<PAGE>
1996
Annual
Report
DELAWARE
GROUP
DELCHESTER
FUND
[PHOTO OF HISTORICAL SITES AND PLACES OF PHILADELPHIA]
A Tradition of Sound Investing Since 1929
DELAWARE
GROUP
---------
Philadelphia * London
<PAGE>
Delchester Fund
- -----------------
Investment
- -----------------
Objective
- -----------------
To seek as high a current income as is consistent with providing reasonable
safety.
[PHOTO OF HISTORICAL SITES AND PLACES OF PHILADELPHIA]
About Our Cover
- -----------------
Headquartered in Philadelphia, Pennsylvania, Delaware Group shares in the
tradition of a city built on the vision of opportunity. Amidst the city's
historic sites, symbolic of our nation's freedom and prosperity, Delaware Group
provides both individual and institutional investors with a conservative,
disciplined approach to money management.
Delaware Group
- -----------------
A Tradition of
- -----------------
Sound Investing
- -----------------
Delaware Management Company's investment experience dates back to 1929. Our
first mutual fund was established in 1938. Headquartered in Philadelphia with an
affiliate in London, Delaware manages a full range of mutual fund and annuity
investments and also offers retirement plan services. Delaware International
Advisers Ltd., our London-based international affiliate, was established in
1990.
Delaware Group manages mutual funds with the same time-tested, disciplined
strategies demanded by the large public and private pension plans, foundations
and endowments that are among our clients. With over 60 years of experience, we
have demonstrated our commitment to quality investment management and service.
Today, Delaware manages some $29 billion in mutual funds and institutional
investment advisory accounts. We measure our success by the financial success
and satisfaction of our nearly 500,000 shareholders.
<PAGE>
August 16, 1996
Dear
- -----------------
Shareholder:
- -----------------
In fiscal 1996, high-yield bonds were an oasis of relative stability in a
fixed-income market affected by the heat of higher interest rates and fear of
inflation.
Delchester Fund provided a positive total return of +8.10% for Class A
shares (capital change plus reinvested dividends at net asset value) during the
12 months ended July 31, 1996.
Last summer, your Fund's management decided to focus on securities of
relatively higher quality than many other mutual funds investing in the
high-yield, higher risk bond market. This resulted in returns that were somewhat
less than the average of our peers.
However, as you can see in the chart to the right, Delchester Fund has a
superior long-term performance record. Given the potential credit risks
associated with the high-yield market, we consider our approach a prudent way to
achieve the Fund's objective of paying high current income consistent with
reasonable safety.
For 26 years, Delaware has managed Delchester Fund through a variety of
interest rate environments, and we have learned that investing in high-yield
securities requires the stamina of a marathon runner.
This past year required your portfolio managers to adapt to rapidly
changing short-term conditions while keeping your Fund's long-term goals in
mind. Between July 1995 and January 1996, bonds rated BB, the highest credit
quality in the high-yield market, were the best performing debt category. This
reflected two developments--the Federal Reserve Board's efforts in 1995 to lower
short-term interest rates and investors' concerns about lower-rated bond
issuers' ability to pay interest and repay principal.
Beginning in February, however, the situation changed dramatically. U.S.
economic and job growth proved more robust than expectations, and the bond
market grew concerned that the Fed would raise interest rates to prevent an
upward spiral in consumer prices.
This unfavorable environment affected government and corporate bonds with
investment grade credit ratings to a much greater degree than the lower-rated,
high-yield securities that make up your Fund's portfolio. The Merrill Lynch
Corporate-Government-Mortgage Bond Index, an unmanaged amalgam of investment
grade bonds, rose just +5.48% for the 12 months ended July 31. Meanwhile, the
unmanaged Salomon Brothers Long-Term High-Yield Index rose +8.94% during the
period.
Average Annual Total Return
--------------------------------------------
12 Months 10 Years
Ended Ended
July 31, 1996 July 31, 1996
--------------------------------------------
Delchester Fund A Class +8.10% +9.49%
Lipper High Current Yield
Fund Average +9.89% +9.03%
Performance quoted above assumes reinvestment of distributions. Results of
Delchester and the Lipper Fund Average do not show the effect of sales charges.
Performance for all Fund classes can be found on page 7. The Lipper Average
consisted of 141 and 38 funds, respectively, for the 12 months and 10 years
ended July 31, 1996.
1
<PAGE>
Relative to other types of bonds, we believe the high-yield market is
well-positioned for the months ahead. In our opinion, the robust health of the
U.S. economy suggests most high-yield issuers should be able to meet their
obligations to bondholders. However, strong growth may prompt the Fed to adopt a
somewhat more restrictive monetary policy to prevent consumer prices from rising
too quickly.
Paul A. Matlack and Gerald T. Nichols, the Fund's portfolio managers,
review the Fund's performance of the past fiscal year and provide their views on
high-yield bonds and the overall fixed-income market. They explain what steps
they have taken to adjust your Fund's portfolio for the coming months.
We appreciate the fact that you have chosen to make Delchester Fund a part
of your portfolio to meet your current income or other investment needs.
Delaware Group values your continued confidence in the Fund.
Sincerely,
/s/ Wayne A. Stork
- -------------------------------
Wayne A. Stork
CHAIRMAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Portfolio
- -----------------
Managers'
- -----------------
Review
- -----------------
This past year has been a productive time for Delchester Fund and the high-yield
bond market despite the challenges posed by volatile U.S.
interest rates.
The overall high-yield bond market has grown for the fifth consecutive year
to a record $366 billion in bonds outstanding as of mid-1996, according to First
Boston. In our opinion, credit quality remains relatively strong. In fact, the
12-month default rate of high-yield bonds -- 0.17% as of June 30 -- was the
lowest in 15 years.
High-yield bonds have a substantial yield advantage, and thus income
potential, relative to comparable maturity U.S. Treasury securities. This high
interest rate generally compensates high-yield bond owners for the lower credit
quality of issuers and for the fact that their principal and interest payments
are not guaranteed by the U.S. government like Treasuries.
As of July 31, 1996, Delchester Fund's 30-day SEC yield was 9.47%, for
Class A shares, 55 basis points (0.55%) higher than the average of its peers as
compiled by Lipper Analytical Services and measured according to Securities and
Exchange Commission guidelines.
2
<PAGE>
Reflecting a relatively conservative posture, the Fund's duration, or
sensitivity to movement in interest rates, was 20% lower than the overall
high-yield market during 1996. This positioning, an effort to provide reasonable
safety of principal, contributed to Delchester's underperformance relative to
more aggressive high-yield funds.
