20 ...... 2,840,000 2,511,668
(Allegheny Valley Hospital Facility Management
Corp.) 7.50% 08/01/13 ......................... 390,000 346,012
Allegheny County Pennsylvania Hospital Development
Authority Revenue Health Center
(University of Pittsburgh)
Series A 5.625% 04/01/27 (MBIA) ............... 1,000,000 1,047,350
(UPMC Health)
Series B 6.00% 07/01/23 (MBIA) ................ 5,745,000 6,583,368
(UPMC Health)
Series B 6.00% 07/01/26 (MBIA) ................ 4,750,000 5,476,655
(UPMC Health)
Series B 6.00% 07/01/27 (MBIA) ................ 9,325,000 10,775,784
Allegheny County Pennsylvania Hospital Development
Authority Revenue Health System Revenue
(Catholic Health East)
Series A 4.875% 11/15/18 ...................... 5,665,000 5,493,634
(Catholic Health East)
Series A 4.875% 11/15/26 ...................... 8,500,000 8,120,305
Berks County Pennsylvania Municipal Authority
Health Care - Pooled Fing PJ
5.00% 03/01/28 .................................. 10,700,000 10,242,468
Chester County Pennsylvania Health and Educational
Facilities Authority Health System Revenue
(Jefferson Health Systems)
Series B 5.375% 05/15/27 ...................... 18,270,000 18,352,398
Delaware County Pennsylvania Authority
(Escrowed to Maturity)
(Mercy Health Corp.) 6.00% 12/15/26 ............. 3,500,000 3,953,565
<PAGE>
10 for tax-exempt income
TAX-FREE PENNSYLVANIA FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
MUNICIPAL BONDS (CONTINUED)
HOSPITAL REVENUE BONDS (CONTINUED)
Monroeville Hospital Authority Revenue
(Forbes Health System) 6.25% 10/01/15 ........... $ 3,500,000 $ 3,144,400
(Forbes Health System) 7.00% 10/01/13 ........... 7,265,000 6,745,625
Philadelphia Pennsylvania Hospital Higher Education
Facilities Authority Hospital Revenue
(Children's Hospital of Philadelphia)
Series A 5.50% 02/15/22 ....................... 5,600,000 5,651,296
(Children's Seashore House)
Series A 7.00% 08/15/17 ....................... 3,100,000 3,387,742
(Children's Seashore House)
Series B 7.00% 08/15/22 ....................... 2,100,000 2,294,922
(Jeanes Health System Project)
6.85% 07/01/22 ................................ 18,020,000 19,373,302
(Presbyterian Medical Center)
6.65% 12/01/19 (Escrowed to Maturity) ......... 13,000,000 15,475,720
(Roxborough Memorial Hospital)
7.25% 03/01/24 ................................ 12,190,000 13,026,112
(Temple University Hospital)
6.625% 11/15/23 ............................... 16,500,000 17,591,475
Sayre-Health Care Facilities (VHA of
Pennsylvania, Inc.) (Capital Asset Financing
Program - Guthrie Medical Center)
Series A 6.00% 03/01/21(AMBAC) .................. 7,000,000 7,222,390
Series A 7.625% 12/01/15 (AMBAC) ................ 1,000,000 1,057,820
Series B 7.625% 12/01/15 (AMBAC) ................ 2,490,000 2,633,972
Scranton-Lackawanna Health and Welfare Authority
(Allied Services Rehabilitation Hospitals)
7.60% 07/15/20 .................................. 5,640,000 6,215,111
Westmoreland County Pennsylvania Industrial
Development Authority Hospital Revenue
(Citizen General Hospital) 5.25% 07/01/15 ....... 11,000,000 10,556,480
------------
187,279,574
-------------
HOUSING REVENUE BONDS - 5.43%
Montgomery County Pennsylvania Redevelopment
Authority Multi-Family Housing
(KBF Associates Project)
Series A 6.50% 07/01/25 ......................... 20,810,000 22,114,371
Series B 7.25% 07/01/25 ......................... 15,090,000 16,013,659
Pennsylvania Housing Finance Agency Single
Family Mortgage
Series Y 7.45% 04/01/16 (FHA) ................... 1,350,000 1,390,149
Series Z 7.50% 10/01/10 ......................... 1,250,000 1,309,188
Pennsylvania Housing Finance Agency Single
Family Mortgage AMT
Series 57A 6.15% 04/01/27 ....................... 5,000,000 5,248,600
Series 59A 5.80% 10/01/29 ....................... 2,950,000 3,032,040
Philadelphia Pennsylvania Redevelopment Authority
Home Improvement
Series A 7.375% 06/01/03 ........................ 770,000 779,625
-------------
49,887,632
-------------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
MUNICIPAL BONDS (CONTINUED)
INDUSTRIAL DEVELOPMENT REVENUE BONDS - 3.24%
Delaware County Pennsylvania Industrial Development
Authority-Resource Recovery/
Browning Ferris Industries
Series A 6.10% 07/01/13 ......................... $12,000,000 $12,833,280
Series A 6.20% 07/01/19 ......................... 9,000,000 9,621,810
Philadelphia Pennsylvania Authority for Industrial
Development Industrial and Commercial Revenue
(Girard Estates Facilities Leasing Project)
5.00% 05/15/27 .................................. 7,500,000 7,300,425
------------
29,755,515
------------
POLLUTION CONTROL REVENUE BONDS - 7.88%
Beaver County Pennsylvania Industrial Development
Authority Pollution Control Revenue
(Cleveland Electric Illuminating Project)
7.625% 05/01/25 ............................... 8,500,000 9,663,990
Series A 7.75% 07/15/25 ....................... 10,000,000 11,469,300
Delaware County Pennsylvania Industrial
Development Authority Pollution Control Revenue
(Philadelphia Electric Company)
Series A 7.375% 04/01/21 ........................ 10,250,000 10,997,738
Lehigh County Pennsylvania Industrial Development
Authority Pollution Control Revenue
(Pennsylvania Power and Light Company Project)
Series A 5.50% 02/15/27 (MBIA) .................. 5,000,000 5,183,700
Series A 6.40% 11/01/21 (MBIA) .................. 7,000,000 7,594,930
Series B 6.40% 09/01/29 (MBIA) .................. 15,000,000 16,662,900
Montgomery County Pennsylvania Industrial
Development Authority Pollution Control Revenue
(Philadelphia Electric Company)
6.70% 12/01/21 (MBIA) ........................... 10,000,000 10,803,000
------------
72,375,558
------------
*PRE-REFUNDED BONDS - 21.43%
Abington School District
6.00% 05/15/26-06 (FGIC) ........................ 6,000,000 6,743,880
Allegheny County Pennsylvania Hospital Development
Authority Revenue
(South Hills Health Facilities)
6.00% 05/01/20-02 (MBIA) ........................ 1,500,000 1,608,885
Allegheny County Pennsylvania Sanitation
Authority Revenue
Series A 7.50% 12/01/16-99 (FGIC) ............... 1,780,000 1,799,420
Series B 7.50% 12/01/16-99 (FGIC) ............... 4,020,000 4,063,858
Series C 6.50% 12/01/16-01 (FGIC) ............... 4,500,000 4,856,175
Delaware County Authority University Revenue
(Haverford College)
7.375% 11/15/20-00 (MBIA) ....................... 3,275,000 3,555,602
Doylestown Hospital Authority (Doylestown Hospital)
Series C 6.90% 07/01/19-99 (AMBAC) .............. 1,750,000 1,806,910
Harrisburg Water Authority Revenue
7.00% 07/15/15-01 (FGIC) ........................ 12,000,000 12,959,520
<PAGE>
for tax-exempt income 11
TAX-FREE PENNSYLVANIA FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
MUNICIPAL BONDS (CONTINUED)
PRE-REFUNDED BONDS (CONTINUED)
Philadelphia Authority For Industrial Development
Revenue (Cathedral Village)
7.25% 04/01/15-03 ............................... $2,000,000 $2,292,600
