<PAGE> 1
(PHOTO OF COLONIAL OBJECTS)
March 1, 1995
Dear Shareholder:
As we reported to you six months ago, 1994 saw a major shift in the policy
of the Federal Reserve, our nation's central bank. The Fed had been keeping
interest rates low in order to stimulate economic growth, but as the U.S.
economy began to grow at what the Fed considered to be an unsustainable rate,
it stepped in to "tighten" the money supply. The Fed's goal has been to
inhibit inflation while avoiding a recession, in effect, enabling a "soft
landing" for the economy.
The Fed's series of short-term interest rate increases continued
throughout the past six months, pushing bond prices lower. And while
high-yield bonds, like all fixed-income securities, are affected by interest
rates, they are also affected by their credit quality. As a result,
high-yield bonds don't usually perform in line with other more conservative
fixed-income securities or even with equities. (This is one reason high-yield
bonds may be useful in diversifying a portfolio.) In the early part of 1994,
high-yield bonds outperformed most other fixed-income categories, primarily
because their relatively high income made them somewhat less sensitive to the
interest rate moves. However, during the six-month period covered by this
report, high-yield bonds suffered due to concerns about how the slowing
economy might affect high-yield issuers.
For the six months ended January 31, 1995, Delchester Fund A class
shares had a total return of -0.78% at net asset value (capital change plus
reinvested dividends). Performance information for all classes of Delchester
Fund can be found on page 4.
During the second fiscal quarter, we began taking steps to position
the Fund in anticipation of a slowdown in the economic cycle, which we
believe will occur as higher interest rates and industrial capacity
constraints take hold. This could intensify concerns about companies'
abilities to pay interest and repay principal and consequently impact some
high-yield bond prices. Accordingly, we have begun upgrading the overall
quality of the bonds in the portfolio, a move that is designed to provide
strong total return by helping to protect principal but, in the short run,
will result in somewhat lower income.
We want to reiterate that we have not changed the Fund's overall
investment strategy. Delchester strives to pay above-average income, and
high-yield, high-risk bonds as a group still offer the highest current income
available from U.S. fixed-income securities. In the past, however, we have
found that focusing on the higher rated bonds within the high-yield sector
has been a prudent approach. We credit the Fund's long-term performance to
such defensive posturing. Delaware has been managing Delchester since 1970,
before high-yield bonds were even recognized as a separate asset category by
many other money managers. Our experience in this arena convinces us to
maintain our focus on high current income but with strong emphasis on
principal preservation.
Sincerely,
/s/ WAYNE A. STORK /s/ BRIAN F. WRUBLE
- - ------------------- --------------------
Wayne A. Stork Brian F. Wruble
Chairman, Board of Directors President and Chief Executive Officer
Delaware Group Delchester Fund Delaware Group Delchester Fund
1
<PAGE> 2
(PHOTO OF COLONIAL OBJECTS)
Portfolio Managers' Review
The six months ended January 31, 1995, presented a challenging environment
for high-yield bond investors. Falling Treasury prices drove high-yield bond
prices lower in October and November; however high-yield bonds experienced a
modest rally along with the Treasury market in December and January.
Uncertainty in the equity markets spilled over into the high-yield bond
market exacerbating its difficulties late in the year. Both supply and demand
for high-yield bonds slowed dramatically in the second half of 1994, as a
number of major underwriters reduced their activity in lower quality issues.
As a result, the market was very sensitive to earnings reports and trading
activity. Performance during this period was highly dependent on credit
quality and on industry selection.
Gaming and Food Sectors Affected
The gaming sector was affected by poor weather-related results from
Atlantic City and from concern over the possibility of river boat gambling
in Philadelphia. Similarly, financial difficulties in two over-leveraged
supermarkets, combined with a lack of rising food prices nationwide were
perceived as evidence that the supermarket sector was overvalued. Both of
these sectors represented significant holdings of the Delchester portfolio
and contributed to the difficulties of the past six months. Ironically, the
better quality bonds in the gaming and supermarket sectors typically provide
the relatively stable operating and industry characteristics that appeal to
investors in an environment of economic slowing.
PERFORMANCE OF HIGH-YIELD BONDS
ANNUAL RETURNS 1985-1994
Bonds Rated Bonds Rated Bonds Rated
"BB" "B" "CCC"
- - -----------------------------------------------------------------
1985 +37.3% +26.3% +5.0%
- - -----------------------------------------------------------------
1986 +19.4 +17.3 -14.0
- - -----------------------------------------------------------------
1987 +6.4 +3.2 +19.1
- - -----------------------------------------------------------------
1988 +14.4 +16.5 +10.0
- - -----------------------------------------------------------------
1989 +12.1 +1.3 -25.6
- - -----------------------------------------------------------------
1990 +5.9 -9.2 -36.5
- - -----------------------------------------------------------------
1991 +23.2 +46.1 +72.4
- - -----------------------------------------------------------------
1992 +14.8 +20.0 +16.2
- - -----------------------------------------------------------------
1993 +15.9 +18.2 +29.9
- - -----------------------------------------------------------------
1994 -1.3 +0.3 -11.8
- - -----------------------------------------------------------------
ANNUALIZED TOTAL RETURNS
1985-1994 +14.4% +13.0% +2.3%
- - -----------------------------------------------------------------
Past performance is not a guarantee of future results.
Source: Salomon Brothers Long-term High-Yield Index
Focusing on BB-Rated Bonds
As concern over a possible recession spurred investors towards the
better quality high-yield bonds, particularly "BB" rated issues, those bonds
at the lower end of the quality spectrum -- "CCC" and below -- suffered
substantial losses late in the year. You can see from the chart to the right
that this was not unexpected. Lower rated bonds have been significantly more
volatile, and the higher yields available for assuming the greater credit
risk related to "CCC"-rated bonds have not translated into higher long-term
total returns.
That is precisely why Delchester Fund has traditionally concentrated its
holdings in bonds rated "BB" and "B" where we believe we can earn attractive
income but with less credit risk.
