<PAGE>
September 26, 1997
Dear Shareholder:
We are pleased to present the inaugural annual report for Delaware
Group's High-Yield Opportunities Fund.
Your Fund provided a total return of +10.81% (capital change plus
reinvested dividends at net asset value) for the period ended July 31, 1997 for
both A and Institutional Classes. With continuous reinvestment, a $10,000
investment at inception would have grown to $11,077 as of the fiscal year's end,
excluding sales charges described on the next page.
Our focus on bonds of established domestic companies and careful credit
analysis helped the Fund outperform its unmanaged benchmark - the Salomon
Brothers High-Yield Bond Index and the average of its peers in the Lipper High
Current Yield Fund Average, as shown on the next page.
Since the Fund's inception on December 30, 1996, high-yield bonds have
enjoyed a very favorable market climate. The default rate of higher risk,
high-yield bonds dropped to 0.83%, the lowest level since 1981. Demand for
high-yield bonds among investors was strong. Consumer and producer price
increases were benign. U.S. economic growth surged ahead at a 5.9% rate, which
helped highly leveraged companies meet their obligations to bondholders.
Strategic Positioning & Outlook
During the year, the Fund benefited from its investments in new bond
issues, which offered both attractive income and relative safety of principal.
As of July 31, the difference in yield between higher risk corporate bonds and
U.S. Treasuries was approximately 250 basis points, near the lowest on record.
We expect this trend to continue because of the overall soundness of the U.S.
economy and the lack of any apparent factors that would increase defaults.
We limited purchases of bonds in sectors where we believe business
prospects are unclear such as emerging technologies and airlines. We increased
your Fund's income potential by investing in Rule 144A bonds, which generally
offered more yield potential than bonds with similar credit risk.
In our opinion, an important catalyst for high-yield bond demand in
fiscal 1997 was the increasing volatility of both the stock and investment-grade
bond markets. In our view, investors are increasingly embracing the notion that
high-yield bonds can be a defensive investment under certain market conditions.
Two factors suggest the high-yield market's supply-demand dynamics are
likely to remain healthy in the coming months:
o Investors' purchasing behavior has been prudent, perhaps more so than in some
parts of the equity market. During the second calendar quarter of 1997, some
companies were forced to scrub plans to issue some very low quality bonds
after their plans met with unfavorable investor response; and,
o Many new high-yield bonds coming to market are simply refinancings of existing
high-yield debt. Investors who purchased the original high-yield debt often
provide much of the demand for new issues.
Delaware is considering making High-Yield Opportunities Fund available
nationwide next year, after the Fund compiles a one-year track record. As of
July 31, the Fund had $9.3 million in net assets, ten A class shareholders and
four institutional shareholders.
/s/ Wayne A. Stork
- -----------------------------------------------
Wayne A. Stork
Chairman, President and Chief Executive Officer
/s/ Paul A. Matlack and Gerald T. Nichols
- -----------------------------------------------
Paul A. Matlack and Gerald T. Nichols
Senior Portfolio Managers
<PAGE>
High-Yield Opportunities Fund Performance
Growth of a $10,000 Investment
Cumulative Total Return (December 30, 1996 to July 31, 1997)
High-Yield Opportunities Fund (A and Institutional Classes)
Lipper Current High-Yield Fund Average (199 Funds)
Salomon Brothers High-Yield Bond Index
<TABLE>
<CAPTION>
High-Yield High-Yield Lipper High Current Salomon Brothers
Opportunities Fund Opportunities Fund Yield Fund Average High-Yield Bond Index
(A & Institutional Classes, (A Class, including
excluding sales charge) sales charge) (199 Funds)
<S> <C> <C> <C> <C>
12/20/96 $10,000 $10,000 $10,000 $10,000
1/31/97 $10,200 $9,716 $10,111 $10,075
2/28/97 $10,472 $9,975 $10,287 $10,247
3/31/97 $10,272 $9,785 $10,074 $10,141
4/30/97 $10,325 $9,837 $10,159 $10,214
5/31/97 $10,693 $10,187 $10,429 $10,420
6/30/97 $10,901 $10,384 $10,603 $10,596
7/31/97 $11,077 $10,551 $10,889 $10,857
</TABLE>
Chart assumes $10,000 invested on December 30, 1996 at net asset value and
reinvestment of all distributions. The maximum sales charge for A Class shares
is 4.75%. Shares may be purchased at net asset value under certain
circumstances. Class A shares have a 12b-1 fee of 0.30% that has been waived
since inception. A voluntary expense cap of 0.75% has been in effect. The
Salomon Brothers High-Yield Bond Index is unmanaged.