The Fund's Investment Strategy
Since the Fund began investing in high-yield securities, we have followed a
single investment mission. Our goal has remained constant -- to provide
above-average income while maintaining a relatively conservative approach to
credit risk management.
The Fund emphasizes income as the dominant component of return, and
stresses the importance of providing reasonable safety over capital
appreciation. We strive to achieve this by investing primarily in bonds rated B
and BB, the two highest quality tiers in the high-yield market. In general, the
Fund emphasizes bonds rated B during periods of economic expansion and lower
yielding bonds rated BB during a slowdown.
Since the spring, amid signs of strong economic growth, we have increased
the Fund's holdings of bonds rated B, as shown in the chart on page 4. This
strategy has the potential to increase your Fund's investment income while
maintaining what we believe is a prudent risk profile.
Overall, the credit ratings of companies issuing high-yield bonds has
improved substantially in recent years, presenting high-yield mutual funds with
increased investment choices. We have a "quality first" philosophy when
determining which bonds to select for your Fund's portfolio that generally
includes:
* Investing in older, seasoned bonds from large companies that have a history of
meeting their obligations.
* Buying bonds of companies that issue at least $100 million worth of bonds at a
given time. This tends to show a bond issue has a high level of liquidity.
* Examining a company's financial statements and meeting with a bond issuer's
senior management at its plants and headquarters.
* An exclusive focus on bonds issued by U.S.-based companies.
During the latter half of the fiscal year, we increased our weighting of
bonds issued by cyclical companies such as paper, chemicals and steel. We
believe that since our country's economic prospects appear healthy, these bonds
offer superior income potential at an acceptable level of credit risk.
- --------------------------------------------------------------------------------
Portfolio Highlights
July 31, 1995 July 31, 1996
Yield (Class A)* 9.15% 9.47%
Average Effective Duration 3.9 years 4.0 years
Average Effective Maturity 5.6 years 5.7 years
Number of Bond Issues 105 109
* Measured according to Securities and Exchange Commission guidelines; 30-day
SEC yield as of July 31, 1996, for B and C Class shares was 9.22%. The SEC
yield of the Lipper High Current Yield Fund Average as of July 31, 1996, was
8.92%.
- --------------------------------------------------------------------------------
3
<PAGE>
Bonds Rated "B" Have Become A Larger Share of Your Fund's Portfolio
July 31, 1996 January 31, 1996
B 72% 56%
BB 12% 33%
AAA (Cash) 10% 10%
Non-Rated 6% 1%
Historically, bonds rated "B" have tended to outperform bonds rated "BB" during
periods of rising interest rates.
Source:
Solomon Brothers
To help provide reasonable safety of principal in anticipation of rising
interest rates, we reduced our holdings of zero coupon bonds during the year
from approximately 15% of your Fund's portfolio to approximately 8%. These bonds
do not pay interest but are sold at a discount to face value and are then
redeemable at face value at maturity. As such they are generally more sensitive
to changes in interest rates than bonds issued with a fixed coupon.
- --------------------------------------------------------------------------------
Credit Quality Has Improved As The
High-Yield Market Has Grown...
Market Size and Credit Quality
Bond Ratings
------------
Bonds CCC and Bonds
Outstanding BB and B in Default
1991 $220 billion 69% 31%
1996 $366 billion 97% 03%
Source: Salomon Brothers and First Boston
- --------------------------------------------------------------------------------
In fiscal 1996, merger activity involving some holdings generally had a
positive effect on the Fund. For example Transamerica, a financial services
company with an investment grade rating, agreed to acquire TRANSPORT OCEAN
CONTAINER, a shipping company whose bonds we held as of July 31. Also,
Westinghouse Electric Corp. agreed to buy INFINITY BROADCASTING CORP., another
issuer whose bonds we held during the year.
Outlook
We are optimistic about the high-yield market in the coming months because we
believe the U.S. economy may perform well, and because the relative quality of
high-yield bonds is at a historically attractive level. Under either of the most
likely economic scenarios -- accelerating or moderating growth -- we believe the
high-yield market is well-positioned relative
4
<PAGE>
In our opinion, high-yield bonds will not be as negatively affected as
government bonds if the economy remains strong and the Fed is forced to increase
its target for short-term interest rates.
[PHOTO]
Paul A. Matlack (shown at right) and Gerald T. Nichols have managed
Delchester Fund since 1990.
to government and other types of corporate bonds. In our opinion, high-yield
bonds will not be as negatively affected as government bonds if the economy
remains strong and the Fed is forced to increase its target for short-term
interest rates.
Robust corporate growth generates additional demand for capital, and in the
past year, we have seen more small and mid-size companies use the high-yield
market to raise money for expansion. Many types of investors have embraced bonds
issued by these companies -- including fixed-income mutual funds, pension funds,
insurance companies and equity-oriented mutual funds seeking to increase income
for their shareholders. This is a positive development, in our opinion, because
it indicates widespread market acceptance and greater liquidity for high-yield
securities.
Likewise, if growth remains moderate and interest rates stable or
declining, high-yield bond investors may still enjoy a more than 300 basis point
(3%) yield advantage over Treasuries. As has been the case historically, we
expect income to be the primary component of total return from high-yield bonds
in the year ahead.
Accordingly, we believe the Fund will continue to provide an attractive
option for income-oriented investors seeking a time-tested alternative to the
relatively low yields of other fixed-income securities.
/s/ Paul A. Matlack
- -----------------------------
Paul A. Matlack
Vice President
Senior Portfolio Manager
/s/ Gerald T. Nichols
- -----------------------------
Gerald T. Nichols
Vice President
Senior Portfolio Manager
August 16, 1996
5
<PAGE>
A Look at
- -----------------
Long-Term
- -----------------
Performance
- -----------------
More than half of all Delchester shareholders choose to reinvest monthly
dividends, and thus benefit from compounding. A $10,000 investment in Delchester
A Class on July 31, 1986, would have grown to $23,601 through July 31, 1996, if
dividends were continually reinvested.
On the facing page, we show how a $10,000 investment in Delchester Fund
would have grown compared to the unmanaged Salomon Brothers Long-Term High-Yield
Index and the U.S. Consumer Price Index during the past 10 years. The purchasing
power of your investment would have grown much more than the cost of living
since July 1986, although less than the index. The Salomon Index does not
reflect the "real world" costs of managing a mutual fund.