2
<PAGE> 3
In recent months we have moved even more significantly up the quality
spectrum and now have 33% of the portfolio's net assets invested in bonds
rated "BB" or better, including 9% in Treasury Notes.
(PHOTO OF COLONIAL OBJECTS)
With economic growth likely to decelerate in 1995, we expect that corporate
profit margins will come under increased pressure as the year unfolds. We
believe that a prudent defense against such an economic environment is to
improve the quality of the Fund's holdings. This has been our strategy in
previous periods of economic slowing, and we attribute much of our strong
long-term performance to foregoing the tempting yields of the lowest rated
issues, particularly when the economic outlook is uncertain.
DELCHESTER FUND'S EMPHASIS ON CREDIT QUALITY
Bond Ratings+
INVESTMENT GRADE BONDS NON-INVESTMENT GRADE
issued by companies such as: HIGH-YIELD BONDS
Time-Warner, Coca-Cola issued by companies such as: Revlon,
and Xerox Ann Taylor and Pathmark
AAA AA A BBB BB B CCC CC C D
Delchester's Focus
+Based on Standard & Poor's rating system.
How will this defensive strategy affect the Fund's income potential?
While there are a number of factors that govern your Fund's dividend, not the
least of which are Federal Reserve policy and the general movement of
interest rates, we want to clarify that moving to higher quality bonds, as we
have described, is likely to reduce the Fund's dividend income. Recognizing
that most of our shareholders have selected Delchester precisely for its
high income potential, we continue to seek out attractive yields; however,
we strive to provide you with high current income without undue risk to
principal. We believe that pursuing the yields available on many lower rated
issues would constitute undue risk to principal, i.e., share value, and that
in the long term our defensive posturing should prove beneficial to
shareholders.
OUTLOOK FOR HIGH-YIELD BONDS
Though we are now approaching the high-yield market with even more
caution than we have traditionally exhibited, we remain optimistic about the
performance of this asset class. High-yield credit quality reached its
highest level ever in 1994, with 40% of the market rated "BB", 51% "B" and 9%
"CCC" or below. In 1994, the percentage of high-yield issuers that were
unable to fulfill their payment obligations fell to just 0.8%, the lowest
level since 1981. At the same time, these higher risk, non-investment grade
bonds still offer the highest yields available in domestic fixed income
markets, with significant yield advantages over higher quality issues. We
believe that through our disciplined strategy of rigorously evaluating bonds
both before and after purchase and focusing on credit quality and liquidity,
as well as, a bond's income potential, we can offer investors strong long-term
returns from this market.
PHOTO PHOTO PHOTO
PAUL A. MATLACK GERALD T. NICHOLS JAMES R. RAITH JR.
VICE PRESIDENT/ VICE PRESIDENT/ VICE PRESIDENT/
SENIOR PORTFOLIO MANAGER SENIOR PORTFOLIO MANAGER SENIOR PORTFOLIO MANAGER
/s/ PAUL A. MATLACK /s/ GERALD T. NICHOLS /s/ JAMES R. RAITH JR.
- - ------------------- --------------------- ----------------------
3
<PAGE> 4
(PHOTO OF COLONIAL OBJECTS)
A Look At Long-Term Performance
As your Fund's management took steps to upgrade the portfolio's holdings,
during the past six months, the effects of the Fed's interest rate increases
and continuing uncertainty in the stock market continued to impact
performance. Keeping a long-term perspective in such an environment can be
difficult; however, it may be a key factor in your long-term success.
High-yield bonds offer substantially higher return potential than most other
fixed-income securities, but also involve greater risks. Traditionally
investors who have been willing to accept and "ride out" price volatility
have been rewarded with higher income and higher overall return potential.
While past performance doesn't guarantee future results, we believe
Delchester's 10-year record illustrates the benefits to investors who "stay
the course."
DELCHESTER FUND
CLASS A CLASS B
Average Annual Total Returns Aggregate Total Returns
(Introduced May 2, 1994)
10 Year +10.13% Lifetime -2.76%
Excluding Sales Charge
5 Years +10.16% Lifetime -6.35%
Including Sales Charge
1 Year -10.48%
Including Sales Charge
Through January 31, 1995
_____________________________________
DELCHESTER FUND LONG-TERM PERFORMANCE
Feb-85 $ 9,524
Jan-86 $11,360
Jan-87 $13,613
Jan-88 $14,246
Jan-89 $15,916
Jan-90 $15,254
Jan-91 $14,138
Jan-92 $20,440
Jan-93 $23,751
Jan-94 $27,631
Jan-95 $25,973
RETURN AND SHARE VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THE ORIGINAL COST. PAST PERFORMANCE IS NOT A
GUARANTEE OF FUTURE RESULTS.
The chart above shows a $10,000 investment in Delchester Fund from 2/1/85
through 1/31/95, including the impact of the maximum front-end sales charge
of 4.75% that applies to the A Class and the reinvestment of all dividends.
No adjustments were made for the payment of taxes.
CLASS A returns reflect the impact of the 4.75% maximum front-end sales charge
and the 12b-1 fee, and take into account the reinvestment of all
distributions.
CLASS B performance reflects the reinvestment of all distributions. 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. Lifetime performance
excluding sales charge assumes the investment was not redeemed. Class B was
initially offered on 5/2/94. Performance for this short time period may not
be representative of longer term results.
The average annual total returns for Delchester Fund's Institutional Class,
which is available without sales or asset-based distribution charges only to
certain eligible institutional accounts, were +10.86%, +11.51%, -5.78%,
respectively, for the 10-year, five-year, one-year periods and -0.66%, for
the six months ended 1/31/95.