High-Yield Opportunities Fund Performance
Cumulative Total Return (December 30, 1996 To July 31, 1997)
Lifetime
Class A
Excluding Sales Charge +10.81%
Including Sales Charge +5.62%
Institutional Class +10.81%
High-Yield Opportunities 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. Past performance is not a
guarantee of future results.
<PAGE>
Delaware Group Income Funds, Inc.
High-Yield Opportunities Fund
Statement of Net Assets
July 31, 1997
<TABLE>
<CAPTION>
Principal Market
Amount Value
------------- -------------
<S> <C> <C> <C>
Corporate Bonds - 95.41%
Aerospace And Defense - 3.04%
Roller Bearing sr sub nts
9.63% 06/15/07 . . . . . . . . . $ 275,000 $ 283,250
-------------
283,250
-------------
Automobile & Auto Equipment - 8.48%
CSK Auto sr sub nts
11.00% 11/01/06 . . . . . . . . . 100,000 106,750
Key Plastics sr sub nts
10.25% 03/15/07 . . . . . . . . . 250,000 262,812
Motors and Gears sr sub nts
10.75% 11/15/06 . . . . . . . . . 400,000 421,000
-------------
790,562
-------------
Banking, Finance & Insurance - 3.09%
Cityscape Financial sr nts
12.75% 06/01/04 . . . . . . . . . 300,000 288,000
-------------
288,000
-------------
Building & Materials - 7.70%
Atrium sr sub nts
10.50% 11/15/06 . . . . . . . . . 350,000 362,250
Collins & Aikman sr sub nts
10.00% 01/15/07 . . . . . . . . . 350,000 355,250
-------------
717,500
-------------
Chemicals - 3.82%
Hydrochem Industrial sr sub nts
10.38% 08/01/07 . . . . . . . . . 350,000 356,125
-------------
356,125
-------------
Computer & Technology - 6.23%
Decisionone sr sub nts
9.75% 08/01/07 . . . . . . . . 200,000 204,960
Decisionone Holdings Units
11.50% 08/01/08 . . . . . . . . 200,000 119,000
Precise Technology sr sub nts
11.13% 06/15/07 . . . . . . . . 250,000 256,875
-------------
580,835
-------------
Consumer Products - 7.51%
Consumers International sr nts
10.25% 04/01/05 . . . . . . . . 275,000 292,187
Pen-Tab Industries sr sub nts
10.88% 02/01/07 . . . . . . . . 400,000 408,000
-------------
700,187
-------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
------------- -------------
<S> <C> <C>
Electronics & Electrical Equipment - 4.91%
Electronic Retailing Systems sr disc nts
15.60% / 13.25% 02/01/04 . . . . . . . . $ 300,000 $ 192,000
HCC Industries sr sub nts
10.75% 05/15/07 . . . . . . . . 250,000 265,938
-------------
457,938
-------------
Food, Beverage & Tobacco - 4.18%
AFC Enterprises sr sub nts
10.25% 05/15/07 . . . . . . . . 75,000 78,375
CFP Holdings sr nts
11.63% 01/15/04 . . . . . . . . 300,000 311,250
-------------
389,625
-------------
Government Agency - 3.32%
Government National Mortgage Association
9.63% 03/01/07 . . . . . . . . 300,000 309,750
-------------
309,750
-------------
Healthcare & Pharmaceuticals - 8.07%
Integrated Health Services sr sub nts
9.50% 09/15/07 . . . . . . . . 150,000 159,000
Leiner Health Products sr sub nts
9.63% 07/10/07 . . . . . . . . 275,000 286,000
Packard Bioscience sr sub nts
9.38% 03/01/07 . . . . . . . . 300,000 306,750
-------------
751,750
-------------
Industrial Machinery - 5.54%
American Builders & Contractors sr sub nts
10.63% 05/15/07 . . . . . . . . 250,000 261,563
Derlan Manufacturing sr nts
10.00% 01/15/07 . . . . . . . . 250,000 255,000
-------------
516,563
-------------
Leisure, Lodging & Entertainment - 9.28%
Hollywood Theaters sr sub nts
10.63% 08/01/07 . . . . . . . . 200,000 200,000