Pennsylvania Higher Education Facilities Authority
College & University Revenue
(Hahnemann University)
6.90% 07/01/21-01 (MBIA) ........................ 13,000,000 14,234,220
Pennsylvania Intergovernmental Cooperative
Authority Special Tax Revenue
(City of Philadelphia Funding Program)
6.80% 06/15/22-02 ............................... 2,125,000 2,333,654
Pennsylvania State Turnpike Commission Turnpike
Revenue
Series E 7.55% 12/01/17-99 (MBIA) ............... 495,000 521,299
Series I 7.20% 12/01/17-01 (FGIC) ............... 8,915,000 9,944,950
Series J 7.20% 12/01/17-01 (FGIC) ............... 8,995,000 10,034,192
Series K 7.50% 12/01/19-99 ...................... 10,000,000 10,527,600
Pennsylvania State University Revenue
Series 89 6.75% 07/01/14-99 ..................... 14,195,000 14,647,253
Philadelphia Regional Port Authority Lease Revenue
7.15% 08/01/20-00 (MBIA) ........................ 16,315,000 17,185,079
Philadelphia Water & Sewer Revenue
7.00% 08/01/18-01 ............................... 20,650,000 22,331,323
Puerto Rico (Commonwealth of) General Obligation
6.00% 07/01/22-02 ............................... 3,585,000 3,911,952
6.50% 07/01/18-99 ............................... 2,745,000 2,777,254
7.25% 07/01/10-00 ............................... 1,370,000 1,467,750
Sewickley Valley Hospital Authority Refunding
(Sewickley Valley Hospital Project)
7.50% 10/01/06-99 ............................... 1,295,000 1,353,547
Swarthmore Borough Authority (Swarthmore College)
6.00% 09/15/12-00 ............................... 5,730,000 6,142,732
7.375% 09/15/20-00 .............................. 14,000,000 14,979,160
University Area Joint Authority Water and Sewer
Revenue 7.10% 09/01/20-00 (MBIA) ................ 6,000,000 6,391,500
Washington County Authority Revenue
(Shadyside Hospital)
Series 85D 7.45% 12/15/18-00 (AMBAC) ............ 7,500,000 8,108,175
York County Hospital Revenue Authority (York
Hospital) 7.00% 07/01/21-01 (AMBAC) ............. 9,500,000 10,279,190
------------
196,857,680
------------
SCHOOL DISTRICT GENERAL OBLIGATION BONDS - 2.67%
Central Dauphin Pennsylvania School District
Series AA 4.50% 12/01/18 (MBIA) ................. 1,000,000 931,700
Philadelphia Pennsylvania Area School District
Series A 4.75% 04/01/27 (MBIA) .................. 16,950,000 15,972,494
Pottsville Pennsylvania Area School District 9.375%
05/01/06 (Escrowed to Maturity) (AMBAC) ......... 900,000 1,191,951
Radnor Township Pennsylvania School District
Second Series 5.00% 03/15/26 .................... 6,460,000 6,431,382
------------
24,527,527
------------
<PAGE>
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
MUNICIPAL BONDS (CONTINUED)
TRANSPORTATION REVENUE BONDS - 1.40%
Pennsylvania State Turnpike Commission
Turnpike Revenue
Series L 6.25% 06/01/11 (AMBAC) ................. $9,000,000 $9,598,590
Series N 6.50% 12/01/13 ......................... 3,000,000 3,222,270
------------
12,820,860
------------
WASTE DISPOSAL REVENUE BONDS - 0.14%
Greater Lebanon Refuse Authority Solid Waste
Revenue Refunding 7.00% 11/15/04 ................ 1,200,000 1,313,076
------------
1,313,076
------------
WATER & SEWER REVENUE BONDS - 4.45%
Dauphin County Pennsylvania Industrial Development
Authority Water Development Revenue
Series B 6.70% 06/01/17 ......................... 1,750,000 2,065,928
Philadelphia Pennsylvania Water & Waste Water
Revenue
5.60% 08/01/18 (MBIA) ........................... 6,870,000 7,178,669
Series A 5.00% 08/01/22 (AMBAC) ................. 6,320,000 6,285,177
Series A 5.125% 08/01/27 (AMBAC) ................ 14,225,000 14,298,401
Pittsburgh Pennsylvania Water & Sewer Revenue
7.25% 09/01/14 (Escrowed to Maturity)
(FGIC) .......................................... 9,000,000 11,044,440
------------
40,872,615
------------
OTHER GENERAL OBLIGATION BONDS - 7.23%
Falls Township Pennsylvania General Obligation
7.00% 12/15/10 (MBIA) ........................... 3,000,000 3,160,080
New Morgan Pennsylvania General Obligation
Guaranteed Revenue 8.00% 11/01/05 ............... 7,745,000 8,416,259
Philadelphia Pennsylvania General Obligation
4.75% 05/15/20 (FGIC) ........................... 10,800,000 10,339,812
Philadelphia Pennsylvania General Obligation
5.00% 05/15/25 (MBIA) ........................... 11,690,000 11,405,582
Philadelphia Pennsylvania General Obligation
5.00% 03/15/28 (FSA) ............................ 11,125,000 10,858,445
Puerto Rico (Commonwealth of) General Obligation
5.40% 07/01/25 .................................. 10,000,000 10,392,800
5.75% 07/01/17 .................................. 11,000,000 11,899,690
------------
66,472,668
------------
OTHER REVENUE BONDS - 8.33%
Cambria County Hospital Development Authority
Health Center Revenue (Allegheny Lutheran
Social Ministries Project) 8.25% 06/15/17 ....... 3,250,000 3,510,683
Chester (City Of) Pennsylvania Guaranteed Host
Community Resource Recovery Revenue
7.25% 12/01/05 .................................. 10,925,000 11,803,807
Dauphin County Pennsylvania General Authority
Office & Parking/Forum PL
Series A 6.00% 01/15/25 ......................... 4,000,000 4,039,960
Dauphin County Pennsylvania General Authority
Office & Parking/Riverfront Office Center
Project Series A 6.00% 01/01/25 ................. 8,000,000 8,010,480
<PAGE>
12 for tax-exempt income
TAX-FREE PENNSYLVANIA FUND
STATEMENT OF NET ASSETS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
MUNICIPAL BONDS (CONTINUED)
OTHER REVENUE BONDS (CONTINUED)
Delaware County Authority Revenue (Main Line &
Haverford Nursing and Rehabilitation Center)
9.00% 08/01/22 .................................. $1,975,000 $2,276,425
Erie Western Pennsylvania Port Authority General
Revenue 6.25% 06/15/10 AMT ...................... 1,365,000 1,508,175
**FAC Municipal Trust Series 99-1, Inverse Floater
7.88% 12/15/14 .................................. 31,000,000 34,895,460
Harrisburg Pennsylvania Authority Office & Parking
Revenue Series A 6.00% 05/01/19 ................. 3,000,000 3,024,930
+Philadelphia Gas Works Revenue
5.23% 01/01/12 (AMBAC) .......................... 2,500,000 1,372,450
Southeastern Pennsylvania Transit Authority SPL
Revenue Series A 4.75% 03/01/29 ................. 4,000,000 3,797,840
+Westmoreland County Municipal Authority Municipal
Service Revenue
Series A 4.97% 08/15/23 (FGIC) .................. 8,000,000 2,247,920
------------
76,488,130
------------
Total Municipal Bonds (cost $847,658,942) 903,691,356
------------
TOTAL MARKET VALUE OF SECURITIES - 98.37%
(cost $847,658,942) ........................................ $903,691,356
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.63% ....... 15,005,531
------------
NET ASSETS APPLICABLE TO 110,757,220 SHARES
OUTSTANDING - 100.00% ...................................... $918,696,887
============
NET ASSET VALUE - TAX-FREE PENNSYLVANIA FUND A CLASS
($871,739,509 / 105,096,086 SHARES) ........................ $8.29
============