4
<PAGE> 5
Financial Statements
DELAWARE GROUP DELCHESTER HIGH-YIELD BOND FUND
STATEMENT OF INVESTMENTS
January 31, 1995
(Unaudited)
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS-89.63%
CHEMICALS-8.22%
G-I Holdings 0% sr nts 1998.............. $43,700,000 $26,930,125
Harris Chemical 0/ 10 1/4%
sr sub nts 2001......................... 12,100,000 10,103,500
NL Industries 11 3/4% sr nts 2003........ 14,600,000 14,746,000
NL Industries 0/ 13% sr nts 2005......... 15,400,000 9,702,000
**Polymer Group 12 3/4% sr nts 2002........ 12,900,000 12,448,500
UCC Investors 11% sr sub nts 2003........ 9,600,000 9,432,000
UCC Investors Holding 0/ 12%
sub nts 2005............................ 15,000,000 9,975,000
----------
93,337,125
----------
COMMUNICATIONS-6.99%
Adelphia Communications 12 1/2%
sr unsec nts 2002....................... 19,000,000 17,527,500
**Aftermarket 12% sr sub nts 2004.......... 10,000,000 10,400,000
Century Communications
9 3/4% sr nts 2002...................... 5,750,000 5,563,125
Falcon Holdings Group 11% P.I.K.
sr sub nts 2003......................... 13,356,300 11,286,074
New World Holding 0% sr disc nts 1999.... 31,525,000 16,944,688
Rogers Cantel Mobile Communications
10 3/4% sr sec nts 2001................. 5,000,000 5,037,500
Sullivan Graphics 15% sr sub nts 2000.... 11,950,000 12,607,250
----------
79,366,137
----------
CONSUMER-7.47%
ADT Operations 9 1/4% sr sub nts 2003.... 3,035,000 2,837,725
ARA Group 8 1/2% sub debs 2003........... 4,725,000 4,370,625
Chiquita Brands 9 5/8% sr nts 2004....... 5,350,000 4,861,813
Coleman Holdings 0% sr sec disc nts 1998. 29,600,000 20,276,000
Dairy Mart Stores 10 1/4% sr sub nts 2004 11,250,000 8,437,500
DiGiorgio 12% sr nts 2003................ 9,000,000 8,280,000
Dr. Pepper Bottling 0/ 11 5/8% sr nts 2003 5,000,000 3,375,000
Penda Industries 10 3/4% sr nts 2004..... 8,000,000 7,280,000
PMI Acquisition 10 1/4% sr sub nts 2003.. 4,400,000 4,246,000
**Remington Arms 10% sr sub nts 2003....... 9,100,000 7,564,375
Revlon 10 7/8% deb 2010.................. 6,750,000 6,285,938
Universal Outdoor 11% 2003............... 7,750,000 6,984,688
----------
84,799,664
----------
ENERGY/UTILITY-4.74%
Crown Central Petroleum
10 7/8% sr nts 2005..................... 7,750,000 7,740,313
Ferrellgas 10% sr sub nts 2001........... 8,800,000 8,712,000
Georgia Gulf 15% deb 2000................ 12,321,000 12,567,420
Midland II Funding 13 1/4% deb 2006...... 12,250,000 12,418,438
Southeastern Public Service 11 7/8%
sub deb 1998............................ 3,835,000 3,739,125
Wilrig AS 11 1/4% sr nts 2004............ 9,750,000 8,726,250
----------
53,903,546
----------
<PAGE> 6
ENTERTAINMENT-11.12%
AMC Entertainment 12 5/8%
sr sub deb 2002......................... $ 9,800,000 $ 10,633,000
Bally's Grand 10 3/8% 1st Mtg 2003....... 9,600,000 8,664,000
Bally's Health & Tennis 13%
sr sub deb 2003......................... 18,150,000 14,066,250
Cinemark USA 12% sr nts 2002............. 5,000,000 5,212,500
Comcast 10 1/4% sr sub debs 2001......... 2,000,000 1,987,500
GNF 10 5/8% 1st mtg nts 2003............. 16,445,000 11,922,625
Infinity Broadcasting 10 3/8%
sr sub nts 2002......................... 9,045,000 9,169,369
Kloster Cruise 13% sr sec nts 2003....... 22,740,000 18,760,500
MGM Grand Hotel Finance 12%
1st mtg nts 2002........................ 18,400,000 20,056,000
Rogers Communication 10 7/8%
sr debs 2004............................ 5,000,000 4,975,000
Trump Plaza Funding 10 7/8%
mtg nts 2001............................ 12,000,000 9,690,000
Viacom International 10 1/4% debs 2001... 10,720,000 11,148,800
-----------
126,285,544
-----------
FINANCIAL-3.93%
**Acadia Partners 13% sr sub nts 1997...... 13,500,000 13,770,000
Bankers Life Holding 13%
sr sub deb 2002......................... 14,800,000 16,946,000
Saul (B. F.) 11 5/8% REIT 2002........... 4,550,000 4,004,000
Schuller International Group
10 7/8% sr nts 2004..................... 9,600,000 9,888,000
-----------
44,608,000
-----------
HEALTHCARE-2.54%
American Medical International 0/ 15%
jr sub disc nts 2005.................... 13,100,000 24,300,500
Healthsouth Rehab 9 1/2%
sr sub nts 2001......................... 4,700,000 4,606,000
-----------
28,906,500
-----------
INDUSTRIAL-19.69%
Anchor Glass Container 9 7/8%
sr sub debs 2008........................ 9,600,000 8,232,000
Anchor Glass Container 10 1/4% nts 2002.. 1,750,000 1,673,438
5
<PAGE> 7
STATEMENT OF INVESTMENTS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
INDUSTRIAL (CONTINUED)
Associated Materials 11 1/2%
sr sub nts 2003......................... $ 9,100,000 $ 8,417,500
Calmar Spraying Systems 14%
sr sub nts 1999......................... 11,550,000 11,752,125
Eletson Holdings 9 1/4%
1st pfd mtg nts 2003.................... 8,340,000 7,464,300
Fairchild Industries 12 1/4%
sr sec nts 1999......................... 1,000,000 975,000
G.S. Technologies 12% sr nts 2004........ 11,500,000 11,456,875
Ivex Packaging 12 1/2% sr sub nts 2002... 10,750,000 10,696,250
Magnetek 10 3/4% sr sub debs 1998........ 7,450,000 7,468,625