Riddell Sports sr nts
10.50% 07/15/07 . . . . . . . . 250,000 260,938
Trump-Atlantic City 1st mtg nts
11.25% 05/01/06 . . . . . . . . 400,000 404,000
-------------
864,938
-------------
Metals & Mining - 1.17%
Weirton Steel sr nts
11.38% 07/01/04 . . . . . . . . 100,000 108,750
-------------
108,750
-------------
Retail - 3.95%
Fleming
10.63% 12/15/01 . . . . . . . . 100,000 106,750
Leslie's Poolmart sr nts
10.38% 07/15/04 . . . . . . . . 250,000 261,250
-------------
368,000
-------------
Telecommunications - 1.91%
Rogers Communications sr nts
8.88% 07/15/07 . . . . . . . . 175,000 177,625
-------------
177,625
-------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Market
Amount Value
------------- -------------
<S> <C> <C>
Transportation & Shipping - 11.82%
Ameriking sr nts
10.75% 12/01/06 . . . . . . . . $ 100,000 $ 106,250
Blue Bird Body sr nts
10.75% 11/15/06 . . . . . . . . 350,000 372,750
Chemical Leaman sr nts
10.38% 06/15/05 . . . . . . . . 450,000 466,875
Ryder Transportation sr sub nts
10.00% 12/01/06 . . . . . . . . 150,000 155,625
-------------
1,101,500
-------------
Miscellaneous - 1.39%
Huntsman sr sub nts
9.50% 07/01/07 . . . . . . . . 125,000 129,375
-------------
129,375
-------------
Total Corporate Bonds (cost $8,684,629) 8,892,273
-------------
Preferred Stocks - 1.81% Shares
-------------
American Radio Systems 11.375% 01/15/09 . . . . . . . . 118 13,098
Pegasus Communications 12.75% 01/01/07 . . . . . . . . 1,500 155,250
-------------
Total Preferred Stock (cost $161,527) 168,348
-------------
Stock Warrants - 0.13%
Electronic Retailing System . . . . . . . . 300 12,000
-------------
Total Stock Warrants (cost $12,000) 12,000
-------------
Repurchase Agreements- 3.91% Principal
-------------
With Chase Manhattan 5.72% 08/01/97 (dated 07/31/97,
collateralized by $120,000 U.S. Treasury Notes 5.875%
due 08/15/98, market value $123,317) . . . . . . . . $ 121,000 121,000
With PaineWebber 5.72% 08/01/97 (dated 07/31/97,
collateralized by $123,000 U.S. Treasury Notes 6.25%
due 06/30/98, market value $124,699) . . . . . . . . 122,000 122,000
With J.P. Morgan Securities 5.72% 08/01/97 (dated 07/31/97,
collateralized by $25,000 U.S. Treasury Notes 8.00%
due 08/15/99, market value $26,555 and $31,000
U.S. Treasury Notes 8.875% due 11/15/98, market value
$32,957 and $62,000 U.S. Treasury Notes 6.50% due 04/30/99)
market value $67,884) . . . . . . . . 121,000 121,000
-------------
Total Repurchase Agreements (cost $364,000) 364,000
-------------
TOTAL MARKET VALUE OF SECURITIES 101.26%
OWNED-(cost $9,222,156) 9,436,621
-------------
LIABILITIES NET OF RECEIVABLES
AND OTHER ASSETS- (1.26%) (116,999)
-------------
NET ASSETS APPLICABLE TO
1,011,441 HIGH-YIELD
OPPORTUNITIES FUND A CLASS
SHARES, 561,518 HIGH-YIELD
INSTITUTIONAL CLASS SHARES
($1 PAR VALUE) OUTSTANDING;
EQUIVALENT TO $5.92 PER SHARE 100.00% $ 9,319,622
=============
</TABLE>
<PAGE>
<TABLE>
<S> <C>
COMPONENTS OF NET ASSETS AT JULY 31, 1997:
Common stock, $1 par value, 200,000,000 shares
authorized to the Fund with 100,000,000 shares $ 8,733,343
allocated to High-Yield Opportunities Fund A Class,
25,000,000 shares allocated to High-Yield Opportunities
Fund B Class, 25,000,000 shares allocated to High-Yield
Opportunities C Class and 50,000,000 shares allocated to
High-Yield Opportunities Fund Institutional Class
Undistributed net investment income 140,200