Below we illustrate your Fund's commitment to a diverse mix of bonds issued
by companies in a wide variety of industries. Your Fund was weighted slightly
more toward bonds issued by industrial businesses than the Salomon Index as of
July 31. Delchester Fund also had a lower percentage of bonds issued by
retailers, high-technology companies and airlines.
The Fund's portfolio managers consider these three sectors potentially more
volatile than companies that make consumer and industrial products. Generally,
we believed the short-term rewards offered by airline, retailer and high-tech
bonds during the past year were not worth the added risks associated with these
industries.
- --------------------------------------------------------------------------------
Your Fund's Diverse Portfolio
July 31, 1996
Cyclicals* 31.84%
Other 15.99%
Communications** 13.39%
Consumer Growth*** 13.25%
Chemicals 9.95%
Cash 9.81%
Aerospace/Defense 2.91%
Utilities 2.86%
* Paper, packaging, metals, mining, autos, textiles
** Cable, media, publishing, Telecommunications
*** Consumer products, food, health care, pharmaceuticals, leisure and
entertainment
- --------------------------------------------------------------------------------
No one industry accounted for more than 15% of your Fund's net assets as of July
31, 1996.
6
<PAGE>
- ------------------------------------------------------------------------------
A Look at Long-Term Performance
Growth of a $10,000 Investment
Delchester Fund Class A
August 1, 1986 to July 31, 1996
Salomon Brothers U.S. Consumer
High-Yield Index Delchester Fund A Price Index
July '86 $10,000 $ 9,528 $10,000
July '87 $11,155 $10,521 $10,390
July '88 $12,247 $11,654 $10,820
July '89 $13,544 $12,695 $11,358
July '90 $13,382 $12,196 $11,906
July '91 $15,078 $13,966 $12,436
July '92 $18,548 $17,310 $12,828
July '93 $21,558 $19,813 $13,184
July '94 $22,246 $20,130 $13,550
July '95 $25,464 $21,832 $13,924
July '96 $27,741 $23,601 $14,317
Chart assumes $10,000 invested on August 1, 1986, a 4.75% maximum front-end
sales charge and reinvestment of all dividends. Performance for other
Delchester Classes will vary due to differing charges and expenses.
- ------------------------------------------------------------------------------
A $10,000 investment on July 31, 1986 in Delchester Fund A would have more than
doubled in value as of July 31, 1996.
Delchester Fund Performance
Average Annual Return Through July 31, 1996
10 Years Five Years One Year
Class A (Est.1970) +8.97% +9.99% +3.02%
- ------------------------------------------------------------------------------
Lifetime
Class B (Est.1994)
Excluding Sales Charge +5.85% +7.30%
Including Sales Charge +4.70% +3.39%
- ------------------------------------------------------------------------------
Class C* (Est.1995)
Excluding Sales Charge +5.20%
Including Sales Charge +4.21%
*aggregate return through July 31, 1996
Delchester Fund invests primarily in high-yield securities, which involves
greater risks than investing in higher quality fixed-income securities. Return
and share value will fluctuate with rising and falling interest rates so that
shares when redeemed may be worth more or less than the original cost. All
results include reinvestment of distributions and sales charges as shown below.
Lifetime performance excluding sales charge assumes the investment was not
redeemed. Past performance is not a guarantee of future results.
Class A returns reflect the effect of the 4.75% maximum front-end sales charge
and a 12b-1 fee.
Class B shares do not carry a front-end sales charge, but are subject to a 1%
annual distribution and service fee. They are subject to a deferred sales charge
of up to 4% if redeemed before the end of the sixth year. Class B was initially
offered on May 2, 1994.
Class C performance is for an eight-month period and may not be representative
of longer term results. C shares have a 1% annual distribution and service fee.
If redeemed within 12 months, a 1% contingent deferred sales charge applies.
Class C was initially offered on November 29, 1995.
The average annual total returns for the 10-year, five-year and one-year periods
ended July 31, 1996, for Delchester Fund's Institutional Class, which is
available without sales or asset-based distribution charges only to certain
eligible institutional accounts, were +9.72%, +11.32% and +8.37%. The
Institutional Class was initially made available June 1, 1992; performance prior
to that date is based on A shares and is adjusted to eliminate the effect of the
front-end sales charge.
7
<PAGE>
Financial
- -----------------
Statements
- -----------------
Delaware Group
Delchester High-Yield Bond Fund, Inc.
Statement of Net Assets
July 31, 1996
Principal Market
Amount Value
CORPORATE BONDS - 88.66%
Aerospace & Defense - 2.91%
Greenwich Air Services
sr nts 10.50% 06/01/06...................... $ 8,190,000 $ 8,230,950
K & F Industries
sr sub debs 13.75% 08/01/01................. 13,571,000 14,062,949
*UNC sr sub nts 11.00% 06/01/06.............. 12,750,000 13,068,750
--------------
35,362,649
--------------
Automobiles & Automotive Parts - 4.98%
Aftermarket Technology
sr sub nts 12.00% 08/01/04.................. 10,000,000 10,837,500
*Delco Remy International
sr sub nts 10.625% 08/01/06................. 10,750,000 10,790,313
Exide
sr sub def debs 0.00%/12.25%
12/15/04.................................... 6,500,000 5,525,000
Exide
sr nts 10.00% 04/15/05...................... 2,025,000 1,999,688
Harvard Industries
sr nts 11.125% 08/01/05..................... 16,350,000 15,369,000
SPX sr sub nts 11.75% 06/01/02............... 14,935,000 15,980,450
--------------
60,501,951
--------------
Banking, Finance & Insurance - 1.15%
*Acadia Partners
sub nts 13.00% 10/01/97...................... 13,500,000 13,938,750
--------------
13,938,750
--------------
Cable, Media & Publishing - 9.26%
Adelphia Communications
sr debs 11.875% 09/15/04..................... 4,800,000 4,824,000
Adelphia Communications
sr unsec nts 12.50% 05/15/02................. 17,200,000 17,759,000
Cablevision Systems
sr sub nts 9.875% 05/15/06................... 12,500,000 12,093,750
*EchoStar Satellite Broadcasting Dish
sr disc nts 0.00% 03/15/04................... 14,500,000 9,207,500
Galaxy Telecommunication L.P.