NET ASSET VALUE - TAX-FREE PENNSYLVANIA FUND B CLASS
($42,993,928 / 5,183,302 SHARES) ........................... $8.29
============
NET ASSET VALUE - TAX-FREE PENNSYLVANIA FUND C CLASS
($3,963,450 / 477,832 SHARES) .............................. $8.29
============
- ----------------------
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
FSA - Insured by Financial Security Assurance
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.
**Inverse floaters represent a security that pays interest at rates that
increase (decrease) with a decrease (increase) in a specific index.
Interest rates disclosed are in effect on February 28, 1999.
+The interest rate shown for this security is the effective yield.
- ----------------------
COMPONENTS OF NET ASSETS AT FEBRUARY 28, 1999:
Capital shares (unlimited authorization - no par) ............. $869,825,569
Distributions in excess of net realized gains on investments .. (7,161,096)
Net unrealized appreciation of investments .................... 56,032,414
------------
Total net assets $918,696,887
============
<PAGE>
TAX-FREE PENNSYLVANIA FUND
STATEMENT OF NET ASSETS (CONTINUED)
Market
Value
------------
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE PENNSYLVANIA FUND
Net asset value A Class (A) ................................... $8.29
Sales charge (3.75% of offering price or 3.86%
of amount invested per share) (B) .......................... 0.32
------------
Offering price $8.61
============
- ----------------------
(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 STATE TAX-FREE INCOME TRUST -
TAX-FREE NEW JERSEY FUND
STATEMENT OF NET ASSETS
FEBRUARY 28, 1999
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
MUNICIPAL BONDS - 96.37%
AIRPORT REVENUE BONDS - 1.27%
New Jersey Economic Development Authority Special
Facilities Revenue (Continental Airlines Project)
AMT 5.50% 04/01/28 .............................. $50,000 $49,582
------------
49,582
------------
CONTINUING CARE/RETIREMENT REVENUE BONDS - 1.32%
New Jersey Economic Development Authority Revenue
Reference First Mortgage The Evergreens
6.00% 10/01/22 .................................. 50,000 51,578
------------
51,578
------------
GENERAL OBLIGATION REVENUE BONDS - 1.28%
Evesham Township New Jersey
Series A 5.00% 09/15/17 (FGIC) .................. 50,000 50,068
------------
50,068
------------
HIGHER EDUCATION REVENUE BONDS - 11.12%
New Jersey State Educational Facilities Authority
(Drew University Issue)
Series C 5.00% 07/01/17 (MBIA) ................ 65,000 65,099
(Georgian) Series B 5.20% 07/01/15 .............. 200,000 197,388
(Montclair State University)
Series F 5.40% 07/01/25 (AMBAC) ............... 30,000 30,786
(Princeton Theological)
Series A 5.00% 07/01/22 ....................... 20,000 19,971
(Richard Stockton College)
Series C 5.10% 07/01/23 (AMBAC) ............... 70,000 69,898
(University Medicine & Dentistry)
5.25% 12/01/21 (AMBAC) ........................ 50,000 50,837
------------
433,979
------------
<PAGE>
for tax-exempt income 13
TAX-FREE NEW JERSEY FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------
MUNICIPAL BONDS (CONTINUED)
HOSPITAL REVENUE BONDS - 7.64%
New Jersey Health Care Facilities Financing Authority
(AHS Hospital)
Series A 5.00% 07/01/27 (AMBAC) ...................... $150,000 $147,975
(Holy Name Hospital)
5.25% 07/01/20 (AMBAC) ............................... 50,000 50,753
(JFK Medical Center/Hartwyck)
5.00% 07/01/18 (MBIA) ................................ 100,000 99,503
---------
298,231
---------
HOUSING REVENUE BONDS - 1.31%
New Jersey State Housing and Mortgage Finance
Agency AMT Series A 5.65% 05/01/40
(AMBAC) .............................................. 50,000 51,121
---------
51,121
---------
INDUSTRIAL DEVELOPMENT AUTHORITY
REVENUE BONDS - 2.67%
New Jersey Economic Development Authority
(Kapkowski Road Landfill)
Series A 6.375% 04/01/18 (AMBAC) ..................... 100,000 104,065
---------
104,065
---------
PARKING REVENUE BONDS - 5.09%
Essex County New Jersey Improvement Authority
Parking Facility Series B
5.25% 10/01/27 (MBIA) ................................ 40,000 40,615
5.00% 10/01/22 (AMBAC) ............................... 60,000 59,018
New Brunswick New Jersey Parking Authority
Revenue 5.00% 01/01/20 (FGIC) ........................ 100,000 98,845
---------
198,478
---------
PORTS & HARBORS REVENUE BONDS - 3.71%
Delaware River and Bay Authority
5.25% 01/01/26 (FGIC) ................................ 50,000 51,059
Port Authority of New York and New Jersey
Construction 114th Series 4.75% 08/01/33 ............. 100,000 93,579
---------
144,638
---------
SCHOOL DISTRICT GENERAL OBLIGATION BONDS -
10.85%
Freehold Township New Jersey Board of Education
5.40% 07/15/23 (FSA) ................................. 50,000 51,351
Mount Olive Township New Jersey Board
of Education 5.00% 01/15/19 (FGIC) ................... 25,000 25,047
Newark New Jersey Schools
5.30% 09/01/15 (MBIA) ................................ 50,000 51,939
Sparta Township School District
5.00% 09/01/20 ....................................... 200,000 200,000
Summit New Jersey 4.50% 11/01/18 ........................ 100,000 95,225
---------
423,562
---------
TERRITORIAL GENERAL OBLIGATION BONDS - 1.32%
Puerto Rico Commonwealth
5.375% 07/01/21 (MBIA) ............................... 50,000 51,658
---------
51,658
---------
<PAGE>
MUNICIPAL BONDS (CONTINUED)
TERRITORIAL REVENUE BONDS - 8.02%
Puerto Rico Commonwealth Highway & Transportation
Authority (Highway Improvements)
Series Y 5.50% 07/01/26 .............................. $250,000 $262,633
Puerto Rico Industrial Tourist Educational Medical and
Environmental Control Facilities
(Mennonite General Hospital)
Series A 5.625% 07/01/27 ............................. 50,000 50,560
---------
313,193
---------
WATER & SEWER REVENUE BONDS - 29.00%
Bayonne New Jersey Municipal Utilities Authority
Water Systems 5.00% 01/01/28 (MBIA) .................. 50,000 49,544
Essex County New Jersey Improvement Authority Revenue
Utility System (East Orange Franchise)
5.00% 07/01/28 (MBIA) ................................ 100,000 99,384
Jersey City New Jersey Municipal Utilities
Authority Sewer Revenue 5.25% 12/01/13 ............... 100,000 107,229
Mount Holly New Jersey Utilities and Sewer
4.75% 12/01/18 ....................................... 140,000 135,289
New Jersey Economic Development Water
5.00% 11/01/28 ....................................... 300,000 291,840
New Jersey Environmental Infrastructure
4.50% 09/01/18 ....................................... 200,000 188,350
North Jersey District Water Supply Series A
(Wanaque North Project)
5.125% 11/15/21 (MBIA) ............................... 150,000 150,786
Stafford New Jersey Municipal Utilities Authority
Water and Sewer Revenue
5.00% 12/01/22 (FGIC) ................................ 60,000 59,012
Wanaque Borough New Jersey Sewer Authority
Sewer Revenue 5.25% 12/01/21 ......................... 50,000 50,242