Mid-American Waste Systems
12 1/4% sr sub nts 2003................. 8,750,000 8,793,750
Oriole Homes 12 1/2% sr sub nts 2003..... 8,350,000 7,389,750
Owens-Illinois 11% sr amort deb 2003..... 23,800,000 24,930,500
**S.D. Warren 12% sr sub nts 2004.......... 9,600,000 9,984,000
Silgan Holdings 0/ 13 1/4%
sr disc deb 2002........................ 22,277,000 19,158,220
Southwest Forest Industries
12 1/8% sub deb 2001.................... 3,700,000 3,755,500
Spreckels Industries 11 1/2%
sr sec nts 2000......................... 4,600,000 4,439,000
Stater Brothers 11% sr nts 2001.......... 2,650,000 2,517,500
Stone Consolidated 10 1/4% sr nts 2000... 4,750,000 4,660,938
Stone Container 11 1/2% sr sub nts 2004.. 9,750,000 9,908,438
Stone Container 11 7/8% sr nts 1998...... 4,750,000 4,951,875
Synthetic Industries 12 3/4% deb 2002.... 5,000,000 4,675,000
Talley Industries 0/ 12 1/4% disc deb 2005 9,400,000 4,841,000
Talley Manufacturing and Technology
10 3/4% sr nts 2003..................... 7,700,000 6,814,500
Transport Ocean Container 12 1/4%
sr sub nts 2004......................... 6,900,000 6,589,500
U.S. Can 13 1/2% sr sub nts 2002......... 9,200,000 10,258,000
Viking Star Shipping 9 5/8%
1st pfd ship mtg nts 2003............... 14,650,000 13,771,000
Waters 12 3/4% sr sub nts 2004........... 8,000,000 8,080,000
-----------
223,654,584
-----------
MANUFACTURING-13.43%
American Standard 10 7/8% sr nts 1999...... 5,600,000 5,740,000
Applied Extrusion 11 1/2% sr nts 2002...... 7,700,000 7,700,000
Auburn Hills Trust 12% gtd exch ctf 2020... 10,000,000 13,487,210
Berry Plastics 12 1/4% units 2004.......... 11,600,000 11,194,000
Burlington Motor 11 1/2% sr sub nts 2003... 9,850,000 8,963,500
Domtar 11 3/4% sr nts 1999................. 12,000,000 12,510,000
Drypers 12 1/2% sr nts 2002................ 5,105,000 5,149,669
Eagle Industries 0/10 1/2% sr sub nts 2003. 7,800,000 5,031,000
Fairchild 12% interm. sub debs 2001........ 5,000,000 4,425,000
Fort Howard 14 1/8%
jr sub disc. debs 2004.................... 34,500,000 34,845,000
IMO Industries 12% sr sub nts 2001......... 10,150,000 10,213,438
Interlake 12 1/8% sr sub deb 2002.......... 7,400,000 7,067,000
K & F Industries 13 3/4% sr sub debs 2001.. 10,000,000 9,550,000
Mark IV Industries 8 3/4% sub nts 2003..... 7,850,000 7,437,875
Protection One Alarm 12% sr nts 2003....... 5,000,000 4,725,000
Rexnord 11 7/8% sr sub deb 1999............ 4,850,000 4,583,250
-----------
152,621,942
-----------
<PAGE> 8
PRINCIPAL MARKET
AMOUNT VALUE
NATURAL RESOURCES-1.91%
Maxxam Group 11 1/4% sr sec nts 2003....... $ 9,750,000 $ 9,116,250
Maxxam Group 14% sr sub nts 2000........... 1,576,000 1,615,400
Pacific Lumber 10 1/2% sr nts 2003......... 11,800,000 10,974,000
----------
21,705,650
----------
RETAIL-6.85%
Duane Read 12% sr nts 2002................. 7,500,000 6,075,000
Eckerd 9 1/4% sr sub nts 2004.............. 6,100,000 5,962,750
Fleming Companies 8 5/8% frn 2001.......... 13,800,000 13,794,756
Fleming Companies 10 5/8% sr nts 2001...... 6,380,000 6,483,675
Grossmans 14% sub strips 1996.............. 2,950,000 3,215,500
Pathmark Stores 0/ 10 3/4%
jr sub nts 2003........................... 8,400,000 4,284,000
Penn Traffic 10.65% sr nts 2004............ 14,775,000 14,738,063
Specialty Foods 11 1/4% sr nts 2003........ 17,950,000 16,312,063
Thrifty Payless 12 1/4% sr sub nts 2004.... 7,250,000 6,923,750
----------
77,789,557
----------
TECHNOLOGY-2.74%
ANACOMP 15% sr sub nts 2000................ 14,950,000 14,725,750
Unisys 13 1/2% nts 1997.................... 15,190,000 16,405,291
----------
31,131,041
----------
TOTAL CORPORATE BONDS
(COST $1,050,832,541)..................... 1,018,109,290
-------------
U.S. TREASURY OBLIGATIONS-8.94%
U.S. Treasury Notes 10 1/2% 1995........... 99,417,000 101,529,611
-----------
TOTAL U.S. TREASURY OBLIGATIONS
(COST $101,606,108)....................... 101,529,611
-----------
6
<PAGE> 9
STATEMENT OF INVESTMENTS (CONTINUED)
NUMBER OF MARKET
SHARES VALUE
COMMON STOCK-0.14%
*Dr. Pepper/Seven-Up....................... 27,825 $ 907,791
*Grand Casinos............................. 22,609 339,135
*Gtech Holdings............................ 15,028 328,738
---------
TOTAL COMMON STOCK (COST $395,596)........ 1,575,664
---------
PREFERRED STOCK-0.39%
Supermarket General $3.50 pfd............. 200,000 4,400,000
---------
TOTAL PREFERRED STOCK (COST $5,107,800)... 4,400,000
---------
CONVERTIBLE PREFERRED
STOCK-0.84%
Pantry Pride cv $14.875 pfd............... 97,500 9,579,375
---------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $10,237,500)....................... 9,579,375
---------
STOCK WARRANTS-0.06%
*Berry Plastics ........................... 11,600 145,000
*Protection One ........................... 140,000 525,000
---------
TOTAL STOCK WARRANTS (COST $553,800)...... 670,000
---------
TOTAL MARKET VALUE OF
SECURITIES-100.00%
(COST $1,168,733,345).................... $1,135,863,940
==============
- - ----------
* Non-income producing for the six months ended January 31, 1995.