sr sub nts 12.375% 10/01/05.................. 7,500,000 7,725,000
Marcus Cable
sr disc nts 0.00%/14.25% 12/15/05 ........... 19,200,000 12,000,000
Rogers Cablesystems
sr sec nts 10.00% 03/15/05................... 17,100,000 17,100,000
Rogers Cablesystems
sr sec nts 10.00% 12/01/07................... 8,260,000 8,115,450
<PAGE>
Principal Market
Amount Value
CORPORATE BONDS (Continued)
Cable, Media & Publishing (Continued)
Rogers Cablesystems
sr sub nts 11.00% 12/01/15................... $ 5,970,000 $ 6,104,325
Sullivan Graphics
sr sub nts 12.75% 08/01/05................... 18,300,000 17,568,000
--------------
112,497,025
--------------
Chemicals - 9.95%
Berry Plastics
sr sub nts 12.25% 04/15/04................... 11,600,000 12,513,500
*BPC Holding sr nts 12.50% 06/15/06........... 6,200,000 6,269,750
G-I Holdings sr nts 0.00% 10/01/98............ 19,177,000 15,677,198
G-I Holdings sr nts 10.00% 02/15/06........... 18,271,000 18,088,290
Harris Chemical
sr sub nts 10.75% 10/15/03................... 9,500,000 9,381,250
Interlake sr nts 12.00% 11/15/01.............. 10,600,000 11,236,000
NL Industries
sr sec nts 11.75% 10/15/03................... 7,285,000 7,430,700
NL Industries
sr sec disc nts
0.00%/13.00% 10/15/05........................ 15,400,000 11,973,500
Polymer Group sr nts 12.25% 07/15/02.......... 9,767,000 10,462,899
*Texas Petrochemical
sr sub nts 11.125% 07/01/06.................. 4,750,000 4,898,438
UCC Investors Holding
sub nts 0.00%/12.00% 05/01/05................ 15,000,000 12,918,750
--------------
120,850,275
--------------
Computers & Technology - 2.32%
Unisys nts 15.00% 07/01/97.................... 15,130,000 15,999,975
Unisys sr nts 12.00% 04/15/03................. 12,000,000 12,135,000
--------------
28,134,975
--------------
Consumer Products - 4.33%
Calmar Spraying Systems
sr sub nts 11.50% 08/15/05................... 14,500,000 14,318,750
*Remington Arms
sr sub nts 10.00% 12/01/03................... 4,100,000 3,751,500
Revlon Worldwide
sr sec disc nts 0.00% 03/15/98............... 28,000,000 23,520,000
Samsonite
sr sub nts 11.125% 07/15/05.................. 10,750,000 11,045,625
--------------
52,635,875
--------------
Electronics/Electrical Equipment - 1.81%
*IMO Industries
sr sub nts 11.75% 05/01/06................... 11,965,000 12,368,819
International Wire Group
sr sub nts 11.75% 06/01/05................... 9,500,000 9,666,250
--------------
22,035,069
--------------
Energy - 0.66%
MESA Operating
sr sub nts 10.625% 07/01/06.................. 6,500,000 6,662,500
MESA Operating
sr sub disc nts
0.00%/11.625% 07/01/06........................ 2,225,000 1,346,125
--------------
8,008,625
--------------
8
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
Environmental Services - 1.00%
*Norcal Waste Systems
sr nts 12.50% 11/15/05....................... $11,500,000 $12,161,250
--------------
12,161,250
--------------
Food, Beverage & Tobacco - 1.65%
Specialty Foods
sr nts 11.25% 08/15/03....................... 11,950,000 10,351,688
TLC Beatrice International Holdings
sr nts 11.50% 10/01/05....................... 9,500,000 9,713,750
--------------
20,065,438
--------------
Healthcare & Pharmaceuticals - 3.67%
*Dade International
sr sub nts 11.125% 05/01/06.................. 10,425,000 10,920,188
Dynacare sr nts 10.75% 01/15/06............... 9,750,000 9,774,375
IVAC sr nts 9.25% 12/01/02.................... 6,565,000 6,606,031
*Maxxim Medical
sr sub nts 10.50% 08/01/06................... 4,750,000 4,803,438
Owens & Minor
sr sub nts 10.875% 06/01/06.................. 12,000,000 12,420,000
--------------
44,524,032
--------------
Industrial Machinery - 1.70%
Alvey Systems
sr sub nts 11.375% 01/31/03.................. 5,750,000 5,936,875
*Terex units 13.75% 05/15/02.................. 13,800,000 14,766,000
--------------
20,702,875
--------------
Leisure, Lodging & Entertainment - 3.60%
*AMF Group
sr disc nts
0.00%/12.25% 03/15/06......................... 13,000,000 7,410,000
*AMF Group
sr sub nts 10.875% 03/15/06.................. 9,500,000 9,500,000
*Argosy Gaming
mtg nts 13.25% 06/01/04...................... 9,500,000 9,120,000
*ElDorado Resorts LLC
sr sub nts 10.50% 08/15/06................... 3,800,000 3,809,500
Trump-Atlantic City
mtg nts 11.25% 05/01/06...................... 14,200,000 13,880,500
--------------
43,720,000
--------------
Metals & Mining - 7.07%
Algoma Steel
mtg nts 12.375% 07/15/05...................... 14,600,000 14,454,000
*BAR Technologies
units 13.50% 04/01/01......................... 4,000,000 4,120,000
G.S.Technologies
sr nts 12.00% 09/01/04....................... 11,500,000 11,816,250
G.S.Technologies
sr nts 12.25% 10/01/05....................... 9,450,000 9,757,125
Kaiser Aluminum & Chemical
sr sub nts 12.75% 02/01/03................... 9,600,000 10,056,000
MAXXAM Group
sr sec nts 11.25% 08/01/03................... 12,250,000 12,311,250
NS Group units 13.50% 07/15/03................ 9,600,000 9,408,000
<PAGE>
Principal Market
Amount Value
CORPORATE BONDS (Continued)
Metals & Mining (Continued)
Oregon Steel Mills
mtg nts 11.00% 06/15/03...................... $ 2,250,000 $ 2,356,875
Renco Metals
sr nts 11.50% 07/01/03....................... 7,900,000 8,137,000
*Weirton Steel sr nts 11.375% 07/01/04........ 3,600,000 3,492,000
--------------
85,908,500
--------------
Packaging & Containers - 5.54%
Gaylord Container
sr nts 11.50% 05/15/01....................... 10,775,000 11,098,250
Gaylord Container
sr sub disc debs
0.00%/12.75% 05/15/05......................... 9,500,000 10,141,250
Ivex Packaging
sr sub nts 12.50% 12/15/02................... 15,740,000 16,487,650
Silgan Holdings
sr disc debs 0.00%/13.25% 12/15/02........... 7,905,000 7,984,050
Stone Container