---------
1,131,676
---------
MISCELLANEOUS REVENUE BONDS - 11.77%
Middlesex County New Jersey Improvement Authority
Revenue 4.70% 09/15/18 ............................... 85,000 81,128
New Jersey State Transportation
Transportation System
Series A 4.50% 06/15/19 .............................. 300,000 281,727
Union County New Jersey Utilities Authority
County Deficiency
Series A2 5.00% 06/15/28 ............................. 100,000 96,564
---------
459,419
---------
Total Municipal Bonds (cost $3,713,428) 3,761,248
---------
TOTAL MARKET VALUE OF SECURITIES - 96.37%
(cost $3,713,428) .................................... $3,761,248
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 3.63% . 141,654
----------
NET ASSETS APPLICABLE TO 678,242 SHARES
OUTSTANDING - 100.00% ................................ $3,902,902
==========
<PAGE>
14 for tax-exempt income
TAX-FREE NEW JERSEY FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
MARKET
VALUE
------------------------------------------------
NET ASSET VALUE - TAX-FREE NEW JERSEY FUND A CLASS
($2,051,655 / 356,554 SHARES) ................................... $5.75
=====
NET ASSET VALUE - TAX-FREE NEW JERSEY FUND B CLASS
($1,680,142 / 291,956 SHARES) ................................... $5.75
=====
NET ASSET VALUE - TAX-FREE NEW JERSEY FUND C CLASS
($171,105 / 29,732 SHARES) ...................................... $5.75
=====
- ----------------------
Summary of Abbreviations:
AMBAC - Insured by AMBAC Indemnity Corporation
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
MBIA - Insured by the Municipal Bond Insurance Association
- ----------------------
COMPONENTS OF NET ASSETS AT FEBRUARY 28, 1999:
Capital shares (unlimited authorization - no par) .................. $3,855,082
Net unrealized appreciation of investments ......................... 47,820
----------
Total net assets ................................................... $3,902,902
==========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE NEW JERSEY FUND
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
<PAGE>
DELAWARE GROUP STATE TAX-FREE INCOME TRUST -
TAX-FREE NEW JERSEY FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
ASSETS:
Investments at market .............................................. $3,761,248
Interest receivable ................................................ 47,678
Subscriptions receivable ........................................... 30,918
Other assets ....................................................... 13,969
Cash ............................................................... 273,329
----------
Total assets ....................................................... 4,127,142
----------
LIABILITIES:
Payable for securities purchased ................................... 200,222
Other accounts payable and accrued expenses ........................ 24,018
----------
Total liabilities ............................................... 224,240
----------
TOTAL NET ASSETS ................................................... $3,902,902
==========
Investments at cost ................................................ $3,713,428
==========
See accompanying notes
<PAGE>
for tax-exempt income 15
DELAWARE GROUP STATE TAX-FREE INCOME TRUST -
TAX-FREE OHIO FUND
STATEMENT OF NET ASSETS
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
PRINCIPAL MARKET
AMOUNT VALUE
---------------------------------------------------------
MUNICIPAL BONDS - 96.58%
AIRPORT REVENUE BONDS - 19.64%
Cleveland Ohio Airport Special Revenue (Continental
Airlines Project) 5.375% 09/15/27 .................... $130,000 $126,034
Toledo Lucas County Ohio Port Authority Airport
Revenue Reference Improvement
Series 1 5.50% 05/15/20 .............................. 175,000 171,997
--------
298,031
--------
CITY GENERAL OBLIGATION BONDS - 3.37%
Elyria Ohio General Obligations
5.40% 12/01/22 (FGIC) ................................ 50,000 51,185
--------
51,185
--------
CONVENTION CENTER/STADIUMS REVENUE BONDS -
5.33%
Cleveland Ohio Cleveland Stadium Project
5.25% 11/15/17 (AMBAC) ............................... 50,000 51,440
Hamilton County Football Revenue
5.00% 12/01/27 (MBIA) ................................ 30,000 29,415
--------
80,855
--------
HIGHER EDUCATION REVENUE BONDS - 10.21%
Ohio State Higher Educational Facility Revenue
(Case Western Reserve University)
5.125% 10/01/17 ...................................... 50,000 50,425
University of Akron Ohio 5.25% 01/01/22
(AMBAC) .............................................. 50,000 50,648
University of Cincinnati Ohio
Series T 5.00% 06/01/18 .............................. 55,000 53,864
--------
154,937
--------
HOSPITAL REVENUE BONDS - 7.42%
Lorain County Ohio Hospital Revenue
Catholic Healthcare Partners
5.50% 09/01/27 (MBIA) ................................ 50,000 51,940
Puerto Rico Industrial Tourist Educational
Medical and Environmental Control Facilities
(Mennonite General Hospital)
Series A 5.625% 07/01/27 ............................. $60,000 60,671
--------
112,611
--------
HOUSING REVENUE BONDS - 6.82%
Franklin County Ohio Mortgage Revenue
Briggs/Wedgewood
5.55% 11/20/17 (GNMA) ................................ 50,000 51,694
Ohio Housing Finance Agency Mortgage Revenue
Residential-Series C AMT
5.75% 09/01/28 (GNMA) ................................ 50,000 51,793
--------
103,487
--------
*PRE-REFUNDED BONDS - 4.74%
Ohio State Turnpike Commission Turnpike Revenue
1996 Series A 5.50% 02/15/26-06 (MBIA) ............... 65,000 71,851
--------
71,851
--------
POLLUTION CONTROL REVENUE BONDS - 12.86%
Ohio State Air Quality Development Authority
JMG Funding Limited Partnership
5.625% 10/01/22 (AMBAC) .............................. 65,000 67,556
Pollution Control Series B 6.00% 08/01/20 ............... 125,000 127,611
--------
195,167
--------
<PAGE>
TAX-FREE OHIO FUND
STATEMENT OF NET ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
MARKET
VALUE
POWER AUTHORITY REVENUE BONDS - 6.06%
Cleveland Ohio Public Power Systems Revenue
5.00% 11/15/24 (MBIA) ................................. $30,000 $ 29,698
Puerto Rico Electric Power Authority Power Revenue
Series X 5.50% 07/01/25 ............................... 60,000 62,198
----------
91,896
----------
SCHOOL DISTRICT GENERAL OBLIGATION BONDS -
7.31%
Brecksville-Broadview Heights Ohio School District
5.25% 12/01/21 (FGIC) ................................. 50,000 50,681
Oak Hills Ohio Local School District
5.125% 12/01/25 (MBIA) ................................ 60,000 60,338
----------
111,019
----------
TRANSPORTATION REVENUE BONDS - 12.82%
Dayton Ohio Special Facilities Revenue
(Air Freight) 6.05% 10/01/09 .......................... 180,000 194,603
----------
194,603
----------
Total Municipal Bonds (cost $1,437,941) .................. 1,465,642
----------
TOTAL MARKET VALUE OF SECURITIES - 96.58%
(cost $1,437,941) ..................................... $1,465,642
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 3.42% .. 51,912