Accumulated net realized gain on investments 231,614
Net unrealized appreciation of investments 214,465
=============
Total Net Assets $ 9,319,622
=============
NET ASSET VALUE AND OFFERING PRICE PER SHARE -
A CLASS HIGH-YIELD OPPORTUNITIES FUND
Net asset value A Class (A) $ 5.92
Sales Charge (4.75% of offering price or 5.07% of the amount
invested per share) (B) 0.30
-------------
Offering price $ 6.22
=============
</TABLE>
Summary of Abbreviations :
nts - notes
sec - secured
sr - senior
sub - subordinated
mtg - mortgage
disc - discount
- --------------------------------------------------------------------------------
(A) Net asset value per share, as illustrated, is the estimated amount which
would be paid upon redemption or repurchase of shares.
(B) See Buying Shares in the current Prospectus for purchases of $100,000 or
more.
See accompanying notes
<PAGE>
Delaware Group Income Funds, Inc. - High-Yield Opportunities Fund
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1997
ASSETS:
Investments at market (cost $9,222,156) $ 9,436,621
Cash 781
Dividends and interest receivable 158,887
Receivable for securities sold 624,094
Other assets 33,479
-------------
Total assets 10,253,862
-------------
LIABILITIES:
Payable for securities purchased 864,560
Other accounts payable and accrued expenses 69,680
-------------
Total liabilities 934,240
-------------
TOTAL NET ASSETS $ 9,319,622
=============
See accompanying notes
<PAGE>
Delaware Group Income Funds, Inc. - High-Yield Opportunities Fund
STATEMENT OF OPERATIONS
Period December 30, 1996* to July 31, 1997
INVESTMENT INCOME:
Interest $ 437,907
EXPENSES:
Management fees $ 30,869
Custodian fees 3,285
Dividend disbursing and transfer agent fees
and expenses 1,507
Distribution expense 8,641
Registration fees 5,504
Reports and statements to shareholders 1,942
Accounting fees and salaries 2,193
Professional fees 11,534
Directors' fees 1,070
Taxes (other than taxes on income) 713
Other 1,487
---------
68,745
Less expenses absorbed by Delaware Management
Company, Inc. or Delaware Distributors (33,479) 35,266
--------- ---------
NET INVESTMENT INCOME 402,641
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain from investriment transactions 231,614
Net unrealized appreciation of investments
during the period 214,465
--------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 446,079
--------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 848,720
=========
(*) Date of commencement of trading
See accompanying notes
<PAGE>
Delaware Group Income Funds, Inc. - High-Yield Opportunities Fund
STATEMENT OF CHANGES IN NET ASSETS
12/30/96*
to
7/31/97
-------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 402,641
Net realized gain on investments 231,614
Net change in unrealized appreciation 214,465
-----------
Net increase in net assets resulting
from operations 848,720
-----------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income:
High-Yield Opportunities A Class (168,753)
High-Yield Opportunities Institutional Class (93,688)
-----------
(262,441)
-----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold:
High-Yield Opportunities A Class 5,471,885
High-Yield Opportunities Institutional Class 3,000,006
Net asset value of shares issued upon reinvestment
of dividends from net investment income and net
realized gain on security transactions:
High-Yield Opportunities A Class 168,117