sr nts 11.50% 10/01/04....................... 9,750,000 9,957,188
Stone Container
sr nts 11.875% 12/01/98...................... 4,750,000 4,987,500
*Stone Container
sr nts 11.875% 08/01/16...................... 6,500,000 6,678,750
--------------
67,334,638
--------------
Paper & Forest Products - 7.84%
Crown Paper
sr sub nts 11.00% 09/01/05................... 9,875,000 9,529,375
*Florida Coast Paper LLC
mtg nts 12.75% 06/01/03....................... 9,500,000 9,975,000
*Four M
sr nts 12.00% 06/01/06....................... 14,225,000 14,616,188
Pacific Lumber sr nts 10.50% 03/01/03......... 15,000,000 14,643,750
Repap Wisconsin
sr nts 9.875% 05/01/06....................... 10,000,000 9,162,500
Riverwood International
unsec sr sub nts 10.875% 04/01/08............ 16,750,000 16,456,875
S.D. Warren
sr sub nts 12.00% 12/15/04................... 19,600,000 20,825,000
--------------
95,208,688
--------------
Retail - 3.59%
Fleming sr nts 10.625% 12/15/01............... 9,145,000 8,207,638
*Hills Stores sr nts 12.50% 07/01/03.......... 2,000,000 1,800,000
Jitney-Jungle Stores
sr nts 12.00% 03/01/06....................... 12,000,000 12,480,000
Penn Traffic
sr sub nts 9.625% 04/15/05................... 4,750,000 3,586,250
Penn Traffic sr nts 10.65% 11/01/04........... 9,000,000 8,212,500
Ralph's Grocery
sr sub nts 13.75% 06/15/05................... 8,982,000 9,296,370
--------------
43,582,758
--------------
Telecommunications - 4.13%
Dictaphone
sr sub nts 11.75% 08/01/05................... 9,800,000 9,322,250
9
<PAGE>
Statement of Net Assets (Continued)
Principal Market
Amount Value
CORPORATE BONDS (Continued)
Telecommunications (Continued)
*Intermedia Capital Partners
sr nts 11.25% 08/01/06....................... $ 9,500,000 $ 9,535,625
Pronet sr sub nts 11.875% 06/15/05............ 6,200,000 6,045,000
Teleport Communications
sr nts 9.875% 07/01/06....................... 9,500,000 9,191,250
Teleport Communications
sr disc nts 0.00%/7.125% 07/01/07............ 28,900,000 16,039,500
--------------
50,133,625
--------------
Textiles & Furniture - 3.84%
*Clark-Schwebel sr nts 10.50% 04/15/06........ 7,975,000 8,214,250
Foamex L.P.
sr sub debs 11.875% 10/01/04................. 13,200,000 13,678,500
*Lifestyle Furnishings
sr sub nts 10.875% 08/01/06.................. 16,500,000 16,500,000
US Leather sr nts 10.25% 07/31/03............. 9,750,000 8,190,000
--------------
46,582,750
--------------
Transportation & Shipping - 1.75%
Alamo Rent-A-Car
sr nts 11.75% 01/31/06....................... 10,500,000 10,959,375
Transport Ocean Container
sr sub nts 12.25% 07/01/04................... 8,900,000 10,324,000
--------------
21,283,375
--------------
Utilities - 2.86%
AES sr sub nts 10.25% 07/15/06................ 11,250,000 11,278,125
*Calpine sr nts 10.50% 05/15/06............... 10,000,000 10,000,000
Midland II Funding
debs 13.25% 07/23/06......................... 12,250,000 13,398,438
--------------
34,676,563
--------------
Miscellaneous - 3.05%
Coinmach sr nts 11.75% 11/15/05............... 14,500,000 15,243,125
Jordan Industries
sr sec nts 10.375% 08/01/03.................. 10,700,000 10,272,000
*Pierce Leahy
sr sub nts 11.125% 07/15/06.................. 11,250,000 11,573,438
--------------
37,088,563
--------------
Total Corporate Bonds
(cost $1,066,197,422)......................... 1,076,938,249
---------------
U.S. TREASURY OBLIGATIONS - 9.81%
U.S. Treasury Notes 8.50% 04/15/97............ 116,941,000 119,107,917
---------------
Total U.S. Treasury Obligations
(cost $119,299,203).......................... 119,107,917
---------------
Number of
Shares
PREFERRED STOCK - 1.26%
El Paso Electric pik 11.40% 02/01/08.......... 45,000 4,680,000
*Silgan Holdings pik 13.25% 07/15/06......... 5,500 5,610,000
**Supermarkets General $3.52 pfd.............. 200,000 5,000,000
--------------
Total Preferred Stock
(cost $15,107,800)............................ 15,290,000
--------------
<PAGE>
Number of Market
Shares Value
CONVERTIBLE PREFERRED STOCK - 0.80%
Pantry Pride $14.875 cv pfd................... 97,500 $ 9,737,813
--------------
Total Convertible Preferred Stock
(cost $10,237,500)............................ 9,737,813
--------------
STOCK WARRANTS - 0.04%
**Berry Plastic.............................. 13,135 522,116
--------------
Total Stock Warrants (cost $104,400) 522,116
--------------
TOTAL MARKET VALUE OF SECURITIES - 100.57%
(cost $1,210,946,325)......................... 1,221,596,095
LIABILITIES NET OF RECEIVABLES
AND OTHER ASSETS - (0.57)%.................... (6,924,886)
--------------
NET ASSETS APPLICABLE TO 158,516,786
DELCHESTER FUND A CLASS, 28,688,738
DELCHESTER FUND B CLASS, 806,188
DELCHESTER FUND C CLASS AND 9,686,281
DELCHESTER FUND INSTITUTIONAL CLASS SHARES
($1 PAR VALUE) OUTSTANDING; EQUIVALENT TO
$6.14 PER SHARE - 100.00%..................................... $1,214,671,209
==============
COMPONENTS OF NET ASSETS AT JULY 31, 1996:
Capital Stock, $1 par value, 500,000,000 shares
authorized to the Fund with 350,000,000 shares
allocated to Delchester Fund A Class, 50,000,000
shares allocated to Delchester Fund B Class,
50,000,000 shares allocated to Delchester Fund C
Class and 50,000,000 shares allocated to
Delchester Fund Institutional Class .......................... $1,445,459,515
Accumulated undistributed:
Net investment income......................................... 307,327
Net realized loss on investments.............................. (241,745,403)
Net unrealized appreciation of investments.................... 10,649,770
---------------
Total net assets............................................... $1,214,671,209
==============
- --------------------
* 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.