----------
NET ASSETS APPLICABLE TO 268,709 SHARES
OUTSTANDING - 100.00% ................................. $1,517,554
==========
NET ASSET VALUE - TAX-FREE OHIO FUND A CLASS
($1,421,553 / 251,710 SHARES) ................................... $5.65
==========
NET ASSET VALUE - TAX-FREE OHIO FUND B CLASS
($80,405 / 14,237 SHARES) ....................................... $5.65
=====
NET ASSET VALUE - TAX-FREE OHIO FUND C CLASS
($15,596 / 2,762 SHARES) ........................................ $5.65
=====
- ----------------------
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
- ----------------------
* For Pre-Refunded Bonds, the stated maturity is followed by the year in which
each bond is pre-refunded.
- ----------------------
COMPONENTS OF NET ASSETS AT FEBRUARY 28, 1999:
Capital shares (unlimited authorization - no par) ................. $1,490,362
Distributions in excess of net realized gains on investments ...... (509)
Net unrealized appreciation of investments ........................ 27,701
----------
Total net assets .................................................. $1,517,554
==========
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
TAX-FREE OHIO FUND
Net asset value A Class (A) ....................................... $5.65
Sales charge (3.75% of offering price or 3.89% of amount invested per
share) (B) ......................................................... 0.22
-----
Offering price ........................................................ $5.87
=====
- ----------------------
(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>
16 for tax-exempt income
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
STATEMENTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAX-FREE TAX-FREE TAX-FREE
PENNSYLVANIA FUND NEW JERSEY FUND OHIO FUND
----------------- --------------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ................................................................ $55,029,022 $111,276 $71,920
EXPENSES:
Management fees ......................................................... 5,416,438 12,630 7,534
Distribution expense .................................................... 2,206,116 11,700 3,997
Dividend disbursing and transfer agent fees and expenses ................ 675,013 2,507 757
Accounting and administration ........................................... 366,004 901 537
Reports and statements to shareholders .................................. 77,100 1,645 1,300
Taxes (other than taxes on income) ...................................... 14,463 84 61
Professional fees ....................................................... 122,303 7,912 6,819
Registration fees ....................................................... 33,252 3,598 2,650
Custodian fees .......................................................... 38,036 2,377 422
Directors' fees ......................................................... 19,350 1,603 1,597
Other ................................................................... 185,595 1,117 406
----------- -------- -------
9,153,670 46,074 26,080
Less expenses absorbed or waived ........................................ -- (26,595) (18,673)
Less expenses paid indirectly ........................................... -- (2,082) --
----------- -------- -------
Total expenses .......................................................... 9,153,670 17,397 7,407
----------- -------- -------
NET INVESTMENT INCOME ................................................... 45,875,352 93,879 64,513
----------- -------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments ................................. (1,073,741) -- 15,175
Net change in unrealized appreciation/depreciation of investments ....... (2,219,826) 13,876 (9,770)
----------- -------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS .................. (3,293,567) 13,876 5,405
----------- -------- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $42,581,785 $107,755 $69,918
=========== ======== =======
</TABLE>
See accompanying notes
<PAGE>
for tax-exempt income 17
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-FREE TAX-FREE
PENNSYLVANIA FUND NEW JERSEY FUND
----------------------------- -------------------------
9/2/97*
YEAR ENDED YEAR ENDED YEAR ENDED TO
2/28/99 2/28/98 2/28/99 2/28/98
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ................................................ $ 45,875,352 $ 49,910,793 $ 93,879 $ 24,060
Net realized gain (loss) on investments .............................. (1,073,741) 4,571,607 -- 8,020
Net change in unrealized appreciation/depreciation of investments .... (2,219,826) 17,799,518 13,876 33,944
------------ ------------ ---------- ----------
Net increase in net assets resulting from operations ................. 42,581,785 72,281,918 107,755 66,024
------------ ------------ ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class ........................................................... (44,094,893) (48,278,596) (64,796) (23,444)
B Class ........................................................... (1,652,189) (1,549,667) (27,121) (600)
C Class ........................................................... (128,270) (82,530) (1,962) (16)
Net realized gain on investments:
A Class ........................................................... (10,135,844) (1,387,621) (5,549) --
B Class ........................................................... (457,794) (55,005) (2,531) --
C Class ........................................................... (37,685) (3,266) (44) --
------------ ------------ ---------- ----------
(56,506,675) (51,356,685) (102,003) (24,060)
------------ ------------ ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ........................................................... 30,667,419 33,795,787 921,669 1,162,901
B Class ........................................................... 8,898,276 8,015,562 1,787,503 146,118
C Class ........................................................... 1,652,106 1,826,972 170,610 2,006
Net asset value of shares issued upon reinvestment of distributions
from net investment income and net realized gain on investments:
A Class ........................................................... 32,513,835 28,369,872 64,130 22,067
B Class ........................................................... 1,335,707 966,811 20,735 346
C Class ........................................................... 131,038 73,395 1,277 12
------------ ------------ ---------- ----------
75,198,381 73,048,399 2,965,924 1,333,450
------------ ------------ ---------- ----------
Cost of shares repurchased:
A Class ........................................................... (95,535,313) (119,106,665) (81,332) (85,960)
B Class ........................................................... (4,269,130) (3,827,517) (274,769) (6)
C Class ........................................................... (336,053) (558,944) (3) (2,118)
------------ ------------ ---------- ----------