** This security is exempt from registration under Rule 144A of the
Securities Act of 1933. This security may be resold in transactions exempt
from registration, normally to qualified institutional buyers. At January
31, 1995, these securities amounted to $54,166,875 or 4.85% of net assets.
Summary of Abbreviations:
P.I.K.-Payment-in-Kind
REIT-Real Estate Investment Trust
cv-convertible
deb-debentures
frn-floating rate notes
pfd-preferred
sec-secured
sr nts-senior notes
sub-subordinated
See accompanying notes
DELAWARE GROUP DELCHESTER HIGH-YIELD BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
January 31, 1995
(Unaudited)
ASSETS:
Investments at market................................... $1,135,863,940
Interest receivable .................................... 32,959,539
Receivable for investment securities sold............... 24,828,948
Receivable for fund shares sold......................... 4,135,215
Cash.................................................... 3,384,282
Other assets............................................ 84,081
-------------
1,201,256,005
-------------
LIABILITIES:
Payable for investment securities purchased............. 77,862,841
Dividends payable to shareholders....................... 4,960,576
Payable for Fund shares repurchased..................... 1,656,785
Accounts payable and other accrued expenses............. 577,529
-------------
85,057,731
-------------
NET ASSETS:............................................. $1,116,198,274
==============
Shares outstanding (160,238,238 Delchester Fund A Class
shares, 12,332,213 Delchester Fund Institutional Class
shares and 12,161,977 Delchester Fund B Class shares).. 184,732,428
==============
Net asset value......................................... $6.04
=====
See accompanying notes
7
<PAGE> 10
DELAWARE GROUP DELCHESTER HIGH-YIELD BOND FUND
STATEMENT OF OPERATIONS
Six Months Ended January 31, 1995
(Unaudited)
INVESTMENT INCOME:
Interest.................................... $67,374,655
Dividends................................... 726,083
EXPENSES:
Management fees ($3,122,465) and
directors' fees ($9,753)................... $3,132,218
Distribution expenses....................... 1,388,746
Dividend disbursing and transfer agent
fees and expenses.......................... 864,570
Reports to shareholders..................... 177,570
Salaries.................................... 136,452
Custodian fees.............................. 94,200
Taxes, other than taxes on income........... 87,159
Federal and state registration fees......... 57,700
Professional fees........................... 21,150
Other....................................... 71,774 6,031,539
--------- ----------
NET INVESTMENT INCOME....................... 62,069,199
----------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss from investment transactions.......... (61,079,568)
Net unrealized depreciation of
investments during the period.......................... (9,397,194)
-----------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS.................................... (70,476,762)
-----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................................ $(8,407,563)
===========
See accompanying notes
<PAGE> 11
DELAWARE GROUP DELCHESTER HIGH-YIELD BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR
1/31/95 ENDED
(Unaudited) 7/31/94
OPERATIONS:
Net investment income...................... $62,069,199 $113,174,026
Net realized loss from
investment transactions................... (61,079,568) (3,574,612)
Net unrealized depreciation
during the period......................... (9,397,194) (94,141,312)
----------- ------------
Net increase (decrease) in net assets
resulting from operations................. (8,407,563) 15,458,102
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME:
Delchester Fund A Class................... (55,647,347) (106,877,965)
Delchester Fund Institutional Class....... (4,153,915) (6,347,391)
Delchester Fund B Class................... (2,520,117) (200,558)
----------- ------------
(62,321,379) (113,425,914)
----------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Delchester Fund A Class................... 148,519,602 360,014,314
Delchester Fund Institutional Class....... 72,941,487 84,508,032
Delchester Fund B Class................... 57,441,587 22,645,448
Net asset value of shares issued
upon reinvestment of dividends
from net investment income:
Delchester Fund A Class................... 26,860,773 52,710,351
Delchester Fund Institutional Class....... 2,978,466 4,839,929
Delchester Fund B Class................... 992,030 79,980
----------- -----------
309,733,945 524,798,054
----------- -----------
Cost of shares repurchased:
Delchester Fund A Class................... (127,586,795) (293,134,865)
Delchester Fund Institutional Class....... (67,797,054) (47,820,351)
Delchester Fund B Class................... (3,890,001) (429,503)
----------- -----------
(199,273,850) (341,384,719)
----------- -----------
Increase in net assets derived
from capital share transactions.......... 110,460,095 183,413,335
----------- -----------
NET INCREASE IN NET ASSETS................. 39,731,153 85,445,523
NET ASSETS:
Beginning of period........................1,076,467,121 991,021,598
------------- -----------
End of period (including undistributed
net investment income of $130,532 and
$382,712, respectively)..................$1,116,198,274 $1,076,467,121
============== ==============
See accompanying notes
8
<PAGE> 12
DELAWARE GROUP DELCHESTER HIGH-YIELD BOND FUND
NOTES TO FINANCIAL STATEMENTS
January 31, 1995
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Delaware Group Delchester High-Yield Bond Fund, Inc. (the "Fund") is a
diversified open-end registered investment company. The Fund is organized as
a Maryland corporation. The Fund currently offers the Delchester Fund A Class
(formerly known as Delchester Fund class), Delchester Fund Institutional
Class (formerly known as Delchester Fund (Institutional) class) and effective
May 2, 1994, the Delchester Fund B Class. Each class of shares of the Fund
will share proportionately in the investment income and expenses of the Fund,
except that the Delchester Fund Institutional Class will not incur any
distribution fees under the 12b-1 Plan.