** Non-income producing security for the year ended July 31,1996.
Summary of Abbreviations:
cv - convertible nts - notes
debs - debentures pfd - preferred
def - deferred pik - pay-in-kind
disc - discount sec - secured
frn - floating rate notes sr - senior
jr - junior sub - subordinated
mtg - mortgage unsec - unsecured
See accompanying notes
<PAGE>
Delaware Group
Delchester High-Yield Bond Fund, Inc.
Statement of Operations
Year Ended July 31, 1996
INVESTMENT INCOME:
Interest...................................... $132,605,246
Dividends..................................... 1,550,788 $134,156,034
------------
EXPENSES:
Management fees ($6,921,586) and
directors' fees ($24,237).................... 6,945,823
Distribution expenses......................... 3,960,868
Dividend disbursing and transfer
agent fees and expenses...................... 1,574,225
Salaries...................................... 302,666
Reports and statements to shareholders 188,155
Registration fees............................. 92,000
Professional fees............................. 54,464
Taxes (other than taxes on income) 22,725
Other......................................... 93,247 13,234,173
------------ ------------
NET INVESTMENT INCOME......................... 120,921,861
------------
NET REALIZED GAIN AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized gain from investment
transactions................................. 1,187,422
Net unrealized depreciation of
investments during the period (28,027,547)
------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS.......................... (26,840,125)
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 94,081,736
============
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
FOR THE DELCHESTER FUND A CLASS - July 31, 1996:
Net asset value per share (A)................................... $6.14
Sales charge (4.75% of offering price or 5.05% of amount invested
per share)(B).................................................. .31
------------
Offering price.................................................. $6.45
============
- --------------------
(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 Purchasing Shares in the current Prospectus for purchases of $100,000 or
more for Delchester Fund A Class.
See accompanying notes
<PAGE>
Delaware Group
Delchester High-Yield Bond Fund, Inc.
Statement of Changes in Net Assets
Year Ended Year Ended
7/31/96 7/31/95
OPERATIONS:
Net investment income. . $120,921,861 $120,365,795
Net realized gain (loss) from investment
transactions................................. 1,187,422 (87,627,487)
Net unrealized appreciation (depreciation)
during the period............................ (28,027,547) 62,149,528
------------ ------------
Net increase in net assets resulting from
operations................................... 94,081,736 94,887,836
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM NET INVESTMENT INCOME:
Delchester Fund A Class....................... (100,800,197) (106,358,471)
Delchester Fund B Class....................... (13,336,513) (6,897,786)
Delchester Fund C Class....................... (145,007) --
Delchester Fund Institutional Class........... (6,332,817) (7,492,250)
------------ ------------
(120,614,534) (120,748,507)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
Delchester Fund A Class 182,180,243 244,651,020
Delchester Fund B Class 88,879,473 97,174,674
Delchester Fund C Class 5,408,360 --
Delchester Fund Institutional Class 33,198,797 93,277,438
Net asset value of shares issued upon
reinvestment of dividends from net
investment income:
Delchester Fund A Class 49,169,956 51,650,920
Delchester Fund B Class 5,253,012 2,782,355
Delchester Fund C Class 106,355 --
Delchester Fund Institutional Class 5,385,495 5,760,633
-------------- --------------
369,581,691 495,297,040
-------------- --------------
Cost of shares repurchased:
Delchester Fund A Class (256,308,765) (234,810,778)
Delchester Fund B Class (26,555,455) (10,542,001)
Delchester Fund C Class (514,240) --
Delchester Fund Institutional Class (39,364,486) (106,185,449)
-------------- --------------
(322,742,946) (351,538,228)
-------------- --------------
Increase in net assets derived from
capital share transactions 46,838,745 143,758,812
-------------- --------------
NET INCREASE IN NET ASSETS 20,305,947 117,898,141
-------------- --------------
NET ASSETS:
Beginning of period. . . . 1,194,365,262 1,076,467,121
-------------- --------------
End of period (including undistributed
net investment income of $307,327
and $-0-, respectively) $1,214,671,209 $1,194,365,262
============== ==============
See accompanying notes
<PAGE>
Delaware Group
Delchester High-Yield Bond Fund, Inc.
Notes to Financial Statements
July 31, 1996
Delaware Group Delchester High-Yield Bond Fund, Inc. (the "Fund") is
registered as a diversified open-end investment company under the
Investment Company Act of 1940, as amended. The Fund is organized as a
Maryland corporation. The Fund offers four classes of shares.
The investment objective of the Fund is to seek as high a current income as is
consistent with providing reasonable safety.
1. Significant Accounting Policies
The following accounting policies are in accordance with generally accepted
accounting principles and are consistently followed by the Fund:
Security Valuation - Securities listed on an exchange are valued at the last
quoted sales price as of 4:00 p.m. E.S.T. on the valuation date. Securities not
traded or not listed on an exchange are valued at the mean of the last quoted
bid and asked prices. Long-term debt securities are valued by an independent
pricing service and 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.
Federal Income Taxes - The 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 is required in the financial
statements.
Repurchase Agreements - The Fund may invest in a pooled cash account along with
other members of the Delaware Group of Funds. The aggregate daily balance of the
pooled cash account is invested in repurchase agreements secured by obligations
of the U.S. government. The respective collateral is held by the Fund's
custodian bank until the maturity of the respective repurchase agreements. Each
repurchase agreement is a least 100% collateralized. However, in the event of
default or bankruptcy by the counterparty to the agreement, realization of the
collateral may be subject to legal proceedings.
Class Accounting - Expenses directly attributable to a class are charged to that
class. Other common expenses are prorated between all classes of the Fund.
Other - Expenses common to all funds within the Delaware Group of Funds are
allocated amongst the funds on the basis of average net assets. Security
transactions are recorded on the date the securities are purchased or sold
(trade date). Costs used in calculating realized gains and losses on the sale of
investment securities are those of the specific securities sold. Interest income
is recorded on an accrual basis. Original issue discounts are accreted to
interest income over the lives of the respective securities. The Fund declares
dividends daily from net investment income and pays such dividends monthly.
Certain fund expenses are paid directly by brokers. The amount of these expenses
was less than 0.01% of the Fund's average net assets.