(100,140,496) (123,493,126) (356,104) (88,084)
------------ ------------ ---------- ----------
Increase (decrease) in net assets derived from capital
share transactions ................................................ (24,942,115) (50,444,727) 2,609,820 1,245,366
------------ ------------ ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS ................................ (38,867,005) (29,519,494) 2,615,572 1,287,330
NET ASSETS:
Beginning of period .................................................. 957,563,892 987,083,386 1,287,330 --
------------ ------------ ---------- ----------
End of period ........................................................ $918,696,887 $957,563,892 $3,902,902 $1,287,330
============ ============ ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE
OHIO FUND
--------------------------
9/2/97*
YEAR ENDED TO
2/28/99 2/28/98
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ................................................ $ 64,513 $ 22,660
Net realized gain (loss) on investments .............................. 15,175 5,456
Net change in unrealized appreciation/depreciation of investments .... (9,770) 37,471
--------- ----------
Net increase in net assets resulting from operations ................. 69,918 65,587
--------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
A Class ........................................................... (61,390) (22,660)
B Class ........................................................... (2,654) --
C Class ........................................................... (469) --
Net realized gain on investments:
A Class ........................................................... (20,891) --
B Class ........................................................... -- --
C Class ........................................................... (249) --
--------- ----------
(85,653) (22,660)
--------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
A Class ........................................................... 173,857 1,136,860
B Class ........................................................... 310,000 6
C Class ........................................................... 15,000 6
Net asset value of shares issued upon reinvestment of distributions from
net investment income and net realized gain on investments:
A Class ........................................................... 76,004 21,613
B Class ........................................................... 480 --
C Class ........................................................... 708 --
--------- ----------
576,049 1,158,485
--------- ----------
Cost of shares repurchased:
A Class ........................................................... (11,116) (10)
B Class ........................................................... (233,046) --
C Class ........................................................... -- --
--------- ----------
(244,162) (10)
--------- ----------
Increase (decrease) in net assets derived from capital
share transactions ................................................ 331,887 1,158,475
--------- ----------
NET INCREASE (DECREASE) IN NET ASSETS ................................ 316,152 1,201,402
NET ASSETS:
Beginning of period .................................................. 1,201,402 --
--------- ----------
End of period ........................................................ $1,517,554 $1,201,402
========== ==========
</TABLE>
- ----------------------
* Date of commencement of operations.
See accompanying notes
<PAGE>
18 for tax-exempt income
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
---------------------------------------------------------
YEAR ENDED
2/28/99 2/28/98 2/28/97 2/29/96 2/28/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............................. $8.420 $8.240 $8.460 $8.180 $8.610
Income (loss) from investment operations:
Net investment income ....................................... 0.415 0.430 0.456 0.476 0.494
Net realized and unrealized gain (loss) on investments ...... (0.034) 0.193 (0.105) 0.330 (0.430)
-------- -------- -------- -------- --------
Total from investment operations ............................ 0.381 0.623 0.351 0.806 0.064
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ........................ (0.415) (0.430) (0.456) (0.476) (0.494)
Distributions from net realized gain on investments ......... (0.096) (0.013) (0.115) (0.050) none
-------- -------- -------- -------- --------
Total dividends and distributions ........................... (0.511) (0.443) (0.571) (0.526) (0.494)
-------- -------- -------- -------- --------
Net asset value, end of year ................................... $8.290 $8.420 $8.240 $8.460 $8.180
======== ======== ======== ======== ========
Total return(1) ................................................ 4.64% 7.78% 4.35% 10.08% 0.91%
Ratios and supplemental data:
Net assets, end of year (000 omitted) ....................... $871,740 $917,364 $954,258 $1,002,888 $976,313
Ratio of expenses to average net assets ..................... 0.95% 0.94% 0.91% 0.90% 0.90%
Ratio of net investment income to average net assets ........ 4.96% 5.20% 5.52% 5.67% 6.03%
Portfolio turnover .......................................... 41% 32% 27% 25% 18%
</TABLE>
- ----------------------
(1) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
<PAGE>
for tax-exempt income 19
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
----------------------------------------------------------
5/2/94(1)
YEAR ENDED TO
2/28/99 2/28/98 2/28/97 2/29/96 2/28/95
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $8.420 $8.240 $8.460 $8.180 $8.310
Income (loss) from investment operations:
Net investment income ...................................... 0.348 0.370 0.390 0.408 0.353
Net realized and unrealized gain (loss) on
investments .............................................. (0.034) 0.193 (0.105) 0.330 (0.130)
-------- -------- -------- -------- --------
Total from investment operations ........................... 0.314 0.563 0.285 0.738 0.223
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ....................... (0.348) (0.370) (0.390) (0.408) (0.353)
Distributions from net realized gain on investments ........ (0.096) (0.013) (0.115) (0.050) none
-------- -------- -------- -------- --------
Total dividends and distributions .......................... (0.444) (0.383) (0.505) (0.458) (0.353)
-------- -------- -------- -------- --------
Net asset value, end of period ................................ $8.290 $8.420 $8.240 $8.460 $8.180
======== ======== ======== ======== ========
Total return(2) ............................................... 3.81% 6.92% 3.52% 9.19% 2.79%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................... $42,994 $37,631 $31,644 $20,861 $10,239
Ratio of expenses to average net assets .................... 1.75% 1.74% 1.71% 1.71% 1.73%
Ratio of net investment income to