Portfolio securities listed or traded on a national securities exchange, except
for bonds, are valued at the closing price on the exchange where they are
primarily traded. Securities not traded on a particular day are valued at the
last bid price. U.S. Government and agency securities and over-the-counter
securities are valued at the mean between the bid and the asked price. Debt
securities (other than short-term obligations) are valued on the basis of
valuations provided by a pricing service when such prices are believed to
reflect the fair value of such securities. Money market instruments having a
maturity of less than 60 days are valued at amortized cost. If no quotations are
available, all other securities and assets are valued at fair value as
determined in good faith and in a method approved by the Board of Directors. No
securities were valued on this basis in the accompanying financial statements.
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Gains and losses are based upon the specific
identification method for both financial statement and federal tax purposes.
Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis. The accretion of original issue discount and
market discount is treated as interest income.
No provision for federal income taxes was made since it is the intention of
the Fund to comply with the provisions of the Internal Revenue Code available
to regulated investment companies and to make requisite distributions to
shareholders.
The Fund is permitted to borrow money as a temporary measure for
extraordinary or emergency purposes. The Fund has a line of credit
arrangement with Morgan Guaranty Trust Company, for an amount not to exceed
$20 million. As of and for the six months ended January 31, 1995, there were
no borrowings under this line of credit.
<PAGE> 13
2. INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
In accordance with the terms of the Investment Management Agreement, the
compensation paid to Delaware Management Company, Inc., the investment
manager of the Fund, is equal to (on an annual basis) .6% of the first $500
million of average daily net assets of the Fund, .575% on the next $250
million and .55% on the average daily net assets over $750 million, less all
amounts paid to the unaffiliated directors by the Fund. On December 12, 1994,
Delaware Management Holdings, Inc., which indirectly owns all of the
outstanding stock of Delaware Management Company, Inc., entered into an
agreement of merger with Lincoln National Corporation. The merger will result
in Delaware Management Holdings, Inc. becoming a wholly-owned subsidiary of
Lincoln National Corporation. The transaction is subject to the receipt of
all regulatory and shareholder approvals.
Pursuant to the Distribution Agreement between the Fund and Delaware
Distributors, L.P., an affiliate of Delaware Management Company, Inc., the
Distributor will be paid monthly a fee which is computed on the net assets of
the Fund as of the close of business each day at the annual rate not to
exceed 0.30% of the Fund's average daily net assets attributable to the
Delchester Fund A Class for the year and at the annual rate of 1.00% of the
Fund's average daily net assets attributable to the Delchester Fund B Class
for the year.
Certain officers, directors and shareholders of Delaware Management Company,
Inc. are officers and/or directors of the Fund. Officers, directors and
employees of Delaware Management Company, Inc., who are also officers,
directors and employees of the Fund, do not receive any compensation from the
Fund. Salaries of officers and employees who are exclusively employed by the
Delaware Group of Funds are apportioned on the basis of net assets of the
respective Funds. For the six months ended January 31, 1995, the Fund's
expenses related to such salaries amounted to $136,452. During the six months
ended January 31, 1995, Delaware Service Company, Inc., an affiliate of
Delaware Management Company, Inc., billed $800,970 for providing dividend
disbursing and transfer agent services to the Fund. In addition, the Fund
paid Delaware Distributors, L.P., another affiliate of Delaware Management
Company, Inc., $510,720 from commissions earned on sales of Delchester Fund A
Class shares.
On January 31, 1995, the Fund had an investment management fee payable to
Delaware Management Company, Inc. of $32,566. Also, the Fund had dividend
disbursing and transfer agent fees and expenses payable to Delaware Service
Company, Inc. of $3,678. In addition, the Fund owes Delaware Management
Company, Inc. and its affiliates, Delaware Service Company, Inc. and Delaware
Distributors, L.P., $2,087, $6,987 and $49,809, respectively, for other
expenses related to operations.
9
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
Investment securities based on cost for federal income tax purposes at
January 31, 1995, are as follows:
Cost of investments.............................. $1,169,315,879
Aggregate unrealized appreciation................ 17,991,727
Aggregate unrealized depreciation................ (51,443,666)
--------------
Market value of investments...................... $1,135,863,940
==============
Net loss for federal income tax purposes was $60,515,625 for the six months
ended January 31, 1995. For federal income tax purposes, the Fund had
accumulated capital losses at July 31, 1994 of approximately $152,636,000
which may be carried forward and applied against future capital gains. The
capital loss carryforward expires as follows: 1998-$59,747,000,
1999-$89,261,000 and 2002-$3,628,000.
During the six months ended January 31, 1995, the Fund had purchases of
$435,778,867 and sales of $337,709,629 of investment securities, other than
U.S. Government securities and short-term debt securities having maturities
of one year or less.