2. Investment Management and Distribution Agreements
In accordance with the terms of the Investment Management Agreement, the Fund
pays Delaware Management Company, Inc. (DMC), the Investment Manager of the
Fund, 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 fees
paid to the independent directors. At July 31, 1996, the Fund had a liability
for Investment Management fees and other expenses payable to DMC of $20,198.
Pursuant to the Distribution Agreement, the 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 and 1.00% of the
average daily net assets of the B Class and C Class. No distribution expenses
are paid by the Institutional Class. At July 31, 1996, the Fund had a liability
for distribution fees and other expenses payable to DDLP of $69,156. For the
year ended July 31, 1996, the Fund paid DDLP $527,020 for commissions earned on
sales of Delchester Fund A Class shares.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to serve as dividend disbursing and transfer agent for the Fund. For the year
ended July 31, 1996, the Fund expensed $1,574,225 for these services. At July
31, 1996, the Fund had a liability for such fees and other expenses payable to
DSC of $17,205.
Certain officers of DMC are officers, directors and/or employees of the Fund.
These officers, directors and employees are paid no compensation by the Fund.
<PAGE>
Notes to Financial Statements (continued)
3. Investments
During the year ended July 31, 1996, the Fund made purchases of $1,203,422,134
and sales of $1,215,623,723 of investment securities other than direct U.S.
government securities and temporary cash investments.
At July 31, 1996, the aggregate cost of securities for federal income tax
purposes was $1,211,354,396.
At July 31, 1996, net unrealized appreciation for federal income tax purposes
aggregated $10,241,699 of which $22,195,028 related to unrealized appreciation
of securities and $11,953,329 related to unrealized depreciation of securities.
The realized gain for federal income tax purposes was $1,542,992 for the year
ended July 31, 1996. For federal income tax purposes, the Fund had accumulated
capital losses at July 31, 1996 of $238,687,000 which may be carried forward and
applied against future capital gains. The capital loss carryforward expires as
follows: 1998 - $58,204,000, 1999 - $89,261,000, 2002 - $3,628,000 and 2003 -
$87,594,000.
4. Capital Stock
Transactions in capital stock shares were as follows:
Year Ended Year Ended
7/31/96 7/31/95
Shares sold:
Delchester Fund A Class. . 29,345,150 39,583,037
Delchester Fund B Class. . 14,310,890 15,685,814
Delchester Fund C Class. . 872,689 --
Delchester Fund Institutional Class 5,337,336 15,030,853
Shares issued upon reinvestment of dividends
from net investment income:
Delchester Fund A Class. . 7,914,017 8,345,378
Delchester Fund B Class. . 846,254 449,795
Delchester Fund C Class. . 17,233 --
Delchester Fund Institutional Class 858,905 931,569
----------- -----------
59,502,474 80,026,446
----------- -----------
Shares repurchased:
Delchester Fund A Class. . (41,237,430) (37,892,161)
Delchester Fund B Class. . (4,275,449) (1,704,030)
Delchester Fund C Class. . (83,734) --
Delchester Fund Institutional Class (6,338,631) (17,158,023)
----------- -----------
(51,935,244) (56,754,214)
----------- -----------
Net increase. . . . . . . . . . . . . 7,567,230 23,272,232
=========== ===========
5. Lines of Credit
The Fund has a committed line of credit for $20,000,000. No amount was
outstanding at July 31, 1996 or at any time during the fiscal year.
6. Concentration of Credit Risk
The Fund invests in high-yield fixed income securities which carry ratings of BB
or lower by Standard & Poors and/or Ba or lower by Moody's. Investments in these
higher yielding securities may be accompanied by a greater degree of credit risk
than higher rated securities. Additionally, lower-rated securities may be more
susceptible to adverse economic and competitive industry conditions than
investment grade securities.
The Fund may invest up to 10% of its total assets in illiquid securities which
include securities with contractual restrictions on resale, securities exempt
from registration under Rule 144A of the Securities Act of 1933, as amended, and
other securities which may not be readily marketable. The relative illiquidity
of some of these securities may adversely affect the Fund's ability to dispose
of such securities in a timely manner and at a fair price when it is necessary
to liquidate such securities. These securities that are exempt from registration
under rule 144A have been denoted in the Statement of Net Assets. Of these
securities, none have been determined to be illiquid.
<PAGE>
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
----------------------------------------------
Year Ended July 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period... $6.280 $6.450 $7.070 $6.900 $6.260
Income from investment operations:
Net investment income.................. 0.628 0.668 0.744 0.774 0.781
Net realized and unrealized gain
(loss) from security transactions...... (0.141) (0.167) (0.618) 0.165 0.640
------ ------ ------ ------ ------
Total from investment operations....... 0.487 0.501 0.126 0.939 1.421
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income... (0.627) (0.671) (0.746) (0.769) (0.781)
Distributions from net realized
gain on security transactions.......... none none none none none
------ ------ ------ ------ ------
Total distributions.................... (0.627) (0.671) (0.746) (0.769) (0.781)
------ ------ ------ ------ ------
Net asset value, end of period......... $6.140 $6.280 $6.450 $7.070 $6.900
====== ====== ====== ====== ======
Total return(1)........................ 8.10% 8.46% 1.60% 14.46% 23.94%
Ratios/supplemental data:
Net assets, end of period
(000 omitted).......................... $973,939 $1,020,763 $983,569 $955,113 $760,290
Ratio of expenses to average
net assets............................. 1.02% 1.09% 1.05% 1.04% 1.08%
Ratio of net investment income
to average net assets.................. 10.11% 10.77% 10.48% 11.17% 11.58%
Portfolio turnover..................... 108% 92% 92% 72% 101%
</TABLE>
- --------------------
1 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.