High-Yield Opportunities Institutional Class 93,335
-----------
8,733,343
-----------
Increase in net assets derived from capital
share transactions 8,733,343
-----------
NET INCREASE IN NET ASSETS 9,319,622
NET ASSETS:
Beginning of period 0
-----------
End of period $ 9,319,622
===========
* Date of commencement of trading
See accompanying notes
<PAGE>
Delaware Group Income Funds, Inc. - High-Yield Opportunities Fund
Financial Highlights
Financial Highlights
Selected data for each share of the Fund outstanding throughout the period was
as follows:
<TABLE>
<CAPTION>
High-Yield Opportunities High-Yield Opportunities
------------------------- -------------------------
A Class Institutional Class
------- -------------------
12/30/96 (1) 12/30/96 (1)
To To
7/31/97 7/31/97
------------------------- -------------------------
<S> <C> <C>
Net asset value, beginning of period $ 5.5000 $ 5.5000
Income from investment operations:
Net investment income 0.2902 (2) 0.2902(2)
Net realized and unrealized gain from investments 0.2990 0.2990
-------- --------
Total from investment operations 0.5892 0.5892
-------- --------
Less distributions:
Dividends from net investment income (0.1692) (0.1692)
-------- --------
Total distributions (0.1692) (0.1692)
-------- --------
Net asset value, end of period $ 5.9200 $ 5.9200
======== ========
Total Return 10.81%(3) 10.81%
Ratios and supplemental data:
Net assets, end of period (000 omitted) $ 5,990 $ 3,330
Ratio of expenses to average net assets 0.75% 0.75%
Ratio of expenses to average net assets prior to expense
limitation 1.57% 1.27%
Ratio of net investment income to average net assets 8.53% 8.53%
Ratio of net investment income to average net assets prior
to expense limitation 7.70% 8.00%
Portfolio turnover 270% 270%
- ---------------
(1) Date of initial public offering; ratios have been annualized but total return has not been annualized. Total return for
this short of a time period may not be representative of longer term results.
(2) The average shares outstanding method has been applied for per share information.
(3) 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 of A Class shares.
</TABLE>
<PAGE>
DELAWARE GROUP INCOME FUNDS, INC. -
HIGH-YIELD OPPORTUNITIES FUND
NOTES TO FINANCIAL STATEMENTS
July 31, 1997
Delaware Group Income Fund, Inc. - High-Yield Opportunities Fund (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
and offers four classes of shares. As of July 31, 1997, the B Class and C Class
had not commenced operations. The Fund's objective is to provide investors with
high current income and total return.
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 lasted
quoted sales price as of the close of the NYSE on the valuation date. Securities
not traded or securities 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 such prices are believed to reflect the fair
value of such securities. Other securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Fund's Board of Directors.
Federal Income Taxes - The Fund intends to qualify as a regulated investment
company and make the requisite distributions to shareholders. Accordingly, no
provision for federal income taxes has been made in the financial statements.
Income and capital gain distributions are determined in accordance with federal
income tax regulations which may differ from generally accepted accounting
principles.