average net assets ....................................... 4.16% 4.40% 4.72% 4.86% 5.20%
Portfolio turnover ......................................... 41% 32% 27% 25% 18%
<PAGE>
[RESTUBBED FROM PREVIOUS TABLE]
<CAPTION>
TAX-FREE PENNSYLVANIA FUND C CLASS
----------------------------------------------
11/29/95(1)
YEAR ENDED TO
2/28/99 2/28/98 2/28/97 2/29/96
<S> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $8.420 $8.240 $8.460 $8.510
Income (loss) from investment operations:
Net investment income ...................................... 0.355 0.364 0.390 0.102
Net realized and unrealized gain (loss) on
investments .............................................. (0.034) 0.193 (0.105) none
-------- -------- -------- --------
Total from investment operations ........................... 0.321 0.557 0.285 0.102
-------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ....................... (0.355) (0.364) (0.390) (0.102)
Distributions from net realized gain on investments ........ (0.096) (0.013) (0.115) (0.050)
-------- -------- -------- --------
Total dividends and distributions .......................... (0.451) (0.377) (0.505) (0.152)
-------- -------- -------- --------
Net asset value, end of period ................................ $8.290 $8.420 $8.240 $8.460
======== ======== ======== ========
Total return(2) ............................................... 3.81% 6.92% 3.52% 1.19%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................... $3,963 $2,569 $1,181 $123
Ratio of expenses to average net assets .................... 1.75% 1.74% 1.71% 1.71%
Ratio of net investment income to
average net assets ....................................... 4.16% 4.40% 4.72% 4.86%
Portfolio turnover ......................................... 41% 32% 27% 25%
</TABLE>
- ----------------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Total investment return is based on the change in net asset value of a share
during the period and assumes reinvestment of distributions at net asset
value and does not reflect the impact of a sales charge.
See accompanying notes
<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
TAX-FREE NEW JERSEY TAX-FREE NEW JERSEY NEW JERSEY
FUND A CLASS FUND B CLASS FUND C CLASS(3)
----------------------- ----------------------- ---------------
9/2/97(1) 9/2/97(1)
YEAR ENDED TO YEAR ENDED TO YEAR ENDED
2/28/99 2/28/98 2/28/99 2/28/98 2/28/99
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $5.700 $5.500 $5.700 $5.500 $5.700
Income from investment operations:
Net investment income ...................................... 0.256 0.115 0.213 0.069 0.213
Net realized and unrealized gain on investments ............ 0.075 0.200 0.075 0.200 0.075
-------- -------- -------- -------- --------
Total from investment operations ........................... 0.331 0.315 0.288 0.269 0.288
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ....................... (0.256) (0.115) (0.213) (0.069) (0.213)
Distributions from net realized gain on investments ........ (0.025) none (0.025) none (0.025)
-------- -------- -------- -------- --------
Total dividends and distributions .......................... (0.281) (0.115) (0.238) (0.069) (0.238)
-------- -------- -------- -------- --------
Net asset value, end of period ................................ $5.750 $5.700 $5.750 $5.700 $5.750
======== ======== ======== ======== ========
Total return(2) ................................................. 5.93% 5.77% 5.14% 4.90% 5.14%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................... $2,052 $1,141 $1,680 $146 $171
Ratio of expenses to average net assets .................... 0.50% 0.88% 1.25% 1.56% 1.25%
Ratio of expenses to average net assets prior to
expense limitation and expenses paid indirectly .......... 1.75% 1.93% 2.50% 2.61% 2.50%
Ratio of net investment income to average net assets ....... 4.42% 4.23% 3.67% 3.63% 3.67%
Ratio of net investment income to average net assets
prior to expense limitation and expenses paid
indirectly ............................................... 3.17% 3.18% 2.42% 2.58% 2.42%
Portfolio turnover ......................................... 0% 47% 0% 47% 0%
</TABLE>
- ----------------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(3) Shares of the Tax-Free New Jersey Fund C Class were initially offered on
September 2, 1997. On October 20, 1997, the C Class sold shares which were
subsequently repurchased, leaving a balance of 1 share, which is the
initial seed purchase, as of February 28, 1998. This shareholder data is
not being disclosed because the data is not believed to be meaningful.
See accompanying notes
<PAGE>
for tax-exempt income 21
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
TAX-FREE OHIO TAX-FREE OHIO TAX-FREE OHIO
FUND A CLASS FUND B CLASS(3) FUND C CLASS(3)
---------------------- --------------- ---------------
9/2/97(1)
YEAR ENDED TO YEAR ENDED YEAR ENDED
2/28/99 2/28/98 2/28/99 2/28/99
<S> <C> <C> <C> <C>
Net asset value, beginning of period .......................... $5.730 $5.500 $5.690 $5.690
Income from investment operations:
Net investment income ...................................... 0.272 0.120 0.231 0.231
Net realized and unrealized gain on investments ............ 0.013 0.230 0.053 0.053
-------- -------- -------- --------
Total from investment operations ........................... 0.285 0.350 0.284 0.284
-------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ....................... (0.272) (0.120) (0.231) (0.231)
Distributions from net realized gain on investments ........ (0.093) none (0.093) (0.093)
-------- -------- -------- --------
Total dividends and distributions .......................... (0.365) (0.120) (0.324) (0.324)
-------- -------- -------- --------
Net asset value, end of period ................................ $5.650 $5.730 $5.650 $5.650
======== ======== ======== ========
Total return(2) ............................................... 5.12% 6.41% 4.37% 4.37%
Ratios and supplemental data:
Net assets, end of period (000 omitted) .................... $1,422 $1,201 $80 $16
Ratio of expenses to average net assets .................... 0.50% 0.88% 1.25% 1.25%
Ratio of expenses to average net assets prior to
expense limitation ....................................... 1.86% 1.93% 2.61% 2.61%
Ratio of net investment income to average net assets ....... 4.75% 4.38% 4.00% 4.00%
Ratio of net investment income to average net assets
prior to expense limitation .............................. 3.39% 3.33% 2.64% 2.64%
Portfolio turnover ......................................... 45% 66% 45% 45%
</TABLE>
- ----------------------
(1) Date of initial public offering; ratios have been annualized and total
return has not been annualized.
(2) Total investment return is based on the change in net asset value of a
share during the period and assumes reinvestment of distributions at net
asset value and does not reflect the impact of a sales charge.