4. CONCENTRATION OF CREDIT RISK
Although the Fund's portfolio is diversified, 11% of its portfolio was
invested in low-rated securities which are rated Caa or lower by Moody's and
other unrated high-yield, fixed-income securities. Investments in these
higher yielding securities may be accompanied by a greater degree of credit
risk. This risk tends to be more sensitive to economic conditions than higher
rated securities. As of January 31, 1995, the Fund's diversification by
Moody's rating was as follows:
MOODY'S PERCENTAGE OF TOTAL
RATING SECURITIES AT MARKET VALUE
Aaa 8.94%
A to Ba3 24.11
B1 to B3 54.13
Caa or below 6.21
Not Rated 5.18
Equities 1.43
------
100.00%
======
5. CAPITAL STOCK
SIX MONTHS YEAR
ENDED ENDED
1/31/95 7/31/94
Shares sold:
Delchester Fund A Class................. 24,037,414 52,162,247
Delchester Fund Institutional Class..... 11,720,608 12,409,280
Delchester Fund B Class................. 9,258,860 3,428,388
Shares issued upon reinvestment
of dividends from net investment income:
Delchester Fund A Class................. 4,353,218 7,638,956
Delchester Fund Institutional Class..... 483,072 706,147
Delchester Fund B Class................. 161,782 12,283
----------- ----------
50,014,954 76,357,301
Shares repurchased: ----------- ----------
Delchester Fund A Class................. (20,611,190) (42,358,212)
Delchester Fund Institutional Class..... (10,895,739) (7,167,289)
Delchester Fund B Class................. (634,129) (65,207)
----------- ----------
(32,141,058) (49,590,708)
----------- ----------
Net increase............................. 17,873,896 26,766,593
=========== ==========
6. COMPONENTS OF NET ASSETS
Capital stock, $1 par value,
500,000,000 shares authorized to the Fund............ $1,365,322,053
Accumulated undistributed income (loss):
Net investment income................................ 130,532
Net realized loss on investments..................... (216,384,906)
Net unrealized depreciation of investments........... (32,869,405)
-------------
Total net assets applicable to 160,238,238
Delchester Fund A Class shares 12,332,213
Delchester Fund Institutional Class shares and
12,161,977 Delchester Fund B Class shares of capital
stock; equivalent to $6.04 per share................. $1,116,198,274
==============
10
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
DELCHESTER FUND A CLASS
-----------------------------------------------------------------
SIX
MONTHS
ENDED YEAR ENDED JULY 31,
1/31/95(1) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............................ $6.450 $7.070 $ 6.900 $ 6.260 $6.300 $ 7.480
Income from investment operations:
Net investment income ......................................... 0.357 0.744 0.774 0.781 0.805 0.880
Net realized and unrealized gain (loss)
from security transactions.................................... (0.409) (0.618) 0.165 0.640 (0.040) (1.180)
------ ------ ------ ------ ------ ------
Total from investment operations............................... (0.052) 0.126 0.939 1.421 0.765 (0.300)
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income........................... (0.358) (0.746) (0.769) (0.781) (0.805) (0.880)
Distributions from net realized gain on security transactions.. none none none none none none
------ ------ ------ ------ ------ ------
Total distributions............................................ (0.358) (0.746) (0.769) (0.781) (0.805) (0.880)
------ ------ ------ ------ ------ ------
Net asset value, end of period.................................. $6.040 $6.450 $7.070 $6.900 $6.260 $6.300
====== ====== ====== ====== ====== ======
Total return(2)................................................. (1.56%) 1.60% 14.46% 23.94% 14.51% (3.80%)
Ratios/supplemental data:
Net assets, end of period (000 omitted)(3)..................... $968,198 $983,569 $955,113 $760,290 $505,530 $531,802
Ratio of expenses to average net assets........................ 1.09% 1.05% 1.04% 1.08% 1.20% 1.15%
Ratio of net investment income to average net assets........... 11.45% 10.48% 11.17% 11.58% 14.15% 13.17%
Portfolio turnover............................................. 85% 92% 72% 101% 38% 72%
</TABLE>
- - ---------
(1)Ratios and total return have been annualized.
(2)Does not include maximum sales charge of 4.75% nor the 1% limited contingent
deferred sales charge that would apply in the event of certain redemptions
within 12 months of purchase.
(3)All net assets of Delchester I class and Delchester Fund A Class have been
aggregated over the relevant five-year period.
11
<PAGE> 16
7. FINANCIAL HIGHLIGHTS
Selected data for each share of the Fund outstanding throughout each period
were as follows:
<TABLE>
<CAPTION>
DELCHESTER FUND INSTITUTIONAL CLASS DELCHESTER FUND B CLASS
---------------------------------------------------------- -----------------------
PERIOD
SIX SIX FROM
MONTHS MONTHS 5/2/94(3)
ENDED YEAR ENDED JULY 31, ENDED TO
1/31/95(1) 1994 1993 1992(2) 1991 1990 1/31/95(1) 7/31/94
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $6.450 $7.070 $6.900 $6.260 $6.300 $7.480 $6.450 $6.730
Income from investment operations:
Net investment income............................ 0.365 0.758 0.787 0.798 0.822 0.900 0.334 0.120
Net realized and unrealized gain (loss) from
security transactions........................... (0.409) (0.617) 0.165 0.640 (0.040) (1.180) (0.409) (0.280)
------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations................. (0.044) 0.141 0.952 1.438 0.782 (0.280) (0.075) (0.160)
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income............. (0.366) (0.761) (0.782) (0.798) (0.822) (0.900) (0.335) (0.120)
Distributions from net realized gain on security
transactions.................................... none none none none none none none none
------ ------ ------ ------ ------ ------ ------ ------
Total distributions.............................. (0.366) (0.761) (0.782) (0.798) (0.822) (0.900) (0.335) (0.120)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period.................... $6.040 $6.450 $7.070 $6.900 $6.260 $6.300 $6.040 $6.450
====== ====== ====== ====== ====== ====== ====== ======
Total return(4)................................... (1.32%) 1.82% 14.67% 24.28% 14.85% (3.58%) (1.16%) (5)
Ratios/supplemental data:
Net assets, end of period (000 omitted)(3)....... $74,514 $71,122 $35,909 $18,746 $113,414 $96,161 $73,486 $21,776
Ratio of expenses to average net assets.......... 0.85% 0.83% 0.86% 0.86% 0.90% 0.85% 1.85% 1.83%
Ratio of net investment income
to average net assets........................... 11.69% 10.70% 11.35% 12.17% 14.45% 13.47% 10.69% 9.70%
Portfolio turnover............................... 85% 92% 72% 101% 38% 72% 85% 92%
</TABLE>
- - ---------
The per share data prior to 1992 was derived from the data of the Delchester
I class which, like the Delchester Fund Institutional Class, a new class of
shares, was not subject to Rule 12b-1 distribution expenses. Delchester I
class was converted into Delchester Fund class on June 1, 1992, pursuant to a
Plan of Recapitalization approved by shareholders of Delchester I class.