Class Accounting - Investment income, common expenses and realized and
unrealized gain (loss) on investments are allocated to the various classes of
the Fund on the basis of daily net assets of each class. Distribution expenses
relating to a specific class are charged directly to that class.
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 at 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.
<PAGE>
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 the accrual basis. Original issue discounts are accreted to
interest income over the lives of the respective securities. As of April 1,
1997, the Fund declares and pays dividends from net investment income on a
monthly basis and capital gains annually.
Certain Fund expenses are paid through "soft dollar" arrangements with brokers.
The amount of these expenses is less than 0.01% of the Fund's average daily net
assets.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. Investment Management and Other Transactions with Affiliates
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 0.65% on the first $500
million of average daily net assets, 0.625% on the next $500 million and 0.60%
on the average daily net assets in excess of $1 billion..
DMC has elected to waive that portion if any of the management fee and reimburse
the Fund to the extent that annual operating expenses exclusive of taxes,
interest, brokerage commissions and extraordinary expenses, exceed 0.75% of
average daily net assets of the Fund through December 31, 1997. Total expenses
absorbed by DMC for the period ended July 31, 1997 were $ 24,838.
The Fund has engaged Delaware Service Company, Inc. (DSC), an affiliate of DMC,
to serve as dividend disbursing and transfer agent for the Fund. The Fund also
engaged DSC to provide accounting services for the Fund. For the period ended
July 31, 1997, the Fund expensed $1,507 for dividend disbursing and transfer
agent services and $1,560 for accounting services. At July 31, 1997, the Fund
had a liability for such fees and other expenses payable to DSC for $ 4,289.
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 and C Class. No distribution expenses are paid
by the Institutional Class. DDLP has agreed to waive distribution expenses for
all classes through December 31, 1997. Total expenses absorbed by DDLP for the
period ended July 31, 1997 were $8,641.
<PAGE>
Certain officers of DMC, DSC and DDLP are officers, directors and/or employees
of the Fund. These officers, directors and employees are paid no compensation by
the Fund.
3. Investments
During the year ended July 31, 1997, the Fund made purchases of $22,181,921 and
sales of $13,691,851 of investment securities other than U.S. government
securities and temporary cash investments.
At July 31, 1997, the aggregate cost of securities for federal income tax
purposes was $9,222,156.
At July 31, 1997, unrealized appreciation for federal income tax purposes
aggregated $214,465 of which $240,957 related to unrealized appreciation of
securities and $26,492 related to unrealized depreciation of securities.
The Fund may invest up to 15% of its total assets in illiquid securities which
may 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.
4. Capital Stock
Transactions in capital stock shares were as follows:
12/30/96*
to
7/31/97
--------
Shares sold:
High-Yield Opportunities A Class ............................ 982,509
High-Yield Opportunities Institutional Class ................ 545,455
Shares issued upon reinvestment of dividends
from net investment income:
High-Yield Opportunities A Class ............................ 28,932
High-Yield Opportunities Institutional Class ................ 16,063
---------
1,572,959
Net Increase ................................................ 1,572,959
=========
* Date of commencement of trading
<PAGE>
5. Concentrations of Credit Risk
The Fund may invest in high-yield fixed income securities which carry ratings of
BB or lower by S&P 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.
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Delaware Group Income Funds, Inc. - High-Yield Opportunities Fund
We have audited the accompanying statement of net assets and statement of assets
and liabilities of Delaware Group Income Funds, Inc. - High-Yield Opportunities
Fund (the "Fund") as of July 31, 1997, and the related statement of operations,
statement of changes in net assets, and financial highlights for the period from
December 30, 1996 (commencement of operations) to July 31, 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of July 31, 1997, by correspondence with the Fund's 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 audit provides 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 Income Funds, Inc. - High-Yield Opportunities Fund at July 31,
1997, the results of its operations, changes in its net assets, and financial
highlights for the period from December 30, 1996 (commencement of operations) to
July 31, 1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
September 5, 1997