(3) Shares of the Tax-Free Ohio Fund B and C Classes were initially offered on
September 2, 1997. For the period September 2, 1997 through February 28,
1998, there was no shareholder activity besides the initial seed purchase
of 1 share. This shareholder data is not being disclosed because the data
is not believed to be meaningful.
See accompanying notes
<PAGE>
22 for tax-exempt income
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
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"). 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 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
each 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 within the Delaware Investments Family of
Funds are allocated amongst the funds on the basis of average net assets. The
custodian bank of the Trust has agreed to waive its custodial fees when a fund
maintains a prescribed amount of cash on deposit in certain non-interest bearing
accounts. Such fee waivers are included in the Statement of Operations as
expenses paid indirectly. 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 expenses of the Trust 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.
<PAGE>
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
directors, 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 July 31,
1999. On February 28, 1999, the Tax-Free Pennsylvania Fund had a liability for
investment management fees and other expenses payable to DMC of $74,636.
The Trust has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to provide dividend disbursing, transfer agent and accounting services. Each
Fund pays DSC a monthly fee based on the number of shareholder accounts,
shareholder transactions and average net assets, subject to certain minimums. On
February 28, 1999, the Tax-Free Pennsylvania Fund had a liability payable to DSC
of $31,798.
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 the 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 year ended February 28, 1999, DDLP earned $100,877, $1,731 and $383 for
commissions on sales of the A class shares for the Tax-Free Pennsylvania Fund,
the Tax-Free New Jersey Fund and the Tax-Free Ohio Fund, respectively.
Certain officers of DMC, DSC and DDLP are officers, trustees and/or employees of
the Trust. These officers, trustees and employees are paid no compensation by
the Trust.
3. Investments
During the year ended February 28, 1999, each Fund had purchases and sales of
investment securities other than temporary cash investments as follows:
TAX-FREE TAX-FREE TAX-FREE
PENNSYLVANIA FUND NEW JERSEY FUND OHIO FUND
----------------- --------------- ---------
Purchases: ............ $376,776,549 $2,472,586 $892,614
Sales: ................ 442,498,036 -- 608,595
At February 28, 1999, the aggregate cost of investments and unrealized
appreciation (depreciation) for federal income tax purposes for each fund was as
follows:
TAX-FREE TAX-FREE TAX-FREE
PENNSYLVANIA FUND NEW JERSEY FUND OHIO FUND
----------------- --------------- ---------
Cost of investments ...... $847,658,942 $3,713,428 $1,438,221
============ ========== ==========
Aggregate unrealized
appreciation ........... $ 56,927,835 $ 61,386 $ 29,037
Aggregate unrealized
depreciation ........... (895,421) (13,566) (1,616)
------------ ---------- ----------
Net unrealized
appreciation ........... $ 56,032,414 $ 47,820 $ 27,421
============ ========== ==========
<PAGE>
for tax-exempt income 23
NOTE TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. Capital Stock
Transactions in capital stock shares were as follows:
<TABLE>
<CAPTION>
TAX-FREE PENNSYLVANIA FUND TAX-FREE NEW JERSEY FUND TAX-FREE OHIO FUND
-------------------------- ------------------------ ----------------------
9/2/97* 9/2/97*
YEAR ENDED YEAR ENDED YEAR ENDED TO YEAR ENDED TO
2/28/99 2/28/98 2/28/99 2/28/98 2/28/99 2/28/98
<S> <C> <C> <C> <C> <C> <C>
Shares sold:
A Class ..................................... 3,665,847 4,077,711 159,315 211,252 30,632 205,829
B Class ..................................... 1,063,689 971,854 310,636 25,584 54,573 1
C Class ..................................... 197,267 220,582 29,510 365 2,636 1
Shares issued upon reinvestment of distributions
from net investment income and net realized
gain on investments:
A Class ..................................... 3,887,283 3,420,943 11,163 3,894 13,367 3,809
B Class ..................................... 159,712 116,535 3,597 61 85 --
C Class ..................................... 15,678 8,828 221 2 125 --
----------- ----------- -------- -------- -------- --------
8,989,476 8,816,453 514,442 241,158 101,418 209,640
----------- ----------- -------- -------- -------- --------
Shares repurchased:
A Class ..................................... (11,413,196) (14,384,144) (14,068) (15,002) (1,925) (2)
B Class ..................................... (509,600) (460,334) (47,921) (1) (40,422) --
C Class ..................................... (40,253) (67,700) -- (366) -- --
----------- ----------- -------- -------- -------- --------
(11,963,049) (14,912,178) (61,989) (15,369) (42,347) (2)
----------- ----------- -------- -------- -------- --------
Net increase (decrease) ........................ (2,973,573) (6,095,725) 452,453 225,789 59,071 209,638
=========== =========== ======== ======== ======== ========
</TABLE>
- ----------------------
* Date of commencement of operations.
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 February 28, 1999, 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
Statement of Net Assets.
<PAGE>
24 for tax-exempt income
DELAWARE GROUP STATE TAX-FREE INCOME TRUST
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
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) and the statement of
assets and liabilities of Tax-Free New Jersey Fund as of February 28, 1999, and
the related statements of operations for the year then ended, and the 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 express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of February 28, 1999, by correspondence 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, 1999, the results of their operations for the year then
ended, and 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 9, 1999
<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 should
read the prospectus carefully before you invest or send money. 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 Directors
JEFFREY J. NICK
Chairman, President and Chief Executive Officer
Delaware Investments Family of Funds
Philadelphia, PA
WALTER P. BABICH
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
JOHN H. DURHAM
Partner, Complete Care Services
Horsham, PA
ANTHONY D. KNERR
Consultant, Anthony Knerr & Associates
New York, NY
ANN R. LEVEN
Treasurer, National Gallery of Art
Washington, DC
THOMAS F. MADISON
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN
CHARLES E. PECK
Secretary/Treasurer, Enterprise Homes, Inc.
Fredericksburg, VA
WAYNE A. STORK
Chairman
Delaware Management Holdings, Inc.
Philadelphia, PA
JAN R. YEOMANS
Vice President and Treasurer
3M Corporation
St. Paul, Minnesota
<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
[photo to globes]
directors
& 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
<PAGE>
When used with prospective investors, this report must be preceded or
accompanied by a current Tax-Free Pennsylvania Fund, Tax-Free New Jersey Fund
and Tax-Free Ohio Fund Prospectus and the Delaware Investments 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 Investments.
[photo of globes]
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
DELAWARE(SM)
INVESTMENTS
- ---------------------
Philadelphia o London
Printed in the USA
on recycled paper
(1606)
AR-007[2/99]TKO4/99
Be sure to consult your financial adviser when making investments. Mutual funds
can be a valuable part of your financial plan; however, shares of 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.
(C) Delaware Distributors, L.P.