(1)Ratios and total return have been annualized for Delchester Fund
Institutional Class and ratios have been annualized and total return has not
been annualized for Delchester Fund B Class.
(2)The per share data for Delchester I class and Delchester Fund Institutional
Class has been combined for 1992. For the ten months ended May 31, 1992,
the Delchester I class operating expenses and net investment income per
share were $.047 and $.666, respectively. For the two months ended July 31,
1992, the Delchester Fund Institutional Class operating expenses and net
investment income per share were $.009 and $.132, respectively. All net
investment income was distributed to shareholders.
(3)Date of initial public offering; ratios have been annualized.
(4)Does not include contingent deferred sales charge which varies form 1%-4%
depending upon the holding period for the Delchester Fund B Class.
(5)Total return has been omitted as Management believes that such information
on this relatively short period is not meaningful.
12
<PAGE> 17
<TABLE>
<CAPTION>
Board Members Other Affiliated Officers
<S> <C> <C>
MR. WAYNE A. STORK MS. ANN R. LEVEN MR. KEITH E. MITCHELL
Chairman Treasurer President and CEO
Delaware Group of Funds National Gallery of Art Delaware Distributors, L.P.
Philadelphia, PA Washington, DC
MR. WALTER P. BABICH MR. W. THACHER LONGSTRETH MR. DAVID K. DOWNES
Board Chairman Vice Chairman President
Citadel Constructors, Inc. Packquisition Corp. Delaware Management Trust Company
King of Prussia, PA Philadelphia, PA
MR. JOHN K. CASTLE MR. CHARLES E. PECK MR. GEORGE M. CHAMBERLAIN, JR.
Chairman former Chairman and CEO Secretary
Castle Harlan, Inc. The Ryland Group, Inc. Delaware Group of Funds
New York, NY Columbia, MD
Secretary of Enterprise
MR. LEONARD M. HARLAN Homes, Inc.
President Fredericksburg, VA
Castle Harlan, Inc.
New York, NY MR. BRIAN F. WRUBLE
President and CEO
MR. ANTHONY D. KNERR Delaware Group of Funds
Consultant Philadelphia, PA
Anthony Knerr & Associates
New York, NY
</TABLE>
This semi-annual report is for the information of Delchester Fund
shareholders, but it may be used with prospective investors when preceded or
accompanied by a current PROSPECTUS, which gives details about charges,
expenses, investment objectives and operating policies of the Fund. Summary
investment results are documented in the current STATEMENT OF ADDITIONAL
INFORMATION. If used with prospective investors after March 31, 1995, this
report must also be accompanied by a Delchester Fund Performance Update for
the most recently completed calendar quarter. The figures in this report
represent past results, which are not a guarantee of future results. The
return and principal value of an investment in the Fund will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost.
<PAGE> 18
Delaware Group of Funds
FOR GROWTH OF CAPITAL FOR TAX-FREE
Trend Fund CURRENT INCOME
DelCap Fund Tax-Free USA Fund
Value Fund Tax-Free Insured Fund
Tax-Free USA
FOR TOTAL RETURN Intermediate Fund
Dividend Growth Fund Tax-Free Pennsylvania Fund
Decatur Total Return Fund
Decatur Income Fund MONEY MARKET FUNDS
Delaware Fund Delaware Cash Reserve
U.S. Government Money Fund
FOR GLOBAL DIVERSIFICATION Tax-Free Money Fund
International Equity Fund
Global Assets Fund CLOSED-END EQUITY/INCOME
Global Bond Fund Delaware Group Dividend
and Income Fund
FOR CURRENT INCOME Delaware Group Global Dividend
Delchester Fund and Income Fund
U.S. Government Fund
Treasury Reserves
Intermediate Fund
<PAGE> 19
The Delaware Group includes funds with a wide range of investment
objectives. Stock funds, income funds, tax-free funds, money market funds,
closed-end equity/income funds and global funds give investors the ability to
create a portfolio that fits their personal financial goals. For more
information, including a prospectus of any Delaware Group fund, contact your
financial adviser or call Delaware Group at 800-523-4640 or 215-988-1333 in
Philadelphia. Read the prospectus carefully before investing.
BE SURE TO CONSULT YOUR FINANCIAL ADVISER WHEN MAKING INVESTMENTS. MUTUAL
FUNDS CAN BE A VALUABLE PART OF YOUR FINANCIAL PLAN; HOWEVER, SHARES OF THE
FUND ARE NOT FDIC OR NCUSIF INSURED, ARE NOT GUARANTEED BY ANY CREDIT UNION OR
ANY BANK, ARE NOT OBLIGATIONS OF ANY CREDIT UNION OR ANY BANK, AND INVOLVE
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. SHARES OF THE FUND
ARE NOT BANK OR CREDIT UNION DEPOSITS.
INVESTMENT MANAGER SHAREHOLDER SERVICING,
Delaware Management Company, Inc. DIVIDEND DISBURSING
AND TRANSFER AGENT
INTERNATIONAL AFFILIATE Delaware Service Company, Inc.
Delaware International Advisers Ltd.
NATIONAL DISTRIBUTOR
Delaware Distributors, L.P.
SA-024-3/95-PP Printed in the U.S.A.
BULK RATE
U.S. POSTAGE
PAID
Permit No.145
Conshohocken, PA
DELAWARE GROUP
A TRADITION OF SOUND INVESTING SINCE 1929
(PHOTO OF U.S. COLONIAL DOCUMENTS
AND VARIOUS COLONIAL OBJECTS)
1995
SEMI-
ANNUAL
REPORT
Delaware Group
Delchester Fund