<PAGE>
Notes to Financial Statements (Continued)
7. Financial Highlights (Continued)
Selected data for each share of the Fund outstanding throughout each period were
as follows:
<TABLE>
<CAPTION>
Delchester
Delchester Fund Fund Delchester Fund
B Class C Class Institutional Class
------------------------------- ---------- ------------------------------------------
Period Period
5/2/94(2) 11/29/95(5)
Year Ended July 31, to to Year Ended July 31,
1996 1995 7/31/94 7/31/96 1996 1995 1994 1993 1992(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $6.280 $6.450 $6.730 $6.210 $6.280 $6.450 $7.070 $6.900 $6.260
Income from investment operations:
Net investment income. 0.581 0.624 0.120 0.385 0.644 0.685 0.758 0.787 0.798
Net realized and unrealized gain
(loss) from security transactions (0.141) (0.170) (0.280) (0.069) (0.142) (0.169) (0.617) 0.165 0.640
------ -------- -------- ------- ------ ------ ------ ------ ------
Total from investment operations 0.440 0.454 (0.160) 0.316 0.502 0.516 0.141 0.952 1.438
------ -------- -------- ------- ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income. . . . . . . . . . . . . . . . (0.580) (0.624) (0.120) (0.386) (0.642) (0.686) (0.761) (0.782) (0.798)
Distributions from net realized gain on
security transactions. none none none none none none none none none
------ -------- -------- ------- ------ ------ ------ ------ ------
Total distributions. . . (0.580) (0.624) (0.120) (0.386) (0.642) (0.686) (0.761) (0.782) (0.798)
------ -------- -------- ------- ------ ------ ------ ------ ------
Net asset value, end of period $6.140 $6.280 $6.450 $6.140 $6.140 $6.280 $6.450 $7.070 $6.900
====== ======== ======== ======= ====== ====== ====== ====== ======
Total return (1). . . . . . . . . . 7.30%(3) 7.64%(3) 4 5.20%(3) 38.37% 8.72% 1.82% 14.67% 24.28%
Ratios/supplemental data:
Net assets, end of period
(000 omitted). . . . . . . . . $176,266 $111,860 $21,776 $4,953 $59,513 $61,742 $71,122 $35,909 $18,746
Ratio of expenses to average
net assets. . . . . . . . . . . . 1.77% 1.82% 1.83% 1.77% 0.77% 0.82% 0.83% 0.86% 0.86%
Ratio of net investment income to
average net assets. . . . 9.36% 10.14% 9.70% 9.36% 10.36% 11.14% 10.70% 11.35% 12.17%
Portfolio turnover. . . . 108% 92% 92% 108% 108% 92% 92% 72% 101%
</TABLE>
- --------------------
1 The per share data of 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 $0.047 and $0.666, respectively. For the two months ended
July 31, 1992, the Delchester Fund Institutional Class' operating expenses
and net investment income per share were $0.009 and $0.132, respectively.
All net investment income was distributed to shareholders.
2 Date of initial public offering. Ratios have been annualized.
3 Does not include the contingent deferred sales charge which varies from
1%-4% for B Class and 1% for C Class, depending upon the holding period.
4 Total return has been omitted as management believes that such information
for this relatively short period is not meaningful.
5 Date of initial public offering. Ratios have been annualized and total
return has not been annualized.
<PAGE>
Delaware Group Delchester High-Yield Bond Fund, Inc.
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Delchester High-Yield Bond Fund, Inc.
We have audited the accompanying statement of net assets of Delaware Group
Delchester High-Yield Bond Fund, Inc. (the "Fund")as of July 31, 1996, and the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund'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. Our procedures included confirmation of securities owned as of July
31, 1996, 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
Delaware Group Delchester High-Yield Bond Fund, Inc. at July 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
September 6, 1996
<PAGE>
This 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 for Delchester Fund, which sets forth details about charges,
expenses, investment objectives and operating policies of the Fund. You should
read the prospectus carefully before you invest. Summary investment results are
documented in the Fund's current Statement of Additional Information. The
figures in this report represent past results which are not a guarantee of
future results. The return and principal value of an investment in the Fund will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- --------------------------------------------------------------------------------
Board
- --------------------
Members
- --------------------
Wayne A. Stork
Chairman, President and Chief Executive Officer
Delaware Group of Funds
Philadelphia, PA
Walter P. Babich
Board Chairman, Citadel Constructors, Inc.
King of Prussia, PA
Anthony D. Knerr
Consultant, Anthony Knerr & Associates
New York, NY
Ann R. Leven
Treasurer, National Gallery of Art
Washington, DC
W. Thacher Longstreth
Vice Chairman, Packquisition Corp.
Philadelphia, PA
Charles E. Peck
Secretary of Enterprise Homes, Inc.
Fredericksburg, VA
former Chairman and CEO
The Ryland Group, Inc.
Columbia, MD
Affiliated
- --------------------
Officers
- --------------------
George M. Chamberlain, Jr.
Senior Vice President and Secretary,
Delaware Group of Funds
Philadelphia, PA
Keith E. Mitchell
President and CEO,
Delaware Distributors, L.P.
Philadelphia, PA
David K. Downes
Senior Vice President, Chief Financial Officer and
Chief Administrative Officer
Delaware Group of Funds
Philadelphia, PA
<PAGE>
Delaware Group
- --------------------
of Funds
- --------------------
For Growth of Capital
Trend Fund
Enterprise Fund
DelCap Fund
Value Fund
U.S. Growth Fund
For Total Return
Devon Fund
Decatur Total Return Fund
Decatur Income Fund
Delaware Fund
For Global Diversification
Emerging Markets Fund
New Pacific Fund
World Growth Fund
International Equity Fund
Global Assets Fund
Global Bond Fund
For Current Income
Delchester Fund
Corporate Income Fund
Federal Bond Fund
U.S. Government Fund
Limited-Term Government Fund
For Tax-Free Current Income
Tax-Free Pennsylvania Fund
Tax-Free USA Fund
Tax-Free Insured Fund
Tax-Free USA Intermediate Fund
Money Market Funds
Delaware Cash Reserve
U.S. Government Money Fund
Tax-Free Money Fund
Closed-End Equity/Income*
Dividend and Income Fund
Global Dividend and Income Fund
This report must be preceded or accompanied by a current Delchester Fund
prospectus and the Delaware Group Fund Performance Update for the most recently
completed calendar quarter. For a prospectus of any other Delaware Group fund,
contact your financial adviser or Delaware Group.
* Delaware Group Dividend and Income Fund and Delaware Group Global
Dividend and Income Fund purchases can be made through any registered
broker.
DELAWARE
GROUP
- ---------
Philadelphia * London
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Be sure to consult your financial adviser when making investment decisions.
Mutual funds can be a valuable part of your financial plan; however, shares of
the Delchester Fund are not FDIC or NCUSIF insured, are not guaranteed by any
bank or any credit union, are not obligations of or deposits of any bank or any
credit union, and involve investment risk, including the possible loss of
principal. Shares of the Fund are not bank or credit union deposits.
Investment Manager
Delaware Management Company, Inc.
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
Nationwide (800) 523-4640
Securities Dealers Only
Nationwide (800) 362-7500
Financial Institutions Representatives Only
Nationwide (800) 659-2265
Copy Rights Delaware Distributors, L.P.
Printed in the U.S.A. on recycled paper.
AR-024[7/96]TKO9/961996
